KYOKUTO KAIHATSU KOGYO CO., LTD.
AND CONSOLIDATED SUBSIDIARIESAnnual Report 2007
Years ended March 31,2007 and 2006

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

2
6
9
10
12
13
28
29
30

1. Operational Results(1) Analysis of Operational Results<Overview of Current Fiscal Year ending March 31, 2007>
The domestic economy for the fiscal year under review showed continuing steady recovery due mainly tostrong capital investment in the private sector backed by a growth of earnings and modest recovery of personal
consumption, despite some negative factors including higher oil prices.
By segment, domestic demand in the Specialty Truck Division has continued to increase, continuing strongly
due to the tightening of government regulations such as new gas emission regulations on diesel trucks. Also,
overseas demand has rebounded, especially in China where construction demand remains strong. In addition,
demand from other countries in Asia, Africa, and the Middle East helped to sustain strong growth in thisdivision’s overseas performance.
In the Environmental Equipment and Systems Division, the competition has intensified further due totightening fiscal policies by local governments. Total orders received in this division have continued to be
adversely affected by these external factors.
Even within this challenging business environment, the Kyokuto Kaihatsu Group has aggressively
implemented the midterm sales plan “Plan 2004” (3-year Midterm Business Plan), as this is the last year
specified within it. The ultimate goal of this plan is to strengthen management architecture, further develop
corporate activities, and maximize corporate value. Based on the initiatives of “Plan 2004,” especially theconcept of “Screening and Concentration,” the management team has focused on both the Specialty Truck
Division and the Environmental Equipment and Systems Division with strong emphasis on concentration of
corporate resources to both, thereby enhancing overall earnings.
As of April 1, 2006, the Company withdrew from the Automobile Sales business by selling all equity
holdings of Toyota Corolla Naniwa Co., Ltd. as part of a “Screening and Concentration” strategy. In addition,
as of April 1, 2007, the Company purchased all equities of Nippon Trex Co., Ltd. held by Sumitomo Light
Metal Industries, Ltd., aiming at further enhancement and reinforcement of the mainline Specialty Truckbusiness.
As a result, consolidated sales for the fiscal year ended March 31, 2007 increased slightly by 0.4%, or ¥251
million from the previous fiscal year to ¥58,390 million due mainly to the increase in mainline Specialty Truck
Division, which was, however, largely offset by the withdrawal of the Automobile Sales business.
Consolidated ordinary income, on the other hand, jumped by 34.4%, or ¥814 million, from the previous fiscal
year to ¥3,184 million because of the growth in the sales of Specialty Truck Division. Consolidated net
income decreased by 19.2%, or ¥366 million to ¥1,543 million, reflecting the decline of extraordinary income
from the sales of fixed assets.
The summary of each business segment in the consolidated basis is reported below.
From April 1, 2006, as the Company has realigned the Multilevel car parking tower business in the Specialty
Truck Division by integrating it with the Real Estate Rental Division, the data have been adjusted forcomparison with the previous fiscal year.
1) Specialty Truck Division
Domestic demand in this division posted strong growth due to recovery mainly in the Tokyo Metropolitan
area supported by the tight control of gaseous emission regulations. The Company has concentrated onenhancing the total amount of orders received. Furthermore, with other tasks, including introducing new
pricing policies (especially for new products), reducing cost by global procurement of raw materials from China,
and enhancing marketing and service capabilities, the Company has strived to ensure overall sales as well as
profit. In overseas market, the Company has focused on enhancing local production in the Kunshan Plant in
China to ensure stable supply of the products in Asian countries, especially in China where construction

demand has continued to be strong. At the same time, we devote ourselves to expand global sales throughexports.
As a result, overall sales in the Specialty Truck Division rose by 13.4%, or ¥5,223 million from the previous
fiscal year to ¥44,297 million reflecting steady growth in both domestic and overseas markets, including
exports and local production in China. Operating income in this division rose by 25.2%, or ¥458 million fromthe previous fiscal years to ¥2,277 million, largely due to the aforementioned growth in overall sales.

