8/28/2003

6:06 pm

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宝印刷株式会社

8/28/2003

6:06 pm

Kyokuto Kaihatsu Kogyo Co., Ltd.
Annual Report 2003
Year ended March 31, 2003

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KYOKUTO KAIHATSU KOGYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESFINANCIAL HIGHLIGHTS
Years ended March 31, 2003 and 2002

Millions of yen

Thousands of
U.S. dollars(Note 1)

2003

2002

2003

For the Year:Net Sales .........................................................
Operating income ...........................................
Net income .....................................................

55,2691,759
201

47,982474
84

459,812
14,634
1,677

At Year-end:
Total assets ......................................................
Total shareholders’ equity ...............................

78,94352,73776,36052,512656,767
438,750

U.S. dollars(Note 1)

Yen
2003
Amounts per Share of Common Stock (Note 2):
Net Income .....................................................
Cash dividend attributable to the year .............

5.94
6.00

2002

2.96
6.00

2003

0.05
0.05

Note 1. U.S. dollar amounts are translated for convenience only, at the rate of ¥120.20 to
US$1.
2. The computations of net income per share of common stock are based on the weighted average number of shares outstanding during each year.

CONTENTS
1. To Our Shareholders
3. Consolidated Statements of Income andRetained Earnings
4. Consolidated Balance Sheets
6. Consolidated Statements of Cash Flows
7. Notes to Consolidated Financial Statements
15. Report of Independent Certified Public
Accountants
16. Corporate Information
17. Board of Directors and Statutory Auditors

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TO OUR SHAREHOLDERS

1. Summary of Operations
We are pleased to report the business results of Kyokuto
Kaihatsu Kogyo Co., Ltd. For the year ending March 31, 2003.
(1) Business Results
Japanese economy in this fiscal year has remained in a difficult
situation with diminishing consumer spending and corporate
investment that are caused by various factors such as
prolonged deflation, disposal of the non-performing loans,depressed share prices in the market, deceleration of US
economy, and spiraling military tensions in Iraq.
Special purpose vehicle business suffered a difficult situation in
the first half of the year because of successive drop of truck
Katsushi Tanaka
Yoshihiro Tokunaga
demand. However, in the second half of the year, it
experienced a slight recovery created by substitute demands anticipating gaseous emission control in Tokyo
metropolitan area and increasing exports centered around China.
Environmental equipment and system business expected potential demands to be actualized by requirement forsolving the problems related to dioxin and final processing site of waste disposal. But serious financial circumstancesof each local government caused an increasingly fierce competition among the industry and consequently we had
difficulties to get orders having a normal level of profitability.
Such being the circumstances, we have tried to expand our corporate value by efficient capital operation andimproved profitability in the framework of our Medium-Range Management Planning “Plan 2001”. In this direction,
we have made every effort to improve the business performance by developing new products, strengthening sales andservice forces, reducing costs, expanding export business, and utilizing unused land.
Also, to reduce drastically the expenditure related to special purpose vehicle business, we established an overseas
office as a purchasing base in China (Shanghai) in November 2002 and made a full-fledged start in purchasing partsand material from China.
Our business results in the consolidated basis thus obtained in this fiscal year are shown below in comparison withthe last fiscal year: The sales revenue is 55,260 million yen achieving year-on-year increase of 7,280 million yen(+15%) mainly because of the increases of special purpose vehicles export to China and of plant construction sales ofenvironmental equipment and systems. The ordinary income is 1,620 million yen achieving year-on-year increase of
1,110 million yen (+218%) along with the sales increase. However, the net income remains 200 millions yen making
year-on-year increase of 110 million yen (+138%) because of the loss from revaluation of investment securities
affected by the depressed stock prices in the market.
The summary of each business segment in the consolidated basis is reported below in comparison with the last fiscal
year.
<Specialty Truck Division>
Our special purpose vehicle business suffered continued weak demand of trucks in the first half of the year. Howeverin the second half of the year, the substitute demands anticipating gaseous emission control in Tokyo metropolitan
area and the large-scale increase of export sales of construction-related trucks such as concrete pump and mixer
trucks focusing mainly on China boosted the annual sales drastically. Consequently, the sales revenue is 32,330
million yen achieving year-on-year increase of 2,840 million yen (+10%). The operating income is 170 million yen
achieving year-on-year increase of 540 million yen as a result of sales increase and cost-reduction recovering from theloss of 370 million yen of the last fiscal year.
<Environmental Equipment and Systems Division>
In a difficult market situation, our environmental equipment and systems business made every effort to maintain theappropriate level of the sales and orders received through various sales activities in recycle plaza and recycle center
that are our mainline business, plant-related equipment such as RDF (Refuse Derived Fuel) equipment and leachate
treatment facilities in final disposal sites, contracted business for maintenance and operation, and melting furnace forgasifying the waste that is our new business.
As a result, the sales revenue of environmental equipment and systems business is 14,830 million yen achieving yearon-year increase of 3,860 million yen (+35%) through steady growth of plant construction and increased sales ofrepair and maintenance. The operating income is 1,240 million yen achieving year-on-year increase of 510 million
yen (+70%). On the other hand, the amount of orders received is 10,280 million yen causing year-on-year decrease of
770 million yen (-7%) because the order entry for recycle plaza and recycle center dropped down to 5 units although
we received an order for the first melting furnace for gasifying the waste and 6 orders for operation contract.
<Automobile Sales Division>
For automobile sales business, we have enhanced sales and service capabilities to maintain the sales revenue as wellas made every effort of cost reduction to improve the profitability. However, new vehicle sales decreased due todiminishing consumer spending. Consequently the sales revenue is 6,530 million yen making year-on-year decreaseof 390 million yen (-6%). The operating loss is 70 million yen making year-on-year decrease of 110 million yen being
affected by the sales revenue decline.
<Real Estate Rental Division>
Our company has been managing the real estate rental business long before to utilize effectively some of company
owned assets. As its business scale expands, we have established newly real estate rental business as an independent
section.

