2008

FINANCIALSTATEMENTS
MARCH 31,
2007-2008

KITANO CONSTRUCTION CORP.

Contents

Financial Statements

Consolidated Balance Sheets . .............................................................................................. 3

Consolidated Statements of Operations .............................................................................. 5

Consolidated Statements of Changes in Net Assets .......................................................... 6

Consolidated Statements of Cash Flows ............................................................................. 7

Notes to Consolidated Financial Statements . .................................................................... 8

Board of Directors, Statutory Auditors and Executive Officers . ........................ 17

KITANO CONSTRUCTION CORP.

2

Consolidated Balance Sheets
As of March 31, 2007 and 2008
Millions of yen
March 31,
2007

2008

ASSETS
Current Assets:
Cash in hand and in banks.................................................................
Notes and accounts receivable..........................................................
Real estate for sale..............................................................................
Cost of construction in progress.......................................................
Cost of uncompleted development projects....................................
Inventories - materials and supplies.................................................
Deferred income taxes........................................................................
Other current assets............................................................................
Less: allowance for doubtful accounts.............................................
Total current assets......................................................................
Fixed Assets:
Tangible Fixed Assets:
Buildings and structures..............................................................
Machinery and equipment...........................................................
Golf course....................................................................................
Land................................................................................................
Construction in progress.............................................................
Other...............................................................................................
Less: accumulated depreciation.................................................
Total tangible fixed assets....................................................
Cost in excess of net assets of subsidiaries.....................................
Other intangible fixed assets.............................................................
Investments:
Investments in securities.............................................................
Long-term loans............................................................................
Deferred income taxes.................................................................
Other investments........................................................................
Less: allowance for doubtful accounts......................................
Total investments...................................................................
Total fixed assets...................................................................

¥

3,291
12,416739
14,349
6,860
67
507
1,244
(77)
39,396KITANO CONSTRUCTION CORP.

5,634
7,985
698
13,312
5,300
63
593
1,229
(73)
34,741

14,683
1,658
1,967
8,181
129
1,899
(9,587)
18,93014,760
1,444
1,977
8,216
9
1,930
(9,558)18,778

265
619
884

19
615
634

6,933
3,202
215
1,409
(1,595)
10,16429,978¥ 69,374

5,133
3,103
853
1,361
(1,619)8,831
28,243¥ 62,984

The accompanying notes are an integral part of these statements.
3¥Millions of yen
March 31,
2007

2008

¥ 17,040
7,323
71
11,300
321
299
68
44
105
637
37,208¥ 14,893
4,043
52
10,615
4
336
34
29
660
832
31,498

587
943
6,322
75
7,927

548
986
6,170
206
7,910

LIABILITIESCurrent Liabilities:
Notes and accounts payable..............................................................
Short-term bank loans........................................................................
Income taxes payable.........................................................................
Advances received on construction in progress.............................
Advances received on uncompleted development projects..........
Accrued bonuses to employees.........................................................
Accrued bonuses to directors and statutory auditors....................
Accrued warranty................................................................................
Allowance for losses on construction contracts.............................
Other current assets............................................................................
Total current liabilities.................................................................
Long-Term Debt:
Reserve for retirement benefits to employees.................................
Reserve for retirement benefits to officers......................................
Membership deposit............................................................................
Other long-term debt...........................................................................
Total long-term debt.....................................................................
NET ASSETS
Shareholders’ equity
Common stock.....................................................................................
Authorized — 200,000,000 shares
Issued — 78,368,532 shares as of March 31, 2007 and 2008
Capital surplus.....................................................................................
Retained earnings................................................................................
Treasury stock.....................................................................................
Total shareholders’ equity..................................................................

9,116

9,116

7,426
5,760
(1,828)20,474

7,426
6,235(1,840)20,937

Valuation and translation adjustments
Unrealized gain on other securities..................................................
Unrealized gain on hedging derivatives............................................
Foreign currency translation adjustments.......................................
Total valuation and translation adjustments....................................

2,189
6
17
2,212

1,096
(17)
(47)
1,032

Minority interests..........................................................................................

1,553

1,607

Total net assets.............................................................................................

¥ 24,239¥ 23,576¥ 69,374¥ 62,984

The accompanying notes are an integral part of these statements.
KITANO CONSTRUCTION CORP.

4

Consolidated Statements of Operations
For the years ended March 31, 2007 and 2008
Millions of yen
March 31,
2007

2008

¥ 62,291
6,454
68,745¥ 58,110
12,32970,439Gross profit..................................................................................