2) Environmental Equipment and Systems Division
In the Environmental Equipment and Systems Division, the Kyokuto Kaihatsu Group has pursued ensuring
total orders in the mainline plant related systems such as Recycle plaza and Recycle centers, as well as RDF(Refuse Derived Fuel) and Landfill leachate treatment plant. At the same time, the Company strived tomaintain both sales and earnings with strong emphasis on expanding contracted business for maintenance andsystem operation. In addition, we have been actively working on reinforcing our product line along with ordertaking activities of Refuse Gasification and our next generation incinerator Melting System.
With our wealth of practical experience in the previous years combined with consistent marketing efforts basedon our expertise, as well as a sign of recovery in the market despite a continuing severe environment, totalorders received in the Environmental Equipment and Systems Division dynamically increased by 53.0%, or¥4,910 million, from the previous fiscal year to ¥14,177 million as a result. Consolidated sales in this
Division also increased by 10.3%, or ¥780 million from the previous fiscal year to ¥8,338 million, andoperating income rose by 136.3%, or ¥285 million, from the previous fiscal year to ¥495 million.
3) Real Estate Rental Division
In the Real Estate Rental Division, consolidated sales rose by 0.7%, or ¥44 million from the previous fiscal yearto ¥6,223 million, reflecting the steady revenue growth of the coin parking business as the laws pertaining toroadside parking were amended in June 2006. Operating income increased by 7.4%, or ¥49 million from theprevious fiscal year to ¥711 million.
<Forecast for the fiscal year ending March 31, 2008>
Regarding the consolidated performance forecast for the fiscal year ending March 31, 2008, the Company
anticipates that the overall domestic economy will continue to show a steady recovery. On the other hand, thebusiness environment is expected to be more demanding, and is becoming increasingly uncertain and dynamic
due to such factors as the rise in crude oil prices, slowdown of public investments, as well as the rise in interest
rates because of the change of monetary policies.
Under these circumstances, the Company redefined its 3-year Midterm Business Plan, drawing up “Plan 2007”(3-Year Plan) starting April 1, 2007 to accelerate corporate reform. The management teams of the Company
and its subsidiaries will strive to provide the optimal solution for maximizing corporate value.
Based on “Plan 2007,” we will be aggressively concentrating corporate resources onto our core businesses witha view to developing corporate activity as the dominant company in the market.
Major initiatives are as follows:
1. To improve the Kyokuto Kaihatsu Kogyo’s brand value by realizing the customers’ trust and satisfaction,
2. To accelerate global business operations based on core businesses,
3. To evolve our technological expertise toward “Future Creation”
These initiatives are united by a common set of principles. All seek to make progress on expansion of
overall sales and profits of our major business domains, including Specialty Truck, Environmental Equipment
and Systems, and Real Estate Rental. In addition, leveraging by the synergistic effect arising from strategicintra-group alliance with group companies, the management team plans to improve business performance forthe years to come, maximizing corporate value as well as ensuring the sustainable growth of the company.
The management team expects consolidated sales for the year ending March 31, 2008 to be at ¥87,000 million
and operating income to be at ¥3,740 million, with ordinary income and net income of ¥3,800 million and¥2,390 million, respectively.
(2) Financial Analysis
1) Assets, Liabilities and Stockholders’ Equity
Total assets on March 31, 2007 decreased by 5.6%, or ¥4,925 million to ¥82,309 million compared with theprevious fiscal year-end reflecting a decrease of ¥4,614 million (5.3%) by transfer of consolidated subsidiary.
Other factors behind the significant decline of total assets excluding the factor above are described below. The
calculation of increase/decrease in absolute value or percentage change from the previous fiscal year was basedon results which eliminated the impact of transfer of consolidated subsidiary.
Current liabilities on March 31, 2007 increased by 1.7%, or ¥741 million compared with the previous fiscal
year-end. The increase was primarily attributable to an increase in notes and accounts receivable.
Fixed assets decreased by 2.7%, or ¥1,057 million to ¥37,656 million due largely to decrease in securities
investments caused by the decline of the stock market.
While current liabilities on March 31, 2007 increased by 3.4%, or ¥522 million, compared with the previous
fiscal year-end, long-term liabilities decreased by 5.1%, or ¥456 million due to decrease in deferred tax
liabilities. As a result, total current and long-term liabilities on March 31, 2007 increased by 0.3%, or ¥66
million to ¥24,383 million compared with the previous fiscal year-end.
Stockholders’ equity on March 31, 2007 decreased by 0.7%, or ¥383 million to ¥57,925 million compared withthe previous fiscal year-end. This was primarily because of the decrease in the difference of evaluation of
investment securities along with the implementation of repurchasing treasury stocks, despite increase fromrecorded net income of the fiscal year under review.
The ratio of stockholders’ equity to total assets on March 31, 2007 increased from 66.6% for the previous fiscal
year to 70.4%.
2) Cash Flows
Cash and cash equivalents on March 31, 2007 increased by 1.6%, or ¥206 million to ¥12,868 million comparedwith the balance at the beginning of this fiscal year. Details are as follows.
· Cash flows from operating activities
Net cash provided by operating activities totaled ¥2,167 million, decreased by ¥2,783 million in the previous
year due mainly to the recording net income before income taxes, despite increase in notes and accounts
receivables.
· Cash flows from investing activities
Net cash used in investing activities increased by ¥578 million to ¥440 million compared with the previous year
due to increase in purchases of fixed assets, including lands and buildings of the Osaka Service Center despite
proceeds from sales of stocks of consolidated subsidiary.
· Cash flows from financing activities
Net cash used in financing activities increased by ¥2,164 million to ¥1,524 million compared with the previous
year, due primarily to the payments for repurchase of treasury stocks as well as dividend payments.
(3) Basic Policy of Profit Distribution and Dividend Payment for FY2006 and FY2007
The Kyokuto Kaihatsu Group believes that both distribution policies of adequate shareholder return reflecting
business performance and stable shareholder return are the most important management objectives. Therefore,
the Company has strived to meet the stockholders' expectations by taking into the consideration of businessdevelopment and the future economic climate, while achieving stable growth of earnings and a sound financial
position.
Regarding the dividends for the fiscal year ending March 31, 2007, Kyokuto Kaihatsu Kogyo announced a pershare dividend of ¥5, and an interim dividend at ¥5, bringing the total dividend for the fiscal year to ¥10 per
share. On November 18, 2005, the Company split its outstanding ordinary shares 1.5 for 1, therefore, actual
distribution value was ¥15, excluding the effect of this stock split. We are very pleased to report thesubstantial increase of an annual cash dividend by ¥2.50 compared with ¥10 for the previous fiscal year (¥12.50
before this stock split).
The Company plans annual dividends at ¥10 (including ¥5 for interim dividends) for the year ending March 31,
2008.
(4) Risk Management
1) Risks related to concentration on a particular customer, product, and technology
In our core business, the Specialty Truck Division, our customer portfolio is comprised of diversified domestic
truck manufacturers or their affiliated sales companies or trading firms, and therefore successfully reduces therisks related to concentration in a particular customer or particular item. In addition, we have built wide rangeof technological expertise for manufacturing and marketing each model in this product line.
As for the Environmental Equipment and Systems Division, the Company provides its business (e.g. plant or
system construction for waste disposal, maintenance services, or contracted business for maintenance andsystem operation) to most of the local governments in Japan as they need.
2) Risks related to a particular regulation, law, business practice and management policy
In the Specialty Truck Division, enactment or amendment of particular laws, such as Road Traffic Law, Road
Trucking Vehicle Law, and Motor Vehicle Safety Standards generally and materially affect the Company’sbusiness performance. The vehicle which may fail to meet these regulations will not be allowed by thegovernment to be used or owned; this, in turn, temporarily generates extra demand (usually called “last-minutebuying”) before the enactment or amendment of the regulation. Thereafter, overall demand will be adversely
affected by this behavior, shrinking rapidly in the following terms.
In the Environmental Equipment and Systems Division, as the business of plant construction of waste disposal
for local governments are subject to regulation under 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 and Transportation.
Additionally, enactment or amendment of otherenvironmental related regulation or law, for example anti-dioxin regulation, may cause additional demand forplant renewal.
3) Risks related to business activity in overseas markets
The Kyokuto Kaihatsu Group is conducting business activities through product exports, local production,marketing, or procurement systems of parts in overseas markets. And risks related to business in overseas
markets are becoming increasingly complex and diverse due to various changes in the business environment
surrounding our company in these areas: unexpected changes of economy, fluctuation of foreign exchange rates,change of related laws or regulations, and presence or occurrence of events which may bring about adverse
effects, as well as social or political turmoil caused by terrorist attacks, war and other factors. Because of thesepotential risks, our business activities in overseas markets may be negatively affected, consequently bringing amaterial impact to the operational results or corporate plan of the Kyokuto Kaihatsu Group.

