Annual Report

2005THE COMPANYA CENTURY OF PROGRESS
Kumagai Gumi traces its roots back to 1898 when Santaro Kumagai founded the company
and embarked on constructing the stonework for the Shukununo Hydroelectric Plant in Fukui
Prefecture. January 1998 marked the 100th anniversary of Kumagai Gumi's inception.
Throughout those 100 years, the company has participated in a diverse array of projects,
often with unprecedented challenges that required technological innovation. Kumagai Gumi,
through its deeds, has established a place as one of Japan's leading general contractors.

RESEARCH AND DEVELOPMENT UNDERPINS TECHNOLOGICAL PROWESS
Kumagai Gumi's Institute of Construction Technology, which is located in Tsukuba north ofTokyo, engages in wide-ranging research activities. Equipped with state-of-the-art facilities
including seismic simulation equipment, wave tanks and environmental laboratories, theinstitute strives to develop more effective ways of meeting changing customer needs. A coretenet of R&D is enhancing quality and safety while realizing lower costs and shorter
construction periods.

STRENGTHS AT HOME
Kumagai Gumi is one of Japan's largest construction and engineering firms. ln this capacity,
the company has played a key role in the creation, expansion and improvement of thenation's infrastructure. The company's contributions range from the fields of transportationand power generation to living, working and leisure environments. Building on this longrecord of service to society, Kumagai Gumi is providing customers with reliable, high-quality
construction services at a reasonable cost.

A SOLID OVERSEAS PRESENCE
Kumagai Gumi has remained committed to overseas operations. The company has chalked
up a list of achievements at myriad projects worldwide. Undersea tunnels, roads, dams,
hotels, renovation of historic structures, and landmark office towers in locations including
Hong Kong, Taipei and Bangkok attest to Kumagai Gumi's devotion to quality and social
contributions. Most major cities in Asia, the focal area of the company's overseas operation,
have benefited from the company's construction expertise.

Page

01

MESSAGE FROM THE PRESIDENT:

Overview of the fiscal year ended March 31, 2005:
The Japanese economy during this period saw improved corporate earnings and a continuing increase incapital investment from the manufacturing sector in particular. These factors, combined with solid personal
spending, enabled the economy to continue its gradual improvement.
The construction industry saw increased corporate capital investment in offices and factories, as well as
housing investment on a par with last year's levels. Public spending, however, while temporarily increasing
as a result of rebuilding projects after this year's torrential rains and earthquakes, ultimately continued tofall, such that in this area new orders continued to be thin.
It was in this operating environment that we entered into the second year of the Three-Year Structural
Reform Plan set out in April of 2003, and I am pleased to announce that not only did we succeed in meeting
our interest-bearing debt reduction goal a year early, we also cleared our books of carry-over losses, suchthat we now appear likely to meet the goals of this Plan earlier than originally called for.
The Kumagai Gumi Group's consolidated net sales for this period came to ¥323.3 billion (down 5.4%
compared with the previous period).
As regards profits, although our net sales fell, our construction profit margin increased, such that operating
profits came to ¥9.7 billion (an increase of 22.7% compared with the previous period). In addition, thecontribution from reductions in general and administrative expenses and lower interest payments enabled
us to record recurring profits of ¥8.3 billion (up 202.2% compared with the previous period).
Our net profits for this period came to ¥4.3 billion, and we have now cleared our books of all carry-overlosses.
Management Strategy:
The Japanese economy faces uncertainty about the impact of higher oil prices, but the corporate sector
remains robust. Given these factors, the recovery of the Japanese economy is expected to continue in stepwith the recovery of the global economy.
In the construction industry, although corporate capital investment is expected to continue to increase, there
are concerns that spending on housebuilding will decline due to over-supply. In addition, althoughtemporarily increasing as a result of a supplementary budget for disaster rebuilding projects, public
spending at both the national and regional levels is likely to continue to fall in the long-term, such that neworders will likely remain thin in this sector.
Within this operating environment, our company's number-one priority is to achieve the goals set out in ourThree-Year Structural Reform Plan, of which this is the final fiscal year. Achieving this plan will allow us tomove from "rebuilding" to "rebirth," and we are working to put in place the necessary structures to move intoa growth phase after that.
As part of our goal of achieving a compact and maneuverable organizational structure, in April of this year

02 Pagewe consolidated our Corporate Planning and Administration Divisions into a new Administration Division,
which joins our Civil Engineering Management and Architectual Management Divisions to give us a threedivision structure. We have also created a CSR Promotion Section which reports to the company president
in an effort to create a corporate environment optimally conducive to winning the trust of society.
In the area of civil engineering, we are strengthening the links between the technical specialists at ourcompany headquarters and those in our regional branches in order to enable us to propose the latest
technologies and win bids in the technologically advanced public works projects which are expected toincrease in future. We are making efforts to move into new markets in areas such as public works renewal
and mobile projects (including wireless base station construction for mobile phones, etc.), constantly
striving to adapt swiftly to the changes in this shrinking market.
In the area of construction, we continue to work to increase our planning strengths, technology sales ability,
and after-service programs in order to win the satisfaction of our customers. In addition, we are leveraging
our rich experience in this industry to enter into the field of "structural revitalization," aimed at increasing
demand for maintenance and renewal projects, as well as projects seeking to unearth new needs in orderto realize new fee-based profit streams and win bids in joint venture projects. The goal of these efforts, itgoes without saying, is to further strengthen our business base.
We are also strengthening our links with other Group companies operating in areas such as paving,building renovation, construction materials manufacturing, building management, environment-relatedindustries, and external technology sales in order to deliver enhanced consolidated financial results.
The Kumagai Gumi Group slogan is "thrilling the customer," a mission we work to accomplish byconsistently aiming to be #1 in the industry from the perspectives of quality, environmental friendliness, andsafety. Our hope is to win the trust and satisfaction of everyone with whom we do business by delivering
quality structures for our clients and other users to enjoy for many years, andby continuing to develop the technologies that ensure this commitment toquality. In addition, our commitment to being an "open corporation" quick todisclose necessary corporate information is another area in which we areworking to win the trust and support of our clients, shareholders, and society
at large.

June 2005
Hiroshi Ohta
President

Page

1
03

CONSOLIDATED FINANCIAL HIGHLIGHTS
Kumagai GumI Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2005 and 2004.

(¥ million)
2005(US $ thousand)
2004

2005

FOR THE YEAR:
Net sales ........................................................................
Net income ...................................................................

¥

323,353
4,388¥

341,739
280,213$ 3,021,990
41,006

AT YEAR-END:
Total assets ..................................................................
Shareholders' equity ....................................................

¥

276,233
37,955¥

301,464
33,457$ 2,581,617
354,723¥

33.18

PER SHARE OF COMMON STOCK ( ¥ AND US $ ):Net income ...................................................................

¥ 2,112.45

$

0.31

Note: Conversion into U.S. dollars has been made at the exchange rate of ¥107= US $1 solely for convenience. Refer to Notes to the Financial
Statements.

CONTENTS

04 Page

THE COMPANY

01

MESSAGE FROM THE PRESIDENT

02

CONSOLIDATED FINANCIAL HIGHLIGHTS

04

FINANCIAL SECTION

05

GLOBAL DIRECTORY

30

MAJOR CONTRACTS

32

CORPORATE DATA

33

FINANCIAL SECTIONCONTENTSCONSOLIDATED BALANCE SHEETS

06

CONSOLIDATED STATEMENTS OF INCOME

08

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

09

CONSOLIDATED STATEMENTS OF CASHFLOWS

10NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

11

REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS (CONSOLIDATED)19

NON-CONSOLIDATED BALANCE SHEETS

20

NON-CONSOLIDATED STATEMENTS OF INCOME

22

NON-CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY23

NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS

24

REPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS (NON-CONSOLIDATED)

29

Page

05

CONSOLIDATED BALANCE SHEETS
Kumagai Gumi Co., Ltd. and Consolidated Subsidiaries March 31, 2005 and 2004(¥ million)

ASSETS

2005(US $ thousand)
2004

2005

CURRENT ASSETS:
Cash and cash equivalents (Note 8)............................................................

