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TOKUYAMA CORPORATION

2000 ANNUAL REPORT


Tokuyama Corporation
Tokuyama Corporation has always been a pioneer. Katsujiro Iwai started the company
in 1918 because of his firm belief that Japan should have a domestic soda ash produc-
tion capability. Guided by this spirit of innovation, the company steadily expanded the
scope of its operations to encompass the production of chlor-alkali, cement, plastics
and organic solvents. Tokuyama has also branched out into sophisticated, high-potential
fields such as electronics, biomedical materials, advanced ceramics and specialty
chemicals, all of which call for the development of business from a global perspective.
In April 1999, Tokuyama launched a new three-year management program with
the aim of achieving growth in the 21st century as a company that can make dreams
come true through chemistry. A key focus of the plan is expanding the highly

CONTENTS page 02Z MESSAGE FROM THE MANAGEMENT page 05Z FOCUS ON CORE COMPETENCIES TO DRIVE

GROWTH page 06Z A MORE POWERFUL BASE FOR EXSITING CORE BUSINESSES page 08Z A MORE EXPANSIVE

BASE FOR SPECIALTY BUSINESSES page 12Z RESEARCH AND DEVELOPMENT page 14Z RESPONSIBLE CARE

page 15Z CONSOLIDATED FIVE-YEAR SUMMARY page 16Z FINANCIAL REVIEW page 22Z CONSOLIDATED

BALANCE SHEETS page 24Z CONSOLIDATED STATEMENTS OF INCOME page 25Z CONSOLIDATED STATEMENTS

OF SHAREHOLDERS’ EQUITY page 26Z CONSOLIDATED STATEMENTS OF CASH FLOWS page 27Z NOTES TO

CONSOLIDATED FINANCIAL STATEMENTS page 35Z REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

ON THE CONSOLIDATED FINANCIAL STATEMENTS page 36Z MAJOR SUBSIDIARIES AND AFFILIATES page 38Z

DIRECTORY page 39Z CORPORATE DATA/BOARD OF DIRECTORS AND RESPONSIBILITIES


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2000 ANNUAL REPORT


profitable specialty products sector.
The environment is another focus. Long before environmental protection became
fashionable, Tokuyama was actively implementing an environmentally conscious man-
agement policy. Today, Tokuyama continues to take the lead in many areas. Recently,
for example, Tokuyama has been using waste plastic as fuel in cement production. And
the company is also operating a trial plant for the recycling of polyvinyl chloride (PVC)
using proprietary technology.
In all its endeavors, Tokuyama is intent on making an even larger contribution to
the well-being of society.

Consolidated Financial Highlights


Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2000 and 1999

Thousands of
Millions of yen Change (%) U.S. dollars
2000 1999 2000/1999 2000
Net sales ¥224,110 ¥207,391 +8.1% $2,114,249
Operating income 15,438 13,977 +10.4 145,641
Income before income taxes 8,595 5,114 +68.1 81,083
Net income 4,917 1,508 +226.1 46,386

Total assets 352,974 305,192 +15.7 3,329,947


Total shareholders’ equity 106,758 94,382 +13.1 1,007,150

Yen Change (%) U.S. dollars


Per share amounts (yen and U.S. dollars):
Net income (basic) ¥19.29 ¥5.91 +226.4% $0.182
Net income (diluted) 18.92 5.91 +220.1 0.178
Cash dividends 6.00 6.00 – 0.057
Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥106=US$1.
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message from the MANAGEMENT

During fiscal 1999, the year ended


March 31, 2000, increased exports
combined with the government’s
fiscal and monetary pump-priming
measures to kick-start the economy,
launching it on the road to self-
sustained recovery. Clouding this opti-
mism, however, was the nature of this
apparent upturn—it gives all appear-
Kaoru Tsuji,
Chairman (right) and ances of being a typical cyclical
Yuichi Miura,
President
recovery led by public-works spend-
ing and the revival of exports to Asian
markets. Thus, not all sectors of
industry have benefited. While IT-related
sectors have seen explosive growth,
weaker businesses in less glamorous industries are missing out. The result is increasing
polarization between expanding and contracting sectors.

RESULTS FOR THE YEAR


Set against this backdrop, consolidated net sales rose 8.1 percent to ¥224.1 billion
(US$2,114 million). This increase was partly due to the consolidation of additional
subsidiaries during the year, including Shin Dai-ichi Vinyl Corporation, a producer of
polyvinyl chloride. Consolidated operating income climbed 10.4 percent to ¥15.4
billion (US$146 million), and consolidated net income leapt 226.1 percent to ¥4.9
billion (US$46 million).

PROGRESS REPORT ON NEW MANAGEMENT PROGRAM


In April 1999, we launched a new three-year management program encompassing
the entire Tokuyama Group. Reflecting the adoption of consolidated accounting,
Group management became a top priority. The objective during the first two years
of the program is to reform our business structure in line with the core themes of
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“Structural Reform for Renewed Growth” and “Group and Environmental Management.” In the
final year, we hope to reap the rewards of these efforts in the form of new growth. The fruits of
this drive will serve as a platform for the launch of the next three-year management program,
the first of the new century. The bolstering of group and environmental management will allow
us to drive through these reforms and spur further growth.

THE FOCUS OF STRUCTURAL REFORMS


Structural reforms outlined in the program focus on three core themes: “Reform of Business
Structure,” “Improvement of Financial Position” and “Business Process Reengineering.”

Business structure reforms carried out so far include the following:


1. Transfer of medical diagnosis systems operations to consolidated subsidiary A&T Corporation
for operation as an autonomous business.
2. Restructuring of the chlor-alkali business by making Shin Dai-ichi Vinyl Corporation a subsidiary.
3. Spinning-off of film processing and plastic window sash operations.
4. Withdrawal from and liquidation of General Ceramics, Inc. which was running an unprofitable
electronic component business in the U.S.
5. Fundamental restructuring of ready-mixed concrete manufacturing companies and affiliated
sales companies.

Significantly, these actions virtually complete intended reforms for subsidiaries and affiliates.
Regarding our financial position, we have now completed the large-scale program of
capital expenditure started in fiscal 1996. This program set out to reinforce our infrastructure and
expand operations in the specialty products sector. The task now at hand is to turn these invest-
ments into tangible results. One aim is to generate higher cash flows from operating activities
and direct this toward paring interest-bearing liabilities to ¥140.0 billion by the end of fiscal 2001.
In the third area of reform, business process reengineering, we are streamlining head office
functions as well as non-production and auxiliary divisions to create a leaner, more efficient head
office. Furthermore, we are currently retooling the Group’s information infrastructure to keep
pace with the IT revolution, and introducing a strategic human resources development system
to meet new needs arising from the increased emphasis on Group management.
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GROUP MANAGEMENT
Our vision calls for a Tokuyama Group in which all businesses have a high degree of autonomy-
regardless of whether they are attached to the parent company or in separate companies. At
the same time, these businesses will fit seamlessly into an integrated whole, thereby allowing us
to drive synergies across the Group.

THE IMPORTANCE OF ENVIRONMENTAL MANAGEMENT AT TOKUYAMA


Environmental management will go hand in hand with Group management. We regard
responding to environmental issues as not only a social and moral obligation, but also as a
catalyst for the launch of new businesses and a chance to upgrade our operating structure. In
this sense, environmental issues constitute a key element of our overall strategy. Accordingly,
fiscal 1999 saw us implement an enhanced environmental management system and invest
¥2.7 billion ($25 million) in environment-related areas.
In a rapidly changing and increasingly borderless world, Tokuyama has no intention of
slackening off the pace of structural reform. On the contrary, by stepping up the tempo, we
intend to continue carving out opportunities for growth as the new century dawns. This will
involve looking upon every change in our operating environment as a valuable source of
opportunity. We aim to enter a new period of growth by developing businesses in promising
areas such as IT and electronics, the environment and energy. We are convinced that this is
the best way to raise corporate value and to fulfil the expectations of shareholders, investors
and customers.

September 2000

Yuichi Miura
President
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Focus on Core
Competencies
to Drive Growth

April 1999 heralded the start of a new three-year management program


at Tokuyama. The program has three central themes: “Reform of Business
Structure,” “Improvement of Financial Position” and “Business Process
Reengineering.” Concurrent with this reform drive, Tokuyama is also
implementing a growth strategy to craft a high-profit business structure.
This growth strategy will see Tokuyama expand its specialty products
(SP) business, where there is still considerable room for development,
while fortifying its existing core businesses. Both areas will draw on the cost
advantages made possible by the Tokuyama Factory. Within SP,
Tokuyama has identified “strategic SP” growth sectors. Just as with existing
core businesses, these sectors will be grown into core SP businesses to in-
crease the share of total sales accounted for by SPs. This will enable
Tokuyama to achieve sustainable growth by building a profit base that is
immune from cyclical swings in markets and economies.
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focus on core competencies to DRIVE GROWTH

A More Powerful Base for


Basic Materials: Chlor-Alkali and Cement

The Tokuyama Factory has a key role to play in strengthening core operations.
The Factory boasts both chemical and cement plants within the same site, a

strength unmatched by other companies. By taking maximum advantage of this

infrastructure with integration of the material flow, Tokuyama enhances its signifi-
cant cost competitiveness.

