Annual Report 2009
For the year ended March 31, 2009

Kuraray was established in 1926 to commercialize the chemical
fiber rayon, which was state-of-the-art at the time.
As a pioneer in Japan’s emerging synthetic
fiber production industry, the company moved to the industry
forefront in 1950 with the accomplishment of commercial
production of polyvinyl alcohol (PVA) fiber KURALON.
Over the last half century, Kuraray’s technological expertise has developed
numerous distinctive products that have expanded its presence
in markets worldwide. In particular, several of our current products
command the top share in the global market: including man-madeleather CLARINO; poval resin, offering outstanding adhesive properties
and water solubility; optical-use poval film, an indispensable element
in liquid crystal displays (LCDs); and EVAL resin, a high gas barrier resin
used for food packaging and fuel tanks.

Contents
1
2
4
6
10
14
16
17
76
77

To Our Shareholders
Consolidated Financial Highlights
Business Overview
Interview with Kuraray President Fumio Ito
Kuraray Topics
Corporate Governance, Internal Control
Board of Directors, Corporate Auditors, and Executive Officers
Financial Section
Consolidated Companies
Investor Information• Please follow the link http://www.kuraray.co.jp/en/csr

for information on our CSR activities.
• For all other information, please visit our website at

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

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

To O u r S h a re h o l d e r s(left)

Yasuaki Wakui(Representative Director and Chairman)(right)Fumio Ito

(Representative Director and President)

We thank you for your continued support of the Kuraray Group.

From the current fiscal year, Kuraray has launched a three-

Our business environment in our 128th fiscal term (from April

2009-2011 period). Under the plan, Kuraray will tackle (1)1, 2008, to March 31, 2009) rapidly deteriorated fromthe improvement of the profit structure damaged by the

October last year due to an unprecedented economic crisis

global recession, (2) the creation and expansion of new busi-

that originated from the U.S. financial market turmoil. In

nesses and (3) the acceleration of the global strategy fororder to overcome such a situation, Kuraray promoted suchcore businesses. In fiscal 2011 or the final year of the action

emergency measures as a principled freeze on new capitalplan, Kuraray will try to restore the profit structure goal

investment, production adjustments meeting falling demand,

given in the GS-21 plan. With an eye to achieving a net sales

redoubled efforts to curtail production costs and SG&A

target of ¥1 trillion as specified in our 10-year Corporate

expenses, reduction of inventories, and pay cuts for directors

Vision, Kuraray would like to see the action plan leading toand executive officers. We made maximum efforts to realize

its sustainable growth toward a specialty chemical company

early earnings recovery.

featuring a strong presence.

However, the impact of the fast demand drop and theRegarding distribution of profit, Kuraray plans to keep thecost expansion on production cuts has been great, and as adividend payout ratio at 30% or more of consolidated net

result, Kuraray posted declines in both consolidated rev-

income.

enues and profit, with net sales at ¥376.8 billion, operating
income at ¥29.3 billion, and net income at ¥13 billion.
Kuraray has been working to attain the three-year medium-term business plan “GS-21” from fiscal 2006. The

The dividend for the end of fiscal 2008 is planned at ¥10
per share. Annual dividend payments, including interim dividends, will total ¥22 per share, unchanged from theprevious fiscal year.

Company made some achievements by steadily implementing measures cited in the plan. However, Kuraray failed to

We ask for the continued understanding and generous sup-achieve goals in the plan as noted above.

port of our shareholders.

1

To Our Shareholders

year action plan named “GS-Twins” (for the fiscal

Consolidated Financial Highlights
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of
U.S. dollars(Note 1)Millions of yen

FY20082009

FY20072008

FY20062007

FY20052006

FY20042005

FY20032004

FY20082009

Net sales
Cost of sales
Selling, general and administrative expenses
Operating income¥ 376,777¥ 417,601¥ 385,284¥ 375,072¥ 354,874¥ 332,149$ 3,844236,245

2,815

Net income
Capital expenditure
Depreciation and amortization
Gross cash flow
Total research and development expenses
Total assets
Total current assets
Total tangible fixed assets
Total current liabilities
Total noncurrent liabilities
Total shareholders’ equity (Note 4)
Total net assets (Note 4)

Years ended March 31

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

275,912295,220

275,885

266,283

254,11471,58574,25069,17870,512

67,572

67,857730

29,28048,13040,22038,27733,18628,045298

12,98425,554

22,412

21,185

18,465

15,181

132

38,92542,72037,70033,87145,71532,164397

37,14731,48525,49525,18521,323

20,784379

50,131

57,04047,90846,37139,78835,966511

16,35815,25013,021

14,06813,873

13,683

166

471,874

490,365

508,694

481,357

454,940

413,227

4,815

201,358

196,282

217,970

200,667

182,317

171,4282,054

181,020

192,362

174,151

159,396

158,293

137,867

1,847

69,041

89,074

94,404

79,22884,85675,165704

77,81656,45755,69760,64654,90037,689

794

—

—

—

339,127

312,929

300,306—

325,016

344,833

358,592

—

—

—

3,316

¥ 224,332¥ 243,784¥ 201,221¥ 190,753¥ 167,264¥ 155,920$ 2,289

37,06550,18035,64331,86828,42025,203378

96,116105,235

107,924

109,106

109,828

106,003

980

883

6,856

7,985

9,450

7,920

5,331

9

56,327

68,581

76,13875,21377,781

70,225

574

4,376

6,237

7,945

8,456

7,332

8,000

44

Net income:Primary
Fully diluted
Cash dividends applicable to period
Total shareholders’ equity
Financial ratios:
Cost of sales ratio (%)
Equity ratio (%)
Return on equity (ROE) (%)
Return on assets (ROA) (%) (Note 5)
Payout ratio (%)
Number of employees

U.S. dollars(Note 1)

Yen

Amounts per share:¥ 37.29¥ 72.15¥ 60.95¥ 57.51¥ 50.13¥ 40.81$ 0.38

37.26

71.99

60.80

57.41

50.12

—

0.38

22.00

22.00

18.50

15.00

12.00

10.00

0.22

924.48981.82967.80922.65852.26817.57

9.43

73.2%

70.7%

71.6%

71.0%

71.6%

71.1%

68.2

69.7

70.0

70.5

68.8

72.7

3.9

7.3

6.4

6.5

6.0

5.2

6.1

9.6

8.1

8.2

7.6

6.7

59.0

30.5

30.4

26.1

23.9

24.5

6,861

6,770

6,812

6,842

6,919

6,760

Notes: 1. The United States dollar amounts represent the translation of Japanese yen at the rate of ¥98 = $1.
2. Certain reclassifications of previously reported amounts have been made to conform with current classifications.
3. Since the year ended March 31, 2004, the “Amounts per share” figures have been calculated in accordance with the Japanese Financial AccountingStandard “Accounting for Earnings per Share.”
4. Since the year ended March 31, 2007, the balance sheet is divided into sections on assets, liabilities, and net assets in accordance with AccountingStandards Board of Japan “Accounting Standard for Presentation of Net Assets in the Balance sheet” and “Guidance on Accounting Standard for
Presentation of Net Assets in the Balance Sheet.”
5. Return on assets=Operating income / Average total assets x 100 (%)
Figures rounded down to the nearest million of yen & US dollars.

2

Kuraray Annual Report 2009¥ Million, %

07

08

FY

04

05

06

07

08

07

08

FY

3.9

3.8

¥ Million

07

08

07

07

08

18.50

471,874

¥

15.00
12.00

08

FY

04

05

06

¥ Million

The Domestic Naphtha¥ Thousand/kl
69

33,871

4.3

57
49

3.7

3.4

06

Cash Dividends per Share

325,016

344,833

490,365

508,694

481,357

06

Capital Expenditure

16,35815,25005

05

Total Shareholders’ Equity
Total Net Assets
Total Assets

45,715¥ Million, %13,021

13,87314,068R&D Expenses &R&D Expenses Ratio

04

04

38,92506

42,72005

37,70004

Gross Cash Flow = Net income + Depreciation and amortization

358,592

312,929

339,127454,940

47,90846,37139,788FY

25,554

12,984FY

Net Income
ROE

Total Shareholders’ Equity,
Total Net Assets & Total Assets

50,131

57,040¥ Million

22,412

7.8

Operating Income
Operating Income Margin

Gross Cash Flow

21,185

18,465

3.9

10.4

22.00

06

29,280

11.5

6.4

22.00

05

7.3

6.0

9.4

04

¥ Million, %

6.5

10.2

FY

Net Income & ROE

40,22038,27733,186

376,777

417,601

385,284

375,072

354,874

Operating Income &Operating Income Margin
48,130¥ Million

Consolidated Financial Highlights

Net Sales

39
31

FY

04

05

R&D Expenses
R&D Expenses Ratio

06

07

08

FY

04

05

06

07

08

FY

04

05

06

07

08

Figures are track record (average result) of Kuraray3

Business Overview

Business Segment

Results by Business Segment

Chemicals and Resins
Net Sales

Operating Income*Sales and earnings decreased in the Chemicals and Resins
Business. Optical-use poval film was affected by an inventory
correction of LCD panels. Sales of Poval resins for processing
fibers and textiles, processing paper, and polymerization agent

60%

88%

of vinyl chloride resin have been sluggish in Asia since October¥224,332¥37,065

glass remained favorable. In business of EVAL, an EVOH resin,

millionmillionthe sales for gasoline tank applications have significantly fallen

2008. For PVB film, the demand for interlayers for architecturaland the demand for food packaging applications also declined.
The sales volume of SEPTON thermoplastic elastomer
decreased due to a drop in demand. Sales of specialty chemicalremained sluggish. The business of methacrylic molding materials etc. saw a big drop in demand and more severe conditions
since October 2008.

Fibers and Textiles
Net Sales

Operating Income*

The Fibers and Textiles Business recorded lower sales and earnings. The overseas demand for KURALON for FRC (Fiber
Reinforced Cement) as an alternative to asbestos remained
firm, however, the demand for automobile brake hoses

25%

remained sluggish. In CLARINO man-made leather business,2%

the sales volume for shoe and other applications decreased,¥96,116¥883

which forced us to make a production cutback. The demand

millionmillionfor nonwoven fabrics and hook and loop fasteners remained
favorable mainly in Japan, but sales have been affected by theslump in industrial material applications.

High-Performance Materials, Medical Products and Others
Net Sales

Operating Income*The High-Performance Materials, Medical Products and Others
Business recorded lower sales and earnings. Sales of dental
materials expanded in the United States, Europe and otheroverseas regions, however, sales decreased as a result of the

15%

10%

¥56,327¥4,376

millionmilliontransfer of the dialysis business to Asahi Kasei Kuraray Medical
Co., Ltd. The sales volume of GENESTAR heat-resistantpolyamide resin significantly decreased due to a sharp drop in
demand of mobile phones and personal computers. In the
Water Purification Business, sales of activated carbon remained
steady mostly with respect to domestic filtration plants.

* The figures for operating income exclude ¥13,044 million which was incurred from the elimination on consolidation and from corporate-wide expenses.

4

Kuraray Annual Report 2009

Major Products / Primary Applications

Textiles, paper additives, adhesives,
PVB resin precursor<< MOWITAL (PVB resin)

Coating compunds, inks, ceramic binders<< EVAL resin (EVOH resin) /EVAL film (EVOH film)
Food packaging materials, plastic fuel tanks<< Isoprene chemicals

Pharmaceutical and agrichemicalintermediates, vitamin precursor<< KURALON (PVA fiber) /KURALON K-BB (New type of PVA fiber)
Agriculture and fishery materials, civilengineering materials, Cement reinforcing
agents / woven and knitted textiles<< KURAFLEX (Dry-laid nonwoven fabric) /Melt-blown nonwoven fabric
Wiping materials, wet wipes, surgical masks /Coffee bags, filters<< PVA film

Computers, LCD televisions, monitors<< TROSIFOL (PVB film)

Laminated safety glass<< SEPTON, HYBRAR(Thermoplastic elastomer)
PVC and vulcanized rubber substitute,food packaging materials<< PARAPET (Methacrylic resin) /Methacrylic sheets
Resins for molding, light guides plates,
synthetic marble / Signboards, displays<< CLARINO, AMARETTA(Man-made leather)
Shoes, bags, sporting goods,
luxury clothing, interior furnishings

Business Overview<< POVAL, MOWIOL (PVA resin)<< VECTRAN (Polyarylate fiber)

Rope, fishing nets,
and other industrial products<< Polyester staple / Polyester filament<< MAGIC TAPE (Hook and loop fastener)

Clothing, shoes, car seats<< GENESTAR(Heat-resistant polyamide resin)Electronics parts, auto parts<< Dental materials

Dental adhesives, dental filling materials

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

Water purification facilities, gas separators,
capacitor materials

5I n t e r v i e w w i t h K u r a r a y P re s i d e n t F u m i o I t oQAWhat is the status of the 10-Year Corporate Vision?

The 10-Year Corporate Vision we launched inachievement of our quantitative goal. However, the eco-fiscal 2006 sets a clear growth target of ¥1

nomic conditions have no effect on our core values andtrillion in net sales as the hallmark of our glob-

determination to realize sustainable growth centered on

al presence as a specialty chemical company.
The worldwide economic crisis that materialized in the latter half of fiscal 2008 will undoubtedly delay the6

Kuraray Annual Report 2009quality. We are taking steps to quickly reconstruct theCompany’s profit structure to regain our momentum towardattaining ¥1 trillion in net sales.

Why ¥1 trillion in net sales?

The target was set as an easily identifiable feature

Since Kuraray’s inception, our corporate culture has centeredof a chemical company with a global presence.

on “contributing to the world and individual well-being throughThe distinctive features of Kuraray’s businesses

actions that others are unable to produce.” We are seeking to

put us in a unique position for addressing environmental issues

achieve sustainable growth into the long-term by applying ourand other needs of society. The challenge to become a ¥1 trillion

innovative technologies to provide effective solutions for the

corporation is a manifestation of our desire to broaden the con-environmental issues facing our planet today, such as global

tribution we can make to society through our operations.

warming, the depletion of natural resources, water and foodThe ¥1 trillion figure is a vision for our Company as we would

shortages, and environmental pollution, and to realize harmony

like it to be in the future and is not a growth target to be

between the environment and society in all business activities.

achieved solely by our current business segments. We intend to

Each of the new business fields we are focusing on-new

attain this goal primarily by expanding our core business global-

energy, water treatment, and environmentally friendly mate-ly and developing new business themes. We anticipate market

rials-focuses on specific aspects of these global issues. We

growth overseas as newly emerging economies fill out their

aim to exercise our accumulated technical and market-relat-

growth potential which will lessen the domestic percentage ofed knowledge and maximize our value-creating potential to

our overall business while our operations expand in the North,amplify our growth capabilities and fulfill our objective ofCentral and South America and across Asia.

becoming a trillion-yen corporation.

Q
A

What are the main strategies of the “GS-Twins”
medium-term action plan?
The primary objectives of the “GS-Twins” plan
are to reestablish the Company’s profit struc-a) Improve the business portfolio (reduction of and withdrawal from less profitable business fields)

ture, which eroded severely during the

Each product field is under review, and we intend to elimi-

economic crisis, to set us back on track toward the targets

nate any product field that does not show future promise.

set in the “GS-21” and to lay the essential groundwork for

We are also examining whether products would be able to

the key elements in Company’s further growth: the develop-

survive in shrinking markets.

ment and expansion of new businesses and acceleration ofb) Make effective investments in facilities (selection of invest-

the global strategies for the core business.

ment projects)
We are applying zero-base budgeting to our capital investments

The key initiatives are the following.

and reviewing scrutinizing each investment in terms of necessity

1. Improve the Profit Structure

and urgency. We also plan to review our existing facilities andWe are focusing on five key areas for improving the profit structure.

equipment in light of the market trends and will scale down our
7Interview with Kuraray President Fumio ItoQAequipment inventories by retiring or disposing of equipment

valuable materials. In the energy sector, we are concentratingthat will not be beneficial as our business evolves.

on new energies, particularly solar energy (solar cell panelc) Improve cash flow (reduction of inventory)

encapsulant, etc.) and hydrogen energy (fuel cell materials,

A deteriorating balance sheet during a serious economic crisisetc.). Our focus in new optical and electronic materials is on

is a sign that the company’s sustainability is in danger. Risinglighting components, transparent conductive film, and otherinventories become a threat to bloat working capital andmaterials that we are aiming to rapidly bring to market.

erode the financial position. Kuraray’s inventories are current-

We anticipate rapid growth in each of these important

ly in the ¥70~80 billion range. Reducing this amount by 25%

market sectors and are forming concrete strategies towould secure roughly ¥20 billion in cash. We are coordinat-

expand our presence and develop the associated businesses

ing our production and sales activities to reduce inventories

into key Company operations. To this end, we are concen-

as much as possible. At the same time, we are maintaining

trating management resources and gathering the Group’s

strict control of inventories by closely monitoring sales trends

strengths around these fields.

and appropriately adjusting production activities.
d) Improve break-even point through thorough reduction of

3. Accelerate the Global Core Businesses Strategies

expenses and costs (particularly reduction of the fixed cost)

We aim to expand our regional businesses for our vinyl

The plummet in demand has intensified market productacetate-related products and other globally competitive corecompetition. To remain competitive, we must radicallymaterials by further cultivating our presence in currently

reduce our overall business costs in all areas, including capi-

existing markets and through M&A and accelerated businesstal investment, personnel, and expenses. While taking steps

development in emerging markets.

to lower fixed costs, we are also aggressively implementing

In the vinyl acetate-related businesses, for example, we cur-strategies to maximize profitability, such as reducing raw

rently have no production base for polyvinyl alcohol (PVA)

material and fuel costs and maintaining our product prices,with the aim of improving the break-even point ratio.
e) Downsize its organization and optimize its personnel
Although varying by business, our overall average utilization
rates decreased by 50% in the fourth quarter of fiscal 2008.

Finite natural
resources

Shortages offood and water

Global-scale challenges

The sharp erosion in the break-even point ratio and the needto achieve profit from just 80% of sales requires that we act

Global Warming Environmental
Pollution

swiftly to optimize our human resources and apply the same
intense scrutiny as with our equipment inventories.
New energy-related
businesses

2. Create and Expand New Businesses

Aqua businesses

Environmentally friendly
materials businesses

We are applying management resources to key areas withhigh market growth and potential applications for the company’s technologies with the aim of creating and developing

Green & Safty :the next generation of environment-related businesses.

Growth & Sustainability : Pursue growth and sustainability

Focus on environment and safety

In the environment sector, we are focusing on and specializing in sewage treatment and recycling and the recovery of
8

Kuraray Annual Report 2009

Year 2011 Restore the highly profitable structure emphasized in “GS-21”
Year 2018 Promote our growth to be a ¥1 trillion company

resin in the United States, and we have not yet established

GS-Twins medium-term action plan. Accidents and injuries

production bases for EVAL ethylene vinyl alcohol (EVOH) resin

are detrimental to the individual and the company and ulti-

to supply the vast markets of India and China. At the samemately lead to a great loss. From now, such irregulartime, one of our specific objectives is to establish full-fledged

activities as the subsequent reduction in output, redevelop-

production bases for Polyvinyl butyral (PVB) in Asia, Northment, production test and others are expected to increase.

America, and Japan, since PVB is only produced in Europe.

For the safety of our employees, we are placing special

and have signified this priority with the S in the title of ourQAemphasis on verifying and reverifying the safety of all out
operations.

What are the financial, capital, and shareholder return policies
under GS-Twins?
Improving capital and asset efficiency remain

The GS-21 plan set specific targets of providing a dividend

as important issues. Amid the current world-

payout ratio of 30% or more and maintaining a 70% share-wide economic climate, our top priority isholder return ratio (combining dividends paid and shareelevating operating income to the ¥50 billion level that wasbuybacks). The newly adopted GS-Twins plan reiterates ourthe objective of the previous GS-21 plan. Regaining this levelcommitment to maintaining our 30% or more dividend pay-of income will improve other indicators of capital and asset

out ratio. In the current economic conditions, however, we

efficiency, indicated by ROE*1 and ROA*2.

believe it prudent to judiciously examine the financial situa-

We are also endeavoring to improve the balance sheet.

tion when considering buying back Company shares. While

Under the present economic conditions, we believe this cangiving full consideration will be given to our business per-be best done by securing cash. Our financial standing is one

formance, cash status, and other factors, we are concerningof the Company’s strong points and is such that we canto maintain a suitable dividend amount as we recover frommaintain a healthy 50% equity ratio even if we were to pro-the recent plummet in business results and reestablish acure as much as ¥200 billion through loans and other debt.

growth trajectory for the Company.

We plan to leverage our strong financial position to conduct

Notes:
1. Return on equity (ROE) = Net income / Average shareholders’ equity X 100 (%)
2. Return on assets (ROA) = Operating income / Average total assets X 100 (%)

opportune and carefully selected investment, including
M&A, to expand our business.

9

Interview with Kuraray President Fumio Ito

In addition, we are highlighting “Safety” in our operations

K u r a r a y To p i c s (Quoted from Kuraray news releases in FY2008)

Kuraray Asia Pacific Established
Kuraray Asia Pacific Pte. Ltd. was established on July 1, 2008, as a hub for Kuraray
Group activities in the Asia Pacific region. The company will conduct a wide range of
operations including the production and sale of polyvinyl alcohol (PVA) resin and thesale of a various chemical products including polyvinyl butyral (PVB) resin and film andrelated chemicals in the Asia Pacific region.
Kuraray Asia Pacific was established to advance the Group’s objective to broaden
operations beyond conventional general-purpose PVA resin products and promote higher value-added products to meet the increasingly sophisticated user needs. The company
also expands the Group’s business horizons beyond PVA resin to new businesses for PVB
resin and film and related products. Kuraray Asia Pacific will serve as an operational hub
for Kuraray Group and support the Group’s development of the rapidly growing markets in Asia and Oceania, including China and India.

Kuraray Asia Pacific Pte. Ltd.

Overview of Kuraray Asia Pacific Pte. Ltd.
Company name:
Kuraray Asia Pacific Pte. Ltd.
Capital:
US$27,775,000 (Kuraray 100%)
President
Shinzo Takemura
Location:
Pulau Sakra, Singapore
Business activities: Production of PVA resin
Sale of PVA resin and other Kuraray Group products in the Asia Pacific Region
Production facilities: PVA resin production facilities: 40,000 tons/year

2008

First
st5 Quarterte6

4

Earthquake Relief Funds
Donated to Sichuan, China

Dedication Ceremony Held for the New GENESTAR
Production Facility

Kuraray presented a ¥5 million monetary donation to help with relief following the large
earthquake that struck Sichuan Province, China.

On June 4, 2008, Kuraray held a ceremony commemorating the completion of
construction of new production facilities at the Kashima Plant in Kamisu City,
Ibaraki Prefecture, for the heat-resistant polyamide resin GENESTAR. The newfacility adds 5,500 tons of annual production output of GENESTAR.
Developed from proprietary Kuraray technologies and commercialized in 2000,
the heat-resistant polyamide resin GENESTAR is receiving increased attention as a
cutting-edge material enabling lead-free processes in the electric and electronic
fields. In addition, it has the potential to attract increasing demand from the automobile parts manufacturing and other new fields.

