Chiyoda Corporation
Annual Report 2003
Fiscal Year Ended March 31, 2003

Profile
For more than 50 years, Chiyoda Corporation
has constantly evolved to meet the fastchanging needs of its diverse customers
around the world.
As an integrated engineering andconstruction company with a solid
foundation in the hydrocarbon processing
industry, Chiyoda has leveraged its
extensive experience and far-reaching global
network to give it an unrivalled advantage
in today’s challenging times.
The Company will continue its engineering,procurement and construction (EPC)
business, while innovating an expandedbusiness model that includes plant lifecycle
engineering (PLE). This will enable Chiyoda
to participate in project planning,
maintenance, operation, revamping, andbusiness planning for future investment. The
objective is to become a one-stop providerof everything Chiyoda customers need in theway of plant development and operations.

CONTENTS
1 Profile
2 Consolidated Financial Highlights
3 A Message from the President
5 Management Policies
7 The Chiyoda Group Operations Initiative
9 Highlights
13 Review of Operations
23 Technology
25 FINANCIAL SECTION
Consolidated Five-Year Financial Summary

The trust Chiyoda has earned over the past
five decades, combined with its vast global
network of personal contacts and deep
reservoir of know-how, makes it theengineering company of choice forcustomers worldwide.

26 Consolidated Financial Review
27 Consolidated Balance Sheets
29 Consolidated Statements of Income
30 Consolidated Statements of Shareholders’ Equity
31 Consolidated Statements of Cash Flows
32 Notes to Consolidated Financial Statements
45 Board of Directors, Corporate Auditors, andExecutive Officers
46 Corporate Information

Cost

47 Worldwide Network

Plant Lifecycle Engineering
Construction

Lifecycle Cost

FutureInvestment
Plan

Operation
Time
Accumulate the information in the common database1

Cover:The Matsuzaki Tenjin Engi Emaki Picture Scroll
An important cultural asset residing at Hofu-Tenmangu
Shrine, Yamaguchi Prefecture.
The scroll portrays the building of the Kitano
Tenmangu Shrine in 959 A.D. The man standing witha long staff over his left shoulder is the Toryo, a manwith great knowledge and experience who had the
responsibility to complete the project on time andwithin the budget while maintaining workers safety
and work quality. In Japan, the Toryo is the origin of
today’s project managers.

Consolidated Financial Highlights
Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2002

Thousands of
U.S. Dollars

Millions of Yen
2003

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

¥

2002

120,297¥2003

129,314$ 1,002,475

Total shareholders' equity .......................................................................

16,67015,103

138,916

Construction contracts ...........................................................................

166,367

141,387

1,386,392

Operating income (loss) ..........................................................................

1,548(5,202)

12,900Net income .............................................................................................

2,000

121

16,667

New contracts ........................................................................................

249,093

217,997

2,075,775

Backlog of contracts ...............................................................................

316,167

246,137

2,634,725

Yen

Per share of common stock
Basic net income.....................................................................................

¥

10.79

U.S. Dollars

¥

0.65

$

0.09

* U.S. dollar amounts have been converted at the rate of ¥120=US$1, the approximate rate of exchange at March 31, 2003.

New Contracts

Construction Contracts¥ billions

Backlog of Contracts¥ billions

250¥ billions

200

249.0

350

316.1

300

217.9

200

166.3

150

250

141.3
150

128.6
139.4

246.1

200

100
150

100
50

50

164.2

100
50

0

0
FY2001 ending
Mar. 31, 2001

FY2002 ending
Mar. 31, 2002

FY2003 ending
Mar. 31, 2003

0
FY2001 ending
Mar. 31, 2001

Total Shareholders’ Equity Ratiovs., Debt Equity Ratio

FY2002 ending
Mar. 31, 2002

FY2003 ending
Mar. 31, 2003

Return on Equity (ROE)
Ratio

14.0%

3.00

FY2002 ending
Mar. 31, 2002

¥ billions

12.6%
2.50

FY2003 ending
Mar. 31, 2003

Interest-Bearing Debts
vs., Cash and Time Deposits

20%

13.9%
2.48

FY2001 ending
Mar. 31, 2001

40

40.5

37.3

30

0.8%

36.1

33.9
28.1

0%
12.0%
2.00

11.7%
1.86

-20%

11.0%
1.50
10.0%

10

1.12

-39.7%
1.0

FY2001 ending
Mar. 31, 2001

FY2002 ending
Mar. 31, 2002

18.6

20

FY2003 ending
Mar. 31, 2003

Total Shareholders’ Equity Ratio
Debt Equity Ratio-40%

0
FY2001 ending
Mar. 31, 2001

FY2002 ending
Mar. 31, 2002

FY2003 ending
Mar. 31, 2003

FY2001 ending
Mar. 31, 2001

FY2002 ending
Mar. 31, 2002

FY2003 ending
Mar. 31, 2003

Interest-Bearing Debts
Cash and Time Deposits

2

A Message from the President

As our shareholders are well aware, during the two years I
have been president of Chiyoda Corporation, I have done
everything in my power to ensure our success. And, thanks
to the unstinting cooperation I have received from within
and without the company, we are now stronger than wewere two years ago, and we have the capabilities necessary
to face the challenges posed by today’s ever-changing business environs.
At this moment, Chiyoda is steadily improving revenue
and profits, and increasing new orders. Our customers give
us positive feedback concerning the quality of our work,and often choose Chiyoda for a job instead of the lowest
bidder. Our earnings have shown strong recovery, and wewill continue renewed efforts to meet the expectations of
our shareholders.

Improved performance
Nobuo Seki President and CEO

In the past, Chiyoda Corporation has been throughtough economic times. Perhaps the current challenges
include a mentality problem as we struggle to overcome
pessimism caused by underachievement. This will requireawareness that both operations and management, at every
level, must be executed carefully while adhering to thebasics. And, with this in mind, employees and management must be cognizant of and embrace change.
Chiyoda’s recent improvements in performance are due
to our “Project Super X” program. It aims at achieving thegoals of our five-year restructuring plan ahead of schedule.
Implementation of “Project Super X” has strengthened
our technological base and added immensely to our project and risk management expertise. This in turn has done
wonders for both customer relations and employee morale.

New goals
The establishment of long-term bonds with our clients
is vital to our future growth. We will especially work withthose clients who need our technological strength and our

3project management expertise. This we plan to achievethrough application of Plant Lifecycle Engineering, or
PLE, which comprises the wealth of plant engineering
information and know-how Chiyoda Corporation hasgathered over the decades. Using PLE, we can propose
advanced solutions to our clients for their plants, which areoften their most important assets. We assist our clients inenhancing the value of their assets throughout the entire
lifecycle – from planning through construction, operation,
maintenance, and even calculate necessary improvements
and modernization – and help our clients achieve a greater
return. In the process, we will continually enhance andupdate our database and engineering assets, which will
enable us to continue to propose the most advanced, effective plant business models to our clients.
We plan to increase bookings through our “Natural
Gas Value Chain” marketing strategy, which will allocate
corporate resources intensively to natural gas-based projects. This will take advantage of the fact that natural gas
producing countries are expanding utilization of their natural resources. This will mean increased production of liquefied natural gas (LNG) as well as a movement into gasbased chemicals and gas-to-liquids (GTL) production. We
will use our PLE approach for natural gas projects as well.
Our customers recognize the expertise and knowledge
we bring to a project, which allows us to present plans
with the foresight to use cutting-edge technology and project management expertise. Through our PLE approach,
we will build long-term relationships and mutual trustwith our clients. And our PLE approach should enable us
to contribute to the sustainable development of our clientsand of society.

However, most of the issues are being resolved, so I am
comfortable with the economic outlook, and see Chiyoda
working in the industry for the long haul.
I firmly believe that we as a company are nearly to theapex of the hill. We have recovered from our past errors
and are looking at a bright future. We have an importantslogan to remind us of what we should be doing –“Recognize change and find opportunity in it.” If we takethis slogan to heart, we will never again be caught in thestraits of uncertainty that can drag a company down financially. To protect against a financial downturn, Chiyoda
Corporation will also establish and maintain effective management control systems – including integrated budget
controls, severe screening, monitoring, and audit controls
for handing projects, and making maximum use of IT
capabilities.
Another key to our coming growth was the formationof Chiyoda Advanced Solutions Corporation (ChAS) in
2002. This wholly owned subsidiary specializes in providing cutting-edge technological consulting services withhighly advanced analytical skills that are based on ourGroup’s engineering assets. The launch went smoothly,
and ChAS posted a profit in its very first fiscal year.
I am resolved to eliminate accumulated losses and to
start paying dividends again soon. We truly appreciate yourcontinued support and look forward to serving you in the
future.
June 25, 2003

A look at the futureInternational issues such as the general strike in
Venezuela, the war in Iraq, and SARS in Asia may have
prevented us from achieving our near-term targets.

Nobuo Seki
President & CEO
Chiyoda Corporation

4

Management Policies

Corporate
Philosophy andManagement
Policies

Chiyoda Corporation strives for customer satisfaction by basing our corporate activity
on the trust of our customers and society at large and our affinity with them.

Corporate Philosophy
As an integrated engineering entity, Chiyoda is to contribute to the progress ofsociety and to the growth of its business through the sound and unbiased applicationof state-of-the-art technologies.

Management Policies● Commit to building a firm foundation of trust with customers● Provide high quality services● Expand Group operations through use of a cross-function ofeach company capabilities

Occupational healthand safety policy

Quality management policy

Information security
policyEnvironmental policy
Code of business conduct

Medium- andLong-Term Business
Strategy

Project Super X● Complete the New Restructuring Plan as early as possible.
● Build a foundation for a business that can ensure ample returns to shareholders,
contributions to society, and enhancement of employee benefits.

Mid/long-term strategies
1) Implement New Restructuring Plan
2) Increase new orders received
3) Stabilize profitability4) Strengthen alliances
5) Establish new business models

Objectives

Customer
Satisfaction

1) Strengthen project execution capacities
2) Attain and maintain technologicalsuperiority
3) Promote Plant Lifecycle Engineering4) Synergize Group Companies
5) Reinforce corporate management
systemPriorities
1) Secure sufficient earnings
2) Implement selective and focused business programsand deploy personnel appropriately
3) Eliminate deficit projects

5Corporate
Governance

The Company recognizes that every corporate activity is founded on the trust of andaffinity with our shareholders, customers, and society at large, and so pledges to maintain a transparent and healthy business.

Corporate Governance Structure
Stockholders’ Meeting

Corporate Auditors

Board of Directors
Internal control
throughthe PDCA cycle

Executive Committee(composed of representative
directors)
Crisis manager
SQE Division
Occupational health andsafety, quality management,
environmental, information
securityCompliance Management
OfficeComplianceCorporate administration
Executive officer
Internal Checks and Balances
Risk manager

Chiyoda’s auditing system has one external
director as prescribed under Article 188, Section
2, Number 7-2 of the corporate code and threeexternal auditors as prescribed under Article 18,
Section 1 of the special corporate code relating
to corporate audits. The Company introduced
the executive officer system in fiscal 2002 tostrengthen administration by separating decision-making from operational implementation.

P (Plan)
D (Do)C (Check)A (Action)

The Executive Committee makes appropriate
decisions in response to rapidly changing socialand economic circumstances. The Committee,
composed of representative directors, makes the
crucial operational decisions for the Company as
a whole. Corporate auditors attend Executive
Committee meetings and express opinions as
required. The Executive Committee thus balances rapid decision-making with transparency.

Project operations
Executive officer
Risk manager

Self Auditing

Executive Officers delegated by the Board of
Directors liaise with external consultants such as
attorneys and are responsible for executing thedecisions of the Executive Committee and Boardof Directors. Executive officers report on operations to those organs as needed. Directors oversee the Executive Officers, while corporate auditors perform legal audits on the performance of
directors.

Chiyoda Corporation Environmental Report
Chiyoda publishes an Environmental Report, which explains our efforts in that area. Chiyoda
President Nobuo Seki has proclaimed that “Protecting the Earth’s environment is our mission.”
And with that mission in mind, we do our utmost to harmonize the development of human kindwith the needs of the global environment. Indeed, “Sustainable Development” is our own clarion
call. In fact, we use every skill our company has – engineering, planning, design, procurement, construction, operations, and maintenance – to help ensure minimal impact on the immediate, regional, and global environments.

6

The Chiyoda Group Operations Initiative

The Chiyoda Group consists of theparent, Chiyoda Corporation, 32 subsidiaries, and 13 affiliated companies. The
Group’s core function is to provide customers with the most effective engineering solutions for their needs. By combining and deploying the resources of any
combination of Group Companies, as
needed, when needed, Chiyoda gains theflexibility necessary to allow the company
to meet current demand and fill the customer satisfaction, regardless of geographic region.

Chiyoda is committed to building a firm foundation of trust with our customers,
to providing high-quality services. We realize Plant Lifecycle Engineering by expanding
Group operations through use of a cross-function of each company capabilities.

Clients

Chiyoda Corporation

Group Companies
Each Function

Shared Service● Consulting● Feasibility Studies● Engineering● Procurement● Construction● Operation & Maintenance● Corporate Administration● Accounting & Finance● Human Resource Supply● IT Infrastructure● Project Administration● Spare Parts Supply

Plant Lifecyle Engineering(Lifecycle Asset Management)7

Chiyoda Group Domestic Operations

Acoustic Emission Diagnosis

Big SDM Project accounting 500,000
hr (Toa Oil Co., Ltd.)

Compost Factory-Asahi Organic Bio
Center (Asahi Environmental
System Co., Ltd.)

Burner Flame Formation Analysis

Chiyoda Advanced Solutions Corporation● Computer Aided Engineering Analysis● Plant Lifecycle Engineering and Risk Management● Utilization of Space Environment, etc.

Chiyoda Kosho Co., Ltd.
● Plant Engineering,

Lube Oil Blending Plant (Sanwa
Kasei Industrial Corporation)

Construction and Maintenance,
Insurance Service

CHIYODACORPORATION
Chiyoda Keiso Co., Ltd.
● Electrical and Instrumentation

Engineering, Equipment Supply,
Installation and Maintenance

Chiyoda Techno Ace Co., Ltd.
● Consulting, Engineering andConstruction of Pharmaceutical
Factories, Laboratories andResearch Centers

Environmental Monitoring Facilities
for International Stadium
Yokohama and surrounding area
(Yokohama City Green
Environmental administration
Bureau)Electric Facilities for Historic
Attraction (Yokohama City Portsand Harbors Bureau)
Completion Ceremony(Ajinomoto Pharma Co., Ltd.)

Central Research Center(Ebara Foods Industry Co., Inc.)

