Consolidated Financial Statements
KYUDENKO CORPORATION
Years ended March 31, 2010 and 2009
with Report of Independent Auditors

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31,
2010
2009
2010
(Millions of yen)(Thousands of
U.S. dollars)(Note 3)
AssetsCurrent assets:
Cash and cash equivalents (Note 15)
Short-term investments (Note 14)
Trade notes and accounts receivable (Note 15)
Lease receivables and lease investment assets (Note15)
Less: Allowance for doubtful receivables
Inventories (Note 4)
Deferred tax assets (Note 8)
Other current assets
Total current assets

Property, plant and equipment (Note 5):Land
Buildings and structures
Machinery and equipment
Construction in progress
Accumulated depreciation
Property, plant and equipment, net
Investments and other assets:
Investment securities (Note 14 and 15)
Long-term loans receivable
Investments in unconsolidated subsidiaries andaffiliates (Note 15)
Deferred tax assets (Note 8)
Other
Less: Allowance for doubtful receivables
Total investments and other assets

Total assets¥ 14,360
1,018
51,834¥ 12,813
2,230
49,852$ 154,342
10,942557,115

17,532(485)
19,324
2,997
2,309
108,889

18,337(997)
30,8683,313
2,600
119,016

188,435(5,213)
207,696
32,212
24,817
1,170,346

26,61955,32817,915
197
100,059(34,313)65,746

26,782
53,847
15,038
3,426
99,093(32,675)
66,418286,103594,669
192,552
2,117
1,075,441(368,799)
706,642

15,251727

13,985776

163,919
7,814

7,290
10,1009,591(5,032)37,927

7,084
11,642
10,004(5,050)38,441

78,353
108,555
103,085(54,084)
407,642¥212,562¥223,875$2,284,630
2

March 31,
2010
2009
2010
(Millions of yen)(Thousands of
U.S. dollars)(Note 3)Liabilities and net assets
Current liabilities:
Short-term bank loans and current portion of
long-term debt (Note 6 and 15)
Trade notes and accounts payable (Note 15)
Advances received on construction contracts inprogress
Accrued expenses
Accrued income taxes (Note 8)
Other current liabilities (Notes 6 and 8)
Total current liabilities¥ 12,890
42,985¥ 15,018
44,061$ 138,543
462,006

16,882
1,810
1,174
3,833
79,574

23,274
2,040
602
4,791
89,786

181,449
19,454
12,61841,196855,266

12,0201,462
26,098198
2,801
42,579122,153

15,343
2,817
26,819199
2,581
47,759137,545

129,192
15,714
280,5032,128
30,105
457,642
1,312,908

Net assets:
Shareholders’ equity (Note 7):
Common stock, with no par value:
Authorized – 250,000,000 shares
Issued – 83,005,819 shares in 2010 and 2009
Capital surplus
Retained earnings
Treasury stock, at cost
Total shareholders’ equity

7,902
7,890
76,726(3,767)88,751

7,902
7,890
73,517(3,758)85,551

84,93184,802824,655(40,487)
953,901

Valuation, translation adjustments and other:
Net unrealized gain on other securities
Translation adjustments
Total valuation, translation adjustments and other
Minority interests
Total net assets
Total liabilities and net assets

820
(65)
755
903
90,409¥212,562

2
(78)
(76)
855
86,330¥223,875

8,814
(699)
8,115
9,706
971,722$2,284,630

Long-term liabilities:
Long-term debt (Note 6 and 15)
Long-term accounts payable
Accrued employees’ retirement benefits (Note 9)
Accrued directors’ retirement benefits
Other (Notes 6 and 8)
Total long-term liabilities
Total liabilities
Contingent liabilities (Note 13)

See notes to consolidated financial statements.

3

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Operations

Year ended March 31,
2010
2009
2010
(Millions of yen)(Thousands of
U.S. dollars)(Note 3)
Net sales
Cost of sales (Note 10)
Gross profit¥225,891
203,720
22,171¥245,388
221,386
24,002

2,427,891
2,189,596
238,295

Selling, general and administrative expenses(Note 10)
Operating income

16,728
5,443

16,987
7,015

179,79358,502Other income (expenses):
Interest and dividend income
Interest expense
Loss on devaluation of investment securities
Gain (loss) on sales of property, plant and equipment
Gain (loss) on sales of investment securities
Additional retirement allowances paid
Provision of allowance for investment loss
Other, net
Income before income taxes and minority interests

328
(82)
(423)
91
83
(101)
－
1,664
7,003

392
(182)
(5,824)
(10)
(31)
(236)
(363)
1,603
2,364

3,525
(881)
(4,546)
978892(1,086)－
17,88575,269

1,547
1,307
2,854
(47)
¥ 4,102

734
707
1,441
(24)
¥ 899

16,627
14,04830,675(505)
44,089

Income taxes (Note 8):
Current
Deferred
Minority interests
Net income (Note 11)$

See notes to consolidated financial statements.

4

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets
Valuation, translation adjustments
and other

Shareholders’ equity

Number ofsharesissuedCommonstock

CapitalsurplusRetainedearnings

Treasurystock(Thousands)

Net
Total
unrealized
valuation,
Total
gain (loss) on
translation
shareholders’
otherTranslation adjustments
equitysecurities adjustments and other

Minority
interests

Total
net assets(Millions of yen)

Balance at March 31, 2008
Cash dividends paid
Decrease due to inclusion ofsubsidiaries in consolidation
Net income
Purchases of treasury stock
Net changes in items otherthan those in shareholders’equity during the year

83,005–¥7,902–¥7,890–¥73,371(744)¥(3,710)–¥85,453(744)¥(1,824)–¥11–¥(1,813)–¥888–¥84,528
(744)

–
–
–

–
–
–

–
–
–

(9)
899
–

–
–
(48)

(9)
899
(48)

–
–
–

–
–
–

–
–
–

–
–
–

(9)
899
(48)

