p2-22 · 08 review of operations 18 research and development 20 main subsidiaries and affiliates...

For the year ended March 31, 2001

ANNUAL REPORT2001

2 Mitsubishi Materials Corporation Annual Report 2001

Established in 1950, Mitsubishi Materials Corporation is one of theworld’s largest diversified materials companies. In addition to beinga leader in metal smelting and refining, cement and fabricatedmetals—notably aluminum cans—Mitsubishi Materials is alsoa major supplier of silicon products and advanced materials.

The Company’s high-level research and development programsare instrumental in enabling it to maintain its dominant positionin key markets.

Mitsubishi Materials comprises 391 subsidiaries and affiliates in19 countries, employing 24,876 people.

CONTENTS

02 A Message from the Management

06 Topics

08 Review of Operations

18 Research and Development

20 Main Subsidiaries and Affiliates

22 Board of Directors, Executive Officers and Corporate Auditors

23 Financial Section

60 International Network

61 Corporate Data and Investor Information

From its beginnings as a developer of resources andproducer of base metals, precious metals and coal,Mitsubishi Materials has evolved into a leading namein fabricated metals, silicon products, advancedmaterials, cement and a variety of other cutting-edgeproducts and services.

Cautionary Statement with Respect to Forward-Looking Statements

Statements made in this annual report with respect to Mitsubishi Materials’ plans, strategies andbeliefs, and other statements that are not historical facts, are forward-looking statements aboutthe future performance of Mitsubishi Materials, which are based on management’s assumptionsand beliefs in light of the information currently available to it, and involve risks and uncertain-ties. Potential risks and uncertainties include, without limitation, general economic conditionsin Mitsubishi Materials’ markets, industrial market conditions; exchange rates, particularlybetween the yen and the U.S. dollar, and other currencies in which Mitsubishi Materials makessignificant sales or in which Mitsubishi Materials’ assets and liabilities are denominated; andMitsubishi Materials’ ability to continue to win acceptance of its products and services, whichare offered in highly competitive markets characterized by continual new product introductions,rapid developments in technology and changing customer preferences.

Profile Mitsubishi Materials at a Glance

Silicon and Advanced MaterialsFabricated Metal ProductsNonferrous MetalsCementEnergy- and Environment-Related Operations and Others

Silicon and Advanced MaterialsFabricated Metal ProductsNonferrous MetalsCementEnergy- and Environment-Related Operations and Others

200120001999

986.9983.8

0

250

500

750

1,000

1,250

200120001999

31.5

70.3

18.9

-20

0

20

40

60

80

Sales by Segment

(Billions of yen)

Operating Profit by Segment

(Billions of yen)

1,144.1

3Mitsubishi Materials Corporation Annual Report 2001

Silicon wafers ¥98.0

Polycrystalline siliconand others 5.8

Advanced materials 57.2

Silicon andAdvanced Materials

Mitsubishi Materialssupplies products in thissegment to the electronicequipment, semiconductorand telecommunicationsindustries.

FabricatedMetal Products

The principal customersfor products in this segmentare manufacturers of auto-mobiles, electronic compo-nents, consumer electronicsproducts, building productsfor the housing industryand machine tools.

NonferrousMetals

Nonferrous metals are soldto manufacturers of electriccable and wire, rolledcopper products, storagebatteries and photographicfilm, as well as to jewelers.

Cement

Mitsubishi Materialsproduces a wide range ofspecialty cements andbuilding materials forcompanies in the construc-tion and civil engineeringindustries.

Energy- andEnvironment-RelatedOperations and OthersThis segment encompassesa broad range of energy-related and environmentalbusinesses, including powergeneration, the sale of fossilfuels, pollution preventionand resource recycling. Thissegment’s principal customersare electric power companies.

¥160.9 billion ¥374.6 billion ¥222.6 billion ¥185.8 billion ¥200.2 billion

14.1%32.7%

19.5% 16.2% 17.5%

● Cutting tools● Powder metallurgical

machine parts and sleevebearings

● Precision molding dies● Copper cakes, billets, wire

and tubes● High-performance alloys● Industrial machinery,

Precision cast products● Aluminum beverage cans● Electrical contacts,

Micromotors

● Copper● Gold● Lead● Zinc● Silver● Zinc die-casting alloys● Sulfuric acid

● Portland cement● Blended cement● Soil stabilizing cement● Building materials

● Ecobusiness● Fossil fuels● Nuclear energy-related

services● Hydroelectric and

geothermal powergeneration

● Real estate

Hard-metal productsand diamond tools ¥044.3

Powder metallurgy,molding dies andmotors 34.0

Copper alloy products,high-performance alloyproducts 57.5

Aluminum products 153.0

Others 85.8

Copper ¥80.7

Gold 60.8

Other nonferrous metals 81.1

● Silicon wafers● Polycrystalline silicon● Ceramic condensers

and sensor chips● Gold bonding wires,

Sputtering targets● Quartz crucibles

CategorySales for Fiscal 2001(Billions of yen)

Major Productsand Services

Sales for Fiscal 2001

Segment



In fiscal 2001, ended March 31, 2001, Mitsubishi Materials

celebrated its first decade since its formation through the

December 1990 merger of Mitsubishi Metal Corporation and

Mitsubishi Mining & Cement Co. Ltd. During the year under

review, the Company strengthened its fundamentals by estab-

lishing a consolidated operating structure and making overall

management more nimble. We greatly improved our results in

fiscal 2001 owing to concerted Groupwide efforts in past years

to reinforce the basics through policies designed to immediately

improve performance and combat new challenges.

The Mitsubishi Materials Group is globally diversified,

with operations ranging from materials to electronics and

information-related parts. Our strengths are the excellent

management resources that we have accumulated through our

strong technologies, production, sales, development and

management capabilities, outstanding human resources and the

trust of customers that are leaders in their industries. We

believe that our Group assets of diversity and our combination

of nine in-house companies are crucial to maintaining stable

revenues and earnings. In each of our core businesses, our oper-

ating divisions function as powerful as their autonomous com-

petitors in terms of the scope of their operations. We are

convinced that we can deliver management efficiency through a

diverse business portfolio in which each division ranks first or

second in its sector.

That said, we readily acknowledge that profitability should

be higher and interest-bearing debt should be less given the

scale of Group total assets and employees. As we overhaul our

operating resources and respond to society’s shift toward recy-

cling and advanced information networks, we are pursuing

selective concentration. At the same time, we are strengthening

our financial position to ensure that our core businesses cham-

pion dynamism and speed. To those ends, we formulated a new

medium-term management plan, which aims to bolster

profitability. We detail this plan on page six.

The Mitsubishi Materials Group is heading into a new era

through its medium-term management plan by revamping its

management framework, meeting new challenges and transforming

itself into a group of companies that can anticipate change.

Operating Environment and Results

In the first half of fiscal 2001, the Japanese economy continued

to improve mildly as the private sector showed signs of

recovery. From fall 2000, however, the economy headed into

recession owing to a slump in information and communica-

tions capital expenditure, which had driven growth, and a

downturn in the U.S. economy.

The Mitsubishi Materials Group drew on a recovery in

private-sector demand for information technology-related

products to enjoy solid sales to semiconductor, appliance and

automobile manufacturers and performed generally well despite

a second half decline in demand from some sectors.

Against this economic backdrop, fiscal 2001 consolidated

net sales jumped 15.9%, to ¥1,144.1 billion.

Operating profit rocketed 141.8%, to ¥65.8 billion. This

reflected ongoing efforts to constrain personnel expenses, cut

overall costs and increase the processing of industrial waste.

We also attribute this improvement to selective concentration

policies through which we liquidate or rebuild unprofitable

operations and form alliances with other companies.

We registered ¥34.3 billion in gains from the establishment

of a retirement benefits trust and from sales of marketable secu-

rities and property. At the same time, we recorded ¥52.8 billion

in losses on amortization on the unfunded portion of our

retirement pension plan owing to the adoption of new retire-

ment benefit accounting standards and on withdrawals from

unprofitable consolidated operations as part of restructuring

efforts. Consequently, net income was ¥7.1 billion, compared

with a ¥12.1 billion net loss in fiscal 2000.

We authorized a dividend of ¥3.0 per share, from ¥1.5

a year earlier.

A Message from the Management



Management Strategies

We have completed investments in large overseas projects as a

future source of profits and are now reaping the rewards. Our

focus has shifted to selecting new investments that improve

cash flow. We have reviewed and reallocated resources to fully

make use of Group advantages. At the same time, we have

invested in projects while divesting assets to ensure balanced

progress and slashing interest-bearing debt.

We will continue to strengthen consolidated and cash flow

management to further reduce interest-bearing debt and build

a healthy financial position.

Organizational and Systemic Reforms

We have pursued internal reforms to efficiently improve profit-

ability, overcome tough economic conditions and intensifying

global competition, ensure greater management efficiency and

accelerate decision-making. Examples include our launch of a

“company-within-a-company” system and our organizational

reinforcements for consolidated management. In June 2000, we

appointed a person from outside the Company to the Board of

Directors to enhance corporate governance. We also instituted

an executive officer system to clearly separate the formulation

and implementation of overall management strategies.


Akira NishikawaPresident

Yumi AkimotoChairman


In December 2000, we set up a Management Auditing

Department to strengthen oversight.

Each in-house company operates autonomously and pur-

sues numerical objectives bearing responsibilities. Because of

the need to ensure selective concentration in each business area,

we reviewed management resources and strengthened opera-

tions by better focusing their allocation. We are prepared to

form alliances, acquire other companies or withdraw from areas

where needed to strengthen the competitiveness of each division.

We are supporting our company-within-a-company system

by rigorously managing our business portfolio on a consolidated

basis while constructing a strong strategic headquarters

organization to oversee Group activities. We split headquarters

into one section that handles strategy and another that provides

administrative services as the corporate business division. This

approach is designed to help us implement speedy and dynamic

management strategies Groupwide. We will improve the quality

of back-office and services operations to support our strategies

and enhance their efficiency as part of an overall drive to create

a highly productive consolidated management structure based

on market principles.

At the same time, the corporate division’s roles will become

more important. The division must use information technology

to strengthen coordination and support for the entire Group. It

must also help strengthen consolidated management, enhance

back-office efficiency, and become more specialized. To that

end, in fiscal 2001 we appointed a Chief Intelligent Systems

Officer to integrate Group information systems. We are pursu-

ing setting up information systems through all sections of the

Company and also providing support to revitalize our organiza-

tion and human resources while strengthening our company-

within-a-company system to deliver overall synergies and build

comprehensive strength.

As for research and development activities, we are transfer-

ring development operations as far as possible to the divisions

to commercialize products that better meet market needs. This

should also enhance development speed and realize other

efficiencies. We will rebuild our research and development

structure to strengthen corporate development operations’ basic

and proprietary technologies and support the company-within-

a-company system.

Environmental Responsiveness

With global awareness of environmental issues increasing, it is

crucial for our future to address these issues. We have

appointed a Chief Green Officer to oversee Group responses in

that regard. We will pursue green productivity management as

part of corporate policy and enhance transparency by disclosing

our environmental impact and activities.


Yumi AkimotoChairman


Looking Ahead

In fiscal 2002, Japan will feel the impact of the U.S. economic

slowdown and slower domestic capital investment, which has

driven growth to date. Adding to these concerns, personal con-

sumption will likely remain sluggish. As a result, the economic

horizon is cloudy.

Our operating environment will be very challenging. The

outlooks for the foreign exchange markets and metals prices

are unclear. In addition, demand from the information, tele-

communications and semiconductor sectors has fallen since fall

2000, and we do not anticipate a recovery until the second half

of 2001. On top of that, we expect deflationary pressures to

increase in the construction and automotive sectors. We will

respond to this situation by implementing our medium-term

management plan to keep improving earnings. We have com-

pleted the reforms described earlier to put in place our consoli-

dated management fundamentals. We will pursue flexible and

speedy management to ensure that our fundamentals can

overcome all challenges.

Shareholder Focus

One of our top management priorities is to swiftly maximize

corporate value for our shareholders. As part of that focus, we

are building first-class operations, strengthening consolidated

and cash flow-oriented management, seeking further progress


Akira NishikawaPresident

through our company-within-a-company system and working

to slash interest-bearing debt.

We ask for your continued support and encouragement

as we strive to make Mitsubishi Materials an outstanding

company by creating clearer management strategies, enhancing

our financial position and ensuring more transparency for

our shareholders and investors.

June 29, 2001

Yumi Akimoto

Chairman

Akira Nishikawa

President


The three-year Revival Plan for Superior Group ofCompanies is Mitsubishi Materials’ first consolidatedmedium-term business plan. It paves the way to transformus into an outstanding enterprise.

VisionWe have three prime goals. The first is to harness our superiortechnological base to provide users with total solutions in mate-rials, parts, systems and services. The second is to establish ourfoundations for serving the needs of an advanced informationsociety by focusing on the information technology business. Atthe same time, we will ensure that our activities minimize en-vironmental impact and help society become recycling-oriented.Third, we want to leverage the synergies of our diverse Groupbusinesses to become a prominent group of companies in theglobal marketplace.

The basic strategy to reach the objectives of our plan is toimprove the profitability of each operating division, whichfunctions as an in-house company. Our chief advantages are thediversity and autonomy of these divisions and that they func-tion as vigorously as other competitors in the industriy in termsof scale and scope of their operations. We provide these divi-sions with complete authority for these businesses. In return,they must act like companies to pursue selective concentrationto respond quickly and accurately to their specific market re-quirements. We aim to maximize value as a complex by havingeach in-house company cultivate its core capabilities in its re-spective businesses and deliver profitability commensurate withan outstanding corporation.

ObjectivesTo Raise ProfitabilityWe aim to achieve ¥96.0 billion in consolidated operatingprofit, ¥75.0 billion in consolidated ordinary profit and a4.7% return on assets by fiscal 2004, respectively.

To Strengthen Financial PositionWe will strive to slash interest-bearing debt to ¥750.0 billionby fiscal 2004, representing less than half of total assets.

ReformsOur first priority is to establish a new management system by:• Cultivating our in-house company system• Setting up a strategic headquarters• Pursuing consolidated management• Reinforcing corporate governance

We are allocating resources to strengthen core operations andbuild new businesses by:• Fostering selective concentration among in-house companies• Focusing investments in information technology

and recycling• Solidifying our capabilities in information technology

and other strategic businesses by amassing and investingstrategic funds

• Making large overseas businesses profitable

We are reinforcing management at the operational level by:• Promoting total productivity management activities• Cultivating human resources

Divisional Management PoliciesOur basic policy is to encourage selective concentration amongin-house companies, as part of which we will allocate resourcesto areas in which we enjoy competitive advantages.

Revival Plan for Superior Group of Companies—Mitsubishi Materials’ Medium-TermBusiness Plan

Consolidated Financial TargetBillions of yen

For the year ended March 31, 2001 FY2001 FY2004and the year ending March 31, 2004 (Results) (Target)

Net sales ¥1,144.1 ¥1,223.0Operating profit 65.8 96.0Ordinary profit 36.9 75.0Net income 7.1 36.0

Topics


Mitsubishi Materials, with its wholly owned subsidiaryMitsubishi Materials Silicon Corporation (collectively“Mitsubishi”), and Sumitomo Metal Industries, Ltd.(“Sumitomo”), have agreed to fully merge their silicon waferand related operations on a 50–50 basis in January 2002.

In March 1999, Mitsubishi and Sumitomo agreed tojointly commercialize and manufacture 300-millimeter(12-inch) silicon wafers and, in July 1999, establishedSilicon United Manufacturing Corporation (SUMCO),which is currently building a plant that should start operationsin fall 2001.

Mitsubishi Materials andSumitomo Metal Industries to FullyMerge Silicon Wafer Operations

The partners decided to fully integrate their wafer busi-nesses so they can fully harness each other’s development andproduction capabilities and more efficiently allocate capitaland human resources to serve customers better.

The merger will consolidate domestic and overseaswafer operations and Mitsubishi’s quartz crucible businesseswithin a new joint venture.

Upon consolidation, the new joint company will endeavorto gain its position as the top manufacturer in the world, utiliz-ing its resources and broad know-how and synergistic efforts.

Mitsubishi Materials Corp.

(In Japan)Mitsubishi Materials Silicon Corp.Silicon Wafer Business

Chitose PlantYonezawa PlantNoda PlantIkuno Plant

Overseas Affiliates

SUMCO Development and Manufacture of 300-millimeter (12-inch) wafers

Mitsubishi Materials Quartz Corp.Quartz Crucible Business

Mitsubishi Silicon America Corp. (Oregon, USA)PT. MSIL Indonesia (Indonesia)

Sumitomo Sitix Silicon, Inc. (Arizona, USA)Sumitomo Sitix Europe Plc. (France)

Saga WorksImari WorksAmagasaki Works

(In Japan)Sitix DivisionSilicon Wafer Business

Overseas Affiliates

Sumitomo Metal Industries, Ltd.

50%

50%

Before Merger

Chitose PlantYonezawa PlantNoda PlantIkuno PlantSaga WorksImari WorksAmagasaki Works

(Overseas)Silicon Wafer Business

Quartz Crucible Business

Mitsubishi Silicon America Corp. (Oregon, USA)Sumitomo Sitix Silicon, Inc. (Arizona, USA)Sumitomo Sitix Europe Plc. (France)PT. MSIL Indonesia (Indonesia)

Mitsubishi Materials Quartz Corp.

50%

50%

After Merger

A New Company

Mitsubishi Materials Corp.

Sumitomo Metal Industries, Ltd.

(In Japan)Silicon Wafer Business


SiliconFiscal 2001 sales of silicon advanced34.6%, to ¥98.0 billion. In July 1999, wetransferred sales operations to MitsubishiMaterials Silicon Corp. (MSIL), whichpreviously acted as a producer of siliconwafers and, hence, spearheads our waferbusiness. In fiscal 2001, MSIL enjoyedfurther expansion in volume demandowing to an information technologyboom that started in the second half ofthe previous term and reaped the rewardsof efforts to improve yields. As a result,MSIL not only became profitable but alsoregistered record earnings. This subsidiaryhas drawn on its advanced single crystal-growing technologies to expand sales ofPure Silicon, which offers quality compa-rable to epitaxial wafers at a lower price.We have developed and are preparing tomass-produce a Super Silicon by adding agetter, which removes contaminants in thedevice production process, to Pure Silicon.

