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

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

KURARAY CO., LTD.

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ANNUAL REPORT 2010 For the year ended March 31, 2010

S06-0028

Annual Report 2010
For the year ended March 31, 2010

P

R

O

F

I

L

E

Kuraray was established in 1926 to commercialize the chemical fiber rayon,
which was state-of-the-art at the time. As a pioneer in Japan’s emerging synthetic
fiber production industry, the company moved
to the industry forefront in 1950 with the accomplishment of commercial
production of polyvinyl alcohol (PVA) fiber KURALON.

Over the last half century, Kuraray’s technological expertise has developed numerous distinctive
products that have expanded its presence in markets worldwide. In particular,
several of our current products command the top share in the global market, including poval resin,offering outstanding adhesive properties and water solubility; optical-use poval film,
an indispensable element in liquid crystal displays (LCDs); EVAL resin, a high gas barrier
resin used for food packaging and fuel tanks; and man-made leather CLARINO.

C

O

N

T

E

N

T

S

• Please follow the link http://www.kuraray.co.jp/en/csr/

for information on our CSR activities.
02 Consolidated Financial Highlights
04 Business Overview• For all other information, please visit our website at

http://www.kuraray.co.jp/en/

06 To Our Shareholders
07 Interview with Kuraray President Fumio Ito
FORWARD-LOOKING STATEMENTS

11 Resin Company

78 Consolidated Companies

This annual report contains various forward-looking statements, which are based on thecurrent expectations and assumptions of future events. All figures and statements withrespect to the future performance, projections, and business plans of Kuraray and its Group
companies constitute forward-looking statements. Although Kuraray believes its expectations and assumptions are reasonable, actual results and trends of Kuraray’s performance
could differ materially from those expressed or implied by such figures or statements due torisks and uncertainties in future business circumstances. The factors that may cause suchdifferences 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 the Japanese yen and the U.S. dollar & other foreign
currencies; (3) changes in raw material and fuel costs; (4) industrial competition and pricefluctuations 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.

79 Investor Information

In this annual report, italicized product names are trademarks of Kuraray Co., Ltd.

12 Chemicals Company
13 Fibers and Textiles Company
14 Research and Development
17 Corporate Governance, Internal Control
19 Board of Directors, Corporate Auditors, and Executive Officers
20 Financial Section

For the Kuraray Group, corporate social responsibility means activities
to fulfill our corporate mission, which is to discharge our responsibility

MANAGEMENTPHILOSOPHY

to society, by ensuring that in the conduct of business all employees
ground their attitudes and behaviors in the Corporate Philosophy andGuidelines for Action.

CORPORATE PHILOSOPHY

GUIDELINES for ACTION(Established in 1986)(Established in 1986)• Respect for individuals• Act on customers’ needs• Cooperation in shared goals• Act on ideas in the working place• Creation of values• Act on your own initiative

CORPORATE MISSION (Established in 2003)

We in the Kuraray Group are committed to opening new fields of business using pioneering technology and contributing to an improved natural environment and quality of life.

PRINCIPLES for BUSINESS CONDUCT (Established in 1998)• We will develop and provide products and services, giving full consideration
to safety.
• We will conduct businesses in a free, fair and transparent manner.
• We will maintain good communications and build a sound relationshipwith society.
• We will strive to preserve and improve the global environment and to securesafety and health.
• We will respect intellectual properties including trade secrets and control information properly.

01

C O N S O L I D AT E D F I N A N C I A L H I G H L I G H T S
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Millions ofMillions of Euro
U.S. dollars (Note 1)(Note 2)Millions of yen

FY20092010

FY20082009

FY20072008

FY20062007

FY20052006

FY20042005

FY20092010¥ 332,880
Net sales
237,198
Cost of sales
Selling, general and administrative expenses 65,230
30,451
Operating income
16,315
Net income
19,879
Capital expenditures
36,489Depreciation and amortization
52,804Gross cash flow
15,292
Total research and development expenses
502,815
Total assets
249,326
Total current assets
163,709
Total tangible fixed assets
76,550Total current liabilities
88,446
Total noncurrent liabilities—
Total shareholders’ equity (Note 5)
337,818
Total net assets (Note 5)¥ 376,777¥ 417,601¥ 385,284¥ 375,072¥ 354,874$ 3,579=
C 2,663

275,912295,220

275,885

266,283

254,114

2,550

1,897

71,58574,25069,17870,512

67,572701

521

29,28048,13040,22038,27733,186327

243

12,98425,554

22,412

21,185

18,465175

130

38,92542,72037,70033,87145,715213

159

25,49525,18521,323392

291

47,90846,37139,788567

422

Years ended March 31

Segment information
Chemicals and Resins
Net sales
Operating income
Fibers and Textiles
Net sales
Operating income
High-Performance Materials,
Medical Products and Others
Net sales
Operating income

37,14750,131

57,04016,35815,25013,021

14,06813,873164

122

471,874

490,365

508,694

481,357

454,940

5,406

4,022

201,358

196,282

217,970

200,667

182,317

2,680

1,994

181,020

192,362

174,151

159,396

158,293

1,760

1,309

69,041

89,074

94,404

79,22884,856823

612

77,81656,45755,69760,64654,900

951

707

—

—

—

339,127

312,929——

325,016

344,833

358,592

—

—

3,632

2,702

¥ 202,855¥ 224,332¥ 243,784¥ 201,221¥ 190,753¥ 167,264$ 2,181=
C 1,62242,96337,06550,18035,64331,86828,420461

343

79,983

96,116105,235

107,924

109,106

109,828860

639(1,736)

883

6,856

7,985

9,450

7,920

(18)

(13)

50,04256,327

68,581

76,13875,21377,781

538

400

4,238

4,376

6,237

7,945

8,456

7,332

45

33

Amounts per share:

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) (%) (Note 6)
Payout ratio (%)
Number of employees

31,485

FY20092010

Yen

U.S. dollars (Note 1) Euro (Note 2)¥ 46.86¥ 37.29¥ 72.15¥ 60.95¥ 57.51¥ 50.13$ 0.50

46.81

37.26

71.99

60.80

57.41

50.12

0.50

0.37

16.00

22.00

22.00

18.50

15.00

12.00

0.17

0.12

961.24924.48981.82967.80922.65852.26

10.33

7.68

71.3%

73.2%

70.7%

71.6%

71.0%

71.6%

66.5

68.2

69.7

70.0

70.5

68.8

5.0

3.9

7.3

6.4

6.5

6.0

6.2

6.1

9.6

8.1

8.2

7.6

34.1

59.0

30.5

30.4

26.1

23.9

6,630

6,861

6,770

6,812

6,842

6,919

=
C

0.37

Notes: 1. The United States dollar amounts represent the translation of Japanese yen at the rate of ¥93 = $1.
=1.
2. Euro amounts represent the translation of Japanese yen at the rate of ¥125 = C
3. Certain reclassifications of previously reported amounts have been made to conform with current classifications.
4. Since the year ended March 31, 2004, the “Amounts per share” figures have been calculated in accordance with the Japanese Financial Accounting Standard“Accounting for Earnings per Share.”5. Since the year ended March 31, 2007, the balance sheet is divided into sections on assets, liabilities, and net assets in accordance with Accounting Standards 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.”
6. Return on assets = Operating income / Average total assets x 100 (%)
Figures rounded down to the nearest million of yen & US dollars.

02

Kuraray Co., Ltd. Annual Report 2010¥ Million, %Net Income & ROE¥ Million, %22,41230,451

29,280

6.4

5.0
3.9

10.4

12,984

11.5

10.2

21,185

6.5

25,554

7.3

40,22038,277

332,880

376,777

417,601

385,284

375,072

Operating Income &Operating Income Margin
48,130¥ Million

9.1
7.8

07

08

09

FY

05

06

07

08

09

FY

Operating Income
Operating Income Margin

07

08

09

FY

R&D Expenses &R&D Expenses Ratio¥ Million, %

05

07

07

08

09

Cash Dividends per Share

¥

07

08

18.50

502,815

15.00

471,874

490,36506¥ Million

337,81806

06

325,01605

Gross Cash Flow = Net income + Depreciation and amortization

344,833

481,357
339,127

FY

508,694

Total Shareholders’ Equity,
Total Net Assets & Total Assets

52,804

46,37147,90850,131

57,040¥ Million

358,592

Gross Cash Flow

05
Net Income
ROE

16.00

06

22.00

05

22.00

FY

16,315Net Sales

08

09

FY

¥ Million

Domestic Naphtha

05

06

09

Total Shareholders’ Equity
Total Net Assets
Total Assets

Capital Expenditures¥ Thousand/kl

3.8

FY

05

4.6
4.3

06

42,72038,925

57
49

3.7

39

36

19,879

3.4

R&D Expenses
R&D Expenses Ratio

37,70033,871

15,292

16,35815,25013,021

14,068

69

07

08

09

FY

05

06

07

08

09

FY

05

06

07

08

09

Figures are track record (average) of Kuraray

03

BUSINESS OVERVIEWBU SIN E S S S E G ME NTR E S UL T S b y S E G ME NTCHEM IC AL S an d RESI N S

61%Net sales share¥202,855 million
Operating income: ¥42,963 million

Net sales:

The Chemicals and Resins Business domestically produces poval resin and film,
EVAL, isoprene, fine chemicals, methacrylic resin, resin finished products, and othergoods for sale in Japan and abroad. The business also produces and sells EVAL resin
and the thermoplastic elastomer SEPTON in the United States, poval resin, PVB resinand film, and EVAL resin in Europe, and poval resin in Asia. The business additionally produces and sells rubber and resin finished goods and other products.
The Chemicals and Resins Business recorded a solid recovery for all of its products in China and greater Asia in fiscal 2009. Sales results remained stagnant in
the European and U.S. markets in the first half, but gradually started improving inthe second half of the year.
By product segment, poval resin sales recovered in Asia, and optical-use poval
film sales were firm. PVB film sales were slow to recover during the year, largely
due to the impact from the sluggish conditions in the European construction market. Sales of EVAL, an EVOH resin, recovered in all regions, with particularly strong
sales to the automobile industry in Asia. Isoprene-related product sales were solid.

F I BE R S an d T EXTI LES

24%
Net sales share

Net sales:
Operating loss:¥79,983 million-¥1,736 million

The Fibers and Textiles Business produces and sells KURALON, CLARINO manmade leather, polyester, KURAFLEX non-woven fabrics, hook-and-loop fasteners,
and other products.
The Fibers and Textiles Business struggled to garner sales in fiscal 2009 amid
overall slow recovery in demand and particularly sluggish sales of CLARINO manmade leather and VECTRAN high-strength polyarylate fiber. Both businesses are
currently undergoing structural reform, which is expected to favorably impact the
FY2010 results for this segment.

HI G H - PER F O R MA N C E MA TERI A L S , M E D I C A L P ROD U C T S a nd OT H E R S

15%Net sales share¥50,042 million
Operating income:¥4,238 million
Net sales:

The High-Performance Materials and Medical Products Business produces andsells GENESTAR heat-resistant polyamide resin, high-performance membranes,
activated carbon, dental materials, and other medical products. The segment also
includes the contributions of consolidated subsidiary KURARAY ENGINEERING
CO., LTD., which conducts plant design and construction activities.
Fiscal 2009 results for the High-Performance Materials, Medical Products andOthers Business include a recovery in sales volume of dental materials in the medical products business. Sales of the GENESTAR heat-resistant polyamide resin
reflected a moderate recovery in demand for electric and electronic material applications and growing demand for LED reflector applications. Sales were firm forthe activated carbon business and other businesses.

Note: The Resin Company, Chemicals Company, and Fibers and Textiles Company were reorganized in April 2010, resulting in some differences in the business segments andeach company’s business structure compared with fiscal 2009 and previously.

04

Kuraray Co., Ltd. Annual Report 2010

M A JOMAJOR
R P RODR O D U C T S / P R I M AR Y AP P L I CAT I O N<< KURARAY POVAL, MOWIOL (PVA resin)

Paper / fiber processing agents,
adhesives and others<< MOWITAL (PVB resin)

Coating compounds, inks, ceramic binders<< EVAL resin (EVOH resin) /EVAL film (EVOH film)
Food packaging, automobile tanks /Vacuum insulation panel for fridge and others<< Isoprene chemicals

Pharmaceutical and agrichemicalintermediates, ingredient for fragrances,cosmetics<< KURALON (PVA fiber) /KURALON K-BB (New type of PVA fiber)
Reinforcing material for cement andconcrete and others<< KURAFLEX,FELIBENDY (non-woven fabric)
Everyday goods, industrial products(wipers, automobile applications) and others<< MAGIC TAPE (Hook and loop fastener)

Clothing, sporting goods,
industrial materials and others<< GENESTAR(Heat-resistant polyamide resin)
Mobile phones, personal computers,
digital cameras, LCDs,
LED reflectors application and others<< Dental materials

Materials for treating cavities<< PVA film

LCD televisions,mobile phone screens and others<< TROSIFOL (PVB film)

Interlayers for laminated safety glass andphotovoltaic module encapsulation<< SEPTON, HYBRAR(Thermoplastic elastomer)
Substitute for rubber: Automobile parts,
electronic parts, stationary, toys,
sporting goods and others<< PARAPET (Methacrylic resin) /Methacrylic sheets
Light guide plates for LCDs,
automobile light covers, signboards,
construction material and others<< CLARINO (Man-made leather)

Men’s and women’s shoes, bags,
athletic footwear and large inflatable sports balls<< VECTRAN (Polyarylate fiber)

Rope, fishing nets,
and other industrial products<< Polyester staple / Polyester filament

Materials for non-woven fabrics andindustrial materials / Woven and knitted
textiles, tents, sheets<< High-performance membranes /PVA gelWater purification,
wastewater treatment and others<< KURARAY COAL (Activated carbon)

Water purification facilities, gas separators,
capacitor materials

05

To O U R S H A R E H O L D E R S

Yasuaki Wakui(Representative Director and Chairman)

Fumio Ito
(Representative Director and President)

The business environment in our 129th fiscal term (from April 1,

Plan (for the fiscal 2009-2011 period) to strengthen the profit

2009, to March 31, 2010) included a measured recovery from thestructure at every level of the Company while aggressively imple-

worldwide economic recession triggered by the collapse of Lehman

menting strategies for business expansion and growth. ThroughBrothers Holdings, but continued to be unpredictable on the whole.

such efforts, we aim to achieve the performance targets of

Demand for Kuraray products is rebounding overall, but the degree¥360.0 billion in net sales, ¥43.0 billion in operating income,of improvement varies widely by business and regional segment.

¥41.0 billion in ordinary income, and ¥24.0 billion in net income

Faced with an extremely rapid deterioration in business condi-

in fiscal 2010. We believe that the aggressive implementation oftions in fiscal 2009, our management strategies focused on “bol-growth strategies will also enable us to achieve our goal of ¥50.0

stering defenses” and “lowering the break-even point to matchbillion in operating income in fiscal 2011, the final year of thethe low operating rate.” Measures implemented throughout the“GS-Twins” Medium-term Action Plan, and realize sustainable

Group to improve the profit structure ranged from steep cuts ingrowth, as outlined in our “10-Year Corporate Vision.”

expenses and inventories to strict streamlining of capital investment and personnel expenses.
Consolidated net sales in fiscal 2009 declined 11.7% year on yearto ¥332.9 billion due to stagnant demand and the strong yen.

Profit distribution to shareholders is a top management priority at Kuraray. Our aim is to maintain a dividend payout ratio of
30% or more of consolidated net income, and to raise the dividend payout by improving our business performance.

Despite this decline in sales, we achieved a higher consolidated prof-

The Company plans to distribute dividends of ¥8 per share atit, with operating income increasing 4.0% to ¥30.5 billion, ordinary

the end of fiscal 2009. The annual dividend payment, including

income growing 7.9% to ¥28.9 billion, and net income risinginterim dividends, will therefore amount to ¥16 per share, pro-

25.7% to ¥16.3 billion, as a result of the aforementioned measures.

ducing a dividend payout ratio of 34.1% for fiscal 2009.

Income in each category exceeded our initial performance forecasts
for the year even though net sales fell short of expectations.
Although we made significant progress in improving the profit
structure, our performance still has not recovered to the level
prior to the Lehman shock. Thus, in fiscal 2010, we will continue
to advance the policy of the “GS-Twins” Medium-term Action

06

Kuraray Co., Ltd. Annual Report 2010

In fiscal 2010, the Company plans to increase the annual dividend payment by ¥8, to ¥24 per share. Based on our target of¥24.0 billion in net income for the year, this will raise the dividend payout ratio to 34.8% in fiscal 2010.
We are grateful to our shareholders for their continuing
understanding and generous support.

I N T E R V I E W w i t h K U R A R AY P R E S I D E N T F U M I O I T O

QHow would you summarize the business environment and Kuraray’s activities
in fiscal 2009 (ended March 31, 2010)?

Facing severe conditions that happen only once in 100

Under such conditions, the first priority of management is toyears, we bolstered our “defenses” and revamped our prof-

implement measures to improve profitability. Our goal during theit structure. Through these efforts, we were able to halt

year was to reform the profit structure with emphasis on “bolster-

the downward trend in earning and regain profitability.

ing our defenses” and “lowering the breakeven point to match thelower operating rate” to ensure profitability even if sales were justWithin six months of the collapse of Lehman Brothers Holdings,

70% of the normal level. Measures initiated to improve the profit

our sales had fallen by 20-30%. The yen was simultaneously

structure included rationalizing production capacity, reducing fixed

gaining strength in the foreign exchange markets, and it appre-

costs, and enforcing production cutbacks to lower inventory levels.

ciated by about 25% against the euro and 20% against the U.S.

Such measures proved effective, as the Company raised operating

dollar compared to the fiscal year before the Lehman Brothers

income over the previous fiscal year’s level, to ¥30.5 billion in fiscal

bankruptcy. The impact was substantial, as our overseas sales

2009, even as net sales fell to ¥332.9 billion. Management mustrevenue fell by roughly ¥30 billion. The double impact of slump-remain vigilant, but our business performance has bottomed out.

ing demand and the stronger yen created an unprecedented cri-

We are now emerging from a “defensive” period of protecting

sis, the kind that occurs only once in a century.

profits to an “offensive” era of dynamic business expansion.

“

KURARAY is EMERGING
from a “DEFENSIVE”
PERIOD of PROTECTING
PROFITS to an“OFFENSIVE” ERA
CHARACTERIZED
by DYNAMIC”

BUSINESS EXPANSION.

07

Q

How will Kuraray stage an “offensive” in fiscal 2010?

We will accelerate implementation of the global strategy

other businesses by developing new applications that provide

for the core vinyl acetate-related businesses, and continue

effective solutions to meet customer needs.

to actively create new businesses.

The fundamental global strategy for the vinyl acetate-related
businesses is to identify the specific demands in each of four

Having successfully improved the profit structure in fiscal 2009,

regions—Japan, the United States, Europe, and Asia—and we

management will now begin implementing aggressive measures

are considering expanding production facilities and pursuing

to expand earnings. In fiscal 2010, we will accelerate implemen-advantageous M&As with local enterprises.

tation of the global strategy for the core vinyl acetate-related

We also anticipate a strong performance by our GENESTAR

businesses with the aim of maintaining Kuraray’s position as theheat-resistant resin business. We began shipping GENESTAR

global leader in poval, PVB (polyvinyl butyral), and EVAL resins

resins as a component for LED-backlit LCD TVs in the spring ofand films, and will continue to steadily expand operations of2009. Demand for LED-backlit LCD TVs has been growing rapidly in recent years, and we anticipate substantial growth indemand in fiscal 2010 for components using GENESTAR as LEDbacklit LCD TVs move into the mainstream. The market sharefor LED-backlit LCD TVs is forecast to expand from the current
2-3% to around 25% of the LCD TV market in fiscal 2012. We
expect GENESTAR’s contribution to earnings to grow in tandemwith the burgeoning sales of TVs.
We believe creating and developing new businesses will also
be essential to diversifying the Company’s revenue sources. In
2010, Kuraray will launch a ¥5.0 billion construction project toexpand the Niigata Plant facilities for mass production of its
highly touted new acrylic thermoplastic elastomer, which is
attracting widespread attention as a highly transparent and flexible “pliable acrylic.”

08

Kuraray Co., Ltd. Annual Report 2010

Q

What is the Company’s business plan for fiscal 2010 (ending March 31, 2011),
and what are its medium- to long-term strategies for subsequent fiscal years?

In March 2012, the final year of the Medium-term Action
Plan, we aim to achieve ¥50 billion in operating income.

In the future, we expect the decline in domestic demand to bottom out, enabling the achievement of sustained businessgrowth through an expansion in exports in tandem with economic development in the emerging countries in Asia. Due tothe volatility of the business conditions in recent years, we did
not set quantitative earnings targets in the Medium-term Action
Plan (fiscal year 2009 to 2011). However, now we have set thetarget of ¥50.0 billion in operating income for fiscal 2011, thefinal year of the three-year Medium-term Action Plan, and weare going to achieve this target. We have not set a specific target for net sales at this point, due to the instability in the foreign exchange market and other factors. However, we are stillworking to achieve net sales of ¥450 billion, which was the target of the previous plan. We view the Company’s announced
fiscal 2010 forecasts for net sales of ¥360.0 billion and operating income of ¥43.0 billion as passing points as we work toachieve even higher targets.
From fiscal 2012 onward, we will resume efforts to achieve

Targeting Operating Incomeof ¥50 Billion under “GS-Twins”¥ Billion

the targets of our 10-Year Corporate Vision: net sales of ¥1 tril-

50.0

lion, and a 15% operating margin. We believe the progress we

48.1

have made in expanding existing businesses and developing

43.0

new businesses, including commercialization of water treatment
equipment and optical materials, has given us the ability to

29.3

30.5

achieve close to ¥750.0 billion in net sales. We expect that contributions from commercialization of products currently in theMedium-term Action Plan
“GS-Twins”

research and development phase, as well as global businessexpansion through M&As and other measures centering on corebusinesses will put us into position to realistically aim for ¥1 trilFY

lion in net sales in fiscal 2018.

07

08

09

10
(Forecast)

11(Forecast)09

Q

What is the Company’s stance on shareholder return now that earnings are recovering so strongly?

We are firmly committed to maintaining a dividend payout ratio of 30%
or more.

Under the “GS-21,” the former Medium-term Business Plan (through fiscal
2008) we worked to achieve consolidated net income-based targets of a 30% or
higher dividend payout ratio and a 70% or higher shareholder return ratio(including share buybacks).
Given the uncertain global economic conditions, we made a complete overhaulof the profit structure our top management priority. Accordingly, we are committed to maintaining a dividend payout ratio of 30% or more, and will take a cautious stance in buying back Company shares, giving adequate consideration toprevailing financial conditions. A substantial amount of funds will be needed toaccelerate the global expansion of our core businesses, and to create and foster
new businesses. When the Company regains financial flexibility, we will reexamine the dividend payment level and the advantages of buying back shares.

10

Kuraray Co., Ltd. Annual Report 2010

R E S I N C O M PA N Y“

The Resin Company’s

extensive product portfolio
generates a steady flow ofrevenue that is highly
resilient to fluctuating”

economic conditions.

Keiji Murakami
Director and Senior Executive Officer,
President of the Resin Company

Kuraray’s primary income contributor

Aggressive development of business overseas

Kuraray holds the largest share of the world market for vinyl

In fiscal 2010, we plan to continue fortifying our position as theacetate-related businesses, and the Resin Company, whichworld’s leading supplier of vinyl acetate-related resins and films

produces resin and film materials made from vinyl acetate, isthrough aggressive development of our overseas business for

its primary income contributor. Resin Company products arepoval film (mainly for LCD applications, TROSIFOL (PVB film forused in diverse fields for a wide variety of applications, includ-

automotive, architectural and photovoltaic applications), EVAL

ing films for LCD, interlayer films for architectural glass and(mainly for application in food packaging and gasoline tanks)

automotive windshields, adhesives, food packaging, andand poval resins, which are the base material used in thesegasoline tanks in automobiles. EVAL, for example, provides anfilms and resins.

effective gas barrier that shuts out oxygen, making it an ideal
packaging material for mayonnaise and other food products.
The Resin Company’s extensive product portfolio generates a
steady flow of revenue that is highly resilient to fluctuating
POVAL, MOWIOL

economic conditions, and thus serves as a major strength for

Packagingthat uses
EVAL resin

Kuraray. The Resin Company was also the spearhead ofKuraray’s initiative to expand overseas production and marketing activities after determining the optimal locations for
production and sales bases.

Safety glass using TROSIFOL PVB film

11

C H E M I C A L S C O M PA N Y“

My goal is to grow each of

our “only one” products intoa brightly shining star,
while working to realize
further growth for the

Yasuhiro Yamamoto
Director and Senior Executive Officer,
President of the Chemicals Company”“only one” tree as a whole.

An abundance of unparalleled products

Maximizing the potential of

The Chemicals Company comprises the five divisions of

our “only one” products

Methacrylate, Isoprene chemicals, Elastomer, Genestar, andOur “only one” products may at a glance appear to be se-

Medical, whose products are used for all manner of applications

parate, but there are root similarities in the basic tecnologies,

such as LCD TVs, urethane raw materials, electronic materials,

and they are hung like ornaments, after being developed fromdental materials, household appliances, automotive compo-

scratch, on the so-called Christmas tree of the Chemicals

nents, and so on.

