TOYO KANETSU K.K.
2008 annual reportProfile
Toyo Kanetsu K.K. (TKK) was established in the year of 1941. Since that time, TKK has continued to meet the requirements of theindustry through our policy of “Customers First.”
The Plant & Machinery Division was established in 1950 when in-house welding technology was developed for welded storage tanks.
Since then, our expertise has expanded to provide customers various kinds of storage tanks consisting of more than 5,000 units
varying from crude oil storage tanks to LNG storage tanks. Particularly, we are proud of our outstanding track record of LNG Storage
Tank construction, with 28 tanks in Japan and 57 tanks in overseas sites in Asia, Africa, Middle East, Oceania and the Western
Hemisphere. Our technical expertise and our outstanding record of Safety, Quality & Delivery have been recognized and appreciatedby the major clients throughout the world.
The Building Construction Division was started in 1989 for construction of apartment houses with application of modular steel frame
structures. The Division has expanded its activities to shop and office buildings with use of prefabricated construction methods aswell as conventional construction methods.
The Material Handling Division was begun in 1953 for manufacture and installation of highly standardized conveyors systems. Since
that time, the Division has continued to develop the technology to meet the needs of our clients. The Division supplied one of thelargest Airport Baggage Handling Systems in the world in 1998 at Kuala Lumpur International Airport in Malaysia. Also, as a leading
provider company of Logistics Solutions in Japan, the Division has successfully completed numerous projects such as Distribution
Center System, Truck Terminal System, Food Distribution Processing Center and Postal Sorting System. The Division became asubsidiary company of TKK under the name of Toyo Kanetsu Solutions K.K. in 2002 in order to maximize the efficiency and also tovitalize TKK Group companies.
TKK will continue to provide the advanced technology to answer the needs of its clients for today and tomorrow.

Contents
Financial Highlights·······················································2
Message from the President ·········································3
Board of Directors and Corporate Auditors ···················4Line of Business ···························································4
Qualifications ································································4
Subsidiaries and Affiliated Companies··························5Consolidated Balance Sheets·······································6Consolidated Statements of Operations························8Consolidated Statements of Changes in Net Assets ·····9Consolidated Statements of Cash Flows ······················12Notes to the Consolidated Financial Statements ··········13
Report of Certified Public Accountants··························25
Corporate Data ·····························································26

1Toyo Kanetsu K.K. and Consolidated Subsidiaries

Financial Highlights
Thousands of
U.S. dollars

2008

2007

Millions of yen
2006¥ 49,785
15,24323,355
5,756
581
4,850
3,686
3,810
534

¥ 45,548
17,316
17,029
5,944
521
4,738
1,887
2,836
415

¥ 45,530
20,90914,643
5,668
4,310
1,904
1,626
277

¥ 39,734
13,595
15,217
7,533
3,389
1,349
1,011
-

¥ 43,914
17,55010,386
9,280
6,698
923
1,042
-

$496,902
152,139
233,11157,4495,803
48,40036,79338,0285,329

30,245
16,324
12,269221
59,05930,226
16,956
21,498322
69,00225,30916,56624,852413
67,14022,796
16,54416,300317
55,95721,024
17,052
16,103280
54,459301,876
162,926
122,461
2,209
589,472

21,272
8,988-

22,865
14,195-20,084
15,647
10
31,39920,42011,50725
24,005

16,893
13,53419
24,013

212,318
89,711---

67,14055,95754,459-

Shareholders’ Equity
Valuation and Translation Adjustments
Minority Interests in Consolidated Subsidiaries
Total Liabilities and Net Assets

26,5642,235
59,05924,6517,283
869,002---

265,142
22,301
589,472

Order Backlog

57,412

34,176

38,467

34,232

34,701

573,032

For the Years Ended 31st March:
Net Sales
Material Handling Systems Division
Plant & Machinery Division
Building Construction Division
Real Estate Utilizing Division
Other
Operating Income
Net Income
Cash dividends
At 31st March:
Current Assets
Net Property, Plant and Equipment
Investments and Advances
Intangibles
Total Assets
Current Liabilities
Long-Term Liabilities
Minority Interests in Consolidated Subsidiaries

Shareholders' Equity
Total Liabilities, Minority Interests andShareholders' Equity

2005

2004

2008

Yen
Per Share:
Net Income
Cash dividends
Shareholders' Equity
Number of Shareholders
Number of Employees

U.S. dollars¥ 27.904.00
216.05¥ 20.52
3.00
231.10¥ 11.762.00
227.11¥7.31
173.57¥7.53
173.55

15,747597

16,797573

17,005552

16,418525

16,078564$ 0.28$ 0.04$ 2.16

The U.S. dollar amounts in this annual report represent translations of Japanese yen at the rate of ￥100.19=$1.00, solely for the reader's convenience.

2

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Message from the President
1. Analysis about operating results
In the year ended March 31, 2008, uncertainties over the economy increased in Japan, due to a change in exports that
had previously remained to be steady, a slowdown in corporate earnings and capital expenditures, and a growth in risks
such as squeezed credit in the financial market worldwide and risen prices of raw materials and fuel.
Under such macroeconomic circumstances, the Material Handling System Business benefited from diverse andsophisticated corporation needs for logistics systems, amid further progress in the reorganization of logistics bases andthe outsourcing of logistics, reflecting a social trend toward logistics that are efficient and have less environmental
impact.
In the Plant & Machinery Business, both oil producing and consuming countries actively invested in their storage
facilities against the backdrop of continued price hikes of oil owing to globally increasing demand for energy.
In the Building Construction Business, the business climate remained severe because of further heightened competition to win orders and a rise in the pricesof building materials.
Under this business environment, consolidated net sales for the fiscal year under review were JPY49.7 billion (US$496 million), up 9.3% from the previous
year. Operating income almost doubled to JPY3.6 billion (US$36 million), up 95.4%, and ordinary income also jumped 67.7% to JPY4.1 billion (US$41
million). Net income was JPY3.8 billion (US$38 million), up 34.3%. Total orders received soared 87.8% year-on-year to JPY67.5 billion (US$674 million).
Operating results by business are as follows:
In the Material Handling Systems Business, we continued to focus on IT-based material handling systems such as our mainstay Sorting System for retailers,
Picking System for consumer cooperatives, and Warehouse Management Systems (WMS), while implementing proactive sales activities that take advantageof events such as exhibitions and forums, and using our feasibility facilities for RFIDs (radio frequency IC tags) including a rewritable label system. Yearon-year total orders received remained almost unchanged. Gross profit margin increased thanks mainly to our efforts to raise productivity, but profits
dropped sharply, affected by a decrease in sales.
As a result, net sales for this business were JPY15.2 billion (US$152 million) in the fiscal year under review, down 12.0% from the previous year, andoperating income was JPY0.4 billion (US$4 million), down 42.6%. Orders received totaled JPY16.8 billion (US$167 million), down 0.3%.
In the Plant & Machinery Business, we implemented brisk sales activities focusing on profitability in the Middle East, Southeast Asia, and Africa, by making
use of our extensive experience and technical capability and reliability as a specialist manufacturer, as well as international competitiveness. As aconsequence, we won orders for two LNG tanks and two LPG tanks from Angola for a large LNG project, and two LPG tanks from Algeria.
In the domestic market, we won orders for one LNG tank for an existing LNG base. In the area of maintenance work, there was high demand forquakeproofing work for floating roof tanks as a result of a partial amendment of the Fire Service Law. In response, we strengthened our maintenance-work
related organization and sales activities. As a consequence, orders received for such work increased substantially. To cope with increased orders, processing
plants overseas strengthened their systems as processing bases, by enhancing production facilities and complying with legal systems not only for overseas
markets, but for the Japanese market as well.
Processing and construction work for large projects for overseas markets, such as LNG tanks and oil tanks, progressed smoothly, while repair work wassteady in the domestic market. Hence, sales rose sharply from the previous year. These sales, combined with our thorough management of all aspects ofprojects including costs, pushed up operating income by approximately 200% compared to the previous year.
As a result, net sales at this business were JPY23.3 billion (US$233 million), up 37.2% from the previous year, and operating income was JPY3.2 billion(US$32 million), up 194.9%. Orders received totaled JPY44.0 billion (US$439 million), up 222.6%.
In the Building Construction Business, earnings were affected by a partial amendment of the Building Standard Law in the first half of the fiscal year underreview. However, orders received increased markedly from the previous year, thanks to an increase in large projects and an expansion in new businesses.
Both sales and profits decreased, hurt particularly by sluggishness in the leased apartments sector. Meanwhile, we made every effort to improve profitability
in other construction sectors. Accordingly, the decline of profits shrank as a whole.
As a result, net sales at this business were JPY5.7 billion (US$57 million), down 3.2% from the preceding year, and operating income was JPY0.1 billion(US$1 million), down 4.3%. Orders received totaled JPY6.7 billion (US$66 million), up 22.3%.
Group companies that are engaged in the Real Estate Leasing Business and businesses other than those mentioned above strove to expand and develop theirbusinesses. As a result, aggregate net sales were JPY5.4 billion (US$54 million), up 3.3% from a year earlier.
2. Future Issues for the Corporate Group(1) To continue and enhance reform and improvement of our major businesses for our sustainable growth
We will make further efforts to improve our technical capability and competitiveness, reform operations, and reduce costs, in order to facilitate thesustainable growth of each business.

