ｆAnnual Report 2019Year ended March 31, 2019

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

2
7
9
11
12
13
14
15
48
49
50

Operational Results2

1. Operational Results(1) Analysis of Operational Results<Summary of Operational Results for the Consolidated Fiscal Year ended March 31, 2019>
In the fiscal year under review, the Japanese economy experienced
a modest recovery marked by an increase in capital investment andimprovement in the employment/income environments. This was
despite facing concerns both at home and abroad about factors
including a series of natural disasters, U.S.–China trade frictions,and the Brexit issue.
Under these circumstances, our Group actively implemented several
measures as the final year of the medium-term management plan 2016-18“Value up to the Next” (April 1, 2016 - March 31, 2019), to enhance ourearnings base and improve our corporate quality .

Representative Director,
President, CEO
Kazuya Takahashi

As a result, in the current consolidated fiscal year, net sales increased by 1,610 million yen (1.4%)
compared with the preceding consolidated fiscal year to 114,301 million yen. Operating income decreased
by 1,691 million yen (16.5%) to 8,554 million yen due to increase in costs, etc, and the current net income
attributable to owners of the parent decreased by 905 million yen (12.6%) to 6,284 million yen.
We would like to present the summary of business on a consolidated basis by segment in comparison withthe preceding fiscal year.
i) Specialty Truck Segment
As demand in Japan remained strong, efforts were made to create an efficient production system andimprove quality while striving to win new contracts.
The Group fully remodeled a new press type refuse truck, in May 2018 and released an air transfer unit
for wood pellet, a product related to forestry, in November 2018.
In addition, the Group focused on technological development and sales promotion, such as developing
an IoT-based service support system, and promoting a new Dump truck [Medium-sized rear dump truck
wear-resistant steel plating (HARDOX) specifications] which won “Good Design Award 2018.”
Net sales in the Specialty Truck Segment decreased by 2,898 million yen (3.0%) to 94,888 million yen.
Segment profit decreased by 2,680 million yen (9.3%) to 5,615 million yen.
In addition, in May 2018, we made HOKURIKU HEAVY INDUSTRIES, LTD. a wholly owned
subsidiary and entered the railway vehicle field.

Operational Results3

New press type refuse truck

New dump truck[Medium-sized rear dump truck
wear-resistant steel plating(HARDOX) specifications]
Air transfer unit for wood pelletii) Environmental Equipment and Systems Segment
As for plant construction, the Group moved ahead with construction work for facilities that the Group won
projects for and completed the construction of a recycling center in March 2019 for which an order wasreceived from Tsukuba, Ibaraki. In addition, the Group continued to focus on the stock-type business such as
maintenance and entrusted operation.
In the biogas plant business, the Group completed the construction of a plant in March 2019 for which an order
was received from Toyoura, Hokkaido as the first original contract, and engaged in activities to win newcontracts.
As a result, net sales increased by 4,494 million yen (53.2%) to 12,952 million yen. Segment profit increased by
1,058 million yen (69.5%) to 2,581 million yen.

Biogas plant

Recycle center in Noda

Operational Results

4iii) Real Estate Rental Segment
For multistory parking systems, in addition to engaging in activities to win new contracts for new
facilities, the Group continued to focus on the stock-type business such as renewal andmaintenance. For coin-operated parking, the Group strove to expand profits by expanding businessfocusing on profitability in each location.
As a result, net sales decreased by 51 million yen (0.7%) to 7,035 million yen. Segment profit
increased by 5 million yen (0.5%) to 1,161 million yen.

Toll parking (Coin-operated)

Multi-story parking equipment<Forecast of Operations for the Next Consolidated Fiscal Year ending March 31, 2019>
As the global economy is becoming increasingly unstable against the backdrop of U.S.–China
trade frictions and other factors, the Japanese economy is expected to face a challenging situation
due partly to the expected impact of the consumption tax hike in October 2019.
Under these circumstances, the Group completed its previous medium-term management plan
2016-18 “Value up to the Next” (April 1, 2016 – March 31, 2019) in March 2019.
As a result of implementing measures to secure orders for logistics- and environment-related
products and expand the stock and overseas businesses, the Group achieved its sales target among
the Group’s performance targets.
Meanwhile, the Group fell short of achieving profit targets due partly to changes in the sales
composition, a rise in raw material prices, and high fixed costs.
With the goal of fostering consistent developmental growth in the next three years and beyond
based on these issues, the Group will promote priority strategies based on the basic policy
stipulated in the new medium-term management plan 2019–21 “To the Growth Cycle” (3-year
plan; April 1, 2019 – March 31, 2022) and make all-out efforts to improve productivity, enhance
profitability, create future earnings sources, improve corporate quality, and increase social value.
Regarding the forecast of consolidated business performance for March 2020, the Company
estimates net sales to grow to 116, 000 million yen, operating income to decrease to 7,400 million
yen, the current net income attributable to owners of the parent is estimated to decrease to 5,200
million yen.

Operational Results

5(2) Analysis on Financial Conditionsi) Situations of Assets, Liabilities and Net WorthIn the current consolidated fiscal year, total assets increased by 1,231million yen (0.9%) from the end of
the preceding fiscal year to 138,878 million yen.
Current assets increased by 2,887 million yen (3.7%) to 80,757 million yen, due to increases in bills
receivable and accounts receivable, etc.
Non-current assets (property, plant and equipment, intangible assets and investments and other assets)
decreased by 1,655 million yen (2.8%) to 58,120 million yen, due to the fall in market prices ofinvestment securities, etc.
Regarding liabilities, current liabilities decreased by 48 million yen (0.1%) to 40,871 million yen due todecreases in electronically recorded monetary obligations, etc. Non-current liabilities decreased by 1,669
million yen (18.9%) to 7,149 million yen due to decreases in deferred tax liability, etc.
Total net assets increased by 2,949 million yen (8.7%) to 90,857 million yen due to the posting of net
profit, etc. attributable to owners of parent.
As a result, the capital adequacy ratio stood at 64.9% as of the end of the current fiscal year (63.2% at theend of the preceding fiscal year).
ii) Cash Flow Situation
Consolidated cash and cash equivalents at the end of period decreased by 2,273 million yen (10.6%)
compared with the end of the preceding fiscal year to 19,083 million yen. Cash flow by activity type issummarized as follows:
Cash Flow from Operating Activities
Net cash provided by operating activities amounted to 4,029 million yen (a decrease of 6,827 million yen
compared with the preceding fiscal year). This was because of the posting of net profit before tax, etc.
Cash Flow from Investing Activities
Net cash used in investing activities was 3,230 million yen (an increase of 852 million yen comparedwith the preceding fiscal year). This was because of purchases of non-current assets, etc.
Cash Flow from Financing Activities
Net cash used by financing activities amounted to 3,056 million yen (a decrease of 83 million yen
compared with the preceding fiscal year). This was because of dividends paid, repayment of long-termloans, etc.

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 26th, 2019 resolved and passed to pay a dividend of 19 yen per share at
the end of March 2019 as originally proposed by management, making its annual dividend 38 yen per shareincluding an interim dividend, increased by 2 yen compared with the preceding fiscal year.
For the year ending March 2020, management plans to pay an annual dividend of 38 yen per share (including
an interim dividend of 19 yen), same amount with the preceding fiscal year.

