A n n u a l R e p o r t

Transcription

1 Annual Report 2000

2 Financial Highlights For the years ended March 31, 2000 and 1999 (Note 3) Net sales , ,453 $1,632,237 $1,605,775 Income before income taxes and minority interests... 4,037 7,632 38,031 71,898 Net income... 1,934 4,234 18,220 39,887 As of March 31, 2000 and 1999 (Note 3) Total assets , ,889 $2,097,984 $2,146,858 Total shareholders equity... 63,984 63, , ,609 Number of employees... 2,712 3,456 Note: The U.S. dollar amounts above and elsewhere in this annual report are translated from yen, for convenience only, at the rate of = US$1. Net Sales 2,000 Millions of U.S. dollars $1,686 $1,700 $1,605 $1,632 1,500 $1,503 1, Sales Composition (for the year ended March 31, 2000) Millions of U.S. dollars Synthetic Synthetic New Other rubbers latices Chemicals Business products Total 39% 9% 12% 15% 27% 100% $643 $139 $195 $252 $403 $1,632

3 Corporate Profile Nippon Zeon Co., Ltd., was initially established in April 1950 with equity participation from BF Goodrich Chemicals Co. of the United States providing technical assistance, and three Japanese companies from the Furukawa Group: Furukawa Electric Co., Ltd., Yokohama Rubber Co., Ltd. and Nippon Light Metal Co., Ltd. Originally founded to manufacture polyvinyl chloride resins, the Company became the first Japanese enterprise to produce synthetic rubbers in We developed an original process for extracting butadiene, the main raw material for synthetic rubbers, from C4 fraction in 1965, followed by the development of a method for extracting isoprene from C5 fraction. Based on these fundamental advances in our own technologies, we established a complete production system starting from material production, ultimately positioning Nippon Zeon as a world-class manufacturer of synthetic rubbers. We currently command the top market share of oil-resistant specialty rubbers for automobile components. Driven by our comprehensive approach to C5 fraction applications, we have conducted extensive research and development and opened markets for a diverse range of products, such as thermoplastic elastomer SIS, C5 hydrocarbon resins, synthetic aroma chemicals, super-plasticizers for concrete, epoxy resin hardening agents, cycloolefine polymers, and RIM molding products. We take pride in our world-leading ranking in the comprehensive use of C5 fraction, with virtually every product in this area maturing into a major business concern. In order to reinforce the international competitiveness of our initial business in polyvinyl chloride resins, we transferred this business line in 1995 to the Shin Dai-Ichi Vinyl Corporation (ZEST), a joint venture company. The Company reduced its percentage of equity in ZEST on March 31, 2000 and transferred the controlling stake to Tokuyama Co., Ltd. At the same time, we discontinued operations of our subsidiary, Sanyo Monomer Co., Ltd., a manufacturer of vinyl chloride monomer, the main raw material of polyvinyl chloride resin. As a result of these actions, the Company withdrew from the polyvinyl chloride resin business. As a result, our current business activities represent a powerful synergy of petrochemical products, including basic materials revolving around C4 and C5, and new business lines representing interests in the fields of health, the environment, and information-age materials. Our C4 business line includes synthetic rubbers and synthetic latices, while the C5 business features chemical products and specialty chemical products. Medical equipment is at the center of our health-related business; environmental materials and RIM moldings headline our environmental business; and electronic materials, imaging materials, and cyclo-olefine polymers (Zeonex) form the focus of activities in our information-related business concerns. We also license selected components of our leading technologies, including those related to manufacturing synthetic rubbers and latices, extracting butadiene and butene, and drainage facilities. Table of Contents Corporate Message to Stockholders 2 Review of Respective Businesses 3 The Future of Nippon Zeon 15 Financial Statements 16 Report of Independent Certified Public Accountants 31 Corporate Directory and Data 32

4 Corporate Message to Stockholders President Katsuhiko Nakano The Japanese economy for the current term eventually showed indications of taking off, although gradually, supported by the government s economic package. However, individual consumption as well as private-sector capital investment remained weak. They were unable to overcome the sluggish economic situation and failed to achieve genuine economic recovery. On the other hand, overseas, the U.S. economy remained strong, thanks to continuing buoyant individual consumption; the European economy has also been moving gradually toward expansion since mid-year. At the same time, the Asian economy shifted to clear growth supported by increased exports and a financial stimulus package and is basically on track to recovery. In the domestic petrochemical industry, while overseas demand remained firm especially in Asia, domestic demand stayed weak. In addition, severe circumstances continue, with earnings affected largely by the price hike in raw materials stemming from a worldwide increase in crude oil prices. In response to these developments, the Zeon Group has initiated comprehensive enterprise-wide cost reductions to strengthen its capacity to maintain cost competitiveness. It has also worked toward expanding its global share of petrochemical products focussing on rubber, latex and chemicals-and cultivating new markets. In its information, the environment and health businesses, the Company has attempted to further expand product sales based on its unique technology, and pursued R&D with a particular focus on speed. As a result, consolidated financial statements for the current term showed billion in sales (a 1.6% increase over the previous term), billion in operating income (a 26.8% decrease), billion in ordinary profit (a 24.7% decrease) and billion in net profits (a 54.3% decrease). As for the future, the economies of the U.S. and Europe should remain strong, while the economy in Asia will recover and develop further. For the domestic economy, on the other hand, since individual consumption will continue to be too weak to foster growth, and the impact of the government s economic package will be rather limited, the level of economic growth is expected to remain low through fiscal Signs of recovery are already visible, however, in some industries, including the information and communication industries. Within the petrochemical industry, exports should continue to grow, mainly in Asia, but in the context of unpredictable circumstances based on weak domestic demand with the prices of crude oil and naphtha remaining high. Under these circumstances, the Company is determined to establish strong cost competitiveness through an aggressive company-wide cost reduction campaign, and is determined to come out ahead of global competition by developing unique, exclusive technology in its specific fields of strength. We would appreciate your continued support and cooperation in the years ahead. 2 Zeon Corporation Annual Report 2000

