KURITA WATER
INDUSTRIESLTD.
ANNUAL REPORT 2001

Kurita in Profile

S

ince its establishment in 1949, Kurita Water Industries Ltd. has provided solutions to meet its
clients’ water treatment needs. Kurita’s cutting-edge technologies have gained the Company recognition as one of the world’s premier water treatment companies. In addition, through its facilities
maintenance, operation, and consulting businesses, Kurita is able to cooperate with its customers in theareas of quality control, safety, and reduction of operating costs.
In recent years, society has undergone changes and the environmental protection needs of our clients
have grown at an accelerating rate. We at Kurita see it as our job to use the wide range of technologies
and know-how we have developed and mastered through our experience in the field of water treatment
to satisfy these needs in an ever-expanding range of environmental fields, including our soil and air
purification operations. Through the integrated management of water and other environmental
resources, our aims are to achieve a high level of customer satisfaction and to benefit society.

Sales Composition by Division

Water Treatment Chemicals Division 29.8%

Water Treatment Facilities Division 70.2%

Contents
Consolidated Financial Highlights ................................................. 1
A Message from the President ...................................................... 2
Review of Operations .................................................................... 4
Consolidated Five-Year Summary ................................................ 7
Financial Review ........................................................................... 8
Consolidated Balance Sheets ....................................................... 10
Consolidated Statements of Income and Retained Earnings ....... 12
Consolidated Statements of Cash Flows ...................................... 13
Notes to Consolidated Financial Statements ................................ 14
Report of Independent Certified Public Accountants.................... 18
Non-Consolidated Summary......................................................... 19
Subsidiaries ................................................................................... 20
Officers/Corporate Data ................................................................ 21

Consolidated Financial Highlights
KURITA WATER INDUSTRIES LTD. FOR THE YEARS ENDED MARCH 31

Thousands of
U.S. Dollars

Millions of Yen
2000

2001

2001

For the years ended March 31:
Net sales
Operating income
Income before income taxes and minority interests
Net income¥130,998
11,203
8,615
4,648¥153,435
15,817
14,727
8,366$1,237,379
127,556
118,766
67,468At year-end:
Total assets
Total shareholders’ equity¥165,297
113,383¥183,175
119,209$1,477,218
961,363

¥35.1
17.0

¥63.2
16.0

$0.51
0.13

Per share of common stock (Yen and U.S. dollars):
Net income
Cash dividends applicable to the year (Non-Consolidated)

Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥124 to US$1.00, the approximate exchange rate prevailing on March 30, 2001.

NET SALESNET INCOME

TOTAL ASSETS(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

15,000200,000

12,000150,000

150,000

9,000
100,000

100,000
6,000

50,000050,000

3,000

’97

’98

’99

’00

’01

0

’97

’98

’99

’00

’01

0

’97

’98

’99

’00

’01

1

1

A Message from the President

Summary of Financial Results:
Consolidated results for the Kurita Group for the fiscal year ended March 31, 2001
were generally positive. Due to favorable results in water treatment facilities, especially for the electronics industry, and rising sales in our maintenance services business, consolidated net sales rose to ¥153,435 million, an increase of 17.1%. Total
orders amounted to ¥154,979 million, an increase of 13.1%. This increase in net sales
resulted in operating profit of ¥15,817 million, a 41.2% increase, and net income of¥8,366 million, an 80% increase, compared to the previous fiscal year.
Main Policies in the Fiscal Year ended March 31, 2001
he fiscal year ended March 31, 2001 was the first year of EV-2 (Evolution 2002), Kurita’s
new three-year medium-term management plan. In line with EV-2’s, “Changing how tosell and what to sell,” we made considerable progress toward the main goals of EV-2,
which include stepping up the pace of new business creation, strengthening our business, andimproving our products.

T

Creation of New Environment-Related Businesses
ne example of the Company’s activities in the area of new environment-related business creation is the continued development and introduction of new technologies inthe soil and groundwater purification business. Through activities such as these, we
are further reinforcing Kurita’s strong ability to respond to a wide variety of customer needs
under a wide variety of conditions.
Regarding the soil purification industry, which is expected to become more open and show
significant growth due to rising real estate sales, in conjunction with the Japan Real Estate
Institute, Kurita has developed a system for determining soil pollution risk. Furthermore, we
are working to set de facto standards and remain the top player in this industry.
Regarding environment-related businesses, another growth industry, we are forming a strategic partnership with H Power Corp., a leading U.S. manufacturer of fuel cells. Also, throughinvestment in H Power, we are aggressively entering the fuel cell industry, which shows
promise as a source of clean energy. Kurita will be the exclusive supplier of water treatment
systems to be used with the household fuel cells marketed nationwide in the United States by
H Power.

O

Improving Operations and Productsn the past year, Kurita has implemented a variety of policies to improve its operations andproducts so as to secure an income base that is less vulnerable to market fluctuations.

I

In the area of water treatment facilities, our efforts to reduce costs through the modularization of ultrapure water production devices have yielded concrete results. Modular devices canbe test run in the plant before assembly on-site at the customer’s facility. This not only cuts22

costs by greatly reducing manufacturing time, italso simplifies quality control, responds to ourcustomers’ needs, and saves floor space.
Improvement of our maintenance services
business is one of our most important objectives. Facilities maintenance and consulting
regarding plant utilities contribute to the efficient and effective operations our clientsdemand. In addition, the maintenance business
continues to show growth year after year andforms a profit base that is less vulnerable to market fluctuations.
In the area of chemicals, Kurita’s ECO-SHUTTLE logistical system for the collection and reuseof returnable containers is rapidly replacing theformer “bag in box” type container system. This
new system responds to the needs of our customers who demand low environmental impact
solutions. In addition, ECO-SHUTTLE contributes to Kurita’s efforts to create lasting partnerships with its customers.
Strengthening the Growth Potential of Kurita’s Businesses
t is expected that the market environment will continue to be difficult, with price wars andthe merger and closure of many of our clients’ plants. However, for Kurita, which seeks toprovide value-added services as an integrated, cutting-edge management company in thefields of water treatment and environment-related businesses, the expanding needs of ourclients for environmental protection and their increasing awareness of total costs present an
opportunity for us to provide new services.
In the area of soil purification, Kurita is forming a new business model for soil handling andis working to become the leading player in this market. In the field of maintenance, rather thanworking to maintain each individual device, we are pursuing the possibilities of a businessmodel in which we perform integrated, facilitywide maintenance for each client.
Regarding manufacturing, in addition to expanding the modularization of ultrapure waterproduction systems, the Company is also working to modularize water purification systems forgeneral use. In addition, Kurita is also promoting “ready-made” standardization of these products to further reduce costs. Our goal is to strengthen our base for growth by introducing newtechnologies and forming new partnerships.

