TOYO KANETSU K.K.

Annual Report 2006

Profile
Toyo Kanetsu K.K. (TKK) was established in the year of 1941. Since that time, TKK has continued to meet the requirementsof the industry through our policy of “Customers First.”
The Plant & Machinery Division was established in 1950 when in-house welding technology was developed for weldedstorage tanks. Since then, our expertise has expanded to provide customers various kinds of storage tanks consisting of morethan 5,000 units varying from crude oil storage tanks to LNG storage tanks. Particularly, we are proud of our outstanding trackrecord of LNG Storage Tank construction, with 25 tanks in Japan and 50 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 havebeen recognized and appreciated by 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 as well as conventional construction methods.
The Material Handling Systems 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 the largest 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 andPostal Sorting System. The Division became a subsidiary company of TKK under the name of Toyo Kanetsu Solutions K.K. in2002 in order to maximize the efficiency and also to vitalize 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 Shareholders' Equity·········9Consolidated Statements of Cash Flows ····················10Notes to the Consolidated Financial Statements········· 11
Report of Certified Public Accountants ·······················23
Corporate Data ·························································24

1Toyo Kanetsu K.K. and Consolidated Subsidiaries

Financial Highlights

For the Years Ended 31st March:
Net Sales
Material Handling Systems Division
Plant & Machinery Division
Building Construction Division
OthersOperating Income (Loss)Net Income (Loss)
Cash dividends
At 31st March:
Current Assets
Net Property, Plant and Equipment
Investments and Advances
Intangibles and Deferred Charges
Total Assets
Current Liabilities
Long-Term Liabilities
Minority Interests in Consolidated Subsidiaries

Shareholders' Equity
Total Liabilities, Minority Interests andShareholders' Equity
Order Backlog

Thousands of
U.S. dollars

2006

2005

Millions of yen
2004¥ 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
-

¥ 36,662
15,487
7,543
9,499
4,133
372
(2,333)-¥ 39,729
15,338
7,342
10,8086,241(1,639)(15,997)-$387,557
177,983
124,646
48,24936,67916,206
13,841
2,357

25,30916,56624,852413
67,14022,796
16,54416,300317
55,95721,024
17,052
16,103280
54,45918,643
17,966
11,525295
48,42921,36920,68013,402
191
55,642

215,435
141,014
211,5423,513
571,504

20,084
15,647
10
31,39920,42011,50725
24,005

16,893
13,53419
24,013

18,864
10,01420
19,531

22,625
12,71620
20,281

170,964
133,19084
267,266

67,14055,95754,45948,42955,642571,504

38,467

34,232

34,701

40,26635,767

327,434

2003

2002

2006

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

U.S. dollars¥ 11.762.00
227.11¥ 7.31173.57¥7.53
173.55¥ (16.85)
141.18¥ (115.32)
146.21

17,005552

16,418525

16,078564

17,102573

17,705588$ 0.10$ 0.02$ 1.93; The U.S. dollar amounts in this annual report represent translations of Japanese yen at the rate of ￥117.48=$1.00, solely for the reader's convenience.