58,106
4,195
62,301
6,444

54,994
8,717
63,711
6,728

Selling, General and Administrative Expenses.......................................
Operating income.......................................................................

5,364
1,080

5,265
1,463

86
(95)
37
83
99
1,290

102
(195)
(247)
(71)
163
1,215

Special Items:
Gain on sales of fixed assets............................................................
Loss on disposal of fixed assets......................................................
Impairment loss on fixed assets......................................................
Gain on sales of subsidiaries stocks...............................................
Loss from compensation for damage..............................................
Other, net............................................................................................
Income before income taxes and minority interests.............

5
(7)
—
—
—
1
1,289

8
(16)
(2)
332
(424)
(48)
1,065

Income taxes
Current................................................................................................
Deferred..............................................................................................
Minority Interests in Earnings of Consolidated Subsidiaries...............

70
259
(95)

68
33
(62)

Net Sales:
Completed construction contracts..................................................
Real estate development and engineering......................................
Cost of Sales:
Completed construction contracts..................................................
Real estate development and engineering......................................

Non-Operating Income/(Losses):
Interest and dividend income..........................................................
Interest expenses...............................................................................
Foreign exchange gains/(losses).....................................................
Equity in gains/(losses) of affiliates................................................
Other, net............................................................................................

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

¥

865

The accompanying notes are an integral part of these statements.
5

KITANO CONSTRUCTION CORP.

¥

902

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2007 and 2008
Millions of yen
Adjustments
on foreign

Number ofshares of

Unrealized
Unrealized gain currency
common Common Capital Retained gain on other Treasury on hedging statements Minority Total net
stock surplus earnings securities stocks derivatives translation interests assets
stock(thousands)
Balance at March 31, 2006......

71,642

9,116

7,426

5,713

2,767

(1,807)

—

(12)

1,587

24,790ended March 31, 2007...

—

—

—

865

—

—

—

—

—

865

Cash dividends ................

—

—

—

(642)

—

—

—

—

—

(642)

—

—

—

(177)

—

—

—

—

—

(177)

(78)

—

—

—

—

(14)

—

—

—

(14)

Net Gain for the year

Bonuses to directors andstatutory auditors. ........
Increase in treasury
stock...............................
Gain on sale of treasury
stock ..............................

—

—

0

—

2

—

—

—

2

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

—

—

(0)

1

—

(9)

—

—

—

(8)

Adjustment for the year. .

—

—

0

—

(578)

—

6

29

(34)

(577)

Balance at March 31, 2007......

71,564

9,116

7,426

5,760

2,189

(1,828)

6

17

1,553

24,239ended March 31, 2008...

—

—

—

902

—

—

—

—

—

902

Cash dividends ................

—

—

—

(427)

—

—

—

—

—

(427)

(40)

—

—

—

—

(15)

—

—

—

(15)

stock ..............................

—

—

(0)

—

3

—

—

—

3

Adjustment for the year. .

—

—

—

—

(1,093)

—

(23)

(65)

55

(1,126)

Balance at March 31, 2008......

71,524

9,116

7,426

6,235

1,096

(1,840)

(17)

(48)

1,608

23,576Net Gain for the year

Increase in treasury
stock...............................
Gain on sale of treasury

The accompanying notes are an integral part of these statements.
KITANO CONSTRUCTION CORP.

6

Consolidated Statements of Cash Flows
For the year ended March 31, 2007 and 2008
Millions of yen
2007
Cash flows from operating activities:
Net income before income taxes...............................................................
Adjustments for:
Depreciation.................................................................................................
Impairment loss on fixed assets.................................................................
Equity in gains of affiliates.........................................................................
Interest and dividend income.....................................................................
Interest expenses.........................................................................................
Gain on sales of fixed assets......................................................................
Foreign exchange loss.................................................................................
Increase in reserve for retirement benefits toemployees and officers...............................................................................
(Decrease) in accrued warranty.......................................................................
Increase in allowance for losses on construction contracts........................
Increase in accrued bonuses.............................................................................
Increase/(decrease) in allowance for doubtful accounts..............................
(Increase)/decrease in notes and accounts receivable.................................
(Increase) in cost of construction in progress and cost of
uncompleted development projects..........................................................
(Increase)/decrease in real estate for sale and inventories..........................
(Decrease) in notes and accounts payable.....................................................
Increase/(decrease) in advances received on construction in progress.....
Other....................................................................................................................
Sub-total..................................................................................................
Interest and dividend income received...........................................................
Interest expenses paid.......................................................................................
Income taxes paid..............................................................................................
Net cash provided by/(used in) operating activities.........................

