Annual Report

1 9 9 9

Profile

Kuraray Co., Ltd. was established in 1926 in Kurashiki City,
Japan, for the industrial manufacture of viscose rayon. Since
then, the Company has developed innovative business
operations in synthetic resins, chemicals, man-made leather,nonwoven fabrics, medical products, and many other areas bycapitalizing fully on its technological strengths. Many of these
operations have grown into world-class core businesses,
including the polyvinyl alcohol fiber “KURALON,” the polyvinyl
alcohol resin poval, the ethylene-vinyl alcohol copolymer“EVAL,” the man-made leather “Clarino,” and isoprene-basedfine chemicals for aromachemicals, pharmaceuticals, and otherspecialized applications.
Today, the Kuraray Group, composed of Kuraray, itsconsolidated and unconsolidated subsidiaries, and affiliatedcompanies, consists of about 80 companies with approximately
10,000 employees.
Mobilizing the combined power of the Kuraray Group andcapitalizing on its many years of technological expertise inpolymerization and synthetics, Kuraray intends to take its place
as a unique chemical enterprise with worldwide operations.

In this annual report the names enclosed in double quotation marks are brand names.

Contents

2
Financial Highlights
3
Toward 2000
4
Message from the Management
8
Kuraray No. 1
10
Kuraray at a Glance
12
Review of Operations
16
Research and Development
17
Environmental Preservation
18
Good Corporate Citizenship
19
Financial Section
34
Organization
35
Kuraray’s History
36
Overseas Network
38
List of Consolidated Companies
39
Corporate Data

1

Financial Highlights
Kuraray Co., Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars

Millions of yen

1999

1998

1997

1999

Net sales .........................................................................................................

¥336,466¥347,643¥340,112$2,780,711

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

13,171

13,962

11,741

108,851

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

487,991

478,861

514,167

4,032,983

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

259,909

233,494

208,635

2,148,008

Years ended March 31, 1999, 1998 and 1997

Amounts per share:

Yen

U.S. dollars

Net income
Primary ........................................................................................................
Fully diluted ...............................................................................................
Cash dividends applicable to period .........................................................

¥36.8334.56
9.00¥40.4637.68
9.00¥34.9932.48
9.00

Financial ratios:
Equity ratio (%) ..............................................................................................
Return on equity (%) ....................................................................................
Payout ratio (%) .............................................................................................

53.3
5.3
24.5

48.8
6.3
22.2

40.6
6.1
25.7

Stock price range (Tokyo Stock Exchange):
High ..................................................................................................................
Low ..................................................................................................................

¥1,318
1,091¥1,200986¥1,240972

Number of employees .................................................................................

6,823

7,809

6,606

$0.30
0.29
0.07

Note: The United States dollar amounts represent translation of Japanese yen at the rate of ¥121=$1.
STOCK PRICE RANGE(Tokyo Stock Exchange)

1,400

1,200

1,000
Apr.

May

Jun.

Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

1998

327,270 330,869

TOTAL ASSETS &TOTAL SHAREHOLDERS’ EQUITY( Millions of Yen )NET INCOME( Millions of Yen )NET SALES( Millions of Yen )13,962

340,112 347,643 336,466

30,00011,04910,000Mar.

1999

13,171

535,173
500,000

11,741

514,167

477,874

478,861

487,991

400,000

9,617

20,000300,000
200,000

5,000

10,000164,931

178,776

208,635

96

97

233,494259,909

100,000

95
2

96

97

98

99

95

96

97

98

99

95

98

99

Increase in “Clarino” Production
Capacity
As part of our efforts to expand our“Clarino” man-made leather business, we
added production capacity of 3,000,000m22,
bringing total annual production capacity
to 15,500,000m22, and brought the new facilities on-line in December 1998.

Expansion of Thermoplastic
Elastomer Production Capacity
In July 1998, we commenced constructionof 7,000 tons in additional production
capacity for our thermoplastic elastomers“SEPTON” and “HYBRAR,” which willtake total annual production capacity to
19,000 tons following the expansion.

Beginning of Mass Production
Facility for “KURALON K-II”
In April 1998, we commenced operation ofa mass production facility for our new synthetic fiber “KURALON K-II.” Demand forthis product is growing thanks to its special
properties, such as water solubility and highstrength.

New Plant Conforming to GMP
In November 1998, we commenced operation of a plant for the production of pharmaceutical and agrochemical intermediates.
This new plant, which conforms to Good
Manufacturing Practice (GMP) (international standards for the production ofpharmaceuticals and pharmaceutical intermediates), currently manufactures intermediates for anti-AIDS pharmaceuticals
and similar products, and will be active inthe development and production of othernew products.

Construction Proceeding of a
Plant for EVAL Europe N.V.
As part of our global strategy for the
EVOH resin “EVAL,” we are constructing
a plant in Antwerp, Belgium with annual
production capacity of around 10,000 tons.
Work on the new plant is progressing
smoothly, and the plant is scheduled tocome on-line in the autumn of 1999.

Acquisition of ISO 14001
Certification
In March 1999, the Kashima Plant obtained
ISO 14001 certification, the international
standard established by the International
Organization for Standardization (ISO) for
environmental management systems.

3Message from the Management

4

Hisao Nakamura

Hiroto Matsuo

ChairmanPresident

Business Plan

improving management efficiency. For the first of

In order to continue to expand as a competitive

these undertakings, the Company implemented

enterprise in the face of international mega-

capital investment steadily based on the principle

competition, the Company formulated itsof ‘expanding its business while maintaining a

Fourth Five-year Medium-term Business Plan,sound financial structure.’ At the same time, we

and this has formed the basis of business strate-

worked to ensure that investments alreadygies since fiscal 1996. The main points of themade in facilities and equipment will contributeplan are (1) to expand the scope of the businessto improved business results as soon as possible.

by aggressive capital investment and developing

Despite these efforts, the Company posted

new businesses, (2) to develop global businessconsolidated net sales of ¥336,466 million

operations in Japan, Europe, North America,(US$2,780.7 million), a decline of 3.2% from theand Asia.

previous year, operating income of ¥27,148 million (US$224.4 million), a drop of 6.1%, and net
income of ¥13,171 million (US$108.9 million), aBusiness Environment and Results

decline of 5.7%. In view of these business results,

The business environment remained extremely

we declared an annual dividend of ¥9.0 per

harsh in fiscal 1998 (the term ended March 31,

share.

1999), marked by declining demand and sluggish
markets, due to the negative impacts of the ongoing slump in the Japanese economy and theAggressive Capital Investment

slowdown in East Asian economies.

During the term under review, we carried out aGiven this business environment, the Kurarayvigorous program of capital investment amount-Group undertook a number of initiatives based on

ing to ¥33,497 million (US$276.8 million), in

its Fourth Medium-term Business Plan, including

keeping with the policy of reinforcing corporate(1) the expansion of its busi-

capabilities outlined in the Fourth Medium-term

ness scope, (2) cost rational-

Business Plan. Major investments were the con-ization and the development

struction of a new “EVAL” plant for EVAL

of high value-added products,

Europe N.V., expansion of production capacityand (3) boosting its corporate

for our man-made leather “Clarino,” for the

structure by, for example,

thermoplastic elastomer “SEPTON,” and for fineRatio of operating income bydivision to total operating income
Diversified
businesses
12.8%
Man-made leather,nonwoven fabrics andfastening materials
17.1%
Chemicalproducts
60.3%
Chemical andsynthetic fibers
9.8%

5

Message from the Management

chemicals and contact lens, and a new facility

Singapore, began operations in April 1999, andfor Kuraray Chemical Co., Ltd. to produce anat the same time Kuraray Specialities Asia Pte.,

automobile cabin air filter.

Ltd., our local sales company in Singapore, commenced full-scale operations. For “Clarino”
man-made leather, in addition to our operations

Fostering New Businesses

in Europe and North America, we are expanding

During the term a number of new businesses werelocal processing operations in Southeast Asia.

started which bore the unique characteristics ofthe Kuraray Group. Chief among these were thecommercialization of a new type of synthetic fiber,

Future Issues“KURALON K-II,” produced using a new manufac-

With a continued focus on the Fourth Medium-turing method developed by Kuraray, of PA9T, aTerm Business Plan, the Kuraray Group will

new heat-resistant polyamide, and of a newwork to fundamentally strengthen its core busi-

polyvinyl alcoholic high-performance resin.

nesses and expand overseas, aiming to be ‘aunique chemical enterprise that continuallydevelops worldwide.’ To maintain profitability in

6

Global Development

the current domestic deflationary environment,

Our policy for globalization is to foster busi-

we will endeavor to improve the efficiency ofnesses and products that transcend borders,

our management system, mainly by further cut-and to conduct manufacturing, processing, andting costs and rationalizing administrative opera-

sales in the areas where the products are intions, while pushing ahead with various initiatives

demand. In practical terms, for the EVOH resinthat aim to produce a leaner, more powerful“EVAL,” we are implementing a global develop-

corporate structure.

ment strategy, based on a new production facil-

In Japan, during the term under review we

ity in Europe, scheduled to go into operation insteadily added new facilities and expanded exist-

autumn 1999, in addition to existing facilities ining facilities for “Clarino” man-made leather andJapan and the United States (EVAL Company offine chemical products. Overseas, as described

America). In the case of poval, our joint venture

above, the new poval plant in Singapore havewith The Nippon Synthetic Chemical Industry

come on stream and we are making progressCo., Ltd., Poval Asia Pte Ltd, which is located inwith a project for the production of the EVOH

resin “EVAL” in Belgium. It will be the most cru-

operational support systems, mainly located atcial issue that these new and expanded facilities

head office, were almost all completed in April

come on stream smoothly after completion of

1999, and we expect to complete measuresconstruction and ensure that these investmentsfor production control systems by the end

contribute to improved business results.

of October 1999. In addition, we are taking

Furthermore, fully aware that respecting local

appropriate measures to ascertain the Year

communities and the environment is one of the2000 compliance programs of our raw materials

fundamentals of business, we will strive to reduce

suppliers and subcontractors. We expect tothe emission of environmental pollutants and toconclude the implementation of all countermea-

develop environmentally-friendly products, whilesures, including those for suppliers andinvesting in new equipment to promote the ther-subcontractors, by the end of October 1999.

mal recycling system, a system to recover heat

Reports on the status of response efforts areenergy from plastic waste. We have been actively

regularly made to the board of directors.

involved in ‘Responsible Care’ activities since
their inception. As part of these activities, inMarch 1999 our Kashima Plant received ISO
14001 certification, the international standard forenvironmental management systems, and we
intend to work steadily toward obtaining certification for all our main plants in Japan.

CAPITAL EXPENDITURES( Millions of Yen )33,49730,000Computer Problem
19,04920,00010,000Efforts to Tackle the Year 2000

Hisao Nakamura
Chairman

From the point of view of risk manage-

20,806

17,479ment, we have established a transor gan i z ati on c om m it t ee, a nd a r e

10,645

Hiroto Matsuo
President

working to deal with the Y2K problem.
Compliance measures for in-house

0

95

96

97

98

99

7

Kuraray No. 1“KURALON”(polyvinyl alcohol fiber)

Kuraray was the first company
in the world to commercialize
the synthetic fiber “KURALON.”
It is used as a material throughout
a wide range of industrial applications thanks to its high strength,
low stretchability, hydrophilic
properties, and outstanding
weatherability. In line with theheightened consciousness ofenvironmental issues in recent
years, demand for “KURALON”
has been rising for use as a
cement reinforcement material
in place of asbestos and as aseparator in alkaline batteries
to enable the creation of a dry
cell that contains no mercury.
“KURALON” made by Kurarayholds an approximately 65%*
world share. (* According to‘Fiber Handbook,’ published by
the Japan Chemical Fibres
Association, data as ofMarch 1999 excluding
mainland China.)“KURALON K-II”

Poval

Having developed the world’s
first production method for“KURALON K-II,” a new typeof synthetic fiber, Kuraraycommenced mass productionof this synthetic fiber in April
1998. Because of its special
properties such as highstrength, water solubility at low
temperatures, and fractionation
characteristics, demand is
growing at home and abroadfor “KURALON K-II” in a
broad spectrum of applications,
including industrial materials,
household goods, and clothing.
We will continue to aggressively increase new applications
for “KURALON K-II” utilizing
its unique properties.

