Minatomirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) http://www.chiyoda-corp.com/en/ 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. ANNUAL REPORT FY2011 For the year ended March 31, 2012 Profile Since its establishment in 1948, Chiyoda Corporation has engaged in engineering and construction work and services at innumerable industrial plants both in Japan and overseas in the fields of oil, natural gas and other energy sources; petrochemicals and chemicals; pharmaceuticals; and general industrial machinery. Forty years ago in 1972, Chiyoda’s founder was already emphasizing in a booklet entitled Legacy for the Twenty-first Century that sustainable social development should progress by harmonizing nature and industrial development. We were one of the first companies to state our intention to contribute to sustainable social development through our engineering and technology by providing appropriate solutions to the various energy and environmental issues we currently face, and have been putting those words into action ever since. This booklet is available on our website. With over 60 years of technological experience, Chiyoda is working to build on its position as the “Reliability No. 1” project company with a high level of customer and investor trust, not only in terms of technology but also in terms of our people and management. At the same time, we will continue to improve our financial strength and to raise our corporate value. Financial Highlights Years Ended March 31, 2012, 2011, 2010, 2009 and 2008 For the Year (Millions of Yen) Revenues Cost of revenue Operating income Income before income taxes and minority interests Net income At Year-End (Millions of Yen) Total assets Total equity Current ratio (%) Per Common Share (Yen ) Earnings per share (EPS) Book value per share (BPS) Dividends per share Ratios (%) Return on assets (ROA) Return on equity (ROE) 2012 2011 2010 2009 2008 ¥254,675 ¥247,082 ¥312,985 ¥446,438 ¥603,559 215,783 24,197 23,543 14,364 215,563 17,544 11,476 7,979 298,766 427,461 1,702 4,714 2,953 7,227 9,651 6,498 583,035 8,839 18,991 9,640 ¥365,795 ¥353,392 ¥328,174 ¥357,816 ¥378,819 168,737 165.5 155,758 173.8 ¥55.44 648.95 17.0 6.6 8.9 ¥30.79 599.15 11.0 4.6 5.3 149,253 175.2 ¥11.39 573.61 3.5 1.4 2.0 145,917 161.1 ¥25.58 561.12 7.5 3.1 5.7 81,637 115.0 ¥50.15 422.24 10.0 4.7 12.2 Note: Yen amounts are rounded down to the nearest million. U.S. dollar amounts and percentages are rounded to the nearest unit. Revenues Billions of yen Billions of yen Billions of yen Operating Income Billions of yen Billions of yen Billions of yen Contents 01 Financial Highlights 02 At a Glance 03 To Our Stakeholders 04 Management’s Discussion and Analysis 06 Topics 08 Corporate Governance 10 Corporate Information 800 800 800 700 700 700 600 600 600 500 500 500 400 400 400 300 300 300 200 200 200 100 100 100 0 0 0 603.6 603.6 603.6 446.4 446.4 446.4 313.0 313.0 313.0 247.1 247.1 247.1 254.7 254.7 254.7 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 8.8 8.8 8.8 7.2 7.2 7.2 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 2012 2012 2012 5 5 5 0 0 0 Net Income Billions of yen Billions of yen Billions of yen 30 30 30 20 20 20 24.2 24.2 24.2 17.5 17.5 17.5 14.4 14.4 14.4 9.6 9.6 9.6 10 10 10 6.5 6.5 6.5 8.0 8.0 8.0 3.0 3.0 3.0 1.7 1.7 1.7 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 2012 2012 2012 0 0 0 2008 2008 2008 2009 2009 2009 2010 2010 2010 2011 2011 2011 2012 2012 2012 12 Board of Directors, Corporate Auditors and Executive Officers 13 Stock Information Courtesy of Mizushima LNG Co., Ltd. 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 July 1, 2012. Unknown risks and other uncertainties that happen in the future may cause our actual results to be different from the forward-looking statements contained in this report. The risks and uncertainties include business and economic conditions, competitive pressure, changes in laws and regulations, addition or elimination of products, and exchange rate fluctuation, among others. CHIYODA CORPORATION ANNUAL REPORT FY2011 1 At a Glance To Our Stakeholders Revenues New Orders Backlog of Contracts (Billions of yen) 16 21 36 19 254.7 Billion yen LNG 8 14 8 68 5 13 14 65 612.5 Billion yen 840.9 Billion yen 91.9 (36%) 417.7 (68%) 548.6 (65%) Gas Processing*1 48.3 (19%) 46.3 (8%) 117.8 (14%) Fine Industries*2 53.6 (21%) 86.6 (14%) 108.8 (13%) Petroleum and Petrochemicals 40.7 (16%) 47.8 (8%) 45.1 (5%) Others 20.1 (8%) 14.1 (2%) 20.7 (2%) EPC* / EPCm** Execution FEED*** / Feasibility Study Overseas Projects under Execution Yamal Russia / LNG Al Jubail Export Refinery Saudi Arabia / Oil Refinery Industrial Wastewater Treatment Saudi Arabia / Water Recycling Map Ta Phut Industrial Complex Thailand / Energy Saving Nickel Refining Plant Philippines / Material Arzew Algeria/LNG *3 *4 *5 *6 *7 Plateau Maintenance Project Qatar / LNG Long Term Service Agreement ( RasGas / Qatargas ) Qatar / LNG Stolthaven Singapore/ Tank terminal Shell Bukom Singapore/Refinery Infenium Singapore/Chemical Tokuyama Phase-1/2 Malaysia / Renewable Energy Material Bintulu Tr.9 Malaysia / LNG Puerto La Cruz Venezuela / Oil Refinery PNG LNG Papua New Guinea / LNG Ichthys LNG Australia / LNG Browse LNG Australia /LNG Arrow LNG Australia / LNG : Engineering, Procurement and Construction EPC* EPCm** : Engineering, Procurement and Construction management FEED*** : Front-end Engineering and Design Takashi Kubota President & CEO Chiyoda Corporation Thank you for your continued support over term business plan entitled “Engineering this past fiscal year. Excellence, Value Creation 2012,” and one year I would like to present the Chiyoda has passed since we implemented the plan’s Group’s annual report for the fiscal year ended various measures that form the foundation March 31, 2012. for future growth. In the years ahead, we In the fiscal year under review, the will bring these measures to a successful Chiyoda Group leveraged its long experience conclusion and the entire Chiyoda Group in large-scale LNG plant projects and put it to management team and staff will work eagerly use in ongoing projects in Papua New Guinea to further raise corporate value. and Australia. In this way, the Group was able We paid a dividend of ¥17 per share, in to exceed its initial earnings target thanks to line with our earnings for fiscal 2011. I ask the steady execution of construction projects all of our shareholders for their continued and strong efforts made to win new orders. support in our ongoing efforts. Despite continuing uncertainties such as the impact of the Great East Japan Earthquake and the appreciating Japanese yen, demand for energy and resources has been firm and large investments are moving forward. Against this backdrop, we received our largest ever LNG plant order and a new energy-related plant order for Southeast Asia. We are now in the third year of our medium- Takashi Kubota President & CEO Chiyoda Corporation *1: Classified as “Gas and power utilities” in “Consolidated Financial Results” *2: Classified as “Industrial machinery” and “General chemicals” in “Consolidated Financial Results” *3: Courtesy of Qatargas Operating Company Limited *4: Courtesy of Shell *5: Courtesy of Solar Frontier K.K. *6: Courtesy of Kashima Aromatics Co., Ltd. *7: Water Treatment Plant 2 CHIYODA CORPORATION ANNUAL REPORT FY2011 CHIYODA CORPORATION ANNUAL REPORT FY2011 3 Management’s Discussion and Analysis Results of Operations Analysis of Results During the fiscal year under review, although energy demand remained solid in some parts of the world, notably in emerging economies, the impact of the European debt crisis became more widespread toward the second half of the year. In Japan, recovery and reconstruction of production and supply systems following the Great East Japan Earthquake got underway, but the pace of economic recovery remained modest. Growing demand stemming from the shift away from oil to gas resulted in a surge in planned investment, and the strong yen encouraged Japanese manufacturing companies to expand their operations overseas. Faced with these conditions, we placed particular focus on bidding activities, making the most of our technological superiority in the market. We concluded contracts for Engineering, Procurement, and Construction (EPC) work for an LNG plant in Australia, and for the second-stage of polycrystalline silicon EPC work in Malaysia. At the same time, we made sure to execute the projects under construction steadily, including the LNG plant project in Papua New Guinea, and we also sought to improve operating income primarily by reviewing the cost for completed works during the warranty period. As a result, consolidated new contracts for the fiscal year under review amounted to 612,530 million yen (160.4% increase year on year). The consolidated contract backlog was 840,943 million yen (69.0% increase). Consolidated revenues amounted to 254,675 million yen (3.1% increase), while operating income amounted to 24,197 million yen (37.9% increase), ordinary income amounted to 23,793 million yen (51.2% increase), and net income for the period amounted to 14,364 million yen (80.0% increase). LNG Plants/Gas and Power Utilities Results by Business Segment The Group is currently executing 3 Front End Engineering and Design (FEED) works for projects in Australia and we have been awarded the EPC work for one of them, the value of which is one of the largest in the company's history. We were also awarded a contract for the basic design works for an LNG plant in Malaysia jointly with Saipem S.p.A., the company we concluded a cooperation agreement with to develop onshore LNG and upstream projects. While the Group completed EPC work for feed gas preparation in Qatar, the Group’s subsidiary in Qatar also won a new long-term service contract, undertaking renovation and repair work for the LNG and gas processing plants that were originally constructed by the Chiyoda Group, and providing Engineering, Procurement, and Construction management (EPCm) services for helium extraction facilities. In Japan, the Group undertook marketing activities to receive new orders for LNG receiving terminals, and was awarded a new contract for the construction of an LNG receiving terminal. We also proceeded steadily with backlog projects, including the construction of several LNG receiving terminals. Petroleum, Petrochemicals and Gas Chemicals Overseas, the Group brought resources to bear on planned investment projects in petroleum refineries and other ventures in the Middle East and Southeast Asia. We steadily executed EPC work for heavy oil cracking unit in Saudi Arabia and EPCm works for petroleum refineries in Singapore. The Group also received orders for the delivery of furnaces for a petroleum refinery in Iraq and Engineering, Procurement support, and Construction management (EPsCm) services for heavy crude oil upgrading facilities for a petroleum refinery in Venezuela. Also in the petrochemical field, we met the needs of the growing Asian market, receiving orders for EPCm services in Thailand and EPC services in Singapore. In Japan, the Group successfully completed the partial replacement of an atmospheric distillation tower by applying a unique construction method patented by the Group, as well as construction work at benzene extraction facilities. We also made a concerted effort to quickly restore facilities that had been damaged by the Great East Japan Earthquake. In addition, we were awarded several contracts aimed at improving the competitiveness and energy saving of petroleum refineries. Industrial Machinery/Environment/General Chemicals and Other Fields In new business fields, the Group steadily executed works such as EPC work for polycrystalline silicon plant in Malaysia, the product of which is used for photovoltaic cell, and a nickel refinery in the Philippines. We were also awarded a contract for EPC work for the second-stage of the polycrystalline silicon plant to follow the first stage EPC work under execution by our Group in Malaysia. In Japan, we completed and delivered the expansion work for a nonferrous metals plant and manufacturing plants for highly-functional batteries. Since more and more Japanese companies are entering the Southeast Asian markets to benefit from the strong yen and the economic growth in Asia, the Group has been reinforcing efforts to meet the needs of those companies. We entered into a cooperation agreement for concentrated solar power (CSP) generation with leading Italian manufacturer of solar receiver tubes, a key component for next-generation CSP generation (solar thermodynamic plants using molten salt parabolic trough technology) and have subsequently started to construct a pilot plant in Italy. In the pharmaceutical field, the Group steadily executed EPC work for the manufacturing facilities of highly bioactive pharmaceuticals, such as anti-cancer drugs. We were also awarded a contract for EPC work for a bulk vaccine plant and pharmaceutical formulation plant. For infrastructure projects overseas, the Group started a project to investigate energy savings in a large industrial complex in Thailand, in addition to a feasibility study of an integrated wastewater treatment project for a large industrial complex in Saudi Arabia. In relation to the social infrastructure business, the Group participated in the Study on a Masterplan for Establishing a Metropolitan Priority Area for Investment and Industry in the Jabodetabek Area in Indonesia. In addition, we plan to start looking into similar study projects in other ASEAN member countries. Major contracts included in the consolidated results for the period Overseas ▲ LNG plant in Papua New Guinea ▲ First-stage of polycrystalline silicon plant in Malaysia ▲ Feed gas preparation work for Qatar Pearl GTL* ▲ Heavy crude oil cracking unit in Saudi Arabia Domestic ▲ Naoetsu LNG receiving terminal for INPEX Corporation ▲ Liquefied petroleum gas underground storage terminal for Japan Oil, Gas and Metals National Corporation ▲ Joetsu LNG receiving terminal for Chubu Electric Power Co. Inc ▲ CIS Solar Cell Factory No. 3 for Solar Frontier K.K.