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Sanshin Bldg. , 1-4-1, Yurakucho, Chiyoda-ku, Tokyo 100-8455, Japan
Printed in Japan M E R G I N G T E C H N O L O G Y A N D A C H A L L E N G I N G S P I R I T
A N N U A L R E P O RT
2000
1
ProfileIn April 2000, DENKA (Denki Kagaku KogyoKabushiki Kaisha) celebrated its 85th anniversary.Having started as a pioneer company in the field ofelectrochemical engineering, it has developed intoa leading manufacturer of carbide and nitrolime,and expanded its business to include carbideacetylene series organic synthesis, cements andpetrochemical fields. It recently entered the areasof electronics, fine ceramics and biochemicalproducts. While maintaining the business structurethat covers a wide range of fields, it has cultivatedtechnologies and enhanced the companycompetitiveness by emphasizing those fields whereits characteristics can best be utilized.
Today, increasingly globalized and information-
oriented, the Japanese economy is in a time ofgreat changes when the traditional values do nothold good anymore. In order to ride out thisdifficult time, our company is strengthening theconsolidated management with other companies inthe group so that efficiency and synergy effectswithin the group can be enhanced.
Furthermore, as a "distinctive company whichmakes its presence felt," it will try to improve itsearning capacity and increase the corporate value,allocating the management resources selectivelyon the three areas of focus, which are viablesections in the market, namely, electronicmaterials, special cement additives, and specialfunctional resin and resin-processing businesses.
Contents1
2
3
6
8
12
13
14
15
16
18
19
20
21
28
28
28
29
Financial Highlights
Business Highlights
To Our Shareholders
Denka Technologies and R&D Trend
Review of Operations
Overseas Operations
Attention to Environmental Problems
Five-Year Summary
Report of Independent Certified Public Accountants
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders' Equity
Consolidated Statement of Cash Flows
Notes to Consolidated Financial Statements
Corporate Data
Board of Directors and Auditors
Overseas Subsidiaries
Shareholders Information
DENKA’sBusinessDomain
FinancialHighlights
Years ended 31 March, 2000 and 1999
Net Sales
Operating Income
Income before Income Taxes
Net Income (Loss)
Total Assets
Total Shareholders' Equity
Net Income per Share (in Yen and U.S. Dollars)
Shareholders' Equity per Share (in Yen and U.S. Dollars)
Note : Yen amounts are translated into dollars at a rate of ¥106.15=U.S.$1.
2 0 0 0
¥ 256,273
25,998
13,828
8,319
379,293
90,195
17.87
196.33
¥ 221,546
14,648
560
(699)
345,083
87,526
(1.48)
185.49
$ 2,414,253
244,917
130,268
78,370
3,573,179
849,694
0.168
1.849
1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
Millions of Yen
Net Sales Operationg Income and Net Income (Loss)
Total Assets and Return on Assets
Shareholders’ Equity and Return on Equity
96 97 98
99
200096 97 98 99 2000 96 97 98 99 2000 96 97 98
99
2000
Operationg IncomeNet Income (Loss)
Total Assets Return on Assets (%)
Shareholders’ EquityReturn on Equity (%)
Millions of Yen Millions of Yen Millions of Yen
100,000
200,000
300,000
400,000
0
5,000
10,000
15,000
20,000
25,000
0
50,000
100,000
150,000
200,000
250,000
0
1
2
3
4
5
0
20,000
40,000
60,000
80,000
100,000
2
4
6
8
10
PetrochemicalProducts Division
Styrene, ABS
Resin chemical products
Functional resins
SpecializedChemical
Products Division
Resin finishing products
Fertilizers
Inorganic Chemical Products
Organic Chemical Products
Electronic and functional materials
Cements, etc.
Special additives
Cement andConstruction
Materials Division
Pharmaceuticaland Other
Products Division
Pharmaceutical products
Chemical-related trade, services, utilities
Other categories of business
32
Business Highlights
Increased Production of
Fused SilicaAlthough our company has so far maintained thetop market share in the spherical-shaped fused silicafor semiconductor sealing materials, the currentterm saw the further reinforcement of productionfacilities to meet the higher demands that follow thehigher performance of semiconductors. Omuta
Plant has already completed its production lineextension for spherical filler. In Singapore, theyhave started expansion on the same scale. By theend of the year 2000, big capacity increase will havebeen realized for the entire group, securing itsstatus as the leading manufacturer.
Denka Seiken Co., Ltd.Stocks Introduced Over-the-counterOne of our subsidiaries, Denka Seiken Co., Ltd.,which manufactures and sells inspection reagentsand vaccines, introduced its stocks over the counterin December 1999. The vaccine for influenza is itskey product with a 25% share. It also has special
technologies such as culture technology andbiotechnology. It has been promoting exports aswell in these years, and has established the positionas a distinctive reagent maker
Denka Technocrete System PopularizationStarting with the collapse accidents in tunnels of theShinkansen and viaducts, technology to repair deterioratedconcrete has been attracting attention even in the society ingeneral. In the public works budget, the ratio of repair andmaintenance expenses has been rising. Demands for repairworks, mainly from the Government, are predicted togrow. In this context, our company's 'Denka TechnocreteConstruction Method' with realkalization and
dechlorination is attracting considerable attention. In 1999,our company organized 20 firms of contractors nationwideto set up a study group for Technocrete systems, and inDecember of the same year, a business tie-up was signedwith KFC Ltd. In addition to in-house developmentefforts, it is actively endeavoring to disseminate the benefitof its Technocrete systems.
Development of Joint Function Improvement Agent
“SUVENYL” (hyaluronic acid)A joint function improvement agent "SUVENYL" wasdeveloped jointly with Aventis Pharma Ltd. and ChugaiPharmaceutical Co., Ltd. by using high molecular weighthyaluronic acid which our Company had originallydeveloped through fermentation method (biotechnology).It has been approved for manufacture as a new drug, and isgoing to be on the market.
One notable characteristic of "SUVENYL" is its highermolecular weight (1.9 to 2.5 million, compared to 0.6 to 1.2million of previous products). It is effective for arthralgiain the knee from rheumatoid arthritis, osteoarthrosis in theknee, inflammation around the shoulder joint, and so on.
Efficacy for rheumatoid arthritis, in particular, is a first foran agent made from hyaluronic acid. It is expected tocontribute to the improvement of the quality of life forpatients in this increasingly aging society.This "SUVENYL" will be produced by our companythrough consignment, with Aventis Pharma Ltd. asmanufacturer and Chugai Pharmaceutical Co., Ltd. asdistributor.
We are going to establish "SUVENYL" as one of thepillars of our company's pharmaceutical business, anddevelop new areas of the business by emphasizing researchand development activities.
To OurShareholders
Our consolidated sales for the current term are ¥256,273 million (US $2,414.3million) with a 15.7% increase compared to the previous year, the operating
income 25,998 million (US $244.9 million) with a 77.5% increase compared tothe previous year, and the net income ¥8,319 million (US $78.4 million) with an
increase of ¥9,018 million from the preceding year's ¥699 million in red, all ofwhich have turned increase.
Soon after the Bubble burst, our company set out to reconstruct ourbusiness, which was rather an early reaction, and built up the businesscompetitiveness, lowering the profit and loss break-even point by cost
reduction. In addition, management resources have been concentratedon areas with overriding priorities so as to improve earning capacity.
These efforts bore fruit and recent years saw increasingoperating profit margins, allowing us to feel confident that
the profit profile has been established.It is our greatest pleasure to present you with our report of
this term in the year 2000, which is our 85th anniversary.
Toshio HirumaPresident
Tsuneo YanoChairman
The consolidated sales of our group are ¥256,273million (US $2,414.3 million), which means arevenue increase of ¥34,727 million (US $327.2million), while the actual increase is about ¥12.5billion excluding the effects of Toyo Chemical Co.,Ltd. which joined as a subsidiary in theconsolidation group this term.
In terms of the profit, on the other hand,although the costs of petrochemical materials rosesubstantially, it was compensated by revisingproducts prices, increasing the sales volume,
reducing costs, and resulting in an operatingincome of ¥25,998 million (US $244.9 million). Byappropriating the loss from the revaluation ofsecurities as extraordinary loss, the current termnet income is ¥8,319 million (US $78.4 million), anincrease of ¥9,018 million compared to theprevious year.