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 thefurther development of the Company with strong emphasis on our unique technological expertise and strong
reliability, and providing considerable contribution to our society together with our group companies.”
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) Management Target
We will work toward our consolidated milestone targets to reach for the year ending March 31, 2010, throughsteady implementation of the core strategies outlined in the above “Plan 2007” for our principal businessdomains. These targets include sales of ¥97,300 million, ordinary income of ¥6,490 million and net income of¥3,910 million along with ROA of 3.5% and ROE of 6.0%, all in the consolidated basis.
(3) Mid-to-Long Term Management Strategy and Major Challenges<<Results of “Plan 2004” (April 1, 2004 ~ March 31, 2007)>>
The Company set up 3-year midterm business plan called “Plan 2004” for the period during the fiscal year
began April 1, 2004 to the fiscal year ending March 31, 2007, and we have concentrated on carrying out thecorporate strategies together with our group companies.
During the period for “Plan 2004”, Kyokuto Kaihatsu Group has demonstrated its ability to achieve greater
effect to identify the exact needs in the market in the Specialty Truck Division. This is reflecting increasing
market share and enhancing service capabilities in the domestic market, along with launch of overseas
production (Kunshan Plant in Jiangsu, China), and expansion of the export in overseas market. Also, in theEnvironmental Equipment and Systems Division, we have taken steps of expanding contracted business formaintenance and system operation of recycle center by purchasing operating unit of Sumitomo Metal Industries,
Ltd. Furthermore, we have made significant progress in the coin parking business, which has a great potential
growth, in the Real Estate Rental Division
Regarding the performance of “Plan 2004”, however, consolidated sales posted ¥58,390 million below
management’s target of ¥66,500 million. This was chiefly a reflection of sales decline by the withdrawal ofAutomobile Sales business combined with the slowdown of orders received for plant related systems due tofierce competition in the environment related market despite successful achievement of target sales in theSpecialty Truck Division. As for earnings, we have determined to become more competitive by taking
decisive actions to improve profitability by implementing cost cutting efforts including establishment ofefficient production system as well as comprehensive procurement system from China. However, bothordinary income and net income were ¥3,184 million and ¥1,543 million against management’s target of¥4,470 million and ¥2,650 million, respectively. This is all attributed to the higher raw material cost (including
steel products) than expected and sales decline in the Environmental Equipment and Systems Division.
Accordingly, the performance of “Plan 2004” was below our targets for all indicators, and we accept the gravityof the situation with sincerity. At the same time, the Company will continue strictly implementing theaccomplishment we have achieved during the period.

<<Outline of “Plan 2007” (April 1, 2007 ~ March 31, 2010)>>
Under these circumstances, the Company redefined its 3-year Midterm Business Plan, drawing up “Plan
2007-Shining Phase-” starting April 1, 2007, to accelerate corporate reform. The management teams of theCompany and its subsidiaries will strive to provide the optimal solution for maximizing corporate value.
Basic policies of the “Plan 2007”
As we explained before, under “Plan 2007” we will be aggressively concentrating corporate resources onto ourcore businesses with a view to developing corporate activity as the dominant company in the market. Major
initiatives are as follows:
1. To improve the Kyokuto Kaihatsu Kogyo’s brand value by realizing the customers’ trust and satisfaction,
2. To accelerate global business activities based on core businesses,
3. To evolve our technological expertise toward “Future Creation”<<Period>>

April 1, 2007 ~ March 31, 2010<<Management Target (Mach 31, 2010, Consolidated basis)>>Sales¥97,300 million
ROA
3.5%
Operating Income¥6,400 million
ROE
6.0%
Ordinary Income¥6,490 million
Net Income¥3,910 million
Based on this management objective, we at Kyokuto Kaihatsu Group, will strive to reinforce and expand eachbusiness segment with a strong emphasis on the major initiatives listed below.
<Specialty Truck Division>
Sales: ¥44,297 million (March 31, 2007) Æ ¥77,000 million (March 31, 2010)
Operating Income：¥2,277 million (March 31, 2007) Æ ¥4,580 million (March 31, 2010)1) Enhancement of Business Platform in the Domestic Market
We expect domestic demand to decrease in foreseeable future due largely to the anticipated completion of
replacement demand supported by the tight control of gaseous emission regulations. Based on this recognition,
we believe that enhancement of our business platform in the domestic market is indispensable in ensuring
growth in earnings. We, therefore, will promote sweeping measures such as increasing market share andbusiness tie-ups with competitors or M&A activities. In addition, we will work to enhance customer
satisfaction by developing several critical tasks: improving production efficiency through standardization andequalization of products; expanding profitability by the promotion of company-wide cost cutting efforts; andenhancing service capabilities.
Furthermore, as of April 1, 2007, Nippon Trex Co., Ltd., the leading company for trailers in the domestic
market, joined the Kyokuto Kaihatsu Group. We believe this integration represents an enormous opportunity
to exhibit our enhanced strength as a supplier of specialty truck, an attributes that makes us unique as a group.
Consequently, it should bring more customer satisfaction by providing comprehensive product mix in terms of
product quality, pricing structure and service capabilities. In fact, our group now has overwhelming
advantages to enlarge overall competitive edge and marketing power by implementing joint measures such asi) providing high quality products based on the technological expertise of both companies, ⅱ) expanding
product portfolio, ⅲ) building highly efficient comprehensive marketing networks, ⅳ) implementing cost
cutting efforts through rationalization, including joint procurement of raw materials as well as standardization ofvarious parts, and v) enhancing overall service network. Our goal is to keep the Kyokuto Kaihatsu Group at
the forefront in the industry by enhancing the earnings of the Special Truck business in the domestic market

