Chiyoda Corporation
Annual Report 2008

Plain-text annual report

 TABLE OF CONTENTS Page No. 1 2 3 5 7 Contents Profile Financial Highlights To Our Shareholders and Investors Medium-term Management Plan Management’s Discussion and Analysis of Financial Condition and Results of 10 11 13 15 16 18 20 22 24 44 46 47 48 Operations Principal Shareholders Board of Directors, Corporate Auditors and Executive Officers Organization Chart Independent Auditors’ Report Consolidated Balance Sheets Consolidated Statements of Income Consolidated Statements of Changes in Equity Consolidated Statements of Cash Flows Notes to Consolidated Financial Statements Global Network Corporate History Investor Information Stock Information Forward-Looking Statements: This annual report contains forward-looking statements about Chiyoda Corporation’s outlooks, plans, forecasts, results and other items that may take place in the future. Such statements are based on data available as of June 24, 2008. Unknown risks and other uncertainties that happen in the future may cause our actual results to be different from the forward-looking statements contained in this report. The risks and uncertainties include business and economic conditions, competitive pressure, changes in laws and regulations, addition or elimination of products, and exchange rate fluctuation, among others.  PROFILE Since its establishment in 1948, Chiyoda Corporation has engaged in engineering and construction work and services at numerous industrial plants both in Japan and overseas in the fields of oil, natural gas and other energy sources; petrochemicals and chemicals; pharmaceuticals; and general industrial machinery. Thirty-six years ago in 1972, Chiyoda’s founder was already emphasizing that sustainable social development should progress by harmonizing nature and industrial development in a booklet entitled “Legacy for the Twenty-first Century.” We are one of the first companies to state our intention to contribute to sustainable social development through our engineering and technology by providing appropriate solutions to the various energy and environmental issues we currently face, and have been putting those words into action ever since. This booklet is available on our website. With 60 years of technological experience, Chiyoda is working to build on its position as the “Reliability No. 1” project company with a high level of customer and investor trust, not only in terms of technology but also in terms of our people and management. At the same time, we will continue to improve our financial strength and raise our corporate value. Corporate Philosophy Enhance our business and contribute to the development of a sustainable society as an integrated engineering company through the use of our collective wisdom and painstakingly developed technology. The Chiyoda Group’s Strengths Superior technologies, including project execution capabilities, and the people that support them 1. Technological Superiority Chiyoda’s core elemental technologies encompass environmentally responsible technologies, catalysts and energy-saving technologies, while execution technologies focus on managing the costs and schedules of projects in progress and ensuring reliable quality. Our execution technologies are supported by the most advanced information technology, which currently applies to our project execution at every stage from design and procurement to construction of ultra-large-scale liquefied natural gas (LNG)* plants and other facilities. This technology is embodied in our integrated project engineering software, “i-Plant 21,” which Chiyoda developed and continues to enhance. * LNG is manufactured by liquefying natural gas. Demand for this clean energy is increasing. 2. Chiyoda Group Human Resources Chiyoda is working to create an environment in which our people can make their dreams a reality through our engineering. We cultivate professionals through on-the-job training and career development programs according to individual competencies. This supports our ability to successfully execute projects. - 1 -  FINANCIAL HIGHLIGHTS (As of and for the years ended March 31, 2007 and 2008) 1. Consolidated Performance (1) Consolidated financial results: Revenue Gross profit Operating income Income before income taxes and minority interests Net income Net income, basic per share (yen, U.S. dollars) Net income, diluted per share (yen, U.S. dollars) Return on equity (ROE) Return on assets (ROA) Operating income to revenues (2) Consolidated financial position: Total assets Total equity Shareholders' equity ratio Net assets per share (yen, U.S. dollars) (3) Consolidated cash flows: Operating activities Investing activities Financing activities Cash and cash equivalents, end of year 2. Dividends 2008 2007 (millions of yen) 2008 / 2007 (percentage change) 2008 (thousands of U.S. dollars) ¥603,560 20,525 8,840 18,992 9,641 ¥50.15 50.12 12.2% 4.7% 1.5% ¥378,820 81,638 21.4% ¥422.44 ¥14,274 (3,917) (17,220) 70,089 ¥484,895 39,736 28,700 37,935 23,532 ¥122.41 122.28 35.5% 10.2% 5.9% ¥442,953 77,415 17.4% ¥400.56 ¥35,532 (3,458) (2,191) 77,052 24.5% -48.3% -69.2% -49.9% -59.0% -59.0% -59.0% $6,035,600 205,250 88,400 189,920 96,410 $0.50 0.50 -14.5% 5.5% $3,788,200 816,380 5.5% $4.22 $142,740 (39,170) (172,200) 700,890 Dividends per Share Year-end Annual (yen) ¥15.00 10.00 11.00 ¥15.00 10.00 11.00 Payment of Cash Dividends (Annual) (millions of yen) ¥2,884 1,923 - Payout Ratio (Consolidated) (%) Dividend on Equity Ratio (Consolidated) (%) 12.3% 19.9% 30.0% 4.4% 2.4% - 2007 2008 2009 (Forecast) 3. Consolidated Results Forecast for Year Ending March 31, 2009 Revenue Operating income Net income Net income, basic per share (yen) 2009 Interim Full Year (millions of yen) ¥230,000 5,000 4,000 ¥16.08 ¥460,000 12,500 9,500 ¥37.40 Notes: 1. U.S. dollar amounts are converted, for convenience only, at the rate of ¥100 = U.S.$1, the approximate exchange rate in March 31, 2008. 2. Yen amounts are rounded to the nearest million. U.S. dollar amounts and percentages are rounded to the nearest unit. 3. Return on equity (ROE) = Net income / Average shareholders' equity 4. Return on assets (ROA) = Ordinary income / Average total assets 5. Forecasts stated above disclosed on May 14, 2008 in the Consolidated Financial Results. - 2 -  TO OUR SHAREHOLDERS AND INVESTORS Joined Chiyoda Corporation Project General Manager, Second Overseas Project Division Career Summary 1969: 1995: 1998: Director, General Manager, Asia & Australia Project Division 2001: Managing Director, International Project Operation 2004: Director, Deputy General Manager, Domestic Project Operation 2005: Managing Director, Technology & Engineering 2007: President & CEO Takashi Kubota President & CEO Reliability No. 1: Your Partner for Success Aiming for Growth in Corporate Earnings May this announcement find all of our shareholders in good health and prosperity. I would like to express my sincere gratitude for your exceptional support. Chiyoda Corporation celebrated the 60th anniversary since its establishment as a corporation on January 17, 2008. Looking back over our history since being founded, I truly feel that we have carried the torch of the ideals of “Human Resources,” “Technology and Reliability,” and “Contributing to International Society” that were adopted at the time of our inception. I would now like to report on our corporate status for fiscal year 2007 (ended March 31, 2008) and our management policy for fiscal year 2008 (ending March 31, 2009). - Fiscal Year 2007 Performance: Increased Revenue and Decreased Earnings Demand for capital investments both domestic and overseas is as active as ever due to the increase in demand for energy at a global level. Although we have carried out thorough risk management and put all our energy into conclusively following through with existing orders, construction costs have increased due to special circumstances, including a shortage of skilled construction workers caused by an unparalleled construction boom in Qatar. Regretfully, as a result, earnings have declined due to an unavoidable decrease in operating income. Train 4 of the Qatargas liquefied natural gas (LNG) plant, which is claimed to be one of the biggest LNG trains in the world, will soon be completed as the first among the 6 trains under construction. - Our Slogan for Fiscal Year 2008: “New Horizons, Infinite Experience” ―Inheriting the Accomplishments of Our Forefathers Clears Our Path to the Future― In fiscal year 2008, we will adopt even more comprehensive measures in consideration of cost management and safety, while continuing to work hard at restoring earnings by effectively following through with existing orders both domestic and overseas. As we plan on passing our legacy on to the next generation by strengthening the foundation of our engineering business, we will continue with three important goals implemented as of fiscal year 2007: 1) Proof of Reliability No.1 through effective follow through, 2) Establishment of safety oriented operation as a part of corporate culture, and 3) Execution of business strategies for the next term. - 3 - - Capital/Business Alliance with Mitsubishi Corporation On March 31, 2008, we concluded capital contribution and business alliance agreements with Mitsubishi Corporation. Through these agreements, we plan to achieve synergy with Mitsubishi Corporation, which shares our direction in terms of expansion of business in the field of plant engineering. Furthermore, in order to finance our goal of an increased business scale along with the increase in our business region, and to strengthen our relationship with Mitsubishi Corporation, we have issued stock through third-party allocation, with a payment of approximately ¥60.8 billion already completed. - New Medium-Term Management Vision With the recent conclusion of our capital/business alliance with Mitsubishi Corporation, we expect to secure new earnings streams within five years in addition to LNG and gas processing plants, which represent our main earnings streams at present. Aiming at becoming a comprehensive engineering firm with diverse business content in various regions and business fields, we will draw up a new medium-term management plan to be implemented from fiscal year 2009 (ending March 31, 2010) after the current medium-term management plan, Double Step-Up Plan 2008 (DSP 2008), comes to an end on March 31, 2009. - Strengthening Integrated Group Operations All employees in our group engage in business activities based on the Corporate Philosophy i.e. “Enhance our business and contribute to the development of a sustainable society as an integrated engineering company through the use of our collective wisdom and painstakingly developed technology.” We have come up with a Chiyoda Group logo to celebrate our 60th anniversary, endeavoring to unite all group companies being trusted