Business Report 2014
Year ended March 31, 2014

http://www.kureha.co.jp/

The Pursuit of Excellence

Printed in Japan

Investor Information(As of March 31, 2014)

Growing from Our Roots

Corporate Data
Corporate Name

Kureha Corporation

Meiji Yasuda Life Insurance Company

Headquarters

3-3-2, Nihonbashi-Hamacho,
Chuo-ku, Tokyo 103-8552, Japan
Tel: 81-3-3249-4666
Fax: 81-3-3249-4744

Tokio Marine & Nichido Fire Insurance Co., Ltd.

Kureha Corporation is a diverse specialty chemicals and plastics manufacturer that leverages its technologicaldevelopment expertise to create original products in such fields as advanced materials, pharmaceuticals,
agrochemicals and packaging materials. Since its establishment in 1944, Kureha’s growth and		
expansion has been driven by innovative products developed in-house, rather than a reliance

Major Stockholders

Date of Establishment

June 21, 1944

Paid-in Capital¥12,460 million

Number of Employees

4,080 (consolidated)on outside technology.

1,715 (non-consolidated)

Over the past decade, Kureha has moved to transform and further strengthen its

Independent Auditor

business portfolio with a global outlook, strategically selecting and focusing on key

Nihombashi Corporation
Certified Public Accountants

The Master Trust Bank of Japan Ltd. (Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
Daiichi Sankyo Company, Limited
Mizuho Bank, Ltd.
The Nomura Trust and Banking Co., Ltd. (Trust account)
JP Morgan Chase Bank 385166
Mizuho Trust & Banking Co., Ltd.
EVERGREEN

business areas where the company can benefit from the competitive advantage
afforded by its unique technologies and marketing strengths. We haveenhanced our production capacity in areas of strength, and taken
proactive steps to improve products and services to meet market
demands. To ensure sustainable growth, we have also focusedon developing new technologies and products, thereby
establishing a business foundation to spur Kureha’s growth
into the future.
The result of these efforts is visible in the formation of a balanced
business portfolio that enables us to stand strong amid increasingly fierce
global competition. Going forward, to strengthen this foundation and growat a global level, we will enhance the efficiency of business operations and 		

Stock Information
Number of Shares ofCommon Stock Issued

181,683,909 shares

Number of Shareholders 15,207
Number of Shares Heldby Foreign Shareholders

37, 640,084 (20.72% of total)

Stock Exchange Listings Tokyo Stock Exchange
Transfer Agent

Mizuho Trust & Banking
Co., Ltd.

boost competitiveness.
Kureha’s roots, and its strengths, are in technology. Building on unique technologicalcapabilities, we will evolve in response to continually shifting markets and customer needs. Taking
to heart Kureha’s company mission of “the pursuit of excellence,” and offering differentiated products
and services through innovation, we are committed to delivering the greatest value to all stakeholders.

Contents
At a Glance ..........................................................................2

Corporate Governance ...........................................19

Consolidated Financial Highlights ....................3Interview with Kureha’s President .....................4

Directors, Executive Officers andCorporate Auditors ....................................................21

Medium-Term Management Plan ....................8

Consolidated Five-Year Summary ..................22

Topics ....................................................................................10

Management Discussion and Analysis ......23

Review of Operations ..............................................12

Consolidated Balance Sheets ............................26

Research & Development .....................................16

Consolidated Statements of Income ...........28

Responsible Care .........................................................18

Consolidated Statements ofComprehensive Income ........................................28

Consolidated Statements of
Changes in Net Assets .............................................29
Consolidated Statements of Cash Flows ....30
Notes to Consolidated Financial
Statements .......................................................................31
Kureha Consolidated Subsidiaries
and Affiliates ...................................................................56
Investor Information .................................................57

Kureha Corporation
Headquarters

57

R&D Innovation:
The Source of Our CompetitivenessWe pride ourselves on our expertise in polymer engineering andprocessing as well as organic synthesis and carbon materials
development. These technologies provide the base for thedevelopment of our original innovative materials and products.
We are constantly adding and fusing new ideas to theseaccumulated technologies, and in the spirit of “if it doesn’t exist, let’screate it,” each day we pursue technology solutions that only
Kureha can provide to meet unmet needs.

Global Growth Potential:

The Pursuit of
Excellence

Further Growth in Global Markets
Kureha’s overseas sales had reached 28% of total
revenue as of March 2014. Along with exports
from Japan, we have production, processing andsales locations in the United States, Germany, theNetherlands, France, the U.K., China and Vietnam,
enabling an effective response to needs in overseas markets. With continued growth expected in
newly emerging countries and many otherregions, we are taking active and strategic steps toexpand sales of highly competitive products in linewith the needs of overseas markets, whether foradvanced materials, chemicals, or plastic products.

Three Sources ofKureha’s Strength:

Balanced Growth Portfolio:
Maximization of Earnings andDiversification of Risk
Our innovative products and services are broadly based but highly
specialized, supporting a wide range of industries, including
electrical and electronic-appliances, automotive, agriculture,
medicine and energy. We maximize earnings and diversify risk
through broad-based business development in promising growthfields such as the environment, energy, health and lifestyle. We
continuously optimize our portfolio to align with shifting market
needs while securing our earnings path.

01

At a Glance
Net Sales/Net Sales Composition

Advanced Materials¥32,815 million

22.2%

Specialty Chemicals¥36,615 million
Net Sales

24.7%¥148,124 million
2014

Specialty Plastics¥45,291 million

30.6%

Construction and Other Operations¥17,238 million ¥16,163 million

11.6%(Construction)

02

10.9%

(Other Operations)Consolidated Financial Highlights
Kureha Corporation and Consolidated Subsidiaries
Years ended March 31, 2014 and 2013

Business Areas
Thousands of
U.S. dollars

Millions of yen

Advanced Plastics
Carbon Fibers & Products
Battery Materials

For the year:
Net sales
Operating income
Net income
Capital expenditure
Depreciation
R&D expenses
Year-end:
Total assets
Net assets
Interest-bearing debt

2014

2013

2014

¥148,124
11,902
7,365
16,4689,096
4,586¥130,550
8,458
3,212
19,9848,882
4,389$1,439,214
115,643
71,560160,007
88,37944,558¥224,459
106,190
77,225¥205,284
96,211
68,448$2,180,907
1,031,772
750,340

Yen

Pharmaceuticals
Industrial Chemicals
Agrochemicals

Amounts per share:
Net income – basic
Net assets

¥

42.87
604.00U.S. dollars¥ 18.71546.69

$

0.41
5.86

Percent

Ratios:
Net income to net sales
Return on equity
Return on assets
Equity ratio

5.0%
7.5
5.7
46.2

2.5%
3.5
3.4
45.7

Notes: 1. For convenience only, U.S. dollar amounts have been translated from Japanese yen at the rate of ¥102.92 to US$1, therate of exchange prevailing on the Tokyo Foreign Exchange Market on March 31, 2014.
2. For amounts per share, see Note 21 of the Notes on Consolidated Financial Statements.
3. Return on equity = [Net income / (Average net assets - Average minority interests - Average stock acquisition rights)] x100.
4. Return on assets = (Recurring income / Average total assets) x 100.

Household Products
Synthetic Fiber Products
Packaging Materials
Net Sales

Operating Income

Net Income(Millions of yen)

(Millions of yen)

(Millions of yen) (Left scale)

Net Income per Share(Yen) (Right scale)
12,000150,000

10,000120,000

8,000
90,000Engineering & Construction
Environment Management

6,000
60,000Logistics

4,000
30,00002,0002010 2011 2012 2013 201402010 2011 2012 2013 2014

8,000

56

7,000

49

6,000

42

5,000

35

4,000

28

3,000

21

2,000

14

1,000

7

0

2010 2011 2012 2013 2014003

Interview with Kureha’s President

Kureha Continues to
Evolve, Embracing
New Challenges

Yutaka Kobayashi

President & Chief Executive Officer

Q1

Please summarize the business results for the fiscal year ended
March 31, 2014.

A

Net sales rose 13.5% year on year to ¥148,124 million, with operating income up 40.7% to ¥11,902 million,
and ordinary income up 85.8% to ¥12,207 million. Net income more than doubled, rising 129.3% to ¥7,365
million - a new record high since Kureha adopted consolidated accounting in fiscal 1990.
This success was the result of strenuous efforts by Kureha itself, along with contributions fromconsolidated subsidiaries. The ratio of group consolidated sales to the parent company’s sales was on apar with the previous fiscal year at 1.8 times, while the ratio for operating income improved from 1.2 to
1.4 times, and for net income from 0.8 to 1.3 times. The rise in net income, approximately 2.3 times fromthe previous fiscal year, is due mainly to the fruits of prior investments, along with steady efforts toreverse our fortunes and secure a new growth track.

Q2

What were the major developments in each business segment?

A

In the Advanced Materials segment, sales were up sharply for advanced plastics. Polyphenylene sulfide(PPS), which is now seeing an increase in automotive applications, polyvinylidene fluoride (PVDF), used
as a binder for lithium-ion batteries, and polyglycolic acid (PGA), a material for shale gas and oil extraction,
all performed strongly. In carbon products, the segment’s other main business pillar, demand increased
for anode materials for automobile lithium-ion batteries, but sales continued to be sluggish forinsulating materials in furnaces for silicon ingot manufacturing.
In the Specialty Chemicals segment, sales in the pharmaceuticals field rose for Kremezin, a therapeutic agent
for chronic renal failure, while the agricultural chemicals field was boosted by higher demand for the fungicide
Metconazole as well as by the weaker yen. In industrial chemicals, sales of organic chemicals were strong.

04

In the Specialty Plastics segment, sales of NEW Krewrap plastic wrap and other products in the
consumer goods field rose sharply on a spike in demand ahead of the consumption tax increase inJapan on April 1.

Q3

The quantitative targets for the new medium-term management
plan, Grow Globally II, were revised downward during the fiscal year.
How close are you to meeting the new targets?

A

We announced Grow Globally II, a four-year plan through fiscal 2015 (ending March 2016), in January 2012.
However, the business environment has shifted considerably since the launch of the plan, including a
slowdown in the solar power market and delays in establishing a market for large lithium-ion batteries.
Immediately after assuming the post of president, I ordered a review of the Grow Globally II plan, directingthat it be shifted to a rolling plan as of the end of fiscal 2013. The main point of the revision was to demonstrate aclear commitment to stakeholders, instead of just completing Grow Globally II for the sake of completing a plan.
The revised quantitative targets for fiscal 2015 are sales of ¥165 billion, with operating income of ¥15
billion, and an operating margin of 9%.
We are wholly committed to meeting these new targets. We have directed all business divisions toestablish a solid operating foundation able to withstand changes in the business environment. We havelaunched a reform project under my direct supervision, and set targets to reduce total costs by 10% fromfiscal 2012 levels. Together with the effects of these cost reductions in fiscal 2013, results significantly
exceeded initial forecasts with net sales of ¥143.0 billion with operating income of ¥9.5 billion.

Q4

The Advanced Materials segment is a growth engine for Kureha.
Is the development of these businesses proceeding smoothly?

A

The rapid advancement of the Kureha Group depends on the Advanced Materials segment, comprisinghigh-performance materials, battery materials, and PGA. Sales have steadily increased over the last few
years, but revenue proportionate to investment is still to come from now.
Regarding PVDF, which is used as a binder for lithium-ion batteries and in the backsheets for solarcell, in July 2014 we will begin commercial production at our plant in Changshu, China. This new factory
will more than double our total production capacity, adding 5,000 tonnes to the Iwaki Factory’s capacityof 4,000 tonnes. We will also be producing the material nearer to market, allowing us to quickly expand
sales as the market becomes established.
As for PGA, which is increasingly being used for shale gas and oil extraction, we have concluded abusiness tie-up with Magnum Oil Tools International (MOTI), a company with more than two decades ofexperience manufacturing and marketing tools for oil and gas extraction in North America. We hope toleverage MOTI’s expertise and network to develop a business mainly for mold products.

05

Interview with Kureha’s President

The Kureha Group is the only company in the world that can mass-produce PGA and currently has
production capacity in the U.S. for 4,000 tonnes annually. By partnering with MOTI, which holds
numerous patents, we can shift to a business model centered on mold products instead of material
sales, generating a sufficient profit even at a level of less than 1,000 tonnes. Going forward, we plan tofocus on shortening delivery times and providing technical support.
PGA is sold under the brand name Kuredux. It has been certified as a biodegradable plastic in Europe,
the U.S. and Japan, and in September 2013 received the Monodzukuri Nippon Grand Award from Japan’s
Ministry of Economy, Trade and Industry. PGA has been widely praised as a high-performancebiodegradable plastic that reduces environmental loads, and we are working to develop new
applications that take advantage of its superior properties.
In the carbon products field, we expect growth in demand for insulating material used in systems to
manufacture silicon ingots solar cells. The Chinese market has been sluggish but is finally beginning to
move, and we anticipate that it will regain a full-fledged recovery track within the year.
Demand for carbon products as an anode material for automobile lithium-ion batteries has so far
centered on hybrid vehicles in Japan, but there is potential for a major shift to electric vehicles in China, where
air pollution from PM2.5 and other harmful particulate matter is becoming a serious concern. We are actively
pursuing business tie-ups with major battery manufacturers. The characteristics required for LiB anodematerials are ease of charge and discharge, durability and low cost. While Japan has emphasized performance,
countries such as China and South Korea have tended to focus on low cost. We are expanding our productlineup with the aim of becoming a “department store for hard carbon” capable of meeting any need.

Q5

Existing businesses are the foundation for earnings. What are
the developments in the pharmaceutical, agrichemicals, andhigh barrier packaging materials businesses?

A

For existing businesses, we are pursuing cost reductions and profitability improvements that will allow
us to secure a certain level of earnings even in a volatile business environment.
In the pharmaceutical and agrichemicals field, we expect steady growth in sales of KREMEZIN.
However, efforts to reduce medical costs have intensified in Japan, and drug prices are regularly revised.
Alongside the increasing sales, there is growing pressure to lower costs.
The agricultural fungicide Metconazole has a growing reputation in North America as an effective
agricultural chemical for cultivation of corn and wheat. We expect strong sales growth to continue withthe growing global demand for food.
High barrier packaging materials comprise two types: Polyvinylidene chloride (PVDC) film, the raw
material in Krewrap plastic wrap, and multilayer films made with barrier resins.
PVDC film packaging safely preserves the flavor of foods such as fish, pork or chicken sausage. The
Japanese market is reaching maturity, but we anticipate demand growth in the Asia region.
Multilayered films made with barrier resins are used to package raw and processed meats, cheese andother foods. To expand sales of Krehalon ML-40 in Europe, where meat consumption is high and demand for
packaging films is increasing, in March 2014 we concluded an agreement with MULTIVAC, a major German
packaging machinery manufacturer, granting exclusive sales rights for the ML-40 series of form shrink films. We

06

are also introducing a new film production line at our manufacturing subsidiary in the Netherlands, and expect
to achieve a 20% increase in production capacity by mid-2014 that will help meet rising demand in the region.

Q6

Kureha is well known for its advanced R&D. How do you plan tomaintain and enhance this strength?

A

R&D plays three main roles. It enables us to strengthen competitiveness by improving the performanceof existing products, develop the new businesses that will be established within the next 5-10 years, andexplore next-generation products and technologies. When you are only chasing what is right in front ofyou, you fail to sow the seeds for the future, so we strongly emphasize a balance of all three.
Kureha’s R&D policy is rooted in in-house development—in short, “if it doesn’t exist, let’s create it.”
Looking back on our history, our dedication to a unique style of manufacturing is what has allowed us toaccumulate product development expertise and technologies not found elsewhere.
At the same time, a passion for reform and commitment to speed are vital aspects of R&D. While we value
the principle of self-sufficiency that underlies our commitment to in-house development, we have also taken
steps toward joint development with external institutions in order to generate results more quickly. Of course,
simply calling on people will not spur them to action. We are increasing the number of researchers for
exploratory fields, an area where we have been shorthanded, and moving to sow seeds in an effort to find the“promising buds” that will bloom in the future. Our priority fields for exploratory research are those linked to
global issues, specifically environment, energy and life science (food and medical care).

Q7

Kureha is about to enter a new growth stage. As head of thecorporate group, how will you lead this effort?

A

Since assuming the position of president in September 2012, I have called for the creation of a newcorporate culture. The key to that change is “passion and speed.”
The former Kureha adhered to the position that as long as the quality was good, someone would buy the
product. We lacked the ethos to anticipate the changing times and adapt on our own, embrace new challenges,
or take risks. There were even times of frustration at being unable to make the most of opportunities.
We cannot cling to past successes forever. I believe that we must flexibly change our business modelto adapt to changes in society and the needs of the market.
There is not a moment to lose. We will be unable to survive in the future unless everyone continually
faces challenges with passion, and embraces change with speed.
Kureha will mark the 70th anniversary of its founding this year. We need to once more return to thestarting point, and consider the value that Kureha provides to society - namely, to “develop uniquematerials and technologies in the specialty chemicals field, and bring these to the world.”
The Grow Globally II medium-term management plan truly reaches for global growth. We arerenewing our commitment to changing the corporate culture, developing human resources able tofunction effortlessly in world markets, and broadening the scope of our business.

07Medium-Term
Management
Plan

Revisions to the Medium-Term Management Plan
for Fiscal 2012-2015

Kureha announced Grow Globally II, our four-year medium-term

To secure our path forward, we have also set additional

business plan for fiscal 2012-2015, in January 2012. Since that time,qualitative goals:

our business environment has changed considerably, including a• In Advanced Materials (high-performance polymers, battery mate-slowdown in the solar power market and delays in establishing arials, PGA), which includes new businesses where Kureha is actively

market for large lithium-ion batteries (LiB). After reviewing theinvesting, we will respond flexibly and swiftly to changes in thestatus of our businesses and considering strategic measures tobusiness environment, and recover revenues as quickly as possible.

adapt to the new circumstances, we revised the Grow Globally II• In other existing businesses, we will implement sweeping costplan in November 2013, including setting new quantitative targets.

reduction measures and improve profitability.

