1KYOKUTO KAIHATSU KOGYO CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAnnual Report 2009
Year ended March 31, 2009

CONTENTS
Operational Results
Management Policy
Consolidated Statement of Income and Retained Earnings
Consolidated Balance Sheets
Consolidated Statement of Cash Flows
Basis of Presenting Consolidated Financial Statements
Report of Independent Certified Public Accountants
Corporate information
Board of Directors and Statutory Auditors

2
8
10
11
13
14
29
30
31

2

1. Operational Results(1) Analysis of Operational Results<Summary of Operational Results for the Consolidated Fiscal Year ended March 31, 2009 >With the outlook for the real economy remaining unclear, the Japanese
economy went through extremely difficult times in the current
consolidated fiscal year—a situation where the economic downturn
accelerated the rate of deterioration due to the global economic recession
triggered by the financial crisis in the United States.
Under such a tough business environment, the Kyokuto Kaihatsu Kogyo
Group concertedly strived to secure earnings by implementing
emergency measures to cope with rapidly deteriorating economy, such as
securing orders, cost reduction and expense curtailing.
President and Representative of
the Board of Directors, CEO
Takaaki Fudetani

The Specialty Truck Division, a mainstay of its business, saw the business environment greatly
deteriorate both in Japan and overseas due to the global economic slowdown from the latter
half of the previous year. The Environment Equipment and Systems Division experienced asevere business downturn due to a cutting back on public works, etc., as did the Real Estate
Rental Division due to a decline in demand for the multistory parking garage system.
As a result, in the current consolidated fiscal year, sales decreased by 13,568 million yen (15.8%)
over the preceding consolidated fiscal year to 72,116 million yen. Operating income decreased
by 2,524 million yen (84.2%) to 473 million yen due to an operating loss incurred by theSpecialty Truck Division. Ordinary income declined by 2,195 million yen (79.0%) to 584 million
yen, while net income decreased by 2,714 million yen due to loss on valuation of investment
securities and impairment loss, etc., forcing the Company to post a net loss of 1,051 million yen.
We would like to present the summary of business on a consolidated basis by segment incomparison with the preceding fiscal year.

i) Specialty Truck Division
In the first half of the current fiscal year, the Specialty Truck Division saw its domestic demanddecrease due to an eventual backlash from a special procurement demand for trucks related tothe enforcement of stringent regulations on exhaust gas emissions and a decline in construction
demand. Meantime, overseas businesses including exports and Kunshan Plant and the Trailer
business increased steadily. However, sales both in domestic and overseas markets drasticallydecreased in the second half of the current fiscal year, with demand for trucks evaporating due
to the global economic downturn.
Under such a circumstance, the Company strived to secure orders, revise sales prices andreduce production costs further by procuring components from overseas. Management also took
emergency measures to secure a profit, such as cutback of fixed costs, reviewing of the numberof employees and improvement of work efficiency. In addition, the Company strengthened
business alliance with Nippon Trex Co., Ltd. through the promotion of joint new product3

development, joint procurement of components and materials and consolidation of sales andservice footholds. In oversea markets, management tried to expand sales in emerging countries,
where demand was expected to grow.
As a result, sales in the Specialty Truck Division decreased by 9,731
million yen (14.5%) to 57,440 million yen due to a drastic
deterioration of the market environment. The Company saw
operating income decrease by 3,330 million yen and posted
operating loss of 311 million yen due to a decrease in sales,
although it took cost reduction measures as well as emergency
measures.
New Products

Triple-axis bulk carrier semitrailer
Jointly developed with Nippon TrexNew Piston type concrete boom pump track“PY100-26-S”

Detachable body track equipped with scale“Scale Hook Roll”

Squeeze-out type concrete boom pump
“PQ 20-21M”

ii) Environment Equipment and Systems Division
For the Environment Equipment and System Division, business environment was still very
challenging, since local governments cut back expenditures for public works due to financial
difficulties and order amounts remained low.
Under such a circumstance, with raw material prices soaring in the first half of the current
fiscal year, the Company still struggled to turn a profit in the construction of a plant.
Management tried to secure a profit by obtaining orders with serious consideration on
profitability and strengthening the maintenance and system operation businesses.
As a result, orders the division obtained decreased by 1,393 million yen (17.9%) to 6,369 million
yen. Sales decreased by 3,208 million yen (25.9％) to 9,201 million yen. The Company succeededin turning the division into black due to implementation of the above measures. Operating
income increased by 851 million yen to 5 million yen.

4

Recycle Plaza

Pulverrizer for non-burnable wastesiii) Real Estate Rental Division
The Real Estate Rental Division faced a very difficult business environment, with demand forthe multistory parking garage system decreasing due to a sharp decline in condominium
construction and the utilization rate of coin-operated parking lots remaining low.
As a result, revenues decreased by 596 million yen (9.0%) to 6,057 million yen and operating
income decreased by 42 million yen (5.3%) to 773 million yen.

Multistory parking garage system

Coin-operated parking<Forecast of Operations for the Next Consolidated Fiscal Year ending March 31, 2009>Management expects the economic downturn to continue in the next fiscal year, with capital
expenditures shrinking due to deterioration of corporate earnings and consumer spending
declining due to the severe employment and income situation.
Regarding the forecast of consolidated business performance for March 2010, the Company
estimates total sales to decrease by 11,616 million yen (16.1%) over March 2009 to 60,500
million yen, since the Specialty Truck Division is likely to see demand sharply decline and theEnvironment Equipment and System Division is going to obtain orders with serious
consideration on profitability. Management expects operating income to increase by 27 million
yen (5.6%) to 500 million yen, due to an improvement in profitability in the Environment
Equipment and System Division and the Real Estate Rental Division despite a decline in profit
in the Specialty Truck Division. Ordinary income is expected to increase by 36 million yen(6.0%) to 620 million yen, while net income is estimated to grow by 1,371 million yen to 320
million yen due to a decrease in extraordinary loss.
(2) Analysis on Financial Conditionsi) Situations of Assets, Liabilities and Net WorthIn the current consolidated fiscal year, total assets decreased by 11,211 million yen (11.0%) from5

