Chiyoda Corporation Annual Report 2009

Plain-text annual report

Proﬁ le 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 ﬁ elds of oil, natural gas and other energy sources; petrochemicals and chemicals; pharmaceuticals; and general industrial machinery. Thirty-seven years ago in 1972, Chiyoda’s founder was already emphasizing in a book- let entitled Legacy for the Twenty-ﬁ rst Century that sustainable social development should progress by harmonizing nature and industrial development. We were one of the ﬁ rst companies to state our intention to contribute to sustainable social development through our engineering and technology by providing appropriate so- lutions 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 over 60 years of technological experience, Chiyoda is working to build on its po- sition as the “Reliability No. 1” project company with a high level of customer and inves- tor 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 ﬁ nancial strength and to raise our cor- porate value. Corporate Philosophy Enhance our business in aiming for harmony between energy and the environment, and contribute to the sustainable development of a society as an integrated engineering company through the use of our collective wisdom and painstakingly developed technology. 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, 2009. Unknown risks and other uncertainties that happen in the future may cause our actual results to be different from the forward-looking state- ments 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 ﬂ uctuation, among others. Photo: Courtesy of Sakhalin Energy Investment Company Ltd. Photo: Courtesy of Qatargas Contents 1 Proﬁ le 2 4 8 Financial Highlights To Our Stakeholders Medium-term Management Plan Topics 10 Topics: Qatar LNG Projects 12 Topics: Sakhalin LNG Project Corporate Governance Management Structures 14 14 15 16 17 21 54 56 Internal Control Structure Compliance Board of Directors, Corporate Auditors and Executive Ofﬁ cers Photo: Courtesy of Sakhalin Energy Investment Company Ltd. Management’s Discussion and Analysis Consolidated Financial Statements Global Network Corporate Information Photo: Courtesy of Qatargas Financial Highlights Years Ended March 31, 2009, 2008, 2007, 2006 and 2005 Millions of yen Thousands of U.S. dollars 2009 2008 2007 2006 2005 2009 For the Year Revenues ¥446,438 ¥603,560 ¥484,895 ¥390,875 ¥267,655 $4,555,497 Cost of revenues 427,461 583,035 445,159 360,322 247,905 4,361,852 Operating income 7,227 8,840 28,700 20,729 11,078 73,747 Income before income taxes and minority interests 9,651 18,992 37,935 21,906 12,049 98,479 Net income 6,498 9,641 23,532 19,400 12,863 66,311 At Year-End Total assets ¥357,816 ¥378,820 ¥442,953 ¥279,721 ¥182,893 $3,651,193 Total equity 145,917 81,638 77,415 55,509 36,873 1,488,956 Long-term debt 10,004 22 10,067 10,169 215 102,081 Current ratio (%) 161.1 115.0 118.9 125.1 115.9 Per Common Share (Yen and U.S. dollars) Earnings per share (EPS) ¥25.58 ¥50.15 ¥122.41 ¥101.27 ¥68.62 Book value per share (BPS) 561.12 422.24 400.56 288.88 193.22 Dividends per share 7.5 10.0 15.0 10.0 6.0 0.08 Ratios (%) Return on assets Return on equity 3.1 5.7 4.7 12.2 10.2 35.5 10.0 42.0 7.1 43.1 Note: 1. U.S. dollar amounts are translated, for convenience only, at the rate of ¥98 = US$1, the approximate exchange rate at March 31, 2009. 2. Yen amounts are rounded to the nearest million. U.S. dollar amounts and percentages are rounded to the nearest unit. 3. Total equity of ﬁ sical years prior to FY2006 are calculated on the basis of the former accounting standards. 2 CHIYODA CORPORATION ANNUAL REPORT 2009 Revenues Operating Income Net Income Billions of yen Billions of yen 800 700 600 500 400 300 267.7 603.6 484.9 446.4 390.9 200 100 0 2005 2006 2007 2008 2009 30 25 20 15 10 5 0 28.7 20.7 Billions of yen 30 23.5 20 19.4 12.9 11.1 8.8 7.2 2005 2006 2007 2008 2009 10 0 9.6 6.5 2005 2006 2007 2008 2009 Total Assets and Return on Assets Shareholders’ Equity, Return on Equity and Shareholders’ Equity Ratio Dividends per Share and Payout Ratio Billions of yen 443.0 （%） 40 Billions of yen 150 （%） 120 145.5 Billions of yen 480 360 240 120 0 378.8 357.8 30 100 279.7 182.9 10.2 10.0 7.1 4.7 3.1 20 10 77.0 81.2 43.1 55.5 42.0 50 36.9 20.2 19.8 35.5 17.4 2005 2006 2007 2008 2009 0 0 Total Assets Return on Assets 2005 2006 2007 2008 2009 Shareholders’ Equity Return on Equity Shareholders’ Equity Ratio 90 60 40.7 30 21.4 12.2 5.7 0 20 16 12 8 4 0 （%） 30 29.3 24 18 15 19.9 10 10 12.3 7.5 12 6 8.7 9.9 6 0 2005 2006 2007 2008 2009 Dividends per Share Payout Ratio Revenues by Industry Revenues by Region LNG Plants Gas & Power Utilities Petroleum & Petrochemicals Fine Industries & Others 11.7% 16.7 % 28.4% 43.2 % Overseas Domestic 27.6 % 72.4 % CHIYODA CORPORATION ANNUAL REPORT 2009 3 To Our Stakeholders Takashi Kubota President & CEO Career Summary 1969: Joined Chiyoda Corporation 1995: Project General Manager, Second Overseas Project Division 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 4 CHIYODA CORPORATION ANNUAL REPORT 2009 4 CHIYODA CORPORATION ANNUAL REPORT 2009 Notable Developments in Fiscal 2008 I am pleased to present some of the highlights that took place during ﬁ scal 2008—Chiyoda Group’s 81st ﬁ scal term that ended March 31, 2009. Fiscal 2008 marked the completion of construction and subsequent operational starts of several large-scale liqueﬁ ed natural gas (LNG) projects that the Chiyoda Group has been involved in for several years. These included Russia’s ﬁ rst LNG plant on Sakhalin Island and the ﬁ rst of six LNG trains currently under construction in Qatar that ranks as the world’s largest operating plant. Chiyoda’s plant engineering business has not been immune to international ﬁ nancial volatility or the serious ramiﬁ cations that this disruption had on the global real economy. A notable consequence for the Chiyoda Group was the growing trend among clients to review investment plans, which led to some project rescheduling. However, we will strive to expand orders for new overseas projects and maintain progress on the back- log of projects already under construction to achieve higher proﬁ tability. To cope with these changes, and to rise far above the chal- lenges created by the current operating environment, the Chi- yoda Group embarked on a new medium-term management plan— “Engineering Excellence, Value Creation 2012”—for the ﬁ scal years from 2009 through 2012. A key component of this four-year blueprint for growth is higher corporate value, and our executives are united in their determination to accomplish this goal. CHIYODA CORPORATION ANNUAL REPORT 2009 5 Medium-term Management Plan ue of the Group. Through this plan, Chiyoda will effectively utilize its abundant capital re- The corporate philosophy that deﬁ nes and sources while reinforcing the Group’s operat- inﬂ uences the activities of the entire Chiyoda ing platform to complement its overall core Group is as follows: Expand business activi- competence in the engineering, procurement ties and contribute to sustainable social devel- and construction (EPC) business with greater opment as an integrated engineering organi- activity in the energy, environmental and re- zation, while drawing on accumulated insights source development ﬁ elds. and sophisticated technologies to ensure Efforts will be channeled to realize three harmony between energy needs and environ- themes that will fuel a shift toward preeminent mental responsibility. Guided by this philoso- engineering services, create added value and phy, we will realize Groupwide management secure the Company’s place at the top of the practices worthy of the trust and support of all industry ladder in terms of proﬁ tability. The stakeholders, including shareholders, clients, three themes are: suppliers, employees and the communities in 1. Technology challenge: Enhance, acquire, which members of the Group maintain a pres- accumulate and promote new technolo- ence. gies. Engineering Excellence, Value Creation 2. Optimum solutions: Present environmen- 2012 is designed to raise the corporate val- tally responsible, optimum solutions that address client and social needs. 3. Global diversiﬁ cation: Expand global opera- tions. 6 CHIYODA CORPORATION ANNUAL REPORT 2009 6 CHIYODA CORPORATION ANNUAL REPORT 2009 The Group has honed a sharp competi- Return to Shareholders tive edge by executing its projects with excep- tional results, a strength backed by leading- Targeting a payout ratio of 30%, based on edge, constituent technologies. Engineering consolidated net income, management main- Excellence, Value Creation 2012 will chart the tains a dividend policy that emphasizes the Group’s next stage of development through return of proﬁ ts to shareholders while retaining strategic business alliances, mergers and ac- sufﬁ cient internal reserves to fund future busi- quisitions, technology-oriented R&D, a stron- ness development. ger overseas network, personnel recruitment The dividend for ﬁ scal 2008 has been set and training, and an enhanced information at ¥7.50 per share. Given the difﬁ culties pre- technology infrastructure. sented by the current business environment, The Company is promoting three addi- management anticipates a dividend of ¥6.0 tional strategies to cement a solid foundation per share for ﬁ scal 2009. for future growth. 1. Reinforce core businesses. I ask for your understanding of the chal- lenges faced by the Chiyoda Group and re- 2. Establish a well-balanced business portfolio spectfully request your continued support. for stable growth. 3. Strengthen integrated operations within the Group. August 2009 Takashi Kubota President & CEO CHIYODA CORPORATION ANNUAL REPORT 2009 7 Medium-term Management Plan The corporate philosophy that deﬁ nes and inﬂ uences new medium-term management plan, Engineering Ex- the activities of the entire Chiyoda Group is as follows: cellence, Value Creation 2012(“the medium-term plan”) Enhance our business in aiming for harmony between commencing in ﬁ scal year 2009 (ending on March 31, energy and the environment and contribute to the sus- 2010), and runs through ﬁ scal year 2012 (ending on tainable development of a society as an integrated engi- March 31, 2013). neering company through the use of our collective wis- The medium-term plan aims for sustainable and dom and painstakingly developed technology. stable earnings growth with Chiyoda Group’s EPC core Every Chiyoda Group employee engages in our competence through further reinforcement of its busi- corporate activities with this philosophy in mind as we ness fundamentals by way of its steadily increased capi- strive for corporate Group management that earns the tal strength. trust and empathy of all of our stakeholders, including In our business ﬁ elds, i.e., Energy, Resource Devel- shareholders, customers, business partners, employees opment, and Environment, we will exercise our top qual- and local communities. ity services by way of following three concepts aiming at In order to achieve continuous growth into the fu- such sustainable and stable growth that also contributes ture and expanding corporate value, we formulated a to customers and society. 1 Technology Challenge The Chiyoda Group is constantly focused on the leading-edge technologies for in-depth research and development and to further its applications. We are always engaging on technological challenges such as the renewable energy ﬁ eld and those required for strengthening our project execution capabilities to cope with tighter environmental restric- tions under harsh conditions such as extremely cold weather, offshore locations, etc. 2 Optimum Solutions We will provide environmentally responsible, optimum solutions to meet the needs of customers and society. From feasibility studies (FS) to decommissioning of plants, we will provide these optimum solutions from various angles, ranging from EPC to technol- ogy consulting services. 