I

July 2001

Takahide Santo, President
33Review of Operations

From Selling Products to Selling Value

Water Treatment
Chemicals

Due to streamlining and the intensification of competition, the overallmarket environment has remained severe. However, demand has
increased for water treatment chemicals for the paper and pulp industries, where demand for woodfree paper for the IT industry has
Returnable Container for Use
with the ECO-SHUTTLE

increased. Demand has also increased for water treatment chemicals
for waste incineration facilities. It is thought that severe market condi-

tions will continue.
Under these conditions, Kurita’s Water Treatment Chemicals Division is in the process ofchanging its business style from simply selling chemicals to focus on long-term, comprehensive
contracts covering consulting and maintenance services and the monitoring of water treatment.
In doing this, the Group is aiming to improve its rate of return. To achieve this goal, the Water
Treatment Chemicals Division must strengthen partnerships with customers so that sales staff
may suggest solutions appropriate to meeting the challenges faced by our customers.
ECO-SHUTTLE
In August 2000, Kurita initiated ECO-SHUTTLE, the first returnable container collection system
for the water treatment industry in Japan. Previously, small-scale consumers would receive
water treatment chemicals in a plastic bag inside a cardboard box and, after the chemicals wereused, the box and bag were disposed of as waste materials. Kurita has developed a returnablecontainer for these chemicals and created a distribution system wherein these containers arecollected and returned. This not only assists our customers by reducing their waste products, italso strengthens Kurita’s partnerships with its clients.

The market environment for water treatment facilities has been

Water Treatment
Facilities

severe, due to a slump in capital investment accompanying the general
slump in the Japanese economy. This is particularly true regarding
sales to private enterprises outside of the electronics industry andsales of publicly run environmental facilities, such as those for proUltrapure Water Production
Systemcessing sewage and human waste, and the maintenance of such facilities. However, capital investment in the electronics industry,

particularly in the semiconductor segment, rose significantly, greatly improving Kurita’s business results related to the electronics industry.
From Special Order to Modular Products
Until recently, Kurita, when supplying ultrapure water production systems, planned each project according to the individual needs of its customers, obtained materials locally, and constructed the systems on-site. However, in recent years, our customers have been demanding
44

less costly systems requiring shorter construction times. This has madeit necessary for Kurita to reevaluate its production methods for such
systems.
As a result of this reevaluation, Kurita has introduced the concept ofmodularized ultrapure water production systems. This includes not
only the standardization of blueprints, but also the design of modular

Shizuoka Operations Center

unit systems, consisting of ion exchange membranes, ion exchange
resin towers, and pumps. These systems may be constructed at Kurita’s plant within the
Shizuoka Operations Center, flow tested, and then brought on-site to the customer’s facility.
Because the system is manufactured at Kurita’s plant, assembly work on-site is kept to a minimum and a large reduction in cost, compared to the previous system, is achieved. Design of an
extremely compact system has been made possible through this modular production method.
Modularization achieves cost reductions, reduces construction time, saves space, and assists inquality maintenance.
Kurita has implemented a variety of policies in order to achieve modularization. Firstly, the Design Department considered the best placement of modular devices and the Manufacturing Department worked to
improve modular manufacturing technologies and perfect quality control. Through these and other activities, Kurita has completed its modularization plan and, in the future, will expand the range of this project.
BioleaderComprehensive Maintenance Services
Kurita’s Maintenance Group is working to change its business style with regard to the maintenance and service it offers customers in the form of after-sales service for water treatment facilities. Formerly, the Group performed maintenance services on water treatment facilities
delivered by Kurita. Kurita is now in the process of changing to a business style where theGroup performs maintenance services not only on the water treatment facilities in customers’
plants, but also undertakes maintenance and operations management of other utilities, such as
electricity and gas.
In overseas markets, Kurita has assigned operating managers who are on call 24 hours a day
and has built an outsourcing business for operations management and maintenance services ofultrapure water production systems. However, the Group conducts no such business activities
in the Japanese market. This is because, until recently, outsourcing had not been common business practice in Japan.
However, the benefits of outsourcing are becoming more widely
known in Japan and business opportunities in this field are expanding.
Kurita showed positive results for its operations management and maintenance services outsourcing business targeting the electronics industry
in Japan. Kurita plans to aggressively pursue outsourcing business
Wastewater Treatment Facility

opportunities in the future.
55

Soil and Groundwater Remediation

Kurita has long targeted the soil remediation business

Benefits of Kurita’s Partnership with Dowa

as a growth industry and, in 1993, introduced technol-

Mining Co., Ltd.

ogy from GTI, Inc. (currently IT Group, U.S.A.),

In February of 2000, Kurita formed a business partner-

enabling it to enter the soil remediation business.

ship with Dowa Mining Co., Ltd., in the field of soil

Since then, Kurita has used its Water Treatment

remediation, and the two companies have been con-Chemicals Division and Water Treatment Facilities

ducting exchanges of information regarding business

Division customer networks to increase its market

and technology. Both companies are benefiting fromshare and is currently one of the top companies ineach other’s strengths and are conducting several proj-

Japan in this field. In recent years, soil remediation has

ects in the field of remediation.
As a result of this partnership, Kurita participated in

become an important social issue in Japan and many
new players have been entering the

Dowa Mining’s development of remedi-

field. To further expand business activi-

ation technology making use of ironties in this field, Kurita is developing

powder, and both companies are working

new technologies and strengthening its

toward practical application of this tech-partnerships with other companies.

nology. Through these activities, Kurita
aims to increase the number of sites it
is able to remediate, increase its com-

Development of New Remediation
Technologies

Soil Environmental Survey

petitive edge, and expand its business.