Chlor-alkali and cement operations are the core material businesses the

company has selected to concentrate on. In chlor-alkali, the company aims to


increase sales while maintaining balance between chlorine and alkali. The goal

in cement operations is to reduce production costs by using waste materials as

feedstock or fuel. At the same time, distribution activities will be realigned to cre-
ate a leaner, more competitive business structure.

Thus, despite their mature nature, Tokuyama expects to be able to drive

new growth and earnings in these two existing core businesses by implementing
the above-mentioned strategy.
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Existing Core Businesses


8
focus on core competencies to DRIVE GROWTH

A More Expansive Base


Specialty products: Polycrystalline Silicon, Silica

Polycrystalline Silicon and Silica are positioned as core businesses in SP operations.


Like chlor-alkali and cement, both are produced at the Tokuyama Factory. Pro-

duction of Factory’s polycrystalline silicon (and silica) is well integrated into the

operations of the Tokuyama Factory, which is supported by the Factory’s internal


power generation, thus resulting in cost advantages.

Fumed silica is co-produced with polycrystalline silicon by a dual-produc-

tion system, which results in an additional cost advantage. Tokuyama is in a posi-


tion to enhance the overall silica business strategy, capitalizing on the strength of

also producing precipitated silica.

In Polycrystalline Silicon and Fumed Silica, Tokuyama will capture a greater


market share and higher profitability taking advantage of its cost competitive-

ness. Diversification into silicon-related business operations will also be a key

theme. To drive growth in polycrystalline silicon-silica businesses, Tokuyama envi-


sions possible business alliances.
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for Specialty Businesses


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Strategic Specialty Products: Information and Electronics

Strategic SPs are growth SP fields that Tokuyama intends to pour resources into
moving forward. The technologies and products of such strategic SPs are not lim-

ited to the chemistry field but extend to a broad spectrum of realms ranging

from devices and systems to software. The company intends to narrow its focus
down to the most attractive opportunities in fields where it is strongest.

Through this process of concentration on carefully chosen growth markets,

Tokuyama believes it can grow next-generation core businesses from existing


products. One of these fields is specially processed aluminum nitride products,

which are showing rapid growth in line with growth in information and communi-

cations fields. Another is medical diagnosis systems. Growth here is being pow-
ered by the provision of a comprehensive suite of services from systems to

software.
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research and DEVELOPMENT

Tokuyama’s R&D activities are closely linked to the company’s efforts to achieve the goals
of its new three-year management program. In particular, specialty products businesses are
being given priority in R&D funding as Tokuyama concentrates on creating more distinctive
technologies. Another drive is stepping up the pace of research programs to cut lead times.
As part of this drive, a second research wing was completed at the Tsukuba Research Labo-
ratory in June 1999. This further supports the basic policy of centralizing R&D activities at the
company's two major research bases in Tokuyama and Tsukuba to increase speed and
maneuverability. Other members of the Tokuyama Group are conducting R&D activities to
meet concrete market needs using core technologies.
Two themes will play a central role in R&D
programs. One is environmental issues, which
will be given still greater consideration when
conducting a variety of activities. The other
is performing research from the stand-
point of the entire Tokuyama Group,
thereby maximizing potential returns on
R&D investments.
During fiscal 1999, consolidated
R&D expenditures were ¥8.1 billion, sup-
porting the activities of approximately
500 researchers. This figure includes ¥2.7

The Tsukuba Research Laboratory

billion for basic research that is not allocated to the operating divisions. R&D highlights
and expenditures by operating segment are as follows.

Chemicals
To meet customers’ demands for cost-competitive processing, Tokuyama studied a variety
of compounding methods using its polypropylene resin. One result was a new product for
automotive applications. Research also targeted flame-retardant polypropylene, particu-
larly formulations that are weather resistant, with the aim of opening up new applications
in homebuilding materials. For a new type of film made of propylene ethylene rubber
(PER), a product that went on sale during fiscal 1999, research initiatives produced quality
refinements and a variety of new grades, leading to higher sales. Research in biaxially
oriented polypropylene (OPP) film continued to target the development of new specialty
grades. Additionally, Tokuyama transferred technology to subsidiary Tianjin Sunshine
Plastics Co., Ltd. in China. Overall, chemicals R&D expenditures totaled ¥2.1 billion.
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Specialty Products
In polycrystalline silicon, the major theme was again improving production processes to
cut costs. Research also focused on the development of special grades of precipitated
and fumed silica, as well as new applications for functional silica powders. Aluminum
nitride continues to benefit from growth in the computer and communications sectors. In
response, R&D covered a broad range of products that employ this material, including
substrates with high thermal conductivity. At Figaro Engineering Inc., work continued on
the development of a compact and energy-efficient pulse-driven printed CO sensor.
In plastic lens materials, research focused on ways
to further improve materials with a medium
refractive index. One result was the introduction
of a photochromic lens that changes color
with unprecedented speed. In dental
materials, Tokuyama began sales of
a revolutionary new adhesive
that employs a new catalyst. At
A&T Corporation, development
work began on an automated
sample transportation system
using standardized modules. This
targets the rising degree of total

Left: Computer Chemistry Right: SHAPALTM (sintered plates of Aluminum nitride: SEM view)

laboratory automation at hospitals. As a result of these activities, specialty products R&D


expenditures were ¥2.7 billion.

Cement, Building Materials and Others


To make its operations more environmentally compatible, Tokuyama has taken many
steps to utilize waste materials as supplementary fuel and feedstocks in the manufacture
of cement. As part of this drive, researchers have been working on a technology for the
treatment of ash from municipal trash incinerators to permit its use in cement. This
program is conducted under the auspices of the Yamaguchi Prefecture Zero Emissions
Council. Currently, the focus of this program is shifting to the development of technology
for waste materials that cannot be recycled in cement production at present. Total R&D
expenditures in this sector were ¥0.5 billion.
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responsible CARE

Both Factories ISO 14001 Certified


Tokuyama’s domestic factories are both ISO 14001 certified. The Tokuyama Factory
obtained this international environmental management certification in December 1998
while the Kashima Factory was certified in January 1999. Since then, the company has
continuously operated its environmental management systems, thereby keeping its
operations in step with environmental issues.

More Products Obtain ISO 9000 Certification


To raise product quality, all offices have worked to gain
ISO 9000 series quality management certification
(¥ billion) for their products. In fiscal 1999, ended March
1.5 4.1 4.7 5.3 7.0 8.6 10.7 15.1 17.8 31, 2000, polypropylene, OPP film, chemicals
and polysilicon products produced at the
Tokuyama Factory were certified. At the
Kashima Factory, dental materials also
obtained ISO 9000 series certification.

Using Waste Plastic Film as Fuel in


Cement Production
Tokuyama has been actively taking
advantage of its cement kilns to reuse

1991 1992 1993 1994 1995 1996 1997 1998 1999

Cumulative Environmental Investment

waste materials and by-products as supplementary fuel and feedstocks in the manufacture
of cement. A plant completed in August 1999, for example, is recycling waste plastics as
fuels in cement production, and plans call for its processing capacity to be ramped up
moving forward. Tokuyama also uses waste such as plastics, used tires, coal ash and
sludge from external sources in its cement operations. In fiscal 1999, the company reused
1.54 million tons of waste from such sources.

Investments to Reduce Environmental Impact


Fiscal 1999 saw Tokuyama invest approximately ¥2.7 billion in facilities such as those to
treat coal ash and wastewater and to process specified chemical substances. These
investments were made in line with a medium-term environmental investment plan
formulated to reduce the environmental impact of the company’s activities. Tokuyama
also has a system in place to manage and evaluate the results of these investments.
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consolidated FIVE-YEAR SUMMARY
Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31

Thousands of
Millions of yen U.S. dollars
2000 1999 1998 1997 1996 2000
Results of operations:
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥224,110 ¥207,391 ¥227,440 ¥216,664 ¥197,241 $2,114,249
Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,930 139,583 156,129 144,748 127,215 1,433,304
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,438 13,977 14,525 14,358 13,219 145,641
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,917 1,508 2,796 2,077 3,638 46,386

Per share amounts (in yen, dollars):


Net income (basic) . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥19.29 ¥5.91 ¥10.97 ¥8.15 ¥14.27 $0.182
Net income (diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . 18.92 5.91 10.83 8.13 13.99 0.178
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 6.00 7.50 6.00 6.00 0.057

Financial position:
Property, plant and equipment . . . . . . . . . . . . . . . . . ¥166,368 ¥154,015 ¥136,545 ¥122,163 ¥108,409 $1,569,509
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 352,974 305,192 300,242 289,342 269,908 3,329,947
Long-term debt, less current portion . . . . . . . . . . . . . 126,697 103,304 88,696 80,796 65,612 1,195,250
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 243,011 209,432 205,165 195,615 176,691 2,292,565
Shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . 106,758 94,382 95,077 93,727 93,217 1,007,150

Ratios:
Return on sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.2% 0.7% 1.2% 1.0% 1.8% –
Return on equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.9 1.6 3.0 2.2 3.9 –
Return on assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.5 0.5 0.9 0.7 1.4 –

Common stock price range (in yen):


High . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥548 ¥445 ¥653 ¥774 ¥812 –
Low . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347 280 283 540 390 –
Note: U.S. dollar amounts are translated from Japanese yen, for convenience only, at the rate of ¥106=US$1.
16
financial REVIEW