The current term cash flow by operatingactivities is ¥32,054 million (US $302.0 million)due to a big increase in profit, as well asappropriation of the loss from the revaluation ofsecurities, while the cash flow by investingactivities is ¥12,932 million (US $121.8 million),with capital investment limited within its own
Revenue increase and strong profit growthhad been achieved in the current term
Toshio Hiruma, President Tsuneo Yano, Chairman
54
fund. As for the cash flow by financing activities,there was capital increase funding of ¥1,036million (US $9.8 million) by Denka Seiken Co.,Ltd., a subsidiary in the consolidation group,going public on the one hand, and an outflow of¥6,847 million (US $64.5 million) as theshareholder return fund of dividends plustreasury stock redemption on the other, leavingthe rest for the repayment of interest-bearingliabilities. As a result, the closing balance of cashand cash equivalent is ¥6,346 million (US $59.8million) with a ¥187 million increase.
As for the year-end dividend, it is at ¥2.50 pershare as predicted at the beginning, which meansannual dividends of ¥5 when the interim dividendis added.
The Japanese economy in the currentterm has reportedly achieved apositive GDP growth rate. Eventhough the growth should bemodest, it is turning around aftertwo consecutive years of negativegrowth, due to the effects from fiscaland financial policies by theGovernment and the stable Americaneconomy, as well as favorablechanges in exports as a result of theAsian economy's recovery. The present IT-relatedprosperity makes us believe that the economy is atlast on the course of recovery on the whole; yet inindustrial circles, consolidation andreorganization of companies have been going onfor survival in global competition, representingthe difficult situation.
In the chemical industry, the Asian economystarted to recover rapidly around the middle oflast year, boosting the export of petrochemicalproducts. In addition, the information andcommunications area, which has taken the lead inthe economic recovery, has been active during theterm, and semiconductor-related materials haveshown significant growth.
Meanwhile, a steep rise in crude oil pricesdue to reduced production in OPEC countriespushed up raw material prices from naphtha on.There was concern that the petrochemicalbusiness was going back to the old state of highoperation with low profit, and the circumstances
were calling for fair selling prices with furthercost reduction.
Our group, as one of the forerunners in theindustry, has been pushing restructuringmeasures and working on the managementreconstruction for the last seven or eight yearsthrough withdrawal from and adjustment ofunprofitable businesses, drastic changes in thecost structure, adjustment and structureimprovement of related companies, andrealignment within general-use product industry.As a result, the effects are steadily appearing, andthe framework for a profitable profile is nearingits completion. Based on these effects, we hope tokeep growing as a 'distinctive company whichmakes its presence felt' with higher profitability.
For this end, we are focusing ourinvestment of managementresources on the areas with growingmarkets among a wide range ofbusiness areas, while in theestablished, mature areas, we aretrying to maintain competitivesuperiority from our own resourcesand technologies and stableprofitability.
For the mature areas such asacetylene black business operated in
Singapore, cements, chemical fertilizers, andinorganic/organic chemical products, systems arebeing established so that the share can bemaintained through higher cost competitivenessand that stable income can be ensured. As for thegrowing areas, meanwhile, electronic materials,special cement additives, and special functionalresins and resin-processing businesses are beingenhanced.
In the current term, among electronicmaterials, semiconductor-related fused silica andspherical filler have been produced at fullcapacity both in Omuta and in Singapore. It hasalready finished adding two new lines in Omutain December, and the construction of another twolines started in Singapore in February. As forspecial cement additives, quick-setting"NATMIC," developed for tunnel construction,has been produced at full capacity as the demandgrew with works for the Second Tomei Highway.The deteriorated concrete rehabilitation and
protection system owned exclusively by ourcompany is drawing attention. Repair works havetaken 50% of the public works budget in the U.S.,and in our view, they are likely to be themainstream in Japan, too. In addition, theearthquakes in Taiwan have raised the interest inAsia, and we are discussing future developmentthere. Demand for the transparent polymer,CLEAREN, and special functional resins includingheat-resistant resin have been increasing. To thisend, reinforcement in production capacity, byutilizing surplus equipment after the business istransferred to Toyo Styrene Co., Ltd., is underconsideration. In the resin-processing business,'CLEAREN carrier sheet' and conductive sheet forcarrier materials for electronic parts, such assemiconductors, have increased volumeconsiderably.
Our company believes thatmaximizing profits for the entiregroup, enhancing the earningcapacity, and aiming for an increaseof the corporate value in the longrun will eventually lead to largerprofits for shareholders. It is ourcontinued policy to regard theenlargement of shareholder profit asone of the most important issues in management,and to concentrate management resources on thethree main businesses selectively and efficientlywith the view of 'profit rather than volume' and'selection and concentration.'
In electronic materials, fused silica filler andelectronic related substrate are emphasized insupplying high quality, high performanceproducts. As for the special cement additives, asystem that allows full-scale operations in bothmaterials and works technologies will beestablished with the attention-attracting repairbusiness as its core. The reopening of overseasbusinesses, mainly Asia's growing markets, is alsounder consideration. The area of resin-processingand functional resins integrates every stage ofproduction from material to end products, andrealizes intensive and efficient development andmanufacturing. As a result, each stage will besignificantly streamlined and an overall reduction
in cost will be realized. Any of the above is apromising area for larger demand in the future,and appropriate capital investment will be madeaccordingly. Furthermore, research anddevelopment will be accelerated with an aim forfurther growth for both speedy and meticulousresponse to increasingly varied customer needsand cultivation of our company's technologies.
The existing businesses have already beenproducing stable profits. We will endeavor tomaintain and increase the market share, and toimprove earning capacity by continuing costreduction activities for enhancing globalcompetitiveness and pursuing the products'added value at the same time.
The interest-bearing liabilities in the currentterm on the consolidation basis shows a ¥6 billionincrease because Toyo Chemical Co., Ltd. joinedas a subsidiary in the consolidation group, but theresult was ¥180.4 billion at the end of the term,which is actually a ¥13.1 billion decrease. The
impression of financial fragility stillremains, however. In addition tothe yearly repayment from cash flowto be ready for the future interestrate hike, continued careful selectionfor capital investment andreconsideration of assets held fromleverage will further accelerateimprovement in this area.
The consolidation ROE of thecurrent term was raised from -0.8%of the previous term to 9.4% in spite
of some unusual factors.
Our group recognizes that the stock dividend isone of the most important management issues.Our fundamental policy is to decide upon thebalance of gaining retained earnings needed forfurther business development and allocatingdividends to the shareholders based onperformance taking profits into account.
For the shareholders return in the currentterm, we wrote-off 3.50 million shares of treasurystock for ¥621 million (US $5.9 million) in theprevious term and 12.43 million shares for ¥3,197million (US $30.1 million) in the current term.
We will continue to respect ROE, and commitourselves to increasing your profits.
Although the business is recovering, thepresent situation for industrial circles isstill difficult
Stable revenue from mature areas andemphasis on growing areas
Concentration will be furtherpromoted and we aim toincrease the shareholder value
Profit return to shareholders
76
Fused silica
Denkaand
TechnologiesR&D Trend
Denka Technologies — Topics
Fused silica is used for theepoxy resin sealing filler ofsemiconductor packages, andis made from natural silicawhich is ground roughly,fused, then crushed again intomicron-scale particles to befinely finished. There are twotypes of products: crushed andspherical-shaped. Assemiconductors are gettingsmaller with higher
performance, demand for spherical products that can be filled withhigher density and higher fluidity has been steeply rising.
Our company is a leading manufacturer of spherical-shapedfused silica in the global market with know-how accumulated fromlong years of research. We can also respond in both quality andquantity to the market's increasingly varied demands towardsmicronized, perfect sphere, or higher purified products.
Silicon nitride circuit boardOur company has beentargeting the research anddevelopment of ceramicsubstrates for power modulesused as power supplysubstrates in hybrid cars. Thisyear, we have succeeded indeveloping a substrate withthermal conductivity 1.5 timesthat of the conventional ones.This product as a highlythermal-conductive grade of
DENKA SN PLATE which isalready on the marketcombines excellent mechanicalproperties and high thermalconductivity. We also havecompleted the basic R & D onproducts with even higherthermal conductivity, and areconsidering to start studiesrequired for their massproduction.
Denka Technocrete systemSeveral cave-in accidents oftunnels and overpasses inrapid succession have raisedsocial concern towardsconcrete rehabilitationtechnology. Our company hasan original constructionmethod, Technocrete system,for which we obtained theexclusive right for domesticuse of this rehabilitationtechnology from a Norwegianinorganic products company.This is a concreterehabilitation technology ofrealkalization (alkaletemethod) and chlorine ionremoval (desalete method) forconcrete deteriorated byneutralization and saltdamage.
In the alkalete method, apositive electrode is attachedto on the outer surface of abuilding, and thereinforcement inside is used asa negative electrode. After theconcrete surface has beensaturated with sodium
carbonate solution, electriccurrent is made to runbetween the two electrodes sothat calcium ions permeateinto the reinforcement torealkalize the much-neutralized inside part. Thedesalete method, on the otherhand, utilizes electrophoresis.Because salt in concrete existswith negative ions, whencurrent is run between thepositive electrode attached tothe concrete surface and thenegative electrode which is thereinforcement inside, chlorineions are drawn outside to thepositive electrode.