2

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Message from the President
Overview of business(1) Development of operations and results at the Corporate Group
During the fiscal year under review, the Japanese economy remained on a recovery track, despite such risk factors as
sluggish exports hurt by slowdowns in the economies of the U.S. and China, and price hikes of oil and other resources.
In the first half, the domestic economy emerged from its plateau phase, which started in mid-2004, thanks to strong
domestic demand led by high-level capital investments and steady consumer spending as well as brisk exports reflecting
the robust global economy, centering on the U.S. and China.
Under such macroeconomic conditions, the market of the Material Handling Systems Business picked up, as some sectors
actively invested in logistics centers and other facilities due to the improvement and consolidation of logistics bases andjoint delivery, which were accelerated by the expansion of logistics outsourcing and the reorganization of the logistics industry.
Looking at the Plant & Machinery Business, both producer and consumer nations increased their levels of energy-related investments amid the growing global
demand for energy. Producing countries include those in the Middle East, Africa, Southeast Asia, Latin America, and Australia while consuming countries
include the U.S., China, South Korea, and various European nations. These countries’ investments concentrated on their storage facilities. Meanwhile, theBuilding Construction Business continuously faced a severe business environment mainly because of fierce competition to win orders and because of pricesurges in construction materials.
Under these market conditions, the Group’s net sales for the fiscal term under review were JPY45.5 billion (US$388 million), up 14.6% from the previous year.
This increase is attributable to robust sales at the Material Handling Systems Business, which offset reduced sales at other businesses. Operating income was
JPY1.9 billion (US$16 million), up 41.2%, and current profit was JPY2.1 billion (US$18 million), up 22.5%. Net income rose sharply 60.9% year-on-year to
JPY1.6 billion (US$14 million). The amount of orders received also jumped 26.7% year-on-year to JPY45.5 billion (US$387 million).
Operations by business are as follows:
In the Material Handling Systems Business, we implemented energetic sales activities during the fiscal year under review, while focusing on IT-based material
handling systems such as our mainstay Picking System and Warehouse Management Systems (WMS). Net sales hit the highest levels seen since our corporate
split-up in October 2002, primarily due to strong sales to co-op stores, retailers, wholesalers, mass retailers and subcontracted transport companies, as well as
the on-schedule completion of large construction projects that were launched in the previous year. In addition to this increase in net sales, our efforts tocontinuously improve productivity brought a substantial rise in profits from a year earlier and we recorded the largest profit since the company’s split-up.
As a result, net sales at this business posted JPY20.9 billion (US$178 million) in the year under review, up 53.8% from the preceding year, and orders received
totaled JPY17.6 million (US$150 million), up 10.7%.
At the Plant & Machinery Business, there was strong overseas demand for oil, LPG and LNG storage tanks during the fiscal year under review. Taking
advantage of this opportunity, we carried out brisk sales activities mainly in the Middle East and Southeast Asia, regions that we have supplied for many years,
by making use of our technical capability, reliability and international competitiveness as a specialist manufacturer. As a consequence, we won an order from
Yemen for two large LNG storage tanks in the first half of the fiscal term. In addition, in the latter half of the term we received an order from Vietnam for a
total of thirty-five large oil tanks and products tanks, which are expected to be used at the nation’s first oil refinery. Capitalizing on our strength in overseas
processing bases, we also won an order from Qatar to process materials for use in various tanks. Furthermore, we received an order from Saudi Arabia forspherical tanks. Receiving orders from Yemen and Vietnam is one of the fruits of the Group’s efforts to explore new markets for tanks. In response to anincrease in orders from foreign countries, we quickly began to expand our overseas processing bases.
In the domestic market, we focused on sales activities aiming to win orders for new LNG tanks. In the area of maintenance work, there was high demand forquakeproofing work for floating roof tanks as a result of a partial amendment to the Fire Service Law. In response, we strengthened our maintenance-work
related organization and sales activities. Consequently, we were able to receive more orders for such work.
Sales were strong and remained almost unchanged from the previous year, thanks to the completion of construction work for LPG and LNG tanks in both
domestic and worldwide markets, as well as the favorable progression of processing large-scale work for LNG and oil tanks, products for which we received
new orders. We strictly managed costs to secure profits and overcome the severe environment, which saw cost increases due to the sharp price rise in raw
materials such as steel.
As a result, net sales at this business were JPY14.6 billion (US$125 million) in the fiscal year under review, down 3.8% from the previous year, and orders
received totaled JPY22.4 billion (US$191 million), up 60.3%.
In the Building Construction Business in the fiscal year under review, we continued to focus our sales activities on profitability for our core sector: theconstruction of leased apartments. Although both sales and profits at this sector declined from a year earlier, we will continue to place top priority on ensuring
stable profits at this sector. In other construction sectors, we are striving to expand our business scales and domains, and enhance and improve operations.
As a result, net sales at this business posted JPY5.7 billion (US$48 million) in the fiscal period under review, down 24.8% from the previous year. Orders
received amounted to JPY5.5 billion (US$46 million), down 9.1%.
Subsidiaries and affiliates handling business other than those mentioned above made efforts to expand and develop their businesses in the year under review,
and aggregate net sales posted JPY4.3 billion (US$37 million), up 27.2% from the preceding year.
(2) Future Issues for the Corporate GroupThe Group will further improve corporate value by tackling the following four management issues on a group-wide basis, with the aim of “creating a sound,strong and dynamic corporate group.”
June 2006
1.
To make corporate structure profitable and improve earnings power
We will make further efforts to reform and strengthen our core businesses from the strategic and organizational
perspectives, improve operational efficiency, and reduce costs.
2.
To encourage vitality among personnel and efficiently use human resources
We will strive to further enhance overall employee competence and organizational strength andinvigorate the workplace, through the “reform and overhaul of personnel and training structures and systems.”
3.
To establish corporate governance and compliance management
We will strengthen the functions of the board of directors and the board of auditors as well as improve the internal
control and compliance structures, aiming to implement fair and transparent management.
4.
To strengthen group management
We will further boost the Group’s comprehensive capability by unifying the Group’s basic operation policies
Shigeaki Kiyota
President & Representative Director
and reinforcing the management bases of the Group companies.

3

Board of Directors and Corporate Auditors
Board of Directors
President & Representative Director ............................... Shigeaki Kiyota
Managing & Representative Director .............................. Takeshi Mizukami
Directors ........................................................................ Sadao Arita......................................................................... Shinji Shimazaki......................................................................... Toru Yanagawa
Auditors ......................................................................... Teruo Nojo........................................................................... Masaharu Hino........................................................................... Yoshihumi Murashige........................................................................... Koichi EndoLine 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

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

Material Handling Systems Business:

Planning, Design, Manufacture, Construction and Marketing of:Distribution Center System
Truck Terminal System
Production Line System
Airport Baggage Handling System
Postal Sorting System
Food Processing Center System
Apparel Center System
Warehouse Management System
Engineering, Manufacturing and Installation of System’s Facilities,
their relative Civil Works and Architectural Works

Qualification- Listed in primary stock exchanges (Tokyo).
- Quality Management System to ISO 9001 certified by Bureau Veritas Quality International (BVQI) for flat bottomed vertical cylindricalstorage 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

Toyo Kanetsu Solutions K.K.
Share Capital: 100.0%
Line of Business: Logistics Solution Provider
K-Techno Inc.
Share CapitalLine of Business
TKL Co., Ltd.
Share CapitalLine of Business100.0%
Consulting & Maintenance of Material Handling System: 100.0%: Rental/Leasing, Insurance & Travel Agent

Toyo Service System K.K.
Share Capital: 100.0%
Line of Business: Real Estate Management, Welfare Facilities Management, Gardening/
Floriculture Business Property, Plant & Equipment Maintenance.
Global Eight Co.
Share CapitalLine of Business: 84.0%: Commodity & Foodstuffs Trading

P.T. Toyo Kanetsu Indonesia
Share Capital: 92.9%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 StructuresTKK Engineering Pty. Ltd.
Share Capital: 100.0%
Line of Business: Storage Tanks/ Pressure Vessels/ Onshore & Offshore Steel Structures,
Ranch Management, Tourism

Affiliated Companies(Equity Method)

TKK-USA,INC
Share CapitalLine of Business: 100.0%: Storage Tanks/ Pressure Vessels / Onshore & Offshore Steel Structures

