PIONEERING PROGRESSIVE REFINEMENTANNUAL REPORT 2007
For the year ended March 31, 2007

K u r a r a y w a s e s t a b l i s h e d i n 1 9 2 6 t o c o m m e rc i a l i z e t h e p ro d u c t i o nof the chemical fiber rayon, which was state-of-the-art at the
t i m e . A s a p i o n e e r i n J a p a n ’s e m e r g i n g c h e m i c a l s y n t h e t i c f i b e r
p r o d u c t i o n i n d u s t r y, t h e c o m p a n y m o v e d t o t h e i n d u s t r y f o r e f ro n t i n 1 9 5 0 w i t h t h e a c c o m p l i s h m e n t o f c o m m e rc i a l p ro d u c t i o n
o f p o v a l - b a s e d p o l y v i n y l a l c o h o l ( P VA ) f i b e r K U R A L O N .

O v e r t h e l a s t h a l f c e n t u r y, K u r a r a y ’s t e c h n o l o g i c a l e x p e r t i s e h a s
d e v e l o p e d n u m e ro u s d i s t i n c t i v e p ro d u c t s t h a t h a v e e x p a n d e d i t s
p re s e n c e i n m a r k e t s w o r l d w i d e . I n p a r t i c u l a r, s e v e r a l o f o u r c u r rent products command the top share in the global market:
i n c l u d i n g m a n - m a d e l e a t h e r C L A R I N O ; p o v a l re s i n , o ff e r i n g o u t standing adhesive properties and water solubility; optical-use
poval film, an indispensable element in liquid crystal displays( L C D s ) ; a n d E VA L r e s i n , a h i g h g a s b a r r i e r r e s i n u s e d f o r f o o dpackaging and fuel tanks.

Contents

Consolidated Financial Highlights

2

To Our Shareholders

4

Pioneering Progressive Refinement

5

10-Year Corporate Vision6

GS-21 Medium-term Business Plan

8

Interview with the President

10

Kuraray Group’s Segments and Products

16

Review of Operations

18

Chemicals and Resins Business

19

Fibers and Textiles Business

22

High-Performance Materials, Medical Products and Others Business24

Research and Development

26

Corporate Governance

28

Board of Directors, Corporate Auditors, and Executive Officers

31

Corporate Social Responsibility

32

Kuraray Topics

36

Financial Section

40

Consolidated Companies

67

History

68

Investor Information

69

Forward-Looking Statements
This annual report contains various forward-looking statements, which are based on the current expectations and assumptions of future events. All figures and statements with respect to the future performance, projections, and business plans ofKuraray and its Group companies constitute forward-looking statements. Although Kuraray believes its expectations andassumptions are reasonable, actual results and trends of Kuraray’s performance could differ materially from those expressedor implied by such figures or statements due to risks and uncertainties in future business circumstances. The factors that
may cause such differences include, without limitation: (1) general market and economic conditions in Asia, including
Japan, the United States, Europe, and other regions; (2) fluctuations of currency exchange rates, especially between theJapanese yen and the U.S. dollar & other foreign currencies; (3) changes in raw material and fuel costs; (4) industrial competition and price fluctuations in Japan and international markets; (5) advances or delays in the construction of new plants
and production lines; (6) successful development of new products and technologies; (7) changes in laws and regulations(including tax and environmental) and legal proceedings; and (8) unforeseeable risks, including natural disasters.
In this annual report, italicized product names are trademarks of Kuraray Co., Ltd.

Kuraray Annual Report 20071

Consolidated Financial Highlights
Kuraray Co., Ltd. and Its Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 1)Millions of yen

2007

2006

2005

2004

2003

2007

¥ 385,285¥ 375,073¥ 354,874¥ 332,149¥ 322,524$ 3,265,127

Operating income

40,22038,27733,18728,04625,186

340,847

Net income

22,412

21,186

18,465

15,181

8,051

189,932

Capital expenditure

37,70033,87245,71532,16419,091

319,492

Depreciation and amortization

25,49625,186

21,324

20,785

19,108216,068

Gross cash flow

47,90846,37239,78935,96627,159406,000

Total research and development expenses

13,021

14,06913,874

13,684

12,523110,347

Total assets

508,695

481,357

454,941

413,227

426,877

4,310,975—

339,127

312,930

300,306

287,263—358,593

—

—

—

—

3,038,924

Years ended March 31

Net sales

Total shareholders’ equity (Note 3)
Total net assets (Note 3)

U.S. dollars(Note 1)

Yen

Amounts per share:

Net income:Primary
Fully diluted¥ 60.95¥ 57.51¥ 50.13¥ 40.81¥ 21.01$ 0.52

60.80

57.41

50.12

—

20.71

0.52

Cash dividends applicable to period

18.50

15.00

12.00

10.00

9.00

0.16

Total shareholders’ equity

967.81

922.65852.26817.57771.38

8.20

Financial ratios:
Equity ratio (%)

70.0%

70.5%

68.8%

72.7%

67.3%

Return on equity (ROE) (%)

6.5

6.5

6.0

5.2

2.8

Return on assets (ROA) (%) (Note 4)

8.1

8.2

7.6

6.7

5.5

Payout ratio (%)

30.4

26.0

23.9

24.4

42.2

Number of employees

6,812

6,842

6,919

6,760

6,983

Notes: 1. The United States dollar amounts represent the translation of Japanese yen at the rate of ¥118=$1.
2. Since the year ended March 31, 2003, the “Amounts per share” figures have been calculated in accordance with the Japanese Financial AccountingStandard “Accounting for Earnings per Share”.
3. Since the year ended March 31, 2007, the balance sheet is divided into sections on assets, liabilities, and net assets in accordance with AccountingStandards Board of Japan “Accounting Standard for Presentation of Net Assets in the Balance sheet” and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet”.
4. Return on assets=Operationg income/Average total assets x 100 (%)

2

Kuraray Annual Report 2007

Consolidated Financial Highlights

15,181

10.2

9.4

22,41240,22038,27733,187¥ Millions %

6.5

10.4
8.4

7.8

Net Income & ROE

21,186¥ Millions %

6.4

6.0

5.2

8,051

25,18628,046

375,073354,874

332,149

322,524

Operating Income &Operating Income Margin385,285¥ Millions

18,465Net Sales

2.8

04

05

06

07

Operating Income
Operating Income Margin

Gross Cash Flow

05

07

Capital Expenditure

04

05

3.4

3.8

06

07

¥

03

04

05

06

The Domestic Naphtha and
Crude Oil07

¥ Thousand/kl $ bbl¥49
37,70032,16403

R&D Expenses
R&D Expenses Ratio

3.9

07

45,715¥ Millions

$62
¥38

03

$49

¥28
$34

19,091

4.1

06

Cash Dividends per Share

¥25
3.9

05

508,695

481,35706

358,59304

339,12703

13,021

14,06913,874

13,684

12,523¥ Millions %04

Total Shareholders’ Equity
Total Net Assets
Total Assets

33,872

R&D Expenses &R&D Expenses Ratio

312,93007

300,306

06

413,227

426,87705

Gross Cash Flow=Net income+Depreciation and amortization

287,26304¥ Millions

454,941

46,37239,78935,96627,15903

Total Shareholders’ Equity,
Total Net Assets & Total Assets

47,908¥ Millions

03
Net Income
ROE

18.50

03

07

15.00

06

12.00

05

10.00

04

9.00

03

$27

04

05

06

07

03

04

05

06

Domestic Naphtha
Crude Oil (Dubai)*Figures are track record (result) of Kuraray

Kuraray Annual Report 2007

3

To Our Shareholders
Message from the President

The business climate remained generally
favorable in Japan during the fiscal year underreview, ended March 31, 2007, as corporate
earnings continued improving and capital
investment continued to rise. Several uncertain factors persisted however, including highraw material and fuel prices and concern of a
slowing of the United States economy.
In this environment, the Kuraray Group actively implement-

GS-21 fiscal 2008 targets of ¥450.0 billion in net sales anded the business directives of the new GS-21 medium-term¥50.0 billion in operating income.

business plan launched in April 2006, expanded business

Furthermore, Kuraray has revised its policy regarding dis-

operations in optics and other new growth fields, began

tribution of profits to shareholders. We are targeting a divi-

realizing the contribution to sales from new facilities invest-

dend payout ratio of 30% or more of consolidated net

ment in our core businesses, and successfully madeincome and aiming to increase returns to shareholders

progress in integrating the higher raw materials prices into

through continuous improvements in performance. Under

our product prices.

the GS-21 medium-term business plan, Kuraray aims to

Our efforts enabled us to overcome the impact of the

improve capital efficiency by targeting a shareholder returnsteep price increases for raw materials and fuels and post

(defined as the sum of dividends paid and share buybacks)

company records in sales and profits while extending theof 70% over the plan’s three fiscal years (2006–2008).

growth in both categories to five consecutive years. In fis-

Based on these fundamental policies, Kuraray distributed acal 2006, Kuraray achieved net sales of ¥385.3 billion,

year-end dividend of ¥10.0 for the fiscal year ended March

operating income of ¥40.2 billion, and net income of31, 2007. Combined with the interim dividend, this raised¥22.4 billion.

the total dividend for the fiscal year to ¥18.5 per share, an

We will endeavor to make fiscal 2007, the second yearof the GS-21 medium-term business plan, a year of steadyprogress toward achieving the targets of the plan. We

increase of ¥3.5 from the previous fiscal year.
We extend our sincere gratitude to all shareholders fortheir continued understanding and support.

intend to boldly address important issues such as dealing
with the high raw materials and fuel prices, reaping concrete benefits from capital investment, ensuring that devel-

August 2007

opment themes contribute to earnings growth, andimproving management efficiency. We have set a fiscal
2007 goal of attaining ¥415.0 billion in net sales, ¥45.0

4billion in operating income, and ¥24.0 billion in net income

Yasuaki Wakui

as a key step to fulfilling our commitment to achieving theRepresentative Director and President

Kuraray Annual Report 2007

PIONEERING PROGRESSIVE REFINEMENT

Kuraray Annual Report 20075

10-Year Corporate Vision(Established in 2006)

The high-paced changes that characterize the current era make three years the limit for practicalplans. With this in mind, we prepared the 10-Year Corporate Vision to clarify the type of company
we want to become in the long term in the context of the large changes in business conditions
that we expect.
Our View of Business Conditions

GS-21

Over the past decade, the world economy enjoyed steady growth of between
3% and 4%, supported by a stable U.S. economy and robust BRICs economies.
GrowthGreenJapan’s economy, however, remained weak in the aftermath of the economic
bubble. Over the next decade, the economic environment is expected to see
long-term structural transformation, which will likely include the following trends:

GlobalizationGroup• Rising concern over the global environment and resources and increasingly
unsustainable mass-producing, high-energy-consuming economies
Sustainability• Emerging geographic imbalances in the global economy, lower growth rates,
and increasingly intense global competition• Heightening in the sophistication of market needs and rapid change caused bydiversifying values• Growing risk associated with Japan’s fundamental structure, including fiscal
deficit, an aging society, and a declining birthrate

Against this backdrop, chemicals manufacturers will increasingly have to shift
their management focus from quantity to quality.
In its 10-Year Corporate Vision, Kuraray gave an outline of its future profileand development over the long term that reflected its tradition, history, and corporate culture.

Toward Exciting Innovation and Outstanding Earnings
Recognized throughout the World,
To Make the Kuraray Group a Sustainably
Growing Diversified Specialty Chemicals Company
Contributing to the world and individual well-being through actions that others are unable to produce

Targeting net sales of ¥1 trillion in 2015

6

Kuraray Annual Report 2007

10-Year Corporate Vision• Having established competitive platforms by capitalizing on original core

Outlook of Business GrowthProfitability

technologies, core materials business-

New growthbusiness, such as
optical materials

es will pursue continued steady
growth through further technologicalinnovation and global business devel-

Steadily growing
core materials
businesses with
innovating unique
technology

Value-added businesses,
such as optical materials

opment.

such high-value-added operations asCore materials businesswith competitive platforms
established by Kuraray’s
unique technologies

optical materials. We will focus man-

Restructuring/
Mature businesses• G-21 established the foundations foragement resources on the expansion

Stable cash flow/
Mature businesses

2005

of these operations as new highly

10 years ahead

profitable growth businesses.

Basic Policies to Realize Vision• Restructuring businesses and mature

Kuraray is renowned for its innovation capabilities, which enable the Company tobusinesses will gain competitive supe-create numerous specialty chemical products and develop high-value-added

riority and realize steady earnings.

applications that meet the needs of markets worldwide.
Leveraging a corporate platform steadily built up over many years, in the coming decade Kuraray will continue to reinforce core technologies that have produced the world’s finest products and global competitiveness (CoreCompetence), create a continuous stream of highly profitable businesses bydeveloping diverse technologies (Frontier), and strengthen global competitivenessby delivering the highest quality (Refinement). These reforms will better position
Kuraray to achieve its ¥1 trillion net sales target. In the postindustrial capitalist
21st century, in which corporate value is expected to focus more on people thanit did in traditional capitalism, Kuraray will redouble efforts to promote a dynamic
corporate culture (Vitality) and become a high-quality corporate Group that contributes to the global environment and a sustainable society (Sustainability).

Basic Policies to Realize Visions
Dynamic growth in world-leading products
driven by core technologies

Core
Competence

Create new businesses
through diversified
technological innovationin promising markets

Establish a people-oriented
enterprise andan open-mindedorganizational culture

Frontier

Vitality

Refinement

Sustainability

Establish competitive
advantage throughoutstanding quality tomeet market needs

Contribute to the global
environment anda sustainable society

Kuraray Annual Report 20077

GS-21 Medium-term Business Plan
Toward Achieving Targets

Management Benchmarks and Medium and Long-term Management Strategy
The GS-21 Medium-Term Business Plan is a commitment to clearly defined three-yeartargets and includes additional stretch targets for new businesses, M&A, specific strategic projects, and other areas. The plan commits the Kuraray Group to achieving net
sales of ¥450 billion, operating income of ¥50 billion, ROA of 9%, and ROE of 7% in
fiscal 2008. The stretch targets are designed to spur further expansion of the Group’s
operating activities and set ambitious objectives of raising net sales an additional ¥100
billion to ¥550 billion and operating income an additional ¥10 billion to ¥60 billion.

The economic environment is expected to undergo signifi-

the Kuraray Group a sustainably growing, diversified andcant long-term structural transformation over the next

specialized chemicals group recognized around the world

decade based on several trends, including growing concern

for innovation and outstanding earnings.

about the global environment, natural resources, andOur business growth plan aims to achieve steady andincreasingly unsustainable mass-production & high energy-

sustainable growth through ongoing technological innova-

consumption economies. Other factors include regionaltion and global development of unique core technologies

imbalances, declining economic growth rates, increasingly

in vinyl acetate, isoprene, and man-made leather materials

intense global competition, increasingly sophisticated mar-that form the competitive foundation of our businesses.

ket needs and accelerated change arising from diversifying

The G-21 Medium-Term Business Plan (fiscal 2001 to fiscal

values. Finally, factors specifically for Japan include growing2005) laid the groundwork for advances into the newrisk from changes in the fundamental structure of Japanese

growth fields of optical materials, automotive, energy andsociety, including the fiscal deficit, aging society, andother high value-added operations. We are focusing man-declining birthrate. Kuraray believes these changes demand

agement resources on expanding our businesses in thesechemicals manufactures modify their corporate manage-high profit-margin growth fields while also reinforcing thement approach from quantity to quality.

competitive advantages of our mature businesses, and on

Based on the Kuraray Group’s corporate culture of con-restructuring to ensure steady earning power. These strate-

tributing to society and individual well-being and engaging

gies are designed to enable us to achieve our 10-Yearin activities that only we have the ability to carry out, weCorporate Vision target of ¥1 trillion in net sales in 2015.

have created a 10-Year Corporate Vision aimed at making
Performance Outlook

Net Sales
Operating Income
ROA
ROE

8

Kuraray Annual Report 2007

Billions of Yen

FY2005

FY2006

FY2007

FY2008FY2008(Actual)(Actual)(Forecast)(Commitment Target)(Stretch Target)

375.1
38.3
8.2%
6.5%

385.3
40.2
8.1%
6.4%

415.0
45.0
—
—

450.0
50.0
9.0%
7.0%

550.0
60.0
10.0%
8.0%

GS-21 Medium-term Business Plan

Policies to Ensure Attaining the GS-21 Final Year Targets

The core business strategies are as follows.
(1) Through diversified technological innovation including

through G-21, conduct concentrated investment of man-processing techniques, enhance competitive quality inagement resources to facilitate further expansion. In addi-

our internationally competitive core material businesses,

tion, launch new material businesses targeting promisingsuch as vinyl acetate, isoprene, and man-made leather

industries to solidify the Company’s position in next-gen-developed by Kuraray’s unique technologies. In thiseration platform businesses as a key supplier of high-manner, Kuraray will accelerate growth through efforts

quality innovative materials required by customers.
(3) Reinforce product earnings power across the board,

to expand global markets.
(2) Having established a foothold in new growth fields suchas optical materials, automobiles and energy materials

reorganize or withdraw from uncompetitive businesses.
(4) Improve management quality as a global company.

Under the G-21 medium-term business plan, Kuraray established the following priority issues and policies.
1. Respond to the sharp rise in natural resource prices.

3. Strengthen development capabilities and accelerate

Raw materials prices have skyrocketed in the past twodevelopment themes with profit contribution potential

years and cannot be expected to return to their previous

The GS-21 plan emphasizes focusing development resources

levels. While anticipating raw materials prices to remain

into growth fields. Our development activities will center onhigh, we will strengthen our cost competitiveness and cre-incorporating and accelerating development themes taking

ate a new product pricing structure integrating a reason-customer needs, cost, and competition into account, andable amount of the higher raw materials prices.

focus on aggressive development of product applications
and demand cultivation to provide value to customers.

2. Realize capital investment effects
Kuraray is implementing an aggressive capital investment

4. Raise management efficiency

program aimed at expanding our business. We will endeav-We will conduct sweeping cost cutting in headquarters

or to make these investments contribute to sales and prof-

functions and minimize inventories.

its as early as possible.
The Effects of Raw Material and Fuel Costs and Measures for Dealing with them Billions of yen¥49

Domestic Naphtha(thousand of yen/kl)
¥38

$34

14

57
%

$27
Crude Oil (Dubai)(doll/bbl)

FY03

26
78

52
%

6

FY05

FY06

87

93

73
45
12
*Cumulative effectsof raw material
and fuel cost

37%

FY04

82

$57

80
%

$49

¥28

Thousands of tons
From April 07
23 35 (US)¥50

or more¥25

25 $62

Expansion Plans for Major Materials-EVAL

FY07

23

57
24
23

57
24
23

57
24

69
24

35

35

81
24
47

23

10

10

10

10

10

10

10

FY03

FY04

FY05

FY06

FY07

FY08

FY09

(est.)(est.)

Demand forecasts by KurarayJapan(est.)*The cumulative monetary effect of raw material and fuel costs in overall costs(in units of 1.0 billion yen), and cumulative transference of increased costs to customers from FY2004

69
24(est.)US

EuropeKuraray Annual Report 20079

Interview with the President
Toward Achieving the Targets of Medium-term Business Plan GS-21 (Fiscal 2006–2008)

What measures were initiated in the first year of GS-21?
The Medium-term Business Plan GS-21 has four objectives: 1) accelerate development of new businesses and new growth fields (optics, automobiles, and energy
materials etc.), 2) fortify our human resources, 3) establish an efficient global
management structure and speed up management processes, and 4) improve theGroup’s environmental performance and corporate sustainability.
Fortifying human resources is vital because our employees are the driving force
behind our business growth. The Kuraray Group generates 43% of its total sales
overseas and the number of Kuraray factories is already higher overseas than inJapan. As we continue to globalize operations, managing business operations
strictly from our home base in Japan would hinder our growth potential. We arecontinuing to cultivate the international management skills of our executives
while also developing our young employees into world-class resources throughtraining programs and by providing more opportunities for direct experience
working overseas beginning early in their careers.
Effective and efficient management will also be increasingly important as we
increase the number of our overseas business bases. To this end, we are integrating
and reorganizing our local entities overseas. In December 2006, we merged two of
our companies in Germany, Kuraray Europe and Kuraray Specialities Europe. We
also plan to merge three of our subsidiaries in the United States in January 2008,
Kuraray America, Eval Company of America, and SEPTON Company of America.
We are also implementing various measures to improve the Group’s environmental performance and corporate sustainability. Kuraray is deeply dedicated toenvironmental issues, and the “S” in GS-21, which stands for “sustainability”,
symbolizes our dedication. To further improve our environmental performance,
we are focusing on developing environmentally friendly and high value-added
products. We have also implemented measures to evolve out of resource-intensive operations. Our progress in these areas is ongoing, and the results are gradu-

10

Kuraray Annual Report 2007

Interview with the President

ally beginning to appear.
The high oil prices experienced during the past year has made it unavoidable toraise product prices in order to recoup some of the increased product cost.
However, a straight one-to-one price increase is not an effective business policy.
While it is inevitable that we must raise prices, we are also providing our customers with added value by enhancing product quality and offering products thatprovide increased advantages to users.
I believe our progress and performance during the past year has produced afoundation that sets us solidly on track to achieve the three-year targets of the
GS-21 plan.

Please explain what you mean by “progressive refinement”?
Kuraray’s development of EVAL (ethylene-vinyl alcohol) from Poval (PVA, polyvinyl
alcohol) resin is perhaps the clearest example of progressive refinement. EVAL
resin is highly resistant to gas permeation and has become an indispensable
wrapping material for food products. Progressive refinement means developing
high quality and high value-added businesses and providing a timely supply of
convenient, useful and advanced-function products.
Progressive refinement also means avoiding excess resource consumption andthe negative impact on the environment associated with it. In addition, businesses that require a large number of facilities can have a major impact on the economic environment and can have difficulty in keeping pace with the current highpace evolution of products. Ultimately, facilities inevitably become obsolete andmust be disposed of. This perspective further reinforces my belief in the importance of maintaining a flexible and adaptable management style.
Progressive refinement is therefore not directly aimed at quantitative expansion but to improve the quality of our products and management. Quality
attracts customers and as the quality of our products is recognized, our sales will
naturally grow.

