Annual Report 2012
Year ended March 31, 2012

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

2
7
10
12
13
14
15
16
40
41
42

Operational Results

2

１．Operational Results（１）Analysis of Operational Results<Summary of Operational Results for the Consolidated Fiscal Year ended March 31, 2012>
The economy of Japan in this consolidated fiscal year was greatly depressed after the Great East-Japan
Earthquake which occurred on March 11, 2011, but as the supply chain was restored, the economy recovered
rapidly over the summer months. From the Fall, there was demand related to the reconstruction work, butthere were also effects as the European debt crisis returned to the fore andfrom a very strong yen and the flooding in Thailand. The result was therefore
a level trend towards the end of the fiscal year.
In these circumstances, as the second year of our medium-range management
planning, the "Plan 2010" (April 2010 - March 2013), the group strongly
promoted overseas expansion and actively worked to strengthen our business,for example with efforts to improve profitability. In our key business,
the Specialty Truck Segment, the domestic market recovered greatly fromthe summer onwards and there were increases seen resulting from last-minutedemand before the strengthening of vehicle exhaust emissions controls
and also from the demand for reconstruction work. In our Environment
Equipment and Systems Segment, the environment for receiving orders
continued to be very severe, due in part to changes made to the budget plans
Representative Director,
President, CEOof some local governments because of the earthquake. In our Real Estate Rental
Takaaki Fudetani
Segment, the environment continued to be severe, due in part to the continuing
sluggish demand for multistory parking equipment.
As a result, in the current consolidated fiscal year, net sales increased by 10,096 million yen (17.5%) comparedwith the preceding consolidated fiscal year to 67,783 million yen. As for profit and loss status, operating income
reached 2,957 million yen, an improvement of 1,761 million yen (147.4%) due to the sales improvement
mainly at the Specialty Truck Segment, our mainstay category. Thus, the current net income reached 2,209
million yen, an improvement of 1,326 million yen (150.3%).
We would like to present the summary of business on a consolidated basis by segment in comparison
with the preceding fiscal year.

ⅰ) Specialty Truck Segment
In our Specialty Truck Segment, there was a situation in the domestic market from April to May where it wasdifficult to procure some parts due to the effects of the earthquake. However, as this situation then returned tonormal, there was a rapid recovery from the summer onwards. The market environment for exports continued
to be severe, due in part to the continuation of a very strong yen.
In these circumstances, in Japan we worked to secure enough production to support the reconstruction work
demand and last-minute demand before the strengthening of vehicle exhaust emissions controls by maximizing
the utilization of our existing structures and equipment. For overseas, we proceeded with the plant
construction and final preparations for the operation of our plant in India (MITHRA KYOKUTO SPECIALPURPOSE VEHICLE CO., PVT. LTD.: Vijayawada, Andhra Pradesh).
As a result, net sales in the Specialty Truck Segment increased by 8,386 million yen (18.4%) to 54,033
million yen. Segment profit (loss) increased by 2,071 million yen, returning to the profit of 1,398

Operational Results

3

million yen due to the sales improvement and profit improvement by cost reductions.

Carried on a trailer
Rapid Development

New-type Concrete pomp
“PY125-36A” / “PY100-36A-S”
equipped with boom speed
control system

Rapid Development
Shelter System (RDSS)
licensed by DYHOLD LLC.
to NIPPON TREX

Rear dump truck(trial model)
manufactured by MKSPVin India

Concrete mixer truck(trial model)
manufactured by MKSPVin Indiaⅱ) Environment Equipment and Systems Segment
In our Environment Equipment and Systems Segment, in Japan we carried out activities to obtain orders in theplant PFI business and proposal activities for the processing of disaster-related waste. We also continued tofocus on cost price reduction for plant construction and on receiving contracts for maintenance and operation, as
we strengthened our structure to secure profits. We also proceeded with our extension of environmental
technologies overseas, for example with our first order accepted for the equipment in China by installing ademonstration line for pulverizers at our Kunshan Plant (China).
However, orders the Segment obtained decreased by 5,111 million yen (42.8%) to 6,822 million yen
due to obtaining orders of domestic recycle center with serious consideration on profitability. Net
sales increased by 1,106 million yen (15.0%) to 8,475 million yen. Segment profit decreased by 109
million yen (8.4%) to 1,188 million yen.

Operational Results

4

Pulverizer systemfor demonstration

Vertical-type High-speedin Kunshan Plant (China)

Rotary Pulverizerⅲ) Real Estate Rental Segment
In our Real Estate Rental Segment, as the market environment for multistory parking equipment
continued to be sluggish, we aimed to secure profits by promoting activities to accept orders formaintenance and renewals. Also, our simple aluminum lift-up waterproofing plate (Product name:
The Guard-ban) went on sale as a new product to deal with flood damage.
As a result, net sales increased by 685 million yen (13.3%) to 5,831 million yen and segment profit decreasedby 117 million yen (13.6%) to 744 million yen due to repair costs of leased property.

The “Guard-ban”
Multistory parking equipment

Simple Rise Type Aluminum
Waterproofing Plate<Forecast of Operations for the Next Consolidated Fiscal Year ending March 31, 2013>
In our forecast for the future, whilst in the Japanese economy the action for the reconstruction from the Great
East-Japan Earthquake will accelerate, there are also concerns about insufficient power supply and thecontinuing strength of the yen, so it is felt that uncertainty about the future will continue. For our Group, in thedomestic market it is predicted that demands such as that for reconstruction work after the earthquake willcontinue for some time, but after this run of demand subsides, it is thought that in the medium and long-term it
will continue to gradually decline.

Operational Results

5

Regarding the forecast of consolidated business performance for March 2013, the Company estimates net sales
to increase by 4,216 million yen (6.2%) over March 2012 to 72,000 million yen, since the Specialty Truck
Segment is likely to increase sales. Management expects the overall operating income to increase by 842
million yen (28.5%) to 3,800 million yen, while net income is estimated to grow by 91 million yen (4.1%) to
2,300 million yen.

（２）Analysis on Financial Conditionsⅰ) Situations of Assets, Liabilities and Net WorthIn the current consolidated fiscal year, total assets increased by 5,752 million yen (6.5%) from the end of thepreceding fiscal year to 93,871 million yen.
Current assets increased by 5,205 million yen (11.7%) to 49,483 million yen, due to increases in accounts
receivable and trade notes, etc.
Non-current assets (property, plant and equipment, intangible assets and investments and other assets)
increased by 546 million yen (1.2%) to 44,387 million yen, due to investments in securities, etc.
Regarding liabilities, current liabilities increased by 6,222 million yen (29.5%) to 27,276 million yen, due toincreases in trade notes and accounts payable, etc. Non-current liabilities decreased by 2,697 million yen(19.0%) to 11,475 million yen due to repayments of long-term bank loans, etc.
Total shareholder’s equity increased by 2,226 million yen (4.2%) to 55,120 million yen, due to posting of net
profit, etc.
As a result, the capital adequacy ratio stood at 58.7% as of the end of the current fiscal year (60.0% at the end of
the preceding fiscal year).