Kuraray was the first in theworld to commercialize this
synthetic resin. Boasting features such as water solubility,
adhesive and emulsifying characteristics, and oil resistance,
poval is used in a wide variety
of fields, including as a fiber sizing agent, paper processing
agent, an adhesive, and a
polyvinyl butyral safety glass
interlayer for automobiles. In
the form of poval film, poval isused as polarized film for liquid
crystal displays and as a packaging material for textile products. Kuraray holds a world
share of approximately 25%* inthe manufacture of poval.
(* Estimate by Kuraray as ofMarch 1999, excluding mainland
China and including poval’s use
as “KURALON.”)ANALYSIS
MOLECULAR DESIGNCATALYZERSMATERIAL ENGINEERINGFIBER TECHNOLOGYTEXTILE PROCESSING

BasicTechnologies

SYNTHETIC CHEMISTRYPOLYMER CHEMISTRY

8AppliedTechnologies

FILM MANUFACTURING
PRECISION MOLDINGSURFACE PROCESSING
INFORMATION PROCESSING
BIOCHEMISTRYCOMPOUNDING

Kuraray’s
highlyinnovative
products

Based on its world-class technologies in polymerization and synthetics, Kuraray has created a wide range of products that haveclaimed the largest market share either in Japan or in the world.
Here, we present some of those products.

“EVAL” Ethylene-Vinyl
Alcohol Copolymer

Kuraray led the world in commercializing “EVAL,” a functional resin with excellent gas
barrier properties. It is becoming widely used to package
foods such as mayonnaise, andretort pouch foods because it
prevents the deteriorationof package contents by acting as an oxygen barrier.
Recently, it has attracted
attention for use in automobile gasoline tanks to reduce
the escape of evaporated
fuel. Kuraray holds a world
share of approximately
70%* in the manufacture of“EVAL.” (* Estimate by
Kuraray as of March 1999.)“Clarino”
Man-made Leather

Since the launch of “Clarino” in
1965, Kuraray has led theworld in man-made leather.
“Clarino” is used in shoes, bags,
clothing, interior goods, andmany other applications
because of its many outstanding features,
including its
flexibility,
strength, lightweight, anddurability. To
respond more
quickly to market needs, weare establishing a networkof processing
facilities
inEurope, North America, andAsia. Kuraray holds a world
share of approximately 20%* inthe manufacture of man-madeleather. (* Estimate by
Kuraray as of March 1999,
excluding mainland China.)

Dental Material Products

Isoprene Chemicals

The “CLEARFIL” series of fillingmaterials consists of highperformance adhesives andcomposite resins to fill cavities.
This series of products, whichfeatures high adhesive characteristics, high strength, andsuperior workability, has been
well received by themarket. “CLEARFIL”
holds a share of
approximately 50%*in the Japanese market for adhesive dental filling materials
and we are establishing a direct sales network in
Europe and the United States in
preparation for an expansion ofbusiness there. (* According to
the findings of R&D Co., Ltd. asof March 1998.)

Isoprene refers to chemicalcompounds with the formulaC5H8. As such, they are chemical compounds comprising awide variety of natural substances, beginning with natural rubber.
Isoprenechemicals is
the genericterm for arange of derivatives derived
from isoprene.
Kuraray, theonly Japanese company thathas commercial operations forthe synthesis of isoprene chemicals, is developing a uniqueassortment of products centered on synthetic isoprene,
and including thermoplastic
elastomers, industrial cleaning
agents, aromachemicals, andpharmaceutical and agrochemical intermediates.

9

Kuraray at a Glance
Outline¥103,120 million

Kuraray’s fiber business is centered aroundrayon, the chemical fiber that started theCompany, “KURALON,” which pioneered
the Japanese synthetic fiber industry and is
now used in a broad variety of industrial
materials, and polyester, which has applications in industrial and household goods, suchas use in apparel. In 1998, the Company commenced the mass production of “KURALON
K-II,” a new type of synthetic fiber manufactured by a unique production method.

“Kuralon”(polyvinyl alcohol fiber)
Polyester
Rayon“Kuralon K-II”(new type of synthetic fiber)

30.6%¥142,071 million

Major Products

Kuraray has business operations in a wide
range of products, including poval, a watersoluble resin the Company led the world incommercializing, “EVAL,” an ethylene-vinyl
alcohol copolymer with superior gas-barrier
properties, methacrylic resin featuring outstanding transparency, activated carbon, rubber materials, and isoprene chemical
products such as thermoplastic elastomers,
aromachemicals, ingredients for cosmetics,
and pharmaceutical and agrochemical intermediates.

Poval(polyvinyl alcohol resin)“EVAL”(ethylene-vinyl alcohol copolymer)
Methacrylic resin
Isoprene chemical products
Activated carbon business

42.2%“Clarino” is a world-leading man-madeleather extensively used in shoes, bags,
apparel, and interior goods. Kuraray’s nonwoven fabrics, which combine the characteristics of both fabric and paper, enjoy a wide
variety of applications ranging from thehousehold to the medical sphere. In hookand loop fasteners, which shut tight with justa light touch, the Company has the largest
share of domestic markets.

“Clarino”(man-made leather)“Kuraflex”(dry-laid nonwoven fabric)
Melt-blown nonwoven fabrics

Hook and loop fasteners¥35,557 million

10.6%
The Company is developing its medical products business, an area where it is active in
artificial kidneys and artificial organs toremove harmful substances from blood, avariety of medical equipment, dental materials
to repair and beautify teeth, and contactlenses. It is also involved in laser discs formovies, etc., membranes that are very usefulin preserving the natural environment, andengineering operations.

¥55,718 million

16.6%
10

Medical products
Laser discs
High-performancemembranes
Engineering business
Real estate businessMajor uses

Industrial materials (cement reinforcement, rubber reinforcement,
nonwoven fabrics, paper, materials for agriculture and fisheries,
construction materials, etc.)
Woven and knit fabrics for clothing, industrial materials (canvas,
tents, construction materials, etc.), household goods (carpets,
curtains, etc.)
High-grade linings for clothing, fabric for clothing, embroideryyarns, etc.

Net Sales( Millions of Yen )15,000150,000

119,956

112,861 112,937 111,041

100,000

103,120

10,0005,000

50,000

1,987

Woven and knit fabrics for clothing, industrial materials (cement
reinforcement, rubber reinforcement, plastic reinforcement, etc.),
household goods (packaging, sanitary materials, etc.)

Fiber sizing agent, paper processing agent, adhesive, polyvinyl
butyral safety glass interlayer for automobiles, etc.

Operating Income( Millions of Yen )

95

96

97

98

139,113 146,812 150,319 142,071

150,000

95

99

2,785

96

3,790

3,768

97

98

2,686

99

16,540 16,501
14,555 14,884

15,000130,167

Food packaging material, wallpaper, balloons, gasoline tankmaterials, pipe materials for underfloor heating, etc.
Construction materials, automotive parts, lighting equipment,
displays, opt-screens, substrates for optical disks, etc.

100,000

10,00050,0005,000

10,281

Rubber materials, adhesives, plastic modifiers, low-toxicity solventsand cleaners, aromachemicals, pharmaceutical and agrochemicalintermediates, etc.
95

A variety of activated carbon, gas separation equipment using
activated carbon, etc.

96

97

98

99

95

96

97

98

99

4,520 4,709

5,060 5,454

4,650

95

97

98

99

3,482

3,512

98

99

Shoes, bags, sports goods, high-quality apparel, furniture, etc.

Dust cloths, filters, paper diapers, industrial face masks, wipers,
coffee bags, etc.

150,000

15,000100,000

10,00050,000Fasteners for apparel, shoes, automobile seat covers, construction
materials, etc.

34,995 36,726 38,114 38,802 35,557

95

96

97

98

5,000

99

96

Artificial kidneys, blood-cleansing equipment, dental materials,
contact lenses, etc.
150,000

15,000100,000

10,000Read-only laser discs (for movies, education, karaoke, etc.)
Production of ultra-pure and germ-free water, processing of drug
solutions, etc.

50,00042,152 42,149 42,249 47,481

55,718

5,000

4,433
3,757

Design and construction of a broad range of plant, etc.
Operations including house construction, leasing of real estate,
management of golf courses, landscaping business, etc.

2,461

95

96

97

98

99

95

96

97

11

Review of Operations

Rayon is a chemical fiber possessing the characteristics of good color reproduction and a cool
feeling. “KURALON” polyvinyl alcohol fiber is extensively used as an industrial material thanks to
its features of high strength and low stretchability. In polyester, we are expanding sales of highvalue-added products.

New Product News
Launch of acomposite
synthetice l a s t i cmaterial

Polyester suffered a severe slump in rev-

applications in alkaline batteries. In

enues as demand plummeted in the

addition, it has been gaining an excellent

apparel sector. Nonetheless, theworldwide reputation for use in rein-

Company achieved favorable progress inforcement of hydraulic brake hoses forthe development of innovative high-automobiles.

value-added products in this area, such

Rayon exports increased but there

as melange fabric, elastic materials madewas a major decline in domesticof new composite synthetic fibers, anddemand. Having begun the mass produc-“Sophista,” a comfortable synthetic fibertion of “KURALON K-II,” a new type of

whose main raw material is “EVAL,” ansynthetic fiber, in April 1998, theEVOH resin developed by the Company.

Company has been steadily developing

Domestic demand for “KURALON”

new applications for this product.

for use in industrial materials was fairly

As a result of the above efforts, thesluggish, but demand increased for use

Chemical and Synthetic Fibers Division

as a cement reinforcement material toposted net sales of ¥103,120 million

replace asbestos and for use in separator(US$852 million), a decline of 7.1%.

12

Kuraray haslaunched anelastic material
which utilizes
an original highcontraction polymer developed
in-house. This
product successfully combines
the all-roundelasticity of a knitted fiber with thestrength and drapability of a woven
fabric. With its excellent flexibility andlight feel, it is appropriate for use insuits, jackets, and pants in particular.
Kuraray has designated this product asa strategic material for clothing applications, and will actively develop
demand for it.

Poval is a high-performance resin which possesses excellent properties such as water solubility and adhesivity. The EVOH resin “EVAL” is becoming extensively used in Japan and abroad in food packaging andsimilar applications due to its impermeability to oxygen, thus preventing oxidation. Methacrylic resin,which boasts outstanding transparency and durability, is used in construction materials, automotive
parts, lighting equipment, and displays.
From the basic raw material isoprene, the Company has developed a range of products including thermoplastic elastomers used as rubber molding and plastic modifying agents, aromachemicals, cosmetics
ingredients, pharmaceutical and agrochemical intermediates. Further, the Company has business operations including activated carbon and rubber materials.

New Product NewsThe Company continued to develop new

including production and distribution tie-markets for poval ahead of the start ofups with Sumitomo Chemical Co., Ltd.,

operations at the new poval plant in

however, overseas demand for projection

Singapore. At the same time, there was

TV screens remained firm.

favorable demand for poval film for its

In thermoplastic elastomers, demand

application as polarized film for liquid-

was favorable for “SEPTON” andcrystal displays.

“HYBRAR.” We increased production“EVAL,” an EVOH resin, attracted

capacity for thermoplastic elastomers byattention for use in automobile gasoline

3,000 tons in July 1998, thus bringing total

tanks in addition to its established applica-

annual production capacity to 12,000 tons.

tion as a food packaging material. EVAL

In response to robust demand, we have

Company of America steadily expanded

already begun constructing an additional

operations, and in Europe, the Company

7,000 tons of annual production capacity.

worked to expand demand in advance ofFirm growth was also registered in pharma-

the start of production at its new plant inceutical intermediates and raw materials

Belgium. As a result, the Company isfor vitamins.

steadily building a network spanning Japan,
the United States, and Europe.
The Company undertook steps to

As a result, the Chemical Products
Division posted net sales of ¥142,071 million (US$1,174 million), a decline of 5.5%.