8

Highlights

Strong Position in LNG Plant Business
Demand for LNG Plants on the Sharp Rise
(10 Thousand Tons)
25,000

5,000

4,000

To 30%

20,000Chiyoda’s share in LNG plant constructedworldwide (production capacity): 25%
15,0003,000

World Total Production
Capacity of LNG Plants

10,000

2,000
5,000

1,000

0

'64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04

World Total Production Capacity(10 Thousand Tons)
6,000

Chiyoda’s Cumulative Construction Record

Base-load LNG plants built by Chiyoda are currently producing morethan 28 million tons per annum (mtpa). In addition, Chiyoda continues
to be awarded Front End Engineering and Design (FEED) or ProjectSpecification (PS) works by major LNG projects, which results in measurable benefits for project investors. Chiyoda is also a leading contractor of LNG receiving terminals, mainly in Japan.
Chiyoda continues to develop the state-of-the-art technology, design
and project execution in gas processing and LNG chain to enable developers to create viable gas/LNG trade schemes for investors in competitive and changing markets. A core competence at Chiyoda is high-caliber people with the experience and expertise to meet the challenges
inherent to large-scale, fast-track, cost-effective gas processing projects
with the highest quality engineering.

0

Year Operation Started

Sakhalin II LNG Project
Chiyoda, along with Toyo Engineering
Corporation (TEC) and Russian corporations,signed an EPC contract with Sakhalin Energy
Investment Company Ltd. (SEIC) on June 2,
2003 for a grass-roots liquefied natural gas
plant complex that is part of the Sakhalin II
Project. SEIC is owned by Shell Sakhalin
Holdings B.V. (55%), Mitsui Sakhalin Holdings
B.V. (25%), and Diamond Gas Sakhalin B.V.
(20%).
The project construction site is located atPrigorodnoye on southern Sakhalin Island in
Russia. The site is also about 160 km from
Wakkanai, the northernmost tip of the9Japanese island of Hokkaido. The plant willconsist of two LNG trains, each with a production capacity of 4.8 million tons per year, thelargest in the world. The first train is planned
to be operational in 2007. Shell’s Double
Mixed Refrigerant (DMR) liquefaction process
will be used for the first time in a base-load
LNG plant. The LNG plant also includes two
100,000 cubic meter LNG tanks and an LNG
loading jetty.
Chiyoda provides services in the fields ofengineering, procurement, and construction
for global LNG projects, and it holds about a
30% share of EPC work for major base-load
LNG projects worldwide.
Chiyoda’s outstanding
technical competence
and successful trackrecord in base-load LNG
projects around theworld, including therecent Qalhat LNG project led to the Sakhalin
contract award.
After projects in Qatar
and Oman, Chiyoda hascontinued to secure con-tracts for base-load LNG projects, evidence ofan overwhelming strength in the LNG field.
For the Sakhalin LNG project, Chiyoda performed project specification (PS) work in ajoint venture with Fluor Daniels of The
Netherlands and OAO NIPIgaspererabotka.
This is the first LNG project in Russia, which
has the world’s largest natural gas reserves,
and will be the cornerstone of future gasrelated projects in that country.

Chiyoda's Experience in

LNG Plant -FEED / PS
Bonny Island
La Brea
Nigeria
Trinidad and Tobago

Das Island
Abu Dhabi

Ras Laffan
Qatar

QalhatOman

BontangIndonesia

Irian Jaya
Indonesia

Prigorodnoye
Sakhalin Island

BontangIndonesia

Sakhalin Island
RussiaDamiettaEgyptChiyoda's Experience in

LNG Plant - EPC
QalhatOman

Ras Laffan
Qatar

Das Island
Abu Dhabi

Arun
Indonesia

OMAN LNG

RasGas (II)ADGAS

PERTAMINAPERTAMINA

Sakhalin Energy

Train 1/2 6,600,000 T/Y 2000

Train 3Train 4Train 1/2 2,200,000 T/Y 1976
Train 3 2,500,000 T/Y 1994

Train 4/5 3,500,000 T/Y 1983

Train E 2,300,000 T/Y 1989
Train F 2,300,000 T/Y 1993
Train G 2,300,000 T/Y 1997
No.3 Loading Dock 1998

Train 1/2 9,600,000 T/Y (2008)

Qalhat LNG
Train 13,300,000 T/Y (2005)

4,700,000 T/Y (2003)
4,700,000 T/Y (2005)

Qatargas
Train 1/2 4,000,000 T/Y 1997
Train 32,000,000 T/Y 1998
Train 1/2/3 Debottlenecking
3,000,000 T/Y (2005)

PT. Badak NGL
DCS Retrofit

2002

10

Projects in China Continue to Grow
Successful Achievement with 400 Million Hours Accident-Free
BP Ningbo Huadong LPG Bulk Breaking Terminal Project
A ceremony marking the completion of the
BP Ningbo Huadong LPG Bulk Breaking
Terminal Project was held on October 18,
2002, at the project site in Ningbo, Zhejiang
Province, People’s Republic of China.
On hand for the event were Ningbo Mayor
Jin Deshui, city officials, President and Chief
Executive of BP China Dr. Gary Dirks, and BP
officials. Managing Director Atsuo Minamoto
represented Chiyoda at the ceremony.
The project, awarded to us in a consortiumwith NCC International A.B. of Sweden in
March 2000, was to construct one of China’s
largest underground receiving and storage
terminals for liquefied petroleum gas (LPG). It
can handle 1.6 million tons of LPG per year,
and includes jetty, topside and undergroundprocessing / utility facilities and two underground storage areas for propane and butane.
Chiyoda, as the consortium leader, wasresponsible for Engineering, Procurement,

The LPG storage facility and the ingress shaft

11

Construction (EPC) of the topside and underground facilities for the process and utility
plants, and construction of two jetties for
50,000 dwt and 5,000 dwt vessels. NCC
International A.B. constructed the two underground caverns.
This was Chiyoda’s first experience in executing a project in consortium with a nonJapanese contractor in China. Cultural differences caused problems at times, yet we overcame the difficulties and successfully turned
over the terminal facilities in June 2003, as
was set out in the contract. All commissioning
work has also been completed and deliveriesof refrigerated LPG started on August 5,
2002. We believe the teamwork of contractors striving for the same goal was key to thesuccess of the project.
In his remarks at the ceremony, Dr. Dirks
expressed his appreciation for the achievement of 4 million accident-free man-hours on

Above-ground facilities

People celebrate the completion of the BP Ningbo
Huadong LPG Bulk Breaking Terminal Project.

the project, despite the harsh working environment.
Foreign investment continues to grow in
China, and we believe the successful completion of the BP project, requiring stringent safety/quality management, has proven our project execution capability.
We hope to build on this experience tosecure future projects in China.

3.6 million accident-free man-hours achieved through 3 Dow Chemical projects in China
S/B Latex Project
An opening ceremony of a new latex plant
was held at the Dow Chemical Company in the
Yangzi Petrochemical Industrial Complex on
October 25, 2002. Among those in attendancewere the Dow Chemical Global Vice President,
the Dow project staff, the Zhangjiagang City
Communist Party Committee Secretary, andthe Zhangjiagang Mayor.
The plant, owned by Dow S/B Latex
Zhangjiagang Co., Ltd., at Deji field in
Zhangjiagang, China, is to produce 22,000

tons of latex per year from feedstock of butadiene and styrene monomer. The product is used
for paper coating, for which demand is growing in China.
Chiyoda was awarded an EPC contract forthe plant in April 2000 and successfully turned
over the plant to the client in September 2002.
Dow has expressed its appreciation for thehigh purity of the product so soon after the
project’s completion.
What’s more, the trust built and relation-

ships formed with Chinese authorities during
this project have led to other development projects in the city of Zhangjiagang.

People celebrate the opening of the latex
plant.

SAL Polystyrene Project
Following the latex project, an opening ceremony for the polystyrene plant was held on

December 5, 2002, with attendance by the
Dow Chemicals Global Vice President, the SAL
President, the Asahi Kasei Vice President andproject staff, the City Communist Party
Committee Secretary and the Zhangjiagang
Mayor.
During the ceremony, we received a plaqueof appreciation for successfully completing thisgrassroots plant despite many difficulties.
Chiyoda was awarded an EPC contract forthis the polystyrene plant by SAL Petrochemical

Zhangjiagang Co., Ltd. (SAL is a Dow Chemicaland Asahi Kasei joint venture) at the end of
1999 and turned over the plant to the client in
October 2002.
The plant has a yearly output of 120,000
tons of polystyrene, a general-purpose resin forwhich demand is rapidly increasing in China.

improving communications, and focused on“doing what must be done, and doing itright.” With this phrase as our motto, wewere able to complete the project withimproved quality and ahead of schedule inFebruary 2003.
From the initial latex project through the
epoxy resin project, we posted a record of
3.6 million accident-free man-hours.
This significant record not only places us inhigh esteem with our clients, but also helps
establish Chiyoda as a trustworthy engineer-ing contractor in the Chinese market.

A plaque of appreciation was given to Chiyoda by
Dow Chemical.

Converted Epoxy Resin Project
Dow‘s positive evaluation of Chiyoda’s
performance through the latex and the polystyrene projects led to another EPC contract
in the same city.
Chiyoda was awarded an EPC contract for
41,000 tons per year converted epoxy resin
plant in April 2001.
We studied and analyzed the lessons
learned in the previous two projects andreinforced our supervision of Chinese subcontractors and vendors in executing thisproject. In addition, we concentrated on

Converted epoxy resin plant for Dow Chemical(Zhangijiagang, China)

12

Review of Operations

NaturalGas
Projects

In overseas markets, Japanese electric power companies, which are major users ofliquefied natural gas (LNG), have suspended operation of their nuclear electric power plants one
after another. As a result, operating rates of LNG-fired power plants have remained high, spurring
prospective LNG suppliers to aggressive marketing efforts in Japan. India, which has contractedwith RasGas II project for 7.5 million tons per annum, and the People’s Republic of China, which
entered into agreements to purchase LNG from Australia and Indonesia, are emerging as new LNG
importing countries. What’s more, imports of LNG to the United States, where natural gas prices
are soaring, and to European countries, where deregulation has brought newcomers into the gas
supply business, are increasing. Overall, these factors mean long-term demand for LNG is on an
upward trend.
Plans for construction and expansion of gas processing, LNG and LPG plants are brisk in Middle
Eastern countries including Oman, Qatar, and the U.A.E.
Capitalizing this backdrop, we have received orders for large-scale projects such as Train 4 forthe RasGas onshore expansion in Qatar, the Qalhat LNG in Oman, the Al-Kaleej gas development
phase 1 in Qatar, and a gas processing plant in the central part of Sumatra, Indonesia.
Recently, growth of the gas utilization business field resulted in expansion of our engineering
services so we reorganized our LNG operations into Natural Gas Value-Chain operation. We willdevelop sales activities to cover a variety of natural gas-related projects from upstream to final
market, aimed at most effective use of natural gas resources.
Projects completed in the fiscal year 2003 include DCS retrofitting of the LNG plant of PT.Badak
NGL, upgrades of FEED work at Oman LNG Plant from Shell Global Solutions International B.V.,
and the BP Ningbo LPG Bulk Breaking Terminal Project in China.

3D model for Qalhat LNG S.A.O.C.

In the domestic market, electric power companies and gas companies have notmade large-scale investments in LNG terminals. However, we have secured orders for various renovation and/or revamp projects for LNG terminals in this fiscal year, thanks to our solid reputationfor engineering expertise in the field of cryogenics.
In the field of LPG stockpiling, we received orders for engineering and construction of Namikata
and Kurashiki terminals in the first half of the fiscal year 2002. These projects are water sealed
underground cavern storage terminals, and our experience with BP Ningbo Huadong LPG project
should be useful and advantageous.
We are also focused on winning the Kamisu LPG national stockpiling terminal project, which isscheduled to be tendered in the fiscal year 2003.
In the new energy field, we have participated in developing a process for manufacturing synthesis gas at a gas-to-liquid (GTL) pilot plant for the Japan National Oil Corporation, which will produce Japan’s first synthetic fuel. Verification of the commercial viability of Chiyoda’s catalyst for
manufacturing synthetic gas will open up a promising future for this technology.

13

PROJECT HIGHLIGHTS

RasGas Train 4 LNG Onshore Expansion in Qatar
The Joint Venture of Chiyoda, Mitsui & Co., Ltd. and Snamprogetti S.p.A received at the end of
September, 2002, the notice to proceed with execution of the option for the detailed engineering,procurement and construction (EPC) of LNG Train 4 plant, LNG tank, berth, and condensate loading facilities from Ras Laffan Liquefied Natural Gas Company Limited (II) (RasGas II: Qatar
Petroleum and Mobil QM Gas Inc.) in the State of Qatar, in addition to the contract for its LNG
Train 3 plant currently under execution since April 1, 2001.
This contract for the LNG Train 4 project includes an installation of the world's currently largest
LNG Train, which will be identical with that of the Train 3 Project, and will produce approximately
4.7 million tons of LNG per annum. The LNG Train 4 plant will start delivering LNG cargoes by theend of 2005.
We believe that the notice to proceed with this contract option is largely attributable to our JV's
superb capability as proven in Train 3 project execution, and in successful track records in otherPresident Nobuo Seki expresses appreciation to U.H(Paul) Jones, venture manager of Ras Laffan Liquefied
Natural Gas Company Limited (II), for the RasGas Train
4 option contract awarded to Chiyoda.

Qatar projects, which result in a synergistic effect with the ongoing Train 3 project.
This option for Train 4 work means successive awards of EPC contracts to Chiyoda, beginningwith the Qatargas LNG Train 1/2/3 contracts (completed in 1998) and continuing with the RasGas
Train 3 contract (under execution). We believe this track record confirms Chiyoda’s competitive
strength in the LNG plant business of the Middle East region.

Qalhat LNG Project in Oman
Chiyoda-Foster Wheeler and Co. LLC was awarded a contract by Qalhat LNG S.A.O.C. for thedetailed engineering, procurement and construction (EPC) of a liquefied natural gas (LNG) train at
Qalhat, near Sur, the Sultanate of Oman. The contract includes construction of additional LNG
storage facilities as an option.
The new LNG train will be built adjacent to the existing Oman LNG Complex at Qalhat, where
two identical LNG trains, each with a capacity of 3.3 million tons per year, have been operating
since early 2000. During the completion of the existing trains for Oman LNG LLC, Chiyoda-Foster
Wheeler achieved highest quality and an outstanding safety record while performing within budget
and on a fast project schedule.
Through excellent performance in EPC for the existing plants, as well as for the ProjectSpecification Work on the new LNG train, Chiyoda-Foster Wheeler demonstrated its expertise asa reliable and competent engineering contractor and earned the confidence of Shell Global
Solutions International B.V., which has been involved in the Oman LNG project as TechnicalAdvisor from the outset.
The new LNG train aims for improved production capacity and is expected to be on stream by
the end of 2005. Chiyoda’s rich experience and proven performance in fast-track base-load LNG
President Nobuo Seki signs a parent company
guarantee in the presence of H.E. Mohammed Hamad
Saif Al Rumhi, Minster of Oil and Gas, at the contract
signing ceremonies for the Qalhat LNG train.

projects worldwide help Chiyoda-Foster Wheeler meet the challenging delivery schedule andenable Qalhat LNG S.A.O.C. to supply LNG supply in early 2006.