ⅱ) Cash Flow Situation
Consolidated cash and cash equivalents at the end of period decreased by 2,883 million yen (22.1%) over thebalance at the beginning of period to 10,176 million yen. Cash flow by activity type is summarized asfollows:
Cash Flow from Operating Activities
Net cash provided by operating activities amounted to 1,202 million yen (a decrease of 1,273 million yen
compared with the preceding fiscal year). This was because of an increase in accounts payable, etc.
Cash Flow from Investing Activities
Net cash used in investing activities was 2,278 million yen (an increase of 30 million yen compared with thepreceding fiscal year). This was because of purchases of non-current assets, etc.
Cash Flow from Financing Activities
Net cash used by financing activities was 1,806 million yen (a decrease of 3,644 million yen compared withthe preceding fiscal year). This was because of repayments of long-term bank loans.

Operational Results

6(3) Principal policy for return of profits to shareholders and payment of dividends for the current
year and next year
The Kyokuto Kaihatsu Kogyo Group regards the return of profits to shareholders as one of the most importantmanagement’s policies. Taking the development of business in the future and business environments into
account, management has been striving to meet investors’ expectations through the improvement of businessperformance and the strengthening of its financial position.
The Meeting of Shareholders on June 27th, 2012 resolved and passed to pay a dividend of 6 yen per share at theend of March 2012 as originally proposed by management, making its annual dividend 10 yen per shareincluding an interim dividend.
For the year ending March 2013, management plans to pay an annual dividend of 12 yen per share (including
an interim dividend of 6 yen).

Management Policy

7

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) Targeted management index
In our "Plan 2010" medium-range management planning, the Group has established a business target of at least
67 billion yen in consolidated sales and at least 3 billion yen in consolidated operating profits for the fiscal year
ending March 2013, regardless of whether or not there is continuing sluggish demand for normal trucks inJapan. However, as written in the "Forecast of Operations for the Next Consolidated Fiscal Year ending
March 31, 2013," in the forecast for consolidated business performance for the year ending March 2013, it ispredicted that orders for specialty trucks will continue to trend well, and it is expected that results will be 72
billion yen in sales and 3.8 billion yen in operating profits, which both exceed the targets.
(3) Mid-to-Long Term Management Strategy and Major Challenges
In the domestic market, demands in restoration work after the disaster, etc. are expected to continue for a certain
period.
Under this business environment, the Group would like to respond to orders and production requirements forour various products to the utmost. However, since medium- to long-term domestic demands for trucks are
expected to decrease gradually, we will aggressively and emphatically promote overseas initiatives, focusing
particularly on establishment of manufacturing sites in newly developing countries expected to generate strong
demands.
We will continue our efforts aggressively to secure and promote sound business performances, in accordancewith the following five Basic Policies of “Plan 2010,” formulated as our mid-term management plan.
Basic Policies(1) As for the specialty truck business, we will change our business constitution to one where profit canbe 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 our technologies with overseas
companies additionally to ensuring domestic orders and profits.
(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 business categories.
(5) We will promote mobilization of assets possessed by the Kyokuto Kaihatsu Group to streamline ourcapital asset management.

Management Policy

8

Key Strategies(1) Specialty Truck Segment
Challenge:
Ensuring profit even if domestic demands for medium and heavy-duty 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 manufacturing system, reducing cost, expanding overseas procurement, and increasing
market share.
[Result in the year ending March 2012](1) We have promoted cost reduction by further shifts to in-house production.
(2) We have increased international sourcing for cost reduction, including by using parts andcomponents manufactured by Kunshan Plant.
Challenge:
Establishing new overseas manufacturing sites to ensure business development
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 and overseas sites within the Group.
[Result in the year ending March 2012](1) We have made the plant construction and final preparations for the Indian plant (“MITHRAKYOKUTO SPECIAL PURPOSE VEHICLE CO., PVT. LTD.” in Vijayawada, Andhra Pradesh,
India).
(2) We will continually and actively consider establishing new overseas manufacturing sites.
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 range of products such as theelectric refuse trucks whose equipment is driven electrically, and electric concrete pumps, etc. We will
also work actively upon developing new products which match the needs of the overseas markets as we
enforce our businesses in these overseas markets, too.
[Result in the year ending March 2012](1) We have made a full model change of press type garbage trucks.
(2) We have introduced a, hybrid electric garbage truck, developing the line-up of the electric special
purpose vehicles.
(3) NIPPON TREX, a consolidated subsidiary, has executed the license agreement with DYHOLD,
LCC (South Carolina, USA) concerning the Rapid Development Shelters (RDSS), which are very
useful in an emergency.
(4) We have actively launched other new products including piston-type concrete pumps equipped withthe 36 meters boom, which is in the longest class of trucks available on public roads in Japan..

(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 new plants by being

Management Policy

9

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 andoutsourced plant operation business where stable profit can be expected. We will also work uponprocuring components from overseas market, etc. to reduce the cost and to expand the profit.
[Result in the year ending March 2012](1) We have started construction of new plant orders of which we obtained in the preceding year.
(2) We have actively promoted for system operation contracts to expand the profits.

Challenge:

Actively expanding the know-how for the environmental businesses to overseas
markets
We will promote licensing business of our technologies regarding crushers, RDF system, and recycling
centers, etc. to potential overseas markets such as those in the Asian countries. We will aim to contributeto the promotion of environmental programs in each country, and to enforce the environmental equipment
and systems business provided by the Group.
[Result in the year ending March 2012](1) We have obtained the 1st order of out pulverizer system in China.
(2) We have actively promoted our products by exhibiting them at some expositions or other events in
China.
(3) Real Estate and Rental Segment
Challenge:
Expanding our car-parking business
As for the car-parking business, we will focus on renovation business where a new market is expected toemerge, and will also enforce our product line-up by releasing new products.
[Result in the year ending March 2012](1) We have actively promoted renewal of multistory parking equipment.
(2) We have strengthened maintenance business activities.
(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 can be expectedwith the existing businesses that are already implemented by the Group, but into totally new businessareas regardless of the current Group business categories by promoting active alliances. This will enable
us to ensure new source of earnings in the future and to establish an even more robust business basis.
[Result in the year ending March 2012](1) We have launched the simple rise type aluminum waterproofing plate, a new product to protect
assets against flood caused by a typhoon or a localized downpour rising everywhere nowadays.
(2) We have studied and gathered information about some new markets, expected to grow in the future.

Consolidated Balance Sheets

10

CONSOLIDATED BALANCE SHEETSAt March 31, 2012 and 2011

Thousands of
U.S. dollars(Note 1)Millions of yen
ASSETS
Current assets:
Cash and deposits (Notes 8 & 10)
Short-term securities (Notes 8 & 10)
Trade notes and accounts receivable (Note 10 & 17)
Merchandise & finished goods
Work in process
Raw materials & supplies
Other current assets
Deferred tax assets (Note 15)
Allowance for doubtful accounts
Total current assets

2012¥

Property, plant and equipment (Note 11):Land (Note 5)
Buildings and structures (Note 5)
Machinery, equipment and vehicles
Construction in progress
Other
Total
Accumulated depreciation
Net property, plant and equipment

Intangible assets

Investments and other assets:
Investment securities (Notes 3, 5 & 10)
Deferred tax assets (Note 15)
Other assets
Allowance for doubtful accounts
Total investments and other assets
Total
The accompanying notes are an int egral part of these statem ents.

