TOYO KANETSU K.K.

Profile
Toyo Kanetsu K.K. (TKK) was established in the year of 1941. Since that time, TKK has continued to meet the requirementsof the industry through our policy of “Customers First.”
The Plant & Machinery Division was established in 1950 when in-house welding technology was developed for weldedstorage tanks. Since then, our expertise has expanded to provide customers various kinds of storage tanks consisting of morethan 5,000 units varying from crude oil storage tanks to LNG storage tanks. Particularly, we are proud of our outstanding trackrecord of LNG Storage Tank construction, with 25 tanks in Japan and 50 tanks in overseas sites in Asia, Africa, Middle East,
Oceania and the Western Hemisphere. Our technical expertise and our outstanding record of Safety, Quality & Delivery havebeen recognized and appreciated by the major clients throughout the world.
The Building Construction Division was started in 1989 for construction of apartment houses with application of modular steel
frame structures. The Division has expanded its activities to shop and office buildings with use of prefabricated construction
methods as well as conventional construction methods.
The Material Handling Systems Division was begun in 1953 for manufacture and installation of highly standardized conveyors
systems. Since that time, the Division has continued to develop the technology to meet the needs of our clients. The Division
supplied one of the largest Airport Baggage Handling Systems in the world in 1998 at Kuala Lumpur International Airport in
Malaysia. Also, as a leading provider company of Logistics Solutions in Japan, the Division has successfully completed
numerous projects such as Distribution Center System, Truck Terminal System, Food Distribution Processing Center andPostal Sorting System. The Division became a subsidiary company of TKK under the name of Toyo Kanetsu Solutions K.K. in2002 in order to maximize the efficiency and also to vitalize TKK Group companies.
TKK will continue to provide the advanced technology to answer the needs of its clients for today and tomorrow.

Contents
Financial Highlights·····················································2
Message from the President········································3
Board of Directors and Corporate Auditors···················4Line of Business ·························································4
Qualifications······························································4
Subsidiaries and Affiliated Companies ·························5Consolidated Balance Sheets······································6Consolidated Statements of Operations ·······················8Consolidated Statements of Shareholders' Equity·········9Consolidated Statements of Changes in Net Assets ·····9Consolidated Statements of Cash Flows ···················· 11
Notes to the Consolidated Financial Statements·········12
Report of Certified Public Accountants ·······················24
Corporate Data ·························································25

1Toyo Kanetsu K.K. and Consolidated Subsidiaries

Financial Highlights
Thousands of
U.S. dollars

2007

2006

Millions of yen
2005¥ 45,548
17,316
17,029
5,944
521
4,738
1,887
2,836
415

¥ 45,530
20,90914,643
5,668
4,310
1,904
1,626
277

¥ 39,734
13,595
15,217
7,533
3,389
1,349
1,011
-

¥ 43,914
17,55010,386
9,280
6,698
923
1,042
-

¥ 36,662
15,487
7,543
9,499
4,133
372
(2,333)-$385,703
146,637
144,204
50,333
4,412
40,117
15,97524,0203,516

30,226
16,956
21,498322
69,00225,30916,56624,852413
67,14022,796
16,54416,300317
55,95721,024
17,052
16,103280
54,45918,643
17,966
11,525295
48,429255,963
143,584
182,046
2,725
584,318

22,865
14,195-20,084
15,647
10
31,39920,42011,50725
24,005

16,893
13,53419
24,013

18,864
10,01420
19,531

193,626
120,203--

67,14055,95754,45948,429-

Shareholders’ Equity
Valuation and Translation Adjustments
Minority Interests in Consolidated Subsidiaries
Total Liabilities and Net Assets

24,6517,283
869,002----

208,748
61,672
69
584,318

Order Backlog

34,176

38,467

34,232

34,701

40,266

289,404

For the Years Ended 31st March:
Net Sales
Material Handling Systems Division
Plant & Machinery Division
Building Construction Division
Real Estate Utilizing Division
Other
Operating Income
Net Income (Loss)
Cash dividends
At 31st March:
Current Assets
Net Property, Plant and Equipment
Investments and Advances
Intangibles and Deferred Charges
Total Assets
Current Liabilities
Long-Term Liabilities
Minority Interests in Consolidated Subsidiaries

Shareholders' Equity
Total Liabilities, Minority Interests andShareholders' Equity

2004

2003

2007

Yen
Per Share:
Net Income (Loss)
Cash dividends
Shareholders' Equity
Number of Shareholders
Number of Employees

U.S. dollars¥ 20.52
3.00
231.10¥ 11.762.00
227.11¥ 7.31173.57¥7.53
173.55¥ (16.85)
141.18

16,797573

17,005552

16,418525

16,078564

17,102573$ 0.17$ 0.03$ 1.96

The U.S. dollar amounts in this annual report represent translations of Japanese yen at the rate of ￥118.09=$1.00, solely for the reader's convenience.

2

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Message from the President
Overview of Business(1) Development of operations and results at the Corporate GroupIn the fiscal year under review, the Japanese economy continued to recover driven by high corporate profits, strong
capital investments and buoyant exports on the back of expanding overseas economies, despite risk factors such as
price hikes of oil and other resources.
Under such macroeconomic circumstances, the Material Handling Systems Business benefited from a pickup of
corporate investment in logistics systems, amid further progress in the reorganization of logistics bases and theoutsourcing of logistics, reflecting a social trend toward logistics that are efficient and have less environmental impact.
In the Plant & Machinery Business, energy-related investments continued to be active because of increased demandfor energy around the world. Investments in storage facilities were strong in both producing regions, such as theMiddle East, Africa, Southeast Asia and Australia, and consuming regions including the U.S., China, South Korea and Europe. In Japan, there was highdemand for quakeproofing work in the maintenance field. In the Building Construction Business, the business climate remained severe because of fierce
competition to win orders and a rise in the prices of building materials.
Under this business environment, consolidated net sales for the fiscal year remained almost unchanged from the previous year at JPY45.5 billion (US$386
million). Operating income was JPY1.9 billion (US$16 million), down 0.9% from a year earlier, ordinary income was JPY2.5 billion (US$21 million), up
15.2%. Net income soared 74.4% to JPY2.8 billion (US$24 million). However, total orders received dropped sharply 20.8% to JPY36.0 billion (US$305
million).
Operations by business are as follows:
In the Material Handling Systems Business, we implemented proactive sales activities, while focusing on IT-based material handling systems such as ourmainstay Sorting System for retailers, Picking System for consumer cooperatives, and Warehouse Management Systems (WMS), and while using things suchas exhibitions, forums, and feasibility facilities for RFIDs (radio frequency IC tags). Both sales and profits declined in the fiscal year under review, as large
projects decreased compared with the previous year.
As a result, net sales at this business posted JPY17.3 billion (US$147 million), down 17.2% from the preceding year, and operating income was JPY0.7 billion(US$6 million), down 47.6%. Orders received totaled JPY16.8 billion (US$143 million), down 4.4%.
At the Plant & Machinery Business, there was strong overseas demand for oil, LPG and LNG storage tanks during the fiscal year under review. Taking
advantage of this opportunity, we carried out brisk sales activities focusing on profits mainly in the Middle East and Southeast Asia, regions that we havesupplied for many years, by making use of our technical capability, reliability and international competitiveness as a specialist manufacturer. As a consequence,
we won orders for two LNG tanks at an LNG plant in Shanghai, China, the first order we received from the country, and for spherical tanks from India andSingapore.
In the domestic market, we focused on sales activities aiming to win orders for new LNG tanks. In the area of maintenance work, there was high demand forquakeproofing work for floating roof tanks as a result of a partial amendment to the Fire Service Law. In response, we strengthened our maintenance-work
related organization and sales activities. Consequently, we were able to receive more orders for such work.
We completed construction work for LPG and LNG tanks and delivered them in the domestic and worldwide markets. Meanwhile, we started large-scale workfor LNG and oil tanks, for which we had received new orders, as the processing of materials for this work progressed favorably. Hence, sales increased fromthe previous year. The business climate was harsh, partly because of cost increase factors such as price hikes of steel and other raw materials. Against thisbackdrop, we strove to secure profits by strictly managing costs.
As a result, net sales at this business posted JPY17.0 billion (US$144 million), up 16.3% from the previous year, and operating income was JPY1.1 billion(US$9 million), up 99.1%. Orders received totaled JPY13.7 billion (US$116 million), down 39.0%.
In the Building Construction Business, we focused our business activities on profitability for our core sector: the construction of leased apartments. This
resulted in improving profits substantially. In other construction sectors, we worked hard to expand our business scales and domains.
As a result, net sales from this business were JPY5.9 billion (US$50 million), up 4.9% from a year earlier, and operating income jumped 48.1% to JPY0.1
billion (US$1 million). Orders received amounted to JPY5.5 billion (US$46 million), up 0.8%.
Group companies, which are engaged in the real estate leasing business and businesses other than those mentioned above, endeavored to expand and develop
their businesses. Aggregate net sales were JPY5.3 billion (US$45 million), up 22.0%.
(2) Future issues for the Corporate Group
June 2007
The Group will further improve corporate value by tackling the following four management
issues on a group-wide basis, with aim of “creating a sound, strong and dynamic corporate group.”
1. To make corporate structure profitable and improve earnings power
We will make further efforts to reform and strengthen our core businesses from the strategic and organizational
perspective, improve operational efficiency and reduce costs.
2. To encourage vitality among personnel and efficiently use human resources
We will strive to further enhance overall employee competence and organizational strength and invigorate theworkplace, through the “reform and overhaul of personnel and training structures and systems.”
3. To establish corporate governance and compliance management
We will strengthen the functions of the board of directors and the board of auditors, and improve the internal
control and compliance structures, aiming to implement fair and transparent management.
4. To strengthen group management
We will further boost the Group’s comprehensive capability by unifying the Group’s basic operation policies
and reinforcing the management bases of the Group companies.