During the fiscal year, MitsubishiSilicon America Corp. (MSA) greatlyincreased sales on the strength of a mar-ket recovery and improved yields on 200-millimeter (8-inch) silicon wafers, therebyreducing its red ink. PT. MSIL Indonesiastarted full-fledged operations during theterm. In June 2000, we transferred poly-crystalline silicon and quartz crucible

Review of Operations

Sales

Operating profit (loss)

Identifiable assets

Depreciation

Capital expenditures

2001

¥160,937

15,305

271,220

25,830

29,812

2000

¥132,774

(1,411)

266,015

22,383

17,490

2001/2000

21.2%

—

2.0

15.4

70.5

Millions of yen

Millions of yen

Percentagechange

0 8,000 16,000 24,000 32,000 40,000

Depreciation Capital Expenditures

2001

2000

1999


In this rapidly growing business area, we offerhigh-value-added products for the informationand telecommunications sectors. We recognizethat silicon will be the core material in theinformation-oriented society of the 21st centuryand have positioned this segment as one of ourcore businesses.

In fiscal 2001, segment sales surged 21.2%,to ¥160.9 billion, or 14.1% of net sales. In thesecond half, a downturn in semiconductor de-mand hampered performance. Generally, how-ever, demand rebounded from the slump of theprevious few years, rising in diverse segments ofthe key silicon wafer sector as well as such ex-panding new markets as mobile phones. Oper-ating profit was ¥15.3 billion, compared withan operating loss of ¥1.4 billion in fiscal 2000.

Silicon andAdvanced Materials

Silicon wafers


operations from the advanced materialsdivision. Mitsubishi Materials Polycrystal-line Silicon Corp. stepped up its opera-tions and improved performance.Mitsubishi Polycrystalline Silicon AmericaCorp. manufactured polycrystalline sili-con at full capacity and increased sales.Backed by its high quality, MitsubishiMaterials Quartz Corp. (MMQ) steadilyenhanced results as the global leader in thequartz crucible market.

In July 1999, we formed SiliconUnited Manufacturing Corporation(SUMCO) with Sumitomo Metal Indus-tries to develop and manufacture next-generation, 300-millimeter (12-inch)silicon wafers. In April 2001, we reachedan agreement with Sumitomo Metal In-dustries for this joint venture to absorbboth partners’ wafer operations and MMQin January 2002. SUMCO will thus be oneof the largest players in the global wafermarket and will strive to efficiently harnessits capital, human and technological re-sources to pursue dramatic expansion.

Advanced MaterialsThis category encompasses electronicdevices, semiconductor-related productsand fine chemical products. Advancedmaterials sales rose 21.3% in fiscal 2001,to ¥57.2 billion. Selling prices plungedduring the term, although we were able toincrease sales of such offerings as mobilephone units, electronic parts and siliconelectrode boards.

Electronic devices benefited fromfavorable demand in the mobile phoneand U.S. information technology marketsuntil midyear. From thereon, however, theoperating environment slowed followinginventory adjustments in the former andon concerns of a downturn in the latter.Nonetheless, sales of our chip thermistors,in which we have a top global marketshare, remained favorable. We alsoexpanded sales of surge absorbers and chipresisters for the asymmetric digitalsubscriber line market.

During the term, Ericcson Micro-electronics AB of Sweden certified us as aBluetooth™ solution provider for our2.4-gigahertz chip antenna. Despite aone-year delay in the launch of theBluetooth™ market, we have receivedcountless inquiries about this product.

As part of our drive to build a world-wide supply capability, in fiscal 2001MMC Electronics (Thailand) Co., Ltd.,set up facilities to make surge absorbersand chip thermistors.

In semiconductor-related products,Taiwanese demand for gold bonding wireswas favorable in the first half of the year.In the second half, however, the operatingenvironment was adversely affected as dis-counting intensified. Like our rivals, welowered the prices of sputtering targets formagnetic media to maintain our marketshare. To overcome lower prices, weshifted part of production of these targetsto a plant in Taiwan. After a favorableshowing in the previous term, sales ofhigh-precision products fell in fiscal 2001owing to customers’ inventoryadjustments.

Demand for fine chemicals for mobilephones declined in the second half, forc-ing down sales of nickel-hydride batteryseparators. On the positive side, weincreased sales of fine chemicals for semi-conductor processing and germaniumtetrachloride for optical fibers. We aredeveloping next-generation display,battery and semiconductor materials.We have merged Tohkem Products Corp.with Jemco to improve productivity andachieve synergies in fluoride andelectronic materials.

In June 2000, we transferred the mar-keting of polycrystalline silicon and quartzproducts to the silicon division.

OutlookThe U.S. economic slowdown sinceNovember 2000 has greatly affected salesof silicon used in appliances and otherelectrical and electronic products, and wehave entered a period of major demandrealignments.

Both the domestic and overseas mar-kets for silicon wafers will become tougherin fiscal 2002. Nonetheless, MSIL andMSA should quickly reap benefits fromcapital expenditure presently being madeand curtail additional investment. We willprioritize cost-cutting and reductions ininterest-bearing debt. We expect the Janu-ary 2002 merger of our wafer and quartzcrucible operations with the wafer opera-tions of Sumitomo Metal Industries toproceed harmoniously.

We also expect difficult times inadvanced materials owing to downturns inthe semiconductor and mobile phonemarkets. We will overcome this situationby becoming more responsive to customerrequirements and enhancing the efficiencyof our production structure to bolstercompetitiveness.


Gold bonding wire

Ceramic chip antennas

Epitaxial wafers

Chip surge absorber

10 Mitsubishi Materials Corporation Annual Report 200110 Mitsubishi Materials Corporation Annual Report 2001

FabricatedMetal Products

Mitsubishi Materials has No. 1 shares in thedomestic fabricated metal product markets forautomobiles and automotive components. Ourproducts in this segment are also used in infor-mation and telecommunications equipmentand also cover alloy and aluminum products.

Fiscal 2001 sales in this category soared24.4%, to ¥374.6 billion, or 32.7% of net sales.This gain was despite falling selling prices andrising materials costs and reflected greatlyincreased demand, particularly from the elec-tronics and semiconductor sectors, and lowercosts from shifting some production offshore.Overseas sales expanded steadily. MMCKobelco Tool Co., Ltd., which we acquired inJanuary 2000, also contributed to the increasein sales. Operating profit rocketed 75.9%, to¥26.1 billion.

Sales

Operating profit

Identifiable assets

Depreciation


2001

¥374,606

26,114

446,632

21,931

26,472

2000

¥301,246

14,847

467,177

21,596

16,452

2001/2000

24.4%

75.9

-4.4

1.6

60.9

Millions of yen

Millions of yen

Percentagechange

0 6,000 12,000 18,000 24,000 30,000


2001

2000

1999

Hard-Metal Products andDiamond Tools

This category’s sales advanced 8.1%, to¥44.3 billion.

Demand was solid in Japan andabroad in the first half of the term, butdeclined in all regions except Europe inthe second half owing to the U.S. eco-nomic slowdown. Sales of miniature drillsfor information technology applicationsslowed temporarily in the second halffollowing inventory adjustments andweakened demand. During the term, welaunched several new offerings, includingthe UE6020—a chemical vapor composi-tion coated grade for general use—and thehigh-performance ASX face milling cutter.We also introduced the Super RushmillSRM2-type indexable ball-nose end mill,which slashes rough and medium cuttingtimes for the die and mold industry. Aspart of a drive to enhance efficiency underour selective concentration program, weshifted the manufacture of wear parts androck tools to Ryotec, a subsidiary.

Sales of diamond tools, in whichprecision cutting blades took a leadingpart and sold particularly well to the elec-tronics and semiconductor industries,rocketed.

Following our entry into theultrasmooth processing tools market, wereceived orders for CMP conditionersfrom large electrical machinery compa-nies. Several manufacturers of machinerydecided to use our back grinder wheels.

OutlookIn the first half of fiscal 2002, demand forsuch hard-metal products as miniature drillsand diamond tools, notably precision cut-ting blades, will likely be slower than in fis-cal 2001, when sales to electronics andsemiconductor makers picked up sharply.Nonetheless, we will strive to ensure ad-equate profitability by expanding sales ofnew products around the world, shifting theproduction of carbide indexable inserts andother offerings offshore and working evenmore closely with MMC Kobelco Tool.

11Mitsubishi Materials Corporation Annual Report 2001 11Mitsubishi Materials Corporation Annual Report 2001

Powder Metallurgy, Molding Diesand Motors

Category sales rose 1.7%, to ¥34.0 billion.Automakers are key customers for our

powder metallurgy products. Althoughdomestic automobile production rose just2.0% during the term, we boosted salesof these offerings approximately 10%,reflecting the increased usage of variablevalve timing mechanisms in new cars.Sales of vibrating motor weights, microstepping motors, plastic molds and disksubstrate dies increased on the strength ofhigher demand for mobile phones, digitalcameras and DVD drives.

To concentrate production of injec-tion molding parts, hot runner systemsand disk substrate molds, during the termwe shifted the manufacture of these offer-ings from our Niigata plant to PMTechno, a subsidiary.

OutlookIn fiscal 2002, the operating environmentfor powder metallurgy products will likelybe tough owing to reduced automobile salesand discounting pressures. Sales of vibratingmotor weights will suffer from mobilephone makers’ inventory adjustments. Onthe positive side, we expect to increase salesof powder metallurgy offerings by introduc-ing new variable valve timing mechanismparts. Injection molding parts, hot runnersystems and disk substrate molds should

help expand molding die sales. We willkeep improving operational efficiency byreducing costs through our consolidation ofdie production.

Copper Alloy Products,High-Performance Alloys and Others

Sales in this category advanced 3.8%, to¥57.5 billion.

Although sales of copper shapes forinformation technology applications de-clined at the end of the period, overallsales totaled more than that of the pre-vious corresponding period, due mainly tobrisk demand for copper alloys until thethird quarter.

Copper pipe and tube sales were upslightly. This reflected higher demandfrom air conditioner manufacturers,whose shipments increased owing to anabnormally hot summer and a demandspike from consumers seeking to replacetheir air conditioners ahead of the April2001 implementation of the ApplianceRecycling Law, which requires consumersto pay for equipment disposal. MMCCopper Tube (Thailand) Co., Ltd.(MCTT), enjoyed double the demand onthe strength of high air conditioner manu-facturer ratings of its products and asmakers stepped up domestic procurement.The increased sales and cost-cutting putoperating earnings of MCTT in the black.

Sales of high-performance alloys wereup only slightly. This was because of lowerdemand for plant and heat- and abrasion-resistant equipment, which partly offsetsteady sales gains in gas turbines, aerospace

materials and vacuum deposition materials.Earnings from this category improvedbecause of considerable cost-cutting.

OutlookA slump in the information technologyindustry and the downturn in the U.S.economy are expected to considerablyhamper performance in the year ahead.Nonetheless, we aim to improve sales andearnings by developing new offerings andproduction technologies while expandingsales of existing and new product linesand slashing costs.

Aluminum ProductsCategory sales dropped 2.2%, to ¥153.0billion.

In aluminum cans, sales and volumewere down slightly as reduced demand forbeer and low-carbonated beverage cansoutweighed gains in low-malt beer cans.Aluminum cans represented 47.1% of thecontainers used in the Japanese beverageindustry, up 1.0 percentage point.

In aluminum rolled and fabricatedproducts, sheet sales to the informationand telecommunications sectors soared.Demand recovered for extruded productsused in construction and automobileparts. Sales for surface treatment productsfor automobile engine pistons were alsofavorable. These factors increased salesvolume, although sales fell as a result ofour withdrawal from the computer harddisk substrate business.

OutlookWe completed first-stage construction offacilities for new bottle-shaped cans andlaunched the commercial manufacture ofthese offerings in April 2001. We plan toexpand sales of these products in the yearsahead. In July 2000, we started building acan recycling plant. Pilot operations beganin February 2001, with the facility goingonline in April 2001. This plant shouldhelp us significantly lower material costs.

Sakai plant

Bottle-shaped aluminum cans

Sintered metal components


NonferrousMetals

Copper is essential for electric cable, wire andother infrastructure-related products, as well asfor semiconductor lead frames and other high-tech products. Mitsubishi Materials’ nonferrousmetals are noteworthy for integrated coppercapabilities that encompass everything fromsmelting to processing. We are Asia’s largestgold producer and also have processing opera-tions for this metal. In fiscal 2001, sales in thenonferrous metals segment jumped 9.2%, to¥222.6 billion, and accounted for 19.5% of netsales. Operating profit was ¥2.3 billion, com-pared with an operating loss of ¥97 million infiscal 2000.

Sales

Operating profit (loss)

Identifiable assets

Depreciation


2001

¥222,552

2,295

261,763

10,712

11,608

2000

¥203,792

(97)

245,279

8,417

6,289

2001/2000

9.2%

—

6.7

27.3

84.6

Millions of yen

Millions of yen

Percentagechange

0 4,000 8,000 12,000 16,000 20,000


2001

2000

1999

CopperSales in this category advanced 7.7%, to¥80.7 billion.

Although demand for cable from tele-communications and electric power com-panies was weak, sales of copper wire tothe construction and automotive indus-tries remained steady. As demand fromsemiconductor makers for rolled copperwas brisk, copper sales volume exceededthose of the previous fiscal year. PT.Smelting, an Indonesian subsidiary thatbegan full-scale production during theperiod, delivered significantly higher sales.Overseas copper sales rose overall in linewith higher prices.

GoldSales of gold and gold-related productswere down 4.9%, to ¥60.8 billion. Thiswas due mainly to slightly reduced salesvolume to individuals, banks and securi-ties companies, which offset favorabledemand from other gold buyers. In addi-tion, gold prices remained low. In con-trast, we increased sales of gold jewelry.

Other Nonferrous MetalsSales in this category, which includessilver, sulfuric acid, lead and zinc, rose24.7%, to ¥81.1 billion. Our productionand sales of sulfuric acid increased in linewith higher copper shipments.

The world’s largest gold ingot (200 kg)


We responded to a generally adverseenvironment for smelting operations byincreasing production at our Naoshimasmelter, rationalizing and stepping uprecycling, while stepping up the market-ing of precious metals, such as those usedin jewelry.

During the year under review, weallocated considerable resources to boostdomestic copper smelter capacity andproductivity and to maintain and repairfacilities. PT. Smelting output 164,000metric tons of electrolytic copper duringthe term.

We are spearheading R&D efforts tocut copper and precious metals smeltingcosts as well as improve productivity andlicense technologies. These efforts includethe use of numerical analysis models to

establish guidelines for assessing, operat-ing and designing slag and matt separatingfurnaces and the development of non-ferrous metal recycling technologies. OurR&D activities also include the creationof new processes to shorten smelting leadtimes for gold, silver, platinum andpalladium.

OutlookOperating conditions for our copper busi-ness in fiscal 2002 will be tough becauseof the U.S. economic slowdown andworsening performance of the IT-relatedsector. We also expect an adverse environ-ment in sales of precious metals andjewelry owing to sluggish consumer and

electronic materials demand. Accordingly,we will step up efforts to save energy andrecycle and reinforce marketing of jewelryand other precious metals to enhanceprofitability.

PT. Smelting plans to raise electrolyticcopper output with its existing facilities,of which design capacity is 200,000 met-ric tons, to 218,000 metric tons annually.Onahama Smelting & Refining Co., Ltd.,has increased the industrial-waste process-ing capacity of its recycling business.

Jewelry

Continuous anode casting

PT. Smelting in Indonesia

Casting of copper anode


Cement

Mitsubishi Materials provides a wide range ofcement products that meet the needs of eachcustomer. Our lineup ranges from general-useto specialty cements. We are devising produc-tion methods that use less energy and resources.One of our key advantages is that we activelyuse industrial waste and by-products in cementproduction, including coal ash, blast-furnacescrub, sludge and waste tires.

In fiscal 2001, segment sales increased8.6%, to ¥185.8 billion, or 16.2% of net sales.Operating profit from cement operationssurged 34.4%, to ¥15.3 billion, reflectinglower costs owing to higher industrial-wasteprocessing revenues.

Sales

Operating profit

Identifiable assets

Depreciation


2001

¥185,792

15,349

246,479

11,405

8,155

2000

¥171,051

11,417

265,480

11,629

6,691

2001/2000

8.6%

34.4

-7.2

-1.9

21.9

Millions of yen

Millions of yen

Percentagechange

0 3,000 6,000 9,000 12,000 15,000


2001

2000

1999

In Japan, cement sales volumes climbed inthe first half on the strength of public-and private-sector demand. Public-sectordemand fell in the second half, however,so sales volumes for the year were up onlyminimally. Prices were weak, reflectingsluggish demand. Export volumes rose asa result of brisk shipments to the People’sRepublic of China, although prices werenot high yet.

In construction materials, demand foraggregates for ready-mixed concrete re-mained slow. Sales greatly exceeded thoseof fiscal 2000, however, owing to strongdemand for reclamation soil.

Overseas, Mitsubishi Cement Corp.and MCC Development Corp. of the

Mitsubishi Cement Corp.(California)

Concrete blocks used for breakwaters


United States registered excellentperformances because of solid demand inSouthern California.

Research and development is beingconducted mainly by the Ube MitsubishiCement Research Institute to reducecement manufacturing costs, minimizeenvironmental impact, add value to exist-ing products, refine resources recyclingtechnologies and develop new products.Specific initiatives included improving thefluidity and color of Portland cement, in-novating manufacturing technologies forhigh-quality recycled aggregates anddeveloping high-strength piles.

OutlookIn fiscal 2002, we expect sales volumes todecline slightly. However, we aim to raiseearnings by expanding our industrial-waste processing operations while lower-ing fuel and other costs.

Mitsubishi Cement and MCCDevelopment are expected to continue toperform well.

In June 2001, we established a projectteam to prepare for the full integration ofour cement operations, including produc-tion, with those of Ube Industries.

Waste recycling plant

Ube–Mitsubishi Cement Corp. truck

Yantai Mitsubishi Cement Co., Ltd. (The People’s Republic of China)


Energy- andEnvironment-Related

Operations and Others

Energy- and environment-related operationsencompass nuclear power and systems, geo-thermal power, oil, coal and resource recycling.Others covers residential land development andoffice building leasing. In fiscal 2001, salesfrom this segment increased 12.4%, to ¥200.2billion, or 17.5% of net sales. Operating profitwas up 68.8%, to ¥11.3 billion.

