Surging Ahead Annual Report 2007
For the Year Ended March 31, 2007

Profile & Vision
Advancing the Science of Water and Environmental Management
Kurita Water Industries Ltd. provides total solutions in the field of water and environmental
management, under the corporate vision of becoming “an advanced water and environmental
management company.” Kurita’s core business is water treatment and related products andservices, from which it provides a growing range of services in the broader field of environmental management. Consistent with this approach, Kurita supplies not only products, such as
water treatment chemicals and facilities, but also consulting, outsourcing services and otherhigh-value-added solutions that draw on its unique expertise built up over half a century.
Based on the corporate philosophy, “Study the properties of water, master them, and we will
create an environment in which nature and man are in harmony,” Kurita is committed to realizing its goal of becoming an advanced water and environmental management company.
Through these endeavors, Kurita aims to contribute broadly to meeting the needs of its
customers and society.

CONTENTSKURITA AT A GLANCE Inside Foldout

CONSOLIDATED FINANCIAL HIGHLIGHTS 1

AN INTERVIEW WITH THE PRESIDENT 2
SPECIAL FEATURES 8OUTLINE OF THE MEDIUM-TERM MANAGEMENT PLAN 7

FUNDAMENTAL POLICY REGARDING THE ESTABLISHMENT OF

INTERNAL CONTROL SYSTEMS 14
IMPROVEMENT INITIATIVES 17

CORPORATE GOVERNANCE 16

KURITA’S ENVIRONMENTAL

BOARD OF DIRECTORS AND CORPORATE AUDITORS 18

MANAGEMENT DISCUSSION AND ANALYSIS (CONSOLIDATED) 19
FINANCIAL SECTION 27

CORPORATE DATA 53

INVESTOR INFORMATION 54

KURITA AT A GLANCE

Stable Growth through Balance
BUSINESS OPERATIONS AND SEGMENTSOn an increasingly global basis, the Kurita Group offers a diverse lineup
of water and environmental management products, technologies andservices, as well as comprehensive solutions that incorporate out-

sourcing and consulting services. The business of the Kurita Group can bedivided into two main segments—the Water Treatment Chemicals Businessand the Water Treatment Facilities Business.

Water Treatment Chemicals BusinessThis business originated from boiler water treatment chemicals, and now
has a wide range of lineups including cooling water treatment chemicals,
wastewater treatment chemicals and process treatment chemicals. It also
contributes to the stable and efficient operation of factories and air conditioning facilities.

Water Treatment Facilities Business
For the Electronics Industry
We have ultrapure water production systems essential for the manufacture ofsemiconductors and flat-panel displays. We also provide maintenance service
for the ultrapure water production systems and have outsourcing businesses
including the Ultrapure Water Supply Business and tool cleaning.

For General Industries
We supply water treatment and wastewater treatment facilities to the electrical power, food products, oil refining, steel and petrochemical industries.
Maintenance services along with soil remediation and chemical cleaning businesses are also provided.

Water Treatment Chemicals
Water Treatment Facilities

Net Sales by Segment
Performance Highlights• In the Water Treatment Chemicals Business, increasing
overseas sales pulled up overall performance• Strong growth from both hardware and the Service Businessfor the electronics industry• Earnings increases for both hardware and the Soil Remediation
Business for general industries

Total: ¥197.1 billion

Operating Income by Segment
Performance Highlights• Through improvement of the domestic product mix andhigher earnings from overseas, income increased in the
Water Treatment Chemicals Business• Through improvements in profitability in hardware andincreased earnings from the Service Business, income in
the Water Treatment Facilities Business for the electronic
industry increased

Total: ¥24.3 billion

Orders Received by Segment
Note on Projections of Future Results

Performance Highlights• Orders for process treatment chemicals and Customized
Services increased strongly in Japan• Orders for ultrapure water production systems remained at ahigh level• Orders from the public sector decreased broadly, whileorders for soil remediation increased

Total: ¥192.5 billion

Kurita Annual Report 2007

Projections of future results contained in thisannual report accord with Kurita’s plans,
prospects and strategies as decided by the
management on the basis of information available at the time. Since projections of future
results lack the substance of fact and may bebased on data from other sources, we areunable to guarantee the accuracy and reliabilityof such information, and you are requested not
to rely on such projections alone. Moreover,many factors affecting business results are subject to uncertainty and are therefore a source ofrisk. These factors include, but are not limited
to, the following: macroeconomic changes, suchas changes in capital markets and large-scale
shifts in demand, especially insofar as those
influencing the markets and industries directly
related to our main businesses.

CONSOLIDATED FINANCIAL HIGHLIGHTS

Years ended March 31

PercentagechangeMillions of yen

Thousands of
U.S. dollars

For the year:
Net sales
Operating income
Income before income taxes
Net income

2007

2006

2007/2006

2007¥197,146
24,276
24,591
14,207¥173,683
17,311
18,20010,519+13.5%
+40.2
+35.1
+35.1

$1,670,028
205,648
208,318
120,351

At year-end:
Total assets
Equity235,137
156,772

212,774
145,366

+10.5
+7.8

1,991,848
1,328,019

Per share of common stock:
Net income
Cash dividends applicable to the year

¥110.42
28.00

Yen

U.S. dollars¥81.76
22.00

$0.93
0.23

Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥118.05 to US$1, the prevailing rate on the Tokyo Foreign Exchange Market on March 31, 2007.

Net Sales

Orders Received

Operating Income(Years ended March 31) (¥ Million)(Years ended March 31) (¥ Million)(Years ended March 31) (¥ Million)

EquityTotal Assets

Net Income per Share(Years ended March 31) (¥ Million)(Years ended March 31) (¥ Million)(Years ended March 31) (Yen)

Kurita Annual Report 2007

1

AN INTERVIEW WITH THE PRESIDENT

Surging Ahead through Strong Growthand Continuing Innovation

In the year ended March 31, 2007, the first fiscal year of the medium-term
management plan Growth 2008 (G-8), the Kurita Group was able toachieve sales and profits in excess of the original plan.
Management is encouraged by the decisive first step taken by
the Group toward achieving the challenging goals of themedium-term management plan.

Hiroshi Fujino, President

Q

Could you give us an outline of

A: The G-8 plan, which commenced in April 2006, is a three-year medium-term management

the G-8 plan that you areplan that aims to expand and grow Kurita Group, in particular by a process of further strength-

working on at present?

ening the Group’s highly profitable businesses in the areas of water and environment. The basic
theme of this plan, “Growth and Innovation,” expresses our aspiration to innovate daily andprovide the most advanced services and to become active globally.
The Group has already established a solid position as a top water treatment company. Our
plan seeks to bolster sustainable growth as a global company of the 21st century by achieving
three central pillars: “Accelerating Kurita's shift to a service-based business model,”“Expanding Kurita's global business operations,” and “Reinforcing Kurita's firm foundation as atechnology-oriented company.” To achieve this vision, the entire Group is promoting performance initiatives aiming for ¥200.0 billion in net sales, ¥27.0 billion in operating income and ¥15.4
billion in net income in the year ending March 31, 2009.
We are also building relationships based on transparency and fairness among the Group,
employees and society by thoroughly working to achieve compliance, which is the basis of theCompany’s activities.

2

Kurita Annual Report 2007

Q

Could you comment on the

A: Compared with the results of the previous year, total consolidated orders of the Groupbusiness performance of thewere ¥192,529 million, an increase of 4.7%, with net sales standing at ¥197,146 million, an

year ended March 31, 2007,

increase of 13.5%, and operating income was ¥24,276 million, an increase of 40.2%.

which is the first fiscal year of theConsolidated net income hovered at record levels and increased by 35.1% to ¥14,207 million

medium-term management plan?

over the previous fiscal year. As a result, net income per share increased from ¥81.76 to¥110.42 compared with the previous fiscal year.
Concerning the market environment, domestic capital investments were firm with a bullishdemand background in the electronics industry sector, for items such as liquid crystal display(LCD) and plasma televisions. On the other hand, we did observe a softening in large-scale capi-

Net Sales(Years ended March 31) (¥ Billion)

tal investment by some customers in Taiwan and South Korea; nevertheless, overall among general industries, capital expenditure and plant utilization levels were both firm and centered on
the basic materials-producing industries such as steel, oil refining and petrochemicals.
When observing the state of each segment, domestic sales for the water treatment chemicals segment was at the same level as it was the previous fiscal year, nevertheless, profits
increased due to an improved product mix coupled with increased revenues from overseas.
For the water treatment facilities segment, orders and sales of ultrapure water production
systems increased from the electronics industry due to a good market environment. Sales
expanded favorably in the Ultrapure Water Supply Business and the tool cleaning business, bothof which are outsourcing businesses, as we appropriately fulfilled customer demand. In line

Water Treatment Chemicals
Water Treatment Facilities

with the domestic economic recovery and the resulting resurgence of land liquidation, the soil
remediation business is expanding favorably. The profits of business serving the public
sector moved from a deficit to a surplus compared with the previous fiscal year, reducing the
deficit from facility construction sales while maintaining stable profits from maintenanceand operation.

Results in 2007 (¥ Billion)

2006

2007

Net sales

173.7

197.1 (+13.5%)

Operating income

17.3

24.3 (+40.2%)

Net income

10.5

14.2 (+35.1%)

Net income per share (Yen)

81.76

110.42 (+28.66 Yen)

Kurita Annual Report 2007

3

Q

What were the reasons for

A: The Company has contravened the law concerning the “Prohibition of Private

reinforcement of compliance?

Monopolization and Securing Fair Trade” (Antimonopoly Law) in relation to the projects to construct sludge (human waste) treatment facilities, and an employee of the Company was arrested. In addition, a criminal penalty was established together with an order to pay a surcharge as
an administrative punishment. We would like to apologize deeply for the inconvenience andapprehension that we have caused to our shareholders and stakeholders concerning the events
leading to this kind of situation.
We are striving to recover the trust of society as early as possible by rebuilding the systemfor enforcing thorough compliance in accordance with the framework for preventing reoccurrences mentioned by the Group to solemnly stop this aspect.
Furthermore, the Company has withdrawn from all construction and building works orderedby governmental and local authorities as to be more consistent with its policy to prevent reoccurrences of actions contravening the Antimonopoly Law.
In the G-8 plan, compliance is being thoroughly enforced, from the individual position ofeach employee’s daily business activities, “to absolutely comply with the law.” This is one of themost significant management issues for an enduring company.

Q

What are the significant

A: First, we will further reinforce the service business, which is the core strength ofmeasures for businessthe Group.

development in the future?

In the Water Treatment Chemicals Business, we shall continue to provide optimal
customer solutions for reducing environmental loads and improving productivity, based on our
technical competencies and extensive sales network in Japan.
In the Water Treatment Facilities Business, we shall continue to enforce aggressive investments in the Ultrapure Water Supply Business, which holds a high competitive edge. Concerning
capital investments for this business, actual capital investments in the fiscal year ended March
31, 2007 were ¥15.7 billion. In addition, we are planning to invest more than ¥17.0 billion for theyear ending March 31, 2008. Even on the organization side of the operation, we established a
dedicated department in April 2006 to support internal needs arising by our expanding business,
including human resource training.
We are also working on the reinforcement of the tool cleaning business for semiconductorand LCD panel production equipment, which is part of the outsourcing business. Thanks to a
growing demand from our customers, we are pushing aggressively to increase our capacity. In
addition, we are strongly promoting business expansion, including expanding human resources,
for the soil remediation business, whose demand continues to expand, driven by an active realestate market that reflects the growing domestic economic recovery. Based on these initiatives,
we plan to boost the sales composition ratio of the service business in the year ending March
31, 2008 to 76% compared with 72% of the previous year.
Second, we will accelerate and strengthen our business expansion in the overseas market.

4

Kurita Annual Report 2007

Overseas Sales

For the year ended March 31, 2007, overseas business expanded favorably, and the over-(Years ended March 31) (¥ Billion)seas sales ratio grew to 15.0% from the previous fiscal year’s 12.6%. In the Water Treatment
Chemicals Business, we are focusing on developing the sales network in China, which is
expected to grow swiftly, and are investing in human resources such as the expansion andtraining of human resources for Group companies in Brazil and Southeast Asia. In addition, weshall aggressively promote sales in the Middle East, which is active with projects for petrochemical plants.
In the Water Treatment Facilities Business, we are focusing on proposals that leverage ourtechnical predominance in areas such as ultrapure water, wastewater recycling and functional
Overseas Sales

water for our customers in Asia and the U.S.A. to attract new customers. In addition, we are

Domestic Sales

developing comprehensive water-treatment proposals that make good use of the uniquely integrated structure of our business combining chemicals, facilities and maintenance and operation.
Third, in reinforcing the firm foundation as a technology-oriented company, we shall stressthe fact that products and services supplied to our customers are reliable and of the high quality
expected of a total solution provider in the field of water and environmental management tosupport the above-mentioned initiatives.

Q

What is your approach to profit

A: We decide the level of the dividend while giving due consideration to the necessary capital

distribution to shareholders?

requirements for future business expansion and business performance trends. At the same time,
we take into consideration the basic goal of stable, sustainable dividend payments. Concerning
the year ended March 31, 2007, the Company raised its year-end dividend by ¥4 to ¥15 per share,
and together with the interim dividend of ¥13, the annual dividend stood at ¥28, an increase of ¥6compared with the previous fiscal year, to reward the expectations and support of our shareholders. Accordingly, the dividend has increased for three consecutive fiscal years. Concerning the
fiscal year ending March 31, 2008, we are planning to increase the dividend by ¥4 to ¥32.

Q

What is your Business

A: First, let us consider the future market environment for the main premises of the plan. We

Performance Plan for the year

anticipate high operation levels among our customers and strong continuing demand for produc-

ending March 31, 2008?

tivity enhancement and environmental measures. Looking at capital investment, we anticipate thatthe large-scale investment by the domestic electronics industry will run its course. Although weforesee a near-term fall off from peak levels in individual projects, we expect steady investment inelectronic components overall and in LCD panel components specifically, such as color filters,
glass substrates and optical films. In addition, we expect firm investments by companies in thebasic materials industries and food sector who are seeking to lower their environmental burden.

Kurita Annual Report 20075

Under this situation, we expect increased revenues and profits for both the Water
Treatment Chemicals Business and Water Treatment Facilities Business. Especially, in the services business of the Water Treatment Facilities Business, which is the strength of the Group, we
can expect strong growth with high profitability.
In the business performance plan of the year ending in March 31, 2008, we expect net sales toincrease by 5.0% to ¥207,000 million, operating income to increase by 13.3% to ¥27,500 million, net
income to increase by 10.5% to ¥15,700 million, and net income per share to stand at ¥122.02. We
expect that those targets of the medium-term management plan will be achieved one year earlier.
In addition, we plan to increase overseas sales by 7% to ¥31,500 million for the year ending
March 31, 2008.