Company. I intend to make each of them into an even more

A characteristic of our company is that it has many “onlybeautiful ornament, and make the entire tree bigger.

one” (unique) products. Annual sales of these products range
from millions to billions of yen, and they are offering truly distinctive features.
For example, GENESTAR heat-resistant polyamide resin provides not only superior resistance to heat, but also exhibits light

Methacrylic sheets

resistance and low water absorption. These characteristics makeit ideally suited to applications for LED reflectors used in LCD
TVs employing LED light sources, and shipments have alreadybegun for LED TV applications. We expect GENESTAR sales torise as LED TVs move into the mainstream.

SEPTON, HYBRARGENESTAR

12

Kuraray Co., Ltd. Annual Report 2010

F I B E R S a n d T E X T I L E S C O M PA N Y“

Rather than focus on

volume of sales, we aim to
distinguish the company’s
products in overseas
markets throughKazuhiro Tenkumo
Director and Senior Executive Officer,
President of the Fibers and Textiles Company”

product performance.

The legacy of Kuraray’s founding businessare also developing global businesses with our high value-added

The Fibers and Textiles Company encompasses Kuraray’s origi-

unique products, such as KURALON fiber (PVA fiber), used in rein-

nal businesses. Taking advantage of Kuraray’s proprietaryforced cement as an asbestos substitute, and the ultra-high per-materials and technologies, this company has assiduously

formance VECTRAN fiber which was used in the air bags on

been developing new applications to meet ever-changing mar-NASA’s Mars exploration rover. We will continue to develop prod-

ket needs, and has successfully distinguished itself from its

ucts to highlight Kuraray’s unique materials and technologies withcompetitors in China and other emerging countries.

the objective to create and market materials capable of compet-

Moreover, we have achieved differentiation from our competi-

ing in the global market.

tors through superior product performance rather than
through economies of scale in production. Our distinctive
products include KURALON of the fibers and industrial materials business, CLARINO of the man-made leather business,
KURAFLEX of the non-woven fabric business and MAGIC TAPE

CLARINO TIRRENINAof the fastening business.
KURAFLEX

Creating new world-class materials
This year, we have high expectations for our man-made leather
CLARINO TIRRENINA. Light, soft, and lasting, CLARINO TIRRENINA
products are being developed to be more than just an alternative
to leather, but rather to compete in every aspect with leather. We

MAGIC TAPE

13

RESEARCH and DEVELOPMENT

Basic Policy

development of new acrylic thermoplastic elastomer materials

All division R&D and corporate R&D activities in each Kuraraywith excellent transparency and flexibility. The Niigata Plant issegment, business division, and group companies are closely

currently being expanded to serve as the Company’s hub of

coordinated and guided by our corporate mission to open newelastomers production.

fields of business using pioneering technology and contribute toimproving the natural environment and quality of life.
To continue building on the reinforced business structure

The new facility, which will have an annual production capacity of 5,000 tons, is scheduled to commence operations in theautumn of 2011.

achieved under the GS-21 Medium-term Business Plan, Kuraray

R&D activities in thermoplastic elastomers include developing

launched the “GS-Twins” Medium-term Action Plan in fiscal

commercial applications for the SEPTON Q Series, a lightweight2009 focused on creating and expanding new businesses andmaterial with excellent anti-abrasion and hydrolysis properties

laying the foundation for new growth. The three-year medium-that is finding an ever-widening range of applications, such as

term business plan aims to further advance the Company

for sports shoes. In this way, we are achieving a high level of

toward its 10-Year Corporate Vision of becoming “a specialty

product differentiation for our thermoplastic elastomers.

chemical company with a strong presence.”

R&D in methacrylic resin concentrates on developing new

The Corporate R&D division administers operations of the

products and applications emphasizing the distinctive properties

Kurashiki Research Laboratories, Tsukuba Research Laboratories,of our polymers and in strategic areas for ongoing businessand Kuraray Research and Technical Center (USA).

growth in the electronic display industry.

Main R&D Activities
CHEMICALS and RESINS(FY2009 R&D Expenses: ¥4,313 million)

Kuraray is a global leader in the vinyl acetate chain products ofTotal R&D Expenses by
Business Segment¥ Million

ethylene vinyl alcohol (EVOH resin). The Company closely coor-

4,852

and KURARISTER, both of which provide superior gas barrier
properties. EVAL SP is a new EVOH resin offering high levels of
flexibility, elasticity, and rubber-equivalent plasticity. KURARISTER is a transparent barrier film for use in food packaging
retorts. We are also developing markets for super-barrier (scavenger) materials and a variety of innovative products.
In the thermoplastic elastomers, the Company is advancing

14

Kuraray Co., Ltd. Annual Report 2010

FY

2,832

05
06
07
08
Fibers and Textiles
Chemicals and Resins
High-Performance Materials, Medical Products and Others
Corporate

4,313

15,292

6,429 1,825 2,723

ment operations to expand the application ranges of EVAL SP

2,476

In gas barrier materials, we are conducting global develop-

5,400 1,876 2,712

2,782 2,298

applications, new products, and new production technology.

13,021
4,372

R&D departments with a focus on development of new product3,965 2,142 2,541

4,135

14,0685,260

15,250dinates the worldwide operations of its domestic and overseas

5,054

16,358

5,995

Poval polyvinyl alcohol (PVA), polyvinyl butyral (PVB), and EVAL

09

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.

FIBERS and TEXTILES

HIGH-PERFORMANCE MATERIALS, MEDICALPRODUCTS, and OTHERS(FY2009 R&D Expenses: ¥1,825 million)

R&D in PVA fibers is centered on development to expand the(FY2009 R&D Expenses: ¥2,723 million)

market and adding functionality for new applications for fiber-

R&D related to the heat-resistant polyamide resin GENESTAR aims

reinforced cement (FRC).

at developing new products and applications to meet the growing

Research in the high-strength polyarylate fiber VECTRAN
aimed to further enhance product performance and develop
applications to exploit its high-strength, low water absorbency,
and other characteristics.

demand for electrical and electronic applications and to keep pacewith our steadily growing business in the automobile industry.
In the medical products business, the Company’s development activities in bone transplant products led to the creation of

R&D activities in the man-made leather CLARINO included thecompletion of the first stage of facility construction for volume pro-

artificial bone graft, and commercialization efforts stepped up
during the year following the product’s official approval.

duction and the ensuing start of operations in October 2009 incor-

In the water treatment field, the Aqua Business Promotion

porating the next-generation, environmentally friendly CLARINO

Department was established in April 2009 to gather together

Advanced Technology Systems (CATS) production process.

the Group’s environmental technology with the aim of greatly

R&D in the non-woven fabric FELIBENDY included the commer-

expanding our water environment business operations. We con-cialization as an elastic autohesion wrap and as a flooring materialtinue to focus on developing applications emphasizing the spe-for use in lightweight tatami mats, emphasizing its soundcial characteristics of our materials in the four business seg-absorbency and insulation characteristics. R&D of FELIBENDY isments of ultrapure water production and recycling, industrial

continuing in order to take advantage of its insulation and otherwastewater treatment and recycling, valuable substance recov-

attributes for applications as a material for housing interiors.

ery, and seawater treatment. Business development also““

Setsuo Yamashita
Director and Senior Executive
Officer
General Manager of the New
Business Development Division””

Persistence and commitment to differentiation is a Kuraray attribute.

Kuraray’s business is guided by a corporate culture
centered on “Contributing to the world and individual well-being through actions that others areunable to produce.” Our approach of concentrating
on a single technology with the aim of developing afull range of applications has produced an ongoingflow of successful products that are contributing to
the world. For example, when we originally developed KURALON, we overcame many obstacles toachieve the in-house development of poval, which isthe primary material for KURALON. The technology
we accumulated over the years has since enabled us
to apply poval to optical-use films for liquid-crystal
displays. Poval is currently one of the Company’s
main sources of revenue. The persistence and commitment with which we strive to differentiate our

products is a unique characteristic of Kuraray.
Offering effective solutions for global-scale challenges is currently a key theme driving our creationof new businesses. We are focusing our new business development in three core fields: environmental(water treatment, gas separation, etc.), energy(development of materials for photovoltaic cells, fuelcells, etc.) and the optical and electronics field (LEDmaterials, illumination components, etc.). Success in
new businesses requires more than simply possessing quality products and technologies. Backed by aclear understanding of market needs and effective
operational organizations and structures that inspire
and maximize the diverse talents of our staff, we aim
to create new businesses which will rapidly become
significant new revenue sources for the Company.

15

includes equipment and systems sales. Particular effort during

energy efficient, slim, and lightweight, this technology has

the year focused on anaerobic and aerobic reactor equipment for

growth potential in the LCD TV panel and lighting segments

the industrial wastewater treatment segment and recovery sys-that utilize LED as a light source.

tems for silicon and other materials used in semiconductor man-

The Company used its accumulated expertise in polymeriza-

ufacturing processes in the valuable substance recovery segment.

tion and polymer alloy technologies to develop a new rigid

In the seawater treatment segment, the Company continued its

acrylic-type film that is more resistant to cutting than acrylic

efforts for the development of ballast water management sys-films made from rubber compounds and also offers high trans-

tem*, and exhibited the newly developed system at the SEA

parency and discoloration resistance.

JAPAN 2010 International Maritime Exhibition in April.

In the electronics field, we used our proprietary film-forming
technology to develop the new VECSTAR line of liquid crystalline

CORPORATE RESEARCH and DEVELOPMENT(FY2009 R&D Expenses: ¥6,429 million)

polymer film products offering superior heat resistance (necessary for high-temperature soldering processes) and optical

Corporate R&D during the year focused on creating and fosteringreflectivity. The VECSTAR polymer film is also being developed

new businesses in the promising growth fields of electronic andfor its superior electrical and low-moisture absorbency proper-

optical materials, environmental, and energy fields. In April 2009,

ties, which make it ideally suited for high-speed transmission

we established a new organizational operating matrix of research

and flexible printed circuit board applications.

laboratories focused on cultivating and strengthening our tech-

In February 2010, the Company absorbed Kuraray Luminas

nology platforms and project teams concentrating on acceleratingCo., Ltd., which is involved in the development of inorganic

product realization. The organization is designed to facilitate ourelectroluminescence (EL) materials and light-emitting elements,

research and development activities and commercialization.

into its main business operation for the purpose of accelerating

In optical technology, we are applying our optical design anddevelopment of inorganic EL technology and related business

precision machining technologies to the development of LED

areas by integrating Kuraray’s development technology andbacklit boards incorporating edge-lighting techniques. Highly

sharing information on market trends.

*Ballast Water Management System (BWMS)
Kuraray’s MICROFADE ballast water management system saves powerand space and substantially reduces the volume of chemical agents usedin the post-process sterilization of seawater to eliminate marine organisms by utilizing special high-precision filters for vastly improved organism
removal in the front-end process.
Ballast water is seawater drawn into specialized tanks to maintain balanceon cargo ships, which often carry the water from a port in one country and discharge it in another. This practice has become an international issue, however,
because it impacts ecosystems by introducing non-indigenous aquatic organisms contained within the ballast water. To address this problem, a binding
international agreement has been adopted that is expected to make ballast
water management systems mandatory for all ocean-going cargo ships in 2017.

Ballast Water Treatment Mechanism
Special high-precision filter

1) Seawater intake

World’s first use of a solid chemical agent storable at room temperature2) Filtrationusing3) Sterilization
chemical agents

Ballast tank
Ballast tank4) Ballast water discharge
1) Seawater intake: Seawater containing plankton, mud, sand, and bacteria

16

Kuraray Co., Ltd. Annual Report 20104) Ballast water discharge: Clean seawater surpassing emissions standards

C O R P O R AT E G O V E R N A N C E , I N T E R N A L C O N T R O L

Corporate Governanceof office is one year. There are currently ten board members,

Basic Philosophy on Corporate Governanceincluding two outside directors. No personal, capital, transac-

Kuraray believes that the maintenance of appropriate relation-

tional or other type of relationship that would present a conflictships with various stakeholders, including shareholders, and theof interest exists between the company and outside directors.

fulfillment of social responsibilities are consistent with Kuraray’s

Kuraray has entered into an agreement with each outside direc-

objective of achieving long-term improvement in business

tor, limiting their responsibility for damage compensation in accor-

results and sustainable growth as a global company. Kuraraydance with Article 1, Paragraph 427 and Article 1, Paragraph 423

believes it is a fundamental and important obligation to fulfill itsof the Japanese Company Act. Such agreement limits the liabilitysocial responsibilities by enhancing corporate governance andto an amount provided by law. However, the limits on liability are

establishing highly transparent and fair corporate management.

only approved when the applicable outside director executed the

As a company with a Board of Company Auditors, Kuraray

duties that caused the liability without knowledge and gross negli-

has established a corporate governance system centered on its

gence. As the chief executive responsible for business execution,

Board of Directors and Board of Company Auditors to improve

the president appointed by the Board of Directors exercises control

the effectiveness of supervisory and monitoring functions while

over the execution of business in the Kuraray Group. Executive

maintaining management efficiency and to provide guidance for

officers (one-year term of office) appointed by the Board ofissues including management compensation, selection of new

Directors are responsible for business execution in the various

company officials, internal controls, and risk management.

organizations of the Kuraray Group. As the heads of internal companies, divisions, and major functional organizations, the executive

Corporate Governance Systems

officers bear responsibility for operations and profit. Some

1. Board of Directors and Executive Organization

Directors hold concurrent positions as executive officers.

The Board of Directors establishes the Board of Directors’

The president establishes the Executive Committee (in principle,

Regulations, deliberates and decides important management

held twice a month) and other various councils and committees tomatters, including legal matters, and supervises the execution ofdeliberate and report on important matters concerning thebusiness. The maximum number of directors is 10, and the termGroup’s management policies and business execution.

Shareholders Meeting
Appointment / Dismissal

Appointment / Dismissal

Ten directors(including two outside directors)
Chairman: Yasuaki Wakui
Appointment /Dismissal

Management Avisory Council
Seven permanent members(including four outside experts)

Appointment / Dismissal
ReportingBoard of Directors
Auditing

Appointment /Dismissal /Supervision

AdviceReportingBoard of Company Auditors
Five auditors(including three outside auditors)

Apporoval of selection and reappointment

Staff for Company Auditors

Auditing

President
Instructions

Accounting Auditor

Reporting

Office of Internal Auditors
Auditing

Reporting on results of deliberations

Executive Committee(deliberation on Important matters)
Bringing up important matters for deliberation

CSR Committee
Social Resposibillity and Economic Subcommittee
Environmental and Industrial Safety Subcommittee

Executive Officers

Global Warming Measures Subcommittee(execution of business)

Risk Management and Compliance Subcommittee
Plan proposals / Activity reports

Policy instuctions / Plan approvalInternal Companies, Functional Organizations, Group Companies

172. Board of Company Auditorsand management transparency. The Council consists of seven

The Board of Company Auditors consists of five company audi-

permanent members, including a majority of four outside

tors, including a majority of three outside auditors independent

experts with wealth of experience in corporate management orfrom Kuraray Group. No personal, capital, transactional or othercorporate legal affairs. The Council convenes regularly to advise

type of relationship that would present a conflict of interest

the president on such issues as important management policies

exists between the company and the outside auditors. The com-and issues, succession of the president, selection of successorpany auditors attend meetings of the Board of Directors andcandidates, and compensation for the president.

other important meetings, and monitor the directors’ performance of duties through inquiries conducted by such means as

4. Status of Accounting Auditor

the examination of important documents and requests for

No special interests exist between the Company and accounting

explanations of the state of business affairs. In principle, theauditor, PricewaterhouseCoopers Aarata, or the engagement

Board of Company Auditors convenes monthly. The company

partners of such auditing firm who audits Kuraray. In addition,

auditors regularly convene with accounting auditor,

such auditing firm voluntarily take steps to ensure the engage-

PricewaterhouseCoopers Aarata, and the Office of Internal

ment partners are not involved in audits of the Company for

Auditors (consisting of 12 members), which conducts internal

longer than a prescribed period of time.

audits. At these meetings, they receive reports on audit content
and share information concerning audit planning, implementa-

Internal Control

tion, and related matters. The company auditors also serve as

Basic Philosophy on Internal Control

company auditors of core subsidiary companies to ensure sub-

The Kuraray Group recognizes that maintaining and implement-

sidiary audits are performed appropriately and attend periodic

ing internal controls is an important management task. The

Group Auditor Liaison Meetings consisting of the subsidiary

Board of Directors implements internal controls under the fol-

auditors to deepen their understanding of each company.

lowing five categories based on the Basic Policy for Establishing

Kuraray has entered into an agreement with each outside

Internal Controls as determined by the Board of Directors.

auditor, limiting their responsibility for damage compensation inaccordance with Article 1, Paragraph 427 and Article 1,
Paragraph 423 of the Japanese Corporate Law. Such agreement

1. Systems for risk management and to ensure compliance withlaws and regulations by directors and employees

limits the liability to an amount provided by law. However, the

2. Systems to ensure efficient execution of duties by the direc-

limits on liability are only approved when the applicable outside

tors and the storage and management of information regard-

auditor executed the duties that caused the liability without

ing such execution

knowledge and gross negligence. Kuraray appoints staffs forcompany auditors (3 members) to assist the auditors in the performance of their duties.

3. Systems to ensure appropriate work practices of the corporate group
4. Systems to ensure effective application of the auditor duties
5. The internal control maintenance and operation is administered

3. Management Advisory Council

such that the Office of Internal Auditors conducts internal

The company has established the Management Advisory Council

audits of the Kuraray Group and the corporate auditors con-to serve as a consultative body to the president from the per-duct audit and oversight of the execution of duties by directors

spectives of compliance, the protection of shareholder rights,

18

Kuraray Co., Ltd. Annual Report 2010

B O A R D o f D I R E C T O R S , C O R P O R AT E A U D I T O R S ,a n d E X E C U T I V E O F F I C E R S (as of JUNE 24, 2010)(From front left) Yoichi Ninagawa, Yasuaki Wakui, Fumio Ito, Shiro Kataoka(From back left) Kensaku Aomoto, Yasuhiro Yamamoto, Keiji Murakami, Kazuhiro Tenkumo, Setsuo Yamashita, Takafusa Shioya

BOARD OF DIRECTORSCORPORATE AUDITORS

Shinzo Takemura

Representative Director and Chairman

Standing Corporate Auditor

Noritsugu Nagatomo

Yasuaki Wakui

Junsuke Tanaka

General Manager of Niigata Plant

Representative Director and President

Tadahiko Kujime

Fumio Ito

Corporate Auditor

Director

Hiroo Onodera*2

Yoichi Ninagawa

Hiroki Yamada*

2

Primary Executive Officer,
Chief Technology Officer (CTO) and Officer responsible forTechnology and Development Unit and Luminas Business
Development and Promotion Department

Shiro Kataoka
Primary Executive Officer,
Officer Responsible for Administrative Unit and Plants in Japan

General Manager of Poval Resin Division

Mie Fujimoto*2*1. Directors Kensaku Aomoto and Takafusa Shioya are independent outside directors.
*2. Corporate Auditors Hiroo Onodera, Hiroki Yamada, Mie
Fujimoto are independent outside Corporate Auditors.

Takaaki Fukumori
General Manager of General Affairs and HR Division
Manager of HR Department, Career Development Department

Matthias Gutweiler
President of Kuraray Europe GmbH

Osamu Yamada
General Manager of Kashima Plant

Shuichi Takemoto
Deputy General Manager of Corporate Management Planning
OfficeManager of Corporate Strategy and Planning Department

Tomoyuki Aya
General Manager of Isoprene Chemicals Division

Keiji Murakami
Senior Executive Officer,
President of Resin Company, Kuraray Co., Ltd.

Kazuhiro Tenkumo
Senior Executive Officer,
President of Fibers and Textiles Company, Kuraray Co., Ltd.

Yasuhiro Yamamoto
Senior Executive Officer,
President of Chemicals Company, Kuraray Co., Ltd.

Setsuo Yamashita
Executive Officer,
General Manager of New Business Development Division

EXECUTIVE OFFICERS

Kunio Yukiyoshi

Senior Executive Officer

Nobuo Fujii

Mitsuaki Manabe
General Manager of Accounting and Finance Division

Yuichi Kawarasaki
General Manager of Corporate Management Planning Office
Officer Responsible for Environmental Business Development andPromotion Division

General Manager of Genestar Division

Masanori Onodera
General Manager of Okayama Plant

Sadaaki Matsuyama
General Manager of Medical Division,
President of Kuraray Medical Inc.

Executive Officer

Kensaku Aomoto*1

Noboru Yanagida

Takafusa Shioya*

Kohei Maeda

1

General Manager of Kurashiki Plant

General Manager of PVB Division

General Manager of CSR Division, Internal Auditors Office
Manager of CSR Department

19

FINANCIAL SECTION:FINANCIAL REVIEWKURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIESThe following section refers to the consolidated financial statements of theKuraray Group for fiscal 2009 (from April 1, 2009 to March 31, 2010).

demand and the yen’s appreciation. On the other hand, operating
income increased ¥1,171 million ($12 million), or 4.0%, to ¥30,451
million ($327 million), while ordinary income increased ¥2,128 mil-

BUSINESS ENVIRONMENT

lion ($22 million), or 7.9%, to ¥28,925 million ($311 million), andnet income increased ¥3,331 million ($35 million), or 25.7%, to

The operating environment in the fiscal year ended March 31,
2010 remained unpredictable, though the global economy is showing signs of recovery from the recessionary phase following the“Lehman shock.” While Kuraray product demand is on a recovery
track as a whole, the degree of recovery varies depending on thebusiness and region. Despite the fact that LCD- and LED-relatedmaterials fared well, the Fibers and Textiles business has remained
weak. From a regional perspective, demand was strong in Asian markets, especially in China.
Since April 2009, Kuraray Group is initiating the “GS-Twins” Action
Plan for venturing out into new growth as it seeks to become a“Specialty Chemical Company with a Global Presence,” which is theaim of its 10-year corporate vision. Under the plan, the Group aims to
restore its substantially impaired profit structure in three years time,create and expand new businesses and accelerate its global strategy
for core businesses. Thus in the fiscal year under review, we havebeen particularly focusing on the improvement of our profit structure
as the most urgent and high-priority issue, and have been making an
all-out Group effort to lower fixed costs, reduce capital expendituresand slash inventories.

¥16,315 million ($175 million).
Although our business performance showed some recovery fromthe damage sustained by the Lehman shock, full recovery is still some
way off. Thus, during the next fiscal year ending March 31, 2011, we
will keep focusing on our Group-wide effort for the improvement ofour profit structure under the “GS-Twins,” along with positive measures for business expansion and growth.
The period of this fiscal year for the Company’s overseas subsidiaries runs from January 1, 2009 to December 31, 2009.
Results by Business Segment
Chemicals and Resins
All businesses in the Chemicals and Resins segment rebounded
steadily in Asian markets, including China. Although Europe and theUnited States remained sluggish during the first part of the period
under review, they also showed gradual recovery in the latter part. As
a result, sales were ¥202,855 million ($2,181 million), down 9.6%
year on year, and operating income totaled ¥42,963 million ($461
million), up 15.9%.
In the poval/PVB business, revenue declined while earnings

SALES

Net Sales by
Business Segment

08

09

Net Sales
Operating Income Margin20

Kuraray Co., Ltd. Annual Report 2010

202,855

224,332

243,784

190,753

FY

75,21376,13868,581

56,327 50,042

05

06

07

08

79,983

96,116

07

105,23506

7.8

332,880

376,7779.1

107,92405

11.5¥ Million

109,106

FY

10.2

10.4

¥ Million, %201,221

Net Sales &Operating Income Margin

417,601

under review. Demand for optical-use poval film rebounded to a levelexceeding the peak in the first half of fiscal year 2008, thanks to an

385,284

million), or 11.7%, compared with the previous fiscal year to¥332,880 million ($3,579 million), affected by the stagnating

375,072

Consolidated net sales for the fiscal year ended March 31, 2010
(April 1, 2009 - March 31, 2010) decreased ¥43,897 million ($472

increased. Sales of poval resins in Asia, including China, rebounded
for fiber and textile processing agents and adhesive applications anddemand started to pick up in Europe in the latter part of the period

09

Chemicals and Resins
Fibers and Textiles
High-Performance Materials, Medical Products and Othersincrease in demand for LCD panels. Annual production capacity inthis business expanded from 106 million square meters to 136 million
square meters, thanks to the commencement of operation of addi-

resulting in an operating loss of ¥1,736 million ($18 million).
Although demand for KURALON for use in automotive brake hose
applications was on a recovery track, that for use as an asbestos sub-tional lines at Kurashiki Plant in October 2009 and at Saijo Plant inMarch 2010, by which annual production capacity was boosted by 15
million square meters at each plant. Sales of polyvinyl butyral (PVB)

stitute in FRC (fiber reinforced cement) suffered from a slow recovery
of demand in the construction market.
CLARINO man-made leather faced a continued severe slowdown

film remained sluggish in the construction market in Europe.
Business of EVAL, an EVOH resin, saw decreases in revenues while
earnings remained flat. In Asia, there was further growth in demand
for automotive applications in China, while business was steady forfood packaging applications in Japan. Demand for both food packag-

for interior applications in the United States and apparel applications
in Europe. However, use for school bag applications remained stable,
while new environment-friendly man-made leather showed further
growth in footwear and other applications. This business segment isundergoing a drastic restructuring, while the Okayama Plant is

ing and automotive applications in the United States and Europe hit
the rock bottom during the first part of the period, and is on its way
to a gradual recovery.

migrating over to new processes for high value-added products, andproduction of certain general-purpose products is being shifted overto the joint-venture company in China.