Kureha is now conducting business based on this revised plan.

• In R&D, we will draw on the strengths of current technologies to

The revised plan sets new targets for fiscal 2015 including net

achieve further advancements, and seek to acquire and generatesales of ¥165.0 billion and operating income of ¥15.0 billion. Our

new technologies that will meet the anticipated needs of the future.

management direction remains unchanged, centered on our two

We will adopt a flexible response to future changes in themain business strategies: “Develop and promote new businesses

business environment and cost reductions to strengthen ourwhile further strengthening existing businesses with a competitive

earnings base, and move decisively to ensure that we achieve ouradvantage” and “Accelerate global growth by enhancing produc-

FY2015 goals.

tion capability and new investments.”

Grow Globally-ll (2012 – 2015)

Fiscal 2015 Targets
Re-strengthen competitive businesses &Accelerate development of new businesses

Achieve global business growth through enhanced
production capability and new investments

FY2015 Management Benchmarks
Overseas Sales Ratio 32% vs. FY2013 29%
Capital Expenditures ¥80 billion over FY2012-2015
R&D Spending¥5.4 billion vs. FY2013 ¥4.6 bn

08

Net Sales¥165 billion (¥200 bn)
Operating Income¥15 billion (¥20 bn)
Operating Margin
9% (10%)• Preconditions: Exchange rates at JP¥95/US$1,
JP¥125/EUR€1• Figures in parenthesis are the original targets
announced in Jan. 2012

Sales and Operating Income Targets by Segment
Advanced
Materials

Specialty
Chemicals

Specialty
Plastics

Revised targets announced in November 2013

Other
Operations

Construction

Consolidated
adjustments

Original targets announced in January 2012

Sales (Billions of yen)
200

200

200
165

150
100
50
0

143

165

50.0

150

35.0

100

128.4

130.6

31.3

27.7

30.2

32.8

37.7

40.9

43.0

47.0

16.3
13.0

15.0
14.2

16.0
16.0

15.0
18.0

FY2011FY2012FY2013

FY2015

134

33.0

79.0

53.0

34.5

35.0

50

47.0

49.0

15.5
13.5

16.0
15.0

17.0
17.0

FY2011FY2013*

FY2015

39.0

0

38.0

34.0

31.5

Operating Income (Billions of yen)
20
15

15

6.1

4.7

5

–5

8.5

8.5

10 0.5

0

20

20

1.1
0.9

2.2
–1.1

9.5

3.5

6.1

5.6

3.9

3.0
0.6 1.0
–0.2

0.5

1.3
–2.3

3.5
0.4

2.0

–2.1

FY2011FY2012FY2013

FY2015

8.4

15

12
1.9

10
0.3

5
0
−5

6.5
4.1

0.3

1.5

6.5

4.8

0.4
0.9

3.3

4.0
1.3

1.8

0.4

−0.6

−0.4

−0.4

FY2011FY2013*

FY2015* Estimated as of Jan. 2012

Key Growth Drivers
Advanced Materials• Polyvinylidene fluoride (PVDF): New China’s 5000tpa plant to serve expanded markets of LiB binder and PV
backsheet• Polyglycolic acid (PGA): Accelerating molded products business in shale gas/oil fields through partnership• Carbon products: Anode materials growth targeted for large-size LiB market, demand recovery for insulationmaterials in solar cell manufacturing

Specialty Chemicals• Pharmaceuticals: Domestic market growth for therapeutic agent for chronic renal failure (KREMEZIN)• Agrochemicals: Global business expansion for agricultural fungicide (Metconazole) through partnership

Specialty Plastics• Home products: Earnings growth driven by household wrap film (NEW Krewrap)

Other Businesses• Environment business: Growth of industrial waste treatment business09

Topics

September 2013:

December 2013:

Kureha Receives Japan Monodzukuri
Award for PGA

Business Collaboration with Magnum
Oil Tools International

Kureha’s researchers were awarded the Minister of Economy, Tradeand Industry’s Prize at the 5th Monodzukuri Nippon Grand Award fordeveloping the world’s first mass-production technology forpolyglycolic acid (PGA). The Monodzukuri Nippon Grand Award is anawards program established in 2005, with an aim to acknowledge
and motivate individuals or groups of people who excel in various
manufacturing (monodzukuri) fields in Japan. The following points
were cited for granting the award to the Kureha team:

Kureha concluded a business tie-up with the U.S. firm Magnum Oil
Tools International, appointing Magnum’s group company
Magnum Innovations LLC as its exclusive distributor of polyglycolicacid (PGA) molded products for use in shale oil and gas extraction.
This arrangement will broaden the sales channels for PGA molded
products, manufactured by solid-state extrusion and machining, in
the North American oil and gas industry. It will also allow Kureha toshorten delivery times and enhance technical support services.

• Kureha successfully achieved mass
production of a new material through aninnovative synthesis technique that includes
creative use of solvents.
• PGA has been adopted for use in shale gas
extraction, utilizing its seemingly contradictory
properties of strength and biodegradability.
• Expectations for development of new
applications, further reductions in production
costs, and the establishment of a strategic
value chain that includes production facilities
in Japan.

April 2014:

December 2013:

Science Lessons for Elementary Schools
Kureha employees taught science lessons at elementary schools
near the Iwaki Factory. This annual program was launched in 1999
as part of Kureha’s social contribution activities to convey tochildren correct scientific knowledge and the joys of science. For
this year’s program, the children learned about the properties andfunctions of various water solutions, and conducted experiments
using liquid nitrogen and dry ice.

10

Emerging Research Laboratories
Established
Kureha established new Emerging Research Laboratories specializing
in exploratory research. Among the three pillars of Kureha’s R&D
program; “Enhance competitiveness in existing businesses,” “Quickly
establish and expand new businesses” and “Exploratory research togenerate new businesses and products,” this new R&D body isdevoted to the third pillar, exploring research themes relatedparticularly to energy, environment and life (medical care and foods).
From these efforts, Kureha aims to generate new businesses andproducts that will support the next-generation Kureha.

July 2014:

July 2014:

New Factory Completed at Kureha(Changshu) Fluoropolymers Co., Ltd.

Sunshine Kureha Co., Ltd. EstablishedA new factory for producing polyvinylidene fluoride (PVDF) wascompleted at Kureha (Changshu) Fluoropolymers Co., Ltd. in
Changshu, China. The new factory has an annual production
capacity of 5,000 tonnes, and will support such applications asbinders for lithium-ion batteries, protective sheets for solar panels
and water treatment membranes. Along with the Iwaki Factory, it
will provide a stable production structure to meet growing
demand in Asia and around the world.

Sunshine Kureha Co., Ltd. was established within Kureha’s Iwaki
Factory compound for the purpose of assisting the disabled toparticipate in society and be independent. The company’s aim is
to allow everyone employed there to have dreams for the future,experience the joy of work, and achieve growth and independence
through their occupation. The company also contributes to society
through interaction with the local community.

Product Topics
PGA: An Innovative Material Enhancing Shale Oil and Gas Extraction Technology
In recent years, new mining technologies have made it
possible to extract gas and oil deposits from shale formations,triggering a so-called “Shale Revolution” with the potential toalter energy flows in the world economy. Kureha’s innovative
biodegradable polymer, PGA (polyglycolic acid) is playing animportant role in these game-changing technologies.
Shale gas and oil extraction commonly use a techniquecalled hydraulic fracturing or fracking. This involves drilling awellbore horizontally in the shale layer, after which water
mixed with sand and chemicals is pumped in at highpressure to make fractures in the shale, thereby releasing
trapped gas and oil. This process is repeated at calculated
intervals along the horizontal wellbore, creating several
sections of fractured rock. Isolation tools are used to separate

each segment so that fractures can be created more
effectively with greater water pressure.
PGA is very effective for use in these isolation tools. PGA is
not only tough and heat-resistant, but is also environmentallycompatible because, unlike metals or conventional plastics, it
degrades in contact with water, thus requiring no drill-out or
removal process after use.
Kureha was first in the world to create the technology toenable mass production of PGA and began commercial
production in 2012. Kureha’s PGA, traded worldwide under
the name Kuredux, is a polymer with outstanding properties
and environmental compatibility. We are expanding thematerial’s possibilities to deliver value to our customers
around the world.
Isolation tool

Isolation tool is used to make eachfracture effectively.

Water mixed with sand and chemicals is pumped
in at high pressure to make fractures in the shale.

11

Review of Operations

Advanced Materials
Major Product Areas:

Advanced plastics (PPS, PVDF, PGA), carbon products
Advanced Materials division sales rose 19% year-on-year to ¥32.8 billion.
However, the division reported an operating loss of ¥2.6 billion, largely due
to continued weak demand for carbon fiber as an insulating material forsilicon ingot manufacturing for solar-powered equipment.

Advanced plastics: Operating loss remains flat on sales
growthSales of advanced plastics recorded low double-digit growth on the back of risingdemand for PPS resin, particularly in the automotive sector, and for PVDF resin for use
in lithium-ion battery binders for automotive and other commercial applications. There
was also an increase in orders for PGA for use in shale gas extraction applications.
However, earnings were mostly offset by increased operation costs.

Net Sales (Left scale)Operating Income (Right scale)(Millions of yen)
40,0002,000

35,0001,750

30,0001,500

25,0001,250

20,0001,000

15,000750

10,000

500

5,000

250
0

0
-5,000

2010

2011

2012

2013 2014-5,000Carbon products: Weak demand continues in solar
applications
Carbon products sales rose slightly, due to rising sales of carbon materials for use as an
anode material in lithium-ion batteries for hybrid-electric vehicles. However carbon
fiber demand weakened for use as an insulating material for silicon ingot
manufacturing for solar-powered equipment, resulting in a year-on-year widening of
the operating loss.
Outlook: FY2014 divisional sales are forecast to increase by 10% to ¥36.0 billion, with
operating losses halved from ¥2.6 billion to ¥1.3 billion. Sales of advanced plastics areprojected to grow further, with Kureha anticipating that the positive growth in demandfor PPS resin for automotive applications will continue. With the start of operations at a
new plant in Changshu, China, sales of PVDF resin are projected to expand, with further
increase in demand for use in lithium-ion battery binders for automotive and othercommercial applications. In addition, sales of PGA molded parts are also expected to
grow for applications in the oil and gas industry based on alliance marketing in the
North America region. Sales of carbon materials are projected to increase significantly
on demand growth for anode materials with the expansion of the market for hybrid
electric vehicles. In addition, recovery in the solar-powered equipment sector isanticipated in the second half of the year.

Key products

Polyvinylidene fluoride (KF Polymer)• Polyphenylene sulfide (PPS)• Polyvinylidene fluoride (PVDF)• Polyglycolic acid (PGA)• Carbon fiber• Bead-shaped activated carbon• Specialty carbon material
12

Carbon fiber insulation products(KRECA FR)

Hard carbon anode materials forlithium-ion batteries (CARBOTRON)

Specialty Chemicals
Major Product Areas:

Industrial chemicals, agrochemicals, pharmaceuticals
Specialty Chemicals division sales were up 12% year-on-year to ¥36.6 billion
from ¥32.8 billion. The division continued to see healthy profit growth, with
operating income rising 20% to ¥7.3 billion. This was primarily due to thegrowth of export sales in the agrochemicals business, supported by thedepreciating yen.

Pharmaceuticals: Sales volumes continue to increase
Sales of pharmaceutical products decreased slightly due to the absence of settlement
funds from a patent lawsuit received in the previous period. However, Kremezin, atherapeutic agent for chronic renal failure continued to see increasing sales volumes.

Net Sales (Left scale)Operating Income (Right scale)Industrial chemicals: Continued sales increase(Millions of yen)
40,00016,00035,00014,00030,00012,00025,00010,00020,0008,000

15,000

6,000

10,000

4,000

5,000

2,000

0

2010

2011

2012

2013 20140

Industrial chemicals recorded moderate sales growth. However, the rise in raw
materials and fuel costs continued to negatively impact organic chemicals, which
resulted in a decline in operating income.

Agrochemicals: Volume growth and a weaker yen drive
profit increase
Sales of agrochemical products Metconazole, an agricultural fungicide, and Ipconazole,a seed treatment fungicide, rose on strong demand in the North America region. The
weaker yen further contributed to positive growth in profits.
Outlook: Specialty Chemicals divisional sales are projected to grow by a further 9% in
FY2014 to ¥40.0 billion, while operating income is forecast to rise by 26% to ¥9.2
billion. Sales of industrial chemicals are projected to record a marginal increase, while
Kureha works to maximize revenue through price adjustments to reflect rising raw
materials and fuel prices. In the area of agrochemicals products, research anddevelopment costs are expected to increase, but Kureha anticipates that this will be
offset by an increase in Metconazole volumes. Sales of pharmaceutical products areprojected to increase with one-time benefits associated with business contracts aswell as Kremezin sales growth, offsetting the impact of price revisions under the
National Health Insurance system.

Key products• Caustic soda
• Hydrochloric acid• Sodium hypochlorite• Monochlorobenzene• para-Dichlorobenzene• ortho-Dichlorobenzene• Anti-cancer agent• Therapeutic agent for chronic
renal failure• Agricultural and horticulture
fungicide

Therapeutic agent forchronic renal failure (KREMEZIN)

Agricultural and horticulture
fungicide (Metconazole)

13

Review of Operations

Specialty Plastics
Major Product Areas:

Food packaging materials, household packaging
products
Specialty Plastics division sales increased by 11% from ¥40.9 billion to ¥45.3
billion, while operating income for the division rose sharply by 51% to ¥4.5
billion, on the back of a demand hike preceding the April 1 consumption tax
rise in Japan and improved profitability across major product lines.

Household packaging products: NEW Krewrap drives
continued sales growth
Sales of household products continued to grow, rising 9% in comparison with theprevious year. This was due to ongoing efforts to improve profitability across the division
as a whole, as well as optimized pricing for NEW Krewrap, a key product. NEW Krewrap
also saw a spike in sales ahead of the April 1 consumption tax increase in Japan.

Net Sales (Left scale)Operating Income (Right scale)(Millions of yen)
50,00010,00045,0009,000

40,0008,000

35,0007,000

30,0006,000

25,0005,000

20,0004,000

15,0003,000

10,000

2,000
1,000

5,000
0

2010

2011

2012

2013 2014

0

Food packaging materials: Improved sales andprofitability
Sales of food packaging materials slightly grew due largely to the favorable currency
impact. Profitability also improved on the back of continued cost control efforts andenhanced earnings performance in Japan, Vietnam and European markets.
Outlook: FY2014 divisional sales are forecast to increase by 7% to ¥48.5 billion,
although operating income is projected to decrease by 13% to ¥3.9 billion. Kureha
projects a modest increase in sales of food packaging materials, as the company
continues to expand global sales of high-performance films alongside ongoing efforts
to improve profitability. Sales of packaging materials and Seaguar fishing lines by
consolidated subsidiaries in the United States, amounting to approximately ¥1.5 billion,
which had previously been recorded by the Advanced Materials division, will betransferred to the Specialty Plastics division from FY2014. In consumer products,
Kureha will continue to optimize prices for NEW Krewrap, but slow sales are expected as
demand normalizes after the spike seen at the end of FY2013 prior to the consumption
tax increase. In addition, the PVDC plant now under construction at the Iwaki Factory isscheduled to come online and begin production in 4Q of FY2014.

Key products• Polyvinylidene chloride (PVDC) film
• PVDC compound• Multilayer shrinkable film
• Multilayer non-shrinkable film

Household wrap film (New Krewrap)• Multilayer bottle• Household wrap film
Food packaging film (Krehalon ML)• Plastic containers• PVDF fishing lines• Machinery for auto-seal foodpackaging
14

Fishing lines (Seaguar)Construction and Other Operations
Major Product Areas:

Construction, environmental engineering, transport/
warehousing, and trading related businesses
Construction sales rose by 15% from ¥15.0 billion to ¥17.2 billion, with
operating income decreasing by 20% to ¥0.8 billion. Sales of Other
Operations increased 14% from ¥14.2 billion to ¥16.2 billion, with
operating income of ¥1.6 billion, a 165% increase.

Construction: Rising demand but also rising costs
While construction businesses saw higher demand due to an increasing number ofearthquake reconstruction projects, higher labor expenses and material costs led to adecrease in operating income.

Net Sales (Left scale)Operating Income (Right scale)Other

35,000Construction
Related
7,000

30,0006,000

25,0005,000

20,0004,000

15,0003,000

10,000

2,000

5,000

1,000

(Millions of yen)00-5,000

2010

2011

2012

2013 2014-1,000

Environmental engineering: Continued demand forindustrial waste disposal
Environmental engineering sales rose significantly, due to operational improvements
as well as increasing demand for industrial waste treatment.
Outlook: FY2014 divisional sales for Construction businesses are projected to decline by
19% to ¥14.0 billion, while operating income is expected to fall by 63% to ¥3.0 billion.
Although post-earthquake reconstruction demand is expected to continue, a downturnin plant construction as well as higher labor and materials costs will have a negative
impact on operating income. Divisional sales for Other Operations are estimated toincrease by 2% to ¥16.5 billion, although operating income is projected to decrease by
13% to ¥14 billion. With disaster-related industrial waste disposal projects coming to anend, Kureha will shift its focus to increasing profitability via high-value operations such as
micro-PCB (polychlorinated biphenyls) treatment work.