3 Global Diversiﬁ cation In addition to diversifying our business regions purporting to manage various risks, we will strengthen and diversify our global network through business and/or capital alliances (M&As) and other measures. Furthermore, by enhancing global operational efﬁ ciency with the expansion of Global Engineering Satellites (GES) responsibilities, our cost competitiveness will be strengthened. Energy Energy Environment Environment Resource Resource Development Development CHIYODA Group Engineering Excellence, Value Creation Core Competence Optimum Solutions Optimum Solutions Global Diversiﬁ cation Global Diversiﬁ cation Net income Technology Challenge Technology Challenge Ordinary income 8 CHIYODA CORPORATION ANNUAL REPORT 2009 FY 2012 Performance Assumption (Billions of yen) Revenues Operating income 550 34 38 23 Business Targets Strategies to Achieve Plan Target 1 Strengthen Core Businesses 1. Expand to new countries and regions 2. Respond to diversified project environment Establish offices in regions with profit potential, including Austra- lia and Brazil Strengthen relationships with NOCs Promote business development in new regions through collabora- tion with Mitsubishi Corporation Pursue floating LNG business (established FPSO Department) Broaden opportunities through diverse contracting strategy Seek strategic partners (by re- gion/technical specialty) 2 Build a Balanced Portfolio 3. Adhere to safety- and environment-first policy in plant design and construction 1. Differentiate to acquire refinery, petrochemical, synthetic gas and other projects Strategic application of Chiyoda’s proprietary technologies and licensors’ technologies. 2. Expand environmental 3. Expand into non-EPC business field business fields Expand into renewable energy segment Carbon management business for a low-carbon society Build a technology consulting business Expand licensing business Strengthen IT solutions business 3 Strengthen Uniﬁ ed Group Operation 1. Strengthen regional sales 2. Enhance global and execution focus operational efficiency Expand subsidiaries’ operations in Singapore and Saudi Arabia Expand and promote GES (Global Engineering Satellite) operations Full-scale operation of subsidiary in Qatar 3. Develop business in new regions through capital and business alliances with other companies Main Strategies Further strengthen core businesses Build a balanced portfolio Strengthen uniﬁ ed Group operations Create an energetic corporate culture and develop human resources CHIYODA CORPORATION ANNUAL REPORT 2009 9 Topics Qatar LNG Projects Completed Train 4 for Qatargas 2, World’s Largest LNG Plant Completed Train 4 for Qatargas 2, World’s Largest LNG Plant tinction of being the world’s largest. The achievement of such an immense undertak- ing is the culmination of a successful journey through uncharted territory, which required that many facets of design and execution needed a new or innovative approach. Chiyoda is currently involved in the con- struction of another 5 LNG trains of the same scale, and is steadily moving toward delivery, currently scheduled for the end of 2010. Once all 6 trains are in operation, Qatar will have an LNG production capacity of 77 million tonnes per year, which will account for 30% of global production capacity. As many as 75,000 people from more than 80 countries were engaged at the peak of con- struction for the 6 trains. Train 4 for the Qatargas 2 Project, which will be an important milestone in our project history, was completed with a record of 20 million man-hours without a lost time inci- dent. As for the remaining 5 trains, we will dem- onstrate our capabilities in project execution beyond any doubt and strive diligently to add another success to our project history. Solid results will cement a position of excellence for the Chiyoda Group in the ﬁ eld of EPC ser- vices for LNG plant construction. On April 6, 2009, the inauguration ceremony for the world’s largest LNG plant took place at Ras Laffan Industrial City in Qatar, a coun- try on a peninsula that juts out from the east- ern coast of the Arabian Peninsula into the Persian Gulf. Chiyoda’s involvement in the construc- tion of this plant—Train 4 of the Qatargas 2 Project—lasted for more than four years. Construction was completed in March 2009, and Train 4 is now producing LNG for export to the United Kingdom. Capable of producing 7.8 million tonnes of LNG per year, Train 4 boasts a massive increase in capacity—more than 50%—over similar facilities that previously held the dis- 10 CHIYODA CORPORATION ANNUAL REPORT 2009 Established Chiyoda Almana Engineering L.L.C. Established Chiyoda Almana Engineering L.L.C. business model, Plant Lifecycle Engineering (PLE). CAEL plans to offer its services under this business model to other clients in Qatar and will use the format to underpin its contri- bution to the economic and social develop- ment of this Middle East emirate through its engineering capabilities. PLE: A business model providing feasibility studies, front end engineering design (FEED), detailed en- gineering, procurement and construction (EPC), operation, maintenance, expansion, modiﬁ cation, upgrading and revamping from the client’s per- spective. Qatar is one of the most important markets for Chiyoda, where the Company has com- pleted a considerable number of plants. In- deed, management also views Qatar as fertile ground for new contracts—with EPC services not limited to only mega-sized projects but also extending to small and medium-sized projects as well—and a source of stable de- mand for a variety of other services. In March 2008, we established a lo- cal subsidiary, Chiyoda Almana Engineer- ing L.L.C. (CAEL), with the Almana Group, a prominent conglomerate with whom we have developed an amicable, long-term relation- ship. In March 2009, CAEL inked an all-en- compassing contract with RasGas Company Limited to provide EPC services for small and medium-sized projects. The four-year con- tract responds to the needs of RasGas and facilitates access to the services that not only CAEL but also Chiyoda will provide under a Photo: Courtesy of RasGas Photo: Courtesy of RasGas Photos: Courtesy of Qatargas CHIYODA CORPORATION ANNUAL REPORT 2009 11 Sakhalin LNG Project Russian resources and Japanese technologies came together to realize Russia’s ﬁ rst LNG plant. The contract to build an LNG plant on Sakhalin Island was awarded in 2003 and the project was completed in 2008. In February 2009, Taro Aso, prime minister of Japan, and Dmitry Medvedev, president of Russia, attended a ceremony to mark the start of operations. The ﬁ rst shipment of LNG left the port of Prigorodnoye in March 2009. Dealing with Extreme Cold Dealing with Extreme Cold Harsh weather conditions, exempliﬁ ed by win- ter temperatures dipping as low as -30˚C, created a challenging project environment. With a limited window of opportunity for large-scale construction activities, minor mistakes in work management— such as not properly addressing working condi- tions—could have delayed annual progress by six months. Through various efforts, Chiyoda overcame the challenges caused by Sakhalin’s bitter climate to ﬁ nish the project on schedule. In constructing the plant, we kept environmental impact to a minimum, emphasized project safety and applied our ingenuity and resourcefulness to surmount difﬁ cult circumstances. In the end, the project to build Russia’s ﬁ rst LNG plant was successfully accomplished. Safety Initiatives Safety Initiatives When constructing the plant, Chiyoda placed considerable weight on project safety, and well- thought-out safety initiatives led to more than 20 million man-hours logged without a single lost-time incident and some 40 million kilometers traveled without accident. Our emphasis on safety was also recognized by Royal Dutch Shell plc, an investor in Sakhalin Energy Investment Company Ltd.,—our client—and earned us the inaugural Shell Chief Executive HSE Award in 2007. HSE stands for health, safety and environment. 12 CHIYODA CORPORATION ANNUAL REPORT 2009 Contributing to the Local Community, Contributing to the Local Community, Protecting the Environment Protecting the Environment In the Sakhalin LNG Project, Chiyoda implemented sus- tainable development initiatives to enable the local com- munity to foster continuous growth. We contributed to the development of the local economy through personnel training and job creation programs, including training for junior engineers. At the peak of construction, we employed more than 5,000 Russians in the project. This project is also noteworthy for a heightened em- phasis on environmental protection. We demonstrated good stewardship of the natural surroundings around the salmon rivers that run through the project site, and we complied with strict ecological requirements. We also monitored the results of restoration efforts following con- struction, based on environmental assessments, and sub- mitted reports to the Russian authorities. Connection to Japan Connection to Japan The LNG produced from Sakhalin reserves is exported to several markets, including Japan. The project was im- portant to Russia, for many reasons, but it carried great signiﬁ cance for Japan, as well. It was an event that brought Russian resources and Jap- anese technology together and secured an energy source right next door, so to speak, rather than half a world away, in the Middle East and elsewhere, which Japan has previously had to rely upon. The project was presented to the children of Sakhalin as a link between Russia and Japan. These aspects of the project drew positive attention, exempliﬁ ed in March 2009 by the receipt of a Japan Proj- ect International Award by the Minister of Land, Infrastruc- ture, Transport and Tourism. Photos: Courtesy of Sakhalin Energy Investment Company Ltd. CHIYODA CORPORATION ANNUAL REPORT 2009 13 Corporate Governance The basic premise behind corporate governance within the Chiyoda Group is that the manage- ment practices that underpin operations must emphasize corporate social responsibility (CSR) and earn the trust and support of all stakeholders, including shareholders, customers and em- ployees. To sustain quality growth over the medium to long term, we are continuously striving to re- inforce our business platform, ensure sound management practices and enhance management transparency. Along with steady progress toward the goals laid out in our new medium-term management plan—Engineering Excellence, Value Creation 2012—upon which we embarked April 1, 2009, we will prioritize measures to improve corporate governance and fortify our inter- nal control structure. Management Structures engages in the preliminary discussion of issues that will be brought before the Board of Directors for ﬁ nal ap- Chiyoda has adopted the corporate auditor system. The proval. Company has also embraced the executive ofﬁ cer sys- The Corporate Auditors Committee has four mem- tem to promote decision-making that accurately match- bers, three of whom are full-time auditors. Three of the es the fast-paced changes which characterize current committee members are external auditors. Corporate social and economic conditions. Under this structure, auditors maintain close ties with the independent audi- executive ofﬁ cers and directors assume separate func- tors of the Company’s accounting ﬁ rm and meet regu- tions, with the former shouldering responsibility for day- larly with them to keep apprised of such events as the to-day operations, thus leaving the latter able