Annual Report 2016
Year ended March 31, 2016

CONTENTS
Operational Results
Management Policy
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Comprehensive Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements of Cash Flows
Basis of Presenting Consolidated Financial Statements
Independent Auditor’s Report
Corporate information
Board of Directors and Statutory Auditors

2
7
9
11
12
13
14
15
44
45
46

Operational Results2

1. Operational Results(1) Analysis of Operational Results<Summary of Operational Results for the Consolidated Fiscal Year ended March 31, 2016>
Firstly, we would like to express our deepest sympathy to all those who have been
affected by the Kumamoto Earthquakes in April, 2016, and pray for earlier revivalof the stricken area.
In the fiscal year under review, the Japanese economy experienced a standstill anda downturn as a result of the economic slowdown in China and emerging countries
and the deteriorating situation in the Middle East, despite of some recovery incorporate earnings as well as the employment and income environment due toeconomic policies of the Japanese government.
Under these circumstances, our Group actively implemented several measures both
domestically and overseas, to improve our corporate value.
Representative Director,
President, COO
Kazuya Takahashi

As a result, in the current consolidated fiscal year, net sales increased by 4,531 million yen (4.6%) comparedwith the preceding consolidated fiscal year to 103,863 million yen due to the sales improvement at the Specialty
Truck Segment, our mainstay category. As for profit and loss status, operating income reached 10,501 million
yen, an improvement of 1,082 million yen (11.5%), and the current net income attributable to owners of theparent reached 6,034 million yen, an improvement of 1,701 million yen (39.3%).
Thus, we achieved the performance goal (net sales: 95,000 million yen or more, operating income: 8,200
million yen or more) of the medium-term management plan “Next Step 2015” - To make the next step forward- (3-year plan; April 1, 2013 – March 31. 2016).
We would like to present the summary of business on a consolidated basis by segment in comparison
with the preceding fiscal year.

i) Specialty Truck Segment
The specialty truck market in Japan grew steadily backed by demand for logistics-related vehicles. The Group
worked to secure orders for priority products for sales expansion such as tailgate lifters, trailers, and refuse
trucks and facilitated streamlining by promoting automation of production plants. The Group also promoted
research and development and aggressively launched new products, including “PY90-17,” a new concrete
pumping vehicle with the mobile power of a medium-sized truck and the maximum discharge capacity of alarge-sized truck, in July 2015, a new detachable body truck with significantly improved lifting capacity andoperating speed in October 2015 and “GII1000/GIII1000,” a new rear-storage tailgate lifter with slim
appearance realized by having its power source (power unit) built-in, in January 2016.
As for the overseas market, the Thai plant (Trex Thairung Co., Ltd.: Pluak Daeng) started operating in
Kingdom of Thailand in October 2015, a joint venture of the Company, NIPPON TREX Co., Ltd., theCompany’s consolidated subsidiary, and two local companies, which functions as a production/sales base ofvan bodies and dump trucks. The Group will promote the operation of the plant so that it can start contributing
to business results of the Group early.
As a result, net sales in the Specialty Truck Segment increased by 5,480 million yen (6.7%) to 87,711
million yen. Segment profit increased by 355 million yen (4.9%) to 7,572 million yen due to theOperational Results

3

improvement of the sales.

Concrete Pomp (piston type)“PY90-17”

4 ton Detachable Body Truck

Tailgate Lifter (rear retractable)“GII 1000 / GIII 1000”

Plant in Thailand
10doors van, Wing van andDump truck and full-trailer dump
(Thailand model)ii) Environmental Equipment and Systems Segment
As for plant construction, the Group worked to win contracts for new construction and secured fourconstruction projects and one operation outsourcing contract in total from Tatebayashi Hygiene Facilities Union
in July 2015 and Nagato City (Yamaguchi Prefecture) and Mito City (Ibaraki Prefecture) in March 2016. The
Group also focused on winning contracts for maintenance and operation of existing facilities and construction
work of facilities for which the Group has already won construction projects.
In the biogas plant project for which the Group formed technological alliance with CORNES & COMPANY
LIMITED in May 2015, the Group proceeded construction of the plant with CORNES & COMPANY
LIMITED in parallel with technology introduction and research of market trends.
As a result, net sales decreased by 990 million yen (8.7%) to 10,439 million yen due to the momentary
decrease of the sales by the percentage of completion method in the plant construction department.
Segment profit increased by 660 million yen (46.3%) to 2,085 million yen.

Biogas plant

Pushing-type molding machineOperational Results

4iii) Real Estate Rental Segment
Under the tough market environment for multistory parking systems, the Group focused on winning contracts
for renewal and maintenance as stock-type business. For coin-operated parking, the Group secured profit byselecting profitable locations and cutting cost. The mega solar power plant maintained stable operations andcontributed to the Group’s profit.
As a result, net sales decreased by 16 million yen (0.3%) to 6,379 million yen, and segment profit increased by
107 million yen (9.5%) to 1,242 million yen.

Toll parking (Coin-operated)

Multi-story parking equipment<Forecast of Operations for the Next Consolidated Fiscal Year ending March 31, 2016>
The Japanese economy is expected to remain uncertain due to concerns for the employment and income
environment as well as corporate earnings and for a slowdown in capital investment and factors such as
sluggish growth and political unrest in foreign countries, in addition to unstable crude oil prices and exchange
rate/stock prices.
Our Group makes determined efforts to expand sales and profits and improve our corporate value, by steadily
implementing several measures of our new medium term management plan 2016-18 “Value up to the Next” tobe mentioned later.
Regarding the forecast of consolidated business performance for March 2017, the Company estimates net sales
to decrease to 102,000 million yen, operating income to decrease to 9,200 million yen, while the current net
income attributable to owners of the parent is estimated to grow to 6,200 million yen.

Operational Results

5(2) Analysis on Financial Conditionsi) Situations of Assets, Liabilities and Net WorthIn the current consolidated fiscal year, total assets increased by 1,419 million yen (1.2%) from the end of thepreceding fiscal year to 120,539 million yen.
Current assets increased by 2,627 million yen (4.0%) to 67,591 million yen, due to increases in cash anddeposits, etc.
Non-current assets (property, plant and equipment, intangible assets and investments and other assets)
decreased by 1,208 million yen (2.2%) to 52,948 million yen, due to decreases of investment securities, etc.
Regarding liabilities, current liabilities decreased by 2,796 million yen (7.1%) to 36,484 million yen, due todecreases in short-term bank loans and trade notes and accounts payable, etc. Non-current liabilities
increased by 1,160 million yen (10.4%) to 12,326 million yen due to increase of long-term loans, etc.
Total net assets increased by 3,054 million yen (4.4%) to 71,729 million yen, due to posting of net profit, etc.
As a result, the capital adequacy ratio stood at 59.5% as of the end of the current fiscal year (57.6% at the end of
the preceding fiscal year).

ii) Cash Flow Situation
Consolidated cash and cash equivalents at the end of period increased by 2,511 million yen (24.9%) comparedwith the end of the preceding fiscal year to 12,614 million yen. Cash flow by activity type is summarized asfollows:
Cash Flow from Operating Activities
Net cash provided by operating activities amounted to 6,910 million yen (an increase of 5,812 million yen
compared with the preceding fiscal year). This was because of a posting of net profit, etc.
Cash Flow from Investing Activities
Net cash used in investing activities was 3,435 million yen (an increase of 743 million yen compared with thepreceding fiscal year). This was because of purchases of non-current assets, etc.
Cash Flow from Financing Activities
Net cash used by financing activities amounted to 948 million yen (an increase of 272 million yen comparedwith the preceding fiscal year). This was because of decrease of short-term loans.

Operational Results

6(3) Principal policy for return of profits to shareholders and payment of dividends for the current
year and next year
The Kyokuto Kaihatsu Kogyo Group regards the return of profits to shareholders as one of the most importantmanagement’s policies. Taking the development of business in the future and business environments into
account, management has been striving to meet investors’ expectations through the improvement of businessperformance and the strengthening of its financial position.
The Meeting of Shareholders on June 28th, 2016 resolved and passed to pay a dividend of 16 yen per share at
the end of March 2016 as originally proposed by management, making its annual dividend 31 yen per shareincluding an interim dividend, increased by 5 yen compared with the preceding fiscal year, due to thesatisfactory performance at the Specialty Truck Segment, our mainstay category.
For the year ending March 2017, management plans to pay an annual dividend of 32 yen per share (including
an interim dividend of 16 yen), increased by 1 yen compared with the preceding fiscal year.

