CHIYODA CORPORATION Annual Report 2005

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

CHIYODA CORPORATION
Annual Report 2005
Fiscal Year Ended March 31, 2005

“DoubleStep-Up”
Aiming to become “The Reliability No.1”
Project Company and an Excellent Company
able to “Sustain Earnings Growth”

Printed in Japan on 100% recycled paper

CONTENTS
CHIYODA CORPORATION, headquartered in Yokohama, Japan,
provides services on a global basis in the field of engineering,procurement and construction (EPC) for gas processing, refineries andother hydrocarbon or other industrial plant projects, particularly for
LNG, GTL and gas chemicals. For more than 50 years, Chiyoda hasconstantly leveraged its extensive experience and far-reaching global
network to give it an unrivaled advantage. The Company will continue
its EPC business, while innovating an expanded business model that
includes Plant Lifecycle Engineering (PLE). This will enable Chiyoda to
become a one-stop provider of everything its customers need in theway of plant development and operations.

Forward-Looking Statements
This annual report contains forward-looking statements about Chiyoda Corporation’s outlooks, plans, forecasts, results, and otheritems that may take place 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.

Results ..............................................................................................................2
Summary ..........................................................................................................3
To Our Shareholders and Friends...................................................................4Management Policies ......................................................................................6Interview with the President Double Step-Up Plan 2008 ...............................8
Review of Operations Overseas ....................................................................14
Domestic ...................................................................17
Performance Highlights ................................................................................19
Financial Section
Consolidated Six-Year Financial Summary ..................20
Operating Results and Financial Position.....................21
Business Risk and Other Risks .....................................24
Consolidated Balance Sheets......................................26
Consolidated Statements of Income ...........................28
Consolidated Statements of Shareholders’ Equity .......29
Consolidated Statements of Cash Flows .....................30
Notes to Consolidated Financial Statements ...............31
Independent Auditors’ Report ....................................45
Global Network .............................................................................................46
Board of Directors, Corporate Auditors and Executive Officers ................48
Corporate Information ..................................................................................49

Front-Cover Photograph(Left)
Ethylene plant completed in July 2004 for Jubail United
Petrochemical Company in Saudi Arabia(Right)Methanol plant completed in December 2004 forInternational Methanol Company in Saudi Arabia

CHIYODA CORPORATION ANNUAL REPORT 2005 1

RESULTSSUMMARY
Thousands of
U.S. Dollars*Millions of Yen

2005

2004

2005

¥182,893¥142,860$1,709,280

Total shareholders’ equity

36,87322,767

344,607

Construction contracts

267,655

206,8172,501,449

Operating income

11,0785,881

103,533

Net income

12,863

6,647

120,215

Total assets

New contracts

411,292

290,658

3,843,850

Backlog of contracts

522,444375,854

4,882,654s Consolidated construction contracts totaled ¥267.7
billion, operating income was ¥11.1 billion and net
income was ¥12.9 billion. All three figures exceeded
the forecasts for the fiscal year.
s Growth in construction contracts and earnings wasstrong, with construction contracts rising 29%,

Per share of common stock:
Basic net income

Yen

¥

68.62

U.S. Dollars*

¥

35.91

$

0.64

operating income 88% and net income 94%.

* U.S. dollar amounts have been converted at the rate of ¥107=$1, the approximate rate of exchange at March 31, 2005.

s Due to the higher earnings, shareholders’ equity
increased to ¥36.9 billion, resulting in a 4.3
percentage point improvement in the equity ratio to20.2%.
s Consolidated new orders were ¥411.3 billion. Orders
rose strongly both in Japan and overseas. New orders
in Japan totaled ¥89.5 billion, up 24%, and overseas
new orders were ¥321.8 billion, up 47%.

2 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 3

To Our Shareholders and Friends

FISCAL 2005, ENDED MARCH 31, 2005, WAS A YEAR OF MAJOR ACCOMPLISHMENTS. WE
CLEARED AWAY THE ACCUMULATED DEFICITS 18 MONTHS AHEAD OF SCHEDULE. WE ALSO
PUT IN PLACE A PROFITABLE OPERATING STRUCTURE THAT PRODUCED BIG INCREASES IN
SALES AND EARNINGS. DUE TO THIS PROGRESS, WE HAVE FINALLY REACHED THE POSITION
WHERE WE ARE READY TO RETURN EARNINGS TO SHAREHOLDERS. ACCORDINGLY, WE PAIDA DIVIDEND OF ¥6 PER SHARE APPLICABLE TO FISCAL 2005.

growth in operating income, which was up

Outlook

Closing Message

88.4% to ¥11.1 billion, and net income, which

There is a high level of activity in the plant

I am extremely pleased that we were able towas up 93.5% to ¥12.9 billion.

engineering market due to strong demand forresume dividend payments for the first time inenergy-related projects in Japan and overseas.

nine years. I appreciate very much the trust andStrategy

Outside Japan, the world’s energy majors areunderstanding of shareholders during thisTo make Chiyoda a corporate group aiming at

making Gas Value Chain investments, particularly

period.

higher profitability, we have formulated ain Qatar, at a much faster pace than had been

medium-term management plan called the

expected. Particularly noteworthy are investments

highly advanced integrated engineering systems,

Double Step-Up Plan 2008 (DSP 2008). This planin large-scale liquefied natural gas (LNG) plants

innovative technology, reliable project execution

began in April 2005 and will end in March 2009.

and in large-scale gas chemical plants that use

skills and an effective risk management system.

Please see the feature section that begins on

associated gases, such as ethylene plants. The

This stance will allow us to satisfy our customers

page 8 for a more thorough discussion of thisindustrial plant market has thus become a seller’s

as their most reliable business partner, as well as

plan.

market. The outlook is especially bright for LNG.

to fulfill our obligations as a corporate citizen.

There are two fundamental elements of

We will continue to base our operations on

Until 2020, global LNG demand is projected to

In fiscal 2005, consolidated new contracts

DPS 2008. The first is to resolutely retain theincrease by 15 million tons each year, an amountincreased 41.5% to ¥411.3 billion, far above ourinnovative thinking needed to “capitalize onequivalent to three LNG plants each with atarget for the year. Consolidated constructionchange, and take on challenges posed bycapacity of 5 million t/y. Demand for LNG projects

contracts rose 29.4% to ¥267.7 billion, primarilychange” with the aim of becoming “Theis certain to remain extremely strong.

a reflection of steady progress in EPC work andReliability No.1” Project Company (“a projectstrong performances by Group companies inoperating company winning the highest

companies are cooperating to integrate refining

Japan. By region, construction contracts in Japan

reputation for reliability“). The second is to aim

and petrochemical operations, such as by

were up 41.4% to ¥89.6 billion and overseas

at becoming an Excellent Company able toproducing basic chemicals at oil refineries.

Nobuo Seki

construction contracts increased 24.1% to“Sustain Earnings Growth” through our own

Furthermore, we expect rising demand for

President & CEO,¥178.0 billion.

Chiyoda Corporation

In Japan, many oil refining and petrochemical

efforts. DSP 2008 includes the goals of an equity

diagnosing and revamping equipment at aging

Gross profit on completed construction

ratio of at least 30% and dividend per share ofplants. As the cost of crude oil climbs, growing

contracts increased 40.0% to ¥19.7 billion, theat least ¥10 by the fiscal year ending in Marchdemand for coal along with the tightening ofresult of a higher volume of construction

2009. This will give us the long-term financial

environmental regulations are creating a favorable

contracts and an improvement in the gross profit

soundness required to further improve

market for our CT-121 licensing business of flue

margin. In addition, selling, general andprofitability from within and create businesses

gas desulfurization technology for coal-fired

administrative expenses fell as a percentage ofthat can generate growth in the future.

power stations. This is a new business model that

construction contracts. The result was substantial

4 CHIYODA CORPORATION ANNUAL REPORT 2005

June 28, 2005

can produce sustained earnings growth.

CHIYODA CORPORATION ANNUAL REPORT 2005 5

Management Policies

ALL CORPORATE ACTIVITIES AT CHIYODA ARE GUIDED BY A COMMITMENT TO EARNING
THE TRUST AND UNDERSTANDING OF SHAREHOLDERS, SOCIETY, CUSTOMERS AND OTHERSTAKEHOLDERS BY PRIORITIZING CORPORATE SOCIAL RESPONSIBILITY (CSR). WE ARE
DEDICATED TO THE ESTABLISHMENT AND PROPER OPERATION OF FAIR INTERNAL CONTROLSYSTEMS ROOTED IN THE PRINCIPLES OF MANAGEMENT TRANSPARENCY AND SOUNDNESSAND TO THE TIMELY DISCLOSURE OF INFORMATION.

Corporate Governancemeetings of the Executive Committee to express

management at the corporate level. This creates

protection and proper handling of information

Chiyoda has adopted the corporate auditor

opinions as necessary. This system provides fora new framework in which this office oversees

resources that represent the foundation of all

system, using the executive officer structure inboth speedy and transparent decision-making.

the activities of the Compliance Managementbusiness operations. In response to the April

Regarding compliance, strict adherence to

Office, the Social Environment Office and the2005 enforcement of all elements of Japan’s

Information Security Management Office.

Personal Information Protection Law, Chiyoda

which the Board of Directors supervises theexecution of business operations by the executive

domestic laws and regulations, international

officers. This provides for accurate decision-

rules, and company rules and regulations is amaking in response to rapid shifts in the social

matter of course. In addition, information in

Risk Management

policy and personal information protection rules,

and economic climate. In addition, the Company

regard to the corporate code of conduct,

Chiyoda has risk management and crisis

thus establishing a system for the strict

has an Executive Committee that is composed ofhandbooks providing behavior guidelines andmanagement systems for various risks andcompliance with this law.

the representative directors and examines

other information are made available to directors

contingencies. Risk managers and crisis

matters before they are submitted to the Boardand employees on a real time basis using

managers are appointed to prevent problems as

Health, Safety and the Environmentof Directors. Unanimous votes are required forenterprise information portal.

well as to deal with any incidents and minimize

Chiyoda regards the protection andtheir consequences.

improvement of safety and health for all Groupdecisions concerning important matters involving

The CSR Division was established in 2005 tobusiness execution. Corporate auditors attend

provide for the integrated oversight of CSR

Corporate Governance Structure
Shareholders Meeting

Corporate Auditors

Board of Directors

Corporate Auditors Committee

Executive Committee
Crisis Managers

SQE Division
Occupational safety andhealth, quality, environment

CSR Division
Compliance, social andenvironmental activities,
information security management

Operational Auditing OfficeInternal control
through PDCA cycle
P(lan)D(o)C(heck)A(ct)Executive Officers
Internal Checks and Balances
Risk Managers

With regard to the management of projects,

employees as the basis for its ability to succeed.

Chiyoda has a rigorous project monitoring

Priority will continue to be placed on employee

system operated by senior management. The

safety and hygiene management, such as

Company has a Cold Eye Review System underthrough employee training, enactment of

which sales activities are evaluated so thatsuitable measures to prevent accidents and otherpotential sources of risk can be quickly identified

emergencies, and initiatives to preserve andprior to the preparation of estimates, submission

enhance workplace safety and hygiene.

of bids and signing of contracts. In addition, theRegarding environmental management, Chiyoda

Company conducts project audits under whichin March 2001 became Japan’s first specialized

specialized auditors from corporate

plant engineering company to earn ISO 14001

administration sections verify the suitability ofcertification. The Company continues to conduct

project execution plans prepared by operating

an extensive environmental management

divisions. Through these activities, the Company

program.

is further strengthening internal controls andOperations audit, internal control,enhancement of systems, export control

Corporate Administration

has prepared a personal information protection

making operations more transparent.
With regard to information security

Project Operations
Executive Officers
Risk Managers

management systems, Chiyoda has established
Self Auditing

clear rules and systems that comply with
BS7799-Part II (2002) standards for the

6 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 7

Interview with the President

Double Step-Up Plan 2008—

Making Strides
towardSustainable
GrowthPlease explain the events that led to the formulation of the DSP 2008

Q. medium-term management plan.
downturn in our operating results in
A. Thethe late 1990s and early 2000s prevented
us from paying a dividend over the eight-year
period that ended in March 2004. Until thishappened, we firmly believed in our ability tooffer customers outstanding technology andproject execution skills. But somehow we letourselves become over-confident. Our
management practices became inflexible,
preventing us from adapting to changes in ourmarkets. The result was a decline in sales andearnings. During the past few years, we havethoroughly examined and improved our checkand balance management systems, our businesspractices and our internal auditing and control

functions. Thanks to these measures, ourperformance has rebounded, and we finallycame to resume dividend payments applicable tofiscal 2005. Now that we have cleared away theelements that had been blocking our progress,
we finally have an operating framework capableof aiming for higher goals.
Double Step-Up Plan 2008 (DSP 2008)
establishes concrete goals to shoot for now that
we are prepared to advance to a new phase of
growth. Specifically, we have two “step-up”
goals. One is to step up to become “TheReliability No.1” Project Company. The other is
to step up to become an Excellent Company able
to “Sustain Earnings Growth.”