to focus annual audit plan and the year-end audit of the Compa- on decision-making and management supervision. This ny’s ﬁ nancial statements. The Corporate Auditors Ofﬁ ce, separation of functions ensures the appropriate execu- with one full-time employee, assists corporate auditors tion of duties and business activities. Executive ofﬁ cers in the execution of their duties. provide regular reports on the status of operations within The Company established the Operational Auditing their respective areas of authority at the monthly meet- Ofﬁ ce to determine, from an independent perspective, ing of the Executive Committee, at which directors are whether the overall framework for internal controls is also present. well structured and also if the various components of The Board of Directors comprises nine directors, this framework are performing as intended. The ofﬁ ce is including four representative directors, and meets once staffed by 10 full-time employees. a month. This management group monitors the activi- ties of executive ofﬁ cers and makes decisions pertaining to management policy and the execution of operations. Internal Control Structure To accelerate the decision-making process and ﬁ ne- Chiyoda seeks to maintain effective and efﬁ cient opera- tune decisions according to rapidly changing social and tions, ensure reliable ﬁ nancial reporting, comply with economic conditions, the Board of Directors delegates prevailing laws and regulations, and protect its assets. some decision-making authority to the representative Toward this end, the Company has created the follow- directors on the Executive Committee. ing internal control structure, based on the features that The Executive Committee, which consists of four deﬁ ne its business activities. representative directors, undertakes decisions within its authority regarding the execution of operations and also 14 CHIYODA CORPORATION ANNUAL REPORT 2009 　 Corporate Governance and Internal Controls Correlation Chart Compensation for Directors and Corporate Auditors in Fiscal 2008 General Meeting of Shareholders Appointment Discussion, Report Report Directors Board of Directors Appointment Report Appointment Corporate Auditors Corporate Auditors Committee Report Appointment Appointment Audit Audit Appointment Appointment Audit Discussion, Report Executive Officers Board of Executive Officers Representative Directors Executive Committee Regular reports, Regular reports, including results including results Arranges organizations Arranges organizations and human resources and human resources Discussion, Report Delegates (Proposals) Report Internal controls for each area Business execution divisions (Risk managers) Project Management Administration Dept. Group Operation Management Dept. Corporate Planning Division Self-assessment Administration & Personnel Division G r o u p c o m p a n e s i Finance Division Crisis managers Investigate, Reference Internal Control Steering Committee Operational Auditing Office Safety, Quality and Environmental (SQE) Division Health, Safety and Environment (HSE) Management Office Quality Management Office CSR Division Compliance Management Office Social Environment Office Information Security Management Office Export Control Office Number Basic Compensation Performance- linked Compensation Addition to Reserve for Directors’ and Corporate Auditors’ Retirement Beneﬁ ts Directors 11 ¥222 million ¥53 million ¥70 million 6 Corporate Auditors Notes: 1. Total compensation for directors was ¥346 million and for corporate auditors, ¥74 ¥63 million ¥11 million — million. Total compensation for the four outside executives—four external auditors—was ¥51 million. The total compensation amount includes provision to reserve for directors’ retirement beneﬁ ts. The number of directors includes one director who did not receive compensation. 2. The compensation limit for directors, excluding the portion paid as salary to directors holding concurrent positions as employees of the Company, was ¥25 million per month, based on shareholder approval of a proposal put forward at the 73rd Ordinary General Meeting of Shareholders on June 28, 2001. The compensation limit for corporate auditors was ¥7 million per month, based on shareholder approval of a proposal put forward at the 67th Ordinary General Meeting of Shareholders on June 29, 1995. 3. Performance-linked compensation for directors is held to 1% of consolidated net income, with a limit of ¥200 million annually, in accordance with shareholder approval of a proposal put forward at 78th Ordinary General Meeting of Shareholders on June 22, 2006. I n d e p e n d e n t A u d i t o r s A c c o u n t i n g a u d i t ( U n i t s w i t h i n t e r n a l c o n t r o l f u n c t i o n ) Compliance ance,” which translates roughly as “the anything-you- want-to-know-about-compliance ofﬁ ce.” The ofﬁ ce Chiyoda believes that the trust and afﬁ nity of society acts as a processing point for advice and reports on and customers underlie the foundation of the Group’s perceived illegal or unethical behavior by individuals or corporate activities. To ensure that the Group’s busi- organizations within the Group and thereby facilitates ness pursuits conform to social standards, manage- quick detection of improper conduct, remedies the sit- ment seeks unconditional respect from all members uation or, better yet, prevents problems from appearing of the Group for domestic and international laws and in the ﬁ rst place. regulations, global agreements and internal rules. The hotline itself is run jointly by nine Group com- To this end, the Company instituted the Group panies and has an external link to a lawyer as well as code of conduct in April 2006 and established the staff who specialize in women’s workplace issues. Ev- Compliance Management Ofﬁ ce to promote wide- eryone employed by Chiyoda and its Group companies spread understanding of compliance issues. may take advantage of the hotline. Group companies have access to a compliance- In ﬁ scal 2008, the hotline received 11 reports, and oriented consultation and reporting system—a hotline the Company duly provided feedback about the mea- casually referred to as “Welcome to All About Compli- sures it took to deal with the reports. Compliance Consultation and Reporting System “Welcome to All About Compliance” Corporate Auditors Executive Committee President & CEO External Consultation Center (Lawyer) Contact Instruction (Remedial Action and Prevention) Report CSR Division/Compliance Management Office Compliance Staff Consultation and Reporting Manager Report Consultation and Reporting Feedback Consultation and Reporting Exployees and Temporary Staff (Including Those of Subsidiaries) CHIYODA CORPORATION ANNUAL REPORT 2009 15 Board of Directors, Corporate Auditors and Executive Ofﬁ cers Board of Directors Corporate Auditors President & CEO Takashi Kubota * Executive Vice President Yoichi Kanno * Executive Vice President Hiroshi Shibata * Senior Managing Executive Ofﬁ cer Madoka Koda * Managing Executive Ofﬁ cer Managing Executive Ofﬁ cer Sumio Nakashima Technology & Engineering Satoru Yokoi Business Development Operation Hiroshi Ida ** Wataru Shimono Masanori Ito ** Yukihiro Imadegawa ** Managing Executive Ofﬁ cer Hiroshi Ogawa Project Operations ** Outside Corporate Auditor Managing Executive Ofﬁ cer Kazuo Obokata Projects Logistics & Construction Executive Ofﬁ cer Seiji Shiraki * Representative Directors / Members of Executive Committee Executive Ofﬁ cers Managing Executive Ofﬁ cer Takaharu Saegusa Corporate Planning, Management & Finance Executive Ofﬁ cer Takao Kamiji Business Development Operation Managing Executive Ofﬁ cer Hideo Kobayashi Project Operations Project Director Executive Ofﬁ cer Katsutoshi Kimura Corporate Planning, Management & Finance General Manager, Finance Division Managing Executive Ofﬁ cer Toshiyuki Ohnuma Corporate Planning, Management & Finance Executive Ofﬁ cer Kenjiroh Miura Project Operations General Manager, Project Planning & Administration Managing Executive Ofﬁ cer Manabu Mitani Projects Logistics & Construction Executive Ofﬁ cer Hiromi Koshizuka Project Operations Executive Ofﬁ cer Tsuyoshi Kakizaki General Manager, SQE Division Executive Ofﬁ cer Shougo Shibuya Technology & Engineering Executive Ofﬁ cer Executive Ofﬁ cer Eisaku Yamashita Business Development Operation General Manager, Business Development Division 1 Koichi Shirakawa Project Operations General Manager, International Project Division 2 Executive Ofﬁ cer Ryosuke Shimizu Corporate Planning, Management & Finance General Manager, Corporate Planning Division Executive Ofﬁ cer Masahiko Kojima General Manager, Corporate Plan Implementation Ofﬁ ce 16 CHIYODA CORPORATION ANNUAL REPORT 2009 Management’s Discussion and Analysis Business Results by national and international oil companies. For the ﬁ scal year ended March 31, 2009, in addition to an Regarding the market environment for Chiyoda during LNG plant project in Algeria, Chiyoda was awarded the year ended March 31, 2009, major crude oil and contracts including the FEED and Execution Planning natural gas producing countries as well as energy ma- Order for the Barzan onshore gas processing project jors had planned substantial capital investment. How- in Qatar, an EPC Competition Contract for participa- ever, with a downturn in the product market, shrinking tion in an EPC design competition for an LNG plant in demand and other effects of the rapidly worsening Papua New Guinea and the FEED services for the Ich- economy, conditions became uncertain, including a thys LNG project in Australia. In addition, in promoting growing trend toward revising timing and other condi- its plant life cycle engineering business, Chiyoda was tions of investment. awarded a long-term Engineering, Procurement, Con- Under these circumstances, the Chiyoda Group struction Management (EPCm) Services Contract for made concentrated efforts to properly execute ongo- LNG and gas processing plants through its subsid- ing projects. These efforts included completing and iary in Qatar. Furthermore, Chiyoda worked to secure handing over the ﬁ rst liqueﬁ ed natural gas (LNG) plant contracts for ﬂ oating LNG facilities, in which invest- in Russia and the ﬁ rst of six trains of the world-largest ment is expected to grow. LNG plants (7.8 million tonnes per annum) in Qatar. In Japan’s gas and electric power sector, new While the prolonged commercial discussions with Qa- construction and expansion of LNG receiving termi- tar Liqueﬁ ed Gas Co., Ltd. (3) and (4) to extend the nals are being planned as a result of the shift to LNG construction period and increase the contracted price as an energy source for reasons including demands to for construction of Train 6 and Train 7 of the LNG plant curb CO2 emissions and growth in gas-related busi- have concluded, the construction budget could not nesses. Amid these conditions, the Group acquired be maintained because the price increase secured fell contracts including the FEED for large-scale LNG re- short of projected additional costs to be paid to sub- ceiving terminal in addition to the three terminals un- contractors and other parties. der construction. As a result, on a consolidated basis, new con- tracts were ¥209,422 million, a 19.1% decrease com- Petroleum, Petrochemicals and Gas Chemicals pared with the same period of the previous year, and In the overseas petroleum sector, despite uncertainty the backlog of contracts was ¥425,043 million, a about the future, Chiyoda worked to acquire contracts decrease of 36.6%. Revenues decreased 26.0% to related to planned investments in petroleum reﬁ neries ¥446,438 million, operating income decreased 18.2% in the Middle East and Southeast Asia. to ¥7,227 