June 2008(2) To revitalize human resources and organizations
We will strive to further obtain and train talented personnel, aiming to become an organization with creative power andthe ability to act.
(3)To endeavor to realize fair and transparent corporate governance
We will establish internal control systems, including a compliance system, and a risk management system, while
improving management monitoring, information disclosure, and accountability, in order to ensure sound growth anddevelopment of the Group.
3

Takeshi Mizukami
President & Representative
Director

Board of Directors and Corporate Auditors
Chairman & Representative Director･････････････ Shigeaki Kiyota
President & Representative Director･･････････････Takeshi MizukamiManaging Director ･････････････････････････････ Shinji Shimazaki
Director･･･････････････････････････････････････ Sadao Arita･･･････････････････････････････････････ Toru Yanagawa･･･････････････････････････････････････ Shoji Fujiyoshi
Auditor･･･････････････････････････････････････ Teruo Nojo･･･････････････････････････････････････ Masaharu Hino･･･････････････････････････････････････ Keiichi Miyakawa･･･････････････････････････････････････ Takashi Nakamura

Line of Business
Plant & Machinery Business
Design & Engineering, Procurement, Shop-Fabrication and Construction of :Floating Roof Tank
Cone Roof Tank
Dome Roof Tank
- LNG/Ethylene Storage Tank, etc.
- LPG Storage Tank, etc.
Spherical Tank
Material Handling Systems Business
Planning, Design, Manufacturing, Construction and Marketing of :Distribution Center System
Truck Terminal System
Production Line System
Airport Baggage Handling System
Postal Sorting System
Inter-hospital Handling System
Food Processing Center System
Food Production Factory System
Apparel Center System
Building Construction Business
Design and Construction of :Apartment House
Shop Building
Office and Warehouse Buildings
Real Estate Business
Sale, Brokerage and Leasing of :Office Building
Apartment House
Distribution Center
Real Estate

Qualification-Listed in primary stock exchanges (Tokyo).
-Quality Management System to ISO 9001 certified by Bureau Veritas Quality International (BVQI) for flat bottomed verticalcylindrical storage tank for low temperature service.
-Quality Management System to ISO 9001 certified by Bureau Veritas Quality International (BVQI) for baggage handling system,
slide shoe type sorting conveyor and wheel up sorting conveyor.

4Subsidiaries, Affiliated Companies and Line of BusinessSubsidiaries which are consolidated, and affiliated companies which are accounted for by the equity method, are as follows.
Consolidated Subsidiaries
Domestic

Toyo Kanetsu Solutions K.K.
Share Capital: 100.0%
Line of Business : Logistics solution provider
K-Techno Inc.
Share Capital: 100.0%
Line of Business : Consulting & Maintenance of Material Handling System
TKL Co., Ltd.
Share Capital: 100.0%
Line of Business : Rental/Leasing & Insurance Agent
Toyo Service System K.K.
Share Capital: 91.7%
Line of Business : Real Estate Management, Welfare Facilities Management,
Gardening/Floriculture Business & Property, Plant and Equipment Maintenance
Global Eight Corporation
Share Capital: 65.0%Line of Business : Commodity & Foodstuffs Trading

Overseas

P.T. Toyo Kanetsu Indonesia
Share Capital: 100%
Line of Business : Storage Tanks/Pressure Vessels/Onshore & Offshore Steel Structures
Al Ghallilah Engineering & Construction L.L.C.
Share Capital: 65.0%Line of Business : Storage Tanks/Pressure Vessels/Onshore & Offshore Steel Structures
Toyo Kanetsu Singapore Pte. Ltd.
Share Capital: 100%
Line of Business : Storage Tanks/Pressure Vessels
TKK-USA, Inc.
Share Capital: 100%
Line of Business : Storage Tanks/Pressure Vessels/Onshore & Offshore Steel Structures

Affiliated Companies (Equity Method)
Domestic

Toyo Koken K.K.
Share Capital: 39.3%
Line of Business : Electric-driven winches, Conveyors, Balancer & Robots
Toyo Miyama Co., Ltd.
Share Capital: 49.0%Line of Business : Prefabrication of Unit House*Katayama Co.
Share Capital: 18.8%
Line of Business : Architectural Management
Manavis Co., Ltd.
Share Capital: 16.1%
Line of Business : Cosmetics, Cleaning Products

Overseas

Toyo Kanetsu (Malaysia) Sdn. Bhd.
Share Capital: 49.0%Line of Business : Material handling Systems, Storage Tanks/Pressure Vessels/Onshore & Offshore
Steel Structures*At March 31, 2008, the affiliated company, Katayama Co. has been excluded from companies accounted for an equity basis,
because the Company has sold the investment in Katayama Co. at March 31, 2008.
5

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Balance Sheets
As at March 31, 2008 and 2007

2008

2007

Thousands of
U.S. dollars(Note 4)2008

Inventories (Note 7)
Deferred tax assets (Note 11)
Other current assets
Total current assets¥7,57911,641(289)
11,352
8,998
935
1,381
30,245¥7,138
1,499
8,615
(238)
8,377
10,153977
2,082
30,226$75,647
116,182(2,883)
113,299
89,814
9,335
13,781
301,876

Property, Plant and Equipment (Note 9):
Buildings and structures
Machinery and equipment
Land (Note 3(8))
Leased assets (Note 14)
Construction in progress
Less: Accumulated depreciation
Total property, plant and equipment

10,408
4,815
9,065
6,823
(14,787)
16,324

10,316
4,223
9,073
6,718
293
(13,667)
16,956

103,885
48,04590,482
68,102(147,588)
162,926

Investments and Advances:
Investments in securities (Notes 8 and 9)
Long-term loans receivable
Other investments
Less: Allowance for doubtful accounts
Total investments and advances

9,790
1,017
1,935
(473)
12,26917,785
1,148
3,115
(550)
21,49897,712
10,155
19,312(4,718)122,461221
221¥59,059

322
322¥69,002

2,209
2,209
$589,472

ASSETS
Millions of yen

Current Assets:
Cash on hand and at bank (Note 5)
Marketable securities (Notes 5 and 6)
Notes and accounts receivable
Less: Allowance for doubtful accounts

Intangibles:
Intangible fixed assets
Total intangibles

The accompanying notes are an integral part of the consolidated financial statements.

