KURARAY CO., LTD.
ANNUAL REPORT 2003

ANNUAL REPORT 2003
For the year ended March 31, 2003

Kuraray Annual Report 2003

PROFILE
Kuraray Co., Ltd. was established in 1926 in Kurashiki, Okayama Prefecture, with the objective of commercializing
rayon. In 1958 the Company commenced the manufacture and sale of poval, a polyvinyl alcohol (PVA) resin used in the
production of vinylon. In the ensuing years, the Company continued to build on the excellence of that technology to
expand its presence in global markets. Subsequently, Kuraray initiated sales of highly original products including
CLARINO man-made leather, the EVOH resin EVAL, and isoprene, achieving major expansion as a chemical maker. In
2001, the Company acquired the PVA/PVB operations of Clariant AG, increasing the worldwide market share of its
poval business.
At the outset of the 21st century, the Kuraray Group published its “G-21” medium-term business plan, which sets
forth the goals of becoming an eco-friendly company with unique technology, and engaging in business activities that
contribute to the preservation of the natural environment and enhancement of the quality of life. During the last three
years of the “G-21” plan, Kuraray will strive for profit growth. Vinyl acetate derivatives such as poval, as well as EVAL
and optoelectronics products such as opto-screens have been positioned to drive this growth. Kuraray will endeavor todisplay a presence as a company that is both profitable and highly regarded.

CORPORATE STATEMENTS
Corporate Philosophy

Principles for Business Conduct

1. Respect for individuals
2. Cooperation in shared goals
3. Creation of values

1. We will develop and provide products and services, giving
full consideration to safety.
2. We will conduct businesses in a free, fair and transparent
manner.
3. We will maintain good communications and build a soundrelationship with society.
4. We will strive to preserve and improve the global
environment and to secure safety and health.
5. We will respect intellectual properties including trade
secrets and control information properly.

Guidelines for Action
1. Act on customers’ needs.
2. Act on ideas in the working place.
3. Act on your own initiative.

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

CONTENTS
1
2
3
8
10
12
14
15
18
20

Consolidated Financial Highlights
To Our Shareholders
A Message from the PresidentInterview with President of Elastomer Company
Interview with President of Clarino Company
At a Glance
Review of Operations
Chemicals and Resins
Fibers and Textiles
High-Performance Materials, Medical
Products and Others

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

22 Research and Development
24 Caring for the Environment
26 Board of Directors, Corporate Auditors andExecutive Officers
27 Corporate Governance—Reform of Our
Management Structure
28 Financial Section
49 Consolidated Companies
50 History
51 Investor Information

Consolidated Financial Highlights

CONSOLIDATED FINANCIAL HIGHLIGHTS
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Thousands ofMillions of yen

Years ended March 31
Net sales
Operating income
Net income
Capital expenditure
Depreciation and amortization
Gross cash flow
Total research anddevelopment expenses
Total assets
Total shareholders’ equity
Amounts per share:
Net income
Primary
Fully diluted
Cash dividends applicable to period
Total shareholders’ equity
Financial ratios:
Equity ratio (%)
Return on equity (%)
Return on assets (%)
Payout ratio (%)
Number of employees

U.S. dollars

2003

2002

2001

2000

¥322,524
25,186
8,051
19,091
19,10827,159¥305,862
18,9582,866
50,716
16,05618,922¥313,651
19,931
4,045
15,814
16,593
20,638¥316,444
20,321
7,452
19,764
16,76924,221¥336,466 $2,687,700
27,148209,883
13,171
67,09233,497
159,092
15,557
159,233
28,728226,325

12,523426,877
287,263

12,131
487,432
290,643

12,251
512,479
289,469

12,097503,766
282,755

13,429487,991
259,909104,358
3,557,308
2,393,858

Yen

U.S. dollars
$0.18
0.17
0.08
6.43

¥ 21.01
20.71
9.00
771.38

¥

67.3%
2.8
5.5
42.2
6,983

1999

2003

7.49
7.45
9.00
759.25¥ 10.5610.46
9.00
756.07¥ 20.00
19.42
9.00
738.53¥ 36.83
34.56
9.00
714.21

59.6%
1.0
3.8
120.2
7,115

56.5%
1.4
3.9
85.2
7,121

56.1%
2.7
4.1
45.4
7,433

53.3%
5.3
5.6
24.5
6,823

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of ¥120=$1.

NET SALES(Millions of yen)

NET INCOME & NET INCOME PER SHARE(Millions of yen)
(Yen)

400,000

40

15,000SHAREHOLDERS’ EQUITY & TOTAL ASSETS(Millions of yen)
500,000 487,991

503,766

512,479
487,432

36.83
13,171350,000 336,466
316,444 313,651

300,000

322,52435

12,500426,877

400,000

305,86230
10,000250,000

25
7,452

7,500

200,000
150,000

8,051
21.01

20.00

282,755 289,469 290,643 287,263
259,909

20
15

5,000

300,000

200,000

4,045

100,000

10

10.56
2,866

2,500

100,000

7.49

50,000
0

5

99

00

01

Net sales

02

03

0

99

00

01

02

03

0

Net income
Net income per share (primary)

0

99

00

01

02

03

Total assets
Total shareholders’ equity

1

Kuraray Annual Report 2003

TO OUR SHAREHOLDERS

In fiscal 2002, ended March 31, 2003, the Kuraray Group
achieved growth in both revenues and profits for the first timein four years. This is the direct result of measures introduced
in 2001 by Kuraray President Yasuaki Wakui as earningsstructure improvement measures. Further, these results
indicate that the improvement measures, which have an“internal effor t” structure (the ability to respond to any
change in the external environment), are therefore built-in
Companywide, and will have continuous and certain effects.
Also during fiscal 2002, we conducted a specific analysis
of our achievements and shortcomings during the first two
years of our “G-21” five-year medium-term business plan, in
force since fiscal 2001. Based on this self-evaluation, we
took a fresh look at the Company’s priorities for the plan’sremaining three years. During the first two years, Kurarayfront-loaded measures called for in “G-21,” putting theCompany back on track to achieve a recovery in performance,and realized improvements in asset efficiency. However,insufficient gains were made in agility of response andentrepreneurial capabilities. In the “G-21” plan’s final three
years, we will work to strengthen competitiveness, which has
global effects, and to achieve further improvements in the2timeliness of execution and entrepreneurship. I believe that
the Company will improve per formance through its corecompetence of developing unique technology.
The Kuraray Group has received the suppor t of its
shareholders and other stakeholders, and bears the
responsibility of meeting their expectations. Performance andgrowth, of course, are central elements of this, but we arealso striving to become an enterprise that meets its
environmental and social responsibilities. In June 2003, weachieved improvements in our management structure throughexpansion of our auditing capabilities, establishment of theManagement Advisory Council, and implementation of an
executive officer system. The objective of these measures is
to increase the speed of decision-making through theseparation of management oversight functions andoperational responsibilities, while building a fair and highly
transparent corporate structure for the benefit ofshareholders, stakeholders and society.
Kuraray has formulated a corporate mission that iscongruent with its management-structure improvements: “Wein the Kuraray Group are committed to opening new fields ofbusiness using pioneering technology and contributing to an
improved natural environment and quality of life.” Although
the business environment is changing faster than ever as aresult of economic globalization, Kuraray is determined tocontinue pursuing responsible management practices, without
losing sight of its origins.
We are confident that our shareholders can expect
Kuraray’s growth and expansion, and we request theircontinued support and encouragement.

Hiroto Matsuo
Representative Director and Chairman

A Message from the President

A MESSAGE FROM THE PRESIDENT
Fiscal 2002 put an emphatic end to three consecutive yearsof declining revenues and profits.

PERFORMANCE
Consolidated net sales of the Kuraray Group rose 5.4% to¥322,524 million. Cost reductions and strong performance incore businesses resulted in a 32.9% jump in operating
income to ¥25,186 million, and net income soared 180.9% to¥8,051 million. The Group is very close to the growth trackenvisioned in its “G-21” medium-term business plan.

REMAINING YEARS OF “G-21” MEDIUM-TERM
BUSINESS PLAN (FY2003-2005)
The “G-21” medium-term business plan, drafted in my firstyear as president of Kuraray, sets forth the Group’s growthstrategy in concrete terms. The objective of the basic
strategies—strengthening core businesses, emphasizing
strategic business domains through a demand-driven
approach, and remaining an eco-friendly firm—is toincrease the Kuraray Group’s presence worldwide. “G-21”
is a five-year plan, and we anticipated that changes in thebusiness environment would necessitate adjustments
during that period. During the fiscal year under review, we
evaluated our performance during the first two years of theplan, noting both achievements and shortcomings.
During the first two years, notable effects resulted fromthe accelerated establishment of the in-house company
system, cost reductions resulting from earnings-structure
improvement measures, and the acquisition of PVA andPVB operations. However, it cannot be denied that too little
was achieved in the areas of timely decision-making andsuch business creation capabilities as the development of
new products and applications.
While we will not be underemphasizing sales during thelast three years of the plan, primary emphasis will be on
profit growth. For that reason, we have designated two
drivers of growth for the final three years of the plan: vinyl
acetate derivatives, including poval and EVAL; and optoelectronics products such as opto-screens. Thesebusinesses will be reinforced and expanded.

Yasuaki Wakui

To address shortcomings exposed during the first two
years of the “G-21” plan, we will be increasing theef fectiveness and precision of the in-house company
system introduced in April 2002, and will correct the failure
to achieve greater speed in decision-making. We havealready begun to reform our R&D programs with a view tothe early development of new products and businesses in
response to emerging demand anywhere in the world.
To bolster development capabilities in the field ofoptoelectronics products, which has been designated a
growth driver, we established the new Optical Device R&D
Center in March 2003. And in fall 2003, Kuraray will open
its Research & Technical Center in Houston, Texas, which
will allow the Company to quickly meet the needs of the
U.S. market. Aside from business expansion based on our
own technologies, we will swiftly reinforce and expand corebusinesses by applying outside technologies acquired
through alliances and M&A activities. In April 2003, weestablished the Corporate Strategy and Planning Division,an organization charged with the rapid creation of new
businesses.

3Kuraray Annual Report 2003

SPECIFIC MEASURES
In-house Company System> To allow a nimble responseto the dizzying speed of change in the businessenvironment, in April 2002 significant operational authority
was transferred to the presidents of Kuraray’s internal
companies. This measure, intended to reduce lost
opportunity through fast and efficient management, also
clarified operational responsibilities. A performance-based
compensation system and the improvement in asset
efficiency brought by balance-sheet evaluation standards
produced significant results from the first year, as reflected
in improved performance and a more vigorous organization.
I believe that our in-house company system now has the
optimal style for our corporate culture and business scope.
To augment this, in June 2003 we implemented an
executive officer system. We have reduced the number of
the Company’s directors, who had overlapping oversightand operational responsibilities, and have clarified theseparation of super visor y functions and management
guidance and advisory functions. The new post of executive
officer carries with it responsibility for both the execution ofbusiness operations and profitability during a one-year
tenure of of fice. This clarification of authority andresponsibility results in swifter management response. To
restrain any adverse effects of the in-house company
system and to coordinate group management, we are
expanding the functions of corporate staff.
M&A Strategy> M&A and the forging of alliances are
effective measures in the effort to strengthen and expand
the Company’s core businesses, with emphasis on vinyl
acetate derivative operations. We have begun to expand
profitability not only through lateral expansion, but also
through a ver tical approach that encompasses both
upstream and downstream operations, including activities
near to finished products. To this end, we have established
the Corporate Strategy and Planning Division to formulate
strategy.
R&D Strategy> In the divisional research effort we havepursued until recently, corporate R&D requirements cut
horizontally across divisional R&D organizations. As a4

single researcher was often involved with multiple research
themes, the pursuit of focused R&D was problematic.
With the Companywide Research and Development
Committee establishing Strategic Research andDevelopment Themes (SRDT), however, hundreds ofthemes have been winnowed to several impor tant ones.
This new system allows the entire Company to concentratepersonnel and R&D funds in these areas, resulting in the
rapid development of new products and businesses.
To realize a swifter response to market requirements
and quicker launch of new products and businesses, wehave recently established and clarified the roles of the
Optical Device R&D Center, the Research & TechnicalCenter, and the Advanced and Basic Technology ResearchLaboratories.
Improving Asset Efficiency> The improvement of asset
efficiency is a significant issue for Kuraray, but steadyprogress is being made. Employing strengthened corporate
functions, we have established the Inventories Committee,
which in cooperation with each in-house company promotes
the rational reduction of inventories. The in-house company
system has also had the effect of propagating control ofcash flows and balance sheets, and inventories have
improved from 2.8 months to 2.4 months as a result.
Kuraray plans to reduce inventories to a final level of 1.8
months in fiscal 2005. The Company also improved
financial assets through the redemption of Company bonds
and the acquisition of treasury stock.
Planned Capital Investments> Planned investments will
be primarily in businesses designated as drivers of growth,chiefly vinyl acetate derivatives and optoelectronics
products. First, we will increase the production capacity of
EVAL Europe by 12,000 tons, optical-use methacr ylic
resins for molding by 20,000 tons, optical-use methacrylic
sheets by 5,000 tons, and opto-screens by 1.8 million
sheets (equivalent to 5,000 tons of methacrylic sheets).
Expansion of facilities for methacrylic resins is scheduled
to be completed in fiscal 2003, and for EVAL, optoscreens and methacrylic sheets in fiscal 2004. Over the
next three years, we will be expanding production capacity

A Message from the Presidentof optical-use PVA film by 13 million m2, of GENESTAR by
8,000 tons, and of opto-screens by 2 million sheets. In
addition to this continuing growth, Eval Company of America(EVALCA) has uncovered new demand through thedevelopment of new products and applications, and isconsidering expansion of its own production capacity.
Capital investment in facilities expansion and therationalization of manufacturing processes during the final
three years of the “G-21” plan are projected at ¥80 billion.

BUSINESS POLICIES BY SEGMENT
Chemicals and Resins> In the poval business, Kuraray ismaximizing synergies with Kuraray Specialities Europe toincrease operational efficiency in Japan, Germany andSingapore. In the EVAL business, the Company is working to
expand automotive applications and food-packaging
applications in Japan, the United States and Europe, as wellas in China and the rest of Asia, and is emphasizing thedevelopment of new applications. In the methacr ylicbusiness, only sales of methyl methacr ylate (MMA)
monomers will be reduced, while expanding sales of front
panels for rear-projection television (RPTV), light-guide plates
for liquid crystal displays (LCDs), and other high-value-added
products will cause a rise in the sales ratio for polymers inthis business. In isoprene-related business, we worked to
expand sales of elastomers worldwide, and anticipate
bringing SEPTON Company of America (SEPCA) into fulloperation in the near future. In addition, we are emphasizing
sales of inter mediates for aroma chemicals,
pharmaceuticals and agrochemicals, and are striving for arecovery in the profitability of our vitamin-related business.

volume of CLARINO sales for use in athletic shoes
expanded, and we have made significant progress in tapping
demand from interior furnishings and auto seat
manufacturers. Costs have been thoroughly rationalized in
the non-woven fabrics and fastening materials business,
and we will quickly establish an overseas production andsales organization to augment this business.
High-Performance Materials, Medical Products andOthers> This segment is working to expand the use of
opto-screens for RPTVs in the U.S. and Chinese markets,and in cooperation with the Optical Device R&D Center, isdeveloping new products responsive to market
requirements. In its high-performance materials business,
the Company is grooming GENESTAR to become a coreproduct on the basis of rising sales to the electronics
industry and strong growth in automotive applications, andis positioning such new businesses as liquid crystalline
polymer products to contribute to earnings. Reflecting
Kuraray’s commitment as an eco-friendly company topreserve the environment, this segment is expanding its
activated carbon, membranes and PVA gel businesses. The
dental materials business is undergoing a program of global
expansion, and the artificial organs business is striving todevelop new products and bring them to market.

Fibers and Textiles> In the fiber industrial materials field,
we will expand sales of KURALON as a rubber reinforcer,
and will use KURALON K-II to accelerate our entry into themarket for engineered cementitious composite (ECC). The
effects of restructuring our polyester business are becoming
visible, and the profit structure is improving. In the future,
new-type polyester using EXCEVAL, our SOPHISTA brand of
EVAL fibers, and fibers using other proprietary polymers willfurther set the Company apart from its competitors. The

5

Kuraray Annual Report 2003

DEVELOPMENTS IN CORE BUSINESSESEVAL> EVAL is highly regarded as a gas-barrier material forfood packaging and its use in auto fuel tanks is increasing,particularly in America. This market is expanding at a rateof over 10% per year. Although the use of EVAL in fuel tanks
in Japan and Europe is still rare, market growth isexpected. The potential is not limited to Japan, the UnitedStates and Europe, though. As standards of living rise in
China and the rest of Asia, the demand for EVAL is
expected to rise in these areas too.
To meet this future demand, EVAL Europe hascommenced the expansion of its second line, which will
double production capacity by the second half of fiscal
2004. Fur ther, we are studying the future expansion offacilities at EVALCA. Our competitors are also strengthening
their manufacturing facilities, but because these capital
investments are adjusted to demand expansion, we
anticipate no significant effects on Kuraray. In addition, withthe autumn 2003 opening of our Research & TechnicalCenter in Houston and other measures, we will emphasize
local leadership in the development of new products andapplications to meet local needs. In other areas, we aredeveloping a super gas-barrier material using
nanocomposites, as well as new applications combining theunique properties of EVAL with other Kuraray materials.
Other Core Businesses> Unique technology is linked tounique materials, and products and applications that provide
the optimal match with market needs lead to significant
successes. Kuraray’s greatest strength is that it possesses
many such seeds that can be nur tured into impor tantproducts, which will provide support for earnings in the future.
Competition in the market for general-purpose-grade
elastomers is intensifying, but the market in more technicalfields that require advanced hydrogenation technology is
growing at more than 10% annually. There are significant
technological barriers to entry into these fields, and Kuraray issteadily expanding its SEPTON and HYBRAR operations as its
secondary core business. The opening of SEPCA’s plant lastSeptember signals the establishment of a structure for global
expansion, and we are expanding our sales volume toincrease the operating ratio at this new plant. The Company isalso developing new, high-per formance elastomers. At

6present, Kuraray is intent on pioneering new products andapplications, such as new elastomers that will combine theelasticity of SEPTON with the gas-barrier properties of EVAL or
the transparency of acrylics. Making maximum use of the new
Research & Technical Center, which is scheduled to open in
the fall of 2003, we will increase our efforts to expand sales
in the United States, the world’s largest market.
SALES(Billions of yen)
60

POVAL

50
EVAL

40

30

20
CLARINO
OPTO-SCREENS

10ELASTOMER
0

FY95

FY00

FY05

RESTRUCTURING OF FIBERS AND TEXTILES
The restructuring of our polyester business was virtuallycompleted during the fiscal year under review. Personnel
and production capacity were halved for filament and staple
operations alike, and the Company ceased manufacturinglow-profitability general-purpose products. As a result,
losses in the polyester business were substantially curtailed
in fiscal 2002, and in fiscal 2003 this business is expected
to break even.
In its polyester business, Kuraray is using its proprietary
polymers to pursue a differentiation strategy, and theKuraray Group is expanding its lineup of high-performance,high-value-added products. Polyester is playing an
increasingly important role as a material for CLARINO, nonwoven fabrics and other Group products.
Inventories of man-made leathers have been reduced, andour ability to expand this business has been improved by ourestablishment of a manufacturing and sales structure inimportant locations worldwide. Kuraray is increasingly committed
to a demand-driven mindset, and is working to develop new
products and applications matched to each consuming region.
The use of man-made leather in the manufacture of athletic
shoes is growing in volume, and the Company is seeking further
earnings growth through increased sales of the product for use
in interior furnishings and auto seats.