million, ordinary income decreased 40.1% In Japan’s petroleum sector, Chiyoda steadily to ¥11,449 million, and net income decreased 32.6% promoted ongoing projects and worked to acquire to ¥6,498 million. new contracts for various investment projects includ- ing those for strengthening the competitiveness of in- dustrial areas and environmental measures centered Results by Business Segment on energy conservation. Natural Gas and Electric Power In the petrochemicals sector, although some in- vestment projects were delayed due to the economic Overseas, the Chiyoda Group focused on acquiring downturn, the Group focused on acquiring contracts contracts for study and Front-End Engineering and for facility maintenance and repair while promoting Design (FEED) under gas-related investment plans development projects including pilot facilities. CHIYODA CORPORATION ANNUAL REPORT 2009 17 General Chemicals and Industrial Machinery reason for the decline in asset value was a decrease The Group has worked to enter into the promising of ¥92,256 million in the jointly-controlled asset fund ﬁ elds of solar battery components, reﬂ ecting global of joint ventures through outgoing payments to ven- policies to promote wider use of solar batteries, and dors and subcontractors as large-scale joint venture lithium batteries for automobiles. projects progressed. As a result, total assets de- The Group has steadily acquired new contracts in creased ¥21,003 million from the end of the previous the pharmaceuticals sector due to an increasing drive ﬁ scal year. to invest in new construction and expansion of exist- • Liabilities ing plants in order to adapt to recent changes in the Total liabilities decreased ¥85,283 million. This was business environment. mainly due to a ¥93,360 million decrease in the bal- ance of advances received on uncompleted construc- Environment and Others tion contracts. Chiyoda continued to conduct marketing activities in • Net Assets Japan and overseas for its original CT-121 ﬂ ue gas Total net assets were ¥145,917 million due to a desulfurization process technology. In Europe, where ¥30,457 million increase from the third-party alloca- environmental restrictions are severe, Chiyoda li- tion that Chiyoda implemented, and a ¥65,377 million censed its proprietary technologies for use at a major increase in shareholders’ equity due to factors includ- power station in Denmark. Major Completed Construction (cid:129) Feed gas preparation works of Pearl GTL project for Qatar Shell GTL Ltd. in Qatar (*) ing a ¥30,390 million increase in retained earnings. The equity ratio increased 19.3 points compared with the end of the previous ﬁ scal year to 40.7%. (cid:129) LNG plant Trains 6 & 7 for Ras Laffan Liquefied Natural Gas Co., Ltd. (3) in Qatar (*) Cash Flow (cid:129) LNG plant Trains 6 & 7 for Qatar Liquefied Gas • Cash ﬂ ow from operating activities Overseas Company Limited (3) & (4) in Qatar (*) (cid:129) LNG plant Trains 4 & 5 for Qatar Liquefied Gas Company Limited (2) in Qatar (*) (cid:129) Al Khaleej Gas Phase 2 project for ExxonMobil in Qatar (*) (cid:129) Sakhalin II LNG project in Russia (cid:129) CCR unit for Seibu Oil Co., Ltd. (*) Domestic (cid:129) Expansion of Mizushima LNG receiving terminal for Mizushima LNG Company, Limited (*) Net cash provided by operating activities was ¥8,971 million. Contributing factors included: a decrease of ¥104,124 million in working capital - total notes and accounts receivable for trade, costs on uncompleted construction projects, and - notes and accounts payable for trade and advances received on uncompleted construction projects (cid:129) RFCC complex for Taiyo Oil Co., Ltd. (*) income before income tax and minority interests of (*) Completed portion Cash Flow Analysis ¥9,651 million depreciation and amortization of ¥1,957 million a decrease of ¥92,256 million in jointly controlled as- sets of joint venture due to the progress of large- Assets, Liabilities and Net Assets scale joint venture projects • Assets interest and dividend income of ¥1,347 million Despite an increase in cash and cash equivalents and certiﬁ cates of deposit (short-term investment securi- • Cash ﬂ ow from investment activities ties) of ¥64,604 million, which included an amount Net cash used for investment activities was ¥1,072 mil- received for allocation of new shares to a third party, lion, due to capital expenditure on, for example, the pur- current assets decreased by ¥17,359 million. A major chase of software for ¥1,720 million and other factors. 18 CHIYODA CORPORATION ANNUAL REPORT 2009 • Cash ﬂ ow from ﬁ nancing activities In Japan, the objective will be to look beyond ex- Net cash provided by ﬁ nancing activities was ¥58,548 isting ﬁ elds of pursuit to maximize the Group’s over- million. Factors included ¥60,577 million from the al- seas presence and develop business activities that location of new shares to a third party, and cash divi- will lead to orders for various industrial facilities and dends paid totaling ¥1,920 million. for projects by domestic clients expanding their op- As a result of this, net cash and cash equivalents erations abroad. as of March 31, 2009 totaled ¥135,536 million, an in- crease of ¥65,447 million from the end of the previous Complete existing orders ﬁ scal year. Issues Requiring the Group’s Attention The proﬁ tability of some LNG projects under construc- tion in Qatar is being squeezed, due mainly to factors such as a shortage of workers causing costs to ex- ceed initial estimates. The Group must therefore care- fully manage the progress of big projects at home and It is clear that the turmoil in the international ﬁ nance abroad, including existing LNG projects, and reinforce community, triggered by the U.S. subprime mortgage its reputation for reliability among clients by taking crisis, has had serious repercussions for the real an even stronger stance on safety and ensuring the global economy. A major short-term consequence steady execution of construction work. of worldwide recession for the Chiyoda Group is the postponement of projects caused by a sluggish de- Cultivate new businesses mand for energy and the general expectation that Efforts will be directed into areas in the environment plant costs will drop. It will be imperative that man- sector where the Company boasts a superior techno- agement closely watches market trends and is ready logical capability. The Group will foster opportunities to act on business opportunities when they emerge. to provide software services, such as feasibility stud- The targets and strategies laid out in the new ies, and develop processes that can be turned into medium-term management plan—Engineering Ex- marketable activities. An internal business execution cellence, Value Creation 2012—were formulated with structure will be established for non-engineering, pro- the challenges of the current business environment in curement and construction businesses to underpin mind. To achieve stated targets and successfully exe- new business development. cute the strategic blueprint, the Group will emphasize the following issues during ﬁ scal 2010, the ﬁ rst year of Add new points to the Group’s overseas map Engineering Excellence, Value Creation 2012. Management plans to attract essential personnel to execute projects and run operations at local subsid- Secure orders for new projects iaries throughout the Group network. This will create Given the swiftly changing economic situation over- a business and execution structure that is ﬁ ne-tuned seas, Group companies will track the investment to each region. The Group will utilize its international trends of respective clients and focus efforts on win- specialized capabilities to underpin its cost-competi- ning new orders, not only in the areas of LNG- and tiveness, along with measures to reinforce and extend gas-related projects but in other industry sectors the function of our overseas design subsidiaries. such as oil and petrochemicals. Toward this end, measures will be drawn up to reinforce R&D capabili- ties and cost competitiveness, and to retain and train essential personnel. CHIYODA CORPORATION ANNUAL REPORT 2009 19 Business Risks ing of business partners, while monitoring economic trends, to conﬁ rm whether and under what conditions The primary issues that could affect investor deci- to transact business. sions regarding investment risk, such as material is- sues related to the Chiyoda Group’s ﬁ nancial position, Terrorism, Conﬂ icts and Other Force performance and cash ﬂ ow, and the Chiyoda Group’s Majeure Events response to such issues, include but are not limited Force majeure events such as terrorism or conﬂ icts to the issues outlined below. The Chiyoda Group rec- may cause direct losses, delays in procuring or deliv- ognizes the potential occurrence of these risks and ering materials and equipment, threats to the safety works to avoid them to the maximum extent possible. of workers, cessation of construction work and other The Chiyoda Group also moves to respond as quickly problems at construction sites in Japan and over- as possible to minimize the impact of issues that pres- seas. ent risks if and when they occur. While placing top priority on the avoidance of hu- Chiyoda Group management acknowledges that man injury, the Chiyoda Group has structured a threat the issues outlined below may present risks in the fu- management system that includes cooperation with ture outlined below and has made them the focus of customers and other related parties to support rapid risk management. Changes in Exchange Rates initial response should such events occur. In addition, the Chiyoda Group will take other steps to avoid or minimize these risks, including negotiating contractual In overseas construction projects, payments made to provisions that rationally allocate additional costs to Chiyoda for construction are often in currencies differ- customers. ent to those made by Chiyoda to vendors for equipment and materials and/or subcontractors. Foreign curren- Plant Accidents cy exchange rates may therefore affect the ﬁ nancial The possibility exists that a serious incident such as an results of the projects. The Chiyoda Group works to explosion or ﬁ re may occur at plants that the Chiyoda avoid and minimize such foreign currency ﬂ uctuation Group is constructing or has completed. The Chiyoda risks by using forward foreign exchange contracts and Group could be judged responsible for such acci- matching planned outlays in multiple currencies with dents, including being held liable for damages, which construction payments and receivables. Rapid Changes in Economic Trends 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 Cancellation, delays or revisions of the investment to preclude the occurrence of such incidents, includ- plans of customers, or other factors resulting from ing quality control and safety management. Other changes in economic trends exceeding forecasts, countermeasures include maintaining the appropriate could impact the Chiyoda Group’s performance. In insurance coverage and negotiating contracts that ra- addition, construction execution plans and budgets tionally allocate customer responsibility for damages. and collection of receivables may be affected by worsening business conditions of business partners involved in plant construction, including subcontrac- tors and suppliers of equipment and materials. The Group will work to avoid and minimize risk in ways such as sufﬁ ciently analyzing the credit stand- 20 CHIYODA CORPORATION ANNUAL REPORT 2009 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Financial Statements for the Years Ended March 31, 2009 and 2008, and Independent Auditors' Report CHIYODA CORPORATION ANNUAL REPORT 2009 21 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Balance Sheets March 31, 2009 and 2008 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 2009 2008 Thousands of U.S. Dollars (Note 1) 2009 ¥ 135,536 52 33,090 (3 ) ¥ 70,089 895 27,230 (5) $ 1,383,025 533 337,662 (38) 17,560 16,920 5,177 100,426 9,872 2,215 9,139 16,802 10,441 192,684 5,337 5,596 179,184 172,656 52,827 1,024,764 100,742 22,605 Total current assets 320,848 338,208 3,273,964 PROPERTY, PLANT AND EQUIPMENT (Note 9): Land Buildings and structures Machinery and equipment Tools, furniture and fixtures Construction in progress Total Accumulated depreciation 11,953 14,752 870 5,010 1 32,588 (10,586 ) 11,936 14,894 1,261 5,467 33,558 (10,485) 121,979 150,534 8,881 51,127 10 332,533 (108,028) Net property, plant and equipment 22,001 23,073 224,504 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 3,765 3,203 3,546 1,348 3,435 (333 ) 5,583 3,734 3,566 1,650 3,496 (490) 38,423 32,692 36,189 13,764 35,055 (3,401) Total investments and other assets 14,967 17,539 152,724 TOTAL ¥ 357,816 ¥ 378,820 $ 3,651,193 See notes to consolidated financial statements. 