New production
facilities for resin
GENESTAR

Production Facilities

GENESTAR

Monomernonane-diamine

GENESTAR

10

Kuraray Annual Report 2009

Previous capacity

Kashima Plant

Expansion
2008 operation

5,500

KURARAY SAIJO CO.,LTD.
Total
Kashima Plant

5,500
5,500
3,000

Total

3,000

5,500
11,000(shutdown)
7,000
7,000

Kuraray Homepage Redesignedand Enlarged

Winners of the Sixth PARCASSIO Beautiful Legs
Awards Announced

The newly designed Kuraray homepage at
www.kuraray.co.jp/en/ was launched on August21, 2008, with easier to use functions and an
expanded information access. The new functionality includes scalable font sizes, categorized news
and topics for easier information searches, andrevised content and expanded information forinvestors.

Kuraray announced the winners of the sixth PARCASSIO Beautiful Legs Award
honoring women with healthy and beautiful legs. PARCASSIO is a premium
man-made leather developed by Kuraray that enhances the features while maintaining the texture of natural leather. We advanced our tanning process
technology for the material surface, enabling the achievement of subtle silhouettes that had been difficult to accomplish with natural leather while also giving
the material durability that is ideally suited to shoes. The expanded possibilities
for shoemaking that PARCASSIO offers has launched a new era of shoe design
to enhance the beauty of legs.
The award and order-made PARCASSIO high-heel shoes were presented toactress Ryoko Hirosue, actress Asaka
Seto, actress Miki Maya, and volleyball
player Kaoru Sugayama.

Current web site

Former web site

The award winners

89Secondon
Quarterrt

Kuraray Topics

7

Shoe of the recipients of the
Beautiful Legs Awards

Dental Materials Sales Network Augmented inEuropeKuraray and Kuraray Medical Inc. established new marketing bases in the
Netherlands and Italy on July 1, 2008, to augment the dental materials sales network in Europe.
Dutch distributor made into wholly owned subsidiary
Kuraray acquired all outstanding shares of Acacia Dental Trade & Marketing,Kuraray Medical’s distributor in Benelux countries, and converted the company
to a wholly owned subsidiary of Kuraray Europe GmbH (KEG), Kuraray’s
European subsidiary. KEG assumed Acacia’s local commercial rights, thereby bolstering its capabilities as the European marketing base for the Group’s dental
materials.
Italian subsidiary established
The Company established and launched activities at Kuraray Dental Italia S.r.l., a
new wholly owned subsidiary of KEG, for marketing and technical services in
Italy. Kuraray Medical terminated its agreement with its previous distributor in
the country, and KEG began conducting direct sales in Italy in January 2009.
Kuraray Medical’s core business is developing and marketing dental materials
with focus on dental fillings and adhesives that are natural looking and durable.
In recent years, Kuraray Medical has been leveraging its high level of expertise,
honed in the demanding Japanese market, to drive its global business expansion.
In the three years (FY2005-2007), Kuraray Medical has increased the overseas
sales share of its dental materials business from 52% to 60%.

11

India Subsidiary Established
Kuraray established a subsidiary company in India to meet the accelerating development of
the local market.
Company name:Location:
Representative:
Capital:Kuraray India Private Limited
Saket, New Delhi, India
Shinichi Sato
72 million rupees(Kuraray 100%)
Establishment:
September 19, 2008
Business activities: Market development and sales of Kuraray Group products in India

PVB Resin-RelatedIntellectual Property
Acquired
Kuraray Europe GmbH (KEG) enteredinto a contract to acquire PVB resinrelated intellectual property from a
subsidiary of German chemical maker
Wacker Chemie AG. Under the contract, KEG will acquire patents,
technical expertise, and brand nameusage for its core PVB resin operation.
Intellectual property acquired:
1. Manufacturing and application
patents for specialized PVB resins
2. Technical expertise for the manufacture and use of specialized PVB
resins
3. The PIOLOFORM brand of PVB
resins10

11 Quarter
12
Third
rd
te

KURALON Fiber Manufacturing Facilities Completed and Commenced
Operations
Kuraray completed the expansion construction and commenced operations at the Okayama Plant in
December 2008. Production capacity was increased by 5,000 tons annually, raising the plant’s KURALON(PVA fiber) production capacity to 40,000 tons annually.
With regulations worldwide coming into force limiting the use of asbestos, demand is growing for
KURALON fiber-reinforced cement (FRC) materials for use as a building materials, such as for residential
roofing. In addition to the existing markets centered on Western Europe and Japan, the market for
KURALON is expected to expand substantially in Eastern Europe, Asia, and Central and South America.

Roofs and walls using KURALON

12

Kuraray Annual Report 2009

Kuraray Group Marketing Base Establishedin Northern Europe
Kuraray Europe GmbH (KEG) established a new subsidiary in Finland
to reinforce the Group network in Europe and accelerate market
development in Eastern Europe.
Company name:Location:
Representative:
Capital:Establishment:
Business activities:

Kuraray Nordic Ab Oy
Vantaa (Helsinki), Finland
Keijo Oksanen€50 thousand (KEG 100%)
December 19, 2008
Marketing development and sales of Kuraray
Group products in Northern Europe

Kuraray Selected as One of the Global
100 Most Sustainable Corporations in theWorld for the Fifth Consecutive Year
The Global 100 Most Sustainable Corporations in the World are
selected by Canadian publisher Corporate Knights Inc. fromapproximately 1,800 leading corporations worldwide based on
evaluations conducted by the U.S. investment research firm
Innovest Strategic Value Advisors Inc. in such areas as environmental, social and corporate governance activities. Kuraray has
been selected as one of the Global 100 Most Sustainable
Corporations in the World in each of thefive years of the existence of the list.
Kuraray’s continued selection to the list of
the most sustainable large corporations in
the world is in recognition of the Company’s
long-established balance of environmental,social, and corporate governance activities
along with its commitment to corporate sustainability.

Global 100 logo

1

Fourth
rt2 Quarter
rt3

Kuraray Topics

2009

Kuraray Supports the Tetsuya Utsumi School
Bag Foundation

Kuraray Receives Minister’s Award at
the 18th Global Environment Awards

Kuraray is a prominent supporter of the Tetsuya Utsumi School Bag(Randoseru) Foundation established by Yomiuri Giants, one of theJapanese Major League baseball team, pitcher Tetsuya Utsumi. Utsumi
has pledged to donate one new school bag for each strikeout herecords during the baseball season to children living in orphanages in
the cities of Tokyo and Kawasaki who will be entering elementary
school in the coming year. Kuraray, whose man-made leather CLARINO
is widely used in the sturdy school bags, is supporting the philanthropic
effort through special negotiations with manufacturers of the bags,
assistance in the distribution, and other related activities.

At the Fujisankei Communications Group’s 18th Global
Environment Awards, Kuraray was honored with the
Minister’s Award from the Ministry of Education, Culture,
Sports, Science and Technology for its contribution to environmental preservation through the development of ahighly effective wastewater treatment system that has
been highly acclaimed for its water purification and excess
sludge reduction technology. The Kuraray Group is actively
developing technologies and systems designed to addressenvironmental issues, and the Minister’s Award is a recognition of the advances we have achieved.

Note: At a special ceremony to announce the establishment of the Tetsuya Utsumi
School Bag Foundation in January 2009, Utsumi presented school bags to sevenchildren entering elementary school in the spring.

The Kuraray Saijo
Plant’s wastewater
treatment facility
utilizes the system

13

C o r p o r a t e G o v e r n a n c e , I n t e r n a l C o n t ro l

Corporate GovernanceCorporate Governance Systems

Basic Philosophy on Corporate Governance

1. Board of Directors and Executive Organization

Kuraray believes that the maintenance of appropriate rela-

The Board of Directors establishes the Board of Directors’tionships with various stakeholders including shareholders

Regulations, deliberates and decides important management

and the fulfillment of social responsibilities are consistentmatters, including legal matters, and supervises the execution ofwith Kuraray’s objective of achieving long-term improve-business. The maximum number of directors is 10, and the term

ment in business results and sustainable growth as a globalof office is one year. There are currently nine board members,company. Kuraray believes it is a fundamental and important

including two outside directors. No personal, capital, transaction-

obligation to fulfill its social responsibilities by enhancing

al or other type of relationship that would present a conflict ofcorporate governance and establishing highly transparent

interest exists between the company and outside directors.
Kuraray has entered into an agreement with each outside

and fair corporate management.
As a company with a Board of Company Auditors,

director, limiting their responsibility for damage compensation

Kuraray has established a corporate governance system cen-in accordance with Article 1, Paragraph 427 and Article 1,

tered on its board of directors and board of auditors toParagraph 423 of the Japanese Company Act. Such agree-

improve the effectiveness of supervisory and monitoring

ment limits the liability to an amount provided by law.

functions while maintaining management efficiency and to

However, the limits on liability are only approved when theprovide guidance for issues including management com-

applicable outside director executed the duties that caused

pensation, selection of new company officials, internal

the liability without knowledge and gross negligence. As thecontrols, and risk management.

chief executive responsible for business execution, the president appointed by the Board of Directors exercises control

Shareholders Meeting
Appointment / Dismissal

Appointment / Dismissal

ReportingBoard of Directors
Nine directors(including two outside directors)
Chairman: Yasuaki Wakui

Appointment / Dismissal

Accounting Auditor
Reporting

Auditing

Board of Company Auditors
Apporoval of selection and reappointment

Five auditors(including three outside auditors)

Appointment /Dismissal
Appointment /Dismissal /Supervision

Management Avisory Council

AdviceSeven permanent members(including four outside experts)

Auditing

Staff for Company Auditors

President

Reporting

Office of Internal Auditors
Auditing

Instructions
Reporting on results of deliberations

Executive Committee

CSR Committee(deliberation on Important matters)
Social Resposibillity and Economic Subcommittee
Environmental and Industrial Safety Subcommittee
Bringing up important matters for deliberation

Executive Officers(execution of business)

Global Warming Measures Subcommittee
Risk Management and Compliance Subcommittee
Policy instuctions Plan approval
Plan proposals / Activity reports

Internal Companies, Functional Organizations, Group Companies

14

Kuraray Annual Report 2009

3. Management Advisory Council

officers (one-year term of office) appointed by the Board of

The company has established the Management Advisory

Directors are responsible for business execution in the various

Council to serve as a consultative body to the president fromorganizations of the Kuraray Group. As the heads of internal

the perspectives of compliance, the protection of sharehold-companies, divisions, and major functional organizations, theer rights, and management transparency. The Council

executive officers bear responsibility for operations and profit.

consists of five permanent members, consisting of one for-Some Directors hold concurrent positions as executive officers.

mer president and four outside experts with wealth of

The president establishes the Executive Committee (inexperience in corporate management or corporate legal

principle, held twice a month) and other various councils

affairs. The Council convenes regularly to advise the presi-and committees to deliberate and report on important mat-dent on such issues as important management policies andters concerning the Group’s management policies andissues, succession of the president, selection of successor

business execution.

candidates, and compensation for the president.

2. Board of Company Auditors

4. Status of Accounting Auditor

The Board of Company Auditors consists of five company audi-

No special interests exist between the Company and account-tors, including a majority of three outside auditors independent

ing auditor, PricewaterhouseCoopers Aarata, or thefrom Kuraray Group. No personal, capital, transactional or otherengagement partners of such auditing firm who audits

type of relationship that would present a conflict of interest

Kuraray. In addition, such auditing firm voluntarily take steps

exists between the company and the outside auditors. The com-

to ensure the engagement partners are not involved in auditspany auditors attend meetings of the Board of Directors andof the Company for longer than a prescribed period of time.

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

Internal Control

the examination of important documents and requests for

Basic Philosophy on Internal Control

explanations of the state of business affairs. In principle, theThe Kuraray Group recognizes that maintaining and imple-

Board of Company Auditors convenes monthly. The company

menting internal controls is an important management task.

auditors regularly convene with accounting auditor,

The Board of Directors implements internal controls underPricewaterhouseCoopers Aarata, and the Office of Internal

the following five categories based on the Basic Policy for

Auditors (consisting of 12 members), which conducts internal

Establishing Internal Controls as determined by the Board ofaudits. At these meetings, they receive reports on audit content

Directors.

and share information concerning audit planning, implementation, and related matters. The company auditors also serve as

1. Systems for risk management and to ensure compliancecompany auditors of core subsidiary companies to ensure sub-with laws and regulations by directors and employees

sidiary audits are performed appropriately and attend periodic

2. Systems to ensure efficient execution of duties by theGroup Auditor Liaison Meetings consisting of the subsidiarydirectors and the storage and management of informa-

auditors to deepen their understanding of each company.

tion regarding such execution

Kuraray has entered into an agreement with each outside
auditor, limiting their responsibility for damage compensation in accordance with Article 1, Paragraph 427 and Article
1, Paragraph 423 of the Japanese Corporate Law. Such

3. Systems to ensure appropriate work practices of the corporate group
4. Systems to ensure effective application of the auditor
dutiesagreement limits the liability to an amount provided by law.

5. The internal control maintenance and operation is admin-

However, the limits on liability are only approved when theistered such that the Office of Internal Auditors conducts

applicable outside auditor executed the duties that caused

internal audits of the Kuraray Group and the corporate

the liability without knowledge and gross negligence.

auditors conduct audit and oversight of the execution ofKuraray appoints staffs for company auditors (3 members) toduties by directors

assist the auditors in the performance of their duties.
15

Corporate Governance, Internal Control

over the execution of business in the Kuraray Group. ExecutiveB o a rd o f D i re c t o r s , C o r p o r a t e A u d i t o r s , a n d E x e c u t i v e O ff i c e r s(As of June 19, 2009)

BOARD OF DIRECTORSEXECUTIVE OFFICERS

Representative Director and Chairman

Senior Executive Officer

Yasuaki Wakui

Takayoshi Ohsaki
General Manager of Okayama Plant

Representative Director and President

Mitsuaki Manabe
Responsible for Accounting Department, Finance Department

Fumio Ito
Executive Officer
Director
Noboru Yanagida
Yoichi Ninagawa

General Manager of PVB Division

Primary Executive Officer,
Chief Technology Officer

Katsuya Hashimoto
General Manager of Saijo Plant

Shiro Kataoka
Senior Executive Officer,
President of Chemicals and Medical Products Company

Hiroaki Yoshino

Mitsuo Matsumoto
Assistant to the President

Kohei Maeda

Senior Executive Officer,
President of Fibers and Textiles Company

Toshihide Sakai

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

Yuichi Kawarasaki

Senior Executive Officer,
Responsible for Raw Material Department, Machinery and Supplies Department,
Logistics Department, Department of Global Business Development,
CSR Division, Plants

Kenzo Sawada

Responsible for Corporate Control Department, Corporate Communications Department

Keiji Murakami
General Manager of EVAL Division

Shinzo Takemura

Senior Executive Officer,
President of Specialty Resin and Film Company

General Manager of Poval Resin Division

Noritsugu Nagatomo
Kensaku Aomoto*1
Takafusa Shioya*

1

General Manager of Niigata Plant

Takaaki Fukumori
Responsible for General Affairs Department, H.R. Department,
Career Development Department

CORPORATE AUDITORS

Kazuhiro Tenkumo

Standing Corporate Auditor

Yasuhiro Yamamoto

General Manager of Fibers and Industrial Materials Division

General Manager of Methacrylate Division

Junsuke Tanaka
Matthias Gutweiler
Tadahiko Kujime

President of Kuraray Europe GmbH

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

Corporate Auditor
Hiroo Onodera*2
Hiroki Yamada*2
Mie Fujimoto*2

Nobuya Tomita
President of Kuraray America, Inc.

Osamu Yamada
General Manager of Kashima Plant

Takao Akagi
General Manager of New Business Development Division*1. Directors Kensaku Aomoto and Takafusa Shioya are outside directors.
*2. Corporate Auditors Hiroo Onodera , Hiroki Yamada, Mie Fujimoto are outside corporate auditors.

Setsuo Yamasita
General Manager of Kurashiki Plant

Shuichi Takemoto
Responsible for Legal Department,
General Manager, Office of Corporate Strategy and Planning

16

Kuraray Annual Report 2009

Financial
SectionContents
18
23
24
26
27
29
30
30
31
32
33
75

Financial Review
Risk Management
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes In Net Assets
Consolidated Statements of Cash Flows
Segment Information
Industry segment information
Geographic segment information
Overseas Sales
Notes to Consolidated Financial Statements
Report of Independent Auditors

17

Financial Review
Kuraray Co., Ltd. and its Consolidated Subsidiaries

other products.

385,28404

375,072

354,874

FY

05

06

10.4

417,601

11.5
10.2

9.4

7.8

07

08

Net Sales
Operating Income Margin

18

Net Sales by
Business Segment

376,777¥ Million, %167,264

Net Sales &Operating Income Margin

the United States, Europe and other overseas regions, however,sales decreased as a result of the transfer of the dialysis businessin October 2007 to Asahi Kasei Kuraray Medical Co., Ltd.
The sales volume of GENESTAR heat-resistant polyamide resin
significantly decreased due to a sharp drop in demand of principal

Kuraray Annual Report 2009

FY

¥ Million

224,332

Sales and profit of isoprene-related products decreased overall.
The sales volume of SEPTON thermoplastic elastomer decreased
due to a drop in demand which began in the Asian region in
August 2008 and has expanded worldwide. Sales of specialty
chemical remained sluggish due to lagging sales of solvents and¥12,253 million, or 17.9% year on year, to ¥56,327 million(US$574 million).
In the medical business, sales of dental materials expanded in

96,116

tions have significantly fallen due to remarkably sluggish sales ofautomobiles since the financial crisis and the demand for foodpackaging applications also declined.

sales of other clothing items. The decreasing demand also affectedboth the domestic demand and exports of short-fiber polyester.
The High-Performance Materials, Medical Products and Others
Business recorded lower sales and earnings. Sales decreased

243,784

film, the demand for interlayers for architectural glass remained
favorable throughout the year.
EVAL, an EVOH resin, recorded lower sales and earnings.
Although the demand for the resin remained comparatively
strong until September 2008, the sales for gasoline tank applica-

October 2008.
Sales of long-fiber polyester remained steady for sports clothing,but exports to the Middle East, Europe, and other regions declined
due to a sharp appreciation of the yen in addition to a slump in

105,235

tiles, processing paper, and polymerization agent of vinyl chloride
resin have been sluggish in Asia including Japan and China since
October 2008 due to the global economic slowdown. For PVB

forced us to make a production cutback.
The demand for nonwoven fabrics and loop fasteners remained
favorable mainly in Japan, but sales have been affected by theslump in demand for industrial material applications since

201,221

LCD TVs and liquid crystal panels and the demand for them has
further dropped since November 2008, which forced us to makea production cutback. Sales of Poval resins were strong until
September 2008. However, sales for processing fibers and tex-

as an alternative to asbestos remained firm, however, the demand
for applications such as automobile brake hoses remained sluggish.
Sales and earnings of CLARINO man-made leather fell. The
sales volume for shoe and other applications decreased, which

107,924

Sales decreased in the Chemicals and Resins Business by¥19,452 million (US$198 million), or 8.0 % year on year, to¥224,332 million (US$2,289 million).
The poval products saw decreases in both sales and earnings.
Optical-use poval film was affected by an inventory correction of

ings. Sales decreased ¥9,118 million, or 8.7% year on year, to¥96,116 million (US$980 million).
Sales of KURALON leveled off while earnings fell. Although theoverseas demand for KURALON for FRC (Fiber Reinforced Cement)

190,753

Consolidated net sales decreased 9.8%, or ¥40,824 million(US$416 million), to ¥376,777 million (US$3,844 million).

109,106

SALES

Sales and earnings of methacrylic resin decreased. The businessof molding materials etc. saw a big drop in demand and more
severe conditions because the market environment has drasticallychanged since October 2008.
The Fibers and Textiles Business recorded lower sales and earn-

109,828

The following section refers to the consolidated financial statements of the Kuraray Group for fiscal 2008 (from April 1, 2008 to
March 31, 2009).

77,781

75,21376,13868,581

56,327

04

05

06

07

08

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

OPERATING AND NET INCOME

users for mobile phones and personal computers. As a result,
Kuraray began to operate a facility to expand production (to anannual capacity of 11,000 tons from 5,500 tons), however, oper-

Cost of sales decreased 6.5% to ¥275,912 million (US$2,815 million), and rose as a percentage of sales to 73.2%, from the previous
fiscal year’s 70.7%. Selling, general, and administrative (SG&A)

ations only lasted for a short period.
In the Water Purification Business, sales of activated carbon
remained steady mostly with respect to domestic filtration plants.

expenses decreased 3.6% to ¥71,585 million (US$730 million), up
1.2 percentage points year-on-year to 19.0% as a percentage ofsales, despite to cost cutting efforts. As a result, operating income

Other businesses remained sluggish and sales dropped mainly due
to decreasing external construction work in the engineering business.
Sales of almost all products including optical-use poval film and
CLARINO in Japan have remained sluggish since October 2008.
KURARAY ENGINEERING received significantly fewer orders for

decreased 39.2% to ¥29,280 million (US$298 million). Operating
margin worsened to 7.8% from 11.5% in fiscal 2007.
The substantial decline in production since October, 2008 dueto the global recession, special operating losses of ¥3,994 million(US$40 million), and loss on valuation of inventories ¥1,153 mil-plants for private companies. As a result, its net sales decreasedto ¥251,583 million (US$2,567 million), respectively.
Although sales of dental materials remained favorable, sales oflion (US$11 million) have been recorded as extraordinary loss.
These and other factors combined to a decrease in income before
taxes and minority interest of 50.6% to ¥19,523 million (US$199

EVAL for gasoline tank applications and CLARINO man-madeleather remained sluggish throughout the year. Sales of EVAL forfood packaging applications and SEPTON have also been affectedby a drop in demand since October 2008. Net sales and operating
income decreased on a yen conversion basis due to an apprecia-

million). Taxes for the period came to ¥6,388 million (US$65 million), yielding an effective tax rate of 32.72%. Net income wasdown 49.2% to ¥12,984 million (US$132 million).

As of March 31, 2009, cash and cash equivalents rose ¥33,968 million(US$346 million) to ¥46,157 million (US$470 million). Notes andaccounts receivable decreased ¥28,921 million (US$295 million) to¥66,551 million (US$679 million). Lastly, inventories (merchandise andfood packaging applications has decelerated since October 2008,
sales of PVB film for architectural glass, KURALON as an alternative to asbestos, and dental materials remained favorable
throughout the year with an increase in sales. As a result, sales

finished goods, work-in-progress, and raw materials and supplies)
increased ¥1,017 million (US$10 million) to ¥73,552 million (US$750
million), and the number of months’ sales in inventory was 2.3
months, a deterioration from what was recorded in fiscal 2007, which

increased to ¥76,961 million (US$785 million), respectively.
In Asia, Kuraray took entire ownership of POVAL ASIA PTE LTD.
(current Kuraray Asia Pacific Pte.Ltd.) in January 2008 and additionally consolidated two Chinese companies (Kuraray (Shanghai)

was at 2.1 months. As a result of these and other factors, current
assets rose 2.6% to ¥201,358 million (US$2,054 million). Working
capital (current assets less current liabilities) rose ¥25,108 million(US$256 million) to ¥132,317 million (US$1,350 million). The current

Co., Ltd. and Kuraray Trading (Shanghai) Co., Ltd.) as subsidiaries. As a result, sales grew to ¥19,944 million (US$203
million), respectively.

