CHIYODA CORPORATION Annual Report 2006

12-1, Tsurumichuo 2-chome, Tsurumi-ku,Yokohama 230-8601, Japan
Tel: (81) 45-521-1231 Fax: (81) 45-503-0200
http://www.chiyoda-corp.com

WHY
WHY
CHOOSECHOOSECHIYODA?
CHIYODA?

Chiyoda Corporation
Corporation
CHIYODA CORPORATION
ChiyodaAnnual Report
Report2006
AnnualReport 2006
Annual
2006
Printed in Japan on 100% recycled paper

Fiscal Year Ended March2006
Fiscal31,
Year
Ended March 31, 2006
Fiscal Year Ended March 31, 2006

CONTENTS
Financial Highlights 2001-2006
Major Performance in ﬁscal 2006
A Letter from the PresidentInterview with the President
Entering a Period of Sustainable Growth

Review of Operations
Overseas
Domestic

2
3
4
5
8
10

Messages from the Executive Vice-Presidents
Contribution to Global Environment and Society
Strong Financial Foundation
Superior Project Management

12
13
14

Board of Directors, Corporate Auditors and Executive Ofﬁcers
Corporate Social Responsibility
FAQ — Fiscal 2006
Management Policies

15
16
20
22

Financial Section

The answer begins here.

Management’s Discussion and Analysis
Business Risks and Other Risks
Consolidated Balance Sheets
Consolidated Statements of Income
Consolidated Statements of Shareholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Independent Auditors’ Report

24
27
28
30
32
33
35
55

Chiyoda Corporation Global Network 2006
Chiyoda Corporation Corporate Information

56
58

CONTENTSCHIYODA IS STEPPING UP TO BECOME THE“

RELIABILITY No. 1”

PROJECT COMPANY

Chiyoda performed successfully in fiscal 2006, the first year of the medium-term
management plan, Double Step-Up Plan 2008. This gives us a good start toward
the plan’s goals. Due to the large order backlog, fiscal 2007 will see even fasterprogress. Market conditions remain favorable. But we are well aware of the risks,
too. That’s why we maintain a powerful risk management system that covers allof these risks.
What is Chiyoda doing to become the “Reliability No. 1” Project Company?
Exactly what is the “Reliability” we are aiming for? This year’s annual report
thoroughly examines these subjects.

Forward-Looking Statements
This annual report contains forward-looking statements
about Chiyoda Corporation outlooks, plans, forecasts,
results and other items that may take place in the future.
Such statements are based on data available when
the report was published. Unknown risks and otheruncertainties that happen in the future may cause ouractual results to be different from the forward-looking
statements contained in this report. The risks anduncertainties include business and economic conditions,competitive pressure, changes to laws and regulations,addition or elimination of products, exchange rate
ﬂuctuation, among many more.

CHIYODA CORPORATION ANNUAL REPORT 2006

1

FINANCIAL

MAJOR PERFORMANCEHIGHLIGHTS
2001-2006
From Revitalization to Stable Medium-Term Growth
WE ARE STEPPING UP IN 6 YEARSIN FISCAL 2006

External Factors (FY2001-2006)●High level of gas development investments by gasproducing nations and Oil and Gas Majors.

●Strategic change to a “Proﬁt Oriented” from a“Sales Oriented” policy. Aiming at a gross margin of
7% on completed revenues.

¥800 billion●Large investments by oil companies in Japan to
become more competitive: Chemical Reﬁnery
Integration, Upgrading of heavy oil.

●Concentration of management resources into areas
where Chiyoda has a competitive advantage intechnology.

2006●Strengthened project management team andadoption of a monitoring system.

2004

2005

2006

For the Year
Revenues¥128,665¥141,387¥166,367¥206,817 ¥267,655¥390,875

Cost of revenues

131,240

136,762

155,924

192,710

247,905

360,322

Income (loss) before
income taxes andminority interests(3,357)

1,861

2,509

5,370

12,04921,906

Net income (loss)(4,607)

121

2,000

¥114,652¥129,314¥120,297

Total shareholders’equity15,023

15,103

16,67022,76736,87355,509Working capital

2,241

1,387

7,526

15,71922,231

51,431

6,647

12,863

19,400¥142,860 ¥182,893¥279,721

2004

2003

2005

(Millions of Yen)

2002

• Order received for 4 more LNG plants in
Qatar, all with the highest output in the world.
• New contracts and backlog of contracts reachall-time highs.

Current ratio (%)

102.6

101.4

108.4

115.0

115.9

125.1

Long-term debt

11,346

10,672

10,422

10,316215

10,169

Increased to ¥390.9 billion as
construction work proceededon schedule

5 Net Income

6 Earnings¥10.79¥35.91¥68.62¥101.27

Book value per share
(BPS)

81.04

81.47

90.01

123.04193.22288.88

UP51%(year on year)

Increased to ¥19.4 billion

2005
2006

19.4

Four years of consecutive
growth

185,429

185,388

185,199

185,041

190,837

2003

192,893

Increased to ¥20.7 billion

7 Shareholder’s Equity

8 Dividend per Share¥55.5 billion¥10

Almost up to the Medium-Term
Management Plan goal of ¥70
billionRevenues

5%

BY INDUSTRY• Nobuo Seki named president.
• Growth in LNG projectsNew
beginsContracts
in the Middle
East and other regions.
5%9%• Announced Five-Year New Restructuring
Plan (ﬁscal 2002 to ﬁscal 2006). Financial
restructuring implemented in equity and debt
accounts.
• Earned ISO 14001 certiﬁcation. 86%

2006

Increased ¥4 due to strong
earnings

Backlog of Contracts
6% 2%

11%

New Contracts

2% 2% 14%

14%

• Established Chiyoda Advanced Solutions
Corporation (subsidiary to supply sophisticatedengineering services that use advanced analytic
technologies).

Gas & PowerCHIYODA CORPORATION ANNUAL REPORT 2006

2004
2005
Improved to 7.8%

BY INDUSTRY

Revenues

2%86%

Backlog of Contracts
6% 2%

11%

Gas & PowerNew Contracts

Revenues

2% 2% 14%

92%

82%

Fine Industries & Others

Japan

Backlog of Contracts

8%
27%

14%

8% 1% 10%BY REGION

2%73%
Gas Chemicals

73%

BY REGION
Gas Chemicals
Petroleum & Petrochemicals

14%* At year-end

2

6.6
12.9

9%

2001

Number of shares
outstanding*(thousands)

2004• Accumulated deﬁcits eliminated.
• Order received for Sakhalin II LNG project.

Other Statistics

UP87%

6.8%

New Contracts

2002

¥0.65

7.8%

7.4%

2.0

2003

BY INDUSTRY
¥(20)

166.4
206.8
267.7
390.9

4 Operating Income(Billions of Yen)

• Goals of New Restructuring Plan reached
18 months ahead of schedule. Started New
Medium-Term Management Plan in April 2005.
• Order received for Qatargas 2 LNG project,
the world’s largest-scale LNG plants.

Per Common Share (Yen)
Earnings per share
(EPS)

141.4

2002
2003
2004
2005
2006

Reached all-time high due tostrong market conditions

At Year-End
Total assets

3 Gross Margin(Billions of Yen)

Internal Factors (FY2001-2006)

2001

2 Revenues

1 New Contracts

Petroleum & Petrochemicals

92%
Fine Industries & Others

82%
Japan

51%
Middle East

81%
RussiaAsia and Others

CHIYODA CORPORATION ANNUAL REPORT 2006

3

A Letter from the PresidentInterview with the President

Nobuo Seki

ENTERING A PERIOD OFSUSTAINABLE GROWTH
June 22, 2006

Friends:
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Nobuo SekiPrident & CEO,
Chiyoda Corporation

President andChief Executive Ofﬁcer

Fiscal 2006, ended March 2006, was a banner year for Chiyoda.
New contracts surged, earnings rose to record levels and theCompany increased dividend payments.This interview focuses on
the secret of these accomplishments and the President’s vision for
the future of the Chiyoda Group.

Q

The theme of this year’s annual report is “Why Choose
Chiyoda?” Chiyoda posted record-high contracts this year,with contract growth topping the industry average. Why
did customers choose Chiyoda?

To put it simply, it is because customers know that we keep our promises anddo not commit ourselves to anything we cannot deliver. In other words, they
see us as the most reliable contractor. In my opinion, this is a key factor since
plants are getting bigger and more complex and integrate a broad range ofadvanced technologies. Customers want to be sure that the contractor is reliable and up to
the task. There are three elements to this reliability. First, we work tirelessly to understandour customers’ real needs. Our marketing executives communicate constantly with customers and share information on their needs with other departments and management. Second,
we run a critical study on technologies involved, and we have built a strong position in IT
technology, a must now that plants have become huge. Third is our commitment to ﬂawless
execution, which we achieve through various check and review systems, such as the “Cold Eye
Review” and “Double-Check.” Plant Lifecycle Engineering is another important element of ourbusiness strategy. Our goals here are to build permanent relations with customers by establishing a platform to share information and to build a knowledge base with our customers. Furthermore, as natural gas demand increased in energy-consuming nations, there was a high level ofgas development investments by gas-producing nations and Oil and Gas Majors. This created a big
increase in demand for the Gas Value Chain services of the Chiyoda Group.

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CHIYODA CORPORATION ANNUAL REPORT 2006

CHIYODA CORPORATION ANNUAL REPORT 2006

5

Chiyoda has already achieved the
Double Step-Up Plan 2008 (DSP2008) ﬁnal-year targets for revenues
and net income. Do you feel that
Chiyoda might move up the ﬁnal year of the plan
and launch a new plan?

Q

Q

Recently, Chiyoda has captured several
huge contracts. What measures are
you taking to ensure that you canhandle this large backlog smoothly?

A

We have instituted several measures to make surethat there are no surprises. These include the “Cold
Eye Review” at each milestone gate and greater
participation of top management at the execution

Fast Track Project Completion Record
Award
Jan.

2003

Project

ActualContractual

Qalhat LNG

33.43

34

Sept. 2002

RasGas Train 4

33

33

Oct.

2001

Qatargas Debottlenecking

45

45

Apr.

2001

RasGas Train 3

33

33

Nov.

1996

Oman Train 1

41.5

42

Nov.

1996

Oman Train 2

37.75

38

July

1995

Qatargas Train 3

32

40

Mar.

1995

Bontang Train G

32

33

May

1993

Qatargas Train 2

42

43

May

1993

Qatargas Train 1

39

40

Nov.

1991

ADGAS Train 3

30

30

Mar.

1991

Bontang Train F

32

33

July

1987

Bontang Train E

29

29

May

1981

Arun Train 5

33

35

May

1981

Arun Train 4

29

31

Mar.

1973

ADGAS Train 1 & 2

45

45(Months)

6

CHIYODA CORPORATION ANNUAL REPORT 2006

I am glad to report that we have met the revenues
and net income targets for the ﬁnal year of DSP
2008 fully two years ahead of schedule. We alsodeclared a ¥10 dividend per share, expecting to
declare a ¥14 dividend in the current ﬁscal year, in order to share
our gains reasonably with our stakeholders. As you know every plan
has quantitative and qualitative targets. In quantitative terms, we still
have some goals to reach. We need to increase shareholders’ equity
to ¥70 billion and raise the shareholders’ equity ratio to 30%. Our
goal for distribution of income is to maintain a minimum annual
dividend of ¥10 per share. We have also made considerable strides
in achieving our qualitative goals, without which we would not havebeen able to achieve the results that I just mentioned. We use the“Balanced Score Card System” to measure our qualitative performance. The parameters include the customer’s perspective, thequality of administration and execution capabilities and the qualityof human resources. We scored 87 points on the “Balanced Score
Card” this year and it will be a while before we reach the desired
qualitative targets. Whether we bring forward the ﬁnal year of theplan and launch a new plan to build on the achievements of DSP
2008 will depend on how quickly we can reach both our quantitative and qualitative goals.

A

Q

Chiyoda had an extraordinary year,with record contracts and stellar
operating results. What is theoutlook?

Our core competence lies in two domains,energy and chemicals. Our value-added, processoriented technology is what sets us apart fromcompetitors. Energy demand is growing and willcontinue to grow well into the future. At present, oil is the largest primary source of energy, coal is number two and natural
gas is third. Natural gas is expected to surpass coal because
demand for clean energy is growing. Future sources of energy
include synthesis gas and hydrogen. Our focus on energy andchemicals positions us well to offer solutions and beneﬁt fromchanging energy sources. Coal, although abundant, is not a very
clean energy source as it is. Our CT-121, ﬂue gas desulfurization technology for coal-ﬁred power stations, is contributing to
reducing air pollution. We have a 30% market share in the U. S.
in this area. In oil, the trend is toward large plants to integrate
reﬁning and petrochemical operations. LNG consumption

A

World Primary Energy Demand
Source: IEA (International Energy Agency) / World Energy Outlook 2004

6,000

Millions of Ton Oil Equivalentstage through frequent project meetings. At the local level, we haveintroduced a system of project audits to eliminate uncertainties andmake sure that projects are implemented on schedule and without
accidents. All these initiatives are directed at eliminating uncertainties toward a single goal: “Uninterrupted Start-up.” Chiyoda is theworld record holder in “Uninterrupted Start-up.” Recently in Oman,
we completed a 34-month LNG plant construction project 17 days
ahead of schedule (Qalhat LNG Project). First products came out
just nine days later. A ship carrying the ﬁrst shipment of products
from this plant sailed for Europe just one month after it was completed. This was really a remarkable achievement.

5,000
4,000
3,000
2,000
1,000
0
1970

1980

1990

2000

Coal
Natural gas
Oil
Water
Nuclear power

2010

2020

2030

Other renewables

is growing. Meeting this demand will require building every year
production facilities of LNG with an output of 15 million tons. Chiyoda is committed to capitalizing on change through technologicalinnovation. I see huge business opportunities for Chiyoda at every
stage, and I am as excited about the future just as much as our
young colleagues are.

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7

U.S.A.

REVIEW OF OPERATIONSOVERSEAS
Global growth in demand for natural gas is supporting a large volume of Gas Value
Chain investments. Gas-producing nations and the energy majors are placing orders
for projects extending from natural gas ﬁeld developments to the construction of
LNG plants and LNG receiving terminals and the arrangement of LNG carriers.
In the environmental field, Chiyoda is continuing to license its Chiyoda
Thoroughbred 121™ (CT-121) ﬂue gas desulfurization technology as clean air regulations are tightened worldwide.
As a result of these and other factors, consolidated new contracts surged 114.9% to¥691,510 million and revenues were up 60.4% to ¥285,545 million.
Location

ClientProject

U.S.A.

Oman

Capacity

Unit

Completion

NEW CONTRACTS

QATAR

Qatar

Ras Laffan Liqueﬁed Natural Gas Co., Ltd. (3)LNG Plant (EPC) (Train 6)

7.8

mtpa

2008

Qatar

Ras Laffan Liqueﬁed Natural Gas Co., Ltd. (3)LNG Plant (EPC) (Train 7)

7.8

mtpa

2009

Qatar

Qatar Liqueﬁed Gas Co., Ltd. (3)LNG Plant (EPC) (Train 6)

7.8

mtpa

2008

Qatar

Qatar Liqueﬁed Gas Co., Ltd. (4)LNG Plant (EPC) (Train 7)

7.8

mtpa

2009

U.S.A.

Southern Company Services, Inc.

Flue Gas Desulfurization (Grant of license)

–

3*

2005

U.S.A.

Black & Veatch Corporation

Flue Gas Desulfurization (Grant of license)

–

11*

2005

BACKLOG OF CONTRACTS
Qatar

Ras Laffan Liqueﬁed Natural Gas Co., Ltd. (Ⅱ)

LNG Plant (EPC) (Train 5)

4.7

mtpa

2006

Qatar

ExxonMobil Middle East Gas Marketing Ltd.

Gas Development Project (EPC) (Expansion)

–

–

2006

Qatar

Qatar Liqueﬁed Gas Co., Ltd. (2)LNG Plant (EPC) (Train 4)

7.8

mtpa

2007

Qatar

Qatar Liqueﬁed Gas Co., Ltd. (2)LNG Plant (EPC) (Train 5)

7.8

mtpa

2008

Iran

Petrochemical Industries Development Management Co.

Urea Plant (EP)

3,250

Tpy

2006

Iran

Petrochemical Industries Development Management Co.

Urea Plant (EP)

3,250

Tpy

2007

Saudi Arabia

Jubail United Petrochemical Co.

Ethylene Plant (EP) (Expansion)

–

–

2006

China

Guizhou Crystal Organic Chemical (Group) Co., Ltd.

Acetic Acid Plant (EP)

36

ktpa

2007

RussiaSakhalin Energy Investment Co., Ltd.

Oil Export Terminal (EPC)

–

–

2006

RussiaSakhalin Energy Investment Co., Ltd.

LNG Plant (EPC) (Train 1)

4.8

mtpa

2007

RussiaSakhalin Energy Investment Co., Ltd.