Management Policy

7

2. Management Policy(1) Basic Management Policy of the Company
The management philosophy of the Kyokuto Kaihatsu Group is "Value technology and trust, make concerted
efforts to develop the company, and widely contribute to the society."
Our ultimate goal in the management policy is to implement corporate policy recognizing a social role andresponsibility as a public company in a strong relationship with various stakeholders such as customers,
business partners, shareholders, employees, and local societies. In addition, by providing safe, effective andhigh quality products and services through our fair and sound business activities, the Kyokuto Kaihatsu Groupseeks to bring about greater contribution to our society and maximize corporate value.
With this management policy, we devote ourselves to three major business domains including Specialty Truck,
Environmental Equipment and Systems, and Real Estate Rental.
(2) Mid-to-Long Term Management Strategy
Under the new medium term management plan 2019-21 “To the Growth Cycle” (3 year plan; April 1, 2019 March 31, 2022), we are promoting priority strategies for the growth of the group based on the following basic
policy.
Basic policies
With the goal of being a global company that responds flexibly to changes, our group is steadily taking
measures that increase productivity and profit margins while balancing contribution to social issues withbusiness growth. The group is aggressively channeling management resources into these measures.
(1) Improving productivity and enhancing profitability
Maximizing the effects of capital investments aimed at enhancing the earnings base. In addition, striving to
make effective use of the IoT, AI, and other technologies and providing higher added value and higher
quality products and services.
(2) Creating future earnings sources
Aggressively channeling management resources while utilizing the Group’s existing resources, alliances,and M&A aimed at solidly establishing an earnings base for the overseas business and businesses in new
areas.
(3) Improving corporate quality and deepening social value
Promoting workstyle reforms, talented personnel development, and social contribution through businessactivities based on thorough enforcement of safety and compliance.
Key Strategies(1) Special purpose vehicles business[1] Streamlining overall business and expanding profits through Group-wide seamless activities from sales
to design and production.
[2] Expanding sales and improving productivity by effectively using facilities in which investments weremade prior to the end of the previous plan and making new capital investment.
[3] Differentiating brands and securing earnings through the provision of services with high customer
satisfaction.
[4] Promoting the development of products that capture the needs of the times, such as automation andenergy saving in operation and safety.

Management Policy

8(2) Environmental business[1] Securing orders for plants through differentiation focusing on proprietary technologies and safety andpromotion of alliances with other companies.
[2] Maintaining a stable base by enhancing capabilities to propose services and respond to construction
works.
[3] Promoting entry and establishment of businesses in new fields through development of new coreproducts and systems.
(3) Parking business[1] For mechanical multistory parking equipment, focusing on renewal projects and promoting thedevelopment of differentiated products and proposal activities.
[2] For pay-by-the-hour parking lots, focusing on securing earnings in each location and engaging inselective order-winning activities for new business locations.
[3] Promoting cultivation of new overseas markets and development of new products for the future.
(4) Overseas business[1] For overseas bases, investing resources to establish an earnings base.
[2] Achieving total optimization by promoting cross-border business expansion through Group-wide
collaboration including in Japan and China.
(5) Other[1] Enhancing added value of products and services and promoting streamlining and automation of internal
operations through proactive use of the IoT, AI, and other technologies.
[2] Creating a work environment that enables each employee to focus on high value added operations bypromoting an approach to develop human resources as a team and conduct workstyle reforms.
[3] Achieving sustainable growth and increasing added value as a company by addressing social issues
through business activities as the society is now at a turning point.

(3) Targeted management index
We set management targets of sales of 110 billion yen or more and operating profit of 9 billion yen or more on aconsolidated base for the term ending March 2022, the last fiscal year of the new medium term management
plan 2019-21 “To the Growth Cycle” (3 year plan; April 1, 2019 - March 31, 2022).

9

Consolidated Balance Sheets

CONSOLIDATED BALANCE SHEETSAt March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen
ASSETS
Current assets:
Cash and deposits (Notes 8 & 9)
Short-term securities (Notes 8 & 9)
Trade notes and accounts receivable (Note 9 & 17)
Merchandise & finished goods
Work in process
Raw materials & supplies
Other current assets
Allowance for doubtful accounts
Total current assets

2019¥

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

Intangible assets

Investments and other assets:
Investment securities (Notes 3 & 9)
Deferred tax assets (Note 15)
Other assets
Allowance for doubtful accounts
Total investments and other assets
Total non-current assets
Total
The accompanying notes are an integral part of these statements.

¥

2018

2019

10,584 ¥
9,133
43,616
1,198
5,561
9,178
1,555
(67)
80,75810,657
11,20040,741
890
4,763
7,964
1,716
(60)
77,871

20,56533,34018,253
166
5,275
77,599(38,425)
39,174

20,592
33,17817,817276
5,029
76,892(36,997)
39,895

185,270
300,356
164,440
1,496
47,525
699,087(346,166)
352,921

706

639

6,363

16,908
258
2,786
(710)
19,242
59,776
137,647

144,061
2,447
24,212(6,398)164,322523,606
1,251,153

15,991
272
2,687
(710)
18,24058,120138,878 ¥$$

95,34882,279392,939
10,79450,09582,68414,016(608)
727,547

Consolidated Balance Sheets

Thousands of
U.S. dollars(Note 1)Millions of yen
LIABILITIES AND NET ASSETS
Current liabilities:
Short-term bank loans (Notes 4 & 9)
Current portion of long-term bank loans (Notes 4 & 9)
Trade notes and accounts payable (Note 9 & 17)
Electronically recorded obligations - operating (Note 9 & 17)
Accrued expenses
Income taxes payable
Other current liabilities (Note 4)
Total current liabilities

2019¥

Non-current liabilities:
Long-term bank loans (Notes 4 & 9)
Net defined benefit liabilities (Note 6)
Liabilities for directors' retirement benefits
Deferred tax liabilities (Note 15)
Other non-current liabilities (Notes 4, 5 & 9)
Total non-current liabilities
Total liabilities

Net assets:
Shareholders' equity:
Common stock (Note 12):
Authorized-170,950,672 shares
Issued-42,737,668 shares in 2019 and 2018
Capital surplus (Note 12)
Retained earnings
Treasury stock, at cost:
3,009,885 shares in 2018
3,010,866 shares in 2019
Total shareholders' equity
Accumulated other comprehensive income (Note 16):
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets
Total
The accompanying notes are an integral part of these statements.

¥

10

2018

2019

2,939 ¥
600
17,374
10,225
4,320
2,059
3,355
40,872

2,971
1,345
16,846
11,003
4,095
1,741
2,920
40,921

$

600
780
141
2,742
2,886
7,149
48,021

1,204
688
160
3,628
3,139
8,819
49,740

5,405
7,029
1,268
24,70426,00064,406432,621

11,90011,71964,28011,90011,71959,464

107,206
105,574
579,096(2,153)85,746(2,151)80,932(19,394)
772,482

4,878
(3)
(463)
4,412
699
90,857
138,878 ¥

6,416
22
(339)
6,099
876
87,907
137,647

43,946(27)(4,170)39,7496,301
818,532
1,251,153$

26,474
5,405
156,518
92,11938,91818,54630,235368,215

Consolidated Statements of Income

11

CONSOLIDATED STATEMENTS OF INCOME
Years ended March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen
Net sales
Cost of sales (Note 18)
Gross profit
Selling, general and administrative expenses (Note 13)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of investment securities
Loss on sales or disposition of property and equipment, net
Loss on impairment of long-lived assets (Note 14)
Equity in losses of affiliates
Foreign exchange gain (loss)
Other-net
Other expenses -net
Income before income taxes and non-controlling interests
Income taxes (Note 15):
Current
Deferred
Total income taxes
Net income
Net loss attributable to non-controlling interests
Net income attributable to owners of the parent

¥

¥

2019
114,301 ¥91,991
22,31013,755
8,555

2018
112,691
89,45023,241
12,995
10,246

$

373
(97)
390
(24)
(96)
12
43
601
9,156

358
(104)
104
(323)
(216)
(92)
(124)
41
(356)
9,890

3,362
(872)
3,513
(216)
(862)
107
383
5,415
82,483

3,268
(173)
3,095
6,061
(224)
6,285 ¥

3,007
33
3,040
6,850
(340)
7,190

29,435(1,556)27,87954,604(2,017)56,621$

U.S. dollars(Note 1)

Yen
2019
Amounts per shares:
Basic net income
Diluted net income
Cash dividends applicable to earnings of the year
The accompanying notes are an integral part of these statements.

¥

2019
1,029,739
828,744
200,995
123,927
77,068158.20 ¥
38.00

2018
180.99
36.00

2019
$

1.43
0.34

Consolidated Statements of Comprehensive Income

12

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Years ended March 31, 2019 and 2018

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

Other comprehensive income (Note 16):
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income in affiliates accounted forby the equity method
Total other comprehensive income
Comprehensive income
Total comprehensive income attributable to:
Owners of the parent
Non-controlling interests
The accompanying notes are an integral part of these statements.

¥

2019
6,061 ¥

2018
6,850

$

2019
54,604(1,537)
(51)
(123)
(12)

1,249
15
(100)
35

(13,849)(461)(1,112)(104)(1,723)

1,199(15,526)

4,338 ¥

8,049

4,598
(260)

8,373
(324)

$

39,07841,426(2,348)(2,151)

5,167

sale securities

105,574

The accompanying notes are an integral part of these statements.