Net Sales byGeographic Segment¥ Million

ratio (current assets divided by current liabilities) rose to 291.6% fromNet Income &Net Income per Share (Primary)¥ Million, ¥Interest-Bearing Dept

¥ Million

72.15

08

FY

04

12,984

22,412

21,185

05

06

07

08

FY

04

05

06

33,95207

37.29

27,96306

North America
Domestic

50.13

29,68076,961

25,55475,93560.95

26,26405

57,70818,465

273,757

04
Asia
Europe57.51

28,288294,017251,583

53,974

19,944

294,017FY

42,187

269,534

27,58530,60931,551

23,146

288,446

15,566

15,98270,74516,096
16,73207

08

Net Income
Net Income per Share (Primary)

19

Financial Review

FINANCIAL POSITION

tion of the yen against the dollar. As a result, sales in North
America decreased to ¥28,288 million (US$288 million).
In Europe, although the demand for Poval resins and EVAL forfiscal 2007’s 220.4%. Tangible fixed assets decreased ¥11,342 million(US$115 million) or 5.9% to ¥181,020 million (US$1,847 million). This
included factors such as a decrease in machinery and equipment, ofvided by (used in) operating activities was ¥46,919 million (US$478¥7,693 million (US$78 million), to ¥102,536 million (US$1,046 million) and a fall in construction-in-progress, of ¥5,322 million (US$54
million), to ¥21,188 million (US$216 million). Investments and othermillion), and net cash provided by (used in) financing activities was¥30,032 million (US$306 million). The balance of cash and cash
equivalents at the end of the consolidated fiscal year increased byassets fell ¥1,738 million (US$17 million) to ¥65,974 million (US$673
million). Total assets decreased ¥18,491 million (US$188 million) to¥471,874 million (US$4,815 million), and return on assets (operating
income divided by average total assets for the period) was down by
3.5%, from last year to 6.1%.

¥33,968 million (US$346 million) from the end of the previous consolidated fiscal year to ¥46,157 million (US$470 million).
The details of individual cash flows provided by (used in) operating

Current liabilities decreased ¥20,033 million (US$204 million) to¥69,041 million (US$704 million). A decrease of ¥15,732 million(US$160 million), to ¥23,438 million (US$239 million) in notes andactivities ¥46,919 million (US$478 million) was calculated bydeducting the expenditure ¥15,031 million (US$153 million), suchas payment of corporate taxes etc, from the earnings such asaccounts payable, along with other factors, was the cause of the current liability decrease. Noncurrent liabilities increased ¥21,359 million(US$217 million) to ¥77,816 million (US$794 million). Factors for theincrease included an increase in long-term loans payable of ¥27,326
million (US$278 million), to ¥39,280 million (US$400 million), and an

income before income taxes ¥19,523 million (US$199 million) anddepreciation and amortization ¥37,147 million (US$379 million).
Net cash and cash equivalents provided by used in investment
activities ¥42,428 million (US$432 million) was calculated by deduct-

million), net cash provided by (used in) investment activities
decreased ¥2,789 million (US$28 million) to ¥42,428 million (US$432

activities, investment activities, and financing activities are as follows:
Net cash and cash equivalents provided by (used in) operating

increase in provision for retirement benefits of ¥974 million (US$9million), to ¥13,933 million (US$142 million). Lastly regarding net
assets, from fiscal 2006 onward, Japanese accounting standards

ing the expenditure, such as purchase of tangible and intangible
fixed assets ¥38,780 million (US$395 million) and purchase of investment securities ¥4,128 million (US$42 million), from proceeds fromsales and redemption of investment ¥1,534 million (US$15 million).

require presentation of net assets instead of shareholders’ equity. Net
assets decreased ¥19,817 million (US$202 million) to ¥325,016 million (US$3,316 million). The principal factor of the decrease was adrop in foreign currency translation adjustment and valuation differ-activities ¥30,032 million (US$306 million) was calculated bydeducting the expenditure, such as cash dividends paid ¥8,009
million (US$81 million), from the earnings such as short-term

Net cash and cash equivalents provided by (used in) financing

loans payable ¥4,343 million (US$44 million) and long-term loans
payable ¥32,266 million (US$329 million).

ence on available-for-sale securities. Subtracting minority interests of¥2,988 million (US$30 million) to yield shareholders’ equity of¥321,918 million (US$3,284 million), the equity ratio for the period
was 68.2%, down 1.5% from fiscal 2007.

RESEARCH AND DEVELOPMENT
All division R&D and corporate R&D activities in each Kuraray segment, business division, and group companies are closely
coordinated and guided by our corporate mission to open new

70.5

FY

04

05

06

07

08

FY

04

05

Total Current Assets
Total Current Liabilities

20

Kuraray Annual Report 2009

06

07

324,547
70.0

68.2

69.7

69,041

89,074

94,404

79,22884,856

68.8¥ Million, %329,244

Total Shareholders’ Equity &Equity Ratio

201,358

196,282

217,970

200,667

182,317¥ Million

336,415

Total Current Assets &Total Current Liabilities

2.3

Months

2.1

2.2

2.2

2.2

Number ofMonths’ Sales in Inventory

339,127

Looking at the cash flows for the current fiscal year, the net cash pro-

312,929

CASH FLOWS

08

FY

04

05

Total Shareholders’ Equity
Equity Ratio

06

07

08

focus on development of new product applications, new products, and new production technology.
In gas barrier materials, we are seeking to accelerate the devel-

years 2006 to 2008 aimed to “shift R&D emphasis from quantity
to quality to transform Kuraray into a specialty chemicals company
capable of sustainable growth.” The plan outlined a companywide

opment of application ranges for the newly developed gas barriermaterials EVAL SP and KURARISTER. EVAL SP is a new EVOH resin
offering a high level of flexibility, elasticity, and superior plasticity.

policy to concentrate business development on our highly refined,
high-performance materials and components focused in the promising growth fields of optics, electrical and electronics,
automobiles, environmental products, energy, and health care.
The Corporate R&D division administers operations of the

KURARISTER is a new transparent barrier film for use in foodpackaging retorts. We are also developing markets for a variety ofinnovative products, such as super-barrier (scavenger) materials.
R&D activities in thermoplastic elastomers focus on developing
new applications and products, such as the new SEPTON Q Series

Kurashiki Research Laboratories, Tsukuba Research Laboratories, andKuraray Research and Technical Center (USA). Divisional R&D activities are headed by R&D departments located on-site at each in-houseincorporating a new thermoplastic polymer suitable for designing
polymer alloys that are lightweight and exhibit excellent resistanceto abrasion, scratching, and hydrolysis. Kuraray has applied its

company, division, and consolidated subsidiary. Kuraray advances its
manufacturing technology through the specialized activities of the
Manufacturing Technology Development Center, which develops
technology following the guideline of a “Fusing Science and On-site
Sense.” The R&D operations of the Kuraray Group (Kuraray and con-exclusive polymerization technology to produce the world’s firstmass production techniques for new acrylic thermoplastic elastomer materials featuring superb transparency, weather resistance,and plasticity and is advancing toward product commercialization.
R&D in methacrylic resin concentrates on developing new prod-solidated subsidiaries) employ 854 researchers and engineers.
R&D expenses totaled ¥16,358 million (US$166 million) in fiscal
2008. R&D expenses by segment were: Chemicals and Resins

ucts and applications emphasizing the distinctive properties of ourpolymers and in strategic areas for continuing business expansion
in the electronic display industry.

Business ¥5,054 million (US$51 million), Fibers and Textiles
Business ¥2,832 million (US$28 million), and High-Performance
Materials, Medical Products and Others Business ¥2,476 million(US$25 million). Corporate R&D expenses amounted to ¥5,995

Fibers and Textiles
R&D activities in PVA fibers included R&D to develop broader applications for fiber-reinforced cement (FRC) and the start of operations

Chemicals and Resins
Kuraray is a global leader in the vinyl acetate chain products ofin December 2008 of an expanded mass-production facility.
Research continued to develop new applications to exploit thehigh-strength, low water absorbency, abrasion resistance, cut
resistance, and other characteristics of the high-performance pol-polyvinyl alcohol (PVA), polyvinyl butyral (PVB), and EVAL ethylene
vinyl alcohol (EVOH resin), and closely coordinates the worldwide
operations of its domestic and overseas R&D departments with ayarylate fiber VECTRAN.
R&D related to the man-made leather CLARINO focused on
developing next-generation TIRRENINA products to be produced

Total Assets &ROA¥ Million, %Gross Cash Flow

¥ Million

FY

04

05

06

07

08

FY

04
Total Assets
ROA

05

06

07

08

FY

04

22,412

21,18525,49521,323

6.1

25,185

18,465481,357

454,940

490,365
8.1

8.2

7.6

3.9

9.6

471,874

6.4

508,694

6.5
6.0

25,554

7.3

05

06

07

12,984%

37,147

ROE

31,485

million (US$61 million).

08

Net Income
Depreciation and Amortization

21

Financial Review

fields of business using pioneering technology and contribute toimproving the natural environment and quality of life.
The GS-21 Medium-term Business Plan implemented in fiscal

using the Clarino Advanced Technology Systems (CATS), a completely new, environmentally friendly production process.
Construction of a new mass production facility for TIRRENINA isadvancing toward an autumn 2009 commencement of operations.
In new technologies, R&D continues to develop applications forthe nonwoven fabric Flextar, which uses proprietary Kuraray textile materials, as an elastic, cushioning, and board material. Whilelaunching Flextar as an elastic autohesion wrap, we are also promoting it as a construction material and conducting presentations
at construction industry events to exhibit its superior soundabsorbency and insulation characteristics.

CAPITAL EXPENDITURE
The Kuraray Group’s (Kuraray and consolidated subsidiaries) capital investment amounted to ¥38,925 million (US$397 million), in
fiscal 2008. By segment, the Chemicals and Resins Business
invested ¥18,985 million (US$193 million), mainly to expand production capacity optical-use poval film. The Fibers and Textiles
Business invested ¥11,351 million (US$115 million), including
construction of a new plant for mass production of environmentally-friendly man-made leather. The High-Performance Materials,
Medical Products and Others Business invested ¥6,319 million(US$64 million), mainly to expand production capacity of GENESTAR heat-resistant polyamide resin. General (non-segment) capital

High-Performance Materials, Medical Products and Others
R&D related to the heat-resistant polyamide resin GENESTAR aims

investment amounted to ¥2,268 million (US$23 million).

at developing new products and applications to meet the growing
demand for electrical and electronic applications and to keep pacewith our steadily growing business in the automobile industry.
In the medical products business, advances in development andtoward commercialization continued for new orthopedic products.

OUTLOOK

We enhanced our presence in the water treatment field withthe establishment in February 2007 of the joint venture KURARAYAQUA CO., LTD., with Nomura Micro Science Co., Ltd. The company incorporates Kuraray’s water purification technology using
high-polymer hollow-fiber membrane and PVA gel wastewater
treatment system with Nomura Micro’s engineering technology.
KURARAY AQUA is positioned to meet diverse needs in the globally expanding water treatment market (Kuraray established the
Aqua Business Promotion Department in fiscal 2009 to acceleratebusiness growth and fortify the product development structure).
Kuraray’s Zecrus biological wastewater treatment system received

We expect that the global recession triggered by the turbulencein the financial market will continue for some time.
The Kuraray Group has embarked on “GS-Twins,” a three-year
medium-term action plan (fiscal 2009 to 2011) to quickly revive
its earnings structure which has been damaged by the global economic crisis. By implementing this plan, Kuraray intends togenerate growth so it can become a specialty chemical manufacturer company with a strong presence, which is an aim of its
10-Year Corporate Vision.
Our forecasts for the fiscal year ending March 31, 2010, arenet sales of ¥340 billion, operating income of ¥20 billion, and net
income of ¥10.5 billion.
We assume average exchanges rates of ¥100 to the U.S. dollar
and ¥135 to the euro, as well as a price of ¥37 thousand per kiloliter for domestically produced naphtha.

the Minister’s Award from the Ministry of Education, Culture,
Sports, Science and Technology at the 18th Global Environment
Awards in February 2009.

Capital Expenditure by
Business Segment

16,35805

Kuraray Annual Report 2009

32,262

5,054

42,72037,70023,8102,832
5,995 2,476

5,400 1,876 2,712

33,871

08

38,92518,985

4,372
3,965 2,142 2,541

4,135
2,782 2,298

13,021

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

22

04

4,852

3,826
3,089 2,254
4,702

FY

14,0685,260

15,25013,873¥ Million

45,71523,434¥ Million

22,784

Total R&D Expenses by
Business Segment

11,351

7,795
5,932

4,128

FY

04

7,214

4,786

2,109

3,282
1,992

8,592
3,231
5,751

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

6,319
2,898

05

2,268

08
Corporate

Risk Management

sentences represent the Kuraray Group’s best judgment as ofMarch 31, 2009.
1. Changes in the market environment
In the rapidly growing information and communication fields, theKuraray Group supplies a broad variety of materials and components, notably film and molded resin products for flat-panel
displays. The Group is strategically expanding net sales and profits

4. Product defects
The Kuraray Group has instituted thorough product quality-control
measures, and the Group carries liability insurance against productliability claims. However, the possibility exists that major productdefects arising from unforeseeable causes could necessitate alarge-scale product recall or large amount of compensation. Under
such circumstances, recall expenses, compensation, indemnities ofcustomers, legal costs thereof, and loss of public trust could
adversely affect the performance of the Kuraray Group.

in this field, where the market environment can undergo drasticchanges within a short period as a result of reverses in industry defacto standards and changes in the supply-and-demand balance.

5. Litigation, official regulations, etc.
Engaged in a broad range of business activities, the Kuraray
Group is subject to potential litigation across numerous fields. In
the fiscal year under review, Kuraray did not face litigation of a

If such events were to occur, sales volumes could contract, sales
prices could fall, or businesses could be forced to downsize or
withdraw from a market within a short time frame, with anadverse effect on the Kuraray Group’s performance.

material nature. In the event the Group is subject to future litigation, however, its performance could be adversely affected.
In the business fields of the Group, there are various official
regulations on products, raw materials, etc. In the event that

2. Procurement and price changes of raw materials and fuels
The Kuraray Group is primarily engaged in the manufacture andsales of chemical products, synthetic resins, synthetic fibers andthese regulations are tightened and a lot of time and expenses
are needed to respond thereto, or customers’ business policies
change thereby, the performance of the Kuraray Group could be
adversely affected.

textiles, and finished goods made from the aforementioned. The
Group also purchases various raw materials and fuels from external companies, including special materials that can only be
procured from limited supplier sources, and those supplied via

6. Accidents, disasters and environmental measures
The Kuraray Group has manufacturing facilities in Japan, Europe,
North America, and Asia. Many of these are large chemical plants

pipeline from specific suppliers. Therefore, if those procured items
became limited in supply or ceased being supplied by natural disasters or by accident at the supplier side, it is possible that theKuraray Group’s performance may be adversely affected.

that use a variety of chemicals. If an unexpected industrial accident or release of pollutants to the environment should occur, theloss of the lives and property of employees and third parties could
result in claims against the assets of the Kuraray Group and halt

In the business structure of the Group, the effects of raw mate-

manufacturing operations for long periods, adversely affecting
the performance of the Kuraray Group.
The occurrence of earthquakes, floods, or other natural disasters, an epidemic of communicable disease or other medical

rials and fuel prices on cost of sales are relatively large. If highmarket prices for crude oil, natural gas, or raw materials requiredfor our products, such as ethylene and other chemical materials,
cannot be offset by internal measures such as increases in productivity and passing costs along in sales prices, it is possible that
the Kuraray Group’s performance may be adversely affected.
3. Changes in exchange rates
The Kuraray Group is expanding its manufacturing and sales operations in Japan and in various overseas regions, including Europe,
North America, and Asia. Export prices of the Kuraray Group’s
domestically manufactured products are affected by changes inexchange rates. In sales of products manufactured at our overseas
bases, procurement and sales prices in different currency blocks
and the value of foreign-currency-denominated assets and liabilities are affected by changes in exchange rates. It is possible that
the Kuraray Group may be affected negatively by exchange rate
fluctuations if they exceed the scope of our assumption.

incidents, wars, riots, terrorist attacks, trouble with informationand communication systems, or information leaks could interferewith the business operations of the Kuraray Group, with anadverse impact on performance.
Because manufacturing bases of the Group use considerable
amount of energy (electricity, steam, etc.), they emit a great dealof carbon dioxide, a global-warming gas. Although the Group is
taking tiered measures to reduce carbon dioxide emissions, iftighter official restrictions on emission gas amount is enforced in
the future and thereby our business operations are significantly
restricted, it is possible that the performance of the Kuraray
Group may be adversely affected.
Accidents or disasters such as those mentioned above could
also interfere with the business operations of the Kuraray Group’s
customers and suppliers, with a similar adverse effect on the
Kuraray Group’s performance.

23

Financial Review / Risk Management

Significant risks that could have an impact on the Kuraray
Group’s performance (results of operations and financial position)
are discussed below. Forward-looking statements in the following

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

March 31, 2008 and 2009

Millions of yen

Thousands of
U.S. dollars

Fiscal 2007 Fiscal 2008

Fiscal 2008ASSETSb Current assets:$

382,935¥ 11,109¥ 37,527

2 Notes and accounts receivable - trade95,472

66,551

679,094

3 Short-term investment securities

2,062

9,499

96,936

4 Inventories

1 Cash and deposits

72,534——5 Merchandise and finished goods—

51,294523,4116 Work-in-process—

10,145103,522

7 Raw materials and supplies—

12,112

123,597

8 Deferred tax assets

7,362

5,493

56,057

9 Other

8,764

9,248

94,373(1,021)(514)(5,246)196,282

201,358

2,054,682

33,853

34,832355,430(2) Machinery, equipment and vehicles *110,229

102,536

1,046,291(3) Land *2

19,094

18,918

193,047(4) Construction in progress *26,51021,188216,208(5) Other, net

2,674

3,544

36,173

192,362

181,020

1,847,151(1) Goodwill

28,596

19,684200,864(2) Other intangible assets

5,411

3,835

39,139Total intangible assets

34,00823,520240,00351,59047,505484,748

10 Allowance for doubtful accounts
Total current assets

bb Noncurrent assets:
1 Tangible fixed assets:(1) Buildings and structures, net *222

Total tangible fixed assets *1

2 Intangible assets:

3 Investments and other assets:(1) Investment securities *3 and 5

392

983

10,033(3) Deferred tax assets

3,538

5,616

57,311(5) Prepaid pension cost

7,540

7,128

72,742(6) Other

4,962

5,230

53,376(2) Long-term loans receivable(7) Allowance for doubtful accounts

(311)

(490)

(5,005)

Total investments and other assets

67,712

65,974

673,206

Total noncurrent assets

294,083

270,515

2,760,361¥ 490,365¥ 471,874$ 4,815,043

TOTAL ASSETS
The accompanying notes are an integral part of these consolidated financial statements.

24

Kuraray Annual Report 2009

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

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

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

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

Thousands of
U.S. dollars

Fiscal 2007 Fiscal 2008

Fiscal 2008$

239,172¥ 39,170¥ 23,438

11,997

18,464

188,413—3,000

30,612—

4,529

46,224

8,826

684

6,983

6,716

5,753

58,707

66

377

3,847

22,296

12,793

130,547

89,074

69,041

704,507

10,00010,000102,040

11,95439,280400,821

5,686

5,318

54,268

12,95913,933

142,175

191

171

1,752

15,6659,112

92,98756,457

77,816

794,045

145,532

146,858

1,498,552

88,95588,955

907,70787,22887,215889,953

189,282

193,977

1,979,358(40,919)(40,903)(417,384)

324,547

329,2443,359,635

6,895

2,825

28,83318(156)(1,591)

10,427(9,995)(101,997)

17,341(7,326)(74,756)

69

109

1,114

2,875

2,988

30,497

344,833

325,016

3,316,490¥ 490,365¥ 471,874$ 4,815,043

The accompanying notes are an integral part of these consolidated financial statements.

25

Consolidated Balance Sheets

March 31, 2008 and 2009

Millions of yen

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

Thousands of
U.S. dollars

Millions of yen
Years ended March 31, 2008 and 2009

Fiscal 2007 Fiscal 2008

Fiscal 2008b Net sales
bb Cost of sales *2
Gross profit¥ 417,601
295,220
122,381¥ 376,777
275,912
100,865$ 3,844,668
2,815,430
1,029,238

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

21,83352,41774,25048,13019,964
51,62071,58529,280203,715
526,744730,460
298,777bV Non-operating income:1 Interest income
2 Dividend income
3 Other
Total non-operating income

714
1,681
1,360
3,756

463
2,010
933
3,407

4,729
20,513
9,527
34,770V Non-operating expenses:
1 Interest expenses
2 Equity in loss of affiliates
3 Personnel expenses for seconded employees
4 Foreign exchange losses
5 Loss on disposal of inventories
6 Other
Total non-operating expenses
Ordinary income

835
20
—
1,341
1,236
5,634
9,068
42,817

1,259
13
608
—
—
4,008
5,890
26,797

12,849
138
6,209
—
—
40,907
60,103
273,443

Vb Extraordinary income:
1 Gain on sales of investment securities *3
Total extraordinary income

1,589
1,589

1,264
1,264

12,903
12,903

Vbb Extraordinary loss:
1 Abnormally low utilization variance *42 Impairment loss *5
3 Loss on valuation of investment securities *6
4 Loss on valuation of inventories
5 Business structure improvement losses *7
6 Loss on disposal of tangible fixed assets *8
7 Provision of allowance for doubtful accounts for loans to subsidiaries and affiliates
8 Loss on transfer from business divestitures
Total extraordinary loss
Income before income taxes

—
2,256
246
—
1,701
269
305
88
4,867
39,539

3,994
1,473
1,382
1,153
350
185
—
—
8,538
19,52340,75515,033
14,104
11,774
3,573
1,890
—
—
87,131
199,215

15,726(1,839)13,887

4,632
1,756
6,388

47,271
17,921
65,19297¥ 25,554

149¥ 12,984

Income taxes - current
Income taxes - deferred
Total income taxes
Minority interests in income
Net income
The accompanying notes are an integral part of these consolidated financial statements.