Toyo Koken K.K.
Share CapitalLine of Business: 39.3%: Electric-driven winches, Conveyors, Balancer & Robots

Toyo Miyama Co., Ltd.
Share Capital: 49.0%Line of Business: Prefabrication of Unit House
Katayama Co.
Share CapitalLine of Business: 22.0%: Architectural Management

Manavis Co., Ltd.
Share CapitalLine of Business: 20.6%: Cosmetics, Cleaning Products

Toyo Kanetsu (Malaysia) Sdn. Bhd.
Share Capital: 49.0%Line of Business: Material Handling Systems, Storage Tanks/ Pressure Vessels / Onshore& Offshore Steel Structures5

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Balance Sheets
As at March 31, 2006 and 2005ASSETS
2006

2005

Thousands of
U.S. dollars(Note 3)2006

Inventories (Note 6)
Other current assets
Total current assets¥7,966
2,000
7,637
(101)
7,536
6,762
1,045
25,309¥6,605
9,764
(92)
9,672
5,823
696
22,796$67,807
17,02165,004(857)
64,14757,5608,900
215,435

Property, Plant and Equipment (Note 8):
Buildings and structures
Machinery and equipment
Land (Note 2(8))
Leased assets (Note 14)
Construction in progress
Less: Accumulated depreciation
Total property, plant and equipment

10,808
4,023
9,266
6,516
70
(14,117)
16,566

11,089
4,520
9,822
4,972
(13,859)
16,54492,002
34,24578,871
55,468590(120,162)
141,014

Investments and Advances:
Investments in securities (Notes 7 and 8)
Long-term loans receivable
Other investments
Less: Allowance for doubtful accounts
Total investments and advances

21,005
1,523
3,283
(959)
24,852

12,4281,959
2,955(1,042)
16,300178,795
12,96427,946(8,163)
211,542413
413¥67,140317
317¥55,957

3,513
3,513
$571,504

Millions of yen

Current Assets:
Cash on hand and at bank (Note 4)
Marketable securities (Notes 4 and 5)
Notes and accounts receivable
Less: Allowance for doubtful accounts

Intangibles and Deferred Charges:
Intangible fixed assets
Total intangibles and deferred charges

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

6

LIABILITIES, MINORITY INTERESTS AND SHAREHOLDERS'EQUITY
2006

2005

Thousands of
U.S. dollars(Note 3)2006

Current Liabilities:
Short-term debt (Note 8)
Notes and accounts payable
Accrued income taxes (Note 10)
Accrued liabilities
Advances from customers
Accrued bonuses
Reserve for losses on work in progress
Other current liabilities
Total current liabilities¥4,653
2,227
522
4,472
7,092
182
304
632
20,084¥9,497
1,964
172
3,567
4,521
163
157
379
20,420$39,605
18,953
4,442
38,06660,367
1,550
2,591
5,390
170,964

Long-Term Liabilities:
Long-term debt (Note 8)
Deferred tax liabilities on revaluation of land (Note 2(8))
Deferred tax liabilities
Accrued retirement benefits for employees (Note 9)
Accrued retirement benefits for directors and corporate auditors
Other long-term liabilities
Total long-term liabilities

3,651
2,174
6,179
3,526
102
15
15,647

2,844
2,409
2,429
3,687
133
5
11,50731,07918,50552,59730,013867
129133,190

10

25

84

18,580
1,104
2,546
391
9,526
(682)
31,465(66)
31,399¥67,140

18,580
1,104
980
331
3,720
(657)
24,058(53)
24,005¥55,957

158,155
9,398
21,6683,332
81,081(5,805)
267,829(563)
267,266$571,504

Minority Interests in Consolidated Subsidiaries

Millions of yen

Commitments and Contingent Liabilities (Note 16)
Shareholders' Equity:
Common stock:
Authorized: 297,000,000 shares
Issued: 138,730,741 shares
Additional paid-in capital
Accumulated earnings (deficit)
Unrealized gains on revaluation of land (Note 2(8))
Net unrealized holding gains on investment securities
Foreign currency translation adjustments
Less: Treasury stock, at cost
Total shareholders’ equity

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, 2006 and 2005

2006

2005

Thousands of
U.S. dollars(Note 3)
2006

¥45,530
40,035
5,495
3,591
1,904

¥39,734
35,185
4,549
3,200
1,349

$387,557
340,780
46,77730,571
16,206

251
(327)
119
120
75
(10)
228
2,132

216
(341)
47
469
1
392
1,741

2,136
(2,787)
1,014
1,018
638
(75)
1,944
18,150

(89)

(192)

(758)

(895)
(249)
97

(24)
38

(7,622)(2,117)
830

-

(100)

-

0
568
130
71
(99)
183
(283)
1,849

(264)
(136)
328
(161)
(144)
(655)
1,086

(1)
4,838
1,107
601
(845)
1,555
(2,412)
15,738

511
(248)
263

87
(12)
75

4,352
(2,116)
2,236

40

0

339

¥1,626¥1,011$13,841

Millions of yen

Net Sales
Cost of Sales (Note 12)
Gross profit
Selling, General and Administrative Expenses (Notes 11 and 12)
Operating Income (Loss)
Other Income (Expenses):
Interest and dividend income
Interest expense
Exchange gain (loss)
Equity in income of unconsolidated subsidiaries and affiliates
Derivative profit
Other, net
Income (Loss) before special items
Special Profit (Loss):
Loss on sale or disposal of property, plant andequipment, net
Impairment losses on fixed assets (Note 13)
Provision for bad debts
Reversal of provision for bad debts
Provision for retirement benefits for directors and corporate auditors
for prior periods
Loss on write-down of investment securities
Loss on write-down of investments in golf club memberships
Gain on sale of investment securities
Gain on redemption of preferred investment bond
Extraordinary retirement benefits
Gain on dissolution of the retirement annuity system
Depreciation of leased assets
Other, net
Income (Loss) before income taxes and minority interests
Income Taxes (Note 10):
Current
Deferred
Minority Interests in Net Loss of Consolidated Subsidiaries
Net Income (Loss)Yen
Per Share (Note 2 (18))
Net income (loss)¥11.76