Q. Would you provide more information concerning these two goals?
The President Nobuo Seki Discusses the

Medium-Term Management Plan
and Chiyoda’s Future

8 CHIYODA CORPORATION ANNUAL REPORT 2005

“The Reliability No.1” ProjectA. Becoming
Company means acquiring the world’s
most reliable capabilities for executing projects.
Economic growth in China and India, twocountries with massive populations, willundoubtedly cause a substantial increase inglobal demand for energy in the coming years. In
fact, we are already facing a sharp increase in
the price of crude oil due largely to their bullish
economic growth. At the same time,environmental regulations are becoming evenmore severe. These trends indicate that demand
will remain strong for LNG plants, oil refineries
and petrochemical plants, requiring highlysophisticated technologies and facilities in all

market sectors where Chiyoda has technicallyadvantageous positions. I also want to stress thatimmense requirement of cost and time constraint
for larger energy demand is requiring larger scale
plants along with shorter delivery periods.
Besides, customers are placing greater priority on
reliability than ever before.
A December 2004 LNG plant order from
Qatargas II is an excellent illustration of thesetrends. The order, which we received jointly withTechnip France, involves the construction of two
trains of 7.8 million ton LNG plant, which will be
the largest ever built. These plants will becomposed of about 30,000 different parts andcomponents and about 10 million items in all.

CHIYODA CORPORATION ANNUAL REPORT 2005 9

Interview with the President

If even one of those items is defective, the wholeplant may not start operating. This is why we pay
close attention to procuring the best possible
components at all times. Our approach meansthat even if there exists a single component
which does not meet requirements in thespecification, the plants should be designed toallow a minimum impact caused by the failure in
the performance of such component. This stanceunderpins our ability to offer customers
outstanding reliability, and is instrumental toreceive the order for the world’s most advanced
LNG plants.
Enhancing our reliability is also vital tominimizing the unnecessary costs in our projects.
Once a project is under way, skills and capabilities

in minimizing problems and preventing theoccurrence of unexpected costs make a directcontribution to profit margins. In other words,
our goal of becoming an Excellent Company able
to “Sustain Earnings Growth” is an extension of
our drive to raise reliability. When we will
establish firm reputation for reliability, it will
make us stay away from a very severe pricecompetition, thus allowing us to preserve a
reasonable profit margin by offering
differentiated technical services and capabilities
with higher reliability. Since our two step-up
goals are concepts that benefit customers andourselves, we must work on achieving both at
the same time.

Chiyoda is now concentrating on four strategies to fulfill the two

Q. step-up goals. Would you describe these strategies?
of the four strategies was created
A. Eachfrom a different perspective: thecustomer, business processes, financial strengthand the need for personnel and innovations.
Regarding customers, we will execute abusiness strategy that leverages our superior
technologies. That means focusing on market
sectors where we can add value as only Chiyoda
can. The energy field, where plants are becoming
larger and more complex, presents many
opportunities for us in this respect. We have highexpectations for LNG projects outside Japan andupgrading facilities at oil refineries andpetrochemical projects in Japan. Plant Lifecycle
Engineering (PLE) is another key element of ourbusiness strategy. We must expand ourconventional stance of ending our services whena plant is turned over to the customers. Our goal

10 CHIYODA CORPORATION ANNUAL REPORT 2005

Concept of Management Strategy
Perspective of Financial Strength
Increase profitability

Steadily manage
gross budget

Excellent Company able to“Sustain Earnings Growth”

Perspective of Customers
Build long-term relationships
with customers

Enhance customer
satisfaction

Enhance reliability“Reliability No.1”
Project Company

Perspective of Business Processes
Continuously enhance
technological strength andcompetitivenessAchieveaction plan

Create an energetic
organization

Performance Indicator Targets(Billion yen)

100

30%

Target: more than 30%
75

20.2%

Equity ratio

70.0
20%

15.9%
50

13.9%
11.7%
Shareholders’ equity

25

15.1

16.7

36.9
10%

22.8

0%

0
FY2002 FY2003 FY2004 FY2005 FY2006 FY2007 FY2008 FY2009

PLE
Smart EPC

Perspective of Personnel and Innovations
Enhance employee
satisfaction

With this much equity on our balance sheet, we
will be in a fairly strong position to take on largescale projects that could involve various risks.
Last is personnel and innovations. Here, ourgoal is to foster a workforce and organizational
structure that are full of vitality. As an integrated
engineering and construction company, ourinvestments in tangible assets are surprisingly
small. That allows us to make substantial
investments in our people. Fortunately, we
already have a corporate culture that encourages
the development of highly talented people. Ourpolicy now is to assemble a framework that canfoster people who are true professionals in theirown fields. Doing so is vital to achieving the two
step-up goals of the medium-term plan.

Q. What is your view of current trends in the operating environment?

Enforce risk management

Refine employee skills andeffectively assign employees

now is to build permanent relationships withcustomers by supplying services to operate plants
at maximum efficiency with minimal costs forlifetime period.
Regarding business processes, our activities arefocused on Smart EPC. We want to reinforce risk
management skills, make better use ofsophisticated IT, utilize Global Engineering
Satellites (GESs) in India and the Philippines andhave domestic group companies work moreclosely together. Smart EPC is a collection of
initiatives to reform business processes. The
objective is to enhance the efficiency andaccuracy of our work during the engineering,procurement and construction stages. Thisrequires many interactions. One is utilizing IT inevery way possible. Another is executing
knowledge management to accumulate astorehouse of our employees’ know-how andexperience.
Regarding financial strength, our goal is tobuild a consistently sound financial position thatcan support the creation of next-generation
businesses. This is essential to becoming acompany that can sustain earnings growth. By
the final year of the medium-term plan, which isthe fiscal year ending in March 2009, we aim toraise our equity ratio to at least 30%. That
equates to total equity of about ¥70 billion.

High employee morale
Refinement of employee skills
Change of mind-set

put, I think market conditions will
A. Simply
be extremely favorable for us for the
moment. The primary reason is the large volumeof LNG-related projects under way around theworld.

Petroleum is, of course, the world’s largest
source of energy. Coal is still number two andnatural gas is third. Natural gas, a clean energy,
is expected to surpass coal because of risingdemand worldwide. We are now seeing annual

CHIYODA CORPORATION ANNUAL REPORT 2005 11

Interview with the President

growth of about 7% in the demand of LNG, apace that is likely to continue for at least the next
decade. Raising LNG output at this rate will
require building every year new production
facilities of LNG with an output of 15 million
tons. Demand is increasing because morecountries will be importing LNG. The United
Kingdom, where North Sea oil reserves are
declining, has decided to start importing LNG for
the first time in 15 years. In fact, the previously
mentioned two Qatar LNG plants that we willbuild, each the largest in the world, will produce
LNG for export to Britain. The United States,
India and China also plan to begin importingLNG and increase the import volume.
As of April 2005, Chiyoda was participating in

49% of all LNG plants under construction
worldwide. LNG plants and LNG receiving
terminals in Japan account for 72% and 10%,respectively, of our ¥522.4 billion backlog ofcontracts. In all, our backlog of contracts
includes about ¥430 billion of LNG-related
projects. Japan was one of the first countries toimport LNG, and is still the world’s largest buyerof LNG. Japan’s integrated engineering andconstruction companies have had opportunities
to be involved in the LNG projects and became
the world leaders in this field. Chiyoda has aparticularly strong reputation concerning LNG
projects, as can be seen in our high share of thismarket and the large volume of LNG liquefaction
projects now under way.

Market Outlook

LNG Plant Market Share underConstruction

Booming Market Underpinned by
Growing Energy Demand

Mtoe (Equivalent to 1 million tons of oil)■World Primary Energy Demand■Chiyoda’s Market Outlook

6,000

Oil: Domestic

5,000

蘆Rebound in investment
蘆Higher added value
蘆Chemical refinery

4,000

Snφhvit LNG (Melkφya Island) -Norway
Qalhat LNG -Oman
Papua (Tangguh) -Indonesia

integration

Sakhalin II Trains1/2-Russia
Atlantic LNG Train 4 -T&T

2,000

Natural Gas: Overseas

1,000

Darwin LNG -Australia

蘆Global LNG boom
蘆Large gas and chemical

0

2000

2010

2020

2030

Oil
Natural gas
Coal
Other renewables
Nuclear power
Water

projects using associated gas
蘆New clean energy:
Growing GTL and othernew energy markets

NWS Train 5 -Australia
RasGas II Trains 4/5 -Qatar
Qatargas II Trains 4/5 -Qatar
ELNG Trains 1/2-Egypt

Coal: Overseas
蘆Growing demand for coaland stricter environmental
regulations
蘆Growing demand for fluegas desulfurization
蘆Business model reform→CT-121 license business

NLNG (Bonny Island) Trains 4/5-Nigeria●Chiyoda’s projects●Competitors’ projects

LNG Plants under Construction (As of April 2005)
Plant capacity of Chiyoda’s projects 37.9 mmt/y
Total plant capacity 77.6 mmt/y＝2008 places considerable emphasis
A. DSPon CSR. For example, we established theCSR Division in April 2005 to provide a single
unit for overseeing all activities involving CSR.
The division supervises compliance programs,
environmental initiatives, information security,social contributions and many other activities.
We are also making social and economic
contributions through our business activities.

49%

Our technical services contribute toenvironmental preservation. Raising LNG output
helps reduce global CO2 emissions. Throughlicensing, we are making our CT-121 flue gas
desulfurization process available to plants otherthan those we build ourselves. And we areparticipating in a GTL technology development
project, which aims to produce kerosene andother liquid fuels from natural gas.

In March 2005, Chiyoda
Corporation was selected forinclusion in the FTSE4Good
Index, a well-known index
developed by FTSE of the
U.K. and used for socially
responsible investing.

Q. What is your message to the shareholders of Chiyoda?
Our dividend applicable to fiscal 2005

Establish Strong Presence in Large-Scale
LNG Plant Market by Track Record andTechnological Prowess(Larger, Faster, Safer)

蘆Plant Lifecycle Engineering
蘆Japanese oil majors

3,000

What is Chiyoda’s position concerning Corporate Social Responsibility

Q. (CSR)?

A. was our first dividend in nine years. Under

Strengthening Financial Position and Earnings Distributions

our DSP 2008 medium-term plan, our goal is toraise the dividend per share to ¥10 or more by
the plan’s final year. We intend to reach this goal
through a balanced approach to three key
themes: building a stronger financial position;
investing in our own human resources looking
resolutely forward; and sharing our profits withshareholders. This is why it is so important that
we achieve our two step-up goals: becoming“The Reliability No.1” Project Company, andbecoming an Excellent Company able to “Sustain
Earnings Growth.” I am very confident that
Chiyoda can fulfill these goals. As we take thenecessary actions, I look forward to receiving thecontinuing support and understanding of ourshareholders.

Customers/Suppliers

Improve stability and sustainability
Raise equity ratio to 30% or more

Environment

Society

Chiyoda Group

Shareholders

EconomyEmployees

Increase the dividend and corporate value

Recruit talented people and boost motivation

Raise the dividend per share to ¥10 or more

Rewarding in proportion to the Company’s performance

Source: IEA (International Energy Agency)

12 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 13

Review of Operations(Left) Signing ceremony(Center) Groundbreaking ceremony(Right) Artist’s conception of the two new
LNG trains

Overseas
In the overseas plant market, growing awareness of the low environmental impact of natural
gas is supporting a large volume of investments in gas field development and gas
production, liquefaction, transport and regasification. These investments are being made byboth gas-producing nations and the energy majors. Projects are in gas-producing regions,such as Asia, the Middle East and Africa, and consuming nations, such as the U.S., India andChina. These trends produced a large increase in demand for the Chiyoda Group’s Gas Value
Chain services.
Due to these factors, overseas new contracts increased 47.2% to ¥321.8 billion andconstruction contracts rose 24.1% to ¥178.0 billion.

◆New Contracts ◆◆Completed Projects ◆◆◆Backlog of Contracts
Locations

Clients

Projects

MIDDLE EAST
Qatar

B◆

Qatar Liquefied Gas Co., Ltd. (2)LNG Plant (Trains 4 & 5)

Qatar

B◆

Ras Laffan Liquefied Natural Gas Co., Ltd. (2)LNG Plant (Train 5)

Qatar

B◆

Qatar Liquefied Gas Co., Ltd. 3

LNG Plant (FEED) (Trains 6 & 7)

Qatar

B◆

Ras Laffan Liquefied Natural Gas Co., Ltd. (3)LNG Plant (FEED) (Trains 6 & 7)

Qatar

B◆◆

ExxonMobil Middle East Gas Marketing Ltd.

Gas Development Project

Qatar

B◆◆◆

Ras Laffan Liquefied Natural Gas Co., Ltd. (2)LNG Plant (Train 4)

Qatar

B◆◆◆

ExxonMobil Middle East Gas Marketing Ltd.

Gas Development Project (expansion)

Qatar

B◆◆◆

Qatar Liquefied Gas Co., Ltd.

LNG Plant (debottlenecking)

Oman

B◆◆◆

Qalhat LNG S.A.O.C.