26

Kuraray Annual Report 2009

$

1,525
132,497

Consolidated Statements of Changes In Net Assets
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen
Shareholders‘ equity
Fiscal 2007 (As of March 31, 2008)

Balance at March 31, 2007

Capital stock

CapitalsurplusRetainedearnings

Treasury
stock

Total
shareholders’equity¥ 88,955¥ 87,314¥ 171,427¥ (11,280)¥ 336,415

Changes of items during the period
Cash dividends(7,509)(7,509)Net income

25,55425,554

(216)

(216)

8

8

Changes in reporting entities
Increase by merger
Purchase of treasury stock
Disposal of treasury stock

(85)

Other

(30,165)(30,165)

527

442
18

18

shareholders’ equity
Total changes of items during the period
Balance at March 31, 2008

—
—

(85)

17,855(29,638)(11,868)¥ 88,955¥ 87,228¥ 189,282¥ (40,919)¥ 324,547

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

Balance at March 31, 2007

¥ 11,321¥ (8)Foreigncurrencytranslation
adjustments

Total
Subscription
valuation and rights to sharestranslation
adjustments

Minority
interests

Total
net assets¥ 8,410¥ 19,723¥ 2,453¥ 358,592¥ —Changes of items during the period
Cash dividends(7,509)Net income

25,554(216)

Changes in reporting entities

8

Increase by merger
Purchase of treasury stock(30,165)

Disposal of treasury stock

442

Other

18

Net changes of items other thanshareholders’ equity
Total changes of items during the period
Balance at March 31, 2008

(4,426)27

2,017(2,381)69

422(1,890)(4,426)27

2,017(2,381)

69

422(13,758)¥ 6,895¥ 18¥ 10,427¥ 17,341¥ 69¥ 2,875¥ 344,833

27

Consolidated Statements of Income / Consolidated Statements of Changes In Net Assets

Net changes of items other thanConsolidated Statements of Changes In Net Assets
Kuraray Co., Ltd. and its Consolidated Subsidiaries

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

Balance at March 31, 2008
Effect of changes in accounting policies applied
to foreign subsidiaries
Changes of items during the period
Cash dividends
Net income
Changes in reporting entities
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders‘ equity
Total changes of items during the period
Balance at March 31, 2009

Capital stock

CapitalsurplusRetainedearnings

Treasury
stock

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

(125)

(125)

(8,009)12,98491(8,009)12,984
91
(107)
109
(247)
—
4,821
¥ 329,244

(107)
123

(13)
(247)
—
¥ 88,955(13)¥ 87,215

4,819¥ 193,97715¥ (40,903)
Millions of yen

Valuation and translation adjustments
Valuation
Foreign
Total
Deferreddifference on
currency
valuation andavailable-for-sale gains or losses
translationtranslation
on hedges
securities
adjustments
adjustments

Balance at March 31, 2008
Effect of changes in accounting policies applied
to foreign subsidiaries
Changes of items during the period
Cash dividends
Net income
Changes in reporting entities
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders‘ equity
Total changes of items during the period
Balance at March 31, 2009

¥ 6,895¥

18¥ 10,427

Subscription
rights tosharesMinority
interests

Total
net assets¥ 69¥ 2,875¥ 344,833¥ 17,341(125)(4,069)(4,069)¥ 2,825

(174)
(174)
¥ (156)(20,423)(20,423)¥ (9,995)

113
113¥ 2,988(8,009)12,984
91
(107)
109
(247)
(24,514)(19,692)¥ 325,016

Subscription
rights tosharesMinority
interests

Total
net assets$$ 29,342$ 3,518,714(24,667)(24,667)¥ (7,326)

40
40
¥ 109

Thousands of U.S. dollars
Shareholders‘ equity
CapitalsurplusCapital stock

Balance at March 31, 2008
Effect of changes in accounting policies applied
to foreign subsidiaries
Changes of items during the period
Cash dividends
Net income
Changes in reporting entities
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders‘ equity
Total changes of items during the period
Balance at March 31, 2009

$ 907,707

Retainedearnings

Treasury
stock

Total
Shareholders‘
equity$ 890,090 $ 1,931,457 $ (417,543) $ 3,311,711(1,278)(1,278)(81,728)
132,497935—$ 907,707(81,728)
132,497935(1,096)(1,096)
(136)
1,255
1,118
(2,525)(2,525)—(136)
49,179159
49,202$ 889,953 $ 1,979,358 $ (417,384) $ 3,359,635
Thousands of U.S. dollars

Valuation and translation adjustments
Valuation
Foreign
Total
Deferreddifference on
currency
valuation andgains
orlossesavailable-for-saletranslationtranslation
on hedges
securities
adjustments
adjustments

Balance at March 31, 2008
Effect of changes in accounting policies applied
to foreign subsidiaries
Changes of items during the period
Cash dividends
Net income
Changes in reporting entities
Purchase of treasury stock
Disposal of treasury stock
Other
Net changes of items other than shareholders‘ equity
Total changes of items during the period
Balance at March 31, 200928

Kuraray Annual Report 2009

$ 70,363$

189$ 106,401$ 176,953

706(1,278)(41,530)(41,530)$ 28,833(1,781)(1,781)$ (1,591)(208,398)(251,710)(208,398)(251,710)$ (101,997) $ (74,756)

408
408$ 1,114

1,155
1,155
$ 30,497(81,728)
132,497935(1,096)
1,118(2,525)(250,146)(200,944)$ 3,316,490

Consolidated Statements of Cash Flows

Years ended March 31, 2008 and 2009bbb

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

Net cash provided by (used in) investment activities:
1 Net decrease (increase) in time deposits
2 Net decrease (increase) in short-term investment securities
3 Purchase of tangible fixed assets and intangible assets
4 Payments for disposal of tangible fixed assets and intangible assets
5 Proceeds from sales of tangible fixed assets and intangible assets
6 Purchase of investment securities
7 Proceeds from sales and redemption of investment securities
8 Purchase of investments in a subsidiary resulting in change in scope of consolidation
9 Purchase of insurance funds
10 Proceeds from cancellation of insurance funds
11 Other, net
Net cash provided by (used in) investment activities

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

Millions of yen

Thousands of
U.S. dollars

Fiscal 2007 Fiscal 2008

Fiscal 2008

¥ 39,539
31,485
484
40
2,256
269
(1,589)246—
88(2,395)
835
2,043
(218)
(3,535)(433)(674)
68,442
2,363
(809)
—
(13,539)
56,456¥ 19,523
37,147
83
947
1,473
185
(1,264)
1,382
1,153
—
(2,473)
1,259
25,454(7,831)(14,063)411(4,570)58,8182,498(1,199)1,834(15,031)
46,919$ 199,215
379,051
849
9,673
15,033
1,890(12,903)
14,104
11,774—(25,242)
12,849259,743(79,909)(143,506)
4,196(46,637)
600,183
25,493(12,244)
18,717(153,378)
478,772970(60)(44,413)(2,171)
128(13,263)2,265(2,282)(99)
14,848(1,139)(45,217)50—(38,780)(822)
178(4,128)
1,534
—
—
—
(461)
(42,428)513—(395,718)(8,389)1,824(42,127)
15,658———(4,704)(432,942)

4,069
—
9,100
(9,015)(13)
436(30,165)(7,509)—(33,097)

4,343
3,000
32,266(1,000)
(35)
50
(107)
(8,009)(475)
30,032

44,32430,612329,248(10,207)(363)
514(1,096)(81,728)(4,854)306,450(235)(22,093)
34,032
112
137¥ 12,189(1,242)33,281
12,189687—¥ 46,157(12,676)
339,603124,378
7,016—$ 470,998

The accompanying notes are an integral part of these consolidated financial statements.

29

Consolidated Statements of Changes In Net Assets / Consolidated Statements of Cash Flows

Kuraray Co., Ltd. and its Consolidated Subsidiaries

Segment Information
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Industry segment information
Fiscal 2007 (From April 1, 2007 to March 31, 2008)l Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets, depreciation andamortization and capital expenditure
Identifiable assets
Depreciation and amortization
Capital expenditure

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

Total¥ 243,784
840
244,625
194,444
50,180¥ 105,235
652
105,888
99,031
6,856¥ 68,581
18,38786,96880,7306,237¥ 417,601
19,880437,482374,206
63,275¥—(19,880)(19,880)(4,735)(15,144)¥ 417,601—
417,601
369,471
48,130284,786
22,279¥ 23,434

79,276
4,746¥ 7,795

68,0772,305¥ 8,592

432,140
29,331¥ 39,821

58,225
2,153¥ 2,898490,365
31,485¥ 42,720

Chemicals andresinsFibers andtextilesHigh performancematerials, medical
products and others

Total

Eliminated on
consolidationand corporate

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

76,2986,140¥ 11,351

62,208
4,058¥ 6,319

377,839
34,657¥ 36,656

94,0342,489¥ 2,268

471,874
37,147¥ 38,925

Chemicals andresinsFibers andtextilesHigh performancematerials, medical
products and others

Total

Eliminated on
consolidationand corporate

Consolidated
total$ 2,289,110
2,469
2,291,580
1,913,363
378,216$ 980,785
5,372
986,158
977,1449,014$ 574,772
93,265
668,037
623,382
44,654$ 3,844,668
101,1073,945,776
3,513,890
431,885$

2,442,172
249,571$ 193,732

778,555
62,660$ 115,828

634,775
41,412$ 64,487

3,855,503
353,644$ 374,048

959,540
25,407$ 23,147

Eliminated on
consolidationand corporate

Consolidated
total

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

Thousands of U.S. dollars
Fiscal 2008 (From April 1, 2008 to March 31, 2009)l Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets, depreciation andamortization and capital expenditure
Identifiable assets
Depreciation and amortization
Capital expenditure— $ 3,844,668(101,107)—(101,107)
3,844,668
32,0003,545,891(133,108)298,777
4,815,043
379,051$ 397,196

Notes: 1. Industry segments above are split based upon for the classification of sales.
2. Principal products of each industry segment.
(1) Chemicals and resins ................. Poval resin and film, PVB resin and film, EVOH resin EVAL, isoprene chemicals, fine chemicals, methacrylic resin
and resin-finished goods.
(2) Fibers and textiles ...................... KURALON, man-made leather CLARINO, non-woven fabrics KURAFLEX, hook and loop fasteners MAGIC TAPE,
polyester, textiles and others.
(3) High performance materials,
medical products and others...... Medical products, high-performance materials, activated carbon, high-performance membranes, engineering and others.
3. Corporate operating expenses included in the “Eliminated on consolidation and corporate” account totaled ¥14,966 million and ¥13,322 million(US$135,946 thousand) respectively, for years ended March 31, 2008 and 2009 respectively.
The most significant portion of this expense relates to the fundamental research departments and the corporate division of the Companies.
4. Corporate assets in the column “Eliminated on consolidation and corporate” are ¥64,846 million and ¥95,773 million (US$977,284 thousand) as ofMarch 31,2008 and 2009 respectively. Corporate assets mainly represent surplus operating funds, long-term investment funds and assets held by the fundamental research departments and the corporate division of the Companies.
5. In accordance with the amendment of the Corporate Tax Law of Japan, the Company and its domestic consolidated subsidiaries changed the depreciation methodof tangible fixed assets acquired on and after April 1, 2007 to the method based on the amended Corporate Tax Law of Japan. As a result, operating expenses forthis fiscal year increased by ¥459 million in the chemicals and resins segment, ¥144 million in the fibers and textiles segment, ¥84 million in high performance materials, medical products segment, and ¥128 million in all other segments. Hence, each respective amount of operating income decreased in each segment.
6. In accordance with the amendment of the Corporate Tax Law of Japan, the Company and its domestic consolidated subsidiaries now depreciate the difference between 5% of the acquisition cost and the memorandum price of tangible fixed assets acquired on or before March 31, 2007. From the fiscal
year following the fiscal year that a tangible fixed asset is depreciated to the previously allowable 5% limit using a method based on the Corporate Tax
Law of Japan, this difference is depreciated evenly over 5 years and included in depreciation and amortization. The effect of this change in each segment
is not material.
7. The Company and some of its consolidated subsidiaries changed the useful life of some of the machineries effective the current consolidated fiscal year
following the revision of legal useful life and the asset classification in response to the reform of the Corporation Tax Act in 2008. The effect of thischange in each segment is not material.
8. Inventories, which the Company held for sale in the ordinary course of business, were mainly valued at cost using the weighted-average method previously,
and those which had been held beyond a certain period were regularly written down. However, following the adoption of the “Accounting Standards for
Measurement of Inventories (ASBJ Statement No. 9, issued on July 5, 2006)” starting from the current fiscal year, we mainly value these inventories at thelower of cost or net realizable value. The Company recorded loss on disposal of inventories due to the decrease in profitability as non-operating expenses in
the past. However, we started to record it as cost of sales effective the current fiscal year with the adoption of the above-mentioned accounting standards.
As a result of this change, operating income in the current fiscal year decreased by ¥870 million (US$8,880 thousand) in “Chemicals and resins,” by ¥763
million (US$7,793 thousand) in “Fibers and textiles,” by ¥182 million (US$1,866 thousand) in “High performance materials medical products and others”
and by ¥105 million (US$1,074 thousand) in “Eliminated on consolidation and corporate” with the amount calculated using the previous method.

30

Kuraray Annual Report 2009

9. Effective the current fiscal year, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements (Practical Issues Task Force No. 18, issued on May 17, 2006),” and implemented modifications necessary for consolidated financial settlement. The effect of this change in each segment is not material.
10. For the fiscal year ended March 31, 2008, the Company recorded ¥2,256 million in respect to impairment losses as an extraordinary loss. The details of
the impairment loss recorded for each segment is as follows: ¥1,151 million in “Chemicals and resins”; ¥438 million in “Fibers and textiles”; ¥667 millionin “High performance materials, medical products and others.” Assets in each respective segment decreased by the same amount.
11. For the fiscal year ended March 31, 2009, the company recorded an impairment loss of ¥1,473 million (US$15,033 thousand) in respect to impairment
losses as an extraordinary loss. The details of the impairment loss recorded for each segment is as follows: ¥651million (US$6,648 thousand) in“Chemicals and resins”; ¥130 million (US$1,328 thousand) in “Fibers and textiles”; ¥293 million (US$2,998 thousand) in “High performance materials
and medical products”; ¥397 million (US$4,058 thousand) in “Eliminated on consolidation and corporate.” Assets in each respective segment decreasedby the same amount.

Geographic segment information
Fiscal 2007 (From April 1, 2007 to March 31, 2008)l Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets

Millions of yen
Japan

North America

Europe

Asia

Total

¥ 294,017
26,062320,080
264,769
55,311¥ 282,541¥ 31,551
4,500
36,052
33,0882,964¥ 45,177¥ 75,935
4,308
80,24375,312
4,931¥ 94,936¥ 16,096
2,504
18,601
18,487113¥ 14,126¥ 417,601
37,376454,978
391,657
63,320¥ 436,781

Eliminated on
consolidationand corporate¥

Consolidated
total—(37,376)(37,376)(22,186)(15,189)¥ 53,584¥ 417,601—
417,601
369,471
48,130¥ 490,365

Eliminated on
consolidationand corporate

Consolidated
total

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

Japan

North America

Europe

Asia

Total

¥ 251,583
23,943
275,526
242,153
33,372¥ 263,932¥ 28,288
6,060
34,34932,0972,251¥ 35,168¥ 76,961
3,641
80,60275,144
5,458¥ 74,884¥ 19,944
4,181
24,126
23,790335¥ 12,892¥ 376,777
37,826414,604
373,186
41,417¥ 386,877¥—(37,826)(37,826)(25,689)(12,137)¥ 84,996¥ 376,777—
376,777
347,497
29,280¥ 471,874

Eliminated on
consolidationand corporate

Consolidated
total

Thousands of U.S. dollars
Fiscal 2008 (From April 1, 2008 to March 31, 2009)l Net sales and operating income
Net sales(1) Outside customers(2) Inter-segment
Total
Operating expenses
Operating income (loss)
ll Identifiable assets

Japan

North America

Europe

Asia

Total

$ 2,567,174
244,318
2,811,492
2,470,957
340,535$ 2,693,184$ 288,658
61,841
350,500
327,530
22,970$ 358,860$ 785,316
37,159822,475
766,776
55,699$ 764,124$ 203,518
42,670246,189242,764
3,424$ 131,558$ 3,844,668
385,989
4,230,658
3,808,028
422,629$ 3,947,728$— $ 3,844,668(385,989)—(385,989)
3,844,668(262,137)
3,545,891(123,852)
298,777$ 867,315 $ 4,815,043

Notes: 1. The segmentation of country or region is based on the geographical proximity.
2. Major countries and regions included in each category are as follows:(1) North America........................... United States of America(2) Europe ...................................... Germany and Belgium(3) Asia .......................................... Singapore, Hong Kong and China
3. Corporate operating expenses in the column “Eliminated on consolidation and corporate” is the same as in “Note 3” of the “Industry segment.”
4. Corporate assets in the column “Eliminated on consolidation and corporate” are the same as in “Note 4” of the Industry segment.
5. In accordance with the amendment of the Corporate Tax Law of Japan, the Company and its domestic consolidated subsidiaries changed the depreciation
method of tangible fixed assets acquired on and after April 1, 2007 to the method based on the amended Corporate Tax Law of Japan. As a result, operating expenses for this fiscal year, included in “Japan,” increased by ¥816 million, and operating income in the same segment decreased by the same amount.
6. In accordance with the amendment of the Corporate Tax Law of Japan, the Company and its domestic consolidated subsidiaries now depreciate the difference between 5% of the acquisition cost and the memorandum price of tangible fixed assets acquired on or before March 31, 2007. From the fiscal
year following the consolidated fiscal year that a tangible fixed asset is depreciated to the previously allowable 5% limit using a method based on the
Corporate Tax Law of Japan, this difference is depreciated evenly over 5 years and included in depreciation and amortization. The effect of this change ineach segment is not material.
7. The Company and some of its consolidated subsidiaries changed the useful life of some of the machineries effective the current fiscal year following therevision of legal useful life and the asset classification in response to the reform of the Corporation Tax Act in 2008. The effect of this change in each segment is not material.
8. Inventories, which the Company held for sale in the ordinary course of business, were mainly valued at cost using the weighted-average method previously, and those which had been held beyond a certain period were regularly written down. However, following the adoption of the “Accounting Standards
for Measurement of Inventories (ASBJ Statement No. 9, issued on July 5, 2006)” starting from the current fiscal year, we mainly value these inventories atthe lower of cost or net realizable value. The Company recorded loss on disposal of inventories due to the decrease in profitability as non-operating
expenses in the past. However, we started to record it as cost of sales effective the current fiscal year with the adoption of the above-mentioned accounting standards. As a result of this change, operating income in “Japan” decreased by ¥1,816 million (US$18,539 thousand) and that in “Eliminated on
consolidation and corporate” by ¥105 million (US$1,074 thousand) in the current fiscal year.
9. Effective the current fiscal year, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements (Practical Issues Task Force No. 18, issued on May 17, 2006),” and implemented modifications necessary for consolidated financial settlement. The effect of this change in each segment is not material.
10. For the fiscal year ended March 31, 2008, the Company recorded ¥2,256 million in respect to impairment losses as an extraordinary loss. Accordingly,¥2,256 million of impairment loss was recorded under extraordinary loss in “Japan” assets in said segment decreased by the same amount.
11. For the fiscal year ended March 31, 2009, the company recorded an impairment loss of ¥1,473 million (US$15,033 thousand) in respect to impairment
losses as an extraordinary loss. The detail of the impairment loss recorded for each segment is as follows: ¥1,075 million (US$10,975 thousand) in“Japan” and ¥397 million (US$4,058 thousand) in “Eliminated on consolidation and corporate” respectively. Assets in said segment decreased by thesame amount.

31

Segment Information

Millions of yen

Overseas Sales
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen
Fiscal 2007 (From April 1, 2007 to March 31, 2008)lOverseas salesll Consolidated net sales
lll Percentage of consolidated net sales

North America

Europe

Asia

Other

Total

¥ 31,333¥ 80,361¥ 78,681¥ 9,400¥ 199,777

—

—

—

—

417,601

7.5%

19.2%

18.8%

2.3%

47.8%

Millions of yen
Fiscal 2008 (From April 1, 2008 to March 31, 2009)lOverseas salesll Consolidated net sales
lll Percentage of consolidated net sales

North America

Europe

Asia

Other

Total

¥ 28,195¥ 81,283¥ 66,369¥ 8,503¥ 184,350

—

—

—

—

376,777

7.5%

21.6%

17.6%

2.3%

48.9%

Thousands of U.S. dollars
Fiscal 2008 (From April 1, 2008 to March 31, 2009)

North America

Europe

Asia

Other

Total

l

$ 287,705$ 829,424$ 677,235$ 86,766$ 1,881,130

Overseas salesll Consolidated net sales
lll Percentage of consolidated net sales

—

—

—

—

3,844,668

7.5%

21.6%

17.6%

2.3%

48.9%

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

32

Kuraray Annual Report 2009

Notes to Consolidated Financial Statements
Kuraray Co., Ltd. and its Consolidated Subsidiaries / Years ended March 31, 2009 and 2008

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

1. Basis of presenting consolidated financial statements:
The accompanying consolidated financial statements of Kuraray

1. Basis of presenting consolidated financial statements:
The accompanying consolidated financial statements of KurarayCo., Ltd. (the “Company”) and its consolidated subsidiaries areprepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects to applicationand disclosure requirements of International Financial ReportingStandards, and are filed with the Japanese Ministry of FinanceCo., Ltd. (the “Company”) and its consolidated subsidiaries areprepared on the basis of accounting principles generally accepted in Japan, which are different in certain respects to applicationand disclosure requirements of International Financial ReportingStandards, and are filed with the Japanese Ministry of Finance(the “MOF”) as required by the Financial Instruments andExchange Law of Japan. The accompanying consolidated financial statements are translation of those filed with the MOF.
Each amount of the consolidated financial statements and(the “MOF”) as required by the Financial Instruments andExchange Law of Japan. The accompanying consolidated financial statements are translation of those filed with the MOF.
Each amount of the consolidated financial statements andnotes is rounded down to the nearest 1 million.

notes is rounded down to the nearest 1 million yen (in the caseof the translation into U.S. dollars, they have been rounded
down to the nearest 1 thousand dollars).
The United States dollar amounts included herein are provided solely for convenience of readers outside Japan and arestated, at the rate of ¥98=$1, the approximate exchange rate
prevailing on March 31, 2009. The translations should not be
construed as representations that the Japanese yen amounts
have been, could have been or could in the future be, converted into United States dollars at this or any other rate.

2. Scope of consolidation(1) Number of consolidated subsidiaries: 34(Major consolidated subsidiaries)
KURARAY TRADING Co., LTD., KURARAY ENGINEERING

2. Scope of consolidation(1) Number of consolidated subsidiaries: 34(Major consolidated subsidiaries)
KURARAY TRADING Co., LTD., KURARAY CHEMICAL

CO., LTD., KURARAY CHEMICAL CO., LTD., Kuraray Plastics
Co., Ltd., Kuraray Medical Inc., KURARAY FASTENING CO.,LTD., KURARAY KURAFLEX CO., LTD., Kuraray Techno Co.,
Ltd., KURARAY FUDOSAN CO., LTD., KURARAYLIVING CO.,CO., LTD., KURARAY ENGINEERING CO., LTD., Kuraray
Luminas Co., Ltd., Kuraray Medical Inc., Kuraray Plastics
Co., Ltd., KURARAYLIVING CO., LTD., Kuraray TechnoCo., Ltd., KURARAY BUSINESS SERVICE CO., LTD.,

LTD., Kuraray Interior Co., Ltd., TECHNO SOFT CO., LTD.,
Kuraray Travel Service Corporation, KURARAY BUSINESSKURARAY KURAFLEX CO., LTD., KURARAY FASTENING
CO., LTD., OKAYAMA RINKOH CO., LTD., TECHNO SOFTSERVICE CO., LTD., KurarayKiko Co., Ltd., Iruma Country
Club Co., Ltd., OKAYAMA RINKOH CO., LTD., Kuraray
Luminas Co., Ltd., KURARAY SAIJO CO., LTD., KURARAYCO., LTD., Kuraray Travel Service Corporation, KURARAYFUDOSAN CO., LTD., Kuraray Interior Co., Ltd.,
KurarayKiko Co., Ltd., KURARAY SAIJO CO., LTD.,TAMASHIMA COMPANY.,LIMITED., Kyosei Chemical Co.,
Ltd., Kuraray Holdings U.S.A., Inc., Kuraray America, Inc.,

KURARAY TAMASHIMA COMPANY., LIMITED., Iruma
Country Club Co., Ltd., Kyosei Chemical Co., Ltd.,

Eval Company of America, SEPTON Company of America,
Kuraray Europe GmbH, EVAL Europe N.V., Kuraray
Singapore Pte. Ltd., Kuraray Specialities Asia, Pte., Ltd.,

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

POVAL ASIA PTE LTD., Kuraray Hong Kong Co., Ltd., andother consolidated subsidiaries
Kuraray Luminas Co., Ltd., formerly K·C Luminas Co.,
Ltd. which had been an unconsolidated subsidiary until(Shanghai) Co., Ltd., and other consolidated subsidiaries
Kuraray (Shanghai) Co., Ltd. and Kuraray Trading(Shanghai) Co., Ltd., which had been unconsolidated subsidiaries until the previous fiscal year, are consolidated

the previous fiscal year, is consolidated from this fiscal
year because it becomes materially significant.

from this fiscal year because they have become materiallysignificant.