by all stakeholders, including shareholders, customers, business partners, employees, and regional companies. Having reconfirmed the corporate management principle as a group, we continue to promote integrated group operations. - To Our Shareholders Although we have worked hard to strengthen our financial position by promoting the medium-term management plan, DSP 2008, settlements have fallen far below our plans at the start of fiscal year 2007, resulting in a distribution for this period of ¥10 per share. Aiming at a dividend payout of 30%, plans call for a distribution of ¥11 per share for fiscal year 2008. Since we are dedicated to working harder than ever to increase corporate value, I would humbly ask our shareholders for their continued cooperation and support. July 2008 Takashi Kubota President & CEO - 4 -  MEDIUM-TERM MANAGEMENT PLAN Medium-Term Management Plan, Double Step-Up Plan 2008 (DSP 2008) Current Status and New Medium-Term Management Vision - Aiming to be the “Reliability No. 1” Project Company and a Company par excellence Able to Sustain Earnings Growth - Aiming for the double step-up of “Reliability No. 1 Project Company” and “a Company par excellence Able to Sustain Earnings Growth,” the Chiyoda Group implemented the medium-term management plan “Double Step-Up Plan 2008 (DSP 2008)” with initiatives commencing in fiscal year 2005 which are to be completed at the end of fiscal year 2008. In fiscal year 2007, the third year of the DSP, the aim was for early achievement of various measures which resulted generally in accelerated progress of the medium-term plan. In fiscal year 2008, the final year of the DSP, the aim is to continue the reliable execution of ongoing projects and, in addition, advancing business plans by means of a further upgrade of the Reliability Program and a further upgrade of risk management skills. 1. Current Status of Management Objectives (Financial Objectives): Increased Shareholders’ Equity and Equity Ratio Shareholders’ equity has steadily increased over the last several years and at the end of March 2008 had grown to ¥81.2 billion, a ¥4.2 billion increase compared to the previous year. Further, the equity ratio had grown to 21.4%, a 4% increase compared to the previous year. It is forecast that both shareholders’ equity and the equity ratio will have increased come the end of March 2009 as a result of progress on ongoing projects. 2. Current Status of Management Plan: Decreased Profit on Increased Revenue In consideration of the large backlog of ongoing projects, discrimination was exercised and new contracts were controlled to the amount of ¥258.7 billion to give a total value of backlog of contracts of ¥670.0 billion at the end of March 2008. With the steady progress of overseas and domestic projects, optimization of indirect costs and execution of DSP 2008 measures, the revenue exceeded the DSP 2008 planned figure to reach ¥603.5 billion, a ¥118.6 billion increase compared to the previous year. However, construction costs have increased due to unique circumstances caused by a rising demand for skilled construction workers as a result of the construction rush in Qatar. While this is extremely regrettable, operating income was ¥8.8 billion, a reduction of ¥19.8 billion compared to the previous year and net income was also down by ¥13.8 billion for the period to reach ¥9.6 billion. 3. Financial Outlook for Fiscal Year 2008 In a firming market environment accompanying medium to long term growth in energy demand, new contracts in fiscal year 2008 is forecasted to reach ¥450.0 billion, an increase of 74% compared to the previous year. Operating income reached ¥12.5 billion, an increase of 41% compared to the previous year, due to more thorough cost management. Further, net income for this period is forecast to reach ¥9.5 billion, a decrease of 1% compared to the previous year. This is a result of reduced interest income which is due to a decline in the jointly controlled asset of joint venture in parallel of progress on overseas projects. - 5 - 4. New Medium-Term Management Vision Since fiscal year 2005, the aim has been growth by means of the DSP 2008, but in order to achieve continuous growth into the future, a stronger financial structure and stable management base have become essential. Accordingly, along with conclusion of our capital/business alliance with Mitsubishi Corporation, a growth strategy will be implemented with the new medium-term management vision: 1) Become a world-class comprehensive engineering company providing an end-to-end range of upstream and downstream facilities in the fields of energy, resources and the environment. 2) Strengthen the Chiyoda Group’s brand image as the “Reliability No. 1” Comprehensive Engineering Company that delivers outstanding technical capability with an established safety oriented operation. The objective is to accomplish business in a diversity of regions and industries, aiming for target figures in the scope of ¥700-¥800 billion for consolidated annual revenue after 5 years and an ordinary income ratio of 7%. 5. Distribution of Profits While planning to enrich capital stock by preparing to create business for the next generation by way of technology investment and the development of our business foundation, a management target has been hoisted to distribute profits amongst all shareholders, with the aim of payout ratio of 30%. - 6 -  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 1. Operations Outlook Looking at the market environment surrounding the Chiyoda Group in the current consolidated fiscal year, the overseas plant market saw planning for plant construction in response to global level growth in energy demand and in Japan there was also vigorous capital investment by oil and petrochemical companies. However, the environment for executing construction work in Qatar is still difficult due the shortage of skilled construction workers caused by the continuing plant construction rush. Under this kind of environment, the Chiyoda Group has strived with all its energy to continue more thorough risk management, starting with countermeasures for increasing costs, to ensure reliable execution of work for ongoing projects with an emphasis on ultra-large-scale LNG plant projects in Qatar. However, with the projects in Qatar, it was not possible to avoid a deterioration of earnings. This situation was caused by increased construction costs that accompanied the rise in labor costs and falling productivity due to a shortage of skilled construction workers, the scale of which exceeded initial forecasts. The cause of the decline in earnings is a phenomenon unique to Qatar, where the scope for limiting the contractor risk management has been far and away eclipsed by the shortage of skilled workers and the steep price rise in raw materials. Other construction work overseas and in Japan, including the performance of group companies, is proceeding according to plan. Overseas, progress is generally favorable at Russia’s first LNG plant Sakhalin II LNG Project, including completion of Train 1. Further, domestically as well, the Chiyoda Group secured many orders, mainly in the oil and energy sectors, and managed to accumulate a high level of revenues with the steady execution of contracted projects. The result of orders for RFCC (residue fluid catalytic cracking) unit for Taiyo Oil Co., Ltd. and expansion of a thermal cracking unit for Fuji Oil Co., Ltd. saw new contracts in the current consolidated fiscal year reach ¥258,755 million (a 53.6% decrease compared to the previous consolidated fiscal year). Consolidated revenues reached ¥603,560 million (a 24.5% increase on the previous year) due to the progress of major construction work on hand, which exceeded the forecast. On the profit aspect, despite the increased revenues, the gross margin declined due to increased construction costs on Qatari projects. Income before income taxes and minority interests was ¥18,992 million (a 49.9% decrease on the previous year) and net income for the current period reached ¥9,641 million (a 59.0% decrease on the previous year). Major Completed Construction (*) Completed portion - Aromatics complex for Kashima Aromatics Co., Ltd - Hikone Plant, No. 4 unit for Maruho Co., Ltd. (Chiyoda TechnoAce Co., Ltd.) - MXDA facility for Mitsubishi Gas Chemical Company, Inc. - CCR unit for Seibu Oil Co., Ltd. (*) - Utsunomiya No. 2 Plant for Hisamitsu Pharmaceutical Co., Inc. - 2007 shut-down maintenance (SDM) of Hokkaido refinery for Idemitsu Kosan Co., Ltd. (Chiyoda Kosho Co., Ltd.) - Expansion of No. 7 naphtha hydrosulfurization plant for Fuji Oil Co., Ltd. - LNG plant Trains 6 & 7 for Ras Laffan Liquefied Natural Gas Co., Ltd. (3) in Qatar (*) - LNG plant Trains 6 & 7 for Qatar Liquefied Gas Company Limited (3) & (4) in Qatar (*) - LNG plant Trains 4 & 5 for Qatar Liquefied Gas Company Limited (2) in Qatar (*) - LNG plant Trains 1 & 2 for Sakhalin Energy Investment Co., Ltd. in Russia (*) Domestic Overseas - 7 - 2. Status of Orders Received and Completion (1) Field of Natural Gas and Electric Power Internationally, with the growth in global demand for natural gas, investment planning is being carried out in various locations for investment in the gas value chain. Gas producing nations and all major energy companies are developing gas fields, constructing LNG plants, arranging LNG carriers and constructing LNG receiving terminals. In such a situation, in order to acquire large scale contracts the Chiyoda Group continues to devote its energy in focusing on receiving orders for technical studies and basic design, along with reliably executing ongoing projects with an emphasis on Qatar. In the domestic electric power and gas industry, there have been ambitious attempts to invest in new projects in order to cope with the shift in primary fuel to LNG and the trend to diversify outside the core business within the energy industry, such as the gas marketing business of oil and electric power companies, which accompanied the sudden jump in crude oil prices. Firm orders have been achieved including new and/or expansion planning for large-scale LNG-receiving terminals. (2) Field of Petroleum, Petrochemicals and Gas Chemicals In the field of petroleum and petrochemicals, starting with the completion of aromatic manufacturing facilities for Kashima Aromatics Co., Ltd, execution of construction work on hand is progressing smoothly. On the orders received front, there is also a firm trend with an emphasis on facilities for heavy oil upgrading. Further, a satisfactory acceptance of orders has been achieved, including group companies, due to continued high level initiatives including investment to support production facilities conforming to structural changes in the demand for petroleum products, environmental support and facility surveys and the optimization of maintenance. (3) Field of General Chemicals and Industrial Machinery In the field of general chemicals and industrial machinery, Chiyoda received an order for an acrylic sheet plant for Thai MMA Co., Ltd. This is the result of focusing on domestic and Asian expansion and is based on the continuing customer trend for intensive investment in strategic product fields such as high value added functional chemicals and electronic materials. Further, in the pharmaceuticals field, there is a heightened desire for capital investment, starting with new and/or expansion of plants and laboratories, in order to cope with changes in the industrial environment in recent years. (4) Environment and Other Fields In the environmental field, accompanying the trend of strengthening environmental regulations, it has been possible to acquire new contracts by continuing domestic and overseas business activities for the in-house developed Chiyoda Thoroughbred-121 (CT-121) flue gas desulfurization technology, as well as expanding business activities in other fields. 