¥

1,289

¥

1,065

449
—
(83)
(86)
95
(5)
(37)

506
2
72
(102)
195
(9)
138

1
(9)
82
22
14
(2,710)

4
(14)
555
37
(5)
4,427

(6,754)
(92)
(295)
556
(193)
(7,756)
86
(95)
(66)
(7,831)2,598
43(2,140)
(686)
(535)
6,151
101
(195)
(100)
5,957

Cash flows from investing activities:
Payment for making time deposit....................................................................
Proceeds from withdraw of time deposit........................................................
Payments for purchase of fixed assets............................................................
Proceeds from sale of fixed assets...................................................................
Payments for purchase of investments in securities.....................................
Proceeds from sale of investments in securities............................................
Payments for loans.............................................................................................
Collections of loans............................................................................................
Proceeds from sale of shares of a consolidated subsidiary..........................
Other....................................................................................................................
Net cash provided by/(used in) investing activities..........................

(232)
271
(324)
23
(4)
223
(42)
67
—
(1)
(19)

(252)
231
(624)
53
(601)
498
(390)
691
510
33
149

Cash flows from financing activities:
Increase/(decrease) in short-term bank loans, net........................................
Purchase of treasury stock...............................................................................
Purchases of subsidiary’s treasury stock by the subsidiary.........................
Cash dividends paid...........................................................................................
Net cash provided by/(used in) financing activities..........................

5,934
(11)
(128)
(645)
5,150

(3,232)
(13)
—
(430)
(3,675)

Effect of exchange rate changes on cash and cash equivalents.........................
Net increase/(decrease) in cash and cash equivalents........................................
Cash and cash equivalents of beginning of year...................................................
Cash and cash equivalents of end of year.............................................................

4(2,696)
5,755
3,059

(109)
2,322
3,059
5,381

¥

The accompanying notes are an integral part of these statements.
7

2008

KITANO CONSTRUCTION CORP.

¥Notes to Consolidated
Financial Statements
1. Basis of Presenting Consolidated Financial Statements(a) Accounting Principles
The accompanying consolidated financial statements have been prepared based on the accounts
maintained by Kitano Construction Corp. (the “Company”) and its subsidiaries. The accounts of theCompany and its domestic subsidiaries are maintained in accordance with the provisions set forth in theCommercial Code of Japan, the Securities and Exchange Law, and in conformity with accounting
principles and practices generally accepted in Japan, which are different in certain respects as toapplication and disclosure requirements of International Financial Reporting Standards. The accounts of
the Company’s overseas subsidiaries are maintained in conformity with accounting principles andpractices generally accepted in their respective countries of domicile.
Certain items presented in the consolidated financial statements filed with the Director of Kanto
Finance Bureau in Japan have been reclassified for the convenience of readers outside Japan.
The consolidated financial statements are not intended to present the consolidated financial position,
results of operations and cash flows in accordance with accounting principles and practices generally
accepted in countries and jurisdictions other than Japan.
(b) Scope of Consolidation
The Company had 8 subsidiaries (majority-owned companies) as at March 31, 2008 (8 for 2007). The
consolidated financial statements in fiscal years ended March 31, 2008 include the accounts of theCompany and 7 (7 for 2007) of its subsidiaries “the Companies”, which are listed below:•Kawanakajima Tochi Kaihatsu Co., Ltd. ................................ 69.23% owned•Kisokougen Kaihatsu Co., Ltd. . .............................................. 40.00% owned•Solomon Kitano Mendana Hotel Limited. ............................. 100.00% owned•Western samoa Kitano Limited. .............................................. 99.00% owned•Asahi Agency Co., Ltd. ............................................................. 52.38% owned•Kitano Arms Corp. .................................................................... 34.95% owned•Hakubai Inc. .............................................................................. 34.95% owned
The above consolidated subsidiaries, except for Solomon Kitano Mendana Hotel Limited, Western
Samoa Kitano Limited, Kitano Arms Corp. and Hakubai Inc., which have fiscal years ending at December
31 of each year, have a fiscal year ending at March 31 of each year, which is the same as the fiscal year of
the Company.
The remaining 1 unconsolidated subsidiary is not consolidated, as it is not significant in terms of
total assets, net sales, net income or retained earnings.
2. Summary of Significant Accounting Policies(a) Principles of Consolidation
All significant intercompany balances, intercompany transactions and unrealized profits among theCompanies have been eliminated in consolidation and the portion thereof attributable to minority
interests is charged to minority interests.
In eliminating investments in shares of consolidated subsidiaries, with the underlying equity in net
assets, any difference between the cost of an investment in a subsidiary and the amount of underlying
equity in net assets of the subsidiary is treated as an asset or a liability, as the case may be, and amortizedover a period of five years on a straight-line basis.
The assets and liabilities of the consolidated subsidiaries are recorded at market value on theirconsolidation. Cost in excess of the net assets of the subsidiaries is amortized over 5 years.
(b) Investment in Unconsolidated Subsidiaries and Affiliates
Investments in unconsolidated subsidiaries and affiliates are stated at cost.
The equity method of accounting for such investments is applied to Sakura Hanoi Plaza Investment
Company Limited, Kawajima Nakayama Kaihatsu Co., Ltd, which are affiliates of the Company, since theapplication of this method has significant effect on the net income and retained earnings of theCompanies.
(c) Revenue Recognition from Construction Contracts
Revenue from and related costs of construction contracts, whose construction periods are more than
two years and contract amounts are more than one billion yen, are recorded under the percentage-ofcompletion method. Revenue from and related costs of construction contracts except the above arerecorded using the complete-contract method.
(d) Inventory Valuation
The cost of construction in progress, real estate for sale and the cost of uncompleted development
projects are valued at cost on an individual project basis. Materials and supplies are mostly valued atcost, which is determined by the moving average method.
(e) Depreciation
Depreciation is computed by the straight-line method for buildings (excluding leasehold
KITANO CONSTRUCTION CORP.