* ▲ Reconstruction of ground facilities damaged by Great East Japan Earthquake at Kuji National Oil Storage Base for Japan Underground Oil Storage Co., Ltd. * : Projects completed during the period. Outlook for the Next Fiscal Year Chiyoda will continue to promote its sales activities and win contracts in the areas where Chiyoda can best leverage its technological advantages. We will also continue to work diligently on the execution of existing projects including the large project in Papua New Guinea and other projects overseas and domestic. In consideration of these circumstances, and assuming an exchange rate of ¥80/dollar, our forecasts for the fiscal year ending March 31, 2013 include 350.0 billion yen in new consolidated contracts and 430.0 billion yen in revenues. Our forecast for the consolidated operating income is 22.5 billion yen, consolidated ordinary income is 23.0 billion yen, and the consolidated net income is 15.0 billion yen. 4 CHIYODA CORPORATION ANNUAL REPORT FY2011 CHIYODA CORPORATION ANNUAL REPORT FY2011 5 Topics JKC Joint Venture Awarded Contract for Ichthys LNG Project Chiyoda Collaborates with Three Overseas Companies in Non Hydrocarbon and Other Fields A contract signing ceremony was held on February 9, 2012 for the Engineering, Procurement and Construction (EPC) of the Ichthys LNG Project. The project involves the liquefaction of natural gas produced from the Ichthys gas-condensate field, located in offshore Western Australia, which will then be transferred to the onshore LNG plant with storage, shipping, and other related facilities to be built in Darwin in the Northern Territory of Australia. The LNG plant will produce and ship 8.4 million tonnes of LNG and 1.6 million tonnes of LPG per annum. The EPC contract was awarded to a joint venture (JKC JV) formed by JGC Corporation, KBR Inc. of the United States, and Chiyoda Corporation. The total value of the EPC contract is the largest ever in Chiyoda Corporation’s history. To diversify and further develop its business, Chiyoda Corporation entered into collaboration agreements with Saipem S.p.A. and Archimede Solar Energy (ASE) in June 2011 and with CTCI Corporation in August 2011. Chiyoda and Saipem will collaborate as an integrated joint venture on onshore LNG and upstream projects and expand business in strategic markets by combining the expertise and technologies developed by both companies. Chiyoda and ASE will collaborate on developing the business of next- generation concentrated solar power (CSP) generation. By combining the technology for producing solar receiver tubes that only ASE can provide, with the Contract signing ceremony project management experience in the Middle East of Chiyoda, we will create Pilot plant light-gathering equipment (Sicily, Italy) (Photo courtesy of ASE and ENEL SpA) business opportunities using a technology and business solutions-based approach in the Middle East, North Africa, and Italy, areas suitable for CSP generation due to their large amounts of solar radiation. Chiyoda and CTCI will cooperate in various fields throughout the world including infrastructure, new energy, environmental technology, and industrial facilities by sharing each other’s technological expertise and human resources A unique and challenging aspect of the Ichthys LNG Project is the fully modularised in the field of non hydrocarbon projects. In addition, on August 17, 2011, Chiyoda acquired approximately 10% of the construction strategy, which serves to minimize onshore construction activities at the construction total issued shares of CTCI to help solidify this partnership and will work to raise the corporate value of two companies. site in Darwin. This will require the high-level engineering, schedule control and project management skills of the JKC JV. This is a long-term five-year project and we are fully committed to its on-time completion. *Saipem S.p.A. (Italy) is a global engineering company that provides engineering, procurement, construction (EPC), and project management services for onshore and offshore projects. *ASE (Italy) is the only worldwide producer of commercially-available solar receiver tubes for the key components of solar thermodynamic plants run with parabolic trough technology, which uses sodium and potassium nitrate (molten salts) as their heat transfer fluid. *CTCI (Taiwan) is the largest engineering company in Taiwan and provides EPC services for various industrial facilities throughout the world. Chiyoda Awarded EPC Contract for the Second-Stage of Polycrystalline Silicon Plant by Tokuyama Group Relocation and Integration of Headquarters at Yokohama Minato Mirai Chiyoda Corporation and Chiyoda Group company, Chiyoda Sarawak Sdn. Bhd.1, have been jointly awarded a contract to provide the Engineering, Procurement, and Construction work for the second-stage of a polycrystalline silicon plant for Tokuyama Malaysia Sdn. Bhd. 2 The project involves the construction of a plant (annual production: 13,800 tons) for producing polycrystalline silicon, the raw material for photovoltaic cells. Chiyoda Corporation and Chiyoda Sarawak will work concurrently with the EPC for the first-stage of the polycrystalline silicon plant, awarded in 2010. Tokuyama Corporation’s president Kogo and Chiyoda Corporation’s president Kubota painting in the eye of a daruma doll To improve work efficiency, our head office functions, which had been dispersed between the Tsurumi, Koyasu, and Kawasaki offices, were integrated in June 2012 as our new global headquarters at Minato Mirai Grand Central Tower. The R&D Center and Group companies will continue to use the Koyasu Office and Research Park. All executives and employees will strive to raise work efficiency and will carry out their duties at the new consolidated office. 1. Chiyoda Sarawak Sdn. Bhd. (located in Sarawak, Malaysia) is a wholly owned subsidiary of Chiyoda Corporation. 2. Tokuyama Malaysia Sdn. Bhd. (located in Sarawak, Malaysia) is a wholly owned subsidiary of Tokuyama Corporation. Chiyoda Global Headguarters Minato Mirai Grand Central Tower 6 CHIYODA CORPORATION ANNUAL REPORT FY2011 CHIYODA CORPORATION ANNUAL REPORT FY2011 7 Corporate Governance The Chiyoda Group recognizes that management focuses on corporate social responsibility (CSR) that inspires the support and trust of shareholders, customers, employees, and other stakeholders. We believe that this is a foundation of our corporate activities. As such, we work toward sustainable long-term qualitative growth, continuing to improve our management basics, and ensuring management soundness and transparency. We have identified improved corporate governance and stronger internal controls structure as important issues for our company. We are working to make real progress in these areas. The following paragraphs describe the current status of corporate governance at the Chiyoda Group: Corporate Governance System Overview and Rationale for Adoption of Corporate Governance System The Chiyoda Group’s corporate governance system includes a board of directors, corporate auditors/corporate audit committee, external auditors, and a system of internal controls. We adopted a system of executive officers who are responsible for the execution of business operations. Executive officers are functionally separate from Corporate Governance and Internal Controls Election Submit/Report Report Election Report General Shareholders’ Meeting Directors Board of Directors Election Supervision Election Submit/Report Executive Officers Executive Officer Meeting 4 Representative Directors Executive Committee Scheduled Reports (deliverables, etc.) Organization Staffing Submit/Report Audit Audit Referral (advice) Report Department Internal Controls Group Companies Business Execution Departments (Risk Manager) Self-Assessment Global Operation Unit Corporate Planning Unit Corporate Services Unit, HRM* Unit Finance & Project Audit Unit *HRM: Human Resource Management Corporate Auditors Audit Committee Survey, Report Request Internal Controls Management Committee Operational Auditing Unit SQE Risk Management Unit CSR Unit Crisis Manager Election Accounting Auditor Report c o n t r o l f u n c t i o n s ) ( d e p a r t m e n t s w i t h i n t e r n a l Financial Audit External Directors and Outside Corporate Auditors Status of Internal Auditing and Auditing by Corporate Auditors directors, who are responsible for management supervisory functions. Executive officers regularly report the The Company employs three outside corporate auditors, and does not elect external directors. status of business operation execution in a (monthly) executive committee meeting that is also attended by the The names of outside corporate auditors and the Company’s rationale for selecting them (including the directors. rationale for designation as independent directors of Hiroshi Ida and Yukihiro Imadegawa, both on file with the The Board of Directors (meeting monthly) is made up of nine directors, four of whom are representative directors. The Board of Directors oversees executive officers in their execution of business operations, ensuring that decisions related to important matters to the Company are rationally and efficiently carried out. The Board delegates a portion of its authority to the Executive Committee to ensure that decisions related to the execution of business operations are implemented quickly in order to respond appropriately to rapidly changing social and economic conditions. The Executive Committee is made up of four representative directors who make decisions delegated to them with respect to the execution of business operations. In addition, the Executive Committee also performs preliminary deliberations regarding matters to be brought before the Board of Directors for resolution. The Chiyoda Group employs three corporate auditors, all of whom are outside corporate auditors, and two of whom serve on a full-time basis. Corporate auditors are responsible for auditing the state of execution of director duties. Of the outside corporate auditors, two are independent auditors, and one corporate auditor is extensively versed in finance and accounting. Status of Internal Controls System The Company has structured and is operating the following system of internal controls for the purpose of operational effectiveness/efficiency, financial reporting reliability, legal compliance, and asset preservation, according to the unique nature and characteristics of our business. Internal Controls Management Committee The Company has established an Internal Controls Management Committee to improve our systems of internal controls. The director over the Operational Auditing Unit serves as the committee chair, and heads of departments related to internal controls serve as committee members. The Internal Controls Management Committee receives referrals from the Executive Committee to exchange information and coordinate with each department to determine whether operations are appropriately and efficiently carried out under an adequate system of internal controls. At the end of the fiscal period (or as deemed necessary), the Internal Controls Management Committee offers advice regarding internal controls improvement to the Executive Committee. The Executive Committee takes advice from the Internal Controls Management Committee under consideration, submitting proposed internal controls improvements to the Board of Directors for decision. 