A N N U A L

R E P O R T
For the Year Ended March 31, 2005

2 0 0 5

ProfileK

urita Water Industries Ltd. provides total solutions in the field of water and environmental
management, under the corporate vision of becoming an “an advanced water and environmental management company.” Kurita’s core business is water treatment and related products and services, but its business scope extends to the broader field of environmental management.
Consistent with this philosophy, Kurita provides not only products, such as water treatment chemicals and facilities, but also high-value-added solutions, including consulting and outsourcing
services that draw on its unique expertise built up over half a century.
Based on the corporate principle, “Study the properties of water, master them, and we will
create an environment in which nature and man are in harmony,” Kurita is committed to realizing
its goal of becoming an advanced water and environmental management company. Through theseendeavors, Kurita aims to contribute broadly to meeting the needs of its customers and of society.

Cover Story
The cover photograph shows the reverse-osmosis (RO)membrane treatment system used in the wastewater
reclaim line of the world’s largest liquid crystal display(LCD) factory. This system, which removes ions andorganic matter, is used not only in ultrapure waterproduction lines but also in wastewater reclaim lines atmany semiconductor and flat-panel display (FPD) plants,
thereby helping to reduce environmental impact.

Contents
Message from the President
01
Financial Highlights
01
Kurita at a Glance
05
Review of Operations
06
New Business Activities
12
Research & Development
13
Corporate Governance
14
Board of Directors and Corporate Auditors 16
Financial Section
17
Nonconsolidated Summary
42
Corporate Data
43
Investor Information
44

Message from the President

Our aims are to achieve a highlevel of customer satisfaction
and to benefit society.

Hiroshi Fujino
President

Performance Overview
The year in review saw strong demand for water
treatment services from companies in the electronics industry. Demand from the basic materials andautomobile industries also showed a recovery
trend, supported by improved factory productivity
and increased capital expenditures. By contrast,
the public works sector of the market remained
extremely harsh, due to shrinking government
budgets and intensified competition.
Facing these challenges, Kurita strove to help
customers solve their problems by delivering
unrivaled added value and by strengthening its costcompetitiveness, the wellspring of its earnings.
We also worked to develop appealing products andservices, and technologies and new businesses
more efficiently. As a result, we have achieved afurther increase in earnings.
On a consolidated basis, total orders received
during the period amounted to ¥171,334 million,
up 14.4% from the previous fiscal year. Net sales
grew 9.6%, to ¥160,896 million, and operating
income climbed 18.2%, to ¥15,951 million. Net
income increased 11.1%, to ¥9,383 million, and net
income per share rose to ¥71.76, from ¥64.57.

Financial Highlights

Millions of Yen

Percentage
ChangeThousands of
U.S. Dollars

2005

2004

2005/20042005

For the year:
Net sales
Operating income
Income before income taxes
Net income¥160,896
15,951
16,376
9,383¥146,819
13,49014,918
8,444

+9.6%
+18.2
+9.8
+11.1

$1,498,240
148,533
152,491
87,373

At year-end:
Total assets
Total shareholders’ equity

192,428
136,366

183,620
128,676+4.8+6.0

1,791,861
1,269,820

Per share of common stock:
Net income
Cash dividends applicable to the year (parent company)¥71.76
18.00

Years ended March 31

Yen

U.S. Dollars¥64.5716.00

Note: The U.S. dollar amounts are given solely for convenience at the rate of ¥107.39 to US$1, the prevailing rate on the Tokyo foreign exchange market
on March 31, 2005.

01
Kurita Water Industries Ltd.

$0.67
0.17

Message from the President

Kurita declared a year-end dividend of ¥9.00 per
share, up ¥1.00, bringing total annual dividends to¥18.00 per share after adding the ¥9.00 interim
dividend. This payment reflects Kurita’s basic profit
distribution philosophy, which emphasizes consistent and stable dividends for shareholders, while
giving due consideration to Kurita’s earnings
performance and need for funds to finance futurebusiness expansion.

Powerful Advance 2005
Japanese manufacturers constitute the bulk of
Kurita’s customer base. Their experience of
prolonged recession and stiff competition has
made them more demanding and selective interms of the products and services they procure
and the cost of those offerings. In addition, there
are growing calls for companies to fulfill theircorporate social responsibility to the extent thatcompanies are becoming more environmentallyconscious. To address these issues, Kurita needs toprovide advanced solutions to help customers raise
productivity, reduce costs and lower the impactof their production activities on the environment.
Kurita views this as an excellent opportunity to
profoundly differentiate itself from its competitors
by demonstrating the comprehensive strengths of
the Kurita Group, encompassing technologies,

products and know-how related to “water and theenvironment.” This view formed the basis of theGroup’s three-year medium-term management
plan—Powerful Advance 2005 (PA-5)—currently ineffect. The primary aim of PA-5 is to expand theGroup’s market share and business domains while
responding appropriately to the needs of customers.
The year under review was the second period of
the three-year management plan. Each company in
the Group, keenly aware of its respective role under
the plan, united to focus on the following key
strategies.
(1) Expedite proactive business development
in Japan and overseas
During the year under review, the Group
expanded its “solutions” and “outsourcing”
businesses. These are key to our new businessmodel emphasizing integration of technologies
and know-how in water treatment chemicals,
water treatment facilities, and maintenance andother services. Our solutions and outsourcing
businesses share a common theme: Rather thansimply provide products in the form of water
treatment chemicals and facilities, they instead
focus on the essential factory-level needs ofcustomers concerning higher productivity andlower environmental impact.

Eco-Solution Group’s Activities
Water Treatment Facilities

Water Treatment Chemicals

Maintenance Services

New Business Models
Providing solutions to customers

Increasing productivity

Reducing environmental impact

Expanding scope of business and exploring potential clients

02
Kurita Water Industries Ltd.

Our solutions business fully utilizes Kurita’s
wide-ranging technologies and know-how related
to water treatment—built up over 55 years of
involvement in conserving water and energy
and reducing industrial waste. We achieve thisby making and implementing proposals for optimizing the volume and types of water treatment
chemicals used on-site, enhancing the factorywide balance of water used, and by upgrading
facilities. In April 2003, Kurita established the
Eco-Solution Group to specialize in solving thesetypes of issues. In the year under review, the
Eco-Solution Group received orders totaling ¥5.4
billion, up from ¥1.7 billion in the previous fiscal
year, and generated sales of ¥3.1 billion, up from¥700 million.
Meanwhile, our outsourcing business was set
up to take over responsibility for all facets ofwater treatment generally handled by customers.
One good example is the Ultrapure Water Supply
Business. Here, Kurita acts on behalf of the customer to build, own, operate and maintain water
treatment facilities on the customer’s site. In the
period under review, we increased the number ofoutsourcing contracts to five, boosting total sales
to ¥3.9 billion.
In China, we have established a framework for
expanding our solutions business in a mannerthat utilizes the integrated strengths of the Kurita

Group. This has been achieved through thecollaborative efforts of three Group companies:
Kurita Water Industries (Dalian) Co., Ltd., which
manufactures and sells water treatment chemicals; Kuritec (Shanghai) Co., Ltd., which imports,
sells and provides maintenance services forwater treatment systems and facilities; andKurita Water Industries (Suzhou) Ltd., a manufacturer of water treatment facilities that began
full-scale operation in September 2004.
In this way, Kurita has developed an integrated
business in China that encompasses the manufacture of water treatment chemicals and facilities, as well as sales and maintenance services.
In the water treatment chemicals business,
Kurita transformed its two sales agencies into
wholly owned subsidiaries and strengthened ties
with customers in various regions to accelerate
expansion of its market share.
(2) Bolster new product and new businessdevelopment
Kurita channels significant resources into thedevelopment of new water treatment chemicals
and water treatment facilities that will play an
indispensable role in the future growth of theGroup. We have also been working to make twobusinesses—water treatment equipment for fuelcells and hydrogen fueling stations for fuel cell

Ultrapure Water Supply Business Trend(Fiscal Years Ended March 31)
To domestic
semiconductor
plantsTo domestic
wafer plants
To domestic
semiconductor
plantsTo domestic
large-scale
FPD plants
To FPD plants
in Singapore

3/20023/20033/2004

Over ¥10 billion in capital expenditures

03
Kurita Water Industries Ltd.

3/2005

Message from the President

vehicles—into central pillars of our energyrelated operations, now that fuel cell developers
have reached the stage of field trials.
On the research and development (R&D)
front, Kurita has decided to consolidate its two
R&D operations into a single facility. This willentail (1) adding a new, cutting-edge researchfacility to the Business Development Center,
which is engaged in new business development
and research into ultrapure water; and (2) transferring the functions of the Technology
Development Center, which focuses on basic
research, to the Business Development Center.
Through this consolidation, we will be able toexpedite the entire R&D process, from research
into basic technologies to development andcommercialization of new products.
(3) Reduce costs and strengthen earnings
potential
In the water treatment chemicals field, we
switched to lower-cost raw materials andrestructured our chemicals manufacturing
framework. The latter action entailed reducing
our three domestic manufacturing plants to
two in March 2005. We also revamped our
distribution centers and reduced production
and distribution costs.
With regard to water treatment facilities,
we established a “ready-made” system forstandardizing facilities to meet the needs ofcustomers demanding high product quality.
At the same time, we worked to reduce construction costs by lowering design costs andshortening construction periods.

OutlookIn the current fiscal year, the Group foresees a mild
improvement in the Japanese economy, supported
by enhanced corporate-sector earnings and arecovery in capital expenditures. However, we

remain concerned that rising crude oil and raw
materials prices could have a negative impact on
this recovery.
The fiscal year ending March 31, 2006, is the
final year covered by the PA-5 plan, and Kurita will
exert every effort to fulfill all of the plan’s objectives.
We are confident of achieving the initial targets ofthe plan: net sales of ¥175 billion, operating incomeof ¥20 billion and net income of ¥11.5 billion.
To attain these goals, we will continue expanding our solutions and outsourcing businesses. In
the year under review, we established a new clientoriented framework for chemical sales, which wehope will boost our market share in the current
fiscal year. Overseas, we will efficiently allocate
management resources based on clear businessplans tailored to the local characteristics of eachregion.
We will step up cost-reduction efforts aimed atstrengthening our earnings potential. We expectthat the reorganization of our chemical manufacturing plants, undertaken in the period under review,
will begin to bear fruit in the current fiscal year.
In the water treatment facilities business, we will
strive to reduce overall costs by developing simpler
systems and reassessing our purchasing structure,
while more rigorously controlling construction
costs. We are also confident that the integration of
our R&D facilities, to take place in October 2005,
will lead to faster development of new products
and businesses in the future.
I look forward to the ongoing support of shareholders and other stakeholders in our futureendeavors.

Hiroshi Fujino
President

04
Kurita Water Industries Ltd.

Kurita at a GlanceT

he Kurita Group offers a diverse lineup of water and environmental management products,
technologies and services, as well as total solutions that incorporate outsourcing and consulting services. The business of the Kurita Group can be divided into two main segments—Water
Treatment Chemicals and Water Treatment Facilities.