A Message from the President

Future Core Businesses>
GENESTAR is a heat-resistant engineering plastic
pioneered by Kuraray—the first such material in theworld. It is already widely used in electronics parts in

reduced the number of directors from 17 to 9, and changed
the term of office to one year, in the interest of active
management and decision-making. These measures havereinforced the Company’s corporate governance system,
achieving enhanced transparency and fairness.

connection with the effor t to eliminate the use ofleaded solders. Its high resistance to heat and lowabrasion proper ties are expected to bring strong
demand for use in automobile par ts. We plan toexpand production to 10,000 tons on a compoundbase by fiscal 2005, which will facilitate strong growththrough the benefits of mass-production and cost
reductions, and to develop GENESTAR into a major
material through accelerated development of markets.
In addition, liquid crystalline polymer products,
such as film, non-woven textile, and heat-resistantmonofilament, all made using the Company’s
proprietary polymer processing technology, are nextgeneration products with applications in the IT
industry. To promote the broad use of these products,

In April 2003, the Kuraray Group adopted as its corporate
mission, “We in the Kuraray Group are committed to
opening new fields of business using pioneering technology
and contributing to an improved natural environment andquality of life.” This statement presents in specific language
the duties and responsibilities of a company existing withina societal context. The Kuraray Group’s raison d’être withregard to society is embodied in one principle of ourcorporate philosophy: “Creation of Values.”
We at Kuraray share this corporate mission as an
enduring value, while striving to become an eco-friendly
company with unique technology through the “G-21”
medium-term business plan.
We ask our shareholders for their continued support andencouragement.

the Company is moving forward with development andstudy targeted at individual manufacturers.

REFORMING OUR MANAGEMENT STRUCTURE
Measures to reform Kuraray’s management structure
include increasing the number of auditors, the majority ofwhom will be from outside the Company, establishing aManagement Advisor y Council and implementing an
executive officer system. The Management Advisory Council
is an independent body composed of two prominent
individuals from outside Kuraray, who will provide guidanceon such matters as management policy, management
issues, business planning, the continuation of the president
in his post, the nomination of the Company president, andcompensation.
Executive officers will bear responsibility for both theconduct of operations and for profitability, which will effectthe separation of management oversight functions andoperational responsibilities. Together with this, we have

Yasuaki Wakui
Representative Director and President

7

Kuraray Annual Report 2003

INTERVIEW WITH PRESIDENT OF ELASTOMER COMPANY
Q

Could you tell us something about the Elastomer Company’s achievements, and what the Elastomer
Company’s stance will be now that it has been identified as a growth driver in the “G-21” plan?

A

The mission of the Elastomer Company is to continually ELASTOMER COMPANY BUSINESS CONCEPT
offer high-performance elastomers in global markets, and SEPTON Production Capacity (tons)/Trends in Net Sales
profit growth flows from that. The elastomer business FY2006–
originally star ted with isoprene rubber. We built on the< +20,000+19,000 tons (Estimate)technological expertise developed in those operations to FY2003< KSE+ 50,000
tonstons
SEPCA+ 12,000develop the thermoplastic elastomer SEPTON, liquid FY2002
isoprene rubber (LIR), and other unique polymers.
0
10,00020,00030,00040,00050,000Net Sales, Fiscal 2002
Net Sales, Fiscal 2005
At present, SEPTON sales are expanding steadily, chiefly
Approx. ¥10.0 Billion¥20.0 Billion
in Europe and Nor th America. The U.S. is the largest
market for SEPTON and, responding to the urging of customers, in September 2002 we commenced commercial
production of SEPTON in Houston, U.S.A. This brought our SEPTON manufacturing capacity to 31,000 tons
(19,000 in Japan and 12,000 in the U.S.). Although the SEPTON Company of America (SEPCA) production plant
experienced a few of the usual startup glitches, it is now functioning smoothly. This plant concentrates on
manufacturing four grades of SEPTON for the European and North American markets in an effort to achieve cost
efficiency. Kuraray’s Japanese plants serve the Asian markets for these four grades, and also produce specialty
and high-value-added grades marketed worldwide.

Q

What sets Kuraray apart from its competitors?

A

In our market, styrene butadiene styrene (SBS) and styrene isoprene styrene (SIS), with a double bond,have become commodity chemicals. Adding hydrogen causes the double bond to become a single bond.
This enhances the light stability of these substances, which then become very weather resistant. Thishydrogenation process is a characteristic of SEPTON and HYBRAR. Kuraray is set apar t from its
competitors by this hydrogenation technology, and by the proprietar y technology for stabilizing thehydrogenated substances as powder or pellets suitable for marketing. In the field of commodity chemicals,
we are working to achieve cost reductions and increases in sales volume through marketing strategy, andto strengthen our ability to develop special applications that our competitors cannot easily imitate. For thisreason, we are pressing for ward with the development of distinctive compounds and high-per formancepolymers that display oil resistance, heat resistance, flame resistance and other proper ties, as well as
pioneering new applications for such chemicals.

Q

The “G-21” plan designates the eco-friendly products SEPTON and HYBRAR as strategic domains.
What is the situation with regard to demand for these products as PVC and vulcanized rubber

A

SEPTON and HYBRAR are used chiefly in compounding materials, in adhesives, and as resin modifiers. The
largest demand is for use in compound materials, chiefly as vulcanized rubber and PVC substitutes. SEPTON is
more expensive than rubber, but has better moldability characteristics and does not contain chlorine orplasticizers. Considered overall, the manufacturing process included, it is a relatively inexpensive andenvironmentally friendly product, and so has been well received in the market. There is growing demand for
HYBRAR as a PVC substitute, particularly for use in the manufacture of catheters, tubes, infusion solution bags,

8

Interview with President of Elastomer Company

and other medical devices. Because of its superior transparency and shock
absorbing characteristics, HYBRAR is used in stretch wrapping film, shoe soles, andother applications.
The market for vulcanized rubber is approximately 18 million tons per year, 80% of which isused in tires. Of the remaining 20%, it is estimated that several hundred thousand tons ofvulcanized rubber in industrial application could be replaced by hydrogenated elastomers.
The hydrogenated elastomer compound market is stalled at the 150,000-ton level, though,so there is room for substantial growth.
TOSHIHIRO TOMII,The world market for PVC is approximately 26 million tons per year, while the President of Elastomer Company
high-end market for plasticized PVC is approximately 2 million tons annually. PVC’s properties and low cost makeit an outstanding resin, but the plasticizers added and the dioxins emitted during its incineration have caused
many customers to replace it with hydrogenated elastomers. Kuraray has set a goal of winning around 10% of
the 2 million ton market for flexible PVC.

Q

What are some of the applications for LIR, and what are its future prospects?

A

LIR is a low molecular weight isoprene rubber that maintains its liquid state, and which is primarily used as a reactive
plasticizer in tires. Kuraray is the world’s sole manufacturer of LIR. LIR added to rubber enhances its processability.
During vulcanization LIR reacts and solidifies, making it easy to work with, and it has no harmful effects on theenvironment.
Demand for LIR for use in office automation devices is growing steadily, and Kuraray is pursuing thedevelopment of LIRs with new properties, as well as pioneering new applications for this versatile material.

Q

Could you tell us something about the future of new product development and new application
development?

A

Kuraray will open its Research & Technical Center in Houston in the fall of 2003, strengthening the role of its
overseas R&D organization. This center will conduct research on market needs that can only be accomplished in
America, and will allow quick response to customers in the world’s largest market. In addition, SEPCA’s proximity
to EVALCA is expected to facilitate the development of new products combining EVAL and SEPTON. For instance,
we are developing resins that combine the gas-barrier properties of EVAL with the elasticity of SEPTON.
The world market for hydrogenated styrene elastomers is presently around 80,000 tons, and has been growing
at a rate of 10,000 tons per year. Demand is expected to remain solid. In fiscal 2002, Kuraray’s sales of SEPTON
were 20,000 tons. However, as the Company has the confidence to get about half of the total growth in thismarket every year, this is expected to rise to 35,000 tons in fiscal 2005. To meet future growth in demand, we
will rapidly increase our annual production capacity to 50,000 tons through facilities expansion and M&A.

Composition of the Global
Hydrogenated Elastomer Market(Kuraray estimate)

Others15%

Others11%
Adhesives andbonding agents
21%
Resin modifiers
16%

Compounds
52%

FY200280,000 tons

Adhesives andbonding agents
16%

FY2005110,000 tons

Compounds
53%

Resin modifiers
16%

9Kuraray Annual Report 2003

INTERVIEW WITH PRESIDENT OF CLARINO COMPANYQ

The CLARINO business is now on a trend toward recovery. Could you describe what difficulties you
faced and what concrete steps you took to improve profitability?

A

CLARINO has long held the largest market share in the man-made
CLARINO COMPANY BUSINESS CONCEPT
leather industry. For a long period of time, however, we became inactive
CLARINO Sales Volume (million m )/Trends in Net Sales
to the market movements and our corporate mind became rather FY2005
conservative to react to the adverse trends of the market, in which
consumers’ requirements have greatly changed. As we lagged behind FY2003
these new trends in the markets, we failed to create new markets for FY2002
our development based on the rational market analysis and evaluations.
0
5
10
15
Net Sales, Fiscal 2002
Net Sales, Fiscal 2005
Although we thought we were responding to the new market
Approx. ¥15.0 Billion¥20.0 Billion
requirements, what we did in fact was just to increase the number ofour product items. Accordingly, our production efficiency went down, which caused a significant decline in the profitability of our
CLARINO business. Worse, we suffered a significant drop in our man-made leather sales for the European fashion industry.
Intensified competition in the Asian markets, where synthetic leather was less expensive, also suppressed our business.
To overcome these difficulties and achieve business growth as a core business entity of Kuraray, the Clarino Company
established a motto, Steady Efforts and Aggressive Challenges, and reformed its sales organization. Previously, our sales
channels were locally based. In April 2001, however, we reorganized our sales departments to meet our customers’ requests
for our various products and applications, starting our marketing activities tailored to these products and applications
worldwide. At the same time, we integrated our activities in production, R&D, and marketing with those in sales. Since then,we have been striving to make our activities in product development, production and marketing more customer-oriented.
In executing our marketing strategies, we strengthened our overseas sales companies by establishing business allianceswith several consulting firms that have expertise in business areas such as athletic footwear, furnishing and automotive
upholsteries. Through these business initiatives, CLARINO started to respond to customers’ requirements more quickly andflexibly. Thanks to these corporate efforts, our sales volume is now expanding most significantly in the athletic footwear market.
As for production, we worked intensively in cutting production cost. For this to be possible, we reengineered our previous
manufacturing process and minimized downtime in production lines. Moreover, we reviewed the whole operations of our
product line by paying heed to sales volume, profit, and inventory, and plan to reduce the number of product items from 600
in fiscal 2001 to 250 in fiscal 2005.
As a result of these efforts, our sales volume in fiscal 2002 soared to 12 million square meters, up one million square
meters year on year, contributing to growth both in sales and profit in fiscal 2002.
2

Q

What challenges will the Clarino Company face in the future?

A

In fiscal 2002, our production capacity stood at 80%. Currently, we are planning to raise the level of this capacity to 85% in
fiscal 2003 and to achieve full capacity by 2005. For this purpose, we will increase our sales volume by one million square
meters each year. This will require us to focus our energy on 1) the athletic footwear market, which includes the Chinese
market, 2) the automotive upholstery market, and 3) venturing further into new global markets.
To facilitate this process and make these plans move forward, in April 2003, we transferred our domestic sales operations
to the trading company of the Kuraray Group and created a new system that enables our headquarters to concentrate on
implementing new strategies for production, R&D, and marketing activities. The company as a whole is also pursuing its
development in the demand-driven market. By implementing these basic strategies, the company strives to achieve an
operating profit ratio of more than 15% in fiscal 2005.

10

Interview with President of Clarino Company

Global Strategy
As our global manufacturing strategies, we manufacture substrates in Okayama, Japan, where
the CLARINO plant is located, and we complete final products in areas where the mostsuitable and reasonably profitable market for each of our products exists. Our business
partners are capable of completing the production operations of CLARINO products in Japan,
Korea, Thailand, Taiwan, China, the United States, Italy and Germany. In the future, we will beworking with more partners in many other countries. This strategy, we believe, could give us a
big driving force for the future development of CLARINO operations.
OSAMU ASABA,
Currently, we have been setting up business alliances with professionals in various fields, President of Clarino Company
which I have mentioned before. In 2000, Kuraray Hong Kong made an alliance with a professional consulting firm specializing
in athletic footwear based on its capability of analyzing market information scientifically and comprehensively. This businesstie-up resulted in tripling our sales in the athletic footwear market in 2001 and contributed to doubling them again in 2002. In
Europe, Kuraray Europe and Haru-Kuraray established par tnerships with consultants in furnishings and automotive
upholsteries. In the U.S. market, Kuraray America also strengthened its business coalition with a mill converter, which has along-term trading history with us.
Research and Development
PARCASSIO, a new man-made leather product we launched in 2001, is as soft and supple as natural leather. It isoutstandingly unique in high moisture transfer, breathability, and durability. Demand for PARCASSIO has steadily been growing
in footwear applications such as tennis and golf shoes. Presently we are working to develop a brand new technology, which
will address environmental issues. This technology will enable us to consistently raise the quality and cost efficiency of our
products. It will also give us a great opportunity to expand our product portfolio. We will complete the basic research for a
new product based on this new technology by the end of 2003, installing a new production line for trial production in 2004.
By 2005, we continue our discussions about the most appropriate plant to mass produce this new brand, which we expect
will become our flagship brand for the next generation in the global market. Moreover, to develop new applications more
effectively and professionally, we established the Business Development Group in our organization in April 2003. This Groupwill intensively work on generating new businesses in all business areas and applications.

Q

What is the competitive edge of Kuraray’s man-made leathers, compared with competing products?

A

CLARINO has a wide range of products for various applications while our competitors concentrate mostly on suede products
for garments and upholsteries. CLARINO has found its market not only for garments and upholsteries but also for many otherapplications, such as gloves, footwear, polishing pads, bags and others. In addition to suede products, we have a grain typeof product. While the market range of our competitors is
TRENDS IN SALES VOLUME
somewhat narrow in terms of applications, our market is(million m 2 )15wide, and we can offer a long list of products for a variety of1998 Production facilities expanded to 15.5 million m2
1990 Production facilities expanded to 10 million m2
applications. This means that we have various technologies
10
to create various products. We have acquired these
1980 Commenced sales of Amara
suede-type for clothing
technologies through production experiences in many
applications, which consequently enable us to place these5
products on different markets on a global scale. We planfull-scale marketing to Japanese, European, and U.S. carseat manufacturers beginning in fiscal 2004.
1970
1980
1990
2002
2005
Shoes Car seat
Apparel and interior furnishings Car seat
Accessories Car seat

11

Kuraray Annual Report 2003

AT A GLANCE

BUSINESS SEGMENT

NET SALES (¥ Millions)

MAJOR PRODUCTSCHEMICALS and RESINS
Poval (polyvinyl alcohol resin)
MOWIOL

144,690

MOWITAL (polyvinyl butyral resin)

119,794

21.0

PVA film

44.9%
44.9%

EVAL
(ethylene vinyl alcohol copolymer resin)

34.1

44.9%
NET SALESBY BUSINESS SEGMENT

EVAL film
2002

2003

Methacrylic monomer
Methacrylic resin
Methacrylic sheets
SEPTON, HYBRAR(thermoplastic elastomers)

Fine chemicals

FIBERS and TEXTILESKURALON (PVA fiber)
114,767

KURALON K-II (new type of PVA fiber)
109,915

21.0
34.1%
34.1%

Polyarylate fiber
Polyester staple

44.9

Polyester filament

34.1%

CLARINO, AMARETTA (man-made leathers)
KURAFLEX (dry-laid non-woven fabric)

NET SALESBY BUSINESS SEGMENT

2002

2003

Melt-blown non-woven fabric
MAGIC TAPE (hook and loop fastener)

HIGH-PERFORMANCE MATERIALS, MEDICAL PRODUCTS and OTHERS
Opto-screens
71,301

21.0%
21
21.0%

67,919GENESTAR (heat-resistant polyamide resin)
Activated carbon

44.9

Dental materials

21.0%
34.1

Medical devices
Contact lenses
High-performance membranes

NET SALESBY BUSINESS SEGMENT

12

2002

2003

PVA gelAt a Glance

PRIMARY APPLICATIONSPRODUCTION FACILITIESANNUAL PRODUCTION CAPACITY

Textiles, paper additives, adhesives, butyral precursor

Okayama Plant (Okayama)
Nakajo Plant (Niigata)
Kuraray Specialities Europe GmbH (Frankfurt, Germany)
Poval Asia Pte Ltd (Singapore)

96,000 t
28,000 t
50,000 t
20,000 t

Interlayers for windows and windshields, paints, adhesives

Kuraray Specialities Europe GmbH (Frankfurt, Germany)

20,000 t

Computers, LCD televisions, monitors

Kuraray Saijo Co., Ltd. (Ehime)

31,000,000 m2

Food packaging material, gasoline tanks

Okayama Plant (Okayama)
Eval Company of America (Texas, U.S.A.)
EVAL Europe N.V. (Antwerp, Belgium)

10,000 t
23,000 t
12,000 t (FY2004 + 12,000 t)

Food packaging material

Okayama Plant (Okayama)

3,000 tSolvents, adhesives, methacrylic resin

Nakajo Plant (Niigata)
Kyodo Monomer Co., Ltd. (Osaka)

65,000 t
20,000 t

Resins for molding, light guides plates, synthetic marble

Nakajo Plant (Niigata)20,000 t (October 2003 + 20,000 t)

Signboards, displays, TV front panels, light guides plates

Nakajo Plant (Niigata)33,600 t (April 2004 + 10,000 t)

PVC and vulcanized rubber substitute, food packaging materials

Kashima Plant (Ibaraki)
SEPTON Company of America (Texas, U.S.A.)