3. Business Risks and Other Risks Primary issues that could affect investor decisions regarding investment risk, such as material issues related to the Chiyoda Group’s financial position, performance and cash flow and the Chiyoda Group’s response to such issues, include but are not limited to the issues outlined below. The Chiyoda Group recognizes the potential occurrence of these risks and works to avoid them to the maximum extent possible. The Chiyoda Group also moves to respond as quickly as possible to minimize the impact of issues that present risks when they occur. As of June 24, 2008, Chiyoda Group management acknowledges the issues that may present risks in the future outlined below and has made them the focus of risk management. - 8 - (1) Changes in Exchange Rates In overseas construction projects, construction payments are often in different currencies than payments for vendors and/or subcontractors. Foreign currency exchange rates may therefore affect the financial results of the projects. The Chiyoda Group works to avoid and minimize such foreign currency fluctuation risks by using forward foreign exchange contracts and matching planned outlays in multiple currencies with construction payments and receivables. (2) Rising Equipment and Resource Prices and Material Shortages Plant construction entails a time lag between estimates and bids and orders for equipment, resources, materials and subcontracted construction. Consequently, actual prices for equipment and materials may exceed those projected in estimates and bids. Moreover, restricted supplies of metals such as copper, nickel, aluminum and zinc may cause problems including delays in the delivery and mobilization of equipment and materials. Resulting delays in the progress of construction projects could affect the Chiyoda Group’s results. The Chiyoda Group works to avoid and minimize these risks to the best of its ability by diversifying procurement in ways such as using multiple suppliers in various regions worldwide, considering bundled purchases, ordering equipment and materials at an early stage, and structuring cooperative relationships with suppliers. (3) Shortages of Construction Workers and Increased Subcontractor Expenses Plant construction entails a time lag between estimates and bids and orders for subcontracting. Large-scale construction projects can magnify the impact of such time lag, which may result in labor costs that exceed those projected in estimates and bids. In particular, lack of qualified, skilled workers may require countermeasures that increase costs. The Chiyoda Group works to minimize the impact of these issues by structuring cooperative relationships with qualified construction companies, deploying personnel skilled in various professions from various regions around the world, and improving the skills of construction workers at each job site. (4) Terrorism, Conflicts in Neighboring Countries, Strikes, Anarchy and Natural Disasters Terrorism or conflicts anywhere in the world may cause direct losses, delays in procuring or delivering materials and equipment, threats to the safety of workers on site, cessation of construction work, and other problems at construction sites in Japan and overseas. Such incidents could result in losses and expenses that the Chiyoda Group could not pass on to clients, which could affect the Chiyoda Group’s performance. The Chiyoda Group has structured a threat management system that includes cooperation with clients and other related parties to support rapid initial response should such issues occur. (5) Plant Accidents Serious accidents including explosions or fire may occur due to various causes at plants that the Chiyoda Group is constructing or has completed. The Chiyoda Group could be judged responsible for such accidents, which could impact the Chiyoda Group’s performance. The Chiyoda Group works to avoid or minimize this risk in ways such as taking all possible measures to preclude the occurrence of accidents, including quality control and safety management. Other countermeasures include maintaining appropriate insurance coverage and negotiating contracts that rationally allocate client responsibility for damages. - 9 -  PRINCIPAL SHAREHOLDERS (As of March 31, 2008) Full Name or Title Number of Shares Owned (thousands of shares) Mitsubishi Corporation State Street Bank and Trust Company (Standing Proxy: Mizuho Corporate Bank, Ltd.) JP Morgan Chase Bank 380055 (Standing Proxy: Mizuho Corporate Bank, Ltd.) The Bank of Tokyo-Mitsubishi UFJ, Ltd. Mitsubishi UFJ Trust and Banking Corporation (Standing Proxy: The Master Trust Bank of Japan, Ltd.) The Master Trust Bank of Japan, Ltd. (Trust Account) Japan Trustee Services Bank, Ltd. (Trust Account) The Bank of New York, Treaty JASDEC Account (Standing Proxy: The Bank of Tokyo-Mitsubishi UFJ, Ltd.) Deutsche Securities Inc. BNP PARIBAS Securities (Japan) Limited. Total * Increased to 86,931 thousand (33.4%) on April 30, 2008. 19,851* 12,107 10,408 9,033 8,034 7,415 6,368 5,386 4,393 3,902 86,899 Ratio of Number of Shares Owned to Aggregate Number of Shares Issued (%) 10.27* 6.26 5.38 4.67 4.15 3.83 3.29 2.78 2.27 2.01 44.98 - 10 -  BOARD OF DIRECTORS, CORPORATE AUDITORS AND EXECUTIVE OFFICIERS (As of July 1, 2008) Board of Directors Chairman of the Board Nobuo Seki President & CEO Takashi Kubota* Executive Vice President Corporate Strategy & Planning Yoichi Kanno* Executive Vice President Corporate Management & Finance and CFO Hiroshi Shibata* Corporate Auditors Hiroshi Ida** Wataru Shimono Masanori Ito** Yukihiro Imadegawa** ** Outside Corporate Auditor Executive Vice President CSR, Operational Auditing Office Nobuyasu Kamei Senior Managing Director International Project Operation Madoka Koda* Managing Director Projects Logistics Atsuo Minamoto Managing Director Technology & Engineering Sumio Nakashima Managing Director Domestic Project Operation Satoru Yokoi Managing Director International Project Operation Hiroshi Ogawa Director Seiji Shiraki Note: All members of the Board of Directors serve concurrently as Executive Officers * Representative Directors/Members of Executive Committee - 11 - Executive Officers Senior Executive Officer Corporate Strategy & Planning Takaharu Saegusa Senior Executive Officer General Manager, Russia Project Division, Project Director Hideo Kobayashi Executive Officer Executive Assistant to President Fumio Nagata Executive Officer Executive Assistant to International Business Development Operation Hidehiro Shinohara Executive Officer Technology & Engineering Takeo Kawase Executive Officer General Manager, Petroleum & Chemical Project Division Tsuyoshi Kakizaki Executive Officer General Manager, Qatar Project Division 2, International Project Operation Osamu Imahara Executive Officer General Manager, Gas Value Chain Project Division, International Project Operation Hiroshi Shimada Executive Officer General Manager, Domestic Business Development Operation, Domestic Project Operation Eisaku Yamashita Executive Officer General Manager, Administration & Personnel Division, Corporate Management & Finance Toshiyuki Ohnuma Executive Officer Deputy General Manager, Russia Project Division, Deputy Project Director Koichi Shirakawa Executive Officer International Business Development Operation Takao Kamiji Executive Officer General Manager, Finance Division Katsutoshi Kimura Executive Officer Projects Logistics Manabu Mitani - 12 -  ORGANIZATION CHART (As of July 1, 2008) Shareholders Meeting Corporate Auditors Committee Board of Directors Executive Committee SQE Division CSR Division Operational Auditing Office Corporate Strategy & Planning Corporate Management & Finance Technology & Engineering Projects Logistics Corporate Planning Division Administration & Personnel Division Finance Division Research Institute of Technology Innovation & Strategy Management of Technology Division Procurement Division Project Management Administration Division Technology Development Division Process Technology Division Engineering Division International Business Development Operation International Business Development Division 1 International Business Development Division 2 International Project Operation Domestic Project Operation Gas Value Chain Project Division Project Service Division Domestic Business Development Operation Petroleum & Chemical Project Division Construction Division Domestic Projects - Oil & Petrochemical Qatar Project Division 1 Qatar Project Division 2 Russia Project Division Domestic Projects - Pharmaceutical/Fine/Energy Industries Domestic Projects - Liquefied Gas Terminal - 13 - Chiyoda Corporation and Consolidated Subsidiaries Consolidated Financial Statements for the Years Ended March 31, 2008 and 2007, and Independent Auditors' Report - 14 - - 15 - Chiyoda Corporation and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2008 and 2007 ASSETS CURRENT ASSETS: Cash and cash equivalents Short-term investments Notes and accounts receivable—trade (Note 4) Allowance for doubtful accounts Costs and estimated earnings on long-term construction contracts (Note 5) Costs of construction contracts in process Accounts receivable—other (Note 4) Jointly controlled assets of joint venture Deferred tax assets (Note 13) Prepaid expenses and other Millions of Yen 2008 2007 Thousands of U.S. Dollars (Note 1) 2008 ¥ ¥ 70,089 895 27,230 (5) $ 77,052 125 23,816 (41) 700,890 8,950 272,300 (50) 9,139 16,802 10,441 192,684 5,337 5,596 14,843 27,656 9,199 256,061 5,884 3,442 91,390 168,020 104,410 1,926,840 53,370 55,960 Total current assets 338,208 418,037 3,382,080 PROPERTY, PLANT AND EQUIPMENT (Note 9): Land Buildings and structures Machinery and equipment Tools, furniture and fixtures Total Accumulated depreciation 11,936 14,894 1,261 5,467 33,558 (10,485) 1,835 6,616 1,163 5,544 15,158 (7,693) 119,360 148,940 12,610 54,670 335,580 (104,850) Net