INCOME ANALYSIS
The Japanese economy in fiscal 1999, the year ended March 31, 2000, inched back on to a
recovery footing. This recovery was underpinned by improved fiscal and financial conditions in
Japan and increased exports to Asia, the U.S. and Europe. Even so, private-sector demand
remained flaccid and without a sustainable driving force.
Conditions in the Tokuyama Group’s main markets of Chemicals, Specialty products,
Cement, building materials and others were generally soft. On a positive note, industrial
production staged a recovery. However, domestic demand, particularly for consumer goods,
was sluggish in the absence of an engine to power growth.
In this climate, consolidated net sales for fiscal 1999 rose 8.1 percent from ¥207,391 million
to ¥224,110 million (US$2,114 million). This was due mainly to an increase in the number of
consolidated subsidiaries, notably Shin Dai-ichi Vinyl Corporation, a producer of polyvinyl
chloride that became a subsidiary in June 1999.
By segment, Chemicals sales climbed 15.5 percent to ¥104,812 million (US$989 million)
and sales in Cement, building materials and others rose 10.0 percent to ¥65,053 million (US$614
million). Sales in Specialty products, however, decreased 5.6 percent to ¥54,245 million (US$512
million).
The cost of sales increased 8.8 percent to ¥151,930 million (US$1,433 million), but gross
profit increased 6.4 percent to ¥72,180 million (US$681 million) from ¥67,808 million a year
earlier. The gross profit ratio was largely unchanged from the previous fiscal year at 32.2
percent. Selling, general and administrative expenses increased 5.4 percent to ¥56,742 million
(US$535 million). As a result of the foregoing, operating income increased 10.4 percent to
¥15,438 million (US$146 million). The ratio of operating income to net sales was 6.9 percent,
compared to 6.7 percent in fiscal 1998.
Research and development expenses were ¥8,108 million (US$76 million) and deprecia-
tion expenses were ¥19,810 million (US$187 million).
Other expenses decreased sharply by 22.8 percent year on year to ¥6,843 million (US$65
million) due mainly to lower restructuring charges related to affiliated companies and an
improvement in earnings of unconsolidated subsidiaries and affiliates which were accounted
17

197,241 216,664 227,440 207,391 224,110

NET SALES << ¥ million >>

1996 1997 1998 1999 2000

for by the equity-method. These gains were offset partially by higher loss write-downs on
marketable and investment securities.
Income before income taxes was ¥8,595 million (US$81 million), up 68.1 percent, from
¥5,114 million in the previous fiscal year. Income taxes were ¥4,325 million (US$41 million). Net
income surged 226% to ¥4,917 million (US$46 million) from ¥1,508 million. Consequently, diluted
net income per share rose from ¥5.91 to ¥18.92 (US$0.178). The dividend per share was ¥6.00
(US$0.057).

SEGMENT INFORMATION
The Tokuyama Group is made up of the parent company, 50 subsidiaries and 55 affiliated
companies. For accounting purposes, 49 subsidiaries are consolidated and 17 affiliates are
accounted for by the equity method.

Chemicals
A total of 8 consolidated subsidiaries and 7 equity-method affiliates operate in this segment.
Net sales rose 15.5 percent year on year to ¥104,812 million (US$989 million), but operating
income declined 25.9 percent to ¥4,897 million (US$46 million). This segment accounted for 46.8
percent of consolidated net sales, an increase of 3.0 percentage points over the previous
fiscal year.
In chemicals operations, sales of soda ash and calcium chloride decreased, albeit
slightly, year on year. In soda ash, sodium silicate performed well, but this gain was negated by
soft demand for soda ash for glass manufacture due to the growing popularity of PET bottles.
Regarding calcium chloride, demand for use in snow melting agents was dampened by a
warm winter in Japan. In the chlor-alkali sector, where the main products are caustic soda,
propylene oxide and chlorinated organic solvents, prices retreated slightly. However, sales in
this sector increased due to recovery in industrial production and higher sales volumes of
propylene oxide for use as a feedstock in urethane. In polyvinyl chloride resins, the gap
between supply and demand closed in the domestic market due to the rapid recovery in
18

13,219 14,358 14,525 13,977 15,438

OPERATING INCOME << ¥ million >>

1996 1997 1998 1999 2000

Asian economies. Negating this was a sharp rise in ethylene feedstock prices, reflecting crude
oil prices. Profitability in polyvinyl chloride resins thus could not be improved, despite efforts to
raise prices. In the organic chemicals business group, which includes industrial-use isopropyl
alcohol, the recovery in industrial production fueled growth in domestic sales for use in paints
and inks and to manufacturers of solvents and cleaning agents. Robust exports also helped to
drive up sales. On the price front, however, efforts to counter higher feedstock prices by raising
sales prices fell short of the mark.
In plastics operations, where the mainstay product is polypropylene, costs rose and sales
volumes declined making the operating environment extremely difficult. In this climate, the
company remained steadfast to its strategy of concentrating on high-profit products and ef-
forts were made to improve prices. Sales nevertheless fell.
In plastic film, biaxially oriented polypropylene (OPP) film saw a slight increase in sales
volumes. On the other hand, prices failed to improve, resulting in flat sales. Furthermore, in
microporous films, sales decreased due to soft prices, despite efforts to expand sales by open-
ing up new markets.

Specialty Products
This segment includes the operations of 13 consolidated subsidiaries and 4 equity-method affili-
ates. Segment sales for fiscal 1999 were ¥54,245 million (US$512 million), down 5.6 percent from
the previous year. Operating income decreased 2.2 percent to ¥8,274 million (US$78 million).
Segment sales accounted for 24.2 percent of consolidated net sales, a decrease of 3.5 per-
centage points over the previous year.
Regarding specialty chemicals, in fine chemicals products, plastic lens materials and
blood-vessel contrast medium performed strongly. However, agricultural chemicals sales were
lackluster. As a result, fine chemicals products sales decreased overall from the previous year.
In dental materials, new products were brought to market to spur sales. Nevertheless, sales
decreased slightly. In medical diagnosis systems, sales continued to grow due to another year
of strong demand for laboratory information systems and automated sample transportation
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Cement, Building Materials


and Others

29.0 Chemicals

SALES COMPOSITION
46.8 << % >>

24.2
Specialty Products

systems. On April 1, 1999, medical diagnosis systems operations were consolidated in subsidiary
A&T Corporation.
In functional powder operations, demand for silica filler for industrial applications, includ-
ing as a filler in silicon rubber, was strong. This combined with the rapid economic recovery in
Asia to drive up functional powder sales.
In electronics materials operations, sales of polycrystalline silicon decreased from the
previous year as customers continued to reduce inventory levels. This was despite a rapid
recovery in the semiconductor industry, where polycrystalline silicon is a key material. In
aluminum nitride, meanwhile, shipments to semiconductor manufacturers turned upward, and
demand for optical storage media such as DVDs and CD-ROMs remained strong. These factors
led to higher sales. In high-purity solvents and other chemicals for the electronics industry, sales
volumes increased in both the domestic and Asian markets. However, sales in monetary terms
decreased due to a continuation of soft prices.

Cement, Building Materials and Others


This segment includes the operations of 28 consolidated subsidiaries and 6 equity-method
affiliates. Segment sales increased 10.0 percent to ¥65,053 million (US$614 million) and
operating income surged 602 percent to ¥3,914 million (US$37 million). This segment accounted
for 29.0 percent of consolidated net sales, a 0.5 percentage point increase from the previous
fiscal year.
In cement operations, market conditions were difficult. However, continuous efforts were
made to grow sales and improve selling prices with the aim of raising profitability. These efforts
produced results. Cement sales increased as a whole despite fierce competition in ready
mixed concrete. During the year, cement plants pushed ahead with the use of industrial waste
as fuel for cement kilns as a part of the company’s environmental management policy. By
doing so, the company is not only strengthening the cost competitiveness of its cement
operations but also playing its part in preserving the environment.
20

269,908 289,342 300,242 305,192 352,974

TOTAL ASSETS << ¥ million >>

1996 1997 1998 1999 2000

In building materials, sales expansion activities drove a dramatic recovery in sales


volumes of heat-insulation plastic window sashes, leading to higher sales in monetary terms.
Building materials operations are also actively promoting environmental management. Here,
waste and offcuts are being recycled. At the same time, the company is forging ahead with
the rationalization of production and distribution and is making steady progress toward
improving the efficiency of resource use and profitability.