19,000 t
12,000 t

Pharmaceutical and agrochemical intermediate, vitamin precursor

Nakajo Plant (Niigata)—

Agriculture and fishery materials, civil engineering materials

Okayama Plant (Okayama)

40,000 t

Cement reinforcing agents, woven and knitted textiles

Okayama Plant (Okayama)

7,000 tRope, fishing nets, and other industrial products

Kuraray Saijo Co., Ltd. (Ehime)

400 t

Sleepwear, interior furnishings

Kuraray Saijo Co., Ltd. (Ehime)

13,000 t

Woven and knitted textiles, tents, sheets

Kuraray Tamashima Co., Ltd. (Okayama)

12,000 t

Shoes, handbags, sporting goods, luxury clothing, interior furnishings

Okayama Plant (Okayama)

15,500,000 m2

Wiping materials, wet wipes, surgical masks

Kuraflex Co., Ltd. (Okayama)
Kuraflex Ibaraki Co., Ltd. (Ibaraki)

10,500 t
3,500 tCoffee bags, filters

Kuraray Saijo Co., Ltd. (Ehime)

1,800 tClothing, shoes, car seats

Magictape Co., Ltd. (Fukui)

48,000,000 m

RPTV screens

Nakajo Plant (Niigata)3,000,000 sheets (April 2004
+ 1,800,000 sheets)

Electronics parts, auto parts

Kuraray Saijo Co., Ltd. (Ehime)

3,000 t (compound base)

Water purification facilities, gas separators

Kuraray Chemical Co., Ltd. (Okayama)

18,500 t

Dental adhesives, dental filling materials

Kuraray Medical Inc. (Okayama)

600,000 sets

Artificial kidneys, dialysis machines

Kuraray Medical Inc. (Okayama)

2,700,000 units (artificial kidneys)

Contact lenses, medical-care products

Kuraray Medical Inc. (Okayama)

1,000,000 lenses

Water purification and wastewater treatment

Kurashiki Plant (Okayama)

100,000 m2

Water purification and wastewater treatment

Kuraray Saijo Co., Ltd. (Ehime)

3,000 m3

13

Kuraray Annual Report 2003

REVIEW OF OPERATIONSCHEMICALS AND RESINS•PovalPoval resin/Butyral resin/PVA film
•EVAL
•Isoprene Chemicals
SEPTON/HYBRAR/Aroma chemicals/Pharmaceutical intermediates•Methacrylic
Methacrylic resin/Methacrylic sheets/Synthetic marble

FIBERS AND TEXTILES•Man-Made Leather
CLARINO/AMARETTA/PARCASSIO•KURALON/KURALON K-II
•New-type polyester
SOPHISTA•Non-Woven Fabrics
KURAFLEX•Fastening Materials
MAGIC TAPE

HIGH-PERFORMANCE MATATERIALS,
MEDICAL PRODUCTS AND OTHERS•High-performance materials
Opto-screens/GENESTAR/Liquid crystalline polymer film•Medical Products
Dental materials/Artificial kidneys/Contact lenses•Environmental Businesses
Industrial membranes/Activated carbon

Regarding the change in segments
In response to changes in the business environment, and using the momentum of our implementation of the inhouse company system, we reorganized our previous four business segments into three: Chemicals and Resins,
Fibers and Textiles, and High-Performance Materials, Medical Products and Others.

14

Chemicals and Resins

CHEMICALS AND RESINS
1. EVAL Europe N.V.
2. 29.7 million
3. Manufacture and sales of
EVAL in Europe

1. Kuraray Hong Kong Co., Ltd.
2. HK$4.65 million
3. Processing and sales of Kuraray
products in China and Southeast Asia

1. Eval Company of America
2. US$4.15 million
3. Manufacture and sales of
EVAL in the United States

1. Kuraray Europe GmbH2. 31.2 million
3. Sales of Kuraray productsin Europe

1. Kuraray Specialities
Europe GmbH2. 20 million
3. Manufacture and sales ofpoval and butyral resins

1. Kuraray Co., Ltd.
2. ¥88,955 million
3. Manufacture and salesof Kuraray products

1. Kuraray America, Inc.
2. US$8.7 million
3. Importing and sales ofKuraray products

1. SEPTON Company of America
2. US$35 million
3. Manufacture and sales ofthermoplastic elastomers

1. Poval Asia Pte Ltd
2. SP$40 million
3. Manufacture of poval resins

1. Kuraray Specialities Asia Pte., Ltd.
2. SP$45.6 million
3. Sales of poval resins

1.Company name
2.Capital
3.Activities
Manufacturing facility
Marketing base

NET SALES(¥ millions)

PERFORMANCE IN
THE FISCAL YEAR ENDED MARCH 31, 2003
44.9%
¥144,690

02
03

119,794
144,690

Total: ¥322,524
2003

OPERATING INCOME(¥ millions)60.3%¥19,947

02

15,50603

Total: ¥33,070
2003

Note: The Companywide costs (¥7,884 million)
are not allocated among the various business divisions.

CAPITAL EXPENDITURE(¥ millions)

02
03

40,24819,947

Net sales of Chemicals and Resins grew 20.8%, or ¥ 24,896
million, to ¥144,690 million. Operating income jumped 28.6%
to ¥19,947 million, an increase of ¥4,441 million. The
performance of poval and EVAL remained strong, particularly
overseas. High-value-added methacr ylic products,
including those for optoelectronic applications, posted
sales growth, while sales of isoprene-related products
and elastomers expanded in both domestic and overseas
markets, with elastomers showing particularly substantial
growth. These developments contributed to growth in bothrevenues and profits.
Poval The recovery of demand in Asia, expansion of theChinese market, acquisition in fiscal 2001 of the PVA and PVB
operations of Clariant, and subsequent establishment ofKuraray Specialities Europe all contributed to the expansion ofKuraray’s poval business. A recovery was seen in demand for
PVA film for use in LCDs, and the new manufacturing facilities
that came on line in April were operating steadily. The poval
business as a whole achieved increases in both revenues andprofits.

7,821

15

Kuraray Annual Report 2003
Poval Resin: First developed as a stepin the production of polyvinyl alcohol(PVA) fiber, poval’s water solubility,
adhesive properties, emulsability andoil resistance suit it to a broad range ofapplications. It is now used in textile
and paper manufacturing, adhesives,
layered automobile windshields and inmany other industrial processes.

EVAL: A high-performance resin withthe best gas-barrier properties of any
plastic, EVAL shuts out oxygen toprotect against change or deterioration,
making it a superior packaging material
for foods and cosmetics. Recently, we
have created demand for the use of
EVAL in the production of plastic fueltanks and beer bottles.

Butyral Resin: Kuraray markets a wide

SEPTON: As elastic as rubber yet as

range of polyvinyl butyral resins under
the trade name MOWITAL. This resin ischaracterized by its excellent adhesion
to a variety of surfaces, such as glassand metals, and its workability into
films with outstanding opticaltransparency. Major applications are
anticorrosive coatings, printing inks,
ceramic binders, and inter-layers forshatterproof laminated safety glass forautomotive and architectural glazing.

moldable as plastic, SEPTON is used
as a rubber substitute and a plastics
additive. When incinerated, SEPTON
emits no chlorine gasses, and istherefore in high demand as a
substitute for polyvinyl chloride (PVC)and vulcanized rubber. In September
2002, we commenced commercial
production of SEPTON in the U.S.

PVA Film: Its transparency andantistatic properties make PVA film an
ideal wrapping material for textile
products. It is also used to makepolarized film for LCD manufacturing.
Accordingly, demand for PVA film
increases with that for LCDs.

HYBRAR: With its superior shock-

EVAL Despite the rising price of crude oil in the UnitedStates, sales of the EVOH resin EVAL for use in foodpackaging were healthy, and demand for use in plastic fueltanks rose steadily not only in the U.S., but also in Japan,
Europe and China. The EVAL business, as a result, posted
gains in revenues and profits.
Methacr ylic Resin Products Increased demand formethacrylic resin was evident, both as a material for molding
and in sheet form. Demand for use in such high-value-added
products as light guide plates and front panels for RPTVs wasparticularly strong. This business also achieved growth inrevenues and profits.
Isoprene Chemical Products Production of isoprenerelated products at our U.S. plant commenced in September
2003. Sales of thermoplastic elastomers were healthy, mainlyin the European and U.S. markets. In the field of finechemicals, the vitamin-related products business has been
af fected by falling market prices, but pharmaceuticalintermediates, agrochemical intermediates and aroma
chemicals showed solid growth. Diols and other specialty
chemicals also saw increases in sales volume. As a result,the isoprene-related business posted increases in revenues
and profits.

16

absorbing properties, this polymer isused for sporting goods and autoparts. Combining HYBRAR with
polypropylene yields a highly
transparent material that contains nochlorines. Demand is growing for thismaterial for food packaging andmedical uses.

REGIONAL CONDITIONSJapan Domestic operations were affected by Japan’s poor
economic conditions, but high-value-added products showedsteady growth, as did demand for poval and methacrylic resinfor optical applications. Demand for EVAL for use in plastic
fuel tanks expanded, and with the emer gence of new
applications allowed solid growth. Demand for thermoplastic
elastomers also expanded.
Europe To meet rising demand for EVAL in Europe for use inplastic fuel tanks and food packaging, EVAL Europe is
expanding production capacity by 12,000 tons. The expandedfacilities are scheduled to come on line in the third quarter offiscal 2004. Kuraray Specialities Europe per formed wellduring its inaugural year, posting net sales of approximately¥16.0 billion. In addition, the operating loss resulting fromthe amortization of goodwill was much smaller than expected
due to healthy sales in Europe.
Nor th America We commenced production of thethermoplastic elastomer SEPTON at a subsidiary in Texas in an
ef for t to increase U.S. sales, and commenced full-bore
marketing based on customer evaluations. Thriving demand for
EVAL for use in plastic fuel tanks and food packaging continued.

Chemicals and Resins

Methacrylic Resin: Transparent,
weather-resistant, color fast, andworkable methacrylic resin is used inlight guide plates for LCDs, automobile
taillights, lighting fixtures and a broad
range of other applications. Methyl
methacrylate, an intermediate productin the manufacture of methacrylic
resin, is used as a resin modifier and apaper coating.

Industrial Cleaner: A highly safe andeasy-to-handle cleaner with a host ofindustrial uses, our industrial cleaner
has excellent detergent properties, issimple to recycle and is soluble in bothwater and oil.

Methacrylic Sheets: Superiortransparency makes this material ideal
for signboards, building materials,
aquaria, and many other uses.
Recently, demand has grown formethacrylic sheets for use in LCD lightguide plates and front screens for othertypes of display.

Aroma Chemicals: The Company uses

Synthetic Marble: An application of
methacrylic resin, this material has thelook of natural marble, and is being
used in modular kitchens, bathtubs andsinks.

Pharmaceutical Intermediates:

Asia Riding the wave of recovery in Asia’s markets, sales ofpoval grew steadily. Demand increased for EVAL in China forplastic fuel tank applications, and in Korea and Taiwan forfood-packaging applications. Also in Korea and Taiwan,
demand for methacrylic resins for use in light guide plates
was healthy, and demand for SEPTON for general applications
rose significantly.

isoprene to manufacture over 30
aroma chemicals and base oils for use
in cosmetics and toiletries, including
Linalool (lily of the valley scented) andCitral (lemon scented).

Kuraray produces intermediates foranti-viral agents, anti-hypertension
agents, antibiotics, and otherpharmaceuticals using its fine-chemical
technology.

applications will be the driver for growth. In response to
growing demand for use in computer LCDs and RPTV screens,
we will double our capacity to manufacture methacrylic resins
for molding, effective October 2003. Expanded facilities for
manufacturing methacrylic resin sheets are scheduled to openin April 2004. These two measures will significantly
strengthen our manufacturing organization.

OUTLOOKIn the Chemicals and Resins business, the global expansionof poval, EVAL, thermoplastic elastomers and other corebusinesses is expected to continue. Sales growth of EVAL is
projected in China and other Asian markets, as well as inJapan, Europe, and the U. S., through expansion into
untapped markets.
Building on the momentum gained from the successful
launch of Kuraray Specialities Europe, the poval-related
business will seek to generate synergies from manufacturing,sales and development on a global level. In the SEPTON
thermoplastic elastomer business, we will bring SEPTON
Company of America’s new plant into full operation at an earlydate in response to the growth of domestic and overseas
markets.
In the methacr ylic resin business, optoelectronics

17

Kuraray Annual Report 2003

FIBERS AND TEXTILES
1. Kuraray Trading Co., Ltd. (Hanoi branch )3. Sales of Kuraray products

1. Haru-Kuraray GmbH2. 1.0 million
3. Sales of man-made leather
in Europe

1. Kuraray Europe GmbH2. 31.2 million
3. Sales of Kuraray products in Europe

1. Nantong Kuraray Garment Co., Ltd.
2. ¥150 million
3. Sewing of Kuraray products
1. Kuraray Trading Co., Ltd.
(Shanghai branch )3. Sewing and sales of Kuraray products

1. Lorica Sud S.r.l
2. 0.9 million
3. Processing and sales of man-madeleather in Europe
1. Kuraray Co., Ltd.
2. ¥88,955 million
3. Manufacture and sales of Kuraray products

1. Kuraray America, Inc.
2. US$8.7 million
3. Importing and sales ofKuraray products

1. Kuraray Trading Co., Ltd. (Taipei branch )3. Sales of Kuraray products

1. Kuraray Trading Co., Ltd. (Hong Kong branch )3. Sales of Kuraray products

1. Kuraray Trading Co., Ltd. (Jakar ta branch)
3. Sewing and sales of Kuraray products

1.Company name
2.Capital
3.Activities

1. Kuraray Hong Kong Co., Ltd.
2. HK$4.65 million
3. Processing and sales of Kuraray
products in China and Southeast Asia

OPERATING INCOME

NET SALES

Total: ¥322,524
2003

CAPITAL EXPENDITURE(¥ millions)(¥ millions)34.1%¥109,915

Manufacturing facility
Marketing base

02

114,767

03

109,915(¥ millions)

14.5%¥4,801

02
03

3,767
4,801

02

3,214

03

4,655

Total: ¥33,070
2003
Note: The Companywide costs (¥7,884 million)
are not allocated among the various business divisions.

PERFORMANCE IN
THE FISCAL YEAR ENDED MARCH 31, 2003

PERFORMANCE IN
THE FISCAL YEAR ENDED MARCH

Net sales in Fibers and Textiles declined 4.2%, or ¥4,852
million, to ¥109,915 million, but operating income surged
27.4%, or ¥1,034 million, to ¥4,801 million. The decline in
net sales resulted from the falloff of polyester sales, while theincrease in income was brought by the rationalization ofpolyester operations and a recovery in CLARINO sales.

measures, we accelerated our shift to differentiated materials
and continued to shrink unprofitable operations. As a result,although sales declined, we significantly reduced themagnitude of the net loss in this business. In April 2003, wetransferred our staple fiber manufacturing division to a newly
established subsidiar y, and are seeking to improve
profitability through specialization in highly differentiatedmaterials and materials for use within the Kuraray Group.

KURALON Demand for KURALON for use as an asbestos
substitute and for use in fiber-reinforced cement (FRC) led tohealthy sales, and the water-solubility of KURALON K-II led to
expansion of demand for this product, as well. However, demand
from the agricultural and fisheries industries contracted, andsales of KURALON overall were flat, although profits increased.
Polyester Although market conditions remained severe,
Kuraray split off its polyester filament fiber operations into aseparate company in October 2001, and in April 2002transferred the clothing-use textile business to a Group
trading company. Together with these efficiency-enhancing

18

Man-Made Leather The man-made leather business achieved
increases in both revenues and profits, as measures taken by
the Company to increase the use of CLARINO in athletic shoes
and other footwear have recently shown results. In addition,
sales were strong of CLARINO for use in clothing in thedomestic market, and in interior furnishings in the U.S.
market. This business is on the road to full recovery. Wellknown manufacturers of athletic shoes are starting to use
PARCASSIO, which feels like natural leather, and this market
is growing steadily.

Fibers and Textiles

CLARINO: Supple, strong, lightweight,
weather-resistant and easy to care for,
CLARINO is used in shoes, handbags,
athletic shoes, baseball gloves andlarge balls. AMARETTA is another brandof our man-made leather born ofmicrotechnology, and is used in luxury
coats, jackets and interior furnishings.

PARCASSIO: In addition to thesuperior properties of man-madeleathers, PARCASSIO offers the lookand feel of natural leather. In fiscal
2002 the footwear industry was theprimary source of demand.

New-Type Polyester: This is a new
type of synthetic fiber, made by melt
spinning Kuraray’s proprietary EXCEVAL
polymer. When the EXCEVAL is
extracted from the polyester thread, theresult is an ultra-lightweight, easily diedmicrofiber.

KURAFLEX: A dry-laid non-woven fabricthat combines moisture absorbency,
breathability, flexibility and a texture
that is pleasant to the touch,
KURAFLEX is used in products ranging
from cosmetics removers, wet wipes,
counter cloths, face towels, wiping
cloths, surgical masks and filters, tosurgical gowns and sheets.

KURALON, KURALON K-II:

Hook and Loop Fastener: Used in a

KURALON is used as a substitute forasbestos as a reinforcing material in
cement and for separators in alkali
batteries. The strength of KURALON K-II
has won it a great deal of favorable
notice in civil engineering applications,particularly as a reinforcing material in
cement and concrete, and significant
expansion of demand is expected.

wide variety of applications, including
clothing, sporting goods and medicalcare products, our MAGIC TAPE holds
the largest share in the domestic
market for fastening devices. The
Company also has a molded plastic
hook and loop fastener with higher
bonding strength, suitable for use in
car seats, construction materials andother industrial uses.

Non-woven Fabrics and Fastening Materials The weakdomestic market for non-woven fabrics and the instability of
the restaurant industry have resulted in falling prices in the
non-woven fabrics business. However, by increasing sales
volume we have held net sales level, although profits havedeclined. The shift of users overseas and other factors
produced decreases in revenues and profits in the hook andloop fastener business. In response to the trend toward local
procurement, the Company will establish a manufacturing andsales subsidiary in Shanghai that will commence sales in
October 2003.

North America Sales of KURALON as a rubber reinforcer werestable, and sales of man-made leather have been strengthened
through unified operations with Kuraray America, Inc. achieving
healthy performance largely on the strength of sales for use ininterior furnishings.
Asia The maneuverability of branches of Kuraray Hong Kong
Co., Ltd. in Taiwan and China has strengthened pipelines tousers, which has brought steadily growing use of man-madeleather in the world’s leading athletic shoe brands.

OUTLOOKREGIONAL CONDITIONSJapan In its polyester business, the Company is working to
expand the market for its proprietary polymer products, andsales are growing steadily. Demand for CLARINO for use inshoes and miscellaneous goods was steady. Sales of KURALON
to the fisheries and agriculture industries were weak, but sales
for use as a rubber reinforcer, in paper and in non-woven fabrics
stabilized.
Europe Demand for KURALON for use in civil engineering
applications was steady. There has as yet been no fullscale recovery in sales of CLARINO, but we have begun
to see indications of its use in interior furnishings andother applications.