14

Al-Khaleej Gas Project Phase-1 in Qatar
On March 31, 2003, the Joint Venture of Chiyoda, Mitsui & Co., Ltd., Snamprogetti & Co.,
W.L.L. (CMS&A) received the award from ExxonMobil Middle East Gas Marketing Limited to execute the detailed engineering, procurement and construction (EPC) of Al-Khaleej Gas Project Phase
1 (AKG-1) in the State of Qatar.
This project will provide a reliable gas supply to significant projects within Qatar from the abundant reserves (900 TCF) in North Field. The new AKG-1 facilities will be built adjacent to the existing RasGas LNG Trains in the Ras Laffan Industrial City.
The EPC Award Ceremony for the Al-Khaleej Gas
Phase-1 Project at the Ritz Carlton Hotel in Doha,
Qatar.

Chiyoda believes that the award of this contract is attributable to a synergy effect with theongoing Train 3 and 4 execution and the company’s superb capability as proven in such ongoingprojects as well as in a successful track record with other Qatar projects.
Award of this AKG-1 project represents a succession of EPC contracts in Qatar for Chiyoda andits partners, including the Qatargas LNG Trains 1/2/3 contracts (completed in 1998), Qatargas
Debottlenecking Project and the RasGas Train 3 and 4 contracts (both under execution). We
believe this shows Chiyoda’s competitive stronghold in the business of Gas Value-Chain in the
Middle East region.

Gas Value Chain
Feed Natural Gas
Natural Gas
FieldsTreated Gas

Gas
Treatment
Plant

Gas
Processing
Plant

LNG
LPG
GTL
etc.

MarketReceiving
Terminals
Power Plant, etc.

Pipelines[Example] Qatar/Ras Laffan “Al-Khaleej Gas Project Phase 1”(Awarded in March 2003)
Qatargas LNG
Train 1, 2 & 3

Executedby Chiyoda

Qatargas LNG
Debottlenecking

Being executedby Chiyoda

Phase 1
North Field Gas

RasGas LNG
Train 1 & 2

FEED
by Chiyoda

RasGas LNG
Train 3 & 4

Being executedby Chiyoda

ExxonMobil
Al-Khaleej Gas
Project Phase 1

Awarded to
Chiyoda in March

Processed Gas
Qatar Petroleum
Common Cooling Water Project15

Qatar Petroleum /Sasol GTL Plant
Independent Water andPower Producer
Gas Chemical Plants
Export by Pipelines

Being executedby Chiyoda

BeforeDCS Retrofit & Instrumentation Upgrade for Bontang LNG Trains in Indonesia
PT. Badak NGL (a subsidiary of PERTAMINA) is operating one of the largest LNG production
complexes in the world – eight LNG trains with associated utility and offsite facilities. The first four
trains (Trains-A/B & C/D) were commissioned in 1977 and 1983 respectively, and were being monitored and controlled by panel-mounted electrical controllers using 1970’s technology. To enhance
the reliability, operability, and maintainability of those four trains, an entire revamp /upgrade of thecontrol, safety and the electrical system was done by Chiyoda.
Through this DCS Retrofit Project, PT. Badak’s existing drawings have been up-dated, which
enhances the maintainability and reliability of those four trains.
Three of the remaining four trains were also constructed in late 1980’s and 1990’s by Chiyoda

After (Refurbished by Ergonomics Design)with the latest monitoring and control technologies (DCS). As a result of this DCS Retrofit Project,
PT. Badak operates all of eight LNG trains under fully automated technologies with high reliability.
PT. Badak operates 365 days a year to produce and supply LNG to Japan, Korea, and Taiwan.
Chiyoda will continue to support PERTAMINA and PT. Badak, and contribute to Japanese and East
Asian energy security through its activities.

Mizushima LNG Receiving Terminal
Chiyoda was awarded a full-turnkey contract for the Mizushima LNG Receiving Terminal from
Mizushima LNG Company Limited, which was jointly established by Chugoku Electric Power Co.,
Inc., and Nippon Oil Corporation.
The scope of work for the project includes removing existing tanks within the premises ofMizushima Refinery and installing one above-ground PC LNG tank with a capacity of 160,000 kiloliters, and receiving and transshipment facilities mainly for use at the Mizushima power plant of
Chugoku Electric Power. Commercial operation is scheduled to commence in April 2006. The
capacity of LNG handled will be 600,000 tpa.
In 1969, Chiyoda constructed Japan’s first LNG receiving terminal for Tokyo Gas Co., Ltd. at
Negishi in Yokohama Harbor. Since then, among all the 24 terminals constructed and operated byelectric power companies and city gas companies in Japan, we have participated in engineeringand construction of 12, fully half of all LNG terminals, which may account for our excellent reputation.
We believe this new contract is in recognition of Chiyoda’s outstanding achievements and expeMizushima LNG Receiving Terminal. (bird’s eye view of
3D model)rience in performing engineering, procurement and construction (EPC) for LNG terminals.

16

Chemical
Projects

In overseas markets, looking at the mega petrochemical complex planned by U.S.
and European majors in China, three ethylene centers for BP, BASF, and Shell have started construction. Amidst these moves, we secured an EPC contract for constructing SM/PO and
MPG/Polyols plants from CNOOC and Shell Petrochemicals Company Limited.
In addition, following the successive completion of the latex and polystyrene plants in the previous fiscal year, we completed a converted epoxy resin plant for Dow Chemical in fiscal 2002.
We have also licensed our proprietary acetic acid manufacturing technology (ACETICA®) to a
Chinese firm for potential construction of a plant.
For large-scale gas chemical plants to diversify the use of gas in producing countries, we won
the contract for the world’s largest methanol plant in Saudi Arabia, where we have a significant
track record of executing large-scale gas chemical plant projects.
On the other hand, chemical industry investment in China is shifting to higher value-addedfunctional chemical products from general-purpose chemicals.
Although there are many projects in this field, the market is smaller than that of general-purpose chemicals and the number of projects in which we can exert our technological superiority islimited. Therefore, we have carefully selected projects in which we can make the most of ourstrengths.
China is expected to grow into a giant consumer market from its current position as the world’s
factory. While investment by U.S. and European majors and quasi-majors continues, more
Japanese firms are expected to enter the market.
New regulations enacted by the Chinese government at the end of 2002 make it difficult to win
EPC contracts on a lump-sum basis, but we will aim for higher valued services with quality pro-

Chiyoda was involved in the construction of allpolycarbonate plants for Teijin in Singapore.

jects, utilizing our project management expertise through alliances with international firms.

In the domestic market, we saw price hikes of butadiene, styrenemonomer, andparaxylene, led by an increasing demand for these products in China. The rise in prices, however,
was not enough to induce the new investment in Japan. Chemical companies are changing theirbusiness stances, strengthening propylene production to counter the growth of ethane-based ethylene.
The move toward increased propylene production will involve FCC unit revamping of petroleum
refineries and should result in plant and equipment investment in propylene downstream derivatives.
These moves by chemical companies concur with the petroleum refining companies’ search forhigher value-added products besides gasoline, and we expect continued integration of chemical
firms and refiners.

In the pharmaceutical industry, fierce competition to develop new drugs has
accelerated. As a result, major pharmaceutical manufacturers are further specializing in research
Pharmaceuticals factory for Eisai Co., Ltd.
(Artist’s rendering)and development, while spinning off drug manufacturing and laying the groundwork to undertake entrusted manufacturing from third-party companies.
Nevertheless, we won a contract from a major foreign pharmaceutical manufacturer to diagnose the existing facilities and develop a plan for integration of its factories.
And we will aim at winning repeat orders for world-class research centers from major manufacturers, focusing on high value-added projects where we can make the best use of our technological expertise.

17

Yoshihito Hashimoto Elected PDA Director
Yoshihito Hashimoto, an Engineering Consultant at Chiyoda, was recently elected a
Director of the Parental Drug Association (PDA). Chiyoda is a corporate member of the
PDA. The PDA Board of Directors consists of 17 members, and Hashimoto is the only
Director from Asian. The U.S.-based PDA is a non-profit organization dedicated to
improving the quality of pharmaceuticals. The association provides scientific opinions ondraft regulations and guidelines issued by the U.S. Federal Drug Administration (FDA)
before they go into effect, as well as ideas and comments on execution of them from scientific aspect. It also provides educational programs for concerned professionals toensure compliance with new regulations. Now, Hashimoto works with the American andEuropean Directors, and cooperate with various governmental agencies and industry
associations to see that the quality of pharmaceuticals produced in Asia conform to pertinent regulations.

PROJECT HIGHLIGHTS

IMC’s World Scale Methanol Plant in Saudi Arabia
Chiyoda and its Saudi Arabian affiliated company, Chiyoda Petrostar Limited (CPL), were selected as the contractors for the engineering, procurement, construction and commissioning (EPCC)
of a world-scale methanol plant and associated utilities facility project by International Methanol
Company Limited (IMC). IMC is a joint venture between Saudi International Petrochemical
Company (SIPC) and Japan-Arabia Methanol Company Ltd. (JAMC). JAMC is a Japanese limited
liability company owned by a consortium of major Japanese companies led by Mitsui & Co., Ltd.
This project is to build today’s world-scale grass root 2,900 tons per day methanol plant andassociated utility and offsite facilities in Jubail Industrial City in Saudi Arabia. The project will becompleted in 30 months and a majority of the methanol produced at this plant will be taken off by
JAMC.
Chiyoda and CPL were selected following international competitive bidding. Chiyoda’s expertisefrom past methanol projects, combined with abundant EPC experience in Saudi Arabia, was amajor factor in its selection. Due to its substantial experience and expertise in engineering, procurement and construction of synthesis gas process plants, Chiyoda is able to offer a technicallyand commercially reliable proposal at a competitive price, another reason for selection of Chiyoda

Contract-signing ceremonies held at Al Khobar, Saudi
Arabia, on December 23, 2002.

for this project.

18

Licenses ACETICA® to Chinese Firm
Chiyoda executed a licensing agreement with Guizhou Crystal Organic Chemical Group Co.,
Ltd. in China for a planned 36,000 tons per year acetic acid plant. Chiyoda will grant a license forits proprietary process technology to produce acetic acid (ACETICA® Process) and provide its
process design package to the client. Further, it has been basically agreed that Chiyoda will provide the engineering, procurement, and supervising services for this project. This plant, when constructed, will be the first commercial plant using the ACETICA® Process.
Guizhou Crystal Organic Chemical Group Co. manufactured acetic acid with a process that used
Licensing agreement ceremony for Chiyoda’s
proprietary ACETICA® process.

mercury (Hg), which caused water pollution in the area. As a part of overall measures for the environmental protection of the Maotiao River Basin in Guizhou Province, this project will construct anacetic acid plant employing a process that does not use mercury, and the ACETICA® Process has
been selected.
ACETICA® is a novel process for producing acetic acid based on methanol carbonylation. The
process produces high yields of acetic acid from methanol and carbon monoxide in the presenceof a proprietary catalyst developed by Chiyoda. The ACETICA® Process with this catalyst has several advantages over the conventional process: a) ease of catalyst handling, b) high reactor productivity, c) less byproduct, and d) less corrosion of plant equipment. Consumption of both steam andelectric power are also significantly reduced with the employment of a unique bubble column loop
reactor.
Chiyoda expects that the implementation of this project will accelerate the demand for theprocess in China, whose market is expected to grow exponentially now that China has been amember of the WTO since December 2001.
Acetic acid is used for vinyl acetate, which is the raw material of synthetic fibers and Pure
Terephthalic Acid (PTA), the raw material of PET. Demand in China is expected to increase at anaccelerating pace.

SM/PO and MPG/Polyols Plant for CSPC in China
Chiyoda, together with Technip and Mitsubishi Corporation, won a contract for the engineering, procurement and construction (EPC) of SM/PO and MPG/Polyols plant from CNOOC and Shell
Petrochemicals Company Limited (CSPC) in China.
This project is a part of CSPC’s Nanhai Petrochemicals Project, which is regarded as one of thelargest Sino-foreign joint venture projects in China, with a total investment of USD 4.3 billion. This
world-scale SM/PO and MPG/Polyols plant will produce 560,000 tons per year of styrene monomer(SM), 250,000 tons per year of propylene oxide (PO), 185,000 tons per year of polyols and 60,000
Contracts signing ceremony for the SM/PO and
MPG/Polyols Plant on November 25, 2002.

tons per year of monopropylene glycol (MPG). The plants will be on stream by the end of 2005.
Major reasons for selection of Chiyoda include the superb capabilities being proven in the similar projects for Shell, its abundant EPC experience in China, and competitive pricing.
Chiyoda has completed many projects in China since the 1970‘s. All of these projects have beensuccessfully completed without accident, thanks to Chiyoda‘s technical expertise and project execution skills, which are highly reputed by clients.
We believe implementation of this significant project will further reinforce its competitive
stronghold in China.

19

Petroleum
Projects

In overseas markets, demand for environmental protection measures and heavy oil
cracking technology is expected to increase in Asia, so we will focus on utilizing our technologicalexpertise in these fields while continuing technological research and development.

In the domestic market, we completed a series of projects related to ultra-deep
desulfurization of kerosene for petroleum refineries.
In environmental protection project, we have turned over the Osaka Refinery of Nippon
Petroleum Refining Co., Ltd, the first commercial CASOX process unit, which was developed jointlywith Hokuriku Electric Power Company.
In the petroleum industry, sulfur-free gasoline and reduction of heavy oil will become more
important as environmental regulations become stricter. We will focus on providing businesssolutions from the planning phase, based on our superior technological expertise in hydrodesulfurization.
In Japan, industrial companies have achieved significant energy savings on their own. However,there is still considerable room for conservation of energy in large industrial complexes. We plan tosecure EPC contracts in this field by proposing and conducting feasibility studies, taking into
account of the heat balance of the total area, which also contributes to a reduction of greenhousegas emissions.

Ultra-deep desulfurization(gas oil) plant for Taiyo Oil Co., Ltd.

GeneralIndustries
Projects

Recovery from the IT recession was not strong enough to cause a rebound in high-quality
film/electronic materials, where we are actively seeking business opportunities, and the drop in
prices of finished products discouraged plant and equipment investment.
However, companies with strong earnings are expected to increase their investments in modernizing and expanding existing facilities as they move to boost efficiency.
Taking advantage of our superiority in high-quality film/electronic materials, we will focus on
both new and expansion projects in this field.