3

Shigeaki Kiyota
President & Representative Director

Board of Directors and Corporate Auditors
Board of Directors
President & Representative Director ............................... Shigeaki Kiyota
Vice President & Representative Director ....................... Takeshi Mizukami
Directors ........................................................................ Sadao Arita......................................................................... Shinji Shimazaki......................................................................... Toru Yanagawa
Auditors ......................................................................... Teruo Nojo........................................................................... Masaharu Hino........................................................................... Yoshihumi Murashige........................................................................... Koichi EndoLine of Business
Plant & Machinery Business:
Design & Engineering, Procurement,
Shop-Fabrication and Construction of:
Floating Roof Tank
Cone Roof Tank
Dome Roof Tank
−LNG/Ethylene Storage Tank, etc.
−LPG Storage Tank, etc.
Spherical Tank

Building Construction Business:
Design and Construction of:Apartment House
Shop Building
Office and Warehouse Buildings

Real Estate Business:
Sale, Brokerage and Leasing of:Office Building
Apartment House
Distribution Center
Real estate

Material Handling Systems Business:
Planning, Design, Manufacture, Construction and Marketing of:Distribution Center System
Truck Terminal System
Production Line System
Airport Baggage Handling System
Postal Sorting System
Food Processing Center System
Apparel Center System
Warehouse Management System
Engineering, Manufacturing and Installation of System’s Facilities,
their relative Civil Works and Architectural Works

Qualification- Listed in primary stock exchanges (Tokyo).
- Quality Management System to ISO 9001 certified by Bureau Veritas Quality International (BVQI) for flat bottomed vertical cylindricalstorage tank for low temperature service.
- Quality Management System to ISO 9001 certified by Bureau Veritas Quality International (BVQI) for Baggage Handling System, Slide
Shoe Type Sorting Conveyor and Wheel Up Sorting Conveyor.

4Subsidiaries, Affiliated Companies and Line of BusinessSubsidiaries which are consolidated, and affiliated companies which are accounted for by the equity method, are as follows.
Consolidated Subsidiaries

Toyo Kanetsu Solutions K.K.
Share Capital: 100.0%
Line of Business: Logistics Solution Provider
K-Techno Inc.
Share CapitalLine of Business
TKL Co., Ltd.
Share CapitalLine of Business100.0%
Consulting & Maintenance of Material Handling System: 100.0%: Rental/Leasing, Insurance & Travel Agent

Toyo Service System K.K.
Share Capital: 100.0%
Line of Business: Real Estate Management, Welfare Facilities Management, Gardening/
Floriculture Business Property, Plant & Equipment Maintenance.
Global Eight Co.
Share CapitalLine of Business: 84.0%: Commodity & Foodstuffs Trading

P.T. Toyo Kanetsu Indonesia
Share Capital: 100.0%
Line of Business: Storage Tanks/ Pressure Vessels/ Onshore & Offshore Steel Structures
Al Ghallilah Engineering & Construction L.L.C.
Share Capital: 65.0%Line of Business: Storage Tanks/ Pressure Vessels / Onshore & Offshore Steel Structures
TKK-USA,INC
Share CapitalLine of Business
Unconsolidated Subsidiary

Affiliated Companies(Equity Method): 100.0%: Storage Tanks/ Pressure Vessels/ Onshore & Offshore Steel Structures

Toyo Kanetsu Singapore Pte. Ltd.
Share Capital: 100.0%
Line of Business: Storage Tanks/ Pressure Vessels
Toyo Koken K.K.
Share CapitalLine of Business: 39.3%: Electric-driven winches, Conveyors, Balancer & Robots

Toyo Miyama Co., Ltd.
Share Capital: 49.0%Line of Business: Prefabrication of Unit House
Katayama Co.
Share CapitalLine of Business: 22.0%: Architectural Management

Manavis Co., Ltd.
Share CapitalLine of Business: 20.6%: Cosmetics, Cleaning Products

Toyo Kanetsu (Malaysia) Sdn. Bhd.
Share Capital: 49.0%Line of Business: Material Handling Systems, Storage Tanks/ Pressure Vessels / Onshore& Offshore Steel Structures5

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Balance Sheets
As at March 31, 2007 and 2006

2007

2006

Thousands of
U.S. dollars(Note 4)
2007

Inventories (Note 7)
Deferred tax assets (Note 11)
Other current assets
Total current assets¥7,138
1,499
8,615
(238)
8,377
10,153977
2,082
30,226¥7,966
2,000
7,637
(101)
7,536
6,762
1,045
25,309$60,445
12,69572,955(2,018)70,93785,977
8,273
17,636
255,963

Property, Plant and Equipment (Note 9):
Buildings and structures
Machinery and equipment
Land (Note 3(8))
Leased assets (Note 14)
Construction in progress
Less: Accumulated depreciation
Total property, plant and equipment

10,316
4,223
9,073
6,718
293
(13,667)
16,956

10,808
4,023
9,266
6,516
70
(14,117)
16,56687,35335,76376,83356,886
2,479(115,730)
143,584

Investments and Advances:
Investments in securities (Notes 8 and 9)
Long-term loans receivable
Other investments
Less: Allowance for doubtful accounts
Total investments and advances

17,785
1,148
3,115
(550)
21,49821,005
1,523
3,283
(959)
24,852

150,608
9,717
26,382(4,661)
182,046

322
322¥69,002413
413¥67,140

2,725
2,725
$584,318

ASSETS
Millions of yen

Current Assets:
Cash on hand and at bank (Note 5)
Marketable securities (Notes 5 and 6)
Notes and accounts receivable
Less: Allowance for doubtful accounts

Intangibles:
Intangible fixed assets
Total intangibles

The accompanying notes are an integral part of the consolidated financial statements.

