Kurita Water Industries Ltd. ANNUAL REPORT 2008

URL:http://www.kurita.co.jp/english/

4-7, Nishi-Shinjuku 3-chome, Shinjuku-ku, Tokyo 160-8383, Japan
Tel: 81 (3) 3347-3111

This annual report is printed using soy ink.
Printed in Japan

ANNUAL REPORT 2008
For the Year Ended March 31, 2008

Continuing Innovation for
Sustainable Growth

Profile & Vision
Advancing the Science of Water andEnvironmental Management
Kurita Water Industries Ltd. provides total solutions in the field ofwater and environmental management, under the corporate visionof becoming “an advanced water and environmental managementcompany.” Kurita‘s core business is water treatment and related
products and services, based on which it provides a growing rangeof 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 other high-value-added solutions thatdraw on its unique expertise built up over half a century. Based on
the corporate philosophy, “Study the properties of water, masterthem, 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 managementcompany. Through these endeavors, Kurita aims to contributebroadly to meeting the needs of its customers and society.
CONTENTSCONSOLIDATED FINANCIAL HIGHLIGHTS 1
AN INTERVIEW WITH THE PRESIDENT 2
KURITA AT A GLANCE 6
SPECIAL FEATURE 8
REVIEW OF OPERATIONS
Water Treatment Chemicals Business 10
Water Treatment Facilities Business 12
RESEARCH AND DEVELOPMENT 15
CORPORATE SOCIAL RESPONSIBILITY 16
CORPORATE GOVERNANCE 18
BOARD OF DIRECTORS AND CORPORATE AUDITORS 20
FINANCIAL SECTION 21
CORPORATE DATA 55
INVESTOR INFORMATION 56
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains forward-looking statements regarding forecasts, plans, strategies and business performance in the future. These forward-looking
statements represent judgments made by the Company based on information currently available to it and involve a variety of risks and uncertainties.
Actual results may be materially different from these forward-looking statements. Such risks and uncertainties include (but are not limited to) changes in theeconomic environment, business conditions, market, demand and currency exchange rates.

CONSOLIDATED FINANCIAL HIGHLIGHTS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
Years ended March 31

		Milions of yen

PercentagechangeThousands
U.S. dollars

2008

2007

2008/20072008

For the year:
Net sales
Operating income
Income before income taxes and minority interests
Net income¥204,875
30,46831,27918,297¥197,146
24,276
24,591
14,207

+3.9%
+25.5
+27.2
+28.8

$2,044,865
304,102
312,197
182,631

At year-end:
Total assets
Equity231,498
169,402

235,137
156,772-1.5+8.1

2,310,598
1,690,815

Per share of common stock:		
Net income¥142.21
Cash dividends applicable to the year
32.00

Yen		

U.S. dollars¥110.42		
28.00		

$1.42
0.321

Notes: The U.S. dollar amounts are given solely for convenience at the rate of ¥100.19 to US$1, the prevailing rate on the Tokyo Foreign Exchange Market on March 31, 2008.
Equity represents net assets less minority interests.

Years ended March 31 (¥ Million)

Years ended March 31 (¥ Million)

Years ended March 31 (¥ Million)

Net Sales

OrdersOperating Income

250,000

250,000

35,000200,000

150,000

197,146
146,819

160,896

204,875

173,683

200,000

150,000

171,334

183,910

192,529

208,689

30,00030,46825,000149,735

24,276

100,000

100,000

20,000

0

0

0

2004

2005

2006

2007

2004

2008

2005

2006

2007

2008

13,49015,951

17,311

2004

2005

2006

As of March 31 (¥ Million)

As of March 31 (¥ Million)

Years ended March 31 (¥ Million)

Equity *Total Assets

Net Income per Share

200,000

240,000

150,000

128,676

136,366

145,366

156,772

169,402

183,620

235,137 231,498

142.2
120

192,428110.4
90

100,000

120,000
60

50,00060,000

0

2005

2006

2007

2008

64.6

71.8

81.8

30
0

0

2004

2008

150

212,774
180,000

2007

2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

* Equity represents net assets less minority interests.

KURITA Annual Report 2008

1

An Inte rv iew with the President

As a business that is contributing to society in the fields of “water andthe environment,” we are aiming to break the shackles of old ways ofthinking to become a truly “advanced water and environmental
management company” through the creation of new value.

QA

Now that Kurita has reached the midway point of the medium-term
management plan, Growth 2008 (G-8 plan), please outline theCompany‘s achievements in the year ended March 31, 2008.
The Kurita Group has already achieved the performance targets it had
set for the year ending March 31, 2009 (¥200.0 billion in sales and ¥27.0
billion in operating income) a full year ahead of schedule.

Consolidated results for the year ended March 31, 2008 were the highest on record, as net sales
increased 3.9% from the previous fiscal year to ¥204.9 billion, operating income jumped 25.5%
to ¥30.5 billion, and net income rose 28.8% to ¥18.3 billion. During the year ended March 31,
2009, the final year of the G-8 plan, Kurita is hoping to maintain its
growth with high profitability. The fiscal year under review wasnotable for achievements made in the Ultrapure Water Supply
Business as a result of aggressive efforts to “shift to a service-based
business,” a key measure under the G-8 plan. For example, we
stepped-up capital investment aimed at meeting increased demand
from customers in the electronics industry sector, gaining a significant
increase in sales. Our business in this sector is highly valued andgreatly needed by customers; therefore, we plan to continue topursue further aggressive capital investment in our Ultrapure
Water Supply Business.
Regarding hardware, in the Water Treatment Facilities Business,orders received from the steel, oil refining and petrochemical industries
have been solid. In addition, growth in orders received from domestic
wafer and semiconductor manufacturers contributed to strong sales.
Consequently, the Water Treatment Facilities Business, including service
businesses, experienced a 10% rise in orders received compared withthe previous fiscal year, a 4% increase in sales and a 35% leap in
operating income.

2

In the Water Treatment Chemicals Business, sales from overseas operations rose 26%
compared with the previous fiscal year. Domestic sales in this segment remained steady, withsales of cooling water treatment chemicals and wastewater treatment chemicals increasing. Also
contributing to results were sales of process treatment chemicals for the pulp and paper industry,
which increased significantly, reflecting customers‘ demand for improved productivity. With manycustomer needs still to be met, this area has high potential for growth. Given the high profitabilityof cooling water treatment chemicals and process treatment chemicals, further developing thesebusinesses both at home and abroad is key to the continued growth in the Water Treatment
Chemicals Business.

Q
A

What is the business model for the Ultrapure Water Supply Business, andhow does it benefit customers as well as Kurita?

Years ended March 31 (¥ Billion)

Net Sales

Kurita’s Ultrapure Water Supply Business model offers a variety of
benefits for customers. From equipment installation and retention atcustomer facilities to operation management and maintenance, Kurita
makes it possible for customers to obtain a reliable supply of ultrapure
water as required.

250

200

197.1
56.7

58.6

150

140.5

First of all, customers are in control of their initial investment in water treatment equipment andthus can hold down their cash outflow. Next, because Kurita undertakes all daily operations
management and maintenance, not only do customers benefit from minimized input requirements,
they are able to reduce the expense and time associated with developing and training humanresources for these tasks. Therefore, customer savings are made possible thanks to Kurita's efficient
operations management know-how.
For Kurita, the business risk associated with customer capital investment in the electronics
industry sector has stemmed from market conditions for liquid crystal displays (LCDs) andsemiconductors, specifically, the impact of the “silicon cycles” and “crystal cycles” has had on
performance. To counter this, we adhere to a general principle of entering into 10-year contracts
in this business. This makes it possible to maintain stable long-term income from fees on water
usage, which is relatively unaffected by fluctuations in customer capital investment. Furthermore, byfulfilling various customer needs at the locations of those customers, benefits can be gained fromaccumulating expertise in efficient operations management, customization or standardizationof product specifications.

204.9

146.2

100

50

0

2007

2008

Water Treatment Chemicals Business
Water Treatment Facilities Business

KURITA Annual Report 2008

3

Q
A

How would you describe the planning and management measures
which Kurita intends to implement during the last year of the 		
medium-term management plan (the year ending March 31, 2009)?
Turning to earnings targets, Kurita aims to increase sales 4.0% to¥213.0 billion and operating income 5.0% to ¥32.0 billion. We believethat achieving steady earnings growth is key to meeting investor
expectations.

To this end, for the current fiscal year ¥51.0 billion is being earmarked for capital investment
centering on equipment acquisition for the Ultrapure Water Supply Business. This is in accordancewith measures to accelerate what Kurita refers to as the “shift to a service-based business.”
Although sales in the Ultrapure Water Supply Business are expected to total ¥24.0 billion in thecurrent fiscal year, expanding this business further will be the catalyst for “accelerating Kurita’s shift
to a service-based business.”
Next, expanding business overseas is another key measure of the G-8 plan. Focusing on
increased water treatment chemical sales in the Asian region, we plan to achieve ¥32.5 billion inoverseas sales.
In the Water Treatment Chemicals Buisiness, Kurita is aiming for increased growth. 		
To this end, we are providing solutions and other services, process treatment chemicals for
petrochemical complexes and high-yield chemicals for cooling water treatment while efficiently
allocating the human resources essential for business expansion in all regions Kurita Group
companies serve, including Brazil and Europe. Kurita is focusing particularly on China and theSoutheast Asian region, which are expected to continue to enjoy high economic growth.
Additionally, in the Water Treatment Facilities Business, we expect the need for ultrapure
water production systems to expand based on increased indications overseas that capital
investment in LCDs is recovering.

4

KURITA Annual Report 2008

Q
A

What are the challenges and risks you face while working toward the goalsof the G-8 plan?
There are concerns that customers may begin to cut back on capital
investment and that production levels may wane as the world economy
slows under the influence of rising raw material and energy prices,beginning with the price of crude oil.

However, Kurita is promoting management measures aimed at minimizing the influence of thesechanges in the business environment. Moreover, drawing on our considerable knowledge of ourYears ended March 31 (¥ Billion)
customers’ manufacturing processes, we are working to provide solutions for reducing customers’
Operating Income
environmental burdens and improving production efficiency through energy conservation.
35
By working together with customers to solve problems, Kurita is striving to create opportunities
30.5
within the overall business environment.
30
9.5

25

24.3
8.8

20

Q
A

What is your dividend policy, taking into account sustained earnings
growth?

15

20.9

15.5

10

Based on efforts to maintain stable dividends, capital investments aimed
at further expansion were made in the year ended March 31, 2008, while
dividends were increased for the fourth consecutive fiscal year.

5
0

2007

2008

Water Treatment Chemicals Business
Water Treatment Facilities BusinessSpecifically, the per share dividend was ¥32, up ¥4 from the previous year. An additional ¥2
increase to ¥34 per share is planned for the year ending March 31, 2009. As mentioned earlier, we
are aggressively investing in the Ultrapure Water Supply Business in anticipation of future growth.
Going forward, we will continue to strive to provide stable returns to investors when considering
new investments in promising business opportunities.
As a business that is contributing to society in the fields of “water and the environment,” weare aiming to break the shackles of old ways of thinking to become a truly “advanced water andenvironmental management company” through the creation of new value.
I look forward to the continuing support of shareholders and other stakeholders in Kurita’s
future endeavors.
July 2008

Hiroshi Fujino, President
KURITA Annual Report 2008

5

KU RITA AT A GLANCE+3.5%
year on year
Water Treatment
Chemicals¥58.6

Our main customer industries

billion

Water
Treatment
Facilities(Service)
Semiconductor

LCD

Total Net Sales

Water
Treatment
Facilities(Hardware)billion¥52.8¥204.9billion

+3.9%

¥93.5

-year
4.3%
on yearyear on year

billion+9.7%

year on year

Pulp & Paper

billionSteel

Shift to Stable Service Businesses in Three Years
Sales from Service Businesses
250

Years ended March 31 (¥ Billion)
100
93.5

200

Oil refining &Petrochemical

197.1
173.7

Pharmaceutical

204.9

85.2

80
72.2

58.6

5.7

56.7

150

60

54.5

85.2

93.5

13.1

14.4

10.4
9.6

100

16.8

9.8

12.4

10.4

40

72.2

50

Food & Beverage

Real Estate

20

47.0

55.2

2006

2007

51.9

0
2006

2007

2008

Water Treatment Chemicals
Water Treatment Facilities (Service)
Water Treatment Facilities (Hardware)

KURITA Annual
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Report 2008
2008
KURITA

49.9

52.8

0

66

46.5

Ultrapure Water Supply Business
Tool Cleaning service
Soil Remediation service
Maintenance service, etc.