579,096(19,394)

772,482(13,243)

56,621(14)

729,118

57,799sale securities

43,946107,206(14)(19,380)

equitygain onavailable-for-

Balance, March 31, 2019(13,243)

56,621535,718

stock

Total
shareholders'(13,853)$

105,574

earnings

Treasury

Other net changes in the year

Cash dividends paid

Appropriation

Net income attributable to owners of the parent

107,206

surplusstock

Retained

Unrealized$

Purchases of treasury stock

CapitalCommonShareholders' equity

85,746

Balance, March 31, 2018

(2,153)

4,878

64,280(1,469)¥11,719(2)
6,285

Balance, March 31, 2019

11,900(2)(1,538)(1,469)6,285

80,932(1,430)

(19)

7,190

(1)

75,192equityOther net changes in the year

Cash dividends paid

Appropriation

Net income attributable to owners of the parent

Purchases of treasury stock

59,464(1)(2,150)stock

currency
plans

(463)

(124)

(339)

(100)

(239)

of defined benefit

Remeasurements

(27)

(225)

198

adjustments

translation

currency

Foreign(4,170)(1,116)(3,054)plans

of defined benefit

Remeasurements

Accumulated other comprehensive income

(3)

(25)

22

34

(12)

adjustments

translation

gain onavailable-for-

6,416

11,719(1,430)

(19)

7,190

53,723earnings

Total
shareholders'

Balance, March 31, 2018

11,90011,719surplus11,900stock

Treasury

Foreign

Accumulated other comprehensive income

Unrealized

1,249

¥

¥

Retained

Shareholders' equity

Other net changes in the year

Cash dividends paid

Appropriation

Change in scope of consolidation

Net income attributable to owners of the parent

Purchases of treasury stock

Balance, March 31, 2017

CapitalCommonCONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
Years ended March 31, 2019 and 2018

Total

39,749(15,194)

54,943incomecomprehensive

otheraccumulated

Total

4,412

(1,687)

6,099

1,183

4,916

incomecomprehensive

otheraccumulated
Non-

Total

90,857(1,864)(1,469)

6,285

(2)

87,907

1,294(1,430)

(19)

7,190

(1)

80,873

net assets

6,301(1,594)

7,895

interests

controllingNon-

818,532(16,788)(13,243)

56,621(14)

791,956

assetsTotal netThousands of U.S. dollars

699

(177)

876

111

765

interests

controlling

Millions of yen

Consolidated Statements of Changes 13
in Shareholders’ Equity

Consolidated Statements of Cash Flows

14

CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended March 31, 2019 and 2018

Thousands of
U.S. dollars(Note 1)Millions of yen
2019
Operating activities:
Income before income taxes and non-controlling interests
Depreciation and amortization
Gain on sales of investment securities
Loss on impairment of long-lived assets
Equity in losses of affiliates
Loss on sales or disposition of property and equipment, net
Interest and dividend income
Interest expenses
Decrease (increase) in trade notes and accounts receivable
Decrease (increase) in inventories
Increase (decrease) in trade notes and accounts payable
Increase (decrease) in net defined benefit liabilities
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in allowance for others
Increase (decrease) in consumption taxes payable
Other, net
Sub totalInterest and dividend income received
Interest expenses paid
Income taxes paid
Net cash provided by operating activities¥

Investing activities:
Purchases of securities and investments
Proceeds from sales of securities and investments
Proceeds from maturity of securities and investments
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of shares of subsidiaries
Net decrease (increase) in short-term loans receivable
Disbursement of loans receivableCollection of loans receivable
Other,net
Net cash used in investing activities

2018

2019

9,156 ¥
2,644
(390)
96
15
(373)
97
(2,911)(2,360)
(193)
(87)
8
206
192
577
6,677
382
(3)
(3,026)
4,030

9,890
2,529
(104)
216
92
282
(358)
104
(1,803)
(816)
4,478
(195)
(17)
(94)
(185)
(380)
13,639357(81)(3,058)10,857$82,48323,820(3,513)862
133(3,362)
872(26,221)(21,257)(1,739)
(782)
71
1,856
1,730
5,199
60,152
3,445(34)(27,260)
36,303(1,611)626
500(2,082)
17
(375)
(353)
42
6
(3,230)(526)
215(3,469)
235
45
(588)
5
(4,083)(14,517)
5,644
4,505
(18,762)150(3,382)(3,177)382
52(29,105)

Financing activities:
Net increase (decrease) in short-term bank loans
Proceeds from long-term bank loans
Repayment of long-term bank loans
Payment of finance lease obligations
Purchases of treasury stock
Dividends paid
Payments from changes in ownership interests in subsidiaries that do
not result in change in scope of consolidation
Net cash used in financing activities

6(1,348)(101)(2)(1,469)16
70(1,593)(35)(1)(1,430)51(12,146)(911)(14)(13,237)(143)(3,057)(2,973)(1,282)(27,539)

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
Increase in cash and cash equivalents from a newly consolidated subsidiary
Cash and cash equivalents at end of year (Note 8)(16)(2,273)
21,357
19,084 ¥

(32)
3,769
17,584
4
21,357(142)(20,483)
192,407
171,924

The accompanying notes are an integral part of these statements.

¥$

Independent Auditor’s Report15

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 theJapanese Financial Instruments and Exchange Act and its related accounting
regulations, and in conformity with accounting principles generally accepted inJapan, 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 in Japan.
The financial statements presented herein are expressed in Japanese yen and,solely for the convenience of the readers, have been translated into U.S. dollars
at the rate of ¥111.00=US$1, the approximate exchange rate on March 31, 2019.
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 andits 11 significant subsidiaries. Investments in 6 nonconsolidated subsidiaries and
1 affiliate are accounted for by the equity method.
Under the concept of control or significant influence, those companies in which
the Company, 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 theequity method.

Independent Auditor’s Report

16

In March 31, 2019, 7 subsidiaries are excluded from scope of consolidation. As tothese, investments in 6 nonconsolidated subsidiaries are accounted for by theequity method. These companies are not material in terms of total assets, net
sales, net income and retained earnings and do not have any significant impact
on the consolidated financial statements.
Among the consolidated subsidiaries, the balance sheet date for Kyokuto
Kaihatsu (Kunshan) Machinery Co., Ltd., Trex Thairung Co., Ltd. and PT.
Kyokuto Indomobil Manufacturing Indonesia is December 31. They are
consolidated using the financial statements as of their balance sheet date.
Significant inter-company transactions between their balance sheet date andconsolidated balance sheet date are adjusted for consolidation.
Furthermore, the balance sheet date for Kyokuto Special Automobile Trading(Shanghai) Co., Ltd. under the equity method is different from the consolidatedbalance sheet date, but no adjustments were made.
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.
Assets and liabilities of the consolidated subsidiaries at the time of investment
are all valued at fair value. The goodwill is being amortized on a straight-line
basis over estimated useful lives or 5 years in situations in which the useful lives
cannot be estimated. However, insignificant goodwill is charged to expenses
when incurred.

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

(c) Short-term Securities and Investment Securities
The Group classifies their securities which have readily determinable fair values
as held-to-maturity debt securities, available-for-sale securities, depending on
management’s intent.
(Held-to-maturity debt securities)
Held-to-maturity debt securities are stated at amortized cost.

Independent Auditor’s Report

17(Available-for-sale securities)
Marketable available-for-sale securities are stated at fair value, with unrealized
gains or losses, net of applicable taxes, and reported in accumulated othercomprehensive income. The cost of available-for-sale securities sold is determinedbased on the moving average method.
Non-marketable securities are stated at cost determined by the moving averagemethod.
(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 determinedby the periodic average method, or if lower, the net realizable value.
Supplies are stated at cost determined by the last purchase cost method, or if
lower, the net realizable value.

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

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

Independent Auditor’s Report

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

(h) Asset Retirement Obligations
Asset retirement obligations are defined as a statutory or similar obligation withregard 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 a reasonable 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
estimated reliably. Otherwise, the completed-contract method is applied if theoutcome cannot be reliably estimated.

(j) Allowance for Losses on Construction Contracts
Estimated losses on construction contracts are charged to income in the period inwhich 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 torecognize lease assets and lease obligations in the balance sheet. Suchcapitalized lease assets are depreciated by the straight-line method over thelease terms assuming no residual value.