¥

2011

2012

4,223 ¥
5,953
29,285
302
2,120
5,944
845
1,223
(412)
49,483

5,609
7,949
21,178
94
1,888
5,755
838
1,115
(149)
44,277$

20,09429,813
15,455598
1,155
67,115(31,766)
35,34919,33130,034
15,51416
1,131
66,026(31,072)
34,954244,479
362,731
188,036
7,280
14,060816,586(386,494)
430,092

361

357

4,382

6,626
44
3,315
(1,307)
8,678
93,871 ¥

5,585
913
3,411
(1,378)
8,531
88,11980,617533
40,338(15,899)
105,589
1,142,122$

51,37872,425356,304
3,679
25,79872,314
10,295
14,880(5,014)602,059

11

Consolidated Balance Sheets

CONSOLIDATED BALANCE SHEETSAt March 31, 2012 and 2011

Millions of yen
LIABILITIES AND SHAREHOLDERS' EQUITYCurrent liabilities:
Short-term bank loans (Notes 4, 5 & 10)
Current portion of bonds payable (Notes 4 & 10)
Current portion of long-term bank loans (Notes 4, 5 & 10)
Trade notes and accounts payable (Note 10 & 17)
Accrued expenses
Income taxes payable
Other current liabilities
Total current liabilities

2012¥

Non-current liabilities:
Bonds payable (Notes 4 & 10)
Long-term bank loans (Notes 4, 5 & 10)
Liabilities for retirement benefits (Note 6)
Liabilities for directors' retirement benefits
Deferred tax liabilities (Note 15)
Other non-current liabilities (Notes 4, 5 & 10)
Total non-current liabilities

Shareholders' Equity:
Common stock (Note 13):
Authorized-170,950,672 shares
Issued-42,737,668 shares in 2012 and 2011
Capital surplus
Retained earnings
Treasury stock, at cost:
3,005,055 shares in 2011
3,005,368 shares in 2012
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Total accumulated other comprehensive income
Total shareholders' equity
Total
The accompanying notes are an int egral part of these statem ents.

¥

Thousands of
U.S. dollars(Note 1)

2011

2012

2,620 ¥
494
1,744
16,796
2,792
527
2,303
27,276

2,620
494
1,865
12,014
2,120
158
1,783
21,054

$

641
3,195
2,012
134
1,006
4,487
11,475

1,135
3,967
2,189
125
1,494
5,262
14,172

7,799
38,87724,483
1,629
12,23554,590139,613

11,90011,71933,145

11,90011,71931,254

144,785
142,581403,271(2,145)(2,145)(26,101)

720
(219)
501
55,12093,871 ¥

367
(202)
165
52,893
88,1198,759(2,656)6,103
670,639
1,142,122$

31,877
6,010
21,216204,359
33,9706,415
28,023331,87012

Consolidated Statements of Income

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2012 and 2011

Millions of yen

Net sales
Cost of sales (Note 18)
Gross profit
Selling, general and administrative expenses (Note 14)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Loss on sales or disposition of property and equipment, net
Loss on impairment of long-lived assets
Gain on sales of securities
Write-down of investment securities
Amortization of negative goodwill
Loss on disaster
Foreign exchange gain (loss)
Other-net
Other expenses-net
Income before income taxes and minority interests
Income taxes (Note 15):
Current
Deferred
Total income taxes
Net income before minority interests
Net income

¥

¥

2012
67,783 ¥54,64613,137
10,1802,957

The accompanying notes are an int egral part of these statem ents.

¥

$

2012
824,714664,875
159,839
123,860
35,979

112
(164)
(20)
0
(47)
377
(92)
19
(175)
10
2,967

95
(176)
(32)
(5)
54
377
(117)
(140)
(139)
(83)
1,112

1,361
(1,990)
(242)
0
(570)
4,581
(1,116)231(2,129)126
36,105

630
128
758
2,209
2,209 ¥

324
(94)
230
882
882

7,669
1,564
9,233
26,872
26,872

2012
Amounts per shares:
Basic net income
Diluted net income
Cash dividends applicable to earnings of the year2011
57,68647,177
10,5099,314
1,195

Thousands of
U.S. dollars(Note 1)

Yen

55.59 ¥
10.00$

U.S. dollars(Note 1)

2011
22.21
7.00

2012

$

0.68
0.12

Consolidated Statements of Comprehensive Income

13

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Years ended March 31, 2012 and 2011

Millions of yen

Net income before minority interests¥

Other comprehensive income (Note 16):
Net unrealized gains on other securities
Foreign currency translation adjustments
Share of other comprehensive income in affiliates accounted forby the equity method
Total other comprehensive income
Comprehensive income (Note 16)
Total comprehensive income attributable to (Note 16):
Owners of the parent
Minority interests
The accompanying notes are an int egral part of these statem ents.

¥

2012
2,209 ¥

2011
882

Thousands of
U.S. dollars(Note 1)$

2012
26,872

353
(17)
0

73
(169)
(14)

4,300
(212)
3

336

(110)

4,091

2,545 ¥

772

2,545
－

772
－

$

30,96330,963－

Consolidated Statements of Changes
in Shareholders’ Equity

14

CO NSO LID ATED STAT EMENTS O F CH ANGES IN SHAREHO LD ERS' EQUITY
Ye ars e nd ed March 31, 2012 and 2011
A c cum ulat ed other com pr ehensive inc ome

C om mon stoc k

B alance , March 31, 2010¥

1 1,9 00 ¥Ca pital
surp lus
1 1, 719 ¥Re tained
ea rnings

Tr easury stoc k

30 ,61 0 ¥Pu rchas es of tre asu ry st ock
88 2

A ppro priatio n
Cas h divid en ds p aid(23 8)(0)¥

1 1,9 00 ¥1 1, 719 ¥

31 ,25 4 ¥Pu rchas es of tre asu ry st ock

Tota l2 94 ¥(19 ) ¥

27 5

73

(183 )(11 0)

3 67 ¥(202 ) ¥

16 5

3 53

(17 )

33 6

7 20 ¥(219 ) ¥50 1

0(2 ,14 5) ¥(0)

Dispo sal of tre asu ry stock
N et in come(0)0

2 ,20 9A ppro priatio n
Cas h divid en ds p aid
N et ch ange s in t he ye ar
B alance , March 31, 2012For eig n
c ur r ency
t ra nsl ationa djustme nt s

(0)

Dispo sal of tre asu ry stock
N et in comeN et ch ange s in t he ye ar
B alance , March 31, 2011

(2 ,14 5) ¥U nre al ized
g ain ona vai l able-for sa le sec urities(31 8)¥

1 1,9 00 ¥1 1, 719 ¥

33 ,14 5 ¥(2 ,14 5) ¥ThousaA c cum ulat ed other com pr ehensive inc ome

C om mon stoc k

B alance , March 31, 2011
Pu rchas es of tre asu ry st ock$

14 4,7 85 $Ca pital
surp lus
14 2, 581 $Re tained
ea rnings

Tr easury stoc k

3 80 ,26 6 $(26 ,10 0) $U nre al ized
g ain ona vai l able-for sa le sec urities
4,4 59 $For eig n
c ur r ency
t ra nsl ationa djustme nt s
(2, 447 ) $Tota l2 ,01 2(2)

Dispo sal of tre asu ry stock
N et in come(0)1

26 ,87 2

A ppro priatio n
Cas h divid en ds p aid
N et ch ange s in t he ye ar
B alance , March 31, 2012

(3 ,86 7)
4,3 00$

14 4,7 85 $T he ac c ompa nying notes a re an integr al p ar t of these sta tements.