¥

49,508¥61,443$

462,691

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

114

112

1,067

Notes and accounts receivable, trade (Note 8).............................................
Allowance for doubtful accounts...................................................................

125,441(1,728)

129,701(2,208)

1,172,349(16,151)

Inventories (Note 5)......................................................................................

14,634

15,193

136,767

Deferred income taxes (Note 12)...................................................................

3,927

2,726

36,701Other current assets.....................................................................................

25,63732,675239,597

217,533

239,6422,033,021

Investment securities (Note 4)......................................................................

16,666

16,058

155,752

Investments in unconsolidated subsidiaries and affiliates ............................

4,476

4,427

41,832Long-term loans receivable..........................................................................

2,095

1,788

19,579Long-term loans to unconsolidated subsidiaries and affiliates......................

95

95

892

INVESTMENTS AND OTHER ASSETS (Note 8):Long-term receivables.................................................................................

2,631

1,790

24,593Claims to companies in bankruptcy, reorganization, etc...............................

1,198

2,534

11,199Deferred income taxes (Note 12)...................................................................

9,245

11,024

86,400

Other............................................................................................................

9,213(4,136)

10,109(3,388)

86,102(38,654)

41,48344,437

387,695

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

11,430

11,395

106,821

Buildings ......................................................................................................

14,00013,618130,841

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

17,245

15,454

161,170

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

PROPERTY AND EQUIPMENT (Note 8):

Construction in progress..............................................................................

–

7

–

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

42,675(25,458)

40,474(23,089)

398,832(237,931)

17,217¥

The accompanying notes are an integral part of this statement.

06 Page276,233¥

17,385160,901

301,464$ 2,581,617

(US $ thousand)(¥ million)

LIABILITIES AND SHAREHOLDERS’ EQUITYCURRENT LIABILITIES:
Short-term borrowings (Note 6)..................................................................

2005

¥

2004

7,081

¥

2005

3,065

$

66,174Current portion of long-term debt (Note 6).................................................

651

12,8706,088

Notes and accounts payable, trade.............................................................

111,788111,240

1,044,749

Advances received on uncompleted contracts (Note 9) .............................

13,232

19,140123,663

Accrued expenses ......................................................................................

2,331

1,726

21,779Accrued income taxes (Note 12).................................................................

1,041

312

9,732

Employees’ savings deposits ......................................................................

2,137

2,167

19,972

22,06432,816206,208

160,325

183,336

1,498,365

Long-term debt (Note 6)..............................................................................

62,61570,710585,189

Accrued severance indemnities (Note 10)...................................................

13,561

13,423

126,737

Other long-term liabilities .............................................................................

315

507

2,944

76,491

84,640714,870

1,462

31

13,659Other current liabilities ................................................................................

LONG-TERM LIABILITIES:MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES...................
CONTINGENT LIABILITIES (Note 15)
SHAREHOLDERS’ EQUITY:
Capital stock:
Authorized — 774,000,000 shares in 2005 and 2004
Issued— 193,646,504 shares in 2005 and 2004.............................

13,341

13,341

124,684

Additional paid-in capital.............................................................................

9,927

9,927

Retained earnings.......................................................................................

12,768

8,492

92,775
119,329

Unrealized gain on available-for-sale securities.........................................
Foreign currency statements translation adjustments ...............................

2,211
(41)

1,957
(69)

20,665(385)

Treasury stock, at cost.................................................................................

38,206(251)

33,648(191)

357,068(2,345)37,95533,457354,723¥ 276,233¥ 301,464$ 2,581,617

Page

07

CONSOLIDATED STATEMENTS OF INCOME
Kumagai Gumi Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2005 and 2004(¥ million)
2005(US $ thousand)
2005

2004

NET SALES (Note 14):
Contracts completed...................................................................................

319,705$ 3,021,990–

22,034–323,353

341,739

3,021,990

Cost of construction.....................................................................................

296,723

294,886

2,773,108

Cost of real estate and other........................................................................

–

18,621–¥

Sales of real estate and other......................................................................

323,353¥

COST OF SALES (Note 14):

296,723

313,5072,773,108

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

26,63028,232

248,882

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.....................

16,842

20,257

157,402

Operating income........................................................................................

9,788

7,975

91,480Interest expense..........................................................................................

480(2,042)

1,133(4,609)4,487(19,088)

Equity in earnings of affiliates ......................................................................
Other, net (Note 11).....................................................................................

172

118

(2,593)

263,502

1,605(24,233)

Income before income taxes and minority interest ................................
Income taxes (Note 12):

5,805

268,119

54,251

Current.....................................................................................................

972
370

482

9,088

(12,575)

3,458

1,342

(12,093)

12,546OTHER INCOME (EXPENSE):
Interest and dividend income ......................................................................

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

Minority interest in consolidated subsidiaries .......................................
Net income.................................................................................................

¥

(75)
4,388

PER SHARE OF COMMON STOCK (Note 13):
Net income..................................................................................................

The accompanying notes are an integral part of this statement.

08 Page¥1
280,213

(699)
$

(¥)

¥

33.18

¥ 2,112.45

41,006(US $)$

0.31

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Kumagai Gumi Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2005 and 2004

Capitalstock

Additional
paid-in
capitalRetainedearnings(deficit)¥¥(298,520)

Foreigncurrency
statements
translation
adjustments

Treasury
stock

1,236

¥ (9,164)

¥

(75)

721

9,095
¥

(116)
(191)

Unrealized
gain onavailablefor-salesecurities( ¥ million)

Balance at March 31, 2003..............................

¥ 33,412

Capital reduction..........................................

(30,071)212

30,071

Reversal of additional paid-in capital...........

212

(212)

Issuance of preferred stock..........................

¥

15,00015,000(5,000)(5,073)

Decrease resulting from divisive
reorganization of a company.....................
Increase resulting from exclusion of equity
method affiliates........................................

4,196

Decrease resulting from exclusion of(7,680)280,213consolidated subsidiaries..........................
Net income for the year................................
Change in the current period........................
Treasury stock purchased............................
Balance at March 31, 2004..............................

¥

13,341¥

9,927

Net income for the year................................

¥

8,492

¥

1,957

¥

(69)

4,388
(1)
(111)

Bonuses to directors and corporate auditors...
Adjustments of deficit for other.....................
Change in the current period .......................

254

28

Treasury stock purchased............................
Balance at March 31, 2005..............................

¥ 13,341¥

9,927¥ 12,768

¥

2,211

¥

(41)

¥

(60)
(251)

$

(643)

$

(1,781)(US $ thousand)

Balance at March 31, 2004..............................

$ 124,684$ 92,775$ 79,366

Net income for the year................................

41,006

Bonuses to directors and corporate auditors...

(4)

Adjustments of deficit for other.....................

(1,039)Change in the current period .......................

$ 18,283

258

2,382

Treasury stock purchased............................
Balance at March 31, 2005..............................