LNG Plant (EPC) (Train 2)

4.8

mtpa

2008

4.7

mtpa

2005

COMPLETED CONTRACTS
Qatar

Ras Laffan Liqueﬁed Natural Gas Co., Ltd. (Ⅱ)

LNG Plant (EPC) (Train 4)

Qatar

Qatar Liqueﬁed Gas Co., Ltd.

LNG Plant (EPC) (Debottlenecking)

3

mtpa

2005

Oman

Qalhat LNG S.A.O.C.

LNG Plant (EPC)

3.3

mtpa

2005

Indonesia

PetroChina International Jabung Ltd.

Gas Development Project (EPC)

–

–

2005

China

CNOOC and Shell Petrochemicals Co., Ltd.

SMPO and MPG/Polyols Plant (EPC)

135

ktpa

2005

Singapore

Vopak Terminal Singapore Pte. Ltd.

Tank Terminal

–

–

2005

China

Ningbo Rayon Acrylic Fibers Co., Ltd.

Acrylic Staple Fiber Plant

–

–

2005

China

Nanton SKT New Material Co., Ltd.

PVDC (polyvinylidene chloride) Compounds Plant

–

–

2005

* Units of coal-ﬁred power plants to which CT-121 technology was licensed.

8

CHIYODA CORPORATION ANNUAL REPORT 2006

The CT-121 ﬂue gas desulfurization (FGD) process is a unique Wet Limestone FGD process to provide the best
conditions for SO2 absorption in ﬂue gas from coal-ﬁred, oil-ﬁred and other boilers and for ﬁxation of the removed
SO2 as gypsum.
In response to the current worldwide requirement for the reduction of air pollution, demand for the licensingof Chiyoda’s CT-121 ﬂue gas desulfurization technology has been expanding. Chiyoda and its U.S. licensee Southern
Company Services, Inc. have licensed the use of this technology at three coal-ﬁred power units (almost 3GW) of
Southern Company, the largest electric power company in the southern part of the United States. CT-121 has also
been licensed through another U.S. licensee, Black & Veatch Corporation, for use at 10 power units of American Electric Power Company, Inc., the largest electric power company in the United States (more than 4GW) and at anotherunit operated by Alabama Electric Cooperative (340MW).
Total licensed capacity in the United States during ﬁscal 2006 turned out to be more than 7.3GW. With thesuccess of the CT-121 FGD in the United States, Chiyoda has established a business model that differs from its core
EPC operations by generating earnings from the use of its own process technology that has been developed by itself.
Chiyoda will expand this business model not only in the United States but also in European and Asian countries.
(Please refer to page 19 for Chiyoda’s Environmental Initiatives through CT-121.)

RussiaQatar• EPC : Engineering, Procurement, Construction • mtpa : Million tons per annum• ktpa : Thousands tons per annum• EP : Engineering, Procurement• Tpy : Ton per year

Licensing of CT-121Technology for Flue Gas Desulfurization

Order Received for the World’s Two Largest LNG Trains Qatargas 3 & 4

Chiyoda, with its joint venture partner Technip, signed an EPC contract with Qatar Liqueﬁed Gas Co., Ltd. (3)(Qatargas 3) and the sponsors of the Qatargas 4 Project on December 21, 2005 for two of the world’s largest
LNG trains at the Qatargas plant in Ras Laffan City. Each train is designed to produce 7,800,000t/y of LNG. Qatargas 3 (68.5% Qatar Petroleum; 30% ConocoPhillips; 1.5% Mitsui) owns Train 6 and will deliver LNG, primarily
to the United States, commencing in 2009. Qatargas 4 (70% Qatar Petroleum; 30% Shell Gas B.V.) owns Train
7 and will deliver LNG to North America commencing in 2010. By adding the capacity of these two trains, theState of Qatar will achieve its strategic plan to become the largest LNG supplier in the world by 2010.
RUSSIA

Great Achievement in Sakhalin LNG ProjectSigniﬁcant progress toward project completion has been achieved; engineering work has reached 97%, procurement 98% and construction 73%. Overall project progress has kept to the contractual plan despite an unusually
severe and long winter. Environmental protection measures have been maintained throughout the period of the
project, which helped numerous hunchback sermons ﬂood the tiny Galuboi brook in the middle of the site. In
addition, the Welder Training Center was opened in Yuzhno-Sakhalinsk in collaboration with a local college as partof a sustainable development program for the continued, highest-level training of carbon steel and stainless steel
welders, which has contributed to a technical transfer to local people and had a favorable impact on the area’ssocio-economics. The employment of Russian people has been kept at a remarkable level, exceeding 70% throughout
the project period, and especially the employment of people on Sakhalin Island has remained at more than 40%.
OMAN

Qalhat LNG Train Completed Ahead of Contractual Schedule

At this project, Ready for Start-Up (RFSU) was achieved 33.4 months after the effective date and ahead of thecontractual schedule. The start-up team achieved LNG production in a world record of nine days three hours
after RFSU by applying Shell’s Flawless Start-Up Concept, and the ﬁrst cargo was shipped 30 days after RFSU.
High HSE standards and a sustainable development program called Omanisation were also key elements in thisproject. A safety record of 20 million man-hours without a single lost-time incident was reached since the contract commencement. Chiyoda was honoured for the second consecutive year by the Omani government as the“Best Omanisation Company” in the construction sector. (Please refer to page 18 for Omanisation.)

CHIYODA CORPORATION ANNUAL REPORT 2006

9

REVIEW OF OPERATIONSDOMESTIC
In the natural gas and electric power sector, there was growth in investments to
expand a variety of facilities and build new ones in response to the shift to LNG and coal dueto the sharp rise in the cost of crude oil and to the removal of barriers that separated different categories of the utility industry in Japan.
In the petroleum sector, Japanese oil companies made a large volume of investments.
There are many expenditures for petrochemical production facilities due to market trends in
Asia. There are also investments targeting the growing price gap between heavy and light
grades of oil, large projects to conserve energy and other investments to makeMizushima
reﬁneries more competitive.
In the petrochemical sector, Japanese chemical companies madeinvestments in China and other Asian countries and conducted joint petrochemical businesses with oil companies.
In the general chemicals sector, substantial capital expenditures continued in conjunction with industry realignment due to mergers among pharmaceutical companies and to the entry into Japan by foreign pharmaceutical companies.
In the industrial machinery sector, there were many capital expenditures involving
electronic materials and high-performance ﬁlms. Chiyoda received orders for the upgradingand expansion of existing factories and for development projects.
Due to these market trends, consolidated new contracts increased 25.9% to ¥112,720
million and revenues climbed 17.5% to ¥105,329 million.

Location

ClientKASHIMA (IBARAKI PREFECTURE)

Kashima

Project

Capacity

Unit

Completion

Taiyo Oil Co., Ltd.

BTX Plant

37,000

Bpd

2006

Ibaraki

Kashima Aromatics Co., Ltd.

Aromatics Complex Plant

420,000

Tpy

2007

Okayama

Mitsubishi Gas Chemical Company, Inc.

MXDA (m-Xylylenediamine) Plant

20,000

Tpy

2007

Ehime

Chiyoda received an order for the engineering, procurement and construction of a new aromatics chemicals complex from Kashima
Aromatics Co., Ltd., which is owned jointly by Japan Energy Corporation, Mitsubishi Chemical Corporation and Mitsubishi Corporation.
Completion is slated for the fall of 2007.
This project is the ﬁrst stage of a project to make the Kashima industrial complex more internationally competitive through a comprehensive alliance spanning the oil reﬁning and petrochemicals operations. At a cost of ¥70 billion, this project will construct a new facility thatwill produce aromatics products, light grades of naphtha and other related products by using imported condensates (byproducts of natural
gas production) as feedstock. Chiyoda will construct the paraxylene production facilities of this complex, which will have an annual output
of 420,000 tons.
Today, Japan’s petroleum industry is facing an operating environment where there is a long-term decline in demand for grade C heavy
oil for power generation. In response, oil companies are now making a large volume of strategic investments from a long-term perspective.
Goals include supplying products with more added value and making reﬁneries and other plants more competitive. With extensive experience in constructing petroleum facilities in Japan that spans decades, Chiyoda is aggressively seeking orders for contracts.

MIZUSHIMA (OKAYAMA PREFECTURE)

NEW CONTRACTS

Order Received to Build New Aromatics Chemicals Complex

Chiyoda Completes LNG Receiving Terminal

Operations started on April 1, 2006 at the Mizushima LNG Receiving Terminal in Japan’s Okayama Prefecture.
Chiyoda received a contract from Mizushima LNG Co., Ltd., which is owned by The Chugoku Electric Power
Co., Inc. and Nippon Oil Corporation for all aspects of the construction of this facility.
Chiyoda has participated in the construction of about half of all LNG receiving terminals in Japan, beginningwith the Negishi Plant of Tokyo Gas Co., Ltd. in 1969, Japan’s ﬁrst LNG receiving terminal. The Mizushima LNG
project marked the ﬁrst time that we handled all aspects of an LNG project, including engineering, procurement,
construction and commissioning. All elements of the project were completed on schedule. This experienceand know-how will be a valuable asset, providing a base for capturing contracts for the planning, operation andmaintenance of LNG receiving terminals.

BACKLOG OF CONTRACTS
Kanagawa

Nippon Petroleum Reﬁning Co., Ltd.

Lube Oil / Grease Mixing and Filling Plant

–

–

2006

Ehime

Japan Oil, Gas and Metals National Corporation

LPG Underground Storage Terminal

–

–

2009

200,000

Tpy

2006

COMPLETED CONTRACTS
Yamaguchi

Seibu Oil Co., Ltd.

Mixed Xylene Plant

Chiba

Fuji Oil Company, Ltd.

Low-Temperature Power Generation

–

–

2005

Kanagawa

Mitsubishi Fuso Truck & Bus Corporation

New Plant Shop Project

–

–

2006

Ibaraki

Mitsubishi Chemical Engineering Corporation and Mitsubishi Chemical Corporation

Ethylene Cracker

150,000

Tpy

2005

IbarakiEisai Co., Ltd.

Pharmaceutical Bulk Plant (Clinical)

–

–

2006

IbarakiEisai Co., Ltd.

Pharmaceutical Bulk Plant (Commercial)

–

–

2006

OkayamaMizushima LNG Co., Ltd.

LNG Receiving Terminal

160,000㎘

2006

NagasakiJapan Oil, Gas and Metals National Corporation

LPG Storage Terminal

–

–

2005

IbarakiJapan Oil, Gas and Metals National Corporation

LPG Storage Terminal

–

–

2005

KASHIMA (IBARAKI PREFECTURE)

Completion of Sophisticated Chemical Hazard Compatible Plant

Chiyoda has constructed a plant for Eisai Co., Ltd. that will produce anti-cancer drugs that may become someof the world’s primary next-generation drugs. Handling everything from the conceptual design stage onward,
Chiyoda ﬁnished this project in only 17 months without accident.
Making this plant efﬁciently modiﬁed is its use of a 20-year-period that previously housed a production facility for clinical drugs used for bulk pharmaceuticals. Construction thus had to conform to stringent chemical hazard regulations, strictly considering c-GMP compliance. Thanks to a 3D spatial design technique, the new facility
excels in terms of ease of use and maintenance as well as safety. Commissioning began smoothly immediately
after the plant’s completion. Furthermore, only a minimal amount of follow-up correctional work was required.
From now on, pharmaceutical plants will be handling compounds having a high potency with increasing
frequency. As a result, this state-of-the-art facility is attracting much attention.

• Bpd : Barrel per day• Tpy : Ton per year

10

CHIYODA CORPORATION ANNUAL REPORT 2006

CHIYODA CORPORATION ANNUAL REPORT 2006

11

Nobuyasu Kamei
Executive Vice President
CSR Division

CONTRIBUTIONTO GLOBAL ENVIRONMENT AND SOCIETY

Hiroshi Shibata

STRONGFINANCIAL FOUNDATION

Executive Vice President
Chief Financial Ofﬁcer,
Corporate Management & Finance

Chiyoda is fortunately positioned to contribute to protecting
the earth’s environment and to contribute to society through its
business activities. Chiyoda develops production technologies andsystems that contribute to environmental conservation and also
exerts efforts to help with the development of local communities
where it constructs large-scale plants.

Chiyoda has entered a phase of renewed growth as beneﬁts of cost
control started to appear just as the environment for capturing
new contracts brightened.This allowed the Company to pay a ¥10
dividend per share in ﬁscal 2006 following ¥6 in the previous year
after an eight-year non-dividend period. We expect to declare a ¥14
dividend per share in the current ﬁscal year to have our gains reasonably shared with our stakeholders stably as our proﬁt increases.

Contributing through Our Business Activities

DSP 2008 FINANCIAL TARGETS
SHAREHOLDERS’ EQUITY(BILLIONS OF YEN)
100

Target: more than 30%

75

30%
55.5

50

20%

19.8
%

25

0

10%

FY2006 FY2007 FY2008 FY2009
Shareholders’ equity ratio

OPERATING INCOME(BILLIONS OF YEN)
30

20.7
20

7.5

25.0
20.5

0

17.5

FY2006 FY2007 FY2008 FY2009
DSP 2008 (planned)

12

CHIYODA CORPORATION ANNUAL REPORT 2006

20.5

10
11.5

Environmental conﬁrmation in Sakhalin

Accomplished a Remarkable Recovery

9.2

IT training in Oman

Chiyoda’s CSR activities are driven by the ﬁrm belief that a company should live up to its
corporate social responsibility, including environmental conservation and contribution tosociety, through its business activities. We have therefore decided not to take the traditional
approach, which is just to commit funds for donations to support environmental and community activities. Instead, we concentrate on contributing more in the form of performing
our business activities.
In the past, environmental conservation meant just cleaning up the air, water and soil.
But now emphasis has shifted to the development of new energy sources that help with thepreservation of the global environment. We provide advanced engineering solutions to increase supplies of LNG, which represents a cleaner energy source than other major energy
sources, such as coal or crude oil. We are intensifying R&D activities on new technologies
for future applications, for example, a coal gasiﬁcation based integrated power generation
system, CO2 reforming for synthesis gas production in the GTL process, a hydrogen storage and transportation system and a titania-based catalyst for ultra deep desulfurization ofdiesel oil.
We have also been making CT-121, our own ﬂue gas desulfurization process, available
not only for power plants but also for other industrial plants in the Asian region as well as
in Europe and North America. And we have reinforced our technology portfolio in this ﬁeld
by adding “CASOX” (Catalytic Flue Gas De-Sox Process) as another of our own processes.
In addition, we contribute to communities by localizing plant construction operations,thus transferring know-how and creating jobs in the communities where we build plants.
This is easier said than done; only a few success stories can be found. The award we won recently from the Omani government for creating jobs is a testimony to our commitment tocontribute to society through our operations. We went so far as setting up a training centerfor the local people hired for the project. Having acquired new skills, many now work inother parts of the country.
Chiyoda is aiming to become the “Reliability No. 1” Project Company. From the CSR
perspective, “Reliability No. 1” means the credibility in providing corporate stakeholders
with a Plant Completion Guarantee, one of the three most essential guarantees, together
with a feedstock supply guarantee and a products marketing guarantee, which is required tobe successfuly realized so that a project can start contributing to society.