6

2007

2006

Thousands of
U.S. dollars(Note 4)2007

Current Liabilities:
Short-term debt (Note 9)
Notes and accounts payable
Accrued income taxes (Note 11)
Accrued liabilities
Advances from customers
Accrued bonuses
Reserve for losses on work in progress
Reserve for warranty costs for completed works
Reserve for contingent loss
Other current liabilities
Total current liabilities¥4,861
2,285
128
3,487
9,604
204
1,212
20
639
425
22,865¥4,653
2,227
522
4,472
7,092
182
304
632
20,084$41,162
19,352
1,083
29,52881,3291,725
10,263
169
5,410
3,605
193,626

Long-Term Liabilities:
Long-term debt (Note 9)
Deferred tax liabilities on revaluation of land (Note 3(8) and 11)
Deferred tax liabilities (Note 11)
Accrued retirement benefits for employees (Note 10)
Accrued retirement benefits for directors and corporate auditors
Other long-term liabilities
Total long-term liabilities

4,361
2,174
5,156
2,353
141
10
14,195

3,651
2,174
6,179
3,526
102
15
15,64736,926
18,41043,662
19,9241,196
85
120,203

-

10

-

-

18,580
1,104
2,546
391
9,526
(682)
31,465(66)
31,399¥67,140-

18,580
1,104
5,050
(83)
24,651-

157,338
9,349
42,760(699)
208,748

7,557
(16)
391
(649)
7,283
8
31,942¥69,002-

63,993(137)
3,315(5,499)61,672
69
270,489$584,318

LIABILITIES and NET ASSETS
Millions of yen

Minority Interests in Consolidated Subsidiaries
Commitments and Contingent Liabilities (Note 16)
Shareholders' Equity:
Common stock:
Authorized: 297,000,000 shares
Issued: 138,730,741 shares
Additional paid-in capital
Accumulated earnings
Unrealized gains on revaluation of land (Note 3(8))
Net unrealized holding gains on investments in securities
Foreign currency translation adjustments
Less: Treasury stock, at cost
Total shareholders’ equity

Net Assets
Shareholders' Equity:
Common stock:
Authorized: 297,000,000 shares
Issued: 138,730,741 shares
Additional paid-in capital
Accumulated earnings
Less: Treasury stock, at cost
Total shareholders’ equity
Valuation and Translation Adjustments:
Net unrealized holding gains on investments in securities
Deferred gains or losses on hedges
Unrealized gains on revaluation of land (Note 3(8))
Foreign currency translation adjustments
Total valuation and translation adjustments
Minority Interests
Total Net Assets
The accompanying notes are an integral part of the consolidated financial statements.

7

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Operations
For the years ended March 31, 2007 and 2006

2007

2006

Thousands of
U.S. dollars(Note 4)
2007

¥45,548
39,920
5,628
3,741
1,887

¥45,530
40,035
5,495
3,591
1,904

$385,703
338,047
47,656
31,681
15,975

278
(234)
(48)
504
56
14
570
2,457

251
(327)
119
120
75
(10)
228
2,132

2,353
(1,982)
(404)
4,270
476
121
4,834
20,809

136

(89)

1,155

(117)
13
(22)
18
128
45
(639)
40
(398)
2,059

(895)
(249)
97
0
568
130
71
(99)
183
(283)
1,849

(992)
112
(189)
152
1,087
381
(5,410)333(3,371)
17,438

162
(948)
(786)

511
(248)
263

1,369
(8,025)(6,656)

9

(40)

74

¥2,836¥1,626$24,020

Millions of yen

Net Sales
Cost of Sales (Note 13)
Gross profit
Selling, General and Administrative Expenses (Notes 12 and 13)
Operating Income
Other Income (Expenses):
Interest and dividend income
Interest expense
Exchange gain (loss)
Equity in income of unconsolidated subsidiaries and affiliates
Gain on trading of derivatives
Other, net
Income before special items
Special Profit (Loss):
Gain (Loss) on sale or disposal of property, plant andequipment, net
Impairment losses on fixed assets
Provision for bad debts
Reversal of provision for bad debts
Loss on write-down of investments in securities
Gain on sale of investments in securities
Gain on redemption of preferred investment bondGain on redemption of investment in affiliate
Proceed of insurance money on overseas project
Provision for contingent loss
Gain on dissolution of the retirement annuity system
Depreciation of leased assets
Other, net
Income before income taxes and minority interests
Income Taxes (Note 11):
Current
Deferred

Minority Interests in Net Income (Loss) of Consolidated Subsidiaries
Net Income
Yen
Per Share (Note 3 (20))
Net income¥20.52

The accompanying notes are an integral part of the consolidated financial statements.

8

U.S. dollars(Note 4)¥11.76$0.17

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Shareholders' Equity
For the years ended March 31, 2006 and 2005
Millions o f yen

Commonstock

Net unrealized
Unrealized holding gains Foreign
currency
Additional Accumulated gains on(losses) onrevaluation investment translation
paid-inearningsof landcapital(deficit)
securities adjustments¥18,580-¥1,104
-

¥980
1,626
(60)

¥331
60

¥3,720-¥(657)
-

¥(53)
-

-

-

-

-

5,806

-

-

-

-

-

-

-

-

(25)

-

138,730,741¥18,580¥1,104¥2,546¥391¥9,526¥(682)(13)¥(66)

Number ofshares ofcommonstock

138,730,741
Balance at March 31, 2005
Net income for the year
Realized losses on revaluation of land
Net unrealized holding gains on
investments
Foreigncurrency
adjustments

translation

Repurchase of treasury stock
Balance at March 31, 2006

Treasurystock

The accompanying notes are an integral part of the consolidated financial statements.

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2007 and 2006
Millions of yen

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Repurchase of treasury stock
Effect of decrease in number
consolidated subsidiaries¥2,546
(277)
2,836
-

¥(66)
(17)

¥22,164
(277)
2,836
(17)

-

(55)

-

(55)

-

-

-

-

-

¥18,580¥1,104¥5,050¥(83)¥24,651

138,730,741-¥18,580-¥1,104---

138,730,741

Net unrealized holding gains on
investments

Minority interest
Balance at March 31, 2007

Total
Shareholders’EquityCommon stockofDeferred gains or losses on hedges
Foreign currency translation adjustments

Treasurystock

Number of shares ofcommon stock

Additional
Accumulated
paid-in capital earnings (deficit)

Millions of yen
Net unrealized
holding (gains)losses on
investment
securities

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Repurchase of treasury stock
Effect of decrease in number
consolidated subsidiaries

of

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interest
Balance at March 31, 2007

Unrealized
Foreign
gains oncurrency
revaluation of translation
adjustments
landDeferred
gains orlosses onhedgesTotalvaluation andtranslation
adjustments

Minority
interest

Total Net Assets¥9,526
-

−
-

¥391
-

¥(682)-¥9,235-¥10-¥31,409
(277)
2,836
(17)

-

-

-

26

26

-

(29)

(1,969)---(1,969)-(1,969)¥7,557

(16)
¥(16)

¥391

7
¥(649)(16)
7¥7,283

(2)
¥8

(16)
7
(2)
¥31,9429

Thousands of U.S. dollars (Note 4)

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Repurchase of treasury stock
Effect of decrease in number
consolidated subsidiaries$21,555(2,345)24,020-$(560)(139)$187,682(2,345)24,020
(139)

-

(470)

-

(470)

-

-

-

-

-

$157,338$9,349$42,760$(699)$208,748

138,730,741-$157,338-$9,349---138,730,741

Net unrealized holding gains on
investments

Minority interest
Balance at March 31, 2007

Total
Shareholders’EquityCommon stockofDeferred gains or losses on hedges
Foreign currency translation adjustments

Treasurystock

Number of shares ofcommon stock

Additional
Accumulated
paid-in capital earnings (deficit)

Thousands of U.S. dollars (Note 4)
Net unrealized
holding (gains)losses on
investment
securities

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Repurchase of treasury stock
Effect of decrease in number
consolidated subsidiaries

of

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interest
Balance at March 31, 2007

Deferred
gains orlosses onhedges

Unrealized
Total
Foreign
gains onvaluation andcurrencytranslation
revaluation of translation
adjustments adjustments
land

Minority
interest

Total Net Assets$80,663-−-$3,315-$(5,775)-$78,203-$84-$265,969(2,345)24,020
(139)

-

-

-

218

218

-

(252)

(16,670)---(16,670)-(16,670)$63,993(137)$(137)$3,31558$(5,499)(137)
58$61,672

(15)
$69

(137)
58
(15)
$270,489

The accompanying notes are an integral part of the consolidated financial statements.