20

FY2003 Breakdown by Industry

FY2003 Breakdown by Region

LNG/Gas Processing

Middle East

Bulk & Commodity Chemicals

Asia

Specialty & Fine Chemicals

Japan

Petroleum Refining

OthersGeneral Industries
Infrastructure
Others8%

16%

New Contracts

1%
1%
4%

28%

12%

46%

59%

7%

18%
7%

Construction Contracts
26%

29%

28%

1%
1%

50%

10%

15%

21%
12%

2%
1%

7%

7%

Backlog of Contracts

5%
8%

26%
52%

14%

63%
15%

21

Major Projects (Non-consolidated)
New Contracts

Clients

Projects

LocationsRas Laffan Liquefied Natural Gas Co., Ltd. ( II )Qalhat LNG S.A.O.C.

LNG Plant (Train-4)
LNG Plant (Qalhat Train)
Gas Pre-Treating Plant
NGL Recovery Plant
Fractionation Plant
Methanol Plant & Utility/Offsite
SM/PO and MPG/Polyols Plant
Acetic Acid Plant (Licensing & Process Design Package)
Crude Distillation Unit (Revamp)
Specialty Chemical Plant (Rehabilitation)
LPG Storage Terminal
LPG Storage Terminal
Bulk Pharmaceutical Plant

Qatar
Oman

ExxonMobil Middle East Gas Marketing Ltd.
International Methanol Company
CNOOC and Shell Petrochemicals Co., Ltd.
Guizhou Crystal Organic Chemical Group Co., Ltd.
Nippon Petroleum Refining Co., Ltd
Mitsubishi Gas Chemical Co., Inc.
Japan LPG Storage Co., Ltd.
Japan LPG Storage Co., Ltd.
Eisai Co.,Ltd.
Construction Contracts PT. Badak NGL
Ras Laffan Liquefied Natural Gas Co., Ltd.
Pertamina
Tung Ting Gas Corporation
Abu Dhabi Gas Liquefaction Co., Ltd. (ADGAS)
BP Ningbo Huadong LPG Co., Ltd.
The Dow Chemical (Zhangjiagang) Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Nippon Petroleum Refining Co., Ltd.
Kaihatsu Denki Co., Ltd
The Tokyo Electric Power Co., Inc.
The Tokyo Electric Power Co., Inc.
Tokyo Gas Co., Ltd.
Teijin Polycarbonate Singapore Pte. Ltd.
Ajinomoto Pharma Co., Ltd.
Pharmacia K.K.
Taiyo Oil Co., Ltd.
Showa Yokkaichi Sekiyu Co., Ltd.
Asahi Glass Co., Ltd.
Backlog of Contracts

Ras Laffan Liquefied Natural Gas Co., Ltd. ( II )Qatar Liquefied Natural Gas Co., Ltd.
Thai Olefins Public Co., Ltd.
China National Bluestar (Group) Corporation
Petroleos de Venezuela S.A. (PDVSA)New Energy and Industrial Technology Development
Organization (NEDO)
Jubail United Petrochemical Company
Petrochemical Industries Development Management
Company (PIDMCO)
Qatar Petroleum
Taiyo Oil Co., Ltd.
Japan LPG Storage Co., Ltd.
Kobe Steel, Ltd.
The Kansai Electric Power Co., Inc.
Japan Nuclear Fuel Limited
Mizushima LNG Co., Ltd.
Electric Power Development Co., Ltd.
Toyo Roki Mfg. Co., Ltd.

Qatar
Saudi Arabia
China
China
Yokohama, Japan
Niigata, Japan
Namikata, Japan
Kurashiki, Japan
Ibaraki, JapanLNG Plant (DCS Retrofit)
NGL Plant (FEED)LNG Plant (Train-I, FEED)LNG Receiving Terminal (Preliminary work)
LPG Plant (4th Train, FEED)LPG Underground Storage Terminal
Converted Epoxy Resin Plant
Sulphur Recovery Unit
Hydrogen Production Unit
Catalytic Flue Gas Desulfurization Unit
Advanced Energy Savings Program
Revamp for Ultra Deep Desulfuraization
Integration Work of Mizushima Complex
Revamp for Ultra Deep Desulfurization
Ash Handling Facility
LNG Facilities
LNG Facilities (Control System for Disaster Prevention)
LNG Facilities (Reconstruction)
Polycarbonate Plant (No.4)
Pharmaceutical Factory
Drug Wrapping Factory (Revamp)
Deep Hydrodesulfurization (DHDS) Plant
Renewal of Compressor and Pump
Bulk Pharmaceutical Facility

Indonesia
Qatar
Indonesia
TaiwanU.A.E.
China
China

LNG Plant (Train-3)
LNG Plant (Debottlenecking)
Ethylene Plant
Bisphenol-A Plant
Refinery Modernization

Qatar
Qatar
Thailand
China
Venezuela

Osaka, Japan
Sendai, Japan
Sendai, Japan
Okayama, Japan
Yamaguchi, Japan
Kanagawa, Japan
Kanagawa, Japan
Chiba, Japan
Chiba, Japan
Singapore
Fukushima, Japan
Ibaraki, Japan
Ehime, Japan
Niigata, Japan
Chiba, Japan

Fertilizer Plant (Revamp)

MyanmarEthylene Plant

Saudi Arabia

Fertilizer Complex

Iran

Common Cooling Water System
Crude Distillation Unit (Revamp)
LPG Storage Terminal
Flue Gas Desulfurization Plant (No.2)
Flue Gas Desulfurization Plant
Utility Facilities
LNG Receiving Terminal (Grass-Root)
Fly Ash Recovery
Factory Removing & Reconstruction

Qatar
Ehime, Japan
Nagasaki, Japan
Hyogo, Japan
Kyoto, Japan
Aomori, Japan
Okayama, Japan
Yokohama, Japan
Shizuoka, Japan22

Te c h n o l o g yNational Project for New GTL Process Development
Chiyoda is participating in a gas-to-liquid (GTL) project sponsored by the Japan National Oil
Corporation (JNOC), as part of a consortium that includes Japan Petroleum Exploration Co., Ltd.,INPEX Corporation (INPEX), Cosmo Oil Co., Ltd., and Nippon Steel Corporation. The goal of the
project is to develop a process for smaller gas fields, which tend to have higher CO2 content intheir natural gas.
The first step in the program was to build a pilot plant to prove the new GTL process. Chiyoda
was in charge of the basic design of the synthesis gas section. Cosmo and Japan Steel teamed up
The GTL pilot plant at Yufutsu.

to design the FT synthesizing section. Chiyoda was the leader in construction for the pilot plant. In
July 2001, construction of the plant began at Japan Petroleum Exploration Company’s Yufutsu gas
field, and the plant was completed in July 2002. The pilot plant has production capacity of 7 BPSD.
In July 2002, the synthesis gas line started up. CO2 reforming catalysts developed by the
Chiyoda R&D Center were installed in the tubular reformer, the heart of the system. The catalysts
have shown high resistance to carbon formation under CO2 reforming conditions since operations
began, and they continue at the same high efficiency levels achieved when the plant started up. In
October 2002, the FT line, which converts synthesis gas into synthetic fuel, started up. The pilot
plant will continue operation until December 2003.

First Catalytic Flue Gas Desulfurization (FGD) Plant
Chiyoda developed a new process to remove SO2 from flue gas by catalytically oxidating it toSO3, and called it the CASOX process. The heart of the process is a proprietary honeycomb catalyst
loaded in a reactor. The CASOX process can achieve efficient FGD operation with low energy consumption and high performance (more than 99.0% SO2 removal). The process also creates dilute
sulfuric acid as a by-product .
The first commercial plant to use the CASOX process has been successfully operated since April
2003 at the Nippon Petroleum Refining Co. Osaka Refinery. The plant was designed to treat
45,000 Nm3/hr of tail-gas from the sulfur recovery unit. The sulfuric acid generated at the plant as
a by-product is temporarily placed in a storage tank, and later sold.
Based on this first commercial experience, Chiyoda plans to further promote our business in thisNippon Petroleum Refining’s Osaka
No.1 Plant, where CASOX was first
installed.

field as well as to extend application of the CASOX process to desulfurization of smokestack gases
from industrial boilers and metal refining furnaces.

Alliance with Intergraph for Global Engineering IT Environment
Chiyoda and the Process, Power & Offshore division of Intergraph Corporation have signed along-term contract for implementation and development of global information management andproject engineering software. Under the agreement, Intergraph and Chiyoda will work to further
refine engineering, procurement and construction (EPC) requirements within Intergraph
SmartPlant® Foundation and The Engineering Framework.
Intergraph will use Chiyoda's internally developed i-PLANT21® system as a knowledge resource
for these additional EPC requirements. Chiyoda plans to employ SmartPlant® Foundation as its
Chiyoda and Intergraph sign the alliance agreement.

worldwide project engineering document and data management system by year-end, followed by
implementation of The Engineering Framework in 2004.

23

36% Nickel Alloy Steel Piping for LNG Service
16 inch 18-8 Stainless Steel

36% nickel content alloy steel shows an extremely low coefficient of linear thermal expansion,
16 inch 36%Ni Alloy Steelso it is often used for standard meter measures.
Chiyoda joined Tokyo Gas Co., Ltd. and JFE Steel Corporation to develop a way to make 36%
nickel alloy steel piping for liquefied natural gas (LNG). The alloy’s super-low coefficient of linear
thermal expansion (about one-tenth that of 18-8 stainless steel) makes it ideal for the cryogenic

32 inch 36%Ni Alloy Steeltemperatures required in LNG service. However, because of difficulties in multi-layer welding, it has
been difficult to use the alloy for applications such as piping, which require high-strength welded

Piping layout of 18-8 SS (left) and 36% nickel alloysteel (right) is different.

joints. The Chiyoda joint project has now solved the problem of multi-layer welding with a welding
material containing tantalum.
The new welding technique makes 36% nickel alloy steel LNG piping a reality, and the low thermal expansion coefficient means contraction loops in the piping are no longer necessary.
Chiyoda has confirmed that the alloy can be successfully used in both 16-inch (including fittings)
and 32-inch LNG piping.

Technology Transfer under First CT-121 License to China
Chiyoda concluded its first CT-121 license for China in March 2003, signing an agreement with
Ebara Corporation and Environmental Engineering Corporation. In addition to performing a basic
design for the Taishan FGD Project, Chiyoda conducted a technology transfer (in the form of training) to its engineering firm, Beijing Boqi Electric Power Science & Technology Co., Ltd.
Classroom training for 12 Chinese engineers at Chiyoda’s headquarters in Yokohama started on
July 22, 2003, and included calculation methods for material and equipment selection, sizing andstructural calculations for JBR, instrumentation logic, and so on.
Chinese engineer trainees with Japanese staff at
Chiyoda’s headquarters.

With students eager to learn and Chiyoda lecturers well prepared, the 12 days of training werevery successful. The skills and knowledge learned at Chiyoda will surely help them dominate in thebidding process for FGD projects in China as well as in the execution of future CT-121 projects.

Titania Catalyst Made by Pore Control
It is well known that titania catalyst carriers are more effective for hydrodesulfurizing petroleum
fractions than those made of alumina, probably because of the chemical interaction between thetitania carrier and the activator on it. However, the industrial use of titania catalyst carriers is currently limited because its surface area is much lower than that of alumina carriers, and it is wellknown that catalyst activity is proportionate to surface area.
Chiyoda joined an R&D program, sponsored by the New Energy and Industrial Technology
Development Organization (NEDO), that aims to develop a highly active catalyst to produce sulfurA close-up of titania catalyst made for testing
purposes.

free diesel fuel. Chiyoda proposes a proprietary technology for a multi-gelation method that cancontrol pore size distribution and surface area, even in titania carriers. Chiyoda has already developed manufacturing technology for structure-controlled titania support catalysts used in ultradeep hydrodesulfurization of diesel oil. Recently, catalyst performance tests conducted by NEDO
showed excellent results compared with those developed by others.
We expect titania carriers prepared by our proprietary method to find applications in otherindustrial fields such as De-NOX catalysts, photo-catalysts, and so on.

24FINANCIAL SECTION
C o n s o l i d a t e d F i v e - Ye a r F i n a n c i a l S u m m a r yYears ended March 31

Millions of Yen
2003

2002

2001

2000

1999

Construction contracts .......................................................

¥ 166,367¥ 141,387¥ 128,665¥ 168,963¥ 312,234

Cost of Construction contracts ...........................................

155,924

136,762

131,240

154,112308,703

Income (loss) before income taxes and minority interests ....

2,509

1,861

(3,357)

1,553(10,534)

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

2,000

121

(4,607)698(11,623)

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

¥ 120,297¥ 129,314¥ 114,652¥ 153,099¥ 213,920

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

16,67015,10315,023

8,181

6,208

Working capital ..................................................................

7,526

1,387

2,241

(19,594)(22,942)

For the Year:At Year-End:

Current ratio (%)................................................................

108.4

101.4

102.6

84.5

87.7

Long-term debt ..................................................................

10,422

10,672

11,346

12,545

13,518Per Common Share (Yen):
Net income (loss)................................................................
Shareholders’ equity...........................................................

¥

10.79

¥

0.65

¥

(20)

¥

3

¥

(58)

90

81

81

33

25

185,429

185,429

185,429

248,357

248,357

Other Statistics:
Number of shares outstanding* (thousands).......................
* At year-end

25

Consolidated Financial Review

Operating Results

Financial Position

In fiscal 2003 ended March 31, 2003, revenues from construc-

As of March 31 2003, total assets amounted to ¥120,297 million

tion contracts on a consolidated basis totaled ¥166,367 million(US$1,002 million), ¥9,017 million lower than those of the previous(US$1,386 million), an increase of 17.7% from the previous year.

year. This decrease was due mainly to a reduction in long-term
receivables of ¥14,194 million to ¥9,918 million (US$83 million).

The cost of construction contracts increased by 14.0%, to¥155,924 million (US$1,299 million).

Total current liabilities decreased by ¥11,512 million, to ¥89,403
million (US$745 million), mainly because of decrease in short-term

Selling, general and administrative expenses decreased by ¥932

bank loans.

million to ¥8,895 million (US$74 million) through the reduction of
fixed expenses.

Total shareholders' equity rose by ¥1,567 million, to ¥16,670 million (US$139 million). The shareholders' equity ratio was 13.9%.

Other income consisting of reversal of allowance for doubtful

The accumulated deficit decreased by ¥2,020 million to ¥497 mil-accounts, equity in earnings of associated companies, and others

lion (US$4 million). In an effort to decrease the deficit the Company

decreased by ¥6,102 million, to ¥961 million (US$8 million). The

refrained from paying cash dividends for fiscal 2003.

decrease was mainly due to gain on discharge of liabilities posted in
the previous year.