5 C4 Business Synthetic Rubbers (Solid) Background: Nippon Zeon, the first commercial producer of synthetic rubber in Japan, makes a significant contribution to various industries with a wide range of general purpose and specialty products. Zeon s unique technology is especially appreciated in the automotive industry, and Zeon is committed to remain the world leader in specialty elastomers. Zeon s corporate strategy is to maintain its position in the front rank of the world competition under its motto Continuous reinforcement of our strengths and advantages. Current Status: Domestic sales fiscal 1999 increased by around 2.5% from the previous term in both volume and sales value. Shipment of general-purpose elastomers was slightly below that of 1998 due to weak demand in the tire market but strong sales for specialty elastomers could compensate for this. In export sales, shipping volume grew by 15% assisted by the recovery of the Asian economy, however, because of the strength of the domestic currency, the sales value in yen remained unchanged. Nippon Zeon s overall rubber business, in both actual sales volume and value in 1999, exceeded the numbers for the previous year. In accordance with the corporate strategy, in 1999 Zeon Chemicals L.P. (the old name of this company is Zeon Chemicals Inc.) completed the acquisition of two nitrile-rubber businesses in North America from two major players, DSM and Goodyear. Accordingly, the Zeon Group has obtained 40% of the nitrile-rubber market share globally and now shows a clear lead over the second largest volume producer who has only 24%. In the specialty elastomers segment, the Zeon Group is the largest volume supplier in the world for ACM, CO/ECO and H-NBR. Nippon Zeon is also producing diverse high quality general-purpose elastomers as well as providing superior technical support into the market for such applications as tires and unique solution polymerized elastomers (SBR & BR) to 55,000 tons from 30,000 tons. It is also striving for productivity improvement in traditional emulsion SBR. Rubber Business sales Car tires using SBR, S-SBR, BR and IR Future Prospects: Nippon Zeon has obtained an unmovable position as the world leader in the specialty elastomer business. Nippon Zeon and its group now have seven commercial synthetic rubber plants and have R&D facilities in each of the three major markets, Asia, Europe, and North America. In the specialty-elastomer area, the Zeon Group will optimize its total production capacities around the world in order to provide customers with excellent service, first class quality, competitive prices, technical support, and reliable supply. Zeon will continuously strengthen its position expanding the number of grades of the H-NBR product-line and work in partnership with its customers to develop new applications. Zeon has strengthened its position as a leader in the supply of chemically modified Solution SBR for the tire industry through its supply agreement with its licensee Dow BSL in Germany. Car engine utilizing various specialty rubber parts S-SBR manufacturing plant (Tokuyama Plant) Zeon Corporation Annual Report

6 C4 Business Synthetic Latices Latex Business sales Background: Nippon Zeon manufactures and sells various latices, such as SBR, BR, NBR and Acrylate, and has the advantage of being able to meet various customer needs with a wide assortment of materials. Synthetic latices have two major uses coated paper processing and ABS resin manufacturing as well as other diversified applications, including textile manufacturing, road construction, adhesive agents, and foam rubbers. In particular, the Company has been developing high value-added latices for specialty applications. NBR latex, used in foam rubber for cosmetic puffs, is an especially noteworthy product which has achieved success in world markets. As for the use of NBR latex in rubber gloves, the protein allergy problem inherent to natural latex gloves resulted in a rapid shift from natural latex to synthetic latex. Latices for recyclable moisture-proof paper, a substitution for polyethylene-laminated paper, have been growing strongly. Work gloves made of NBR latex Current Status: Sales for the entire business declined compared to the previous term, due to slumping exports and the appreciation of the yen. Domestic sales increased over the previous term as a result of several factors. Latices for paper processing were spurred by a recovery in domestic demand for coated papers and the ongoing growth of hollow particle latices, while increased demand due to the favorable performance of domestic ABS resin manufacturers encouraged the use of latices for ABS resin. Latices for specialty use also supported a recovery in sales. Export sales substantially decreased from the previous term, adversely affected by lower demand for latices for tire cords in the face of aggressive competition and decreased demand for the latices for gloves because of poor performance by our Southeast Asia customers, despite record-making growth in the previous term, and by the yen s appreciation. On the other hand, latices for ABS resin continued to be buoyant thanks to the start-up operations of new customers. Cosmetic puffs Future Prospects: Paper processing is expected to maintain a favorable level of performance along with major paper manufacturers. For latices for ABS resins, increased shipments are expected as domestic ABS makers should continue to enjoy favorable performance. In the area of exports, a high volume of NBR latices for gloves, which suffered remarkable declines in fiscal 1999, are expected to be shipped to major glove makers in Europe. Therefore, total export sales are expected to increase significantly. 4 Zeon Corporation Annual Report 2000