6

2008

2007

Thousands of
U.S. dollars(Note 4)2008

Current Liabilities:
Short-term debt (Note 9)
Notes and accounts payable
Accrued income taxes (Note 11)
Accrued liabilities
Advances from customers
Accrued bonuses
Reserve for losses on work in progress
Reserve for warranty costs for completed works
Reserve for contingent loss
Other current liabilities
Total current liabilities¥4,610
2,216
139
4,233
7,180
242
1,089
263
542
758
21,272¥4,861
2,285
128
3,487
9,604
204
1,212
20
639
425
22,865$46,009
22,116
1,388
42,251
71,6682,414
10,872
2,620
5,410
7,570
212,318

Long-Term Liabilities:
Long-term debt (Note 9)
Deferred tax liabilities on revaluation of land (Note 3(8) and 11)
Deferred tax liabilities (Note 11)
Accrued retirement benefits for employees (Note 10)
Accrued retirement benefits for directors and corporate auditors
Other long-term liabilities
Total long-term liabilities

3,194
2,174
1,786
1,631
193
10
8,988

4,361
2,174
5,156
2,353
141
10
14,19531,88021,69917,823
16,284
1,925
100
89,711

18,5801,104
8,481(1,601)
26,564

18,580
1,104
5,050
(83)
24,651

185,448
11,02084,652(15,978)
265,142

2,576
(94)
391
(638)
2,235
28,799¥59,059

7,557
(16)
391
(649)
7,283
8
31,942¥69,00225,706(940)
3,907(6,372)
22,301
287,443$589,472

LIABILITIES and NET ASSETS
Millions of yen

Commitments and Contingent Liabilities (Note 16)
Net Assets
Shareholders' Equity:
Common stock:
Authorized: 297,000,000 shares
Issued: 138,730,741 shares
Additional paid-in capital
Accumulated earnings
Less: Treasury stock, at cost
Total shareholders’ equity
Valuation and Translation Adjustments:
Net unrealized holding gains on investments in securities
Deferred gains or losses on hedges
Unrealized gains on revaluation of land (Note 3(8))
Foreign currency translation adjustments
Total valuation and translation adjustments
Minority Interests
Total Net Assets

The accompanying notes are an integral part of the consolidated financial statements.

7

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Operations
For the years ended March 31, 2008 and 2007

2008

2007

Thousands of
U.S. dollars(Note 4)
2008

¥49,785
42,377
7,408
3,722
3,686

¥45,548
39,920
5,628
3,741
1,887

$496,902
422,960
73,942
37,14936,793

352
(152)
(140)
322
53
435
4,121

278
(234)
(48)
504
56
14
570
2,457

3,518
(1,512)(1,395)
3,214
510
4,335
41,128

6

136

65

(151)
(3)
19
97
(11)
(43)
4,078

(117)
13
(22)
18
128
45
(639)
40
(398)
2,059

(1,506)
(28)
187
967
(107)
(422)
40,706

184
91
275

162
(948)
(786)

1,841
908
2,749

(7)

9

(71)

¥3,810¥2,836$38,028

Millions of yen

Net Sales
Cost of Sales (Note 13)
Gross profit
Selling, General and Administrative Expenses (Notes 12 and 13)
Operating Income
Other Income (Expenses):
Interest and dividend income
Interest expense
Foreign currency exchange loss
Equity in income of unconsolidated subsidiaries and affiliates
Gain on trading of derivative
Other, net
Income before special items
Special Profit (Loss):
Gain on sale or disposal of property, plant andEquipment, net
Provision for bad debts
Reversal of provision for bad debts
Loss on write-down of investments in securities
Gain on sale of investments in securities
Gain on sale of investment in affiliate
Gain on redemption of investment in affiliate
Proceed of insurance money on overseas project
Provision for contingent loss
Reversal of provision for contingent loss
Other, net
Income before income taxes and minority interests
Income Taxes (Note 11):
Current
Deferred

Minority Interests in Net Income (Loss) of Consolidated Subsidiaries
Net Income

U.S. dollars(Note 4)Yen
Per Share (Note 3 (20))
Net income¥27.90

The accompanying notes are an integral part of the consolidated financial statements.

8¥20.52$0.28

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2007 and 2006
Millions of yen

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of decrease in number
consolidated subsidiaries¥2,546
(277)
2,836
-

¥(66)
(17)

¥22,164
(277)
2,836
(17)

-

(55)

-

(55)

-

-

-

-

-

¥18,580¥1,104¥5,050¥(83)¥24,651

138,730,741-¥18,580-¥1,104---

138,730,741

Net unrealized holding gains on
investments

Minority interests
Balance at March 31, 2007

Total
Shareholders’EquityCommon stockofDeferred gains or losses on hedges
Foreign currency translation adjustments

Treasurystock

Number of shares ofcommon stock

Additional
Accumulated
paid-in capital earnings (deficit)

Millions of yen
Net unrealized
holding (gains)losses on
investment
securities

Balance at March 31, 2006
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of decrease in number
consolidated subsidiaries

of

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interests
Balance at March 31, 2007

Deferred
gains orlosses onhedges

Total
Foreign
Unrealized
valuation andcurrency
gains ontranslation
revaluation of translation
adjustments adjustments
land

Minority
interests

Total Net Assets¥9,526
-

-

¥391
-

¥(682)-¥9,235-¥10-¥31,409
(277)
2,836
(17)

-

-

-

26

26

-

(29)

(1,969)---(1,969)-(1,969)¥7,557

(16)
¥(16)

¥391

7
¥(649)(16)
7¥7,283

(2)
¥8

(16)
7
(2)
¥31,9429For the years ended March 31, 2008 and 2007

Millions of yen

Balance at March 31, 2007
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of increase in number
consolidated subsidiaries
Effect of decrease in number
affiliated companies

Treasury
stock

Total
Shareholders’Equity¥5,050
(415)
3,810
-

¥(83)
(1,518)¥24,651(415)
3,810(1,518)

-

(1)

-

(1)

-

-

37

-

37

-

-

-

-

-

-

138,730,741¥18,580¥1,104¥8,481¥(1,601)¥26,564

Common stock

138,730,741-¥18,580-¥1,104
-

-

-

-

of
of

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interests
Balance at March 31, 2008

Additional
Accumulated
paid-in capital earnings (deficit)

Number of shares ofcommon stock

Millions of yen
Net unrealized
holding (gains)losses on
investment
securities

Balance at March 31, 2007
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of increase in number
consolidated subsidiaries
Effect of decrease in number
affiliated companies

ofof

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interests
Balance at March 31, 2008

Deferred
gains orlosses onhedges

Total
Foreign
Unrealized
valuation andcurrency
gains ontranslation
revaluation of translation
adjustments adjustments
land

Minority
interests

Total Net Assets¥7,557
-

¥(16)
-

¥391
-

¥(649)-¥7,283-¥8-¥31,942(415)
3,810(1,518)

-

-

-

-

-

-

(1)

-

-

-

-

-

-

37

(4,981)---(4,981)-(4,981)¥2,576

(78)
¥(94)

¥391

11
¥(638)(78)
11¥2,235

(8)
-

(78)
11
(8)
¥28,79910

For the years ended March 31, 2008 and 2007
Thousands of U.S. dollars (Note 4)

Balance at March 31, 2007
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of increase in number
consolidated subsidiaries
Effect of decrease in number
affiliated companies

Treasury
stock

Total
Shareholders’Equity$50,400(4,144)38,028-$(824)(15,154)$246,044(4,144)38,028(15,154)