14 2, 581 $4 03 ,27 1 $(26 ,10 1) $8,7 59 $(209 )

4 ,09 1

(2, 656 ) $6 ,10 3

Consolidated Statements of Cash Flows

15

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2012 and 2011

Thousands of
U.S. dollars(Note 1)Millions of yen
Operating activities:
Income before income taxes and minority interests
Depreciation and amortization
Write-down of investment securities
Loss on impairment of long-lived assets
Gain on sales of securities
Loss on sales or disposition of property and equipment, net
Interest and dividend income
Interest expenses
Decrease (increase) in trade notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in trade notes and accounts payable
Increase (decrease) in liabilities for retirement benefits
Increase (decrease) in consumption taxes payable
Other, net
Sub totalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities

2012

2012

2,967 ¥
1,756
47
(0)
20
(112)
164
(8,008)
(412)
4,624
(177)
195
469
1,533
112
(86)
(357)
1,202

1,112
1,902
5
(54)
32
(95)
176
(569)
501
953
(215)
(115)
(666)
2,967
96
(176)
(411)
2,476

Investing activities:
Proceeds from time deposits
Purchases of securities and investments
Proceeds from sales of securities and investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Disbursement of loans receivableCollection of loans receivable
Net cash used in investing activities

500
(659)
3
(2,036)63(161)
12(2,278)(1,516)
176
(735)
84
(328)
9
(2,310)

6,083(8,018)30(24,773)768(1,959)145(27,724)

Financing activities:
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment for redemption of bonds
Payment of finance lease obligations
Purchases of treasury stock
Proceeds from sales of treasury stock
Dividends paid
Net cash provided by (used in) financing activities

812(1,704)
(494)
(102)
(0)
0
(318)
(1,806)4,500(1,659)
(494)
(269)
(0)
0
(239)
1,839

9,879
(20,739)(6,010)(1,241)(2)
1(3,866)(21,978)

Foreign currency translation adjustments on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year¥
Cash and cash equivalents at end of year (Note 8)(0)(2,882)
13,058
10,176 ¥

(15)
1,990
11,06813,058(12)(35,078)
158,881
123,803

The accompanying notes are an integral part of these statements.

¥

2011
$

36,10521,365570(0)242(1,361)
1,990(97,429)(5,009)56,260(2,155)2,376
5,716
18,6701,366(1,053)(4,347)
14,636$

Basis of Presenting Consolidated 16
Financial Statements

1. Basis of Presenting Consolidated Financial Statements
The accompanying consolidated financial statements of Kyokuto Kaihatsu Kogyo Co., Ltd.
(the “Company”) and its consolidated subsidiaries (collectively the “Group”) have been
prepared in accordance with the provisions set forth in the Japanese Financial
Instruments and Exchange Act and its related accounting regulations, and in conformity
with accounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial
Reporting Standards.
In preparing the accompanying consolidated financial statements, certain
reclassifications have been made to the consolidated financial statements issued
domestically, in order 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 readers, have been translated into U.S. dollars at the rate of¥82.19=US$1, the approximate exchange rate on March 31, 2012. 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 9
significant subsidiaries. Investments in 1 nonconsolidated subsidiary and 1 affiliate areaccounted for by the equity method.
Under the concept of control or significant influence, those companies in which theCompany, directly or indirectly, is able to exercise control over operations are fully
consolidated, and those companies which the Group has the ability to exercise significant
influence (affiliated companies) are accounted for by the equity method.
There are 2 nonconsolidated subsidiaries which are not accounted for by the equity
method, because these companies are not material in terms of net income and retained
earnings and do not have any significant impact on the consolidated financial statements,
if excluded from the scope of application by the equity method.
All significant inter-company balances and transactions have been eliminated in the
consolidated financial statements. All material unrealized gains resulting frominter-company transactions have been eliminated.

Basis of Presenting Consolidated 17
Financial Statements

Assets and liabilities of the consolidated subsidiaries at the time of investment are allvalued at fair value. The goodwill or negative goodwill is being amortized on astraight-line basis over estimated useful lives not exceeding 20 years, or five years insituations in which the useful lives cannot be estimated. However, insignificant goodwill
or negative goodwill is charged to expenses (income) when incurred.

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

(c) Short-term Securities and Investment Securities
The Group classifies their securities as held-to-maturity
available-for-sale securities, depending on management’s intent.

debt

securities

or(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 andlosses, net of applicable taxes, and reported in a separate component of shareholders’ equity.
The cost of available-for-sale securities sold is determined based on the moving averagemethod.
None-marketable available-for-sale securities are stated at cost determined by the moving
average method.
(d) Inventories
Merchandises are stated at cost determined by the specific identification method, or if
lower, the net realizable value.
Raw materials, finished goods and work in process are stated at cost determined by theperiodic average method, or if lower, the net realizable value.
Supplies are stated at cost determined by the last purchase cost method, or if lower, thenet realizable value.

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

Basis of Presenting Consolidated 18
Financial Statements(f) Liabilities for Retirement Benefits
Liabilities for retirement benefits are recorded for employees’ pension and severance
payments based on the projected benefit obligations and the fair value of plan assets atthe balance sheet date.

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

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

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

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

(k) Leases
Finance lease transactions, except for immaterial or short-term finance leases
transactions which are accounted for as operating leases, are capitalized to recognize
lease assets and lease obligations in the balance sheet. Such capitalized lease assets are
depreciated by the straight-line method over the lease terms assuming no residual value.
As permitted, finance leases which commenced prior to April 1, 2008 and have beenaccounted for as operating leases, have been accounted for as operating leases with thenote of certain “as if capitalized” information.

Basis of Presenting Consolidated 19
Financial Statements(l) Income Taxes
The asset and liability approach is used to recognize deferred tax assets and liabilities forthe expected future tax consequences of temporary differences between the carrying
amount and tax bases of assets and liabilities, and operating loss carry-forwards.

(m) Derivatives
All derivatives, except for certain foreign exchange forward contracts and interest rate
swap contracts described below, are stated at fair value. If derivative financial
instruments are used as hedges and meet certain hedging criteria, the Group defers
recognition of gains or losses resulting from a change in the market value of the derivative
financial instruments until the related gains or losses on the hedged items are recognized.
Accounts payable hedged by foreign exchange contracts which meet certain hedging
criteria are translated at their contracted rates. Interest rate swaps which meet certain
hedging criteria are accounted for as if the interest rate applied to the swaps hadoriginally applied to the underlying debt.

(n) Per Share Information
Basic net income per share is computed based on net income available to common
stockholders and the weighted average number of shares of common stock outstanding
during each period. The average numbers of shares used in the computations are 39,732
thousand shares for 2012 and 2011, respectively.
Diluted net income per share is not disclosed because the Company had no potentiallydilutive shares outstanding at these balance sheet dates.
Cash dividends per share shown in the statements of income are the amounts applicableto the respective years.

(o) Application of the “Accounting Standard for Accounting Changes and Error
Corrections” and others
For the accounting changes and error corrections made after the fiscal year beginning on
April 1, 2011, the Company has adopted the “Accounting Standard for Accounting
Changes and Error Corrections” (ASBJ Statement No.24 of December 4, 2009) and the“Guidance on Accounting Standard for Accounting Changes and Error Corrections” (ASBJ
Guidance No.24 of December 4, 2009).
Accounting treatments under this standard and guidance are as follows;(1) Changes in accounting policies
When a new accounting policy is applied with revision of accounting standards, a newpolicy is applied retrospectively unless the revised accounting standards include specificBasis of Presenting Consolidated 20
Financial Statements

transitional provisions. When the revised accounting standards include specific transitional
provisions, an entity shall comply with the specific transitional provisions.
(2) Changes in presentations
When the presentation of financial statements is changed, prior period financial statements
are reclassified in accordance with the new presentation.
(3) Changes in accounting estimates
A change in an accounting estimate is accounted for in the period of the change if thechange affects that period only, and is accounted for prospectively if the change affects boththe period of the change and future periods.
(4) Corrections of prior period errors
When an error in prior period financial statements is discovered, those statements arerestated.