I am glad to report that Chiyoda passed an important milestone in the ﬁscal year underreview by achieving a signiﬁcant turnaround. Although the favorable operating environment
lifted contracts, initiatives to fundamentally change the way we operate, by making sure that
there are no surprises, are what makes this achievement noteworthy. More speciﬁcally, ourfocus on containing costs at all stages, from bidding and construction to delivery, has eliminated waste and made Chiyoda a lean and competitive organization. The “Cold Eye Review
System” is helping us to be more sensitive to risks associated with potential projects. The
monthly meetings at which project managers report progress and problems to management are inviting more management participation during the project course. The “Balanced
Score Card System” is helping to better link individual goals to those of the Company. The
combination of these factors has dynamically boosted revenues and earnings and enabled us
to resume dividend payments.
While sharing earnings with stakeholders is important, building a sound ﬁnancial basefor long-term growth is equally meaningful. New contracts seem to have spiked in ﬁscal
2006 and will probably settle down to a steady growth phase. Nevertheless, the market
outlook over the medium-to-long term is bright due to the ongoing “gas shift” trend in
an energy area where Chiyoda will maintain a clear leading position. A more streamlinedorganization combined with a favorable operating environment should assure sustained
long-term growth. Having wiped out accumulated deﬁcits in ﬁscal 2004, our next target isincreasing shareholders’ equity ratio of 30%. Going forward, we will be in a better position
to link proﬁt distribution to earnings as we achieve the above ﬁnancial target.
To me, the ability to win repeat orders is essential to becoming the “Reliability No. 1”
Project Company, which is a goal we have set for ourselves. Superior project management
skills and advanced technol��������
ogy, combined with sound�����������������
ﬁnancial positions, are what
���
�����
bring in repeat orders and
�����
���
�����
�����
allow us to stand out as
�����
���
the most reliable com�����
pany, which offers far better
�����
���
�����
�����
�����
professional services to its���customers.
�������������������������������������������������������������������������������������
������������������CHIYODA CORPORATION ANNUAL REPORT 2006

13

Hiroshi Kobayashi
Executive Vice PresidentInternational Project Operation

SUPERIORPROJECT MANAGEMENT

Board of Directors, Corporate Auditors andExecutive Ofﬁcers (AS OF JULY 1, 2006)
Directors
1st row, From left to right:
Hiroshi Shibata*

Contracts in ﬁscal 2006 surged. Growth was underpinned by a
big increase in demand for the Chiyoda Group’s Gas Value Chain
services as natural gas demand increased in energy-consuming
nations.This situation led to a high level of gas development investments by gas-producing nations and major energy companies.
Excellent Medium-to-Long-Term Outlook for Orders
Contracts in ﬁscal 2006 were unexpectedly strong in the global plant market. Cash-rich
gas-producing countries and Oil and Gas Majors made huge gas development investments
to meet growing needs in energy-consuming countries and oil companies made large investments to upgrade reﬁneries to become more competitive. Contract growth at Chiyoda
exceeded the global average. This was due in part to our unique strength in LNG upstream
development. But even more importantly, growth reﬂected our ability to work closely withour customers, who see us not as contractors but as their alliance partners. What sets
Chiyoda apart from competitors is its long-term commitment to its customers. We strive
to make each project a success for the customer by working closely with the customer’s
project team. We proactively identify and respond to their needs, assuring quality and above
all safety. Because of the sheer volume of materials and manpower involved, large projects
TOP Five Countries with
Natural Gas Reserves
require a multitude of skills, from scheduling, logistics and organization to risk manageSource: BP p.l.c. (As of the end of 2005)
ment. These skills can only be honed through experience. This requires experienced project
Others (36%)
1: Russia (27%)
managers, which is one of our strong points. Our project managers start as junior project
managers and are promoted as they acquire the required expertise through on-the-job
training, supplemented by classroom instruction.
Although new contract growth is likely to be slower in the current ﬁscal year, I feel thatthe slowdown will be temporary. Contracts will stay strong for the foreseeable future as
2: Iran (15%)
our customer base expands to other resource-rich countries, such as Russia, the Middle
5: U.A.E (3%)
3: Qatar (15%)
East, including Saudi Arabia, Iran and Qatar, Nigeria and Libya, as they step up investment to
4: Saudi Arabia (4%)
meet growing demand in energy-consuming nations.
From the standpoint of the customer, the “Reliability No. 1”
Chiyoda’s LNG Performance in Qatar
contractor is one who sees his mission as safely completing
projects on schedule and delivering plants that will produce
Ongoing
Projects
Completed
Projects
Ras Laffan
RasGas (Ⅱ) Train 5 3
Qatargas Train 1/2/3 1
proﬁt for the client. In other words, this is a contractor who is
4.7 mtpa
2.0 mtpa x 3
2004 (FEED) / 2006 (EPC)
1996 / 1996 / 1998 (EPC)
up to the task of handling a whole project.
Qatargas 2 Train 4 3
RasGas Train 1/2 2

QATAR

2.5 mtpa x 2
1995 (FEED)

7.8 mtpa
2004 (FEED) / 2007 (EPC)

RasGas (Ⅱ) Train 3 3
4.7 mtpa
2000 (FEED) / 2003 (EPC)

Qatargas 2 Train 5 4
7.8 mtpa
2004 (FEED) / 2008 (EPC)

Qatargas Train 1/2/3 1
Debottlenecking 1.0 mtpa x 3
2003 / 2004 / 2005 (EPC)
FY2006 Completed

RasGas (3) Train 6/7 3
7.8 mtpa x 2
2004 (FEED) / 2008 / 2009 (EPC)
FY2006 Awarded

RasGas (Ⅱ) Train 4 3
4.7 mtpa
2000 (FEED) / 2005 (EPC)
FY2006 Completed

Qatargas 3 Train 6 5
7.8 mtpa
2005 (FEED) / 2008 (EPC)
FY2006 Awarded
Qatargas 4 Train 7 6
7.8 mtpa
2005 (FEED) / 2009 (EPC)
FY2006 Awarded

14

CHIYODA CORPORATION ANNUAL REPORT 2006

� ������������������������������������� ��������������������������������������������������� ������������������������������������������������������� ������������������������������

2nd row, From left to right:
Kinnosuke Hashimoto
Yoshihiro Shirasaki
Takashi Kubota
Atsuo Minamoto

MD, Domestic Project Operation
MD, Head of Projects Logistics
MD, Technology & Engineering
MD, Projects Logistics* Representative Directors & Members of Executive Committee

Corporate Auditors
From left to right:
Yukihiro Imadegawa**
Hiroshi Ida**
Akira Kadoyama
Hideaki Fujioka**

LawyerAuditor, NGK Spark Plug Co., Ltd.

** Outside Corporate Auditors

Executive Ofﬁcers
1st row, From left to right:
Hiroshi Ogawa
SEO, General Manager, Qatar Project Division
Project Director of QGX Team

Fumio Nagata
SEO, International Project Operation
Senior General Manager,
International Business Development Division

Takaharu Saegusa
SEO, Corporate Management & Finance

Madoka Koda
SEO, International Project Operation
General Manager, Construction Division� ������������������������������������������������
����������������������������� �����������������������������������������������
�������������������������

Nobuo Seki*
Nobuyasu Kamei*
Hiroshi Kobayashi*

EVP, Chief Financial Ofﬁcer,
Corporate Management & FinancePresident & CEO
EVP, CSR Division
EVP, International Project Operation

Abbreviation:
EVP : Executive Vice President
MD : Managing Director
SEO : Senior Executive Ofﬁcer
EO : Executive Ofﬁcer

2nd row, From left to right:
Masahiko Mochizuki
Takeo Kawase
Takashi Yamamoto
Satoru Yokoi
Hidehiro Shinohara
Tsuyoshi Kakizaki
Hideo Kobayashi
Sumio Nakashima

EO, General Manager, Project Management Administration Division
EO, Technology & Engineering
EO, Executive Assistant to International Project Operation
EO, Domestic Project Operation / General Manager, Petroleum Division
EO, Executive Assistant to International Project Operation
EO, General Manager, Petroleum & Chemical Project Division
EO, General Manager, Russia Project Division / Project Director of SEG team
EO, Technology & Engineering

CHIYODA CORPORATION ANNUAL REPORT 2006

15

CORPORATE SOCIALRESPONSIBILITY

Chiyoda CSR Vision
As an integrated engineering company, the Chiyoda Group pledges to constantly strive to increase corporate value and earn thetrust and understanding of all stakeholders by adhering to the following principles:

CHIYODA CSR VISION

1. A Reliable Company

Chiyoda is dedicated to helping create a society in which social and economic
development does not conﬂict with the need to preserve the natural environment.
To achieve this goal, we will further advance our technologies with the aim of
becoming the world’s most reliable Engineering and Construction Company.

2. Environmental Initiatives

One important step in this direction was the April 2005 establishment of the Corporate Social Responsibility (CSR)
Division. Providing uniﬁed oversight of all our activities as a corporate citizen, including environmental conservation,
the new division allowed us to start a CSR program on a global scale.
In April 2006, Chiyoda established the CSR Vision, which sets out guidelines for CSR activities by deﬁning ﬁve
areas of priority.

A Reliable Company (CSR Vision1)
Chiyoda is committed to earn the reputation as the “Reliability No. 1” Project Company.

FROM OUR CLIENTSWe are dedicated to earning a reputation among our customers and all others with whom we do business as the “Reliability No. 1”
Project Company by providing the highest levels of technologies and knowledge in the world.

We are dedicated to remaining a company that plays a vital role in society by using sophisticated technologies to maintain theproper balance between environmental conservation and social and economic development.

3. Social Contributions through Business Activities
We are dedicated to using our engineering business activities in Japan and overseas to contribute to society, such as helping people
reach their goals, transferring technologies and protecting the environment.

4. Respect for Human Rights
We are dedicated to respecting the human rights of all people. We will create a corporate culture where the individuality andcharacter of every employee are respected, where people are motivated to do their best, and of which employees and their families
are proud.

5. Commitment to Fairness
We are dedicated to achieving even greater transparency and stability by conducting our operations fairly in accordance with thehighest ethical standards.

“We believe Japanese technologies
are the best, one of the best in

TOPICSthe world, and we trust Japaneseconstructing technology very much.”High Performance of CSR

QALHAT LNG PROJECT in OMAN

H.E. Abdullah Bin Hamad Al-Attiyah
Second Deputy Premier
Minister of Energy and Industry
State of Qatar

3.3mtpa, successfully completed
in November 2005

9.1 days“All of this would not have been
“We have a long and very positive
history with Chiyoda. I couldn’t be
more conﬁdent in the outcome
because we’ve picked the rightpartner.”Mr. James B. Adams
Chief Operating Ofﬁcer
Qatargas 2 Venture“I think Chiyoda is one of thepossible if not for your effort.

best contractors in the world.

On behalf of my Omani colleagues I would like to thank you very much.”

They are very responsible
to their customers and they are

Mr. Harib Al-Kitani
President and CEO, Qalhat LNG

always around when you needthem for support.”
Mr. Faisal M. Al Suwaidi
Vice Chairman and Chief Executive Ofﬁcer
Qatargasachievement of a world class HSE performancewith nearly 20 million hours being spent without a lost
Ms. Linda Cook, Executive Director, Gas & Power, Shell

CHIYODA CORPORATION ANNUAL REPORT 2006

37.5%

“My congratulations also extend to Chiyoda fortime injury on the construction and operational sites.”

16

for LNG production after Ready for
Start-Up (RFSU) with successful Flawless Start-Up (Shell Global Solutions
International B.V.) First cargo shipped
30 days after RFSU.

20 million

man-hours of no loss time incident.

of Omanisation
against a target of
35.0% for Qalhat
LNG. Overall Key
performance Indicator score of 95.7
against a target of
80.0.

CHIYODA CORPORATION ANNUAL REPORT 2006

17

CORPORATE SOCIAL RESPONSIBILITYCSR ACTIVITIES
Chiyoda will conduct a variety of CSR activities in line with its CSR
Vision. Presented below are the examples of CSR activities in ﬁscal
2006 regarding environmental initiatives and social contributions
through business activities.
Social Contributions through Business Activities (CSR Vision 3)
Providing Employment Opportunities for Citizens of Oman

Subcontractor training at Technical and
Administrative Training Institute (TATI)

Omani engineers training

Chiyoda, as the leader of Chiyoda-Foster Wheeler and Company LLC, in November 2005
received the Certiﬁcate of Ready for Start-Up for the natural gas liquefaction plant that itconstructed in Oman. The EPC contract was signed in January 2003 for this project to build
a Qalhat LNG plant in Oman.
Chiyoda is supporting an Omanisation program that seeks to have citizens of Oman account for at least a certain legal percentage of all workers at companies and other organizations in the country. At this LNG plant project, Omani citizens accounted for 37.5% of theworkforce, easily clearing the target of 35.0%. In recognition of this achievement, Chiyoda
in 2004 and 2005 received the highest awards given by the Government of Oman to a
construction-sector company, and it was the only purely private-sector company among theawarded companies. Chiyoda’s commitment to developing people’s skills, transferring technologies, protecting the environment and contributing to society in other ways is the sameat all construction projects worldwide. Furthermore, our policy of “safety ﬁrst” allowed thisOman construction project to surpass 20 million man-hours without loss time injury on site.
(Please refer to pages 9 and 17 for the Qalhat LNG project.)

Respect for Human Rights (CSR Vision 4)
Chiyoda is committed to upgrade the corporate culture where all employees are motivated to do their best.

FROM OUR STAFF“Our project brings together people with all kinds of knowledge and information.They comefrom many countries and companies and cover a broad range of ages. Interacting with somany different kinds of people is the most rewarding aspect of a project.”
Hiroki Yoshioka
RGX Ras Laffan FO, Construction Planning Department“When we face a tough problem at a project, we draw on the specialized skills of
all team members. We come up with solutions based on knowledge and the rightdecisions and take the proper actions. I’m always impressed with the power ofteamwork when we use this approach to reach our goals.”
Kaoru Nakamura, QCS Project, Procurement Group18

CHIYODA CORPORATION ANNUAL REPORT 2006

Environmental Initiatives (CSR Vision 2):
Licensed Flue Gas Desulfurization Technology to U.S. Electric Companies
Chiyoda has been licensing its CT-121 ﬂue gas desulfurization technology to Black andVeatch Corporation (U.S.A.) since January 2001 and to Southern Company Services, Inc.
(U.S.A.) since May 2003. Coal is certain to remain one of the most widely used fossil fuels,
and it is becoming an increasingly important energy source for power generation. However,one barrier to the use of coal is the need to comply with restrictions on emissions of sulfur
oxide and nitrous oxide gases, which are harmful to the environment. CT-121 removes
sulfur oxide gases with high efﬁciency and is also very effective at removing particulatematter and sulfuric acid mist. CT-121 is already in use at more than 50 power-generating units in Japan and other countries. Our technology has earned an excellent reputation
for meeting increasingly strict emission standards in the United States, which is becoming
more dependent on coal-ﬁred power plants as the price of natural gas climbs. In the UnitedStates, CT-121 has been applied to 24 units with a total capacity of over 14GW. We will try
to apply our advanced technologies not only in the United States area but also in Europeanand Asian countries to keep economic and social activity in step with the need for environmental conservation.
(Please refer to page 9 for Chiyoda’s CT-121 latest record.)

FROM OUR STAFF“I take personal pleasure in playing a part in having
clients make the ﬁnal decision to award a contract toChiyoda.This means they give us high marks due toour ability to provide a timely offer with the best mix,
including high plant reliability, fast-track schedule andminimizing CAPEX per production with cutting-edge
technology. All of these strengths serve to maximize
the client’s Net Present Value.”Toshiyuki ItoBusiness Development Manager
Gas Value Chain Business Development Division“The Chiyoda Group
provides a great challenge
for me since it encourages
each individual toparticipate and decide on
actions for actual work
situations. Moreover,the multicultural work
environment at the
Chiyoda Group gives mean additional challenge
to develop my skill incommunicating andcoordinating with people ofdifferent nationalities.”
Ma. Kristina Kaerel M. Lontoc
Designer
Chiyoda Philippines Corporation“Every day means a new challenge for me at Chiyoda. We must continuously develop
special tools, software and knowledge bases, most of which are not available on themarket, in order to stay ahead of the competition.This is a great challenge, in whicheven small achievements bring true satisfaction.”
Janos A. Nagy
Structural Engineer, Civil Design Center
CHIYODA CORPORATION ANNUAL REPORT 2006

19

Does Chiyoda plan to expand

Q the scale of its operations?

Key Points to Understand Chiyoda PerformanceQ

How is Chiyoda dealing withthe extreme inﬂation ofmaterials and equipment?

Q

We are taking every possible measures to avoid and minimize the impact of these costs in response to customers’
needs. Actions include moving faster to procure materials and equipment, placing orders sooner, and reﬂecting the higher
costs in contract terms. We have also reinforced our procurement
bases in Italy and Korea. In another move, we are sending our special “Fabless” team, which is made up of highly experienced masterengineers who used to work at plants, to locations around theworld to strengthen our quality and delivery management operations.

A

How does Chiyoda hedge risks
associated with ﬂuctuation offoreign exchange rate?

At international construction projects, Chiyoda generally
receives payments from customers in U.S. dollars, but also
receives payments in multi-currencies. A high percentage
of materials and equipment is purchased outside Japan (overseas
procurement rate is 80% for overseas construction projects). As
much as possible, we match currencies used for payments received
and corresponding expenses. For the remaining exposure, after
contracts are signed, we enter into forward foreign exchange contract as soon as the timing and amounts of incoming and outgoingpayments are ﬁxed. As a rule, we try to avoid both foreign exchange
gains and losses. At certain joint venture overseas construction
projects, we hold foreign currency cash and deposits as part of ourshare of jointly controlled assets of joint venture while the projectis under way. We use similar methods to hedge foreign exchange
risk associated with these assets.

A

5,600

6,000

We have a very cautious stance regarding the expansionof our operations. Due to the receipt of large orders
earlier than expected, we have increased our global
workforce by 300 more than was originally planned. Currently, ourglobal workforce is 5,600. Different teams handle the engineering,procurement and construction steps of a project. Because of this,the timing of capturing new contracts is important. To performlarger number of jobs, we exercise care to accept new contracts ina well-timed manner so that we can rotate our workforce among
these projects efﬁciently.