Poval film for liquid crystal displays is a main driver in Kuraraygrowth. Please describe Kuraray’s plans to increase productionof poval. Also, is Kuraray developing any other promising products for LCD-related applications?

Poval Film Annual Production Capacity

Poval film is an indispensable base film used on the polarized plate in liquid crys-

61

61

FY05

FY06

m2 Millions
136

First half91

Mid-year

Second half121

tal displays (LCDs), and demand has been growing steadily each year. In fiscal
2007, we are expanding our annual production capacity for poval to 121 million

31square meters, roughly double the volume of fiscal 2006. This rapid expansion isin anticipation of a strong increase in demand from consumer conversion fromanalog to digital TV technology ahead of Japan’s planned adoption of exclusive

FY04
Saijo

FY07
(Plan)

FY08(Plan)

Kurashiki

Kuraray Annual Report 200711

digital broadcasting in 2011 and from the accelerating demand for large-screen

MIRABRIGHT Construction
Current
MIRABRIGHT
construction Screen

Kuraray commands roughly 80% of the market for poval film, and we are

Polarized plate
Liquid crystal panel
Polarized plate

expanding our facilities with meticulous care to ensure we continue to fulfill our

Diffusion sheet
Prism sheet
Diffusion sheet
Reflective sheet

digital display screens.

responsibility to supply the highest quality products.
OP film
Light guideLight guide

Another promising LCD-related product we developed and are advancing is the
MIRABRIGHT backlighting device. MIRABRIGHT is a single-layer Optical Patterned
film plate that brightens LCD screens via the three functions of a light guide passing

Dot patternlight uniformly from the light source to the LCD panel, a diffusion sheet diffusing
~40µm
~20µm

OP film
Light guide

Complete reflection

the light from the light-guide plate, and a prism sheet concentrating the light raysfrom the light guide plate into a uniform direction. Standard LCD backlight devices
are constructed of components from several makers. MIRABRIGHT combines thesethree functions into a single component thereby enabling thinner backlighting
devices, a simplified manufacturing process for the display maker, and lower cost.
In addition, MIRABRIGHT’s microlens architecture provides improved light utilization
efficiency, which enables users to enhance the quality of their products.

What are Kuraray’s approaches for developing business in the
new growth fields (optics, automobiles, energy materials) presented in GS-21?
Optoelectronics Field
In the optoelectronics field, in addition to poval film and MIRABRIGHT, we arealso developing inorganic electroluminescence (EL) materials. Inorganic EL utilizes
an inorganic (carbon-free) compound as a material which illuminates via electricalcurrent. Inorganic EL is a promising LCD backlight material for its long life spanbecause its performance quality does not degrade over time, even against heat,and for its potential to be a key element in realizing the upcoming generation offolding display screens.
We joined forces with T. CHATANI & CO., LTD. the inventor of the inorganic EL
technology, and established the Kuraray Luminas Co., Ltd. (90% held by Kurarayand 10% by T. CHATANI & CO., LTD.) to develop the material for commercialization. We plan to continue strengthening our development capabilities and are making rapid progress toward bringing this revolutionary technology to market.
Automobile Industry
The automobile industry is considered a mature industry in leading industrializedcountries, but on a global scale, notably in China and India, it is still very much a
growth industry even as it faces new challenges to comply with stringent environment regulations. To keep ahead of the pace of change in the automobile industry, we established the Automotive Materials Promotion Group, an inter-organization committee focusing on strategic planning for timely product development
to meet the industry’s rapidly evolving needs.

12

Kuraray Annual Report 2007

Interview with the President

We are aggressively promoting several materials for automotive applications.
EVAL offers optimal features for use in plastic fuel tanks as a barrier layer protecting
against leakage of harmful hydrocarbons emitted from gasoline and for reducing
vehicle weight. A triple-layer construction of two polyethylene layers with EVAL in
between produces a light yet sturdy tank that contributes to energy conservation.
EVAL’s malleability also allows automakers greater freedom in fuel tank shape andpositioning, which affords them more flexibility in their automobile designs.
The Kuraray Group’s polyvinyl butyral (PVB) film has attracted strong demand
as a window security device and for windows used on high-rise buildings for its
ability to reinforce glass strength and prevent shattering. These features of PVBlaminated glass are also ideally suited to automobile windshields as they contribute to passenger safety, and we are expanding our sales channels to the automotive industry.
GENESTAR is a highly malleable, heat and abrasion resistant polyamide resin
developed by Kuraray that is attracting growing demand for use in connectors andother electronic devices. GENESTAR’s heat-resistant properties are ideal for use inautomotive materials, and we are eagerly developing its automotive applications.
Several other of our materials are also prime candidates for automotive applications. The man-made leather CLARINO can be used in automobile seats, the hightransparency of methacrylic resin (polyethylene terephthalate; PET resin) make it
an effective coating for automobile headlights, and the thermoplastic elastomer
SEPTON is an effective heat-resistant substitute for vulcanized rubber. These andother materials offer valuable features for automotive applications, and we aredeveloping new markets for these products in the automobile industry.
Energy Field
We continue to make research advances for several of our proprietary elastomers
toward applications in the energy field. Two promising materials are our highperformance hydrocarbon polymer electrolyte membranes for fuel cell batteries
and large-capacitance capacitors.

Please discuss your approach to less profitable businesses.
Keeping pace with the rapid changes in the market structure is a difficult challenge and it is inevitable that some businesses become untenable. When a business is struggling, recognizing the right time to step away is crucial. For example,
sales and profits for rear-projection TV screens peaked in 2002, but subsequentchanges in the market structure made it very difficult to continue securing profits,
and we ultimately pulled out of the business in 2006. That same year, we alsotransfered our contact lens and health food businesses. We will continue investing management resources in products that are strong and carry growth potential, and when objective analysis determines that a product or business does notoffer sustainable profitability, it is crucial to gracefully divest our interest.

Kuraray Annual Report 200713

Shareholder Return Ratio
Shareholder Return Ratio (%)= (dividends + repurchased share value) / consolidated net income X 100
GS-21 Medium-term Business Plan
(fiscal 2006 to fiscal 2008)
G-21 Medium-term Business Plan
(fiscal 2001 to fiscal 2005)

Please explain Kuraray’s shareholder return policy including therecent decision to buy back stock.
Kuraray is always attentive to the best timing to act on the investment necessary
to position the company for new growth. With the aim of improving capital effi-70%

ciency and enhancing shareholder return, this year we introduced a target ofmaintaining a dividend payout ratio at 30% or more of consolidated net income48%

and raised the annual per-share dividend payment by ¥3.5 to ¥18.5. In addition,
during the three years of our GS-21 medium-term business plan (fiscal

Toward the GS-21 target of
a 70% shareholder return ratio

2006–2008), we plan to implement dividend distributions and share buyback
programs to continue raising the shareholder ratio from the 48% level of thepast five years to 70% in the GS-21 term.
Several factors contributed to our decision to set these aggressive targets. First,
our success generating strong earnings has made it necessary to improve ROE,
which is a key indicator of shareholder return, as our equity ratio approaches
70%. Second, our stable financial position gives us sufficient standing to conduct
fund procurement to finance new business projects and M&A activities. Finally,
we believe our earnings outlook warrants setting a dividend payout ratio levelcomparable to the 30–40% customarily provided by European and US companies. In addition, we consider the reacquired stock as an asset that can be used in
the event we engage in M&A activity.

Kuraray is advancing aggressive M&A activity, but can you
please describe the reason for the countermeasures implemented to protect against a hostile takeover?
All of the M&A pursued by Kuraray is premised on friendly and cooperative relationships. However, we cannot deny that we ourselves might be a target of atakeover move. Our view is that maintaining a stable and sustainable enterprisevalue is the top priority because it is in the common interest of both the company
and its shareholders.
We believe taking precaution against a hostile takeover means preestablishingcountermeasures to protect the currently existing common interest of our shareholders. This entails setting inbuilt processes to initiate when there is threat of an effort
to purchase a majority of shares without consultation or consent, or when there isdoubt that the takeover party has a genuine interest in raising enterprise value.
Kuraray Group products developed with proprietary technology command top
share in the global market, and the steady cash flow provided by these products
has elevated the group’s market valuation to over ¥500 billion. We believe thismakes us an attractive target for acquisition.
Determining whether an acquisition proposal would be advantageous to raising
the company’s enterprise value over the long term requires full informationexchange from both the buyer and acquired company and detailed discussion

14

Kuraray Annual Report 2007

Interview with the President

about strategy to enhance enterprise value. We maintain a strong relationship oftrust with our stakeholders, who are the very source of our enterprise value, andany takeover proposal would require their full understanding and consent. If atakeover proposition fully met these strict criteria, it would not be necessary toinitiate the takeover countermeasures.

How do you see the relation between CSR and raising enterprise value?
Kuraray’s corporate culture is rooted in the simple tenet “Contributing to theWorld and Individual Well-being through Actions that Others are Unable to
Produce.” Our corporate conduct arises from a fundamental motivation to contribute to global society by using our proprietary technology to supply high valueadded products and services and to apply the profits derived from these to continue to develop more such products. Of course, the forces that underpin a market economy challenge this ideal. Market economies do not operate merely on a
product’s inherent added value, rather they are driven by profits; it is a simple
fact that profitable companies survive and unprofitable companies perish.
While this is an undeniable challenge, Kuraray has no intention of setting aside
its ideals merely for the sake of profit. We trust the wisdom of our stakeholders
will recognize the value in gradually expanding product lines that fully embody
our obligation to society. If we maintain a fair profit level, we believe the Kuraraybrand will be valued as dependable and with a promising future. This in turn will
enable us to attract the most talented staff and, in the long term, attract a growing number of investors that also believe in our future.
For six consecutive years, Kuraray has been selected as a constituent in the
globally recognized FTSE4Good Index Series*, developed by FTSE as a benchmark
index for socially responsible investment. The company has also been recognized
for three straight years as one of the Global 100 Most Sustainable Corporationsin the World**. To continue earning distinctions like these, the Kuraray Groupwill focus on its integrity while raising its enterprise value. This integrity meansdeveloping the products and services that our stakeholders need while fostering
our corporate culture emphasizing the natural compatibility of contributing tosociety and raising enterprise value.
* FTSE, an independent company owned by The Financial Times and the London Stock Exchange, created the FTSE4Good Index Series as an index for socially responsible investment. Selection criteria focus
on active engagement of internationally accepted environmental, social and ethical standards of corporate social responsibility.

** The Global 100 Most Sustainable Corporations in the World are selected from some 1,800 listed companies worldwide by Corporate Knights Inc., of Canada, based on research and analysis by Innovest
Strategic Value Advisors, of the United States.

Kuraray Annual Report 2007

15

Kuraray Group’s Segments and Products
Business Segment

Net Sales By Business Segment

Major Products(¥ Millions)• KURARAY POVAL, MOWIOL (PVA resin)

Chemicals and Resins
47.1%

52.2%

50.8%

• PVA film
05
¥167,26406¥190,753

07¥201,222• MOWITAL (PVB resin)• PVB film
• EVAL resin (EVOH resin)• EVAL film (EVOH film)• SEPTON, HYBRAR (Thermoplastic elastomer)• Fine chemicals• Methacrylic monomer• Methacrylic resin• Methacrylic sheets• KURALON (PVA fiber)• KURALON K-LL (New type of PVA fiber)• VECTRAN (Polyarylate fiber)

Fibers and Textiles

05¥109,82930.9%

06¥109,10729.1%

07¥107,925• Polyester staple• Polyester filament• CLARINO, AMARETTA (Man-made leather)

28.0%• KURAFLEX (Dry-laid nonwoven fabric)• KURAFLEX-MB (Melt-blown nonwoven fabric)• MAGIC TAPE (Hook and loop fastener)

High-Performance Materials, Medical Products and Others
21.9%
05¥77,78120.1%
06¥75,213• GENESTAR (Heat-resistant polyamide resin)

19.8%
07
¥76,138• VECSTAR (Liquid crystalline polymer film)• High-performance membranes• PVA gel
• Dental materials• Medical devices• KURARAY COAL (Activated carbon)

16

Kuraray Annual Report 2007

Kuraray Group’s Segments and Products
Primary Applications

Production Facilities

Annual Production Capacity(As of July 1, 2007)

Textiles, paper additives, adhesives, butyral precursor

Computers, LCD televisions, monitors

Interlayers for windows and windshields, paints, adhesives
Laminated safety glass
Food packaging materials, plastic fuel tanks

Food packaging materials
PVC and vulcanized rubber substitute,food packaging materials
Pharmaceutical and agrochemical intermediates,
vitamin precursor
Solvents, adhesives, methacrylic resin
Resins for molding, light guides plates, synthetic marble
Signboards, displays, TV front panels, light guides plates

Okayama Plant (Okayama)
Niigata Plant (Niigata)
Kuraray Europe GmbH (Frankfurt, Germany)
Poval Asia Pte Ltd. (Singapore)
KURARAY SAIJO CO., LTD. (Ehime)

96,000 t
28,000 t
70,000 t
20,000 t
31,000,000 m2(Mid 2008: +15,000,000 m2)
Kurashiki Plant (Okayama)
30,000,000 m2(Mid 2007: +30,000,000 m2)(End 2007: +30,000,000 m2)
Kuraray Europe GmbH (Frankfurt, Germany)
25,000 t
Kuraray Europe GmbH (Troisdorf, Germany)
30,000 t
OOO Trosifol (Nizhniy Novgorod, Russia)
4,000 tOkayama Plant (Okayama)
10,000 t
Eval Company of America (Texas, U.S.A.)
35,000 t(Target in 2008: +12,000 t)
EVAL Europe N.V. (Antwerp, Belgium)
24,000 t
Okayama Plant (Okayama)
3,000 tKashima Plant (Ibaraki)
23,000 t
SEPTON Company of America (Texas, U.S.A.)
18,000 t
Niigata Plant (Niigata)—

Niigata Plant (Niigata)67,000 t
Niigata Plant (Niigata)44,000 t
Niigata Plant (Niigata)33,600 t
Kuraray Methacrylate (Zhangjiagang) Co., Ltd. (China)
3,000 tAgriculture and fishery materials, civil engineering materials Okayama Plant (Okayama)
35,000 t
Cement reinforcing agents, woven and knitted textiles
Okayama Plant (Okayama)
7,000 tRope, fishing nets, and other industrial products
KURARAY SAIJO CO., LTD. (Ehime)
600 t(October 2007: +400 t)
Materials for nonwoven fabrics and industrial materials
Kurashiki Plant (Okayama)
12,000 t
Woven and knitted textiles, tents, sheets
KURARAY SAIJO CO., LTD. (Ehime)
10,000 t
Shoes, bags, sporting goods, luxury clothing,
Okayama Plant (Okayama)
15,500,000 m2
interior furnishings
Hexin Kuraray Micro Fiber Leather (Jiaxing) Co., Ltd. (China) 4,000,000 m2
Wiping materials, wet wipes, surgical masks
KURARAYKURAFLEX CO., LTD. (Okayama)
10,500 t
Kuraflex Ibaraki Co., Ltd. (Ibaraki)
3,500 tCoffee bags, filters
KURARAY SAIJO CO., LTD. (Ehime)
1,800 tClothing, shoes, car seats
Magictape Co., Ltd. (Fukui)
48,000,000 m
Kuraray Magictape (Shanghai) Co., Ltd. (China)
10,000,000 m
Electronics parts, auto parts
KURARAY SAIJO CO., LTD. (Ehime)
4,500 t (neat polymer base)(August 2007: +1,000 t)
Kashima Plant (Ibaraki)(August 2008: +5,500 t)(Target in 2010: +1,500 t)
Circuit-board substrates
Kurashiki Plant (Okayama)
150,000 m2
Water purification and wastewater treatment
Kurashiki Plant (Okayama)
100,000 m2
Water purification and wastewater treatment
KURARAY SAIJO CO., LTD. (Ehime)
3,000 m3
Dental adhesives, dental filling materials
Kuraray Medical Inc. (Okayama)
600,000 sets
Artificial kidneys, dialysis machines
Kuraray Medical Inc. (Okayama)
2,800,000 units(artificial kidneys)
Water purification facilities, gas separators,
KURARAY CHEMICAL CO., LTD. (Okayama)
22,500 t
capacitor materials
Cenapro Chemical Corporation (Philippines)
13,000 t
Kuraray Chemical (Ningxia) Environmental Industry Co., Ltd. (China) 2,000 t

Kuraray Annual Report 200717

Review of Operations
Chemicals and Resins• PovalPoval resin / Poval film / Polyvinyl butyral resin / Polyvinyl butyral film

• EVAL• Isoprene Chemicals
SEPTON / Aroma chemicals / Pharmaceutical intermediates• Methacrylic
Methacrylic resin / Methacrylic sheets

19

Fibers and Textiles• KURALON / KURALON K-LL
• Man-Made Leather
CLARINO / AMARETTA• New-Type Polyester• Nonwoven Fabrics
KURAFLEX• Fastening Materials
MAGIC TAPE

22

High-Performance Materials,
Medical Products and Others• Medical Products
Dental materials / Artificial kidneys• High-Performance Materials
GENESTAR / VECSTAR / VECRY / VECRUS• Environmental Businesses
Activated carbon / Industrial membranes

18

Kuraray Annual Report 200724

Chemicals and Resins Business
The segment posted increases of ¥10,469 million, or 5.5%,
in net sales, to ¥201,222 million, and ¥3,776 million,or 11.8%, in operating income, to ¥35,644 million.
5
4
11

10

1

12 13
2 3

9
6

7 8

Capital (Millions) Activities
US$10.1 Importing and sales of Kuraray products in the Americas

2 Eval Company of America

US$4.15 Manufacture and sales of EVAL

3 SEPTON Company of America

US$35 Manufacture and sales of thermoplastic elastomers

4 Kuraray Europe GmbH€31.2 Importing and sales of Kuraray products in Europe
Manufacture and sales of poval and butyral resins and film
€29.7 Manufacture and sales of EVAL in Europe

6 Kuraray Hong Kong Co., Ltd.

HK$4.65 Processing and sales of Kuraray products in China and Southeast Asia

7 Kuraray Specialities Asia Pte., Ltd.

SP$45.6 Sales of poval resins

8 Poval Asia Pte Ltd.

SP$40 Manufacture of poval resins

9 Kuraray (Shanghai) Co., Ltd.

US$5.0 Importing and sales of Kuraray products in China

10 KURARAY TRADING Co., LTD. (Seoul Branch)

Importing, exporting, and wholesale of fiber and textile products and chemicals
US$5.0 Manufacture of methacrylic resin sheets in China

12 KURARAY TRADING Co., LTD.

¥2,200 Import, export, manufacture, and sales of textile products, chemicals etc.

13 Kuraray Co., Ltd.

¥88,955 Manufacture and sales of Kuraray products

Identifiable Assets¥ Millions

Capital Expenditure¥ Millions

Net Sales¥ Millions

201,222

190,753

167,264

22,784

23,81032,262

269,848

243,384

220,812¥ Millions

35,644201,222

Total¥385,285 52.2%

Operating Income*

35,644

11 Kuraray Methacrylate (Zhangjiagang) Co., Ltd.

31,8685 EVAL Europe N.V.

28,420Group Companies

Company Name
1 Kuraray America, Inc.

Total
¥51,574
69.1%

05

06

07

05

06

07

05

06

07

05

06

07

* Including 11,354 million eliminated in consolidated
for the three business areas overall.

Kuraray Annual Report 2007

19

The Chemicals and Resins Business recorded strong sales ofPoval Film and other products and overcame the impact ofhigh raw materials prices to post increases in sales andincome.
Net sales:¥201.2 billion, up ¥10.5 billion from the previous year
Operating profit:¥35.6 billion, up ¥3.8 billion from the previous year

Major Products

POVAL RESIN
Kuraray was first in
the world to develop
PVA fiber KURALON
and has developed
numerous applications for this material, including its use as a fiber-sizing agent, anadhesive, a paper-processing agent, a raw
material for butyral, and as a polarized film
for LCDs.
Kuraray has a high level of technologicalexpertise in fields where quality and performance of stabilizers, and paper processing
agents are needed. The company is expanding sales of water-soluble and easily molded
EXCEVAL, along with other differentiated andhigh-specification materials.
POVAL FILM
Utilizing poval’stransparency, dyeability, antistatic
properties, stretchability, and molecularorientation, poval
film is used as a base film for the polarized
film needed in LCD manufacturing. Kuraraycommands an 80% share of this market.
Demand is forecast to grow further as aresult of the growth in demand for LCD televisions and other LCD devices as well as
increasing screen size. Water-soluble film,
employing poval’s most significant characteristic – its water solubility – is used in curvedsurface printing applications.

20

Kuraray Annual Report 2007

POVAL
Sales were strong for optical-use film for use in LCDs. Sales
expanded in Europe for Poval resin while increased competition and rising raw materials prices held down Poval resin
sales in Asia. Polyvinyl butyral (PVB) film demand wasstrong in Europe for use in construction materials.
Isoprene Chemicals
Sales continued strong for the thermoplastic elastomer SEPTON. Demand also remained steady for isoprene specialty
chemicals, while the competitive environment continued tointensify for aroma and agricultural intermediate chemicals.

BUTYRALRESIN/FILM
Kuraray markets awide range of PVB,
which is characterized by excellent
adhesion to a variety
of surfaces, such as glass and metals, andease of workability into films with outstanding optical transparency. The array of applications for butyral resins MOWITAL and films
TROSIFOL include interlayers for shatterproof
laminated safety glass, binders for ceramics,
paint and ink, and base adhesives for retroreflective films used for such applications as
highway signs.
EVAL (FOOD
PACKAGING)
EVAL has outstanding gas barrier properties. When used asa food packaging
material, this resin isextremely effective in preventing the passageof oxygen and preventing the oxidation anddeterioration of contents. Kuraray was thefirst in the world to develop this material,
which has a broad range of applications as afood packaging material. It is also an ecofriendly material, because no harmful substances are emitted when it is incinerated.

