1KYOKUTO KAIHATSU KOGYO CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAnnual Report 2010
Year ended March 31, 2010

CONTENTS
Operational Results
Management Policy
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Changes in Shareholders’ Equity
Consolidated Statements 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
11
13
14
15
16
34
35
36

2

１．Operational Results（１）Analysis of Operational Results<Summary of Operational Results for the Consolidated fiscal Year ended March 31, 2010>
In the midst of the lingering aftereffects of the simultaneous global
recession since the previous year, these negative trends seemedbottomed out in some sectors enjoying export rebounds. However,
the overall Japanese economy in the current consolidated fiscal year
failed to show any sign of full recovery, with the employment andincome situations still remaining severe and consumer spending,sluggish.
Under this business environment, the Kyokuto Kaihatsu Kogyo
Group concertedly strived to improve profits and transform thecorporate structure by securing orders, reorganizing production
systems, reducing costs, compressing fixed costs, entailing cost
reductions, etc.

Representative Director,
President, CEO
Takaaki Fudetani

However, the Specialty Truck Segment, a mainstay of its business, continued to see a severebusiness environment due to dwindling domestic demands for trucks in general. The
Environment Equipment and Systems Segment also experienced a harsh market conditions
due to financial difficulties of local governments and curtailment of public work projects, etc., as
did the Real Estate Rental Segment due to a decline in demand for multistory parking garage
system, triggered by reduced number of condominium construction, etc.
As a result, in the current consolidated fiscal year, sales decreased by 18,045 million yen (25.0%)
compared with the preceding consolidated fiscal year to 54,071 million yen. Operating income
decreased by 3,044 million yen to mark a loss of 2,572 million yen due to the reduced sales in
the Specialty Truck Segment, allowances for doubtful accounts, a reduction in inventory
valuation, and provision of allowance for product guarantees, etc., forcing the Company to posta net loss of 2,428 million yen, aggravated from the previous fiscal year by 1,375 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 Tru
Truck Segment
The Specialty Truck Segment saw incomparably low domestic demand in recent years.
Meantime, overseas businesses as a whole also remained sluggish despite signs ofimprovements in some regions.
Under such a circumstance, the Company strived to improve the profits to counter theplummeting sales through cost-reduction efforts in elimination and consolidation of
production bases, as well as centralization of procurements, etc., and curtailment of fixed
costs comprised primarily of labor costs, etc. In addition, the Company introduced new
products to boost robust demands, such as “E PACKERTM,” an electric-garbage collecting
vehicle, and “POWER GATE MINITM,” a new tailgate lifter for a compact truck.

3

In overseas markets, management tried to expand business in emerging countries where
demands were expected to grow, specifically, through exports and sales expansion basedon Kunshan Plant, and determination of establishment of a new production base in India.
However, sales in the Specialty Truck Segment decreased by 17,176 million yen (29.9%) to
40,263 million yen due to sluggish domestic market. The Company saw operating
income decrease by 4,339 million yen and posted operating loss of 4,650 million yen due toa decrease in sales and recording of allowance for doubtful accounts, etc.

New ProductsElectric garbage collector,
TM“E PACKER ”

Electric concrete pump,
TM“TWIN DRIVE PISTON CRETE ”

Tailgate lifter easily attachable
to small truck,
TM“POWER GATE MINI ”

Long-vessel rear dump trailer(GVW 36 ton)ⅱ) Environment Equipment and Systems Segment
For the Environment Equipment and Systems Segment, management tried to secure profits byobtaining orders with serious consideration on profitability in the plant division andstrengthening the maintenance and system operation business. The Company also
aggressively promoted overseas expansion of plant technologies, including participation inenvironment-related expositions in China.
As a result, orders the Segment obtained increased by 3,140 million yen (49.3%) to 9,509
million yen. Sales decreased by 888 million yen (9.7%) to 8,312 million yen. Operating
income increased by 1,248 million yen to 1,253 million yen due to various profit
improvement measures taken.

4

Recycle Plaza

Pulverrizer for non-burnable wastesⅲ) Real Estate Rental Segment
The Real Estate Rental Segment focused on maintenance and renewal of multistory
parking garage systems, development of new products and profit improvement measuresfor coin-operated parking lots.
As a result, revenues decreased by 104 million yen (1.7%) to 5,953 million yen and operating
income increased by 47 million yen (6.1%) to 821 million yen.

Multistory parking garage system

Coin-operated parking<Forecast of Operations for the Next Consolidated Fiscal Year ending March 31, 20112011>
Management expects the current uncertainties of Japanese economy to linger with government
stimulus measures running out of steam, but moderate recovery to continue with improving
corporate profits and increasing exports, etc.
In the meanwhile, however, the business in the industries related to the Company’s operations
seems to experience severe conditions due to significant shrinkage of the truck market,
dwindling public work projects and slowdown of the construction market, etc.
Regarding the forecast of consolidated business performance for March 2011, the Company
estimates total sales to increase by 3,528 million yen (6.5%) over March 2010 to 57,600 million
yen, since the Specialty Truck Segment is likely to increase sales. Management expects theoverall operating income to increase by 3,071 million yen to 500 million yen, due to an
improvement in the Specialty Truck Segment, etc., while net income is estimated to grow by
2,627 million yen to 200 million yen.

5（２）Analysis
Analysis on Financial Conditionsⅰ) Situations of Assets, Liabilities and Net WorthIn the current consolidated fiscal year, total assets decreased by 5,701 million yen (6.3%) fromthe end of the preceding fiscal year to 85,298 million yen.
Current assets decreased by 7,778 million yen (15.8%) to 41,426 million yen, due to decreases
in trade notes and accounts receivable, and in inventories, etc.
Non-current assets (net property and equipment, intangible assets and investments and otherassets) increased by 2,077 million yen (5.0%) to 43,872 million yen, due to acquisition offacilities and improved market values of investment securities, etc.
Regarding liabilities, current liabilities decreased by 4,053 million yen (17.0%) to 19,858 million
yen, due to a decrease in trade notes and accounts payable and repayments of short-term loans
payable, etc. Non-current liabilities increased by 724 million yen (5.9%) to 13,081 million yen
due to issuance of bonds, etc.
Total equity decreased by 2,372 million yen (4.3%) to 52,359 million yen, due to payment ofdividends as well as posting of net loss.
As a result, the capital adequacy ratio stood at 61.4% as of the end of the current fiscal year
(60.1% at the end of the preceding fiscal year).