Cash Flows
The income before taxes and minority interests was ¥2,509 million (US$21 million), up from ¥1,861 million (US$14 million) in the

Net cash provided by operating activities totaled ¥6,939 million

previous year, and the net profit per common share amounted to(US$58 million), comprising ¥2,000 million (US$17 million) in net¥10.8 (US$ 0.09).

profit and ¥2,793 million (US$23 million) provided by net changes
in operating assets and liabilities, and ¥2,146 million (US18 million)

During the year, the Company was awarded a total of ¥249,093
million (US$2,076 million) in contracts. International contracts

by other factors, mainly composed of the equity in earnings of associated companies and income taxes paid.

accounted for ¥180,488 million (US$1,504 million) or 72.4% of thetotal with domestic contracts making up the remaining ¥68,605

Net cash used in investing activities amounted to ¥873 million

million (US$572 million). The backlog of contracts as of March 31,(US$7 million). Disbursements for originating loans occupy substan-

2003, stood at ¥316,167 million (US$2,635 million), with domestic

tial portion of it.

contracts accounting for ¥83,604 million (US$697 million) of thetotal and international contracts for ¥232,562 million (US$1,938
million).

Net cash used in financing activities totaled ¥9,544 million(US$80 million) due primarily to ¥8,718 million (US$73 million) cash
outflows for repayment of short-term debt.
Cash and cash equivalents, end of year, decreased by ¥3,737 million, to ¥34,940 million (US$291 million).

26

Consolidated Balance Sheets
Chiyoda Corporation and Consolidated Subsidiaries
March 31, 2003 and 2002

Thousands of
U.S. Dollars(Note 1)ASSETS
Millions of Yen
2003

2002

2003

CURRENT ASSETS:
Cash and cash equivalents ...........................................................................................

¥

34,940¥38,677$291,167

Time deposits...............................................................................................................

1,172

1,774

9,767

Notes and accounts receivable — trade (Notes 3 and 8) ...............................................

20,32525,334

169,375

Allowance for doubtful accounts .................................................................................

(629)

(368)

(5,242)

Costs and estimated earnings on long-term construction contracts (Note 4).................

5,050

2,246

42,083

Costs of construction contracts in process....................................................................

21,10523,910175,875

Jointly controlled asset of joint venture ........................................................................

8,672

8,222

72,267

Prepaid expenses and other (Notes 7 and 12)...............................................................

6,294

2,507

52,450Total current assets .............................................................................................

96,929102,302807,742

Land ...........................................................................................................................

2,527

2,691

21,058

Buildings and structures ...............................................................................................

6,676

6,731

55,633

Machinery and equipment ...........................................................................................

960

1,220

8,000

PROPERTY, PLANT AND EQUIPMENT (Note 8):

Tools, furniture and fixtures .........................................................................................

5,178

5,424

43,150Total ...................................................................................................................

15,341

16,066

127,841

Accumulated depreciation ...........................................................................................

(8,274)(8,524)(68,950)

Net property, plant and equipment .....................................................................

7,067

7,542

58,891

1,835

1,759

15,292

3,650

5,020

30,417INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 5 and 8) ...........................................................................
Investments in and advances to unconsolidated
subsidiaries and associated companies (Notes 6 and 7).................................................
Long-term loans...........................................................................................................

615

19

5,125

Long-term receivables (Note 7).....................................................................................

9,918

14,19482,650

Other investments........................................................................................................

4,768

5,342

39,733

Allowance for doubtful accounts (Note 7) ....................................................................

(4,485)(6,864)(37,375)

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

16,301

19,470135,842TOTAL ...........................................................................................................................

¥ 120,297¥ 129,314$ 1,002,475

See notes to consolidated financial statements.

27

Thousands of
U.S. Dollars(Note 1)

LIABILITIES AND SHAREHOLDERS' EQUITY
Millions of Yen
2003

2002

2003

CURRENT LIABILITIES:
Short-term bank loans (Notes 8 and 11).......................................................................

¥

7,939

¥

16,667$

66,158Current portion of long-term debt (Notes 8 and 11).....................................................

263

789

2,192

Notes and accounts payable — trade (Notes 3 and 11) ................................................

46,511

40,343

387,592

Advance receipts on construction contracts..................................................................

25,172

33,713

209,766

Income taxes payable...................................................................................................

295

488

2,458

Allowance for contingent loss ......................................................................................

800

Accrued expenses and other ........................................................................................

8,423

8,915

70,192

6,667

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

89,403

100,915745,025

NON-CURRENT LIABILITIES:Long-term debt (Notes 8 and 11) .................................................................................

10,422

10,67286,850Liability for retirement benefits (Note 9) .......................................................................

3,182

2,025

26,517

Other liabilities.............................................................................................................

121

106

1,008

Total non-current liabilities..................................................................................

13,72512,803

114,375

MINORITY INTERESTS ...................................................................................................

499

493

4,159

12,02812,028100,233CONTINGENT LIABILITIES (Notes 3, 14, 15 and 16)

SHAREHOLDERS' EQUITY (Notes 10 and 18):
Common stock — authorized, 570,000 thousand shares;
issued, 185,429 thousand shares ..............................................................................
Preferred stock — authorized, 80,000 thousand shares
Additional paid-in capital .............................................................................................

5,819

5,819

48,492

Accumulated deficit .....................................................................................................

(497)(2,517)(4,142)

Unrealized gain (loss) on available-for-sale securities ....................................................

10

(1)

83

Foreign currency translation adjustments .....................................................................

(642)

(220)

(5,350)40,521 shares in 2002 .................................................................................................

(48)

(6)

(400)

Total shareholders' equity ...................................................................................

16,67015,103

138,916TOTAL ...........................................................................................................................

¥ 120,297¥ 129,314$ 1,002,475

Treasury stock — at cost, 229,340 shares in 2003 and28

Consolidated Statements of Income
Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2002

Thousands of
U.S. Dollars(Note 1)Millions of Yen
2003

2002

2003

CONSTRUCTION CONTRACTS (Notes 3 and 4) ..............................................................

¥ 166,367¥ 141,387$ 1,386,392

COST OF CONSTRUCTION CONTRACTS (Notes 3 and 4)...............................................

155,924

136,762

1,299,367

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

10,443

4,625

87,025SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 3 and 13) ....................

8,895

9,827

74,125

Operating income (loss) ......................................................................................

1,548(5,202)

12,900OTHER INCOME (EXPENSES):Interest and dividend income (Note 3)..........................................................................

360

662

3,000

Interest expense...........................................................................................................

(529)

(844)

(4,408)Provision for contingent loss ........................................................................................

(800)

Reversal of (provision for) allowance for doubtful accounts ..........................................

1,167

Provision for investment loss ........................................................................................

(264)(6,667)
(580)

9,725
(2,200)Gain on discharge of liabilities (Note 11) ......................................................................

2,871

Equity in earnings of associated companies ..................................................................

1,000

526

8,333

Foreign exchange gain (loss) ........................................................................................

(178)

871

(1,483)Gain on sales of investments in subsidiaries..................................................................

315

1,385

2,625

Loss on devaluation of golf club membership...............................................................

(294)

(3)

(2,450)Gain on sale of intellectual property right.....................................................................

800

Reversal of liability for retirement benefits to directors .................................................

384

Reversal of additional retirement benefits to employees ...............................................

964

Other — net ................................................................................................................

184

27

1,533

Other income — net ...........................................................................................

961

7,063

8,008

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS .........................................

2,509

1,861

20,908Current........................................................................................................................

951

1,786

7,925

Deferred ......................................................................................................................

(147)

(88)

(1,225)

Refund of foreign income taxes ...................................................................................

(317)

Total ...................................................................................................................

487

1,698

4,058

MINORITY INTERESTS IN NET INCOME ........................................................................

22

42

183

INCOME TAXES (Note 12):NET INCOME..................................................................................................................

¥

2,000

(2,642)

¥

121

Yen

$

16,667

U.S. Dollars

PER SHARE OF COMMON STOCK (Note 17):
Basic net income..........................................................................................................
Diluted net income ......................................................................................................
See notes to consolidated financial statements.

29

¥

10.79
10.77

¥

0.65

$

0.09
0.09

Consolidated Statements of Shareholders’ Equity
Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2002

Millions of Yen

Thousands

BALANCE, APRIL 1, 2001.....................................

Unrealized
Foreign
Loss onCurrency
Accumulated Available-for-sale Translation
Securities
Deficit
Adjustments

Shares ofCommonStockCommonStock

Additional
Paid-in
Capital185,429¥ 12,028¥ 29,473¥ (26,289)(23,654)

23,654

Transfer to accumulated deficit (Note 10) ..........
Increase in accumulated deficit for decreasein consolidated subsidiaries .............................

(3)

Net income ........................................................

121

TreasuryStock¥ (178) ¥Decrease in treasury stock (10,040 shares) .........

5

Net increase in unrealized loss on available-for-sale securities ...........................................

¥(1)

Net decrease in foreign currency translation
adjustments ....................................................
BALANCE, MARCH 31, 2002 ...............................

(42)
185,429

12,0285,819(2,517)

Decrease in accumulated deficit due to increase inassociated companies accounted for by equity method....

20

Net income ........................................................

2,000

(1)

(220)

(6)

Increase in treasury stock (188,819 shares) ........

(42)

Net increase in unrealized gain on available-for-sale securities ...........................................

11

Net decrease in foreign currency translation
adjustments ....................................................

BALANCE, MARCH 31, 2003 ...............................

(11)

(422)

185,429¥ 12,028

¥

5,819

¥

(497) ¥

10

¥ (642) ¥ (48)Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2002 ..................................................

CommonStock

Additional
Paid-in
Capital$ 100,233$ 48,492

Accumulated
DeficitUnrealized
Foreign
Loss onCurrency
Available-for-sale Translation
Securities Adjustments$ (20,975) $Decrease in accumulated deficit due to increase inassociated companies accounted for by equity method...............

166

Net income ...........................................................................

16,667(8) $(1,833) $Increase in treasury stock (188,819 shares)............................

(50)

(350)

Net increase in unrealized gain on available-for-sale securities....

91

Net decrease in foreign currency translation adjustments ......

BALANCE, MARCH 31, 2003 ..................................................

Treasury
Stock(3,517)$ 100,233$ 48,492$ (4,142) $83$(5,350) $ (400)See notes to consolidated financial statements.

30

Consolidated Statements of Cash Flows
Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2002

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2003
OPERATING ACTIVITIES:
Income before income taxes and minority interests.......................................................
Adjustments for:
Income taxes paid ...................................................................................................
Depreciation and amortization ................................................................................
Reversal of allowance for doubtful accounts — net .................................................
Provision for contingent loss....................................................................................
Provision for investment loss....................................................................................
Provision for (reversal of) retirement benefits — net ................................................
Reversal of additional retirement benefit to employees ............................................
Gain on sales of investment in subsidiaries ..............................................................
Loss on devaluation of golf club membership ..........................................................
Gain on discharge of liabilities .................................................................................
Gain on sale of intellectual property right ................................................................
Foreign exchange loss (gain) — net .........................................................................
Equity in earnings of associated companies .............................................................
Changes in operating assets and liabilities:
Decrease in notes and accounts receivable and costs and estimatedearnings on long-term construction contracts..................................................
Decrease in costs of construction contracts in process ........................................
Decrease in interest and dividend receivable .......................................................
Increase (decrease) in trade notes and accounts payable.....................................
(Decrease) increase in advance receipts on construction contracts.......................
Other — net............................................................................................................
Total adjustments..........................................................................................

2,509

¥

(790)
1,226
(968)
800
264
1,157

2003

1,861

$

(1,718)
1,026
(193)

20,908(6,583)
10,217(8,067)
6,667
2,200
9,642

916
(1,000)

(305)
(964)
(1,385)
3(2,871)
(800)
(493)
(526)

1,144
2,805
1,217
6,168
(8,541)
53
4,430

4,652
8,959
759
(1,695)
3,078
1,030
8,557

9,533
23,375
10,14251,400(71,175)
441
36,917

Net cash provided by operating activities.......................................................

6,939

10,41857,825INVESTING ACTIVITIES:
Proceeds from sales of investment securities .................................................................
Proceeds from sales of investment in subsidiaries..........................................................
Purchase of investment securities..................................................................................
Purchases of property, plant and equipment.................................................................
Proceeds from sales of property, plant and equipment..................................................
Disbursements for originating loans..............................................................................
Proceeds from collections of loans ................................................................................
Other — net.................................................................................................................

8
116
(118)
(296)
142
(638)
193
(280)

1,152
749
(501)
(484)
112
(685)
(548)

67
967
(983)
(2,467)1,183(5,316)
1,608(2,334)

Net cash used in investing activities ...............................................................

(873)

(205)

(7,275)FINANCING ACTIVITIES:Net decrease in short-term bank loans..........................................................................
Proceeds from long-term debt ......................................................................................
Repayments of long-term debt .....................................................................................
Other — net.................................................................................................................

(8,718)
9
(793)
(42)

(5,266)80(698)
8(72,650)75(6,608)(350)

Net cash used in financing activities ..............................................................

(9,544)(5,876)(79,533)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS.....

(459)

428

(3,825)NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ...............................................

(3,937)

4,765(32,808)

CASH AND CASH EQUIVALENTS OF NEWLY (EXCLUSION OF) CONSOLIDATEDSUBSIDIARIES, BEGINNING OF YEAR.........................................................................

200

(1)

1,667

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.....................................................

38,67733,913322,308

CASH AND CASH EQUIVALENTS, END OF YEAR..........................................................
See notes to consolidated financial statements.