Management Policy

7

2. Management Policy(1) Basic Management Policy of the Company
The management philosophy of the Kyokuto Kaihatsu Group is "Value technology and trust, make concerted
efforts to develop the company, and widely contribute to the society."
Our ultimate goal in the management policy is to implement corporate policy recognizing a social role andresponsibility 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 andhigh quality products and services through our fair and sound business activities, the Kyokuto Kaihatsu Groupseeks to bring about greater contribution to our society and maximize corporate value.
With this management policy, we devote ourselves to three major business domains including Specialty Truck,
Environmental Equipment and Systems, and Real Estate Rental.
(2) Targeted management index
We set management targets of sales of 100 billion yen or more and operating profit of 9 billion yen or more on aconsolidated base for the term ending March 2019, the last fiscal year of the medium term management plan
2016-18 “Value up to the Next” (3 year plan; April 1, 2016 - March 31, 2019).
In addition, our group’s goal for the period during and after this plan is summed up by the slogan ”KYOKUTO
with sustainable and developmental growth and widely chosen.” We endeavor to achieve (1) a domestic
operating profit ratio of 10% or more, (2) overseas sales of 10 billion yen or more, and (3) a sales increase
through M&A and new businesses, reaching consolidated net sales of 120 billion yen or more.
(3) Mid-to-Long Term Management Strategy and Major Challenges
Our group’s previous medium-term management plan "Next Step 2015" to make the next step forward (3 year
plan; April 1, 2013 - March 31, 2016) completed in March 2016.
We have achieved the group’s performance goal, as the domestic market for special purpose vehicles has
substantially exceeded expectations. Challenges remain, however, in several priority themes, including theshare target for key products for sales expansion and securing earnings from overseas business. In light of thesechallenges, we have established the new medium term management plan 2016-18 “Value up to the Next” (3year plan; April 1, 2016 - March 31, 2019) described below to ensure development and growth over the next
three years and beyond.
Basic policies
Our group is fostering consistent developmental growth and striving to become a corporate group widely
chosen by customers and society at large by taking measures to establish a firm earning foundation andsecure new sources of earnings, and is aggressively channeling management resources into these measures.
(1) Enhancing a domestic earning foundation
In Japan, promoting selection and concentration from the long-term and company-wide perspectives, andenhancing the earning foundation and improving the profit ratio through efforts such as expanding theshares of logistics- and environment-related products and expanding stock business(2) Establishing overseas sales
Putting overseas businesses on the growth track as key sources of future earnings through efforts across the
Kyokuto Kaihatsu groupManagement Policy

8(3) Promoting M&A and new businesses
Promoting strategic M&A and new businesses aggressively and seeking new growth drivers(4) Improving corporate quality
Based on the provision of merchandise (products and services) of higher standards of quality, the safety, andthe compliance, focusing on the establishment of a healthy corporate culture to create sustainable growth
Key Strategies(1) Special purpose vehicles business[1] Expanding shares of key products (e.g., tailgate lifters, refuse trucks, detachable body trucks, andfreezing vans)[2] Reconstructing a strategic and flexible production system from a far-sighted, long-term perspective[3] Improving customer satisfaction and enhancing the foundation of the stock business by expanding
regular visit service and locations on 24-hour duty
[4] Building industry-leading product groups with world-class performance and quality(2) Environmental business[1] Securing orders by strengthening sales and proposal capabilities and participating in joint ventures withother companies for recycling facilities[2] Increasing earnings from after-sales service and operation acceptance through measures such as energy
saving proposals and enhanced group collaboration[3] Promoting the establishment of businesses in new fields and products such as biogas plants(3) Parking business[1] Focusing on renewal and after-sales service for mechanical multistory parking equipment[2] Securing earnings through measures such as developing new business locations, including large facilities
for pay-by-the-hour parking lots
[3] Securing new earnings sources through measures such as developing overseas markets based on groupcollaboration(4) Overseas business[1] Securing and expanding the production volume and shares of plants in India and Indonesia, andestablishing the production and sales system of the plant in Thailand at an early stage[2] Promoting collaboration with local partners and expanding exports through measures such as
developing untapped markets[3] Promoting the development of human resources overseas and enhancing collaboration across the group
to develop products for overseas markets(5) Improving corporate quality[1] Striving to improve quality awareness and address quality control from the customer perspective, andestablishing the quality to be chosen continuously[2] Building the foundation of a healthy corporate culture (e.g., by creating a secure and safe work
environment, ensuring compliance, and building a scheme of technology and skill tradition)[3] Establishing human resources and an organization that create sustainable growth (e.g., by developing
next-generation leaders and building a scheme to support the enhancement of overseas businesses)[4] Improving stockholder satisfaction by implementing effective stockholder return measures(approximately 20 to 30% of the expected consolidated dividend payout ratio)

9Consolidated Balance Sheets

CONSOLIDATED BALANCE SHEETSAt March 31, 2016 and 2015

Thousands of
U.S. dollars(Note 1)Millions of yen
ASSETS
Current assets:
Cash and deposits (Notes 8 & 9)
Short-term securities (Notes 8 & 9)
Trade notes and accounts receivable (Note 9)
Merchandise & finished goods
Work in process
Raw materials & supplies
Other current assets
Deferred tax assets (Note 14)
Allowance for doubtful accounts
Total current assets

2016¥

Property, plant and equipment (Note 10):Land (Note 5)
Buildings and structures (Note 5)
Machinery, equipment and vehicles
Construction in progress
Other
Total
Accumulated depreciation
Net property, plant and equipment

Intangible assets

Investments and other assets:
Investment securities (Notes 3 & 9)
Deferred tax assets (Note 14)
Other assets
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total
The accompanying notes are an integral part of these statements.

¥

2015

2016

8,532 ¥
4,082
39,789
596
4,653
7,324
1,211
1,453
(49)
67,591

6,764
3,338
40,086
371
4,771
7,063
1,041
1,570
(41)
64,963

20,107
31,381
15,657481
4,327
71,953(35,078)
36,87520,081
31,40815,297227
4,217
71,230(34,909)
36,321

178,535
278,646
139,025
4,272
38,421
638,899(311,468)
327,431

541

490

4,804

15,47450
4,802(2,980)17,34654,157
119,120

121,570476
38,841(22,973)
137,914470,149
1,070,320

13,69154
4,374(2,587)
15,532
52,948120,539 ¥$$

75,75936,243353,307
5,294
41,31965,03010,756
12,899(436)
600,171

Consolidated Balance Sheets

Thousands of
U.S. dollars(Note 1)Millions of yen
LIABILITIES AND NET ASSETS
Current liabilities:
Short-term bank loans (Notes 4, 5 & 9)
Current portion of long-term bank loans (Notes 4, 5 & 9)
Trade notes and accounts payable (Note 9)
Accrued expenses
Income taxes payable
Other current liabilities (Note 4)
Total current liabilities

2016¥

Non-current liabilities:
Long-term bank loans (Notes 4, 5 & 9)
Net defined benefit liabilities (Note 6)
Liabilities for directors' retirement benefits
Deferred tax liabilities (Note 14)
Other non-current liabilities (Notes 4, 5 & 9)
Total non-current liabilities
Total liabilities

Net assets:
Shareholders' equity:
Common stock (Note 12):
Authorized-170,950,672 shares
Issued-42,737,668 shares in 2016 and 2015
Capital surplus (Note 12)
Retained earnings
Treasury stock, at cost:
3,008,559 shares in 2015
3,008,960 shares in 2016
Total shareholders' equity
Accumulated other comprehensive income (Note 15):
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total
The accompanying notes are an integral part of these statements.

¥

10

2015

2016

2,960 ¥
1,791
22,950
3,712
2,275
2,796
36,484

4,140
1,688
23,739
3,792
2,084
3,837
39,280

$

4,141
1,155
197
3,400
3,433
12,326
48,810

2,363
755
190
4,191
3,666
11,16550,44536,770
10,254
1,744
30,19330,484
109,445
433,402

11,90011,71946,946

11,90011,71942,064

105,664
104,055
416,854(2,150)68,415(2,149)63,534(19,087)
607,486

3,683
(60)
(373)
3,250
64
71,729120,539 ¥

5,063
(150)
171
5,084
57
68,675
119,120

32,705(528)(3,317)28,860572
636,918
1,070,320$

26,283
15,906
203,786
32,96020,197
24,825323,957

11

Consolidated Statements of Income

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2016 and 2015

Thousands of
U.S. dollars(Note 1)Millions of yen
Net sales
Cost of sales (Note 16)
Gross profit
Selling, general and administrative expenses (Note 13)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Loss on sales or disposition of property and equipment, net
Equity in losses of affiliates
Loss on valuation of investment securities (Note 3)
Loss on liquidation of subsidiaries and affiliates
Loss on cancellation of lease assets
Foreign exchange gain (loss)
Other-net
Other expenses -net
Income before income taxes and non-controlling interests
Income taxes (Note 14):
Current
Deferred
Total income taxes
Net income
Net income attributable to non-controlling interests
Net income attributable to owners of the parent

¥

¥

2016
103,863 ¥
81,752
22,111
11,61010,501

2015
99,331
78,373
20,958
11,540
9,418

$

251
(82)
(47)
(608)
(20)
(215)
(330)
(1,051)
9,450

204
(104)
(218)
(280)
(1,985)
(96)
226
(138)
(2,391)
7,027

2,224
(726)
(415)
(5,401)(179)(1,907)(2,928)(9,332)
83,910

3,135
274
3,409
6,041
7
6,034 ¥

3,118
(434)
2,684
4,343
10
4,333

27,832
2,433
30,26553,64565
53,580$U.S. dollars(Note 1)

Yen
Amounts per shares:
Basic net income
Diluted net income
Cash dividends applicable to earnings of the year
The accompanying notes are an integral part of these statements.