Q

What is your vision for

A: At present the Group is working on realizing the Company vision of becoming an “advanced

the future?

water and environmental management company,” which describes where the Company should bein 2010. In this vision, the business scope expands from “Water” to “Water and the Environment,”
and, at the same time, our aim is to not only supply products such as water treatment chemicals
and water treatment facilities that we have been supplying, but also to provide overall solutions
to the various issues related to “Water and Environment” that are social priorities and based on
customer needs.
The Group, since enacting its corporate vision in 1999, is moving towards its achievement,
and is aspiring to contribute to society through its business activities with its high technicalcompetence as its base.
The Group aims for sustainable development in the 21st century, which is the “Century ofwater and environment,” as a globally active corporate citizen and, ultimately, as a total solution provider in the field of water and environmental management.
It has been a pleasure to have this opportunity to clarify management’s ideas, and welook forward to the continuing support of shareholders and other stakeholders in Kurita’s
future endeavors.
August 2007

Hiroshi Fujino, President

6

Kurita Annual Report 2007

OUTLINE OF THE MEDIUM-TERM MANAGEMENT PLAN

Priming for Growth and Innovation

Kurita Annual Report 2007

7

SPECIAL FEATURE 1:

Expansion of the Service BusinessesO

ne of the Kurita Group’s primary aims under the medium-term
management plan Growth 2008 (G-8), which commenced in April 2006,
is to construct a business portfolio producing high profitability.

A key initiative in this regard is the expansion of the service businesses.

Process treatment
chemicals that contribute to the improvement of customer productivity

Ultrapure Water
Supply Business that
responds to customers’
Soil remediation businessoutsourcing needs
that provides the optimal
solutions for customers’
land utilization

8

Kurita Annual Report 2007

The business of the Kurita Group consists of the “Water Treatment Chemicals” and “Water Treatment
Facilities” businesses. The “Water Treatment Facilities” business includes service businesses as well as the
production and sale of water treatment facilities. In detail, we operate, manage and provide maintenanceservices for water treatment facilities. Through the Ultrapure Water Supply Business, we also produce andsupply ultrapure water on site for use by flat-panel display and semiconductor manufacturers. We have an
off-site tool-cleaning business, which cleans semiconductor and liquid crystal display production equipment
components and jigs. We assess and remediate contaminated soil, making former industrial sites once again
safe for commercial or residential use, and, we offer a chemical cleaning business, in which we clean heatexchangers and boilers at factories and power generation plants.
These businesses, together with the Water Treatment Chemicals Business, all demand a high degree ofsolution competence. In addition, they provide high profitability, and we believe that in the future these businesses will support sustainable growth. The trend of customers’ capital investments does not easily influence these businesses, which contributes to the stability of the Group’s performance. Combined sales of theWater Treatment Chemicals Business and the service businesses of the Water Treatment Facilities Businessof the Kurita Group for the fiscal year ended March 31, 2007 were ¥141.9 billion. This figure accounted for
72% of consolidated net sales.
Sales from Service Businesses(Years ended March 31) (¥ Billion)

Water Treatment Chemicals

Ultrapure Water Supply Business

Water Treatment Facilities (Service)

Tool Cleaning

Water Treatment Facilities (Hardware)

Soil Remediation
Maintenance, etc.

In particular, sales from the Ultrapure Water Supply Business, whose demand continues to grow since its
establishment in April 2002, significantly increased to ¥9.8 billion in the year ended March 31, 2007, comparedwith ¥5.7 billion in the previous fiscal year. We have planned ¥16 billion of sales for the year ending March 31,
2008, and we expect that sales will reach ¥15 billion one year earlier than planned in the medium-term management plan. This business is expected to further grow due to a rise in latent demand in the semiconductor
and flat-panel display industries, and we will continue to invest aggressively in the future.
In addition, we are also seeking to invest aggressively into the tool cleaning business, which faces
increasing demand from the semiconductor and flat-panel display industries. In the area of soil remediation,
for which demand is expanding in line with Japan’s economic recovery, we will also continue to expand thisbusiness through growth initiatives based on intra-group collaboration between subsidiary Land Solution Inc.
and Kurita Water Industries.
We are strengthening our relationships with customers, to include the Water Treatment Chemicals
Business, which continues to provide stable profit growth, and to capture additional business opportunities
while providing more timely and higher quality services.
Based on the above measures, we forecast sales of ¥157.9 billion for the service business in the year
ending March 31, 2008, a planned 76% of total consolidated net sales. This ratio is expected to increase to80% of total consolidated net sales for the year ending March 31, 2009, which is the final fiscal year of themedium-term management plan.

Kurita Annual Report 2007

9

SPECIAL FEATURE 2:

Expansion of the Global BusinessT

he Kurita Group has designated the expansion of the global business as
another key initiative in the medium-term management plan. The
Group is working to expand the overseas business fields along withmarket share, and it is aggressively promoting business development
based on the proprietary business model that has fostered Kurita’sbusiness performance domestically.

Supply of water treatment facilities thatappropriately meet customers’ needs

Petrochemical plant in the Middle East,an area with high potential as a market
for water treatment chemicals

10

Kurita Annual Report 2007

Site for the manufacture of water treatment facilities in Suzhou,
China, which is experiencing
continuous economic growthThe Kurita Group had developed 16 overseas subsidiaries in over 11 countries as of the end of March 2007.
In pursuit of future sustainable growth, it is essential for the Group to aggressively develop overseas business, leading to increased market share and expanded business internationally.
Overseas sales in the year ended March 31, 2007 increased by 35.3% to ¥29.5 billion, compared with theprevious fiscal year, with the sales composition ratio standing at 15.0%. In the medium-term management
plan G-8 for the year ending March 31, 2009, we set a target of overseas sales of ¥31.0 billion and a sales
composition ratio of 15.5%. Subsequently, we decided to raise our target for overseas sales in the year ending March 31, 2008 to ¥31.5 billion, comprising a ¥10.2 billion sales target for the Water Treatment
Chemicals Business and ¥21.3 billion sales target for the Water Treatment Facilities Business. If the new target is achieved as planned, we will have reached the medium-term management plan sales target one year
ahead of schedule.
Looking closely at each region, in China, the Water Treatment Chemicals Business, which has leveraged Kurita’s high consulting competence, is growing favorably. In the future, the Group will invest
aggressively in the key areas of business expansion and the maintenance of the sales network, alongwith the training of sales engineers.
Sales by Region(Years ended March 31) (¥ Billion)

Other

N. America

Water Treatment Chemicals

EuropeAsia

Water Treatment Facilities

Utilizing the strength of our total-solutions capability encompassing chemicals, facilities maintenanceand operation, we aim to expand business by focusing on customers in industrial fields who need sophisticated solutions.
In South Korea, Taiwan, Southeast Asia, mainly in the electronics industry, we have applied the advantages of our technical predominance in technologies such as ultrapure water technology, functional watertechnology, wastewater recycling and re-utilization technology, and we are focusing on the initiatives thatsuitably meet our customers’ needs.
In addition, for the Saudi Arabian petrochemical plant, expected to be a large-scale capital investment
project, the Group is achieving assured results in the Water Treatment Chemicals Business based on a collaboration initiative between the Group’s European company and Kurita Water Industries Ltd. In the U.S.A.,
for the Water Treatment Facilities Business, the Group utilizes its good relationships with its customers, fostered mainly in the maintenance business, to respond to the investment demands of increasing production.
As described above, in each business area of chemicals, facilities and maintenance, the Group is reinforcing its global production, sales and services strengths by enhancing collaboration among Group companies to provide a tailored response to the needs of each region.

Kurita Annual Report 200711

SPECIAL FEATURE 3:

Reinforcing Our Firm Foundation as aTechnology-Oriented Company

To fully realize its vision of becoming an “advanced water and environmental management company” the Kurita Group must pursue challenges in new areas, while promoting the continued evolution of its

existing technologies. It is also working to guarantee the trust and supportof customers and society through business innovation.

Ultrapure water
analysis technology
which supports the
manufacture of semiconductors

Production which is modularized to realize
high quality and short delivery times

Fuel cartridge to power fuel-cell battery
charger for mobile phones using solid-statemethanol, currently in trial manufacturing

12

Kurita Annual Report 2007

The Kurita Group is contributing to environmental preservation and enhancing quality and productivity
through both water treatment for environment preservation and utility water treatment to support industrial
infrastructure. Kurita is reinforcing its technological infrastructure in various areas of its business activities
in order to continue to respond broadly to the needs of industries and society.
In its medium-term management plan, Kurita seeks to improve on a daily basis the quality of the services and products it provides, while partnering with customers in the development of new solutions based ona scientific foundation of extensive data and solid theory. From these strong underpinnings, the Kurita
Group is providing cutting-edge products and services, while, as ever, seeking to earn the support and trustof its customers. Furthermore, it is building a higher position of competitive advantage and further solidifying its profit structure.
In the area of research and development, we established the “Kurita Global Technology Center” in 2005.
This center provides business support through the enhancement of product quality and the development of
new products and technology.
R&D Expenses

Technology Fundamentals(Years ended March 31) (¥ Billion)

R&D Expenses
Percentage to Net Sales

Looking at our accomplishments in the year ended March 31, 2007, in the field of Water Treatment
Chemicals Business, we have continued to develop products that contribute to improved productivity andlower costs for our customers. We also worked on the development of technology to reduce environmental
impact, including the development of new materials. In addition, in the field of water treatment facilities, we
promoted an initiative to advance ultrapure water technology and the development of environment preservation technologies such as wastewater treatment that anticipates environmental regulations, soil remediationand others. We also carried forward the technologies to meet the needs of a recycling society, including
wastewater reclamation and reutilization technologies and sludge reduction technologies.
On the production technology side, we are working to improve the quality of products and make themmore compact, through the development of modularized water treatment systems.
In the future, Kurita will apply its accumulated-data and advanced-theory approach throughout thebreadth of its business activities such as sales, production, technology and product development. Kurita
aspires to become an “advanced water and environmental management company” by providing total solutions to its customers that improve productivity and reduce costs and environmental impact.

Kurita Annual Report 2007

13

FUNDAMENTAL POLICY REGARDING THE ESTABLISHMENT OF
INTERNAL CONTROL SYSTEMS

Kurita Water Industries Ltd. and the Kurita Group have defined the fol-

System, the Administrative Division shall be responsible for verifying

lowing Fundamental Policy regarding the Establishment of Internal

whether present operational processes as well as assessment and audit

Control Systems.

systems are functioning in an appropriate manner, and for carrying out

1. System to Ensure the Execution of Duties by Directors andEmployees that Complies with Laws, Regulations, andArticles of Incorporation

corrective measures if necessary. This system is scheduled to come into

1 One of the Company’s management principles is defined as follows:“Laws and regulations shall be observed in accordance with the ethics and

2. System for Storing and Managing Information Related to
Directors’ Execution of Duties
Information related to directors’ execution of duties shall be recorded

mores of society. Through all of its business activities, the Company shalland stored on paper or electronic media in accordance with the record-build transparent and fair relationships with its shareholders, customers,

keeping rules and the confidential information management rules decided

employees, local communities and suppliers.” This management principle

by the Board of Directors. Directors and corporate auditors shall be able toshall serve as a prerequisite for the Company’s activities. Furthermore, inview these records as necessary.

accordance with this management principle, the Company formulated a
Code of Ethical Conduct, Basic Principles for Practice of Ethical Conduct,

3. Regulations and Other Systems Regarding Management of
Risk Losses

and Guidelines for Ethical Conduct. The Company ensures the implementa-

1 The monitoring of risk affecting the Company and the Group as a wholetion of thorough compliance with respect to laws and regulations and soci-shall be overseen by the general manager of the Corporate Planning

ety’s ethical standards.

Division. The general manager of the Corporate Planning Division, in addition

2 The Company shall establish a Compliance Committee chaired by theto risk monitoring, shall also be tasked with systematizing risk categorization

executive senior managing director/representative director. Concurrently,

and risk prevention. In the event of risk occurrence that may have a materiala Group Compliance Committee shall also be established comprising theimpact on the Company’s management, the general manager of therepresentatives of each Group company as its members. These complianceCorporate Planning Division shall draft an appropriate risk management sys-

committees shall work in tandem to determine compliance-activity-related

tem together with crisis response officer. This system would be announced

policies and key measures, which shall be conveyed to all Group employees

immediately after the approval of the president. The crisis response officer

through subordinate compliance committees established within each cor-shall promptly implement response measures and report to the president

porate and business division and Group company. The committees shalland the general manager of the Corporate Planning Division on risk impact,

also regularly monitor the progress and results of compliance programs

corrective status, and measures to prevent recurrence.

and strive for continuous upgrading of these programs. When the chairman

2 With regard to serious risk, where such risk involves compliance mat-of the Compliance Committee judges that significant compliance-relatedters, the chairman of the Compliance Committee shall be responsible forissues or questions have arisen, he shall promptly provide a report to therisk management. Where such risk involves safety and hygiene issues orpresident/representative director, and he shall also formulate and imple-

disaster issues, the chairman of each division’s Safety & Hygiene

ment corrective actions and measures to prevent the recurrence of similar

Committee shall be responsible for risk management. Other day-to-day risk

problems. The president or Compliance Committee chairman shall provide

management, including issues related to quality, environment, information

appropriate reports on the status of such issues to the Board of Directors

security and export control, shall be carried out by the respective divisions

and the Board of Corporate Auditors.

responsible for these areas.

3 The Company shall establish an Internal Auditing Department which

3 The general manager of the Corporate Planning Division and theshall carry out internal audits—including matters relating to compliancerespective committee chairmen shall report to the Board of Directors andprograms—covering the self-auditing activity for the Company’s managers

the Board of Corporate Auditors as appropriate regarding the occurrence

and the Group company representatives.

and outcome of serious risk.

4 With regard to activities or actions that raise legal or regulatory questions, whistleblower protection rules shall be formulated and a complianceconsultation desk shall be operated to provide a framework under which
employees may directly provide information.
5 To ensure the propriety of the financial reports of the Group, theCompany shall establish an Internal Control Reporting System. Under this14

effect on April 1, 2008.

Kurita Annual Report 2007

4. System to Ensure the Efficient Execution of
Directors’ Duties
1 The Board of Directors shall assign duties to the directors and executive officers and define the division of duties of organizational unit heads(managers at general manager level and above) and organizational units.