LNG Plant

Saudi Arabia B◆

Jubail United Petrochemical Company

Ethylene Plant (expansion)

Saudi Arabia B◆◆

Jubail United Petrochemical Company

Ethylene Plant

Saudi Arabia B◆◆

International Methanol Company

Methanol Plant & Utility/Offsite

IranPetrochemical Industries Development
Management Company

Fertilizer Plant

B◆◆◆

QatarsWorld’s Largest LNG Trains for Qatargas II
On December 15, 2004, Chiyoda with its joint

at the existing Qatargas LNG plant site in Ras

venture partner Technip was awarded the EPC

Laffan.

contract for two LNG trains with the world’s

The three existing trains at this site have alargest capacity by Qatargas II. Each train will

total annual output of more than 9 million tons.

produce an expected minimum of 7,800,000t/y

Chiyoda constructed these three trains too,of LNG, to be shipped to the U.K. market, withwhich have been operating since 1996, andTrain 4 scheduled for the start-up in late 2007,

performed subsequent debottlenecking work

followed by Train 5 approximately 9 months

that raised each train’s output by 1 million tons.

later. The new LNG trains are to be constructedLayout of the FGD facility(computer graphics)

U.S.sLicensing of CT-121 Technology for Flue Gas Desulfurization
In January 2005, Chiyoda signed a licensing

ASIA

agreement with Southern Company Services, Inc.

CT-121 has been selected as one of theSingapore

B◆

Vopak Terminal Singapore Pte. Ltd.

Tank Terminal

for Chiyoda Thoroughbred 121™ (CT-121) fluetechnologies for Round II Innovative Clean Coal

Indonesia

B◆◆◆

PetroChina International Jabung Limited

Gas Development Projectgas desulfurization (FGD) technology at four

Technology Program by the U.S. Department of

China

B◆◆◆

Nantong SKT New Material Co., Ltd.

PVDC (polyvinylidene chloride) Plant

units of the coal-fired power plant at the Bowen

Energy. This innovative technology is to sparge

China

B◆◆◆

Mitsubishi Rayon Polymer Nantong Co., Ltd.

PMMA (polymethyl methacrylate)
Sheet Plant

Power Station of Georgia Power Company. The

the flue gas stream directly into a pool of afollowing March, another contract was signed,

reagent to accomplish the pollutant to reagent

this one for the provision of the CT-121 FGD

contact. CT-121 FGD technology makes it

technology to Black & Veatch Corporation forpossible to remove sulfur dioxide with a high

China

B◆◆◆

CNOOC and Shell Petrochemicals Co., Ltd.

SM/PO and MPG/Polyols Plant

RUSSIA AND OTHERS

14 CHIYODA CORPORATION ANNUAL REPORT 2005

power utility companies.

U.S.

B◆

Southern Company Service, Inc

Flue Gas Desulfurization (provision of license)

use at the five units of the Killen and Stuart coal-

efficiency rate along with other pollutants and

U.S.

B◆

Black & Veatch Corporation

Flue Gas Desulfurization (provision of license)

fired power plants of Dayton Power & Lightparticulate matter. With air pollution regulations

Venezuela

B◆◆

Petroleos de Venezuela S.A. (PDVSA)

Refinery Modernization

Company in Ohio. Both contracts are about the

becoming much more stringent in the U.S., CT-

RussiaB◆◆◆

Sakhalin Energy Investment Company Ltd.

LNG Plant / Crude Oil Export Facilities

same size as the large FGD facilities (7.2 million

121 is positioned to play a big part in cleaningkilowatts) delivered by Chiyoda to Japanese

flue gas from power plants.

CHIYODA CORPORATION ANNUAL REPORT 2005 15

Review of Operations(Left) Work is proceeding on the main pipe
racks.
(Center) Construction of the LNG storage
tank(Right) Storage pond for treating effluents

Domestic
In the energy field, orders were strong, led by those from Japanese oil refiners for projects tointegrate oil refining and petrochemical operations and to conserve energy. In addition, we
received a steady stream of orders from electric power and gas companies, as they invested
actively in facilities to diversify energy sources, such as a shift to LNG, to protect theenvironment, and in projects resulting from the elimination of barriers that separated

RussiasProgress Continues at the Massive Sakhalin LNG Project
Construction on temporary and permanent

installed, work is also advancing rapidly on thefacilities for an LNG project is proceeding non-main pipe racks inside the LNG production

stop on Russia’s Sakhalin Island, even during thefacility. Work has already started on placing

bitterly cold winter. During the winter, plans forpipes on the main pipe racks. In addition,

construction to begin in the spring are made. In

construction of the LNG storage tanks is moving

March 2005, Chiyoda began working withalong, even during the long winter. Following

subcontractors on the full-scale start ofcompletion of the tank walls, the construction of

construction.

the roofs was completed on schedule.

The on-time delivery of construction

electricity and gas utilities.
In the non-energy field, including chemicals, pharmaceuticals and fine industries, wesecured orders related to investments for boosting production of functional materials tomeet growing demand from a booming consumer electronics market. Recognition of ourengineering capabilities led to favorable number of orders from the pharmaceutical sector aswell.
In this environment, consolidated new orders increased 24.3% to ¥89.5 billion andconstruction contracts rose 41.4% to ¥89.6 billion.

In addition to work on the LNG plant,

materials and machinery is essential tothe project includes measures to protect the

conducting construction work smoothly. Material

surrounding environment. In particular, an

Offloading Facilities have been completed andextreme care is exercised to prevent snowmelt,

the first two ships have already delivered theirrain and other soiled runoff from reaching rivers

Kanagawa

cargo. Equipment was immediately installed inand the ocean. For this purpose, water is treatedthe plant using large cranes. As equipment isin a storage pond before its release.

Work proceeds at an LNG plant in Oman.

OmansQalhat LNG Project Ongoing with Omanization and High Standards of HSE
Construction and commissioning work of theaward for “Best Omanization Company,” which

Qalhat LNG train is progressing toward

was given by the Minister of Manpower incompletion at the end of this year.

commemoration of the remarkable performance

The project has been contributing to humanresource development in Oman by way of◆New Contracts ◆◆Completed Projects ◆◆◆Backlog of Contracts
Locations

Clients

Projects

B◆

Nippon Petroleum Refining Co., Ltd.

Lube Oil / Grease Mixing and Filling Plant

Yamaguchi

B◆

Seibu Oil Co., Ltd.

Mixed Xylene Plant and Refinery Maintenance

IbarakiB◆

Mitsubishi Chemical Engineering Corporationand Mitsubishi Chemical Corporation

Ethylene Cracker

IbarakiB◆

Eisai Co., Ltd.

Pharmaceutical Bulk Plant

Kanagawa

B◆◆

TOA Oil Co., Ltd.

Refinery MaintenanceKanagawa

B◆◆

Mitsubishi Pharma Corporation

Pharmaceutical Laboratory

FukuokaB◆◆

Nippon Steel Chemical Co., Ltd.

E-6 (Circuit Board Materials) Plant

Chiba

B◆◆

Idemitsu Kosan Co., Ltd.

Gasoline Desulfurization Plant

Yamaguchi

B◆◆

Seibu Oil Co., Ltd.

Gasoline Sulfur Reduction Project

Mie

B◆◆

Showa Yokkaichi Sekiyu Co., Ltd.

Gasoline Sulfur Reduction Project

OkayamaB◆◆◆

Mizushima LNG Co., Ltd.

LNG Receiving Terminal

IbarakiB◆◆◆

Japan Oil, Gas and Metals National
Corporation

LPG Storage Terminal

Ehime

B◆◆◆

Japan Oil, Gas and Metals National
Corporation

LPG Storage Terminal

Nagasaki

B◆◆◆

Japan Oil, Gas and Metals National
Corporation

LPG Storage Terminal

DOMESTIC

of “Omanization” in the construction sector.
The project has kept high HSE performanceprovision of a unique Omanization program tosince its commencement and reached theparticularly local society in addition to expansion

remarkable achievement of 17 million accident-of job opportunities. This effort has been highly

free man-hours, as of July 2005.

praised and acknowledged by presentation of the

16 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 17

Review of Operations

Performance Highlights

FY2005
Breakdown by Industry
Groundbreaking ceremony

Gas & PowerGas Chemicals
Petroleum & Petrochemicals
Fine Industries & Others

Japan
Middle East
RussiaAsia and Others

12%

12%

sOrder Received from Seibu Oil for Mixed Xylene Plant
Chiyoda received an order from Seibu Oil Co.,

will be produced from Reformate, which is being

Ltd. in October 2004 for the engineering,

sold as a gasoline composite. Seibu Oil will haveprocurement and construction work for a newhigher value products, variable product line ups

Mixed Xylene plant in their existing Yamaguchi

and flexibility of operation.

such as tank modifications and new off loadsite office, workers at the site and all related

facilities for produced Mixed Xylene.

personnel are diligently working together to

The new plant will produce 200,000 tons ofMixed Xylene per year (8,500BPSD). Mixed Xylene

Construction Contracts

The project team, the sales department, theRefinery. The project includes some off site works

FY2005
Breakdown by Region

33%

19%

21%
61%

complete the project on schedule by December
2005 with no accidents or other problems.

36%

6%

New Contracts

3% 5%
10%
22%

13%
3%

Groundbreaking ceremony

74%

70%

sNippon Petroleum Refining Orders Lube Oil and Grease Mixing andFilling Plant
Nippon Petroleum Refining Co., Ltd. held alubricant manufacturing system in Yokohama togroundbreaking ceremony in April 2005 for theraise output volume by 40%.

construction of a lubricant and grease mixing

Chiyoda participated in this project fromand filling plant at its Yokohama Refinery. To

front-end engineering designs (FEED). A long list

make its operations even more competitive, theof accomplishments in lubricant facilities along

Nippon Oil Group decided to centralize lubricant

with engineering skills that include 3D modelingand grease production at its Yokohama Refinery.

were critical to Chiyoda’s ability to capture thisCurrently, Nippon Petroleum Processing Co., Ltd.

order. Work is proceeding toward completion inTokyo plant also makes these products. As a

July 2006 while placing priority on safety and theresult, the Nippon Oil Group is rebuilding its

prevention of accidents.

18 CHIYODA CORPORATION ANNUAL REPORT 2005

Backlog of Contracts

7%
2%

6%

6%

17%
20%
85%
57%

CHIYODA CORPORATION ANNUAL REPORT 2005 19

Financial Section

Consolidated Six-Year Financial Summary

Operating Results and Financial Position

Chiyoda Corporation and Consolidated Subsidiaries

Millions of Yen

For the Year:
Construction contracts
Cost of construction contracts
Income (loss) before income taxes
and minority interests
Net income (loss)
At Year-End:Total assets
Total shareholders’ equity
Working capital
Current ratio (%)
Long-term debt
Per Common Share (Yen):
Net income (loss)
Shareholders’ equity
Other Statistics:
Number of shares outstanding*(thousands)

2005

2004

2003

2002

2001

2000

¥267,655
247,905¥206,817
192,710¥166,367
155,924¥141,387
136,762¥128,665
131,240¥168,963
154,112

12,05012,863

5,370
6,647

2,509
2,000

1,861
121

(3,357)(4,607)

1,553
698

1. REVIEW OF OPERATING RESULTS

and power facilities in association with the diversification of

a Summaryenergy sources, such as the shift to environmentally friendly

In fiscal 2005, ended March 31, 2005, new contracts

natural gas, and with the lowering of the barrier between

increased 41.5% to ¥411.3 billion and consolidated

electric and gas utilities. In addition, demand is beginning toconstruction contracts increased 29.4% to ¥267.7 billion.

emerge for lifecycle engineering services, which optimize a

Operating income was up 88.4% to ¥11.1 billion and net

plant’s production expenses over the long term.

income rose 93.5% to ¥12.9 billion.

New contracts increased 43.6% to ¥305.6 billion. This
includes an order from Qatargas II for construction of LNG¥182,893
36,873
22,231
115.9
215

¥

68.62
193

¥142,860
22,767
15,719115.0
10,316

¥

35.91
123

¥120,297
16,670
7,526
108.4
10,422

¥

10.79
90

¥129,314
15,103
1,387
101.4
10,672¥0.65
81¥114,652
15,023
2,241
102.6
11,346¥(20)
81¥153,099
8,181(19,594)
84.5
12,545¥

3
33

b New contracts and construction contracts

Trains 4 & 5, from Ras Laffan Liquefied Natural Gas Co.,

New contracts were up 41.5% to ¥411.3 billion as domesticLtd., also in Qatar, for construction of LNG Train 5, fromnew contracts rose 24.3% to ¥89.5 billion and overseas

Qatargas 3 for FEED of LNG Trains 6 & 7 and from Ras

new contracts increased 47.2% to ¥321.8 billion.

Laffan Liquefied Natural Gas III for FEED of LNG Trains

Construction contracts increased 29.4% to ¥267.7 billion,

6 & 7. Construction contracts increased 68.7% to ¥162.6

the result of a 41.4% increase in domestic construction

billion. Major components include payment for thecontracts to ¥89.6 billion and 24.1% growth in overseas

completed portion of the Sakhalin II LNG Project in Russia,

construction contracts to ¥178.0 million.

LNG Trains 4 and 5 for Ras Laffan Liquefied Natural Gas in
Qatar, an LNG plant in Oman, a gas development project

190,837

185,041

185,199

185,388

185,429

248,357

A summary of engineering operations, which account for(additional work) for ExxonMobil Middle East Gas Marketingalmost all of the Group’s activities, is presented below.