8

improvements and auxiliary facilities attached to buildings) and by the declining-balance method forother assets, at rates based on the estimated useful lives of the assets, as prescribed by Japanese income
tax laws. Depreciation for real estate for leasing is computed by the straight-line method. The range ofuseful lives is principally from 3 to 50 years for buildings and structures and from 2 to 20 years for store
fixtures and equipment.
( f ) Allowance for Doubtful Accounts
The balance of allowance for doubtful accounts represents the amount deemed necessary to coverpossible losses estimated on an individual doubtful account basis. The amount is calculated using acertain percentage based on past experience for other accounts.
(g) Accrued Warranty
Accrued warranty is provided for against the future costs of warranty from completed construction.
(h) Accrued Bonuses to Employees
Accrued bonuses are computed by estimating the payment required in order to provide for thepayment of bonuses to employees.
( i ) Accrued Bonuses to Directors and Statutory Auditors
Accrued bonuses are computed by estimating the payment required in order to provide for thepayment of bonuses to directors and statutory auditors.
( j ) Reserve for Retirement Benefits to Officers
A reserve for retirement benefits for officers is provided in an amount equivalent to 100% of thebenefits payable by the Company as determined by the Company's internal rules, had all the officers
retired at the balance sheet date.
(k) Reserve for Retirement Benefits to Employees
The Company recognize accrued pension and severance costs to employees based on the actual
valuation of projected benefit obligation and plan assets at fair value.
Actuarial gains and losses are amortized based on the straight-line method over a period of 10 years
starting from the beginning of the subsequent year.
( l ) Allowance for losses on construction contracts
The Company prepares reasonable estimated amount for future losses from construction works
outstanding at fiscal year-end.
(m) Leases
Leases that transfer substantially all the risks and rewards of ownership of the assets are accounted
for as capital leases and Leases that do not transfer ownership of the assets at the end of the lease term
are accounted for as operating leases, in accordance with accounting principles and practices generally
accepted in Japan.
(n) Cash and Cash Equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composed of cash in
hand, bank deposits able to be withdrawn on demand and short-term investments with an original
maturity of three months or less and which represent a minor risk of fluctuations in value.
(o) Income Taxes
The income taxes of the Company and its domestic subsidiaries consist of corporate income taxes,
local inhabitants’ taxes and enterprise taxes.
The Company and its subsidiaries adopted the deferred tax accounting method in accordance withthe amended regulations for the preparation of consolidated financial statements. Income taxes were
determined using the asset and liability approach, whereby deferred tax assets and liabilities wererecognized in respect of temporary differences between the tax basis of assets and liabilities and those asreported in the financial statements.
(p) Securities Valuation
Held-to-maturity debt securities are carried at amortized cost.
Available-for-sale securities are classified into two categories where: (a) the fair value is availableand (b) the fair value is not available.
(a) 	Securities whose fair value is available are valued at the quoted market price prevailing at the
fiscal year-end. Net unrealized gains or losses on these securities are reported as a separate
component of net assets at a net-of-tax amount. Cost of sales is determined by the movingaverage method.
(b)	Securities whose fair value is not available are valued at cost, determined by the moving-averagemethod.
(q) Hedge Accounting
Gains or losses arising from changes in the fair value of the derivatives designated as “hedging
instruments” are deferred as an asset or liability and included in net profit or loss in the same period
during which the gains and losses on the hedged items or transactions are recognized.
The derivatives designated as hedging instruments by the Company are principally forward exchange
contracts. The related hedged items are finance for the overseas construction business. The Company isable to fix future cash flows and mitigate the deterioration of income from the construction business due
to yen depreciation. The Company obtains management approval before making forward exchange
contracts, and subsequently the accounting department executes and controls the contract.
(r) Reclassification of Accounts
Certain prior year amounts have been reclassified to conform with the current year’s presentation.
9