through fully leveraging our synergistic effects as well as expanding our scale of operation.
2) Enhancement of Business Operation in the Overseas Market
Demand for the specialty trucks in overseas market has been steady especially in China where investment for
construction buildings continued to remain strong backed by the explosive economic growth. This, in turn,has been generating demand for construction related trucks (Mixer trucks, Concrete pumps, and etc).
Furthermore, demand from other countries in Asia, Africa and Middle East has also been strong. By
powerfully pushing ahead with marketing systems in these areas to meet increasing demand timely, we willassure total orders received. We intend to increase the production capacity in the Kunshan Plant in China,
which will bring positive impact to expand business in overseas market as well as strengthen the domestic
operating base, contributing cost cutting measure to supply parts or kits from the plant to Japan.
<Environmental Equipment and Systems Division>
Sales： ¥8,338 million (March 31, 2007） Æ ¥12,000 million (March 31, 2010)
Operating Income： ¥495 million (March 31, 2007） Æ ¥850 million (March 31, 2010）
Demand for the Recycle Centers has been sluggish due largely to intensifying competition. However, going
forward, we see replacement demand emerging, as the number of aging facilities is increasing. By taking
this potential demand, at the same time, by carrying out aggressive R&D activities in the areas of technologythat are seen to have high potential in the future, we will be able to offer the optimal solutions to our customers,
thus ensuring orders received for plant related construction business. Furthermore, with more emphasis on
the highly profitable contracted business for maintenance and system operation, the Company will achieve asignificant growth in sales and earnings in the Environmental Equipment and Systems Division.
<Real Estate Rental Division>
Sales： ¥6,223 million (March 31, 2007) Æ ¥9,000 million (March 31, 2010）
Operating Income： ¥711 million (March 31, 2007) Æ ¥970 million (March 31, 2010)
With regard to the Real Estate Rental Division, the Kyokuto Kaihatsu Group positions its coin parking businessas third business pillar of the group, and will promote aggressive operation combined with the effective use ofreal estate as a part of group’s capital policy, making it a stable source of earnings as a result.
While pursuing more stable earnings from the Real Estate Rental business and maintaining Specialty Trucks
and Environmental Equipment and Systems as core businesses, we aim to boost our corporate value.
Focusing intently on the cost of capital, control of management resources onto the growth areas is essential tomore efficient use of capital and assets, which we believe will lead to the Kyokuto Kaihatsu Group’s enlarged
and unique value.
<Appendix>
Comparison of Business Performance of March 31, 2007 and March 31, 2010
(Consolidated basis)
March 31, 2010 （Last year of the plan）
31-Mar-07
ResultTargetIncrease Change （％）
Sales （million yen）
58,39097,300＋38,910＋66.6
Operating income （mil.
3,490
6,400
＋2,910＋83.4
Ordinary income （mil.）
3,184
6,490
＋3,306＋103.8Net income （mil.）
1,543
3,910
＋2,367＋153.4
ＲＯＡ（％）
1.8
3.5＋1.7
ＲＯＥ（％）
2.7
6.0＋3.3(4) Other Important Matters Concerning Management
There are no other pertinent matters.

ＣＯＮＳＯＬＩＤＡＴＥＤ ＳＴＡＴＥＭＥＮＴＳ ＯＦ ＩＮＣＯＭＥ ＡＮＤ ＲＥＴＡＩＮＥＤ ＥAＲＮＩＮＧＳ
Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2007

2006

2007

Net sales…………………………………………

58,39058,138494,627

Cost of sales…………………………………………

46,20145,917391,375

Gross profit…………………………………………

12,188

12,220103,251

Selling, general andadministrative expenses…………………………………………

8,698

9,524

73,685…………………………………………

3,490

2,696

29,565Interest and dividend income…………………………………………

80

67

682

Interest expenses…………………………………………

(83)

(104)

(709)
93

Operating income (loss)
Other income (expenses)

Gain (loss) on sales ofproperty and equipment
Gain (loss) on sales ofinvestment in subsidiaries…………………………………………

10

1,628

………………

227-

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

4

Write-down of investment securites…………………………………………

(7)

1,925
158

-

36
(67)

………………

0

(297)

0

…………………………………………

(360)

(90)

(3,055)……………………………

3,360

3,495

28,469current…………………………………………

1,859

1,248

15,750deferred (prepaid),net…………………………………………

(42)

336

(358)

1,817

1,585

15,392

Special research and development expenditures
Other-net
Income (loss) before

income taxes

Income taxes (Note 12)

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

―

0

0

…………………………………………

1,543

1,910

13,077

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

32,604

31,208276,195

Cash dividends paid…………………………………………

(423)

(338)

(3,587)

Bonuses to directors and statutory auditors ……………………………
Adjustment of retained earnings

(69)

(50)

(588)

Retained earnings：

for eliminations of treasury stock
Balance at end of period……………………………

(36)

(125)

(308)

…………………………………………

33,61932,604

284,788

Yen

U.S. dollars

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

36.57

43.46

0.31

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

36.42

43.17

0.31

…………………………………………

10.00

10.00

0.08

Cash dividend,applicable toearnings of the year

The accompanying notes are an integral part of this statements.

ＣＯＮＳＯＬＩＤＡＴＥＤ ＢＡＬＡＮＣＥ ＳＨＥＥＴＳ
Thousands of
U.S. dollars(Note 1)
2007

Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2007

2006

ASSETS
Current assets：
Cash and time deposits……………… ………………

Short-term investments (Note 3)……………… ………………

7,515

7,701

63,663………………

24,451

25,290207,132………………

(166)

(194)

(1,411)Inventories……………… ………………

6,305

6,746

53,417

Deferred income taxes (Note 12)……………… ………………

871

766

7,379

Prepaid expenses……………… ………………

144

67

1,223

Other current assets……………… ………………

177

376

1,506

……………… ………………

44,65345,784378,255

Investments in securities (Note 3)……………… ………………

6,959

6,761

58,954

Deferred income taxes (Note 12)……………… ………………

355

336

3,012

Other

……………… ………………

1,595

3,220

13,512………………

8,910

10,31875,479Land……………… ………………

12,795

13,310108,392

Buildings and structures……………… ………………

23,82026,685201,786

Machinery and equipment……………… ………………

7,355

7,504

62,304

Trade note and accounts receivable
Less：Allowance for doubtful accounts

Total current assets

5,352

5,030

45,344

Investments and other assets：

Total investments and other assets
Property and equipment：

Construction in progress……………… ………………

82

83

694

Other

……………… ………………

2,017
46,0712,020
49,60417,088390,267

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

(17,814)(19,006)(150,908)

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

28,25630,598239,358………………

129

167

1,099

Intangible assets
Goodwillother……………… ………………

359

365

3,048

total intangible assets……………… ………………

489

533

4,148

Total assets……………… ………………

82,30987,234

697,241

ＣＯＮＳＯＬＩＤＡＴＥＤ ＢＡＬＡＮＣＥ ＳＨＥＥＴＳ
Thousands of
U.S. dollars(Note 1)Ｍｉｌｌｉｏｎｓ of ｙｅｎ
2006

2007

2007

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

Current portion of long-term bank loans (Note 4)………………

500

3,000

―

4,235

1,028

―
88,636

Trade note and account payable……………… ………………

10,463

10,965

Accrued income and other taxes……………… ………………

1,537

1,388

13,022

Accrued expenses……………… ………………

2,070

2,036

17,539Other current liabilities……………… ………………

1,331

1,523

11,277……………… ………………

15,902

19,942

134,711

1,624

1,837

283

303

2,402

Total current liabilities

Long-term liabilities：
Long-term bannk loans (Note 4)……………… ………………

Accrued retirement benefits(Note 5)……………… ………………

―Directors' and statutory auditors' retirement benefits

86―
13,764

Deferred income taxes (Note 12)……………… ………………

1,796

2,205

15,214

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

4,776

4,742

40,458

Total long-term liabilities……………… ………………

8,480

9,174

71,839Minority interrests……………… ………………

―

ー

－

100,803

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

11,89911,899Additional paid-in capital (Note 10)42,737,668 shares in 2007………………

11,718

11,71899,269Retained earnings………………

33,61932,604

284,788

Treasury stock, at cost………………

(919)