property, plant and equipment 23,073 7,465 230,730 INVESTMENTS AND OTHER ASSETS: Investment securities (Note 6) Investments in and advances to unconsolidated subsidiaries and associated companies (Note 8) Software Deferred tax assets (Note 13) Other assets (Note 10) Allowance for doubtful accounts 5,583 3,734 3,566 1,650 3,496 (490) 5,345 3,411 3,286 2,057 3,892 (540) 55,830 37,340 35,660 16,500 34,960 (4,900) Total investments and other assets 17,539 17,451 175,390 TOTAL ¥ 378,820 ¥ 442,953 $ 3,788,200 See notes to consolidated financial statements. - 16 - LIABILITIES AND EQUITY CURRENT LIABILITIES: Current portion of long-term debt (Note 9) Notes and accounts payable—trade (Note 4) Advance receipts on construction contracts Income taxes payable Deposits received Allowance for warranty costs for completed works Allowance for losses on construction contracts Accrued expenses and other (Note 4) Millions of Yen 2008 2007 Thousands of U.S. Dollars (Note 1) 2008 ¥ ¥ 10,039 74,038 185,023 1,408 4,970 2,099 4,045 12,364 $ 97 86,813 231,818 13,071 4,783 1,582 10 13,271 100,390 740,380 1,850,230 14,080 49,700 20,990 40,450 123,640 Total current liabilities 293,986 351,445 2,939,860 NON-CURRENT LIABILITIES: Long-term debt (Note 9) Liability for retirement benefits (Note 10) Other liabilities (Note 13) Total non-current liabilities COMMITMENTS AND CONTINGENT LIABILITIES (Notes 4, 15, 16 and 17) EQUITY (Notes 11, 16 and 19): Common stock—authorized, 570,000 thousand shares; issued, 193,183 thousand shares in 2008 and 193,126 thousand shares in 2007 Preferred stock—authorized, 80,000 thousand shares Capital surplus Retained earnings Unrealized (loss) gain on available-for-sale securities Deferred loss on derivatives under hedge accounting Foreign currency translation adjustments Treasury stock—at cost, 904 thousand shares in 2008 and 837 thousand shares in 2007 Total Minority interests 22 2,226 948 3,196 10,067 2,277 1,749 14,093 220 22,260 9,480 31,960 12,935 6,718 65,155 (847) (1,668) (6) (1,059) 81,228 410 12,928 129,350 6,712 58,398 248 (408) 50 (905) 77,023 392 67,180 651,550 (8,470) (16,680) (60) (10,590) 812,280 4,100 Total equity 81,638 77,415 816,380 TOTAL ¥ 378,820 ¥ 442,953 $ 3,788,200 - 17 - Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Income Years Ended March 31, 2008 and 2007 Millions of Yen 2008 2007 Thousands of U.S. Dollars (Note 1) 2008 REVENUE (Notes 4 and 5) ¥ 603,560 ¥ 484,895 $ 6,035,600 COST OF REVENUE (Notes 4 and 5) 583,035 445,159 5,830,350 Gross profit 20,525 39,736 205,250 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 4 and 14) Operating income OTHER INCOME (EXPENSES): Interest and dividend income Interest expense Equity in earnings of associated companies Foreign exchange loss Loss on a partial termination of a defined benefit pension plan (Note 10) Reversal of allowance for doubtful accounts Reversal of allowance for investment loss Gain on sales of investment securities Reversal of impairment loss (Note 7) Loss on valuation of investment securities Other—net Other income—net 11,685 8,840 10,901 (405) 435 (979) (485) 72 644 268 (617) 318 10,152 11,036 28,700 8,511 (310) 375 (629) 742 263 17 266 9,235 116,850 88,400 109,010 (4,050) 4,350 (9,790) (4,850) 720 6,440 2,680 (6,170) 3,180 101,520 INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 18,992 37,935 189,920 INCOME TAXES (Note 13): Current Deferred Total income taxes MINORITY INTERESTS IN NET INCOME 7,355 1,968 9,323 28 16,209 (1,866) 14,343 60 73,550 19,680 93,230 280 NET INCOME ¥ 9,641 ¥ 23,532 $ 96,410 See notes to consolidated financial statements. - 18 - PER SHARE OF COMMON STOCK (Notes 2.t and 18): Basic net income Diluted net income Cash dividends applicable to the year ¥ 50.15 50.12 10.00 ¥ 122.41 122.28 15.00 $ 0.50 0.50 0.10 Yen 2008 2007 U.S. Dollars 2008 - 19 - Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Changes in Equity Years Ended March 31, 2008 and 2007 Thousands Outstanding Number of Shares of Common Stock Millions of Yen Common Stock Capital Surplus Retained Earnings Unrealized (Loss) Gain on Available-for- sale Securities Deferred Loss on Derivatives under Hedge Accounting BALANCE, APRIL 1, 2006 192,152 ¥ 12,901 ¥ 6,685 ¥ 36,877 ¥ 45 Reclassified balance as of March 31, 2006 (Note 2.m) Net income Issuance of common stock by stock option plan (Notes 11 and 12) Cash dividends, ¥10.00 per share Repurchase of treasury stock Decrease in retained earnings due to exclusion from consolidation of consolidated subsidiaries Net change in the year 27 27 232 (95) 23,532 (1,922) (89) 203 ¥ BALANCE, MARCH 31, 2007 192,289 12,928 6,712 58,398 248 (408) (408) Net income Issuance of common stock by stock option plan (Notes 11 and 12) Cash dividends, ¥15.00 per share Repurchase of treasury stock Net change in the year 57 (67) 7 6 9,641 (2,884) (1,095) (1,260) BALANCE, MARCH 31, 2008 192,279 ¥ 12,935 ¥ 6,718 ¥ 65,155 ¥ (847) ¥ (1,668) Thousands of U.S. Dollars (Note 1) Common Stock Capital Surplus Retained Earnings Unrealized (Loss) Gain on Available-for- sale Securities Deferred Loss on Derivatives under Hedge Accounting BALANCE, MARCH 31, 2007 $ 129,280 $ 67,120 $ 583,980 $ 2,480 $ (4,080) Net income Issuance of common stock by stock option plan (Notes 11 and 12) Cash dividends, $0.15 per share Repurchase of treasury stock Net change in the year 70 60 96,410 (28,840) (10,950) (12,600) BALANCE, MARCH 31, 2008 $ 129,350 $ 67,180 $ 651,550 $ (8,470) $ (16,680) See notes to consolidated financial statements. - 20 - Millions of Yen Foreign Currency Translation Adjustments Treasury Stock Total Minority Interests Total Equity ¥ (323) ¥ (676) ¥ 55,509 ¥ 55,509 (229) ¥ 23,532 54 (1,922) (229) (89) 168 (905) 77,023 373 50 9,641 13 (2,884) (154) (2,411) (154) (56) 322 70 392 18 322 23,532 54 (1,922) (229) (89) 238 77,415 9,641 13 (2,884) (154) (2,393) ¥ (6) ¥ (1,059) ¥ 81,228 ¥ 410 ¥ 81,638 Thousands of U.S. Dollars (Note 1) Foreign Currency Translation Adjustments Treasury Stock Total Minority Interests Total Equity $ 500 $ (9,050) $ 770,230 $ 3,920 $ 774,150 96,410 130 (28,840) (1,540) (24,110) 96,410 130 (28,840) (1,540) (23,930) 180 (1,540) (560) $ (60) $ (10,590) $ 812,280 $ 4,100 $ 816,380 - 21 - Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years Ended March 31, 2008 and 2007 OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 18,992 ¥ 37,935 $ 189,920 Millions of Yen 2008 2007 Thousands of U.S. Dollars (Note 1) 2008 Adjustments for: Income taxes paid Payments of project settlement money Depreciation and amortization Reversal of allowance for doubtful accounts—net Provision for (reversal of) warranty costs for completed works Provision for (reversal of) loss on construction contracts Reversal of retirement benefits—net Reversal of impairment loss Gain on sales of investment securities—net Loss on valuation of investment securities Foreign exchange loss (gain)—net Equity in earnings of associated companies Loss on a partial termination of a defined benefit pension plan Changes in operating assets and liabilities: Decrease in trade notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Decrease (increase) in costs of construction contracts in process Decrease (increase) in jointly controlled asset of joint venture Increase in interest and dividend receivable (Decrease) increase in trade notes and accounts payable (Decrease) increase in advance receipts on construction contracts Increase in deposits received (Decrease) increase in accrued liability of a defined contribution pension plan Other—net Total adjustments (20,913) 1,594 (77) 522 4,035 (473) (268) (644) 617 81 (435) 485 2,216 10,855 63,377 (9,874) (12,740) (46,788) 183 (833) 4,362 (4,718) (6,492) (469) 1,507 (1,057) (305) (136) (6,116) (17) (74) (375) (209,130) 15,940 (770) 5,220 40,350 (4,730) (2,680) (6,440) 6,170 810 (4,350) 4,850 8,485 22,160 (9,729) 108,550 (124,724) (8,175) 947 129,742 3,919 2,445 8,221 (2,403) 633,770 (98,740) (127,400) (467,880) 1,830 (8,330) 43,620 (47,180) Net cash provided by operating activities— (Forward) ¥ 14,274 ¥ 35,532 $ 142,740 See notes to consolidated financial statements. - 22 - Millions of Yen 2008 2007 Thousands of U.S. Dollars (Note 1) 2008 Net cash provided by operating activities—(Forward) ¥ 14,274 ¥ 35,532 $ 142,740 INVESTING ACTIVITIES: Payments for time deposits Proceeds from refunds of time deposits Payments for purchases of investment securities Proceeds from sales of investment securities Purchases of property, plant and equipment Purchases of intangible assets Disbursements for originating long-term loans Proceeds from collections of long-term loans Payments for acquisition of shares in subsidiary affecting scope of consolidation, net of cash acquired (Note 3) Other—net (827) 68 (2,306) 839 (360) (1,257) 35 (116) 7 31 (2,419) 32 (460) (1,320) (15) 610 83 (8,270) 680 (23,060) 8,390 (3,600) (12,570) 350 (1,160) 70 Net cash used in investing activities (3,917) (3,458) (39,170) FINANCING ACTIVITIES: Repayments of long-term debt Proceeds from issuance of common stock Payments of cash dividends Payments of cash dividends to minority shareholders Other—net (14,186) 13 (2,880) (12) (155) (47) 54 (1,915) (54) (229) (141,860) 130 (28,800) (120) (1,550) Net cash used in financing activities (17,220) (2,191) (172,200) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (100) 357 (1,000) NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (6,963) 30,240 (69,630) CASH AND CASH EQUIVALENTS OF EXCLUSION OF CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR (67) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 77,052 46,879 770,520 CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 70,089 ¥ 77,052 $ 700,890 - 23 - Chiyoda Corporation and Consolidated Subsidiaries Notes to Consolidated Financial Statements Years Ended March 31, 2008 and 2007 1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law (formerly, the Japanese Securities and Exchange Law) and its related accounting regulations and in conformity with accounting principles generally accepted in Japan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications and rearrangements have been made in the 2007 financial statements in order for them to conform to classifications and presentations used in 2008. The consolidated financial statements are stated in Japanese yen, the currency of the country in which Chiyoda Corporation (the "Company") is incorporated and principally operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥100 to $1, the approximate rate of exchange at March 31, 2008. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation—The consolidated financial statements for the year ended March 31, 2008 include the accounts of the Company and its 16 significant (17 in 2007) subsidiaries (together, the "Group"). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated and those companies over which the Group has a significant influence are accounted for by the equity method. Investments in 5 associated companies are accounted for by the equity method. Investments in the remaining unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material. The excess of the cost of the Company's investments in consolidated subsidiaries and associated companies accounted for by the equity method over its equity in the fair value of the net assets at the respective dates of acquisition, was charged to income at the time of acquisition as the amount involved was not material. - 24 - All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. b. Business Combination—In October 2003, the Business Accounting Council issued a Statement of Opinion, "Accounting for Business Combinations," and on December 27, 2005, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Statement No. 7, "Accounting Standard for Business Divestitures" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and Business Divestitures." These new accounting pronouncements were effective for fiscal years beginning on or after April 1, 2006. The accounting standard for business combinations allows companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. For business combinations that do not meet the uniting-of-interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common control and for joint ventures. On November 28, 2007, the Company acquired 85.1% of the shares of Sunrise Real Estate Co., Ltd. ("Sunrise"), which trades and leases land and buildings, and merged with Sunrise on January 1, 2008. The Company accounted for the acquisition by the purchase method of accounting. The negative goodwill arising in the transaction was charged to income. c. Revenue—Revenues on construction contracts greater than ¥100 million and having a construction duration of exceeding one year are recognized on the percentage-of-completion method based on the ratio of costs incurred to total estimated costs. Under this method, related costs and estimated earnings in excess of progress billings are presented as a current asset. Unbilled costs on the other contracts, which are accounted for by the completed-contract method, are stated as cost of construction contracts in process. Payments received in excess of costs and estimated earnings on the contracts, which are accounted for by the percentage-of-completion method, and payments received on the other contracts are presented as current liabilities. Costs of preparation work for unsuccessful proposals and other projects which are not realized are charged to income and are included in costs of revenue. d. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits and certificates of deposit both of which mature or become due within three months of the date of acquisition. e. Investment Securities—All marketable securities are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined based on the moving-average method. - 25 - Non-marketable securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, non-marketable securities are reduced to net realizable value by a charge to income. f. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Group's past credit loss experience and an evaluation of estimated losses on the receivables outstanding. g. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation is computed by the declining-balance method, except for buildings owned by the Company which are depreciated using the straight-line method, at rates based on the estimated useful lives of the assets. The range of useful lives is from 11 to 57 years for buildings and structures, from 4 to 13 years for machinery and equipment, and from 2 to 15 years for tools, furniture and fixtures. h. Long-lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. i. Other Assets—Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight-line method over their estimated useful lives. Software for internal use is amortized on a straight-line basis over its estimated useful life (5 years at the maximum). j. Allowance for Warranty Costs for Completed Work—The allowance for warranty costs for completed work is provided based on past rate experience. k. Allowance for Losses on Construction Contracts—The allowance for losses on construction contracts is provided for an estimated amount of probable losses to be incurred in future years in respect of construction projects in progress. l. Retirement Benefits—Employees of the Company are, under most circumstances, entitled to payments from the defined contribution pension plan and the qualified defined benefit pension plan. Employees of certain of the Company's consolidated subsidiaries are, under most circumstances, entitled to certain lump-sum severance payments and pension payments. Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a new accounting standard for employees' retirement benefits and accounted for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. The transitional obligation of ¥5,696 million ($56,960 thousand) is being amortized and charged to income over 15 years using the straight-line amortization method and presented as an operating expense in the consolidated statements of income for the years ended March 31, 2008 and 2007. - 26 - Retirement benefits to directors, officers and corporate auditors are provided at the amount which would be required if all directors, officers and corporate auditors terminated at the end of each period. m. Presentation of Equity—On December 9, 2005, the ASBJ published a new accounting standard for the presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities are now presented as components of equity. Such items include stock acquisition rights, minority interests, and any deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal years ending on or after May 1, 2006. The balances of such items as of March 31, 2006 were reclassified as separate components of equity as of April 1, 2006 in the consolidated statement of changes in equity. n. Research and Development Costs—Research and development costs are charged to income when incurred. o. Leases—All leases are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that are deemed to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the notes to the lessee's consolidated financial statements. p. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. The Group has filed a tax return under the consolidated corporate-tax system from the fiscal year ended March 31, 2003, which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned domestic subsidiaries. q. Foreign Currency Transactions—Both short-term and long-term receivables and payables denominated in foreign currencies are translated into Japanese yen at exchange rates in effect at the balance sheet date. Any differences between the foreign exchange contract rates and historical rates resulting from the translation of receivables and payables are recognized as income or expense over the lives of the related contracts. r. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate. Differences arising from such translation were shown as "Foreign currency translation adjustments" in a separate component of equity. - 27 - Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of balance sheet date. s. Derivative Financial Instruments—The Company uses a variety of derivative financial instruments, including foreign currency forward exchange contracts as a means of hedging exposure to foreign currency risks. The Company does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are recognized as either assets or liabilities and measured at fair value, with gains or losses recognized in the income statement and (b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting, because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign currency forward exchange contracts are utilized to hedge foreign exchange risks. Certain assets and liabilities on construction contracts denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting. t. Per Share Information—Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of the year. u. New Accounting Pronouncements Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease Transactions," which revised the existing accounting standard for lease transactions issued on June 17, 1993. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007. Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the note to the lessee's financial statements. The revised accounting standard requires that all finance lease transactions shall be capitalized recognizing lease assets and lease obligations in the balance sheet. - 28 - Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—Under Japanese GAAP, a company currently can use the financial statements of foreign subsidiaries which are prepared in accordance with generally accepted accounting principles in their respective jurisdictions for its consolidation process unless they are clearly unreasonable. On May 17, 2006, the ASBJ issued ASBJ Practical Issues Task Force (PITF) No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." The new task force prescribes: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used for the consolidation process, (3) however, the following items should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are not material; (1) Amortization of goodwill (2) Actuarial gains and losses of defined benefit plans recognized outside profit or loss (3) Capitalization of intangible assets arising from development phases (4) Fair value measurement of investment properties, and the revaluation model for property, plant and equipment, and intangible assets (5) Retrospective application when accounting policies are changed (6) Accounting for net income attributable to a minority interest The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. Construction Contracts—Under current Japanese GAAP, either the completed-contract method or the percentage-of-completion method is permitted to account for construction contracts. On December 27, 2007, the ASBJ published a new accounting standard for construction contracts. Under this accounting standard, the construction revenue and construction costs should be recognized by the percentage-of-completion method, if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method shall be applied. When it is probable that total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for loss on construction contracts. This standard is applicable to construction contracts and software development contracts and effective for fiscal years beginning on or after April 1, 2009 with early adoption permitted for fiscal years beginning on or before March 31, 2009 but after December 27, 2007. 