7 C5 Business Chemicals Background: Nippon Zeon has focused for 26 years on the full utilization of C5 fraction, which involves more than 30 types of chemicals. Our own GPI Process (Zeon Process of Isoprene) enables each chemical to be efficiently extracted and separated from C5 fraction. This approach has earned us the top ranking in the world in this field. Isoprene Rubber (IR), commonly referred to as synthetic natural rubber, is manufactured with isoprene, one of the initial products of the GPI Process. This product is handled by the Synthetic Rubber Division. Thermoplastic elastomer SIS, a block copolymer of styrene and isoprene, is utilized as a base polymer of pressure-sensitive tapes and labels produced by a non-solvent process, as well as hot-melt adhesives. Products from piperylene, which is also a result of this process, are manufactured under the Quintone 100 series (aliphatic hydrocarbon resin) for use in traffic paints and adhesives for pressure-sensitive tapes and labels. Products from piperylene, isoprene and maleic anhydride (trademark: Quinhard) are used as epoxy resin hardeners. Dicyclopentadiene products are marketed as the Quintone 1000 series (alicyclic hydrocarbon resin) for use in paints, inks and automobile tire modifiers. Products from isoamylene with maleic anhydride (trademark: Quinflow) are aqueous dispersants mainly used as water reducers for concrete. Chemicals and Specialty Chemicals Business sales Current Status: After we expanded production capacity of SIS by 50% in April 1999, we succeeded to expand its sales volume by around 30% due to demand increase mainly in American market. Also, the upturn of the Asian economy in 1999 has pushed up our hydrocarbon resin sales in that area. Though the total sales volume increase in 1999 was significant, it came from only the growth of overseas markets; then high value of yen and drastic price increase of raw materials influenced the profitability of our business. Zeon Chemicals Thailand Future Prospects: SIS demand will continue to increase mainly in advanced countries even for next decade. On the other hand, main market growth of hydrocarbon resins will emerge in Asia. However, as supply capacity of hydrocarbon resins in Asia is much bigger than the demand, tough competition among suppliers will continue for several years. Aliphatic hydrocabon resin for use in traffic paints Zeon Corporation Annual Report

8 C5 Business Specialty Chemicals Perfumes using synthetic aroma chemicals Toiletry products and detergents using synthetic aroma chemicals Background: We began research and development in synthetic aroma chemicals about twenty years ago to improve the Company s comprehensive utilization of C5 fraction, and completed the construction of the synthetic aroma chemicals facility at the Mizushima Plant and the marketing of synthetic aroma chemicals in the early 1980s. Thereafter, we added the production of intermediates used in pharmaceutical and agricultural materials and various other industrial chemicals. With this successful business expansion, the Specialty Chemicals Division was spun off as an independent operation from the Specialty Chemicals Department of the Chemicals Division in July At present, synthetic aroma chemicals are the core business of the Specialty Chemicals Division, with more than 30 varieties produced and sold. Green Notes, with its sense of freshness, and Jasmine Notes are both notably successful. Leaf Alcohol, an especially popular green aroma, is produced from 2-Butyn in C5 fraction and used for fragrance and flavor. We are the world s largest producer of Leaf Alcohol, meeting more than half of the global demand. We also rank second in the world market for methyl-dihydrojasmonate, which enjoys strong demand as a fragrance in such products as perfumes, hair shampoos, and hair conditioners, with the Jasmine Notes product line. We maintain business ties with the top ten flavor and fragrance houses in the world and have established a worldwide presence as a synthetic aroma manufacturer. Current Status: Sales in the Specialty Chemicals Division, with exports accounting 80%, increased more than 10% from the previous term despite the sharp appreciation of Japanese yen against other currencies. Sales of the main products, synthetic aroma chemicals, grew at healthy rate Green Notes chemicals such as cis-3-hexenol and cis-3-hexenyl Salicylate in particular as the demand from multinational flavor and fragrance houses and aroma compounders has recovered since the sluggish period in late Sale of specialty chemicals, cyclopentanone, cyclopentane and cyclopentene (as raw materials and intermediates for agrochemicals), industrial chemicals and aroma chemicals was flat in value from the previous term, while the sales volume increased 10% as a result of additional sales in new applications. Sales of specialty chemicals as raw material and intermediates for pharmaceuticals increased significantly as the end use products entered several clinical trials. Future Prospects: Products handled by this division tend to target niche markets but focus on the creation of new demand and the attainment of world recognition as the top products in their categories. Therefore, although the start-up of demand takes time, demand for several key products has already showed signs of growth requiring increased investment in production capacity. In order to meet the increased demand for specialty chemicals, we have already expanded production capacities for synthetic aroma chemicals and will continue to do so, if necessary. 6 Zeon Corporation Annual Report 2000