1

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This business section has increased its sales revenue drastically. The income from lease of a shopping center that has
been constructed in Mizuho-cho, Nishitama-gun, Tokyo and rented out to the Seiyu, Ltd. has mainly contributed inthis sales increase.
As a result, the sales revenue of real estate rental business is 1,950 million yen achieving year-on-year increase of 990
million yen (+104%). The operating income is 390 million yen achieving year-on-year increase of 330 million yen(+642%).
(2) State of Cash Flows
Cash and cash equivalent at the end of the current consolidated fiscal year including 520 million yen of net profit
before adjustment of tax is 10,450 million yen making year-on-year decrease of 4,460 million yen (-30%) due to theincreased sales credits and the expenditure for acquisition of fixed assets and company’s own stocks. The breakdownof the total is as follows.
<Cash Flows from Operating Activities>
Operating activities during the current consolidated fiscal year have resulted in cash outflow of 330 million yen (yearon-year decrease of cash inflow of 3,960 million yen). This is because the sales credits have increased drasticallythrough the sales increase in the second half of the year.
<Cash Flows from Investing Activities>
Investing activities during the current consolidated fiscal year have resulted in cash outflow of 3,670 million yen (yearon-year decrease of cash inflow of 440 million yen). This is because the cash outflow required for acquisition of fixed
assets and securities is larger than the cash inflow created by sales of fixed assets and securities.
<Cash Flows from Financing Activities>
Financing activities during the current consolidated fiscal year have resulted in cash outflow of 460 million yen (yearon-year increase of cash inflow of 290 million yen). This is mainly because of acquisition of company’s own stocks.
2. Concept and Practice related to Corporate GovernanceOur company group is implementing reorganization of management system aiming at speedy decision making ofmanagement policy and strategy to meet the changing business environment, enhancement of supervisory function,and system reinforcement for business of corporation.
In respect to management system, we introduced operating officer system in June 2002 and are now performing
business operation in this new management system. Based on this, we have reduced the limit number of directors
stipulated in the statute of corporation from 20 to 12 directors in order to optimize the number of board members.
Also, we have shortened the term of directors from two years to one year in our company and all our affiliatecompanies.
In respect to the audit system, we have adopted an auditor system and will increase the number of company auditorsfrom three to four auditors after the general meeting of shareholders to be held in June 2003. The three auditors out of
the four are outside auditors (currently two outside auditors).
3. Our objectives to challenge
Japanese economy will remain in a difficult situation because of various factors such as the worsening employment
situation, weakness of the stock market, post-war problems in Iraq, depressed US economy, etc. while the recovery ofcorporate performance in limited companies and of corporate investment can be expected.
Such being the circumstances, our special purpose vehicle business can expect an expansion of sales revenue to becreated by increasing truck demands resulted from the gaseous emission control focusing on Tokyo metropolitan area
as well as increasing export sales generated by active construction investment in China. In respect to theenvironmental equipment and systems business, increasingly fierce competition is to be expected but at the same timethe expansion of environmental investment can be expected.
We will steadily challenge various objectives by utilizing proactively the corporate resources. Such objectives include:
increase of order reception and sales of special purpose vehicle and environmental equipment and systems business,development of new products, enhancement of service system, promotion of parts procurement in overseas, total cost
reduction, etc. Thus, we will make our best to improve our business performance while developing the synergy effectwith our group companies in order to assure the expansion of corporate value and successive development.

June, 2003

Yoshihiro Tokunaga
Chairman2

Katsushi Tanaka
President

8/28/2003

6:06 pm

KYOKUTO KAIHATSU KOGYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
Years ended March 31, 2003 and 2002

Thousands of
U.S. dollars(Note 1)Millions of yen
2003

2002

2003

Net sales ..................................................................
Cost of sales .............................................................

55,26944,481

47,982
38,841459,812370,061

Gross profit ....................................................

10,7889,140

89,751

Selling, general andadministrative expenses .....................................
Operating income (loss) ................................

9,028
1,759

8,666
474

75,116
14,634

Other income (expenses)
Interest and dividend income ..............................
Interest expenses .................................................
Gain (loss) on sales ofproperty and equipment .....................................
Gain (loss) on sales of securities ..........................
Write-down of investment securities ...................
Other-net ............................................................

45
(94)

50
(28)

378
(782)

776
(142)
(2,003)
187

(31)
72
—
(137)

6,462
(1,187)(16,671)
1,559

Income (loss) before income taxes .......................

528

399

4,393

Income taxes (Note 12)
current ................................................................
deferred (prepaid), net .........................................

290
52

424
(112)

2,420
439

Total income taxes ..............................................

343

311

2,860

Minority interest ......................................................

(17)

2

(143)

Net income (loss) ............................................

201

84

1,677

29,645(169)(26)

29,757(171)(24)

246,638(1,409)
(222)

(8)

—

(74)

29,642

29,645

246,610Retained earnings:
Balance at beginning of period ...........................
Cash dividends paid ............................................
Bonuses to directors and statutory auditors .........
Adjustment of retained earnings
for eliminations of treasury stock ........................
Balance at end of period .....................................

Yen

U.S. dollars

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

5.94

2.96

0.05

Diluted net income (loss) ....................................

5.94

—

0.05

Cash dividend, applicable toearnings of the year ............................................