the end of the preceding fiscal year to 90,999 million yen.
Current assets decreased by 8,807 million yen (15.2%) to 49,204 million yen, due to a decline innotes and accounts receivable-trade.
Non-current assets decreased by 2,403 million yen (5.4%) to 41,795 million yen, due to a decline
in market values of investment securities and posting of impairment loss.
Regarding liabilities, current liabilities decreased by 7,252 million yen (23.3%) to 23,911 million
yen due to a decrease in notes and accounts payable-trade and non-current liabilities decreasedby 555 million yen (4.3%) to 12,356 million yen.
Net assets decreased by 3,403 million yen (5.9%) to 54,731 million yen, due to a decline invaluation difference on available-for-sale securities as well as posting of net loss.
As a result, the capital adequacy ratio stood at 60.1% as of the end of the current fiscal year
(56.9% at the end of the preceding fiscal year).
ii) Cash Flow Situation
Consolidated cash and cash equivalents at the end of period increased by 2,148 million yen(26.2%) over the balance at the beginning of period to 10,334 million yen. Cash flow by activity
type is summarized as follows:
Cash Flow Provided by Operating Activities
Net cash provided from operating activities amounted to 2,363 million yen (an increase of 4,305
million yen compared with the preceding fiscal year). This was mainly because of collection of
account receivable-trade.
Cash Flow Used in Investing Activities
Net cash used in investment activities was 1,190 million yen (a decrease of 823 million yen).
This was mainly because of purchase of non-current assets.
Cash Flow Provided by Financial Activities
Net cash provided by financing activities amounted to 905 million yen (an increase of 1,656
million yen). This was mainly because of proceeds from issuance of bonds and loans payable.
(3) Principal policy for return of profits to shareholders and payment of dividends for thecurrent year and next year
The Kyokuto Kaihatsu Kogyo Group regards the return of profits to shareholders as one of themost important management’s policies. Taking the development of business in the future andbusiness environments into account, management has been striving to meet investors’
expectations through the improvement of business performance and the strengthening of its
financial position.
Regarding the return of profits to shareholders, the company has paid dividends and acquired
its own shares.

6i) Dividend payment
Management plans to pay a dividend of five yen per share at the end of March 2009, making its
annual dividend 10 yen per share including an interim dividend.
For the year ending March 2010, the Kyokuto Kaihatsu Kogyo Group expects its businesses
continue to falter due to the global economic downturn from the second half of the previous year.
Under such a circumstance, management regrets to report that it plans to reduce the annual
dividend payment by four yen per share to six yen per share (including three yen of an interim
dividend) for the year ending March 2010.
ii) Acquisition of its own shares
The company acquired its own shares based on a resolution by its board of directors meeting in
the year ended March 2009 are as follows:
The total number of shares acquired: 1,778,300 shares
The total value of shares acquired: 1,076 million yen
Management will continue to increase the return of profits to shareholders to meet investors’
expectations.
(4) Business Risksi) Risks related to dependence on certain key customers, products, and technologies
The Specialty Truck Division sells various types of special-purpose vehicles to domestic truck
manufacturers, their affiliated truck dealers and trading firms. Thus, fluctuation in demand
for trucks could affect the company’s business performance. In the technological field, thecompany has accumulated a wide range of expertise in manufacturing and marketing by themodel of a vehicle.
The Environmental Equipment and Systems Division is engaged in the construction of agarbage disposal plant and contracted business for maintenance and system operation for local
governments and industrial waste management companies.
ii) Risks related to possible legal restrictions, business practices and management policy
The Specialty Truck Division’s businesses are subject to the provisions of various laws andregulations, such as the Road Traffic Law, the Road Transport Vehicle Law and Motor Vehicle
Safety Standards. Since vehicles that fail to meet these laws and regulations after theenactment or revision will not be allowed to be used or owned in some cases, there will be alast-minute rise in demand and its eventual backlash. The rise and fall in demand due to legal
restrictions could affect the company’s business performance.
In the Environmental Equipment and Systems Division, since the construction of a garbage
disposal plant is subject to regulations under the Construction Industry Law, the company
conducts business with the license of a construction or cleaning facilities construction industry
which is authorized by the Minister of Land, Infrastructure, Transport and Tourism.
iii) Risk related to the fluctuation of raw material prices
The Kyokuto Kaihatsu Kogyo Group procures raw materials including steel products and7components for manufacturing the products from outside business entities. Therefore,
fluctuations in the prices of these materials could affect the Group’s business performance.
iv) Risks related to overseas business activities
The Kyokuto Kaihatsu Kogyo Group exports products, manufactures and markets products
and procures components at its overseas subsidiaries. There are risks involved in overseas
business activities such as unpredictable economic fluctuations, fluctuations in the value ofcurrencies, revisions of laws and regulations, the presence or occurrence of unfavorable
economic factors and social or political turmoil caused by terrorism, wars and other factors. A
realization of these risks could affect the Group business performance and plan.

8

2. Management Policy(1) Basic Management Policy of the Company
The basic management policy of the Kyokuto Kaihatsu Group is “To work together making
every effort for the further development of the Company with strong emphasis on our unique
technological expertise and strong reliability, and providing considerable contribution to oursociety together with our group companies.”
Our ultimate goal in the management policy is to implement corporate policy recognizing asocial role and responsibility as a public company in a strong relationship with various
stakeholders such as customers, business partners, shareholders, employees, and local societies.
In addition, by providing safe, effective and high quality products and services through our fairand sound business activities, the Kyokuto Kaihatsu Group seeks to bring about greater
contribution to our society and maximize corporate value.
With this management policy, we devote ourselves to three major business domains includingSpecialty Truck, Environmental Equipment and Systems, and Real Estate Rental.
(2) Targeted management index
Management aims to achieve the following results on consolidated basis for the year ending
March 2010: sales of 60,500 million yen, ordinary income of 620 million yen and net income of
320 million yen.
(3) Mid-to-Long Term Management Strategy and Major Challenges
With the truck market shrinking, public works decreasing and the construction market
collapsing due to the global economic crisis since the previous year, management expects theindustries related to the Company’s businesses to continue to face extremely difficult businessconditions.
Under such a circumstance, the Company will thoroughly revamp its business organization
including realignment of group companies to form a robust corporate structure that can secure
earnings even in a harsh business condition like today.