EVAL (OTHERAPPLICATIONS)EVAL is used tomake plastic fueltanks, where its highgas impermeability
protects
the environment by preventing volatile gasoline from leaking into the atmosphere. As
automakers increasingly turn to plastic fueltanks in new cars, and as regulations on
atmospheric emissions become stronger, thisapplication has shown high growth – particularly in Japan, the United States, and Western
Europe. Furthermore, the adoption of plastic
fuel tanks is spreading in China, Southeast
Asia, South America, and Eastern Europe. In
addition, EVAL is used in wallpaper and similar
applications because of its resistance to soiling.
KURARISTER
This new barriermaterial realizes
excellent gas impermeability and outstanding durability
under retort treatment, with the ability to withstand sterilization at 135°C for 60 minutes. A speciallycoated polyester film, KURARISTER achieves
robust gas impermeability after retort processing, with oxygen permeability of less than
1cc per square meter per day. Unlike conventional aluminum packs, KURARISTER can beheated in microwave ovens. The new material
also enables the use of metal detectors tocheck for foreign objects after packaging at
food processing plants.

Review of Operations

EVAL (EVOH Resin)
EVAL sales continued strong for food packaging applications but stagnated for automotive applications. High raw
materials prices were a particular obstacle during the year,
and we were unable to effectively adjust our product prices
to keep pace with the changes.
Methacrylic
Methacrylic resin drew strong demand for use in opticalproducts and as a material for general-purpose moldedand sheet products. However, sales were impacted by thedownsizing of the monomer operation and the high raw
material prices.

METHACRYLICRESIN AND SHEETS(GENERAL PURPOSE)
Methacrylic resin’stransparency andweather resistance
are among the highest of any plastic. It istherefore used in lighting fixtures, signboards,
construction materials, and automotive applications. Also, special processing converts it
into synthetic marble for kitchens and bathrooms. Because demand for such applications
is forecast to rise in China, the Company
started production at facilities (3,000 tons peryear) in China in the fall of 2005.
OPTICAL-USE
METHACRYLIC
RESIN
Kuraray is using its
high level precisionmolding and processing technology
to develop optical applications for its
methacrylic resin. These include high-performance, high-quality optical materials usedin light guides and diffusion plates for LCD
backlighting devices, and front panels with
antireflective properties and hard coatings.

SEPTONSEPTON is a styrenic
thermoplastic elastomer developed by
Kuraray. SEPTON has
the elasticity of rubber in a wide temperature range, yet can be molded like plastic
when heated to high temperatures.
Applications for this flexible material range
from a resilient alternative for rubber to aresin modifier and a viscous adhesive.
Demand is also strong for SEPTON as analternative to vinyl chloride for its superior
resistance to heat, climate, and chemicals, aswell as its high electrical insulating properties.
We are working to expand the use of V-grade
SEPTON in fields where heat resistance isneeded, such as auto parts. In the future, anumber of new applications are expected.
ISOPRENE SPECIALTY CHEMICALSWith its proprietary
specialty chemicals
and compounding
technologies,
Kuraray has become
the sole source for diol and polyol products
used as raw materials for polyurethane andresin modifiers. In addition, the highly stableand easy-to-handle industrial solvent is
attracting attention in a number of industrial
sectors in this era of rising environmental
concern.

AROMA
CHEMICALSThe Company has
built a unique finechemicals businessaround isoprene, acomponent moleculeof natural rubber.
Today, Kuraray markets more than 30
aroma chemicals, including linalool (lily scented) and citral (lemon scented) as well as isoprene glycol and other materials used in cosmetics manufacturing. Aroma chemicals produced through isoprene chemistry are also
used in various hair care products.
PHARMACEUTICALAGRICHEMICALINTERMEDIATES
Employing its expertise in fine chemicals
technology, Kurarayhas developed pharmaceutical intermediates for antivirals, hypertension drugs, antibiotics, and other medications. The Company also markets intermediates for highly safe agricultural chemicals andhome-use pyrethroid insecticides.

Kuraray Annual Report 200721

Fibers and Textiles BusinessNet sales edged down ¥1,182 million, or 1.1%, to ¥107,925
million. Operating income was down ¥1,466 million,or 15.5%, to ¥7,985 million.
2
4

3

7

11

1

14 15

6 12 135 9 8
10

US$10.1 Importing and sales of Kuraray products in the Americas

2 Kuraray Europe GmbH€31.2 Importing and sales of Kuraray products in Europe

3 amaretta GmbH€1.0 Sales of man-made leather in Europe€0.9 Processing and sales of man-made leather in Europe

4 Lorica Sud S.r.l.
5 Kuraray Hong Kong Co., Ltd.

HK$4.65 Processing and sales of Kuraray products in China and Southeast Asia

6 Kuraray Trading (Shanghai) Co., Ltd.

US$0.3 Importing, exporting, and wholesale of fiber and textile products and chemicals

7 KURARAY TRADING Co., LTD. (Seoul Branch)

Sales of Kuraray products

8 KURARAY TRADING Co., LTD. (Taipei Branch)

Sales of Kuraray products

9 KURARAY TRADING Co., LTD. (Hong Kong Branch)

Sales of Kuraray products

10 KURARAY TRADING Co., LTD. (Hanoi Branch)

Sales of Kuraray products¥220 Manufacturing and sales of a wide range of textile products

12 Kuraray Magictape (Shanghai) Co., Ltd.

US$0.85 Processing and sales of fastening materials in China

13 Kuraray (Shanghai) Co., Ltd.

US$5.0 Importing and sales of Kuraray products in China

14 KURARAY TRADING Co., LTD.

¥2,200 Import, export, manufacture, and sales of textile products, chemicals etc.

15 Kuraray Co., Ltd.

¥88,955 Manufacture and sales of Kuraray products

Net Sales

07

05

06

07

¥ Millions

15.5%

05

06

07

9,451
7,921

107,925

109,107

5,932

06

Operating Income*
7,985

Total
¥385,285
28.0%

4,787

4,128

05

¥ Millions

107,925

80,07280,501

Capital Expenditure¥ Millions

7,985

11 Nantong Kuratray Garment Co., Ltd.

Identifiable Assets¥ Millions

79,994

Capital (Millions) Activities

109,829

Group Companies

Company Name
1 Kuraray America, Inc.

Total
¥51,574

05

06

07

* Including 11,354 million eliminated in consolidated
for the three business areas overall.

22

Kuraray Annual Report 2007

Review of Operations

Sales and profits declined as the Fibers and Textiles
Business was unable to keep product prices on pace withhigh raw materials costs.
Net sales:¥107.9 billion, down ¥1.2 billion from the previous year
Operating profit¥8.0 billion, down ¥1.5 billion from the previous year
KURALON
KURALON demand remained strong for applications as a
non-asbestos fiber-reinforced cement (FRC) material, but
the high raw materials prices impacted profits.

AMARETTAAMARETTA is a highgrade man-made,leather made frommicrofiber. Used to
manufacture up-market coats and jackets,
AMARETTA is also
used to upholster sofas and in other interior furnishing applications. The Company is also striving
to open the car-seat field to this product.
KURALON and
KURALON K-bb
In 1950, Kurarayachieved the world’s
first commercializationof the synthetic fiber
KURALON. It featurescharacteristics that
include high strength, low elasticity, hydrophilic
properties, alkali compatibility, and weather resist-

CLARINO
Demand for CLARINO continued strong for use in lightmanufacturing products but slumped for footwear applications. The high raw materials prices also impacted sales.
Polyester and Other Materials
Polyester demand continues to shift toward differentiatedproducts, and we progressed in our development of new
applications for the high-strength VECTRAN polyarylate fiber.

ance. This makes it suitable for use in industrial
materials. It is essential in the manufacture ofhigh-pressure hoses and as a cement-reinforcing
agent.
KURALON K-ll is water soluble at any temperature and has high strength. It is well known as afiber that allows new design concepts and has
applications in a number of industries.
VECTRAN
This high-performancepolyarylate fiber has awide variety of properties, including outstanding low-creep
and non-waterabsorbency as wellhigh strength and moisture-abrasion resistance inextremely cold conditions. It is used in rope, fishing net, and other industrial material applications,as well as sporting goods and a range of otherapplications. It was also used in the air bags on
the Mars exploration rover.
NEW POLYESTERS
Kuraray is developing
new, high added-value
fibers and textiles foruse in clothing byblending polyester with
the Company’s proprietary polymers. The
EVAL blend SOPHISTA, a material with a cool feel,and the series of lightweight fabrics made by eluting the water-soluble resin EXCEVAL at the dyeing
stage, are growing in popularity.
KURAFLEX
Kuraray’s KURAFLEX dry-laid nonwoven fabric isused in sanitary and other disposable products.
The Company is developing high-order blended

products using its proprietary polymers, andwe are strongly promoting their use inindustrial and construction materials, wherestrength and durability
are required.
KURAFLEX-MB is a melt-blown nonwoven fabricwith many excellent characteristics including filtering, moisture permeability. Kuraray is actively
developing new KURAFLEX product applications
ranging from coffee filters and food wrapping
materials to mask filters.
In 2006, Kuraray developed a new nonwoven
fabric (New Type: Steam Jet Products) using steamjet technology, a world first, which features characteristics and capabilities hitherto unknown. The
material’s characteristics, such as bulkiness, watersolubility, and elasticity, were achieved by leveraging the unique properties of raw material cut fibers.

Major Products

CLARINO
Developed by Kurarayin 1964, CLARINO
man-made leather isused in a wide range ofapplications taking
advantage of its easyof-care, pliability,
strength, light weight, and climate resistance.
CLARINO commands a strong share of the market
for man-made leather men’s and women’s shoes
and bags while its strength and performance
attract strong demand for use in athletic shoes,
gloves and large balls to industrial materials. Our
product line-up also includes eco-friendly manmade leather products created using an innovative
new process that does not utilize organic solventsin the base cloth production process.

Nonwoven Fabrics and Fasteners
Sales of nonwoven fabrics and fasteners were strong to theautomotive industry and other high-volume areas.
However, profits were affected by declining demand forhygienic materials and the high raw materials prices.

MAGIC TAPE
Kuraray’s MAGIC TAPE
is used in clothing,shoes, bags, medical
products, and various
industrial fields as afastener. The Company
is presently engaged in
the development of insoluble back coatings thatuse no organic solvents for an environmentallyfriendly MAGIC TAPE. Further, MAGILOCK is aplastic surface fastener for industrial use that offers
outstanding fastening strength. Used to securesuch items as automotive seats and join construction materials, this new product contributes tolabor saving in assembly operations and the promotion of recycling.

Kuraray Annual Report 200723

High-Performance Materials, Medical
Products and Others BusinessNet sales increased ¥925 million, or 1.2%, to ¥76,138 million. However,operating income declined ¥511 million,
or 6.0%, to ¥7,945 million.

2

1

4 6 7

5
3

Capital (Millions) Activities
US$10.1 Importing and sales of Kuraray products in the Americas

2 Kuraray Europe GmbH€31.2 Importing and sales of Kuraray products in Europe

3 Kuraray (Shanghai) Co., Ltd.

US$5.0 Importing and sales of Kuraray products in China

4 KURARAY CHEMICAL CO., LTD.

¥600 Manufacture and sales of activated carbon and related products

5 Kuraray Chemical (Ningxia) Environmental Industry Co., Ltd.
¥400 Manufacture and sales of activated carbon and related products
6 KURARAY TRADING Co., LTD.

¥2,200 Importing, exporting, and wholesale of fiber and textile products and chemicals

7 Kuraray Co., Ltd.

¥88,955 Manufacture and sales of Kuraray products

Capital Expenditure¥ Millions

Net Sales¥ Millions

Operating Income*

15.4%

19.8%

07

05

3,231

06

3,283

Total
¥385,285

05

06

07

7,333

76,13875,213

7,945
77,781

7,215

68,817

69,571

82,122

76,138¥ Millions

7,945

Identifiable Assets¥ Millions

8,456

Group Companies

Company Name
1 Kuraray America, Inc.

Total
¥51,574

05

06

07

05

06

07

* Including 11,354 million eliminated in consolidated
for the three business areas overall.

24

Kuraray Annual Report 2007

Review of Operations

High-performance materials sales were strong and domestic subsidiaries delivered solid contributions. Overall operating profit declined for the segment primarily owing to theimpact of National Health Insurance medicine price revisions and other factors on the Medical Business. Also,
Kuraray withdrew from the opto-screen business during
the year under review.
Net sales:¥76.1 billion, up ¥900 million from the previous year
Operating profit:¥7.9 billion, down ¥500 million from the previous year
Opto-screen Business
Kuraray discontinued opto-screen production in December
2006 and has withdrawn from the business.

VECSTARThe application ofKuraray’s original
molecular orientation
technology to a polyarylate-type liquid
crystal polymer film hasrealized a high-performance film withadvanced functionality that curbs various types ofliquid crystal polymer film anisotropy. VECSTAR
film is a circuit-board material that will contributeto the realization of a sophisticated informationsociety. It has properties, such as low moistureabsorbency, outstanding electrical characteristics,
and shape stability, that manufacturers will
increasingly seek in circuit-board materials as they
step up efforts to create smaller electronic devices
with more advanced functionality.
VECRY
VECRY is a polyarylate
hybrid conjugatedmonofilament, whose
special properties
include high strength,
high modulus, and low
creep. It is used for thehigh-precision, highdensity printing screens required in the productionof plasma display panels, semiconductors, andprinted wiring boards.

Medical Business
Dental materials sales expanded in the United States andother overseas markets, but sales of dialysis and blood
purification devices were affected by the revisions in the
medical price schedule.
Other
The Activated Carbon Business continued posting strong
sales of its water purification products. Sales in theEngineering and Other Related Business were also strong.

VECRUSVECRUS is a liquid crystal polymer nonwoven
fabric with strong
mechanical featuresand heat resistancethat exhibits superioranti-absorption, lowdielectric and dielectric
tangent properties in a high-frequency radiation
environment. It is a material highly suitable forprinted wiring boards.
DENTAL MATERIALS
Employing polymerization and synthesis
technology, Kurarayhas developed dental
adhesives and filling
resins. These are highly
regarded for theiradhesive properties,
wealth of variety, and ease of use, and Kurarayboasts the top share of Japan’s market for theseproducts. Demand for these products is growing
in the global dental materials market as a result of
their reputation for quality and functionality, particularly in the United States and Europe.
PLASMA EXCHANGE
TREATMENTSYSTEMS
Plasma exchange treatment uses separation
technologies based onhollow-fiber membranes and absorbent
materials to remove
disease agents present in plasma. This treatment
method has been lauded for helping patients prevent rheumatism and other autoimmune diseases
that arise from autoimmune disorders.
ACTIVATED CARBON
Kuraray’s proprietary technology for controlling the diameter and volume of pores in thesurface of activated carbon allows a height-

ened response to
growing environmental concerns andheightened customer
needs in areas ranging from householdwater purifiers tomunicipal and industrial water treatment,
air purification, and electrode materials forcapacitors.
INDUSTRIALMEMBRANES
These filter membranes, which canremove micro particlesof sizes ranging from0.003 to 3 microns
from liquids, havenumerous industrial
applications. They are used in food processing,including the manufacture of Japanese sake,water purification, and wastewater treatment,
and are marketed as filters for producing ultra
pure water, which is indispensable in semiconductor manufacturing and other cutting-edge manufacturing processes.

Major Products

GENESTAR
GENESTAR is a heat
and abrasion-resistantpolyamide resin withexcellent electricalcharacteristics developed by Kuraray,
which is widely used inthin-walled, narrow
pitch surface mount technology (SMT) connectors
for computer devices. Kuraray is also developing
new GENESTAR products to take advantage of its
superior applicability to the automotive field,
including gear and fuel piping applications.

High-Performance Materials
Sales of high-performance materials increased on ongoingstrong demand in Asia for the GENESTAR heat-resistantpolyamide resin used in electronics applications.

PVA GEL
PVA gel is a small
white spherical bacteria-fixed carrier madefrom PVA resin. Withan extremely fine netlike structure, eachsphere can sustain one
billion microorganisms.
PVA gel is designed to clean industrial and domestic wastewater through bacterial activity, returning
water to its natural state. Because it enables theuse of smaller facilities and more efficient processing than the conventional activated sludge
method, this technology is being adopted inhousehold septic tanks, factory wastewater facilities, and sewage processing plants.

Kuraray Annual Report 200725

Research and Development
The GS-21 Medium-term Business Plan for fiscal years 2006 to 2008 aims to “shift
R&D emphasis from quantity to quality to transform Kuraray into a specialty chemicals company capable of sustainable growth.” The Kuraray Group continues to focus
on the promising growth fields of optics, electrical and electronics, automobiles,
environmental products, energy, and health care. At the same time, we are activating our progressive refinement concept in the business development in accordancewith for of highly processed, high-performance materials and components.
Kuraray Group’s R&D activities encompass corporate research undertaken primarily by the New Business Development Division; divisional R&D conducted byin-house companies and affiliates; and manufacturing technology development
led by the Technology Division. Development and technology activities in fiscal
year 2007 emphasized “selectivity” and “focus” with the aim of enhancing R&D
efficiency and effectiveness. We implemented several programs, including “integrating the administration of technology and management resources” and “allocating R&D resources to advance key business themes” designed to acceleratecommercialization of business creation projects.
The Corporate R&D division administers operations of the Kurashiki ResearchLaboratories, Tsukuba Research Laboratories, and Kuraray Research and TechnicalCenter (USA). Divisional R&D activities are headed by R&D departments locatedon-site at each in-house company, division, and consolidated subsidiary. The
Kuraray Group’s (Kuraray and consolidated subsidiaries) R&D operations employ
784 researchers and engineers.

The New Business Development Division Structure

CTO: Integrated Development and Technology Management
New Business Creation

Qualitative Business Expansion(Development of High-performance Materials)

Optoelectonics (Optics)

High-performance Resins/Films

Inorganic EL Materials
Backlight Devices
LCD Components

New Barrier Materials
New Optical-use Films

Chemicals and Medical

Electronics/Energy

New Elastomers
Electrochemicals

Fuel Cell Components(Electrolyte Membranes)

Fiber and Textiles

Health Care

Next-generation Man-made Leather
Advanced-function Fiber and Textiles

Medical-use Microdevices
Orthopedic Materials

M&A
To augment management resources and accelerate development

26

Kuraray Annual Report 2007

Research and Development

Accelerating New Business Creation
The New Business Development Division of the Corporate R&D division is tasked
with accelerating commercialization of business creation projects and identifying
next-generation businesses.
R&D in the optics field focuses on cultivating next-generation products. In theenergy field, R&D concentrates on new materials and components for high-performance electrolyte membranes and other components essential to fuel cell batteries for which the market is expected to develop in the next few years. R&D in
the health care field is advancing the development of innovative orthopedic
materials and other products with the aim of creating new businesses in medicalrelated fields.
In March 2006, Kuraray and T. CHATANI & CO., LTD. established K•C Luminas
Co., Ltd. to commercialize T. CHATANI & CO., LTD.’s revolutionary ultra-bright
long-lasting inorganic EL material. In April 2007, Kuraray acquired a larger stakein the joint company and changed the name to Kuraray Luminas Co., Ltd. Under
Kuraray’s leadership, the company implemented a program to fortify its production technology development and industrialization.

Fortifying and Expanding Existing Businesses
Corporate research is tightly coordinated among our divisional R&D activities
enabling close collaboration between the manufacturing technology development departments and the R&D departments of in-house companies and ouraffiliate companies. Vinyl acetate chain related products are our core businessgenerating approximately one-third of group revenues, and the group accordingly gives the highest priority to corporate investment in vinyl acetate related R&D.
These activities include researching and developing applications for polyvinyl
butyral (PVB), which is a new material that offers different applications from ourexisting products. We believe our R&D of PVB will lead to new products and newmarkets for the company.

Kuraray Annual Report 200727

Corporate Governance
Kuraray believes that the maintenance of appropriate relationships with shareholders and otherstakeholders is part of the fulfillment of social responsibilities. This goal is consistent with theobjectives of achieving a long-term improvement in business results and sustainable growth as acompany that does business globally. Kuraray seeks to fulfill its responsibilities as an enterprise
open to society by enhancing corporate governance functions and establishing highly transparent
and fair management.

Corporate Governance System
Kuraray is establishing a corporate governance system to increase the effectiveness of supervision and monitoring functions as well as to ensure management
efficiency.
Board of Directors and Organizations Responsible for Business Execution• The Board of Directors establishes the Board of Directors’ Regulations, deliberates on and decides important management matters, including legal matters,
and supervises the execution of business. The maximum number of directors is
10, and the term of office is one year.
• As the chief executive responsible for business execution, the president exercises control over the execution of business in the Kuraray Group.
• Executive officers (one-year term of office) selected by the Board of Directors are
responsible for business execution in the various organizations of the Kuraray
Group. As the heads of in-house companies, divisions, and major functionalorganizations, the executive officers bear responsibility for operations and profit.
• The president establishes the Executive Committee and other various councils
and committees to deliberate and report on important matters concerning theGroup’s management policies and business execution.
Management Advisory Council• Kuraray has established the Management Advisory Council to serve as a consultative body to the president from the perspectives of compliance, the protection of shareholder rights, and management transparency. The Council, which
consists of five permanent members, four of whom are experts from outside
the Group who have a wealth of experience in corporate management or corporate legal affairs, advises the president on such issues as important management policies and issues, succession of the president, successor candidates, andcompensation.
Board of Auditors• The Board of Auditors consists of five corporate auditors, including three outside auditors independent from the Kuraray Group. The corporate auditors
attend meetings of the Board of Directors and other important meetings, and28

Kuraray Annual Report 2007

Corporate Governancemonitor the directors’ performance of duties through inquiries conducted bysuch means as the examination of important documents and requests for explanations of the state of business affairs. Kuraray appoints dedicated assistants tothe auditors to assist the auditors in the performance of their duties.
Corporate Governance System

General Meeting of Shareholders
Appointment/Dismissal

Appointment/Dismissal
ReportingBoard of Directors
Auditing

Appointment/Dismissal

Independent Auditor

ReportingApproval of selection
and reappointment

Board of Auditors

Ten directors
Appointment/Dismissal

Five auditors(including three outside auditors)
Appointment /Dismissal Supervision

Management
Advisory Council
Five permanent members(including four outside intellectuals)

AdvicePresident
Instructions

Staff for Corporate Auditors

Auditing
Reporting

Office of Internal Auditors
Auditing

Reporting on resultsof deliberations

Executive Committee

CSR Committee(Deliberation on important matters)

Social Responsibility andEconomic Subcommittee

Bringing up importantmatters for deliberations

Executive Officers
Execution of business

Environmental andIndustrial Safety Subcommittee
Risk Management andCompliance Subcommittee
Plan proposals
Activity reports

Policy instructions
Plan approvalInternal Companies, Functional Organizations, Group Companies

Internal Control
The Kuraray Group recognizes that the establishment and implementation ofinternal controls is an important management task and is engaged in putting inplace an internal control system based on the Basic Policy for Establishing Internal
Controls decided by the Board of Directors.
• The CSR Committee administers the establishment and operation of theGroup’s integrated compliance and risk management systems. The Office of
CSR and Communications serves as the CSR Committee’s secretariat, administering the Committee’s business and working to inculcate compliance within the Group.
• Group rules and regulations are set, and information systems established, toensure the reliability of financial reporting.
• The Office of Internal Auditors, an internal audit organization that reports
directly to the president, cooperates with corporate auditors and the independent auditor to audit the legality, appropriateness, and effectiveness of business
operations in each organization.
• To enhance these systems, Kuraray has established the Internal Controls
Reform Team, which inspects and promotes establishment of group-wide
internal controls.