22 CHIYODA CORPORATION ANNUAL REPORT 2009 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 2009 2008 ¥ 18 77,020 91,661 5,457 4,468 3,801 4,302 12,488 ¥ 10,039 74,038 185,023 1,408 4,970 2,099 4,045 12,364 Thousands of U.S. Dollars (Note 1) 2009 $ 183 785,925 935,326 55,690 45,592 38,789 43,900 127,430 Total current liabilities 199,218 293,986 2,032,838 NON-CURRENT LIABILITIES: Long-term debt (Note 9) Liability for retirement benefits (Note 10) Other liabilities 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, 260,292 thousand shares in 2009 and 193,183 thousand shares in 2008 Preferred stock—authorized, 80,000 thousand shares Capital surplus Retained earnings Unrealized loss on available-for-sale securities Deferred loss on derivatives under hedge accounting Foreign currency translation adjustments Treasury stock—at cost, 963 thousand shares in 2009 and 904 thousand shares in 2008 Total Minority interests 10,004 2,288 388 12,681 22 2,226 948 3,196 102,081 23,352 3,964 129,398 43,392 12,935 442,782 37,108 69,730 (775) (1,368) (1,469) (1,105) 145,513 404 6,718 65,155 (847) (1,668) (6) (1,059) 81,228 410 378,662 711,539 (7,912) (13,961) (14,993) (11,285) 1,484,831 4,125 Total equity 145,917 81,638 1,488,956 TOTAL ¥ 357,816 ¥ 378,820 $ 3,651,193 CHIYODA CORPORATION ANNUAL REPORT 2009 23 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Income Years Ended March 31, 2009 and 2008 Millions of Yen 2009 2008 Thousands of U.S. Dollars (Note 1) 2009 REVENUE (Notes 4 and 5) ¥ 446,438 ¥ 603,560 $ 4,555,497 COST OF REVENUE (Notes 4 and 5) 427,461 583,035 4,361,852 Gross profit 18,977 20,525 193,644 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Notes 4 and 14) 11,749 11,685 119,897 Operating income 7,227 8,840 73,747 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 Gain on sales of investment securities (Note 6) Reversal of impairment loss (Note 7) Loss on valuation of investment securities Other—net 5,101 (340) 137 (435) 127 (1,859) (306) 10,901 (405 ) 435 (979 ) (485 ) 72 644 268 (617 ) 318 52,052 (3,477) 1,405 (4,440) 1,296 (18,978) (3,126) Other income—net 2,423 10,152 24,732 INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 9,651 18,992 98,479 INCOME TAXES (Note 13): Current Deferred Total income taxes MINORITY INTERESTS IN NET INCOME 7,120 (3,996) 3,123 29 7,355 1,968 9,323 28 72,656 (40,784) 31,871 296 NET INCOME ¥ 6,498 ¥ 9,641 $ 66,311 24 CHIYODA CORPORATION ANNUAL REPORT 2009 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Income Years Ended March 31, 2009 and 2008 PER SHARE OF COMMON STOCK (Notes 2.s and 18): Basic net income Diluted net income Cash dividends applicable to the year See notes to consolidated financial statements. Yen 2009 2008 U.S. Dollars 2009 ¥ 25.58 25.58 7.50 ¥ 50.15 50.12 10.00 $ 0.26 0.26 0.08 CHIYODA CORPORATION ANNUAL REPORT 2009 25 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Changes in Equity Years Ended March 31, 2009 and 2008 Thousands Outstanding Number of Shares of Common Stock Common Stock Capital Surplus Retained Earnings BALANCE, APRIL 1, 2007 192,289 ¥ 12,928 ¥ 6,712 ¥ 58,398 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) BALANCE, MARCH 31, 2008 192,279 12,935 6,718 65,155 Net income Issuance of common stock to a third party (Note 11) Issuance of common stock by stock option plan (Notes 11 and 12) Cash dividends, ¥10.00 per share Repurchase of treasury stock Net change in the year 67,080 30,454 30,387 30 (60 ) 3 3 6,498 (1,922) BALANCE, MARCH 31, 2009 259,328 ¥ 43,392 ¥ 37,108 ¥ 69,730 Common Stock Capital Surplus Retained Earnings BALANCE, MARCH 31, 2008 $ 131,988 $ 68,553 $ 664,848 Net income Issuance of common stock to a third party (Note 11) Issuance of common stock by stock option plan (Notes 11 and 12) Cash dividends, $0.10 per share Repurchase of treasury stock Net change in the year 310,758 310,073 35 35 66,311 (19,620) BALANCE, MARCH 31, 2009 $ 442,782 $ 378,662 $ 711,539 See notes to consolidated financial statements. 26 CHIYODA CORPORATION ANNUAL REPORT 2009 Millions of Yen Unrealized (Loss) Gain on Available- for-sale Securities Deferred Loss on Derivatives under Hedge Accounting Foreign Currency Translation Adjustments Treasury Stock Total Minority Interests Total Equity ¥ 248 ¥ (408) ¥ 50 ¥ (905 ) ¥ 77,023 ¥ 392 ¥ 77,415 (1,095) (847) (1,260) (1,668) (56 ) (6 ) 9,641 13 (2,884) (154) (2,411) 18 (154 ) (1,059 ) 81,228 410 71 299 (1,462 ) (46 ) 6,498 60,841 6 (1,922) (46) (1,091) (6) 9,641 13 (2,884) (154) (2,393) 81,638 6,498 60,841 6 (1,922) (46) (1,097) ¥ (775) ¥ (1,368) ¥ (1,469 ) ¥ (1,105 ) ¥ 145,513 ¥ 404 ¥ 145,917 Thousands of U.S. Dollars (Note 1) Unrealized Loss on Available- for-sale Securities Deferred Loss on Derivatives under Hedge Accounting Foreign Currency Translation Adjustments Treasury Stock Total Minority Interests Total Equity $ (8,644) $ (17,016) $ (70) $ (10,813 ) $ 828,845 $ 4,193 $ 833,038 732 3,055 (14,922) (471 ) 66,311 620,832 71 (19,620) (471) (11,135) (68) 66,311 620,832 71 (19,620) (471) (11,203) $ (7,912) $ (13,961) $ (14,993) $ (11,285 ) $ 1,484,831 $ 4,125 $ 1,488,956 CHIYODA CORPORATION ANNUAL REPORT 2009 27 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years Ended March 31, 2009 and 2008 OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 9,651 ¥ 18,992 $ 98,479 Millions of Yen 2009 2008 Thousands of U.S. Dollars (Note 1) 2009 Adjustments for: Income taxes paid Depreciation and amortization Reversal of allowance for doubtful accounts—net Provision for warranty costs for completed works Provision for 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 (gain) loss—net Equity in earnings of associated companies Loss on a partial termination of a defined benefit pension plan Changes in operating assets and liabilities: (Increase) decrease in trade notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Decrease in costs of construction contracts in process Decrease in jointly controlled assets of joint venture Increase in interest and dividend receivable Increase (decrease) in trade notes and accounts payable Decrease in advance receipts on construction contracts (Decrease) increase in deposits received Decrease in accounts receivable—other Decrease in accrued liability of a defined contribution pension plan Other—net Total adjustments (72 ) 1,957 (158 ) 1,754 43 (56 ) 1,859 (26 ) (137 ) (20,913 ) 1,594 (77 ) 522 4,035 (473 ) (268 ) (644 ) 617 81 (435 ) 485 (741) 19,971 (1,616) 17,899 447 (576) 18,978 (270) (1,405) (13,859 ) 171 92,256 (3,753 ) 2,772 (93,209 ) (511 ) 2,654 2,216 10,855 63,377 (9,874 ) (12,740 ) (46,788 ) 183 978 (141,420) 1,748 941,396 (38,303) 28,293 (951,113) (5,221) 27,083 (811 ) 8,446 (679 ) (833 ) 3,384 (4,718 ) (8,279) 86,192 (6,938) Net cash provided by operating activities— (Forward) ¥ 8,971 ¥ 14,274 $ 91,541 28 CHIYODA CORPORATION ANNUAL REPORT 2009 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years Ended March 31, 2009 and 2008 Millions of Yen 2009 2008 Thousands of U.S. Dollars (Note 1) 2009 Net cash provided by operating activities—(Forward) ¥ 8,971 ¥ 14,274 $ 91,541 INVESTING ACTIVITIES: Payments for time deposits Proceeds from withdrawal 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 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 888 (65) (563) (1,156) (215) 40 (827 ) 68 (2,306 ) 839 (360 ) (1,257 ) 35 (116 ) 7 9,067 (672) (5,751) (11,803) (2,196) 410 Net cash used in investing activities (1,072) (3,917 ) (10,945) FINANCING ACTIVITIES: Proceeds from long-term debt Repayments of long-term debt Proceeds from issuance of common stock Payments of cash dividends Payments of cash dividends to minority shareholders Other—net 10,000 (10,039) 60,577 (1,920) (10) (59) (14,186 ) 13 (2,880 ) (12 ) (155 ) 102,040 (102,438) 618,133 (19,592) (105) (605) Net cash provided by (used in) financing activities 58,548 (17,220 ) 597,432 FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (999) (100 ) (10,199) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 65,447 (6,963 ) 667,828 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 70,089 77,052 715,196 CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 135,536 ¥ 70,089 $ 1,383,025 CHIYODA CORPORATION ANNUAL REPORT 2009 29 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years Ended March 31, 2009 and 2008 ADDITIONAL INFORMATION: IT Engineering Ltd. was included in the scope of consolidation for the year ended March 31, 2009, through the acquisition of shares. The acquisition cost and payments for the acquisition were as follows: Current assets Investments and other assets Current liabilities Long-term liabilities Net assets acquired Goodwill Pre-acquisition carrying amount of investment Cash acquired Net of cash acquired See notes to consolidated financial statements. Millions of Yen 2009 Thousands of U.S. Dollars 2009 ¥ 3,238 122 (1,829 ) (250 ) 1,280 225 (441 ) (849 ) ¥ 215 $ 33,043 1,254 (18,671) (2,555) 13,071 2,298 (4,505) (8,668) $ 2,196 30 CHIYODA CORPORATION ANNUAL REPORT 2009 Chiyoda Corporation and Consolidated Subsidiaries Notes to Consolidated Financial Statements Years Ended March 31, 2009 and 2008 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 Act 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. Japanese yen figures less than a million yen are rounded down to the nearest million yen, except for per share data, from the year ended March 31, 2009. 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 2008 financial statements in order for them to conform to classifications and presentations used in 2009. 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 ¥98 to $1, the approximate rate of exchange at March 31, 2009. 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. U.S. dollar figures less than a thousand U.S. dollars are rounded down to the nearest thousand U.S. dollars, except for per share data, from the year ended March 31, 2009. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation—The consolidated financial statements for the year ended March 31, 2009 include the accounts of the Company and its 17 significant (16 in 2008) 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 3 (5 in 2008) 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. CHIYODA CORPORATION ANNUAL REPORT 2009 31 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 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 certificate of deposits 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. 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. 32 CHIYODA CORPORATION ANNUAL REPORT 2009 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 potential losses in 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. Equipment held for lease is depreciated by the straight-line method over the respective lease periods. 