¥

2016
922,240
725,908
196,332
103,090
93,2422016

2015

151.88 ¥31.00

109.06
26.00

2016
$

1.35
0.28

Consolidated Statements of Comprehensive Income

12

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended March 31, 2016 and 2015

Thousands of
U.S. dollars(Note 1)Millions of yen
Net income¥

Other comprehensive income (Note 15):
Net unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income in affiliates accounted forby the equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
The accompanying notes are an integral part of these statements.

¥

2016
6,041 ¥

2015
4,343

$

2016
53,645(1,380)
175
(544)
(85)

2,168
(202)
242
73

(12,255)
1,561(4,833)(757)(1,834)2,281(16,284)

4,207 ¥

6,624

4,200
7

6,614
10

$

37,36137,29665

104,055

105,664

104,055

surplusstock

105,664

Capital11,71911,71911,719Common11,90011,90011,900416,854(10,230)

53,580373,504

earnings

Retained

Shareholders' equity

46,946(1,152)

6,034

42,064(914)(19,087)(5)

607,486(10,230)

53,580564,141(5)

equitystock(19,082)

shareholders'

Total

68,415(1,152)

Treasury(2,150)

(1)

(1)
6,034

63,534(2,149)

(914)

(2)

(2)

(1)

(1)
4,333

60,118(2,148)111

60,007

equitystock(2,148) ¥shareholders'

Treasury

Total

4,333

38,647

111

38,536 ¥earnings

Retained

Shareholders' equity

11,719 ¥surplus11,900 ¥stock

The accompanying notes are an integral part of these statements.

Balance, March 31, 2016

Other net changes in the year

Cash dividends paid

Appropriation

Net income attributable to owners of the parent$$

Balance, March 31, 2015

Purchases of treasury stock

¥

¥

¥

Balance, March 31, 2016

Other net changes in the year

Cash dividends paid

Appropriation

Net income attributable to owners of the parent

Purchases of treasury stock

Balance, March 31, 2015

Other net changes in the year

Cash dividends paid

Appropriation

Change in scope of equity method

Net income attributable to owners of the parent

Purchases of treasury stock

Restated balance, March 31, 2014

Cumulative effects of changes in accounting policies

Balance, March 31, 2014

CapitalCommonCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2016 and 2015¥

32,705(12,255)

44,960sale securities

available-for-gain onUnrealized

Foreign

(60)

90

(150)

(129)

30

(51)

(51) ¥

adjustments

translation

currency
plans

(373)

(544)

171

242

(71)

(71) ¥of defined benefit

Remeasurements

(528)

804

(1,332)

adjustments

translation

currency

Foreign(3,317)(4,833)

1,516

plans

of defined benefit

Remeasurements

Accumulated other comprehensive income

3,683(1,380)

5,063

2,168

2,895

2,895 ¥

sale securities

available-for-gain onUnrealized

Accumulated other comprehensive income

28,860(16,284)

45,144

Total

3,250

(1,834)

5,084

2,281

30

2,773

2,773 ¥

Total

Non-

Total

71,729(1,827)(1,152)

6,034

(1)

68,675

2,291

(914)

28

4,333

(1)

62,938111

62,827

net assets

572

65

507

interests

controllingNon-

636,918(16,219)(10,230)

53,580(5)

609,792

assetsTotal netThousands of U.S. dollars

64

7

57

10

47

47 ¥

interests

controlling

Millions of yen

Consolidated Statements of Changes 13
in Shareholders’ Equity

Consolidated Statements of Cash Flows

14

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2016 and 2015

Thousands of
U.S. dollars(Note 1)Millions of yen
2016
Operating activities:
Income before income taxes and non-controlling interests
Depreciation and amortization
Loss on valuation of investment securities
Equity in losses of affiliates
Loss on sales or disposition of property and equipment, net
Interest and dividend income
Interest expenses
Decrease (increase) in trade notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in trade notes and accounts payable
Increase (decrease) in net defined benefit liabilities
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in allowance for others
Increase (decrease) in consumption taxes payable
Other, net
Sub totalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities¥

Investing activities:
Purchases of securities and investments
Proceeds from sales of securities and investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Net decrease (increase) in short-term loans
Disbursement of loans receivableCollection of loans receivable
Other,net
Net cash used in investing activities
Financing activities:
Net increase (decrease) in short-term bank loans
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment for redemption of bonds
Payment of finance lease obligations
Purchases of treasury stock
Dividends paid
Payments from changes in ownership interests in subsidiaries that
do not result in change in scope of consolidation
Net cash used in financing activities
Foreign currency translation adjustments on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 8)
The accompanying notes are an integral part of these statements.

¥

2015

2016

9,450 ¥
1,980
20
608
47
(251)
82
713
(371)
(824)
(385)
(385)
(17)
(397)
(545)
9,725
263
(25)
(3,053)
6,910

7,027
1,793
280
216
(204)
104
(3,576)(1,972)
3,001
(282)
(314)
(60)
797
(1,748)
5,062
189
(23)
(4,130)
1,098

$

(577)
2
(2,881)16(6)
11
0(3,435)(1,774)0(2,561)
51
70
(6)
42
(4,178)(5,121)
14(25,584)
146
(57)
102
3
(30,497)(1,180)3,569(1,688)(50)(1)(1,151)

1,420
680(2,190)
(147)
(70)
(1)
(913)

(10,478)
31,691(14,987)(449)(5)(10,223)

(447)
(948)

(1,221)(3,971)(8,422)(15)
2,51210,102
12,614 ¥24(4,277)
14,37910,102(138)
22,301
89,701
112,002$

83,91017,579
179
5,401
415
(2,224)726
6,333(3,294)(7,317)(3,422)(3,421)(152)(3,522)(4,841)86,3502,334(222)(27,104)
61,358

Basis of Presenting
Financial Statements

Consolidated 15

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Kyokuto Kaihatsu Kogyo Co., Ltd.
(the “Company”) and its consolidated subsidiaries (collectively the “Group”) have been
prepared in accordance with the provisions set forth in the Japanese Financial Instruments
and Exchange Act and its related accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards.
In preparing the accompanying consolidated financial statements, certain reclassifications
have been made to the consolidated financial statements issued domestically, in order topresent them in a form which is more familiar to readers outside Japan.
In addition, the notes to consolidated financial statements include additional information
which is not required under generally accepted accounting principles and practices in Japan.
The financial statements presented herein are expressed in Japanese yen and, solely for theconvenience of the readers, have been translated into U.S. dollars at the rate of¥112.62=US$1, the approximate exchange rate on March 31, 2016. These translations
should not be construed as representations that the Japanese yen amounts actually are, havebeen or could be converted into U.S. dollar amounts.

2. Summary of Significant Accounting Policies(a) Consolidation
The consolidated financial statements include the accounts of the Company and its 9
significant subsidiaries. Investments in 4 nonconsolidated subsidiaries and 1 affiliate areaccounted for by the equity method.
Under the concept of control or significant influence, those companies in which theCompany, directly or indirectly, is able to exercise control over operations are fully
consolidated, and those companies which the Group has the ability to exercise significant
influence (affiliated companies) are accounted for by the equity method.
In March 31, 2016, 6 subsidiaries are excluded from scope of consolidation. As to these,
investments in 4 nonconsolidated subsidiaries are accounted for by the equity method, andother is not accounted for.

Basis of Presenting
Financial Statements

Consolidated 16

These companies are not material in terms of total assets, net sales, net income and retained
earnings and do not have any significant impact on the consolidated financial statements.
From the fiscal year ended March 31, 2016, MITHRA KYOKUTO SPECIAL PURPOSE
VEHICLE CO., PVT. LTD. has changed its fiscal year-end from December 31 to March 31.
As a result of this change, it was accounted for by the equity method for 15 months fromJanuary 1, 2015 to March 31, 2016.
All significant inter-company balances and transactions have been eliminated in the
consolidated financial statements. All material unrealized gains resulting from inter-company
transactions have been eliminated.
Assets and liabilities of the consolidated subsidiaries at the time of investment are all valued
at fair value. The goodwill is being amortized on a straight-line basis over estimated useful
lives or 5 years in situations in which the useful lives cannot be estimated. However,insignificant goodwill is charged to expenses when incurred.