A

4,800

Workforce

FAQ — FISCAL 2006

Promote Smart EPC andEnhance Project Execution

4,000

770

1,100

920

2,000

2,000

2,030

2,180

2,000
(1,130)EnhancingGlobal Engineering
Satellites
in the Philippines
and India

5,100(1,180)

2,000

2,500
(1,300)0
FY 2004
Chiyoda

2005

2006

Group companies

GES( ) Permanent employees

Timely Consecutive Orders■Efficient use of manpower ■Know-how accumulated by Lessons Learnt
RasGas 3
Qatargas 1/2/3 Dbn
RasGas 4
Qalhat LNG* Al Khaleej-1/Qatar
Sakhalin-2 1
Sakhalin-2 2* Betara/Indonesia
RasGas 5

Q What is PLE (Plant Lifecycle Engineering)?

Qatargas 5

PLE proactively facilitates optimization at all stages of a plant’s lifecycle, thus maximizing the customer’s return on assets.
Chiyoda’s PLE concept takes a plant’s entire lifecycle into consideration. It begins with the basic business plan and continues
through engineering, procurement,
construction (EPC), operation, maintenance������������
and decommissioning, going all the way to�����������
������������
planning the next investment. Using informa�������
�����������
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tion in our data warehouse, gathered in col�����������
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laboration with our clients, Chiyoda analyzes�������
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costs, quality, stable operations, labor health������������
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and welfare and environmental load factors�������
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to offer optimized service backed up by the�����������
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entire Chiyoda Group of companies.
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RasGas 6A�����������
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20

CHIYODA CORPORATION ANNUAL REPORT 2006

Equalization by staggering theconstruction schedule

Qatargas 4���������������
������������
�����������������
��������������

��������
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RasGas 7

Lump-sum execution ofengineering and procurement

Qatargas 6
Qatargas 7
2001

2002

* Gas development projects

2003

2004

2005
project duration
project duration

2006

2007

2008

2009

2010

Engineering
Procurement

Q Does Chiyoda have an R&D program?
Chiyoda has been conducting research and development of new catalysts, processes and systems in the ﬁelds of energy, environmental, petroleum and petrochemical industries. Our annual R&D budget is about ¥1.2 billion. In addition to own budget,some of R&D works have been carried out with the ﬁnancial support of the government in national projects. In 2006, we wereawarded from the Japan Petroleum Institute for outstanding achievements concerning two R&D items. One is the development of ultra
deep hydrodesulfurization catalyst for diesel oil. The paper investigating the mechanism on the high activity of the proprietary titania catalyst
was selected as an Award for Distinguished Paper. The other is the development of CO2 reforming catalyst and process for synthesis gas
production. We have been developing these researches in JOGMEC’s (Japan Oil, Gas and Metals National Corporation) national GTL (Gasto Liquid) project. The Noguchi Memorial Award which is sent to superior technology under development was presented for test results of
GTL pilot plant with the capacity of 7BPSD (Barrel per stream day).

A

CHIYODA CORPORATION ANNUAL REPORT 2006

21

MANAGEMENT POLICIESAll corporate activities at Chiyoda are guided by a commitment
to earning the trust and understanding of shareholders, society,customers and other stakeholders through prioritizing corporatesocial responsibility (CSR). We are dedicated to the establishment
and proper operation of fair internal control systems rooted in theprinciples of management transparency and soundness and to thetimely disclosure of information as the basis of proper company
operation.
Corporate Governance
Chiyoda has adopted the corporate auditor system, using the executive ofﬁcer structure inwhich the Board of Directors supervises the execution of business operation by the executive ofﬁcers. This provides for accurate decision-making in response to rapid shifts in thesocial and economic climate. In addition, the Company has the Executive Committee, whichis composed of the representative directors and examines matters before they are submitted to the Board of Directors. Unanimous votes are required for decisions concerning
important matters involving business execution. Corporate auditors attend meetings of the
Executive Committee to express opinions as necessary. This system provides for speedy
and transparent decision-making.
Regarding compliance, strict adherence to domestic laws and regulations, internationalrules and Company rules and regulations is treated as a matter of course. In addition,��������������������

������������������

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22����������������������������CHIYODA CORPORATION ANNUAL REPORT 2006������������������
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information in regard to the corporate code of conduct, handbooks providing behavior
guidelines and other information are made available to directors and employees on a realtime basis using an enterprise information portal.
From an organizational perspective, the CSR Division, comprised of the ComplianceManagement Ofﬁce, the Social Environment Ofﬁce and the Information Security Management Ofﬁce, is to provide for the integrated oversight of CSR management at the corporate
level. For further reinforcement of internal control systems, corresponding to current
regulatory requirements, the Internal Control Management Committee was established in
May 2006.

Risk Management
Chiyoda has established a risk and crisis management system in order to cope with theunpredictable situations faced in various corporate activities. Risk managers and crisis managers are appointed to prevent problems as well as to deal with any incidents and minimize
their consequences.
With regard to project management, Chiyoda has a rigorous project monitoring system
operated by senior management — the “Cold Eye Review System” where sales activities areevaluated so that potential sources of risk can be quickly identiﬁed prior to the preparationof estimates, submission of bids and signing of contracts. During the execution stage, the“Milestone Gate Monitoring System,” under which various project activities are evaluatedat every key project milestone in terms of quality, schedule and cost, is functioning whereby
immediate actions can be taken for areas of concern to senior management. Moreover, by
way of the periodic on and off site project audits, administrative sections verify the suitability of project execution plans prepared by operating divisions. Through these activities, theCompany is further strengthening internal controls and making operations more transparent.
With regard to information security management systems, Chiyoda has established clear
rules and systems that comply with BS7799-Part II (2002) standards for the protection andproper handling of information resources that represent the foundation of all business operations. Chiyoda has also prepared personal information protection rules, in response tostrict compliance with Japan’s Personal Information Protection Law, established in April 2005.

Health, Safety and the Environment
Chiyoda regards the protection and improvement of safety and health for all Group employees as the basis for its ability to succeed. Priority will continue to be placed on employee
safety and hygiene management, such as thorough employee training, enactment of suitable measures to prevent accidents and other emergencies and initiatives to preserve andenhance workplace safety and hygiene. Regarding environmental management, Chiyoda
published the Environmental Report in August 2005 and open it to the public through theCompany website. The Company continues to conduct an extensive health, safety and environmental management program under proper guidance by the HSE Management Ofﬁce
within the SQE Division.

CHIYODA CORPORATION ANNUAL REPORT 2006

23

FINANCIAL SECTION
We have replaced certain terms in the sections preceding the Management’s Discussion and Analysis section withterms that are more commonly used, for the convenience of non-professionals. The following table shows thecorrespondence between the terms used in the Financial Section and in other sections. The terms used in the Financial
Section, including the Management’s Discussion and Analysis section, conform to the terms used in prior years.
Terms used in non-financial
sections

Corresponding terms in the
Financial Section

Revenues

Construction contracts

Gross margin

Gross profit

Management’s Discussion and Analysis
1. REVIEW OF OPERATING RESULTS
A. Summary
In fiscal 2006, ended March 31, 2006, new contracts increased 95.5% to ¥804.2 billion and consolidated
construction contracts increased 46.0% to ¥390.9 billion. Operating income was up 87.1% to ¥20.7 billion andnet income rose 50.8% to ¥19.4 billion.
B. New contracts and construction contracts
New contracts were up 95.5% to ¥804.2 billion as domestic new contracts rose 25.9% to ¥112.7 billion andoverseas new contracts increased 114.9% to ¥691.5 billion. Construction contracts increased 46.0% to ¥390.9
billion, the result of a 17.5% increase in domestic construction contracts to ¥105.3 billion and 60.4% growthin overseas construction contracts to ¥285.5 billion.
A summary of engineering operations, which account for almost all of the Group’s activities, is presented
below.
a. Power and gas
As global demand for natural gas rises, there is a large volume of investment in Gas Value Chain projects
outside Japan by gas-producing nations and energy majors. Projects included the development of gas
fields and the construction of LNG plants and LNG receiving terminals and arrangement of LNG carriers.
In the United States, the world’s largest consumer of energy, gas from domestic sources and imports from
Canada are no longer sufficient to meet rising demand. The country is certain to become increasingly
reliant on imported LNG. In the United Kingdom, the projected decline in North Sea gas production has
transformed this country from a gas exporter to an importer. In Asia, India has started importing LNG andChina has been beginning to import LNG sooner than had been expected. Due to the rising demand for
LNG, a large number of LNG plants are likely to be constructed in Russia, which has the world’s largest gas
reserves, and in the Middle East and West Africa.
Electric and gas utilities in Japan are shifting from crude oil, which has become much more expensive,
to LNG and coal. Furthermore, these companies are investing in plants and equipment and showing a
growing interest in making other investments as the energy industry becomes increasingly borderless.
In these market conditions, Chiyoda recorded a 126.5% increase in new contracts to ¥692,056 million
and a 75.1% increase in construction contracts to ¥284,505 million.

24

CHIYODA CORPORATION ANNUAL REPORT 2006

b. Petroleum, petrochemicals and gas chemicals
In the petroleum sector, there were a number of investments in large and grade-up projects by Japanesepetroleum companies to make their refineries more competitive. Investments were for facilities to supply
petrochemical products for sale in Asian markets, to respond to the price gap between heavy and light oiland to target large energy–saving plans.
In the petrochemical sector, one source of orders is investments by Japanese chemical companies
to expand in China and elsewhere in Asia. There are also a number of joint petrochemical projects bychemical and oil companies.
As a result, new contracts increased 11.7% to ¥73,843 million and construction contracts decreased
14.0% to ¥61,686 million.
c. General chemicals and industrial machinery
In the general chemicals sector, there was a continuation in capital expenditures to cope with mergersof pharmaceutical companies as the industry undergoes a realignment and with the entry into Japan byforeign pharmaceutical companies.
In the industrial machinery sector, there was a large volume of capital expenditures in Japan by
manufacturers of electronic materials and high-performance films. Chiyoda also received orders for
upgrades and expansions at existing plants and for development projects.
Overall, there was an 8.8% decline in new contracts to ¥26,474 million and a 46.4% increase inconstruction contracts to ¥31,900 million.
d. Environment and others
Regarding environmental activities, Chiyoda continued to license CT-121, its internally developed fluegas desulfurization process, to meet needs created by more stringent air pollution prevention standards
worldwide. CT-121 was licensed to Southern Company Services, Inc. for three flue gas desulfurization
units at coal-fired power plants of Southern Company, a major U.S. power company. In addition, it islicensed to Black & Veatch Corporation for 10 units of American Electric Power Company, Inc. and one
unit of Alabama Electric Cooperative, Inc. These licenses contributed to growth in sales and earnings.
Due to these factors, new contracts rose 10.8% to ¥7,134 million and construction contracts were up
6.9% to ¥8,061 million.
C. Gross profit on construction contracts
There was a 54.7% increase in gross profit on construction contracts to ¥30,553 million. The primary causes
were growth in the volume of construction contracts and an improvement in the gross profit ratio. This
performance produced a 0.4 percentage point increase in the gross profit ratio from 7.4% to 7.8%.
D. Selling, general and administrative expenses
Selling, general and administrative expenses (SG&A) increased ¥1,152 million to ¥9,824 million. Personnel
expenses rose ¥562 million in conjunction with an improvement in the compensation framework for
employees. Research and development expenses increased ¥119 million. Despite these increases, further
progress in raising the efficiency of administrative departments resulted in a 0.8 percentage point decline in
the SG&A expenses ratio from 3.3% to 2.5%.
E. Operating income
Operating income increased 87.1% to ¥20,729 million because of growth in sales, the higher gross profit
margin and the decline in the SG&A expenses ratio. The operating income margin increased 1.2 percentage
points from 4.1% to 5.3%.

CHIYODA CORPORATION ANNUAL REPORT 2006

25

F. Other income (expenses)
Other income–net was ¥1,177million, ¥205 million more than other income–net of ¥972 million in theprevious fiscal year.
Net financial income, which is interest and dividend income less interest expense, increased ¥1,928 million
to ¥2,366 million. This was attributable to higher interest income on Chiyoda’s share of jointly controlled
assets of joint venture. Foreign exchange loss increased ¥71 million, to ¥174 million. This loss mainly
represents hedging costs for comprehensive forward foreign exchange contracts. At the end of March 2006, theexchange rate was ¥117 to the U.S. dollar compared with ¥107 one year earlier.
Equity in earnings of associated companies increased from ¥153 million to ¥193 million, an increase of ¥40
million.
G. Corporate income, residential and enterprise taxes and deferred tax adjustment
Income before income taxes and minority interests was ¥21,906 million and corporate income, residential andenterprise taxes totaled ¥4,478 million. Taxes were low primarily because Chiyoda assigned loss carry forwards
for tax purposes.
As of March 31, 2006, Chiyoda had used all remaining loss carry forwards available for tax purposes. As
a result, deferred tax assets were re-assessed and recalculated to determine the amount that is likely to be
recovered based on projected taxable earnings in the three-year period ending in March 2009. This process
resulted in negative deferred corporate income taxes of ¥2,011 million.
H. Net income
Net income increased ¥6.5 billion from the previous fiscal year to ¥19.4 billion.

2. SOURCES OF CAPITAL AND LIQUIDITY
A. Cash flows
Cash and cash equivalents increased ¥5,285 million to ¥46,879 million as of March 31, 2006. Major uses ofcash were capital expenditures of ¥1,855 million, mainly for IT-related software, and dividend payments of¥1,140 million. Net cash provided by operating activities increased ¥4,753 million to ¥5,237 million. This was
mainly because the increase in advance receipts on construction contracts and other cash provided by changes
in working capital was received prior to the time these funds will be used.
Jointly controlled assets of joint venture mainly represent Chiyoda’s share of cash and cash equivalents
at joint ventures. Net cash provided by operating activities after adjustment for jointly controlled assets ofjoint venture was ¥86,620 million. As a result, the Chiyoda Group’s operating activities provided net cash of¥178,215 million.
B. Financing
Upfront expenses for the construction of plants in Japan and overseas along with SG&A expenses account forthe bulk of the Chiyoda Group’s financing needs. Significant components of SG&A expenses are employee
salaries and allowances and outsourcing expenses. Personnel expenses for employees engaged in R&D
represent the majority of research and development expenses.
C. Financial Strategy
Chiyoda meets its funding needs for working capital, capital investments and other requirements throughinternal liquidity and bank loans. For working capital, Chiyoda has a ¥15.0 billion short-term credit facility to
be prepared for any future demand for funds.
Current plans for capital investments primarily involve investments in IT systems. These expenditures will
be financed internally.
Based on the current volume of contracts received, financial position, ability to generate operating cash
flows and unused portion of the short-term credit facility, Chiyoda believes that it has adequate access to thefunds required to support growth.

26

CHIYODA CORPORATION ANNUAL REPORT 2006

Business Risks and Other Risks
The following describes major risk areas and Chiyoda’s stance, which may have a significant impact on theinvestors’ judgement, with regard to the Chiyoda Group’s financial position, operating results, cash flows andother important factors associated with an investment. The Chiyoda Group is aware of the possibility thatthese problems may occur and is exercising extreme care to act quickly to any problem to minimize its effect.
The future risk items as described below represent risks that the Company believes are significant in thelight of its risk management activities as of June 29, 2006, the date when the Company submitted its MOF
securities report (Yuka Shoken Hokokusho).
1. FLUCTUATION OF FOREIGN EXCHANGE RATES
At international construction projects, foreign currencies are used for payment and receipt under various
contracts, namely; client contracts, purchase orders for equipment and materials and subcontracts.
Consequently, an unexpected fluctuation of foreign exchange rates may affect Chiyoda’s operating results.
Chiyoda takes all possible actions to hedge foreign exchange volatility risk, such as by matching theconstruction contracts and expenditure currencies, using forward foreign exchange contracts and othercontractual measures.
2. EXTREME INFLATION AND LABOR SHORTAGE
At plant construction projects, because of a time gap before and after the bid and award of the project, there
are cases where Chiyoda may face unexpected increases in price from vendors and / or subcontractors after
awarding the project. Moreover, tight supplies of metals, such as copper, nickel and aluminum, may causedelays in the delivery of equipment and materials and in the installation of equipment. There may also bedelays in progress at construction projects due to a shortage of construction workers. Any of these events may
have an impact on Chiyoda’s operating results.
The Chiyoda Group is considering and taking every possible measures to avoid and minimize exposure tothese risks, such as the diversification of suppliers worldwide, blanket purchases and the early arrangement oforders for equipment and materials and subcontracting work.
3. TERRORISM, POLITICAL UNREST IN NEIGHBORING COUNTRIES, STRIKES
AND ANARCHY AND NATURAL DISASTERS
There may be an impact on operating results in the event that global terrorism or disputes directly damage
construction sites or Chiyoda Group offices in Japan and overseas, endanger construction site workers,
force the suspension of construction work or cause other problems resulting in expenses that cannot becompensated by customers. The Chiyoda Group has a crisis management system to make a quick initial
response, in collaboration with customers and other external parties, if a crisis occurs.
4. PLANT ACCIDENTS
There is a possibility of a serious accident, such as an explosion or fire, due to some cause at a plant that isunder construction or that has been constructed by the Chiyoda Group. In the event that the Chiyoda Group
is judged to be responsible for the cause of the accident, there could be an impact on operating results.
The Chiyoda Group has established the best possible risk management systems in terms of quality, safety
and the environment in order to prevent these accidents. In addition, the Chiyoda Group purchases suitable
insurance coverage, uses contractual protection that appropriately divides responsibility for such damages withcustomers and takes other necessary actions to avoid and minimize exposure to these risks.