ⅱ) Cash Flow Situation
Consolidated cash and cash equivalents at the end of period increased by 732 million yen (7.1%)
over the balance at the beginning of period to 11,067 million yen. Cash flow by activity type issummarized as follows:
Cash Flow from Operating Activities
Net cash provided from operating activities amounted to 5,759 million yen (an increase of 3,395
million yen compared with the preceding fiscal year). This was because of decreases inaccounts receivable and inventories, etc.
Cash Flow
Flow from Investing Activities
Net cash used in investment activities was 2,696 million yen (a decrease of 1,504 million yen
compared with the preceding fiscal year). This was mainly because of purchase of non-current
assets.
Cash Flow from Financing
Financing Activities
Activities
Net cash used in financing activities was 2,353 million yen (a decrease of 3,258 million yen
compared with the preceding fiscal year). This was mainly because of expenditures for
repayment of short-term loans and proceeds from issuance of bonds, etc.

6(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.
The Meeting of Shareholders resolved and passed to pay a dividend of three yen per share at
the end of March 2010 as originally proposed by management, making its annual dividend 6
yen per share including an interim dividend.
For the year ending March 2011, management also plans to pay an annual dividend of 6 yen
per share (including an interim dividend of three yen).
(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 andcomponents for manufacturing the products from outside business entities. Therefore,
fluctuations in the prices of these materials could affect the Group’s business performance.

7iv) 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.

v) Risks related to credit risks in business partners
The Kyokuto Kaihatsu Kogyo Group transacts with various domestic and overseas business
partners. The realization of bad debt risks, including credit insecurity in those business
partners, could cause losses and require allowances, affecting the Group business performanceand financial standing.

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
Despite the continued sluggish domestic demands for ordinary trucks, management aims toachieve sales of 67,000 million yen or more and operating income of 3,000 million yen or moreon consolidated basis for the year ending March 2013.
(3) MidMid-toto-Long Term Management Strategy and Major Challenges
With the truck market significantly shrinking, public works decreasing and the construction market
plummeting, etc., management expects the industries related to the Company’s business to continue toface extremely difficult business conditions.
Under such a circumstance, the Company will aggressively promote Group-wide efforts in tackling various
issues by establishing a mid-term management plan, “Plan 2010” (from April 1, 2010 through March 31,2013), to thoroughly revamp its business organization and form a robust corporate structure that cansecure earnings even in a harsh business condition like today, and to realize improved businessperformance.
“Plan 2010” is summarized as follows.
Basic Policies(1) As for the specialty truck business, we will change our business constitution to one
where profit can be ensured even if domestic demands for medium and heavy-duty
trucks remain stagnant. We will also establish new overseas manufacturing sites
additionally to those in China and India to ensure continued development.
(2) As for the environmental equipment and systems business and car-parking business,
we will promote establishment of technology partnerships and licensing of ourtechnologies with overseas companies additionally to ensuring domestic orders andprofits.
(3) We will promote product development based on the keywords of “environment”,“safety”, and “global”.
(4) We will try to compete in new business areas regardless of the current Group businesscategories.
(5) We will promote mobilization of assets possessed by the Kyokuto Kaihatsu Group to
streamline our capital asset management.

9

Key Strategies(1) Specialty
Specialty Truck Segment

Challenge:
heavy--duty
Ensuring profit even if domestic demands for medium and heavy
trucks remain stagnant
As the overall domestic market for medium and heavy-duty trucks remain at the level
reduced by 80% from its peak level, we will aim to change our business constitution to one
where profit can be ensured even if the market remains stagnant by rigorously
re-organizing the domestic manufacturing structure, streamlining the manufacturingsystem, reducing cost, expanding overseas procurement, and increasing market share.

Challenge:
Establishing new overseas manufacturing sites to ensure businessdevelopment
We will actively promote technology partnerships and the establishment of overseas
manufacturing sites in the ASEAN region, which we deem as the next key area following
China and India.
We will invest our management resources mainly into overseas businesses where future
demands are expected, and will also enforce the alignment between the domestic andoverseas sites within the Group.

Challenge:
Challenge:

Enhancing the development of new products based on the keywords of“environment”, “safety”, and “global”

We will actively work upon product development and sales promotion based on the
keywords of “environment”, “safety”, and “global”. We will expand sales for our new rangeof products such as the electrical garbage collection trucks “e Packers” whose equipment isdriven electrically, and electrical concrete boom pump trucks “twin-drive PISTONCRETES”, etc. We will also work actively upon developing new products which match theneeds of the overseas markets as we enforce our businesses in these overseas markets, too.
(2) Environmental Equipment and Systems Segment

Challenge:

Selecting profitable orders and focusing on maintenance/outsourced
operation businesses

We will focus on being selective for when receiving orders for the construction of newplants by being conscious of the expected profit and loss for each case in the domestic
plants market which has been struggling under a severe business environment, and on the
PFI businesses which is expected to become highly popular in the coming years,
additionally to actively working upon maintenance business and outsourced plant
operation business where stable profit can be expected. We will also work upon procuringcomponents from overseas market, etc. to reduce the cost and to expand the profit.

Challenge:

Actively expanding the knowknow-how for the environmental businesses tooverseas markets

We will promote licensing business of our technologies regarding crushers, RDFsystem,
and recycling centers, etc. to potential overseas markets such as those in the Asian
countries. We will aim to contribute to the promotion of environmental programs in eachcountry, and to enforce the environmental equipment and systems business provided by
the Group.

10(3) Real Estate and Rental Segment

Challenge:

Expanding our carcar-parking business

As for the car-parking business, we will focus on renovation business where a new market
is expected to emerge, and will also enforce our product line-up by releasing new products.
(4) New businesses

Challenge:

Competing in new business areas

We will aim to compete in new business areas, not only into those where synergy effect canbe expected with the existing businesses that are already implemented by the Group, but
into totally new business areas regardless of the current Group business categories bypromoting active alliances. This will enable us to ensure new source of earnings in the
future and to establish an even more robust business basis.
(4) Other Important Matters Concerning Management
There are no other pertinent matters.