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

8

U.S. dollars(Note 3)

¥7.31

$0.10

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Shareholders' Equity
For the years ended March 31, 2006 and 2005
Millions of yen
Number ofshares ofcommonstock

Balance at March 31, 2004
Net income for the year
Transfer to deferred tax liabilities onrevaluation of land
Realized losses on revaluation of landCommonstock

Net unrealized
Unrealized holding gains Foreign
currency
Additional Accumulated gains on(losses) onrevaluation investment translation
paid-inearningsof landcapital(deficit)
securities adjustments

138,730,741 ¥18,580-

Treasurystock¥3,064-¥(1,985)
1,011¥1,619-¥3,418-¥(639)
-

¥(44)
-

-

-

-

-

(1,288)

-

-

-

-

-

-

(7)

-

-

-

-

-

-

(1,960)

1,961

-

-

-

-

Foreign currency translation adjustments
Net unrealized holding gains on
investments
Repurchase of treasury stock
138,730,741 ¥18,580
Balance at March 31, 2005

-

-

-

-

(18)

-

-

-

-

302

-

-

¥1,104¥980¥331¥3,720¥(657)(9)¥(53)

Transfer from additional paid-in
capital to accumulated deficit

Net income for the year
Realized losses on revaluation of land
Net unrealized holding gains on
investments

-

-

-

1,626
(60)

60

-

-

-

-

-

-

-

-

5,806

-

-

Foreign currency translation adjustments

138,730,741 ¥18,580¥1,104¥2,546¥391¥9,526(25)¥(682)(13)¥(66)

Number ofshares ofcommon stockThousands of U.S. dollars (Note 3)
Net unrealized
Unrealized holding gains Foreign
currency
Additional Accumulated gains on(losses) onrevaluation investment translation Treasury
paid-inearningsof landstock
capital(deficit)
securities adjustments

Repurchase of treasury stock
Balance at March 31, 2006

Balance at March 31, 2005

Commonstock

138,730,741 $158,155$9,398$2,821$31,668$(5,589)$(452)

(511)

511

-

-

-

-

-

-

49,413

-

-

-

-

-

-

-

(216)

-

-

(111)

138,730,741 $158,155$9,398$21,668$3,332$81,081$(5,805)$(563)Net income for the year
Realized losses on revaluation of land
Net unrealized holding gains on
investments

-

-

-

-

-

Foreign currency translation adjustments-

Repurchase of treasury stock
Balance at March 31, 2006

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

9$8,338
13,841

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Consolidated Statements of Cash Flows
For the years ended March 31, 2006 and 2005

2006

2005

Thousands of
U.S. dollars(Note 3)2006

¥1,849¥1,086$15,738

1,551
895
(76)
(161)

1,240
(112)
(1,455)

13,1997,622(646)(1,368)

(31)

133

(263)

147
(251)
327
(120)
0
(576)
89
2,128
(939)
386
2,571
(105)
7,684
258
(322)
(161)
7,459

157
(216)
341
(469)
264
(328)
220
(406)
(2,088)
326
2,624
191
1,508
224
(333)
(129)
1,270

1,250
(2,136)2,787(1,018)1(4,901)
757
18,110(7,997)
3,287
21,888(904)
65,406
2,205(2,745)(1,375)63,491(66)(1,672)
46
(512)
1,153
1,130
362
(829)
(200)
147
240
(201)

4
(1,302)
335
(3)
758
1,048
(92)
(206)
542

(560)
(14,236)395(4,361)
9,810
9,619
3,084
(7,056)(1,702)
1,254
2,038(1,715)(2,271)
3,110(4,876)(13)(4,050)
85
3,293
6,475
¥9,768(592)
2,180(3,491)(9)(1,912)
(24)
(124)
6,599
¥6,475(19,334)
26,473(41,502)(112)(34,475)723
28,024
55,120$83,144

Millions of yen

Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments for:
Depreciation and amortization
Impairment losses on fixed assets (Note 2 (19))
Decrease in provision for allowance for doubtful accounts
Decrease in provision for employees’ retirement benefits
Increase (decrease) in provision for retirement benefit for directors
and corporate auditors
Increase in provision for losses on work in progress
Interest and dividend income
Interest expense
Equity in income of unconsolidated subsidiaries and affiliates
Loss on write-down of investment securities
Net gain on sale of investment securities
Loss on disposal of property, plant and equipment(Increase) decrease in notes and accounts receivables
Increase in inventories
Increase in notes and accounts payable
Increase 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) decrease in time deposits (over 3-month term)
Payments for purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Payments for purchase of investment securities
Proceeds from sales of investment securities
Proceeds from redemption of preferred investment bondDecrease in long-term loans receivable
Increase in long-term prepaid expenses
Payment for purchase of goodwill of affiliate
Proceeds from investment in capital
Other
Net cash provided by (used in) investing activities
Cash Flows from Financing Activities:
Decrease in short-term debt, net
Proceeds from long-term debt
Repayment of long-term debt
Other
Net cash provided by (used in) financing activities
Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Increase (Decrease) in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of Year
Cash and Cash Equivalents at End of Year (Note 4)
The accompanying notes are an integral part of the consolidated financial statements.