2 As a decision-making mechanism to complement resolutions of thein accordance with the Company’s authorization and assessment rules

Board of Directors, the Company shall establish an authorization request(Article 5, Matters relating to Domestic and Overseas Affiliate Companies).

system in accordance with authorization and screening rules. The creation,

4 For measures taken with regard to compliance matters of the entire

modification or abolition of such a system shall be carried out by resolution

Group and each Group company, policies shall be decided, and specificof the Board of Directors. To facilitate the efficient execution of the day-to-actions shall be implemented, by the Group Compliance Committee speci-

day duties of the directors and executive officers, bylaws shall be estab-

fied Basic Policies in Article 1, Paragraph 2 above. With regard to the sys-

lished and operated in accordance with authorization and assessment rules.

tem for ensuring the reliability of financial reports of the Group, measures

3 The Board of Directors shall formulate a long-term management

shall be considered as stipulated in Article 1, Paragraph 5 above, with thevision, medium-term management plans, and annual business plans, as

aim of establishing such a system.

well as define targets, policies, and important measures for each organiza-

6. Matters relating to the Appointment of Employees to Assist
the Functioning of the Board of Corporate Auditors and theIndependence of those Employees from the Directors

tional unit. Furthermore, the Board of Directors shall also manage theoperating performance of business divisions and Group companies basedon monthly and quarterly targets.
4 To facilitate the timely and smooth implementation of resolutions of
the Board of Directors, the Company shall establish an Executive
Committee comprising the president, the executive senior managing director, managing directors, and the general manager of the Corporate
Planning Division. The Executive Committee shall convene twice a month asa rule, and on additional occasions as necessary. The Executive Committee
shall deliberate on matters affecting management of the Company andGroup, monitor (on a monthly and quarterly basis) the progress made onachieving targets and the status of implementation of policies and measures, and issue instructions to the respective directors and executive officers responsible for corrective measures where divergence has occurred.
Corporate auditors may attend meetings of the Executive Committee.
5. System to Ensure the Proper Operation of the Corporate
Group Comprising the Company and Its Subsidiaries
1 The Company and its Group companies shall formulate medium-term
management plans and annual business plans based on unified management principles.
2 General oversight of the management of each Group company shall be

The Company’s Board of Internal Auditing Department shall not appointfull-time assistants. However, where necessary, corporate auditors may
appoint specific employees from the Internal Auditing Department to assist
in the execution of auditing duties.
7. System of Reporting to the Board of Corporate Auditors by
Directors and Employees and Other Systems for Reportingto the Board of Corporate Auditors
1 To regularly ascertain that the directors and employees are properly
executing their duties, the corporate auditors may attend meetings of theBoard of Directors, Executive Committee, Compliance Committee, andother bodies.
2 Regardless of record-keeping rules, rules for managing confidential
information, and other rules, the corporate auditors may at any time viewany documents as deemed necessary to fulfill their auditing functions.
3 In addition to matters stipulated by law or regulation, directors andemployees shall also report to the Board of Corporate Auditors on matters
including compliance violations, disputes, occurrence of material risk, andfinancial accounting and reporting. In response to requests by corporate
auditors, directors and employees shall provide business reports.

carried out by the Corporate Planning Division. For each Group company, a

8. Other Systems to Ensure that Auditing Functions of theBoard of Corporate Auditors Are Carried Out Effectively

director of the Company and division of the Company shall be appointed in

1 The Board of Corporate Auditors and the president shall hold regular

oversight roles, which shall regularly monitor and supervise progress inachieving business performance targets set out in medium-term management plans and annual business plans.
3 Each Group company shall have its own board of directors. Directors

meetings in which to exchange opinions.
2 The Board of Corporate Auditors shall, as necessary, hold consultations and exchange opinions with the Internal Auditing Department and the
independent auditor.

and corporate auditors (both part time) shall be dispatched from theCompany to sit on these Group company boards and monitor the management, business performance, financial reporting, and risk of these Group
companies. Where Group-level decision-making is necessary, theCompany’s Executive Committee shall deliberate on such matters, anddecisions shall be made by the Company’s Board of Directors or be madeKurita Annual Report 200715

CORPORATE GOVERNANCE■ Basic Stance Regarding Corporate Governancec. Safety & Hygiene Committee

Kurita’s basic stance on corporate governance is to execute its business

Kurita is working to improve safety and hygiene in all business activities

affairs with rigorous management oversight, and to establish a manage-

and workplaces of all Group companies as well as suppliers. We havement organization and systems that will increase transparency and effi-

established a Safety & Hygiene Committee of each division, which reports

ciency and steadily enhance corporate value over the long term.

directly to the president and oversees a subsidiary organization comprising■ Status of Corporate Governance Initiatives

safety and hygiene committees established in the various workplaces, in

1 Management and administrative organization and other cor-manufacturing departments, and in the head office, branch offices, andporate governance systems

other places of business. This Committee is also actively involved in health

Kurita has adopted the corporate auditor system. The Board of Corporate

management, including the mental health of employees.

Auditors comprises four corporate auditors, including two outside auditors.

3 Audit status

In addition to conducting audits based on the policies and division ofa. Internal audits

responsibilities determined by the Board of Corporate Auditors, the corpo-

As described above, Kurita has established the Internal Auditing

rate auditors also monitor and audit the operational execution of represen-

Department, which performs internal audits of all Group companies. The

tative directors and the management performance of directors. As of June

Department consists of a staff of seven people who do the audits, make28, 2007, the Board of Directors comprised 13 members, including one out-

proposals for improvements, and monitor and manage the implementa-

side director. The Board makes decisions on important managerial mat-tion status of the instructions issued by the president in response toters, and monitors and supervises the operational execution of representa-

such proposals.

tive directors. An Executive Committee has been established with six directors, including the representative directors, as the committee members. To
reinforce the effectiveness of operational execution, in June 2005 Kurita
introduced an executive officer system, and at present there are five executive officers.

b. Audits by the Board of Corporate Auditors
The four-member Board of Corporate Auditors determines auditing policies
for the current year, the job responsibilities of each auditor, specific implementation-related issues, and scheduling. It also audits the job performance of directors. In addition, corporate auditors attend Board of

2 Internal control and risk management systems

Directors’ meetings and other important company meetings to monitor andIn addition to the monitoring and auditing of the representative directors

verify the status of decision-making by the directors and the status of ful-

and other directors, as well as the general audits, carried out by the Board

fillment of the oversight responsibilities of the Board. Other tasks of theof Corporate Auditors, Kurita is strengthening its internal control and risk

Board of Corporate Auditors include surveying the financial positions ofmanagement with the following systems.

subsidiaries and other Group companies, verifying the status of the inter-a. Establishment of the Internal Auditing Department

nal control system arranged by directors, and monitoring the independence

The Internal Auditing Department performs internal audits, including audits

and job performance status of the accounting auditors.

of Group companies, identifies issues and problems in the execution ofc. Accounting audit

operations, and submits improvement proposals to the president.

In accordance with the Company Law and the Securities and Exchange

b. Compliance Committee

Law, Grant Thornton Taiyo ASG has been appointed as accounting auditor.

The Kurita Group considers compliance to be one of the most important
issues of management. As committees reporting directly to the president,
we have established the company-wide Compliance Committee as well as
the Group Compliance Committee, with the latter comprising the representative directors of all Group companies in Japan. In addition, Group companies overseas are working to enact codes of ethical conduct that reflect
the laws and regulations of the given country.
Kurita has also defined whistleblower protection rules, and it hasestablished an internal compliance consultation desk and a consultation
and reporting function operated by an outside party.

16

Kurita Annual Report 2007

KURITA’S ENVIRONMENTAL IMPROVEMENT INITIATIVESIn March 2004, Kurita Water Industries formulated a Basic Policy for envi-

elimination of problems arising from the recovery of excess paint and toronmental improvement, and in April 2004, we launched a three-pronged

the improvement of water treatment efficiency, lowered CO2 emissions, by

proactive approach involving “responding to customer needs,” “changing

reducing electricity and water consumption, and also lowered waste vol-Kurita,” and “changing society.” From April 2006, we have promoted envi-

ume by reducing sludge.

ronmental improvement activities through these three approaches at 19

The second approach, “changing Kurita,” involves optimizing ourdomestic group companies. At our inaugural Environmental Improvement

manufacturing and logistics systems for water treatment chemicals andActivities Promotion Meeting, in May 2006, we established the aim of con-water treatment facilities to reduce CO2 emissions and waste output, as

sistently utilizing PDCA cycles in the environmental improvement activities

well as the safe management of chemical substances. In the year endedof the domestic companies in the Kurita Group. The Meeting is responsible

March 31, 2007 we expanded the scope of these activities to include thefor all phases of implementation, from the setting of targets and specificentire domestic Kurita Group, established targets and policies related tomeasures for each company, through to the monitoring of progress,

reductions of CO2 emissions and waste output for each of the domestic

reporting on and discussing results, and identifying issues to be resolved.

group companies and focused our efforts on environmental improvement

Below, we introduce the major environmental improvement activities

activities aimed at achieving these targets.
Under the third approach of “changing society” we contribute to fun-undertaken in the year ended March 31, 2007 by the companies in the
Kurita Group based on the three approaches.
For the first approach, “responding to customer needs,” we assess

damental solutions to social environmental issues through our development of innovative new technologies and businesses. In the year ended

the advantages that our customers gain from their use of such Kurita

March 31, 2007, our main achievements in this area were the development

products as water treatment chemicals and water treatment facilities,

of a technology that rapidly detects and suppresses the growth ofnamely CO2 emission reductions and waste output reductions. We assess

Legionella bacteria inside cooling water systems, which is one cause of

the results by applying our own, unique indicator of “environmental bene-

Legionnaires’ disease, and the development of remediation technology forfits to customers,” and constantly endeavor to increase the benefits. One

soil and groundwater contaminated with fluorine.

example of such activities in fiscal 2006 was the use of Kurita’s products

Detailed results of our environmental improvement activities during“Kuristucker®,” a paint overspray recovery device, and “Kuristuck®,” a

the year ended March 31, 2007 will be presented in our Environmental

water treatment agent, by plants that produce molded-resin bodies for

Report, to be published in October 2007.

motorcycles, then paint and assemble them. This contributed to the
Overview of Kurita’s Activities to Promote Environmental Sustainability

Kurita Annual Report 200717

BOARD OF DIRECTORS AND CORPORATE AUDITORSAs of June 29, 2007

President*

Hiroshi Fujino

Executive Senior Managing Director*

Takuo Ishida
General Manager of Chemicals Division

Senior Managing Director

Kazufumi Moriuchi
General Manager of Facilities Division

Managing Directors

Toshiaki Deguchi
General Manager of Research and Development Division

Mitsuru Ogawa
General Manager of Administrative Division

Tetsuo Saeki
General Manager of Corporate Planning Division

Directors

Kaoru Kajii
General Manager of Production Group, Facilities Division

Toshiyuki Nakai
General Manager of 2nd Plant Group, Facilities Division

Ryouichi Ishigami
General Manager of 3rd Group, Chemicals Division

Tetsuo Kai
General Manager of 1st Plant Group, Facilities Division

Shigeaki Takeda
General Manager of Global Business Group, Chemicals Division

Kouichi Iioka
General Manager of 1st Group, Chemicals Division

Shigeji Sugimoto
Corporate Auditors

Tohru Ishizaka
Chiaki Kuzuu
Masahiko Kurita
Kazuma Yura
*Representative Director

18

Kurita Annual Report 2007

MANAGEMENT DISCUSSION AND ANALYSIS (CONSOLIDATED)
Six-year Summary(Years ended March 31)

Millions of yen
2007

2006

2005

2004

2003

2002

Net sales¥197,146¥173,683¥160,896¥146,819¥141,628¥142,678

Cost of sales

137,819

122,630

112,077

101,433

97,84699,039Selling, general and administrative expenses

35,05033,741

32,86731,89531,47432,848Operating income

24,276

17,311

15,951

13,49012,307

10,790

Income before income taxes

24,591

18,20016,376

14,918

10,263

9,121

Net income

14,207

10,519

9,383

8,444

5,476

5,670

Capital expenditures

19,563

16,537

6,706

9,718

6,198

4,760

Research and development (R&D) expenses

4,421

4,213

4,228

4,289

4,484

5,071

Depreciation and amortization

6,512

4,906

4,361

3,872

3,307

3,487

Total current assets

137,004

125,231

116,400

118,923

107,180

103,490

Total current liabilities

65,49654,87744,46542,95438,64336,585Equity156,772

145,366

136,366

128,676

120,969

122,590

Total assets

235,137

212,774

192,428

183,620

173,689

172,145

For the year:

At year-end:

Amounts per share of common stock (yen):
Net income

110.4

81.8

71.8

64.6

40.7

42.9

Equity1,218.4

1,129.7

1,058.9

999.7

939.8

926.5

28.0

22.0

18.0

16.0

16.0

16.0

6.3

5.2

5.0

4.7

3.2

3.2

Cash dividends applicable to the year
Ratios:Return on assets (ROA) (%)
Return on sales (%)

7.2

6.1

5.8

5.8

3.9

4.0

Total assets turnover (times)

0.88

0.86

0.86

0.82

0.82

0.80

Equity ratio (%)

66.7

68.3

70.9

70.1

69.6

71.2

Return on equity (ROE) (%)

9.4

7.5

7.1

6.8

4.5

4.7

Kurita Group Overview
The Kurita Group comprises Kurita Water Industries Ltd., 40 subsidiaries, and 13 affiliated companies.
The Group offers a wide range of water treatment-related products, technology, and maintenance services, with the Group’s business categorized overall into two segments: Water Treatment
Chemicals Business—water treatment chemical manufacture, sales, and maintenance services—and Water Treatment Facilities Business—water treatment facilities and equipment manufacture,sales, and maintenance services.
The business contents of Kurita Group and the positioning of Kurita Water Industries Ltd. andits subsidiaries and affiliated companies in these two segments are as follows:

Water Treatment Chemicals Business● Water Treatment Chemicals Business

There are a total of 33 companies involved in this business, including Kurita Water Industries Ltd.—
21 companies in Japan and 11 overseas companies, including Kurita (Singapore) Pte. Ltd.
● Water Treatment Facilities Business

There are a total of 23 companies involved in this business, including Kurita Water Industries Ltd.,
Kurita Engineering Co., Ltd., 13 other companies in Japan and eight companies, including Kurita(Singapore) Pte. Ltd. overseas.
Water Treatment Facilities Business

Kurita Annual Report 200719

Management Environment
In the year ended March 31, 2007, the Japanese economy was in a recovery trend bolstered by private-sector demand which was itself sustained by improving corporate earnings, increasing capital
expenditures, and an upturn in consumer spending.
Concerning the market environment, domestic capital investments were firm with a bullish
Primary Theme of the [G-8] Plan

demand background in the electronics industry sector, for items such as liquid crystal display (LCD)
and plasma televisions. On the other hand, we did observe a softening in large-scale capital investment by some customers in Taiwan and South Korea. Nevertheless, overall, among general industries in Japan, capital expenditure and plant utilization levels were both firm and centered on thebasic materials producing industries such as steel, oil refining, and petrochemicals.
Under this management environment, the Company initiated the three-year medium-term management plan Growth 2008 (G-8) with the basic theme “growth and innovation.” We aim to expand
and grow Kurita Group throughout and took thorough action to aimed at implementing the key G-8
plan strategies of “Accelerating Kurita’s shift to a service-based business model,” “Expanding
Kurita’s global business,” and “Reinforcing Kurita’s business base.”