11

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

2010

2009

2010

Current assets：
assets：Cash and deposits

\

5,723

\

5,893

$

61,508

Short-term securities

5,345

4,442

57,444

Trade notes and accounts receivable

20,50325,777220,370

144

122

1,547

Work in process

1,821

2,362

19,573

Raw materials & supplies

6,329

9,156

68,030

789

762

8,481

Deferred tax assets (Note 15)

979

1,235

10,519Allowance for doubtful accounts

(207)

(545)

(2,224)

Total current assets

41,42649,204445,248

Land (Note 5)

19,20017,966206,360

Buildings and structures (Note 5)30,151

29,188324,069

Machinery, equipment and vehicles

12,85013,239138,116

38

578

409

3,848
66,087

3,162
64,13341,354710,308(30,006)(28,990)(322,508)

36,08135,143387,800

392

430

4,214

Investment securities (Notes 3 & 5)
Deferred tax assets (Note 15)

4,100

3,871

44,0641,022

129

10,985

Other assets

3,931

2,451

42,257

Allowance for doubtful accounts

Merchandise & finished goods

Other current assets

Property,
Property, plant and equipment：
equipment： (Note 11)

Construction in progress
Other
Total
Accumulated depreciation
Net property,
property, plant and equipment
Intangible assets
Investments and other assets：
assets：(1,654)(229)(17,779)

Total investments and other assets

7,399

6,222

79,527

Total

85,29890,999916,789

The accompanying notes are an integral part of these statements.

12

ＣＯＮＳＯＬＩＤＡＴＥＤ ＢＡＬＡＮＣＥ ＳＨＥＥＴＳ

Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
LIABILITIES AND SHAREHOLDERS' EQUITY

2010

2009

2010

Current liabilities：
liabilities：
Short-term bank loans (Notes 4 & 5)
Current portion of bonds payable (Note 4)

\

2,620
494

\

5,620
200

$

28,1605,310

Current portion of long-term bank loans (Notes 4 & 5)

1,235

1,328

13,272

Trade notes and accounts payable

11,171

12,231

120,070

Acrrued Expenses

2,015

2,156

21,658

Income taxes payable

245

276

2,633

Other current liabilities

2,078

2,100

22,333

19,85823,911

213,436

Total current liabilities

NonNon-current liabilities：
liabilities：
Bonds payable (Note 4)

1,629

800

17,509Long-term bank loans (Notes 4 & 5)

1,757

1,536

18,880Liabilities for retirement benefits(Note 6)

2,404

2,316

25,840Liabilities for directors' retirement benefits

115

109

1,234

1,511

1,599

16,239Deferred tax liabilities (Note 15)
Other non-current liabilities (Notes 4 & 5)
Total non-current liabilities

5,665

5,997

60,892

13,081

12,357140,594

Shareholders' Equity
Common stock, (Note 13)
Authorized ― 170,950,672 shares
11,90011,900127,901

Capital surplus

Issued ― 42,737,668 shares in 2009 and 2010

11,71911,719125,953

Retained earnings

30,61033,356

329,000(2,145)(2,145)(23,055)

294

22

3,160

Treasury stock, at cost
3,004,287 shares in 2009 and 3,004,758 shares in 2010
Unrealized gain on available-for-sale securities

(19)

(121)

(200)

Total shareholders' equity

52,35954,731

562,759

Total

85,29890,999916,789

Foreign currency translation adjustments

The accompanying notes are an integral part of these statements.

13

ＣＯＮＳＯＬＩＤＡＴＥＤ ＳＴＡＴＥＭＥＮＴＳ ＯＦ ＩＮＣＯＭＥ
Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2010
Net sales\

Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income (loss)

2009

54,071\

2010

72,117$581,161

45,40060,574

487,964

8,671

11,54393,197

11,243

11,069120,836(2,572)474(27,639)

75

122

806
(1,875)

Other income (expenses):
Interest and dividend income

(174)

(193)

Gain (loss) on disposition of property and equipment

7

6

70

Loss on impairment of long-lived assets
Gain (loss) on sales of securities

(3)
0

(758)
(45)

(35)
0

Write-down of investment securities

(186)

(754)

(1,996)

Other-net

(99)

(157)

(1,059)Other income(expenses)-net(380)(1,779)(4,089)

Income (loss) before income taxes
Income taxes (Note 15)(2,952)(1,305)(31,728)

Interest expense

Current

386

504

4,144

Deferred

(910)

(758)

(9,779)(524)(2,428)(254)(1,051)(5,635)(26,093)

Yen

U.S. dollars

Total income taxes
Net income (loss)

2010

2009

2010

Amounts per share
Basic net income (loss)
Diluted net income (loss)
Cash dividends, applicable to earnings of the year
The accompanying notes are an integral part of these statements.

\(61.10)-\(26.24)
-

8.00

10.00

$

(0.66)
0.09

14

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Millions of yen

Commonstock
Balance, March 31,2008
Purchase of treasury stock
Disposal of treasury stock\

CapitalsurplusRetainedearnings

Unrealized
gain onForeignavailablecurrency
for-saletranslation
securities adjustments

Treasurystock

Total equity

11,900 \-11,719 \-34,814 \
(0)

524 \
-

246 \
-

(1,069) \(1,077)
1

58,134(1,077)1--(1,051)---(1,051)

Cash dividends paid
Net Changes in the year

-

-

(407)
-

(502)

(367)

-

(407)
(869)

Balance, March 31,2009

54,731

Net ｉｎｃｏｍｅ (loss)
loss)
Ａｐｐｒｏｐｒｉａｔｉｏｎ

11,90011,71933,35622(121)(2,145)Purchase of treasury stock

-

-

-

-

-

(0)

(0)

Disposal of treasury stock

-

-

(0)

-

-

0

(0)

Ｎｅｔ ｉｎｃｏｍｅ (loss)
loss)

-

-

(2,428)---(2,428)(318)

Ａｐｐｒｏｐｒｉａｔｉｏｎ
Cash dividends paid

-

-

(318)

-

-

-

Net Changes in the year

-

-

-

272

102

-

374

Balance, March 31,2010

11,90011,71930,610294(19)(2,145)52,359Thousands of U.S.dollars(Note 1)

Balance, March 31,2009
Purchase of treasury stock
Disposal of treasury stock$

Unrealized
gain onForeignavailablecurrency
for-saletranslation
securities adjustments

Commonstock

CapitalsurplusRetainedearnings

Treasurystock

127,901 $-125,953 $-358,510 $
(0)

238 $
-

(1,294) $
-

-

-

-

(26,093)(3,417)(23,053) $(2)
0

Total equity
588,255(2)(0)

Ｎｅｔ ｉｎｃｏｍｅ (loss)
loss)

-

-

(26,093)

Ａｐｐｒｏｐｒｉａｔｉｏｎ
Cash dividends paid--

(3,417)---

Net Changes in the year

-

-

-

2,922

1,094

-

4,016

Balance, March 31,2010

127,901

125,953

329,000

3,160

(200)

(23,055)

562,759

The accompanying notes are an integral part of these statements.