Note: Construction related business was separated fromother business segment from fiscal 2011.

Key products and services• Environmental engineering andindustrial waste treatment

Construction work

• Industrial facility design,
construction and management• Civil engineering andconstruction• Transport and warehousing• Environmental andphysiochemical testing andanalysis

Industrial waste treatment facility

15

Research & Development

Kureha Corporation performs primary research and development(R&D), providing technology to all of the Kureha Group business.
Kureha’s R&D, with the aim of providing solutions that benefit the
global environment and people’s lives, designates priority researchareas by identifying fields with a high degree of social value such as
the environment, energy and health, and in which Kureha is able toleverage its technological strengths.
The R&D Division comprises four facilities—Research Center,
Agrochemical Research Laboratories, Advanced Materials ResearchLaboratories, and Emerging Research Laboratories. In order tocommercialize research outcomes as quickly as possible, each facility
is working to promote cooperation with relevant business andResearch Center

manufacturing divisions, enhance operational efficiency, and accelerate the development process.
In the fiscal year ended March 2014, Kureha’s R&D spending
amounted to ¥4,586 million. An overview of spending is as follows:

Advanced Materials ResearchLaboratories

16Advanced Materials Division
In advanced plastics, for Fortron KPS (PPS), which is widely used in automobiles and electronic devices, Kureha isdeveloping new grades of the material and exploring ways to further raise productivity. For KF Polymer (PVDF), we aredeveloping and improving the backsheets used for solar panels.
For Kuredux (PGA), Kureha is proactively working to develop new applications. We are making steady progress in thedevelopment of applications for shale gas oil drilling and extraction, utilizing PGA’s strength and degradability. We arealso conducting technical development to expand the range of new applications that take advantage of the resin’svarious unique properties.
In battery-related materials, to secure our competitive advantage in anode materials for the large-scale lithium-ion
batteries used in hybrid and electric vehicles, Kureha is optimizing its production processes, and pursuing R&D aimed
at achieving its business plan. We are also developing high-performance grade binders to help maintain and growmarket share.
R&D spending in this division amounted to ¥1,727 million.

Specialty Chemicals Division
In agrochemicals, Kureha is working to expand markets, both in Japan and overseas, for the agricultural fungicide
Metconazole and the seed treatment fungicide Ipconazole. To meet robust demand for Metconazole, we are working
to enhance productivity, and are providing support for the expansion of production facilities.
In pharmaceuticals, we are providing supporting research at Adsorptive Medicine Technology Center
incorporated into the Pharmaceuticals Division to enhance the earnings of Kremezin.
R&D spending in this division amounted to ¥1,846 million.

Specialty Plastics Division
For Krehalon (PVDC), Kureha is pursuing technology development to ensure stable supply and improve quality. In
addition, to further global business development we are actively providing technical assistance to customers inJapan and overseas.
R&D spending in this division amounted to ¥1,012 million.

“Hatched Egg” Trials
Since fiscal 2012, Kureha has taken steps to enhance exploratory research for new technologies and products that will support Kureha’s
next-generation business. One such effort is “hatched egg” trials, in which once a year researchers are invited to present their unrefined ideas
for new research themes to peer researchers. Proposed themes and ideas are then scrutinized, explored and further evaluated forcommercial value by senior researchers specialized in the field. The aim of‘hatched egg trials’ is to identify multiple research themes (“hatched eggs”) at
an early stage and increase the chance of generating new products and“Hatched
Egg”
trialsExploration

Prioritization,
Assessment forcommercial viability

Establishmentof newbusinessbusinesses in the future. This also helps researchers to build and strengthen
their working network in and outside the company, while also cultivating a
corporate culture that encourages open and active communication among
researchers.

17Responsible Care
We will comply
with international
policies andregulations

Kureha, an inaugural member of the Japan Responsible CareCouncil founded in 1995, continues to pursue Responsible Careinitiatives to improve health, safety and environmental performancethroughout its operations. We regard our commitment to
Responsible Care as an integral part of our corporate responsibility.

We will consider
the global
environmentand operatesafelyRC
PolicyWe will manage
and utilize
environmental
and safety
information

We will provide
safe products
to society

We will establish
better relations
with society

Responsible Care Implementation

reduction of chemical material and industrial waste, odor control,

Together, all Kureha group companies have established the All

and adoption of the Energy Consumption Index.

Kureha Responsible Care Committee. Through this committee, thecompany is working to enhance its efforts in various fields,

Disaster Prevention

including environmental protection, security and disaster response,

Safety and disaster prevention are among the most importantlabor safety and hygiene, product safety and quality assurance,

responsibilities of a manufacturing factory. In order to respond tologistics safety, energy conservation, and community relations.

the trust the community places in the company, Kureha manages

Kureha has obtained ISO 14001, the international standard for environ-its facilities and operations in strict compliance with the relevant

mental management, as well as ISO 9001 for product quality management

laws. In addition, the company implements a safety and disasterand OHSAS 18001 for labor safety and hygiene management. The

prevention program which includes its own voluntary control

Company is further enhancing efforts aimed at improving responsible care

criteria, activities and training.

activities through a “plan, do, check, act”activity cycle.

Contributing to the Community
Reducing the Burden on the Environment

In addition to Kureha General Hospital being used as a community

Since its establishment, Kureha has developed technologies andmedical facility in the southern part of Iwaki City, Kureha contributes to

products with a view to reducing the burden on the environment.

the local community in a variety of different ways. These include opening

In the case of the Iwaki Factory, Kureha seeks to create a manufac-

company sports facilities for public use, volunteering for clean up activi-

turing facility that minimizes stress on the environment by imple-

ties, offering science classes at elementary schools and holding commu-

menting measures such as air and water pollution prevention,nity meetings to initiate dialogue with local neighborhood associations.

CO2 Production(Thousands of tonnes) (Left scale)Specific Energy Consumption Index
at Iwaki Factory (Right scale)
150

100

120

80

90

60

60

40

30

20

0

2010

2011

2012

2013

2014

Disaster drill0

Wastewater treatment system

18

Kureha General HospitalCorporate GovernanceMaximizing the corporate value of all group companies is a fundamental
policy of Kureha. In order to achieve this goal, Kureha is working to enhance
governance and other internal control functions, guarantee business
transparency and fair disclosure of information, and to implement
Responsible Care policies.
Management, Execution and Decision-Making
Framework

control functions, for example to exchange opinions on audit

1. Supervisory and executive responsibilities are clearlyplanning and progress. They also regularly exchange opinions with

Corporate auditors interact with accounting and internal

distinguished to strengthen corporate governance and

the President & Representative Director and outside directors on

accelerate managerial decision-making and execution.

management matters including corporate governance, business

The Board of Directors, which includes 2 outside directors
who are independent from executive duties and is limited to aconditions and issues that the company should address.
In addition, the Internal Control and Auditing Department

maximum of 10 directors in total, currently consists of 6 directors.

acts independently of other departments and under direct

The Board, presided over by the President & Representative

management and supervision of the President & CEO. Based on

Director, meets once a month in principle, to make decisions on

an annual internal audit plan approved by the Board of Directors,

important management issues and supervise execution.

this department assesses the suitability and effectiveness of

The Executive Committee, chaired by the President & CEOinternal management control systems including compliance andand comprised of executive officers appointed by the President

risk management. It then proposes necessary or desired changes& CEO, meets twice a month in principle. The committee

and improvements, so as to enhance both management

considers basic authoritative policies and mid- and long-term

efficiency and public trust in Kureha.

management strategy that cover all aspects of generalmanagement. The committee members pass resolutions on

Internal Control System

issues as authorized in official company regulations and takeTo further strengthen its internal control system, Kureha has

steps to ensure speedy implementation.

established a set of basic policies, committees and internal rules to

To clarify responsibilities for fiscal year results, a one-year
term is given to all directors and executive officers.
The Consolidated Executive Committee, set up to unify theensure that it observes laws and regulations and conducts its
business operations in an appropriate and fair manner.
Under this system, Kureha publishes Internal Control Reports under

Kureha Group’s internal policies and long-term management

the responsibility of the President & CEO. In addition, Kureha has also

vision, is chaired by the President & CEO. It serves as a forum toestablished a set of Basic Rules for Internal Control of Financial Reports

exchange views with representatives from each group company,

to ensure the reliability of the financial reports and to guaranteewith the aim of strengthening consolidated management.

implementation of management’s assessment and certified public
accountant’s auditing of the effectiveness of internal control of financial

2. A total of four corporate auditors (including two external auditors)

reports, as stipulated in the Financial Instruments and Exchange Law.

undertake auditing activities. This group works within aframework that allows them to monitor the deliberation

Compliance Program Framework

processes of board resolutions and reports, as well as have a

Kureha has in place a compliance program framework, based on

representative corporate auditor attend and monitor meetings ofthe Kureha Group Ethical Charter and its Compliance Rules. Kureha’s

the Executive Committee and the Consolidated Executive

compliance objective is to ensure that all executives and employees

Committee. In addition, auditors are able to access

act in a manner that is consistent with legal compliance and that

documentation including all documents requiring senioralso meets the standards of our society. This framework is constantly

approval, results of internal audits, and documentation on the

being improved and reinforced so as to cultivate a compliance-

status of customer inquiries.

focused corporate culture.

19

Corporate GovernanceDiagram of Internal Control Systems (As of June 30, 2014)
General Meeting of Shareholders
Appoints

Appoints

Supervisory Function
Board of Directors(Limited to a maximum of ten members, including two external members)

Audit

LiaiseAppoints

Board of Corporate Auditors(Four members, including
two external members)
LiaiseLiaiseCompliance Committee

Executive Function

Independent
AuditorPresident &Chief Executive Officer

Antitrust Committee
Trade Control (Export/Import) Committee
Labeling and Trade Promotions Committee
Personal Information Protection Committee

Executive
Committee

Internal Control and
Auditing Department

Responsible Care Committee
Energy Management Committee

Audit

All divisions ofKureha Corporation

Audit

Information Management
Committee
Information Disclosure Committee
Information Security Committee

Audit

Kureha Group companies

Risk Management Committee

Internal Control ofFinancial Reporting Committee

The Compliance Committee, led by the President & Chief Executive

aimed at reducing and avoiding risk and manages implementation.

Officer (CEO), keeps employees informed of compliance issues throughIn addition, to respond to unforeseen circumstances, a system is intraining programs and other activities based on the Complianceplace for the establishment of an emergency response task force, with

Handbook and the Compliance Standards. In addition, direct access tothe objective of prioritizing the safety of personnel, minimizing

internal and external (legal) advisers for inquiries and reporting on

economic damage, and ensuring the continuation of corporate activities.

compliance issues is maintained so that legal violations, confirmed orsuspected, can be detected and deterred at an early stage.

In terms of information management, Kureha works rigorously
to ensure appropriate security and disclosure based on its
regulations for information control, security and disclosure, with

Risk Management System

20

individual committees set up to oversee each of these areas.

In response to various types of risk accompanying businessTo address environmental and safety risks, management

activities, Kureha has established a risk management structure

procedures for the environment, quality, and labor safety have been

consisting of a Risk Management Committee, a Responsible Careestablished that comply with ISO 14001, ISO 9001, and OHSAS

Committee and an Information Management Committee. Each

18001 standards. In addition, Kureha is also continuing withcommittee is tasked with recognizing related risks, and proposes

ongoing efforts to improve environmental conservation, quality

concrete measures to the President & Representative Director

assurance, and occupational health and safety.

Directors, Executive Officers and Corporate Auditors

Board of Directors

Yutaka Kobayashi

Keikichi Munakata

Tadashi Sagawa

President & Chief Executive Officer

Senior Executive Vice President
Chief Financial Officer
Chief Administrative Officer

Executive Vice PresidentManaging Director of Production andResponsible Care, General Manager ofIwaki Factory, Manufacturing Sector

Shusuke Matsuo

Tsuneharu Takeda

Shigeto Umatani

Senior Vice PresidentManaging Director of Advanced
Materials and PGA Businesses

Outside Director
External Board Member, KCJ GROUP INC.
Senior Advisor and Director, Mandarin
Oriental, Tokyo K.K.
Senior Advisor, Seiko Holdings Corporation
Adviser, Pasona Inc.

Outside Director
Audit & Supervisory Board Member, The
Michinoku Bank, LTD.

Board of Corporate Auditors
Yoichi Kiyosuke

Mitsuo Sato

Haruki Yamaguchi

Masaru Kitamura

Yoshiki Shigaki

Toru Yoshida

Fumihiko Yamada

Senior Vice President, Managing
Director of R&D and Engineering,
General Manager of Engineering
Division

Vice President, General Manager of
Accounting Center

Vice President, General Manager ofHome Products Division

Hiroshi Sakabe

Katsuhiro Natake

Naoki Fukuzawa

Vice President, General Manager ofResearch & Development Division

Vice President, General Manager ofAdvanced Materials Division

Senior Vice President, General
Manager of Krehalon Division

Yoshinori Shiojiri

Naomitsu Nishihata

Vice President, Deputy General Manager
of Iwaki Factory

Vice President, General Manager of
PGA Division

Hiroyuki Tanaka

Satoshi Yonezawa

Vice President, General Manager of
Administration Division

Vice President, General Manager ofChemicals & Agrochemicals Division

Michihiro Sato

Masahiro Namikawa

Vice President, General Manager of
Plastics Processing Factory

Vice President, General Manager of
Pharmaceuticals Division

Officers

Yoshio Noda
Senior Vice President, General
Manager of Corporate Planning
Division, Project Manager for
Promotion of Corporate
Managerial Reform

21

Consolidated Five-Year Summary
Kureha Corporation and Consolidated Subsidiaries
Years ended March 31, 2014, 2013, 2012, 2011 and 2010

Thousands of
U.S. dollars(Note 2)Millions of yen

For the year:
Net sales:
Domestic
Overseas
Net sales by segment:
Advanced materials
Specialty chemicals
Specialty plastics
Other operations
Construction Related
Other

Operating income
Advanced materials
Specialty chemicals
Specialty plastics
Other operations
Construction Related
Other
Elimination or corporate
Net income
Capital expenditure
Depreciation
R&D expenses
Advanced materials
Specialty chemicals
Specialty plastics
Other operations
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities

Year-end:
Total assets
Net assets
Interest-bearing debt

2014

2013

2012

2011

2010

2014

¥148,124
105,588
42,534¥130,550
98,26932,278¥128,358
97,46130,896¥132,309
101,696
30,613¥134,606
107,740
26,866$1,439,214
1,025,923
413,272

32,81536,61545,291
33,401
17,23816,163
11,902(2,625)
7,341
4,519
2,454
833
1,621
212
7,365
16,468
9,096
4,586
1,727
1,846
1,012
—
14,058(20,444)
4,673

27,65032,83340,90029,164
14,967
14,197
8,458(2,131)
6,136
2,988
1,651
1,038
613
(186)
3,212
19,984
8,882
4,389
1,756
1,731
900
—
10,246(19,595)
10,264

31,25330,182
37,672
29,25016,30012,950
8,472
534
4,715
2,226
2,046
1,114
932
(1,051)
1,460
14,360
9,580
5,080
1,933
2,293
853
—
12,144(14,169)370

33,391
33,552
41,092
24,274
12,76011,514
6,350
363
5,203
1,790
(348)
(387)
39
(658)
692
14,076
10,266
5,502
1,741
2,765
996
—
12,509(11,432)
2,720

28,42335,83142,43027,921——
5,706(3,645)
6,619
1,948
1,379
—
—
(595)
1,571
16,943
11,126
6,240
1,787
3,372
1,080
—
15,847(17,682)
1,999

318,839355,761
440,060
324,533
167,489
157,044
115,643(25,505)
71,32743,907
23,843
8,093
15,7502,059
71,560160,007
88,37944,558
16,78017,936
9,832—
136,591(198,639)
45,404¥224,459
106,190
77,225¥205,284
96,211
68,448¥186,223
88,55456,683¥181,753
89,50054,885¥184,623
96,82247,969$2,180,907
1,031,772
750,340

Yen

Amounts per share:
Net income – basic
Net assets
Cash dividends¥42.87
604.0011¥18.71546.6910¥8.51510.37
10

U.S. dollars¥3.97517.47
10

¥

8.77
538.1
10

$0.415.86
0.10

Percent

Ratios:Operating income to net sales
Net income to net sales
Return on equity
Return on assets
Equity ratio

8.0%
5.0
7.5
5.7
46.2

6.5%
2.5
3.5
3.4
45.7

6.6%
1.1
1.7
4.3
47.0

4.8%
0.5
0.7
3.1
48.9

4.2%
1.2
1.6
3.0
52.2

Notes: 1. For convenience only, U.S. dollar amounts have been translated from Japanese yen at the rate of ¥102.92 to US$1, the rate of exchange prevailing on the Tokyo Foreign
Exchange Market on March 31, 2014.
2. For amounts per share, see Note 21 of the Notes to Consolidated Financial Statements.

22

Management Discussion and Analysis
Business environment
During the fiscal year ended March 31, 2014, the Japanese economy was on a recovery trend as aresult of monetary easing and other economic policies. With regard to the world economy,
although China’s economic growth slowed, the US economy recovered robustly, European
sovereign crisis recurrence risk decreased, and emerging economies were comparatively strong.
Thus, there was a positive sign in part of the management environment for the Company.