Initial Performance Targets

Business Status

Consolidated performance targets for the fiscal year
ending March 31, 2009, are as follows:Business Overviewa) Basic business policies and measures

Net Sales¥200.0 billion

Operating Income¥27.0 billion

Net Income¥15.4 billion● Medium-term management plan Growth 2008 (G-8)

Expanding our business domain from “water” to “water and the environment,” the Kurita Group will
not limit itself to the supply of materials such as water treatment chemicals and water treatment
facilities, but strive to transform itself into a group that can provide solutions to a diverse array of

Projected Net Sales in [G-8] Plan
(Years ended or ending March 31) (¥ Billion)

societal needs related to “water and the environment.” Since formulating our corporate vision of
being “an advanced water and environmental management company” in 1999, we have continued towork to achieve that vision and contribute to society by providing the most advanced technology,
actively investing in business growth, and maintaining high ethical standards.
The G-8 plan, which was launched in April 2006, is based on the basic themes of “growth andinnovation.” Its basic policy is: “We will strive for daily innovation in the value we provide, thereby
winning the overwhelming trust of our customers.” Under the plan, we are leveraging the Group’s
strengths built up through previous medium-term management plans—technology base, financial
foundation, and customer foundation—as a springboard to future growth. By further enhancing
these advantages, the Group is working to transform itself to enable Kurita to even better meet theneeds of the market and society. The G-8 plan represents the final stage in the realization of our

Projected Overseas Sales Ratio in [G-8] Plan
(Years ended or ending March 31) (¥ Billion)

corporate vision for where we want the Kurita Group to be in 2010.
● Water Treatment Chemicals Business

Focusing on expanding sales of major products and promoting water treatment management blanket
contracts, in this business segment the Kurita Group worked to secure orders by proposing solutions to a range of customer issues, including mitigation of environmental impact, enhancement ofoperation reliability, and improvement of productivity. In addition, we also worked to improve profitability by promoting high-value-added products, implementing countermeasures for increases in
raw material costs, and reducing manufacturing and distribution costs.
● Water Treatment Facilities BusinessIn this business segment, the Kurita Group strengthened development of its unique business modelby continuing to aggressively invest in service business operations such as Ultrapure Water Supply
Business and tool cleaning business. In addition, we endeavored to secure orders by reinforcing
sales to key customers and by expanding proposal-oriented sales offering solutions to customer

20

Kurita Annual Report 2007

Segment Information

Millions of yen(For the years ended March 31)

2007

2006

2005

2004

2003

Water Treatment Chemicals Business¥ 56,560¥ 53,903¥ 52,120¥ 47,516¥ 46,450

Water Treatment Facilities Business

135,969

130,007

119,213102,218

81,981

Total¥192,529¥183,910¥171,334¥149,735¥128,431¥ 56,667¥ 54,549¥ 50,637¥ 47,442¥ 47,116(not included in the consolidated statements of income:

Orders shown for reference purposes only)

Sales
Water Treatment Chemicals Business
Water Treatment Facilities Business

140,479

119,133

110,259

99,377

94,512

Total¥197,146¥173,683¥160,896¥146,819¥141,628

Water Treatment Chemicals Business¥ 8,806¥ 7,961¥ 7,433¥ 6,640¥ 6,493

Water Treatment Facilities Business

15,471

9,349

8,515

6,845

5,730

(1)

0

1

5

82

¥ 24,276¥ 17,311¥ 15,951¥ 13,490¥ 12,307

Operating income

Elimination or corporate
Total

issues such as mitigation of environmental impact and improvement of productivity. We also worked
to improve profitability by increasing design and construction productivity, reducing costs, andOrders by Segment(Years ended March 31) (¥ Million)

enhancing quality.
b) Orders
Orders received in the year ended March 31, 2007 increased by 4.7% over the previous fiscal year to¥192,529 million. Reflecting the efforts described above, orders rose in both the Water Treatment
Chemicals Business segment and the Water Treatment Facilities Business segment.
c) Net sales
As a result of the increase in orders, overall net sales for the year ended March 31, 2007 increased
13.5% to ¥197,146 million.
Sales by Segmentd) Cost of sales(Years ended March 31) (¥ Million)

Along with the sales increase, cost of sales rose 12.4% to ¥137,819 million. The sales cost ratio
improved 0.7% over the previous fiscal year as a result of efforts to improve our cost percentage byincreasing sales of high-value-added products and services, and absorbing raw material priceincreases through cost reductions.
e) Gross profit
Gross profit rose 16.2% to ¥59,326 million as a result of the revenue increase and the improved
sales cost ratio.
f) Selling, general and administrative (SG&A) expenses
SG&A expenses increased by 3.9%, or ¥1,309 million, to ¥35,050 million. The rise was primarily due

Gross Profit(Years ended March 31) (¥ Million)

to a ¥501 million increase in personnel expenses (salaries and benefits, provision for employees’
bonuses, and expenses for accrued employees’ retirement benefits) and a ¥208 million increase in
R&D expenses.
g) Operating income/operating income ratio
As a result of higher sales and improvement of the sales cost ratio, operating income increased by¥6,965 million, or 40.2%, to ¥24,276 million. The operating income ratio improved 2.3% to 12.3%.

Kurita Annual Report 200721h) Business results by segment● Water Treatment Chemicals Business

Orders, sales, operating expenses and operating income
For our major products in the domestic market, orders and sales both fell slightly for wastewater
SG&A Expenses(Fiscal year ended March 31) (¥ Million)

treatment chemicals, remained steady for boiler water treatment chemicals, and rose slightly forcooling water treatment chemicals. For other chemicals, orders and sales remained about the samefor oil refining and petrochemical process chemicals and rose slightly for water treatment management blanket contracts. Orders and sales for process treatment chemicals for the paper and pulp
industry increased as a result of the high factory utilization rates at customer companies. Sales fromoverseas Group companies also increased. As a result of these trends, overall Water Treatment
Chemicals Business orders increased by ¥2,657 million, or 4.9% from the previous fiscal year, to¥56,560 million, and net sales rose ¥2,118 million or 3.9% to ¥56,667 million. On the cost side, oursales cost ratio improved because we were able to strengthen sales of high-value-added products
and also absorb almost all raw material cost increases through cost reductions achieved by enhanc-

Operating Income by Segment(Fiscal year ended March 31) (¥ Million)

ing manufacturing and distribution efficiency. Operating expenses were held to ¥48,123 million, an
increase of ¥1,213 million over the previous fiscal year. Consequently, operating income increasedby 10.6% or ¥845 million to ¥8,806 million.
● Water Treatment Facilities Business

Orders, sales, operating expenses and operating income
In the electronics industry business, with a background of robust capital expenditures and high factory-utilization rates at liquid crystal display (LCD) and plasma television manufacturers, orders andsales both increased for ultrapure water production systems, the Ultrapure Water Supply Business,tool cleaning business and maintenance services. In general industries, public-sector order volume
fell considerably but there was solid order and sales activity in soil remediation business and strong
Note: Total operating income in shown before deduction of
corporate items and inter-segment eliminations.

sales concentrated in water treatment facility projects for basic materials industries. The net result
for the Water Treatment Facilities Business as a whole was that orders increased by 4.6% or ¥5,962

Operating Income Ratio by Segment(Fiscal year ended March 31) (%)

million to ¥135,969 million and sales increased by 17.9% or ¥21,346 million to ¥140,479 million.
Operating expenses increased by 13.3% to ¥125,086 million, with the year-on-year operating expense
increase being held to ¥14,729 million as a result of cost reductions achieved by improving the sales
cost ratio when the order is received, by strengthening measures aimed at enhancing design and construction productivity, and by reinforcing measures for limiting the cost of additional construction
occurring after delivery to the customer. Consequently, operating income recorded a large 65.5% or¥6,122 million increase to ¥15,471 million.
i) Overseas sales● Sales by region

Overseas sales were ¥29,528 million, with the breakdown by region and the percentage of total conPercentage of Net Sales(Fiscal year ended March 31, 2007)

solidated net sales as follows. Asian sales increased 36.3% over the previous fiscal year to ¥22,635
million (percentage of consolidated net sales: 11.5%), North American sales increased 46.3% to¥3,424 million (percentage of consolidated net sales: 1.7%), European sales increased 15.6% to¥1,296 million (percentage of consolidated net sales: 0.7%), and sales in other regions increased
25.9% to ¥2,171 million (percentage of consolidated net sales: 1.1%).
● Sales by business segment

Of overseas sales of ¥29,528 million, the Water Treatment Chemicals Business increased 29.7%
over the previous fiscal year to ¥8,873 million (30% of total overseas sales) and the Water
Treatment Facilities Business increased 38.2% to ¥20,655 million (70% of total overseas sales).
j) Income before income taxes
As a result mainly of higher operating income, income before income taxes increased by 35.1%, or¥6,391 million to ¥24,591 million.
22

Kurita Annual Report 2007

k) Net income and net income per share
Net income increased 35.1%, or ¥3,688 million to ¥14,207 million, and net income per share
increased from ¥81.76 in the previous fiscal year to ¥110.42.
l) Dividend policy and dividends
In the distribution of profits, our basic policy is to maintain stable dividends while giving due consid-

Overseas Sales by Area
(Fiscal year ended March 31, 2007)

eration to full-year business performance and the demand for funds for future business expansion. In
the year under review, Kurita declared a year-end dividend of ¥15, up ¥4 from the previous fiscal
year. Combined with the interim dividend of ¥13, this resulted in total dividends for the fiscal year of¥28 per share, an increase of ¥6. This was the third year in a row that Kurita has increased dividends,
and in the year ending March 31, 2008, we plan to increase dividends another ¥4 to a total of ¥32.

Capital expenditures● Capital expenditure status

The Kurita Group is committed to making the investments necessary to enhance its technological

Net Income per Share(Fiscal year ended March 31) (Yen)innovation and production capacity and to respond to the ongoing intensification of sales competition. During the year under review, we invested a total of ¥19,563 million, an increase of ¥3,026 million from the previous fiscal year, primarily for the acquisition of facilities for business use.
● Water Treatment Chemicals Business

Capital expenditures for this segment decreased by ¥694 million to ¥1,324 million, which were madefor such purposes as renovating chemical product manufacturing facilities and purchasing analysis
equipment for water quality analysis operations.
● Water Treatment Facilities Business

Capital expenditures rose by ¥3,719 million from the previous fiscal year to ¥18,238 million, for such
purposes as acquisition of facilities for the Ultrapure Water Supply Business and acquisition of land

Dividends per Share (Parent Company)(Fiscal year ended March 31) (Yen)and buildings for use in the tool cleaning business.
● Depreciation and amortization

In conjunction with the increase in the number of facilities for the Ultrapure Water Supply Business,depreciation and amortization increased by 32.7%, or ¥1,606 million from ¥4,906 million in the previous fiscal year to ¥6,512 million.

R&D Expenses● R&D status

The Kurita Group is evolving and nurturing the technology used in our business operations, including
technologies for boiler water treatment and cooling water treatment, ultrapure water production,water and wastewater processing, water reclamation, and soil and ground water remediation. In

Capital Expenditures, and Depreciation
and Amortization(Fiscal year ended March 31) (¥ Million)

addition, we are also engaged in a wide range of other R&D for platform technology research inareas such as analysis technology and IT control and diagnostic technology, and for the development of technology for new business ventures.
In the future, we will continue to refine the “water” technologies that we have accumulated overmany years. Toward our vision of becoming “an advanced water and environmental managementcompany,” we will aggressively carry out research and development on the wide range of technologies—environmental preservation technology, water reuse technology, productivity improvement
technology, etc.—needed by industry and society. We will also actively engage in R&D for new business ventures, for example: the development and promotion of technologies for the fuel cell systems
needed to realize a “hydrogen society” in the years ahead.
Kurita’s R&D activities are conducted principally by the parent company’s Research andDevelopment Division and the technical development departments of each operating division. R&D
personnel of the Group as a whole number approximately 180, which is about 4.5% of all Group
Kurita Annual Report 200723

personnel. Total R&D expenses for the year ended March 31, 2007 amounted to ¥4,421 million,
equivalent to 2.2% of net sales.
An overview of R&D activities, results and expenses of each business segment in the year underreview is given below.
● Water Treatment Chemicals BusinessIn this segment, we promote water treatment chemicals that contribute to customer efforts to conserve energy, resources and finances, and improve productivity, and, at the same time, we develop
technologies focusing on reducing the environmental impact of water treatment by developing newenvironment-friendly basic materials and non-chemical water treatment methods. We also develop
R&D Expenses(Fiscal year ended March 31) (¥ Million)

system technologies to support maintenance services for our packaged water treatment management contracts. During the year under review, R&D expenses for this were ¥1,392 million.
● Water Treatment Facilities BusinessWe are moving forward with efforts to further enhance ultrapure water quality and with R&D forenvironmental preservation technologies for soil remediation and wastewater treatment that go
beyond current environmental regulatory requirements. At the same time, we are engaging in developing wastewater reclamation and recycling technologies and sludge reduction technologies thatwill contribute to the realization of a recycling society. We are also working to improve our hardware technology by making our water treatment systems more compact and standardized. During
Total Assets

the year under review, R&D expenses for this business were ¥3,028 million.

(Fiscal year ended March 31) (¥ Million)

Financial positiona) Total assets● Current assets

At fiscal year-end, total current assets were up by ¥11,772 million compared with the previous fiscal
year-end to ¥137,004 million. Significant factors contributing to this rise included a ¥7,653 million
increase in cash and time deposits and a ¥3,995 million increase in inventories. The rise in inventories
was the result of an increase in work in progress related to the progress status of facilities under construction at water treatment facility projects.
Inventories(Fiscal year ended March 31) (¥ Million)● Property, plant and equipment

Property, plant and equipment increased by ¥13,297 million over the previous fiscal year-end to ¥67,288
million. This occurred because of the increase in tangible fixed assets, which mainly comprised investments in facilities for Ultrapure Water Supply Business.
b) Liabilities and net assets● Current liabilities

Current liabilities rose by ¥10,619 million to ¥65,496 million, due to an increase in notes andaccounts payable, trade of ¥4,341 million and increases of ¥3,122 million in accrued income tax and¥2,865 million in advances received. The rise in notes and accounts payable, trade was attributable
mainly to an increase in trade payables for material costs, outsourcing, and other costs involved inefforts to increase the production output of Water Treatment Facilities Business. The rise in accrued
income tax was the result of the increase in income before income taxes.