Ltd. in Qatar, construction of the Mizushima LNG receiving
terminal of Mizushima LNG Co., Ltd., a natural gas* At year-end

a. Power and gas

development project in Indonesia and LPG storage terminals

Outside Japan, rising global demand for natural gas isin Kamisu, Fukushima and Namikata.

fueling a large volume of investments to develop gas
resources by gas-producing nations and energy majors. The

b. Gas chemicals

United States, the world’s largest consumer of energy, willIn the gas chemicals sector, many large-scale ethylene

soon have to import more LNG because it no longer meets

center projects that will use low-cost gas feedstock are now

its demand for gas from domestic sources and imports fromunder way by the energy majors. Projects are located in gas-

Canada. The United Kingdom will also become a net

producing countries such as Saudi Arabia, Qatar and Iran as

importer of gas due to declining domestic reserves. In Asia,

well as in China and Singapore.

India has started importing LNG, joining Japan, South Korea

New contracts rose 206.7% to ¥13.9 billion, due in partand Taiwan as LNG purchasers. China is likely to begin

to an order to expand an ethylene plant in Saudi Arabia.

importing LNG sooner than had been projected. All these

Construction contracts fell 61.6% to ¥14.7 million. This

events point to solid long-term demand for LNG.

figure includes payment for the completed portion of a

In Japan, progress in deregulation is making companies
reluctant to make large capital investments aimed at

project to expand a fertilizer plant in Iran and a methanol
plant in Saudi Arabia.

creating new sources of energy. At the same time, however,there is a large volume of projects to add and expand gas

20 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 21

pharmaceutical manufacturing.

d Selling, general and administrative expenses

year, against an extraordinary loss of ¥1.0 billion in the

Selling, general and administrative (SG&A) expenses

previous fiscal year. This was mainly because of a reversal of

spending in Japan for equipment associated with electronic

increased ¥0.4 billion to ¥8.7 billion. This was attributable to¥1.1 billion from the allowance for doubtful accounts due

investments in petrochemical facilities and in projects tomaterials and high-performance films. New orders were up

a ¥0.2 billion increase in taxes and public charges, partly due

to the collection of certain overdue accounts and long-term

reduce energy consumption. In the environmental sector,

59.8% to ¥29.0 billion, including an order from Eisai Co.,to the introduction of pro forma standard taxation, and to areceivables-other, and a reversal of ¥0.2 billion from thework was completed on schedule at projects to reduce theLtd. for a synthesizing plant. Construction contracts¥39 million increase in research and development expenses.

allowance for contingent loss which offset a loss on

sulfur content of fuel oil. There was also growth in sales

increased 32.6% to ¥21.8 billion. Major completions were a

However, due to improvements in the efficiency of

impairment of long-lived assets of ¥0.2 billion reflecting anfrom maintenance-related construction performed bypharmaceutical laboratory for Mitsubishi Pharma

administrative departments, SG&A expenses declined 0.8

early introduction of impairment accounting and a ¥0.4

Chiyoda Group companies in Japan.

Corporation and an E-6 (circuit board materials) plant forpercentage point as a percentage of sales, falling from 4.0%

billion loss on sale of fixed assets.

Nippon Steel Chemical Co., Ltd.

to 3.2%.

c. Petroleum and petrochemicals
In the petroleum sector, there were substantial capital

In industrial machinery, there was a high level of capital

expenditures in Japan as Japanese oil companies madeIn the petrochemicals sector, Japanese chemicalg Income, residential and enterprise taxes andcompanies are constructing petrochemical plants in China
and other parts of Asia to increase the competitiveness ofe. Environment and otherse Operating income

deferred tax adjustment

products sold to manufacturers of automobiles and home

Regarding environmental activities, Chiyoda conducted sales

Higher sales, the improvement in the gross profit margin

Income before income taxes and minority interests wasappliances.

in Europe and North America of the CT-121 flue gas

and the decline in SG&A expenses as a percentage of sales¥12.0 billion but income, residential and enterprise taxes

In fiscal 2005, new contracts increased 16.0% to ¥52.2

desulfurization (FGD) technology, which Chiyoda developed.

resulted in an 88.4% increase in operating income to ¥11.1

totaled only ¥0.9 billion. The low level of taxes was mainly

billion. Major components were orders for the construction

The technology was licensed to Southern Company Services,billion. This raised the operating income margin by 1.3

due to the use of loss carryforwards for tax purposes.

of a lube oil and grease mixing and filling plant for Nippon

Inc. for the use of CT-121 at FGD facilities at four coal-fired

percentage points from 2.8% to 4.1%.

Petroleum Refining Co., Ltd., a mixed xylene plant andpower plants operated by Georgia Power Company, a major

refinery maintenance for Seibu Oil Co., Ltd., a tank terminal

U.S. utility, and to Black & Veatch Corporation for use atf Other income (expenses)

higher profit margins due to improvements in andin Singapore and an ethylene cracker for Mitsubishi

five coal-fired units at power stations of Dayton Power &Other income-net was ¥0.5 billion, ¥42 million more thanwidespread use of project cost management. Chiyoda

Chemical Engineering Corporation and Mitsubishi ChemicalLight Company. Revenues from these sales contributed toother income-net in the previous fiscal year.

therefore believes that taxable earnings in the fiscal year

Corporation. Construction contracts increased 48.7% toresults in the fiscal year under review.

¥57.0 billion. This included expansion of the Puerto La Cruz
refinery in Venezuela, ultra low sulfur gasoline projects for

In all, new contracts decreased 1.8% to ¥6.4 billion andconstruction contracts fell 45.7% to ¥7.5 billion.

Showa Yokkaichi Sekiyu Co., Ltd. and Seibu Oil Co., Ltd., aDeferred income taxes totaled ¥1.8 billion, the result of are-assessment of deferred tax assets in consideration of

Net financial income, which is interest and dividend
income less interest expense, increased from ¥35 million to

ending in March 2006 will be sufficient to recover deferred
tax assets.

¥0.4 billion. This was the result of higher interest income on
Chiyoda’s share of funds invested by overseas joint venturesh Net income

refinery maintenance project for TOA Oil Co., Ltd. and ac Gross profit on construction contracts

as well as of lower interest expense because of a reduction

Net income increased ¥6.2 billion from the previous fiscal

gasoline desulfurization plant for Idemitsu Kosan Co., Ltd.

Gross profit on construction contracts increased 40.0% toin interest-bearing debt. Foreign exchange loss was ¥0.1

year to ¥12.9 billion.

¥19.7 billion. Contributing to the increase were growth inbillion compared with a gain of ¥0.3 billion in the previous

d. General chemicals and industrial machinery

the volume of sales and an improvement in the gross profit

fiscal year, when gains were recorded on the cancellation of

2. SOURCES OF CAPITAL AND LIQUIDITY

In general chemicals, capital expenditures in themargin because of strict adherence to risk management

forward foreign exchange contracts deemed to bea Cash flows

pharmaceuticals sector remained stable, although somemethodology at all project stages from bidding that is aimed

unnecessary. The loss in the fiscal year under review mainly

Cash and cash equivalents increased ¥0.7 billion from thecompanies temporarily reviewed their plans due to industry

at maintaining the targeted level of profitability onreflects hedging costs for comprehensive forward foreign

previous fiscal year to ¥41.6 billion as of March 31, 2005.

realignment to become more globally competitive and toconstruction contracts. The result was a 0.6 percentage

exchange contracts.

Cash used for capital expenditures, primarily for IT-related

the effects of the rapid growth of foreign pharmaceuticalpoint improvement in the gross profit margin from 6.8% tocompanies in Japan. However, there is a growing trend in

7.4%.

Japan to outsource engineering work and, following
revisions to the Pharmaceuticals Affairs Law, to outsource

22 CHIYODA CORPORATION ANNUAL REPORT 2005

Equity in earnings of associated companies totaled ¥0.2

software, totaled ¥1.0 billion. Major sources of cash werebillion, about the same as the ¥0.2 billion posted in the¥1.2 billion from the exercise of stock options and ¥0.5

previous fiscal year.

billion in net cash provided by operating activities, including

Extraordinary income was ¥0.5 billion in the current fiscal

cash provided by changes in working capital, including an

CHIYODA CORPORATION ANNUAL REPORT 2005 23

Business Risk and Other Risks

increase in trade payables. This was ¥15.1 billion less thanThe following is a list of major items, and Chiyoda’sequipment caused by shortages or other factors. Suchtransported. In the event of an accident during the transport

net cash provided by operating activities in the previous

responses to those items, that may have a significant bearing

delays could affect earnings at a project.

of materials and equipment, the Group will quickly holdfiscal year.

on the decisions of investors with regard to the Chiyoda

Presently, the cost of basic materials is extremely high anddiscussions with customers and other related parties to

Jointly controlled assets of joint ventures substantiallyGroup’s financial position, operating results, cash flows andthere are shortages of certain raw materials. The Group isrepresent Chiyoda’s share of cash and cash equivalents atother important factors concerning risks associated with an

making a concerted effort to shield itself from the resulting

joint ventures. Net cash provided by operating activities afterinvestment. The Group is aware of the possibility that theserisks. For example, the Group diversifies sources of supply,

5. PLANT ACCIDENTS

problems may occur and is exercising extreme care to takesuch as by using suppliers located in all areas of the world,

A variety of problems may occur for whatever reason at

preventive measures. The Group also strives to respondconsiders making purchases in large quantities, and works

plants the Group is constructing or has completed in thequickly to any problem to minimize its effect.

on negotiating contracts with customers that include

past. These problems range from minor malfunctions of the

supplementary terms that address the possibility of andevices that make up these plants to a major accident such

unusual price increase.

as an explosion or fire. In the event that the Group is

adjustment for jointly controlled assets of joint ventures was¥22.0 billion. As a result, the Chiyoda Group’s operating
activities provided net cash of ¥91.5 billion.

b Financing

Upfront expenses for the construction of plants in Japan andoverseas along with SG&A expenses account for the bulk of
the Chiyoda Group’s financing needs. Significant

Certain items below concern risks that may occur in the
future. These items represent risks that the Company

responsible for the cause of an accident, earnings may bebelieves are significant with regard to its risk management
activities as of June 24, 2005, the date when the Company

determine the best course of action.

3. TERRORISM, POLITICAL UNREST IN NEARBY

affected. To prevent an accident from occurring, the Group

components of SG&A expenses are employee salaries andsubmitted its MOF securities report (Yuka Shoken

COUNTRIES, STRIKES AND LACK OF GOVERNMENT

has quality management, safety management and other risk

allowances and outsourcing expenses. Personnel expenses

Hokokusho).

CONTROLS

management systems in order to be certain of the safety of

Global terrorism could directly harm the Company’s head

newly constructed plants. However, the Group is continuing

1. FOREIGN EXCHANGE RATE MOVEMENTS

office, construction sites or employees, cause theto take actions to reinforce its management systems.

At overseas construction projects, a large share of payments

suspension of ongoing business activities, or reduce thec Financial strategy

received and payments to procure materials and equipment

volume of capital expenditures over the medium and long

Chiyoda meets its funding needs for working capital, capitalis in foreign currencies. Consequently, operating results areterms due to instability in the client countries in the Middle

investments and other requirements through internal

vulnerable to unexpected changes in foreign exchange rates.

East and elsewhere. Such events could affect earnings. In

liquidity and bank loans. For working capital, Chiyoda has a

The Company uses foreign exchange forward agreements

addition, there could be an impact on earnings if the Group¥14.0 billion short-term credit facility to be prepared for any

and takes many other steps to minimize the effect of foreignis unable to have customers pay for the additional expenses

exchange movements on earnings at overseas projects.

caused by these events. The Group has established a crisis

for employees engaged in R&D represent the majority of
research and development expenses.

future demand for funds.
Current plans for capital investments primarily involve
investments in IT systems. These expenditures will befinanced internally.
Based on the current volume of orders received, financial
position, ability to generate operating cash flows andunused portion of the short-term credit facility, Chiyoda
believes that it has adequate access to the funds required tosupport growth.

24 CHIYODA CORPORATION ANNUAL REPORT 2005

management system that facilitates a quick initial response
2. SUDDEN INCREASES IN PRICES OF MATERIALS AND

if a problem occurs.