(564)$ 124,684$ 92,775$ 119,329$ 20,665$(385) $

(2,345)Page

09

CONSOLIDATED STATEMENTS OF CASH FLOWS
Kumagai Gumi Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2005 and 2004

(US $ thousand)(¥ million)

Cash flows from operating activities:
Income before income taxes and minority interest ....................................
Depreciation and amortization .................................................................
Gain from discharge of debt........................................................................
Increase (decrease) in provision for allowance for doubtful accounts......
Increase (decrease) in provision for the settlement of development projects..
Increase (decrease) in accrued severance indemnities...........................
Increase (decrease) in provision for loss on retirement allowance..........
Interest and dividends revenue.................................................................
Interest expenses......................................................................................
Exchange losses.......................................................................................
Equity in earnings of affiliates...................................................................
Loss on valuation of marketable and investment securities.....................
(Gains) loss on sale of marketable and investment securities, net ..........
Loss on disposal of property and equipment............................................
Loss on valuation of property and equipment.........................................
(Gains) loss on sale of property and equipment,net................................
Decrease in notes and accounts receivable............................................
Decrease in uncompleted construction costs...........................................
Decrease in inventories............................................................................
Increase (decrease) in notes and accounts payable................................
Increase (decrease) in advances received on uncompleted contracts....
Decrease in other assets..........................................................................
Other,net ..................................................................................................
Sub-total................................................................................................
Interest and dividends received................................................................
Interest paid..............................................................................................
Income tax paid........................................................................................
Net cash provided by (used in) operating activities .............................

¥

2005

2004

2005

5,805
1,275
–
152
–
(131)
–
(480)
2,042
(218)
(172)
20
(153)
184
9
123
8,081
1,376
–
(3,196)(6,893)
2,918(5,065)
5,677
466(1,979)
(326)
3,838

¥

268,119
2,625(268,400)(4,504)(7,614)
10,535(23,160)(1,133)
4,609
631
(118)
204
898
275
35
(183)
49,311
2,110
3,476(46,639)
5,636
14,002
5,362
16,077
1,795(4,491)(568)
12,813$54,251
11,918–1,424–(1,228)–(4,487)
19,088(2,040)(1,605)189(1,432)
1,719
82
1,151
75,521
12,859–(29,867)(64,418)
27,271(47,340)
53,056
4,359(18,499)(3,045)35,871

Cash flows from investing activities:
Disbursements for acquisitions of marketable and investment securities....
Proceeds from sale of marketable and investment securities..................
Proceeds from sale of investment in consolidated subsidiaries...............
Disbursements for acquisitions of property and equipment ....................
Proceeds from sale of property and equipment .......................................
Disbursements for loans...........................................................................
Proceeds from collection of loans ...........................................................
Other, net..................................................................................................
Net cash provided by investing activities .............................................

(68)
519
39
(832)
125
(1,116)
756
400
(177)

(117)
1,954
471
(4,893)
16,764(7,367)873
4,824
12,509

(640)
4,848
369
(7,780)
1,173(10,428)
7,064
3,741
(1,653)

Cash flows from financing activities:
Increase (decrease) in short-term borrowings .........................................
Proceeds from long-term debt..................................................................
Disbursements for repayment of long-term debt.....................................
Proceeds from issuance of new shares...................................................
Other, net..................................................................................................
Net cash used in financing activities.....................................................

37–(16,335)–(114)(16,412)

12,26024,737(81,770)
30,000(3,872)(18,645)345–(152,664)–(1,065)(153,384)

152(12,599)
61,443(833)
5,844
68,065

1,424(117,742)
574,232–(3,082)

–

730
(66)
49,508–(9,384)61,4436,823(622)
462,691

Translation differences on cash and cash equivalents...........................
Increase (decrease) in cash and cash equivalents..................................
Cash and cash equivalents at beginning of year.....................................
Cash and cash equivalents which were succeeded by new company
formed through divisive reorganization of company..........................
Cash and cash equivalents increased by merger ofconsolidated subsidiaries......................................................................
Cash and cash equivalents of subsidiaries excluded from consolidation
Cash and cash equivalents at end of year.................................................
The accompanying notes are an integral part of this statement.

10 Page¥¥$NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Kumagai Gumi Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2005 and 2004

1. BASIS OFPRESENTINGFINANCIALSTATEMENTS

The accompanying consolidated financial statements of KUMAGAI GUMI CO., LTD. ( the "Company" )and its consolidated subsidiaries have been prepared in accordance with generally accepted
accounting principles and practices in Japan. In preparing the consolidated financial statements forpurpose of inclusion in this Annual Report, certain reclassifications and rearrangements have been
made to the financial statements issued domestically in Japan in order to present these statements
in a form which is more familiar to the readers of these statements outside Japan. In addition, thenotes to the consolidated financial statements include information which is not required undergenerally accepted accounting principles and practices in Japan but is presented herein as additional
information for the Annual Report.
Consolidation:
The Company applies the control or influence standard for determining the criteria of subsidiaries andaffiliates included within the scope of consolidation.
The consolidated financial statements include the accounts of the Company, eleven of its consolidated
subsidiaries and five of its affiliates accounted for applying the equity method as at and for the year ended
March 31, 2005.
In fiscal 2005, changes in the scope of consolidation were as follows:
No. of companies* Companies excluded from consolidation-2 : HOUTECH 21 CO.,LTD.
Sun F Kogyo Co.,Ltd.
Total-2
The subsidiaries which are consolidated with the Company are listed below:

Company Name

Fiscal Year- End

GAEART TK Co., Ltd.
Technos Co., Ltd.
K&E Co., Ltd.
Techno-Space Creates Co., Ltd.
KN Facilities Co., Ltd.
FATEC CO., LTD.
Technical Support Co.,Ltd.
Khiva Limited.
Taiwan Kumagai Co., Ltd.
Thai Kumagai Co., Ltd.
Kumagai Gumi (Malaysia) SDN.BHD.

31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Mar. 2005
31 Dec. 2004
31 Dec. 2004
31 Dec. 2004

All significant intercompany accounts and transactions are eliminated in consolidation.
Investments in other unconsolidated subsidiaries and affiliates accounted for applying the equity method
are stated at cost.
The Company consolidates such subsidiaries' financial statements as o f each subsidiary's most recent
year- end. Unusual significant transactions occurring between subsidiaries' year - ends and theCompany's are adjusted on consolidation.

Page

11

2. SUMMARY OF
SIGNIFICANTACCOUNTINGPOLICIES(a) Recognition of net sales and related costs
Net sales from and the related costs of construction contracts are recorded mainly by the percentage ofcompletion method. The completed-contract method is applied for certain projects whose construction
period is less than one year.
(b) Foreign currency translations

Short-term and long-term receivables and payables in foreign currencies are translated into Japanese yenat the exchange rates at the balance sheet date. Investments in overseas subsidiaries and affiliates inforeign currencies are translated into Japanese yen at the historical rates of exchange. Overseas accumulated
construction cost in progress in foreign currencies (included in inventories) is translated into Japanese yenat the monthly rates of exchange.
(c) Foreign currency financiaI statements
The balance sheet accounts and revenue and expense accounts of the consolidated overseas
subsidiaries and overseas affiliates accounted for on the equity method are translated into Japanese yen,at the current rates of exchange at each balance sheet date except for shareholders equity, which istranslated at the historical rates of exchange at dates of acquisition.
Retained earnings of the consolidated overseas subsidiaries and overseas affiliates accounted for by
the equity method at the end of every year are translated at the historicaI rates of exchange. Differences
arising from such translation are included in "Foreign currency translation adjustments" in theaccompanying consolidated financial statements.
(d) Cash and cash equivalents
Cash and cash equivalents include an overnight bank deposit and time deposits, all of which have original
maturities of three months or less.
(e) Time deposits
Time deposits have original maturities of more than three months through one year.
(f) Marketable and investment securities
The Company and its consolidated subsidiaries listed all the securities as available-for-sale which arestated at fair value, with unrealized gains and losses net of taxes under shareholders’ equity. Cost of sales
is determined by the moving-average method.
Other securities are stated at cost.