In the methacrylic resin business, revenues were down while

The performance of nonwoven fabric (KURAFLEX) rallied withearnings remained flat. Demand for molding materials for PC lightguide plates grew, while sheet sales increased for the light-guideplates for LCD TVs equipped with LEDs, but continued to be slack
for main applications such as signboards in Japan.

higher demand for masks and other hygienic materials for protection
against new strains of influenza. Hook and loop fastener (MAGIC
TAPE) experienced weak demand on the back of distributor’s
inventory adjustments.

In the isoprene business, revenue declined while earnings

VECTRAN high-strength polyarylate fibers generally remained

increased. Sales of SEPTON thermoplastic elastomers remained
firm while chemicals and fine chemicals staged a recovery in Japan

weak. Restructuring is under way in this business where demand
for main applications such as ropes is experiencing a particularly

and Asia.

severe downturn.

Fibers and Textiles
Recovery was generally slow in the Fibers and Textiles segment,

High-Performance Materials, Medical Products and Others
Sales in this segment declined 11.2% year on year to ¥50,042 mil-where CLARINO man-made leather and VECTRAN high-strength polyarylate fibers performed particularly poorly. Restructuring is underlion ($538 million), and operating income slipped 3.1% to ¥4,238
million ($45 million).

way in both of these businesses. As a result, total sales in this segment declined 16.8% year on year to ¥79,983 million ($860 million),In the medical products business, dental materials sales remainedsolid thanks to reinforced sales organizations in the United States and¥ Million

Net Income &Net Income per Share (Primary)¥ Million, ¥Interest-Bearing Debt

¥ Million

72.15

06

07

North America
Domestic

16,40708

09

12,984

37.29

FY

05

06

07

08

09

FY

05

06

33,952

46.86

16,31522,41256,177

21,18576,961

25,554

60.95
57.51

21,737

238,556

75,93527,96305
Asia
Europe28,28857,70826,264FY

19,944

294,017251,583

273,757

53,97431,551

294,01730,60915,982
23,146

288,446

16,73270,74516,096

74,660Net Sales byGeographic Segment

07

08

09

Net Income
Net Income per Share (Primary)21

Europe, along with brisk demand for new composite resins. In
October 2009, business rights of the therapeutic apheresis device

Asia
There was an upswing in poval resin sales, but sales dropped tobusiness was transferred to Kawasumi Laboratories, Incorporated.
Demand for GENESTAR heat-resistant polyamide resin grew in LED
reflector applications used in TVs, in contrast to the slow recovery inthe demand in electric and electronic materials application.
The activated carbon business and other businesses remained steady.

¥16,407 million ($176 million), reflecting a pronounced slump in thefirst part of the period under review.

OPERATING AND NET INCOME
Cost of sales decreased 14.0% to ¥237,198 million ($2,550 million),and decreased as a percentage of sales to 71.3%, from the previous
fiscal year’s 73.2%. Selling, general, and administrative (SG&A)

Corporate operating expenses included in the “Elimination on consolidation and corporate” account increased ¥2,069 million ($22
million) to ¥15,391 million ($165 million).

expenses decreased 8.9% to ¥65,230 million ($701 million), up 0.6
percentage point year-on-year to 19.6% as a percentage of sales,
despite cost-cutting efforts. As a result, operating income increased

Performance by Geographic Segment
Japan
Sales in Japan of optical-use poval film and GENESTAR for LCD-

4.0% to ¥30,451 million ($327 million). Operating margin improved
to 9.1% from 7.8% in fiscal 2008.
The Company recorded a total extraordinary loss of ¥6,500 million($69 million) for the year, which included a ¥1,834 million ($19 mil-related materials increased, while sales of methacrylic resin used forits main applications and the fibers and textiles business, including
CLARINO, remained slow. As a result, sales fell to ¥238,556 million($2,565 million).

lion) extraordinary loss related to structural reform. The amountrepresents a substantial decrease from the total extraordinary loss of¥8,538 million ($91 million) in fiscal 2008, which included special
operating losses of ¥3,994 million ($42 million) and a ¥1,153 million

North America
While sales of EVAL and SEPTON are on the road to recovery, CLARINO lacked momentum, and the strength of the yen caused sales to($12 million) loss on valuation of inventories.
These and other factors contributed to an increase in income
before taxes and minority interest of 18.2% to ¥23,082 million ($248
million). Taxes for the period came to ¥6,680 million ($71 million),yielding an effective tax rate of 28.9%. Net income was up 25.7% toslide to ¥21,737 million ($233 million).
EuropeAlthough poval resin and EVAL were on a recovery track, PVB film has¥16,315 million ($175 million).

been adversely affected by the stagnant construction market in theregion. Because of a pronounced slump in the first part of the period
under review and the effects of a strong yen, sales fell to ¥56,177
million ($604 million).

As of March 31, 2010, cash and cash equivalents decreased ¥29,745 million ($319 million) to ¥16,412 million ($176 million). Notes and accounts

FY

05

06

07

08

09

FY

05

06

Total Current Assets
Total Current Liabilities

22

Kuraray Co., Ltd. Annual Report 2010

07

08

339,150

324,547
70.0

69.7¥ Million, %

68.2

66.5

76,55069,041

89,074

94,404

79,22870.5

329,244

339,127

249,326

Total Shareholders’ Equity &Equity Ratio

201,358

217,970

200,667

2.1¥ Million

336,415

Total Current Assets &Total Current Liabilities

196,282Months

2.3
2.1

2.2

2.2

Number ofMonths’ Sales in Inventory

FINANCIAL POSITION

09

FY

05

06

Total Shareholders’ Equity
Equity Ratio

07

08

09

receivable increased ¥9,372 million ($100 million) to ¥75,923 million($816 million). Lastly, inventories (merchandise and finished goods, work-

Japanese accounting standards require presentation of net assets
instead of shareholders’ equity.

in-progress, and raw materials and supplies) decreased ¥15,707 million($168 million) to ¥57,845 million ($621 million), and the number ofmonths’ sales in inventory was 2.1 months. As a result of these and otherfactors, current assets rose 23.8% to ¥249,326 million ($2,680 million).
Working capital (current assets less current liabilities) increased

Net assets increased ¥12,802 million ($137 million) to ¥337,818
million ($3,632 million). Subtracting minority interests of ¥3,048 million ($32 million) to yield shareholders’ equity of ¥334,584 million($3,597 million), the equity ratio for the period was 66.5%, down
1.7% from fiscal 2008.

¥40,459 million ($435 million) to ¥172,776 million ($1,857 million).
The current ratio (current assets divided by current liabilities) rose to325.7% from fiscal 2008’s 291.6%. Tangible fixed assets decreased¥17,311 million ($186 million) or 9.6% to ¥163,709 million ($1,760

CASH FLOWSNet cash provided by (used in) operating activities
Net cash provided by operating activities increased ¥33,618 million($361 million) to ¥80,538 million ($866 million) compared with theprevious fiscal year. Major components included proceeds of income
before income taxes and minority interests of ¥23,082 million ($248
million), depreciation and amortization of ¥36,489 million ($392 mil-million) This included factors such as a decrease in machinery andequipment, of ¥6,366 million ($68 million), to ¥96,170 million($1,034 million) and a fall in construction-in-progress, of ¥9,627 million ($103 million), to ¥11,560 million ($124 million). Investments
and other assets grew by ¥2,015 million ($21 million) to ¥67,989 million ($731 million). Total assets increased ¥30,941 million ($332
million) to ¥502,815 million ($5,406 million), and return on assets(operating income divided by average total assets for the period) waslion), and a decrease in inventories of ¥16,031 million ($172 million).
Net cash used in operating activities included an increase in notes andaccounts receivable-trade of ¥9,044 million ($97 million).
Net cash provided by (used in) investing activities
Net cash used in investing activities amounted to ¥107,525 million($1,156 million). Major components included a net increase in
short-term investment securities of ¥72,972 million ($784 million)

up 0.1%, from last year to 6.2%.
Current liabilities increased ¥7,509 million ($80 million) to¥76,550 million ($823 million), due primarily to an increase of¥3,797 million ($40 million), to ¥27,235 million ($292 million) innotes and accounts payable.
Noncurrent liabilities increased ¥10,630 million ($114 million) to¥88,446 million ($951 million). Factors for the increase included an

and the purchase of intangible and tangible fixed assets worth¥21,639 million ($232 million).
Net cash provided by (used in) financing activities
Net cash used in financing activities amounted to ¥2,792 million

increase in long-term loans payable of ¥7,222 million ($77 million), to¥46,502 million ($500 million), and an increase in provision for retirement benefits of ¥315 million ($3 million), to ¥14,248 million ($153
million). Lastly regarding net assets, from fiscal 2006 onward,

Gross Cash Flow
25,554
22,412502,815

21,185

9.6

471,874

490,365

508,694

6.4
481,357

6.5¥ Million

FY

05

06

07

08

09

FY

05
Total Assets
ROA

06

07

08

09

FY

25,495

6.2

6.1

25,185

8.1

8.2
3.9

05

06

31,4855.0

07

16,315¥ Million, %7.3

36,489Total Assets &ROA12,984%

37,147

ROE($30 million). Major components included proceeds of ¥12,000 million ($129 million) for long-term loans payable, a net decrease in

08

09

Net Income
Depreciation and Amortization

23

short-term loans payable of ¥7,004 million ($75 million) and ¥6,267
million ($67 million) in dividends paid. Consequently, as a result of a
total of ¥29,779 million ($320 million) in expenditures, cash andcash equivalents at the end of the fiscal year decreased ¥29,745 million ($319 million) from the end of the previous fiscal year to ¥16,412
million ($176 million).

CAPITAL EXPENDITURE
Capital investment by the Kuraray Group (Kuraray and consolidated
subsidiaries) amounted to ¥19,879 million ($213 million) in fiscal
2009, a decrease of ¥19,045 million ($204 million) from the previous
fiscal year. The decline primarily reflects the Group-wide effort placing urgent and top priority specifically on “reducing capital
expenditures” as part of the three-year “GS-Twins” Medium-term
Action Plan to rapidly recover from the significant damage to theGroup’s earnings structure caused by the worldwide economic crisis.
By segment, capital investment amounted to ¥11,851 million ($127
million) in the Chemicals and Resins segment, ¥4,946 million ($53
million) in the Fibers and Textiles segment, ¥1,336 million ($14 million) in the High-Performance Materials, Medical Products and Others
segment. General (non-segment) capital investment amounted to¥1,744 million ($18 million).

tion, we will continue our current efforts in restructuring less profitable businesses and cutting costs. In view of the latest recovery
trend in each business, our outlook for the next fiscal year is taking
into account higher capacity utilization rates and expansion of sales,
compared with the previous fiscal year.
Our forecasts for the year ending March 31, 2011, are net sales of¥360 billion ($3,870 million), operating income of ¥43 billion ($462
million), ordinary income of ¥41 billion ($440 million) and net incomeof ¥24 billion ($2,580 million). We assume average exchanges ratesof ¥90 to the U.S. dollar and ¥130 to the euro, as well as a price of¥50 thousand per kiloliter for domestically produced naphtha. Our
forecast in each business for the next fiscal year is based on the following assumptions.
For poval resin, demand in Asia will remain solid, while recovery inEurope is estimated to be slow. Demand for optical-use poval film in
the area of LCD panels is expected to remain strong, and commencement of additional production lines are scheduled to cope with this.
Demand for PVB films is expected to remain stagnant in the construction market, which is the main stay for this product, despite the

OUTLOOK

growth in its use as an encapsulate for solar power generation.
EVAL is expected to achieve significant growth in Asian markets,mainly for rapidly expanding automotive and food packaging applications in China, while recovery in Europe and the United States is also
expected to gain momentum. Increase in demand for methacrylic

We expect that our business will suffer from the impact of the higher
prices of raw materials and fuel prices and further yen appreciation in
the next fiscal year. Under such circumstances, we will focus on revising prices of our products to cope with the higher prices of raw
materials and fuel prices, while enhancing the value-added in our

resin and isoprene is expected in Asia. To cope with the higher pricesof raw materials and fuel prices, we will be revising the prices of our
products while expanding the sales of new products as well as products with higher value-added.
Demand for KURALON for use in FRC is expected to show gradualproducts, in an effort to further improve our profit structure. In addi-

recovery. CLARINO and VECTRAN are anticipated to show the effectsof the restructuring which is under way now. The mass production
plant for the environment-friendly CLARINO started operation inautumn 2009, and marketing and sales of the product are expected
to make progress.

Capital Expenditure by
Business Segment¥ Million

23,810applications are anticipated.

38,92518,98522,78437,70033,871

23,43442,72011,351

5,932
8,592

4,786

3,231
5,751

3,282
1,992

FY

6,319
2,898

07
08
Fibers and Textiles
Chemicals and Resins
High-Performance Materials, Medical Products and Others

2405

11,851

19,8797,795

The medical products business is anticipated to remain favorable
both in Japan and overseas. For GENESTAR, growth in LED reflector
applications as well as recovery in electric and electronic materials

4,946
1,336
1,744

2,268

06

09
Corporate

Kuraray Co., Ltd. Annual Report 2010

RISK MANAGEMENT

Risks that could have a significant impact on the Kuraray Group’s performance (results of operations and financial position) are discussed

3. Risks associated with litigation and violation of laws andregulations

below. Forward-looking statements in the following sentences represent the Kuraray Group’s best judgment as of March 31, 2010.
1. Risks associated with changes in the business environment
Kuraray Group has a diversified business portfolio, and our products

Kuraray Group is running quite a few businesses based on our proprietary technologies, posing the risks of serious infringement of ourintellectual properties, or litigation involving our rights in the future.
Meanwhile, we are supplying many products that play significant roles
in assuring the quality of the final products in areas such as automo-

are geared to global markets with a variety of uses and applications.
Many of our products are originally specialty chemical materials lesssusceptible to the fluctuations in the commodity markets comparedwith those in other industries, but in recent years more and more oftive products, electric and electronic materials, medical products andfood packaging. As such, in the event of a large-scale product recall
caused by defective quality, there are risks of major financial losses,
including liability losses that cannot be fully covered by the existing

our products are geared to the growing business areas, including
electric and electronic materials, automotive and environmental applications, on which our overall business performance is increasingly

Product Liability insurance. Also, despite our utmost effort of compliance with laws and regulations at each of our operation facilities,
there are risks that major breach of legal compliance could interrupt

dependent. In these areas, the market environment can undergo
drastic changes as a result of the reversal in industry de facto standards for final products, shorter product cycles, and worldwide
competition in product development. Therefore, we may also facedrastic changes in market environment and competitive conditions forour business activities.

our products. Meanwhile, we manufacture products such as chemical
products, synthetic resins, synthetic fibers and textiles out of raw
materials such as ethylene and other petrochemical products that are

America, and Asia. Export prices of the Kuraray Group’s domesticallymanufactured products are affected by changes in exchange rates. In
sales of products manufactured at our overseas bases, procurement

susceptible to the fluctuations in the price of crude oil and naturalgas. In the procurement of these raw materials, there are risks that
constraint of supply and violent fluctuations in demand could significantly impact our production costs and competitive conditions.

and sales prices in different currency blocks and the value of foreigncurrency-denominated assets and liabilities are affected by charges inexchange rates. It is possible that the Kuraray Group will be affected
negatively by exchange rate fluctuations if they exceed the scope of

We are exposed to the risk that we will be forced to downsize or

4. Changes in exchange rates
The Kuraray Group is expanding its manufacturing and sales operations in Japan and in various overseas regions, including Europe, North

our assumption.

close down certain areas of our main businesses, as a result of an
abrupt change in the demand and supply balance or violent fluctuations in the sales prices of our products or the prices of raw materials,

5. Other risks
With the global development of our businesses, there are risks thatwhich are caused by the changes in our business environment as
described above.

fortuitous external events such as war, riot, terrorism and epidemic
could disrupt our business activities.

2. Risks associated with accidents and disasters
Kuraray Group has manufacturing facilities in Japan, Europe, North
America and Asia. Many of these are large-scale chemical plants.
Although risk management is in place by geographically spreading
the locations of important production plants and arranging property
and casualty insurance on them, in the event of serious security incidents, release of pollutants or natural disasters, there are risks that
could cause personal injury or property damage to employees or third
parties, or damage to the assets of the Kuraray Group, or the halt of
manufacturing operations for long periods.

25

C O N S O L I D AT E D B A L A N C E S H E E T S
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIESMarch 31, 2009 and 2010

Millions of yen

Thousands of
U.S. dollars

Fiscal 2008 Fiscal 2009

Fiscal 2009ASSETSb

Current assets:
1 Cash and deposits¥ 28,991$

311,741

2 Notes and accounts receivable - trade66,55175,923

816,378

3 Short-term investment securities

9,499

73,978795,468

4 Merchandise and finished goods

51,29438,829417,519

5 Work-in-process

10,145

8,044

86,5006 Raw materials and supplies

12,112

10,972

117,979

7 Deferred tax assets

5,493

5,824

62,6338 Other

9,248

7,366

79,2089 Allowance for doubtful accounts

(514)

(604)

(6,502)

201,358

249,326

2,680,927(1) Buildings and structures (net) *2

34,832

34,880375,055(2) Machinery, equipment and vehicles, net *2

102,536

96,1701,034,095(3) Land *2

18,91818,230196,024(4) Construction in progress *2

21,188

11,560124,305

Total current assetsbb¥ 37,527

Noncurrent assets:
1 Tangible fixed assets:(5) Other (net) *2

Total tangible fixed assets *

1

3,544

2,867

30,833

181,020

163,7091,760,315

2 Intangible fixed assets:(1) Goodwill

19,684

17,941

192,919(2) Other

3,835

3,848

41,383

Total intangible fixed assets

23,52021,790234,303(1) Investment securities *3 and 5

47,50549,006526,949(2) Long-term loans receivable

983

1,279

13,754(3) Prepaid pension cost

7,128

6,666

71,680(4) Deferred tax assets

5,616

6,570

70,654(5) Other

5,230

4,999

53,7633 Investments and other assets:(6) Allowance for doubtful accounts

(490)

(532)

(5,730)Total investments and other assets

65,974

67,989731,071

Total noncurrent assets
TOTAL ASSETS
The accompanying notes are an integral part of the financial information.

26

Kuraray Co., Ltd. Annual Report 2010

270,515

253,489

2,725,690¥ 471,874¥ 502,815$ 5,406,617

March 31, 2009 and 2010

LIABILITIESb Current liabilities:
1 Notes and accounts payable-trade
2 Short-term loans payable
3 Commercial papers
4 Accrued expenses
5 Income taxes payable
6 Provision for bonuses
7 Other provision
8 Other
Total current liabilities

bb

Noncurrent liabilities:
1 Bonds payable
2 Long-term loans payable
3 Deferred tax liabilities
4 Provision for retirement benefits
5 Provision for directors’ retirement benefits
6 Provision for environmental measures
7 Other
Total noncurrent liabilities
TOTAL LIABILITIESNET ASSETS
b Shareholders’ equity:
1 Capital stock
2 Capital surplus
3 Retained earnings
4 Treasury stock
Total shareholders’ equity

bb

Valuation and translation adjustments
1 Valuation difference on available-for-sale securities
2 Deferred gains or losses on hedges
3 Foreign currency translation adjustment
Total valuation and translation adjustments

bbb Subscription rights to sharesbV Minority interests
TOTAL NET ASSETSTOTAL LIABILITIES AND NET ASSETS

Millions of yen

Thousands of
U.S. dollars

Fiscal 2008 Fiscal 2009

Fiscal 2009

¥ 23,438¥ 27,235$

18,464

12,158130,735

3,000

6,000

64,516

4,529

5,653

60,791

684

6,038

64,932

5,753

6,129

65,908

377

138

1,486

12,793

13,196

141,897

69,041

76,550823,122

10,00010,000107,526

39,28046,502500,029

5,318

5,524

59,397

13,933

14,248153,207292,855

171

167

1,802

—

1,275

13,718115,351

9,112

10,727

77,81688,446

951,033

146,858

164,996

1,774,156

88,95588,955956,50987,21587,192

937,550

193,977

204,070

2,194,311(40,903)(41,068)(441,595)

329,244

339,150

3,646,775

2,825

3,767

40,512

(156)

(103)

(1,118)(9,995)(8,230)(88,496)(7,326)(4,566)(49,101)

109

186

2,005

2,988

3,048

32,782

325,016

337,818

3,632,461¥ 471,874¥ 502,815$ 5,406,617

The accompanying notes are an integral part of the financial information.

27

C O N S O L I D AT E D S TAT E M E N T S o f I N C O M E
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Thousands of
U.S. dollars

Millions of yen
Years ended March 31, 2009 and 2010

Fiscal 2008 Fiscal 2009

Fiscal 2009bbb

¥ 376,777
275,912
100,865¥ 332,880
237,198
95,682$ 3,579,359
2,550,520
1,028,839

bbb Selling, general and administrative expenses:
1 Selling expenses
2 General and administrative expenses *2
Total Selling, general and administrative expenses *1
Operating income

19,964
51,62071,58529,28017,38947,841
65,23030,451

186,980
514,426
701,407327,432

bV Non-operating income:1 Interest income
2 Dividends income
3 Equity in earnings of affiliates
4 Rent income
5 Other
Total non-operating income

463
2,010
—
283
650
3,407

407
1,553
39
334
664
2,999

4,383
16,700
423
3,595
7,146
32,248V Non-operating expenses:
1 Interest expenses
2 Equity in loss of affiliates
3 Personnel expenses for seconded employees
4 Other
Total non-operating expenses
Ordinary income

1,259
13
608
4,008
5,890
26,797

1,364
—
585
2,573
4,524
28,925

14,676—
6,297
27,676
48,650311,030

Vb Extraordinary income:
1 Gain on transfer of business *3
2 Gain on sales of investment securities *4
Total extraordinary income

—
1,264
1,264

657
—
657

7,073
—
7,073

Vbb Extraordinary loss:
1 Impairment loss *5
2 Business structure improvement losses *6
3 Provision for environmental measures
4 Loss on valuation of investment securities *7
5 Loss on sales of tangible fixed assets *8
6 Special operating losses *9
7 Loss on valuation of inventories
8 Loss on disposal of tangible fixed assets *10
Total extraordinary loss
Income before taxes and minority interests

1,473
350
—
1,382
—
3,994
1,153
185
8,538
19,523

3,073
1,834
1,275
174
143
—
—
—
6,500
23,082

33,043
19,721
13,718
1,877
1,540
—
—
—
69,901
248,203

4,632
1,756
6,388

8,356
(1,676)
6,680

89,851(18,023)
71,828149¥ 12,984

87¥ 16,315

Net sales
Cost of sales *2
Gross profit

Income taxes - current
Income taxes - deferred
Total income taxes
Minority interests
Net income
The accompanying notes are an integral part of the financial information.