Last year, Kurita succeeded in thedevelopment of two new technologies.

New Activities

The first is an in situ chemical oxida-

In December 2000, in conjunction

tion method. This method consists ofwith the Japan Real Estate Institute,

directly injecting an oxidizing agent

Kurita developed a method for deter-

into the soil, followed by analysis andmining latent soil pollution risk due toremediation of the contaminants. Thisgroundbreaking new technology allows

remediated soil is determined, taking

soil that would have previously

into consideration the cost of remedia-

required a year or more for processing to betion. Kurita, along with the Japan Real Estate Instituteprocessed in a few months.

offers this real estate valuing service for polluted land.

The other technology developed last year by Kurita

Kurita, in cooperation with the Development Bankis a remediation technology using micro-organisms.

of Japan, Dowa Mining Co., Ltd., and other compa-

This technology propagates and activates the micro-

nies, has established a new company which conducts

organisms in the soil by providing them with nutri-soil inspection for land where soil contamination

ents, thereby decomposing and purifying the

may have occurred, soil remediation, and sales sup-chlorinated hydrocarbons. This technology allows

port for land.

soil remediation processing to be completed in a
few months.

66contaminants wherein the value ofSoil Remediation Facility

Consolidated Five-Year Summary
KURITA WATER INDUSTRIES LTD. AND SUBSIDIARIESYEARS ENDED MARCH 31, 1997 TO 2001

Millions of Yen
1997

1998

1999

2000

2001

For the year:
Net sales
Cost of sales
Selling, general and administrative expenses
Operating income
Income before income taxes and minority interests
Net income¥171,592
117,170
28,42625,99527,096
12,655¥148,322
104,226
29,07015,025
14,8506,553¥146,754
101,366
30,17915,20915,5807,567¥130,998
88,174
31,619
11,203
8,615
4,648¥153,435
105,587
32,03015,817
14,727
8,366

At year-end:
Current assets
Current liabilities
Working capital
Total shareholders’ equity
Total assets

121,600
59,78861,812
98,482
166,170

114,426
51,287
63,139102,585
161,922

112,576
49,34063,236108,051
165,775

111,017
41,63369,384
113,383
165,297

115,263
51,62563,638119,209
183,175

95.3
16.0

49.4
16.0

57.1
16.0

35.1
17.0

63.2
16.0

Amounts per share of common stock (Yen):
Net income per share
Dividends per share (Non-Consolidated)

7

7

Financial Review

Analysis of Net Income
In the fiscal year ended March 31, 2001, the cost of sales
ratio increased 1.5 percentage points over the previous fiscal year to 68.8%. The main reasons for this were increasing costs due to intensifying competition for orders and anincrease in supplementary and indemnification costs.
The selling, general and administrative (SG&A) expenses
to net sales ratio fell from 24.1% in the previous fiscal year
to 20.9%, due to the fact that although net sales rose
greatly, SG&A expenses rose only 1.3%. R&D expenses,
included in administrative expenses, were ¥4,743 million,
representing 3.1% of net sales, a 0.8 percentage
point reduction compared to the 3.9% posted the previous
fiscal year.
As a result of the above factors, operating income
jumped 41.2% to ¥15,817 million, and the operating
income margin improved 1.7 percentage points, from
8.6% to 10.3%.
Net financial income rose slightly from ¥385 million theprevious fiscal year to ¥466 million. Other net expenses fell
from ¥2,974 million last fiscal year to ¥1,555 million. The
main reason for this reduction was the absence of the¥2,855 million in employees’ prior service cost recognizedin the previous fiscal year under the qualified retirement
pension plan. Factors increasing net expenses include thenew ¥1,162 million amortization of unrecognized effect ofchange in accounting for employees’ severance benefits.
Income before income taxes reached ¥14,727 million,
an increase of 70.9%, and net income reached ¥8,366 million, an increase of 80.0%. Because there was very little
difference in the number of shares issued at the end of the
fiscal year, net income per share for the fiscal year
increased by 80.0% from ¥35.12 to ¥63.22.

RESULTS OF OPERATIONS
Analysis of Net Sales
Consolidated net sales in the fiscal year ended March 31,
2001 rose to ¥153,435 million, an increase of 17.1%, due
to greatly increased sales in the water treatment facilities
business.
Net sales of water treatment chemicals rose to ¥45,709
million, an increase of 0.5%. Sales of boiler treatment
chemicals, cooling water treatment chemicals, and chemicals used in oil refining processes fell due to client streamlining and intensification of price competition. Sales ofchemicals used for paper and pulp processing increased
due to an increasing demand from the IT industry forwoodfree paper. Sales of fixing agents for the heavy metals contained in fly ash for use during waste incinerationand maintenance for water treatment management alsorose. Net orders for this sector rose to ¥46,572 million, an
increase of 3.0%.
Net sales of water treatment facilities rose to ¥107,725
million, an increase of 26.0%. Due to high capital investment by producers of semiconductors and LCD panels formobile telecommunications devices, etc., sales of ultrapure
water production systems for the electronics industry rosesignificantly both in Japan and abroad, and maintenanceand service sales for these facilities also rose. Despite
overall low capital investment by clients, sales of water
purification systems for general use rose slightly due to anincrease in the sale of systems for medical use. Net sales inthe soil purification business showed significant gains partially due to completion of orders and their inclusion insales. Net sales of environmental control facilities rose as aresult of increased orders for water treatment facilities andthe fulfillment of orders received in the previous fiscal year
for sludge concentration and conditioning facilities.
Although orders for environmental control facilities fell,
due to increasing orders for ultrapure water production
systems for the electronics industry and improvement inmaintenance and service business results, net orders forwater treatment facilities rose 18.1%, from ¥91,786 million
in the previous fiscal year to ¥108,406 million.

LIQUIDITY AND FINANCIAL RESOURCES
Analysis of Cash Flows
Cash provided by operating activities totaled ¥5,340 million, a decline of ¥7,680 million compared to last term.
Major factors included increases of ¥16,742 million intrade receivables and ¥5,619 million in trade payables.