-

(8)

-

(8)

-

-

376

-

376

-

-

-

-

-

-

138,730,741$185,448$11,020$84,652$(15,978)$265,142

Minority
interests

Total Net Assets

Common stock

138,730,741-$185,448-$11,020
-

-

-

-

of
of

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interests
Balance at March 31, 2008

Additional
Accumulated
paid-in capital earnings (deficit)

Number of shares ofcommon stockThousands of U.S. dollars (Note 4)

Balance at March 31, 2007
Cash dividends paid
Net income for the year
Purchase of treasury stock
Effect of increase in number
consolidated subsidiaries
Effect of decrease in number
affiliated companies

ofof

Net unrealized holding gains on
investments
Deferred gains or losses on hedges
Foreign currency translation adjustments

Minority interests
Balance at March 31, 2008

Net unrealized
holding (gains)losses on
investment
securities

Deferred
gains orlosses onhedges$75,426-$(162)-$3,907-$(6,482)-$72,689-$81-$318,814(4,144)38,028(15,154)

-

-

-

-

-

-

(8)

-

-

-

-

-

-

376

(49,720)---(49,720)-(49,720)$25,706(778)$(940)$3,907110$(6,372)(778)
110$22,301

(81)
-

(778)
110
(81)
$287,443

Total
Foreign
Unrealized
valuation andcurrency
gains ontranslation
revaluation of translation
adjustments adjustments
land

The accompanying notes are an integral part of the consolidated financial statements.

11

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
For the years ended March 31, 2008 and 2007
Thousands of
U.S. dollars(Note 4)2008

Millions of yen

Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation and amortization
Amortization of long-term prepaid expenses
Decrease in provision for allowance for doubtful accounts
Increase in provision for bonuses
Decrease in provision for employees’ retirement benefits
Increase in provision for retirement benefit for directors and corporate
auditors
Increase (decrease) in provision for losses on work in progress
Increase in provision for warranty costs for completed works
Increase (decrease) in provision for contingent loss
Interest and dividend income
Interest expense
Exchange (gain) loss
Equity in income of unconsolidated subsidiaries and affiliates
Net gain on sale of investments in securities
Loss on write-down of investments in securities
Gain on sale of investment in affiliate
Gain on redemption of investment in affiliate
Gain on sale of property, plant and equipment, net
Loss on disposal of property, plant and equipment
Increase in notes and accounts receivables(Increase) decrease in inventories(Increase) decrease in accrued income
Increase (decrease) in notes and accounts payable
Increase (decrease) in advances from customers
Other
Sub totalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by operating activities
Cash Flows from Investing Activities:
Increase in time deposits (over 3-month term)
Proceeds from withdrawal of time deposits
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of investments in securities
Proceeds from sales of investments in securities
Payment for purchase of investment in consolidated subsidiary
Proceeds from redemption of investment in affiliate
Proceeds from clearing of consolidated subsidiary
Decrease in long-term loans receivable
Increase in long-term prepaid expenses
Other
Net cash used in investing activities
Cash Flows from Financing Activities:
Increase in short-term debt, net
Proceeds from long-term debt
Repayment of long-term debt
Purchase of treasury stock
Capital dividend paid
Other
Net cash provided by (used in) financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Increase (decrease) in Cash and Cash Equivalents owing to decrease in
number of consolidated subsidiaries (Note 3(1))
Cash and Cash Equivalents at End of Year (Note 5)
The accompanying notes are an integral part of the consolidated financial statements.

12

2008

2007

¥4,078¥2,059$40,705

1,776
818
(27)
(719)

1,516
679
(271)
22
(1,173)

17,731
8,168(271)(7,178)

52

39

516

(84)
243
(97)
(352)
152
40
(322)
3
(19)
(8)
0
(2,859)
1,153
870
718
(2,273)
142
3,285
356
(140)
(201)
3,300

908
20
639
(278)
234
(50)
(504)
(18)
22
(128)
(199)
62
(759)
(3,391)
(884)
(326)
2,513
118
850
286
(228)
(454)
454

(839)
2,421
(967)
(3,518)1,512
403(3,214)
28
(187)
(78)
1
(28,538)
11,512
8,687
7,163(22,684)
1,409
32,782
3,554(1,396)(2,007)32,933(76)
60(1,333)
25
(61)
56
122
(1)
153
(1,055)(40)(2,563)
327
(56)
683
(29)
232
45
182
(1,180)14(2,385)(759)
600(13,306)
254
(610)
561
1,221
(5)
1,514
(10,530)331450(2,143)(1,518)(411)(3,291)(27)(1,073)
8,399

271
2,696
(2,056)
(277)
(21)
613
31
(1,287)
9,768

3,309
4,491
(21,391)(15,154)(4,105)(32,850)(269)(10,716)
83,8340(82)

0¥7,326¥8,399$73,118

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Notes to the Consolidated Financial Statements
For the years ended March 31, 2008 and 2007

1. Basis of Presenting the Consolidated Financial Statements
The accompanying consolidated financial statements of Toyo Kanetsu Kabushiki Kaisha (the "Company") and its subsidiaries(collectively, the "Companies") are prepared on the basis of accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirements of International Financial Reporting Standards, andare compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments andExchange Law of Japan. The accounts of overseas consolidated subsidiaries are based on their financial statements prepared inconformity with generally accepted accounting principles and practices prevailing in the respective countries in which thesubsidiaries are incorporated.
Certain items presented in the consolidated financial statements submitted to the Director of Kanto Finance Bureau in Japan
have been reclassified in these accounts for the convenience of readers outside Japan.
2. Accounting Standards for Presentation of Net Assets in the Balance Sheet
Effective from the year ended March 31, 2007, the Company has applied “Accounting standards for presentation of net assets
in the balance sheet (Accounting Standards Board of Japan Statement No.5)”, and “Implementation guidance for Accounting
standards for presentation of net assets in the balance sheet (Accounting Standards of Japan Guidance No.8) ”both issued by
the Accounting Standards Board of Japan on December 9, 2005.
The amounts corresponding to the conventional “Shareholders’ equity”in the balance sheet at March 31, 2007 is ¥31,950
million ($270,557 thousand).
“Net assets”in the balance sheet for this year is presented according to the revision of “Regulations concerning the
Terminology, Form and Presentation Methods of Consolidated Financial Statements”dated on April 25, 2006.
3. Summary of Significant Accounting Policies(1) Principles of Consolidation and Investments in Affiliated Companies
The consolidated financial statements include the accounts of the Company and those of its subsidiaries in which it has control.
The consolidated financial statements include, with the exception of subsidiaries that are not material, the accounts of its ninesubsidiaries (eight subsidiaries in 2007). All significant inter-company transactions and accounts and unrealized inter-company
profits are eliminated on consolidation.
Effective from the year ended March 31, 2008, the subsidiary, Toyo Kanetsu Singapore Pte. Ltd. has been included inconsolidated subsidiaries, because that company has a material impact on the consolidated financial statements.
Investments in unconsolidated subsidiaries and affiliated companies in which the Company has significant influence areaccounted for under the equity method. These unconsolidated subsidiaries and affiliated companies to which the equity method
is applied total five at March 31, 2008 and five at March 31, 2007. Consolidated net income includes the Company’s equity inthe current earnings of those companies after elimination of unrealized inter-company profits.
At March 31, 2008, the affiliated company, Katayama Co. has been excluded from companies accounted for an equity basis,
because the Company has sold the investment in Katayama Co. at March 31, 2008.
The excess of the cost over the underlying net equity of investments in consolidated subsidiaries as well as companies
accounted for on an equity basis, is deferred and amortized on a straight-line basis over a period of five years from the date ofacquisition.
Four subsidiaries were consolidated on the basis of their fiscal years ended at December 31, 2007 for the current year
consolidation and three subsidiaries were consolidated on the basis of their fiscal years ended at December 31, 2006 for theprevious year consolidation, respectively. Material differences in inter-company transactions and accounts arising from the useof the different fiscal year ends are appropriately adjusted for on consolidation.
(2) Revaluation of Assets and Liabilities of the Subsidiaries
All assets and liabilities of the subsidiaries are fair valued as of the date of acquisition of control.
(3) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an original maturity of three months or less and which represent a
minor risk of fluctuation in value.