28

Kuraray Co., Ltd. Annual Report 2010$

936
175,438

CONSOLIDATED STATEMENTS of CHANGES in NET ASSETSKURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Millions of yen
Shareholders’ equity
Fiscal 2008 (As of March 31, 2009)

Balance at March 31, 2008

Capital stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
Shareholders’equity¥ 88,955¥ 87,228¥ 189,282¥ (40,919)¥ 324,547

Effect of changes in accounting policies
applied to foreign subsidiaries

(125)

(125)

Cash dividends(8,009)(8,009)Net income

12,984

12,98491

91

Changes of items during the period

Changes in reporting entities
Purchase of treasury stock
Disposal of treasury stock

(13)

Other

(107)

(107)

123

109
(247)

(247)

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance at March 31, 2009

—
—

(13)

4,819

15

4,821

¥ 88,955¥ 87,215¥ 193,977¥ (40,903)¥ 329,244

Millions of yen
Valuation and translation adjustments
Valuation
Deferreddifference on
gains or losses
available-for-saleon hedges
securities

Balance at March 31, 2008

¥ 6,895¥

18

Foreigncurrencytranslation
adjustments

Total
Subscription
valuation and rights to sharestranslation
adjustments

Minority
interests

Total
net assets¥ 10,427¥ 17,341¥ 2,875¥ 344,833¥ 69

Effect of changes in accounting policies
applied to foreign subsidiaries(125)

Changes of items during the period
Cash dividends(8,009)Net income

12,984

Changes in reporting entities

91

Purchase of treasury stock(107)

Disposal of treasury stock

109

Other

(247)

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance at March 31, 2009

(4,069)(174)(20,423)(24,667)40

113(24,514)(4,069)(174)(20,423)(24,667)40

113(19,692)¥ 2,825¥ (156)¥ (9,995)¥ (7,326)¥ 109¥ 2,988¥ 325,016

29

CONSOLIDATED STATEMENTS of CHANGES in NET ASSETSKURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Millions of yen
Shareholders’ equity
Fiscal 2009 (As of March 31, 2010)

Balance at March 31, 2009
Changes of items during the period
Cash dividends
Net income
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance at March 31, 2010

Capital stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
Shareholders’equity¥ 88,955¥ 87,215¥ 193,977¥ (40,903)¥ 329,244(6,267)
16,315
(253)
88

(23)
45
—
¥ 88,955(23)¥ 87,192

10,093¥ 204,070(164)¥ (41,068)(6,267)
16,315
(253)
65
45
—
9,905
¥ 339,150

Millions of yen
Valuation and translation adjustments
Valuation
Foreign
Total
Deferreddifference on
currency
valuation andor losses
available-for-sale gains
translationtranslationonhedgessecurities
adjustments
adjustments

Balance at March 31, 2009
Changes of items during the period
Cash dividends
Net income
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance at March 31, 2010

¥ 2,825942
942¥ 3,767¥ (156)52
52¥ (103)¥ (9,995)

1,765
1,765
¥ (8,230)

Subscription
rights tosharesMinority
interests

Total
net assets¥ 109¥ 2,988¥ 325,016

60
60¥ 3,048(6,267)
16,315
(253)
65
45
2,896
12,802¥ 337,818

Subscription
rights tosharesMinority
interests

Total
net assets$ 1,174$ 32,136$ 3,494,796

645
645$ 32,782(67,396)
175,438(2,721)
699
494
31,150137,664$ 3,632,461¥ (7,326)

77
77
¥ 186

2,759
2,759
¥ (4,566)

Thousands of U.S. dollars
Shareholders’ equity
Capital stock

Balance at March 31, 2009
Changes of items during the period
Cash dividends
Net income
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance at March 31, 2010

$ 956,509

CapitalsurplusRetainedearnings

Treasury
stock

Total
Shareholders’equity$ 937,800 $ 2,085,775 $ (439,824) $ 3,540,260(67,396)
175,438—$ 956,509(67,396)
175,438(2,721)(2,721)
(250)
950
699
494
494
—
(250)
108,535(1,771)
106,514$ 937,550 $ 2,194,311 $ (441,595) $ 3,646,775
Thousands of U.S. dollars

Valuation and translation adjustments
Valuation
Foreign
Total
Deferreddifference on gains
currency
valuation andor losses
available-for-saletranslationtranslation
on hedges
securities
adjustments
adjustments

Balance at March 31, 2009
Changes of items during the period
Cash dividends
Net income
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders’ equity
Total changes of items during the period
Balance at March 31, 2010

30

Kuraray Co., Ltd. Annual Report 2010

$ 30,383

10,12910,129$ 40,512$ (1,677)559
559$ (1,118)$ (107,481) $ (78,775)

18,98529,673
18,98529,673$ (88,496) $ (49,101)

830
830$ 2,005

C O N S O L I D AT E D S TAT E M E N T S o f C A S H F L O W S
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Years ended March 31, 2009 and 2010bbb

Net cash provided by (used in) operating activities:
1 Income before taxes and minority interests
2 Depreciation and amortization
3 Increase (decrease) in allowance for doubtful accounts
4 Increase (decrease) in provision for retirement benefits
5 Increase (decrease) in provision for environmental measures
6 Impairment loss
7 Loss (gain) on sales of tangible fixed assets
8 Loss on disposal of tangible fixed assets
9 Loss (gain) on sales of investment securities
10 Loss on valuation of investment securities
11 Loss (gain) on transfer of business
12 Loss on valuation of inventories
13 Interest and dividends income
14 Interest expenses
15 Decrease (increase) in notes and accounts receivable - trade
16 Decrease (increase) in inventories
17 Increase (decrease) in notes and accounts payable - trade
18 Decrease (increase) in prepaid pension cost
19 Other, net
Sub-total
20 Interest and dividends income received
21 Interest expenses paid
22 Insurance income
23 Income taxes paid
Net cash provided by (used in) operating activities
Net cash provided by (used in) investment activities:
1 Net decrease (increase) in time deposits
2 Net decrease (increase) in short-term investment securities
3 Purchase of tangible fixed assets and intangible fixed assets
4 Payments for disposal of tangible fixed assets and intangible fixed assets
5 Proceeds from sales of tangible fixed assets and intangible fixed assets
6 Purchase of investment securities
7 Proceeds from sales and redemption of investment securities
8 Proceeds from transfer of business
9 Other, net
Net cash provided by (used in) investment activities

bbb Net cash provided by (used in) financing activities:
1 Net increase (decrease) in short-term loans payable
2 Net increase (decrease) in commercial paper
3 Proceeds from long-term loans payable
4 Repayment of long-term loans payable
5 Cash dividends paid to minority shareholders
6 Proceeds from sales of treasury stock
7 Purchase of treasury stock
8 Cash dividends paid
9 Other, net
Net cash provided by (used in) financing activities
bV Effect of exchange rate changes on cash and cash equivalents
V Net increase (decrease) in cash and cash equivalents
Vb Cash and cash equivalents, beginning of year
Vbb Increase in cash and cash equivalents from newly consolidated subsidiary
Vbbb Cash and cash equivalents, end of year

Millions of yen

Thousands of
U.S. dollars

Fiscal 2008 Fiscal 2009

Fiscal 2009

¥ 19,523
37,147
83
947
—
1,473
—
185
(1,264)
1,382
—
1,153
(2,473)
1,259
25,454(7,831)(14,063)411(4,570)58,8182,498(1,199)1,834(15,031)
46,919$¥23,082
36,489
131
277
1,275
3,073
143
—
—
174
(657)
—
(1,960)1,364(9,044)
16,031
3,539
462
6,506
80,8901,907(1,323)—(935)
80,538248,203392,364
1,415
2,987
13,71833,043
1,540
—
—
1,877
(7,073)—(21,083)
14,676(97,252)
172,378
38,057
4,972
69,965
869,791
20,506(14,234)—(10,056)
866,00750—(38,780)(822)
178(4,128)
1,534
—
(461)
(42,428)(12,709)(72,972)(21,639)
(167)
541
(569)
12
1,157
(1,178)(107,525)(136,666)(784,648)(232,684)(1,798)
5,817(6,120)132
12,447(12,673)(1,156,193)

4,343
3,000
32,266(1,000)
(35)
50
(107)
(8,009)(475)
30,032(7,004)3,000
12,000(4,054)
(27)
60
(48)
(6,267)(449)(2,792)(75,321)32,258129,032(43,601)
(298)
650
(517)
(67,396)(4,829)(30,025)(1,242)33,281
12,189687¥ 46,157

34(29,745)
46,157—¥ 16,412

366(319,845)
496,320—
176,475$

The accompanying notes are an integral part of the financial information.

31

S E G M E N T I N F O R M AT I O N
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Industry segment information
Fiscal 2008 (From April 1, 2008 to March 31, 2009)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets, depreciation andamortization and capital expenditure
Identifiable assets
Depreciation and amortization
Capital expenditure

Millions of yen
Chemicals andresinsFibers andtextilesHigh performancematerials, medical
products and others

Total¥ 224,332
242
224,574
187,509
37,065¥ 96,116526
96,643
95,760883¥ 56,327
9,139
65,46761,091
4,376¥ 376,777
9,908
386,686
344,361
42,324¥—(9,908)(9,908)3,136(13,044)¥ 376,777—
376,777
347,497
29,280239,332
24,458¥ 18,985

76,2986,140¥ 11,351

62,208
4,058¥ 6,319

377,839
34,657¥ 36,656

94,0342,489¥ 2,268

471,874
37,147¥ 38,925

Chemicals andresinsFibers andtextilesHigh performancematerials, medical
products and others

Total

Eliminated on
consolidationand corporate

Consolidated
total¥ 202,855
163
203,019
160,055
42,963¥ 79,983
498
80,482
82,218(1,736)¥ 50,042
7,003
57,04552,8074,238¥ 332,880
7,666
340,546
295,081
45,465¥—(7,666)(7,666)
7,347(15,014)¥ 332,880—
332,880
302,429
30,451

227,285
22,293¥ 11,851

66,1607,149¥ 4,946

58,7194,726¥ 1,336

352,166
34,168¥ 18,135

150,649
2,321¥ 1,744502,815
36,489¥ 19,879

Chemicals andresinsFibers andtextilesHigh performancematerials, medical
products and others

Eliminated on
consolidationand corporate

Consolidated
total$ 2,181,237
1,763
2,183,000
1,721,025
461,975$ 860,034
5,363
865,398
884,070(18,672)$ 538,087
75,308613,396
567,82145,574— $ 3,579,359$ 3,579,359 $—(82,435)
82,435
3,579,359(82,435)
3,661,794
3,251,927
79,0093,172,917
327,432(161,444)
488,877

2,443,934
239,710$ 127,439

711,405
76,877$ 53,189

631,392
50,818$ 14,376

1,619,885
3,786,732
24,958367,406
18,757$ 195,005 $Eliminated on
consolidationand corporate

Consolidated
total

Millions of yen
Fiscal 2009 (From April 1, 2009 to March 31, 2010)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets, depreciation andamortization and capital expenditure
Identifiable assets
Depreciation and amortization
Capital expenditure

Thousands of U.S. dollars
Fiscal 2009 (From April 1, 2009 to March 31, 2010)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets, depreciation andamortization and capital expenditure
Identifiable assets
Depreciation and amortization
Capital expenditure

Total

5,406,617
392,364$ 213,762

Notes: 1. Industry segments above are split based upon for the classification of sales.
2. Principal products of each Industry segment.
(1) Chemicals and resins ................ Poval resin and film, PVB resin and film, EVOH resin EVAL, isoprene chemicals, fine chemicals, methacrylic resin, resin-finishedgoods and others.
(2) Fibers and textiles ...................... KURALON, man-made leather CLARINO, non-woven fabrics KURAFLEX, hook and loop fasteners MAGIC TAPE, polyester,
textiles and others.
(3) High performance materials,
medical products and others .... Medical products, high-performance materials, activated carbon, high-performance membranes, engineering and others.
3. Corporate operating expenses included in the “Eliminated on consolidation and corporate” account totalled ¥13,322 million and ¥15,391 million (165,504 thousands of U.S. dollars), for years ended March 31, 2009 and 2010 respectively.
The most significant portion of this expense relates to the fundamental research departments and the corporate division of the Companies.
4. Corporate assets included in the “Eliminated on consolidation and corporate” account are ¥95,773 million and ¥152,266 million (1,637,274 thousands of U.S.
dollars) as of March 31, 2009 and 2010 respectively.
Corporate assets mainly represent surplus operating funds, long-term investment funds and assets held by the fundamental research departments and the corporate division of the Companies.
5. For the fiscal year ended March 31, 2010, the company posted an impairment loss of ¥3,073 million (33,043 thousands of U.S. dollars) in respect to impairment
losses as an extraordinary loss.
The details of the impairment loss recorded for each segment is as follows: ¥174million (1,879 thousands of U.S. dollars) in “Chemicals and resins,” ¥2,117 million(22,773 thousands of U.S. dollars) in “Fibers and textiles,” ¥553 million (5,948 thousands of U.S. dollars) in “High performance materials, medical products andothers,” ¥227 million (2,441 thousands of U.S. dollars) in “Eliminated on consolidation and corporate” account.
Assets in each respective segment decreased by the same amount.

32

Kuraray Co., Ltd. Annual Report 2010

Geographic segment information
Fiscal 2008 (From April 1, 2008 to March 31, 2009)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets

Millions of yen
Japan

North America

Europe

Asia

Total

¥ 251,583
23,943
275,526
242,153
33,372¥ 263,932¥ 28,288
6,060
34,34932,0972,251¥ 35,168¥ 76,961
3,641
80,60275,144
5,458¥ 74,884¥ 19,944
4,181
24,126
23,790335¥ 12,892¥ 376,777
37,826414,604
373,186
41,417¥ 386,877

Eliminated on
consolidationand corporate

Consolidated
total

¥

—
(37,826)(37,826)(25,689)(12,137)¥ 84,996¥ 376,777—
376,777
347,497
29,280¥ 471,874

Eliminated on
consolidationand corporate

Consolidated
total

¥

—
(30,310)(30,310)(15,406)(14,904)¥ 140,275¥ 332,880—
332,880
302,429
30,451¥ 502,815

Eliminated on
consolidationand corporate

Consolidated
total

Millions of yen
Fiscal 2009 (From April 1, 2009 to March 31, 2010)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets

Japan

North America

Europe

Asia

Total

¥ 238,556
22,390260,947
220,270
40,676¥ 247,278¥ 21,737
3,462
25,20023,1052,094¥ 31,589¥ 56,177
2,619
58,79756,251
2,546¥ 70,439¥ 16,407
1,837
18,245
18,20737¥ 13,233¥ 332,880
30,310363,191
317,835
45,355¥ 362,539

Thousands of U.S. dollars
Fiscal 2009 (From April 1, 2009 to March 31, 2010)l
Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets

Japan

North America

EuropeAsia$ 2,565,127
240,761
2,805,888
2,368,503
437,385$ 2,658,905$ 233,740
37,230270,970
248,445
22,525$ 339,670$ 604,064
28,169632,233
604,854
27,379$ 757,409$ 176,427
19,761
196,189
195,782406$ 142,292

Total$ 3,579,359 $— $ 3,579,359—
325,922(325,922)
3,579,359
3,905,282(325,922)
3,251,927
3,417,586(165,658)
327,432
487,696(160,264)$ 3,898,278 $ 1,508,339 $ 5,406,617

Notes: 1. The segmentation of country or region is based on the geographical proximity.
2. Major countries and regions included in each category are as follows:(1) North America .......................... United States of America(2) Europe ...................................... Germany and Belgium(3) Asia .......................................... Singapore, Hong Kong and China
3. Corporate operating expenses included in the “Eliminated on consolidation and corporate” account is the same as in “Note 3” of the “Industry segment.”
4. Corporate assets included in the “Eliminated on consolidation and corporate” account are the same as in “Note 4” of the “Industry segment.”
5. For the fiscal year ended March 31, 2010, the company posted an impairment loss of ¥3,073 million (33,043 thousands of U.S. dollars) in respect to impairment
losses as an extraordinary loss.
The detail of the impairment loss recorded for each segment is as follows: ¥2,588 million (27,833 thousands of U.S. dollars) in “Japan,” ¥257 million (2,768 thousands of U.S. dollars) in “North America,” ¥227 million (2,441 thousands of U.S. dollars) in “Eliminated on consolidation and corporate” account.
Assets in each respective segment decreased by the same amount.

33

OVERSEAS SALESKURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES

Millions of yen
Fiscal 2008 (From April 1, 2008 to March 31, 2009)lOverseas sales

North America

Europe

Asia

Other

Total

¥ 28,195¥ 81,283¥ 66,369¥ 8,503¥ 184,350ll Consolidated net sales
lll Percentage of consolidated net sales

—

—

—

—

376,777

7.5%

21.6%

17.6%

2.3%

48.9%

Millions of yen
Fiscal 2009 (From April 1, 2009 to March 31, 2010)lOverseas sales

North America

Europe

Asia

Other

Total

¥ 20,579¥ 60,128¥ 71,046¥ 7,615¥ 159,368

ll Consolidated net sales
lll Percentage of consolidated net sales

—

—

—

—

332,880

6.2%

18.1%

21.3%

2.3%

47.9%

Other

Total

Thousands of U.S. dollars
Fiscal 2009 (From April 1, 2009 to March 31, 2010)

North America

Europel$ 221,281$ 646,542$ 763,938$ 81,882$ 1,713,645

—

—

—

—

3,579,359

6.2%

18.1%

21.3%

2.3%

47.9%

Overseas salesll Consolidated net sales
lll Percentage of consolidated net sales

Asia

Notes: 1. The segmentation of country or region is based on the geographical proximity.
2. Major countries and regions included in each category are as follows:(1) North America .......................... United States of America and Canada(2) Europe ...................................... Germany and France(3) Asia .......................................... Korea and China(4) Other ...................................... Latin America and Africa
3. Overseas sales represent the total of all the sales achieved outside Japan by the Company and its consolidated subsidiaries.

34

Kuraray Co., Ltd. Annual Report 2010

N O T E S t o C O N S O L I D AT E D F I N A N C I A L S TAT E M E N T S
KURARAY CO., LTD. AND ITS CONSOLIDATED SUBSIDIARIES / YEARS ENDED MARCH 31, 2010 AND 2009(1) SIGNIFICANT ACCOUNTING POLICIESFiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

1. Basis of presenting consolidated financial statements:
The accompanying consolidated financial statements of Kuraray Co.,
Ltd. (the “Company”) and its consolidated subsidiaries are prepared

1. Basis of presenting consolidated financial statements:
The accompanying consolidated financial statements of Kuraray Co.,
Ltd. (the “Company”) and its consolidated subsidiaries are preparedon the basis of accounting principles generally accepted in Japan,
which are different in certain respects to application and disclosure
requirements of International Financial Reporting Standards, and areon the basis of accounting principles generally accepted in Japan,
which are different in certain respects to application and disclosure
requirements of International Financial Reporting Standards, and are

filed with the Japanese Ministry of Finance (the “MOF”) as requiredby the Financial Instruments and Exchange Law of Japan. The accompanying consolidated financial statements are translation of those
filed with the MOF.

filed with the Japanese Ministry of Finance (the “MOF”) as requiredby the Financial Instruments and Exchange Law of Japan. The accompanying consolidated financial statements are translation of those
filed with the MOF.

Each amount of the consolidated financial statements and notes isrounded down to the nearest 1 million yen (in the case of the translation into U.S. dollars, they have been rounded down to the nearest
1 thousand dollars).

Each amount of the consolidated financial statements and notes isrounded down to the nearest 1 million yen (in the case of the translation into U.S. dollars, they have been rounded down to the nearest
1 thousand dollars).

The United States dollar amounts included herein are provided

The United States dollar amounts included herein are provided

solely for convenience of readers outside Japan and are stated, at therate of ¥98=$1, the approximate exchange rate prevailing on March
31, 2009. The translations should not be construed as representations that the Japanese yen amounts have been, could have been orsolely for convenience of readers outside Japan and are stated, at therate of ¥93=$1, the approximate exchange rate prevailing on March
31, 2010. The translations should not be construed as representations that the Japanese yen amounts have been, could have been or

could in the future be, converted into United States dollars at this or
any other rate.

could in the future be, converted into United States dollars at this or
any other rate.

2. Scope of consolidation(1) Number of consolidated subsidiaries: 34(Major consolidated subsidiaries)
KURARAY TRADING Co., LTD., KURARAY CHEMICAL CO.,2. Scope of consolidation(1) Number of consolidated subsidiaries: 33(Major consolidated subsidiaries)
KURARAY TRADING Co., LTD., KURARAY CHEMICAL CO.,LTD., KURARAY ENGINEERING CO., LTD., Kuraray Luminas
Co., Ltd., Kuraray Medical Inc., Kuraray Plastics Co., Ltd.,

LTD., KURARAY ENGINEERING CO., LTD., Kuraray Medical
Inc., Kuraray Plastics Co., Ltd., KURARAYLIVING CO., LTD.,

KURARAYLIVING CO., LTD., Kuraray Techno Co., Ltd.,KURARAY BUSINESS SERVICE CO., LTD., KURARAYKURAFLEX
CO., LTD., KURARAY FASTENING CO., LTD., OKAYAMA

Kuraray Techno Co., Ltd., KURARAY BUSINESS SERVICE CO.,LTD., KURARAYKURAFLEX CO., LTD., KURARAY FASTENING
CO., LTD., OKAYAMA RINKOH CO., LTD., TECHNO SOFT

RINKOH CO., LTD., TECHNO SOFT CO., LTD., Kuraray Travel
Service Corporation, KURARAY FUDOSAN CO., LTD., Kuraray
Interior Co., Ltd., KurarayKiko Co., Ltd., KURARAY SAIJO CO.,LTD., KURARAY TAMASHIMA COMPANY, LIMITED., Iruma
Country Club Co., Ltd., Kyosei Chemical Co., Ltd., KurarayCO., LTD., Kuraray Travel Service Corporation, KURARAYFUDOSAN CO., LTD., Kuraray Interior Co., Ltd., KurarayKiko
Co., Ltd., KURARAY SAIJO CO., LTD., KURARAYTAMASHIMA COMPANY, LIMITED., Iruma Country Club Co.,
Ltd., Kyosei Chemical Co., Ltd., Kuraray Holdings U.S.A., Inc.,

Holdings U.S.A., Inc., Kuraray America, Inc., Kuraray Europe
GmbH, EVAL Europe N.V., Kuraray Hong Kong Co., Ltd.,
Kuraray Asia Pacific Pte. Ltd., Kuraray (Shanghai) Co., Ltd.,

Kuraray America, Inc., Kuraray Europe GmbH, EVAL Europe
N.V., Kuraray Hong Kong Co., Ltd., Kuraray Asia Pacific Pte.
Ltd., Kuraray (Shanghai) Co., Ltd., and other consolidated

and other consolidated subsidiaries.
Kuraray (Shanghai) Co., Ltd. and Kuraray Trading (Shanghai)

subsidiaries.
Kuraray Luminas Co., Ltd., which had been a consolidated

Co., Ltd., which had been unconsolidated subsidiaries until theprevious fiscal year, are consolidated from this fiscal year
because they have become materially significant.

subsidiary until the previous fiscal year, is excluded from thescope of consolidation from this fiscal year because it wasmerged by absorption with the Company in February 2010.

35

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Eval Company of America and SEPTON Company of America
are excluded from the scope of consolidation from this fiscal
year because they were merged by absorption with Kuraray’s
consolidated subsidiary Kuraray America, Inc. in January 2008.
Both the consolidated subsidiaries, Kuraray Singapore Pte.,
Ltd. and Kuraray Specialities Asia Pte., Ltd. consolidated theirbusiness into Kuraray Asia Pacific Pte. Ltd., and a resolution
was made in October 2008 to dissolve them.
(2) Names of major unconsolidated subsidiaries(Major unconsolidated subsidiaries)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Both the consolidated subsidiaries, Kuraray Singapore Pte.,
Ltd. and Kuraray Specialities Asia Pte., Ltd. consolidated theirbusiness into Kuraray Asia Pacific Pte. Ltd., and a resolution
was made in October 2008 to dissolve them.
In March 2010, a resolution was made to dissolve Kuraray
Interior Co., Ltd., which had been a consolidated subsidiary.

(2) Names of major unconsolidated subsidiaries(Major unconsolidated subsidiaries)

Kuraray Okayama Spinning CO., LTD.

Same as Fiscal 2008

(Reasons for excluding from the scope of consolidation)
The total assets, total sales and net income and loss (amount(Reasons for excluding from the scope of consolidation)
Same as Fiscal 2008

corresponding to the owned interest) and retained earnings(amount corresponding to the owned interest) of the unconsolidated subsidiary have no material effect on the
consolidated financial statements.
3. Scope of application of equity method affiliates and subsidiaries(1) Number of unconsolidated subsidiaries accounted for using
the equity method: 3(Major unconsolidated subsidiaries)
Kuraray Okayama Spinning CO., LTD.
Nihonkai Acetylene Co., Ltd., which had been a company
accounted for using the equity method until the previous fiscal year, is excluded from the equity method of accounting
from this fiscal year because it was liquidated.
(2) Number of affiliates accounted for using the equity method: 2(Names of major affiliates)
THE KURASHIKI KOKUSAI HOTEL LTD.

(3) Unconsolidated subsidiaries (KURARAY AQUA CO., LTD. andother unconsolidated subsidiaries), and affiliates (Hexin
Kuraray Micro Fiber Leather (Jiaxing) Co., Ltd., and other affiliates) have not been accounted for using the equity method,
because their net income and loss and retained earnings(amount corresponding to the owned interest) have no material effect on the consolidated financial statements.