33

Overseas Sales / Notes to Consolidated Financial Statements: (1) Significant accounting policies(1) SIGNIFICANT ACCOUNTING POLICIESFiscal 2007
(From April 1, 2007 to March 31, 2008)

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

Eval Company of America and SEPTON Company of

POVAL ASIA PTE LTD., which had been an affiliatedcompany accounted for using the equity method until theprevious fiscal year, became a consolidated subsidiary

America are excluded from the scope of consolidationfrom this fiscal year because they were merged byfrom this fiscal year because all of its shares were purchased by the Group on January 31, 2008. Since thedeemed acquisition date is set to the end of this fiscal year,

absorption with Kuraray’s consolidated subsidiary Kuraray
America, Inc. in January 2008.
Both the consolidated subsidiaries, Kuraray Singapore

only the balance sheet as of the year ended December
2007 is consolidated, and the Statements of income is prepared using the equity-method of accounting.
Kuraray America, Inc. merged by absorption with Eval
Company of America and SEPTON Company of America

Pte., Ltd. and Kuraray Specialities Asia Pte., Ltd. consolidated their business into Kuraray Asia Pacific Pte. Ltd., anda resolution was made in October 2008 to dissolve them.

on January 1, 2008.
(2) Names of major unconsolidated subsidiaries(Major unconsolidated subsidiaries)(2) Names of major unconsolidated subsidiaries(Major unconsolidated subsidiaries)

Kuraray Okayama Spinning CO., LTD.

Same as Fiscal 2007

(Reasons for excluding from the scope of consolidation)
The total assets, total sales and net income and loss
(amount corresponding to the owned interest) and(Reasons for excluding from the scope of consolidation)
Same as Fiscal 2007

retained earnings (amount corresponding to the owned
interest) of the unconsolidated subsidiary have no material effect on the consolidated financial statements.
3. Scope of application of equity method affiliates and subsidiaries(1) Number of unconsolidated subsidiaries accounted forusing the equity method: 4

3. Scope of application of equity method affiliates and subsidiaries(1) Number of unconsolidated subsidiaries accounted forusing the equity method: 3(Major unconsolidated subsidiaries)
Kuraray Okayama Spinning CO., LTD.
Mitsukura Chemical Co., Ltd., which was a company
accounted for using the equity method in the previous
fiscal year, is excluded from the equity-method of(Major unconsolidated subsidiaries)
Kuraray Okayama Spinning CO., LTD.
Nihonkai Acetylene Co., Ltd., which had been a company accounted for using the equity method until theprevious fiscal year, is excluded from the equity method of

accounting from this fiscal year due to the merger withKURARAY CHEMICAL CO., LTD.
(2) Number of affiliates accounted for using the equity

accounting from this fiscal year because it was liquidated.

method: 2(Names of major affiliates)
THE KURASHIKI KOKUSAI HOTEL LTD.
POVAL ASIA PTE LTD., which had been an affiliatedcompany accounted for using the equity method until theprevious fiscal year, became a consolidated subsidiaryfrom this fiscal year because all of its shares were purchased by the Group on January 31, 2008. Since thedeemed acquisition date is set to the end of this fiscal year,
only the balance sheet as of the year ended December
2007 is consolidated, and the statements of income is prepared using the equity-method of accounting.

34

Kuraray Annual Report 2009

(2) Number of affiliates accounted for using the equity
method: 2(Names of major affiliates)
THE KURASHIKI KOKUSAI HOTEL LTD.

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(3) Unconsolidated subsidiaries (KURARAY (SHANGHAI) Co.,
Ltd. and other unconsolidated subsidiaries), and affiliates(Hexin Kuraray Micro Fiber Leather (Jiaxing) Co., Ltd., and(3) Unconsolidated subsidiaries (KURARAY AQUA CO., LTD. andother unconsolidated subsidiaries), and affiliates (Hexinno material effect on the consolidated financial statements.
(4) Accounting period of companies accounted for using theequity method
In the case where the accounting period of companies
accounted for using the equity method is different to theKuraray Micro Fiber Leather (Jiaxing) Co., Ltd., and otheraffiliates) have not accounted for using the equity method,
because their net income and loss and retained earnings(amount corresponding to the owned interest) have nomaterial effect on the consolidated financial statements.
(4) —consolidated accounting period, consolidated financial
statements are prepared using the relevant accounting
period of such companies.
4. Fiscal years of consolidated subsidiaries
The fiscal year-end of the Company’s foreign consolidated
subsidiaries is December 31. The consolidated financial statements incorporate the accounts of these companies with

4. Fiscal years of consolidated subsidiaries
The fiscal year-end of the Company’s foreign consolidated
subsidiaries is December 31. The consolidated financial statements incorporate the accounts of these companies withadjustments for significant transactions arising during theperiod from December 31 to March 31.
Kuraray Europe GmbHadjustments for significant transactions arising during theperiod from December 31 to March 31.
Kuraray Europe GmbHOOO TROSIFOLOOO TROSIFOLEVAL Europe N.V.
Kuraray Singapore Pte., Ltd.
Kuraray Specialities Asia Pte., Ltd.
POVAL ASIA PTE LTD.
Kuraray Hong Kong Co., Ltd.
Kuraray Holdings U.S.A., Inc.
Kuraray America, Inc.
Eval Company of America
SEPTON Company of America
5. Accounting polices(1) Valuation standards and methods for significant assetsa) Investments in securities
Available-for-sale securities for which a market price is

EVAL Europe N.V.
Kuraray Asia Pacific Pte. Ltd.
Kuraray Singapore Pte., Ltd.
Kuraray Specialities Asia Pte., Ltd.
Kuraray Hong Kong Co., Ltd.
Kuraray (Shanghai) Co., Ltd.
Kuraray Trading (Shanghai) Co., Ltd.
Kuraray Holdings U.S.A., Inc.
Kuraray America, Inc.
5. Accounting polices(1) Valuation standards and methods for significant assetsa) Investments in securities
Same as Fiscal 2007

available are stated at fair value at a year-end.
(Net unrealized gains or losses on these securities arerecorded as a separate component of “Net assets”, atthe net of tax amount. The cost of securities sold isdetermined based on the moving average cost of all
such securities held at the time of sale.)
Other securities for which a market price is not available are stated at cost determined by the moving
average method.
b) Derivative financial instruments
All derivatives are stated at fair value.

b) Derivative financial instruments
Same as Fiscal 200735

Notes to Consolidated Financial Statements: (1) Significant accounting policies

other affiliates) have not accounted for using the equity
method, because their net income and loss and retained
earnings (amount corresponding to the owned interest) have

Fiscal 2007
(From April 1, 2007 to March 31, 2008)c) Inventories
Inventories other than supplies are principally stated atcost determined using the periodic average method.

c) Inventories
Finished goods, raw materials, and work-in-process are
principally stated at the lower of cost or net realizable

Supplies are principally stated at cost determinedusing the moving average method.

value.
Supplies are principally stated at the lower of cost or
net realizable value (Refer to Note (2)).

(2) Depreciation method of significant depreciable assetsa) Tangible fixed assets
Depreciation, except for buildings, is principally computed using the declining-balance method over theestimated useful lives of the assets. The depreciation(2) Depreciation method of significant depreciable assetsa) Tangible fixed assets (excluding lease assets)
Depreciation, except for buildings, is principally computed using the declining-balance method over theestimated useful lives of the assets. The depreciation

method for buildings is principally computed using thestraight-line method.
The estimated useful lives of assets are primarily as

method for buildings is principally computed using thestraight-line method.
The estimated useful lives of assets are primarily as

follows:• Buildings and structures
31 to 50 years• Machinery and equipment 4 to 10 years(Change in accounting policies)
In accordance with the amendment of the Corporate

follows:• Buildings and structures
31 to 50 years• Machinery and equipment 4 to 9 years(Additional information)
The Company and some of its consolidated subsidiaries

Tax Law of Japan, the Company and its domestic consolidated subsidiaries changed the depreciation methodof tangible fixed assets acquired on and after April 1,changed the useful life of some of the machineries
effective the current fiscal year following the revision oflegal useful life and the asset classification in response

2007 to the method based on the amended Corporate
Tax Law of Japan. As a result, operating income, ordinary income and income before income taxes
decreased ¥816 million, ¥818 million and ¥818 million,

to the reform of the Corporation Tax Act in 2008. The
effect of this change on operating income, ordinary
income and income before income taxes is not material.

respectively, compared with what would have beenreported under the previous accounting policy.
(Additional information)
In accordance with the amendment of the Corporate Tax
Law of Japan, the Company and its domestic consolidated
subsidiaries now depreciate the difference between 5% of
the acquisition cost and the memorandum price of tangible
fixed assets acquired on or before March 31, 2007. From
the fiscal year following the consolidated fiscal year that atangible fixed asset is depreciated to the previously allowable 5% limit using a method based on the Corporate Tax
Law of Japan, this difference is depreciated evenly over 5
years and included in depreciation and amortization. The
effect of this change on operating income, ordinary income
and income before income taxes is not material.

36

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

Kuraray Annual Report 2009

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2008
(From April 1, 2008 to March 31, 2009)b) Intangible assets
Amortization is principally computed using the straightline method.

b) Intangible assets (excluding lease assets)
Amortization is principally computed using the straightline method.

The numbers of years for amortization are primarily
as follows:• Goodwill 15 years

The numbers of years for amortization are primarily
as follows:• Goodwill 15 years(3) Accounting for significant allowancesa) Allowance for doubtful accounts
The Company and its consolidated subsidiaries provide
for doubtful accounts principally at an amount computed based on the historical bad debt ratio during a certain
reference period plus an estimated uncollectible amountbased on the analysis of certain individual accounts.
b) Provision for bonuses(3) Accounting for significant allowancesa) Allowance for doubtful accounts
Same as Fiscal 2007b) Provision for bonuses

Provision for bonuses is stated at the estimated amountof the bonuses to be paid to employees based on theirservices provided for the fiscal year.
c) Provision for retirement benefits
In order to provide for employee retirement benefits, aprovision is made based on the retirement benefit liabilities as of the end of the fiscal year and theNotes to Consolidated Financial Statements: (1) Significant accounting policies—

However, minor amounts are charged or credited toincome directly in the year of acquisition.
c) Lease assets
Amortization is principally computed using the straightline method.

Same as Fiscal 2007c) Provision for retirement benefits
Same as Fiscal 2007

forecasted pension assets.
The prior service cost is amortized on a straight-line basis
over a certain period (mainly 15 years), which falls within the
average remaining years of service of the eligible employees.
Actuarial gains or losses are amortized on a straight-line basis
over a certain period (mainly 15 years) which falls within the
average remaining years of service of the eligible employees,
allocated proportionately commencing the next year inwhich each respective gains or losses occurred.
d) Provision for directors’ retirement benefitsd) Provision for directors’ retirement benefits

Some of the consolidated subsidiaries accrue the liabilities for their retirement benefits for directors andcorporate auditors, which is, in general, based uponSame as Fiscal 2007

the amounts required by the subsidiaries’ internal regulations.
(4) Leases
Leases that do not transfer ownership of the assets areaccounted for as operating leases.

(4) —

37

Fiscal 2007
(From April 1, 2007 to March 31, 2008)(5) Significant hedge accountinga) Hedge accounting
The Company and its consolidated subsidiaries adopt

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(5) Significant hedge accountinga) Hedge accounting
Same as Fiscal 2007

the method for hedging instruments whereby any
gains or losses are deferred over the period of thehedging contract and are offset against the deferredlosses or gains on the related hedged items. However,when an interest rate swap contract meets certain conditions, the net amount to be paid or received under
the contract is added to or deducted from the intereston the hedged items.
b) Hedging instruments and hedged items
Hedging instruments:

Hedged items:

Forward foreignexchange contracts
Currency swap contracts

Future transactions inforeign currency
Future transactions inforeign currency
Interest expenses

Interest rate swap contractsc) Hedging policy

The Company and its consolidated subsidiaries use
financial instruments to hedge interest rate fluctuationand exchange fluctuation risks in accordance with theirinternal policies and procedures.
d) Assessment method for hedge effectiveness
The Company and its consolidated subsidiaries evaluate the effectiveness of their hedging activities byreference to the accumulated gains or losses on thehedging instruments and the related hedged items.
Interest rate swap contracts, which meet certain
conditions, are evaluated for effectiveness at thecommencement of the hedge.
(6) Other accounting policiesa) Accounting for consumption tax
Consumption tax on goods and services are not included in the revenue and expense amounts.

38

Kuraray Annual Report 2009b) Hedging instruments and hedged items
Same as Fiscal 2007c) Hedging policy
Same as Fiscal 2007d) Assessment method for hedge effectivenessSame as Fiscal 2007

(6) Other accounting policiesa) Accounting for consumption tax
Same as Fiscal 2007

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

6. Valuation of assets and liabilities of consolidated subsidiaries
Assets and liabilities of the consolidated subsidiaries arerecorded at fair value at the time of acquisition.

6. Valuation of assets and liabilities of consolidated subsidiaries
Same as Fiscal 2007

7. Amortization of goodwill and negative goodwill
The Company amortizes goodwill and negative goodwill

7. Amortization of goodwill and negative goodwill
The Company amortizes goodwill and negative goodwill using

using the straight-line method over the estimated period of
benefit with the exception of minor amounts, which arecharged or credited to income directly in the year of acquisition. Foreign consolidated subsidiaries amortize goodwill andnegative goodwill per the applicable accounting standard in

the straight-line method over the estimated period of benefit
with the exception of minor amounts, which are charged or
credited to income directly in the year of acquisition.

each country.

Cash and cash equivalents include all highly liquid investments with an original maturity of three months or less, thatare readily convertible to known amounts of cash which are
subject to an insignificant risk of changes in value.

8. Cash and cash equivalents

Notes to Consolidated Financial Statements: (1) Significant accounting policies

8. Cash and cash equivalents

Same as Fiscal 200739

(2) SIGNIFICANT CHANGES IN ACCOUNTING POLICIES CONCERNING THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS
Fiscal 2007
(From April 1, 2007 to March 31, 2008)—

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Accounting standards for measurement of inventories)
Inventories, which the Company held for sale in the ordinary
course of business, were mainly valued at cost using theweighted-average method previously, and those which had
been held beyond a certain period were regularly written
down. However, following the adoption of the “AccountingStandards for Measurement of Inventories (ASBJ Statement No.
9, issued on July 5, 2006)” starting from the current fiscal year,
we mainly value these inventories at the lower of cost or net
realizable value.
As a result, operating income and ordinary income in thecurrent fiscal year decreased by ¥380 million (US$3,886 thousands) each and income before income taxes by ¥1,534 million(US$15,661 thousands) compared with those calculated using
the previous method.
The Company recorded loss on disposal of inventories due tothe decrease in profitability as non-operating expenses in thepast. However, we started to record it as cost of sales effective
the current fiscal year with the adoption of the above-mentioned accounting standards.
As a result of this change, operating income in the current fiscal
year decreased by ¥1,541 million (US$15,727 thousands) compared with the amount calculated using the previous method.
There was no impact on ordinary income and income before
income taxes from the adoption of this standard during thesame period.
The effects on segment information are described in the relevant sections of this Annual Report.

—(Practical solutions on unification of accounting policies applied
to foreign subsidiaries)
Effective the current fiscal year, the Company adopted“Practical Solution on Unification of Accounting Policies
Applied to Foreign Subsidiaries for Consolidated Financial
Statements (Practical Issues Task Force No. 18, issued on May
17, 2006),” and implemented modifications necessary for consolidated financial statements.
The effect of this change on operating income, ordinary
income and income before income taxes is not material.
The effects on segment information are described in the relevant sections of this Annual Report.

40

Kuraray Annual Report 2009

—

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Accounting standards for lease transactions)
Financial leases without transfer of ownership were accounted
for on a basis similar to ordinary rental transactions previously.
However, effective the current fiscal year, the Company adopted the “Accounting Standard for Lease Transactions (ASBJ
Statement No. 13, issued on June 17, 1993 by Section 1 of theBusiness Accounting Council, and revised on March 30, 2007)”and the “Guidance on Accounting Standard for Lease
Transactions (ASBJ Guidance No. 16, issued on January 18,
1994 by the Accounting System Committee of the JapaneseInstitute of Certified Public Accountants, and revised on March
30, 2007)” and they are now accounted for on a basis similar
to ordinary sales transactions. Depreciation on lease assets concerning financial leases transactions without transfer ofownership is calculated by the straight-line method thatassumes a residual value of zero based on the estimated usefullife that corresponds to the lease period.
There was no impact on operating income, ordinary income andincome before income taxes from the adoption of this standard.

(3) CHANGES IN PRESENTATION
Fiscal 2007
(From April 1, 2007 to March 31, 2008)—

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

41

Notes to Consolidated Financial Statements: (2) Significant changes in accounting policies concerning the preparation of consolidated financial statements / (3) Changes in presentation

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(Consolidated statements of income)“Foreign exchange losses,” which had been reported as “miscellaneous expenses” in the previous fiscal year, are presented(Consolidated statements of income)“Foreign exchange losses,” which had been presented separately in the previous fiscal year, is included in “Other” ofseparately since its amount exceeds 10/100 of non-operating
expenses in the current fiscal year. “Foreign exchange losses”
was ¥544 million in the previous fiscal year.

non-operating expenses since its amount is 10/100 or less of
non-operating expenses in the current fiscal year. “Foreignexchange losses” is ¥56 million (US$578 thousand) in the current fiscal year.
“Personnel expenses for seconded employees,” which had
been presented as “Other” in Non-operating expenses in theprevious fiscal year, are reported separately since its amountexceeds 10/100 of non-operating expenses in the current fiscal
year. “Personnel expenses for seconded employees” was ¥811
million in the previous fiscal year.

(Consolidated statements of cash flows)“Purchase of long-term prepaid expenses,” which had beenreported separately in the “Net cash provided by (used in)investment activities” in the previous fiscal year, is presented as“Other, net” in the current fiscal year due to the significant—

decreese in its balance. “Purchase of long-term prepaid expenses” is ¥503 million in the current fiscal year.
(4) ADDITIONAL INFORMATION
Fiscal 2007
(From April 1, 2007 to March 31, 2008)—

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

The Company had previously posted deferred tax liabilities forthe amount of taxes to be imposed in Japan on future dividend
from retained earnings of foreign subsidiaries. A new Japanese
tax exemption for dividends paid by foreign subsidiaries
became effective for fiscal years beginning on or after April 1,
2009. Due to the new rule, dividends from certain foreign subsidiaries results in increasing tax expense as a whole, therefore
the Company revised its dividend policy that these subsidiaries
do not pay dividends to the Company.
In response to this, the Company reversed part of deferred
tax liabilities, which was recorded in the previous period, in thecurrent fiscal year.
As a result, net income in the current fiscal year increased by¥1,471 million (US$15,019 thousand) compared with theamount that would have been posted under the previous
method.

42

Kuraray Annual Report 2009

(5) NOTES TO CONSOLIDATED BALANCE SHEETS
Fiscal 2007
(From April 1, 2007 to March 31, 2008)*2.

Accumulated depreciation of tangible fixed assets:¥447,253 million
Accumulated amount of reduced-value entry as a result

*1.
*2.

of receiving government subsidy, and so on that are subtracted from the acquisition price of tangible fixed assets
Buildings:¥1,186 million

Buildings and Structures:¥1,992 million (US$20,330 thousand)(including a ¥279 million (US$2,848 Thousand) deduc-(including a ¥48 million deduction for this fiscal year)
Structures:¥526 million(including ¥4 million in the amount of subtraction forthis fiscal year)
Machinery:¥413 million

tion for this fiscal year)
Machinery, equipment and vehicles:¥717 million (US$7,322 thousand)(including ¥309million (US$3,157 thousand) in theamount of subtraction for this fiscal year)(including ¥171 million in the amount of subtraction
for this fiscal year)
Tools, instruments and fixtures:Land:¥1,257 million (US$12,830 thousand)Construction in progress:¥75 million (US$765 thousand)¥30 million(including ¥11 million in the amount of subtraction forthis fiscal year)Land:¥1,257 million

*3.
4.

*5.

Investments in unconsolidated subsidiaries and affiliates¥3,414 million
Investment securities:
Commitments and contingencies
The Company is contingently liable for guarantees forbank loans of unconsolidated subsidiaries, affiliates
and others.

Accumulated depreciation of tangible fixed assets:¥455,649 million (US$4,649,481 thousand)Accumulated amount of reduced-value entry as a resultof receiving government subsidy, and so on that are subtracted from the acquisition price of tangible fixed assets(including ¥75 million (US$765 thousand) in the amountof subtraction for this fiscal year)
Other:¥35 million (US$362 thousand)(including ¥4 million (US$50 thousand) in the amount ofsubtraction for this fiscal year)*3.
4.

Investments in unconsolidated subsidiaries and affiliates
Investment securities: ¥2,746 million (US$28,027 thousand)Commitments and contingencies
The Company is contingently liable for guarantees forbank loans of unconsolidated subsidiaries, affiliates
and others.

The company names and the guarantees of their liabilities
are as follows:
Social welfare corporation
Ishii Kinen Aizenen (Joint and several guarantee):

The company names and the guarantees of their liabilities
are as follows:
Social welfare corporation
Ishii Kinen Aizenen (Joint and several guarantee):¥2,202 million
KURARAY MAGICTAPE (SHANGHAI) CO., LTD. and¥2,071 million (US$21,137 thousand)
KURARAY MAGICTAPE (SHANGHAI) CO., LTD. andanother company:¥99 million(including foreign currency-denominated guarantees
for 2 companies):
CNY7,000,000
Total¥2,302 million

another company:¥86 million (US$879 thousand)(including foreign currency-denominated guarantees
for 2 companies):
CNY6,000,000
Total¥2,157 million (US$22,016 thousand)Security assets and secured liabilities
Investment securities¥46 million
The above investment securities have been provided as*5.

Security assets and secured liabilities
Investment securities¥46 million (US$469 thousand)Same as Fiscal 2007.

collateral for loans of Mizushima Eco-works Co., Ltd.

43

Notes to Consolidated Financial Statements: (4) Additional information / (5) Notes to consolidated balance sheets*1.

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(6) NOTES TO CONSOLIDATED STATEMENTS OF INCOME
Fiscal 2007
(From April 1, 2007 to March 31, 2008)*1.