(349)

(7,791)

Net unrealized holding gains on securities………………

1,391

2,105

11,790Foreign currency translation adjustments………………

215

138

1,829

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

57,925

58,118490,690

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

82,30987,234

697,241

CONSOLIDATED STATEMENT OF CASH FLOWS
Thousands of
U.S. dollars
Ｍｉｌｌｉｏｎｓ of ｙｅｎ
Operating activities：

2006

2007

Net income before income taxes………………………………

(Note 1)
2007

3,360

3495

28,469

1,388

1,511

11,758

9

28

77

(231)

(145)

(1,961)

Adjustments to reconcile net income to net cash
provided by (used in) operating activities:………………………………

Dpreciation and amortization
Write-down of investment securites

Net gains (loss) on sales of marketable securities and investments

22(1,558)186………………

(96)

8

(815)

Interest and dividend income……………………………………………

(80)

(67)

(682)

Interrest expenses……………………………………………

83

104

709

Decreease (increase) in accounts receivable………………………………

(1,883)

3,039(15,952)

Decrease (increase) in inventories………………………………

(29)(1,229)Decrease (increase) in prepaid expenses………………………………

Decrease (increase) in accounts payable………………………………

Decrease (increase) in accrued expenses………………………………

Decrease (increase) in income taxes payable

Net gains (loss) on sales of proparty………………………………

Provision (reversal) for accrued retiremennt benefits

Other,net

ー

69

(246)
ー

257

(1,339)………………………………

(76)

(140)

(647)

……………………………………………
……………

1,222

2,139

10,35433,428

ー

12

2,178
ー

……………………………………………
……………

3,946

5,929

Interest and dividend income received ……………………………………………

54

66

462

……………………………………………

(16)

(36)

(137)

Sub totalInterest expenses paid
Income taxes paid……………………………………………

(1,634)(459)(13,838)……………
……………………………………………

(183)

(551)

(1,556)

Net cash provided by operating activities ………………………………

2,167

4,950

18,358(346)(1,212)(2,934)

Other,net

Investing activities：
Payment for purchase of marketable securities and investmen ………………
Proceeds from sales of marketable securities and investments………………

116

Proceeds from sales of investments in subsidiaries

841

566
ー

987
7,126

Payment for purchase of facilities……………………………………………

(1,209)(2,949)(10,246)

Proceeds from sale of facilities……………………………………………

63

2,247

534

Disbursement of loan receivables……………………………………………

(2)

(7)

(24)

97

336

822

………………

(440)(1,019)(3,733)………………………………

500(3,150)4,235

Collection of loan receivables
Net cash provided by (used in) investing activities
Fainancing activities：
Increase (decrease) in short-term debt
Proceeds from long-term debt……………………………………………

ー

Payment on long-term debt……………………………………………

(1,000)(22)(8,470)ー

15

ー

Proceeds from issuance of common stockー……………………………………………

(644)………………………………

41……………………………………………
……………

(422)

(337)

(3,576)(1,524)(3,688)(12,917)

(2)

48

(25)

Purchases of treasury stock

Proceeds from sales of treasury stock
Dividends paid………………………………

ー

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

(396)
ー(5,459)353

１．Basis of Presenting Consolidated Financial Statements
Kyokuto Kaihatu Co.,Ltd (the ”Company”) and its domestic subsidiaries maintain theiraccounts and records in accordance with the provisions set forth in the Commercial Codeof Japan (the “Code”) and the Securities and Exchange Law and in conformity withaccounting principles and practices generally accepted in Japan.
The accompanying consolidated financial statements are prepared based on the
consolidated financial statements of the Company and its subsidiaries (the “Group”)
which were fi1ed with the Director of Kanto Local Finance Bureau as required by the
Securities and Exchange Law.
In preparing the accompanying consolidated financial statements, certain
reclassifications and rearrangements have been made to the consolidated financial
statements issued domestically in order to present them in a form which is more familiar
to readers outside Japan.
The translation of the Japanese yen amounts into U.S. dollars is included solely for theconvenience of the reader, using the approximate exchange rate at March 31, 2007, whichwas¥ 118.50 to US$1.00. These convenience translations should not be construed as
representations that the Japanese yen amounts have been, could have been, or could in
the future be, converted into U.S. dollars at this or any other rate of exchange.
As permitted by the regulations under the Securities and Exchange Law of Japan,
amounts of less than one million yen have been omitted. As a result, the totals shown in
the accompanying consolidated financial statements (both in yen and in U.S.dollars) do
not necessarily agree with the sums of the individual amounts.
２．Summary of Significant Accounting Policies(a) Consolidation Principles
The consolidated financial statements include the accounts of the Company and its significant
subsidiaries in accordance with the Securities and Exchange Law and related regulations of Japan.
The minor differences arising from the cost of the companies’ investments in subsidiaries andaffiliates over the equity in their net assets at fair value are charged or credited to income in theyear of acquisition. Significant differences are, as a rule, amortized over periods of 5 years. All
significant inter-company accounts and transactions have been eliminated.

Investments in associates are accounted for by the equity method whereby the Group includes in
net income its share of income or losses of these companies, and records its investments at costadjusted for its share of income, losses or dividends received.
(b) Consolidated Statement of Cash Flows
In preparing the consolidated statements of cash flows, cash on hand, readily-available
deposits and short-term highly liquid investments with maturity of not exceeding threemonths at the time of purchase are considered to be cash and cash equivalents.
(c) Short-term investments and Investments in Securities
For the Accounting Standards for Financial Instruments which was issued by theBusiness Accounting Deliberation Council, securities are classified into three categories:
trading securities, held-to-maturity debt securities, equity investments in associates andother securities.
Those classified as other would be reported at fair value with unrealized gains, net of
related taxes reported in equity. Under the Code, unrealized holding gains on securities,
net of related taxes is not available for distribution as dividends and bonuses to directors
and corporate auditors.
Other investments are carried at cost. The cost is determined by the moving averagemethod.