ANALYSIS OF INCOME STATEMENTS AS PERCENTAGE OF NET SALESNet sales=100.0
Years ended March 31

1999

2000

2001

Net sales
Cost of sales
SG&A expenses
Operating income
Income before income taxes and minority interests
Net income

100.0
69.1
20.5
10.4
10.6
5.2

100.0
67.3
24.1
8.6
6.6
3.5

100.0
68.8
20.9
10.3
9.6
5.5

8

8

tangible fixed assets rose slightly from ¥2,429 million in
the previous fiscal year to ¥2,596 million.
Cash used in financing activities was ¥2,371 million, adecrease of ¥901 million compared to the previous fiscal
year. Dividend payments of ¥2,117 million accounted formost of the cash outflows in this category.
As a result, cash and cash equivalents at the end of theyear fell from ¥33,240 million the previous fiscal year to¥31,569 million.

This was due to the delivery of large-scale facilities being
concentrated at the end of the year as well as the increasein net sales. Depreciation and amortization fell slightly,
compared to the previous fiscal year, to ¥3,196 million.
Cash used in investing activities was ¥4,750 million, adecrease of ¥3,045 million compared to the previous fiscal
year. The largest use of cash was ¥8,379 million for theacquisition of marketable securities, which was partially
offset by income from the sale of marketable securities
totaling ¥6,351 million. Payments for the purchase of
EFFICIENCY AND RETURN MEASURES
Years ended March 31

1999

2000

2001

Return on equity (%)
Return on assets (%)
Shareholders’ equity ratio (%)
Total assets turnover (times)

7.2
4.6
65.2
0.9

4.2
2.8
68.6
0.8

7.2
4.8
65.1
0.9

combination of the transferred portion of the investment
securities account from securities in current assets asmentioned above and purchases of investment securities.
These two factors accounted for ¥13,580 million of theincrease.
As a result, total assets increased by ¥17,878 million
over the previous fiscal year, to ¥183,175 million.
The return on assets improved by 2.0 percentage points
to 4.8%, reflecting a year-on-year improvement in the total
assets turnover from 0.79 to 0.84, and the 2.0 percentage
point year-on-year improvement in the net income margin,
to 5.5%.
Total shareholders’ equity increased by 5.1% to¥119,209 million. However, due to the increase in total
assets, the shareholders’ equity ratio decreased 3.5 percentage points to 65.1%. As a result, return on equity(ROE) improved 3.0 percentage points to 7.2%.

Analysis of Financial Position
Total current assets increased ¥4,246 million compared tothe previous year, to reach ¥115,263 million. The greatest
factor in this increase was the ¥16,827 million increase innotes and accounts receivable which accompanied theincrease in sales. The largest factors reducing current
assets were the ¥7,407 million reduction in marketablesecurities, most of which was transferred to the investment securities account due to the adoption of new
accounting standards for financial instruments, and the¥5,287 million reduction in cash on hand and in banks.
Current liabilities increased ¥9,992 million to ¥51,625 million, mainly due to a ¥5,958 million increase in trade
payables due to the increase in net sales and a ¥2,975 million increase in income taxes payable due to the increasein net income. As a result, working capital fell ¥5,746 million compared to the previous fiscal year to ¥63,638 million
and the current ratio fell from 2.67 to 2.23.
Fixed assets increased by ¥14,591 million over theprevious fiscal year. This increase was mainly due to a

STOCK PRICE RANGEHigh (¥)
Low (¥)

Apr. ’00

May ’00

June ’00

July ’00

Aug. ’00

Sept. ’00

Oct. ’00

Nov. ’00

Dec. ’00

Jan. ’01

Feb. ’01

Mar. ’01

2,430
1,900

2,540
2,195

2,475
2,180

2,420
1,837

2,230
1,852

2,240
1,957

2,000
1,650

1,920
1,585

1,658
1,386

1,579
1,425

1,513
1,400

1,549
1,300

9

9

Consolidated Balance Sheets
KURITA WATER INDUSTRIES LTD. AND SUBSIDIARIESAT MARCH 31, 2000 AND 2001

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Assets

2000

2001

2001

Current assets:
Cash on hand and in banks
Notes receivable, trade (Note 15)
Accounts receivable, tradeMarketable securities (Note 11)
Inventories
Deferred taxes—current
OthersAllowance for doubtful accounts¥ 33,721
12,12638,444
14,175
10,175
1,626
922
(174)

¥ 28,434
13,82253,575
6,768
10,185
1,729
946
(199)

$ 229,306
111,468
432,056
54,581
82,137
13,944
7,629(1,605)

Total current assets

111,017

115,263929,540

Fixed assets
Property, plant and equipment (Note 13):
Buildings and structures
Machinery, fixtures and vehicles
Land
Construction in progress
Others

14,774
3,778
14,688560
2,411

14,4284,165
14,808341
2,302

116,355
33,589119,419
2,750
18,56536,21336,045

290,685

1,250

1,194

9,629

1,250

1,194

9,629

9,141

22,721

183,234

2,559
924
3,381
(150)

3,137
2,167
2,734
(89)

25,29817,47622,048(718)

15,85630,672

247,355

53,321

67,912547,677

958——¥165,297¥183,175$1,477,218

Total property, plant and equipment
Intangible assets:
OthersTotal intangible assets
Investments and other assets:
Investments in securities (Note 11)
Investments in non-consolidated
subsidiaries and affiliates
Deferred taxes—non-current
OthersAllowance for doubtful accounts
Total investments and other assets
Total fixed assets
Foreign currency translation adjustment (Note 12)
Total assets
The accompanying notes are an integral part of these statements.