–

–

–

–

–

–

1,826

(89)

1,737

(33)

1,704

Balance at March 31, 2009
Cash dividends paid
Net income
Purchases of treasury stock
Net changes in items otherthan those in shareholders’equity during the year

83,005
–
–
–

7,902
–
–
–

7,890
–
–
–

73,517
(893)
4,102
–

(3,758)––(9)85,551
(893)
4,102
(9)

2
–
–
–

(78)
–
–
–

(76)
–
–
–

855
–
–
–

86,330
(893)
4,102
(9)

–

–

–

–

–

–

818

13

831

48

879

Balance at March 31, 2010

83,005¥7,902¥7,890¥76,726¥(3,767)¥88,751

¥820

¥(65)

¥755

¥903

¥90,409

Minority
interests

Total
net assets$9,189–––$927,879(9,599)44,089(96)

Valuation, translation adjustments
and other

Shareholders’ equity

Number ofsharesissuedCommonstock

CapitalsurplusRetainedearnings(Thousands)

Treasury
stock

Net
Total
unrealized
valuation,
Total
gain (loss) on
translation
shareholders’
otherTranslation adjustments
equitysecurities adjustments and other(Thousands of U.S. dollars) (Note 3)

Balance at March 31, 2009
Cash dividends paid
Net income
Purchases of treasury stock
Net changes in items otherthan those in shareholders’equity during the year

83,005–––$84,931–––$84,802–––$790,165(9,599)44,089–$(40,391)––(96)$919,507(9,599)44,089
(96)

$22
–
–
–

$(839)–––$(817)
–
–
–

–

–

–

–

–

–

8,792

140

8,932

517

9,449

Balance at March 31, 2010

83,005$84,931$84,802$824,655$(40,487)$953,901$8,814$(699)$8,115$9,706$971,722

See notes to consolidated financial statements.

5

KYUDENKO CORPORATION and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Year ended March 31,
2010
2009
2010
(Millions of yen)(Thousands of
U.S. dollars)(Note 3)Operating activities
Income before income taxes and minority interests
Depreciation and amortization
Provision for retirement benefits, net of payments
Interest and dividend income
Interest expense
Loss on reduction of noncurrent assets
Loss on devaluation of investment securities
Loss (gain) on sales of investment securities
Loss (gain) on sales and disposal of property, plant andequipment, net
Trade notes and accounts receivable
Lease receivables and lease investment assets
Inventories
Trade notes and accounts payable
Advances received on construction contracts in progress
Long-term accounts payable
Other
Interest and dividends received
Interest paid
Income taxes paid
Income taxes refunded
Net cash provided by operating activities
Investing activities
Purchases of short-term investments and investment securities
Proceeds from sales of short-term investments and investment
securities
Purchases of property, plant and equipment
Proceeds from sales of property and equipment(Increase) decrease in time deposits
Decrease in long-term loans receivable
Other
Net cash used in investing activities
Financing activities
Decrease in short-term bank loans
Decrease in long-term debt
Cash dividends paid
Purchases of treasury stock
Other
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Increase due to inclusion of subsidiaries in consolidation
Cash and cash equivalents at end of the year

¥ 7,003
2,851
(721)
(328)
82
1,267
423
(83)

¥ 2,364
2,479(1,145)
(392)
181

(64)
(1,983)805
11,544(1,076)(6,392)(1,355)(186)
11,787330(82)(1,063)

18
7,702

–

5,824
31

902

$ 75,269
30,643(7,749)(3,525)881
13,618
4,546
(892)
(688)
(21,313)8,652
124,075(11,565)(68,702)(14,564)(1,999)126,6873,547(882)(11,425)

10,972

2,390(7,393)
3,823(1,522)
2,727
17,989392(181)(3,193)219
15,226(3,848)(741)(41,359)

2,683(4,521)
616
2,342
9
(344)
(3,063)

1,337(3,993)81(1,568)36(223)(5,071)

28,837(48,592)
6,621
25,17297(3,697)(32,921)(3,613)(1,838)
(893)
(9)
(8)
(6,361)(10,062)
(65)
(744)
(48)
(3)
(10,922)(38,833)(19,755)(9,598)(97)(85)(68,368)(1)
1,547
12,813(9)(776)
13,57217¥ 12,813(11)
16,627
137,715––¥ 14,360–

117,927–$ 154,342

See notes to consolidated financial statements.
6

KYUDENKO CORPORATION
Notes to Consolidated Financial Statements
March 31, 2010

1.

Basis of Presentation

KYUDENKO CORPORATION (the “Company”) and its domestic subsidiaries maintaintheir accounting records and prepare their financial statements in accordance withaccounting principles generally accepted in Japan, and its foreign subsidiaries maintaintheir books of account in conformity with those of their countries of domicile.
The accompanying consolidated financial statements have been compiled from theconsolidated financial statements prepared by the Company as required under the Financial
Instruments and Exchange Law of Japan and, accordingly, have been prepared inaccordance with accounting principles generally accepted in Japan, which are different incertain respects as to the application and disclosure requirements of International Financial
Reporting Standards.
Certain amounts in the prior year’s financial statements have been reclassified to conformto the current year’s presentation.

2.

Summary of Significant Accounting Policies(a) Basis of consolidation and accounting for investments in unconsolidated subsidiaries
and affiliates
The accompanying consolidated financial statements include the accounts of theCompany and significant companies controlled directly or indirectly by the Company.
Significant companies over which the Company exercises significant influence interms of their operating and financial policies have been included in the consolidated
financial statements on an equity basis. All significant intercompany balances andtransactions have been eliminated in consolidation.
The excess of cost over underlying net assets at fair value as of the dates of acquisitionis amortized, mainly over a period of 5 years on a straight-line basis.
Investments in companies which are not consolidated or accounted for by the equity
method are carried at cost.
(b) Cash equivalents
All highly liquid investments with a maturity of three months or less when purchased
are considered cash equivalents.