Use of KURALON as a rubber reinforcer is increasing, and weare accelerating our development of the civil engineering andconstruction markets for KURALON K-II.
We are increasing the profitability of our polyester businessby expanding sales of unique products that use ourproprietary polymers, such as SOPHISTA.
The use of man-made leather in athletic shoes continues
to expand, and through strong marketing ef for ts we will
promote growth in sales volume for use in automobile seats,a field we had not previously emphasized. By strengthening
marketing capabilities and rationalizing costs, we brought ouroperating ratio to 85% in fiscal 2003, and are working toward
a goal of 100% in fiscal 2005.

19

Kuraray Annual Report 2003

HIGH-PERFORMANCE MATATERIALS,
MEDICAL PRODUCTS AND OTHERS

1. Kuraray Co., Ltd.
2. ¥88,955 million
3. Manufacture and sales ofKuraray products
1. Kuraray Europe GmbH2.
31.2 million
3. Sales of Kuraray products in
Europe1. Kuraray Chemical Co., Ltd.
2. ¥600 million
3. Manufacture and sales ofactivated carbon

1. Kuraray America, Inc.
2. US$8.7 million
3. Importing and sales ofKuraray products

1.Company name
2.Capital
3.Activities
膚Manufacturing facility
膚Marketing base

NET SALES(¥ millions)

PERFORMANCE IN
THE FISCAL YEAR ENDED MARCH 31, 2003

20.1%
¥67,919

Total: ¥322,524
2003

02

71,301

03

67,919OPERATING INCOME

Optoelectronics products Sales of RPTV screens in the U.S.
remained strong, and demand increased in the Chinese
market as well. Revenues and profits both rose.

(¥ millions)25.2%¥8,322

02
03

Total: ¥33,070
2003

6,760
8,322

Note: The Companywide costs (¥7,884 million)
are not allocated among the various business divisions.

CAPITAL EXPENDITURE(¥ millions)

02
03

20

Net sales in this segment declined 4.7%, or ¥3,382 million,
to ¥67,919 million. Operating income jumped 23.1%, or¥1,562 million, to ¥8,322 million. Our domestic affiliates
posted declines in revenues, but opto-screens, dental
materials, GENESTAR, hollow-fiber membranes, and activatedcarbon contributed to increased revenues and profits.

Medical Products Sales of dental materials expanded
steadily, chiefly in Europe and the U.S. The profitability of thecontact lens business recovered as a result of cost
reductions and expanded sales of new lens-care products.
However, sales of medical devices were affected by theJapanese government’s reductions in pharmaceutical prices.
Sales in the medical products business were flat, althoughprofit growth was achieved.

3,819
5,177

High-Per formance Materials The heat-resistant resin
GENESTAR was widely used in connectors and otherelectronic parts, and development of the automotive market

High-Performance Materials, Medical Products and Others
Opto-screens: Rear-projection TV(RPTV) screens are produced byapplying precision molding technology
to methacrylic resin. As digital highdefinition TV and DVD players
proliferate, demand for RPTVs is
expected to grow, especially in the
United States and China.

GENESTAR: A new polyamide resinthat is resistant to heat, water andabrasion, this material is used in
mobile telephones, computers, suchelectronics parts as connectors andswitches, and auto parts. GENESTAR isalso well suited for use in lead-freeresin-core solders, which makes itsheat resistance all the more attractive.

Liquid Crystalline Polymer Film: This
high-performance material has a low
water-absorption rate, electricalproperties, and dimensional stability.
We are expanding sales for use incircuit board substrates.

Industrial Membranes: Kuraray has
developed microfiltration membranes
capable of filtering microparticles
ranging in size from 0.003 to 3
microns, which are widely used in water
filtration, wastewater treatment andother industrial applications.

Dental Materials: High-performancedental adhesives and filling materials
produced by Kuraray Medical Inc. haveestablished a strong presence in themarket by virtue of their superior
adhesiveness, strength and ease ofuse. The Company also markets an allpurpose cement that bonds metal caps
and implants, and dental resin
developed for aesthetic dental repair.

Activated Carbon: With its ability toabsorb and eliminate odors andcontaminants, this material is used inwater filters, air-conditioning filters andmany other applications. Growth indemand for use in capacitors is
expected.

for GENESTAR also progressed steadily. We worked to expand
our environment-related business, and a local government
selected our large-pore hollow-fiber membrane for use in thecity’s water purification facility.

government approval and the establishment of agency sales
routes strengthened dental material and contact lens
operations. The foundation is in place for the Company’s entry
into the Chinese market.

Others Activated carbon sales at domestic affiliate Kuraray
Chemical Co., Ltd. were healthy. Although the businessenvironment was harsh for our other affiliates, progress wasmade in the enhancement of operational efficiency. This
allowed growth in profits for this sector overall, despite lower
revenues.

OUTLOOKREGIONAL CONDITIONSJapan The medical products business was affected by theJapanese government’s pharmaceutical price reductions, but
improved profitability was achieved through growing sales ofsuch environment-related products as activated carbon andhigh-performance membranes, higher sales of GENESTAR andrationalization at domestic affiliates.
Europe and North America Sales of dental materials were
healthy in Europe and Nor th America, and sales of optoscreens for RPTVs were strong in North America.

In the medical products field, we will increase sales bystrengthening our direct-sales organization for dental
materials in Europe and North America, and increasing ourexpor t ratio. In China, where we have built a salesorganization, we will intensify effor ts to expand sales ofdental materials and contact lenses.
In our opto-screens business, the Optical Device R&D
Center, opened in March 2003, will work to develop productsthat match market needs, while a planned April 2004
expansion of production facilities will respond to burgeoning
demand in China and the United States.
We will develop GENESTAR into a significant material thatcan make a contribution to earnings by accelerating theadvance of automotive applications and other marketdevelopment efforts.

Asia Demand for opto-screens in China increased, while

21

Kuraray Annual Report 2003

RESEARCH AND DEVELOPMENT
The Kuraray Group is engaged in strategic R&D programs grounded in its unique technologies, with the objectives of creating
and fostering new businesses, and strengthening and expanding core businesses. The “G-21” plan examined the Kuraray
Group's businesses and technologies with regard to the growth potential of various markets and the needs of society, andidentified four areas as displaying great promise in the competition for technological development: IT-related materials;
medicine and healthcare materials; environmental business and high-performance materials. These four areas have been
designated priority R&D domains for Kuraray’s corporate R&D program, which cuts across divisional boundaries to involve theentire Group.

Toward Further Growth
Proprietary technology/High performance/Demand driven
Business Segment

Materials Technology

Properties of Available Materials•Vinyl-acetate/Poval•Polymerization•Organic synthesis•High performance•Gas barrier properties•Special optical properties•High heat resistance•Alkali resistance•Biocompatibility•Isoprene chemicals•Optoelectric andmethacrylic products•Man-made leathers•Medical products

X•Organic and inorganic
compounding•Nanotechnology•Precision molding•Film production•Sheet production•Advanced textile processing•Component & material design

Bringing Products to Market Faster
The corporate research and development organization thatwas created with the April 2002 introduction of the in-housecompany system cuts laterally across the divisional R&D
organizations (within the various in-house companies,business divisions, and subsidiaries) in a matrix-like
configuration. To bring newly developed products andapplications to market more quickly, several strategic
research and development themes (SRDTs) have been
selected from among hundreds of ongoing R&D projects,
and the entire Group is concentrating R&D resources inthose areas. Strategic R&D themes are selected by the R&D
Coordination Committee, which is composed of executivesof the rank of managing director and above. This committee
oversees the SRDT committees of subordinate
organizations, and seeks to move products to market more
quickly by concentrating personnel and R&D investments intargeted areas.
At present, optoelectronics products, next-generation
man-made leathers, next-generation gas barrier materials,
and next-generation elastomers are designated as SRDTs.
The Kuraray Group has expectations that these businesses
will provide support for earnings in the future.

22•Eco-friendly•VOC-free•Biodegradability•Substitutes for harmful substances

Strategic Markets
IT
Medical and Health Care

Environment
High-Performance Materials

Kuraray is not relying entirely on in-house technology todevelop new businesses, but in April 2003 established the
Corporate Strategy and Planning Division to promote theapplication of technologies acquired through alliances andM&A. This or ganization is char ged with the timely
development of new businesses through selection of R&D
themes and concentration of resources in those areas, andaccelerating the expansion of the scope of new businesses
through M&A and other measures.
Toward Further Growth

Accelerated Commercialization

R&D promotion
Using the corporate/company matrix

R&D Coordination
Committee

SRDT committees●Roadmap prepared(Board members)

SRDTs selected●Priority allocation ofmanagement resources

The Roles of the Kuraray Group’s Research Facilities
The Kuraray Group’s corporate R&D organization iscomposed of the Kurashiki Research Laboratories, theTsukuba Research Laboratories, the Advanced and BasicTechnology Research Laboratories, Optical Device R&D

Research and Development

Center, and the Intellectual Property Center.
The Kurashiki Research Laboratories have responsibility
for basic research and the development of applications in theareas of organic synthesis, polymer synthesis, fibers andtextiles, compounding, and biomedical-related materials.
The Tsukuba Research Laboratories conduct a unified
R&D program that extends from the development ofmaterials based on various polymers to productdevelopment and customer response.
The Advanced and Basic Technology ResearchLaboratories, established in April 2003, have assumed thefunctions of the former Analytical Research Center, namely
suppor t for material and product development throughstructural analysis. These new laboratories add to thismission basic and advanced research in the field ofpolymers, including vinyl acetate polymers and textiles, aswell as nanotechnology research.
Established in March 2003, the new Optical Device R&D
Center’s strengths are the high-precision processing
technology developed in our opto-screen operations, and awealth of technological expertise in the field of polymer
materials. The Center brings these strengths to bear on the
optimal and timely development of optoelectronics products
demanded by the market.
To strengthen R&D in the United States, we will open the
Research & Technical Center in Houston in the fall of 2003.
This facility will be tasked with market development andtechnical services for EVAL and SEPTON operations, and will
execute research under the Company’s corporate-level R&D
coordination policy. Together with the Eval Company ofAmerica and the SEPTON Company of America, this Center
will generate significant synergies, which we will employ todevelop the Center into a U.S. base for polymer-related R&D.
KURARAY CORPORATE R&D CENTER
Kurashiki Research Laboratories

Tsukuba Research Laboratories
Advanced and Basic Technology
Research Laboratories

Development in Growth Fields
The Kuraray Group is energetically investing its resources in
the growth fields of information technology, environmental
technology, biotechnology, medicine and health, and newmaterials. In recent years, the Group has developed andbrought to market the heat-resistant resin GENESTAR, whichis expected to find broad applications in fields ranging fromelectronics par ts to automotive components; a film forflexible printed circuit boards created using state-of-the-art
liquid cr ystalline polymer film; a monofilament used inprecision printing; new TU polymer resin modifiers; and new
synthetic fibers. In addition, the Group is working to bringnew products to market in the following areas:a) New elastomers (heat-, chemical- and weather-resistantthermoplastic elastomers)b) Fine chemicals for the electronics and information industryc) Materials with new properties (nanocomposite gas barriermaterials)d) Electrode material for electric double layer capacitors (highefficiency activated carbon, high efficiency separators)e) Eco-friendly medical devices and supplies (medical
products containing no PVC)f) Materials for water purification and other environmental
preservation systems (high-per formance membranes,
activated carbon)

R&D EXPENSES(Millions of yen)

FY 2002

12,523
12,131

FY 2001
FY 2000

12,251FY 1999

12,097
13,429FY 1998
0

2,000

4,000

6,000

8,000

10,00012,00014,000Electronic and Electrical Device R&D Group
Catalyst and Chemicals R&D Group
Life and Living Science Group
Composites and Man-made Leather R&D Group
Polymer R&D Group
Polymer Processing R&D Group
Analysis and Solution Group
Nanotechnology R&D Group
Vinyl Acetate Polymer & Fiber Technology R&D Group

Optical Device R&D Center

23

Kuraray Annual Report 2003

CARING FOR THE ENVIRONMENT
The realization of a sustainable, recycling-oriented society will be an important issue in the 21st century, and accordingly, theKuraray Group is striving to become an eco-friendly enterprise with unique technology. Our “G-21” medium-term business plan
includes the Medium-Term Environmental Plan, which sets specific quantitative goals. The Kuraray Group is vigorously
pursuing environmental preser vation activities, and is expanding its environment-related businesses, involving thedevelopment of products and services that serve to preserve and enhance the environment, as well as providing alternatives
to materials that have a substantial negative impact on nature.

1. Our Medium-Term Environmental Plan
Significant Issues
1) Reducing environmental impact･ Reducing emissions of harmful chemicals･ Reducing CO2 emissions･ Achieving zero waste emissions*2) Increasing green purchasing and procurement, and green
distribution
3) Reducing environmental impact of Company’s products･ Expanding use of lifecycle assessments･ Adoption of environmental label type III

4) Developing and marketing environmentally friendly
products
5) Improving communication･ Strengthening information disclosure with due care for
Corporate Social Responsibility･ Enhancing environmental accounting･ Bolstering our risk communication system*ZERO EMISSIONS IN KURARAY GROUPFirst stage: promoting the ef fective reutilization of waste, andbringing the proportion of landfill disposal of waste generated at a
facility to 1% or less.
Second stage: bringing the landfill disposal and incineration of waste
generated at a facility to zero.

Quantitative Goals—Goals for Fiscal 2005, Compared with Fiscal 1999
Quantitative goal

Unit

Fiscal 1999

Fiscal 2002

Fiscal 2005

(Standard fiscal year)

Reduction of 90% in emissions of substances including specified
by Pollutant Release and Transfer Register (PRTR)
Reduction of 90% in industrial waste sent
to waste disposal firms (Target value: 1,500 tons/year)

tons

5,968 (100%)

4,072 (68%)

597 (10%)5.9 (40%)

1.5 (10%)kilo-tons

14.6 (100%)

Increase of 20 percentage points in waste effective utilization(60% to 80%)

%

60

81

80

Increase of 6% in energy usage efficiency (1% per year)

%

—

5.0

6

Note: The conversion of waste plastic to fuel and the recycling of waste have already allowed us to meet our fiscal 2005 goal for the efficient
recycling or utilization of waste. In addition, we have further strengthened our environmental activities through the definition of zero waste
emissions and the clarification of quantitative goals for reductions in CO2 emissions. (Quantitative goals for CO2 emissions will established infiscal 2003.)

24

2. Environmental Preservation Activities

2. Environmental Preservation Activities

The Company established the “Kuraray Action Guidelines on
the Global Environment” in 1993 to set directions for its
environmental preservation activities. In February 2001, theseguidelines were expanded to become the “Kuraray Group Action
Guidelines on the Global Environment,” taking environmental
preservation and improvement to the Group level.
All of Kuraray’s domestic manufacturing and R&D
facilities have received ISO14001 certification, which is theinternational standard for environmental management

systems. All the Group’s remaining domestic and overseas
companies are now either cer tified or working toward
certification. Using ISO14001 guidelines as a foundation,
the entire Group will be working for further reductions in its
environmental impact.

Caring for the Environment

3. Environment-Related Businesses

Status of ISO14001 Certifications
Site
Kuraray Specialities Europe GmbHKashima Plant
Techno Soft Co., Ltd.
Eval Company of America
Okayama Plant
Nakajo Plant
Kurashiki Plant
Kuraray Tamashima Co., Ltd.
Kuraray Saijo Co., Ltd.
Tsukuba Research Laboratories
Kuraray Plastics Co., Ltd.

Date of certification
November 1998
March 1999
December 1999
February 2000
March 2000
March 2000
December 2000
December 2000
December 2000
December 2001
January 2003

Topics* The boiler fuel at our Nakajo Plant has been converted
from heavy oil to natural gas, and the generator boiler at
the Okayama Plant has been fitted with pollution
abatement equipment. These and other measures have
reduced the domestic principal Group’s SOx emissions by
52% and NOx emissions by 12%. By site, SOx emissions
were reduced by 55% at the Nakajo Plant and by 60% at
the Okayama Plant, while NOx emissions were reduced by
37% at the Nakajo Plant.
* Kuraray Tamashima Co., Ltd. employs a thermal recycling
system involving the use of waste plastic as fuel for its
fluidized bed boiler. In recent years, the reduction of CO2
emissions as a countermeasure to global warming has
gained currency, and this has created interest in the useof biomass fuels for power generation. In August 2002,
Kuraray Tamashima began the use of waste wood, one
type of biomass, and plans to increase biomass electricity
generation to around 20% of its total in the future.

Fluidized bed combustion
boiler

CAPITAL EXPENDITURE FOR ENVIRONMENTFY 2002(Millions of yen)
1,056
1,287

FY 2001
FY 2000

1,299

The “G-21” plan designates environment-related businesses
as one of Kuraray’s strategic domains. The Group’s
environment-related businesses are divided into two areas:
Eco-friendly and Environment Business. In the Eco-friendly
Areas, our goal is to expand sales of substitutes forenvironmentally harmful substances to ¥70 billion by fiscal
2005. We are vigorously marketing asbestos substitutes(KURALON for FRC), EVAL as a gas-barrier material, andsubstitutes for PVC and vulcanized rubber (SEPTON,HYBRAR and flexible acrylics). In the Environment Business
Areas, we are marketing treatment systems for potablewater purification and wastewater. We plan to expand thesebusinesses, which contribute to the preser vation andimprovement of the environment, to the scale of ¥16 billion
by fiscal 2005.
NET SALES BY CATEGORY(Billions of yen)

FY 2005

70(Estimate)(Consolidated
Net sales ¥400)

16

FY 200247(Consolidated
Net sales ¥323)

13
45

FY 2001(Consolidated
Net sales ¥306)

10
40

FY 2000
10(Consolidated
Net sales ¥314)

0

10

20

Eco-friendly Areas

30

40

50

60

70

80

Environment Business Areas

Topics* Kuraray has developed a large-pore hollow-fiber membrane
for water purification that eliminates cryptosporidium (amicrobe). This material has been selected for use inTokyo’s Hamura Purification Plant, Japan’s largest
membrane-filtration facility.

Industrial
membrane

Since 1998, Kuraray has published its Environmental
Activities Report annually, in the interest of disclosing
environmental information. Detailed information regarding
fiscal 2002 can be found in the 2003 edition of this report.

1,163

FY 1999384

FY 1998
0

200

400

600

800

1,000

1,200

1,400

25

Kuraray Annual Report 2003

BOARD OF DIRECTORS, CORPORATE AUDITORS AND EXECUTIVE OFFICERS(As of June 26, 2003)

Representative Director

Representative Director

Hiroto Matsuo
Chairman

Yasuaki Wakui
President

Senior Managing Director

Responsible for Corporate
Management Division, Corporate
Strategy and Planning Division, andHigh-performance Materials Division
Koichi Kushida

Managing Directors
Responsible for Purchasing and
Logistics Division, Accounting and
Finance Department,
General Affairs Department,
Personnel Department, andKuraray Business Service Co., Ltd.