24

Kurita Annual Report 2007

● Long-term liabilities

Long-term liabilities increased slightly by ¥207 million to ¥11,440 million, which represented a slightincrease of ¥207 million over the previous fiscal year-end.
● Net assets

Total net assets increased by ¥12,833 million to ¥158,200 million compared to total shareholders’equity at the previous fiscal year-end. This was primarily attributable to a ¥11,095 million increase inretained earnings stemming from the ¥14,207 million in net income and to the inclusion in the net
assets section of ¥1,427 million in minority interests as a result of the application of “AccountingStandard for Presentation of Net Assets in the Balance Sheet” beginning with the year under review.
● Equity ratio

Equity(Fiscal year ended March 31) (¥ Million)

The equity ratio declined 1.6 percentage points from 68.3% to 66.7%.
● Return on equity

Although equity in the period under review increased 7.8% to ¥156,772 million, since net income
increased 35.1% to ¥14,207 million, return on equity rose from 7.5% in the previous fiscal year to 9.4%.

Cash flows● Cash flows from operating activities

Net cash provided by operating activities amounted to ¥27,070 million, an increase of ¥13,214 million
compared with the previous fiscal year. Factors bolstering operating cash flows included income before
income taxes of ¥24,591 million (up ¥6,391 million from the previous fiscal year), depreciation and amor-

Return on Equity(Fiscal year ended March 31) (%)

tization of ¥6,512 million (up ¥1,606 million), and an increase in advances received of ¥2,846 million (up¥1,769 million). Factors constraining operating cash flows included an increase in inventories of ¥3,945
million (up ¥4,101 million) and income taxes paid totaling ¥8,032 million (up ¥1,051 million).
● Cash flows from investing activities

Net cash used in investing activities totaled ¥16,453 million, a large expenditure increase of ¥4,135
million compared with the previous fiscal year. This rise stemmed mainly from the fact that eventhough there was a net positive cash flow from the acquisition and sales of marketable securities
and investment securities of ¥3,009 million (up ¥4,706 million), there was also, for the second year
in a row, a large increase in expenditures for acquisition of tangible fixed assets used for businesspurposes to ¥18,846 million (up ¥7,884 million).

Cash Flows from Operating Activities(Fiscal year ended March 31) (¥ Million)● Cash flows from financing activities

Net cash used in financing activities amounted to ¥3,458 million, up ¥942 million compared withthe previous fiscal year. This was primarily owing to cash dividends paid totaling ¥3,086 million(up ¥514 million).
● Cash and cash equivalents at end of year

At the end of the fiscal year, cash and cash equivalents stood at ¥37,442 million, an increase of¥7,571 million compared with the previous period. This figure reflects the ¥280 million effect of
exchange rate adjustment on cash and cash equivalents and the ¥132 million in cash and cash equivalents held by newly consolidated subsidiaries at beginning of the year.

Kurita Annual Report 200725

Issues to be addressed and outlook for the year ending March 31, 2008
Under the G-8 plan, launched in April 2006, we are working for Group growth and expansion bystrengthening our core businesses and investing aggressively in growing businesses. In the consolidated fiscal year under review, the Group achieved excellent business performance in a favorable
Cash and Cash Equivalents at
End of Year
(Fiscal year ended March 31) (¥Million)

market environment. In order to ensure the timely realization of our 21st-century vision and the G-8plan, in the year ending March 31, 2008, we set forth the basic policies of “create new value andaccelerate Group growth.” In line with these policies, we are taking thorough action to implement
the strategies of “Accelerating Kurita’s shift to a service-based business model,” “Expanding
Kurita’s global business,” and “Reinforcing Kurita’s management/business base.”
The following three priority measures are being taken.
(1) Improve thoroughly the profitability of core businesses. Particularly in Water Treatment
Facilities Business, further accelerate the expansion of service business.
(2) Further strengthen business initiatives for aggressively expanding global business.
(3) Thoroughly implement compliance activities while also working to improve product and service quality.

Business risks
Important risk factors affecting Kurita Group business performance include economic trends, capital
expenditure trends in water treatment facilities and the plant, operating rates at client companies, pricemovements in basic materials, and the status of competition with other companies in the same industry.
(1) Factors affecting business performance
Specific factors that can affect Group performance, by segment, are described below.
● Water Treatment Chemicals BusinessOur business performance is affected by demand fluctuations determined by the factory operating
rates of our major demand sources; customers in the steel, oil refining, petrochemicals, and pulp
and paper industries. Basic material price fluctuations caused by oil price changes can also affectbusiness performance.
● Water Treatment Facilities BusinessBusiness performance is influenced by demand fluctuations resulting from capital expenditures inthe electronics industry, a major source of demand.
(2) Concentration of Water Treatment Facilities Business income in second half offiscal year
With the exception of service business operations such as Ultrapure Water Supply Business and toolcleaning business, operating income from Water Treatment Facilities Business is generally concentrated in the second half of the fiscal year. This occurs because sales recorded based on projectcompletion and work-in-progress standards tends to be concentrated at the end of the fiscal year.

26

Kurita Annual Report 2007

FINANCIAL SECTIONCONTENTS
Consolidated Balance Sheets

28

Consolidated Statements of Income

30

Consolidated Statements of
Changes in Net Assets

31

Consolidated Statements ofCash Flows

32

Notes to Consolidated Financial
Statements

33

Report of Independent Certified
Public Accountants

51

Nonconsolidated Summary

52

Kurita Annual Report 2007

27

CONSOLIDATED BALANCE SHEETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2007 and 2006

Thousands of U.S.
dollars (Note 1)

Millions of yen

Assets

2007

2006

2007

¥ 37,761¥ 30,107$ 319,878

77,08077,072652,950

Current assets:
Cash and time deposits (Note 3)
Notes and accounts receivable, trade (Note 4)
Allowance for doubtful accounts

(164)

(125)

(1,390)Marketable securities (Note 5)

5,830

6,162

49,387

Inventories (Note 6)

12,065

8,070

102,205

Deferred tax assets (Note 8)

2,713

2,170

22,987

Other current assets

1,716

1,773

14,540137,004

125,231

1,160,560

Investments in securities (Note 5)

19,977

23,179169,233

Investments in non-consolidated subsidiaries and affiliates

2,641

2,582

22,379Deferred tax assets (Note 8)

1,560

886

13,221Other investments

4,257

4,151

36,068

Total current assets

Investments and long-term receivables:

Allowance for doubtful accounts

(201)

(111)

(1,703)

28,23730,687239,199

Land (Note 12)

14,064

13,745

119,135

Buildings and structures

38,16436,059323,292

Machinery and equipment

32,67825,005

276,822

Construction in progress

9,840

2,115

83,356

Other facilities

10,733

10,231

90,923

Total

105,481

87,155893,531

Accumulated depreciation(38,192)(33,163)(323,531)

67,28853,991569,999

2,607

2,863

22,088¥235,137¥212,774$1,991,848

Total investments and long-term receivables

Property, plant and equipment, at cost:

Property, plant and equipment, net

Intangible assets
Total assets
The accompanying notes are an integral part of these statements.

28

Kurita Annual Report 2007

Thousands of U.S.
dollars (Note 1)

Millions of yen

Liabilities and Net Assets

2007

2007

2006

Current liabilities:
Short-term borrowings and current portion of long-term borrowings (Note 7)

¥

333

¥

320

$

2,820

Notes and accounts payable, trade (Note 4)

34,75230,411

294,389

Accounts payable, other

12,157

11,651

102,983

Income taxes payable

7,498

4,376

63,521

Advances received

4,920

2,055

41,680Accrued employees’ bonuses

2,327

2,362

19,718

Allowance for product warranty

1,230

739

10,421Other current liabilities

2,276

2,960

19,28365,49654,877554,819

96

180

813

8,392

8,261

71,095

696

488

5,899

1,526

1,526

12,928

729

777

6,177

11,440

11,233

96,91376,937

66,111

651,733

Total current liabilities
Long-term liabilities:
Long-term borrowings (Note 7)
Accrued employees’ retirement benefits (Note 9)
Accrued retirement benefits for directors and corporate auditors
Deferred tax liabilities on revaluation of land (Note 12)
Other long-term liabilities (Note 7)
Total long-term liabilities
Total liabilities
Contingent liabilities (Note 16)
Net assets:
Shareholders’ equity (Note 11)
Common stock, 2007 and 2006
Authorized: 531,000,000 shares
Issued: 2007–132,800,256 shares
2006–132,800,256 shares

13,45013,450113,941

Capital surplus

11,426

11,426

96,796

Retained earnings

133,446

122,350

1,130,422

2006–4,127,639 shares(4,803)(4,793)(40,694)

Total shareholders’ equity

153,519

142,434

1,300,465

Unrealized gains on available-for-sale securities

3,662

3,873

31,028

Unrealized gains (losses) on revaluation of land (Note 12)

(740)

(740)

(6,274)

Treasury stock, at cost
2007–4,131,802 shares

Valuation and translation adjustments

Foreign currency translation adjustments
Total valuation and translation adjustments
Minority interests in consolidated subsidiaries
Total net assets
Total liabilities and net assets

330

(200)

2,799

3,252

2,932

27,553

1,427

1,295

12,095

158,200

146,662

1,340,114¥235,137¥212,774$1,991,848

Kurita Annual Report 2007

29

CONSOLIDATED STATEMENTS OF INCOME
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For years ended March 31, 2007, 2006 and 2005

Thousands of U.S.
dollars (Note 1)

Millions of yen
2007

2006

2005

2007

Net sales (Note 15)¥197,146¥173,683¥160,896$1,670,028

Cost of sales

137,819

122,630

112,077

1,167,470

Gross profit

59,32651,052

48,819502,558

35,05033,741

32,867

296,90924,276

17,311

15,951

205,648

Interest and dividend income

566

451

356

4,797

Interest expenses

(50)

(41)

(38)

(428)

Impairment loss (Note 14)

—

(846)

—

—

Gain on sales of investments in securities

—

1,205

128

—

Equity in earnings of non-consolidated subsidiaries and affiliates

172

266

244

1,462

Loss on sales of properties

—

(150)

—

—

Loss on disposal of properties

(145)

(279)

(477)

(1,231)

Loss on sales and disposal of inventories

(61)

(23)

(90)

(519)

Surcharges and penalties

(488)

—

—

(4,141)Other, net

322

306

301

2,728

315

889

425

2,669

24,591

18,20016,376208,318

Current

11,131

7,395

6,603

94,295

Deferred(1,061)100

234(8,989)10,070

7,496

6,838

85,306

Selling, general and administrative expenses (Note 13)
Operating income (Note 15)
Other income (expenses):

Income before income taxes and minority interests
Income taxes:

Minority interests in earnings of consolidated subsidiaries
Net income

314

184

154

2,660

¥ 14,207¥ 10,519¥ 9,383$ 120,351

2007

2006

2005

¥110.42¥81.76¥71.76

$0.93

28.00

22.00

18.00

0.23

Yen

U.S. dollars (Note 1)
2007

Per share of common stock:
Net income
Cash dividends applicable to the year
The accompanying notes are an integral part of these statements.

30

Kurita Annual Report 2007

CONSOLIDATED STATEMENTS OF C HANGES IN NET ASSETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For years ended March 31, 2007, 2006 and 2005

Shareholders’ equity (Note 11)

Commonstock

Capitalsurplus

Balance as of March 31, 2004
¥13,450 ¥11,398
Changes during the year
Cash dividends paid
Bonuses to directors and corporate auditors
Net increase in retained earnings due to change
in scope of equity method application
Contribution to employees’ incentive and welfare fundNet income for the year
Disposal of treasury stock
11
Net changes of net assets other than shareholders’ equity
Total changes during the year—
11
Balance as of March 31, 2005
13,450 11,409
Changes during the year
Cash dividends paid
Bonuses to directors and corporate auditors
Net decrease in retained earnings due to change
in scope of equity method application
Reversal of Unrealized (losses) gains on revaluation of land
Contribution to employees’ incentive and welfare fundNet income for the year
Acquisition of treasury stock17
Net changes of net assets other than shareholders’ equity
Total changes during the year—
17
Balance as of March 31, 2006
13,450 11,426
Changes during the year
Cash dividends paid
Bonuses to directors and corporate auditors
Contribution to employees’ incentive and welfare fundNet income for the year
Acquisition of treasury stock
Net changes of net assets other than shareholders’ equity
Total changes during the year——
Balance as of March 31, 2007
¥13,450 ¥11,426

Retainedearnings

Treasurystock¥108,180 ¥(4,890)

Capitalsurplus¥128,138¥1,625¥(257)¥(829)¥538

Total net
assets¥1,031 ¥129,708(2,185)(148)(2,185)(148)(2,185)
(148)

93
(4)
9,383
59

93
(4)
9,383
71

59
(4,830)7,209
135,348

93
(4)
9,383
71
559
7,769
137,477

7,138
115,318

442
442
2,067

—
—
(257)

38
38
(790)

480
480
1,018

79
79
1,110

(2,572)(164)(2,572)(164)(2,572)
(164)

(14)
(724)
(11)
10,519
36

(14)
(724)
(11)
10,51954

36(4,793)

7,086
142,434

(14)
(724)
(11)
10,519
54
2,098
9,185
146,662(10)(3,088)(8)(15)
14,207(10)

7,032
122,350(3,088)(8)(15)
14,207

11,095(10)
11,085¥133,446 ¥(4,803) ¥153,519

Shareholders’ equity (Note 11)

CommonstockMillions of yen
Evaluation and translation adjustments
Unrealized Unrealized
Total
gains on gains (losses) Foreign evaluation Minority
interests
available- on revaluation currency
and
Total
of landtranslation translation
shareholders’ for-salesecurities(Note 12) adjustment adjustments
equityRetainedearnings

Treasury
stock

1,806
1,806
3,873

(210)
(210)
¥3,662

(482)
(482)
(740)

—
—
¥(740)

590
590
(200)

530
530
¥330

1,913
1,913
2,932

184
184
1,295

320
320
¥3,252(3,088)(8)(15)
14,207
(10)
132
452
132
11,538¥1,427 ¥158,200

Thousands of U.S. dollars (Note 1)
Evaluation and translation adjustments
Unrealized Unrealized
Total
gains on gains (losses) Foreign evaluation Minority
interests
available- on revaluation currency
and
Total
of landtranslation translation
shareholders’ for-salesecurities(Note 12) adjustment adjustments
equityTotal net
assets$113,941 $96,796 $1,036,432 $(40,609) $1,206,560 $32,812 $(6,274) $(1,696) $24,840 $10,973 $1,242,375
Balance as of March 31, 2006
Changes during the year
(26,159)(26,159)(26,159)
Cash dividends paid
(73)
(73)
(73)
Bonuses to directors and corporate auditors
(127)
(127)
(127)
Contribution to employees’ incentive and welfare fund120,351
120,351
120,351
Net income for the year
(85)
(85)
(85)
Acquisition of treasury stock(1,783)
0
4,496
2,713
1,121
3,834
Net changes of net assets other than shareholders’ equity
0093,990(85)
93,905 (1,783)
0
4,496
2,713
1,121
97,739Total changes during the year
$113,941 $96,796 $1,130,422 $(40,694) $1,300,465 $31,028 $(6,274) $2,799 $27,553 $12,095 $1,340,114
Balance as of March 31, 2007
The accompanying notes are an integral part of these statements.