Independent Auditor’s Report19(l) Income Taxes
The asset and liability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences
between the carrying amount and tax bases of assets and liabilities, andoperating loss carry-forwards.

(m)

Derivatives

All derivatives, except for certain foreign exchange forward contracts andinterest 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 byforeign exchange contracts which meet certain hedging criteria are translated attheir contracted rates. Interest rate swaps which meet certain hedging criteria
are accounted for as if the interest rate applied to the swaps had originallyapplied 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 thecomputations are 39,727 thousand shares for 2019 and 2018.
Diluted net income per share is not disclosed because the Company had nopotentially dilutive shares outstanding at these balance sheet dates.
Cash dividends per share shown in the statements of income are the amounts
applicable to the respective years.

(o) Accounting Standards issued but not yet applied-“Accounting Standard for Revenue Recognition” (Accounting Standards Boardof Japan (ASBJ) Statement No.29, March 30, 2018)-“Implementation Guidance on Accounting Standard for Revenue Recognition”(ASBJ Guidance No.30, March 30, 2018)

Independent Auditor’s Report20(1) Overview
The International Accounting Standards Board (IASB) and the Financial
Accounting Standards Board (FASB) in the United States jointly developed acomprehensive accounting standard for revenue recognition and publishedthe “Revenue from Contracts with Customers” (as IFRS 15 in the IASB and
Topic 606 in the FASB) in May 2014, respectively. To respond to both IFRS
15,which will be applied from a fiscal year beginning on or after January 1,
2018 and Topic 606, which will be applied from a fiscal year beginning after
December 15, 2017, the ASBJ has developed a comprehensive accounting
standard for revenue recognition and issued it in conjunction with the
Implementation Guidance.
In developing the accounting standards for revenue recognition, the ASBJ
basically integrated the core principles of IFRS 15 from a comparability point
if view of the financial statements, which is one of the benefits of ensuringconsistency with IFRS 15, the ASBJ, on the other hand, considered additional
alternative treatments where current practices under Japanese GAAP should
be reflected as far as such treatments would not significantly impair
international comparability.
(2) Scheduled date of application
To be applied from the beginning of the fiscal year ending March 2022.
(iii) Effects of application of these standards
The effects of the application of the aforementioned standard and guidance on
the Company’s consolidated financial statements are currently under theassessment.

(p) Changes in presentation methods(Changes associated with the application of “Partial Amendments to AccountingStandard for Tax Effect Accounting”, etc.)
The Company has applied the “Partial Amendments to Accounting Standard forTax Effect Accounting” (ASBJ Statement No.28, February 16, 2018), etc. as of the
beginning of the current fiscal year. Accordingly, deferred tax assets arepresented under investments and other assets, and deferred tax liabilities arepresented under non-current liabilities.
Consequently, in the consolidated balance sheet for the previous fiscal year,“Deferred tax assets” under “Current assets” decreased by ¥ 1,360 million

Independent Auditor’s Report21($ 12,255 thousand) and “Deferred tax assets” under “Investments and otherassets” increased by ¥ 147 million ($ 1,327 thousand), while “Deferred tax
liabilities” under “Non-current liabilities” decreased by ¥ 1,213 million ($ 10,928
thousand).
As “Deferred tax assets” and “Deferred tax liabilities” relating to the same
taxable entity were offset against each other, and total assets decreased by¥ 1,213 million ($ 10,928 thousand) compared with the amount before thechange.
In addition, notes on “Accounting Standard for Tax Effect Accounting” (Note 8)(excluding total of valuation allowance) and (Note 9) provided in Items 3 to 5 of
the “Partial Amendments to Accounting Standard for Tax Effect Accounting”
have been added to Note 15 “Income taxes”. However, related matters pertaining
to the previous consolidated fiscal year have not been stated under thetransitional treatment provided in Item 7 of the “Partial Amendments to
Accounting Standard for Tax Effect Accounting”.

3. Securities
The following is a summary of held-to-maturity securities and available-for-salesecurities at March 31, 2019 and 2018:
Millions of yen

Held-to-maturity securities

March 31, 2019

Gross

Gross

Carrying

unrealized

unrealized

amountgains

losses¥¥Fair value

Debt securities,
whose fair value exceeds
carrying amount

¥

－

－

－

¥

－

whose fair value does
not exceed carrying
amount
Total

800
¥

800

－
¥

－

800

－
¥

－

¥

800

Independent Auditor’s Report

22

Millions of yen

Held-to-maturity securities

March 31, 2018

Gross

Gross

Carrying

unrealized

unrealized

amountgains

losses¥¥Fair value

Debt securities,
whose fair value exceeds
carrying amount

¥

30

0

¥

－

30

whose fair value does
not exceed carrying
amount

－

Total

¥

30

－
¥

0

－
¥

－
¥

－

30

Thousands of U.S. dollars

Held-to-maturity securities

March 31, 2019

Gross

Gross

Carrying

unrealized

unrealized

amountgains

losses

$

7,207

$ －

$ －

－

－

－

7,207

$ －

$ －

Fair value

Debt securities,
whose fair value exceeds
carrying amount

$

7,207

whose fair value does notexceed carrying amount
Total

$

－
$

7,207

Independent Auditor’s Report

23

Millions of yen

Available-for-sale securities

March 31, 2019

Gross

Gross

Book Value

unrealized

unrealized(Estimatedgains

lossesfair value)

Cost

Market value available:
Equity securities¥ 5,858

Other securities

332

Subtotal¥ 6,190

¥

7,100

¥

7,100

¥

(13)

－
¥

(57)

¥

(70)

12,901319¥

Market value not available:

13,220
1,971

Total

¥

15,191Millions of yen

Available-for-sale securities

March 31, 2018

Gross

Gross

Book Value

unrealized

unrealized(Estimatedgains

lossesfair value)

Cost

Market value available:
Equity securities¥ 5,888

Other securities

333

Subtotal¥ 6,221

¥

9,260

¥

9,260

¥

(18)

－
¥

(2)

¥

(20)

15,146315¥

Market value not available:

15,461
1,417

Total

¥

16,878

Thousands of U.S. dollars

Available-for-sale securities
Gross

Gross

Book Value

unrealized

unrealized(Estimated

Cost

gains

lossesfair value)

Equity securities$ 52,778$ 63,960$ (511)$ 116,227

Other securities

2,992

－

(120)

2,872

$ 55,770$ 63,960$ (631)$ 119,099

March 31, 2019Market value available:

SubtotalMarket value not available:
Total

17,755$ 136,854

Independent Auditor’s Report24

No impairment losses were recorded during the fiscal year ended March 31, 2019 and2018.

4. Short-term Bank Loans and Long-term Debts
The annual average interest rates applicable to short-term bank loans at March
31, 2019 and 2018 were 1.34% and 1.62%, respectively.
Long-term debts at March 31, 2019 and 2018 consisted of the following:Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

¥ 1,200¥ 2,549$ 10,810

Lease obligations

291

345

2,618

Other

666

891

6,000

Total

¥ 2,157¥ 3,785$ 19,428

Long-term bank loans

Aggregate annual maturities of long-term debts subsequent to March 31, 2019were as follows:
Thousands ofYear ending March 31
2020

Millions of yen¥

925

U.S. dollars

$

8,328

2021

925

8,334

2022

264

2,381

2023

15

137

2024 and thereafter

28

248

¥ 2,157$ 19,428

Total

To set up a commitment line by multiple finance institutions, the Company
renewed an agreement with a syndicate of 7 banks for the years ended March 31,
2019 and 2018.

