Semi-annual financial information 2003

Kuraray Co., Ltd.

Policies
Management Policy
The Kuraray Group started a new 5-Year Medium-Term Business Plan called “G-21” infiscal 2001. The plan was formulated based on an awareness that succeeding amid
today’s global competition demands the ability to: (1) maintain international
competitive power, (2) give consideration to the natural environment, (3) more widely
utilize IT as well as grow in these markets, (4) maximize synergies within a corporategroup, and (5) give balanced consideration to every stakeholders. Under “G-21,” theKuraray Group aims to be an “eco-friendly enterprise with unique technology.” Guiding
this drive are actions to expand in three directions: businesses where the Group is
globally competitive, businesses where the Group can contribute to the preservation andimprovement of the global environment, and businesses where the Group can best
express its distinct identity.
Medium-Term Management Strategy
Under “G-21,” the Group places emphasis on ROA and cash flows as performanceindicators. Our aim is to achieve an ROA that exceeds the cost of capital (a target of
more than 7%) by fiscal 2005, the final year of the plan.
There are five themes involving the management structure: (1) creating a flatterorganization and delegating a significant degree of authority; (2) making each business
unit and Group company self-reliant; (3) maximizing synergies within the Group by
sharing values and business strategies; (4) establishing a compensation system that
better reflects results; and (5) promoting business process reengineering (BPR) and theuse of IT.
With regard to business strategies, the Group places priority on both strategies forindividual products and individual markets. The Kuraray Group positions the following
globally competitive product categories as its core businesses: polyvinyl-acetate related
fields (poval, EVAL, KURALON and KURALON K-II); isoprene chemical fields(thermoplastic elastomers, fine chemicals); and man-made leather (CLARINO). All
these businesses are targeted for growth. In addition to these product-specific strategies,
the Group has four strategic market sectors: IT (poval film for LCDs, heat-resistantresin, etc.); eco-friendly businesses (asbestos substitutes, gas barrier materials,
substitutes for polyvinyl chloride and vulcanized rubber), environmental businesses(activated carbon, PVA gel, industrial membranes); and medical products (artificialorgans, dental materials). Growth is to be achieved by pursuing an application
development strategy based on a “market-in” approach.
Basic Policy with Regard to Dividends
At Kuraray, returning earnings to shareholders is a management theme of the highestpriority. Management believes that its mission is to sustain continuous growth in sales
and earnings while allocating earnings as appropriate. In the current businessenvironment, retained earnings is to be used for strategic investments, including
mergers and acquisitions, in Japan and overseas as required to achieve growth.
Policy Regarding Reduction in Trading Unit
Kuraray regards increasing the liquidity of its shares and attracting more individual
shareholders as important management issues. We will continue to study the merits ofreducing the trading unit of Company shares. This process will fully take into accountmovements in the share price, number of shareholders, liquidity and other factors, plus
the benefits that could be expected from reducing the trading unit.
Important Issues
In order to survive amid the rapid pace of change in the business management, it isessential to strengthen our earning power still further. To become more profitable, theGroup is focusing on the following measures set forth in the “G-21.”
1. We aim to make core businesses even more global in nature. In the poval related
businesses, one goal is the early realization of synergy through development,
production, and sales operations by Kuraray Specialties Europe GmbH, a company
established during fiscal 2001 to take over the polyvinyl alcohol (PVA) andpolyvinyl butyral (PVB) businesses of Clariant. A concurrent goal is the efficient
operation of PVA related businesses from bases in Japan and Singapore. In EVOH
resins (EVAL), Kuraray is making steady preparations to expand operations in
Europe. In thermoplastic elastomers (SEPTON), a new factory of the U.S. subsidiary
SEPTON Company of America began operation in September this year, setting thestage for further growth.
2. Construction of technical centers in the United States has begun. This function will
enable us to provide speedier and more precise technical services in the U.S., whichis the world’s largest market. We also intend to utilize the function to facilitate thedevelopment of new product applications and open up completely new markets. In
China, we opened an office in Shanghai in April of this year, thus giving ourselves
an indispensable base in this fast-growing market.
3. We are reinforcing Group operations to generate stable earnings amid an expected
prolonged period of deflation and low capacity utilization levels in Japan. To thisend, we will implement the thorough cost-reduction and will accelerate efforts todevelop new products and applications so as to cultivate new customers.
4. We will restructure the Group’s organization by pursuing prompt measures
including withdrawal of underperforming businesses, and focusing management