9 Information, The Environment, and Health Information Highly Functional Resin Cyclo-olefin Polymer We developed optical resins (hydrogenated cyclo-olefin polymer under the trademark Zeonex) and started operating production facilities in Mizushima in November 1990 with an annual capacity of 1,000 tons. To meet the increasing demand, Nippon Zeon completed additional facilities to support an annual production of 2,000 tons in November In 1996, we received the Chemical Technology Prize from The Chemical Society of Japan for providing useful new optical transparent plastics in the optical parts market. The raw material for this resin is DCPD, yet another of the many materials extracted from C5 fraction. The resin is used in the production of optical parts in place of glass, and takes advantage of such features as high optical reliability, utilizing special features such as low water absorbency, heat resistance, a low optical distortion property, and minute moldability, which are not found in conventional resins such as methacrylate resins and polycarbonates. It has been very well-received for uses in various types of precision optical parts, including optical lenses, prisms, optical cells, and optical films. Since it contains fewer impurities and is readily incinerated for disposal (unlike glass), it is therefore useful for such products as medicine containers and medical syringes. Significant growth is expected in the medical market. In addition, we plan to diversify its application as a new plastic material for electronic high-frequency parts utilizing a high electric insulation property and highdensity information recording media such as DVDs. In the fall of 1998, Zeonor, a new cyclo-olefin polymer products family, was introduced to target a larger market base. Several grades of Zeonor are available to meet a broader range of heat resistance and impact strength requirements. The applications being developed are parts for automotive lamps, LCD light guide plate/back light film, various optical sheets, pharmaceutical PTP film; many of them are already in commercial use. Plant capacity was increased to 5,000 tons from 3,000 tons in April, 2000 to meet the growth. Health Business sales ZEONOR light guide plate ZEORORA-H won Japan Chemical Technological Award and Environmental Technology Award ZEONEX optical lenses and prisms Zeon Corporation Annual Report

10 Information, The Environment, and Health Printer for personal computers applying polymerized toner Electronic Chemicals In the electronic chemicals business, the Company manufactures and distributes various resists and developers which are used in the production of semiconductors and LCDs. Electron-beam resists, which have been adopted for application in high-tech masks, are registering a steady growth in sales. In addition, they have been adopted by the largest manufacturer of EB-writers as their standard resists. Chemically amplified EB resists are highly promising in their application to System LSI and precision processing of ASICs (Application Specific Integrated Circuit). Zeorora ZFL-58 has been adopted in the advanced semiconductor field as an etchant which provides high selectivity for precision processing. At the same time, fluorinated cyclopentane, Zeorora H, has been launched and is noted for its zero-depletion potential and short atmospheric life span. Zeorora H was granted the 1998 Stratospheric Ozone Protection Award by the U.S. Environmental Protection Agency. In the LCD field, which is growing markedly, LCD resists exhibited strong sales growth, especially in South Korea, Taiwan, and China. Imaging Materials In the imaging materials business, the Company manufactures and distributes toners for printers/copiers and the binder resins which are used in production of magnetic tapes such as video and audio cassette tapes. As for the toner business, in 1993 we launched a polymerized toner for the first time in the world, followed in March 1998 by the introduction of an encapsulated, lowtemperature fusing toner which utilized polymerizing technology. This lowtemperature fusing toner brings significant energy- and resource-saving effects by reducing fusing-to-paper temperature by nearly 30 C compared to conventional pulverized toners, while enabling speedier printing. The superb properties of the new product have boosted its sales to buoyant levels. At present, development of superlow-temperature fusing toner, which will lower the fusing temperature even further, is under way as part of the Company s R&D efforts. Our ultimate goal in this business is to develop more environmentally friendly toners which enable even higher-speed printing, while tapping new markets.in June 2000, production capacity of polymerized toner at a manufacturing plant located within Tokuyama Plant was increased to 1,500 tons, from its existing capacity of 1,000 tons. In binder resins for magnetic tapes, the Company has the top share of the worldwide market. Since magnetic tapes are mature products, with no significant change in demand, sales volume and amount have remained at relatively stable levels. 8 Zeon Corporation Annual Report 2000

11 The Environment Environmental Materials Our business in this area involves the following four environmental materials: 1. Landscaping materials: Artificial plastic logs utilizing recycled plastics have become popular landscaping materials in parks and other outdoor recreational facilities. Sales expansion has also resulted from a series of advanced products, such as bridges, decks, and pavilions, in addition to traditional products such as fences and stairs. Furthermore, a new product which utilizes recycled plastics is in the pipeline, with a launch scheduled for fiscal Civil engineering materials: This represents perhaps the most important of the four areas in this business division. Geotextile materials for waste disposal, road construction, and harbor facilities are not only marketed as separate materials but also as components of complete systems. Soil reinforcement materials and drainage materials, also benefiting from consistent demand, contributed to sales expansion. In addition to geotextile materials, we also sell such civil engineering materials as lightweight slope protection frames using recycled plastics like artificial plastic logs and sheets. 3. Park materials: Sales of various types of public toilets, which were released in 1996, increased rapidly, and they can be expected to reach sales of four hundred million yen this fiscal year. Moreover, as a part of our ongoing efforts to shore up our park materials lineup, we will begin distribution of playing facilities/goods manufactured by Kompan Playscape Inc. of Denmark, in order to help sales growth in this business. 4. Road materials: We sell asphalt modifiers (synthetic rubber latices, SIS, SBS) as road materials. Growth in the demand remains at the same level as in the previous term. Though from some perspectives, the economy bottomed out in 1999, and given Japan s continued economic problems partly due to the deteriorating financial positions of local governments we cannot be optimistic. However, investment in environmental improvement is a social requirement and demand is very strong in particular for new waste disposal facilities for waste management. Therefore, we anticipate expanded sales of construction materials for these facilities. The Company plans to aggressively introduce new products to markets, such as wall surface materials utilizing thinned woods and systems using construction materials that facilitate the percolation of rainwater underground. Sales of improved artificial plastic log products will also begin. Therefore, the Company aims to exceed last year s sales amounts. Promenade applying artificial plastic logs and boards Geo-textile materials used for reinforcement of artificial river bank in Yamaguchi Zeon Corporation Annual Report