Development of a new watersoluble resin
Kuraray has developed a new watersoluble resin which combines theproperties of poval and “EVAL”
ethylene-vinyl alcohol copolymer
resins. This new product has a number of special characteristics, including
water resistance, gas-barrier properties, melt-molding properties, andbiodegradability, and may be developed for applications not possible withpoval or “EVAL” alone. We are currently operating a pilot facility at our
Nakajo Plant, and have drawn up ab u s i n e s s p l a n w h i c h calls for thestart of commercial production in
fiscal 2000.

rationalize its methacrylic resin business,13

“Clarino” man-made leather is a favorite for shoes, bags, sporting goods, clothes, and interior goods,
areas in which its special properties can be brought into play, including light weight, flexibility, andstrength. Nonwoven fabrics possess the qualities of both fabric and paper, and are used in areas that
require hygiene and convenience, such as the home and the medical sphere. Our hook and loop fasteners are used in, for example, clothes and sporting goods.

New Product News

Although exports of “Clarino” man-madeTo counter increasing domestic

leather to Southeast Asia fell due to eco-competition, we made rapid progress innomic turmoil in the region, domestic

the development of new products insales and exports to Europe, where sales

dry-laid nonwoven fabric “Kuraflex.”of suede clothing are buoyant, were firm.

Sales of our hook and loop fasteners

Moreover, in November 1998, we com-were stable, and we actively developed

pleted an additional 3,000,000m 2 inthis business by successively launchingannual production capacity. In addition to

new products, including products forenabling increased production of existing

nursing clothing, and an antibacterialmaterials, the extra production capacity

fastener.

will allow us to begin production of new

As a result, the Man-made Leather,materials, such as suede material for inte-

Nonwoven Fabrics, and Fastening Materials

rior goods and automobile seats, a sheep-

Division posted net sales of ¥35,557 million

skin-type material for clothing, and a(US$294 million), down 8.4%.

nubuck material for high-quality casual
shoes.

14

Launch of a new nubuck manmade leather
The Company has launched a nubuck
leather (a material in which the surface is shaved to raise the nap) as a
new material for the 21st century.
With a fine-grained raised nap that isshorter than the nap of traditionalsuede, it can be used to faithfully
recreate the look of natural leather
using the Company’s special processing techniques. We will develop thismaterial for use in women’s shoes,
casual shoes, and bags.

Kuraray is developing the artificial organ business such as artificial kidneys and direct hemoperfusion
cartridges, and medical equipment such as a therapeutic plasmapheresis monitor. In our dental materials business, we have developed and firmly established in the market a number of products including
high-performance adhesives and composite resins. In our contact lens business, we are developing
both soft and hard lenses.
Furthermore, we are also expanding our businesses in laser discs, used for movies among otherthings; membranes, for applications such as sake brewing and waste water treatment; and engineering, where we design and supply different types of plant.

New Product News

After reform of the National Healthconstruction of additional production

Insurance scheme, which increased thecapacity for contact lenses, bringing total

cost burden on patients, domestic

annual capacity to 1,000,000 units.

demand stalled somewhat in all our

In membranes, we developed new

medical businesses. However, we were

demand centered on a PVA membrane,

able to maintain performance in ourwhich has superior solvent resistance, andmedical equipment business througha PVA-coated polysulfone membrane,increased exports. In dental materials,

which has excellent resistance to pollution.

buoyant exports to Europe, where we

In addition, exports of factory equip-

have established our own marketing

ment to Poval Asia Pte Ltd in Singapore

organization, led to steady performance

contributed to increased revenue.

overall, and we actively developed thisAs a result, the Diversified Businessbusiness through the launch of new

Division saw net sales increase 17.3% toproducts such as a composite dental¥55,718 million (US$461 million).

Launch of “CLEARFIL SE
BOND,” a new dental adhesive
for use with composite resins
Kuraray has launched a new dental
adhesive material for use with composite resins, “CLEARFIL SE BOND,”
with the aim of improving workability toenable simple and speedy dental repair
work. Developed under the concept of‘simple use’ by limiting its functions tophotopolymerization, this product, with
its high adhesivity, is clearly targetedat simplifying and speeding up dental
work. We will aggressively market thisproduct to establish it as a helpful
item in high quality dental work.

resin. In February 1999, we completed15

Research and Development

Drawing on its expertise in core tech-membranes, and screens for projection TVs.

R&D is carried out at the Kurashiki

nologies like fibers, polymers, and syn-Currently, we are in the process of

Research Laboratories and Analyticalthetics built up over the years, Kuraraypromoting the following areas and prod-

Research Center (Kurashiki City, Okayama

carries out research and development

ucts, and are actively developing tech-Prefecture) and the Tsukuba Researchwith the objectives of ‘creating new core

nologies and markets with the aim ofLaboratories (Tsukuba City, Ibaraki

businesses for the 21st century’ andgrowing them into full-scale businesses.

Prefecture), as well as at R&D departments‘strengthening and expanding its existing• The EVOH fiber “Sophista”

at each plant. The close cooperationcore businesses.’ At present, active R&D• The new heat-resistant polyamide

between all these facilities has achieved

efforts are underway in a wide range ofresin PA9T

areas including fibers, resins, chemicals,• A new thermoplastic elastomer

high-performance plastics, elastomers,• Environmental protection systems,

man-made leathers, pharmaceutical andagrochemical intermediates and otherWe intend to continue aggressive
research and development and to utilize thecentered on industrial membranes andfruits of this research as quickly as possible

PVA gelin order to develop and grow the business.

fine chemicals, medical products, indus-• An acrylic impact modifier

trial membranes, opto-electronics, and• Fine chemicals, including pharmaceuti-

environmental technologies.

solid results.

cal and agrochemical intermediates

Parent Company

In recent years, we have commercialized adiverse range of unique products, including• R&D Expenditure¥12,702 million(fiscal 1998)

the new synthetic fiber “KURALON K-II,” a
PET resin for use with the direct blow
method, high-performance thermoplastic• R&D Personnel858(as of March 31, 1999)

polyurethane, a variety of thermoplastic elastomers including “SEPTON” and “HYBRAR,”
a resin modifier, high-performance industrial

16• Patent and Utility
Model Patent

3,423(as of March 31, 1999)

Environmental Preservation

With the establishment in 1970 of specialized environmental countermeasures
departments at head office and the plants,
and the introduction in 1977 of Regulations
for Environmental Control and Industrial
Safety, we have been involved in environmental preservation on our own initiativefrom early on.
In order to clarify our position on
environmental issues, we published theKuraray Action Guidelines on the
Global Environment in 1993, and in
1995 participated in planning the‘Responsible Care’ activities in Japan,
thereby strengthening our commitment
to ‘environment and safety throughindependent management and selfresponsibility.’
As part of these efforts, in March
1999 our Kashima Plant obtained ISO
14001 certification, the international

standard established by the International
Organization for Standardization (ISO)for environmental management systems.
Moreover, with a view to making themost effective use of resources, we
endeavor to use recycling in the uniforms sector.
We will continue to make harmony
with the natural environment a top priority in our business activities, and fulfill
the social responsibilities demanded of amajor corporation.

As it does not generate
dioxins when incinerated,“HYBRAR” has attracted
attention as a replacement
for polychlorinated vinyl.

ISO 14001 Certification

17

Good Corporate Citizenship

Chemistry Classes for Boys and Girls

Kuraray participates in a wide range ofactivities in the communities in which
it operates.
In particular, our ‘ChemistryClasses for Boys and Girls,’ where weopen our plants to upper elementary
school students in an effort to help
them learn more about chemistry, has
attracted widespread public attention
as an activity which could only be conducted by Kuraray with its wealth ofadvanced polymer and synthetic chemistry technologies.

In addition, we hold a variety ofsports meets and summer festivals inorder to deepen our ties with local
communities.
We have also set up a Donationby-Matching System for donations towelfare facilities, in which theCompany will match the amount of
donations made by employees.
We will continue to participate inactivities that make full use of ouremployees’ creativity in order tocontribute not only to local communities but to society as a whole. We
remain committed to good corporate
citizenship.

A boy’s baseball tournament at the
Okayama Plant

18

Financial Section

Consolidated Six-Year Summary
Kuraray Co., Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars

Millions of yen
Years ended March 31

For period:
Net sales ......................................................
Cost of sales ...............................................
Selling, general andadministrative expenses ........................
Operating income .....................................
Net income .................................................

1999

1998

1997

1996

1995

1994

1999

¥336,466
250,195¥347,643
259,788¥340,112
255,240¥330,869
246,768¥327,270
249,399¥326,781
251,863$2,780,711
2,067,728

59,12327,14858,95728,89858,32426,54858,00826,09356,37021,501

55,143
19,775

488,619
224,364

13,171

13,962

11,741

11,049

9,617

8,157

108,851

36.83
34.56

40.46
37.68

34.99
32.48

35.43
32.71

30.94
—

26.30
—

0.30
0.29

9.00

9.00

9.00

9.00

8.50

8.00

0.07

Net income per share (Exact yen or U.S. dollar)
Primary ....................................................
Fully diluted ............................................
Cash dividends applicable to period(Exact yen or U.S. dollar) ...............................
Capital expenditures ................................
Depreciation and amortization ..............
Total research anddevelopment expenses ..........................

33,497
15,55720,806
14,61519,04914,111

17,47914,263

10,64515,087

15,626
15,443276,835
128,570

13,42913,707

13,592

12,646

12,54913,200110,983

At period end:
Total assets .................................................
Total shareholders’ equity ......................

¥487,991
259,909¥478,861
233,494¥514,167
208,635¥535,173
178,776¥477,874
164,931¥477,690
157,251$4,032,983
2,148,008

Note: The United States dollar amounts represent translation of Japanese yen at the rate of ¥121=$1.
Fully diluted net income per share is required to be disclosed effective from fiscal year ended March 31, 1996.
Certain reclassifications of previously reported amounts have been made to conform with current classifications.

Contents
Consolidated Six-Year Summary......................21
Financial Analysis(Based on Consolidated Accounts) ................22
Consolidated Balance Sheets.............................24
Consolidated Statements of Income ...............26
Consolidated Statementsof Shareholders’ Equity......................................26
Consolidated Statementsof Cash Flows ......................................................27
Notes to Consolidated
Financial Statements ...........................................28
Report of Independent Accountants ...............35

19

Financial Analysis (Based on Consolidated Accounts)
Kuraray Co., Ltd. and Consolidated Subsidiaries

Results of Operations
In the fiscal year ended March 31, 1999, consolidated net sales
totaled ¥336,466 million (US$2,780.7 million), down 3.2%
from the previous year due to sluggish business conditions
and deflationary pressures in Japan and other Asian countries.
This figure included ¥93,486 million (US$772.6 million) inoverseas sales, a rise of 16.6% over the previous year.
Gross profit was ¥86,271 million (US$713.0 million), a fallof 1.8%, and selling, general and administrative expenses
were ¥59,123 million (US$488.6 million), an increase of
0.3%. As a result, operating income totaled ¥27,148 million(US$224.4 million), a decrease of 6.1% from the previous
year, and the ratio of operating income to net sales was
8.1%, a fall of 0.2 of a percentage point.
Net income for the term amounted to ¥13,171 million(US$108.9 million), down 5.7%, and net income per share(EPS) was ¥36.83 (US$0.30), a fall of ¥3.63 (US$0.03), due toan increase in the number of issued shares and the decreasein net income. Return on equity (ROE) was 5.3%, a drop of
1.0 of a percentage point.
Looking at performance by segment, net sales of chemicaland synthetic fibers totaled ¥103,120 million (US$852.2
million), a decrease of 7.1%, and operating income in thissegment was ¥2,686 million (US$22.2 million), a fall of
28.7%. Although sales of polyester fell due to lower demandfor clothing applications, growth in sales of our original
distinctive materials meant we were able to minimize theeffect of this on earnings. Despite lower sales of“KURALON,” a polyvinyl alcohol fiber, as a material for use
in domestic manufacturing industries, sales in overseas
markets for use as a replacement for asbestos as a cement
reinforcing material grew steadily. We began production of“KURALON K-II,” a new type of synthetic fiber. Sales ofrayon increased overseas, but fell in domestic markets.