Either method can beperformed not only in a shortperiod of time, but alsowithout the need for a facilityshutdown or closure oftransport facilities, such asbridges, allowing therehabilitation work to beperformed while the facility isin use as usual, which is theadvantage of both methods.
Policies for research and development
The overall policy is to targetthe three growing market areas,namely, electronic materials,special cement additives, andspecial functional resins andresin-processing. Research anddevelopment will naturallycenter around these three areas.Our policy is to cultivateexisting technologies further byutilizing the availableknowledge and experience, andmaintaining them as a core, to
extend the scope gradually toperipheral growing areas. Weplan to invest heavily ontechnology development inareas where we are strong,from which we may establishnew businesses to meet theneeds of the next generation,thereby resulting in theacceleration and higherefficiency in the developmentof new products.
R&D Eepenses and R&D Eepenses to Net Sales(Non-Consolidated)
96 97 98 99 2000
R&D Eepenses (Millions of Yen)R&D Eepenses to Net Sales (%)
0
2,000
4,000
6,000
8,000
2
6
4
98
Review ofOperations
Petrochemical Products Division
Overseas sales of polystyrenewere well supported by therecovery of demand in Asia.While its domestic operationswere transferred to ToyoStyrene Co., Ltd. last April,and the system was changed sothat the raw material styrenemonomers were to be suppliedby our company, these resultedin decreased profits. Styrenemonomer, however,experienced a price hike and agreat increase in sales volume,mainly in exports, due to theabove-mentioned systemchange and tighteningdemands. Sales of ABS resingenerally remained within thelevel of the previous year, butchemical synthetic products,
such as vinyl acetate andPOVAL, suffered a decrease insales from languishinghousing-related demands.
In functional resins,transparent polymers and thespecial resin, CLEAREN,boosted the sales volume inboth the domestic and overseasmarkets because of thesubstantially larger demandsfor them, and heat-resistantresin exports increasedconsiderably in applications foraudio equipment.
As a result, theconsolidated sales for thisdivision are ¥73,858 million(US $695.8 million) with a 3.5%increase compared to theprevious year.
Millions of YenNet Sales
96 97 98 99 2000
0
20,000
40,000
60,000
80,000
100,000
Millions of YenNet Sales
96 97 98 99 2000
0
50,000
100,000
150,000
Specialized Chemical Products Division
This division now includesToyo Chemical Co., Ltd., whichjoined as a consolidationsubsidiary from the currentterm. Regarding resin andprocess products, as vigorousdemand continued in relationto PC's and mobile telephonesin the information andcommunications area,'CLEAREN carrier sheet' andconductive sheet for carriermaterials for electronic parts,such as semiconductors, andelectronic wrapping products,such as films for carriermaterial and adhesive tape forsecuring semiconductors haveconsiderably increased in thevolume. Slots for optical fibersattracted substantiallyincreased profits partly due tothe support from powercompanies and the Ministry ofConstruction's informationbox. Synthetic fiber products,such as those for wigs, andenvironmental materials, suchas corrugated pipes, changed
favorably. As for foodpackaging materials, sales levelremained almost the same asthe previous year.
Among electronic andfunctional materials, spherical-shaped fused silica fillers forsemiconductor sealingmaterials were produced at fullcapacity throughout the termboth domestically andoverseas, significantlyincreasing the sales volume,and monosilane gas formanufacturing semiconductorschanged satisfactorily. Inaddition, ceramics boroncarbide formed products havegreatly increased profits, andvarious electronic circuitboards achieved a satisfactoryincrease in sales volume.
Fertilizers such as calciumcyanamide suffered a decreasein sales volume, partly due toincreased imports, but carbideand refractory retained thelevel of the previous year moreor less. Although chloroprenerubber recovered its exportvolume thanks to the economicrecovery in Asian countries, itended with reduced profitsbecause of decreasedcommissions by theappreciation of the yen.
Consequently, theconsolidated sales of thisdivision are ¥102,597 million(US $966.5 million) with a35.6% increase compared to theprevious year. The increase inrevenue is ¥26,963 million(approximately ¥4.8 billionwithout Toyo Chemical Co.,Ltd.).
Revised business segmentation is used since FY 1999.
Revised business segmentation is used since FY 1999.
1110
Report on Operations
Cement and Construction Materials Division
In this division, two ready-mixed concrete companies inthe Akita region left theconsolidated group in thecurrent term.
Cement and ready-mixedconcrete products haverecovered in sales volume,mainly in the Hokuriku region,partly due to the effects ofeconomic measures by theGovernment, and haveincreased profits.
As for special cementadditives, "NATMIC" (quick-setting cement additive forshotcrete) and "DENKA ES"
(quick-hardening additive forsoil stabilization), both used inhighways and Shinkansentunnel constructions, saw asubstantial increase in salesvolume, while "PRETASCON"(non-shrink additives forgrout) used for aseismicreinforcement expanded itssales as well. These factors ledthe increase in revenue.
As a result, consolidatednet sales in the current term forthe division increased by 3.9%from the previous term to¥39,219 million (US $369.5million).
Millions of YenNet Sales
96 97 98 99 2000
0
10,000
20,000
30,000
40,000
50,000
Pharmaceutical and Other Products DivisionMillions of YenNet Sales
96 97 98 99 2000
0
10,000
20,000
30,000
40,000 As for pharmaceuticalproducts, renewedappreciation for the efficacy ofinfluenza vaccines promotedvaccination mainly for elderlypeople, and diagnosticchemicals for cholesterolthrived mainly in exports; thus,resulting in a significantrevenue increase respectively.
In other businesses, theengineering business declined
because of the turndown inprivate sector capitalinvestment, while the securitiesbusiness brought in a sizableincrease reflecting a brisksecurities market.
As a result, consolidatednet sales in the current term forthe division increased by 10.2%from the previous term to¥40,598 million (US $382.5million).
Revised business segmentation is used since FY 1999.
1312
Denka Corporation
U.S.A
JAPAN
Denka Chemicals G.m.b.H.
SINGAPORE
Denka Advantech Private Limited (Spherical-Shaped fused sillica filler production facility)
Denka Advantech Private Limited andDenka Singapore Private Limited (Head Office)
Denka Singapore Private Limited (PS production facility)
Denka Singapore Private Limited (AB production facility)
We are developing businesseson polystyrene, acetylene black,and fused silica overseas, withfocus on operations inSingapore as the main pillar.Polystyrene has beenrecovering demand rapidlysince last summer mainly inHong Kong and China,rendering the plants tocontinue operation at fullcapacity at present. Fusedsilica, which is produced asepoxy resin fillers forsemiconductors, benefited froman increase in global demandfor semiconductors, thusenabling continued favorableoperations. For spherical-shaped silica fillers, inparticular, extension of theproduction line has started inthe Singapore plant.
In order to cope with thesemarket trends, out of our threeproduction and sales companiesin Singapore, DENKASingapore (DSPL), DENKAChemical Asia (DCA), andDENKA Advantech (DAPL),DCA, a sales company, andDAPL, a production base, wereconsolidated as of January 2000.The integration of productionand sales will achieverationalization and higherefficiency. The Singaporebusiness is an importantoverseas base, which we intendto develop as a pillar for therealization of high revenue inthe consolidated managementof our group.
We also expect that thedemand for special cementadditives for the construction
and repair of concrete buildingswill increase in other Asiancountries following economicrecovery. The development ofthe special cement additivesbusiness by establishing a jointcapital company with a localcivil engineering andconstruction company seems tobe a good idea.
In the pharmaceuticalproducts division, diagnosticchemicals by Denka Seiken Co.,Ltd. are steadily expandingexport, particularly for itslarge-scale major products.With a target export ratio to beraised to 30% during the termthat ends in March 2005, we aredetermined to develop ourbusinesses aggressively from aperspective to enlarge theoverseas market.
As a result of the aboveactivities, the overseas sales forthe current term are ¥35,163million with a ¥9,621 millionincrease from the ¥25,542million of the previous term.
As an RC activities promotingorganization, the head office hasthe RC Committee chaired by atechnological developmentmanager, and each office has abranch RC Committee chaired byits manager, which decidesactivity policies and checksprogress. In addition, eachbusiness division at the headoffice is going to set up an RCSecretariat to provide safetyinformation and respond tocomplaints and requests. We alsohave a system in which a groupof in-house experts, supervisedby the RC chairman, conductsinternal inspection on RC activitypractices and submits the resultsto the board of directors to bereviewed by it and to be reflected
We are actively promoting"responsible care" (RC) activities,which are corporate self-management activities. The aimis to maintain good environmentand secure safety by recognizingenvironmental conservation andsafety securement as animportant management issue,and paying attention toenvironment and safetythroughout the whole process ofchemical products fromdevelopment, manufacturing,distribution, usage, to finalconsumption and disposal.
