A N N U A L R E P O R T FY2013 For the year ended March 31, 2014 Courtesy of Mizushima LNG Co., Ltd. Financial Highlights Profile Founded in 1948 in the post war period to reconstruct Japan, Chiyoda started its engineering business for domestic projects mainly in the petroleum refining, gas processing and petrochemical fields, and expanded into overseas projects in the 1960’s. Since then, Chiyoda has been and is growing steadily under the corporate philosophy of enhancing its business by aiming for harmony between energy and the environment and contributing to the sustainable development of society. Global situations are dramatically changing, especially those related to energy, including increasing demand in developing countries caused by economic growth, “Shale Revolution” and “Gas Shift,” as well as there being a call to develop renewable energies. We have to recognize that it is time for us to meet these challenges. Under these challenges, we set up last year a mid-term management plan (MT-Plan), “Seize the moment, Open up new frontiers,” and will pursue the growth strategies and operating foundation strategies under the MT-Plan. Our engineering company will be a company that can shoulder the full task of building any infrastructure that demands cutting-edge technologies. We will seize the moment and open up new frontiers to create value through our “Asset Management.” Contents 01 Financial Highlights 02 At a Glance 03 To Our Shareholders 08 Corporate Governance 10 Corporate Information 12 Directors and Officers 04 Management’s Discussion and Analysis 13 Stock Information 06 Topics Years Ended March 31, 2014, 2013, 2012, 2011 and 2010 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) Dividend per share Ratios (%) Return on assets (ROA) Return on equity (ROE) 2014 2013 2012 2011 2010 ¥446,147 ¥398,918 ¥254,675 ¥247,082 ¥312,985 404,685 21,079 22,538 13,447 356,402 25,113 26,747 16,077 215,783 24,197 23,543 14,364 215,563 17,544 11,476 7,979 298,766 1,702 4,714 2,953 ¥475,288 ¥435,379 ¥365,795 ¥353,392 ¥328,174 198,031 156.3 189,356 166.3 168,737 165.5 155,758 173.8 ¥51.91 758.31 16.0 5.0 7.0 ¥62.06 727.24 19.0 6.4 9.0 ¥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 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) Operating Income (Billions of yen) Net Income (Billions of yen) Billions of yen Billions of yen Billions of yen Billions of yen Billions of yen Billions of yen Billions of yen Billions of yen Billions of yen 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 0 446.1 446.1 446.1 398.9 398.9 398.9 313.0 313.0 313.0 247.1 247.1 247.1 254.7 254.7 254.7 2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 30 30 30 25 25 25 20 20 20 15 15 15 10 10 10 5 5 5 0 0 0 25.1 25.1 25.1 24.2 24.2 24.2 21.1 21.1 21.1 17.5 17.5 17.5 30 30 30 20 20 20 16.1 16.1 16.1 14.4 14.4 14.4 13.4 13.4 13.4 1.7 1.7 1.7 10 10 10 8.0 8.0 8.0 3.0 3.0 3.0 2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 0 0 0 2010 2010 2010 2011 2011 2011 2012 2012 2012 2013 2013 2013 2014 2014 2014 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, 2014. 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 regula- tions, addition or elimination of products, and exchange rate fluctuation, among others. 1 CHIYODA CORPORATION ANNUAL REPORT FY2014 At a Glance To Our Shareholders Revenues New Orders Backlog of Contracts (Billions of yen) 17 21 6 11 46 446.1 Billion yen LNG 8 8 7 3 74 5 19 4 2 70 589.9 Billion yen 1,072.2 Billion yen 203.0 (46%) 437.0 (74%) 755.6 (70%) Gas Processing*1 47.5 (11%) Fine Industries*2 94.3 (21%) Petroleum and Petrochemicals 76.0 (17%) Others 25.3 (6%) 14.3 (2%) 41.0 (7%) 21.6 (2%) 42.6 (4%) 49.2 (8%) 203.4 (19%) 48.4 (8%) 49.1 (5%) *3 *4 *5 *6 *7 Major Projects in Progress (as of August 1, 2014) Arzew Algeria/LNG Arzew Algeria/LNG Laffan Refinery Phase 2 Project Yamal LNG Yamal LNG Russia/LNG Russia/LNG New Ulaanbaatar International Airport Mongolia/Infrastructure New Ulaanbaatar International Airport Mongolia/Infrastructure Jangkrik FPU Indonesia/Offshore Long Term Service Agreement Shell Asia/Downstream Abadi LNG Indonesia/FLNG Puerto La Cruz Freeport LNG Tr. 1 & 2 USA/LNG LNG Canada Canada/LNG LNG Canada Canada/LNG Golden Pass LNG USA/LNG Nghi Son Refinery Nghi Son Refinery Long Term Service Agreement Shell Asia/Downstream Cameron LNG USA/LNG Golden Pass LNG USA/LNG Freeport LNG Tr. 1 & 2 USA/LNG Cameron LNG USA/LNG Ichthys LNG Abadi LNG Australia/LNG Indonesia/FLNG Ichthys LNG Australia/LNG Arrow LNG Australia/LNG Arrow LNG Australia/LNG Puerto La Cruz Laffan Refinery Phase 2 Project Plateau Maintenance Project Qatar/LNG Long Term Service Agreement (RasGas/Qatargas/Shell) Qatar/LNG, GTL Plateau Maintenance Project Qatar/LNG Long Term Service Agreement (RasGas/Qatargas/Shell) Qatar/LNG, GTL Jangkrik FPU Mozambique LNG Indonesia/Offshore Mozambique/LNG Mozambique LNG Mozambique/LNG EPC*/EPCm**/EPsCm***/EPCI**** FEED*****/Feasibility Study EPC: Engineering, Procurement and Construction * ** EPCm: Engineering, Procurement and Construction management *** EPsCm: Engineering, Procurement support and Construction management **** EPCI: ***** FEED: Front-end Engineering and Design Engineering, Procurement, Construction and Installation EPC*/EPCm**/EPsCm***/EPCI**** FEED*****/Feasibility Study *1: Classified as “Other Gas Related Works” in “Consolidated Financial