Ope
(Left

(Millions of yen)
150,000

Analysis of business results

125,000

Net sales in the subject fiscal year increased ¥17,573 million year-on-year to ¥148,124
million. Gross profit increased ¥5,321 million to ¥39,089 million, and the gross profit
margin increased from 25.9% in the previous fiscal year to 26.4%. Selling, general andadministrative expenses increased ¥1,878 million from the previous fiscal year to ¥27,187
million. Operating income increased ¥3,443 million year-on-year to ¥11,902 million. The
operating income ratio increased from 6.5% in the previous fiscal year to 8.0%.
Other expenses (net of other income) for the fiscal year ended March 31, 2014
amounted to ¥1,273 million, a decrease of ¥1,719 million, compared to ¥2,992 million for
the fiscal year ended March 31, 2013. As a result of the above, income before income taxes
and minority interests increased ¥5,162 million to ¥10,629 million.
Total income taxes amounted to ¥3,023 million. Minority interests amounted to ¥240
million. As a result, net income increased ¥4,152 million from the previous fiscal year to¥7,365 million.

100,000

The balance of cash and cash equivalents at the end of the subject fiscal year (March 31,
Sales2014) amounted to ¥8,726 million, a decrease of ¥1,228 millionNet
fromthe end of the(Millionsof yen)previous fiscal year (March 31, 2013). An outline of individual cashflows
and the main
factors affecting each is as follow:
150,000
Cash flow from operating activities
125,000
Net cash provided by operating activities amounted to ¥14,058 million, an increase of
100,000¥3,811 million from the previous fiscal year. This was mainly
due to an increase in income
before income taxes and minority interests and a decrease in payments for trade notes andaccounts payable, while trade notes and accounts receivable75,000
as well as income taxes paid
increased.
50,000Cash flow from investment activities
25,000Net cash used in investment activities amounted to ¥20,444 million, an increase of ¥849
million from the previous fiscal year. This was mainly due to an0 increase in payments forpurchase of investments in securities, while payments for purchases
property,plant
and2010 of2011
2012 20132014
equipment and intangible fixed assets decreased.
Domestic
Overseas
Cash flow from financing activities
IncomeNet cash provided by financing activities amounted to ¥4,673Operating
million, a decreaseof ¥5,591
scale) (Millions of yen)million from the previous fiscal year. This was mainly because(Left
there
was
no
proceeds
fromCash Flows
fromtoOperating
Incomeissuance of bonds withintheprevious
fiscalNetstock
Salesacquisition rights, which was recorded
Operatingscale) (%)
Sales (RightActivities(Millions of
yen)
year, while funds increaseddue
to commercial paper issuance Net
andCashloans.
Flows from

Investing Activities
8

12,000(Millions of yen)

125,000 basic policy is to maximize cash flows from operating activities by
The Kureha Group’s
20,0009,000
6securing earnings in line with its business plan and by enhancing
asset efficiency, and to
15,000100,000
allocate cash with priority given to capital expenditure for new
businesses and expansion of
10,000existing businesses, investments and loans, research and development,
and dividend
75,0006,000
4
payments to investors.
In line with this policy, Kureha procures
5,000required capital with priority
given to securing long-term funding, and in consideration of thebalancebetweenlongand0
50,000
short-term borrowings.
3,000-5,000

25,000
Balance sheet
analysis275,0006,000

50,0003,000
25,000002010 2011 2012 2013 2014

Domestic

2010
2011previous
2012 20132014year (March 31, -20,000
2010 20112012 assets
2013 2014
million from the endof thefiscal2013).
Current
totaledDomesticof ¥5,218
Overseas¥73,429 million, an increase
million from the endof the previous fiscal year. This
-25,000
was mainly due to an increase in inventories and trade notes and 2010accounts
2011 receivable.
2012 2013 2014

Return on Assets
Returnon Equity
Total
Assets2010

Overseas

Cash FlowsIncome
fromOperatingOperating
Activities(Leftscale) (Millionsof yen)
Cash
Flows
from
Operating Income toInvesting
Activities
scale) (%)
Net
Sales (Right(Millions of yen)
12,00020,0008

15,0009,000
10,000

6

5,000

N

(L

N
Tot
(R

(Millio
10,000250,000
8,000
200,000
6,000
150,000

6,00004-5,0004,000
100,000-10,000
3,000-15,000

2-20,000
0-25,000

02010 2011 2012 2013 20142010 2011 2012 2013 2014

2,000
50,0000

Net Income(Left scale) (Millions of yen)
Return on Assets
Net
Incometo Net Sales
Returnon Equity(Right scale) (%)
10,000 Total Assets

5250,000
8,000

48(Millions of yen)

0

20
2010

N
Inte

(L
(Millio(%)

E

80,000(R

120,000
60,0006
200,000
6,000

3100,000
40,00080,00044,000
150,000

2

100,000
2,000 2

1

60,00020,000-10,000-15,000
00
0
As of March 31, 2014,
total assets amounted to ¥224,459 million,
an increase of ¥19,174

Cash Flows fromOperating Activities
Cash Flows from12,0009,000

Cash flow analysis

150,000
Financial policy

Ope
Net

Net Sales

40,00050,000
0

0

0

0

0
20,0002010 2011 2012 2013 20142010 2011 2012 2013 20142010
02010 2011 2012 2013 2014

Net Assets(Left scale) (Millions of yen)Interest-Bearing Debt

23

2

Ca
D

50,000
3,000
25,0000

Domestic

Property, plant and equipment, net totaled ¥111,684 million, up ¥12,240 million from ayear earlier, due mainly to capital expenditure at the Iwaki Factory.
Net Sales
Total liabilities at the end of the subject fiscal year amounted(Millionsto ¥118,268
of yen) million, an
increase of ¥9,194 million from the end of the previous fiscal year. This was mainly because
150,000
interest-bearing debt increased ¥8,776 million from the endof the previous fiscal year to¥77,225 million as a result of an increase in loans payable, etc.
Total net assets for the subject fiscal year amounted to 125,000¥106,190 million, an increase of¥9,979 million from the end of the previous fiscal year. This mainly resulted from net
100,000
income of ¥7,365 million, dividends paid of ¥1,717 million
from retained earnings, and anincrease in translation adjustments.
75,000Overview of capital expenditure

50,0002010 2011 2012 2013 2014

Domestic

Overseas

Capital expenditure by business division:
The Advanced Materials Division invested ¥4,049 million, mainly for PVDF (polyvinylidene fluoride) resin production facilities (Kureha (Changshu) Fluoropolymers Co., Ltd.),
Operating Income
etc.
(Left scale) (Millions of yen)
The Specialty Chemicals Division invested ¥1,004 million, primarily
on production
Cash Flowsfrom
Operating
Incometo
Net Salesfacilities for pharmaceuticals(Kureha).
Operating
Activities(Right scale) (%)
Net
Sales
(MillionsDivisionof yen) invested ¥8,207 million, primarily
The Specialty Plastics
formanufacturing
Cash
Flows
from
facilities for polyvinylidene
chloride resin (Kureha).
Investing Activities8
150,000
12,000
The Construction Related Division invested ¥84 million. (Millions of yen)
The Other125,000
Operations Division invested ¥845 million, 20,000
mainly on industrial waste
processing facilities (Kureha Ecology Management Co., Ltd.).
9,000
6In addition,
as a joint initiative, the Advanced Materials,15,000
Specialty Chemicals, and100,000
Specialty Plastics Divisions invested ¥2,277 million in such 10,000
areas as environmental conservation projects (Kureha),and private power plant facilities (Kureha).
75,000
6,000
4
5,000
Capital required for these investments was procured from cash-at-hand, corporate bonds,0
and borrowings.50,000-5,0003,000

2-10,000-15,000 the Advanced Materials
The Kureha Group’sbusiness operations are diverse, comprising000Division focused on2010
PPS 2011
resin,2012
PVDF
resin
and
carbonproducts;
Chemicals-20,0002013 20142010 the2011Specialty
2012 20132014

Division focused on pharmaceuticals,
agrochemicals and industrial
chemicals; the Specialty
Domestic
Overseas-25,000
Plastics Division focused on household products and food packaging;
the Construction2010 20112012 2013 2014
Related Division focused on construction and engineering; and the Other Operations
Division including environmental businesses and logistics. By region, the Group conducts
business in Japan as well as Europe, North America, and Asia.
Flowsaffectfrom
The main factorsCash
that could
the operating results, stock price, financial position
Activities
and other aspects of Operating
the Kureha Groupare as follows.
Return on Assets
Flowsinfrom
Forward-lookingCash
statements
this text are based on evaluations
madeonat Equity
the time of the
ReturnTotal
AssetsInvesting
Activities
Company’s securities report filing (June 25, 2014).
(%)(Millions of yen)

Operating Income

N(Left scale) (Millions of yen)

Operating Income to(Right scale) (%)
Net Sales
Cash
Flows from12,000 Operating Activities 8
Cash Flows from
Investing Activities
9,000(Millions of yen)6

15,0006,000

2-5,0002010 2011 2012 2013 20140

-15,000-25,000

150,000
2,000
100,000

02010 2011 2012 2013 2014

Net Income

0

20

2010

(Left scale) (Millions of yen)N

Net Income to Net Sales(L(Right scale) (%)

Total Assets
10,000(Millionsof yen)Returnon Assets
Return on Equity

Eq

5

(Ri

Inte

250,000 (%)
8,000

4

8
200,000
6,000

3

150,000
6
4,000

2

120,000(Millio
80,000100,000
80,00060,00060,000100,000
2,000
4

1

50,0000

0

2 2010 2011 2012 2013 2014

0

40,00040,00020,00020,00002010 2011 2012 2013 2014002010 2011 2012 2013 2014

Ca
De

(Left scale) (Millions of yen)Interest-Bearing
Debt
Equity Ratio(Millions of yen)

(Mi

(Right scale) (%)

50

80,00040

40,00060,00030-10,000(2) Changes in fueland raw material prices
2-15,000
Raw materials such as naphtha and coal used by the Kureha 50,000
Group, as well as fuel, are susceptible-20,000 conditions. As a result, changes such as an increase in the price of these raw
to changes in market
0 in a timely and appropriatematerials, or the-25,000
inability to shift the additional cost to product prices
0
2011
2013
2014
20102010
2011financial
20122012201320142010 2011effect2012 on2013
manner, could have a negative
the2014Group’s operating results
andposition.

40,00020,00020

20,000

10

2

2010

Net Assets

100,000
60,00025,00020,00015,00010,000100,000

0
0

5,000

2010 2011 2012 2013 20142010 2011 2012 2013 2014

Capital Expenditure
Depreciation

Interest-Bearing Debt
(Millions of yen)
80,000Tota

8,000(Millio-20,000

60

8

10,00050,00080,000120,000(%)(R

200,000
4,000

8(1) Changes in thebusiness environment in Japan and overseas;
250,000changes in the market price of
20,000products
15,000
The Kureha Group’sbusiness is exposed to external factors
such6as changes in markets or
200,000
10,000
customers, and intensification of competition with competing companies. Accordingly,
changes such as a5,000
decrease in demand for the Group’s principle products, customers shifting
150,000
production overseas,0 and an increase in production capacity by competingfirms, could
4
therefore influencetheGroup’soperatingresultsandfinancial
position.
-5,000

24

N

4

5,000
3,000
0

0
-10,000(L

250,000
6,000

20,000(Millions of yen)

Return on Assets
Return on Equity

2010

Overseas

10,000

The Kureha Group has designated advanced materials, pharmaceuticals and agrochemicals,and environment-related businesses as core businesses that drive
25,000earnings, and as such actively
invests in these areas. Total capital expenditure during the fiscal year ended March 31, 2014
0amounted to ¥16,468 million.

Business and25,000
other risks

02010 2011 2012 2013 2014

(Millions of yen)
25,0000020

50,000-5,0003,000
25,0000

2-10,000

2010 2011 2012 2013 2014

Domestic

Overseas-15,00000-20,000 2010 2011 2012 2013 2014
-25,000

100,000

15,000(4) The Specialty Chemicals Division’s pharmaceutical business
10,00075,000 Group’s core businesses is the manufacture
6,000 and sale of pharmaceuticals.
4
One of the Kureha
5,000
Accordingly, revisions to drug prices under Japan’s medical insurance
system could have a
50,0000negative effect on
the Group’s operating results.
3,000-5,0002(5) Country risks25,000
for overseas businesses-10,000
The Kureha Group0 conducts business in Europe, North Americaand Asia. Accordingly,00-15,000
changes such as deterioration
the2013
political
in thesethe2010 2011 in2012
2014 or economic situation2010 20112012 regions,2013 2014-20,000 tax practice risks such asenactment or abolishment
of
laws
and
regulations,international
Domestic
Overseastransfer price taxation, and deterioration in public safety, as-25,000
well as unforeseen circumstances
2011 effect2012 20132014
such as terrorism, armed conflict or natural disaster, could have a2010
negativeon theGroup’s operating results and financial position.

Cash Flows from(6) Currency fluctuations
Operating Activities
The items in Kureha Group’s financial statements not denominated in yen are susceptible to
Cash Flows fromReturnon Assetsfluctuations in exchange rates when converted into yen. The Group
concludes
exchange
Total
AssetsInvesting
Activities
Returnon Equitycontracts and takes othersteps
to minimize the effects of fluctuations
inexchange
rates.
(Millionsof yen)(Millions
of
yen)
(%)
However, fluctuations in exchange rates beyond those predicted could have a negative effect
20,000on the Group’s operating
results and financial position. 250,000 8

50,00002010 2011 2012 2013 2014

Operating Income(Left scale) (Millions of yen)
(3) Product liability
Cash
Flows
from aware
to of
The Kureha Group’sNet
coreSalesbusiness is chemical manufacturing.Operating
The
Group
isIncome
acutely
scale) (%)
Operating
Activities
Net
Sales
(Millionsyen)
the risks connected with
its ofproducts
and the manufacturing process,and (Rightis careful
to
Cash
Flows from consercontinually exercise
Responsible Care (autonomous management
for environmental
150,000
12,0008Investing
Activities
vation, disaster safety and other measures). However, should a significant,unforeseen
quality(Millions of yen)issue arise, there
could be a negative effect on the Group’s operating results and financial
125,000
position.
20,0009,000
6100,000 2,000

0

20

2010

Net Income(Left scale) (Millions of yen)

Net Income to Net Sales(Right scale) (%)
Return on Assets
on Equity
10,000Return5
Total Assets

N

(L

Inte
E
(Million(%)(Millions of yen)

(R

8,000
250,0008

4

80,000120,000

6,000
200,000
6

3

100,000
60,0004,000
150,000

2

80,00040,00060,0004
2,000
100,000

1

2
0
50,00002010 2011 2012 2013 2014

40,00020,00020,000000

2010
2010 2011
2011 20122012 20132013 2014
2014

0

20102

Net Assets(Left scale) (Millions of yen)Ca
De

Equity Ratio
Interest-Bearing
Debt(Right scale)(%)(Millionsof yen)120,000
80,00060(7) Investment securities
200,000
10,000
6
Of the ¥31,682 million in investment in securities, the Kureha Group
held a total of
5,000¥21,747 million for the purpose of long-term holdings (9.7%oftotal assets on a consoli150,000
0 end of the subject fiscal year. Significant changes in market prices, or in
dated basis) as of the4
the financial position-5,000 of the issuing companies, could have a negative effect on the Group’s
100,000
operating results-10,000
and financial position.

100,000

50

60,00080,00040

60,00040,00030

40,00020-15,000
50,000 2(8) Occurrence of
natural disasters or accidents-20,000
Manufacturing for the Kureha Group’s principal products is concentrated in the production
0 as such the Company makes-25,000 Factory (Iwaki, Fukushima Prefecture), anddivision of the Iwaki
020102010
20112011
2012201220142010 2011 2012 2013 2014
2013
2014
continual efforts focusedon this facility for environmental conservation
andto 2013ensuresafety.
However, damage to production facilities as a result of natural disasters such as major earthquakes or typhoons, or due to accidents, could have a negative effect on the Group’s operating
results and financial position.

20,00020,00010(M
25,00015,000Return on Assets(9) Litigation
Returnon Equity
Interest-Bearing
Debt
The Kureha Group has“Compliance
Rules”(%)established the “Kureha Group Ethical Charter,”(Millions of yen)and “Compliance Standards,” and strives to ensure that the Group strictly complies with alllaws, regulations and8 societal norms. However, there is a riskthat the Group’s domestic or
80,000overseas businesses could be the target of lawsuits, administrative measures or other action. A
major lawsuit or other action be taken filed against Kureha could have a negative effect on the
60,0006Group’s operating results
and financial position.

20,00015,00000

2010 2011
2011 20122012 20132013 2014
2014
2010

10,000

5,000

0

0

Capital Expenditure
Depreciation(Millions of yen)
25,00020,00015,00040,0004

10,00020,0002

002010 2011 2012 2013 2014

5,000

2010 2011 2012 2013 201402010 2011 2012 2013 201425

20

Consolidated Balance Sheets
Kureha Corporation and its Consolidated Subsidiaries
As of March 31, 2014 and 2013

Thousands of
U.S. dollars(Note 2)Millions of yen

2014

2013

2014

ASSETS
Current assets:
Cash and time deposits (Notes 5 & 8)
Trade notes and accounts receivable (Notes 6 & 8)
Inventories (Note 7)
Deferred tax assets (Note 14)
Others (Note 8)
Less: Allowance for doubtful accounts (Note 8)
Total current assets¥ 8,726
30,445
28,101
2,680
3,591
(118)
73,429¥9,954
27,48025,318
2,129
3,418
(92)
68,210$84,784
295,812
273,037
26,03934,891(1,146)
713,457

Property, plant and equipment, net (Note 11):
Buildings and structures
Machinery, equipment and vehicles
Land
Construction in progress
OthersTotal property, plant and equipment, net

33,37839,17813,19823,4262,501
111,684

32,17635,68013,467
15,681
2,438
99,444324,310
380,664
128,235
227,613
24,3001,085,153

Investments and other assets:
Investments in securities (Notes 8, 9 & 11)
Long-term loans (Note 8)
Net defined benefit asset (Note 13)
Deferred tax assets (Note 14)
OthersLess: Allowance for doubtful accounts
Total investments and other assets

31,682
2,070
34
1,524
4,170
(138)
39,34528,333
2,060
—
1,371
6,033
(169)
37,629307,831
20,112330
14,80740,516(1,340)382,287¥224,459¥205,284$2,180,907

Total assets (Note 24)
The accompanying notes are an integral part of these statements.