resources on those deemed to possess good prospects. The profitability of eachbusiness operation will be evaluated using our “Reevaluation Criteria for
Underperforming Businesses,” and we will work to create an optimal businessportfolio.
5. We will create a corporate structure to respond swiftly and effectively to dramaticchanges in the market environment. There are three objectives: facilitating prompt
decision-making by delegating significant degree of authority; conducting unified
R&D, manufacturing and sales activities; and clarifying accountability of more
self-reliant business operations. To achieve these goals, we adopted an in-housecompany system on April 1, 2002.
6. We will promote BPR to achieve higher productivity levels. Kuraray Business
Service Co., Ltd. was started in April 2002 to raise the efficiency of administrative
work for the whole Group.
7. We have positioned contributions to the environment and society as key elements of
the Group’s operations. We will develop and provide products that addressenvironmental issues and, in line with our medium-term environmental plan,
continue to take aggressive actions to reduce substances harmful to the environment.
8. The Kuraray Group is faced with risk factors of increasing magnitude andcomplexity. The “Kuraray Group Risk Management Conference” has been newly
formed to play the leading role in dealing with these risks in a speedy and accurate
manner. This is expected to give the Group an even more powerful risk management
system.
Management Organizational Reform Policy
Faced with a situation of severe international competition, we will continue to pour ourenergies into pursuing flexible business activities based on prompt decision-making,ensuring fairness and management transparency, and building the kind of system tofulfill our social responsibilities.
1) We have expedited decision-making since we adopted an in-house company system
in April 2002 and delegated management authority and responsibility to eachin-house company presidents. At the same time, we have fine-tuned relationships
among the in-house companies and integrated group management policies byimproving corporate staff organization such as Corporate Management Division.
2) In June 2002, we increased the number of external auditors to 3 out of 4 of ourcorporate auditors in order to strengthen our corporate governance. In line with the
adoption of the in-house company system, we created a system in which senior

managing directors and managing directors, who collectively had all executive
responsibilities, were assigned more specialized roles regarding the medium andlong-term strategies of the business, and where emphasis was put on their functions
as decision-makers and supervisors for the whole company.
3) In order to promptly devise a system of impartial information disclosure, theCompany improved external communications in accordance with management
policy by upgrading the Office of Corporate Communications to the Corporate
Communications Department under the Corporate Management Division in April
2002.
4) To put a greater emphasis on compliance, following the establishment of its
corporate compliance standards, the Company set up the In-House Ethics
Committee and worked toward enhancing corporate ethics throughout theCompany.
5) In October this year, all those in the Kuraray Group from the top executives down
to middle management (approx. 1,000) were granted a stock option to enhance theirsense of participation in Company management and put more emphasis on
shareholder value.