10

Toyo Kanetsu K.K. and Consolidated Subsidiaries

Notes to the Consolidated Financial Statements
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 Securities and Exchange
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. 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 exceptions that are not material, the accounts of its nine subsidiaries (tensubsidiaries in 2005). All significant inter-company transactions and accounts and unrealized inter-company profits are
eliminated on consolidation.
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, 2006 and five at March 31, 2005. Consolidated net income includes the Company’s equity inthe current earnings of those companies after elimination of unrealized inter-company profits.
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 both December 31, 2005 and 2004. Material
differences in inter-company transactions and accounts arising from the use of 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.
(4) Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided at an amount for losses which are considered to have occurred but cannot be
determined on a item-by-item or group basis, calculated using historical write-off experience from certain prior periods, plus
an amount for expected losses on individual uncollectible receivables 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) Securities
Securities held by the Company and its subsidiaries are classified into two categories:
11

“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, 2006. 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 Shareholders’ equity 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 profit or loss 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 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.
Deferral accounting is not applied to that part of interest rate swaps to which do not meet the requirements for applying
hedge accounting.
Derivatives designated as hedging instruments by the Company are principally interest 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 betterments 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.
(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 before revaluation:
Land 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, 2006 amounted to ¥3,670
million ($31,238 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.
12

(11) 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 basis of assets and liabilities and those as reported in the consolidated
financial statements.
(12) Accrued Bonuses
Accrued bonuses to employees are provided for 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.
(13) 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. Actuarial gains(losses) are recognized as deductions from expenses or included in expenses, respectively, in the year of occurrence.
(14) 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.
(15) 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.
(16) Depreciation of Leased Assets
Leased assets are depreciated over the term of the lease on a straight-line basis.
(Change in accounting method and the term of depreciation)
From the year ended March 31, 2006, the method of depreciating the leased assets has been changed to the straight-line
method over the term of the lease from the declining-balance method over the estimated economic useful life. As a result of
this change, Selling, General and Administrative Expenses of segment“Other”has decreased by ¥20 million ($166 thousand),and Operating Income of that segment has increased by the same amount, as compared with the calculation using the former
method.
The ¥20 million decrease in Selling, General and Administrative Expenses resulted from a decrease of ¥179 million ($1,521
thousand) in change in accounting method, and an increase of ¥159 million ($1,355 thousand) in change in term ofdepreciation.
(17) 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.
(18) Earnings Per Share
The computation of net income per common share is based on the weighted average number of outstanding shares of common
stock.
(19) Accounting standard for impairment of fixed assets
On August 9, 2002, the Business Accounting Council in Japan issued "Accounting Standard for Impairment of Fixed Assets".
The standard requires that fixed assets be reviewed for impairment whenever events or changes in circumstances indicate thatthe carrying amount of an asset may not be recoverable. An impairment loss is recognized in the income statement by reducing
the carrying amount of impaired assets or a group of assets to the recoverable amount to be measured as the higher of net
selling price and value in use.
The effect of adopting “Accounting Standard for Impairment of Fixed Assets” on Income before income taxes and minority
interests was ¥895 million ($7,622 thousand) at March 31, 2006.

13

3. United States Dollar Amounts
Amounts in U.S. dollars are included solely for the convenience of readers outside Japan. The rate of ¥117.48=U.S. $1.00, theapproximate rate of exchange prevailing at March 31, 2006, has been used in translation. The inclusion of such amounts are
not intended to imply that Japanese yen have been or could be readily converted, realized or settled in U.S. dollars at this rateor any other rates.
4. Cash and Cash Equivalents
Cash and Cash Equivalents as at March 31, 2006 and 2005 consisted of:
2006

2005

Thousands of
U.S. dollars
2006¥7,966
(196)
2,000
(2)
¥9,768¥6,605(130)¥6,475$67,807(1,669)17,021(15)$83,144

Millions of yen

March 31
Cash on hand and at bankTime deposits, over 3-month term
Short-term investments included in marketable securities
Other
Cash and cash equivalents

5. Marketable Securities
Marketable securities as at March 31, 2006 and 2005 were as follows:
2006

2005

Thousands of
U.S. dollars
2006¥2,000-$17,021

2006

2005

Thousands of
U.S. dollars
2006¥ 6,166596¥6,762¥ 5,280543¥5,823

Millions of yen

March 31
Commercial paper

6. Inventories
Inventories as at March 31, 2006 and 2005 were as follows:
Millions of yen

March 31Work in process
Other$52,487
5,073$57,560

7. Investments in Securities

Investments in securities as at March 31, 2006 and 2005 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
2005
2006

Thousands of
U.S. dollars
2006¥18,669
2,336¥21,005¥9,535
2,893¥12,428$158,910
19,885$178,795¥1,537¥1,094$13,079

The aggregate acquisition cost, gross unrealized gains and losses and carrying amount on the balance sheet, which were
measured at fair value, of other securities with market quotations at March 31, 2006 and 2005 were as follows:
At March 31, 2006
Millions of yen
Unrealized
Unrealized
lossesgains¥15,1833¥15,186-

Acquisition cost
Equity securities
Bonds
Other
Total

¥2,983500¥3,483

14

Carrying amount¥18,166503¥18,669

At March 31, 2005
Millions of yen
Unrealized
Unrealized
lossesgains¥5,986¥(11)(5)¥5,986¥(16)

Acquisition cost
Equity securities
Bonds
Other
Total

¥3,53431¥3,565At March 31, 2006
Thousands of U.S. dollars
Unrealized
Unrealized
lossesgains$129,236
27$129,263-