3. Investment Securities
The following is a summary of held-to-maturity securities and available-for-sale securities
at March 31, 2012 and 2011:
Millions of yen

March 31, 2012
Debt securities,
whose fair value exceeds
carrying amountwhose fair value does notexceed carrying amount
Total

Carrying
amountHeld-to-maturity securities
Gross
Gross
unrealized
unrealized
gains
lossesFair value

¥

634

¥ 1

¥

－

¥

635

¥

－
634

－
¥ 1

¥

－
－

¥

－
635

Millions of yen

March 31, 2011
Debt securities,
whose fair value exceeds
carrying amountwhose fair value does notexceed carrying amount
Total

Carrying
amount¥Held-to-maturity securities
Gross
Gross
unrealized
unrealized
gains
losses

15

¥ 0

622
¥ 637

－
¥ 0

¥
¥

Fair value

－

¥

15

(0)
(0)

622
¥ 637

Basis of Presenting Consolidated 21
Financial Statements

Thousands of U.S. dollars

March 31, 2012
Debt securities,
whose fair value exceeds
carrying amountwhose fair value does notexceed carrying amount
Total

Held-to-maturity securities
Gross
Gross
unrealized
unrealized
gains
lossesCarrying
amount$ 7,721$ 12－－$ 7,721

－
$ 12

－
$ －

Fair value

$

7,733

－
$ 7,733
Millions of yen

March 31, 2012
Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Available-for-sale securities
Gross
Gross
unrealized
unrealized
gains
lossesCost¥ 4,085132¥ 4,217¥ 1,2680¥ 1,268

¥
¥

(151)
(2)
(153)

Book Value(Estimatedfair value)¥ 5,202130¥ 5,332660¥ 5,992
Millions of yen

March 31, 2011Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Cost

¥ 3,470134¥ 3,604

Available-for-sale securities
Gross
Gross
Book Value
unrealized
unrealized(Estimated fair
gains
lossesvalue)

¥ 907
0
¥ 907

¥
¥

(287)
(2)
(289)

¥ 4,090132¥ 4,222726¥ 4,948

Basis of Presenting Consolidated 22
Financial Statements

Thousands of U.S. dollars

March 31, 2012
Market value available:
Equity securities
Other securities
SubtotalMarket value not available:
Total

Available-for-sale securities
Gross
Gross
Book Value
unrealized
unrealized(Estimated fair
gains
lossesvalue)

Cost$ 49,714
1,611$ 51,325$ 15,4250$ 15,425$ (1,849)(30)$ (1,879)$ 63,290
1,581$ 64,871
8,025$ 72,896

4. Short-term Bank Loans and Long-term Debts
The annual average interest rate applicable to short-term bank loans at March 31, 2012
and 2011 was 0.68%, respectively.
Long-term debts at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Bonds
Long-term bank loans
Lease obligations
Other

2012
¥ 1,135
4,939
352
2,216

2011
¥ 1,629
5,832
374
2,432

2012
$ 13,809
60,093
4,283
26,955

Total¥ 8,642¥ 10,267$ 105,140

Aggregate annual maturities of long-term debts subsequent to March 31, 2012 were as
follows:
Thousands ofYear ending March 31
2013
2014
2015
2016
2017 and thereafter
Total

Millions of yen

U.S. dollars¥$ 28,787
28,107
19,6008,679
19,967$105,140

¥

2,366
2,310
1,611
714
1,641
8,642

To set up a commitment line by multiple finance institutions, the Company renewed anagreement with a syndicate of 7 banks and 6 banks for the years ended March 31, 2012
and 2011, respectively.

Basis of Presenting Consolidated 23
Financial Statements

The unexecuted balance of lending commitments of the Company at March 31, 2012 and2011 was as follows:
Thousands ofTotal lending commitments
Less amounts currently executed
Unexecuted balance2012¥ 3,000¥ 3,000

Millions of yen

U.S. dollars

2011¥ 5,000¥ 5,0002011$ 36,501$ 36,501

5. Pledged Assets
The following assets were pledged as collateral for the following borrowings at March 31,
2012 and 2011:
Thousands ofLand
Buildings
Investment securities
Total

2012
¥ 5,755
3,537
619¥ 9,911

Millions of yen

U.S. dollars

2011¥ 5,755
3,732
622¥ 10,109

2012$ 70,017
43,036
7,537$ 120,590
Thousands ofShort-term bank loans
Current portion of long-term bank loans
Long-term bank loans
Other
Total

2012
¥ 100
658
541
3,185
¥ 4,484

Millions of yen

U.S. dollars

2011
¥ 100
778
387
3,427
¥ 4,6922012$ 1,217
8,003
6,586
38,745$ 54,551

6. Liabilities for Retirement Benefits
The following table sets forth the changes in benefit obligations, plan assets and funded
status of the Group at March 31, 2012 and 2011:
Thousands ofBenefit 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

U.S. dollars

2012¥ 6,572
3,593

2011¥ 6,182
3,374

2012$ 79,969
43,720

2,979
20
(987)
¥ 2,012

2,808
40
(659)
¥ 2,189

36,249242(12,008)$ 24,483

Basis of Presenting Consolidated 24
Financial Statements

Severance and pension costs of the Group included the following components for the years
ended March 31, 2012 and 2011:
Thousands ofService cost
Interest cost
Expected return on plan assets
Amortization:
Prior service cost
Actuarial losses
OthersNet periodic benefit cost

Millions of yen

U.S. dollars

2012
¥ 341
125
(67)

2011
¥ 342
129
(69)

2012
$ 4,144
1,525
(818)

(20)
160
21
¥ 560

(20)
173
22
¥ 577

(242)
1,945
262
$ 6,816

Assumptions used in the accounting for the defined benefit plans for the years ended
March 31, 2012 and 2011 were as follows:
2012
2011
Method of attributing benefit to periods of service
straight–line basis
straight–line basis
Discount rate
1.3 to 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, 2012 and 2011, the Group was contingently liable as follows:
Thousands ofMillions of yen

As a guarantor of indebtedness of :Affiliated companies
OthersTotal

U.S. dollars

2012

2011

2012

¥ 4,08237¥ 4,119¥ 3,99141¥ 4,032$ 49,663
455$ 50,118

Basis of Presenting Consolidated 25
Financial Statements

8. Cash and cash equivalents
Cash and cash equivalents at March 31, 2012 and 2011 were as follows:
Thousands ofCash and deposits
Short-term securities
Less-Time deposits with original maturities
more than three months
Cash and cash equivalents

Millions of yen

U.S. dollars

2012¥ 4,2232011¥ 5,6092012$ 51,378

5,953

7,949

72,425

－

(500)

－

¥ 10,176¥ 13,058$ 123,803

9. Leases
The Group leases certain machinery and equipment, and other assets. Total lease
payments under these leases were ¥ 95 million ($ 1,157 thousand) and ¥ 226 million forthe years ended March 31, 2012 and 2011, 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, 2012 and 2011, were as follows:2012
Acquisition costs
Accumulated Depreciation
Net leased property

2011
Acquisition costs
Accumulated Depreciation
Net leased property

2012
Acquisition costs
Accumulated Depreciation
Net leased property

Machineryandvehicles
¥ 201
179
¥

22

Machineryandvehicles
¥ 425
334
¥

91

Machineryandvehicles$ 2,449
2,184
$ 265

Millions of yen

¥

Other
19
16

¥

Total
220
195

¥

3

¥

25

Millions of yen

Other
¥
219
190

Total
¥ 644
524

¥

¥

29

120

Thousands of U.S. dollars

Other
$ 227
190
$ 37

Total
$ 2,676
2,374
$ 302

Basis of Presenting Consolidated 26
Financial Statements

Future minimum lease payments under finance leases at March 31, 2012 and 2011 wereas follows:
Thousands of

Due within one year
Due after one year
Total

2012
¥ 23
2
¥ 25

Millions of yen

U.S. dollars

2011
¥ 95
25
¥ 120

2012
$ 283
19
$ 302

Depreciation expenses, which are not reflected in the accompanying consolidated
statements of income, computed by the straight-line method, would have been ¥ 95
million ($1,157 thousand) and ¥ 226 million for the years ended March 31, 2012 and 2011,
respectively.