Strategies of Divisions
Specialty Truck Division
The Company expects the domestic truck market to remain very weak. Under such a
circumstance, management will strengthen sales forces to secure orders, completely review the
procurement of materials and strongly promote cost reduction with central purchasing andoverseas procurement plans to improve profitability. Meantime, the Company will raise
production efficiency through realignment of domestic plants including the closure of theHachinohe plant. In addition, management will actively promote the development of attractive
new products that feature environment protection and safety technologies.
Regarding overseas markets, the Kunshan Plant will try to obtain demand from infrastructure
improvement projects such as railways and roads and expand sales in outside China in order toincrease earnings. The Company will boost exports from Japan to countries where demand is
expected to grow.

9

Environmental Equipment and Systems Division
Management will focus on the expansion of maintenance and system operation businesses toincrease earnings further.
The Company will actively promote the transfer of technology and know-how to overseas.

Real Estate and Rental Division
To improve the profitability of the Parking business, the Company will reduce production
cost of the multistory parking garage system, strengthen service and maintenance anddevelop a new product. Management will also raise the utilization rate of coin-operated
parking lots and expand land for business to increase earnings.
Management Policies
The Kyokuto Kaihatsu Kogyo Group will concertedly strive to secure earnings, boost
corporate value and achieve continuous business expansion by making the most use of businessresources and generating a synergistic effect among group companies based on the basic
policies and key strategies set in the medium-term (three-year) management plan, Plan 2007,
which started from April 2007.lthough the management has revised the numerical target, it will not change
the basic policies and key strategies of “Plan2007.” The company positions the period for “Plan2007” as animportant phase to make necessary investments for future growth and development of its business, andreinforce its management base.

Basic policies
The Kyokuto Kaihatsu Kogyo Group will strive for further development of its business as theNo.1 company in the industry by actively devoting management resources to enhance its corebusiness.
(i) To improve the Kyokuto Kaihatsu Kogyo’s brand value by realizing the customers’ trust andsatisfaction(ii) To accelerate global business activities based on core businesses(iii) To evolve our technological expertise toward “Future Creation”
Key strategies(i) Expansion of overseas business(Improvement of Kunshan Plant in China, expansion of exports and cultivation of the market)(ii) Effects of integration with Nippon Trex Co., Ltd.
(Joint development, joint procurement, consolidation of production facilities and integration of sales
and service divisions)(iii) Improvement in profitability of Environmental Equipment and Systems Division(Expansion of system operation and maintenance contracts and taking orders after careful selectionof plants)(3) Other Important Matters Concerning Management
There are no other pertinent matters.

10

ＣＯＮＳＯＬＩＤＡＴＥＤ ＳＴＡＴＥＭＥＮＴＳ ＯＦ ＩＮＣＯＭＥ ＡＮＤ ＲＥＴＡＩＮＥＤ ＥAＲＮＩＮＧＳ
Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2009

2008

2009

Net sales…………………………………………

72,116

85,685734,161

Cost of sales…………………………………………

60,57371,969616,654…………………………………………

11,542

13,715

117,506…………………………………………

11,06910,718112,688…………………………………………

473

2,997

4,818

Gross profit
Selling, general and administrative expenses
Operating income (loss)
Non-operating income (expenses)
Interest and dividends income…………………………………………

122

122

1,246

Interest expenses
Gain on sales of noncurrent assets…………………………………………
…………………………………………

(193)
6

(209)
150

(1,969)66

Gain (loss) on sales of securities…………………………………………

(45)

0

(460)

Loss on valuation of investment securities …………………………………………

(754)

0

(7,680)

Impairment loss

(757)

0

(7,712)Other-net………………
…………………………………………

Income (loss) before income taxes and minority interests

(156)

(373)

(1,594)(1,305)2,686(13,286)

Income taxes (Note 12)
Income taxes-current…………………………………………

504

1,082

5,133

Income taxes-deferred…………………………………………

(757)

(58)

(7,711)

Total income taxes
Minority interests
Net income (loss)…………………………………………
…………………………………………

(253)

1,024

-

-

(2,578)-…………………………………………

(1,051)

1,662(10,708)

Balance at beginning of period…………………………………………

34,81433,619354,414

Dividends from surplus…………………………………………

(406)

(417)

(4,138)

Disposal of treasury stock
Balance at end of period……………………………
…………………………………………

0
33,355(50)
34,814

0339,567

Retained earnings：

Yen

U.S. dollars

Per share of common stock：
Net income (loss)…………………………………………

(26.24)

39.73

-0.27

Diluted net income (loss)…………………………………………

(26.24)

39.73

-0.27

…………………………………………

10.00

10.00

0.10

Cash dividend,applicable toearnings of the year

The accompanying notes are an integral part of this statements.

11

ＣＯＮＳＯＬＩＤＡＴＥＤ ＢＡＬＡＮＣＥ ＳＨＥＥＴＳ
Thousands of
U.S. dollars(Note 1)
2009

Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2009

2008

ASSETS
Current assets：
Cash and deposits

5,893

6,361

Short-term investment securities(Note 3)……………… ………………
………………

4,441

1,830

45,210Notes and accounts receivable-trade………………

25,77736,764262,418

Less：Allowance for doubtful accounts

60,000………………

(545)

(97)

(5,551)Inventories……………… ………………

11,639

9,485

118,493

Deferred tax assets (Note 12)……………… ………………

1,235

1,470

12,576

Prepaid expenses……………… ………………

247

214

2,521

Other

……………… ………………

514

1,983

5,238

……………… ………………

49,20458,011500,908

39,404

Total current assets
Investments and other assets：
Investments securities (Note 3)……………… ………………