Results” *2: Classified as “General Chemicals/Industrial Facilities” 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 Shogo Shibuya President & CEO Chiyoda Corporation Thank you for your continuing support over the past 12 months. We would like to present Chiyoda Group’s corporate overview for the fiscal year ended March 31, 2014, which was the first fiscal year of our Medium-Term Management Plan entitled “Seize the moment, Open up new frontiers.” Various measures have been implemented in accordance with the growth strategies and oper- ation foundation strategies that are key to the Plan and which are aimed at achieving the vision for the Chiyoda Group 10 years on. As a result, we have received orders for large LNG EPC (Engineering, Procurement, and Construction) projects in the United States, and orders for studies and basic design for LNG projects in Canada, Russia, and Africa. In doing so, we have created the groundwork for receiving further EPC project orders in the future. In the field of infrastructure, we received an order for the construction of an international airport in Mongolia and orders for several mega-solar projects in Japan. In terms of backlog projects, we completed an LNG plant in Papua New Guinea, a polycrystalline silicon plant in Malaysia and an LNG receiving terminal project in Japan, and steady progress is being made on the construction of an LNG plant in Australia and an oil refinery in Vietnam. As a result, revenues were up year on year. The world is currently facing an increasing demand for energy due to economic growth in emerging countries, the Shale Revolution taking place mainly in North America, marine energy development, and the increasing pressure to develop energy sources with less environmental impact, such as renewable energy. Initiatives taken over this past fiscal year in response to these needs include efforts to capture further project demand in North America, entering a capital alliance with a marine resource development consulting company in the United Kingdom, con- structing and operating a concentrating solar power (CSP) generation demonstration plant in Italy, and commercialization of a large-scale hydrogen storage and transport system. In the upcoming fiscal year ending in March 2015, each and every executive and employee will use his or her utmost effort to continue steadily progressing projects in our existing businesses including LNG, oil, and industrial facilities while, at the same time, fostering the growth of new businesses into large and successful ones. We have decided to pay a dividend of ¥16 per share, in line with our earnings for fiscal year 2013. We ask all of our shareholders for their continued support in our ongoing efforts. June 2014 3 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Management’s Discussion and Analysis Results of Operations During the fiscal year under review, despite there being a lull in the European debt crisis, we saw Analysis of Results changes in the world economy affected by the slowdown in the economy of emerging countries such as China, the future policy trends of USA and geo-political concerns. However, in the energy field, with which the Chiyoda Group has close links, preparations for investment in numerous gas related facilities are being encouraged by the continuing increase in energy demand, the Shale Revolution and the tide of Gas Shift. The Japanese economy has gradually recovered, largely due to the measures taken by the government which are intended to pull Japan out of deflation. Faced with these conditions, the Chiyoda Group entered the U.S. market as part of its drive to become involved in the planned construction of numerous LNG projects throughout the world, especially in the North America. While the Group continued to strengthen its core business in the fields of oil and gas, it is also accelerating its expansion into new business fields such as offshore and upstream, and new and renewable energy including Chiyoda’s own technologies for a Hydrogen Supply Chain and solar power generation. Execution of ongoing projects continued smoothly, including LNG plants in Papua New Guinea and Australia, an overseas project for Japanese clients in Vietnam, refinery projects in Saudi Arabia, Qatar and Venezuela, and LNG receiving terminals in Japan. Consolidated new orders for the fiscal year amounted to 589,867 million yen (46.4% increase year on year). The backlog and revenues were 1,072,218 million yen (19.1% increase) and 446,147 million yen (11.8% increase) respectively. The operating income amounted to 21,079 million yen (16.1% decrease year on year), ordinary income to 22,837 million yen (10.5% decrease), and net income resulted in 13,447 million yen (16.4% decrease). LNG Plants/Other Gas Related Works The Group was awarded Engineering, Procurement and Construction (EPC) contracts for huge natural gas liquefaction facilites in U.S. to be fed by shale gas. The EPC execution of an LNG plant in Papua New Guinea was completed and another LNG project in Australia is progressing as planned. Moreover the Group has been executing Front End Engineering Design (FEED) works for an LNG plant in Mozambique and a Floating LNG (FLNG) facility in Indonesia. Our Qatari subsidiary is executing the Engineering, Procurement and Construction management (EPCm) works for the maintenance