7

2.

Summary of Significant Accounting Policies (continued)(c) Foreign currency translation
Monetary assets and liabilities denominated in foreign currencies are translated into
yen at the exchange rates in effect at the balance sheet date. All other assets andliabilities denominated in foreign currencies are translated at their historical rates.
All revenues and expenses associated with foreign currencies are translated at the rates
of exchange prevailing when such transactions were made. The resulting exchange
losses and gains are charged or credited to income.
Revenue and expense accounts of the foreign consolidated subsidiaries are translated
at the average rate during the year and, except for the components of net assets
excluding minority interests, the balance sheet accounts are translated into yen at theexchange rates in effect at the balance sheet date. The components of net assets
excluding minority interests are translated at their historical exchange rates.
(d) Securities
Securities other than those of subsidiaries and affiliates are classified into three
categories: trading, held-to-maturity or other securities. Trading securities are carriedat fair value and held-to-maturity securities are carried at amortized cost. Marketablesecurities classified as other securities are carried at fair value with any changes in
unrealized holding gain or loss, net of the applicable income taxes, included directly in
net assets. In cases where an embedded derivative in a compound financial
instrument is unable to be separately measured, the entire compound financial
instrument is measured at fair value with changes in value charged or credited toincome. Non-marketable securities classified as other securities are carried at cost
except for investments in limited partnerships that are accounted for by the equity
method. Cost of securities sold is determined by the moving average method.
(e) Allowance for doubtful receivables
The allowance for doubtful receivables is provided at an amount determined based on
the historical experience of bad debt with respect to ordinary receivables, plus anestimate of uncollectible amounts determined by reference to specific doubtfulreceivables from customers which are experiencing financial difficulties.
(f)

Inventories
Construction contracts in progress are stated at cost by the specific identification
method. Real estate construction in progress is stated at cost by the specificidentification method. Materials and supplies are chiefly stated at cost by the averagemethod.
The balance sheet amounts of inventories are calculated at the lower of cost or net
selling value by decreasing the book value based on any declines in profitability.

8

2.

Summary of Significant Accounting Policies (continued)(Change in valuation method for inventories)
Effective the year ended March 31, 2009, the Company and its domestic consolidated
subsidiaries adopted the “Accounting Standard for Measurement of Inventories” (ASBJ
Statement No.9 issued on July 5, 2006). The effect of the change on operating income
and income before income taxes and minority interests was negligible.
The effect of this change on segment information is explained in Note 17.

(g) Property, plant and equipment and depreciation
Property, plant and equipment is stated at cost.
Depreciation of property, plant and equipment is computed by the declining-balancemethod, except for buildings on which depreciation is computed by the straight-line
method, based on the estimated useful lives of the respective assets. Depreciation ofleased assets (lessees’ accounting) and property for lease (lessors’ accounting) is
computed by the straight-line method over the respective lease terms.
Significant renewals and additions are capitalized at cost.
minor renewals are charged to income as incurred.

Maintenance, repairs and(Additional information)
Effective the year ended March 31, 2009, following the revision to the Tax Low, theuseful lives of certain machinery has been reviewed to reflect more realistic useful lives.
As a result, the useful lives of certain machinery were changed. The effect of thechange on operating income and income before income taxes and minority interests was
negligible.
(h) Research and development costs
Research and development costs are charged to income as incurred.
(i)

Income taxes
Deferred tax assets and liabilities are determined based on the differences between
financial reporting and the tax bases of the assets and liabilities, and are measured
using the enacted tax rates and laws which will be in effect when the differences are
expected to reverse.

92.

Summary of Significant Accounting Policies (continued)(j)Retirement benefits
Accrued retirement benefits for employees are provided mainly at an amountcalculated based on the retirement benefit obligation and the fair value of the pension
plan assets at the balance sheet dates, as adjusted for unrecognized actuarial gain orloss and unrecognized prior service cost. The retirement benefit obligation is
attributed to each period by the straight-line method over the estimated years ofservice of the eligible employees. Actuarial gain or loss is amortized in the year
following the year in which the gain or loss is recognized by the straight-line method
over the average remaining years of service of the employees (14 years through 16
years). Prior service cost is amortized by the straight-line method over the averageremaining years of service of the employees (14 years through 15 years).
In addition, directors and corporate auditors of consolidated subsidiaries arecustomarily entitled to lump-sum payments under the unfunded retirement benefit plan.
Provision for retirement benefits for these officers has been made at estimatedamounts.
(Change in estimation of retirement benefit obligation)
Effective the year ended March 31, 2010, the Company and its domestic consolidated
subsidiaries adopted the “Partial Amendments to Accounting Standard for Retirement
Benefits (Part 3)” (ASBJ Statement No.19, issued on July 31, 2008). The adoptionof the standard had no impact on the Company’s consolidated operating results.
Also, the unrecognized balance of difference in projected benefit obligation that arose
as a result of adopting this standard amounted to ¥2,127 million ($22,861 thousand) as
of March 31, 2010.
The effect of this change on segment information is explained in Note 17.

(k) Recognition of revenue and related costs
Until the year ended March 31, 2009, revenues and costs of construction contracts
were recognized by the completed-contract method. Revenues and costs ofconstruction contracts that commenced on or after April 1, 2009, of which thepercentage of completion can be reliably estimated, are recognized by thepercentage-of-completion method. The percentage of completion is calculated at thecost incurred as a percentage of the estimated total cost. The completed-contract
method continues to be applied for contracts for which the percentage of completioncannot be reliably estimated.

10

2.