36

Kuraray Co., Ltd. Annual Report 2010

3. Scope of application of equity method affiliates and subsidiaries(1) Number of unconsolidated subsidiaries accounted for using
the equity method: 3(Major unconsolidated subsidiaries)
Kuraray Okayama Spinning CO., LTD.
—

(2) Number of affiliates accounted for using the equity method: 2(Names of major affiliates)
THE KURASHIKI KOKUSAI HOTEL LTD.
In May 2009, a resolution was made to dissolve Hikari Shoes
Co., Ltd., which was an affiliated company accounted forusing the equity method until the previous fiscal year.
(3) Same as Fiscal 2008

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

4. Fiscal years of consolidated subsidiaries
The fiscal year-end of the Company’s foreign consolidated subsidiaries is December 31. The consolidated financial statements

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

4. Fiscal years of consolidated subsidiaries
Same as Fiscal 2008

incorporate the accounts of these companies with adjustments
for significant transactions arising during the period from
December 31 to March 31.
Kuraray Europe GmbHOOO TROSIFOLEVAL Europe N.V.
Kuraray Asia Pacific Pte., Ltd.
Kuraray Singapore Pte., Ltd.
Kuraray Specialities Asia Pte., Ltd.
Kuraray Hong Kong Co., Ltd.
Kuraray (Shanghai) Co., Ltd.
Kuraray Trading (Shanghai) Co., Ltd.
Kuraray Holdings U.S.A., Inc.
Kuraray America, Inc.
5. Accounting policies(1) Valuation standards and methods for significant assetsa) Investments in securities
Available-for-sale securities for which a market price isavailable are stated at fair value at the year-end.
(Net unrealized gains or losses on these securities arerecorded as a separate component of “Net assets,” at the

5. Accounting polices(1) Valuation standards and methods for significant assetsa) Investments in securities
Same as Fiscal 2008

net of tax amount. The cost of securities sold is determinedbased on the moving average cost of all such securities
held at the time of sale.)
Other securities for which a market price is not available
are stated at cost determined by the moving average method.
b) Derivative financial instruments
All derivatives are stated at fair value.
c) Inventories
Finished goods, raw materials, and work-in-process are
principally stated at the lower of cost or net realizable value.
Supplies are principally stated at the lower of cost or net
realizable value (Refer to Note (2)).

b) Derivative financial instruments
Same as Fiscal 2008c) Inventories
Same as Fiscal 200837

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(2) Depreciation method of significant depreciable assetsa) Tangible fixed assets (excluding lease assets)
Depreciation, except for buildings, is principally computed

Fiscal 2009
(From April 1, 2009 to March 31, 2010)(2) Depreciation method of significant depreciable assetsa) Tangible fixed assets (excluding lease assets)
Same as Fiscal 2008

using the declining-balance method over the estimated useful lives of the assets. The depreciation method for buildings
is principally computed using the straight-line method.
The estimated useful lives of assets are primarily as follows:• Buildings and structures
31 to 50 years• Machinery and equipment 4 to 9 years(Additional information)—

The Company and some of its consolidated subsidiaries
changed the useful life of some of the machineries effective thecurrent fiscal year following the revision of legal useful life andthe asset classification in response to the reform of the
Corporation Tax Act in 2008. The effect of this change on operating income, ordinary income and income before income taxes
is not material.
b) Intangible assets (excluding lease assets)
Amortization is principally computed using the straight-lineb) Intangible assets (excluding lease assets)
Same as Fiscal 2008

method.
The numbers of years for amortization are primarily as
follows:• Goodwill 15 years
However, minor amounts are charged or credited toincome directly in the year of acquisition.
c) Lease assets
Amortization is principally computed using the straight-line
method.
(3) Accounting for significant allowancesa) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide for
doubtful accounts principally at an amount computed basedon the historical bad debt ratio during a certain reference
period plus an estimated uncollectible amount based on theanalysis of certain individual accounts.
b) Provision for bonuses
Provision for bonuses is stated at the estimated amount of
the bonuses to be paid to employees based on services
provided for the fiscal year.

38

Kuraray Co., Ltd. Annual Report 2010c) Lease assets
Same as Fiscal 2008
(3) Accounting for significant allowancesa) Allowance for doubtful accounts
Same as Fiscal 2008b) Provision for bonuses
Same as Fiscal 2008

Fiscal 2008
(From April 1, 2008 to March 31, 2009)c) Provision for retirement benefits
In order to provide for employee retirement benefits, a provision is made based on the retirement benefit liabilities as of

Fiscal 2009
(From April 1, 2009 to March 31, 2010)c) Provision for retirement benefits
Same as Fiscal 2008

the end of the fiscal year and the forecasted pension assets.
The prior service cost is amortized on a straight-line basis
over a certain period (mainly 15 years), which falls within the
average remaining years of service of the eligible employees.
Actuarial gains or losses are amortized on a straight-line
basis over a certain period (mainly 15 years) which falls within the average remaining years of service of the eligible
employees, allocated proportionately commencing the next
year in which each respective gain or loss occurred.
(Change in accounting policies)
Effective the current consolidated fiscal year, the Company adopted “Partial Amendments to Accounting Standard for Retirement
Benefits (Part 3) (ASBJ Statement No.19, issued on July 31,2008).” In the meantime, this change has no impact on “operating income,” “ordinary income” and “income before taxes andminority interests” in the current consolidated fiscal year.
d) Provision for directors’ retirement benefits
Some of the consolidated subsidiaries accrue the liabilities fortheir retirement benefits for directors and corporate auditors,
which is, in general, based upon the amounts required by thesubsidiaries’ internal regulations.
e) —d) Provision for directors’ retirement benefits
Same as Fiscal 2008e) Provision for environmental measures
In order to provide for payments on disposal of wastes of polychlorinated biphenyl (PCB) removed from the noncurrent assets
and stored, a provision is made based on the estimated dis-(4) Significant hedge accountinga) Hedge accounting
The Company and its consolidated subsidiaries adopt themethod for hedging instruments whereby any gains orlosses are deferred over the period of the hedging contract
and are offset against the deferred losses or gains on therelated hedged items. However, when an interest rate

posal cost.
(4) Significant hedge accountinga) Hedge accounting
Same as Fiscal 2008

swap contract meets certain conditions, the net amount tobe paid or received under the contract is added to or
deducted from the interest on the hedged items.

39

Fiscal 2008
(From April 1, 2008 to March 31, 2009)b) Hedging instruments and hedged items
Hedging instruments:

Hedged items:

Fiscal 2009
(From April 1, 2009 to March 31, 2010)b) Hedging instruments and hedged items
Same as Fiscal 2008

Forward foreignexchange contracts
Currency swap contracts

Future transactions inforeign currency
Future transactions inforeign currency
Interest rate swap contracts Interest expensesc) Hedging policy
The Company and its consolidated subsidiaries use financial
instruments to hedge interest rate fluctuation andexchange fluctuation risks in accordance with their internal
policies and procedures.
d) Assessment method for hedge effectiveness
The Company and its consolidated subsidiaries evaluate theeffectiveness of their hedging activities by reference to theaccumulated gains or losses on the hedging instrumentsc) Hedging policy
Same as Fiscal 2008d) Assessment method for hedge effectivenessSame as Fiscal 2008

and the related hedged items.
Interest rate swap contracts, which meet certain conditions, are evaluated for effectiveness at the commencementof the hedge.
(5) Other accounting policies
Accounting for consumption tax
Consumption tax on goods and services are not included in
the revenue and expense amounts.
6. Valuation of assets and liabilities of consolidated subsidiaries
Assets and liabilities of the consolidated subsidiaries are recorded
at fair value at the time of acquisition.
7. Amortization of goodwill and negative goodwill
The Company amortizes goodwill and negative goodwill using
the straight-line method over the estimated period of benefit(5) Other accounting policies
Accounting for consumption tax
Same as Fiscal 2008

6. Valuation of assets and liabilities of consolidated subsidiaries
Same as Fiscal 2008

7. Amortization of goodwill and negative goodwill
Same as Fiscal 2008

with the exception of minor amounts, which are charged or
credited to income directly in the year of acquisition.
8. Cash and cash equivalents
Cash and cash equivalents include all highly liquid investmentswith an original maturity of three months or less, that are readily
convertible to known amounts of cash which are subject to an
insignificant risk of changes in value.

40

Kuraray Co., Ltd. Annual Report 2010

8. Cash and cash equivalents
Same as Fiscal 2008

(2) SIGNIFICANT CHANGES IN ACCOUNTING POLICIES CONCERNING THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS.
Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Accounting standards for measurement of inventories)
Inventories, which the Company held for sale in the ordinary courseof business, were mainly valued at cost using the weighted-average

Fiscal 2009
(From April 1, 2009 to March 31, 2010)—

method previously, and those which had been held beyond a certain period were regularly written down. However, following the
adoption of the “Accounting Standards for Measurement of
Inventories (ASBJ Statement No.9, issued on July 5, 2006)” startingfrom the current fiscal year, we mainly value these inventories atthe lower of cost or net realizable value.
As a result, operating income and ordinary income in the current
fiscal year decreased by ¥380 million each and income before
income taxes declined by ¥1,534 million compared with those calculated using the previous method.
The Company recorded a loss on disposal of inventories due tothe decrease in profitability as non-operating expenses in the past.
However, we started to record it as cost of sales effective the current fiscal year with the adoption of the above-mentioned
accounting standards.
As a result of this change, operating income in the current fiscal
year decreased by ¥1,541 million compared with the amount calculated using the previous method.
There was no impact on ordinary income and income before
income taxes from the adoption of this standard during thesame period.
The effects on segment information are described in the relevant
sections of this Annual Report.
(Practical solutions on unification of accounting policies applied to—foreign subsidiaries)
Effective the current fiscal year, the Company adopted “Practical
Solution on Unification of Accounting Policies Applied to Foreign
Subsidiaries for Consolidated Financial Statements (Practical Issues
Task Force No. 18, issued on May 17, 2006),” and implemented modifications necessary for consolidated financial statements.
The effect of this change on operating income, ordinary income
and income before income taxes is not material.
The effects on segment information are described in the relevant
sections of this Annual Report.

41

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Accounting standards for lease transactions)
Financial leases without transfer of ownership were accounted foron a basis similar to ordinary rental transactions previously.

Fiscal 2009
(From April 1, 2009 to March 31, 2010)—

However, effective the current fiscal year, the Company adopted
the “Accounting Standard for Lease Transactions (ASBJ Statement
No. 13, issued on June 17, 1993 by Section 1 of the BusinessAccounting Council, and revised on March 30, 2007)”and the“Guidance on Accounting Standard for Lease Transactions (ASBJ
Guidance No. 16, issued on January 18, 1994 by the Accounting
System Committee of the Japanese Institute of Certified Public
Accountants, and revised on March 30, 2007)” and they are now
accounted for on a basis similar to ordinary sales transactions.
Depreciation on lease assets concerning financial lease transactions
without transfer of ownership is calculated by the straight-line
method that assumes a residual value of zero based on the estimated useful life that corresponds to the lease period.
There was no impact on operating income, ordinary income andincome before income taxes from the adoption of this standard.

(3) CHANGES IN PRESENTATION
Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Consolidated balance sheets)
In response to the adoption of the Cabinet Office Ordinance modifying the part of Regulations for Financial Statements (Cabinet
Ordinance No. 50, issued on August 7, 2008), the items which were
included in “Inventories” in the previous consolidated fiscal year
are separately presented as “Merchandise and finished goods,”“Work-in-process” and “Raw materials and supplies” in the current
fiscal year. “Merchandise and finished goods,” “Work-in-process”
and “Raw materials and supplies” amounted to ¥50,834 million,¥11,455 million and ¥10,244 million respectively in the previous
fiscal year.
“Accrued expenses,” which had been included in “Other” of thecurrent liabilities in the previous fiscal year, is presented separately
in the current fiscal year in order to increase clarity of disclosure in
the consolidated balance sheets. “Accrued expenses” was ¥5,454
million in the previous fiscal year.

42

Kuraray Co., Ltd. Annual Report 2010

Fiscal 2009
(From April 1, 2009 to March 31, 2010)—

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)(Consolidated statements of income)“Foreign exchange losses,” which had been presented separately
in the previous fiscal year, is included in “Other” of non-operating(Consolidated statements of income)“Rent income,” which had been presented as “Other” in nonoperating income in the previous fiscal year, is reported separately

expenses since its amount is 10/100 or less of non-operating
expenses in the current fiscal year. “Foreign exchange losses” is¥56 million in the current fiscal year.

since its amount exceeds 10/100 of non-operating income in thecurrent fiscal year. “Rent income” was ¥283 million in the previous
fiscal year.

“Personnel expenses for seconded employees,” which had beenpresented as “Other” in non-operating expenses in the previous
fiscal year, are reported separately since its amount exceeds 10/100
of non-operating expenses in the current fiscal year. “Personnel
expenses for seconded employees” was ¥811 million in the previous fiscal year.

(4) ADDITIONAL INFORMATION
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

The Company had previously posted deferred tax liabilities for theamount of taxes to be imposed in Japan on future dividend fromIn the current consolidated fiscal year, the Company implemented
a comprehensive survey related to PCB waste and other items,

retained earnings of foreign subsidiaries. A new Japanese tax
exemption for dividends paid by foreign subsidiaries became effective for fiscal years beginning on or after April 1, 2009. Due to thebased on which a comprehensive disposal policy was determined.
And it became possible to obtain a reasonable estimate of disposal costs. The Company, therefore, recorded provision for

new rule, dividends from certain foreign subsidiaries results inincreasing tax expense as a whole, therefore the Company revised
its dividend policy that these subsidiaries do not pay dividends to
the Company.

environmental measures.
As a result, income before taxes and minority interests for thecurrent fiscal year decreased ¥1,275 million. (US$ 13,718 thousands)

In response to this, the Company reversed part of deferred tax
liabilities, which was recorded in the previous period, in the current
fiscal year.
As a result, net income in the current fiscal year increased by¥1,471 million (US$ 15,019 thousand) compared with the amountthat would have been posted under the previous method.

43

(5) NOTES TO CONSOLIDATED BALANCE SHEETS
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)*1.

Accumulated depreciation of tangible fixed assets:¥455,649 million*1.

Accumulated depreciation of tangible fixed assets:¥486,188 million (US$ 5,227,829 thousand)*2.

Accumulated amount of reduced-value entry as a result ofreceiving government subsidies, and so on that are subtracted from the acquisition price of tangible fixed assets
Buildings and Structures:*2.

Accumulated amount of reduced-value entry as a result ofreceiving government subsidies, and so on that are subtracted from the acquisition price of tangible fixed assets
Buildings and Structures:¥1,992 million(including a ¥279 million deduction for this fiscal year)
Machinery, equipment and vehicles:¥717 million¥2,019 million (US$ 21,719 thousand)(including a ¥27 million (US$ 296 thousand) deduction forthis fiscal year)
Machinery, equipment and vehicles:(including ¥309 million in the amount of subtraction forthis fiscal year)Land:¥1,257 million
Construction in progress:¥925 million (US$ 9,954 thousand)(including ¥209 million (US$ 2,252 thousand) in theamount of subtraction for this fiscal year)Land:¥1,257 million (US$ 13,520 thousand)
Other:¥36 million (US$ 390 thousand)(including ¥0 million (US$ 7 thousand) in the amount ofsubtraction for this fiscal year)¥75 million(including ¥75 million in the amount of subtraction for thisfiscal year)
Other:¥35 million

*3.
4.

*5.

(including ¥4 million in the amount of subtraction for thisfiscal year)
Investments in unconsolidated subsidiaries and affiliates¥2,746 million
Investment securities:
Commitments and contingencies
The Company is contingently liable for guarantees for bankloans of unconsolidated subsidiaries, affiliates and others.

Investments in unconsolidated subsidiaries and affiliates
Investment securities:¥3,083 million (US$ 33,153 thousand)4.

Commitments and contingencies
The Company is contingently liable for guarantees for bankloans of unconsolidated subsidiaries, affiliates and others.

The company names and the guarantees of their liabilities are
as follows:
Social welfare corporation

The company names and the guarantees of their liabilities are
as follows:
Social welfare corporation

Ishii Kinen Aizenen (Joint and several guarantee):¥2,071 million
KURARAY MAGICTAPE (SHANGHAI) CO., LTD. andanother company:¥86 million(including foreign currency-denominated guarantees for
2 companies):
CNY6,000,000
Total¥2,157 million

Ishii Kinen Aizenen (Joint and several guarantee):¥1,939 million (US$ 20,859 thousand)
KURARAY MAGICTAPE (SHANGHAI) CO., LTD. andanother company:¥68 million (US$ 732 thousand)(including foreign currency-denominated guarantees for
2 companies):
CNY5,000,000
Total¥2,008 million (US$ 21,591 thousand)Security assets and secured liabilities
Investment securities:*5.
¥46 million

The above investment securities have been provided as collateral for loans of Mizushima Eco-works Co., Ltd.

44

*3.

Kuraray Co., Ltd. Annual Report 2010

Security assets and secured liabilities
Investment securities¥46 million (US$ 494 thousand)Same as Fiscal 2008.

(6) NOTES TO CONSOLIDATED STATEMENTS OF INCOME
Fiscal 2008
(From April 1, 2008 to March 31, 2009)*1.

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Major items and the amounts under “Selling, general andadministrative expenses” are as follows:*1.

Major items and the amounts under “Selling, general andadministrative expenses” are as follows:
Freight and storage¥11,334 million (US$ 121,878 thousand)Research and development¥14,102 million (US$ 151,642 thousand)Freight and storage¥13,072 million
Research and development¥15,210 million
Salaries and legal welfare expense¥12,485 million

Salaries and legal welfare expense¥12,186 million (US$ 131,036 thousand)
Provision for bonuses¥3,353 million
Provision for retirement benefits for employees¥969 million
Research and development expenses included in general,administrative and current manufacturing expenses

Provision for retirement benefits for employees¥1,017 million (US$ 10,945 thousand)Research and development expenses included in general,

Provision for bonuses*2.

¥16,358 million
—

*3.
*4.

¥3,352 million (US$ 36,047 thousand)

*2.

*3.

administrative and current manufacturing expenses¥15,292 million (US$ 164,435 thousand)The gain is mainly attributable to the transfer of businessrights of therapeutic apheresis device business.

The gain is incurred by the sales of stocks.
*5. Impairment loss
(1) Identifying the cash-generating unit to which an asset belongs
As a minimum unit for generating cash flow, business assets*4. —*5. Impairment loss
(1) Identifying the cash-generating unit to which an asset belongs
As a minimum unit for generating cash flow, business assets

are grouped into sections used for management accounting,and lent assets, idle assets, and assets associated with discontinued or reorganized businesses are assessed individually.
Other head office and research facilities are shared assets.
(2) Significant components of impairment loss

are grouped into sections used for management accounting,and lent assets, idle assets, and assets associated with discontinued or reorganized businesses are assessed individually.
Other head office and research facilities are shared assets.
(2) Significant components of impairment loss

The impairment loss is ¥1,473 million in total.
The impairment loss on assets associated with discontinued
or reorganized businesses is ¥1,473 million.

The impairment loss is ¥3,073 million (US$ 33,043 thousand)in total.
The impairment loss on business assets is ¥522 million (US$The significant components of impairment loss for the fiscal year ending March 31, 2009 are as follows:

5,616 thousand) and on assets associated with discontinued or
reorganized businesses is ¥2,550 million (US$ 27,427 thousand).
The significant components of impairment loss for the fiscal year ending March 31, 2010 are as follows:

Location

AssetsKamishu,
IbarakiPrefecture

Assets planned to Plant andPlant and ¥245 million
be discontinued equipment
equip(that became
for nonanedi- ment
unnecessary due amine
to the start ofoperations of
new plant and/or
equipment)

Tainai,
Niigata
Prefecture

Usage

Assets planned to Plant andbe discontinued equipment
for fine(that became
unnecessary due chemicals
to rearrangementof equipment)

Type

Impairment loss

Location

AssetsUsage

Okayama,Minami-Ku

Assets expected
to becomeunnecessary due
to the businessreorganization

Plant and
Plant and ¥1,492 million
equipment
equip(US$ 16,051
for man-made ment
thousand)leatherType

Impairment loss

Kurashiki,
OkayamaPrefecture

Business assets

Plant andequipmentfor polyester

Plant and ¥367 million
equip(US$ 3,954
ment
thousand)

Plant and ¥226 million
equipment

45

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Assets associated with discontinued or reorganized businesses held for sale can be converted for use in other businesses
or discarded. For items to be sold or discarded, the net book

After separately examining the indications for impairmentwith respect to those business whose income from operations
continue to be negative, and the recoverable amount falls

value of the assets is to be reduced to their recoverable
amount. The recoverable amount is measured based on the
net sale price and is calculated by deducting the estimatedshort of the book value, the book value is to be reduced to
the recoverable amount. The recoverable amount is measured
based on the value in use and calculated with a 4% discountdisposal cost from the estimated sale price.

off the future cash flow.
Assets associated with discontinued or reorganized business are categorized into “assets held for sale,” “assets
which can be converted for use into other business” and“assets to be discarded” and for items to be sold or discarded, the net book value of the assets is to be reduced to theirrecoverable amount. The recoverable amount of the assets to
be used for certain future years is measured based on thevalue of use during the estimated residual useful life and is
calculated by discounting future cash flows by 4% and therecoverable amount of the assets to be discarded is measured
based on the net sale price and calculated by deducting theestimated disposal cost from the estimated sale price.

*6.

The loss is mainly attributable to the costs of liquidation of*7.

businesses, which occurred in subsidiaries and affiliates.
The loss is incurred due to the write-down of stocks, includ-

*8.
*9.

ing those of subsidiaries and affiliates.
—
The Kuraray Group reclassified unexpected utilization variance, which was caused by the extraordinary change in*6.

The loss is mainly attributable to the additional cost due to the*7.

temporary freezing of reemployment of the retired employees.
The loss is incurred due to the write-down of stocks.

*8.
*9.

The loss is incurred due to a sale of land.
—

economic environment, from manufacturing expenses toextraordinary losses as “Abnormally low utilization variance.”
Since Group adopts standard costing and reviews standard
cost every 6 months, “Abnormally low utilization variance” ispresented as extraordinary losses when actual utilization issignificantly below the projected utilization during the 6months in accordance with the Group’s policy.
Accordingly, “Abnormally low utilization variance” of ¥3,994
million are recognized as extraordinary losses for the second
half of the current fiscal year.
The above mentioned amount includes 651 million that waspresented as manufacturing expenses in the quarterly reportfor the third quarter of the current fiscal year.
*10. The loss is mainly attributable to the disposal of machinery.

46

Kuraray Co., Ltd. Annual Report 2010*10. —

(7) NOTES TO CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Type and number of issued shares of common stock and treasury stock
Number of shares
as of March 31, 2008
(thousands of shares)

Number of Outstanding shares
Common stock
Total
Number of treasury stocks
Common stock (Notes 1, 2)
Total

Increase in thenumber of shares(thousands of shares)

Decrease in thenumber of shares(thousands of shares)

Number of shares
as of March 31, 2009
(thousands of shares)

382,863
382,863————

382,863
382,863

34,642
34,642

109
109

104
104

34,64734,647

Notes: 1. The increase in treasury stock (common stock) is attributable to the purchase of less-than-one unit shares (109 thousand shares).
2. The decrease in treasury stock (common stock) is attributable to a transfer of shares upon the exercise of subscription rights (75 thousand shares) and the acquisitionof less-than-one unit shares by the shareholders (29 thousand shares).

2. Subscription rights to shares
The Company granted its directors and executive officers the subscription rights to the Company shares as stock option. The balance of thesubscription rights to shares as of March 31, 2009 is ¥109 million.
3. Dividends(1) Amount of dividends paid
Resolution

General shareholders’meeting held on
June 19, 2008
Board of directors
held on October30, 2008

Type of share

Amount of dividends(Millions of yen)

Dividend pershare (yen)Record date

Effective dateCommon stock

3,830

11.00

March 31, 2008

June 20, 2008

Common stock

4,178

12.00

September 30, 2008

December 1, 2008

(2) Dividends whose effective date is after the end of Fiscal 2008 and record date is included in Fiscal 2008.
Resolution

Type of share

Amount of dividends(Millions of yen)

Source ofdividends

Dividend pershare (yen)Record date

Effective date

General shareholders’meeting held on
June 19, 2009

Common Stock

3,482

Retained earnings

11.00

March 31, 2009

June 22, 2009

4. Decrease in retained earnings “other” is mainly due to the recognition of unrecognized pension liabilities in “other comprehensive income,”
which the Company’s consolidated U.S. subsidiary recorded in compliance with the U.S. GAAP.

47

(8) NOTES TO CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFISCAL 2009 (From April 1, 2009 to March 31, 2010)
1. Type and number of issued shares of common stock and treasury stock
Number of shares
as of March 31, 2009
(thousands of shares)

Number of Outstanding shares
Common stock
Total
Number of treasury stocks
Common stock (Notes 1, 2)
Total

Increase in thenumber of shares(thousands of shares)

Decrease in thenumber of shares(thousands of shares)

Number of shares
as of March 31, 2010
(thousands of shares)

382,863
382,863————

382,863
382,863

34,64734,647

217
217

74
74

34,79034,790Notes: 1. The increase in treasury stock (common stock) is attributable to the purchase of shares from shareholders whose addresses are unknown (170 thousand shares)
and the purchase of less-than-one unit shares (46 thousand shares).
2. The decrease in treasury stock (common stock) is attributable to a transfer of shares upon the exercise of subscription rights (73 thousand shares) and the acquisition of less-than-one unit shares by the shareholders (1 thousand shares).

2. Subscription rights to shares
The Company granted its directors and executive officers the subscription rights to the Company shares as stock option. The balance of thesubscription rights to shares as of March 31, 2010 is ¥186 million (US$ 2,005 thousand).
3. Dividends(1) Amount of dividends paid
Resolution

General shareholders’meeting held on
June 19, 2009
Board of directors
held on November
5, 2009
Resolution

General shareholders’meeting held on
June 19, 2009
Board of directors
held on November
5, 2009

Type of share

Amount of dividends(Millions of yen)

Dividend pershare (yen)Record date

Effective dateCommon stock

3,482

10.00

March 31, 2009

June 22, 2009

Common stock

2,785

8.00

September 30, 2009

December 1, 2009

Type of share

Amount of dividends(Thousands of U.S. dollars)

Dividend pershare (U.S. dollars)

Record date

Effective dateCommon stock

37,4420.10

March 31, 2009

June 22, 2009

Common stock

29,9540.08

September 30, 2009

December 1, 2009

(2) Dividends whose effective date is after the end of Fiscal 2009 and record date is included in the Fiscal 2009.
Resolution

Type of share

Amount of dividends(Millions of yen)

Source ofdividends

Dividend pershare (yen)Record date

Effective date

General shareholders’meeting held on
June 24, 2010

Common Stock2,784

Retained earnings

8.00

March 31, 2010

June 25, 2010

Resolution

Type of share

Amount of dividends(Thousands of U.S. dollars)

Source ofdividends

Dividend per share(U.S. dollars)

Record date

Effective date

General shareholders’meeting held on
June 24, 2010

Common Stock

29,941Retained earnings

0.08

March 31, 2010

June 25, 2010

4. Increase in retained earnings “other” is due to the recognition of unrecognized pension liabilities in “other comprehensive income,” which theCompany’s consolidated U.S. subsidiary recorded in compliance with the U.S. GAAP.