KITANO CONSTRUCTION CORP.

3.

Notes to the Consolidated Balance Sheets(1) Investments in unconsolidated subsidiaries and affiliates......
(2) Assets pledged as collateral
Buildings..........................................................................................
Land..................................................................................................

¥

Millions of yen
March 31,
2007
2008
13
¥
353
1,161

7

334
1,161

4. Notes to Consolidated Statements of Operations(1)	Charges to income for warranty which is included in “Cost of Sales-completed construction
contracts” was ¥44 million for the year ended March 31, 2007, and ¥29 million for the year ended
March 31, 2008. Allowance for accrued bonuses included in “Cost of Sales-completed construction
contracts” was ¥193 million for the year ended March 31, 2007, and ¥224 million for the year ended
March 31, 2008. Allowance for loss on construction contract included in “Cost of Sales-completed
construction contracts” was ¥98 million for the year ended March 31, 2007, and ¥660 million for theyear ended March 31, 2008.
(2) Selling, general and administrative expenses included the following:
Millions of yen
for the year ended March 31,
2007
2008
Depreciation....................................................................................
¥
377
¥
440
Payroll..............................................................................................
1,793
1,812
Allowance for accrued bonuses...................................................
164
136(3) Impairment loss on fixed assets
The Company recognized an impairment loss on fixed assets as follows:
Millions of yen
March 31, 2008
Description
Location
Classification
AmountIdle property
Nara
Land
¥
2
The book values of the above asset was reduced to their recoverable amounts and an impairment
loss was recognized.
5.

Notes to the Consolidated Statement of Changes in Net Assets(a) Type and number of outstanding shares
March 31, 2007
Number of shares
Type of shares
Balance atIncrease in shares Decrease in shares
Beginning of year
during the year
during the year
Issued stock
Common stock
78,368,532
—
—
Total
78,368,532——
Treasury stock
Common stockTotal

6,726,531
6,726,531

88,282
88,282

10,580
10,580

Balance at
end of year
78,368,532
78,368,532
6,804,233
6,804,233

Treasury stock increased by 47,409 shares due to the repurchase of shares less than one unit anddecreased by 10,580 shares due to the sale of shares less than one unit.
Treasury stock increased by 40,873 shares due to the increase in the ratio of possession ofsubsidiaries.
March 31, 2008
Number of shares
Type of shares
Balance atIncrease in shares Decrease in shares
Balance at
Beginning of year
during the year
during the year
end of year
Issued stock
Common stock
78,368,532——
78,368,532
Total
78,368,532——
78,368,532
Treasury stock
Common stockTotal

6,804,233
6,804,233

57,57457,574

17,525
17,525

6,844,282
6,844,282

Treasury stock increased by 57,574 shares due to the repurchase of shares less than one unit anddecreased by 10,863 shares due to the sale of shares less than one unit.
Treasury stock decreased by 6,662 shares due to the decrease in the ratio of possession ofsubsidiaries.
KITANO CONSTRUCTION CORP. 10

(b) Dividends		 (1) Dividends paid to shareholders
AmountResolution
Approved
Type of (Thousands
Date ofof Yen)Paid frombysharesapproval		June 29,
2006

AnnualCommongeneralstock
meeting ofshareholders

647,167

Retainedearnings

9

March 31,2006

June 29,
2006

June 28,
2007

AnnualCommongeneralstock
meeting ofshareholders

431,224

Retainedearnings

6

March 31,2007

June 29,2007(2)	Dividends with a shareholders’ cut-off date during the current fiscal year but an effective date
subsequent to the current fiscal year
AmountAmountResolution
Per share Shareholder’s Effective
Approved
Type of (Thousands
Date of(Yen)
of Yen)Paid frombysharesapproval
cut-off datedate
June 27,2008

6.