Sales

Operating profit

Identifiable assets

Depreciation


2001

¥200,181

11,316

249,680

7,498

3,476

2000

¥178,021

6,704

282,100

7,539

6,025

2001/2000

12.4%

68.8

-11.5

-0.5

-42.3

Millions of yen

Millions of yen

Percentagechange

0 2,000 4,000 6,000 8,000 10,000


2001

2000

1999

Energy- andEnvironment-Related Operations

Our operations take advantage of expand-ing markets for decentralized generationand clean energy owing to the electricpower industry’s deregulation and restruc-turing, as well as the creation of arecycling-oriented social infrastructure.

Nuclear Power and SystemsIt was a generally tough year in this busi-ness area, reflecting postponements ofnew nuclear power projects and intensify-ing price competition. Nonetheless, weincreased sales for our Rokkasho plant—currently under construction—which isJapan’s first nuclear fuel reprocessingplant.

Our software engineering and cleanenergy operations helped to increasesystems sales.

Environment and Resource RecyclingRecycling plant sales rocketed ahead ofthe introduction of a new law mandatingthe recycling of used appliances. During

Nuclear fuel assemblies fabricated by Mitsubishi Nuclear Fuel Co., Ltd.


the year, we responded to stronger restric-tions on dioxin emissions and industrial-waste recycling by stepping up marketingof our gasification and melting plants(Thermoselect Plant) and preparing tocommercialize our concrete recyclingbusiness.

Geothermal PowerSteam sales declined during the termbecause deregulation depressed steamprices while output fell. We will endeavorto improve profitability by cutting costsand enhancing efficiency.

FuelsDemand for coal rose in line with open-ings of new coal-fired thermal powerplants. On the negative side, price compe-tition in both coal and oil remained fierce.We boosted fuel sales, however, by spin-ning off Mitsubishi Materials EnergyCorp. and raising revenues frompetroleum products.

OutlookOur prime focuses are resource recyclingand clean energy. We supply waste gasifi-cation and melting plants. We have alsolaunched dioxin-reduction and concreterecycling businesses and are preparing tocommercialize clean energy operations.

In nuclear power and systems, we willsupport pilot operations and maintenanceafter the Rokkasho plant’s completion. Weplan to enter the high-level wasteprocessing business.

We are preparing to launch a cleanenergy production systems business usinghydrogen and other environmental-friendly fuels that draw on oursupercritical fluid technologies.

In early 2001, we won our first orderfor a gasification and melting plant. Wewill reorganize our engineering operations

to support the facility’s construction aswell as promote other environmentalrecycling businesses.

We will continue to develop and assessgeothermal reserve management systemsand new sites to maintain stable suppliesof steam.

We plan to restructure our fuels sub-sidiary to improve efficiency.

Real EstateRevenues in this area advanced 32.5%, to¥28.1 billion. This was largely due to salesof properties, including Residential Tower

Moveable system for recovering high-quality aggregate

West of Osaka Amenity Park, which over-came lowered revenues from leasing op-erations as a result of sluggish conditionsin the leasing market and sales of severalleasing business properties.

OutlookIn fiscal 2002, we will continue to divestParent and subsidiary properties to moreefficiently manage our assets and boostour financial position.

Household appliance recycling plant


Research and Development

Mitsubishi Materials has reviewed andrebuilt its research and development struc-ture as part of the June 2000 launch ofan in-house company system and morefocused resource allocations. We haveshifted development of new products andtechnologies that are directly connectedwith each company’s businesses from theCentral Research Institute to in-housecompany development centers. This wasin line with a drive to more swiftly intro-duce products and technologies that bet-ter match market requirements.

The in-house companies work jointlywith the Central Research Institute inareas in which the risks to develop newproducts or technology are too high forthose companies to assume independently.The prime focus of that institute is essen-tial technologies that can be applied tovarious developments and to identify andcarry out research projects that can helpMitsubishi Materials create tomorrow’sbusinesses. We choose and implementthose projects more in line with our man-agement strategies and plan to reorganizeour overall development structure so that

we can complete them moreswiftly.

As part of that reorganiza-tion, we will first reorganize theCentral Research Institute intothe Ohmiya Research Center inSaitama Prefecture and theNaka Research Center inIbaraki Prefecture. The OhmiyaResearch Center will build fa-cilities to focus on such areas asdesign and computer-aided en-

gineering. The Naka Research Center willharness R&D that applies such areas asthin-films and particles, compound mate-rials, precision processing and molding,and structural control technologies toinformation and environmental fields. Itwill apply the results in commercialdevelopment projects.

One particularly promising area isnano-materials technology. We have

already started to use nano-level materialstechnologies in our businesses, drawingon our capabilities in fine particles, thin-film and molding technologies, as well asour ultraprecise analytical technologies innano-fields, respectively. We plan to en-hance these activities and employ the de-sign of nano-level performance materials,devices and systems to cultivate the fieldof nano-materials as new core technolo-gies, products and businesses.

We will employ our unique materialstechnologies and our commercially ori-ented development structure to innovateofferings that add value to existing busi-nesses. At the same time, we will pursueR&D for next-generation products andbusinesses that can enhance value in suchareas as silicon, other information andelectronics businesses, including mobiledevices, and in environmental andrecycling operations.

Lead-Free Chip Thermistor DevelopedChip thermistors are used primarily in thetemperature-compensating circuits ofcrystal oscillators and in battery packs formobile phones and other electronic andcommunications devices. We haveresponded to rapidly growing demand forchip thermistors that aid recycling andreduce environmental impact bydeveloping a lead-free model.

Our new chip thermistor incorporateslead-free terminal electrodes based on aproprietary production process. Thisensures superior mounting reliabilitywhen using lead-free solders, such as thosecontaining tin-silver-copper allows andbismuth alloys of those metals.

Mass Production Technology forSuper Silicon Completed

Mitsubishi Materials Silicon Corp.(MSIL), which is a core subsidiary ofMitsubishi Materials Corporation andSamsung Electronics of Korea, the world’slargest dynamic random-access memory(DRAM) maker, have jointly established a


R&D ExpendsesMillions of yen

200120001999199819970

4,000

8,000

12,000

16,000

20,000

The world’s smallest chip thermistors


mass-production technology for 200-millimeter high-performance polishedwafers, known as Super Silicon in theindustry. These wafers are ideal for 256-megabyte DRAMs and larger chips.

MSIL has enjoyed a successful part-nership with Samsung Electronics over theyears. For example, we jointly developeda Pure Silicon that removes Crystal Origi-nated Particles (COP) in single crystalsilicon and researched special thermalprocessing techniques for that material.This work resulted in dramatically im-proved film oxidation resistance andreduced leaking.

Super Silicon eliminates cavity andtransposition defects on device wafer sur-faces and uses a getter to remove contami-nants in the device production process,making it perfect for high-quality polishedwafers and high-performance devices.

Lead-Free SULA Solder CreatedAlpha waves cause memory defects insemiconductor devices. As system LSIsand other semiconductor devices becomemore compact, they become more vul-nerable to alpha waves, which has made itcrucial to eliminate these waves from sol-der. We harnessed proprietary previsionmanufacturing technology to develop thelead-free Super Ultra Low Alpha (SULA)solder. This solder cuts alpha wave emis-sions from solder to below the detectableminimum of 0.001 counts per squarecentimeter per hour.

Silver-Coated Polyester Fiber InnovatedMitsubishi Materials has created theworld’s first silver-coated polyester fiber,Silfiber.

Silver-coated fibers can block emissionsof electric waves from mobile phones andother radio devices and take advantage ofsilver’s natural properties to make antibacte-rial socks and towels, for which demand isgrowing. Only silver-coated acrylic and ny-lon fibers are currently available, limitingtheir applications. There are also problems

with the durability and performance ofthose coated fibers. Another factor limitingthe use of such fibers is that the silvertarnishes.

We created not only a silver-coatedpolyester fiber—an achievement that waspreviously considered impossible—but alsoa mass production method of the fiber. Thecoating offers excellent conductivity and isimpervious to bacteria.

In addition to its superior electric con-ductivity and bacterial resistance, whichcomes from the silver coating, it has threechief advantages over conventional coun-terparts. The first is that it has far broaderapplications, partly because polyester canbe blended with other materials. Polyesteralso has better heat resistance than nylon


Silver-coated polyester fiber

Lead-free SULA solder

and acrylics and can be used to eliminatethe need for ironing. Second, the silvercoating can be applied very precisely andis highly durable. Third, the uniformcoating generates a bright silver luster,making the fiber suitable for white andlight colored clothes.

We plan to create an array of newapplications for our silver-coated polyesterto take advantage of its magnetic andbacterial resistance, lightness, flexibilityand processing ease. These uses includeelectroconductive materials and magneticshielding for mobile information devicesand other equipment.


Main Subsidiaries and Affiliates(As of June 30, 2001)

Main Consolidated Subsidiaries Line of Business Percentage of Ownership

Altechno Co., Ltd. Production and sales of fabricated metal products 100% (indirectly)

Dia Consultants Co., Ltd. Soil analysis and consulting 74%, 7% (indirectly)

Diasalt Corp. Production and sales of salt 100%

Hawaiian Rock Products Corp. (Guam) Production and sales of ready-mixed concrete 100% (indirectly)

Heisei Minerals Corp. Copper mining and production of copper concentrates 60%

Hokuryo Sangyo Co., Ltd. Sales of fuel 89%, 1% (indirectly)

Japan New Metals Co., Ltd. Production and sales of tungsten and molybdenum 89%, 11% (indirectly)

Kamaya Electronic Co., Ltd. Production and sales of electronic parts 63%

MA Packaging Co., Ltd. Production and sales of flexible packagings 50%, 50% (indirectly)

Material-Finance Co., Ltd. Financing 100%

MCC Development Corp. Investment in cement-related industries 73%

Mitsubishi Aluminum Co., Ltd. Production and sales of aluminum sheets, extrusion and foil 76%

Mitsubishi Cement Corp. Production and sales of cement 67%

Mitsubishi Materials C.M.I. Corp. Production of micromotors and electric contacts 100%

Mitsubishi Materials Energy Corp. Sales of fuel 100%

Mitsubishi Materials Kenzai Corp. Production and sales of concrete products and other building materials 78%, 0.3% (indirectly)

Mitsubishi Materials Natural Resources Soil analysis and consulting 100% Development Corp.

Mitsubishi Materials Polycrystalline Production and sales of polycrystalline silicon 100% Silicon Corp.

Mitsubishi Materials Quartz Corp. Production and sales of quartz crucibles 100%

Mitsubishi Materials Silicon Corp. Production and sales of silicon wafers 100%

Mitsubishi Materials U.S.A. Corp. Surveys in the United States and sales of fabricated metal products 100%

Mitsubishi Nuclear Fuel Co., Ltd. Production and sales of nuclear fuels for power generation 66%

Mitsubishi Polycrystalline Silicon America Corp. Production and sales of polycrystalline silicon 080%, 20% (indirectly)

Mitsubishi Silicon America Corp. Production and sales of silicon wafers 38%, 61% (indirectly)

Weight-saving automotive conponents produced atMitsubishi Aluminium Co., Ltd.

Er-Doped Optical Fiber Amplifier manufactured byMitsubishi Cable Industries Co., Ltd.

Magenet wire being wound at Optec Dai-IchiDenko Co., Ltd.


Main Consolidated Subsidiaries Line of Business Percentage of Ownership

MMC Copper Tube (Thailand) Co., Ltd. Production and sales of copper tubes 100%

MMC Diatitanit Co., Ltd. Sales of fabricated metal products 59%, 1% (indirectly)

MMC Kobelco Tool Co., Ltd. Production and sales of fabricated metal products 100%

Nevada Ready Mix Corp. Production and sales of ready-mixed concrete 100% (indirectly)

Onahama Smelting & Refining Co., Ltd. Smelting and refining of copper 47%

Ote Technological Engineering Corp. Technical engineering and construction 100%

PT MSIL Indonesia Production of silicon wafers 30%, 70% (indirectly)

PT. Smelting Smelting, refining and marketing of copper 61%

Ryokin Corp. Real estate 100%

Ryoko Lime Industry Co., Ltd. Limestone quarrying 100%

Ryoko Sangyo Co., Ltd. Trading 68%

Sambo Copper Alloy Co., Ltd. Production and sales of copper and brass mill products 50%

Seibu Construction Co., Ltd. Construction 90%

Shinryo Alumitechno Corp. Recycling of aluminum cans 100%

Tachibana Metal Manufacturing Co., Ltd. Production and sales of fabricated aluminum products 10%, 51% (indirectly)

Main Affiliates* Line of Business Percentage of Ownership

Mitsubishi Cable Industries Co., Ltd.** Production and sales of electric wire and cable 29%, 0.2% (indirectly)

Mitsubishi Construction Co., Ltd.** Construction 26%

Mitsubishi Shindoh Co., Ltd.** Production and sales of copper and copper alloy sheets and tubes 28%, 0.2% (indirectly)

Nippon Aerosil Co., Ltd. Production and sales of finely dispersed silica 20%

Optec Dai-Ichi Denko Co., Ltd. Production and sales of magnet wire 030%, 0.2% (indirectly)

P.S. Corp.** Construction 39%, 3% (indirectly)

Tokyohoso Kogyo Co., Ltd. Construction 39%

Ube-Mitsubishi Cement Corp. Marketing of cement 050%

** Companies to which the equity method is applied** Companies whose shares are listed on the Tokyo Stock Exchange

Construction of Tenth Anniversary Memorial Hall &Building for Disabled of United Nations (Astentative name) built by Mitsubishi ConstructionCo., Ltd., in Sakai, Osaka Prefecture.

Mitsubishi Shindoh Co., Ltd., produces materials foruse in leadframes

Ibigawa Bridge, part of the Daini-Meishin Highway,built using prestressed concrete produced by P.S. Corp.


Board of Directors, Executive Officers and Corporate Auditors(As of June 30, 2001)

Chairman

Yumi Akimoto

President

Akira Nishikawa*

Executive Vice Presidents

Toru Kanda*

Hideo Suzuki*

Naoyuki Hosoda*•

Managing Directors

Yoshio Fujiwara*•

Akikuni Nozoe*•

Susumu Ogino*•

Akihiko Ide*

Nobuaki Naito*

Director

Yukio Okamoto†

Senior Executive Officers

Shiro Mitsunari

Tamotsu Ishii

Rikuo Takano

Masatoshi Hayata

Makoto Noda

Masahiro Nishida

Sakae Mori

Koichi Kitamura

* Member of the Management Committee• Senior Executive Officer† External

Mitsubishi Materials’ Management Committee, comprising the presidentof the Company and eight directors, was established in June 1998 to dealmore effectively with issues affecting the Company as a whole, such as theformulation of corporate strategies. The Committee also contributes totimely decision making, efficient management and competent monitoringof profit performances. To further promote these areas, in June 2000 weimplemented an executive officer system. Moreover, in a staunch effort toenhance corporate governance, Mitsubishi Materials’ Board of Directorsnow includes one external director.

Executive Officers

Tsuneo Katsuki

Yoshihiko Sugano

Haruhiko Asao

Hiroshi Okamoto

Keizo Osaki

Masao Hirano

Yoshihisa Ueda

Kozo Ohashi

Yoichi Hatta

Naokazu Yoshiki

Michio Fujita

Kuniyasu Sakakibara

Shuichi Baba

Hiroshi Yao

Hisayoshi Honma

Hiroo Kiyokawa

Yoichi Taguchi

Corporate Auditors (Standing)

Susumu Kasuga

Yoshimitsu Moriya†

Makoto Kasa

Corporate Auditor

Takuji Shidachi


Financial Section

CONTENTS

24 Eleven-Year Summary

25 Management’s Discussion and Analysis of

Financial Condition and Results of Operations

30 Frequently Asked Questions

31 Consolidated Statements of Operations

32 Consolidated Balance Sheets

34 Consolidated Statements of Shareholders’ Equity

35 Consolidated Statements of Cash Flows

36 Notes to Consolidated Financial Statements

59 Report of Independent Public Accountants


Eleven-Year SummaryMitsubishi Materials Corporation and SubsidiariesYears ended March 31, 2001, 2000, 1999, 1998, 1997, 1996, 1995, 1994, 1993, 1992 and 1991

Thousands ofU.S. dollars

Millions of yen (Note 1)

2001 2000 1999 1998 1997 2001

For the Year:Net Sales ¥1,144,068 ¥0,986,884 ¥0,983,784 ¥1,196,008 ¥1,186,715 $09,233,801Cost of Sales 936,563 825,097 830,129 981,916 971,022 7,559,022Operating Profit 65,827 27,229 10,405 56,744 59,615 531,,294Net Income (Loss) 7,149 (12,075) (34,853) 10,071 14,744 57,702Depreciation and Amortization 79,557 74,592 74,038 80,575 72,886 642,107Gross Cash Flow 86,706 62,517 39,185 90,646 87,630 699,809R&D Expenses 15,437 14,762 17,830 18,401 16,791 124,592Balance at End of Year:Total Assets 1,615,844 1,671,000 1,605,671 1,679,207 1,643,332 13,041,519Total Long-Term Liabilities 509,187 603,096 580,446 534,378 459,818 4,109,661Total Shareholders’ Equity 239,190 231,559 243,356 312,386 307,549 1,930,510Number of Shares of Common Stock (Thousands) 1,117,314 1,117,314 1,117,314 1,134,153 1,134,153 —

U.S. dollarsYen (Note 1)

2001 2000 1999 1998 1997 2001

Per Share Amounts:Net Income (Loss) ¥6.4 ¥(10.8) ¥(30.9) ¥8.9 ¥13.0 $0.05.Cash Dividends Applicable to the Year 3.0 1.5 — 5.0 5.0 0.02.)Ratios:Return on Assets 0.4% –0.7% –2.1% 0.6% 0.9%Return on Equity 3.0 –5.1 –12.5 3.2 4.9

Millions of yen

1996 1995 1994 1993 1992 1991

For the Year:Net Sales ¥1,127,736 ¥1,151,261 ¥1,064,307 ¥1,145,425 ¥1,165,863 ¥0,950,678Cost of Sales 923,742 959,824 898,923 955,992 963,596 812,108Operating Profit 58,968 43,878 32,036 47,442 66,264 60,473Net Income (Loss) 11,358 (3,745) (2,929) 317 35,130 45,458Depreciation and Amortization 66,692 61,497 68,379 65,369 59,973 35,320Gross Cash Flow 78,050 57,752 65,550 65,686 95,103 80,778R&D Expenses 15,233 15,281 14,826 16,281 15,990 10,814Balance at End of Year:Total Assets 1,557,287 1,483,328 1,417,254 1,443,097 1,490,177 1,347,804Total Long-Term Liabilities 410,932 320,074 274,757 339,559 343,920 322,648Total Shareholders’ Equity 298,583 290,519 308,555 316,663 324,092 290,074Number of Shares of Common Stock (Thousands) 1,134,082 1,134,082 1,134,082 1,134,082 1,134,082 1,088,836

Yen

1996 1995 1994 1993 1992 1991

Per Share Amounts:Net Income (Loss) ¥10.0 ¥(3.3) ¥(2.5) ¥0.3 ¥31.6 ¥55.4Cash Dividends Applicable to the Year 5.0 5.0 5.0 7.0 7.0 7.0Ratios:Return on Assets 0.7% –0.3% –0.2% 0.0% 2.5% —Return on Equity 3.9 –1.3 –0.9 0.1 11.4 —

Notes: 1. Japanese yen amounts have been translated into U.S. dollars, solely for the convenience of the reader, at the rate of ¥123.90 to U.S.$1, the prevailingexchange rate at March 31, 2001.