13(4) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided at an amount for losses which are expected to occur but cannot be determinedon an item-by-item or group basis. This general allowance is calculated using historical write-off experience from prior periods.
In addition, an amount for expected losses on individual uncollectible receivables is calculated based on management’s
estimate.
(5) Inventories
Inventories are valued at cost as determined by the following methods:
Raw materials……………………….Weighted average method
Work in process and supplies ……… Accumulated materials and production cost(6) Financial Instruments(a) Derivatives
All derivatives are stated at fair value except for certain derivatives that are designated as "hedging instruments" (see (c) Hedge
Accounting below).
(b) Investments in Securities
Securities held by the Company and its subsidiaries are classified into two categories:“Investments of the Company in equity securities issued by unconsolidated subsidiaries and affiliates” are accounted for by theequity method.
Other investments in debt and equity securities are classified as “Other securities”. The adoption of mark-to-market accounting
for “Other securities” with market quotations becomes effective for the year ended March 31, 2007. As a result of this change,“Other securities” with market quotations are stated at fair value with any unrealized holding gains and losses, net of tax, being
reported in Changes in Net Assets as “Net unrealized holding gains or losses on investment securities”. “Other securities”
without market quotations are stated at cost. “Other securities” which have the characteristics of cash equivalents are presented
as Marketable Securities (current) while the remainder of “Other securities” are presented as Investments in Securities(non-current). The costs of “Other securities” sold are determined by the weighted average method.
(c) Hedge Accounting
Gains or losses arising from changes in the fair value of the derivatives designated as "hedging instruments" are deferred as an
asset or liability and included in net assets in the same period during which the gains and losses on the hedged items ortransactions are recognized. However, in cases where forward exchange contracts used as hedges meet certain hedging criteria,
the existing foreign currency receivables or payables are translated at their contract rates. In addition, if interest rate swap
contracts or currency swap contracts meet certain hedging criteria, the net amount to be paid or received under these swap
contracts is added to or deducted from the interest on the related hedged liabilities.
Derivatives designated as hedging instruments by the Company are principally interest swaps, currency swaps, and forward
exchange contracts. The related hedged items are trade accounts receivable and payable, and long-term bank loans.
The Company has a policy for utilizing the above hedging instruments in order to reduce the Company's exposure to the risk offoreign exchange and interest rate fluctuations. Thus, the Company's purchases of hedging instruments are limited to, at
maximum, the amounts of the related hedged items.
The Company evaluates the effectiveness of its hedging activities by reference to the accumulated gains or losses on thehedging instruments and the related hedged items beginning from the commencement of the hedges.
(7) Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of maintenance, repairs and minor renewals is charged to current
operations; major renewals and enhancements are capitalized. Depreciation is mainly computed using the declining-balancemethod, except for buildings acquired after April 1, 1998, to which the straight-line method is applied for the Company and its
domestic subsidiaries. The principal estimated useful lives range from 3 to 50 years for buildings and from 10 to 15 years formachinery and equipment. Depreciation of overseas subsidiaries is computed using the straight-line method.
(Changes in accounting method)
Effective from the year beginning April 1, 2007, the Company and its domestic consolidated subsidiaries changed thedepreciation method for property, plant and equipment acquired on or after April 1, 2007 in accordance with the revised
Corporation Tax Law.
The impact of this change on operating income, income before special items and income before income taxes and minority
interests is immaterial, respectively.
Among property, plant and equipment acquired before April 1, 2007, those depreciated to the allowable limit have been
depreciated the difference between the 5% amount of acquisition cost and minimal reminder amount on a straight-line basis
over a period of five years.

14(8) Revaluation of Land
In accordance with the “Law on Land Revaluation” issued on March 31, 1998 and the “Law Related to the Revision of the
Law of Land Revaluation” issued on March 31, 2001, the Company revalued its business-purpose land. Of the revaluationdifference, the amount related to tax is recognized as a deferred tax liability and the revaluation difference, net of tax, is
recognized as a component of shareholders’ equity.
Method of the revaluation
The revaluation was performed based on the fixed asset tax revaluation amount set in the “Law on Land Revaluation” No.2
article 3, and is calculated based on land prices set in the “Law on Land Revaluation” No.2 article 4, with certain reasonableadjustments as follows:
Date of the revaluation:
Land value before revaluation:
Land value after revaluation:

March 31, 2002
¥7,189 million¥ 10,844 million

The excess of the book value over the current market value of such revalued land held at March 31, 2008 amounted to ¥3,840
million ($38,323 thousand).
(9) Intangible Assets
Amortization of intangible assets is computed using the straight-line method. Software for internal use is amortized over its
expected useful life (5 years), on a straight-line basis.
(10) Reserve for losses on work in progress
A reserve for losses on work in progress is provided based on an estimate of the total losses which can be anticipated for the
next fiscal year and beyond in respect of construction projects on which eventual losses are deemed inevitable and amounts
thereof can reasonably be estimated.
(11) Reserve for warranty costs for completed works
A reserve for warranty costs for completed works is provided based on the past experience rates for warranty costs andafter-sales service costs for completed works on an item-by-item or group basis.
(12) Reserve for contingent loss
A reserve for contingent loss is provided at the amount which can be reasonably estimated according to the occurrence ofcontingency and considering the risks of each contingency.
(13) Income Taxes
The income taxes of the Company and its domestic subsidiaries consist of corporate income taxes, local inhabitants’ taxes andenterprise taxes.
Income taxes are determined using the asset and liability approach, whereby deferred tax assets and liabilities are recognized in
respect of temporary differences between the tax base of assets and liabilities and those as reported in the consolidated
financial statements.
(14) Accrued Bonuses
Accrued bonuses to employees are provided for at the estimated amounts which the Company and its consolidated subsidiaries
are obligated to pay to employees after the fiscal year-end, based on services provided during the current period.
(15) Accrued Retirement Benefits for Employees
Accrued retirement benefits to employees of the Company and its major consolidated subsidiaries are provided based on theestimated present value of projected benefit obligations and fair value of funded plan assets. For other insignificant
consolidated subsidiaries, accrued retirement benefits to employees are calculated using the simplified method. The amount of
actuarial gains (losses) is amortized on a straight-line basis over five years and recognized as deductions from expenses or
included in expenses, respectively, in the next fiscal year. Prior service cost is recognized as deductions from expenses or
included in expenses, respectively, in the year of occurrence.
(Changes in accounting method)
The Company and its consolidated subsidiaries had previously amortized any actuarial differences in the year of occurrence.
The actuarial differences that arise from the differences between the expected rate of investment and the actual rate ofinvestment can create large fluctuations on Operating Income each fiscal year.
Therefore, from the year ended at March 31, 2007, the Company and its consolidated subsidiaries has adopted the amortizationof actuarial differences based on the straight-line basis over five years instead of amortizing the full value of the actuarial
difference in the year of occurrence.
As a result of this change, Operating Income, Income before special items and Income before income taxes and minority
interests have decreased respectively by ¥34 million ($286 thousand) as compared with the calculation using the former
method.