Business Performance and Financial Data
Principal Business Results
The Japanese economy remained a deflationary spiral during the six-month term to
September 30, 2002. In the United States, meanwhile, the economy’s recovery has been
weak. European economies continued to follow a slowing trend too.
Against this background, the management of the Kuraray Group, in line with their goalof constructing a corporate structure that is less affected by short-term economic
fluctuations, devoted their efforts to: the development of new products based on
Kuraray’s unique materials, as well as new applications for existing products; thecultivation of new users; and the implementation of thoroughgoing cost-reduction plans.
As a result, Kuraray recorded an increase in sales over the same period of the previous
fiscal year of 4.6%, or ¥7,012 million, to ¥158,155 million on a consolidated basis.
Operating income was up 31.8%, or ¥2,780 million year-on-year, at ¥11,523 million.
Owing to the posting restructuring charges in the amount of ¥2,220 million, and loss on
write-down of investment securities of ¥884 million, net income came to ¥3,616 million,a decrease of ¥303 million, or 7.7% from the first half of the previous fiscal year.
1. Segment Information
The Company’s operational segments were revised with effect from the six months
under review. Figures for the first half of the previous fiscal year and for the full term
have been recalculated to conform with the new operational categories. To accuratelyreflect the new operational category, operating costs for the whole company which werepreviously apportioned among the separate segments, are now, with effect from thesix-month term under review, treated as non-allocable costs and thus posted under“Eliminated on consolidated and corporate.” Assets held in common by all segments,
being non-allocable assets, are also posted under “Eliminated on consolidated andcorporate.”
a. Chemicals & Resins
Sales rose ¥10,913 million (18.2%) year-on-year, to ¥70,906 million, and operating
income rose ¥1,820 million (26.1%) to ¥8,805 million.
(1) Prices of poval improved on Asian markets. In Europe, Kuraray Specialties Europe
GmbH, which was established in fiscal 2001 to take over the PVA and PVB
operations of Clariant AG, contributed to the increase in overall revenues. There
was a recovery in demand for PVA film for LCDs. As a whole, the poval businessregistered gains in both revenues and profits.
(2) Demand for EVAL continued to grow as predicted, particularly in the U.S. andEurope, leading to growth in both revenues and profits.
(3) Thanks to growing demand for optical technology applications and successful

cost-cutting measures, sales of methacrylic resins as a whole were virtuallyunchanged, while profits rose.
(4) In isoprene chemicals, sales of thermoplastic elastomers grew as expected,
principally in the U.S. and European markets. In the fine chemicals field, theCompany was hurt by market price declines in vitamin, while sales of agrochemicalintermediates and perfumes trended steadily. As a result, overall sales of finechemicals rose and profits were also up year-on-year.
b. Fibers & Textiles
Sales of fibers & textiles declined by ¥3,009 million, or 5.2%, from the same period of
the previous fiscal year, to ¥54,347 million, but operating income increased ¥645
million, or 34.9%, to ¥2,494 million.
(1) Sales were steady in specialty fields such as KURALON – used as fiber reinforced
cement (FRC) in place of asbestos, as well as for reinforcing rubber – but demand
for general industrial materials and demand for agriculture and fisheries industries.
Thanks to the expanded sales in new applications for KURALON K-II, as well as arecovery in demand for FRC, we were able to achieve full capacity utilization. As aresult, overall sales held flat, and profits posted a year-on-year rise.
(2) Market conditions remained difficult for polyester fiber operations. However, as aresult of: 1) the split-off of polyester filament yarn production operations; 2) thetransfer of polyester textile operations to the Kuraray Group’s trading arm, Kuraray
Trading Co., Ltd.; 3) the accelerated development of unique, competitive materials;
and the downsizing of sales operations in unprofitable fields, we succeeded in
narrowing the red-ink margin at the operating income stage despite a year-on-year
decline in revenue.
(3) Sales of CLARINO were favorable, both for footwear and for apparel use in Japan:
revenues and profits were both up on an overall basis.
(4) Sales of non-woven fabrics held up well considering the slump in the Japanesemarket for such mainstay products as counter cloths, but the effect of pricereductions on profits was severe: sales was flat from the previous fiscal year, while
profits fell. The hook and loop fastener business suffered declines in both sales andprofits, owing to the transfer of production facilities overseas in the apparelindustry.
c. High Performance Materials, Medical Products & Others
Sales of high performance materials, medical products & others declined by ¥892
million, or 2.6%, to ¥32,902 million, but operating income rose ¥365 million, or 10.5%,
to ¥3,852 million.
(1) In the Opto-Screen Business, screens for projection TVs have remained popular in
the United States, while growth is also being seen in the Chinese market: both sales
and profits were up over the same period of the previous fiscal year.
(2) Sales of the heat-resistant resin (GENESTAR) in the electric appliance andelectronics markets are climbing steadily as the virtues of the performance become
more and more widely recognized. Sales of PVA Gel were hard hit by thestagnation of the Japanese economy, and demand growth was slow, particularly inthe field of industrial wastewater treatment.
(3) In the field of medical products, sales of dental materials in the U.S. and Europe
grew steadily, and contact lens operations enjoyed both an increase in sales and acost-reduction: both sales and profits thus improved. Artificial kidneys were
adversely affected by revisions in the official government prices, which forced theirprices lower. As a result, overall medical product sales stayed flat, but profits wereup year-on-year.
(4) Among affiliated companies in Japan, Kuraray Chemical Co., Ltd. enjoyed solid
business in environment-related fields. Other affiliated companies made vigorous
efforts to cut costs to maintain earnings and survive the current severe businessclimate. The overall result was a decline in revenues and a flat trend in profits.
2. Geographical Segment
a. Japan
Business was very difficult in Japan as a result of the deflationary pressures on thedomestic economy. The Group made efforts to maintain stable profitability throughstrict rationalization of costs. As a result, sales came to ¥123,758 million andoperating income to ¥12,958 million.
b. North America
Sales in North America of the thermoplastic elastomer and EVAL grew as per
expectations: sales came to ¥11,922 million, with operating income at ¥1,432
million.
c. Europe
In Europe, Kuraray Specialities Europe made contribution to overall performance,
while sales of EVAL were also firm. Sales came to ¥16,367 million, and operating
income was ¥788 million.
d. Asia
Although Kuraray’s business in Asia was impacted by unfavorable exchange rates,
sales of poval rose smoothly thanks to a recovery in market prices. As a result, sales
on the Asian markets came to ¥6,108 million, while the business recorded an
operating loss of ¥424 million.
3. Interim Dividend
Kuraray will be paying an interim dividend of ¥4.5 per share.