10. Financial Instruments and Related Disclosures(1) Policy for financial instruments
The Group manages funds by utilizing short-term deposits, etc. The Group raises
money by borrowing from financial institutions and by issuing bonds. Derivatives areused, not for speculative nor trading purpose, but to hedge the exposure 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.
Investment securities consist of mainly held-to-maturity securities and equity
securities issued by the Group’s business partners and these securities are exposed tomarket risk.
The Group periodically monitors the fair value of such equity securities, which isreported to the board meeting.
Trade notes and accounts payable have payment due dates mainly within one year.
Trade notes and accounts payable denominated in foreign currencies are exposed tothe market risk of fluctuation in foreign currency exchange rate. Such risk is hedged
principally by forward foreign currency contract.
Short-term bank loans are raised mainly in connection with business activities andlong-term bank loan and bonds payable, which are due mainly within five years, areraised principally for the purpose of making capital investments.
Long-term debts with variable interest rates are exposed to interest rate fluctuation

Basis of Presenting Consolidated 27
Financial Statements

risk, so the Group enters into interest rate swap transactions to manage such interest
rate exposure.
Derivatives are managed in accordance with policies and procedures for risk
assessment (see Note 12 “Derivatives”) and also the Group enters into derivativetransactions only with financially stable financial institutions to reduce institutions’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 the Group’s
liquidity.
(3) Supplementary explanation of the estimated fair value of financial instruments
With regard to the below mentioned contract prices etc. of derivatives, the contract
prices themselves do not present the market risk on the derivative transactions.
Summarized in the table below are the carrying amounts and the estimated fair valueof financial instruments outstanding at March 31, 2012 and 2011. Financial
instruments for which it is extremely difficult to determine the fair value are notincluded in the table below.
Millions of yen

March 31, 2012
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
amount¥ 4,223
29,285
5,953
5,966(16,796)(2,620)(4,939)(1,135)(2,216)
─Fair value¥ 4,223
29,285
5,953
5,967(16,796)(2,620)(4,931)(1,145)(2,351)─Unrecognizedgain/loss
¥ ─
─
─
1
─
─
8
(10)
(135)
─

Basis of Presenting Consolidated 28
Financial Statements

Millions of yen

March 31, 2011
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¥ 5,60921,178
7,949
4,859(12,014)(2,620)(5,832)(1,629)(2,441)─Fair value¥ 5,60921,178
7,949
4,859(12,014)(2,620)(5,792)(1,644)(2,552)─

Unrecognizedgain/loss
¥ ─
─
─
0
─
─
40
(15)
(111)
─

Thousands of U.S. dollars

March 31, 2012
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$ 51,378
356,304
72,42572,592(204,359)(31,877)(60,093)(13,809)(26,955)
─Fair value$ 51,378
356,304
72,42572,604(204,359)(31,877)(60,007)(13,934)(28,603)─

Unrecognizedgain/loss
$ ─
─
─
12
―
─
86
(125)
(1,648)─Methods to determine the estimated fair value of financial instruments and other mattersrelated to securities and derivative transactions:(a) “Cash and deposits”, “Trade notes and accounts receivable” and “Short-term securities”
Their carrying amounts approximate fair value because of their short maturity.
(b) “Investment securities”
The fair values of marketable securities are based on quoted market prices. The fairvalues of debt securities are based on quotes provided by the financial institutions. For
information on securities classified by holding purpose, please refer to Note 3 “Investment
Securities”.
(c) “Trade notes and accounts payable” and “Short-term bank loans”
Their carrying amounts approximate fair value because of their short maturity.

Basis of Presenting Consolidated 29
Financial Statements(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 an assumed current interest rate for loans with similar terms
and remaining maturities.
(e) “Bonds payable”
The fair value of bonds payable is estimated based on present value of the total ofprincipal and interest discounted by an assumed interest rate based on debt’s maturity
and credit 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 an assumed interest rate, if possible, 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, 2012 and 2011 consist of the following:Thousands ofMillions of yen

U.S. dollars

2011
¥ 726
1,014

2012
$ 8,025
12,838

2012
¥ 660
1,055

Non-listed equity securities
Long-term deposit

The annual maturities of financial assets and investment securities with contractual
maturities subsequent to March 31, 2012 and 2011 were as follows:
Millions of yen
Due in one year

March 31, 2012
Cash and deposits
Trade notes and accounts receivable
Short-term securities
Investment securities
Total

or less¥

4,223
29,2845,953
─¥ 39,460

Due after one

Due after five

year throughyears throughfive years

ten years

¥

¥

─
1
─
619
620

¥

¥

─
─
─
15
15

Basis of Presenting Consolidated 30
Financial Statements

Millions of yen

March 31, 2011
Cash and deposits
Trade notes and accounts receivable
Short-term securities
Investment securities
Total

Due after one

Due after fiveDue in one year

year throughyears throughor less

five years

ten years

¥

¥

5,609
21,1787,949
─¥ 34,736

¥

─
─
─
622
622

¥

¥

─
─
─
15
15

Thousands of U.S. dollars
Due in one year

March 31, 2012
Cash and cash equivalents
Trade notes and accounts receivable
Short-term securities$

Due after one

Due after five

year throughyears throughor less

five years

ten years

51,378356,296
72,425$Investment securities$ 480,099

$

7,538

─

Total

―
8
─

$

7,546

―
─
─
183

$

183

11. Investment Property
The company and certain subsidiaries hold some rental properties including land in Tokyoand other areas (“investment properties”). The amounts of net income related toinvestment properties (rental income is recognized in operating revenue and rental
expense is principally charged to operating expenses) were ¥822 million ($10,006
thousand) and ¥645 million for the year ended March 31, 2012 and 2011, respectively. The
amounts of loss on impairment of investment properties were ¥5 million for the year
ended March 31, 2011. There was no loss on impairment of investment properties for theyear ended March 31, 2012.
The carrying amount changes in such balances and market prices of investment
properties were as follows:
Millions of yen

Carrying amount

Fair value

Increase/
April 1, 2011
¥ 9,533(decrease)¥ (363)

March 31, 2012

March 31, 2012

¥ 9,170¥ 11,914

Basis of Presenting Consolidated 31
Financial Statements

Millions of yen

Carrying amount

Fair value

Increase/
April 1, 2010

(decrease)¥ 9,057¥ 476

March 31, 2011

March 31, 2011

¥ 9,533¥ 12,793

Thousands of U.S. dollars

Carrying amount

Fair value

Increase/
April 1, 2011
$ 115,997(decrease)$ (4,417)