2. Mitsubishi Materials was formed in the year ended March 31, 1991, through the merger of Mitsubishi Metal Corporation and Mitsubishi Mining &Cement Co., Ltd. Accordingly, ratios for the Company are not available for the year of the merger.


Management’s Discussion and Analysis of Financial Conditionand Results of Operations

Overview

Thousands of Percentage changeFor the year ended March 31, 2001 Millions of yen U.S. dollars (2001/2000)

Net sales ¥1,144,068 $9,233,801 15.9%Operating profit 65,827 531,294 141.8%Net income 7,149 57,702 —%

Percentage changeYen U.S. dollars (2001/2000)

Net income per share ¥6.4 $0.05 —%

In fiscal 2001, ended March 31, 2001, the Japanese economy showed signs of a recovery in the first half as a result of improved

corporate earnings. Conditions deteriorated in the second half, however, as consumer spending slid amid employment and incomeconcerns, capital investment declined, and the banking system stagnated owing to the lack of progress in addressing the

nonperforming loans issue. Government pump-priming measures again failed to stimulate the economy, and deflation became a

real threat.After performing well in the first half of the year, the U.S. economy slowed down in the second half, causing exports from

Japan to fall. In contrast, European economic conditions remained favorable, while economies in Asia were generally stable.

Despite these factors, Mitsubishi Materials achieved excellent results infiscal 2001. Net sales jumped 15.9%, to ¥1,144.1 billion, and operating

profit rocketed 141.8%, to ¥65.8 billion. The Company registered a net

income of ¥7.1 billion, against a net loss of ¥12.1 billion in fiscal 2000.

Sales and Operating Profit by SegmentSales for the Silicon and Advanced Materials segment climbed 21.2%, to¥160.9 billion, reflecting improved conditions in the semiconductor

industry in the first half, partially because of strong demand for mobile

phones, which drove sales of silicon wafers. This improvement offset lowersales of advanced materials as a result of price reductions. Operating profit was ¥15.3 billion, compared with an operating loss of

¥1.4 billion in fiscal 2000.

In the Fabricated Metal Products segment, sales surged 24.4%, to ¥374.6 billion, owing to significantly improved demand,especially from the electronics and semiconductor sectors, and savings from increased offshore production. Operating profit

rocketed 75.9%, to ¥26.1 billion.

Sales in the Nonferrous Metals segment advanced 9.2%, to ¥222.6 billion. This reflected higher demand for copper wire fromthe construction and automotive industries and for rolled copper from semiconductor manufacturers, offsetting lower sales of gold

and gold-related products. Consequently, the segment registered an operating profit of ¥2.3 billion, from an operating loss of ¥97

million in fiscal 2000.In the Cement segment, sales gained 8.6%, to ¥185.8 billion. This improvement stemmed from strong public- and private-

sector demand in the first half of the term and higher exports, particularly to the People’s Republic of China. Operating profit for

the segment surged 34.4%, to ¥15.3 billion.

Billions of yen

0 250 500 750 1,000 1,250

Net Sales

2000

2001

1999

1998

1997


Thousands ofMillions of yen U.S. dollars

For the years ended March 31 2001 2000 1999 2001

Silicon and Advanced MaterialsSales ¥160,937 ¥132,774 ¥130,989 $1,298,931Operating profit (loss) 15,305 (1,411) (8,809) 123,527Operating margin 9.5% — —

Fabricated Metal ProductsSales 374,606 301,246 296,773 3,023,455Operating profit 26,114 14,847 5,518 210,771Operating margin 7.0% 4.9% 1.9%

Nonferrous MetalsSales 222,552 203,792 210,389 1,796,223Operating profit (loss) 2,295 (97) 4,323 18,526Operating margin 1.0% — 2.1%

CementSales 185,792 171,051 185,302 1,499,530Operating profit 15,349 11,417 9,334 123,881Operating margin 8.3% 6.7% 5.0%

Energy- and Environment-Related Operations and Others

Sales 200,181 178,021 160,331 1,615,662Operating profit 11,316 6,704 8,547 91,329Operating margin 5.7% 3.8% 5.3%

Sales in the Energy- and Environment-Related Operations and Others segment were up 12.4%, to ¥200.2 billion, primarily

because of soaring sales of recycling plants ahead of the introduction of a new appliance recycling law. Improved demand for fuelsalso contributed to this result. Operating profit rocketed 68.8%, to ¥11.3 billion.


Thousands ofMillions of yen U.S. dollars Percentage change

For the years ended March 31 2001 2000 2001 2001/2000

Selling, General and Administrative ExpensesFreight charges ¥031,540 ¥029,577 $0,254,560 6.6%Depreciation and amortization 4,873 4,481 39,330 8.7%Provision for reserve for retirement allowances 2,899 1,879 23,398 54.3%Provision for reserve for directors’ retirement allowances 280 453 2,260 –38.2%Provision for reserve for bonuses 9,101 7,333 73,454 24.1%Salaries 28,176 28,221 227,409 –0.2%R&D expenses 15,437 14,762 124,592 4.6%Rent expenses 8,284 7,942 66,860 4.3%Others 41,088 39,910 331,622 3.0%Total ¥141,678 ¥134,558 $1,143,485 5.3%

Operating Profit and ExpensesCost of sales rose 13.5%, to ¥936.6 billion. Gross profit soared 28.3%,to ¥207.5 billion, and the gross margin rose 1.7 percentage points, to

18.1%. Selling, general and administrative expenses rose 5.3%, to

¥141.7 billion, or 12.4 % of net sales, down 1.2 percentage points fromfiscal 2000. Cost containments translated into a 141.8% improvement

in operating profit, to ¥65.8 billion. The operating margin was 5.8%,

from 2.8% in fiscal 2000.

Other Income and ExpensesOther expenses, net increased 10.1%, to ¥47.4 billion. This was mainly because the Company charged a severance and pensionbenefit expense of ¥24.4 billion, in line with the adoption of a new accounting standard for severance and pension benefits. Gain

on sale of property, plant and equipment more than halved, to ¥12.2 billion. Consequently, the Company registered income before

income taxes and minority interests of ¥18.4 billion, against a ¥15.9 billion loss before income taxes and minority interests infiscal 2000.

Net IncomeAfter income taxes of ¥10.3 billion, Mitsubishi Materials posted net

income of ¥7.1 billion, compared with a net loss of ¥12.1 billion in fiscal

2000. We doubled cash dividends applicable to the year, to ¥3.0 per share,in keeping with our vastly improved operating profit and net income.

Billions of yen

%

0 15 30 45 60 75

Operating Profit and Operating Margin

2000

2001

1999

1998

1997

0 1.5 3.0 4.5 6.0 7.5

Billions of yen

%

-45 -30 -15 0 15 30

Net Income (Loss) and Return on Equity

2001

2000

1999

1998

1997

-15 -10 -5 0 5 10


(%)

At the year ended March 31 2001 2000 1999

Equity ratio 14.8 13.9 15.2

Financial Position and LiquidityThe adoption of the new Accounting Standard for Financial Instrumentsmeant a large shift between different asset classifications. Due to the above,

marketable securities—a component of total current assets—decreased

¥89.2 billion, while investments in securities—part of investments andlong-term receivables—increased by the same amount.

Total current assets were ¥526.8 billion, down 19.2% from fiscal 2000

year-end. This was due mainly to a dramatic reduction in marketablesecurities. Net property, plant and equipment was ¥815.4 billion, from

¥807.0 billion a year earlier. Investments and long-term receivables at fiscal year-end were ¥241.0 billion, up 43.9% from the

end of fiscal 2000. This was due mainly to an increase in investments in securities. As a result, total assets amounted to ¥1,615.8billion, down 3.3%.

Also due to the adoption of the new Accounting Standard for Financial Instruments, total current liabilities totaled ¥821.2

billion, up 2.6%, reflecting an increase in the current portion of long-term debt and commercial paper. Thus, the current ratioplunged to 64.2%, from 81.5%. Total long-term liabilities were ¥509.2 billion, down 15.6% from fiscal 2000 year-end. This

reflected a reduction in long-term debt and the elimination of the reserve for foreign exchange losses.

Total shareholders’ equity increased 3.3%, to ¥239.2 billion, owing to higher retained earnings and the addition of ¥4.2 billionin net unrealized holding gains on securities. The equity ratio improved to 14.8%, from 13.9% in fiscal 2000.

Capital ExpendituresIn keeping with a policy of constraining interest-bearing debt, the Com-pany focuses capital expenditures on carefully selected projects. Total out-

lays for fiscal 2001 were ¥83.8 billion. This was 55.2% higher than a year

earlier, reflecting intensified spending to streamline production facilitiesand increase the capacity of industrial waste processing facilities. We also

invested in boosting capacity at domestic and overseas plants in response

to rising information technology-related demand.

Billions of yen

0 400 800 1,200 1,600 2,000

Total Assets

2000

2001

1999

1998

1997

Billions of yen

%

0 70 140 210 280 350

Total Shareholders’ Equity and Equity Ratio

2000

2001

1999

1998

1997

0 5 10 15 20 25

Billions of yen

0 150 300 450 600 750

Total Long-Term Liabilities

2000

2001

1999

1998

1997

Billions of yen

0 30 60 90 120 150

Capital Expenditures

2000

2001

1999

1998

1997



For the years ended March 31 2001 2000 1999 2001

Gross cash flow ¥86,706 ¥62,517 ¥39,185 $699,809

Cash FlowsNet cash provided by operating activities was ¥132.1 billion, from ¥45.3billion in fiscal 2000. This was mainly because of ¥18.4 billion in income

before income taxes and minority interests, an ¥18.6 billion increase in

notes and accounts payable and a ¥13.9 billion increase in accrued expense.Net cash used in investing activities came to ¥38.7 billion, from

¥12.7 billion in the previous fiscal year, owing to increased payments for

purchases of property, plant and equipment and payments for transferenceof guarantee deposits to affiliated company.

Net cash used in financing activities amounted to ¥152.0 billion,

against ¥15.9 billion in fiscal 2000. The main factor was a ¥109.2 billion decrease in short-term bank loans, compared with a ¥9.6billion increase in fiscal 2000.

As a result of these factors, cash and cash equivalents at end of year stood at ¥16.6 billion, down from ¥74.2 billion.

Outlook for Fiscal 2001The U.S. economic slowdown, slower capital investment and sluggish personal consumption will hamper the Japanese economy in

fiscal 2002.The operating environment will thus remain very challenging. It is hard to project prospects for the foreign exchange and

metals markets. The information, telecommunications and semiconductor sectors are unlikely to recover until well into the term,

while deflation will continue to characterize the automotive sector. The Company will address these challenges by continuing toslash costs and boost earnings under its medium-term business plan.

Billions of yen

0 20 40 60 80 100

Gross Cash Flow

2000

2001

1999

1998

1997


1. How large is Mitsubishi Materials’ interest-bearing debt, and how are you going to reduce it?

At the end of fiscal 2001, interest-bearing debt was ¥890 billion, down ¥134 billion from the previous fiscal year. We funded this reduc-tion by enhancing the liquidity of sales receivable, decreasing deposits, selling marketable securities, divesting real estate, curbing capitalinvestment and enhancing the capital efficiency of our subsidiaries. We will continue to limit capital outlays and thereby maintain profit-ability. Under our current medium-term business plan, we aim to lower interest-bearing debt to ¥750 billion by the end of fiscal 2004.This would cut the interest-bearing debt ratio from 55% at the close of fiscal 2001, to 47%.

2. How has your asset divestment program progressed?

In fiscal 2001, we derived a profit of ¥11.9 billion through sales of fixed assets. We also derived a profit of ¥5.3 billion through sales ofmarketable securities. This included the sale of our stake in TECOR Electronics Inc., which generated a gain of ¥1.5 billion.

3. What is your approach to alliances, mergers and business withdrawals?

We form alliances and mergers to better handle the globalization of our business and in response to changes in the industrial structure.We are also shutting down unprofitable operations.• In January 2002, we will completely integrate our silicon wafer operations with those of Sumitomo Metal Industries. This merger will

offer several key benefits, allow us to streamline capital expenditure and R&D activities and secure a top share in the global marketplace. It is also important to note that the customer bases of both parties do not overlap and that we can complement each other inkey technologies.

• In the cement business, we have already integrated our logistics, marketing and R&D operations. In June 2001, we set up a unit toprepare for full integration by the end of fiscal 2003.

• In September 2000, we withdrew from the hard disk substrates business.We plan to form more alliances and mergers and keep withdrawing from unprofitable businesses to reinforce our competitiveness.

4. How has selective concentration strengthened your in-house companies?

In nonferrous metals, we have completed a massive investment program and are now concentrating on cultivating such new areas asrecycling. We have stabilized operations by boosting capacity at PT. Smelting, our Indonesian copper smelting subsidiary, which offerslow costs and will allow us to meet expected demand growth in the Southeast Asia region. That subsidiary should reach an annual outputof approximately 220,000 metric tons of electrolytic copper during fiscal 2002.

In fabricated metal products, we have met rising demand for copper tubing by boosting production at MMC Copper Tube (Thailand)while starting the manufacture of bottle-shaped aluminum cans. We merged two domestic carbide cutting tools sales companies to formMMC Diatitanit Co., Ltd., to streamline marketing. We established a holding company in Europe to enhance sales and aim to form ajoint venture in the United States for the production of carbide cutting tools.

In electronic materials and other advanced areas, we have commercialized an antenna business, as well as Radio Frequency IDentification(RF-ID) and cyberspace operations. We will further reinforce our operating structure so we can respond more swiftly to new opportunities.

5. In what ways are you strengthening your strategic headquarters’ capabilities?

We divided head office functions into two. The strategic headquarters oversees Group management strategies. The corporate businessdivision provides operational services. The new headquarters is our first specific step toward implementing speedy and dynamic manage-ment strategies Groupwide. We will improve the quality of back-office and services operations to support our strategies and will enhancetheir efficiency.

6. In what ways have you restructured technical development?

For a start, we transferred many of the development capabilities of the Central Research Institute to our plants to accelerate the creationof new products. We thereby restructured the institute so it could concentrate on cultivating new businesses on basic research and on largedevelopment projects.

Frequently Asked Questions


Consolidated Statements of OperationsMitsubishi Materials Corporation and SubsidiariesYears ended March 31, 2001, 2000 and 1999



2001 2000 1999 2001

Net Sales ¥1,144,068 ¥986,884 ¥983,784 $9,233,801Cost of Sales 936,563 825,097 830,129 7,559,022

Gross profit 207,505 161,787 153,655 1,674,779Selling, General and Administrative Expenses (Note 10) 141,678 134,558 143,250 1,143,485

Operating profit 65,827 27,229 10,405 531,294

Other Income (Expenses):Interest and dividend income 3,715 4,110 4,083 29,987Interest expense (Note 4) (28,575) (24,331) (24,664) (230,626)Write-down of marketable securities and investments in securities (4,481) (4,579) (6,826) (36,167)Gain (loss) on sale of marketable securities and investments in securities 4,042 9,581 (253) 32,626Provision for bad debt and write-off of investments and long-term receivables—unconsolidated subsidiaries and affiliates (5,786) (1,254) (1,077) (46,700)Gain on sale of property, plant and equipment 12,230 27,446 5,029 98,708Loss on disposal of property, plant and equipment (5,043) (9,363) (5,090) (40,700)Early retirement benefit — (9,980)Provision for loss on consolidated subsidiaries (688) (2,200) (5,251) (5,550)Foreign exchange gains (losses) 1,584 (11,204) — 12,788Severance and pension benefit expense (Note 5) (24,446) — — (197,316)Past service cost under retirement pension plan (Note 5) — (7,113) — —Gain on valuation of securities due to contribution of the securities to employee retirement benefit trust (Note 2) 11,125 — — 89,787Provision for foreign exchange losses (Note 12) — (12,200) — —Reversal of provision for foreign exchange losses 4,620 — — 37,288Loss due to withdrawal of business (8,704) (4,902) — (70,253)Other, net (7,032) (7,072) (7,381) (56,760)

(47,439) (43,081) (51,410) (382,888)Income (loss) before income taxes and minority interests 18,388 (15,852) (41,005) 148,406

Income Taxes (Benefit) (Note 7) 10,349 1,813 (5,957) (83,528)

Income (loss) before minority interests 8,039 (17,665) (35,048) 64,878

Minority Interests in (Income) Loss of Consolidated Subsidiaries (890) 5,590 195 (7,176)Net Income (Loss) ¥0,007,149 ¥,(12,075) ¥ (34,853) $0,057,702

U.S. dollarsYen (Note 1)

2001 2000 1999 2001

Per Share Amounts:Net income (loss) ¥6.4 ¥(10.8) ¥(30.9) $0.05Diluted net income 6.1 — — 0.05Cash dividends applicable to the year 3.0 1.5 — 0.02

The accompanying notes are an integral part of these statements.