Summary of Significant Accounting Policies (continued)(Changes in accounting for construction contracts)
Effective the year ended March 31, 2010, the Company and its domestic consolidated
subsidiaries adopted the “Accounting Standard for construction contracts” (ASBJ
Statement No.15, issued on December 27, 2007), and the “Implementation Guidanceon Accounting Standard for construction contracts” (ASBJ Guidance No.18, issued
on December 27, 2007). Under the new accounting standard and guidance, revenues
and costs of construction contracts that commenced on or after April 1, 2009, of which
the percentage of completion can be reliably estimated, are recognized by thepercentage-of-completion method. The percentage of completion is calculated at thecost incurred as a percentage of the estimated total cost. The completed-contract
method continues to be applied for contracts for which the percentage of completioncannot be reliably estimated.
As a result, net sales increased by ¥5,250 million ($56,427 thousand) and operating
income, and income before income taxes and minority interests both increased by ¥93
million ($1,000 thousand) for the year ended March 31, 2010 from the corresponding
amounts which would have been reported under the previous method.
The effect of this change on segment information is explained in Note 17.

(l) Leases
Finance leases are, in principle, capitalized. However, finance lease transactions that
do not transfer ownership of the leased asset to the lessee, commencing before April 1,
2008, are accounted for as operating lease transactions with certain “as if capitalized”
information disclosed in the notes to the consolidated financial statements.
(Changes in accounting for lease transactions)
Effective the year ended March 31, 2009, the Company and its domestic consolidated
subsidiaries adopted the “Accounting Standard for Lease Transactions” (ASBJ
Statement No.13, issued on March 30, 2007, revising the original standard issued by
the Standards Committee of the Business Accounting Council on June 17, 1993), andthe “Implementation Guidance on Accounting Standard for Lease Transactions”(ASBJ Guidance No.16, issued on March 30, 2007, revising the Practical Guidanceissued by the Accounting Practice Committee of the Japanese Institute of Certified
Public Accountants on January 18, 1994). Accordingly, finance lease transactions
that do not transfer ownership of the leased assets, which were previously accounted
for as operating leases, are capitalized as ordinary sale and purchase transactions.

11

2.

Summary of Significant Accounting Policies (continued)(l)Leases (continued)-Lessees’ accounting
For finance lease transactions that do not transfer ownership, those commencing prior
to April 1, 2008 continue to be accounted for as operating leases. As a result, theeffect on operating income and income before income taxes and minority interests was
negligible.
-Lessors’ accounting
Regarding income from finance lease transactions, both sales revenues and cost of
sales are recognized when lease payments are received. For finance lease transaction
entered into prior to April 1, 2008 where ownership of the leased assets is nottransferred, lease investment assets are recognized at the amount of the book value ofthe leased assets as of March 31, 2008 as if the finance leases were entered into at thesame amount on April 1, 2008. As a result, leases investment assets at March 31,
2009 increased by ¥12,711 million as compared with the corresponding amounts
which would have been recorded under the previous method, but the effect on
operating income and income before income taxes and minority interests was
negligible.
The effect of this change on segment information is explained in Note 17.

(m) Derivative financial instruments
The Company has invested in compound financial instruments with embedded
derivatives as part of its excess cash management. Derivative financial instruments
are carried at fair value with changes in unrealized gain or loss charged or credited tooperations.
(n) Adoption of new accounting standard(Unification of accounting policies applied to foreign subsidiaries for the consolidated
financial statements)
Effective the year ended March 31, 2009, the Company adopted the “Practical
Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for theConsolidated Financial Statements” (ASBJ Practical Issues Task Force No.18, issued
on May 17, 2006). The adoption of the new accounting standard had no impact on
the Company’s consolidated operating results.
The effect of this change on segment information is explained in Note 17.

12

3. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience,as a matter of arithmetic computation only, at the rate of ¥93.04 = U.S.$1.00, the rate ofexchange on March 31, 2010. The translation should not be construed as a representationthat yen have been, could have been, or could in the future be, converted into U.S. dollars at
the above or any other rate.

4. Inventories
Inventories at March 31, 2010 and 2009 consisted of the following:
2010
2009
(Millions of yen)
Construction contracts in progress
Real estate construction in progressMaterials and supplies
Total¥16,686
1,066
1,572¥19,324¥27,784
1,111
1,973¥30,8682010(Thousands of
U.S. dollars)$179,343
11,457
16,896$207,696

5. Depreciation
Depreciation of property, plant and equipment for the years ended March 31, 2010 and2009 was as follows:
2010
2009
(Millions of yen)
¥2,851¥2,4792010(Thousands of
U.S. dollars)$30,643

6. Short-Term Bank Loans, Long-Term Debt and Lease Obligations
Short-term bank loans are unsecured and, in general, consisted of 365-day notes principallyat annual weighted average interest rates of 0.914% and 0.988% at March 31, 2010 and2009, respectively.

13

6.

Short-Term Bank Loans, Long-Term Debt and Lease Obligations (continued)

Long-term debt and lease obligations at March 31, 2010 and 2009 consisted of thefollowing:
2010
2009
(Millions of yen)
Loans from banks due through 2027
at interest rates ranging from 0.82%
to 3.50%
Lease obligations due through 2014
Less current portion¥19,473369
19,842(7,642)¥12,200¥21,311500
21,811(6,168)¥15,643

2010(Thousands of
U.S. dollars)$209,297
3,966
213,263(82,137)$131,126

The aggregate annual maturities of long-term debt and lease obligations subsequent toMarch 31, 2010 are summarized as follows:Year ending March 31,
2011
2012
2013
2014
2015
2016 and thereafter

7.