March 31, 2012

March 31, 2012

$ 111,580$ 144,962(1) Carrying amount is net of accumulated depreciation and accumulated impairment
losses, if any.
(2) Increase during the year ended March 31, 2012 was mainly due to the site preparationin Nagoya Plant in an amount of ¥56 million ($679 thousand).
Increase during the year ended March 31, 2011 was mainly due to the change inholding purpose in an amount of ¥691 million.
Decrease during the year ended March 31, 2012 and 2011 were mainly due todepreciation in an amount of ¥222 million ($2,707 thousand) and ¥230 million.
(3) Fair value at March 31, 2012 and 2011 was principally measured based on the real estateappraisal 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 hedge accounting has been applied were as follows:
Millions of yen

March 31, 2012

Hedged item

Contract
amountContract
amount due
after oneyear

Long-term debt

¥ 1,865

¥

Fair
value

Interest rate swap:(Fixed rate payment/floating rate receipt)

1,329

Note

Basis of Presenting Consolidated 32
Financial Statements

Millions of yen

March 31, 2011

Hedged item

Contract
amountContract
amount due
after one year

Long-term debt

¥ 2,801

¥

Fair
value

Interest rate swap:(Fixed rate payment/floating rate receipt)

1,865

Note

Thousands of U.S. dollars

March 31, 2012

Hedged item

Contract
amountContract
amount due
after one year

$ 22,691$ 16,170

Fair
value

Interest rate swap:(Fixed rate payment/floating rate receipt)

Long-term debt

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

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

Balance at March 31, 2010Retirement of stock during 2011
Balance at March 31, 2011Retirement of stock during 2012
Balance at March 31, 2012

Number of
Shares42,737,668－
42,737,668－
42,737,668

CommonStock11,900－11,900－11,900CapitalSurplus11,719－11,719－11,719Thousands of U.S. dollars

Balance at March 31, 2011Retirement of stock during 2012
Balance at March 31, 2012

CommonCapitalStocksurplus144,785－
144,785

142,581－
142,581

The Company adopted 100 shares of common stock as “unit amount of shares”. A holder ofshares representing less than one unit cannot exercise any voting rights with respect tosuch shares. However, the holder is entitled to receive dividends and other distributions. A
holder of a fraction of a unit may at any time request the Company to purchase suchshares at the prevailing market price. Shares so purchased must be sold or otherwisetransferred to a third party within a reasonable time.

Basis of Presenting Consolidated 33
Financial Statements

14. Research and Development
Research and development expenditure which is included in “Selling, general andadministrative expenses” was ¥1,013 million ($12,319 thousand) and ¥949 million for theyears ended March 31, 2012 and 2011, respectively.

15. Income Taxes
Following the promulgation on December 2, 2011 of the “Act Partial Revision of the
Income Tax Act, etc. for the Purpose of Creating Taxation System Responding to Changes
in Economic and Social Structures” (Act No.114 of 2011) and the “Act on Special Measuresfor Securing Financial Resources Necessary to Implement Measures for Reconstruction
following the Great East Japan Earthquake” (Act No.117 of 2011), Japanese corporation
tax rates will be imposed for the fiscal years beginning on or after April 1, 2012. In linewith these revisions, the Company changed the statutory tax rate to calculate deferred
tax assets and liabilities from 40.64% to 37.96% for temporary differences which are
expected to reverse during the period from the fiscal year beginning on April 1, 2012 to thefiscal year beginning on April 1, 2014. Similarly, the Company changed the statutory tax
rate to calculate deferred tax assets and liabilities from 40.64% to 35.59% for temporary
differences which are expected to reverse during the period for the fiscal year beginning on
or after April 1, 2015.
As a result of this change, net deferred tax assets (after netting deferred tax liabilities)
increased by ¥172 million ($2,093 thousand), and income taxes-deferred and unrealized
gain on available-for-sale securities decreased by ¥117 million ($1,424 thousand) and ¥55
million ($669 thousand), respectively.

Basis of Presenting Consolidated 34
Financial Statements

The tax effects of significant temporary differences which resulted in deferred tax assets
and liabilities at March 31, 2012 and 2011 were as follows:
Millions of yen

Thousands of
U.S. dollars

2011

2012

429
882
478

$ 5,933
8,656
5,154

639

303

7,777

539
1,102
1,008
4,911
(1,195)
3,716

530
2,033
910
5,565
(1,650)
3,915

6,559
13,412
12,26259,753(14,546)
45,207(1,763)(1,628)(21,444)

(395)

(251)

(4,808)

(14)

－

(171)

(1,283)(1,502)(15,606)(3,455)¥ 261(3,381)¥ 534(42,029)$ 3,178

2012
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
Deferred tax liabilities:
Deferred gain on sales of fixed assets forincome tax purposes
Unrealized gain on investment
securities
Special depreciation reserve
Unrealized gain on subsidiaries’ fixed
assets by revaluation at the beginningof consolidation
Total
Net deferred tax assets

¥

488
711
424

¥

The reconciliation between the statutory tax rate and the effective income tax rate for theyear ended March 31, 2012 and 2011 were as follows:
2012
2011
Statutory tax rate
40.64%
40.64%
Non-deductible expenses for income tax purpose
1.43
2.57
Non-taxable dividend income(0.59)(1.43)
Inhabitant per capita tax
2.69
7.25
Effect of tax rate change(3.95)－
Change in valuation allowance(10.13)(16.80)
Amortization of negative goodwill(5.16)(13.76)Equity in earnings of affiliated companies
0.91
1.34
Other
(0.27)
0.84
Effective tax rate
25.57%
20.65%

Basis of Presenting Consolidated 35
Financial Statements

16. Comprehensive Income

The components of other comprehensive income for the year ended March 31, 2012 were as
follows:
Millions of yen

Thousands of
U.S. dollars

2012

2011

2012

Unrealized gain on available-for-sale securities:
Gains arising during the year
Reclassification adjustments for loss
Amount before income tax effect
Income tax effect
Total

¥ 451
47
498
(145)
¥ 353

¥ －
－
－
－
¥ －

$ 5,488570
6,058(1,758)$ 4,300

Foreign currency translation adjustments:
Adjustments arising during the year
Total

¥ (17)¥ (17)¥ －¥ －$ (212)$ (212)

¥0
¥0

¥ －
¥ －

$3
$3

¥ 336

¥ －

$ 4,091

Share of other comprehensive income in affiliate:
Gains arising during the year
Total
Total other comprehensive income

The corresponding information for the year ended March 31, 2011 was not required under
the accounting standard for presentation of comprehensive income as an exemption for the
first year of adopting that standard and not disclosed herein.

17. Trade Note Maturities
The following trade notes, which matured but were not settled on March 31, 2012 because thatday fell on a bank holiday, were included in the balance sheet as of March 31, 2012:
Thousands of U.S.

Trade notes receivable
Trade notes payable

Millions of yen

dollars

2012
¥ 800

2011
¥ －

2012
$ 9,733

212

－

2,574

18. Provision of reserve for Losses on Construction Contracts
Provision of reserve for losses on construction contracts included in Cost of Sales were
¥ 31 million ($ 377 thousand) for the years ended March 31, 2012.