6.00

6.00

0.05

The accompanying notes are an integral part of this statements.

3

8/28/2003

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KYOKUTO KAIHATSU KOGYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
Years ended March 31, 2003 and 2002

Millions of yen

Thousands of
U.S. dollars(Note 1)

2003

2002

2003

Current assets:
Cash and time deposits .......................................
Short-term investments (Note 3) ..........................
Trade note and accounts receivable .........................
Less: Allowance for doubtful accounts ...............
Inventories ..........................................................
Deferred income taxes (Note 12) ........................
Prepaid expenses ................................................
Other current assets ............................................

5,911
4,616
24,836
(64)
5,428
555
69
487

6,104
8,991
19,972
(82)
5,413
386
102
157

49,18238,407
206,623(533)
45,158
4,624
574
4,059

Total current assets .......................................

41,841

41,046

348,096

Investments and other assets:
Investments in securities (Note 3) ........................
Deferred income taxes (Note 12) ........................
Other ..................................................................

3,575
282
3,793

3,268
651
3,546

29,7462,347
31,556

Total investments and other assets ........................

7,650

7,466

63,650Property and equipment:
Land ...................................................................
Buildings and structures ......................................
Machinery and equipment ..................................
Construction in progress .....................................
Other ..................................................................

12,38624,228
6,953
576
2,254

10,551
24,617
6,627
142
2,211

103,045
201,570
57,847
4,797
18,753

Less — Accumulated depreciation .........................

46,398(17,219)

44,150(16,750)

386,014(143,260)

Total property and equipment .......................

29,17927,399242,753

Intangible assets ......................................................
Cost in excess of net assets of subsidiaries ...........
Other ..................................................................

40
232

213
234

332
1,933

Total intangible assets ...................................

272

447

2,266

Total assets ....................................................

78,94376,360656,767

ASSETS4

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Millions of yen

Thousands of
U.S. dollars(Note 1)

2003

2002

2003

Current liabilities:
Short-term bank loans (Note 4) ...........................
Current portion of long-term debt (Note 4) ..........
Trade note and account payable .........................
Accrued income and other taxes .........................
Accrued expenses ...............................................
Other current liabilities .......................................

2,608
98
12,354
706
1,758
1,424

2,428
—
9,981
472
1,712
1,753

21,697815
102,780
5,880
14,625
11,848

Total current liabilities ..................................

18,94916,347

157,648

112
1,726

308
1,685

931
14,359

341
1
286
4,578

283
45
—
4,948

2,841
11
2,383
38,090Total long-term liabilities ..............................

7,045

7,270

58,618

Minority interests ....................................................

210

229

1,749

Shareholders’ equity:
Common stock, no par value (Note 10)
Authorized — 120,000,000 shares
Issued — 28,165,779 shares in 2003 and28,310,779 shares in 2002 ..............
Additional paid-in capital (Note 10) .......................
Retained earnings ................................................
Net unrealized holding gains on securities ..........
Treasury stock, at cost .........................................

11,786
11,50829,64270(270)

11,786
11,61329,645(533)—

98,056
95,741
246,610588(2,246)

Total shareholders’ equity .............................

52,73752,512438,750

Total liabilities andshareholders’ equity .....................................

78,94376,360656,767

LIABILITIES AND SHAREHOLDERS’ EQUITY

Long-term liabilities:
Long-term debt (Note 4) ......................................
Accrued retirement benefits (Note 5) ...................
Directors’ and statutory auditors’
retirement benefits .............................................
Net assets of subsidiaries in excess of cost ..........
Deferred income taxes (Note 12) ........................
Other long-term liabilities ...................................

5

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KYOKUTO KAIHATSU KOGYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESCONSOLIDATED STATEMENT OF CASH FLOWS
Years ended March 31, 2002, 2001 and 2000

Thousands of
U.S. dollars(Note 1)Millions of yen
2003
Operating activities:
Net income before income taxes .................................................
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization ...............................................
Write-down of investment securities ......................................
Net gains (loss) on sales of marketable securities
and investments ....................................................................
Net gains (loss) on sales of property .......................................
Provision (reversal) for accrued retirement benefits ................
Interest and dividend income .................................................
Interest expenses ....................................................................

2003

528

399

4,393

1,301
2,049

1,173
29

10,823
17,051

124
(788)
98
(45)
94

(72)
22
75
(49)
28

1,034
(6,559)
818
(378)
782

Decrease (increase) in accounts receivable .................................
Decrease (increase) in inventories ...............................................
Decrease (increase) in prepaid expenses .....................................
Decrease (increase) in accounts payable .....................................
Decrease (increase) in accrued expenses .....................................
Decrease (increase) in income taxes payable ..............................
Other,net ....................................................................................
Sub total ...........................................................................
Interest and dividend income received ........................................
Interest expenses paid .................................................................
Income taxes paid .......................................................................
Other,net ....................................................................................
Net cash provided by operating activities ........................

(3,998)
(3)
(247)
2,216
(388)
374
(1,181)
133
42
(29)
(434)
(42)
(330)

(111)
(507)
27
111
(78)
4
2,850
3,901
53
(32)
(204)
(78)
3,639

(33,265)(29)(2,061)
18,443(3,233)
3,116(9,826)
1,110
350
(245)
(3,611)(352)(2,749)Investing activities:
Decrease (increase) in time deposits ............................................
Payment for purchase of marketable securities and investments ..
Proceeds from sales of marketable securities and investments .....
Payment for purchase of facilities ................................................
Proceeds from sale of facilities ....................................................
Disbursement of loan receivables.................................................
Collection of loan receivables .....................................................
Net cash provided by (used in) investing activities ...........