48

Kuraray Co., Ltd. Annual Report 2010

(9) NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

1. Cash and cash equivalents as of the year-end are reconciled to theaccounts reported in the consolidated balance sheets as follows:

1. Cash and cash equivalents as of the year-end are reconciled to theaccounts reported in the consolidated balance sheets as follows:(As of March 31, 2009)
Millions of Yen(As of March 31, 2010)
Millions of Yen
Thousands of
U.S. dollars

Cash on hand and in banks
Time deposits with a deposit

37,527

Cash on hand and in banks
Time deposits with a deposit

28,991

311,741

period of 3 months or more
Marketable securities with original maturities of three months
or less
Cash and cash equivalents(869)

period of 3 months or more
Marketable securities with original maturities of three months
or less
Cash and cash equivalents(13,579)(146,017)

999
16,412

10,751
176,475

9,499
46,157(10) LEASESFiscal 2008
(From April 1, 2008 to March 31, 2009)

1. Finance Lease Transactions(1) Lease transactions as a lessee:
Financial leases without transfer of ownership
1) Details of lease assetsa) Tangible fixed assets
Mainly, vehicles used at plants including forklifts(“Machinery and equipment”), OA equipment including
personal computers and printers, and servers (“Other”).
b) Intangible fixed assets
Software (“Other intangible fixed assets”)
2) Depreciation method of lease assets
As described in the basis of presenting consolidated finan-

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

1. Finance Lease Transactions(1) Lease transactions as a lessee:
Financial leases without transfer of ownership
1) Details of lease assetsa) Tangible fixed assets
Same as Fiscal 2008.
b) Intangible fixed assets
Same as Fiscal 2008.

2) Depreciation method of lease assets
Same as Fiscal 2008.

cial statements “5. Accounting policies (2) Depreciation
method of significant depreciable assets.”

49

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)(2) Lease transactions as a lessor
Financial lease transactions without transfer of ownershipthat commenced on or before March 31, 2008. are account-(2) Lease transactions as a lessor
Same as Fiscal 2008.

ed for on a basis similar to operating lease. The details ofsuch transactions are as follows;
There were no lease transactions that commenced after
April 1, 2008.
1) Acquisition cost, accumulated depreciation, and net bookvalue at the end of the fiscal year for leased assets are as
follows:
Millions of yen

Year ended March 31, 2009

Building and structures
Machinery and equipment
Total

Acquisition
cost
196
49
245

Accumulated
depreciation
73
36
110

1) Acquisition cost, accumulated depreciation, and net bookvalue at the end of the fiscal year for leased assets are as
follows:
Millions of yen

Year ended March 31, 2010

Net
122
12
135

Building and structures
Machinery and equipment
Total

Acquisition
cost
196
49
245

2) Future lease payment obligations are as follows:
16
172
188

118
9
128

Acquisition
cost
2,112
529
2,642

Accumulated
depreciation
835
422
1,257

Net
1,277
107
1,384

2) Future lease payment obligations are as follows:

Millions of yen

Due within one year
Due after one year
Total

Net

Thousands of U.S. dollars

Year ended March 31, 2010

Building and structures
Machinery and equipment
Total

Accumulated
depreciation
77
39
116

Due within one year
Due after one year
Total

Millions of yen

Thousands of U.S. dollars

14
150
165

160
1,614
1,774

Note: Future lease payment obligations are computed by including interest
received because the ratio of future lease payment obligations and estimated salvage value to the balance of operating receivable at the end of
the fiscal year is not material.

Note: Future lease payment obligations are computed by including interest
received because the ratio of future lease payment obligations and estimated salvage value to the balance of operating receivable at the end of
the fiscal year is not material.

3) Lease revenue, depreciation expense for the fiscal year

3) Lease revenue, depreciation expense for the fiscal year

Millions of yen

Lease revenue
Depreciation expense

22
7(For impairment loss)
No impairment loss is recognized for leased assets.

Lease revenue
Depreciation expense

Lease transactions as a lessee:
Future lease payment obligations under operating leases are
as follows:

249
73(For impairment loss)
No impairment loss is recognized for leased assets.

Lease transactions as a lessee:
Future lease payment obligations under operating leases are
as follows:

Millions of yen

50

Thousands of U.S. dollars

236

2. Operating leases

2. Operating leases

Due within one year
Due after one year
Total

Millions of yen

478
2,840
3,319

Kuraray Co., Ltd. Annual Report 2010

Due within one year
Due after one year
Total

Millions of yen

Thousands of U.S. dollars

994
4,392
5,386

10,68947,22957,919(11) FINANCIAL INSTRUMENTSFISCAL 2009 (From April 1, 2009 to March 31, 2010)
1. Outline of financial instruments(1) Policy for financial instruments
The Group raises funds necessary to conduct its business mainly through bank loans or issuance of bonds. Temporary cash surpluses, ifany, are invested in low risk financial assets. Derivatives are used, not for speculative purposes, but to manage exposure to financial risks
as described below.
(2) Nature and extent of risks arising from financial instruments
Receivables such as notes and accounts receivables-trade are exposed to customer credit risk. Trade receivables denominated in foreign
currencies are exposed to foreign currency exchange fluctuation risk.
Short-term investment securities and investment securities, mainly consisting of beneficiary securities on investment trusts, certificatesof deposit and others held for management of capital surpluses and stocks in companies that have business relationship are exposed to
the risk of market price fluctuations.
Payment terms of payables, such as notes and accounts payable-trade, are mostly less than one year. Payables in foreign currencies
incurred mainly from import of raw materials are exposed to foreign currency exchange fluctuation risk, those risks are mostly offset byreceivable balances denominated in the same foreign currency.
Loans, bonds and lease obligations related to finance lease transactions, used to raise funds for working capital and capital expenditures have maturities of at the longest 9 years from the balance sheet date. The debts bearing floating interest rates are exposed tointerest rate fluctuation risk, although a part of the exposure is hedged through use of derivatives (interest rate swaps).
Derivative transactions include forward foreign currency contracts and currency swaps for the purpose of hedging foreign currency
exchange fluctuation risk resulting from receivables and payables denominated in foreign currencies and interest rate swaps for the purpose of hedging interest rate fluctuation risk resulting from variable interest expenses on debts. Please refer to “(5) Significant hedge
accounting” under “5. Accounting policies” for a description of the Company's accounting policy relating to hedging activities.
(3) Risk management for financial instruments
a. Credit Risk Management (customers' default risk)
The Company manages and mitigates customer credit risk from trade receivables on the basis of internal rules concerning credit management, which include monitoring of payment terms and balances of customers to identify default risk at an early stage. With
respect to loan receivables and liability guarantee agreements, the Company manages its exposure to credit risk by periodically identifying the financial position of the debtors. With respect to financial assets held for managing capital surplus, its credit risk is minimal
because the investments are limited to issuers with high credit ratings in accordance with internal rules concerning fund management.
The Company enters into derivative transactions only with financial institutions that have high credit ratings in order to mitigate
counterparty risks.
b. Market Risk Management (foreign currency exchange and interest rate fluctuation risks)
The Company and certain consolidated subsidiaries principally use forward foreign exchange contracts to hedge foreign currency
exchange fluctuation risk exposure in connection with trade receivables and payables denominated in foreign currencies. Depending
on foreign currency exchange rates conditions, trade receivables and payables denominated in foreign currencies that are firmly
expected to be generated based on export and import forecasts are hedged using forward foreign exchange contracts with limited
contract periods of around half a year.
In addition, the Company uses currency swap and interest rate swap contracts to mitigate foreign currency exchange fluctuation
risk exposure in connection with long-term loans receivable in foreign currencies and interest rate fluctuation risk exposure in connection with long-term loans payable.
With respect to short-term investment securities and investment securities, the Company periodically monitors fair values or financial status of the related issuers. With respect to stocks in companies that have a business relationship, the Company checks necessity
for holding them, taking into account the business relationship.
The Company manages derivative transactions in accordance with internal rules that regulate delegation of authority concerningderivative transactions.

51

c. Liquidity Risk Management on Fund Raising
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full at the respective maturity dates. The
Group manages its liquidity risk by diversifying its fund raising instruments, obtaining commitment lines from several financial institutions and adjusting short-term and long-term funding balances in consideration of market environments.
(4) Supplementary explanation concerning fair values of financial instruments
Fair values of financial instruments comprise values determined based on market prices and values determined reasonably when there isno market price. Since variable factors are incorporated in computing the relevant fair values, such fair values may vary depending on
the different assumptions. The notional amounts and other information described in the note “DERIVATIVE FINANCIAL INSTRUMENTS”
are not indicative of market risk exposure to derivative transactions.
2. Fair values of financial instruments
Carrying amount, fair value and unrealized gain/loss of the financial instruments as of March 31, 2010 are as follows:
Financial instruments whose fair values are not readily determinable are excluded from the following table:
Millions of yen(1) Cash and deposits(2) Notes and accounts receivable - trade
Allowance for doubtful accounts(3) Short-term investment securities and investment securities
Available-for-sale securities
Total assets(4) Notes and accounts payable - trade(5) Long-term loans payable (*1)
Total liabilities
Derivative transactions (*2)

Carrying amount

Fair value

Unrealized gain (loss)

28,99175,923(604)
75,31828,991—75,318—115,811220,121
27,235
51,14778,383
196

115,811220,121
27,23552,33379,569
196

—
—
—
1,185
1,185
—

Thousands of U.S.dollars(1) Cash and deposits(2) Notes and accounts receivable - trade
Allowance for doubtful accounts(3) Short-term investment securities and investment securities
Available-for-sale securities
Total assets(4) Notes and accounts payable - trade(5) Long-term loans payable (*1)
Total liabilities
Derivative transactions (*2)

Carrying amount

Fair value

311,741
816,378(6,502)809,876

311,741

Unrealized gain (loss)—

809,876—

1,245,282
2,366,899
292,855
549,977
842,832
2,108

1,245,282
2,366,899
292,855
562,725855,580
2,108

—
—
—
12,747
12,747—(*1) Long-term loans payable include the current portion of long-term loans payable.
(*2) Receivables and payables incurred as a result of derivative transactions are presented on a net basis. Net payables are presented in parenthesis.
Notes: 1. Calculation method of fair values of financial instruments and securities and derivative transactions
Assets:(1) Cash and deposits and (2) Notes and accounts receivable - trade
These assets are recorded using book values because fair values approximate book values because of their short-term maturities.
(3) Short-term investment securities and investment securities
The fair values of these assets are determined using the quoted market price on applicable stock exchanges. Other instruments are determined using the quoted
price obtained from financial institutions.

52

Kuraray Co., Ltd. Annual Report 2010

Liabilities:(1) Notes and accounts payable - trade
These payables are recorded using book values because fair values approximate book values because of their short-term maturities.
(2) Long-term loans payable
The fair values of long-term loans payable are determined by discounting the aggregated values of the principal and interest using an assumed interest rate
based on the interest rate that would be applied to a new loan of a similar nature.
Long-term loans payable bearing floating interest rates are hedged using interest rate swap contracts and the fair values of these loans payable are determined by discounting the aggregated values of the principal and interest accounted for together with the related interest rate swap contracts using a reasonably
estimated interest rate based on the interest rate that would be applied to a new loan of a similar nature.
2. Financial instruments whose fair values are not readily determinable
Category

Carrying amountMillions of yen

Thousands of U.S.dollars

7,173

77,135

Unlisted equity securities

These items are not included in “(3) Short-term investment securities and investment securities,” because there is no market price, future cash flows cannot be estimated and it is very difficult to identify fair values.
3. Redemption schedule of monetary assets and securities with contractual maturities
Millions of yen
Within one year

Cash and deposits
Notes and accounts receivable - trade
Short-term investment securities and investment securities:
o/w securities with contractual maturities:(1) Bonds (Corporate)(2) Bonds (Others)(3) Others
Total

One to five years

Five to ten years

Over ten years

28,99175,923

—
—

—
—

—
—

2,000
17,00055,000178,915——
27,25027,250

—
—
—
—

—
—
—
—

Within one year

One to five years

Thousands of U.S.dollars

Cash and deposits
Notes and accounts receivable - trade
Short-term investment securities and investment securities:
o/w securities with contractual maturities:(1) Bonds (Corporate)(2) Bonds (Others)(3) Others
Total

Five to ten years

Over ten years

311,741
816,378

—
—

—
—

—
—

21,505
182,795
591,397
1,923,818——
293,017
293,017

—
—
—
—

—
—
—
—

4. Redemption schedule of bonds, long-term loans payable and lease obligations after the balance sheet date:
Please refer to note “21. SUPPLEMENTARY SCHEDULE.”(Additional information)
Effective this fiscal year, the Company adopted the “Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, issued on March
10, 2008) and “Guidance on Disclosures about Fair Value of Financial Instruments” (ASBJ Guidance No. 19, issued on March 10, 2008).

53

(12) SECURITIESFISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Available-for-sale securities with market value (As of March 31, 2009)
Millions of yen

Securities with book value exceeding their acquisition cost
Equity securities
Bonds
Government and municipal
Corporate
OthersOthersSubtotal
Securities with book value not exceeding their acquisition cost
Equity securities
Bonds
Government and municipal
Corporate
OthersOthersSubtotal
Total

Cost

Book value (estimated fair value)

Net

5,286

10,362

5,076

—
—
—
26,93732,224———27,06337,426

—
—
—
125
5,201

3,669

2,912

(756)

—
—
499
9,000
13,16845,393

—
—
499
9,000
12,412
49,838

—
—
—
—
(756)
4,444

2. Available-for-sale securities sold during Fiscal 2008 (From April 1, 2008 to March 31, 2009)
Millions of yen

1,534
1,264
—

Proceeds from sales
Total gain
Total loss
3. Investments in securities without market value (As of March 31, 2009)

Millions of yen

Investments in securities
Investments in unlisted companies

4,420

4. Redemption schedule of the available-for-sale securities which have a maturity date (As of March 31, 2009)
Millions of yen
Within one year

Bonds
Government and municipal
Corporate
OthersOthers
Total

54

Kuraray Co., Ltd. Annual Report 2010

—
—
500
9,000
9,500

One to five years

Five to ten years

Over ten years———
27,06327,063

—
—
—
—
—

—
—
—
—
—

FISCAL 2009 (From April 1, 2009 to March 31, 2010)
1. Available-for-sale securities with market value (As of March 31, 2010)
Millions of yen
Book value(estimated fair value)

Securities with book value exceeding their acquisition cost
12,214Equity securities
Bonds—
Government and municipal—
Corporate
3,998
Others27,250
Others43,463
Subtotal
Securities with book value not exceeding their acquisition cost
2,367
Equity securities
Bonds—
Government and municipal
2,000
Corporate
12,980
Others
55,000
Others72,347
Subtotal
115,811
Total

Thousands of U.S. dollars

Cost

Net

Book value(estimated fair value)

5,984

6,229

131,338

64,352

66,985——
3,997
26,93736,920

—
—
0
313
6,543

—
—
42,994
293,017467,349——
42,988289,649
396,991

—
—
5
3,367
70,358

2,976

(608)

25,45832,005(6,546)—2,000
12,98355,00072,960109,880

—
—
(3)
—
(612)
5,930

—
21,505
139,571591,397
777,933
1,245,282—
21,505
139,611591,397784,520
1,181,511

—
—
(40)
—
(6,587)
63,771

Cost

Net

Note: Unlisted equity securities amounting to ¥4,090 million (US$ 43,981 thousand) are excluded from the above table, because there is no market price and it is very difficult to identify fair values.

2. Impairment loss on securities
The Group recognized impairment loss on securities (equity securities under available-for-sale securities) in an amount of ¥174 million (US$1,877 thousand).
The Group recognizes impairment loss when the fair value declines more than 50 % of its acquisition cost and when the fair value declines
between 30% and 50% of the acquisition cost, the amount considered to be necessary considering the recoverability is recognized as impairment loss.
(13) DERIVATIVE FINANCIAL INSTRUMENTSFISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Outline of derivative transactions(1) Types of transactions
The Company and its consolidated subsidiaries enter into forward foreign exchange contracts, currency swap contracts and interest rate
swap contracts.
(2) Transaction policy
All derivative transactions are entered into to hedge risks of fluctuations of interest rates and foreign currency exchange rates incorporated within the Companies’ business. The Company and the consolidated subsidiaries do not hold or issue derivative financial
instruments for speculative or trading purposes.
(3) Purpose of transactions
The Company and its consolidated subsidiaries use derivative transactions to effectively manage market risk and avoid risks associatedwith fluctuations in the financial environment. The Company and its consolidated subsidiaries enter into forward foreign exchange contracts and currency swap contracts to reduce foreign exchange risks of receivables and payables denominated in foreign currencies andfuture transactions in foreign currencies. The Company and its consolidated subsidiaries enter into interest rate swap contracts to reducethe interest rate risk of the interest expense.

55

Hedge accounting
The Company and its consolidated subsidiaries adopt the method for hedging instruments whereby any gains or losses are deferred overthe period of the hedging contract and are offset against the deferred losses or gains on the related hedged items.
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 the hedged items.
Hedging instruments and hedged items
Hedging instruments:

Hedged items:

Forward foreign exchange contracts
Currency swap contracts
Interest rate swap contracts

Future transactions in foreign currency
Future transactions in foreign currency
Interest expenses

Hedging policy
The Company and its consolidated subsidiaries use financial instruments to hedge interest rate fluctuation and exchange fluctuation
risks in accordance with their internal policies and procedures.
Assessment method for hedge effectiveness
The Company and its consolidated subsidiaries evaluate the effectiveness of their hedging activities by reference to the accumulated
gains or losses on the hedging instruments and the related hedged items. Interest rate swap contracts, which meet certain conditions,are evaluated for effectiveness at the commencement of the hedges.
(4) Risks of transactions
The Company and its consolidated subsidiaries estimate that credit risk is low as contracts are entered into with well-known and established financial institutions.
(5) Risk management of transactions
Derivative transactions are in accordance with internal policies which specify management policy, responsible department, usage purpose and practice standard for hedging.
(6) Additional explanation regarding transaction value
The notional amounts of swap contracts do not necessarily represent the amounts exchanged by the parties and, therefore, are not a
direct measure of the market risk or credit risk exposure in connection with derivatives.
2. The forward foreign exchange contracts and currency swap contracts outstanding at March 31, 2009 were as follows:
Currencies
Millions of yen
Category

Transactions other thanmarket transactions

Classification

Currency swap contracts:
Yen into Euro obligation
Forward foreign exchange contracts:
Yen into U.S. dollar obligation
Yen into Euro obligation
U.S. dollar into Yen obligation
Euro into Yen obligation
U.S. dollar into Euro obligation
Total

Notional
amountNotional amountover one year

Marketvalue

Unrealized
gain (loss)

8,487

6,347

326

326

4,337
4,554
284
8
885
18,558

—
519
—
—
—
6,867

(44)
(483)
23
0
103
(73)

(44)
(483)
23
0
103
(73)

Notes: 1. The amounts exclude derivative transactions to which hedge accounting is applied.
2. Market values of swap transactions at the end of the fiscal year are calculated using prices quoted by financial institutions. Market values of forward foreignexchange contracts at the end of the fiscal year are calculated using future quotations.
3. The amounts include currency swap contracts entered into in order to hedge inter-company transactions in foreign currency or forward foreign exchange contracts
for accounts receivable and payable in foreign currency, which are not accounted for by hedge accounting, but by the primary method of accounting for the
instruments in accordance with the Accounting Standard for Financial Instruments.

56

Kuraray Co., Ltd. Annual Report 2010

FISCAL 2009 (From April 1, 2009 to March 31, 2010)
1. Derivative transactions to which hedge accounting is not applied:(1) Currencies
Millions of yen
Category

Classification

Transactions other thanmarket transactions

Currency swap contracts:
Yen into Euro obligation
Forward foreign exchange contracts:
Yen into Euro obligation
Total

Notional
amountNotional amountdue after one year

Marketvalue

Unrealized
gain (loss)

6,347

4,554

511

511

499
6,847

—
4,554

(25)
485

(25)
485

Thousands of U.S.dollars
Category

Classification

Transactions other thanmarket transactions

Currency swap contracts:
Yen into Euro obligation
Forward foreign exchange contracts:
Yen into Euro obligation
Total

Notional
amountNotional amountdue after one year

Marketvalue

Unrealized
gain (loss)

68,257

48,977

5,496

5,496

5,372
73,630—48,977

(271)
5,224

(271)
5,224

Notes: 1. Market values of swap transactions at the end of the fiscal year are calculated using prices quoted by financial institutions. Market values of forward foreignexchange contracts at the end of the fiscal year are calculated using forward exchange rate.
2. The amounts include currency swap contracts entered into in order to hedge inter-company transactions for loan transactions, which are not accounted for byhedge accounting, but by the primary method of accounting for the instruments in accordance with the Accounting Standard for Financial Instruments.

2. Derivative transactions to which hedge accounting is applied(1) Currencies
FISCAL 2009 (As of March 31, 2010)
Hedge accounting
methodClassification

Primary method Forward foreignexchange contracts:
Yen into U.S. dollar
obligation
Yen into Euro
obligation
U.S. dollar into Yen
obligation
Euro into Yen
obligation
U.S. dollar into
Euro obligation
Total

Millions of yen

Major hedged items

Accounts
receivable - trade
Accounts
receivable - trade
Accounts
payable - trade
Accounts
payable - trade
Accounts
receivable - trade

Thousands of U.S. dollars

Notional
amountNotional amountover one year

Marketvalue

Notional
amountNotional amountover one year

Market
value

4,439

—

(112)

47,733—(1,214)

1,658

—

(11)

17,834

—

(126)

5

—

0

63

—

3

104

—

(1)

1,118

—

(12)

212

—

10

2,283

—

107

6,420

—

(115)

69,032—(1,242)

Note: Market values of forward foreign exchange contracts at the end of the fiscal year are calculated using forward exchange rate.

57

FISCAL 2009 (As of March 31, 2010)
Hedge accounting
methodClassification

Receivables orpayables aretranslatedusing forward
foreignexchange
contract rates.

Forward foreignexchange contracts:
Yen into U.S. dollar
obligation
Yen into Euro
obligation
U.S. dollar into Yen
obligation
Euro into Yen
obligation
Total

Millions of yen

Major hedged items

Accounts
receivable - trade
Accounts
receivable - trade
Accounts
payable - trade
Accounts
payable - trade

Thousands of U.S. dollars

Notional
amountNotional amountover one year

Marketvalue

Notional
amountNotional amountover one year

Market
value

589

—

Note

6,339

—

Note

141

—

Note

1,525

—

Note

142

—

Note

1,530

—

Note

35

—

Note

382

—

Note

909

—

Note

9,778

—

Note

Note: With respect to forward foreign exchange contracts whose exchange rates are used for translating accounts receivable or payable - trade, market values of forward
foreign exchange contracts are included in the market values of the relevant accounts receivable or payable - trade, since they are used for recording accounts receivable or payable - trade as hedged items.
FISCAL 2009 (As of March 31, 2010)
Hedge accounting
methodCash flow
hedges forforecasted
transactions

Classification

Currency swap
contracts:
Yen into U.S. dollar
obligation
Forward foreignexchange contracts:
Yen into U.S. dollar
obligation
Yen into Euro
obligation
U.S. dollar into Yen
obligation
Euro into Yen
obligation
Total

Millions of yen

Major hedged items

Forecasted transactions
in foreign currencies

Forecasted transactions
in foreign currencies
Forecasted transactions
in foreign currencies
Forecasted transactions
in foreign currencies
Forecasted transactions
in foreign currencies

Thousands of U.S. dollars

Notional
amountNotional amountover one year

Marketvalue

Notional
amountNotional amountover one year

Market
value

6,347

4,554

(181)

68,257

48,977(1,950)

1,536

—

(2)

16,525

(26)

705

—

0

7,584

0

344

—

9

3,707

104

0

—

0

9

0

8,935

4,554

(174)

96,084

48,977(1,872)

Note: Market values of swap transactions at the end of the fiscal year are calculated using prices quoted by financial institutions. Market values of forward foreign exchange
contracts at the end of the fiscal year are calculated using forward exchange rate.

(2) Interest rate
FISCAL 2009 (As of March 31, 2010)
Hedge accounting
methodClassification

Interest rate
swaps meetingcertainconditions

Interest
rate swaps:
Floating rate into
fixed rate

Millions of yen

Major hedged items

Long-term loans
payableThousands of U.S. dollars

Notional
amountNotional amountover one year

Marketvalue

Notional
amountNotional amountover one year

Market
value

3,699

2,499

Note

39,774

26,871

Note

Note: With respect to interest rate swap contracts which meet certain conditions, market values of the interest rate swap contracts are included in the market values of therelevant long-term loans payable, since they are used for recording long-term loans payable as hedged items.