Percentage of
Net Sales

Water Treatment
Chemicals Division
31.5%

For thePublic Sector

46.6%

Percentage ofOperating Income

Water Treatment
Facilities Division
68.5%

53.4%

For GeneralIndustries

For theElectronics Industry

Water Treatment Chemicals Division

Water Treatment Facilities Division
For the Electronics Industry

For General Industries

For the Public Sector

PRINCIPAL PRODUCTS AND SERVICESPRINCIPAL PRODUCTS AND SERVICES PRINCIPAL PRODUCTS AND SERVICES PRINCIPAL PRODUCTS AND SERVICES■ Boiler water treatment chemicals■ Ultrapure water production
systems■ Pure water production systems■ Sewage treatment facilities■ Cooling water treatment chemicals■ Wastewater treatment systems■ Night soil treatment facilities■ Wastewater treatment chemicals■ Wastewater reclaim systems■ Soil remediation■ Waterworks facilities■ Process treatment chemicals■ Wastewater treatment systems■ Chemical cleaning■ Incinerator chemicals■ Tool cleaning■ Maintenance services■ Landfill leachate treatment
facilities■ Equipment and systems for water
treatment chemicals■ Operation and maintenanceservices■ Customized services• Steam supply services• Total water management
for factories■ Ultrapure Water Supply Business

05
5■ Operation and maintenanceservices

5

Kurita Water Industries Ltd.

Review of Operations

Summary of Results
In the year under review, business conditions
improved owing to higher plant productivity in thesteel, oil, pulp and paper, and other basic materials
industries. However, this was somewhat temperedby continuing cost-reduction measures by customers.
In response, Kurita strove to deliver products andservices that accurately reflect the problem-solving
needs of customers. We also pursued cost savings
by optimizing our purchasing and distribution
systems, thereby enhancing profitability. As a result,
total orders received for this segment increased
9.7%, to ¥52,120 million, while sales grew 6.7%, to¥50,637 million. Operating income climbed 11.9%,
to ¥7,433 million.

Orders(Millions of Yen)

45,21046,572

46,95346,45047,51652,120

2000

2001

2002

2003

2004

2005

Initiatives

45,48645,70946,277

47,11647,442

50,637

2000

2001

2002

2003

2004

2005

■ New Products
During the period, Kurita offered a wide range ofsolution-based proposals and delivered highly
functional, high-value-added products to customers,
thus meeting their requirements for improved production efficiency and lower environmental impact.
For example, we developed and introduced new
products for the pulp and paper manufacturing
process that boast high levels of safety, minimal
environmental load and improved yields. We also
met the needs of customers for more sophisticatedproducts by enhancing our lineup of chemicals foruse in incinerators. These included a new productthat decomposes dioxins, thus minimizing any
detrimental environmental effects.
In the fiscal year ended March 31, 2003, we
introduced a new line of boiler water treatment
chemicals and cooling water treatment chemicals.
To date, these products have earned high acclaim
for their functionality and safety, prompting manycustomers to change over from the existing line of
Kurita products. In Europe, favorable demand for our
chemicals used in the petroleum processing industry,
which provide high yields and reduced environmental
impact, helped boost income in that region.

50,00040,00030,00020,00010,000

Sales(Millions of Yen)

50,00040,00030,00020,00010,000(Millions of Yen)

Operating Income and Operating Income Ratio

6,292

6,623

6,244

6,493

6,640

13.5

13.8

14.0

15

10,000
8,000

(%)

7,433

13.8

14.5

14.7

12

6,000

9

4,000

6
3

2,000
2000

2001

2002

2003

2004

2005

Operating income ratio (right scale)

Selected Highlights
AssetsDepreciation and amortization
Capital expenditures

Millions of Yen

2005¥43,433
1,465
1,322

2004

Percentage
Change¥39,391 +10.3%
1,548 -5.4
1,895 -30.2

06
Kurita Water Industries Ltd.

■ Establishment of Infrastructure
Kurita’s sales network, which extends to every
corner of Japan, enables the Kurita Group toprevent water treatment-related problems at client
sites and swiftly respond to emergencies. This
network includes more than 60 sales agencies,
which constitute an important part of our sales
activities. In the period under review, Kurita
reorganized this network by transforming two
agencies into wholly owned subsidiaries. Thismeasure will enable us to bring our strategies tothe sales frontline more swiftly and effectively,
while providing more appropriate responses tocustomer needs.
On the manufacturing side, in recent years Kurita
has sought to achieve cost reductions by optimizing
raw materials procurement and the mix of products
made by its manufacturing plants. This has largely
been achieved by merging chemical manufacturingsubsidiaries with the parent company and by transferring plant assets. In the year under review, we
stepped up these measures. In March 2005, weclosed one of our three domestic chemical plants
in Japan, resulting in a domestic manufacturingsystem centering on two facilities. Although theplant that shut down had the latest automatedfacilities, it had been set up to mass-produce asmall range of products. Through its closure, we areable to better meet market demand for small-lot
production of a wide range of products. In short, we
now have a manufacturing system that is morecost-effective than before.

Outlook
Kurita believes that the current fiscal year will bringfurther productivity improvements at the domestic
plants of its client companies, especially those in
the basic materials industries. However, we also
envisage that customers pursuing cost-reduction
measures will continue to place downward pressure on the prices of water treatment chemicals.
Meanwhile, soaring prices of crude oil and otherbasic materials will exert upward pressure on thecost of materials used in our products.
Nonetheless, we view these trends as an
excellent opportunity to make full use of our highly
effective problem-solving capabilities, throughwhich we can highlight our improved productappeal and the excellence of our sales system,
which accurately reflects the needs of customers.
Meanwhile, we will continue cultivating new businesses through the introduction of new products,
while targeting expansion of our business in Asia,
centering on the rapidly growing Chinese market.
We expect to absorb increases in raw material
prices by shifting our emphasis to high-value-added
products. We will also begin to reap the benefits of
the reorganization of our manufacturing framework,
which will contribute to improved profitability.

07
Kurita Water Industries Ltd.

Review of Operations

Summary of Results
The year in review was characterized by continued
healthy capital expenditures in the electronics
industry, as well as signs of a turnaround in capital
expenditures in the domestic basic materials sector
in the wake of improved corporate earnings. As aresult, total orders received for this segment
increased 16.6%, to ¥119,213 million, while sales
grew 11.0%, to ¥110,259 million. Segment operating income jumped 24.4%, to ¥8,515 million.

Orders(Millions of Yen)

91,786

108,406

93,53881,981

102,218

Electronics Industry

119,213150,000
120,000

Summary of Results
Capital expenditures by leading domestic semiconductor manufacturers as well as Japanese andKorean FPD manufacturers remained strong.
Orders for ultrapure water production systems werebrisk and our Ultrapure Water Supply Businessposted steady growth. Our maintenance services
and tool cleaning business also performed well.
Consequently, orders received rose 14.0%, to ¥56.4
billion, and sales climbed 21.8%, to ¥54.9 billion.

90,00060,00030,000
2000

2001

2002

2003

2004

2005

85,511

107,725

96,401

94,512

99,377110,259

2000

2001

2002

2003

2004

2005

Sales

(Millions of Yen)

150,000
120,000
90,00060,00030,000(Millions of Yen)

Operating Income and Operating Income Ratio

4,873

9,195

4,537

5,730

6,845

10

10,000
8,000
6,000

(%)

8,515

5.7

8

8.5
7.7

6.9

4.7
6.1

6
4

4,000

2

2,000
2000

2001

2002

2003

2004

2005

Operating income ratio (right scale)

Selected Highlights
AssetsDepreciation and amortization
Capital expenditures

Millions of Yen

2005¥108,025
2,895
5,383

2004

Percentage
ChangeFunctional Water Production Equipment■ Functional water,¥94,402 +14.4%
2,323 +24.6
7,822 -31.2

ultrapure water witheither hydrogen or
ozone dissolved init, is used in semiconductor and FPD
production processes
as a substitute forchemical cleaning
agents, thereby
cutting production
costs and helping
lower environmental
impact.

08
Kurita Water Industries Ltd.

Growing Outsourcing BusinessIn the year under review, Kurita achieved steady
growth in its Ultrapure Water Supply Business.
Here, we handle the entire process for water treatment facilities, from construction and ownership to
operation and maintenance. This business model
requires minimal initial investment from customers
because, in principle, they only pay for the amountof water they use. By leaving the operation andmaintenance of their water treatment facilities to
Kurita, an expert in the field, customers do notneed to recruit personnel for facility operation. They
also benefit from a constant supply of high-quality,
ultrapure water. This system has been wellreceived by customers, who prefer to concentrate
their resources in their core businesses to enhancecompetitiveness. For Kurita as well, this system
has transformed its business structure into one thatis not easily influenced by capital investment trends
in the electronics industry.
As of March 31, 2005, Kurita had four contracts
in Japan and one overseas to provide this service.
To date, we have invested more than ¥10 billion inthis business, which generated domestic and overseas sales of ¥3.9 billion in the year under review.

OutlookIn the fiscal year ending March 31, 2006, we
anticipate a struggle in procuring orders for water
treatment facilities, owing to predictions of adecline in large-scale capital spending projects.
In response, we will continue to reinforce ourmaintenance capabilities and our tool cleaning
services. In ultrapure water supply, we will growour business by expanding facilities for existingcustomers while initiating new construction
projects. For the period, we plan to invest around¥10 billion in this business.

Concept of Ultrapure Water Supply Business
Customer Plant

Supply ultrapure water• Ownership• Operation• Maintenance

Semiconductor/
FPD production lines
Payment of fees

09
Kurita Water Industries Ltd.

Ultrapure waterproduction
systems

KuritaReview of Operations

General Industries
Summary of Results
In the year under review, companies in the steel,
petrochemicals and automobile industries moved
to update outmoded equipment and facilities
against a backdrop of strong demand from China.
Consequently, orders received increased 33.5%, to¥37.1 billion. Sales rose 6.0%, to ¥32.0 billion.
New Demand for Water Treatment
Kurita’s major customers are manufacturers, manyof whom have sought to enhance their competitiveness by streamlining and consolidating production
facilities and diversifying their product lines. They
are also rebuilding their production systems to
expand capacity and thus grow their businesses.
In many cases, however, modifications to productlines and production systems lead to major changes
in the nature of wastewater generated and thevolume to be treated. Raising the capacity of
wastewater treatment facilities, therefore, is an
important task for customers. In addition, risingsocial concern over environmental issues in recent
years has boosted demand for improved wastewater treatment facilities as a means of reducing
environmental impact.

Soil Remediation Business■ Kurita possesses a
broad array of soil
remediation technologies. Sincecommencing thisbusiness, we have
handled over 700
projects, making us
one of Japan’s leading soil remediation
service providers.

Responding to this situation, in April 2003 Kurita
established the Eco-Solution Group as a specialist
entity dedicated to solving customers’ problems.
Since then, it has offered value-added proposals
aimed at minimizing environmental impact, conserving energy and natural resources and loweringcosts.
Examples of the Eco-Solution Group’s activities
include proposals for optimal configuration ofwastewater treatment facilities, proposals for
reducing waste generated through more efficientfacility operation, and proposals for saving waterand lowering water supply and sewage costs via
collection and reuse of wastewater. This new
approach to business will serve to strengthen
Kurita’s ties with its customers and further underpin
business expansion.
OutlookJapan’s basic materials industries, centering on
steel and petrochemicals, are expected to increase
production, which should lead to firm demand forconstruction of new water treatment facilities or
expansion of existing ones. In response, Kurita will
strengthen its solutions capabilities, spearheadedby the Eco-Solution Group. In this way, we will work
to uncover latent demand by helping customers cut
costs and minimize the environmental impact of
their water treatment facilities.
In the soil remediation market, Kurita will continue providing mainstay soil remediation services
for customers without requiring them to halt theirfactory operations. In addition, we will focus on
meeting remediation needs accompanying sales oflarge tracts of landholdings by major manufacturers
seeking to restructure their asset portfolios.