Responsible forEnvironment andTechnology Division, andPlantsMasahiro Kaihara

Shobu Minatono

Tsutomu Yabuta

Responsible for Fibers andIndustrial Materials
Company, Fastening andNon-woven Fabrics Company,
Clavella Division, and Clarino
Company

Responsible for Methacrylate
Company, Chemicals Company,
Elastomer Company,
Optical Products Company, andGeneral Manager of Tokyo Head
OfficeKatsumi Ohashi

Responsible for Researchand Development, andResearch andDevelopment Division

Tetsuzo Kimura

Responsible for Poval
Company, and Eval
CompanyJunsuke Tanaka

Corporate Auditors

Akira Matsuzawa

Tatsuya Nakano

Kazuhide Kashiwabara

Senior Executive Officers
Satoru Mizushima
Seiji Wajiki
Nobusuke Takeuchi
Noriaki Yoshimura
Osamu Asaba
Nobuo Iwawaki

General Manager, Corporate Strategy and Planning Division
General Manager, Okayama Plant
President of Fibers and Industrial Materials Company
General Manager, Research and Development Division
President of Clarino Company
General Manager, Corporate Management Division

Executive Officers
Katsuji Shimoda
Mitsuhiko Takaoka
Manabu Kusano
Hiroaki Yoshino
Toshihide Sakai
Susumu Gotanda
Yoichi Ninagawa
Fumio Ito
Shiro Kataoka
Noboru Yanagida

26

General Manager, Nakajo Plant
President of Fastening and Non-woven Fabrics Company
General Manager, Kashima Plant
President of Optical Products Company
President of Poval Company
President of Methacrylate Company
President of Chemicals Company
Manager, Personnel Department
General Manager, Purchasing and Logistics Division
President of Eval Company

Ichiro Kobayashi

Toshimitsu Kitagawa

Corporate Governance

CORPORATE GOVERNANCE—REFORM OF OUR MANAGEMENT STRUCTURE
As a global enterprise, the Kuraray Group has establishedand implemented a system of corporate governance. The
following measures, needed to reform the Company’s
management structure, were considered and approved at
this year’s general meeting of shareholders on June 26, witha view to improve our ability to respond appropriately to thechanging economic environment and to co-exist
harmoniously with society.
STRENGTHENING THE BOARD OF AUDITORS
To bolster the Board of Auditors’ supervisory functions withregard to the Company’s management and conduct ofoperations, its membership was increased by one auditor, tofive. Of these, three are outside auditors who have neverbeen an employee or officer of the Company.
ESTABLISHING THE MANAGEMENT ADVISORYCOUNCIL
To strengthen compliance, establish a management stancethat places emphasis on shareholders, and increase
management transparency, we have established theManagement Advisory Council and reinforced our corporate
governance system. The council is composed of two outside
members, the chairman of the Company (who serves as thechairman of the council), an advisor and a representative of
the Board of Auditors. Council members serve a term of one
year. The chairman may also request the attendance of suchother persons as are appropriate to a given matter underconsideration.
The council will provide advice to the president on thefollowing subjects:➀ The Kuraray Group’s management policies, importantmanagement issues and business planning➁ The nomination and removal of the president➂ The president’s compensation

IMPLEMENTING AN EXECUTIVE OFFICER SYSTEMIn April 2002 Kuraray introduced an in-house company
system, transferring significant authority over operations andresponsibility for per formance to the in-house company
presidents. This increased the speed of decision-making. To
more deeply root the in-house company system, achieve
greater speed in operational functions, and to separate
decision-making and oversight functions, we introduced an
executive officer system.
Executive of ficers have authority over the business
operations of their respective in-house company, its head
office and indirect business functions, and responsibility forprofitability in their respective areas. The term of office is
one year. Successors are nominated by Kuraray’s president
and approved by the Board of Directors.
With the introduction of the executive officer system, themaximum number of directors has been reduced from 30 to
10 (the actual number of directors was cut from 17 to 9),
and the term of office for directors was reduced from two
years to one. This will make it possible for the Board of
Directors to be more agile in establishing strategy. The
managing directors who previously had operational
responsibility will provide guidance and advice on business
operations, while specializing in overall decision-making andoversight. Due to the April 2003 amendments to theJapanese Commercial Code, it is now possible to change toa U.S.-type company with established committees. However,we think that we will achieve sufficient strengthening ofauditor functions, speed in management decision-making,and separation of operational and oversight functions fromthe expansion of the Board of Auditors described above,
establishment of the Management Advisory Council, andimplementation of the executive of ficer system. We
therefore intend to continue in our existing Board of Auditors
system.

27

Kuraray Annual Report 2003

FINANCIAL SECTIONCONSOLIDATED SIX-YEAR SUMMARY
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen

Years ended March 31

2003

2002

2001

2000

1999

1998

Thousands of
U.S. dollars

2003

Net sales¥322,524 ¥305,862 ¥313,651 ¥316,444 ¥336,466 ¥347,643 $2,687,700
Cost of sales
230,618 228,184 234,946 235,603 250,195 259,788
1,921,817
Selling, general andadministrative expenses
66,72058,72058,77460,52059,123
58,957556,000
Operating income
25,186
18,95819,931
20,321
27,14828,898209,883
Net income
8,051
2,866
4,045
7,452
13,171
13,962
67,092
Capital expenditure
19,09150,716
15,814
19,76433,49720,806
159,092
Depreciation and amortization
19,10816,056
16,593
16,76915,557
14,615
159,233
Gross cash flow
27,15918,922
20,63824,221
28,72828,577226,325
Total research anddevelopment expenses
12,523
12,131
12,251
12,097
13,42913,707104,358
Total assets
426,877 487,432 512,479 503,766 487,991 478,861
3,557,308
Total current assets
185,748 198,474 239,654 213,293 208,113 216,416
1,547,900
Property, plantand equipment, net
135,985 134,907 127,468 128,343 129,026 115,099
1,133,208
Total current liabilities
97,394 122,274 110,234
87,592 108,261 135,170
811,617
Total long-term liabilities
42,156
74,460 112,723 133,047 119,451 109,826
351,300
Total shareholders’ equity
287,263 290,643 289,469 282,755 259,909 233,494
2,393,858
Amounts per share:
Net income
Primary
Fully diluted
Cash dividends applicableto period
Total shareholders’ equity
Financial ratios:
Ratio of cost of sales (%)
Equity ratio (%)
Return on equity (%)
Return on assets (%)
Number of employees

U.S. dollars¥21.01
20.71

¥7.49
7.45

¥10.56
10.46¥20.0019.42¥36.8334.56¥40.46
37.68

$0.18
0.17

9.00
771.389.00
759.259.00
756.079.00
738.539.00
714.219.00
658.99

0.08
6.43

71.5%
67.3
2.8
5.5
6,983

74.6%
59.6
1.0
3.8
7,115

74.9%
56.5
1.4
3.9
7,121

74.5%
56.1
2.7
4.1
7,433

74.4%
53.3
5.3
5.6
6,823

74.7%
48.8
6.3
5.8
7,809

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of ¥120=$1.
Certain reclassifications of previously reported amounts have been made to conform with current classifications.

28

Yen

Financial Section

FINANCIAL REVIEW
Kuraray Co., Ltd. and its Consolidated Subsidiaries

The following report refers to the consolidated financial statements of the Kuraray Group for fiscal 2002
(from April 1, 2002 to March 31, 2003).
Notes: 1. Percentage comparisons with the previous year's results have beenrounded to one decimal place.
2. Graphs show data for years ended March 31.

Sales
Total consolidated net sales increased 5.4%, or¥16,662
million,to¥322,524
million(US$2,687,700 thousand) for the fiscal year underreview.
Sales of chemicals and resins grew strongly,
increasing by 20.8%, or ¥24,896 million, to¥144,690 million (US$1,205,750 thousand). Salesof poval (PVA) increased as a result of a recovery in
Asian demand, and expanding sales by Kuraray
Specialities Europe GmbH, which was established following the purchase of Clariant AG’s PVA and PVB
businesses. In addition, demand for PVA film for use
in liquid crystal displays recovered, and contributed tothe overall growth of poval sales. EVAL (EVOH resin)sales also expanded favorably, buoyed by solid foodpackaging-related demand, while demand for fuel tankapplications saw growth, not only in the U.S., but inJapan, Europe and in China as well. Methacrylic resin
sales were supported by expanding molding andsheet-related demand, and growth in high value-added
optical applications was particularly noticeable.
Isoprene-related sales were supported by expanding
demand for thermoplastic elastomers, particularly in
the U.S. and European markets. In fine chemicals,

NET SALES & OPERATING INCOME PER NET SALES(Millions of yen)(%)
10

350,000 336,466
316,444 313,651

300,000

vitamin-related product sales were hurt by declining
unit market prices, while agrochemical intermediates
and aroma chemicals trended favorably. As a result,isoprene-related sales as a whole were higher than in
the previous year.
Sales of fibers and textiles declined 4.2%, or¥4,852 million, to ¥109,915 million (US$915,958
thousand). In KURALON PVA fiber products, sales
were flat against the previous year. FRC (fiber reinforced cement) saw growth as a replacement forasbestos, and KURALON K-II growth was supported byexpanding demand for water-soluble applications.
However, markets for agricultural and fisheries products remained severe, with shrinking demand.
Markets for polyester products remain tough, and weworked to increase operational efficiency in the product group by transferring the textile applications
business to Group trading companies in April of lastyear. In addition, we accelerated efforts to focus on
differentiated materials, by reducing the marketing of
unprofitable segments and taking other countermeasures. Consequently, polyester product revenues
declined. From April of last year we transferred polyester filament production to a new subsidiary andreduced overall production to focus more on the production and sales of more highly differentiatedmaterials as we continued to restructure the business.
Revenues from CLARINO man-made leather haveentered a sustainable recovery, driven by growing
applications of the product in shoes, particularly

NET SALES BY BUSINESS SEGMENT(Millions of yen)
350,000

322,5249

305,862

300,000

8.1
7.8

250,000

8
7

250,000 103,120
98,0886.4

6.4

200,000

6

6.2

99 – 01

90,822
119,794 144,690

200,000

5
150,000

4

150,000 142,071
144,435 151,007

3

100,000

2
50,00002 – 03

50,000

99

00

01

02

03

0

Net sales
Operating income per net sales

109,915

35,5571
0

114,767

100,000

55,7180

Fibers and textiles
Chemical products
Man-made leather, non-woven
fabrics and fastening materials
Diversified businesses

99

33,29031,641

40,63140,18100

01

71,301

67,91902

03

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

Note: New business segments were adopted in the year ended March 31, 2003.
Data for the previous year has been restated.

29

Kuraray Annual Report 2003

sports shoes, and domestic clothing. CLARINO also is
gaining popularity in the U.S. for use in interior products. In non-woven fabrics, weak domestic
consumption and a recession in the restaurant business exerted downward pressure on pricing, but sales
volume growth was seen. On the other hand, fastening materials products were hurt as customers shiftedfactories overseas, and revenues declined. Going forward we will continue working to improve theperformance of our fibers and textiles segment.
Sales of high-performance materials, medical products and others declined 4.7%, or ¥3,382 million, to¥67,919 million (US$565,992 thousand).
Optoelectronics products performed strongly, as sales
to the U.S. continued to expand amid growing demand
for rear-projection TV screens, and as demand also
grew in the China market. Medical products also saw
favorable growth driven by sales of dental materials in
the U.S. and European markets. While the performance of contact lenses improved and sales volumes
increased, lower official government prices hurtdemand for medical devices, resulting in overall flatsales for medical products. Kuraray Chemical Co.,
Ltd.’s activated carbon products recorded increased
revenues, but the operating environment for other affiliated companies was more severe, as revenues
declined amidst efforts to improve operating efficiency.
By geographic area, Japanese sales were hampered by a weak domestic economy, while we focusedon improving revenues through rationalization andother countermeasures. As a result, domestic sales
NET SALES BY GEOGRAPHIC SEGMENT(Millions of yen)
350,000

fell 3.5% to ¥254,543 million (US$2,121,192 thousand). Sales in North America rose 14.3% to¥24,028 million (US$200,233 thousand), led by higher revenues from the thermoplastic elastomer
SEPTON and from EVAL. In Europe, there was a
noticeable contribution from Kuraray Specialities
Europe GmbH, among others, which boosted regionalsales 175.4% to ¥33,801 million (US$281,675 thousand). Sales in Asia increased 15.6% to ¥10,152
million (US$84,600 thousand), lifted by recovering
markets for poval.
Operating Costs
The cost of sales remained basically flat with the previous year, rising only ¥2,434 million, or 1.1%, to¥230,618 million (US$1,921,817 thousand), compared to the 5.4% increase in net sales for the year.
Cost of sales as a percentage of net sales declined
3.1 percentage points, from 74.6% to 71.5%. The
decline in the cost of sales ratio was mainly attributable to the increase in net sales volume, as well as
ongoing efforts to reduce costs, which more than offset the negative impact of falling average selling
prices and rising energy costs.
Selling, general and administrative expenses
increased by 13.6% for the year, to ¥66,720 million(US$556,000 thousand), and rose from 19.2% to20.7% of net sales. This increase was related to additional SG&A expenses from Kuraray Specialities
Europe GmbH that included amortization expenses.

NET INCOME & NET INCOME PER SHARE(Millions of yen)
(Yen)
15,00027,284300,000

10,152
32,953

26,731
10,807

8,784

33,801150,000

13,171

24,02821,017
12,27350

INTEREST-BEARING DEBT
(Millions of yen)

12,00040

125,000 120,114

36.83

250,000

101,497

100,000
200,000

8,051

79,583

7,452

75,000309,182
283,491 276,113

150,000

263,788
254,543

21.01

6,000

20.00

100,000

50,00036,982
2,866

10

10.56

50,00025,000

7.49

99

00

01

Domestic
Outside Japan

02

03

North America
EuropeAsia
Other

Note: Due to their growing weight in total net sales, the North Americaand Asia segments were separated out from the year ended March 31, 2003.
Data for the previous year has been restated.

30

20

4,045

3,000

0

96,562

30

9,000

0

99

00

01

02

03

0

Net income
Net income per share (primary)

0

99

00

01

02

03

Financial Section

Operating Income and Net Income
Because of ongoing domestic deflation, and waning
economic growth overseas, average selling prices
continued to decline. However, volume increases inall major product lines and continued cost saving
efforts more than offset the declining prices, as wellas higher energy costs. The net result was a sharp
recovery in operating income of 32.9% over the previous year, to ¥25,186 million (US$209,883
thousand), resulting in a noticeable 1.6 percentage
point improvement in the operating income ratio to
7.8% from 6.2% in the previous year.
Other income and expenses was negatively affected by declining interest and dividend income.
However, the amounts for write-down of investment
securities and special restructuring charges werelower than the previous year. As a result, the overall
other income and expenses deficit improved by¥1,943 million, to ¥10,814 million (US$90,116 thousand) from ¥12,757 million in the previous year.
As a result of the above, income before income
taxes jumped ¥8,171 million, or 131.8%, to ¥14,372
million (US$119,767 thousand).
While current income taxes rose by ¥3,912 million
over the previous year, the effective tax rate fell by
1.3 percentage points to 48.8%. Consequently, net
income climbed to ¥8,051 million (US$67,092 thousand) from ¥2,866 million in the previous year. Fully
diluted net income per share surged to ¥20.71 from
¥7.45.

NUMBER OF MONTHS’ SALES IN INVENTORY(Months)
3.0

2.5

TOTAL CURRENT ASSETS & TOTAL CURRENT LIABILITIES(Millions of yen)
250,000

2.9
2.8

2.5

208,113SHAREHOLDERS’ EQUITY & EQUITY RATIO(Millions of yen)(%)
300,000

239,654

2.8

2.4

Financial Position
Total current assets declined by ¥12,726 million to¥185,748 million (US$1,547,900 thousand), primarily due to declines in notes and accounts receivableand in inventories. The number of month’s sales ininventory declined during the year to 2.4 months from
2.8 months the previous year. Conversely, cash andcash equivalents increased, as did the value of marketable securities.
Property, plant and equipment, less accumulated
depreciation, increased by a slight ¥1,078 million, to¥135,985 million (US$1,133,208 thousand). Thatcompares with the large increase in the previous yearthat was the result of the acquisition of assets related to Kuraray Specialities Europe and the increase inconstruction-in-progress with the building of a newplant in the U.S.
Investments and other assets decreased by¥48,907 million during the year, to ¥105,144 million(US$876,200 thousand). The decline during the fiscal
year under review was mainly attributable to a¥27,644 million decrease in investment securities,
and a drop of ¥20,453 million in accumulated premiums on insurance.
Working capital (the difference between the balance of notes and accounts receivable plus
inventories, and notes and accounts payable) was¥100,818 million, down slightly from ¥106,496 million in the previous year. This notwithstanding, thecurrent ratio improved to 190.7% from 162.3% the

282,755

289,469 290,643 287,263 100

259,909

213,293

250,000

198,474

200,000

185,7482.0

200,000

67.3

70

150,000
1.5

122,274

100,000

0

97,394

100,000

50,000

99

00

01

02

03

0

59.6
56.5

53.3

87,592

1.0

0.5

56.1

150,000

110,234

108,26140

50,000

99

00

01

02

Total current assets
Total current liabilities

03

0

99

00

01

02

03

10

Shareholders’ equity
Equity ratio

31

Kuraray Annual Report 2003

previous fiscal year. Return on total assets improved
markedly, from 3.8% to 5.5%.
In liabilities and shareholders’ equity, total liabilities declined by ¥57,184 million. Total current
liabilities declined by ¥24,880 million, to ¥97,394
million (US$811,617 thousand), owing mainly to theredemption of ¥23,380 million of convertible bonds,
and a reduction in notes and accounts payable andshort-term bank loans. Long-term liabilities decreasedby ¥32,304 million, to ¥42,156 million (US$351,300
thousand), owing to a transfer of ¥24,840 million to
current liabilities as the current portion of long-term
liabilities.
In addition, accrued retirement benefits declined by¥4,117 million, mainly due to special severance payments accrued in the previous fiscal year being paidout.
Total shareholders’ equity decreased by ¥3,380
million, to ¥287,263 million (US$2,393,858 thousand), owing to an acquisition of treasury stock of¥7,337 million, while retained earnings increased by¥4,570 million, to ¥115,368 million (US$961,400
thousand). The equity ratio improved by 7.7 percentage points to 67.3%, largely due to the decline ininterest-bearing debt.

the increase in income before income taxes. Also contributing to the increase was a decrease ininventories of ¥7,059 million, and a ¥4,837 million
decrease for the year in income taxes paid. On theother hand, depreciation and amortization increasedby ¥3,052 million, to ¥19,108 million (US$159,233
thousand), while all other components of operating
cash flows remained largely unchanged from the previous year.
Net cash provided by investing activities totaled¥17,431 million (US$145,258 thousand), comparedto net cash used in investing activities of ¥24,225
million the previous year that was largely attributable
to increased investments in assets as the result of
acquisitions. Aside from the reduced level of investments in tangible and intangible assets, the largest
contributors to inflows in the year under review were a¥11,438 million increase in cash flows from sales
and redemptions of investment securities, and a¥19,534 million increase in withdrawals from accumulated premiums on insurance.
Net cash used in financing activities rose to¥54,202 million (US$451,683 thousand) from
¥21,450 million in the previous year, largely due torepayment of debt (bonds and convertible bonds) andfunds used for the repurchase of treasury stock.
Overall, there was a slight increase in cash andcash equivalents at the end of the fiscal year, to¥13,901 million (US$115,842 thousand) from
¥13,496 million in the previous year.