26

Thousands of
U.S. dollars(Note 2)Millions of yen

LIABILITIES AND NET ASSETS
Current liabilities:
Trade notes and accounts payable (Notes 6, 8 & 11)
Short-term loans payable including current portion of
long-term debt (Notes 8, 10 & 11)
Other payables (Note 8)
Accrued income taxes (Note 14)
Accrued expenses
Accrued bonuses
Reserve for environmental measures
Others (Note 14)
Total current liabilities
Long-term liabilities:
Long-term debt (Notes 8, 10 & 11)
Deferred tax liabilities (Note 14)
Reserve for employees' retirement benefits (Note 13)
Retirement allowance for directors and corporate
auditors
Asset retirement obligations
Reserve for environmental measures
Net defined benefit liability (Note 13)
OthersTotal long-term liabilities
Total liabilities
Net assets:
Shareholders' equity (Note 23):
Capital, non par value
Authorized: 2014 and 2013 – 600,000,000 shares
Issued: 181,683,909 shares in 2014 and 2013
Capital surplus
Retained earnings
Less: Treasury stock, at cost
Total shareholders' equity
Accumulated other comprehensive income (loss):
Unrealized gain on available-for-sale securities(Note 9)Deferred loss on hedges (Note 20)
Translation adjustments
Remeasurements of defined benefit plans (Note 13)
Total accumulated other comprehensive income
Stock acquisition rights (Note 16)
Minority interests
Total net assets
Total liabilities and net assets

2014

2013

2014

¥16,453¥15,940$159,862

18,606
6,149
2,526
5,347
2,591
21
5,340
57,03718,088
7,146
1,899
4,854
2,283
—
2,665
52,877

180,781
59,74524,543
51,952
25,174204
51,884554,187

56,6191,836—

50,3592,794
556

550,126
17,839
—

284
792
437
440
819
61,231
118,268

341
797
474
—
871
56,195
109,073

2,759
7,695
4,246
4,275
7,957
594,937
1,149,125

12,46010,01378,289(4,483)
96,27912,46010,017
72,614(4,510)90,580121,064
97,289760,678(43,558)
935,474

5,649
(17)
3,621
(1,771)
7,481
51
2,378
106,190¥224,459

5,636
(32)
(2,300)
—
3,303
62
2,264
96,211¥205,284

54,887(165)
35,182(17,207)
72,687495
23,105
1,031,772$2,180,907

The accompanying notes are an integral part of these statements.

27

Consolidated Statements of Income
Kureha Corporation and its Consolidated Subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars(Note 2)Millions of yen

2013

2014
Net sales (Note 24)
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 17)
Operating income

2014¥148,124
109,034
39,089¥130,550
96,782
33,767$1,439,214
1,059,405
379,799

27,187
11,90225,3098,458

264,156
115,643

660
(732)
761
477
193
77

643
(820)
457
311
3
148

6,412
(7,112)
7,394
4,634
1,875
748

Other income (expenses):
Interest and dividend income
Interest expense
Foreign exchange gains
Subsidy income
Gain on sales of investments in securities (Note 9)Compensation income
Gain on sales of property, plant and equipment(Note 18)
Loss on disposal and sales of property, plant and equipment(Note 18)
Advanced depreciation of property, plant and equipment
Loss on debt waiver of receivables from affiliates
Impairment loss (Note 19)
Loss due to disaster
Depreciation of idle assets
Provision for environmental measures
Other, net
Other expenses, net

15

6

145

(1,183)
(424)
(300)
(133)
(117)
—
—
(570)
(1,273)

(810)
(148)
—
—
—
(1,431)(263)(1,091)(2,992)(11,494)(4,119)(2,914)(1,292)(1,136)——(5,538)(12,368)

Income before income taxes and minority interests

10,6295,466

103,274

Income taxes (Note 14):
Current
Deferred
Total income taxes

3,647
(624)
3,023

2,466
(168)
2,297

35,435(6,062)
29,372

7,605
240¥7,365

3,168(44)¥3,21273,8922,331$71,560

Net income before minority interests
Minority interests
Net income
The accompanying notes are an integral part of these statements.

Consolidated Statements of Comprehensive Income (Loss)
Kureha Corporation and its Consolidated Subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars(Note 2)Millions of yen

2014

2014

¥7,605¥3,168$73,892

33
15
5,396
580
6,026
¥13,632

2,037
(26)
2,560
211
4,782
¥7,951

320
145
52,4295,635
58,550$132,452

Comprehensive income attributable to:
Owners of parent
Owners of minority interests¥13,314317¥7,961(9)$129,362
3,080

The accompanying notes are an integral part of these statements.

28

2013

Net income before minority interests
Other comprehensive income (loss):
Unrealized gain on available-for-sale securities
Deferred gain (loss) on hedges
Translation adjustments
Share of other comprehensive income in affiliates
Total other comprehensive income (Note 21)
Comprehensive income

Consolidated Statements of Changes in Net Assets
Kureha Corporation and its Consolidated Subsidiaries
For the year ended March 31, 2014

Millions of yen
Shareholders’ equity
Number ofcommon stock

BALANCE-April 1, 2013
Change of scope of consolidation
Dividends paid
Net income
Acquisition of treasury stock
Disposal of treasury stock
OthersNet changes of items other than shareholders' equity
BALANCE-MARCH 31, 2014

CapitalsurplusCapital181,683,909¥12,460
—
—
—
—
—
—
—
¥12,460

181,683,909

Treasurystock,
at costRetainedearnings¥10,017
—
—
—
—
(3)
—
—
¥10,013¥72,61425(1,717)
7,365
—
(0)
2
—
¥78,289

Total
shareholders'equity¥(4,510)
—
—
—
(4)
31
—
—
¥(4,483)¥90,58025(1,717)
7,365
(4)
27
2
—
¥96,279

Accumulated other comprehensive income
Unrealized
gain onavailablefor-salesecurities

BALANCE-April 1, 2013
Change of scope of consolidation
Dividends paid
Net income
Acquisition of treasury stock
Disposal of treasury stock
OthersNet changes of items other than shareholders' equity
BALANCE-MARCH 31, 2014

¥5,636
—
—
—
—
—
—
12
¥5,649Deferredloss onhedges

¥(32)
—
—
—
—
—
—
15
¥(17)

Total
accumulated
Stock
other
Remeasurements
Translationof defined comprehensive acquisitionrightsincomeadjustments benefit plans¥(2,300)
—
—
—
—
—
—
5,921
¥3,621

¥—
—
—
—
—
—
—
(1,771)¥(1,771)¥3,303
—
—
—
—
—
—
4,177
¥7,481

¥62
—
—
—
—
—
—
(10)
¥51

Minority
interests

Total net
assets¥2,264 ¥96,211—
25—(1,717)
—
7,365
—
(4)
—
27
—
2
113
4,280
¥2,378 ¥106,190

Thousands of U.S. dollars (Note 2)
Shareholders’ equity
CapitalsurplusCapitalBALANCE-April 1, 2013
Change of scope of consolidation
Dividends paid
Net income
Acquisition of treasury stock
Disposal of treasury stock
OthersNet changes of items other than shareholders' equity
BALANCE-MARCH 31, 2014

$121,064
—
—
—
—
—
—
—
$121,064$97,328
—
—
—
—
(29)
—
—
$97,289

Retainedearnings$705,538
242(16,682)
71,560—(0)19—$760,678

Treasurystock,
at costTotal shareholders'equity$(43,820)
—
—
—
(38)
301
—
—
$(43,558)$880,101
242(16,682)
71,560
(38)
262
19
—
$935,474

Accumulated other comprehensive income
Unrealized
gain onavailablefor-salesecurities

BALANCE-April 1, 2013
Change of scope of consolidation
Dividends paid
Net income
Acquisition of treasury stock
Disposal of treasury stock
OthersNet changes of items other than shareholders' equity
BALANCE-MARCH 31, 2014

$54,760
—
—
—
—
—
—
116
$54,887

Deferredloss onhedgesTotal
accumulated
Stock
other
Remeasurements
Translationof defined comprehensive acquisitionrightsincomeadjustments benefit plans$(310) $(22,347) $ —
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
145
57,530(17,207)$(165) $35,182 $(17,207)$32,092——————
40,584$72,687

$602
—
—
—
—
—
—
(97)
$495

Minority
interests

Total net
assets$21,997 $934,813—
242—(16,682)—
71,560
—
(38)
—
262
—
19
1,097
41,585$23,105 $1,031,772

The accompanying notes are an integral part of these statements.

29

Consolidated Statements of Cash Flows
Kureha Corporation and its Consolidated Subsidiaries
For the years ended March 31, 2014 and 2013

Thousands of
U.S. dollars(Note 2)Millions of yen

2013

2014
Cash flows from operating activities:
Income before income taxes and minority interests
Adjustments for:
Impairment loss
Depreciation
Amortization of goodwill
Decrease in allowance for doubtful accounts
Increase in prepaid pension expense
Increase in net defined benefit asset
Decrease in reserve for employees' retirement benefits
Decrease in net defined benefit liability(Decrease) increase in retirement allowance for directors andcorporate auditors
Decrease in allowance for loss due to disaster(Decrease) increase in provision for environmental measures
Interest and dividend income
Interest expense
Loss on disposal and sales of property, plant and equipment
Gain on sales of investments in securities(Increase) decrease in trade notes and accounts receivable
Increase in inventories(Increase) decrease in other assets
Decrease in trade notes and accounts payable
Increase in other liabilities
Other, net
Subtotal
Dividends and interest received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for disposal of property, plant and equipment
Purchase of investments in securities
Proceeds from sales of investments in securities
Payments of loans receivable
Proceeds from collection of loans receivable
Purchase of shares in subsidiaries
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Net increase in commercial paper
Net increase in short-term loans payable
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from issuance of bonds with stock acquisition rights
Redemption of bonds
Proceeds from stock issuance to minority shareholders
Dividends paid
Dividends paid to minority shareholders
Other, net
Net cash provided by financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase in cash and cash equivalents resulting from inclusion of
consolidated subsidiaries
Cash and cash equivalents at end of year (Note 5)
The accompanying notes are an integral part of these statements.

30

2014

¥10,629¥5,466$103,274

133
9,320
34
(15)
—
(656)
—
(66)

—
8,882
77
(127)
(184)
—
(104)
—

1,292
90,555330(145)—(6,373)
—
(641)

(57)
—
(15)
(661)
732
1,167
(193)
(2,278)(1,895)
(177)
(315)
919
(355)
16,2481,525(737)(2,978)14,058

5
(579)
311
(644)
820
803
(3)
3,027
(2,734)
198(3,737)748(1,051)
11,174
1,100(830)(1,198)
10,246

(553)
—
(145)
(6,422)
7,112
11,338(1,875)(22,133)(18,412)(1,719)(3,060)8,929(3,449)157,870
14,817(7,160)(28,935)
136,591(18,056)72(772)(2,446)
1,161
(332)
175
(244)
(0)
(20,444)(18,992)
113
(538)
(243)
33
(210)
315
—
(72)
(19,595)(175,437)
699(7,500)(23,766)
11,280(3,225)1,700(2,370)(0)(198,639)

2,000
1,759
9,598
(6,826)——33(1,717)
(12)
(162)
4,673
381
(1,331)
9,954

—
573
5,284
(5,070)14,923(5,000)1,455(1,716)(15)(169)
10,264
181
1,097
8,857

19,432
17,09093,256(66,323)——320(16,682)(116)(1,574)45,404
3,701(12,932)
96,715102¥8,726—¥9,954991$84,784

Notes to Consolidated Financial Statements
Kureha Corporation and its Consolidated Subsidiaries
For the years ended March 31, 2014 and 2013

1. Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements have been prepared based on the accounts maintained by Kureha
Corporation (the “Company”) and its consolidated subsidiaries (collectively the “Group”) in accordance with the provisions set
forth in the Companies Act and the Financial Instruments and Exchange Act of Japan, and in conformity with accounting
principles generally accepted in Japan, which are different, in certain respects, from the application and disclosure requirementsof International Financial Reporting Standards.
As permitted by the Financial Instruments and Exchange Act, for the years ended March 31, 2014 and 2013, amounts of lessthan one million yen have been omitted. Consequently, totals shown in the accompanying consolidated financial statements forthe years ended March 31, 2014 and 2013 do not necessarily agree with the sums of the individual amounts.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to theCompany’s consolidated financial statements issued domestically in order to present them in a format which is more familiar toreaders outside Japan.

2. U.S. Dollar Amounts

The accounts of consolidated financial statements presented herein are originally expressed in Japanese yen. The U.S. dollar
amounts shown in the accompanying consolidated financial statements and notes thereto have been translated from Japanese yen
into U.S. dollars on the basis of ¥102.92 to U.S. $1, the rate of exchange prevailing as of March 31, 2014. And, for translationof millions of Japanese yen to thousands of U.S. dollars, amounts of less than one thousand dollar have been omitted. These
U.S. dollar amounts are not intended to imply that the Japanese yen amounts have been or could be converted, realized or
settled in U.S. dollars at this or any other rate.

3. Principles of Consolidation

I. Scope of consolidation
The Company has consolidated 36 (37 in 2013) subsidiaries and one affiliate (two in 2013) as of March 31, 2014. The accountsof one subsidiary (two in 2013) and three affiliates (three in 2013) were not consolidated and not applied to equity method forthe year ended March 31, 2014 , as they would not have a material effect on the accompanying consolidated financial
statements.
II. Fiscal terms of consolidated subsidiaries
The fiscal terms of 14 consolidated subsidiaries close their accounts at December 31. In preparing the consolidated financial
statements, those accounts at December 31, 2013 are used, but major transactions which were executed during the three months
between December 31 and March 31 are adjusted as necessary for consolidation.

4. Summary of Significant Accounting Policies

I. Securities
Securities included in marketable securities and investments in securities are designated as available-for-sale securities and arestated as follows:
Available-for-sale securities with market quotations are stated at the average market price during the month before the balance
sheet date.
Valuation difference on these securities is reported at net of taxes as a separate component of net assets.
The cost of securities sold is determined based on the moving average cost at the time of sale.
Available-for-sale securities without market quotations are stated at cost by the moving average method.
II. Derivatives and hedge accounting
Derivative financial instruments are stated at fair value and any changes in the fair value are recognized as gain or loss.
Interest rate swaps qualified for hedge accounting are measured at fair value, and unrealized gains or losses are deferred until
maturity. Interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not re-measured at market
value, but the differential paid or received under the swap agreements are recognized and included in the interest expense or
income.
The Company and its consolidated subsidiaries utilize foreign exchange forward contracts to avoid the risk from futureexchange rate fluctuations in connection with the foreign currency denominated receivables and payables and also interest rate
swaps to reduce the financing costs related to long-term debt and short-term borrowings as a means to manage the interest raterisk. Certain foreign exchange forward contracts utilized by the Company and certain consolidated subsidiaries are exposed to an
exchange rate fluctuation risk and interest rate risk from the movement of the interest rates is mitigated by converting floatinginterest rates to fixed interest rates using interest rate swap agreements. The Company and its consolidated subsidiaries use
derivatives to hedge risks in accordance with internal rules.
III. Inventories
Inventories are stated at cost in principle determined by the gross average method. Inventories held for sale in the ordinary courseof business are measured at the lower of cost or net selling value, which is defined as the selling price less incremental estimatedmanufacturing costs and estimated direct selling expenses.

31

IV. Depreciation and amortization of fixed assets
Property, plant and equipment except for leased assets
Property, plant and equipment are principally stated at cost. Depreciation is computed by the straight-line method based on theirestimated useful lives and residual value. Accumulated depreciation which was directly deducted from property, plant andequipment as of March 31, 2014 and 2013 were ¥169,165 million ($1,643,655 thousand) and ¥162,419 million, respectively.
The useful lives of major property, plant and equipment are summarized as follows:
Buildings and structures
Machinery, equipment and vehicles
Other (tools, furniture and fixtures)

10 to 50 years
7 to 20 years
4 to 10 years

Intangible fixed assets except for leased assets
Intangible fixed assets except for software are amortized by the straight-line method based on the estimated useful lives.
Software for in-house use is amortized by the straight-line method based on the estimated useful lives (5 years).
Leased assets
Leased assets under finance lease arrangements which do not transfer ownership of the leased assets to the lessee are depreciatedby the straight-line method over respective lease periods without salvage value.
V. Allowance for doubtful accounts
Allowance for doubtful accounts of general receivables was established to provide for future losses, which are estimated based on
the past credit loss experience.
In addition, uncollectible amount is estimated individually for doubtful receivables.
VI. Retirement allowance for directors and corporate auditors
The retirement allowance for directors and statutory auditors is recorded based on the amount that would be required inaccordance with the internal rule at the balance sheet date to provide for the payment for the retirement benefits.
VII. Reserve for environmental measures
Reserve for environmental measures is recorded for disposal of PCB (polychlorinated biphenyl) that would be required by the
Waste Disposal Law.
VIII. Accounting treatment for retirement benefits(a) Method of attributing the projected benefits to periods of services		 In calculating the retirement benefit obligations, the projected benefit obligations attributable up to the end of
the fiscal year are accounted for by straight-line basis.
(b) Actuarial gain or loss and past service cost		 Past service cost is fully amortized when incurred.
		 Actuarial gain or loss is amortized in the year following the year in which the gain or loss is recognized, on astraight-line basis over certain periods within the employees’ average remaining service years.
(c) Adopting the simplified method for small companies
		 Certain consolidated subsidiaries calculate their retirement benefit obligations using the liability amount which
would be paid if all the employees voluntarily retired at each consolidated balance sheet date.
IX. Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows consist of cash on hand, bank deposits payable on
demand and short-term investments due within three months from acquisition with minor value fluctuation risk.
X. Changes in accounting policies
The Company has adopted “Accounting Standard for Retirement Benefits” (the Accounting Standards Board of Japan(hereinafter “ASBJ”) Statement No. 26, May 17, 2012, hereinafter “Retirement Benefits Standard”) and “Guidance on
Accounting Standard for Retirement Benefits” (ASBJ Guidance No.25, May 17, 2012, hereinafter “Retirement Benefits
Guidance”), excluding those set forth in paragraph 35 of “Retirement Benefits Standard” and paragraph 67 of “Retirement
Benefits Guidance,” from the end of the year ended March 31, 2014. The Company changed its accounting to recognize thedifference between projected benefit obligations and plan assets as net defined benefit liability and unrecognized actuarial
differences are recognized as net defined benefit liability.