and modification of existing LNG and gas processing plants built mainly by the Group. In Japan, the Naoetsu LNG Receiving Terminal was completed, and several EPC works on LNG receiving terminals and the expansion/modification works of existing plants are ongoing in parallel. LNG plants and other gas-related works constitute our core business and, in this regard, we will pursue any such project whether onshore/offshore, overseas/domestic or conventional/ unconventional. Petroleum/Petrochemicals/Gas Chemicals Several EPC works are ongoing globally for a refinery and petrochemical complex in Vietnam and a refinery project in Qatar. The group completed the EPC works for a heavy oil cracking unit in Saudi Arabia and a petrochemical plant in Singapore. Additionally, our subsidiary in Singapore is perform- ing the project management services under an Enterprise Framework Agreement for downstream projects within Asia, while the Engineering, Procurement support and Construction management Results by Business Segment (EPsCm) services for heavy crude oil upgrading facilities in Venezuela continue. In Japan, we continued to perform the EPC work for a Trans-Alkylation Unit, the diagnosis of existing facilities, maintenance and upgrading works, studies and construction works aimed at energy saving in the facilities, and studies to fortify the infrastructure of a refinery in case of the possible catastrophe. Mining/Mineral Refining/Offshore/General Chemicals/Environment/Other Fields As part of the Mid-Term Business Plan to expand our business fields, we are targeting new orders and are steadily executing backlog contracts, both overseas and domestically, for offshore and upstream projects, and non-hydrocarbon projects. The Group, in cooperation with our strategic alliance partner Xodus Group, started providing integrated services in the offshore/upstream field especially for domestic customers. EPC works for polycrystalline silicon plants in Malaysia and a nickel refinery in the Philippines were successfully completed. We have been reinforcing our efforts and developing our sales activities to meet the needs of Japanese companies expanding their operations overseas. We are operating a demonstration plant in Italy for a Concentrating Solar Power (CSP) system, and accelerating our efforts to prove this technology in order to develop the business opportunities for the CSP system, including EPC projects. The Group is moving forward with the EPC execution of a new international airport in Mongolia and is preparing bids for further airport and/or railway projects. While we are performing works on a demonstration project for an industrial wastewater treatment/water recycling system in Saudi Arabia, we have started business development for the EPC works for medium-small sized water treatment projects in an effort to expand our recycled water-related business into the Middle East, by establishing a framework in our group company to execute these works. In Japan, we won a number of EPC works for large-scale photovoltaic power generation systems and are executing and expanding our sales activities by enhancing our group operation in this field. We are also active in the pharmaceutical field, having completed the construction of phar- maceutical facilities for bulk vaccine and in vitro diagnostics, and are executing EPC works for fluid infusion facilities, nanotechnology research development facilities in cooperation with industry, government and academia, and newly awarded bio-medicine plant. On the other hand, to achieve a hydrogen-based society, we are studying/discussing with the parties concerned (both overseas and domestic) to establish a hydrogen supply chain through our own-developed technology to transport and deliver large volumes of hydrogen. Outlook for the Next Fiscal Year Chiyoda will continue to accelerate its sales activities and win contracts in areas where Chiyoda can best leverage its technological advantages. We will also continue to work diligently on the execution of existing overseas and domestic projects including the large project in Australia. In consideration of these circumstances, and assuming an exchange rate of ¥100/dollar, our forecasts for the fiscal year ending March 31, 2015 include 800.0 billion yen in new consolidated contracts and 465.0 billion yen in revenues. Our forecast for the consolidated operating income is 19.0 billion yen, consolidated ordinary income is 21.0 billion yen, and the consolidated net income is 13.5 billion yen. 4 5 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Topics Continuing to lead in the LNG business Saudi Arabia: Completion of construction of coker unit As a leading contractor with a track record of constructing more than 40% (based on production capability) of LNG plants In July 2009, Saudi Aramco Total Refining and Petrochemical worldwide, including a super-large LNG plant in Qatar, we are leveraging our technical expertise and knowledge for Company (SATORP) of Saudi Arabia contracted Chiyoda for the con- projects in various stages of the LNG value chain, from gas production to end-use. The global market for LNG plants is expanding into new regions such as East Africa and North America, where shale gas has revitalized the business, as well as forging ahead in the traditional production centers of the Middle East, Southeast