15

CONSOLIDATED STATEMENTS OF CASH FLOWSＭｉｌｌｉｏｎｓ of ｙｅｎ
2 01 0Thousands of
U.S. dollars(Note 1)

2009

20 10

O pe rating activities ：Income (loss) before income taxes¥(2 ,9 5 2)¥

(1,305)$( 31 ,7 28 )Adjustments for:
Depreciation and amortization

2 ,0 0 6

2,030

21 ,5 60

193

754

2 ,0 73

Loss on impairment of long-lived assets

3

758

35

Net loss (gains) on sales of securities

0

45

(0 )

Net loss (gains) on sales of property

50

48

5 40

Interest and dividend income( 7 5)(122)( 8 06 )Interest expenses

174

193

1 ,8 75

Decrease (increase) in trade notes and accounts receivable

3 ,7 1 7

13,29039 ,9 52

Decrease (increase) in inventories

3 ,3 6 2(2,226)36 ,1 36

Increase (decrease) in trade notes and accounts payable(4 9 4)(8,127)(5 ,3 06 )Increase (decrease) in liabilities for retirement benefits

88

(107)

9 46

Increase (decrease) in consumption taxes payable

157

(50)

1 ,6 87( 6 8)
6 ,1 6 1(1,663)3,518( 7 50 )66 ,2 14

Write-down of investment securities and investments

Other, net
Sub totalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities

74

120

7 99

(1 5 5)(172)(1 ,6 65 )(3 2 1)(1,103)(3 ,4 50 )

5 ,7 5 9

2,363

61 ,8 98

Investing ac tivitie s ：Purchases of securities and investments( 1 6)(261)( 1 77 )Proceeds from sales of securities and investments

62

279

6 69

Proceeds from time deposit

-

5

-

(2 ,7 5 6)

(1,218)( 29 ,6 21 )Purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment

15

7

1 61

Disbursement of loan receivables

( 8)

(27)

( 81 )

Collection of loan receivables

7

24

78

(2 ,6 9 6)

(1,191)( 28 ,9 71 )Net cash used in investing activities
Fin an cin g ac tivitie s ：Net increase (decrease) in short-term bank loans(3 ,0 0 0)890

( 32 ,2 44 )Proceeds from long-term bank loans

1 ,4 8 8

1,783

15 ,9 93

Repayment of long-term bank loans(1 ,3 6 1)

(1,274)( 14 ,6 25 )Proceeds from issuance of bonds

1 ,4 7 0

1,000

15 ,8 00

Payment for redemption of bonds(3 4 7)-(3 ,7 30 )Payment of finance lease obligations(2 8 5)(11)(3 ,0 72 )Purchases of treasury stock( 0)(1,077)(2 )Proceeds from sales of treasury stock

0

0

0

(3 1 8)(406)(3 ,4 12 )(2 ,3 5 3)905

( 25 ,2 92 )Dividends paid
Net cash provided by (used in) financing activities
Fore ign cu rren cy tran slation adjustme nts o n c ash
an d c ash equivale n ts

23

68

2 37

Ne t inc rease in c ash an d cash e qu ivale nts

733

2,145

7 ,8 72

10 ,3 3 58,187

1 11 ,0 80

Cash and cash e qu ivale nts at be gin n ing o f ye ar
Inc rease in c ash an d cash e qu ivale nts by co nsolidatio no f su bsidiaries previou sly un co n so lidate d

-

3

-

Cash and cash e qu ivale nts at en d o f year

11 ,0 6 8

10,335

1 18 ,9 52

16

１．Basis of Presenting Consolidated Financial Statements
The financial statements of Kyokuto Kaihatsu Kogyo Co., Ltd. (the “Company”) and its
domestic subsidiaries 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 application and disclosure requirements ofInternational Financial Reporting Standards.
Effective from the year ended March 31, 2009, the Company adopted the “Practical
Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for
Consolidated Financial Statements” (PITF No. 18) and as a result, the accounts ofconsolidated overseas subsidiaries are prepared in accordance with International
Financial Reporting Standards, with adjustments for the specified six items as applicable.
In preparing the accompanying consolidated financial statements, certain
reclassifications 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.
In addition, the notes to consolidated financial statements include additional information
which is not required under generally accepted accounting principles and practices inJapan.
The financial statements presented herein are expressed in Japanese yen and, solely forthe convenience of the reader, have been translated into United States dollars at the rateof ¥93.04=US$1, the approximate exchange rate on March 31, 2010. These translations
should not be construed as representations that the Japanese yen amounts actually are,have been 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 significant
subsidiaries and affiliated companies accounted for by the equity method.
All significant inter-company balances and transactions have been eliminated in consolidation.
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 atfair value. The goodwill or negative goodwill is amortized on a straight-line basis over five years.
However, insignificant goodwill or negative goodwill is charged to income when incurred.

17(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 of the date of acquisition.
(c) ShortShort-term Securities and Investment Securities
The Company and its subsidiaries (the “Group”) classify their securities as
held-to-maturity debt securities or available-for-sale securities, depending on
management are holding 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
and losses, net of applicable taxes, reported in a separate component of shareholders’equity. The cost of available-for-sale securities sold is determined based on the moving
average method.
None-marketable available-for-sale securities are stated at cost determined by themoving-average method.
For significant impairment in value that is judged unrecoverable, carrying amounts of
securities are reduced to fair value, with a resulting charge to income.
(d) Inventories
Merchandises are stated at cost or, if lower, the net realizable value, cost being determined by
the specific identification method.
Raw materials, finished goods and 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.