10
Kurita Water Industries Ltd.

Public Sector
Summary of Results
Amid constrained spending by regional authorities
and shrinking budgets for public works projects,
orders for sewage treatment facilities declined
slightly due to intensified competition. This wasoffset to some degree by an increase in orders fornight soil treatment facilities, owing to Kurita’s
technical edge in this area. As a result, total orders
received increased 3.0%, to ¥25.7 billion, but sales
declined 3.1%, to ¥23.4 billion.
New Technologies for a Recycling-Oriented
Society
Kurita is constantly developing new products toaddress society’s needs related to the environment. In the year under review, for example, wedeveloped the Stellar® System, a highly efficientsystem for treating sewage and sludge. Previously,
the anaerobic digestion processes were widelyused for sludge reduction in midsize to large-scale
sewage treatment plants through the fermentationof organic matter, producing biogas (a saturated
gas consisting primarily of methane and carbon
dioxide).
The Stellar® System greatly improves fermentation efficiency by augmenting the anaerobic digestion process with Kurita’s proprietary ozone
treatment technology. This reduces the amount ofsludge to be disposed to less than one-third of previous levels, while also raising the amount of biogas
generated by around 30%. Kurita will continue
developing new technologies that contribute to theemergence of a recycling-oriented society.

than 100 night soil treatment facilities nationwide.
We will also focus on expanding sales of our
proprietary system for sewage sludge reduction,
which uses the powerful oxidation effect of ozone
to reduce excess organic sludge produced during
sewage treatment. At the same time, we will work
proactively to develop drinking water purification
systems utilizing advanced membrane technology
while addressing the needs of privately financed
initiative (PFI) projects.

The Stellar® System

Outlook
Kurita foresees a challenging time ahead in the
public works sector, owing to ongoing budget
constraints for sewage treatment facilities, as well
as changes to the national government’s budget
system. In response, Kurita will concentrate on
renewing and upgrading existing facilities, by leveraging its outstanding track record in operating more

11
Kurita Water Industries Ltd.

■ The Stellar® System
is based on Kurita’s
original ozone treatment technology,
which achieves
reduced sludge
from sewage treatment and increased
biogas generation.

New Business Activities

Building Businesses to Meet the
New-Energy Challenge
Kurita is now actively engaged in the developmentof new environmental businesses and novel technologies that help reduce society’s environmental
impact. Under its PA-5 plan, Kurita is particularly
focused on new-energy businesses that will play a
crucial role over the coming decades. These include
projects related to the development of hydrogenfueling stations, which will be used by fuel cellvehicles (FCVs), and the commercialization of
stationary fuel cells targeted at retail and industrial
users.
Participation in a Government-Sponsored
Project to Develop Hydrogen Fueling
Stations
During the fiscal year ended March 31, 2004, Kurita
became the first water treatment company to takepart in the Japan Hydrogen & Fuel Cell (JHFC)
Demonstration Project led by the Ministry of
Economy, Trade and Industry (METI). The project
includes the development of a network of hydrogenfueling stations, which is seen as one of the key
preconditions to the widespread adoption of FCVs.
As part of the project, Kurita teamed up with
Sinanen Co., Ltd., and Itochu Enex Co., Ltd., toconstruct a hydrogen fueling station in Sagamihara,
Kanagawa Prefecture, which was opened in May
2004. The station, which is the first in the world tooperate alongside an existing liquefied petroleumgas (LP gas) filling station, is currently being run ona test basis.

The Sagamihara Hydrogen Station consists of ahydrogen generator and compressor mounted on atruck and gas storage facilities and dispenser, which
are installed permanently at the site. Since thehydrogen generator and compressor are mobile
and may be used to serve several hydrogenstations, the initial set-up costs of each hydrogenstation are reduced. At the system’s core—thehydrogen generator—lies Kurita’s characteristic
alkaline electrolysis technology for producing hydrogen directly from ordinary tap water and electricity.
By maximizing the system’s strengths and utilizing
the limited space available at an existing LP gas
station, the project partners were able to achieve aworld first in constructing a hydrogen/LP gas dual
facility. It is hoped that the practical application ofthis system will lead to the early spread of hydrogenstations by capitalizing on the existing network of
LP gas stations covering the whole of Japan.
Commencement of Field Testing of
Stationary Fuel Cells for Commercial Users
The Japanese government has already announced
capacity targets of 1.2 million kW for 1 kW-classhome-use fuel cells and 900,000 kW for 5 kW-classcommercial-use fuel cells by 2010. For this reason,
the market for stationary fuel cells is expected toemerge over the next few years.
At present, Kurita is involved in a fuel celldemonstration project sponsored through funding
from Mie Prefecture and Yokkaichi City. Project
participants include fuel trading firms Sinanen and
Mie Shinagawa Sangyo K.K., Mie University and
Mie Prefectural Science and Technology Promotion
Center. The project features testing of a stationary
fuel cell using a hydrogen-permeable membrane-type
fuel reformer. By applying a hydrogen-permeable
membrane, it is possible to refine hydrogen to apurity of over 99.9%, making the fuel cell stack
more efficient and also simplifying the system owing
to the elimination of the need for a conventionalhydrogen refinement process.

12
Kurita Water Industries Ltd.

Research & Development

S

ince its establishment, the Kurita Group has
worked to protect the environment and raise its
customers’ productivity and product quality byproviding a wide range of environmental technologies to industry and society. We will continue torefine, renew and reinforce our accumulated water
treatment and environmental protection technologies by pursuing R&D through offering integrated
environmental solutions to industry and society.
Kurita’s R&D activities are conducted principallyby the parent company’s Research andDevelopment Division and the technical development departments of each operating division.
Approximately 200 employees are involved in R&D,
accounting for around 6.0% of overall Group personnel. Total research and development expenses
for the fiscal year ended March 31, 2005, amounted
to ¥4,228 million, equivalent to 2.6% of net sales.
Water Treatment Chemicals
In this segment, we not only develop chemicals
that meet customers’ needs in terms of conserving
energy and resources and cutting costs, but also
focus on reducing the environmental impact ofwater treatment by developing new environmentfriendly materials and non-chemical water treatment processes. We also develop solution-based
technologies to support the maintenance services
that we provide on a contract basis for chemical
water treatment, as part of our comprehensive
water treatment management offerings.
Major achievements in this segment during theyear under review include the development of:• an extremely effective and safe slime control
agent for cooling water systems in refineries andpetrochemical factories;• emulsion defoaming, felt conditioning and size
fixing agents to raise the productivity of pulp andpaper manufacturing processes;• a chemical feed optimizing system for dehydratingprocesses.
Research and development expenses in the
Water Treatment Chemicals segment totaled¥1,552 million.

Water Treatment Facilities
Kurita pursues ongoing R&D in environmental
protection technologies via anticipating changes infuture environmental regulations. At the same time,
we conduct R&D for a sustainable society, including development of technologies for wastewater
reclamation and reusability and sludge volume
reduction. We have also modified our water treatment equipment to make it more compact andhave shifted our facilities from a custom-madeconfiguration to a modular base system.
Key achievements in this segment during theyear under review include the development of:• a highly stable and cost-saving wastewater
reclamation system for the electronics industry,
as well as a fluoride-containing wastewater
treatment system;• a sensor-based operation supporting system foractivated sludge processes to prevent bulking
problems;• a landfill leachate treatment system consisting
only of physicochemical processes that employ
an evaporator system.
Research and development expenses in the
Water Treatment Facilities segment amounted to¥2,675 million.

13
Kurita Water Industries Ltd.

Corporate Governance

Basic Stance
Guided by its corporate philosophy, Kurita pursues its
activities in the fields of water and environmental
management with the aim of broadly contributing tosociety while meeting the expectations of shareholders and other stakeholders. To effectively realize
these objectives, we need to enhance operating
efficiency and improve corporate value over the longterm. Our basic stance with respect to corporate
governance is to establish and rigorously implement
systems geared toward maximizing corporate value.
Corporate Governance System
The Kurita Group adopts a corporate auditor systemwith four corporate auditors, including two outside
auditors. Both outside auditors, one of whom is anattorney, have no vested interests in the Group. The
corporate auditors carry out audits of the Group basedon policies and lines of authority determined by the
Board of Corporate Auditors. They also monitor andaudit the job performances of representative directors
and the managerial actions of directors.
As of June 29, 2005, the Board of Directors
consisted of 13 members, including one outside
director. The Board makes decisions on management
policies and other important operating matters, andalso monitors and audits the job performances ofrepresentative directors.
The Auditing Department, which reports directly tothe president, was set up to upgrade the Group’s
internal auditing capabilities. Also under the president’s
direct jurisdiction is the Compliance Committee. With
representation across the Group, the Committee ischarged with reinforcing Kurita’s compliance-related
capabilities.
The Executive Committee has four directors as
members, including the representative director. The
Committee’s job is to discuss important matterspertaining to management and support the decisionmaking function of the Board of Directors.
To strengthen its business execution capabilities,
in June 2005 Kurita introduced an executive officer
system and appointed five executive officers.

Internal Controls and Risk Management
In addition to monitoring and performing audits of therepresentative director and other directors, as well as
general audits, carried out by the Board of Corporate
Auditors, Kurita is strengthening its internal control
and risk management systems as follows.
■ Auditing Department
The Auditing Department reports directly to thepresident. It conducts internal audits, including of otherGroup companies, to pinpoint issues and problems
related to the execution of business, and submits
corrective proposals to the president.
■ Compliance Committee
The establishment of the Compliance Committee,
which reports directly to the president, reflects thepriority placed by management on ensuring legal andethical compliance. The Committee oversees theactivities of smaller compliance committees set up ineach business division. In the year under review,
Kurita commenced compliance-related initiatives
covering overseas companies in the Kurita Group.
For the Kurita Group, compliance means not only
respecting the law but also ensuring wide-ranging
ethical behavior based on five objectives: fairness,transparency, sincerity, safety and harmonious coexistence. To this end, the Group formulated its Business
Ethics Charter in 2000. To further upgrade its compliance activities, the Group has an internal consulting
hotline and an advisory desk operated from outside
the Group.

14
Kurita Water Industries Ltd.

■ Safety & Hygiene Committee
Reporting directly to the president, the head office’s
Safety & Hygiene Committee coordinates the activities
of safety and hygiene committees in each workplace,as well as of committees in the manufacturing departments, head office, branches, sales offices and otherplaces of business. The Committee works to improvesafety and hygiene management across all workplaceand business activities—involving not only Group
companies but also business partners. Its specifictasks include safety and hygiene education initiatives,
accident prevention activities in the manufacturing
departments, pre-construction risk assessments
and under-construction safety patrols. In addition topreventing disasters in these ways, the Committee
also is actively involved in health management,
including the mental health of employees.

Audit Status■ Internal Audits
As described earlier, the Auditing Department, reporting directly to the president, conducts internal auditsof all Group companies, carrying out audits at therequest of the president. The Department also submits
proposals for corrective measures as necessary andmonitors the implementation status of presidential
directives resulting from such proposals.
■ Audits by Board of Corporate Auditors
The four-member Board of Corporate Auditors
determines auditing policies for the current year,
the job responsibilities of each auditor, specificimplementation-related issues and scheduling. It also
audits the job performances of directors. In addition,
corporate auditors attend Board of Directors’ and otherimportant meetings to monitor and verify the decisionmaking status of the directors and the oversight
responsibilities of the Board of Directors. Other tasksof the Board of Corporate Auditors include investigating the financial positions of subsidiaries and otherGroup companies, verifying the internal control systemfor directors, and monitoring the impartiality and job
performance status of accounting auditors.