Cash FlowsNet cash provided by operating activities improved by¥18,646 million to ¥37,343 million (US$311,192
thousand), with the main contribution coming from

ROE
(%)

TOTAL ASSETS & ROA(Millions of yen)

7.0

(%)

600,000

6.0
5.6

6.0

500,000 487,991

503,766

512,479
487,432GROSS CASH FLOWS(Millions of yen)
30,0005.5

24,0005.3
426,877

5.0
400,000

15,557

5.0
19,10818,0004.0

16,769300,000
3.0

2.8

2.7

16,593

12,0004.1

200,000

16,056

4.0

2.0

3.9
3.8

1.4

6,000

100,000

1.0

13,171
8,051

7,452

1.0

4,045

0

99

00

01

02

03

0

99

00

01

Total assets
ROA

32

02

03

3.0

0

99

00

01

2,866

02

03

Depreciation and amortization
Net income

Financial Section

Research and Development
Total R&D expenses for the year were ¥12,523 million (US$104,358 thousand), or 3.9% of net sales,
compared to 4.0% in the previous year. Companywide
R&D expenses are the largest portion of R&D expenses , accounting for ¥4,347 million, or 34.7% of thetotal, in the fiscal year under review. R&D in thechemicals and resins segment, at ¥3,232 million,
accounted for 25.8% of total expenses. Fibers andtextiles accounted for ¥2,100 million, or 16.8% of thetotal, while high-performance materials, medical products and others accounted for ¥2,842 million, or
22.7%.
Capital Expenditure
Capital expenditure for the year under review totaled¥19,091 million (US$159,092 thousand), down
62.4% from the previous year. The bulk of the expenditure during the fiscal year was in the chemicals
and resins segment (¥7,821 million, or 41.0% of thetotal), albeit at significantly reduced levels from theprevious fiscal year’s levels, which were unusuallyhigh because of investments related to the acquisition of new businesses. Capital expenditure forfibers and textiles rose 44.8% to ¥4,655 million, or
24.4% of the total, while capital expenditure for highperformance materials, medical products and othersrose 35.6% to ¥5,177 million, or 27.1% of the total.

Outlook
In Japan, there is as yet no visible recovery in theeconomy, and the outlook for overseas economies
has become more uncertain. Amid developing deflation on a global scale, we anticipate that businessconditions will remain difficult. However, Kuraray’s
revenue and earnings are expected to continue
improving. Consolidated net sales for the fiscal year
ending March 31, 2004 are foreseen rising to¥340,000 million, producing an 11.2% increase inoperating income to ¥28,000 million, and a 73.9%
jump in net income to ¥14,000 million. These projections assume an average yen-dollar exchange rate of¥120 and a yen-euro exchange rate of ¥120, as wellas an average Dubai crude oil price of $23 per barrel.
In chemicals and resins, we will continue to expand
the global scale of Kuraray's core product areas,
including poval, EVAL and thermoplastic elastomers.
In fibers and textiles, we will continue working to
expand the unique applications of KURALON and
KURALON K-II and to develop global markets for CLARINO. In addition, we will further our efforts to improve
profitability in the polyester business through ongoingrationalization measures. Optoelectronics products
and dental materials will continue to provide the bulkof the expansion efforts in our high-performancematerials, medical products and others segment,
while special emphasis is being made to develop
environmental-related businesses.

TOTAL R&D EXPENSES BY BUSINESS SEGMENT(Millions of yen)

CAPITAL EXPENDITURE BY BUSINESS SEGMENT(Millions of yen)

15,00060,00013,42912,097

12,00012,251

12,131

12,523

1,889

2,100
6,983

6,000

99 – 01

Fibers and textiles
Chemical products
Man-made leather,
non-woven fabrics andfastening materials
Diversified businesses

3,232

9,000

Fibers and textiles
Chemical products
Man-made leather,
non-woven fabrics andfastening materials
Diversified businesses

40,00033,49730,0003,919
40,2482,842

20,000

03
3,000

1,410
4,347
1,849

0

50,71650,000
02

99

00

01

02

Chemicals and resins
Fibers and textiles
High-performamce materials,
medical products and others
Companywide

03

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

19,764
22,812

2,965

19,091

Chemicals and resins
Fibers and textiles
High-performamce materials,
medical products and others
Companywide

7,821

2,722
9,529

10,000

1,524
4,525

0

02 – 03

15,814

3,214
3,819

1,556
2,097

3,435

00

01

02

2,241

99

9,439

5,746

4,655
5,177
1,438

03

Note: Data for the year ended March 31, 2003 reflects the conversion to
an in-house company system so as to combine Companywide capital
expenditure. Data for prior years has been restated.

腀

33

Kuraray Annual Report 2003

CONSOLIDATED BALANCE SHEETS
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen

March 31, 2003 and 2002ASSETS
Current assets:
Cash and cash equivalents
Marketable securities (Note 3)
Notes and accounts receivable:
Trade
Unconsolidated subsidiaries and affiliates
OthersLoans receivable from unconsolidated subsidiaries, affiliates and others
Allowance for doubtful accounts

Inventories (Note 4)
Deferred income taxes (Note 8)
Other current assets
Total current assets
Property, plant and equipment:
Land
Buildings
Machinery and equipment
Construction-in-progress
Less accumulated depreciation

Investments and other assets:
Goodwill
Other intangible assets
Investment securities (Note 3)
Investments in unconsolidated subsidiaries and affiliates
Loans receivable from:
Unconsolidated subsidiaries and affiliates
Others
Accumulated premiums on insurance
Deferred income taxes (Note 8)
OthersAllowance for doubtful accounts

See notes to consolidated financial statements.

34

2003

2002

Thousands of
U.S. dollars(Note 1)

2003

¥ 13,901 ¥ 13,496 $ 115,842
16,021
7,464
133,508
81,336
1,323
1,733
467
(858)
84,001

88,605
1,187
2,000
368
(486)
91,674

677,800
11,025
14,442
3,892(7,150)700,009

63,5296,654
1,642
185,748

71,194
6,947
7,699
198,474

529,408
55,45013,683
1,547,900

24,30324,239202,525
89,52687,704
746,050
378,690 370,649 3,155,750
10,81015,79990,083503,329 498,391 4,194,408(367,344) (363,484) (3,061,200)
135,985 134,907 1,133,208

29,067
1,597
22,7792,876

29,591
1,582
50,423
2,822

242,225
13,308
189,825
23,9674,273
5,281
35,608
1,187
1,275
9,892
32,49852,951
270,8176,775
5,625
56,4585,405
5,811
45,050(1,313)(1,310)(10,950)
105,144 154,051
876,200¥ 426,877 ¥ 487,432 $3,557,308

Financial Section

Millions of yen

2003
LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent liabilities:
Short-term bank loans (Note 5)
Current portion of long-term debt (Note 5)
Notes and accounts payable:
Trade
Unconsolidated subsidiaries and affiliates
Others
Accrued income taxes (Note 8)
Deferred income taxes (Note 8)
Accrued expenses and otherTotal current liabilities
Long-term liabilities:
Long-term debt (Note 5)
Deferred income taxes (Note 8)
Accrued retirement benefits (Note 9)
OthersTotal long-term liabilities

Minority interests

¥

2002

Thousands of
U.S. dollars(Note 1)

2003

7,715 ¥ 10,471 $ 64,292
24,84036,560207,000
39,377
938
6,788
4,575
—
13,161
97,39447,647
791
8,052
1,799
3
16,951
122,274

328,142
7,816
56,567
38,125—
109,675
811,617

4,427
3,914
16,544
17,271
42,15632,552
4,631
20,661
16,616
74,46036,892
32,616
137,867
143,925
351,300

64

55

533

Commitments and contingencies (Note 12)

Shareholders’ equity (Note 6):
Common stock:
Authorized—700,000,000 shares
Issued and outstanding—382,863,603 shares
Additional paid-in capital
Retained earnings
Unrealized gain on revaluation of securities (Note 3)
Cumulative translation adjustments
Treasury stock at cost
Total shareholders’ equity

88,95588,955741,292
87,147
87,147726,225
115,368 110,798
961,400
1,521
2,002
12,675
1,657
1,789
13,808294,648 290,691 2,455,400(7,385)(48)(61,542)
287,263 290,643 2,393,858¥ 426,877 ¥ 487,432 $3,557,308

35

Kuraray Annual Report 2003

CONSOLIDATED STATEMENTS OF INCOME
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen

Years ended March 31, 2003 and 2002
Net sales
Cost of sales (Note 11)(Gross profit)
Selling, general and administrative expenses (Notes 10 and 11)(Operating income)

2003

1,643
361
(1,480)(3,856)(4,950)(2,532)(10,814)
14,372(Income before income taxes)
Income taxes (Note 8):
Current
Deferred

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

36

2002

2003

¥ 322,524 ¥ 305,862 $2,687,700
230,618 228,184 1,921,817
91,906
77,678765,883
66,72058,720556,000
25,186
18,958209,883

Other income (expenses):
Interest and dividend income
Equity in earnings of affiliates
Interest expense
Restructuring charges
Loss on write-down of investment securities
Other, net

Minority interests in net income of consolidated subsidiaries
Net income

Thousands of
U.S. dollars(Note 1)

¥

7,019
(711)
6,308
(13)
8,051 ¥

¥21.01
20.71

2,471
169
(2,053)(7,925)(6,524)
1,105(12,757)
6,201

13,692
3,008(12,333)(32,133)(41,250)(21,100)(90,116)
119,767

3,107
217
3,324
(11)
2,866 $

58,492(5,925)52,567(108)
67,092

Yen

U.S. dollars(Note 1)

¥ 7.497.45$ 0.180.17

Financial Section

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen

Years ended March 31, 2003 and 2002

Commonstock

Balance at March 31, 2001
¥88,955
Net income
Cash dividends, ¥9.00 per share
Bonuses to directors and statutory auditors
Effect of changes in reporting entities
Effect of change in an accounting standard
for a foreign affiliate
Changes in unrealized gain on revaluationof securities
Translation adjustments
Treasury stock acquired, net
Balance at March 31, 2002
¥88,955
Net income
Cash dividends, ¥9.00 per share
Bonuses to directors and statutory auditors
Changes in unrealized gain on revaluationof securities
Translation adjustments
Treasury stock acquired, net
Balance at March 31, 2003
¥88,955

Balance at March 31, 2002
$741,292
Net income
Cash dividends, $0.08 per share
Bonuses to directors and statutory auditors
Changes in unrealized gain on revaluationof securities
Translation adjustments
Treasury stock acquired, net
Balance at March 31, 2003
$741,292

Additional
paid-in
capital¥87,147

Unrealized
gain onrevaluation
Cumulative
Retained of securities
translation
earnings(Note 3) adjustments¥111,622
2,866(3,446)(55)
0¥3,355¥(1,609)

Treasury
stock

¥(1)

(189)
(1,353)
3,398¥87,147¥110,798
8,051(3,445)(36)¥2,002¥1,789

(47)
¥(48)

(481)
(132)
¥87,147¥115,368$726,225$923,317
67,092(28,709)(300)¥1,521¥1,657(7,337)¥(7,385)

Thousands of U.S. dollars (Note 1)$16,683$14,908$(400)(4,008)(1,100)$726,225$961,400$12,675$13,808(61,142)$(61,542)

See notes to consolidated financial statements.

37

Kuraray Annual Report 2003

CONSOLIDATED STATEMENTS OF CASH FLOWS
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Millions of yen
Years ended March 31, 2003 and 2002

Cash flows from operating activities:
Income before income taxes
Adjustments to reconcile net income before income taxes to net cash
and cash equivalents provided by operating activities:
Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Decrease in accrued retirement benefits, net
Loss on write-down of investment securities
Interest and dividend income
Interest expenses
Decrease in notes and accounts receivable
Decrease in inventories
Decrease in notes and accounts payable
Other, net
Sub-totalInterest and dividend received
Interest paid
Income taxes paid
Net cash and cash equivalents provided by operating activities
Cash flows from investing activities:
Increase in marketable securities
Payments for acquisition of property, plant, equipment
and intangible assets
Proceeds from sales of property, plant, equipment
and intangible assets
Payments for purchase of investment securities
Proceeds from sales and redemption of investment securities
Payments of premiums on insurance
Withdrawals from accumulated premiums on insurance
Other, net
Net cash and cash equivalents provided by (used in)investing activities
Cash flows from financing activities:(Decrease) increase in short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Redemption of standard bonds
Redemption of convertible bonds
Dividends paid
Payments for purchase of treasury stock
Net cash and cash equivalents used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Effect of changes in reporting entities
Cash and cash equivalents at end of year
See notes to consolidated financial statements.

38

2003

¥ 14,372 ¥2002

Thousands of
U.S. dollars(Note 1)
2003

6,201 $ 119,767

19,108378(4,252)
4,950(1,643)
1,480
6,940
7,059
(7,917)(1,318)39,157
1,405(1,640)(1,579)37,343

16,056(204)(4,746)6,524(2,471)
2,053
7,971
5,513
(7,358)(4,196)25,343
1,975(2,205)(6,416)
18,697

159,233
3,150(35,433)
41,250(13,692)
12,333
57,83358,825(65,975)(10,983)
326,308
11,708(13,667)(13,157)
311,192(18,355)(3,349)(152,958)(18,522)(48,478)(154,350)

2,047(4,547)35,933(1,079)21,878
76

1,401
(20)
24,495(1,242)2,344
624

17,058(37,892)
299,442(8,992)
182,317633

17,431(24,225)

145,258(3,270)1,204(27,250)—
1,025—(3,758)(4,360)(31,317)(13,000)(1,000) (108,333)(23,393) (14,873) (194,942)(3,445)(3,446)(28,708)(7,336)—(61,133)(54,202) (21,450) (451,683)
(184)
303
(1,534)388 (26,675)
3,233
13,49640,171
112,467
17—
142¥ 13,901 ¥ 13,496 $ 115,842

Financial Section

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kuraray Co., Ltd. and its Consolidated Subsidiaries
Years ended March 31, 2003 and 2002

1. Basis of presenting consolidated financial statements:
These consolidated financial statements have been preparedin accordance with the provisions set forth in the Japanese
Securities and Exchange Law and the related accounting regulations, and in conformity with accounting principles andpractices generally accepted in Japan, which are different incertain respects from the application and disclosure requirements of International Accounting Standards.
In preparing these consolidated financial statements, certain reclassifications have been made to the consolidated
financial statements issued domestically to present them ina form more familiar to readers outside Japan. In addition,certain notes included herein are not required under accounting principles and practices generally accepted in Japan but
have been presented as additional information.
The United States dollar amounts included herein are provided solely for convenience and are stated, as a matter ofarithmetical computation only, at the rate of ¥120=$1, theapproximate exchange rate prevailing on March 31, 2003. 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. Significant accounting policies:(a) Principles of consolidation
These consolidated financial statements include the financial
statements of Kuraray Co., Ltd. (the “Company”) and its significant 40 subsidiaries (39 subsidiaries at March 31, 2002).
Hereinafter, the Company and its consolidated subsidiaries
are collectively referred to as the “Companies”.
In the case of a change in reporting entity, the consolidated
financial statements are not restated, but the effect of thechange to retained earnings at the beginning of the period is
directly charged or credited to retained earnings during theperiod.
Investments in unconsolidated subsidiaries and 20%-50%
owned companies (“affiliates”), with minor exceptions, areaccounted for using the equity method.
Some foreign subsidiaries of the Company are consolidated using the fiscal year ending December 31, which differsfrom that of the Company. Those subsidiaries do not prepare
their financial statements at any date after December 31 or
on or before March 31 in the succeeding year. Any material
events occurring during the January 1 to March 31 period are
adjusted in those consolidated financial stratements.
The difference between the cost and the underlying net
equity of investments in consolidated subsidiaries and affiliates accounted for on an equity basis is allocated to
identifiable assets based on their fair values at the date ofacquisition. Unallocated costs are charged to income whenincurred.
(b) Cash and cash equivalents
Cash and cash equivalents include all highly liquid investments with original maturity of three months or less, of which
at least the face amount can be withdrawn at any time without
penalty.
(c) Inventories
Inventories, other than supplies, are stated at cost principally
determined using the weighted average method. Supplies arestated at cost principally determined using the moving averagemethod.
(d) Property, plant and equipment
Property, plant and equipment are stated at cost.
Depreciation, except for buildings, is principally computed
using the declining-balance method over the estimated useful
lives of the assets. The depreciation method for buildings isprincipally computed using the straight-line method.
The estimated useful lives of assets are principally as
follows:
Buildings
31 to 50 years
Machinery and equipment
2 to 10 years
The Companies use machinery and equipment underfinancing leases that do not transfer ownership, and suchleased assets are not capitalized on the balance sheet in theconformity with accounting principles generally accepted inJapan.
(e) Goodwill
Goodwill is stated at cost less amortization.
Amortization is principally computed over 15 years, using
the straight-line method.
For the year ended March 31, 2002, a subsidiary of theCompany purchased the property, plant, equipment and goodwill relating to the PVA/PVB business from Clariant AG. The
consideration of ¥28,468 million was included in "Acquisitionof property, plant equipment and intangible assets" in the consolidated statements of cash flows.
(f) Income taxes
Accrued income taxes are provided at the amount currently
payable. The Companies adopt the interperiod income tax allocation accounting, using the assets and liabilities method inwhich deferred tax assets and liabilities are recognized for the
expected tax consequences of temporary differences between
the tax bases of assets and liabilities and their reported
amounts in the consolidated financial statements.
(g) Retirement benefits
Most of the Companies have unfunded lump-sum benefit
plans and funded contributory pension plans, generally covering all employees.
Under the terms of the Companies' retirement plans, substantially all employees are entitled to a lump-sum payment at
the time of retirement. The amount of the retirement benefits
is, in general, based on the length of service, basic salary at
the time of retirement, and reason for retirement.
The contributory pension plans of the Company and its
domestic subsidiaries, which principally cover those employees who retire at age 60, or who have served with thosecompanies for more than 20 years and are age 50 or more,generally provide for pension payments for a period of ten
years subsequent to age 60. The annual charge for the current
service cost of these plans is determined actuarially and funded currently through outside trustees.
Directors and statutory auditors are entitled, subject toshareholders’ approval, to lump-sum payments under theunfunded retirement plan. The accrued liabilities for theirretirement benefits are, in general, based upon the amounts
required by the Companies' internal regulations.
(h) Foreign currency items
Income and expenses in foreign currency are translated into
Japanese yen at the exchange rates prevailing at the transaction dates. Foreign currency assets and liabilities not coveredby forward exchange contracts, including currency swap contracts, are translated into Japanese yen at the rates prevailing
39

Kuraray Annual Report 2003

at the balance sheet date. Foreign currency assets and liabilities, which are covered by hedging forward exchange
contracts, including currency swap contracts, are translated
into Japanese yen at the contracted rates.
In preparing the consolidated financial statements, assets
and liabilities of foreign subsidiaries have been translated into
Japanese yen at the rates in effect at the balance sheet date,and income and expenses have been translated at the average rate for the year then ended. Translation adjustments
resulting from this process are charged or credited to shareholders' equity as cumulative translation adjustments in the
consolidated balance sheets.
(i) Research and development expenses
Expenses relating to research and development activities arecharged to income when incurred.
(j) Net income per share
The computation of primary net income per share is based on
the weighted average number of shares outstanding during
each financial period. The computation of fully diluted net
income per share is based on the weighted average number ofoutstanding shares after consideration of the effect of dilutionof common stock equivalents.
Effective from the year ended March 31, 2003, theCompany adopted the Financial Accounting Standard“Accounting for Earnings per Share”. Therefore, the “Amount
per share” figure for the year ended March 31, 2003 were calculated in accordance with the new standard, while theprior-year figures were calculated as before. The effect of thischange was immaterial.
(k) Allowance for doubtful accounts
The Companies 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
amount based on the analysis of certain individual accounts.
(l) Marketable securities and investment securities
Marketable securities and investment securities are classified
into three categories, i.e. held-to-maturity, trading and available-for-sale securities. Trading securities are carried at fairvalues with unrealized gains or losses included in income, andheld-to-maturity securities are carried at amortized cost. As of
March 31, 2003 and 2002, marketable securities and investment securities represent available-for-sale securities.
Available-for-sale securities are carried at fair value with unrealized gains or losses recorded as a component ofshareholders’ equity, net of applicable taxes. Available-for-salesecurities, whose fair value is not readily determinable, arestated at cost except for debt securities, which are stated atamortized cost. Moreover, available-for-sale securities with amaturity of one year or less are classified as current assets.