2008

Kurita has positioned itself for further growth by
expanding its service businesses.
Kurita has expanded the sales of its service businesses, including chemicals, to¥152 billion, more than 70% of net sales, in the fiscal year under review.
Water Treatment Chemicals Business
PRINCIPAL PRODUCTS and SERVICES
� Boiler water treatment chemicals
� Cooling water treatment chemicals
� Wastewater treatment chemicals
� Process treatment chemicals
� Incinerator chemicals
� Equipment and systems for water treatment chemicals
� Customized services

Water Treatment Facilities Business（Hardware）
PRINCIPAL PRODUCTS� Ultrapure water production systems
� Wastewater treatment facilities
� Wastewater reclamation systems
� Deionized water production systems

Water Treatment Facilities Business（Service）
PRINCIPAL SERVICES� Maintenance services
� Ultrapure Water Supply Business� Tool Cleaning service
� Soil Remediation service
� Chemical Cleaning service
� Operations Management and Maintenance services

Percentage of Orders

Percentage of Net Sales

28.3%

28.6%
Orders¥208.7billion

71.7%

Percentage of Operating Income

31.3%
Net sales¥204.9Operating
Income¥30.5 68.7%

billion

71.4%

billionWater Treatment Chemicals Business
Water Treatment Facilities Business(Fiscal year ended March 31, 2008)
KURITA Annual Report 2008

7

SPECIAL FEATURE

What is the
Ultrapure Water
Supply Business?
Overview of the Ultrapure Water Supply Business
Raw
Water

KuritaConstruction (CAPEX)
Ownership (Capitalize)
Operations Management
and Maintenance

Client factory
Pretreatment Facility
Reclaimed
Water

Ultrapure waterproduction system

Supply ofultrapure water

Wastewater reclamation system

Semiconductor/FPD
manufacturing processes

Wastewater

Wastewater
treatment facility

Payment of
fees

ClientPay fees based on volume of water used

88

KURITA Annual
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Report 2008
2008
KURITA

Discharge

The Ultrapure Water Supply Business is a business model uniqueto Kurita. Under this model, customers pay fees in return for theprovision of a reliable supply of ultrapure water.
From construction and installation to operations management
and maintenance, Kurita takes care of every aspect of ultrapure waterproduction.

Ultrapure Water Supply
Business
Years ended March 31 (¥ Billion)

Until recently, the only choice for semiconductor and flat-panel display (FPD) manufacturers
was to purchase ultrapure water production systems from water treatment facilities manufacturers. Once the purchase was made, the customer was burdened with hiring and training staff
knowledgeable in water treatment in addition to all costs associated with operations management and maintenance. But now, through Kurita’s Ultrapure Water Supply Business, customers
are no longer required to either purchase or retain facilities. Not only does Kurita construct theultrapure water production system at the customer site, the Company retains ownership theseunits on the customer’s behalf. In addition, we provide complete operations management
through our 24-hour system in conjunction with meticulous maintenance. Customers simply
purchase the ultrapure water supplied by these facilities. In principle, with 10-year contracts,
Kurita receives fees from customers based on the volume of water used on a monthly basis.
To summarize, Kurita’s Ultrapure Water Supply Business is about selling “water,” not “facilities.”
Because Kurita oversees all aspects of ultrapure water usage, customers are able todevote such management resources as capital and personnel toward their core businesses.
This is the most important benefit for our customers.
Also, because the use of ultrapure water in the manufacturing process has a significant
impact on product yields, it cannot be overstated how much trust customers invest in Kurita toprovide complete management of every aspect of their ultrapure water supply needs. In
addition to possessing a wide variety of cutting-edge ultrapure water technology, Kurita has
accumulated a vast amount of data and know-how related to systems operation management
and maintenance. Moreover, our financial strength is an important element enabling thisbusiness model.

Capital Expenditures
106.4 120

60

47.0
59.4

30

60

39.6
23.8

19.8
15.7

11.9
0

0
2006

2007

2008

2009
Projected
Capital expenditures (Left axis)
Cumulative total of capital
expenditures (Right axis)

Years ended March 31 (¥ Billion)

Sales
24

24.0

16.8
12

9.8
5.7
0

Owing to a wealth of operating data and expertise accumulated on-site, this business isable to efficiently supply ultrapure water with greater stability and develop optimal system
configurations. In addition, Kurita has gained a lot from the trusting customer relationships built
by this business. Most importantly, the stable earnings structure yielded by the Ultrapure Water
Supply Business’ long-term contract system is helping us to establish a solid businessfoundation unaffected by the fluctuations in customer capital investment like the “silicon cycle”
or ”crystal cycle.”

2006

2007

2008

2009
Projected

KURITAAnnual
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KURITACONSOLIDATEDFINANCIAL HIGHLIGHTSREVIEW
OF OPE RATIONS

Water Treatment Chemicals BusinessIn the year ended March 31, 2008, while domestic sales remained virtuallyunchanged, overseas Water Treatment Chemicals Business sales expanded 26%,
raising the ratio of overseas sales to segment sales from 16% to 19% compared with theprevious fiscal year. Owing to improvements in the domestic product mix and increased
overseas revenues, Kurita was able to absorb the impact of raw materials price hikes,
helping to increase operating income and improve the operating income ratio.
Japan
By customer industry, in addition to revenue increases from the steel and electronics industries,
major growth was experienced in sales of process treatment chemicals used in the manufacturing
processes of the pulp and paper industry.
Regarding specific products, we strove to take advantage of strong sales of relatively
profitable cooling water treatment chemicals to almost all customer industries by improving the
product mix.
In the maturing domestic market, by meeting the essential needs of our customers, we canincrease our market share and improve the profitability of products, which is the key to future
income growth.

10

KURITA Annual Report 2008

Years ended March 31 (¥ Billion)

Years ended March 31 (¥ Billion)

Years ended March 31 (¥ Billion)

Orders

Sales

Operating Income

50
40

10

60

60

47.5

52.1

53.9

56.6

59.0
50
40

30

30

20

20

10

10

47.4

50.6

54.5

56.7

58.6
8.8

8
6

7.4

9.5

8.0

6.6

4
2

0

0

2004

2005

2006

2007

2008

0

2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

Overseas
In the Asian region, which accounts for 63% of Water Treatment Chemicals Business overseas sales,
performance was buoyed by market expansion accompanying high economic growth rates during
the year under review. In China, in particular, sales soared 31% over the previous year, especiallyto the pulp and paper and petrochemical industries, and we expect business in this country tocontinue to enjoy sustained growth. Overseas, because production and sales are conducted
locally by Group companies, the influence of fluctuations in exchange rates on performance isimmaterial.
Overseas operations are critical to the ongoing growth of the Kurita Group's Water
Treatment Chemicals Business. In the chemicals business, which is characterized by a marketingstyle that emphasizes close relationships with customers, our enhanced sales network andknowledgeable sales staff play a vital role. Therefore, to ensure ongoing business expansion, 		
we continue to deploy personnel and provide sophisticated training.

KURITA Annual Report 200811

Water Treatment Facilities BusinessIn the year ended March 31, 2008, growth in sales of hardware to the domestic
electronics industry and the Ultrapure Water Supply Business boosted orders
and sales. In addition, concerted efforts to improve profitability in generalindustries operations resulted in a significant improvement in earnings and theoperating income ratio.

12

KURITA Annual Report 2008

Years ended March 31 (¥ Billion)

Years ended March 31 (¥ Billion)

Years ended March 31 (¥ Billion)

Orders

Sales

Operating Income

150

150.0

120

119.2
90

130.0

136.0

25

150

140.5

146.2
20

120

102.2

90

99.4

110.3

15

60

60

10

30

30

5

0

2005

2006

2007

2008

15.5

8.5

6.8

9.3

0

0

2004

20.9

119.1

2004

2005

2006

2007

2008

2004

2005

2006

2007

2008

Domestic Hardware Operations
Orders and sales for ultrapure water production systems for use in the electronics industry
remained favorable. A high level of sales accompanied by increased orders from wafer,semiconductor, electronic component and LCD related-product manufacturers, contributed
significantly to earnings increases.
In general industries operations, Kurita experienced an expansion of orders mainly for
wastewater treatment equipment used in basic material industries such as steel manufacturing,
petroleum refining and petrochemicals. Despite increased orders, sales declined because of therelatively long production lead times of equipment for general industries. However, as a result of
our efforts in recent years to assess project profitability when receiving orders and to enhance
production management, profit margins have improved, contributing to income increases.
In the wastewater treatment field, Kurita is making efforts to provide wastewater recycling
proposals and waste reduction in expectation of greater customer investment directed toward
reducing environmental burdens, for example, through energy and water conservation. We will
also continue to implement measures focusing on profitability.

KURITA Annual Report 200813

Overseas Hardware Operations
In overseas hardware operations, the semiconductor and LCD industries in South Korea and Taiwan
are a mainstay market for ultrapure water production systems. Due to a slump in investment in
LCD production facilities by customers, orders received and sales both decreased slightly.
Uncertainty will likely remain for investment in the semiconductor industry, but orders are
expected to recover, given that we are seeing signs that investment related to LCD production isabout to make a comeback.

Service Businesses
Sales in the Ultrapure Water Supply Business, along with expanding customer needs, rose 		from ¥9.8 billion to ¥16.8 billion, significantly contributing to increases in earnings. Due to themagnitude of potential demand for this business, Kurita expects the Ultrapure Water Supply
Business to play a key role in performance increases. Therefore, we continue to aggressively
invest in this business.
With a focus on responding to increased production capabilities among existing customers,
capital investment in this business totalled ¥19.8 billion during the year ended in March 31, 2008.
Maintenance services have experienced moderate but steady growth in the electronics
industry both in Japan and overseas as have operations related to general industries. With stable
growth expected into the future, Kurita is striving to sustain profitability.
The Tool Cleaning service for cleaning semiconductor and LCD manufacturing equipment
components saw increased sales as customers expanded their production facilities. Kurita expects
steady business expansion to continue, and growth should accelerate with the launch of acustomer’s large-scale LCD complex in the year ending March 31, 2010.
For the Chemical Cleaning service as well, which involves cleaning heat exchangers andboilers at electric power generation stations and factories, increases in sales and earnings areconnected to successful efforts to sustain efficiency.

14

KURITA Annual Report 2008

RESEA RCH AND DE VELOPMENT

Aiming to fulfill its role as an “advanced waterand environmental management company,”
Kurita is conducting research and development
in a wide range of technologies in such fields asenvironmental preservation, water reclamationand productivity enhancement in order to meetthe needs of industry and society.

(1) Water Treatment Chemicals BusinessIn this segment, Kurita focuses on developing not only water treatment chemicals, but also
sensing technology for monitoring and diagnosing processes in order to address such customer
issues as saving energy and resources while bolstering the productivity of their utilities andmanufacturing processes.
Achievements during the year ended March 31, 2008 include the development ofheat-exchanger fouling prevention technology for the petroleum preheating process using
our antifouling chemicals and diagnostic systems. This treatment technology has the effect of
reducing fuel consumption and CO2 emissions at petroleum refining plants. Total research anddevelopment expenses for the year ended March 31, 2008 in this business segment amounted
to ¥1,405 million.

Years ended March 31 (¥ Billion, %)R&D Expenses
5.0

3.0

4.4

(2) Water Treatment Facilities Business
Kurita is developing wastewater reclamation and environmental preservation technologies that
contribute to sustainable development. Along with this are Kurita's continuing efforts to further
upgrade the quality of ultrapure water and develop wastewater treatment and soil remediation
technologies that exceed current environmental regulatory requirements.
Accomplishments for the year ended March 31, 2008 include the development of traceoxidant removal technology for ultrapure water production systems, which further improveultrapure water quality. We also developed reverse osmosis (RO) membrane surface modification
technologies that improve the removal efficiency of organic molecules and inorganic ions fromwater. Total research and development expenses for the year ended March 31, 2008 in thisbusiness segment amounted to ¥3,146 million.

2.2

4.6

2.2

2.5

2.0

0

0

2007

2008

R&D Expenses (Left axis)
Percentage of Net Sales(Right axis)

KURITA
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15
15

CORPORATE SOCIAL RESPONSIBILITY
Kurita’s sense of social responsibility is based 		on the concept of an “advanced water andenvironmental management company.”
Reflecting society’s increasing awareness ofenvironmental issues in recent years, the Kurita Group’s
sense of social responsibility has become greater thanever, prompting us to adopt the corporate vision of being
an “advanced water and environmental managementcompany.” By solving problems related to “water andthe environment” that are common to all people, theKurita Group believes that it can make a contribution tobuilding a sustainable society.
In 1999, the Kurita Group adopted the management
principle of “building transparent and fair relationships
with stakeholders, including shareholders, customers,
employees, local communities and business partners,
by complying with regulations in accordance withethics in all our business activities.” Currently, thismanagement policy serves as a basis for our ongoing
efforts to, among other things, undertake
environmental improvement activities; strengtheninternal control, which includes compliance; upgrade
the corporate governance structure; and disclose
information to shareholders and investors in an
adequate and timely manner.

Kurita takes a three-pronged approach to thepromotion of environmental improvement
activities
In March 2004, Kurita established its Basic
Environmental Improvement Policy. In April 2004, weestablished a three-pronged approach to promote
environmental improvement activities, that comprises(1)“responding to customer needs,” (2) “changing
society” and (3)”changing Kurita.” From April 2006, 		
we have further developed the scope of our environmental
improvement activities at 19 domestic Group companies
and held the Environmental Improvement Activities

16 KURITA Annual Report 2008

Promotion Meeting to lead activities related to thesethree approaches. The Environmental Improvement
Activities Promotion Meeting is responsible for
ensuring the consistent use of the PDCA (plan, do,check, action) cycle in all phases of operations byoverseeing the setting of targets for each Group
company, monitoring progress, reporting on anddiscussing results, and identifying issues to be resolved.
The Kurita Group’s environmental improvement
activities are divided into two main categories. The
first of these comprises the Kurita Group‘s efforts
aimed at “responding to customer needs” and“changing society,” in which we contribute to ourcustomers‘ environmental improvement activities
through our business. The second comprises Kurita‘sefforts to make environmental improvements by“changing Kurita” in which we work to reduce theenvironmental burden at offices and production
facilities in our Group.