(Millions ofyen)(Thousands of
U.S. dollars)¥ 7,642
5,564
3,423
1,737
764
712
¥19,842$ 82,137
59,802
36,791
18,6698,211
7,653$213,263

Shareholders’ Equity

The Corporation Law of Japan provides that an amount equal to 10% of the amount to be
distributed as distributions of capital surplus (other than the capital reserve) and retained
earnings (other than the legal reserve) be transferred to the capital reserve and the legal
reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25%of the common stock account. Such distributions can be made at any time by resolution of
the shareholders or by the Board of Directors if certain conditions are met, but neither thecapital reserve nor the legal reserve is available for distributions.
The following distribution of retained earnings of the Company, which have not beenreflected in the accompanying consolidated financial statements for the year ended March
31, 2010, was approved at a meeting of the Board of Directors held on May 12, 2010:

Cash dividends (¥5 = $0.05 per share)(Millions ofyen)(Thousands of
U.S. dollars)¥372$3,99814

8. Income Taxes
Income taxes applicable to the Company and its domestic consolidated subsidiaries
comprise corporation, enterprise and inhabitants’ taxes which, in the aggregate, resulted ina statutory tax rate of 40.44% for the years ended March 31, 2010 and 2009.
The effective tax rate reflected in the consolidated statements of income for the year ended
March 31, 2009 differed from the statutory tax rate for the following reasons:2009
Statutory tax rate
Effect of:
Expenses permanently not deductible forincome tax purposes
Dividend income deductible for income tax purposes
Inhabitants’ per capita taxes
Equity in earnings of affiliates and other consolidation
adjustments
Valuation allowance
Other, net
Effective tax rate

40.44%

22.36(3.03)
6.89(1.02)
0.91(5.60)
60.95%

In fiscal year 2010, there is no significant difference between the effective tax rate and thestatutory tax rate.
The significant components of deferred tax assets and liabilities as of March 31, 2010 and2009 were as follows:
2010
2009
(Millions of yen)
Deferred tax assets:
Accrued bonuses
Accrued retirement benefits
Payables relating to defined
contribution plans
Depreciation of noncurrent assets
Allowance for doubtful receivables
Other
Gross deferred tax assets
Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Reserve under Special Taxation
Measures Law
Net unrealized gain on other securities
Other
Total deferred tax liabilities
Net deferred tax assets

2010(Thousands of
U.S. dollars)¥ 2,216
10,044¥ 2,210
10,608$ 23,818
107,954

905
909
1,159
4,807
20,040(4,294)
15,746

1,509
1,074
1,453
5,010
21,864(4,889)16,975

9,727
9,769
12,45751,666215,391(46,152)
169,239(1,725)(561)(410)(2,696)¥13,050(1,659)－(422)(2,081)¥14,894(18,540)(6,030)(4,407)(28,977)$140,262
15

9.

Retirement Benefit Plans

The Company and its domestic consolidated subsidiaries have defined contribution plans aswell as defined benefit plans, that are corporate pension plans, welfare pension fund plans(“WPFP”), and lump-sum payment plans, covering substantially all employees who areentitled to lump-sum or annuity payments, the amounts of which are determined byreference to their basic rates of pay, length of service, and the conditions under which
termination occurs.
The following table sets forth the funded and accrued status of the plans, and the amounts
recognized in the consolidated balance sheets as of March 31, 2010 and 2009 for theCompany’s and the consolidated subsidiaries’ defined benefit plans:
2010
2009
(Millions of yen)
Retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension expense
Accrued retirement benefits¥(51,393)
20,534(30,859)
13,555(8,779)(26,083)(15)¥(26,098)¥(51,163)
20,251(30,912)
13,917(9,808)(26,803)(16)¥(26,819)

2010(Thousands of
U.S. dollars)$(552,375)
220,700(331,675)
145,690(94,357)(280,342)(161)$(280,503)

The components of retirement benefit expenses for the years ended March 31, 2010 and2009 are outlined as follows:
2010
2009
(Millions of yen)
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost
Subtotal
Contributions made to defined
contribution plans
Total

2010
(Thousands of
U.S. dollars)¥ 2,451
1,136
(566)
1,520
(1,029)3,512¥ 2,575
1,172
(697)
1,244
(1,029)3,265$ 26,343
12,210(6,083)
16,337(11,059)
37,748366¥ 3,878367¥ 3,632

3,933$41,681

In addition to the above retirement benefit expenses, additional retirement allowances of¥101 million ($1,085 thousand) and ¥236 million were paid for the years ended March 31,
2010 and 2009, respectively.
The assumptions used in the accounting for the above plans are as follows:

Discount rate
Expected rate of return on plan assets

2010

2009

2.00%
3.50%

2.50%
3.50%
16

10. Research and Development Costs
Research and development costs included in cost of sales and selling, general andadministrative expenses for the years ended March 31, 2010 and 2009 amounted to ¥269
million ($2,891 thousand) and ¥275 million, respectively.

11. Amounts per Share
2010

2009

2010
(U.S. dollars)

12.07
10.00
1,148.17

$0.59
0.13
12.92

(Yen)
Net income
Cash dividends
Net assets

¥

55.12
12.00
1,202.57¥

Net income per share is computed based on the net income available for distribution toshareholders of common stock and the weighted average number of shares of common
stock outstanding during the year, and amounts per share of net assets are computed basedon the net assets excluding minority interests and the number of shares of common stock
outstanding at the year end.
Cash dividends per share represent the cash dividends declared as applicable to therespective years, together with the interim cash dividends paid.