Kurita Annual Report 2007

31

CONSOLIDATED STATEMENTS OF CASH FLOWS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For years ended March 31, 2007, 2006 and 2005

Thousands of U.S.
dollars (Note 1)

Millions of yen

I. Cash flows from operating activities:
Income before income taxes and minority interests
Depreciation and amortization (Note 15)
Impairment loss (Note 14)
Increase (decrease) in allowance for employees’ retirement benefits
Gain on sales of investments in securities
Equity in earnings of non-consolidated subsidiaries and affiliates
Interest and dividend income
Interest expense
Payments of bonuses to directors and corporate auditors
Increase (decrease) in accrued employees’ bonus
Increase (decrease) in other allowances, accrual and non-cash items, net
Changes in assets and liabilities:(Increase) decrease in trade receivables(Increase) decrease in inventories
Increase in trade payables
Others, net
Interest and dividends received
Interest paid
Income taxes paid
Others, net
Net cash provided by operating activities
II. Cash flows from investing activities:(Increase) decrease in time deposits, net
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of marketable securities and investment in securities
Proceeds from sales and redemption of marketable securities andinvestments in securities
Others, net
Net cash used in investing activities
III. Cash flows from financing activities:
Increase (decrease) in short-term debt, net
Decrease in long-term debt, net
Cash dividends paid
Cash dividends paid to minority interests in consolidated subsidiaries
Contribution from minority interests in consolidated subsidiaries
Payments for purchase of treasury stock, net
Net cash used in financing activities
IV. Effect of exchange rate changes on cash and cash equivalents
V. Net increase (decrease) in cash and cash equivalents
VI. Cash and cash equivalents at beginning of year (Note 3)
VII. Cash and cash equivalents of newly consolidated subsidiaries,
net of excluded subsidiaries from consolidation
VIII. Cash and cash equivalents at end of year (Note 3)
The accompanying notes are an integral part of these statements.

32

Kurita Annual Report 2007

2007

2006

2005

2007

¥24,591
6,512
—
103
—
(172)
(566)
50
—
(66)
1,294

¥18,200
4,906
846
(447)
(1,205)
(266)
(452)
41
(180)
238
(196)

¥16,376
4,361
—
(463)
(128)
(244)
(356)
38
(138)
—
235

$208,318
55,164—876—(1,462)(4,797)428—(562)
10,966

3,555(3,945)
2,192
1,124
34,673649(45)(8,032)(175)
27,070(4,182)
156
2,314
325
20,096589(43)(6,981)
195
13,856(4,494)(1,375)848(334)
14,323424(36)(6,479)65
8,297

30,117(33,422)
18,5709,525
293,7215,505(387)(68,042)(1,485)229,311(78)(18,846)43(12,349)

9(10,962)817(14,721)(1,924)(5,905)100(13,134)(667)(159,645)
370(104,608)

15,358(581)(16,453)

13,024(486)(12,318)

10,554(361)(10,669)

130,098(4,925)(139,377)

(81)
(192)
(3,086)(88)—(10)(3,458)220(84)(2,572)
(106)
38
(11)
(2,516)(60)(125)(2,185)(42)—(10)(2,422)(687)(1,626)(26,149)
(751)
—
(85)
(29,300)

280
7,438
29,871173(804)
30,36522(4,772)35,1372,377
63,011
253,041

132¥37,442310¥29,871—¥30,365

1,120$317,174

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Kurita Water Industries Ltd. and Consolidated Subsidiaries

1. Basis of presenting consolidated financial statements
Kurita Water Industries Ltd. (the “Company”) and its domestic subsidiaries maintain their books of accountand prepare their financial statements in accordance with accounting principles and practices generally
accepted in Japan, while its foreign subsidiaries maintain their books of account and prepare their financial
statements in conformity with those of the countries of their domicile. Certain accounting principles and practices generally accepted in Japan are different from International Financial Reporting Standards and standards in other countries in certain respects as to application and disclosure requirements. Accordingly, theaccompanying consolidated financial statements are intended for use by those who are informed about
Japanese accounting principles and practices.
The accompanying consolidated financial statements, prepared in accordance with accounting principles
and practices generally accepted in Japan, were filed with the Japanese Ministry of Finance and the Tokyo
Stock Exchange as required by the Securities and Exchange Law of Japan.
Certain reclassifications of accounts and modifications have been made in the accompanying consolidated
financial statements to facilitate understanding by readers outside Japan. These reclassifications and modifications have no effect on net income or shareholders’ equity.
All figures in the consolidated financial statements and notes are stated in millions of Japanese yen bydiscarding fractional amounts of less than ¥1 million. As a result, the totals shown in the consolidated financial statements and notes in yen do not necessarily agree with the sum of the individual amounts.
The translation of yen amounts into U.S. dollar amounts is included solely for the convenience of readersand has been made for 2007, as a matter of arithmetical computation only, at the rate of ¥118.05 to US$1, theprevailing rate on the Tokyo Foreign Exchange Market on March 31, 2007. The translation should not be construed as a representation that yen have been, could have been or could in the future be converted into U.S.
dollars at the above or any other rate.

2. Significant accounting policies
Consolidation(1) Scope of consolidation
The consolidated financial statements include the accounts of the Company and its significant subsidiaries.
For the years ended March 31, 2007 and 2006, 36 and 34 subsidiaries, respectively, were consolidated. All
significant inter-company transactions and balances have been eliminated in consolidation.

Names of principal consolidated subsidiaries: Kuritaz Co., Ltd., Kurita Engineering Co., Ltd., and Kuritec
Service Co. Ltd.
In the year ended March 31, 2007, 2 companies (Kurita Chemicals Tokai Co., Ltd., and Miyoshi Industries
Co., Ltd. which had been accounted for by the equity method until the previous fiscal year) were newly consolidated due to those subsidiaries’ increased significance to the consolidated financial statements of the Company.

Name of principal non-consolidated subsidiary: Kurita Sogo Service Co., Ltd.
Combined assets, net sales, net income and retained earnings of all the non-consolidated subsidiaries in
the aggregate are not significant in terms of the consolidated financial statements.

Kurita Annual Report 200733

(2) Revaluation of assets and liabilities of the consolidated subsidiaries in the
consolidation process
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the
portion attributable to the minority shareholders, are evaluated using the fair value at the time the Company
acquired control of the respective subsidiaries.

(3) Fiscal year of consolidated subsidiaries
The following consolidated subsidiaries’ fiscal year ends December 31:
Kurita (Singapore) Pte. Ltd.
Kurita do Brasil LTDA.
Kurita America Inc.
Kuritec Europe GmbH
Kurita Europe GmbH
Kurita Water (Malaysia) Sdn. Bhd.
Kurita (Taiwan) Co., Ltd.
Kurita-GK Chemical Co. Ltd.
Kurita Water Industries (Dalian) Co., Ltd.
P.T. Kurita Indonesia
Kurita Water Industires (Suzhou) Ltd.
Hansu Technical Service Ltd.
Kuritec Singapore Pte. Ltd.
Kuritec (Shanghai) Co., Ltd.
For these consolidated subsidiaries, the financial statements as of December 31 were used for consolidation purpose. However, material transactions that have occurred during in the period from January 1 toMarch 31 of the following year have been adjusted upon consolidation.

(4) Amortization of goodwill
The goodwill and negative goodwill are amortized using the straight-line method, over practically estimatedeffective years where applicable or otherwise 3 years, except for minor amounts that are charged to incomein the period of acquisition.

Equity method(1) Scope of equity method application
Significant investments in unconsolidated subsidiaries and affiliated companies over which the Company has
the ability to exercise significant influence with regard to operating and financial policies of the investees, areaccounted for by the equity method. For the years ended March 31, 2007 and 2006, 6 and 7 companies,
respectively, were accounted for by the equity method.

Name of principal company applying the equity method: Kurita Sogo Service Co., Ltd.
In the year ended March 31, 2007, one affiliated company, Miyoshi Industries Co., Ltd., was excluded
from the scope of equity method application, as it was included in the scope of consolidation from the fiscal
year ended March 31, 2007.
Land Management Co., Ltd. and other non-consolidated subsidiaries and affiliated companies which are
not accounted for by the equity method were excluded from the scope of the equity method application, due to34

Kurita Annual Report 2007

the minimal impact to net income (equity share) and retained earnings (equity share) of the consolidated
financial statements, and are considered immaterial as a whole.

(2) Fiscal year of companies accounted for by the equity method
Adjustments were made to the financial statements of the companies accounted for by the equity method
whose fiscal year-ends were not identical to the Company.

Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, readily-available bank deposits and short-term investments with an original maturity of three months or less andsubject to a minor risk of fluctuations in value.

Available-for-sale securities
Available-for-sale securities that have available fair values are stated at fair value at the balance sheet date,with resulting unrealized holding gains and losses reported as a separate component of net assets. Availablefor-sale securities with no available fair values are stated at cost computed by the moving-average method.
The cost of sold securities is computed by the moving-average method.

Inventories
Inventories are stated at cost determined by the moving-average method, except for work in process whose
costs are determined by the specific identification method.

Derivatives transactions
When necessary, the Company enters into forward currency contracts to hedge the risk of future foreignexchange rate fluctuations related to monetary obligations denominated in foreign currencies. These are basically conducted within the range of ordinary business transactions denominated in foreign currencies. The
Company believes that the risk of counterparty default is negligible because its forward currency contracts
are conducted with highly creditworthy Japanese banks. In addition, transactions in forward currency contracts are executed and managed by the finance and accounting department on a contract-by-contract basis
after they have been approved by prescribed internal procedures.

Depreciation of property, plant and equipment
Property, plant and equipment are depreciated by the declining-balance method for the Company and its
domestic consolidated subsidiaries, except for buildings (other than building equipment) acquired on and after
April 1, 1998, and ultrapure water supply equipment located at the clients’ sites, for which the straight-line
method is applied. The straight-line method is applied by foreign consolidated subsidiaries.
The estimated useful lives of these assets are as follows:
Buildings and structures 2–65 years
Machinery and equipment 2–13 years

Impairment of long-lived assets
On August 9, 2002, the Business Accounting Council of Japan issued a new accounting standard entitled“Statement of Opinion on the Establishment of Accounting Standards for Impairment of Fixed Assets.”

Kurita Annual Report 200735

Further, on October 31, 2003, the Accounting Standards Board of Japan issued Financial AccountingStandards Implementation Guidance No. 6, “Implementation Guidance on Accounting Standards for
Impairment of Fixed Assets.” Effective from the fiscal year ended March 31, 2006, the Company adopted
these new accounting standards for impairment of fixed assets.
As a result of adopting the new accounting standards, income before income taxes and minority interests
decreased by ¥846 million for the year ended March 31, 2006, compared with what would have been recorded
under the previous accounting method. Accumulated impairment losses are directly deducted from the valuesof the relevant assets in accordance with the revised consolidated financial statement rules.

Accrued employees’ bonuses
The Company and its domestic subsidiaries accrue the amount of employees’ bonuses based on the anticipated bonus payments to employees.

Accrued employees’ retirement benefits
Accrued employees’ retirement benefits are recorded based on the estimated projected benefit obligation andthe fair value of the pension assets at the balance sheet date, except for some of the consolidated subsidiaries
which use the simplified method for computing projected benefit obligations. Actuarial differences are subject
to amortization over a period of 1–2 years from the year when they are incurred.

LeasesFinance leases other than those that are deemed to transfer the ownership of the leased assets to lessees
are accounted for by the same method as that of operating leases.

Consumption taxes
Consumption taxes are accounted for separately from transaction prices and are not reflected in the consolidated statements of income.

Foreign currency translation
Monetary receivables and payables denominated in foreign currency are translated using the spot exchange
rate prevailing at the balance sheet date, and the differences are charged to income as foreign exchange
gains or losses.
Foreign subsidiaries’ assets and liabilities are translated using the spot exchange rate at the balance
sheet date and their income and expenses are translated using the average exchange rate. The translationdifferences are shown as a separate component of net assets.

Presentation of net assets in the consolidated balance sheets
Effective from the fiscal year ended March 31, 2007, the Company adopted “Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (Accounting Standards Board of Japan, ASBJ Statement No.
5, December 9, 2005) and “Implementation Guidance on Accounting Standard for Presentation of Net Assets
in the Balance Sheet” (Accounting Standards Board of Japan, ASBJ Guidance No. 8, December 9, 2005).
The new accounting standard and its implementation guideline require that a balance sheet should be
divided into sections of assets, liabilities and net assets, and that the net assets section of a consolidated balance sheet should be classified into shareholders’ equity and items other than shareholders’ equity. Items

36

Kurita Annual Report 2007

other than shareholders’ equity in a consolidated balance sheet consist of valuation and translation adjustments, stock acquisition rights and minority interests.
The adoption of the new accounting standards does not have any impact on the results of operations.
The accompanying consolidated balance sheet and consolidated statements of changes in net assets forthe fiscal years ended March 31, 2006 and 2005 have been reclassified to conform to the requirement of the
new accounting standards described above.

Appropriation of retained earnings
The accompanying consolidated statements of changes in net assets reflect the appropriations of retained
earnings of the Company in the fiscal year in which the appropriations are approved at the general shareholders’ meeting.

Earnings per share
Earnings per share are computed using the weighted-average number of common shares and dilutive potential common shares outstanding.

Reclassifications
Certain prior year amounts have been reclassified to conform to the presentation for the year ended March
31, 2007. These changes had no impact on previously reported results of operations.

3. Reconciliation between cash and cash equivalents
Reconciliation between the cash and cash equivalents in the consolidated statements of cash flows and theconsolidated balance sheet items is as follows:
Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥37,761¥30,107¥30,679$319,878

(319)

(236)

(313)

(2,704)¥37,442¥29,871¥30,365$317,174

Millions of yen

Thousands of
U.S. dollars

Notes receivable¥1,049$8,892

Notes payable¥ 219$1,863

Cash and time deposits
Time deposits with original maturity of more than three months
Cash and cash equivalents

4. Trade notes with maturity on the balance sheet date
The following amount of trade notes had March 31, 2007 as their maturity date, which fell on a holiday of financial institutions. These trade notes were accounted for as if they had been cleared on their maturity date.