—(1,791)492(3,141)
1,159
(401)
7
(3,675)

1,277
(382)
240
(5,153)783(1)
7(3,229)—(14,905)
4,101(26,133)
9,646(3,342)
58(30,574)

Financing activities:
Increase (decrease) in short-term debt .........................................
Proceeds from long-term debt ......................................................
Payment on long-term debt .........................................................
Proceeds from issuance of common stock ...................................
Purchases of treasury stock ..........................................................
Dividends paid ............................................................................
Net cash provided by (used in) financing activities ..........

180
—
(98)
0
(375)
(170)
(463)

40
189
(604)
—
(211)
(173)
(759)

1,497
—
(815)
5
(3,124)(1,416)(3,853)—(4,469)14,927—(349)
15,246—(37,177)
124,185—
10,45830
14,927—87,007

Effect of exchange rate change on cash and cash equivalents ..........
Net increase in cash and cash equivalents .......................................
Cash and cash equivalents at beginning of year ...............................
Increase in cash and cash equivalents by increase of
number of consolidated subsidiaries ...............................................
Cash and cash equivalents at end of year ........................................

6

2002

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KYOKUTO KAIHATSU KOGYO CO., LTD. AND CONSOLIDATED SUBSIDIARIESNOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1.

Basis of Presenting Consolidated
Financial Statements

Kyokuto Kaihatu Co.,Ltd (the “Company”) and its
domestic subsidiaries maintain their accounts andrecords in accordance with the provisions set forthin the Commercial Code of Japan (the “Code”) andthe Securities and Exchange Law and in conformity
with accounting principles and practices generally
accepted in Japan.

sidiaries in accordance with the Securities andExchange Law and related regulations of Japan.
The minor differences arising from the cost of thecompanies' investments in subsidiaries and affiliates over the equity in their net assets at fair value
are charged or credited to income in the year ofacquisition. Significant differences are, as a rule,amortized over periods of 5 years. All significant
inter-company accounts and transactions havebeen eliminated.

The accompanying consolidated financial statements are prepared based on the consolidated
financial statements of the Company and its subsidiaries (the “Group”) which were filed with the
Director of Kanto Local Finance Bureau as
required by the Securities and Exchange Law.

Investments in associates are accounted for by theequity method whereby the Group includes in net
income its share of income or losses of these companies, and records its investments at cost adjusted
for its share of income, losses or dividends
received.

In preparing the accompanying consolidated financial statements, certain reclassifications andrearrangements have been made to the consolidated financial statements issued domestically inorder to present them in a form which is morefamiliar to readers outside Japan.

(b) Consolidated Statement of Cash Flows:

The translation of the Japanese yen amounts into
U.S. dollars is included solely for the convenienceof the reader, using the approximate exchange rate
at March 31, 2003, which was ¥120.20 to
US$1.00. These convenience translations should
not be construed as representations that theJapanese yen amounts have been, could havebeen, or could in the future be, converted into U.S.
dollars at this or any other rate of exchange.
As permitted by the regulations under the
Securities and Exchange Law of Japan, amounts ofless than one million yen have been omitted. As aresult, the totals shown in the accompanying consolidated financial statements (both in yen and in
U.S.dollars) do not necessarily agree with the sumsof the individual amounts.
2.

In preparing the consolidated statements of cash
flows, cash on hand, readily-available deposits andshort-term highly liquid investments with maturityof not exceeding three months at the time of purchase are considered to be cash and cash
equivalents.
(c) Short-term investments and Investments in
Securities:
For the Accounting Standards for Financial
Instruments which was issued by the BusinessAccounting Deliberation Council, securities areclassified into three categories: trading securities,
held-to-maturity debt securities, equity investments
in associates and other securities.
Those classified as other would be reported at fairvalue with unrealized gains, net of related taxes
reported in equity. Under the Code, unrealized
holding gains on securities, net of related taxes is
not available for distribution as dividends andbonuses to directors and corporate auditors.

Summary of Significant Accounting Policies(a) Consolidation Principles:

Other investments are carried at cost. The cost isdetermined by the moving average method.

The consolidated financial statements include theaccounts of the Company and its significant sub-7

8/28/2003

6:06 pm(Trading securities)(e) Depreciation:

Trading securities are held for resale in anticipation of short-term market movements. Tradesecurities, consisting of debt and marketable equity
securities, are stated at fair value. Gains and losses,
both realized and unrealized, are charged toincome.

Depreciation is principally computed on the
declining-balance method, based on the estimateduseful lives of assets which are prescribed by
Japanese income tax laws. Buildings are depreciated on a straight-line basis.

(Held-to-maturity debt securities and other securities)
Management determines the appropriate classification of debt securities at the time of purchase andreevaluates the classification as of each balance
sheet date. Debt securities are classified as held-tomaturity when the Company has the positive intent
and ability to hold the securities to maturity. Heldto-maturity debt securities are stated at amortizedcost adjusted for the amortization of premiums andthe accretion of discounts to maturity.
Marketable equity securities and debt securities
not classified as held-to-maturity are classified asother securities. Other securities are carried at fairvalue with the unrealized gains and losses, net oftax, reported in a separate component of shareholders’ equity. The amortized cost of debt
securities in this category is adjusted for the amortization of premiums and the accretion of
discounts to maturity. Realized gains and losses
and declines in value judged to be other than temporary on other securities are charged to income.
(Golf club membership)
An impairment loss on deposits for golf club membership is required to be recognized in accordancewith the new standard.