Asia, and Oceania. The industry is also seeing the develop- ment of new technologies, such as floating liquefied natural gas (FLNG) facilities. We are well positioned at the forefront of new developments in the USA, a prime expanding market for LNG plants, where we have been awarded an Engineering, Procurement, and Construction (EPC) contract by Cameron LNG LLC. We will continue our activities in this field and plan to open up new markets and advance to new frontiers in LNG. Signing the EPC contract with Cameron LNG of the US (from left to right: Philip K. Asherman, President and CEO of CB&I; Octávio Simões, President of Sempra LNG; Nobuyuki Uchida, President of Chiyoda International Corporation) struction of Saudi Arabia’s first heavy oil cracking facilities (103,000 barrels/day) as part of the Jubail Export Refinery project. The project was completed in October 2013 and 29 million man hours were expended without lost time incident. A coker unit is a heavy oil cracking facility that converts residual oil from a vacuum distillation column into naphtha, light and heavy gas oils, liquefied petroleum gas (LPG), petroleum coke, and other refined products. View of the completed Coker Unit As crude oil prices rise, oil companies will be looking to make use of heavy oil, which is difficult to process. Chiyoda is ready to provide the oil companies with its know-how and technological expertise in this area. Japan: Construction work finished on the Naoetsu LNG Terminal Indonesia: First order for an FPU INPEX CORPORATION celebrated completion of construction of its first LNG receiving facility, the Naoetsu LNG Terminal, on 9 In February 2014, Eni Muara Bakau awarded Group company PT Chiyoda International Indonesia, in collaboration with December 2013. three local companies, a contract for Engineering, Procurement, Construction, Installation (EPCI) and test run assistance INPEX is a supplier of imported LNG to Japan, particularly LNG for a Floating Production Unit (FPU). The FPU will be used in developing the Jangkrik and Jangkrik North East deep-sea gas field in Kalimantan. Gas from the Ichthys Project currently under construction in Australia. INPEX developed the terminal as a base from which the imported extracted from the seabed will be processed offshore on the FPU before being delivered to Bontang LNG Plants, which were con- structed by Chiyoda. We are accelerating our involvement in the floating business worldwide. Our medium-term business plan targets the offshore and upstream sphere of the industry as part of our growth strategy and LNG will be delivered via natural gas pipelines to industrial plants View of the completed Naoetsu LNG Terminal Source: Courtesy of INPEX and urban gas suppliers throughout Japan. Chiyoda is supporting stable natural gas supplies for Japan through its involvement both in natural gas liquefaction/export and LNG receiving terminals. this project is our first EPCI contract in this field. Computer-graphics for FPU Mozambique: Concludes MOU on engineer training Qatar/Middle East: Expanding global operations Chiyoda Almana Engineering LLC, our Group company in Qatar, is developing a Project Lifecycle Engineering (PLE) business that has close links with the local communities and, to date, we have been awarded nine long-term service contracts by eight local companies. In 2013, we won an EPC contract with RasGas Company Limited for the onshore facilities of a natural gas flow assurance project (to prevent hydrate formation). This is just one example where our Group’s global operations are taking a lead role in expanding our business. Chiyoda has used its extensive experience to provide learning opportunities to engineers from various countries in design and engineering techniques for LNG and other hydrocarbon processing plants. The latest opportunity for these young engineers came in January 2014, when Chiyoda concluded a Memorandum of Understanding (MOU) on training Mozambique engineers during Prime Minister Shinzo Abe’s visit to the country. Chiyoda will deliver comprehensive training for the engineers to acquire technical knowledge and practical engineering skills, which will provide support for Mozambique’s sustainable development. Joaquim Caronga, CFO of ENH, and Takashi Kubota, Executive Chairman of Chiyoda, signing the MOU, witnessed by Japanese Prime Minister Shinzo Abe and Mozambique President Armando Emilio Guebuza 6 7 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Corporate Governance System Group Companies Business Execution Departments (Risk Manager) Self-Assessment Corporate Governance The Chiyoda Group believes that CSR-oriented management that earns the support and trust of all its stakeholders, including shareholders, customers, and employees, is the basis of its corporate activities. We are therefore working in var- ious ways to enhance corporate governance and actively implement CSR-oriented management, including maintaining transparency and soundness. Chiyoda has established the Compliance & CSR Unit and the Operational Auditing Unit to raise the quality and transpar- ency of management, improve response to stakeholders and reinforce risk management and the compliance system. We also established the Safety, Quality and Environmental (SQE) Unit and an internal control system directly linked to management. To ensure speedy and