Acquisition cost
Equity securities
Bonds
Other
Total

$25,393
4,254$29,647

Carrying amount¥9,50926¥9,535Carrying amount$154,629
4,281$158,910

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 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 ¥1,153 million ($9,810 thousand) and ¥756 million for the years ended March 31,
2006 and 2005, respectively. On those sales, gross realized gains were ¥568 million ($4,838 thousand) and ¥328 million for theyears ended March 31, 2006 and 2005, respectively. There were no gross realized losses for the years ended March 31, 2006
and 2005.
8. Short-Term Debt and Long-Term Debt
Short-term debt consists principally of bank overdraft, bearing interest at a weighted average annual rate of 3.8% and 2.4% at
March 31, 2006 and 2005, respectively.
Short-term debt as at March 31, 2006 and 2005 were as follows:
Millions of yen

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

2006

2005

¥1,938559
2,156¥4,653¥2,333
2,435
4,729¥9,497

Thousands of
U.S. dollars
2006$16,493
4,761
18,351$39,605

Long-term debt as at March 31, 2006 and 2005 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

2006

2005

¥975
4,832
5,807
(2,156)¥3,651¥3,451
4,122
7,573(4,729)¥2,8442006
1.3% to 3.0%

15

Thousands of
U.S. dollars
2006$8,29941,13149,430(18,351)$31,0792005
1.4 % to 3.4 %Annual maturities of long-term debt at March 31, 2006 were as follows:Year ending on March 31,
2007
2008
2009
2010
2011 and thereafter

Millions of yen

Thousands of
U.S. dollars¥2,156
1,279
883
610
879
¥5,807$18,351
10,887
7,521
5,192
7,479
$49,430

Assets pledged as collateral for short-term debt and long-term debt as at March 31, 2006 and 2005 were as follows:
2006

2005

Thousands of
U.S. dollars
2006¥5,035
1,409
27
6,372
¥12,843¥3,613
1,588
33
7,208
¥12,442$42,863
11,992229
54,239$109,323

Millions of yen

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

9. Retirement Benefit Plan
Employees whose service with the Company and certain domestic subsidiaries is terminated are, in most circumstances,
entitled to lump-sum severance payments determined by reference to current basic rate of pay, length of service and thecircumstances in which the termination occurs.
The Company and its domestic subsidiaries have a funded non-contributory and contributory pension plan for employees.
Under the plan, employees are entitled to receive a pension for 10 years from their retirement date, determined by reference tocurrent basic rates of pay at the time of termination, length of service and the conditions under which the termination occurred.
In the Company and its consolidated subsidiary, TKSL, a part of the approved retirement annuity system was shifted to adefined contribution annuity plan.
The accrued retirement benefits as of March 31, 2006 and 2005 were analyzed as follows:
Millions of yen
2005
2006
¥(5,442)¥(3,531)1,755
5(3,687)(3,526)¥(3,687)¥(3,526)

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

Thousands of
U.S. dollars
2006$(30,059)46(30,013)$(30,013)

Net pension and severance costs related to the retirement benefit plans for the years ended March 31, 2006 and 2005 were as
follows:
Millions of yen
2005
2006
¥251
¥166
84
58
(4)
(79)
(57)
3
49
¥255
¥216

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

16

Thousands of
U.S. dollars
2006$1,415
496
(488)
415
$1,838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 unrecognized actuarial differences

2006
1.5 %
-

2005
1.5 %
1.0 %

Straight- line basis

Straight- line basis

Expensed in the year ofoccurrence

Expensed in the year ofoccurrence

10. 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, 2006 and 2005. 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, 2006 and2005 were as follows:
Statutory income tax rate
Reconciliation
Valuation allowance
Nondeductible expenses
Tax loss carryforwards
Other
Effective income tax rate

2006
40.69%

2005
40.69%

27.41
12.42(65.39)(0.93)
14.20%(35.69)4.71(3.53)
0.80
6.98%

At March 31, 2006 and 2005, significant components of deferred tax assets and liabilities were as follows:
Thousands of
U.S. dollars

Millions of yen
2006

2005

2006

¥4,496
66
1,433
73
928
87

¥4,861
46
1,498
65
1,144
64

$38,270563
12,193
625
7,900
744

41

54

353

408
84
413
15
435
8,479

372
16
186
8,306

3,475
716
3,516
126
3,696
72,177

Less: valuation allowance(8,445)(8,286)(71,886)

Gross deferred tax assets

34

20

291

2,174
6,179
¥ 8,353

2,409
2,429
¥ 4,838

18,50552,598$71,103

Deferred tax assets
Tax loss carryforwards
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
Impairment losses on fixed assets
Depreciation and amortization
Loss on write-down of investments
Loss on write-down of inventories
Other

Deferred tax liabilities
Deferred tax liabilities on revaluation of land
Net unrealized gains on investments in securities
Gross deferred tax liabilities1711. Selling, General and Administrative Expenses

Selling, General and Administrative expenses for the years ended March 31, 2006 and 2005 comprised of the following:
Millions of yen
2005
2006
¥1,189¥1,158
59
59
152
159
1,800
2,215
¥3,200¥3,591

Year ended March 31
Salaries and benefits
Accrued bonuses
Pension and severance costs
Other

Thousands of
U.S. dollars
2006$9,855502
1,355
18,859$30,571

12. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years
ended March 31, 2006 and 2005 were ¥271 million ($2,307 thousand) and ¥84 million, respectively.
13. Impairment losses on fixed assets
The Company and its consolidated subsidiaries have recognized impairment losses of ¥895 million ($7,622 thousand), for thefollowing group of assets as of March 31, 2006.
Location
Kisarazu, Chiba
Saigou-mura, Fukushima etc.
Yokohama, Kanagawa etc.
Guam, USA