10

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
For the years ended March 31, 2007 and 2006
Thousands of
U.S. dollars(Note 4)
2007

Millions of yen

Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation and amortization
Depreciation of leased assets
Amortization of long-term prepaid expenses
Impairment losses on fixed assets
Decrease in provision for allowance for doubtful accounts
Increase in provision for bonuses
Decrease in provision for employees’ retirement benefits
Increase (decrease) in provision for retirement benefit for directors andcorporate auditors
Increase in provision for losses on work in progress
Increase in provision for warranty costs for completed works
Increase in provision for contingent loss
Interest and dividend income
Interest expense
Exchange gain
Equity in income of unconsolidated subsidiaries and affiliates
Gain on change in shareholding in consolidated subsidiary
Net gain on sale of investments in securities
Loss on write-down of investments in securities
Gain on redemption of investment in affiliate
Gain on sale of property, plant and equipment, net
Loss on disposal of property, plant and equipment(Increase) decrease in notes and accounts receivables
Increase in inventories
Increase in accrued income
Increase (decrease) in notes and accounts payable
Increase in advances from customers
Other
Sub totalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by operating activities
Cash Flows from Investing Activities:(Increase) decrease in time deposits (over 3-month term)
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of investments in securities
Proceeds from sales of investments in securities
Proceeds from redemption of preferred investment bondPayment for purchase of investment in consolidated subsidiary
Proceeds from redemption of investment in affiliate
Proceeds from clearing of consolidated subsidiary
Payment for purchase of goodwill of affiliate
Decrease in long-term loans receivable
Increase in long-term prepaid expenses
Proceeds from investment in capital
Other
Net cash provided used in investing activities
Cash Flows from Financing Activities:
Increase (decrease) in short-term debt, net
Proceeds from long-term debt
Repayment of long-term debt
Capital dividend paid
Other
Net cash provided by (used in) financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Decrease in Cash and Cash Equivalents owing to decrease in number ofconsolidated subsidiaries (Note 3)
Cash and Cash Equivalents at End of Year (Note 5)
The accompanying notes are an integral part of the consolidated financial statements.

11

2007

2006

¥2,059¥1,849$17,438

1,516
679
(271)
22
(1,173)

1,551
99
895
(76)
19
(161)

12,8405,751(2,296)183(9,934)

39

(31)

333

908
20
639
(278)
234
(50)
(504)
(18)
22
(128)
(199)
62
(759)
(3,391)
(884)
(326)
2,513
118
850
286
(228)
(454)
454

147
(251)
327
(153)
(120)
(25)
(576)
0
(33)
89
2,128
(939)
386
2,571
(12)
7,684
258
(322)
(161)
7,459

7,685
169
5,410
(2,353)
1,982(423)(4,270)(152)
189(1,087)(1,687)528(6,427)(28,713)(7,483)(2,760)21,282
992
7,197
2,422
(1,929)(3,844)
3,846(40)(2,563)
327
(56)
683
(29)
232
45
182
(1,180)14(2,385)(66)(1,672)
46
(512)
1,153
1,130
(200)
362
(829)
147
240
(201)

(339)
(21,705)
2,768
(475)
5,782
(246)
1,968
381
1,540
(9,993)
123(20,196)271
2,696(2,056)
(277)
(21)
613
31
(1,287)
9,768(2,271)
3,110(4,876)(13)(4,050)
85
3,293
6,475

2,291
22,828(17,409)(2,345)
(174)
5,191
266
(10,893)
82,715

(82)

-

(695)

¥8,399¥9,768$71,127

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Notes to the Consolidated Financial Statements
For the years ended March 31, 2007 and 2006

1. Basis of Presenting the Consolidated Financial Statements
The accompanying consolidated financial statements of Toyo Kanetsu Kabushiki Kaisha (the "Company") and its subsidiaries(collectively, the "Companies") are prepared on the basis of accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirements of International Financial Reporting Standards, andare compiled from the consolidated financial statements prepared by the Company as required by the Securities and Exchange
Law of Japan. The accounts of overseas consolidated subsidiaries are based on their financial statements prepared inconformity with generally accepted accounting principles and practices prevailing in the respective countries in which thesubsidiaries are incorporated.
Certain items presented in the consolidated financial statements submitted to the Director of Kanto Finance Bureau in Japan
have been reclassified in these accounts for the convenience of readers outside Japan.
2. Accounting Standards for Presentation of Net Assets in the Balance Sheet
Effective from the year ended March 31, 2007, the Company has applied Accounting standards for presentation of net assets
in the balance sheet (Accounting Standards Board of Japan Statement No.5) , and Implementation guidance for Accounting
standards for presentation of net assets in the balance sheet (Accounting Standards of Japan Guidance No.8)
both issued by
the Accounting Standards Board of Japan on December 9, 2005.
The amounts corresponding to the conventional Shareholders’ equity in the balance sheet is ¥31,950 million ($270,557
thousand).
Net assets in the balance sheet for this year is presented according to the revision of Regulations concerning the
Terminology, Form and Presentation Methods of Consolidated Financial Statements dated on April 25, 2006.
3. Summary of Significant Accounting Policies(1) Principles of Consolidation and Investments in Affiliated Companies
The consolidated financial statements include the accounts of the Company and those of its subsidiaries in which it has control.
The consolidated financial statements include, with the exception of subsidiaries that are not material, the accounts of its eightsubsidiaries (nine subsidiaries in 2006). All significant inter-company transactions and accounts and unrealized inter-company
profits are eliminated on consolidation.
Investments in unconsolidated subsidiaries and affiliated companies in which the Company has significant influence areaccounted for under the equity method. These unconsolidated subsidiaries and affiliated companies to which the equity method
is applied total five at March 31, 2007 and five at March 31, 2006. Consolidated net income includes the Company’s equity inthe current earnings of those companies after elimination of unrealized inter-company profits.
The excess of the cost over the underlying net equity of investments in consolidated subsidiaries as well as companies
accounted for on an equity basis, is deferred and amortized on a straight-line basis over a period of five years from the date ofacquisition.
Three subsidiaries were consolidated on the basis of their fiscal years ended at December 31, 2006 and four subsidiaries wereconsolidated on the basis of their fiscal years ended at December 31, 2005. Owing to the clearing of TKK Engineering Pty. Ltd.
in the fiscal year ended at December 31, 2006, the numbers of consolidated subsidiaries were decreased. Material differences
in inter-company transactions and accounts arising from the use of the different fiscal year ends are appropriately adjusted foron consolidation.
The subsidiary, Toyo Kanetsu Singapore Pte. Ltd., which was established in the fiscal year ended at December 31, 2006, has
not been included in both consolidated subsidiaries and companies accounted for on an equity basis, because that company has
an immaterial impact on the consolidated financial statements.
(2) Revaluation of Assets and Liabilities of the Subsidiaries
All assets and liabilities of the subsidiaries are fair valued as of the date of acquisition of control.
(3) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an original maturity of three months or less and which represent a
minor risk of fluctuation in value.