Amortization of intangible assets is computed by
the straight-line method over periods prescribedprimarily by the Japanese Commercial Code orJapanese income tax laws.
(f) Stock and bond issue expenses:
Stock and bond issue expenses are charged toincome as incurred.
(g) Accrued Retirement Benefits:
To provide for the payment of retirement benefits
and pension plans to employees, the Company
and certain consolidated subsidiaries have enteredan amount into a reserve equivalent to the amountrecognized as necessary at the end of the period
under review based on the expected retirement
and severance obligations and the assets of pension plans at fiscal year-end.
The Company and its domestic subsidiaries provide for lump-sum severance benefits with respect
to directors and corporate auditors. While theCompany has no legal obligation, it is a customary
practice in Japan to make lump-sum payments to a
director or a corporate auditor upon retirement.
Annual provisions are made in the accounts for theestimated costs of this termination plan, which is
not funded. Any amounts payable to officers uponretirement are subject to approval at the shareholders’ meeting.

(d) Inventories:(h) Construction Contract:
Merchandise inventories are stated at cost, determined by the specific identification method.
Materials and work in process are stated at cost,
determined by the periodic average method.
Supplies are stated at cost, determined by the lastpurchase cost method.

8

The construction contract takes longer than one
year and the contract amount exceeded ¥0.5 billion, the percentage of completion method isapplied.

8/28/2003

6:06 pm(i) Leases:
In Japan finance leases other than those that are
deemed to transfer the ownership of the leased
assets to lessees are accounted for by a method
similar to that applicable to ordinary operatingleases.
(j) Research and Development and Computer
Software:Research and development expenditure is charged
to income when incurred.
Expenditure relating to computer software developed for internal use is charged to income whenincurred, except if it contributes to the generationof income or to future cost savings. Such expenditure is capitalized as an asset is amortized using
the straight-line method over its estimated usefullife which is in the range of 3 to 5 years.
(k) Income Taxes:
Income taxes consist of corporation, inhabitantsand enterprise taxes for domestic companies andforeign income taxes.
Deferred income taxes are provided for the income
tax expenses under the asset and liability method.
Deferred income tax assets and liabilities are determined based on temporary differences between
the financial statements and tax bases of assets andliabilities, using enacted tax rates in effect during
the years in which the differences are expected toreverse, and on available tax credits carryforward.
(l) Per Share Information
The computation of basic net income per share isbased on the weighted average number of sharesof common stock outstanding during each period.
The average number of shares used in the computation was 28,098 thousand shares for 2003 and28,310 thousand shares for 2002.

For the year ended 31, 2003, fully diluted net
income per share of common stock assumes full
exercise of right of the outstanding stock option
plan at the beginning of the year.
Cash dividends per share shown in the statements
of income are the amounts applicable to therespective years.
3.

Short-Term Investments, Investments in
Securities and Investments in and Advances
to associates:

Short-term securities at March 31, 2003 and 2002
consisted of the following:

Millions of yen

Market value available:
Trading securities .......
Market value not available:
M.M.F. and F.F.F........
COMERCIAL PAPER .......
Total ..........................

Thousands of
U.S. dollars

2003

2002

2003

¥ 101

¥ 199

$

¥4,515—¥4,616¥7,792¥ 999¥8,991$37,566—$38,407

841

Millions of yen
March 31, 2003
Other securities
Gross
Gross Book Value
unrealized unrealized (Estimatedgains
losses fair value)

Cost
Market value available:
Equity securities ........ ¥ 2,383 ¥Bonds and debentures ...
—Other securities .........
—¥ 2,383 ¥Market value not available
Total ..........................

256 ¥
—
—
256 ¥

135 ¥ 2,504————
135 ¥ 2,504
1,070¥ 3,575

Thousands of U.S. dollars
March 31, 2002
Other securities
Gross
Gross Book Value
unrealized unrealized (Estimated
Cost
gains
losses fair value)
Market value available:
Equity securities ........ ¥ 4,083 ¥Bonds and debentures ...
—Other securities .........
—¥ 4,083 ¥Market value not available
Total ..........................

418 ¥ 1,334 ¥ 3,167
—
—
—
—
—
—
418 ¥ 1,334 ¥ 3,167
101¥ 3,268

Through March 31, 2002, diluted net income pershare is not disclosed because potentially dilutive
securities are not issued.

98/28/2003

6:06 pmThousands of U.S. dollars
March 31, 2003
Other securities
Gross
Gross Book Value
unrealized unrealized (Estimated
Cost
gains
losses fair value)
Market value available:
Equity securities ........ $ 19,830 $ 2,133 $ 1,126 $20,837
Bonds and debentures ...
————Other securities .........
————$ 19,830 $ 2,133 $ 1,126 $20,837
Market value not available
8,908
Total ..........................
$29,746

4.

Short-term bank loans and long-term debt:

The annual average interest rates applicable toshort-term bank loans at March 31, 2003 and 2002
are 0.86% and 1.25%, respectively.
Long-term debt at March 31, 2003 and 2002 consistedof the following:

Millions of yen
2003
2002
1.33% bank loansdue 2004 ......................
1.08% bank loansdue 2009 ......................
1.50% guarantee moneydue 2023 ......................

¥

Thousands of
U.S. dollars
2003

98

—

$

815

¥ 112

¥ 308

$

931

¥3,056¥3,266¥2,903¥3,211$25,431$27,178

Aggregate annual maturities of long-term debt
subsequent to March 31, 2003 are as follows:Year ending March 31
2004 ...........................................
2005 ...........................................
2006 ...........................................
2007 ...........................................
2008 and thereafter .....................

10

Millionsof yen
¥

98
41
18
18
3,091
¥ 3,266

Thousands of
U.S. dollars
$

815
341
149
149
25,722$ 27,178

5.