In the chemicals sector, net sales were ¥142,071 million(US$1,174.1 million), down 5.5%, and operating income
totaled ¥16,501 million (US$136.4 million), a fall of 0.2%.
Sales of poval, a polyvinyl alcoholic resin, were down in Japanand Asia, but sales of high-value-added poval products, suchas polarized films, grew steadily. Sales of “EVAL,” an ethylene-vinyl alcohol copolymer resin, grew in North America
thanks to its increased use in automobile gasoline tanks, andalso in Europe, where a new “EVAL” plant is scheduled tostart operations in October 1999. Sales of projection TV
screens made of methacrylic resin increased, but methacrylic
resin sales fell overall, unable to shake off the effect of thelower prices resulting from worsening market conditions. As
for isoprene chemical products, there was steady growth insales of fine chemical products for use as, for example,
pharmaceutical intermediates, and also in sales of thermoplastic elastomers for non-toxic packaging film applications.
In man-made leather, nonwoven fabrics, and fastening
materials, net sales totaled ¥35,557 million (US$293.9
million), down 8.4%, and operating income was ¥4,650
million (US$38.4 million), a fall of 14.7%. “Clarino” manmade leather sales decreased in Asia for sports shoe applications, but increased solidly in Europe for use in suede
clothing. Sales of the nonwoven fabric “Kuraflex” for use asa sanitary material fell due to increased competition, whilesales of hook and loop fasteners were stable.
In our diversified businesses, net sales were ¥55,718
million (US$460.5 million), an increase of 17.3%, and operating income totaled ¥3,512 million (US$29.0 million), a rise of
0.9%. There was a large increase in sales in our engineeringbusiness, including orders of equipment for a poval plant in
Singapore. Sales of dental materials grew in Europe andNorth America, but sales of our medical products were flat
overall.

OPERATING INCOME &OPERATING INCOME/NET SALES( Millions of Yen ) / ( % )30,000SHAREHOLDERS’ EQUITY &EQUITY RATIO( Millions of Yen ) / ( % )28,89826,093259,909
27,14826,548250,000

233,494
208,635

200,000

21,501

178,776

20,000164,931
7.9

7.8

8.3

8.1

6.6

150,000

53.3
48.8
40.6

100,000

10,000

34.5

33.4

95

96

50,000

95

20

96

97

98

99

97

98

99

Kuraray Co., Ltd. and Consolidated Subsidiaries

Financial Position
Total assets at the end of the term stood at ¥487,991 million(US$4,033.0 million), an increase of ¥9,130 million (US$75.5
million) from the end of the previous period.
Notes and accounts receivable were ¥89,466 million(US$739.4 million), a decrease of ¥7,293 million (US$60.3
million) due to lower net sales and a decrease in receivables
relating to factory equipment delivered in our engineeringbusiness. Inventories totaled ¥70,624 million (US$583.7
million), down ¥5,886 million (US$48.6 million) mainly
because of a decrease in construction work in process.
Property, plant and equipment increased ¥13,927 million(US$115.1 million) to ¥129,026 million (US$1,066.3 million).
Capital expenditures during the term totaled ¥33,497 million(US$276.8 million), while depreciation and amortization
expenses were ¥15,557 million (US$128.6 million). The
major items of capital expenditure during the term were theaddition of 3,000,000m2 in annual production capacity for“Clarino” in Japan, which will bring total production capacity
to 15,500,000m2 on completion in December; 3,000 tons inadditional annual production capacity for thermoplastic
elastomers, which gave a total capacity of 12,000 tons oncompletion in July 1998, and we began construction of afurther 7,000 tons of capacity; and the construction of a new“EVAL” plant in Belgium, due to be completed in October1999 with a annual production capacity of 10,000 tons, bringing group-wide annual production capacity to 41,000 tons.
Moreover, although investment in companies to which theequity method is applied is not included in the consolidated
figure for capital expenditures, in April 1999 a new poval
plant with an annual production capacity of 40,000 tons went
into operation in Singapore, as part of our joint venture with
The Nippon Synthetic Chemical Industry Co., Ltd.

Total liabilities decreased by ¥17,284 million (US$142.8
million) to ¥227,712 million (US$1,881.9 million).
Notes and accounts payable came to ¥49,876 million(US$412.2 million), a drop of ¥9,942 million (US$82.2
million), due to decreases in purchases of raw materials andcommodities, and in amounts payable relating to factoryequipment delivered in our engineering business.
Long-term debts (including debts payable within one year)
increased ¥14,750 million (US$121.9 million) to ¥114,305
million (US$944.7 million). The principal fund procurement
activities undertaken during the term were the issue ofstraight corporate bonds by the parent company and bankloans obtained by European subsidiaries for capital investment purposes. Accrued expenses and other fell by ¥20,617
million (US$170.4 million) to ¥21,181 million (US$175.1
million). This was mainly accounted for by a drop in
advances received for engineering projects, and a decrease indeposits because of the scrapping of the employees’ savings
deposit system.
Shareholders’ equity grew by ¥26,415 million (US$218.3
million) to ¥259,909 million (US$2,148.0 million). Common
stock and additional paid-in capital increased by ¥11,259
million (US$93.0 million) mainly due to the exercise of
warrants. Retained earnings rose ¥15,152 million (US$125.2
million), including ¥6,069 million (US$50.2 million) in
deferred tax from the previous fiscal year transferred toretained earnings due to the introduction of interperiod
income tax allocation accounting.
As a result, the ratio of shareholders’ equity to total
assets was 53.3%, up 4.5 percentage points, and net assets
per share were ¥714.21 (US$5.9), a rise of ¥55.22 (US$0.5).

EPS & ROE
( Yen ) / ( % )33,497

40.46

40
35.43

30

CAPITAL EXPENDITURES &RETAINED CASH FLOW
( Millions of Yen )

36.83

34.99

30,00025,50430.94
22,218

20

6.0

6.4

22,511

20,000
6.1

19,0496.3

25,53822,89420,806

17,4795.3
10,645

10,00010

Capital Expenditures
Retained Cash Flow

95

96

97

98

99

95

96

97

98

99

Retained Cash Flow=Net income+Depreciation
and amortization–Dividends paid

21

Consolidated Balance Sheets
Kuraray Co., Ltd. and Consolidated Subsidiaries

Thousands of
U.S. dollars (Note 1)

Millions of yen

March 31, 1999 and 1998ASSETS
Current assets:
Cash and cash equivalents ......................................................................................
Marketable securities (Note 3) .............................................................................
Notes and accounts receivable (Note 10):
Trade .....................................................................................................................
Unconsolidated subsidiaries and affiliates .....................................................
Other ....................................................................................................................
Loans receivable to unconsolidated subsidiaries and affiliates .......................
Allowance for doubtful accounts ..........................................................................

Inventories (Note 4) ................................................................................................
Deferred income taxes (Note 7) ..........................................................................
Other current assets ...............................................................................................
Total current assets ...........................................................................................

Property, plant and equipment (Note 5):
Land .............................................................................................................................
Buildings ......................................................................................................................
Machinery and equipment ......................................................................................
Construction in progress ........................................................................................
Less accumulated depreciation ..............................................................................

Investments and other assets :Investment securities (Notes 3 and 5) ................................................................
Investments in unconsolidated subsidiaries and affiliates ................................
Loans receivable to:Unconsolidated subsidiaries and affiliates .....................................................
Other ....................................................................................................................
Deferred income taxes (Note 7) ..........................................................................
Other ..........................................................................................................................
Allowance for doubtful accounts ..........................................................................

See Notes to consolidated financial statements.

22

1999

1998

1999

¥ 28,902
10,252¥ 31,350
8,329$ 238,860
84,72789,466
1,316
3,493
509
(844)
93,94096,759
605
2,327
349
(1,097)
98,943739,388
10,87628,8684,207(6,974)776,365

70,624
3,604
791
208,11376,510353
931
216,416

583,669
29,785
6,536
1,719,942

25,397
79,535332,365
17,255454,552(325,526)
129,026

25,12578,001
320,5499,226
432,901(317,802)
115,099

209,893
657,3142,746,818
142,6033,756,628(2,690,297)
1,066,331

77,143
2,983

76,143
3,802

637,546
24,653

6,040
1,329
3,149
61,085(877)
150,852¥487,991

5,302
1,275
—
61,341(517)
147,346¥478,861

49,917
10,98326,025504,834(7,248)1,246,710$4,032,983

Thousands of
U.S. dollars (Note 1)

Millions of yen

1999

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Short-term bank loans (Note 5) ...........................................................................
Current portion of long-term debt (Note 5) ....................................................
Notes and accounts payable:
Trade .....................................................................................................................
Unconsolidated subsidiaries and affiliates .....................................................
Other ....................................................................................................................
Accrued income taxes (Note 7) ...........................................................................
Accrued expenses and other .................................................................................
Total current liabilities ......................................................................................

¥

5,809
20,382

1998

¥

5,937
16,263

1999$

48,008
168,446

49,876
886
5,822
4,305
21,181
108,261

59,818
930
5,435
4,989
41,798135,170

412,198
7,322
48,11635,579175,050
894,719

Long-term liabilities:
Long-term debt (Note 5) .......................................................................................
Deferred income taxes (Note 7) ..........................................................................
Accrued retirement benefits (Note 8) ................................................................
Other ..........................................................................................................................
Total long-term liabilities .................................................................................

93,923
2,866
12,684
9,978
119,451

83,292
2,325
11,596
12,613
109,826

776,223
23,686
104,826
82,463
987,198

Minority interests ................................................................................................

370

371

3,058

Commitments and contingencies (Note 10)

Shareholders’ equity (Note 6):
Common stock with par value of ¥50 ($0.41) per share:
Authorized — 700,000,000 shares
Issued and outstanding —363,913,184 shares at March 31, 1999 ...................................................
354,327,992 shares at March 31, 1998 ...................................................
Additional paid-in capital .........................................................................................
Retained earnings .....................................................................................................
Treasury stock at cost .............................................................................................
Total shareholders’ equity ...............................................................................

78,66074,225
107,029
259,914(5)
259,909¥487,991

650,083
73,69467,932
91,877
233,503(9)
233,494¥478,861

613,430
884,537
2,148,050(42)
2,148,008$4,032,983

23

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

Thousands of
U.S. dollars (Note 1)

Millions of yen

Years ended March 31, 1999 and 1998

Net sales ..........................................................................................................................
Cost of sales ...................................................................................................................
(Gross profit) .............................................................................................................
Selling, general and administrative expenses (Note 9) ..............................
(Operating income) ..................................................................................................
Other income (expenses):
Interest and dividend income .................................................................................
Equity in earnings of affiliates .................................................................................
Interest expenses ......................................................................................................
Other, net ...................................................................................................................
(Income before income taxes) ...............................................................................
Income taxes (Note 7)
Current .......................................................................................................................
Deferred .....................................................................................................................
Minority interests in net (income) loss of
consolidated subsidiaries ....................................................................................
Net income ....................................................................................................................

1999

1998

1999

¥336,466
250,195
86,271
59,12327,148¥347,643
259,788
87,85558,95728,898$2,780,711
2,067,728
712,983
488,619
224,3644,464
6(3,269)(4,508)(3,307)
23,841

5,588
16(3,567)(4,762)(2,725)
26,17336,89350(27,017)(37,257)(27,331)
197,033

10,352309
10,661

11,296933
12,22985,554
2,553
88,107(9)¥ 13,17118¥ 13,962(75)$ 108,851

Yen

Net income per share:
Primary ........................................................................................................................
Fully diluted ................................................................................................................

¥36.83
34.56

U.S. dollars (Note 1)¥40.46
37.68

$0.30
0.29

See Notes to consolidated financial statements.

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

Years ended March 31, 1999 and 1998

Balance at March 31, 1997 ...............................................................................
Net income .........................................................................................................
Conversion of convertible debentures .........................................................
Stock issued on exercise of warrants ...........................................................
Cash dividends, ¥9.00 per share ....................................................................
Bonuses to directors and statutory auditors ..............................................
Effect of changes in reporting entity .............................................................
Balance at March 31, 1998 ...............................................................................
Net income .........................................................................................................
Effect of change in accounting for income taxes ........................................
Conversion of convertible debentures .........................................................
Stock issued on exercise of warrants ...........................................................
Cash dividends, ¥9.00 per share ....................................................................
Bonuses to directors and statutory auditors ..............................................
Effect of changes in reporting entity .............................................................
Balance at March 31, 1999 ...............................................................................