12. Leases(Lessors’ accounting)a)Finance leases
Lease investment assets at March 31, 2010 and 2009 consist of follows:

Minimum lease payments receivable
Estimated residual value
Future interest income
Total

2010
(Millions of
yen)

2009
(Millions of
yen)

2010
(Thousands of
U.S. dollars)¥14,738
680(3,403)¥12,015¥15,792669(3,750)¥12,711$158,405
7,308(36,575)$129,13817

12. Leases (continued)
At March 31, 2010, the amounts due in each of the next five years and thereafter are as
follows:(Lease receivables)
Year ending March 31,
2011
2012
2013
2014
2015
2016 and thereafter
Total(Millions ofyen)(Thousands of
U.S. dollars)

¥ 816
606
530
1,553
918
1,094
¥5,517$ 8,770
6,513
5,696
16,692
9,867
11,759$59,297(Minimum lease payments receivable under lease investment assets)(Millions of(Thousands ofYear ending March 31,
yen)
U.S. dollars)
2011
2012
2013
2014
2015
2016 and thereafter
Total
b)

¥ 4,115
2,930
2,090
1,424
813
3,366
¥14,738$ 44,228
31,492
22,463
15,305
8,738
36,179$158,405

Operating leases
Future minimum operating lease income subsequent to March 31, 2010 under
non-cancelable operating lease transactions is summarized as follows:Year ending March 31,(Millions ofyen)(Thousands of
U.S. dollars)

20112012 and thereafter
Total

¥ 280
156
¥ 436

$ 3,009
1,677$4,68618

12. Leases (continued)(Lessees’ accounting)a)Finance leases
The following pro forma amounts represent the acquisition costs, accumulated
depreciation and net book value of the leased assets as of March 31, 2010 and 2009,
which would have been reflected in the consolidated balance sheets if finance leaseaccounting had been applied to the finance leases currently accounted for as operatingleases:
2010
2009
2010
(Millions of yen)(Thousands of
U.S. dollars)
Acquisition costs:
Machinery and equipment
¥277
¥352
$2,977
Accumulated depreciation:
Machinery and equipment

¥238

¥250

$2,558Net book value:
Machinery and equipment

¥39

¥102

$419

Lease payments relating to finance leases accounted for as operating leases in theaccompanying consolidated financial statements amounted to ¥66 million ($709
thousand) and ¥95 million for the years ended March 31, 2010 and 2009, respectively.
Depreciation of the leased assets computed by the straight-line method over therespective lease terms and the interest portion included in lease payments amounted to¥62 million ($666 thousand) and ¥1 million ($10 thousand), respectively, for the year
ended March 31, 2010 and ¥89 million and ¥4 million, respectively, for the year ended
March 31, 2009.
Future minimum lease payments subsequent to March 31, 2010 for finance leases
accounted for as operating leases are summarized as follows:Year ending March 31,(Millions ofyen)(Thousands of
U.S. dollars)

20112012 and thereafter
Total

¥33
8
¥41

$ 355
86
$ 441

19

13. Contingent Liabilities
The Company and its consolidated subsidiaries had the following contingent liabilities at
March 31, 2010:

Trade notes receivable endorsed anddiscounted with banks
Guarantees of indebtedness(Millions ofyen)(Thousands of
U.S. dollars)

¥ 27
1,602

$ 290
17,21820

14. Securities
a)

Information regarding marketable securities classified as other securities as of March
31, 2010 and 2009 is as follows:

Acquisition
cost

March 31, 2010
Gross
Gross
unrealized
unrealized
Carrying
gains
Acquisition
Carrying
gains
value
(losses)cost
value(losses)(Millions of yen)(Thousands of U.S. dollars)

Securities whosecarrying value
exceeds theiracquisition cost
Equity securities
Debt securities
Other
Subtotal¥ 4,932
1,442
591¥ 6,965¥ 7,011
1,734
685¥ 9,430¥ 2,079292
94¥ 2,465$ 53,010
15,4996,352$ 74,861$ 75,355
18,637
7,362$ 101,354$ 22,345
3,138
1,010
$ 26,493

Securities whose
acquisition costexceeds theircarrying value
Equity securities
Debt securities
Other
Subtotal¥ 3,5311,848
417¥ 5,796¥ 2,771
1,587
338¥ 4,696¥ (760)(261)(79)¥(1,100)$ 37,951
19,862
4,482$ 62,295$ 29,783
17,057
3,633$ 50,473$ (8,168)(2,805)(849)$(11,822)

Total¥12,761¥14,126¥ 1,365$137,156$151,827$ 14,671

March 31, 2009
Gross
unrealized
gains(losses)Acquisition
cost

Carrying
value(Millions of yen)

Securities whosecarrying value
exceeds theiracquisition cost
Equity securities
Debt securities
Other
Subtotal¥ 1,152423
105¥ 1,680¥ 2,398581
110¥ 3,089¥ 1,246158
5¥ 1,409

Securities whose
acquisition costexceeds theircarrying value
Equity securities
Debt securities
Other
Subtotal¥ 7,003
2,369
705¥10,077¥ 6,058
2,038
556¥ 8,652¥ (945)(331)(149)¥(1,425)

Total¥11,757¥11,741

¥

(16)

21

14. Securities (continued)b)

Information regarding sales of securities classified as other securities for the years
ended March 31, 2010 and 2009 is as follows:
2010
2009
(Millions of yen)
Proceeds from sales
Gains on sales
Losses on sales

¥

400
72
9

2010
(Thousands of
U.S. dollars)¥1,19225
56$4,299774
97

15. Financial Instrument
Effective from the fiscal year ended March 31, 2010, the Company has adopted the“Accounting Standard for Financial Instruments” (ASBJ Statement No. 10, issued on
March 10, 2008) and the “Guidance on Disclosure about Fair Value of Financial
Instruments” (ASBJ Guidance No.19, issued on March 10, 2008).
a)

Policy for financial instruments

The Company and its consolidated subsidiaries utilize short-term deposits for surplus fund.
In addition, it raises funds through borrowing from financial institutions. Derivativetransactions are only used to reduce risks, except highly secure embedded derivative in acompound financial instrument for surplus fund.
b)Detail of financial instruments, related risk and risk management system

Trade receivables, such as trade notes, accounts receivable, lease receivables and lease
investment assets, are exposed to credit risk. The Company and its consolidated
subsidiaries monitor the due dates and manage credit risk under the credit management
rules to mitigate the risk.
Investment securities mainly consist of equity securities and are exposed to market risk.
The Company and its consolidated subsidiaries review the fair values of listed equity
securities quarterly and the financial condition of the issuing entities.
Trade payable such as trade notes and accounts payable have payment due dates mainly
within 1 year.
Short-term loan and long term debt is taken out mainly for the purpose of making capital
investments for leasing business segment.
The Company and its consolidated subsidiaries execute and manage derivative transactions
within the limits of established internal rules and regulations, and reduce credit risk bylimiting counterparties to highly creditworthy financial institutions.