AmountPer share Shareholder’s Effective(Yen)
cut-off date
date

AnnualCommongeneralstock
meeting ofshareholders

574,591

Retainedearnings

8Notes to the Consolidated Statements of Cash Flows

Cash in hand and in banks.............................................................
Time deposits with a deposit term of over 3 months.................
Cash and cash equivalents.............................................................

¥¥

March 31,2008

June 30,
2008

Millions of yen
March 31,
2007
2008
3,291
¥
5,634
(232)
(253)
3,059
¥
5,381

7.

Lease Transactions
Information on finance lease transactions, other than those in which the ownership of the leased
equipment was recognized as transferred to lessees, is as follows:
Millions of yen
March 31,
2007
2008
Machinery, equipment and otherAcquisition cost........................................................................
¥
165
¥
160
(92)
(95)
Accumulated depreciation......................................................
¥
73
¥
65
Net book value.........................................................................
The future lease rental payment on such lease contracts
Due within one year................................................................
Due over one year....................................................................
Total...........................................................................................
Lease rental expenses for the year...............................................
Including an amount equivalent to depreciation........................

11 KITANO CONSTRUCTION CORP.

¥
¥
¥
¥

31
42
73
41
41

¥
¥
¥
¥

35
30
65
34
34

8.

Investments in Securities(a)	As of March 31, 2008, “Other securities” are valued at fair value, with unrealized gains and losses,
net of applicable taxes, reported in a separate component of shareholders’ equity.
(b)	The following tables summarize the book value and fair value of held-to-maturity debt securities
as of March 31, 2007 and 2008:
Millions of yen

Book value

March 31, 2007
Fair value

Difference

Securities with fair value
exceeding book value:
Debt securities....................................................
Sub-total...........................................................

¥
¥

—
—

¥
¥

—
—

¥
¥

—
—

Securities with fair value
not exceeding book value:
Debt securities....................................................
Sub-total...........................................................
Total..........................................................................

¥
¥
¥

5
5
5

¥
¥
¥

5
5
5

¥
¥
¥

(0)
(0)
(0)

Millions of yen
Book value

March 31, 2008
Fair value

Difference

Securities with fair value
exceeding book value:
Debt securities....................................................
Sub-total...........................................................

¥
¥

—
—

¥
¥

—
—

¥
¥

—
—

Securities with fair value
not exceeding book value:
Debt securities....................................................
Sub-total...........................................................
Total..........................................................................

¥
¥
¥

5
5
5

¥
¥
¥

5
5
5

¥
¥
¥

(0)
(0)
(0)

(c)	T he following tables summarize the acquisition cost and book value of available-for-salesecurities as of March 31, 2007 and 2008:
Millions of yen

March 31, 2007
Acquisition cost
Book value

Difference

Securities with book value exceedingacquisition cost:
Equity securities.................................................
Sub-total...........................................................

¥
¥

2,110
2,110

¥
¥

5,785
5,785

¥
¥

3,675
3,675

Securities with book value notexceeding acquisition cost:
Equity securities.................................................
Sub-total...........................................................
Total..........................................................................

¥
¥
¥

1
1
2,111

¥
¥
¥

1
1
5,786

¥
¥
¥

(0)
(0)
3,675

Millions of yen

March 31, 2008
Acquisition cost
Book value

Difference

Securities with book value exceedingacquisition cost:
Equity securities.................................................
Sub-total...........................................................

¥
¥

1,805
1,805

¥
¥

3,714
3,714

¥
¥

1,909
1,909

Securities with book value notexceeding acquisition cost:
Equity securities.................................................
Sub-total...........................................................
Total..........................................................................

¥
¥
¥

358
358
2,163

¥
¥
¥

288
288
4,002

¥
¥
¥

(70)
(70)
1,839

KITANO CONSTRUCTION CORP. 12

(d) Available-for-sale securities sold during the year ended March 31, 2007 and 2008, are as follows:
Millions of yen

2007

Proceeds from sale of securities.............................................
Gross realized gain on sale of available-for-sale securities........
Gross realized loss on sale of available-for-sale securities........