Commonstock

Additional
paid-in capital

Retainedearnings¥ 66,131¥ 60,369¥ 82,138
13,962

21
7,542

21
7,542

73,69467,932

6
4,960

6
6,287

¥78,660¥74,225(3,073)(79)(1,071)
91,877
13,171
6,069(3,190)(72)(826)¥107,029

Thousands of U.S. dollars (Note 1)

Balance at March 31, 1998 ...............................................................................
Net income .........................................................................................................
Effect of change in accounting for income taxes ........................................
Conversion of convertible debentures .........................................................
Stock issued on exercise of warrants ...........................................................
Cash dividends, $0.07 per share ....................................................................
Bonuses to directors and statutory auditors ..............................................
Effect of changes in reporting entity .............................................................
Balance at March 31, 1999 ...............................................................................
See Notes to consolidated financial statements.
24$ 609,041$ 561,421

50
40,99250
51,959$650,083$613,430$ 759,314
108,851
50,157(26,364)(595)(6,826)$884,537

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

Thousands of
U.S. dollars (Note 1)

Millions of yen

Years ended March 31, 1999 and 1998

Cash flows from operating activities:
Net income ................................................................................................................
Adjustments to reconcile net income to net cash provided by operating activities –Depreciation and amortization .......................................................................
Provision for doubtful accounts, net .............................................................
Provision for loss in relation to guarantees, net .........................................
Write-down of investment securities ...........................................................
Gain on sales of properties ..............................................................................
Gain on sales of investment securities ..........................................................
Gain on sales of investments in affiliates ......................................................
Loss on sales of investment securities ..........................................................
Increase (decrease) in accrued retirement benefits ..................................
Decrease in notes and accounts receivable .................................................
Decrease (increase) in inventories ................................................................
Decrease in deferred income taxes ...............................................................
(Decrease) increase in notes and accounts payable ..................................
(Decrease) increase in other current liabilities ...........................................
Decrease in accrued income taxes ................................................................
Other, net ............................................................................................................
Net cash provided by operating activities ..................................

1999

1998

1999

¥13,171¥13,962$108,851

15,557(78)—
130(1,512)
—
—
—
1,097
4,979
5,119
361
(9,591)(12,841)(312)(2,799)13,281

14,615
241
792
1,753
—
(587)
(590)
949
(245)
877
(15,245)
1,972
2,366
10,240(2,990)(4,540)23,570128,570
(645)
—
1,074
(12,496)
—
—
—
9,066
41,14942,306
2,983(79,264)(106,124)(2,579)(23,132)
109,759

Cash flows from investing activities:
Acquisitions of property, plant and equipment ...........................................
Decrease in marketable securities .................................................................
Increase in loans receivable .............................................................................
Increase in investments, mainly investment securities
and long-term fixed deposits ......................................................................
Proceeds from sales of properties .................................................................
Proceeds from sales of investment securities .............................................
Proceeds from sales of investments in affiliates ..........................................
Other, net ............................................................................................................
Net cash (used in) provided by investing activities ................

(33,148)
7,656
(953)

(20,599)
28,929(3,447)(273,950)
63,273(7,876)(25,000)
3,353
12,901—
1,960(33,231)(4,939)—34,621599
1,707
36,871(206,612)
27,711
106,620—
16,198(274,636)

Cash flows from financing activities:
Increase (decrease) in short-term bank loans .............................................
Proceeds from long-term debt .......................................................................
Repayments of long-term debt .......................................................................
Proceeds from exercise of warrants .............................................................
Dividends paid .....................................................................................................
Other, net ............................................................................................................
Net cash provided by (used in) financing activities ................

198
31,779(16,113)
9,922(3,190)(6,275)
16,321(22,163)
6,008(56,073)
15,086(3,073)(79)(60,294)

1,636
262,636(133,165)
82,000(26,364)(51,858)
134,885

Effect of exchange rate changes on cash & cash equivalents .........

(182)

(2)

(1,504)

Effect of changes in reporting entities ......................................................

1,363

1,620

11,265

Net (decrease) increase in cash and cash equivalents .......................

(2,448)

1,765(20,231)

Cash and cash equivalents, beginning of period ...................................

31,35029,585

259,091

Cash and cash equivalents, end of period ................................................

¥28,902¥31,350$238,860

See Notes to consolidated financial statements.

25

Notes to Consolidated Financial Statements
Kuraray Co., Ltd. and Consolidated Subsidiaries

Years ended March 31, 1999 and 1998

1. Basis of presenting consolidated financial statements:
These consolidated financial statements are prepared in accordancewith the provisions set forth in the Japanese Securities and Exchange
Law and the related accounting regulations and in conformity withgenerally accepted accounting principles and practices in Japan,
which are different in certain respects to the application and disclosure requirements of International Accounting Standards.
In preparing these consolidated financial statements, certain
reclassifications have been made to the consolidated financial statements issued domestically in order to present them in a form which
is more familiar to readers outside Japan. In addition, certain notes
included herein are not required under generally accepted accounting principles and practices in Japan but are presented as additional
information.
The United States dollar amounts included herein are given
solely for convenience and are stated, as a matter of arithmeticalcomputation only, at the rate of ¥121=$1, the approximate
exchange rate prevailing on March 31, 1999. 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 that or any other rate.
2. Significant accounting policies:(a) Principles of consolidation
These consolidated financial statements include the accountsof Kuraray Co., Ltd. (the ‘Company’) and its significant subsidiaries (the‘Companies’). During the year ended March 31, 1999, the accounts
of Eval Europe N.V. and two other companies have been included inconsolidation, because their effect to consolidated financial statements has become material. On the other hand, the accounts ofKuraray Kyoei Co., Ltd. have been excluded from consolidation,
because the company has been liquidated. Mitsu Country Club Co.,
Ltd. have been merged into Kuraray Fudosan Co., Ltd., one of theconsolidated subsidiaries.
In the case of a change in reporting entity, the consolidated
financial statements are not restated, but the effect of the change toretained earnings at beginning of the period is directly credited toretained earnings during the period.
Investments in unconsolidated subsidiaries and affiliates, withminor exception, are accounted for by the equity method.
The difference between the cost of investments and equity
in their net assets at dates of acquisition is, in principle, being
amortized over five years.
(b) Cash and cash equivalents
Cash and cash equivalents include all time deposits with original
maturities of one year or less, which can be withdrawn at least at
face amount at any time without penalty.
(c) Inventories
Inventories other than supplies are stated at cost principally determined by the weighted average method. Supplies are stated at costprincipally determined by the moving average method.
(d) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation is principally computed by the declining-balancemethod over estimated useful lives of assets, except for buildings.
During the year ended March 31, 1999 the depreciation method forbuildings was principally changed from the declining balance method
26

to the straight-line method and the estimated useful lives of buildings were principally reduced from “35 to 65” years to “31 to 50”
years. The effect of these changes are immaterial.
Estimated useful lives of assets are principally as follows: —Buildings
31 to 50 years
Machinery and equipment 2 to 10 years
The Companies use machinery and facilities under financing
leases without transferring ownership and such leased assets are notcapitalized in the balance sheet in conformity with accounting principles generally accepted in Japan.
(e) Marketable securities and investment securities
Marketable securities and investment securities are principally statedat cost, determined by the moving average method, as determinedby each particular security.
( f ) Bond discounts
Bond discounts, which are included in investments and other assets
on the consolidated balance sheets, are amortized by the straightline method over the life of the bonds.
(g) Income taxes
Accrued income taxes are provided at the amount currently
payable. Interperiod income tax allocation accounting is compulsorily introduced for Japanese public companies from the year ending
March 31, 2000, while the companies adopted it for the year ended
March 31, 1999 and deferred income taxes on temporary differences between the carrying amounts of assets and liabilities forfinancial reporting purpose and the amount used for tax purpose areprovided, beginning balance of deferred taxes being credited to thebeginning retained earnings. The effect of this adoption is toincrease net income by ¥520 million ($4,298 thousand) for the year
ended March 31, 1999 and the effect retained earnings as of March
31, 1999 by ¥6,788 million ($56,099 thousand).
(h) Retirement benefits
The Companies principally have unfunded lump-sum benefit plans
and funded contributory pension plans, generally covering all
employees.
Under the terms of the Companies’ retirement plans, substantially all employees are entitled to a lump-sum payment at the timeof retirement. The amount of the retirement benefits is, in general,
based on the length of service, basic salary at the time of retirement,
and cause of retirement. The liability for lump-sum payments is principally stated at 68% based on the latest actuarial computation of theamount which would be required if all eligible employees voluntarily
retired as of the balance sheet date.
The Companies’ contributory pension plans, which cover those
employees who retire at age principally 60, or have served theCompanies for more than 20 years and retire at age 50 or more,generally provide for pension payments for a period of ten years
subsequent to retirement. The annual provision for these plansincludes current period costs, amortization of prior service costs
over 14 years and interest on the unfunded portion. The provision
is determined actuarially and funded currently through outsidetrustees.
Directors and statutory auditors are entitled, subject to shareholders’ approval, to lump-sum payments under the unfunded
retirement plan. The accrued liabilities for their retirement benefits
are, in general, based upon the amounts which would be required by
the Companies’ internal regulation.

Kuraray Co., Ltd. and Consolidated Subsidiaries(i) Foreign currency items
Foreign currency items are translated into Japanese yen at the rates
in effect at the balance sheet date for current receivables andpayables and at the rates when acquired or incurred for non-current
receivables and payables. Income and expenses in foreign currency
are translated into Japanese yen at exchange rates prevailing at thetransaction dates.
Foreign currency items, which are covered by forward exchange
contracts including currency swap contracts, are translated into
Japanese yen at the contracted rates.
Resulting exchange differences are charged or credited toincome as incurred, except for exchange differences resulting fromthe translation of non-current payables and receivables in foreign
currency hedged by long-term forward exchange contracts including
currency swap contracts which are deferred and amortized over theperiod until the year of maturity of the payables and receivables.
In preparing the consolidated financial statements, assets andliabilities of foreign subsidiaries are translated into Japanese yen at
the rates in effect at the balance sheet date and income andexpenses are translated at the monthly average rate for the year
then ended.
(j) Stock and bond issue expenses
Stock and bond issue expenses are charged to income whenincurred.

(k) Research and development expenses
Expenses relating to research and development activities arecharged to income when incurred.
(l) Net income per share
The computation of primary net income per share is based on theweighted average number of shares outstanding during each financial
period. The computation of fully diluted net income per share is basedon the weighted average number of shares outstanding after consideration of the effect of dilution of common stock equivalents.
(m) Allowance for doubtful accounts
Allowance for doubtful accounts, principally at management’s
estimate of probable bad debts, has in some years exceeded
the maximum amount permitted to be charged to income underJapanese tax regulations. When these amounts are reversed into
income, then, to that extent, they may be deducted from taxable
income for that year.
(n) Allowance for loss in relation to guarantees
An allowance for loss in relation to guarantees, which is included in“accrued expenses and other” in current liabilities has been provided
for future losses in relation to the guarantees at amount determined
after consideration of financial condition of the principal debtors.
(o) Reclassifications
Certain reclassifications of previously reported amounts have been
made to conform with current classifications.

3. Market value information for securities:
At March 31, 1999 and 1998, book value and market value of marketable securities and investment securities, as to which market value information is available to obtain, were as follows: —Thousands of
U.S. dollars

Millions of yen
1999
Book
Value

Marketable securities
Stocks ..................................................................................
Bonds ...................................................................................
Investment securities
Stocks ..................................................................................
Bonds ...................................................................................

¥

1998
Market
Value

1999

Book
Value

Market
Value

Book
Value

Market
Value

419
4,542

¥ 1,847
4,569

¥

424
7,722

¥ 2,106
7,946

$

3,463
37,537$ 15,265
37,76021,182
27,477¥53,620

37,341
27,558¥71,315

21,322
19,246¥48,71439,588
19,636¥69,276

175,058
227,082$443,140

308,603
227,752$589,380

4. Inventories:
Inventories at March 31, 1999 and 1998 consisted of the following: —Thousands of
U.S. dollars

Millions of yen

Finished products .............................................................................................................................
Semi-finished products and work in process.............................................................................
Raw materials and supplies ............................................................................................................