Corporate Governance System
General Meeting of Shareholders

Board of Corporate Auditors

Board of Directors

Executive Committee

President

Operating Division

Auditing Department, Compliance Committee,
Safety & Hygiene Committee

15
Kurita Water Industries Ltd.

Board of Directors and Corporate Auditors

President* Hiroshi Fujino
Executive Senior Managing Director* Takuo Ishida

General Manager of Chemicals and Maintenance Services Division

Managing Directors Hiroshi Saitou
Kazufumi Moriuchi
Directors Toshiaki Deguchi

General Manager of Corporate Planning Department
General Manager of Facility Management Service Division
General Manager of Research and Development Division

Yoshinobu Watanabe

General Manager of Geo-Environment Group,
Facility Management Service Division

Mitsuru Ogawa

General Manager of Administrative Division

Norio Takahashi

General Manager of Osaka Branch

Shigeto Tamura

General Manager of Environmental Water Treatment Division

Tetsuo Saeki

General Manager of Global Business Group,
Facility Management Service Division

Kaoru Kajii

General Manager of Operations Control & Procurement Division

Toshiyuki Nakai

General Manager of Corporate Planning GroupToru Matsushima
Corporate Auditors Tohru Ishizaka
Chiaki Kuzuu
Masahiko Kurita
Kazuma Yura
*Representative Director(As of June 29, 2005)

16
Kurita Water Industries Ltd.

FINANCIAL SECTION

Selected Financial Data
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31

Millions of yen

2005

2004

2003

2002

2001

2000

For the year:
Net sales
Cost of sales
Selling, general and administrative expenses
Operating income
Income before income taxes
Net income
Capital expenditures
Research and development (R&D) expenses
Depreciation and amortization¥160,896
112,077
32,867
15,951
16,376
9,383
6,706
4,228
4,361

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

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

¥142,678
99,03932,848
10,790
9,121
5,670
4,760
5,071
3,487

¥153,435
105,587
32,03015,817
14,727
8,366
3,079
4,743
3,268

¥130,998
88,174
31,619
11,203
8,615
4,648
2,558
5,164
3,553

At year-end:
Total current assets
Total current liabilities
Total shareholders’ equity
Total assets

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

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

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

103,490
36,585
122,590
172,145

115,263
51,625
119,209
183,175

111,017
41,633
113,383
165,29771.8
1,058.9

64.6
999.7

40.7
939.8

42.9
926.5

63.2
900.8

35.1
856.8

18.0

16.0

16.0

16.0

16.0

17.0

5.0
5.8
0.9
70.9
7.1

4.7
5.8
0.8
70.1
6.8

3.2
3.9
0.8
69.6
4.5

3.2
4.0
0.8
71.2
4.7

4.8
5.5
0.9
65.1
7.2

2.8
3.5
0.8
68.6
4.2

Amounts per share of common stock (yen):
Net income
Shareholders’ equity
Cash dividends applicable to the year(parent company)
Ratios:Return on assets (ROA) (%)
Return on sales (%)
Total assets turnover (times)
Shareholders’ equity ratio (%)
Return on equity (ROE) (%)

17
Kurita Water Industries Ltd.

Management Discussion and Analysis (Consolidated)

Operating Environment

The market environment for the Kurita Group was characterized by firm
demand for services related to water treatment, centering on Japan,
South Korea, Taiwan and China. In various industries, notably basic
materials and automobile, demand recovered in the wake of higher
operating ratios and capital expenditures. Conditions in the public sector
market, however, remained difficult, owing to shrinking public works
budgets, stiffer competition and mergers of cities, towns and villages
nationwide.

Performance

For the years ended March 31

Net Sales(Millions of Yen) 153,435 142,678

141,628 146,819 160,896

200,000

160,000

120,000

80,00040,000
2001

2002

2003

2004

2005

For the years ended March 31

Net Sales
Consolidated net sales for the fiscal year ended March 31, 2005, amounted
to ¥160,896 million, up 9.6% from the previous fiscal year. This increase
stemmed from improved revenues in both of Kurita’s principal businesssegments.
Despite a continuation of difficult business conditions from the preceding
year, the Water Treatment Chemicals segment generated a 6.7% increasein sales, to ¥50,637 million. This was due to a number of factors, including
reinforcement of ties with customers, adoption of a consulting-style sales
approach aimed at directly confronting customers’ problems, and the
pursuit of customized services, including packaged water treatment
management contracts. Sales in the Water Treatment Facilities segmentrose 11.0%, to ¥110,259 million, owing to increased sales of ultrapure
water production systems to the electronics industry and solid sales ofvarious products and services to general industries.

Operating Income(Millions of Yen) 15,817

10,79012,307

13,49015,951

20,00016,000Gross Profit
Gross profit climbed 7.6%, to ¥48,819 million, but the gross margin edged
down 0.6 percentage point. This was mainly the result of the increased
share in sales of water treatment facilities with relatively low profit margins.

12,000

8,000

4,000
2001

2002

2003

2004

2005

For the years ended March 31

Net Income(Millions of Yen)

8,366

5,670

5,476

8,444

Operating Income
Operating income climbed 18.2%, to ¥15,951 million. Selling, general andadministrative (SG&A) expenses grew 3.0%, to ¥32,867 million, due
primarily to an ¥869 million rise in personnel expenses (salaries, provision
for employees’ bonuses and retirement benefit expenses). Thanks to thesolid increase in net sales, the ratio of SG&A expenses to net sales
declined 1.3 percentage points, to 20.4%.

9,383

Income before Income Taxes
Income before income taxes grew 9.8%, to ¥16,376 million, due mainly toa decline in gain on sale of investments in securities and the elimination offoreign exchange losses and loss on write-down of land.

10,000

8,000

6,000

4,000

2,000
2001

2002

2003

2004

2005

Net Income
Owing to the increase in income before income taxes, net income
advanced 11.1%, to ¥9,383 million. Net income per share rose from
¥64.57 to ¥71.76.

18
Kurita Water Industries Ltd.

Segment Information
For the years ended March 31(Millions of Yen)

2002

2001

Orders (not included in the Consolidated Statements of Income: shown for reference purposes only)
Water Treatment Chemicals
52,12047,51646,450
Water Treatment Facilities
119,213102,218
81,981
Total
171,334
149,735
128,431

2005

2004

2003

46,95393,538140,492

46,572
108,406
154,979

Net sales
Water Treatment Chemicals
Water Treatment Facilities
Total

50,637110,259
160,896

47,442
99,377
146,819

47,116
94,512
141,628

46,277
96,401
142,678

45,709107,725
153,435

Operating income
Water Treatment Chemicals
Water Treatment Facilities
Elimination or corporate
Total

7,433
8,515
1
15,951

6,640
6,845
5
13,490

6,493
5,730
82
12,307

6,244
4,537
8
10,790

6,623
9,195
(2)
15,817

Water Treatment Chemicals
During the year, business conditions benefited from higher operating
ratios in the steel, oil, pulp and paper, and other basic materials industries.
However, customers continued to reduce costs and competition intensified, causing downward pressure on product prices. In response, Kurita
leveraged its nationwide sales network and adopted a more customeroriented sales approach, in an effort to deliver products and services that
accurately reflect customers’ needs. At the same time, we strove to boost
earnings through optimization of purchasing and distribution aimed atminimizing costs.
As a result, orders received in this segment rose 9.7%, to ¥52,120
million. Segment sales grew 6.7%, to ¥50,637 million, and operating
income climbed 11.9%, to ¥7,433 million.
Water Treatment Facilities
In this segment, Kurita boosted both orders and sales of ultrapure waterproduction and other water treatment systems; solutions related to water
treatment; outsourcing services; and maintenance and other services.
Orders received jumped 16.6%, to ¥119,213 million, and sales grew
11.0%, to ¥110,259 million. Segment operating income surged 24.4%, to¥8,515 million, as Kurita worked to simplify its systems, while alsoreassessing its purchasing structure and reducing costs by standardizing
its product designs.
Electronics Industry
In the electronics industry, leading domestic semiconductor manufacturers
and FPD-related companies pursued aggressive capital expenditure
programs. Overseas, South Korean manufacturers continued targeting
proactive capital expenditures, but some LCD makers in Taiwan opted topostpone major outlays.

19
Kurita Water Industries Ltd.

Management Discussion and Analysis (Consolidated)

Against this background, capital investments by Kurita’s major
customers in Japan were brisk, leading to steady expansion of its Ultrapure
Water Supply Business. Demand for our tool cleaning services was alsostrong. As a result, orders received from the electronics industry rose
14.0%, to ¥56.4 billion, and sales jumped 21.8%, to ¥54.9 billion.
General Industries
In the year under review, companies in the domestic steel, petrochemicals
and automobile industries increased production and actively replaced aging
equipment, mainly in response to surging demand in China. In the soil
remediation business, we saw signs of growing demand for soil-related
services, particularly soil assessment and remediation of land previously
occupied by factories.
In this environment, Kurita reported higher orders from companies in thedomestic steel, petrochemicals and automobile industries, and an increase inorders for its soil remediation services. Total orders received from generalindustries surged 33.5%, to ¥37.1 billion. Large-scale projects are usuallyconcentrated in the fourth quarter of each financial year, and, as a result,sales from such projects are not recorded until the following year.
Consequently, the increase in sales was limited to 6.0%, for a total of ¥32.0
billion.
Public Sector
The public sector continued to be plagued by financial difficulties among
regional government entities and a shrinking national budget. As a result,domestic public works expenditures remained on the decline. Due tointense competition, orders for sewage treatment facilities decreasedslightly, but Kurita exploited its technological edge to attract orders forlarge-scale night soil treatment facilities. We provide ongoing operationand maintenance services for more than 100 facilities nationwide, which
generated stable orders and sales during the period.
Orders received from public sector entities therefore rose 3.0%, to¥25.7 billion, while sales slipped 3.1%, to ¥23.4 billion.

Liquidity and Capital Resources
As of March 31

Total Assets(Millions of Yen) 183,175 172,145

173,689 183,620 192,428

200,000

160,000

120,000

80,00040,000
2001

2002

2003

2004

2005

Financial Position
At fiscal year-end, total current assets amounted to ¥116,400 million,
down ¥2,523 million from a year earlier. Significant factors included a¥4,435 million increase in notes and accounts receivable, trade; a ¥4,833
million decline in cash and time deposits; and a ¥3,926 million drop in
marketable securities. The rise in notes and accounts receivable, trade,
resulted primarily from the increase in sales of water treatment facilities.
The decline in cash and time deposits was attributed to Kurita’s purchaseof investments in securities and fixed assets.
Total noncurrent assets, comprising investments and long-term receivables; property, plant and equipment, at cost; and other assets, amounted
to ¥76,028 million, up ¥11,331 million. This stemmed mainly from a ¥2,184
million rise in property, plant and equipment, net—as Kurita invested in

20
Kurita Water Industries Ltd.

As of March 31

Total Shareholders’ Equity and Equity Ratio(Millions of Yen) 119,209 122,590

120,969 128,676

136,366

69.6

70.9

(%)

80

200,000

71.2

70.1

65.1

160,000

64

120,000

48

80,00032

40,000

16
2001

2002

2003

2004

2005

Equity ratio

For the years ended March 31

Capital Expenditures and Depreciation and Amortization(Millions of Yen)

9,718

10,000

3,487

3,307

2002

2003

4,361

3,268

2001

3,079

4,000

4,760

6,000

3,872

6,198

6,706

8,000

2,000

Capital expenditures

Cash Flows

2004

2005

Depreciation and amortization

facilities for its Ultrapure Water Supply Business—and a ¥7,376 million
increase in investments in securities.
Total current liabilities stood at ¥44,465 million, up ¥1,511 million, due
principally to a ¥1,275 million rise in notes and accounts payable, trade.
This increase was primarily a result of higher materials, outsourcing andother costs associated with the increase in net sales.
Total long-term liabilities were down ¥473 million, to ¥10,485 million,
owing mainly to a ¥460 million decline in accrued employees’ retirement
benefits.
Total shareholders’ equity at fiscal year-end amounted to ¥136,366
million, up ¥7,690 million from a year earlier, thanks to a ¥7,138 million risein retained earnings stemming from the ¥9,383 million in net income.
At March 31, 2005, total assets amounted to ¥192,428 million, up¥8,808 million from a year earlier. Net assets per share increased to¥1,058.90, from ¥999.63. The equity ratio rose 0.8 percentage point, from
70.1% to 70.9%.
Capital Expenditures
At present, all of the funds required for the Kurita Group’s working capitaland capital investments are generated internally, and external fund-raising
is not necessary at this stage. In the year under review, the Group madecapital expenditures of ¥6,706 million, down ¥3,012 million. It invested¥1,322 million in its water treatment chemicals business, mainly in equipment for packaged water treatment management services, as well as inremote monitoring systems and construction of a warehouse and distribution center. The Group also invested ¥5,383 million in its water treatment
facilities business, mainly to purchase production systems for its Ultrapure
Water Supply Business and expand its tool cleaning facilities.
The Group enjoys a healthy financial position and is capable of generating ample cash flows from its operating activities. Therefore, the Group
believes that it currently has sufficient funds for future capital investments
and working capital.