8 CHIYODA CORPORATION ANNUAL REPORT FY2011 Tokyo Stock Exchange as independent directors) are as follows. Name Hiroshi Ida Munehiko Nakano Yukihiro Imadegawa Rationale for Election as Outside Corporate Auditor The individual is able to contribute to the sound management of the Company through neutral and objective audits based on his experience as a former executive officer with Mitsubishi UFJ Trust and Banking Corporation.The individual is not involved in any matters that conflict with the interests of general Company shareholders, and is recognized as an outside corporate auditor having no conflict of interest with general Company shareholders. The individual is able to contribute to the sound management of the Company through neutral and objective audits based on his experience as a former corporate auditor with Lawson, Inc. and a finance and accounting executive with Mitsubishi Corporation. The individual is able to contribute to the sound management of the Company through neutral and objective audits based on his expertise in corporate law as an attorney. The individual is not involved in any matters that conflict with the interests of general Company shareholders, and is recognized as an outside corporate auditor having no conflict of interest with general Company shareholders. There are no particular relationships of interest between Company and outside corporate auditors. Rationale for Adoption of Current System The Board of Directors supervises the performance of executive officers and determines important matters concerning the Company. The Company employs three corporate auditors, all of whom are outside corporate auditors. This leads to a stronger monitoring function over management. The Company employs dedicated staff to assist corporate auditors in their duties, and has set in place a system for coordination between external auditors and corporate auditors and between corporate auditors and the Operational Auditing Unit. This system of coordination ensures the viability of audits. Having three outside corporate auditors participating in audits as in the current system ensures that management oversight functions in a fully objective and neutral fashion. Director Compensation, Etc. Total Compensation for Each Director Category; Total Compensation by Director Type, and Number of Directors in Question Incentive Compensation Stock-Based Compensation Base Compensation Number Directors Corporate Auditors 9 4 ¥184 million ¥64 million ¥51 million ¥ 77 million - - Notes: 1. Total director compensation is ¥300 million. Total corporate auditor compensation is ¥77 million. Total outside corporate auditor (three individuals) compensation is ¥55 million. 2. The number of directors above discloses the number of directors and corporate auditors receiving compensation during the fiscal period, including one director who retired as of the 83rd General Shareholders’ Meeting held June 23, 2011. CHIYODA CORPORATION ANNUAL REPORT FY2011 9 Corporate Information (As of March 31, 2012) Corporate Data Chiyoda Global Headquarters Minatomirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) Number of Employees 1,361 (Non-Consolidated) 4,530 (Consolidated) Annual Fiscal Close March 31 Shareholders’ Meeting June Established January 20, 1948 Paid-in Capital ¥ 43,396 million Organization Chart (As of July 1, 2012) Corporate Planning, Management & Finance Division Corporate Planning Unit IR & Public Relations Sec. Corporate Services Unit HRM*2 Unit Finance & Project Audit Unit Legal Sec. Executive Office Unit Board of Directors Corporate Auditors Committee Executive Committee President CSR Unit BPM*1 Team SQE Risk Management Unit Operational Auditing Unit Work Process Innovation Task Team Global Project Management Division Gas & LNG Project Operations Project Administration Unit Project Management Unit IT Management Unit Global Operation Unit International Gas & LNG Project Unit Strategic Project Development Unit Project Team Business Development Division Technology & Engineering Division Strategic Business Planning & Administration Unit Corporate Relations Sec. Business Development Unit 1 Business Development Unit 2 Business Development Unit 3 *1 BPM: Business Process Management *2 HRM: Human Resource Management *3 GPM-A: Global Project Management-Asia 10 CHIYODA CORPORATION ANNUAL REPORT FY2011 Technology Planning & Administration Unit Research Institute of Technology Innovation & Strategy Engineering Operation Unit Gas & LNG Process Engineering Unit Refinery, Petrochemical & New Energy Process Engineering Unit P&ID and Utility Engineering Unit Integrity Management Unit Mechanical Engineering Unit Control System Engineering Unit Electrical System & Smart Grid Engineering Unit Piping Engineering Unit Civil Engineering Unit Project Logistics & Construction Division PLC Planning & Administration Unit Procurement & Logistics Management Unit Construction Unit Commissioning Unit Downstream & Non Hydrocarbon Project Operations Oil & Petrochemical Project Unit Gas & Storage Project Unit International Downstream & Non-Hydrocarbon Project Unit Project Team GPM-A*3 Infrastructure Project Operations IP Planning & Administration Unit Strategic Business & Investment Management Unit Technology Development Unit Research & Development Center Green Infrastructure Project Unit Pharmaceutical & Environmental Project Unit ChAS Project Operations Global Network Chiyoda’s global network enables Project Lifecycle Engineering to be offered all over the world. Chiyoda has expanded its network in order to provide prompt support for customers’ business activities on a global scale. Our services cover the entire life cycles of projects – from project planning, engineering, procurement and construction through to operation and maintenance. With a view to meeting the ever-changing needs of our customers, we offer services by utilizing local offices and group companies with thorough knowledge of the latest local and global circumstances in countries around the world. Chiyoda's Global Network Sales Base Engineering Center Procurement Center Project Execution Base Milan Representative Office The Hague Representative Office Chiyoda & Public Works Co., Ltd. Beijing Office Chiyoda International Corporation Chiyoda Corporation (Shanghai) Korea Representative Office The Netherlands Italy Saudi Arabia Qatar UAE India China Myanmar Thailand Malaysia Korea Japan USA Philippines Chiyoda Philippines Corporation Singapore Indonesia Australia Chiyoda Oceania Pty Limited Brazil Jakarta Office PT. Chiyoda International Indonesia Singapore Human Resources Office Chiyoda Singapore (Pte) Limited Chiyoda Malaysia Sdn. Bhd. Chiyoda Sarawak Sdn. Bhd. Chiyoda (Thailand) Limited Chiyoda do Brasil Representações Ltda. L&T-Chiyoda Limited Abu Dhabi Office Middle East Headquarters Doha Office Chiyoda Almana Engineering LLC Chiyoda Petrostar Ltd. CHIYODA CORPORATION ANNUAL REPORT FY2011 11 Board of Directors, Corporate Auditors and Executive Officers (As of July 1, 2012) Board of Directors Representative Directors / Members of Executive Committee Directors President & CEO Takashi Kubota Senior Vice President Kazuo Obokata Senior Executive Vice President Executive Vice President & CFO Executive Vice President Yoichi Kanno Senior Vice President Shogo Shibuya Masahito Kawashima Senior Vice President Ryosuke Shimizu*1 Hiroshi Ogawa Senior Vice President Katsuo Nagasaka*1 Director Kazushi Okawa Corporate Auditors Hiroshi Ida*2 Munehiko Nakano*1/*2 Yukihiro Imadegawa*2 Executive Officers Executive Vice President Satoru Yokoi Vice President Kenji Hotta Senior Vice President Masahiko Kojima Vice President Eisaku Yamashita Senior Vice President Kenjiro Miura Vice President Nobuyuki Uchida Senior Vice President Takao Kamiji Vice President Mamoru Nakano Senior Vice President Hiromi Koshizuka Vice President Mitsuya Ogawa Senior Vice President Katsutoshi Kimura Vice President Noriyuki Kasuya Senior Vice President Tadashi Izawa*1 Vice President Seiichiro Ikeda Senior Vice President Sumio Nakashima Senior Vice President Koichi Shirakawa *1 : New Assignments *2 : Outside Corporate Auditor Stock Information Authorized Shares 650,000,000 Number of Shareholders 12,668 Capital Stock Issued 260,324,529 Number of Share per Unit 1,000 Major Shareholders Mitsubishi Corporation The Master Trust Bank of Japan, Ltd. (Trust Account) Japan Trustee Services Bank, Ltd. (Trust Account) The Bank of Tokyo-Mitsubishi UFJ, Ltd. The Mitsubishi UFJ Trust and Banking Corporation Morgan Stanley & Co. LLC JP Morgan Securities Japan Co., Ltd. Tokio Marine & Nichido Fire Insurance Co., Ltd. The Bank of New York, Treaty Jasdec Account State Street Bank and Trust Company 505225 Breakdown by shareholder Stock Code ISIN: SEDOL1: 6191704 JP TSE: 6366 JP3528600004 Transfer Agent of Common Stock Mitsubishi UFJ Trust and Banking Corporation 1-4-5 Marunouchi, Chiyoda-ku, Tokyo Number of Shares Owned (Thousands of Shares) 86,931 15,184 9,236 9,033 8,032 4,908 2,878 2,759 2,735 2,663 Ratio Shares Owned (%) 33.39 5.83 3.54 3.47 3.08 1.88 1.10 1.06 1.05 1.02 Total Number of Shares Issued: 260,325 thousand 10.25 24.37 23.42 3.64 38.30 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 2,400 1,200 0 Share Price (left) Volume (right) Nikkei Stock Average (right) (Yen) 24,000 16,000 8,000 (Thousands of shares) 160,000 80,000 12 CHIYODA CORPORATION ANNUAL REPORT FY2011 CHIYODA CORPORATION ANNUAL REPORT FY2011 13 4 5 6 7 8 9 101112 2007 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 1 2 3 4 5 6 7 8 9 101112 2008 2009 2010 2011 0 1 2 3 4 2012 Minatomirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) http://www.chiyoda-corp.com/en/ 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. ANNUAL REPORT FY2011 For the year ended March 31, 2012 Minatomirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) http://www.chiyoda-corp.com/en/ 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. Consolidated Financial Statements For the Year Ended March 31, 2012, and Independent Auditor's Report Chiyoda Corporation and Consolidated Subsidiaries Consolidated Balance Sheet Chiyoda Corporation and Consolidated Subsidiaries Consolidated Balance Sheet March 31, 2012 Consolidated Balance Sheet March 31, 2012 ASSETS ASSETS Millions of Yen 2012 2011 Thousands of U.S. Dollars Millions of Yen (Note 1) 2012 2011 2012 Thousands of U.S. Dollars (Note 1) 2012 LIABILITIES AND EQUITY LIABILITIES AND EQUITY Millions of Yen 2012 2011 Thousands of U.S. Dollars (Note 1) Millions of Yen 2012 2011 2012 (March 31, 2012) Thousands of U.S. Dollars (Note 1) 2012 122,027 $ 1,051,362 933,330 14,174 75,354 3,525 6,929 2,012 153,328 2,362,044 ¥ 10,006 86,211 76,533 1,162 6,179 289 568 165 12,572 193,687 ¥ 13 97,417 62,571 5,986 4,541 1,190 1,057 ¥ ¥ 10,006 122,027 $ 86,211 1,051,362 76,533 933,330 1,162 14,174 6,179 75,354 289 3,525 568 6,929 165 2,012 12,572 153,328 13 97,417 62,571 5,986 4,541 1,190 1,057 9,109 9,109 181,887 193,687 2,362,044 181,887 204 2,486 123 59 496 10,220 2,809 131 224 2,361 204 2,486 123 59 496 2,492 30,321 1,501 725 6,052 10,220 2,809 131 224 2,361 2,492 30,321 1,501 725 6,052 CURRENT ASSETS: Cash and cash equivalents (Note 13) Short-term investments (Note 13) Notes and accounts receivable—trade (Note 13) Allowance for doubtful accounts Costs and estimated earnings on long-term construction CURRENT ASSETS: Cash and cash equivalents (Note 13) Short-term investments (Note 13) Notes and accounts receivable—trade (Note 13) Allowance for doubtful accounts Costs and estimated earnings on long-term construction contracts (Notes 3 and 13) contracts (Notes 3 and 13) Costs of construction contracts in process Accounts receivable—other Jointly controlled assets of joint venture (Note 13) Deferred tax assets (Note 9) Prepaid expenses and other Costs of construction contracts in process Accounts receivable—other Jointly controlled assets of joint venture (Note 13) Deferred tax assets (Note 9) Prepaid expenses and other ¥ 173,769 307 30,051 (6 ) ¥ 130,618 ¥ 173,769 79 307 41,539 30,051 (3) (6 ) $ 2,119,137 ¥ 130,618 3,753 79 366,485 41,539 (77) (3) 13,788 13,419 7,282 65,794 12,987 3,083 14,493 12,648 7,284 88,662 18,644 2,229 13,788 13,419 7,282 65,794 12,987 3,083 168,151 163,646 88,812 802,367 158,388 37,604 14,493 12,648 7,284 88,662 18,644 2,229 Total current assets Total current assets 320,478 316,196 320,478 3,908,268 316,196 PROPERTY, PLANT, AND EQUIPMENT: Land Buildings and structures Machinery and equipment Tools, furniture, and fixtures Construction in progress PROPERTY, PLANT, AND EQUIPMENT: Land Buildings and structures Machinery and equipment Tools, furniture, and fixtures Construction in progress Total Total Accumulated depreciation Accumulated depreciation 12,736 16,072 1,220 5,201 109 35,340 (16,339 ) 11,938 12,736 15,926 16,072 1,270 1,220 5,358 5,201 5 109 34,500 35,340 (15,479) (16,339 ) 155,325 196,005 14,889 63,429 1,334 430,985 (199,264) 11,938 15,926 1,270 5,358 5 34,500 (15,479) 168,151 163,646 88,812 802,367 158,388 37,604 3,908,268 155,325 196,005 14,889 63,429 1,334 430,985 (199,264) CURRENT LIABILITIES: Current portion of long-term debt (Notes 6, 12 and 13) Notes and accounts payable—trade (Note 13) Advance receipts on construction contracts CURRENT LIABILITIES: Current portion of long-term debt (Notes 6, 12 and 13) $ 2,119,137 Notes and accounts payable—trade (Note 13) 3,753 Advance receipts on construction contracts 366,485 (77) Deposits received Allowance for warranty costs for completed works Allowance for losses on construction contracts Asset retirement obligations Accrued expenses and other Deposits received Allowance for warranty costs for completed works Allowance for losses on construction contracts Asset retirement obligations Accrued expenses and other Income taxes payable (Note 13) Income taxes payable (Note 13) Total current liabilities Total current liabilities NONCURRENT LIABILITIES: Long-term debt (Notes 6, 12 and 13) Liability for retirement benefits (Note 7) Provision for treatment of PCB waste Asset retirement obligations Other liabilities (Note 9) NONCURRENT LIABILITIES: Long-term debt (Notes 6, 12 and 13) Liability for retirement benefits (Note 7) Provision for treatment of PCB waste Asset retirement obligations Other liabilities (Note 9) Total noncurrent liabilities Total noncurrent liabilities 3,369 15,746 3,369 41,094 15,746 41,094 COMMITMENTS AND CONTINGENT LIABILITIES COMMITMENTS AND CONTINGENT LIABILITIES Net property, plant, and equipment Net property, plant, and equipment 19,001 19,021 19,001 231,720 19,021 231,720 (Notes 6, 11, 14 and 15) (Notes 6, 11, 14 and 15) INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 4 and 13) Investments in and advances to unconsolidated subsidiaries and associated companies (Note 5) INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 4 and 13) Investments in and advances to unconsolidated subsidiaries and associated companies (Note 5) Software Software Deferred tax assets (Note 9) Deferred tax assets (Note 9) Other assets Other assets Allowance for doubtful accounts Allowance for doubtful accounts 15,527 5,813 15,527 189,363 5,813 2,668 3,215 2,204 2,789 (88 ) 2,704 2,831 3,948 2,964 (87) 2,668 3,215 2,204 2,789 (88 ) 32,543 39,208 26,882 34,015 (1,085) 2,704 2,831 3,948 2,964 (87) Total investments and other assets Total investments and other assets 26,316 18,174 26,316 320,928 18,174 TOTAL TOTAL ¥ 365,795 See notes to consolidated financial statements. See notes to consolidated financial statements. ¥ 353,392 ¥ 365,795 $ 4,460,917 ¥ 353,392 EQUITY (Notes 8 and 18): Common stock—authorized, 570,000 thousand shares; issued, 260,324 thousand shares in 2012 and 2011 EQUITY (Notes 8 and 18): Common stock—authorized, 570,000 thousand shares; issued, 260,324 thousand shares in 2012 and 2011 189,363 43,396 43,396 43,396 529,224 43,396 529,224 Preferred stock—authorized, 80,000 thousand shares in 2012 and 2011 Preferred stock—authorized, 80,000 thousand shares in 2012 and 2011 Capital surplus Capital surplus Retained earnings Retained earnings Treasury stock—at cost, 1,260 thousand shares in 2012 and Treasury stock—at cost, 1,260 thousand shares in 2012 and 37,112 89,346 1,223 thousand shares in 2011 1,223 thousand shares in 2011 Accumulated other comprehensive income (loss): Accumulated other comprehensive income (loss): 32,543 39,208 26,882 34,015 (1,085) 37,112 77,832 37,112 89,346 452,593 1,089,597 37,112 77,832 452,593 1,089,597 (1,328) (1,295) (1,328) (16,199) (1,295) (16,199) 320,928 Unrealized gain (loss) on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Unrealized gain (loss) on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Total Minority interests Total Minority interests Total equity Total equity $ 4,460,917 TOTAL TOTAL - 2 - - 2 - 1,509 442 (2,358) 168,120 617 168,737 ¥ 365,795 (229) 345 (1,919) 155,242 516 1,509 442 (2,358) 168,120 617 (229) 18,402 345 5,391 (1,919) (28,763) 155,242 2,050,247 516 7,531 155,758 168,737 2,057,778 155,758 ¥ 353,392 ¥ 365,795 $ 4,460,917 ¥ 353,392 18,402 5,391 (28,763) 2,050,247 7,531 2,057,778 $ 4,460,917 1 Consolidated Financial Statements Consolidated Financial Statements 2 Consolidated Statement of Income Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Comprehensive Income Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Income Year Ended March 31, 2012 (Year Ended March 31, 2012) Millions of Yen 2012 2011 Thousands of U.S. Dollars (Note 1) 2012 Consolidated Statement of Comprehensive Income Year Ended March 31, 2012 (Year Ended March 31, 2012) Millions of Yen 2012 2011 Thousands of U.S. Dollars (Note 1) 2012 REVENUE (Note 3) ¥ 254,675 ¥ 247,082 $ 3,105,798 NET INCOME BEFORE MINORITY INTERESTS ¥ 14,515 ¥ 7,947 $ 177,022 COST OF REVENUE (Note 3) 215,783 215,563 2,631,512 Gross profit 38,891 31,519 474,286 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Note 10) 14,693 13,974 179,191 OTHER COMPREHENSIVE INCOME (Note 16): Unrealized gain (loss) on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Share of other comprehensive loss of associates accounted for using equity method 1,738 97 (361) (332 ) 501 (511 ) 21,198 1,183 (4,407) (105) (103 ) (1,285) Operating income 24,197 17,544 295,095 Total other comprehensive income 1,368 (445 ) 16,689 COMPREHENSIVE INCOME (Note 16) ¥ 15,884 ¥ 7,502 $ 193,711 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO (Note 16): Owners of the parent Minority interests ¥ 15,761 123 ¥ 7,545 (42 ) $ 192,210 1,501 See notes to consolidated financial statements. OTHER INCOME (EXPENSES): Interest and dividend income Interest expense Equity in earnings of associated companies Foreign exchange loss Loss on valuation of investment securities Insurance premiums refunded cancellation Office integration costs (Note 11) Loss on adjustment for changes of accounting standard for asset retirement obligations Other—net Other expenses—net 1,230 (207) 72 (1,243) (250) (255) (654) 1,078 (256 ) 104 (2,882 ) 109 (4,218 ) (146 ) 142 (6,068 ) 15,000 (2,531) 887 (15,167) (3,049) (3,119) (7,978) INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 23,543 11,476 287,116 INCOME TAXES (Note 9): Current Deferred Total income taxes NET INCOME BEFORE MINORITY INTERESTS MINORITY INTERESTS IN NET INCOME 2,310 6,717 9,027 14,515 151 9,194 (5,665 ) 3,529 7,947 28,173 81,920 110,094 177,022 (32 ) 1,845 NET INCOME Chiyoda Corporation and Consolidated Subsidiaries ¥ 14,364 ¥ 7,979 $ 175,176 Consolidated Statement of Income Year Ended March 31, 2012 Yen U.S. Dollars 2012 2011 2012 PER SHARE OF COMMON STOCK (Notes 2.u and 17): Basic net income Cash dividends applicable to the year - 3 - ¥ 55.44 17.00 ¥ 30.79 11.00 (Continued) $ 0.68 0.21 - 5 - See notes to consolidated financial statements. 3 Consolidated Financial Statements Consolidated Financial Statements 4 - 4 - (Concluded) Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Year Ended March 31, 2012 Consolidated Statement of Changes in Equity Year Ended March 31, 2012 Thousands Outstanding Number of Shares of Common Stock Thousands Outstanding Number of Shares of Common Stock Capital Surplus Common Stock Common Stock Retained Earnings Capital Surplus Treasury Stock Millions of Yen Millions of Yen Accumulated Other Comprehensive Income Unrealized Deferred Foreign (Loss) Gain Gain (Loss) Currency on Available- on Derivatives Treasury for-Sale under Hedge Translation Stock Adjustments Securities Accounting Accumulated Other Comprehensive Income Deferred Gain (Loss) on Derivatives under Hedge Total Accounting Unrealized (Loss) Gain on Available- for-Sale Securities Foreign Currency Translation Adjustments Retained Earnings Minority Interests (Year Ended March 31, 2012) Total Equity Total Minority Interests Total Equity BALANCE, APRIL 1, 2010 BALANCE, APRIL 1, 2010 259,207 ¥ 43,396 259,207 ¥ 37,112 ¥ 43,396 ¥ 70,759 ¥ 37,112 ¥ (1,215) ¥ 70,759 ¥ 102 ¥ (1,215) ¥ (156) ¥ 102 ¥ (1,315 ) ¥ (156) ¥ 148,683 ¥ (1,315 ) ¥ 569 ¥ 148,683 ¥ 149,253 ¥ 569 ¥ 149,253 Net income Cash dividends, ¥3.50 per share Purchase of treasury stock Net change in the year Net income Cash dividends, ¥3.50 per share Purchase of treasury stock Net change in the year (105 ) 7,979 (907) (105 ) (79) 7,979 (907) (332) (79) 501 (332) (604 ) 501 7,979 (907) (79) (434) (604 ) (52) 7,979 (907) (79) (434) 7,979 (907) (79) (486) (52) 7,979 (907) (79) (486) BALANCE, MARCH 31, 2011 BALANCE, MARCH 31, 2011 259,102 43,396 259,102 37,112 43,396 77,832 37,112 (1,295) 77,832 (229) (1,295) 345 (229) (1,919 ) 345 155,242 (1,919 ) 516 155,242 155,758 516 155,758 Net income Cash dividends, ¥11.00 per share Purchase of treasury stock Net change in the year Net income Cash dividends, ¥11.00 per share Purchase of treasury stock Net change in the year (37 ) 14,364 (2,850) (37 ) (32) 14,364 (2,850) 1,738 (32) 97 1,738 (438 ) 14,364 (2,850) (32) 1,396 97 (438 ) 100 14,364 14,364 (2,850) (2,850) (32) (32) 1,396 1,497 100 14,364 (2,850) (32) 1,497 BALANCE, MARCH 31, 2012 BALANCE, MARCH 31, 2012 259,065 ¥ 43,396 259,065 ¥ 37,112 ¥ 43,396 ¥ 89,346 ¥ 37,112 ¥ (1,328) ¥ 89,346 ¥ 1,509 ¥ (1,328) ¥ 442 ¥ 1,509 ¥ (2,358 ) ¥ 442 ¥ 168,120 ¥ (2,358 ) ¥ 617 ¥ 168,120 ¥ 168,737 ¥ 617 ¥ 168,737 Thousands of U.S. Dollars (Note 1) Thousands of U.S. Dollars (Note 1) Common Stock Capital Surplus Common Stock Retained Earnings Capital Surplus Treasury Stock Accumulated Other Comprehensive Income Unrealized Deferred (Loss) Gain on Gain (Loss) Foreign Currency Available- on Derivatives Treasury Translation for-Sale under Hedge Stock Securities Accounting Adjustments Accumulated Other Comprehensive Income Deferred Gain (Loss) on Derivatives under Hedge Accounting Total Unrealized (Loss) Gain on Available- for-Sale Securities Foreign Currency Translation Adjustments Retained Earnings Minority Interests Total Equity Total Minority Interests Total Equity BALANCE, MARCH 31, 2011 BALANCE, MARCH 31, 2011 $ 529,224 $ 452,593 $ 529,224 $ 949,177 $ 452,593 $ (15,797) $ 949,177 $ (2,796) $ (15,797) $ 4,208 $ (2,796) $ (23,414 ) $ 4,208 $ 1,893,196 $ (23,414 ) $ 6,302 $ 1,893,196 $ 1,899,498 $ 6,302 $ 1,899,498 Net income Cash dividends, $0.13 per share Purchase of treasury stock Net change in the year Net income Cash dividends, $0.13 per share Purchase of treasury stock Net change in the year 175,176 (34,757) (401) 175,176 (34,757) 21,198 (401) 1,183 21,198 (5,348 ) 175,176 (34,757) (401) 17,033 1,183 (5,348 ) 1,228 175,176 (34,757) (401) 17,033 175,176 (34,757) (401) 18,261 1,228 175,176 (34,757) (401) 18,261 BALANCE, MARCH 31, 2012 BALANCE, MARCH 31, 2012 $ 529,224 $ 452,593 $ 529,224 $ 1,089,597 $ 452,593 $ (16,199) $ 1,089,597 $ 18,402 $ (16,199) $ 5,391 $ 18,402 $ (28,763 ) $ 5,391 $ 2,050,247 $ (28,763 ) $ 7,531 $ 2,050,247 $ 2,057,778 $ 7,531 $ 2,057,778 See notes to consolidated financial statements. See notes to consolidated financial statements. - 6 - - 6 - 5 Consolidated Financial Statements Consolidated Financial Statements 6 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Cash Flows Consolidated Statement of Cash Flows Year Ended March 31, 2012 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Cash Flows Year Ended March 31, 2012 Millions of Yen 2012 2011 Thousands of U.S. Dollars (Note 1) 2012 (Year Ended March 31, 2012) Millions of Yen 2012 2011 Thousands of U.S. Dollars (Note 1) 2012 OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 23,543 ¥ 11,476 $ 287,116 Net cash provided by (used in) operating activities—(Forward) ¥ 55,615 ¥ (5,229 ) $ 678,235 Adjustments for: Income taxes paid Depreciation and amortization Allowance for (reversal of) doubtful accounts—net Reversal of warranty costs for completed works Reversal of loss on construction contracts Liability for retirement benefits—net Foreign exchange loss—net Equity in earnings of associated companies Office integration costs Changes in operating assets and liabilities: Decrease (increase) in trade notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Increase in costs of construction contracts in process (Decrease) increase in trade notes and accounts payable Increase in advance receipts on construction contracts Decrease (increase) in accounts receivable—other Decrease (increase) in jointly controlled assets of joint venture Increase in deposits received Increase in interest and dividend receivable Other—net Total adjustments (10,820 ) 2,637 4 (894 ) (489 ) (320 ) 22 (72 ) (7,887 ) 2,566 (245 ) (3,271 ) (3,367 ) 505 169 (104 ) 4,218 (131,959) 32,162 57 (10,904) (5,965) (3,911) 270 (887) 11,946 (796 ) (11,102 ) 14,236 3,678 (4,821 ) (5,330 ) 8,035 14,225 (2,231 ) 145,691 (9,710) (135,391) 173,618 44,863 22,776 1,640 (544 ) 169 32,071 (18,744 ) 45 (562 ) 94 (16,706 ) 277,760 20,000 (6,637) 2,062 391,118 