(b) Cash Equivalents
Cash equivalents are short-term investments that are readily convertible into cash andexposed to insignificant risk of changes in value. All of cash equivalents mature or becomedue within three months from the date of acquisition.

(c) Short-term Securities and Investment Securities
The Group classifies their securities which have readily determinable fair values as
held-to-maturity debt securities, available-for-sale securities, depending on management’s
intent.
(Held-to-maturity debt securities)
Held-to-maturity debt securities are stated at amortized cost.
(Available-for-sale securities)
Marketable available-for-sale securities are stated at fair value, with unrealized gains or losses,
net of applicable taxes, and reported in accumulated other comprehensive income. The cost ofavailable-for-sale securities sold is determined based on the moving average method.
None-marketable securities are stated at cost determined by the moving average method.

Basis of Presenting
Financial Statements

Consolidated 17(d) Inventories
Merchandises are stated at cost determined by the specific identification method, or if lower,
the net realizable value.
Raw materials, finished goods and work in process are stated at cost determined by theperiodic average method, or if lower, the net realizable value.
Supplies are stated at cost determined by the last purchase cost method, or if lower, the net
realizable value.

(e) Depreciation
Depreciation is principally computed under the straight-line method, using rates based on
the estimated useful lives of the assets. The useful lives are principally ranging from 7 to 60
years for buildings and structures, and 4 to 17 years for machinery, equipment and vehicles.
Amortization of intangible assets is computed by the straight-line method.

(f) Retirement Benefits
Net defined benefit liabilities are recorded for employees’ pension and severance payments
based on the projected benefit obligations and the fair value of plan assets at the balance
sheet date.
In calculating the projected retirement obligations, the straight-line attribution is applied forallocation of projected benefits to the periods until the end of the current fiscal year.
Actuarial gains or losses are amortized by declining-balance method over stated years that
do not exceed the average remaining service period of the employees (10 years) beginningwith the year following the year which incurred.

(g) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided against potential losses on collections at an
amount determined using a historical bad debt loss ratio and an amount individuallyestimated on the collectability of receivables that are expected to be uncollectible due to badfinancial condition or insolvency of the debtor.

Basis of Presenting
Financial Statements

Consolidated 18(h) Asset Retirement Obligations
Asset retirement obligations are defined as a statutory or similar obligation with regard to
the removal of tangible fixed assets and are incurred when tangible fixed assets are acquired,constructed, developed or used in an ordinary way. The asset retirement obligation isrecognized as the sum of the discounted cash flow required for the future asset retirement
and is recorded in the period in which the obligation is incurred if a reasonable estimate canbe made.

(i) Revenue from Construction Contracts
Revenues from construction contracts and the related costs are recorded under thepercentage-of-completion method, if the outcome of the construction contract can be estimatedreliably. Otherwise, the completed-contract method is applied if the outcome cannot be reliably
estimated.

(j) Allowance for Losses on Construction Contracts
Estimated losses on construction contracts are charged to income in the period in which they are
identified.

(k) Leases
Finance lease transactions, except for immaterial or short-term finance leases transactions
which are accounted for as operating leases, are capitalized to recognize lease assets andlease obligations in the balance sheet. Such capitalized lease assets are depreciated by thestraight-line method over the lease terms assuming no residual value.

(l) Income Taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities forthe expected future tax consequences of temporary differences between the carrying amountand tax bases of assets and liabilities, and operating loss carry-forwards.

(m) Derivatives
All derivatives, except for certain foreign exchange forward contracts and interest rate swap
contracts described below, are stated at fair value. If derivative financial instruments areBasis of Presenting
Financial Statements

Consolidated 19

used as hedges and meet certain hedging criteria, the Group defers recognition of gains orlosses resulting from a change in the market value of the derivative financial instruments
until the related gains or losses on the hedged items are recognized. Accounts payablehedged by foreign exchange contracts which meet certain hedging criteria are translated attheir contracted rates. Interest rate swaps which meet certain hedging criteria are accounted
for as if the interest rate applied to the swaps had originally applied to the underlying debt.

(n) Per Share Information
Basic net income per share is computed based on net income available to common
stockholders and the weighted average number of shares of common stock outstanding
during each period. The average numbers of shares used in the computations are 39,728 and
39,729 thousand shares for 2016 and 2015, respectively.
Diluted net income per share is not disclosed because the Company had no potentiallydilutive shares outstanding at these balance sheet dates.
Cash dividends per share shown in the statements of income are the amounts applicable to
the respective years.

(o) Accounting change(Application of Accounting Standards for Business Combinations)
From the fiscal year, the Company has applied the “Accounting Standard for Business
Combinations”, (ASBJ Statement No. 21, September 13, 2013, hereinafter “BCA Standard”), the“Accounting Standard for Consolidated Financial Statements” (ASBJ Statement No. 22,
September 13, 2013, hereinafter “CFSA Standard”), the “Accounting Standard for Business
Divestitures” (ASBJ Statement No. 7, September 13, 2013, hereinafter “BDA Standard”) andother relating accounting standards. Consequently, the accounting method was changed such thatdifferences arising from changes in the equity in subsidiaries under ongoing control of theCompany are now recorded as capital surplus, and acquisition-related costs are now recorded as
expenses for the fiscal year in which they are incurred. In addition, with respect to businesscombinations occurring after the beginning of the fiscal year, the Company will now revise
acquisition cost allocation based on provisional accounting estimates, reflecting these costs in the
consolidated financial statements for the fiscal year in which the business combination occurred.
The Company has also changed the presentation of net income and other items, and has changed
from presenting minority interests to presenting non-controlling interests. In order to reflect thesechanges in the presentation, certain reclassifications have been made to the consolidated financial
statements with respect to the previous fiscal year.
The Company has applied the BCA Standard, etc. in accordance with transitional provisions inBasis of Presenting
Financial Statements

Consolidated 20

paragraph 58-2(4) of the BCA Standard, paragraph 44-5(4) of the CFSA Standard, and paragraph57-4(4) of the BDA Standard, prospectively at the beginning of the fiscal year.
In the fiscal year, the presentation method of the consolidated financial statement of Cash Flows
has been changed such that cash flow related to the purchase or sale of shares of subsidiaries not
resulting in changes in scope of consolidation is categorized as “cash flows from financing
activities”, and cash flow related to expenses associated with the purchase of shares of subsidiaries
resulting in changes in scope of consolidation or expenses arising from the purchase or sale ofshares of subsidiaries not resulting in changes in scope of consolidation is categorized as “cashflows from operating activities”.
As a result, there was no impact on consolidated financial statement for the current fiscal year.

(p) Accounting Standards issued but not yet applied“Accounting Standard for recoverability of deferred tax assets” (ASBJ Guidance No. 26, March
28, 2016)(1) Summary
Regarding the accounting treatment of recoverability of deferred tax assets, this accounting
standard has been revised as indicated below after basically following the framework of the Audit
Committee Report No.66 ”Audit treatment for the judgment of recoverability of deferred tax
assets” which require entity to estimate the amount of deferred tax assets according to 5 entity
divisions.
(i.)

The treatment for the entity who does not apply any requirement of division 1 to 5(ii.)

The requirement of division 2 and division 3(iii.) The treatment of future deductible temporary difference of which entity in division 2
cannot be scheduled the resolving year(iv.) The treatment in connection with the foreseeable future term of taxable income before
adjusting future temporary difference in division 3 entity(v.)

The treatment for the entity that is applicable to division 4 is also applicable to division

2 or division 3.
(2) Scheduled date of application
The applications of these accounting standards above are scheduled for implementation from the
beginning of the fiscal year ending March 31, 2017.
(3) Influence by the application of the relevant accounting standards
The effect of application of these revised accounting standards is now under the assessment at thetime of preparation of the accompanying consolidated financial statements.