25

Independent Auditor’s Report

The unexecuted balance of lending commitments of the Company at March 31,
2019 and 2018 were as follows:
Thousands ofMillions of yen

Total lending commitments

2019

2018

2019

¥ 5,000¥ 5,000$ 45,045－－－¥ 5,000¥ 5,000$ 45,045

Less amounts currently executed
Unexecuted balance

U.S. dollars

5. Pledged Assets
The following assets were pledged as collateral for the following borrowings at
March 31, 2019 and 2018:
Thousands ofMillions of yen

Land
Buildings
Total

U.S. dollars

2019

2018

2019

¥

¥

$

750

750

6,753

1,645

1,728

14,821¥ 2,395¥ 2,478$ 21,574
Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

Other non-current liabilities¥ 1,553¥ 1,786$ 13,995

Total¥ 1,553¥ 1,786$ 13,995

Independent Auditor’s Report26

6. Retirement Benefits
The Company, a domestic subsidiary and a foreign subsidiary have defined
benefit corporate pension plans and lump-sum retirement benefit plans. Other
domestic subsidiaries join the Smaller Enterprise Retirement Allowance Mutual
Aid Scheme which is a kind of defined contribution plans.
The changes in defined benefit obligations for the year ended March 31, 2019 and2018 were as follows:
Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

¥ 7,219¥ 6,794$ 65,036

Service cost

476

439

4,286

Interest cost

20

20

180

Actuarial gains or losses

230

376

2,076

Retirement benefits paid

(246)

(416)

(2,218)

－

6

－

(1)

－

(9)

7,219

$ 69,351

Benefit obligations at beginning of year

Increase of benefit obligation due to a newly
consolidated subsidiary
Translation adjustments
Benefit obligations at end of year

¥

7,698

¥

The changes in plan assets for the year ended March 31, 2019 and 2018 were as
follows:
Thousands ofPlan assets at beginning of year

Millions of yen

U.S. dollars

2019

2018

2019

¥

¥

6,062

$ 58,835

6,531

Expected return on plan assets

131

121

1,177

Actuarial gains or losses

(49)

161

(445)

Contributions from employers

514

538

4,639

Retirement benefits paid

(209)

(351)

(1,884)

6,531$ 62,322

Plan assets at end of year

¥

6,918

¥

The reconciliation of the defined benefit obligations and plan assets to the net
defined benefit liabilities recognized in the consolidated balance sheet as ofMarch 31, 2019 and 2018 were as follows:

27

Independent Auditor’s ReportThousands ofFunded benefit obligations

Millions of yen

U.S. dollars

2019

2018

2019

¥

¥

7,208

$ 69,238

6,918

6,531

62,322

767

677

6,916

13

11

113

7,685

Plan assets at end of year
Non funded benefit obligations
Net amount of liabilities and assets
recognized in consolidated balance sheet
Net defined benefit liabilities

¥

780

¥

688

$

7,029

¥

780

¥

688

$

7,029

Net defined benefit assets－

Net amount of liabilities and assets¥

recognized in consolidated balance sheet

－

780

¥

688

－
$

7,029

The retirement benefit expenses for the year ended March 31, 2019 and 2018
were as follows:
Thousands ofService cost

Millions of yen

U.S. dollars

2019

2018

2019

¥

¥

$

476

Interest cost

439

4,286

20

20

180

Expected return on plan assets

(131)

(121)

(1,177)

Recognition of actuarial gains or losses

100

70

901

Severance and pension costs

¥

465

¥

408

$

4,190

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

U.S. dollars

2019

2018

2019

Recognized actuarial gains or losses

¥

(180)

¥

(144)

$ (1,619)

Total

¥

(180)

¥

(144)

$ (1,619)

Remeasurements of defined benefit plans recognized in accumulated othercomprehensive income (amount before income tax effect) were as follows:28

Independent Auditor’s ReportThousands ofUnrecognizedactuarial

gains

or

losses
Total

Millions of yen

U.S. dollars

2019

2018

2019

¥

667

¥

486

$

6,007

¥

667

¥

486

$

6,007

The components of plan assets as of March 31, 2019 and 2018 were as follows:
Ratio

2019

2018

Bonds

41%

42%

Securities

31%

31%

General account asset

21%

20%

Other

7%

7%

Total

100%

100%

The major actuarial assumptions for the year ended March 31, 2019 and 2018
were as follows:
2019

2018

0.0 to 0.6%

0.0 to 0.6%

8.4%

7.2%

2.0%

2.0%

-%

-%

4.3 to 7.3%

4.3 to 6.5%

7.0%

7.0%

Discount rate
The Company and a domestic
subsidiary
A foreign subsidiary
Long-term rate of return on plan assets
The Company and a domestic
subsidiary
A foreign subsidiary
Future salary increase
The Company and a domestic
subsidiary
A foreign subsidiary

Long-term rate of return on plan assets was determined by considering thecurrent and future portfolio of plan assets and the current and future long-term
performance of various assets comprise the plan assets.
The required amount of the defined contribution pension plan were ¥ 111 million($ 996 thousand) and ¥ 107 million for the year ended March 31, 2019 and 2018
in the Company and other domestic subsidiaries.

29

Independent Auditor’s Report

7. Contingencies
At March 31, 2019 and 2018, the Group was contingently liable as follows:
Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

¥ －

¥

38

$ －

12

94

As a guarantor of indebtedness of :Affiliated companies
Other

10

Total

¥

10

¥

50

$

94

The Company guarantees all liabilities which MITHRA KYOKUTO SPECIALPURPOSE VEHICLE CO., PVT. LTD. is liable for in the transactions with thespecified customer. As of the end of the current consolidated fiscal year, there are notransactions for which the Company might fulfill our obligations.

8. Cash and cash equivalents
Cash and cash equivalents at March 31, 2019 and 2018 were as follows:
Thousands ofMillions of yen

Cash and deposits
Short-term securities

U.S. dollars

2019

2018

2019

¥ 10,584¥ 10,657$ 95,348

9,133

11,20082,279

(633)

(500)

(5,703)¥ 19,084¥ 21,357$ 171,924

Securities with redemption term of over3
MonthsCash and cash equivalents

Independent Auditor’s Report30

9. Financial Instruments and Related Disclosures(1) Policy for financial instruments
The Group manages funds by utilizing short-term deposits, etc. The Group
raises money by borrowing from financial institutions and by issuing bonds.
Derivatives are used, not for speculative nor trading purpose, but to hedge
the exposure to foreign exchange rate risks with the debts and credits
denominated in foreign currencies and interest rate risks associated withcertain 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 tocustomers. In order to monitor credit risk, the Group manages, according to
the credit management guideline of the Group, the due date and the balanceof operating receivables from customers.
Investment securities consist of mainly held-to-maturity securities andequity securities issued by the Group’s business partners and these securities
are exposed to market risk. The Group periodically monitors the fair value ofsuch equity securities, which is reported 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 to the market risk of fluctuation in foreign currency exchange rate.
Such risk is hedged principally by forward foreign currency contract.
Short-term bank loans are raised mainly in connection with businessactivities and long-term bank loan and bonds payable, which are due mainly
within five years, are raised principally for the purpose of making capital
investments.
Long-term debts with variable interest rates are exposed to interest rate
fluctuation risk, so the Group enters into interest rate swap transactions tomanage such interest rate exposure.
Derivatives are managed in accordance with policies and procedures for risk
assessment (see Note 11 “Derivatives”) and also the Group enters into
derivative transactions only with financially stable financial institutions to
reduce institutions’ credit risk.
Based on a report from the Company and consolidated subsidiaries, theGroup prepares and updates its cash flow plans on a monthly basis to manage
the Group’s liquidity.

Independent Auditor’s Report

31(3) Supplementary explanation of the estimated fair value of financial
instruments
With regard to the below mentioned contract prices etc. of derivatives, thecontract prices themselves do not present the market risk on the derivativetransactions.
Summarized in the table below are the carrying amounts and the estimated fairvalue of financial instruments outstanding at March 31, 2019 and 2018.
Financial instruments for which it is extremely difficult to determine the fairvalue are not included in the table below.
Millions of yen

Carrying

Unrecognized

March 31, 2019

amountFair value

gain/loss

Cash and deposits¥ 10,584¥ 10,584¥

Trade notes and accounts receivable

43,616

43,616－

Short-term securities

9,133

9,133

－

Investment securities

14,02014,020－Trade notes and accounts payable(17,374)(17,374)－(10,225)(10,225)－

Short-term bank loans(2,939)(2,939)－Long-term bank loans(1,200)(1,201)(1)Long-term deposits

(666)

(695)

(29)

－

－

－

Electronically recorded obligations- Operating

Derivatives－

Millions of yen

Carrying

Unrecognized

March 31, 2018

amountFair value

gain/loss

Cash and deposits¥ 10,657¥ 10,657¥

Trade notes and accounts receivable

40,74140,741－

Short-term securities

11,200

11,200－Investment securities

15,491

15,4910

Trade notes and accounts payable(16,846)(16,846)－(11,003)(11,003)－

Short-term bank loans(2,971)(2,971)－Long-term bank loans(2,549)(2,550)(1)