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 (five 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 ($58,126 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, 2009 and 2008. 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. Research and Development Costs—Research and development costs are charged to income when incurred. CHIYODA CORPORATION ANNUAL REPORT 2009 33 n. Leases—In March 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard for Lease Transactions," which revised the previous accounting standard for lease transactions issued in June 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 previous accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee were to be capitalized. However, other finance leases were 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 should be capitalized to recognize lease assets and lease obligations in the balance sheet. In addition, the accounting standard permits leases which existed at the transition date and do not transfer ownership of the leased property to the lessee to be accounted for as operating lease transactions. The Group applied the revised accounting standard effective April 1, 2008. In addition, the Group accounted for leases which existed at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions. The effect of this change was not material. All other leases are accounted for as operating leases. o. 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. p. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts. q. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except 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. Revenue and expense accounts of consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date. r. Derivative Financial Instruments—The Company uses a variety of derivative financial instruments, including foreign currency forward exchange contracts as a means of hedging exposure to foreign currency risks. The Company does not enter into derivatives for trading or speculative purposes. 34 CHIYODA CORPORATION ANNUAL REPORT 2009 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. s. 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. t. New Accounting Pronouncements Business Combinations—On December 26, 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, "Accounting Standard for Business Combinations." Major accounting changes under the revised accounting standard are as follows: (1) The current accounting standard for business combinations allows companies to apply the pooling of interests method of accounting when certain specific criteria are met such that the business combination is essentially regarded as a uniting-of-interests. The revised standard requires to account for such business combination by the purchase method and the pooling of interests method of accounting is no longer allowed. (2) The current accounting standard accounts for the research and development costs to be charged to income as incurred. Under the revised standard, an in-process research and development (IPR&D) acquired by the business combination is capitalized as an intangible asset. (3) The current accounting standard accounts for a bargain purchase gain (negative goodwill) to be systematically amortized within 20 years. Under the revised standard, the acquirer recognizes a bargain purchase gain in profit or loss on the acquisition date after reassessing whether it has correctly identified all of the assets acquired and all of the liabilities assumed with a review of such procedures used. This standard is applicable to business combinations undertaken on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, 2009. CHIYODA CORPORATION ANNUAL REPORT 2009 35 Unification of Accounting Policies Applied to Foreign Associated Companies for the Equity Method—The current accounting standard requires to unify accounting policies within the consolidation group. However, the current guidance allows to apply the equity method for the financial statements of its foreign associated company which have been prepared in accordance with generally accepted accounting principles in their respective jurisdictions without unification of accounting policies. On December 26, 2008, the ASBJ issued ASBJ Statement No. 16 (Revised 2008), "Revised Accounting Standard for Equity Method of Accounting for Investments." The new standard requires adjustments to be made to conform the associate's accounting policies for similar transactions and events under similar circumstances to those of the parent company when the associate's financial statements are used in applying the equity method unless it is impracticable to determine adjustments. In addition, financial statements prepared by foreign associated companies in accordance with either International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used in applying the equity method if the following items are adjusted so that net income is accounted for in accordance with Japanese GAAP unless they are not material: (1) amortization of goodwill; (2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in the equity; (3) expensing capitalized development costs of R&D; (4) cancellation of the fair value model accounting for property, plant and equipment and investment properties and incorporation of the cost model accounting; (5) recording the prior years' effects of changes in accounting policies in the income statement where retrospective adjustments to the financial statements have been incorporated; and (6) exclusion of minority interests from net income, if contained. This standard is applicable to equity method of accounting for investments effective on or after April 1, 2010 with early adoption permitted for fiscal years beginning on or after April 1, 2009. Construction Contracts—Under the current Japanese GAAP, either the completed-contract method or the percentage-of-completion method is permitted to account for construction contracts. In December 2007, the ASBJ issued a new accounting standard for construction contracts. Under this new 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. 36 CHIYODA CORPORATION ANNUAL REPORT 2009 The Company accounted for this business combination by the purchase method of accounting. The acquisition cost, ¥284 million, 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. 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 Net of cash acquired Millions of Yen ¥ 287 16,518 16,805 (902) (15,306) (16,208) 597 (297) (15) (169) ¥ 116 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 2009 2008 Thousands of U.S. Dollars 2009 ¥ 122 (6,041) (1,290) ¥ 31 (7,158 ) (1,652 ) $ 1,253 (61,650) (13,168) 23 18 (297) (106) 31 59 (472 ) (318 ) 238 189 (3,031) (1,088) The Company guaranteed the indebtedness of a certain unconsolidated subsidiary in the amount of ¥288 million ($2,946 thousand) at March 31, 2009. CHIYODA CORPORATION ANNUAL REPORT 2009 37 5. REVENUE Costs and estimated earnings recognized with respect to revenue which is accounted for by the percentage-of-completion method at March 31, 2009 and 2008, were as follows: Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 Costs and estimated earnings Amounts billed ¥ 1,191,100 (1,173,540) ¥ 1,115,404 (1,106,265 ) $ 12,154,089 (11,974,905) Net ¥ 17,560 ¥ 9,139 $ 179,184 6. INVESTMENT SECURITIES Investment securities at March 31, 2009 and 2008, consisted of the following: Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 Equity securities ¥ 3,765 ¥ 5,583 $ 38,423 The carrying amounts and aggregate fair values of investment securities with readily determinable fair values at March 31, 2009 and 2008, were as follows: March 31, 2009 Cost Millions of Yen Unrealized Gains Unrealized Losses Fair Value Available-for-sale—Equity securities ¥ 3,400 ¥ 193 ¥ 966 ¥ 2,626 March 31, 2008 Available-for-sale—Equity securities 5,259 170 982 4,447 March 31, 2009 Thousands of U.S. Dollars Unrealized Unrealized Losses Gains Fair Value Cost Available-for-sale—Equity securities $ 34,693 $ 1,971 $ 9,861 $ 26,804 Available-for-sale securities whose fair value was not readily determinable at March 31, 2009 and 2008, were as follows: Equity securities ¥ 1,138 ¥ 1,136 $ 11,619 Carrying Amount Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 38 CHIYODA CORPORATION ANNUAL REPORT 2009 Proceeds from sales of available-for-sale securities for the year ended March 31, 2008, were ¥839 million. Gross realized gains on these sales, computed on the moving average cost basis, were ¥644 million for the year ended March 31, 2008. 7. REVERSAL OF IMPAIRMENT LOSS Reversal of impairment loss of ¥268 million 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, 2009 and 2008, were as follows: Investments Long-term receivables Total 9. LONG-TERM DEBT Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 ¥ 3,190 13 ¥ 3,720 14 $ 32,553 138 ¥ 3,203 ¥ 3,734 $ 32,692 Long-term debt at March 31, 2009 and 2008, consisted of the following: Long-term loans from banks, maturing serially through 2012, with interest rates ranging from 2.5% to 5.8% at 2009 and 2008: Collateralized Uncollateralized Total Less current portion Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 ¥ 22 10,000 10,022 (18) ¥ 61 10,000 10,061 (10,039 ) $ 224 102,040 102,265 (183) Long-term debt, less current portion ¥ 10,004 ¥ 22 $ 102,081 Subordinated loan in the amount of ¥10,000 million from The Bank of Tokyo-Mitsubishi UFJ, Ltd. was included in 'Uncollateralized' at March 31, 2008. CHIYODA CORPORATION ANNUAL REPORT 2009 39 Annual maturities of long-term debt at March 31, 2009, were as follows: Year Ending March 31 2010 2011 2012 Total Commitment-line contracts at March 31, 2009, were as follows: Commitment-line contracts Unused commitments Millions of Yen ¥ 18 4 10,000 ¥ 10,022 Millions of Yen ¥ 15,000 ¥ 15,000 Thousands of U.S. Dollars $ 183 40 102,040 $ 102,265 Thousands of U.S. Dollars $ 153,061 $ 153,061 The following assets were pledged as collateral for long-term debt at March 31, 2009: Land Buildings and structures—net of accumulated depreciation Total 10. RETIREMENT BENEFITS Millions of Yen Thousands of U.S. Dollars ¥ 381 472 ¥ 853 $ 3,889 4,821 $ 8,710 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 was recorded in other expenses for the year ended March 31, 2008. Liability for retirement benefits includes retirement benefits to directors, officers and corporate auditors in the amount of ¥681 million ($6,956 thousand) and ¥536 million for the years ended March 31, 2009 and 2008, respectively. The retirement benefits to directors and corporate auditors are paid subject to the approval of the shareholders. 40 CHIYODA CORPORATION ANNUAL REPORT 2009 The liability for employees' retirement benefits at March 31, 2009 and 2008, 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 a defined benefit pension plan Millions of Yen 2009 2008 ¥ 26,682 (17,827) (3,661) (5,287) 1,204 1,110 496 ¥ 27,455 (20,338 ) (4,307 ) (3,634 ) 1,381 557 648 485 Thousands of U.S. Dollars 2009 $ 272,268 (181,909) (37,365) (53,954) 12,290 11,329 5,067 Liability for employees' retirement benefits ¥ 1,606 ¥ 1,690 $ 16,396 The components of net periodic benefit costs for the years ended March 31, 2009 and 2008, 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 a defined benefit pension plan Payment to defined contribution pension trust Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 ¥ 1,027 381 (303) 610 610 (176) 2,149 237 ¥ 903 371 (532 ) 615 335 (176 ) 1,516 485 176 $ 10,482 3,894 (3,093) 6,225 6,228 (1,798) 21,938 2,427 Net periodic benefit costs ¥ 2,387 ¥ 2,177 $ 24,366 Assumptions used for the years ended March 31, 2009 and 2008, 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 2009 1.5% 1.6% 10 years 15 years 10 years 2008 1.5% 2.7% 10 years 15 years 10 years CHIYODA CORPORATION ANNUAL REPORT 2009 41 11. EQUITY Since May 1, 2006, Japanese companies have been subject to the Companies Act of Japan (the "Companies Act"). The significant provisions in the Companies Act that affect financial and accounting matters are summarized below: a. Dividends Under the Companies Act, 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 Companies Act 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 Companies Act 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 Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act 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. c. Treasury Stock and Treasury Stock Acquisition Rights The Companies Act 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 Companies Act, stock acquisition rights are presented as a separate component of equity. The Companies Act 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. 