Financial Data
Cash Flows
Cash and cash equivalents increased by ¥8,980 million during the six months underreview to stand at ¥22,476 million at end of period. This was the result of a net cash
inflow from operating activities amounting to ¥20,611 million and a net cash inflow
from investing activities amounting to ¥1,376 million, and a net cash outflow fromfinancing activities amounting to ¥12,831 million.
1.

Cash flow from operating activities
Due to a reduction in inventories and other factors, net cash provided by operating
activities increased by ¥9,154 million year-on-year, to ¥20,611 million.

2.

Cash flow from investing activities
Owing to withdrawals from accumulated premiums on insurance, net cash provided
by investing activities amounted to ¥1,376 million compared with a net cash
outflow of ¥297 million for the same period of the previous fiscal year.

3.

Cash flow from financing activities
Owing to expenditures in redemption of standard bonds, the net cash outflow fromfinancing activities amounted to ¥12,831 million, compared with an outflow of¥4,447 million for the first half of the previous fiscal year.

Outlook for fiscal 2003
As concerns grow that the recovery of the U.S. economy may be slower than hoped, andagainst the backdrop of spreading deflationary conditions across Europe and Asia, theglobal economic remains as unpredictable and uncertain as ever. On the domestic front,
as economic situation is extremely difficult as mentioned above, no foreseeable change
is expected in the country’s persistent deflation for the time being.
In this challenging environment, we will strive to maintain target consolidated net salesof ¥330.0 billion, operating income of ¥24.5 billion, and net income of ¥10.0 billion for
the fiscal 2003 (ending March 31, 2003).
In chemicals & resins, we plan to expand the global strategy of our core poval, EVAL
and thermoplastic elastomer businesses. In Fibers & Textiles, we will continue to push
the expansion of our unique products such as KURALON and KURALON K-II in theirrespective markets. Restructuring measures in the polyester business should also lead to
improved profitability. In high performance materials, medical products & others, weplan to further the development of Opto-screens and medical products such as dental
materials, and we are focusing on environment-related businesses.
At the same time, we will take aggressively step to get market advantage in IT,
eco-friendly, environmental businesses and medical products – the Company’s new
main strategic areas.