We have set up an "RCCommittee," as a company-widepromoting organization, toevaluate performance by internalinspection and to reflect theresults in the plan for next year.
in the plan for next year.We are enhancing these RC
activities, and coping steadilywith tasks, especially for thereduction of environmental load,based on the environment interimplan, which emphasizes threethemes of promoting energyconservation, reducing wastes,and reducing discharge of toxicchemicals. Furthermore, since weare dealing with the cementbusiness, we shall apply theseactivities for waste disposal byannually receiving 250,000 tonsof coal ash, disposed tires andother kinds of industrial waste, tobe used effectively in the cementbusiness. Starting from the year2002, we plan to use carbideprocessed from general waste.
As for the landfill volume,we intend to reduce it to 40% ofthe 1990 level by correctlysegregating disposal,encouraging recycling, and othermeasures.
We will continue toemphasize these three themes inour future policies for RCactivities.
We are also working onobtaining ISO14001 certificationin order to promote theestablishment and operation ofan environmental managementsystem. Following the ChibaPlant and the Omi Plant cementdivision, we expect that all theplants will acquire certificationduring 2000.
Sales of Export and Sales of Export to Net Sales (Non-Consolidated)
96 97 98 99 2000
Sales of Export (Millions of Yen)Sales of Export to Net Sales (%)
0
20,000
10,000
30,000
40,000
5
10
15
20
Attention toEnvironmental
ProblemsRC Promoting Organization
President RC Committee(Secretariat: Environmental Security Division)
RC Internal Inspection
Resin and Chemical Products RC SecretariatChemical Products RC SecretariatCements RC Secretariat
Omi Plant RC CommitteeOmuta Plant RC CommitteeChiba Plant RC CommitteeShibukawa Plant RC CommitteeResearch Center RC Committee
Safety Measures Head Office
Energy Conservation Subcommittee (Secretariat: Power Division)
Branch Energy Conservation Secretariat
OverseasOperations
14 15
Five-YearSummaryDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
Net Sales
Net Income (Loss)
Shareholders' Equity
Total Assets
¥ 256,273
8,319
90,195
379,293
¥ 221,546
(699)
87,526
345,083
¥ 246,624
3,020
90,035
367,031
¥ 247,590
1,009
80,201
367,780
¥ 230,718
3,586
80,917
387,965
$ 2,414,253
78,370
849,694
3,573,179
2 0 0 0 1 9 9 9 1 9 9 8 1 9 9 7 1 9 9 6 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
Note: Yen amounts are translated into dollars at a rate of ¥106.15=U.S.$1.
Millions of Yen
Interest-bearing Liabilities Interest Coverage
96 97 98 99 2000 96 97 98 99 2000
Times
0
50,000
100,000
150,000
200,000
250,000
Interest-bearing Liabilities to Total Assets
96 97 98 99 2000
%
0
2
4
6
8
0
20
40
60
80
Shareholders’ EquityPer Share
96 97 98 99 2000
Millions of Yen
0
50
100
150
200
Millions of Yen
Net Sales
96 97 98 99 2000 99
50,000
100,000
150,000
200,000
250,000
Operating Income andOperating Income to Net Sales
96 97 98 2000
Operating IncomeOperating Income to Net Sales (%)
Millions of Yen
0
10,000
20,000
30,000
3
6
9
12
Net Income Per Share
96 97 98 2000
99 99
Millions of Yen
Net Income (Loss) andNet Income (Loss) to Net Sales
96 97 98 2000
Net Income (Loss)Net Income (Loss) to Net Sales (%)
Millions of Yen
0
3,000
6,000
9,000
1
2
3
4
0
6
12
18
0
To the Board of Directors ofDenki Kagaku Kogyo Kabushiki Kaisha
We have audited the accompanying consolidated balance sheets of Denki Kagaku KogyoKabushiki Kaisha and its subsidiaries as of March 31, 2000 and 1999, and the relatedconsolidated statements of income and shareholders’ equity for the years then ended and theconsolidated statement of cash flows for the year ended March 31, 2000, all expressed inJapanese yen. Our audits were made in accordance with auditing standards generally acceptedin Japan and, accordingly, included such tests of the accounting records and such otherauditing procedures as we considered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly theconsolidated financial position of Denki Kagaku Kogyo Kabushiki Kaisha and its subsidiaries asof March 31, 2000 and 1999, and the consolidated results of their operations for the years thenended and their cash flows for the year ended March 31, 2000 in conformity with accountingprinciples generally accepted in Japan applied on a consistent basis.
As described in Note 2, effective for the year ended March 31, 2000, Denki Kagaku KogyoKabushiki Kaisha and its subsidiaries have adopted new Japanese accounting standards forpreparation of consolidated financial statements, research and development costs and incometaxes.
The amounts expressed in U.S. dollars, which are provided solely for the convenience of thereaders, have been translated on the basis set forth in Note 1 to the accompanying consolidatedfinancial statements.
Tokyo, JapanJune 29, 2000
Notice to readers
The accompanying consolidated financial statements are not intended to present theconsolidated financial position and results of their operations and their cash flows inaccordance with accounting principles and practices generally accepted in countries andjurisdictions other than Japan. The standards, procedures and practices to audit such financialstatements are those generally accepted and applied in Japan.
Report of Independent Certified Public Accountants
Consolidated Balance SheetsDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
16 17
March 31
ASSETS
Current assets:Cash and time depositNotes and accounts receivable, trade (Note 3)Marketable securities (Note 4)Inventories (Note 6)Deferred tax assetPrepaid expenses and other current assets (Note 3)Allowance for doubtful accounts
Total current assets
Property, plant and equipment (Note 7) : Buildings and structuresMachinery and equipmentLandConstruction in progress
Accumulated depreciationTotal property, plant and equipment
Intangible fixed assets:
Investments and other assets:Investment securities (Note 3 and 4)Long-term loans receivable (Note 3)OtherDeferred tax assetAllowance for doubtful accounts
Total investments and other assets
Deferred charges:Research and developmentOther
Total deferred charges
Assets of consolidated securities company (Note 7 and 14)
Foreign currency translation adjustmentsTotal assets
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
(Note 1)
The accompanying notes are an integral part of the statements
¥ 5,74572,25435,76629,661
1,7207,422(925)
151,643
96,166268,673
45,3113,331
413,481(251,313)162,168
551
15,3521,7858,996
500(357)
26,276
2,02571
2,096
35,309
1,250¥ 379,293
¥ 4,97960,69439,03730,955
—4,888(727)
139,826
92,610259,591
38,3895,876
396,466(239,595)156,871
510
16,9501,4917,921
—(109)
26,253
3,681109
3,790
16,969
864¥ 345,083
$ 54,122680,678336,938279,425
16,20369,920(8,714)
1,428,572
905,9442,531,069
426,85831,380
3,895,251(2,367,527)1,527,724
5,191
144,62616,81684,748
4,710(3,363)
247,537
19,077669
19,746
332,633
11,776$ 3,573,179
March 31
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Notes and accounts payable (Note 3)
Short-term bank loans (Note 7)
Current portion of long-term debt (Note 7)
Accrued taxes on income and other (Note 9)
Accrued bonus
Reserve for investment losses
Other current liabilities (Note 3)
Total current liabilities
Long;-term liabilities:
Long-term debt (Note 7)
Deferred tax liability
Accrued severance indemnities (Note 12)
Other long-term liabilities
Total long-term liabilities
Liabilities of consolidated securities company (Note 14)
Total liabilities
Minority interest in consolidated subsidiaries
Shareholders' equity:
Common stock: ¥50 par value per share
Authorized: 1,584,070,000 shares
Issued: 459,419,390 shares
Capital surplus
Retained earnings (Note 8 and 13)
Treasury stock
Total shareholders' equity
Contingent liabilities (Note 17)
Total liabilities and shareholders' equity
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
(Note 1)
¥ 33,781
71,799
26,115
5,124
2,258
—
17,671
156,748
82,511
1,052
4,144
498
88,205
31,739
276,692
12,406
35,303
32,069
22,824
(1)
90,195
¥ 379,293
¥ 26,324
73,137
18,799
1,541
1,699
1,341
17,598
140,439
94,628
—
3,836
504
98,968
15,091
254,498
3,059
35,303
35,268
16,955
(0)
87,526
¥ 345,083
$ 318,238
676,392
246,020
48,271
21,272
—
166,472
1,476,665
777,306
9,911
39,039
4,691
830,947
299,001
2,606,613
116,872
332,577
302,110
215,016
(9)
849,694
$ 3,573,179
18 19
Consolidated Statements of IncomeDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
Year Ended March 31
Net salesCost of sales
Gross profitSelling, general and administrative expenses (Note 10)
Operating income
Other incomeInterest and dividend incomeGain on sale of marketable securitiesGain on sale of investment securitiesGain on sale of land, buildings and otherOther, net (Note 3)