Kurita‘s activities contributing to customers’
environmental improvement
From the perspective of “responding to customers’
needs,” Kurita is making efforts to expand the
reduction of CO2 emissions and waste output throughthe unique approach of evaluating “the environmental
benefits to our customers” by using Kurita’s water
treatment chemicals and facilities. From actions taken
during the fiscal year ended March 2008, Kurita
helped in customers‘ environmental improvement
activities that reduced CO2 emissions by 29,000 tons
and waste output by 42,000 tons.
Taking the approach of “changing society,” Kurita
is working hard to develop new technologies andproducts that bring environmental benefits to customers.
To that end, we developed 12 technologies for reducing
environmental burdens.

Environmental improvement activities
within the GroupAs for environmental improvement activities within
the Group, we constantly strive to reduce CO2
emissions and waste output by optimizing ourmanufacturing and logistical systems for water
treatment chemicals and water treatment facilities,
as well as the safe management of chemical
substances. Each domestic group company has set
targets and measures to reduce CO2 emissions andwaste output and is continuously working on
environmental improvement activities towards
achieving each of these targets.

In the year ended March 31, 2008, the amount of
CO2 emissions and waste output increased 0.5% and3.6%, respectively, from the previous fiscal year due tobusiness expansion. However, on a per unit sales basis,
CO2 emissions dropped 3.3% and waste output
decreased 0.3% due to our promoting energy
conservation and redoubling recycling efforts. Detailed
results of our environmental improvement activities
during the year ended March 31, 2008 will bepresented in Kurita’s Environmental Report 2008 to be
published in October 2008.

Overview of Kurita’s Activities to Promote Environmental Sustainability
Kurita’s activities to promote environmental substainability

Products and services

Development of newtechnologies and businesses

In-house activities

Responding to customer needs

Changing society

Changing Kurita

Customers(environmental
issues)Society

Internal
management, including
3R programs

Environmental improvement

Realization of a sustainable society

KURITA Annual Report 2008

17

CORPORATE GO VERNANCE

Basic Stance
Guided by the corporate philosophy “study theproperties of water, master them, and create anenvironment in which nature and man are inharmony,” Kurita and Kurita Group companies pursue
operations in the fields of water and environmental
management with the aim of broadly contributing tosociety while meeting the expectations of shareholders and other stakeholders, including customers,
local communities, business partners and employees.
To effectively realize these objectives, our basic stancewith respect to corporate governance is to establish
systems that enhance corporate value by improving
operating efficiency in the long term and to rigorously
oversee business management and operations.

Composition and Management of
the Board of Directors
Chaired by the president, Kurita’s Board of Directors
presently consists of 13 members, including one
outside director. Board meetings are held basicallyevery month, and extraordinary sessions areconvened when deemed necessary (two suchmeetings were held during the year ended March 31,2008). The Board makes decisions on Kurita and the
Kurita Group's management policies and otherimportant managerial matters, and monitors andaudits the operational execution of representative
directors. As a mechanism to reinforce the Board’s
decision making functions, an authorization system
has been established and is being managed based on
regulations pertaining to approval and review.
To ensure sound decision making based on
objective and diverse viewpoints, one of the membersof the Board is an outside director.

18

KURITA Annual Report 2008

Corporate Auditors andthe Corporate Auditor System
Kurita has adopted the corporate auditor system.
Presently, the Board of Corporate Auditors comprises
three corporate auditors, including two outside
auditors. In addition to conducting audits based on
the policies, schedules and division of responsibilities
determined by the Board of Corporate Auditors, thecorporate auditors monitor and audit the operational
execution of representative directors and the
management performance of directors. Morespecifically, corporate auditors attend meetings of theBoard of Directors and other important company
conferences. Corporate auditors observe and examine
the conditions by which directors make decisions andthe execution of the Board of Directors’ duty tosupervise representative directors. In addition,
corporate auditors survey the asset status for theentire Group, verify the maintenance situation of theBoard’s internal control systems and oversee theaccounting auditors’ independence and performance.
From the standpoint of being objective, twooutside auditors have been entrusted to hold the postof corporate auditor due to their ability to furnish
broad insights based on an abundance of experienceand knowledge in corporate and legal affairs.
In addition, Kurita has contracted Grant Thornton
Taiyo ASG as independent accounting auditors.
Corporate Auditors and the Board of Corporate
Auditors conduct consultations and exchanges of
opinions with accounting auditors on both a regularand as needed basis, reinforcing accounting audit
structures.

Maintaining Internal Control Systems
In order to increase business trustworthiness andoperational efficiency, Kurita is consistently promoting
the structural maintenance of internal control systems.
Regarding the establishment of internal control
systems as required under Japanese corporate law,in May 2006 the Board of Directors established the“Fundamental Policy Regarding the Establishment ofInternal Control Systems” for Kurita and Kurita Group
companies.
In the year under review, a system for internal
control over financial reporting based on the Financial
Instruments and Exchange Act was introduced in April.
The Auditing Department, which reports directly tothe president, monitors, makes corrective proposals forand assists in the operation of this system. The
Auditing Department conducts internal audits,
including within each Group company, pinpoints
issues and problems related to the execution ofbusiness and submits corrective proposals to thepresident. The same accounting auditors who are in
charge of financial reports also audit the Internal
Control Report.
In addition, the following are revisions to theFundamental Policy Regarding the Establishment ofInternal Control Systems:

Regarding compliance structures, as committees
reporting directly to the president, we haveestablished the companywide Compliance Committee
and Group Compliance Committee, the latter of which
comprises the representative directors of all Group
companies in Japan. In order to ensure a high level of
effectiveness in compliance activities, in accordancewith whistleblower protection rules, Kurita maintains
an internal consultation desk while contracting an
outside party to provide a confidential consultation
and reporting function.
To maintain safety and hygiene for employees andat customer locations, Kurita has established a Safety &Hygiene Committee that reports directly to thepresident and subordinate Safety & Hygiene
Committees in various workplaces and manufacturing
departments as well as in the head office, branch
offices and other places of business. From theviewpoint of encompassing all Group companies andsubcontractors, Kurita is striving to prevent accidents
by performing safety-and hygiene-related activities in
the workplace and in all business operations as well as
conducting risk assessments prior to commencing
construction and regular safety patrols afterward. This
Committee is also actively involved in healthmanagement, including the mental health of
employees.

(1) Initiate internal control reporting system operations
in combination with monitoring, and stipulate thedepartment responsible for providing corrective
proposals and assistance.
(2) Maintain risk management structures and stipulate
the department responsible for risk monitoring.
(3) Carry out additional structural maintenance toeliminate anti-social forces.

KURITAAnnual
AnnualReport
Report2008
2008 19
KURITA
19

BOA RD OF DI RECTO RS AND CO RPORATE AUDITO RS

Executive Senior Managing Director*

Senior Managing Director

President*

Takuo Ishida

Kazufumi Moriuchi

Hiroshi Fujino

General Manager of Chemicals Division

General Manager of Facilities Division

Managing Director

Managing Director

Managing Director

Toshiaki Deguchi

Mitsuru Ogawa

Tetsuo Saeki

General Manager of Research andDevelopment Division

General Manager of Administrative
Division

Directors

Corporate Auditors

Kaoru Kajii

Tohru Ishizaka

General Manager of Corporate
Planning Division

General Manager of Production Group, Facilities Division

Toshiyuki Nakai

Chiaki Kuzuu

General Manager of 2nd Plant Group, Facilities Division

Ryouichi Ishigami

Kazuma Yura

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*Representative Director

20
20 KURITAKURITA Annual
Annual Report
Report 20082008

As of June 27, 2008

SIX-YEAR FINANCIAL SUMMARY
Kurita Water Industries Ltd. and Consolidated Subsidiaries
Years ended March 31

Millons of yen

For the year:
Net sales
Water Treatment Chemicals Business
Water Treatment Facilities Business
Cost of sales
Selling, general and administrative expenses
Operating income
Income before income taxes and minority interests
Net income
Capital expenditures
Research and development (R&D) expenses
Depreciation and amortization
At year-end:
Total current assets
Total current liabilities
EquityTotal assets
Number of shares issued outstanding(in thousands of shares)
Number of employees
Amounts per share of common stock (yen):
Net income
EquityCash dividends applicable to the year
Ratios:Total assets turnover (times)
Equity ratio (%)
Return on sales (%)
Return on assets (ROA) (%)
Return on equity (ROE) (%)

2008

2007

2006

2005

2004

2003

¥204,875
58,646146,228
138,549
35,85730,46831,27918,29724,097
4,551
9,425¥197,146
56,667140,479
137,81935,05024,276
24,591
14,207
19,5634,421
6,512¥173,683
54,549119,133
122,630
33,741
17,311
18,20010,51916,5374,213
4,906¥160,896
50,637110,259
112,077
32,867
15,951
16,376
9,383
6,706
4,228
4,361

¥146,819
47,442
99,377
101,433
31,895
13,49014,918
8,444
9,718
4,289
3,872

¥141,628
47,116
94,512
97,846
31,474
12,307
10,263
5,476
6,198
4,484
3,307

121,562
49,080169,402
231,498

137,004
65,496
156,772
235,137

125,23154,877
145,366
212,774

116,400
44,465
136,366
192,428

118,923
42,954
128,676
183,620

107,180
38,643
120,969
173,689

132,800
4,249

132,800
3,992

132,800
3,668

132,800
3,382

132,800
3,383

132,800
3,346

142.2
1,316.7
32.0

110.4
1,218.4
28.0

81.8
1,129.7
22.0

71.8
1,058.9
18.0

64.6
999.7
16.0

40.7
939.8
16.0

0.88
73.2
8.9
7.8
11.2

0.88
66.7
7.2
6.3
9.4

0.86
68.3
6.1
5.2
7.5

0.86
70.9
5.8
5.0
7.1

0.82
70.1
5.8
4.7
6.8

0.82
69.6
3.9
3.2
4.5

Notes: Equity represents net assets less minority interests.
Return on Assets = Net Income ÷ Total Assets (Average) × 100

CONTENTSManagement’s Discussion and Analysis 22
Consolidated Balance Sheets 30
Consolidated Statements of Income 32
Consolidated Statements of Changes in Net Assets 33
Consolidated Statements of Cash Flows 34
NOTES TO Consolidated FINANCIAL STATEMENTS 35
Report of Independent Certified Public Accountants 54

KURITA Annual Report 2008

21

MANAGEMENT’S DISCUSSION AND ANALYSIS
Business Overview

Orders by Segment
Years ended March 31 (¥ Million)

208,689
192,529 149,659
183,910
171,334 130,007 135,969
119,213150,000 149,735
102,218

200,000

100,000

50,000059,02947,51652,12053,90356,560

2004

2005

2006

2007

2008

In the year ended March 31, 2008, the Japanese economy, bolstered by private
sector demand, performed steadily as a result of improved corporate earnings andincreased capital investment. In the second half of the fiscal year, concerns overeconomic trends have been fueled by the negative impact of the U.S. subprime
loan problem as well as rising crude oil and raw material costs.
In the electronics industry sector, against the backdrop of favorable demand
for semiconductor- and LCD-related products, capital investment steadily continued. Experiencing a drop in semiconductor prices overseas, there was a softening
in capital investment in Taiwan. Among general industries in Japan, capacity
utilization levels and capital expenditure have remained firm, centered on thebasic materials producing industries such as steel, oil refining and petrochemicals.
Overseas, capacity utilization levels were strong overall, especially in Asia.
At the mid-point of G-8, the three-year medium-term management plan initiatedin April 2006, the Kurita Group carried out aggressive initiatives for growth andinnovation throughout the entire Group. Kurita successfully recorded all-timehighs in net sales and operating income in the year ended March 31, 2008 andachieved targets for the final year of the G-8 Plan, ending March 31, 2009, a fullyear ahead of schedule.

Water Treatment Facilities Business
Water Treatment Chemicals Business

Operating Results
Sales by Segment
Years ended March 31 (¥ Million)
200,000

200000173,683
160000160,896 119,133
146,819
110,259
150,000
99,377120000100,000

50,0000204,875
197,146
140,479 146,228

80000
40000

47,442

50,63754,54956,66758,646

2006

2007

2008

0

2004

2005

Water Treatment Facilities Business
Water Treatment Chemicals Businessa) Orders
In the Water Treatment Chemicals Business, the Company expanded sales of themainstay boiler water treatment chemicals and cooling water treatment chemicals,
and promoted a proposal-oriented business, responding to such customer issues
as reducing environmental burdens, enhancing operational stability and improving productivity.
In the Water Treatment Facilities Business we endeavored to secure orders bystrengthening marketing to such priority customers as the electronics and steel
industries andWater actively
Treatment Facilities invested in service businesses, such as the Ultrapure Water
Water Treatment Chemicals
Supply Business and Tool Cleaning service. As a result, orders received in the Water
Treatment Chemicals Business segment and Water Treatment Facilities Businesssegment in the year ended March 31, 2008 increased 8.4% over the previous fiscal
year to ¥208,689 million overall.