¥

2008
¥

223

¥
¥

1

498

¥
¥

—

5
20

(e)	The following tables summarize the book value of securities with no available fair value as ofMarch 31, 2007 and 2008:
March 31,

2007

Available-for-sale securities
Unlisted equity securities(excluding over-the-counter securities)............................

¥

2008
¥

1,129

1,119

(f) Schedule for redemption of held-to-maturity debt securities with maturities:
Millions of yen
March 31, 2007
Over one year Over five years
Withinwithin five
but within ten
one year
years
years
Over ten years
Held-to-maturity
debt securities...........................
Total..............................................

¥
¥

—
—

¥
¥

5
5

¥
¥

—
—

¥
¥

—
—

Millions of yen
March 31, 2008

Over one year Over five years
within five
but within ten
years
years
Over ten years

Withinone year
Held-to-maturity
debt securities............................. ¥
Total................................................ ¥
9.

—
—

¥
¥

5
5

¥
¥

—
—

¥
¥

—
—

Reserve for Retirement Benefits to Employees(a)	Employees of the Company and its domestic subsidiaries are covered by a qualified pension plan
and a severance payment plan. Some foreign subsidiaries have a defined contribution pensionplan.
(b)	The reserve for retirement benefits as of March 31, 2007 and 2008 is analyzed as follows:
Millions of yen
March 31,
2007
2008
Projected benefit obligations..................................................
¥(5,154)¥
(5,084)
Plan assets.................................................................................
5,185
4,573
Unfunded benefit obligations..................................................
31(511)
Unamortized transition obligation.........................................
(618)
(37)
Unrecognized actuarial differences.......................................
——
		 Total......................................................................................
(587)
(548)
Prepaid pension costs....................................................................
——
Reserve for retirement benefits to employees............................
¥
(587)
¥
(548)
(c)	The net periodic expenses related to retirement benefits for the fiscal year 2007 and 2008 are as
follows:
Millions of yen
March 31,2007
2008
Service costs.............................................................................
¥
190
¥
191
Interest costs.............................................................................
126
126
Expected return on plan assets..............................................
(100)
(103)
Amortization of transition obligation....................................
——
Recognition of actuarial differences......................................
(13)
(36)
¥
203
¥
178

13 KITANO CONSTRUCTION CORP.

(d)	Assumptions used in calculation of the above information were as follows:
As of March 31,
2007
2008
Discount rate.............................................................................
2.5%
2.5%
Expected rate of return on plan assets..................................
2.0%
2.0%
Method of attributing the projected benefits........................
Straight-line
Straight-line
To period of services................................................................
basis
basis
Amortization of actuarial differences....................................
10 years
10 years
10. Income Taxes(a)	The tax effects of temporary differences that give rise to significant portions of the deferred tax
assets are presented below:
Millions of yen
March 31,2007
2008
Deferred tax assets:........................................................................
Write-down of fixed assets.........................................................
¥
1,714
¥
1,689
Allowance for doubtful accounts..............................................
1,008
944
Reserve for retirement benefits to officers...............................
383
398
Accrued enterprise taxes............................................................
0—
Write-down of marketable securities........................................
313
314
Intercompany profits...................................................................
446
407
Operating loss carryforwards.....................................................
803
523
Unrealized loss on hedging derivatives ...................................
—
11
1,038
1,284
Other..............................................................................................
		 Total gross deferred tax assets ..........................................
5,705
5,570
(3,422)(3,310)		 Valuation allowance..............................................................
2,283
2,260
Deferred tax liabilities:
Reserve for advanced depreciation...........................................
(72)
(72)
Unrealized gain on other securities...........................................
(1,485)(742)(4)—
Unrealized gain on hedging derivatives....................................
		 Total gross deferred tax assets liabilities...........................
(1,561)(814)
		Net deferred tax assets........................................................

¥

722

¥

1,446

(b)	As a loss before income taxes was recorded, no reconciliation of the statutory tax rate and theeffective tax rate for the year ended March 31, 2007 was required
The reconciliation between the statutory tax rate and the effective tax rate as at March 31, 2008 ispresented below:
Statutory tax rate...........................................................................
		 Permanent differences on expenses not deductible..............
		 Permanent differences on income not taxable.......................
		 Accrued bonuses to directors and statutory auditors not deductible...
		 Inhabitant taxes per capita........................................................
		 Valuation allowance...................................................................
		 Other.............................................................................................
		 Effective tax rate........................................................................