Accrued Retirement Benefits

The following tables sets forth the changes inbenefit obligation, plan assets and funded status of
the Company and its subsidiaries at March 31,
2003 and 2002.

Millions of yen
2003
2002
Benefit obligation at endof year ..........................
Fair value of plan assets
at end of year ...............
Funded status:
Benefit obligation inexcess of plan assets .....
Unrecognized net
transition obligation at
date of adoption ..........
Unrecognized priorservice cost ...................
Unrecognized actuarial
loss ...............................
Prepaid expenses for plan
assets at end of year ......
Accrued pension liability
recognized in the
consolidation
balance sheets ..............

Thousands of
U.S. dollars
2003¥ 5,273¥ 5,207$43,876

2,711

3,167

22,557

2,562

2,039

21,319

—

—

—

—

—

—

849

368

7,065

(12)

(13)

(106)

1,726

1,685

14,359Note: Some domestic subsidiaries have adopted
allowed alternative treatment of the accounting
standards for retirement benefit for small business
entity.
Severance and pension costs of the Company andits subsidiaries included the following components
for the year ended March 31, 2003 and 2002.

Millions of yen
2003
2002
Service cost ...................
Interest cost ...................
Expected return on plan
assets ........................
Amortization:
Transition obligation at
date of adoption .......
Prior service cost .......
Actuarial losses .........
Net periodic benefit cost

¥

¥

260
153

¥

Thousands of
U.S. dollars
2003

253
157

$ 2,168
1,280

(65)

(79)

(544)

—
—
75
424

—
—
45
376

—
—
630
$ 3,535¥

8/28/2003

6:06 pm

Assumption used in the accounting for the defined
benefit plans for the year ended March 31, 2003
and 2002 is as follows:
2003
Method of attributing benefit toperiods of service
Discount rate ................................
Long-term rate of return onfund assets ....................................
Amortization period for transition
obligation at date of adoption ........
Amortization period for priorservice cost ..................................
Amortization period for actuarial
losses ...........................................

6.

2002

straight-line straight-line
basis
basis
2.5%
3.0%
3.0%

3.0%

—

—

—

—

10 years

10 yearsContingencies

8.

LeasesThe Group leases certain machinery andequipment, and other assets. Total lease payments
under these leases were ¥359 million ($2,990
thousand) , and ¥309 million for the years ended
March 31, 2003 and 2002, respectively.
Pro forma information relating to acquisition costs,
accumulated depreciation and future minimum
lease payments for property held under financeleases which do not transfer ownership of theleased property to the lessee on an “as if
capitalized” basis for the years ended March 31,
2003 and 2002, is as follows:
Millions of yen
2003

At March 31, 2003 and 2002, the Group was
contingently liable as follows:
Millions of yen
2003
2002
As an endorser of notes
discounted or endorsed¥1,719Thousands of
U.S. dollars
2003¥2,219$14,307

¥ 450
4
¥ 454

$ 3,74317$ 3,761

Acquisition costs ...........

MachineryandEquipment

Other

Total

¥ 1,214¥¥ 1,844

Accumulated
Depreciation ................
Net leased property .......

429
¥

784

¥

629
305

735

324

¥ 1,109

As a guarantor of indebtedness of:
Associates .................
Others .......................

7.

¥ 450
2
¥ 452

Cash and Cash Equivalents

Acquisition costs ...........

Cash and cash equivalents at March 31, 2003 and2002 is as follows:

Cash and time deposits ...
Short-term investment ....
Less-time deposits withoriginal maturities morethan three months .........
Less-stock ......................

Millions of yen
2003
2002
¥ 5,911 ¥ 6,104
4,616
8,991

Millions of yen
2002

Net leased property .......

Thousands of
U.S. dollars
2003$49,182
38,407(582)—$87,007

Other

Total

¥ 1,101¥¥ 2,048

Accumulated
Depreciation ................

249
¥

852

¥

946
662

912

283

¥ 1,135

Thousands of U.S. dollars
2003

Acquisition costs ...........
(70)
(70)
—
(98)
¥10,458 ¥14,927

MachineryandEquipment

MachineryandEquipment

Other

Total

$10,105$ 5,237$15,342

Accumulated
Depreciation ................

3,576

2,539

6,116

Net leased property .......

$ 6,528$ 2,697$ 9,22611

8/28/2003

6:06 pm

Future minimum lease payments under financeleases as of March 31, 2003 and 2002 were as
follows:

Due within one year ......
Due after one year .........
Total ..............................

Millions of yen
2003
2002
¥ 368
¥ 330
740
805
¥1,109¥1,135

Changes in common stock and additional paid-in
capital have resulted from the following.

Thousands of
U.S. dollars
2003$3,065
6,160$9,226

The acquisition costs and future minimum lease
payments under finance leases include theimputed interest expense portion.
Depreciation expense, which is not reflected in theaccompanying consolidated statements of income,computed by the straight-line method, would havebeen ¥359 million ($2,990 thousand) for the year
ended March 31, 2003.
9.

10. Shareholders’ Equity

Millions of yen
Number ofsharesCommonstock

Additional
paid-in
capitalBalance of March 31,
2001 .............................

29,073,279

11,786

11,824Retirement of stock during
2002 .............................

(762,500)

—

(201)

Balance of March 31,
2002 .............................

28,310,779

11,786

11,613Retirement of stock during
2003 .............................

(145,000)

—

(105)

Balance of March 31,
2003 .............................