3,870

5,265

Deferred tax assets (Note 12)……………… ………………

129

59

1,317

Other

……………… ………………

2,222

3,294

22,624………………

6,222

8,618

63,346Land……………… ………………

17,965

17,616

182,894

Buildings and structures……………… ………………

29,187

28,775297,136

Machinery and equipment……………… ………………

13,23813,043

134,772

Construction in progress……………… ………………

578

194

5,884

Other

……………… ………………

3,162
64,133

2,980
62,61032,198652,886

Less－Accumulated depreciation……………… ………………

(28,990)(27,477)(295,128)

Total property and equipment……………… ………………

35,14235,133357,757

Total investments and other assets
Property and equipment：

Intangible assets
other……………… ………………

430

446

4,378

total intangible assets……………… ………………

430

446

4,378

Total assets……………… ………………

90,999102,210926,390

12

ＣＯＮＳＯＬＩＤＡＴＥＤ ＢＡＬＡＮＣＥ ＳＨＥＥＴＳ
Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2009

2008

2009

LIABILITIES AND SHAREHOLDERS'EQUITYCurrent liabilities：
Short-term loans payable (Note 4)……………… ………………

Current portion of bonds (Note 4)………………

5,620
200

4,730

57,212ー

2,036

Current portion of long-term loans payable(Note 4)

1,327

1,256

13,516

Notes and accounts payable-trade……………… ………………

12,231

19,668

124,517

Income taxes payable and Accrued consumption taxes ………………

275

1,137

2,809

2,155

2,412

21,948

Accrued expenses
Other current liabilities
Total current liabilities……………… ………………
……………… ………………

2,100

1,958

21,381……………… ………………

23,911

31,163

243,421Long-term liabilities：
Bonds payable (Note 4)……………… ………………

800

Long-term loans payable (Note 4)……………… ………………

1,536

1,098

15,641

Provision for retirement benefits (Note……………… ………………

2,316

2,398

23,579

108

247

1,107

1,599

2,866

16,282

Provision for directors' retirement benefits
Deferredtax liabilities (Note 12)……………… ………………

ー

8,144

Other long-term liabilities (Note 4)……………… ………………

5,996

6,302

61,040Total long-term liabilities……………… ………………

12,356

12,912

125,795

ー－Minority interrests……………… ………………

―

Shareholders' equity：
Common stock, no par value (Note 10)
Authorized ― 170,950,672 shares
Issued ― 42,737,668 shares in 2006 and42,737,668 shares in 2007………………

11,89911,899121,142………………

11,718

11,718119,298

Retained earnings………………

33,35534,814

339,567

Treasury stock, at cost………………

(2,144)(1,068)(21,835)

Additional paid-in capital (Note 10)

Valuation difference on available-for-sale securities

22

524

225

………………

(120)

245(1,225)

Total shareholders' equity……………… ………………

54,731

58,134557,173

Total liabilities
and shareholders' equity……………… ………………

90,999102,210926,390

Foreign currency translation adjustments

13

CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of
U.S. dollars
Ｍｉｌｌｉｏｎｓ of ｙｅｎ
Net cash provided by (used in) operating activities ：2009

Income (loss) before income taxes and minority i(Note 1)

2008

2009

………………

(1,305)2686(13,286)………………………………

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization

2,029

1,877

20,665

Loss on valuation of securities

759

93

7,727

Impairment loss

757-………………………………

45
48

(116)

460
489

Increase (decrease) in provision for retirement benefits ………………
Interest and dividends income……………
………………………………

(107)
(122)

(336)
(122)

(1,092)(1,246)

Loss (gain) on sales of securities
Loss (gain) on sales of noncurrent assets………………………………
……………

193

209

1,969

Decrease (increase) in notes and accounts receivable-trade ………………

13,289(3,621)

135,293

Decrease (increase) in inventories………………………………
Increase (decrease) in notes and accounts payable-trade………………

(2,226)(8,127)

(542)
1,248

(22,665)(82,734)

Interrest expenses

Increase (decrease) in accrued consumption taxe………………………………

(50)

(38)

(509)

……………
………………………………
……………

-1,667-1,338(16,970)

Sub total……………
………………………………
……………
………………………………
Interest and dividend income received ……………
Interest expenses paid……………
………………………………

3,518
120
(171)

0
116
(189)

35,814
1,224(1,748)

Income taxes paid
Other,net……………
………………………………
……………
………………………………
……………

(1,103)-(1,618)(251)(11,231)-………………

2,363(1,942)

24,059Purchase of short-term investment securities
Proceeds from sales of short-term investment securities………………
………………

(261)
279

(681)
473

(2,661)
2,850

Proceeds from sales of noncurrent assets………………

Other,net

Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities ：Purchase of investments in subsidiaries………………………………

ー
(644)

51
ー

(1,218)(1,556)

Proceeds from sales of noncurrent assets………………………………

6

517

67

Payments of long-term loans receivableCollection of long-term loans receivable………………………………

(27)
24

(134)
10

(275)
248

(1,190)(2,014)(12,119)

Purchase of noncurrent assets………………………………
……………

5
ー

Net cash provided by (used in) investing activities………………

(12,400)

Net cash provided by (used in) financing activities：
Increase (decrease) in short-term loans payable………………………………

890

600

9,060

………………………………

1,783

1,349

18,151

Repayment of long-term loans payable……………
………………………………
Repayments of lease obligations……………
………………………………

(1,273)(10)(1,583)ー(12,964)(107)………………………………

1,000

ー

10,180………………………………
Purchases of treasury stock……………
Proceeds from sales of treasury stock………………………………

(1,077)
0

(801)
102

(10,966)
4

(406)

(418)

(4,141)

905

(751)

9,215

67

(18)