CHIYODA CORPORATION ANNUAL REPORT 2006

27

Chiyoda Chiyoda
Corporation
Corporation
and Consolidated
and Consolidated
Subsidiaries
Subsidiaries
Consolidated
Consolidated
Balance Sheets
Balance Sheets
March 31, 2006
March
and
31,2005
2006 and 2005ASSETSASSETS

Thousands ofThousands of
U.S. DollarsU.S. Dollars
Millions of Millions
Yenof Yen(Note 1)(Note 1)
LIABILITIESLIABILITIESAND SHAREHOLDERS'
AND SHAREHOLDERS'EQUITYEQUITY
2006
2006
2005
20052006
2006

Thousands ofThousands of
U.S. DollarsU.S. Dollars
Millions of Millions
Yenof Yen(Note 1)(Note 1)
2006
2006
2005
20052006
2006

CURRENT ASSETS:
CURRENT ASSETS:
CURRENT LIABILITIES:CURRENT LIABILITIES:Cash and cash
Cashequivalents
and cash equivalents¥ 46,879 ¥ 46,879¥ 41,594 ¥ 41,594$ 400,675 $ 400,675
Current portion
Current
of long-term
portion ofdebt
long-term(Note 10)debt (Note 10)¥47 ¥ ¥ 10,102
47¥ 10,102
$
402 $
402
Time deposits
Time deposits
155
1557907901,325
1,325
Notes and accounts
Notes andpayable—tradeaccounts payable—trade(Note 3)(Note 3)85,90285,902
74,41474,414734,205734,205
Notes and accounts
Notes andreceivable—tradeaccounts receivable—trade(Note 3)(Note 3)36,98836,98828,42528,425316,137
316,137
Advance receipts
Advanceon receipts
construction
on construction
contracts contracts
101,979
101,979
44,38444,384
871,615871,615
Allowance for
Allowance
doubtfulfor
accounts
doubtful accounts(168 )
(168
(507)
)
(507)
(1,436)(1,436)
Income taxes
Incomepayabletaxes payable
3,990
3,990664
664
34,103
34,103
Costs and estimatedCosts andearnings
estimated
onearnings
long-term
onconstruction
long-term construction
Deposits received
Deposits(Note
received
3)(Note 3)
864
864
2,615
2,6157,385
7,385
9,989
9,989
9,224
9,224
85,37685,376
contracts (Notecontracts
4)(Note 4)
Allowance for
Allowance
warrantyfor
costs
warranty
for completed
costs for works
completed works
1,871
1,871759
759
15,991
15,991
Costs of construction
Costs of construction
contracts incontracts
process in process
17,923
17,923
24,97824,978153,188
153,188
Allowance for
Allowance
losses onfor
construction
losses on construction
contracts contracts
146
146
1,248
1,248
Accounts receivable—otherAccounts receivable—other(Notes 3 and(Notes9) 3 and 9)
9,207
9,207
1,787
1,787
78,692
78,692
Accrued expenses
Accruedandexpensesother (Notes
and other
13 and(Notes16) 13 and 16)
10,393
10,393
6,843
6,843
88,82988,829
Jointly controlled
Jointly assets
controlledof joint
assetsventureof joint venture
131,337
131,337
49,954
49,954
1,122,538 1,122,538
Deferred taxDeferredassets (Notetax assets13) (Note 13)
1,751
1,751
3,804
3,804
14,966
14,966
Total current
Total
liabilities
current liabilities
205,192
205,192
139,781
139,781
1,753,778 1,753,778
Prepaid expenses
Prepaidandexpensesother (Noteand other16) (Note 16)
2,562
2,562
1,963
1,963
21,89821,898NON-CURRENTNON-CURRENT
LIABILITIES:LIABILITIES:
Total current
Total
assetscurrent assets
256,623
256,623
162,012
162,0122,193,359 2,193,359
Long-term debt
Long-term(Note 10)debt (Note 10)
10,169
10,169215
215
86,91586,915
Liability forLiability
retirement
for benefits
retirement(Note
benefits11) (Note 11)
8,393
8,393
5,593
5,593
71,73571,735
Other liabilities
Other
(Note
liabilities
13) (Note 13)136
136 86
861,162
1,162
PROPERTY, PROPERTY,
PLANT ANDPLANT
EQUIPMENTAND EQUIPMENT(Notes 7 and(Notes10): 7 and 10):
Land
Land
1,853
1,853
1,956
1,956
15,83815,838
Buildings andBuildings
structuresand structures
6,454
6,454
6,302
6,302
55,16255,162
Total non-current
Total non-current
liabilities liabilities
18,69818,6985,894
5,894
159,812
159,812
Machinery andMachineryequipment
and equipment
817
8176856856,983
6,983
Tools, furniture
Tools,
andfurniture
fixturesand fixtures
5,249
5,249
5,353
5,353
44,86344,863 MINORITY MINORITY
INTERESTS INTERESTS
322
3223453452,752
2,752
Construction
Constructionin progress in progress
3
3
Total
Total
14,373
14,373
14,29914,299122,846
122,846 CONTINGENTCONTINGENT
LIABILITIESLIABILITIES(Notes 3, 15,(Notes16 and3, 17)
15, 16 and 17)
Accumulated
Accumulated
depreciationdepreciation(7,288 )(7,288(7,516))(7,516)(62,290) (62,290)
SHAREHOLDERS'SHAREHOLDERS'EQUITY (Notes
EQUITY
12 and(Notes19): 12 and 19):
Net property,
Net
plant
property,and equipment
plant and equipment
7,085
7,085
6,783
6,783
60,55660,556
Common stock—authorized,
Common stock—authorized,
570,000 thousand
570,000shares;
thousand shares;
issued, 192,894
issued,thousand
192,894shares
thousandin 2006
sharesandin 2006 and191,361 thousand
191,361shares
thousandin 2005
shares in 2005
12,901
12,901
12,722
12,722110,265
110,265
INVESTMENTS
INVESTMENTS
AND OTHERAND
ASSETS:
OTHER ASSETS:
Preferred stock—authorized,
Preferred stock—authorized,
80,000 thousand
80,000shares
thousand shares
Investment Investment
securities (Notes
securities
5 and(Notes10) 5 and 10)
2,798
2,798
1,609
1,609
23,91523,915Additional paid-in
Additional
capitalpaid-in capital
6,685
6,685
6,507
6,507
57,137
57,137
InvestmentsInvestments
in and advancesin andtoadvances
unconsolidated
to unconsolidated
3,216
3,216
3,755
3,755
27,48727,487Retained earnings
Retained earnings
36,87736,877
18,622
18,622
315,188
315,188
subsidiariessubsidiaries
and associatedandcompanies
associated (Notes
companies
6 and(Notes9) 6 and 9)
Unrealized gain
Unrealized
on available-for-salegain on available-for-salesecurities securities
45
45 32
32 385385
Long-term loans
Long-term(Noteloans
8)(Note 8)517
5176296294,419
4,419
Foreign currency
Foreigntranslation
currency translation
adjustmentsadjustments
(323)
(323)
(759)
(759)
(2,761)(2,761)Long-term receivables
Long-term (Notereceivables
9)(Note 9)
1,034
1,034
5,425
5,4258,838
8,838
Treasury stock—at
Treasurycost,stock—at
741,476
cost,
shares741,476
in 2006
sharesandin 2006 andSoftware Software
3,099
3,099
2,771
2,771
26,487
26,487
(676)
(676)
(251)
(251)
(5,778)(5,778)523,362 shares
523,362
in 2005
shares in 2005
Deferred taxDeferredassets (Notetax assets13) (Note 13)
4,158
4,158112
112
35,53835,538Other assetsOther assets
2,661
2,661
2,283
2,283
22,74322,743
Allowance for
Allowance
doubtfulfor
accounts
doubtful(Noteaccounts
9)(Note 9)(1,470 )(1,470(2,486))(2,486)(12,564) (12,564)
Total shareholders'
Total shareholders'equityequity55,50955,50936,87336,873
474,436
474,436
Total investments
Total investments
and other assets
and other assets
TOTAL

TOTAL

16,01316,01314,09814,098136,863

136,863¥ 279,721 ¥ 279,721¥ 182,893 ¥ 182,893$2,390,778 $2,390,778

TOTAL

TOTAL

¥ 279,721 ¥ 279,721¥ 182,893 ¥ 182,893$2,390,778 $2,390,778

See notes toSee
consolidated
notes to consolidated
financial statements.
financial statements.

-2-

28

Chiyoda Corporation Annual Report 2006

-2-

Chiyoda Corporation Annual Report 2006

29

Chiyoda Corporation and Consolidated Subsidiaries

Chiyoda Corporation and Consolidated Subsidiaries

Consolidated Statements of Income
Years Ended March 31, 2006 and 2005

Consolidated Statements of Income
Years Ended March 31, 2006 and 2005

Millions of Yen
2006
2005
CONSTRUCTION CONTRACTS (Notes 3 and 4)¥ 390,875¥ 267,655$3,340,812

COSTS OF CONSTRUCTION CONTRACTS (Notes 3 and 4)

360,322

247,905

3,079,675

30,55319,750261,137

9,824

8,672

83,966

20,72911,078177,171

2,668
(302)
193
(174)

743
(305 )
153(103 )

22,803(2,581)
1,650(1,487)Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES(Notes 3 and 14)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income (Note 3)
Interest expense
Equity in earnings of associated companies
Foreign exchange loss
Loss on a partial termination of a defined benefit
pension plan (Note 11)
Reversal of allowance for doubtful accounts
Project settlement money
Loss on impairment of long-lived assets (Note 7)
Reversal of provision for contingent loss
Other—net(1,995)
1,367
(469)
(128)

1,074

17
1,177

972

10,060

INCOME BEFORE INCOME TAXES AND MINORITY
INTERESTS

21,906

12,050187,231

INCOME TAXES (Note 13):
Current
Deferred

4,478(2,011)931(1,754 )38,274(17,189)2,467(823 )

21,085

39

10

334

¥ 19,400¥ 12,863$ 165,812

Total
MINORITY INTERESTS IN NET INCOME
NET INCOME

Chiyoda Corporation Annual Report 2006

-3-

Yen

PER SHARE OF COMMON STOCK (Notes 2.s and 18):
Basic net income
Diluted net income
Cash dividends applicable to the year

2006

2005

U.S. Dollars
2006¥ 101.27
100.8010.00¥68.62
67.30
6.00

$0.87
0.86
0.09

See notes to consolidated financial statements.

(17,051)
11,684(4,009)(1,094)(233 )
200(557 )

Other income—net

30

Thousands of
U.S. Dollars(Note 1)
2006

145

(Continued)-4-(Concluded)

Chiyoda Corporation Annual Report 2006

31

Chiyoda Corporation and Consolidated Subsidiaries
Consolidated
Statements ofand
Cash
Flows
Chiyoda Corporation
Consolidated
Subsidiaries
Years Ended March 31, 2006 and 2005
Consolidated Statements of Cash Flows
Years Ended March 31, 2006 and 2005
Millions of Yen
2006
2005
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments
for:
OPERATING
ACTIVITIES:
Incometaxesincome
paid taxes and minority interests
IncomebeforeDepreciation
andAdjustments for: amortization
Losson impairment
Incometaxes paid of long-lived assets
Reversalof allowancefor doubtful accounts—net
Depreciation
and amortization
Reversalofcontingent
Loss on impairment of loss
long-lived assets
Provision(reversal forof) doubtful
warranty accounts—net
costs for completed
Reversal offor
allowance
works
Reversal of contingent loss
Provision
Provision forfor retirement(reversal of)benefits—net
warranty costs for completed
Foreignexchange
gain—net
works
Equityin earnings
of associatedcompanies
Provision
for retirement
benefits—net
Loss
on
a
partialterminationofadefined benefit
Foreign exchange gain—net
pensionplan
Equity in earnings of associated companies
Projectmoney
Loss onsettlement
a partial terminationof a defined benefit
Changesinoperatingassets and liabilities:
pension plan
Increasein trade money
notes and accounts receivable, andProjectsettlement
costs
and
estimated
earnings
on long-term
Changes in operating assets
and liabilities:
construction
contracts
Increase in trade notes and accounts receivable, andDecrease(increase)in costsof construction
contracts
costs andestimated
earnings
on long-term
inprocess
construction contracts
Increasejointly controlledof joint venture
Decreasein(increase)in costs ofasset
construction
contracts(Increase)decreaseininterestanddividend
receivablein process
Increase
in
trade
notes
and
accounts
payableIncrease in jointly controlled asset of joint venture
Increaseindecreaseadvancein
receipts
onand
construction
contracts(Increase)interest
dividend receivable
Decreaseindeposits
received
Increase in trade notes and accounts payable
Other—net
Increase in advance receipts on construction contracts
Total
Decreasein adjustments
deposits received

Chiyoda Corporation Annual Report 2006

(944 )¥21,906
1,469
128 )
(944
(1,355
1,469)
128(1,355 )
1,104
805
(236
1,104)(193
805)(Note 1)2006
$ 187,231(408 )¥12,050
1,284
233 )
(408
(994
1,284)(200
233)(8,068)$ 187,231
12,556
1,094(8,068)(11,581)
12,556(66 )(153 )(2,017)
17,051(1,650)4,009(994 )(320(200))
1,086(66 ))(320(153
1,086)(236 )
1,995(193 )
469
1,995
469

1,094
(11,581)
9,436
6,880
(2,017)
9,436(1,650)6,880

17,051
4,009(9,101 )(13,064 )(77,786)

7,095 )
(9,101(81,383 )(2,346
7,095)
11,122(81,383 )57,480(2,346 )(1,753 )11,122(1,025 )57,480(16,669(1,753))(6,060 ))(13,064(21,540 )12 )(6,06021,568(21,540 )
7,322
12(2,63021,568)2,364
7,322(11,566(2,630))60,641(77,786)(695,581)(20,051)
60,641
95,060(695,581)
491,282(20,051)(14,983)
95,060(8,762)491,282(142,470)(14,983)

Other—net
Net
provided by operating activities—
Totalcash
adjustments(Forward)(1,025 )(16,669 )¥ 5,2372,364(11,566 )¥ 484(8,762)(142,470)$ 44,761

Net cash provided by operating activities—(Forward)¥ 5,237¥$ 44,761-6-

32

Millions of Yen
2006
2005
¥21,906¥12,050

Thousands of
U.S. Dollars(Note 1) of
Thousands
U.S.2006
Dollars-6-

484(Continued)(Continued)

Chiyoda Corporation Annual Report 2006

33

Chiyoda Corporation and Consolidated Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2006 and 2005
Thousands of
U.S. Dollars(Note 1)
2006

Chiyoda Corporation and Consolidated Subsidiaries
Millions of Yen
2006
2005

Consolidated Statements of Cash Flows
Years Ended March 31, 2006 and 2005
Net cash provided by operating activities—(Forward)
INVESTING ACTIVITIES:Payment for time deposits
Proceeds from refunds of fixed deposits
Payments
for purchaseof investment
securities
Net
cash provided
by operating
activities—(Forward)
Proceeds from sales of investment securities
Purchases ofACTIVITIES:
property, plant and equipment
INVESTING
Purchaseof
intangible
assetsPayment for time deposits
Disbursementsfororiginating
long-term
Proceeds from refunds of fixeddepositsloans
Proceeds
fromcollectionsoflong-term
Payments for purchase of investment loans
securities
Other—net
Proceeds from sales of investment securities
Purchases of property, plant and equipment
cash provided
PurchaseNet
of intangible
assetsby (used in) investing
activities
Disbursements for originating long-term loans
Proceeds from collections of long-term loans
FINANCING
ACTIVITIES:Other—net
Proceeds from long-term debt
Repayments Netof long-term
debt by (used in) investing
cash provided
Proceeds from activities
issuance of common stock
Payment of cash dividends
Payment of cash
dividends to minority shareholders
FINANCING
ACTIVITIES:Other—net
Proceeds from long-term debt

Repayments of long-term debt
cash
(used ofin)common
providedstockby financing
Proceeds Net
fromissuance
activities
Payment of cash dividends
Payment of cash dividends to minority shareholders
FOREIGN
CURRENCY TRANSLATION ADJUSTMENTS
Other—net
ON CASH AND CASH EQUIVALENTS¥ 5,237¥$ 44,761 ofThousands
U.S. Dollars
Millions of Yen(Note 1)
(623
)
2006
2005
2006
704
543
6,017
(1,273))(10,880)¥ 5,237¥ (33484$ 44,761
148
222
1,265
(619 )(854 )(5,291)(1,236 )(1,038) )(10,564)
(623
(34
)
(21
)
(291)
704
543
6,017
3,341
689
28,556(1,273 )(33 )(10,880)
21
108
179
148
222
1,265
(619 )(854 )(5,291)(1,236 )(1,038 )(10,564)
1,052(1,007
) )
8,991
(34 )
(21
(291)
3,341
689
28,55621
108
179
10,00085,470(10,102 )(102 )(86,342)
357
1,382
3,051
1,052
(1,007 )
8,991(1,140 )(9,744)
(36 )
(308)
(417
)
(110
)
(3,563)
10,00085,470(102 )
1,382
1,170(110 )
101(86,342)
3,051(11,436)(9,744)(308)(3,563)
2,855

Net cash (used in) provided by financing
NET INCREASE IN
CASH AND CASH EQUIVALENTS
activities

5,285(1,338 )

748
1,170

45,171(11,436)

CASH
AND CASH
EQUIVALENTS
OF EXCLUSIONOFFOREIGN
CURRENCY
TRANSLATIONADJUSTMENTSCONSOLIDATEDSUBSIDIARIES,BEGINNING
OFYEAR
ON CASH AND CASH EQUIVALENTS

334

(57
)
101

2,855

CASH
CASHINEQUIVALENTS,
BEGINNING
OF YEARNET AND
INCREASE
CASH AND CASH
EQUIVALENTS

41,594
5,285

40,903
748

355,504
45,171

CASH
AND
CASH
EQUIVALENTS,
OF YEAR
CASH
AND
CASH
EQUIVALENTSEND
OF EXCLUSIONOFCONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR

¥46,879¥41,594$ 400,675

CASH AND CASH EQUIVALENTS, END OF YEAR

See notes to consolidated financial statements. - 7 -34

Chiyoda Corporation Annual Report 2006

-7-

Notes to Consolidated Financial Statements
Years Ended March 31, 2006 and 2005

484

(10,102 )357(1,338) )(1,140(36 )(417 )
334

See
notesAND
to consolidated
financial statements.
CASH
CASH EQUIVALENTS,
BEGINNING OF YEAR

Chiyoda Corporation and Consolidated Subsidiaries

1.