Kuraray Annual Report 200729

ComplianceTo ensure transparency and fairness in business activities, and in addition to putting in place an effective corporate governance system, it is necessary to build anorganizational culture to encourage individual employees to act appropriately on
the basis of a highly developed sense of ethics. For this reason, Kuraray engages
in systematic initiatives to strengthen compliance.
In fiscal 2006, Kuraray revised the Antimonopoly Act Compliance Guidelinesand distributed the new regulations to domestic Group employees (managers
and sales people), as well as held seminars led by specialist attorneys. Kurarayalso made the Compliance Handbook (US Version) in response to laws in the
United States.
the Antimonopoly Act Compliance
Guidelines
A handbook that lists things to be careful of in
everyday work in regard to Antimonopoly Act
Compliance Guidelines, with specific examples
and in an easy-to-understand format.

Compliance Handbook (US Version)
Based on the Japanese version, a handbook forGroup employees in the United States, inEnglish, that reflects laws in the U.S.

Compliance Declaration
On behalf of the Kuraray Group, the president of Kuraray publicly announced theCompliance Declaration, making compliance and the practice of corporate ethics
the most important corporate activity at Kuraray.
1. We will comply with the law and the Principles for Business Conduct.
2. We will give precedence to laws and regulations, and to the Principles for
Business Conduct, over corporate profits.
3. We will strive to prevent any act that goes against laws and regulations or the
Principles for Business Conduct, or that betrays the trust that society has
placed in us.
Compliance in the United States
A compliance program was initiated at Group companies in the United States aspart of efforts in the establishment of the risk management system. As part ofthis program, the Compliance Handbook (US Version) was produced and distributed to all Group employees in the U.S. The handbook is a tool for deepening
understanding of laws and behavioral standards closely related to corporate
activities. Employees are asked to internalize the contents of the handbook andreflect this in all behavior and activities. Local employees have praised the handbook as being easy to understand.

Risk Management

Shuichi Takemoto
President, Kuraray America

30

Kuraray Annual Report 2007

Risk management for the Kuraray Group had been undertaken as continuous
monitoring of each division within the Group, mainly by the CSR andCommunications Division. In order to properly respond to new issues such as thegreater number of risks that must be faced and preparation of business continuity plans, in April 2007 a risk management specialty office was established. Also,in times of crisis, Kuraray establishes an Emergency Response Headquarters
directed by the president, and puts into action a response that utilizes theresources of the entire organization.

Board of Directors, Corporate Auditors,
and Executive Officers

From left: Toshihide Sakai, Shiro Kataoka, Yoichi Ninagawa, Osamu Asaba, Junsuke Tanaka, Yasuaki Wakui, Seiji Wajiki, Nobuo Iwawaki, Fumio Ito, Hiroaki Yoshino.

EXECUTIVE OFFICERSBOARD OF DIRECTORS
Representative Director and President
Yasuaki Wakui
Representative Senior Managing Director
Junsuke Tanaka
Chief Technology Officer
Responsible for New Business Development Division
Responsible for Technology Division

Managing Director
Seiji Wajiki
Responsible for CSR and Communications Division
Responsible for Plants
Responsible for Environmental and Industrial Safety
Management Center

Director
Hiroaki Yoshino
General Manager of CSR andCommunications Division

Toshihide Sakai
General Manager of Office of
Global Business Development

CORPORATE AUDITORS

Nobuo Iwawaki
Responsible for Internal Control Reform Team
Responsible for Accounting and Finance Division
Responsible for Purchasing and Logistics Division

President of Fibers and Textiles Company

Yoichi Ninagawa
President of Chemicals and Medical products Company

Shiro Kataoka
President of Specialty Resin and Film
Company

Hiroaki Yoshino
Standing Corporate Auditor
Tsutomu Yabuta
Tadahiko Kujime

Osamu Asaba
President of Fibers and Textiles Company

Senior Executive Officer
Osamu Asaba

Corporate Auditor
Toshimitsu Kitagawa
Hiroo Onodera
Hirotaka Ikuno

Yoichi Ninagawa
President of Chemicals and Medical products Company

Fumio Ito
Responsible for Corporate Management Division
Responsible for Office of Global Business Development
Responsible for General Affairs and H.R. Division

Shiro Kataoka
President of Specialty Resin and Film Company

General Manager of CSR andCommunications Division

Toshihide Sakai
General Manager of Office of Global
Business Development

Kenzo Sawada
General Manager of Poval Resin Division

Hideo Tomita
General Manager of General Affairs and
H.R. Division

Takayoshi Ohsaki
General Manager of Okayama Plant

Executive Officer
Katsuya Hashimoto
President of Kuraray Saijo Co.,Ltd.

Mitsuo Matsumoto
General Manager of Office of Corporate
Strategy and Planning

Kohei Maeda
Notes:
1. Osamu Asaba, Yoichi Ninagawa, and Shiro Kataoka serve as Managing Director andSenior Executive Officer.
2. Hiroaki Yoshino, Toshihide Sakai serve as Director and Senior Executive Officer.

General Manager of Office of Internal
Auditors
Manager of Internal Control Reform Team

Tokio Aikura

Executive Officer
Mitsuaki Manabe
General Manager of Accounting and
Finance Division

Yuichi Kawarasaki
General Manager of Corporate
Management Division

Keiji Murakami
General Manager of EVAL Division

Gerd Lepper
President of Kuraray Europe GmbH

Jean-Marie Baetens
President of EVAL Europe N.V.

Nobuya Tomita
President of Eval Company of America
President of SEPTON Company ofAmerica

Noboru Yanagida
General Manager of Niigata Plant

Shinzo Takemura
General Manager of Poval Film Division

Noritsugu Nagatomo
General Manager of Technology
Division

Takaaki Fukumori
General Manager of Purchasing and
Logistics Division

Kazuhiro Tenkumo
General Manager of Fibers andIndustrial Materials Division

Yasuhiro Yamamoto
General Manager of Isoprene
Chemicals Division

General Manager of Methacrylate Division

Kuraray Annual Report 200731

Corporate Social Responsibility
A business offering products and services valued by society is a highly sustainable one. However,this sustainability does not necessarily extend to the organization managing the business. To
increase the sustainability of the Kuraray Group, we are actively tackling issues in corporate social
responsibility (CSR).
CSR Stance
CSR encompasses a wide field of areas, and as it’s closely related to many operations of a company, it can be said that CSR itself is the company’s operation.
Responding to the CSR issues raised in operations is essential to ensuring thelongevity of the company, and as such responding to these issues is an essential
contribution to the company’s growth.
CSR is reflected throughout all activities at the Kuraray Group and we are thoroughly handling issues of responsibility to society such as industrial safety, compliance, and risk management. Moreover, through voluntary CSR initiatives suchas developing products and services that help solve society’s challenges, we areoffering unmatched value to society by utilizing our strengths. We do this basedon the idea of “Contributing to the World and Individual Well-being throughActions that Others are Unable to Produce.”

32

Kuraray Annual Report 2007

Helping to solve societal challenges

Voluntary CSR

Industrial safety, compliance, etc.

CSR based on responsibility to society— initiatives that utilize the company’s strengths— initiatives that must be taken as a company

Corporate Social Responsibility

CSR through Products and Services
The first priority of CSR at the Kuraray Group is the provision of products andservices that contribute to society. We are developing new technologies andproducts based on new ideas so that the provision of products and services will
make us even more useful to society. We are also working to provide products ina stable, sustainable manner.

Aims of the products and services provided by the Kuraray Group• Provide items truly needed by society• Pursue value that can only be provided by the Kuraray Group• Actively tackle issues untouched by others

Furthermore, we are paying close attention to the relationship between our business and efforts for regions and society as a whole, especially to societal contribution.

Relationships with Stakeholders
The Kuraray group aims to build relationships with stakeholders in the following
manner:Customers and Business Partners: Provide products and services of true value
to prosper together, and maintain a business relationship for a long period.
Shareholders:

Maintain stable and healthy profits andreturn profits to shareholders in an appropriate manner, so that share holdings are
kept for a long period.

Employees:

Provide a workplace where employees canfeel pride and enthusiasm, and enjoy working with colleagues.

Regions and Society:As a corporate citizen, gain understanding
through active communication and appropriate information disclosure.

Kuraray Annual Report 200733

Areas of CSR Initiatives
What does the society of today ask of its companies? The Kuraray Group is constantly working to understand the needs of society. Based on this understanding,reflecting our experience, basic philosophy of management, and businessstrengths, we will focus on the things we believe to be most important and takefirmly grounded initiatives.

• Lay the groundwork for industrial safety, compliance, and risk management, thesupport base for the existence of the company, through Priority Action Themes.
• Engage in voluntary initiatives in the environmental and societal areas based on
Long-Term Objectives in a wide variety of fields. Do this with the aim of contributing to the realization of a sustainable society.

The Scope of the Kuraray Group’s CSR Activities

Long-Term Sustainability Themes• Voluntary initiatives forenvironmental conservation• Development of environmental
compatible products• Contributing to thesustainability of society• Respect of human rights andcreating a healthy work environment

Supplychain

Business Activities(creating business and societal value)

Industrial Safety

Compliance

Priority Action Themes

34

Kuraray Annual Report 2007

Risk Management

Corporate Social Responsibility

CSR Promotion Structure
The CSR Committee, established in 2003, plays a central role in implementing theKuraray Group’s CSR initiatives. The far-reaching and ever higher level of social
responsibility required of companies necessitates response across the entire
organization. The CSR Committee is a management level special committee that
decides group-wide policies, objectives, and action plans, and puts into practicewide ranging programs with the cooperation of other Group organizations.
The CSR Committee maintains the Social Responsibility and Economic
Subcommittee, the Environmental and Industrial Safety Subcommittee, and the
Risk Management and Compliance Subcommittee. The subcommittees set up
theme-specific working teams that focus on implementing specific initiatives andascertaining & evaluating results.

CSR Promotion Structure

CSR Committee (Secretariat: Office of CSR and Communications)Social Responsibility andEconomic Subcommittee• Philanthropy• Work Environment

Environmental andIndustrial Safety Subcommittee

Risk Management andCompliance Subcommittee• Environment and Safety• Global WarmingCountermeasures• Quality and Product Liability• Purchasing and Logistics• Chemical SubstanceManagement• Eco-Design• Risk and Crisis Management• Business Ethics and Compliance

Kuraray Annual Report 2007

35

Kuraray Topics(Major Kuraray news releases in fiscal year 2006)

New Thermoplastic Polyurethane
Production Facility to be Built
Kuraray has determined to build a new
thermoplastic polyurethane (TPU; product name: KURAMIRON) production
facility with an annual capacity of 2,000
tons at the Kashima Plant in Kamisu,
Ibaraki. The new facility is scheduled tocommence operations in December
2006. We have shut down the Kurashiki
Plant in Okayama Prefecture, which had
an annual capacity of 1,400 tons.
* TPU is a representative thermoplastic elastomer
with excellent hardness and abrasion resistance.
We applied it to range from injection molded
products, such as shoe soles, to extrusion molded products, such as tube belts. We are currently developing new applications, such as an alternative for vinyl chloride materials used in grips
and other soft products.

2006

4

PVB Film Production Capacity inEurope to be Expanded
Polyvinyl butyral film (PVB; product name:
TROSIFOL) offers superior adhesive properties, excellent transparent qualities andhigh pliability. Used as an interlayer film inlaminated safety glass, PVB film provides
strong reinforcement against large fractures and renders the glass virtually shatter-proof. It is widely used for windows in
the construction industry and in automobile windshields. To respond to the growing demand for PVB film, particularly inEurope, we plan to increase annual production capacity at Kuraray Specialities
Europe GmbH (headquartered inFrankfurt, Germany) by 8,000 tons to anannual production capacity of
34,000 tons.
The expansion
is expected tobe completed
in June 2007.

5

KURARAYKURAFLEX CO., LTD. Introduced the World’s FirstSteam Jet Technologies Using High-speed Steam Heating
and a New Type of Nonwoven Fabric
In May 2006, the KURARAYKURAFLEX CO., LTD. announced thedevelopment of an innovative steam jet technology that simultaneously uses steam heat and jet blasts and which enables production of new types of nonwoven fabric with special features andfunctions never before achieved. Applying this technology to different materials and processes
yields a variety of new features
applicable as high absorption
materials, cushion materials,
stretch materials, low-fluff nonwoven fabrics, acoustic absorption and a board-like heat insulation material.

36

Kuraray Annual Report 2007

Joint-Venture Established to Produce MedicalUse Hollow-fiber Dialyzer Membrane
Kuraray Medical Inc. and Asahi Kasei
Medical established a joint-venture company for manufacturing hollow fiber
membranes with a view to ensuring a stable supply of dialysis and blood purification devices based on Kuraray hollow-fiber
dialyzer membrane technology incorporating ethylene-vinyl alcohol copolymer(EVOH; product name: EVAL) resin.
Company Name: A•K Membrane Manufacturing Co., Ltd.
President:
Tatsuo Hiyoshi, Managing Director of
Asahi Kasei Medical
Product:
EVOH hollow-fiber membrane for medical devices (Product name: EVAL)
Establishment: June 16, 2006
Capacity:
Annual equivalent of 4 million modules(2.6 million modules at startup)
Location:
Nobeoka, Miyazaki Prefecture, Japan
Start-up:
May 2008 (Planned)
Investment:
Approximately ¥2.5 billion (Initial investment: approximately ¥2 billion)
Paid-in capital: ¥490 million
Shareholding:
50% Asahi Kasei Medical, 50% Kuraray
Medical Inc.
Employees:
Approximately 50

6

New Corporate Logo Launched to Commemorate Kuraray’s
80th Anniversary
On June 24, 2006, Kuraray celebrated the 80th year since its
founding on by introducing a new corporate logo to represent theKuraray Group as a unified entity. Under the new logo, the Groupaims to renew and enhance its brand value by presenting a uniform and consistent visual image that fully represents its integrated Group operations and expanding global presence. The use ofromanized letters for Kuraray in the logo signifies the Group’scommitment to a unified effort in global development, and thelower-case letters represent the Group’s growth potential. The
light-blue color depict the Group’s versatility. The last three letters“ray” are emphasized by italics to represent the link from theCompany’s founding business in chemical fiber and textiles (rayon)
to the potential of new business growth fields, here represented
by optical materials (which makes use of rays of light), and thus
represent the connection of the Company’s history and theGroup’s promising future.

Kuraray Topics

Withdrawal from the Rear Projection
TV Screen Business
Kuraray decided to withdraw from therear projection TV (RPTV) business in theyear under review after determining andmaintaining sufficient business profitability would be difficult amid the increasingly intense competition and market
demand for increasingly sophisticatedtechnology. RPTV production was closed
down in December 2006 after fulfilling
our customer obligations. Management
resources are now focusing on expanding business in a variety of areas, including LCD materials and developing newmaterials for RPTV applications.

Kuraray Harnesses the Power of Nature with a Compact Highly Efficient Biological
Wastewater Treatment System Using PVA-gel Beads
Kuraray developed a groundbreaking wastewater treatment system free of chemical additives that
greatly reduces the amount of waste sludge produced by industrial and municipal wastewater treatment plants. Excess sludge yielded by the PVA-gel biocarrier in the high-rate treatment unit
degrades up to five times faster than the sludge of other commonly used biological treatment
methods. Capital investment can thus be significantly reduced due to the need for relatively smalltank volumes; in addition, running costs are reduced because ozone and other chemicals for sludge
treatment are not used as well as there being less need for sludge handling and disposal in general.

Factory

Excess Organic Sludge
Virtually EliminatedWastewater

Return sludge

Treatedwater

PVA-gel tank

7

Sludge-elimination tank

8

Sedimentation tank

9

Development of High-strength, Thin Concrete Tunnel Reinforcement Method
TEKKEN CORPORATION and Kuraray, in collaboration with the Public Works ResearchInstitute, developed a new high-strength, thin concrete tunnel reinforcement method utilizing high-strength fiber reinforcing mortar. Applicable to the interiors of previously constructed tunnels, the new method combines high-strength mortar reinforced with KURALON K-ll
fiber and a fiber mesh that acts as a tension-reinforcing agent. This mortar allows a very thin
reinforcement layer that is further strengthened by a highly pliable KURALON (PVA fiber) fiber
mesh. The combination produces excellent reinforcement performance with just a very thinlayer, which enables application on previously constructed tunnels where limited space prevents layering using conventional materials. Application may also be carried out in stages,
which helps to reduce costs and shorten the installation period. Kuraray is developing thematerial for widespread utilization, primarily as a reinforcement method for road tunnels andwalls with deteriorating concrete.

Staple-fiber reinforced mortar (inner lining reinforcement)

Form board

Existing lining

KURALON K-LL Staple fiber

Fiber mesh (back surface)

Fiber mesh (inner reinforcement layer)

Kuraray Annual Report 2007

37

Heat-resistant Polyamide Resin
GENESTAR Manufacturing Structure
Enhancement
Since the 2000 launch of GENESTAR,
Kuraray’s in-house developed highly heatresistant polyamide resin, have expanded
steadily for the material focusing on theelectric and electronics field. The company
is now aiming to develop GENESTAR’sunique characteristic to develop applications in the auto parts field
and other new sectors. To meet the growing demand and establish
a supply source for the company’s market expansion strategy,
Kuraray has decided to substantially enhance its manufacturing
capacity for GENESTAR resin and nonanediamine, a core raw material monomer used in GENESTAR production.
Production Capacity
Plant

Current
Capacity

GENESTAR
KURARAY SAIJO CO., LTD. 4,500
Kashima Plant
Total
4,500
Monomer: Nonanediamine
Kashima Plant
3,000

After
Streamlining
August 2007

(Unit: tons per year)
Stage 1
Stage 2
Expansion
Expansion
August 20082010

Expanding Production Capacity for
Optical-use Poval Film Used in LCDs
The global LCD market is rapidly expanding, and demand for poval film is accelerating as large-screen LCD TVs become
more common. Kuraray is expanding its
poval production facilities to keep pacewith this demand and plans to essentiallydouble the current 61 million m2 annual
output from the plants in Saijo, Ehime Prefecture, and Kurashiki,
Okayama Prefecture, by adding 60 million m2 annual capacity to
the Kurashiki Plant which is expected to complete during 2007.
The company has also determined an additional 15 million m2
annual output expansion of the Saijo Plant, scheduled for completion in mid-2008. Through these two substantial production
capacity expansions, Kuraray is establishing a production structure
capable of providing a steady supply of poval products to theglobal LCD market.
Production Capacity

5,500
5,500

5,500
5,500
11,0005,500
7,000
12,500

3,000

7,000

7,000

10

11

Consolidation of European Subsidiaries
The two German subsidiaries Kuraray Europe GmbH (KEG) andKuraray Specialities Europe GmbH (KSE) were merged in the year
under review to establish a unified overall management structureand enhance the effectiveness of strategic business operations for
the Kuraray Group in Europe.
Date of Merger:
September 1, 2006
Date of Application for Registration of Merger: October 25, 2006
Registration Completion:
December 2006
Overview of the Post-Merger Entity
Company name:
Kuraray Europe GmbH (KEG)
President:
Dr. Gerd Lepper
Capital:31,000,000 Euro (100% investment by Kuraray)
Employees:
Approximately 540
Principal Businesses:
Import and sale of fibers and textiles, chemicals, and dental materials.
Manufacture and sale of Poval (PVA) resin, butyral (PVB) resin and film
Address
Hoechst Industrial Park, D-65926, Frankfurt am Main, Germany

Current
Mid 2007End 2007
New Capacity (Mid 2008)

Saijo Plant
3,100
3,100
3,100
4,600 (+1,500)(Unit: million m2 per year)
Kurashiki Plant
Total
3,000
6,100
6,000 (+3,000)
9,100
9,000 (+3,000)
12,1009.000
13,60012

Expanded VECTRAN Highstrength Polyarylate Fiber
Manufacturing Facilities
The company is currently conducting a ¥700 million expansion project at the VECTRAN
polyarylate fiber manufacturing
facilities at KURARAY SAIJO
CO., LTD. in Saijo City, Ehime
Prefecture. The expansion, which
will add new spinning facilities
and alleviate the production bottleneck that was occurring in theheat treatment processes, willraise annual production capacityfrom 600 tons to 1,000 tons.
Construction is scheduled forcompletion in October 2007.

VECTRANAirship constructed with VECTRAN

38

Kuraray Annual Report 2007

Kuraray Topics

Operations Start at Expanded Methacrylic Resin Molding
Material Production Facilities
The superior flexibility and other unique features of the company’s high-performance product lineup of methacrylic resin
molding materials have been generating increasingly strong
demand for optical-related applications. In the year underreview, the company expanded its annual methacrylic resin production capacity by 4,000 tons at the Niigata Plant in Tainai City,
Niigata Prefecture. Raising the Niigata Plant’s annual capacity to
44,000 tons is a strategic step to fulfilling anticipated ongoing
demand growth and expanding sales.