OTHER ITEMSAt plant construction projects, there is a gap between thetime when estimates are prepared and orders are placed for

4. ACCIDENTS DURING TRANSPORT OF MATERIALSAND EQUIPMENT

materials and equipment. Consequently, earnings at aMaterials and equipment may be damaged during transport

project are vulnerable to sudden increases in the cost ofdue to inclement weather or other natural disasters. Whilelabor, materials and equipment following the submission of

goods are insured during transport, insurance is nota bid. Furthermore, a project’s completion could be delayed

normally available to cover damage resulting from thedue to substantial increases in the cost of materials andsudden breakout of hostilities or a war. The Group is thus

equipment, or delays in the delivery of materials andtemporarily exposed to this risk when goods are

CHIYODA CORPORATION ANNUAL REPORT 2005 25

Consolidated Balance Sheets
Chiyoda Corporation and Consolidated Subsidiaries
March 31, 2005 and 2004
Thousands of
U.S. Dollars(Note 1)ASSETS
Millions of Yen

CURRENT ASSETS:
Cash and cash equivalents
Time deposits
Notes and accounts receivable—trade (Note 3)
Allowance for doubtful accounts
Costs and estimated earnings on long-term construction contracts (Note 4)
Costs of construction contracts in process
Accounts receivable—other (Notes 3 and 9)
Jointly controlled assets of joint venture
Deferred tax assets (Note 13)
Prepaid expenses and other (Note 16)
Total current assets
PROPERTY, PLANT AND EQUIPMENT (Notes 7 and 10):Land
Buildings and structures
Machinery and equipment
Tools, furniture and fixtures
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 5 and 10)
Investments in and advances to unconsolidated subsidiaries andassociated companies (Notes 6 and 9)
Long-term loans (Note 8)Long-term receivables (Note 9)
SoftwareDeferred tax assets (Note 13)
Other investments
Allowance for doubtful accounts (Note 9)
Total investments and other assets
TOTAL

2005

2004

2005

¥ 41,594
790
33,927(507)
3,722
24,978
1,787
49,954
3,804
1,963¥ 40,903
710
18,881(432)
5,732
18,9182,101
28,4142,086
3,243$ 388,729
7,383
317,075(4,738)34,785
233,439
16,701
466,860
35,551
18,345

162,012120,556

1,514,130

1,956
6,302
685
5,353
3
14,299(7,516)

2,527
6,353
870
5,270
2
15,022(8,099)18,28058,897
6,403
50,02828
133,636(70,243)

6,783

6,923

63,393

1,609

1,726

15,037

3,755
629
5,425
2,771
112
2,283
(2,486)

3,794
686
7,819
2,532
82
2,296
(3,554)35,093
5,879
50,70125,897
1,047
21,337(23,234)

14,09815,381

131,757¥182,893¥142,860$1,709,280

Thousands of
U.S. Dollars(Note 1)

LIABILITIES AND SHAREHOLDERS’ EQUITY
Millions of Yen

2005

CURRENT LIABILITIES:Current portion of long-term debt (Note 10)
Notes and accounts payable—trade (Note 3)
Advance receipts on construction contracts
Income taxes payable
Deposits received (Note 3)
Allowance for warranty costs for completed works
Allowance for contingent loss
Accrued expenses and other (Note 16)

$

6,843
139,781

104,837

1,306,364

NON-CURRENT LIABILITIES:Long-term debt (Note 10)
Liability for retirement benefits (Note 11)
Deferred tax liabilities (Note 13)
Other liabilities

215
5,593
1
85

10,316
4,507
2
87

2,009
52,2719795

Total non-current liabilities

5,894

14,91255,084

345

344

3,225

12,722

12,028118,897

6,507
18,622
32
(759)

5,819
5,801
26
(767)

60,813174,037
299(7,093)

(251)

(140)

(2,346)36,87322,767

344,607¥182,893¥142,860$1,709,280

MINORITY INTERESTS

¥

2005

102
52,88837,062
195
5,245
1,079
200
8,066

Total current liabilities¥ 10,102
74,41444,384
664
2,615
759

2004

94,411
695,458
414,804
6,206
24,4397,093
63,953

CONTINGENT LIABILITIES (Notes 3, 15, 16 and 17)
SHAREHOLDERS’ EQUITY (Notes 12 and 19):
Common stock—authorized, 570,000 thousand shares;
issued, 191,361 thousand shares in 2005 and
185,429 thousand shares in 2004
Preferred stock—authorized, 80,000 thousand shares
Additional paid-in capital
Retained earnings
Unrealized gain on available-for-sale securities
Foreign currency translation adjustments
Treasury stock—at cost, 523,362 shares in 2005 and
387,854 shares in 2004
Total shareholders’ equity
TOTAL

See notes to consolidated financial statements.

26 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 27

Consolidated Statements of Income

Consolidated Statements of Shareholders’ Equity

Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004

Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004
Thousands of
U.S. Dollars(Note 1)Millions of Yen

CONSTRUCTION CONTRACTS (Notes 3 and 4)
COSTS OF CONSTRUCTION CONTRACTS (Notes 3 and 4)
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 3 and 14)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income (Note 3)
Interest expense
Equity in earnings of associated companies
Foreign exchange (loss) gain
Loss on impairment of long-lived assets (Note 7)
Loss on performance guarantee for an associated company
Reversal of provision for contingent loss
Reversal of allowance for doubtful accounts
Other—net
Other income (expenses)—net

2005

2004

2005

¥267,655
247,905¥206,817
192,710$2,501,449
2,316,870

19,75014,107

184,579

8,672

8,226

81,046

11,0785,881

103,533

743
(305)
153
(103)
(233)

411
(375)
156
294

6,944
(2,850)1,430(963)(2,178)

200
1,074
(557)

(1,680)
600
486
(403)

1,869
10,037(5,205)

972

(511)

9,084

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

12,0505,370

112,617

INCOME TAXES (Note 13):
Current
Deferred931(1,754)668(1,906)

8,701(16,393)(823)(1,238)(7,692)

Total
MINORITY INTERESTS IN NET INCOME
NET INCOME

10¥ 12,863

¥

(39)

94

6,647

$ 120,215
U.S. Dollars(Note 1)Yen

PER SHARE OF COMMON STOCK (2.s and 18):
Basic net income
Diluted net income
Cash dividends applicable to the year
See notes to consolidated financial statements.

¥68.6267.30
6.00¥35.91
34.99

$0.64
0.63
0.06

Thousands
Outstanding
Number of
Shares ofCommonStockMillions of Yen

CommonStock

Additional
Paid-in
CapitalBALANCE, APRIL 1, 2003
185,199
Net income
Purchase of treasury stock(158)
Increase in retained earnings due to
exclusion from consolidation of
consolidated subsidiaries
Decrease in retained earnings due to
exclusion from equity method accountingof associated companies
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currency translation
adjustments¥12,028¥5,819BALANCE, MARCH 31, 2004

12,028Net income
Issuance of common stock by stock
option plan (Note 12)
Purchase of treasury stock
Decrease in retained earnings due to
exclusion from consolidation of
consolidated subsidiaries
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currency translation
adjustments
BALANCE, MARCH 31, 2005

185,041

Retained
Earnings¥ (497)
6,647

Unrealized
Gain onAvailablefor-Sale
Securities

Foreign
Currency
Translation
Adjustments

Treasury
Stock

¥10

¥(642)¥ (48)
(92)

12
(361)
16
(125)
5,819

5,801

26

(767)

(140)

12,863
5,932
(136)

694

688
(111)
(42)
6
8

190,837¥12,722¥6,507¥18,662¥32¥(759)¥(251)

Thousands of U.S. Dollars (Note 1)

CommonStock

Additional
Paid-in
CapitalRetained
Earnings

BALANCE, MARCH 31, 2004
Net income
Issuance of common stock bystock option plan (Note 12)
Purchase of treasury stock
Decrease in retained earnings due to
exclusion from consolidation of
consolidated subsidiaries
Net increase in unrealized gain on
available-for-sale securities
Net change in foreign currency translation
adjustments$112,411 $54,383 $ 54,215
120,215
6,486
6,430

BALANCE, MARCH 31, 2005

$118,897 $60,813 $174,037

Unrealized
Gain onAvailablefor-Sale
Securities

Foreign
Currency
Translation
Adjustments

Treasury
Stock

$243

$(7,168)$(1,309)(1,037)

(393)
56
75
$299

$(7,093)$(2,346)

See notes to consolidated financial statements.

28 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 29

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004

Chiyoda Corporation and Consolidated Subsidiaries
Years Ended March 31, 2005 and 2004
Thousands of
U.S. Dollars(Note 1)Millions of Yen

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes paid
Depreciation and amortization
Loss on impairment of long-lived assets
Reversal of allowance for doubtful accounts—net
Reversal of contingent loss
(Reversal of) provision for warranty costs for completed works
Provision for retirement benefits—net
Foreign exchange (gain) loss—net
Equity in earnings of associated companies
Changes in operating assets and liabilities:(Increase) decrease in trade notes and accounts receivable, andcosts and estimated earnings on long-term construction contracts(Increase) decrease in costs of construction contracts in process
Increase in jointly controlled asset of joint venture
Decrease in interest and dividend receivable
Increase in trade notes and accounts payable
Increase in advance receipts on construction contracts(Decrease) increase in deposits received
Other—net
Total adjustments
Net cash provided by operating activities
INVESTING ACTIVITIES:Payment for time deposits
Proceeds from refunds of fixed deposits
Purchase of investment securities
Proceeds from sales of investment securities
Purchases of property, plant and equipment
Purchase of intangible assets
Disbursements for originating long-term loans
Proceeds from collections of long-term loans
Other—net
Net cash used in investing activities
FINANCING ACTIVITIES:Net decrease in short-term bank loans
Repayments of long-term debt
Proceeds from issuance of common stock
Other—net
Net cash provided by (used in) financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH
AND CASH EQUIVALENTS
NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF EXCLUSION OF
CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

30 CHIYODA CORPORATION ANNUAL REPORT 2005

2005

2004

2005

¥12,050¥ 5,370$112,617

(408)
1,284
233
(994)
(200)
(320)
1,086
(66)
(153)

(705)
1,205
(1,128)
(600)
385
1,325
651
(156)

(3,813)
12,0002,178(9,290)(1,869)(2,991)
10,150(617)(1,430)(13,064)(6,060)(21,540)
12
21,568
7,322(2,630)2,364(11,566)
484

762
2,187
(19,742)255
6,377
11,8904,125
3,380
10,211
15,581(122,093)(56,636)(201,308)112
201,570
68,430(24,579)
22,092(108,094)
4,523

(623)
543
(33)
222
(854)
(1,038)
(21)
689
108
(1,007)

354
(20)
(751)
(993)
(144)
250
27
(1,277)(7,904)(258)(5,822)
5,075
(308)
2,075
(7,981)(9,701)
(196)
6,439
1,008
(9,411)

(102)
1,382
(110)
1,170

(93)
(8,255)(953)
12,916(1,028)
10,935

101
748

(78)
5,971

944
6,991

(57)
40,903¥41,594(8)
34,940¥40,903(533)
382,271$388,729

1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth in
the Japanese Securities and Exchange Law and its related
accounting regulations, and in conformity with accounting
principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirementsof International Financial Reporting Standards.
In preparing these consolidated financial statements,
certain reclassifications and rearrangements have been
made to the consolidated financial statements issued
domestically in order to present them in a form which ismore familiar to readers outside Japan. In addition, certain
reclassifications and rearrangements have been made in the2004 financial statements in order for them to conform toclassifications and presentations used in 2005.
The consolidated financial statements are stated inJapanese yen, the currency of the country in which Chiyoda
Corporation (the “Company”) is incorporated andprincipally operates. The translations of Japanese yenamounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been madeat the rate of ¥107 to $1, the approximate rate of exchange
at March 31, 2005. Such translations should not be
construed as representations that the Japanese yen amounts
could be converted into U.S. dollars at that or any otherrate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa. Consolidation
The consolidated financial statements for the year ended
March 31, 2005 include the accounts of the Company andits 18 (20 in 2004) significant subsidiaries (together, the“Group”). Under the control or influence concept, thosecompanies in which the Company, directly or indirectly, hasa control over operations are fully consolidated and thosecompanies over which the Group has a significant influence
are accounted for by the equity method.
Investments in five (five in 2004) associated companies
are accounted for by the equity method. Investments in theremaining unconsolidated subsidiaries and associatedcompanies are stated at cost. If the equity method of
accounting had been applied to the investments in thesecompanies, the effect on the accompanying consolidated
financial statements would not be material.
The excess of the cost of the Company’s investments inconsolidated subsidiaries and associated companies
accounted for by the equity method over its equity in thefair value of the net assets at the respective dates ofacquisition, was charged to income at the time ofacquisition as the amount involved was not material.
All significant intercompany balances and transactions
have been eliminated in consolidation. All material
unrealized profit included in assets resulting fromtransactions within the Group is eliminated.
b. Construction Contracts
Revenues on construction contracts greater than ¥100 million and having a construction duration of exceeding one
year are recognized on the percentage-of-completion
method based on the ratio of costs incurred to total estimated costs. Under this method, related costs and estimated earnings in excess of progress billings are presented as acurrent assets.
Previously, the Company and its three major domestic
subsidiaries applied the percentage-of-completion method
to construction contracts greater than ¥5 billion and having
construction duration of more than 18 months. However,
beginning with new orders received during the year ended
March 31, 2005, the Company and its three major domestic
consolidated subsidiaries increase the application of the percentage-of-completion method as discussed above.

This change was made because of the trend toward theincrease of small and medium-sized construction contracts,
the improvement of accuracy of accounting management
and the trend of the international standards of accounting.
The Company and its three major domestic consolidated
subsidiaries believe that the increased application of the percentage-of-completion method will provide a more accurate
view of the Company’s performance.
The effect of this change was to increase construction
contracts by ¥4,318 million ($40,355 thousand) and to increase income before income taxes and minority interests by¥300 million ($2,804 thousand) for the year ended March
31, 2005.
Unbilled costs on the other contracts, which are accounted for by the completed-contract method, are stated ascosts of construction contracts in process.
Payments received in excess of costs and estimated earnings on the contracts, which are accounted for by the percentage-of-completion method, and costs incurred on theother contracts are presented as current liabilities.
Costs of preparation work for unsuccessful proposals andother projects which are not realized are charged to income
and are included in costs of construction contracts.
c. Cash Equivalents
Cash equivalents are short-term investments that are readily
convertible into cash and that are exposed to insignificant
risk of changes in value. Cash equivalents include time
deposits and short-term investments, all of which mature or
become due within three months of the date of acquisition.
d. Investment Securities
All securities are classified as available-for-sale securities andare reported at fair value, with unrealized gains and losses,
net of applicable taxes, reported in a separate componentof shareholders’ equity. The cost of securities sold is determined based on the moving-average method.
Non-marketable securities are stated at cost determinedby the moving-average method. For other than temporary
declines in fair value, non-marketable securities are reduced
to net realizable value by a charge to income.