12 Page(g) Inventories
Inventories other than materials and supplies are stated at accumulated construction cost for eachproject.Selling, general and administrative expenses are excluded from such cost. Materials and supplies
are stated at cost determined by the moving-average method.
(h) Property, equipment and depreciation
Property and equipment, including significant renewals and additions, are carried at cost. The cost of property and equipment retired or otherwise disposed of and accumulated depreciation in respect thereof areeliminated from the related accounts, and the resulting gain or loss is reflected in income. Maintenance andrepairs, including minor renewals and improvements, are charged to income as incurred.
Depreciation is computed by the declining-balance method at rates based on estimated useful lives of theassets, according to general class, type of construction and use.
(i) Accrued severance indemnities
To provide for employees' severance indemnities, net period pension cost, which represents the amountrecognized as the cost of a pension plan for the year, is accounted for based on the projected benefit
obligation and the plan assets.
The unrecognized transitional obligation is being amortized by the straight-line method over a period of
15 years.
The adjustment for actuarial assumptions is being amortized by the straight-line method over a period
which is less than the average remaining years (5 to 9 years) of service of the active participants in theplans. Amortization is computed from the fiscal year subsequent to the year in which the adjustment wasrecorded.
Prior service cost is being amortized by the straight-line method over a period which is less than the
average remaining years (5 to 9 years) of service of the active participants in the plans.
(j) Income taxes
Income taxes are accounted for by the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carry forwards.
(k) Appropriations of retained earnings
Appropriations o f retained earnings are reflected in t h e accompanying consolidated financial
statements for the following year upon shareholders' approval.

Page 13

3.

UNITED
STATESDOLLARAMOUNTSThe United States dollar amounts included in the accompanying consolidated financia l statements
are presented solely for convenience and are stated, as a matter of arithmetical computation only, at therate of ¥107 = US$1, which was the approximate exchange rate at March 31, 2005. These translations
should not be construed as representations that the Japanese yen amounts have been, could have beenor could in the future be converted into United States dollars at that rate.

4. MARKETABLEANDINVESTMENT
SECURITIESThe breakdown of available-for-sale securities as of March 31, 2005 is as follows:
Fair value(Carrying amount)(¥ million)

Cost

Marketable equity securities..................................
Debentures............................................................
Fund trust and other..............................................
Total......................................................................

Difference¥ 12,535
463–¥ 12,998¥ 8,802463–¥ 9,265

¥
¥

3,733
0
–
3,733

(US $ thousand)Marketable equity securities..................................
Debentures ...........................................................
Fund trust and other..............................................
Total......................................................................

$ 34,8890–$ 34,889$ 117,154
4,326–$ 121,480$ 82,265
4,326–$ 86,591

The breakdown of available-for-sale securities as of March 31, 2004 is as follows:
Fair value(Carrying amount)(¥ million)

Cost

Marketable equity securities..................................
Debentures............................................................
Fund trust and other..............................................
Total......................................................................

5.

INVENTORIES¥ 8,70610–¥ 8,716¥ 12,04410–¥ 12,054

2005

2004

2005
(US $ thousand)¥ 14,768425¥ 15,193

$

¥
¥

3,338
–
–
3,338

Inventories comprised the following:
March 31, 2005 and 2004(¥ million)

Cost of uncompleted contracts..............................
Materials and supplies...........................................

14 Page

Difference¥ 14,305
329¥ 14,634$

133,687
3,080
136,767

6. SHORT-TERM
BORROWINGSAND LONGTERM DEBT

The weighted average interest rates on short-term bank loans were 1.81% and 1.65% at March 31, 2005 and2004, respectively.
Long-term debt comprised the following:
March 31, 2005 and 2004

2005

2004

2005
(US $ thousand)¥ 83,580
12,870¥ 70,710$(¥ million)

Loans, principally from banks and insurance, bearing
weighted average interest of 2.15% and 2.18% at
March 31, 2005 and 2004, respectively....................
Less current portion......................................................

¥ 63,266
651¥ 62,615

591,278
6,088
585,189$

The aggregate annual maturities of long-term debt (including current portion) at March 31, 2005 were as follows:
Years ending March 31

2005..............................................................................
2006..............................................................................
2007..............................................................................
2008..............................................................................
2009 and thereafter.......................................................

7.

LEASES(¥ million)(US $ thousand)

¥

$

651
555
1,775
190
60,095¥ 63,266

$

6,088
5,187
16,5901,772
561,641591,278

The lease payments under noncancelable financing leases are principally accounted for as rental expenses, andno asset or liability (other than a short-term liability for accrued rent payable) relating to the lease is recorded.

8.

PLEDGEDASSETS

Assets pledged as collateral for short-term borrowings, long-term debt and other obligation were as follows:
March 31, 2005
(US $ thousand)(¥ million)

Assets pledged as collateral:
Cash and Cash equivalents.......................................
Notes and accounts receivable, trade.........................
Investments and other assets....................................
Property and equipment.............................................
Liabilities secured thereby:
Short-term borrowings, long-term debt
and other obligation..................................................

100
300
120,039
9,913¥ 22,352

$

$

935
2,804
112,515
92,646208,900¥$

77,832¥

8,328

Page 15

9.

ADVANCES
As is the customary practice in Japan, the Company receives progress payments from customers in
RECEIVED ON accordance with the terms of the respective construction contracts.
UNCOMPLETEDCONTRACTS

10. ACCRUED
Employees (excluding directors and corporate auditors) whose service with the Company and its
SEVERANCE
consolidated domestic subsidiaries is terminated are, under most circumstances, entitled to lump-sum
INDEMNITIESAND PENSION severance indemnities determined by reference to rank and length of time served in each rank until the
EXPENSES FOR termination occurs.
EMPLOYEESIn addition to the lump-sum indemnities, a consolidated domestic subsidiary has both contributory andnon-contributory funded pension plans.
The Company and its consolidated domestic subsidiaries accounted for the liability for retirement benefit
based on projected benefits obligations and plan assets at each balance sheet date.

The liability (asset) for employees’ retirement benefits and the components of net periodic benefit costs were as follows:(1) The liability (asset) for employees' retirement benefits
As of March 31, 2005 and 2004

2004

2005
(US $ thousand)¥ (29,720)
804
11,2094,146¥ (13,561)¥ (30,598)
492
12,3304,353¥ (13,423)$ (277,759)
7,520
104,758
38,744$ (126,737)

2005

2004

2005
(US $ thousand)2005(¥ million)

Projected benefit obligation ...................................
Fair value of plan assets........................................
Unrecognized transition obligation.........................
Unrecognized prior service cost and actuarial loss....
Net liability..............................................................

(2) The components of net periodic benefit costs
For the year ended March 31, 2005 and 2004(¥ million)

Service cost...........................................................
Interest cost...........................................................
Expected return on plan assets..............................
Amortization of transitional obligation.....................
Amortization of prior service cost and actuarial loss..
Provision for retirement allowance accompanying
the end of a pension plan....................................
Net periodic benefit cost.........................................

¥

¥

1,421
627
(26)
1,121
599
–
3,742

¥

¥

2,140
2,859
(621)
6,508
7,033
1,627
19,546$$

13,2775,864(241)
10,476
5,597–
34,973(3) Assumptions used for the years ended March 31, 2005 and 2004
Discount rate..........................................................
Expected rate of return on plan assets ..................
Amortization period of prior service cost ................
Recognition period of actuarial gain/loss................
Amortization period of transitional obligation..........