31

¥

2002

(315)
294

¥

34,940¥38,677(2,625)
2,450

7,633
(8,333)$291,167

Notes to Consolidated Financial Statements
Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2003 and 2002

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have beenthem in a form which is more familiar to readers outside Japan. In

prepared in accordance with the provisions set forth in the Japanese

addition, certain reclassifications and rearrangements have been

Securities and Exchange Law and its related accounting regulations,

made in the 2002 financial statements in order for them to conformand in conformity with accounting principles and practices generally

to classifications and presentations used in 2003.

accepted in Japan, which are different in certain respects as to appli-

The consolidated financial statements are stated in Japanese yen,cation and disclosure requirements of International Financial

the currency of the country in which Chiyoda Corporation (theReporting Standards. The consolidated financial statements are not"Company") is incorporated and principally operates. The transla-

intended to present the financial position, results of operations andtions of Japanese yen amounts into U.S. dollar amounts are included

cash flows in accordance with accounting principles and practices

solely for the convenience of readers outside Japan and have been

generally accepted in countries and jurisdictions other than Japan.

made at the rate of ¥120 to $1, the approximate rate of exchange

In preparing these consolidated financial statements, certain

at March 31, 2003. Such translations should not be construed asreclassifications and rearrangements have been made to the consoli-

representations that the Japanese yen amounts could be converted

dated financial statements issued domestically in order to present

into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation — The consolidated financial statements for the

Payments received in excess of costs and estimated earnings onyear ended March 31, 2003, include the accounts of the Company

the contracts, which are accounted for by the percentage-of-comple-

and its 24 (27 in 2002) significant subsidiaries (together, thetion method, and costs incurred on the other contracts are presented"Group"). Under the control or influence concept, those companies

as a current liability.

in which the Parent, directly or indirectly, has a control over operations are fully consolidated.
Investments in 8 (6 in 2002) associated companies are accounted

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

for by the equity method. Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If thec. Cash and Cash Equivalents — Cash equivalents are short-term

equity method of accounting had been applied to the investments ininvestments that are readily convertible into cash and that arethese companies, the effect on the accompanying consolidated

exposed to insignificant risk of changes in value. Cash equivalents

financial statements would not be material.

include time deposits and short-term investments, all of which

The excess of the cost of the Company’s investments in consoli-

mature or become due within 3 months of the date of acquisition.

dated subsidiaries and associated companies accounted for by theequity method over its equity in the net assets at the respective dates

d. Investment Securities — All securities are classified as available-of acquisition, was charged to income at the time of acquisition as

for-sale securities and are reported at fair value, with unrealized

the amount involved was not material.

gains and losses, net of applicable taxes, reported in a separate com-

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

ponent of shareholders’ equity. The cost of securities sold is determined based on the moving-average method.
Non-marketable securities are stated at cost determined by themoving-average method. For other than temporary declines in fairb. Construction Contracts — Revenues on construction contracts

value, non-marketable securities are reduced to net realizable value

greater than ¥5 billion and having a construction duration of moreby a charge to income.

than 18 months are recognized on the percentage-of-completion
method based on the ratio of costs incurred to total estimated costs.

e. Allowance for Doubtful Accounts — The allowance for doubt-

Under this method, related costs and estimated earnings in excess offul accounts is stated in amounts considered to be appropriate based

progress billings are presented as a current asset.

on the Group’s past credit loss experience and an evaluation of esti-

Unbilled costs on the other contracts, which are accounted for bymated losses on the receivables outstanding.

the completed-contract method, are stated as costs of construction
contracts in process.

32

f. Property, Plant and Equipment — Property, plant and equip-l. Income Taxes — The Company and wholly owned domestic sub-ment are stated at cost. Depreciation is computed using the declin-sidiaries adopted consolidation tax payment on March 31, 2003.

ing-balance method, except for buildings owned by the Company

The provision for income taxes is computed based on the pretax

and leased property owned by a certain leasing subsidiary which areincome included in the consolidated statements of income. The

computed using the straight-line method, based on the estimatedasset and liability approach is used to recognize deferred tax assets

useful lives of the assets. The range of useful lives is from 11 to 57

and liabilities for the expected future tax consequences of temporary

years (38 to 64 years in 2002) for buildings and structures, from 4 todifferences between the carrying amounts and the tax bases of

13 years for machinery and equipment and from 2 to 15 years for

assets and liabilities. Deferred taxes are measured by applying cur-tools, furniture and fixtures.

rently enacted tax laws to the temporary differences.

g. Other Assets — Intangible assets are carried at cost less accumu-m. Foreign Currency Transactions — Both short-term and long-lated amortization, which is calculated by the straight-line method

term receivables and payables denominated in foreign currencies areover their estimated useful lives. Software for internal use is amor-translated into Japanese yen at exchange rates in effect at the bal-

tized on a straight-line basis over its estimated useful life (5 years atance sheet date.

the maximum).

However, short-term and long-term receivables and payables covered by forward exchange contracts are translated at the contracth. Allowance for Contingent Loss — The allowance for contin-

rates.

gent loss is provided at the amount deemed necessary to cover pos-

Any differences between the foreign exchange contract rates andsible losses on construction contracts based on the estimation ofhistorical rates resulting from the translation of receivables andeach contingency.

payables are recognized as income or expense over the lives of therelated contracts.

i. Retirement Benefits — Employees of the Company and its certain consolidated subsidiaries are under most circumstances, entitledn. Foreign Currency Financial Statements — The balance sheet

to certain lump-sum severance payments and pension payments.

accounts of the consolidated foreign subsidiaries are translated into

Effective April 1, 2000, the Company and domestic consolidated

Japanese yen at the current exchange rate as of the balance sheet

subsidiaries adopted a new accounting standard for employees’

date except for shareholders’ equity, which is translated at the his-retirement benefits and accounted for the liability for retirement

torical rate. Differences arising from such translation were shown as

benefits based on the projected benefit obligations and plan assets

a separate component of shareholders’ equity as "Foreign currency

at the balance sheet date.

translation adjustments."

The transitional obligation of ¥12,123 million ($101,025 thou-

Revenue and expense accounts of consolidated foreign sub-sand), determined as of April 1, 2000, is being amortized andsidiaries are translated into Japanese yen at the current exchange

charged to income over 15 years and presented as operating

rate as of balance sheet date.

expense in the statements of income.
Retirement benefits to directors, officers and corporate auditors

o. Derivative Financial Instruments — The Company uses a vari-

are provided at the amount which would be required if all directors,

ety of derivative financial instruments, including foreign currency for-officers and corporate auditors terminated at the end of each period.

ward contracts and currency options as a means of hedging exposure to foreign currency risks. The Company does not enter into

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

derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions
are classified and accounted for as follows: (a) all derivatives are rec-k. Leases — All leases are accounted for as operating leases. Underognized as either assets or liabilities and measured at fair value, andJapanese accounting standards for leases, finance leases that deem

gains or losses on derivative transactions are recognized in theto transfer ownership of the leased property to the lessee are to beincome statement and (b) for derivatives used for hedging purposes,

capitalized, while other finance leases are permitted to be accounted

if derivatives qualify for hedge accounting because of high correla-

for as operating lease transactions if certain "as if capitalized" infor-

tion and effectiveness between the hedging instruments and themation is disclosed in the notes to the lessee’s consolidated financial

hedged items, gains or losses on derivatives are deferred until matu-

statements.

rity of the hedged transactions.
The foreign currency forward contracts are utilized to hedge foreign exchange risks. Certain assets and liabilities on construction con-33

tracts denominated in foreign currencies are translated at the con-

Diluted net income per share reflects the potential dilution that

tracted rates if the forward contracts qualify for hedge accounting.

could occur if securities were exercised or converted into common

Currency options are also utilized to hedge foreign exchange risks.

stock. Diluted net income per share of common stock assumes full

These options which qualify for hedge accounting are measured atconversion of the outstanding convertible notes and bonds at themarket value at the balance sheet date and the unrealized gains or

beginning of the year (or at the time of issuance) with an applicable

losses are deferred until maturity as an other liability or other asset.

adjustment for related interest expense, net of tax, and full exerciseof outstanding warrants.

p. Per Share Information — Basic net income per share is comput-

Diluted net income per share for the year ended March 31, 2002,

ed by dividing net income available to common shareholders by theis not disclosed because no dilutive securities were outstanding dur-weighted-average number of common shares outstanding for theing the year.

period, retroactively adjusted for stock splits.

3. TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES
Significant transactions with and balances due from/(to) unconsolidated subsidiaries and associated companies are summarized as follows:
Thousands of
U.S. Dollars

Millions of Yen
2003

Transactions for the Year Ended March 31
Construction contract revenues.....................................................................................
Purchases......................................................................................................................
Selling, general and administrative expenses .................................................................
Interest and dividend income ........................................................................................
Balances at March 31
Notes and accounts receivable — trade.........................................................................
Notes and accounts payable — trade ............................................................................

¥

38(2,340)
(923)
42

2002

¥

36
(422)

36
(857)
(363)
74

2003

$

78
(238)

317
(19,500)(7,692)350
300(3,517)The Company has guaranteed the indebtedness of certain unconsolidated subsidiaries and associated companies in the amount of¥4,985 million ($41,542 thousand) and ¥3,253 million at March 31,
2003 and 2002, respectively.

4. CONSTRUCTION CONTRACTS
Costs and estimated earnings recognized with respect to construction contracts which are accounted for by the percentage-ofcompletion method at March 31, 2003 and 2002, are as follows:
Thousands of
U.S. Dollars

Millions of Yen
2003

2002

2003

Costs and estimated earnings ...........................................................................................
Amounts billed .................................................................................................................

¥ 75,610(70,560)¥ 50,511(48,265)$ 630,083(588,000)

Net ...................................................................................................................................

¥

¥

$

5,050

2,246

42,08334

5. INVESTMENT SECURITIESInvestment securities at March 31, 2003 and 2002, consisted of
the following:Thousands of
U.S. Dollars

Millions of Yen
2003

Equity securities ................................................................................................................

¥

1,835

2002

¥

2003

1,759

$

15,292The carrying amounts and aggregate fair values of investment
securities with readily determinable fair values at March 31, 2003
and 2002, were as follows:
Millions of Yen
Cost

March 31, 2003
Available-for-sale — Equity securities ........................................
March 31, 2002
Available-for-sale — Equity securities ........................................

¥

55

Unrealized
Gains

Unrealized
LossesFair Value

¥

¥

¥

26

45

10

5

71

3

47

Thousands of U.S. Dollars
Cost

March 31, 2003
Available-for-sale — Equity securities ........................................

$

458

Unrealized
Gains

Unrealized
LossesFair Value

$

$

$

217

83

592

Available-for-sale securities whose fair value is not readily determinable at March 31, 2003 and 2002, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2003

Equity securities ................................................................................................................

¥

1,764

2002

¥

1,712

2003

$

14,700

Proceeds from sales of available-for-sale securities for the years
ended March 31, 2003 and 2002, were ¥6 million ($50 thousand)and ¥1,184 million, respectively. Gross realized gains and losses onthese sales, computed on the moving average cost basis, were ¥2
million ($17 thousand) and ¥3 million ($25 thousand), respectively,
for the year ended March 31, 2003 and ¥448 million and ¥42 million, respectively, for the year ended March 31, 2002.

6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIESInvestments in and advances to unconsolidated subsidiaries andassociated companies at March 31, 2003 and 2002, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2003

Investments ......................................................................................................................
Allowance for investment loss...........................................................................................
Advances ..........................................................................................................................
Total .................................................................................................................................

35

¥

¥

2,371
(264)
1,543
3,650

2002

2003

¥

2,805

$

¥

2,215
5,020

$

19,759(2,200)12,85830,417

7. LONG-TERM RECEIVABLES
Long-term receivables at March 31, 2003 and 2002, include

The Company also has gross receivables and other assets in thereceivables of ¥3,986 million ($33,217 thousand) and ¥8,153 mil-amount of ¥7,132 million ($59,433 thousand) and ¥7,615 million atlion, respectively, from Nigerian National Petroleum Corporation

March 31, 2003 and 2002, respectively, from Karunaphuli Fertilizer("NNPC") relating to services performed by the Company in 1995.

Company Limited ("KAFCO"), a Bangladesh company, and its relat-

The Company has negotiated payment terms with NNPC and had

ed parties as follows. In March 2001, KAFCO, its shareholders andcollected ¥4,047 million ($33,725 thousand) during the year ended

banks reached a basic agreement about financial restructuring under

March 31, 2003, but the repayment schedule of the remaining bal-

the supervision of the Bangladesh government and KAFCO has start-

ance is not determined due to the economic and political circum-

ed making payments based on the schedule defined in the financial

stances in Nigeria.

restructuring plan.
Thousands of
U.S. Dollars

Millions of Yen
2003

Prepaid expenses and other ..............................................................................................
Investments in and advances to unconsolidated subsidiaries and associated companies.....
Allowance for investment loss...........................................................................................
Long-term receivables .......................................................................................................
Allowance for doubtful accounts ......................................................................................
Total .................................................................................................................................

¥

¥

41
2,873
(263)
4,218
(1,031)
5,838

2002

¥

¥

49
2,904
4,662
(640)
6,975

2003

$

$

342
23,942(2,192)35,150(8,592)
48,6508. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans bear interest at rates ranging from 1.625%
to 7.65% and from 1.625% to 7.95% at March 31, 2003 and2002, respectively. Short-term bank loans at March 31, 2003 and2002, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2003

Collateralized....................................................................................................................
Uncollateralized ................................................................................................................
Total .................................................................................................................................

¥
¥

3,140
4,799
7,939

2002

¥

3,135
13,532¥ 16,667

2003

$
$

26,16739,991
66,158Long-term debt at March 31, 2003 and 2002, consisted of thefollowing:Thousands of
U.S. Dollars

Millions of Yen
2003

Long-term loans from banks and insurance companies, maturing serially through 2010,
with interest rates ranging from 0.9% to 6.9% (2003) and from 0.9% to 6.9% (2002):
Collateralized ................................................................................................................
Uncollateralized ............................................................................................................
Total ....................................................................................................................
Less current portion ..........................................................................................................
Long-term debt, less current portion .................................................................................

¥

664
10,021
10,685(263)¥ 10,422

2002

¥

962
10,49911,461(789)¥ 10,672

2003

$

$

5,534
83,50889,042(2,192)86,850Subordinated loans in the amount of ¥10,000 million ($83,333
thousand) from The Bank of Tokyo-Mitsubishi, Ltd. were included in’Uncollateralized’ at March 31, 2003 and 2002.

36

Annual maturities of long-term debt at March 31, 2003, were as
follows:
Thousands of
U.S. Dollars

Millions of Yen
Year Ending March 31
2004 ............................................................................................................................ ¥263
2005 ............................................................................................................................
108
2006 ............................................................................................................................
10,1032007 ............................................................................................................................
72
2008 and thereafter......................................................................................................
139
Total ............................................................................................................................ ¥ 10,685

$

2,192
900
84,192600
1,158$ 89,042

The following assets were pledged as collateral for short-term
debt at March 31, 2003:
Thousands of
U.S. Dollars

Millions of Yen

Land .................................................................................................................................
Buildings and structures — net of accumulated depreciation.............................................
Investment securities.........................................................................................................
Total .................................................................................................................................

¥

¥

1,285
655
4
1,944

$ 10,708
5,458
34$ 16,200

The following assets were pledged as collateral for long-term debt
at March 31, 2003:

Notes and accounts receivable — trade.............................................................................
Land .................................................................................................................................
Buildings and structures — net of accumulated depreciation.............................................
Total .................................................................................................................................

Millions of Yen

Thousands of
U.S. Dollars

¥

$

¥

197
695
718
1,610

1,642
5,792
5,983
$ 13,417

9. 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.