Major items and the amounts under “Selling, general andadministrative expenses” are as follows:
Freight and storage

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

¥14,365 million¥13,072 million (US$133,389 thousand)Research and development¥15,210 million (US$155,204 thousand)Research and development¥14,185 million
Salaries and legal welfare expense

Salaries and legal welfare expense¥12,485 million (US$127,399 thousand)
Provision for bonuses¥3,353 million (US$34,214 thousand)
Provision for retirement benefits for employees¥12,579 million
Provision for bonuses¥4,063 million
Provision for retirement benefits for employees*2.

¥678 million
Research and development expenses included in general,administrative and current manufacturing expenses*2.

¥969 million (US$9,889 thousand)Research and development expenses included in general,administrative and current manufacturing expenses*3.

The gain is incurred by the sales of stocks.

*4.

The Kuraray Group reclassified unexpected utilization
variance, which was caused by the extraordinary change¥15,250 million*3.
*4.

The gain is incurred by the sales of stocks including thoseof the consolidated subsidiary.
—

Major items and the amounts under “Selling, general andadministrative expenses” are as follows:
Freight and storage¥16,358 million (US$166,920 thousand)in economic environment, from manufacturing expenses
to extraordinary losses as “Abnormally low utilization
variance.”
Since Group adopts standard costing and reviews standard cost every 6months, “Abnormally low utilization
variance” is presented as extraordinary losses when actual
utilization is significantly below the projected utilization during the 6 months in accordance with the Group’s policy.
Accordingly, “Abnormally low utilization variance” of¥3,994 million (US$40,755 thousand) are recognized as
extraordinary losses for the second half of the current fiscal year.

*5.

44

Impairment loss

*5.

The above mentioned amount includes 651 million(US$6,642 thousand) that was presented as manufacturing expenses in the quarterly report for the third quarterof the current fiscal year.
Impairment loss

(1) Identifying the cash-generating unit to which an asset
belongs
As a minimum unit for generating cash flow, business(1) Identifying the cash-generating unit to which an asset
belongs
As a minimum unit for generating cash flow, businessassets are grouped into sections used for management
accounting, and leased assets, idle assets, and assets

assets are grouped into sections used for management
accounting, and lent assets, idle assets, and assets associ-associated with discontinued or reorganized businesses
are assessed individually. Other head office and researchfacilities are shared assets.

ated with discontinued or reorganized businesses areassessed individually. Other head office and research facilities are shared assets.

Kuraray Annual Report 2009

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(2) Significant components of impairment loss
The impairment loss is ¥2,256 million in total.
The impairment loss on business assets is ¥438 million(2) Significant components of impairment loss
The impairment loss is ¥1,473 million (US$15,033 thousand) in total.

and on assets associated with discontinued businesses is¥1,818 million.
The significant components of impairment loss for the

The impairment loss on assets associated with discontinued or reorganized businesses is ¥1,473 million(US$15,033 thousand).

fiscal year ending March 31, 2008 are as follows:

The significant components of impairment loss for the
fiscal year ending March 31, 2009 are as follows:

Assets

Usage

Type

Tainai,
Niigata
Prefecture

Assetsassociated withdiscontinued or
reorganizedbusiness

Plant andequipment
for aromachemicals

Plant and ¥1,151 million
equipment

Impairment loss

Kurashiki,
OkayamaPrefecture

Assetsassociated withdiscontinued or
reorganizedbusiness

Plant and
Plant and ¥667 million
equipment equipfor high-flux ment
filter membranes for
artificial
kidneys

Location

AssetsUsage

Kamishu,
Ibaragi
Prefecture

Assets planned
to be discontinued (thatbecame unnecessary due tothe start ofoperations of
new plant
and/or equipment)

Plant and
Plant and ¥245 million
equipment equip(US$2,504
for nonane- ment
thousand)diamineType

Impairment loss

Kurashiki,
OkayamaPrefecture

Assets planned
to be discontinued (thatbecame unnecessary due torearrangementof equipment)

Plant andequipment
for finechemicals

Plant and ¥226 million
equip(US$2,307
ment
thousand)After separately examining the indications for impairmentwith respect to those businesses whose income from

Assets associated with discontinued or reorganized businesses held for sale can be converted for use in otheroperations continue to be negative, and the recoverable
amount falls short of the book value, the book value is tobe reduced to the recoverable amount. The recoverable
amount is measured based on the value in use and calculated with a 5% discount off the future cash flow.

businesses or discarded. For items to be sold or discarded,
the net book value of the assets is to be reduced to theirrecoverable amount. The recoverable amount is measured
based on the net sale price and is calculated by deducting
the estimated disposal cost from the estimated sale price.

Assets associated with discontinued or reorganizedbusinesses held for sale can be converted for use in otherbusinesses or discarded. For items to be sold or discarded,
the net book value of the assets is to be reduced to theirrecoverable amount. The recoverable amount is measured*6.

based on the net sale price and is calculated by deducting
the estimated disposal cost from the estimated sale price.
The loss is mainly incurred due to the write-down of listed*6.

The loss is incurred due to the write-down of stocks,*7.

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

including those of subsidiaries and affiliates.
The loss is mainly attributable to the costs of liquidation of*8.

Kurashiki Plant and the costs incurred by the stoppage ofthe aroma chemicals production.
The loss is mainly attributable to the disposal of machinery.

businesses occurred in subsidiaries and affiliates.
*8.

The loss is mainly attributable to the disposal of machinery.

45

Notes to Consolidated Financial Statements: (6) Notes to consolidated statements of income

Location

(7) NOTES TO CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFISCAL 2007 (From April 1, 2007 to March 31, 2008)
1. Type and number of issued shares of common stock and treasury stock

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

Number of shares
as of March 31, 2007
(thousands of shares)

Increase in thenumber of shares(thousands of shares)

Decrease in thenumber of shares(thousands of shares)

Number of shares
as of March 31, 2008
(thousands of shares)

382,863
382,863—
14,877
14,877———
20,256
20,256

—
—
—
491
491

382,863
382,863—
34,642
34,642

Notes: 1. Treasury stock (common stock) increased by 20,136 thousand shares upon the resolution of the Board of Directors to acquire additional stock. In addition, there was an increase of 120 thousand shares attributable to the purchase of less-than-one unit shares.
2. The decrease in treasury stock (common stock) is attributable to a transfer of shares upon the exercise of subscription rights (481 thousand shares) andthe acquisition of less-than-one-unit shares by the shareholders (10 thousand shares).

2. Subscription rights to shares
The Company granted its directors and executive officers the subscription rights to the Company shares as stock option. The balanceof the subscription rights to shares as of March 31, 2008 is ¥69 million.
3. Dividends(1) Amount of dividends paid
Resolution

General shareholders’meeting held on
June 20, 2007
Board of directors
held on October30, 2007

Type of share

Amount of dividends(Millions of yen)

Dividend pershare (yen)Record date

Effective dateCommon stock

3,679

10.00

March 31, 2007

June 21, 2007

Common stock

3,829

11.00

September 30, 2007

December 3, 2007

(2) Dividends whose effective date is after the end of Fiscal 2007 and record date is included in the Fiscal 2007.
Resolution

Type of share

General shareholders’Common Stockmeeting held on
June 19, 2008

Amount of dividends(Millions of yen)

Source ofdividends

Dividend pershare (yen)Record date

Effective date

3,830

Retained earnings

11.00

March 31, 2008

June 20, 2008

4. Increase in Retained earnings “Other” is due to the recognition of unrecognized pension liabilities in “Other comprehensive income.”

46

Kuraray Annual Report 2009

Number of shares
as of March 31, 2007
(thousands of shares)

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

Increase in thenumber of shares(thousands of shares)

382,863
382,863—
34,642
34,642

Decrease in thenumber of shares(thousands of shares)

Number of shares
as of March 31, 2008
(thousands of shares)

—
—
—
104
104

382,863
382,863—
34,64734,647

—
—
—
109
109

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

2. Subscription rights to shares
The Company granted its directors and executive officers the subscription rights to the Company shares as stock option. The balanceof the subscription rights to shares as of March 31, 2009 is ¥109 million (US$1,114 thousand).
3. Dividends(1) Amount of dividends paid
Resolution

General shareholders’meeting held on
June 20, 2007
Board of directors
held on October30, 2007
Resolution

General shareholders’meeting held on
June 20, 2007
Board of directors
held on October30, 2007

Type of share

Amount of dividends(Millions of yen)

Dividend pershare (yen)Record date

Effective dateCommon stock

3,830

11.00

March 31, 2008

June 20, 2008

Common stock

4,178

12.00

September 30, 2008

December 1, 2008

Type of share

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

Dividend pershare (U.S. dollars)

Record date

Effective dateCommon stock

39,086

0.10

March 31, 2008

June 20, 2008

Common stock

42,6420.12

September 30, 2008

December 1, 2008

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

Type of share

General shareholders’meeting held on
Common Stock
June 19, 2008
Resolution

Type of share

General shareholders’meeting held on
Common Stock
June 19, 2008

Amount of dividends(Millions of yen)

Source ofdividends

Dividend pershare (yen)Record date

Effective date

3,482

Retained earnings

11.00

March 31, 2009

June 22, 2009

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

Source ofdividends

Dividend pershare (U.S. dollars)

Record date

Effective date

35,532Retained earnings

0.10

March 31, 2009

June 22, 2009

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

47

Notes to Consolidated Financial Statements: (7) Notes to consolidated statements of changes in net assets fiscal 2007 / (8) Notes to consolidated statements of changes in net assets fiscal 2008

(8) NOTES TO CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Type and number of issued shares of common stock and treasury stock(9) NOTES TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

1. Cash and cash equivalents as of the year-end are reconciled

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

to the accounts reported in the consolidated balance sheets
as follows:(As of March 31, 2008)
Millions of Yen

Cash on hand and in banks
Time deposits with a deposit

11,109Cash on hand and in banks
Time deposits with a deposit

37,527

382,935

period of 3 months or more
Marketable securities withoriginal maturities of threemonths or less
Cash and cash equivalents(920)

period of 3 months or more
Marketable securities withoriginal maturities of threemonths or less
Cash and cash equivalents(869)(8,873)2,000
12,189

2. Assets and liabilities of the company which became a consolidated subsidiary during Fiscal 2007 upon the acquisitionof shares
The assets and liabilities, acquisition price of shares andexpenses (net) for the company which became a consolidated
subsidiary during Fiscal 2007 upon the acquisition of sharesare as follows:(As of March 31, 2008)
Millions of Yen

Current assets:

2,146

Noncurrent assets:
Goodwill:
Current liabilities:
Noncurrent liabilities:
Acquisition price of sharesat fiscal year-end or value

6,390
644
(2,224)(2,546)by the equity method at fiscal year-end:
Acquisition price of sharesfor fiscal 2007:
Cash and cash equivalentsof the acquired company:
Balance: Expenses (net)upon acquisition:48(As of March 31, 2009)
Millions of Yen
Thousands of
U.S. dollars

Kuraray Annual Report 2009

(1,850)
2,560
(278)
2,282

2. —

9,499

96,936

46,157

470,998

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

1. Leases that do not transfer ownership of the assets(1) Lease transactions as a lessee:
1) Acquisition cost, accumulated depreciation, and net

1. Finance Lease Transactions(1) Lease transactions as a lessee:
Financial leases without transfer of ownership
1) Details of lease assetsa) Tangible fixed assets
Mainly, vehicles used at plants including forklifts(“Machinery and equipment”), OA equipment
including personal computers and printers, andbook value at the end of the fiscal year for the leased
assets are as follows:
Millions of yen

Year ended March 31, 2008

Machinery and equipment
Tools, fixtures and furniture
Total

Acquisition
cost
283
1,386
1,670

Accumulated
depreciation
169
833
1,003

Net
113
552
666

Note: Acquisition costs are computed by including interest paid because
the ratio of future lease payment obligations to the balance of tangible fixed assets at the end of the fiscal year is not material.

2) Future lease payment obligations are as follows:
Millions of yen

Due within one year
Due after one year
Total

296
369
666

servers (“Other”).
b) Intangible fixed assets
Software (“Other intangible fixed assets”)

2) Depreciation method of lease assets
As described in the basis of presenting consolidated
financial statements “5. Accounting policies (2)Depreciation method of significant depreciable assets.”

Note: Future lease payment obligations are computed by including interest
paid because the ratio of future lease payment obligations to the balance of tangible fixed assets at the end of the fiscal year is not material.

3) Lease payments, depreciation expense for the fiscal year
Millions of yen

Lease payments
Depreciation expense

398
398

4) Calculation method of depreciation
Straight-line method using lease term with a residual valueof zero.
(For impairment loss)
No impairment loss is recognized in respect to leased
assets.

49

Notes to Consolidated Financial Statements: (9) Notes to consolidated statements of cash flows / (10) Leases(10) LEASESFiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2008
(From April 1, 2008 to March 31, 2009)(2) Lease transactions as a lessor(2) Lease transactions as a lessor
Financial lease transactions without transfer of ownershipthat commenced on or before March 31, 2008. areaccounted for on a basis similar to ordinary sales transactions. The details of such transactions are as follows;
There were no lease transactions that commenced after

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

Year ended March 31, 2008

Machinery and equipment
Total

Acquisition
cost
49
49

Accumulated
depreciation
32
32

April 1, 2008.
1) Acquisition cost, accumulated depreciation, and net
book value at the end of the fiscal year for leased
assets are as follows:
Millions of yen

Year ended March 31, 2009

Net
16
16

Building and structures
Machinery and equipment
Total

Acquisition
cost
196
49
245

2) Future lease payment obligations are as follows:
4
11
16

122
12
135

Acquisition
cost
2,005
502
2,507

Accumulated
depreciation
753
370
1,123

Net
1,252
131
1,383

2) Future lease payment obligations are as follows:

Millions of yen

Due within one year
Due after one year
Total

Net

Thousands of U.S. dollars

Year ended March 31, 2009

Building and structures
Machinery and equipment
Total

Accumulated
depreciation
73
36
110

Millions of yen

Thousands of U.S. dollars

16
172
188

169
1,756
1,925

Due within one year
Due after one year
Total

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

estimated salvage value to the balance of operating receivable at theend of the fiscal year is not material.

3) Lease revenue, depreciation expense for the fiscal year

3) Lease revenue, depreciation expense for the fiscal year

Millions of yen

Lease revenue
Depreciation expense

15
15

Millions of yen(For impairment loss)(For impairment loss)

No impairment loss is recognized for leased assets.

Same as Fiscal 2007

2. Operating leases

Thousands of U.S. dollars
23278

2. Operating leases

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

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

as follows:

as follows:
Millions of yen

Due within one year
Due after one year
Total

50

22
7

Lease revenue
Depreciation expense

Kuraray Annual Report 2009

525
3,692
4,218

Due within one year
Due after one year
Total

Millions of yen

Thousands of U.S. dollars

478
2,840
3,319

4,881
28,98533,867

(11) SECURITIESFISCAL 2007 (From April 1, 2007 to March 31, 2008)
1. Available-for-sale securities with market value (As of March 31, 2008)
Book value (estimated fair value)Net

15,82010,450———27,11542,935———115
10,565

880

(357)

—
—
—
2,062
2,943
45,878

—
—
—
—
(357)
10,207

Securities with book value exceeding their acquisition cost
5,370
Equity securities
Bonds—
Government and municipal—
Corporate—
Others27,000
Others32,370Subtotal
Securities with book value not exceeding their acquisition cost
1,237
Equity securities
Bonds—
Government and municipal—
Corporate—
Others2,062
Others3,300
Subtotal
35,670Total

Notes to Consolidated Financial Statements: (11) Securities

Millions of yen
Cost

2. Available-for-sale securities sold during Fiscal 2007 (From April 1, 2007 to March 31, 2008)
Millions of yen

1,428
1,089
—

Proceeds from sales
Total gain
Total loss

3. Investments in securities without market value (As of March 31, 2008)
Millions of yen

Investments in securities
Investments in unlisted companies

4,359

4. Redemption schedule of the available-for-sale securities which have a maturity date (As of March 31, 2008)
Millions of yen

Bonds
Government and municipal
Corporate
OthersOthers
Total

Within one year

One to five years

Five to ten years

Over ten years

—
—
—
2,000
2,000

—
—
—
27,115
27,115

—
—
—
—
—

—
—
—
—
—

51

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

Thousands of U.S. dollars

Book value(estimated fair value)

Net

Cost

Book value(estimated fair value)Net

10,362

5,076

53,947

105,744

51,796———
27,06337,426

—
—
—
125
5,201

—
—
—
274,871
328,819———
276,154
381,898

—
—
—
1,282
53,078

2,912

(756)

37,44029,717(7,723)

—
—
499
9,000
12,412
49,838

—
—
—
—
(756)
4,444

—
—
5,099
91,836
134,376
463,196——
5,099
91,836
126,653508,551————(7,723)45,355

Securities with book value exceeding their acquisition cost
5,286
Equity securities
Bonds—
Government and municipal—
Corporate—
Others26,937
Others32,224
Subtotal
Securities with book value not exceeding their acquisition cost
3,669
Equity securities
Bonds—
Government and municipal—
Corporate
499
Others9,000
Others13,168Subtotal
45,393Total

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

Thousands of U.S. dollars

1,534
1,264
—

15,65812,903—

Proceeds from sales
Total gain
Total loss

3. Investments in securities without market value (As of March 31, 2009)
Millions of yen

Thousands of U.S. dollars

4,420

45,105Investments in securities
Investments in unlisted companies

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

Bonds
Government and municipal
Corporate
OthersOthersTotal

52

Thousands of U.S. dollars

Within one
year

One to five
years

Five to ten
years

Over tenyears

Within one
year

One to five
years

Five to ten
years

Over ten
years

—
—
500
9,000
9,500

—
—
—
27,06327,063

—
—
—
—
—

—
—
—
—
—

—
—
5,102
91,836
96,938———276,154
276,154

—
—
—
—
—

—
—
—
—
—

Kuraray Annual Report 2009

(12) DERIVATIVE FINANCIAL INSTRUMENTSFISCAL 2007 (From April 1, 2007 to March 31, 2008)
1. Outline of derivative transactions(1) Types of transactions
The Company and its consolidated subsidiaries enter into forward foreign exchange contracts, currency swap contracts andinterest rate swap contracts.

(3) Purpose of transactions
The Company and its consolidated subsidiaries use derivative transactions to effectively manage market risk and avoid risks associated with fluctuations in the financial environment. The Company and its consolidated subsidiaries enter into forward foreignexchange contracts and currency swap contracts to reduce foreign exchange risks of receivables and payables denominated inforeign currencies and future transactions in foreign currencies. The Company and its consolidated subsidiaries enter into interest rate swap contracts to reduce the interest rate risk of interest expense.
Hedge accounting
The Company and its consolidated subsidiaries adopt the method for hedging instruments whereby any gains or losses aredeferred over the period of the hedging contract and are offset against the deferred losses or gains on the related hedged items.
However, when an interest rate swap contract meets certain conditions, the net amount to be paid or received under the contract is added to or deducted from the interest on the hedged items.
Hedging instruments and hedged items
Hedging instruments:

Hedged items:

Forward foreign exchange contracts
Currency swap contracts
Interest rate swap contracts

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

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

53

Notes to Consolidated Financial Statements: (12) Derivative financial instruments(2) Transaction policy
All derivative transactions are entered into to hedge risks of fluctuations of interest rates and foreign currency exchange rates
incorporated within the Companies’ business. The Company and the consolidated subsidiaries do not hold or issue derivative
financial instruments for speculative or trading purposes.

2. The forward foreign exchange contracts and currency swap contracts outstanding at March 31, 2008 are as follows:
Currencies
Millions of yen
Category

Classification

Transactions other thanmarket transactions

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

Notional
amountNotional amountover one year

Marketvalue

Unrealized
gain (loss)

10,637

8,487(1,678)(1,678)

11,476
11,951
30
1,698
367
14
36,177

1,402
4,271
—
—
—
—
14,161693(2,319)
1
(102)
0
(0)
(3,406)693(2,319)
1
(102)
0
(0)
(3,406)

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

FISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Outline of derivative transactions(1) Types of transactions
The Company and its consolidated subsidiaries enter into forward foreign exchange contracts, currency swap contracts andinterest rate swap contracts.
(2) Transaction policy
All derivative transactions are entered into to hedge risks of fluctuations of interest rates and foreign currency exchange rates
incorporated within the Companies’ business. The Company and the consolidated subsidiaries do not hold or issue derivative
financial instruments for speculative or trading purposes.
(3) Purpose of transactions
The Company and its consolidated subsidiaries use derivative transactions to effectively manage market risk and avoid risks associated with fluctuations in the financial environment. The Company and its consolidated subsidiaries enter into forward foreignexchange contracts and currency swap contracts to reduce foreign exchange risks of receivables and payables denominated inforeign currencies and future transactions in foreign currencies. The Company and its consolidated subsidiaries enter into interest rate swap contracts to reduce the interest rate risk of interest expense.
Hedge accounting
The Company and its consolidated subsidiaries adopt the method for hedging instruments whereby any gains or losses aredeferred over the period of the hedging contract and are offset against the deferred losses or gains on the related hedged items.
However, when an interest rate swap contract meets certain conditions, the net amount to be paid or received under the contract is added to or deducted from the interest on the hedged items.

54

Kuraray Annual Report 2009

Hedging instruments and hedged items
Hedging instruments:

Hedged items:

Forward foreign exchange contracts
Currency swap contracts
Interest rate swap contracts

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

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

2. The forward foreign exchange contracts and currency swap contracts outstanding at March 31, 2009 were as follows:
Currencies
Millions of yen
Category

Classification

Transactions other thanmarket transactions

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

Notional
amountNotional amountover one year

Marketvalue

Unrealized
gain (loss)

8,487

6,347

326

326

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

—
519
—
—
—
6,867

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

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

55

Notes to Consolidated Financial Statements: (12) Derivative financial instruments

conditions, are evaluated for effectiveness at the commencement of the hedges.