Net cash provided by operating activities amounted to ¥8,297 million, up¥2,723 million from the previous period. Factors boosting operating cash
flows included ¥16,376 million in income before income taxes and ¥4,361
million in depreciation and amortization. Factors holding down operating
cash flows included a ¥4,494 million increase in trade receivables,
accompanying the increase in net sales, as well as ¥6,479 million inincome taxes paid.
Net cash used in investing activities totaled ¥10,669 million, up ¥10,523
million from the preceding year. This stemmed mainly from ¥13,134 million
in payments for purchase of marketable securities and investments insecurities, and ¥5,905 million in payments for purchase of property, plantand equipment.

21
Kurita Water Industries Ltd.

Management Discussion and Analysis (Consolidated)

Net cash used in financing activities amounted to ¥2,422 million, up¥702 million. This increase derived primarily from ¥2,185 million in cash
dividends paid.
As a consequence, cash and cash equivalents at end of year stood at¥30,365 million, down ¥4,772 million from a year earlier.

There are a number of major risk factors that can potentially affect the
Kurita Group’s financial performance. These include economic trends, thestatus and operating ratios of customers’ water treatment-related facilities,
public sector investment budgets, raw materials prices and competition
from other companies in the same industry. Specific factors that can affectour performance, by segment, are described below.
In the Water Treatment Chemicals segment, our business is affectedby demand fluctuations determined by the plant operating ratios of ourcustomers in the steel, oil, and pulp and paper industries. In the Water
Treatment Facilities segment, our business is influenced mainly bydemand fluctuations resulting from capital expenditures in the electronics
industry, a major source of demand. Also impacting this segment are
public sector-related factors, such as the financial condition of regional
government entities and their budgetary practices.
In addition, sales and earnings in the Water Treatment Facilities segment are generally concentrated in the second half of the fiscal year. This
reflects revenue accounting based on work-in-progress standards and thecompletion of large-scale projects, centering on public sector demand,
which are weighted disproportionately toward the end of the financial year,
causing operating income from such projects to be concentrated in thesecond half.

Risk Factors

For the years ended March 31(Millions of Yen)

2005

2004

2003

1st Half

2nd Half

Total

1st Half

2nd Half

Total

1st Half

2nd Half

Total

Water Treatment Chemicals
Sales
Operating income

24,7603,951

25,877
3,482

50,637
7,433

23,645
3,273

23,7973,367

47,442
6,640

23,214
3,609

23,9022,884

47,116
6,493

Water Treatment Facilities
Sales
Operating income

46,4092,493

63,8506,022

110,259
8,515

40,936843

58,441
6,002

99,377
6,845

38,520721

55,992
5,009

94,512
5,730

22
Kurita Water Industries Ltd.

Consolidated Statements of Income
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2005, 2004 and 2003

œThousands of
U.S. dollars (Note 1)

Millions of yen

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 6)
Operating income
Other income (expenses):
Interest and dividend income
Interest expenses
Gain on sale of investments in securities
Equity in earnings of nonconsolidated subsidiaries
and affiliates
Loss on write-down of investments in securities
Loss on write-down of properties
Loss on write-down of inventories
Amortization of unrecognized effect of change in accounting
for employees’ retirement benefits
Foreign exchange losses
Other, net

Income before income taxes
Income taxes (Note 12):Current
Deferred

Minority interests in earnings of consolidated subsidiaries
Net income

2005

2004

2003

2005

¥160,896
112,077
48,81932,867
15,951¥146,819
101,433
45,38631,895
13,490¥141,628
97,84643,781
31,474
12,307$1,498,240
1,043,645
454,595
306,053
148,533

356
(38)
128

409
(27)
1,414

416
(17)
—

3,315
(354)
1,192

244
—
(477)
(90)

208
—
(499)
—

143
(822)
—

2,272
—
(4,442)
(838)

—
—
301
425

—
(151)
74
1,428

(1,162)(214)(385)(2,043)

—
—
2,803
3,958

16,376

14,918

10,263

152,491

6,603
234
6,838

6,089
257
6,347

4,957
(283)
4,674

61,486
2,179
63,674154¥009,383

126¥008,444112¥005,476

1,434$0,087,373

2005

2004

2003

¥71.7618.00¥64.5716.00¥40.6716.00

Yen

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

23
Kurita Water Industries Ltd.

U.S. dollars (Note 1)

2005

$0.67
0.17

Consolidated Balance Sheets
Kurita Water Industries Ltd. and Consolidated Subsidiaries
As of March 31, 2005 and 2004

Millions of yen

AssetsThousands of
U.S. dollars (Note 1)

2005

2004

2005

¥030,679
71,116
(156)
2,794
8,075
2,038
1,852
116,400¥035,512
66,681
(140)
6,720
6,713
2,070
1,365
118,923$0,285,678
662,222(1,453)26,01775,193
18,97817,246
1,083,900

Investments and long-term receivables:
Investments in securities (Note 9)
Investments in nonconsolidated subsidiaries and affiliates
Deferred tax assets (Note 12)
Deferred tax assets on revaluation of land
Other investments
Allowance for doubtful accounts
Total investments and long-term receivables

20,629
2,352
1,775
176
4,194
(133)
28,993

13,253
2,025
2,121
176
2,242
(141)
19,678

192,094
21,901
16,5291,639
38,123(1,238)269,979

Property, plant and equipment, at cost:
Land (Note 5)
Buildings and structures
Machinery and equipment
Construction in progress
Other facilities
Total
Accumulated depreciation
Property, plant and equipment, net

14,48331,658
17,110
1,734
10,04775,032(31,178)
43,855

14,34630,37215,011539
10,14370,411(28,741)
41,671

134,864
294,795
159,326
16,14793,556698,687(290,325)
408,371

3,180¥192,428

3,347¥183,620

29,612$1,791,861

Current assets:
Cash and time deposits (Note 8)
Notes and accounts receivable, trade
Allowance for doubtful accounts
Marketable securities (Note 9)Inventories (Note 10)
Deferred tax assets (Note 12)
Other current assets
Total current assets

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

24
Kurita Water Industries Ltd.

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Shareholders’ Equity
Current liabilities:
Current portion of long-term borrowings (Note 11)
Notes and accounts payable, trade
Income taxes payable
Advances received
Accrued employees’ bonuses
Allowance for product warranty
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term borrowings (Note 11)
Accrued employees’ retirement benefits (Note 13)
Accrued retirement benefits for directors and corporate auditors
Other long-term liabilities
Total long-term liabilities
Total liabilities
Minority interests in consolidated subsidiaries
Contingent liabilities (Note 16)
Shareholders’ equity:
Common stock, 2005 and 2004
Authorized: 531,000,000 shares
Issued: 2005—132,800,256 shares
2004—132,800,256 shares
Additional paid-in capital
Retained earnings (Notes 4 and 17)
Unrealized gains on revaluation of land (Note 5)
Unrealized gains on available-for-sale securities
Foreign currency translation adjustment
Treasury stock, at cost:
2005—4,163,793 shares, 2004—4,217,542 shares
Total shareholders’ equity
Total liabilities and shareholders’ equity

25
Kurita Water Industries Ltd.

2005

2004

2005

¥000,085
28,163
3,924
942
2,060
992
8,297
44,465¥000,048
26,888
3,593
1,373
2,173
1,028
7,847
42,954$0,000,792
262,250
36,5408,772
19,182
9,237
77,260414,052

270
8,689
704
821
10,48554,951

349
9,149
658
800
10,95853,9122,514
80,911
6,556
7,645
97,635
511,696

1,110

1,031

10,336

13,45011,409115,318
(257)
2,067
(790)
141,197

13,450
11,398108,180
(257)
1,625
(829)
133,567

125,244
106,239
1,073,824(2,393)
19,248(7,356)
1,314,806(4,830)136,366¥192,428(4,890)128,676¥183,620(44,976)
1,269,820$1,791,861

Consolidated Statements of Shareholders’ Equity
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2005, 2004 and 2003

Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2003

2005

Common stock:
Beginning of year
End of year

¥013,450
13,450¥013,450
13,450¥013,450
13,450$0,125,244
125,244

Additional paid-in capital:
Beginning of year
End of year

¥011,398
11,409¥011,398
11,398¥011,398
11,398$0,106,137
106,239¥108,180
9,383¥101,637
8,444¥098,804
5,476$1,007,356
87,37393—(2,185)
(148)

—
278
(2,058)(118)——(2,117)
(120)

866
—
(20,346)(1,378)—(4)¥115,318—(3)¥108,180

(336)
(69)
¥101,637—(37)$1,073,824

Retained earnings:
Beginning of year
Net income for the year
Increase of nonconsolidated subsidiaries and relatedcompanies applying the equity method
Reversal of unrealized gains on revaluation of land (Note 5)
Cash dividends paid
Bonuses to directors and corporate auditors
Decrease due to change in scope of consolidation (net ofinclusion and exclusion of consolidated subsidiaries)
Other
End of year
The accompanying notes are an integral part of these statements.