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with theprovisions set forth in the Japanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirements of International Financial
Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements
have been made to the consolidated financial statements issued domestically in order to present
them in a form which is more familiar to readers outside Japan. In addition, certain
reclassifications and rearrangements have been made in the 2005 financial statements in order forthem to conform to classifications and presentations used in 2006.
The consolidated financial statements are stated in Japanese yen, the currency of the country inwhich Chiyoda Corporation (the "Company") is incorporated and principally operates. The
translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥117 to $1, theapproximate rate of exchange at March 31, 2006. Such translations should not be construed as
representations that the Japanese yen amounts could be converted into U.S. dollars at that or any
other rate.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Investments in 5 associated companies are accounted for by the equity method. Investmentsin the remaining unconsolidated subsidiaries and associated companies are stated at cost. If
the equity method of accounting had been applied to the investments in these companies, theeffect on the accompanying consolidated financial statements would not be material.
The excess of the cost of the Company's investments in consolidated subsidiaries andassociated companies accounted for by the equity method over its equity in the fair value ofthe net assets at the respective dates of acquisition, was charged to income at the time ofacquisition as the amount involved was not material.

(57 )41,59440,903355,504¥46,879¥41,594$ 400,675(Concluded)(Concluded)

Consolidation—The consolidated financial statements for the years ended March 31, 2006 and2005 include the accounts of the Company and its 18 significant subsidiaries (together, the"Group"). Under the control or influence concept, those companies in which the Company,
directly or indirectly, has a control over operations are fully consolidated and those companies
over which the Group has a significant influence are accounted for by the equity method.

All significant intercompany balances and transactions have been eliminated in consolidation.
All material unrealized profit included in assets resulting from transactions within the Group iseliminated.
b.

Construction Contracts—Revenues on construction contracts greater than ¥100 million andhaving a construction duration of exceeding one year are recognized on thepercentage-of-completion method based on the ratio of costs incurred to total estimated costs.
Under this method, related costs and estimated earnings in excess of progress billings arepresented as a current asset.
-8-

Chiyoda Corporation Annual Report 2006

35

Unbilled costs on the other contracts, which are accounted for by the completed-contract
method, are stated as cost of construction contracts in process.

c.

d.

h.

Payments received in excess of costs and estimated earnings on the contracts, which areaccounted for by the percentage-of-completion method, and costs incurred on the othercontracts are presented as current liabilities.

Other Assets—Intangible assets are carried at cost less accumulated amortization, which is
calculated by the straight-line method over their estimated useful lives. Software for internal
use is amortized on a straight-line basis over its estimated useful life (five years at the
maximum).

i.

Costs of preparation work for unsuccessful proposals and other projects which are not realized
are charged to income and are included in costs of construction contracts.

Allowance for Warranty Costs for Completed Works—The allowance for warranty costs forcompleted works is provided at the amount of warranty costs based on past rate experience.

j.

Cash Equivalents—Cash equivalents are short-term investments that are readily convertible
into cash and that are exposed to insignificant risk of changes in value. Cash equivalents
include time deposits which mature within three months of the date of acquisition.

Allowance for Losses on Construction Contracts—The allowance for losses on construction
contracts is provided for an estimated amount of probable losses to be incurred in future years
in respect of construction projects in progress.

k.

Retirement Benefits—Employees of the Company and its certain consolidated subsidiaries areunder most circumstances, entitled to certain lump-sum severance payments and pension
payments.

Investment Securities—All securities are classified as available-for-sale securities and arereported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a
separate component of shareholders' equity. The cost of securities sold is determined based on
the moving-average method.

Effective April 1, 2000, the Company and domestic consolidated subsidiaries adopted a new
accounting standard for employees' retirement benefits and accounted for the liability for
retirement benefits based on the projected benefit obligations and plan assets at the balance
sheet date.

Non-marketable securities are stated at cost determined by the moving-average method. For
other than temporary declines in fair value, non-marketable securities are reduced to net
realizable value by a charge to income.
e.

Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts
considered to be appropriate based on the Group's past credit loss experience and anevaluation of estimated losses on the receivables outstanding.

f.

Property, Plant and Equipment—Property, plant and equipment are stated at cost.
Depreciation is computed by the declining-balance method, except for buildings owned by theCompany, at rates based on the estimated useful lives of the assets. The range of useful lives isfrom 11 to 57 years for buildings and structures, from 4 to 13 years for machinery andequipment and from 2 to 15 years for tools, furniture and fixtures.

g.

Long-lived Assets—In August 2002, the Business Accounting Council ("BAC") issued aStatement of Opinion, "Accounting for Impairment of Fixed Assets," and in October 2003 the
Accounting Standards Board of Japan ("ASBJ") issued ASBJ Guidance No. 6, "Guidance for
Accounting Standard for Impairment of Fixed Assets." These new pronouncements wereeffective for fiscal years beginning on or after April 1, 2005 with early adoption permitted forfiscal years ending on or after March 31, 2004.
The Group adopted the new accounting standard for impairment of fixed assets as of April 1,
2004.
The Group reviews its long-lived assets for impairment whenever events or changes incircumstances indicate the carrying amount of an asset or asset group may not be recoverable.
An impairment loss would be recognized if the carrying amount of an asset or asset groupexceeds the sum of the undiscounted future cash flows expected to result from the continued
use and eventual disposition of the asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued use and eventual
disposition of the asset or the net selling price at disposition.

36

The transitional obligation of ¥12,123 million ($103,615 thousand), determined as of April 1,
2000, is being amortized and charged to income over 15 years and presented as an operating
expense in the consolidated statements of income.

Chiyoda Corporation Annual Report 2006

-9-

The Company implemented a defined contribution pension plan and the reformed qualified
defined benefit pension plan as of April 1, 2006 by which certain lump-sum severance
payment plan and pension plan were terminated. The Company applied the accounting
treatment specified in the guidance issued by the ASBJ. The effect of this termination was todecrease income before income taxes and minority interests by ¥1,995 million($17,051 thousand) and was recorded as loss on a partial termination of defined benefit
pension plan in the consolidated statement of income for the year ended March 31, 2006.
Retirement benefits to directors, officers and corporate auditors are provided at the amountwhich would be required if all directors, officers and corporate auditors terminated at the endof each period.
l.

Research and Development Costs—Research and development costs are charged to income
when incurred.

m. Leases—All leases are accounted for as operating leases. Under Japanese accounting standards
for leases, finance leases that are deemed to transfer ownership of the leased property to thelessee are to be capitalized, while other finance leases are permitted to be accounted for as
operating lease transactions if certain "as if capitalized" information is disclosed in the notes tothe lessee's consolidated financial statements.
n.

Income Taxes—The provision for income taxes is computed based on the pretax income
included in the consolidated statements of income. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected future tax consequences of
temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted tax laws to the temporary
differences.

- 10 -

Chiyoda Corporation Annual Report 2006

37

The Group has filed a tax return under the consolidated corporate-tax system from the fiscal
year ended March 31, 2003, which allows companies to base tax payments on the combined
profits or losses of the parent company and its wholly owned domestic subsidiaries.
o.

Appropriations of Retained Earnings—Appropriations of retained earnings are reflected in thefinancial statements for the following year upon shareholders' approval.

p.

Foreign Currency Transactions—Both short-term and long-term receivables and payables
denominated in foreign currencies are translated into Japanese yen at exchange rates in effectat the balance sheet date.
However, short-term and long-term receivables and payables covered by forward exchange
contracts are translated at the contract rates.
Any differences between the foreign exchange contract rates and historical rates resulting fromthe translation of receivables and payables are recognized as income or expense over the livesof the related contracts.

q.

Foreign Currency Financial Statements—The balance sheet accounts of the consolidated
foreign subsidiaries are translated into Japanese yen at the current exchange rate as of thebalance sheet date except for shareholders' equity, which is translated at the historical rate.
Differences arising from such translation were shown as a separate component of shareholders'equity as "Foreign currency translation adjustments."
Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese
yen at the current exchange rate as of balance sheet date.

r.

Derivative Financial Instruments—The Company uses a variety of derivative financial
instruments, including foreign currency forward exchange contracts as a means of hedging
exposure to foreign currency risks. The Company does not enter into derivatives for trading or
speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted
for as follows: (a) all derivatives are recognized as either assets or liabilities and measured atfair value, with gains or losses recognized in the income statement and (b) for derivatives used
for hedging purposes, if derivatives qualify for hedge accounting, because of high correlationand effectiveness between the hedging instruments and the hedged items, gains or losses onderivatives are deferred until maturity of the hedged transactions.
The foreign currency forward exchange contracts are utilized to hedge foreign exchange risks.
Certain assets and liabilities on construction contracts denominated in foreign currencies aretranslated at the contracted rates if the forward contracts qualify for hedge accounting.

s.

Per Share Information—Basic net income per share is computed by dividing net income
available to common shareholders by the weighted-average number of common shares
outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential dilution that could occur if securities were
exercised or converted into common stock. Diluted net income per share of common stock
assumes full conversion of the outstanding convertible notes and bonds at the beginning of
the year (or at the time of issuance) with an applicable adjustment for related interest expense,
net of tax, and full exercise of outstanding warrants.

38

Chiyoda Corporation Annual Report 2006

- 11 -Cash dividends per share presented in the accompanying consolidated statements of income
are dividends applicable to the respective years including dividends to be paid after the end of
the year.
t.

New Accounting Pronouncements
Business combination and business separation
In October 2003, the BAC issued a Statement of Opinion, "Accounting for Business
Combinations," and on December 27, 2005 the ASBJ issued "Accounting Standard for BusinessSeparations" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business
Combinations and Business Separations." These new accounting pronouncements are effective
for fiscal years beginning on or after April 1, 2006.
The accounting standard for business combinations allows companies to apply the pooling ofinterests method of accounting only when certain specific criteria are met such that thebusiness combination is essentially regarded as a uniting-of-interests. These specific criteria are
as follows:(a) the consideration for the business combination consists solely of common shares withvoting rights,(b) the ratio of voting rights of each predecessor shareholder group after the businesscombination is nearly equal, and(c) there are no other factors that would indicate any control exerted by any shareholder
group other than voting rights.
For business combinations that do not meet the uniting-of-interests criteria, the businesscombination is considered to be an acquisition and the purchase method of accounting isrequired. This standard also prescribes the accounting for combinations of entities undercommon control and for joint ventures. Goodwill, including negative goodwill, is to besystematically amortized over 20 years or less, but is also subject to an impairment test.
Under the accounting standard for business separations, in a business separation where theinterests of the investor no longer continue and the investment is settled, the difference
between the fair value of the consideration received for the transferred business and the bookvalue of net assets transferred to the separated business is recognized as a gain or loss on
business separation in the statement of income. In a business separation where the interests of
the investor continue and the investment is not settled, no such gain or loss on businessseparation is recognized.
Stock options
On December 27, 2005, the ASBJ issued "Accounting Standard for Stock Options" and related
guidance. The new standard and guidance are applicable to stock options newly granted on
and after May 1, 2006.

- 12 -

Chiyoda Corporation Annual Report 2006

39

This standard requires companies to recognize compensation expense for employee stock
options based on the fair value at the date of grant and over the vesting period as
consideration for receiving goods or services. The standard also requires companies to accountfor stock options granted to non-employees based on the fair value of either the stock option
or the goods or services received. In the balance sheet, the stock option is presented as a stockacquisition right as a separate component of shareholders' equity until exercised. The standard
covers equity-settled, share-based payment transactions, but does not cover cash-settled,share-based payment transactions. In addition, the standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.

4.

Costs and estimated earnings recognized with respect to construction contracts which areaccounted for by the percentage-of-completion method at March 31, 2006 and 2005, are as follows:
Millions of Yen
2006
2005

Bonuses to directors and corporate auditors
Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate auditors were
accounted for as a reduction of retained earnings in the fiscal year following approval at thegeneral shareholders meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF) No. 13,"Accounting Treatment for Bonuses to Directors and Corporate Auditors," which encouraged
companies to record bonuses to directors and corporate auditors on the accrual basis with arelated charge to income, but still permitted the direct reduction of such bonuses from retained
earnings after approval of the appropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard
for bonuses to directors and corporate auditors on November 29, 2005. Under the new
accounting standard, bonuses to directors and corporate auditors must be expensed and are nolonger allowed to be directly charged to retained earnings. This accounting standard iseffective for fiscal years ending on or after May 1, 2006. The companies must accrue bonuses
to directors and corporate auditors at the year end to which such bonuses are attributable.
3.

5.

Transactions for the Year Ended March 31

Millions of Yen
2006
2005

Construction contract revenues
Costs of construction contracts
Selling, general and administrative expenses
Interest and dividend income
Income from leases of land and buildings
Purchase of intangible assets¥
6(4,657)(1,556)
83
119
946

¥ 24
(5,213 )(1,359 )
112
119
835

¥ 388,927(378,938)¥ 326,189(316,965 )$3,324,162(3,238,786)

Net

¥

¥

$

Notes and accounts receivable—trade
Accounts receivable—otherNotes and accounts payable—trade
Deposits received

1
5
(532)
(26)

2
38
(485 )(1,112 )- 13 -

85,376

Investment securities at March 31, 2006 and 2005, consisted of the following:
Millions of Yen
2006
2005
Equity securities¥2,798

Thousands of
U.S. Dollars
2006¥1,609$23,915

The carrying amounts and aggregate fair values of investment securities with readily determinable
fair values at March 31, 2006 and 2005, were as follows:
Millions of Yen
Unrealized
Unrealized
Gains
LossesThousands of
U.S. Dollars
2006

Available-for-sale—Equity securities¥1,208¥ 114$
51(39,803)(13,299)
709
1,017
8,085

Available-for-sale—Equity securities

58

53

9
43
(4,547)
(222)

9,224

INVESTMENT SECURITIESCost

The Company has guaranteed the indebtedness of certain unconsolidated subsidiaries andassociated companies in the amount of ¥1,103 million ($9,427 thousand) and ¥4,055 million atMarch 31, 2006 and 2005, respectively.

Chiyoda Corporation Annual Report 2006

9,989

March 31, 2006

Balances at March 31

Thousands of
U.S. Dollars
2006

Costs and estimated earnings
Amounts billed

TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES
Significant transactions with and balances due from/(to) unconsolidated subsidiaries and associatedcompanies are summarized as follows:

40

CONSTRUCTION CONTRACTS

¥27

Fair
Value
¥1,295

March 31, 2005

March 31, 2006
Available-for-sale—Equity securities

Cost$10,325

111

Thousands of U.S. Dollars
Unrealized Unrealized
Gains
Losses
$ 974

$ 231

Fair
Value
$11,068

Available-for-sale securities whose fair value is not readily determinable at March 31, 2006 and2005, were as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2006
2005
2006
Equity securities¥1,503- 14 -¥1,498$12,846

Chiyoda Corporation Annual Report 2006

41

Proceeds from sales of available-for-sale securities for the year ended March 31, 2006, were
¥20 million ($172 thousand). Gross realized gains on these sales, computed on the moving average
cost basis, were ¥14 million ($120 thousand) for the year ended March 31, 2006.