Expanded Operations
Commence for
Thermoplastic Elastomer
Production in the UnitedStatesIn the year under review, SEPTON Company of America,
located in Pasadena, Texas,
commenced operations of its
expanded production facilities
for the thermoplastic elastomers SEPTON and HYBRAR.
Annual production output wasboosted by 6,000 tons annually to 18,000 tons. As synthetic rubber materials, SEPTON and HYBRAR provide superior elasticity andcan be flexibly heat molded similar to plastic, allowing for wideranging applications from automobile interiors and electric appliance components to housing construction materials.
Kuraray Group Production Capacityof Thermoplastic Elastomers
SEPTON Company of America
Kashima Plant
Total

2007

2

1

Kuraray Decided to Sell Kuraray Family Products Business
On April 1, 2007, the Kuraray Group sold Kuraray Family Products
Co., Ltd., developer and marketer of health foods and other consumer goods, to the health foods company SUPLIPLUSFAMILY Co.,Ltd.
Corporate Profile
Company Name:
President:
Paid-in capital:
Annual Sales:

Kuraray Family Products Co., Ltd.
Yoshikazu Takamoto¥30 million (indirectly capitalized 100% by Kuraray)
Approximately ¥500 million

Corporate Profile
Company Name:
President:
Paid-in capital:

SUPLIPLUSFAMILY Co., Ltd.
Kikuo Ushijima¥10 million(As of March 2007)
18,000 tons/year
23,000 tons/year
41,000 tons/year

3

Kuraray Strengthens Development Framework for Inorganic
EL Light-emitting Materials
In October 2005, Kuraray and T. CHATANI & CO. LTD. (headquarters in Chuo-ku, Osaka; President, Yasuhiro Chatani) began collaborative development of T. CHATANI & CO. LTD.’s world’s first technology in ultra-bright, inorganic electroluminescence (EL) lightemitting materials. The two companies followed in April 2006 by
establishing the 50-50 joint-venture K•C Luminas Co., Ltd. to further advance the development of display light sources. On February
23, 2007, the two companies agreed to revise the investment ratio
to 90:10, and on April 1, 2007, the JV was renamed the Kuraray
Luminas Co., Ltd. Kuraray will implement measures to strengthen
the company’s development structure and capabilities.
Corporate Profile
Company name:
Kuraray Luminas Co., Ltd.
Representative:
Koichi Kushida, President (Former Kuraray Senior Managing Director)
Capital:¥400 million (Kuraray 90%, T. CHATANI & CO. LTD. 10%)

Kuraray Annual Report 200739

Financial Section

40

Consolidated Six-Year Summary

41

Financial Review

42

Consolidated Balance Sheets48

Consolidated Statements of Income

50

Consolidated Statements of Shareholders’ Equity

51

Consolidated Statements of Changes in Net Assets

52

Consolidated Statements of Cash Flows53

Notes to Consolidated Financial Statements

54

Report of Independent Auditors

66

Kuraray Annual Report 2007

Consolidated Six-Year Summary
Kuraray Co., Ltd. and Its Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 1)Millions of yen
Years ended March 31

Net sales
Cost of sales
Selling, general and administrative expenses
Operating income
Net income
Capital expenditure
Depreciation and amortization
Gross cash flow
Total research and development expenses
Total assets
Total current assets
Property, plant and equipment, net
Total current liabilities
Total long-term liabilities
Total shareholders’ equity (Note 4)
Total net assets (Note 4)

2007

2006

2005

2004

2003

2002

2007

¥ 385,285
275,886
69,17940,22022,41237,70025,49647,90813,021
508,695
217,970
174,152
94,40455,698—358,593¥ 375,073
266,284
70,512
38,277
21,18633,872
25,186
46,372
14,069481,357
200,668
159,396
79,22960,647339,127—¥ 354,874
254,115
67,572
33,187
18,46545,71521,32439,78913,874454,941
182,317
158,294
84,85754,901
312,930—¥ 332,149
236,246
67,85728,04615,181
32,164
20,78535,966
13,684413,227
171,428
137,867
75,16537,689300,306—¥ 322,524
230,618
66,72025,186
8,051
19,091
19,10827,15912,523426,877
185,748
135,985
97,39442,156287,263—¥ 305,862
228,184
58,72018,9582,866
50,716
16,05618,922
12,131
487,432
198,474
134,907122,274
74,460290,643—$ 3,265,127
2,338,017
586,263
340,847
189,932
319,492
216,068
406,000
110,347
4,310,975
1,847,203
1,475,864
800,034
472,017—
3,038,924

Net income:Primary
Fully diluted
Cash dividends applicable to period
Total shareholders’ equity
Financial ratios:
Cost of sales ratio (%)
Equity ratio (%)
Return on equity (ROE) (%)
Return on assets (ROA) (%)
Number of employees

U.S. dollars(Note 1)

Yen

Amounts per share:¥ 60.9560.80
18.50
967.81
71.6%
70.0
6.5
8.1
6,812

¥ 57.51
57.41
15.00
922.65
71.0%
70.5
6.5
8.2
6,842

¥ 50.1350.12
12.00
852.26
71.6%
68.8
6.0
7.6
6,919

¥ 40.81—10.00
817.57
71.1%
72.7
5.2
6.7
6,760

¥ 21.01
20.71
9.00
771.38
71.5%
67.3
2.8
5.5
6,983

¥ 7.497.45
9.00
759.25$ 0.52
0.52
0.16
8.20

74.6%
59.6
1.0
3.8
7,115

Notes: 1. The United States dollar amounts represent the translation of Japanese yen at the rate of ¥118=$1.
2. Certain reclassifications of previously reported amounts have been made to conform with current classifications.
3. Since the year ended March 31, 2003, the “Amounts per share” figures have been calculated in accordance with the Japanese Financial AccountingStandard “Accounting for Earnings per Share”.
4. Since the year ended March 31, 2007, the balance sheet is divided into sections on assets, liabilities, and net assets in accordance with AccountingStandards Board of Japan “Accounting Standard for Presentation of Net Assets in the Balance sheet” and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet”.

Kuraray Annual Report 200741

Financial Review
The following section refers to the consolidated financial

resins were down however due to constriction of thestatements of the Kuraray Group for fiscal 2006 (April 1,

monomers business and the impact of higher raw materials

2006 to March 31, 2007).

and fuel prices.
Sales of fibers and textiles declined 1.1%, or ¥1,182 mil-

SALESlion, to ¥107,925 million (US$914,619 thousand). Sales ofConsolidated net sales increased 2.7%, or ¥10,212 million,

KURALON as an alternative to asbestos for use in reinforc-

to ¥385,285 million (US$3,265,127 thousand) for the period.

ing cement remained favorable. Sales of the man-madeSales of chemicals and resins rose 5.5%, or ¥10,469 mil-leather CLARINO for use in accessories were strong.

lion, to ¥201,222 million (US$1,705,271 thousand). The

However, the combination of stagnant sales for shoe appli-

poval business saw an increase in sales of optical-use PVA

cations and high raw materials and fuel prices lead to flat

film for use in LCDs. Sales of poval resin were impacted byoverall sales for the category. In nonwoven fabrics andhigh raw materials and fuel prices and by intensified com-hook and loop fasteners, the Kuraray Group recorded large

petition in Asia, which affect increased sales in Europe driv-

sales volume for automobile applications. This was offset

en by demand for applications in paper processing. Sales ofby slumping sales of hygienic materials however, leading

PVB film remained strong, spurred by applications in theoverall sales down. Due to the Kuraray Group’s efforts toconstruction industry. Demand for EVAL, an ethylene vinyl

develop new applications, sales were up for the high-alcohol polymer resin for use in food packaging, wasstrength fiber VECTRAN. In the polyester business, thesteady. However, sales declined for applications in automo-

Kuraray Group made progress in its efforts to shift to dif-biles. In isoprene-related products, demand remained

ferentiating products, but felt the impact of high raw

steady for the thermoplastic elastomer, SEPTON, which ismaterials and fuel prices.

used as a substitute for vulcanized rubber and soft PVC.

Sales of high-performance materials, medical products,

Sales of specialized chemicals were strong, but conditions

and others increased 1.2%, or ¥925 million, to ¥76,138

remained severe in the fine chemicals business, impacted

million (US$645,237 thousand). The Kuraray Group ceased

by intense competition in aroma chemicals and agricultural

production of opto-screens as of December 2006 and sub-intermediates. Lastly in methacrylic resins, sales of opticalsequently withdrew from the optoelectronic products busi-

components for use in LCDs increased, while sales of mold-ness. In the medical products business, sales of dental

ing materials and sheets for general-purpose products

materials increased in the United States and other overseas

remained steady. Overall sales and earnings of methacrylic

markets. However, sales declined in the dialyzer and thera-

06

07

201,222
107,925

190,753
109,107167,264
109,829

155,921106,00376,13805

75,213

04

77,78103

Net Sales
Operating Income Margin¥ Millions

70,2258.4

7.8

109,915

10.4
10.2

9.4

Net Sales by
Business Segment

144,690385,285

375,073354,874

332,149

322,524¥ Millions %67,919Net Sales &Operating Income Margin

03

04

05

06

07

Chemicals and Resins
Fibers and Textiles
High-Performance Materials, Medical Products and Others
Note: New business segments were adopted in the year ended March 31, 2003.
Data for the previous year has been restated.

42

Kuraray Annual Report 2007

Financial Review

peutic apheresis devices businesses due to the impact of

to increased sales in the PVB film business, strong demand

price revisions for medical products. The Kuraray Group hasfor EVAL and SEPTON contributed to growth in sales.

reached a basic agreement on a merger of its dialyzer busi-

Finally in Asia, sales decreased 4.5%, or ¥750 million, tonesses, including sales and development activities, with

¥15,982 million (US$135,441 thousand). The Kuraraythose of Asahi Kasei Medical Co., Ltd. to take place inGroup continued to prioritize increases in poval prices to

October 2007. In high performance materials, the Kuraray

offset the sharp rise in raw materials and fuel prices.

Group recorded a sales increase for the heat-resistantHowever, sales decreased for the period.

polyamide resin GENESTAR on the back of strong demand
for use as a material in electronics. Sales of activated car-

OPERATING AND NET INCOME

bon rose, supported by applications in water purification.

Cost of sales increased 3.6% to ¥275,886 million

Performance of the engineering and other related busi-(US$2,338,017 thousand), and increased as a percentage

nesses was solid.

of sale to 71.6%, from the previous fiscal year’s 71.0%.

Net sales in Japan and Europe rose year-on-year in the

Despite results from ongoing efforts in improvement of theperiod, but declined in North America and Asia.

business portfolio - a shift toward high value added prod-

Sales in Japan increased 5.4%, or ¥14,690 million, toucts as part of the GS-21 Medium-Term Business Plan -¥288,447 million (US$2,444,466 thousand). This increase

and in cost reductions, increases in raw materials and fuelwas a result of expanded sales and increased exports

prices brought cost of sales higher. Selling, general, andof optical-use poval film, optical-use methacrylic resin,

administrative (SG&A) expenses decreased 1.9% to

SEPTON, KURALON, and GENESTAR, as well as the passing¥69,179 (US$586,263 thousand), down 0.8 points year-

on of higher raw materials and fuel costs to product prices.

on-year to 18% as a percentage of sales, again due to cost

In North America, sales decreased 24.4%, or ¥7,463 mil-cutting efforts. Despite the higher cost of sales, pricelion, to ¥23,147 million (US$196,161 thousand). Sales ofincreases in response to high materials and fuel costs,

SEPTON as a substitute for vulcanized rubber and soft PVC

along with the lower SG&A, brought operating income

expanded, while sales of EVAL for use in automobile fuelhigher by 5.1% to ¥40,220 million (US$340,847 thou-tanks declined.

sand). Operating margin improved to 10.4% from 10.2%

In Europe, sales increased 6.9%, or ¥3,735 million, toin fiscal 2005, the sixth consecutive year of improvement -¥57,709 million (US$489,059 thousand). High raw materials

from 6.2% in fiscal 2002. Corporate costs increased ¥484

and fuel prices had an impact of operations, but in addition

million to ¥11,699 million.

Interest-Bearing Dept50.13

11,820

21.01

03

04

05

North America
Domestic

06

07

03

27,963

60.95
57.51

40.81

8,051

Asia
Europe¥ Millions

36,982¥ Millions ¥26,265

18,465

15,181

288,447

273,757

269,534

254,373

254,543

15,982
16,732
23,147
15,567 30,610
57,70910,152 13,352 27,586 53,974
24,028 24,575
42,18733,801 39,849

29,681Net Income &Net Income per Share (Primary)

22,412¥ Millions

21,186Net Sales byGeographic Segment

04

05

06

07

03

04

05

06

07

Net Income
Net Income per Share (primary)Note: Due to their growing weight in total net sales, the North America and Asia segments were separated out from the year ended March 31, 2003.
Data for the previous year has been restated.

Kuraray Annual Report 200743

Lower asset impairment on property, plant and equip-

factors such as portions of long-term debt coming due inment, an improvement of ¥3,797 million, were offset by

the period (see below).

increases in restructuring charges, an increase of ¥4,110

Strategic acquisition and expansion brought property

million, and gains of sales of investment securities increased

plant and equipment higher by 9.3% to ¥174,152 million¥2,050 million year-on-year. These and other factors com-

(US$1,475,864 thousand), which included factors such as

bined to an increase in income before taxes and minority

an increase in machinery and equipment, of ¥9,281 million,interest of 3.5% to ¥35,582 million (US$301,542 thou-to ¥452,970 million (US$3,838,729 thousand) and a rise insand). Taxes for the period came to ¥13,056 million

construction-in-progress, of ¥10,388 million, to ¥34,978(USD$110,644 thousand), yielding an effective tax rate ofmillion (US$296,423 thousand). Investments and other

36.7%. Net income rose 5.8% to ¥22,412 million

assets fell ¥4,720 million to ¥116,573 million (US$987,908(US$189,932 thousand), the sixth consecutive year of high-thousand). A drop of ¥15,053 million, to ¥14,654 million

er income - from ¥2,866 million in fiscal 2002.

(US$124,186 thousand), in accumulated premiums in insurance was offset by an increase of ¥5,588 million in invest-

FINANCIAL POSITION

ment securities, to ¥43,558 million (US$369,136 thousand),

As of March 31, 2007, cash and cash equivalents roseand an increase of ¥1,964 million in prepaid pension costs,¥5,948 million to ¥34,033 million (US$288,415 thousand).

to ¥7,106 million (US$60,220 thousand), as well as by otherNotes and accounts receivable increased ¥4,222 million tofactors. Total assets increased ¥27,338 million to ¥508,695¥98,783 million (US$837,145 thousand). Lastly inventories

million (US$4,310,975 thousand), and return on assets

increased ¥2,801 million to ¥72,232 million (US$612,136(operating income divided by average total assets for the

thousand) along with the increase in sales, and the number

period) fell slightly, by 0.1%, from last year to 8.1%.

of months’ sales in inventory remained unchanged fromCurrent liabilities increased ¥15,175 million to ¥94,404

fiscal 2005 at 2.2 months. As a result of these and othermillion (US$800,034 thousand). An increase of ¥4,610 mil-factors, current assets rose 8.6% to ¥217,970 million

lion, to ¥5,000 million (US$42,373 thousand), in the current(US$1,847,203 thousand). Working capital (current assets

portion of long-term debt, and an increase of ¥3,509 mil-and inventory less current liabilities) fell ¥7,745 million tolion, to ¥43,663 million (US$370,025 thousand) in notes and¥76,627 million (US$649,382 thousand) while the current

accounts payable, along with other factors, were the cause

ratio (current assets and inventory divided by current liabili-of the current liability increase. Long-term liabilities fellties) declined to 181.2% from fiscal 2005’s 206.5% due to¥4,949 million to ¥55,698 million (US$472,017 thousand).

Number ofMonths’ Sales in Inventory

Total Current Assets &Total Current Liabilities¥ Millions

Total Shareholders’ Equity &Equity Ratio¥ Millions %358,593

339,127

312,930

300,306

287,263

217,970

200,668

182,317

171,428

185,748

2.2

2.2

2.2

2.2

2.4

Months

03

04

05

06

07

03

04

Total Current Assets
Total Current Liabilities

44

Kuraray Annual Report 2007

05

06

70.5

68.8

94,404

79,22984,85775,16597,394

70.0
72.7

67.3

07

03

04

05

Total Shareholders’ Equity
Equity Ratio

06

07

Financial Review

Factors for the decline included a drop in long-term debt ofoutlays for the purchase of investment securities, ¥15,575¥3,001 million, to ¥16,255 million (US$137,754 thousand),million, brought cash outlays higher for the period.

and a decline in deferred taxes of ¥2,585 million, to ¥11,129

Net cash and cash equivalents used in financing activities

million (US$94,314 thousand). Lastly regarding net assets,

decreased ¥3,441 million to ¥4,350 million (US$36,864

from fiscal 2006 onward, Japanese accounting standards

thousand). Despite an increase in dividends paid of ¥1,477

now require presentation of net assets instead of sharehold-million, and lower proceeds from long-term debt, ¥1,400

ers’ equity. Net assets increased ¥17,112 million tomillion, decreases in repayment of short-term bank loans of¥358,593 million (US$3,038,924 thousand) due mainly to a

¥3,248 million, and lower repayments of long-term debt,¥16,050 million increase year-on-year in retained earnings.

¥3,003 million, brought cash outlays lower for the period.

Subtracting minority interest of ¥2,455 to yield shareholder’sequity of ¥356,147 million, the equity ratio for the period

RESEARCH AND DEVELOPMENT

was 70.0%, down 0.5% from fiscal 2005.

Total R&D expenses for the year totaled ¥13,021 million(US$110,347 thousand), 3.4% of net sales, compared with

CASH FLOWS

3.8% in fiscal 2005. Corporate R&D expenses totaled

Net cash and cash equivalents provided by operating activi-¥3,965 million, or 30.5% of total expenditure. R&D

ties increased ¥6,272 million to ¥38,962 million

focused on developing new products in the chemical and(US$330,186). The increase stemmed from factors includ-

resins segment, at ¥4,373 million, or 33.6% of the total,

ing lower inventory purchases, ¥2,862 million, and an

represented the largest portion of outlays. Fibers and tex-increase in notes and accounts payable of ¥5,327 million,

tiles accounted for ¥2,541 million, or 19.5%, while high-but was offset by higher income taxes paid, ¥2,944 million.

performance materials, medical products and others

Net cash and cash equivalents used by investing activities

accounted for ¥2,142 million, or 16.4%. The Kurarayincreased ¥15,243 million to ¥28,936 million (US$245,220

Group employs 784 research personnel.

thousand). Despite factors including higher proceeds fromsale and redemption of investing securities of ¥3,861 mil-

CAPITAL EXPENDITURE

lion, and higher withdrawals from accumulated premiums

Capital expenditure (capex) for fiscal 2006 increased to

on insurance of ¥9,269 million, factors including an¥37,700 million (US$ 319,492 thousand), or 9.8% of net

increase in marketable securities of ¥6,292 million, lower

sales, compared with 9.0% of net sales in the previous

proceeds from sales of assets, ¥5,623 million, and higher

year. Corporate capex outlays were ¥5,751 million, or

04

05

06

07

03
Total Assets
ROA

19,108

04

05

06

07

03

05

22,412

21,186

18,46504

25,49603

25,186

6.7
5.5

2.8

¥ Millions

21,324

8.1
8.2

7.6

15,181

413,227

426,877

5.2

481,357

6.4

6.0

Gross Cash Flow

20,785¥ Millions %454,941

6.5

Total Assets &
ROA

8,051

%

508,695

ROE

06

07

Net Income
Depreciation and Amortization

Kuraray Annual Report 200745

15.3% of total expenditures. Capex in chemicals and resins

tomers, rebuild the aroma chemicals business, and acceler-

operations amounted to ¥22,785 million, or 60.4% of

ate market development for new products in the finetotal outlays. Capex in fibers and textiles were ¥5,932 mil-chemicals business. In methacrylic resins, we will endeavorlion, or 15.7% of total capex. And capex in high-perform-

to boost sales of high-performance products, centered onance materials, medical products and others were ¥3,232

optical applications.

millions, or 8.6% of total capex. The Kuraray Group willIn the fibers and textiles business, we will take active

continue aggressive capital expenditure focused on core

steps to expand the number of specialized applications

businesses.

for KURALON, such as in reinforcing cement. We will
work to expand the market for TIRRENINA, an eco-friend-OUTLOOKly variety of man-made leather. In nonwoven fabrics, we

In fiscal 2007, we expect to see steady growth in the world

will focus on developing markets for a “New Type”:

economy. However, it is believed that high prices for raw

Steam Jet Products under development, which incorpo-

materials and fuel will continue, along with a number ofrates steam-jet technologies, and on expanding uses forother uncertainties, including lingering concern over thefocus in automobiles. In the polyester business, we will

direction of the economies in the United States and China.

expand sales of uniforms and other sportswear products.

In addition, we expect international competition to intensi-

In high-performance materials, medical products andfy, making the operating environment more severe. Under

others, we will strengthen the sales of dental materials inthese circumstances, we will pursue the following business

Europe, the United States, and other overseas markets. We

initiatives.

will also broaden the use of GENESTAR as a material in

In the chemicals and resins business, we will expand production capacity for optical-use poval film. In poval resins,

electronics and speed the development of its uses in automobiles.

we will endeavor to pass higher raw materials and fuelForecasts for fiscal 2007 are net sales of ¥415,000 mil-prices along in the form of higher product prices andlion, operating income of ¥45,000 million, and net income

increase sales of high value-added products. In the EVALof ¥24,000 million. These forecasts assume averagebusiness, we will work to increase product prices and to

exchange rates of ¥115 to the US dollar, ¥150 to the Euro,

accelerate market development for new products such as

as well as a price of ¥50,000 per kiloliter for domestically

EVAL SP and KURARISTER. In isoprene-related products, we

produced naphtha and a Dubai crude oil price of $US57.00

will expand overseas sales volume of thermoplastic elas-per barrel.

Total R&D Expenses by
Business Segment

Capital Expenditure by
Business Segment¥ Millions¥ Millions

05
06
Fibers and Textiles
Chemicals and Resins
High-Performance Materials, Medical Products and Others
Corporate07

Note: Data for the year ended March 31, 2003, reflects the conversion to an in-house company system
so as to combine Companywide R&D expenses.
Data for prior years has not been restated.