15

(16) Accrued Retirement Benefits for Directors and Corporate Auditors
Accrued retirement benefits for directors and corporate auditors of the Company and its subsidiaries are provided for inaccordance with the Companies’ established policies on the accrual basis.
(17) Accounting for Finance Leases
Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases. Leases
not transferring ownership of the assets at the end of the lease term are accounted for as operating leases, in accordance withaccounting principles and practices generally accepted in Japan.
(18) Depreciation of Leased Assets
Leased assets are depreciated over the term of the lease on a straight-line basis.
(19) Revenue Recognition
The Company uses the percentage-of-completion method for the recognition of sales and gross profit in respect of certain
contracts that take more than one year to complete. In all other cases, sales and gross profit are recorded when the relevant
items are completed or delivered. One consolidated subsidiary recognizes revenue on the installment basis.
(20) Earnings Per Share
The computation of net income per common share is based on the weighted average number of outstanding shares of common
stock.

4. United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥100.19=U.S. $1.00, theapproximate rate of exchange prevailing at March 31, 2008, has been used in translation. The inclusion of such amounts are
not intended to imply that the Japanese yen has been or could be readily converted, realized or settled in U.S. dollars at thisrate or any other rates.

5. Cash and Cash Equivalents
Cash and cash equivalents as at March 31, 2008 and 2007 for the purpose of statement of cash flows consisted of:
2008

2007

Thousands of
U.S. dollars
2008¥7,579(252)¥7,138(236)$75,647(2,515)(1)¥7,326

1,499(2)¥8,399(14)$73,118

Millions of yen

March 31
Cash on hand and at bankLess: Time deposits, over 3-month term
Add: Short-term investments included in marketablesecurities
Less: Other
Cash and cash equivalents

6. Marketable Securities
Marketable securities as at March 31, 2008 and 2007 were as follows:
Millions of yen

March 31
Commercial paper

2008

2007

-

¥1,499Thousands of
U.S. dollars
2008-

7. Inventories
Inventories as at March 31, 2008 and 2007 were as follows:
Millions of yen

March 31Work in process
Other

16

2008

2007

¥8,359639¥8,998¥9,355798¥10,153

Thousands of
U.S. dollars
2008$83,435
6,379$89,814

8. Investments in Securities
Investments in securities as at March 31, 2008 and 2007 were as follows:
March 31
Listed equity securities and bonds
Unlisted equity securities and bonds

Investments in unconsolidated subsidiaries and affiliates included ininvestments in securities

Millions of yen
2007
2008

Thousands of
U.S. dollars
2008¥7,4252,365¥9,790¥15,657
2,128¥17,785$74,104
23,608$97,712¥1,552¥1,354$15,487

The aggregate acquisition cost, gross unrealized gains and losses and carrying amount on the balance sheet of other securities
with market quotations at March 31, 2008 and 2007 were as follows:
At March 31, 2008
Millions of yen
Unrealized
Unrealized
gains
losses¥4,380¥4,380-Acquisition cost
Equity securities
Bonds
Other
Total

¥3,045¥3,045At March 31, 2007
Millions of yen
Unrealized
Unrealized
gains
losses¥12,671¥12,671-

Acquisition cost
Equity securities
Bonds
Other
Total

¥2,986¥2,986At March 31, 2008
Thousands of U.S. dollars
Unrealized
Unrealized
gains
losses$43,709$43,709-

Acquisition cost
Equity securities
Bonds
Other
Total

$30,395$30,395

Carrying amount¥7,425¥7,425Carrying amount¥15,657¥15,657

Carrying amount$74,104$74,104

The Company writes down the book value of other securities when the market value declines by more than 50%, or the market
value declines by more than 30% but less than 50% and the Company management determines the decline to be other than
temporary.
Proceeds from sale of other securities were ¥0 million ($0 thousand) and ¥570 million for the years ended March 31, 2008 and2007, respectively. On those sales, gross realized gains were ¥0 million ($0 thousand) and ¥18 million for the years ended
March 31, 2008 and 2007, respectively. Gross realized losses were ¥0 million ($0 thousand) and ¥0 million for the years ended
March 31, 2008 and 2007, respectively.

17

9. Short-Term Debt and Long-Term Debt
Short-term debt consists principally of a bank overdraft, bearing interest at a weighted average annual rate of 2.4% and 3.3%
for the years ended March 31, 2008 and 2007, respectively.
Short-term debt as at March 31, 2008 and 2007 were as follows:
Millions of yen

March 31
Bank overdraft
SecuredUnsecured
Current portion of long-term debt

2008

2007

¥1,003
2,044
1,563¥4,610¥1,1691,599
2,093¥4,861Thousands of
U.S. dollars
2008$10,016
20,395
15,598$46,009

Long-term debt as at March 31, 2008 and 2007 were as follows:
Millions of yen

March 31
Payable to domestic banks, insurance companies and other,with interest rates shown below (* 1)SecuredUnsecured
Less: Current portion of long-term debt

March 31(*1) Interest rates

2008

2007

¥850
3,907
4,757
(1,563)¥3,194

¥675
5,779
6,454
(2,093)¥4,361Thousands of
U.S. dollars
2008$8,48438,99447,478(15,598)$31,8802007
1.0 % to 3.0 %2008
1.0% to 3.0%

Annual maturities of long-term debt at March 31, 2008 were as follows:Year ending on March 31,
2009
2010
2011
2012

Millions of yen

Thousands of
U.S. dollars¥1,563
1,849
1,034
311
¥4,757$15,598
18,454
10,317
3,109$47,478

Assets pledged as collateral for the short-term debt and the long-term debt as at March 31, 2008 and 2007 were as follows:
2008

2007

Thousands of
U.S. dollars
2008

¥515
617
19
5,459
¥6,610

¥838
663
23
5,459
¥6,983$5,1406,158
186
54,487$65,971

Millions of yen

March 31
Investments in securities
Buildings (at net book value)
Machinery (at net book value)
Land

18

10. Retirement Benefits Plan
The Company and some consolidated subsidiaries have defined benefits pension plans and employee’s pension funds bymulti-employer plan as the system of defined benefits. The other consolidated subsidiaries have tax-qualified pension plans
and termination allowance plans.
The Company and certain consolidated subsidiaries also have the defined contribution pension plans.
The accrued retirement benefits as of March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars
2008$33,343
16,155
17,188904$16,284

Millions of yen
2007
2008
¥(3,465)¥3,3411,140
1,619(2,325)
1,722
(28)
91
¥(2,353)¥1,631

Projected benefit obligations
Plan assets
Net unreserved projected benefit obligations
Unrecognized actuarial differences
Accrued retirement benefits recognized in balance sheets

Net pension and severance costs related to the retirement benefit plans for the years ended March 31, 2008 and 2007 were as
follows:
Thousands of
U.S. dollars
2008$1,572
534
113
(64)
462
$2,617

Millions of yen
2007
2008
¥157
¥158
52
53
11
(6)
(83)
50
46
¥176
¥262

Service costs
Interest cost
Expected return on plan assets
Net amortization
Amortization of prior service costs
Transfer to defined contribution pension plans
Net pension and severance costs

Assumptions used in calculation of the above information were as follows:
As of March 31
Discount rate
Expected rate of return on plan assets
Method of attributing the projected benefit
obligations to periods of service
Amortization of prior service costs
Amortization of unrecognized actuarial differences

2008
1.5 %
1.0 %

2007
1.5 %
1.0 %

Straight- line basis

Straight- line basis

Expensed in the year ofoccurrence

Expensed in the year ofoccurrence

5 years

5 years

11. Income Taxes
The Company and its domestic subsidiaries are subject to several taxes based on income, which in the aggregate resulted in thestatutory income tax rate of approximately 40.69% for the years ended March 31, 2008 and 2007. Foreign subsidiaries are
subject to income taxes of the countries in which they operate.
The reconciliation of the statutory income tax rate to the effective income tax rate for the years ended March 31, 2008 and2007 were as follows:
Statutory income tax rate
Reconciliation
Valuation allowance
Nondeductible expenses
Tax losses carried forward
Equity in earnings of subsidiaries and affiliates
Other
Effective income tax rate