Millions of Yen
2006
2005

Proceeds from sales of available-for-sale securities for the year ended March 31, 2005, were
¥70 million and gross realized gains and losses on these sales, computed on the moving average
cost basis, were ¥20 million and ¥1 million, respectively.
6.

INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATEDCOMPANIES
Investments in and advances to unconsolidated subsidiaries and associated companies at March 31,
2006 and 2005, were as follows:
Millions of Yen
2006
2005

7.

Thousands of
U.S. Dollars
2006

Investments
Allowance for investment loss
Advances¥2,903(263)
576¥2,713(263 )
1,305$24,812(2,248)
4,923

Total

¥3,216¥3,755$27,487

LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of the years ended March 31, 2006 and2005 and, as a result, recognized an impairment loss of ¥128 million ($1,094 thousand) and¥233 million, respectively, as other expense for certain asset used for business due to continuous
decline in land prices and other reason. The recoverable amount was measured at its net selling
price by referring to the published land evaluation prices.

8.

9.

Accounts receivable—other
Investments in and advances to unconsolidated
subsidiaries and associated companies
Allowance for investment loss
Long-term receivables
Allowance for doubtful accounts

46¥1,347
(263)
560
(560)

2,637
(263 )
2,372(543 )$11,513(2,248)4,786(4,786)

Total¥1,084¥4,249$ 9,265

LONG-TERM DEBT
Long-term debt at March 31, 2006 and 2005, consisted of the following:
Millions of Yen
2006
2005

Thousands of
U.S. Dollars
2006Long-term loans from banks, maturing seriallythrough 2010, with interest rates ranging
from 1.9% to 5.8% at 2006 and 2005:
Collateralized
Uncollateralized
Total
Less current portion¥

216
10,00010,216(47)¥317
10,000
10,317(10,102 )$ 1,847
85,47087,317(402)

Long-term debt, less current portion¥10,169¥$86,915215

LONG-TERM LOANS

Subordinated loans in the amount of ¥10,000 million ($85,470 thousand) from The Bank ofTokyo-Mitsubishi UFJ, Ltd. were included in 'Uncollateralized' at March 31, 2006 and 2005.

Long-term loans to employees are included in long-term loans in the amounts of ¥513 million($4,385 thousand) and ¥625 million at March 31, 2006 and 2005, respectively.

Annual maturities of long-term debt at March 31, 2006, were as follows:Year Ending
March 31

LONG-TERM RECEIVABLES
Long-term receivables in the amount of ¥1,977 million at March 31, 2005 from Nigerian National
Petroleum Corporation relating to services performed by the Company in 1995 have been fullycollected by March 31, 2006.
The Company has gross receivables and other assets in the amount of ¥1,907 million($16,299 thousand) and ¥5,055 million at March 31, 2006 and 2005, respectively, from
Karunaphuli Fertilizer Company Limited ("KAFCO"), a Bangladesh company, and its related parties
as follows. In March 2001, KAFCO, its shareholders and banks reached a basic agreement about
financial restructuring under the supervision of the Bangladesh government and KAFCO has
started making payments based on the schedule defined in the financial restructuring plan.

42

10.

¥

Thousands of
U.S. Dollars
2006

Chiyoda Corporation Annual Report 2006

- 15 -

Millions of Yen

Thousands of
U.S. Dollars

2007
2008
2009
2010
2011

¥

47
101
10,045
18
5

$

Total

¥10,216$87,317- 16 -

402
863
85,855154
43

Chiyoda Corporation Annual Report 2006

43

The liability for employees' retirement benefits at March 31, 2006 and 2005, consisted of thefollowing:

Commitment-line contracts at March 31, 2006, were as follows:
Millions of Yen

Thousands of
U.S. Dollars

Commitment-line contracts¥15,000$ 128,205

Unused commitments¥15,000$ 128,205

The following assets were pledged as collateral for long-term debt at March 31, 2006:

11.

Millions of Yen

Thousands of
U.S. Dollars

Land
Buildings and structures—net of accumulated
depreciation
Tools, furniture and fixtures—net of accumulated
depreciation
Investment securities¥ 695$ 5,940

636

5,436

10
5

85
43

Total

¥1,346$11,504

Projected benefit obligation
Fair value of plan assets
Unrecognized transitional obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net accrued pension liabilities
Prepaid pension cost
Loss on a partial termination of defined
benefit pension plan

¥31,865(17,718)(7,276)(2,644)
1,734
5,961
6

Liability for employees' retirement benefits¥ 7,962

5,167

Certain consolidated subsidiaries also have severance payment and pension plans similar to thoseof the Company.
The Company implemented a defined contribution pension plan and the reformed qualified
defined benefit pension plan as of April 1, 2006.
Liability for retirement benefits include retirement benefits to directors, officers and corporate
auditors in the amount of ¥431 million ($3,684 thousand) and ¥426 million for the years ended
March 31, 2006 and 2005, respectively. The retirement benefits to directors and corporate auditors
are paid subject to the approval of the shareholders.

- 17 -$ 272,350(151,436)(62,188)(22,598)
14,82150,94951

1,995

17,051¥ 5,167

Millions of Yen
2006
2005

However, an employee who terminates at 50 years of age or older with service of at least 20 years isentitled to receive an annuity from the trustee under the pension plan which covers such
employees. If the annuity does not reach the level of total retirement benefits due, the remainder
would be paid by the Company.

Chiyoda Corporation Annual Report 2006

¥33,588(15,785 )(8,083 )(4,553 )Thousands of
U.S. Dollars
2006$ 68,051

The components of net periodic benefit costs for the years ended March 31, 2006 and 2005, are as
follows:

RETIREMENT BENEFITS
Employees who terminate their services with the Company are, under most circumstances, entitled
to receive lump-sum retirement benefits based upon their rates of pay at the time of termination,
years of service and certain other factors.

44

Millions of Yen
2006
2005

Service cost
Interest cost
Expected return on plan assets
Amortization of transitional obligation
Recognized actuarial loss
Amortization of prior service cost
Subtotal
Loss on a partial termination of defined
benefit pension plan

¥ 813
465
(217)
808
646
(29)
2,486

Net periodic benefit costs¥4,481¥ 931
473(214 )
808
664
2,662

1,995

Thousands of
U.S. Dollars
2006$ 6,949
3,974(1,855)
6,907
5,521
(248)
21,24817,051¥2,662$38,299

Assumptions used for the years ended March 31, 2006 and 2005, are set forth as follows:

Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss
Amortization period of transitional obligation
Amortization period of prior service cost

- 18 -

2006

2005

1.5%
1.5%
10 years
15 years
10 years

1.5%
1.5%
10 years
15 years

Chiyoda Corporation Annual Report 2006

45

12.

The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) toshareholders subject to a certain limitation and additional requirements.

SHAREHOLDERS' EQUITY
Through May 1, 2006, Japanese companies are subject to the Commercial Code of Japan (the"Code").
The Code requires that all shares of common stock be issued with no par value and at least 50% of
the issue price of new shares is required to be recorded as common stock and the remaining net
proceeds are required to be presented as additional paid-in capital. The Code permits Japanesecompanies, upon approval of the Board of Directors, to issue shares to existing shareholders
without consideration by way of a stock split. Such issuance of shares generally does not give rise
to changes within the shareholders' accounts.

Under the Code, certain limitations were imposed on the amount of capital surplus andretained earnings available for dividends. The Corporate Law also provides certain limitations
on the amounts available for dividends or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to the shareholders, but the amount of net
assets after dividends must be maintained at no less than ¥3 million ($26 thousand).
b.

The Corporate Law requires that an amount equal to 10% of dividends must be appropriated asa legal reserve (a component of retained earnings) or as additional paid-in capital (acomponent of capital surplus) depending on the equity account charged upon the payment ofsuch dividends until the total of aggregate amount of legal reserve and additional paid-in
capital equals 25% of the common stock. Under the Code, the aggregate amount of additional
paid-in capital and legal reserve that exceeds 25% of the common stock may be made available
for dividends by resolution of the shareholders. Under the Corporate Law, the total amount ofadditional paid-in capital and legal reserve may be reversed without limitation of such
threshold. The Corporate Law also provides that common stock, legal reserve, additional
paid-in capital, other capital surplus and retained earnings can be transferred among theaccounts under certain conditions upon resolution of the shareholders.

The Code also provides that an amount of 10% or more of the aggregate amount of cash dividends
and certain other appropriations of retained earnings associated with cash outlays applicable toeach period (such as bonuses to directors) shall be appropriated as a legal reserve (a component ofretained earnings) until the total of such reserve and additional paid-in capital equals 25% ofcommon stock. The amount of total legal reserve and additional paid-in capital that exceeds 25%of the common stock may be available for dividends by resolution of the shareholders after
transferring such excess in accordance with the Code. In addition, the Code permits the transfer ofa portion of additional paid-in capital and legal reserve to the common stock by resolution of theBoard of Directors.
The Code allows Japanese companies to purchase treasury stock and dispose of such treasury stock
upon resolution of the Board of Directors. The aggregate purchased amount of treasury stockcannot exceed the amount available for future dividends plus the amount of common stock,
additional paid-in capital or legal reserve that could be transferred to retained earnings or othercapital surplus other than additional paid-in capital upon approval of such transfer at the annual
general meeting of shareholders.
In addition to the provision that requires an appropriation for a legal reserve in connection withthe cash outlays, the Code also imposes certain limitations on the amount of capital surplus andretained earnings available for dividends. The amount of capital surplus and retained earnings
available for dividends under the Code was ¥27,206 million ($232,530 thousand) as of March 31,
2006, based on the amount recorded in the parent company's general books of account.
On May 1, 2006, a new corporate law (the "Corporate Law") became effective, which reformed andreplaced the Code with various revisions that would, for the most part, be applicable to events ortransactions which occur on or after May 1, 2006 and for the fiscal years ending on or after May 1,
2006. The significant changes in the Corporate Law that affect financial and accounting matters
are summarized below:a.

Dividends

Chiyoda Corporation Annual Report 2006c.

Treasury Stock
The Corporate Law also provides for companies to purchase treasury stock and dispose of suchtreasury stock by resolution of the Board of Directors. The amount of treasury stock purchased
cannot exceed the amount available for distribution to the shareholders which is determinedby specific formula.

On December 9, 2005, the ASBJ published a new accounting standard for presentation ofshareholders' equity. Under this accounting standard, certain items which were previously
presented as liabilities are now presented as components of shareholders' equity. Such items
include stock acquisition rights, minority interest, and any deferred gain or loss on derivatives
accounted for under hedge accounting. This standard is effective for fiscal years ending on or after
May 1, 2006.
The Company has a stock option plan which provides for granting options to the Company's
directors, officers and key employees to purchase an aggregate 7,820 thousand shares of theCompany's stock until June 30, 2009. The options will be granted at an exercise price of ¥233($1.99) per share.
The exercise price will be adjusted by stock splits and other certain circumstances.

Under the Corporate Law, companies can pay dividends at any time during the fiscal year in
addition to the year-end dividend upon resolution at the shareholders meeting. For companies
that meet certain criteria such as: (1) having the Board of Directors, (2) having independent
auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of thedirectors is prescribed as one year rather than two years of normal term by its articles ofincorporation, the Board of Directors may declare dividends (except for dividends in kind) if
the company has prescribed so in its articles of incorporation.

46

Increases/Decreases and Transfer of Common Stock, Reserve and Surplus- 19 -As a result of the exercise of the stock option plan, the Company received the gross proceed of¥357 million ($3,051 thousand) from the issuance of 1,533 thousand shares at a price of ¥233($1.99) per share, of which ¥178 million ($1,521 thousand) was transferred to the additional
paid-in capital account in accordance with the Code for the year ended March 31, 2006.
The granting options at March 31, 2006 were 355 thousand shares.

- 20 -

Chiyoda Corporation Annual Report 2006

47

13.

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates
reflected in the accompanying consolidated statements of income for the years ended March 31,
2006 and 2005, is as follows:

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes
which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 41% for
the years ended March 31, 2006 and 2005.
The tax effects of significant temporary differences and tax loss carryforwards which resulted indeferred tax assets and liabilities at March 31, 2006 and 2005, are as follows:
Millions of Yen
2006
2005
Deferred tax assets:
Tax loss carryforwards
Cost of construction contracts
Retirement benefits
Allowance for employees' bonus
Allowance for doubtful accounts
Loss on write-down of costs of construction
contracts in process
Loss on write-down of property, plant andequipment
Other
Less valuation allowance¥ 3,974
3,226
1,553
511

¥3,483
3,626
2,010
1,135
826

Thousands of
U.S. Dollars
2006$33,966
27,573
13,274
4,368

779
1,259
(8,608 )6,043
20,870(7,077)

11,585

5,098

99,017

Deferred tax liabilities

5,678

1,183

48,530Net deferred tax assets¥ 5,907¥3,915$50,487

Net deferred tax assets as of March 31, 2006 and 2005 were recorded in the accompanying
consolidated balance sheets as follows:
Millions of Yen
2006
2005
Deferred tax assets—current assets
Deferred tax assets—investments and other assets
Accrued expenses and other (deferred tax
liabilities—current liabilities)
Other liabilities (deferred tax liabilities—
non-current liabilities)

48

Chiyoda Corporation Annual Report 2006

- 21 -

14.

¥1,751
4,158¥3,804
112

(2)

41 %
1

41 %
3
1
2
( 53)
(1)

(1)
1
11%

(7) %

RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥811 million ($6,932 thousand) and¥692 million for the years ended March 31, 2006 and 2005, respectively.

15.

LEASES
The Company and a subsidiary lease certain machinery, computer equipment, office space andother assets. Total lease payments under finance leases were ¥250 million ($2,137 thousand) and¥267 million for the years ended March 31, 2006 and 2005, respectively.
Pro forma information for leased property under finance leases that do not transfer ownership ofthe leased property to the lessee on an "as if capitalized" basis for the years ended March 31, 2006
and 2005, was as follows:Year Ended March 31, 2006
As Lessee

Thousands of
U.S. Dollars
2006$14,966
35,538
(17)

(1 )

2005

(1)
( 30)

Actual effective tax rate

588
707
2,442
(828)

Total

Normal effective statutory tax rate
Expenses not deductible for income tax purposes
Inhabitant taxes per capita levy
Foreign income taxes
Tax credit
Decrease in valuation allowance for deferred tax assets
Equity in earnings of associated companies
Lower income tax rates applicable to income
Other—net

2006

Millions of Yen
Tools,
Furnitureand Fixtures Other

Total

Thousands of U.S. Dollars
Tools,
Furniture
Other
Total
and Fixtures

Acquisition cost
Accumulated
depreciation

¥ 657

¥ 127

¥ 784

$5,615$1,086$6,701

307

59

366

2,624

504

3,128

Net leased property

¥ 350

¥ 68

¥ 418

$2,991$ 582$3,573- 22 -

Chiyoda Corporation Annual Report 200649

Millions of Yen
Obligations
under
Finance Lease(As Lessee)

Thousands of
U.S. Dollars
Obligations
under
Finance Lease(As Lessee)

Due within one year
Due after one year

¥ 163
255

$1,393
2,180

Total

¥ 418

$3,573

Because the counterparties to these derivatives are limited to major international financial
institutions, the Company does not anticipate any losses arising from credit risk.
The basic policies for the use of derivatives are approved by the executive committee and theexecution and control of derivatives are controlled by the Company's financing department. The
hedging effectiveness in reducing foreign exchange risks is periodically assessed and reported to theCompany's accounting department and executive officers.
The Group had the following foreign currency forward exchange contracts outstanding at March
31, 2006 and 2005.

Year Ended March 31, 2005

MachineryandEquipment

Millions of Yen
As Lessee
Tools,
Furniture
and
Other
Fixtures

Buying:U.S.$
EuroSelling U.S.$

Total

Acquisition cost
Accumulated depreciation

¥57
15

¥ 843
414

¥95
36

¥ 995
465

Net leased property

¥42

¥ 429

¥59

¥ 530

¥ 230
300

Total

¥ 530

Depreciation expense as lessee, which is not reflected in the accompanying consolidated
statements of income, computed by the straight-line method was ¥250 million ($2,137 thousand)and ¥267 million for the years ended March 31, 2006 and 2005, respectively.

Thousands of U.S. Dollars
2006
Contract
Fair
Unrealized
AmountValue
Gain/Loss

¥

$

1
10
14,507¥1
11
14,511

Buying:U.S.$
EuroSelling U.S.$

¥

33
132
10,976¥34
144
10,980$9
94
124,025$ 9(34)

Derivative contracts which qualify for hedge accounting for the years ended March 31, 2006 and2005, are excluded from the disclosure of market value information.
The contract or notional amounts of derivatives which are shown in the above table do not
represent the amounts exchanged by the parties and do not measure the Group's exposure to credit
or market risk.
17.