accurate decision-making to deal with rapidly changing social and economic conditions, Chiyoda has adopted the executive officer system, which separates the functions of directors, who are responsible for management supervision, from those of executive officers, who are responsible for the execution of business operations. The Board of Directors and Meetings of the Board of Directors The Board of Directors is composed of 9 directors. Important matters concerning the Company are reported and resolved at meetings of the Board of Directors. The Executive Committee, made up of the four representative directors, examines matters before they are submitted for resolution at meetings of the Board of Directors. It makes decisions about business execution matters by unanimous resolution. Audit & Supervisory Board Chiyoda has also adopted the corporate auditor system. The Audit & Supervisory Board is made up of three outside corporate auditors who closely monitor the execution of duties by directors and executive officers. The corporate auditors attend meetings of the Executive Committee and express their opinion when necessary. In addition, their responsibilities include deciding the content of resolutions submitted to the General Meeting of Shareholders, such as the appointment Corporate Governance and Internal Controls Election Submit/Report Report Election Report Election General Shareholders’ Meeting Directors Board of Directors Election Supervision Election Submit/Report Audit Referral Executive Officers Executive Officer Meeting 4 Representative Directors Executive Committee Submit/ Report Scheduled Reports (deliverables, etc.) Organization Staffing Submit/Report (advice) Submit/Report Survey, Report Request Compliance Committee Internal Controls Management Committee(ICMC) Risk Management & CSR Division Report Audit Corporate Auditors Audit & Supervisory Board Report Accounting Auditor Department Internal Controls Global Operation Unit Corporate Planning Unit Corporate Services Unit, HRM* Unit Finance & Project Audit Unit *HRM: Human Resource Management Operational Auditing Unit SQE Unit Compliance & CSR Unit Crisis Management Unit 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 Director and Outside Corporate Auditors (as of June 25, 2014) External Director and Outside Audit & Supervisory Board Members The Company employs one external director and three outside audit & supervisory board members. The names of external director and outside audit & supervisory board members, and the Company’s rationale for selecting them (including the rationale for designation as independent directors of Mikio Kobayashi and Yukihiro Imadegawa, both of whom are on file with the Tokyo Stock Exchange as independent directors) are as follows: Name Rationale for Election as External Director and Outside Audit & Supervisory Board Member Masaji Santo The individual is able to suitably perform his duties as an external director by putting to use his experience as the former President of Mitsubishi Chile Ltda. and as a Senior Vice President of Mitsubishi Corporation. Munehiko Nakano 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. Mikio Kobayashi Based on his experience as Representative Director and President of Ryoshin Credit Service Co., Ltd. and Representative Director and Deputy President of Japan Property Solutions Co., Ltd., he contributes to ensuring the soundness of the Company’s business management by conducting audits from a neutral and objective perspective.The individual is not involved in any matters that conflict with the interests of general Company shareholders, and is recognized as an outside audit & supervisory board member having no conflict of 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 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 audit & supervisory board member having no conflict of interest with general Company shareholder. or dismissal of accounting auditors, auditing consolidated financial documents in close cooperation with the accounting Yukihiro Imadegawa auditors, and preparing audit reports. Executive Officer System Where necessary, executive officers cooperate with outside specialists such as corporate lawyers in carrying out duties assigned to them at meetings of the Board of Directors and the Executive Committee. Executive officers provide regular progress reports at executive officer and Executive Committee meetings attended by directors and corporate auditors. Reinforcing Internal Controls The Chiyoda Group constantly conducts self-assessments of existing internal control functions and reinforces internal control systems. In addition, the Group has established the Operational Auditing Unit as an autonomous unit to perform evaluations. Chiyoda has a system in place for auditing the development and operation of a suitable overall internal control framework and constituent components, and for submitting reports to the Executive Committee. • To ensure the transparency of information and raise the effectiveness of audits, Chiyoda aims to establish an integrated framework of internal controls and a real-time monitoring system for senior management. • To prevent insider trading, an information management system is in place that encompasses Group companies. All important information is appropriately reported to the Board of Directors and the