12(4) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided at an amount for losses which are expected to occur but cannot be determinedon a item-by-item or group basis. This general allowance is calculated using historical write-off experience from prior periods.
In addition, an amount for expected losses on individual uncollectible receivables is calculated based on management’s
estimate.
(5) Inventories
Inventories are valued at cost as determined by the following methods:
Raw materials……………………….Weighted average method
Work in process and supplies ……… Accumulated materials and production cost(6) Financial Instruments(a) Derivatives
All derivatives are stated at fair value except for certain derivatives that are designated as "hedging instruments" (see (c) Hedge
Accounting below).
(b) Investments in Securities
Securities held by the Company and its subsidiaries are classified into two categories:“Investments of the Company in equity securities issued by unconsolidated subsidiaries and affiliates” are accounted for by theequity method.
Other investments in debt and equity securities are classified as “Other securities”. The adoption of mark-to-market accounting
for “Other securities” with market quotations becomes effective for the year ended March 31, 2007. As a result of this change,“Other securities” with market quotations are stated at fair value with any unrealized holding gains and losses, net of tax, being
reported in Shareholders’ equity or Changes in Net Assets as “Net unrealized holding gains or losses on investment securities”.
“Other securities” without market quotations are stated at cost. “Other securities” which have the characteristics of cash
equivalents are presented as Marketable Securities (current) while the remainder of “Other securities” are presented as
Investments in Securities (non-current). The costs of “Other securities” sold are determined by the weighted average method.
(c) Hedge Accounting
Gains or losses arising from changes in the fair value of the derivatives designated as "hedging instruments" are deferred as an
asset or liability and included in net assets in the same period during which the gains and losses on the hedged items ortransactions are recognized. However, in cases where forward exchange contracts used as hedges meet certain hedging criteria,
the existing foreign currency receivables or payables are translated at their contract rates. In addition, if interest rate swap
contracts or currency swap contracts meet certain hedging criteria, the net amount to be paid or received under these swap
contracts is added to or deducted from the interest on the related hedged liabilities.
Derivatives designated as hedging instruments by the Company are principally interest swaps, currency swaps, and forward
exchange contracts. The related hedged items are trade accounts receivable and payable, and long-term bank loans.
The Company has a policy for utilizing the above hedging instruments in order to reduce the Company's exposure to the risk offoreign exchange and interest rate fluctuations. Thus, the Company's purchases of hedging instruments are limited to, at
maximum, the amounts of the related hedged items.
The Company evaluates the effectiveness of its hedging activities by reference to the accumulated gains or losses on thehedging instruments and the related hedged items beginning from the commencement of the hedges.
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of maintenance, repairs and minor renewals is charged to current
operations; major renewals and enhancements are capitalized. Depreciation is mainly computed using the declining-balancemethod, except for buildings acquired after April 1, 1998, to which the straight-line method is applied for the Company and its
domestic subsidiaries. The principal estimated useful lives range from 3 to 50 years for buildings and from 10 to 15 years formachinery and equipment. Depreciation of overseas subsidiaries is computed using the straight-line method.
(8) Revaluation of Land
In accordance with the “Law on Land Revaluation” issued on March 31, 1998 and the “Law Related to the Revision of the
Law of Land Revaluation” issued on March 31, 2001, the Company revalued its business-purpose land. Of the revaluationdifference, the amount related to tax is recognized as a deferred tax liability and the revaluation difference, net of tax, is
recognized as a component of shareholders’ equity.
Method of the revaluation
The revaluation was performed based on the fixed asset tax revaluation amount set in the “Law on Land Revaluation” No.2
article 3, and is calculated based on land prices set in the “Law on Land Revaluation” No.2 article 4, with certain reasonableadjustments as follows:13

Date of the revaluation:
Land value before revaluation:
Land value after revaluation:

March 31, 2002
¥7,189 million¥ 10,844 million

The excess of the book value over the current market value of such revalued land held at March 31, 2007 amounted to ¥3,978
million ($33,683 thousand).
(9) Intangible Assets
Amortization of intangible assets is computed using the straight-line method. Software for internal use is amortized over its
expected useful life (5 years), on a straight-line basis.
(10) Reserve for losses on work in progress
A reserve for losses on work in progress is provided based on an estimate of the total losses which can be anticipated for the
next fiscal year and beyond in respect of construction projects on which eventual losses are deemed inevitable and amounts
thereof can reasonably be estimated.
(11) Reserve for warranty costs for completed works
A reserve for warranty costs for completed works is provided based on the past experience rates for warranty costs andafter-sales service costs for completed works on a item-by-item or group basis.
(12) Reserve for contingent loss
A reserve for contingent loss is provided at the amount which can be reasonably estimated according to the occurrence ofcontingency and considering the risks of each contingency.
(13) Income Taxes
The income taxes of the Company and its domestic subsidiaries consist of corporate income taxes, local inhabitants’ taxes andenterprise taxes.
Income taxes are determined using the asset and liability approach, whereby deferred tax assets and liabilities are recognized in
respect of temporary differences between the tax base of assets and liabilities and those as reported in the consolidated
financial statements.
(14) Accrued Bonuses
Accrued bonuses to employees are provided for at the estimated amounts which the Company and its consolidated subsidiaries
are obligated to pay to employees after the fiscal year-end, based on services provided during the current period.
(15) Accrued Retirement Benefits for Employees
Accrued retirement benefits to employees of the Company and its major consolidated subsidiaries are provided based on theestimated present value of projected benefit obligations and fair value of funded plan assets. For other insignificant
consolidated subsidiaries, accrued retirement benefits to employees are calculated using the simplified method. The amount of
actuarial gains (losses) is amortized on a straight-line basis over five years and recognized as deductions from expenses or
included in expenses, respectively, in the next fiscal year. Prior service cost is recognized as deductions from expenses or
included in expenses, respectively, in the year of occurrence.
(Changes in accounting method)
The Company and its consolidated subsidiaries had previously amortized any actuarial differences in the year of occurrence.
The actuarial differences that arise from the differences between the expected rate of investment and the actual rate ofinvestment can create large fluctuations on Operating Income each fiscal year.
Therefore, from the year ended at March 31, 2007, the Company and its consolidated subsidiaries has adopted the amortizationof actuarial differences based on the straight-line basis over five years instead of amortizing the full value of the actuarial
difference in the year of occurrence.
As a result of this change, Operating Income, Income before special items and Income before income taxes and minority
interests have decreased respectively by ¥34 million ($286 thousand) as compared with the calculation using the former
method.
(16) Accrued Retirement Benefits for Directors and Corporate Auditors
Accrued retirement benefits for directors and corporate auditors of the Company and its subsidiaries are provided for inaccordance with the Companies’ established policies on the accrual basis.
(17) Accounting for Finance Leases
Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases. Leases
not transferring ownership of the assets at the end of the lease term are accounted for as operating leases, in accordance withaccounting principles and practices generally accepted in Japan.