FINANCIAL POSITION
Total assets as of March 31, 2000 stood at ¥352,974 million (US$3,330 million), a 15.7 percent
increase over the previous year.
Current assets rose 28.3 percent to ¥151,850 million (US$1,433 million), mainly due to
increases in cash and cash equivalents and notes and accounts receivable. Current liabilities
increased 9.6 percent to ¥104,481 million (US$986 million). As a result, the current ratio improved
from 124.1 percent to 145.3 percent. Investments and long-term receivables decreased 0.5
percent to ¥29,719 million (US$280 million).
Net property, plant and equipment rose 8.0 percent to ¥166,368 million (US$1,570 million).
This mainly reflected extensions to Tokuyama’s power plant, expansion of polycrystalline silicon
and precipitated silica production capacities and expansion and streamlining of production
facilities for all chemicals products as well as the consolidation of Shin Dai-ichi Vinyl Corporation.
Total liabilities at the end of the year were ¥243,011 million (US$2,293 million), a 16.0
percent increase over the previous fiscal year end. This was primarily due to three issues of
unsecured bonds during the year totaling ¥20,000 million and the consolidation of Shin Dai-ichi
Vinyl Corporation.
Shareholders’ equity increased 13.1 percent from ¥94,382 million to ¥106,758 million
(US$1,007 million), mainly reflecting increased retained earnings. The equity ratio was 30.2
percent, compared to 30.9 percent a year earlier. Shareholders’ equity per share rose from
¥370.2 to ¥418.8.
21

93,217 93,727 95,077 94,382 106,758

SHAREHOLDERS’ EQUITY << ¥ million >>

1996 1997 1998 1999 2000

CAPITAL EXPENDITURES
Capital expenditures decreased 35.4 percent to ¥20,235 million (US$191 million), mainly reflect-
ing the fact that the company is in the last stage of expansion of its own power plant. With the
aim of expanding operations and responding to environmental issues, the company is expand-
ing and streamlining production facilities, including ramping up polycrystalline silicon
production capacity.

CASH FLOWS
Net cash provided by operating activities was ¥30,248 million (US$285 million). The bulk of this
was accounted for by income before income taxes of ¥8,595 million (US$81 million) and depre-
ciation of ¥19,810 million (US$187 million).
Net cash used in investing activities was ¥22,215 million (US$210 million). The major cash
outflow was for expanding and streamlining production facilities.
Net cash provided by financing activities was ¥2,905 million (US$27 million). Cash was
provided by the procurement of funds from the issues of unsecured bonds and used chiefly for
the repayment of other debt.
As a result of the above, cash and cash equivalents net increased ¥10,833 million (US$102
million). Cash and cash equivalents at the end of the year were ¥42,256 million (US$399 million).
The company prepared a “Consolidated Statement of Cash Flows” for the first time in the
fiscal year ended March 31, 2000. Comparative figures for cash flows from operating, investing
and financing activities for the previous fiscal year are not available.
22
consolidated BALANCE SHEETS
Tokuyama Corporation and Consolidated Subsidiaries March 31, 2000 and 1999

Thousands of
Millions of yen U.S. dollars (Note 2)
ASSETS 2000 1999 2000

Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 42,256 ¥ 28,266 $ 398,645
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 367 219 3,464
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,740 2,137 25,852
Marketable securities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . 880 1,645 8,300
Receivables:
Trade notes and accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 71,508 61,355 674,600
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,340 2,933 31,512
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . (1,996) (2,944) (18,827)
72,852 61,344 687,285

Inventories (Note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,113 22,084 255,779


Deferred tax assets (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,315 – 31,276
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,327 2,619 21,944
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,850 118,314 1,432,545

Investments and long-term receivables:


Investment securities (Note 5) . . . . . . . . . . . . . . . . . . . . . . . . . . 16,158 17,484 152,430
Investments in unconsolidated subsidiaries and affiliates . . . 7,706 5,653 72,697
Long-term receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,252 2,303 21,244
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,789 6,239 64,054
Less allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . (3,186) (1,804) (30,061)
29,719 29,875 280,364

Property, plant and equipment (Note 7):


Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,628 23,095 251,205
Buildings and structures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88,191 77,385 831,993
Machinery and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357,569 320,110 3,373,290
Construction in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,158 29,244 152,440
488,546 449,834 4,608,928
Less accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . (322,178) (295,819) (3,039,418)
166,368 154,015 1,569,510

Other assets:
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,478 2,531 23,378
Deferred tax assets (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,099 – 10,373
Excess of investment cost over equity in net assets acquired . . 148 – 1,395
Foreign currency statements translation adjustments . . . . . . 1,312 457 12,382
5,037 2,988 47,528
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 352,974 ¥ 305,192 $ 3,329,947

See notes to consolidated financial statements.


23

Thousands of
Millions of yen U.S. dollars (Note 2)
LIABILITIES AND SHAREHOLDERS’ EQUITY 2000 1999 2000

Current liabilities:
Short-term bank loans (Note 7) . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 30,938 ¥ 33,425 $ 291,865
Current portion of long-term debt (Note 7) . . . . . . . . . . . . . . . 7,356 7,360 69,393
Notes and accounts payable:
Trade notes and accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,653 35,381 383,514
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,634 3,633 43,725
45,287 39,014 427,239
Accrued income taxes (Note 8) . . . . . . . . . . . . . . . . . . . . . . . . 2,519 351 23,760
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,744 9,021 101,368
Guarantee deposits received from dealers . . . . . . . . . . . . . . 5,839 5,051 55,082
Other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,798 1,139 16,967
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,481 95,361 985,674

Long-term liabilities:
Long-term debt, less current portion (Note 7) . . . . . . . . . . . . . 126,697 103,304 1,195,250
Accrued retirement and severance benefits (Note 9) . . . . . 11,329 10,267 106,880
Other long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 504 500 4,761
Total long-term liabilities . . . . . . . . . . . . . . . . . . . . . . . . . 138,530 114,071 1,306,891

Minority interest in consolidated subsidiaries . . . . . . . . . . . . . . . 3,205 1,378 30,232

Contingent liabilities (Note 15)

Shareholders’ equity (Note 13):


Common stock, ¥50 par value:
Authorized: 700,000,000 shares
Issued: 254,971,876 shares . . . . . . . . . . . . . . . . . . . . . . 19,274 19,274 181,829
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,495 22,895 221,652
Retained earnings (Note 16) . . . . . . . . . . . . . . . . . . . . . . . . . . . 64,024 52,217 603,998
106,793 94,386 1,007,479
Less treasury stock, at cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (35) (4) (329)
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . 106,758 94,382 1,007,150

Total liabilities and shareholders’ equity . . . . . . . . . . . ¥352,974 ¥305,192 $3,329,947


24
consolidated STATEMENTS OF INCOME
Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2000 and 1999

Thousands of
Millions of yen U.S. dollars (Note 2)
2000 1999 2000

Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥224,110 ¥207,391 $2,114,249


Cost of sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 151,930 139,583 1,433,304
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72,180 67,808 680,945

Selling, general and administrative expenses (Note 11) . . . . . 56,742 53,831 535,304
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,438 13,977 145,641

Other income (expenses):


Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . 705 995 6,651
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,227) (3,926) (39,877)
Gain on sale/(Loss from disposal) of property
and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 707 (160) 6,670
Gain on sale of marketable and investment securities . . . . . 1,633 2,967 15,403
Loss on write-down of marketable
and investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,335) (383) (12,596)
Restructuring of subsidiaries and affiliates . . . . . . . . . . . . . . . . (1,318) (2,747) (12,433)
Foreign exchange gain/(loss) . . . . . . . . . . . . . . . . . . . . . . . . . . (506) (568) (4,774)
Others—net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,677) (4,122) (25,253)
Equity in earnings of unconsolidated subsidiaries
and affiliates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 175 (919) 1,651
(6,843) (8,863) (64,558)
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,595 5,114 81,083
Income taxes (Note 8):
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,241 3,669 30,573
Deferred . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,084 – 10,229
4,325 3,669 40,802
Minority interests in earnings of consolidated subsidiaries . . . 647 63 6,105
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,917 ¥ 1,508 $ 46,386

Yen U.S. dollars (Note 2)

Per share amounts:


Net income (basic) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥19.29 ¥5.91 $0.182
Net income (diluted) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.92 5.91 0.178
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.00 6.00 0.057
See notes to consolidated financial statements.
25
consolidated STATEMENTS OF SHAREHOLDERS’ EQUITY
Tokuyama Corporation and Consolidated Subsidiaries Years ended March 31, 2000 and 1999

Millions of yen
Shares of
common stock Common Additional Retained
(thousands) stock paid-in capital earnings

Balance at March 31, 1998 . . . . . . . . . . . . . . . . . . . . . . . . 254,972 19,274 22,895 52,910


Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 1,508
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – (1,785)
Bonuses to directors and statutory auditors . . . . . . . . . – – – (63)
Adjustment due to increase
of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . – – – (353)
Balance at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . 254,972 19,274 22,895 52,217
Cumulative effect of change in
accounting for income taxes . . . . . . . . . . . . . . . . . . . – – – 4,562
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – 4,917
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . – – – (1,530)
Bonuses to directors and statutory auditors . . . . . . . . . – – – (57)
Adjustment due to increase
of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . – – – (528)
Adjustment due to increase of affiliates
accounted for by the equity method . . . . . . . . . . . . – – – 1,915
Exclusion from consolidation . . . . . . . . . . . . . . . . . . . . . – – – (152)
Increase due to merger
—Sun Arrow Chemical Co., Ltd. . . . . . . . . . . . . . . . . . – – 600 2,680
Balance at March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . 254,972 ¥19,274 ¥23,495 ¥64,024

Thousands of U.S. dollars (Note 2)

Common Additional Retained


stock paid-in capital earnings

Balance at March 31, 1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $181,830 $215,992 $492,609