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

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

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

(d) Inventories
Merchandise inventories are stated at cost, determined by the specific identification method.
Materials and work in process are stated at cost, determined by the periodic average method.
Supplies are stated at cost, determined by the last purchase cost method.
(e) Depreciation:
Depreciation is principally computed on the declining-balance method, based on the estimateduseful lives of assets which are prescribed by Japanese income tax laws. Buildings are depreciatedon a straight-line basis.
Amortization of intangible assets is computed by the straight-line method over periods prescribedprimarily by the Japanese Commercial Code or Japanese income tax laws.

(f) Stock and bond issue expenses
Stock and bond issue expenses are charged to income as incurred.
(g) Accrued Retirement Benefits
To provide for the payment of retirement benefits and pension plans to employees, theCompany and certain consolidated subsidiaries have entered an amount into a reserve
equivalent to the amount recognized as necessary at the end of the period under review
based on the expected retirement and severance obligations and the assets of pension
plans at fiscal year-end.
The Company and its domestic subsidiaries provide for lump-sum severance benefits withrespect to directors and corporate auditors. While the Company has no legal obligation, it
is a customary practice in Japan to make lump-sum payments to a director or a corporate
auditor upon retirement. Annual provisions are made in the accounts for the estimatedcosts of this termination plan, which is not funded. Any amounts payable to officers uponretirement are subject to approval at the shareholders’ meeting.

(h) Revenue recognition
The percentage of completion method is applied to the construction works which takelonger than one year and exceed ¥200million ($1,694 thousand) in contract amount.
(i) Leases
In Japan finance leases other than those that are deemed to transfer the ownership of theleased assets to lessees are accounted for by a method similar to that applicable toordinary operating leases.
(j) Research and Development and Computer Software
Research and development expenditure is charged to income when incurred.
Expenditure relating to computer software developed for internal use is charged to income
when incurred, except if it contributes to the generation of income or to future cost savings.
Such expenditure is capitalized as an asset is amortized using the straight-line method
over its estimated useful life which is in the range of 3 to 5 years.
(k) Income Taxes
Income taxes consist of corporation, inhabitants and enterprise taxes for domestic
companies and foreign income taxes.
Deferred income taxes are provided for the income tax expenses under the asset andliability method. Deferred income tax assets and liabilities are determined based on
temporary differences between the financial statements and tax bases of assets andliabilities, using enacted tax rates in effect during the years in which the differences are
expected to reverse, and on available tax credits carryforward.

(l) Per Share Information
The computation of basic net income per share is based on the weighted average numberof shares of common stock outstanding during each period. The average number of sharesused in the computation was 42,215 thousand shares for 2007 and 42,353 thousand
shares for 2006 (see Note 10).
For the year ended 31, 2007 and 2006 fully diluted net income per share of common stock
assumes full exercise of right of the outstanding stock option plan at the beginning of theyear.
Cash dividends per share shown in the statements of income are the amounts applicable to therespective years.

３．Short-term Investments, Investments in Securities and Investments in and advances toassociates
Short-term securities at March 31, 2007 and 2006 consisted of the following:Thousands of
U.S. dollars

Millions of yen
2007
Market value available:
Trading securities
Market value not available:
M.M.F. and F.F.F.
Other investment trust

2006

2007

－

－

－

¥ 7,515－¥ 7,701－$ 63,663－¥ 7,515¥ 7,701
Total
The following is a summary of other securities at March 31, 2007 and 2006:$ 63,663

Millions of yen
March 31, 2007

Cost
Market value available:
Equity securities
Bonds and debentures
Other securities¥ 2,419－－¥ 2,419

Other securities
Gross
Gross
unrealized
unrealized
gains
losses¥ 2,380－－¥ 2,380

¥

¥

(35)
－
－
(35)

Market value not available:
Total

Book Value(Estimatedfair value)¥ 4,764－－¥ 4,764894¥ 5,659

Millions of yen
March 31, 2006

Cost
Market value available:
Equity securities
Bonds and debentures
Other securities¥ 2,059－－¥ 2,059

Other securities
Gross
Gross
unrealized
unrealized
gains
lossesBook Value(Estimatedfair value)¥ 3,548－－－－－¥ 5,607－－¥ 3,548－¥ 5,607
1,154

Market value not available:

¥

Total

Thousands of U.S. dollars
March 31, 2007

6,761

Other securities
Gross
Gross
unrealized
unrealized
gains
losses

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

Book Value(Estimatedfair value)$ 20,499－－$ 20,166
－
－

(303)
－
－

$ 40,362－－$ 20,499$ 20,166(303)$ 40,362
7,580

Market value not available:$ 47,942

Total

４．Short-term bank loans and long-term debt
The annual average interest rates applicable to short-term bank loans at March 31, 2007, and 2006
are 0.89％ and 0.67％, respectively.
Long-term debt at March 31, 2007 and 2006 consisted of the following:

0.58％ bank loans due 2008
0.48％ bank loans due 2013
1.50％ guarantee money due 2023

Millions of yen
2007
2006
¥ 1,028¥ 1,028
86
86
3,299
3,250
¥ 4,414¥ 4,365

Thousands of
U.S. dollars
2007$ 8,716729
27,948$ 37,394

Aggregate annual maturities of long-term debt subsequent to March 31, 2007 are as
follows:
Thousands ofMillions of yen
Year ending March 31
U.S. dollars¥ 1,028$ 8,716
2008
233
1,973
2009
233
1,973
2010
233
1,973
2011
2,686
22,7562012 and thereafter¥
4,414$ 37,394

５．Accrued Retirement Benefits
The following tables sets forth the changes in benefit obligation, plan assets and funded status of
the Company and its subsidiaries at March 31, 2007 and 2006.

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 net transition obligation at date of adoption
Unrecognized prior service cost
Unrecognized actuarial loss
Prepaid expenses for plan assets at end of year
Accrued pension liability recognizedin the consolidation balance sheets

Millions of yen
2007
2006
¥ 5,230¥ 4,560
3,361
3,024

Thousands of
U.S. dollars
2007$ 38,629
25,624

1,535
―
―
(107)
―

1,869
―
―
32
―

13,005
―
―
(912)
―

1,642

1,837

13,917

Note: Some domestic subsidiaries have adopted allowed alternative treatment of theaccounting standards for retirement benefit for small business entity.
Severance and pension costs of the Company and its subsidiaries included the following
components for the year ended March 31, 2007 and 2006.