26
Kurita Water Industries Ltd.

Consolidated Statements of Cash Flows
Kurita Water Industries Ltd. and Consolidated Subsidiaries
For the years ended March 31, 2005, 2004 and 2003

Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2003

2005

¥14,918
3,872(2,317)(1,414)
(208)
(409)
27
(118)

¥10,263
3,208
592
824
(143)
(417)
17
(120)

$152,491
40,609(4,311)(1,192)(2,272)(3,315)354(1,285)

510

(222)

2,188

(6,793)
(442)
2,995
308
10,927482(27)(5,829)20
5,574(4,784)
1,369
1,771
(327)
12,028609(17)(2,058)(160)
10,402(41,847)(12,804)
7,896(3,110)133,374
3,948(335)(60,332)
605
77,260(1,924)(5,905)100(76)(8,364)1,183

78(4,895)
251(17,916)(54,986)931(13,134)(2,412)(9,360)(122,302)

10,554—(361)(10,669)

10,687—(1,166)
(146)

7,073
(66)
(81)
(6,999)98,277—(3,362)(99,348)

(60)
(125)
(2,185)(42)(10)—(2,422)—346(2,057)(32)(4)
28(1,720)(57)(11)(2,116)(28)(4,058)—(6,270)(559)(1,164)(20,346)
(391)
(93)
—
(22,553)

22(4,772)35,137(127)
3,580
31,507(59)(2,927)32,980205(44,436)
327,191—¥30,36550¥35,137

1,454¥31,507—$282,754

I. Cash flows from operating activities:
Income before income taxes¥16,376
Depreciation and amortization
4,361(Decrease) increase in allowance for employees’ retirement benefits(463)(Gain) loss on sales and write-down of investments in securities(128)
Equity in earnings of nonconsolidated subsidiaries and affiliates(244)
Interest and dividends income(356)
Interest expenses
38
Payments of bonuses to directors and corporate auditors(138)
Increase (decrease) in other allowances, accrual andnon-cash items, net
235
Change in assets and liabilities:
Increase in trade receivables(4,494)(Increase) decrease in inventories(1,375)
Increase in trade payables
848
Others, net(334)
14,323
Interest and dividends received
424
Interest paid
(36)
Income taxes paid
(6,479)Others, net
65Net cash provided by operating activities
8,297
II. Cash flows from investing activities:(Increase) decrease in time deposits, net
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of marketable securities and investments
in securities
Proceeds from sales of marketable securities and investments
in securities
Long-term loans to nonconsolidated subsidiaries
Others, net
Net cash used in investing activities
III. Cash flows from financing activities:
Decrease in short-term debt, net(Decrease) increase in long-term debt, net
Cash dividends paid
Cash dividends paid to minority interests in consolidated subsidiaries
Payments for purchase of treasury stock, net
Others, net
Net cash used in financing activities
IV. Effect of exchange rate changes on cash and cash equivalents
V. Net (decrease) increase in cash and cash equivalents
VI. Cash and cash equivalents at beginning of year (Note 8)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 8)
The accompanying notes are an integral part of these statements.

27
Kurita Water Industries Ltd.

Notes to Consolidated Financial Statements
Kurita Water Industries Ltd. and Consolidated Subsidiaries

1. Basis of presenting consolidated financial statements
Kurita Water Industries Ltd. (the“Company”) and its domestic subsidiaries maintain their books of account and prepare
their financial statements in accordance with accounting principles and practices generally accepted in Japan, while its
foreign subsidiaries maintain their books of account and prepare their financial statements in conformity with those of
the countries of their domicile. Certain accounting principles and practices generally accepted in Japan are different
from International Financial Reporting Standards and standards in other countries in certain respects as to applicationand disclosure requirements. Accordingly, the accompanying consolidated financial statements are intended for use by
those who are informed about Japanese accounting principles and practices.
The accompanying consolidated financial statements, prepared in accordance with accounting principles and practices generally accepted in Japan, were filed with the Japanese Ministry of Treasury and the Tokyo Stock Exchange as
required by the Securities and Exchange Law of Japan.
Certain reclassifications of accounts and modifications have been made in the accompanying financial statements tofacilitate understanding by readers outside Japan. These reclassifications and modifications have no effect on net
income or shareholders’ equity.
All figures in the financial statements and notes are stated in millions of yen by discarding fractional amounts of lessthan ¥1 million. As a result, the totals shown in the financial statements and notes in yen do not necessarily agree withthe sum of the individual amounts.
The translation of yen amounts into U.S. dollar amounts is included solely for the convenience of readers and has
been made for 2005, as a matter of arithmetical computation only, at the rate of ¥107.39 to US$1, the prevailing rate on
the Tokyo foreign exchange market on March 31, 2005. The translation should not be construed as a representationthat yen have been, could have been or could in the future be converted into U.S. dollars at the above or any other rate.
2. Consolidation policies(1) Scope of consolidation
The consolidated financial statements include the accounts of the Company and its significant subsidiaries. All significant
intercompany transactions and balances have been eliminated in consolidation.
Number of consolidated subsidiaries: 31 (30 for 2004)
Names of principal consolidated subsidiaries: Kurita Engineering Co., Ltd., Kuritaz Co., Ltd. and Kuritec Service
Co. Ltd.
In the fiscal year ended March 31, 2005, two newly acquired subsidiaries through acquisition of additional stocks,
Kurita Chemical Oita Co., Ltd. and Kurita Chemical Hokkaido Co., Ltd., were added to the Kurita Group. Also during theperiod, Kurita Kako Corp. was excluded from the Kurita Group due to liquidation.
Name of principal nonconsolidated subsidiary: Kurita Sogo Service Co., Ltd.
All the nonconsolidated subsidiaries are those subsidiaries whose combined assets, net sales, net income and retained
earnings in the aggregate are not significant in terms of the consolidated financial statements.
(2) Revaluation of assets and liabilities of the consolidated subsidiaries in consolidation process
In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the portion attributable to the minority shareholders, are evaluated using the fair value at the time the Company acquired control of therespective subsidiaries.
(3) Application of equity methoda) The nonconsolidated subsidiaries and related companies applying the equity method and the name of the principal
company are as follows:
Number of nonconsolidated subsidiaries applying equity method: 4
Number of related companies applying equity method: 6
Name of principal company: Kurita Sogo Service Co., Ltd.
The equity method was applied to San Kako Co., Ltd., Nippon Fine Co., Ltd., Aoi Industries Co., Ltd., Sanei
Industries Co., Ltd. and Miyoshi Industries Co., Ltd. for the fiscal year ended March 31, 2005, due to their growing
importance to the Kurita Group.
28
Kurita Water Industries Ltd.

b) The nonconsolidated subsidiaries and related companies not applying the equity method (Kurita Water Industries[Suzhou] Ltd.) were excluded from the scope of the equity method, due to the minimal impact to net income (equity
share) and retained earnings (equity share) of the consolidated financial statements, and are considered immaterial
as a whole.
c) Adjustments were made to the financial statements of the companies applying the equity method whose fiscal
year-ends were not identical to the Company.
(4) Fiscal year of consolidated subsidiaries
The fiscal year of Kurita (Singapore) Pte. Ltd., Kurita do Brasil Ltda., Kurita America Inc., Kuritec Europe GmbH, Kurita
Water (Malaysia) Sdn. Bhd., Kurita (Taiwan) Co., Ltd., Kurita-GK Chemical Co., Ltd., Kurita Water Industries (Dalian)Co., Ltd., P.T. Kurita Indonesia, Hansu Technical Service Ltd., Kuritec Singapore Pte. Ltd. and Kuritec (Shanghai) Co.,
Ltd., ended December 31, 2004. Those financial statements were used for consolidation purposes. However, materialtransactions that have occurred during the period from December 31, 2004 to March 31, 2005, have been adjusted forconsolidation purposes.
3. Significant accounting policies(1) Valuation basis and method
Available-for-sale securities
Items that have market price: Evaluated at fair value at the balance sheet date, with resulting unrealized holding
gains and losses reported as a separate component of shareholders’ equity (cost of sold securities is computedby the moving-average method)
Items that have no market price: Cost computed by the moving-average method
Inventories
The moving-average method (except for work in process whose costs are determined by the specific identification
method)(2) Depreciation method of property, plant and equipment
Declining-balance method for the Company and its domestic consolidated subsidiaries (except for buildings, notincluding auxiliary facilities, acquired on and after April 1, 1998, for which the straight-line method is applied) andstraight-line method for foreign consolidated subsidiaries:
The estimated useful lives of these assets are as follows:
Buildings and structures
2–65 years
Machinery and transportation equipment 2–13 years(3) Allowances and accruals
Accrued employees’ bonuses:
The Company and its domestic subsidiaries accrue the amount based on the anticipated bonus payments toemployees.
Accrued employees’ retirement benefits:
Accrued employees’ retirement benefits are recorded based on the estimated projected benefit obligation andfair value of the pension assets at the balance sheet date. Mathematical variances are subject to amortization
over a period of 1–2 years from the year when they are incurred.
(4) Basis used for translating material assets and liabilities in foreign currency into Japanese yen
Monetary assets and liabilities shown in foreign currency are translated using the spot exchange rate shown at
the end of the fiscal year, and the differences are recorded as foreign exchange gains or losses. Also, foreignsubsidiaries’ assets and liabilities are translated using the spot exchange rate at year-end; income and expenses
are translated using the average exchange rate; and a component of Shareholders’ equity.
(5) Leases
Finance leases other than those that are deemed to transfer the ownership of the leased assets to lessees areaccounted for by the same method as that of operating leases.

29
Kurita Water Industries Ltd.

(6) Earnings per share
Earnings per share are computed using the weighted-average number of common shares and dilutive potential
common shares outstanding.
(7) Consumption taxes
Consumption taxes are accounted for separately from transaction prices and not reflected in the consolidated
statements of income.
(8) Amortization of goodwill
The consolidation adjustment is amortized using the three-years straight-line method. However, if the amount isimmaterial, it is expensed in the period that it is incurred.
(9) Derivatives transactions
When necessary, the Company enters into forward currency contracts to hedge the risk of future foreign exchange
rate fluctuations related to monetary obligations denominated in foreign currencies. These are basically conductedwithin the range of ordinary business transactions denominated in foreign currencies. The Company believes thatthe risk of counterparty default is negligible because its forward currency contracts are conducted with highly creditworthy Japanese banks. In addition, transactions in forward currency contracts are executed and managed by thefinance and accounting department on a contract-by-contract basis after they have been approved by prescribedinternal procedures.
(10) Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bankdeposits withdrawable on demand and short-term investments with an original maturity of three months or lessand subject to a minor risk of fluctuations in value.
4. Appropriation of retained earnings
The accompanying consolidated statements of shareholders’ equity reflect the appropriations of retained earnings of
the Company in the year in which the annual shareholders meet and approve the appropriations.
5. Unrealized gains on revaluation of land
The Company carried out a revaluation of land for business use in accordance with the Land Revaluation Law (enacted
on March 31, 1998). The revaluation difference is stated as “unrealized gains on revaluation of land” in the shareholders’equity account, net of taxes. The tax equivalent is stated as deferred tax assets or liabilities in long-term liabilities.
When any revalued land is sold, the related unrealized gain or loss on revaluation of land is transferred 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
Difference between fair market value of the land at fiscal year-end and the carrying value after land revaluation:¥1,003 million (US$9,340 thousand)
6. Research and development expenses
Research and development expenses included in selling, general and administrative expenses are as follows:
Thousands of
U.S. dollars

Millions of yen

2005

2004

2003

2005

¥4,228¥4,289¥4,484$39,37130
Kurita Water Industries Ltd.