Basis of Presenting
Financial Statements

Consolidated 21

3. Securities
The following is a summary of held-to-maturity securities and available-for-sale securities
at March 31, 2016 and 2015:
Millions of yen

Held-to-maturity securities

March 31, 2016

Gross

Gross

Carrying

unrealized

unrealized

amountgains

losses¥¥¥Fair value

Debt securities,
whose fair value exceeds
carrying amount

45

0

－

¥

45

whose fair value does notexceed carrying amount
Total

－
¥

45

－
¥

0

－
¥

－

－
¥

45

Millions of yen

Held-to-maturity securities

March 31, 2015

Gross

Gross

Carrying

unrealized

unrealized

amountgains

losses¥¥¥Fair value

Debt securities,
whose fair value exceeds
carrying amount

15

1

－

¥

16

whose fair value does notexceed carrying amount
Total

30
¥

45

(0)

－
¥

1

¥

(0)

30
¥

46

Basis of Presenting
Financial Statements

Consolidated 22
Thousands of U.S. dollars

Held-to-maturity securities

March 31, 2016

Gross

Gross

Carrying

unrealized

unrealized

amountgains

lossesFair value

$

$

4

$ －

$

－

－

4

$ －

Debt securities,
whose fair value exceeds
carrying amount

400

404

whose fair value does notexceed carrying amount
Total

－
$

400

$

－
$

404

Millions of yen

Available-for-sale securities

March 31, 2016

Gross

Gross

Book Value

unrealized

unrealized(Estimated fair

gains

lossesvalue)(65)¥ 11,342

(3)

130

(68)

¥ 11,472

Cost

Market value available:
Equity securities¥ 6,037

Other securities

133

Subtotal¥ 6,170

¥

5,370

¥

0
¥

5,370

¥

Market value not available:

2,174

Total

¥

13,646

Millions of yen

Available-for-sale securities

March 31, 2015

Gross

Gross

Book Value

unrealized

unrealized(Estimated fair

gains

lossesvalue)

Cost

Market value available:
Equity securities¥ 5,950

Other securities

132

Subtotal¥ 6,082

¥

7,419

¥

0
¥

7,419

(25)

¥

(2)
¥

(27)

130
¥

Market value not available:
Total

13,344
13,474
1,955¥

15,429Basis of Presenting
Financial Statements

Consolidated 23
Thousands of U.S. dollars

Available-for-sale securities

March 31, 2016

Gross

Gross

Book Value

unrealized

unrealized(Estimated fair

gains

lossesvalue)

47,680$ (580)$ 100,710

0

(22)

1,154

47,680$ (602)$ 101,864

Cost

Market value available:
Equity securities$ 53,610

Other securities

1,176

Subtotal$ 54,786$$

Market value not available:

19,306

Total$ 121,170

Impairment losses of available-for-sale securities were recognized in the amount of ¥ 20 million($ 179 thousand), during the fiscal year ended March 31, 2016.
Impairment losses of all securities whose fair value declined 50 percent or more were recognized.
In addition, the Company considers the fair values of securities are deemed unrecoverable andimpairment losses are recognized when their fair values have declined more than 30%, but lessthan 50% from acquisition cost, and the fair values have continued to decline for two years.

4. Short-term Bank Loans and Long-term Debts
The annual average interest rates applicable to short-term bank loans at March 31, 2016 and2015 were 0.46% and 0.47%, respectively.
Long-term debts at March 31, 2016 and 2015 consisted of the following:Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

¥ 5,932¥ 4,051$ 52,676

94

144

831

Other

1,338

1,560

11,882

Total¥ 7,364¥ 5,755$ 65,389

Long-term bank loans
Lease obligations

Basis of Presenting
Financial Statements

Consolidated 24

Aggregate annual maturities of long-term debts subsequent to March 31, 2016 were as
follows:
Thousands ofYear ending March 31

Millions of yen

U.S. dollars

2017

¥

2,054

$ 18,236

2018

1,838

16,321

2019

1,579

14,023

2020

834

7,407

1,059

9,402

7,364

$ 65,389

2021 and thereafter
Total

¥

To set up a commitment line by multiple finance institutions, the Company renewed anagreement with a syndicate of 7 banks for the years ended March 31, 2016 and 2015.
The unexecuted balance of lending commitments of the Company at March 31, 2016 and2015 were as follows:
Thousands ofTotal lending commitments

Millions of yen

U.S. dollars

2016

2015

2016

¥ 3,000¥ 3,000$ 26,638

－

1,200

－

¥ 3,000¥ 1,800$ 26,638

Less amounts currently executed
Unexecuted balance

5. Pledged Assets
The following assets were pledged as collateral for the following borrowings at March 31,
2016 and 2015:
Thousands ofLand
Buildings
Total

Millions of yen

U.S. dollars

2016

2015

2016

750

¥ 5,755

$

1,926

3,225

17,103¥ 2,676¥ 8,980$ 23,759¥

6,656

Basis of Presenting
Financial Statements

Consolidated 25

Thousands ofMillions of yen

U.S. dollars

2015

2016

2016
Short-term bank loans

¥

¥

－

10

$

0

－

Current portion of long-term bank loans

－

591

－

Long-term bank loans

－

607

－

2,252

2,485

20,001¥ 2,252¥ 3,783$ 20,001

Other non-current liabilities
Total

6. Retirement Benefits
The Company and a domestic subsidiary have defined benefit corporate pension plans andlump-sum retirement benefit plans. Other domestic subsidiaries join the Smaller Enterprise
Retirement Allowance Mutual Aid Scheme which is a kind of defined contribution plans. In
March 2015, as a result of applying “Guidance on Accounting Standard for Transfers
Between Retirement Benefit Plans” (ASBJ Guidance No.1, January 31, 2002), loss onrevision of retirement benefit plans of ¥234 million was recognized.
The changes in defined benefit obligations for the year ended March 31, 2016 and 2015
were as follows:
Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

¥ 6,171¥ 6,260$ 54,796

－

(173)

－

¥ 6,171¥ 6,087$ 54,796

Service cost

389

376

3,454

Interest cost

65

84

572

Actuarial gains or losses

498

145

4,424

Retirement benefits paid

(423)

(521)

(3,754)¥ 6,700¥ 6,171$ 59,492

Benefit obligations at beginning of year
Cumulative effects of changes in accounting policies

Restated balance at beginning of the year

Benefit obligations at end of year

Basis of Presenting
Financial Statements

Consolidated 26
Thousands ofPlan assets at beginning of year

Millions of yen

U.S. dollars

2016

2015

2016

¥

¥

5,416

Expected return on plan assets

4,567

$

48,096

92

81

816

Actuarial gains or losses

(236)

482

(2,094)Contributions from employers

640

754

5,677

Retirement benefits paid

(367)

(468)

(3,257)

Plan assets at end of year

¥

5,545

¥

5,416

$

49,238The changes in plan assets for the year ended March 31, 2016 and 2015 were as follows:
The reconciliation of the defined benefit obligations and plan assets to the net defined
benefit liabilities recognized in the consolidated balance sheet as of March 31, 2016 and2015 were as follows:
Thousands ofBenefit obligations

Millions of yen

U.S. dollars

2016

2015

2016

¥

¥

6,700

Plan assets at end of year
Net

amountofliabilities

5,545
and

assetsrecognized in consolidated balance sheet
Net defined benefit liabilities
amountofliabilities

5,416

assetsrecognized in consolidated balance sheet

59,492
49,238

1,155

¥

755

$

10,254

¥

1,155

¥

755

$

10,254

－
and

$

¥

Net defined benefit assets
Net

6,171

¥

1,155

－
¥

755

－
$

10,254

The retirement benefit expenses for the year ended March 31, 2016 and 2015 were as
follows:
Thousands ofService cost

Millions of yen

U.S. dollars

2016

2015

2016

¥

¥

$

389

376

3,454

Interest cost

65

84

572

Expected return on plan assets

(92)

(81)

(816)

Recognition of actuarial gains or losses

(52)

23

(458)

Severance and pension costs

¥

310

¥

402

$

2,752

Basis of Presenting
Financial Statements

Consolidated 27

Remeasurements of defined benefit plans recognized in other comprehensive income(amount before income tax effect) were as follows:
Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

Recognized actuarial gains

¥

(786)

¥

360

$

(6,976)

Total

¥

(786)

¥

360

$

(6,976)

Remeasurements of defined benefit plans recognized in accumulated other comprehensive
income (amount before income tax effect) were as follows:
Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

Unrecognized actuarial gains or losses

¥

535

¥

(250)

$

4,754

Total

¥

535

¥

(250)

$

4,754

The components of plan assets as of March 31, 2016 and 2015 were as follows:
Ratio

2016

2015

Bonds

39%

36%

Securities

34%

41%

General account asset

19%

18%

Other

8%

5%

Total

100%

100%

The major actuarial assumptions for the year ended March 31, 2016 and 2015 were as
follows:
2016

2015

Discount rate

0.0 to 0.3%

0.9 to 1.3%

Long-term rate of return on plan assets

1.3 to 2.0%

1.3 to 2.0%

Future salary increase

4.1 to 6.7%

4.1 to 6.6%

Long-term rate of return on plan assets was determined by considering the current andfuture portfolio of plan assets and the current and future long-term performance of various
assets comprise the plan assets.