42 CHIYODA CORPORATION ANNUAL REPORT 2009 d. Issuance of New Ordinary Shares to a Third Party On April 30, 2008, the Company issued new ordinary shares to a third party based on the resolution of the Board of Directors meeting held on March 31, 2008. Details are as follows: (1) Allocated third party: (2) Number of shares issued: (3) Issue price: (4) Aggregate issue amount: Mitsubishi Corporation Ordinary shares, 67,080 thousand shares ¥907 per share ¥60,841 million ($620,832 thousand) The Company's common stock and capital surplus were increased by ¥30,454 million ($310,758 thousand) and ¥30,387 million ($310,073 thousand), respectively. 12. STOCK OPTIONS The stock options outstanding as of March 31, 2009 were as follows: Stock Option Persons Granted Number of Options Granted Date of Grant Exercise Price Exercise Period 2002 Stock Option 8 directors 8 officers 623 employees 7,896,000 shares June 27, 2002 ¥232 $2.37 ) ( From July 1, 2004 to June 30, 2009 The stock option activity was as follows: For the Year Ended March 31, 2008 Vested: March 31, 2007—outstanding Exercised March 31, 2008—outstanding For the Year Ended March 31, 2009 Vested: March 31, 2008—outstanding Exercised March 31, 2009—outstanding 13. INCOME TAXES 2002 Stock Option (Shares) 123,000 (57,000) 66,000 66,000 (30,000) 36,000 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, 2009 and 2008. CHIYODA CORPORATION ANNUAL REPORT 2009 43 The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2009 and 2008, are as follows: Deferred tax assets: Cost of revenue Allowance for employees' bonus Allowance for warranty costs for completed works Allowance for losses on construction contracts Deferred loss on derivatives under hedge accounting Other Less valuation allowance Total Deferred tax liabilities Net deferred tax assets Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 ¥ 5,600 1,367 1,422 1,661 ¥ 4,182 1,610 731 1,644 $ 57,147 13,949 14,518 16,953 1,033 4,714 (1,278) 1,368 4,046 (766 ) 10,545 48,109 (13,044) 14,521 12,815 148,179 3,309 5,828 33,769 ¥ 11,212 ¥ 6,987 $ 114,410 Net deferred tax assets as of March 31, 2009 and 2008 were recorded in the accompanying consolidated balance sheets as follows: Millions of Yen 2009 2008 Thousands of U.S. Dollars 2009 Deferred tax assets—current assets Deferred tax assets—investments and other assets ¥ 9,872 1,348 ¥ 5,337 1,650 $ 100,742 13,764 A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statements of income for the years ended March 31, 2009 and 2008, is as follows: Normal effective statutory tax rate Expenses not deductible for income tax purposes Non-taxable dividend income Tax credit Temporary difference on change in tax act Increase in valuation allowance for deferred tax assets Equity in earnings of associated companies 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 44 CHIYODA CORPORATION ANNUAL REPORT 2009 2009 41 % 2 (1) (2) (5) 3 (1) (4) (1) 32 % 2008 41 % 1 (1) (2) (3) 1 1 10 1 49 % 14. RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to income were ¥1,797 million ($18,344 thousand) and ¥1,659 million for the years ended March 31, 2009 and 2008, respectively. 15. LEASES The Group leases certain machinery, computer equipment and other assets. Total lease payments under ﬁ nance leases were ¥138 million ($1,408 thousand) and ¥128 million for the years ended March 31, 2009 and 2008, respectively. As discussed in Note 2.n, the Group accounts for leases which existed at the transition date and do not transfer ownership of the leased property to the lessee as operating lease transactions. Pro forma information of such leases existing at the transition date, such as acquisition cost, accumulated depreciation, obligations under ﬁ nance leases, depreciation expense and interest expense on an "as if capitalized" basis for the years ended March 31, 2009 and 2008 was as follows: Year Ended March 31, 2009 Millions of Yen Thousands of U.S. Dollars Buildings and Structures Tools, Furniture and Fixtures Other Total Buildings and Structures Tools, Furniture and Fixtures Other Total Acquisition cost Accumulated depreciation Net leased property ¥ 67 12 ¥ 55 Obligations under finance leases: Due within one year Due after one year Total Year Ended March 31, 2008 ¥ 475 244 ¥ 77 43 ¥ 619 299 $ 689 126 $ 4,851 2,495 $ 785 439 $ 6,326 3,061 ¥ 230 ¥ 33 ¥ 319 $ 562 $ 2,355 $ 346 $ 3,265 Millions of Yen ¥ 110 209 ¥ 319 Thousands of U.S. Dollars $ 1,125 2,139 $ 3,265 Millions of Yen Buildings and Structures Tools, Furniture and Fixtures Acquisition cost Accumulated depreciation ¥ 68 6 Net leased property ¥ 62 ¥ 450 219 ¥ 231 Other ¥ 76 34 ¥ 42 Total ¥ 594 259 ¥ 335 CHIYODA CORPORATION ANNUAL REPORT 2009 45 Obligations under finance leases: Due within one year Due after one year Total Millions of Yen ¥ 109 226 ¥ 335 Depreciation expense as lessee, which is not reflected in the accompanying consolidated statements of income, computed by the straight-line method was ¥138 million ($1,408 thousand) and ¥128 million for the years ended March 31, 2009 and 2008, respectively. The amounts of obligations, acquisition cost and depreciation under finance leases include the imputed interest income portion and interest expense portion, respectively. The minimum rental commitments under noncancelable operating leases at March 31, 2009 and 2008 were as follows: Year Ended March 31, 2009 Due within one year Due after one year Total Year Ended March 31, 2008 Due within one year Due after one year Total 16. DERIVATIVES Millions of Yen ¥ 144 1,545 ¥ 1,690 Thousands of U.S. Dollars $ 1,471 15,773 $ 17,245 Millions of Yen ¥ 105 751 ¥ 856 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. 46 CHIYODA CORPORATION ANNUAL REPORT 2009 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, 2009 and 2008. Contract Amount ¥ 19 21 14,990 1,331 Contract Amount ¥ 9 14 20,621 2 Buying: Euro U.K.£ Selling: U.S.$ Euro Buying: U.S.$ Euro Selling: U.S.$ Euro Millions of Yen 2009 Fair Value Unrealized Loss Thousands of U.S. Dollars 2009 Fair Value Unrealized Loss Contract Amount ¥ 18 14 15,022 1,332 ¥ (6) (31) (1) $ 194 217 $ 188 152 152,965 13,589 153,288 13,599 $ (5) (64) (323) (10) Millions of Yen 2008 Fair Value Unrealized Gain ¥ 9 15 20,522 2 ¥ 1 99 Foreign currency forward exchange contracts which qualify for hedge accounting for the years ended March 31, 2009 and 2008, 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, 2009, the Group had the following contingent liabilities: Guarantees on employees' housing loans Performance bond for an unconsolidated subsidiary Millions of Yen ¥ 511 288 Thousands of U.S. Dollars $ 5,217 2,946 CHIYODA CORPORATION ANNUAL REPORT 2009 47 18. NET INCOME PER SHARE Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2009 and 2008 is as follows: Year Ended March 31, 2009 Basic EPS—Net income available to common shareholders Effect of dilutive securities—Stock options Millions of Yen Net Income ¥ 6,498 Thousands of Shares Weighted- average Shares 254,000 42 Yen U.S. Dollars EPS ¥ 25.58 $ 0.26 Diluted EPS—Net income for computation ¥ 6,498 254,043 ¥ 25.58 $ 0.26 Year Ended March 31, 2008 Basic EPS—Net income available to common shareholders Effect of dilutive securities—Stock options ¥ 9,641 192,256 95 ¥ 50.15 Diluted EPS—Net income for computation ¥ 9,641 192,351 ¥ 50.12 19. SUBSEQUENT EVENT The following appropriation of retained earnings at March 31, 2009, is scheduled for approval at the Company's shareholders meeting on June 23, 2009: Year-end cash dividends, ¥7.50 ($0.08) per share ¥ 1,944 $ 19,846 Millions of Yen Thousands of U.S. Dollars 48 CHIYODA CORPORATION ANNUAL REPORT 2009 20. SEGMENT INFORMATION Information about geographical segments and sales to foreign customers of the Company and consolidated subsidiaries for the years ended March 31, 2009 and 2008, was as follows: (1) Geographical Segments Year Ended March 31, 2009 Japan Asia Other Subtotal Eliminations (Corporate) Consolidated Millions of Yen Revenue: Outside customers Intersegment ¥ 429,879 16 ¥ 16,548 2,103 ¥ 9 42 ¥ 446,438 2,161 ¥ (2,161) ¥ 446,438 Total 429,896 18,651 52 448,600 (2,161) 446,438 Operating expenses 424,825 16,497 46 441,369 (2,157) 439,211 Operating income ¥ 5,070 ¥ 2,154 ¥ 5 ¥ 7,230 ¥ (3) ¥ 7,227 Assets ¥ 347,936 ¥ 10,338 ¥ 636 ¥ 358,912 ¥ (1,095) ¥ 357,816 Thousands of U.S. Dollars of U.S. Dollars Thou Year Ended March 31, 2009 Japan Asia Other Subtotal Eliminations (Corporate) Consolidated Revenue: Outside customers Intersegment $ 4,386,530 164 $ 168,865 21,459 $ 102 429 $ 4,555,497 22,053 $ (22,053) $ 4,555,497 Total 4,386,695 190,324 531 4,577,551 (22,053) 4,555,497 Operating expenses 4,334,952 168,339 473 4,503,766 (22,015) 4,481,750 Operating income $ 51,742 $ 21,984 $ 58 $ 73,785 $ (37) $ 73,747 Assets $ 3,550,376 $ 105,493 $ 6,497 $ 3,662,367 $ (11,174) $ 3,651,193 CHIYODA CORPORATION ANNUAL REPORT 2009 49 Year Ended March 31, 2008 Japan Asia Other Subtotal Eliminations (Corporate) Consolidated Millions of Yen Revenue: Outside customers Intersegment ¥ 588,606 ¥ 14,954 1,638 ¥ 63 ¥ 603,560 1,701 ¥ (1,701) ¥ 603,560 Total 588,606 16,592 63 605,261 (1,701) 603,560 Operating expenses 581,030 15,323 77 596,430 (1,710) 594,720 Operating income (loss) ¥ 7,576 ¥ 1,269 ¥ (14) ¥ 8,831 ¥ 9 ¥ 8,840 Assets ¥ 369,452 ¥ 9,620 ¥ 815 ¥ 379,887 ¥ (1,067) ¥ 378,820 Notes: 1. The Company and consolidated subsidiaries operate within three geographic segments based on the countries where the companies are located. The segments consisted of the following countries in 2009 and 2008: Asia: Indonesia, Singapore, Philippines, Myanmar, Malaysia and Thailand Other: United States of America and Nigeria 2. Corporate assets mainly consist of long term loans and investment securities of the Company. Corporate assets as of March 31, 2009 and 2008 were ¥3,273 million ($33,398 thousand) and ¥2,153 million, respectively. 