Other expensesInterest expensesLoss on disposal of property, plant and equipmentAmortization of deferred research
and development costsAmortization of prior service costLoss on liquidation of affiliatesLoss on sale of marketable and investment securitiesDevaluation of marketable securitiesEquity in deficit of unconsolidated subsidiaries
and affiliatesOther, net
Income before income taxesIncome taxes (Note 9)
CurrentDeferred
Income (loss) before minority interestsMinority interest in losses of consolidated subsidiaries
Net income (loss)
Per shareNet income (loss)
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
(Note 1)
Yen U.S. Dollars(Note 1)
The accompanying notes are an integral part of the statements
¥ 256,273177,473
78,80052,80225,998
596447
1,056—
8522,951
4,194643
1,3911,597
899—
1,064
5064,827
15,121
13,828
(5,028)509
(4,519)9,309(990)
¥ 8,319
¥ 221,546157,721
63,82549,17714,648
606643
—2,5491,2165,014
4,923645
—973
1,8836,781
—
4743,423
19,102
560
(1,162)—
(1,162)(602)
(97)¥ (699)
$ 2,414,2531,671,908
742,345497,428244,917
5,6154,2119,948
—8,026
27,800
39,5106,057
13,10415,045
8,469—
10,024
4,76745,473
142,449
130,268
(47,367)4,795
(42,572)87,696(9,326)
$ 78,370
¥ 17.87 ¥ (1.48) $ 0.168
Consolidated Statements of Shareholders’ EquityDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
Year Ended March 31
Balance at March 31, 1998Net lossIncrease in retained earnings resulting from
inclusion of a subsidiary in the consolidationDecrease in retained earnings resulting from
exclusion of an affiliate in the consolidationCash dividendsBonuses to directors and statutory auditorsStock redemption
Balance at March 31, 1999Deferred income taxesNet incomeIncrease in retained earnings resulting from
exclusion of subsidiaries and an affiliate in consolidation
Increase in retained earnings resulting from change of the method of elimination of unrealized inter-company profit
Decrease in retained earnings resulting from exclusion of a subsidiary
Decrease in retained earnings resulting from inclusion of an affiliate
Cash dividendsBonuses to directors and statutory auditorsStock redemption
Balance at March 31, 2000
Thousands
Number ofShares
Common Stock
AmountCapitalSurplus
RetainedEarnings
Millions of Yen
The accompanying notes are an integral part of the statements
475,349—
—
———
(3,500)471,849
——
—
—
—
———
(12,430)459,419
¥ 35,303—
—
————
¥ 35,303——
—
—
—
————
¥ 35,303
¥ 35,889—
—
———
(621)¥ 35,268
——
—
—
—
———
(3,199)¥ 32,069
¥ 18,843(699)
100
(77)(1,188)
(24)—
¥ 16,955902
8,319
72
117
(4)
(6)(3,507)
(24)—
¥ 22,824
Balance at March 31, 1999Deferred income taxesNet incomeIncrease in retained earnings resulting from
exclusion of subsidiaries and an affiliate in consolidation
Increase in retained earnings resulting from change of the method of elimination of unrealized inter-company profit
Decrease in retained earnings resulting from exclusion of a subsidiary
Decreases in retained earnings resulting from inclusion of an affiliate
Cash dividendsBonuses to directors and statutory auditorsStock redemption
Balance at March 31, 2000
471,849——
—
—
—
———
(12,430)459,419
$ 332,577——
—
—
—
————
$ 332,577
$ 332,247——
—
—
—
———
(30,137)$ 302,110
$ 159,7268,497
78,370
678
1,102
(37)
(56)(33,038)
(226)—
$ 215,016
Thousands
Number ofShares
Common Stock
AmountCapitalSurplus
RetainedEarnings
Thousands of U.S. Dollars (Note 1)
Consolidated Statement of Cash FlowsDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
Year Ended March 31, 2000
Cash flows from operating activities:Income before income taxesAdjustments -
DepreciationAmortization of deferred chargesProvision for doubtful accountsInterest and dividend incomeInterest expensesDevaluation of marketable securitiesGain on sale of marketable and investment securitiesEquity losses of affiliated companiesLoss on sales of property, plant and equipment, netOtherChanges in assets and liabilities:
ReceivablesInventoriesNotes and accounts payableOther, net
Sub-totalInterest and dividend receivedInterest paidIncome taxes paid
Net cash provided by operating activities
Cash flow from investing activities:Purchase of marketable securitiesSales of marketable securitiesPurchases of property, plant and equipmentSales of property, plant and equipmentPurchase of investment securitiesSales of investment securitiesOther, net
Net cash used in investment activities
Cash flow from financing activities:Decrease in short-term borrowingsProceeds from long-term debtRepayment of long-term debtCash dividendsCapital stock subscriptionPurchase of treasury stockOther
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalent
Net increase in cash and cash equivalent
Cash and cash equivalent at the beginning of the yearIncrease of cash and cash equivalent resulting from inclusion
and exclusion of subsidiaries in the consolidationCash and cash equivalent at the end of the year
Millions of Yen Thousands ofU.S. Dollars
(Note 1)
The accompanying notes are an integral part of the statements
¥ 13,828
15,1061,808
182(596)
4,1941,064
(1,502)506
1,044318
(5,005)3,8354,920
(1,614)38,088
670(4,176)(2,528)32,054
(3,782)6,891
(16,343)3,818
(3,591)1,385
(1,310)(12,932)
(3,919)11,609
(20,813)(3,648)1,036
(3,197)(2)
(18,934)
(67)
121
4,979
1,246¥ 6,346
$ 130,268
142,30817,033
1,715(5,615)39,51010,024
(14,150)4,7679,8352,996
(47,150)36,12846,350
(15,205)358,814
6,312(39,341)(23,815)301,970
(35,629)64,918
(153,961)35,968
(33,829)13,048
(12,341)(121,826)
(36,919)109,364
(196,072)(34,366)
9,760(30,118)
(19)(178,370)
(631)
1,140
46,905
11,738$ 59,783
20 21
Notes to Consolidated Financial StatementsDenki Kagaku Kogyo Kabushiki Kaisha and Consolidated Subsidiaries
The accompanying consolidated financial statements of DenkiKagaku Kogyo Kabushiki Kaisha and its consolidated subsidiaries(the "Company") are basically an English version of those whichhave been prepared in accordance with accounting principles andpractices generally accepted in Japan and filed with the JapaneseMinistry of Finance. The consolidated statement of cash flows forthe year ended March 31, 2000 has been prepared by the requirementof the new Japanese accounting rules which have become effectivefor fiscal years beginning on or after April 1, 1999.
The accompanying consolidated financial statementsincorporate certain reclassifications and rearrangements in order topresent these statements in a form which is more familiar to thereaders of these statements outside Japan. In addition, the notes toconsolidated financial statements include information which is notrequired under generally accepted accounting principles andpractices in Japan but is presented herein as additional information.
The U.S. dollar amounts stated in the consolidated financialstatements are included solely for convenience of readers outside ofJapan. Those translations should not be construed as representationsthat the Japanese yen amounts actually represent, or have been orcould be converted into U.S. dollars. The rate of ¥106.15 = US$1, theapproximate rate of exchange as at March 31, 2000 has been used forthe purpose of such translations.
(1) Consolidation and investments in affiliated companies —The consolidated financial statements include the accounts of theCompany and those of its subsidiaries in which it has control. Theconsolidated financial statements consist of, with exceptions whichare not material, those of its 30 majority and wholly-ownedsubsidiaries (32 subsidiaries in 1999). All significant inter-companytransactions and accounts and unrealized inter-company profits areeliminated on consolidation.
Investments in unconsolidated subsidiaries and affiliatedcompanies in which the Company has significant influence are statedat the equity method. These unconsolidated subsidiaries andaffiliated companies for which the equity method is applied total 20and 21 at March 31, 2000 and 1999, respectively. Consolidated netincome includes the Company's equity in current earnings afterelimination of unrealized inter-company profits.
The excess of the cost over the underlying net equity ofinvestments in consolidated subsidiaries as well as companiesaccounted for on an equity basis, is deferred and amortized on astraight-line basis over a period of five years from the date ofacquisition.
Seven subsidiaries (Nine subsidiaries in 1999) wereconsolidated on the basis of their fiscal years ended at December 31,2000 and 1999. The year end data of a subsidiary were November 30,2000 and 1999. Therefore, the subsidiary tentatively closed it'saccount at January 31, 2000 and 1999 for the consolidation purpose.Material differences in inter-company transactions and accountsarising from the use of the different fiscal year-end are appropriatelyadjusted in consolidation.