200000160000120000
80000
40000

22

0

KURITA Annual Report 2008b) Net Sales
Net sales for the year ended March 31, 2008 rose 3.9% compared with the previous fiscal year, to ¥204,875 million, following increases in orders and growth of
the Water Treatment Chemicals Business segment and Water Treatment Facilities
Business segment.

c) Cost of Sales and Gross Profit
Along with increased sales, the cost of sales rose 0.5% from ¥137,819 million in theprovious fiscal year to ¥138,549 million. The cost of sales ratio improved 2.3 percentage points from 69.9% in the previous fiscal year to 67.6%. This is attributable
to two main factors. The first is the successful absorption of sharp rises in raw
material costs through the increased sales expansion of high-value added products
in Japan and increased overseas sales in the Water Treatment Chemicals Business.
The second is a result of concerted efforts to reduce costs and improve theprofitability of hardware used in the Water Treatment Facilities Business in Japan.
As a result, gross profit increased 11.8% from ¥59,326 million in the previous fiscal
year to ¥66,325 million.
d) Selling, General and Administrative (SG&A) Expenses
SG&A expenses increased 2.3% from ¥35,050 million compared with the previous
fiscal year to ¥35,857 million due primarily to increases in personnel and researchand development expenses. The ratio of SG&A expenses to net sales improved
0.3 percentage points from the previous fiscal year from 17.8% to 17.5%.

Gross Profit
Years ended March 31 (¥ Million)
70,00066,32559,32660,00050,00045,386

48,81951,05240,00030,00020,00010,000
0

2004

2005

2006

2007

2008

35,05035,857

2007

2008

SG&A Expenses
Years ended March 31 (¥ Million)
40,000e) Operating Income and Operating Income Ratio
Operating income for the year ended March 31, 2008 climbed 25.5% comparedwith the previous fiscal year from ¥24,276 million to ¥30,468 million. In addition,
the operating income ratio rose from 12.3% to 14.9%.
f ) Business Results by Segment
Water Treatment Chemicals Business
OrdersIn Japan, core products, such as boiler water treatment chemicals, remained stable
while orders for cooling water treatment chemicals and wastewater treatment
chemicals increased over the previous fiscal year. Packaged water treatment
management contracts remained stable, while orders for process treatment
chemicals used in the pulp and paper industry increased significantly owing tocustomer needs for increased productivity.
Overseas, major increases in orders occurred in every area that the Kurita
Group is developing, focusing on related water treatment and process
treatment chemical products for petroleum complexes. These efforts in Japan andoverseas resulted in a 4.4% rise in orders received to ¥59,029 million.

32,86733,741

2004

2005

2006

30,00020,00010,0000Operating Income by Segment
Years ended March 31 (¥ Million)

30,46820,93930,00024,276
15,471

25,00020,00015,00013,4906,845

15,951
8,515

17,311
9,349

10,0005,000

Net Sales and Operating Income
The Kurita Group worked to absorb the rise in raw material costs by promoting
sales of high value-added products and cost reductions in manufacturing anddistribution. Overall operations resulted in a 3.5% increase in sales to¥58,646 million and an 8.2% increase in operating income from the previous
fiscal year to ¥9,525 million.

31,895

0

7,433

7,961

2005

2006

6,640

2004

8,806

9,525

2007

2008

Water Treatment Facilities Business
Water Treatment Chemicals BusinessNote: Total operating income includes elimination or
corporate

KURITA
Annual Report 2008
30000
25000

23

Operating Income Ratio
by Segment
Years ended March 31 (%)
16

13

14.7

14.6

14.0

16.2
14.9

12.3

14.3

11.0

10

9.2
7

6.9
4

15.5

Water Treatment Facilities Business
OrdersIn Japan, orders received for core products, such as ultrapure water production
systems for the electronics industry sector, increased slightly, while overseas
orders remained stable.
Orders received for water treatment facilities used in general industries increased
significantly owing to rises in orders from the oil refining and petrochemicalindustries along with large-scale orders from the steel industry.
In service businesses, orders in the Ultrapure Water Supply Business rose
substantially due to increased customer production in the electronics industry
sector. In addition, the Tool Cleaning service for semiconductors and LCD
manufacturing equipment made modest gains, together with Maintenanceservices. The Soil Remediation service experienced a significant decrease in orders
due to a slowdown in land transactions. These efforts resulted in a 10.1% increasein orders received to ¥149,659 million.

2004

9.9

10.0

7.7

7.8

2005

2006

2007

2008

Water Treatment Facilities Business
Total
Water Treatment Chemicals Business

Net Sales and Operating Income
In this business segment, Kurita made continuous efforts to improve productivity indesigning and construction work, reduce costs through integrated purchasing andenhance quality. Overall operations yielded in a 4.1% rise in sales to ¥146,228
million and a 35.3% jump in operating income from the previous fiscal year to¥20,939 million.

Percentage of Net Sales
Fiscal year ended March 31, 2008
16Domestic
Overseas
84.7%
15.3%
13

Total Net Sales¥204,875
Million10

7

4

Business Segment Information
Years ended March 31
Millions of yen

Orders (Note)
Water Treatment Chemicals
Water Treatment Facilities
Total
Net sales
Water Treatment Chemicals
Water Treatment Facilities
Total
Operating income
Water Treatment Chemicals
Water Treatment Facilities
Elimination or Corporate
Total

2008

2007

2006

2005

2004

¥ 59,029
149,659¥208,689¥ 56,560
135,969¥192,529¥ 53,903
130,007¥183,910¥ 52,120
119,213¥171,334¥ 47,516
102,218¥149,735¥ 58,646
146,228¥204,875¥ 56,667
140,479¥197,146¥ 54,549
119,133¥173,683¥ 50,637
110,259¥160,896¥ 47,442
99,377¥146,819¥¥ 8,806
15,471(1)¥ 24,276¥ 7,9619,349
0¥ 17,311¥ 7,433
8,515
1¥ 15,951¥ 6,640
6,845
5¥ 13,490

9,525
20,9392¥ 30,468

Note: Orders are not included in the consolidated statements of income and shown for reference purposes only.

24

KURITA Annual Report 2008

g) Overseas Sales
Sales by Region
Overseas sales in the year ended March 31, 2008 increased 6.1% to ¥31,327 million.
The ratio of overseas net sales to total consolidated net sales increased year on
year from 15.0% to 15.3%.
A breakdown of overseas sales by region for the year ended March 31, 2008, is
as follows:
Asian sales increased 4.8% from the previous fiscal year to ¥23,723 million (percentage of overseas sales: 75.7%); North American sales decreased 19.4% from theprevious fiscal year to ¥2,759 million (percentage of overseas sales: 8.8%);
European sales increased 34.0% from the previous fiscal year to ¥1,736 million(percentage of overseas sales: 5.5%); and sales in other regions increased 43.1%
from the previous fiscal year to ¥3,107 million (percentage of overseas sales: 9.9%).
h) Other Income and Expenses
Other income and expenses (net) improved 157.5% from ¥315 million in theprevious fiscal year to ¥811 million. This improvement is attributable mainly toincreased net financial income (interest and dividend income minus interestpaid), which improved from ¥516 million in the previous fiscal year to ¥607 million
due to increased interest and dividend income.

Overseas Sales by Area
Fiscal year ended March 31, 2008
Other
9.9%

Europe5.5%

Overseas Sales¥31,327
MillionNorth America
8.8%

Net Income per ShareYears ended March 31 (Yen)
150

142.2

120

110.4

90

i) Income before Income Taxes and Minority Interests
Income before income taxes and minority interests rose 27.2% from the previous
fiscal year from ¥24,591 million to ¥31,279 million. As a result, the pretax profit ratioon sales improved from 12.5% in the previous fiscal year to 15.3%.
j) Net Income and Net Income per Share
Net income after income taxes and minority interests increased 28.8% from theprevious fiscal year from ¥14,207 million to ¥18,297 million. Net income per sharerose from ¥110.42 in the previous fiscal year to ¥142.21, resulting in the return onsales increasing from 7.2% in the previous fiscal year to 8.9%. Return on equity inthe year ended March 31, 2008 improved from 9.4% to 11.2%.
k) Dividend Policy and Dividend
In the distribution of profits, our basic policy is to maintain stable dividends while
giving due consideration to shifts in full-year business performance and investment
for future business expansion. Based on this, we are making efforts to increase
dividends.
In the year under review, Kurita declared a total year-end dividend of ¥32(including an interim dividend of ¥15), up ¥4 from the previous fiscal year. The
total year-end dividend for the previous fiscal year was ¥28 per share(including an interim dividend of ¥13).

Asia
75.7%

60

71.8

64.6

81.8

30
0

2004

2005

2006

2007

2008

150
120

Dividends per ShareYears ended March 31 (Yen)
90

35

32.0
60

30
25

30

20
15

28.0
22.0
18.0

16.0

0

2004

2005

10
5
0

2006

2007

2008

KURITA Annual Report 200835

25

Capital Expenditures

Capital Expenditures andDepreciation and Amortization
Years ended March 31 (¥ Million)
24,09725,00020,00019,563
16,537

15,00010,000
5,000
0

9,425

9,718
6,706
3,872

2004

4,361

2005

4,906

2006

6,512

2007

2008

Capital Expenditures
Depreciation and Amortization

R&D Expenses
Years ended March 31 (¥ Million)
5,000
4,289

4,228

4,213

2004

2005

2006

4,421

4,551

2007

2008

4,000
3,000
2,000
1,000
0

26

The Kurita Group is committed to making the investments necessary to enhance
its technological innovation and production capacity and to respond to theongoing intensification of sales competition. During the year under review, capital
expenditures totaled ¥24,097 million. Of this amount, ¥23,305 million was used forthe acquisition of tangible fixed assets, including facilities for the Ultrapure Water
Supply Business. This was an increase of 22.8% from the previous fiscal year.
In the Water Treatment Chemicals Business, capital expenditures increased
22.1% from the previous fiscal year to ¥1,617 million, and were made for renovatingwater treatment chemical product manufacturing facilities and purchasing analysis
equipment for water quality analysis operations.
In the Water Treatment Facilities Business, capital expenditures rose 23.3%
from the previous fiscal year to ¥22,480 million, and were used for such purposes
as the acquisition of facilities for the Ultrapure Water Supply Business, facility
construction and the expansion of the Tool Cleaning service.
Depreciation and amortization jumped in 44.7% from the previous fiscal year to¥9,425 million.

KURITA Annual Report 2008

Research and Development
Kurita‘s Research and Development (R&D) activities are conducted principallyby the parent company's Research and Development Division and the technicaldevelopment departments of each operating division. Total research anddevelopment expenses for the year ended March 31, 2008 increased 2.9% to¥4,551 million, equivalent to 2.2% of net sales. The number of R&D personnel ofthe Group as a whole reached approximately 170, which is 4.0% of all Group
personnel (4,249 on a consolidated basis).
In the Water Treatment Chemicals Business, focusing on developing productsthat contribute to the reduction of customer energy usage, expenses andenvironmental impact, we are promoting the development of sensing technology
for monitoring and diagnosis. During the year under review, R&D expenses rose
0.9% to ¥1,405 million.
In the Water Treatment Facilities Business, Kurita focuses mainly on suchthemes as improving the quality of ultrapure water, enhancing such environmental
technologies as soil remediation and wastewater treatment to surpass current
environmental regulatory requirements, and developing technologies to reclaim
and reuse water in response to a recycling society. R&D expenses increased 3.9%
from the previous fiscal year to ¥3,146 million.

Financial Positiona) Total Assets
Total assets as of March 31, 2008 were down ¥3,639 million from ¥235,137 million
at the end the previous fiscal year to ¥231,498 million as a result of streamlining
current assets.

Total Assets
As of March 31 (¥ Million)
250,000

235,137 231,498
212,774

200,000 183,620 192,428
150,000

Current Assets
Current assets as of March 31, 2008 were down ¥15,442 million from ¥137,004
million at the end of the previous fiscal year to ¥121,562 million. Factors 		
contributing to this decline include reductions of ¥27,445 million in cash and time
deposits, ¥4,865 million in notes and accounts receivable trade and ¥1,144 million
in inventories.
Cash and time deposits decreased mainly due to increases in capital
expenditures and the settlement of trade accounts payable as well as the change
in classification of negotiable deposits to marketable securities, previously included in cash and time deposits. This resulted in a ¥18,155 million increase inmarketable securities compared with the previous fiscal year-end.

100,000
50,000
0

2004

2005

2006

2007

2008

Inventories
As of March 31 (¥ Million)
15,000

Fixed Assets (Property, Plant and Equipment, Intangible Assets,
Investments and Long-term Receivables)
Property, plant and equipment, as of March 31, 2008, increased ¥14,696 million
from ¥67,288 to ¥81,984 million. This increase is primarily attributable to capital
investment growth as described above.
Investments and long-term receivables, as of March 31, 2008, decreased ¥2,783
million, from ¥28,237 million at the end of the previous fiscal year, to ¥25,454
million. This is primarily attributable to reductions in investment securities accompanying slumping prices.
b) Liabilities
Total liabilities as of March 31, 2008 declined ¥16,500 million from ¥76,937 million
at the previous fiscal year-end to ¥60,437 million.