1999

1998

1999

¥47,367
12,867
10,390¥70,624¥46,838
20,063
9,609¥76,510$391,463
106,339
85,867$583,669

27

Kuraray Co., Ltd. and Consolidated Subsidiaries

5. Short-term bank loans and long-term debt:
Short-term bank loans are generally represented by 365-day notes with interest rates principally of 0.98% p.a. at March 31, 1999 and 1998,
respectively.
Long-term debt consisted of the following: —Thousands of
U.S. dollars

Millions of yen

1999
Loans principally from banks and insurance companies with interest rates
ranging from 0.715% p.a. to 5.60% p.a. maturing serially until 2022:
Secured .................................................................................................................................... ¥298
Unsecured .................................................................................................................................
19,916
1.8% yen unsecured bonds due 2003 .......................................................................................
15,0001.8% yen unsecured bonds due 2003 .......................................................................................
5,000
1.8% yen convertible sinking fund debentures due 2003.....................................................
13,957
1.0% yen convertible debentures due 2003............................................................................
9,551
2.2% yen convertible debentures due 2002............................................................................
14,973
4 1/2% United States dollar bonds due 1999 with detachable warrants..........................
—
2 5/8% United States dollar bonds due 1999 with detachable warrants..........................
17,110Floating to fixed rate yen Euro medium term notes due March 5, 2004 ........................
3,000
Floating to fixed rate yen Euro medium term notes due March 4, 2003 ........................
3,000
2.27% yen Euro medium term notes due January 30, 2004 ................................................
500
2.02% yen Euro medium term notes due March 26, 2003..................................................
1,000
2.00% yen Euro medium term notes due February 7, 2003 ...............................................
2,000
Fixed and floating rate yen Euro medium term notes due March 27, 2002....................
1,000
Step-up rate yen Euro medium term notes due April 10, 2007 ........................................
500
Floating rate yen Euro medium term notes due April 22, 2002 ........................................
500
Floating rate yen Euro medium term notes due April 25, 2002 ........................................
1,000
Step-up rate yen Euro medium term notes due June 11, 2007..........................................
600
Floating to fixed rate yen Euro medium term notes due June 18, 2004..........................
3,000
Floating rate yen Euro medium term notes due June 24, 2002 .........................................
2,000
Floating rate yen Euro medium term notes due June 25, 2002 .........................................
400
114,305
Current portion.............................................................................................................................
(20,382)¥ 93,923

The 1.8% yen convertible sinking fund debentures due March 31,
2003, which were issued in Japan in November 1987, can bepurchased at any time in their entirety at the option of theCompany or may be redeemed, at prices declining from 106% to100% of their principal amount from April 1, 1996 until 2003. The
debentures are convertible into common stock of the Company
until March 28, 2003 at the conversion price of ¥1,703.4 ($14.08)
per share.
The 1.0% yen convertible debentures due March 31, 2003,
which were issued in Japan in January 1994, can be purchased at any
time in their entirety at the option of the Company or may beredeemed, at prices declining from 103% to 100% of their principal
amount from April 1, 1999 until 2003. The debentures are convertible into common stock of the Company until March 28, 2003 at theconversion price of ¥1,067.3 ($8.82) per share.

28

1998

¥

377
16,517——
13,9709,551
14,984
8,546
17,110
3,000
3,000
500
1,000
2,000
1,000
500
500
1,000
600
3,000
2,000
400
99,555(16,263)¥83,2921999$ 2,463
164,596
123,967
41,322
115,347
78,934
123,744—
141,406
24,793
24,793
4,132
8,264
16,529
8,264
4,132
4,132
8,264
4,959
24,793
16,5293,306
944,669(168,446)$776,223

The 2.2% yen convertible debentures due March 29, 2002,
which were issued in Japan in February 1995, can be purchased at
any time in their entirety at the option of the Company or may beredeemed, at prices declining from 102% to 100% of their principal
amount from April 1, 1999 until 2002. The debentures are convertible into common stock of the Company until March 28, 2002 at theconversion price of ¥1,036.0 ($8.56) per share.
For the 1.8% yen convertible sinking fund debentures, theCompany is required to contribute to a sinking fund, which amountis reduced by the amount of debentures converted or redeemed,¥1,500 million ($12,397 thousand) on every March 31 for the 6
years ending March 31, 2002. At March 31, 1999, investment securities with a net book value of ¥6,793 million ($56,140 thousand), of
which market value approximates the amount of sinking fundrequirements were deposited with a designated bank instead of theKuraray Co., Ltd. and Consolidated Subsidiaries

sinking fund payment.
The indentures under which the 1.8% yen convertible sinking
fund debentures due 2003 were issued place a limitation on thepayment of cash dividends, which relates, in part, to earnings of theCompany. At March 31, 1999, the amount of retained earnings available for the payment of dividends was ¥106,369 million ($879,083
thousand) under such provision of the indentures.
The indentures under which the 1.0% yen convertible debentures due 2003 were issued place a limitation on the payment ofcash dividends, which relates, in part, to earnings of the Company.
At March 31, 1999, the amount of retained earnings available for thepayment of dividends was ¥71,727 million ($592,785 thousand)under such provision of the indentures.
The indentures under which the 2.2% yen convertible debentures due 2002 were issued place a limitation on the paymentof cash dividends, which relates, in part, to earnings of the Company.
At March 31, 1999, the amount of retained earnings available for thepayment of dividends was ¥72,327 million ($597,744 thousand)under such provision of the indentures.
The holders of warrants issued in conjunction with the 2 5/8%
United States dollar bonds due December 21, 1999 have the rightby way of exercise of warrants to subscribe for shares of common
stock of the Company at ¥1,087.0 ($8.98) per share, which right is
exercisable from January 8, 1996 to December 7, 1999. The amountof warrants remaining unexercised was ¥20,415 million ($168,719
thousand) at March 31, 1999.
The conversion prices of the above sinking fund debentures anddebentures and the exercise prices of the above warrants are
subject to adjustment under certain circumstances, including stock
splits pursuant to the relevant agreements.
The number of shares of common stock required for conversion of the above sinking fund debentures and debentures outstanding at March 31, 1999 at the current conversion prices and forexercising of the above warrants remaining unexercised at March
31, 1999 at the current exercise prices would have been 50,384
thousand.
Bonds with warrants issued on and after April 1, 1994 are
divided into value of warrants and value of bonds. The valueof warrants are included in accrued expenses and other on
the consolidated balance sheets.
The rates of floating to fixed rate yen Euro medium term notes due
March 5, 2004, are as follows:—
January 20, 1997 ~ March 4, 1997
Interpolated JPY LIBOR + 0.125%
March 5, 1997 ~ March 4, 2001
6 month JPY LIBOR + 0.2%
March 5, 2001 ~ Due date
3.70% per annum
The rates of floating to fixed rate yen Euro medium term notes due
March 4, 2003, are as follows:—
January 23, 1997 ~ March 3, 1997
Interpolated JPY LIBOR – 0.15%
March 4, 1997 ~ Due date
2.00% per annum
The rates of fixed and floating rate yen Euro medium term notes
due March 27, 2002, are as follows:—
February 10, 1997 ~ March 26, 1997
1.00%
March 27, 1997 ~ March 26, 1998
4.85% –10 YEAR JPY SWAP RATE (Not less than 0%)

March 27, 1998 ~ March 26, 1999
4.85% –10 YEAR JPY SWAP RATE (Not less than 0%)
March 27, 1999 ~ March 26, 2000
4.85% –7 YEAR JPY SWAP RATE (Not less than 0%)
March 27, 2000 ~ March 26, 2001
4.85% –5 YEAR JPY SWAP RATE (Not less than 0%)
March 27, 2001 ~ Due date
4.85% –3 YEAR JPY SWAP RATE (Not less than 0%)
The rates of step-up rate yen Euro medium term notes due
April 10, 2007, are as follows:—
February 25, 1997 ~ April 9, 2002
2.50% per annum
April 10, 2002 ~ Due date
3.00% per annum
The rates of floating rate yen Euro medium term notes due
April 22, 2002, are as follows:—
March 10, 1997 ~ April 21, 1997
1 month JPY LIBOR + 0.40%
April 22, 1997 ~ Due date
6 month JPY LIBOR + 0.40%
The rates of floating rate yen Euro medium term notes due
April 25, 2002, are as follows:—
March 13, 1997 ~ April 24, 1997
1 month JPY LIBOR + 0.41%
April 25, 1997 ~ Due date
6 month JPY LIBOR + 0.41%
The rates of step-up rate yen Euro medium term notes due
June 11, 2007, are as follows:—
April 24, 1997 ~ June 10, 2002
2.20% per annum
June 11, 2002 ~ Due date
2.80% per annum
The rates of floating to fixed rate yen Euro medium term notes due
June 18, 2004, are as follows:—
May 2, 1997 ~ June 17, 1997
Interpolated JPY LIBOR + 0.125%
June 18, 1997 ~ June 17, 2002
6 month JPY LIBOR + 0.20%
June 18, 2002 ~ Due date
2.80% per annum
The rates of floating rate yen Euro medium term notes due
June 24, 2002, are as follows:—
May 9, 1997 ~ June 23, 1997
2 month JPY LIBOR + 0.50%
June 24, 1997 ~ Due date
6 month JPY LIBOR + 0.50%
The rates of floating rate yen Euro medium term notes due
June 25, 2002, are as follows:—
May 14, 1997 ~ June 24, 1997
Interpolated JPY LIBOR + 0.30%
June 25, 1997 ~ Due date
3 month JPY LIBOR + 0.30%

29

Kuraray Co., Ltd. and Consolidated Subsidiaries

The annual maturities of long-term debt outstanding at March 31,
1999 for the respective years ending March 31 were as follows:—

2000 .....................................
2001 .....................................
2002 .....................................
2003 .....................................
2004 .....................................
Thereafter ..........................

Millions of yen

Thousands of U.S. dollars¥ 20,382
3,621
19,15136,29525,382
9,474¥114,305$168,446
29,926
158,273
299,959
209,768
78,297$944,669

At March 31, 1999, assets pledged as collateral for short-term bankloans and long-term debt were as follows:—
Millionsof yenProperty, plant and equipment,
net of accumulated depreciation ........ ¥21,220¥21,220

Thousands of
U.S. dollars$175,372$175,372

6. Shareholders’ equity:
The Japanese Commercial Code provides that a portion of retained
earnings equal to at least 10% of cash distributions being paid out bymeans of appropriation for retained earnings with respect to eachfinancial period be appropriated as a legal reserve until such reserve
equals 25% of the common stock account.
This reserve is not available for dividends but may be capitalized
by resolution of the Board of Directors or used to reduce a deficit
by resolution of the shareholders.
Under the Code, at least 50% of the issue price of new shares,
with a minimum of the par value thereof, is required to beaccounted for as common stock. The remainder is accounted for as
additional paid-in capital.
7. Income taxes:
The companies are subject to several taxes based on income which,in the aggregate, resulted in a normal effective tax rate of approximately 47.3% in Japan in the period ended March 31, 1999.
Reconciliation of the difference between normal effective tax
rate and income tax rate in the accompanying consolidated statement of income is as follows:
Normal effective tax rate

47.3%

Difference of tax rates between
Japan and foreign countries
Other
Income tax rate per statement of income

(1.5)
(1.1)
44.7%

The significant components of deferred tax assets and liabilities at
March 31, 1999 are as follows:(1)Current:
Millionsof yenThousands of
U.S. dollars
1999

Deferred tax assets
Intercompany profits ............................
Accrued enterprise taxes andother taxes.........................................
Accrued expenses .................................
Other........................................................
Total deferred tax assets ..................

¥1,353$11,182

541
336
1,443
3,673

4,471
2,777
11,92530,355

Total deferred tax liabilities .............

69

570

Net deferred tax assets............................

¥3,604$29,785(2)Noncurrent:
Deferred tax assets
Accrued retirement benefits...............
Other........................................................
Total deferred tax assets ..................

¥2,971
1,547
4,518$24,554
12,78537,339Deferred tax liabilities
Deferred gain on sales of fixed
assets to public sector.....................
Special depreciation ..............................
Other........................................................
Total deferred tax liabilities .............

587
285
497
1,369

4,851
2,355
4,108
11,314

Net deferred tax assets............................