10

10

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Liabilities

2000

2001

2001

¥ 15,516
11,142
283
2,788
2,946
2,927
450
5,578

¥ 20,000
12,616
97
5,763
2,941
2,913
956
6,337

$ 161,290
101,742782
46,47623,71823,492
7,710
51,105

41,63351,625416,331

145
6,434
763
2,387

97
10,031961
727

782
80,8957,750
5,863

Total long-term liabilities

9,730

11,81895,306

Total liabilities

51,36363,444

511,645

550

522

4,210

13,450
11,39889,340——(806)

13,450
11,39895,444
493
(775)
(801)

108,468
91,919769,710
3,976(6,250)(6,460)113,383

119,209961,363¥165,297¥183,175$1,477,218

Current liabilities:
Notes payable, trade (Note 15)
Accounts payable, trade
Short-term borrowings
Income taxes payable
Advance received
Accrued employees’ bonuses
Accrued product warranty
OthersTotal current liabilities
Long-term liabilities:
Long-term borrowings
Accrued employees’ retirement benefits (Note 10)
Accrued directors’ retirement benefits
OthersMinority interests in consolidated subsidiaries

Shareholders’ equity:
Common stock
Capital surplus
Retained earnings
Unrealized holding gains on other securities
Foreign currency translation adjustment (Note 12)
Cost of treasury stock
Total shareholders’ equity

Total liabilities, minority interests and shareholders’ equity

1111

Consolidated Statements of Income and Retained Earnings
KURITA WATER INDUSTRIES LTD. AND SUBSIDIARIESFOR THE YEARS ENDED MARCH 31, 2000 AND 2001

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2000

2001

2001

¥130,998
88,174¥153,435
105,587$1,237,379
851,508

Gross profit
Selling, general and administrative expenses (Note 16)

42,82331,61947,84732,030385,863
258,306

Operating income
Non-operating income
Non-operating expenses

11,2031,036
365

15,817
1,605
281

127,556
12,944
2,266

Ordinary income

11,875

17,140138,226

—
69

449
—

3,621
—

136
250
36
2,855

223
407
504
—

1,798
3,282
4,065
—

—
50

1,162
563

9,371
4,540

8,615

14,727

118,766

5,061(1,162)
68

8,058(1,716)
19

64,984(13,839)
153

4,648

8,366

67,46884,006977

89,340—720,484
—

188
1,907

—
—

—
—

2,253
134

2,117
145

17,073
1,169¥89,340¥ 95,444$ 769,710

Net sales
Cost of sales

Extraordinary gain
Gain on sale of investment securities
OthersExtraordinary losses
Loss on disposal of fixed assets
Loss on sale of investment securities
Write-down of loss on investment securities
Prior service costs of qualified pension plan
Amortization of unrecognized effect of change in accounting
for employees’ severance benefits
OthersIncome before income taxes
Corporate, inhabitants’ and enterprise taxes
Income taxes—deferred
Minority interests in earnings of consolidated subsidiaries
Net income
Retained earnings at the beginning of the period
Prior years’ deferred tax recognized currently
Addition:
Effect of increases in consolidated subsidiaries
Effect of increase in equity-method affiliates
Appropriations:
Cash dividends
Bonuses to directors and statutory auditors
Retained earnings at the end of the period
The accompanying notes are an integral part of these statements.

1212

Consolidated Statements of Cash Flows
KURITA WATER INDUSTRIES LTD. AND SUBSIDIARIESFOR THE YEARS ENDED MARCH 31, 2000 AND 2001

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2000

2001

2001

I. Cash flows from operating activities
Income before income taxes
Depreciation and amortization
Increase (decrease) in allowances and accruals
Decrease (increase) in trade receivables
Increase (decrease) in trade payables
Payments of bonuses to directors
Others¥ 8,615
3,425(970)
13,032(6,237)
(131)
1,322

¥14,727
3,196
4,249(16,742)
5,619
(146)
(1,098)$118,766
25,77434,266(135,016)
45,315(1,177)(8,855)Interest and dividends received
Interest paid
Corporate and other income taxes paid
Others

19,056472(60)(6,506)
59

9,805
453
(38)
(5,085)
206

79,0733,653(306)(41,008)
1,661

13,0205,340

43,065(2,429)218(9,266)
4,480(1,413)614(2,596)116(8,379)
6,351
(929)
686

(20,935)
935(67,573)
51,218(7,492)
5,532(7,795)(4,750)(38,306)(1,032)194(189)(2,215)
(29)

(140)
319
(407)
(2,117)(26)(1,129)2,573(3,282)(17,073)(210)(3,272)(2,371)(19,121)

IV. Effect of exchange rate changes on cash and cash equivalents

(119)

58

468

V. Net increase (decrease) in cash and cash equivalents
VI. Cash and cash equivalents at beginning of year
VII. Cash and cash equivalents of newly consolidated subsidiaries

1,833
31,035371(1,723)33,24052(13,895)
268,065
419

VIII. Cash and cash equivalents at end of year

¥33,240¥31,569$254,589

Net cash provided by operating activities
II. Cash flows from investing activities
Payments for purchase of tangible fixed assets
Proceeds from sales of tangible fixed assets
Payments for purchase of marketable securities
Proceeds from sales of marketable securities
Other payments
Other revenues
Net cash used in investing activities
III. Cash flows from financing activities
Decrease in short-term debt, net
Proceeds from long-term debt
Repayments of long-term debt
Cash dividends paid
Other
Net cash used in financing activities

The accompanying notes are an integral part of these statements.

13

13

Notes to Consolidated Financial Statements

1. Basis of Presenting
Consolidated Financial
Statements

All figures in the financial statements and notes are stated in millions of yen by discarding fractional amounts of less than ¥1 million. As a result, the totals shown in the 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 convenienceand has been made for 2001, as a matter of arithmetical computation only, at the rate of ¥124
to US$1, the prevailing rate on the Tokyo foreign exchange market on March 30, 2001. 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. Scope of consolidation(1) Number of consolidated subsidiaries: 26
Name of principal consolidated subsidiaries: Kurita Chemicals Ltd., Kurita Kasei Co., Ltd., Kurita
Engineering Co., Ltd., and Kuritaz Co., Ltd.
The consolidated financial statements have included Kurita Chemical Sanyo Co., Ltd. after
having been newly established and Kuritec (Taiwan) Co., Ltd. from the year ended March 31,
2001 due to its growing significance (changed from the equity method).
Merger between two subsidiaries has reduced the number of the consolidated subsidiaries byone.
(2) Name of principal non-consolidated subsidiary: Kurita Sogo Service Co., Ltd.
All the non-consolidated subsidiaries whose combined assets, net sales, net income, andretained earnings in the aggregate are not significant in terms of the consolidated financial
statements.