14(18) Depreciation of Leased Assets
Leased assets are depreciated over the term of the lease on a straight-line basis.
(Change in accounting method and the term of depreciation)
From the year ended March 31, 2006, the method of depreciating the leased assets has been changed to the straight-line
method over the term of the lease from the declining-balance method over the estimated economic useful life. As a result of
this change, Selling, General and Administrative Expenses of segment Other has decreased by ¥20 million ($166 thousand),and Operating Income of that segment has increased by the same amount, as compared with the calculation using the former
method.
The ¥20 million decrease in Selling, General and Administrative Expenses resulted from a decrease of ¥179 million ($1,521
thousand) in change in accounting method, and an increase of ¥159 million ($1,355 thousand) in change in term ofdepreciation.
(19) Revenue Recognition
The Company uses the percentage-of-completion method for the recognition of sales and gross profit in respect of certain
contracts that take more than one year to complete. In all other cases, sales and gross profit are recorded when the relevant
items are completed or delivered. One consolidated subsidiary recognizes revenue on the installment basis.
(20) Earnings Per Share
The computation of net income per common share is based on the weighted average number of outstanding shares of common
stock.
(21) Accounting standard for impairment of fixed assets
On August 9, 2002, the Business Accounting Council in Japan issued "Accounting Standard for Impairment of Fixed Assets".
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. An impairment loss is recognized in the income statement by reducing
the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net
selling price and value in use.
The effect of adopting “Accounting Standard for Impairment of Fixed Assets” on Income before income taxes and minority
interests was ¥895 million ($7,622 thousand) at March 31, 2006.

4. United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥118.09=U.S. $1.00, theapproximate rate of exchange prevailing at March 31, 2007, has been used in the translation. The inclusion of such amounts are
not intended to imply that the Japanese yen has been or could be readily converted, realized or settled in U.S. dollars at thisrate or any other rates.

5. Cash and Cash Equivalents
Cash and Cash Equivalents as at March 31, 2007 and 2006 consisted of:
2007

2006

Thousands of
U.S. dollars
2007¥7,138
(236)
1,499
(2)
¥8,399¥7,966
(196)
2,000
(2)
¥9,768$60,445(1,999)12,695(14)$71,127

Millions of yen

March 31
Cash on hand and at bankTime deposits, over 3-month term
Short-term investments included in marketable securities
Other
Cash and cash equivalents

6. Marketable Securities
Marketable securities as at March 31, 2007 and 2006 were as follows:
2007

2006

Thousands of
U.S. dollars
2007¥1,499¥2,000$12,695

Millions of yen

March 31
Commercial paper

15

7. Inventories
Inventories as at March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars
2007

Millions of yen

March 31Work in process
Other

2007

2006

¥ 9,355798¥10,153¥ 6,166596¥6,762$79,2226,755$85,977

8. Investments in Securities
Investments in securities as at March 31, 2007 and 2006 were as follows:
March 31
Listed equity securities and bonds
Unlisted equity securities and bonds

Investments in unconsolidated subsidiaries and affiliates included ininvestments in securities

Millions of yen
2006
2007

Thousands of
U.S. dollars
2007¥15,657
2,128¥17,785¥18,669
2,336¥21,005$132,586
18,022$150,608¥1,354¥1,537$11,466

The aggregate acquisition cost, gross unrealized gains and losses and carrying amount on the balance sheet of other securities
with market quotations at March 31, 2007 and 2006 were as follows:
At March 31, 2007
Millions of yen
Unrealized
Unrealized
gains
losses¥12,671¥12,671-

Acquisition cost
Equity securities
Bonds
Other
Total

¥2,986¥2,986At March 31, 2006
Millions of yen
Unrealized
Unrealized
gains
losses¥15,1833¥15,186-

Acquisition cost
Equity securities
Bonds
Other
Total

¥2,983500¥3,483At March 31, 2007
Thousands of U.S. dollars
Unrealized
Unrealized
gains
losses$107,303$107,303-

Acquisition cost
Equity securities
Bonds
Other
Total

$25,283$25,283

Carrying amount¥15,657¥15,657

Carrying amount¥18,166503¥18,669

Carrying amount$132,586$132,586

The Company writes down the book value of other securities when the market value declines by more than 50%, or the market
value declines by more than 30% but less than 50% and the Company management determines the decline to be other than
temporary.
Proceeds from sale of other securities were ¥570 million ($4,824 thousand) and ¥1,153 million for the years ended March 31,
2007 and 2006, respectively. On those sales, gross realized gains were ¥18 million ($152 thousand) and ¥568 million for theyears ended March 31, 2007 and 2006, respectively. Gross realized losses were ¥0 million ($0 thousand) and ¥0 million for theyears ended March 31, 2007 and 2006, respectively.

16

9. Short-Term Debt and Long-Term Debt
Short-term debt consists principally of a bank overdraft, bearing interest at a weighted average annual rate of 3.3% and 3.8% at
March 31, 2007 and 2006, respectively.
Short-term debt as at March 31, 2007 and 2006 were as follows:
Millions of yen

March 31
Bank overdraft
SecuredUnsecured
Current portion of long-term debt

2007

2006

¥1,1691,599
2,093¥4,861¥1,938559
2,156¥4,653Thousands of
U.S. dollars
2007$9,901
13,535
17,726$41,162

Long-term debt as at March 31, 2007 and 2006 were as follows:
Millions of yen

March 31
Payable to domestic banks, insurance companies and other,with interest rates shown below (* 1)SecuredUnsecured
Less: Current portion of long-term debt

March 31(*1) Interest rates

2007

2006

¥675
5,779
6,454
(2,093)¥4,361

¥975
4,832
5,807
(2,156)¥3,651Thousands of
U.S. dollars
2007$5,71648,93654,652(17,726)$36,9262006
1.3 % to 3.0 %2007
1.0% to 3.0%

Annual maturities of long-term debt at March 31, 2007 were as follows:Year ending on March 31,
2008
2009
2010
2011
2012 and thereafter

Millions of yen

Thousands of
U.S. dollars¥2,093
1,507
1,814
779
261
¥6,454$17,726
12,76015,3606,595
2,211$54,652

Assets pledged as collateral for short-term debt and long-term debt as at March 31, 2007 and 2006 were as follows:
2007

2006

Thousands of
U.S. dollars
2007

¥838
663
23
5,459
¥6,983¥5,035
1,409
27
6,372
¥12,843$7,0905,616
197
46,227$59,130

Millions of yen

March 31
Investments in securities
Buildings (at net book value)
Machinery (at net book value)Land

10. Retirement Benefits Plan
The Company and its consolidated subsidiary, TKSL, had adopted the defined contribution pension plans and the lump-sum
severance payment plans based on the cash balance plans. The portion of the lump-sum retirement payment plans was shiftedto the defined benefits pension plans from February 1, 2007.
Certain consolidated subsidiaries have the lump-sum retirement payment plans, the defined contribution pension plans or thequalifying retirement pension funds.
The Company and five domestic consolidated subsidiaries have the employee’s pension fund.

17

The accrued retirement benefits as of March 31, 2007 and 2006 were analyzed as follows:
Thousands of
U.S. dollars
2007$(29,344)
9,660(19,684)(240)$(19,924)

Millions of yen
2006
2007
¥(3,531)¥(3,465)5
1,140(3,526)(2,325)(28)¥(3,526)¥(2,353)

Projected benefit obligations
Plan assets
Net unreserved projected benefit obligations
Unrecognized actuarial differences
Accrued retirement benefits recognized in balance sheets

Net pension and severance costs related to the retirement benefit plans for the years ended March 31, 2007 and 2006 were as
follows:
Thousands of
U.S. dollars
2007$1,326
442
(701)
420
$1,487

Millions of yen
2006
2007
¥166
¥157
58
52
(57)
(83)
49
50
¥216
¥176

Service costs
Interest cost
Expected return on plan assets
Net amortization
Amortization of prior service costs
Transfer to defined contribution pension plans
Net pension and severance costs

Assumptions used in calculation of the above information were as follows:
As of March 31
Discount rate
Expected rate of return on plan assets
Method of attributing the projected benefit
obligations to periods of service
Amortization of prior service cost
Amortization of unrecognized actuarial differences