Basis of Presenting
Financial Statements

Consolidated 28

The required amount of the defined contribution pension plan were ¥97 million ($ 863
thousand) and ¥87 million for the year ended March 31, 2016 and 2015 in the Company andother domestic subsidiaries.

7. Contingencies
At March 31, 2016 and 2015, the Group was contingently liable as follows:
Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

¥

¥

As a guarantor of indebtedness of :Affiliated companies

741

Other
Total

¥

405

23

807

764

¥ 1,212

$

6,579
209

$

6,788

8. Cash and cash equivalents
Cash and cash equivalents at March 31, 2016 and 2015 were as follows:
Thousands ofMillions of yen

Cash and deposits
Short-term securities
Cash and cash equivalents

2016

2015

¥

¥

8,532

6,764

U.S. dollars

2016$

75,759

4,082

3,338

36,243¥ 12,614¥ 10,102$ 112,002

9. Financial Instruments and Related Disclosures(1) Policy for financial instruments
The Group manages funds by utilizing short-term deposits, etc. The Group raises money
by borrowing from financial institutions and by issuing bonds. Derivatives are used, notfor speculative nor trading purpose, but to hedge the exposure to foreign exchange raterisks with the debts and credits denominated in foreign currencies and interest rate risks
associated with certain interest payments on borrowings.

Basis of Presenting
Financial Statements

Consolidated 29(2) Types of financial instruments and related risk, and risk management for financial
instruments
Trade notes and accounts receivable are exposed to credit risk in relation to customers.
In order to monitor credit risk, the Group manages, according to the credit management
guideline of the Group, the due date and the balance of operating receivables from
customers.
Investment securities consist of mainly held-to-maturity securities and equity securities
issued by the Group’s business partners and these securities are exposed to market risk.
The Group periodically monitors the fair value of such equity securities, which isreported to the board meeting.
Trade notes and accounts payable have payment due dates mainly within one year. Tradenotes and accounts payable denominated in foreign currencies are exposed to the market
risk of fluctuation in foreign currency exchange rate. Such risk is hedged principally by
forward foreign currency contract.
Short-term bank loans are raised mainly in connection with business activities andlong-term bank loan and bonds payable, which are due mainly within five years, areraised principally for the purpose of making capital investments.
Long-term debts with variable interest rates are exposed to interest rate fluctuation risk,so the Group enters into interest rate swap transactions to manage such interest rate
exposure.
Derivatives are managed in accordance with policies and procedures for risk assessment(see Note 11 “Derivatives”) and also the Group enters into derivative transactions onlywith financially stable financial institutions to reduce institutions’ credit risk.
Based on a report from the Company and consolidated subsidiaries, the Group preparesand updates its cash flow plans on a monthly basis to manage the Group’s liquidity.
(3) Supplementary explanation of the estimated fair value of financial instruments
With regard to the below mentioned contract prices etc. of derivatives, the contract
prices themselves do not present the market risk on the derivative transactions.

Basis of Presenting
Financial Statements

Consolidated 30

Summarized in the table below are the carrying amounts and the estimated fair value offinancial instruments outstanding at March 31, 2016 and 2015. Financial instruments forwhich it is extremely difficult to determine the fair value are not included in the table below.
Millions of yen

Unrecognized

Carrying
March 31, 2016
Cash and deposits¥

amountFair value

8,532

¥

8,532

gain/loss¥─

Trade notes and accounts receivable

39,78939,789─

Short-term securities

4,082

4,082

─

Investment securities

11,517

11,5170

Trade notes and accounts payable(22,950)(22,950)

─

Short-term bank loans(2,960)(2,960)─Long-term bank loans(5,932)(5,942)(10)Long-term deposits(1,338)(1,441)

(103)

─

─

─

Derivatives

Millions of yen

Carrying
March 31, 2015
Cash and deposits¥

UnrecognizedamountFair value

6,764

¥

6,764

gain/loss¥─

Trade notes and accounts receivable

40,08640,086

─

Short-term securities

3,338

3,338

─

Investment securities

13,51913,5201

Trade notes and accounts payable(23,739)(23,739)

─

Short-term bank loans(4,140)(4,140)─Long-term bank loans(4,051)(4,051)0Long-term deposits(1,560)(1,678)

(118)

─

─

─

Derivatives

Basis of Presenting
Financial Statements

Consolidated 31

Thousands of U.S. dollars

Unrecognized

Carrying
account

March 31, 2016
Cash and deposits$

75,759$Fair value

gain/loss

75,759$─

Trade notes and accounts receivable

353,307353,307─

Short-term securities

36,24336,243─Investment securities

102,264

102,2684

Trade notes and accounts payable(203,786)(203,786)―

Short-term bank loans(26,283)(26,283)─Long-term bank loans(52,676)(52,761)(85)

Long-term deposits(11,883)(12,793)

(910)

─

─

─

Derivatives

Methods to determine the estimated fair value of financial instruments and other mattersrelated to securities and derivative transactions:(a) “Cash and deposits” and “Trade notes and accounts receivable”
Their carrying amounts approximate fair value because of their short maturity.
(b) “Short-term securities”
The fair values of held-to-maturity debt securities are based on quotes provided by thefinancial institutions.
The carrying amounts of the other securities than the above debt securities approximate fair value
because of their short maturity.
(c) “Investment securities”
The fair values of marketable securities are based on quoted market prices. The fair valuesof debt securities are based on quotes provided by the financial institutions. For information
on securities classified by holding purpose, please refer to Note 3 “Securities”.
(d) “Trade notes and accounts payable” and “Short-term bank loans”
Their carrying amounts approximate fair value because of their short maturity.
(e) “Long-term bank loans”
The fair value of long-term bank loans is estimated based on present value of the total ofprincipal and interest discounted by an assumed current interest rate for loans with similarterms and remaining maturities.

Basis of Presenting
Financial Statements

Consolidated 32(f) “Long-term deposit”
The fair value of long-term deposit is estimated based on present value of the total ofprincipal and interest discounted by an assumed interest rate, if possible, based on debt’s
maturity and credit risk.
(g) “Derivatives”
Please refer to Note 11 “Derivatives”.
Financial instruments for which it is extremely difficult to determine the fair value at March
31, 2016 and 2015 consist of the following:Thousands ofMillions of yen

Non-listed equity securities

U.S. dollars

2016

2015

2016

¥

¥

1,955

$19,306

1,387

12,494Long-term deposit

2,174
1,407

Impairment losses of non-listed securities were recognized in the amount of ¥ 650 million, during
the fiscal year ended March 31, 2015.
The annual maturities of financial assets and investment securities with contractual
maturities subsequent to March 31, 2016 and 2015 were as follows:
Millions of yen
Due in one year

March 31, 2016
Cash and deposits
Trade notes and accounts receivable

Investment securities
Total

or less¥

8,532

Due after one

Due after five

year throughyears throughfive years

ten years

¥

－

¥

－

39,789

－

－

－

45

－

¥ 48,321

¥

45

¥

－

Basis of Presenting
Financial Statements

Consolidated 33

Millions of yen
Due in one year
or less

March 31, 2015
Cash and deposits¥

Trade notes and accounts receivable

6,764

Due after five

year throughyears throughfive years

ten years

¥

－

¥

－

40,085

1

－

－

45

－

Investment securities
Total

Due after one¥ 46,849

¥

46

¥

－

Thousands of U.S. dollars

Due in one year

March 31, 2016
Cash and cash equivalents
Trade notes and accounts receivable
Investment securities
Total

or less$

75,759Due after one

Due after five

year throughyears throughfive years

ten years

$

－

$

－

353,307

－

－

－

400

－

$ 429,066

$

400

$

－

Basis of Presenting
Financial Statements

Consolidated 34

10. Investment Property
The company and certain subsidiaries hold some rental properties including land in Tokyoand other areas (“investment properties”). The amounts of net income related to investment
properties (rental income is recognized in operating revenue and rental expense isprincipally charged to operating expenses) were ¥ 748 million ($ 6,643 thousand) and ¥ 545
million for the year ended March 31, 2016 and 2015, respectively. There was no loss on
impairment of investment properties for the year ended March 31, 2016 and 2015.
The carrying amount, changes in such balances and market prices of investment properties
were as follows:
Millions of yen

Carrying amount

Fair value

Increase/
April 1, 2015

¥ 8,011(decrease)¥ (108)March 31, 2016

March 31, 2016

¥ 7,903¥ 10,400

Millions of yen

Carrying amount

Fair value

Increase/
April 1, 2014

¥ 8,364(decrease)¥ (353)

March 31, 2015

March 31, 2015

¥ 8,011¥ 10,519

Thousands of U.S. dollars

Carrying amount

Fair value

Increase/
April 1, 2015

$ 71,138(decrease)$ (964)

March 31, 2016

March 31, 2016

$ 70,174$ 92,342(1) Carrying amount is net of accumulated depreciation and accumulated impairment
losses, if any.
(2) Increase during the year ended march 31, 2016 was mainly due to the expenditure forrepairing the sidewalk of ‘the Mall MIZUHO’ in amount of ¥ 67 million ($ 599
thousand). Decrease during the year ended March 31, 2016 was mainly due todepreciation in an amount of ¥ 197 million ($ 1,751 thousand).