(2) Marketable and investment securities —Marketable and investment securities, including marketable equitysecurities are stated at cost determined by the moving averagemethod.
(3) Inventories —Inventories are principally stated at cost determined by the totalaverage method.
(4) Property, plant and equipment —Property, plant and equipment, including significant renewals andimprovements, are carried at cost less depreciation. Maintenanceand repairs including minor renewals and betterments are charged toincome as incurred. Depreciation is computed primarily on thestraight-line method at rates based on the estimated useful lives ofthe assets which are prescribed by the Japanese income tax laws.When retired or disposed of, the difference between the net bookvalue and sales proceeds is charged or credited to income.
(5) Deferred charges —Deferred bond issue costs are amortized on a straight-line methodover three years.
Prior to April 1, 1999, research and development costs werecharged to income as incurred except for those related to newproducts and technologies, which were capitalized and amortizedover five years. In accordance with new Japanese accounting ruleswhich have become effective for fiscal years beginning on or afterApril I, 1999, all research and development costs are charged toincome as incurred. The effect of this change was to decrease incomebefore income taxes by ¥1,260 million.
(6) Accrued severance indemnities and pension plan —Employees whose service with the Company and certain domesticsubsidiaries is terminated are, in most circumstances, entitled tolump-sum severance payments determined by reference to currentbasic rate of pay and length of service at the time when and thecircumstances in which, the termination occurs. The minimumpayment to employees is an amount based on voluntary terminationof employment.
The Company and certain consolidated subsidiaries haveprovided for this liability, to the extent of 40% of the amount whichwould be required if all employees terminated employmentvoluntarily as at the relevant balance sheet date, less related benefitsprovided by the pension plans.
The Company and certain of its consolidated subsidiaries havequalified pension plans to cover part of their employees' severanceindemnities. The aggregate past service costs for the pension planswere ¥5,295 million ($49,882 thousand) and ¥2,945 million at March31, 2000 and 1999, respectively, which are amortized by thedeclining-balance method at an annual rate of 30%.
In addition, the Company and certain of its consolidatedsubsidiaries provide for severance indemnities for directors andstatutory auditors in accordance with their rules for directors'severance indemnities. Accrued severance indemnities as at March31, 2000 and 1999 include severance indemnities for directors andstatutory auditors of ¥692 million ($6,519thousand) and ¥539 million,respectively. Payment of directors' severance indemnities is subject
1. Basis Presenting Consolidated Financial Statements:
2. Summary of Significant Accounting Policies:
2322
to shareholders' approval.
(7) Accounting for leases —Finance leases other than those that are deemed to transfer theownership of the leased assets to lessees are principally accountedfor by the method that is applicable to ordinary operating leases.
(8) Translation of foreign currency accounts —Current foreign currency receivables and payables are translated intoJapanese yen at the applicable exchange rates at the balance sheetdate except for those receivables and payables covered by forwardexchange contracts which are translated at the forward exchangerates. Resulting exchange gains or losses are credited or charged toincome. Non-current foreign currency receivables and payables aregenerally translated at historical rates.
Foreign currency financial statements have been translated intoyen at the appropriate year end current rate except for commonstock, capital surplus and certain other inter-company accounts.Translation differences resulting therefrom have been deferred andare reflected in the accompanying consolidated balance sheets as"Foreign currency translation adjustments".
(9) Income taxes —Income taxes of the Company and its domestic subsidiaries consist ofcorporate income taxes, local inhabitants taxes and enterprise taxes.
In the year ended March 31, 2000, the Company and itssubsidiaries adopted the deferred tax accounting method inaccordance with the amended regulations for preparation ofconsolidated financial statements. Income taxes were determinedusing the asset and liability approach, whereby deferred tax assetsand liabilities were recognized in respect of temporary differencesbetween the tax basis of assets and liabilities and those as reportedin the financial statements. The cumulative effect of adoptingdeferred tax accounting at April 1, 1999 was charged to retainedearnings.
In the year ended March 31, 1999, income taxes of theCompany and its domestic subsidiaries were provided for at anamount currently payable based on the tax returns filed with taxauthorities.
The effect of this change was to increase income before incometaxes and net income for the year ended March 31, 2000 by ¥3 million($28 thousand) and ¥512 ($4,823 thousand) million, respectively, andto increase retained earnings at March 31, 2000 by ¥1,414 million($13,321 thosand).
(10) Appropriation of retained earnings —Appropriation of retained earnings reflected in the accompanyingconsolidated financial statements have been recorded after approvalby the shareholders as required under the Japanese CommercialCode.
(11) Cash and cash equivalent —Cash and cash equivalents in the consolidated statement of cashflows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an originalmaturity of three months or less and which represent a minor risk offluctuations in value.
(12) Net income per share —The computation of net income per share is based on the averagenumber of shares outstanding during each year.
Accounts balances with unconsolidated subsidiaries and affiliatedcompanies accounted for on an equity basis at March 31 are asfollows:
Transactions between the parent company and its unconsolidatedsubsidiaries and affiliated companies accounted for on an equitybasis for the years ended March 31, 2000 and 1999 are as follows:
The aggregate cost and market value of marketable securities andinvestment securities as of March 31, 2000 composed of thefollowing:
The company entered into derivative financial instruments of foreignexchange forward contracts. The company does not hold or issuederivatives for trading purpose and it is the company's policy to usederivatives only for the purpose of reducing market risk andfinancing costs in accordance with internal criteria. The companydoes not anticipate any losses resulting from default of the counter-parties as they are limited to major domestic financial institutionswith sound operational foundations.
The estimated fair value of the company's financial instrumentsas of March 31, 2000 are as follows:
Inventories at March 31 are as follows:
Short-term bank loans at March 31 comprised the following:
Long-term debt at March 31 consisted of the following:
A summary of assets pledged as collateral for short-term bank loansand long-term debt at March 31, 2000 is as follows:
The aggregate annual maturities of long-term debt subsequent toMarch 31, 2000 are as follows:
The Japanese Commercial Code provides that an amount equal to atleast 10 percent of cash dividends and bonuses to directors and
3. Accounts balances and transactions with affiliated companies —
Notes and accounts receivable,trade
Short-term loans receivableOther current assetsInvestment securitiesLong-term loans receivableNotes and accounts payable,
tradeOther current liabilities
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 12,321951
1,03310,441
560
4,299504
¥ 6,219593298
11,434305
1,6522,405
$ 116,0728,9599,732
98,3615,276
40,4994,748
Forward exchange contracts:Carrying amountEstimated fair valueUnrealized loss
Millions ofYen
Thousands ofU.S. Dollars
¥ 1410
4
$ 1329438
Marketable securitiesMarket valueCarrying amountUnrealized loss
Investment securitiesMarket valueCarrying amountUnrealized loss
Millions ofYen
Thousands ofU.S. Dollars
¥ 32,21034,679
2,469
¥ 198256
58
$ 303,438326,698
23,260
$ 1,8652,411
546
Other income—other
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 1,629 ¥ 25 $ 15,342
4. Marketable and investment securities —
5. Derivative financial instruments —
6. Inventories —
7. Short-term bank loans and long-term debt —
Finished productsSemi-finished productsWork in processRaw materialsSupplies
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 15,3126,0091,7784,7031,859
¥ 29,661
¥ 16,3806,764
9895,0271,795
¥ 30,955
$ 144,24856,60916,75044,30517,513
$ 279,425
Bank overdrafts with interestranging from 0.509% to 6.500%per annum
Short-term bank loans withinterest ranging from 0.636%to 7.250% per annumrepresented by short-termnotes maturing at variousdates within one year
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 9,694
62,105¥ 71,799
¥ 2,800
70,337¥ 73,137
$ 91,324
585,068$ 676,392
Loans, principally from banks andinsurance companies, maturingserially to 2008 with interestranging from 1.59per cent. to7.20per cent. per annum:
SecuredUnsecured
7.20% bonds due 20001.00% bonds due 20012.65% bonds due 20012.00% bonds due 20022.35% bonds due 20022.95% bonds due 20022.10% bonds due 20032.20% bonds due 20032.275%bonds due 20032.40% bonds due 20041.59% bonds due 2005
Loss-current portion of long-term debt
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 2,32433,755
—2,547
10,00010,000
5,00010,00010,000
5,0005,0005,000
10,000108,626
26,115¥ 82,511
¥ 10443,32310,000
—10,00010,000
5,00010,00010,000
5,0005,0005,000
—113,427
18,799¥ 94,628
$ 21,895317,995
—23,99494,20694,20647,10394,20694,20647,10347,10347,10394,206
1,023,326
246,020$ 777,306
Property, plant and equipment — at book value
Assets of consolidated securities company
Millions ofYen
Thousands ofU.S. Dollars
¥ 86,6995,328
$ 816,75950,193
Year ending March 31:20012002200320042005 and thereafter
Millions ofYen
Thousands ofU.S. Dollars
¥ 26,11544,75316,153
6,61514,990
¥ 108,626
$ 246,020421,601152,171
62,317141,217
$ 1,023,326
8. Retained earnings —
2524
corporate auditors shall be appropriated as legal reserve until suchreserve is equal to 25 percent of the capital stock account. Thisreserve is not available for dividends but may be used to reduce adeficit or may be transferred to stated capital.