Consolidated Balance SheetsMitsubishi Materials Corporation and SubsidiariesMarch 31, 2001 and 2000



2001 2000 2001

ASSETSCurrent Assets:

Cash (Notes 4 and 15) ¥0,016,989 ¥0,077,210 $00,137,123Marketable securities (Notes 4 and 11) 559 91,441 4,513Notes and accounts receivable (Note 4):

Trade 206,345 208,332 1,665,413Unconsolidated subsidiaries and affiliates 39,676 31,123 320,230Others 15,705 19,923 126,758

Inventories (Notes 3 and 4) 185,760 173,636 1,499,277Deferred income taxes (Note 7) 9,441 7,346 76,198Other current assets 59,071 47,353 476,759Allowance for doubtful accounts (6,745) (4,383) (54,442)

Total current assets 526,801 651,981 4,251,829

Property, Plant and Equipment (Notes 4 and 11):Land 190,475 191,977 1,537,327Buildings and structures 475,110 480,445 3,834,627Machinery and equipment 1,100,569 1,067,505 8,882,716Construction in progress 41,475 23,071 334,745

1,807,629 1,762,998 14,589,415Less accumulated depreciation (992,183) (956,039) (8,007,932)

Net property, plant and equipment 815,446 806,959 6,581,483

Investments and Long-Term Receivables:Investments in securities (Notes 4 and 11) 104,016 34,089 839,519Unconsolidated subsidiaries and affiliates (Notes 4 and 11) 92,269 90,406 744,705Long-term receivables 18,474 17,608 149,104Others 45,332 42,651 365,871Allowance for doubtful accounts (19,098) (17,270) (154,138)

Total investments and long-term receivables 240,993 167,484 1,945,061

Other Assets:Deferred income taxes (Note 7) 17,432 15,158 140,690Foreign currency translation adjustments — 16,186 —Others 15,172 13,232 122,456

Total other assets 32,604 44,576 263,146¥1,615,844 ¥1,671,000 $13,041,519





2001 2000 2001

LIABILITIES AND SHAREHOLDERS’ EQUITYCurrent Liabilities:

Short-term bank loans (Note 4) ¥0,350,725 ¥0,452,442 $02,830,709Current portion of long-term debt (Note 4) 107,349 77,975 866,416Commercial paper (Note 4) 20,000 — 161,421Notes and accounts payable:

Trade 149,064 125,049 1,203,103Unconsolidated subsidiaries and affiliates 12,197 4,535 98,445Others 29,157 18,408 235,327

Income taxes payable 9,114 4,757 73,558Deferred income taxes (Note 7) 536 801 4,327Accrued expenses 62,480 47,497 504,279Other current liabilities 80,563 68,677 650,218

Total current liabilities 821,185 800,141 6,627,803

Long-Term Liabilities:Long-term debt (Note 4) 411,509 492,965 3,321,303Retirement and severance benefits (Note 5) — 29,355 —Severance and pension benefits (Note 5) 35,393 — 285,654Reserve for loss on consolidated subsidiaries 2,645 3,216 21,349Reserve for foreign exchange losses — 12,200 —Deferred income taxes (Note 7) 18,966 15,369 153,076Deferred income taxes for revaluation reserve for land (Notes 7 and 14) 7,245 6,925 58,473Others (Note 12) 33,429 43,066 269,806

Total long-term liabilities 509,187 603,096 4,109,661Minority Interests 46,282 36,204 373,545

Contingent Liabilities and Commitments (Notes 8 and 9)

Shareholders’ Equity (Note 6):Common stock, par value ¥50 per share:

Authorized—2,683,162,000 sharesIssued—1,117,314,857 shares 99,396 99,396 802,231

Additional paid-in capital 68,573 68,573 553,455Revaluation reserve for land, net of tax (Note 14) 9,201 8,593 74,267Retained earnings 59,942 55,001 483,786Net unrealized holding gains on securities 4,178 — 33,720Foreign currency translation adjustments (2,096) — (16,920)Treasury stock, at cost (4) (4) (29)

Total shareholders’ equity 239,190 231,559 1,930,510¥1,615,844 ¥1,671,000 $13,041,519


Consolidated Statements of Shareholders’ EquityMitsubishi Materials Corporation and SubsidiariesYears ended March 31, 2001, 2000 and 1999



2001 2000 1999 2001

Common Stock:Number of shares (Thousands)

At beginning of year 1,117,314 1,117,314 1,134,152 (113,754)Retirement of treasury stock — — 16,838 (113,754)At end of year 1,117,314 1,117,314 1,117,314 (113,754)

Amount (113,754)Balance at beginning of year ¥99,396 ¥099,396 ¥099,396 $802,231Balance at end of year ¥99,396 ¥099,396 ¥099,396 $802,231

Additional Paid-in Capital:Balance at beginning of year ¥68,573 ¥068,573 ¥072,466 $553,455Retirement of treasury stock (Note 6) — — (3,893) —Balance at end of year ¥68,573 ¥068,573 ¥068,573 $553,455

Revaluation Reserve for Land, Net of Tax (Note 14):Balance at beginning of year ¥08,593 ¥000,0—. ¥000,0—. $069,359Increase 608 8,593 — 4,908Balance at end of year ¥09,201 ¥008,593 ¥0000,—. $074,267

Retained Earnings:Balance at beginning of year ¥55,001 ¥075,388 ¥140,526 $443,913

Cumulative effect of change in accounting for income taxes — — (22,553) —Net income (loss) for the year 7,149 (12,075) (34,853) 57,702Cash dividends paid (1,676) — (5,671) (13,527)Bonuses to directors and corporate auditors (134) (164) (349) (1,073)Decrease resulting from increase of consolidated subsidiaries — — (1,712) —Decrease resulting from decrease of affiliated companies on equity method — (37) — —Increase due to merger of unconsolidated subsidiaries — 9 — —Decrease due to adjustment for land as a result of revaluation of land (Note 14) — (3,068) — —Decrease due to reversal of revaluation reserve for land (Note 14) (540) — — (4,359)Adjustment for prior year’s income tax effect of the difference between the book value and fair value of the assets and liabilities of the consolidated subsidiaries and affiliates at the acquisition date — (5,052) — —Others 142 — — 1,130

Balance at end of year ¥59,942 ¥055,001 ¥075,388 $483,786

Net Unrealized Holding Gains on Securities:Adoption of new accounting standard in 2001 ¥04,178 ¥0000,—. ¥0000,—. $033,720Balance at end of year ¥04,178 ¥0000,—. ¥0000,—. $033,720

Foreign Currency Translation Adjustments:Transfer from other assets ¥16,186 ¥0000,—. ¥0000,—. $124,654Decrease (18,282) — — (141,574)Balance at end of year ¥,(2,096) ¥0000,—. ¥0000,—. $,(16,920)

Treasury Stock:Balance at beginning of year ¥0000(4) ¥0(,0(0(1) ¥00((,,,(2) $0,,)0(31)

Purchase for retirement (Note 6) — — (3,893) —Retirement of treasury stock (Note 6) — — 3,893 —Cost of treasury stock sold (purchased) 0 (3) 1 2

Balance at end of year ¥0000(4) ¥0(,0(0(4) ¥0(,0(0(1) $0,,)0(29)





2001 2000 2001

Cash Flows from Operating Activities:Income (loss) before income taxes and minority interests ¥018,388 ¥(15,852) $0,148,406Adjustment to reconcile income before income taxes and minority interests to net cash provided by operating activities:

Depreciation 78,983 73,395 637,475Increase in allowance for doubtful accounts 4,108 863 33,156Increase (decrease) in severance and pension benefits or retirement and severance benefits 6,044 (1,491) 48,781Decrease in reserve for loss on consolidated subsidiaries (571) (1,618) (4,609)(Decrease) increase in reserve for foreign exchange losses (7,100) 12,200 (57,304)Past service cost under retirement pension plan — 7,113 —Foreign exchange losses — 8,904 —Interest and dividend income (3,715) (4,110) (29,987)Interest expense 28,575 24,331 230,626Loss on disposal of property, plant and equipment 12,236 9,363 98,757Gain on sale of property, plant and equipment (12,230) (27,446) (98,708)Gain on sale of marketable securities and investments in securities (4,042) (9,581) (32,626)Write-down of marketable securities and investments in securities 4,481 4,579 36,167(Increase) decrease in notes and accounts receivable (612) 14,219 (4,939)Increase in inventories (8,174) (4,014) (65,972)Increase (decrease) in notes and accounts payable 18,649 (605) 150,517Increase (decrease) in accrued expense 13,881 (770) 112,034Equity in earnings of affiliated companies (509) (1,735) (4,108)Others 13,768 (7,826) 111,131

Subtotal 162,160 79,919 1,308,797Interest and dividends received 5,094 6,864 41,114Interest paid (28,635) (24,255) (231,114)Income taxes paid (6,551) (4,631) (52,873)Payments for early retirement benefit and pension costs — (12,601) —

Net Cash Provided by Operating Activities 132,068 45,296 1,065,924Cash Flows from Investing Activities:

Payments for purchases of property, plant and equipment (72,358) (51,096) (584,003)Proceeds from sale of property, plant and equipment 32,183 41,267 259,750Payments for purchases of securities (4,949) (5,907) (39,944)Proceeds from sale of securities 22,987 16,390 185,529Payments for acquisition for newly consolidated subsidiaries — (8,522) —Increase in loan receivables (7,414) (6,626) (59,839)Collection of loan receivables 5,680 16,077 45,843Payments for settlement of monthly strip knockout forward contract (5,100) (8,904) (41,162)Payments due to transference of guarantee deposits to affiliated company (9,141) — (73,777)Others (616) (5,358) (4,972)

Net Cash Used in Investing Activities (38,728) (12,679) (312,575)Cash Flows from Financing Activities:

Proceeds from long-term debt 44,397 61,352 358,329Repayments of long-term debt (75,380) (45,869) (608,394)Payments for redemption of bonds (29,929) (27,000) (241,558)Proceeds from (repayment of) commercial paper, net 20,000 (13,000) 161,420Payments for purchase of treasury stock 0 (2) 3(Decrease) increase in short-term bank loans (109,200) 9,551 (881,356)Proceeds from issuance of common stock of consolidated subsidiaries to minority shareholders 320 — 2,583Cash dividends paid (1,676) — (13,527)Cash dividends paid to minority shareholders (483) (931) (3,898)

Net Cash Used in Financing Activities (151,951) (15,899) (1,226,398)Effect of Exchange Rate Fluctuation on Cash and Cash Equivalents 1,571 (1,047) 12,678Net (Decrease) Increase in Cash (57,040) 15,671 (460,371)Cash and Cash Equivalents at Beginning of Year 74,172 57,768 598,644Effect of Changes in Consolidated Subsidiaries (537) (733) (4,334)Cash and Cash Equivalents at End of Year (Note 15) ¥016,595 ¥(074,172 $0,133,939


Consolidated Statements of Cash FlowsMitsubishi Materials Corporation and SubsidiariesYears ended March 31, 2001 and 2000


Notes to Consolidated Financial StatementsMitsubishi Materials Corporation and Subsidiaries

Note 1—Basis of Presentation of Financial StatementsMitsubishi Materials Corporation (the “Company”) and itsconsolidated domestic subsidiaries maintain their accountsand records in accordance with the provisions set forth inthe Japanese Commercial Code (the “Code”) and the Securi-ties and Exchange Law of Japan and in conformity withaccounting principles and practices generally accepted inJapan, which are different from the accounting and dis-closure requirements of International Accounting Standards.The accounts of its overseas consolidated subsidiaries arebased on accounting records maintained in conformity withgenerally accepted accounting principles and practicesprevailing in the respective countries of domicile.

The accompanying consolidated financial statements area translation of the audited consolidated financial statementsof the Company, which were prepared in accordance withaccounting principles and practices generally accepted inJapan from the accounts and records maintained by theCompany and its consolidated subsidiaries and were filedwith the appropriate Local Finance Bureau of the Ministry

of Finance as required by the Securities and Exchange Lawof Japan.

In preparing the accompanying consolidated financialstatements, certain reclassifications have been made in theconsolidated financial statements issued domestically topresent them in a form which is more familiar to readersoutside Japan. The consolidated statements of shareholders’equity have been prepared for the purpose of inclusion inthe accompanying consolidated financial statements eventhough such statements were not customarily preparedin Japan and not required to be filed with the regulatoryauthorities at that time.

The translation of Japanese yen amounts into U.S.dollars are included solely for the convenience of the reader at the rate of ¥123.90 to U.S.$1, the prevailing exchangerate at March 31, 2001. These translations should not beconstrued as representations that Japanese yen amounts havebeen, could have been or could in the future be convertedinto U.S. dollars at this or any other rates of exchange.

Note 2—Summary of Significant Accounting Policies(a) ConsolidationThe Company prepared the consolidated financial state-ments for the years ended March 31, 2001 and 2000, inaccordance with the revised Accounting Principles for Con-solidated Financial Statements (the “Revised AccountingPrinciples”) effective from the year ended March 31, 2000.

The accompanying consolidated financial statementsinclude the accounts of the Company and significant com-panies which the Company controls through majority vot-ing right or existence of certain conditions. All significantintercompany balances and transactions have been elimi-nated in the consolidation. Investments in affiliates of whichthe Company has the ability to exercise significant influenceover operating and financial policies, except for insignificantcompanies, are accounted for using the equity method and,accordingly, stated at cost adjusted for the earnings andlosses after elimination of unrealized intercompany profitsfrom the date of acquisition. The effect of adopting theRevised Accounting Principles is immaterial.

Investments in unconsolidated subsidiaries and affiliatesnot accounted for by the equity method are carried at cost,

adjusted for any substantial and nonrecoverable diminutionin value.

In the elimination of investments in subsidiaries, assetsand liabilities of the subsidiaries, including the portionattributable to minority shareholders, are evaluated using thefair value at the time the Company acquired control of therespective subsidiaries.

Consolidation difference is amortized over a period offive years on a straight-line basis.

(b) Translation of Foreign CurrenciesPreviously, foreign currency amounts were translated intoJapanese yen amounts on the basis of historical rates for cur-rent and noncurrent receivables and payables. Commencingwith the year ended March 31, 2001, they are translatedinto Japanese amounts on the basis of current rates in accor-dance with the revised Accounting Principles for Translationof Foreign Currencies (the “Revised Accounting Principlesfor Translation”) effective from the year ended March 31,2001. As a result of the change, income before income taxesand minority interests has increased by ¥774 million


($6,426 thousand) for the year ended March 31, 2001,compared with what would have been recorded under theprevious accounting standard.

The financial statements of consolidated foreign subsid-iaries are translated into Japanese yen amounts at the currentrate, except for shareholders’ equity, which is translated athistorical rates. The difference resulting from exchangeadjustments was included in assets or liabilities, previously.Commencing with the year ended March 31, 2001, it is pre-sented as a reduction of shareholders’ equity (¥2,096 million($16,920 thousand) and included in minority interests (¥812million ($6,553 thousand)) in accordance with the RevisedAccounting Principles for Translation. The prior year’samount, which is included in assets, has not been reclassified.

(c) Allowance for Doubtful AccountsAllowance for doubtful accounts is provided in amountsufficient to cover probable losses on collection. It consists ofindividually estimated uncollectible amounts and an amountcalculated using the rate of actual losses on collection in thepast.

(d) InventoriesNonferrous metals are stated at cost, determined by the first-in, first-out (FIFO) method. Inventories of cement andrelated businesses are stated at cost, primarily determined bythe average method. Other inventories are stated primarilyat the lower of average cost or market.

(e) Derivative Transaction and Hedge AccountingEffective April 1, 2000, the new Accounting Standard forFinancial Instruments, requires the company and its consoli-dated subsidiaries and affiliates (the “Companies”) to statederivative financial instruments at fair value and recognizegains or losses unless derivative financial instruments areused for hedging purposes.

If derivative financial instruments are used as a hedgeand meet certain hedging criteria, the Companies deferrecognition of gains or losses resulting from changes in fairvalue of derivative financial instruments until the relatedlosses or gains on the hedged items are recognized.

However, in cases where forward foreign exchange con-tracts are used as hedge and meet certain hedging criteria,forward foreign exchange contracts and hedged items are

accounted for in the following manner:1. If a forward foreign exchange contract is executed to

hedge an existing foreign currency receivable or payable,(1) the difference, if any, between the Japanese yenamount of the hedged foreign currency receivable or pay-able translated using the spot rate at the inception date ofthe contract and the book value of the receivable orpayable is recognized in the consolidated statements ofoperations in the period which includes the inceptiondate, and(2) the discount or premium on the contract (that is, thedifference between the Japanese yen amount of the con-tract translated using the contracted forward rate andthat translated using the spot rate at the inception date ofthe contract) is recognized over the term of the contract.

2. If a forward foreign exchange contract is executed tohedge a future transaction denominated in foreign cur-rency, the future transaction will be recorded using thecontracted forward rate, and no gains or losses on theforward foreign exchange contract are recognized.Also, if interest rate swap contracts are used as hedge and

meet certain hedging criteria, the net amount to be paid orreceived under the contract is added to or deducted fromthe interest on the assets or liabilities for which the swapcontract was executed.

The adoption of the new Accounting Standard forFinancial Instruments did not have a material impact on netincome with respect to derivative transactions.

As a result of the adoption of hedge accounting, the newAccounting Standard for Financial Instruments did nothave a material impact on net income with respect toderivative transactions.

(f ) SecuritiesPreviously, securities listed on exchanges were valued at thelower of cost or market, cost being determined by the mov-ing average method. Unlisted securities were carried at cost,determined by the moving average method, adjusted for anysubstantial and nonrecoverable diminution in value.

Effective April 1, 2000, the Companies adopted the newAccounting Standard for Financial Instruments.

In accordance with the new Accounting Standard forFinancial Instruments, the Companies examined the intentof holding each security and classified those securities as


(a) securities held for trading purposes, (b) debt securitiesintended to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued byunconsolidated subsidiaries and affiliates (hereafter, “equitysecurities”) and (d) all other securities that are not classifiedin any of the above categories (hereafter, “available-for-salesecurities”).

Held-to-maturity debt securities are stated at amortizedcost. Equity securities, which are not accounted for usingthe equity method, are stated at moving-average cost.Available-for-sale securities with available fair market valueare stated at fair market value. Unrealized gains and losseson these securities are reported, net of applicable incometaxes, as a separate component of shareholders’ equity.Realized gains and losses on sale of such securities arecomputed using moving-average cost. Available-for-salesecurities with no available fair market value are stated atmoving-average cost. There are no securities held fortrading purpose.

If the market value of held-to-maturity debt securities,equity securities and available-for-sale securities declines sig-nificantly, such securities are stated at fair market value andthe difference between fair market value and the carryingamount is recognized as losses in the period of the decline. Ifthe fair market value of these securities is not readily avail-able, such securities should be written down to net asset valuewith corresponding charge in the consolidated statements ofoperations in the event net asset value declines significantly.In these cases, such fair market value or the net asset valuewill be the carrying amount of the securities at the beginningof the next year.