690

Proceeds from long-term loans payable

Proceeds from issuance of bonds

Cash dividends paid

……………
……………
………………………………

Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents………………
………………

14

１．Basis of Presenting Consolidated Financial Statements
Kyokuto Kaihatu Co.,Ltd (the ”Company”) and its domestic subsidiaries maintain theiraccounts and records in accordance with the provisions set forth in the Commercial Codeof Japan (the “Code”) and the Securities and Exchange Law and in conformity withaccounting principles and practices generally accepted in Japan.
The accompanying consolidated financial statements are prepared based on the
consolidated financial statements of the Company and its subsidiaries (the “Group”)
which were fi1ed with the Director of Kanto Local Finance Bureau as required by the
Securities and Exchange Law.
In preparing the accompanying consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated financial
statements issued domestically in order to present them in a form which is more familiar
to readers outside Japan.
The translation of the Japanese yen amounts into U.S. dollars is included solely for theconvenience of the reader, using the approximate exchange rate at March 31, 2009, whichwas¥ 98.23 to US$1.00. These convenience translations should not be construed as
representations that the Japanese yen amounts have been, could have been, or could in
the future be, converted into U.S. dollars at this or any other rate of exchange.
As permitted by the regulations under the Securities and Exchange Law of Japan,
amounts of less than one million yen have been omitted. As a result, the totals shown in
the accompanying consolidated financial statements (both in yen and in U.S.dollars) do
not necessarily agree with the sums of the individual amounts.

２．Summary of Significant Accounting Policies(a) Consolidation Principles
The consolidated financial statements include the accounts of the Company and its significant
subsidiaries in accordance with the Securities and Exchange Law and related regulations ofJapan. The minor differences arising from the cost of the companies’ investments in
subsidiaries and affiliates over the equity in their net assets at fair value are charged or
credited to income in the year of acquisition. Significant differences are, as a rule, amortizedover periods of 5 years. All significant inter-company accounts and transactions have been
eliminated.

Investments in associates are accounted for by the equity method whereby the Group includes in
net income its share of income or losses of these companies, and records its investments at costadjusted for its share of income, losses or dividends received.

15(b) Consolidated Statement of Cash Flows
In preparing the consolidated statements of cash flows, cash on hand, readily-available
deposits and short-term highly liquid investments with maturity of not exceeding threemonths at the time of purchase are considered to be cash and cash equivalents.

(c) Short-term investments and Investments in Securities
For the Accounting Standards for Financial Instruments which was issued by theBusiness Accounting Deliberation Council, securities are classified into three categories:
trading securities, held-to-maturity debt securities, equity investments in associates andother securities.
Those classified as other would be reported at fair value with unrealized gains, net of
related taxes reported in equity. Under the Code, unrealized holding gains on securities,
net of related taxes is not available for distribution as dividends and bonuses to directors
and corporate auditors.
Other investments are carried at cost. The cost is determined by the moving averagemethod.

(Trading securities)
Trading securities are held for resale in anticipation of short-term market movements.
Trade securities, consisting of debt and marketable equity securities, are stated at fairvalue. Gains and losses, both realized and unrealized, are charged to income.

(Held-to-maturity debt securities and other securities)
Management determines the appropriate classification of debt securities at the time ofpurchase and reevaluates the classification as of each balance sheet date. Debt securities
are classified as held-to-maturity when the Company has the positive intent and ability tohold the securities to maturity. Held-to-maturity debt securities are stated at amortizedcost adjusted for the amortization of premiums and the accretion of discounts to maturity.
Marketable equity securities and debt securities not classified as held-to-maturity areclassified as other securities. Other securities are carried at fair value with the unrealized
gains and losses, net of tax, reported in a separate component of shareholders’ equity. The
amortized cost of debt securities in this category is adjusted for the amortization ofpremiums and the accretion of discounts to maturity. Realized gains and losses anddeclines in value judged to be other than temporary on other securities are charged toincome.

(Golf club membership）
An impairment loss on deposits for golf club membership is required to be recognized inaccordance with the new standard.

16(d) Inventories
Merchandise inventories are stated at cost or, if lower, the net realizable value, cost being
determined by the specific identification method. Materials..
Work in process are stated at cost or, if lower, the net realizable value, cost being determined by
the periodic average method.
Supplies are stated at cost or, if lower, the net realizable value, cost being determined by thelast purchase cost method.
Accounting change
In the year ended March 31,2009,the Company changed its inventory valuation method fromthe moving average cost to the lower of average cost or realizable value cost.
As a result of this change, income before income taxes for the year decreased by ¥757 million($7,712 thousand).

(e) Depreciation:
Depreciation is principally computed on the declining-balance method, based on the estimateduseful lives of assets which are prescribed by Japanese income tax laws. Buildings are
depreciated on a straight-line basis.
Amortization of intangible assets is computed by the straight-line method over periodsprescribed primarily by the Japanese Commercial Code or Japanese income tax laws.
(f) Stock and bond issue expenses
Stock and bond issue expenses are charged to income as incurred.
(g) Accrued Retirement Benefits
To provide for the payment of retirement benefits and pension plans to employees, theCompany and certain consolidated subsidiaries have entered an amount into a reserve
equivalent to the amount recognized as necessary at the end of the period under review
based on the expected retirement and severance obligations and the assets of pension
plans at fiscal year-end.
The Company and its domestic subsidiaries provide for lump-sum severance benefits withrespect to directors and corporate auditors. While the Company has no legal obligation, it
is a customary practice in Japan to make lump-sum payments to a director or a corporate
auditor upon retirement. Annual provisions are made in the accounts for the estimatedcosts of this termination plan, which is not funded. Any amounts payable to officers uponretirement are subject to approval at the shareholders’ meeting.

17(h) Revenue recognition
In the year ended March 31,2009,the percentage of completion method is applied to theconstruction works which take longer than one year and exceed ¥200million ($2,036
thousand) in contract amount.

(i) Leases
For the year ended March 31,2008, leases payments relating to finance leases are accounted
for as operating leases.
For the year ended March 31,2009,depreciation of the leased assets are computed by thestraight-line method over the respective lease terms, includind the imputed interest portion.

(j) Research and Development and Computer Software
Research and development expenditure is charged to income when incurred.
Expenditure relating to computer software developed for internal use is charged to income
when incurred, except if it contributes to the generation of income or to future cost savings.
Such expenditure is capitalized as an asset is amortized using the straight-line method
over its estimated useful life which is in the range of 3 to 5 years.