3. Application of equity
method(1) Number of companies to which the equity method is applied: 5Name of principal investee: Kurita Sogo Service Co., Ltd.
Change from the equity method due to the consolidation has reduced the number of equitymethod companies by one.
(2) Affiliates to which no equity method has been applied had no material effect on consolidated net income and consolidated retained earnings in the aggregate. Hence, they have not been
included in the application scope of the equity method.

4. Business terms of consolidated subsidiaries

The fiscal year of Kurita (Singapore) Pte. Ltd. and eleven other overseas consolidated subsidiaries ended December 31, 2000. The accompanying consolidated financial statements
include the accounts of these subsidiaries as of December 31, 2000 and for the year thenended.

5. Significant Accounting
Policies(1) Valuation basis and method
Marketable securities
Held-to-maturity debt securities: Amortized cost (straight-line amortization)
Other securities
Items that have market price:
Evaluated at market price at the balance sheet date, withresulting unrealized holding gains and losses reported asa separate component of shareholders’ equity (cost ofsold securities are computed by the moving averagemethod)Items that have no market price: Cost basis by the moving average method
Inventories
Principally Cost basis by the moving average method (except for work in process whose
costs are determined by the specific identification method)14

14

(2) Depreciation method of property, plant and equipment
Declining-balance method for the Company and domestic consolidated subsidiaries(except for buildings, not including auxiliary facilities, acquired on and after April 1, 1999, forwhich straight-line method is applied) and straight-line method for overseas consolidated
subsidiaries(3) Allowances and accruals
Accrued employees’ bonus:
The Company and its domestic consolidated subsidiaries provide for an amount equivalent to the anticipated bonus payments to employees.
Accrued employees’ retirement benefits:
Accrued employees’ retirement benefits are recorded based on the estimated projected
benefit obligation and fair value of the pension assets at the balance sheet date. Unrecognized
net obligation at transition in the amount of ¥3,480 million is recognized over three years.
Actuarial gains and losses are amortized over one to two years.
(4) Leases
Finance leases other than those that are deemed to transfer the ownership of the leased
assets to leasees are accounted for by the same method as that of operating leases.
(5) Consumption tax
Consumption taxes are accounted for separately from transaction prices.
6. Revaluation of assets
and liabilities of the consolidated subsidiaries
in consolidation
process

Full fair value method

7. Amortization of consolidated differences

Differences between acquisition cost and the underlying net equity at the time of acquisition
are amortized over three years, or charged or credited to income at the date of acquisition,
if minor.

8. Appropriation ofretained earnings

The accompanying consolidated statements of income and retained earnings reflect the appropriations of retained earnings of the Company and its consolidated subsidiaries in the year inwhich the annual shareholders meet and approve the appropriations.

9. Scope of cash andcash equivalents

Cash and cash equivalents in the consolidated statement of cash flows are composed of cashon hand, bank deposits withdrawable on demand and short-term investments with an original
maturity of three months or less and subject to a minor risk of fluctuations in value.

10. Accounting for employees’ severance
and retirement benefits

Effective April 1, 2000, the Company adopted the new Japanese financial accounting standard
for employees’ severance or retirement benefits which was issued by the Business Accounting
Deliberation Council on January 22, 1998.
Due to this adoption, pension cost and extraordinary losses were increased by ¥1,000 millionand ¥1,162 million, respectively, and operating expenses and inventories were decreased by¥130 million and ¥31 million, respectively, which resulted in an increase in ordinary income of¥130 million and decrease in income before income taxes of ¥1,031 million compared with theprevious accounting policies.
Payables on prior service costs concerning the qualified pension plan as of March 31, 2001
were included in “Accrued employees’ retirement benefits.”

15

15

11. Accounting for financial instruments

Effective April 1, 2000 the Company adopted the new Japanese financial accounting standard
for financial instruments which was issued by the Business Accounting Deliberation Council on
January 22, 1999.
As a result of this adoption, ordinary income was increased by ¥19 million and income before
income taxes was decreased by ¥841 million compared with the previous accounting policies.
Pursuant to the new standard, the Company changed classification of marketable and investments in securities as of April 1, 2000, under which the held-to-maturity debt securities and thedebt securities due within one year, which were included in other securities, were presented in“Marketable securities” under current assets, while all the remaining securities were presented
in “Investments in securities.”
As a result of this reclassification, marketable securities were decreased by ¥11,651 million
and investments in securities were increased by the same amount as of March 31, 2001
compared with the previous presentation.

12. Foreign currencytranslation

Effective April 1, 2000, the Company adopted the revised Japanese financial accounting standard for foreign currency transactions and translation which was issued by the BusinessAccounting Deliberation Council on October 22, 1999. The effect of this adoption on net
income was not material.
“Foreign currency translation adjustment,” which was hitherto recorded under assets, wasrecorded under shareholders’ equity and partially included in minority interests in consolidated
subsidiaries.

13. Accumulated depreciation of tangible
fixed assets

Millions of yen

14. Guarantee ofindebtedness

2001¥25,059¥27,311

Millions of yen
2000

2001

¥304

¥197

15. Notes payable
and receivable

Trade notes receivable of ¥1,788 million and trade notes payable of ¥4,905 million, whosematurity dates fell on March 31, 2001, a non-working day for financial institutions in Japan,
have been treated as if they had been settled on that date.

16. Research anddevelopment
expenses

Research and development expenses included in selling, general and administrative expenses:
Millions of yen

16

16

2000

2000

2001

¥5,164¥4,743

17. Reconciliation
between cash andcash equivalents

Reconciliation between the cash and cash equivalents in the consolidated statement of cash
flows and the consolidated balance sheet items is as follows:
Millions of yen

Cash and bank deposits
Time deposits having original maturity of more than three months
Cash equivalents included in marketable securities
Cash and cash equivalents

18. Segment Information

2000

2001

¥33,721(481)—¥33,240¥28,434(368)
3,503¥31,569

The business segment information of the Company and its consolidated subsidiaries for theyears ended March 31, 2000 and 2001 is outlined as follows:
Millions of yen
Year ended March 31, 2000

Chemicals
division

Facilities
division

Total

Eliminationor corporate

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total
Operating costs and expenses
Operating income¥45,486
268
45,75539,462¥ 6,292¥85,511411
85,92381,050¥ 4,873¥130,998
680
131,678
120,512¥ 11,166