As a result of adopting the new Accounting Standard forFinancial Instruments, income before income taxes andminority interests increased by ¥4,238 million ($34,205thousand) for the year ended March 31, 2001, comparedwith what would have been recorded under the previousaccounting standard.

Also, based on the examination of the intent of holdingeach security upon application of the new AccountingStandard for Financial Instruments at April 1, 2000, held-to-maturity debt securities and available-for-sale securitiesmaturing within one year from the balance sheet date arereported as marketable securities, and equity securities arereported as Investments and Long-term receivables:

Unconsolidated subsidiaries and affiliates, and other securitiesare reported as Investments in securities. As a result,Marketable securities decreased by ¥89,197 million($719,911 thousand) and Investments in securities increasedby the same amount at April 1, 2000.

(g) Property, Plant and Equipment and DepreciationProperty, plant and equipment are stated at cost, except forcertain revalued land as explained in Note 14. Depreciationis calculated primarily using the declining-balance method atrates based on the estimated useful lives of depreciable assets.The straight-line method is applied to certain plant facilities,such as those in the Naoshima Smelter, based on theestimated useful lives of those depreciable assets.

The useful lives of the assets range from two to 65 yearsfor buildings and structures and two to 45 years formachinery and equipment.

Cost and accumulated depreciation applicable to assetsretired or otherwise disposed of are eliminated from therelated accounts, and gain on sale or loss on disposal is cred-ited or charged to income. Expenditures for new facilitiesand those which substantially increase the useful lives ofexisting property, plant and equipment are capitalized.Maintenance, repair and minor renewals are charged toincome as incurred.

(h) Finance LeasesFinance leases, except those leases for which the ownership ofthe leased assets is considered to be transferred to the lessee,are accounted for in the same manner as operating leases.

(i) Severance and Pension Benefits(1) For employees

The Companies provide two types of post-employmentbenefit plans, unfunded lump-sum severance paymentand funded pension plans, under which all eligibleemployees are entitled to benefits based on the level ofwages and salaries at the time of retirement or termina-tion, length of service and certain other factors.

Due to the revision of the pension contract, the fund-ing period for prior service costs of the Company wasreduced in the year ended March 31, 2000, and priorservice costs relating to these pension plans are nowprimarily funded over five years.


At March 31, 2000, the Companies accrued a liabil-ity for lump-sum severance payments primarily equal to40% of the amount required had all eligible employeesvoluntarily terminated their employment at the balancesheet date. The Companies recognized pension expensewhen, and to the extent, payments were made to thepension fund.

Effective April 1, 2000, the Companies adopted thenew Accounting Standard for Employees’ Severance andPension Benefits.

Under the new Accounting Standard for Employees’Severance and Pension Benefits, allowance and expensesfor severance and pension benefits are determined basedon the amounts actuarially calculated using certainassumptions.

The Companies provided allowance for employees’severance and pension benefits at March 31, 2001 basedon the estimated amounts of projected benefit obligationand fair value of the plan assets at that date.

The excess of the projected benefit obligation overthe total of the fair value of pension assets as of April 1,2000 and the liabilities for retirement and severancebenefits recorded as of April 1, 2000 (“net transitionobligation”) amounted to ¥67,327 million ($543,397thousand), of which ¥14,222 million ($114,786 thou-sand) was recognized as expense as a result of the contri-bution of investments in securities worth the sameamount to an employee retirement benefit trust.Remaining net transition obligation is recognized asexpense in equal amounts mainly over five years, com-mencing with the year ended March 31, 2001. Priorservice costs incurred after April 1, 2000 are recognizedas expense using the straight-line method over the esti-mated average remaining service life of the employees(mainly five years), commencing with the year endedMarch 31, 2001, and actuarial gains and losses are alsorecognized as expense using the straight-line method overthe estimated average remaining service life (mainly 10years), commencing from the succeeding period.

As a result of the adoption of the new AccountingStandard for Employees’ Severance and Pension Benefits,in the year ended March 31, 2001 severance and pensionbenefit expense has increased by ¥15,880 million

($128,167 thousand), operating profit increased by¥1,758 million ($14,196 thousand) and income beforeincome taxes and minority interests decreased by ¥4,960million ($40,032 thousand), considering the gain onvaluation of securities due to contribution of the securi-ties to employee retirement benefit trust of ¥11,125million ($89,787 thousand), compared with what wouldhave been recorded under the previous accounting stan-dard. Also, retirement and severance benefits in the yearended March 31, 2000 is included in severance andpension benefits in the year ended March 31, 2001.

(2) For officersOfficers (directors and corporate auditors) are entitled tolump-sum severance payments based on the length ofservice and certain other factors.

The Companies accrued a liability for lump-sumseverance payments equal to 100% of the amountrequired had all officers voluntarily retired at the balancesheet date.

(j) Reserve for Loss on Consolidated SubsidiariesPossible losses on consolidated subsidiaries are provided forbased on the evaluation of individual financial and otherconditions of subsidiaries.

(k) Reserve for Foreign Exchange LossesReserve for foreign exchange losses represents the amountprovided for estimated possible losses as at March 31, 2000resulting from settlement of the monthly strip knockout for-ward contract. Further information is provided in Note 12.

(l) Income TaxesFor the year ended March 31, 1998, deferred income taxeswere recognized only to the extent of temporary differencesrelated to the elimination of intercompany profits whicharose as a result of the consolidation of subsidiaries. EffectiveApril 1, 1998, the Company adopted the new accountingstandard, which recognizes tax effects of temporary differ-ences. The 1998 consolidated financial statements have notbeen restated. The cumulative effect of adopting the newaccounting standard was ¥22,553 million, which wasdirectly subtracted from the retained earnings brought for-ward from March 31, 1998. The effect of the change for the


Note 3—InventoriesInventories at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Products ¥061,086 ¥065,262 $0,493,026Semifinished products and work in process 78,492 62,682 633,509Raw materials and supplies 46,182 45,692 372,742

¥185,760 ¥173,636 $1,499,277

Note 4—Short-Term Bank Loans, Commercial Paper and Long-Term DebtShort-term bank loans and commercial paper outstanding at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Unsecured ¥356,458 ¥428,805 $2,876,984Secured 14,267 23,635 115,146

Total short-term debt ¥370,725 ¥452,440 $2,992,130

Short-term bank loans and commercial paper outstanding bore interest at annual rates of 0.1% to 10.0% and 0.1% to 10.5%at March 31, 2001 and 2000, respectively.

year ended March 31, 1999 was to decrease net loss by¥10,407 million and retained earnings by ¥12,145, com-pared with what would have been recorded under theprevious accounting standard.

(m) Bonuses to Directors and Corporate AuditorsBonuses to directors and corporate auditors are subject toapproval by the shareholders and accounted for as anappropriation of retained earnings for the year in whichpayment is made.

(n) Net Income (Loss) per ShareNet income (loss) per share is computed based upon theweighted average number of shares of common stockoutstanding during each period.

Diluted net income per share assumes that outstandingconvertible bonds were converted into common stock at thebeginning of the period at the current conversion price.Diluted net loss for the year ended March 31, 2000 and1999 were not presented as per share amounts were losses.


The aggregate annual maturities of long-term debt at March 31, 2001 were as follows:

Thousands ofYear ending March 31 Millions of yen U.S. dollars

2002 ¥107,349 $0,866,4162003 111,067 896,4212004 80,280 647,9472005 61,392 495,4962006 75,054 605,7602007 and thereafter 83,716 675,679

¥518,858 $4,187,719

Long-term debt at March 31, 2001 and 2000 consisted of the following:


2001 2000 2001

Banks, insurance companies and other financial institutions, maturing serially through 2030—1.29%–9.95% and 0.00%–12.00% per annum:

Secured ¥121,818 ¥126,562 $2,983,196Unsecured 217,241 234,650 1,753,361

2.2% unsecured convertible yen debentures, due 2004 10,349 10,349 83,5272.2% unsecured convertible yen debentures, due 2001 — 4,929 —0.95% unsecured convertible yen debentures, due 2005 49,260 49,260 397,579Floating rate (six-month Japanese yen-LIBOR) unsecured yen notes, due 2004 5,000 5,000 40,3554.50% unsecured yen bonds, due 2002 10,000 10,000 80,7104.35% unsecured yen bonds, due 2001 — 10,000 —2.75% unsecured yen bonds, due 2002 20,000 20,000 161,4212.55% unsecured yen bonds, due 2001 15,000 15,000 121,0652.25% unsecured yen bonds, due 2000 — 15,000 —2.40% unsecured yen bonds, due 2001 20,000 20,000 161,4212.425% unsecured yen bonds, due 2003 10,000 10,000 80,7103.10% unsecured yen bonds, due 2008 10,000 10,000 80,7102.125% unsecured yen bonds, due 2004 10,000 10,000 80,7101.775% unsecured yen bonds, due 2002 10,000 10,000 80,7101.875% unsecured yen bonds, due 2003 10,000 10,000 80,7102.495% unsecured yen bonds, due 2005 190 190 1,534

518,858 570,940 4,187,719Less current portion (107,349) (77,975) (866,416)

¥411,509 ¥492,965 $3,321,303

The 2.2% unsecured convertible yen debentures due2004 are currently convertible at ¥850.30 ($6.86) for oneshare through March 30, 2004. At March 31, 2001, 12,171thousand additional shares of common stock in the aggre-gate would be issued upon full conversion at the currentconversion price.

The 0.95% unsecured convertible yen debentures due2005 are currently convertible at ¥514 ($4.15) for one sharethrough September 29, 2005. At March 31, 2001, 95,837thousand additional shares of common stock would beissued upon full conversion at the current conversion price.


Note 5—Severance and Pension BenefitsSeverance and pension benefits included in the liability section of the consolidated balance sheets as of March 31, 2001consists of the following:


Projected benefit obligation ¥147,792 $1,192,832Unrecognized prior service costs 7,009 56,565Unrecognized actuarial differences (12,228) (98,691)Less fair value of pension assets (68,612) (553,767)Less unrecognized net transition obligation (42,064) (339,502)Prepaid pension costs 816 6,586

Subtotal 32,713 264,023Allowance for officers’ lump-sum severance benefits 2,680 21,631Severance and pension benefits ¥035,393 $0,285,654

Severance and pension benefit expense included in the consolidated statements of operations for the year ended March 31,2001 consists of the following:


Service costs—benefits earned during the year ¥07,115 $057,429Interest cost on projected benefit obligation 4,000 32,283Expected return on plan assets (1,627) (13,131)Amortization of prior service costs (815) (6,582)Amortization of actuarial differences — —Amortization of net transition obligation 25,263 203,898Officers’ lump-sum severance benefit expense (280) (2,257)Severance and pension benefit expense ¥33,656 $271,640

Assets pledged as collateral primarily for short-term loans and long-term debt at March 31, 2001, were as follows:


Cash ¥001,074 $0,008,665Notes and accounts receivable 4,432 35,768Inventories 11,149 89,987Investments and long-term receivables:

Investments in securities 3,509 28,321Unconsolidated subsidiaries and affiliates 1,060 8,558

Property, plant and equipment, at net book value 199,156 1,607,394Other 378 3,052

¥220,758 $1,781,745

The discount rate and the rate of expected return on planassets used by the Companies are mainly 3.5%. The esti-mated amounts of all retirement benefits to be paid at thefuture retirement date is allocated equally to each serviceyear using the estimated number of total service years.

The above information is required to be presented inthe footnotes effective the year ended March 31, 2001 dueto the adoption of the new Accounting Standard forEmployees’ Severance and Pension Benefits.


Note 7—Income TaxesIncome taxes (benefit) reflected in the accompanying consolidated statements of operations for the year ended March 31,2001, 2000 and 1999 consists of the following:


2001 2000 1999 2001

Current ¥13,274 ¥)6,003 ¥0)6,276 $107,137Deferred (2,925) (4,190) (12,233) (23,609)

¥10,349 ¥)1,813 ¥0(5,957) $083,528

Note 6—Shareholders’ EquityDuring the year ended March 31, 1999, the Companypurchased and retired 16,838,000 shares of treasury stockat a cost of ¥3,893 million and the number of authorizedand issued shares of common stock was decreased by thatnumber.

The maximum amount that the Company can distributeas dividends is calculated based on the nonconsolidatedfinancial statements of the Company in accordance withthe Code.

Under the Code, at least 50% of the issue price of newshares, with a minimum equal to par value thereof, isrequired to be designated as common stock. The portion

which is not transferred to common stock is determinedby resolution of the Board of Directors. Proceeds nottransferred to common stock are credited to additional paid-in capital.

Under the Code, certain amounts of retained earnings,equal to at least 10% of cash dividends, and bonuses todirectors and corporate auditors must be set aside as a legalreserve until the reserve equals 25% of common stock. Thereserve is not available for dividends, but may be used toreduce a deficit by resolution of the shareholders or capital-ized by resolution of the Board of Directors. Legal reserve isincluded in Retained earnings.

In the years ended March 31, 2001 and 2000, the information for severance and pension benefits were as follows.Millions of yen

2001 2000

Charges to income for employees’ and officers’ retirement and severance benefits and pension costs ¥23,884 ¥19,096

The Companies are subject to a number of different incometaxes which, in the aggregate, indicate a statutory tax rate of

approximately 42.1%, 42.1% and 47.8% for the yearsended March 31, 2001, 2000 and 1999, respectively.

The following table summarizes the significant differences between the statutory income tax rate and the effective income taxrate for the year ended March 31, 2001:

2001

Statutory tax rate 42.1%Investments in consolidated subsidiaries (24.4)Unrecognized tax benefits for subsidiaries in loss positions 18.1Nondeductible expenses 7.7Equity in earnings of affiliates 3.7Differences in statutory tax rates of consolidated subsidiaries 3.7Par capita inhabitants’ taxes 2.5Differences in statutory tax rates on unrealized profit 2.4Amortization of consolidation differences 1.3Other (0.8)Effective tax rate 56.3%


Significant components of deferred income tax assets and liabilities as of March 31, 2001 and 2000 were as follows:

Thousands ofMarch 31, 2001 Millions of yen U.S. dollars

Deferred income tax assets:Net operating loss carryforwards ¥ 29,876 $ 241,128Intercompany profits 20,533 165,721Severance and pension benefits 8,999 72,632Allowance for doubtful accounts 4,542 36,657Accrued employees’ bonuses 2,713 21,898Reserve for loss on consolidated subsidiaries 2,588 20,885Write down of securities 2,225 17,957Interest receivable 1,938 15,642Other 9,665 78,015Subtotal 83,079 670,535Valuation allowance (15,688) (126,617)

Total deferred income tax assets ¥(67,391 $)543,918

Deferred income tax liabilities:Deferred gain on sale of property, plant and equipment (28,902) (233,269)Reserves deductible for Japanese tax purposes (2,376) (19,180)Accelerated depreciation of property, plant and equipment (8,996) (72,609)Difference between the book value and fair value of the assets and liabilities of the consolidated subsidiaries and affiliates at the acquisition date (10,935) (88,255)Other (6,638) (53,579)Net unrealized holding gains on securities (2,173) (17,541)

Total deferred income tax liabilities (60,020) (484,433)Net deferred income tax assets ¥ 07,371 $ 059,485Deferred income taxes for revaluation reserve for land ¥0(7,245) $0(58,473)


Note 9—Lease TransactionsFinance leases, except those leases for which the ownership of the leased assets is considered to be transferred to the lessee,were as follows:(1) Equivalent of purchase price, accumulated depreciation and book value of leased properties

Millions of yen Thousands of U.S. dollars

2001 2001

Machinery Machineryequipment equipment

and vehicles Tools Other Total and vehicles Tools Other Total

Purchase price ¥16,558 ¥7,585 ¥1,065 ¥25,208 $133,638 $61,216 $8,602 $203,456Accumulated depreciation 6,633 4,839 677 12,149 53,534 39,052 5,473 98,059Book value ¥09,925 ¥2,746 ¥0,388 ¥13,059 $080,104 $22,164 $3,129 $105,397

Note 8—Contingent LiabilitiesContingent liabilities for notes receivable discounted withbanks, notes receivable endorsed with recourse and loansguaranteed by the Company and its consolidated

subsidiaries primarily on behalf of unconsolidated subsid-iaries and affiliates, including employees’ housing loans frombanks, at March 31, 2001 were as follows:


Notes receivable discounted ¥17,569 $141,797Notes receivable endorsed 357 2,886Loans guaranteed 61,026 492,543

¥78,952 $637,226

March 31, 2000 Millions of yen

Deferred income tax assets:Intercompany profits ¥ 19,580Loss on investments in consolidated subsidiaries 13,930Retirement and severance benefits 4,527Net operating loss carryforward 18,178Accrued employees’ bonuses 1,555Other 6,336Subtotal 64,106Valuation allowance (16,376)

Total deferred income tax assets ¥)47,730

Deferred income tax liabilities:Deferred gain on sale of property, plant and equipment (27,813)Reserves deductible for Japanese tax purposes (2,542)Other (11,041)

Total deferred income tax liabilities (41,396)Net deferred income tax assets ¥)06,334Deferred income taxes for revaluation reserve for land ¥0(6,925)


(2) Lease commitmentsThousands of

Millions of yen U.S. dollars

2001 2000 2001

Due within one year ¥03,463 ¥03,689 $027,950Due after one year 9,596 10,857 77,447

Total ¥13,059 ¥14,546 $105,397

(3) Lease expenses and depreciation equivalentsThousands of


2001 2000 1999 2001

Lease expenses ¥3,827 ¥4,454 ¥4,635 $30,887Depreciation equivalents 3,827 4,454 4,635 30,887

Noncancelable operating lease commitments were as follows:Thousands of


2001 2000 2001

Due within one year ¥02,080 ¥01,787 $016,785Due after one year 11,550 12,535 93,222

Total ¥13,630 ¥14,322 $110,007

Note 10—Research and Development ExpensesResearch and development expenses for each of the threeyears in the period ended March 31, 2001, were ¥15,437million ($124,592 thousand), ¥14,762 million and ¥17,830

million, respectively, and were included in selling, generaland administrative expenses.