(e) Depreciation
Depreciation is principally computed on the declining-balance method, based by the estimateduseful lives of assets, while buildings are depreciated on a straight-line basis. The useful lives ofbuildings and structures, and machinery, equipment and vehicles are principally from 7 to 60
years and 4 to 17 years, respectively.
Amortization of intangible assets is computed by the straight-line method.

18(f) Liabilities for Retirement Benefits
The Company provides for the liability for employees’ retirement benefits based on projected
benefit obligations and plan assets at the balance sheet date. Certain subsidiaries provide forthe liability for employees’ severance payments based on amounts which would be required tobe paid if all eligible employees voluntarily terminated their employment at the balance sheet
date.

Change in Accounting Policy
Effective from the year ended March 31, 2010, the Company and its domestic consolidated
subsidiaries have adopted “Revision (No.3) of Accounting Standard for Accrued Retirement
Benefits” (Accounting Standard Board of Japan (ASBJ) Statement No.19 issued on July 31,2008).
There is no impact on profit and loss as a result of the adoption of this accounting standard.

(g) Allowance for Doubtful Accounts
The allowance for doubtful accounts is stated in amounts considered to be appropriate based on
the companies’ past credit loss experience and an evaluation of potential losses in thereceivables outstanding.
(h) Revenue Recognition
Revenues from construction contracts and the related costs of the Company are recorded
under the percentage-of-completion method, if the outcome of the construction activity isdeemed certain during the course of the activity. Otherwise, the completed-contract method isapplied if the outcome is deemed uncertain.
Change in Accounting Policy
Effective from the year ended March 31, 2010, the Company and its domestic consolidated
subsidiaries have adopted the “Accounting Standard for Construction Contacts” (ASBJ
Statement No.15, issued on December 27, 2007) and “Guidance for the Application of
Accounting Standard for Construction Contracts” ‘ASBJ Guidance No.18, issued on December
27, 2007).
There is no impact on profit and loss as a result of the adoption of this accounting standard.
(i) Leases
The Company and its domestic consolidated subsidiaries capitalize their assets used underfinance leases, except for certain immaterial or short-term finance leases accounted for as
operating leases. As permitted, finance leases which commenced prior to April 1, 2008 and havebeen accounted for as operating leases, continue to be accounted for as operating leases, withthe disclosure of certain “as if capitalized” information.

19

Such capitalized lease assets are depreciated by straight-line method over the lease period as
the useful life and assuming no residual value.
(j) 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
amount and tax bases of assets and liabilities, and operating loss carry-forwards.
(k) Derivatives
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 usedas hedges and meet certain hedging criteria, the Group defers recognition of gain or loss
resulting from a change in the market value of the derivative financial instrument until the
related gain or loss on the hedged item is recognized.
Accounts payable hedged by foreign exchange contracts which meet certain conditions aretranslated at their contracted rates. Interest-rate swaps which meet certain conditions areaccounted for as if the interest rate applied to the swaps had originally applied to theunderlying debt.
(l)

Per Share Information

The computations of basic net income per share are based on net income available tocommon stockholders and the weighted average number of shares of common stock
outstanding during each period. The average numbers of shares used in the computations
were 39,733 thousand shares for 2010 and 40,084 thousand shares for 2009.
Diluted net income per share is not disclosed because the Company had no potentiallydilutive shares outstanding as of these balance sheet dates.
Cash dividends per share shown in the statements of income are the amounts applicableto the respective years.

20

３．Securities
The following is a summary of available-for-sale securities at March 31, 2010 and 2009:
Millions of yen

March 31, 2010
Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Cost

¥ 2,948116¥ 3,064

Available-for-sale securities
Gross
Gross
unrealiunreali
zed
zed
gains
losses

¥ 800
－
¥ 800

¥
¥

(295)
(9)
(304)

Book Value(Estimatedfair value)¥ 3,453107¥ 3,560540¥ 4,100

Millions of yen

March 31, 2009Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Cost

¥ 2,735
198¥ 2,933

Available-for-sale securities
Gross
Gross
unrealiunreali
zed
zed
gains
losses

¥ 419
0
¥ 419

¥
¥

(320)
(11)
(331)

Book Value(Estimatedfair value)¥ 2,834187¥ 3,021850¥ 3,871

Thousands of U.S. dollars

March 31, 2010
Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Cost

$ 31,685
1,247$ 32,932

Available-for-sale securities
Gross
Gross
unrealiunreali
zed
zed
gains
losses$ 8,608－$ 8,608$ (3,171)(97)$ (3,268)

Book Value(Estimatedfair value)$ 37,122
1,150$ 38,272
5,792$ 44,064

21

４．ShortShort-term Bank Loans and Longong-term Debts
The annual average interest rates applicable to short-term bank loans at March 31, 2010, and2009 are 0.75％ and 1.08％ respectively.
Long-terms debt at March 31, 2010 and 2009 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Bonds
Long-term bank loans
Lease obligation
Other
Total

2010
¥ 2,1232009¥ 1,0002010$ 22,819

2,992
566
2,647
¥ 8,328

2,864
100
2,860
¥ 6,824

32,152
6,083
28,450$ 89,504

Aggregate annual maturities of long-term debts subsequent to March 31, 2010 were as
follows:
Year ending March 31
2011
2012
2013
2014
2015 and thereafter
Total

Thousands of
U.S. dollars

Millions of yen

¥

¥

2,201
1,753
1,361
948
2,065
8,328

$ 23,654
18,843
14,624
10,192
22,192$ 89,505

The Company renewed an agreement with a syndicate of 6 banks to set up a commitment line
by multiple finance institutions. The unexecuted balance of lending commitments at thecompany as of March 31, 2010, and 2009 were as follows;

Millions of yen

Total lending commitments
Less amounts currently executed
Unexecuted balance

Thousands of
U.S. dollars

2010

2009

2010

¥ 5,000－¥ 5,000¥ 5,000
2,000¥ 3,000$ 53,740－$ 53,740

22

５．Pledged Assets
The following assets were pledged as collateral as of March 31, 2010 and 2009.
Thousands of
U.S. dollars

Millions of yen

Land
Buildings
Investment securities
Total

2010

2009

2010

¥ 5,754
3,896－¥ 9,650¥ 5,754
4,135
42¥ 9,931$ 61,844
41,874－$ 103,718

Obligation with collateral pledged as of March 31, 2010 and 2009 were as follows;

Millions of yen

2010

Thousands of
U.S. dollars

2009

2010

Short-term bank loans
Current portion of long-termbank loans

¥

1,048

1,207

11,264Long-term bank loans
Other

1,165
3,671
¥ 5,984

1,056
3,913
¥ 6,316

12,52139,456$ 64,316

Total

100

¥

140

$

1,075

6．Liabilities for Retirement Benefits
The following table sets forth the changes in benefit obligation, plan assets and funded status of
the Group at March 31, 2010 and 2009.