Kurita Annual Report 200737

5. Marketable securities and investment in securities(1) Available-for-sale securities with fair value at March 31, 2007 and 2006,
are summarized as follows:
Millions of yen
At March 31, 2007

Book value exceeding acquisition cost:

Acquisition cost

Book value

Difference¥ 8,995¥15,256¥6,261

StocksBonds:
Corporate bonds

300

301

1

Subtotal

9,295

15,557

6,262

939

854

(85)

National and local government bonds

1,600

1,599

(0)

Corporate bonds

4,049

4,016

(33)

Other

2,199

2,199

(0)

Book value not exceeding acquisition cost:
StocksBonds:

Subtotal
Total

8,788

8,669

(119)

¥18,083¥24,226¥6,143

Millions of yen
At March 31, 2006

Acquisition cost

Book value

Difference¥ 8,869¥15,434¥6,564

National and local government bonds

799

800

0

Corporate bonds

300

301

1

Other

2,999

2,999

0

12,96919,535

6,566

17

15

(1)

National and local government bonds

3,200

3,192

(7)

Corporate bonds

4,579

4,514

(64)

Subtotal

7,797

7,723

(73)

Total

¥20,766¥27,259¥6,492

Book value exceeding acquisition cost:
StocksBonds:

Subtotal
Book value not exceeding acquisition cost:
StocksBonds:

38

Kurita Annual Report 2007

Thousands of U.S. dollars
At March 31, 2007

Acquisition cost

Book value

Difference$ 76,199$129,240$53,040

Corporate bonds

2,541

2,550

9

Subtotal

78,741

131,791

53,049

7,961

7,239

(721)

National and local government bonds

13,554

13,547(7)

Corporate bonds

34,301

34,020

(281)

Other

18,62918,6281

Subtotal

74,44673,435(1,011)

Total$153,187$205,226$52,038

Book value exceeding acquisition cost:
StocksBonds:

Book value not exceeding acquisition cost:
StocksBonds:(2) Available-for-sale securities sold during the years ended March 31, 2007,
2006 and 2005, are summarized as follows:

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥—

¥2,460¥210$—

Total gains on sales

—

1,205

148

—

Total losses on sales

—

—

—

—

Sales amount(3) The schedule of redemption for available-for-sale securities withmaturity at March 31, 2007 and 2006, is summarized as follows:
Millions of yen
March 31, 2007
Within 1 year

Thousands of U.S. dollars
March 31, 2007

March 31, 2006

1 to 5 years

Within 1 year

1 to 5 years

Within 1 year

1 to 5 years

Bonds:
National and local government bonds¥1,599¥—¥2,398¥1,594$13,547$

Corporate bonds

1,894

2,422

763

4,052

16,05020,520

Other
Total

—

2,199

—

2,999

—

18,628—¥5,693¥2,422¥6,162¥5,647$48,226$20,520

Kurita Annual Report 200739

(4) Available-for-sale securities with no available fair value

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥1,580¥2,082¥3,082$13,391

Available-for-sale securities:
Non-public company(excluding over-the-counter bulletin board)

6. Inventories
Inventories at March 31, 2007 and 2006, consist of the following:Thousands of
U.S. dollars

Millions of yen
2007

2006

2007

Finished products¥ 1,509¥1,508$ 12,789

Raw materials

1,166

1,090

9,881

Work in process

9,389

5,471

79,535

Total¥12,065¥8,070$102,205

7. Short-term and long-term borrowings(1) Short-term borrowings and current portion of long-term borrowings
The short-term borrowings and current portion of long-term borrowings at March 31, 2007 and 2006 consistof the following:Thousands of
U.S. dollars

Millions of yen

Short-term borrowings

2007

2006

2007

¥ 239

¥236

$2,025

93

84

795

¥333

¥320

$2,820Current portion of long-term borrowings
Total
The weighted-average annual interest rates of short-term borrowings and current-portion of long-term borrowings for the years ended March 31, 2007 were 6.18% and 5.40%, respectively.

(2) Long-term borrowings
Long-term borrowings at March 31, 2007 and 2006 were summarized as follows:

Thousands of
U.S. dollars

Millions of yen

Loan from banks at weighted-average annual interest rates of:

2007

2006

2007

¥189

¥264

$1,608

2007–5.57%
2006–4.50%
Less: Current portion
Total

40

Kurita Annual Report 2007

(93)

(84)

(795)

¥ 96

¥180

$ 813

The annual maturities of long-term borrowings at March 31, 2007 were as follows:
Millions of yen

Thousands of
U.S. dollars

2009

¥96

$813

2010 and thereafter

—

—

¥96

$813

Year ending March 31

Total(3) Other interest-bearing debts
Other than the short- and long-term borrowings described above, ¥672 million (US$5,695 thousands) and¥740 million of interest-bearing long-term deposits received were included in other long-term liabilities as ofMarch 31, 2007 and 2006, respectively. The weighted-average annual interest rates for such deposits
received for the years ended March 31, 2007 and 2006 were 0.89% and 0.13%, respectively.

8. Income taxes
Significant components of the deferred tax assets and liabilities as of March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars

Millions of yen
2007

2006

2007

Excess provision for accrued employees’ retirement benefits¥3,248¥3,304$27,516

Excess depreciation of property, plant and equipment

1,017

592

8,620

Excess provision for accrued bonuses to employees

954

901

8,084

Unrealized gains on sales of property, plant and equipment

706

423

5,987

Accrued enterprise taxes not deductible

570

289

4,835

Excess provision of allowance for product warranty

490

286

4,153

Impairment loss

348

343

2,951

Excess portion of design expenses

336

291

2,851

Accrued retirement benefits for directors and corporate auditors

273

189

2,320

Loss on revaluation of golf club membership

134

129

1,139

Deferred tax assets:

764

611

6,474

Subtotal

8,846

7,363

74,934

Valuation allowances

(454)

(366)

(3,847)

Total deferred tax assets

8,391

6,996

71,087(2,493)(2,634)(21,126)

Capital gain on properties deferred for tax purposes

(747)

(757)

(6,328)Estimated income taxes pertaining to retained earnings of overseas consolidated subsidiaries

(876)

(546)

(7,422)

Other

Deferred tax liabilities:
Unrealized gain on available-for-sale securities

Total deferred tax liabilities(4,117)(3,939)(34,877)

Deferred tax assets, net¥4,274¥3,057$36,209

Kurita Annual Report 2007

41

9. Retirement benefits and pension plans
The Company and 24 consolidated subsidiaries provide lump-sum retirement benefits or qualified pension
plans as defined benefit pension plans. The Company and 3 domestic consolidated subsidiaries have bothplans, and 6 domestic consolidated subsidiaries have only qualified pension plans.
As in Note 17. Subsequent events, the Company transferred its qualified pension plan to a defined contribution pension plan as of April 1, 2007.

(1) Benefit obligations

Thousands of
U.S. dollars

Millions of yen
2007

2006

2007

Retirement benefit obligation¥(23,704)¥(23,195)$(200,801)

Fair value of pension plan assets

15,363

15,059130,143

Unfunded retirement benefit obligation(8,341)(8,135)(70,657)

(51)

(125)

(437)

¥ (8,392)¥ (8,261)$ (71,095)

Unrecognized actuarial (gain) loss
Accrued employees’ retirement benefits(2) Net periodic benefit costs

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

Service cost

¥1,344¥1,163¥1,109$11,392

Interest cost

535

537

532

4,533

Expected return on plan assets

(85)

(85)

—

(726)

Amortization of actuarial differences

138

(115)

(39)

1,173

31

13

52

268

¥1,964¥1,514¥1,654$16,642

Additional retirement payments
Net periodic benefit cost

Benefit cost incurred for the consolidated subsidiaries which use the simplified method for computing benefit
obligations is included in service cost in the above table.

(3) Assumptions to determine above obligation and cost:
2007

2006

Equal amount over each period

Equal amount over each period

Discount rate

2.5%

2.5%

Expected rate of return on plan assets

0.8%

0.8%

1–2 years

1–2 years

Periodic allocation of projected benefit obligation

Amortization period of actuarial differences

10. Leases(1) The Company and consolidated subsidiaries use certain machinery and equipment and other tangible
fixed assets under lease arrangements. The following pro forma amounts describe the finance leases
which would have been reflected in the consolidated financial statements if leased assets had been capitalized to the finance lease transactions currently accounted for as operating leases:

42

Kurita Annual Report 2007

a) Leased assets (as lessee)

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥1,384¥1,537¥1,572$11,726

Accumulated depreciation

(687)

(924)

(777)

(5,822)Net book value

¥ 696

¥ 612

¥ 794

$ 5,903

Acquisition costs

The amounts of acquisition costs include the interest portion due to immateriality of lease obligations to thenet book value of property, plant and equipment at fiscal year end.
b) Lease obligations (net book value)
Thousands of
U.S. dollars

Millions of yen
2006

2005

2007

Due within one year

2007

¥234

¥224

¥303

$1,989Due over one year

462

388

490

3,914

¥696

¥612

¥794

$5,903Total

The amounts of lease obligations include the interest portion due to immateriality of lease obligations to thenet book value of property, plant and equipment at fiscal year end.
c) Lease payments relating to finance lease transactions accounted for as operating leases
Thousands of
U.S. dollars

Millions of yen
2006

2005

2007

Lease payments

2007

¥284

¥270

¥338

$2,411

Depreciation

284

270

338

2,411

Depreciation of the leased assets is computed by the straight-line method over the lease terms with zero
residual value.

(2) Future lease payments relating to operating lease transactions:Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

Due within one year

¥122

¥146

¥ 78

$1,035Due over one year

164

208

101

1,396

¥287

¥355

¥180

$2,431Total

11. Shareholders’ equity
On May 1, 2006, a new corporate law (the “Corporate Law”) became effective, which reformed and replace
the former Commercial Code with various revisions that is, for the most part, applicable to events or transactions which occur on or after May 1, 2006 and for the fiscal years ended/ending on or after May 1, 2006. The
summary of the Corporate Law that affect financial statements and accounting matters are as follows:

Kurita Annual Report 200743

(1) Distribution to the shareholders
Under the Corporate Law, if companies meet certain criteria, dividends can be paid at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. Semiannual interim
dividends may also be paid once a year upon resolution by the Directors’ meeting if the articles of incorporation of the company so stipulate.
The Corporate Law provides certain limitations on the amounts available for dividends and/or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders,and it is calculated mainly based on capital surplus other than paid-in capital, retained earnings and treasury
stock, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

(2) Increases/decreases and transfer of common stock, reserve and surplus
The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends. However, such appropriation
may not be made if the aggregate amount of legal reserve and additional paid-in capital exceeds 25% of thecommon stock. Under Corporate Law, these legal reserve and additional paid-in capital may be reversed without limitation.
The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts, under certain conditions upon resolution of the shareholders.

(3) Treasury stock and treasury stock acquisition rights
The Corporate Law provides for companies to purchase treasury stock and dispose of such treasury stock byresolution of the Directors’ meetings. The amount of treasury stock purchased cannot exceed the amountavailable for distribution to the shareholders which is determined by specific formula.
The Corporate Law also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are deducted directly from stock acquisition rights
which were previously presented as a liability but now are presented as a separate component of shareholders’ equity in net assets.

12. Unrealized gains on revaluation of land
The Company carried out a revaluation of land for business use in accordance with the Land Revaluation Law(enacted on March 31, 1998). The revaluation difference is stated as “Unrealized gains on revaluation of land”
in the shareholders’ equity account, net of taxes. The tax equivalent is stated as deferred tax assets or liabilities in long-term liabilities.
When any revalued land is sold, the related unrealized gain or loss on revaluation of land is transferred toretained earnings.
Revaluation method: The revaluation of land was computed in accordance with Article Two, Item One of
the Land Revaluation Law Enforcement Order.
Revaluation date: March 31, 2002

44

Kurita Annual Report 2007

13. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended March 31, 2007, 2006 and 2005 consist of
the following:Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

2007

¥12,780¥12,620¥11,850$108,261

Provision for accrued employees’ bonuses

1,242

1,320

1,496

10,522Retirement benefit expenses

1,153

734

894

9,768

Travel expenses

2,527

2,517

2,416

21,411

Research and development expenses

4,421

4,213

4,228

37,450Other

12,925

12,334

11,981

109,494¥35,050¥33,741¥32,867$296,909

Salaries and allowances

Total

14. Impairment loss
The Company categorizes business assets by type of business structures, and leased assets and idle assets
by individual property type. Along with a restructure of the research and development divisions, Kurita
Technology Center, the previous Corporate Research & Development Center (Atsugi-shi, Kanagawa) was
taken over and integrated into Kurita Global Technology Center (Shimotsuga-gun, Tochigi). As a result, Kurita
Technology Center in Atsugi-shi, Kanagawa became an idle asset. Due to substantial declines in the fair market value of land and buildings, book values are written down to the recoverable amount, and such writedowns are recorded as an impairment loss of ¥846 million in the fiscal year ended March 31, 2006, of whichbuildings and structures accounted for ¥522 million, land for ¥297 million and other for ¥27 million.
Recoverable amounts for relevant assets are measured at their net selling price and evaluated in accordance with real estate appraisal standards.