32

The Retirement Benefits Standard and other accounting methods are applied in accordance with the transitional provisions
set forth in paragraph 37 of the Retirement Benefits Standard, the effect of the changes in accounting policies is reflected inre-measurements of defined benefit plans under accumulated other comprehensive income at the end of the year ended March
31, 2014.
As a result, net defined benefit asset of ¥34 million ($330 thousand) and net defined benefit liability of ¥440 million($4,275 thousand) are recognized at the end of the year ended March 31, 2014. In addition, accumulated other comprehensive
income and minority interests decreased by ¥1,771 million ($17,207 thousand) and ¥26 million ($252 thousand), respectively.
The effect of this change on per share information is noted in Note 22.
XI. Unapplied new accounting standards“Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26, May 17, 2012)“Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No. 25, May 17, 2012)
A) Overview
The Retirement Benefits Standard and other accounting methods have been revised from the viewpoint of improvements tofinancial reporting and international convergence, mainly focusing on (a) how unrecognized actuarial differences and priorservice cost should be accounted for, (b) how projected benefit obligations and service cost should be determined and (c)enhancement of disclosures.
B) Date of adoption
The Company and certain consolidated subsidiaries will adopt the amendments to the method for calculating projected benefit
obligations and service cost from the beginning of the year ending March 31, 2015.
C) The effect of adopting the accounting standards
The effect of adopting these accounting standards will be immaterial on operating income and income before income taxes andminority interests for the year ending March 31, 2015.

5. Cash and Cash Equivalents

The following table represents a reconciliation of cash and cash equivalents as of March 31, 2014 and 2013:
Thousands of
U.S. dollars

Millions of yen

Cash and time deposits
Cash and cash equivalents

2014¥8,726
8,726

2013¥9,954
9,954

2014$84,784
84,784

6. Trade Notes

Trade notes due at the end of the fiscal year are settled on the date of clearing.
As the end of the year ended March 31, 2013 fell on a bank holiday, the following trade notes due at the end of the fiscal year
are included in the balance at the end of the year.
Thousands of
U.S. dollars

Millions of yen

2013

2014
Trade notes receivable
Trade notes payable

¥—
—

2014
¥307
936

$—
—

7. Inventories
Inventories as of March 31, 2014 and 2013, respectively, consisted of the following:
Millions of yen

Finished products and merchandiseWork-in-process
Raw materials and supplies
Total

2014
¥20,0142,776
5,311¥28,1012013¥18,670
1,730
4,918¥25,318

Thousands of
U.S. dollars

2014$194,461
26,97251,603$273,037

33

8. Financial Instruments and Related Disclosures

I. Status of financial instruments
A) Group policy for financial instruments
The Group uses financial instruments, mainly bank loans and bonds for the purpose of raising its necessary fund for equipment
investment plan. Cash surpluses, if any, are invested only in short-term deposits, etc. Working capital for short-term ongoing
operations is procured from short-term bank loans. Derivatives are used, not for speculative purposes, but to manage exposure tofinancial risks as described below.
B) Nature and extent of risks arising from financial instruments
Receivables such as trade notes and trade accounts are exposed to customer credit risk. Although receivables in foreign currencies
are exposed to the market risk of fluctuation in foreign currency exchange rates, the position, net of payables in foreign
currencies, is hedged by using forward foreign currency contracts. Investments in securities, equity instruments of customers andsuppliers of the Group, are exposed to the risk of market price fluctuations. And long-term receivables are made to the employees.
Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign
currencies, partly accompanied by the import of materials, are exposed to the market risk of fluctuation in foreign currency
exchange rates, those risks are almost netted against the balance of receivables denominated in the same foreign currency as noted
above. And, the payables in Euro are always within the balance of receivables in Euro.
Although a part of such bank loans, bonds and lease obligation, which are mainly for the purpose of equipment investment,
are exposed to market risks from changes in variable interest rates; those risks are mitigated by using mostly derivatives of interestrate swaps.
Derivatives mainly include forward foreign currency contracts and interest-rate swaps, which are used to manage exposure tomarket risks from changes in foreign currency exchange rates of receivables and payables, and from changes in interest rates ofbank loans. Please see Note 20 for more detail about derivatives.
C) Risk management for financial instruments
Credit risk management (risk of counterparty’s failure to repay)
Credit risk is the risk of economic loss arising from counterparty’s failure to repay or service debt according to the contractual
terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include setting up an
individual credit limit and monitoring of payment terms and balances of major customers by each business administration
department to identify the default risk of customers at an early stage. A credit limit is changed, if necessary, based on a periodic
monitoring of customers’ financial positions. And the Group manages to mitigate the risk of receivable collection due todeteriorating financial position by utilizing such facilities as credit insurance or factoring. In using derivatives, the Group chooses
highly creditworthy financial institutions to avoid counterparty risk.
Market risk management (foreign exchange risk and interest rate risk)
The Company and certain consolidated subsidiaries manage market risk resulting from fluctuations in foreign currency exchange
rates of foreign currency trade receivables and payables, which are to be identified through management per month and per
currency. Such foreign exchange risk is hedged principally by forward foreign currency contracts. Interest-rate swaps are used to
manage exposure to market risks from changes in interest rates of bank loans.
Investments in securities are managed by monitoring market values and financial position of issuers on a regular basis.
Basic principles of derivative transactions have been based on the internal guidelines which prescribe the authority and thelimit for each transaction. The same principles are applicable to the consolidated subsidiaries.
Liquidity risk management (risk of the Group’s failure to pay at maturity)
Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on maturity dates. The Groupmanages its liquidity risk by controlling a monthly cash flow plan, and the Company manages it by using commercial paper andcommitment line.
D) Fair value of financial instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational
valuation techniques are used instead. The fair values hereof may vary upon applying various procedures, as the valuation
techniques include variable factors. Also please note that the contract amounts themselves shown in Note 20 Derivatives andHedging Activities do not imply the market risk exposure regarding derivative transactions.

34II. Fair value of financial instruments
Carrying amount, fair value and the differences as of March 31, 2014 and 2013 are as follows:(This information excludes financial instruments whose fair value cannot be reliably determined)

March 31, 2014

Cash and time deposits
Trade notes and accounts receivable
Allowance for doubtful accounts
Sub-total
Investments in securities
Available-for-sale securities
Long-term loans including current portion
Total assets
Trade notes and accounts payable
Short-term loans payable
Other payables
Bonds
Bonds with stock acquisition rights
Long-term debt including current portion
Total liabilities
Derivatives
Not qualifying for hedge accounting
Qualifying for hedge accounting
March 31, 2014

Cash and time deposits
Trade notes and accounts receivable
Allowance for doubtful accounts
Sub-total
Investments in securities
Available-for-sale securities
Long-term loans including current portion
Total assets
Trade notes and accounts payable
Short-term loans payable
Other payables
Bonds
Bonds with stock acquisition rights
Long-term debt including current portion
Total liabilities
Derivatives
Not qualifying for hedge accounting
Qualifying for hedge accounting

Carrying
amountFair value

Millions of yen
Unrealized
gain/loss¥8,726
30,445(118)
30,327¥8,726¥—

30,327—

20,7982,163¥62,015
16,453
13,8496,149
20,00015,00026,375¥97,828

20,7982,311¥62,163
16,453
13,8496,149
20,431
18,97526,470¥102,329

—
148
¥148
—
—
—
(431)
(3,975)(95)¥(4,501)¥(12)(28)¥(12)(28)¥——

Carrying
amountFair value

Thousands of U.S. dollars
Unrealized
gain/loss$84,784
295,812(1,146)294,665$84,784$—294,665—

202,079
21,016$602,555
159,862
134,560
59,745
194,325
145,744
256,267$950,524

202,079
22,454$603,993
159,862
134,560
59,745
198,513
184,366
257,190$994,257—
1,438$1,438———(4,187)(38,622)(923)$(43,732)$$(116)
(272)

$—
—

(116)
(272)

35

March 31, 2013

Cash and time deposits
Trade notes and accounts receivable
Allowance for doubtful accounts
Sub-total
Investments in securities
Available-for-sale securities
Long-term loans including current portion
Total assets
Trade notes and accounts payable
Short-term loans payable
Other payables
Bonds
Bonds with stock acquisition rights
Long-term debt including current portion
Total liabilities
Derivatives
Not qualifying for hedge accounting
Qualifying for hedge accounting

Carrying
amountMillions of yen
Unrealized
gain/loss

Fair value¥ 9,954
27,480(92)
27,387¥ 9,954

27,387—

19,312
2,157¥58,812
15,94012,1587,146
20,00015,00021,289¥91,535

19,312
2,324¥58,979
15,94012,1587,146
20,65816,36920,430¥92,703

—
166
¥ 166
—
—
—
(658)
(1,369)859¥(1,167)

¥

¥

¥

1
(52)

1
(52)

¥

—

—
—

A) Method of fair value measurement of financial instruments
1. Asset
Cash and time deposits, and trade notes and accounts receivable
The carrying amounts of these accounts approximate fair value because of their short maturities.
Investments in securities
The fair values of investments in securities are measured at the quoted market price of the stock exchange for the equity
instruments.
Long-term loans
The fair values of long-term loans are measured at the present value of the future cash flows discounted by a rate of return, an
appropriate rate such as government bond rate added to a credit spread, with respect to each credit risk segment of credit control.
2. Liability
Trade notes and accounts payable, short-term loans payable, and other payable
The carrying amounts of these accounts approximate fair value because of their short maturities.
Bonds
The fair values of the bonds issued by the Company are measured based on the market price.
Bonds with stock acquisition rights
The fair values of bonds with stock acquisition rights are measured based on the prices obtained from the financial institutions
with which they are transacted.
Long-term debt
The fair values of long-term debt are measured by discounting the principal and interest discounted by an assumed new
borrowing rate. As a part of long-term debt with floating interest rates are subject to deferral method of interest rate swaps, thefair values of the said interest rate swaps are included in the long-term debt.

36B) Carrying amount of financial instruments whose fair value cannot be reliably determined as of March 31, 2014 and 2013
Carrying amountThousands of
U.S. dollars

Millions of yen

2013

2014
Investments in equity instruments that do not have aquoted market price in an active market

2014
¥167

¥215

$2,089C) The aggregate annual maturities of financial assets and securities with contractual maturities as of March 31, 2014 and 2013

March 31, 2014

Cash and time deposits
Trade notes and accounts receivable
Long-term loans
Total

March 31, 2014

Cash and time deposits
Trade notes and accounts receivable
Long-term loans
Total

March 31, 2013

Cash and time deposits
Trade notes and accounts receivable
Long-term loans
Total

Due in one
year or lessDue after one year
through five years

Due after five years
through ten years

Millions of yen
Due after
ten years

¥—
—
657
¥657

¥—
—
757
¥757

¥—
—
655
¥655

Due after one year
through five years

Due after five years
through ten years

Thousands of U.S. dollars
Due after
ten years

$—
—
6,383
$6,383$——
7,355$7,355$——
6,364$6,364Due after one year
through five years

Due after five years
through ten years

Millions of yen
Due after
ten years

¥—
—
663
¥663

¥—
—
664
¥664

¥—
—
733
¥733

¥8,726
30,445
93¥39,265
Due in one
year or less$84,784
295,812903$381,509
Due in one
year or less¥9,954
27,48096¥37,531

D) The aggregate annual maturities of bonds and long-term debt as of March 31, 2014 and 2013
Millions of yen

March 31, 2014

Bonds
Bonds with stock acquisition rights
Long-term debt
Total

Due in one
year or less

¥—
—
4,756
¥4,756

Due after one Due after two Due after three Due after four
year through years through years through years throughtwo years
three years
four years
five years¥10,000—
5,353¥15,353

¥—
—
5,609
¥5,609¥5,000
15,000
4,635¥24,635¥5,000—2,725¥7,725Due after
five years

¥—
—
3,294
¥3,294

Thousands of U.S. dollars

March 31, 2014

Due in one
year or lessDue after one Due after two Due after three Due after four
year through years through years through years throughtwo years
three years
four years
five years

Bonds
Bonds with stock acquisition rights
Long-term debt
Total

$—
—
46,210$46,210$97,162—
52,011$149,174$——54,498$54,498$48,581
145,744
45,034$239,360$48,581—
26,476$75,058

Due after
five years$——
32,005$32,00537

Millions of yen

March 31, 2013

Bonds
Bonds with stock acquisition rights
Long-term debt
Total

Due in one
year or less

¥—
—
5,929
¥5,929Due after one Due after two Due after three Due after four
year through years through years through years throughtwo years
three years
four years
five years

¥—
—
4,158
¥4,158¥10,000—
3,998¥13,998

¥—
—
3,256
¥3,256¥5,000
15,0002,251¥22,251

Due after
five years¥5,000—
1,695¥6,695

9. Securities
Investments in unconsolidated subsidiaries and affiliates amount to ¥3,607 million ($35,046 thousand) and ¥3,158 million as ofMarch 31, 2014 and 2013, respectively.
The acquisition cost and carrying amount of available-for-sale securities whose fair value were available as of March 31, 2014
and 2013 were as follows:
March 31, 2014

Securities with unrealized gain:
Equity securities
Sub-total
Securities with unrealized loss:
Equity securities
Sub-total
Total

March 31, 2014

Securities with unrealized gain:
Equity securities
Sub-total
Securities with unrealized loss:
Equity securities
Sub-total
Total

March 31, 2013

Securities with unrealized gain:
Equity securities
Sub-total
Securities with unrealized loss:
Equity securities
Sub-total
Total

38

Acquisition
cost

Carrying
amountMillions of yen
Unrealized
gain (loss)¥ 8,768
8,768¥17,973
17,973¥9,204
9,204

3,157
3,157
¥11,926

2,824
2,824
¥20,798

(332)
(332)
¥8,872Acquisition
cost

Carrying
amountThousands of U.S. dollars
Unrealized
gain (loss)$ 85,192
85,192$174,630
174,630$89,428
89,42830,67430,674$115,876

27,43827,438$202,079(3,225)(3,225)$86,202

Acquisition
cost

Carrying
amountMillions of yen
Unrealized
gain (loss)¥ 7,960
7,960¥17,114
17,114¥9,154
9,154

2,487
2,487
¥10,447

2,197
2,197
¥19,312

(289)
(289)
¥8,865

Proceeds from sales of available-for-sale securities and related gross realized gain and loss on those sales for the years ended March
31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

Proceeds from sales
Gross realized gain
Gross realized loss

2014
¥1,161
193
—

2013

2014
$11,280
1,875
—

¥33
3
—

10. Short-term Loans Payable, Long-term Debt and Lease Obligations
Short-term loans payable and long-term debt as of March 31, 2014 and 2013 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Short-term loans with average interest rate of 0.82%
Current portion of long-term debt with averageinterest rate of 1.24%
Sub-total
Unsecured bonds maturing on June 17, 2015 with theinterest rate of 2.06%
Unsecured bonds maturing on September 15, 2017with the interest rate of 0.95%
Unsecured bonds maturing on October 19, 2018with the interest rate of 0.82%
Zero coupon convertible bonds due 2018 (bonds with stockacquisition rights) maturing on March 14, 2018 (Note1)
Long-term debt maturing in 2015 through 2028
with average interest rate of 1.24%
Total

2014
¥13,849

2013¥12,158

2014$134,560

4,756
18,606

5,929
18,08846,210180,781

10,00010,00097,162

5,000

5,000

48,581

5,000

5,000

48,581

15,00015,000145,744

21,619¥75,225

15,359¥68,447

210,056$730,907(Note 1) Summary of zero coupon convertible bonds due 2018 (bonds with stock acquisition rights)
Type of stock should be issued
Common stock
Issue price of stock acquisition rights
Zero (no consideration)
Initial conversion price
433 yen per share ($4.20)
Aggregate amount of bond
15,000 million yen ($145,744 thousand)Aggregate amount of stock issued by exercisingstock acquisition rights—
Ratio of stock acquisition rights granted
100%
Exercise period
From March 28, 2013 to February 28, 2018(at the place where the stock acquisition rights is to
be exercised)
Note: When the bondholder claims for exercising stock acquisition rights, the amount should be paid for the stocks acquired
were fulfilled by substitution of the redemption amount of the bonds. Further, when the stock acquisition rights were
exercised, the Company considers as the bondholder has claimed for exercise.