12 Information, The Environment, and Health RIM Products Sink basin Background: In 1989, the Company developed a RIM method manufacturing technology for large molding products with BF Goodrich Chemicals Co. of the United States, using dicyclopentadiene (DCPD) as a raw material. Based on this technology, the Company launched a plastic moldings business. An integrated system has been established, extending from raw materials to manufacturing molding products. The compound, a raw material for molding products, and finished molding products have been sold under the brand name PENTAM, driving expansion in this business year after year. The Company s molding products feature: (1) large and complex molding, made possible by low viscosity, pressure and temperature; and (2) mechanical strength, impact resistance and heat resistance similar to those of general-purpose engineering plastics. Therefore, we intend to expand the applications of these products in the place of steel plates, castings, and fiber reinforced plastics (FRP). Main applications include exterior construction and agricultural equipment parts, construction materials, combined septic tanks for sewage, housing equipment, and medical equipment. Current Status: Sales were 125% over the previous year, although ordinary profit did not meet our goal of rising into the black. Based on the possible ending of the market trend toward new installation of singleunit septic tanks that only treat toilet sewage, the Company planned to expand sales of combined septic tanks for sewage that treat both toilet and domestic sewage. However, the actual impact of the trend was not as strong as expected; although sales were 120% over the previous year, the target set at the beginning of the year was not achieved. From the second half of the year, products related to new housing equipment applications, including bathtub pans and sink basins, picked up and have been growing as the pillar of future business development, while new user sales have been consistently growing. Future Prospects: The sales target of the current fiscal year is more than 130% over the previous fiscal year, including the achievement of profitability in ordinary profits. Although the Building Standards Act was amended on June 1, 2000, the new installation of single-unit septic tanks will be suspended for most areas after January Consequently, demand will surely increase after the second half of While 29% of customers could be expected to switch to PENTAM for fiscal 1999, on an actual basis in the domestic market for combined septic tanks, our goal for fiscal 2000 is an increase of 44%. Combined septic tanks 10 Zeon Corporation Annual Report 2000

13 We anticipate expanding sales of housing equipment-related products for fiscal year 2000 to continue from the previous fiscal term. The Company will concentrate its efforts on constructing a foundation for stable earnings by mobilizing the Company s full ability to obtain new users and to aggressively develop new technology, while also undertaking measures to widen the range of applications to new housing equipment product categories. In the mid to long-term, the Company will aggressively enlarge applications to new areas and investments, focusing on expanding sales of combined septic tanks for sewage and housing equipment-related products. Success these efforts will enable the Company to achieve, at an early stage, sales of 10 billion, a reasonable scale of business. Health Medical Equipment A strong medical device product line under the Xemex brand name has been released into the market. Our ventricular assist device, the first officially approved unit in the world, is a ground breaking product representing an integration of diverse technologies, involving material processing technology, fluid technology, and electric technology, as well as original antithrombotic technology. We are currently expanding our sales by concentrating on cardiovascular and digestive endoscopic devices. This year we have launched new devices into the market, the new IABP (Intra-Aortic Balloon Pumping) balloon which we minimized a catheter with the world s smallest diameter, the new IABP driving console 908, and the next generation bipolar polypectomy snare B-Wave. At the same time, we have started OEM production of PTCA (Percutaneous Transluminal Coronary Angioplasty) catheters. These are now well reputed in the market and are contributing to the growth of our medical business. Our sales revenue went up 8% versus the previous year and started to create a profit on a regular basis. We will strengthen our R&D activities and production facilities and continue to expand our business lines. PTCA catheter Zeon Corporation Annual Report

14 Others Withdrawal from Polyvinyl Chloride Resin Business Other Business sales In the polyvinyl chloride resin business, the Company decided last year to reduce its percentage of equity in the Shin Dai-ichi Vinyl Corporation (ZEST) to 14.5% on March 31, 2000 and to transfer its controlling stake to Tokuyama Co., Ltd. At the same time, we suspended the operations of our subsidiary, Sanyo Monomer Co., Ltd. (55% interest), a manufacturer of vinyl chloride monomer, the as a main raw material for polyvinyl chloride resin. As a result, the Company withdrew from the polyvinyl chloride resin business that had served as the Company s core business line since the Company s founding. Hereafter, the Company will consign operations to ZEST s specialty polyvinyl resin plant (annual production capacity: 65,000 tons), that has remained in the Company s Takaoka Plant, and will work to reduce costs associated with this line of business. For the polyvinyl chloride resin business, the Company has supported ZEST with an annual subsidy of 1.2 to 1.4 billion since it was established in July A loss of about 0.5 billion caused by Sanyo Monomer s dissolution carries over into fiscal year However, the fact that the Company is not required to bear any burden after 2001 will greatly improve the Company s future performance. Business Performance of Other Divisions for Year ended March 31, 2000 For the polyvinyl chloride resin business, with favorable progress in the recovery of domestic and overseas sales of vinyl chloride monomer, sales considerably exceeded the result of the previous term. Technological sales, including the supply and support of technology, decreased from the previous term. For other products handled by domestic subsidiaries, including packaging and logistics materials, sales were not favorable due to the sluggish domestic economy. In summary, the business performance of this division resulted in sales of billion (a 4.8% increase over the previous term) and an operating profit of billion (an increase of billion). For the division s performance for the year ended March 2001, we project sales of 49.7 billion and operating profit of 0.65 billion. 12 Zeon Corporation Annual Report 2000