Use
Dormant assets
Dormant assets
Leased assets
Leased assets

Category
Land, Building
Land
Land
Land, Building

The Company and its consolidated subsidiaries have assessed impairment of each group of assets, which are grouped based on
management reporting and investment decision-making purposes.
Due to the decline in real estate value and poor performance of assets, operating profitability has worsened substantially.
Therefore, the Company and its subsidiaries have decided to mark the assets down to their recoverable value, and accrued
impairment losses of ¥895 million ($7,622 thousand), which comprises of land amounting to ¥726 million ($6,181 thousand)and building amounting to ¥169 million ($1,441 thousand).
The recoverable value is determined as the higher of the net selling value and the value in use. The net selling value is based on
appraisals provided by professional real estate valuators, and the value in use is calculated as future cash flows discounted
mostly by 3.0% ~ 4.0%.
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.
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

Acquisition
cost¥1,7972,255¥4,05218At March 31, 2006
Millions of yen
Accumulated
Depreciation¥1,1781,335¥2,513

Net book value¥619
920¥1,539

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

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

Acquisitioncost¥1,4982,255¥3,753At March 31, 2005
Millions of yen
Accumulated
depreciation¥741
881¥1,622Net book value
¥757
1,374
¥2,131

Acquisition
cost$15,296
19,194$34,490

At March 31, 2006
Thousands of U.S. dollars
Accumulated
depreciation$10,026
11,361$21,387

Net book value$5,270
7,833$13,103

The amounts of outstanding future lease payments due at March 31 including the portion of interest thereon were summarized
as follows:
Thousands of
U.S. dollars
Millions of yen
March 31
2005
2006
2006
Future lease payment
Within one year
¥697
¥762
$6,488Over one year
1,531
870
7,401
¥2,228¥1,632$13,889

Lease rental expense on such finance lease contracts for the years ended March 31, 2006 and 2005 were as follows:
Thousands of
U.S. dollars
Millions of yen
2005
Year ended March 31
2006
2006
Lease rental expense
¥748
¥807
$6,867
Depreciation
686
738
6,286
Interest expense
80
66
566
B. Lessor
Finance leases that do not transfer ownership of the leased property to lessor are accounted for as rental transactions.
Leased assets under financial leases comprise of the following:

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

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

Acquisition
cost¥2,083
1,247
3,186¥6,516At March 31, 2006
Millions of yen
Accumulated
depreciation¥1,340743
1,302¥3,385Net book value
¥743
504
1,884
¥3,131

Acquisition
cost¥2,082
1,365
1,525¥4,972At March 31, 2005
Millions of yen
Accumulated
depreciation¥1,000705
912¥2,617

Net book value¥1,082660
613¥2,35519

At March 31, 2006
Thousands of U.S. dollars

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

Acquisition
cost$17,728
10,614
27,126$55,468

Accumulated
depreciation$11,407
6,323
11,087$28,817

Net book value$6,321
4,291
16,039$26,651

The amounts of outstanding future lease revenue due at March 31 including the portion of interest thereon were summarized asfollows:
Thousands of
U.S. dollars
Millions of yen
2005
March 31
2006
2006
Future lease revenue
Within one year
¥2,139¥1,985$16,894
Over one year
4,237
3,346
28,483¥6,376¥5,33145,377
Lease rental revenue, depreciation and interest income equivalent on such finance lease contracts for the years ended March 31,
2006 and 2005 were as follows:
Thousands of
U.S. dollars
Millions of yen
2005
Year ended March 31
2006
2006
Lease rental revenue¥960¥1,963$16,706
Depreciation
673
981
8,346
Interest income
287
982
8,360
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 are used in order to minimize therisk of fluctuation in interest rates on borrowings.
The Companies have established a control environment 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 trading 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, 2006, the Companies were contingently liable for notes receivable discounted and endorsed and guarantees ofloans made to unconsolidated subsidiaries and affiliates as follows:
Thousands ofMillions of yen
U.S. dollars
March 31, 2006
Guarantees of loans from banks¥ 1,246$10,60920

17. Segment Information(1) Industry Segment Information
The operations of the Company and its consolidated subsidiaries for the years ended March 31, 2006 and 2005 weresummarized by product group as follows:
Millions of yen

Sub Total

EliminationorCorporate
Assets*Consolidated
Total¥4,310959
5,269¥45,530
958
46,488¥ (958)(958)¥ 45,530
45,530

5,570
97

5,115
154

44,345
2,143

(719)
(239)

43,626
1,904

11,136
117

14,74416

11,0091,181

52,822
1,525

14,31826

67,140
1,551

-

-

-

269

269

626

895

29

401

37

2,129

2,596

52

2,648

Consolidated
Total

Year ended March 31, 2006
Sales
Sales to external customers
Inter-segment sales
Total

Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division¥20,909
20,909¥14,643
14,643¥5,668(1)
5,667

Operating costs and expenses
Operating income

19,566
1,343

14,094549

AssetsDepreciation
Impairment losses on
fixed assets
Capital expenditure

15,933211

Other

Millions of yen
Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division

Other

Sub Total

Elimination
or Corporate
Assets*¥13,595
6
13,601¥15,21729
15,246¥7,533628
8,161¥3,389919
4,308¥39,734
1,582
41,316¥(1,582)(1,582)¥ 39,734
39,734

Operating costs and expenses
Operating income

13,266335

14,233
1,013

8,010
151

4,121
187

39,6301,686(1,245)(337)

38,385
1,349

AssetsDepreciation
Capital expenditure

15,195
222
78

12,261
135
75

7,032
20
10

9,490
826
1,112

43,9781,203
1,275

11,97937(3)55,9571,240
1,272Year ended March 31, 2005
Sales
Sales to external customers
Inter-segment sales
Total* 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, 2006 and 2005 were ¥15,737 million ($ 133,956 thousand) and ¥14,171 million, respectively.