¥

—
(680)
(680)
(718)
37

¥130,998—
130,998
119,794¥ 11,203

II. Assets, depreciation and capital expenditures
Assets¥30,491
Depreciation and amortization
1,226
Capital expenditures
866¥85,522
2,327
1,691

¥116,014
3,553
2,558

¥49,283——¥165,297
3,553
2,558

Year ended March 31, 2001

Chemicals
division

Facilities
division

I. Sales and operating income
Sales1) Sales to outside customers¥45,709 ¥107,725¥153,435

2) Intersegment sales
Total
Operating costs and expenses
Operating income

312
131
46,022 107,856
39,39998,661¥ 6,623 ¥ 9,195

444
153,879
138,060¥ 15,819¥128,397
3,268
3,079

¥

Consolidated

Millions of yen

II. Assets, depreciation and capital expenditures
Assets¥34,080
Depreciation and amortization
1,108
Capital expenditures
1,339¥94,317
2,160
1,740

Total

Eliminationor corporate

Consolidated¥—¥153,435

¥

(444)
(444)
(442)
(2)

—
153,435
137,617¥ 15,817¥54,777——¥183,175
3,268
3,079

17

17

Report of Independent Certified Public Accountants

To the Board of Directors
Kurita Water Industries Ltd.

We have examined the consolidated balance sheets of Kurita Water Industries Ltd. as of March 31, 2001 and 2000, therelated consolidated statements of income and retained earnings and cash flows for the years then ended, expressed inJapanese yen.
Our examinations were made in accordance with generally accepted auditing standards in Japan and, accordingly,
included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances.
In our opinion, the aforementioned consolidated financial statements present fairly the financial position of Kurita Water
Industries Ltd. as of March 31, 2001 and 2000, and the consolidated results of its operations and cash flows for the years
then ended, in conformity with accounting principles generally accepted in Japan applied on a consistent basis.

Tokyo, Japan
June 28, 2001
TAIYO AUDIT CORPORATION

18

18

Non-Consolidated Summary

Non-Consolidated Balance Sheets, at March 31, 2000 and 2001
Thousands of
U.S. Dollars

Millions of Yen

AssetsCurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets

2000

2001

2001

¥103,557
30,163842
18,196¥107,315
29,485838
32,548$ 865,444
237,7826,758
262,484¥152,758¥170,186$1,372,468

39,547
8,244

50,082
10,059403,887
81,12147,79160,141

485,008

13,451
13,924
77,5920

13,45114,144
81,950500

108,476
114,065
660,887
4,032

104,967

110,045887,460¥152,758¥170,186$1,372,468

Liabilities
Current liabilities
Long-term liabilities
Shareholders’ equity
Common stock
Capital surplus and legal reserve
Retained earnings
Unrealized holding gains on other securities
Total liabilities and shareholders’ equity

Non-Consolidated Statements of Income, for the Years Ended March 31, 2000 and 2001
Thousands of
U.S. Dollars

Millions of Yen

Net sales
Cost of sales

2000

2001

2001

¥107,702
75,065¥129,698
92,986$1,045,952
749,887

32,63736,712

296,065

Gross profit
Selling, general and administrative expenses

24,28824,699199,185

Operating income

8,349

12,01396,879Non-operating income
Non-operating expenses

1,759
3,030

2,259
2,644

18,21821,323

7,078

11,62893,774

2,916

4,858

39,177

Income before income taxes
Corporate, inhabitants’ and enterprise taxes
Net income

¥

4,162

¥

6,770

$

54,59719

19

Subsidiaries

Major Consolidated Subsidiaries and Affiliates
Company NameOVERSEAS SUBSIDIARIESNorth America•South America
Kurita do Brasil Ltda.
Av. Eng. Eusebio Stevaux 1469, CEP 04696, Santo Amaro,
São Paulo, Brazil
Telephone: 55 (11) 246-8388 Facsimile: 55 (11) 246-6365
Kurita America Inc.
Suite 877, Prestonwood Tower, 5151 Belt Line Road,
Dallas, TX 75240, U.S.A.
Telephone: 1 (972) 889-8921 Facsimile: 1 (972) 889-8924
Kurita de Mexico S.A. de C.V.
Calle #1 No. 191, Parque Industrial Jurica, Querétaro,
C.P. 76100, Mexico
Telephone: 52 (42) 185911 Facsimile: 52 (42) 181177
EuropeKurita Europe GmbH
Industriepark Mackenstein, Industriering 43,
D-41751 Viersen, Germany
Telephone: 49 (2162) 95800 Facsimile: 49 (2162) 40159
Kuritec Europe GmbH
Rebenring 11, D-84032 Altdorf, Germany
Telephone: 49 (871) 684277 Facsimile: 49 (871) 35827
Asia
Kurita (Singapore) Pte. Ltd.
30 Joo Koon Rd., Singapore 628984
Telephone: 65-861-2622 Facsimile: 65-861-4768
Kurita Water (Malaysia) Sdn. Bhd.
21 Jalan Brp, 1/3 Bukit Rahman Putra, 47000 Sungei Buloh,
Selangor, Darul Ehsan, Malaysia
Telephone: 60 (3) 6157-3166 Facsimile: 60 (3) 6157-2892
Peremba-Kurita Sdn. Bhd.
15A Jalan Brp, 1/3 Bukit Rahman Putra, 47000 Sungei Buloh,
Selangor, Darul Ehsan, Malaysia
Telephone: 60 (3) 6157-0551 Facsimile: 60 (3) 6157-0562
Kurita Water Industries (Dalian) Co., Ltd.
33-27 Dalian Industrial Park, Dalian Economic & TechnicalDevelopment Zone, Liaoning, People’s Republic of China
Telephone: 86 (411) 761-3520 Facsimile: 86 (411) 761-3435
Kurita (Taiwan) Co., Ltd.
10th Fl.-6, No. 150, Fu Hsing North Rd., Taipei, Taiwan
Telephone: 886 (2) 2717-4464 Facsimile: 886 (2) 2719-0292
Kuritec (Taiwan) Co., Ltd.
No. 7-1 Ta Tung Rd., Hukou Hsiang, Hsinchu, Hsien, Taiwan
Telephone: 886 (3) 598-2523 Facsimile: 886 (3) 598-5597
P.T. Kurita Indonesia
Jl. Jababeka XIIA Kav. V-6, Kawasan Industri Jababeka,
Cikarang-Bekasi 17530, Jawa Barat, Indonesia
Telephone: 62 (21) 893-6245 Facsimile: 62 (21) 893-5158
Kurita-GK Chemical Co., Ltd.
460 Moo 17, Bangphli Industrial Estate, Bangsaothong,Bangsaothong Subdistrict, Samutprakarn 10540, Thailand
Telephone: 66 (2) 315-2300 Facsimile: 66 (2) 315-2301
HANSU Ltd.
8th Fl., Korean Bible Society Bldg., #1365-16
Seocho 2-dong, Seocho-ku, Seoul, Republic of Korea
Telephone: 82 (2) 3473-6491 Facsimile: 82 (2) 581-4166
HANSU Technical Service Ltd.
7th Fl., Sungjin Bldg.,181-2, Jamsilbon-dong,
Songpa-ku, Seoul, Republic of Korea
Telephone: 82 (2) 421-3301 Facsimile: 82 (2) 421-3304
DOMESTIC SUBSIDIARIES
Kurita Chemicals, Ltd.
Kurita Kasei Co., Ltd.
Kurita Engineering Co., Ltd.
Kuritaz Co., Ltd.
Kurita Creation Co., Ltd.
Kurita Kako Corp.