Net cash provided by (used in) operating activities— (Forward) ¥ 55,615 ¥ (5,229 ) $ 678,235 INVESTING ACTIVITIES: Net increase in time deposits Purchases of property, plant, and equipment Proceeds from sales of property, plant, and equipment Purchases of intangible assets Payments for purchases of investment securities Purchases of investments in subsidiaries Payments of short-term loans receivable Payments of long-term loans receivable Proceeds from collections of long-term loans Other—net (234) (1,618) 1,725 (1,380) (7,561) (57) (85) 71 (26 ) (930 ) 4 (713 ) (974 ) (24 ) 81 7 (2,862) (19,735) 21,036 (16,831) (92,209) (704) (1,040) 873 Net cash used in investing activities (9,140) (2,577 ) (111,473) FINANCING ACTIVITIES: Proceeds from long-term debt Repayments of long-term debt Payments of cash dividends Payments of cash dividends to minority shareholders Other—net 10,208 (10,004 ) (906 ) (9 ) (93 ) (2,844) (7) (47) (34,684) (93) (576) Net cash used in financing activities (2,899) (805 ) (35,353) FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS (424) (647 ) (5,173) NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 43,151 (9,260 ) 526,234 INCREASE IN CASH AND CASH EQUIVALENTS FROM NEWLY CONSOLIDATED SUBSIDIARY 87 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 130,618 139,790 1,592,903 CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 173,769 ¥ 130,618 $ 2,119,137 See notes to consolidated financial statements. - 7 - (Continued) - 8 - (Concluded) 7 Consolidated Financial Statements Consolidated Financial Statements 8 Chiyoda Corporation and Consolidated Subsidiaries Notes to Consolidated Financial Statements Notes to Consolidated Financial Statements Year Ended March 31, 2012 1. BASIS OF PRESENTATION OF 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 the application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications and rearrangements have been made in the 2011 consolidated financial statements to conform to the classifications used in 2012. 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 ¥82 to $1, the approximate rate of exchange at March 31, 2012. 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. Japanese yen figures less than a million yen are rounded down to the nearest million yen, except for per-share data. 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. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation—The consolidated financial statements for the year ended March 31, 2012 include the accounts of the Company and its 21 significant (20 in 2011) 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 the ability to exercise significant influence are accounted for by the equity method. Investments in two associated companies are accounted for by the equity method in 2012 and 2011. 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 over the fair value of the net assets of an acquired subsidiary at the date of acquisition is being amortized over a period of 20 years. - 9 - (Year Ended March 31, 2012) 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. Construction Contracts—In December 2007, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Statement No. 15, "Accounting Standard for Construction Contracts" and ASBJ Guidance No. 18, "Guidance on Accounting Standard for Construction Contracts." Under this accounting standard, the construction revenue and construction costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs, and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts. Concerning the construction contracts, the Group applies the accounting methods below: Unbilled costs on contracts which are accounted for by the completed-contract method are stated as costs of construction contracts in process. Payments received in excess of costs and estimated earnings on 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, as incurred, and are included in costs of revenue. c. Cash Equivalents—Cash equivalents are short-investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificate of deposits, and commercial paper, all of which mature or become due within three months of the date of acquisition. d. e. Short-Investments—Short-investments are time deposits which will mature three months after the date of acquisition. Short-investments are exposed to insignificant risk of changes in value. Investment Securities—All marketable securities are classified as available--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-method. Non-available--securities are stated at cost determined by the moving-method. For other-than-temporary declines in fair value, non-securities are reduced to net realizable value by a charge to income. f. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Group's past credit loss experience and an evaluation of potential losses in the receivables outstanding. 9 Consolidated Financial Statements Consolidated Financial Statements 10 - 10 - Notes to Consolidated Financial Statements 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 3 to 57 years for buildings and structures, from 4 to 17 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-ed Assets—The Group reviews its long-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-method over their estimated useful lives. Software for internal use is amortized on a straight-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. When there are losses on completed-method applied contracts, the allowance for losses on construction contracts is offset against the costs of construction contracts in process on the balance sheet. l. Provision for Treatment of PCB Waste—Provision for treatment of PCB (Poly Chlorinated Biphenyl) waste is provided based on estimated costs of the treatment for PCB products and equipment as well as their collection and transportation fees. m. Retirement and Pension Plans—Employees of the Company are, under most circumstances, entitled to payments from the defined contribution pension plan and the defined benefit corporate pension plan. Employees of certain of the Company's consolidated subsidiaries are, under most circumstances, entitled to certain lump-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 ($69,467 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, 2012 and 2011. Certain of the Company's consolidated subsidiaries terminated their unfunded retirement benefit allowance for all directors and officers under the resolution of shareholders' meeting and board meeting during the year ended March 31, 2011. The outstanding balance was reclassified to noncurrent liabilities—other liabilities in the years ended March 31, 2012 and 2011. n. Asset Retirement Obligations—In March 2008, the ASBJ published ASBJ Statement No. 18, "Accounting Standard for Asset Retirement Obligations" and ASBJ Guidance No. 21, "Guidance on Accounting Standard for Asset Retirement Obligations." Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development, and normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an increase or a decrease in the carrying amount of the liability and the capitalized amount of the related asset retirement cost. o. Research and Development Costs—Research and development costs are charged to income as incurred. p. 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 was effective for fiscal years beginning on or after April 1, 2008. Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain "as if capitalized" information was disclosed in the note to the lessee's financial statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet. 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. All other leases are accounted for as operating leases. q. Income Taxes—The provision for income taxes is computed based on the pretax income included in the consolidated statement 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. 11 Consolidated Financial Statements Consolidated Financial Statements 12 - 11 - - 12 - Notes to Consolidated Financial Statements The Company files a tax return under the consolidated corporate-tax system which allows companies to base tax payments on the combined profits or losses of the parent company and its wholly owned domestic subsidiaries. r. Foreign Currency Transactions—All short-and long-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 consolidated statement of income to the extent that they are not hedged by foreign currency forward contracts. s. 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 are shown as "Foreign currency translation adjustments" under accumulated other comprehensive income 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. t. Derivatives and Hedging Activities—The Company uses derivative financial instruments, including foreign currency forward contracts and interest swap contracts, as a means of hedging exposure to foreign currency risks and interest rate risks. The Company does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: 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 statement of income are dividends applicable to the respective years including dividends to be paid after the end of the year. v. Accounting Changes and Error Corrections—In December 2009, the ASBJ issued ASBJ Statement No. 24, "Accounting Standard for Accounting Changes and Error Corrections" and ASBJ Guidance No. 24, "Guidance on Accounting Standard for Accounting Changes and Error Corrections." Accounting treatments under this standard and guidance are as follows: (1) Changes in accounting policies When a new accounting policy is applied with revision of accounting standards, the new policy is applied retrospectively unless the revised accounting standards include specific transitional provisions. When the revised accounting standards include specific transitional provisions, an entity shall comply with the specific transitional provisions. (2) Changes in presentations When the presentation of financial statements is changed, prior-financial statements are reclassified in accordance with the new presentation. (1) All derivatives are recognized as either assets or liabilities and measured at fair value, with gains or losses (3) Changes in accounting estimates recognized in the consolidated statement of income. (2) For derivatives used for hedging purposes, if such 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 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. Foreign currency deposits are held to hedge foreign exchange risks derived from forecasted purchases of fixed assets denominated in foreign currency. Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but the differential paid or received under the swap agreements is recognized and included in interest expense. u. 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. A change in an accounting estimate is accounted for in the period of the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of prior-period errors When an error in prior-period financial statements is discovered, those statements are restated. This accounting standard and the guidance are applicable to accounting changes and corrections of prior-period errors which are made from the beginning of the fiscal year that begins on or after April 1, 2011. w. New Accounting Pronouncements Accounting Standard for Retirement Benefits—On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, "Accounting Standard for Retirement Benefits" and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement Benefits," which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with effective date of April 1, 2000 and the other related practical guidances being followed by partial amendments from time to time through 2009. 13 Consolidated Financial Statements Consolidated Financial Statements 14 - 13 - - 14 - Notes to Consolidated Financial Statements Major changes are as follows: (a) Treatment in the balance sheet Under the current requirements, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are not recognized in the balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter, "deficit or surplus"), adjusted by such unrecognized amounts, are recognized as a liability or asset. Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss shall be recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and the deficit or surplus shall be recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits). (b) Treatment in the statement of income and the statement of comprehensive income (or the statement of income and comprehensive income) The revised accounting standard would not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts would be recognized in profit or loss over a certain period no longer than the expected average remaining working lives of the employees. However, actuarial gains and losses and past service costs that arose in the current period and yet to be recognized in profit or loss shall be included in other comprehensive income and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated as reclassification adjustments. This accounting standard and the guidance are effective for the end of annual periods beginning on or after April 1, 2013 with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required. The Company expects to apply the revised accounting standard from the end of the annual period beginning on April 1, 2013 and is in the process of measuring the effects of applying the revised accounting standard for the year ending March 31, 2014. 