Basis of Presenting Consolidated 36
Financial Statements

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

Information about sales, profit (loss), assets and other items for the years ended
March 31, 2012 and 2011 is as follows:
Millions of yen
Reportable segments
IndustryA

IndustryB

IndustryC

Total

Reconciliations (Note 1)

Consolidat
ed(Note 2)

¥ 54,015¥ 8,475¥ 5,293¥ 67,783－¥ 67,783

18

0

538

556

(556)

－

54,033

8,475

5,831

68,339(556)

67,783

Segment profit

1,398

1,188

744

3,330

(373)

2,957

Segment assets

62,381

4,691

11,777

78,84915,022

93,871

1,339

64

210

1,613

－

1,613

2,171

31

97

2,299

－

2,299

2012
Net sales:
External customers
Intersegment sales ortransfers
Total

Other items:
Depreciation
Increase in tangible andintangible fixed assets

Basis of Presenting Consolidated 37
Financial Statements

Millions of yen
Reportable segments
Reconciliations(Note 1)

Consolidated(Note 2)－

¥ 57,686

475

(475)

－

5,146

58,161(475)

57,686

1,297

861

1,484

(289)

1,195

53,376

4,184

11,76069,32018,79988,119

1,494

78

288

1,860

－

1,860

649

0

187

836

－

836

IndustryA

IndustryB

IndustryC¥ 45,643¥ 7,369¥ 4,67430472

45,646

7,369

Segment profit (loss)(674)

Segment assets

2011
Net sales:
External customers
Intersegment sales ortransfers
Total

Total

¥ 57,68
6

Other items:
Depreciation
Increase in tangible andintangible fixed assets

Thousands of U.S. dollars
Reportable segments
2012
Net sales:
External customers

IndustryA

IndustryB

IndustryC

Total$ 657,192 $ 103,121$ 64,401$ 824,714－$ 824,714

Reconciliations

Consolidated(Note 1)

(Note 2)

219

1

6,547

6,767

(6,767)－

657,411103,12270,948

831,481(6,767)

824,714Segment profit

17,01014,456

9,052

40,518(4,539)35,979Segment assets

758,985

57,075

143,290959,350

182,772

1,142,122

16,292779

2,555

19,626－

19,626

26,414377

1,180

27,971－

27,971

Intersegment sales or transfers

Total

Other items:
Depreciation
Increase in tangible andintangible fixed assets

1.

Reconciliations of segment profit in an amount of ¥(373) million ($(4,539) thousand)which consists of elimination of intersegment transactions in an amount of ¥13
million ($164 thousand) and corporate expenses which are not allocated to eachreportable segment in an amount of ¥(386) million ($(4,703) thousand). Corporate
expenses are mainly general administrative expenses not attributable to any otherreportable segments.
Reconciliations of segment assets are surplus fund (cash and deposits and securities)
and long-term investment fund (investment securities) of the Company.

2.

Segment profit (loss) is reconciled with operating income in the consolidated
statements of income.

Basis of Presenting Consolidated 38
Financial Statements

Information about impairment loss on fixed assets by reportable segment
There was no impairment loss for the years ended March 31, 2012.
Millions of yen
Reportable segments

2011
Impairment loss

IndustryA¥ 5

IndustryB

Industr
yC

¥

¥

－

－

Total

Reconciliations

Consolidate
d

¥ 5

¥ －

¥ 5

Information about amortization of goodwill and unamortized balance
Millions of yen
Reportable segments

2012

IndustryA

IndustryB

IndustryC

Total

Reconciliations

Consolidate
d

377

－

－

377

－

377

376

－

－

376

－

376

Negative goodwill:
Amortization for the year
Unamortized balance

Millions of yen
Reportable segments
IndustryC

Total

Reconciliations

Consolidate
d

¥ 4

¥ 15

¥ －

¥ 15

－

－

－

－

－

377

－

－

377

－

377

753

－

－

753

－

753

IndustryA

Industr
yB

¥

¥ 1

－

1

－

Amortization for the year
Unamortized balance

2011
Goodwill:
Amortization for the year
Unamortized balance
Negative goodwill:

Thousands of U.S. dollars
Reportable segments
IndustryA

IndustryB

IndustryC

Total

Reconciliations

ConsolidatedAmortization for the year

4,581

－

－

4,581

－

4,581

Unamortized balance

4,581

－

－

4,581

－

4,581

2012
Negative goodwill:Basis of Presenting Consolidated 39
Financial Statements

20. Subsequent Event
The following appropriations of the Company’s retained earnings in respect of the year
ended March 31, 2012 were as proposed by the Board of Directors and approved by theshareholders at the annual general meeting held on June 27, 2012.
Thousands ofAppropriations
Cash dividends of ¥6 ($0.07) per share

Millions of yen¥

238

U.S. dollars$ 2,901

Report of Independent Certified 40
Public Accountants

INDEPENDENT AUDITOR’S REPORTTo the Shareholders andBoard of Directors of
Kyokuto Kaihatsu Kogyo Co., Ltd.
We have audited the accompanying consolidated balance sheet of Kyokuto Kaihatsu Co., Ltd. and its
consolidated subsidiaries as of March 31, 2012, and the related consolidated statements of income,comprehensive income, changes in shareholders’ equity, and cash flows for the year then ended, and asummary of significant accounting policies and other explanatory information, all expressed in Japaneseyen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial
statements in conformity with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We
conducted our audit in conformity with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated
financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on the auditor’s judgment, including theassessment of risks of material misstatement of the consolidated financial statements, whether due to fraud
or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements referred to above present fairly, in all material respects
the consolidated financial position of Kyokuto Kaihatsu Kogyo Co., Ltd. and its consolidated subsidiaries asof March 31, 2012, and the consolidated results of their operations and their cash flows for the year thenended in conformity with accounting principles generally accepted in Japan.
Convenience Translation
The accompanying consolidated financial statements as of and for the year ended March 31, 2012, have beentranslated into United States dollars solely for the convenience of the reader. We have recomputed thetranslation and, in our opinion, the consolidated financial statements expressed in yen have been translated
into dollars on the basis set forth in Note 1 to the consolidated financial statements.
PKF Osaka Audit Corporation
Osaka, Japan
June 18, 2012

Corporate Information

CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co., Ltd.
Established: June,1955
Paid-in Capital: ¥11,900 million (at March 31, 2012)
Number of Shares Issued: 42,737,668shares (at March 31, 2012)
Number of Employees: consolidated 2,169 non-consolidated 823 (at March 31, 2011)
Headquarters:
1-45, Koshienguchi 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

41

Board of Directors and Statutory Auditors

BOARD OF DIRECTORS AND STATUTORY AUDITORS
Takaaki Fudetani,
Representative Director, President, CEO
Kazuyoshi Nakai,
Representative Director, Senior Managing Director,
Senior Executive Officer
Yoshinori Takashima,
Director, Associate Senior Executive Officer
Norihiro Kumazawa,
Director, Associate Senior Executive Officer
Kazuya Takahashi,
Director, Associate Senior Executive Officer
Tokumasa Hayashi,
Director, Executive Officer
Harumi Sugimoto,Director, Executive Officer
Takashi Yoneda,
Director, Executive Officer

Ryuichiro Nishikawa,Toshihisa Nakanishi,
Takeo Norimitsu,
Noboru Horimoto,Ikuya Sakai,
Haruhiro Kondo,
Sadanobu Kato,

Associate Senior Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer
Executive Officer

Tomoki Ueyama,
Taro Okamoto,
Akira Michigami,
Morio Kusunoki,Standing Auditor
AuditorOutside Corporate Auditor
Outside Corporate Auditor

42