CHIYODA CORPORATION ANNUAL REPORT 2005 31

e. Allowance for Doubtful Accounts
The allowance for doubtful accounts is stated in amounts
considered to be appropriate based on the Group’s pastcredit loss experience and an evaluation of estimated losseson the receivables outstanding.
f. Property, Plant and Equipment
Property, plant and equipment are stated at cost.
Depreciation is computed by the declining-balance method,
except for buildings owned by the Company and leased
property owned by a certain leasing subsidiary which arecomputed using the straight-line method, at rates based on
the estimated useful lives of the assets. The range of useful
lives is from 11 to 57 years for buildings and structures,from 4 to 13 years for machinery and equipment and from
2 to 15 years for tools, furniture and fixtures.
g. Long-Lived Assets
In August 2002, the Business Accounting Council issued aStatement of Opinion, “Accounting for Impairment of Fixed
Assets,” and in October 2003 the Accounting Standards
Board of Japan (“ASB”) issued ASB Guidance No. 6,“Guidance for Accounting Standard for Impairment of Fixed
Assets.” These new pronouncements are effective for fiscal
years beginning on or after April 1, 2005 with early
adoption permitted for fiscal years ending on or after March
31, 2004.
The Group adopted the new accounting standard for
impairment of fixed assets as of April 1, 2004.
The Group reviews its long-lived assets for impairment
whenever events or changes in circumstances indicate thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds the sumof the undiscounted future cash flows expected to result
from the continued use and eventual disposition of theasset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount of
the asset exceeds its recoverable amount, which is thehigher of the discounted cash flows from the continued use
and eventual disposition of the asset or the net selling priceat disposition.
The effect of adoption of the new accounting standard
for impairment of fixed assets was to decrease income
before income taxes and minority interests for the year
ended March 31, 2005 by ¥233 million ($2,178 thousand).
h. Other Assets
Intangible assets are carried at cost less accumulated
amortization, which is calculated by the straight-line method
over their estimated useful lives. Software for internal use isamortized on a straight-line basis over its estimated usefullife (five years at the maximum).
i. Allowance for Warranty Costs for Completed Works
The allowance for warranty costs for completed works isprovided at the amounts of warranty costs based on thepast experience rates.
j. Allowance for Contingent Loss
The allowance for contingent loss is provided at the amountdeemed necessary to cover possible losses on construction
contracts based on the estimation of each contingency.
32 CHIYODA CORPORATION ANNUAL REPORT 2005

k. Retirement Benefits
Employees of the Company and its certain consolidated subsidiaries are under most circumstances, entitled to certain
lump-sum severance payments and pension payments.
Effective April 1, 2000, the Company and domestic consolidated subsidiaries adopted a new accounting standard
for employees’ retirement benefits and accounted for the liability for retirement benefits based on the projected benefit
obligations and plan assets at the balance sheet date.
The transitional obligation of ¥12,123 million ($113,229
thousand), determined as of April 1, 2000, is being amortized and charged to income over 15 years and presented as
an operating expense in the statements of income.
Retirement benefits to directors, officers and corporate
auditors are provided at the amount which would be required if all directors, officers and corporate auditors terminated at the end of each period.
l. Research and Development Costs
Research and development costs are charged to income
when incurred.
m. Leases
All leases are accounted for as operating leases. Under
Japanese accounting standards for leases, finance leases
that are deemed to transfer ownership of the leased
property to the lessee are to be capitalized, while otherfinance leases are permitted to be accounted for as
operating lease transactions if certain “as if capitalized”
information is disclosed in the notes to the lessee’s
consolidated financial statements.
n. Income Taxes
The provision for income taxes is computed based on thepretax income included in the consolidated statements ofincome. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities.
Deferred taxes are measured by applying currently enacted
tax laws to the temporary differences.
The Group has filed a tax return under the consolidated
corporate-tax system from the fiscal year ended March 31,
2003, which allows companies to base tax payments on the
combined profits or losses of the parent company and its
wholly owned domestic subsidiaries. Under the consolidated
corporate-tax system, a surcharge tax of 2% of taxable income is levied in addition to the national corporate income
tax rate up to the fiscal year ended March 31, 2004, butsuch surcharge tax is no longer levied for the fiscal year
ended March 31, 2005.
o. Appropriations of Retained Earnings
Appropriations of retained earnings are reflected in thefinancial statements for the following year uponshareholders’ approval.
p. Foreign Currency Transactions
Both short-term and long-term receivables and payables
denominated in foreign currencies are translated into
Japanese yen at exchange rates in effect at the balance
sheet date.

However, short-term and long-term receivables andpayables covered by forward exchange contracts aretranslated at the contract rates.
Any differences between the foreign exchange contract
rates and historical rates resulting from the translation of receivables and payables are recognized as income or expense
over the lives of the related contracts.
q. Foreign Currency Financial Statements
The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except forshareholders’ equity, which is translated at the historicalrate. Differences arising from such translation were shown
as a separate component of shareholders’ equity as“Foreign currency translation adjustments.”
Revenue and expense accounts of consolidated foreignsubsidiaries are translated into Japanese yen at the current
exchange rate as of the balance sheet date.
r. Derivative Financial Instruments
The Company uses a variety of derivative financial
instruments, including foreign currency forward exchange
contracts and currency options as a means of hedging
exposure to foreign currency risks. The Company does notenter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currencytransactions are classified and accounted for as follows: (a)all derivatives are recognized as either assets or liabilities andmeasured at fair value, with gains or losses recognized in
the income statement and (b) for derivatives used forhedging purposes, if derivatives qualify for hedge
accounting because of high correlation and effectivenessbetween the hedging instruments and the hedged items,
gains or losses on derivatives are deferred until maturity of
the hedged transactions.
The foreign currency forward exchange contracts are utilized to hedge foreign exchange risks. Certain assets and liabilities on construction contracts denominated in foreign
currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.
Currency options are also utilized to hedge foreign exchange risks. These options which qualify for hedge accounting are measured at market value at the balance sheet
date and the unrealized gains or losses are deferred until
maturity as an other liability or other asset.
s. Per Share Information
Basic net income per share is computed by dividing net
income available to common shareholders by the weightedaverage number of common shares outstanding for theperiod, retroactively adjusted for stock splits.
Diluted net income per share reflects the potential
dilution that could occur if securities were exercised orconverted into common stock. Diluted net income per shareof common stock assumes full conversion of theoutstanding convertible notes and bonds at the beginningof the year (or at the time of issuance) with an applicableadjustment for related interest expense, net of tax, and full
exercise of outstanding warrants.
Cash dividends per share presented in the accompanying
consolidated statements of income are dividends applicableto the respective years including dividends to be paid after
the end of the year.

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:
Millions of Yen

Transactions for the Year Ended March 31
Construction contract revenues
Costs of construction contracts
Selling, general and administrative expenses
Interest and dividend income
Balances at March 31
Notes and accounts receivable—trade
Accounts receivable—otherNotes and accounts payable—trade
Deposits received

2005

2004

¥

¥

24
(5,213)(1,359)
112
2
38
(485)
(1,112)71(3,793)(1,452)
57
34
34
(396)
(4,234)

Thousands of
U.S. Dollars

2005

$

224
(48,720)(12,701)
1,047
19
355
(4,533)(10,393)

The Company has guaranteed the indebtedness of certain unconsolidated subsidiaries and associated companies in theamount of ¥4,055 million ($37,897 thousand) and ¥4,405 million at March 31, 2005 and 2004, respectively.

CHIYODA CORPORATION ANNUAL REPORT 2005 33

4. CONSTRUCTION CONTRACTS

6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES

Costs and estimated earnings recognized with respect to construction contracts which are accounted for by the percentageof-completion method at March 31, 2005 and 2004, are as follows:

Investments in and advances to unconsolidated subsidiaries and associated companies at March 31, 2005 and 2004, were as
follows:

Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Costs and estimated earnings
Amounts billed¥143,816(140,094)¥143,734(138,002)$1,344,075(1,309,290)

Net

¥

¥

$

3,722

5,732

34,785

Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Investments
Allowance for investment loss
Advances¥2,713(263)
1,305¥2,600(263)
1,457$25,355(2,458)12,196

Total¥3,755¥3,794$35,093

5. INVESTMENT SECURITIES
7. LONG-LIVED ASSETS

Investment securities at March 31, 2005 and 2004, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Equity securities

2005

2004

2005

¥1,609¥1,726$15,037

The carrying amounts and aggregate fair values of investment securities with readily determinable fair values at March 31,
2005 and 2004, were as follows:
Millions of Yen

March 31, 2005
Available-for-sale—Equity securities
March 31, 2004
Available-for-sale—Equity securities

Cost

Unrealized
Gains

Unrealized
Losses

¥58

¥53

¥111

57

44

101

Cost

Unrealized
Gains

March 31, 2005
Available-for-sale—Equity securities

$542

$495

8. LONG-TERM LOANS
Long-term loans to employees are included in long-term loans in the amounts of ¥625 million ($5,841 thousand) and ¥683
million at March 31, 2005 and 2004, respectively.

Fair Value

Thousands of U.S. Dollars
Unrealized
LossesThe Group reviewed its long-lived assets for impairment as of the year ended March 31, 2005 and, as a result, recognized an
impairment loss of ¥233 million ($2,178 thousand) as other expense for certain idle assets group due to continuous decline
in land prices and other reason. The recoverable amount was measured at its net selling price by referring to the publishedland evaluation prices and the price examples of similar transactions.

Fair Value$1,037Available-for-sale securities whose fair value is not readily determinable at March 31, 2005 and 2004, were as follows:

9. LONG-TERM RECEIVABLES
Long-term receivables at March 31, 2005 and 2004, include
receivables of ¥1,977 million ($18,477 thousand) and¥3,101 million, respectively, from Nigerian National
Petroleum Corporation (“NNPC”) relating to services performed by the Company in 1995. The Company has negotiated payment terms with NNPC and has collected ¥1,125
million ($10,514 thousand) and ¥849 million during theyears ended March 31, 2005 and 2004, respectively, but therepayment schedule for the remaining balance has yet to be
determined due to the economic and political circumstancesin Nigeria.

The Company also has gross receivables and other assets
in the amount of ¥5,055 million ($47,243 thousand) and¥6,464 million at March 31, 2005 and 2004, respectively,from Karunaphuli Fertilizer Company Limited (“KAFCO”), a
Bangladesh company, and its related parties as follows. In
March 2001, KAFCO, its shareholders and banks reached abasic agreement about financial restructuring under the supervision of the Bangladesh government and KAFCO has
started making payments based on the schedule defined in
the financial restructuring plan.

Carrying AmountMillions of Yen

Equity securities
Proceeds from sales of available-for-sale securities for theyear ended March 31, 2005, were ¥70 million ($654 thousand). Gross realized gains and losses on these sales, computed on the moving average cost basis, were ¥20 million($187 thousand) and ¥1 million ($9 thousand), respectively,

34 CHIYODA CORPORATION ANNUAL REPORT 2005

Thousands of
U.S. Dollars

2005

2004

2005

¥1,498¥1,625$14,000

for the year ended March 31, 2005.
Proceeds from sales of available-for-sale securities for theyear ended March 31, 2004, were ¥4 million and gross realized losses on these sales, computed on the moving average
cost basis, were ¥6 million.

Thousands of
U.S. Dollars

Millions of Yen

2005

46

2004

¥

40

2005

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

¥

$

430

2,637
(263)
2,372
(543)

2,789
(263)
3,635
(1,065)24,645(2,458)22,168(5,075)

Total¥4,249¥5,136$39,710CHIYODA CORPORATION ANNUAL REPORT 2005 35

10. LONG-TERM DEBT

11. RETIREMENT BENEFITS

Long-term debt at March 31, 2005 and 2004, consisted of the following:
Millions of Yen

Thousands of
U.S. Dollars

2005

2004

2005

Long-term loans from banks, maturing serially through 2010,
with interest rates ranging from 1.9% to 5.8% (2005) andfrom 1.7% to 5.8% (2004):
Collateralized
Uncollateralized¥ 317
10,000¥ 417
10,001$ 2,962
93,458

Total
Less current portion

10,317(10,102)

10,418(102)

96,420(94,411)Long-term debt, less current portion¥¥10,316$ 2,009215

Subordinated loans in the amount of ¥10,000 million ($93,458 thousand) from The Bank of Tokyo-Mitsubishi, Ltd. were
included in ‘Uncollateralized’ at March 31, 2005 and 2004.
Annual maturities of long-term debt at March 31, 2005, were as follows:Year Ending March 31

2006
2007
2008
2009
2010 and thereafter
Total

Millions of Yen

Thousands of
U.S. Dollars¥10,102
76
72
45
22

$94,411
710
673
420
206

¥10,317$96,420

Commitment-line contracts at March 31, 2005, were as follows:
Millions of Yen

Thousands of
U.S. Dollars

Commitment-line contracts
Used commitments¥14,000$130,841

Unused commitments¥14,000$130,841

The following assets were pledged as collateral for long-term debt at March 31, 2005:
Millions of Yen

Thousands of
U.S. Dollars

Land
Buildings and structures—net of accumulated depreciation
Tools, furniture and fixtures—net of accumulated depreciation
Investment securities

¥ 695
658
5
4

$ 6,495
6,150
47
37

Total

¥1,362$12,729

36 CHIYODA CORPORATION ANNUAL REPORT 2005

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 thetime of termination, years of service and certain other factors.
However, an employee who terminates at 50 years of age
or older with service of at least 20 years is entitled to receive
an annuity from the trustee under the pension plan which
covers such employees. If the annuity does not reach thelevel of total retirement benefits due, the remainder would

be paid by the Company.
Certain consolidated subsidiaries also have severance payment and pension plans similar to those of the Company.
Liability for retirement benefits include retirement benefits to directors, officers and corporate auditors in theamount of ¥426 million ($3,981 thousand) and ¥379 million
for the years ended March 31, 2005 and 2004, respectively.
The retirement benefits to directors and corporate auditors
are paid subject to the approval of the shareholders.