16 Page

2005

2004

2.0%
2.0%
5 to 9 years
5 to 9 years
15 years

2.0%
2.0%
5 to 9 years
5 to 9 years
15 years

11. OTHER, NET IN Other, net in other income (expenses) comprised the following:
OTHER INCOME
March 31, 2005 and 2004
2005
(EXPENSES)
Gain from discharge of debt
Loss on disposal of property and equipment,net
Loss on valuation of inventories.............................
Loss on valuation of fixed assets...........................
Loss from bad debt................................................
Provision for allowance for the settlement ofdevelopment projects..........................................
Provision for allowance for doubtful accounts........
Provision for retirement allowance..........................
Loss on valuation of marketable andinvestment securities..........................................
Gain on sale of marketable and investment
securities, net.....................................................
Loss on sale of investments in unconsolidated
subsidiaries and affiliates....................................
Foreign exchange loss, net.....................................
Other, net...............................................................
¥

2004(¥ million)

2005(US $ thousand)

$

–
(307)
–
(9)
(30)

268,400
(91)
(10)
(35)
(21)

–
(2,034)–(1,277)(1,160)(1,627)–(19,011)
–

(20)

(204)

(189)

222

352

2,073

(69)
227
(573)
(2,593)(1,249)(977)
1,401¥ 263,502

(641)
2,121
(5,353)(24,233)$–(2,870)
–
(82)
(281)

12. INCOME TAXES Tax effects of significant temporary differences and loss carryforwards that result in deferred tax assets or
liabilities were as follows:
March 31, 2005 and 2004

2004

2005
(¥ million)

Deferred Tax Assets:
Loss on valuation of property and equipment.......
Accrued severance indemnities..........................
Loss on valuation of golf club membershipright and other.................................................
Tax loss carry-forwards......................................
Others...................................................................
Subtotal....................................................................
Valuation Allowance................................................
Total......................................................................
Deferred Tax Assets:
Unrealized gain on available-for-sale securities..
Others................................................................
Total........................................................................
Net deferred tax assets..........................................

¥

2005(US $ thousand)

$

1,522
5,341

1,551
4,556

1,692
98,9578,130
115,642(100,720)
14,922

1,803
101,044
12,584
121,538(106,127)
15,411

15,812924,836
75,9791,080,765(941,309)
139,456(1,538)(212)(1,750)13,172(1,380)(282)(1,662)
13,749(14,374)(1,981)(16,355)$ 123,101¥

14,22749,911Page 17

13. PER SHAREDATA

The weighted average number of common shares used in computing net income per share for the years
ended March 31, 2005 and 2004 were as follows:

2004.................................................................................................................................
2005.................................................................................................................................

Number of shares(thousand)

132,649
132,231

14. TRANSACTIONS Purchases from and sales to unconsolidated subsidiaries and affiliates for the respective periods were
WITH UNCONSO- as follows:
LIDATED SUBSIMarch 31, 2005 and 2004
2004
2005
2005
DIARIES AND(US $ thousand)(¥ million)
AFFILIATES
Purchases ................................
¥ 285
¥ 182
$ 2,664
Sales........................................
4–38

15. CONTINGENT
LIABILITIESThe Company and its consolidated subsidiaries were contingently liable for guarantees of debt ofcustomers, unconsolidated subsidiaries and affiliates, in the amount of ¥642 million ( US$5,999
thousand ) at March 31, 2005. The guarantees are in respect of loans relating to purchases anddevelopment of land for civil engineering and architectural construction projects.

16. CANCELLATION The Company and Tobishima Corporation have agreed to cancel the merger plan "Comprehensive
OF THE MERGER Operating Partnership Agreement" and it was signed on November 15, 2004.
PLAN

18 PageREPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS(CONSOLIDATED)

To the Board of Directors of
Kumagai Gumi Co., Ltd.
We have examined the consolidated balance sheets of Kumagai Gumi Co., Ltd. and its consolidated
subsidiaries at March 31, 2005 and 2004, and the related consolidated statements of income
shareholders’ equity and cash flows for each of the two years in the period ended March 31, 2005,
expressed in Japanese yen. These consolidated financial statements are the responsibility of theCompany's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by managements, as well as
evaluating the overall consolidated financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly the financial positionof Kumagai Gumi Co., Ltd. and its consolidated subsidiaries at March 31, 2005 and 2004, and the results of
their operations and their cash flows for each of the two years in the period ended March 31, 2005, inconformity with generally accepted accounting principles and practices in Japan applied on a consistent basis.
The United States dollar amounts shown in the consolidated financial statements referred to above havebeen translated solely for convenience. We have reviewed this translation and, in our opinion, theconsolidated financial statements expressed in Japanese yen have been translated into United States
dollars on the basis described in Note 3.

Tokyo, Japan
June 29, 2005
M. Serizawa & Co.
Certified Public Accountants
Shin-Yurakucho Bldg., 12-1, Yurakucho 1-chome, Chiyoda-ku, Tokyo, Japan

Page

19

NON-CONSOLIDATED BALANCE SHEETS
Kumagai Gumi Co., Ltd. (Company Only) March 31, 2005 and 2004(¥ million)

ASSETS

2005(US $ thousand)
2004

2005

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

¥

45,563¥58,665$425,822

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

5

5

47

Notes and accounts receivable, trade .........................................................

101,886(1,406)

106,501(1,357)952,208(13,140)

11,553

11,349107,969

3,685

2,515

34,440Allowance for doubtful accounts..................................................................
Inventories (Note 4).....................................................................................
Deferred income taxes (Note 9)..................................................................

24,292

31,889227,027

185,578

209,567

1,734,373

Investment securities ..................................................................................

11,716

11,885

109,495

Investments in subsidiaries and affiliates....................................................

4,752

4,103

44,411Long-term loans receivable.........................................................................

1,624

1,330

15,181Long-term loans to subsidiaries and affiliates.............................................

366

542

3,424

Long-term receivable ..................................................................................

1,824

1,865

17,046Claims to companies in bankruptcy, reorganization, etc.............................

31

1,545

286

Deferred income taxes (Note 9)..................................................................

7,525

8,991

70,322

10,182(1,124)

11,555(2,243)

95,163(10,503)

36,896

39,573344,825

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

7,556

7,693

70,615

Buildings................................................................................................

8,705

9,053

81,360Machinery and equipment .....................................................................

6,929

8,728

64,755Construction in progress .......................................................................

–

3

–

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

23,190(12,951)

25,477(14,653)

216,730(121,040)

Other current assets ....................................................................................

INVESTMENTS AND OTHER ASSETS (Note 6):

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

PROPERTY AND EQUIPMENT (Note 6):

The accompanying notes are an integral part of this statement.

20 Page

10,23910,824

95,690¥ 232,713¥ 259,964$ 2,174,888

(¥ million)

LIABILITIES AND SHAREHOLDERS’ EQUITY

2005(US $ thousand)
2005

2004

CURRENT LIABILITIES:
Short-term borrowings ................................................................................

¥

1,172

¥

1,465

$

10,955Current portion of long-term debt................................................................

3,995

12,52037,338Notes and accounts payable, trade ............................................................
Advances received on uncompleted contracts (Note 7) .............................

95,75898,571

894,931

11,145

16,635

104,161

Accrued expenses ......................................................................................
Accrued income taxes (Notes 9).................................................................

2,113

1,608

19,745

446

132

4,168

Employees’ savings deposits......................................................................

2,130

2,166

19,902Other current liabilities ................................................................................

20,181

28,765

188,611

136,940

161,862

1,279,811

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

59,977

67,200560,535

Accrued severance indemnities ..................................................................

10,098

10,076

94,377

Other long-term liabilities.............................................................................

314

507

2,934

70,38977,783657,846

LONG-TERM LIABILITIES:CONTINGENT LIABILITIES (Note 11)
SHAREHOLDERS’ EQUITY:
Capital stock:
Authorized — 774,000,000 shares in 2005 and 2004
Issued— 193,646,504 shares in 2005 and 2004................................