Thousands U.S. dollars
Category

Classification

Transactions other thanmarket transactions

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

Notional
amountNotional amountover one year

Marketvalue

Unrealized
gain (loss)

86,60864,775

3,328

3,328

44,26046,476
2,903
86
9,040
189,376

—
5,299
—
—
—
70,074(449)(4,934)
239
5
1,057
(751)

(449)
(4,934)
239
5
1,057
(751)

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

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

Fiscal 2007
(As of March 31, 2007)
Millions of yen

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

Fiscal 2008
(As of March 31, 2008)
Thousands ofMillions of yen
U.S. dollars

95,440102,903

79,649105,891

812,745
1,080,524(7,462)(26,242)(269,635)(2) Ratio of total salaries of the consolidated subsidiary to total funds of the plan(As of March 31, 2007)(As of March 31, 2008)(3) Supplementary explanation

1.9%
1.9%

The main reasons behind the difference in amounts described above in (1) are as follows. The method of depreciation of priorservice cost in the current fiscal year is to evenly split principals thereof over a period of 10 years, and is scheduled to be terminated in March 2017.
Fiscal 2007
(As of March 31, 2007)
Millions of yen

Fiscal 2008
(As of March 31, 2008)
Thousands ofMillions of yen
U.S. dollars

Balance of prior service cost
Deficient amount carried forward

14,896—

13,844
12,397141,273
126,505

General reserve

7,433

—

—

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

56

Kuraray Annual Report 2009

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

Millions of yen
Fiscal 2007
(As of March 31, 2008)

a. Retirement benefit
obligations:b. Plan assets:c. Unfunded retirement
benefit obligations: (a+b)
d. Unrecognized actuarial
gains or losses:e. Unrecognized priorservice costs:
f. Net retirement benefit
obligations recognized in
the consolidated balance
sheets: (c+d+e)g. Prepaid pension costs:
h. Provision for retirement
benefits: (f-g)(41,268)
26,650(14,618)
10,073(873)(5,418)
7,540(12,959)

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

Millions of yen

Thousands of
U.S. dollars

Fiscal 2008
Fiscal 2008
(As of March 31, 2009) (As of March 31, 2009)

a. Retirement benefit
obligations:b. Plan assets:c. Unfunded retirement
benefit obligations: (a+b)
d. Unrecognized actuarial
gains or losses:e. Unrecognized priorservice costs:
f. Net retirement benefit
obligations recognized in
the consolidated balance
sheets: (c+d+e)g. Prepaid pension costs:
h. Provision for retirement
benefits: (f-g)(40,332)
20,378(411,558)
207,942(19,954)(203,615)

14,119144,075(969)(9,892)(6,804)
7,128(69,432)
72,742(13,933)(142,175)

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

57

Notes to Consolidated Financial Statements: (13) Retirement benefits

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

3. Retirement benefit expenses
Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

Millions of yen

Millions of yen

Fiscal 2007
(From April 1, 2007,
to March 31, 2008)

a. Service costs: (Note 3)b. Interest costs:
c. Expected return on plan
assets:d. Amortization of actuarial
gains or losses:e. Amortization of priorservice costs:
f. Retirement benefit
expenses: (a+b+c+d+e)
g. Defined contribution pension plans installment:
Total

1,401
767
(1,043)
616
(119)
1,622
564
2,187

Thousands of
U.S. dollars

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

a. Service costs: (Note 3)b. Interest costs:
c. Expected return on plan
assets:d. Amortization of actuarial
gains or losses:e. Amortization of priorservice costs:
f. Retirement benefit
expenses: (a+b+c+d+e)
g. Defined contribution pension plans installment:
Total

2,061
781

21,036
7,972

(857)

(8,753)

941

9,602

(91)

(928)

2,839

28,929

562
3,397

5,743
34,673

Notes: 1. In addition to the above retirement benefit expenses, additional retirement benefits amounting to ¥204 were paid and booked as extraordinary losses for Fiscal 2007.
2. The figures in the above table do not include the contributions made by employees with respect to the tax-qualified pension plan.
3. The retirement benefit expense for consolidated subsidiaries which adopt the simplified method is included in “Service costs.”

4. Assumptions used in accounting for the defined benefit plan for the year ended March 31, 2008 are as follows:a. Method of attributing the projected
benefit obligations to periods of service
b. Discount ratec. Expected rate of return on plan assets
d. Amortization period for priorservice coste. Amortization period for actuarial
gains and losses

Fiscal 2007
(As of March 31, 2008)

Fiscal 2008
(As of March 31, 2009)

Straight-line

Same as Fiscal 2007

mainly 2.0%
mainly 3.3%
mainly 15 years(On a straight-line basis over a certain
period, which falls within the averageremaining years of service of the eligible
employees.)
mainly 15 years(On a straight-line basis over a certain
period, which falls within the averageremaining years of service of the eligible
employees, allocated proportionallycommencing the next year in which
each respective gains or losses occurred.)Same as Fiscal 2007
Same as Fiscal 2007

Same as Fiscal 2007

Same as Fiscal 2007

(Additional information)
Effective from fiscal 2007, the Company and its domestic consolidated subsidiaries adopt “Partial Amendments to Accounting Standard
for Retirement benefits (Part 2)” (ASBJ Statement No. 14, May 15, 2007).

58

Kuraray Annual Report 2009

(14) STOCK-BASED COMPENSATION PLANSFISCAL 2007 (From April 1, 2007 to March 31, 2008)
1. Item and amount of expenses for stock options in this fiscal year
Selling, general and administrative expenses: ¥74 million
2. Details including size and changes of stock options(1) Stock options plans

Total number andtype of stocks granted
Grant date

Stock options 2003

Directors
Corporate auditors

18
3

Managers
Directors of subsidiaries
Corporate auditors ofsubsidiaries
Managers of subsidiaries

396
67

Exercise period

Stock options June 2007

2,200
3,422

1,076,500 shares of common
stock
October 1, 2002

Directors of the Company:
Executive officers of the

10

Company (excluding those who
concurrently serve as directors of
the Company and those working
overseas):
11

4
451
2,811,000 shares of common
stock
October 1, 2003

56,500 shares of common stock

Directors, corporate auditors,
executive officers and employeesof the Company and its
subsidiaries.

No vesting conditions are set.

directors of the Company andpresidents of the significant
subsidiaries can exercise after
they retire.
From October 1, 2002

From October 1, 2003

to June 27, 2004
From June 28, 2004
to June 27, 2012

to June 26, 2005
From June 27, 2005
to June 26, 2013

There is no provision for arequired service period.
From June 6, 2007
to June 5, 2022; Provided that,

Prerequisite to be vested Directors, corporate auditors andemployees of the Company andits subsidiaries. Directors,
corporate auditors and associate

Required service period

Employees
Employees of subsidiaries

June 5, 2007

if the final date of the exercise
period is a holiday for theCompany, the final date shouldbe the business date immediately
preceding the date.
Note: Significant subsidiaries are as follows:
KURARAY ENGINEERING CO., LTD., KURARAY CHEMICAL CO., LTD., KURARAY TRADING Co., Ltd., Kuraray Plastics Co., Ltd., KURARAY FUDOSAN CO.,LTD., Kuraray Techno Co., Ltd., TECHNO SOFT CO., LTD., Kuraray America,Inc., Eval Company of America, (Merged with Kuraray America, Inc. in January,2008) Kuraray Europe GmbH, EVAL Europe N.V., Kuraray Secialities Europe GmbH (Merged with Kuraray Europe GmbH in September, 2006)

59

Notes to Consolidated Financial Statements: (14) Stock-based compensation plans

Stock options 2002

Number of eligible
persons by positions

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

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

Stock options 2003

Stock options June 2007

—
—
—
—
—

—
—
—
—
—

—
56,500—56,500—562,000—
162,000
2,000
398,000

1,791,500—
315,500
21,5001,454,500—
56,5004,000—
52,5002) Price information
Yen
Stock options 2002

Stock options 2003

Stock options
June 2007

825
1,411
—

918
1,406
—

1
1,446
1,318

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

3. Method to estimate fair value of stock options
The fair value of the June 2007 stock options, which were granted in fiscal 2007, are estimated as follows.
1) Valuing method: Black-Scholes model2) Major basic figures and estimating method
Stock price volatility (Note 1)
Expected remaining life (Note 2)
Expected dividend (Note 3)
Risk-free interest rate (Note 4)

Stock option June 200722%
2 years¥20/share
1.00%

Notes: 1. Calculated weekly based on the weekly stock price information over a period from the week that contains May 30, 2005 to the week that contains May
28, 2007.
2. Calculated by subtracting the average service years of incumbent directors from the average service years of directors who assumed office in and after
1985 and have resigned.
3. Expected dividend for the year ended March 2008.
4. Government bond yield over a period corresponding to the expected remaining life.

4. Method to estimate number of vested stock options
As a rational estimate of the forfeited number of stock options in the future is generally difficult, the Company adopts a method
whereby only actual forfeited numbers are reflected.

60

Kuraray Annual Report 2009

FISCAL 2008 (From April 1, 2008 to March 31, 2009)
1. Item and amount of expenses for stock options in this fiscal year
Selling, general and administrative expenses: ¥99 million (US$1,010 thousand)
2. Details including size and changes of stock options(1) Stock options plans
Stock options 2003

Stock options June 2007

Stock options June 2008

Directors
Corporate auditors

18
3

Employees
Employees of

2,200

Directors of theCompany:

positionsManagers
396
Directors ofsubsidiaries
67
Corporate auditors ofsubsidiaries
4

subsidiaries

3,422

Executive officers of theCompany (excluding
those who concurrently
serve as directors of
the Company and those

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

working overseas):10

Directors of theCompany:

10

Total number andtype of stocks

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

2,811,000 shares ofcommon stock

56,500 shares of

78,500 shares ofcommon stock

common stock

grantedGrant datePrerequisite to be

October 1, 2002
Directors, corporate

October 1, 2003
Directors, corporate

June 5, 2007
No vesting conditions areJune 10, 2008
No vesting conditions areauditors and employeesof the Company and its
subsidiaries.
Directors, corporate
auditors and associate

auditors, executive
officers and employeesof the Company and its
subsidiaries.

set.

set.

can exercise after they
retire.
From October 1, 2002
to June 27, 2004
From June 28, 2004

From October 1, 2003
to June 26, 2005
From June 27, 2005

There is no provision fora required service period.
From June 6, 2007 to

There is no provision fora required service period.
From June 11, 2008 to

to June 27, 2012

to June 26, 2013

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

holiday for the Company,
the final date should be

the business date immediately preceding thedate.

the business date immediately preceding thedate.

vested11

16

directors of the Company
and presidents of thesignificant subsidiaries

Required service
periodExercise period

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

61

Notes to Consolidated Financial Statements: (14) Stock-based compensation plans

Stock options 2002

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

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

Stock options 2003

Stock options June 2007

Stock options June 2008

—
—
—
—
—

—
—
—
—
—

—
—
—
—
—

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

1,454,500—
12,00027,0001,415,500

56,500—20,000—32,500—78,50026,000—52,5002) Price information
Yen

U.S. dollars

Stock options Stock options Stock options Stock options Stock options Stock options Stock options Stock options
2002
2003
June 2007
June 2008
2002
2003
June 2007
June 2008

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

825
1,187
—

918
1,226
—

1
1,266
1,318

1
1,266
1,264

8.41
12.11
—

9.36
11.48
—

0.01
12.91
13.44

0.01
12.91
12.89

3. Method to estimate fair value of stock options
The fair value of the June 2007 stock options, which were granted in fiscal 2007, are estimated as follows.
1) Valuing method: Black-Scholes model2) Major basic figures and estimating method
Stock price volatility (Note 1)
Expected remaining life (Note 2)
Expected dividend (Note 3)
Risk-free interest rate (Note 4)

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

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

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

62

Kuraray Annual Report 2009

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

1. The significant components of deferred tax assets andliabilities at March 31, 2008 are as follows:

1. The significant components of deferred tax assets andliabilities at March 31, 2009 are as follows:(1) Current(1) Current
Millions of yen

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

2,458
1,813
928
2,662
7,862
(472)
7,390
28
7,362

(2) Noncurrent
Millions of yen

Deferred tax assets
Provision for retirement
benefits
Write-down of investment securities
Impairment loss on tangible fixed assets
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets

4,777
1,672
3,014
8,255
17,721(4,610)13,111

Deferred tax liabilities
Reserve for advanced
depreciation of
tangible fixed assets
Unrealized gain on reval-

3,170

uation of securities
Reserve for special
depreciation of

3,197

tangible fixed assets
Prepaid pension cost
Other
Total deferred tax liabilities
Net deferred tax assets

Deferred tax assets
Provision for
retirement benefits
Impairment loss
Provision for bonuses
Write-down ofinvestment securities
Write-down of inventories
Other
Sub-total deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities
Prepaid pension cost
Provision for retirement
benefits
Unrealized gain on revaluation of securities
Other
Total deferred tax liabilities
Net deferred tax assets(liabilities)

Millions of yen

Thousands of
U.S. dollars

5,105
2,815

52,09628,7282,032

20,743

1,997
1,166
11,402

20,386
11,898116,354

24,520(5,562)
18,957250,208(56,762)
193,446(2,872)(29,316)(2,863)(29,233)(1,494)(5,934)(13,165)(15,250)(60,555)(134,345)

5,791(59,101)

Net deferred tax assets is included in the following items in the
consolidated balance sheets:
Current assets:
Deferred tax assets
Noncurrent assets:
Deferred tax assets
Noncurrent liabilities:
Deferred tax liabilities

Millions of yen

Thousands of
U.S. dollars

5,493

56,057

5,616

57,311(5,318)(54,268)

149
3,035
19
9,572
3,538

63

Notes to Consolidated Financial Statements: (15) Income taxes(15) INCOME TAXESFiscal 2007
(From April 1, 2007 to March 31, 2008)

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

Millions of yen

Deferred tax liabilities
Depreciation
Unrealized gain on revaluation of securities
Other
Total deferred tax liabilities
Deferred tax assets
Provision for retirement
benefits
Other
Total deferred tax assets
Net deferred tax liabilities

4,526
0
3,259
7,786

16
2,084
2,100
¥ 5,686

2. Reconciliation of the difference between the normal effective
tax rate and the income tax rate in the accompanying consolidated statements of income is as follows:

2. Reconciliation of the difference between the normal effective
tax rate and the income tax rate in the accompanying consolidated statements of income is as follows:
Fiscal 2008

Fiscal 2007

Normal effective tax rate
Non-taxable income

Normal effective tax rate
40.3%
Non-taxable income(0.8)
Tax credit primarily for research and development
expenses(2.0)
Loss incurred by consolidated subsidiaries
and other
Income tax rate per statements of income

this act will be not material.

64

Kuraray Annual Report 2009

Tax credit primarily for research and development
expenses(2.3)
Loss incurred by consolidated subsidiaries
and other(3.4)
Income tax rate per statements of income
32.7%

(2.4)
35.1%

3. The “Act on Interim Measures concerning Special Local
Corporate Tax” in japan was promulgated on April 30, 2008,
and will apply to fiscal years that begin on or after October 1,
2008. The impact on deferred tax assets and liabilities relating to temporary differences in the fiscal years applicable to

40.3%
(1.9)

3. —

(16) BUSINESS COMBINATIONFISCAL 2007 (From April 1, 2007 to March 31, 2008)
Transactions under common control (absorption-type company split)
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name of thecompany after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies or targeted businesses, details of the businesses and overview of the transactions including the
purpose of the transaction
KURARAY SAIJO CO., LTD. and KURARAY TAMASHIMA COMPANY LIMITED, as production consignment subsidiaries (wholly
owned consolidated subsidiaries) of the Company, mainly manufactured polyester fibers, non-woven fabrics, film, plastics and so— Businesses that the Company succeeded from KURARAY SAIJO CO., LTD.
Production of Poval films, liquid crystalline polymer film, non-woven fabrics, PVA gel and related administrative operations.
— Businesses that the Company succeeded from KURARAY TAMASHIMA COMPANY LIMITED
Production of Poval films and related administrative operations.
(2) Name of company after the business combination
Kuraray Co., Ltd.
(3) Legal form of business combination
Absorption-type company split in which the Company became the successor company, whilst absorbing parts of the businesses of
KURARAY SAIJO CO., LTD. and KURARAY TAMASHIMA COMPANY LIMITED.
2. Overview of accounting methods used
Since the said absorption-type company split corresponded to a transaction under common control, that is, an internal transaction, allprofits and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.

Transactions under common control (absorption-type merger)
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name of thecompany after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies or targeted businesses, details of the businesses and overview of the transaction including the purpose of the transaction
Kuraray Niigata Kasei Co., Ltd. (a wholly owned consolidated subsidiary of the Company) ceased the manufacture of methacrylic
resin cast sheets in March 2007 due to the transfer of its production base to a subsidiary of the Company in China. Also, for the
purpose of enhancing competitiveness through an integrated management of development and production, Kuraray Niigata
Kasei’s manufacture of synthetic marble was integrated into the Company in April 2007. Reflecting these developments, Kuraray
Niigata Kasei Co., Ltd was absorbed by and merged into the Company on October 1, 2007.
(2) Name of Company after the business combination
Kuraray Co., Ltd.
(3) Legal form of business combination
Absorption-type merger in which the Company became the successor company, whilst Kuraray Niigata Kasei Co., Ltd. wasdissolved.
2. Overview of accounting methods used
Since the said merger by absorption corresponded to a transaction under common control, that is, an internal transaction, all profits
and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.

65

Notes to Consolidated Financial Statements: (16) Business combination

on within the Company’s plants.
To improve operational efficiency and strengthen competitiveness of the Group as a whole, it was decided to transfer some ofboth firms’ products to the Company. Accordingly, certain businesses of both firms were separated on October 1, 2007, and subsequently succeeded by the Company.

Transactions under common control (absorption-type merger)
As a merger between three consolidated subsidiaries of the Company, Kuraray America, Inc. absorbed Eval Company of America and
SEPTON Company of America, effective January 1, 2008.
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name of thecompany after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies and details of the businesses
Kuraray America, Inc.
Import and sale of Company products in the United States
Eval Company of America
Manufacture and sale of resin EVAL in the United States
SEPTON Company of America
Manufacture and sale of thermoplastic elastomer SEPTON in the United States(2) Outline of transactions including reason for transaction(Objectives)
Create an overall management function for the subsidiaries in the United States, ensure effective global human resource development and deployment, strengthen information systems, and improve operational effectiveness. Through these measures, theCompany is further building a business structure for future growth.
(Outline)
Kuraray America, Inc., the successor company, absorbed Eval Company of America and SEPTON Company of America, the dissolved companies.
(3) Name of company after the business combination
Kuraray America, Inc.,(4) Legal form of business combination
Merger
2. Overview of accounting methods used
Since the said merger by absorption corresponded to a transaction under common control, that is, an internal transaction, all profits
and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.
Business divestiture transaction (absorption-type company split)
1. Names of companies divested into, details of businesses divested, major reason for business divestiture, the date of business divestiture and overview of the business divestiture including legal form
(1) Names of companies divested into, details of the businesses divested, major reason for business divestiture and the date of business divestiture
The dialysis business of Kuraray Medical Inc. (a wholly owned consolidated subsidiary of the Company) and the dialysis and blood
purification businesses of Asahi Kasei Medical Co., Ltd. were integrated as described below, in order to enhance the base of thesebusinesses.
On October 1, 2007, Asahi Kasei Medical Co., Ltd. was renamed Asahi Kasei Kuraray Medical Co., Ltd. The businesses of Asahi
Kasei Medical, other than the dialysis and blood purification businesses, were transferred to a newly established company throughan incorporation-type split business, and Asahi Kasei Kuraray Medical Co., Ltd. succeeded the dialysis business of Kuraray Medical
Inc. through separation and absorption.
(2) Overview of the business divestiture including legal form
Absorption-type company split in which Asahi Kasei Kuraray Medical Co., Ltd. became the successor company, while absorbing
parts of the businesses of Kuraray Medical Inc.

66

Kuraray Annual Report 2009

2. Overview of accounting methods used
(1) Amount of gains and losses transferred
Loss on transfer from business divestitures of ¥88 million(2) Appropriate book values of assets and liabilities, associated with the businesses transfer, and breakdown of such assets andliabilities
Millions of yen

Current assets:
Noncurrent assets:

906
492

Total assets:
Current liabilities:
Total liabilities:

1,398
—
—

(3) Name of classifications that included divested businesses within the business segments
High performance materials, medical products and others segment

FISCAL 2008 (From April 1, 2008 to March 31, 2009)
Transactions under common control (absorption-type company split)
1. Names of combining companies or targeted businesses, details of the businesses, legal form of the business combination, name ofcompany after the business combination and overview of the transaction including the purpose of the transaction(1) Names of combining companies or targeted businesses, details of the businesses and overview of the transactions including the
purpose of the transaction
The Company resolved to succeed the PET (polyethylene terephtalate) resins business of KURARAY TRADING Co., LTD., a wholly
owned consolidated subsidiary of the Company, by absorption-type company split with the purpose of improving operational efficiency and strengthening competitiveness of the Group as a whole on July 1, 2008.
(2) Name of company after the business combination
Kuraray Co., Ltd.
(3) Legal form of business combination
Absorption-type company split in which the Company became the successor company, and absorbed parts of the businesses of
KURARAY TRADING Co., LTD.
2. Overview of accounting methods used
Since the said absorption-type company split corresponded to a transaction under common control, that is, an internal transaction, allprofits and losses were eliminated. Hence, this accounting method has no material effect on the consolidated financial statements.
(17) RELATED PARTY DISCLOSURESFISCAL 2007 (From April 1, 2007 to March 31, 2008)
Not applicable.
FISCAL 2008 (From April 1, 2008 to March 31, 2009)
Not applicable.
(Additional information)
From the current fiscal year, the Company adopted “Accounting Standard for Related Party Disclosures (ASBJ Statement No. 11, October
17, 2006)” and “Guidance on Accounting Standard for Related Party Disclosures (ASBJ Guidance No. 13, October 17, 2006).”
There were no changes in the scope of disclosure due to this application.

67

Notes to Consolidated Financial Statements: (17) Business combination

3. Estimated gains and losses from the divested businesses in the consolidated statements of income for this fiscal year
The amounts of gains and losses from the divested businesses are not material

(18) PER SHARE INFORMATION
Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

U.S dollars

924.48
37.29
37.26

9.43
0.38
0.38

Yen

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

981.8272.15
71.99

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

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

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Basic net income per share
Net income
Net income unallocated to common stock
Net income allocated to common stock
Average number of common stock outstanding
during the fiscal year (thousands shares)
Diluted net income per share
Adjustment made on net income
Increase of common stocks (thousands shares)(New subscription rights to shares (thousands shares))
Outline of the residual securities which were notincluded in the calculation of the diluted net income
per share because there was no dilutive effect.

68

Kuraray Annual Report 2009

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

Millions of yen

Millions of yen

Thousands of U.S.dollars

25,554—25,554

12,984—
12,984132,497—
132,497354,204

348,236

—
757
(757)

—
264
(264)

(19) SUBSEQUENT EVENTSFiscal 2007
(From April 1, 2007 to March 31, 2008)

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

1. At the meetings the Board of Directors held on May 20,
2008 and June 9, 2008, the Company resolved to grant
directors and executive officers of the Company stock acqui-

1. At the meetings the Board of Directors held on May 19,
2009 and June 8, 2009, the Company resolved to grant
directors and executive officers of the Company stock acqui-sition rights as a stock option in accordance with Article 238,
Paragraphs 1 and 2, and Article 240, Paragraph 1 of the
Corporate Law.

sition rights as a stock option in accordance with Article 238,
Paragraphs 1 and 2, and Article 240, Paragraph 1 of the
Corporate Law.