58

Kuraray Co., Ltd. Annual Report 2010

(14) RETIREMENT BENEFITS
1. Summary of retirement benefit plan
The Company and some of its domestic consolidated subsidiaries have retirement pension plans and lump-sum benefit plans. The Company
has cash balance plans and defined contribution pension plans. Some of the domestic subsidiaries have tax-qualified pension plans, cash balance plans or defined contribution pension plans. Some foreign consolidated subsidiaries have defined benefit pension plans or defined
contribution pension plans. Additional benefits may be granted to employees depending on the conditions under which termination of
employment occurs.
Some consolidated subsidiary adopts a jointly-established employee pension fund plan (multi-employer plan), and record required contribution amounts as retirement benefit expenses.
The status of the multi-employer plan is as follows:(1) Accumulated funds for the plan
Fiscal 2008
(As of March 31, 2009)
Millions of yen

Fiscal 2009
(As of March 31, 2010)
Thousands ofMillions of yen
U.S. dollars

Plan assets:
Amount of benefit obligation as a result of pension’s financial calculation:

79,649105,891

56,798104,558

610,731
1,124,280

Difference:(26,242)(47,760)(513,548)(2) Ratio of total salaries of the consolidated subsidiary to total funds of the plan(As of March 31, 2008)(As of March 31, 2009)(3) Supplementary explanation

1.9%
1.9%

The main reasons behind the difference in amounts described above in (1) are as follows. The method of depreciation of prior service costin the current fiscal year is to evenly split principals thereof over a period of 10 years, and is scheduled to be terminated in March 2017.
Fiscal 2008
(As of March 31, 2008)
Millions of yen

Fiscal 2009
(As of March 31, 2009)
Thousands ofMillions of yen
U.S. dollars

Balance of prior service cost

13,844

12,243

131,651

Deficient amount carried forward

12,397—35,516

381,897——

General reserve

The ratio in the above (2) does not match with the ratio of the actual burden of the consolidated subsidiary.
The numbers for the disclosure above were of the years previous to the corresponding fiscal year.

59

2. Retirement benefit obligations
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Millions of yen

Millions of yen

Fiscal 2008
(As of March 31, 2009)

a. Retirement benefit
obligations:b. Plan assets:c. Unfunded retirement(40,332)
20,378benefit obligations: (a+b)
d. Unrecognized actuarial
gains or losses:e. Unrecognized priorservice costs:
f. Net retirement benefit
obligations recognizedin the consolidated(19,954)

balance sheets: (c+d+e)g. Prepaid pension costs:
h. Provision for retirement
benefits: (f-g)(6,804)
7,128

14,119(969)(13,933)

Note: Some domestic consolidated subsidiaries account for a simplified
method in the calculation of retirement benefit obligations.

60

Kuraray Co., Ltd. Annual Report 2010

Thousands of
U.S. dollars

Fiscal 2009
Fiscal 2009
(As of March 31, 2010) (As of March 31, 2010)

a. Retirement benefit
obligations:b. Plan assets:c. Unfunded retirement(38,796)
20,651(417,166)
222,058

benefit obligations: (a+b)
d. Unrecognized actuarial
gains or losses:e. Unrecognized priorservice costs:
f. Net retirement benefit
obligations recognizedin the consolidated(18,145)(195,108)

11,429122,893(866)(9,311)balance sheets: (c+d+e)g. Prepaid pension costs:
h. Provision for retirement
benefits: (f-g)(7,582)
6,666(81,527)
71,680(14,248)(153,207)

Note: Some domestic consolidated subsidiaries account for a simplified
method in the calculation of retirement benefit obligations.

3. Retirement benefit expenses
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Millions of yen

Millions of yen

Thousands of
U.S. dollars

Fiscal 2008
(From April 1, 2008,
to March 31, 2009)

Fiscal 2009
(From April 1, 2009,
to March 31, 2010)

Fiscal 2009
(From April 1, 2009,
to March 31, 2010)

a. Service costs: (Note 2)
b. Interest costs:
c. Expected return on plan

2,061
781

a. Service costs: (Note 2)
b. Interest costs:
c. Expected return on plan

1,456
764

15,6608,224

assets:d. Amortization of actuarial
gains or losses:(857)

assets:d. Amortization of actuarial
gains or losses:(659)(7,090)1,272

13,685(103)(1,112)

2,731

29,367

537
3,269

5,784
35,151e. Amortization of priorservice costs:
f. Retirement benefit
expenses: (a+b+c+d+e)
g. Defined contribution pension
plans installment:
Total

941
(91)
2,839
562
3,397

e. Amortization of priorservice costs:
f. Retirement benefit
expenses: (a+b+c+d+e)
g. Defined contribution pension
plans installment:
Total

Notes: 1. The figures in the above table do not include the contributions made by employees with respect to the tax-qualified pension plan for Fiscal 2008.
2. The retirement benefit expense for consolidated subsidiaries which adopt the simplified method is included in “Service costs.”

4. Assumptions used in accounting for the defined benefit plan for the year ended March 31, 2009 are as follows:a. Method of attributing the projected
benefit obligations to periods of service
b. Discount ratec. Expected rate of return on plan assets
d. Amortization period for prior service coste. Amortization period for actuarial
gains and losses

Fiscal 2008
(As of March 31, 2009)

Fiscal 2009
(As of March 31, 2010)

Straight-line

Same as Fiscal 2008

mainly 2.0%
mainly 3.3%
mainly 15 years(On a straight-line basis over a certain period, which falls within the averageremaining years of service of the eligible
employees.)
mainly 15 years(On a straight-line basis over a certain period, which falls within the averageremaining years of service of the eligible
employees, allocated proportionally commencing the next year in which each
respective gain or loss occurred.)Same as Fiscal 2008
Same as Fiscal 2008

Same as Fiscal 2008

Same as Fiscal 200861

(15) STOCK-BASED COMPENSATION PLANSFISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Item and amount of expenses for stock options in this fiscal year
Selling, general and administrative expenses: ¥99 million
2. Details including size and changes of stock options(1) Stock options plans
Stock options 2002

Number of eligible
persons by positions

Total number andtype of stocks granted
Grant datePrerequisite tobe vested

Stock options 2003

Stock options June 2007

Stock options June 2008

18
3

Employees
2,200
Employees of subsidiaries

Directors of the Company:
10

Directors of the Company:
10

Managers
396
Directors of subsidiaries 67
Corporate auditors ofsubsidiaries
4

3,422

Executive officers of
the Company (excluding
those who concurrently

Executive officers of
the Company (excluding
those who concurrently

serve as directors of theCompany and thoseworking overseas):
11
56,500 shares ofcommon stock

serve as directors of theCompany and thoseworking overseas):
16
78,500 shares ofcommon stock

June 5, 2007
No vesting conditions
are set.

June 10, 2008
No vesting conditions
are set.

Directors
Corporate auditors

Managers of subsidiaries
451
1,076,500 shares ofcommon stock

2,811,000 shares ofcommon stock

October 1, 2002
Directors, corporate
auditors and employees of
the Company and its

October 1, 2003
Directors, corporate
auditors, executive officers
and employees of thesubsidiaries. Directors,
corporate auditors andassociate directors of theCompany and presidentsof the significant

Company and its
subsidiaries.

Required service period

subsidiaries can exercise
after they retire.
From October 1, 2002

From October 1, 2003

There is no provision for a

There is no provision for a

Exercise period

to June 27, 2004
From June 28, 2004

to June 26, 2005
From June 27, 2005

required service period.
From June 6, 2007 torequired service period.
From June 11, 2008 to

to June 27, 2012

to June 26, 2013

June 5, 2022; Provided
that, if the final date of
the exercise period is aJune 10, 2023; provided
that, if the final date of
the exercise period is aholiday for the Company,
the final date should be
the business dateholiday for the Company,
the final date should be
the business date

immediately preceding
the date.

immediately preceding
the date.

Note: Significant subsidiaries are as follows:
KURARAY ENGINEERING CO., LTD., KURARAY CHEMICAL CO., LTD., KURARAY TRADING Co., LTD., Kuraray Plastics Co., Ltd., KURARAY FUDOSAN CO., LTD., Kuraray
Techno Co., Ltd., TECHNO SOFT CO., LTD., Kuraray America, Inc., Eval Company of America (Merged with Kuraray America, Inc. in January, 2008), Kuraray Europe
GmbH, EVAL Europe N.V., Kuraray Specialities Europe GmbH (Merged with Kuraray Europe GmbH in September, 2006)

62

Kuraray Co., Ltd. Annual Report 2010

(2) Size and changes of Stock options
Stock options which exist in this fiscal year are converted into shares.
1) Number of stock options
Stock options 2002

Unvested stock options (shares)
At the beginning of the fiscal year
GrantedForfeited
VestedAt the end of the fiscal year
Vested stock options (shares)
At the beginning of the fiscal year
VestedExercised
Forfeited
At the end of the fiscal year

Stock options 2003

Stock options June 2007

Stock options June 2008

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
78,500—78,500—398,000—
17,0003,000
378,000

1,454,500—
12,00027,0001,415,500

56,500—20,000—32,500—78,50026,000—52,500Stock options 2002

Stock options 2003

Stock options June 2007

Stock options June 2008

825

918

1

1

1,187

1,226

1,266

1,266

—

—

1,318

1,264

2) Price information
Yen

Exercise prices
Weighted-average exercise
date stock price
Fair value at the grant date

3. Method to estimate fair value of stock options
The fair value of the June 2008 stock options, which were granted in fiscal 2008, are estimated as follows.
1) Valuing method: Black-Scholes model2) Major basic figures and estimating method
Stock price volatility (Note 1)
Expected remaining life (Note 2)
Expected dividend (Note 3)
Risk-free interest rate (Note 4)

June 2008 Stock option
23.3%
2 years¥23.50/share (US$ 0.23 /share)
0.96%

Notes: 1. Calculated weekly based on the weekly stock price information over a period from the week that contains June 5, 2006 to the week that contains June 2, 2008.
2. Calculated by subtracting the average period of service of directors and executive officers who are currently in office as of the day of grant from the past average
period of service of directors and executive officers.
3. Based on the average of ¥22 (US$ 0.22), the dividend paid for the fiscal year ended March 2008, and ¥25 (US$ 0.25), the expected dividend for the fiscal year
ended March 2009.
4. Government bond yield over a period corresponding to the expected remaining life.

4. Method to estimate number of vested stock options
The number of vested stock options is the same as the number of stock options granted, since the stock options were vested on the day
following the day of the grant.

63

FISCAL 2009 (From April 1, 2009 to March 31, 2010)
1. Item and amount of expenses for stock options in this fiscal year
Selling, general and administrative expenses: ¥81 million (US$ 880 thousand)
2. Details including size and changes of stock options(1) Stock options plans
Stock options 2002

Number of eligible persons by positions

Stock options 2003

Directors
Corporate auditors

18
3

Managers
Directors of subsidiaries
Corporate auditors of subsidiaries
Managers of subsidiaries

396
67
4
451

Total number and type of stocks granted 1,076,500 shares of common stock
Grant date
October 1, 2002
Prerequisite to be vested
Directors, corporate auditors and employees of
the Company and its subsidiaries. Directors,

Employees
Employees of subsidiaries

2,200
3,422

2,811,000 shares of common stock
October 1, 2003
Directors, corporate auditors, executive officers
and employees of the Company and its
subsidiaries.

Required service period

corporate auditors and associate directors of
the Company and presidents of the significant
subsidiaries can exercise after they retire.
From October 1, 2002 to June 27, 2004

Exercise period

From June 28, 2004 to June 27, 2012

From June 27, 2005 to June 26, 2013

From October 1, 2003 to June 26, 2005

Note: Significant subsidiaries are as follows:
KURARAY ENGINEERING CO., LTD., KURARAY CHEMICAL CO., LTD., KURARAY TRADING Co., LTD., Kuraray Plastics Co., Ltd., KURARAY FUDOSAN CO., LTD.,
Kuraray Techno Co., Ltd., TECHNO SOFT CO., LTD., Kuraray America, Inc., Eval Company of America (Merged with Kuraray America, Inc. in January, 2008), Kuraray
Europe GmbH, EVAL Europe N.V., Kuraray Specialities Europe GmbH (Merged with Kuraray Europe GmbH in September, 2006)
Stock options June 2007

Number of eligible persons
by positions

Directors of the Company:
Executive officers of theCompany (excluding those
who concurrently serve as
directors of the Company
and those working overseas):

Total number and type ofstocks granted
Grant datePrerequisite to be vested
Required service period
Exercise period

64

Stock options June 20081011

Directors of the Company:
Executive officers of theCompany (excluding those
who concurrently serve as
directors of the Company
and those working overseas):

Stock options June 20091016

Directors of the Company:
Executive officers of theCompany (excluding those
who concurrently serve as
directors of the Company
and those working overseas):

91556,500 shares of common stock

78,500 shares of common stock

86,500 shares of common stock

June 5, 2007
No vesting conditions are set.
There is no provision for aJune 10, 2008
No vesting conditions are set.
There is no provision for aJune 9, 2009
No vesting conditions are set.
There is no provision for arequired service period.
From June 6, 2007 toJune 5, 2022; provided that,

required service period.
From June 11, 2008 toJune 10, 2023; provided that,

required service period.
From June 10, 2009 toJune 9, 2024; provided that,

if the final date of the exercise
period is a holiday for theCompany, the final date shouldbe the business date immediately
preceding the date.

if the final date of the exercise
period is a holiday for theCompany, the final date shouldbe the business date immediately
preceding the date.

if the final date of the exercise
period is a holiday for theCompany, the final date shouldbe the business date immediately
preceding the date.

Kuraray Co., Ltd. Annual Report 2010

(2) Size and changes of Stock options
Stock options which exist in this fiscal year are converted into shares.
1) Number of stock options
Stock options 2002

Unvested stock options (shares)
At the beginning of the fiscal year
GrantedForfeited
VestedAt the end of the fiscal year
Vested stock options (shares)
At the beginning of the fiscal year
VestedExercised
Forfeited
At the end of the fiscal year

Stock options 2003

Stock options June 2007 Stock options June 2008 Stock options June 2009

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

—
86,500—86,500—378,000—
50,00011,000317,000

1,415,500—
19,00073,0001,323,500

32,500—1,000—
31,50052,500—1,500—
51,000—86,5001,500—
85,000Stock options 2002

Stock options 2003

825

918

1

1

1

1,096

1,103

994

994

994

—

—

1,318

1,264

947

2) Price information
Yen

Exercise prices
Weighted-average exercise date stock
price
Fair value at the grant date

Stock options June 2007 Stock options June 2008 Stock options June 2009

U.S. dollars
Stock options 2002

Stock options 2003

8.87

9.87

0.01

0.01

0.01

11.78

11.86

10.68

10.68

10.68

—

—

14.17

13.59

10.18

Exercise prices
Weighted-average exercise date stock
price
Fair value at the grant date

Stock options June 2007 Stock options June 2008 Stock options June 2009

3. Method to estimate fair value of stock options
The fair value of the June 2009 stock options, which were granted in fiscal 2009, are estimated as follows.
1) Valuing method: Black-Scholes model2) Major basic figures and estimating method
Stock price volatility (Note 1)
Expected remaining life (Note 2)
Expected dividend (Note 3)
Risk-free interest rate (Note 4)

June 2009 Stock option
40.3%
2 years¥22.00/share (US$ 0.23 /share)
0.37%

Notes: 1. Calculated weekly based on the weekly stock price information over a period from the week that contains June 4, 2007 to the week that contains June 1, 2009.
2. Calculated by subtracting the average period of service of directors and executive officers who are currently in office as of the day of grant from the past average
period of service of directors and executive officers.
3. Based on the average of ¥22 (US$ 0.23), the dividend paid for the fiscal year ended March 2009.
4. Government bond yield over a period corresponding to the expected remaining life.

4. Method to estimate number of vested stock options
The number of vested stock options is the same as the number of stock options granted, since the stock options were vested on the day
following the day of the grant.

65

(16) INCOME TAXES
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

1. The significant components of deferred tax assets and liabilities
at March 31, 2009 are as follows:

1. The significant components of deferred tax assets and liabilities
at March 31, 2010 are as follows:(1) Current(1) Current
Millions of yen

Thousands of
U.S. dollars

benefits
Impairment loss
Provision for bonuses
Write-down of investment

5,215

56,075

3,041
2,289

32,70924,6191,955
1,107
11,20324,814

21,03011,912
120,471
266,818(5,562)
18,957securities
Write-down of inventories
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets(4,488)20,325(48,268)
218,550(2,872)(2,863)

Deferred tax liabilities
Prepaid pension costReserve for reduction entry(2,662)(2,611)(28,626)(28,084)(2,024)(6,154)(13,453)
6,871(21,768)(66,180)(144,659)(73,890)

Millions of yen

Thousands of
U.S. dollars

5,824

62,633

6,570

70,654(5,524)(59,397)

Millions of yen

Deferred tax assets
Provision for retirement

Deferred tax assets
Provision for retirement

benefits
Impairment loss
Provision for bonuses
Write-down of investment

5,105

securities
Write-down of inventories
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets

1,997
1,166
11,402
24,520

Deferred tax liabilities
Prepaid pension costReserve for reduction entry
Unrealized gain on
revaluationof securities
Other
Total deferred tax liabilities
Net deferred tax assets(liabilities)

2,815
2,032

(1,494)(5,934)(13,165)
5,791

Unrealized gain on
revaluationof securities
Other
Total deferred tax liabilities
Net deferred tax assets(liabilities)

Net deferred tax assets is included

Net deferred tax assets is includedin the following items in the
consolidated balance sheets:in the following items in the
consolidated balance sheets:
Millions of yen

Current assets:
Deferred tax assets
Noncurrent assets:
Deferred tax assets
Noncurrent liabilities:
Deferred tax liabilities

66

5,493
5,616
(5,318)

Kuraray Co., Ltd. Annual Report 2010

Current assets:
Deferred tax assets
Noncurrent assets:
Deferred tax assets
Noncurrent liabilities:
Deferred tax liabilities

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

2. Reconciliation of the difference between the normal effective tax

2. 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:

rate and the income tax rate in the accompanying consolidated
statements of income is as follows:
Fiscal 2008

Normal effective tax rate
Non-taxable income
Tax credit primarily for research and development
expenses
Loss incurred by consolidated subsidiaries
and other
Income tax rate per statements of income

40.3%
(1.9)
(2.3)
(3.4)
32.7%

Fiscal 2009

Normal effective tax rate
Non-taxable income
Tax credit primarily for research and development
expenses
Loss incurred by consolidated subsidiaries
and other
Income tax rate per statements of income

40.3%
(1.1)
(4.0)
(6.2)
28.9%

(17) BUSINESS COMBINATIONFISCAL 2008 (From April 1, 2008 to March 31, 2009)
Transactions under common control (absorption-type company split)
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name of company
after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies or targeted businesses, details of the businesses and overview of the transactions including the purpose of
the transaction
The Company resolved to succeed the PET (polyethylene terephtalate) resins business of KURARAY TRADING Co., LTD., a wholly owned
consolidated subsidiary of the Company, by absorption-type company split with the purpose of improving operational efficiency andstrengthening competitiveness of the Group as a whole on July 1, 2008.
(2) Name of company after the business combination
Kuraray Co., Ltd.
(3) Legal form of business combination
Absorption-type company split in which the Company became the successor company, and absorbed parts of the businesses of KURARAYTRADING Co., LTD.
2. Overview of accounting methods used
Since the said absorption-type company split corresponded to a transaction under common control, that is, an internal transaction, all profits
and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.

67

FISCAL 2009 (From April 1, 2009 to March 31, 2010)
Transactions under common control (absorption-type merger)
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name of the company
after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies or targeted businesses, details of the businesses and overview of the transaction including the purpose of
the transaction
Kuraray Luminas Co., Ltd. (a wholly owned consolidated subsidiary of the Company), which is engaged in development of radiation materials and elements of inorganic electroluminescence (EL), was absorbed and merged into the Company on February 1, 2010.
The objective of this merger was to promote the development efforts on inorganic EL and its related subjects by utilizing the development
technologies held by the Company and sharing the information about the market trends.
(2) Name of Company after the business combination
Kuraray Co., Ltd.
(3) Legal form of business combination
Absorption-type merger in which the Company became the successor company, while Kuraray Luminas Co., Ltd. was dissolved.
2. Overview of accounting methods used
Since the said absorption-type company split corresponded to a transaction under common control, that is, an internal transaction, all profits
and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.
(18) RELATED PARTY DISCLOSURESFISCAL 2008 (From April 1, 2008 to March 31, 2009)
Not applicable.
(Additional information)
From the current fiscal year, the Company adopted “Accounting Standard for Related Party Disclosures (ASBJ Statement No. 11, October 17,2006)” and “Guidance on Accounting Standard for Related Party Disclosures (ASBJ Guidance No. 13, October 17, 2006).”
There were no changes in the scope of disclosure due to this application.
FISCAL 2009 (From April 1, 2009 to March 31, 2010)
Not applicable.
(19) PER SHARE INFORMATION
Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Yen

Net assets per share
Basic net income per share
Diluted net income per share

924.4837.29
37.26

Note: The basis for computation of basic and diluted net income per share is as follows:

68

Kuraray Co., Ltd. Annual Report 2010

Net assets per share
Basic net income per share
Diluted net income per share

Yen

U.S dollars

961.24
46.86
46.81

10.33
0.50
0.50

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Basic net income per share
Net income
Net income unallocated to common stock
Net income allocated to common stock
Average number of common stock outstanding
during the fiscal year (thousands shares)
Diluted net income per share
Adjustment made on net income
Increase of common stocks (thousands shares)(New subscription rights to shares (thousands shares))Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Millions of yen

Millions of yen

Thousands of U.S.dollars

12,984—

16,315—

175,438—

12,984

16,315

175,438

348,236

348,203

—
264
(264)

386
(386)

—

Outline of the residual securities which were not includedin the calculation of the diluted net income per sharebecause there was no dilative effect.
(20) SUBSEQUENT EVENTSFiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

1. At the meetings the Board of Directors held on May 19, 2009

1. At the meetings the Board of Directors held on May 19, 2010

and June 8, 2009, the Company resolved to grant directors andexecutive officers of the Company stock acquisition rights as astock option in accordance with Article 238, Paragraphs 1 and 2,
and Article 240, Paragraph 1 of the Corporate Law.

and June 8, 2010, the Company resolved to grant directors andexecutive officers of the Company stock acquisition rights as astock option in accordance with Article 238, Paragraphs 1 and 2,
and Article 240, Paragraph 1 of the Corporate Law.