12,06512,00010,921

9,000

8,075

8,070

2005

2006

6,713
6,000
3,000
0

2004

2007

2008

EquityAs of March 31 (¥ Million)

Current Liabilities
Current liabilities decreased ¥16,416 million from ¥65,496 million at the previous
fiscal year-end to ¥49,080 million primarily owing to reductions of ¥11,418 million
in notes and accounts payable, trade, and ¥4,044 million in accounts payable,
other.
Accounts payable decreased mainly due to changes in payment terms and as aresult of the previous year-end falling on a holiday. The decrease in accounts
payable, other, was due to the settlement of accounts payable for the purchase ofproperties.

200,000

150,000
128,676

136,366

145,366

156,772

169,402

100,000

50,000

0

2004

2005

2006

2007

2008

Note: Equity represents net assets less minority interests.

KURITA
Annual Report 2008
20000015000027

Long-term liabilities
Long term liabilities as of March 31, 2008 remained almost unchanged from theprevious fiscal year, dipping slightly16from ¥11,440 million to ¥11,357 million.

Return on Equity

Years ended March 31 (%)
16

13

11.2
9.4

10

7

4

6.8

7.1

7.5

2004

2005

2006

2007

2008

Note: Equity represents net assets less minority interests.

13c) Net Assets
Net assets at fiscal year-end rose ¥12,861 million, from ¥158,200 million at the10previous fiscal year-end to ¥171,061 million. This is due mainly to ¥18,297 million in7
net income recorded in the year ended
March 31, 2008 along with an increase of¥14,428 million in retained earnings.
4
The equity ratio as of March 31, 2008 rose 6.5 percentage points comparedwith the previous fiscal year-end from 66.7% to 73.2%. Equity per share increased¥98.23 compared with the previous fiscal year-end from ¥1,218.42 to ¥1,316.65.

Cash Flows
12

Cash Flows fromOperating Activities
10

Years ended March 31 (¥ Million)
30,00027,0708

25,00020,380

6

20,00013,85615,0004

10,000Cash Flows from Operating Activities
Net cash provided by operating activities amounted to ¥20,380 million, a decreaseof ¥6,690 million compared with the previous fiscal year. Factors supporting
operating cash flows include increases in income before income taxes and minority
interests, depreciation and amortization, and a decrease in trade receivables.
However, reductions in funds are related to such factors as corporate tax payments
and a decrease in trade payables.

8,297
5,574

5,000
0

2004

2005

2006

2007

2008

Cash Flows from Investing Activities
Net cash used in investment activities increased ¥6,703 million compared withthe previous fiscal year to ¥23,156 million. This resulted from increased payments
for acquisition of property, plant and equipment, including systems for the
Ultrapure Water Supply Business, despite proceeds from sale and redemption ofmarketable securities and investments in securities.

30000
25000
Cash and
Cash Equivalents at
End of Year20000

As of March 31 (¥ Million)
40,00015000

37,44235,137

10000

30,00030,36530,36029,8715000
020,00010,000

0

28

2004

2005

2006

2007

2008

KURITA Annual Report 2008

Cash Flows from Financing Activities
Net cash used in financial activities rose ¥907 million from the previous fiscal yearto ¥4,365 million. This is primarily due to the increases in cash dividends paid.
Cash and Cash Equivalents at End of YearAt the end of the fiscal year, cash and cash equivalents stood at ¥30,360 million,
which is a decrease of ¥7,082 million from previous fiscal year.

Business Risks
Important risks affecting the Kurita Group include domestic and overseas economic
trends, customer capital expenditure trends in water treatment and factory
operating rates, and price movements in crude oil and raw materials. Since
unforeseen risks may occur, risks are not necessarily limited to those listed below:(1) Factors Affecting Business Performance
Water Treatment Chemicals Business
The performance of the Water Treatment Chemicals Business is affected byfluctuations in demand that reflect changes in factory operating rates at companies
in the steel, petroleum refining and petrochemical, and pulp and paper industries,
the Group’s main source of clients for the business. Business performance is also
affected by movements in prices of basic materials caused by movements incrude oil prices.
Water Treatment Facilities Business
The performance of the Water Treatment Facilities Business is affected by fluctuations
in demand caused by trends in capital expenditures at companies in electronicsrelated industries, the Group's main source of clients for the business. Businessperformance is also affected by changes in equipment production costs causedby movements in prices of construction materials and outsourcing costs.

(2) Concentration of Water Treatment Facilities Business Income inSecond Half of Fiscal YearIn the Water Treatment Facilities Business, Kurita‘s withdrawal from the publicsector construction business and its shift to the service business resulted indecreases in sales which intensified toward fiscal year-end. However, operating
income remains disproportionally concentrated in the second half of the fiscal
year, given the continuation of this trend.

(3) Exchange Rate Fluctuations
With a smaller percentage of foreign currency transactions accounting for overallsales and purchases, the Kurita Group considers the influence of exchange
fluctuations on operating results to be minor.

KURITA Annual Report 2008

29

CONSOLIDATED BALANCE SHEETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2008 and 2007
		Millions of yen

AssetsThousands of
U.S. dollars (Note 1)

2008

2007

2008

¥ 10,316¥ 37,761$  102,973

72,21577,080720,783

Allowance for doubtful accounts

(159)

(164)

(1,590)Marketable securities (Note 5)

23,945

5,830

238,995

Inventories (Note 6)

10,921

12,065

109,010Deferred tax assets (Note 8)

2,912

2,713

29,074

Other current assets

1,410

1,716

14,075

Total current assets

121,562

137,004

1,213,323

Investment securities (Note 5)

15,31919,977

152,904

Investments in non-consolidated subsidiaries and affiliates

3,109

2,641

31,033

Deferred tax assets (Note 8)

3,127

1,560

31,217

Other investments

3,991

4,257

39,836

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

Investments and long-term receivables:

Allowance for doubtful accounts
Total investments and long-term receivables

(93)

(201)

(934)

25,45428,237254,058

13,965

14,064

139,394

Property, plant and equipment, at cost:
Land (Note 12)
Buildings and structures

43,711

38,164436,286

Machinery and equipment

53,74432,678536,426

Construction in progress

4,664

9,840

46,555

Other facilities

11,125

10,733111,046

Total

127,212

105,481

1,269,710

Accumulated depreciation(45,227)(38,192)(451,420)

Property, plant and equipment, net

81,98467,288818,289

2,497

2,607

24,946¥231,498¥235,137$2,310,598

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

30

KURITA Annual Report 2008

		
Millions of yen

Liabilities and Net Assets
Current liabilities:
Short-term borrowings and current portion of long-term borrowings (Note 7)
Notes and accounts payable, trade (Note 4)
Accounts payable, other
Income taxes payable
Advances received
Accrued employees’ bonuses
Provision for product warranties
Other current liabilities
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

Thousands of
U.S. dollars (Note 1)

2008

2007

2008

¥    102
23,334
8,113
8,128
3,584
2,401
1,131
2,283
49,080¥    333
34,752
12,157
7,498
4,920
2,327
1,230
2,276
65,496$    1,027
232,903
80,981
81,12735,77923,968
11,29722,788489,873

0
8,358
709
1,519
768
11,35760,437

96
8,392
696
1,526
729
11,44076,937

983,424
7,086
15,162
7,672
113,356
603,230

13,45011,426
147,874

13,45011,426
133,446

134,252
114,051
1,475,945(4,827)
167,924(4,803)
153,519(48,188)
1,676,061

1,773
(750)
455
1,478
1,658
171,061¥231,498

3,662
(740)
330
3,252
1,427
158,200¥235,137

17,704(7,495)
4,545
14,753
16,553
1,707,368$2,310,598

Contingent liabilities (Note 17)
Net assets:
Shareholders’ equity (Note 11):
Common stock, 2008 and 2007
		 Authorized: 531,000,000 shares
		 Issued:1 2008–132,800,256 shares				 1 2007–132,800,256 shares
		 Capital surplus
		 Retained earnings
		 Treasury stock, at cost				 2008–4,138,621 shares			 2007–4,131,802 shares
		 Total shareholders’ equity
Valuation and translation adjustments
Unrealized gains on available-for-sale securities
Unrealized gains (losses) on revaluation of land (Note 12)
Foreign currency translation adjustments
		 Total valuation and translation adjustments
Minority interests
		 Total net assets
		 Total liabilities and net assets

KURITA Annual Report 2008

31

CONSOLIDATED STATEMENTS OF INCOME
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006
		
Millions of yen			Thousands of
U.S. dollars (Note 1)

2008

2007

2006

2008

Net sales (Note 15)¥204,875¥197,146¥173,683$2,044,865

Cost of sales

138,549

137,819

122,630

1,382,865

		 Gross profit

66,32559,32651,052661,999

35,85735,05033,741

357,897

30,46824,276

17,311

304,102

Interest and dividend income

652

566

451

6,507

Interest expense

(45)

(50)

(41)

(457)

Impairment loss (Note 14)

—

—

(846)

—

Selling, general and administrative expenses(Note 13)

		 Operating income (Note 15)
Other income (expenses):Gain on sale of properties

204

—

—

2,045

Gain on sale of investment securities

97

—

1,205

968

Equity in earnings of non-consolidated subsidiaries and affiliates

115

172

266

1,157

Loss on sale of properties

—

—

(150)

—

Loss on disposal of properties

(162)

(145)

(279)

(1,626)

Loss on sale and disposal of inventories

(108)

(61)

(23)

(1,086)

Loss on valuation of investment securities

(103)

—

—

(1,031)

Surcharges and penalties

—

(488)

—

—

Other, net

161

322

306

1,616

811

315

889

8,094

31,27924,591

18,200312,197

Current

13,113

11,131

7,395

130,889

Deferred(469)(1,061)100(4,688)12,644

10,0707,496

126,200

			
Income before income taxes and minority interests
Income taxes:

			
Minority interests in earnings of consolidated subsidiaries
Net income

337

314

184

3,364

¥ 18,297¥ 14,207¥ 10,519$  182,631

		
Yen

			

U.S. dollars(Note 1)

2008

2007

2006

2008

¥142.21¥110.42¥81.76

$1.42

32.00

28.00

22.00

0.32

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

32

KURITA Annual Report 2008

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006

Shareholders’ equity (Note 11)
Commonstock

Balance as of March 31, 2005
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 gains (losses) on revaluation of land
Contribution to employees’ incentive and welfare fundNet income for the year
Disposal of treasury stock
Net changes of net assets other thanshareholders’ equity
Total changes during the year
Balance as of March 31, 2006
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 thanshareholders’ equity
Total changes during the year
Balance as of March 31, 2007
Changes during the year
Cash dividends paid
Bonuses to directors and corporate auditors
Reversal of unrealized gains (losses) on revaluation of land
Contribution to employees’ incentive and welfare fundNet income for the year
Acquisition of treasury stock
Net changes of net assets other thanshareholders’ equity
Total changes during the year
Balance as of March 31, 2008

Capitalsurplus¥13,450 ¥11,409

Treasury
stock

Total
shareholders’equity¥115,318 ¥(4,830)¥135,348

Retainedearnings¥(257)¥(790)¥ 1,018

Total net
assets¥1,110¥137,477(2,572)(164)(2,572)
(164)

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

(14)
(724)
(11)
10,519
54

17

36

—
17
¥13,450 ¥11,426

7,032
36
¥122,350 ¥(4,793)

7,086¥142,434(3,088)(8)(15)
14,207(3,088)(8)(15)
14,207
(10)

(10)

—
—
11,095(10)
11,085¥13,450 ¥11,426 ¥133,446 ¥(4,803) ¥153,519(3,859)(9)
10(10)
18,297(24)

Shareholders’ equity (Note 11)
Retainedearnings

Treasury
stock

1,806
1,806
¥3,873(482)(482)¥(740)

590
590¥(200)

1,913
1,913¥ 2,932

184
184¥1,2952,098
9,185¥146,662(3,088)(8)(15)
14,207
(10)

(210)
(210)
¥ 3,662——¥(740)

530
530
¥ 330

320
132
320
132
¥ 3,252 ¥1,427(3,859)(9)
10(10)
18,297(24)——
14,428(24)
14,404¥13,450 ¥11,426 ¥147,874 ¥(4,827) ¥167,924

Capitalsurplus¥2,067

Minority
interests(2,572)
(164)

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

CommonstockMillions of yen
Valuation and translation adjustments
Unrealized Unrealized
Total
Foreign
gains on gains (losses) currency
valuation
available- on revaluation translation
andfor-saleof landtranslation
adjustment
securities(Note 12)adjustments

452
11,538¥158,200(3,859)(9)
10(10)
18,297(24)(1,889)(1,889)¥ 1,773(10)(10)¥(750)

124
124
¥ 455

(1,774)230(1,774)230¥ 1,478 ¥1,658(1,543)
12,860¥171,061

Thousands of U.S. dollars (Note 1)
Valuation and translation adjustments
Totalshareholders’equityBalance as of March 31, 2007
$134,252 $114,051 $1,331,933 $(47,948) $1,532,288
Changes during the year
Cash dividends paid
(38,526)(38,526)
Bonuses to directors and corporate auditors
(90)
(90)
Reversal of unrealized gains (losses) on revaluation of land
102
102
Contribution to employees’ incentive and welfare fund
(105)
(105)
Net income for the year
182,631
182,631
Acquisition of treasury stock
(239)
(239)
Net changes of net assets other thanshareholders’ equity
Total changes during the year—
— 144,012(239) 143,772
Balance as of March 31, 2008
$134,252 $114,051 $1,475,945 $(48,188) $1,676,061

Unrealized Unrealized
Foreign
gains on gains (losses) currency
available- on revaluation translation
for-saleof landadjustment
securities(Note 12)

Total
valuationandtranslation
adjustments$ 36,559$ 32,465 $14,251 $1,579,005$(7,393)$3,298

Minority
interests

Total net
assets(38,526)
(90)
102
(105)
182,631(239)(18,855)(18,855)$ 17,704

(102)
(102)
$(7,495)

1,246
1,246
$4,545(17,711) 2,301(15,409)(17,711) 2,301
128,362$ 14,753 $16,553 $1,707,368

The accompanying notes are an integral part of these statements.