7. Changes in disclosure(1) Due to the fact that “Loss on write-down of inventories” had exceeded 10/100 of total “Other expenses,” it wasclassified separately from “Other, net” in the fiscal year ended March 31, 2005. “Loss on write-down of inventories”
amounted to ¥12 million in the previous fiscal year.
(2) Due to the fact that “Fixed assets rental cost” had not exceeded 10/100 of total “Other expenses” (amounting to¥10 million), it was included in “Other, net” in the fiscal year ended March 31, 2005.
8. Reconciliation between cash and cash equivalents
Reconciliation between the cash and cash equivalents in the consolidated statements of cash flows and the consolidatedbalance sheet items is as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and time deposits
Time deposits having original maturity ofmore than three months
Cash and cash equivalents

2005

2004

2003

2005

¥30,679¥35,512¥31,838$285,678(313)¥30,365(374)¥35,137(330)¥31,507(2,915)$282,754

9. Marketable securities and investment securities(1) Available-for-sale securities with fair value at March 31, 2005 and 2004, are summarized as follows:
Millions of yen
At March 31, 2005

Book value exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Other
Sub-total
Total

31
Kurita Water Industries Ltd.

Acquisition cost

Book value

Difference¥05,445¥08,922¥3,476

2,399
1,641
1,999
11,487

2,401
1,645
1,999
14,968

1
4
0
3,481

1,348

1,321

(26)

—
4,055
—
5,403
¥16,891

—
4,049
—
5,371
¥20,340

—
(5)
—
(32)
¥3,449

Millions of yen
At March 31, 2004

Book value exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Sub-total
Book value not exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Other
Sub-total
Total

Acquisition cost

Book value

Difference¥05,158¥07,956¥2,798

4,401
2,011
11,571

4,401
2,021
14,380

0
10
2,808

841

770

(70)

400
1,349
—
2,591
¥14,162

400
1,347
—
2,518
¥16,898

0
(2)
—
(73)
¥2,735

Thousands of U.S. dollars
At March 31, 2005

Book value exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Other
Sub-total
Book value not exceeding acquisition cost:
Stock
Bonds:
National and local government bonds
Corporate bonds
Other
Sub-total
Total

Acquisition cost

Book value

Difference$050,703$083,080$32,368

22,33915,281
18,614
106,965

22,35815,31818,614
139,380937
032,415

12,552

12,301(242)—
37,760—50,312$157,287—
37,704—50,014$189,403

—
(47)
—
(298)
$32,117(2) Available-for-sale securities sold during the years ended March 31, 2005, 2004 and 2003, are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2005

Sales amount
Total gains on sales
Total losses on sales

¥210
148
—

32
Kurita Water Industries Ltd.

2004

¥2,222
1,414
—

2003

2005

¥2
—
1

$1,955
1,378—

(3) The schedule of redemption for available-for-sale securities with maturity at March 31, 2005 and 2004, issummarized as follows:
Millions of yen
March 31, 2005
Within1 year

Bonds:
National and local government bonds
Corporate bonds
Other
Total

¥

—
768
1,999
¥2,768

Thousands of U.S. dollars
March 31, 2004

1 to 5 years

Within1 year¥2,401
4,927—¥7,328¥4,801
1,918—¥6,720March 31, 2005
Within1 year1 to 5 years

¥

—
1,450
—
¥1,450$—7,152
18,614$25,775

1 to 5 years$22,358
45,880—$68,237(4) Available-for-sale securities with no market priceThousands of
U.S. dollars

Millions of yen

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

2005

2004

2003

2005

¥3,082¥3,075¥3,089$28,699

10. Inventories
Inventories at March 31, 2005 and 2004, consist of the following:Thousands of
U.S. dollars

Millions of yen

Finished products
Raw materials
Work in process
Total

2005

2004

2005

¥1,438972
5,664¥8,075¥1,2191,051
4,443¥6,713$13,390
9,051
52,742$75,193

11. Long-term borrowings
Long-term borrowings at March 31, 2005 and 2004, are summarized as follows:
Thousands of
U.S. dollars

Millions of yen

2005

Loan from banks at interest rates from 4.5% to 4.6%
Less current portion
Total

33
Kurita Water Industries Ltd.

¥355
(85)
¥270

2004

¥397
(48)
¥349

2005

$3,306(792)$2,514

12. Income taxes
The breakdown for 2005 and 2004 was omitted due to insignificance of difference. For the year ended March 31, 2003,
adjustments to reconcile the Company’s effective tax rate to the statutory tax rate were as follows:
2003

Statutory tax rate
(adjustments)
Entertainment expenses and other expenses not deductible
Dividends received not taxable
Per capita equalization and inhabitants’ taxes
Deduction of deferred tax assets at the fiscal year-end due to change in tax rate
Other
Effective tax rate after application of tax effect accounting

42.0%
1.6
(0.7)
0.9
0.8
0.9
45.5%

Note: Change in statutory effective tax rate for application of tax effect accounting:Due to change in local tax law (enacted on March 31, 2003), the Company changed the effective tax rate used in the calculation of deferred tax assets andliabilities from the fiscal year ended March 31, 2003 (only for fixed assets and long-term liabilities). As a result, deferred tax assets, net of deferred tax
liabilities, decreased by ¥82 million at March 31, 2003, and provision for deferred income taxes and unrealized holding losses on other securities decreasedby ¥80 million and by ¥2 million, respectively, for the year ended March 31, 2003.

Significant components of the deferred tax assets and liabilities are as follows:
Millions of yen

Deferred tax assets:
Excess provision for accrued employees’ retirement benefits
Excess provision for accrued bonuses to employees
Accrued enterprise taxes not deductible
Accrued retirement benefits for directors and corporate auditors
Excess provision of allowance for product warranty
Excess portion of design expenses
Unrealized gain on sales of property, plant and equipment
Excess depreciation of property, plant and equipment
Devaluation loss on property, plant and equipment
Loss on write-down of golf club membership
Other
Sub-total
Valuation allowances
Total deferred tax assets
Deferred tax liabilities:
Capital gain on properties deferred for tax purposes
Valuation gain on available-for-sale securities
Estimated income taxes pertaining to retained earningsof overseas consolidated subsidiaries
Other
Total deferred tax liabilities
Deferred tax assets, net

34
Kurita Water Industries Ltd.

Thousands of
U.S. dollars

2005

2004

2005

¥3,080
827
325
280
395
196
433
282
287
139
535
6,785
(310)
6,474

¥2,942
876
333
264
413
165
421
282
208
142
623
6,671
(202)
6,469

$28,681
7,701
3,026
2,607
3,678
1,825
4,032
2,626
2,673
1,294
4,982
63,181(2,887)60,285(867)(1,409)(876)(1,110)(8,073)(13,120)(379)(4)(2,660)¥3,813(272)(17)(2,277)¥4,191(3,529)(37)(24,770)$35,50613. Retirement benefits and pension plans(1) The Company and 18 domestic consolidated subsidiaries provide lump-sum retirement benefits or qualified pension
plans as defined benefit pension plans; moreover, the Company and 3 domestic consolidated subsidiaries have bothplans, and 6 domestic consolidated subsidiaries have only qualified pension plans.
(2) Benefit obligation:
Thousands of
U.S. dollars

Millions of yen

Retirement benefit obligation
Fair value of pension plan assets
Unfunded retirement benefit obligation
Unrecognized actuarial loss (gain)
Accrued employees’ retirement benefits

2005

2004

2005

¥(22,967)
14,264(8,703)13¥0(8,689)¥(22,697)
13,624(9,073)(76)¥0(9,149)$(213,865)
132,824(81,041)121$0(80,911)(3) Benefit cost:Thousands of
U.S. dollars

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of obligation at transition arising fromnew accounting standards
Actuarial (gain) loss
Additional retirement payments
Net periodic benefit cost

2005

2004

2003

2005

¥1,109532—¥1,239540—¥1,246531—$10,327
4,954
—

—
(39)
52
¥1,654—(679)
35¥1,136

1,162
984
164
¥4,090—(363)
484$15,402(4) Assumptions to determine above obligation and cost:

Periodic allocation of projected benefit obligation
Discount rate
Expected rate of return on plan assets
Amortization period of net transition obligation
Amortization period of actuarial loss

2005

2004

Equal amount over each period
2.5%
0.0%
—
one–two years

Equal amount over each period
2.5%
0.0%
—
one–two years

35
Kurita Water Industries Ltd.

14. Leases(1) The following pro forma amounts describe the finance leases which would have been reflected in the financial
statements if leased assets had been capitalized to the finance lease transactions currently accounted for as
operating lease:a) Leased assets (lessee)
Thousands of
U.S. dollars

Millions of yen

Acquisition costs
Accumulated depreciation
Net book value

2005

2004

2003

2005

¥1,572(777)¥0,794¥(1,705(1,024)¥(0,681¥(1,995(1,169)¥(0,826$14,638(7,235)$07,394b) Lease obligations (net book value)
Thousands of
U.S. dollars

Millions of yen

2005

Due within one year or lessDue within more than one year
Total

¥303
490
¥794

2004

¥287
394
¥681

2003

¥306
519
¥826

2005

$2,821
4,563$7,394c) Lease payments relating to finance lease transactions accounted for as operating lease
Thousands of
U.S. dollars

Millions of yen

2005

Lease payments
Depreciation

¥338
338

2004

¥340
340

2003

¥403
403

2005

$3,147
3,147

Depreciation of the leased assets is computed by the straight-line method over the lease terms (with zero
residual value).
(2) Accrued lease payments relating to operating lease transactions:Thousands of
U.S. dollars

Millions of yen

2005

Due within one year or lessDue within more than one year
Total

¥078
101
¥180

36
Kurita Water Industries Ltd.

2004

¥120
124
¥245

2003

¥061
82
¥144

2005

$0,726940$1,676

15. Segment information
The business segment information of the Company and its consolidated subsidiaries for the years ended March 31,
2005, 2004 and 2003, is outlined as follows:
Millions of yen
Year ended March 31, 2005

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total
Operating costs and expenses
Operating income
II. Assets, depreciation and capital expenditures
AssetsDepreciation and amortization
Capital expenditures

Water Treatment
Chemicals

Water Treatment
Facilities

Total

Eliminationor corporate¥50,637
199
50,83743,403¥07,433¥110,259
681
110,941
102,425¥008,515¥160,896
881
161,778
145,829¥015,949

¥

—
(881)
(881)
(883)
¥00,001¥160,896—
160,896
144,945¥015,951¥43,433
1,465
1,322

¥108,025
2,895
5,383

¥151,459
4,361
6,706

¥40,969——¥192,428
4,361
6,706

Water Treatment
Chemicals

Water Treatment
Facilities

Total

Eliminationor corporate

Consolidated¥47,442161
47,60440,964¥06,640¥99,377
298
99,67592,830¥06,845¥146,819460
147,280
133,794¥013,485

¥

—
(460)
(460)
(466)
¥00,005¥146,819—
146,819
133,328¥013,490¥39,391
1,548
1,895

¥94,402
2,323
7,822

¥133,794
3,872
9,718

¥49,825——¥183,620
3,872
9,718

Water Treatment
Chemicals

Water Treatment
Facilities

Total

Eliminationor corporate

Consolidated¥47,116378
47,49441,000¥06,493¥94,512204
94,71688,985¥05,730¥141,628
583
142,211
129,986¥012,224

¥

—
(583)
(583)
(665)
¥00,082¥141,628—
141,628
129,321¥012,307¥37,351
1,110
1,167

¥82,607
2,196
5,031

¥119,958
3,307
6,198

¥53,730——¥173,689
3,307
6,198

Consolidated

Millions of yen
Year ended March 31, 2004

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total
Operating costs and expenses
Operating income
II. Assets, depreciation and capital expenditures
AssetsDepreciation and amortization
Capital expenditures

Millions of yen
Year ended March 31, 2003

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total
Operating costs and expenses
Operating income
II. Assets, depreciation and capital expenditures
AssetsDepreciation and amortization
Capital expenditures

37
Kurita Water Industries Ltd.

Thousands of U.S. dollars
Year ended March 31, 2005

I. Sales and operating income
Sales1) Sales to outside customers
2) Intersegment sales
Total
Operating costs and expenses
Operating income
II. Assets, depreciation and capital expenditures
AssetsDepreciation and amortization
Capital expenditures

Water Treatment
Chemicals

Water Treatment
Facilities

Total

Eliminationor corporate$471,524
1,853
473,387
404,162$069,215$1,026,716
6,341
1,033,066
953,767$0,079,290$1,498,240
8,204
1,506,453
1,357,938$0,148,515$—(8,204)(8,204)(8,222)$000,009$1,498,240—
1,498,240
1,349,707$0,148,533$404,442
13,642
12,310$1,005,913
26,95850,126$1,410,364
40,60962,445$381,497——$1,791,861
40,60962,445

Consolidated

Principal products and services of each division:
Water Treatment Chemicals Division
Boiler water treatment chemicals, cooling water treatment chemicals, wastewater treatment chemicals, process
treatment chemicals, incinerator chemicals, equipment and systems for water treatment chemicals, and customized
services, including a steam supply contract and blanket contracts for factories
Water Treatment Facilities Division
For the electronics industry:
Ultrapure water production systems, wastewater reclaim systems, wastewater treatment systems, tool cleaning,
operation and maintenance services, and ultrapure water supply businessFor general industries:
Pure water production systems, wastewater treatment systems, soil remediation, chemical cleaning, andmaintenance services
For the public sector:
Sewage treatment facilities, human waste treatment facilities, waterworks facilities, landfill leachate treatment
facilities, and operation and maintenance services
The total assets that were offset during the consolidation procedure for fiscal years 2005 and 2004 were ¥49,831
million and ¥40,983 million, respectively, which primarily included abundant capital and long-term investment capital.