Executive Committee. There are no particular relationships of interest between Company and the external director and outside audit & supervisory board members. Rationale for Adoption of Current System Based on its establishment of a corporate auditor system, the Chiyoda Group efficiently executes business operations under an executive officer system. The Board of Directors has adopted an existing system of corporate governance that is capable of sufficiently performing management supervisory functions from an objective and neutral standpoint with the participation of one external director and three outside audit & supervisory board members. Director Compensation Total Compensation for Each Director Category; Total Compensation by Director Type, and Number of Directors in Question Number Base Compensation Incentive Compensation Stock-Based Compensation Directors Audit & Supervisory Board Members 10 3 ¥192 million ¥69 million ¥47 million ¥ 55 million — — Notes: 1. Total director compensation is ¥308 million. Total audit & supervisory board member compensation is ¥55 million. Total outside audit & supervisory board member (three individuals) compensation is ¥55 million. 2. The number of directors above discloses the number of directors and audit & supervisory board members receiving compensation during the fiscal period, including two directors who retired as of the General Shareholders’ Meeting held on June 25, 2013. 8 9 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Corporate Information (As of March 31, 2014) Corporate Data Chiyoda Global Headquarters Minato Mirai Grand Central Tower 4-6-2, Minatomirai, Nishi-ku, Yokohama 220-8765, Japan Tel: (81)45-225-7777 (voice guidance) Established January 20, 1948 Paid-in Capital ¥ 43,396 million Organization Chart (As of May 1, 2014) Number of Employees 1,630 (Non-Consolidated) 6,062 (Consolidated) Annual Fiscal Close March 31 Shareholders’ Meeting June Board of Directors Audit & Supervisory Board Executive Committee President Executive Office Unit Risk Management & CSR Division Technology & Engineering Division Downstream & Non Hydrocarbon Project Operations SQE Unit Compliance & CSR Unit Operational Auditing Unit Crisis Management Unit Corporate Planning Management & Finance Division Corporate Planning Unit IR & Public Relations Sec. Corporate Services Unit HRM* Unit Finance & Project Audit Unit Legal Sec. Investment Promotion Team Business Development Division Strategic Business Planning & Administration Unit Corporate Relations Sec. Business Development Unit 1 Business Development Unit 2 Business Development Unit 3 Energy Infrastructure Planning Unit Engineering Operation Unit Gas & LNG Process Engineering Unit Refinery, Petrochemical & New Energy Process 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 Unit Construction Unit Commissioning Unit Offshore & Upstream Project Operations Offshore & Upstream Business Planning Unit Offshore & Upstream Business Operation Unit Global Project Management Division Gas & LNG Project Operations No. 1 Gas & LNG Project Unit No. 1 Strategic Project Development Unit Project Team Project Administration Unit Project Management Unit IT Management Unit Global Operation Unit Global Human Resource Planning Unit BPM* Team Work Process Innovation Task Team Chiyoda Globalization Task Force Team Change the Mindset Oil & Petrochemical Project Unit Gas Energy Project Unit International Downstream & Non-Hydrocarbon Project Unit Project Team Infrastructure Project Operations IP* Planning & Administration Unit Strategic Business & Investment Management Unit Hydrogen Supply Chain Development Unit Green Infrastructure Project Unit Green Materials Project Unit Pharmaceutical & Environmental Project Unit Technology Development Unit Research & Development Center ChAS Project Operations ChAS Business Planning & Administration Unit ChAS Marketing Unit Advanced Process Engineering Unit Plant Diagnosis Unit Project Lifecycle Engineering Unit Program Management Consulting Unit Space Solution Unit HRM: Human Resource Management BPM: Business Process Management PLC: Project Logistics & Construction IP: Infrastructure Project Gas & LNG Project Operations No. 2 Gas & LNG Project Unit No. 2 Project Team Global Project Management-Asia (GPM-A) Operations GPM-A Project Unit 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 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 Xodus Group (Holdings) Ltd Milan Representative Office Chiyoda Corporation Netherlands B.V. Chiyoda & Public Works Co., Ltd. Sales Base Engineering Center Procurement Center Project Execution Base Operation Support Beijing Office Chiyoda International Corporation Chiyoda Corporation (Shanghai) Korea Representative Office The Netherlands UK 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 PT. Chiyoda International Indonesia Singapore Human Resources International (Pte) Limited Chiyoda Singapore (Pte) Limited Chiyoda Malaysia Sdn. Bhd. Chiyoda Sarawak Sdn. Bhd. Chiyoda (Thailand) Limited Chiyoda do Brasil Representações Ltda. L&T-Chiyoda Limited Bangalore Office Abu Dhabi Office Chiyoda-CCC Engineering (Pte) Limited Middle East Headquarters Doha Office Chiyoda Almana Engineering LLC Chiyoda Petrostar Ltd. 10 11 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Directors and Officers (As of June 25, 2014) Stock Information (As of March 