Kurita Annual Report 200745

15. Segment information(1) Business segment information
The business segment information of the Company and its consolidated subsidiaries for the years ended
March 31, 2007, 2006 and 2005, is outlined as follows:
Millions of yen

Year ended March 31, 2007

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total¥56,667¥140,479¥197,146

Elimination or
corporate

Consolidated

I. Sales and operating income
Sales1) Sales to outside customers¥—¥197,146

262

78

340

(340)

—

56,930140,557

197,487(340)

197,146

Operating costs and expenses

48,123125,086

173,209(339)

172,870

Operating income¥ 8,806¥ 15,471¥ 24,278¥(1)¥ 24,276¥37,726¥141,952¥179,679¥55,458¥235,137

Depreciation and amortization

1,648

4,864

6,512

—

6,512

Capital expenditures

1,324

18,23819,563—

19,563Elimination or
corporate

Consolidated

2) Intersegment sales
Total

II. Assets, depreciation, impairment loss and capital expenditures
AssetsMillions of yen

Year ended March 31, 2006

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total¥54,549¥119,133¥173,683

322

573

54,872

119,706

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total

¥

—

¥173,683

895

(895)

—

174,578(895)

173,683

Operating costs and expenses

46,910110,357

157,268

Operating income¥ 7,961¥ 9,349¥ 17,310¥(895)

156,3720¥ 17,311¥46,191¥124,280¥170,471¥42,302¥212,774

1,608

3,298

—

—

4,906

—

4,906

—

846

846

2,018

14,51916,537—

16,537

II. Assets, depreciation, impairment loss and capital expenditures
AssetsDepreciation and amortization
Impairment loss
Capital expenditures

46

Kurita Annual Report 2007

Millions of yen

Year ended March 31, 2005

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total¥50,637¥110,259¥160,896

199

681

881

Elimination or
corporate

Consolidated

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total

¥

—

¥160,896(881)—

50,837110,941

161,778(881)

160,896

Operating costs and expenses

43,403

102,425

145,829(883)

144,945

Operating income¥ 7,433¥ 8,515¥ 15,949¥1¥ 15,951

II. Assets, depreciation, impairment loss and capital expenditures
Assets¥43,433¥108,025¥151,459¥40,969¥192,428

Depreciation and amortization

1,465

2,895

4,361

—

4,361

Capital expenditures

1,322

5,383

6,706

—

6,706

Elimination or
corporate

Consolidated

Thousands of U.S. dollars

Year ended March 31, 2007

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business$480,032$1,189,996

Total

I. Sales and operating income
Sales1) Sales to outside customers$1,670,028$—$1,670,028

2,222

662

2,885

(2,885)—482,254

1,190,658

1,672,913(2,885)

1,670,028

Operating costs and expenses

407,652

1,059,602

1,467,254(2,874)

1,464,379

Operating income$ 74,602$ 131,056$ 205,659$(10)$ 205,648$319,582$1,202,479$1,522,062$469,786$1,991,848

Depreciation and amortization

13,96041,20455,165—55,165

Capital expenditures

11,223

154,500

165,724—

165,724

2) Intersegment sales
Total

II. Assets, depreciation, impairment loss and capital expenditures
Assets

Notes:
1. Principal products and services of each segment are as follows:
Water Treatment Chemicals Business

Boiler water treatment chemicals, cooling water treatment chemicals, wastewater treatment chemicals,
process treatment chemicals, incinerator chemicals, equipment and systems for water treatment chemicals, and customized services, including a steam supply contract and blanket contracts for factories
Water Treatment Facilities Business

For the electronics industry:
Ultrapure water production systems, wastewater reclaim systems, wastewater treatment systems, toolcleaning, operation and maintenance services, and Ultrapure Water Supply BusinessFor general industries:
Pure water production systems, wastewater treatment systems, soil remediation, chemical cleaning, andmaintenance services

Kurita Annual Report 200747

For the public sector:
Sewage treatment facilities, human waste treatment facilities, waterworks facilities, landfill leachate treatment facilities, and operation and maintenance services
2. There were no costs and expenses that cannot be allocated to business segments included in “Eliminationor corporate” for the years ended March 31, 2007 and 2006.
3. Total assets under “Elimination or corporate” include corporate assets, consisting primarily of surplus
funds and long-term investment funds (deposits, marketable securities and investments in securities).
Amounts of such corporate assets as of March 31, 2007 and 2006 were ¥55,585 million (US$470,865 thousand) and ¥42,362 million, respectively.
4. Until the fiscal year ended March 31, 2006, investment securities and long-term investment funds (deposits,marketable securities and investments in securities) held by consolidated subsidiaries had been allocated tothe business segment to which the said subsidiaries belong. Starting from the fiscal year ended March 31,
2007, in order to indicate the fund management efficiency of each business segment more appropriately,such assets were included in “Elimination or corporate”, in the same manner with those assets held by theCompany. Accordingly, assets of Water Treatment Chemicals Business and Water Treatment Facilities
Business decreased by ¥2,878 million (US$24,384 thousand) and ¥8,734 million (US$73,987 thousand),
respectively, and the assets under “Elimination or corporate” increased by ¥11,612 million (US$98,372
thousand), compared with what would have been under the previous accounting method.
5. The impairment loss recorded for the fiscal year ended March 31, 2006 incurred for idle assets and therefore had no impact on each segment.

(2) Geographic segment information
Geographic segment information is not shown since the amounts of net sales and assets in Japan exceeded
90% of the amount of combined net sales for the years ended March 31, 2007, 2006 and 2005, and assets ofall segments as of those dates.

(3) Overseas net sales
Thousands of
U.S. dollars

Millions of yen
For the year ended March 31, 2007

Overseas net sales
Consolidated net sales

Asia

North America

Europe

Other

Total

Total

¥22,635¥3,424¥1,296¥2,171¥ 29,528$ 250,133

—

—

—

—

197,146

1,670,028

11.5%

1.7%

0.7%

1.1%

15.0%

15.0%

¥16,602¥2,340¥1,121¥1,724¥ 21,788

—

—

—

—

173,683

9.6%

1.3%

0.6%

1.0%

12.5%

Percentage of overseas net sales toconsolidated net sales
For the year ended March 31, 2006

Overseas net sales
Consolidated net sales
Percentage of overseas net sales toconsolidated net sales

48

Kurita Annual Report 2007

Notes:1. Countries and regions are classified into segments according to geography and proximity.
2. The major countries or regions classified in each geographic segment are as follows:
Asia: South Korea, China, Taiwan, Singapore, Indonesia, Thailand
North America: United States of America
Europe: Germany
Other: Brazil
3. Overseas net sales refers to sales outside Japan generated by the Company and its consolidated subsidiaries.

16. Contingent liabilities
Guarantees for employees’ indebtedness from bank housing loans at March 31, 2007 and 2006, are as follows:

Thousands of
U.S. dollars

Millions of yen
2007

¥3

2006

2007

¥10

$27

Millions of yen

Thousands of
U.S. dollars¥1,930$16,349——

17. Subsequent events(1) Transition of employees’ retirement benefit plans
As of April 1, 2007, the Company transferred its qualified pension plan to a defined contribution pension plan.
The effect of plan transition on the results of operations of the fiscal year ending March 31, 2008 is expected
to be immaterial.

(2) Appropriation of retained earnings
The following appropriations of retained earnings for the year ended March 31, 2007, were approved at thegeneral meeting of shareholders of the Company held on June 28, 2007.
Cash dividends
Bonuses to directors and corporate auditors

Kurita Annual Report 200749

18. Per share information
Yen

Net assets per share
Earnings per share (EPS)

U.S. dollars

2007

2006

2005

¥1,218.42¥1,129.74¥1,058.90$10.32110.42

81.76

71.76

0.93

Basis of calculation for EPS is as follows:

2007

Thousands of
U.S. dollars

Millions of yen
2007

2006

2005

Net income¥14,207¥10,519¥9,383$120,351

Net income attributable to common stock

14,207

10,5199,229

120,351

128,670,582

128,654,537

128,615,153

128,670,582

Average number of shares

50

Kurita Annual Report 2007

2007

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTSGRANT THORNTON TAIYO ASGAKASAKA DS Bldg. 9F
8-5-26 AKASAKA MINATO-KU TOKYO 107-0052 JAPAN
Tel: 03-5474-0111 Fax: 03-5474-0112

To the Board of Directors ofKurita Water Industries Ltd.

We have audited the accompanying consolidated balance sheets of Kurita Water Industries Ltd. and subsidiaries as ofMarch 31, 2007 and 2006, and the related consolidated statements of income, changes in net assets and cash flows foreach of the three years in period ended March 31, 2007, expressed in Japanese yen. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial 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 bymanagement, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Kurita Water Industries Ltd. and subsidiaries as of March 31, 2007 and 2006, and the consolidated results of their operations and their cash flows for each of the three years in the period ended March 31, 2007, inconformity with accounting principles generally accepted in Japan as described in Note 1 to the consolidated statements.
The consolidated financial statements as of and for the year ended March 31, 2007 have been translated into UnitedStates dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, the consolidated financial statements expressed in Japanese yen have been translated into United States dollars on the basis set
forth in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 28, 2007

Kurita Annual Report 2007

51

NONCONSOLIDATED SUMMARY

Nonconsolidated Balance Sheets, as of March 31, 2007 and 2006
Thousands of U.S.
dollars (Note 1)

Millions of yen
2007

2006

2007

AssetsCurrent assets
Investments and long-term receivables
Property, plant and equipment
Intangible assets
Total assets¥106,382
34,12958,214
1,805
200,531¥100,714
36,27645,247
2,051
184,290$ 901,162
289,107493,134
15,293
1,698,698

Liabilities
Current liabilities
Long-term liabilities
Total liabilities¥ 54,592
9,707
64,299¥ 46,320
9,439
55,760$ 462,449
82,231
544,681

13,45011,426113,299(4,803)
133,372

13,45011,426105,391(4,793)
125,474

113,941
96,796
959,757(40,694)
1,129,800

3,599
(740)
2,858
136,231¥200,531

3,795
(740)
3,054
128,529¥184,290

30,490(6,274)
24,216
1,154,016$1,698,698

Net Assets
Shareholders’ equity
Common stock
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity
Valuation and translation adjustments
Unrealized gains on available-for-sale securities
Unrealized gains (losses) on revaluation of land
Total valuation and translation adjustments
Total net assets
Total liabilities and net assets
Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥118.05 to US$1,
the prevailing rate on the Tokyo foreign exchange market on March 31, 2007.

Nonconsolidated Statements of Income, for the Years Ended March 31, 2007, 2006 and 2005
Thousands of U.S.
dollars (Note 1)

Millions of yen
2007

2006

2005

2007

¥134,759
96,54538,214¥123,403
90,191
33,212¥119,175
85,251
33,924$1,141,544
817,833
323,711

Selling, general and administrative expenses
Operating income

22,96815,24623,255
9,956

23,904
10,020

194,562
129,148

Other income
Other expenses
Income before income taxes

3,488
913
17,8204,319
1,508
12,7672,704
723
12,00229,547
7,739
150,957

6,824¥ 10,996

4,771¥ 7,975

4,633¥ 7,369

Net sales
Cost of sales
Gross profit

Income taxes
Net income
Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥118.05 to US$1,
the prevailing rate on the Tokyo foreign exchange market on March 31, 2007.

52

Kurita Annual Report 2007$

57,80893,148CORPORATE DATA
As of March 31, 2007

Company Name
Address

Kurita Water Industries Ltd.

Kurita Global Technology Center:

4-7, Nishi-Shinjuku 3-chome,
Shinjuku-ku, Tokyo 160-8383, Japan

1-1, Gochoyama, Kawada, Nogi-machi,
Shimotsuga-gun, Tochigi 329-0105
Tel.: 81 (280) 54-1511

Paid-in Capital¥13,450,751,434
Date of Establishment July 13, 1949
Number of Employees 1,519 (parent company)

Branches:

Sapporo, Tohoku, Nagoya, Hiroshima and Kyushu

Overseas Offices

Domestic Offices

Singapore Branch:

30 Joo Koon Road, Singapore 628984
Tel.: 65 (6861) 2622

3,992 (on a consolidated basis)

Taiwan Branch:

Head Office: 4-7, Nishi-Shinjuku 3-chome,

5F-3, No. 295, Section 2, Kuang-Fu Road,(Empire Commercial Bldg.) Hsinchu, Taiwan,
R.O.C.
Tel.: 886 (3) 575-1157

Shinjuku-ku, Tokyo 160-8383
Tel.: 81 (3) 3347-3111
Osaka Branch: 2-22, Kitahama 2-chome,
Chuo-ku, Osaka 541-0041
Tel.: 81 (6) 6228-4800

Major Consolidated Subsidiaries and Affiliated Company
Paid-in
Capital (Millions)

EquityOwnership (%)

Kurita do Brasil LTDA.

R$6.986

100.0

Manufacture & sale of water treatment chemicals

Kurita America Inc.

US$3.0100.0

Sale of water treatment facilities, facility operation and maintenance services

Kurita Europe GmbH

EUR2.301

95.0

Manufacture & sale of water treatment chemicals

Kuritec Europe GmbH

EUR0.959

100.0

Sale of water treatment facilities, facility operation and maintenance services

S$4.0

100.0

Manufacture & sale of water treatment chemicals and water treatment facilities

Kuritec Singapore Pte. Ltd.

S$1.49100.0

Ultrapure water supply for specified customer

Kurita Water (Malaysia) Sdn. Bhd.

RM$0.6

83.3

Sale of water treatment chemicals and water treatment facilities

Company Name

Main Business

OVERSEAS■ North America•South America■ Europe■ AsiaKurita (Singapore) Pte. Ltd.

Kurita Water Industries (Dalian) Co., Ltd.

¥550

90.1

Manufacture & sale of water treatment chemicals

Kuritec (Shanghai) Co., Ltd.

¥30

100.0

Maintenance services and sale of small water treatment facilities

Kurita Water Industries (Suzhou) Ltd.

¥100

100.0

Manufacture & sale of water treatment facilities

Kurita (Taiwan) Co., Ltd.

NT$20

95.0

Manufacture & sale of water treatment chemicals

P.T. Kurita Indonesia

US$2.092.5

Manufacture & sale of water treatment chemicals and water treatment facilities

Kurita-GK Chemical Co., Ltd.

BAHT9260.0

Manufacture & sale of water treatment chemicals

Hansu Ltd.

W2,50033.2

Manufacture & sale of water treatment chemicals

Hansu Technical Service Ltd.

W400

59.4

Sale of water treatment facilities and maintenance services

Kurita Engineering Co., Ltd.

¥160

100.0

Chemical cleaning

Kurita Creation Co., Ltd.

¥160

100.0

Manufacture & sale of household and industrial water purifiers

Kuritaz Co., Ltd.

¥220

100.0

Operation & maintenance of water treatment facilities, soil and groundwater
assessment and remediation

Land Solution Inc.

¥450

51.0

Soil and groundwater contamination assessment and consulting, contaminationrisk-hedging support and post-remediation land usage support

Kuritec Service Co. Ltd.

¥50

100.0

Tool cleaning

DOMESTIC

Kurita Annual Report 2007

53

INVESTOR INFORMATIONAs of March 31, 2007

Stock Exchange Listings

First Section of the Tokyo Stock ExchangeFirst Section of the Osaka Securities Exchange

Common Stock

Authorized: 531,000,000 shares
Issued: 132,800,256 shares(Stock trading unit: 100 shares)

Number of Shareholders

18,440Independent Auditor

Grant Thornton Taiyo ASG
Akasaka Oji Bldg., 8F, 1-22, Akasaka 8-chome, Minato-ku, Tokyo 107-0052, Japan

Transfer Agent

The Chuo Mitsui Trust and Banking Co., Ltd.
33-1, Shiba 3-chome, Minato-ku, Tokyo 105-8574, Japan

Main Shareholders

Distribution of Shares
Shareholdings(Thousands of Shares)

Percentage of
total shares issued (%)

Itochu Corporation

10,268

7.73

Nippon Life Insurance Company

7,284

5.48

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

5,802

4.36

Tokio Marine & Nichido Fire Insurance Co., Ltd.

4,311

3.24

Kurita Water Industries Ltd.

4,131

3.11

Japan Trustee Services Bank, Ltd. (Trust Account)

3,713

2.79

Pictet & Cie (Europe) S.A.

3,117

2.34

The Bank of Tokyo Mitsubishi UFJ, Ltd.

2,936

2.21

The Bank of New York, Treaty Jasdec Account

2,140

1.61

Designated Separately Managed Account. Trustee is
Mitsui Asset Trust and Banking Company, Ltd. (Trust Account 1)

1,883

1.41

54

Kurita Annual Report 2007

4-7, Nishi-Shinjuku 3-chome, Shinjuku-ku, Tokyo 160-8383, Japan
Tel: +81 (3) 3347-3111
URL: http://www.kurita.co.jp/english/

This annual report is printed withsoy ink on recycled paper.

Printed in Japan