Service cost
Interest cost
Expected return on plan assets
Amortization:
Transition obligation at date of adoption
Prior service cost
Actuarial losses
Net periodic benefit cost

Millions of yen
2007
2006
¥ 238
¥ 268
96
102
( 78)
( 61)
―
―
6
¥ 279

―
―
107
¥ 400

Thousands of
U.S. dollars
2006$ 2,017815( 524)――
56$ 2,364

Assumption used in the accounting for the defined benefit plans for the year ended March
31, 2007 and 2006 is as follows:
2006
2007
straight –line basis straight –line
Method of attributing benefit to periods of service
basis
Discount rate
2.0 %
2.0 %
Long-term rate of return on fund assets
2.0 %
2.0 %
Amortization period for transition obligation at date of adoption――
Amortization period for prior service cost――
10 years
10 years
Amortization period for actuarial losses

６．Contingencies
At March 31, 2007 and 2006, the Group was contingently liable as follows:
Millions of yen
2006
2007

Thousands of
US dollars
2007

As an endorser of notes discounted or endorsed¥ 2,649¥ 2,069$ 22,447

As a guarantor of indebtedness of :Associates
Others¥ 4,933227¥ 5,795
43$ 41,788
1,929¥ 5,160¥ 5,838$ 43,717

７．Cash and cash equivalents
Cash and cash equivalents at March 31, 2007 and 2006 are as follows:
Millions of yen
2007
2006
Cash and time deposits
Short-term investment
Less-Time deposits with original maturities
more than three months
Less-Stock

Thousands of
U.S. dollars
2007¥ 5,352¥ 5,030$ 45,345

7,515

7,701

63,663

―
―

( 70)
―

―
―

¥ 12,868¥12,661$ 109,008

８．Leases
The Group leases certain machinery and equipment, and other assets. Total lease
payments under these leases were ¥ 468 million ($ 3,967 thousand) , and ¥ 477 million forthe years ended March 31, 2007 and 2006, 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, 2007 and 2006, are as follows:

Acquisition costs
Accumulated
Depreciation
Net leased property

Acquisition costs
Accumulated
Depreciation
Net leased property

Acquisition costs
Accumulated
Depreciation
Net leased property

MachineryandEquipment¥ 1,607

¥

681
925

MachineryandEquipment¥ 1,806

¥

1,078
727

Millions of yen
2007
Other
¥
430

Total
¥ 2,037

164
265

845
¥ 1,191¥

Millions of yen
2006
Other
¥
628

¥

435
192

Thousands of U.S. dollars
2007
MachineryandEquipment
Other$ 13,617$ 3,643

5,774$ 7,843

1,391$ 2,252

Total¥ 2,434

¥

1,513
920

Total
$ 17,260
7,165$ 10,095

Future minimum lease payments under finance leases as of March 31, 2007 and 2006
were as follows:
Thousands ofMillions of yen
U.S. dollars
2007
2006
2007
Due within one year
¥ 422
¥ 418
$ 3,578
Due after one year
769
501
6,517
Total
¥ 1,191¥ 920$ 10,095

The acquisition costs and future minimum lease payments under finance leases include theimputed interest expense portion.
Depreciation expense, which is not reflected in the accompanying consolidated statements ofincome, computed by the straight-line method, would have been ¥ 468 million ($3,967thousand)for the year ended March 31, 2007.

９．Derivatives and Hedging Activities
Derivative financial instruments are utilized by the Company principally to reduce interest rate andforeign exchange rate risks. The Company has established a control environment which includes
policies and procedures for risk assessment and for the approval, reporting and monitoring oftransactions involving derivative financial instruments. The Company does not hold or issue
derivative financial instruments for trading purposes.
At March 31, 2007 and 2006, all forward exchange contracts outstanding were enteredinto in order to hedge receivables and payables denominated in foreign currencies whichhave been translated and reflected at the corresponding contracted rates in theaccompanying consolidated balance sheets at March 31, 2007 and 2006.
１０．Shareholders’ Equity(1) Changes in common stock and additional paid-in capital have resulted from the following.

Number of
SharesBalance of March 31, 2005……

Stock split

Millions of yen
Additional
Commonpaid-inStockcapital28,469,779

11,892

11,711

14,245,889－－

Retirement of stock during 2006……

22,0007

7Balance of March 31, 2006……

42,737,668

11,89911,718Retirement of stock during 2007

……

－

－

－

Balance of March 31, 2007……

42,737,668

11,89911,718

Thousands of
U.S.dollars
Additional
Commonpaid-inStockcapitalBalance of March31, 2006……

Retirement of stock during 2007

……

－

－

Balance of March31, 2007……

100,804

99,269100,804

99,269The 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, theholder is entitled to receive dividends and other distributions. A holder of a fraction of a unit may
at any time require the Company to purchase such shares at the prevailing market price. Shares sopurchased must be sold or otherwise transferred to a third party within a reasonable time.
(2) Stock split
n November 18, 2005 the Company made a stock split at the rate of 0.5 shares for each
outstanding shares and 14,245,889 shares were issued to shareholders of record on September 30,
2005
１１．Research and Development and Computer Software
Research and development expenditure charged to income was ¥ 897million ($ 7,605
thousand) and ¥ 1,100 million for the years ended March 31, 2007 and 2006, respectively.

１２．INCOME TAXESThe Company and its domestic subsidiaries are subject to several taxes based on income, which in
the aggregate resulted in statutory tax rates of approximately 40.6％ and 40.6 % for the years
ended March 31, 2007 and 2006, respectively. Foreign subsidiaries are subject to income taxes of
the countries in which they operate.
The effective rate for the two years ended March 31, 2007 differs from the Company’s statutory
tax rate for the following reasons:Statutory tax rate
Dividend income ……………………………………
Expenses not deductible for income tax purposes ……
Per capital inhabitant tax
Other …………………………………………………

2007
40.6
(0.3)
1.7
1.8
10.3

2006
40.6
(0.3)
1.8
1.8
1.5

Effective tax rate …………………………………………

54.1

45.4

%

%

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets at
March 31, 2007 and 2006 are presented below:
Millions of yen
2007
2006
Deferred tax assets:
Accrued expenses

¥

403

¥

Thousands of
US dollars
2007

425

$ 3,421

Accrued retirement benefits
Depreciation
Unrealized profits
Tax loss carryforwards
Other
Total gross deferred tax assets
Less valuation allowance

780
216
302
86
565
2,355
(160)

860
233
302
129
488
2,439
(266)

6,614
1,836
2,564
732
4,788
19,954( 1,359)

Net deferred tax assets

2,195

2,173

18,595

Deferred tax liabilities:
Special tax-purpose reserve for condensed
booking of fixed assets
Unrealized gains of other securities
Total gross deferred tax liabilities(1,811)(1,831)(15,345)( 952)(2,764)(1,442)( 3,274)( 8,072)(23,417)

Net deferred tax assets¥ ( 569)¥ (1,101)$ (4,822)

In assessing the realizability of deferred tax assets, management of the Company considers
whether it is more likely than not that some portion or all of the deferred tax assets will not berealized. The ultimate realization of deferred tax assets is entirely dependent upon the generationof future taxable income in specific tax jurisdictions during the periods in which those temporary
differences become deductible. Although realization is not assured, management considered the
projected future taxable income in making this assessment. Based on these factors, management
believes it is more likely than not that the Company will realize the benefits of these deductible
differences, net of the existing valuation allowance as of March 31, 2007.
Tax loss carryforwards will expire between 2008 and 2014.