50 CHIYODA CORPORATION ANNUAL REPORT 2009 (2) Sales to Foreign Customers Year Ended March 31, 2009 Asia The Middle and Near East Millions of Yen Russia and Central Asia Other Total Overseas sales (A) Consolidated sales (B) (A)/(B) ¥ 20,380 ¥ 277,627 ¥ 23,308 ¥ 1,966 4.56% 62.19% 5.22% 0.44% ¥ 323,282 446,438 72.41% Year Ended March 31, 2009 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) $ 207,961 $ 2,832,934 $ 237,839 $ 20,066 4.56% 62.19% 5.22% 0.44% $ 3,298,801 4,555,497 72.41% CHIYODA CORPORATION ANNUAL REPORT 2009 51 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% 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 2009 and 2008: Asia: The Middle and Near East: Russia and Central Asia: Other: Singapore, Indonesia, Malaysia and others Qatar, UAE and others Russia Australia, Algeria 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. * * * * * * 52 CHIYODA CORPORATION ANNUAL REPORT 2009 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Shareholders of Chiyoda Corporation: We have audited the accompanying consolidated balance sheets of Chiyoda Corporation (the "Company") and consolidated subsidiaries as of March 31, 2009 and 2008, and the related consolidated statements of income, changes in equity, and cash ﬂ ows for the years then ended, all expressed in Japanese yen. These consolidated ﬁ nancial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated ﬁ nancial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ﬁ nancial statements. An audit also includes assessing the accounting principles used and signiﬁ cant estimates made by management, as well as evaluating the overall ﬁ nancial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated ﬁ nancial statements referred to above present fairly, in all material respects, the consolidated ﬁ nancial position of Chiyoda Corporation and consolidated subsidiaries as of March 31, 2009 and 2008, and the consolidated results of their operations and their cash ﬂ ows for the years then ended in conformity with accounting principles generally accepted in Japan. Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan. June 12, 2009 CHIYODA CORPORATION ANNUAL REPORT 2009 53 Global Network (As of July 1, 2009) Head Ofﬁ ce Yokohama Head Ofﬁ ce 12-1, Tsurumichuo 2-chome, Tsurumi-ku Yokohama 230-8601, Japan Te l : (81) 45-521-1231 Fax: (81) 45-503-0200 The Hague Representative Ofﬁ ce Al-Khobar Ofﬁ ce Parkstraat 83, 2514 JG The Hague, The Netherlands Te l : (31) 70-385-9453 Fax: (31) 70-346-3779 P.O. Box 31707, Al-Khobar 31952 The Kingdom of Saudi Arabia Tel: (966) 3-864-0839 Fax: (966) 3-864-0986 Chiyoda Philippines Corporation Services: Design Chiyoda Bldg. Meralco Avenue Corner, General Araneta Street, San Antonio, Pasig City, Metro Manila, Philippines Koyasu Ofﬁ ce & Research Park 13, Moriya-cho 3-chome, Kanagawa-ku Major Subsidiaries & Afﬁ liated Companies Yokohama 221-0022, Japan Te l : (81) 45-441-1268 Fax: (81) 45-441-1297 Research & Development Center Te l : (81) 45-441-9132 Fax: (81) 45-441-9728 Osaka Ofﬁ ce Overseas Chiyoda Almana Engineering LLC Tel: (63) 2-636-1001/1008 Services: Design and construction of Fax: (63) 2-636-1013/1023 industrial facilities URL: http://www.chiyodaphil.com.ph Almana Tower, 5th ﬂ oor, Airport RD, Chiyoda & Public Works Co., Ltd. P.O. Box 22961, Doha, Qatar Services: Design and construction of 14-10, Nishinakajima 5-chome, Yodogawa-ku Osaka 532-001, Japan Te l : (974) 462-2926 Fax: (974) 462-6404 industrial facilities SEDONA HOTEL Room 308 ~ 309 No. 1, Te l : (81) 6-6390-3411 Fax: (81) 6-6889-5101 Overseas Ofﬁ ces Abu Dhabi Ofﬁ ce Clock Tower Bldg. Al Najda Street, P.O. Box 43928, Abu Dhabi, U.A.E. Te l : (971) 2-671-7161 Fax: (971) 2-671-7162 Beijing Ofﬁ ce Room No. 1028, China World Tower No.1, Jianguomenwai Street, Chaoyang District, Beijing, 100004, China Te l : (86) 10-6505-2678 Fax: (86) 10-6505-1118 Jakarta Ofﬁ ce 9th Floor, Mid-Plaza Bldg. Jalan Jenderal Sudirman Kav. 10-11 Jakarta, 10220, Indonesia Te l : (62) 21-570-7579 Fax: (62) 21-570-6276 Chiyoda Corporation (Shanghai) Kaba Aye Pagoda Road, Yankin Township, Services: Project consulting 29F-Room E, Pufa Tower, No. 588, Pudong Rd. (S), Pudong New Area, Shanghai 200120, China Te l : (86) 21-5877-6266 Fax: (86) 21-5877-6366 Yangon, Myanmar Tel: (95) 1-545605 Fax: (95) 1-545227 Chiyoda Singapore (Pte) Limited Services: Design and construction of industrial facilities Chiyoda do Brasil Representações Ltda. 14 International Business Park Jurong Services: Business activities in South America East, Singapore 609922 Praia de Botafogo, 228-5 andar, 22250-040 Rio de Janeiro -RJ- Brasil Tel: (65) 6563-3488 Fax: (65) 6567-5231 Te l : (55) 21-3738-8280 Fax: (55) 21-3738-6835 URL: http://www.chiyoda.com.sg/ Chiyoda (Thailand) Limited Chiyoda International Corporation Services: Design and construction of Services: Business activities in the U.S.A. industrial facilities 1177 West Loop South, Suite 680 140/42 ITF Tower II, 20th Floor, Houston, TX 77027, U.S.A. Silom Road, Kwaeng Suriyawong, Te l : (1) 713-965-9005 Fax: (1) 713-965-0075 Chiyoda Malaysia Sdn. Bhd. Khet Bangrak, Bangkok 10500, Thailand Tel: (66) 2-231-6441/6442 Fax: (66) 2-231-6443 Korea Representative Ofﬁ ce Services: Design and construction of L&T-Chiyoda Limited 1358-8, Tal-dong Nam-ku, Ulsan, Korea industrial facilities Services: Design Te l : (82) 52-256-5721/5722 Fax: (82) 52-256-5723 Middle East Headquarters Doha Ofﬁ ce Al Mana Tower Airport Road, P.O. Box 20243, Doha Qatar Te l : (974) 462-2875/2876 Fax: (974) 462-2716 Milan Representative Ofﬁ ce 15th Floor, Menara Maxisegar Jalan Pandan B.P. Estate, National Highway No. 8, Indah, 4/2 Pandan Indah, 55100 Chhani Baroda-391740, Gujarat State, India Kuala Lumpur, Malaysia Te l : (60) 3-4297-0988 Fax: (60) 3-4297-0800 Tel: (91) 265-2771003/2772855 Fax: (91) 265-2774985 URL: http://www.lntchiyoda.com/ URL: http://www.chiyoda.com.my/ PT. Chiyoda International Indonesia Chiyoda Oceania Pty Limited Services: Design and construction of Services: Design and construction of industrial facilities Viale Della Liberazione 18, 20124 Milan, Italy industrial facilities 9th Fl. Midplaza Bldg. J1. Sudirman Kav. 10-11 Te l : (39) 02-303517-111 Fax: (39) 02-303517-35 Singapore Human Resources Ofﬁ ce 10 Anson Road, #03-02, International Plaza, Singapore 079903 Te l : (65) 6324-0080 Fax: (65) 6324-0090 Level 28, AMP Tower 140 St Georges Terrace, Jakarta 10220, Indonesia Perth WA 6000, Australia Te l : (61) 8-9278-2599 Fax: (61) 8-9278-2727 Chiyoda Petrostar Ltd. Te l : (62) 21-570-4693 Fax: (62) 21-573-5723 Project Companies Services: Design and construction of Oman, Qatar, Russia industrial facilities 54 CHIYODA CORPORATION ANNUAL REPORT 2009 The Netherlands The Netherlands Italy Italy Russia Russia Korea Korea Japan U.S.A. U.S.A. ChinaChina Saudi Arabia Saudi Arabia Oman Oman Myanmar Myanmar The Philippines The Philippines India India U.A.E. U.A.E. QatarQatar Thailand Thailand Malaysia Malaysia Singapore Singapore Head Ofﬁ ce Indonesia Indonesia Overseas Ofﬁ ces Major Subsidiaries & Afﬁ liated Companies Project Companies Brazil Brazil Australia Australia Major Subsidiaries & Afﬁ liated Companies Chiyoda TechnoAce Co., Ltd. Arrowhead International Corporation Services: Design and construction for Services: Travel services and supply of spare Domestic (cid:129) Engineering Business Chiyoda Advanced Solutions Corporation Services: Advanced engineering consulting 1-25, Shinurashima-cho 1-chome Kanagawa-ku, Yokohama 221-0031, Japan Te l : (81) 45-441-1260 Fax: (81) 45-441-1264 URL: http://www.chiyoda-as.co.jp/ Chiyoda Keiso Co., Ltd. Services: Design, procurement and construc- tion for electrical and instrumentation pharmaceutical facilities parts 13, Moriya-cho 3-chome, Kanagawa-ku 7-8, Shibakoen 1-chome, Minato-ku Yokohama 221-0022, Japan Te l : (81) 45-441-9600 Fax: (81) 45-450-5236 Tokyo 105-0011, Japan Te l : (81) 3-5470-0880 Fax: (81) 3-5470-0890 URL: http://www.cta.chiyoda.co.jp/ URL: http://www.arrowhead.co.jp/ Chiyoda U-Tech Co., Ltd. Arrow Mates Co., Ltd. Services: Consulting and human resources Services: Placement of technicians and placement ofﬁ ce staff and reemployment support 15-19, Tsurumichuo 2-chome, Tsurumi-ku 43, Hon-cho 4-chome, Naka-ku Yokohama 230-0051, Japan Yokohama 231-0005, Japan Te l : (81) 45-502-7618 Fax: (81) 45-503-5399 Te l : (81) 45-662-1126 Fax: (81) 45-662-1173 URL: http://www.utc-yokohama.com/ URL: http://www.arrowmates.co.jp/ facilities 13, Moriya-cho 3-chome, Kanagawa-ku (cid:129) Other Businesses Arrow Business Consulting Corporation Services: Consulting for ﬁ nance and accounting 32-1, Tsurumichuo 4-chome, Tsurumi-ku Yokohama 230-0051, Japan Te l : (81) 45-502-5774 Fax: (81) 45-502-5753 Yokohama 221-0022, Japan Te l : (81) 45-441-1433 Fax: (81) 45-441-1434 URL: http://www.ckc.chiyoda.co.jp/ Chiyoda Kosho Co., Ltd. Services: Design, construction and maintenance for domestic projects 34-26, Tsurumichuo 4-chome, Tsurumi-ku Yokohama 230-0051, Japan Te l : (81) 45-506-7662 Fax: (81) 45-506-7667 URL: http://www.cks-ykh.co.jp/ IT Engineering Limited Services: IT consulting and solution provider 1-25, Shinurashima-cho 1-chome, Kanagawa-ku, Yokohama 221-0031, Japan Te l : (81) 45-441-9123 Fax: (81) 45-441-1466 URL: http://www.ite.co.jp/ CHIYODA CORPORATION ANNUAL REPORT 2009 55 Corporate Information (As of March 31, 2009) Chiyoda Corporation Head Ofﬁ ce Annual Fiscal Close Transfer Agent of Common Stock 12-1, Tsurumichuo 2-chome, Tsurumi-ku, March 31 Mitsubishi UFJ Trust and Banking Yokohama 230-8601, Japan Tel: (81) 45-521-1231 Fax: (81) 45-503-0200 Established January 20, 1948 Paid-in Capital ¥43,392 million Shareholders’ Meeting 1-4-5 Marunouchi, Chiyoda-ku, Tokyo Corporation June Authorized Shares Number of Shares per Unit 650,000,000 1,000 Capital Stock Issued Stock Code 260,292,529 ISIN: JP3528600004 SEDOL 1:6191704 JP Number of Shareholders Number of Employees: TSE: 6366 1,290 (Non-Consolidated) 3,376 (Consolidated) 16,521 URL http://www.chiyoda-corp.com Organization Chart Shareholders’ Meeting Corporate Auditors Committee CSR Division Corporate Plannning, Management & Finance Corporate Planning Division Administration & Personnel Division Finance Division Project Management Administration Division Domestic Project Division 1 Domestic Project Division 2 Domestic Project Division 3 Green Energy Project Division Board of Directors Executive Committee SQE Division Operational Auditing Office Technology & Engineering Projects Logistics & Construction Engineering Operation Division Innovation Business Division Technology Development Division Process Technology Division Research Institute of Technology Innovation & Strategy Mechanical Engineering Division Electrical and Control System Engineering Division Piping and Civil Engineering Division Procurement Division Construction Division Project Operations Business Development Opeartion International Project Division 1 International Project Division 2 International Project Division 3 International Project Division 4 Project Management Services Division Strategic Business Plannning & Development Division Business Development Division 1 Business Development Division 2 Business Development Division 3 (As of August 10, 2009) 56 CHIYODA CORPORATION ANNUAL REPORT 2009 Major Shareholders Number of Shares Owned (thousands of shares) Ratio of Number of Shares Owned to Aggregate Number of Shares Issued (%) Breakdown by Shareholder Mitsubishi Corporation The Master Trust of Japan, Ltd. (Trust Account) The Bank of Tokyo-Mitsubishi UFJ, Ltd. Japan Trustee Services Bank, Ltd. (Trust Account) Mitsubishi UFJ Trust and Banking Corporation Japan Trustee Services Bank, Ltd. (Trust Account 4G) The Bank of New York, Treaty JASDAEC Account JPMCB Omnibus US Pension, Treaty JASDEC 380052 Trust & Custody Services Bank, Ltd. (Securities Investment Trust Account) Tokio Marine & Nichido Fire Insurance Co., Ltd. 86,931 11,357 9,033 8,617 8,032 7,694 6,311 3,669 3,495 2,760 33.39 4.36 3.47 3.31 3.08 2.95 2.42 1.40 1.34 1.06 12.94% 23.38 % 22.90 % Total 260,292 thousand 38.93% 1.85% Financial institutions Securities companies Other corporations Foreign investors and others Individuals and others Monthly Stock Price Range on the Tokyo Stock Exchange (Yen) 3,600 Share Price (left) Volume Nikkei Stock Average (right) 2,400 1,200 0 (Yen) 24,000 16,000 8,000 (Thousands of shares) 160,000 80,000 0 2004 4 5 6 7 8 9 10 11 12 2005 1 2 3 4 5 6 7 8 9 10 11 12 2006 1 2 3 4 5 6 7 8 9 10 11 12 2007 1 2 3 4 5 6 7 8 9 10 11 12 2008 1 2 3 4 5 6 7 8 9 10 11 12 2009 1 2 3 4 CHIYODA CORPORATION ANNUAL REPORT 2009 57 　　

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