KURITA Annual Report 2008

33

CONSOLIDATED STATEMENTS OF CASH FLOWS
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006
		
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 accrued employees’ retirement benefits
		Gain on sale of investment 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’ bonuses
		Increase (decrease) in other allowances, accrual and non-cash items, net
		Changes in assets and liabilities:		1 (Increase) decrease in trade receivables		1 (Increase) decrease in inventories
		1 Increase (decrease) in trade payables
		1 Others, net
		1		Interest and dividends received
		Interest paid		Income taxes paid		Others, net
		1 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 sale of property, plant and equipment
		Payments for purchase of marketable securities
		 and investment securities
		Proceeds from sale and redemption of marketable		 securities and investment securities
		Others, net
		1 Net cash used in investing activities
III. Cash flows from financing activities:
		Increase (decrease) in short-term borrowings, net
		Decrease in long-term borrowings, net
		Cash dividends paid
		Cash dividends paid to minority shareholders of		 consolidated subsidiaries
		Proceeds from stock issuance to minority shareholders
		 of consolidated subsidiaries
		Payments for purchase of treasury stock, net
		1 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.

34

KURITA Annual Report 2008

2008

Thousands of
U.S. dollars (Note 1)

2007

2006

2008

¥ 31,279
9,425
—
(42)
—
(115)
(652)
45
(14)
59
(329)

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

¥ 18,200
4,906
846
(447)
(1,205)
(266)
(451)
41
(180)
238
(196)

$ 312,197
94,074—(428)—(1,157)(6,507)
457
(146)
593
(3,286)

3,648
1,073
(11,203)(1,216)
31,957747(45)(12,475)
196
20,3803,555(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
13,85636,417
10,713(111,818)(12,143)
318,9657,463(456)(124,514)
1,958
203,416(34)(26,101)
350(78)(18,846)43

9(10,962)817(344)(260,522)
3,494(12,043)(12,349)(14,721)(120,209)

15,213(539)(23,156)

15,358(581)(16,453)

13,024(486)(12,318)

151,846(5,389)(231,124)

(235)
(139)
(3,857)(81)(192)(3,086)220(84)(2,572)(2,352)(1,395)(38,497)

(108)

(88)

(106)

(1,086)—(24)(4,365)(18)(7,160)37,442—(10)(3,458)280
7,438
29,87138(11)(2,516)173(804)
30,365—(239)(43,572)(187)(71,467)
373,71478¥ 30,360

132¥ 37,442

310¥ 29,871

779$ 303,025

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

1. B asis of presenting consolidated financial statements
Kurita Water Industries Ltd. (the “Company”) and its domestic subsidiaries maintain their books of account and prepare theirfinancial statements in accordance with accounting principles and practices generally accepted in Japan, while its foreignsubsidiaries 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,
the accompanying consolidated financial statements are intended for use by those who are informed about Japanese accounting
principles and practices.
The Company’s consolidated financial statements, prepared in accordance with accounting principles and practices generally
accepted in Japan, were originally filed with the Japanese Ministry of Finance and the Tokyo Stock Exchange as required by the
Financial Instruments 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 by discarding fractionalamounts of less than ¥1 million. As a result, the totals shown in the consolidated financial statements and notes in yen do notnecessarily agree with the sum of the individual amounts.
The translation of yen amounts as of or for the year ended March 31, 2008 into U.S. dollars is included solely for the convenienceof readers and has been made, as a matter of arithmetical computation only, at the rate of ¥100.19 to US$1, the prevailing rate on
the Tokyo Foreign Exchange Market on March 31, 2008. The translation should not be construed as a representation that yen
amounts 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(1) Consolidation
Scope of consolidation
The consolidated financial statements include the accounts of the Company and its significant subsidiaries. For the years ended
March 31, 2008 and 2007, 38 and 36 subsidiaries, respectively, were consolidated. All significant inter-company transactions andbalances 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, 2008, 2 companies (San-ei Industries Co., Ltd. and one other company, both of which had beenaccounted 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 (the proportion of the Company’s interest) and retained earnings (the proportion of theCompany’s interest) of all the non-­consolidated subsidiaries in the aggregate are not significant in terms of the consolidated
financial statements.
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 portions attributable tothe minority shareholders, are evaluated using the fair value at the time the Company acquired control of the respective
subsidiaries.

KURITA Annual Report 2008

35

Fiscal years of consolidated subsidiaries
The fiscal years of Kurita (Singapore) Pte. Ltd. and 14 other consolidated subsidiaries end on December 31. For these consolidated
subsidiaries, the financial statements as of December 31 were used for consolidation purposes. However, material transactions thathave occurred during the three-month period from January 1 to March 31 of the following year have been adjusted as necessary
for consolidation.
Amortization of goodwill
The goodwill and negative goodwill are amortized using the straight-line method, over practically estimated effective years whereapplicable or, otherwise, three years, except for minor amounts that are charged to income in the period of acquisition.
(2) Equity method
Scope of equity method application
Significant investments in non-consolidated subsidiaries and affiliated companies over which the Company has the ability to
exercise significant influence with regard to the operating and financial policies of the investees, are accounted for by the equity
method. For the years ended March 31, 2008 and 2007, 3 and 6 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, 2008, 2 companies were excluded from the scope of equity method application, as they were
included in the scope of consolidation from the fiscal year ended March 31, 2008.
Land Management Co., Ltd. and other non-consolidated subsidiaries which are not accounted for by the equity method were
excluded from the scope of equity method application, because such exclusion has minimal impact to net income (the proportionof the Company’s interest) and retained earnings (the proportion of the Company’s interest) of the consolidated financial
statements and is considered immaterial as a whole.
Fiscal years 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.
(3) Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, readily available bankdeposits and short-term investments with an original maturity of three months or less and subject to a minor risk of fluctuations invalue.
(4) 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. Available-for-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-averagemethod.
(5) Inventories
Inventories are stated at cost determined by the moving-average method, except for work in process whose costs are determinedby the specific-identification method.

36

KURITA Annual Report 2008

(6) Derivative transactions
Derivative transactions utilized by the Company and its subsidiaries are composed of only forward currency contracts entered into
when necessary to hedge the risk, as the Company maintains the policy not to engage in speculative transactions. The Company
believes that the risk of counterparty default is negligible because its forward currency contracts are entered into only with bankswith high credit ratings. In addition, transactions in forward currency contracts are executed and managed by the finance andaccounting department on a contract-by-contract basis after they have been approved by prescribed internal procedures.
(7) Depreciation of property, plant and equipment
Property, plant and equipment is 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
Accounting policy change
Effective from the year ended March 31, 2008, pursuant to the revision made to the Japanese Corporation Tax Law, the Company
and its domestic consolidated subsidiaries changed their depreciation method for the property, plant and equipment acquired on
and after April 1, 2007 to the method stipulated by the revised Tax Law. The effect of this change to income or loss for the year
ended March 31, 2008 is insignificant.
Additional information on depreciation
From the year ended March 31, 2008, pursuant also to the above-mentioned revision to the Corporation Tax Law, the Company andits domestic consolidated subsidiaries began full depreciation of the residual value for the property, plant and equipment which
was acquired on or before March 31, 2007 and for which depreciation has completed up to the maximum limit (95% of theacquisition cost) by using the depreciation method stipulated by the Corporation Tax Law in effect before the revision. Suchdepreciation of the residue is made by equal installments over the five-year period commencing the fiscal year immediately
following the fiscal year in which the accumulated depreciation reached the maximum depreciable amount permitted by theprevious Tax Law provisions. The effect of this change to income or loss for the year ended March 31, 2008 is insignificant.
(8) 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.” Further, on October 31, 2003, the Accounting Standards
Board of Japan issued Financial Accounting Standards Implementation Guidance No. 6,“Implementation Guidance on AccountingStandards for Impairment of Fixed Assets.” Effective from the year ended March 31, 2006, the Company adopted the new
accounting standard and guidance for the 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.

KURITA Annual Report 200837

(9) Accrued employees’ bonuses
The Company and its domestic subsidiaries accrue the amount of employees’ bonuses based on the anticipated bonus payments
to employees.
(10) Accrued employees’ retirement benefits
Accrued employees’ retirement benefits are recorded based on the estimated amount of projected benefit obligation at thebalance sheet date by the Company and certain of its domestic subsidiaries and, based on the estimated amounts of projected
benefit obligation and pension plan assets, at the balance sheet date by other domestic subsidiaries. Actuarial differences are
subject to amortization over a period of 1–2 years from the year when they are incurred.
(11) Leases
Finance leases other than those that are deemed to transfer the ownership of the leased assets to lessees are accounted for by thesame method as that of operating leases.
(12) Consumption taxes
Consumption taxes are accounted for separately from transaction prices and are not reflected in the consolidated statements ofincome.
(13) Foreign currency translation
Monetary receivables and payables denominated in foreign currency are translated using the spot exchange rate prevailing at thebalance 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 their balance sheet date and theirincome and expenses are translated using the average exchange rate during the year. The translation differences are recorded in“Foreign currency translation adjustments” and “Minority interests” in net assets.
(14) 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 Guidanceon Accounting Standard for Presentation of Net Assets in the Balance Sheet” (Accounting Standards Board of Japan, ASBJ Guidance
No. 8, December 9, 2005).
These accounting standards and implementation guidelines require that a balance sheet should be divided into sections ofassets, liabilities and net assets, and that the net assets section of a consolidated balance sheet should be classified intoshareholders’ equity, valuation and translation adjustments, stock acquisition rights and minority interests.
The adoption of the new accounting standards did not have any material impact on the results of operations for the years
ended March 31, 2007 and 2008.
(15) Appropriation of retained earnings
The accompanying consolidated statements of changes in net assets reflect the appropriations of retained earnings of theCompany in the fiscal year in which the appropriations are approved at the general shareholders’ meeting.
(16) Earnings per share
Earnings per share are computed using the weighted-average number of common shares outstanding.

38

KURITA Annual Report 2008

(17) Reclassifications
Certain prior year amounts have been reclassified to conform to the presentation for the year ended March 31, 2008. These changes
had no impact on previously reported results of operations.
(18) Changes during the year
Tax effect accounting in balance sheets
In the year ended March 31, 2008, the Company adopted the revised Practical Guideline on Tax Effect Accounting in the Balance
Sheet (the Accounting System Committee Report No. 6), whereby certain deferred tax assets previously recorded to eliminate
unrealized gains on inter-consolidated-company sales/purchases of shares of subsidiaries and affiliated companies have been
reversed, with the reversed amount charged to deferred income taxes. This accounting change caused a decrease in net income by¥465 million.
Reclassification of cash and time deposits and marketable securities in balance sheets
From the year ended March 31, 2008, in accordance with the amendments to the “Special Considerations in the Interpretation ofthe ‘Regulations Concerning Terminology, Formats and Preparation Methods of Financial Statements,’” certificates of deposit
previously included in “cash and time deposits” have been transferred to “marketable securities” and now constitute part of this line
item. Certificates of deposit held at the end of the previous fiscal year (March 31, 2007) totaled ¥25,436 million.
Transition of employees‘ pension plan
Effective from April 1, 2007, the Company transferred its qualified pension plan from the traditional defined benefit pension plan toa defined contribution pension plan. The effect of the profit at plan transition on the results of operations for the year ended March
31, 2008 was immaterial.