Cumulative effect of change in accounting for income taxes . . . – – 43,031
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 46,386
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – (14,432)
Bonuses to directors and statutory auditors . . . . . . . . . . . . . . . . . . . . – – (535)
Adjustment due to increase of consolidated subsidiaries . . . . . . . – – (4,981)
Adjustment due to increase of affiliates accounted for by
the equity method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – 18,068
Exclusion from consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . – – (1,435)
Increase due to merger—Sun Arrow Chemical Co., Ltd. . . . . . . . . – 5,660 25,287
Balance at March 31, 2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $181,830 $221,652 $603,998
26
consolidated STATEMENTS OF CASH FLOWS
Tokuyama Corporation and Consolidated Subsidiaries Year ended March 31, 2000

Thousands of
U.S. dollars
Millions of yen (Note 2)
2000 2000
Cash flows from operating activities:
Income before income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 8,595 $ 81,083
Adjustments to reconcile net cash provided by operating activities:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,810 186,891
Increase in provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,678 25,265
Interest and dividend income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (705) (6,651)
Gain on sale of securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,573) (14,840)
Gain on sale of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . (881) (8,308)
Equity in earnings of unconsolidated subsidiaries and affiliates . . . . . . . . . . . . . . . (175) (1,651)
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,227 39,877
Write-down of marketable and investment securities . . . . . . . . . . . . . . . . . . . . . . . 1,335 12,596
Loss on sale and disposal of property, plant and equipment . . . . . . . . . . . . . . . . . 136 1,286
Decrease in trade receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 734 6,920
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,397) (13,180)
Increase in trade payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 930 8,773
Payment for bonuses to directors and statutory auditors . . . . . . . . . . . . . . . . . . . . 58 547
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 908 8,564
Sub total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,680 327,172
Interest and dividend received . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 871 8,214
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,304) (40,608)
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (999) (9,422)
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,248 285,356

Cash flows from investing activities:


Increase in time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (367) (3,464)
Decrease in time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 219 2,070
Payments for purchases of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,319) (21,875)
Proceeds from sales of marketable securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,993 28,235
Payments for purchases of property, plant and equipment . . . . . . . . . . . . . . . . . . . . (22,744) (214,566)
Proceeds from sales of property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . 1,295 12,220
Payments for purchases of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (984) (9,287)
Proceeds from sales of investment securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,373 12,950
Increase in loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (384) (3,627)
Decrease in loans receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 530 5,003
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,827) (17,236)
Net cash used in investing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (22,215) (209,577)

Cash flows from financing activities:


Decrease in short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (14,841) (140,010)
Proceeds of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,567 127,992
Repayments of long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (9,285) (87,595)
Proceeds from issue of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 188,679
Redemption of bonds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (5,000) (47,170)
Cash dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,530) (14,432)
Cash dividends paid to minority interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8) (72)
Proceeds from sale of treasury common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 14
Net cash provided in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,905 27,406

Effect of exchange rate changes on cash and cash equivalents . . . . . . . . . . . . . . . (105) (991)
Net increase in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,833 102,194
Cash and cash equivalents at beginning of the year . . . . . . . . . . . . . . . . . . . . . . . . . 28,266 266,662
Increase in cash and cash equivalents due to changes of
scope of consolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,157 29,789
Cash and cash equivalents at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 42,256 $ 398,645

See notes to consolidated financial statements.


27
notes to consolidated FINANCIAL STATEMENTS
Tokuyama Corporation and Consolidated Subsidiaries

1. Basis of financial statements


The accompanying consolidated financial statements have been prepared from accounts and records maintained by
Tokuyama Corporation (the “Company”) and its subsidiaries. The Company and its consolidated domestic subsidiaries have
maintained their accounts and records in accordance with the provisions set forth in the Japanese Commercial Code (the
“Code”) and the Securities and Exchange Law and in conformity with accounting principles and practices generally accepted
in Japan, which are different from the accounting and disclosure requirements of International Accounting Standards.
The accounts of consolidated overseas subsidiaries are based on their accounting records maintained in conformity
with generally accepted accounting principals and practices prevailing in the respective countries of domicile.
Certain items presented in the consolidated financial statements filed with the Ministry of Finance (“MOF”) in Japan
have been reclassified for the convenience of readers outside Japan. Such reclassifications have no effect on net income
or retained earnings.
The consolidated financial statements are not intended to present the consolidated financial position, results of
operations and cash flows in accordance with accounting principals and practices generally accepted in countries and
jurisdictions other than Japan.

2. U.S. dollar amounts


The U.S. dollar amounts included in the consolidated financial statements and notes represent the arithmetic results of
translating Japanese yen to U.S. dollars at the rate of ¥106 = US$1, the approximate exchange rate on March 31, 2000.
The U.S. dollar amounts are included solely for the convenience of readers outside Japan, and are not intended to imply
that the assets and liabilities that originated in yen have been or could be readily converted, realized, or settled in U.S.
dollars at this or at any other rate.

3. Summary of significant accounting policies


Consolidation:
The consolidated financial statements include the accounts of the Company and its significant subsidiaries (49 in 2000
and 39 in 1999). Significant intercompany transactions and accounts have been eliminated in consolidation.
11 subsidiaries are consolidated on the basis of their original fiscal years ended at December 31. Material differ-
ences in intercompany transactions and accounts arising from the use of the different fiscal year-end are appropriately
adjusted in consolidation.
Investments in 17 unconsolidated subsidiaries and affiliates are accounted for by the equity method. Investments in
unconsolidated subsidiaries and affiliates not accounted for on the equity method are carried at cost.
The excess of investment cost over equity in net assets acquired is amortized on a straight-line basis over five years.

Foreign Currencies Transactions:


Revenue and expense items denominated foreign currencies are translated Japanese yen at the rates of respective
transaction dates. Current monetary assets and liabilities denominated in foreign currencies are translated into Japanese
yen at the exchange rate prevailing at the balance sheet date. Long-term monetary assets and liabilities denominated in
foreign currencies, except for those hedged by forward exchange contracts, are translated at the historical exchange
rates. The exchange differences arising from such forward exchange contracts are deferred and amortized over the
remaining life of those contracts.
The balance sheet accounts of the consolidated overseas subsidiaries are translated into Japanese yen at the
current exchange rates except for shareholder’s equity, which is translated at the historical exchange rates. The differ-
ences arising from such transactions are shown as “Foreign currency statements translation adjustments” in the
accompanying consolidated balance sheets.

Cash and Cash Equivalents:


Cash and Cash equivalents include all highly liquid time deposits with maturities of three months or less, short-term invest-
ments and marketable securities which are readily convertible into cash and have no significant risk of change in value.

Marketable Securities and Investment Securities:


Marketable securities and investment securities listed on stock exchanges except for securities of subsidiaries and affiliates are
mainly valued at the lower cost or market, cost being determined by the moving average method. Other securities, not
listed on stock exchanges, are principally valued at cost, which is determined by the moving average method.

Inventories:
Inventories are mainly stated at the lower of cost or market value, cost being determined by the moving average method.

Property, Plant and Equipment:


Property, plant and equipment are stated at cost. Depreciation is mainly computed by the declining-balance method for
28

structures, machinery and equipment, by the straight-line method for buildings at the rates based on the estimated useful
lives of assets prescribed by Japanese Income Tax Low. The range of the estimated useful lives is principally from 3 to 50
years for building and structures and from 2 to 20 years for machinery and equipment.
Significant renewals and betterments are capitalized. Maintenance expenses are charged to income as incurred.

Research and Development Expenses:


Research and development expenses are charged to income as incurred.

Lease:
Finance leases other than those which are deemed to transfer ownership, are accounted for in the same manner as
operating lease in accordance with generally accepted accounting principles in Japan.

Allowance for doubtful accounts:


The allowance for doubtful accounts of the Company and its consolidated domestic subsidiaries is provided in amounts
sufficient to cover possible losses on collection. It is determined by adding individually estimated uncollectible amounts to
the maximum amount permitted by the Corporation Tax Low of Japan.
Consolidated overseas subsidiaries have provided an allowance for doubtful accounts at an estimated amount of
probable bad debts.

Income Taxes:
From this fiscal year, the Company and its consolidated domestic subsidiaries adopted the new accounting standard,
which recognizes tax effects of temporary differences between the carrying amounts of assets and liabilities for tax and
financial reporting. Under the new accounting standard, the provision for income taxes is computed based on the pretax
income included in the consolidated statement of income. The asset and liability approach is used to recognize deferred
tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.
The amount of deferred income taxes attributable to the net tax effects of the temporary differences at April 1,
1999 is reflected as an adjustment to the retained earnings brought forward from the previous year. Prior years’ financial
statements have not been restated. The cumulative effect of adopting the new accounting standard is ¥4,562 million
(US$43,028 thousand), which is directly added to the retained earnings brought forward from March 31, 1999. The effect
for the year ended March 31, 2000 was to decrease net income by ¥1,084 million (US$10,229 thousand).