46

Kuraray Annual Report 2007

23,81021,455
7,821

19,091

03

5,932

4,128
4,655
1,438

04

33,872

32,164

5,177

03

37,70022,785

4,373

32,262

13,021

2,541

2,783 2,298
4,852

45,715

3,965 2,142

3,090 2,255
4,703

4,136

14,0693,211 2,096

3,826

13,874

4,760

4,347

2,842 2,100

3,232

12,523

3,617

13,684

04

3,654
5,103

7,215

4,787

1,952

2,110

3,283
1,992

05
06
Fibers and Textiles
Chemicals and Resins
High-Performance Materials, Medical Products and Others

3,232
5,751

07
Corporate

Note: Data for the year ended March 31, 2003, reflects the conversion to an in-house company system
so as to combine Companywide capital expenditure.
Data for prior years has not been restated.

Financial Review

BUSINESS RISKS

4. Changes in Exchange Rates

Significant risks that could have an impact on the Kuraray

The Kuraray Group is expanding its manufacturing andGroup’s results of operations and financial condition are

sales operations in Japan and in overseas regions, including

discussed below. Estimates of future performance represent

Europe, North America, and Asia. Exports of the Kuraray

the Kuraray Group’s best judgement as of March 31, 2007.

Group’s domestically manufactured products are affectedby changes in export sales prices. Sales of products manu-

1. Changes in Market Environment

factured in overseas facilities are affected by sales prices inIn the rapidly growing information and communication

foreign currencies and the value of foreign currency

fields, the Kuraray Group supplies a broad variety of materi-denominated assets and liabilities affects profitability. All of

als and components, notably film and molded resin prod-

the Kuraray Group’s business are composed of operations

ucts for flat panel displays. The Kuraray Group is strategical-

in different currencies and are therefore subject to thely expanding net sales and profits in these fields, where theeffects of changes in currency exchange rates. The Kuraraymarket environment can undergo drastic changes within aGroup is in general affected negatively by a rise in the

short period as a result of reverses in industry standards andvalue of the yen with respect to other currencies.

changes in demand/supply balance. If these changes occur,sales volumes could contract or sales prices could fall, with

5. Litigation

an adverse effect of the Kuraray Group’s performance.

Engaged in a broad range of business activities, theKuraray Group is subject to potential litigation across

2. Changes in Raw Material and Fuel Prices

numerous fields. In the fiscal year under review, theThe Kuraray Group is primarily engaged in the manufactur-

Kuraray Group did not face litigation of material nature. In

ing and sale of synthetic fibers and textiles, chemical prod-

the event that the Kuraray Group is subject to future litiga-

ucts, and synthetic resins as well as goods made from thesetion however, performance and financial standing may bematerials. In this business structure, the effects of raw mate-adversely affected.

rial and fuel prices on cost of sales or relatively large. If highmarket prices for raw materials, such as ethylene and other6. Accidents and Disasters

chemical materials, crude oil, and natural gas, cannot be off-

The Kuraray Group has manufacturing facilities in Japan,

set by increases in productivity or other internal measures, orEurope, North America, and Asia. Many of these are large

by passing costs along in sales prices, it is possible that thechemical plants that handle a variety of chemicals. If an

Kuraray Group’s performance will be adversely affected.

industrial accident or release of pollutants to the environment should occur, the loss of lives and property of third

3. Product Defects

parties could result in claims against the assets of the

The Kuraray Group has instituted thorough product quality

Kuraray Group and halt manufacturing operations for longcontrol measures, and the Kuraray Group carries liability

periods, adversely affecting the performance and financial

insurance against product liability claims. However, theposition of the Kuraray Group. The occurrence of an earth-possibility exists that major product defects arising fromquake, flood, or other natural disaster, an epidemic of a

unforeseeable causes could necessitate a large-scale prod-communicable disease or other medical incident, war, riot,

uct recall. Under such circumstances, recall expenses, loss

terrorist attack, trouble with information systems, or infor-of public trust, compensation of customers, legal costs,

mation leaks could interfere with business operations ofand indemnification expenses could adversely affect thethe Kuraray Group, with an adverse impact on perform-

financial position of the Kuraray Group.

ance and financial position. Accidents or disasters such as
those mentioned above could also interfere with the business operations of the Kuraray Group’s customers and suppliers, with a similar adverse effect on the Kuraray Group’s
performance and financial position.

Kuraray Annual Report 200747

Consolidated Balance Sheets
Kuraray Co., Ltd. and Its Consolidated Subsidiaries
Thousands of
U.S. dollars(Note 1)Millions of yen

2007

2006

2007

¥ 34,033¥ 28,085$ 288,415

Trade93,56988,677

792,958

Unconsolidated subsidiaries and affiliates

2,750

1,757

23,305

Other

2,464

4,127

20,882

909

624

7,703

March 31, 2007 and 2006ASSETS
Current assets:
Cash and cash equivalents
Notes and accounts receivable:

Loans receivable from unconsolidated subsidiaries, affiliates and others(893)(1,015)(7,568)98,79994,170837,280

Inventories (Note 4)

72,232

69,431

612,136

Deferred income taxes (Note 9)

6,741

6,478

57,127

Other current assets

6,165

2,504

52,245217,970

200,668

1,847,203

Land

19,02919,676161,263

Buildings

90,862

88,265770,017

Machinery and equipment

452,970443,689

3,838,729

Construction-in-progress

34,97824,590296,423

Allowance for doubtful accounts

Total current assets
Property, plant and equipment (Note 5):Less accumulated depreciation

597,839576,220

5,066,432(423,687)(416,824)(3,590,568)

174,152

159,396

1,475,864

29,29828,625248,288

Investments and other assets:
Goodwill
Other intangible assets

5,941

6,014

50,347

Investment securities (Note 3)

43,55837,970369,136

Investments in unconsolidated subsidiaries and affiliates

5,990

4,512

50,763

2,261

2,802

19,161Loans receivable from:
Unconsolidated subsidiaries and affiliates

448

475

3,797

Accumulated premiums on insurance

14,65429,707

124,186

Deferred income taxes (Note 9)

2,845

2,650

24,110Prepaid pension cost (Note10)

7,106

5,142

60,220

Other

4,490

3,511

38,053

(18)

(115)

(153)

Other

Allowance for doubtful accounts

See notes to consolidated financial statements.

48

Kuraray Annual Report 2007

116,573

121,293

987,908¥ 508,695¥ 481,357$ 4,310,975

Consolidated Balance Sheets
Thousands of
U.S. dollars(Note 1)Millions of yen

2007

2006

2007

¥ 6,708
5,000¥ 6,619390$ 56,847
42,37342,794869
14,341
6,736
17,956
94,404

39,150
1,004
8,130
7,165
16,771
79,229362,661
7,364
121,534
57,085
152,170
800,034

16,255
11,12913,071
15,24355,69819,256
13,714
13,404
14,27360,647

137,754
94,314
110,771
129,178
472,017

—

2,354

—

—
—
—
—
—
—

88,95587,227
155,377
16,426
2,726
350,711

—
—
—
—
—
—

—
—
¥ —

(11,584)
339,127¥ 481,357——$ —NET ASSETS
Owners’ equity (Note 7):
Paid-in capital:
Authorized-1,000,000,000 shares in March 2007
Issued-382,863,603 shares in March 2007
Capital surplus
Earned surplus
Treasury stock-15,181,671 shares in March 2007
Total owners’ equity

88,95587,314
171,427(11,281)
336,415—————753,856
739,949
1,452,771(95,602)2,850,974

Valuation and translation adjustments
Valuation difference on available-for-sale securities (Note 3)
Deferred gains or losses on hedges
Translation adjustments
Total valuation and translation adjustments

11,322(9)8,410
19,723————

95,949(76)
71,271
167,144

Minority interests

2,455

—

20,806

358,593—

3,038,924¥ 508,695¥ —$ 4,310,975

LIABILITIESCurrent liabilities:
Short-term bank loans (Note 6)
Current portion of long-term debt (Note 6)
Notes and accounts payable:
Trade
Unconsolidated subsidiaries and affiliates
Other
Accrued income taxes (Note 9)
Accrued expenses and otherTotal current liabilities
Long-term liabilities:
Long-term debt (Note 6)
Deferred income taxes (Note 9)
Accrued retirement benefits (Note 10)
Other
Total long-term liabilities
Minority interests
Commitments and contingencies (Note 13)
SHAREHOLDERS’ EQUITY (Note 7):
Common stock:
Authorized-700,000,000 shares in March 2006
Issued-382,863,603 shares in March 2006
Capital surplus
Retained earnings
Unrealized gain on revaluation of securities (Note 3)
Cumulative translation adjustments
TOTAL SHAREHOLDERS’ EQUITY
Treasury stock at cost - 15,379,675 shares in 2006
15,755,698 shares in 2005
TOTAL LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS’ EQUITYTOTAL NET ASSETSTOTAL LIABILITIES AND NET ASSETS

Kuraray Annual Report 200749

Consolidated Statements of Income
Kuraray Co., Ltd. and Its Consolidated Subsidiaries

Millions of yen
Years ended March 31, 2007 and 2006

Net sales
Cost of sales (Note 12)(Gross profit)
Selling, general and administrative expenses (Notes 11 and 12)(Operating income)
Other income (expenses):
Interest income
Dividend income
Equity in earnings of affiliates
Interest expenses
Restructuring charges
Gain on sales of investment securities
Write-down of investment securities
Loss on disposal of inventories
Gain on sales of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on changes in retirement benefits plan
Impairment loss on property, plant and equipment
Other, net(Income before income taxes and minority interests)
Income taxes (Note 9):
Current
Deferred
Minority interests in net income of consolidated subsidiaries
Net income

2007

2006

2007

¥ 385,285
275,886
109,399
69,17940,220¥ 375,073
266,284
108,789
70,512
38,277$ 3,265,127
2,338,017
927,110586,263
340,847

1,022
918
78
(419)
(5,803)
3,079(293)(1,236)
3,746
(670)
634
(1,658)(4,036)(4,638)35,582

741
553
56
(414)
(1,693)
1,029(253)(2,265)
8,446
(492)
—
(5,455)(4,167)(3,914)34,363

8,661
7,780
661
(3,551)(49,178)
26,093(2,483)(10,475)
31,746(5,678)5,373(14,051)(34,203)(39,305)
301,542

12,613443
13,056(114)¥ 22,412

11,674
1,394
13,068(109)¥ 21,186

106,890
3,754
110,644(966)$ 189,932
U.S. dollars(Note 1)Yen

Net income per share:
Primary
Fully diluted
See notes to consolidated financial statements.

50

Kuraray Annual Report 2007

Thousands of
U.S. dollars(Note 1)

¥ 60.95
60.80¥ 57.51
57.41$ 0.52
0.52

Consolidated Statements of Shareholders’ Equity
Kuraray Co., Ltd. and Its Consolidated Subsidiaries
Millions of yen

Common stock

CapitalsurplusRetainedearnings¥ 87,156¥ 138,951
21,186(4,772)(59)
56
15

Years ended March 31, 2006

¥ 88,955
Balance at March 31, 2005
Net income
Cash dividends, ¥13.00 per share
Bonuses to directors
Effect of changes in reporting entities
Minimum pension liability adjustment
Changes in unrealized gain on revaluationof securities (Note 3)
Translation adjustments
Treasury stock disposed, net¥ 88,955
Balance at March 31, 2006

Unrealized
gain onrevaluationof securities(Note 3)Cumulativetranslation
adjustments

Treasury stock¥ 9,012¥ 679¥ (11,823)

7,414
2,047
71
¥ 87,227¥ 155,377¥ 16,426¥ 2,726239¥ (11,584)

See notes to consolidated financial statements.

Kuraray Annual Report 200751

Consolidated Statements of Changes in Net Assets
Kuraray Co., Ltd. and Its Consolidated Subsidiaries
Millions of yen
Owners’ equity

Balance at March 31, 2006
Cash dividends, ¥17.00 per share
Net income
Bonuses to directors
Treasury stock acquired
Treasury stock disposed
Other
Net changes other than owners’ equity
Total changes during the current period
Balance at March 31, 2007

Paid-in
capitalCapitalsurplus¥ 88,955¥ 87,227

Earnedsurplus¥155,377(6,249)22,412(68)

Treasurystock¥ (11,584)

(176)
479

87
(45)
—
¥ 88,955

87¥ 87,314

16,050¥ 171,427

303¥ (11,281)

Total
Owners’equity¥ 319,975(6,249)22,412
(68)
(176)
566
(45)
16,440¥ 336,415

Millions of yen
Valuation and translation adjustments
Valuationdifference on
available-for-salesecurities (Note 3)

Balance at March 31, 2006
Cash dividends, ¥17.00 per share
Net income
Bonuses to directors
Treasury stock acquired
Treasury stock disposed
Other
Net changes other than owners’ equity
Total changes during the current period
Balance at March 31, 2007

Deferred
gains or losses
on hedges

Translation
adjustments

Totalvaluation andtranslation
adjustments

Minority
interests

Total
net assets¥ 16,426¥ —¥ 2,726¥ 19,152¥ 2,354(5,104)(5,104)¥ 11,322

(9)
(9)
¥ (9)

5,684
5,684
¥ 8,410571
571¥ 19,723

101
101¥ 2,455¥ 341,481(6,249)22,412
(68)
(176)
566
(45)
672
17,112¥ 358,593

Thousands of U.S. dollars
Owners’ equity

Balance at March 31, 2006
Cash dividends, $0.14 per share
Net income
Bonuses to directors
Treasury stock acquired
Treasury stock disposed
Other
Net changes other than owners’ equity
Total changes during the current period
Balance at March 31, 2007

Paid-in
capitalCapitalsurplus

EarnedsurplusTreasurystock$ 753,856$ 739,212$ 1,316,754(52,958)
189,932(576)$ (98,169)(1,492)
4,059

737
(381)
—
$ 753,856

737$ 739,949

136,017$ 1,452,771

2,567$ (95,602)

Total
Owners’equity$ 2,711,653(52,958)
189,932(576)(1,492)
4,796(381)
139,321$ 2,850,974

Thousands of U.S. dollars
Valuation and translation adjustments
Valuationdifference on
available-for-salesecurities (Note 3)

Balance at March 31, 2006
Cash dividends, $0.14 per share
Net income
Bonuses to directors
Treasury stock acquired
Treasury stock disposed
Other
Net changes other than owners’ equity
Total changes during the current period
Balance at March 31, 2007
See notes to consolidated financial statements.

52

Kuraray Annual Report 2007

Deferred
gains or losses
on hedges

Translation
adjustments

Totalvaluation andtranslation
adjustments

Minority
interests

Total
net assets$ 139,203$ —$ 23,102$ 162,305$ 19,949(43,254)(43,254)$ 95,949(76)(76)$ (76)

48,16948,169$ 71,271

4,839
4,839
$ 167,144857
857$ 20,806$ 2,893,907(52,958)
189,932(576)(1,492)
4,796
(381)
5,696
145,017$ 3,038,924

Consolidated Statements of Cash Flows
Kuraray Co., Ltd. and Its Consolidated Subsidiaries

Millions of yen
Years ended March 31, 2007 and 2006

Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments to reconcile income before income taxes and minority interests
to net cash and cash equivalents provided by operating activities:
Depreciation and amortization
Increase or decrease in allowance for doubtful accounts
Increase or decrease in accrued retirement benefits, net
Impairment loss on property, plant and equipment (Note 5)
Gain on sales of property, plant and equipment
Loss on disposal of property, plant and equipment
Gain on sales of investment securities
Write-down of investment securities
Interest and dividend income
Interest expenses
Increase or decrease in notes and accounts receivable
Increase or decrease in inventories
Increase or decrease in notes and accounts payable
Increase or decrease in prepaid pension costs (Note 10)
Other, net
Sub-totalInterest and dividend received
Interest paid
Income taxes paid
Insurance benefits received
Net cash and cash equivalents provided by operating activities
Cash flows from investing activities:
Increase or decrease in time deposits
Decrease (increase) in marketable securities
Payments for acquisition of property, plant, equipment and intangible assets
Proceeds from sales of property, plant, equipment and intangible assets
Payments for purchase of investment securities
Payment for disposal of property, plant equipment and intangible assets
Proceeds from sales and redemption of investment securities
Payments for acquisition of long term prepaid expenses
Payments of premiums on insurance
Withdrawals from accumulated premiums on insurance
Other, net
Net cash and cash equivalents used in investing activities
Cash flows from financing activities:
Increase or decrease in short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Dividends paid
Dividends paid to minority interests shareholders
Proceeds from sales of treasury stock
Payments for purchase of treasury stock
Net cash and cash equivalents used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effect of changes in reporting entities
Cash and cash equivalents, end of year

Thousands of
U.S. dollars(Note 1)

2007

2006

2007

¥ 35,582¥ 34,363$ 301,542

25,496
(168)
227
1,658
(3,746)670(3,079)293(1,940)419(4,932)(1,357)
2,822(1,964)(1,133)
48,8481,554(420)(13,170)
2,150
38,962

25,186
37
(141)
5,455
(8,446)492(1,029)253(1,294)414(5,838)(4,219)(2,505)(1,630)587
41,685943(388)(10,226)676
32,690216,068(1,424)
1,924
14,051(31,746)
5,678(26,093)
2,483(16,441)
3,551(41,797)(11,500)
23,915(16,644)(9,601)
413,966
13,169(3,559)(111,610)
18,220330,186(1,890)(3,292)(32,575)
4,927(16,954)(2,744)
7,465(2,457)(309)
15,842
3,051(28,936)—3,000(36,069)
10,550(1,379)
(338)
3,604
(338)
(702)
6,573
1,406
(13,693)(16,017)(27,898)(276,059)
41,754(143,678)(23,254)
63,263(20,822)(2,619)134,254
25,856(245,220)

(74)
2,000
(404)
(6,249)
(13)
567
(177)
(4,350)272
5,948
28,085—¥ 34,033(3,322)
3,400(3,407)(4,772)—461(151)(7,791)
134
11,341
16,743
1¥ 28,085(626)
16,949(3,424)(52,958)
(110)
4,805
(1,500)(36,864)
2,305
50,407238,008—$ 288,415

See notes to consolidated financial statements.

Kuraray Annual Report 200753

Notes to Consolidated Financial Statements
Kuraray Co., Ltd. and Its Consolidated Subsidiaries Years ended March 31, 2007 and 2006
1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS:
The accompanying consolidated financial statements of Kurarayand practices generally accepted in Japan but have been pre-Co., Ltd. (the “Company”) and its subsidiaries are prepared on

sented as additional information.

the basis of accounting principles generally accepted in Japan,

Certain reclassifications of the accompanying consolidated

which are different in certain respects as to application and dis-financial statements as of and for the year ended March 31,

closure requirements from International Financial Reporting

2006 have been made to conform to the 2007 presentation.

Standards, and are compiled from the consolidated financial

The United States dollar amounts included herein are provid-

statements prepared by the Company as required by theed solely for convenience of readers outside Japan and are stat-

Securities and Exchange Law of Japan.

ed, as a matter of arithmetical computation only, at the rate of

In preparing these consolidated financial statements, certain¥118=$1, the approximate exchange rate prevailing on March

reclassifications have been made to the consolidated financial

31, 2007. The translations should not be construed as represen-statements issued domestically to present them in a form moretations that the Japanese yen amounts have been, could havefamiliar to readers outside Japan. In addition, certain notes

been or could in the future be, converted into United States dol-included herein are not required under accounting principles

lars at this or any other rate.

2. SIGNIFICANT ACCOUNTING POLICIES:(a) Principles of consolidationaccounted for on an equity basis are amortized using the

These consolidated financial statements include the financial

straight-line method over the estimated period of the benefit, instatements of the Company and its significant 34 subsidiaries

case the difference is immaterial, it is credited to income when

(35 subsidiaries at March 31, 2006). A subsidiary is a company,

incurred. The differences recognized in overseas subsidiaries andmore than 50% of whose shares are held by the Company, or aaffiliates are accounted for in accordance with accounting prin-company, 40%-50% of whose shares are held by the Company

ciples generally accepted in those countries.

and which is controlled by the Company through certain channels. Hereinafter, the Company and its consolidated subsidiaries(b) Cash and cash equivalents

are collectively referred to as the “Companies”.

Cash and cash equivalents include all highly liquid investments

In the case of a change in reporting entity, the consolidatedwith an original maturity of three months or less, of which at least

financial statements are not restated, but the effect of thethe face amount can be withdrawn at any time without penalty.

change to retained earnings at the beginning of the year is
directly charged or credited to retained earnings during the year.

(c) Matured notes or accounts on the end of fiscal periods

Investments in unconsolidated subsidiaries and 20%-50%

Although the closing date of the fiscal period was a holiday forowned companies other than subsidiaries (“affiliates”), withfinancial institutions, Kuraray and its subsidiaries in Japan

minor exceptions, are accounted for using the equity method.

accounted for the matured notes and/or accounts on the end of

The fiscal year of the Company’s foreign consolidated sub-fiscal periods as if notes and/or accounts were settled on maturi-

sidiaries is ending December 31, which differs from that of thety basis. The amounts of notes and/or accounts matured on the

Company. Those subsidiaries do not prepare their financial state-end of the fiscal year ended March 31, 2007 and excluded fromments at any date after December 31, or on or before March 31 in

the balance sheet were as follows:

the succeeding year. Any material events occurring during theMillions of yen

January 1 to March 31 period are adjusted for in those consolidated financial statements.
In this fiscal year, foreign subsidiaries below changed their fiscal year end from March 31 to December 31.
Kuraray Holdings U.S.A., Inc.
Kuraray America, Inc.

Notes receivable
Accounts receivable-trade
Notes payable
Accounts payable-trade
Accounts payable-otherThousands of
U.S. dollars

2007

2007

¥ 2,505
3,555
860
3,725
234

$ 21,229
30,127
7,288
31,5681,983

Eval Company of America

54

SEPTON Company of America(d) Investment securities

EVAL Europe N.V.

As of March 31, 2007 and 2006, investment securities represent

The difference between the cost and the underlying net equi-available-for-sale securities. Available-for-sale securities are car-ty of investments in consolidated subsidiaries and affiliates

ried at fair value with unrealized gains or losses recorded as a

Kuraray Annual Report 2007

Notes to Consolidated Financial Statementscomponent of net assets, net of applicable taxes. Available-for-(h) Accounting for impairment losses on fixed assets

sale securities whose fair value is not readily determinable are

Effective from the year beginning April 1, 2005, the Company

stated at cost except for debt securities, which are stated atand its domestic consolidated subsidiaries and affiliates haveamortized cost. Moreover, available-for-sale securities with aadopted “Accounting Standard for Impairment of Fixed Assets”

maturity of one year or less are classified as current assets.

and “Implementation Guidance for Accounting for Impairmentof Fixed Assets”. The standard, which was issued by the Business(e) Inventories

Accounting Council in Japan on August 9, 2002, requires that

Inventories other than supplies are stated at cost principally

fixed assets be reviewed for impairment whenever events or

determined using the average cost method. Supplies are statedchanges in circumstances indicate that the carrying amount of anat cost principally determined using the moving average method.

asset may not be recoverable. The effective date of the Standard
is fiscal year beginning on or after April 1, 2005.