(k) Income Taxes
Income taxes consist of corporation, inhabitants and enterprise taxes for domestic
companies and foreign income taxes.
Deferred income taxes are provided for the income tax expenses under the asset andliability method. Deferred income tax assets and liabilities are determined based on
temporary differences between the financial statements and tax bases of assets andliabilities, using enacted tax rates in effect during the years in which the differences are
expected to reverse, and on available tax credits carryforward.

(l) Per Share Information
The computation of basic net income per share is based on the weighted average numberof shares of common stock outstanding during each period. The average number of sharesused in the computation was 40,084 thousand shares for 2009 and 41,847 thousand
shares for 2008 (see Note 10).
For the year ended 31, 2009, fully diluted net income per share of common stock assumes
full exercise of right of the outstanding stock option plan at the beginning of the year.
Cash dividends per share shown in the statements of income are the amounts applicableto the respective years.

18

３．Short-term Investments, Investments in Securities and Investments in and advances toassociates
Short-term securities at March 31, 2009 and 2008 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2008

2009
Market value available:
Trading securities
Market value not available:
M.M.F. and F.F.F.

2009

－

－

－

Other investment trust¥ 4,441－¥ 1,830－$ 45,210－

Total¥ 4,441¥ 1,830$ 45,210

The following is a summary of other securities at March 31, 2009 and 2008:

Millions of yen
March 31, 2009

Cost
Market value available:
Equity securities
Bonds and debentures
Other securities¥ 2,933－－¥ 2,933

Other securities
Gross
Gross
unrealized
unrealized
gains
losses

¥ 419
－
－
¥ 419

¥

¥

(331)
－
－
(331)

Market value not available:
Total

Book Value(Estimatedfair value)¥ 3,021－－¥ 3,021848¥ 3,870

Millions of yen
March 31, 2008

Cost
Market value available:
Equity securities
Bonds and debentures
Other securities
Market value not available:
Total¥ 3,707－－¥ 3,707

Other securities
Gross
Gross
unrealized
unrealized
gains
losses¥ 1,263－－¥ 1,263

¥

¥

(472)
－
－
(472)

Book Value(Estimatedfair value)¥ 4,498－－¥ 4,498767¥ 5,265

19

Thousands of U.S. dollars
March 31, 2009
Other securities
Gross
Gross
unrealized
unrealized
gains
losses

Cost
Market value available:
Equity securities
Bonds and debentures
Other securities

Book Value(Estimatedfair value)$ 29,867－－$ 4,267－－(3,370)－－$ 30,763－－$ 29,867$ 4,267(3,370)$ 30,763
8,642

Market value not available:$ 39,405

Total

４．Short-term bank loans and long-term debt
The annual average interest rates applicable to short-term bank loans at March 31, 2009, and2008 are 1.08％ and 1.51％ respectively.
Long-term debt at March 31, 2009 and 2008 consisted of the following:

Bonds
Long-term debt

Millions of yen
2009
2008
¥ 1,000¥ 1,256
2,864
3,072¥ 3,864¥ 5,427

Thousands of
U.S. dollars
2009$ 10,180
29,157$ 39,337

Aggregate annual maturities of long-term debt subsequent to March 31, 2009 are as
follows:

Year ending March 31
2009
2010
2011
2012
2013 and thereafter

Millions of yen
¥

¥

1,527
983
713
320
320
3,864

Thousands of
U.S. dollars$ 15,552
10,011
7,258
3,257
3,257
$ 39,337

20

５．Accrued Retirement Benefits
The following tables sets forth the changes in benefit obligation, plan assets and funded statusof the Company and its subsidiaries at March 31, 2009 and 2008.

Benefit obligation at end of year
Fair value of plan assets at end of year
Funded status:
Benefit obligation in excess of plan assets
Unrecognized prior service cost
Unrecognized actuarial loss
Prepaid expenses for plan assets at end of year
Accrued pension liability recognizedin the consolidation balance sheets

Millions of yen
2009
2008
¥ 6,675 ¥ 7,000
3,113
4,013

Thousands of
U.S. dollars
2009$ 67,957
31,7003,561
79(1,325)
―

2,987
98
(687)
―

36,257811(13,489)
―

2,316

2,398

23,579Note: Some domestic subsidiaries have adopted allowed alternative treatment of theaccounting standards for retirement benefit for small business entity.
Severance and pension costs of the Company and its subsidiaries included the following
components for the year ended March 31, 2009 and 2008.

Service cost
Interest cost
Expected return on plan assets
Amortization:
Prior service cost
Actuarial losses
Net periodic benefit cost

Millions of yen
2009
2008
¥ 359
¥ 368
140
146
( 80)
( 99)
( 19)
157
¥ 556

( 19)
( 25)
¥ 371

Thousands of
U.S. dollars
2008$ 3,691,425( 817)( 203)
1,598$ 5,663

Assumption used in the accounting for the defined benefit plans for the year ended March
31, 2009 and 2008 is as follows:
2008
2009
straight –line basis straight –line
Method of attributing benefit to periods of service
basis
Discount rate
2.0 %
2.0 %
Long-term rate of return on fund assets
2.0 %
2.0 %
Amortization period for prior service cost
10 years
10 years
10 years
10 years
Amortization period for actuarial losses

21

６．Contingencies
At March 31, 2009 and 2008, the Group was contingently liable as follows:
Millions of yen
2008
2009
―

¥ 2,649¥ 4,559
71¥ 4,933227$ 46,417
727¥ 4,561¥ 5,160$ 45,957

As an endorser of notes discounted or endorsed
As a guarantor of indebtedness of :Associates
OthersThousands of
US dollars
2009―

７．Cash and cash equivalents
Cash and cash equivalents at March 31, 2009 and 2008 are as follows:
Millions of yen
2009
2008
Cash and time deposits

Thousands of
U.S. dollars
2009¥ 5,893¥ 6,361$ 60,001

4,441

1,830

45,210

―
―

( 5)
―

―
―

¥ 10,334¥ 8,186$ 105,211

Short-term investment
Less-Time deposits with original maturities
more than three months
Less-Stock