Retirement and Severance Benefits:


Employees who terminate their service with the Company and its consolidated domestic subsidiaries are, in most circum-
stances, entitled to lump-sum severance benefits determined by reference to current basic rates of pay, length of
service, position and conditions under which the termination occurs. The minimum payment to employees is an amount
based on voluntary retirement.
Reserve for retirement allowance is stated at 40% of the amount that would be required if all employees voluntarily
retired on the balance sheet data.
In addition, the Company and certain consolidated domestic subsidiaries have tax-qualified pension plans since
1984. These plans cover approximately 55 percent of severance benefits at the normal retirement age. Past service costs
amounting to ¥814million (US$7,677 thousand) under this pension plan are mainly being amortized by the declining-bal-
ance method at the rate of 30%.
Accrued retirement benefits on the accompanying balance sheets include lump-sum retirement benefits for direc-
tors and statutory auditors in an amount determined by the corporation internal regulations. Payment of such retirement
benefits is subject to the approval of shareholders.

Net income per Share:


The computations of net income per share are based on the weighted average number of shares outstanding during
each period.
Diluted net income per share is caluculated based on the assumption that all diluted convertible bonds were
converted at the beginning of the year.

4. Changes in accounting policies


Effective April 1, 1998, the Company changed caluculating depreciation on buildings from the declining-balance method
to the straight-line method. This change was made to provide a more accurate allocation of the cost of the buildings. The
effect of this change was to increase income before income taxes for the year ended March 31, 1999 by ¥548 million.
29

5. Market value information


The market values and net unrealized gains of quoted securities at March 31, 2000 were as follows:
Thousands of
Millions of yen U.S. dollars
Carrying value:
Marketable securities (current portfolio):
Listed corporate shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 511 $ 4,821
Bonds and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 319 3,008
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 830 7,829

Investment securities (non-current portfolio):


Listed corporate shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,545 118,351
Bonds and others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 221
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,569 118,572

Market value:
Current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,256 30,713
Non-current . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44,167 416,674
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,423 447,387

Net unrealized gains . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥34,024 $320,986

The difference between the above carrying amounts and the amounts shown in the accompanying balance
sheets principally consists of non-marketable securities.

6. Inventories
Inventories at March 31, 2000 and 1999 were as follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Finished products . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥17,653 ¥13,869 $166,541
Work in progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,018 3,020 37,902
Raw materials and supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,442 5,195 51,336
¥27,113 ¥22,084 $255,779

7. Short-term bank loans and long-term debt


Short-term bank loans at March 31, 2000 represent loans, which principally bear interest at rates ranging from 0.43% to
10.00% per annum.
A summary of long-term debt at march 31, 2000 and 1999 is as follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Loans principally from banks and insurance companies, due through
2024 with interest rates ranging from 1.10 percent to 9.48 percent . . . . . . . . ¥ 48,707 ¥ 40,764 $ 459,494
2.2 percent convertible bonds in yen due September 30, 2003 . . . . . . . . . . . . 9,900 9,900 93,396
4.25 percent unsecured bonds in yen due August 9, 2001 . . . . . . . . . . . . . . . . – 5,000 –
2.75 percent unsecured bonds in yen due June 14, 2002 . . . . . . . . . . . . . . . . . 10,000 10,000 94,340
2.9 percent unsecured bonds in yen due February 15, 2003 . . . . . . . . . . . . . . 10,000 10,000 94,340
2.75 percent unsecured bonds in yen due July 10, 2001 . . . . . . . . . . . . . . . . . . 10,000 10,000 94,340
2.45 percent unsecured bonds in yen due March 26, 2004 . . . . . . . . . . . . . . . 5,000 5,000 47,170
2.575 percent unsecured bonds in yen due August 19, 2004 . . . . . . . . . . . . . . 10,000 10,000 94,340
2.90 percent unsecured bonds in yen due January 9, 2008 . . . . . . . . . . . . . . . 5,000 5,000 47,170
2.6 percent unsecured bonds in yen due April 28, 2005 . . . . . . . . . . . . . . . . . . 5,000 5,000 47,170
2.24 percent unsecured bonds in yen due April 27, 2006 . . . . . . . . . . . . . . . . . 5,000 – 47,170
2.65 percent unsecured bonds in yen due September 2, 2009 . . . . . . . . . . . . 5,000 – 47,170
2.35 percent unsecured bonds in yen due May 29, 2010 . . . . . . . . . . . . . . . . . 10,000 – 94,340
10.0 and 11.0 percent unsecured bonds issued by a consolidated subsidiaries,
due from December 7, 1995 to February 6, 1996 . . . . . . . . . . . . . . . . . . . . . . . 446 – 4,203
134,053 110,664 1,264,643
Less current maturities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,356) (7,360) (69,393)
¥126,697 ¥103,304 $1,195,250
See Note 15 in respect of the 4.25 percent unsecured bonds in yen due August 9, 2001.
30

The aggregate annual maturities of long-term debt at March 31, 2000 are summarized as follows:
Thousands of
Millions of yen U.S. dollars
Year ending March 31
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 7,356 $ 69,393
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,496 174,493
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,521 240,762
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,777 205,445
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,093 123,516
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47,810 451,034
¥134,053 $1,264,643

Assets pledged as collateral for certain loans and other liabilities at March 31, 2000 are summarized as follows:
Thousands of
Millions of yen U.S. dollars
Pledged Assets
Property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥31,549 $297,632
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 396 3,736
¥31,945 $301,368

Additional information with respect to the Company’s convertible bonds outstanding at March 31, 2000 is as follows:
Convertible Convertible at
price any time up to
per share and including
2.2 percent convertible bonds in yen due September 30, 2003 . . . . . . . . . . . . . . . . . ¥827.80 September 29, 2003

Under the provisions of the issues, the conversion price is subject to adjustment in certain cases, which include the
payment of stock dividends and the free distribution of shares. If all the outstanding convertible bonds had been con-
verted at March 31, 2000, approximately 11,959 thousand additional shares of common stock would have been issued.

8. Income taxes
The Company and its consolidated domestic subsidiaries are subject to a number of income taxes that, in the aggregate,
indicate a statutory rate in Japan of approximately 41.5% for the year ended March 31, 2000. Consolidated overseas
subsidiaries are subject to income taxes of countries where they domicile.
The significant differences between the statutory tax rate and effective tax rate for consolidated financial state-
ment purposes for year ended March 31, 2000 was summarized as follows:

Statutory tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41.5%


Increase (decrease) in income taxes resulting from:
Change in valuation allowance allocated to income tax expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.1
Lower tax rates of overseas consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.4
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (0.7)
Effective income tax rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50.3%
31

Significant components of the deferred tax assets and liabilities at March 31, 2000 were as follows:
Thousands of
Millions of yen U.S. dollars
Deferred tax assets:
Allowance for repairs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 2,115 $ 19,958
Fixed assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,603 15,124
Accrued retirement and severance benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,148 10,829
Loss carryforwards of consolidated subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,380 41,324
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,421 22,838
Gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,667 110,073
Less valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,549) (42,914)
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,118 67,159

Deferred tax liabilities:


Special depreciation reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,614) (15,225)
Appropriations for advanced depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,090) (10,285)
Gross deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,704) (25,510)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 4,414 $ 41,649

9. Retirement and severance plan


Retirement and severance plan expenses charged to operations for the years ended March 31, 2000 was as follows:
Thousands of
Millions of yen U.S. dollars
Funded pension plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 912 $ 8,607
Accrued retirement and severance benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,231 21,053

10. Leases
Lease payments on finance lease contracts that do not transfer ownership for the year ended March 31, 2000 amounted
to ¥661 million (US$6,237 thousand). Lease payments corresponding to depreciation expenses for the year ended March
31, 2000, which was computed by straight-line method over a period up to the maturity of the relevant lease contracts
with no residual value, amounted to ¥661 million (US$6,237 thousand).
If the leases were capitalized, the cost of assets and accumulated depreciation at march 31, 2000 would be as follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Machinery, equipment and vehicles . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 413 ¥ 260 $ 3,899
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,992 2,858 28,229
Less accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . (2,066) (1,398) (19,493)
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 1,339 ¥ 1,720 $ 12,635

The future lease payments under the finance lease at March 31, 2000 were as follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Due within one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥ 601 ¥ 594 $ 5,670
Due beyond one year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 738 1,126 6,965
¥1,339 ¥1,720 $12,635
32

11. Selling, general administrative expenses


Major component of a selling, general and administrative expenses for the years ended March 31, 2000 and 1999 were as
follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Carriage and shipping . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥29,570 ¥28,487 $278,966
Salaries and bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,128 7,230 76,684
Provision for reserve for bonuses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 614 759 5,788
Provision for retirement allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 517 463 4,877
Welfare expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,151 1,210 10,859
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,417 6,165 60,538
Rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,444 2,253 23,056
Traveling expenses and postage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,783 1,574 16,820

12. Research and development expenses


Research and development expenses for the years ended March 31, 2000 was as follows:
Thousands of
Millions of yen U.S. dollars
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥8,108 $76,495

13. Shareholders’ equity


The Commercial Code of Japan provides that an amount equivalent to at least 10% of cash dividends and bonus to
directors and statutory auditors shall be appropriate and set aside as legal reserve until such reserve equals 25% of stated
capital. The legal reserve is not available for dividends but may be used to reduce a deficit with shareholder approval or
capitalized by resolution of the Board of Directors.
In accordance with the new disclosure requirements the legal reserve is included in the retained earnings and is
not shown separately in the accompanying consolidated financial statements.