2007
1.5 %
1.0 %

2006
1.5 %
−

Straight- line basis

Straight- line basis

Expensed in the year ofoccurrence

Expensed in the year ofoccurrence
Expensed in the year ofoccurrence

5 years

11. Income Taxes
The Company and its domestic subsidiaries are subject to several taxes based on income, which in the aggregate resulted in thestatutory income tax rate of approximately 40.69% for the years ended March 31, 2007 and 2006. Foreign subsidiaries are
subject to income taxes of the countries in which they operate.
The reconciliation of the statutory income tax rate to the effective income tax rate for the years ended March 31, 2007 and2006 were as follows:
2006
2007
Statutory income tax rate
40.69%
40.69%
Reconciliation
Valuation allowance
27.41(34.11)
Nondeductible expenses
12.42
13.04
Tax losses carried forward(65.39)(42.31)Equity in earnings of subsidiaries and affiliates(9.96)−
Other(0.93)(5.52)
Effective income tax rate
14.20%(38.17)%18

At March 31, 2007 and 2006, significant components of deferred tax assets and liabilities were as follows:
Thousands of
U.S. dollars

Millions of yen
2007

2006

2007

¥3,773
20
954
83
289
251

¥4,496
66
1,433
73
928
87

$31,953
173
8,080
702
2,449
2,129

58

41

487

260
481
17
421
102
220
6,929

413
15
408
84
435
8,479

2,201
4,071
140
3,568
866
1,858
58,677

Less: valuation allowance(5,935)(8,445)(50,257)

Gross deferred tax assets

994

34

8,420

2,174
5,156
¥7,3302,174
6,179¥8,353

18,41043,662$62,072

Deferred tax assets
Tax losses carried forward
Accrued enterprise tax
Accrued severance and pension costs for employees
Accrued bonuses
Allowance for doubtful accounts
Reserve for losses on work in progress
Accrued severance and pension costs for directors andcorporate auditors
Reserve for contingent loss
Loss on write-down of investments
Loss on write-down of inventories
Impairment losses on fixed assets
Depreciation and amortization
Other

Deferred tax liabilities
Deferred tax liabilities on revaluation of land
Net unrealized gains on investments in securities
Gross deferred tax liabilities

12. Selling, General and Administrative Expenses
Selling, General and Administrative expenses for the years ended March 31, 2007 and 2006 comprised of the following:

Year ended March 31
Salaries and benefits
Accrued bonuses
Pension and severance costs
Accrued retirement benefits for directors and corporate auditors
Allowance for doubtful accounts
Other

Millions of yen
2006
2007
¥1,158¥1,167
59
201
159
122
16
39
32
261
2,167
1,951
¥3,591¥3,741Thousands of
U.S. dollars
2007$9,879
1,701
1,031
333
2,214
16,523$31,681

13. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years
ended March 31, 2007 and 2006 were ¥270 million ($2,285 thousand) and ¥271 million, respectively.

14. Leases
A. Lessee
Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases.
Leases not transferring ownership of the assets at the end of the lease term are accounted for as operating leases, in accordancewith accounting principles and practices generally accepted in Japan.

19

Leased assets under finance leases that do not transfer ownership of the leased assets at the end of the lease term, if capitalized,
comprised of the following:

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost
¥736
2,222
¥2,958At March 31, 2007
Millions of yen
Accumulated
Depreciation
¥556
1,749
¥2,305Net book value
¥180
473
¥653

Acquisition
cost¥1,7972,255¥4,052At March 31, 2006
Millions of yen
Accumulated
depreciation¥1,1781,335¥2,513

Net book value¥619
920¥1,539Acquisition
cost$6,226
18,820$25,046

At March 31, 2007
Thousands of U.S. dollars
Accumulated
Depreciation$4,705
14,811$19,516

Net book value$1,521
4,009$5,530

The amounts of outstanding future lease payments due at March 31 including the portion of interest thereon are summarized asfollows:
Thousands of
U.S. dollars
Millions of yen
March 31
2006
2007
2007
Future lease payment
Within one year
¥762
¥647
$5,485
Over one year
870
222
1,878
¥1,632¥869$7,363

Lease rental expense on such finance lease contracts for the years ended March 31, 2007 and 2006 were as follows:
Thousands of
U.S. dollars
Millions of yen
2006
Year ended March 31
2007
2007
Lease rental expense
¥807
¥623
$5,278Depreciation
738
576
4,879
Interest expense
66
31
259

B. Lessor
Finance leases that do not transfer ownership of the leased property to lessor are accounted for as rental transactions.
Leased assets under financial leases comprise of the following:

Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost¥2,082
1,077
3,751¥6,91020

At March 31, 2007
Millions of yen
Accumulated
Depreciation¥1,679581
1,161¥3,421

Net book value
¥403
496
2,590
¥3,489Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost¥2,083
1,247
3,186¥6,516At March 31, 2006
Millions of yen
Accumulated
Depreciation¥1,340743
1,302¥3,385Net book value
¥743
504
1,884
¥3,131At March 31, 2007
Thousands of U.S. dollars

Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost$17,633
9,118
31,765$58,516

Accumulated
Depreciation$14,224
4,918
9,832$28,974

Net book value$3,4094,200
21,933$29,542

The amounts of outstanding future lease revenue due at March 31 including the portion of interest thereon are summarized asfollows:
Thousands of
U.S. dollars
Millions of yen
2006
March 31
2007
2007
Future lease revenue
Within one year
¥1,985¥1,819$15,400
Over one year
3,346
3,581
30,327¥5,331¥5,400$45,727

Lease rental revenue, depreciation and interest income equivalent on such finance lease contracts for the years ended March 31,
2007 and 2006 were as follows:
Thousands of
U.S. dollars
Millions of yen
2006
Year ended March 31
2007
2007
Lease rental revenue¥1,963¥2,218$18,786
Depreciation
981
1,071
9,073
Interest income
982
1,147
9,713

15. Derivative and Hedging Activities
The Companies use forward currency exchange contracts to hedge against the exchange rate risk associated with monetary
receivables and payables denominated in foreign currencies. Interest rate swap transactions or currency swap transactions isused in order to minimize the risk of fluctuation in interest rates on borrowings.
The Companies have established a control environment that includes policies and procedures for risk assessment and for theapproval, reporting and monitoring of transactions involving derivative financial instruments. The Companies do not hold or
issue derivative financial instruments for trading purposes.
The Companies are exposed to certain market risks arising from their forward exchange contracts and swap agreements. The
Companies are also exposed to the risk of credit loss in the event of non-performance by the counterparties to the currency andinterest; however, the Companies do not anticipate non-performance by any of these counterparties, all of whom are financial
institutions with high credit ratings.

16. Commitments and Contingent Liabilities
As at March 31, 2007, the Companies were contingently liable for notes receivable discounted and endorsed and guarantees ofloans made to unconsolidated subsidiaries and affiliates as follows:
Thousands of
U.S. dollars
Millions of yen
March 31, 2007
Guarantees of loans from banks¥ 1,642$13,90821

17. Segment Information(1) Industry Segment Information
The operations of the Company and its consolidated subsidiaries for the years ended March 31, 2007 and 2006 weresummarized by product group as follows:Year ended March 31, 2007
Sales
Sales to external customers
Inter-segment sales
Total
Operating costs andexpenses
Operating income
AssetsDepreciation
Capital expenditure

Millions of yen
RealEstateOther
Utilizing
Division

Sub Total

EliminationorCorporate
Assets*Consolidated
Total¥4,738870
5,608¥45,548
1,091
46,639¥ (1,091)(1,091)¥ 45,548
45,548413

5,569

44,412(751)

43,661

144

246

39

2,227

(340)

1,887

13,336
9
54

4,766
125
27

10,1281,102
1,607

57,845
1,499
2,276

11,15717(13)

69,002
1,516
2,263

Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division¥17,31684
17,400¥17,029
17,029¥5,944
(1)
5,943

¥521
138
659

16,696

15,935

5,799

704

1,094

12,036141264

17,579122
324

Millions of yen
Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division¥20,909
20,909¥14,643
14,643Operating costs and expenses
Operating income

19,566
1,343

AssetsDepreciation
Impairment losses on
fixed assets
Capital expenditure

Year ended March 31, 2006
Sales
Sales to external customers
Inter-segment sales
Total

Other

Sub Total

Elimination
or Corporate
Assets*¥5,668(1)
5,667¥4,310959
5,269¥45,530
958
46,488

¥
(958)
(958)

¥ 45,530
45,53014,094
549

5,570
97

5,115
154

44,345
2,143

(719)
(239)

43,626
1,904

15,933
211

11,136
117

14,74416

11,0091,181

52,822
1,525

14,31826

67,140
1,551

-

-

-

269

269

626

895

29

401

37

2,129

2,596

52

2,648

Consolidated
Total* Corporate assets consist of cash on hand and at bank, investments in securities and the assets belonging to the administration department of the Company.
Corporate assets at March 31, 2007 and 2006 were ¥12,248 million ($ 103,715 thousand) and ¥15,737 million, respectively.