CONTINGENT LIABILITIESAt March 31, 2006, the Group had the following contingent liabilities:

Guarantees and similar items for bank loans

DERIVATIVES

9
85
123,991

¥ 1
12
(4)

The amounts of unearned lease income and obligations, acquisition cost and depreciation underfinance leases include the imputed interest income portion and interest expense portion,
respectively.
16.

¥1
(4)

Millions of Yen
2005
Contract
Fair
Unrealized
AmountValue
Gain/Loss

Millions of Yen
Obligations
under
Finance Lease(As Lessee)
Due within one year
Due after one year

Millions of Yen
2006
Contract
Fair
Unrealized
AmountValue
Gain/Loss

Millions of Yen

Thousands of
U.S. Dollars¥1,912$16,342

The Company enters into foreign currency forward exchange contracts to hedge foreign exchange
risk associated with certain assets and liabilities on construction contracts denominated in foreign
currencies. It is the Company's policy to use derivatives only for the purpose of reducing foreignexchange risks associated with such assets or liabilities. The Company does not hold or issue
derivatives for trading purposes.

50

Chiyoda Corporation Annual Report 2006

- 23 -- 24 -

Chiyoda Corporation Annual Report 2006

51

Thousands of U.S. Dollars

18. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2006 and 2005 is as follows:
Millions
Thousandsof Yenof Shares
Net Weighted-average
IncomeSharesYear Ended March 31, 2006
Basic EPS—Net income available to common shareholders
Effect of dilutive securities—Stock option¥19,400

Diluted EPS—Net income for computation¥19,400

Yen

U.S. Dollars
EPS

191,558902¥ 101.27

192,460¥ 100.80¥12,863

Diluted EPS—Net income for computation¥12,863

187,450
3,696¥ 68.62

191,146¥ 67.30

Japan

Asia

Subtotal

Eliminations(Corporate)

Construction contract revenue:
Outside customers
Intersegment$3,236,701
8,478$104,111
7,846

$ 300

$3,340,812
16,624$ (16,624)

Total

3,245,179

111,957300

3,357,436(16,624)

3,340,812

Operating expenses

3,058,341

120,940

309

$ 145

3,179,735(16,094)

3,163,641

Operating income (loss)$ 186,838$ (8,983 )$(9)$ (145)$ 177,701$ (530)$ 177,171

Assets$2,328,410$ 65,496$5,590$1,248$2,400,744$ (9,966)$2,390,778

Subtotal

Eliminations(Corporate)

Consolidated

$0.87

$0.86

Year Ended March 31, 2005
Basic EPS—Net income available to common shareholders
Effect of dilutive securities—Stock option

Year Ended March 31, 2006

North
AmericaYear Ended March 31, 2005

Japan

Asia

Construction contract revenue:
Outside customers
Intersegment¥257,381
3¥10,274
1,540

¥ 31

¥267,655
1,574¥(1,574)

Total

257,384

11,81431

269,229(1,574)

267,65531¥ 3

258,138(1,561)

256,577¥ (3)¥ 11,091¥ (13)¥ 11,078¥ 122¥182,742¥ 151¥182,893

Millions of Yen

Thousands of
U.S. Dollars

Operating expenses

246,108

11,996¥1,922$16,427

Operating income (loss)¥ 11,276¥ (182 )Assets¥174,447¥ 7,608

20. SEGMENT INFORMATION
Information about geographical segments and sales to foreign customers of the Company and consolidated subsidiaries for the years ended March 31, 2006 and2005, was as follows:

¥ 565

Other

¥267,655

Notes: 1. The Company and consolidated subsidiaries operate within four geographic segments based on the countries where the companies are located.
The segments consisted of the following countries in 2006 and 2005:(1) Geographical Segments
Millions of Yen

52$3,340,812

North
America

The following appropriation of retained earnings at March 31, 2006 was approved at the Company's shareholders meeting held on June 22, 2006:

Year Ended March 31, 2006

Consolidated

Millions of Yen

19. SUBSEQUENT EVENT

Year-end cash dividends, ¥10.00 ($0.09) per share

Other

Japan

North
America

Asia

Other

Subtotal

Eliminations(Corporate)

Consolidated

Asia:
Indonesia, Singapore, Philippines, Myanmar, Malaysia and Thailand
North America: United States of America
Other:
Nigeria
2. Corporate assets mainly consist of long-term loans and investment securities of the Company. Corporate assets as of March 31, 2006 and 2005 were
¥2,069 million ($17,684 thousand) and ¥3,339 million, respectively.

Construction contract revenue:
Outside customers
Intersegment¥378,694
992¥12,181918¥ 35¥390,875
1,945¥(1,945)

Total

379,686

13,09935

392,820(1,945)

390,875

Operating expenses

357,826

14,15036¥ 17372,029(1,883)

370,146

Operating income (loss)¥ 21,860¥ (1,051 )¥ (1)¥ (17)¥ 20,791¥ (62)¥ 20,729

Assets¥272,424¥ 7,663

¥ 654

¥ 146

¥280,887¥(1,166)¥279,721

Chiyoda Corporation Annual Report 2006

- 25 -¥390,875- 26 -

Chiyoda Corporation Annual Report 200653

(2) Sales to Foreign Customers
Millions of Yen
Year Ended
March 31, 2006
Overseas sales (A)Consolidated sales (B)(A)/(B)

Year Ended
March 31, 2006
Overseas sales (A)Consolidated sales (B)(A)/(B)Asia

The Middle
andNear East

Russia andCentral Asia

Other

Total

¥29,651¥198,070¥56,099¥1,726

7.59%

50.67%

14.35%

0.44%¥ 285,546
390,875
73.05%

Thousands of U.S. Dollars
The Middle
Russia andand
Near East
Central Asia
Other

Asia

Total

$ 253,427$1,692,906$ 479,479$14,752

7.59%

50.67%

14.35%

0.44%$2,440,564
3,340,812
73.05%Asia

The Middle
andNear East

Russia andCentral Asia

Other

Total

¥28,083¥96,133¥49,817¥4,01010.49%

35.92%

18.61%

1.50%¥ 178,043
267,655
66.52%

Millions of Yen
Year Ended
March 31, 2005
Overseas sales (A)Consolidated sales (B)(A)/(B)

Note: The Company and consolidated subsidiaries are summarized into four segments bygeographic area based on the countries where the companies are located.
The segments consisted of the following countries in 2006 and 2005:
Asia:
China, Indonesia, Singapore and others
The Middle and Near East: Qatar, Oman, Iran, UAE, Saudi Arabia and others
Russia and Central Asia:
RussiaOther:
United States of America and others
The Company and its consolidated subsidiaries operate predominantly in the engineering business,while certain subsidiaries operate in leasing and software producing businesses which are minor in
relation to the total business. Accordingly, the presentation of industry segment information is not
required under Japanese accounting standards.

******

54

Chiyoda Corporation Annual Report 2006

- 27 -

Chiyoda Corporation Annual Report 2006

55

CHIYODA CORPORATIONGLOBAL NETWORK

Russia(AS OF JULY 1, 2006)

Head Ofﬁces
Yokohama Head Ofﬁce
12-1, Tsurumichuo 2-chome
Tsurumi-ku
Yokohama 230-8601, Japan
Tel: (81) 45-521-1231
Fax: (81) 45-503-0200
Koyasu Ofﬁce
13, Moriya-cho 3-chome
Kanagawa-ku
Yokohama 221-0022, Japan• Administration Department
Tel: (81) 45-441-1268
Fax: (81) 45-441-1297• Research & Development Center
Tel: (81) 45-441-9132
Fax: (81) 45-441-9728

Overseas Ofﬁces
Abu Dhabi Ofﬁce
Clock Tower Bldg.
Al Najda Street
Abu Dhabi, U.A.E., P.O. Box 43928
Tel: (971) 2-671-7161
Fax: (971) 2-671-7162
Beijing Ofﬁce
Room No. 1028, China World Tower 1
Jianguomenwai Street
Beijing, 100004, China
Tel: (86) 10-6505-2678
Fax: (86) 10-6505-1118

Jakarta Ofﬁce
9th Floor, MidPlaza Bldg.
Jalan Jenderal Sudirman Kav. 10-11
Jakarta, 10220, Indonesia
Tel: (62) 21-570-7579
Fax: (62) 21-570-6276
Korea Representative Ofﬁce
1358-8, Tal-dong Nam-ku Ulsan, Korea
Tel: (82) 52-256-5721/5722
Fax: (82) 52-256-5723
Milan Representative Ofﬁce
Viale Della Liberazione 16 / 18
20124 Milan, Italy
Tel: (39) 02-303517-111
Fax: (39) 02-303517-35
Middle East Headquarters
Doha Ofﬁce
Al Mana Tower
Airport Road, Doha
Qatar, P.O. Box 20243
Tel: (974) 462-2875/2876
Fax: (974) 462-2716
Singapore Human Resources Ofﬁce
10 Anson Road, #03-02
International Plaza, Singapore 079903
Tel: (65) 6324-0080
Fax: (65) 6324-0090
The Hague Ofﬁce
President Kennedylaan 192517 JK The Hague, The Netherlands
Tel: (31) 70-385-9453
Fax: (31) 70-346-3779
Tehran Ofﬁce
2nd Floor, No. 16, Mahtab St. Aftab St.
Vanak Avenue, Tehran, Iran
Tel: (98) 21-8803-6391, 8805-8592
Fax: (98) 21-8805-8967

Project Companies
Oman, Qatar, Russia

56

CHIYODA CORPORATION ANNUAL REPORT 2006

Major Subsidiaries &Afﬁliated Companies
Overseas
Chiyoda International Corporation
1177 West Loop South, Suite 680
Houston, TX 77027, U.S.A.
Tel: (1) 713-965-9005
Fax: (1) 713-965-0075
Chiyoda Singapore (Pte) Limited
14 International Business Park
Jurong East, Singapore 609922
Tel: (65) 6563-3488
Fax: (65) 6567-5231
Chiyoda Asia Paciﬁc (Pte) Ltd.
14 International Business Park
Jurong East, Singapore 609922
Tel: (65) 6425-0368
Fax: (65) 6569-6102
Chiyoda Malaysia Sdn. Bhd.
15th Floor, Menara Maxisegar
Jalan Pandan
Indah, 4/2 Pandan Indah, 55100
Kuala Lumpur, Malaysia
Tel: (60) 3-4297-0988
Fax: (60) 3-4297-0800
Chiyoda (Thailand) Limited• Sriracha Ofﬁce
4th Floor, Laemchabang, Tower 283
Sukhumvit Road, T.Tungsukhla
A. Sriracha, Cholburi 20230, Thailand
Tel: (66) 38-352-315~6
Fax: (66) 38-352-321• Bangkok Head Ofﬁce
140/39 ITF Tower II, Suite H, 18th Floor
Silom Road Kwaeng Suriyawong
Khet Bangrak
Bangkok 10500, Thailand
Tel: (66) 2-231-6258/6259
Fax: (66) 2-231-6260
PT. Chiyoda International Indonesia
MENARA HIJAU, 10th Floor, Suite 1001
Jl. MT. Haryono Kav. 33
Jakarta Selatan 12770, Indonesia
Tel: (62) 21-798-4680
Fax: (62) 21-798-6174

The Netherlands
Italy
Saudi Arabia
Nigeria

China

Iran
India
Oman

MyanmarThailand

Malaysia

Korea

Japan

U.S.A.

Philippines
Singapore

Indonesia
Head Office
Overseas Offices
Project Companies
Subsidiaries &Affiliated Companies

U.A.E.
Qatar

L&T-Chiyoda Limited
B.P. Estate, National Highway No. 8
Chhani, Baroda-391740
Gujarat State, India
Tel: (91) 265-2771003/2772855
Fax: (91) 265-2774985
Chiyoda Philippines Corporation
Chiyoda Bldg.
Meralco Avenue Corner
General Araneta Street
Pasig City, Metro Manila, Philippines
Tel: (63) 2-636-1001~8
Fax: (63) 2-636-1013/1023
Chiyoda Petrostar Ltd.
• Al-Khobar Ofﬁce
P.O. Box 31707, Al-Khobar 31952
Saudi Arabia
Tel: (966) 3-864-0839
Fax: (966) 3-864-0986• Jeddah Head Ofﬁce
P.O. Box 6188, Jeddah 21442
Saudi Arabia
Tel: (966) 2-647-0558
Fax: (966) 2-647-1908
Chiyoda Nigeria Limited• Abuja Ofﬁce
C/O Peniel Apartments
Room No. B2C, Plot 137
Ibb Way, Adetokunbo Ademola Crescent
Wuse II, Abuja, Nigeria
Tel: (234) 9-4130961
Fax: (234) 9-4130961•Lagos Ofﬁce
Plot PC-43 (2nd Floor), Nurses House
Afribank Street,Victoria Island
P.M.B. 12541
Lagos, Nigeria
Tel: (234) 1-2613291
Fax: (234) 1-2612565
Chiyoda & Public Works Co., Ltd.
Sedona Hotel Rooms 307-309
No. 1, Kaba Aye Pagoda Road
Yankin Township,Yangon, Myanmar
Tel: (95) 1-545605
Fax: (95) 1-545227
Chiyoda Corporation(Shanghai)
29th Floor, Room E, Pufa Tower, No. 588
Pudong Road. (S), Pu Dong New Area,
Shanghai 200120, China
Tel: (86) 21-5877-6266
Fax: (86) 21-5877-6366

Domestic
Chiyoda Kosho Co., Ltd.
Plant Engineering, Construction and
Maintenance and Insurance Service
Chiyoda Keiso Co., Ltd.
Electrical and Instrumentation Engineering
Equipment Supply, Installation and
Maintenance

Chiyoda TechnoAce Co., Ltd.
Consulting, Engineering and Constructionof Pharmaceutical Plants, Laboratories andResearch Centers and Human Resources
SupplyChiyoda Advanced Solutions
Corporation
Computer Aided Engineering Analysis,
Plant Lifecycle Engineering, Risk
Management and Utilization of Space
Environment
Chiyoda U-Tech Co., Ltd.
Consulting for Industrial, Social andRegional Development
IT Engineering Limited
IT Solutions and Software Development
Arrow Business Consulting
Corporation
Consulting Services for Finance andAccounting
Arrowhead International Corporation
Travel and Air Cargo Agent and Spare Parts
SupplyArrow Mates Co., Ltd.
Human Resources Supply and Training

CHIYODA CORPORATION ANNUAL REPORT 2006

57

CHIYODA CORPORATIONCORPORATE INFORMATION 2006
(AS OF MARCH 31, 2006)
Established:
Paid-in Capital:
Number of Employees:
Annual Fiscal Close:
Shareholders Meeting:Number of Shares per Unit:
Stock Code:Transfer Agent ofCommon Stock:

January 20, 1948
¥12,901 million
2,787 (Consolidated)
March 31
June
1,000
ISIN: JP3528600004
SEDOL 1: 6191704 JP
TSE: 6366

ORGANIZATIONAL CHART(AS OF JULY 1, 2006)

Mitsubishi UFJ Trust andBanking Corporation
1-4-5 Marunouchi,
Chiyoda-ku, Tokyo
650,000,000
192,893,529
13,464

Authorized Shares:
Capital Stock Issued:
Number of Shareholders:Shareholders Meeting

Corporate
AuditorsCommittee

Board of Directors
Executive Committee
SQE DivisionCorporate Management& Finance

MAJOR SHAREHOLDERS
Status of investors
Number of shares

Percentage of total(%)

Mitsubishi Corporation

19,851,220

10.29

The Master Trust Bank of Japan, Ltd. (Trust Account)

9,222,000

4.78

Mitsubishi UFJ Trust & Banking Corporation

9,034,000

4.68

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

9,033,925

4.68

Japan Trustee Services Bank, Ltd. (Trust Account)

8,542,000

4.43

State Street Bank and Trust Company 505202

3,500,000

1.81State Street Bank and Trust Company 505103

3,436,309

1.78

Tokio Marine & Nichido Fire Insurance Co., Ltd.

2,760,844

1.43

Asahi Glass Co., Ltd.

2,631,000

1.36

Meiji Yasuda Life Insurance Company

2,549,960

1.32

CSR Division

BREAKDOWN BY SHARE (Thousands)
Technology & Engineering

Corporate Planning Division
Administration & Personnel
Division

Research Institute ofTechnology Innovation &Strategy
Technology Planning Division

Finance Division

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Procurement Division

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Process Technology Division
Project Management
Administration Division

Engineering Division

STOCK PRICEInternational Project Operation
Petroleum & Chemical Project
Division

Domestic Project
Operation

Project Service Division
Construction Division

Domestic Business
Development Operation

International Business
Development Operation

Oil, Gas & Petrochemical
Division

Russia Project Division�����������
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Gas Value Chain Project Division
Qatar Project Division

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Petroleum & Chemical
Business Development
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Pharmaceutical, Fine Industries& Environmental Division
Petroleum Division������������

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Gas Value Chain Business
Development Division

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�������CHIYODA CORPORATION ANNUAL REPORT 2006

59