Long-term deposits

(891)

(939)

(48)

－

－

－

Electronically recorded obligations- operating

Derivatives－

Independent Auditor’s Report

32

Thousands of U.S. dollars

Carrying
March 31, 2019
Cash and deposits$

Unrecognizedaccount

Fair value

95,348$95,348gain/loss$－

Trade notes and accounts receivable

392,939

392,939－

Short-term securities

82,27982,279－Investment securities

126,306

126,306－

Trade notes and accounts payable(156,518)(156,518)－(92,119)(92,119)－

Short-term bank loans(26,474)(26,474)－

Long-term bank loans(10,810)(10,821)(11)

Long-term deposits(6,000)(6,261)

(261)

－

－

－

Electronically recorded obligations- operating

Derivatives

Methods to determine the estimated fair value of financial instruments and othermatters related to securities and derivative transactions:(a) “Cash and deposits” and “Trade notes and accounts receivable”
Their carrying amounts approximate fair value because of their short maturity.
(b) “Short-term securities”
The fair values of held-to-maturity debt securities are based on quotes provided
by the financial institutions.
The carrying amounts of the other securities than the above debt securities
approximate fair value because of their short maturity.
(c) “Investment securities”
The fair values of marketable securities are based on quoted market prices. The
fair values of debt securities are based on quotes provided by the financial
institutions. For information on securities classified by holding purpose, pleaserefer to Note 3 “Securities”.
(d) “Trade notes and accounts payable”, “Electronically recorded obligations operating” and “Short-term bank loans”
Their carrying amounts approximate fair value because of their short maturity.

Independent Auditor’s Report

33(e) “Long-term bank loans”
The fair value of long-term bank loans is estimated based on present value of thetotal of principal and interest discounted by an assumed current interest rate forloans with similar terms and remaining maturities.
(f) “Long-term deposit”
The fair value of long-term deposit is estimated based on present value of thetotal of principal and interest discounted by an assumed interest rate, if possible,
based on debt’s maturity and credit risk.
(g) “Derivatives”
Please refer to Note 11 “Derivatives”.
Financial instruments for which it is extremely difficult to determine the fairvalue at March 31, 2019 and 2018 consist of the following:Thousands ofMillions of yen

Non-listed equity securities

U.S. dollars

2019

2018

2019

¥

¥

1,417

$17,755

1,419

12,836Long-term deposit

1,971
1,425

The annual maturities of financial assets and investment securities with
contractual maturities subsequent to March 31, 2019 and 2018 were as follows:
Millions of yen
Due in one year

March 31, 2019
Cash and deposits

or less¥ 10,584

Due after one

Due after five

year throughyears throughfive years

ten years

¥

－

¥

－

Trade notes and accounts receivable

43,616－－

Short-term securities

9,133

－

－

Investment securities

800

－

－

Total

¥ 64,133

¥

－

¥

－

Independent Auditor’s Report

34

Millions of yen
Due in one year
or less

March 31, 2018
Cash and deposits¥ 10,657

Due after one

Due after five

year throughyears throughfive years

ten years

¥

－

¥

－

Trade notes and accounts receivable

40,741－－

Short-term securities

11,200－－Investment securities

30

－

－

Total

¥ 62,628

¥

－

¥

－

Thousands of U.S. dollars
Due after one

Due after fiveDue in one year

year throughyears throughMarch 31, 2019or less

five years

ten years

Cash and cash equivalents$ 95,348

Trade notes and accounts receivable

392,939－－

Short-term securities

82,279－－Investment securities

7,207

－

－

Total

$ 577,773

$

－

$

－

$

$

－

－

10. Investment Property
The company and certain subsidiaries hold some rental properties including landin Tokyo and other areas (“investment properties”). The amounts of net income
related to investment properties (rental income is recognized in operating
revenue and rental expense is principally charged to operating expenses) were
¥ 998 million ($ 8,987 thousand) and ¥ 966 million for the year ended March 31,
2019 and 2018, respectively.
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, 2018

¥ 7,101(decrease)¥ (121)March 31, 2019

March 31, 2019

¥ 6,980¥ 9,972

Independent Auditor’s Report

35

Millions of yen

Carrying amount

Fair value

Increase/
April 1, 2017

¥ 7,746(decrease)¥ (645)

March 31, 2018

March 31, 2018

¥ 7,101¥ 9,985

Thousands of U.S. dollars

Carrying amount

Fair value

Increase/
April 1, 2018

$ 63,970(decrease)$ (1,085)

March 31, 2019

March 31, 2019

$ 62,885$ 89,837(a) Carrying amount is net of accumulated depreciation and accumulated
impairment losses, if any.
(b) Increase during the year ended march 31, 2019 was mainly due to theexpenditure for setting signboards of coin parking in amount of ¥ 11 million($ 99 thousand). Decrease during the year ended March 31, 2019 was
mainly due to depreciation in an amount of ¥ 144 million ($ 1,294
thousand).
Increase during the year ended march 31, 2018 was mainly due to theexpenditure for repairing the sidewalk of ‘the Mall MIZUHO’ in amount of¥ 4 million. Decrease during the year ended March 31, 2018 was mainly due
to an unused land in an amount of ¥ 502 million.
(c) Fair value at March 31, 2019 and 2018 were principally measured based on thereal estate appraisal assessed by the external real estate appraiser.

Independent Auditor’s Report36

11. Derivatives
Derivative financial instruments are utilized by the Company principally to
reduce interest rate risk and foreign exchange rate risk. The Company has
established a control environment which includes policies and procedures for risk
assessment and for the approval, reporting and monitoring of transactions
involving derivative financial instruments. The Company does not hold or issue
derivative financial instruments for trading purposes.
At March 31, 2019 and 2018,

the notional amounts and the estimated fair valueof derivative financial instruments, for which deferred hedge accounting has
been applied or has not been applied were none, respectively.
12. Shareholders’ Equity
Changes in common stock and additional paid-in capital have resulted from thefollowing:

Millions of yen

Balance at March 31, 2017
Movement of stock during 2018
Balance at March 31, 2018
Movement of stock during 2019
Balance at March 31, 2019

Number ofCommonCapitalSharesStock

Surplus42,737,668¥ 11,900¥ 11,719－－－

42,737,668

11,90011,719－－－42,737,668¥ 11,900¥ 11,719

Thousands of U.S. dollars

Balance at March 31, 2018
Movement of stock during 2019
Balance at March 31, 2019

CommonCapitalStocksurplus$ 107,206$ 105,574－$ 107,206－$ 105,574

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

Independent Auditor’s Report

37

13. Research and Development
Research and development expenditure which is included in “Selling, generaland administrative expenses” were ¥ 1,406 million ($ 12,665 thousand) and¥ 1,577 million for the years ended March 31, 2019 and 2018, respectively.

14. Loss on impairment of long-lived assets
With regard to the property, plant and equipment of the Group, business assets
were classified into groups based on the management accounting categories. For
rental properties, idle properties and properties for sale, each property is
considered to constitute a group. Headquarters and welfare facilities wereclassified as corporate assets. The consolidated subsidiaries classified their fixed
assets into groups by the individual subsidiaries which are regarded as thesmallest units independently generating cash flows.
In fiscal year ending March 31, 2018, the Group recognized loss on impairment oflong-lived assets as follows:
Location

Use

Type of assets

Pluakdang,Business

Buildings and structures

Rayong,properties

Machinery, equipment and vehicles

17

Other long-lived assets

14

Total

216

ThailandMillions of yen¥ 185

The company found it difficult to return the investments due to decrease ofprofitability as the result of reviewing the business plan, the book values ofassets were written down to the expected future cash flow in certain businessproperties.
The recoverable values of the above business properties were determined using
net sales values based on the real estate appraisal of the building and thesalvage values of the structures, machinery, equipment, tools, furniture, fixturesand leased assets.
There was no loss on impairment of long-lived assets for the year ended March 31,
2019.