31, 2014) Board of Directors Representative Directors Directors Executive Chairman Takashi Kubota Executive Vice President Katsuo Nagasaka President & CEO Shogo Shibuya Senior Vice President Ryosuke Shimizu Senior Executive Vice President Senior Executive Vice President Executive Vice President & CFO Keiichi Nakagaki Senior Vice President Masahiko Kojima Hiroshi Ogawa Director Masaji Santo*1 Masahito Kawashima Audit & Supervisory Board Members Munehiko Nakano*3 Mikio Kobayashi*2/*3 Yukihiro Imadegawa*3 Executive Officers Executive Vice President Satoru Yokoi Vice President Eisuke Oki Executive Vice President Tadashi Izawa Vice President Masao Ishikawa Executive Vice President Takao Kamiji Vice President Yasumitsu Abe Senior Vice President Katsutoshi Kimura Vice President Toshiyuki Kariya Senior Vice President Mamoru Nakano Vice President Seiichiro Ikeda Senior Vice President Akira Fujisawa Vice President Arata Sahara*2 Senior Vice President Nobuyuki Uchida Vice President Terunobu Iio*2 Senior Vice President Hiromi Koshizuka Vice President Yasuo Hosono Vice President Shuichi Wada*2 Vice President Hideaki Tomiku*2 Vice President Noriyuki Kasuya Vice President Mitsuya Ogawa *1: External *2: New Assignments *3: Outside Corporate Auditor 12 Authorized Shares 570,000,000 Number of Shareholders 14,375 Capital Stock Issued 260,324,529 Number of Share per Unit 1,000 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 Major Shareholders (as of March 31,2014) Number of Shares Owned (Thousands of Shares) 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 BNP Paribas Securities (Japan) Limited Trust & Custody Services Bank, Ltd. State Street Bank and Trust Company 505225 Meiji Yasuda Life Insurance Company The Bank of New York Mellon SA/NV10 Breakdown by shareholder 86,931 16,056 14,863 9,033 6,960 3,522 2,814 2,592 2,265 2,138 Ratio Shares Owned (%) 33.39 6.16 5.70 3.47 2.67 1.35 1.08 0.99 0.87 0.82 Total Number of Shares Issued: 260,325 thousand 10.91 27.59 20.10 4.06 37.34 Financial Institutions Securities Companies Other Corporations Foreign Investors and Others Individuals and Others Monthly Stock Price Range on the Tokyo Stock Exchange Share Price (left) Volume (right) Nikkei Stock Average (right) (Yen) 2,100 1,400 700 0 (Yen) 21,000 14,000 7,000 (Thousands of shares) 100,000 50,000 4 5 6 7 8 9 101112 2009 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 2010 2011 2012 2013 0 1 2 3 2014 13 CHIYODA CORPORATION ANNUAL REPORT FY2014CHIYODA CORPORATION ANNUAL REPORT FY2014 Minato Mirai 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. (As of August 2014) Selected in FTSE Group’s responsible investment index ANNUAL REPORT FY2012 For the year ended March 31, 2013 Consolidated F i n a n c i a l S t ate m e nt s Fo r t h e Ye a r E n d e d M a rc h 31, 2 014 , a n d I n d e p e n d e n t A u d i t o r ’s R e p o r t Consolidated Balance Sheet Chiyoda Corporation and Consolidated Subsidiaries Chiyoda Corporation and Consolidated Subsidiaries (March 31, 2014) Consolidated Balance Sheet March 31, 2014 Consolidated Balance Sheet March 31, 2014 Millions of Yen ASSETS ASSETS 2014 2013 2014 Thousands of U.S. Dollars Millions of Yen (Note 1) 2013 2014 Thousands of U.S. Dollars (Note 1) 2014 LIABILITIES AND EQUITY LIABILITIES AND EQUITY CURRENT ASSETS: CURRENT ASSETS: Cash and cash equivalents (Note 13) Cash and cash equivalents (Note 13) Held-to-maturity securities—current (Notes 5 and 13) Held-to-maturity securities—current (Notes 5 and 13) Short-term investments (Note 13) Short-term investments (Note 13) Notes and accounts receivable—trade (Note 13) Notes and accounts receivable—trade (Note 13) Allowance for doubtful accounts Allowance for doubtful accounts Costs and estimated earnings on long-term construction Costs and estimated earnings on long-term construction contracts (Notes 4 and 13) contracts (Notes 4 and 13) Costs of construction contracts in process Accounts receivable—other Jointly controlled assets of joint venture (Note 13) Deferred tax assets (Note 10) 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 10) Prepaid expenses and other ¥ 145,303 64 56,502 (3 ) ¥ 180,229 ¥ 145,303 2,400 226 64 37,917 56,502 (3) (3 ) $ 1,410,712 ¥ 180,229 2,400 622 226 548,564 37,917 (31) (3) 16,503 33,826 4,936 127,466 18,868 5,629 27,477 16,503 15,295 33,826 8,476 4,936 94,696 127,466 13,162 18,868 3,329 5,629 160,227 27,477 328,412 15,295 47,927 8,476 1,237,539 94,696 183,185 13,162 54,650 3,329 Total current assets Total current assets 409,096 383,206 409,096 3,971,810 383,206 PROPERTY, PLANT AND EQUIPMENT: PROPERTY, PLANT AND EQUIPMENT: Land Land Buildings and structures Buildings and structures Machinery and equipment Machinery and equipment Tools, furniture, and fixtures Tools, furniture, and fixtures Construction in progress Construction in progress Total Total Accumulated depreciation Accumulated depreciation 5,265 12,557 944 7,106 286 26,159 (11,201 ) 5,375 5,265 11,711 12,557 1,124 944 5,450 7,106 494 286 24,156 26,159 (9,609) (11,201 ) 51,122 5,375 121,916 11,711 9,166 1,124 68,990 5,450 2,783 494 253,979 24,156 (108,753) (9,609) Net property, plant and equipment Net property, plant and equipment 14,958 14,547 14,958 145,226 14,547 INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 5 and 13) Investments in and advances to unconsolidated subsidiaries and associated