3. BUSINESS COMBINATION On November 28, 2007, the Company acquired 85.1% of the shares of Sunrise. As a result, Sunrise became a wholly owned subsidiary of the Company and the Company merged with Sunrise on January 1, 2008. The business of Sunrise was to trade and lease real estate and the Company was leasing real estate from Sunrise. This acquisition was made to own and manage the real estate which the Company was previously leasing from Sunrise. The results of operations of Sunrise are included in the Company's consolidated statements of income from November 28, 2007. - 29 - The Company accounted for this business combination by the purchase method of accounting. The acquisition cost, ¥284 million ($2,840 thousand), was determined based on the net assets of Sunrise. The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Negative goodwill recorded in connection with the acquisition totaled ¥297 million ($2,970 thousand). The negative goodwill was charged to income due to immateriality. The estimated fair values of the assets acquired and the liabilities assumed at the acquisition date are as follows: Current assets Investments and other assets Total assets acquired Current liabilities Long-term liabilities Total liabilities assumed Net assets acquired Negative goodwill Pre-acquisition carrying amount of investment in Sunrise Cash acquired Millions of Yen Thousands of U.S. Dollars ¥ 287 16,518 16,805 (902 ) (15,306 ) (16,208 ) 597 (297 ) (15 ) (169 ) $ 2,870 165,180 168,050 (9,020) (153,060) (162,080) 5,970 (2,970) (150) (1,690) Net of cash acquired ¥ 116 $ 1,160 Pro forma results of operations for the above business combination have not been presented because the effects were not material to the consolidated financial statements. 4. TRANSACTIONS WITH UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES Significant transactions with and balances due from/(to) unconsolidated subsidiaries and associated companies are summarized as follows: Transactions for the Year Ended March 31 Revenue Cost of revenue Selling, general and administrative expenses Balances at March 31 Notes and accounts receivable—trade Accounts receivable—other Notes and accounts payable—trade Accrued expenses and other Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 31 ¥ (7,158) (1,652) 8 ¥ (4,919 ) (1,690 ) 310 $ (71,580) (16,520) 31 59 (472) (318) 2 (470 ) 310 590 (4,720) (3,180) The Company guaranteed the indebtedness of certain unconsolidated subsidiaries and associated companies in the amount of ¥370 million at March 31, 2007. - 30 -  5. REVENUE Costs and estimated earnings recognized with respect to revenue which is accounted for by the percentage-of-completion method at March 31, 2008 and 2007, were as follows: Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 Costs and estimated earnings Amounts billed ¥ 1,115,404 (1,106,265) ¥ 727,700 (712,857 ) $ 11,154,040 (11,062,650) Net ¥ 9,139 ¥ 14,843 $ 91,390 6. INVESTMENT SECURITIES Investment securities at March 31, 2008 and 2007, consisted of the following: Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 Equity securities ¥ 5,583 ¥ 5,345 $ 55,830 The carrying amounts and aggregate fair values of investment securities with readily determinable fair values at March 31, 2008 and 2007, were as follows: March 31, 2008 Millions of Yen Cost Unrealized Gains Unrealized Losses Fair Value Available-for-sale—Equity securities ¥ 5,259 ¥ 170 ¥ 982 ¥4,447 March 31, 2007 Available-for-sale—Equity securities 3,557 778 361 3,974 March 31, 2008 Thousands of U.S. Dollars Unrealized Unrealized Losses Gains Fair Value Cost Available-for-sale—Equity securities $ 52,590 $ 1,700 $ 9,820 $ 44,470 Available-for-sale securities whose fair value was not readily determinable at March 31, 2008 and 2007, were as follows: Equity securities ¥ 1,136 ¥ 1,371 $ 11,360 Carrying Amount Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 - 31 - Proceeds from sales of available-for-sale securities for the year ended March 31, 2008, were ¥839 million ($8,390 thousand). Gross realized gains on these sales, computed on the moving average cost basis, were ¥644 million ($6,440 thousand) for the year ended March 31, 2008. Proceeds from sales of available-for-sale securities for the year ended March 31, 2007, were ¥32 million and gross realized gains on these sales, computed on the moving average cost basis, were ¥17 million for the year ended March 31, 2007. 7. REVERSAL OF IMPAIRMENT LOSS Reversal of impairment loss of ¥268 million ($2,680 thousand) represents that impairment loss recognized in prior periods for buildings and structures of a foreign subsidiary which was reversed under the generally accepted accounting principles applied to the foreign subsidiary. 8. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES Investments in and advances to unconsolidated subsidiaries and associated companies at March 31, 2008 and 2007, were as follows: Investments Long-term receivables Total 9. LONG-TERM DEBT Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 ¥ 3,720 14 ¥ 3,395 16 $ 37,200 140 ¥ 3,734 ¥ 3,411 $ 37,340 Long-term debt at March 31, 2008 and 2007, consisted of the following: Long-term loans from banks, maturing serially through 2011, with interest rates ranging from 3.4% to 5.8% at 2008 and 2007: Collateralized Uncollateralized Total Less current portion Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 ¥ 61 10,000 10,061 (10,039) ¥ 164 10,000 10,164 (97 ) $ 610 100,000 100,610 (100,390) Long-term debt, less current portion ¥ 22 ¥ 10,067 $ 220 - 32 - Subordinated loans in the amount of ¥10,000 million ($100,000 thousand) from The Bank of Tokyo-Mitsubishi UFJ, Ltd. were included in 'Uncollateralized' at March 31, 2008 and 2007. Annual maturities of long-term debt at March 31, 2008, were as follows: Year Ending March 31 2009 2010 2011 Total Commitment-line contracts at March 31, 2008, were as follows: Commitment-line contracts Unused commitments Millions of Yen ¥ 10,039 18 4 ¥ 10,061 Thousands of U.S. Dollars $ 100,390 180 40 $ 100,610 Millions of Yen Thousands of U.S. Dollars ¥ 15,000 $ 150,000 ¥ 15,000 $ 150,000 The following assets were pledged as collateral for long-term debt at March 31, 2008: Land Buildings and structures—net of accumulated depreciation Total 10. RETIREMENT BENEFITS Millions of Yen Thousands of U.S. Dollars ¥ 381 496 ¥ 877 $ 3,810 4,960 $ 8,770 Employees of the Company are, under most circumstances, entitled to payments from the defined contribution pension plan and the qualified defined benefit pension plan upon retirement or termination. Employees of certain of the Company's domestic consolidated subsidiaries are, under most circumstances, entitled to certain lump-sum severance payments and pension payments upon retirement or termination. Two of the Company's domestic consolidated subsidiaries, Chiyoda Keiso and Chiyoda Kosho, transferred their retirement benefit plan to a defined contribution pension plan and the reformed qualified defined pension plan as of April 1, 2008. As a result of this transfer, "loss on a partial termination of a defined benefit pension plan" of ¥485 million ($4,850 thousand) was recorded in other expenses for the year ended March 31, 2008. - 33 - Liability for retirement benefits includes retirement benefits to directors, officers and corporate auditors in the amount of ¥536 million ($5,360 thousand) and ¥487 million for the years ended March 31, 2008 and 2007, respectively. The retirement benefits to directors and corporate auditors are paid subject to the approval of the shareholders. The liability for employees' retirement benefits at March 31, 2008 and 2007, consisted of the following: Projected benefit obligation Fair value of plan assets Unrecognized transitional obligation Unrecognized actuarial loss Unrecognized prior service cost Net accrued pension liabilities Prepaid pension cost Loss on a partial termination of defined benefit pension plan Millions of Yen 2008 2007 ¥ 27,812 (21,454 ) (4,922 ) (1,299 ) 1,557 1,694 96 ¥ 27,455 (20,338) (4,307) (3,634) 1,381 557 648 485 Thousands of U.S. Dollars 2008 $ 274,550 (203,380) (43,070) (36,340) 13,810 5,570 6,480 4,850 Liability for employees' retirement benefits ¥ 1,690 ¥ 1,790 $ 16,900 The components of net periodic benefit costs for the years ended March 31, 2008 and 2007, were as follows: Service cost Interest cost Expected return on plan assets Amortization of transitional obligation Recognized actuarial loss Amortization of prior service cost Subtotal Loss on a partial termination of defined benefit pension plan Payment to defined contribution pension trust Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 ¥ 903 371 (532) 615 335 (176) 1,516 485 176 ¥ 702 375 (356 ) 615 342 (176 ) 1,502 168 $ 9,030 3,710 (5,320) 6,150 3,350 (1,760) 15,160 4,850 1,760 Net periodic benefit costs ¥ 2,177 ¥ 1,670 $ 21,770 - 34 - Assumptions used for the years ended March 31, 2008 and 2007, are set forth as follows: Discount rate Expected rate of return on plan assets Recognition period of actuarial gain/loss Amortization period of transitional obligation Amortization period of prior service cost 11. EQUITY 2008 1.5% 2.7% 10 years 15 years 10 years 2007 1.5% 2.2% 10 years 15 years 10 years Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the "Corporate Law"), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Corporate Law that affect financial and accounting matters are summarized below: a. Dividends Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company cannot do so because it does not meet all the above criteria. Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million. b. Increases/Decreases and Transfer of Common Stock, Reserve and Surplus The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. - 35 - c. Treasury Stock and Treasury Stock Acquisition Rights The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which is determined by specific formula. Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now presented as a separate component of equity. The Corporate Law also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights. 