14. Segment Information


Business segment information
The Company and its consolidated subsidiaries operate primarily in the following three business segments, “Chemicals”,
“Specialty products” and “Cement, building materials and others”.
Chemicals: caustic soda, soda ash, vinyl chloride monomer/polymer, polypropylene and others
Specialty products: polycrystalline silicon, aluminum nitride, amorphous precipitated silica, medical diagnosis systems,
ion exchange membranes and others
Cement, building materials and others: cement, ready-mixed concrete, plastic window sashes and others
33

Business segment information for the years ended March 31, 2000 and 1999 were summarized as follows:
Millions of yen
Cement, building
Specialty materials Corporate or
2000 Chemicals products and others Total elimination Consolidated

1. Sales
Sales to customers . . . . . . . . . . . . . . . . ¥104,812 ¥54,245 ¥65,053 ¥224,110 ¥ – ¥224,110
Inter-segment sales/transfer . . . . . . . . 1,523 96 4,013 5,632 (5,632) –
Total sales . . . . . . . . . . . . . . . . . . . . ¥106,335 ¥54,341 ¥69,066 ¥229,742 ¥ (5,632) ¥224,110
Operating expense . . . . . . . . . . . . . . . 101,438 46,067 65,152 212,657 (3,985) 208,672
Operating income . . . . . . . . . . . . . . . . 4,897 8,274 3,914 17,085 (1,647) 15,438
2. Assets
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥123,207 ¥78,550 ¥81,788 ¥283,545 ¥69,429 ¥352,974
Depreciation . . . . . . . . . . . . . . . . . . . . . 9,708 4,917 4,441 19,066 744 19,810
Capital expenditures . . . . . . . . . . . . . . 3,335 10,719 4,802 18,856 1,379 20,235

Millions of yen
Cement, building
Specialty materials Corporate or
1999 Chemicals products and others Total elimination Consolidated

1. Sales
Sales to customers . . . . . . . . . . . . . . . . ¥90,761 ¥57,489 ¥59,141 ¥207,391 ¥ – ¥207,391
Inter-segment sales/transfer . . . . . . . . 2,092 115 3,722 5,929 (5,929) –
Total sales . . . . . . . . . . . . . . . . . . . . ¥92,853 ¥57,604 ¥62,863 ¥213,320 ¥ (5,929) ¥207,391
Operating expense . . . . . . . . . . . . . . . 86,244 49,141 62,305 197,690 (4,276) 193,414
Operating income . . . . . . . . . . . . . . . . 6,609 8,463 558 15,630 (1,653) 13,977
2. Assets
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥97,302 ¥78,090 ¥72,208 ¥247,600 ¥57,592 ¥305,192
Depreciation . . . . . . . . . . . . . . . . . . . . . 8,417 6,330 4,406 19,153 562 19,715
Capital expenditures . . . . . . . . . . . . . . 10,025 13,941 5,363 29,329 1,972 31,301

Thousand of U.S. dollars


Cement, building
Specialty materials Corporate or
2000 Chemicals products and others Total elimination Consolidated

1. Sales
Sales to customers . . . . . . . . . . . . . . . . $ 988,798 $511,741 $613,710 $2,114,249 $ – $2,114,249
Inter-segment sales/transfer . . . . . . . . 14,366 910 37,859 53,135 (53,135) –
Total sales . . . . . . . . . . . . . . . . . . . . $1,003,164 $512,651 $651,569 $2,167,384 $ (53,135) $2,114,249
Operating expense . . . . . . . . . . . . . . . 956,965 434,598 614,637 2,006,200 (37,592) 1,968,608
Operating income . . . . . . . . . . . . . . . . 46,199 78,053 36,932 161,184 (15,543) 145,641
2. Assets
Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,162,331 $741,036 $771,586 $2,674,953 $654,994 $3,329,947
Depreciation . . . . . . . . . . . . . . . . . . . . . 91,582 46,391 41,893 179,866 7,025 186,891
Capital expenditures . . . . . . . . . . . . . . 31,464 101,118 45,306 177,888 13,012 190,900
34

Overseas sales information


Overseas sales of the Company and its consolidated subsidiaries for the years ended march 31, 2000 are summarized as
follows:
Thousands of
Millions of yen U.S. dollars
Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥20,268 $191,212
Others . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,658 53,374
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥25,926 $244,586

15. Contingent liabilities


At March 31, 2000 and 1999, the Company and its consolidated subsidiaries were contingently liable as follows:
Thousands of
Millions of yen U.S. dollars
2000 1999 2000
Notes discounted or endorsed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥2,084 ¥ 524 $19,657
Loans guaranteed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,114 2,969 10,510
Commitments to guarantee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,548 4,544 14,603
Letters of awareness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 532 661 5,023

As original debtor of indebtedness with respect to 4.25% bonds due 2001,


issued on August 9, 1994 assumed by bank in accordance with
debt assumption agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥5,000 ¥ – $47,170

16. Subsequent Events


At the annual shareholders’ meeting of the Company held on June 29, 2000, the appropriation of retained earnings for
the year ended march 31, 2000, was approved as follows:
Thousands of
Millions of yen U.S. dollars
Cash dividends (¥3.00 per share) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ¥765 $7,216
Bonuses to directors and statutory auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 509
35 report of independent certified public accountants on the
CONSOLIDATED FINANCIAL STATEMENTS
The Board of Directors
Tokuyama Corporation

We have audited the accompanying consolidated balance sheets of Tokuyama Corporation and subsid-
iaries as of March 31, 2000 and 1999, and the related consolidated statements of income and shareholders’
equity for the years then ended and cash flows for only the 1999 fiscal year, all expressed in Japanese yen.
Our audits were made in accordance with auditing standards, procedures and practices generally ac-
cepted in Japan and, accordingly, included such tests of the accounting records and such other account-
ing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the consolidated
financial position of Tokuyama Corporation and subsidiaries at March 31, 2000 and 1999, and the consoli-
dated results of their operations for the years then ended and their cash flows for only the 1999 fiscal year,
in conformity with accounting principles and practices generally accepted in Japan applied on a consis-
tent basis, except for the change, with which we concur, in the method of depreciation, made in the
year ended March 31, 1999, as described in Note 4 of the notes to the consolidated financial statements.

The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2000 are presented solely for convenience. Our audits also included the translation of
Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on
the basis described in Note 2 to the consolidated financial statements.

YAMAGUCHI Audit Corporation


Tokuyama, Japan
June 30, 2000
36 major subsidiaries and AFFILIATES
(As of March 31, 2000)
Capital
(¥ millions) Ownership
Company (local currencies in thousands) (%) Scope

Chemicals
•Shin Dai-ichi Vinyl Corporation 8,000 71 Production and sale of polyvinyl chloride
•Sun Arrow Chemical Co., Ltd. 30 100 Production and sale of vinyl chloride compounds
•Tokuyama Film Co., Ltd. 400 100 Production of plastic films
•Tomitec Co., Ltd. 100 60 Production of plastic formations and moisture
absorbing agents, as well as components for gas
sensors and office equipment
•Tianjin Sunshine Plastics Co., Ltd. RMB 132,885 53.75 Production and sale of plastic films
•Sun•Tox Co., Ltd. 100 70 Sale of plastic films
•another 2 consolidated subsidiaries
*Clariant Tokuyama Limited 1,000 40 Production and sale of layered silicate
*Nanbu Plastics Co., Ltd. 1,800 29.42 Production and sale of plastics
*Nishinihon Resicoat Co., Ltd. 50 50 Manufacture of metal parts and anti-rust surface
coating materials
*Tox Co., Ltd. 445 50 Production of plastic films
* another 3 equity-method subsidiaries/affiliates
** another 7 subsidiaries

Specialty Products
•Towa Giken Co., Ltd. 60 50 Production and sale of dental and medical
materials
•A&T Corporation 378 67.53 Production and sale of diagnosis reagents and
analyzers
•Figaro Engineering Inc. 48 100 Production and sale of sensor devices
•Unirex Co., Ltd. 12 100 Design and sale of printed circuit boards
•Pornpat Chemicals Co. Ltd. Baht 182,000 99.18 Production and sale of precipitated silica
•Taiwan Tokuyama Corporation NT$200,500 100 Production and sale of solvent for semiconductor
base materials
•Tokuyama Electronic Chemicals Pte. Ltd. S$2,000 100 Production of solvent for semiconductor base
materials
•Hantok Chemicals Co., Ltd. Won 4,500,000 60 Production and sale of developers for photolithog-
raphy
•Tokuyama Asia Pacific Pte. Ltd. S$800 100 Sale of Tokuyama Group products
•Figaro USA, Inc. US$200 60 Sale of sensor devices
•another 9 consolidated subsidiaries
*Tokuyama Toshiba Ceramics Co., Ltd. 1,600 30 Production and sale of quartz glass
*ASTOM Co., Ltd. 400 50 Production of ion exchange membranes
*Tianjin Figaro Electronic Co., Ltd. RMB23,671 40.70 Production and sale of sensor devices
* another 2 equity-method subsidiaries/affiliates
** another 6 subsidiaries