Certain consolidated subsidiaries also have severance payment
and pension plans similar to those of the Company.
Retirement benefits include retirement benefits to directors, officers and corporate auditors in the amount of ¥271 million ($2,259

However, an employee who terminates at 50 years of age or older

thousand) and ¥196 million for the years ended March 31, 2003

with service of at least 20 years is entitled to receive an annuity fromand 2002, respectively. The retirement benefits to directors and cor-

the trustee under the pension plan which covers such employees. If

porate auditors are paid subject to the approval of the shareholders.

the annuity does not reach the level of total retirement benefits due,

The liability for employees’ retirement benefits at March 31, 2003

the remainder would be paid by the Company.

and 2002, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Projected benefit obligation ..............................................................................................
Fair value of plan assets ....................................................................................................
Unrecognized transitional obligation .................................................................................
Unrecognized actuarial loss...............................................................................................
Prepaid pension cost .........................................................................................................
Net liability........................................................................................................................

37

2003

2002

2003

¥ 34,212(14,195)(9,699)(7,407)¥ 31,890(15,952)(10,507)(3,607)5¥ 1,829$ 285,100(118,292)(80,825)(61,725)

¥

2,911

$

24,258

The components of net periodic benefit costs for the years ended
March 31, 2003 and 2002, are as follows:
Thousands of
U.S. Dollars

Millions of Yen
2003

Service cost.......................................................................................................................
Interest cost ......................................................................................................................
Expected return on plan assets..........................................................................................
Amortization of transitional obligation ..............................................................................
Recognized actuarial loss ..................................................................................................
Net periodic benefit costs..................................................................................................

¥

¥

1,080
739
(365)
808
308
2,570

2002

¥

¥

1,042
862
(544)
808
78
2,246

2003

$

$

9,000
6,158
(3,042)6,733
2,567
21,416

Assumptions used for the years ended March 31, 2003 and 2002,
are set forth as follows:
2003

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

1.5%
2.5%
12 years
15 years

2002

2.5%
3.5%
13 years
15 years

10. SHAREHOLDERS’ EQUITY
Japanese companies are subject to the Japanese Commercial
Code (the "Code") to which certain amendments became effectivefrom October 1, 2001.

of additional paid-in capital and legal reserve to the common stockby resolution of the Board of Directors.
The revised Code eliminated restrictions on the repurchase and

The Code was revised whereby common stock par value was elim-

use of treasury stock allowing Japanese companies to repurchaseinated resulting in all shares being recorded with no par value and attreasury stock by a resolution of the shareholders at the generalleast 50% of the issue price of new shares is required to be recorded

shareholders meeting and dispose of such treasury stock by resolu-

as common stock and the remaining net proceeds as additionaltion of the Board of Directors beginning April 1, 2002. The repur-

paid-in capital. The Code permits Japanese companies, uponchased amount of treasury stock cannot exceed the amount avail-approval of the Board of Directors, to issue shares to existing share-able for future dividend plus the amount of common stock, addi-

holders without consideration as a stock split. Such issuance oftional paid-in capital or legal reserve to be reduced in the case where

shares generally does not give rise to changes within the sharehold-such reduction was resolved at the general shareholders meeting.

ers’ accounts.

At the general shareholders meeting held on June 28, 2001, theThe revised Code also provides that an amount at least equal toshareholders approved a transfer of ¥23,654 million from additional

10% of the aggregate amount of cash dividends and certain otherpaid-in capital as a reduction in accumulated deficit in order toappropriations of retained earnings associated with cash outlays

improve the financial stability of the Company.

applicable to each period shall be appropriated as a legal reserve (aThe Company has stock option plan which provides for granting

component of retained earnings) until such reserve and additional

options to the Company’s directors, officers and key employees to

paid-in capital equals 25% of common stock. The amount of totalpurchase aggregate 7,896 shares of the Company’s stock in the

additional paid-in capital and legal reserve that exceeds 25% of theperiod from July 1, 2004 to June 30, 2009. The options will becommon stock may be available for dividends by resolution of the

granted at an exercise price of ¥233 ($1.94) per share.

shareholders. In addition, the Code permits the transfer of a portion

11. GAIN ON DISCHARGE OF LIABILITIESA new restructuring plan was introduced in 2000. It consists ofreinforce the Company’s financial position and structure, (2) businessthe three major initiatives. They are; (1) financial restructuring toplan focusing on the core business areas, and (3) streamlining the38corporate operation by reducing fixed costs. The Company request-

long-term debt. The discharge of these liabilities of ¥2,871 million

ed and received approval from certain financial institutions and a

was recorded as a gain in the statement of income for the year

company to waive repayment of outstanding liabilities to these enti-

ended March 31, 2002.

ties which consisted of short-term bank loans, notes payable and12. INCOME TAXESThe Company and its domestic subsidiaries are subject to

The tax effects of significant temporary differences and tax loss

Japanese national and local income taxes which, in the aggregate,

carryforwards which resulted in deferred tax assets and liabilities atresulted in normal effective statutory tax rate of approximately 42%

March 31, 2003 and 2002, are as follows:

for the years ended March 31, 2003 and 2002.
Thousands of
U.S. Dollars

Millions of Yen

Deferred tax assets:
Tax loss carryforwards ...................................................................................................
Cost of construction contracts.......................................................................................
Retirement benefits.......................................................................................................
Allowance for doubtful accounts...................................................................................
Loss on long-term construction contracts ......................................................................
Loss on devaluation of costs of construction contracts in process ..................................
Loss on devaluation of property, plant and equipment ..................................................
Other ............................................................................................................................
Less valuation allowance ...............................................................................................
Total ....................................................................................................................
Deferred tax liabilities........................................................................................................
Net deferred tax assets......................................................................................................

2003

2002

2003

¥ 23,231
4,216
896
1,929
180
181
734
3,143
(34,224)
286
18
¥
268

¥ 44,918
4,922
338
2,606
217
928
770
1,837
(56,304)
232
45
¥
187

$ 193,592
35,133
7,467
16,075
1,500
1,508
6,117
26,191(285,200)
2,383
150
$
2,233

Reconciliations between the normal effective statutory tax rate
and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2003
and 2002, are as follows:
2003

Normal effective statutory tax rate ....................................................................................
Expenses not deductible for income tax purposes..............................................................
Effect of taxation on dividends..........................................................................................
Inhabitant taxes per capita levy .........................................................................................
Foreign income taxes ........................................................................................................
Valuation allowance for deferred tax assets.......................................................................
Equity in earnings of associated companies .......................................................................
Operating losses of subsidiaries.........................................................................................
Lower income tax rates applicable to income in certain foreign countries ..........................
Other — net .....................................................................................................................
Actual effective tax rate ....................................................................................................

On March 31, 2003, a tax reform law concerning enterprise tax

39

42%
6
3
4
(19)
(17)
(1)
1
19%

2002

42%
8
(7)
3
32
77
(12)
(47)
(5)
91%

idated financial statements for the year ended March 31, 2003.

was enacted in Japan which changed the normal effective statutory

Under the current Japanese tax regulations, a net operating loss

tax rate from 42% to 40%, effective for years beginning on or after

can be carried forward for five years and deducted from any future

April 1, 2004. The effect of this change was to decrease deferredtaxable income. The Company and consolidated subsidiaries have a

tax assets — non-current by ¥9 million ($75 thousand) and decrease

net operating loss carryforward of approximately ¥55,940 million

income taxes — deferred by ¥9 million ($75 thousand) in the consol-($466,167 thousand) at March 31, 2003.

13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥474
million ($3,950 thousand) and ¥388 million for the years ended
March 31, 2003 and 2002, respectively.

14. LEASESIncome from equipment leases held by a subsidiary for the years
ended March 31, 2003 and 2002, was ¥139 million ($1,158 thou-¥86 million for the years ended March 31, 2003 and 2002, respectively.

sand) and ¥152 million, respectively.

Pro forma information for leased property under finance leases

The Company and a subsidiary lease certain machinery, computerthat do not transfer ownership of the leased property to the lessee

equipment, office space and other assets. Total rental expenses

on an "as if capitalized" basis for the years ended March 31, 2003

under the above leases were ¥157 million ($1,308 thousand) andand 2002, was as follows:Year Ended March 31, 2003

As Lessor
Millions of Yen
MachineryandEquipment

Acquisition cost ...................... ¥Accumulated depreciation.......
Net leased property................. ¥

382
374
8

Tools,
Furniture and
Fixtures

¥
¥

124
117
7

Thousands of U.S. Dollars

Other

¥

26
26

MachineryandEquipment

Tools,
Furniture and
Fixtures$ 3,183
3,116$
67$ 1,033
975
$
58

Total

¥

532
517
15

¥

Other

$

Total

217
217

$ 4,433
4,308
$
125

As Lessee
Millions of Yen
MachineryandEquipment

Acquisition cost ...................... ¥Accumulated depreciation.......
Net leased property................. ¥13
7
6

Tools,
Furniture and
Fixtures

¥
¥

613
250
363

Thousands of U.S. Dollars

Other

¥
¥

51
25
26

MachineryandEquipment

Tools,
Furniture and
Fixtures$$ 5,108
2,083$ 3,025

Total

¥

677
282
395

¥

$

108
58
50

Millions of Yen
Unearned
Lease Income(As Lessor)

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

¥¥

Year Ended March 31, 2002

Millions of Yen

¥

158
237
395

¥

As Lessor
MachineryandEquipment

Tools,
Furniture and
Fixtures

Total

426
209
217

$

$ 5,6422,350$ 3,292

Thousands of U.S. Dollars

Obligations
under
Finance Lease(As Lessee)

14
4
18

Other

$

Obligations
under
Finance Lease(As Lessee)

Unearned
Lease Income(As Lessor)

$

117
33
150

$

$

1,317
1,975
3,292

$

As Lessee
Other

Total

MachineryandEquipment

Tools,
Furniture and
Fixtures

Other

Total

Acquisition cost ...................... ¥

571

¥

208

¥

64

¥

843

¥

27

¥

444

¥

50

¥

521

Accumulated depreciation.......
Net leased property................. ¥

481
90

¥

176
32

¥

57
7

¥

714
129

¥

5
22

¥

123
321

¥

28
22

¥

156
365

Millions of Yen

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

Unearned
Lease Income(As Lessor)

Obligations
under
Finance Lease(As Lessee)

¥

¥

¥

88
64
152

¥

129
236
365

40

Depreciation expense as lessor, which is reflected in the accompa-

straight-line method was ¥157 million ($1,308 thousand) and ¥86

nying consolidated statements of income, computed by the straight-

million for the years ended March 31, 2003 and 2002, respectively.

line method was ¥63 million ($525 thousand) and ¥119 million forthe years ended March 31, 2003 and 2002, respectively.

The amounts of unearned lease income and obligations, acquisition cost and depreciation under finance leases include the imputed

Depreciation expense as lessee, which is not reflected in theinterest income portion and interest expense portion, respectively.

accompanying consolidated statements of income, computed by the

15. DERIVATIVESThe Company enters into foreign exchange forward contracts andtrolled by the Company’s financing department. Each derivative

currency option contracts to hedge foreign exchange risk associatedtransaction is periodically reported to the Company’s accounting

with certain assets and liabilities on construction contracts denomi-

department and executive officers.

nated in foreign currencies. It is the Company’s policy to use deriva-

Forward exchange contracted amounts which are assigned totives only for the purpose of reducing foreign exchange risks associ-associated assets or liabilities and are reflected on the balance sheet

ated with such assets or liabilities. The Company does not hold orat year end are not subject to the disclosure of market value infor-

issue derivatives for trading purposes.

mation.

Because the counterparties to these derivatives are limited to

All of the derivative contracts outstanding at March 31, 2003 andmajor international financial institutions, the Company does not

2002, qualified for hedge accounting and disclosures of market

anticipate any losses arising from credit risk.

value information are not required to be and have not been present-

The basic policies for the use of derivatives are approved by theed herein.

management and the execution and control of derivatives are con-

16. CONTINGENT LIABILITIESAt March 31, 2003, the Group had the following contingent liabilities:

Guarantees and similar items for bank loans .....................................................................

Millions of Yen

Thousands of
U.S. Dollars¥$ 60,258

7,231

17. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net
income per share ("EPS") for the year ended March 31, 2003, is asfollows:
Millions of Yen
Net Income

Basic EPS — Net income available to common shareholders ........ ¥Effect of dilutive securities — Warrants .......................................
Diluted EPS — Net income for computation ................................ ¥Diluted net income per share for the year ended March 31, 2002,
is not disclosed because no dilutive securities were outstanding during the year.

41

2,000
2,000

Thousands of Shares
Weighted-average
Shares185,293362
185,655

Yen

U.S. Dollars
EPS

¥

10.79

$

0.09

¥

10.77

$

0.09

18. SUBSEQUENT EVENT
The following proposed disposition of the accumulated deficit of
the Company at March 31, 2003, was approved at the generalshareholders meeting held on June 25, 2003:
Millions of Yen

Thousands of
U.S. Dollars¥$ 38,375

Accumulated deficit to be carried forward ........................................................................

4,605

19. SEGMENT INFORMATION
Information about foreign operations and sales to foreign customers of the Company and consolidated subsidiaries for the years
ended March 31, 2003 and 2002, was as follows:(1) Foreign Operations
Millions of Yen

Year Ended March 31, 2003
Japan

Construction contract revenue:
Outside customers ............. ¥Intersegment .....................
Total .........................
Operating expenses ...............
Operating income (loss) ......... ¥Other income and expenses — net
Income before income taxes
and minority interests .........
Assets.................................... ¥Asia

160,526
25,163
185,689
183,4262,263¥ 5,659
624
6,283
6,473
¥ (190)126,246¥ 7,446

Europe

¥

¥

48
200
248
250
(2)

¥

216

North
America

¥

¥

134
42
176
200
(24)

¥
¥

14
(14)

¥

636

¥

160

Eliminations(Corporate)

Subtotal¥¥

166,367
26,029192,396
190,363
2,033¥ (26,029)(26,029)(25,544)
¥
(485)

¥

134,704¥ (14,407)

Consolidated¥

166,367
166,367
164,819
1,548
961

¥
¥

2,509
120,297

Thousands of U.S. Dollars

Year Ended March 31, 2003
Japan

Construction contract revenue:
Outside customers ............. $1,337,717
Intersegment .....................
209,691
Total .........................
1,547,408
Operating expenses ...............
1,528,550
Operating income (loss) ......... $ 18,858
Other income and expenses — net
Income before income taxes
and minority interests .........
Assets.................................... $1,052,050

Other

Subtotal

Eliminations(Corporate)$ 1,117
350
1,467
1,667
$ (200)$ 116$ (116)$ 1,386,392
216,908
1,603,300
1,586,358$
16,942$ (216,908)(216,908)(212,866)$(4,042)$ 1,800$ 5,300$ 1,333$ 1,122,533$ (120,058)$
20,908$ 1,002,475

EuropeNorth
America

Subtotal

Eliminations(Corporate)

Consolidated

EuropeNorth
America$47,158
5,200
52,35853,942$(1,584)

400
1,667
2,067
2,083
$ (16)$62,050

Asia$

Consolidated$ 1,386,392
1,386,392
1,373,492
12,9008,008

Millions of Yen

Year Ended March 31, 2002
Japan

Construction contract revenue:
Outside customers ............. ¥Intersegment .....................
Total .........................
Operating expenses ...............
Operating income (loss) ......... ¥Other income and expenses — net
Income before income taxes
and minority interests .........
Assets.................................... ¥

Other

Asia

132,864
21,912
154,776
160,423(5,647)¥ 8,113
521
8,634
8,291
¥ 343

131,266¥ 8,170

¥

¥

¥

13
235
248
251
(3)

¥

179

Other

¥

397
13
410
576
(166)

¥

¥
¥

26
(26)

¥

141,387
22,681
164,068
169,567(5,499)

¥

100

¥

206

¥

139,921¥¥¥(22,681)(22,681)(22,978)297¥(10,607)

141,387
141,387
146,589(5,202)
7,063

¥
¥

1,861
129,31442

Notes: 1. The Company and consolidated subsidiaries are summarized into five seg-

Notes: 2. Corporate assets mainly consist of long-term loans and investment securi-ments by geographic area based on the countries where the companies

ties of the Company. Corporate assets as of March 31, 2003 and 2002,

are located.

were ¥3,185 million ($26,542 thousand) and ¥3,887 million, respectively.