The liability for employees’ retirement benefits at March 31, 2005 and 2004, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Projected benefit obligation
Fair value of plan assets
Unrecognized transitional obligation
Unrecognized actuarial loss

¥33,588(15,785)(8,083)(4,553)¥34,026(15,594)(8,891)(5,413)$313,906(147,523)(75,542)(42,551)

Net liability¥ 5,167¥ 4,128$ 48,290

The components of net periodic benefit costs for the years ended March 31, 2005 and 2004, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

2005

2004

2005

Service cost
Interest cost
Expected return on plan assets
Amortization of transitional obligation
Recognized actuarial loss

¥ 931
473
(214)
808
664

¥ 922
478
(196)
808
783

$ 8,701
4,421(2,000)
7,551
6,206

Net periodic benefit costs¥2,662¥2,795$24,879

Assumptions used for the years ended March 31, 2005 and 2004, are set forth as follows:
Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss
Amortization period of transitional obligation

2005

2004

1.5%
1.5%
10 years
15 years

1.5%
1.5%
10 years
15 years

CHIYODA CORPORATION ANNUAL REPORT 2005 37

12. SHAREHOLDERS’ EQUITY
Japanese companies are subject to the Japanese Commercial
Code (the “Code”).
The Code requires that all shares of common stock arerecorded with no par value and at least 50% of the issue
price of new shares is required to be recorded as common
stock and the remaining net proceeds as additional paid-in
capital, which is included in capital surplus. The Code permits Japanese companies, upon approval of the Board of
Directors, to issue shares to existing shareholders without
consideration as a stock split. Such issuance of shares generally does not give rise to changes within the shareholders’accounts.
The Code also provides that an amount at least equal to
10% of the aggregate amount of cash dividends and certain other appropriations of retained earnings associatedwith cash outlays applicable to each period shall be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equals
25% of common stock. The amount of total additional
paid-in capital and legal reserve that exceeds 25% of thecommon stock may be available for dividends by resolutionof the shareholders. In addition, the Code permits the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution of the Board of
Directors.
The Code allows Japanese companies to repurchase treasury stock and dispose of such treasury stock by resolution of
the Board of Directors. The repurchased amount of treasury
stock cannot exceed the amount available for future dividends plus the amount of common stock, additional paid-in

13. INCOME TAXESThe Company and its domestic subsidiaries are subject toJapanese national and local income taxes which, in the aggregate, resulted in normal effective statutory tax rates ofcapital or legal reserve to be reduced in the case where such
reduction was resolved at the shareholders meeting.
In addition to the provision that requires an appropriation
for a legal reserve in connection with the cash payment, theCode imposes certain limitations on the amount of retained
earnings available for dividends. The amount of retained
earnings available for dividends under the Code was¥11,279 million ($105,411 thousand) as of March 31, 2005,
based on the amount recorded in the Company’s generalbooks of account.
Dividends are approved by the shareholders at a meeting
held subsequent to the fiscal year to which the dividends
are applicable.
The Company has a stock option plan which provides for
granting options to the Company’s directors, officers andkey employees to purchase an aggregate 7,820 thousand
shares of the Company’s stock until June 30, 2009. The options will be granted at an exercise price of ¥233 ($2.18) per
share.
The exercise price will be adjusted by stock splits andother certain circumstances.
As a result of the exercise of the stock option plan, theCompany received the gross proceed of ¥1,382 million($12,916 thousand) from the issuance of 5,932 thousand
shares at a price of ¥233 ($2.18) per share, of which ¥688
million ($6,430 thousand) was transferred to the additional
paid-in capital account in accordance with the Code for theyear ended March 31, 2005.
The granting options at March 31, 2005 was 1,888
thousand shares.

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2005 and 2004, are as follows:

2005

2004

2005

¥ 3,483
3,626
2,010
826
55
588
779
2,339
(8,608)¥ 6,679
3,633
1,506
1,269
562
122
737
2,873
(15,197)$ 32,552
33,88818,785
7,720
514
5,495
7,280
21,860(80,449)

Total
Deferred tax liabilities

5,098
1,183

2,184
18

47,645
11,056

Net deferred tax assets¥ 3,915¥ 2,166$ 36,589

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

Net deferred tax assets as of March 31, 2005 and 2004, were recorded in the accompanying consolidated balance sheets
as follows:
Thousands of
U.S. Dollars

Millions of Yen

Deferred tax assets—current
Deferred tax assets—non-current
Deferred tax liabilities—non-current

2005

2004

2005

¥ 3,804
112(1)¥ 2,086
82(2)$ 35,551
1,047(9)

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2005 and 2004, is as follows:
approximately 41% and 42% for the years ended March
31, 2005 and 2004, respectively.

2005

2004

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

41%
3
1
2
(53)
(1)

42%
14
1
3
(75)
(1)
(1)
(5)
(1)

Actual effective tax rate

(7)%

(23)%

Under the current Japanese tax regulations, a net operating
loss can be carried forward for five years for losses incurred up
to March 31, 2001 and seven years for losses incurred after
April 1, 2001 and deducted from any future taxable income.
38 CHIYODA CORPORATION ANNUAL REPORT 2005

Thousands of
U.S. Dollars

Millions of Yen

The Company and consolidated subsidiaries have a net operating loss carryforward of approximately ¥8,571 million ($80,103
thousand) and ¥16,438 million at March 31, 2005 and 2004,
respectively.
CHIYODA CORPORATION ANNUAL REPORT 2005 39

14. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were¥692 million ($6,467 thousand) and ¥653 million for the

15. LEASESIncome from equipment leases held by a subsidiary for theyears ended March 31, 2005 and 2004, was ¥8 million ($75
thousand) and ¥21 million, respectively.
The Company and a subsidiary lease certain machinery,computer equipment, office space and other assets. Totallease payments under finance leases were ¥267 million

Millions of Yen

years ended March 31, 2005 and 2004, respectively.

($2,495 thousand) and ¥192 million for the years ended
March 31, 2005 and 2004, respectively.
Pro forma information for leased property under financeleases that do not transfer ownership of the leased property
to the lessee on an “as if capitalized” basis for the years
ended March 31, 2005 and 2004, was as follows:Year Ended March 31, 2005
As Lessor
Millions of Yen

Acquisition cost
Accumulated depreciation

MachineryandEquipment

Tools,
Furnitureand Fixtures¥83
83

Net leased property

Thousands of U.S. Dollars

Total

MachineryandEquipment

Tools,
Furnitureand Fixtures

Total

¥60
59

¥143
142

$776
776

$560
551

$1,336
1,327

¥ 1

¥

$

$

1

9

9

As Lessee
Millions of Yen

Thousands of U.S. Dollars

MachineryandEquipment

Tools,
Furnitureand Fixtures

Other

Acquisition cost
Accumulated depreciation

¥57
15

¥843
414

¥95
36

Net leased property

¥42

¥429

¥59

Total

MachineryandEquipment

Tools,
Furnitureand Fixtures

Other

Total

¥995
465

$533
140

$7,879
3,870

$887
336

$9,299
4,346

¥530

$393

$4,009$551$4,953

Millions of Yen

Thousands of U.S. Dollars

Unearned
Lease Income(As Lessor)

Obligations
under
Finance Lease(As Lessee)

Unearned
Lease Income(As Lessor)

Obligations
under
Finance Lease(As Lessee)

Due within one year
Due after one year

¥1
1

¥230
300

$ 9
9

$2,150
2,803

Total

¥2

¥530

$18

$4,953

Year Ended March 31, 2004
Millions of Yen
As Lessor
MachineryandEquipment

Tools,
Furnitureand Fixtures

Acquisition cost
Accumulated depreciation

¥175
174

Net leased property¥

40 CHIYODA CORPORATION ANNUAL REPORT 2005

1

Unearned
Lease Income(As Lessor)

Obligations
under
Finance Lease(As Lessee)

Due within one year
Due after one year

¥2
2

¥208
308

Total

¥4

¥516

Depreciation expense as lessor, which is reflected in theaccompanying consolidated statements of income, computed by the straight-line method was ¥2 million ($19 thousand) and ¥12 million for the years ended March 31, 2005
and 2004, respectively.
Depreciation expense as lessee, which is not reflected in
the accompanying consolidated statements of income, com-puted by the straight-line method was ¥267 million ($2,495
thousand) and ¥192 million for the years ended March 31,
2005 and 2004, respectively.
The amounts of unearned lease income and obligations,acquisition cost and depreciation under finance leases include the imputed interest income portion and interest
expense portion, respectively.

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

Because the counterparties to these derivatives are limited
to major international financial institutions, the Company
does not anticipate any losses arising from credit risk.
The basic policies for the use of derivatives are approvedby the management and the execution and control of derivatives are controlled by the Company’s financing department.
Each derivative transaction is periodically reported to theCompany’s accounting department and executive officers.

The Group had the following foreign currency forward exchange contracts outstanding at March 31, 2005 and 2004:
Millions of Yen
2005
Contract
AmountBuying:U.S.$
EuroSelling U.S.$

Fair Value

¥

33 ¥
34
132
144
10,976 10,980

Thousands of U.S. Dollars
2005

Unrealized
Gain/Loss

¥ 1
12
(4)

Contract
Amount$Fair Value

308 $
317
1,234
1,346
102,579 102,616

Unrealized
Gain/Loss

$

9
112
(37)

2004

Buying:
U.S.$
Euro
Other
Selling U.S.$

Contract
AmountFair Value

¥ 758
194
7
5,781

¥ 691
217
7
5,784

Unrealized
Gain/Loss

¥(67)
23
(3)

As Lessee

Total

MachineryandEquipment

Tools,
Furnitureand Fixtures

Other

Total

¥81
78

¥256
252

¥24
12

¥775
336

¥91
26

¥890
374

¥ 3

¥

¥12

¥439

¥65

¥516

4

Derivative contracts which qualify for hedge accounting
for the years ended March 31, 2005 and 2004, are excluded
from the disclosure of market value information.
The contract or notional amounts of derivatives which are

shown in the above table do not represent the amounts exchanged by the parties and do not measure the Group’s
exposure to credit or market risk.