Basis of Presenting
Financial Statements

Consolidated 35

Decrease during the year ended March 31, 2015 was mainly due to depreciation in an
amount of ¥ 202 million and the disposition by demolition of Haneda office in an
amount of ¥ 165 million.
(3) Fair value at March 31, 2016 and 2015 were principally measured based on the real estateappraisal assessed by the external real estate appraiser.

11. Derivatives
Derivative financial instruments are utilized by the Company principally to reduce interest
rate risk and foreign exchange rate risk. The Company has established a control
environment which includes policies and procedures for risk assessment and for theapproval, reporting and monitoring of transactions involving derivative financial
instruments. The Company does not hold or issue derivative financial instruments for
trading purposes.
At March 31, 2015,

the notional amounts and the estimated fair value of derivative

financial instruments, for which deferred hedge accounting has been applied were as
follows:
Millions of yen

March 31, 2015

Hedged item

Contract

Contract amountamountdue after one year

Fair value

Interest rate swap:(Fixed rate payment/floating

Long-term

rate receipt)bank loans

¥

275

¥

-

Note

Fair value of swap contracts assigned for Long-term bank loans is included in the fair valueof Long-term bank loans disclosed at Note 9 “Financial Instruments and Related
Disclosures”.

Basis of Presenting
Financial Statements

Consolidated 36

12. Shareholders’ Equity
Changes in common stock and additional paid-in capital have resulted from the following:
Millions of yen

Balance at March 31, 2014
Movement of stock during 2015
Balance at March 31, 2015
Movement of stock during 2016
Balance at March 31, 2016

Numb er ofCommonCapitalSharesStock

Surp lus

42,737,668

11,90011,719－－11,90011,719－－11,90011,719－42,737,668－
42,737,668

Thousands of U.S. dollars

Balance at March 31, 2015
Movement of stock during 2016
Balance at March 31, 2016

CommonCapitalStocksurplus105,664

104,055－－

105,664

104,055

The Company adopted 100 shares of common stock as “unit amount of shares”. A holder ofshares representing less than one unit cannot exercise any voting rights with respect to suchshares. However, the holder is entitled to receive dividends and other distributions. A holder
of a fraction of a unit may at any time request the Company to purchase such shares at theprevailing market price.

13. Research and Development
Research and development expenditure which is included in “Selling, general andadministrative expenses” were ¥ 1,410 million ($ 12,518 thousand) and ¥ 1,485 million forthe years ended March 31, 2016 and 2015, respectively.

Basis of Presenting
Financial Statements

Consolidated 37

14. Income Taxes
The Company and its domestic subsidiaries are subject to several taxes based on income,which in the aggregate resulted in a statutory tax rate of approximately 33.02% and 35.59%
for the years ended March 31, 2016 and 2015, respectively. Foreign subsidiaries are subject
to income taxes of the countries in which they operate.
Following the execution on March 29, 2016 of the “Act for Partial Amendment of the Income Tax
Act, etc.” and the “Act for Partial Amendment of the Local Tax Act, etc.”, the effective tax rateused for the calculation of deferred tax assets and liabilities was changed from 31.52% to 30.81%
for the temporary differences expected to be realized or settled in the year beginning on April 1,2016 and 2017, and to 30.58% for realized or settled after April 1, 2018.
Due to this change in tax rate, net of deferred tax liabilities (after deduction of deferred tax assets)
as of the end of the fiscal year decreased by ¥86 million ($ 760 thousand), and income
taxes-deferred for the fiscal year decreased ¥43 million ($ 379 thousand), unrealized gain on
available-for-sale securities and remeasurements of defined benefit plans as of the end of the fiscal
year increased by ¥ 51 million ($ 449 thousand) and decreased by ¥ 8 million ($ 68 thousand),
respectively.

Basis of Presenting
Financial Statements

Consolidated 38

The tax effects of significant temporary differences which resulted in deferred tax assets andliabilities at March 31, 2016 and 2015 were as follows:
Thousands ofMillions of yen

U.S. dollars

2015

2016

635

$ 5,072

2016
Deferred tax assets - current:
Accrued Bonuses

¥

571

¥

Provision for product warranties

219

242

1,942

Allowance for repairs

114

127

1,017

Allowance for doubtful accounts

16

408

139

Accrued corporation enterprise tax

170

171

1,511

Loss on valuation of inventories

122

104

1,081

Forecast of construction cost

136

164

1,205

Other

169

176

1,504

1,517

2,027

13,471

(64)

(457)

(572)

1,453

1,570

12,899

350

240

3,106

256

256

2,277

68

110

606

Allowance for doubtful accounts

799

1,003

7,092

Loss on impairment of long-lived assets

399

440

3,545

200

215

1,778

Excess depreciation

120

82

1,063

Other

313

341

2,774

Sub-total

2,505

2,687

22,241Less valuation allowance(1,575)(1,682)(13,981)

930

1,005

8,260

Sub-total
Less valuation allowance
Total deferred tax assets - current
Deferred tax assets – non-current:
Net defined benefit liabilities
Fixed assets – elimination ofintercompany profits
Accrued payable for transfer to thedefined contribution pension plan

Loss on valuation of investment for
subsidiaries and affiliates

Total deferred tax assets - non-current

Basis of Presenting
Financial Statements

Consolidated 39

Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

Unrealized gain on investment securities(1,620)(2,332)(14,387)

Reduction reserve for fixed assets(1,449)(1,510)(12,867)

(111)

(143)

(988)

(1,096)(1,161)(9,735)(4,276)(5,146)(37,977)¥ (3,346)¥ (4,141)$ (29,717)

Deferred tax liabilities:

Special depreciation reserve
Unrealized gain on subsidiaries’ fixed
assets by revaluation at the beginningof consolidation
Total deferred tax liabilities non-current
Net deferred tax assets (liabilities) –non-current

The reconciliation between the statutory tax rate and the effective income tax rate for theyear ended March 31, 2016 and 2015 were as follows:
2016

2015

33.02%

35.59%

Non-deductible expenses for income tax purpose

1.09

1.17

Non-taxable dividend income(0.17)(0.47)

Inhabitant per capita tax

0.88

1.18

Effect of tax rate change

0.12(1.70)Tax credit(1.96)(5.40)

Change in valuation allowance

0.55

5.81

Equity in earnings of affiliated companies

2.13

1.37

Other

0.41

0.64

36.07%

38.19%

Statutory tax rate

Effective tax rate

Basis of Presenting
Financial Statements

Consolidated 40

15. Comprehensive Income
The components of other comprehensive income for the year ended March 31, 2016 and 2015
were as follows:
Thousands ofMillions of yen

U.S. dollars

2016

2015

2016

Gains (Losses) arising during the year

¥ (2,117)¥ 2,899$ (18,796)

Reclassification adjustments for gain

20

-

179

(2,097)

2,899(18,617)

717

(731)

6,362

¥(1,380)¥ 2,168$ (12,255)

Adjustments arising during the year¥

175

¥ (202)

$

1,561

Total

¥

175

¥ (202)

$

1,561

¥

(734)

¥

Unrealized gain on available-for-sale securities:

Amount before income tax effect
Income tax effectTotal
Foreign currency translation adjustments:

Remeasurements of defined benefit plans:
Gains (Losses) arising during the year337$

(6,518)

Reclassification adjustments for gain (loss)

(52)

23

(458)

Amount before income tax effect

(786)

360

(6,976)

Income tax effect

242

(118)

2,143

Total

¥

(544)

¥

242

$

(4,833)

Gains (Losses) arising during the year

¥

(85)

¥

73

$ (757)

Total

¥

(85)

¥

73

$ (757)¥ 2,281$ (16,284)

Share of other comprehensive income in affiliate:

Total other comprehensive income¥ (1,834)

16. Provision of reserve for Losses on Construction Contracts
Provision of reserve for losses on construction contracts included in Cost of Sales were ¥ 24
million ($ 212 thousand) and ¥ 47 million for the years ended March 31, 2016 and 2015,
respectively.