(f) Property, plant and equipment
Property, plant and equipment are stated at cost.

As a result of this change, income before income taxes andminority interests decreased by ¥1,658 million ($14,051 thou-Depreciation, except for buildings, is principally computedsand) for the year ended March 31, 2007, and decreased byusing the declining-balance method over the estimated useful¥5,455 million for the year ended March 31, 2006. The effects

lives of the assets. The depreciation method for buildings is prin-of this change are further discussed in Note 5.

cipally computed using the straight-line method.
The estimated useful lives of assets are principally as follows:(i) Income taxes

Buildings

31 to 50 years

Accrued income taxes has been computed using the assets andMachinery and equipment

4 to 10 years

liabilities method, deferred income tax assets and liabilities are

The Companies use machinery and equipment under financ-determined based on differences between financial reporting

ing leases that do not transfer ownership to the lessee, and suchand income tax bases of assets and liabilities and are measured

leased assets used by the Company and its domestic subsidiaries

using tax rates and laws in effect at the time of such determina-

are not capitalized on the balance sheet in conformity withtion. The measurement of deferred tax assets is adjusted by val-accounting principles generally accepted in Japan.

uation allowance, if necessary, to recognize the extent to which,based on available evidence, the future tax benefits more likely(g) Goodwill

than not will not be realized.

Goodwill is stated at cost less amortization.
Amortization is principally computed over 15 years, using thestraight-line method.

(j) Retirement benefits
The Company and most of its subsidiaries have lump-sum bene-

Effective from the year ended March 31, 2007, the Company

fit plan and defined benefit retirement pension plan or definedand its domestic consolidated subsidiaries and affiliates in Japan

contribution pension plan, generally covering most of theiradopted “Accounting Standard for Business Combination”

employees. They accrue employees’ severance and retirement

issued by Business Accounting Council on October 31, 2003,

benefits based on the actuarially determined retirement benefit

and Accounting Standards Board of Japan (ASBJ) Statement

obligation and the fair value of the plan assets plus certain

No.7 “Accounting standard for Business Divestitures” issued byadjustments for the following items.

ASBJ on December 27, 2005, and revised ASBJ Guidance No.10

The prior service cost is expensed on a straight-line basis over

“Guidance on Accounting standard for Business Combinations

a certain period (mainly 15 years), which fell within the averageand Accounting Standard for Business Divestitures” revised byremaining years of service of the eligible employees. Actuarial

ASBJ on December 22, 2006. The adoption had an effect thatgain or loss in retirement benefit accounting is expensed on athe prior year’s “Goodwill” and “Goodwill arising on consolida-straight-line basis over a certain period (mainly 15 years) whichtion adjustments” included in “Other intangible assets” arefell within the average remaining years of service of the eligible

altogether presented as “Goodwill” as of March 31, 2007. The

employees, allocated proportionally commencing the year inamount of “Goodwill arising on consolidation adjustments”

which each respective gain or loss occurred.

included in “Other intangible assets” was 499 millions of yen asof March 31, 2006.

The Company transferred from tax-qualified pension plan to
cash balance pension plan and defined contribution plan on
January 1st, 2007, regarding retirement pension plan. This transition caused ¥634 million ($5,382 thousand) increase in income
before income taxes and minority interests.

Kuraray Annual Report 200755

Some of the consolidated subsidiaries accrue the liabilities for(o) Derivative financial instruments and hedging

their retirement benefits for directors and corporate auditors,

Derivative financial instruments, which include forward foreign

which is, in general, based upon the amounts required by theirexchange contracts, currency swap contracts and interest rate

subsidiaries’ internal regulations.

swap contracts, are used to offset the Companies’ risk of expo-

The Company abolished retirement benefits system for direc-

sure to changes in interest and currency exchange rates intors and corporate auditors, and decided to pay eligible direc-

respect of its financial assets and liabilities, in accordance withtors and auditors at the time of their retirement the amountthe Companies’ internal policies and procedures.

payable determined by the resolution at the Annual General
Meeting of Shareholders on June 28, 2006. The accrued liabili-a. Derivatives

ties for their retirement benefits were reversed, the amountAll derivatives are stated at fair value, except for derivatives

payable at termination were recorded as other of long-term lia-that are designated as hedging instruments (see below).

bilities.
b. Hedge accounting(k) Foreign currency items

The Companies adopt the method for hedging instruments

Income and expenses in foreign currency are translated into

whereby any gain or loss is deferred over the period of theJapanese yen at the exchange rates prevailing at the transaction

hedging contract and is offset against the deferred loss ordates. Foreign currency denominated assets and liabilities aregain on the related hedged items.

translated into Japanese yen at the exchange rates prevailing at
the balance sheet date.
In preparing the consolidated financial statements, the assets
and liabilities of foreign subsidiaries have been translated into

However, when an interest rate swap contract meets certain conditions, the net amount to be paid or received under
the contract is added to or deducted from the interest on thehedged items.

Japanese yen at the rates in effect at the balance sheet date,and income and expenses have been translated at the averagec. Hedging policy

rate for the year then ended. Translation adjustments resulting

The Companies use financial instruments to hedge interest

from this process are charged or credited directly to net assets

rate and foreign exchange risks in accordance with their inter-or shareholders’ equity as cumulative translation adjustments in

nal policies and procedures.

the consolidated balance sheets.
d. Assessment method for hedge effectiveness(l) Research and development expenses

The Companies evaluate the effectiveness of their hedging

Expenses relating to research and development activities areactivities by reference to the accumulated gains or losses on

charged to income when incurred.

the hedging instruments and the related hedged items.
Interest rate swap contracts, which meet certain conditions,(m) Net income per shareare evaluated for effectiveness at the commencement of the

The computation of primary net income per share is based onhedges.

the weighted average number of shares outstanding during
each financial period. The computation of fully diluted net(p) Directors’ bonuses

income per share is based on the weighted average number of

Directors’ bonuses had been formerly accounted for as aoutstanding shares after consideration of the effect of dilution

decrease of retained earnings. Effective from the fiscal yearof common stock equivalents.

ended March 31, 2007, the Company and its domestic consolidated subsidiaries and affiliates in Japan adopted ASBJ(n) Allowance for doubtful accounts

Statement No.4 “Accounting standard for Directors’ bonus”

The Companies provide for doubtful accounts principally at anissued by ASBJ on November 29, 2005, and directors’ bonuses

amount computed based on the historical bad debt ratio during

are accounted for as an expense of the period during whicha certain reference period plus an estimated uncollectible

the payments had occurred. The adoption of this new account-amount based on the analysis of certain individual accounts.

ing standard has no effect on the consolidated financial statements 2006.

56

Kuraray Annual Report 2007

Notes to Consolidated Financial Statements(q) Presentation of net assets(r) Treasury shares

Effective from the year ended March 31, 2007, the Company

Effective from the year ended March 31, 2007, the Company

and its domestic consolidated subsidiaries and affiliates in Japanand its domestic consolidated subsidiaries and affiliates in Japan

adopted ASBJ Statement No.5 “Accounting Standard for

adopted revised ASBJ Statement No.1 “Accounting standard for

Presentation of Net Assets in the Balance Sheet” issued by ASBJ

Treasury shares and Appropriation of Legal Reserve” and revisedon December 9, 2005 and ASBJ Guidance No.8 “Guidance on

ASBJ Guidance No.2 “Guidance on Accounting standard for

Accounting Standard for Presentation of Net Assets in the

Treasury shares and Appropriation of Legal Reserve” bothBalance Sheet” issued by ASBJ on December 9, 2005. The

revised by ASBJ on August 11, 2006. The adoption of thisadoption of this new accounting standard has no effect on therevised accounting standard has no effect on the consolidated

statements of income. The total amount corresponding to con-financial statements 2006.

ventional “total shareholders’ equity” on the balance sheet ofthe year ended March 31, 2007 is 356,147 millions of yen.

3. SECURITIES:The following is a summary of available-for-sale securities at March 31, 2007 and 2006:
Millions of yen
Cost

Gross
unrealized
gains

Gross
unrealized
lossesBook value(estimatedfair value)

6,017—
15,000¥ 21,017¥ 19,135—50¥ 19,185

¥ 116
—
—
¥ 116

¥ 25,036—
15,050¥ 40,086

Cost

Gross
unrealized
gains¥ 6,756——¥ 6,756¥ 27,636——¥ 27,636

March 31, 2007

Equity securities
Bonds and debentures
Other

¥

Millions of yen
March 31, 2006

Equity securities
Bonds and debentures
Other

Gross
unrealized
lossesBook value(estimatedfair value)¥¥ 34,388——¥ 34,388

¥

4
—
—
4

Thousands of U.S. dollars
March 31, 2007

Equity securities
Bonds and debentures
Other

Cost

Gross
unrealized
gains

Gross
unrealized
lossesBook value(estimatedfair value)$ 50,992—
127,119$ 178,111$ 162,161—
424$ 162,585

$ 983
—
—
$ 983

$ 212,170—
127,543$ 339,713

Available-for-sale securities with no available fair values as of March 31, 2007 and 2006, amounting to ¥3,163 million ($26,805 thousand) and ¥3,212 million respectively are excluded from the above table.
Securities with an original maturity of three months or less have been transferred to cash and cash equivalents.

4. INVENTORIES:
Inventories at March 31, 2007 and 2006 consisted of the following:
Millions of yen

Finished products
Semi-finished products and work in progress
Raw materials and supplies

Thousands of
U.S. dollars

2007

2006

2007

¥ 48,429
12,257
11,546¥ 72,232¥ 47,840
10,499
11,092¥ 69,431$ 410,415
103,873
97,848$ 612,136

Kuraray Annual Report 200757

5. IMPAIRMENT LOSSES ON FIXED ASSETS:
The significant component of impairment losses on fixed assets for the fiscal year ended March 31, 2007 and 2006 is as follows:
Millions of yen

Plant and equipment for electric and electronic materials
Plant and equipment for methacrylic resin and sheets

Plant and equipment for polyester filaments
Plant and equipment for opto-screens
Plant and equipment for high-flux filter membranes for artificial kidneys

Thousands of
U.S. dollars

2007

2007

¥ 770
233

$ 6,525
1,975

Millions of yen

Thousands of
U.S. dollars

2006

2006

¥ 1,242
2,627
1,468

$ 10,525
22,263
12,441

As a minimum unit for generating cash flow, business assets arevalue in use, which is equivalent to their discounted future cash

grouped into sections used for management accounting, andflows, or the net salable value of the assets, whichever is higher.

lent assets, idle assets, and assets associated with discontinued
business are assessed individually.
Impairment losses are recognized in the consolidated statements of income by reducing the carrying amount of the

For the year ended March 31, 2007 and 2006 the discountrate used for estimation of the recoverable amounts, using
future cash flows, of the assets showing signs of impairment is
5% and 4% respectively.

impaired assets to the recoverable amounts to be measured as

6. SHORT-TERM BANK LOANS, LONG-TERM DEBT AND BONDS:
Short-term bank loans are generally represented by 365-day notes with interest rates principally of 2.9% at March 31, 2007.
Long-term debt and bonds consist of the following:

Millions of yen

Unsecured loans principally from banks and insurance companies with interest rates
ranging from 0.72% to 4.10% maturing serially until 2022
0.99% yen unsecured bonds due December 20, 2011
Current portion

Thousands of
U.S. dollars

2007

2006

2007

¥ 11,255
10,00021,255(5,000)¥ 16,255¥ 9,646
10,00019,646(390)¥ 19,256$ 95,381
84,746
180,127(42,373)$ 137,754

The annual maturities of long-term debt and bonds outstanding at March 31, 2007 for the respective years ending March 31 are as follows:

2007
2008
2009
2010
2011
Thereafter

Millions of yen

Thousands of
U.S. dollars¥ 5,000
2,400
1,001
850
100
11,904¥ 21,255$ 42,373
20,339
8,483
7,203
847
100,882$ 180,127

7. OWNERS’ EQUITY:The Company and its domestic subsidiaries were subject to theexcess of the amounts designated as stated capital were credit-

Corporation law as of March 31, 2007.

ed to additional paid-in capital. Additional paid-in capital was

The Corporation law requires at least 50% of the issue priceof new shares to be designated as stated capital following thepassing of a resolution by the Board of Directors. Proceeds in58

Kuraray Annual Report 2007

included in capital surplus in the accompanying balance sheet asof March 31, 2007 and 2006 respectively.
The Corporation law provides that an amount equal to 10%

Notes to Consolidated Financial Statementsof cash dividends and other cash appropriations, should benary general meeting of shareholders. All or part of the addi-

appropriated as a legal reserve. No further appropriation istional paid-in capital and/or a legal reserve may be used torequired when the sum of the additional paid-in capital andreduce a deficit or may be transferred to paid-in capital throughlegal reserve equals 25% or more of paid-in capital. The sum of

the appropriate legal procedures. A legal reserve amounting to

the additional paid-in capital and legal reserve is allowed to be¥6,570 million ($55,678 thousand) was included in retained

appropriated following the passing of a resolution at the ordi-

earnings as of March 31, 2007 and 2006.

8. STOCK-BASED COMPENSATION PLANS:The Company has a stock option plan. On June 27, 2002, theSubsequently, on June 26, 2003, the shareholders of theshareholders of the Company approved the issuance of new

Company approved the issuance of new stock acquisition rights

stock acquisition rights in the form of a stock option plan forin the form of a stock option plan for directors, corporate audi-

directors, corporate auditors and managers of the Company andtors, executive officers and employees of the Company and its

its subsidiaries. Based on this approval, the Company issued

subsidiaries. Based on this approval, the Company issued new

new stock acquisition rights of 1,076,500 shares of common

stock acquisition rights of 2,811,000 shares of common stock ofstock of the Company. These rights are exercisable from June

the Company. These rights are exercisable from June 27, 2005

28, 2004 to June 27, 2012. The exercise price is ¥825 ($6.99)

to June 26, 2013. The exercise price is ¥918 ($7.78) per share.

per share. The number of shares to be issued under this option,

The number of shares to be issued under this option, if all rights

if all rights were exercised, as of March 31, 2007 was 562,000.

were exercised, as of March 31, 2007 would be 1,791,500.

9. INCOME TAXES:
The Companies were subject to several taxes based on income, which, in aggregate, resulted in normal effective tax rate of approximately 40.4% in Japan for the years ended March 31, 2007 and 2006. Reconciliation of the difference between the normal effective tax
rate and the income tax rate in the accompanying consolidated statements of income is as follows:
Normal effective tax rate
Non-taxable income
Tax credit primarily for research and development expenses
Other, largely loss incurred by consolidated subsidiaries
Income tax rate per statements of income

2007

2006

40.4%
(0.4)
(2.1)
(1.2)
36.7%

40.4%
(0.3)
(2.9)
0.8
38.0%

The significant components of deferred tax assets and liabilities at March 31, 2007 and 2006 are as follows:(1) Current:
Millions of yen

Deferred tax assets
Accrued enterprise taxes and other taxes
Accrued bonuses
Write-down of inventories
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets
Total deferred tax liabilities
Net deferred tax assets

2007

2006

¥

¥

729
2,384
1,618
2,750
7,481
(713)
6,768
27
¥ 6,741

829
2,451
1,342
2,294
6,916
(413)
6,503
25
¥ 6,478

Thousands of
U.S. dollars

2007$ 6,178
20,203
13,712
23,30563,398(6,042)57,356229$ 57,127

Kuraray Annual Report 200759

(2) Non-current:
Millions of yen

Deferred tax assets
Accrued retirement benefits
Write-down of investment securities
Impairment loss on property, plant and equipment
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Deferred gain on sales of fixed assets for income tax purposes
Special depreciation
Unrealized gain on revaluation of securities
Prepaid pension cost
Other
Total deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities
Depreciation
Deferred gain on sales of fixed assets for income tax purposes
Special depreciation
Special account for reserve for deferred gains on sales of fixed assets
Unrealized gain on revaluation of securities
Prepaid pension costs
Other
Total deferred tax liabilities
Deferred tax assets
Accrued retirement benefits
Write-down of investment securities
Impairment loss on property, plant and equipment
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets
Net deferred tax liabilities

Thousands of
U.S. dollars

2007

2006

2007

¥ 923
113
550
2,917
4,503
(1,347)
3,156

¥ 826
51
620
2,440
3,937
(1,080)2,857$ 7,822958
4,661
24,72038,161(11,415)
26,746

108
6
30
122
45
311
¥ 2,845

105
10
30
—
62
207
¥ 2,650

915
51
254
1,034
382
2,636
$ 24,110¥ 4,511
2,992
236
498
7,641
2,746
880
19,504¥ 5,056
2,681
303
698
11,103
2,077
885
22,803$ 38,229
25,3562,000
4,220
64,754
23,271
7,458
165,288

3,860
3,574
1,770
2,819
12,023(3,648)
8,375¥ 11,129

3,981
3,864
1,538
4,077
13,460(4,371)
9,089¥ 13,714

32,71230,28815,00023,890101,890(30,916)
70,974$ 94,314

The deferred tax assets and liabilities of the consolidated subsidiaries in different tax jurisdictions are presented without offset in accordance with Japanese accounting practice.

60

Kuraray Annual Report 2007

Notes to Consolidated Financial Statements
10. RETIREMENT BENEFITS:
The following tables set forth the changes in the benefit obligation, plan assets and funded status of the Companies at March 31, 2007 and 2006.
Thousands of
U.S. dollars

Millions of yen

Projected benefit obligation at end of year
Fair value of plan assets at end of year
Funded status:
Projected benefit obligation in excess of plan assets
Unrecognized prior service costs
Unrecognized actuarial losses
Accrued pension liability recognized in the consolidated balance sheets
Prepaid pension costs
Net accrued retirement benefits

2007

2006

2007

¥ (42,262)
32,399¥ (50,058)
36,999$ (358,152)
274,568(9,863)(1,855)
5,933(5,785)
7,106¥ (12,891)(13,059)(1,179)6,781(7,457)5,142¥ (12,599)(83,585)(15,720)
50,280(49,025)
60,220$ (109,245)

Accrued retirement benefits for directors and corporate auditors at March 31, 2007 and 2006, amounting to ¥180 million ($1,525 thousand) and ¥805 million, respectively, are excluded from the above tables.
Retirement and pension costs of the Companies for the years ended March 31, 2007 and 2006 were as follows:
Millions of yen

Service costs
Interest costs
Expected return on plan assets
Amortization:
Prior service costs
Actuarial losses
Net periodic benefit costs
Gain on changes in retirement benefits plan
Contributions to the pension plan
Total

Thousands of
U.S. dollars

2007

2006

2007

¥ 1,991894(1,377)¥ 1,846958(1,132)$ 16,873
7,576(11,669)(115)
651¥ 2,044(634)
60¥ 1,470

(104)
1,017
¥ 2,585——¥ 2,585

(975)
5,517
$ 17,322(5,373)509$ 12,458

Assumptions used in accounting for the defined benefit plan for the years ended March 31, 2007 and 2006 are as follows:
Discount rate

mainly 2.0%

Long-term rate of return on fund assets

mainly 4.0%

Amortization period for transition charges at date of adoption

1 yearAmortization period for prior service cost

mainly 15 years (straight-line method)

Amortization period for actuarial gains and losses

mainly 15 years (straight-line method)

11. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES:
The major components of selling, general and administrative expenses for the years ended March 31, 2007 and 2006 were as follows:
Millions of yen
Account

Freight and storage
Research and development
Salaries and bonuses

Thousands of
U.S. dollars

2007

2006

2007

¥ 13,894
12,003
16,231¥ 13,758
12,642
17,038$ 117,746
101,720
137,551

12. RESEARCH AND DEVELOPMENT EXPENSES:
Total research and development expenses for the years ended March 31, 2007 and 2006 amounted to ¥13,021 million ($110,347 thousand) and ¥14,069 million, respectively.

Kuraray Annual Report 200761

13. COMMITMENTS AND CONTINGENCIES:
The Companies were contingently liable for guarantees, mainly for bank loans of unconsolidated subsidiaries, affiliates and others, of¥1,393 million ($11,805 thousand) and ¥1,681 million at March 31, 2007 and 2006, respectively.
These guarantees include letters of commitment for guarantees, letters of awareness and other items of a similar nature.

14. LEASES:(a) Financing leases
Lease transactions as a lessee:
Payment of fees for financing leases, in which ownership of the leased assets is not transferred to the lessee and which are not required
to be capitalized, for the years ended March 31, 2007 and 2006, were ¥217 million ($1,839 thousand) and ¥277 million, respectively.
Future lease payments, including amounts representing interest were as follows:
Millions of yen

Due within one year
Due after one year

The leased assets were as follows:

2007

2006

2007

¥ 173
163
¥ 336

¥ 237
256
¥ 493

$ 1,466
1,381$ 2,847

Thousands of
U.S. dollars

Millions of yen
Cost

Year ended March 31, 2007¥

Machinery and equipment

945

Thousands of
U.S. dollars

Accumulated
depreciation

Net

Net

¥ 608

¥ 337

$ 2,856

Millions of yen
Year ended March 31, 2006

Machinery and equipment

Cost

Accumulated
depreciationNet¥ 1,205

¥ 712

¥ 493

Lease transactions as a lessor are immaterial.
(b) Operating leases
Lease transactions as a lessee:
Future lease payments under non-cancellable operating leases were as follows:

Due within one year
Due after one year

Millions of yen

2007

2006

¥

¥

431
2,479
¥ 2,910378
2,472¥ 2,850

Thousands of
U.S. dollars

2007$ 3,653
21,008$ 24,661

Lease transactions as a lessor are immaterial.