The following were used in calculating the above figures:
Exchange rates – US$1 = ¥120, 1 Euro = ¥115
Dubai crude oil price (CIF) = US$25/barrel
It is expected that term dividends will be paid at the rate of ¥9 per share.

CONSOLIDATED BALANCE SHEETS
Kuraray Co., Ltd. and Consolidated Subsidiaries(unaudited)

ASSETS
Current assets:
Cash and cash equivalents
Marketable securities
Notes and accounts receivable:
Trade
Unconsolidated subsidiaries and affiliates
OthersLoans receivable from unconsolidated subsidiaries, affiliates and others
Allowance for doubtful accounts

Inventories
Deferred income taxes
Other current assets
Total current assets

Property, plant and equipment:
Land
Buildings
Machinery and equipment
Construction-in-progress
Less accumulated depreciation

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

September 30,
2002

Millions of yen
March 31,2002

September 30,
2001

Thousands of
U.S. dollars
September 30,
2002\22,476
22,035\13,496
7,464\46,794
16,536$182,732
179,146

79,754
839
1,581
168
(705)
81,63788,605
1,187
2,000
368
(486)
91,67486,561
999
4,096
458
(576)
91,538648,407
6,821
12,853
1,366(5,732)
663,715

66,6796,420
2,437
201,684

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

77,0996,046
1,275
239,288542,106
52,195
19,813
1,639,707

24,267
89,139370,288
9,819
493,513(359,666)
133,847

24,23987,704
370,649
15,799498,391(363,484)
134,907

24,34086,965363,996
11,934487,235(357,605)
129,630

197,293724,7073,010,472
79,8294,012,301(2,924,114)
1,088,187

28,562
1,474
45,837
2,726

29,591
1,582
50,4232,822－
682
55,6572,576

232,211
11,984
372,659
22,163

4,547
1,242
33,1015,483
5,452(1,308)127,116\462,647

5,281
1,275
52,951
5,625
5,811(1,310)154,051\487,432

5,161
1,329
52,8707,758
5,998(1,348)130,683\499,601

36,967
10,098269,11444,57744,325(10,634)
1,033,464$3,761,358

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

1

CONSOLIDATED BALANCE SHEETS
Kuraray Co., Ltd. and Consolidated Subsidiaries(unaudited)

September 30,
2002

Millions of yen
March 31,2002

September 30,
2001

Thousands of
U.S. dollars
September 30,
2002

LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:
Short-term bank loans
Current portion of long-term debt
Notes and accounts payable:
Trade
Unconsolidated subsidiaries and affiliates
Others
Accrued income taxes
Deferred income taxes
Accrued expenses and otherTotal current liabilities\9,87751,880\10,471
36,560\7,62523,627$80,301
421,789

38,089
735
5,642
2,543
24
16,364125,154

47,647
791
8,052
1,799
3
16,951
122,274

51,850
841
4,302
2,631
19
15,724
106,619309,667
5,975
45,87020,675
195
133,041
1,017,513

Long-term liabilities:
Long-term debt
Deferred income taxes
Accrued retirement benefits
OthersTotal long-term liabilities

6,945
4,273
19,07815,752
46,04832,552
4,631
20,661
16,616
74,46062,4084,173
22,81015,753
105,144

56,46334,740155,106
128,065
374,374

47

55

59

382

88,95587,147
112,655
2,405
347
291,509(111)
291,398\462,647

88,95587,147110,798
2,002
1,789
290,691(48)
290,643\487,432

88,95587,147
113,574408(2,304)
287,780(1)
287,779\499,601

723,211
708,512915,894
19,5532,821
2,369,991(902)
2,369,089$3,761,358

Minority interests

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

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

2

CONSOLIDATED STATEMENTS OF INCOME(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries

Millions of yen
Six months ended
September 30, September 30,
2002
2001

Year ended
March 31,
2002

Thousands of
U.S. dollars
Six months ended
September 30,
2002

Net sales\158,155\151,143\305,862$1,285,813

Cost of sales

113,563

112,763

228,184923,276

44,59238,38077,678362,537

33,06929,63758,720268,854

11,523

8,743

18,95893,683

872
142
(784)
(2,220)(884)(1,802)

1,375
94(1,187)(2,614)
－
647

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

7,089
1,154
(6,374)(18,048)(7,187)(14,650)(4,676)
6,847(1,685)
7,058(12,757)
6,201(38,016)
55,667

2,915
322

3,138
(10)

3,107
217

23,699
2,618

3,237

3,128

3,324

26,317

6\3,616(11)\3,919(11)\2,86648$29,398(Gross profit)
Selling, general and administrative expenses(Operating income)
Other income (expenses):
Interest and dividend income
Equity in earnings of affiliates
Interest expenses
Restructuring charges
Loss on write-down of investment securities
Other, net(Income before income taxes)
Income taxes:
Current
Deferred

Minority interests in net income of
consolidated subsidiaries
Net income

U.S. dollars

Yen
Net income per share:
Primary
Fully diluted

\9.45
9.27

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

3\10.24
9.88

\7.49
7.45

$0.08
0.08

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries ed Subsidiaries

Balance at March 31, 2001
Net income
Cash dividends, \4.50 per share
Bonuses to directors and statutory auditors
Effect of change in an accounting standard
for a foreign affiliate
Changes in unrealized gain on revaluation of securities
Translation adjustments
Balance at September 30, 2001
Net income
Cash dividends, \4.50 per share
Changes in unrealized gain on revaluation of securities
Translation adjustments
Treasury stock acquired, net
Balance at March 31, 2002
Net income
Cash dividends, \4.50 per share
Bonuses to directors and statutory auditors
Changes in unrealized gain on revaluation of securities
Translation adjustments
Treasury stock acquired, net
Balance at September 30, 2002

Balance at March 31, 2002
Net income
Cash dividends, $0.04 per share
Bonuses to directors and statutory auditors
Changes in unrealized gain on revaluation of securities
Translation adjustments
Treasury stock acquired, net
Balance at September 30, 2002

Commonstock\88,955

Additional
paid-in
capital\87,147

Millions of yen
Unrealized
gain onRetainedrevaluation of
earnings
securities\111,622\3,355
3,919(1,723)(55)

Cumulativetranslation
adjustments\(1,609)

Treasury
stock
\(1)

(695)
(2,304)(1)(189)(2,947)
88,95587,147

113,574(1,053)(1,723)

408

1,594
4,093
\88,955\87,147\110,798
3,616(1,723)(36)\2,002\1,789

(47)
\(48)

403
(1,442)\88,955\87,147$723,211$708,512\112,655\2,405

Thousands of U.S. dollars$900,797$16,276
29,398(14,008)
(293)
3,277

\347

(63)
\(111)$14,545$(390)(11,724)$723,211$708,512

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

4$915,894$19,553$2,821(512)$(902)

CONSOLIDATED STATEMENTS OF CASH FLOWS(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries

Millions of yen
Six months ended
September 30,
September 30,
2002
2001
Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Decrease in accrued retirement benefits
Loss on write-down of investment securities
Interest and dividend income
Interest expenses
Decrease in notes and accounts receivable
Decrease (increase) in inventories
Decrease in notes and accounts payable
Other, net
Sub-totalInterest and dividend received
Interest paid
Income taxes received (paid)
Net cash and cash equivalents provided byoperating activities

Year ended
March 31,
2002

Thousands of
U.S. dollars
Six months ended
September 30,
2002\6,8479,186
220(1,615)
884
(872)
784
8,629
4,280
(9,218)957
20,082
674
(878)
733

\7,0587,704(66)(2,503)－(1,375)
1,187
9,380(1,879)(2,536)(2,714)
14,256
1,125(1,235)(2,689)\6,201
16,056(204)(4,746)6,524(2,472)
2,053
7,971
5,513
(7,358)(4,195)25,343
1,975(2,205)(6,416)$55,667
74,683
1,789(13,130)
7,187(7,089)6,374
70,15434,797(74,943)
7,779
163,268
5,480(7,138)
5,959