13,341

13,341

124,684

Additional paid-in capital .............................................................................
Retained earnings (deficit) .........................................................................

9,927
734

9,927
(4,441)

92,775

Unrealized gain on available-for-sale securities.........................................

1,565

1,561

Treasury stock, at cost................................................................................

(183)

(69)

14,627(1,709)6,854

25,384

20,319237,231¥ 232,713¥ 259,964$ 2,174,888

Page 21

NON-CONSOLIDATED STATEMENTS OF INCOME
Kumagai Gumi Co., Ltd. (Company Only)Years ended March 31, 2005 and 2004(¥ million)
2005

2004

(US $ thousand)
2005

NET SALES:
Contracts completed ...................................................................................

¥ 249,214¥ 269,486$ 2,329,104

Sales of real estate .....................................................................................

–

6,275

–

249,214275,761

2,329,104

Cost of construction ....................................................................................

228,240

248,289

2,133,086

Cost of real estate.......................................................................................

–

5,459

–

COST OF SALES :228,240

253,748

2,133,086

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

20,97422,013

196,018

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ....................

12,821

14,764

119,823

Operating income .......................................................................................

8,153

7,249

76,195415(1,969)1,408(3,650)3,881(18,401)

Other, net (Note 8) ......................................................................................

(808)

266,472(7,550)

Income (Loss) before income taxes .......................................................

5,791

271,479

54,125Current ....................................................................................................

322

324

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

(294)
616

12,5783,010(2,752)OTHER INCOME (EXPENSES):Interest and dividend income ......................................................................
Interest expense .........................................................................................

Income taxes (Note 9):

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

The accompanying notes are an integral part of this statement.

22 Page¥

5,175(12,254)¥ 283,733

5,762$

48,363

NON-CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Kumagai Gumi Co., Ltd. (Company Only)Years ended March 31, 2005 and 2004

Number ofshares issued

Capitalstock

Additional
paid-in
capitalRetainedearnings(deficit)(thousand)

Balance at March 31, 2003 ..................................

668,233

Capital reduction.............................................

¥ 33,412¥

212 ¥ (318,457)(30,071)(534,586)
60,000

¥

¥

928

(14)

30,071(212)

Issuance of preferred stock............................

Treasurystock(¥ million)

Reversal of additional paid-in capital..............
Stock binding at a 5-1 ratio.............................

Unrealized
gain onavailablefor-salesecurities

15,00015,000(5,000)(5,073)212

Decrease resulting from divisive
reorganization of a company......................

283,733

Net income for the year..................................

633

Change in the current period .........................

(55)

Treasury stock purchased..............................
Balance at March 31, 2004 ..................................
Net income for the year..................................

193,647¥ 13,341¥

9,927 ¥

(4,441)¥

Change in the current period .........................
Treasury stock purchased..............................
Balance at March 31, 2005 ..................................

1,561

¥

(69)

5,175
4
(114)
193,647¥ 13,341¥

9,927 ¥

734

1,565

¥

(183)

$ 14,590

$

(644)

¥

(US $ thousand)

Balance at March 31, 2004 ..................................

$ 124,684$ 92,775 $Net income for the year..................................

(41,509)48,363

Change in the current period .........................

37(1,065)

Treasury stock purchased..............................
Balance at March 31, 2005 ..................................

$ 124,684$ 92,775 $6,854$ 14,627$ (1,709)

The accompanying notes are an integral part of this statement.

Page 23

NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS
Kumagai Gumi Co., Ltd. (Company Only) Years ended March 31, 2005 and 2004

1. BASIS OFPRESENTINGFINANCIALSTATEMENTS

The accompanying non-consolidated financial statements of KUMAGAI GUMI CO., LTD. (the “Company”)
have been prepared in accordance with generally accepted accounting principles and practices in Japan.
Non-consolidated statements of shareholders’ equity have been prepared for the purpose of this Annual
Report to supply additional information. In preparing the non-consolidated financial statements for the
purpose of inclusion in this Annual Report, certain reclassifications and rearrangements have been madeto the financial statements issued domestically in Japan in order to present these statements in a form
which is more familiar to the readers of these statements outside Japan. In addition, the notes to the nonconsolidated financial statements include information which is not required under generally accepted
accounting principles and practices in Japan but is presented herein as additional information for thisAnnual Report.

2. SUMMARY OF
SIGNIFICANTACCOUNTINGPOLICIES(a) Recognition of net sales and related costs
Net sales from and the related costs of construction contracts are recorded mainly by the percentage ofcompletion method. The completed-contract method is applied for certain projects whose construction
period is less than one year.
(b) Foreign currency translations
Short-term and long-term receivables and payables in foreign currencies are translated into Japanese
yen at the exchange rates at the balance sheet date. Investments in overseas subsidiaries and affiliates
in foreign currencies are translated into Japanese yen at the historical rates of exchange. Overseas
accumulated construction cost in progress in foreign currencies (included in inventories) is translated into
Japanese yen at the monthly rates of exchange.
(c) Cash and cash equivalents
Cash and cash equivalents include time deposits which have original maturities of three months or less.
(d) Time deposits
Time deposits have original maturities of more than three months through one year.
(e) Marketable and investment securities
The Company listed all the securities as available-for-sale which are stated at fair value, with unrealized
gains and losses net of taxes under shareholders’ equity section. Cost of sales is determined by themoving-average method.
Other securities are stated at cost.

24 Page(f) Investments in subsidiaries and affiliates
Investments in subsidiaries and affiliates are stated at cost.
(g) Inventories
Inventories other than materials and supplies are stated at accumulated construction cost for each project.
Selling, general and administrative expenses are excluded from such cost. Materials and supplies arestated at cost determined by the moving-average method.
(h) Property, equipment and depreciation
Property and equipment, including significant renewals and additions, are carried at cost. The cost of
property and equipment retired or otherwise disposed of and accumulated depreciation in respect thereof
are eliminated from the related accounts, and the resulting gain or loss is reflected in income.
Maintenance and repairs, including minor renewals and improvements, are charged to income as
incurred.
Depreciation is computed by the declining-balance method at rates based on estimated useful lives of
the assets, according to general class, type of construction and use.
( i ) Accrued severance indemnities
To provide for employees' severance indemnities, net period pension cost, which represents the amountrecognized as the cost of a pension plan for the year, is accounted for based on the projected benefit
obligation and the plan assets.
The unrecognized obligation at transition is being amortized by the straight-line method over a period of
15 years.
The adjustment for actuarial assumptions is being amortized by the straight-line method over a period
which is less than the average remaining years (9 years) of service of the active participants in the plans.
Amortization is computed from the fiscal year subsequent to the year in which the adjustment wasrecorded.
Prior service cost is being amortized by the straight-line method over a period which is less than the
average remaining years (9 years) of service of the active participants in the plans.
(j ) Income taxes
Income taxes are accounted for by the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax consequences attributable todifferences between the financial statement carrying amounts of existing assets and liabilities and theirrespective tax bases and operating loss and tax credit carry forwards.
(k) Appropriations of retained earnings
Appropriations of retained earnings are reflected in the accompanying non-consolidated financial
statements for the following year upon shareholders approval.

Page 25

3. UNITEDSTATESDOLLARAMOUNTSThe United States dollar amounts included in the accompanying non-consolidated financial statements
are presented solely for convenience and are stated, as a matter of arithmetical computation only, at therate of ¥107=US$1, which was the approximate exchange rate at March 31, 2005. These translations
should not be construed as representations that the Japanese yen amounts have been, could have beenor could in the future be converted into United States dollars at that rate.