15. DERIVATIVE FINANCIAL INSTRUMENTS:
Derivative financial instruments are utilized by the Companies

approval, reporting and monitoring of transactions involving

principally to reduce interest rate and foreign exchange risks.

derivative financial instruments. The Companies do not hold or

The Companies have established a control environment, whichissue derivative financial instruments for trading purposes.

includes policies and procedures for risk assessment and for the62

Kuraray Annual Report 2007

Notes to Consolidated Financial Statements
Hedging instruments and hedged items
March 31, 2007 and 2006
Hedging instruments:

Hedged items:

Forward foreign exchange contracts

Future transactions in foreign currency

Currency swap contracts

Future transactions in foreign currency

Interest rate swap contracts

Interest payable

The forward foreign exchange contracts and currency swap contracts outstanding at March 31, 2007 and 2006 were as follows:
Millions of yen

Thousands of U.S. dollars

2007
Notional
amountForward foreign exchange contracts:
Foreign currency sales
Currency swap contracts:
Yen into foreign currency obligation

Marketvalue

2006
Unrealized
gain (loss)

Notional
amountMarketvalue

2007
Unrealized
gain (loss)

Notional
amountMarketvalue

Unrealized
gain (loss)¥ 35,905 ¥ (4,032) ¥ (4,032) ¥ 32,440 ¥ (2,498) ¥ (2,498)$ 304,280 $ (34,169) $ (34,169)

13,311
13,829(1,911) (1,911)
(660)
(660)
¥ 49,216 ¥ (5,943) ¥ (5,943) ¥ 46,269 ¥ (3,158) ¥ (3,158)

112,805(16,195) (16,195)$ 417,085 $ (50,364) $ (50,364)

The amounts include currency swap contracts entered into inhedge accounting, but by the primary method of accounting fororder to hedge inter-company transactions in foreign currency

the instruments in accordance with the Accounting Standard foror forward foreign exchange contracts for accounts receivable

Financial Instruments. The amounts exclude derivative transac-

and payable in foreign currency, which are not accounted for bytions to which hedge accounting is applied.

16. SEGMENT INFORMATION:
A summary of net sales and operating income and identifiable assets, capital expenditure, and depreciation and amortization by industrial segment for the years ended March 31, 2007 and 2006 is as follows:
Net sales and operating income
Millions of yen
Net sales
Outsidecustomers

Year ended March 31, 2007
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total
Year ended March 31, 2006
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total¥ 201,222
107,925

Intersegment

Total

Thousands of U.S. dollars
Operatingincome¥ 377 ¥ 201,599 ¥ 35,644
820
108,745
7,985

Net sales
Outsidecustomers$ 1,705,271
914,619

7,945
51,574645,237
3,265,127—¥ 385,285(26,024)(26,024) (11,354)¥ — ¥ 385,285 ¥ 40,220—$ 3,265,127¥ 190,753
109,107¥ 723 ¥ 191,476 ¥ 31,868
684
109,791
9,451

76,138385,285

75,213375,073—¥ 375,073

24,82726,024

27,10528,512

100,965
411,309102,318
403,585

Intersegment

Total

Operatingincome$ 3,195 $ 1,708,466 $ 302,068
6,949
921,568
67,669210,398
220,542855,635
3,485,669

67,331
437,068(220,542)(220,542) (96,221)$ — $ 3,265,127 $ 340,847

8,456
49,775(28,512)(28,512) (11,498)¥ — ¥ 375,073 ¥ 38,277

Kuraray Annual Report 2007

63

Identifiable assets, capital expenditure, and depreciation and amortization
Millions of yen

Year ended March 31, 2007
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total
Year ended March 31, 2006
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total

Thousands of U.S. dollars

Identifiable
assetsCapitalexpenditure

Depreciation
andamortization

Identifiable
assetsCapitalexpenditure

Depreciation
andamortization¥ 269,849
80,072¥ 22,785
5,932¥ 16,368
4,153$ 2,286,856
678,576$ 193,093
50,271$ 138,712
35,19568,818418,739

3,232
31,9493,096
23,617583,2033,548,635

27,390270,754

26,237200,144

89,956¥ 508,695

5,751¥ 37,700

1,879¥ 25,496

762,340$ 4,310,975

48,738$ 319,492

15,924$ 216,068¥ 243,384
80,501¥ 23,810
4,787¥ 16,029
3,845

69,571
393,456

3,283
31,8803,720
23,59487,901¥ 481,357

1,992¥ 33,872

1,592¥ 25,186

Effective April 1, 2005, the Company and its domestic consolidated subsidiaries and affiliates adopted “Accounting Standard for
Impairment of Fixed Assets” and “Implementation Guidance for Accounting for Impairment of Fixed Assets”.
As a result of this change, identifiable assets for each segment decreased as follows.
Thousands of
U.S. dollars

Millions of yen

Chemicals and resins
Fibers and textiles
High performance materials, medical products and others
Corporate
Total

2007

2006

2007

¥ 366
45
1,107
140
¥ 1,658

¥ —
1,242
4,207
—
¥ 5,449¥ 3,102
382
9,381
1,186
¥ 14,051

A summary of net sales, operating income and identifiable assets by geographic segment for the years ended March 31, 2007 and 2006
is as follows:
Millions of yen

Net sales
Outsidecustomers

Year ended March 31, 2007
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total
Year ended March 31, 2006
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total

64

Kuraray Annual Report 2007

¥

¥

¥

¥

Intersegment

Total

288,447
23,14757,70915,982385,285—
385,285¥

24,291
2,418
3,768
2,950
33,427(33,427)¥ —¥273,757
30,61053,974
16,732375,073—375,073¥ 28,770
3,544
3,191
1,936
37,441(37,441)
¥ —

¥

¥

¥

Operatingincome(loss)

Identifiable
assets

312,738
25,56561,477
18,932418,712(33,427)
385,285¥ 47,282
1,664
3,580
(607)
51,919(11,699)¥ 40,220¥302,527
34,154
57,165
18,668412,514(37,441)
375,073¥ 43,570
2,987
3,211
(276)
49,492(11,215)¥ 38,277¥¥¥

270,163
48,012
93,646
8,565
420,386
88,309508,695

255,81244,666
87,9409,986
398,404
82,953
481,357

Notes to Consolidated Financial Statements
Thousands of U.S. dollars
Net salesYear ended March 31, 2007
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total

Outsidecustomers

Intersegment

Total

Operatingincome(loss)

Identifiable
assets$ 2,444,466
196,161
489,059
135,441
3,265,127—$ 3,265,127$ 205,856
20,492
31,93225,000283,280(283,280)$ —$ 2,650,322
216,653
520,991
160,4413,548,407(283,280)$ 3,265,127$ 400,695
14,10230,339(5,144)439,992(99,145)$ 340,847$ 2,289,517
406,881793,610
72,5853,562,593
748,382$ 4,310,975

Effective April 1, 2005, the Company and its domestic consolidated subsidiaries and affiliates adopted “Accounting Standard
for Impairment of Fixed Assets” and “Implementation Guidance
for Accounting for Impairment of Fixed Assets”.

As a result of this change, identifiable assets for “Domestic(inside Japan)” decreased ¥1,658 million ($14,051 thousand)and ¥5,455 million at March 31, 2007 and 2006.

For the years ended March 31, 2007 and 2006, a summary of foreign sales, consisting of the export sales of the Company and its
domestic consolidated subsidiaries and the sales of foreign consolidated subsidiaries, is as follows:
Millions of yen

Year ended March 31, 2007
North America
Europe
Asia
Other
Total
Year ended March 31, 2006
North America
Europe
Asia
Other
Total

17. SUBSEQUENT EVENTS:(a) Cash dividends
At an ordinary general meeting of shareholders held on June20, 2007, the following appropriations of retained earnings of
the Company, which have not been reflected in the accompanying consolidated financial statements for the year ended March
31, 2007, were approved.
Millions of yen

Cash dividends, ¥10.00 (0.08) per share ¥ 3,680

Thousands of
U.S. dollars

Thousands of U.S. dollars

Foreignsales

Consolidated
net sales

Percentage ofconsolidated
net sales¥ 28,984
63,211
67,091
7,465¥ 166,751

¥ —
—
—
—
¥ 385,285

7.5%
16.4
17.4
1.9
43.3%

¥ 35,413
58,92660,062
8,641¥ 163,042

¥ —
—
—
—
¥ 375,073

9.5%
15.7
16.0
2.3
43.5%

Foreignsales

Consolidated
net sales

245,627535,686
568,568
63,263$ 1,413,144$ 3,265,127$

tive officers of the Company. Based on this approval, theCompany issued new stock acquisition rights of 56,500 sharesof common stock of the Company. These rights are exercisablefrom June 6, 2007 to June 5, 2022 on the condition that iswithin 10 days from the day after a director or an executive officer with the rights loses the each position. The exercise price is¥1 ($0.01) per share.

$ 31,186

The above year-end cash dividends per share and interim cash
dividends of ¥8.50 ($0.07) per share paid in December 2006
made a total annual cash dividend of ¥18.50 ($0.16) per share.
(b) Stock option plan
The Board of Directors of the Company on May 16, 2007 andJune 4, 2007, approved the issuance of new stock acquisitionrights in the form of a stock option plan for directors and execu-(c) Acquisition of treasury stock
The Board of Directors of the Company on June 19, 2007,
approved the acquisition up to 23,000 thousand shares of theCompany’s common stock (the ratio 6.0% for issue stock total
number) as treasury stock, improving the return to stockholders
by better capital efficiency.
Method of acquisition
Tokyo stock exchange Trading
Acquisition amount¥30,000 million
Term of acquisition
from June 21, 2007 to June 20, 2008
Kuraray Annual Report 2007

65

Report of Independent Auditors
Kuraray Co., Ltd. and Its Consolidated Subsidiaries

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

We have audited the accompanying consolidated balance sheet of Kuraray Co., Ltd. (“the Company”) and its subsidiaries asof March 31, 2007, and the related consolidated statements of income, changes in net assets and cash flows for the year
then ended, all 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 that weplan 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 financial
position of the Company and its subsidiaries as of March 31, 2007, and the results of their operations and their cash flows forthe year then ended in conformity with accounting principles generally accepted in Japan.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31,
2007 are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar
amounts and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial
statements.

June 20, 2007

66

Kuraray Annual Report 2007

Consolidated Companies(As of July 1, 2007)
JAPAN
Company

Head office

Capital(¥ millions)

Activities

Kuraray Medical Inc.

Tokyo

¥ 2,500

Manufacture and sales of medical products

KURARAY TRADING Co., LTD.

Osaka

2,200

KURARAY CHEMICAL CO., LTD.

Osaka

600

Import, export, manufacture, and sales of textile products, chemicals, etc.
Manufacture and sales of activated carbon and related products

KC Processing Co., Ltd.*

Okayama

20

Processing of activated carbon

KURARAY ENGINEERING CO., LTD.

Osaka

450

Plant design and construction

KurarayKikou Co., Ltd.

Ehime

10

Manufacture of machinery parts

Kuraray Plastics Co., Ltd.

Osaka

180

Manufacture and sales of plastics

Ibuki Kosan Co., Ltd.

Gifu

10

Manufacture of rubber products

KURARAYLIVING CO., LTD.

Osaka

101

Manufacture and sales of packaging materials

KURARAY BUSINESS SERVICE CO., LTD.

Osaka

100

Information system service

KURARAY FASTENING CO., LTD.

Osaka

100

Manufacture and sales of MAGIC TAPE

KURARAYKURAFLEX CO., LTD.

Osaka

100

Manufacture and sales of nonwoven fabric products

KURAFLEX IBARAKI COMPANY LIMITED*

Ibaraki

30

Manufacture of nonwoven fabric products

Kuraray Techno Co., Ltd.

Osaka

100

Production subcontracting

Kuraray Okayama Spinning CO., LTD.*

Okayama

50

Manufacture of synthetic fiber

TECHNO SOFT CO., LTD.

Osaka

50

Consulting for improved management

Kuraray Travel Service Corporation

Osaka

20

Travel and insurance agency

KURARAY SAIJO CO., LTD.

Ehime

10

Manufacture of chemical products and synthetic fiber

KURARAY TAMASHIMA COMPANY LIMITED

Okayama

10

Manufacture of synthetic fiber and PVA film

KURARAY FUDOSAN CO., LTD.

Osaka

10

Real estate leasing and management

Kuraray Interior Co., Ltd.

Osaka

10

Manufacture and sales of luxury furniture

THE KURASHIKI KOKUSAI HOTEL, LTD.*

Okayama450

Hotel management

Iruma Country Club Co., Ltd.

Saitama40

Golf course management

OKAYAMA RINKOH CO., LTD.

Okayama98

Warehousing, distribution, and processing

OKAYAMA RINKOH WAREHOUSE AND TRANSPORT CO., LTD. Okayama

20

Forwarding (transportation)

Kyosei Chemical Co., Ltd.

Tokyo

50

Manufacture of pigments and dyes

NIHONKAI ACETYLENE CO., LTD.*

Tokyo

60

Manufacture and sales of acetylene gas

Hikari Shoes Co., Ltd.*

Chiba

34

Manufacture and sales of shoes

Kuraray Luminas Co., Ltd.

Tokyo

400

Development of inorganic EL materials

OVERSEAS
Kuraray Holdings U.S.A., Inc.

New York, U.S.A.

US$55.03 million

Holding company, coordination of U.S. subsidiaries

Kuraray America, Inc.

New York, U.S.A.

US$10.1 million

Import and sales of Kuraray products

Eval Company of America**

Texas, U.S.A.

US$4.15 million

SEPTON Company of America**

Texas, U.S.A.

US$35 million

Manufacture and sales of thermoplastic elastomers

Kuraray Europe GmbH

Frankfurt, Germany€31.2 million

Import and sales of Kuraray products in Europe
Manufacture and sales of poval and butyral resins and film

EVAL Europe N.V.

Antwerp, Belgium

OOO Trosifol

Nizhniy Novgorod, Russia

RUR78.95 million

Manufacture and sales of PVB film

Kuraray Hong Kong Co., Ltd

Hong Kong, China

HK$4.65 million

Processing and sales of Kuraray products in China and Southeast Asia

Kuraray Singapore Pte., Ltd.

Singapore

SP$93.5 million

Holding company, coordination of local subsidiaries

Kuraray Specialities Asia Pte., Ltd.

Singapore

SP$45.6 million

Sales of poval resins

Poval Asia Pte Ltd.*Singapore

SP$40 million€29.7 million

Manufacture and sales of EVAL

Manufacture and sales of EVAL in Europe

Manufacture of poval resins* Equity method subsidiary**Scheduled to be merged into Kuraray America, Inc. in January 2008.

Kuraray Annual Report 2007

67

History
Kuraray Co., Ltd. and Its Consolidated Subsidiaries

1920s
1926 • Kurashiki Kenshoku Co. established1928 • Rayon commercialized: production ofrayon filament yarn begun at theKurashiki Plant

1940s
1940 • Chugoku Sangyo Co., Ltd. (now KURARAYCHEMICAL CO., LTD.) established1972 • Contact lens business started• EVAL commercialized: production facilities for EVAL resin completed at
Okayama Plant• Nonwoven fabrics business started• Isoprene chemicals business launched:operation at Kashima Plant started andproduction of polyisoprene rubber begun
1975 • Artificial organs business started
1976 • New isoprene chemicals (NlC) facilities
completed at Nakajo Plant

New laboratory of Okayama Plant

1943 • Capital participation in Kakuichi RubberCo., Ltd. (now Kuraray Plastics Co., Ltd.)
1949 • Company name changed to Kurashiki
Rayon Co., Ltd.

1950s1950 • KURALON commercialized: productionof KURALON staple started
1958 • Poval commercialized: production ofpoval for market sale started

Factory for nonwoven fabrics of Kuraray Chicopee Co., Ltd.
(now KURARAYKURAFLEX CO., LTD.)1977 • KURARAY ENGINEERING CO., LTD.
established1978 • Advanced into the dental materials
field:
CLEARFIL adhesive dental filler produced

1980s
1960s
1960 • Capital participation in Kyowa Gas
Chemical Co., Ltd., which conducts
methacrylic resin business
1961 • Osaka Goseihin Co., Ltd. (now KURARAYTRADING Co., LTD.) established1962 • Production of PVA film started at Saijo
Plant
1963 • New York Representative Office established(transferred to Kuraray America, Inc., in
April 1996)
1964 • Production of polyester staple started at
Tamashima Plant• KURARAY FUDOSAN CO., LTD., established• CLARINO commercialized: production of
CLARINO man-made leather started atKurashiki Plant 1965
• European Representative Office established in Hamburg, Germany (moved to
Düsseldorf in June 1968)
1969 • Production of polyester filament started
at Saijo Plant

1970s
1970 • Company name changed to KurarayCo., Ltd.
• Hong Kong Representative Office established(transferred to Kuraray Hong Kong Co.,
Ltd., in June 1998)

68

Kuraray Annual Report 2007

1983 • Cement-reinforcing KURALON developed• Eval Company of America established,
and marketing of EVAL resin in the U.S.
begun
(production started in 1986)

1991 • Kuraray Europe GmbH established in
Düsseldorf, Germany
1995 • Kuraray EVAL Europe GmbH establishedin Düsseldorf• Kuraray Hong Kong Co., Ltd., established1996 • Kuraray America, Inc., established in
New York as administrative holding
company in the U.S.
• Kuraray Singapore Pte., Ltd., established, and capital participation in Poval
Asia Pte Ltd.
1997 • EVAL Europe N.V. established in Belgium
1998 • KURALON K-ll commercialized
1999 • Production started at Poval Asia Pte Ltd.
• Mass-production started for the heatresistant polyamide resin GENESTAR• Production at EVAL Europe N.V. started

2000s
2000 • Mass-production of a new water-soluble resin EXCEVAL was started• Capital participation in Lorica Sud S.r.l.,an Italian man-made leather processing
and sales company• Kuraray Holdings U.S.A., Inc., established as a holding company in the U.S.
• SEPTON Company of America established in the U.S.
2001 • PVA gel mass-production facilities
become operational• Kuraray terminated its rayon business• Kuraray Specialities Europe GmbHestablished in Frankfurt, Germany• Kuraray Medical Inc. established• Acquired PVA and PVB operations ofClariant AG
2002 • Shanghai Office established• Production started at SEPTON Companyof America
2004 • Kuraray Research and Technical Center,
USA (KRTC), commenced operations• Acquired and began operating the PVB
film business of HT Troplast

CLEARFIL adhesive dental filler

1984 • Haru-Kuraray GmbH, a man-madeleather sales company, established inGermany jointly with Marubeni Corp.
and Haru Holding & Management GmbH
• Merged with Nippon Velcro Co., Ltd.,
which produces hook and Ioop fasteners
1986 • Clarino America Corporation, a manmade leather sales company, establishedin the U.S. jointly with Marubeni Corp.
• Production started at Eval Company ofAmerica1990s1990 • SEPTON commercialized: Production of
SEPTON thermoplastic elastomer started
at Kashima Plant

Kuraray Research and Technical Center, USA (KRTC)
Location: Pasadena, Texas (on Eval Company ofAmerica’s grounds)

2005 • Acquired VECTRAN polyarylate fibers business of U.S.-based Celanese Advanced
Materials Inc. Operations commenced as adivision of Kuraray America, Inc.
2006 • Kuraray Europe GmbH merges withKuraray Specialities Europe GmbH

Investor Information
Kuraray Co., Ltd.

(As of March 31, 2007)
Shareholder Register Agent for Common Stock

KURARAY CO., LTD.
Established:

June 24, 1926

The Sumitomo Trust And Banking Co., Ltd.

Capital:¥88,955 million

4-5-33, Kitahama, Chuo-Ku, Osaka 540-8639, Japan

Shares Authorized:

1,000,000,000 shares(as of June 28, 2006)

Issued:Principal Shareholders

382,863,603 shares

Number of Shareholders: 29,117

Name or company name

Offices, Laboratories, and Plants
Head Offices:Tokyo, Osaka

Offices:

Fukuoka, Shanghai (China)

Research Laboratories:

Kurashiki, Tsukuba,
Pasadena (Texas)

Plants:Kurashiki, Saijo, Okayama,
Niigata, Kashima

Share Price Movement

¥

1,500

30,0001,250

25,000

Number of Shares Percentage ofHeld (thousands) Shares Held

Japan Trustee Services Bank, Ltd.
(Trust Account)

23,805

6.22%

The Master Trust Bank of Japan, Ltd.
(Trust Account)

23,426

6.12%

The Chase Manhattan Bank, NA London

21,382

5.58%

National Mutual Insurance Federation ofAgricultural Cooperatives

13,695

3.58%

Nippon Life Insurance Company

12,061

3.15%

Mellon Bank Treaty Clients Omnibus

8,326

2.17%

Meiji Yasuda Life Insurance Company

8,066

2.11%

Japan Trustee Services Bank, Ltd.
(Trust Account 4)

8,014

2.09%

BNP Paribas Securities (Japan) Ltd.

7,919

2.07%

Mizuho Corporate Bank, Ltd.

7,396

1.93%

State Street Bank and Trust Company

6,998

1.83%

Notes: Kuraray Co., Ltd holds 14,877,167 shares of treasury stock.
1,000

20,000750

15,000

Breakdown of Issued Shares by Type500

10,000Thousands of shares

Other Domestic
Corporations
2.84%
Treasury Stock
3.89%
Individuals andOthers11.72%

60,000Foreign
Institutions
and Individuals
34.08%

40,00020,0000 06/3 4

5

6

7

8

9

10 11 12 07/1 2

3

4

5

Securities
Corporations
3.28%
Trust Banks
21.63%

Life Insurance
Companies
10.09%
City Banksand Other
Financial
Institutions
12.47%

6

Share prices according to the market price on the Tokyo Stock Exchange
High
Closing

High
Opening

Nikkei Stock Average (right scale)

VolumeOpening
Closing
Low
Low

Kuraray Annual Report 2007

69

TOKYO HEAD OFFICEOte Center Bldg., 1-1-3, Otemachi,
Chiyoda-ku, Tokyo 100-8115, Japantel. +81-3-6701-1000 fax. +81-3-6701-1005

made from 100% elemental chlorine free (ECF) pulp.

OSAKA HEAD OFFICE
Shin-Hankyu Bldg., 1-12-39, Umeda,
Kita-ku, Osaka 530-8611, Japantel. +81-6-6348-2111 fax. +81-6-6348-2165