Note 11—Securities1. The following tables summarize acquisition costs, book value and fair value of securities with available fair values as ofMarch 31, 2001:(1) Held-to-maturity debt securities


Book value Fair value Difference Book value Fair value Difference

Securities with available fair value exceeding book value ¥1 ¥2 ¥1 $8 $18 $10


(2) Available-for-sale securitiesMillions of yen Thousands of U.S. dollars

Acquisition cost Book value Difference Acquisition cost Book value Difference

Securities with book value exceeding acquisition costs:

Equity securities ¥32,122 ¥48,410 ¥16,288 $259,260 $390,720 $131,460Bonds 1 1 0 7 7 0

Total ¥32,123 ¥48,411 ¥16,288 $259,267 $390,727 $131,460Other securities:

Equity securities ¥46,185 ¥40,132 ¥,(6,053) $372,762 $323,910 $,(48,852)Bonds 4 3 (1) 32 27 (5)Others 20 16 (4) 165 125 (40)

Total ¥46,209 ¥40,151 ¥,(6,058) $372,959 $324,062 $,(48,897)

2. The following table summarizes book values of securities with no available fair value as of March 31, 2001:


Book value Book value

Held-to-maturity debt securities:Government or local bonds ¥00,150 $001,211Others 23 188

Total ¥00,173 $001,399Available-for-sale securities:

Nonlisted equity securities ¥15,157 $122,336Corporate bonds 27 216Others 655 5,284

Total ¥15,839 $127,836

3. The following tables summarize maturities of available-for-sale securities with maturity and held-to-maturity debt securitiesas of March 31, 2001:

Millions of yen

Over one year Over five yearsWithin but within but within Over

one year five years ten years ten years Total

Available-for-sale securities:Government or local bonds ¥0—. ¥001 ¥— ¥— ¥001Corporate bonds 8 22 — — 30Others 540 130 — 1 671

Held-to-maturity debt securities:Government or local bonds — 150 — — 150Corporate bonds — 1 — — 1Others 11 12 — — 23

Total ¥559 ¥316 ¥— ¥01 ¥876


Thousands of U.S. dollars

Over one year Over five yearsWithin but within but within Over

one year five years ten years ten years Total

Available-for-sale securities:Government or local bonds $0,0—. $0,006 $— $— $0,006Corporate bonds 69 175 — — 244Others 4,353 1,045 — 11 5,409

Held-to-maturity debt securities:Government or local bonds — 1,211 — — 1,211Corporate bonds — 8 — — 8Others 91 97 — — 188

Total $4,513 $2,542 $— $11 $7,066

4. Total sales amounts of available-for-sale securities sold in the year ended March 31, 2001 amounted to ¥19,721 million($159,172 thousand), and gains and losses amounted to ¥5,271 million ($42,542 thousand) and ¥1,586 million ($12,801thousand), respectively.

5. At March 31, 2000, book value, market value and net unrealized gains (losses) of quoted securities of the Company and itsconsolidated subsidiaries were as follows:

Millions of yen

Book Market Unrealizedvalue value gains (losses)

Current assets:Equity securities ¥087,236 ¥125,249 ¥38,013Others 2,836 2,706 (130)

Noncurrent assets:Equity securities 33,766 32,710 (1,056)Others 107 112 5

¥123,945 ¥160,777 ¥36,832

The information required in the footnotes for securities was changed, effective the year ended March 31, 2001, due to theadoption of the new Accounting Standard for Financial Instruments.

Note 12—Derivative TransactionsDerivative financial instruments currently utilized by theCompany and its consolidated subsidiaries include foreigncurrency forward contracts, interest rate swap contracts,interest option contracts, currency swap contracts, currencyoption contracts and commodity forward contracts.

The Company uses foreign currency forward contractsto hedge foreign currency fluctuation on foreign currencyreceivables and payables and for the purpose of hedging riskin foreign currency fluctuation on advance payments associ-ated with the purchase of ores. The Company enters intointerest rate swap contracts to lower finance costs on debts

and reduce exposure to adverse movements in interest rates.The Company also utilizes commodity forward contracts tohedge price fluctuations for nonferrous metal inventoriesheld and for the purpose of hedging risk in fluctuation ofcommodity prices arising in cases where the selling price ofnonferrous metals in the future is fixed at the futures price.

Consolidated subsidiaries also use foreign currencyforward contracts and currency swap contracts to hedge for-eign currency fluctuation on foreign currency receivables andpayables and commodity forward contracts to hedge the pricefluctuations for nonferrous metal inventories held. One of the


consolidated subsidiaries, engaged in finance businesses,executed foreign currency monthly strip knockout forwardcontracts and interest rate swap contracts for trading purpose.

The Company and its consolidated subsidiaries areexposed to interest rate fluctuation risks relating to interestrate swap contracts, which change the fixed interest rates oncertain debts to floating interest rates. The transactions uti-lized by the consolidated subsidiary, engaged in finance busi-nesses, for trading purpose are exposed to the fluctuation risksof foreign currency and market interest rates. Losses on suchcontracts were accrued as Long-term liabilities—others on thebalance sheets as of March 31, 2001, and such contracts weresettled in April 2001. No other derivative transactions havebeen executed for trading purposes, and the managementintends not to execute derivative transactions for tradingpurposes in the future.

The counterparties of those derivative contracts are Japa-nese and overseas companies and financial institutions withhigh credit standing, and therefore it is anticipated that thosecounterparties will be able to fully satisfy their obligationsunder contracts.

The Company has set the “Rules on Utilizing DerivativeTransactions” in the “Operation Standards” applicable to theCompany overall. In addition, there are specific rules and

standards for derivative transactions set for each business unitbased on their business. In accordance with the authority andlimits set in these rules and standards, foreign currency for-ward contracts are utilized and controlled by the accountingdepartment and other responsible departments, interest rateswap contracts by the accounting department, and commod-ity forward contracts by each responsible department. Further,departments utilizing derivative transactions are required toreport the status and results of derivative transactions to thefinancial risk transaction control section at each annual andsemi-annual year-end.

Consolidated subsidiaries utilizing derivative transactionshave set the operational standards individually, in accordancewith which the derivative transactions are utilized.

The Companies evaluate hedge effectiveness by compar-ing the cumulative changes in cash flows from or thechanges in fair value of hedged items and the correspondingchanges in the hedging derivative instruments. Further, theCompanies periodically control the transaction volume ofcommodity forward contracts to balance them with hedgednonferrous metal inventories held and forward contracts andevaluate their hedge effectiveness at each annual andsemiannual year-end.

At March 31, 2001, the Company and its consolidated subsidiaries had outstanding derivative transactions as below:(a) Foreign Currency Contracts

Millions of yen

Contract amounts

Due within Due after Unrealizedone year one year Total Fair value gains (losses)

Forward exchange contracts:Sell U.S. dollars ¥23,302 ¥0,0—. ¥23,302 ¥24,912 ¥(1,610)

Others 935 — 935 976 (41)Buy U.S. dollars 7,190 4,137 11,327 13,149 1,822

Others 1,184 — 1,184 1,032 (152)Monthly strip knockout forward contracts:

Buy U.S. dollars 29,900 — 29,900 (2,609) (2,508)<101> — <101>

Currency swap contracts:Pay yen, receive U.S. dollars 10,000 — 10,000 87 87Pay U.S. dollars, receive yen 2,322 — 2,322 118 118

Currency options contracts:Call U.S. dollars 953 — 953 9 9

<—> <—> <—>Put U.S. dollars 953 — 953 (6) 15

<21> <—> <21>Total ¥(2,260)

* The amounts in brackets < > represent option fees applicable for currency option contracts.



Contract amounts


Forward exchange contracts:Sell U.S. dollars $188,072 $00,0—. $188,072 $201,066 $(12,994)

Others 7,543 — 7,543 7,876 (333)Buy U.S. dollars 58,029 33,393 91,422 106,125 14,703

Others 9,555 — 9,555 8,327 (1,228)Monthly strip knockout forward contracts:

Buy U.S. dollars 241,324 — 241,324 (21,061) (20,241)<820> <—> <820>

Currency swap contracts:Pay yen, receive U.S. dollars 80,710 — 80,710 701 701Pay U.S. dollars, receive yen 18,741 — 18,741 951 951

Currency options contracts:Call U.S. dollars 7,692 — 7,692 78 78

<—> <—> <—>Put U.S. dollars 7,692 — 7,692 (46) 126

<172> <—> <172>Total $(18,237)

* The amounts in brackets < > represent option fees applicable for currency option contracts.

Fair value of forward exchange contracts is stated based onthe quoted market price. Fair value of monthly strip knock-out forward contracts, currency swap contracts and currencyoptions contracts are stated based on the current offer pricefrom financial institutions.

The above information does not contain forward ex-change contracts executed to hedge existing foreign currencyreceivables or payables.

Forward exchange contracts shown above are primarilyutilized for the purpose of hedging risk in foreign currencyfluctuation on advance payments associated with the pur-chase of ores, and unrealized gains or losses are deferred untilrelated losses or gains on the hedged items are recognized.

Unrealized losses on monthly strip knockout forwardcontracts were accrued as Long-term liabilities—others as ofMarch 31, 2001.

(b) Interest Rate ContractsMillions of yen

Notional amounts


Interest rate swap contracts:Pay floating rate, receive fixed rate ¥20,000 ¥3,700 ¥23,700 ¥267 ¥)267Pay fixed rate, receive floating rate 6,885 51,066 57,951 (713) (713)

Interest rate options:Buy interest rate cap options <35,000 100 35,100 (0) (88)

<85> <3> <88>

Total ¥(534)* The amounts in brackets < > represent option fees applicable for interest rate cap options.



Notional amounts


Interest rate swap contracts:Pay floating rate, receive fixed rate $161,420 $029,863 $191,283 $)2,153 $)2,153Pay fixed rate, receive floating rate 55,569 412,154 467,723 (5,756) (5,756)

Interest rate options:Buy interest rate cap options <282,486 807 283,293 (12) (706)

<693> <25> <718>

Total $(4,309)

* The amounts in brackets < > represent option fees applicable for interest rate cap options.

Fair value is stated based on the current offer price from financial institutions.In respect to interest rate swap contracts used as hedge and meet certain hedging criteria, the net amounts to be paid or

received under the interest rate swap contract were added to or deducted from the interest on the liabilities for which the swapcontract was executed, and the information for such contracts are included in the above footnote.

(c) Commodity ContractsMillions of yen

Contract amounts


Nonferrous metals forward:Sell ¥34,011 ¥0,0—. ¥34,001 ¥34,491 ¥(490)Buy 22,960 2,612 25,572 26,109 537

Total ¥947


Contract amounts


Nonferrous metals forward:Sell $274,424 $00,0—. $274,424 $278,382 $(3,958)Buy 185,316 21,080 206,396 210,729 4,333

Total $)0,375

Fair value is stated based on the quoted market price.Unrealized gains or losses on commodity forward contracts, which are utilized to hedge the future price fluctuations for

nonferrous metals, are deferred until related losses or gains on the hedged items are recognized.Unrealized gains or losses on commodity forward contracts, under which the Company and its consolidated subsidiaries

have clear intention to make physical commodities delivery, are not recorded on the balance sheets.


Note 13—Segment InformationThe Companies operate primarily in the production andsales of silicon and advanced materials, fabricated metalproducts, nonferrous metals, cement products and others.Silicon and advanced materials comprise silicon wafers andadvanced products, such as surge absorbers and chip ther-mistors; fabricated metal products comprise powder metal-lurgical products, molding dies, motors, special alloy

products, industrial machinery, aluminum cans and pro-cessed copper products; nonferrous metals comprise gold,silver and copper; cement products comprise cement,cement-related products and ready-mixed concrete; andothers comprise a broad range of energy-related andenvironmental businesses and real estate business.

(a) Business segment information for the years ended March 31, 2001, 2000 and 1999 is as follows:

Millions of yen

Silicon and Fabricated Elimination andadvanced metal Nonferrous Cement corporate assets

Year ended March 31, 2001 materials products metals products Others Total or expenses Consolidated

Sales:Unaffiliated customers ¥160,937 ¥374,606 ¥222,552 ¥185,792 ¥200,181 ¥1,144,068 ¥000,0—. ¥1,144,068Intersegment 5,914 21,883 37,535 4,158 38,755 108,245 (108,245) —

Total 166,851 396,489 260,087 189,950 238,936 1,252,313 (108,245) 1,144,068Operating expenses 151,546 370,375 257,792 174,601 227,620 1,181,934 (103,693) 1,078,241Operating profit (loss) ¥015,305 ¥026,114 ¥002,295 ¥015,349 ¥011,316 ¥0,070,379 ¥0,(4,552) ¥0,065,827

Identifiable assets ¥271,220 ¥446,632 ¥261,763 ¥246,479 ¥249,680 ¥1,475,774 ¥140,070 ¥1,615,844Depreciation ¥025,830 ¥021,931 ¥010,712 ¥011,405 ¥007,498 ¥0,077,376 ¥001,607 ¥0,078,983Capital expenditures ¥029,812 ¥026,472 ¥011,608 ¥008,155 ¥003,476 ¥0,079,523 ¥004,239 ¥0,083,762




Sales:Unaffiliated customers $1,298,931 $3,023,455 $1,796,223 $1,499,530 $1,615,662 $09,233,801 $0,000,0—. $09,233,801Intersegment 47,730 176,620 302,949 33,559 312,793 873,651 (873,651) —

Total 1,346,661 3,200,075 2,099,172 1,533,089 1,928,455 10,107,452 (873,651) 9,233,801Operating expenses 1,223,134 2,989,304 2,080,646 1,409,208 1,837,126 9,539,418 (836,911) 8,702,507Operating profit (loss) $0,123,527 $0,210,771 $0,018,526 $0,123,881 $0,091,329 $00,568,034 $00(36,740) $00,531,294

Identifiable assets $2,189,020 $3,604,779 $2,112,692 $1,989,337 $2,015,183 $11,911,011 $1,130,508 $13,041,519Depreciation $0,208,478 $0,177,008 $0,086,456 $0,092,049 $0,060,517 $00,624,508 $0,012,967 $00,637,475Capital expenditures $0,240,617 $0,213,657 $0,093,685 $0,065,823 $0,028,048 $00,641,830 $0,034,213 $00,676,043


Millions of yen



Sales:Unaffiliated customers ¥132,774 ¥301,246 ¥203,792 ¥171,051 ¥178,021 ¥0,986,884 ¥000,0—. ¥0,986,884Intersegment 3,235 22,207 20,247 629 32,227 78,545 (78,545) —

Total 136,009 323,453 224,039 171,680 210,248 1,065,429 (78,545) 986,884Operating expenses 137,420 308,606 224,136 160,263 203,544 1,033,969 (74,314) 959,655Operating (loss) profit ¥,,,(1,411) ¥014,847 ¥00,,0(97) ¥011,417 ¥006,704 ¥0,031,460 ¥0,(4,231) ¥0,027,229


Millions of yen



Sales:Unaffiliated customers ¥130,989 ¥296,773 ¥210,389 ¥185,302 ¥160,331 ¥0,983,784 ¥000,0—. ¥0,983,784Intersegment 7,077 23,106 3,833 4,130 24,365 62,511 (62,511) —

Total 138,066 319,879 214,222 189,432 184,696 1,046,295 (62,511) 983,784Operating expenses 146,875 314,361 209,899 180,098 176,149 1,027,382 (54,003) 973,379Operating (loss) profit ¥,,,(8,809) ¥005,518 ¥004,323 ¥009,334 ¥008,547 ¥0,018,913 ¥(((8,508) ¥0,010,405


Due to the introduction of an improved management sys-tem in the year ended March 31, 2000, certain costs whichwere previously unallocated and included in “corporate” areallocated to responsible segments based on the degree ofbenefits received by each segment in fiscal 2000. As a resultof the change, the operating (loss) profit for silicon andadvanced materials, fabricated metal products, nonferrousmetals, cement products and others have decreased by ¥523million, ¥930 million, ¥379 million, ¥480 million and ¥288million, respectively, for the year ended March 31, 2000.However, there is no impact on the consolidated operatingprofit resulting from the change.

As described in Note 2, the Companies adopted the newAccounting Standard for Employees’ Severance and PensionBenefits effective April 1, 2000. As a result, operating profit

for silicon and advanced materials, fabricated metal pro-ducts, nonferrous metals, cements products, others andelimination and corporate assets or expenses have increasedby ¥225 million ($1,819 thousand), ¥600 million ($4,850thousand), ¥118 million ($949 thousand), ¥349 million($2,818 thousand), ¥354 million ($2,857 thousand) and¥112 million ($903 thousand), respectively, for the yearended March 31, 2001.

As described in Note 2, the companies adopted theRevised Accounting Principles for Translation in the yearended March 31, 2001. As a result, identifiable assets forelimination and corporate assets or expenses have decreasedby ¥1,283 million ($10,355 thousand) for the year endedMarch 31, 2001.


(b) Segment information by geographic area for the years ended March 31, 2001, 2000 and 1999 is as follows:

Millions of yen

Elimination andcorporate assets

Year ended March 31, 2001 Japan U.S.A.. Europe Asia Other Total or expenses Consolidated

Sales:Unaffiliated customers ¥0,985,032 ¥090,877 ¥7,011 ¥059,520 ¥1,628 ¥1,144,068 ¥(00,0—. ¥1,144,068Intersegment 30,771 3,401 30 21,713 — 55,915 (55,915) —

Total 1,015,803 94,278 7,041 81,233 1,628 1,199,983 (55,915) 1,144,068Operating expenses 947,681 93,390 6,747 80,736 1,523 1,130,077 (51,836) 1,078,241Operating profit (loss) ¥0,068,122 ¥000,888 ¥0,294 ¥000,497 ¥0,105 ¥0,069,906 ¥0(4,079) ¥0,065,827

Identifiable assets ¥1,356,155 ¥159,291 ¥4,985 ¥114,308 ¥2,333 ¥1,637,072 ¥(21,228) ¥1,615,844




Sales:Unaffiliated customers $07,950,218 $0,733,477 $56,588 $480,386 $13,132 $09,233,801 $(0,000—. $09,233,801Intersegment 248,357 27,445 241 175,248 — 451,291 (451,291) —

Total 8,198,575 760,922 56,829 655,634 13,132 9,685,092 (451,291) 9,233,801Operating expenses 7,648,759 753,753 54,459 651,626 12,285 9,120,882 (418,375) 8,702,507Operating profit (loss) $00,549,816 $0,007,169 $02,370 $004,008 $00,847 $00,564,210 $0(32,916) $00,531,294

Identifiable assets $10,945,562 $1,285,640 $40,231 $922,581 $18,834 $13,212,848 $(171,329) $13,041,519

Millions of yen



Sales:Unaffiliated customers ¥0,888,616 ¥067,896 ¥4,823 ¥031,950 ¥1,599 ¥0,986,884 ¥000,0—. ¥0,986,884Intersegment 19,621 972 47 19,092 1 39,733 (39,733) —

Total 900,237 68,868 4,870 51,042 1,600 1,026,617 (39,733) 986,884Operating expenses 862,976 74,665 4,849 51,981 1,376 995,847 (36,192) 959,655

Operating profit (loss) ¥0,037,261 ¥0,(5,797) ¥0,021 ¥0,0,(939) ¥0,224 ¥0,030,770 ¥(((3,541) ¥0,027,229

Identifiable assets ¥1,248,188 ¥138,652 ¥3,038 ¥104,566 ¥2,464 ¥1,496,908 ¥174,092 ¥1,671,000


(c) Overseas sales by geographic area for the years ended March 31, 2001, 2000 and 1999 are as follows:Millions of yen

Year ended March 31, 2001 U.S.A. Europe Asia Other Total

Overseas sales ¥80,120 ¥13,346 ¥90,845 ¥2,011 ¥0,186,322Consolidated net sales 1,144,068Percentage of overseas sales to consolidated net sales 7.0%. 1.2%. 7.9%. 0.2%. 16.3%.