2215. Financial Instrument (continued)
Trade payable, loans and debt are exposed to liquidity risk. The Company and its
consolidated subsidiaries manage the risk by preparing and updating its cash flow plansmonthly.
c)

Supplemental explanation of the estimated fair value of financial instruments

As well as the fair values based on market prices, the fair values of financial instruments
include reasonably estimated amounts in case there are no quoted market prices available.
As the estimation of those fair values relies on certain assumptions, different assumptions
and factors could result in different fair values.
Estimated fair value and other of financial instruments as of March 31, 2010 are as follows:
March 31, 2010
Carrying
value

Cash and cash
equivalents
Trade notes andaccounts receivable(*1)
Lease receivable andlease investment
assets(*2)
Investment securities
Total assets
Trade notes andaccount payable
Short-term bank loans
Long-term debt
Total liabilities
Derivatives

Estimated
fair value
Difference(Millions of yen)

Estimated
Carrying
value
fair value
Difference(Thousands of U.S. dollars)–$ 154,342

51,839248

554,503557,169

2,666

16,61013,384¥ 95,945

17,505
13,384¥ 97,088

895–¥ 1,143

178,526
143,852$1,031,223

188,145
143,852$1,043,508

9,619–$ 12,285¥ 42,985
5,437
19,473¥ 67,895–¥ 42,985
5,437
19,537¥ 67,959
–

¥

–
–
64
¥ 64
–

$ 462,006
58,437
209,297
729,740–$ 462,006
58,437
209,985
730,428–$¥ 14,360¥ 14,360

51,591¥$

154,342

–

$

–

688
$ 688
–

(*1) Allowance for doubtful receivables is deducted from trade notes and accounts receivable.
(*2) Allowance for doubtful receivables and estimated residual value of lease investment assets are deductedfrom lease receivable and lease investment assets.

Note 1: Unlisted securities of ¥9,157 million ($98,420 thousand) whose fair value isextremely difficult to determine as of March 31, 2010 were not included in the above table.
Note 2: Valuation method to determine the estimated fair value of financial instrument andother matters related to transaction as follows:
Cash and cash equivalents
Since all these items are settled in a short period of time, the carrying value
approximates fair value.

2315. Financial Instrument (continued)
Trade notes and accounts receivable
If these items are settled in a short period of time, the carrying value approximates fairvalue. The fair value of loans receivable generated in leasing business segment isbased on the present value of the future cash flow discounted by the interest rate to be
applied if similar new loans were entered into.
Lease receivable and lease investment assets
The fair value of these items is based on the present value of the future cash flow
discounted by the interest rate to be applied if similar new lease contract were enteredinto.
Investment securities
The fair value of stocks is based on quoted market prices. The fair value of debt
securities is based on either quoted market prices or prices provided by the financial
institutions making markets in these securities. The fair value of investment trusts isbased on constant value. In cases where an embedded derivative in a compound
financial instrument is unable to be separately measured, the entire compound financial
instrument is measured at fair value. For information on securities classified byholding purpose, please refer to Note14.
Trade notes and account payable and short-term bank loans
Since all these items are settled in a short period of time, the carrying value
approximates fair value.
Long-term debt
The fair value of these items is based on the present value of the total of principal andinterest discounted by the interest rate to be applied if similar new borrowing wereentered into.
d)Redemption schedule for receivables and marketable securities with maturities at
March 31, 2010
March 31, 2010
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Millions of yen)Due inone yearor less

Deposits
Trade notes and accounts
receivable
Lease receivable and lease
investment assets
Investment securities
Other securities withmaturities (debt securities)
Other securities withmaturities (Other)Total¥ 14,409¥–¥

Due after
ten years–¥–

48,028

2,793

735

278

4,330

9,582

2,120

820

650

675

379

1,993

262
¥ 67,679

261¥ 13,311

310¥ 3,54450¥ 3,14124

15. Financial Instrument (continued)

Due inone yearor less

Deposits
Trade notes and accounts
receivable
Lease receivable and lease
investment assets
Investment securities
Other securities withmaturities (debt securities)
Other securities withmaturities (Other)
Total

e)

$ 154,869

March 31, 2010
Due after
Due after
one yearfive years
throughthroughfive years
ten years(Thousands of U.S. dollars)$–$

Due after
ten years–$–

516,208

30,019

7,900

2,988

46,539102,988

22,786

8,814

6,986

7,255

4,073

21,421

2,816$ 727,418

2,805$ 143,067

3,332$ 38,091

537$ 33,760

The redemption schedule for long-term debt is disclosed in Note 6.

16. Related Party Transactions
Consolidated net sales included those to Kyushu Electric Power Co., Inc. who has an
approximately 30% ownership interest in the Company, in the amounts of ¥54,079 million($581,245 thousand) and ¥56,071 million for the years ended March 31, 2010 and 2009,
respectively. The related receivables at March 31, 2010 and 2009 amounted to ¥8,478
million ($91,122 thousand) and ¥7,929 million, respectively.
The terms of the transactions referred to above were negotiated and determined on anarm’s-length basis.