１３．Segment Information
Information about operations in different industry segments of the Group for the years ended
March 31, 2007 and 2006, are as follows:
Industry Segmentsa.

Sales and Operating Income

Millions of yen
2007
Industry A

Industry B

Industry C

Industry D

Sales to customers
Intersegment¥44,2960¥ 8,338－－－¥ 5,754
468

Total sales

44,297

8,338－

42,0197,843¥

Eliminations/C
orporate¥ －Consolidated( 468)¥ 58,390－

6,,223( 468)

58,390－5,511( 473)

54,900－¥ 711

Operating expenses
Operating income¥ 2,277

¥

495

¥

¥

5

¥

3,490

Millions of yen
2006
Industry A

Industry B

Industry C

Industry D

Sales to customers
Intersegment¥42,2945¥ 7,558－¥5,804－¥2,481
481

Total sales

42,300

7,558

5,804

40,4777,348
209

Eliminations/C
orporate－

Consolidated( 487)¥ 58,138－

2,962( 487)

58,138

5,810

2,303

( 497)

55,442¥ ( 5)¥ 658¥

Operating expenses
Operating income¥ 1,823

¥

¥

10

¥

2,696

Thousands of U.S. dollars
2007
Eliminations/C
Industry C Industry D orporate
Consolidated$－$ 48,750$－$494,627－
3,966( 3,968)－

Industry A

Industry B

Sales to customers
Intersegment$375,239$70,6392－

Total sales

375,241

70,639－52,716( 3,968)

494,627355,947

66,442－

46,688( 4,015)

465,062$ 19,294$ 4,197－$ 6,02847$ 29,565

Operating expenses

Operating income

$

$

b.

Assets, Depreciation and Capital Expenditures
Millions of yen
2007

AssetsDepreciation
Capital expenditure

Industry C

Industry D

Eliminations/C
orporate

Consolidated－¥10,565¥ 19,699¥ 82,309

64

－

294

－

1,275

21

－

716

－

1,487

Industry A

Industry B¥47,497¥ 4,546

916
749

¥

Millions of yen
2006

AssetsDepreciation
Capital expenditure

AssetsDepreciation
Capital expenditure

Industry A

Industry B

Industry C

Industry D

Eliminations/C
orporate

Consolidated¥46,566¥ 5,068¥5,859¥9,177¥ 20,564¥ 87,234

853

66

107

316

－

1,344

2,426

199

112

59

－

2,797

Industry A

Industry B$402,353$ 38,513

7,763

543

Thousands of U.S. dollars
2007
Eliminations/C
Industry C Industry D orporate
Consolidated$－$ 89,498$166,877$697,241
－

2,497

－

10,804－
12,599
6,350
179
6,069
－
Notes: Industry A consists of special equipment car.
Industry B consists of environmental equipment and systems.
Industry C consists of car sales business.
On April 1,2006, Kyokuto Kaihatu Co.,Ltd sold a subsidiary of car
sales businessIndustry D consists of real estate business.
Corporate assets consist primarily of cash and cash equivalents, investment inandadvances to affiliates, investments in securities and the corporate headquarters
assets.

１４．Subsequent Event(1) The following appropriations of the Company’s retained earnings in respect of the year
ended March 31, 2007 were as proposed by the Board of Directors and approved by theshareholders at the annual general meeting held on 27,June, 2007:

Appropriations
Cash dividends (¥ 10 per share)

Millions of yen¥

208

Thousands of
U.S. dollars$ 1,767

Effective April 1,2006,the Company and its domestic consolidated subsidiaries adopted Accrued
bonuses to directors method. The effect of this change was to decrease income before income taxes by 78
million (U.S.$661 thousand).
(2) Acquisition of a subsidiary
On April 1, 2007, Kyokuto Kaihatu Co.,Ltd acquired 100% shares of common stock of Nihon
Torekusu Co.,Ltd by ¥4,000 million (U.S.$33,884 thousand).

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders andBoard of Directorsof Kyokuto Kaihatsu Kogyo Co., Ltd.
We have audited the accompanying consolidated balance sheets of Kyokuto
Kaihatsu Co., Ltd. and subsidiaries as of March 31, 2006 and 2007, and the related
consolidated statements of income, stockholders’ equity and cash flows for each of
the years in the two-year period ended March 31, 2007. These consolidated
financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in Japan. Those standards require that we plan and perform the audit toobtain reasonable assurance about whether the financial statements are free ofmaterial misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates madeby management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Kyokuto Kaihatsu Kogyo Co.,Ltd. and subsidiaries as of March 31,
2006 and 2007, and the results of their operations and their cash flows for each of the years in the
two-year period ended March 31, 2007 in conformity with accounting principles generally acceptedin Japan, except at noted in the following paragraph.
As explained in Note 14 (1), Effective April 1,2006,the Company and its domestic consolidated
subsidiaries adopted Accrued bonuses to directors method.
The accompanying consolidated financial statements as of and for the year ended
March 31, 2007 have been translated into United States dollars solely for theconvenience of the reader. 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.
Yukoh Audit Corporation
Osaka, Japan
June 27, 2007

CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co.,Ltd.
Established: June,1955
Paid-in Capital: ¥11,899 million (at March 31,2007)
Number of Shares Issued: 42,737,668shares (at March 31,2007)
Number of Employees:1,268 (at March 31,2007)
Head Office:1-45,Koshienguti 6-chome,Nishinomiya City,
Hyogo Prefecture,663-8545 Japan
Tel.+81-798-66-1000, Fax.+81-798-66-8146
Tokyo 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 61,456 ㎡, Since March,1962
Located in Yamato,Kanagawa
Nagoya Plant
Occupies 132,537 ㎡, Since June,1970
Located in Komaki,Aichi
Miki Plant
Occupies 98,274 ㎡, Since October,1979
Located in Miki,Hyogo
Fukuoka Plant
Occupies 66,832 ㎡, Since September,1970
Located in Iizuka,Fukuoka
Hachinohe Plant
Occupies 57,600 ㎡, Since April,1999
Located in Hacinohe,Aomori

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

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

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