39

The aggregate annual maturities of long-term debt as of March 31, 2014 were as follows:Year ending March 31

Millions of yen

2015
2016
2017
2018
2019

¥4,756
5,353
5,609
4,635
2,725

Thousands of
U.S. dollars$46,21052,01154,49845,034
26,476

The aggregate annual maturities of lease obligations as of March 31, 2014 were as follows:Year ending March 31

Millions of yen

2015
2016
2017
2018
2019

¥126
97
61
23
8

Thousands of
U.S. dollars$1,224
942
592
223
77

Note:	Average interest rate on lease obligations is omitted since above lease obligations recorded in the consolidated balance sheet
as of March 31, 2014 include interest equivalent amounts.

11. Assets Pledged as Collateral
The following assets of the Group are pledged as collateral for trade notes and accounts payable, short-term loans payable andlong-term debt in the amount of ¥1,545 million ($15,011 thousand) and ¥1,657 million as of March 31, 2014 and 2013,
respectively:
Thousands of
U.S. dollars

Millions of yen

Buildings and structures
Machinery, equipment and vehicles
Land
Investments in securities
Total

2014
¥16,723
12,474
3,897
4,452¥37,5482013¥17,273
13,627
3,897
4,632¥ 39,430

2014$162,485
121,200
37,864
43,256$364,827

12. Loan Commitment Agreements
The Company and its consolidated subsidiaries entered into loan commitment agreements and overdraft agreements with thefinancial institutions. The outstanding balance as of March 31, 2014 and 2013 was as follows:
Thousands of
U.S. dollars

Millions of yen

Total commitment available
Amount utilized
Balance available

2014¥11,179
96¥11,0822013¥12,509143¥12,365

2014$108,618
932$107,675

13. Reserve for Employees’ Retirement Benefits and Net Defined Benefit Liabilities
The Company and certain consolidated subsidiaries have adopted funded and unfunded retirement benefit plans to prepare for
employees’ retirement benefits. And certain consolidated subsidiaries have adopted defined contribution retirement plans.
Under the defined benefit plans, cash balance plan is introduced. Each participant has a hypothetical individual account withthe amount equivalent to the reserve for each participant and resource of pension. In hypothetical individual accounts, interest
credits based on trends in market interest rates and pay credits based on salary level, etc. are accumulated. Also, in certain40

consolidated subsidiaries, employees receive lump-sum payments or payments of pension plans based on salaries and service
period.
Under lump-sum retirement benefit plans, employees receive lump-sum payments based on salaries and service period as
retirement benefits. In addition, certain subsidiaries that have defined benefit plans and lump-sum retirement benefit plans
calculate net defined benefit liability and net pension expenses using the simplified method.

For the year ended March 31, 2014
A. Defined benefit plans(i) Change in projected benefit obligations
Millions of yen

Balance at beginning of year
Service cost
Interest cost
Actuarial differences
Benefits paid
OthersBalance at end of year

¥20,718917
359
64(1,797)
82¥20,345

Thousands of
U.S. dollars$201,301
8,909
3,488
621
(17,460)
796$197,677(ii) Change in plan assets
Millions of yen

Balance at beginning of year
Expected return on plan assets
Actuarial differences
Employer contributions
Benefits paid
OthersBalance at end of year

¥18,252
385
837
2,188
(1,777)53¥19,939

Thousands of
U.S. dollars$177,341
3,740
8,132
21,259(17,265)514$193,732(iii) Projected benefit obligations and plan assets at end of year and reconciliation of net defined benefit liability and net defined
benefit asset recognized in the consolidated balance sheet
Millions of yen

Thousands of
U.S. dollars

Unfunded projected benefit obligations
Net amount of liability and asset recognized in the consolidated balance sheet¥20,086(19,939)
146
259
405

$195,161(193,732)
1,418
2,516
3,935

Net defined benefit liability
Net defined benefit asset
Net amount of liability and asset recognized in the consolidated balance sheet

440
34
¥405

4,275
330
$3,935

Funded projected benefit obligations
Plan assets(iv) Net pension expenses and its breakdown
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial differences
Net pension expenses

¥917
359
(385)
594
¥1,485

Thousands of
U.S. dollars$8,909
3,488(3,740)5,771$14,42841

(v) Re-measurements of defined benefit plans
The components of items recognized in re-measurements of defined benefit plans (pre-tax) were as follows:
Millions of yen

Unrecognized actuarial differences
Total¥2,782¥2,782Thousands of
U.S. dollars$27,030$27,030(vi) Plan assets(a) Percentage by major category of plans assets was as follows:
Bonds
60%
Equities
26%
General account13%
Others
1%
Total
100%
(b) Determination procedure of long-term expected rate of return on plan assets
In determining long-term expected rate of return on plan assets, the Company and certain consolidated subsidiaries
consider the current and projected asset allocations, as well as the current and future long-term rate of returns for various
categories of the plan assets.
(vii) Basis for calculation of actuarial assumptions
Basis for calculation of actuarial assumptions at March 31, 2014 was as follows (weighted average):
Discount rate
1.7%
Long-term expected rate of return on plan assets
2.1%
B. Defined contribution pension plans
The amount to be paid by consolidated subsidiaries to the defined contribution pension plans was ¥15 million ($145 thousand)for the year ended March 31, 2014.

For the year ended March 31, 2013
The reserve for employees’ retirement benefits as of March 31, 2013 consisted of the following:
Millions of yen

Projected benefit obligations
Plan assets
Funded status
Unrecognized actuarial differences
Sub-total
Prepaid pension costReserve for employees' retirement benefits¥(20,718)
18,252(2,466)
4,151
1,685
2,241
¥(556)

Net pension expenses related to the retirement benefits for the year ended March 31, 2013 was as follows:
Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial differences
Net pension expenses

¥908
377
(306)
653
¥1,633

Note: 	In addition to above expenses, the Company and its domestic consolidated subsidiaries recorded merit allowances
amounting to ¥18 million for the year ended March 31, 2013.

42

Assumptions used in calculation of the above information for the year ended March 31, 2013 was as follows:
Discount rate
Expected rate of return on plan assets
Method of attributing the projected benefits to periods of services

1.7%
1.7%
Straight-line basis

14. Income Taxes
The significant components of deferred tax assets and liabilities as of March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

2013

2014
Deferred tax assets:
Tax loss carried forward
Unrealized gain on fixed assets
Accrued bonuses
Accrued expenses
Accumulated depreciation
OthersSub-total
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Shortfall in depreciation
Net unrealized gain on available-for-sale securities
OthersTotal deferred tax liabilities
Net deferred tax assets

2014¥6,307
1,134
865
596
516
3,747
13,167(1,517)
11,649¥5,022
1,152
827
521
378
3,342
11,245(1,697)9,547$61,280
11,018
8,404
5,790
5,013
36,406
127,934(14,739)
113,184(5,648)(3,112)(527)(9,287)¥2,361(4,418)(3,134)(1,289)(8,841)¥705(54,877)(30,237)(5,120)(90,235)$22,940

Deferred tax assets and liabilities as of March 31, 2014 and 2013 are presented as follows:
Thousands of
U.S. dollars

Millions of yen

Current assets
Deferred tax assets
Investments and other assets
Deferred tax assets
Current liabilities
OthersLong-term liabilities
Deferred tax liabilities, non-current

2013

2014

2014

¥2,680¥2,129$26,039

1,524

1,371

14,807

(5)

(0)

(48)

(1,836)(2,794)(17,839)

Reconciliations of the difference between the statutory income tax rate and the effective income tax rate for the years ended
March 31, 2014 and 2013 were as follows:

Statutory income tax rate:
Expense not deductible for tax purpose
Non-taxable revenue
Tax credit for research and development costs
Amounts recognized unrealized gain tax effectRetained earnings of overseas subsidiaries
Valuation allowance
Decrease in deferred tax assets at the end of the year due to changes in tax rate
Others
Effective income tax rate

201437.75%
2.56(1.37)(7.29)
0.01
0.35(1.69)
1.73(3.61)
28.44%

2013
37.75%
5.83(1.98)(10.35)1.02(2.77)
12.66—(0.12)
42.04%

43

(Revisions to amounts of deferred tax assets and deferred tax liabilities due to change in rate of income taxes)
On March 31, 2014, “Partial Amendment of the Income Tax Act” (Act No.10 of 2014), “Partial Amendment of the Local Tax
Act” (Act No. 4 of 2014) and “Local Corporate Tax Act” (Act No.11 of 2014) were promulgated, according to which the Special
Reconstruction Corporation Tax will no longer be imposed from the consolidated fiscal years beginning on or after April 1, 2014.
Accordingly, for temporary differences expected to be reversed in the fiscal year beginning on April 1, 2014, the effective tax rateapplied to the calculation of deferred tax assets and liabilities for current fiscal year, will be lowered from 37.75% in prior fiscal
year to 35.38%.
The effect of this change is immaterial.

15. Commitments and Guarantee Liabilities
The Group guarantees employees’ bank loans to the amounts of ¥86 million ($835 thousand) and ¥128 million as of March 31,
2014 and 2013, respectively.

16. Stock Option Plan
The Company issued stock acquisition rights (stock options) in accordance with the provisions of the Companies Act as follows:
I. Accounting for stock option related expenses for the years ended March 31, 2014 and 2013
Thousands of
U.S. dollars

Millions of yen

Share-based compensation included in selling, generaland administrative expenses:

2013

2014
¥16

2014
¥17

$155

II. Details of stock options, volume and activityA) Detail of stock options

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

44

1st Stock Option Plan
8 directors of the Company
Common stock 47,500 shares
July 18, 2007
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 27, 2007 to June 26, 2008
From July 18, 2007 to July 17, 2037

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

2nd Stock Option Plan
8 directors of the Company
Common stock 49,400 shares
July 23, 2008
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 26, 2008 to June 25, 2009
From July 23, 2008 to July 22, 2038
3rd Stock Option Plan
8 directors of the Company
Common stock 55,500 shares
July 22, 2009
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 25, 2009 to June 24, 2010
From July 22, 2009 to July 21, 2039
4th Stock Option Plan
8 directors of the Company
Common stock 55,300 shares
July 21, 2010
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 25, 2010 to June 24, 2011
From July 21, 2010 to July 20, 2040

45

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

Persons granted
Number of stock options by type of shares
Grant date
Vesting conditions

Eligible service period
Exercise period

46

5th Stock Option Plan
7 directors of the Company
Common stock 56,600 shares
July 20, 2011
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 24, 2011 to June 23, 2012
From July 20, 2011 to July 19, 2041
6th Stock Option Plan
7 directors of the Company
Common stock 76,500 shares
July 18, 2012
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 26, 2012 to June 25, 2013
From July 18, 2012 to July 17, 2042
7th Stock Option Plan
4 directors of the Company
Common stock 56,700 shares
July 17, 2013
a. The eligible director shall exercise options collectively during
the period from the following day after he or she retired fromthe position as a director of the Company and through the 10thday.
b. If the eligible director resigned from its position due to certain
reasons, the number of stock options may be reduced
depending on the service period.
c. If the eligible director gives up the acquisition rights, he or shecannot exercise the stock options given up.
From June 25, 2013 to June 24, 2014
From July 17, 2013 to July 16, 2043

B) Volume and activity of stock options for the year ended March 31, 2014:
Volume of stock options:
Before vesting:
As of March 31, 2013
GrantedForfeited
VestedOutstanding
After vesting:
As of March 31, 2013
VestedExercised
Forfeited
Outstanding

174,600
56,700—69,100162,200—
69,10069,100——Price information:
Yen

Exercise price
Average stock price at the time of exercise
Fair value at the date of grant

U.S. dollars

Exercised

Outstanding

Exercised

Outstanding

¥  1
315
—

¥  1
—
344

$0.00
3.06
—

$0.00
—
3.34

C) Valuation method for fair value of stock options:
The valuation method for fair value of 2013 stock options granted during the year ended March 31, 2014 is as follows:
Valuation method: Black-Scholes formula
Major basic numerical values and valuation method:
Stock price volatility
Expected years to expiration
Expected dividends
Risk-free interest rate

35.6%
5.0 years¥10 ($0.09) per share
0.30%D) Estimation method for the vested number of stock options
Since it is difficult to make a reasonable estimate on future forfeited stock options, the actual number of forfeited stock options
is reflected in the estimation.

17. Selling, General and Administrative Expenses
Major components of selling, general and administrative expenses for the years ended March 31, 2014 and 2013 are as follows:
Millions of yen

Salaries, wages and bonuses
Provision for bonuses
Employees’ retirement benefit expenses
Research and development expenses

2014¥7,893
790
644
4,528

2013
¥7,611
623
653
4,389

Thousands of
U.S. dollars

2014$76,690
7,675
6,257
43,99547

18. Gain or Loss on Property, Plant and Equipment
Gain on sale of property, plant and equipment and loss on disposal and sales of property, plant and equipment for the years
ended March 31, 2014 and 2013 were as follows:
Thousands of
U.S. dollars

Millions of yen

2013

2014
Gain on sales of property, plant and equipment:Land
Machinery, equipment and vehicles
Total
Loss on disposal of property, plant and equipment:
Machinery, equipment and vehicles
Buildings and structures
Others (tools, furniture and fixtures)
Total
Loss on sales of property, plant and equipment:
Machinery, equipment and vehicles
Total

2014

¥8
7
¥15

¥—
6
¥6

$77
68
$145

¥413
699
65
¥1,177

¥413
382
0
¥796

$4,012
6,791
631$11,436

¥5
¥5

¥14
¥14

48
$48

19. Impairment loss
The Group has recognized impairment loss for the following asset group for the year ended March 31, 2014.
Purpose of use
Type of assets
Location
Idle assets
Land
Tanba City, Hyogo Prefecture
In principle, the Group has grouped the operating assets by business units and idle assets by individual properties.
For the above mentioned idle asset for which the market value has been declining, the Group reduced it to the recoverable
value and recognized the reduction as impairment loss of ¥133 million ($1,292 thousand) under other income (expenses). The
recoverable value is measured by the net sales price, determined reasonably based on assessed value of fixed assets tax.

20. Derivatives and Hedging Activities

I. Derivative contracts to which hedge accounting is not applied as of March 31, 2014 and 2013 are as follows:
Millions of yen

2013

2014
Contract
amountForeign exchange forward contracts:
Selling:
U.S. dollars
Euro
Buying:U.S. dollars
Euro
Total

48

Fair value

Unrealized
gain (loss)

Contract
amountFair value

Unrealized
gain (loss)¥1,693
154

¥(14)
(0)

¥(14)
(0)

¥855
230

¥0
1

¥0
1

483
198
—

2
0
¥(12)

2
0
¥(12)

71
16
—

0
0
¥1

0
0
¥1

Thousands of U.S. dollars

2014
Contract
amountForeign exchange forward contracts:
Selling:
U.S. dollars
Euro
Buying:U.S. dollars
Euro
Total

Fair value

Unrealized
gain (loss)$16,4491,496$(136)(0)$(136)
(0)

4,692
1,923
—

19
0
$(116)

19
0$(116)

Notes: 1. Fair value is calculated using the forward rates.
2. For foreign exchange forward contracts, unrealized gain (loss) is presented as fair value.
II. Derivative contracts to which hedge accounting is applied as of March 31, 2014 and 2013 are as follows:A) Currency related
Millions of yen

As of March 31, 2014
Hedge accounting
methodClassification of derivative
contracts

Principle processing
methodForeign exchange
contract (selling) inEuro

Major hedged items

Accounts receivable

Contract
amount¥2,300Contract
amountover one year

Fair value

¥—

¥(1)

Thousands of U.S. dollars

As of March 31, 2014
Hedge accounting
methodClassification of derivative
contracts

Principle processing
methodForeign exchange
contract (selling) inEuro

Major hedged items

Accounts receivable

Contract
amount$22,347

Contract
amountover one year$—

As of March 31, 2013

Fair value$(9)

Millions of yen

Hedge accounting
methodClassification of derivative
contracts

Principle processing
methodForeign exchange
contract (selling) inEuro

Major hedged items

Accounts receivable

Contract
amount¥2,285Contract
amountover one year¥—

Fair value¥(12)

Notes: 1. Fair value is calculated using the forward rates.
2.	Contract amount is presented in full amount, and unrealized gain (loss) calculated using investment ratio is presented
as fair value.

49B) Interest rate related
Millions of yen

As of March 31, 2014
Classification of derivative
contracts

Principle processing
methodInterest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

¥1,580¥1,580Interest rate swaps
meeting certain
conditions

Interest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

100—

¥1,680¥1,580Major hedged items

Total

Contract
amountContract
amountover one year

Hedge accounting
methodFair value¥(26)(Note 2)¥(26)

Thousands of U.S. dollars

As of March 31, 2014
Classification of derivative
contracts

Principle processing
methodInterest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

$15,351$15,351

Interest rate swaps
meeting certain
conditions

Interest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

971—

$16,323$15,351

Major hedged items

Total

Contract
amountContract
amountover one year

Hedge accounting
methodAs of March 31, 2013

Fair value$(252)(Note 2)$(252)
Millions of yen

Classification of derivative
contracts

Principle processing
methodInterest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

¥1,298¥1,298Interest rate swaps
meeting certain
conditions

Interest rate swaps:(fixed rate
payment, floating
rate receipt)

Long-term debt

983

983

Major hedged items

Contract
amountContract
amountover one year

Hedge accounting
methodFair value¥(40)(Note 2)Total
¥2,281¥2,281¥(40)
Notes: 1. Fair value is calculated using prices quoted by financial institutions.
2.	With respect to interest rate swap contracts which meet certain conditions, fair values of the interest rate swap contracts
are included in the fair values of the relevant long-term debt, since they are used for recording long-term debt as hedged
items.