20,611

11,457

18,697

167,569(11,440)(1,139)(3,349)(93,008)(8,792)(11,090)(48,478)(71,480)

175(3,465)
4,562(1,056)21,165
227

898
(7)
9,983
(752)
1,540
270

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

1,423
(28,171)
37,089(8,585)172,073
1,846

1,376

(297)

(24,225)

11,187(793)－(2,252)(8,000)－(1,723)(63)(1,110)1,025(2,639)－－(1,723)
－

1,204
1,025
(4,360)(1,000)(14,873)(3,446)－(6,447)0(18,309)(65,041)0(14,008)(512)(12,831)(4,447)(21,450)(104,317)

Effect of exchange rate changes on cash and cash equivalents

(193)

(90)

303

(1,569)Net increase (decrease) in cash and cash equivalents

8,963

6,623

(26,675)

72,870Cash and cash equivalents, beginning of period

13,49640,17140,171

109,724

17

－

－

138

\22,476\46,794\13,496$182,732

Cash flows from investing activities:
Increase in marketable securities
Payments for acquisition of property, plant, equipment
and intangible assets
Proceeds from sales of property, plant, equipment
and intangible assets
Purchases of investment securities
Proceeds from sales and redemption of investment securities
Payments of premiums on insurance
Withdrawals from accumulated premiums on insurance
Other, net
Net cash and cash equivalents provided by (used in)investing activities
Cash flows from financing activities:(Decrease) increase in short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Redemption of standard bonds
Redemption of convertible bonds
Dividends paid
Other, net
Net cash and cash equivalents used infinancing activities

Effect of changes in reporting entities
Cash and cash equivalents, end of period

Notes: Consolidated statements of cash flows have been prepared using a format which differs from that used in earlier years, accordingly the comparative period's
consolidated statements of cash flows have been reformatted.
The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

5

SEGMENT INFORMATION
Industrial segment information(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries

Net sales and operating income

Six months ended September 30, 2002
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidation and corporate
Consolidated total

outside customers\70,906
54,34732,902
158,155－\158,155

Millions of yen
Net salesinter-segment
total\1,321\72,227575
54,922
11,544
13,440(13,440)\ －Operatingincome\8,8052,494

44,446
171,595(13,440)\158,155

3,852
15,151(3,628)\11,523

Millions of yen
Net sales
Six months ended September 30, 2001

outside customers

Operatinginter-segment

total

incomeChemicals and resins\59,993\904\60,897\6,985Fibers and textiles

57,356595

57,951

1,849

High performance materials,
medical products and others

33,794

11,06144,855

3,487

Total

151,143

12,560163,703

12,321－\151,143(12,560)\ －(12,560)\151,143(3,578)\8,743Eliminated on consolidation and corporate
Consolidated total

Six months ended September 30, 2002
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidation and corporate
Consolidated total

outside customers$576,471
441,846
267,496
1,285,813－$1,285,813

Thousands of U.S. dollars
Net salesinter-segment
total$10,740$587,211
4,675
446,52193,854109,269(109,269)$ －Operatingincome$71,585
20,277361,350
1,395,082(109,269)$1,285,813

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.
Effective April 1, 2002, the Company has rearranged its industrial segments. As a results, former "Fibers and textiles","Chemical products", "Man-made leather, non-woven fabrics and fastening materials" and "Diversified business" have beenclassified "Chemicals and resins", "Fibers and textiles" and "High performance materials, medical products and others".