19

2008
40.69%

2007
40.69%

5.63
1.99(34.37)(3.21)(3.98)
6.75%(34.11)
13.04(42.31)(9.96)(5.52)(38.17)%

At March 31, 2008 and 2007, significant components of deferred tax assets and liabilities were as follows:
Thousands of
U.S. dollars

Millions of yen
2008

2007

2008

¥2,484
25
660
98
344
443

¥3,773
20
954
83
289
251

$24,791
246
6,591
982
3,438
4,424

78

58

783

221
437
32
421
73
245
5,561

260
481
17
421
102
220
6,929

2,201
4,358
318
4,206
729
2,436
55,503

Less: valuation allowance(4,602)(5,935)(45,929)

Gross deferred tax assets

959

994

9,574

2,174
1,786
¥3,9602,174
5,156¥7,33021,69917,823$39,522

Deferred tax assets
Tax losses carried forward
Accrued enterprise tax
Accrued severance and pension costs for employees
Accrued bonuses
Allowance for doubtful accounts
Reserve for losses on work in progress
Accrued severance and pension costs for directors andcorporate auditors
Reserve for contingent loss

Loss on write-down of investments
Loss on write-down of inventories
Impairment losses on fixed assets
Depreciation and amortization

Other

Deferred tax liabilities
Deferred tax liabilities on revaluation of land
Net unrealized gains on investments in securities
Gross deferred tax liabilities

12. Selling, General and Administrative Expenses
Selling, General and Administrative expenses for the years ended March 31, 2008 and 2007 comprised of the following:

Year ended March 31
Salaries and benefits
Accrued bonuses
Pension and severance costs
Accrued retirement benefits for directors and corporate auditors
Allowance for doubtful accounts
Other

Millions of yen
2007
2008
¥1,167¥1,196
201
74
122
155
39
52
261
22
1,951
2,223
¥3,741¥3,722Thousands of
U.S. dollars
2008$11,936
742
1,548
520
221
22,182$37,149

13. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years
ended March 31, 2008 and 2007 were ¥428 million ($4,273 thousand) and ¥270 million, respectively.

14. Leases
A. Lessee
Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted for as capital leases.
Leases not transferring ownership of the assets at the end of the lease term are accounted for as operating leases, in accordancewith accounting principles and practices generally accepted in Japan.

20

Leased assets under finance leases that do not transfer ownership of the leased assets at the end of the lease term, if capitalized,
comprised of the following:

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost
¥443
1,598
¥2,041At March 31, 2008
Millions of yen
Accumulated
Depreciation
¥225
1,350
¥1,575Net book value
¥218
248
¥466

Acquisition
cost
¥736
2,222
¥2,958At March 31, 2007
Millions of yen
Accumulated
Depreciation
¥556
1,749
¥2,305Net book value
¥180
473
¥653

Acquisition
cost$4,42015,952$20,372

At March 31, 2008
Thousands of U.S. dollars
Accumulated
Depreciation$2,24913,475$15,724

Net book value$2,171
2,477$4,648The amounts of outstanding future lease payments due at March 31 including the portion of interest thereon are summarized asfollows:

2008

2007

Thousands of
U.S. dollars
2008

¥228
295
¥523

¥647
222
¥869

$2,2802,940$5,220Millions of yen
March 31
Future lease payment due
Within one year
Over one year

Lease rental expense on such finance lease contracts for the years ended March 31, 2008 and 2007 were as follows:
Millions of yen
Year ended March 31
Lease rental expense
Depreciation
Interest expense

2008
¥604
556
29

2007
¥623
576
31

Thousands of
U.S. dollars
2008$6,0245,546
292

B. Lessor
Finance leases that do not transfer ownership of the leased property to lessor are accounted for as operating leases.
Leased assets under financial leases that are accounted for as operating leases comprise of the following:

Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost¥1,688970
4,372¥7,03021

At March 31, 2008
Millions of yen
Accumulated
Depreciation¥1,591583
1,820¥3,994

Net book value
¥97
387
2,552
¥3,036

Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

At March 31, 2007
Millions of yen
Accumulated
Depreciation¥1,679581
1,161¥3,421

Acquisition
cost¥2,082
1,077
3,751¥6,910Net book value
¥403
496
2,590
¥3,489At March 31, 2008
Thousands of U.S. dollars

Buildings and structures
Machinery, equipment and delivery equipment
Tools, furniture and fixtures
Total

Acquisition
cost$16,849
9,683
43,635$70,167

Accumulated
Depreciation$15,879
5,822
18,160$39,861

Net book value
$970
3,861
25,475$30,306

The amounts of outstanding future lease revenue due at March 31 including the portion of interest thereon are summarized asfollows:

2008

2007

Thousands of
U.S. dollars
2008¥1,7893,488¥5,277¥1,8193,581¥5,400$17,853
34,820$52,673

Millions of yen
March 31
Future lease revenue due
Within one year
Over one year

Lease rental revenue, depreciation and interest income equivalent on such finance lease contracts for the years ended March 31,
2008 and 2007 were as follows:
Millions of yen
Year ended March 31
Lease rental revenue
Depreciation
Interest income

2008¥1,335
1,159
279

2007
¥2,2181,071
1,147

Thousands of
U.S. dollars
2008$13,324
11,5692,783

15. Derivative and Hedging Activities
The Companies use forward currency exchange contracts to hedge against the exchange rate risk associated with monetary
receivables and payables denominated in foreign currencies. Interest rate swap transactions or currency swap transactions isused in order to minimize the risk of fluctuation in interest rates on borrowings.
The Companies have established an internal control that includes policies and procedures for risk assessment and for theapproval, reporting and monitoring of transactions involving derivative financial instruments. The Companies do not hold or
issue derivative financial instruments for speculation purposes.
The Companies are exposed to certain market risks arising from their forward exchange contracts and swap agreements. The
Companies are also exposed to the risk of credit loss in the event of non-performance by the counterparties to the currency andinterest; however, the Companies do not anticipate non-performance by any of these counterparties, all of whom are financial
institutions with high credit ratings.

16. Commitments and Contingent Liabilities
As at March 31, 2008, the Companies were contingently liable for notes receivable discounted and endorsed and guarantees ofloans made to unconsolidated subsidiaries and affiliates as follows:
Millions of yen¥1,678March 31, 2008
Guarantees of loans from banks

22

Thousands of
U.S. dollars$16,753

17. Segment Information(1) Industry Segment Information
The operations of the Company and its consolidated subsidiaries for the years ended March 31, 2008 and 2007 weresummarized by product group as follows:Year ended March 31, 2008
Sales
Sales to external customers
Inter-segment sales
Total
Operating costs andexpenses
Operating income
AssetsDepreciation
Capital expenditure

Year ended March 31, 2007
Sales
Sales to external customers
Inter-segment sales
Total
Operating costs andexpenses
Operating income
AssetsDepreciation
Capital expenditure

Millions of yen
RealEstateOther
Utilizing
Division

Sub Total

EliminationorCorporate
Assets*Consolidated
Total¥4,850913
5,763¥49,785
1,051
50,836¥(1,051)(1,051)¥ 49,785
49,785399

5,814

46,798(699)

46,099

137

321

(51)

4,038

(352)

3,686

8,110
9
16

4,592
134
2

9,217
1,290
903

51,676
1,754
1,461

7,383
22
55

59,0591,776
1,516

Sub Total

EliminationorCorporate
Assets*Consolidated
Total

Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division¥15,243
15,243¥23,355
23,355¥5,756
(1)
5,755