Under the Japanese Commercial Code, the appropriation ofretained earnings for a fiscal year is made by resolution ofshareholders at a general meeting to be held after the balance sheetdate, and the accounts for the year do not reflect suchappropriations.
However, the Company may pay interim dividends byresolution of Board of Directors once a fiscal year in accordance withthe Japanese Commercial Code and the Company's Articles ofIncorporation.
The proposed appropriation of retained earnings of theCompany for the year ended March 31, 2000, which was approved onJune 29, 2000, at the general shareholders' meeting is as follows:
The Company is subject to a number of different income taxes which,in the aggregate, indicate a statutory tax rate in Japan ofapproximately 47.5 percent for the year ended March 31, 1999 andapproximately 41.9 percent for the year ended March 31, 2000,respectively.
The significant components of deferred tax assets andliabilities at March 31, 2000 were as follows:
Reconciliations of the differences between the statutory tax rate andthe effective income tax rate for the year ended March 31, 2000 are asfollows:
Selling, general and administrative expenses for the years endedMarch 31, 2000 and 1999 comprised the following:
Research and development expenses included in selling, general andadministrative expenses and manufacturing costs approximated¥7,581 million ($71,418 thousands) for the year ended March 31,2000.
The total charges to consolidated income for all retirement andpension plans for the years ended March 31, 2000 and 1999 amountedto ¥2,512 million ($23,665 thousand) and ¥1,842 million, including acredit of ¥231 million ($2,176 thousand) and a charge of ¥184 million,respectively, for directors.
Under the Japanese tax regulations, certain special reserves whichare not required for financial accounting purposes are deductible forincome tax purposes if recorded on the books of account. Suchreserves are directly appropriated from retained earnings as part ofshareholders' equity.
9. Income taxes —
10. Selling, general and administrative expenses —
Legal reserveCash dividends at ¥2.50 per shareDirectors' and statutory auditors' bonus
Millions ofYen
Thousands ofU.S. Dollars
¥ 1201,149
60¥ 1,329
$ 1,13010,825
565$ 12,520
Deferred tax assets:Allowance for doubtful accountsEnterprise income taxes Accrued severance cost for directors and
statutory auditorsAccrued severance costs for employeesAccrued bonusInter-company profit of inventories and
fixed assetsOther
Gross deferred tax assets
Deferred tax liabilities:Retained earnings appropriated for tax
allowable reserveOther
Gross deferred tax liabilitiesNet deferred tax assets
Millions ofYen
Thousands ofU.S. Dollars
¥ 929355
290390317
893390
3,568
2,31980
2,399¥ 1,168
$ 8,7523,344
2,7323,6743,005
8,4123,674
33,593
21,846754
22,600$ 10,993
Statutory tax rateIncrease (reduction) in taxes resulting from:
Changes in valuation allowance for affiliated companies
OtherEffective income tax rate
41.0 %
(11.4)%3.1 %
32.7 %
Selling expenses:Carriage and shippingSales commissionOther
General and administrativeexpenses:Salaries and remunerationEmployees' welfareResearch and developmentOther
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 18,0345,4412,743
26,218
10,843384
4,30511,05226,583
¥ 52,802
¥ 17,9355,3731,920
25,228
10,157468
3,8999,425
23,949¥ 49,177
$ 169,89251,25825,841
246,991
102,1483,618
40,556104,115250,437
$ 497,428
Special reserves included in retained earnings at March 31,2000 and 1999 were ¥1,740 million ($16,392 thousand), and ¥4,510million, respectively.
An analysis of assets and liabilities at March 31, 2000 and 1999 of asecurities company, which have been recorded in accordance withthe provisions of "Uniform Accounting Standards for SecuritiesCompanies" issued by Japan Securities Dealers Association, is shownbelow. Inter-company assets and liabilities are eliminated.
Net sales for the two years ended March 31, 2000 and 1999 includeoperating revenue (including financial revenue) of the securitiessubsidiary amounting to ¥3,683 million ($34,696 thousand) and¥1,312 million and selling, general and administrative expenses forthe two years ended March 31, 2000 and 1999 include operatingexpenses (including financial expenses) of the securities subsidiaryamounting to ¥1,849 million ($17,419thousand) and ¥1,756 million,respectively.
Finance leases that do not transfer ownership of the leased propertyto the lessee are accounted for as rental transaction.
1) Leased assets under financial leases, if capitalized, at March 31,2000 and 1999 comprise the followings:
Depreciation expenses of those leased assets for the year endedMarch 31,2000 and 1999 are computed by the straight line methodover the periods of those finance leases with no remaining value.
11. Research and development expenses—
15. Cash and cash equivalents —
16. Leases —
12. Retirement and severance benefits —
13. Special reserves —
14. Analysis of assets and liabilities of securities company —
Current assets:Cash and depositsMargin transaction accountSecurities under
the company's custodyOther
Non-current assetsTotal assets
Current liabilities:Short-term loansMargin transaction accountGuarantee moneySecurities received in lieu of
guarantee moneyOther
Non-current liabilitiesReserves
Total liabilities
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 1,79713,465
18,827649
34,738571
¥ 35,309
¥ 1,1308,872
956
12,6578,038
31,6533254
¥ 31,739
¥ 1,6843,985
10,100556
16,325644
¥ 16,969
¥ 9302,354
340
6,0005,400
15,0242542
¥ 15,091
$ 16,929126,849
177,3626,114
327,2545,379
$ 332,633
$ 10,64583,580
9,006
119,23775,723
298,191301509
$ 299,001
Buildings and StructuresMachine and equipmentVehicles and delivery equipmentTools, furniture and fixturesIntangible assetsOther
Millions of Yen
¥ —6,592
3201,873
382,030
¥ 10,853
¥ —3,748
212972
111,452
¥ 6,395
¥ —2,843
107900
27580
¥ 4,457
At March 31, 1999
AcquisitionCost
Accumulateddepreciation
Net bookvalue
Buildings and StructuresMachine and equipmentVehicles and delivery equipmentTools, furniture and fixturesIntangible assets
Millions of Yen
¥ 1,5016,712
2792,496
43¥ 11,031
¥ 1,3514,418
1421,416
22¥ 7,349
¥ 1502,294
1371,080
21¥ 3,682
At March 31,2000
AcquisitionCost
Accumulateddepreciation
Net bookvalue
Buildings and StructuresMachine and equipmentVehicles and delivery equipmentTools, furniture and fixturesIntangible assets
Thousands of U.S. Dollars
$ 14,14063,231
2,62823,514
405$ 103,918
$ 12,72741,620
1,33813,340
207$ 69,232
$ 1,41321,611
1,29110,174
198$ 34,687
At March 31,2000
AcquisitionCost
Accumulateddepreciation
Net bookvalue
Cash and cash equivalents as of March 31, 2000 consist of:Cash and bank depositsMarketable securities
Millions ofYen
Thousands ofU.S. Dollars
¥ 5,745601
¥ 6,346
$ 54,1225,661
$ 59,783
2726
2) The amount of outstanding future lease payments due at March31 including the portion of interest thereon were summarized asfollows:
3) Lease rental expenses on such finance lease contracts for theyears ended March 31, 2000 and 1999 are as follows:
Lease rental expensesDepreciation cost equivalent
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 1,5011,501
¥ 1,6261,626
$ 14,14014,140
Contingent liabilities at March 31, 2000 and 1999 for notes receivable discounted and endorsed and loans guaranteed were approximately ¥2,759million ($25,992 thousand) and ¥3,730 million, respectively.
The Companies are primarily engaged in the manufacture and sale of products in the four major segment of Petrochemical Products Division,Specialized Chemical Products Division, Cement and Construction Materials Division and Pharmaceutical and Other Products Divisions.