Basis of Presenting
Financial Statements

Consolidated 41

17. Segment Information
a. Description of reportable segments
The Group’s reportable segments are those for which separately financial information isavailable and regular evaluation by the Board of Directors is being performed in order todecide how resources are allocated among the Group. The Group conducts several types ofbusinesses including specialty truck business, environmental equipment and systems andreal estate rental business. The Company and its consolidated subsidiaries are engaged ineach business as an independent management unit. The Group consists of three reportablesegments, which are “Specialty truck business” (Industry A), “Environmental equipment
and systems business” (Industry B) and “Real estate rental business” (Industry C). Industry
A manufactures and distributes specialty trucks such as dump trucks, tailgate lifters, tanktrucks, refuse trucks, trailers, etc. Industry B manufactures and distributes recycle facilities,
including maintenance and consignment business. Industry C manufactures multistory
parking equipment and offers operating services for toll parking and real estate rental
services.
b. Methods of measurement for the amounts of sales, profit, assets, liabilities and otheritems for each reportable segment
The accounting policies of each reportable segment are consistent to those disclosed in Note
2, “Summary of Significant Accounting Policies”. Intersegment sales or transfers are basedon the market prices.
Information about sales, profit, assets and other items for the years ended March 31, 2016
and 2015 are as follows:
Millions of yen
Reportable segments
Industry

Industry

IndustryA

BC¥ 87,689¥ 10,437¥ 5,737¥ 103,863－¥ 103,863

22

2

642

666

(666)

－

87,711

10,4396,379

104,529(666)

103,863

Segment profit

7,572

2,085

1,242

10,899(398)

10,501

Segment assets

73,244

6,916

12,011

92,171

28,368120,539

1,498

41

413

1,952

1

1,953

2,525

40

220

2,785

－

2,785

2016

Total

Reconciliations

Consolidated(Note 1)

(Note 2)

Net sales:
External customers
Intersegment sales or transfers

Total

Other items:
Depreciation
Increase in tangible andintangible fixed assets

Basis of Presenting
Financial Statements

Consolidated 42
Millions of yen

Reportable segments
Industry

Industry

IndustryA

BC¥ 82,212¥ 11,428¥ 5,691¥ 99,331

－

19

2

704

725

(725)

－

82,231

11,430

6,395

100,056(725)

99,331

Segment profit

7,217

1,425

1,134

9,776

(358)

9,418

Segment assets

74,351

8,697

12,20595,25323,867

119,120

1,293

42

404

1,739

1

1,740

2,316

129

234

2,679

－

2,679

2015

Total

Reconciliations

Consolidated(Note 1)

(Note 2)

Net sales:
External customers
Intersegment sales or transfers

Total

¥

99,331Other items:
Depreciation
Increase in tangible andintangible fixed assets

Thousands of U.S. dollars
Reportable segments
Industry

Industry

Industry

A

B

C$ 778,628$ 92,675$ 50,937$ 922,240－$ 922,240

194

15

5,703

5,912

(5,912)－778,822

92,69056,640928,152(5,912)922,240

Segment profit

67,237

18,516

11,02596,778(3,536)

93,242

Segment assets

650,366

61,414

106,650

818,430

251,890

13,305367

3,666

17,338

6

17,34422,425356

1,951

24,732－

24,732

2016

Total

Reconciliations

Consolidated(Note 1)

(Note 2)

Net sales:
External customers
Intersegment sales or transfers

Total

1,070,32
0

Other items:
Depreciation
Increase in tangible andintangible fixed assets

1.

Reconciliations of segment profit in an amount of ¥ (398) million ($ (3,536) thousand)which consists of elimination of intersegment transactions in an amount of ¥7 million($61 thousand) and corporate expenses which are not allocated to each reportablesegment in an amount of ¥ (405) million ($ (3,597) thousand). Corporate expenses aremainly general administrative expenses not attributable to any other reportablesegments.

Basis of Presenting
Financial Statements

Consolidated 43

Reconciliations of segment assets are surplus fund (cash and deposits and securities)
and long-term investment fund (investment securities) of the Company.
2.

Segment profit is reconciled with operating income in the consolidated statements ofincome.

18. Subsequent Event
The following appropriations of the Company’s retained earnings in respect of the year
ended March 31, 2016 were as proposed by the Board of Directors and approved by theshareholders at the annual general meeting held on June 28, 2016.
Thousands ofAppropriations
Cash dividends of ¥ 16 ($ 0.14) per share

Millions of yen¥

636

U.S. dollars

$

5,644

Independent Auditor’s Report

44

INDEPENDENT AUDITOR’S REPORTTo the Shareholders andBoard of Directors of
Kyokuto Kaihatsu Kogyo Co., Ltd.
We have audited the accompanying consolidated balance sheet of Kyokuto Kaihatsu Co., Ltd. and its
consolidated subsidiaries as of March 31, 2016, and the related consolidated statements of income,comprehensive income, changes in net assets, and cash flows for the year then ended, and a summary ofsignificant accounting policies and other explanatory information, all expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in conformity with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in conformity with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Kyokuto Kaihatsu Kogyo Co., Ltd. and its consolidated
subsidiaries as of March 31, 2016, and the consolidated results of their operations and their cash flows forthe year then ended in conformity with accounting principles generally accepted in Japan.
Convenience Translation
The accompanying consolidated financial statements as of and for the year ended March 31, 2016, havebeen translated into United States dollars solely for the convenience of the reader. We have recomputed thetranslation 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.
PKF Hibiki Audit Corporation
Osaka, Japan
August 31, 2016

Board of Directors and Statutory Auditors

CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co., Ltd.
Established: June 1, 1955
Paid-in Capital: 11,899,867,400 yen (March 31, 2016)
Number of Employees: consolidated 2,485; non-consolidated 978 (March 31, 2016)
Headquarters:
6-1-45, Koshienguchi, Nishinomiya-shi, Hyogo, 663-8545 Japan
Tel.+81-798-66-1000, Fax.+81-798-66-8146
Tokyo Office (Overseas Business Department):
3-15-10, Higashi-shinagawa, Shinagawa-ku, Tokyo, 140-0002, Japan
Tel.+81-3-5781-9828, Fax+81-3-5781-3431
Plants:Yokohama Plant
Occupies 96,657 ㎡
Located in Yamato, Kanagawa (Japan)
Nagoya Plant
Occupies 109,611 ㎡
Located in Komaki, Aichi (Japan)
Miki Plant
Occupies 100,311 ㎡
Located in Miki, Hyogo (Japan)
Fukuoka Plant
Occupies 43,503 ㎡
Located in Iizuka, Fukuoka (Japan)
Head Plant of NIPPON TREX Co., Ltd.
Occupies 125,285 ㎡
Located in Toyokawa, Aichi (Japan)
Otowa Plant of NIPPON TREX Co., Ltd.
Occupies 20,889 ㎡
Located in Toyokawa, Aichi (Japan)
Plant of KYOKUTO KAIHATSU (KUNSHAN) MACHINERY CO., LTD.
Occupies 83,140 ㎡
Located in Kunshan, Jiangsu (China)
Plant of MITHRA KYOKUTO SPECIAL PURPOSE VEHICLE CO., PVT. LTD.
Occupies 60,405 ㎡
Located in Veerapanenigudem, Andhra Pradesh (India)
Plant of PT KYOKUTO INDOMOBIL MANUFACTURING INDONESIA
Occupies 20,028 ㎡
Located in Purwakarta, Jawa Barat (Indonesia)
Plant of TREX THAIRUNG CO., LTD.
Occupies 85,158 ㎡
Located in Pluakdang, Rayong (Thailand)45

Board of Directors and Statutory Auditors

BOARD OF DIRECTORS AND STATUTORY AUDITORS
Takaaki Fudetani,

Director, Chairman of the Board

Kazuya Takahashi,

Representative Director, President, COO

Haruhiro Kondo,

Representative Director, Senior Managing Director,
Senior Executive Officer

Harumi Sugimoto,Director, Associate Senior Executive Officer

Takashi Yoneda,

Director, Associate Senior Executive Officer

Ikuya Sakai,

Director, Associate Senior Executive Officer

Ryuichiro Nishikawa,Director, Associate Senior Executive Officer

Yoji Kido,

Outside Director

Akira Michigami,

Outside Director

Yoshinori Takashima,

Standing Auditor

Tomoki Ueyama,

AuditorMorio Kusunoki,

Outside Corporate Auditor

Yoshihiko Norikura,

Outside Corporate Auditor

Takeo Norimitsu,

Executive Officer

Noboru Horimoto,Executive Officer

Sadanobu Kato,

Executive Officer

Akira Sakurai,

Executive Officer

Tatsuya Nunohara,

Executive Officer

Hiroaki Kuriyama,

Executive Officer

Yukihiro Hosozawa,

Executive Officer

Kazuhiko Harada,

Executive Officer

46