15 Research and Development Organization and Function: Nippon Zeon undertakes research and development worldwide and allocates one R&D Center and two Laboratories in Japan, two laboratories in U.S. and one Technical Service Laboratory in U.K.; in China research is assigned regionally. Under the corporate philosophy for research and development, around 400 employees collaborate closely and form a global R&D network. Research and Progress in 1999: 1. R&D Center: As a part of the C5 fraction utilization strategy, a new cyclo-olefin polymer (COP), ZEONOR series, has been developed, in addition to its existing ZEONEX family. ZEONOR was appointed to a light guide plate for TFT liquid crystal display, extension of head lamp parts for automobile and other products. To cope with the strong demand, the production capacity increased to 5,000 tons per annum on April Another exciting milestone was the successful development of low-temperature fixing toner which was achieved by originally developed polymerization toner technology and the production capacity increased to 1,500 tons from 1,000 tons per annum on June Other new products from R&D, fluorinated cyclopentane (Zeorora H) and cyclopentene (Zeorora ZFL-58), are now in the commercialization stage. Zeorora H was appointed as a cleaning agent and Zeorora ZFL-58 was appointed as etching gas for next generation semiconductors. The development and industrization of these materials received the Environmental Technology Award from Japan Chemical Industry Association in Zeon Medical Laboratory: As the center piece in the field of health in Nippon Zeon, medical products are developed at this Laboratory. In the field of circulatory organ catheters, a wide variety of products, including PTCA and IABP catheters has been put on the market; in the field of digestive and nutritional catheters, a next generation product of snare was successfully developed and commercialized. 3. Zeon Kasei Kawasaki Laboratory: Molding materials, wooden powder compounds with a wooden-like feel for interior decoration were developed. Other functional materials, ultraviolet catalysts and deodorants have been developed and applied to equipment to maintain the degree of freshness for crops and textile applications for underwater and stockings. 4. Overseas R&D Activities: The Zeon Chemicals Limited Partnership Laboratory (U.S.) and the European Technical Service Laboratory (U.K.) have been promoting the breed improvement and development of compounding technology for special rubbers such as NBR in collaboration with the R&D Center in Japan. Zeon Chemical L.P. R&D Center Future Prospects: The R&D Group continues to provide strong support to existing businesses and leads the way into new product and technology development activities. One example is a new wave of metallocene catalysts which are extensively influencing polymer industries. We are focusing on this subject in collaboration with academia and governmental institutions. Another example is genetically engineered chicken vaccines. Approval by the U.S. Department of Agriculture (USDA) of at least three new recombinant vaccines is expected in Zeon Corporation Annual Report

16 The Future of Nippon Zeon New corporate logo Nippon Zeon marked its 50th anniversary on April 12, We are deeply grateful for the support and encouragement of our shareholders which made the achievement of this milestone possible. Although we had initially wanted to hold a large-scale celebration, the severe impact of an unexpectedly steep increase in crude oil and naphtha prices along with the appreciation of the yen forced us to regretfully curtail our plans. In the previous term, we withdrew from the polyvinyl chloride resin business, which had served as a core business since the establishment of the Company, and we were at last freed from the restraint of a business that had been showing annual losses. Some residual loss from leaving this business will persist in fiscal 2000, but the fact that there will be no such loss after fiscal 2001 should contribute to improved performance. On the other hand, the Company purchased the NBR specialty rubber businesses from DSM Copolymer, Inc. and The Goodyear Tire & Rubber Company and attained the longsought goal to achieve the dominant position in the world market for specialty synthetic rubber, which can now be confidently identified as the core business for the Company. Nevertheless, we will need to establish additional new core businesses, which we now see emerging from comprehensive C5 utilization. Of likely candidates, the strongest appears to be highly functional resin cyclo-olefin polymer (COP) for the information, environmental materials, and health businesses. We plan to aggressively develop COP as a core business for the 21st century with the expectation that it will help jump-start improved performance for the entire Zeon Group. Other businesses have also shown promise in the information, environmental materials, and health fields. In the information-related business, the world s leading semiconductor makers began volume use of Zeorora ZFL-58, fluorinated C5 as a dry etching gas for advanced semiconductor production, such as high-integrated DRAMs, system LSI, logic circuits, and flash memory. Sales are expected to continue to grow. Sales of polymerized toner related to information industries are also expected to exhibit continued growth in the current term, with profitable results in ordinary income. For environment-related DCPD-RIM moldings, applications such as combined septic tanks for sewage and housing equipment are likely to expand further, and ordinary income for the current term is expected to rise into the black. For the healthrelated medical equipment business, ordinary income achieved profits in the previous term and this should increase after the current term with the anticipated growth in sales of IABP and PTCA catheters. For the next term, we project sales of billion, an increase of billion over the previous term, and ordinary profit of 7.4 billion, an increase of billion. Fiscal 2000, as the 50th anniversary of the Company, represents a genuinely new era for Zeon, a time for shedding old clothing and adopting a new appearance. To commemorate this moment, a new Company logo has been designed. And since we have determined that the current Company name, Nippon Zeon Co., Ltd., does not adequately convey the global scope of our business, as of June 29, 2000, our new corporate name is Zeon Corporation. The Company will work out a five-year program starting in fiscal 2000 to further pursue the accomplishment of its goals. We hope that you share with us the high expectations of new growth and progress signaled by the rebirth of Zeon as we step forward into the next fifty years. 14 Zeon Corporation Annual Report 2000