69

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Details are described below
Resolution date

Number of people andoffice of people
receiving grantClassification of shares
allocated for the stockacquisition rights
Number of shares
Pay-in amount upon
exercise of the stockacquisition rights
Exercise period of thestock acquisition rights

Conditions to exercise
stock acquisition rights
Matters concerning thetransfer of stockacquisition rights
Matters concerningproxy payment
Matters concerning the
granting of stockacquisition rights inaccordance with actsof corporate
reorganization

70

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Details are described below
Resolutions of Board of Directors Meeting
held on May 19, 2009

Directors: 9
Officers: 15 (excluding individuals serving concurrently as directors of theCompany and overseas employee)
Common stock
86,500
1 yen per share
From June 10, 2009 to June 9, 2024
Note: If the final day of the exercise
period falls on a Company
holiday, the last normal business
day before that date shallbecome the final day
Note 1
Acquiring stock acquisition rights bytransfer is conditional upon approval bya resolution at a meeting of the Boardof Directors—

Note 2

Kuraray Co., Ltd. Annual Report 2010

Resolution date

Number of people andoffice of people
receiving grantClassification of shares
allocated for the stockacquisition rights
Number of shares
Pay-in amount upon
exercise of the stockacquisition rights
Exercise period of thestock acquisition rights

Conditions to exercise
stock acquisition rights
Matters concerning thetransfer of stockacquisition rights
Matters concerningproxy payment
Matters concerning the
granting of stockacquisition rights inaccordance with actsof corporate
reorganization

Resolutions of Board of Directors Meeting
held on May 19, 2010

Directors: 9
Officers: 16 (excluding individuals serving concurrently as directors of theCompany and overseas employee)
Common stock
83,500
1 yen per share
From June 10, 2010 to June 9, 2025
Note: If the final day of the exercise
period falls on a Company
holiday, the last normal business
day before that date shallbecome the final day
Note 1
Acquiring stock acquisition rights bytransfer is conditional upon approval bya resolution at a meeting of the Boardof Directors—

Note 2

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Notes: 1. The exercise of stock acquisition rights is subject to the following
conditions:(1) If the holder of stock acquisition rights loses their position as director, if they are a director, or executive officer, if they are an

Notes: 1. The exercise of stock acquisition rights is subject to the following
conditions:(1) If the holder of stock acquisition rights loses their position as director, if they are a director, or executive officer, if they are an

executive officer, they may exercise their stock acquisition rights
providing it is in a 10 day period that begins on the next day of the
day they lost their position (hereinafter the “Rights Exercise Start
Date”).
(2) If the holder of stock acquisition rights, regardless of the above (1),does not qualify for a Rights Exercise Start Date before May 10,2024, they may exercise their stock acquisition rights providing it isin a period that begins on the next business day after May 10,

executive officer, they may exercise their stock acquisition rights
providing it is in a 10 day period that begins on the next day of the
day they lost their position (hereinafter the “Rights Exercise Start
Date”).
(2) If the holder of stock acquisition rights, regardless of the above (1),does not qualify for a Rights Exercise Start Date before May 10,2025, they may exercise their stock acquisition rights providing it isin a period that begins on the next business day after May 10,2024, and ends on the expiry day of the abovementioned exercise
period of the stock acquisition rights.
(3) If, by resolution at the General Meeting of Shareholders, or the
meeting of the Board of Directors, the Company decides to acquire
the stock acquisition rights without compensation, Note 1-1 the2025, and ends on the expiry day of the abovementioned exercise
period of the stock acquisition rights.
(3) If, by resolution at the General Meeting of Shareholders, or the
meeting of the Board of Directors, the Company decides to acquire
the stock acquisition rights without compensation, Note 1-1 theholder of stock acquisition rights may exercise their stock acquisition rights providing it is in the period prescribed separately at aholder of stock acquisition rights may exercise their stock acquisition rights providing it is in the period prescribed separately at a

meeting of the Board of Directors and before the date of the acquisition without compensation.
(4) If a holder of stock acquisition rights dies, the person who inherits
the stock acquisition rights may exercise their stock acquisitionrights in accordance with the conditions stated in the “Stockmeeting of the Board of Directors and before the date of the acquisition without compensation.
(4) If a holder of stock acquisition rights dies, the person who inherits
the stock acquisition rights may exercise their stock acquisitionrights in accordance with the conditions stated in the “Stock

Acquisition Rights Allotment Agreement” described in (5) below.
(5) Any other conditions pertaining to the exercise of rights shall be
determined by the “Stock Acquisition Rights Allotment Agreement”

Acquisition Rights Allotment Agreement” described in (5) below.
(5) Any other conditions pertaining to the exercise of rights shall be
determined by the “Stock Acquisition Rights Allotment Agreement”

concluded between the Company and the holder of stock acquisition rights.
1-1. In the event a resolution is approved at the General Meeting of
Shareholders for a merger agreement whereby the Company becomes a
non-surviving company, an absorption-type company split agreement
whereby the Company splits into multiple companies, or plan for an
incorporation-type company split; or a share transfer agreement whereby

concluded between the Company and the holder of stock acquisition rights.
1-1. In the event a resolution is approved at the General Meeting of
Shareholders for a merger agreement whereby the Company becomes a
non-surviving company, an absorption-type company split agreement
whereby the Company splits into multiple companies, or plan for an
incorporation-type company split; or a share transfer agreement whereby

the Company becomes a wholly owned subsidiary of another company,
or for a share exchange plan (if a resolution at the General Meeting of
Shareholders is not required, when a resolution is approved at a meetingof the Company’s Board of Directors), the Company may acquire, without

the Company becomes a wholly owned subsidiary of another company,
or for a share exchange plan (if a resolution at the General Meeting of
Shareholders is not required, when a resolution is approved at a meetingof the Company’s Board of Directors), the Company may acquire, withoutcompensation, all stock acquisition rights remaining on a day specified
separately at a meeting of the Company’s Board of Directors.
2. Matters concerning the granting of stock acquisition rights in accordance with acts of corporate reorganization
If the Company is involved in a merger (limited to when the Company
becomes the non-surviving company from the merger), an absorptiontype company split, a plan for an incorporation-type company split, ashare exchange, or a share transfer (hereinafter “Act of Corporate
Reorganization”), the holders of the stock acquisition rights outstanding at the date that the Act of Corporate Reorganization becomescompensation, all stock acquisition rights remaining on a day specified
separately at a meeting of the Company’s Board of Directors.
2. Matters concerning the granting of stock acquisition rights in accordance with acts of corporate reorganization
If the Company is involved in a merger (limited to when the Company
becomes the non-surviving company from the merger), an absorptiontype company split, a plan for an incorporation-type company split, ashare exchange, or a share transfer (hereinafter “Act of Corporate
Reorganization”), the holders of the stock acquisition rights outstanding at the date that the Act of Corporate Reorganization becomes

effective shall be granted stock acquisition rights of a stock companyof one of the types listed in Article 236, Paragraph 1.(viii).(a) to1.(viii).(e) of the Corporate Law (hereinafter the “ReorganizedCompany”) based on the following conditions.

effective shall be granted stock acquisition rights of a stock companyof one of the types listed in Article 236, Paragraph 1.(viii).(a) to1.(viii).(e) of the Corporate Law (hereinafter the “ReorganizedCompany”) based on the following conditions.

71

Fiscal 2008
(From April 1, 2008 to March 31, 2009)
When this case arises, the outstanding stock acquisition rights are extinguished and the Reorganized Company grants those holders stockacquisition rights of the Reorganized Company, the granting of stockacquisition rights of the Reorganized Company in accordance with the following conditions is limited to only the cases of absorption-type merger
agreement, incorporation-type company merger agreements, absorption-

Fiscal 2009
(From April 1, 2009 to March 31, 2010)
When this case arises, the outstanding stock acquisition rights are extin-

type company split agreements, incorporation-type company split plan,share transfer agreements, and share transfer plans.
(1) Number of stock acquisition rights granted by the ReorganizedCompany
The number of granted stock acquisition rights will be the same as
the number of stock acquisition rights held by the respective holders of outstanding stock acquisition rights.
(2) Classification of stock of the Reorganized Company allocated forstock acquisition rights

guished and the Reorganized Company grants those holders stockacquisition rights of the Reorganized Company, the granting of stockacquisition rights of the Reorganized Company in accordance with the following conditions is limited to only the cases of absorption-type merger
agreement, incorporation-type company merger agreements, absorptiontype company split agreements, incorporation-type company split plan,share transfer agreements, and share transfer plans.
(1) Number of stock acquisition rights granted by the ReorganizedCompany
The number of granted stock acquisition rights will be the same as
the number of stock acquisition rights held by the respective holders of outstanding stock acquisition rights.
(2) Classification of stock of the Reorganized Company allocated forstock acquisition rights

Shares of common stock of the Reorganized Company(3) Number of shares of the Reorganized Company allocated for stockacquisition rights
To be decided by taking into account the conditions etc. of the Act

Shares of common stock of the Reorganized Company(3) Number of shares of the Reorganized Company allocated for stockacquisition rights
To be decided by taking into account the conditions etc. of the Act

of Corporate Reorganization.
(4) Value of assets contributed upon the exercise of stock acquisitionrightsof Corporate Reorganization.
(4) Value of assets contributed upon the exercise of stock acquisitionrightsThe post-reorganization pay-in amount per one share of theReorganized Company’s stock granted upon exercise of stockacquisition rights shall be 1 yen, and the value of assets contributed
shall be obtained by multiplying this by the number of shares of the

The post-reorganization pay-in amount per one share of theReorganized Company’s stock granted upon exercise of stockacquisition rights shall be 1 yen, and the value of assets contributed
shall be obtained by multiplying this by the number of shares of theReorganized Company’s stock allocated for the stock acquisitionrights as determined by (3) above.
(5) Exercise period of stock acquisition rights
The exercise period of stock acquisition rights shall begin on the daythat the Act of Corporate Reorganization takes effect and end on
the expiry date of the above mentioned exercise period of the stockacquisition rights.

Reorganized Company’s stock allocated for the stock acquisitionrights as determined by (3) above.
(5) Exercise period of stock acquisition rights(6) Amount of capital increase when there is an issue of shares upon
the exercise of stock acquisition rights
Shall be half the amount of the increase limit for capital and so on,contributed in accordance with Article 17 Paragraph 1 of the
Corporate Accounting Rules and when digits that are fractions of 1
yen occur as a result of the calculation, these digits are discarded.
(7) Limitation on acquiring stock acquisition rights by transfer
Acquiring stock acquisition rights by transfer is conditional upon
approval by resolution at a meeting of the Board of Directors of theReorganized Company.
(8) Matters concerning acquisition of stock acquisition rights
Determined by the above Note 1-1.
(9) Other conditions for the exercise of stock acquisition rights
Determined by the above Note 1.

The exercise period of stock acquisition rights shall begin on the later
day either the commencement day of the period that stock acquisition rights is exercisable or the Act of Corporate Reorganization
takes effects, and end on the expiry date of the above mentioned
exercise period of the stock acquisition rights.
(6) Amount of capital increase when there is an issue of shares upon
the exercise of stock acquisition rights
Shall be half the amount of the increase limit for capital and so on,contributed in accordance with Article 17 Paragraph 1 of the
Corporate Accounting Rules and when digits that are fractions of 1
yen occur as a result of the calculation, these digits are discarded.
(7) Limitation on acquiring stock acquisition rights by transfer
Acquiring stock acquisition rights by transfer is conditional upon
approval by resolution at a meeting of the Board of Directors of theReorganized Company.
(8) Matters concerning acquisition of stock acquisition rights
Determined by the above Note 1-1.
(9) Other conditions for the exercise of stock acquisition rights
Determined by the above Note 1.
2. It was resolved at the 129th General Shareholders’ Meeting held on June 24,2010 that the Company be authorized to issue the following subscription
rights to shares as stock options to Directors, employees, etc. of the Company
and its subsidiaries, pursuant to Articles 236, 238 and 239 of the Companies
Act, and to delegate the determination of the terms and conditions of theoffer thereof to the Board of Directors of the Company.

72

Kuraray Co., Ltd. Annual Report 2010

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)

Resolution dateCategories and numberof persons to whom thesubscription rights toshares will be allottedClass of shares to beissued upon exercise of
the subscription rights
to shares
Number of shares

Resolution at the General Shareholders’ Meeting
held on June 24, 2010

Directors, Executive Officers, Advisers,
Full-time Counselors and employees(including employees on contract; hereinafter the same shall apply) of theCompany as well as Directors, Executive
Officers, and employees of the subsidiaries of the Company.
Common stock
Not exceeding 4,900,000 shares. Outof this, the upper limit of the total
number of shares to be issued upon
exercise of the subscription rights toshares allotted to Directors of theCompany shall be 120,000 shares.

Amount to be subscribed upon the(Note 2)
exercise of the subscription rights to shares
Exercise period of the subFrom June 25, 2012 to June 24, 2020
scription rights to shares
Any person exercising the subscription
Conditions to exercise
stock acquisition rights rights to shares shall be Director,
Executive Officer, Advisor, Full-timeCounselor or employee of the Company
or its subsidiaries at the time of such
exercise; provided, however, that a person who held a position of Director,
Executive Officer or Associate Executive
Officer of the Company or President of a
subsidiary of the Company may exercise
the subscription rights to shares evenafter retirement from such position.
Matters concerning the Acquiring stock acquisition rights bytransfer of stock acquisi- transfer is conditional upon approval bya resolution at a meeting of the Board
tion rights
of Directors.
Transfer of the subscrip- The subscription rights to shares shallnot be offered for transfer, pledge, ortion rights to sharesdisposed of in any other way.
Matters relating to—proxy payment
Matters relating to theissuance of the subscrip—tion rights to shares as aresult of organizational
restructuring action73

Fiscal 2008
(From April 1, 2008 to March 31, 2009)

Fiscal 2009
(From April 1, 2009 to March 31, 2010)
Notes: 1. Besides above, other matters of details shall be determined by the meeting of the Board of Directors which will be held after the General
Shareholders’ Meeting on June 24, 2010, to determine conditions of theoffer of the subscription rights to shares, as well as by the “Agreement
for Granting the Subscription Rights to Shares.”
2. Amount to be subscribed upon the exercise of the subscription rights
to shares
Amount to be subscribed upon the exercise of the subscription rights
to shares (hereinafter referred to as the “Exercise Price”) shall be whichever higher of (i) the average (any fraction less than one yen will be roundedup) of the closing prices of the common stock of the Company in the regular trading on the Tokyo Stock Exchange (including indication of any bid
or offer, hereinafter referred to as the “Closing Price”) for 30 consecutive
trading days (excluding days on which there is no Closing Price) from the
beginning of 45 trading days period preceding the date of allotment ofsubscription rights to shares, multiplied by 1.05 (any fraction less than one
yen will be rounded up), or (ii) the Closing Price on the date of allotmentof subscription rights to shares (if there is no Closing Price on such date,
the Closing Price on the trading day closest to the date of allotment on
which the Closing Price is quoted).
If the Company splits or consolidates its common stock after the dateof allotment of subscription rights to shares, the Exercise Price shall be
adjusted according to the following formula, and any fraction less than
one yen resulting from this adjustment shall be rounded up.
Exercise Price
Exercise Price
1=
X
after adjustment before adjustment Ratio of split or consolidation
In addition, in case the Company issues new shares or disposes of its
treasury common stock at a price lower than the then current market
value after the date of allotment of the subscription rights to shares(excluding the case where such lower price is resulted from the exercise of
the subscription rights to shares), the Exercise Price shall be adjusted
according to the following formula, where any resultant fraction less than
one yen shall be rounded up.
Exercise Price
Exercise Price=after adjustment before adjustment
Number of Amount paid+
Number of issued and New shares Per shareX
outstanding shares
Share price before
Issue of new shares
X
Number of issued and+ Number of new shares
outstanding shares
In the above formula, “Number of issued and outstanding shares” means
the total number of issued shares of common stock of the Company
excluding the number of treasury common stock held by the Company. In
the event of disposition of treasury common stock, “Number of newshares” shall be read as “Number of shares of treasury stock disposedof.” Besides the above, in case the Company carries out a merger, shareexchange or share transfer or the like that makes it necessary to adjust
the Exercise Price after the date of allotment, the Exercise Price may be
adjusted within a reasonable range.

74

Kuraray Co., Ltd. Annual Report 2010

(21) SUPPLEMENTARY SCHEDULE
Supplementary schedule of bonds payable
Issuer

Kuraray,Co., Ltd.

Name of bondIssuance date

Balance as ofMarch 31, 2009
(Millions of yen)

Balance as ofMarch 31, 2010
(Millions of yen)Interest rate

Type

Date of maturity

3rd unsecured
bonds

January
31, 2005

10,00010,000(US$ 107,526 thousand)

0.99%

—

December20, 2011

Total—

10,00010,000(US$ 107,526 thousand)

—

—

—

Note: Repayment of bond principals is scheduled as follows.

Maturity within 1 year
Maturity after 1 year but within 2 years
Maturity after 2 years but within 3 years
Maturity after 3 years but within 4 years
Maturity after 4 years but within 5 years

Millions of yen—
10,000Thousands of U.S. dollars—
107,526

—
—
—

—
—
—

Supplementary schedule of loans payable
Balance as ofMarch 31, 2009
(Millions of yen)

Balance as ofMarch 31, 2010
(Millions of yen)

Averageinterest rate (%)

Due date

Short-term loans

14,414

7,513(US$ 80,786 thousand)

0.6—

Commercial papers

3,000

6,000
(US$ 64,516 thousand)

0.1—

Current portion of long-term loans
due within one year

4,050

4,645
(US$ 49,948 thousand)

1.4—

Current portion of long-term lease
due within one year (Note 2)

404

361
(US$ 3,884 thousand)——Long-term loans(Excluding current portion) (Note 3)

39,28046,502(US$ 500,029 thousand)

1.7

From June, 2011
to July 2019

618

448
(US$ 4,825 thousand)—From April, 2011
to January 2016

61,76865,471(US$ 703,990 thousand)——Category

Lease liabilities (Excluding current portion)(Note 2, 3)
Total

Notes: 1. The average interest rate is calculated based on the interest rate and the ending balance.
2. The average interest rate on lease liabilities is not reported, since interest payment equivalents included in total lease payments are allocated to each consolidated
fiscal year using the straight-line method.
3. Repayments of long-term loans and lease liabilities (excluding those due within one year) within five years after the consolidated balance sheet date are as follows:75

Due after 1 year but
within 2 years(Millions of yen)

Due after 2 year but
within 3 years(Millions of yen)

Due after 3 year but
within 4 years(Millions of yen)

Due after 4 year but
within 5 years(Millions of yen)

Long-term loans

3,390

1,312

23,90017,900

Lease liabilities

248

135

50

14

Due after 1 year but
within 2 years(Thousands of U.S. dollars)

Due after 2 year but
within 3 years(Thousands of U.S. dollars)

Due after 3 year but
within 4 years(Thousands of U.S. dollars)

Due after 4 year but
within 5 years(Thousands of U.S. dollars)Long-term loans

36,456

14,110256,989

192,473

Lease liabilities

2,667

1,457

548

152

First quarter
From April 1
to June 30, 2009

Second quarter
From July 1
to September 30, 2009

Third quarter
From October 1
to December 31, 2009

Fourth quarter
From January 1
to March 31, 2010

72,91084,15485,58890,226

Income (loss) before income taxes(Millions of Yen)

576

7,565

9,253

5,687

Net income (loss)(Millions of Yen)

138

5,082

6,923

4,170

Net income (loss) per share (Yen)

0.40

14.60

19.88

11.98

Second quarter
From July 1
to September 30, 2009

Third quarter
From October 1
to December 31, 2009

Fourth quarter
From January 1
to March 31, 2010(22) OTHERQUARTERLY INFORMATION IN FISCAL 2009

Net sales(Millions of Yen)First quarter
From April 1
to June 30, 2009

Net sales(Thousands of U.S. dollars)

783,984

904,892920,301

970,182

Income (loss) before income taxes(Thousands of U.S. dollars)

6,202

81,354

99,495

61,151

Net income (loss)(Thousands of U.S. dollars)

1,494

54,65074,45044,843

Net income (loss) per share (U.S. dollars)

0.00

0.15

0.21

0.12

76

Kuraray Co., Ltd. Annual Report 2010

REPORT of INDEPENDENT AUDITORS

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 as of March 31,
2010, and the related consolidated statements of income, changes in net assets, cash flows and supplementary schedules 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 we plan andperform 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 for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of theCompany and its subsidiaries as of March 31, 2010, and the results of their operations and their cash flows for the year then ended inconformity 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, 2010 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.

July 30, 201077

C O N S O L I D AT E D C O M PA N I E SHead office

Capital(¥ million)

KURARAY TRADING Co., LTD.*1

Osaka¥ 2,200

KURARAY CHEMICAL CO., LTD.*1

Osaka

600

Manufacture and sales of activated carbon and related products

KURARAY ENGINEERING CO., LTD.*1

Osaka

450

Plant design and construction

Kuraray Medical Inc.*1

Tokyo

300

Manufacture and sales of medical products

Kuraray Plastics Co., Ltd.*1

Osaka

180

KURARAYLIVING CO., LTD.*1

Osaka

101.8

Kuraray Techno Co., Ltd.*1

Osaka

100

Production subcontracting, Temporary personnel service

KURARAY BUSINESS SERVICE CO., LTD.*1

Osaka

100

Information system service

KURARAYKURAFLEX CO., LTD.*1

Osaka

100

Manufacture and sales of nonwoven fabric products

KURARAY FASTENING CO., LTD.*1

Osaka

100

Manufacture and sales of MAGIC TAPEOKAYAMA RINKOH CO., LTD.*1

Okayama98

Warehousing, distribution, and processing

TECHNO SOFT CO., LTD.*1

Osaka

50

Consulting for improved management

Kuraray Travel Service Corporation*1

Osaka

20

Travel and insurance agency

KurarayKikou CO., LTD.*1

Ehime

10

Manufacture of machinery parts

KURARAY SAIJO CO., LTD.*1

Ehime

10

Manufacture of synthetic fiber

KURARAY TAMASHIMA COMPANY LIMITED*1

Okayama

10

Manufacture of synthetic fiber

Iruma Country Club Co., Ltd.*1

Saitama40

Golf course management

Kyosei Chemical Co., Ltd.*1

Tokyo

50

Manufacture of pigments and dyes

OKAYAMA RINKOH WAREHOUSE AND TRANSPORT CO., LTD.*1

Okayama

20

Forwarding (transportation)

Ibuki Kosan Co., Ltd.*1

Gifu

10

Manufacture, processing and packaging of plastic products

Kuraray Okayama Spinning CO., LTD.*2

Okayama

50

Manufacture of synthetic fiber

KURAFLEX IBARAKI CO., LTD.*2

Ibaraki

30

Manufacture of nonwoven fabric products

KC Processing Co., Ltd.*2

Okayama

20

Processing of activated carbon

THE KURASHIKI KOKUSAI HOTEL, LTD.*2

Okayama450

Hotel management

KURARAY AQUA CO., LTD.*3

Tokyo

175

Sales of materials for water treatment; design,
construction and sales of water treatment plants and facilities

Company

Activities(As of July 1, 2010)

JAPAN
Import, export, manufacture, and sales of textile products, chemicals, etc.

Manufacture and sales of plastics
Manufacture and sales of packaging materials

OVERSEAS
Kuraray Holdings U.S.A., Inc.*1

Texas, U.S.A.

US$55.0 million

Holding company, coordination of U.S. subsidiaries

Kuraray America, Inc.*1

Texas, U.S.A.

US$10.1 million

Import and sales of Kuraray products in the U.S.,
Manufacture and sales of EVAL resins and SEPTON

Kuraray Europe GmbH*1

Frankfurt, Germany

EVAL Europe N.V.*1

Antwerp, Belgium

Kuraray Asia Pacific Pte. Ltd.*1

Singapore

US$27.7 million

Manufacture and sales of poval resins

OOO TROSIFOL*1

Nizhniy Novgorod, Russia

RUR78.9 million

Manufacture and sales of PVB film

Kuraray Hong Kong Co., Ltd.*1

Hong Kong, China

HK$4.6 million

Processing and sales of Kuraray products in China and Southeast Asia

Kuraray (Shanghai) Co., Ltd.*1

Shanghai, China

US$5.0 million

Import and sales of Kuraray products in China

Kuraray Magictape (Shanghai) Co., Ltd.*3

Shanghai, China

US$0.8 million

Manufacture and sales of fastening materials

Kuraray Methacrylate (Zhang Jia Gang) Co., Ltd.*3

Jiangsu, China

US$9.6 million

Kuraray Chemical (Ningxia) Environmental Industry Co., Ltd.*3

Ningxia, China¥498 million

Kuraray Trading (Shanghai) Co., Ltd.*1

Shanghai, China

US$0.6 million

Import , export, and sales of fiber and textile products and chemicals

Hexin Kuraray Micro Fiber Leather (Jiaxing) Co., Ltd.*3

Zhejiang, China

US$10.5 million

Manufacture and sales of man-made leather

Kuraray India Private Limited*3

Delhi, India

Kuraray Nordic Ab Oy*3

Vantaa, Finland

Kuraray Dental Benelux B.V.*3

IJmuiden, Netherlands

Kuraray Dental Italia S.r.l.*3

Milano, Italy*1 Consolidated subsidiary*2 Equity method affiliate*3 Non-consolidated subsidiary not accounted for by the equity method

78

Kuraray Co., Ltd. Annual Report 2010€31.1 million€29.7 million

Rupees72.0 million

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

Manufacture and sales of methacrylic resin sheet
Manufacture and sales of activated carbon

Import and sales of Kuraray products in India and market development€50,000

Import and sales of Kuraray products in Northern Europe andmarket development€1.8 million

Import and sales of medical products in Benelux countries andmarket development€10,000

Import and sales of medical products in Italy and market development

I N V E S T O R I N F O R M AT I O N

KURARAY CO., LTD.

Shareholder Register Agent for Common Stock

Established:

June 24, 1926

The Sumitomo Trust and Banking Co., Ltd.
4-5-33, Kitahama, Chuo-Ku, Osaka 540-8639, Japan

Capital:¥88,955 million

Shares Authorized:

1,000,000,000 shares

Issued:382,863,603 shares

Number of Shareholders:

25,369Head Offices:Tokyo, Osaka

Principal Shareholders
Number of Shares Percentage ofHeld (thousands) Shares Held

Name or company nameShare Price Movement¥
2,000

25,0001,500

20,0001,000

15,000500

10,0000

5,000

Thousands of shares
60,000Japan Trustee Services Bank, Ltd.
(Trust Account)

31,415

9.03%

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

27,598

7.93%

National Mutual Insurance Federation ofAgricultural Co-operatives

13,695

3.94%

Nippon Life Insurance Company

13,061

3.75%

Meiji Yasuda Life Insurance Company

6,453

1.85%

Japan Trustee Services Bank, Ltd.
(Trust Account 9)

6,415

1.84%

The Dai-ichi Mutual Life Insurance Company

5,352

1.54%

MELLON BANK TREATY CLIENTS OMNIBUS

4,639

1.33%

Mitsui Sumitomo Insurance Company, Limited 4,500

1.29%

SSBT OD05 OMNIBUS ACCOUNT CHINA
TREATY CLIENTS

1.14%

3,982

Notes: 1. Although the Company owns 34,790,071 shares of treasury stock, it
is excluded from the major shareholders listed above. In calculationof the percentage of shares held, the treasury shares of theCompany are excluded from the total number of shares issued.
2. The Dai-ichi Mutual Life Insurance Company reorganized from a mutual life insurance company to a joint stock corporation as of April 1,
2010, and changed its name to The Dai-ichi Life Insurance Company.

Breakdown of Issued Shares by Type40,000

Other Domestic
Corporations
Shares Held byKuraray Co., Ltd.

20,000Individuals andOthers
0

09/4

5

6

7

8

9

10

11

12 10/1

2

High
Opening

Opening
Closing
Low
Low

Nikkei Stock Average (right scale)

Volume9.09%

Securities
Corporations

2.32%

25.64%

8.72%
ForeignInvestors

Trust andBankingCompanies

10.58%

3

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

3.05%

30.16%

10.44%

Life Insurance
Companies
Major
Commercial
Banks and
Other Financial
Institutions(As of March 31, 2010)

79

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

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

KURARAY CO., LTD.

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ANNUAL REPORT 2010 For the year ended March 31, 2010

S06-0028

Annual Report 2010
For the year ended March 31, 2010