Thousands of U.S. dollars
Material
Handling
Systems
Division

Plant &
Machinery
Division

Building
Construction
Division

Other

Sub Total

Elimination
or Corporate
Assets*$177,983
177,983$124,646
124,646$48,249(10)$48,239$36,679
8,168
44,847$387,557
8,158
395,715$ (8,158)(8,158)$387,557
387,557

Operating costs and expenses
Operating income

166,544
11,439119,968
4,678

47,415824

43,543
1,304

377,470
18,245(6,119)(2,039)371,351
16,206

AssetsDepreciation
Impairment losses on
fixed assets
Capital expenditure

135,622
1,796

94,788994

125,503132

93,715
10,053449,628
12,975

121,876224

571,504
13,199

-

-

-

2,294

2,294

5,328

7,622

247

3,413

314

18,12322,097444

22,541

Year ended March 31, 2006
Sales
Sales to external customers
Inter-segment sales
Total

Consolidated
Total(2) Geographic Segment Information
Segment information classified by geographic area was omitted because a majority of the Companies’ operations wereconducted in Japan.
21

(3) Export sales and sales by overseas subsidiaries
Millions of yen
Year ended March 31, 2006
Overseas sales
Consolidated Sales
Ratio

South-east
Asia¥5,953
13.1%

Year ended March 31, 2005
Overseas sales
Consolidated sales
Ratio

South-east
Asia
¥636
1.6%

Year ended March 31, 2006
Overseas sales
Consolidated sales
Ratio

South -east
Asia$50,674
13.1%

Middle East
¥1,9074.2%

Other¥1,851
4.0%

Total¥9,711¥45,530
21.3%

Millions of yen
Middle East
¥4,11210.4%

Other¥2,232
5.6%

Total¥6,980¥39,734
17.6%

Thousand of U.S. dollars
Middle East
$16,232
4.2%

Other$15,757
4.0%

Total$82,663$387,557
21.3%* Major countries included in the above geographic areas were as follows:
South-east Asia:….. Indonesia, Malaysia
Middle East:……….Iran, Qatar
Other: ……………..Trinidad and Tobago, Australia

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, 2006 and 2005 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

EquityOwnership
Percentage
by theCompany

Description oftheCompany’s
Transactions

39%

Loans made49%

Guarantee
obligation

Millions of yen / Thousands of U.S. dollars
Transactions
Resulting Accounting BalanceYear ended March 31
At March 31,

2006

2005

Account

2006

2005

-

-

Short-term
loans

¥113
$(960)¥113-¥1,182Long-term
loans¥1,262$(10,741)¥1,633¥1,192$(10,146)¥1,009The terms and conditions of the above transactions are on an arm's-length basis.

19. Subsequent Events
1) In the Company and its consolidated subsidiary, TKSL, the system of additional severance pay for early retirement, which
was a part of former retirement plan, has been abolished at April 30, 2006. The profit of ¥191 million ($1,626 thousand) will
be realized for the year ended March 31, 2007.
2) In the consolidated subsidiary, TKE, a gain from Sales of Fixed Assets of 2 million Australian Dollar has been made owing
to the sale of the land and building at May 1, 2006. The profit of the equivalent Japanese Yen will be realized for the year
ended March 31, 2007.

22

Corporate Data
Head Office
19-20, Higashisuna 8-Chome, Koto-ku,
Tokyo 136-8666, Japan
Tel: (03) 5857-3333
Fax: (03) 5657-3170
URL: http://www.toyokanetsu.co.jp

Security Traded
Tokyo Stock Exchange Market, 1st Section
Transfer Agent and Registrar
The Mitsubishi UFJ Trust and Banking Corporation
4-5, Marunouchi 1-Chome, Chiyoda-ku,
Tokyo 100-8212, Japan

Date of Establishment
16th May, 1941
Common StockPar Value
Authorized
IssuedAnnual Meeting
The annual Meeting of Shareholders is normally held in June inTokyo, Japan: ¥50: 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: (072) 645-2520 Fax: (072) 645-2532

Overseas Subsidiaries & Affiliates
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

Toyo Kanetsu K.K. Chiba Plant
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: (0438) 36-7161 Fax: (0438) 36-8211

Domestic Subsidiaries & Affiliates(Batam Fabrication Plant)
Jl. Tenggiri, Batu Ampar, Batam, Indonesia
Tel: +62 (778) 412158 / 412159 Fax: +62 (778) 412157

Toyo Kanetsu Solutions K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 5857-3126 Fax: (03) 5857-3180

TKK Engineering Pty. Ltd.
34 Windarra Drive, City Beach, W.A. 6015, Australia
Tel: +61 (8) 9385-8682 Fax: +61 (8) 9385-7356

K-Techno Inc.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 5857-3155 Fax: (03) 5857-7248
TKL Co., Ltd.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 3640-5164 Fax: (03) 5606-6377

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

Toyo Service System K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 5857-3200 Fax: (03) 5857-3201

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

Global Eight Co.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 3699-1601 Fax: (03) 3699-4330

TKK-USA,INC.
8955 Katy Freeway Suite 202 Houston TX 77024,USA

Toyo Koken K.K.
19-20, Higashisuna 8-chome, Koto-ku, Tokyo 136-8666, Japan
Tel: (03) 5857-3161 Fax: (03) 5857-3198
Manavis Co., Ltd.
15-9, Chidori, Urayasu-shi, Chiba 279-0032, Japan
Tel: (047) 380-5800 Fax: (047) 380-1166
Katayama Co.
22-13, Shinjuku 6-chome, Shinjuku-ku, Tokyo 160-0022, Japan
Tel: (03) 3352-0611 Fax: (03) 3352-0674
Toyo Miyama Co., Ltd.
2 Tsukiji, Kisarazu, Chiba 292-0835, Japan
Tel: (0438) 37-2233 Fax: (0438) 37-2201

24

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