(m) Derivative financial instruments and hedging
Derivative financial instruments, which include forward foreign exchange contracts, interest rate swap contracts andcurrency swap contracts, are used to offset the Companies'
risk of exposure to changes in interest and currency exchange
rates in respect of its financial assets and liabilities, in accordance with the Companies’ internal policies and procedures.
a. Derivatives
All derivatives are stated at fair value, except for derivatives
that are designated as hedging instruments (see below).
b. Hedge accounting
The Companies adopt the method for hedging instruments
whereby any gain or loss is deferred over the period of thehedging contract and is offset against the deferred loss orgain on the related hedged items.
However, when forward foreign exchange contracts meetcertain conditions, accounts receivable and payable coveredby these contracts are translated using the contract rates.
In addition, 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.
Hedging instruments and hedged items
Hedging instruments:
Hedged items:
Forward foreign
Accounts receivable andexchange contracts
payable in foreign currency
Future transactions in foreign
currency
Marketable securities andinvestment securities
Interest rate swap contracts Bonds and debentures payablec. Hedging policy
The Companies use financial instruments to hedge market
fluctuation risks in accordance with their internal policies
and procedures.
d. Assessment method for hedge effectiveness
The Companies evaluate the effectiveness of their hedging
activities by reference to the accumulated gains or losseson the hedging instruments and the related hedged items
from the commencement of the hedges.
(n) Reclassifications
Certain reclassifications of previously reported amounts havebeen made to conform with current classifications.
Consolidated statements of cash flows have been preparedusing a format defined by the Financial Service Agency ofJapan, which differs from that used in earlier years, and accordingly, the comparative period's consolidated statements ofcash flows have been modified to conform with the new format.

3. Securities:
The following is a summary of securities available-for-sale at March 31, 2003 and 2002:

March 31, 2003

Equity securities
Bonds and debentures
Other

40

Cost

¥ 5,619
25,7471,000¥32,366

Millions of yen
Gross
Gross
unrealized
unrealized
gains
losses¥2,898277—¥3,175

¥ 406
119
6
¥ 531

Book value(estimatedfair value)¥ 8,11125,905994¥35,010

Financial Section

March 31, 2002

Equity securities
Bonds and debentures
Other

March 31, 2003

Equity securities
Bonds and debentures
Other

Cost

¥ 9,858
44,895
1,000¥55,753

Cost$ 46,825
214,558
8,333$269,716

Millions of yen
Gross
Gross
unrealized
unrealized
gains
losses¥ 5,142297—¥ 5,439

¥

944
974
12
¥ 1,930

Book value(estimatedfair value)¥14,056
44,218988¥59,262

Thousands of U.S. dollars
Gross
Gross
Book value
unrealized
unrealized (estimatedgains
lossesfair value)$24,150
2,308—$26,458$3,383991
50$4,424$ 67,592
215,875
8,283$291,750

Securities with an original maturity of three months or less have been transferred to cash and cash equivalents.

4. Inventories:
Inventories at March 31, 2003 and 2002 consisted of the following:
Millions of yen

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

Thousands of
U.S. dollars

2003

2002

2003

¥45,806
8,440
9,283¥63,529¥51,308
9,941
9,945¥71,194$381,717
70,33377,358$529,408

5. Short-term bank loans and long-term debt:
Short-term bank loans are generally represented by 365-day notes with interest rates principally of 2.5% p.a. at March 31, 2003.
Long-term debt consisted of the following:Thousands ofMillions of yen
U.S. dollars

Unsecured loans principally from banks and insurance companies with interest rates
ranging from 0.59% p.a. to 5.95% p.a. maturing serially until 2022
1.8% yen unsecured bonds due May 7, 2003
1.8% yen unsecured bonds due May 7, 2003
2.27% yen Euro medium term notes due January 30, 2004
Current portion

2003

2003

8,767
15,0005,000
500
29,267(24,840)¥ 4,427$ 73,058
125,000
41,667
4,167
243,892(207,000)$ 36,892¥

The annual maturities of long-term debt outstanding at March 31, 2003 for the respective years ending March 31 were as follows:

2003
2004
2005
2006
2007
Thereafter

Millions of yen

Thousands of
U.S. dollars¥24,840
2,775
1,293
354
0
5
¥29,267$ 207,000
23,125
10,7752,950
042$ 243,892
41

Kuraray Annual Report 2003

6. Shareholders’ equity:
The Company is subject to the Japanese Commercial Code(the “Code”), to which certain amendments became effective
on October 1, 2001.
Prior to October 1, 2001, the Code required at least 50%of the issue price of new shares with a minimum of the parvalue thereof, to be designated as stated capital following thepassing of a resolution by the Board of Directors. Proceeds inexcess of the amounts designated as stated capital werecredited to additional paid-in capital. Effective October 1,
2001, the Code was revised to eliminate common stock parvalue resulting in all shares being recorded with no par value.
The Code required at least 50% of the issue price of newshares to be designated as stated capital following the passing of a resolution by the Board of Directors. Proceeds inexcess of the amounts designated as stated capital are credited to additional paid-in capital.
The Code provides that an amount equal to at least 10% of

cash dividends and directors bonuses, etc., to be paid fromretained earnings should be appropriated as a legal reserve.
Before September 30, 2001, no further appropriation was
required when the legal reserve equaled 25% or more of common stock. Pursuant to the amendments to the Code, nofurther appropriation is required when the sum of additional
paid-in capital and legal reserve equals 25% or more of common stock. If the amount of accumulated additional paid-in
capital and legal reserve exceeds the required amount, theexcess amount is allowed to be appropriated following thepassing of a resolution at the ordinary general meeting ofshareholders. A legal reserve may be used to reduce a deficit
or may be transferred to common stock by appropriate legal
procedures. Legal reserve included in retained earnings
amounted to ¥6,570 million ($54,750 thousand) as of March
31, 2003 and 2002.

7. Stock-based compensation plans:
The Company has a stock option plan. On June 27, 2002, theshareholders of the Company approved the issuance of new
stock acquisition rights as a stock option plan for directors,
statutory auditors and managers of the Company and its subsidiaries. Under this approval, the Company issued new stockacquisition rights of 1,076,500 shares of common stock of
the Company. These rights are exercisable from June 28,
2004 to June 27, 2012. The exercise price is ¥825 per share.
Subsequently, on June 26, 2003, the shareholders of theCompany approved the issuance of new stock acquisitionrights as a stock option plan for employees of the Company

and its subsidiaries. Under this approval, the Company’s common stock will be issued to employees of the Company and its
subsidiaries up to 3,500,000 shares. These rights are exercisable from June 27, 2005 to June 26, 2013 and exercise
price is higher of 105% of the average of daily closing prices
on the market of the Company’s common stock during 30 consecutive trading days from the beginning of 45 days period
preceding the issuance of the option, or the closing price of
the Company’s stock on the market on the day the option isissued.

8. Income taxes:
The Companies are subject to several taxes based on income which, in aggregate, resulted in a normal effective tax rate of
approximately 41.7% in Japan for the periods ended March 31, 2003 and 2002.
On March 31, 2003, the law governing prefectural tax was revised to impose enterprise taxes through “Taxation Using Outward
Criteria” from April 2004. As a result, enterprise tax rate will decrease from the fiscal year beginning April 1, 2004. This will inturn reduce the normal effective tax rate, and therefore deferred tax assets which will be recovered after the fiscal year beginning
April 1, 2004 have been revalued based on this amended normal effective tax rate. The effect of this change was immaterial.
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:
2003
2002
Normal effective tax rate
41.7%
41.7%
Largely loss incurred by consolidated subsidiaries
2.2
11.9
Income tax rate per statement of income
43.9%
53.6%
The significant components of deferred tax assets and liabilities at March 31, 2003 and 2002 are as follows:(1) Current:
Millions of yen

42

Thousands of
U.S. dollars

2003

2002

2003

Deferred tax assets
Accrued enterprise taxes and other taxes
Accrued bonuses
Other
Total deferred tax assets
Total deferred tax liabilities
Net deferred tax assets

¥ 582
2,078
4,028
6,688
34
¥6,654

¥ 194
1,574
5,205
6,973
26
¥6,947$ 4,850
17,31733,56655,733
283$55,450

Deferred tax liabilities
Other
Net deferred tax liabilities

¥
¥

¥
¥

$
$

—
—

3
3

—
—

Financial Section(2) Non-current:
Millions of yen

Deferred tax assets
Accrued retirement benefits
Other
Total deferred tax assets
Deferred tax liabilities
Deferred gain on sales of fixed assets to public sector
Special depreciation
Unrealized gain on revaluation of securities
Other
Total deferred tax liabilities
Net deferred tax assets
Deferred tax liabilities
Depreciation
Net deferred tax liabilities

Thousands of
U.S. dollars

2003

2002

2003

¥4,731
4,983
9,714¥5,941
2,773
8,714$39,425
41,52580,950

1,612
164
1,039
124
2,939
¥6,775

1,435
224
1,430
—
3,089
¥5,625

13,434
1,367
8,658
1,033
24,492$56,458¥3,914¥3,914¥4,631¥4,631$32,616$32,616

The deferred tax assets and liabilities of the consolidated subsidiaries in different tax jurisdictions are presented without offset inaccordance with Japanese accounting practice. For the calculation of deferred tax assets and liabilities (non-current), new normal
effective tax rate is used.

9. Retirement benefits:
The following tables set forth the changes in the benefit obligation, plan assets and funded status of the Companies at March 31,
2003 and 2002.
Thousands ofMillions of yen
U.S. dollars
2003

Benefit obligation at end of year
Fair value of plan assets at end of year
Funded status:
Benefit obligation in excess of plan assets
Unrecognized prior service cost
Unrecognized actuarial loss
Accrued pension liability recognized in the consolidated balance sheets

2002

2003

¥(51,520) ¥(49,162)
24,247
24,602$(429,333)
202,058(27,273)(24,560)(1,011)(1,067)
12,862
6,005¥(15,422) ¥(19,622)(227,275)(8,425)
107,183$(128,517)

Accrued retirement benefits for directors and statutory auditors at March 31, 2003 and 2002 amounting to ¥1,122 million($9,350 thousand) and ¥1,039 million are excluded from the above schedule.
Retirement and pension costs of the Companies for the year ended March 31, 2003 and 2002 were as follows:
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization:
Prior service cost
Actuarial losses
Net periodic benefit costs

Thousands of
U.S. dollars

2003

2002

2003

¥ 2,391
1,386
(957)

¥2,067
1,369(861)$19,925
11,550(7,975)(67)402¥ 3,155

6
124¥2,705(558)
3,350$26,292

Assumptions used in the accounting for the defined benefit plans for the year ended March 31, 2003 are as follows:
Discount rate ........................................................................mainly 2.0% (mainly 3.0% for the year ended March 31, 2002)
Long-term rate of return on fund assets ..................................mainly 4.0%
Amortization period for transition charges at date of adoption...1 year
Amortization period for prior service cost.................................mainly 15 years(straight-line method)
Amortization period for actuarial losses...................................mainly 15 years(straight-line method)43

Kuraray Annual Report 2003

10. Selling, general and administrative expenses:
Major components of selling, general and administrative expenses were as follows:
Millions of yen
Account

Freight and storage
Research and development
Salaries and bonuses

Thousands of
U.S. dollars

2003

2002

2003

¥12,685
10,896
16,732¥11,530
10,85015,757$ 105,708
90,800139,433

11. Research and development expenses:
Total research and development expenses for the years ended March 31, 2003 and 2002 amounted to ¥12,523 million($104,358 thousand) and ¥12,131 million, respectively.

12. Commitments and contingencies:
The Companies were contingently liable for guarantees,
mainly for bank loans of unconsolidated subsidiaries, affiliates
and others, of ¥776 million ($6,467 thousand) and ¥822 million at March 31, 2003 and 2002, respectively.

These guarantees include letters of commitment for guarantees, letters of awareness and other items of a similar
nature.

13. Leases:(a) Financing leases
Lease transactions as a lessee:
Payment of fees for financing leases, where ownership of theleased assets is not transferred to the lessee and which are

not required to be capitalized, for the years ended March 31,
2003 and 2002, were ¥412 million ($3,433 thousand) and¥447 million, respectively. Future lease payments, including
amounts representing interest were as follows:
Millions of yen

Due within one year
Due after one year

Thousands of
U.S. dollars

2003

2002

2003

¥382
498
¥880

¥409
574
¥983

$3,183
4,150$7,333The leased assets were as follows:
Thousands of
U.S. dollars

Year ended March 31, 2003

Cost

Millions of yen
Accumulated
depreciation

Machinery and equipment¥ 1,812¥932

Year ended March 31, 2002

Cost

Millions of yen
Accumulated
depreciation

Net

Machinery and equipment¥2,151¥1,168

¥983

Net

Net

¥880

$7,333

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

Due within one year
Due after one year

44

Thousands of
U.S. dollars

2003

2002

2003

¥ 229
2,930
¥3,159¥ 167
1,414¥1,581$ 1,908
24,417$26,325

Financial Section

14. Derivative financial instruments:
Derivative financial instruments are utilized by the Companies
principally to reduce interest rate and foreign exchange risks.
The Companies have established a control environment, which
includes policies and procedures for risk assessment and forthe approval, reporting and monitoring of transactions involving derivative financial instruments. The Companies do nothold or issue derivative financial instruments for trading purposes.

The forward foreign exchange contracts and currency swap contracts outstanding at the March 31, 2003 and 2002 were as
follows:
Thousands ofMillions of yen
U.S. dollars

Notional
amount

2003

2002

2003

Market Unrealized Notional
value gain (loss) amountMarket Unrealized Notional
value gain (loss) amountMarket Unrealized
value gain (loss)

Forward foreign exchange contracts:
Foreign currency sales¥1,758 ¥ (230) ¥ (230) ¥2,480
Currency swap contracts:
Yen into foreign currency obligation 2,975
(71)
(71)
2,975
¥4,733 ¥ (301) ¥ (301) ¥5,455
The amounts include contracts entered into in order to hedge
inter-company transactions in foreign currency. The amounts
exclude contracts entered into in order to hedge receivables
and payables denominated in foreign currencies, which have

¥ (501)¥ (501) $14,650 $(1,916) $(1,916)(247)¥ (748)(247) 24,792
(592)
(592)
¥ (748) $39,442 $(2,508) $(2,508)

been translated and reflected at the corresponding contracted
rates in the accompanying consolidated balance sheets at
March 31, 2003 and 2002.

At March 31, 2003 and 2002, outstanding interest rate swap contracts were as follows:
Thousands of
U.S. dollars

Millions of yen

Notional
amountInterest rate swap contracts:
Fixed-rate into variable-rate obligation ¥1,200
Variable-rate into fixed-rate obligation—¥1,200

2003

2002

2003

Market Unrealized Notional
value gain (loss) amountMarket Unrealized Notional
value gain (loss) amountMarket Unrealized
value gain (loss)

¥15
—
¥15

The amounts exclude certain swap contracts under which the
net amount to be paid or received is added to or deducted¥15 ¥1,200—
500¥15 ¥1,700

¥14
(5)
¥ 9

¥14 $10,000(5)—¥ 9 $10,000

$125
—
$125

$125
—
$125

from the interest on the hedged item.