28,165,779

11,786

11,508

Thousands of
U.S. dollars

Derivatives and Hedging Activities

Derivative financial instruments are utilized by theCompany principally to reduce interest rate andforeign exchange rate risks. The Company has
established a control environment which includes
policies and procedures for risk assessment and forthe approval, reporting and monitoring oftransactions involving derivative financial
instruments. The Company does not hold or issue
derivative financial instruments for trading
purposes.
At March 31, 2003 and 2002, all forward
exchange contracts outstanding were entered into
in order to hedge receivables and payables
denominated in foreign currencies which havebeen translated and reflected at the corresponding
contracted rates in the accompanying consolidatedbalance sheets at March 31, 2003 and 2002.

Commonstock

Additional
paid-in
capital98,056

96,618

2003 .............................

—

(876)

Balance of March 31,
2003 .............................

98,056

95,741

Balance of March 31,
2002 .............................
Retirement of stock during

The Company adopted 100 shares of common
stock as “low unit”. A holder of shares representing
less than one unit cannot exercise any voting rights
with respect to such shares. However, the holder isentitled to receive dividends and other
distributions. A holder of a fraction of a unit may at
any time require the Company to purchase suchshares at the prevailing market price. Shares sopurchased must be sold or otherwise transferred toa third party within a reasonable time.
11. Research and Development and Computer
SoftwareResearch and development expenditure charged toincome was ¥702 million ($5,843 thousand) and¥644 million for the years ended March 31, 2003
and 2002, respectively.

12

8/28/2003

6:06 pm

12. Income Taxes
The Company and its domestic subsidiaries are
subject to several taxes based on income, which in
the aggregate resulted in statutory tax rates ofapproximately 40.6% and 42.0% for the years
ended March 31, 2003 and 2002, respectively.
Foreign subsidiaries are subject to income taxes of
the countries in which they operate.
The effective rate for the two years ended March
31, 2003 differs from the Company’s statutory tax
rate for the following reasons:Statutory tax rate ...................................
Dividend income ................................
Expenses not deductible forincome tax purposes ..........................
Per capital inhabitant tax ....................
Other ..................................................
Effective tax rate ....................................

2003
42.0
(8.0)

2002
42.0%
(2.1)

9.7
11.8
9.5
65.0

13.5
15.4
9.3
78.1%

In assessing the realizability of deferred tax assets,management of the Company considers whether it
is more likely than not that some portion or all of
the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is entirely
dependent upon the generation of future taxable
income in specific tax jurisdictions during theperiods in which those temporary differences
become deductible. Although realization is notassured, management considered the projected
future taxable income in making this assessment.
Based on these factors, management believes it ismore likely than not that the Company will realize
the benefits of these deductible differences, net ofthe existing valuation allowance as of March 31,
2003.
Tax loss carryforwards will expire between 2004
and 2008.
13. Segment Information:

The tax effects of temporary differences that giverise to significant portions of the deferred tax
assets at March 31, 2003 and 2002 are presented
below:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Accrued expenses .........
Accrued retirement
benefits ........................
Depreciation .................
Unrealized profits .........
Tax loss carryforwards ..
Unrealized losses ofother securities ............
Other ............................
Total gross deferred
tax assets ..................
Less valuation
allowance ................
Net deferred tax
assets .......................

Deferred tax liabilities:
Special tax-purpose
reserve for condensed
booking of fixed assets ...
Unrealized gains ofother securities ............
Total gross deferred
tax liabilities .............
Net deferred tax
assets ........................

2003

2002

2003

¥ 336

¥ 220

$ 2,798

760
221
302
170

686
267
173
212

6,325
1,843
2,517
1,420

—
365

394
340

—
3,043

2,157

2,294

17,948

(211)

(280)

(1,756)

1,946

2,014

16,192(1,345)(966)(11,193)

(49)

(9)

(410)

(1,394)(975)(11,603)¥ 551¥1,038$ 4,588

Information about operations in different industry
segments of the Group for the years ended March
31, 2003 and 2002, is as follows:
Industry Segments
a. Sales and Operating Income
Millions of yen
2003
Eliminations
Industry A Industry B Industry C Industry D /Corporate Consolidated
Sales to customers ....... ¥32,317 ¥14,829 ¥ 6,531 ¥ 1,590 ¥ — ¥55,269
Intersegment ...............
14
3
—
360
(378)
—
Total sales ................... 32,332 14,833
6,531
1,951
(378) 55,269
Operating expenses .... 32,159 13,583
6,603
1,559
(395) 53,510
Operating income ....... ¥ 172 ¥ 1,249 ¥ (71) ¥ 391 ¥ 16 ¥ 1,759
Millions of yen
2002
Eliminations
Industry A Industry B Industry C Industry D /Corporate Consolidated
Sales to customers ....... ¥29,476 ¥10,967 ¥ 6,925 ¥ 612 ¥ — ¥47,982
Intersegment ...............
16
—
—
344
(360)
—
Total sales ................... 29,492 10,967
6,925
957
(360) 47,982
Operating expenses .... 29,863 10,232
6,883
904
(375) 47,508
Operating income ....... ¥ (371) ¥ 734 ¥ 42 ¥ 52 ¥ 14 ¥ 474

13

8/28/2003

6:06 pm

Industry A
Sales to customers ....... $268,867
Intersegment ...............
124
Total sales ................... 268,991
Operating expenses .... 267,552
Operating income ....... $ 1,438