25

17. Segment Information
The Company and its consolidated subsidiaries are primarily engaged in the equipment
construction business in Japan. The business segment information of the Company and its
consolidated subsidiaries for the years ended March 31, 2010 and 2009 is as follows:Year ended March 31, 2010

I. Sales and operating income
Sales to third parties
Intersegment sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets, depreciation andcapital expenditures
Total assets
Depreciation andamortization
Capital expenditures

Equipment
constructionwork

Leasing¥212,354¥ 7,224¥ 6,313¥225,891

1,189
213,543
208,903¥ 4,640

2,742
9,966
9,314
¥ 652

15,147
21,46021,203¥ 257¥181,689¥31,089

2,249
3,282

132
194

Other
Total
(Millions of yen)

Eliminations

Consolidated–¥225,891

19,078244,969
239,420¥ 5,549(19,078)(19,078)(18,972)¥(106)–
225,891
220,448¥ 5,443¥16,645¥229,423¥(16,861)¥212,562

504
1,362

2,885
4,838

(34)
(89)

2,851
4,749

¥

Year ended March 31, 2010
Equipment
constructionwork

Leasing

Other
Total
Eliminations(Thousands of U.S. dollars)

Consolidated$ 77,644$ 67,852$2,427,891$–$2,427,891

29,471
107,115
100,107$ 7,008

162,802230,654
227,892$ 2,762

205,052
2,632,943
2,573,302$ 59,641(205,052)(205,052)(203,913)$ (1,139)–
2,427,891
2,369,389$ 58,502$1,952,805$334,147$178,901$2,465,853$(181,223)$2,284,630

24,17235,275

1,419
2,085

5,417
14,63931,00851,999

(365)
(957)

30,64351,042

I. Sales and operating income
Sales to third parties$2,282,395
Intersegment sales andtransfers
12,779Total sales
2,295,174
Operating expenses
2,245,303
Operating income$ 49,871
II. Assets, depreciation andcapital expenditures
Total assets
Depreciation andamortization
Capital expenditures26

17. Segment Information (continued)
Year ended March 31, 2009

I. Sales and operating income
Sales to third parties
Intersegment sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets, depreciation andcapital expenditures
Total assets
Depreciation andamortization
Capital expenditures

Equipment
constructionwork

Leasing

Other
Total
(Millions of yen)

Eliminations Consolidated¥231,696¥ 7,513¥ 6,179¥245,388¥–¥245,388

466
232,162
225,874¥ 6,288

2,735
10,2489,677¥ 571

18,49524,67424,444¥ 230

21,696
267,084
259,995¥ 7,089(21,696)(21,696)(21,622)¥(74)–
245,388
238,373¥ 7,015¥191,140¥32,318¥17,034¥240,492¥(16,617)¥223,875

2,084
2,578

114
196

314
1,530

2,512
4,304

(33)
(46)

2,479
4,258

(Change in valuation method for inventories)
As described in Note 2(f), effective the year ended March 31, 2009, the Company and its
domestic consolidated subsidiaries adopted the “Accounting Standard for Measurement of
Inventories” (ASBJ Statement No.9 issued on July 5, 2006). The effect of the change on
operating income of each segment was negligible.
(Changes in accounting for lease transactions)
As described in Note 2(l), effective the year ended March 31, 2009, the Company and its
domestic consolidated subsidiaries adopted the “Accounting Standard for Lease
Transactions” (ASBJ Statement No.13, issued on March 30, 2007, revising the original
standard issued by the Standards Committee of the Business Accounting Council on June
17, 1993), and the “Implementation Guidance on Accounting Standard for Lease
Transactions” (ASBJ Guidance No.16, issued on March 30, 2007, revising the Practical
Guidance issued by the Accounting Practice Committee of the Japanese Institute ofCertified Public Accountants on January 18, 1994). The effect of the change on operating
income of each segment was negligible.
(Unification of accounting policies applied to foreign subsidiaries for the consolidated
financial statements)
As described in Note 2(n), effective the year ended March 31, 2009, the Company adopted
the “Practical Solution on Unification of Accounting Policies Applied to Foreign
Subsidiaries for the Consolidated Financial Statements” (ASBJ Practical Issues Task Force
No.18, issued on May 17, 2006). There was no effect on segment operating income as aresult of this change.

27

17. Segment Information (continued)(Changes in accounting for construction contracts)
As described in Note 2(k), effective the year ended March 31, 2010, the Company and its
domestic consolidated subsidiaries adopted the “Accounting Standard for construction
contracts” (ASBJ Statement No.15, issued on December 27, 2007) and the“Implementation Guidance on Accounting Standard for construction contracts” (ASBJ
Guidance No.18, issued on December 27, 2007).
As a result, net sales increased by ¥5,250 million ($56,427 thousand) and operating income
increased by ¥93 million ($1,000 thousand) on the equipment construction work segment
for the year ended March 31, 2010 from the corresponding amounts which would have beenreported under the previous method.
(Change in estimation of retirement benefit obligation)
As described in Note 2(j), effective the year ended March 31, 2010, the Company and its
domestic consolidated subsidiaries adopted the “Partial Amendments to AccountingStandard for Retirement Benefits (Part 3)” (ASBJ Statement No.19, issued on July 31,2008). There was no effect on segment operating income as a result of this change.
The disclosure of geographical segment information has been omitted as net sales and total
assets of the foreign operations constituted less than 10% of the consolidated totals for both
years ended March 31, 2010 and 2009.
Overseas sales of the Company and its consolidated subsidiaries constituted less than 10%of the consolidated net sales for both years ended March 31, 2010 and 2009.

18. Subsequent Events
33 domestic subsidiaries have participated in the Kyudenko Group Pension Fund, which isa multi-employer contributory welfare pension plan (a defined benefit pension plan under
the Japanese Welfare Pension Insurance Low) administrated by Kyudenko groupcompanies.
On May 31, 2010, the Kyudenko Group Pension Fund offered an exemption to the Ministerof Health, Labor and Welfare for relieving the benefit obligation of substitutional portion of
the plan related to future employee services in accordance with the Law Concerning
Defined Benefit Corporate Pension Plans.
If this offering is granted, the Kyudenko Group Pension Fund intends to be granted an
exemption for a return of the benefit obligation of substitutional portion of the plan related
to past employee service in the fiscal year starting from April 1, 2010. The detail scheduleand the impact on operating results has not been determined yet.

28