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
Liabilities for Retirement Benefits

Millions of yen

Thousands of
U.S. dollars

2010¥ 6,555
3,447

2009¥ 6,675
3,113

2010$ 70,453
37,052

3,108
59
(763)

3,562
79
(1,325)33,401642(8,203)¥ 2,404¥ 2,316$ 25,840

Note: Some domestic subsidiaries have adopted allowed alternative treatment of theaccounting standards for retirement benefit for small business entity.

23

Severance and pension costs of the Group included the following components for the year
ended March 31, 2010 and 2009.

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

Millions of yen

Thousands of
U.S. dollars

2010
¥ 345
132
( 62)

2009
¥ 359
140
( 80)

2010
$ 3,7111,419( 666)

( 20)
300
22
¥ 717

( 19)
157
─
¥ 557

( 214)
3,228
234$ 7,712

Assumption used in the accounting for the defined benefit plans for the year ended March
31, 2010 and 2009 was as follows:
2009
2010
straight –line basis straight –line basis
Method of attributing benefit to periods of service
Discount rate
2.0 %
2.0 %
Long-term rate of return on plan assets
2.0 %
2.0 %
Amortization period for prior service cost
10 years
10 years
Amortization period for actuarial losses
10 years
10 years

7．Contingencies
At March 31, 2010 and 2009, the Group was contingently liable as follows:

As a guarantor of indebtedness of :Affiliated companies
OthersMillions of yen

Thousands of
U.S. dollars

2010

2009

2010

¥ 4,27655¥ 4,331¥ 4,559
71¥ 4,630$ 45,959
586$ 46,545

8．Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2010 and 2009 were as follows:

Cash and deposits
Short-term investment
Cash and Cash Equivalents

Millions of yen

Thousands of
U.S. dollars

2010¥ 5,7232009¥ 5,8932010$ 61,508

5,345

4,442

57,444¥ 11,068¥ 10,335$ 118,952

24

9．Leases
The Group leases certain machinery and equipment, and other assets. Total lease
payments under these leases were ¥ 285 million ($ 3,067 thousand), and ¥ 418 million forthe years ended March 31, 2010 and 2009, 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, 2010 and 2009, were as follows:
Millions of yen

March 31, 2010
Acquisition costs
Accumulated Depreciation
Net leased property

MachineryandEquipment
¥ 900
630
¥ 270

March 31, 2009
Acquisition costs
Accumulated Depreciation
Net leased property

MachineryandEquipment¥ 1,107622¥
485

March 31, 2010
Acquisition costs
Accumulated Depreciation
Net leased property

MachineryandEquipment$ 9,673
6,772$ 2,901

Other
¥
274
192
¥
82

Total
¥ 1,174822¥ 352

Millions of yen

Other
¥
384
232
¥
152

Total
¥ 1,491854¥ 637
Thousands of U.S. dollars

Other$ 2,941
2,062
$ 879

Total
$ 12,614
8,834$ 3,780

Future minimum lease payments under finance leases as of March 31, 2010 and 2009were as follows:

Due within one year
Due after one year
Total

2010
¥ 232
120
¥ 352

Millions of yen

Thousands of
U.S. dollars

2009
¥ 285
352
¥ 637

2010
$ 2,492
1,288$ 3,780

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 of25

income, computed by the straight-line method, would have been ¥ 285 million ($3,067
thousand) for the year ended March 31, 2010.

10．
10．Financial Instruments and Related Disclosures
On March 10, 2008, the ASBJ revised ASBJ Statement No.10 “Accounting Standard for
Financial Instruments” and issued ASBJ Guidance No.19 “Guidance on Accounting Standard
for Financial Instruments and Related Disclosure”.
Effective from the year ended March 31, 2010, the Company applied the revised accounting
standard and the new guidance.
(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, not for speculative nor trading purpose, but to hedge theexposure to interest rate risks associated with certain interest payments on
borrowings.
(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 operatingreceivables from customers.
Available-for-sale securities, mainly equity instruments of the Group’s customers, areexposed to market risk.
The Group periodically monitors the fair value of such securities, which is reported at
the board meeting.
Trade notes and accounts payable have payment due dates mainly within one year.
Trade notes and accounts payable dominated in foreign currencies are exposed to themarket 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 Note12 “Derivatives”), and also the Group enters into derivativetransactions only with financially stable financial institutions to reduce institutions’26

credit risk.
Based on a report from the Company and consolidated subsidiaries, the Groupprepares and updates its cash flow plans on a monthly basis to manage liquidity risk.
(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.
Summarized in the table below are the carrying amounts and the estimated fair value offinancial instruments outstanding at March 31, 2010. Financial instruments for which it
is extremely difficult to determine the fair value are not included in the table below.