The segments consisted of the following countries in 2003 and 2002:
Asia:

Indonesia, Singapore, Philippines, Myanmar, Malaysia,
ThailandEurope:United Kingdom, Germany, Poland

North America: United States of America
Other:

Nigeria(2) Sales to Foreign Customers
Year Ended March 31, 2003

Overseas sales (A)......................................................................................
Consolidated sales (B)................................................................................
(A)/(B) ....................................................................................................

Millions of Yen
Asia

The Middle andNear East

Other

Total

¥ 25,368¥ 46,660¥ 11,285

15.25%

28.04%

6.78%¥ 83,313
166,36750.07%Asia

The Middle andNear East

Other

Total

$211,400$ 388,833$ 94,042

15.25%

28.04%

6.78%$ 694,275
1,386,392
50.07%

Year Ended March 31, 2003

Overseas sales (A)......................................................................................
Consolidated sales (B)................................................................................
(A)/(B) ....................................................................................................

Thousands of U.S. Dollars

Year Ended March 31, 2002

Overseas sales (A)......................................................................................
Consolidated sales (B)................................................................................
(A)/(B) ....................................................................................................
Note: The Company and consolidated subsidiaries are summarized into three segments by geographic area based on the countries where the companies arelocated.
The segments consisted of the following countries in 2003 and 2002:
Asia:

China, Singapore, Indonesia and others

The Middle and Near East: Qatar, Iran and others
Other:

Venezuela, Egypt 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 ofindustry segment information is not required under Japanese
accounting standards.

43

Millions of Yen
Asia

The Middle andNear East¥ 21,588¥ 16,539

15.26%

11.69%

Other

¥

6,956
4.91%

Total

¥ 45,083
141,387
31.89%

Opinion of Independent Public Accountants

INDEPENDENT AUDITORS’ REPORTTo the Board of Directors and Shareholders of Chiyoda Corporation:
We have audited the accompanying consolidated balance sheets of Chiyoda Corporation and consolidated subsidiaries asof March 31, 2003 and 2002, and the related consolidated statements of income, shareholders’ equity, and cash flows forthe years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany’s management. Our responsibility is to express an opinion on these consolidated financial statements based on
our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and appliedin Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Chiyoda Corporation and consolidated subsidiaries as of March 31, 2003 and 2002, andthe consolidated results of their operations and their cash flows for the years then ended in conformity with accounting
principles and practices generally accepted in Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely forthe convenience of readers outside Japan.

June 25, 2003

44

B o a r d o f D i r e c t o r s, C o r p o r a t e A u d i t o r s, a n d E x e c u t i v e O f f i c e r s

Board of Directors
President & Chief Executive Officer
Nobuo Seki*
Executive Vice Presidents
Akira Yamamura*John L. Rose*
Naotake Naritomi*International Project & International Group Companies Management
Technology & International Project Operation(Except for Natural Gas Value-Chain Project)
Domestic & General Industries Project Operation

Senior Managing Director & Chief Financial Officer
Hiizu Ichikawa*

Corporate Management & FinanceManaging Directors
Atsuo Minamoto
Takashi Kubota
Hiroshi Kobayashi

Procurement & Business Operation in China
International Project Operation
Natural Gas Value-Chain Project Operation

Director
Albert J. Stanley
Notes: 1) *Representative Directors2) All board members except Albert J. Stanley are also executive officers.

Corporate Auditors
Michihiko Kawana
Yoshio Ishiwata
Hideaki Fujioka
Yukihiro Imadegawa

Executive Officers
Senior Executive Officers
Yoshihiro Shirasaki
Akira Kadoyama
Hideo Nakatani
Hiroshi Shibata

Technology & Engineering
Domestic LNG Task Team
Domestic Business Development Div.
Finance & Corporate Administration Div.

Executive Officers
Madoka Koda
Wataru Shimono
Junichi Sakaguchi
Takashi Yamamoto
Fumio Nagata

International Project Operation
International Project Operation
Technology & Engineering
Chemicals, Pharmaceutical & General Industries Project
Natural Gas Value-chain Business Development Div.

(as of June 25, 2003)

45

Corporate Information

Established:

January 20, 1948

Paid-in Capital:¥12,027 million

Number of employees:

2,533 (Consolidated)

Stock Exchange Listing:Tokyo

Transfer Agent of Common Stock:

The Mitsubishi Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo

Authorized Shares:

650,000,000

Capital Stock Issued:

185,428,529

Number of Shareholders:

18,756

Major Shareholders

Status of investors
Number of shares Percentage of total(thousands)(%)

Mitsubishi Corporation
19,851
Japan Trustee Services Bank, Ltd. (Trust Account) 13,740
The Mitsubishi Trust and Banking Corporation
9,034
The Bank of Tokyo-Mitsubishi, Ltd.
9,033
KBR-MC Investment
5,994
Ebara Corporation
5,687
Pension Account Trustee Mitsui Asset
Trust and Banking Company, Limited
4,750
The Master Trust Bank of Japan, Ltd. (Trust Account) 4,343
Morgan Stanley & Co., Inc.
4,024*
UFJ Trust Bank Limited (Trust Account Fund A)
3,241

11.0
7.6
5.0
5.0
3.3
3.1
2.6
2.4
2.2
1.8

Note: 3,273,000 shares are owned by New Corp S.A.

Breakdown by Shareholder

Breakdown by Share (thousands)

Governments, local public organizations: 1 (0.01%)
Financial institutes: 56 (0.29%)
Individuals, and others: 47,095 (25.40%)

Securities companies: 37 (0.20%)

Governments, local public organizations: 1 (0.00%)

Companies, and others: 442 (2.36%)
Foreign companies and foreign investors: 101 (0.54%)

Total
18,756

Financial institutes: 62,192 (33.54%)

Individuals, and others: 18,119 (96.60%)

Total
185,428
thousands

Securities companies: 1,334 (0.72%)
Companies, and others: 56,602 (30.52%)
Foreign companies and foreign investors: 18,204 (9.82%)

Stock Price

(¥)
550
500
450

(¥)
18,00016,00014,00012,00010,0008,000

Nikkei average (closing price)

350
250

Chiyoda

150
100
50

Trading volume

4 5 6 7911

1 2 3 4 5 6 7 81012((thousands oof shares)

2 3 4 5 6 7 8 9

11

1 2 3

60,00040,00020,0000(as of March 31, 2003)

46

Wo r l d w i d e N e t w o r k

Offices● Yokohama Head Office12-1, Tsurumichuo 2-chome
Tsurumi-ku
Yokohama 230-8601, Japan
Tel: (81)45-521-1231
Fax: (81)45-503-0200

RussiaU.K
K.

Netherlands
Neth13, Moriya-cho 3-chome
Kanagawa-ku
Yokohama 221-0022, Japan
Tel: (81)45-441-1268
Fax: (81)45-441-1297● Research & Development Center

U.S.A

China
Iran
ra
an

● Koyasu Office

Jap
Japan

Saudi ArAra
rabia

Myanmar

India

Th nd
ThailandT
Phi
PhPhilippinesO
Oman

NigeriaVe
Venezuela

M
Malaysia
Singapore

U.A.E.
Qatar

Indonesia
essia

1-1, Minamiwatarida-cho
Kawasaki-ku
Kawasaki 210-0855, Japan
Tel: (81)44-328-6264
Fax: (81)44-328-6272

Overseas Network● Abu Dhabi Office

Major Subsidiaries & Affiliated Companies
Overseas

P.O.Box 43928, Clock Tower Bldg. Suite
No.0204, Al Najda Street
Abu Dhabi, U.A.E.
Tel: (971) 2-671-7161
Fax: (971) 2-671-7162● Chiyoda International Corporation● Beijing Office
Room No. 1028, China World Trade Center No. 1
Jianguomenwai Street, Chaoyang District
Beijing, 100004, China
Tel: (86) 10-6505-2678
Fax: (86) 10-6505-1118● Chiyoda International Limited● Doha Middle East Headquarters
7th Floor, Al Mana Tower
Airport Road, Doha
Qatar, P.O. Box 20243
Tel: (974) 4621-673, 4622-875
Fax: (974) 4622-716● Hague Office

Tauro Trade Cnter
President Kennedykaan 19
Postbus 17111 2502 CC
Hague, The Netherlands
Tel: (31) 70-385-9453
Fax: (31) 70-346-3779● Jakarta Office
9th Floor, Mid Plaza Bldg.
Jalan Jenderal Sudirman Kav. 10-11
Jakarta, 10220, Indonesia
Tel: (62) 21-570-7579
Fax: (62) 21-570-6276● Shanghai Office
Room 1501, CIMIC Tower No.800
Shang Cheng Rodo, Pu Dong New Area
Shanghai, 200120, China
Tel: (86) 21-6875-0034
Fax: (86) 21-6875-0037● Singapore Office

14 International Business Park
Jurong East, Singapore 609922
Tel: (65) 6560-1274
Fax: (65) 6560-2563● Teheran Office
2nd Floor, No.16, Mahtab St. Aftab St.
Vanak Avenue
Teheran, 19949, Iran
Tel: (98) 21-803-6391, 805-8592
Fax: (98) 21-805-8967

Project Companies
Oman, Qatar, Russia, Venezuela

1177 West Loop South, Suite 680
Houston, TX 77027, U.S.A.
Tel: (1) 713-965-9005
Fax: (1) 713-965-0075
4th floor Dorland House 20 Regent Street
London SW1Y 4PH, U.K.
Tel: (44) 20-7867-1221
Fax: (44) 20-7867-1414● Chiyoda Singapore (Pte) Limited

14 International Business Park
Jurong East Singapore 609922
Tel: (65) 6563-3488
Fax: (65) 6567-5231● Chiyoda Asia Pacific (Pte) Limited

14 International Business Park
Jurong East Singapore 609922
Tel: (65) 6425-0368
Fax: (65) 6569-6102

47● Chiyoda Nigeria Limited
Abuja Office
C/O Peniel Apartments Room No.B1E Plot 137
Ibb Way, Adetokunbo Ademola Crescent
Wuse I I, Abuja, Nigeria
Tel: (234) 9-4130058
Fax: (234) 9-4130062
Lagos Office
Plot PC-43, (1st Floor), Nurses House
Afribank Street, Victoria Island P.M.B 12541
Lagos, Nigeria
Tel: (234) 1-2613291
Fax: (234) 1-2612565

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 & Public Works Co., Ltd.
Sedona Hotel Room 307-309
No. 1, Kaba Aye Pagoda Road
Yankin Township, Yangon, Myanmar
Tel: (95) 1-706720
Fax: (95) 1-545227● Chiyoda (Thailand) Limited

Domestic● Chiyoda Malaysia Sdn. Bhd.

Sriracha Office
P.O. Box 7, Ao-Udom
Sriracha, Cholburi, 20230 Thailand
Tel: (66) 38-352-315~8
Fax: (66) 38-352-321
Bangkok Head Office
5th Floor, Dusit Thani Office Bldg.
946 Rama IV Road Bangkok 10500, Thailand
Tel: (66) 2-233-7521/7524
Fax: (66) 2-236-6841

Chiyoda Kosho Co., Ltd.
Plant Engineering, Construction and
Maintenance, and Insuance Service
Chiyoda Keiso Co., Ltd.
Electrical and Instrumentation Engineering
Equipment Supply, Installation and Maintenance● PT. Chiyoda International Indonesia

Chiyoda Techno Ace Co., Ltd.
Consulting, Engineering and Construction of
Pharmaceutical Plants, Laboratories and ResearchCenters

Wisma kalimanis, 10th Floor Suite 1001
Jl. MT. Haryono Kav. 33
Jakarta Selatan 12770
Tel: (62) 21-798-4680
Fax: (62) 21-798-6174

Chiyoda Advanced Solutions Corporation
Computer Aided Engineering Analysis, Plant
Lifecycle Engineering and Risk Management
Utilization of Space Environment, etc● 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● C&E Corporation

C&E Corporation Bldg.
Meralco Avenue Corner,
General Araneta Street
Pasig City, Metro Manila, Philippines
Tel: (63) 2-636-1001~8
Fax: (63) 2-636-1013/1022(As of Sept. 30, 2003)● 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

U-Tech Consulting Co., Ltd.
Consulting for Industrial and Social, Regional
Development
IT Engineering Limited
IT Solutions and Software Development
Arrow Business Consulting Corporation
Consulting Services for Finance and Accounting
Arrowhead International Corporation
Travel and Air Cargo Agent, Spare Parts Supply
Arrow Human Resources Co., Ltd.
Human Resources Supply and Training

Shareholder’s Memorandum
Annual Fiscal Close:
March 31
Shareholders’ Meeting:June
Record Date:
Final shareholders registered on the list of shareholders
and substantial shareholders as of March 31 have theright to vote at the annual general shareholders’meeting for the relevant fiscal term. The record date
will be advertised in advance as necessary.
Transfer Agent:
The Mitsubishi Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
Agent for stock procedures:
The Mitsubishi Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo

Agent Offices:
The Mitsubishi Trust and Banking Corporation,
Branches in Japan
Agent for inquiries:
The Mitsubishi Trust and Banking Corporation
1-7-7 Nishi-Ikebukuro, Toshima-ku, Tokyo 171-8508
Venue for Public Notices:
The Nihon Keizai Shimbun
Number of shares per unit:
1,000
Stock Exchange Listing:Tokyo Stock Exchange First Section
Stock Code:6366

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

12-1,Tsurumichuo 2-chome, Tsurumi-ku, Yokohama 230-8601, Japan
Tel:81-45-521-1231 Fax:81-45-503-0200