4. INVENTORIESMarch 31, 2005 and 2004

2005

2004

5. LEASES

2005(US $ thousand)(¥ million)

Cost of uncompleted contracts........................................

¥ 11,474¥ 11,175$ 107,232

Materials and supplies ....................................................

79

174

737

¥ 11,553¥ 11,349$ 107,969

The lease payments under noncancelable financing leases are accounted for as rental expenses, and no
asset or liability (other than a short-term liability for accrued rent payable) relating to the lease isrecorded.

6. PLEDGEDASSETS

Assets pledged as collateral for short-term borrowings, long-term debt and other obligation were as follows:
March 31, 2005(¥ million)(US $ thousand)Assets pledged as collateral:
Investment and other assets..............................................................

¥

7,703

$

71,993

9,540

89,160¥ 17,243$ 161,153¥$

Property and equipment.....................................................................
Liabilities secured thereby:
Short-term borrowings, long-term debt and other obligation .............

7

3,665

34,256ADVANCES
As is the customary practice in Japan, the Company receives progress payments from customers in
RECEIVED ON
accordance with the terms of the respective construction contracts.
UNCOMPLETEDCONTRACTS

26 Page8. OTHER, NET IN Other, net in other income (expenses) comprised the following:
OTHER INCOME March 31, 2005 and 2004
(EXPENSES)

2005

2004

(¥ million)

Gain from discharge of debt....................................................

–

268,400

Gain (loss) on disposal of property and equipment, net..........

(12)

224

2005
(US $ thousand)

–

$

(112)

Loss on valuation of marketable and investment securities....

(14)

(74)

(136)

Gain on sale of marketable and investment securities, net.....
Loss on valuation of inventories..............................................

197
–

186
(9)

1,841
–

Loss on valuation of property and equipment..........................

(1)

(35)

(12)

Provision for allowance for doubtful accounts.........................

(535)(2,417)(4,996)

Provision for allowance for the settlement of development projects

–

(41)

–

Loss on valuation of investments in subsidiaries and affiliates..

–(1,596)–

Foreign exchange (loss), net...................................................

253
(696)
(808)

(959)
2,793

2,366

Other, net ................................................................................
¥¥ 266,472(6,501)$(7,550)9. INCOME TAXES Tax effects of significant temporary differences and loss carryforwards that result in deferred tax assets or
liabilities were as follows:
March 31, 2005 and 2004

Deferred Tax Assets:
Loss on valuation of property and equipment..........................
Accrued severance indemnities .............................................
Loss on valuation of golf club membershipright and other...................................................................
Tax loss carry-forwards.........................................................
Others......................................................................................
Subtotal.......................................................................................
Valuation Allowance...................................................................
Total.........................................................................................
Deferred Tax Assets:
Unrealized gain on available-for-sale securities.....................
Others......................................................................................
Total ..........................................................................................
Net deferred tax assets............................................................

2004
2005
(¥ million)

¥

¥

1,522
4,110

¥

1,551
4,101

2005
(US $ thousand)$

14,22738,412

1,606
97,8795,810
110,927(98,563)
12,364

1,695
100,718
9,167
117,232(104,493)
12,73915,008914,760
54,2991,036,706(921,156)
115,550(1,074)(80)(1,154)
11,210(1,072)(160)(1,232)¥ 11,507(10,039)(749)(10,788)$ 104,762

Page 27

10. PER SHARE
DATA

11. CONTINGENT
LIABILITIESThe weighted average number of common shares used in computing net income per share for the years
ended March 31, 2005 and 2004 were as follows:

Number of shares(thousand)2004 ......................................................................................................................................

133,304

2005 ......................................................................................................................................

132,849

The Company was contingently liable for guarantees of debt of customers, subsidiaries and affiliates, inthe amount of ¥3,065 million (US$28,642 thousand) at March 31, 2005. The guarantees are in respect ofloans relating to purchases and development of land for civil engineering and architectural construction
projects.

12. CANCELLATION The Company and Tobishima Corporation have agreed to cancel the merger plan "Comprehensive
OF THE
Operating Partnership Agreement" and it was signed on November 15, 2004.
MERGER PLAN

28 PageREPORT OF THE INDEPENDENT PUBLIC ACCOUNTANTS(NON-CONSOLIDATED)

To the Board of Directors of
Kumagai Gumi Co., Ltd.
We have examined the non-consolidated balance sheets of Kumagai Gumi Co., Ltd. at March 31, 2005
and 2004, and the related non-consolidated statements of income shareholders’ equity for each of the twoyears in the period ended March 31, 2005, expressed in Japanese yen. These non-consolidated financial
statements are the responsibility of the Company's management. Our responsibility is to express an
opinion on these non-consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether the
non-consolidated financial statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the non-financial statements. An audit
also includes assessing the accounting principles used and significant estimates made by managements,
as well as evaluating the overall non-consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the non-consolidated financial statements referred to above present fairly the financial
position of Kumagai Gumi Co., Ltd. at March 31, 2005 and 2004, and the results of their operations foreach of the two years in the period ended March 31, 2005, in conformity with generally accepted accounting
principles and practices in Japan applied on a consistent basis.
The United States dollar amounts shown in the non-consolidated financial statements referred to above
have been translated solely for convenience. We have reviewed this translation and, in our opinion, thenon-consolidated financial statements expressed in Japanese yen have been translated into United States
dollars on the basis described in Note 3.

Tokyo, Japan
June 29, 2005
M. Serizawa & Co.
Certified Public Accountants
Shin-Yurakucho Bldg., 12-1, Yurakucho 1-chome, Chiyoda-ku, Tokyo, Japan

Page 29

GLOBAL DIRECTORY

HEAD OFFICE:OVERSEAS BRANCHES:

2-1,Tsukudo-cho, Shinjuku-

HONG KONG BRANCHTAIWAN BRANCHPHILIPPINES BRANCH

ku, Tokyo 162-8557, Japan

22nd Floor

Room No. 1407, 12th Floor

2nd Floor, S&L Building

Telephone: 81-3-3235-8641

No. 625 King’s Road

International Trade Building

No.101 Dela Rosa Coner,

Facsimile: 81-3-5229-7090

North Point, Hong Kong

205 Section 1, Tun Hua

Esteban Streets,(Overseas Division)

Telephone: 852-2203-0888

South Road Taipei, Taiwan,

Legaspi Village, Makati City

Facsimile: 852-2203-0555

Republic of China

Metro Manila, Philippines

Telephone: 886-2-2721-0427

Telephone: 63-2-815-4660

Facsimile: 886-2-2741-2476

Facsimile: 63-2-818-1756

Jalan Ampang

INDONESIA BRANCHSHANGHAI BRANCH

50450 Kuala Lumpur,

3A Fl., Setiabudi 2 Bldg.

0710 New Caohejing Tower,

Malaysia

Suite 3A05 Jl. H.R. Rasuna

509 Cao Bao Road,

Telephone: 60-3-2166-3211

Said Kav.62, Kuningan,

Shanghai 200233

Facsimile: 60-3-2167-2373

Jakarta 12920

People’s Republic of China

Indonesia

Telephone: 86-21-6485-2498

Telephone: 62-21-525-0900

Facsimile: 86-21-6485-1487

MALAYSIA BRANCH
Level 8, Menara Chan 138

THAILAND BRANCH

Facsimile: 62-21-525-0708

23rd Floor, Le Concorde
Tower 202, Rachadapisek
Road, Huaykwang, Bangkok
10320 Thailand
Telephone: 66-2694-1190/94
Facsimile: 66-2694-1195

SINGAPORE BRANCH
210 Middle Road
#07-04/08 IOI Plaza,
Singapore 188994
Telephone: 65-6338-5352
Facsimile: 65-6337-5082

30 PagePRINCIPAL SUBSIDIARIESAND AFFILIATES:SRI LANKA BRANCHGAEART TK Co., Ltd.

FATEC CO., LTD.