3. CONSTRUCTION CONTRACTS Costs and estimated earnings recognized with respect to construction contracts which are accounted for by the percentage--method at March 31, 2012 and 2011, were as follows: Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 4. INVESTMENT SECURITIES Investment securities at March 31, 2012 and 2011, consisted of the following: Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 Non-current—Equity securities ¥ 15,527 ¥ 5,813 $ 189,363 The costs and aggregate fair values of investment securities at March 31, 2012 and 2011, were as follows: March 31, 2012 Securities classified as available-for-sale—Equity securities March 31, 2011 Securities classified as available-for-sale—Equity securities March 31, 2012 Millions of Yen Cost Unrealized Gains Unrealized Losses Fair Value ¥11,682 ¥2,570 ¥ 367 ¥13,885 Millions of Yen Cost Unrealized Gains Unrealized Losses Fair Value ¥ 4,371 ¥ 480 ¥ 683 ¥ 4,168 Thousands of U.S. Dollars Unrealized Unrealized Losses Gains Fair Value Cost Securities classified as available-for-sale—Equity securities $ 142,469 $ 31,350 $ 4,480 $ 169,338 Available--securities whose fair value was not readily determinable at March 31, 2011, were as follows. The similar information for 2012 is disclosed in Note 15. Costs and estimated earnings Amounts billed ¥ 282,492 (268,703) ¥ 286,840 (272,346 ) $ 3,445,027 (3,276,876) Net ¥ 13,788 ¥ 14,493 $ 168,151 March 31, 2011 Available-for-sale—Equity securities Carrying Amount Millions of Yen ¥ 1,644 15 Consolidated Financial Statements Consolidated Financial Statements 16 - 15 - - 16 - Notes to Consolidated Financial Statements 5. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES 7. RETIREMENT AND PENSION PLANS Investments in and advances to unconsolidated subsidiaries and associated companies at March 31, 2012 and 2011, were as follows: Investments Long-term receivables Total 6. LONG-DEBT Long-debt at March 31, 2012 and 2011, consisted of the following: Long-term loans principally from banks, due serially through 2014, with interest rates ranging from 1.9% to 2.0% at 2012 and 2011—Unsecured Obligations under finance lease Total Less current portion Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 ¥ 2,662 5 ¥ 2,692 11 $ 32,473 70 ¥ 2,668 ¥ 2,704 $ 32,543 Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 ¥ 10,198 12 10,210 (10,006) ¥ 10,208 26 10,234 (13 ) $ 124,373 146 124,520 (122,027) Long-term debt, less current portion ¥ 204 ¥ 10,220 $ 2,492 Annual maturities of long-debt, excluding finance leases (see Note 14), at March 31, 2012, were as follows: Year Ending March 31 2014 Total Commitment-contracts at March 31, 2012, were as follows: Commitment-line contracts Unused commitments Millions of Yen ¥198 ¥198 Millions of Yen ¥ 15,000 ¥ 15,000 Thousands of U.S. Dollars $ 2,422 $ 2,422 Thousands of U.S. Dollars $ 182,926 $ 182,926 Employees of the Company are, under most circumstances, entitled to payments from the defined contribution pension plan and the defined benefit corporate pension plan upon retirement or termination. Employees of certain of the Company's consolidated subsidiaries are, under most circumstances, entitled to certain lump-severance payments and pension payments upon retirement or termination. The liability for employees' retirement benefits at March 31, 2012 and 2011, consisted of the following: Projected benefit obligation Fair value of plan assets Unrecognized transitional obligation Unrecognized actuarial loss Unrecognized prior service cost Net amount booked in the consolidated balance sheet Prepaid pension expenses Millions of Yen 2012 2011 ¥ 24,492 (18,429) (1,826) (2,432) 675 2,479 (6) ¥ 25,241 (17,818 ) (2,435 ) (3,030 ) 851 2,809 Thousands of U.S. Dollars 2012 $ 298,686 (224,745) (22,274) (29,666) 8,239 30,239 (82) Net liability for employees' retirement benefits ¥ 2,486 ¥ 2,809 $ 30,321 The components of net periodic benefit costs for the years ended March 31, 2012 and 2011, 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 Payment to defined contribution pension trust Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 ¥ 829 341 (264) 608 748 (176) 2,086 294 ¥ 846 364 (288 ) 608 739 (176 ) 2,094 291 $ 10,110 4,166 (3,226) 7,424 9,124 (2,149) 25,449 3,590 Net periodic benefit costs ¥ 2,381 ¥ 2,385 $ 29,039 Assumptions used for the years ended March 31, 2012 and 2011, 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 2012 1.5% 1.6% 10 years 15 years 10 years 2011 1.5% 1.6% 10 years 15 years 10 years 17 Consolidated Financial Statements Consolidated Financial Statements 18 - 17 - - 18 - Notes to Consolidated Financial Statements 8. EQUITY 9. INCOME TAXES Japanese companies are 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-dividend upon resolution at the shareholders' meeting. For companies that meet certain criteria, 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. The Company is organized as a company with board committees. The Companies Act permits companies to distribute dividends in kind (non-assets) to shareholders subject to a certain limitation and additional requirements. 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-capital (a component of capital surplus) depending on the equity account charged upon the payment of such dividends until the aggregate amount of legal reserve and additional paid-capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-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. 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, 2012 and 2011. The tax effects of significant temporary differences which resulted in deferred tax assets and liabilities at March 31, 2012 and 2011, were as follows: Deferred tax assets: Cost of revenue Future deductible depreciation Allowance for employees' bonus Retirement benefits Loss on valuation of investment securities Enterprise tax Other Less valuation allowance Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 ¥ 10,712 1,876 1,475 859 342 160 2,695 (594) ¥ 16,896 1,906 1,527 1,117 289 759 3,184 (744 ) $ 130,634 22,885 17,995 10,477 4,180 1,960 32,870 (7,249) Total 17,527 24,937 213,755 Deferred tax liabilities: Profit/loss in joint venture Unrealized gain on available-for-sale securities Other 797 695 867 1,917 431 9,720 8,480 10,574 Total 2,359 2,348 28,775 Net deferred tax assets ¥ 15,168 ¥ 22,589 $ 184,979 Net deferred tax assets as of March 31, 2012 and 2011 were recorded in the accompanying consolidated balance sheet as follows: Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 Deferred tax assets—current assets Deferred tax assets—investments and other assets Other liabilities—non-current liabilities ¥ 12,987 2,204 (23) ¥ 18,644 3,948 (3 ) $ 158,388 26,882 (291) 19 Consolidated Financial Statements Consolidated Financial Statements 20 - 19 - - 20 - Notes to Consolidated Financial Statements 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, 2012 and 2011, is as follows: Obligations under finance leases and future minimum payments under noncancelable operating leases for the years ended March 31, 2012 and 2011 were as follows: Normal effective statutory tax rate Expenses not deductible for income tax purposes Non-taxable dividend income Profit/loss in joint venture Tax credit Lower income tax rates applicable to subsidiaries Tax rate changes due to tax reform Actual effective tax rate 2012 41 % 1 (1) (6) (1) (2) 5 38 % 2011 41 % 1 (1) (6) (5) 31 % Year Ended March 31, 2012 Millions of Yen Thousands of U.S. Dollars Finance Leases Off On Balance Balance Operating Leases Finance Leases Off On Balance Balance Operating Leases Due within one year Due after one year ¥ 6 5 ¥ 47 16 ¥ 688 526 $ 76 70 $ 574 199 $ 8,391 6,425 Total ¥ 12 ¥ 63 ¥ 1,214 $ 146 $ 774 $ 14,816 On December 2, 2011, new tax reform laws were enacted in Japan, which changed the normal effective statutory tax rate from approximately 41% to 38% effective for the fiscal years beginning on or after April 1, 2012 through March 31, 2015, and to 36% thereafter. The effect of this change was to decrease deferred taxes in the consolidated balance sheet as of March 31, 2012 by ¥1,136 million ($13,858 thousand) and to increase income taxes—deferred in the consolidated statement of income for the year then ended by ¥1,253 million ($15,291 thousand). 10. RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to income were ¥1,886 million ($23,007 thousand) and ¥1,848 million for the years ended March 31, 2012 and 2011, respectively. 11. OFFICE INTEGRATION COSTS Following the Company's decision to integrate its offices which have been located separately, the office integration costs of ¥4,218 million have been expensed in the consolidated statement of income for the year ended March 31, 2011 consistent with the office integration plan. It consists of the following: Non-recurring depreciation on non-current assets and related expenses Provision for cancellation of leases 12. LEASES The Group leases certain machinery, computer equipment, and other assets. Millions of Yen 2011 ¥ 3,673 545 Year Ended March 31, 2011 Due within one year Due after one year Total Millions of Yen Finance Leases On Balance Off Balance Operating Leases ¥ 13 12 ¥ 26 ¥ 53 63 ¥ 123 1,298 ¥ 117 ¥ 1,421 Pro forma Information of Leased Property Whose Lease Inception Was before March 31, 2008 ASBJ Statement No. 13, "Accounting Standard for Lease Transactions" requires that all finance lease transactions be capitalized to recognize lease assets and lease obligations in the balance sheet. However, ASBJ Statement No. 13 permits leases that do not transfer ownership of the leased property to the lessee and whose lease inception was before March 31, 2008 to continue to be accounted for as operating lease transactions if certain "as if capitalized" information is disclosed in the note to the financial statements. The Company applied ASBJ Statement No. 13 effective April 1, 2008 and continued to account for such leases as operating lease transactions. Pro forma information of leased property whose lease inception was before March 31, 2008 on an "as if capitalized" basis was as follows: Year Ended March 31, 2012 Acquisition cost Accumulated depreciation Net leased property Millions of Yen Buildings and Structures Tools, Furniture, and Fixtures ¥ 67 32 ¥ 34 ¥ 79 61 ¥ 17 Other ¥ 26 15 ¥ 10 Total ¥ 173 109 ¥ 63 21 Consolidated Financial Statements Consolidated Financial Statements 22 - 21 - - 22 - Notes to Consolidated Financial Statements Year Ended March 31, 2011 (2) Nature and Extent of Risks Arising from Financial Instruments Acquisition cost Accumulated depreciation Net leased property Year Ended March 31, 2012 Acquisition cost Accumulated depreciation Net leased property Millions of Yen Buildings and Structures Tools, Furniture, and Fixtures ¥ 67 25 ¥ 41 ¥ 279 221 ¥ 58 Other ¥ 72 55 ¥ 17 Total ¥ 419 302 ¥ 117 Thousands of U.S. Dollars Buildings and Structures Tools, Furniture, and Fixtures Other Total $ 823 398 $ 425 $ 969 750 $ 219 $ 317 187 $ 129 $ 2,110 1,335 $ 774 Obligations under finance leases for the years ended March 31, 2012 and 2011 were as follows: Millions of Yen Due within one year Due after one year Total 2012 ¥ 47 16 ¥ 63 Thousands of U.S. Dollars 2012 $ 574 199 2011 ¥ 53 63 Receivables such as trade notes and trade accounts are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, the position, net of payables in foreign currencies, is hedged by using foreign currency forward contracts. Cash equivalents include certificates of deposit which mature shortly and are used for cash surpluses. Short-investments include deposits at call which will mature three months after the date of acquisition. Both certificates of deposit and deposits at call are exposed to default risk of the issuing financial institution. Investment securities are equity securities related to the business which the Group operates. Marketable securities are exposed to the risk of fluctuations in stock prices. Payment terms of payables, such as trade notes and trade accounts, are generally less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are netted against the balance of receivables denominated in the same foreign currency as noted above. Bank loans are used for operating capital. Although they are exposed to the market risks from changes in interest rates, the risk is hedged by using interest rate swap contracts. Derivatives are foreign currency forward contracts and interest rate swap contracts, which are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables, and from changes in interest rates, respectively. Please see Notes 2.t and 16 for more detail about derivatives. (3) Risk Management for Financial Instruments Credit risk management Credit risk is the risk of economic loss arising from a counterparty's failure to repay or service debt according to the contractual terms. The Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of major customers to identify the default risk of customers at an early stage. ¥ 117 $ 774 Certificates of deposit and deposits at call are exposed to insignificant default risk because transactions are limited to major financial institutions. Depreciation expense as lessee, which is not reflected in the accompanying consolidated statement of income, computed by the straight-line method was ¥53 million ($655 thousand) and ¥90 million for the years ended March 31, 2012 and 2011, respectively. The amounts of obligations, acquisition cost and depreciation under finance leases include the imputed interest income portion and interest expense portion. 13. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES (1) Group Policy for Financial Instruments The Group uses financial instruments for cash surpluses, if any, invested in low-risk financial assets such as certificate of deposits and deposits at call. For operating capital, the Group uses bank loans. Derivatives are used, not for speculative purposes, but to manage exposure to the market risk of fluctuation in foreign currency exchange rates and interest rates. With respect to foreign currency forward contracts, the Group limits the counterparty to those derivatives to major financial institutions that can bear losses arising from credit risk. Market risk management (risk of foreign exchange and interest rates) Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such foreign exchange risk is hedged principally with foreign currency forward contracts. Interest expense associated with long-term debts is exposed to market risk resulting from changes in interest rates. Such risk is hedged by interest rate swap contracts. 23 Consolidated Financial Statements Consolidated Financial Statements 24 - 23 - - 24 - Notes to Consolidated Financial Statements Foreign currency forward contracts are controlled under internal guidelines. The position related to particular construction contracts is identified and is reviewed monthly. Reconciliation of the transaction and balances with customers' confirmation reply is made, and the transactions related to foreign currency forward contracts are executed and accounted for under internal guidelines. Marketable investment securities are managed by monitoring the market values and financial position of issuers on a regular basis. The Group assesses the stock price risk quantitatively so as to account for significant declines in market value as impairment losses. Liquidity risk management Liquidity risk comprises the risk that the Group cannot meet its contractual obligations in full on their maturity dates. The Group manages its liquidity risk by holding adequate volumes of liquid assets along with timely adequate financial planning. (4) Fair Values of Financial Instruments Fair values of financial instruments are based on quoted prices in active markets. If a quoted price is not available, another rational valuation technique is used instead. Also, please see Note 16 for the detail of fair value for derivatives. (a) Fair values of financial instruments March 31, 2012 Cash and cash equivalents Short-term investments Notes and accounts receivable Costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Investment securities Total Current portion of long-term debt Notes and accounts payable—trade Income taxes payable Long-term debt Total Unrealized Gain (Loss) Carrying Amount ¥ 173,769 307 30,051 13,788 65,794 13,885 Millions of Yen Fair Value ¥ 173,769 307 30,051 13,788 65,794 13,885 ¥ 297,597 ¥ 297,597 ¥ 10,000 86,211 1,162 198 ¥ 10,000 86,211 1,162 198 ¥ 97,572 ¥ 97,572 March 31, 2011 Cash and cash equivalents Short-term investments Notes and accounts receivable Costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Investment securities Total Notes and accounts payable—trade Income taxes payable Long-term debt Total March 31, 2012 Cash and cash equivalents Short-term investments Notes and accounts receivable Costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Investment securities Unrealized Gain (Loss) Carrying Amount ¥ 130,618 79 41,539 14,493 88,662 4,168 Millions of Yen Fair Value ¥ 130,618 79 41,539 14,493 88,662 4,168 ¥ 279,561 ¥ 279,561 ¥ 97,417 5,986 10,208 ¥ 97,417 5,986 10,208 ¥ 113,611 ¥ 113,612 Thousands of U.S. Dollars Unrealized Gain (Loss) Carrying Amount $ 2,119,137 3,753 366,485 168,151 802,367 169,338 Fair Value $ 2,119,137 3,753 366,485 168,151 802,367 169,338 Total $ 3,629,233 $ 3,629,233 Current portion of long-term debt Notes and accounts payable—trade Income taxes payable Long-term debt $ 121,951 1,051,362 14,174 2,422 $ 121,951 1,051,362 14,174 2,417 Total $ 1,189,910 $ 1,189,905 $ (5) $ (5) Cash and Cash Equivalents, Short-Term Investments, Notes and Accounts Receivable, and Costs and Estimated Earnings on Long-Term Construction Contracts The carrying values of accounts mentioned above approximate fair value because of their short maturities. 25 Consolidated Financial Statements Consolidated Financial Statements 26 - 25 - - 26 - Notes to Consolidated Financial Statements Jointly Controlled Assets of Joint Venture (c) Maturity analysis for financial assets and securities with contractual maturities The jointly controlled assets of joint venture are jointly controlled cash recognized based on the Company's share of the venture. The carrying values of jointly controlled assets of joint venture approximate fair value because of their short maturities. Investment Securities The fair values of investment securities are measured at the quoted market price of the stock exchange for the equity instruments. The information of the fair value for investment securities by classification is included in Note 5. The above schedules do not include investment securities whose fair value cannot be reliably determined. Notes and Accounts Payable—Trade and Income Taxes Payable The carrying values of accounts mentioned above approximate fair value because of their short maturities. Current Portion of Long-Term Debt (Bank Loans)/Long-Debt (Bank Loans) The fair value of fixed-rate loans is calculated by discounting total principal and interest payments to present value using a discount rate equal to the rate that would be charged if the loan was newly borrowed. The fair value of floating rate loans which are subject to specific method for interest rate swaps is calculated by discounting total principal and interest payments which are handled together with interest rate swaps to present value using a discount rate equal to the rate that would be charged if the loan was newly borrowed. Derivatives The information of the fair value for derivatives is included in Note 16. (b) Financial instruments whose fair values cannot be reliably determined Investment securities that do not have a quoted market price in an active market Investments in equity instruments that do not have a quoted market price in an active market Investments in unconsolidated subsidiaries and associated companies that do not have a quoted market price in an active market Carrying Amount Millions of Yen 2011 2012 Thousands of U.S. Dollars 2012 ¥ 1,639 ¥ 1,641 $ 19,988 2 2 36 2,662 2,692 32,473 March 31, 2012 Cash and cash equivalents Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contacts Jointly controlled assets of joint venture Millions of Yen Due after 1 Year through 5 Years Due after 5 Years through 10 Years Due after 10 Years Due in 1 Year or Less ¥ 173,684 307 43,731 ¥ 109 65,794 Total ¥ 283,517 ¥ 109 March 31, 2011 Millions of Yen Due after 1 Year through 5 Years Due after 5 Years through 10 Years Due after 10 Years Due in 1 Year or Less ¥ 130,618 79 53,072 ¥ 2,941 ¥ 19 88,662 Cash and cash equivalents Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contacts Jointly controlled assets of joint venture Total ¥ 272,432 ¥ 2,941 ¥ 19 March 31, 2012 Thousands of U.S. Dollars Due after 5 Years through 10 Years Due after 1 Year through 5 Years Due after 10 Years Due in 1 Year or Less $ 2,118,109 3,753 533,305 $ 1,331 802,367 Cash and cash equivalents Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contacts Jointly controlled assets of joint venture Total $ 3,457,534 $ 1,331 Please see Note 7 for annual maturities of long-debt and Note 14 for obligations under finance leases. 27 Consolidated Financial Statements Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2012 and 2011 Consolidated Financial Statements 28 March 31, 2012 - 27 - 14. DERIVATIVES - 28 - Foreign currency forward contracts: Selling U.S.$/buying yen Selling Euro/buying yen Selling GBP/buying yen Selling AUD/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying SGD/selling yen Buying Euro/selling U.S.$ Total March 31, 2011 Foreign currency forward contracts: Selling U.S.$/buying yen Selling Euro/buying yen Selling GBP/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying Euro/selling U.S.$ Millions of Yen Contract Amount Due after One Year Fair Value Unrealized (Loss) Gain (Loss) ¥ (34 ) ¥ (34) 7 3 7 3 (5 ) (5) ¥ 23,781 ¥ (34 ) ¥ (34) Millions of Yen Contract Amount Due after One Year Fair Value Unrealized (Loss) Gain (Loss) ¥ 26,202 ¥ 2,163 ¥ (35 ) 11 ¥ (35) 11 4 62 1 (9 ) 1 (9) Contract Amount ¥ 18,468 4,492 182 81 119 42 3 391 Contract Amount 3,472 264 43 21 1,238 Total ¥ 31,243 ¥ 2,230 ¥ (32 ) ¥ (32) - 29 - Notes to Consolidated Financial Statements Please see Note 7 for annual maturities of long-debt and Note 14 for obligations under finance leases. 14. DERIVATIVES March 31, 2012 Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2012 and 2011 March 31, 2012 Foreign currency forward contracts: Selling U.S.$/buying yen Selling Euro/buying yen Selling GBP/buying yen Selling AUD/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying SGD/selling yen Buying Euro/selling U.S.$ Total March 31, 2011 Foreign currency forward contracts: Selling U.S.$/buying yen Selling Euro/buying yen Selling GBP/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying Euro/selling U.S.$ Millions of Yen Contract Amount Due after One Year Fair Value (Loss) Unrealized Gain (Loss) ¥ (34 ) 7 ¥ (34) 7 3 3 (5 ) (5) ¥ (34 ) ¥ (34) Millions of Yen Contract Amount Due after One Year Fair Value (Loss) Unrealized Gain (Loss) ¥ 2,163 ¥ (35 ) 11 ¥ (35) 11 4 62 1 (9 ) 1 (9) Contract Amount ¥ 18,468 4,492 182 81 119 42 3 391 ¥ 23,781 Contract Amount ¥ 26,202 3,472 264 43 21 1,238 Total ¥ 31,243 ¥ 2,230 ¥ (32 ) ¥ (32) Foreign currency forward contracts: Selling U.S.$/buying yen Selling Euro/buying yen Selling GBP/buying yen Selling AUD/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying SGD/selling yen Buying Euro/selling U.S.$ Total Thousands of U.S. Dollars Contract Amount Due after One Year Fair Value (Loss) Unrealized Gain (Loss) $ (418 ) 94 (1 ) (83 ) 48 (2 ) 2 (61 ) $ (418) 94 (1) (83) 48 (2) 2 (61) $ (421 ) $ (421) Contract Amount $ 225,221 54,783 2,222 999 1,462 516 47 4,769 $ 290,020 Derivative Transactions to Which Hedge Accounting Is Applied at March 31, 2012 and 2011 March 31, 2012 Millions of Yen Hedged Item Contract Amount Contract Amount Due after One Year Fair Value (Loss) Foreign currency forward contracts— Accounted for under deferred hedge accounting method: Selling U.S.$/buying yen Selling GBP/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying SGD/selling yen Total Other*1: Selling U.S.$/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Total Foreign currency forecasted transaction Receivables Payables Interest rate swaps*2 (fixed rate payment, floating rate receipt) Current portion of long-term debt Total ¥ 1,785 25 6,492 1,041 46 ¥ 581 2,995 100 ¥ (39) (1) 242 14 2 ¥ 9,391 ¥ 3,677 ¥ 218 ¥ 43 267 6 ¥ 60 ¥ 317 ¥ 60 ¥ 10,000 ¥ 10,000 ¥ 10,000 ¥ 10,000 - 29 - - 30 - 29 Consolidated Financial Statements Consolidated Financial Statements 30 Notes to Consolidated Financial Statements March 31, 2011 March 31, 2012 Foreign currency forward contracts— Accounted for under deferred hedge accounting method: Selling U.S.$/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying GBP/selling yen Buying SGD/selling yen Buying Euro/selling U.S.$ Total Other*1: Selling U.S.