Overseas sales $646,653 $107,720 $733,214 $16,224 $1,503,811Consolidated net sales 9,233,801

Millions of yen


Overseas sales ¥54,508 ¥6,463 ¥82,781 ¥3,702 ¥147,454Consolidated net sales 986,884Percentage of overseas sales to consolidated net sales 5.5%. 0.6%. 8.4%. 0.4%. 14.9%.

Millions of yen


Overseas sales ¥75,046 ¥10,866 ¥76,128 ¥3,373 ¥165,413Consolidated net sales 983,784Percentage of overseas sales to consolidated net sales 7.6%. 1.1%. 7.7%. 0.4%. 16.8%.

Millions of yen



Sales:Unaffiliated customers ¥0,888,673 ¥079,712 ¥6,132 ¥007,087 ¥2,180 ¥0,983,784 ¥000,0—. ¥0,983,784Intersegment 21,720 1,937 419 1,211 2 25,289 (25,289) —

Total 910,393 81,649 6,551 8,298 2,182 1,009,073 (25,289) 983,784Operating expenses 884,379 87,136 6,258 10,524 1,750 990,047 (16,668) 973,379Operating profit (loss) ¥0,026,014 ¥,,,(5,487) ¥0,293 ¥,0(2,226) ¥0,432 ¥0,019,026 ¥(((8,621) ¥0,010,405

Identifiable assets ¥1,128,026 ¥169,816 ¥3,884 ¥100,785 ¥2,960 ¥1,405,471 ¥200,200 ¥1,605,671

As described in Note 2, the Companies adopted the newAccounting Standard for Employees’ Severance and PensionBenefits effective April 1, 2000. As a result, operating profitfor Japan and elimination and corporate assets or expenseshave increased by ¥1,647 million ($13,292 thousand) and¥112 million ($903 thousand), respectively, for the yearended March 31, 2001.

As described in Note 2, the Companies adopted theRevised Accounting Principles for Translation in the yearended March 31, 2001. As a result, identifiable assets forelimination and corporate assets or expenses have decreasedby ¥1,283 million ($10,355 thousand) for the year endedMarch 31, 2001.


Note 14—Revaluation Reserve for LandPursuant to Article 2, Paragraphs 3 and 4 of the Enforce-ment Ordinance for the Law Concerning RevaluationReserve for Land (the “Law”) effective March 31, 1998, fiveconsolidated subsidiaries of the Company, one of whichceased to exist due to merger in the year ended March 31,2001, recorded its owned land used for business at the fairvalue of ¥40,040 million (the original book value was¥23,649 million) as of March 31, 2000, and the relatedunrealized gain net of income taxes was credited to Revalua-tion reserve for land, net of tax in the consolidated state-ments of shareholders’ equity, and the applicable income taxportion was reported as Deferred income taxes for revalua-tion reserve for land in liabilities in the consolidated balancesheets. When such land is sold, revaluation reserve for land isreversed and credited to retained earnings.

Certain excess amounts of investment cost over under-lying net equity had been allocated to land upon consolida-tion in the past. Such amounts, net of tax effect, of ¥3,068million ($28,903 thousand) is deducted from retained earn-ings in the consolidated statements of shareholders’ equity,in conjunction with the revaluation of land, in the yearended March 31, 2000.

According to the Law, the Company and its consolidatedsubsidiaries are not permitted to revalue the land at anytime,even in case the fair value of the land declines. Such unre-corded revaluation loss at March 31, 2001, was ¥2,354million ($18,999 thousand).

Note 15—Notes to the Consolidated Statements of Cash Flows(a) Breakdown of cash and cash equivalents


2001 2000 2001

Cash ¥16,989 ¥77,210 $137,123Marketable securities

Public and corporate bonds in investment trust with maturity within three months 524 — 4,231Money management fund — 342 —Term deposits with maturity more than three months (918) (3,380) (7,415)

Cash and cash equivalents ¥16,595 ¥74,172 $133,939

(b) Significant noncash transactionsNoncash transactions for the year ended March 31, 2001

(1) The Company contributed securities to employee retirement benefit trust in September 2000.Thousands of


Fair value of securities contributed ¥14,222 $114,786Book value of securities contributed 3,097 24,999Gain on valuation of securities due to contribution of the securities to employee retirement benefit trust ¥11,125 $089,787


(2) P. T. Smelting, a consolidated subsidiary of the Company, executed debt-equity swap in December 2000.Thousands of


Total amount of the debt for which the swap contract was executed ¥19,527 $157,603Less: amount of the debt from the Parent company 11,813 95,343Increase in minority interests ¥07,714 $062,260

Noncash transactions for the year ended March 31, 2000

The amount of assets and liabilities at the time the Company acquired control of subsidiaries, which were newlyconsolidated at the year ended march 31, 2000, acquisition cost of those companies and the amounts of net expenditure foracquisition were as follows:

Millions of yen

MMC Kobelco Tool Co., Ltd. Sambo Copper Alloy Co., Ltd.

Current assets ¥11,243 ¥)19,331Noncurrent assets 11,414 33,161Consolidation differences (483) (3,563)Current liabilities (3,339) (25,973)Long-term liabilities (6,821) (14,731)Minority interests — (6,795)

Acquisition cost 12,014 1,430Cash and cash equivalents (4,510) (411)

Net expenditure ¥07,503 ¥)01,019

Note 16—Related Party TransactionsSignificant transactions with related parties for the years ended March 31, 2001 and 2000 are as follows:

Millions of yen

March 31, 2001

Gain on Transfer ofAccounts Sales of sales of guarantee

Name of the company Net sales receivable properties properties deposits

Ube–Mitsubishi Cement Corp. ¥50,893 ¥5,357 ¥9,141 ¥1,530 ¥10,618Dairyo Co., Ltd. — — 1,011 567 —

Millions of yen

March 31, 2000



Ube–Mitsubishi Cement Corp. ¥50,596 ¥5,207 ¥2,952 ¥1,378 —Dairyo Co., Ltd. — — 1,841 1,541 —


Note 17—Subsequent Events(a) Payment of a cash dividendOn June 28, 2001, the Company’s shareholders approvedthe payment of a cash dividend of ¥3.00 ($0.02) per oneshare to shareholders of record at March 31, 2001 or a totalpayment of ¥3,352 million ($27,054 thousand).

(b) Business IntegrationThe Company and Sumitomo Metal Industries Corp. havereached a basic agreement to integrate each company’sdivision of silicon wafers for semiconductor devices andrelated-business on an equal basis, which is planned to becarried out in January 2002.

At the Board of Directors meeting on April 17, 2001,conclusion of the basic agreement had been approved, andthe joint venture contract was concluded on May 9, 2001.

I. Purpose of the integrationThe company, Mitsubishi Materials Silicon Corp. (a consoli-dated subsidiary of the Company), and Sumitomo MetalIndustries Corp. have already established Silicon UnitedManufacturing for the purpose of codevelopment and co-manufacturing of 300-millimeter (12-inch) silicon wafers fornext-generation semiconductor devices. A mass-productionplant is now under construction.

With the goal of an effective use of each company’sfeatures and business resources, such as funds and humanresources on customer services, development and manufac-turing, the Company has decided to integrate businesses of

not only 300-millimeter wafers but also the whole span ofwafers as well as quartz products for wafers.

II. Integrating procedures(1)Silicon United Manufacturing Corporation (SUMCO)

will be the surviving company.(2)After the stocks of Mitsubishi Silicon America Corp.

and PT. MSIL Indonesia held by the Company aretransferred to Mitsubishi Materials Silicon Corp.,SUMCO will merge with Mitsubishi Materials SiliconCorp. and Mitsubishi Materials Quartz Corp.

(3)The surviving company will issue the same numberof common stocks to the Company and SumitomoMetal Industries Corp.As a result, the Company will hold 50% ownership of

the surviving company. The surviving company will be anaffiliate that the equity method is applied to. MitsubishiMaterials Silicon Corp. and Mitsubishi Materials QuartzCorp. will cease to exist, and Mitsubishi Silicon AmericaCorp. and PT. MSIL Indonesia will be excluded from thescope of consolidation. Details of the surviving company,the name and so forth, have not been set yet.

III. Net sales and total assets of integrating businesses for theyear ended March 31, 2001

Net sales: ¥102,731 million ($829,144 thousand)Ordinary profits: ¥4,402 million ($35,529 thousand)Total assets: ¥188,925 millions ($1,524,818 thousand)


March 31, 2001



Ube–Mitsubishi Cement Corp. $410,759 $43,236 $73,777 $12,349 $85,698Dairyo Co., Ltd. — — 8,160 4,576 —


Report of Independent Public Accountants

To the Shareholders and the Board of Directors ofMitsubishi Materials Corporation:

We have audited the accompanying consolidated balance sheets of Mitsubishi Materials Corporation (a Japanese corporation)and its consolidated subsidiaries as of March 31, 2001 and 2000, the related consolidated statements of operations andshareholders’ equity for each of the three years in the period ended March 31, 2001 and the related consolidated statementsof cash flows for each of the two years in the period ended March 31, 2001, expressed in Japanese yen. Our audits weremade in accordance with generally accepted auditing standards in Japan and, accordingly, included such tests of theaccounting records and such other auditing procedures as we considered necessary in the circumstances.

In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial position ofMitsubishi Materials Corporation and its consolidated subsidiaries as of March 31, 2001 and 2000, the consolidated resultsof their operations for each of the three years in the period ended March 31, 2001 and their cash flows for the two years inthe period ended March 31, 2001, in conformity with accounting principles generally accepted in Japan applied on aconsistent basis during the periods, except as noted in the following paragraph.

As described in Note 2, Mitsubishi Materials Corporation and its consolidated subsidiaries adopted, on a prospective basisin all cases, new Japanese accounting standards for financial instruments, employees’ severance and pension benefits andtranslation of foreign currencies in the year ended March 31, 2001, and consolidation and equity method accounting in theyear ended March 31, 2000. Also, as described in Note 13 Mitsubishi Materials Corporation changed the methods allocatingcertain costs to segments effective April 1, 1999, with which we concur.

Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have been translatedfrom Japanese yen on the basis set forth in Note 1.

Tokyo, JapanJune 28, 2001

Statement on Accounting Principles and Auditing StandardsThis statement is to remind users that accounting principles and auditing standards and their application in practice mayvary among nations and therefore could affect, possibly materially, the reported financial position and results of operations.The accompanying financial statements are prepared based on accounting principles generally accepted in Japan, and theauditing standards and their application in practice are those generally accepted in Japan. Accordingly, the accompanyingconsolidated financial statements and the auditors’ report presented above are for users familiar with Japanese accountingprinciples, auditing standards and their application in practice.


International Network(As of June 30, 2001)

Europe

France

MMC Metal France S.A.R.L.Sales of hard-metal products

Germany

MMC Hardmetal Europe GmbHHolding company for fabricated metal products

MMC Hartmetall GmbHSales of fabricated metal products

Spain

Mitsubishi Materials España S.A. SociedadUnipersonaProduction and sales of hard-metal products

United Kingdom

Kamaya Electric Co., Ltd. U.K. BranchSales of electronic parts

MMC Hard Metal U.K. Ltd.Sales of fabricated metal products

Asia

India

Sona Okegawa Precision Forgings Ltd.Production of precision forging gearsfor automobiles

Indonesia

PT. Higashifuji IndonesiaProduction and sales of micromotors

PT. MMC Metal FabricationProduction of nickel-base alloy fabricated products

PT. MSIL IndonesiaProduction of silicon wafers

PT. SmeltingSmelting, refining and marketing of copper

Malaysia

Diamet Klang (M) Sdn. Bhd.Production and sales of powder metallurgicalproducts

Higashifuji (Malaysia) Sdn. Bhd.Production and sales of micromotors

Kamaya Electric (M) Sdn. Bhd.Production and sales of electronic parts

Mitsubishi Materials Corp. Southeast AsiaRegional OfficeRepresentative office

MMC Electronics (M) Sdn. Bhd.Production and sales of electronic parts

People’s Republic of China

(Hong Kong SAR)

Kamaya Electric (H.K.) Ltd.Sales of electronic parts

MMC Electronics (H.K.) Ltd.Sales of electronic parts

(Other areas)

Hainan Kunlun Cement Co., Ltd.Production and sales of cement

Mitsubishi Materials Corp. Beijing OfficeRepresentative office

Mitsubishi Materials Corp. Shanghai OfficeRepresentative office

Tianjin Tianling Carbide Tools Co., Ltd.Production and sales of carbide cutting tools

Yantai Mitsubishi Cement Co., Ltd.Production and sales of cement

Singapore

Kamaya Electric (S) Pte. Ltd.Sales of electronic parts

MMC Electronics (Singapore) Pte. Ltd.Sales of electronic parts

MMC Metal Singapore Pte. Ltd.Sales of hard-metal products

South Korea

MMC Electronics Korea Inc.Production and sales of electronic parts

Taiwan

MMC Electronics Taiwan Co., Ltd.Production and sales of electronic parts

Taiwan Kamaya Electronic Co., Ltd.Production and sales of electronic parts

Thailand

MMC Carbide (Thailand) Co., Ltd.Production and sales of brazed turning tools

MMC Copper Tube (Thailand) Co., Ltd.Production and sales of copper tubes

MMC Electronics (Bangkok) Co., Ltd.Sales of electronic parts

MMC Electronics (Thailand) Co., Ltd.Production and sales of electronic parts

MMC Tools (Thailand) Co., Ltd.Production and sales of hard-metal products

Vietnam

Nghi Son Cement CorporationProduction and sales of cement

Oceania

Australia

Dia Coal Mining (Australia) Pty. Ltd.Coal mining

Mitsubishi Materials (Australia) Pty. Ltd.Development of coal mines

Overseas Offices

North America

Canada

Mitsubishi Materials Corp. Vancouver OfficeRepresentative office

Mexico

MMC Metal de Mexico S.A.Sales of hard-metal products

United States

Diamet Corp.Production and sales of powder metallurgicalproducts

Hawaiian Rock Products Corp. (Guam)Production and sales of ready-mixed concrete

Heisei Minerals Corp.Copper mining and production of copperconcentrates

Kamaya Inc.Sales of electronic parts

MCC Development Corp.Investment in cement-related industries

Mitsubishi Cement Corp.Production and sales of cement

Mitsubishi Materials U.S.A. Corp.Surveys in the United States and sales of fabricatedmetal products

Mitsubishi Polycrystalline Silicon AmericaCorp.Production and sales of polycrystalline silicon

Mitsubishi Silicon America Corp.Production and sales of silicon wafers

MMC Electronics America Inc.Sales of electronic parts

Nevada Ready Mix Corp.Production and sales of ready-mixed concrete

Service Rock Products Corp.Production and sales of ready-mixed concrete

South America

Brazil

MMC-Metal do Brasil Ltda.Sales of fabricated metal products

Chile

Mitsubishi Materials Corp. Chile OfficeRepresentative office


Corporate Data (Nonconsolidated)(As of March 31, 2001)

Date Established April 1, 1950

Headquarters 1-5-1, Otemachi, Chiyoda-ku, Tokyo 100-8117, Japan

Number of Employees 6,099

Number of Manufacturing Plants (Domestic) 21

Number of R&D Institutes (Domestic) 12

Number of Sales Offices (Domestic) 7

Investor Information(As of March 31, 2001)

Shares of Common Stock Authorized: 2,700,000,000Issued and Outstanding: 1,117,314,857

Capital ¥99,396 million

Number of Shareholders 168,126

Stock Listings Tokyo, Osaka, Nagoya, Fukuoka andSapporo stock exchanges

Transfer Agent of Common Stock The Mitsubishi Trust and Banking Corp.1-4-5, Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan

Independent Certified Public Accountants Asahi & Co.

For Further Information, Contact Corporate Communications & IR Dept.Mitsubishi Materials Corporation1-5-1, Otemachi, Chiyoda-ku, Tokyo 100-8117, JapanTel: +81-3-5252-5206Fax: +81-3-5252-5272E-mail: [email protected]

Distribution of Shareholders

Major Shareholders The Meiji Mutual Life Insurance Co.The Bank of Tokyo–Mitsubishi Ltd.The Mitsubishi Trust and Banking Corp.Japan Trustee Services Bank, Ltd. (Trust account)The Toyo Trust and Banking Co., Ltd.

Annual Meeting of Shareholders The annual meeting of shareholders of the Company isnormally held in June each year in Tokyo.

Mitsubishi Materials OnlineSections of this annual report and additional information on the Company may be found on Mitsubishi Materials’home page at http://www.mmc.co.jp/

Japanese individual investors and others37.81%

Japanese government and other public organizations0.02%

Japanese financialinstitutions34.60%Japanese securitiescompanies2.02%

Other Japanese corporations14.99%

Foreign corporations and individuals10.56%


ANNUAL REPORT2001

1-5-1, Otemachi, Chiyoda-ku, Tokyo 100-8117, Japan

This annual report was printed on recycled paper in Japan.

p2-22 · 08 review of operations 18 research and development 20 main subsidiaries and affiliates...

Documents