Millions of yen
March 31, 2010
Cash and deposits
Trade notes and accounts receivable
Short-term securities
Investment securities
Trade notes and accounts payable
Short-term bank loans
Long-term bank loans
Bonds payable
Long-term deposits
Derivatives

Carrying
Account¥ 5,723
20,296
5,345
3,560(11,171)(2,620)(2,992)(2,123)(2,666)
─Fair value¥ 5,723
20,296
5,345
3,560(11,171)(2,620)(2,996)(2,141)(2,777)
─Unrecognized
gain/loss
─
─
─
─
─
─
(4)
(18)
(111)
─

Thousands of U.S. dollars

March 31, 2010
Cash and deposits
Trade notes and accounts receivable
Short-term securities
Investment securities
Trade notes and accounts payable
Short-term bank loans
Long-term bank loans
Bonds payable
Long-term deposits
Derivatives

Carrying
Account$ 61,508
218,146
57,444
38,272(120,070)(28,160)(32,152)(22,819)(28,650)
─Fair value$ 61,508
218,146
57,444
38,272(120,070)(28,160)(32,191)(23,009)(29,849)
─Unrecognized
gain/loss
─
─
─
─
─
─
(39)
(190)
(1,199)─Note: Methods to determine the estimated fair value of financial instruments and othermatters related to securities and derivative transactions(a) “Cash and deposits”, “ Trade notes and accounts receivable” and “Short-term

27

securities”
These are settled in a short period of time, therefore their carrying amounts approximate
fair value.
(b) “Investment Securities”
The fair values of marketable securities are based on quoted market prices.
The fair values of debt securities are based on quotes provided by the financial
institutions. For information on securities classifies by holding purpose, please refer toNote 3 “Securities”.
(c)“Trade notes and accounts payable” and “Short-term bank loans”
These are settled in a short period of time, therefore their carrying amounts approximate
fair value.
(d) “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 the interest rate that would be applied if similar newloans were entered into.
(e) “Bonds payable”
The fair value of bonds payable is estimated based on present value of the total ofprincipal and interest discounted by the interest assumed based on debt’s maturity andcredit risk.
(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 the interest, if possibly, assumed based on debt’s
maturity and credit risk.
(g) “Derivatives”
Please refer to Note 12 “Derivatives”.
Financial instruments for which it is extremely difficult to determine the fair value atMarch 31, 2010 consist of the following:

March 31, 2010
Non-listed equity securities
Long-term deposit

Millions of yen

¥

540
1,014

Thousands of
U.S. dollars

$

5,792
10,898

28

The annual maturities of financial assets and investment securities with contractual
maturities subsequent to March 31, 2010 were as follows;
Millions of yen

March 31, 2010
Cash and deposits
Trade notes and accounts receivable
Short-term Securities
Investment securities
Total

Due inone yearor less¥ 5,723
20,5035,345
─
¥ 31,571

Thousands of
U.S. dollars

Due inone yearor less$ 61,508
220,370
57,444─$ 339,322

11．Investment Property
On November 28, 2008, the ASBJ issued ASBJ Statement No.20 “Disclosures about Fair Valueof Investment and Rental Property” and ASBJ Guidance No.23 “Disclosures about Fair Value ofInvestment and Rental Property”.
Effective from the year ended March 31, 2010, the Company applied the new accounting
standard and the new guidance.
The Company and certain subsidiaries hold rental properties included land in Tokyo and otherareas (“investment properties”). For the year ended March 31, 2010, the amounts of net income
related to investment properties (rental income is recognized in operating revenue, and rental
expense is principally charged to operating expenses) and loss on impairment of investment
properties were ¥ 596 million ($ 6,406 thousand) and ¥ 3 million ($ 35 thousand).
The carrying amounts, changes in such balances and market prices of investment properties
were as follows;

Millions of yen

Carrying amount
Increase/
April 1, 2009
(decrease)¥ 9,070¥ (13)

Fair value
March 31, 2010
¥ 9,057

March 31, 2010
¥ 12,515

Thousands of U.S. dollars

Carrying amount
Increase/
April 1, 2009
(decrease)$ 97,482$ (142)

Fair value
March 31, 2010
$ 97,340

March 31, 2010
$ 134,516

29

Notes:(1) Carrying amount is net of accumulated depreciation and accumulated impairment losses, ifany.
(2) Increase was principally attributed to the Company’s policy change (¥ 221 million, $ 2,375
thousand), and decrease was mainly attributed to depreciation expenses (¥ 241 million,$ 2,590 thousand).
(3) Fair value at March 31, 2010 is principally measured based on the real-estate appraisal
assessed by the external real-estate appraiser.
12．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.
The notional amounts and the estimated fair value of derivative financial instruments, forwhich deferred hedged accounting has been applied were as follows;
Millions of yen

March 31, 2010
Interest rate swap;(fixed rate payment,
Floating rate receipt)

Hedgeditem

Contract
AmountContract
Amountdue after
One yearLong-term
Debt

¥872

¥233

HedgedItem

Contract
AmountContract
Amountdue after
One year

Fair
Value

Long-term
Debt$9,372¥2,504

Note

Fair
Value
Note

Thousands of U.S. Dollars

March 31, 2010
Interest rate swap;(fixed rate payment,
Floating rate receipt)

Fair value of swap contract assigned for Long-term debt is included in the fair value ofLong-term debt disclosed at Note 10 “Financial Instruments and Related Disclosures”.

30

13．
13．Shareholders’Shareholders’ Equity
Changes in common stock and additional paid-in capital have resulted from thefollowing:
Millions of yen
CommonStockCapitalSurplus42,737,668

11,90011,719－－－42,737,668

11,90011,719－－－42,737,668

11,90011,719Number of
SharesBalance of March 31, 2008
Retirement of stock during 2009
Balance of March 31, 2009Retirement of stock during 2010
Balance of March 31, 2010

Thousands of U.S. dollars

Balance of March31, 2009Retirement of stock during 2010
Balance of March31, 2010

CommonStockCapitalsurplus127,901

125,953－－

127,901

125,953

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.

14．Research and Development
Research and development expenditure charged to expenses was ¥ 1,074 million ($ 11,540
thousand) and ¥ 1,024 million for the years ended March 31, 2010 and 2009, respectively.