40.4%
5.0
(1.4)
2.6
2.6
(31.1)(8.6)
9.5%

KITANO CONSTRUCTION CORP. 14

11. Segment Information
Industry Segment Information
The Company and its subsidiaries operate principally in the following three industrial segments:
Construction.............................................................................. Construction and engineering works
Development............................................................................. Development and sale of real estate
Golf............................................................................................. Management of golf courses
Hotel........................................................................................... Management of hotels
Advertising Agency................................................................... Advertising agent
The segment information of the Company and its subsidiaries for the year ended March 31, 2007 and2008 is presented below:
Millions of yen
2007
2008
Net sales:
Construction....................................................................................
¥62,371¥
58,406Development....................................................................................
1,369
7,137
Golf....................................................................................................
648
640
Hotel..................................................................................................
2,750
2,998
1,786
1,681
Advertising agency..........................................................................
68,92470,862(179)(423)
Less: intersegment transaction......................................................
68,74570,439Operating expenses:
Construction....................................................................................
Development....................................................................................
Golf....................................................................................................
Hotel..................................................................................................
Advertising agency..........................................................................

61,514
1,221
732
2,483
1,748
67,698(33)
67,665

Less: intersegment transaction......................................................
Operating income...................................................................................
Assets:Construction....................................................................................
Development....................................................................................
Golf....................................................................................................
Hotel..................................................................................................
Advertising agency..........................................................................
Other assets.....................................................................................
Depreciation:
Construction....................................................................................
Development....................................................................................
Golf....................................................................................................
Hotel..................................................................................................
Advertising agency..........................................................................
Impairment loss on fixed assets:
Construction....................................................................................
Development....................................................................................
Golf....................................................................................................
Hotel..................................................................................................
Advertising agency..........................................................................
Capital expenditure:
Construction....................................................................................
Development....................................................................................
Golf....................................................................................................
Hotel..................................................................................................
Advertising agency..........................................................................

15 KITANO CONSTRUCTION CORP.

58,301
6,012
667
2,669
1,673
69,322(346)
68,976

¥

1,080

¥

1,463

¥

37,518
9,582
7,456
6,183
1,078
61,817
7,557
69,374¥

31,967
7,798
7,011
6,026
1,052
53,8549,130
62,984

140
45
44
217
8
454

¥

—
—
—
—
—
—

¥

51
2
22
242
—
317

¥

¥
¥

¥
¥

¥
¥

¥

¥

¥

¥

¥

153
45
47
261
7
513
2
—
—
—
—
2
214
4
32
401
3
654

12. Per Share Data
Net assets per share and net income per share as of and for the year ended March 31, 2007 and 2008
are as follows:
Yen
2007
2008
Net assets per share........................................................................
¥
317.01¥
307.15
Net income per share – primary....................................................
12.08
12.61

Net income.......................................................................................
Net income pertaining to common stock.....................................
Average outstanding shares of common stock............................

Millions of yen
2007
2008
¥
865
¥
902
¥
865
¥
902
71,603 thousand
71,536 thousand
sharessharesKITANO CONSTRUCTION CORP. 16

BOARD OF DIRECTORS, STATUTORY AUDITORSAND EXECUTIVE OFFICERS AS OF MARCH 31, 2008
Board of Directors
Representative Chairman and President
		 Takahiro Kitano
Directors

Executive Officers
Chief Executive Officer and President
		 Takahiro Kitano *Senior Executive Officers

		 Kimio Shiozawa

		 Kimio Shiozawa *		 Shinsuke Nishida

		 Tetsuji Hashimoto

		 Yoshitada Mikami
		 Tadao Miyashita
		 Tsuguto Kitano

Managing Executive Officer
		 Shinsuke Nishida *		 Tateo Murai

Statutory Auditors
		 Akira Koike

Executive Officer

		 Tadaaki Takamisawa

		 Yoshitada Mikami *		 Toshiyuki Tsukada

		 Toshiro Maki

		 Yoshichika Owa

		 Itsuo Takeuchi
		 Nagayoshi Matsumoto
		 Yoshikatsu Yamazaki
		 Kazuyasu Hirata
		 Noriaki Yaguchi
		 Norimitsu Akanuma
		 Kiyonori Nakashima
		 Toshiaki Yamagishi
		 * : Member of Board of Directors

17 KITANO CONSTRUCTION CORP.

524, Agata-machi, Nagano City 380-8524, Japan
Phone(026)233-5111