CHIYODA CORPORATION ANNUAL REPORT 2005 41

17. CONTINGENT LIABILITIES

20. SEGMENT INFORMATIONAt March 31, 2005, the Group had the following contingent liabilities:

Guarantees and similar items for bank loans

Millions of Yen

Thousands of
U.S. Dollars¥5,190$48,505

Information about geographical segments and sales to foreign customers of the Company and consolidated subsidiaries forthe years ended March 31, 2005 and 2004, was as follows:(1) Geographical Segments
Millions of Yen

18. NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31,
2005 and 2004, is as follows:Year Ended March 31, 2005

Basic EPS—Net income available to common shareholders

Millionsof YenThousandsof Shares

Net Income

WeightedAverage Shares¥12,863

Effect of dilutive securities—Stock option
Diluted EPS—Net income for computation

Japan

Asia

North
America

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

¥ 31

Total
Operating expenses

257,384
246,108

11,814
11,99631
31Year Ended March 31, 2005

187,450

Yen

U.S. Dollars
EPS¥68.62$0.64¥67.30$0.63

Operating income (loss)¥ 11,276¥

Assets¥174,447¥ 7,608¥565

Eliminations(Corporate)¥267,655
1,574¥(1,574)¥

269,229
258,138(1,574)(1,561)

3

Consolidated¥267,655
267,655
256,577¥ (3)¥ 11,091¥(13)¥ 11,078¥122¥182,742¥

151¥182,893

3,696¥12,863

191,146

Thousands of U.S. Dollars

Year Ended March 31, 2005
Millionsof YenThousandsof Shares

Yen

Year Ended March 31, 2004

Net Income

WeightedAverage Shares

EPS

Basic EPS—Net income available to common shareholders¥6,647

185,101¥35.91

Effect of dilutive securities—Stock option
Diluted EPS—Net income for computation(182)

Subtotal

Other

4,852
¥6,647

189,953¥34.99

Japan

Asia

Construction contract revenue:
Outside customers
Intersegment$2,405,430 $ 96,019
28
14,392

Total
Operating expenses

2,405,458
2,300,075

Operating income (loss)$ 105,383 $ (1,701)

Assets$1,630,346 $ 71,103

110,411
112,112North
AmericaOther$5,280Eliminations(Corporate)

Consolidated$2,501,449$2,501,449
14,710 $(14,710)

$ 290
290
290

Subtotal

2,516,159
2,412,505(14,710)(14,589)$28$(28) $ 103,654 $$1,1402,501,449
2,397,916(121) $ 103,533$1,707,869 $ 1,411$1,709,280

Consolidated

Millions of Yen
Japan

Asia

North
America

Construction contract revenue:
Outside customers
Intersegment¥196,523
4¥10,240
808

¥ 33

¥ 54
338

¥206,817
1,183¥(1,183)

Total
Operating expenses

196,527
190,561

11,048
11,162

33
33

392
396

208,000
202,152(1,183)(1,216)

¥ (4)

¥

¥577

¥370

¥146,667

19. SUBSEQUENT EVENT

Year Ended March 31, 2004

The following appropriation of retained earnings at March 31, 2005 was approved at the Company’s shareholders meeting
held on June 23, 2005:

Year-end cash dividends, ¥6.00 ($0.06) per share

Millions of Yen

Thousands of
U.S. Dollars¥1,145$10,701

Operating income (loss)¥

Assets¥139,233

5,966

¥

(114)

¥ 6,487

Other

Subtotal

Eliminations(Corporate)

5,848¥206,817¥

33¥(3,807)

206,817200,936¥

5,881¥142,860

Notes: 1. The Company and consolidated subsidiaries operate within four geographic segments based on the countries where the companies arelocated.
The segments consisted of the following countries in 2005 and 2004:
Asia:
Indonesia, Singapore, Philippines, Myanmar, Malaysia and Thailand
North America:
United States of America
Other:
Nigeria and others
2. Corporate assets mainly consist of long-term loans and investment securities of the Company. Corporate assets as of March 31, 2005 and2004 were ¥3,339 million ($31,206 thousand) and ¥3,015 million, respectively.
3. The effect of the change on the scope of application of the percentage-of-completion method described in Note 2.b was to increase
construction contract revenue and operating income of Japan for the year ended March 31, 2005 by ¥4,318 million ($40,355 thousand) and¥300 million ($2,804 thousand), respectively.
4. The effect of adoption of the new accounting standard for impairment of fixed assets described in Note 2.g was to decrease assets of Japanfor the year ended March 31, 2005 by ¥233 million ($2,178 thousand).

42 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 43

Independent Auditors’ Report(2) Sales to Foreign Customers
Millions of Yen

Year Ended March 31, 2005

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

The Middle
and Near East

Russia andCentral Asia

Other

Total

¥28,083¥96,133¥49,817¥4,01010.49%

35.92%

18.61%

1.50%¥178,043
267,655
66.52%To the Board of Directors and Shareholders of Chiyoda Corporation:
We have audited the accompanying consolidated balance sheets of Chiyoda Corporation and consolidated subsidiaries as ofMarch 31, 2005 and 2004, and the related consolidated statements of income, shareholders’ equity, and cash flows for theThousands of U.S. Dollars

Year Ended March 31, 2005

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

years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the

Asia

The Middle
and Near East

Russia andCentral Asia

Other

Total

$262,458$898,439$465,579$37,477

10.49%

35.92%

18.61%

1.50%$1,663,953
2,501,449
66.52%

Company’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 generally accepted in Japan. Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material

Millions of Yen

Year Ended March 31, 2004

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

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial

Asia

The Middle
and Near East

Russia andCentral Asia

Other

Total

statements. An audit also includes assessing the accounting principles used and significant estimates made by management,¥26,338¥90,787¥22,343¥3,995

as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for

12.74%

43.90%

10.80%

1.93%¥143,463
206,81769.37%

Notes: 1. The Company and consolidated subsidiaries are summarized into four segments by geographic area based on the countries where thecompanies are located.
The segments consisted of the following countries in 2005 and 2004:
Asia:
China, Indonesia and others
The Middle and Near East:
Qatar, Oman, Saudi Arabia and others
Russia and Central Asia:
RussiaOther:
Venezuela
2. The effect of the change on the scope of application of the percentage-of-completion method described in Note 2.b was to increase overseas sales of Asia, the Middle and Near East and Other for the year ended March 31, 2005 by ¥190 million ($1,776 thousand), ¥678 million($6,336 thousand) and ¥53 million ($495 thousand), respectively.

The Company and its consolidated subsidiaries operate predominantly in the engineering business, while certain subsidiaries operate in leasing and software producing businesses which are minor in relation to the total business. Accordingly,
the presentation of industry segment information is not required under Japanese accounting standards.

our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated
financial position of Chiyoda Corporation and consolidated subsidiaries as of March 31, 2005 and 2004, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles generally
accepted in Japan.
As discussed in Note 2.b to the consolidated financial statements, the Company and its three major domestic consolidated
subsidiaries changed the scope of application of the percentage-of-completion method as of April 1, 2004.
As discussed in Note 2.g to the consolidated financial statements, the Group adopted the new accounting standard for
impairment of fixed assets as of April 1, 2004.
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 23, 2005

44 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 45

Global Network(As of July 31, 2005)

OFFICES
Yokohama Head Office12-1, Tsurumichuo 2-chome
Tsurumi-ku
Yokohama 230-8601, Japan
Tel: (81) 45-521-1231
Fax: (81) 45-503-0200
Koyasu Office
13, Moriya-cho 3-chome
Kanagawa-ku
Yokohama 221-0022, Japan
Tel: (81) 45-441-1268
Fax: (81) 45-441-1297•Research & Development Center
Tel: (81) 45-441-9132
Fax: (81) 45-441-9728

Beijing Office
Room No. 1028, China World Tower 1,
No. 1, Jianguomenwai Street,
Beijing, 100004, China
Tel: (86) 10-6505-2678
Fax: (86) 10-6505-1118

Jakarta Office
9th Floor, MidPlaza Bldg.
Jalan Jenderal Sudirman Kav. 10-11
Jakarta, 10220, Indonesia
Tel: (62) 21-570-7579
Fax: (62) 21-570-6276

Milan Representative Office
Viale Della Liberazione 18,
20124 Milano, Italy
Tel: (39) 02-303517-111
Fax: (39) 02-303517-35

Shanghai Representative Office
29F-Room F, Pufa Tower,
No.588 Pudong Rd. (s),Pu Dong New Area,
Shanghai, 200120, China
Tel: (86) 21-5877-6266
Fax: (86) 21-5877-6366

Middle East Headquarters
Doha Office
Al Mana Tower
Airport Road, Doha
Qatar, P.O. Box 20243
Tel: (974) 4622-875/6
Fax: (974) 4622-716

Singapore Human Resources Office
10 Anson Road, #03-02, International
Plaza, Singapore 079903
Tel: (65) 6324-0080
Fax: (65) 6324-0090

OVERSEAS NETWORK
Hague Office
President Kennedylaan 192517 JK The Hague, The Netherlands
Tel: (31) 70-385-9453
Fax: (31) 70-346-3779

Abu Dhabi Office
Clock Tower Bldg.
Al Najda Street
Abu Dhabi, U.A.E., P.O. Box 43928
Tel: (971) 2-671-7161
Fax: (971) 2-671-7162

Tehran Office
2nd Floor, No. 16, Mahtab St. Aftab St.
Vanak Avenue, Tehran, 19949, Iran
Tel: (98) 21-8803-6391, 8805-8592
Fax: (98) 21-8805-8967

PROJECT COMPANIESMAJOR SUBSIDIARIES &AFFILIATED COMPANIESOVERSEAS
Chiyoda International Corporation
1177 West Loop South, Suite 680
Houston, TX 77027, U.S.A.
Tel: (1) 713-965-9005
Fax: (1) 713-965-0075
Chiyoda Singapore (Pte) Limited
14 International Business Park
Jurong East, Singapore 609922
Tel: (65) 6563-3488
Fax: (65) 6567-5231
Chiyoda Asia Pacific (Pte) Ltd.
14 International Business Park
Jurong East, Singapore 609922
Tel: (65) 6425-0368
Fax: (65) 6569-6102
Chiyoda Malaysia Sdn. Bhd.
15th Floor, Menara Maxisegar
Jalan Pandan
Indah, 4/2 Pandan Indah, 55100
Kuala Lumpur, Malaysia
Tel: (60) 3-4297-0988
Fax: (60) 3-4297-0800

Oman, Qatar, Russia, Venezuela
Chiyoda (Thailand) Limited•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,
ThailandTel: (66) 2-233-7521/7524
Fax: (66) 2-236-6841

RussiaThe Netherlands
Italy
Saudi Arabia
Nigeria

China

Iran

Japan
India

Oman

Malaysia
Indonesia
U.A.E.

U.S.A.

MyanmarThailandPhilippines
Singapore

Venezuela

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

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
Chiyoda Petrostar Ltd.
•Al-Khobar Office
P.O. Box 31707, Al-Khobar 31952
Saudi Arabia
Tel: (966) 3-864-0839
Fax: (966) 3-864-0986•Jeddah Head Office
P.O. Box 6188, Jeddah 21442
Saudi Arabia
Tel: (966) 2-647-0558
Fax: (966) 2-647-1908
Chiyoda Nigeria Limited•Abuja Office
C/O Peniel Apartments
Room No. B2C Plot 137
Ibb Way, Adetokunbo Ademola Crescent
Wuse II, Abuja, Nigeria
Tel: (234) 9-4130961
Fax: (234) 9-4130961•Lagos Office
Plot PC-43 (2nd Floor), Nurses House
Afribank Street, Victoria Island
P.M.B 12541
Lagos, Nigeria
Tel: (234) 1-2613291
Fax: (234) 1-2612565

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

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

Qatar

46 CHIYODA CORPORATION ANNUAL REPORT 2005

CHIYODA CORPORATION ANNUAL REPORT 2005 47

Board of Directors, Corporate Auditors and Executive Officers

Corporate Information(As of June 1, 2005)(As of March 31, 2005)

BOARD OF DIRECTORSEXECUTIVE OFFICERSPRESIDENT &CHIEF EXECUTIVE OFFICERSENIOR EXECUTIVE OFFICERS

Nobuo Seki*

Fumio Nagata
Takaharu Saegusa

EXECUTIVE VICE PRESIDENTS

EXECUTIVE OFFICERS

Nobuyasu Kamei*

Madoka Koda

Hiroshi Shibata*Takashi Yamamoto

Hiroshi Kobayashi*

Sumio Nakashima
Satoru Yokoi

MANAGING DIRECTORS

Hidehiro Shinohara

Atsuo Minamoto

Takeo Kawase

Takashi Kubota

Masahiko Mochizuki

Yoshihiro Shirasaki

Tsuyoshi Kakizaki

Kinnosuke Hashimoto

Hiroshi Ogawa

Established:
Paid-in Capital:
Number of Employees:
Annual Fiscal Close:
Shareholders Meeting:Number of Shares per Unit:
Stock Code:Transfer Agent of Common Stock:
Authorized Shares:
Capital Stock Issued:
Number of Shareholders:January 20, 1948
¥12,722 million
2,531 (Consolidated)
March 31
June
1,000
ISIN: JP3528600004
SEDOL 1: 6191704 JP
TSE: 6366
The Mitsubishi Trust and Banking Corporation
1-4-5 Marunouchi, Chiyoda-ku, Tokyo
650,000,000
191,360,529
14,098Major Shareholders:
Status of investors

Mitsubishi Corporation
The Master Trust Bank of Japan, Ltd. (Trust Account)
Japan Trustee Services Bank, Ltd. (Trust Account)
The Mitsubishi Trust and Banking Corporation
The Bank of Tokyo-Mitsubishi, Ltd.
State Street Bank and Trust Company 505103
The Chase Manhattan Bank N.A. London
Investors Bank and Trust Company
State Street Bank and Trust Company
Mellon Bank Treaty Clients Omnibus

CORPORATE AUDITORS
Michihiko Kawana
Akira Kadoyama

Number of shares(thousands)

Percentage of total(%)

19,851
9,819
9,652
9,034
9,033
5,167
4,319
3,736
3,684
2,795

10.4
5.1
5.0
4.7
4.7
2.7
2.3
2.0
1.9
1.5

Hideaki Fujioka
Yukihiro Imadegawa

Breakdown by Share (thousands)
Financial institutes: 54,651 (28.56%)
Securities companies: 3,048 (1.59%)
Companies and others: 42,566 (22.24%)
Foreign companies and foreign individuals: 61,855 (32.33%)
Individuals and others: 29,238 (15.28%)

Total
191,360
thousand

Notes: 1) * Members of Executive Committee
2) All board members are also executive officers.

Stock Price

(Yen)
1,200

(Yen)
15,000

Nikkei average (closing price)
10,000

1,000

5,000

800

Chiyoda600
400(Thousandsof shares)

120,000

200

Trading volume~

60,0000
4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
FY200348 CHIYODA CORPORATION ANNUAL REPORT 2005

FY2004

FY2005CHIYODA CORPORATION ANNUAL REPORT 2005 49