Year ended March 31, 2007
Sales
Sales to external customers
Inter-segment sales
Total
Operating costs andexpenses
Operating income
AssetsDepreciation
Capital expenditure

Thousands of U.S. dollars
Real
Building
EstateConstruction
Other
Utilizing
Division
Division

Sub Total

EliminationorCorporate
Assets*Consolidated
Total$40,117
7,367
47,484$385,703
9,236
394,939$ (9,236)(9,236)$385,703
385,703

3,496

47,158376,084(6,356)

369,728

1,213

2,082

326

18,855(2,880)15,975112,92874
458

40,3591,062
225

85,771
9,329
13,612489,841
12,692
19,274

94,477148(107)584,318
12,84019,167

Material
Handling
Systems
Division

Plant &
Machinery
Division$146,637
713
147,350$144,204
144,204$50,333(10)
50,323$4,412
1,166
5,578

141,383

134,937

49,110

5,967

9,267

101,922
1,194
2,235

148,861
1,033
2,744

(2) Geographical Segment Information
Segment information classified by geographic area was omitted because the majority of the Companies’ operations are
conducted in Japan.

22

(3) Export sales and sales by overseas subsidiaries
Millions of yen
Year ended March 31, 2007
Overseas sales
Consolidated Sales
Ratio

South-east
Asia¥7,713
16.9%

Year ended March 31, 2006
Overseas sales
Consolidated sales
Ratio

South-east
Asia¥5,953
13.1%

Year ended March 31, 2007
Overseas sales
Consolidated sales
Ratio

South -east
Asia$65,312
16.9%

Middle East
¥4,822
10.6%

Other¥1,718
3.8%

Total¥14,253¥45,548
31.3%

Millions of yen
Middle East
¥1,9074.2%

Other¥1,851
4.0%

Total¥9,711¥45,530
21.3%

Thousand of U.S. dollars
Middle East
$40,831
10.6%

Other
$14,554
3.8%

Total$120,697$385,703
31.3%* Major countries included in the above geographic areas were as follows:
South-east Asia:….. Indonesia, Vietnam
Middle East:……….Yemen, Iran
Other: ……………..Trinidad and Tobago, China

18. Related Party Transactions
Material transactions of the Company with its related companies and individuals, excluding transactions with consolidated
subsidiaries which are eliminated in the consolidated financial statements and other than those disclosed elsewhere in thesefinancial statements, for the years ended March 31, 2007 and 2006 were as follows:

Name of Related
Company

Paid-in
CapitalToyo Koken K.K.

¥897
millionToyo Miyama Co.,
Ltd.

¥100
millionPrincipal
Business
Production andsale ofelectric-driven
winchesArchitecturalbusiness

Material
Toyo Kanetsu
Handling
MYR2,000(Malaysia) Sdn.Bhd.
thousand Systems businessMillions of yen / Thousands of U.S. dollars
Transactions
Resulting Accounting BalanceYear ended March 31
At March 31,

EquityOwnership
Percentage
by theCompany

Description oftheCompany’s
Transactions

2007

2006

Account

2007

2006

39%

Loans made--Short-term
loans

¥113
$955

¥113

-

-

Long-term
loans¥1,087$9,205¥1,262¥1,600$13,549¥1,192

49%

Guarantee
obligation

49%

Redemption of
stock

¥232
$1,968The terms and conditions of the above transactions are on an arm's-length basis.

23

Corporate Data
Head Office
19-20, Higashisuna 8-Chome, Koto-ku,
Tokyo 136-8666, Japan
Tel : +81-3-5857-3333
Fax: +81-3-5857-3170

Security Traded
Tokyo Stock Exchange Market, 1st Section

URL: http://www.toyokanetsu.co.jp

Transfer Agent and Registrar
The Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-Chome, Chiyoda-ku,

Date of Establishment
16th May, 1941
Common StockPar Value

Authorized
IssuedTokyo 100-8212, Japan
Annual Meeting
The annual Meeting of Shareholders is normally held in June inTokyo, Japan: ¥50: 297,000,000: 138,730,741

Offices, Subsidiaries and Affiliates
Domestic Offices
Toyo Kanetsu K.K.
Osaka Sales Office
1-9-2, Senrioka-Higashi, Settsu, Osaka 566-0011, Japan
Tel: +81-72-645-2520
Fax: +81-72-645-2532

Overseas Subsidiaries & Affiliates
P.T. Toyo Kanetsu Indonesia(Jakarta Head Office)Midplaza Building 1, 8th Floor, Jl. Jend. Sudirman Kav.10-11,
Jakarta 10220, Indonesia

Toyo Kanetsu K.K.
Chiba Plant
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: +81-438-36-7161
Fax: +81-438-36-8211

Tel: +62 (21) 570-7805 / 7739

Domestic Subsidiaries & Affiliates

Fax: +62 (21) 570-3950(Batam Fabrication Plant)
Jl. Tenggiri, Batu Ampar, Batam, Indonesia

Toyo Kanetsu Solutions K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3126
Fax: +81-3-5857-3180

Tel: +62 (778) 412158 / 412159

Fax: +62 (778) 412157

Toyo Kanetsu (Malaysia) Sdn. Bhd.
Sublot 51, 1st Floor, Medan Jaya Commercial Centre,
97000 Bintulu, Sarawak, Malaysia

K-Techno Inc.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3155
Fax: +81-3-5690-7248

Tel: +60 (86) 338122

Fax: +60 (86) 338123

TKL Co., Ltd.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-3640-5164
Fax: +81-3-5606-6377

Toyo Kanetsu Singapore Pte. Ltd.

Toyo Service System K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3200
Fax: +81-3-5857-3201

Al Ghallilah Engineering & Construction L.L.C.
P.O. Box 121, Postal Code 118, Al Harthy Complex, Sultanate of

Global Eight Co.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-3699-1601
Fax: +81-3-3699-4330

TKK-USA,INC.
8955 Katy Freeway Suite 202 Houston TX 77024,USA

38, Robinson Road, #17-00, The Corporate Office, Singapore 068906

Tel: +65 (6228) 0561

Fax: +65 (6223) 1735

Oman

Toyo Koken K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3161
Fax: +81-3-5857-3198
Toyo Miyama Co., Ltd.
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: +81-438-37-2233
Fax: +81-438-37-2201
Manavis Co., Ltd.
15-9, Chidori, Urayasu-shi, Chiba 279-0032, Japan
Tel: +81-47-380-5800
Fax: +81-47-380-1166
Katayama Co.
22-13, Shinjuku 6-chome, Shinjuku-ku, Tokyo 160-0022, Japan
Tel: +81-3-3352-0611
Fax: +81-3-3352-0674

25

TOYO KANETSU K.K.
http://www.toyokanetsu.co.jp