Information by business segment for the years ended March 31, 2000 and 1999 is summarized as follows:
SalesOutside customersInter-segment
TotalOperating costs and expensesOperating income(loss)
AssetsDepreciation costCapital expenditure
Millions of Yen
¥ 71,3304,721
76,05176,857
¥ (806)
¥ 86,5145,7725,426
¥ 75,6344,409
80,04368,847
¥ 11,196
¥ 87,4605,2595,399
¥ 37,7501,882
39,63236,606
¥ 3,026
¥ 46,9652,9273,317
¥ 36,8314,265
41,09639,855
¥ 1,241
¥ 43,886576
2,831
¥ 221,54615,276
236,822222,165
¥ 14,657
¥ 264,82514,53416,973
—¥ (15,276)
(15,276)(15,266)
¥ (10)
¥ 80,258(9)
8,702
¥ 221,546—
221,546206,899
¥ 14,647
¥ 345,08314,52525,675
Year ended March 31, 1999
PetrochemicalProductsDivision
SpecializedChemicalProductsDivision
Cement andConstruction
MaterialsDivision
Pharmaceuticaland OtherProductsDivision Total Elimination Consolidation
SalesOutside customersInter-segment
TotalOperating costs and expensesOperating income(loss)
AssetsDepreciation costCapital expenditure
Millions of Yen
¥ 73,8584,689
78,54775,795
¥ 2,752
¥ 76,1505,5061,726
¥ 102,5975,029
107,62692,871
¥ 14,755
¥ 111,3816,3456,748
¥ 39,2191,853
41,07236,504
¥ 4,568
¥ 48,2242,7452,249
¥ 40,5984,638
45,23741,539
¥ 3,698
¥ 64,504527592
¥ 256,27316,209
272,482246,709
¥ 25,773
¥ 300,25915,12511,315
—¥ (16,209)
(16,209)(16,434)
¥ 225
¥ 79,034(19)
3,540
¥ 256,273—
256,273230,275
¥ 25,998
¥ 379,29315,10614,855
Year ended March 31, 2000
PetrochemicalProductsDivision
SpecializedChemicalProductsDivision
Cement andConstruction
MaterialsDivision
Pharmaceuticaland OtherProductsDivision Total Elimination Consolidation
Overseas sales of the Companies (export sales of the Company and domestic subsidiaries) for the years ended March 31, 2000 and 1999 are
summarized as follows:
On May 18, 2000, the company issued ¥10,000 million of debentures due 2007. The annual interest rate is 1.83% and the issue price was 100% of
the face value of the debenture.
SalesOutside customersInter-segment
TotalOperating costs and expensesOperating income(loss)
AssetsDepreciation costCapital expenditure
Thousands of U.S. Dollars
$ 695,78944,173
739,962714,037
$ 25,925
$ 717,38151,87016,260
$ 966,52847,376
1,013,904874,903
$ 139,001
$ 1,049,27959,77463,570
$ 369,46817,456
386,924343,891
$ 43,033
$ 454,30125,86021,187
$ 382,46843,693
426,161391,324
$ 34,837
$ 607,6684,9835,577
$ 2,414,253152,699
2,566,9522,324,155
$ 242,797
$ 2,828,629142,487106,594
—$ (152,699)
(152,699)(154,819)
$ 2,120
$ 744,550(179)
33,349
$ 2,414,253—
2,414,2532,169,336
$ 244,917
$ 3,573,179142,308139,943
Year ended March 31, 2000
PetrochemicalProductsDivision
SpecializedChemicalProductsDivision
Cement andConstruction
MaterialsDivision
Pharmaceuticaland OtherProductsDivision Total Elimination Consolidation
Petrochemical Products Division
Specialized Chemical ProductsDivision
Cement and ConstructionMaterials Division
Pharmaceutical and OtherProducts Division
Styrene and ABS ProductsChemical Synthetic ProductsFunctional Resins
Resin-Processed ProductsFertilizers and InorganicChemical ProductsOrganic Chemical ProductsElectronic and FunctionalMaterials
Cement and Special Additives
Pharmaceutical and OtherProducts
Polystyrene, ABS resins, Styrene Monomer and otherVinyl Acetate and otherCLEAREN, Transparent Polymers and Heat--Resistant Resins and other
Electronic, Wrapping Products, Food Wrapping ProductsFertilizers, Carbide, Refractory and other
Chloroprene, Acetylene Black and otherFused Silica Filler, Electronic Circuit Boards, Fine-ceramics
Cement and Special Additives and other
Vaccines, Diagnostic Chemicals, Veterinary Chemicals, EngineeringBusiness, Securities Business and other
Business Product line major products
Overseas salesConsolidated salesPercentage of overseas sales
over consolidated sales
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen
Asia Others Total Asia Others Total Asia Others Total
Thousands of U.S. Dollars
¥ 26,524—
10.3%
¥ 8,639—
3.4%
¥ 35,163¥ 256,273
13.7%
¥ 18,031—
8.1,%
¥ 7,511—
3.4%
¥ 25,542¥ 221,546
11.5%
$ 249,873—
10.3%
$ 81,385—
3.4%
$ 331,258$ 2,414,253
13.7%
18. Overseas Sales Information —
19. Event subsequent to March 31, 2000 —
Future lease paymentsWithin one yearOver one year
2 0 0 0 1 9 9 9 2 0 0 0
Millions of Yen Thousands ofU.S. Dollars
¥ 1,3202,362
¥ 3,682
¥ 1,4662,991
¥ 4,457
$ 12,43522,252
$ 34,687
18. Business Segment Information —
17. Contingent liabilities —
2928
Corporate Data
Established1st May, 1915
Paid-in Capital¥35,303 million (US$284.7 million)
Employees3,138
Directory— Head OfficeSanshin Bldg., 1-4-1, Yurakucho, Chiyoda-ku, Tokyo 100-8455, JapanTelephone: (03)3507-5055Facsimile: (03)3507-5059URL: http://www.denka.co.jp/— BranchesOsaka, Nagoya, Fukuoka, Niigata, Toyama, Sapporo, Nagano, Sendai, Takasaki, Shizuoka, Akita, Hachinohe, Hiroshima, Takamatsu, Kagoshima— Production FacilitiesOmi(Niigata), Omuta(Fukuoka), Chiba,Shibukawa(Gunma)
Shareholders Information
Total Number of Authorized Shares1,584,070,000
Shares of Common Stock Issued459,419,390
Shareholders63,782
Major Shareholders
Overseas Subsidiaries
Denka Corporation780 Third Avenue, 32nd Floor, New York, NY 10017, U.S.A.Telephone: 1(212)688-8700 Facsimile: 1(212)688-8727E-mail: [email protected]
Denka Chemicals GmbHKöigsallee 60, 40212 Düseldorf, F.R.GermanyTelephone: 49(211)130990 Facsimile: 49(211)329942E-mail: [email protected]
Denka Singapore Private LimitedDenka Advantech Private LimitedHong Leong Building, 16 Raffles Quay#18-03, Singapore 048581Telephone: 65-256120 Facsimile: 65-2243840E-mail: [email protected]
Board of Directors and Auditors
ChairmanTsuneo Yano*
PresidentToshio Hiruma*
Senior Managing DirectorsTakashi Matsukami*Takeshi Furuya*Mitsuru NakashimaTadashi Ozawa
Managing DirectorYukihide KondoSeiji TakigawaMichio OhtakeHigashi ItoSeiki KawabataYoshiaki Mikami
DirectorsMasaji IshiiShunichi HayashiHisao WakuriKenichi TsuchigameKeisuke TakagiShinichiro AsaiKei HayashiHideki Matsumura
Standing AuditorsTakakazu KoyamaYukinori Tohtake
AuditorsMasakazu KomaKenji Fujinuma
(As of 29th June, 2000)(As of 31 March, 2000)
*Representative Director
The Sumitomo Trust&Banking Co.,Ltd.*The Dai-Ichi Kangyo Bank, LimitedMitsui Mutual Life Insurance, Co.The Sakura BANK,LIMITEDThe Daiwa Bank, Limited.*The Mitsubishi Trust and Banking Corporation*The Norinchukin BankThe Chuo Mitui Trust and Banking Company, LimitedMitsui Marine & Fire Insurance Co., Ltd.The Dai-ichi Kangyo Fuji Trust & Banking Co., Ltd.*
36,23322,96716,84214,82011,26110,98810,68910,131
9,7778,182
Number of shares held(thousands)
Ratio of total sharesout standing (%)
7.884.993.663.222.452.392.322.202.121.78
Breakdown of Shareholders(thousands)
Securities Companies 12,525 (2.7%)
Financial, Institutions246,734 (53.7%)Individuals, Other
138,278 (30.1%)
Other Corporations25,621 (5.6%)
Foreign Corporations Individuals36,256 (7.9%)
Breakdown of Shareholders by Size
5,000 or more4,496 (7.1%)
1,000 or more39,908 (62.6%)
10,000 or more3,022 (4.7%)
less than 1,00016,356 (25.6%)
*Shares held by these four companies are those relate to fiduciary business.