Paid-in Capital(Millions)

EquityOwnership (%)

R$1.6

100.0

Manufacture and Sales of Water Treatment Chemicals

US$3.0100.0

Facility Operation

M.N. PESO8.1

45.0

Manufacture and Sales of Water Treatment Chemicals

DM4.5

80.0

Manufacture and Sales of Water Treatment Chemicals

DM1.8

100.0

Facility Operation

S$4.0

100.0

Manufacture and Sales of Water Treatment Chemicals and Water
Treatment Facilities

M$0.3

100.0

Sales of Water Treatment Chemicals and Water Treatment Facilities

M$1.3

30.0

Sales of Water Treatment Chemicals

¥550

80.0

Manufacture and Sales of Water Treatment Chemicals

NT$20

55.0

Manufacture and Sales of Water Treatment Chemicals

NT$80

60.0

Precision Cleaning

US$2.0

90.0

Manufacture and Sales of Water Treatment Chemicals

BAHT56

60.0

Manufacture and Sales of Water Treatment Chemicals

W2,50033.2

Manufacture and Sales of Water Treatment Chemicals

W568

59.4

Sales of Water Treatment Facilities

¥232
¥450
¥160
¥220
¥160
¥ 80

100.0
100.0
100.0
100.0
100.0
100.0

Manufacture of Water Treatment Chemicals
Manufacture of Water Treatment Chemicals
Chemical Cleaning and Precision Cleaning
Facility Operation
Manufacture and Sales of Purifiers
Manufacture and Sales of Water Treatment Facilities

Business(As of June 30, 2001)

20

20

Officers/Corporate Data

Officers

Corporate Data

President

DOMESTIC OFFICESOVERSEAS OFFICES

Head Office (International Operations)Singapore Branch

4-7, Nishi-Shinjuku 3-chome, Shinjuku-ku,
Tokyo 160-8383
Telephone: 81 (3) 3347-3111
Facsimile: 81 (3) 3344-9328

30 Joo Koon Rd.,
Singapore 628984
Telephone: 65-861-2622
Facsimile: 65-861-4768

Corporate Research & Development Center

Taiwan Representative Office7-1, Wakamiya, Morinosato,
Atsugi, Kanagawa 243-0124
Telephone: 81 (46) 270-2111
Facsimile: 81 (46) 270-2119

4th Fl., 350,
Section 2, Kuang-Fu Rd.,
Hsinchu, Taiwan
Telephone: 886 (3) 573-6251
Facsimile: 886 (3) 573-6243

Takahide Santo
Executive Senior Managing Director
Hiroshi Fujino
Managing Directors
Shinichi Chino
Tohru Kawamura
Tohru Ishizaka
Toyoaki Inoue
Sumio Miyake
Takuo Ishida

Osaka OfficeDirectors
Eiki Uno
Hiroshi Nakamura
Katsuhiko Inoue
Hiroshi Saito
Toshiyuki Hisamatsu
Kazuyoshi Yoshitomi
Yoshio Akamatsu
Statutory Auditors
Mitsunobu Hattori
Masahiko Kurita
Hisashi Nemoto
Takeo Yanagihara

2-22, Kitahama 2-chome,
Chuo-ku, Osaka 541-0041
Telephone: 81 (6) 6228-4811
Facsimile: 81 (6) 6228-4831
Business & Technology Development Center
1-1, Gochoyama, Kawada,
Nogi, Shimotsuga-gun,Tochigi 329-0105
Telephone: 81 (280) 54-1511
Facsimile: 81 (280) 57-2956

Philippines Representative Office
Unit 704A, The Richville Corporate
Tower 1107, Alabang-Zapote Road,
Madrigal Business Park, Ayala Alabang,
Muntinlupa City, Metro Manila,
1780, Philippines
Telephone: 63 (2) 842-7150
Facsimile: 63 (2) 842-7149

PRINCIPAL PRODUCTS

Water Treatment Chemicals
Boiler water treatment chemicals,
Cooling water treatment chemicals,
Flocculant, Process treatment chemicals,
Maintenance services
Water Treatment Facilities
Electronics
Ultrapure water production systems,
Maintenance services,
Precision cleaning
General
Water treatment facilities,
Wastewater treatment facilities,
Soil and groundwater purification,
Chemical cleaning,
Maintenance services
Environment
Sewage treatment facilities,
Human waste treatment facilities,
Seawater desalination facilities, Fountains,
Swimming pools,
Facility operation, Maintenance services(As of June 30, 2001)

21

21

ADDRESS:TELEPHONE:
FACSIMILE:
HOME PAGE:

4-7, Nishi-Shinjuku 3-chome,
Shinjuku-ku, Tokyo 160-8383, Japan(03) 3347-3111(03) 3344-9328
http://www.kurita.co.jp

Printed on recycled paper
Printed in Japan