¥3,149$26,025

Deferred tax liabilities
Depreciation...........................................
Net deferred tax liabilities.......................

¥2,866¥2,866$23,686$23,686

Material deferred taxes of the consolidated subsidiaries arepresented as not offset in accordance with the Japanese practice.
8. Retirement benefits:
The total charges to consolidated income for all retirement andpension plans for the years ended March 31, 1999 and 1998
amounted to ¥5,735 million ($47,397 thousand), which include
special amortization of prior service costs of the Company ¥2,182
million ($18,033 thousand), and ¥4,516 million, respectively.
The actuarial value of plan assets under the Companies’ contributory funded pension plans amounted to ¥15,851 million ($131,000
thousand) at the most recent valuation dates.
9. Selling, general and administrative expenses:
Major components of selling, general and administrative expenses
are as follows:
Millions of yen
Account

1999

Freight and storage.......................... ¥12,677
Research and development ........... 12,176
Salaries and bonuses ....................... 16,096
30

1998

Thousands of
U.S. dollars
1999¥12,761 $104,769
12,414 100,628
17,526 133,025

Kuraray Co., Ltd. and Consolidated Subsidiaries

10. Commitments and contingencies:
The Companies were contingently liable with respect to trade notes
receivable discounted or endorsed. The amounts of notes endorsed
at March 31, 1998 was ¥81 million. And the amounts of notes
discounted with recourse at banks at March 31, 1999 and 1998
were ¥14 million ($116 thousand) and ¥15 million, respectively.
The Companies were contingently liable for guarantees, mainly
for bank loans of unconsolidated subsidiaries, affiliates, and others,of ¥921 million ($7,612 thousand) and ¥4,543 million at March 31,
1999 and 1998, respectively.
The amount of guarantees includes that of letters of commitments of guarantees, letters of awareness, and other similar acts.

The future lease payments, including amounts representing interest,
at March 31, 1999 are as follows: —Due within one year....................................
Due later.........................................................

Millionsof yenThousands of
U.S. dollars

¥ 478
749
¥1,227$ 3,950
6,190$10,140

The leased assets at March 31, 1999 are as follows: —Millionsof yenThousands of
U.S. dollars

Accumulated
Cost

depreciation

Net

Net

¥1,0594¥1,063¥1,225
1¥1,226$10,124
8$10,132

11. Lease:
The following is disclosed to conform with an amendment to theJapanese securities and exchange law and relating accounting regulation, which are applicable to the information since 1999.

Machinery andequipment..................... ¥2,284
Other ..................................
5¥2,289(a)Financing Lease
Lease transactions as lessee
Payments of fee for financing leases without transferring ownershipof leased assets to lessee, which are not required to capitalize, were¥474 million ($3,917 thousand) for the year ended March 31, 1999.

Lease transaction as lessor is immaterial.
(b)Operating Lease
The future lease payments under noncancellable operating leases at
March 31, 1999 are as follows: —Due within one year .................................
Due later......................................................

Millionsof yenThousands of
U.S. dollars

¥132
132
¥264

$1,091
1,091$2,182

12. Segment information:
The Companies operate principally within four industrial segments: chemical and synthetic fibers; chemical products; man-made leather,nonwoven fabrics and fastening materials; diversified businesses.
A summary of net sales and operating income and identifiable assets, capital expenditures and depreciation and amortization by industrial
segments for the year ended March 31, 1999 and 1998 are as follows: —Net sales and Operating income
Millions of yen

Year ended March 31, 1999
Chemical and synthetic fibers ...................
Chemical products ......................................
Man-made leather, nonwoven
fabrics and fastening materials ................
Diversified businesses .................................
Total .........................................................
Elimination .....................................................
Consolidated total .................................
Year ended March 31, 1998
Chemical and synthetic fibers ...................
Chemical products ......................................
Man-made leather, nonwoven
fabrics and fastening materials ................
Diversified businesses .................................
Total .........................................................
Elimination .....................................................
Consolidated total .................................

Net sales tooutside customers

Net sales tointersegment¥103,120
142,071

Thousands of U.S. dollars

Net sales

OperatingincomeNet sales tooutside customers

Net sales tointersegment

Net sales

Operatingincome¥ 1,591
1,774¥104,711
143,845¥ 2,686
16,501$ 852,231
1,174,141$ 13,149
14,661$ 865,380
1,188,802$ 22,198
136,372

35,55755,718336,466—¥336,466

421
16,874
20,660(20,660)¥—

35,97872,592
357,126(20,660)¥336,466

4,650
3,512
27,349(201)¥27,148

293,860
460,479
2,780,711—$2,780,711

3,479
297,339
38,430139,455
599,934
29,025
170,744
2,951,455
226,025(170,744)(170,744)(1,661)$— $2,780,711 $224,364¥111,041
150,319¥ 1,466
2,443¥112,507
152,762¥ 3,768
16,54038,80247,481
347,643—¥347,643

524
18,56823,001(23,001)¥—

39,326
66,049370,644(23,001)¥347,643

5,454
3,482
29,244(346)¥28,898
31

Kuraray Co., Ltd. and Consolidated Subsidiaries

Identifiable assets, Capital expenditures and Depreciation and amortization
Millions of yen

Year ended March 31, 1999
Chemical and synthetic fibers ................
Chemical products ...................................
Man-made leather, nonwoven
fabrics and fastening materials .............
Diversified businesses ..............................
Total ......................................................
Elimination and corporate ......................
Consolidated total .............................
Year ended March 31, 1998
Chemical and synthetic fibers ................
Chemical products ...................................
Man-made leather, nonwoven
fabrics and fastening materials .............
Diversified businesses ..............................
Total ......................................................
Elimination and corporate ......................
Consolidated total .............................

Thousands of U.S. dollars

Identifiable
assetsCapitalexpenditures

Depreciation andamortization

Identifiable
assetsCapitalexpenditures

Depreciation andamortization¥ 80,160
151,143¥ 3,919
22,812¥ 3,833
8,212$ 662,479
1,249,116$ 32,388
188,529$ 31,677
67,86835,73951,665
318,707169,284¥487,991

4,525
2,241
33,497—¥33,497

2,178
1,334
15,557—¥15,557

295,364
426,983
2,633,942
1,399,041$4,032,983

37,397
18,521
276,835—$276,835

18,00011,025
128,570—$128,570¥ 86,177
131,814¥ 7,263
9,497¥ 3,124
7,841

31,752
71,139320,882
157,979¥478,861

2,034
2,012
20,806—¥20,806

2,079
1,571
14,615—¥14,615

Disclosures of net sales and operating income and identifiable assets by geographic segments are required effective for the year ended March
31, 1999 are as follows: —Millions of yen
Net sales tooutside customers

Net sales tointersegment

Net sales

OperatingincomeIdentifiable
assets¥309,182
27,284
336,466—¥336,466¥17,920
4,104
22,024(22,024)¥—¥327,102
31,388358,490(22,024)¥336,466¥22,467
5,121
27,588(440)¥27,148¥273,939
48,699322,638
165,353¥487,991

Net sales tooutside customers

Net sales tointersegment

Net sales

OperatingincomeIdentifiable
assetsYear ended March 31, 1999
Domestic (inside Japan)............................................... $2,555,223
Outside Japan ................................................................
225,488
Total........................................................................... 2,780,711
Elimination and corporate ..........................................
—
Consolidated total .................................................. $2,780,711$148,099
33,917
182,016(182,016)$—$2,703,322
259,405
2,962,727(182,016)$2,780,711$185,678
42,322228,000(3,636)$224,364$2,263,959
402,4702,666,429
1,366,554$4,032,983

Year ended March 31, 1999
Domestic (inside Japan)...............................................
Outside Japan ................................................................
Total...........................................................................
Elimination and corporate ..........................................
Consolidated total ..................................................

Thousands of U.S. dollars

Foreign sales consisting of export sales of the Company and its domestic consolidated subsidiaries and the sales of foreign consolidated
subsidiaries for the years ended March 31, 1999 and 1998 totaled ¥93,486 million ($772,612 thousand) and ¥80,175 million, respectively, andaccounted for 28% and 23% of consolidated net sales, respectively.

32

Kuraray Co., Ltd. and Consolidated Subsidiaries

13. Subsequent event:
The Japanese Commercial Code provides that all appropriations ofretained earnings, except interim cash dividends, must be approvedat an ordinary general meeting of shareholders. In accordance withcustomary practice in Japan, the appropriation of retained earnings is
not accrued in the financial statements for the year to which it
relates but is recorded in the subsequent accounting year after
shareholder approval has been obtained. The following appropriations of retained earnings of the Company as of March 31, 1999
were approved by the shareholders on June 29, 1999.

Cash dividends, ¥4.50 ($0.04)
per share .........................................
Transfer to legal reserve .................
Bonuses to directors andstatutory auditors .........................

Millionsof yenThousands of
U.S. dollars¥1,638170$13,537
1,405

62

512

The above year-end cash dividends per share and the interim cash
dividends of ¥4.50 ($0.04) per share paid in December 1998 aggregated the annual cash dividends of ¥9.00 ($0.07) per share.

Report of Independent Accountants
Kuraray Co., Ltd. and Consolidated Subsidiaries

To the Board of Directors and Shareholders ofKuraray Co., Ltd.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, of
shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Kuraray Co., Ltd. andits consolidated subsidiaries at March 31, 1999 and 1998, and the results of their operations and their cash flows for theyears then ended in conformity with accounting principles generally accepted in Japan. These financial statements are theresponsibility of the Company’s management; our responsibility is to express an opinion on these financial statements
based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation. We believe that our audits provide
a reasonable basis for the opinion expressed above.
As discussed in Note 2 to the financial statements, the Company changed its method of depreciation during the year
ended March 31, 1999.

Kohyoh & Co.
(Certified Public Accountants)

Price Waterhouse(Certified Public Accountants)

Osaka, Japan ⁄ June 29, 1999
Notice to readers
The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles andpractices generally accepted in countries and jurisdictions other than Japan. Accordingly the accompanying consolidated balance sheet and related consolidated statements ofincome, shareholders’ equity and cash flows and their utilization are not designed for those who are not informed about Japanese accounting principles, procedures andpractices.
The standards, procedures and practices utilized in Japan to audit such financial statements may differ from those generally accepted in countries and jurisdictions otherthan Japan.

33

Organization(As of June 1999)● Office of Investor Relations
Public Relations and Advertising Department
Affiliated Companies Administration Department
Finance Department
Accounting Department
General Affairs Department
Legal Department
Intellectual Property Rights Department
Personnel Department● Chairman● President● Technology Division● Technology Development Center● Research and Development Division
Kurashiki Research Laboratories
Tsukuba Research Laboratories
Analytical Research Center● Office of Internal Auditors● Office of Corporate Administration
and Planning● New Business Development Division● Office of Secretariat● Fiber and Textile Operations
Administration● Executive Committee
Philanthropy and Ecology Committee
In-house Ethics Committee● Administration Committee● Board of Factory Managers● Textile Division● Industrial Materials Division● Living Goods and Materials Division● K-II Development Business Division● Office of Administration● Production and Technology Division● Board of Subsidiary Company Presidents● Chemicals Operation
Administration I● Poval Division● EVAL Division● Clarino Division● Medical Products Division● Office of Administration● Corporate Auditors/Board of Corporate Auditors● Chemicals Operation
Administration II● Methacrylic Resin Division● Isoprene Chemicals Division● Fine Chemicals Division● Office of Administration● Purchasing and Logistics Division● Tokyo Head Office● Kurashiki Plant● Saijo Plant● Okayama Plant● Nakajo Plant● Tamashima Plant● Kashima Plant
Branch Offices

Directors and Corporate Auditors
Chairman and Representative Director
Hisao Nakamura
President and Representative Director
Hiroto Matsuo
Senior Managing Director
Kenji AndoManaging Directors
Mamoru Yamashita
Masami Sato
Hiromi Maki
Koichi Kushida
Yasuaki Wakui

34(As of June 29, 1999)

Directors

Corporate Auditors
Masayuki Hayashi
Akira Matsuzawa
Tatsuya Nakano
Koichi Nakai
Masahiro Kaihara
Shinsaku Oda
Tsutomu Yabuta
Shobu Minatono
Katsuhiko Kishi
Yosuke Sekiya
Katsumi Ohashi
Tetsuzo Kimura

Jun Inoue
Taiji Naito
Fumio Omori
Teruyuki Ouchi

Kuraray’s History

1920s
1926
• Kurashiki Kenshoku Co. established
1928• Rayon commercialized: production of rayon filament yarn begun at the Kurashiki Plant

1940s
1940
• Chugoku Sangyo Co., Ltd. (now Kuraray
Chemical Co., Ltd.) established1969• Production of polyester filament started at
Saijo Plant

1970s

1986
• Clarino America Corporation, a man-madeleather sales company, established in the U.S.A.
jointly with Marubeni Corp.