17 Consolidated Financial Statements Consolidated Balance Sheets At March 31, 2000 and 1999 (Note 3) Assets Current Assets: Cash and cash equivalents... 11,704 13,602 $ 110,259 $ 128,139 Short-term investments , Marketable securities (Notes 7 and 15)... 18,617 25, , ,728 Receivables, trade: Notes and accounts... 44,826 39, , ,703 Unconsolidated subsidiaries and affiliates... 4,342 8,346 40,904 78,625 Inventories (Note 4)... 31,995 32, , ,461 Deferred tax assets (Note 12)... 1,474 13,886 Other current assets... 12,072 12, , ,906 Allowance for doubtful accounts... (530) (301) (4,993) (2,836) Total current assets , ,394 1,177,579 1,247,235 Property, Plant and Equipment, at Cost (Notes 7 and 9): Land... 10,987 10, , ,622 Buildings and structures... 35,983 35, , ,911 Machinery and equipment , ,433 1,424,673 1,360,650 Construction in progress... 4,192 9,817 39,491 92, , ,951 1,906,651 1,883,665 Less accumulated depreciation... (126,624) (120,435) (1,192,878) (1,134,574) Property, plant and equipment, net... 75,767 79, , ,091 Investments and Long-Term Loans (Note 5): Unconsolidated subsidiaries and affiliates... 4,534 4,486 42,713 42,261 Deferred tax assets (Note 12) ,702 Other (Note 15)... 6,907 6,826 65,069 64,305 Allowance for doubtful accounts... (465) (295) (4,381) (2,779) Total investments and long-term loans... 11,369 11, , ,787 Intangible assets (Note 9)... 6,084 1,625 57,315 15,309 Deferred charges (Notes 6 and 9) ,276 8,253 12,021 Foreign currency translation adjustments... 3,605 2,061 33,961 19,415 Total assets , ,889 $ 2,097,984 $ 2,146,858 Zeon Corporation Annual Report

18 Consolidated Balance Sheets (continued) At March 31, 2000 and 1999 (Note 3) Liabilities, minority interests and Shareholders Equity Current Liabilities: Short-term loans payable (Note 7)... 37,296 42,391 $ 351,352 $ 399,350 Current portion of long-term debt (Note 7)... 7,414 9,253 69,845 87,169 Commercial paper... 8,000 75,365 Payables, trade: Notes and accounts... 33,424 29, , ,119 Unconsolidated subsidiaries and affiliates... 3,309 4,163 31,173 39,218 Payables, other... 2,847 3,442 26,821 32,426 Accrued income taxes... 2,319 2,045 21,846 19,265 Accrued expenses... 3,566 3,102 33,594 29,223 Other current liabilities... 1,364 4,953 12,849 46,660 Total current liabilities... 99,539 98, , ,430 Long-Term Liabilities: Long-term debt (Note 7)... 51,445 59, , ,763 Deferred tax liabilities (Note 12)... 1,842 17,353 Other long-term liabilities... 1, ,071 8,026 Accrued severance indemnities (Note 11)... 4,695 4,954 44,230 46,670 Total long-term liabilities... 59,051 65, , ,459 Minority interests ,196 5,360 Contingent liabilities (Note 13) Shareholders Equity: Common stock: Authorized 800,000,000 shares Issued 242,075,556 shares... 24,211 24, , ,083 Capital surplus... 18,336 18, , ,737 Retained earnings... 21,437 20, , ,789 Treasury stock, at cost: shares... (0) (0) shares... (0) (0) Total shareholders equity... 63,984 63, , ,609 Total liabilities, minority interests and shareholders equity , ,889 $2,097,984 $2,146,858 See accompanying notes to consolidated financial statements. 16 Zeon Corporation Annual Report 2000

19 Consolidated Statements of Income For the years ended March 31, 2000 and 1999 (Note 3) Net sales , ,453 $1,632,237 $1,605,775 Cost of sales , ,012 1,191,493 1,149,430 Gross profit... 46,785 48, , ,345 Selling, general and administrative expenses (Note 10)... 37,421 35, , ,912 Operating income... 9,364 12,784 88, ,433 Other income (expenses): Interest and dividend income ,191 6,020 Interest expense... (2,423) (2,917) (22,826) (27,480) Equity in losses of unconsolidated subsidiaries and affiliates, net... (552) (834) (5,200) (7,857) Other, net (Note 17)... (2,903) (2,040) (27,349) (19,218) (5,327) (5,152) (50,184) (48,535) Income before income taxes and minority interests... 4,037 7,632 38,031 71,898 Income taxes current... 3,342 3,388 31,484 31,917 Income taxes deferred... (943) (8,884) Income before minority interests... 1,638 4,244 15,431 39,981 Minority interests in net loss (income) of consolidated subsidiaries (10) 2,789 (94) Net income... 1,934 4,234 $ 18,220 $ 39,887 Yen U.S. dollars(note 2) Amounts per share: Net income: No dilution $ 0.08 $ 0.16 Cash dividends See accompanying notes to consolidated financial statements. Zeon Corporation Annual Report