12. STOCK OPTION The stock option outstanding as of March 31, 2008 was as follows: Stock Option 2002 Stock Option Persons Granted Number of Options Granted Date of Grant Exercise Price Exercise Period 8 directors 8 officers 623 employees 7,896,000 shares June 27, 2002 ¥ 233 ($ 2.33 ) From July 1, 2004 to June 30, 2009 The stock option activity was as follows: For the Year Ended March 31, 2007 Vested: March 31, 2006—outstanding Exercised March 31, 2007—outstanding For the Year Ended March 31, 2008 Vested: March 31, 2007—outstanding Exercised March 31, 2008—outstanding 13. INCOME TAXES 2002 Stock Option (Shares) 355,000 (232,000 ) 123,000 123,000 (57,000 ) 66,000 The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 41% for the years ended March 31, 2008 and 2007. - 36 - The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2008 and 2007, are as follows: Deferred tax assets: Cost of revenue Retirement benefits Allowance for employees' bonus Allowance for warranty costs for completed works Allowance for losses on construction contracts Allowance for doubtful accounts Loss on write-down of property, plant and equipment Deferred loss on derivatives under hedge accounting Other Less valuation allowance Total Deferred tax liabilities Net deferred tax assets Millions of Yen 2008 2007 ¥ 4,182 1,610 731 1,644 1,368 4,046 (766) ¥ 4,261 718 1,995 192 578 3,658 (439 ) Thousands of U.S. Dollars 2008 $ 41,820 16,100 7,310 16,440 13,680 40,460 (7,660) 12,815 10,963 128,150 5,828 3,035 58,280 ¥ 6,987 ¥ 7,928 $ 69,870 Net deferred tax assets as of March 31, 2008 and 2007 were recorded in the accompanying consolidated balance sheets as follows: Deferred tax assets—current assets Deferred tax assets—investments and other assets Other liabilities (deferred tax liabilities— non-current liabilities) Millions of Yen 2008 2007 Thousands of U.S. Dollars 2008 ¥ 5,337 1,650 ¥ 5,884 2,057 $ 53,370 16,500 (13 ) A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2008 and 2007, is as follows: Normal effective statutory tax rate Expenses not deductible for income tax purposes Non-taxable dividend income Tax credit Decrease in valuation allowance for deferred tax assets Lower income tax rates applicable to subsidiaries Lower tax basis of enterprise tax Corporate income tax for previous years Earnings retained by tax haven company Other—net Actual effective tax rate - 37 - 2008 41 % 1 (1) (2) (3) 1 1 10 1 49 % 2007 41 % 1 (1) (2) (1) 38 % 14. RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to income were ¥1,659 million ($16,590 thousand) and ¥1,204 million for the years ended March 31, 2008 and 2007, respectively. 15. LEASES The Company and a subsidiary lease certain machinery, computer equipment, office space and other assets. Total lease payments under finance leases were ¥128 million ($1,280 thousand) and ¥182 million for the years ended March 31, 2008 and 2007, respectively. Pro forma information for leased property under finance leases that do not transfer ownership of the leased property to the lessee on an "as if capitalized" basis for the years ended March 31, 2008 and 2007, was as follows: Year Ended March 31, 2008 Acquisition cost Accumulated depreciation Net leased property Acquisition cost Accumulated depreciation Net leased property Millions of Yen Buildings and Structures Tools, Furniture and Fixtures Other Total ¥ ¥ $ $ 68 ¥ 6 62 ¥ 450 ¥ 219 231 ¥ 76 ¥ 34 42 ¥ 594 259 335 Thousands of U.S. Dollars Buildings and Structures Tools, Furniture and Fixtures Other Total 680 $ 60 4,500 $ 2,190 760 $ 340 5,940 2,590 620 $ 2,310 $ 420 $ 3,350 Year Ended March 31, 2007 Millions of Yen Obligations under Finance Lease Thousands of U.S. Dollars Obligations under Finance Lease Due within one year Due after one year Total ¥ ¥ $ 109 226 335 $ 1,090 2,260 3,350 Millions of Yen Tools, Furniture and Fixtures Other Total Acquisition cost Accumulated depreciation Net leased property ¥ ¥ ¥ 638 317 161 ¥ 84 799 401 321 ¥ 77 ¥ 398 - 38 - Due within one year Due after one year Total Millions of Yen Obligations under Finance Lease ¥ ¥ 157 241 398 Depreciation expense as lessee, which is not reflected in the accompanying consolidated statements of income, computed by the straight-line method was ¥128 million ($1,280 thousand) and ¥182 million for the years ended March 31, 2008 and 2007, respectively. The amounts of obligations, acquisition cost and depreciation under finance leases include the imputed interest income portion and interest expense portion, respectively. 16. DERIVATIVES The Company enters into foreign currency forward exchange contracts to hedge foreign exchange risk associated with certain assets and liabilities on construction contracts denominated in foreign currencies. It is the Company's policy to use derivatives only for the purpose of reducing foreign exchange risks associated with such assets or liabilities. The Company does not hold or issue derivatives for trading purposes. Because the counterparties to these derivatives are limited to major international financial institutions, the Company does not anticipate any losses arising from credit risk. The basic policies for the use of derivatives are approved by the executive committee and the execution and control of derivatives are controlled by the financing department. The hedging effectiveness in reducing foreign exchange risks is periodically assessed and reported to the accounting department and executive officers. The Company had the following foreign currency forward exchange contracts outstanding at March 31, 2008 and 2007. Contract Amount ¥ 9 14 20,621 2 Buying: U.S.$ Euro Selling: U.S.$ Euro Millions of Yen 2008 Fair Value Unrealized Gain Thousands of U.S. Dollars 2008 Fair Value Unrealized Gain Contract Amount ¥ 9 15 20,522 2 ¥ 1 99 $ 90 140 $ 90 150 206,210 20 205,220 20 $ 10 990 - 39 - Buying: U.S.$ Euro Selling U.S.$ Millions of Yen 2007 Fair Value Unrealized Gain Contract Amount ¥ 213 13 12,315 ¥ 221 14 12,313 ¥ 8 1 2 Foreign currency forward exchange contracts which qualify for hedge accounting for the years ended March 31, 2008 and 2007, are excluded from the disclosure of market value information. The contract or notional amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Company's exposure to credit or market risk. 17. CONTINGENT LIABILITIES At March 31, 2008, the Group had the following contingent liabilities: Millions of Yen Thousands of U.S. Dollars Employees (housing loan) ¥ 567 $ 5,670 18. NET INCOME PER SHARE Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2008 and 2007 is as follows: Year Ended March 31, 2008 Basic EPS—Net income available to common shareholders Effect of dilutive securities— Stock option Diluted EPS—Net income for computation Year Ended March 31, 2007 Basic EPS—Net income available to common shareholders Effect of dilutive securities— Stock option Diluted EPS—Net income for computation Millions of Yen Net Income Thousands of Shares Weighted-average Shares Yen U.S. Dollars EPS ¥ 9,641 192,256 ¥ 50.15 $ 0.50 95 ¥ 9,641 192,351 ¥ 50.12 $ 0.50 ¥ 23,532 192,234 ¥ 122.41 202 ¥ 23,532 192,436 ¥ 122.28 - 40 - 19. SUBSEQUENT EVENTS a. Appropriation of Retained Earnings The following appropriation of retained earnings at March 31, 2008, was approved at the Company's shareholders meeting held on June 24, 2008: Millions of Yen Thousands of U.S. Dollars Year-end cash dividends, ¥10.00 ($0.10) per share ¥ 1,923 $ 19,230 b. Issuance of New Ordinary Shares to a Third Party At the Company's Board of Directors meeting held on March 31, 2008, the Company resolved the issuance of new ordinary shares to an allocated third party and has accepted as a result of allocating new ordinary shares to Mitsubishi Corporation on April 30, 2008. Details are as follows: (1) Number of shares issued: (2) Issue price: (3) Aggregate issue amount: (4) Allocated third party: Ordinary shares, 67,080 thousand shares ¥907 per share ¥60,841 million ($608,410 thousand) Mitsubishi Corporation 20. SEGMENT INFORMATION Information about geographical segments and sales to foreign customers of the Company and consolidated subsidiaries for the years ended March 31, 2008 and 2007, was as follows: (1) Geographical Segments Year Ended March 31, 2008 Japan Asia Millions of Yen North America Other Subtotal Eliminations (Corporate) Consolidated Revenue: Outside customers Intersegment ¥ 588,606 ¥ 14,954 ¥ 603,560 1,638 ¥ 37 ¥ 26 1,701 ¥ ¥ (1,701) 603,560 Total 588,606 16,592 37 26 605,261 (1,701) 603,560 Operating expenses 581,030 15,323 34 43 596,430 (1,710) 594,720 Operating income (loss) ¥ 7,576 ¥ 1,269 ¥ 3 ¥ (17) ¥ 8,831 ¥ 9 ¥ 8,840 Assets ¥ 369,452 ¥ 9,620 ¥ 693 ¥ 122 ¥ 379,887 ¥ (1,067) ¥ 378,820 - 41 - Year Ended March 31, 2008 Japan Asia Thousands of U.S. Dollars North America Other Subtotal Eliminations (Corporate) Consolidated Revenue: Outside customers Intersegment $ 5,886,060 $ 149,540 $ 6,035,600 $ 6,035,600 16,380 $ 370 $ 260 17,010 $ (17,010 ) Total 5,886,060 165,920 370 260 6,052,610 (17,010 ) 6,035,600 Operating expenses 5,810,300 153,230 340 430 5,964,300 (17,100 ) 5,947,200 Operating income (loss) $ 75,760 $ 12,690 $ 30 $ (170) $ 88,310 $ 90 $ 88,400 Assets $ 3,694,520 $ 96,200 $ 6,930 $ 1,220 $ 3,798,870 $ (10,670 ) $ 3,788,200 Year Ended March 31, 2007 Japan Asia Millions of Yen North America Other Subtotal Eliminations (Corporate) Consolidated Revenue: Outside customers Intersegment ¥ 476,813 ¥ 8,082 1,708 ¥ ¥ 484,895 38 ¥ 27 1,773 ¥ ¥ (1,773 ) 484,895 Total 476,813 9,790 Operating expenses 448,622 9,283 38 36 27 486,668 (1,773 ) 484,895 27 457,968 (1,773 ) 456,195 Operating income ¥ 28,191 ¥ 507 ¥ 2 ¥ 28,700 ¥ 28,700 Assets ¥ 436,171 ¥ 7,095 ¥ 689 ¥ 148 ¥ 444,103 ¥ (1,150 ) ¥ 442,953 Notes: 1. The Company and consolidated subsidiaries operate within four geographic segments based on the countries where the companies are located. The segments consisted of the following countries in 2008 and 2007: Asia: North America: United States of America Nigeria Other: Indonesia, Singapore, Philippines, Myanmar, Malaysia and Thailand 2. Corporate assets mainly consist of long-term loans and investment securities of the Company. Corporate assets as of March 31, 2008 and 2007 were ¥2,153 million ($21,530 thousand) and ¥2,130 million, respectively. - 42 -  (2) Sales to Foreign Customers Year Ended March 31, 2008 Asia Millions of Yen The Middle and Near East Russia and Central Asia Other Total Overseas sales (A) Consolidated sales (B) (A)/(B) ¥ 17,093 ¥ 425,970 ¥ 49,408 ¥ 1,015 2.83% 70.58% 8.19% 0.16% ¥ 493,486 603,560 81.76% Year Ended March 31, 2008 Asia Thousands of U.S. Dollars The Middle and Near East Russia and Central Asia Other Total Overseas sales (A) Consolidated sales (B) (A)/(B) $ 170,930 $ 4,259,700 $ 494,080 $ 10,150 2.83% 70.58% 8.19% 0.16% $ 4,934,860 6,035,600 81.76% Year Ended March 31, 2007 Asia Millions of Yen The Middle and Near East Russia and Central Asia Other Total Overseas sales (A) Consolidated sales (B) (A)/(B) ¥ 11,187 ¥ 316,649 ¥ 49,275 ¥ 1,234 2.31% 65.30% 10.16% 0.26% ¥ 378,345 484,895 78.03% Note: The Company and consolidated subsidiaries are summarized into four segments by geographic area based on the countries where the companies are located. The segments consisted of the following countries in 2008 and 2007: Asia: The Middle and Near East: Russia and Central Asia: Other: Singapore, Malaysia, Indonesia and others Qatar, Iran and others Russia Nigeria and others The Company and its consolidated subsidiaries operate predominantly in the engineering business, while certain subsidiaries operate in leasing and software producing businesses which are minor in relation to the total business. Accordingly, the presentation of industry segment information is not required under Japanese accounting standards. * * * * * * - 43 -  Global Network (As of July 1, 2008) Head Office Yokohama Head Office The Hague Representative Office Parkstraat 83, 2514 JG 12-1, Tsurumichuo 2-chome, Tsurumi-ku The Hague, The Netherlands Yokohama 230-8601, Japan