Taiwan Kumagai Co., Ltd.

Level 2A, Valiant Towers

Head Office: Tokyo, Japan

Head Office: Tokyo, Japan

Head Office: Taipei, Taiwan

46/7 Navam Mawatha

President: Toshikazu Fujii

President: Takayuki Aono

President: Shizuo Tashiro

Colombo 2, Sri Lanka

Capital: ¥1,000,000,000

Capital: ¥20,000,000

Capital: NT$301,200,000(US$9,461,633)(US$189,232)(US$9,480,944)

Telephone: 94-11-2387424 ~7
Facsimile: 94-11-2387423

Major Activities:

Major Activities:

Major Activities:

Construction and pavement

Sales of construction

Construction business in
Taiwan.

of roads and airports, othermaterials and equipment

VIETNAM BRANCH

civil engineering works anddeveloped by Kumagai’s

Unit 205-207, 2nd Floor,

architecture.

various technologies.

V-Tower, 649 Kim Ma Street,

Thai Kumagai Co., Ltd.

Ba Dinh District,Head Office: Bangkok,

Hanoi, Vietnam

K&E Co., Ltd.

Technos Co., Ltd.

Thailand

Telephone: 84-4-7661501

Head Office: Tokyo, Japan

Head Office: Toyokawa

President: Masahiko Fujita

Facsimile: 84-4-7661506

President: Yasushi Higuchi

Aichi, Japan

Capital: B30,000,000

Capital: ¥300,000,000

President: Yoshiaki(US$2,838,489)

Nagashima

Major Activities:

Capital: ¥470,000,000

Construction business in

PAPUA NEW GUINEABRANCH

Major Activities:

Section 427, Allotment 3,

building business

Major Activities:

Islander Drive, Waigani NCD

Installation of building

Production and sale of

Papua New Guinea

equipment.

construction machinery andConsulting and reform(US$762,641)(US$4,446,967)

Telephone: 675-325-3688

materials.

Facsimile: 675-325-0629

Construction ofThailand.
(As of March 31, 2005)

underground diaphragmwalls and noiselessvibration-free piles.

Conversion into U.S. dollars
at the rate of¥107.39=US$1.00
US$1.00=NT$31.76899=B39.33700(As of March 31, 2005)

Page 31

MAJOR CONTRACTS

Contracts awarded in fiscal year 2005:

Contracts completed in fiscal year 2005:

Contracts carried over to fiscal year 2006:

CIVIL ENGINEERING
Tokuyama Dam Construction Project,
Phase 3 Construction
Owner: Japan Water Agency

CIVIL ENGINEERING■ Ookitagawa River Comprehensive Development Project No. 1-1, Oyama
Dam Construction Project
Owner: Ibaraki Prefectural Goverment

CIVIL ENGINEERING■

Isawa Dam, Rude Ore Mountain Material Mining (Phase I) Construction Project
Owner: Ministry of Land, Infrastructure
and Transport, Tohoku Regional
Development Bureau■

Kenodo Expressway Shiroyama Hachioji Tunnel (Part 1) Construction
Project
Owner: Ministry of Land, Infrastructure
and Transport, Kanto Regional
Development Bureau■■

New Tomei Expressway Fujigawa Tunnel West (Part 3) Construction Project
Owner: Japan Highway Public Corporation Shizuoka Construction Bureau■

Kandagawa River Circular Route 7
Subsurface Reservoir (Phase 2) Shield
Construction Project
Owner: Finance Department of Tokyo
Metropolitan Government■

New Tomei Expressway Inasa Junction North Construction Project
Owner: Japan Highway Public Corporation Shizuoka Construction Bureau■■

Tomishiro Tunnel (Part 1) Construction
Project
Owner: Okinawa General Bureau■

Waste Disposal and Treatment Facility
Construction Project, Maenosho Community Plant Construction
Owner: Yumesaki-town

Itoyacho Project (Tentative Name)
Construction
Owner: Daikyo Inc., Kanden FudosanCo., Ltd.

■

Teyose District Class 1 Urban Redevelopment Project Facilities Buildings
Construction
Owner: Teyose District Urban
Redevelopment Project Union

■

■

■

■

■

■

Gardens Court Musashikosugi Construction
Owner: Mistui Fudosan Co., Ltd.
Masuda Station District Construction ,Class 1 Urban Redevelopment Project
Facilities Buildings (buildings A and C)
Construction
Owner: Masuda City
Kobe Diesel Co., Ltd. Headquarters
Factory Construction Project
Owner: Kinki Ryoju Estate Co., Ltd.

32 Page

Park City Nokendai Broad Air Construction Project
Owner: Mistui Fudosan Co., Ltd.
Keikyu City Oppama Collective Housing Construction Project
Owner: Keihin Electric Express
Railway Co., Ltd., Keihin Real EstateCo., Ltd.

■The New Medical City Project
Owner: The Medical City■

Tokyo Horse Race Course Spectators'
Stands Reconstruction Project, Phase
II (Zone 1)
Owner: Japan Racing Association
(JRA)

■

New Metrorail City Project
Owner: Western Australia Public
Transport Authority■

Civil Engineering Works (Channel
Zone) for Kannagawa Power Station
Construction Project (Phase 1)
Owner: The Tokyo Electric Power
Company, Inc.

■

Route8-Eagle's Nest Tunnel and Associated Works Project
Owner: The Government of Hong
Kong SAR, Highways Department■

Zone SJ 11 (4) _ Zone 31 (Outer
Route) Tunnel Construction Project
Owner: Metropolitan Expressway■

Daishojigawa River Comprehensive
Development, Kutani Dam Construction Project
Owner: Ishikawa Prefectural
Government

Fukuikoei Station 2BL Construction &2 Other Projects
Owner: West Japan Railway Company

ARCHITECTURE
ARCHITECTURE■

HannStar FAB Ⅲ Project
Owner: HannStar Display Corp.

ARCHITECTURE■

Taipei Financial Center (TAIPEI 101)
Project
Owner: Taipei Financial Center
Corporation■

New City Higashitotsuka (TentativeName), Central District, Building A
Construction Project
Owner: Mitsui Fudosan Co., Ltd.

■

Musashiurawa Station, District 8-1,
Urban Redevelopment Project, Facility Building Construction
Owner: Musashiurawa Station District
8-1 Urban Redevelopment Union■

Yokohama Minato Mirai Manyo Club
(Tentative Name) Construction Project
Onwer: Manyo Club Co., LTd.

■

Tosabori Park Tower (Tentative Name)
Construction Project
Onwer: Mitsui Fudosan Co., Ltd.

CORPORATE DATA

Date Incorporated:
January 6,1938 (Inaugurated in 1898)

Shareholders' Equity:¥25,384 million(US$237,231 thousand)(As of March 31, 2005)
Major Activities:
1. Engineering, architecture, and general construction
2. Design, manufacture, and sale of construction machinery and equipment
3. Construction-related consulting services

Number of Employees:
Civil Engineers........................................................ 946
Architectural Engineers........................................1,084
Electrical Engineers.................................................. 45
Mechanical Engineers.............................................. 36
Administrative Staff.................................................567
Others.........................................................................3
Total.....................................................................2,681(As of March 31, 2005 )For further information, please contact thenearest local branch or the Overseas
Division at the Head Office.

Page 33

Head Office2-1, Tsukudo-cho, Shinjuku-ku Tokyo 162-8557, Japan
Telephone
81-3-3235-8641
Facsimile
81-3-5229-7090
http://www.kumagaigumi.co.jp