1990s

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

1990• “SEPTON” commercialized: production of“SEPTON’ thermoplastic elastomer started at
Kashima Plant

1971• Nonwoven fabrics business started (Kuraray
Chicopee Co., Ltd. established)

1991• Kuraray Europe GmbH established in Düsseldorf, Germany
1995• Kuraray EVAL Europe GmbH established in
Düsseldorf• Kuraray Hong Kong Co., Ltd. establishedNew laboratory of Okayama Plant
1943• Capital participation in Kakuichi Rubber Co.,
Ltd. (now Kuraray Plastics Co., Ltd.)1949• Company name changed to Kurashiki Rayon
Co., Ltd.

1950s
1950
• “KURALON” commercialized: production of“KURALON” staple started
1958• Poval commercialized: production of poval formarket sale started

1960s
1960
• Capital participation in Kyowa Gas ChemicalCo., Ltd., which conducts methacrylic resin
business

Factory for nonwoven fabrics of Kuraray
Chicopee Co., Ltd. (now “Kuraflex” processing plant of Okayama Plant)

1996• Kuraray America, Inc. established in New Yorkas administrative holding company in the U.S.A.
• Kuraray Singapore Pte., Ltd. established, andcapital participation in Poval Asia Pte Ltd

1972• “EVAL” commercialized: production facilities
for “EVAL” resin completed at Okayama Plant• Isoprene chemicals business launched: operation at Kashima Plant started, and productionof polyisoprene rubber begun
1975• Artificial organs business started
1976• NIC (new isoprene chemicals) facilities completed at Nakajo Plant
1977• Kuraray Engineering Co., Ltd. established1978• Advanced into the dental materials field:“CLEARFIL” adhesive dental filler produced

Signing ceremony for establishment ofjoint venture with Nippon Synthetic
Chemical Industry Co., Ltd.
1997
• EVAL Europe N.V. established in Belgium
1998• “KURALON K-II” commercialized
1999• Operations started at Poval Asia Pte Ltd• Operations at EVAL Europe N.V. scheduled tostart in the fall

1961
• Osaka Goseihin Co., Ltd. (now Kuraray
Trading Co., Ltd.) established
1962• Production of poval film started at Saijo Plant
1963• New York Representative Office established(transferred to Kuraray America, Inc. in April
1996)
1964
• Production of polyester staple started at
Tamashima Plant• Kuraray Fudosan Co., Ltd. established• “Clarino” commercialized: production of“Clarino” man-made leather started atKurashiki Plant
1965• European Representative Office established in
Hamburg, Germany (moved to Düsseldorf inJune 1968)“CLEARFIL” adhesive dental filler

1980s
1983
• Cement-reinforcing “KURALON” developed• EVAL Company of America established, andmarketing of “EVAL” resin in the U.S.A. begun(production started in 1986)
1984• Haru-Kuraray GmbH, a man-made leather
sales company, established in Germany jointlywith Marubeni Corp. and Haru Holding &Management GmbH
• Merged with Nippon Velcro Co., Ltd. which
produces hook and loop fasteners

35

Overseas Network

Overseas Business Strategy
As part of its efforts to further expand the scale of its business, Kuraray is actively pushing ahead with global development. We
are expanding our overseas bases, centered on areas where we have highly innovative products, including poval, the EVOH resin“EVAL,” and “Clarino” man-made leather, products for which overseas demand is growing. In line with our strategies of developing products that transcend borders and conducting manufacturing and sales in the areas where the products are in demand, weare creating a four-base network centered on Japan, the U.S., Europe, and Asia. By making the most of its unique products, forwhich global demand continues to grow, Kuraray aims to remain an enterprise which boasts a worldwide business presence.

Kuraray America, Inc.
This is a central holding company established to strengthen activities and increase operational efficiency at our companies in the
U.S. In addition to managing the operations of local subsidiaries,
it conducts sales of Kuraray products, market development, andinformation gathering.

Clarino America Corporation
This company is responsible for the local processing andsales of man-made leather in the U.S. In particular, by utilizing the special properties of “Clarino,” it works toexpand sales for a wide variety of applications.

Kuraray America, Inc.

EVAL Company of America
Demand for the EVOH resin “EVAL” is particularlyhigh as a food packaging material, and since its establishment, this company has carried out successive
increases in production capacity.

EVAL Company of America,
Pasadena Plant

EVAL Europe N.V.
The European production and sales company for“EVAL” resin, which is mainly used as a foodpackaging material.

EVAL Europe N.V.
Ground breaking ceremony in Antwerp, Belgium
36

Kuraray Europe GmbHAs our strategic base in Europe, this company
sells Kuraray products, and provides information gathering and technical services.

Kuraray EVAL Europe GmbHThis company sells the EVOH resin “EVAL”
in Europe, provides technical services tousers, and conducts product development.

Haru-Kuraray GmbH
Imports and sells man-made leather for
clothing and interior goods applications in Kuraray Europe GmbH andEurope, and conducts information gathering. Kuraray EVAL Europe GmbH

Kuraray Hong Kong Co., Ltd.

Kuraray Hong Kong Co., Ltd.
This company is responsible for marketing activities in
China and Southeast Asia, as well as local processing
and sales of Kuraray products such as man-madeleather. It is continuing to develop the East Asian market, which has large growth potential.

Kuraray Singapore Pte., Ltd.
As our strategic base in Southeast Asia, this company
develops new markets for our products, centered on
chemical products, and conducts information gathering.

Poval Asia Pte Ltd
This production company was established in a joint
venture with The Nippon Synthetic Industrial ChemicalCo., Ltd. to meet growing demand for poval resin.

Poval Asia Pte Ltd

Kuraray Specialities Asia Pte., Ltd.
This company is responsible for selling the poval resin
produced by Poval Asia Pte Ltd and for providing technical services.

37

List of Consolidated Companies(as of March 31, 1999)

Company
Head Office
Capital (¥ millions, except where stated)
Business Line

Chemical Products

FibersReihoku Textile Co., Ltd.
Fukui
35
Sizing of raw yarn and processing of
twisted yarn

Activated carbon products

Kuraray Chemical Co., Ltd.
Osaka 600
Production and sales of activated carbon
and related facilities and equipment
Kuraray Plastics Co., Ltd.
Osaka 180
Production and sales of hoses and laminated products

Information, personnel development, etc.
Techno Soft Co., Ltd.
Osaka
20
Technical consulting and technological data
surveyClassroom training
Rolls for OA equipment

Kuraray Niigata Kasei Co., Ltd.
Tokyo 50
Production and sales of methacrylic resin
sheets
Kyosei Chemical Co., Ltd.
Tokyo 50
Production of pigments and dyes
Kamiko Plastic Co., Ltd.
Saitama 14
Molding and processing of methacrylic
resin sheets
Hikari Shoes Co., Ltd.
Chiba
34
Manufacture and sales of shoes

Securir Co., Ltd.
Tokyo 30
Personnel recruiting, dispatch of temporary staff and training
Kuraray Techno Co., Ltd.
Osaka
10
Synthetic fiber production and otheroperations on a consignment basis

Construction, real estate andhousing
Kuraray Engineering Co., Ltd.
Osaka 450
Engineering activities related to plant
construction

Commerce and Distribution

Kuraray Fudosan Co., Ltd.
Osaka 282
Sale and management of land and housing

Kuraray Trading Co., Ltd.
Osaka 500
Exporting, importing and wholesale offibers, chemical products, etc.

Kuraray Interior Co., Ltd.
Osaka 330
Manufacture and sales of high-quality furniture, and interior decoration work

Kuraray Family Products Corporation
Osaka 30
Sales of health foods, basic cosmetics,
clothes, etc.

S. Urabe Associates Architects Co., Ltd.
Osaka 11.25
Architectural design in various fields
Kuraray Saijo Kiko Co., Ltd.
Ehime 10
Manufacture and maintenance of machinery parts

Various health products

Kurashiki Unyu Co., Ltd.
Okayama 20
Transportation and port cargo handling

Kuraray Living Co., Ltd.
Osaka 101.8
Production and sales of packing-related
products

38

Services

Kuraray Travel Service Co., Ltd.
Osaka 20
Travel and insurance agent

Overseas
Kuraray America, Inc.
New York, U.S.A. US$55.03 million
Administrative management of U.S. subsidiaries, market development and salesof Kuraray products
EVAL Company of America
Illinois, U.S.A. US$4.15 million
Production and sales of “EVAL” resin in
the U.S.
Clarino America Corporation
New York, U.S.A. US$0.6 million
Sales of man-made leather in the U.S.
Kuraray Finance America, Inc.
New York, U.S.A. US$0.001 million
Loan finance
Kuraray Europe GmbH
Düsseldorf, Germany DM41 million
Sales of Kuraray products and information gathering in Europe
Kuraray EVAL Europe GmbH
Düsseldorf, Germany DM0.5 million
Sales of “EVAL” resin and developmentof new products in Europe
EVAL Europe N.V.
Antwerp, Belgium BEF800 million
Production of “EVAL” resin
Kuraray Finance Europe Inc.
Amsterdam, Netherlands FLS0.7 million
Loan finance
Kuraray Hong Kong Co., Ltd.
Hong Kong, China HK$4.65 million
Processing and sales of Kuraray products, e.g. man-made leather, in China andSoutheast Asia
Kuraray Singapore Pte., Ltd.
Singapore SP$21.4 million
Marketing of Kuraray products and information gathering in Southeast Asia

Kuraray Singapore Pte., Ltd.
and Kuraray Specialities Asia
Pte., Ltd.

The Kurashiki Kokusai Hotel, Ltd.
Okayama 450
Management of hotels and restaurants

Poval Asia Pte Ltd
Singapore SP$40.0 million
Production of poval resin

Iruma Country Club Co., Ltd.
Saitama 40
Management of a golf course

Note• The above list is limited to consolidated
subsidiaries.

Corporate Data

Kuraray Co., Ltd.
Established: June 24, 1926
Capital: ¥78,659 million
Shares: Authorized 700,000,000 shares
Issued363,913,184 shares
Number of Shareholders: 26,022(as of March 31, 1999)

Offices, Laboratories, Plants
Head Offices: Osaka, Tokyo
Offices: Nagoya, Fukui, Fukuoka,
Sapporo, Sendai
Laboratories: Kurashiki, Tsukuba
Plants: Kurashiki, Saijo, Okayama,
Nakajo, Tamashima, Kashima

Principal Shareholders
The Sumitomo Trust and Banking Co., Ltd.
The Mitsubishi Trust and Banking Corporation
Nippon Life Insurance Co.
The Industrial Bank of Japan, Ltd.
The Meiji Mutual Life Insurance Co.
The Fuji Bank, Ltd.
The Dai-ichi Mutual Life Insurance Co.
The Chase Manhattan Bank, N. A. London S. L. Omnibus
Account
The Sumitomo Bank, Ltd.
The Yasuda Trust and Banking Co., Ltd.

Transfer Agent
The Sumitomo Trust and Banking Co., Ltd.
Stock Transfer Agency Department
4-5-33, Kitahama, Chuo-ku, Osaka 540-8639
TEL: 81-6-6833-4700

39

Head Offices
Osaka: Shin-Hankyu Bldg., 1-12-39, Umeda, Kita-ku, Osaka
530-8611, Japan
Tel. 81-6-6348-2111. Fax. 81-6-6348-2165
Tokyo: Kuraray Nihonbashi Bldg., 3-1-6, Nihonbashi, Chuo-ku, Tokyo
103-8254, Japan
Tel. 81-3-3277-3111. Fax. 81-3-3277-3295