Tel: (81) 45-521-1231 Fax: (81) 45-503-0200 Koyasu Office & Research Park 13, Moriya-cho 3-chome, Kanagawa-ku Yokohama 221-0022, Japan Tel: (81) 45-441-1268 Fax: (81) 45-441-1297 Tel: (31) 70-385-9453 Fax: (31) 70-346-3779 Major Subsidiaries & Affiliated Companies Overseas Engineering Business Chiyoda Almana Engineering LLC Services: Design and construction of Jeddah Head Office P.O. Box 6188, Jeddah 21442 The Kingdom of Saudi Arabia Tel: (966) 2-647-0558 Fax: (966) 2-647-1908 Chiyoda Philippines Corporation Services: Design Chiyoda Bldg. Meralco Avenue Corner, General Araneta Street, San Antonio, Pasig City, Metro Manila, Philippines Tel: (63) 2-636-1001～1008 Research & Development Center industrial facilities Fax: (63) 2-636-1013/1023 Tel: (81) 45-441-9132 Fax: (81) 45-441-9728 Osaka Office 14-10, Nishinakajima 5-chome, Almana Tower, 5th floor, Airport RD, P.O. Box 22961, Doha, Qatar Tel: (974) 462-2926 Fax: (974) 462-6404 Yodogawa-ku Osaka 532-001, Japan Chiyoda Corporation (Shanghai) Tel: (81) 6-6390-3411 Fax: (81) 6-6889-5101 Overseas Offices Abu Dhabi Office Clock Tower Bldg. Al Najda Street, P.O. Box 43928, Abu Dhabi, U.A.E. Tel: (971) 2-671-7161 Fax: (971) 2-671-7162 Beijing Office Services: Project consulting 29F-Room E, Pufa Tower, No. 588, Pudong Rd. (S), Pudong New Area, Shanghai 200120, China Tel: (86) 21-5877-6266 Fax: (86) 21-5877-6366 1177 West Loop South, Suite 680 Houston, TX 77027, U.S.A. URL: http://www.chiyodaphil.com.ph Chiyoda & Public Works Co., Ltd. Services: Design and construction of industrial facilities SEDONA HOTEL Room 307 ~ 309 No. 1, Kaba Aye Pagoda Road, Yankin Township, Yangon, Myanmar Tel: (95) 1-545605 Fax: (95) 1-545227 Chiyoda Singapore (Pte) Limited Services: Design and construction of East, Singapore 609922 Tel: (65) 6563-3488 Fax: (65) 6567-5231 URL: http://www.chiyoda.com.sg/ Chiyoda International Corporation industrial facilities Services: Business activities in the U.S.A. 14 International Business Park Jurong Room No. 1028, China World Tower 1, Jianguomenwai Street, Chaoyang District, Tel: (1) 713-965-9005 Fax: (1) 713-965-0075 Beijing, 100004, China Tel: (86) 10-6505-2678 Fax: (86) 10-6505-1118 Jakarta Office Chiyoda Malaysia Sdn. Bhd. Chiyoda (Thailand) Limited Services: Design and construction of Services: Design and construction of industrial facilities industrial facilities 15th Floor, Menara Maxisegar Jalan Pandan 140/42 ITF Tower II, Suite H 20th Floor, 9th Floor, Mid-Plaza Bldg. Jalan Jenderal Indah, 4/2 Pandan Indah, 55100 Silom Road, Kwaeng Suriyawong, Sudirman Kav. 10-11 Jakarta, 10220, Indonesia Kuala Lumpur, Malaysia Khet Bangrak, Bangkok 10500, Thailand Tel: (62) 21-570-7579 Fax: (62) 21-570-6276 Korea Representative Office Tel: (60) 3-4297-0988 Fax: (60) 3-4297-0800 URL: http://www.chiyoda.com.my/ 1358-8, Tal-dong Nam-ku, Ulsan, Korea Chiyoda Oceania Pty Limited Tel: (66) 2-231-6441/6442 Fax: (66) 2-231-6443 L&T-Chiyoda Limited Services: Design Tel: (82) 52-256-5721/5722 Fax: (82) 52-256-5723 Services: Design and construction of B.P. Estate, National Highway No. 8, industrial facilities Chhani Baroda-391740, Gujarat State, India Middle East Headquarters Doha Office Level 28, AMP Tower 140 St Georges Terrace, Tel: (91) 265-2771003/2772855 Al Mana Tower Airport Road, P.O. Box 20243, Doha Qatar Tel: (974) 4622-875/876 Fax: (974) 4622-716 Perth WA 6000, Australia Tel: (61) 8-9278-2599 Fax: (61) 8-9278-2727 Chiyoda Petrostar Ltd. Fax: (91) 265-2774985 URL: http://www.lntchiyoda.com/ PT. Chiyoda International Indonesia Services: Design and construction of Milan Representative Office Services: Design and construction of industrial facilities Viale Della Liberazione 18, 20124 Milan, Italy industrial facilities MENARA HIJAU, 10th Floor Suite 1001 J1. Mt. Tel: (39) 02-303517-111 Fax: (39) 02-303517-35 Singapore Human Resources Office 10 Anson Road, #03-02, International Plaza, Singapore 079903 Tel: (65) 6324-0080 Fax: (65) 6324-0090 Al-Khobar Office P.O. Box 31707, Al-Khobar 31952 The Kingdom of Saudi Arabia Tel: (966) 3-864-0839 Fax: (966) 3-864-0986 Haryono Kav. 33 Jakarta Selatan 12770, Indonesia Tel: (62) 21-798-4680 Fax: (62) 21-798-6174 Project Companies Oman, Qatar, Russia - 44 - Domestic Major Subsidiaries & Affiliated Companies Chiyoda TechnoAce Co., Ltd. Arrowhead International Corporation Domestic Engineering Business Chiyoda Advanced Solutions Corporation Services: Advanced engineering consulting 1-25, Shinurashima-cho 1-chome Services: Design and construction for Services: Travel services and supply of spare parts pharmaceutical facilities 7-8, Shibakoen 1-chome, Minato-ku 13, Moriya-cho 3-chome, Kanagawa-ku Yokohama 221-0022, Japan Tel: (81) 45-441-9600 Fax: (81) 45-450-5236 Tokyo 105-0011, Japan Tel: (81) 3-5470-0880 Fax: (81) 3-5470-0890 URL: http://www.arrowhead.co.jp/ Kanagawa-ku, Yokohama 221-0031, Japan URL: http://www.cta.chiyoda.co.jp/ Arrow Mates Co., Ltd. Tel: (81) 45-441-1260 Fax: (81) 45-441-1264 Chiyoda U-Tech Co., Ltd. Services: Placement of technicians and Services: Consulting and human resources office staff and reemployment support URL: http://www.chiyoda-as.co.jp/ placement 43, Hon-cho 4-chome, Naka-ku Chiyoda Keiso Co., Ltd. 15-19, Tsurumichuo 2-chome, Tsurumi-ku Yokohama 231-0005, Japan Services: Design, procurement and construction Yokohama 230-0051, Japan for electrical and instrumentation facilities Tel: (81) 45-502-7618 Fax: (81) 45-503-5399 Tel: (81) 45-662-1126 Fax: (81) 45-662-1173 URL: http://www.arrowmates.co.jp/ 13, Moriya-cho 3-chome, Kanagawa-ku URL: http://www.utc-yokohama.com/ IT Engineering Limited Yokohama 221-0022, Japan Tel: (81) 45-441-1433 Fax: (81) 45-441-1434 Other Businesses Arrow Business Consulting Corporation Services: IT consulting and solution provider 1-25, Shinurashima-cho 1-chome, Services: Consulting for finance and accounting Kanagawa-ku, Yokohama 221-0031, Japan URL: http://www.ckc.chiyoda.co.jp/ 32-1, Tsurumichuo 4-chome, Tsurumi-ku Chiyoda Kosho Co., Ltd. Yokohama 230-0051, Japan Services: Design, construction and maintenance Tel: (81) 45-502-5774 for domestic projects Fax: (81) 45-502-5753 Tel: (81) 45-441-9123 Fax: (81) 45-441-1466 URL: http://www.ite.co.jp/ 34-26, Tsurumichuo 4-chome, Tsurumi-ku Yokohama 230-0051, Japan Tel: (81) 45-506-7662 Fax: (81) 45-506-7667 URL: http://www.cks-ykh.co.jp/ - 45 -  CORPORATE HISTORY (From January 1948 to April 2008) Chiyoda Corporation was established on January 20, 1948 with one million yen of capital stock when the construction division of Mitsubishi Oil Co., Ltd. became independent and set up its head office in Minato-ku, Tokyo. The subsequent changes in the Chiyoda Corporate Group are shown below. Month/Year January 1950 August 1954 Major Events Registration as a Civil Engineering and Construction Contractor, Ministry of Construction Registration Number (i)1431 Purchase of Tsurumi Plant in Tsurumi-ku, Yokohama and Commencement of Manufacturing Chemical Machinery Establishment of Chiyoda Keiso Co., Ltd. Listed on the First Section of the Tokyo, Osaka and Nagoya Stock Exchanges October 1956 October 1961 September 1968 Head Office Address Transferred to Tsurumi-ku, Yokohama February 1971 August 1973 December 1973 Establishment of Chiyoda Singapore (Pte) Limited Establishment of Chiyoda International Corporation Acquisition of Authorization for a Specialized Construction Business License, Ministry of Construction Authorization Number (Special-48) 2371. Establishment of Chiyoda Kosho Co., Ltd. Establishment of Chiyoda Malaysia Sdn. Bhd. Establishment of Chiyoda Petrostar Ltd. (Saudi Arabia) Establishment of Arrowhead International Corporation Establishment of Chiyoda Nigeria Limited Establishment of Arrow Human Resources Inc. (currently Arrow Mates Co., Ltd.) Establishment of Chiyoda TechnoAce Co., Ltd., U-Tech Consulting Company Limited (currently Chiyoda U-Tech Co., Ltd.), Chiyoda Information Service Company Limited (currently IT Engineering Limited.) Establishment of Arrow Business Consulting Limited. Establishment of Chiyoda (Thailand) Limited Establishment of PT Chiyoda International Indonesia Establishment of L&T Chiyoda Limited Establishment of C&E Corporation (currently Chiyoda Philippines Corporation) Establishment of Chiyoda & Public Works Co., Ltd. (Myanmar) Third-Party Allocation of Shares Formulation of New Restructuring Plan Reduction of Capital Without Compensation Third-Party Allocation of Shares Establishment of Chiyoda Advanced Solutions Corporation Abolition of Listing on the Osaka Securities Exchange Formulation of Medium-Term Management Plan Merger Acquisition of Sun Rise Real Estate Company Limited Contract Concluded with Mitsubishi Corporation in Relation to a Capital/Business Alliance Third-Party Allocation of Shares to Mitsubishi Corporation April 1974 June 1974 June 1975 January 1981 June 1983 February 1986 October 1986 April 1989 March 1990 May 1990 November 1994 February 1995 September 1997 March 1999 November 2000 February 2001 March 2001 April 2002 March 2003 February 2005 January 2008 March 2008 April 2008 - 46 -  INVESTOR INFORMATION (As of March 31, 2008) Item Trade Name: Head Office Address: Date of Incorporation: Paid-in Capital: Fiscal Year: Number of Employees: Number of Consolidated Subsidiaries: Number of Affiliated Companies Accounted for Using the Equity Method: Accounting Auditor: Listed Stock Exchange: Stock Code: Total Number of Authorized Shares: Aggregate Number of Shares Issued: Number of Shares Per Unit: Number of Shareholders: Transfer Agent of Common Stock: Enquiries in Relation to IR: Details Chiyoda Corporation 12-1, Tsurumi-Chuo 2-chome, Tsurumi-ku, 230-8601 Yokohama, Japan January 20, 1948 12,935 million yen (43,389 million yen as of April 30, 2008) Ends March 31 3,067 people 16 companies 5 companies Deloitte Touche Tohmatsu First Section of the Tokyo Stock Exchange 6366 650,000,000 shares 193,182,529 shares (260,262,529 shares as of April 30, 2008) 1,000 shares 9,250 people Mitsubishi UFJ Trust and Banking Corporation - Telephone: - Fax: - E-mail - URL： 045-506-7538 045-506-7085 CHYOD@ykh.chiyoda.co.jp http://www.chiyoda-corp.com/en/ Recognized by SRI (Socially Responsible Investment) Evaluation Bodies - FTSE4Good Index Series In March 2005, Chiyoda was first certified to be a member of the “FTSE4Good” Index Series of FTSE Group, UK. This means that Chiyoda is acknowledged as a Japanese corporation fulfilling a series of internationally recognized CSR standards. - Morningstar Socially Responsible Investment Index In September 2007, Morningstar Japan K.K. selected Chiyoda for inclusion in the SRI Index that they compile and monitor. This was a first for a Japanese engineering company. - 47 -  STOCK INFORMATION (From April 1, 2003 to March 31, 2008) Stock Price Index Compared with Main Indices 800 700 600 500 400 300 200 100 0 Chiyoda TOPIX Nikkei 225 - 48 -  - 49 - 

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