Cement, Building Materials and Others


•Tokuyama Ready Mixed Concrete Co., Ltd. 100 100 Production and sale of ready-mixed concrete
•Seibu Tokuyama Ready Mixed Concrete Co., Ltd. 100 100 Production and sale of ready-mixed concrete
•Kawasaki Tokuyama Ready Mixed Concrete Co., Ltd. 40 100 Production and sale of ready-mixed concrete
•Kyushu Tokuyama Ready Mixed Concrete Co., Ltd. 50 100 Production and sale of ready-mixed concrete
•Sanyo Tokuyama Ready Mixed Concrete Co., Ltd. 50 85 Production and sale of ready-mixed concrete
•Taki Ready Mixed Concrete Co., Ltd. 20 60 Production and sale of ready-mixed concrete
•Tokuso Trading Co., Ltd. 50 100 Processing and sale of building materials
•Tokuyama Trading Co., Ltd. 50 70 Sale of cement and ready-mixed concrete
•Oguri Trading Co., Ltd. 20 100 Sale of cement, ready-mixed concrete and
building materials
•Shonan Industrial Co., Ltd. 10 100 Sale of cement, ready-mixed concrete and
building materials
•Shanon Co., Ltd. 30 100 Production, processing and sale of building
materials, including plastic sashes and doors.
•Tohoku Shannon Co., Ltd. 300 72 Production of plastic windows
•Shannon Kasei Corporation 100 100 Production and sale of materials for plastic
windows
37

Capital
(¥ millions) Ownership
Company (local currencies in thousands) (%) Scope

•Hachimaru Sangyo Corporation 10 100 Production of plastic sashes


•Hokkaido Shannon Co., Ltd. 30 100 Sale of Plastic windows
•Shannon Tohoku Trading Co., Ltd. 30 100 Sale of Plastic windows
•Shannon Sales East Japan Co., Ltd. 30 100 Sale of Plastic windows
•Kiyo Kaiun Co., Ltd. 50 98 Transportation and warehousing
•Shunan System Sangyo Co., Ltd. 50 100 Real estate, civil engineering, construction
•Shunan Koki Corporation 35 100 Design and production of machines and plants
•Tokuyama Esuteto Co., Ltd. 100 100 Real estate
*Chugoku Ready Mixed Concrete Co., Ltd. 80 50 Production and sale of ready-mixed concrete
*Sanyo Precon Co., Ltd. 49 45.27 Production of pre-cast concrete curtain walls
*Southern Cross Cement Corp. PP342,000 50 Operation of cement factory
* 3 other equity-method subsidiaries/affiliates
** 26 other subsidiaries
• Consolidated subsidiary
* Subsidiary/affiliate accounted for by equity method
** Subsidiary
∆ Affiliate

Notes: (April 1, 2000 to August 31, 2000)


1. In April 2000, Tokuyama Film Co., Ltd., Tox Co., Ltd. and Tokuyama’s Plastic Films and Film Manufacturing divisions were integrated
into the operations of Sun• Tox Co., Ltd.
2. In April 2000, Hokkaido Shannon Co., Ltd., Shannon Tohoku Trading Co., Ltd., Shannon Kasei Corporation, Shannon Sales East
Japan Co., Ltd. and Tokuyama’s Shanon & Building Materials Division were integrated into the operations of Shanon Co., Ltd.

main products

Chemicals Specialty products Cement, Building Materials and Others


Caustic soda Polycrystalline silicon Ordinary Portland cement
Soda ash Amorphous precipitated silica High early strength Portland cement
Calcium chloride Fumed silica Blast furnace slag cement
Sodium silicate Aluminum nitride Ready-mixed concrete
Vinyl chloride monomer/polymer Dental materials Plastic window sashes
Propylene oxide Pharmaceutical, agricultural chemical Cement type stabilizer
Isopropyl alcohol bulks and intermediates
Methylene chloride Plastic lens materials
Moisture absorbent (household-use) Ion exchange membranes
Polypropylene Medical diagnosis systems
Biaxial-oriented polypropylene film Gas sensitive semiconductor
Multilayer co-extrusion films
Casted polypropylene films
Microporous film
38
directory

Head Office Tokuyama Europe GmbH


Shibuya Konno Bldg. Oststrasse 10, 40211 Düsseldorf
3-1, Shibuya 3-chome Germany
Shibuya-ku, Tokyo 150-8383 Tel: 49-211-1754480
Tel: 81-3-3499-8937 Fax: 49-211-357379
Fax: 81-3-3499-8967
Pornpat Chemicals Co., Ltd.
Domestic Offices: 50 Rajana Tower 17th Fl.,
Sapporo, Sendai, Nagoya, Osaka, Sukhumvit 21 Road,
Hiroshima, Takamatsu, Fukuoka North Klongtoey, Wattana
Bangkok 10110, Thailand
Research Laboratories:
Tel: 66-2-665-9444
Tsukuba, Tokuyama
Fax: 66-2-665-9452
Factories:
Tianjin Sunshine Plastics Co., Ltd.
Tokuyama Factory
No. 9, Xinghua Road
1-1, Mikage-cho, Tokuyama
Tianjin Xiqing Economic
Yamaguchi 745-8648
Development Area,
Tel: 81-834-21-4326
Tianjin 300381, China
Kashima Factory Tel: 86-22-23971442
26 Sunayama, Hasaki-machi Fax: 86-22-23973464
Kashima, Ibaraki 314-0255
Tel: 81-479-46-4700 Taiwan Tokuyama Corporation
No. 21, Shin Chen Road,
Hu Kou Country, Hsinchu Industrial Park,
Overseas Hsinchu County, Taiwan,
Tokuyama America Inc. Republic of China
1875 South Grant Street, Suite 570 Tel: 886-3-597-9108
San Mateo, CA 94402-2669, U.S.A. Fax: 886-3-597-9208
Tel: 1-650-571-8872 Tokuyama Asia Pacific Pte. Ltd.
Fax: 1-650-571-8037 20 Cecil Street, #20-04/05
Figaro USA, Inc. Exchange
3703 West Lake Avenue, Suite 203 Singapore 049705
Glenview, IL 60025-1266, U.S.A. Tel: 65-533-5258
Tel: 1-847-832-1701 Fax: 65-533-5256
Fax: 1-847-832-1705 Tokuyama Electronic Chemicals Pte. Ltd.
Eurodia Industrie S.A. 21 Gul Road, Singapore 629355
14/16 Voie de Montavas Tel: 65-862-1081
91320, Wissous, France Fax: 65-862-1267
Tel: 33-1-60139143 Hantok Chemicals Co., Ltd.
Fax: 33-1-69308595 11th Fl. Daekyung Bldg., 120, 2-ka,
Taepyung-Ro, Chung-ku, Seoul,
Korea, 100-102
Tel: 82-2-755-3952
Fax: 82-2-755-3955
39 corporate DATA
(As of March 31, 2000)

Established: Major Shareholders:


February 16, 1918
Number of Shares Percentage of
Capital: Held (Thousands) Total Shares
¥19,274 million Nippon Life Insurance Company 15,985 6.27
The Sumitomo Trust & Banking Co., Ltd. 13,130 5.15
Employees:
The Sanwa Bank, Ltd. 12,737 5.00
2,540
The Toyo Trust & Banking Co., Ltd. 10,373 4.07
Shares authorized: J.P. Morgan Trust Bank Ltd. 8,021 3.15
700,000,000 The Meiji Mutual Life Insurance Company 7,863 3.08
The Tokio Marine & Fire Insurance Co., Ltd. 6,904 2.71
Shares issued: Industrial Bank of Japan 5,781 2.27
254,971,876 Nissho Iwai Corporation 5,566 2.18
The Koa Fire & Marine Insurance Co, Ltd. 5,050 1.98
Shareholders:
30,430

board of directors and RESPONSIBILITIES


(As of June 29, 2000)

Chairman: Kizo Nagasako: Yoshikazu Mizuno:


Kaoru Tsuji Tokuyama Factory Plastics Business Div.
Hiroaki Masaki: Corporate Masato Todo:
President: Administration Div./General Tokuyama Factory/Tokuyama
Yuichi Miura Affairs Div./Auditing Dept, Factory Cement Manufacturing
Secretarial Dept. Dept.
Executive Managing Director: Shigeaki Nakahara: Chemical
Kazuo Shikata: Assistant to the Business Div./Branches
Standing Auditor:
President, All Technical Affairs Shigeyoshi Inoue
Directors:
Senior Managing Director: Auditor:
Kazuo Ikeda: Manufacturing
Kazuhiko Nishimura: Assistant to Okitsugu Itokawa
Technology Div./Tokuyama
the President, All Affiliates Factory Plant Maintenance External Auditors:
Managing Directors: Dept. Yoshio Taniguchi
Kenichiro Ueyama: Koichi Doi: Akira Nishio
Electronic Materials Business Div. Electronic Materials Business Div./
Teruyoshi Fukuda: Taiwan Tokuyama Corporation
Cement Business Div. Hisami Tanimoto:
Koshi Kusumoto: Personnel Affairs Div.
Silica & Derivatives Business Div./ Go Yanagida:
Specialty Chemicals Business Div. Corporate Planning Div.
Shibuya Konno Bldg., 3-1, Shibuya 3-chome, Shibuya-ku, Tokyo 150-8383, Japan
Corporate Communications Department
TEL +81-3-3499-8023 FAX +81-3-5469-3374
International Department
TEL +81-3-3499-8937 FAX +81-3-3499-8967
URL http://www.tokuyama.co.jp/

Printed in Japan

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