Independent Auditor’s Report38

15. Income Taxes
The Company and its domestic subsidiaries are subject to several taxes based on
income, which in the aggregate resulted in a statutory tax rate of approximately
30.58% and 30.81% for the years ended March 31, 2019 and 2018, respectively.
Foreign subsidiaries are subject to income taxes of the countries in which they
operate.
The tax effects of significant temporary differences which resulted in deferred
tax assets and liabilities at March 31, 2019 and 2018 were as follows:
Thousands ofMillions of yen

U.S. dollars

2018

2019

2019
Deferred tax assets:
Tax loss carry forward

¥

413

¥

294

$

3,724

Allowance for doubtful accounts

239

237

2,153

Accrued Bonuses

634

605

5,708

Provision for product warranties

302

204

2,717

9

47

84

Accrued corporation enterprise tax

150

137

1,352

Loss on valuation of inventories

134

124

1,208

Forecast of construction cost

24

107

220

Net defined benefit liabilities

238

245

2,144

256

256

2,311

309

309

2,784

33

33

299

Excess depreciation

308

242

2,770

Other

473

446

4,259

3,522

3,286

31,733(379)－(3,413)(926)－(8,343)

Valuation allowance sub-total(1,305)(1,272)(11,756)

Total deferred tax assets¥ 2,217¥ 2,014$ 19,977

Allowance for repairs

Fixed assets – elimination ofintercompany profits
Loss on impairment of long-lived
assetsLoss on valuation of investment for
subsidiaries and affiliates

Deferred tax assets sub-total
Less valuation allowance
relevant to tax loss carryforward
Less valuation allowance
relevant to total deductible
temporary differenceIndependent Auditor’s Report

39

Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

¥ (2,145)¥ (2,822)$ (19,322)(1,393)(1,407)(12,551)

(34)

(59)

(311)

(1,115)(1,096)(10,050)(4,687)(5,384)(42,234)¥ (2,470)¥ (3,370)$ (22,257)

Deferred tax liabilities:
Unrealized gain on investment securities
Reduction reserve for fixed assets
Special depreciation reserve
Unrealized gain on subsidiaries’ fixed
assets by revaluation at the
beginning of consolidation
Total deferred tax liabilities
Net deferred tax assets (liabilities)(Note) Tax loss carry forward and related deferred tax assets by expiration
periods were as follows.
At March 31, 2019
Millions of yen

After 1After 2After 3After 4

year

year

year

year

throughthroughthroughthrough

2years

3years

4years

5years

62

67

65

75

144

－

413

(62)

(57)

(56)

(68)

(136)

－

(379)

－

10

9

7

8

－

34

Within
1
year

After
5

Total

years

Tax losscarryforwardValuation
allowance
Deferredtax assets

40

Independent Auditor’s ReportThousands of U.S. dollars

After 1After 2After 3After 4

year

year

year

year

throughthroughthroughthrough

2years

3years

4years

5years

556

608

581

680

1,299

－

3,724

(556)

(510)

(507)

(618)

(1,222)－(3,413)

－

98

74

62

77

－

311

Within
1
year

After
5

Total

years

Tax losscarryforwardValuation
allowance
Deferredtax assets(a) Tax loss carry forward is shown as an amount multiplied by the statutory tax
rate.
(b) The deferred tax assets of ¥ 34 million ($ 311 thousand) were recognized forthe balance of tax loss carry forward (an amount multiplied by the statutory
tax rate) of ¥ 413 million ($ 3,724 thousand).
Valuation allowance has not been recognized in the portion of tax loss
carryforward based on judgement of recoverability through future taxable
income.
The reconciliation between the statutory tax rate and the effective income tax
rate for the year ended March 31, 2019 and 2018 were as follows:
2019
Statutory tax rate

201830.58%－

Non-deductible expenses for income tax purpose

0.67

－

Non-taxable dividend income(0.23)－

Inhabitant per capita tax

0.95

－

Effect of tax rate change

0.15

Tax credit(0.67)－

Change in valuation allowance

1.06

－

Equity in earnings of affiliated companies

0.32

－

Other

0.97

－

33.80%－

Effective tax rate

The reconciliation between the statutory tax rate and the effective income tax rate forthe year ended March 31, 2018 was omitted because the difference is 5% or below thestatutory income tax rate.

Independent Auditor’s Report

41

16. Comprehensive Income
The components of other comprehensive income for the year ended March 31, 2019and 2018 were as follows:

Thousands ofMillions of yen

U.S. dollars

2019

2018

2019

¥ (1,818)¥ 1,892$ (16,384)

(390)

(104)

(3,513)(2,208)

1,788(19,897)

671

(539)

6,048

¥ (1,537)¥ 1,249$ (13,849)

Adjustments arising during the year

¥

(51)

¥

15

$

(461)

Total

¥

(51)

¥

15

$

(461)

¥

(280)

¥ (214)$ (2,520)

Reclassification adjustments for gain (loss)

100

70

901

Amount before income tax effect

(180)

(144)

(1,619)

57

44

507

Unrealized gain on available-for-sale securities:
Gains (Losses) arising during the year
Reclassification adjustments for gain (loss)
Amount before income tax effect
Income tax effectTotal
Foreign currency translation adjustments:

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

Income tax effect
Total

¥

(123)

¥

(100)

$

(1,112)

Gains (Losses) arising during the year

¥

(12)

¥

35

$

(104)

Total

¥

(12)

¥

35

$

(104)

Share of other comprehensive income in affiliates
accounted for by equity method:

Total other comprehensive income¥ (1,723)¥ 1,199$ (15,526)

Independent Auditor’s Report

42

17. Trade Note Maturities
The following trade notes and electronically recorded monetary claims andobligations which matured but were not settled on March 31, 2019 and 2018 becausethat day fell on a bank holiday, were included in the balance sheet as of March 31,
2019 and 2018, respectively:
Thousands ofMillions of yen

Trade notes receivable

U.S. dollars

2019

2018

2019

¥ 880

¥

$

1,019

7,925

Electronically recorded monetary claims - operating

84

239

758

Trade notes payable

868

378

7,820

1,949

2,027

17,560Electronically recorded obligation - operating

18. Provision of reserve for Losses on Construction Contracts
Provision of reserve for losses on construction contracts included in Cost of Sales
were ¥ 101 million ($ 909 thousand) and ¥ 33 million for the years ended March
31, 2019 and 2018, respectively.

19. Segment Information(1) Description of reportable segments
The Group’s reportable segments are those for which separately financial
information is available and regular evaluation by the Board of Directors is being
performed in order to decide how resources are allocated among the Group. The
Group conducts several types of businesses including specialty truck business,environmental equipment and systems and real estate rental business. The
Company and its consolidated subsidiaries are engaged in each business as anindependent management unit. The Group consists of three reportable 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
manufactures and distributes recycle facilities, including maintenance andconsignment business. Industry C manufactures multistory parking equipment
and offers operating services for toll parking and real estate rental services.

43

Independent Auditor’s Report(2) Methods of measurement for the amounts of sales, profit, assets, liabilities
and other 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.
(3) Information about sales, profit, assets and other items for the years ended
March 31, 2019 and 2018 are as follows:
Millions of yen
Reportable segments
Consolidated(Note 1)

(Note 2)

Industry

IndustryA

BC¥ 94,877¥ 12,950¥ 6,474¥ 114,301

－

12

2

562

576

(576)

－

94,88912,952

7,036

114,877(576)

114,301

Segment profit

5,615

2,582

1,161

9,358

(803)

8,555

Segment assets

81,11910,50912,269103,897

34,981

138,878

2,165

54

382

2,601

1

2,602

1,815

75

176

2,066

－

2,066

2019

Total

Reconciliations

Industry

Net sales:
External customers
Intersegment sales or transfers
Total

¥

114,301

Other items:
Depreciation
Increase in tangible andintangible fixed assets

Independent Auditor’s Report

44

Millions of yen
Reportable segments
Consolidated(Note 1)

(Note 2)

Industry

IndustryA

BC¥ 97,761¥ 8,456¥ 6,474¥ 112,691

－

27

2

613

642

(642)

－

97,788

8,458

7,087

113,333(642)

112,691

Segment profit

8,296

1,523

1,155

10,974(728)

10,246

Segment assets

80,645

5,507

12,45998,611

39,036

137,647

1,991

46

442

2,479

1

2,480

2,982

48

172

3,202

－

3,202

2018

Total

Reconciliations

Industry

Net sales:
External customers
Intersegment sales or transfers
Total

¥

112,691

Other items:
Depreciation
Increase in tangible andintangible fixed assets

Thousands of U.S. dollars
Reportable segments
Consolidated(Note 1)