38
Kurita Water Industries Ltd.

Overseas net sales:
Thousands of
U.S. dollars

Millions of yen
For the year ended March 31, 2005

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

Asia

North
America

Europe

Other

Total

Total

¥18,966—¥979—¥1,015—¥1,440—¥022,402
160,896$0,208,604
1,498,240

11.8%

0.6%

0.6%

0.9%

13.9%

13.9%

¥13,256
—

¥535
—

¥888
—

¥1,316—¥015,996
146,819

9.0%

0.4%

0.6%

0.9%

10.9%

For the year ended March 31, 2004

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

Notes: 1. Countries and regions are classified into segments according to geography and proximity.
2. The major countries or regions classified in each geographic segment are as follows:
Asia:
South Korea, China, Taiwan, Singapore, Indonesia, Thailand
North America: United States of America
Europe:Germany
Other:
Brazil3. Overseas sales refer to sales outside Japan generated by the Company and its consolidated subsidiaries.

16. Contingent liabilities
Guarantees for employees’ indebtedness from bank housing loans at March 31, 2005 and 2004, are as follows:
Thousands of
U.S. dollars

Millions of yen

2005

2004

¥19

¥39

2005

$177

17. Subsequent event
Appropriation of unappropriated retained earnings
The following appropriations of unappropriated retained earnings for the year ended March 31, 2005, were approved at
the general meeting of shareholders of the Company held on June 29, 2005.

Cash dividends
Bonuses to directors and corporate auditors

39
Kurita Water Industries Ltd.

Millions of yen

Thousands of
U.S. dollars¥1,15785$10,774792

18. Per share information
Yen

Net assets per share
Earnings per share (EPS)

U.S. dollars

2005

2004

2003

2005

¥1,058.90
71.76¥999.6364.57¥939.78
40.67

$9.86
0.67

Calculation for EPS is as follows:
Millions of yen

Net income
Net income relating to common stock
Average number of shares

2005

2004

2003

¥9,383
9,229
128,615,153¥8,444
8,302
128,584,628¥5,476
5,351
131,587,576

40
Kurita Water Industries Ltd.

Thousands of
U.S. dollars

2005$87,373
85,939128,615,153

Report of Independent Certified Public Accountants

TAIYO AUDIT CORPORATIONAKASAKA OJI Bldg. 8F
8-1-22 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 asof March 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity and cash flows
for each of the three years in period ended March 31, 2005, expressed in Japanese yen. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Kurita Water Industries Ltd. and subsidiaries as of March 31, 2005 and 2004, and theconsolidated results of their operations and their cash flows for each of the three years in the period ended March 31,
2005, 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, 2005 have been translated into UnitedStates dollars solely for the convenience of the reader. We have recomputed the translation and, in our opinion, theconsolidated financial statements expressed in Japanese yen have been translated into United States dollars on thebasis set forth in Note 1 to the consolidated financial statements.

Tokyo, Japan
June 29, 2005

41
Kurita Water Industries Ltd.

Nonconsolidated Summary

Nonconsolidated Balance Sheets, at March 31, 2005 and 2004
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2005

AssetsCurrent assets
Property, plant and equipment
Intangible assets
Investments and other assets
Total assets¥097,053
35,531
2,327
34,442¥169,355¥103,061
33,902
2,593
25,698¥165,256$0,903,758
330,865
21,669320,724$1,577,034

Liabilities
Current liabilities
Long-term liabilities
Total liabilities¥038,390
8,373
46,764¥039,567
8,702
48,269$0,357,488
77,969435,466

Shareholders’ equity
Common stock
Additional paid-in capital
Retained earnings
Unrealized gains on revaluation of land
Unrealized gains on available-for-sale securities
Treasury stock, at cost
Total shareholders’ equity
Total liabilities and shareholders’ equity

13,45011,409100,778(257)
2,040(4,830)122,590¥169,355

13,450
11,39895,670(257)
1,616(4,890)116,987¥165,256

125,246
106,241
938,445(2,393)18,996(44,977)
1,141,558$1,577,034

Nonconsolidated Statements of Income, for the Years Ended March 31, 2005, 2004 and 2003
Thousands of
U.S. dollars (Note 1)

Millions of yen

2005

2004

2003

2005

¥119,175
85,251
33,924¥112,206
79,76132,444¥114,115
81,83932,276$1,109,758
793,857
315,900

Selling, general and administrative expenses
Operating income

23,904
10,02023,3909,053

23,741
8,535

222,594
93,306

Other income
Other expenses
Income before income taxes

2,704
723
12,002

3,438
974
11,517

2,630
2,327
8,838

25,1806,733
111,763

4,633¥007,369

4,748¥006,7683,388¥005,450

43,142$0,068,620

Net sales
Cost of sales
Gross profit

Income taxes
Net income

42
Kurita Water Industries Ltd.

Corporate Data
As of March 31, 2005

Company NameDOMESTIC OFFICES

Kurita Water Industries Ltd.

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

Osaka Branch:

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

Corporate Research& Development Center:

7-1, Wakamiya Morinosato, Atsugi, Kanagawa 243-0124
Tel: 81 (46) 270-2111

Business & Technology
Development Center:

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

Branches:

Sapporo, Tohoku, Nagoya, Hiroshima, Shikoku, Kyushu

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

Paid-in Capital¥13,450,751,434

Date of Establishment
July 13, 1949

Number of Employees
1,600 (parent company)
3,382 (on a consolidated basis)

OVERSEAS OFFICES
Singapore Branch:

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

Taiwan Representative Office:Kuang-Fu Rd., 14th Floor, Section 1, Hsinchu, Taiwan
Tel: 886 (3) 577-3874

Major Consolidated Subsidiaries and Affiliates
Company Name

Paid-in
EquityCapital (Millions) Ownership (%)

OVERSEAS
North America • South America
Kurita do Brasil LTDA
R$7.0
Kurita America Inc.
US$3.0
Kurita de Mexico S.A. de C.V.
M.N. PESO8.1
EuropeKurita Europe GmbH
EUR2.301
Kuritec Europe GmbH
EUR0.959
Asia
Kurita (Singapore) Pte. Ltd.
S$4.0
Kuritec Singapore Pte. Ltd.
S$1.49Kurita Water (Malaysia) Sdn. Bhd.
RM$0.6
Kurita Water Industries (Dalian) Co., Ltd.
¥550
Kuritec (Shanghai) Co., Ltd.
¥30
Kurita Water Industries (Suzhou) Ltd.
¥100
Kurita (Taiwan) Co., Ltd.
NT$20
P.T. Kurita Indonesia
US$2.0
Kurita-GK Chemical Co., Ltd.
BAHT56
Hansu Ltd.
W2,500Hansu Technical Service Ltd.
W400

Main Business

100.0
100.0
45.0

Manufacture & sale of water treatment chemicals
Sale of water treatment facilities, facility operation and maintenance services
Manufacture & sale of water treatment chemicals

85.0
100.0

Manufacture & sale of water treatment chemicals
Sale of water treatment facilities, facility operation and maintenance services

100.0
100.0
83.3
85.1
100.0
100.0
95.0
90.0
60.0
33.2
59.4

Manufacture & sale of water treatment chemicals and water treatment facilities
Ultrapure water supply for specified customers
Sale of water treatment chemicals and water treatment facilities
Manufacture & sale of water treatment chemicals
Maintenance services and sale of small water treatment facilities
Manufacture & sale of water treatment facilities
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment chemicals and water treatment facilities
Manufacture & sale of water treatment chemicals
Manufacture & sale of water treatment chemicals
Sale of water treatment facilities and maintenance services

Chemical cleaning
Manufacture & sale of household and industrial water purifiers
Operation & maintenance of water treatment facilities, soil andgroundwater assessment and remediation
Soil and groundwater contamination assessment and consulting,contamination risk-hedging support and post-remediation land usage support
Tool cleaning

DOMESTIC
Kurita Engineering Co., Ltd.
Kurita Creation Co., Ltd.
Kuritaz Co., Ltd.

¥160
¥160
¥220

100.0
100.0
100.0

Land Solution Inc.

¥450

51.0

Kuritec Service Co. Ltd.

¥50

100.0

43
Kurita Water Industries Ltd.

Investor Information
As of March 31, 2005

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

11,807

Independent Auditor

Taiyo Audit Corporation
Akasaka Oji Bldg. 8F, 1-22, Akasaka 8-chome, Minato-ku, Tokyo 107-0052, Japan

Transfer Agent

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

Distribution of Shares

Main Shareholders
Shareholdings
Percentage of(Shares) total shares issued (%)

Itochu Corporation
10,268,000
Japan Trustee Services Bank, Ltd. (Trust Account)
9,251,000
Nippon Life Insurance Company
7,284,283
Northern Trust Company (AVFC) Sub-account American Client 5,227,500
The Master Trust Bank of Japan, Ltd. (Trust Account)
4,495,300
Tokio Marine & Nichido Fire Insurance Co., Ltd.
4,311,526
Kurita Water Industries Ltd.
4,163,793
UFJ Bank Limited
2,936,131
Nomura Securities Co., Ltd.
2,509,000
Deutsche Bank AG Frankfurt
2,443,400

7.73
6.96
5.48
3.93
3.38
3.24
3.13
2.21
1.88
1.83

Treasury Stock
4,163,793

Individuals
13,913,706

3.1%
10.5%
33.1%
37.9%

Financial
Institutions
43,962,021

2.2%
13.2%

Foreigners
50,340,133
Other
Domestic Firms
17,530,882

Securities
Firms
2,889,721

Stock price
(Yen)

TOPIX
(Points)

2,500

2,500

Stock Price Range (Tokyo Stock Exchange)
2,000

2,000
Kurita stock prices

1,500

1,500

1,000

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

500

500

0

Trading volume(Hundreds of shares)

0
Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June
2003
2004
2005

Trading Volume (Tokyo Stock Exchange)

100,000

50,0000Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sept. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June
2003
2004
2005

44
Kurita Water Industries Ltd.

Note on Projections of Future Results
Projections of future results contained inthis annual report accord with Kurita’s plans,
prospects and strategies as decided by the
management on the basis of information
available at the time. Since projections of
future results lack the substance of fact andmay be based on data from other sources,
the accuracy and reliability of which we areunable to guarantee, you are requested not
to rely on such projections alone. Moreover,many factors affecting business results are
subject to uncertainty and are therefore asource of risk. These factors include, but are
not limited to, the following: macroeconomic changes, such as changes in capital
markets and large-scale shifts in demand,
especially insofar as those influencing themarkets and industries directly related to our

For further information please contact us:
E-mail: ir@kurita.co.jp

main businesses.

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

A N N U A L
R E P O R T
2 0 0 54-7, Nishi-Shinjuku 3-chome, Shinjuku-ku, Tokyo 160-8383, Japan
Tel: 81 (3) 3347-3111

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

Kurita Water Industries Ltd.

Kurita Water Industries Ltd.