$/buying yen Selling Euro/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying GBP/selling yen Total Millions of Yen Hedged Item Contract Amount Contract Amount Due after One Year Fair Value (Loss) Foreign currency forecasted transaction ¥ 2,968 3,914 1,943 17 200 2,858 ¥ 959 66 143 ¥ 130 (25) 21 (2) 9 (21) ¥ 11,902 ¥ 1,169 ¥ 112 Receivables Payables ¥ 43 ¥ 2,692 337 151 288 1 ¥ 3,470 ¥ 43 Thousands of U.S. Dollars Hedged Item Contract Amount Contract Amount Due after One Year Fair Value (Loss) Foreign currency forward contracts— Accounted for under deferred hedge accounting method: Selling U.S.$/buying yen Selling GBP/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Buying SGD/selling yen Total Other*1: Selling U.S.$/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Total Foreign currency forecasted transaction Receivables Payables Interest rate swaps*2 (fixed rate payment, floating rate receipt) Current portion of long-term debt $ 21,774 315 79,176 12,697 562 $ 7,097 36,524 1,223 $ (487) (17) 2,961 182 25 $ 114,526 $ 44,845 $ 2,664 $ 534 3,262 77 $ 735 7 $ 3,873 $ 742 $ 121,951 $ 121,951 $ 121,951 $ 121,951 Interest rate swaps*2 (fixed rate payment, Long-term debt ¥ 10,000 ¥ 10,000 Total floating rate receipt) Total ¥ 10,000 ¥ 10,000 *1 Foreign currency forward contracts, which are applied to the foreign currency translation at the contract rate of the assets and liabilities on construction contracts denominated in foreign currencies *2 Interest rate swap contracts accounted under specific method, are treated as part of the hedged long-debt, thus their fair values are integrally computed with those of hedged long-debt. See Note 15 for the fair value of long-debt. 15. CONTINGENT LIABILITIES At March 31, 2012, the Group had the following contingent liabilities: Guarantees on employees' housing loans Performance bond for an unconsolidated subsidiary ¥ 172 1,767 $ 2,102 21,560 Millions of Yen Thousands of U.S. Dollars 31 Consolidated Financial Statements Consolidated Financial Statements 32 - 31 - - 32 - Notes to Consolidated Financial Statements 16. COMPREHENSIVE INCOME There is no dilutive effect for the year ended March 31, 2012. The components of other comprehensive income for the year ended March 31, 2012 were as follows: Year Ended March 31, 2011 Unrealized gain (loss) on available-for-sale securities: Gains arising during the year Reclassification adjustments to profit or loss Amount before income tax effect Income tax effect Total Deferred gain (loss) on derivatives under hedge accounting: Gains arising during the year Adjustment to acquisition cost of assets Reclassification adjustments to profit or loss Amount before income tax effect Income tax effect Total Foreign currency translation adjustments— Adjustments arising during the year Total Share of other comprehensive income in associates— Gains arising during the year Total Millions of Yen 2012 ¥ 2,156 250 2,406 (668 ) Thousands of U.S. Dollars 2012 $ 26,296 3,049 29,346 (8,147) ¥ 1,738 $ 21,198 ¥ (424 ) 549 6 131 (34 ) $ (5,179) 6,700 80 1,602 (418) ¥ 97 $ 1,183 ¥ (361 ) $ (4,407) ¥ (361 ) $ (4,407) ¥ (105 ) $ (1,285) ¥ (105 ) $ (1,285) Millions of Yen Net Income Thousands of Shares Weighted-Average Shares Yen EPS Basic EPS—Net income available to common shareholders ¥ 7,979 259,165 ¥ 30.79 There is no dilutive effect for the year ended March 31, 2011. 18. SUBSEQUENT EVENT The following appropriation of retained earnings at March 31, 2012, was approved at the Company's shareholders' meeting on June 26, 2012: Millions of Yen Thousands of U.S. Dollars Year-end cash dividends, ¥17.00 ($0.20) per share ¥ 4,404 $ 53,708 19. SEGMENT INFORMATION Under ASBJ Statement No. 17, "Accounting Standard for Segment Information Disclosures" and ASBJ Guidance No. 20, "Guidance on Accounting Standard for Segment Information Disclosures," an entity is required to report financial and descriptive information about its reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria. Operating segments are components of an entity about which separate financial information is available and such information is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding how to allocate resources to operating segments. Total other comprehensive income ¥ 1,368 $ 16,689 (1) Description of Reportable Segments The corresponding information for the year ended March 31, 2011 was not required under the accounting standard for presentation of comprehensive income as an exemption for the first year of adopting that standard and not disclosed herein. 17. NET INCOME PER SHARE Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2012 and 2011 is as follows: Year Ended March 31, 2012 Millions of Yen Net Income Thousands of Shares Weighted-Average Shares Yen U.S. Dollars EPS Basic EPS—Net income available to common shareholders ¥ 14,364 259,086 ¥ 55.44 $ 0.67 The Group's reportable segments are those for which separate financial information is available and regular evaluation by the Company's management is being performed in order to decide how resources are allocated within the Group. The Group globally provides "Engineering services," including planning, engineering, construction, procurement, commissioning, and maintenance, adapting the most appropriate functions of each related company. (2) Methods of Measurement for the Amounts of Sales, Profit (Loss), Assets, Liabilities, and Other Items for Each Reportable Segment The accounting policies of each reportable segment are consistent to those disclosed in Note 2, "Summary of Significant Accounting Policies." The profit in reporting segments are based on the operating income. Intersegment income and transfer are measured at the quoted market price. 33 Consolidated Financial Statements Consolidated Financial Statements 34 - 33 - - 34 - Notes to Consolidated Financial Statements (3) Information about Sales, Profit (Loss), Assets, Liabilities, and Other Items Year Ended March 31, 2012 Year Ended March 31, 2012 Millions of Yen Reportable Segment Engineering Other*1 Total Reconcil- iations*2 Consol- idated*3 Sales: Sales to external customers Intersegment sales or transfers ¥ 247,849 2 ¥ 6,826 8,508 ¥ 254,675 8,510 ¥ (8,510 ) ¥ 254,675 Total ¥ 247,851 ¥ 15,334 ¥ 263,186 ¥ (8,510 ) ¥ 254,675 Segment profit Segment assets Segment liabilities Other: Depreciation Amortization of goodwill Investment in associated companies Increase in property, plant, and equipment and intangible assets Year Ended March 31, 2011 ¥ 23,755 358,155 185,832 ¥ 531 8,165 3,671 ¥ 24,287 366,321 189,503 ¥ (89 ) (525 ) 7,553 ¥ 24,197 365,795 197,057 2,664 945 21 84 2,685 84 945 (48 ) 2,637 84 945 3,631 4 3,635 (180 ) 3,455 Millions of Yen Reportable Segment Engineering Other*1 Total Reconcil- iations*2 Consol- idated*3 Sales: Sales to external customers Intersegment sales or transfers ¥ 241,395 4 ¥ 5,687 8,506 ¥ 247,082 8,510 ¥ (8,510 ) ¥ 247,082 Total ¥ 241,399 ¥ 14,193 ¥ 255,593 ¥ (8,510 ) ¥ 247,082 Segment profit Segment assets Segment liabilities Other: Depreciation Amortization of goodwill Investment in associated companies Increase in property, plant, and equipment and intangible assets ¥ 17,175 346,512 187,019 ¥ 499 7,372 3,009 ¥ 17,674 353,885 190,029 ¥ (129 ) (492 ) 7,604 ¥ 17,544 353,392 197,633 2,562 977 23 41 2,586 41 977 (19 ) 2,566 41 977 2,905 20 2,925 (164 ) 2,760 Thousands of U.S. Dollars Reportable Segment Engineering Other*1 Total Reconcil- iations*2 Consol- idated*3 Sales: Sales to external customers Intersegment sales or transfers $ 3,022,554 $ 83,244 $ 3,105,798 $ 3,105,798 29 103,758 103,787 $ (103,787 ) Total $ 3,022,583 $ 187,002 $ 3,209,586 $ (103,787 ) $ 3,105,798 Segment profit Segment assets Segment liabilities Other: Depreciation Amortization of goodwill Investment in associated companies Increase in property, plant, and equipment and intangible assets 289,705 $ $ 4,367,752 2,266,244 6,479 $ 99,576 44,773 4,467,329 2,311,017 296,185 $ 256 1,027 32,492 11,528 32,748 1,027 11,528 295,095 (1,089 ) $ (6,412 ) 4,460,917 2,403,138 92,121 (586 ) 32,162 1,027 11,528 44,285 51 44,337 (2,202 ) 42,135 Notes for the year ended March 31, 2012: *1 "Other" represents industry segments which are not included in the reportable segment, consisting of temporary staffing services, IT services, and travel services. *2 The detail of reconciliations is as follows: (1) The reconciliation in segment profit ¥(89) million ($(1,090) thousand) is the elimination of intersegment trades. (2) The reconciliation in segment assets ¥(525) million ($(6,413) thousand) is the result of elimination of intersegment trades ¥(2,740) million ($(33,416) thousand) and the Group's assets of ¥2,214 million ($27,004 thousand) which are not included in the reportable segment. (3) The reconciliation in segment liabilities ¥7,553 million ($92,121 thousand) is the result of elimination of intersegment trades ¥(2,446) million ($(29,830) thousand) and the Group's liabilities of ¥10,000 million ($121,951 thousand) which are not included in the reportable segment. (4) The reconciliation in depreciation of ¥(48) million ($(586) thousand) is the elimination of intersegment trades. (5) The reconciliation in increase in property, plant, and equipment and intangible assets of ¥(180) million ($(2,202) thousand) is the elimination of intersegment trades. 35 Consolidated Financial Statements Consolidated Financial Statements 36 - 35 - - 36 - Notes to Consolidated Financial Statements *3 The calculation of the segment profit is based on the operating income on the consolidated statements of Revenue by region for the year ended March 31, 2011 was as follows: income. Notes for the year ended March 31, 2011: *1 "Other" represents industry segments which are not included in the reportable segment, consisting of temporary staffing services, IT services, and travel services. *2 The detail of reconciliations is as follows: (1) The reconciliation in segment profit ¥(129) million is the elimination of intersegment trades. (2) The reconciliation in segment assets ¥(492) million is the result of elimination of intersegment trades ¥(2,628) million and the Group's assets of ¥2,135 million which are not included in the reportable segment. (3) The reconciliation in segment liabilities ¥7,604 million is the result of elimination of intersegment trades ¥(2,395) million and the Group's liabilities of ¥10,000 million which are not included in the reportable segment. Japan Qatar Papua New Guinea Asia Others Total Millions of Yen 2011 ¥ 120,990 64,232 29,479 19,506 12,872 ¥ 247,082 Note: Revenue is classified in countries or regions based on location of construction site. The proportion of fixed assets placed in Japan is more than 90% in the total fixed assets of the Group. Accordingly, the presentation of the information about fixed assets is not required under Japanese accounting standards. (c) Information about Major Customers (4) The reconciliation in depreciation of ¥(19) million is the elimination of intersegment trades. Year Ended March 31, 2012 (5) The reconciliation in increase in property, plant, and equipment and intangible assets of ¥(164) million is the elimination of intersegment trades. Name Related Segment Millions of Yen Thousands of U.S. Dollars *3 The calculation of the segment profit is based on the operating income on the consolidated statements of income. Related Information (a) Information about Products and Services Esso Highlands Ltd. Tokuyama Malaysia Sdn. Bhd Year Ended March 31, 2011 Engineering Engineering ¥ 69,856 28,815 $ 851,902 351,411 Name Related Segment Millions of Yen The proportion of engineering business is more than 90% of the total sales of the Group. Accordingly, the presentation of the information about each service is not required under Japanese accounting standards. Qatar Liquefied Gas Company Ltd. III, IV Esso Highlands Ltd. Engineering Engineering ¥ 48,060 29,405 (b) Information about Geographical Areas Revenue by region for the year ended March 31, 2012 was as follows: (d) Information about Goodwill by Segments Ending balance of goodwill as of March 31, 2012 and 2011, was as follows: Japan Papua New Guinea Malaysia Middle East Others Total Millions of Yen 2012 ¥ 94,925 70,508 30,575 30,398 28,267 Thousands of U.S. Dollars 2012 $ 1,157,626 859,855 372,872 370,716 344,727 ¥ 254,675 $ 3,105,798 Millions of Yen 2012 2011 Thousands of U.S. Dollars 2012 ¥ 716 ¥ 716 ¥ 757 ¥ 757 $ 8,736 $ 8,736 Engineering Other* Total * Other involves temporary staffing services and IT services. * * * * * * 37 Consolidated Financial Statements Consolidated Financial Statements 38 - 37 - INDEPENDENT AUDITOR’S REPORT 39 Consolidated Financial Statements Minatomirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) http://www.chiyoda-corp.com/en/ 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. Consolidated Financial Statements For the Year Ended March 31, 2012, and Independent Auditor's Report