(Note 2)

Industry

IndustryA

B

C$ 854,746$ 116,670$ 58,323$ 1,029,739－$ 1,029,739

108

16

5,065

5,189

(5,189)－854,854

116,686

63,3881,034,928(5,189)1,029,739

Segment profit

50,58823,258

10,46184,307(7,239)77,068Segment assets

730,805

94,677

110,526

936,008

315,145

1,251,153

19,507492

3,439

23,4386

23,444

16,348678

1,589

18,615－

18,615

2019

Total

Reconciliations

Industry

Net sales:
External customers
Intersegment sales or transfers
Total

Other items:
Depreciation
Increase in tangible andintangible fixed assets

45

Independent Auditor’s Report(a) Reconciliations of segment profit in an amount of ¥ (803) million ($ (7,239)
thousand) which consists of elimination of intersegment transactions in an
amount of ¥ 7 million ($ 60 thousand) and corporate expenses which are notallocated to each reportable segment in an amount of ¥ (810) million ($ (7,299)
thousand). Corporate expenses are mainly general administrative expenses not
attributable to any other reportable segments.
Reconciliations of segment assets are surplus fund (cash and deposits andsecurities) and long-term investment fund (investment securities) of theCompany.
(b) Segment profit is reconciled with operating income in the consolidated
statements of income.

20. Subsequent Event(1) Cash Dividends
The following appropriations of the Company’s retained earnings in respect of
the year ended March 31, 2019 were as proposed by the Board of Directors andapproved by the shareholders at the annual general meeting held on June 26,
2019.
Thousands ofAppropriations
Cash dividends of ¥ 19 ($ 0.17) per share

Millions of yen¥

755

U.S. dollars

$

6,800

(2) Transfers of shares of a specified subsidiary
The Company’s board of directors decided at the meeting held on July 24, 2019 that it
would transfer all shares of specified subsidiary, Trex Thairung Co., Ltd. (TTR). And
then, the Company concluded the share transfer agreement on July 25, 2019, and has
transferred them on July 30, 2019.
As a result, TTR would not be a specified subsidiary, and be excluded from the scopeof consolidation.

Independent Auditor’s Report

46(a) Reason for the share transfer
TTR was established on May, 2014 in Thailand in the form of a joint venture with theCompany, Nihon Trex Co., Ltd (Nihon Trex) which is a specified subsidiary, THAIRUNG UNION CAR PUBLIC CO., LTD. (THAI RUNG) which is supplier of vehicles
and construction machines, and performing the car dealer, sales of vehicles under its
own brand in Thailand, and MITSIAM INTERNATIONAL, LIMITED (MITSIAM)
which is subsidiary of MITSUI & CO. (THAILAND) LTD. The Business of TTR has
been manufacturing and sales of Van bodies and specially equipped vehicles inThailand since the factory completion in October, 2015.
However, the demand for Wing Van which was expected as a core product heavily has
fallen below the initial plan and their production level hasn’t been improved due tothe local unstable employment practice. As a result, they have been facing the severe
management environment since starting operation and the improvement of theirperformance couldn’t be anticipated over the medium term. Therefore, it was decided
that the all shares which the Company, Nihon Trex and MITSIAM owned weretransferred to THAI RUNG, and hereafter the Group would continue the business inThailand in the way of technical support.
By this business restructuring, our management resources will be focused on thebusiness area with higher investment effect, and the Group will work together toachieve the new Mid-term business plan “2019-21 ～To the Growth Cycle～” (from
April 1, 2019 to March 31, 2022).
(b) Company name of transferee
THAI RUNG UNION CAR PUBLIC CO., Ltd.
(c) Effective date of share transfer
July 30, 2019(d) Name of subsidiary, business description, details transaction with the Company(i) Name
Trex Thai Rung Co., Ltd.
(ii) Major business description
Manufacturing and sales of Wing Van, 10 doors Van, Dump, Mixer(iii) Details transaction with the Company
The Company supply parts, and technical support for the subsidiary.

Independent Auditor’s Report

47(e) Number of shares transferred, transfer price, gain or loss of transfer, and numberof shares after transfer(i) Number of shares transferred
4,891,500 shares (Proportion of voting rights: 45%)
Details
The Company: 1,630,500 shares (Proportion of voting rights: 15%)
Nihon Trex: 3,261,000 shares (Proportion of voting rights: 30%)(ii) Transfer price (3.5 Yen against 1THB)
101,480 thousand THB (¥ 355 million, $ 3,200 thousand)
Details
The Company: 33,830 thousand THB (¥ 118 million, $ 1,067 thousand)Nihon Trex: 67,650 thousand THB (¥ 236 million, $ 2,133 thousand)(iii) Gain of loss of transfer
The Company will recognize amounting ¥ 592 million ($ 5,333 thousand)related the share transfer as extraordinary loss on consolidated statement ofincome for the fiscal year ended March 31, 2020.
(iv) Number of shares after transfer
None (Proportion of voting rights: 0%)Independent Auditor’s Report48

Board of Directors andStatutory
Auditors
Corporate
Information
CORPORATE INFORMATION
Kyokuto Kaihatsu Kogyo Co., Ltd.
Established: June 1, 1955
Paid-in Capital: 11,899,867,400 yen (March 31, 2019)
Number of Employees: consolidated 2,865; non-consolidated 1,038 (March 31, 2019)
Headquarters:
6-1-45, Koshienguchi, Nishinomiya-shi, Hyogo, 663-8545 Japan
Tel.+81-798-66-1000, Fax.+81-798-66-8146
Tokyo Office (Overseas Business Department):
3-15-10, Higashi-shinagawa, Shinagawa-ku, Tokyo, 140-0002, Japan
Tel.+81-3-5781-9828, Fax+81-3-5781-3431
Plants:Yokohama Plant
Occupies 96,657 ㎡
Located in Yamato, Kanagawa (Japan)
Nagoya Plant
Occupies 109,611 ㎡
Located in Komaki, Aichi (Japan)
Miki Plant
Occupies 100,728 ㎡
Located in Miki, Hyogo (Japan)
Fukuoka Plant
Occupies 43,503 ㎡
Located in Iizuka, Fukuoka (Japan)
Head Plant of NIPPON TREX Co., Ltd.
Occupies 125,285 ㎡
Located in Toyokawa, Aichi (Japan)
Otowa Plant of NIPPON TREX Co., Ltd.
Occupies 20,889 ㎡
Located in Toyokawa, Aichi (Japan)
Plant of KYOKUTO KAIHATSU (KUNSHAN) MACHINERY CO., LTD.
Occupies 83,140 ㎡
Located in Kunshan, Jiangsu (China)
Plant of MITHRA KYOKUTO SPECIAL PURPOSE VEHICLE CO., PVT. LTD.
Occupies 60,405 ㎡
Located in Veerapanenigudem, Andhra Pradesh (India)
Plant of PT KYOKUTO INDOMOBIL MANUFACTURING INDONESIA
Occupies 20,028 ㎡
Located in Purwakarta, Jawa Barat (Indonesia)

49Board of Directors and Statutory Auditors

BOARD OF DIRECTORS AND STATUTORY AUDITORS
Kazuya Takahashi,

Representative Director, President, CEO

Takashi Yoneda,

Director, Associate Senior Executive Officer

Takeo Norimitsu,

Director, Associate Senior Executive Officer

Tatsuya Nunohara,

Director, Associate Senior Executive Officer

Noboru Horimoto,Director,Executive Officer

Kazuhiko Harada,

Director,Executive Officer

Yoji Kido,

Outside Director

Akira Michigami,

Outside Director

Harumi Sugimoto,Standing Auditor

Soichiro Ochi,

AuditorYoshihiko Norikura,

Outside Corporate Auditor

Kuniaki Fujiwara,

Outside Corporate Auditor

Mitsuhiko Nakashima,

Associate Senior Executive Officer

Sadanobu Kato,

Executive Officer

Akira Sakurai,

Executive Officer

Yukihiro Hosozawa,

Executive Officer

Teruyuki Kizu,

Executive Officer

Shinichi Takahama,Executive Officer

Yutaka Yoshida,

Executive Officer

50