Resolution date

Resolutions of Board of Directors Meeting
held on May 20, 2008

Number of people and Directors: 10
office of people receiv- Officers: 16 (excluding individuals
serving concurrently as directors of
ing grant
the Company and overseas employee)
Classification of shares
Common stock
allocated for the stockacquisition rights
78,500
Number of shares
Pay-in amount upon
1 yen per share
exercise of the stockacquisition rights
Exercise period of the From June 11, 2008 to June 10, 2023
stock acquisition rights Note: If the final day of the exercise
period falls on a Company
holiday, the last normal business day before that date shallbecome the final day
Conditions to exercise
Note 1stock acquisition rights
Acquiring stock acquisition rights by
Matters concerningtransfer is conditional upon approval
the transfer of stockby a resolution at a meeting of theacquisition rights
Board of Directors
Matters concerning—proxy payment
Matters concerning
the granting of stockacquisition rights in
Note 2accordance with actsof corporate reorganization

Details are described below
Resolution date

Resolutions of Board of Directors Meeting
held on May 19, 2009

Number of people and Directors: 9
office of people receiv- Officers: 15 (excluding individuals
serving concurrently as directors of
ing grant
the Company and overseas employee)
Classification of shares
Common stock
allocated for the stockacquisition rights
86,500
Number of shares
Pay-in amount upon
1 yen per share
exercise of the stockacquisition rights
Exercise period of the From June 10, 2009 to June 9, 2024
stock acquisition rights Note: If the final day of the exercise
period falls on a Company
holiday, the last normal business day before that date shallbecome the final day
Conditions to exercise
Note 1stock acquisition rights
Acquiring stock acquisition rights by
Matters concerningtransfer is conditional upon approval
the transfer of stockby a resolution at a meeting of theacquisition rights
Board of Directors
Matters concerning—proxy payment
Matters concerning
the granting of stockacquisition rights in
Note 2accordance with actsof corporate reorganization

Notes to Consolidated Financial Statements: (18) Per share information / (19) Subsequent events

Details are described below

69

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

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

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

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

an executive officer, they may exercise their stock acquisitionrights providing it is in a 10 day period that begins on the next
day of the day they lost their position (hereinafter the “Rights
Exercise Start Date”).
(2) If the holder of stock acquisition rights, regardless of the above(1), does not qualify for a Rights Exercise Start Date before May
11, 2023, they may exercise their stock acquisition rights pro-an executive officer, they may exercise their stock acquisitionrights providing it is in a 10 day period that begins on the next
day of the day they lost their position (hereinafter the “Rights
Exercise Start Date”).
(2) If the holder of stock acquisition rights, regardless of the above(1), does not qualify for a Rights Exercise Start Date before May
10, 2024, they may exercise their stock acquisition rights providing it is in a period that begins on the next business day

viding it is in a period that begins on the next business day
after May11, 2023, and ends on the expiry day of the abovementioned exercise period of the stock acquisition rights.
(3) If, by resolution at the General Meeting of Shareholders, or the
meeting of the Board of Directors, the Company decides toacquire the stock acquisition rights without compensation,
Note 1-1 the holder of stock acquisition rights may exercise
their stock acquisition rights providing it is in the period prescribed separately at a meeting of the Board of Directors andbefore the date of the acquisition without compensation.
(4) If a holder of stock acquisition rights dies, the person who
inherits the stock acquisition rights may exercise their stockacquisition rights in accordance with the conditions stated in
the “Stock Acquisition Rights Allotment Agreement” described

Note 1-1 the holder of stock acquisition rights may exercise
their stock acquisition rights providing it is in the period prescribed separately at a meeting of the Board of Directors andbefore the date of the acquisition without compensation.
(4) If a holder of stock acquisition rights dies, the person who
inherits the stock acquisition rights may exercise their stockacquisition rights in accordance with the conditions stated inin (5) below.
(5) Any other conditions pertaining to the exercise of rights shallthe “Stock Acquisition Rights Allotment Agreement” describedin (5) below.
(5) Any other conditions pertaining to the exercise of rights shallbe determined by the “Stock Acquisition Rights Allotment
Agreement” concluded between the Company and the holder
of stock acquisition rights.
1-1. In the event a resolution is approved at the General Meeting of

be determined by the “Stock Acquisition Rights Allotment
Agreement” concluded between the Company and the holder
of stock acquisition rights.
1-1. In the event a resolution is approved at the General Meeting of

Shareholders for a merger agreement whereby the Company
becomes a non-surviving company, an absorption-type company
split agreement whereby the Company splits into multiple compa-

Shareholders for a merger agreement whereby the Company
becomes a non-surviving company, an absorption-type company
split agreement whereby the Company splits into multiple compa-

nies, or plan for an incorporation-type company split; or a sharetransfer agreement whereby the Company becomes a wholly
owned subsidiary of another company, or for a share exchange
plan (if a resolution at the General Meeting of Shareholders is not
required, when a resolution is approved at a meeting of theCompany’s Board of Directors), the Company may acquire, withoutcompensation, all stock acquisition rights remaining on a day specified separately at a meeting of the Company’s Board of Directors.

nies, or plan for an incorporation-type company split; or a sharetransfer agreement whereby the Company becomes a wholly
owned subsidiary of another company, or for a share exchange
plan (if a resolution at the General Meeting of Shareholders is not

2. Matters concerning the granting of stock acquisition rights inaccordance with acts of corporate reorganization
If the Company is involved in a merger (limited to when the
Company becomes the non-surviving company from the merger),an absorption-type company split, a plan for an incorporation-typecompany split, a share exchange, or a share transfer (hereinafter“Act of Corporate Reorganization”), the holders of the stockacquisition rights outstanding at the date that the Act ofCorporate Reorganization becomes effective shall be granted
stock acquisition rights of a stock company of one of the types
listed in Article 236, Paragraph 1.(viii).(a) to 1.(viii).(e) of the
Corporate Law (hereinafter the “Reorganized Company”) basedon the following conditions.

70

after May10, 2024, and ends on the expiry day of the abovementioned exercise period of the stock acquisition rights.
(3) If, by resolution at the General Meeting of Shareholders, or the
meeting of the Board of Directors, the Company decides toacquire the stock acquisition rights without compensation,

Kuraray Annual Report 2009required, when a resolution is approved at a meeting of theCompany’s Board of Directors), the Company may acquire, withoutcompensation, all stock acquisition rights remaining on a day specified separately at a meeting of the Company’s Board of Directors.
2. Matters concerning the granting of stock acquisition rights inaccordance with acts of corporate reorganization
If the Company is involved in a merger (limited to when the
Company becomes the non-surviving company from the merger),an absorption-type company split, a plan for an incorporation-typecompany split, a share exchange, or a share transfer (hereinafter“Act of Corporate Reorganization”), the holders of the stockacquisition rights outstanding at the date that the Act ofCorporate Reorganization becomes effective shall be granted
stock acquisition rights of a stock company of one of the types
listed in Article 236, Paragraph 1.(viii).(a) to 1.(viii).(e) of the
Corporate Law (hereinafter the “Reorganized Company”) basedon the following conditions.

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

When this case arises, the outstanding stock acquisition rights are
extinguished and the Reorganized Company grants those holders
stock acquisition rights of the Reorganized Company, the granting ofstock acquisition rights of the Reorganized Company in accordance

When this case arises, the outstanding stock acquisition rights are
extinguished and the Reorganized Company grants those holders
stock acquisition rights of the Reorganized Company, the granting ofstock acquisition rights of the Reorganized Company in accordancewith the following conditions is limited to only the cases of absorption-type merger agreement, incorporation-type company merger
agreements, absorption-type company split agreements, incorporation-type company split plan, share transfer agreements, and sharetransfer plans.
(1) Number of stock acquisition rights granted by the ReorganizedCompany

with the following conditions is limited to only the cases of absorption-type merger agreement, incorporation-type company merger
agreements, absorption-type company split agreements, incorporation-type company split plan, share transfer agreements, and sharetransfer plans.
(1) Number of stock acquisition rights granted by the ReorganizedCompany
The number of granted stock acquisition rights will be the

The number of granted stock acquisition rights will be thesame as the number of stock acquisition rights held by therespective holders of outstanding stock acquisition rights.
(2) Classification of stock of the Reorganized Company allocatedfor stock acquisition rights
Shares of common stock of the Reorganized Company(3) Number of shares of the Reorganized Company allocated forstock acquisition rights
To be decided by taking into account the conditions etc. of the
Act of Corporate Reorganization.
(4) Value of assets contributed upon the exercise of stock acquisition rights
The post-reorganization pay-in amount per one share of theReorganized Company’s stock granted upon exercise of stock

same as the number of stock acquisition rights held by therespective holders of outstanding stock acquisition rights.
(2) Classification of stock of the Reorganized Company allocatedfor stock acquisition rights
Shares of common stock of the Reorganized Company(3) Number of shares of the Reorganized Company allocated forstock acquisition rights
To be decided by taking into account the conditions etc. of the
Act of Corporate Reorganization.
(4) Value of assets contributed upon the exercise of stock acquisition rights
The post-reorganization pay-in amount per one share of theacquisition rights shall be 1 yen, and the value of assets contributed shall be obtained by multiplying this by the number ofReorganized Company’s stock granted upon exercise of stockacquisition rights shall be 1 yen, and the value of assets contributed shall be obtained by multiplying this by the number ofshares of the Reorganized Company’s stock allocated for thestock acquisition rights as determined by (3) above.
(5) Exercise period of stock acquisition rights
The exercise period of stock acquisition rights shall begin on

shares of the Reorganized Company’s stock allocated for thestock acquisition rights as determined by (3) above.
(5) Exercise period of stock acquisition rights
The exercise period of stock acquisition rights shall begin on

the day that the Act of Corporate Reorganization takes effectand end on the expiry date of the above mentioned exercise
period of the stock acquisition rights.

the day that the Act of Corporate Reorganization takes effectand end on the expiry date of the above mentioned exercise
period of the stock acquisition rights.

(6) Amount of capital increase when there is an issue of shares
upon the exercise of stock acquisition rights
Shall be half the amount of the increase limit for capital and soon, contributed in accordance with Article 40 Paragraph 1 of
the Corporate Accounting Rules and when digits that are fractions of 1 yen occur as a result of the calculation, these digits
are discarded.
(7) Limitation on acquiring stock acquisition rights by transfer(6) Amount of capital increase when there is an issue of shares
upon the exercise of stock acquisition rights
Shall be half the amount of the increase limit for capital and soon, contributed in accordance with Article 40 Paragraph 1 of

Acquiring stock acquisition rights by transfer is conditional
upon approval by resolution at a meeting of the Board of
Directors of the Reorganized Company.
(8) Matters concerning acquisition of stock acquisition rights
Determined by the above Note 1-1.
(9) Other conditions for the exercise of stock acquisition rights
Determined by the above Note 1.

the Corporate Accounting Rules and when digits that are fractions of 1 yen occur as a result of the calculation, these digits
are discarded.
(7) Limitation on acquiring stock acquisition rights by transfer
Acquiring stock acquisition rights by transfer is conditional
upon approval by resolution at a meeting of the Board of
Directors of the Reorganized Company.
(8) Matters concerning acquisition of stock acquisition rights
Determined by the above Note 1-1.
(9) Other conditions for the exercise of stock acquisition rights
Determined by the above Note 1.

71

Notes to Consolidated Financial Statements: (19) Subsequent events

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

Fiscal 2007
(From April 1, 2007 to March 31, 2008)

2. Transactions under common control (absorption-typecompany split)
At the meeting the Board of Directors held on April 30,
2008, the Company resolved to succeed the PET (polyethylene terephtalate) resins business of KURARAY TRADING Co.,
LTD., a wholly owned consolidated subsidiary of theCompany, by absorption-type company split with the purpose of improving operational efficiency and strengthening
competitiveness of the Group as a whole on July 1, 2008.
(1) Details of business of the company which is split
Details of business: PET (polyethylene terephtalate) resins
business
Net sales in the business to be succeeded (for the year
ended March 2008):¥2,146 million(2) Form of company split
Absorption-type company split in which the Company is
to become the successor company, while absorbing partsof the businesses of KURARAY TRADING Co., LTD.
(3) Outline of the company which is split and the company
which is a successor (As of March 31, 2008)
Company which is split
Name: KURARAY TRADING Co., LTD.
Capital stock: ¥2,200 million
Net assets:¥12,147 million
Total assets: ¥45,989 million
Number of employees: 328
Company which is a successor
Name: Kuraray Co., Ltd.
Capital stock: ¥88,955 million
Net assets: ¥281,770 million
Total assets: ¥379,463 million
Number of employees: 2,931

72

Kuraray Annual Report 2009

Fiscal 2008
(From April 1, 2008 to March 31, 2009)2. —(20) SUPPLEMENTARY SCHEDULE
Supplementary schedule of bonds payable
Name of bondIssuance date

Balance as ofMarch 31, 2008
(Millions of Yen)

Balance as ofMarch 31, 2009
(Millions of Yen)

Interest rate

Type

Date of maturity

3rd unsecured
bonds

January
31, 2005

10,00010,000(US$102,040 thousand)

0.99%

—

December20, 2011

Total—

10,00010,000(US$102,040 thousand)

—

—

—

Issuer

Kuraray,Co., Ltd.

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

Millions of yen—

Thousands of U.S. dollars——
10,000———102,040——

Supplementary schedule of loans payable
Balance as ofMarch 31, 2008
(Millions of Yen)

Balance as ofMarch 31, 2009
(Millions of Yen)

Averageinterest rate (%)

Due date

10,997

14,414(US$147,084 thousand)

1.8

—

—

3,000
(US$30,612 thousand)

0.7—

Current portion of long-term loans
due within one year

1,000

4,050
(US$41,329 thousand)

0.9—

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

404(US$4,129 thousand)—From September 2009
to March, 2022

Long-term loans(Excluding current portion) (Note 3)

11,95439,280(US$400,821 thousand)

1.7

From September 2010
to March, 2015—

618
(US$6,314 thousand)—

23,952

61,768(US$630,291 thousand)—Category

Short-term loans
Commercial papers

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

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

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

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

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

Long-term loans

4,670

3,441

1,364

23,900

Lease liabilities

312

197

84

20

Due after 1 year but
Due after 2 year but
Due after 3 year but
Due after 4 year but
within 2 years
within 3 years
within 4 years
within 5 years(Thousands of U.S. dollars) (Thousands of U.S. dollars) (Thousands of U.S. dollars) (Thousands of U.S. dollars)Long-term loans

47,66235,11813,921

243,881

Lease liabilities

3,187

2,014

862

210

73

Notes to Consolidated Financial Statements: (20) Supplementary schedule

Note: Repayment of bond principals is scheduled as follows.

(21) OTHERQUARTERLY INFORMATION IN FISCAL 2008
First quarter
From April 1
to June 30, 2008

Second quarter
From July 1
to September 30, 2008

Third quarter
From October 1
to December 31, 2008

Fourth quarter
From January 1
to March 31, 2009

Net sales(Millions of Yen)

99,950109,368

92,52874,929

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

10,863

11,183

3,043(5,566)

Net income (loss)(Millions of Yen)

6,535

6,872

2,705

(3,128)Net income (loss) per share (Yen)

18.77

19.74

7.77

(8.98)First quarter
From April 1
to June 30, 2008

Second quarter
From July 1
to September 30, 2008

Third quarter
From October 1
to December 31, 2008

Fourth quarter
From January 1
to March 31, 2009

1,019,904

1,116,008

944,166

764,589

Income (loss) before income taxes(Thousands of U.S. dollars)

110,853

114,11231,052(56,803)

Net income (loss)(Thousands of U.S. dollars)

66,685

70,13027,604(31,922)

0.19

0.20

0.07

(0.09)Net sales(Thousands of U.S. dollars)

Net income (loss) per share (U.S. dollars)

74

Kuraray Annual Report 2009

Report of Independent Auditors

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

March 31, 2009, and the related consolidated statements of income, changes in net assets, cash flows and supplementary schedules for the year then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that weplan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial
position of the Company and its subsidiaries as of March 31, 2009, and the results of their operations and their cash flows forthe year then ended in conformity with accounting principles generally accepted in Japan.

As described in Notes to Consolidated Financial Statements (2) SIGNIFICANT CHANGES IN ACCOUNING POLICIES CONCERNING THE PREPARATION OF CONSOLIDATED FINANCIAL STATEMENTS, “Accounting Standards for Measurement of Inventories(ASBJ Statement No.9, issued on July 5, 2006)” became effective from the fiscal year ended March 31, 2009, the Company
and its domestic consolidated subsidiaries adopted them and reclassified loss on disposal of inventories from non-operating
expenses to cost of sales accordingly.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended March 31, 2009are presented solely for convenience. Our audit also included the translation of Japanese yen amounts into U.S. dollar amounts
and, in our opinion, such translation has been made on the basis described in Note 1 to the consolidated financial statements.

July 27, 200975

Notes to Consolidated Financial Statements: (21) Other / Report of Independent Auditors

We have audited the accompanying consolidated balance sheet of Kuraray Co., Ltd. (“the Company”) and its subsidiaries as ofConsolidated Companies

Head office

Capital(¥ million)

Activities

KURARAY TRADING Co., LTD.*1

Osaka¥ 2,200

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

KURARAY CHEMICAL CO., LTD.*1

Osaka

600

Manufacture and sales of activated carbon and related products

KURARAY ENGINEERING CO., LTD.*1

Osaka

450

Plant design and construction

Kuraray Luminas Co., Ltd.*1

Tokyo

400

Development of inorganic EL materials

Kuraray Medical Inc.*1

Tokyo

300

Manufacture and sales of medical products

Kuraray Plastics Co., Ltd.*1

Osaka

180

KURARAYLIVING CO., LTD.*1

Osaka

101.8

Kuraray Techno Co., Ltd.*1

Osaka

100

Production subcontracting, Temporary personnel service

KURARAY BUSINESS SERVICE CO., LTD.*1

Osaka

100

Information system service

KURARAYKURAFLEX CO., LTD.*1

Osaka

100

Manufacture and sales of nonwoven fabric products

KURARAY FASTENING CO., LTD.*1

Osaka

100

Manufacture and sales of MAGIC TAPEOKAYAMA RINKOH CO., LTD.*1

Okayama98

Warehousing, distribution, and processing

TECHNO SOFT CO., LTD.*1

Osaka

50

Consulting for improved management

Kuraray Travel Service Corporation*1

Osaka

20

Travel and insurance agency

KURARAY FUDOSAN CO., LTD.*1

Osaka

10

Real estate leasing and management

KurarayKikou CO., LTD.*1

Ehime

10

Manufacture of machinery parts

KURARAY SAIJO CO., LTD.*1

Ehime

10

Manufacture of synthetic fiber

KURARAY TAMASHIMA COMPANY LIMITED*1

Okayama

10

Manufacture of synthetic fiber

Iruma Country Club Co., Ltd.*1

Saitama40

Golf course management

Kyosei Chemical Co., Ltd.*1

Tokyo

50

Manufacture of pigments and dyes

OKAYAMA RINKOH WAREHOUSE AND TRANSPORT CO., LTD.*1 Okayama

20

Forwarding (transportation)

Ibuki Kosan Co., Ltd.*1

Gifu

10

Manufacture, processing and packaging of plastic products

Kuraray Okayama Spinning CO., LTD.*2

Okayama

50

Manufacture of synthetic fiber

KURAFLEX IBARAKI CO., LTD.*2

Ibaraki

30

Manufacture of nonwoven fabric products

KC Processing Co., Ltd.*2

Okayama

20

Processing of activated carbon

THE KURASHIKI KOKUSAI HOTEL, LTD.*2

Okayama450

Hotel management

KURARAY AQUA CO., LTD.*3

Tokyo

100

Sales of materials for water treatment; design,
construction and sales of water treatment plants and facilities

Company(As of July 1, 2009)

JAPAN

Manufacture and sales of plastics
Manufacture and sales of packaging materials

OVERSEAS
Kuraray Holdings U.S.A., Inc.*1

Texas, U.S.A.

US$55.0 million

Holding company, coordination of U.S. subsidiaries

Kuraray America, Inc.*1

Texas, U.S.A.

US$10.1 million

Import and sales of Kuraray products in the U.S.,
Manufacture and sales of EVAL resins and SEPTON

Kuraray Europe GmbH*1

Frankfurt, Germany

EVAL Europe N.V.*1

Antwerp, Belgium

Kuraray Asia Pacific Pte. Ltd.*1

Singapore

US$27.7 million

Manufacture and sales of poval resins

OOO TROSIFOL*1

Nizhniy Novgorod, Russia

RUR78.9 million

Manufacture and sales of PVB film

Kuraray Hong Kong Co., Ltd.*1

Hong Kong, China

HK$4.6 million

Processing and sales of Kuraray products in China and Southeast Asia

Kuraray (Shanghai) Co., Ltd.*1

Shanghai, China

US$5.0 million

Import and sales of Kuraray products in China

Kuraray Magictape (Shanghai) Co., Ltd.*3

Shanghai, China

US$0.8 million

Manufacture and sales of fastening materials

Kuraray Methacrylate (Zhang Jia Gang) Co., Ltd.*3

Jiangsu, China

US$9.6 million

Kuraray Chemical (Ningxia) Environmental Industry Co., Ltd.*3

Ningxia, China¥498 million

Kuraray Trading (Shanghai) Co., Ltd.*1

Shanghai, China

US$0.6 million

Import , export, and sales of fiber and textile products and chemicals

Hexin Kuraray Micro Fiber Leather (Jiaxing) Co., Ltd.*3

Zhejiang, China

US$10.5 million

Manufacture and sales of Man-made leather

Kuraray India Private Limited*3

Delhi, India

Kuraray Nordic Ab Oy*3

Vantaa, Finland

Kuraray Dental Benelux B.V.*3

IJmuiden, Netherlands

Kuraray Dental Italia S.r.l.*3

Milano, Italy*1 Consolidated subsidiary*2 Equity method affiliate*3 Non-consolidated subsidiary not accounted for by the equity method

76

Kuraray Annual Report 2009€31.1 million€29.7 million

Rupees60.1 million€50,000€1.8 million€10,000

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

Manufacture and sales of methacrylic resin sheet
Manufacture and sales of activated carbon

Import and sales of Kuraray products in India and market development
Import and sales of Kuraray products in Northern Europe andmarket development
Import and sales of medical products in Benelux countries andmarket development
Import and sales of medical products in Italy and market development

Investor Information

KURARAY CO., LTD.

Shareholder Register Agent for Common Stock
June 24, 1926

The Sumitomo Trust and Banking Co., Ltd.
4-5-33, Kitahama, Chuo-Ku, Osaka 540-8639, Japan

Capital:¥88,955 million

Shares Authorized:

1,000,000,000 shares

Issued:382,863,603 shares

Number of Shareholders:

28,516

Head Offices:Tokyo, Osaka

Principal Shareholders
Number of Shares Percentage ofHeld (thousands) Shares Held

Name or company nameShare Price Movement¥
2,000

25,0001,500

20,0001,000

15,000500

10,0000

5,000

Thousands of shares
100,000

Japan Trustee Services Bank, Ltd.
(Trust Account)

35,438

9.26%

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

27,153

7.09%

Japan Trustee Services Bank, Ltd.
(Trust Account)

17,956

4.69%

National Mutual Insurance Federation ofAgricultural Cooperatives

13,695

3.58%

Nippon Life Insurance Company

13,061

3.41%

Meiji Yasuda Life Insurance Company

8,066

2.11%

Trust & Custody Services Bank, Ltd.
(Securities Investment Trust Account)

7,303

1.91%

The Dai-ichi Mutual Life Insurance Company

5,352

1.40%

STATE STREET BANK AND TRUST COMPANY
505225
BNP Paribas Securities (Japan) Ltd.

5,128
4,750

1.34%
1.24%

Note: Kuraray Co., Ltd holds 34,647,544 shares of treasury stock.

Breakdown of Issued Shares by Type
Other Domestic
Corporations

80,000Shares Held byKuraray Co., Ltd.

60,000Individuals andOthers

40,000

3.17%
9.05%

9.21%
ForeignInvestors
08/4

5

6

7

8

9

10

11

12 09/1

2

3

Share prices according to the market price on the Tokyo Stock Exchange
High
Closing27.17%

High
Opening

Nikkei Stock Average (right scale)

Trust andBankingCompanies

11.43%

20,0000

Securities
Corporations

1.42%

26.73%

11.82%

Life Insurance
Companies
Major
Commercial
Banks and
Other Financial
Institutions

VolumeOpening
Closing
Low
Low(As of March 31, 2009)77

Consolidated Companies / Investor Information

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

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

KURARAY CO., LTD.

ANNUAL REPORT 2009 For the year ended March 31, 2009

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