6

31,317
123,179(29,496)$93,683

Industrial segment information(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries
Identifiable assets, capital expenditures and depreciation and amortization

Six months ended September 30, 2002
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidation and corporate
Consolidated total

Identifiable
assets\166,956
85,492Millions of yen
Capitalexpenditure\3,3981,523

Depreciation andamortization\5,341
1,963

76,984329,432
133,215\462,647

2,284
7,205
968
\8,173

1,439
8,743
443
\9,186

Millions of yen
Six months ended September 30, 2001

Identifiable

CapitalDepreciation andassetsexpenditure

amortization

Chemicals and resins\141,504\5,525\3,756

Fibers and textiles

100,198

1,835

2,189

High performance materials,
medical products and others

74,530

2,677

1,423

Total

316,232

10,037

7,368

183,369\499,601608\10,645336\7,704

Eliminated on consolidation and corporate
Consolidated total

Six months ended September 30, 2002
Chemicals and resins
Fibers and textiles
High performance materials,
medical products and others
Total
Eliminated on consolidation and corporate
Consolidated total

Thousands of U.S. dollars
Identifiable
CapitalDepreciation andassetsexpenditure
amortization$1,357,366$27,626$43,423
695,057
12,382
15,959625,886
2,678,309
1,083,049$3,761,358

18,56958,577
7,870$66,447

11,69971,081
3,602$74,683

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.
Effective April 1, 2002, the Company has rearranged its industrial segments. As a results, former "Fibers and textiles","Chemical products", "Man-made leather, non-woven fabrics and fastening materials" and "Diversified business" have beenclassified "Chemicals and resins", "Fibers and textiles" and "High performance materials, medical products and others".

7

Geographic segment information(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries

Millions of yen
Six months ended September 30, 2002
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total

outside customers\123,758
11,922
16,367
6,108
158,155－\158,155

Net salesinter-segment\14,090
981
157
1,004
16,232(16,232)\ －total\137,848
12,903
16,524
7,112
174,387(16,232)\158,155

Operatingincome\12,958
1,432
788
(424)
14,754(3,231)\11,523

Identifiable
assets\237,507
34,762
54,697
8,572
335,538
127,109\462,647

OperatingIdentifiable

incomeassetsMillions of yen
Net sales
Six months ended September 30, 2001
Domestic (inside Japan)

outside customers

inter-segment

total\129,418\12,338\141,756\10,603

North America

9,819

712

10,531

1,735

31,170Europe

6,721

64

6,785

296

18,976

Asia
Total
Eliminated on consolidation and corporate
Consolidated total

Six months ended September 30, 2002
Domestic (inside Japan)
North America
EuropeAsia
Total
Eliminated on consolidation and corporate
Consolidated total\261,108

5,185

764

5,949

(226)

10,130151,143

13,878165,021

12,408321,384－\151,143(13,878)\ －(13,878)\151,143(3,665)\8,743

178,217\499,601

Thousands of U.S. dollars
Net sales
Operatinginter-segment
total
income$114,553$1,120,715$105,349
7,975
104,902
11,642
1,276
134,341
6,407
8,163
57,822(3,447)
131,967
1,417,780
119,951(131,967)(131,967)(26,268)$ －$1,285,813$93,683

Identifiable
assets$1,930,951
282,618444,691
69,691
2,727,951
1,033,407$3,761,358

outside customers$1,006,162
96,927133,065
49,6591,285,813－$1,285,813

Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

8Foreign sales(unaudited)

Kuraray Co., Ltd. and Consolidated Subsidiaries

Thousands of U.S. dollars

Millions of yen

Six months ended September 30, 2002
North America
Europe
Asia
Other
Total

Foreign sales\16,056
21,49820,902
3,115\61,571

Consolidated
net sales\ －－－－\158,155

Percentage ofconsolidated
net sales10.1 %
13.6
13.2
2.0
38.9 %

Millions of yen
Percentage ofConsolidated
Six months ended September 30, 2001

Foreign sales

consolidated

net sales\

net sales

North America\14,707－

Europe12,900

－

8.6

Asia

16,476

－

10.9

Other
2,426
－
Total
\46,509\151,143
Notes: The United States dollar amounts represent translation of Japanese yen at the rate of \123=$1.

9

9.7 %

1.6
30.8 %

Foreign sales$130,537
174,780
169,935
25,325$500,577

Consolidated
net sales$ －－－－$1,285,813