50

21. Other comprehensive Income (Loss)

Reclassification adjustments and tax effect amounts of other comprehensive income (loss) for the year ended March 31, 2014 and2013 were as follows:
Millions of yen

2014
Unrealized gain (loss) on available-for-sale securities
Amount for the year
Reclassification adjustment
Amount before tax effectTax effect amount
Unrealized gain on available-for-sale securities
Deferred gain (loss) on hedges
Amount for the year
Reclassification adjustment
Amount before tax effectTax effect amountDeferred gain (loss) on hedges
Translation adjustments
Amount for the year
Share of other comprehensive income in affiliates
Amount for the year
Total other comprehensive income

Thousands of
U.S. dollars

2013

2014

¥205
(193)
11
22
33

¥3,155(2)
3,152(1,115)2,037$1,991(1,875)
106
213
320

(14)
39
24
(9)
15

(29)
(16)
(46)
19
(26)

(136)
378
233
(87)
145

5,396

2,560

52,429580¥6,026211¥4,782

5,635$58,550

22. Per Share Information
Net assets per share as of March 31, 2014 and 2013 and net income per share for the years then ended were as follows:Yen

Net assets per share
Basic net income per share
Diluted net income per share2014¥604.00
42.87
35.65

U.S. dollars

2013¥546.69
18.71
18.51

2014
$5.86
0.41
0.34

Net income per share and diluted net income per share were calculated based on the following data:
Thousands of
U.S. dollars

Millions of yen or shares

2014
Basic net income per share:
Net income per consolidated income statements
Net income attributed to common stock
Weighted average number of common stock during theperiodDiluted net income per share:
Number of increased common stock used in computing
diluted net income per share:
Bonds with stock acquisition rights
Stock acquisition rights

2013

2014

¥7,365
7,365¥3,212
3,212$71,560
71,560171,785,145

171,699,531—

34,799,522
34,642,032
157,490

1,900,117
1,708,360
191,757———

As described in “Changes in accounting policies,” the Company and certain consolidated subsidiaries have adopted theRetirement Benefits Standard, etc. and accounted for in accordance with the transitional provisions set forth in paragraph 37 of
the Retirement Benefits Standard.
As a result, net assets per share declined ¥10.31 ($0.10) as of March 31, 2014.

51

23. Shareholders’ Equity
For the year ended March 31, 2014
I. Issued stock
Type of share

Common stock

Share at beginning of year

Increase

Decrease

Share at end of year—

181,683,909—

181,683,909

II. Treasury stock
Type of share

Share at beginning of year

Common stock

Increase

Decrease

9,932

9,952,952

Share at end of year

69,8809,893,004

III. Dividends
A) Dividends paid
Date of approval

April 23, 2013
Board of Directors
October 15, 2013
Board of Directors

Date of approval

April 23, 2013
Board of Directors
October 15, 2013
Board of Directors

Amount(millions of yen)Type of share

Common stock

Amount per
share (yen)858

Common stock

5

858

5
Amountper share(U.S. dollars)

Amount(thousands of
U.S. dollars)

Type of share

Common stock

8,336

Common stock

0.04

8,336

0.04

Measurement date

Effective Date

March 31,2013
September 30,
2013

June 4,2013
December 3,
2013

Measurement date

Effective Date

March 31,2013
September 30,
2013

June 4,2013
December 3,
2013B) Dividends declared
Date of approval

Type of share

Source of dividend

Date of approval

Type of share

Source of dividend

April 15, 2014
Board of Directors

Commonstock

Retained
Earnings

April 15, 2014
Board of Directors

Commonstock

Retained
Earnings

Amount(millions of yen)

1,030

Amount(thousands of
U.S. dollars)

10,007

Amount per
share (yen)Measurement date

Effective Date

Amount per share(U.S. dollars)
Measurement date

Effective Date

6

0.05

March 31,2014

March 31,2014

June 3,2014

June 3,2014

For the year ended March 31, 2013
IV. Issued stock
Type of share

Common stock

Share at beginning of year

Increase

Decrease—

181,683,909

Share at end of year—

181,683,909

V. Treasury stock
Type of share

Common stock52

Share at beginning of year

10,031,300

Increase

Decrease

5,152

Share at end of year

83,5009,952,952

VI. Dividends
A) Dividends paid
Date of approval

April 17, 2012
Board of Directors
October 16, 2012
Board of Directors

Type of share

Common stock

Amount(millions of yen)

858

Common stock

Amount per share (yen)

5

858

5

Measurement date

March 31,2012
September 30,
2012

Effective Date

June 4,2012
December 4,
2012B) Dividends declared
Date of approval

April 23, 2013
Board of Directors

Type of share

Commonstock

Source of dividend

Retained
Earnings

Amount(millions of yen)

858

Amount per
share (yen)5

Measurement date

Effective Date

March 31,2013

June 4,2013

24. Segment Information
I. Overview of the reportable segments
The Company’s reportable segments are determined on the basis that separate financial information of such segments areavailable and examined periodically by the Board of Directors to make decisions regarding the allocation of management
resources and assess the business performances of such segments within the Group. The Company has separate divisions byproduct, and each division formulates a comprehensive strategy for business activities in domestic and overseas markets.
Thus, the Company consists of segments by product and service on the basis of the business divisions, and the “Advanced
materials,” “Specialty chemicals,” “Specialty plastics,” “Construction related,” and “Other operations” are 5 reportable segments.
Major products and services for each segment are as follows:
Segment
Advanced materials
Specialty chemicals
Specialty plastics
Construction related
Other operations

Products and services
PPS resin, PVDF resin, carbon fiber, bead-shaped activated carbon, anode materials forlithium ion batteries, PGA (polyglycolic acid) resin
Therapeutic agent for chronic renal failure, anti cancer agent, agricultural andhorticultural fungicide, caustic soda, hydrochloric acid, sodium hypochlorite,
monochlorobenzene, para-dichlorobenzene, ortho-dichlorobenzene
Household plastic wrap, garbage bags for kitchen sink, food containers and cooking
paper, PVDF fishing line, PVDC film, PVDC compound, multilayer heat-shrinkablefilm, multilayer bottle, machinery for auto-seal food packaging
Civil engineering and construction contracting business, industrial facility design,
construction and management service
Environmental engineering and industrial waste management business, transport andwarehousing business, laboratory tests, analysis, measurement, and inspection service

II. Valuation method for reportable segment profit (loss) and asset amounts
The accounting method for reportable business segments is presented in accordance with “Summary of Significant Accounting
Policies.” The reportable segment profit figures are based on operating profit. Inter–segment internal rates of return and theamounts transferred are presented based on the current market prices at the time of this report.

53

III. Segment information by type of businessNet sales:
Outside customers
Inter-segment
Total
Operating income (loss)
AssetsDepreciation
Adjustment for increasein fixed assets

Advancedmaterials

Specialty
chemicalsMillions of yen
2014
Reportable segment
Specialty
Construction
plastics
relatedOther¥32,815
1,781
34,596¥(2,625)¥81,360
3,918¥36,615311
36,926¥7,341¥22,0281,111¥45,291
1,227
46,519¥4,519¥42,973
1,608¥17,238
5,705
22,943¥833¥10,394
116¥16,163
6,650
22,814¥1,621¥13,684744¥148,124
15,676
163,800¥11,689¥170,441
7,499

4,049

1,004

8,207

84

845

14,191

Advancedmaterials

Net sales:
Outside customers
Inter-segment
Total
Operating income (loss)
AssetsDepreciation
Adjustment for increasein fixed assets

Specialty
chemicals$318,839 $355,761
17,304
3,021
336,144358,783$(25,505) $71,327$790,516 $214,030
38,068
10,794
39,341

Advancedmaterials

9,755

Specialty
chemicals

Total

Thousands of U.S. dollars
2014
Reportable segment
Specialty
Construction
plastics
relatedOther$440,060
11,921
451,991$43,907$417,537
15,623$167,489
55,431
222,920$ 8,093$100,991
1,127

79,741

816

Total

Adjustment(Note 1)

Consolidated(Note 2)

¥— ¥148,124(15,676)—(15,676) 148,124¥212 ¥11,902¥54,017 ¥224,459
1,596
9,096
2,277

16,468Adjustment(Note 1)

Consolidated(Note 2)

$157,044 $1,439,214 $— $1,439,214
64,613
152,312 (152,312)—
221,667 1,591,527 (152,312) 1,439,214$15,750 $113,573 $2,059 $115,643$132,957 $1,656,053 $524,844 $2,180,907
7,228
72,862
15,50788,3798,210

Millions of yen
2013
Reportable segment
Specialty
Construction
plastics
relatedOther

137,883

Total

22,123160,007

Adjustment(Note 1)

Consolidated(Note 2)

Net sales:
Outside customers¥27,650¥32,833¥40,900¥14,967¥14,197 ¥130,550¥— ¥130,550
7,506
7,099
17,491(17,491)—
Inter-segment
1,525
256
1,103
Total
29,17633,08942,00422,474
21,296
148,041(17,491) 130,550¥2,988¥1,038¥613 ¥8,645¥ (186) ¥8,458
Operating income (loss)¥(2,131) ¥6,136
Assets¥70,462¥21,865¥34,579¥9,214¥13,433 ¥149,554¥55,730 ¥205,284
Depreciation
3,796
1,142
1,441
109
724
7,214
1,668
8,882
Adjustment for increasein fixed assets
8,740
1,369
6,365
103
947
17,526
2,457
19,984
Notes: 1. Adjustment for segment operating income (loss) is due to inter-segment elimination.
		Adjustment for segment assets includes corporate assets such as cash and cash equivalents, investments in securities, andother corporate shared facilities that are not allocated to each reportable segment.
2. Segment operating income (loss) is adjusted with operating income on the consolidated statements of income.
Geographical segment information of the Company for the year ended March 31, 2014 and 2013 was summarized as follows:
Millions of yen
2014

Sales

54

Japan

Europe

Asia

Other

Total

¥105,588¥12,712¥14,184¥15,638¥148,124

Thousands of U.S. dollars
2014
Japan

Sales

$1,025,923

Europe

Asia

Other

$123,513$137,815$151,943

Total$1,439,214

Millions of yen
2013
Japan

Sales

Europe¥98,269

Asia¥14,631

Other¥11,370

Total¥6,277¥130,550

Note: Sales are categorized by country and regions based on customer’s location.
Millions of yen
2014
Japan

Property and equipment

United States¥78,431

Other¥19,438

Total¥13,814¥111,684

Thousands of U.S. dollars
2014
Japan

Property and equipment

United States$762,057

Other$188,865

Total$134,220

$1,085,153

Millions of yen
2013
Japan

Property and equipment

United States¥73,214

Other¥16,914Total¥9,315¥99,444

Information on impairment loss of fixed assets by reportable segment for the year ended March 31, 2014 and 2013 wassummarized as follows:

Advancedmaterials

Impairment loss¥—

Advancedmaterials

Impairment loss

Specialty
chemicals¥—

Specialty
chemicals$—$—Millions of yen
2014
Reportable segment
Specialty
Construction
plastics
related
Other

¥133

¥—

Total

¥—

Thousands of U.S. dollars
2014
Reportable segment
Specialty
Construction
plastics
relatedOther$1,292

$—

$—

¥133

Total

$1,292Adjustment

Consolidated

¥—

¥133

Adjustment

Consolidated$—$1,292

There was no impairment loss for the year ended March 31, 2013.

25. Subsequent Events
The following appropriation of retained earnings has been approved by the general meeting of the Board of Directors held on
April 15, 2014.
Millions of yen

Cash dividends at ¥6.00 ($0.05) per share¥1,030Thousands of
U.S. dollars$10,007

55

Kureha Consolidated Subsidiaries and Affiliates

Country

Company Name

Major BusinessJapan

Kureha Extech Co., Ltd.

Manufacture/sale of plastic film and products

Kureha Gohsen Co., Ltd.

Manufacture/sale of plastic fiber and products

Kureha Extron Co., Ltd.

Manufacture/sale of plastic products

Kureha Battery Materials Japan Co., Ltd.

Sale of lithium-ion battery materials

Kureha Unyu Co., Ltd.

Transportation and storage services

Kurehanishiki Construction Co., Ltd.

Construction

Kureha Engineering Co., Ltd.

Plant engineering and maintenance

Kureha Ecology Management Co., Ltd.

Waste treatment and management

Kureha Special Laboratory Co., Ltd.

Environmental/physiochemical evaluation and analysis

Kureha Trading Co., Ltd.

Trading of chemical and plastic products

Resinous Kasei Co., Ltd.

Manufacture/sale of advanced materials

Kureha Service Co., Ltd.

Real estate, travel and welfare services for Kureha Group

Kureha Staff Service Co., Ltd.

Recruiting and staffing services for Kureha Group

Kureha America Inc.

Holding company and finance

Kureha America LLC

Sale of advanced products and packaging materials

Kureha Advanced Materials LLC

Manufacture/sale of carbon fiber products

Kureha PGA LLC

Manufacture/sale of PGA resins

Fortron Industries LLC

Manufacture/sale of PPS resins and compounds

Germany

Kureha GmbH

Sale of advanced products

Netherlands

Kureha Europe B.V.

Holding company and financeKrehalon Industrie B.V.

Manufacture/sale of food packaging products

FranceKrehalon France & Benelux S.A.S.

Sale of food packaging productsUK

Krehalon UK Ltd.

Sale of food packaging products

China

Kureha (China) Investment Co., Ltd.

Holding company and finance

Kureha Chemicals Shanghai Co., Ltd.

Manufacture/sale of carbon fiber products

Kureha (Shanghai) Co., Ltd.

Sale of advanced materials

Kureha (Changshu) Fluoropolymers Co., Ltd.

Manufacture/sale of PVDF resins and compounds

Nantong SKT New Material Co., Ltd.*

Manufacture/sale of PVDC resins and compounds

Kureha Vietnam Co., Ltd.

Manufacture/sale of food packaging films

USA

Vietnam* Affiliates accounted for by equity method

56

Investor Information(As of March 31, 2014)

Growing from Our Roots

Corporate Data
Corporate Name

Kureha Corporation

Meiji Yasuda Life Insurance Company

Headquarters

3-3-2, Nihonbashi-Hamacho,
Chuo-ku, Tokyo 103-8552, Japan
Tel: 81-3-3249-4666
Fax: 81-3-3249-4744

Tokio Marine & Nichido Fire Insurance Co., Ltd.

Kureha Corporation is a diverse specialty chemicals and plastics manufacturer that leverages its technologicaldevelopment expertise to create original products in such fields as advanced materials, pharmaceuticals,
agrochemicals and packaging materials. Since its establishment in 1944, Kureha’s growth and		
expansion has been driven by innovative products developed in-house, rather than a reliance

Major Stockholders

Date of Establishment

June 21, 1944

Paid-in Capital¥12,460 million

Number of Employees

4,080 (consolidated)on outside technology.

1,715 (non-consolidated)

Over the past decade, Kureha has moved to transform and further strengthen its

Independent Auditor

business portfolio with a global outlook, strategically selecting and focusing on key

Nihombashi Corporation
Certified Public Accountants

The Master Trust Bank of Japan Ltd. (Trust account)
Japan Trustee Services Bank, Ltd. (Trust account)
Daiichi Sankyo Company, Limited
Mizuho Bank, Ltd.
The Nomura Trust and Banking Co., Ltd. (Trust account)
JP Morgan Chase Bank 385166
Mizuho Trust & Banking Co., Ltd.
EVERGREEN

business areas where the company can benefit from the competitive advantage
afforded by its unique technologies and marketing strengths. We haveenhanced our production capacity in areas of strength, and taken
proactive steps to improve products and services to meet market
demands. To ensure sustainable growth, we have also focusedon developing new technologies and products, thereby
establishing a business foundation to spur Kureha’s growth
into the future.
The result of these efforts is visible in the formation of a balanced
business portfolio that enables us to stand strong amid increasingly fierce
global competition. Going forward, to strengthen this foundation and growat a global level, we will enhance the efficiency of business operations and 		

Stock Information
Number of Shares ofCommon Stock Issued

181,683,909 shares

Number of Shareholders 15,207
Number of Shares Heldby Foreign Shareholders

37, 640,084 (20.72% of total)

Stock Exchange Listings Tokyo Stock Exchange
Transfer Agent

Mizuho Trust & Banking
Co., Ltd.

boost competitiveness.
Kureha’s roots, and its strengths, are in technology. Building on unique technologicalcapabilities, we will evolve in response to continually shifting markets and customer needs. Taking
to heart Kureha’s company mission of “the pursuit of excellence,” and offering differentiated products
and services through innovation, we are committed to delivering the greatest value to all stakeholders.

Contents
At a Glance ..........................................................................2

Corporate Governance ...........................................19

Consolidated Financial Highlights ....................3Interview with Kureha’s President .....................4

Directors, Executive Officers andCorporate Auditors ....................................................21

Medium-Term Management Plan ....................8

Consolidated Five-Year Summary ..................22

Topics ....................................................................................10

Management Discussion and Analysis ......23

Review of Operations ..............................................12

Consolidated Balance Sheets ............................26

Research & Development .....................................16

Consolidated Statements of Income ...........28

Responsible Care .........................................................18

Consolidated Statements ofComprehensive Income ........................................28

Consolidated Statements of
Changes in Net Assets .............................................29
Consolidated Statements of Cash Flows ....30
Notes to Consolidated Financial
Statements .......................................................................31
Kureha Consolidated Subsidiaries
and Affiliates ...................................................................56
Investor Information .................................................57

Kureha Corporation
Headquarters

57

Business Report 2014
Year ended March 31, 2014

http://www.kureha.co.jp/

The Pursuit of Excellence

Printed in Japan