８．Leases
The Group leases certain machinery and equipment, and other assets. Total lease
payments under these leases were ¥ 418 million ($ 4,261 thousand) , and ¥ 515 million forthe years ended March 31, 2009 and 2008, respectively.
Pro forma information relating to acquisition costs, accumulated depreciation and future
minimum lease payments for property held under finance leases which do not transfer
ownership of the leased property to the lessee on an “as if capitalized” basis for the years
ended March 31, 2009 and 2008, are as follows:

Acquisition costs
Accumulated
Depreciation
Net leased property

MachineryandEquipment¥ 1,107621¥ 4854

Millions of yen
2009
Other
¥
384

Total
¥ 1,491

232
151

854
¥ 637

¥

22

Acquisition costs
Accumulated
Depreciation
Net leased property

Acquisition costs
Accumulated
Depreciation
Net leased property

MachineryandEquipment¥ 1,568

¥

768
804

Millions of yen
2008
Other
¥
606

Total
¥ 2,174

319
286

1,083
¥ 1,090¥

Thousands of U.S. dollars
2009
MachineryandEquipment
Other$ 11,271$ 3,912

6,331$ 4,940

2,367$ 1,545

Total$ 15,183
8,698$ 6,485

Future minimum lease payments under finance leases as of March 31, 2009 and 2008
were as follows:
Thousands ofMillions of yen
U.S. dollars
2009
2008
2009
Due within one year
¥ 285
¥ 432
$ 2,905
Due after one year
351
658
3,580
Total
¥ 637
¥ 1,090$ 6,485
The acquisition costs and future minimum lease payments under finance leases include theimputed interest expense portion.
Depreciation expense, which is not reflected in the accompanying consolidated statements ofincome, computed by the straight-line method, would have been ¥ 418 million ($4,261
thousand) for the year ended March 31, 2009.

９．Derivatives and Hedging Activities

Derivative financial instruments are utilized by the Company principally to reduce interest rate andforeign exchange rate risks. The Company has established a control environment which includes
policies and procedures for risk assessment and for the approval, reporting and monitoring oftransactions involving derivative financial instruments. The Company does not hold or issue
derivative financial instruments for trading purposes.

23

At March 31, 2009 and 2008, all forward exchange contracts outstanding were enteredinto in order to hedge receivables and payables denominated in foreign currencies whichhave been translated and reflected at the corresponding contracted rates in theaccompanying consolidated balance sheets at March 31, 2009 and 2008.
１０．Shareholders’ Equity(1) Changes in common stock and additional paid-in capital have resulted from thefollowing.
Millions of yen
Number of
SharesCommonStockCapitalsurplus

Balance of March 31, 2007……

42,737,668

11,89911,718Retirement of stock during 2008

……

－

－

－

Balance of March 31, 2008……

42,737,668

11,89911,718Retirement of stock during 2009

……

－

－

－

Balance of March 31, 2009……

42,737,668

11,89911,718

Thousands of
U.S. dollars

CommonStock

Balance of March31, 2008

CapitalsurplusRetirement of stock during 2009……

121,143

119,299

Balance of March31, 2009

……

－

－

……

121,143

119,299

The Company adopted 100 shares of common stock as “low unit”. A holder of shares
representing less than one unit cannot exercise any voting rights with respect to such shares.
However, the holder is entitled to receive dividends and other distributions. A holder of afraction of a unit may at any time require the Company to purchase such shares at theprevailing market price. Shares so purchased must be sold or otherwise transferred to a third
party within a reasonable time.

24

１１．Research and Development and Computer Software
Research and development expenditure charged to income was ¥ 1,024 million ($ 10,434
thousand) and ¥ 1,045 million for the years ended March 31, 2009 and 2008, respectively.

１２．INCOME TAXESThe Company and its domestic subsidiaries are subject to several taxes based on income, whichin the aggregate resulted in statutory tax rates of approximately 40.6％ and 40.6 % for theyears ended March 31, 2009 and 2008, respectively. Foreign subsidiaries are subject to income
taxes of the countries in which they operate.
As at March 31, 208,and 2009 the reconciliation of the statutory tax rate to the effective income
tax rate is as follows. No figures are shown for 2009 as a net loss was recorded.:

Statutory tax rate
Dividend income ……………………………………
Expenses not deductible for income tax purposes ……
Per capital inhabitant tax
Other …………………………………………………
Effective tax rate …………………………………………

2009
―
―
―
―
―

2008
40.6
(0.5)
2.1
2.9
(7.0)

―

38.1

%

%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at
March 31, 2009 and 2008 are presented below:

25

Millions of yen
2009
2008
Deferred tax assets:
Accrued expenses

480$ 4,291

983
612
302
284

1,059
299
302
－

10,016
6,234
3,081
2,896

Tax loss carryforwards
Other
Total gross deferred tax assets
Less valuation allowance

794
742
4,141
(1,172)

－
1,157
3,298
(916)

8,087
7,555
42,159(11,934)

Net deferred tax assets

2,969

2,382

30,225

Accrued retirement benefits
Depreciation
Unrealized profits
Allowance for doubtful accounts

¥

421

¥

Thousands of
US dollars
2009

Deferred tax liabilities:
Special tax-purpose reserve for condensed
booking of fixed assets
Unrealized gains of other securities
Intercompany profit
Total gross deferred tax liabilities(1,678)(1,705)(17,088)(18)(1,506)(3,203)(359)(1,654)(3,718)(189)(15,338)(32,615)

Net deferred tax assets¥ (234)¥ (1,336)$ (2,389)

In assessing the realizability of deferred tax assets, management of the Company considers
whether it is more likely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is entirely dependent upon the generationof future taxable income in specific tax jurisdictions during the periods in which those temporary
differences become deductible. Although realization is not assured, management considered the
projected future taxable income in making this assessment. Based on these factors, management
believes it is more likely than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance as of March 31, 2009.

１３．Segment Information
Information about operations in different industry segments of the Group for the years ended
March 31, 2009 and 2008, are as follows:26

Industry Segmentsa.