¥581
139
720

14,83920,128

5,618

404

3,227

11,794150
58

17,963
171
482

Millions of yen
RealEstateOther
Utilizing
Division

Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division¥17,31684
17,400¥17,029
17,029¥5,944
(1)
5,943

¥521
138
659

¥4,738870
5,608¥45,548
1,091
46,639¥(1,091)(1,091)¥ 45,548
45,548

16,696

15,935

5,799

413

5,569

44,412(751)

43,661

704

1,094

144

246

39

2,227

(340)

1,887

12,036141264

17,579122324

13,336
9
54

4,766
125
27

10,1281,102
1,607

57,845
1,499
2,276

11,15717(13)

69,002
1,516
2,263* Major products of each division are as follows:
Material Handling Systems Division……. material handling systems for delivery, sorting, control and various type of convey instruments
Plant & Machinery Division……….……. storage tanks for LNG, LPG, crude oil and other gas/liquid
Building Construction Division…………. apartment house, office building, shop building and warehouse building
Real Estate Utilizing Division…………… real estate rental
Other………………………………..……. leasing etc.
* Corporate assets consist of cash on hand and at bank, investments in securities and the assets belonging to the administration department of the Company.
Corporate assets at March 31, 2008 and 2007 were ¥9,665 million ($ 96,468 thousand) and ¥12,248 million, respectively.
* As previously mentioned in 3.(7) Property, Plant and Equipment (page14), the Company and its domestic consolidated subsidiaries changed the depreciation
method for property, plant and equipment acquired on or after April 1, 2007 in accordance with the revised Corporation Tax Law.
Among property, plant and equipment acquired before April 1, 2007, those depreciated to the allowable limit have been depreciated the difference between the
5% amount of acquisition cost and minimal reminder amount on a straight-line basis over a period of five years.
The impact of this change for segment information is immaterial.

Year ended March 31, 2008
Sales
Sales to external customers
Inter-segment sales
Total
Operating costs andexpenses
Operating income
AssetsDepreciation
Capital expenditure

Thousands of U.S. dollars
Real
Building
EstateOther
Construction
Utilizing
Division
Division

Sub Total

EliminationorCorporate
Assets*Consolidated
Total$48,400
9,117
57,517$496,902
10,487507,389$(10,487)(10,487)$496,902
496,902

3,982

58,033

467,088(6,979)460,109

3,202

(516)

40,301(3,508)36,79345,8341,337
18

92,001
12,887
9,014

515,778
17,511
14,58073,694220
553

589,472
17,731
15,133

Material
Handling
Systems
Division

Plant &
Machinery
Division$152,139
152,139$233,111
233,111$57,449(11)
57,438$5,803
1,381
7,184

148,104

200,899

56,070

4,035

32,212

1,368

117,7131,495
580

179,289
1,704
4,813

80,94188
155

23

(2) Geographic Segment Information
Segment information classified by geographic area is not presented because the majority of the Companies’ operations are
conducted in Japan.
(3) Export sales and sales by overseas subsidiaries
Millions of yen
Year ended March 31, 2008
Overseas sales
Consolidated Sales
Ratio

South-east
Asia¥7,336
14.7%

Year ended March 31, 2007
Overseas sales
Consolidated sales
Ratio

South-east
Asia¥7,713
16.9%

Year ended March 31, 2008
Overseas sales
Consolidated sales
Ratio

South -east
Asia$73,221
14.7%

Middle East
¥5,05610.2%

Other¥3,5087.0%

Total¥15,900¥49,785
31.9%

Millions of yen
Middle East
¥4,822
10.6%

Other¥1,718
3.8%

Total¥14,253¥45,548
31.3%

Thousand of U.S. dollars
Middle East
$50,463
10.2%

Other
$35,017
7.0%

Total$158,702$496,902
31.9%* Major countries included in the above geographic areas were as follows:
South-east Asia:….. Indonesia, Vietnam
Middle East:……….Yemen, Iran
Other: ……………..Algeria, China

18. Related Party Transactions
Material transactions of the Company with its related companies and individuals, excluding transactions with consolidated
subsidiaries which are eliminated in the consolidated financial statements and other than those disclosed elsewhere in thesefinancial statements, for the years ended March 31, 2008 and 2007 were as follows:

Name of Related
Company

Paid-in
CapitalToyo Koken K.K.

¥897
millionToyo Miyama Co.,
Ltd.

¥100
millionPrincipal
Business
Production andsale ofelectric-driven
winchesArchitecturalbusiness

Material
Toyo Kanetsu
MYR2,000
Handling(Malaysia) Sdn.Bhd.
thousand Systems businessMillions of yen / Thousands of U.S. dollars
Transactions
BalancesYear ended March 31
At March 31

EquityOwnership
Percentage
by theCompany

Description oftheCompany’s
Transactions

2008

2007

Account

2008

2007

39%

Loans made--Short-term
loans

¥119
$1,192¥113--

Long-term
loans

¥960
$9,584¥1,087¥1,600$15,970¥1,600

-

¥232

49%

Guarantee
obligation

49%

Redemption ofstock

The terms and conditions of the above transactions are on an arm's-length basis.

24

25

Corporate Data
Head Office
19-20, Higashisuna 8-Chome, Koto-ku,
Tokyo 136-8666, Japan
Tel : +81-3-5857-3333
Fax: +81-3-5857-3170
URL: http://www.toyokanetsu.co.jp

Security Traded
Tokyo Stock Exchange Market, 1st Section

Date of Establishment
16th May, 1941

Transfer Agent and Registrar
The Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-Chome, Chiyoda-ku,
Tokyo 100-8212, Japan

Common Stock
Authorized
IssuedAnnual Meeting
The annual Meeting of Shareholders is normally held in June inTokyo, Japan: 297,000,000: 138,730,741

Offices, Subsidiaries and Affiliates
Domestic Offices
Toyo Kanetsu K.K. Osaka Sales Office
1-9-2, Senrioka-Higashi, Settsu, Osaka 566-0011, Japan
Tel: +81-72-645-2520 Fax: +81-72-645-2532
Toyo Kanetsu K.K. Chiba Plant
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: +81-438-36-7161 Fax: +81-438-36-8211

Domestic Subsidiaries & Affiliates

Overseas Subsidiaries & Affiliates

Toyo Kanetsu Solutions K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3126 Fax: +81-3-5857-3185

P.T. Toyo Kanetsu Indonesia(Jakarta Head Office)Midplaza Building 1, 8th Floor, Jl. Jend. Sudirman Kav. 10-11,
Jakarta 10220, Indonesia
Tel: +62 (21) 570-7805 / 7739 Fax: +62 (21) 570-3950

K-Techno Inc.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3155 Fax: +81-3-5857-7248

Toyo Kanetsu (Malaysia) Sdn. Bhd.
Sublot 51, 1st Floor, Medan Jaya Commercial Centre,
97000 Bintulu, Sarawak, Malaysia
Tel: +60 (86) 338122 Fax: +60 (86) 338123

TKL Co., Ltd.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-3640-5164 Fax: +81-3-3644-1399

Al Ghallilah Engineering & Construction L.L.C.
P.O. Box 121, Postal Code 118, Al Harthy Complex, Sultanate of
Oman

Toyo Service System K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5690-7778 Fax: +81-3-5690-7775
Global Eight Corporation
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-3699-1601 Fax: +81-3-3699-4330
Toyo Koken K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: +81-3-5857-3161 Fax: +81-3-5857-3198
Toyo Miyama Co., Ltd.
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: +81-438-37-2233 Fax: +81-438-37-2201

26

TOYO KANETSU K.K.
http://www.toyokanetsu.co.jp