31

15．Income Taxes
Taxes
The 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% for the years ended
March 31, 2010 and 2009. Foreign subsidiaries are subject to income taxes of the countries inwhich they operate.
The reconciliation between the statutory tax rate and the effective income tax rate is notdisclosed because the Group posted net loss both in 2010 and 2009.
The tax effects of significant temporary differences which resulted in deferred tax assets andliabilities at March 31, 2010 and 2009 were as follows:
Millions of yen

Thousands of
U.S. dollars

2009

2010

421

$ 3,935

950
592

926
612

10,208
6,359

303

302

3,253

710
1,975
766
5,662
(1,817)
3,845

284
794
799
4,138
(1,171)
2,967

7,631
21,2238,246
60,855(19,529)
41,326(1,653)(1,678)(17,762)

(200)

(18)

(2,155)2010
Deferred tax assets:
Accrued expenses
Liabilities for retirement benefits
Depreciation
Fixed assets – elimination ofintercompany profits
Allowance for doubtful accounts
Net operating loss carry-forwards
Other
Total
Less valuation allowance
Net deferred tax assets

¥

366

¥

Deferred tax liabilities:
Deferred gain on sales of fixed assets forincome tax purposes
Unrealized gains of investment securities
Unrealized gains of subsidiaries’ fixed
assets by revaluation at the beginningof consolidation
Total(1,502)(1,506)(16,144)(3,355)(3,202)(36,061)

Net deferred tax assets (liabilities)¥¥ (235)$ 5,265490

32

16．Segment Information
Information about operations in different industry segments of the Group for the years ended
March 31, 2010 and 2009 were as follows:
Industry Segmentsa.

Sales and Operating Income
Millions of yen

2010
Sales tocustomers

Elimination/
Corporate

Consolidated－¥ 54,071

457

(458)

－

8,312

5,953

(458)

54,071

44,914

7,059

5,132

(462)

56,643¥ (4,650)¥ 1,253¥ 821

4¥ (2,572)

Industry A

Industry B

Industry C¥ 40,263¥ 8,312¥ 5,496

Intersegment

10

Total sales
Operatingexpenses
Operatingincome (loss)

40,264¥¥

Millions of yen

2009
Sales tocustomers

Elimination/
Corporate

Consolidated－¥ 72,117

Industry A

Industry B

Industry C¥ 57,440¥ 9,202¥ 5,475

Intersegment

0

0

582

(582)

－

Total sales
Operatingexpenses
Operatingincome (loss)

57,440

9,202

6,057

(582)

72,11757,751

9,197

5,283

(588)

71,643

5

¥ 774

2010
Sales tocustomers¥ (311)¥

Industry A

Industry B

Industry C$ 432,746$ 89,344$ 59,071

Intersegment

10

1

Total sales
Operatingexpenses
Operatingincome (loss)

432,756

¥

¥

6

¥

474

Thousands of U.S. dollars
Elimination/
Corporate
Consolidated－$ 581,161

4,913(4,924)－

89,34563,984(4,924)581,161

482,742

75,87355,157(4,972)608,800$ (49,986)$ 13,472$ 8,82748$ (27,639)

$

$

33

b.

Assets, Depreciation and Capital Expenditures
Millions of yen

2010
AssetsDepreciation
Capitalexpenditure

Industry A

Industry B

Industry C¥54,761¥ 4,263¥11,914

1,503

99

2,512

209

Elimination/
Corporate

Consolidated¥ 85,298

309¥ 14,360
－

83

－

2,804

1,911

Millions of yen

2009
2009
AssetsDepreciation
Capitalexpenditure

Industry A

Industry B

Industry C¥60,985¥ 6,457¥10,243

1,489

79

1,741

61

Elimination/
Corporate

Consolidated¥ 90,999

367¥ 13,314
－

96

－

1,898

1,935

Thousands of U.S. dollars

2010
2010
AssetsDepreciation
Capitalexpenditure

Industry A

Industry B

Industry C

Elimination/
Corporate

Consolidated$588,572
16,155$ 45,815
1,068$ 128,050
3,323$154,352－$916,789
20,54626,995

2,251

888

－

30,134

Notes: Industry A consists of specialty truck.
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 inand advances to affiliates, investments in securities and the corporate
headquarters assets.
17．Subsequent Event
The following appropriations of the Company’s retained earnings in respect of the year
ended March 31, 2010 were as proposed by the Board of Directors and approved by theshareholders at the annual general meeting held on June 25, 2010.

Appropriations
Cash dividends (¥ 3 per share)

Millions of yen

Thousands of
U.S. dollars¥$ 1,279

119

34

INDEPENDENT AUDITORS’AUDITORS ’ REPORTTo the Shareholders andBoard of Directors of
Kyokuto Kaihatsu Kogyo Co., Ltd.
We have audited the accompanying consolidated balance sheets of Kyokuto Kaihatsu Co.,
Ltd. and its consolidated subsidiaries (the “Company”) as of March 31, 2009 and 2010, andthe related consolidated statements of income, changes in shareholders’ equity and cash
flows for each of the years then ended in the two-year period ended March 31, 2010. These
consolidated financial statements are the responsibility of the Company’s management.
Our responsibility is to independently 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 allmaterial respects, the consolidated financial position of Kyokuto Kaihatsu Kogyo Co., Ltd.
and its consolidated subsidiaries as of March 31, 2009 and 2010, and the consolidated
results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.
The accompanying consolidated financial statements as of and for the year ended March 31,
2010 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 Corporation

Osaka, Japan
June 15, 2010

35

CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co., Ltd.
Established: June,1955
Paid-in Capital: ¥11,900 million (at March 31, 2010)
Number of Shares Issued: 42,737,668shares (at March 31, 2010)
Number of Employees: consolidated 2,191 non-consolidated 812 (at March 31, 2010)
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 78,158 ㎡, 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

36

BOARD OF DIRECTORSDIRECTORS AND STATUTORY AUDITORS
Katsushi Tanaka,
Chairman of the Board of Directors
Takaaki Fudetani,
Representative Director, President, CEO
Kazuyoshi Nakai,
Representative Director, Senior Managing Director,
Senior Executive Officer
Yoshihiro Yasuoka,
Director, Associate Senior Executive Officer
Tomoki Ueyama,
Director, Executive Officer
Yoshinori Takashima,
Director, Executive Officer
Norihiro Kumazawa,
Director, Executive Officer
Ryuichiro Nishikawa,
Masakazu Nishida,
Tokumasa Hayashi,
Harumi Sugimoto,Toshihisa Nakanishi,
Takashi Yoneda,
Kazuya Takahashi,

Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer

Shunji Nakamura,
Taro Okamoto,
Rikuyuki Tentaku,
Akira Michigami,Standing Auditor
AuditorOutside Corporate Auditor
Outside Corporate Auditor