15. Segment information:
Effective April 1, 2002, the Company has rearranged its industrial segments. As a result, the former “Fiber and textiles”,“Chemical products”, “Man-made leather, non-woven fabrics
and fastening materials” and “Diversified business” havebeen reclassified “Chemicals and resins”, “Fibers and textiles” and “High performance materials, medical products andothers”, and accordingly the comparative period’s segment

information is shown by the same classification as rearranged.
In addition, certain expenses, which were previously allocated to segments, were presented in corporate.
A summary of net sales and operating income and identifiable assets, capital expenditure and depreciation andamortization by industrial segment for the years ended March
31, 2003 and 2002 is as follows:45

Kuraray Annual Report 2003

Net sales and operating income
Millions of yen

Year ended March 31, 2003
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total
Year ended March 31, 2002
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidationand corporate
Consolidated total

Thousands of U.S. dollars

Net sales
outsidecustomers inter-segment

Operatingtotal

Net sales
outsideincome customers inter-segment

Operating¥144,690
109,915¥3,0371,228¥147,727
111,143¥19,947 $1,205,750
4,801
915,958$25,308 $1,231,058 $166,225
10,234926,192
40,00867,919322,524

21,67225,93789,591
348,461

8,322
565,992
33,070 2,687,700

180,600
746,592
216,142 2,903,842

total

income69,350275,583—(25,937) (25,937)(7,884)— (216,142) (216,142) (65,700)¥322,524 ¥— ¥322,524 ¥ 25,186 $2,687,700 $— $2,687,700 $ 209,883¥119,794 ¥ 2,340
114,767
1,946¥122,134 ¥ 15,506
116,7133,767

71,301
305,862

93,162332,009

21,861
26,147

6,760
26,033—(26,147) (26,147)(7,075)¥305,862 ¥— ¥305,862 ¥ 18,958

Identifiable assets, capital expenditure and depreciation and amortization
Millions of yen
Identifiable
assetsThousands of U.S. dollars
Depreciation
Depreciation
Capitaland
Identifiable
Capitalandexpenditure amortization
assetsexpenditure amortization

Year ended March 31, 2003
Chemicals and resins¥172,445¥ 7,821¥11,134 $1,437,042 $ 65,175 $ 92,783
Fibers and textiles
84,322
4,655
4,037
702,683
38,792
33,642High performance materials,
medical products and others
76,633
5,177
3,007
638,608
43,142
25,058
Total
333,400
17,653
18,178 2,778,333 147,109
151,483
Eliminated on consolidationand corporate
93,4771,438
930
778,975
11,983
7,750
Consolidated total¥426,877¥19,091¥19,108 $3,557,308 $159,092 $159,233
Year ended March 31, 2002
Chemicals and resins¥182,544¥40,248¥ 7,767
Fibers and textiles
98,2803,214
4,600High performance materials,
medical products and others
74,038
3,819
2,966
Total
354,862
47,281
15,333Eliminated on consolidationand corporate
132,5703,435
723
Consolidated total¥487,432¥50,716¥16,056
A summary of net sales, operating income and identifiable assets by geographic segment for the years ended March 31, 2003
and 2002 is as follows:
Millions of yen
Net sales
outsidecustomers inter-segment

Year ended March 31, 2003
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total
46¥ 254,543
24,02833,801
10,152
322,524—¥ 322,524

total¥ 26,087 ¥ 280,630
2,363
26,391
539
34,3401,659
11,81130,648353,172(30,648)(30,648)¥— ¥ 322,524

OperatingIdentifiable

income (loss)

assets¥28,982 ¥ 236,955
2,959
33,6891,156
58,659(351)
8,578
32,746
337,881(7,560)88,996¥25,186 ¥ 426,877

Financial Section

Year ended March 31, 2002
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total¥ 263,788
21,017
12,2738,784
305,862—¥ 305,862¥ 21,855 ¥ 285,643
1,759
22,776111
12,384
1,177
9,961
24,902
330,764(24,902)(24,902)¥— ¥ 305,862¥22,985 ¥ 257,502
3,441
36,604315
56,433(831)
10,44625,910360,985(6,952)
126,447¥18,958 ¥ 487,432

Thousands of U.S. dollars
Net sales
Operatingoutsidecustomers inter-segment

Year ended March 31, 2003
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total

total

income (loss)

Identifiable
assets$2,121,192 $ 217,391 $2,338,583 $ 241,517 $1,974,625
200,233
19,692219,925
24,658
280,742
281,675
4,492
286,167
9,633
488,825
84,60013,82598,425(2,925)71,4832,687,700
255,400 2,943,100
272,883 2,815,675— (255,400) (255,400)(63,000) 741,633$2,687,700 $— $2,687,700 $ 209,883 $3,557,308

Foreign sales consisting of export sales of the Company and its domestic consolidated subsidiaries and the sales of foreign consolidated subsidiaries for the years ended March 31, 2003 and 2002 is as follows:
Millions of yen

Thousands of U.S. dollars

Percentage ofConsolidated consolidated
Consolidated
Foreign sales net sales
net sales Foreign sales net sales

Year ended March 31, 2003
North America
Europe
Asia
Other
Total

¥ 32,267
43,871
41,911
5,958¥ 124,007

¥

—
—
—
—
¥ 322,524

10.0% $ 268,892 $—
13.6%
365,592—
13.0%
349,258—
1.8%
49,650—38.4% $1,033,392 $2,687,700

Millions of yen
Percentage ofConsolidated consolidated
Foreign sales net sales
net salesYear ended March 31, 2002
North America
Europe
Asia
Other
Total

¥ 29,831
24,86432,267
5,373¥ 92,335

¥

—
—
—
—
¥ 305,862

9.7%
8.1%
10.6%
1.8%
30.2%

16. Subsequent events:
The Japanese Commercial Code provides that all appropriations of retained earnings, except interim cash dividends, must
be approved at an ordinary general meeting of shareholders. In
accordance with customary practice in Japan, the appropriationof retained earnings is not accrued in the financial statements

Cash dividends, ¥4.50 ($0.04) per share
Bonuses to directors and statutory auditors

for the year to which it relates but is recorded in the subsequent accounting year after shareholders’ approval has beenobtained. The following appropriations of retained earnings of
the Company as of March 31, 2003 were approved by theshareholders on June 26, 2003.
Thousands ofMillions of yen
U.S. dollars¥1,67650$13,967
417

The above year-end cash dividends per share and interim cash dividends of ¥4.50 ($0.04) per share paid in December 2002
made a total annual cash dividend of ¥9.00 ($0.08) per share.
47

Kuraray Annual Report 2003

REPORT OF INDEPENDENT AUDITORS
Kuraray Co., Ltd. and its Consolidated Subsidiaries

PricewaterhouseCoopers
Nakanoshima Mitsui Building
16th Floor, 3-3-3, Nakanoshima,
Kita-ku, Osaka 530-8248, Japan

June 26, 2003
To the Shareholders and Board of Directorsof Kuraray Co., Ltd.
In our opinion, the accompanying consolidated balance sheets and the related consolidated statements ofincome, of shareholders’ equity and of cash flows present fairly, in all material respects, the financial position of Kuraray Co., Ltd. and its consolidated subsidiaries at March 31, 2003 and 2002, and the resultsof their operations and their cash flows for the years then ended in conformity with accounting principles
generally accepted in Japan. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with auditing standards generally accepted inJapan which require that we plan and perform the audits 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, and evaluating the overall financial statements presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
As discussed in Note 15 to the financial statements, the Company and its consolidated subsidiaries haverearranged their industrial segments, and certain expenses, which were previously allocated to segments, have been presented in corporate.
The amounts expressed in U.S. dollars, provided solely for the convenience of readers, have been translated on the basis set forth in Note 1 to the accompanying financial statements.

Notice to readers
The accompanying financial statements are not intended to present the financial position and results of operations and cash flows inaccordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in Japan.

48

Consolidated Companies

CONSOLIDATED COMPANIES(As of July 1, 2003)

CapitalCapitalHeadoffice(¥milllons, except
where stated)

Kuraray Medical Inc.

Tokyo

2,500

Manufacture and sales of
medical products

Kuraray Trading Co., Ltd.

Osaka

2,000

Import, export, manufacture andsales of textile products, chemicals, etc.

Company

Activities

JAPAN

CompanyHeadoffice(¥milllons, except
where stated)

Activities*Kuraray Okayama SpinningCo., Ltd.

Okayama

50

Manufacture of synthetic fiber*Kuraflex Co., Ltd.

Okayama

10

Manufacture of non-woven fabricproducts*Kuraflex Ibaraki Co., Ltd.

Ibaraki

30

Manufacture of non-woven fabricproducts*The Kurashiki Kokusai Hotel Ltd. Okayama

450

Hotel management*Hikari Shoes Co., Ltd.

34

Manufacture and sales of shoes*Kuraray Planning System
Co., Ltd.

Osaka

10

Designs of uniforms

Kuraray Chemical Co., Ltd.

Osaka

600

Manufacture and sales of activated carbon and related products*KC Processing Co., Ltd.

Okayama

20

Processing of activated carbon

OVERSEAS*Mitsukura Chemical Co., Ltd.

Osaka

10

Manufacture and sales of activated carbon

Kuraray Holdings U.S.A., Inc.

New York,
U.S.A.

US$55.53 Holding company, coordination
millionof U.S. subsidiaries

Kuraray Engineering Co., Ltd.

Osaka

450

Plant design and construction

Kuraray America, Inc.

New York,
U.S.A

US$8.7
millionImporting and sales of Kuraray
products

Kuraray Kiko Co., Ltd.

Ehime

10

Fabrication of machinery parts

Eval Company of America

Kuraray Fudosan Co., Ltd.

Osaka

382

Real estate leasing

Texas,U.S.A.

US$4.15
million

Manufacture and sales of
EVAL in the United States

Kuraray Interior Co., Ltd.

Osaka

330

Manufacture and sales of luxury
furniture

SEPTON Company of America

Texas,U.S.A.

US$35
million

Manufacture and sales ofthermoplastic elastomers

Kuraray Plastics Co., Ltd.

Osaka

180

Manufacture and sales ofplastics

Kuraray Finance America, Inc.

New York,
U.S.A.

US$0.001 Fund procurement andmillionmanagement for Group companies

Ibuki Kosan Co., Ltd.

Gifu

10

Manufacture of rubber products

Kuraray Europe GmbH

Kuraray Living Co., Ltd.

Osaka

101

Manufacture and sales of
packaging materials

Düsseldorf,
Germany€31.2
million

Sales of Kuraray products in
EuropeEVAL Europe N.V.

Kuraray Business Service
Co., Ltd.

Osaka

100

Accounting, personnel andinformation system service

Antwerp,
Belgium€29.7
milIion

Manufacture and sales of
EVAL in Europe

Techno Soft Co., Ltd.

Osaka

50

Consulting, temporary staffing

Kuraray Specialities Europe
GmbHFrankfurt,
Germany€20
million

Manufacture and sales of poval
and butyral resins

Kuraray Niigata Kasei Co., Ltd.

Tokyo

50

Manufacture and sales ofmethacrylic sheets

Kuraray Finance Europe B.V.

Amsterdam, €0.3
Netherlands milIion

Fund procurement andmanagement for Group companies

Kuraray Ohmiya Estate Co., Ltd.

Osaka

31

Real estate leasing

Kuraray Hong Kong Co., Ltd.

Hong Kong,
China

HK$4.65
million

Magictape Co., Ltd.

Processing and sales of Kuraray
products in China and Southeast
Asia

Kuraray Singapore Pte., Ltd.

Singapore

SP$93.5
millionHolding company, coordinationof local subsidiaries

Tokyo

Fukui

30

Manufacture of MAGIC TAPE

Kuraray Family Products Co., Ltd. Osaka

30

Sales of health foods, etc.

Kuraray Travel Service
Corporation

Osaka

20

Travel and insurance agency

Kuraray Specialities Asia
Pte., Ltd.

Singapore

SP$45.6
million

Sales of poval resins

Kuraray Techno Co., Ltd.

*Poval Asia Pte Ltd

Singapore

SP$40
million

Manufacture of poval resins

Osaka

10

Production sub-contracting

Kuraray Techno Nakajo Co., Ltd. Niigata

50

Production sub-contracting

Kuraray Techno KashimaCo., Ltd.

Ibaraki

10

Production sub-contracting

Kuraray Techno OkayamaCo., Ltd.

Okayama60

Production sub-contracting

Kuraray Techno Kurashiki
Co., Ltd.

Okayama10

Production sub-contracting

Kuraray Techno Saijo Co., Ltd.

Ehime

30

Production sub-contracting

Kuraray Tsurugashima EstateCo., Ltd.

Osaka

10

Real estate leasing

Kuraray Saijo Co., Ltd.

Ehime

10

Manufacture of chemical
products and synthetic fiber

Kuraray Tamashima Co., Ltd.

Okayama

10

Manufacture of synthetic fiber

Iruma Country Club Co., Ltd,

Saitama40

Golf course management

Kyosei Chemical Co., Ltd.

Tokyo

50

Manufacture of pigments anddyes*Nihonkai Acetylene Co., Ltd.

Tokyo

60

Manufacture and sales of acetylene gas* Equity method subsidiary49

Kuraray Annual Report 2003

HISTORY
Kuraray Co., Ltd. and its Consolidated Subsidiaries

1920s
1926 •Kurashiki Kenshoku Co.
established1928 •Rayon commercialized:
production of rayon filament yarn
begun at the Kurashiki Plant
1940s
1940 •Chugoku Sangyo Co., Ltd. (nowKuraray Chemical Co., Ltd.)established1972 •Contact lens business started•EVAL commercialized: production
facilities for EVAL resin
completed at Okayama Plant•Non-woven fabrics businessstartedFactory for non-woven fabrics of Kuraray
Chicopee Co., Ltd. (now Kuraflex Co.,Ltd.)

New laboratory of Okayama Plant

1943 •Capital participation in Kakuichi
Rubber Co., Ltd. (now Kuraray
Plastics Co., Ltd.)
1949 •Company name changed toKurashiki Rayon Co., Ltd.
1950s1950 •KURALON commercialized:
production of KURALON staple
started1958 •poval commercialized: productionof poval for market sale started
1960s1960 •Capital participation in Kyowa
Gas Chemical Co., Ltd., which
conducts methacrylic resin
business
1961 •Osaka Goseihin Co., Ltd. (nowKuraray Trading Co., Ltd.)established1962 •Production of PVA film started at
Saijo Plant
1963 •New York Representative Officeestablished (transferred toKuraray America, Inc. in April
1996)
1964 •Production of polyester staple
started at Tamashima Plant•Kuraray Fudosan Co., Ltd. established•CLARINO commercialized:
production of CLARINO man-madeleather started at Kurashiki Plant
1965 •European Representative Officeestablished in Hamburg,
Germany (moved to Düsseldorf inJune 1968)
1969 •Production of polyester filament
started at Saijo Plant
1970s
1970 •Company name changed toKuraray Co., Ltd.
•Hong Kong Representative Officeestablished (transferred toKuraray Hong Kong Co., Ltd. inJune 1998)
50•Isoprene chemicals businesslaunched: operation at Kashima
Plant started, and production ofpolyisoprene rubber begun
1975 •Artificial organs business started
1976 •NlC (new isoprene chemicals)
facilities completed at Nakajo
Plant
1977 •Kuraray Engineering Co., Ltd.
established1978 •Advanced into the dental
materials field: CLEARFIL
adhesive dental filler produced

CLEARFIL adhesive dental filler

1980s
1983 •Cement-reinforcing KURALON
developed•Eval Company of America
established, and marketing of
EVAL resin in the U.S. begun(production started in 1986)
1984 •Haru-Kuraray GmbH, a man-madeleather sales company,
established in Germany jointlywith Marubeni Corp. and Haru
Holding & Management GmbH
•Merged with Nippon Velcro Co.,
Ltd. which produces hook & Ioop
fasteners
1986 •Clarino America Corporation, a
man-made leather sales
company, established in the U.S.
jointly with Marubeni Corp.
•Production started at
Eval Company of America
1990s1990 •SEPTON commercialized:
Production of SEPTON
thermoplastic elastomer started
at Kashima Plant

1991 •Kuraray Europe GmbHestablished in Düsseldorf,
Germany
1995 •Kuraray EVAL Europe GmbHestablished in Düsseldorf•Kuraray Hong Kong Co., Ltd.
established1996 •Kuraray America, Inc,
established in New York as
administrative holding company
in the U.S.
•Kuraray Singapore Pte., Ltd.
established, and capital
participation in Poval Asia Pte Ltd
1997 •EVAL Europe N.V. established in
Belgium
1998 •KURALON K-ll commercialized
1999 •Production started at Poval Asia
Pte Ltd•Mass-production started for theheat-resistant polyamide resin
GENESTAR•Production at EVAL Europe N.V.
started2000s
2000 •The mass-production of a newwater-soluble resin EXCEVAL wasstarted•The Company made a capital participation in Lorica Sud S.r.l., an
Italian man-made leather
processing and sales company•Kuraray Holdings U.S.A., Inc.
established as a holding
company in the U.S.
•SEPTON Company of America
established in the U.S.
2001 •PVA gel mass-production
facilities become operational•Kuraray terminated its rayon
business•Kuraray Specialities EuropeGmbH established in Frankfurt,
Germany•Kuraray Medical Inc. established•Acquired PVA and PVB operationsof Clariant AG
2002 •Shanghai Office established

Finalizing the aquisition of Clariant’s
PVA operations•Production started at SEPTON
Company of America

Investor Information

INVESTOR INFORMATION
Kuraray Co., Ltd. and its Consolidated Subsidiaries

Kuraray Co., Ltd.
Established: June 24, 1926
Capital: ¥88,955 million
Shares: Authorized 700,000,000 shares
Issued382,863,603 shares
Number of Shareholders: 25,764

Transfer Agent
The Sumitomo Trust and Banking Co., Ltd.
Stock Transfer Agency Department
4-5-33, Kitahama, Chuo-ku, Osaka 540-8639, Japan
Principal Shareholders (as of March 31, 2003)(as of March 31, 2003)

Principal
Shareholders

Number of
Shares Held

Percentage ofShares Held(thousands)

Offices, Laboratories, Plants
Head Offices: Osaka, Tokyo
Offices: Fukui, Fukuoka
Laboratories: Kurashiki, Tsukuba
Plants: Kurashiki, Saijo, Okayama, Nakajo, Kashima
Share Price Movement

Nikkei Stock Average(Points)
Volume15,000High Opening
High Closing
Low Closing
Low Opening
Black: opening price>closing priceWhite: closing price>opening price

(Yen)
1,000

800

Japan Trustee Services Bank, Ltd.
(Trust Account)

48,42213.15%The Master Trust Bank of Japan, Ltd.
(Trust Account)

46,68612.68%

UFJ Trust Bank Limited (Trust Account A) 14,126

3.84%

Nippon Life Insurance Company

12,294

3.34%

Meiji Life Insurance Company

8,066

2.19%

The Mitsubishi Trust andBanking Corporation (Trust Account)

7,755

2.11%

The Dai-ichi Mutual Life
Insurance Company

7,652

2.08%

Mizuho Corporate Bank, Ltd.

7,396

2.01%

The Mitsui Asset Trust& Banking Co., Ltd. (Pension Tokkin)

6,349

1.72%

Trust & Custody Services
Bank, Ltd. (Pension Tokkin)

6,057

1.64%

12,000(Thousandsof shares)
600

30,00020,00010,0000'02/4 5

6

7

8

9

10

11

12 '03/1 2

3

4

5

6

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

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 withrespect to the future performance, projections and business plans of Kuraray and its Group companies constitute forward-looking statements. Although Kuraray believes that 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 orstatements due to risks and uncertainties in the future business circumstances. The factors that may cause such difference include, without limitation: (1) general market andeconomic conditions in Asia including Japan, the U.S., Europe and other regions; (2) fluctuations of currency exchange rates, especially between the Japanese yen and the U.S.
dollar and other foreign currencies; (3) changes in raw material and fuel costs; (4) industrial competition and price fluctuations in Japan and inter national markets; (5) advancesor 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.

51

KURARAY CO., LTD.
ANNUAL REPORT 2003

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

Printed on recycled
Paper in Japan