20 Consolidated Statements of Shareholders Equity For the years ended March 31, 2000 and 1999 Thousands Number of Shares of Common Common Capital Retained Treasury Stock Stock Surplus Earnings Stock Balance at March 31, ,076 24,211 18,336 18,423 (0) Increase due to merger with non-consolidated subsidiaries Increase due to additions to consolidated subsidiaries and affiliates under the equity method.. 67 Net income for the year... 4,234 Decrease due to additions to consolidated subsidiaries and affiliates under the equity method.. (701) Decrease due to merger with non-consolidated subsidiaries... (22) Cash dividends paid... (1,210) Bonuses to directors and statutory auditors... (40) Balance at March 31, ,076 24,211 18,336 20,783 (0) Adjustment for the adoption of deferred income tax accounting... (364) Increase due to reduction from affiliates under the equity method Net income for the year... 1,934 Decrease due to additions to consolidated subsidiaries and affiliates under the equity method... (3) Cash dividends paid... (1,210) Bonuses to directors and statutory auditors... (40) Balance at March 31, ,076 24,211 18,336 24,437 (0) (Note 3) Common Capital Retained Treasury Stock Surplus Earnings Stock Balance at March 31, $228,083 $172,737 $1,473,556 $ (0) Increase due to merger with non-consolidated subsidiaries Increase due to additions to consolidated subsidiaries and affiliates under the equity method Net income for the year... 39,887 Decrease due to additions to consolidated subsidiaries and affiliates under the equity method... (6,604) Decrease due to merger with non-consolidated subsidiaries... (207) Cash dividends paid... (11,399) Bonuses to directors and statutory auditors... (377) Balance at March 31, , , ,789 (0) Adjustment for the adoption of deferred income tax accounting... (3,429) Increase due to reduction from affiliates under the equity method... 3,174 Net income for the year... 18,220 Decrease due to additions to consolidated subsidiaries and affiliates under the equity method... (28) Cash dividends paid... (11,399) Bonuses to directors and statutory auditors... (377) Balance at March 31, $228,083 $172,737 $ 201,950 $ (0) See notes to consolidated financial statements. 18 Zeon Corporation Annual Report 2000

21 Consolidated Statements of Cash Flows For the years ended March 31, 2000 and 1999 (Note 3) Cash Flows from Operating Activities Income before income taxes and minority interests... 4,037 7,632 $ 38,031 $ 71,898 Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization... 10,657 9, ,396 92,200 Increase in provision for doubtful debts , Increase (decrease) in provision for severance indemnities... (220) 717 (2,073) 6,756 Decrease in other provisions ,771 Interest and dividend income... (551) (639) (5,191) (6,020) Interest charges... 2,423 2,917 22,826 27,480 Equity in losses of unconsolidated subsidiaries and affiliates, net ,200 7,857 Gain on sales of property, plant and equipment... (361) (2) (3,401) (19) Loss on disposal of property, plant and equipment ,312 3,184 Gain on sales of marketable securities and investment securities. (1,629) (527) (15,346) (4,965) Loss on devaluation of marketable securities and investment securities ,434 3,853 13,509 Decrease (increase) in receivables, trade... (2,283) 3,367 (21,507) 31,719 Decrease (increase) in inventories... (780) 1,341 (7,348) 12,633 Increase (decrease) in payables, trade... 4,561 (7,698) 42,967 (72,520) Other, net... (176) (3,417) (1,656) (32,191) Cash generated from operations... 17,727 16, , ,206 Interest and dividends received ,200 6,020 Interest paid... (2,454) (2,811) (23,119) (26,481) Income taxes paid... (1,996) (4,600) (18,804) (43,335) Net cash provided by operating activities... 13,829 9, ,277 90,410 Cash Flows from Investing Activities Decrease in time deposits... 4,000 37,682 Purchase of marketable securities... (14,823) (86,008) (139,642) (810,250) Proceeds from sales of marketable securities... 17,148 80, , ,346 Purchase of property, plant and equipment... (9,429) (13,319) (88,827) (125,473) Proceeds from sales of property, plant and equipment ,550 7,376 Purchase of intangible asset... (5,037) (573) (47,452) (5,398) Increase in loans receivable... (1,412) (13,302) Other, net... (103) (1,298) (969) (12,228) Net cash used in investing activities... (9,173) (19,492) (86,415) (183,627) Cash Flows from Financial Activities Increase (decrease) in short-term borrowings... (6,791) 2,656 (63,976) 25,021 Proceeds from long-term debt... 1,987 19,407 18, ,826 Repayment of long-term debt... (4,124) (11,597) (38,851) (109,251) Increase in straight bonds... 10,000 94,206 Redemption of straight bonds... (4,000) (6,000) (37,683) (56,524) Increase in commercial paper... 8,000 75,365 Dividends paid... (1,216) (1,210) (11,455) (11,399) Other, net... (226) (2,463) (2,128) (23,202) Net cash provided by used in financing activities... (6,370) 10,793 (60,009) 101,677 Effect of exchange rate changes on cash and cash equivalents... (263) 3 (2,478) 28 Net increase (decrease) in cash and cash equivalents... (1,977) 901 (18,625) 8,488 Increase in cash due to additions to consolidated subsidiaries ,098 Cash and cash equivalents at beginning of year... 13,602 12, , ,553 Cash and cash equivalents at end of year... 11,704 13,602 $110,259 $ 128,139 See notes to consolidated financial statements. Zeon Corporation Annual Report