Sales and Operating Income

Industry A

Industry B

Millions of yen
2009
Eliminations/C
Industry C
orporate¥ －¥ 5,475582(582)

Consolidated

Sales to customers
Intersegment¥57,440－¥ 9,201－¥ 72,116－

Total sales

57,440

9,201

6,057

(582)

72,11657,751

9,196

5,283

(588)

71,643¥ (311)

¥ 5

¥ 773

Operating expenses
Operating income

Industry A

Industry B

Sales to customers
Intersegment¥67,1710¥ 12,409－

Total sales

67,171¥¥

5Millions of yen
2008
Eliminations/C
Industry C
orporate¥ －¥ 6,104473

Consolidated

549

(550)

¥ 85,685－

12,409

6,653

(550)

85,68564,152

13,255

5,837

(557)

82,687¥ 3,019¥ (845)¥ 816

Operating expenses
Operating income

Industry A¥

6

Thousands of U.S. dollars
2009
Eliminations/C
Industry B
Industry C
orporate$93,670$ 55,739
$
－
－
5,927
(5,933)¥

2,997

Consolidated

Sales to customers
Intersegment$584,752

Total sales

584,756

93,67061,667(5,933)734,161

587,923

93,61753,789(5,986)729,343$ (3,167)$ 54$ 7,878

53$ 4,818

4$734,161－

Operating expenses

Operating income

$

27

b.

Assets, Depreciation and Capital Expenditures

Industry A

AssetsDepreciation
Capital expenditure

Depreciation
Capital expenditure¥ 6,456

1,489

78

366

－

1,935

1,741

60

96

－

1,898

Depreciation
Capital expenditure

Industry B

Millions of yen
2008
Eliminations/C
Industry C
orporate¥10,289¥ 11,857¥ 90,999

Consolidated¥69,209¥ 10,853

1,380

66

327

－

1,774

1,118

31

52

－

1,202

Industry A

AssetsConsolidated¥60,984

Industry A

AssetsIndustry B

Millions of yen
2009
Eliminations/C
Industry C
orporate¥10,243¥ 13,314$620,834

Thousands of U.S. dollars
2009
Eliminations/C
Industry B
Industry C
orporate$ 65,724$ 104,283$135,547¥ 102,210

Consolidated$926,390

15,166

802

3,731

－

19,69917,733

616

980

－

19,330Notes: Industry A consists of special equipment car.
Industry B consists of environmental equipment and systems.
Industry C consists of real estate business.
Corporate assets consist primarily of cash and cash equivalents, investment inandadvances to affiliates, investments in securities and the corporate headquarters
assets.

28

１４．Subsequent Event
The following appropriations of the Company’s retained earnings in respect of the year
ended March 31, 2009 were as proposed by the Board of Directors and approved by theshareholders at the annual general meeting held on
June, 2009:

Appropriations
Cash dividends (¥ 10 per share)

Millions of yen¥

198

Thousands of
U.S. dollars$ 2,022

29

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders andBoard of Directorsof Kyokuto Kaihatsu Kogyo Co., Ltd.
We have audited the accompanying consolidated balance sheets of Kyokuto Kaihatsu Co.,
Ltd. and subsidiaries as of March 31, 2008 and 2009, and the related consolidated
statements of income, stockholders’ equity and cash flows for each of the years in the
two-year period ended March 31, 2009. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted inJapan. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis forour opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Kyokuto Kaihatsu Kogyo Co.,Ltd. and subsidiaries as of March 31,
2008 and 2009, and the results of their operations and their cash flows for each of the years in the two-year
period ended March 31, 2009 in conformity with accounting principles generally accepted in Japan.
As discussed in Note 2(d) to the consolidated financial statements, the Company changed its method of
inventories evaluation.

The accompanying consolidated financial statements as of and for the year ended March 31,
2009 have been translated into United States dollars solely for the convenience of thereader. We have recomputed the translation and, in our opinion, the consolidated financial
statements expressed in yen have been translated into dollars on the basis set forth in note
1 to the consolidated financial statements.
Osaka Audit

Osaka, Japan
June 26, 2009

Corporation

30

CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co., Ltd.
Established: June,1955
Paid-in Capital: ¥11,899 million (at March 31,2009)
Number of Shares Issued: 42,737,668shares (at March 31,2009)
Number of Employees: consolidated 2,144 non-consolidated 829 (at March 31,2009)
Headquarters:
1-45,Koshienguti 6-chome,Nishinomiya City,
Hyogo Prefecture,663-8545 Japan
Tel.+81-798-66-1000, Fax.+81-798-66-8146
Tokyo Head Office:
1-1,Asahicho,Haneda,Ota-ku,Tokyo,144-0042,Japan
Tel.+81-3-5737-2271, Fax+81-3-5737-7791
Plants:Yokohama Plant
Occupies 62,400 ㎡, Since March,1962
Located in Yamato,Kanagawa
Nagoya Plant
Occupies 132,537 ㎡, Since June,1970
Located in Komaki,Aichi
Miki Plant
Occupies 98,274 ㎡, Since October,1979
Located in Miki,Hyogo
Fukuoka Plant
Occupies 66,832 ㎡, Since September,1970
Located in Iizuka,Fukuoka
Hachinohe Plant
Occupies 57,600 ㎡, Since April,1999
Located in Hachinohe,Aomori

31

BOARD OF DIRECTOR AND STATUTORY AUDITORS
Katsushi Tanaka,
Chairman and Representative of the Board of Directors
Takaaki Hudetani,
President and Representative of the Board of Directors,CEO
Motohachi Hashimoto,Director, Senior Managing Executive Officer
Kazuyoshi Nakai,
Director, Senior Managing Executive Officer
Tomoki Ueyama,
Director, Managing Executive Officer
Yoshinori Takashima,
Director, Managing Executive Officer
Yoshihiro Yasuoka,
Taro Okamoto,
Masatoshi Yoshida,
Norihiro Kumazawa,
Takahisa Tsuda,
Osami Ikeda,
Masakazu Nishida,
Ryuichiro Nishikawa,

Senior Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer

Shunji Nakamura,Kozo Ueda,
Rikuyuki Tentaku,
Akira Michigami,Standing Auditor
Auditor
Auditor
Auditor