Thousands of U.S. dollars
2003
Eliminations
Industry B Industry C Industry D /Corporate Consolidated$123,376 $ 54,336 $ 13,232 $— $459,812
26
—
3,000
(3,151)—
123,402 54,336 16,233(3,151) 459,812
113,006 54,933 12,974(3,289) 445,178$ 10,396 $ (597) $ 3,258 $ 138 $ 14,634

b. Assets, Depreciation and Capital Expenditures
Millions of yen
2003
Eliminations
Industry A Industry B Industry C Industry D /Corporate Consolidated
Assets .......................... ¥40,597 ¥10,930 ¥ 6,112 ¥ 5,544 ¥15,760 ¥78,943
Depreciation ...............
740
46
111
272
—
1,169
Capital expenditure ..... 2,510
67
99
685
—
3,361
Millions of yen
2002
Eliminations
Industry A Industry B Industry C Industry D /Corporate Consolidated
Assets .......................... ¥36,539 ¥ 7,793 ¥ 6,162 ¥ 5,633 ¥20,233 ¥76,360
Depreciation ...............
849
34
109
83
—
1,075
Capital expenditure .....
340
50
314
3,912
—
4,616

Industry A
Assets .......................... $337,743
Depreciation ............... 6,151
Capital expenditure ..... 20,880

Thousands of U.S. dollars
2003
Eliminations
Industry B Industry C Industry D /Corporate Consolidated$ 90,936 $ 50,851 $ 46,122 $ 131,113 $656,767
385
920
2,266
—
9,724
557
821
5,697
— 27,957

Notes: Industry A consists of special equipment
car.
Industry B consists of environmental
equipment and systems.
Industry C consists of car sales business.

14

Industry D consists of real estate business.
Corporate assets consist primarily of cash
and cash equivalents, investment in andadvances to affiliates, investments insecurities and the corporate headquarters
assets.
With effect from the year ended March
31,2003, four-segment classification waspresented due to an increasing materialityof real estate business segment, while threesegments were presented in the
consolidated financial statements previously
reported for the year ended March 31,2002.
Segment information for the year 2002
disclosed above was reclassified to conformto the four-segment classification forcomparative purposes.
14. Subsequent Event
The following appropriations of the Company’s
retained earnings in respect of the year ended
March 31, 2003 were as proposed by the Board of
Directors and approved by the shareholders at theannual general meeting held on 27 June, 2003:

Appropriations
Cash dividends(¥3.0 per share) ....................
Bonuses to directors ..............
Total appropriations .............

Millionsof yenThousands of
U.S. dollars

¥

$ 693
195
$ 889

83
23
¥ 106

8/28/2003

6:06 pm

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

To the Shareholders andBoard of Directorsof Kyokuto Kaihatsu Kogyo Co., Ltd.

We have audited the accompanying consolidated balance sheets of Kyokuto Kaihatsu Co., Ltd. and subsidiaries as of March 31, 2002 and 2003, and the related consolidated statements of income,stockholders’ equity and cash flows for each of the years in the two-year period ended March 31, 2003.
These consolidated financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Kyokuto Kaihatsu Kogyo Co.,Ltd. and subsidiaries as of March 31, 2002
and 2003, and the results of their operations and their cash flows for each of the years in the two-year
period ended March 31, 2003 in conformity with accounting principles generally accepted in Japan.
The accompanying consolidated financial statements as of and for the year ended March 31, 2003 havebeen translated into United States dollars solely for the convenience of the reader. We have recomputed
the translation and, in our opinion, the consolidated financial statements expressed in yen have beentranslated into dollars on the basis set forth in note 1 to the consolidated financial statements.

Osaka, Japan
June 27, 200315

8/28/2003

6:06 pm

CORPORATE INFORMATION

Kyokuto Kaihatsu Kogyo Co., Ltd.
Established:
June, 1955
Paid-in Capital:¥11,786 million (at March 31, 2003)
Number of Shares Issued:
28,165,779 shares (at March 31, 2003)
Number of Employees:
1,378 (at March 31, 2003)
Head Office:1-45, Koshienguchi 6-chome, Nishinomiya City, Hyogo Prefecture,663-8545, Japan
Tel: 0798-66-1000
Fax: 0798-66-8146
Tokyo Office:1-1, Asahicho, Haneda, Ota-ku, Tokyo, 144-0042, Japan
Tel: 03-5737-2271
Fax: 03-5737-7791
Plants:Yokohama Plant
Occupies 51,890m2
Since March, 1962
Located in Yamato, Kanagawa
Nagoya Plant
Occupies 132,537m2
Since June, 1970
Located in Komaki, Aichi
Miki Plant
Occupies 98,274m2
Since October, 1979
Located in Miki, Hyogo
Fukuoka Plant
Occupies 66,832m2
Since September, 1970
Located in Iizuka, Fukuoka
Hachinohe Plant
Occupies 57,600m2
Since April, 1999
Located in Hachinohe, Aomori

168/28/2003

6:06 pm

BOARD OF DIRECTORS AND STATUTORY AUDITORS(at June 27, 2003)

Chairman and Representative of the Board of Directors
Yoshihiro Tokunaga
President and Representative of the Board of Directors, CEO
Katsushi Tanaka
Senior Managing Director, Senior Managing Executive Officer
Tadao Yasuda
Managing Director, Managing Executive Officer
Hiroki Uoi
Director, Executive Officer
Yukinori Matsuhashi
Norio Maeda
Ichiro Fujinami
Kazuyoshi Kira
Takeshi Kunisada
Takaaki Hudetani
Syunji Nakamura
Executive Officer
Ichiro Fujinami
Yukitoshi Masumura
Toshihide Sakai
Tomoki Ueyama
Genpachi Hashimoto
Rikio Sagawa
Kozo Ueda
Standing Auditor
Yasuhiko Tamaki
AuditorShunichi Suda
Rikuyuki Tentaku
Yasuo Mizuno

178/28/2003

6:06 pm

KYOKUTO KAIHATSU KOGYO CO., LTD.

Printed in Japan