3. Reconciliation between cash and cash equivalents
The reconciliation between the fiscal year-end cash and cash equivalents (See Note 2 (3) and (18) above) in the consolidated
statements of cash flows and cash and time deposits in the consolidated balance sheet items is as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2006

2008

¥10,316¥37,761¥30,107$102,973

(343)

(319)

(236)

(3,426)

Certificates of deposit included in marketable securities

20,386——

203,479

Cash and cash equivalents¥30,360¥37,442¥29,871$303,025

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

KURITA Annual Report 200839

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.
Millions of yen

Notes receivable¥1,049Notes payable¥ 219

5. Marketable securities and investment in securities(1) Available-for-sale securities with fair value at March 31, 2008 and 2007 are summarized as follows:
Millions of yen

At March 31, 2008

Book value exceeding acquisition cost:

Acquisition cost

Book value

Difference¥ 7,696¥11,040¥3,343

Corporate bonds

300

300

0

Other

999

999

0

8,995

12,339

3,343

3,228

2,895

(333)

2,625

2,549

(76)

998

998

(0)

6,853

6,443

(410)

¥15,849¥18,782¥2,933

StocksBonds:

Subtotal
Book value not exceeding acquisition cost:
StocksBonds:
Corporate bonds
Other
Subtotal
Total

40

KURITA Annual Report 2008

Millions of yen

At March 31, 2007

Book value exceeding acquisition cost:

Acquisition cost

Book value

Difference¥ 8,995¥15,256¥6,261

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)

8,788

8,669

(119)

¥18,083¥24,226¥6,143

StocksBonds:

Book value not exceeding acquisition cost:
StocksBonds:

Subtotal
Total

Thousands of U.S. dollars
Acquisition cost

Book value

Difference$ 76,816$110,191$33,374

Corporate bonds

2,994

2,994

0

Other

9,977

9,977

0

89,788123,163

33,37432,22728,897(3,329)Corporate bonds

26,20625,443

(762)

Other

9,969

9,969

0

68,40264,310(4,092)$158,191$187,473¥29,282

At March 31, 2008

Book value exceeding acquisition cost:
StocksBonds:

Subtotal
Book value not exceeding acquisition cost:
StocksBonds:

Subtotal
Total

KURITA Annual Report 200841

(2) Available-for-sale securities sold during the years ended March 31, 2008, 2007 and 2006 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

Sales amount

2007

2006

2008

¥578

¥—

¥2,460$5,772

Total gains on sales

61

—

1,205

613

Total losses on sales

0

—

—

4

(3) The schedule for the redemption of available-for-sale securities with maturities at March 31, 2008 and 2007 is summarized as follows:
Millions of yen
March 31, 2008
Within 1 year

Thousands of U.S. dollars
March 31, 2007

1 to 5 years

Within 1 year

March 31, 2008

1 to 5 years

Within 1 year

1 to 5 years$$

Bonds:
National and local government bonds

¥

—

¥

—

¥1,599¥———Corporate bonds

1,398

1,450

1,894

2,422

13,961

14,477

Other

1,998

—

2,199

—

19,946—

20,386———

203,479—¥23,783¥1,450¥5,693¥2,422$237,386$14,477

Other:
Certificates of deposit(See Note 2 (18) and Note 3)
Total(4) Available-for-sale securities with no available fair value at March 31, 2008 and 2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

¥20,386¥

2008

Available-for-sale securities:
Certificates of deposit (See Note 2 (18) and Note 3)
Unlisted stocks

42

KURITA Annual Report 2008

94—

$203,479

1,580

947

6. Inventories
Inventories at March 31, 2008 and 2007 consist of the following:Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

¥ 1,428¥ 1,509$ 14,254

Raw materials

1,365

1,166

13,629Work in process

8,128

9,389

81,125¥10,921¥12,065$109,010

Finished products

Total

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, 2008 and 2007 consist of the following:Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Short-term borrowings

¥   1

¥239

$   14Current portion of long-term borrowings

101

93

1,012

¥102

¥333

$1,027Total

The weighted-average annual interest rates of short-term borrowings and current-portion of long-term borrowings for the year
ended March 31, 2008 are 10.25% and 6.18%, respectively.
(2) Long-term borrowings
Long-term borrowings at March 31, 2008 and 2007 are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2008

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

2007

2008

¥102

¥189

$1,022

101

(93)

1,012

¥   0

¥ 96

$    92008–10.25%
2007–5.57%
Less: Current portion
Total

KURITA Annual Report 200843

(3) Other long-term liabilities
Other than the short- and long-term borrowings described above, ¥719 million (US$7,177 thousands) and ¥672 million ofinterest-bearing long-term deposits received were included in other long-term liabilities as of March 31, 2008 and 2007,
respectively. The weighted-average annual interest rates for such deposits received for the years ended March 31, 2008 and 2007
were 0.92% and 0.89%, respectively.

8. Income taxes
Significant components of the deferred tax assets and liabilities as of March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

¥ 3,361¥ 3,248$ 33,554

Excess depreciation of property, plant and equipment

1,989

1,017

19,854

Excess provision for accrued bonuses to employees

947

954

9,454

Accrued enterprise taxes not deductible

653

570

6,518

Excess provision of allowance for product warranty

466

490

4,653

Excess portion of design expenses

391

336

3,905

Impairment loss

312

348

3,114

Accrued retirement benefits for directors and corporate auditors

273

273

2,733

Unrealized gain on sale of property, plant and equipment

237

706

2,369

Unrealized gain on sale of inventories

154

—

1,538

Loss on revaluation of golf club membership

—

134

—

Other

651

764

6,501

Subtotal

9,437

8,846

94,197

Valuation allowances

(430)

(454)

(4,297)

Total deferred tax assets

9,007

8,391

89,899Unrealized gain on available-for-sale securities(1,191)(2,493)(11,888)

Estimated income taxes pertaining to retained earnings ofoverseas consolidated subsidiaries(1,034)(876)(10,328)

(740)

(747)

(7,390)Total deferred tax liabilities(2,966)(4,117)(29,607)

Deferred tax assets, net¥ 6,040¥ 4,274$ 60,292

Deferred tax assets:
Excess provision for accrued employees’ retirement benefits

Deferred tax liabilities:

Capital gains on properties deferred for tax purposes

44

KURITA Annual Report 2008

9. Retirement benefits and pension plans
The Company provides a lump-sum retirement benefit plan and a defined contribution pension plan. (As in Note 2 (17), theCompany transferred its qualified pension plan to a defined contribution pension plan, effective from April 1, 2007.) Of theconsolidated subsidiaries, 26 companies (23 domestic and 3 overseas companies) provide lump-sum retirement benefit or qualified
pension plans, 3 domestic companies provide both types of plan, and 6 domestic companies have only qualified pension plans.
(1) Benefit obligations
Thousands of
U.S. dollars

Millions of yen

2008

2007

2008

Retirement benefit obligation¥(19,586)¥(23,704)$(195,496)

Fair value of pension plan assets

11,264

15,363

112,430

Unfunded retirement benefit obligations(8,322)(8,341)(83,066)

(35)

(51)

(358)

¥ (8,358)¥ (8,392)$ (83,424)

Unrecognized actuarial gain
Accrued employees’ retirement benefits(2) Net periodic benefit costs
Thousands of
U.S. dollars

Millions of yen

2008

2007

2006

Service cost¥  968¥1,344¥1,163$ 9,661Interest cost

258

535

537

2,579

Expected return on plan assets

—

(85)

(85)

—

Amortization of actuarial differences

(34)

138

(115)

(339)

7

31

13

76

Profit at transition to defined contribution pension plan

(17)

—

—

(175)

Other

471

—

—

4,707

¥1,654¥1,964¥1,514$16,510Additional retirement payments

Net periodic benefit cost

2008

In the above table, benefit cost incurred for the domestic consolidated subsidiaries which use the simplified method for computing
benefit obligations is included in “Service cost,” and “Other” represents contribution to the defined contribution pension plan.
(3) Assumptions to determine above obligation and cost:
2008

2007

Equal amount over each period

Equal amount over each period

Discount rate

2.5%

2.5%

Expected rate of return on plan assets

0.0%

0.8%

1–2 years

1–2 years

Periodic allocation of projected benefit obligation

Amortization period of actuarial differences

KURITA Annual Report 200845

10. Leases(1) The Company and consolidated subsidiaries use certain machinery and equipment and other tangible fixed assets under leasearrangements. 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 operatingleases:(1) As lesseea) Leased assets (as lessee)
Thousands of
U.S. dollars

Millions of yen

Acquisition costs
Accumulated depreciation
Net book value

2008

2007

2006

2008

¥1,366¥1,384¥1,537$13,636

(578)

(687)

(924)

(5,769)¥  788¥  696¥  612$ 7,867

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

Millions of yen

2008

2007

2006

2008

Due within one year

¥248

¥234

¥224

$2,482Due over one year

539

462

388

5,384

¥788

¥696

¥612

$7,867Total

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

Millions of yen

2008

2007

2006

2008

Lease payments

¥242

¥284

¥270

$2,417

Depreciation

242

284

270

2,417

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

46

KURITA Annual Report 2008

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

Millions of yen

2008

2007

2006

2008

Due within one year

¥119

¥122

¥146

$1,189Due over one year

123

164

208

1,232

¥242

¥287

¥355

$2,422Total

11. Shareholders’ equity
On May 1, 2006, a new corporate law (the “Corporate Law”) became effective, which reformed and replaced 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 andfor the fiscal years ended/ending on or after May 1, 2006. The summary of the Corporate Law that affect financial statements andaccounting matters are as follows:(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 Board of 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 capitalsurplus 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 componentof 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 andadditional paid-in capital exceeds 25% of the common 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
The Corporate Law provides that companies may purchase, hold or dispose of such treasury stock by resolution of the Board of
Directors’ meetings. The amount of treasury stock purchased cannot exceed the amount available for distribution to theshareholders which is determined by specific formula.

KURITA Annual Report 200847

12. Unrealized gains on revaluation of land
The Company implemented a revaluation of land for business use in accordance with the Land Revaluation Law (enacted on March
31, 1998). The revaluation difference, net of taxes is stated as “Unrealized gains (losses) on revaluation of land” in the valuation andtranslation account in net assets. 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 to retained 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

13. Selling, general and administrative expenses
Selling, general and administrative expenses for the years ended March 31, 2008, 2007 and 2006 consist of the following:Thousands of
U.S. dollars

Millions of yen

Salaries and allowances
Provision for employees’ bonuses
Retirement benefit expenses

2008

2007

2006

2008

¥12,804¥12,780¥12,620$127,806

1,648

1,242

1,320

16,454

825

1,153

734

8,237

Travel expenses

2,642

2,527

2,517

26,376

Research and development expenses

4,551

4,421

4,213

45,431

Other

13,384

12,925

12,334

133,591¥35,857¥35,050¥33,741$357,897

Total

14. Impairment loss
The Company categorizes business assets by type of business structure, and leased assets and idle assets by individual property
type. Along with the restructuring 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 which buildings andstructures 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 estateappraisal standards.

48

KURITA Annual Report 2008

15. Segment information(1) Business segment information
The business segment information of the Company and its consolidated subsidiaries for the years ended March 31, 2008, 2007 and2006, is outlined as follows:
Millions of yen
Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total¥ 58,646¥ 146,228¥ 204,875

310

87

58,957

Operating costs and expenses
Operating income

Elimination or
corporate

Consolidated¥—¥ 204,875

397

(397)

—

146,315205,272(397)

204,875

49,431

125,375

174,807(400)

174,407¥ 9,525¥ 20,939¥ 30,465¥

2¥ 30,468¥ 37,791¥ 150,225¥ 188,017¥ 43,481¥ 231,498

Depreciation and amortization

1,732

7,692

9,425

—

9,425

Capital expenditures

1,617

22,48024,097—24,097

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total

Elimination or
corporate

Consolidated¥56,667¥140,479¥197,146

262

78

56,930Operating costs and expenses
Operating income

Year ended March 31, 2008

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

II. Assets, depreciation and capital expenditures
AssetsMillions of yen

Year ended March 31, 2007

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

340

(340)

—

140,557

197,487(340)

197,146

48,123125,086

173,209(339)

172,870¥ 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—

19,563

2) Intersegment sales
Total

¥

II. Assets, depreciation and capital expenditures
AssetsKURITA Annual Report 200849

Millions of yen
Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total¥54,549¥119,133¥173,683

322

573

54,872

Operating costs and expenses
Operating income

Year ended March 31, 2006

Elimination or
corporate

Consolidated

I. Sales and operating income
Sales1) Sales to outside customers—¥173,683

895

(895)

—

119,706

174,578(895)

173,683

46,910110,357

157,268(895)

156,372¥ 7,961¥ 9,349¥ 17,310¥

0¥ 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

Water Treatment
Chemicals
Business

Water Treatment
Facilities
Business

Total

Elimination or
corporate

Consolidated$ 585,357$ 1,459,507$ 2,044,865

3,101

869

588,459

Operating costs and expenses
Operating income

2) Intersegment sales
Total

¥

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

Thousands of U.S. dollars

Year ended March 31, 2008

I. Sales and operating income
Sales1) Sales to outside customers—$ 2,044,865

3,971(3,971)—

1,460,377

2,048,836(3,971)

2,044,865

493,380

1,251,382

1,744,762(3,999)1,740,762$ 95,078$ 208,995$ 304,074$

28$ 304,102$ 377,202$ 1,499,406$ 1,876,609$ 433,988$ 2,310,598

Depreciation and amortization

17,29076,783

94,074—

94,074

Capital expenditures

16,141

224,374

240,516—

240,5162) Intersegment sales
Total

$

II. Assets, depreciation 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
used in oil refining and pulp and paper incinerator chemicals, equipment and systems for water treatment chemicals, and customized
services, including a steam supply contract and blanket contracts for factories

50

KURITA Annual Report 2008

Water Treatment Facilities Business
For the electronics industry:	Ultrapure water production systems, wastewater reclamation systems, wastewater treatment systems, tool cleaning, operation andmaintenance services, and Ultrapure Water Supply BusinessFor general industries:
Pure water production systems, wastewater treatment systems, soil remediation, chemical cleaning, and maintenance services
For the public sector:	Sewage treatment facilities, human waste treatment facilities, waterworks facilities, landfill leachate treatment facilities, and operation andmaintenance services
2.	There were no costs and expenses included in “Elimination or corporate” that cannot be allocated to business segments for the years
ended March 31, 2008 and 2007.
3.	Total assets under “Elimination or corporate” include corporate assets, consisting primarily of deposits with banks, marketable portfolio
securities and long-term investment funds (deposits, marketable securities and investment securities). Such corporate assets as of March
31, 2008 and 2007 amounted to ¥43,547 million (US$434,651 thousand) and ¥55,585 million, respectively.
4.	Until the fiscal year ended March 31, 2006, investment securities and long-term investment funds (deposits, marketable securities andinvestment securities) held by consolidated subsidiaries had been allocated to the 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 businesssegment more appropriately, such assets were included in “Elimination or corporate,” in the same manner with those assets held by theCompany. Accordingly, in the year ended March 31, 2007, assets of Water Treatment Chemicals Business and Water Treatment Facilities
Business decreased by ¥2,878 million and ¥8,734 million, respectively, and the assets under “Elimination or corporate” increased by¥11,612 million, 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 eachsegment.

(2) Geographic segment information
Geographic segment information up until the fiscal year ended March 31, 2007 is not shown since the amounts of net sales andassets in Japan exceeded 90% of the amount of combined net sales and assets of all segments in those years.
Geographical segment information for the fiscal year ended March 31, 2008 is as follows:
Millions of yen

Year ended March 31, 2008

Elimination or
corporate

Consolidated¥—¥ 204,875

3,075(3,075)—

21,810207,950(3,075)

204,875

158,222

19,600177,822(3,415)

174,407¥ 27,917¥ 2,210¥ 30,127¥340¥ 30,468¥ 178,960¥ 10,028¥ 188,989¥ 42,509¥ 231,498

Japan

Other regions

Total¥ 183,867¥ 21,007¥ 204,875

2,272

802

186,139

Operating costs and expenses
Operating income

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

II. Assets

KURITA Annual Report 200851

Thousands of U.S. dollars

Year ended March 31, 2008

Elimination or
corporate

Consolidated$—$ 2,044,865

30,693(30,693)—

217,689

2,075,558(30,693)2,044,865

1,579,226

195,630

1,774,856(34,094)

1,740,762$ 278,642$ 22,059$ 300,701$ 3,401$ 304,102$ 1,786,214$ 100,093$ 1,886,307$ 424,290$ 2,310,598

Japan

Other regions

Total$ 1,835,187$ 209,677$ 2,044,865

22,6818,011

1,857,868

Operating costs and expenses
Operating income

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

II. Assets

Notes: 1. Countries and regions are classified into segments according to geography and proximity.
2.	“Other regions” are composed primarily of Asia.
3.	There were no costs and expenses under “Elimination or corporate” that cannot be allocated to geographical segments.
4.	Assets under “Elimination or corporate” include corporate assets, the amount and components of which are the same as those provided
in Note 3 to the above (1) Business segment information.

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

Millions of yen

For the year ended March 31, 2008

Overseas net sales

Asia

North America

Europe

Other

Total

Total

¥23,723¥2,759¥1,736¥3,107¥ 31,327$ 312,685

—

—

—

—

204,875

2,044,865

Percentage of overseas net sales toconsolidated net sales

11.6%

1.3%

0.9%

1.5%

15.3%

15.3%

For the year ended March 31, 2007

Asia

Overseas net sales¥22,635¥3,424¥1,296¥2,171¥ 29,528

—

—

—

—

197,146

11.5%

1.7%

0.7%

1.1%

15.0%

¥16,602¥2,340¥1,121¥1,724¥ 21,788

—

—

—

—

173,683

9.6%

1.3%

0.6%

1.0%

12.5%

Consolidated net sales

Millions of yen

Consolidated net sales
Percentage of overseas net sales toconsolidated net sales

North America

Europe

Other

Total

For the year ended March 31, 2006

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

Notes: 1. Countries and regions are classified according to geography and proximity.
2.	The major countries or regions included in respective categories 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.

52

KURITA Annual Report 2008

16. Subsequent events
Appropriation of retained earnings
The following appropriation of retained earnings for the year ended March 31, 2008 was approved at the ordinary general meetingof shareholders of the Company held on June 27, 2008.
Millions of yen

Thousands of
U.S. dollars¥2,187$19,847

Cash dividends (year-end dividends)

17. Contingent liabilities
Guarantees for employees’ indebtedness from bank housing loans at March 31, 2008 and 2007 are as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

—

2008

¥3

—

18. Per share information
Yen

Net assets per share
Net income per share (EPS)

U.S. dollars

2008

2007

2006

2008

¥1,316.65¥1,218.42¥1,129.74$13.14142.21110.42

81.76

1.42

The basis of calculation for EPS is as follows:
Thousands of
U.S. dollars

Millions of yen

2008

2007

2006

2008

Net income¥18,297¥14,207¥10,519$182,631

Net income attributable to common stock

18,297

14,207

10,519182,631

128,664,115

128,670,582

128,654,537

128,664,115

Average number of shares outstanding(The Company has no dilutive shares.)

KURITA Annual Report 2008

53

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 of March 31,
2008 and 2007, and the related consolidated statements of income, changes in net assets and cash flows for each of the three years
in period ended March 31, 2008, expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we planand perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating theoverall 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, 2008 and 2007, and the consolidated results of theiroperations and their cash flows for each of the three years in the period ended March 31, 2008 in conformity 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, 2008 have been translated into United States 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 theconsolidated financial statements.

Tokyo, Japan
June 18, 2008

54

KURITA Annual Report 2008

CORPORATE DATA
As of March 31, 2008

Company Name

Kurita Water Industries Ltd.

Address

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

Paid-in Capital¥13,450,751,434

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

Date of Establishment July 13, 1949

Branches:
Sapporo, Tohoku, Nagoya,
Hiroshima and Kyushu

Number of Employees 4,249 (on a consolidated basis)

Domestic Offices

Head Office: 4-7, Nishi-Shinjuku
3-chome, Shinjuku-ku, Tokyo 160-8383
Tel.: 81 (3) 3347-3111

Overseas Offices

Singapore Branch:
30 Joo Koon Road, Singapore 628984
Tel.: 65 (6861) 2622
Taiwan Branch:
5F-3, No. 295, Section 2,
Kuang-Fu Road,(Empire Commercial Bldg.)
Shinchu, Taiwan, R.O.C.
Tel.: 886 (3) 575-1157

Osaka Branch: 2-22, Kitahama
2-chome, Chuo-ku, Osaka-shi, Osaka
541-0041
Tel.: 81 (6) 6228-4800

Major Consolidated Subsidiaries and Affiliated Company
		Company Name

Paid-in
Capital (Millions)

EquityOwnership (%)

OVERSEAS■ North America & South America
Kurita America Inc.
US$3.0100.0				Kurita do Brasil LTDA.
R$6.986
100.0■ Europe
Kurita Europe GmbH
EUR2.301
95.0
Kuritec Europe GmbH
EUR0.959
100.0■ AsiaKurita Water Industries (Dalian) Co., Ltd.
¥550
90.1
Kuritec (Shanghai) Co., Ltd.
¥30
100.0
Kurita Water Industries (Suzhou) Ltd.
¥100
100.0
Kurita (Taiwan) Co., Ltd.
NT$20
95.0
Hansu Ltd.
W2,50033.2
Hansu Technical Service Ltd.
W400
59.4
Kurita-GK Chemical Co., Ltd.
BAHT9260.0
Kurita (Singapore) Pte. Ltd.
S$4.0
100.0
				
Kuritec Singapore Pte. Ltd.
S$1.49100.0
Kurita Water (Malaysia) Sdn. Bhd.
RM$0.6
83.3
P.T. Kurita Indonesia
US$2.092.5
DOMESTIC
Kurita Creation Co., Ltd.
Kuritec Service Co. Ltd.
Kuritaz Co., Ltd.
Kurita Engineering Co., Ltd.
Land Solution Inc.

¥160
¥50
¥220
¥160
¥450

100.0
100.0
100.0
100.0
51.0

Main Business

Manufacture & sale of water treatment facilities, operation & 		
maintenance of systems and facilities
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment chemicals
Operation & maintenence of systems and facilities
Manufacture & sale of water treatment chemicals
Operation & maintenance of systems and facilities
Manufacture & sale of water treatment facilities
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment facilities
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment chemicals and water treatment
facilities, operation & maintenance of systems and facilities
Ultrapure water supply for specified customer
Sale of water treatment chemicals
Manufacture & sale of water treatment chemicals
Manufacture & sale of water purifiers
Tool cleaning
Operation & maintenance of water treatment facilities
Chemical cleaning
Soil remediation

KURITA Annual Report 2008

55

INVESTOR INFORMATIONAs of March 31, 2008

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 22,802
Independent Auditor

Grant Thornton Taiyo ASG
Akasaka DS Bldg. 9F, 5-26, 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
Distribution of Shares

Main Shareholders
Shareholdings(Thousands of Shares)

Percentage of
total shares issued (%)

Itochu Corporation

10,268

7.73

Nippon Life Insurance Company

7,284

5.48

Japan Trustee Services Bank, Ltd. (Trust Account)

5,906

4.44

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

5,803

3.82

Tokio Marine & Nichido Fire Insurance Co., Ltd.

4,311

3.24

Kurita Water Industries Ltd.

4,138

3.11

Mellon Bank, N.A. Treaty Clinents Omnibus

2,941

2.21

The Bank of Tokyo Mitsubishi UFJ, Ltd.

2,936

2.21

Pictet & Cie (Europe) S.A.

2,843

2.14

State Street Bank and Trust Company 505041

2,725

2.05

Treasury Stock
4,138,621
3.1%

Individuals
13,160,456
9.9%

Financial Institutions
42,329,768
31.9%
Foreigners
53,764,925
40.5%

Securities Firms
443,232
0.3%
Other Domestic Firms
18,963,254
14.3%

Stock price (Yen)

TOPIX (Points)

5,000

5,000

Stock Price Range (Tokyo Stock Exchange)
4,000

4,000

3,000

3,000

2,000

2,000

1,000

1,000
Tokyo stock price indexes and average (TOPIX)

00Jan. ’06

June ’06

Jan. ’07

June ’07

Jan. ’08

June ’08

Jan. ’07

June ’07

Jan. ’08

June ’08

Trading volume (Hundreds of shares)

300,000
250,000
200,000

Trading Volume (Tokyo Stock Exchange)

150,000
100,000
50,000056

Jan. ’06

June ’06

KURITA Annual Report 2008

Profile & Vision
Advancing the Science of Water andEnvironmental Management
Kurita Water Industries Ltd. provides total solutions in the field ofwater and environmental management, under the corporate visionof becoming “an advanced water and environmental managementcompany.” Kurita‘s core business is water treatment and related
products and services, based on which it provides a growing rangeof 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 other high-value-added solutions thatdraw on its unique expertise built up over half a century. Based on
the corporate philosophy, “Study the properties of water, masterthem, 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 managementcompany. Through these endeavors, Kurita aims to contributebroadly to meeting the needs of its customers and society.
CONTENTSCONSOLIDATED FINANCIAL HIGHLIGHTS 1
AN INTERVIEW WITH THE PRESIDENT 2
KURITA AT A GLANCE 6
SPECIAL FEATURE 8
REVIEW OF OPERATIONS
Water Treatment Chemicals Business 10
Water Treatment Facilities Business 12
RESEARCH AND DEVELOPMENT 15
CORPORATE SOCIAL RESPONSIBILITY 16
CORPORATE GOVERNANCE 18
BOARD OF DIRECTORS AND CORPORATE AUDITORS 20
FINANCIAL SECTION 21
CORPORATE DATA 55
INVESTOR INFORMATION 56
Cautionary Statement with Respect to Forward-Looking Statements
This annual report contains forward-looking statements regarding forecasts, plans, strategies and business performance in the future. These forward-looking
statements represent judgments made by the Company based on information currently available to it and involve a variety of risks and uncertainties.
Actual results may be materially different from these forward-looking statements. Such risks and uncertainties include (but are not limited to) changes in theeconomic environment, business conditions, market, demand and currency exchange rates.

Kurita Water Industries Ltd. ANNUAL REPORT 2008

URL:http://www.kurita.co.jp/english/

4-7, Nishi-Shinjuku 3-chome, Shinjuku-ku, Tokyo 160-8383, Japan
Tel: 81 (3) 3347-3111

This annual report is printed using soy ink.
Printed in Japan

ANNUAL REPORT 2008
For the Year Ended March 31, 2008

Continuing Innovation for
Sustainable Growth