companies (Note 6) INVESTMENTS AND OTHER ASSETS: Investment securities (Notes 5 and 13) Investments in and advances to unconsolidated subsidiaries and associated companies (Note 6) Goodwill Software Asset for retirement benefits Other assets (Note 10) Allowance for doubtful accounts Goodwill Software Asset for retirement benefits Other assets (Note 10) Allowance for doubtful accounts 21,131 23,740 21,131 205,163 23,740 8,155 12,395 7,056 34 2,528 (68 ) 5,164 8,155 675 12,395 5,987 7,056 34 2,138 2,528 (80) (68 ) 79,177 5,164 120,343 675 68,512 5,987 333 24,552 2,138 (669) (80) Total investments and other assets Total investments and other assets 51,233 37,624 51,233 497,414 37,624 $ 1,410,712 622 548,564 (31) 160,227 328,412 47,927 1,237,539 183,185 54,650 3,971,810 51,122 121,916 9,166 68,990 2,783 253,979 (108,753) CURRENT LIABILITIES: CURRENT LIABILITIES: Short-term bank loans Short-term bank loans Current portion of long-term debt (Notes 7, 12 and 13) Current portion of long-term debt (Notes 7, 12 and 13) Notes and accounts payable—trade (Note 13) Notes and accounts payable—trade (Note 13) Advance receipts on construction contracts Advance receipts on construction contracts Income taxes payable (Note 13) Income taxes payable (Note 13) Deposits received Deposits received Allowance for warranty costs for completed works Allowance for warranty costs for completed works Allowance for losses on construction contracts Allowance for losses on construction contracts Asset retirement obligations Asset retirement obligations Accrued expenses and other Accrued expenses and other Millions of Yen 2014 2013 2014 Thousands of U.S. Dollars Millions of Yen (Note 1) 2014 2013 Thousands of U.S. Dollars (Note 1) 2014 ¥ 1,283 82 145,392 80,182 5,513 4,985 507 4,002 19,730 ¥ 1,283 82 91 ¥ 145,392 117,769 80,182 79,210 5,513 8,500 4,985 6,822 507 480 4,002 1,291 5 19,730 16,259 $ 12,464 91 ¥ 800 117,769 1,411,574 79,210 778,473 8,500 53,527 6,822 48,398 480 4,924 1,291 38,856 5 16,259 191,553 $ 12,464 800 1,411,574 778,473 53,527 48,398 4,924 38,856 191,553 Total current liabilities Total current liabilities 261,679 230,431 261,679 230,431 2,540,573 2,540,573 LONG-TERM LIABILITIES: Long-term debt (Notes 7, 12 and 13) Liability for retirement benefits (Note 8) Provision for treatment of PCB waste Asset retirement obligations Other (Note 10) LONG-TERM LIABILITIES: Long-term debt (Notes 7, 12 and 13) Liability for retirement benefits (Note 8) Provision for treatment of PCB waste Asset retirement obligations Other (Note 10) 10,040 2,080 365 970 2,121 10,040 10,135 2,080 2,310 365 364 970 957 2,121 1,822 10,135 97,477 2,310 20,202 364 3,543 957 9,424 1,822 20,598 97,477 20,202 3,543 9,424 20,598 Total long-term liabilities Total long-term liabilities 15,578 15,591 15,578 15,591 151,246 151,246 COMMITMENTS AND CONTINGENT LIABILITIES (Notes 7, 12, 14 and 15) COMMITMENTS AND CONTINGENT LIABILITIES (Notes 7, 12, 14 and 15) 145,226 EQUITY (Notes 9 and 18): Common stock—authorized, 570,000 thousand shares; issued, 260,324 thousand shares in 2014 and 2013 EQUITY (Notes 9 and 18): Common stock—authorized, 570,000 thousand shares; issued, 260,324 thousand shares in 2014 and 2013 205,163 79,177 120,343 68,512 333 24,552 (669) 497,414 Capital surplus Retained earnings Treasury stock—at cost, 1,310 thousand shares in 2014 and Capital surplus Retained earnings Treasury stock—at cost, 1,310 thousand shares in 2014 and 1,279 thousand shares in 2013 1,279 thousand shares in 2013 Accumulated other comprehensive income (loss): Unrealized gain on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Defined retirement benefit plans Total Minority interests Accumulated other comprehensive income (loss): Unrealized gain on available-for-sale securities Deferred gain on derivatives under hedge accounting Foreign currency translation adjustments Defined retirement benefit plans Total Minority interests 43,396 37,112 109,525 43,396 43,396 37,112 37,112 109,525 100,988 43,396 421,324 37,112 360,316 100,988 1,063,358 421,324 360,316 1,063,358 (1,390) (1,349) (1,390) (1,349) (13,498) (13,498) 4,920 648 2,486 (287) 196,411 1,619 6,584 2,890 (1,235) 4,920 648 2,486 (287) 196,411 188,386 1,619 969 6,584 47,768 2,890 6,291 (1,235) 24,137 (2,787) 188,386 1,906,910 969 15,721 47,768 6,291 24,137 (2,787) 1,906,910 15,721 TOTAL TOTAL ¥ 475,288 ¥ 435,379 ¥ 475,288 $ 4,614,451 ¥ 435,379 $ 4,614,451 TOTAL TOTAL ¥ 475,288 ¥ 435,379 ¥ 475,288 ¥ 435,379 $ 4,614,451 $ 4,614,451 Total equity Total equity 198,031 189,356 198,031 189,356 1,922,632 1,922,632 See notes to consolidated financial statements. See notes to consolidated financial statements. - 2 - - 2 - 1 2 Consolidated Financial StatementsConsolidated Financial Statements Consolidated Statement of Income Chiyoda Corporation and Consolidated Subsidiaries (Year Ended March 31, 2014) Consolidated Statement of Comprehensive Income Chiyoda Corporation and Consolidated Subsidiaries (Year Ended March 31, 2014) Consolidated Statement of Income Year Ended March 31, 2014 Consolidated Statement of Comprehensive Income Year Ended March 31, 2014 Millions of Yen 2014 2013 Thousands of U.S. Dollars (Note 1) 2014 Millions of Yen 2014 2013 Thousands of U.S. Dollars (Note 1) 2014 ¥ 446,147 ¥ 398,918 $ 4,331,530 NET INCOME BEFORE MINORITY INTERESTS ¥ 13,210 ¥ 16,391 $ 128,260 REVENUE COST OF REVENUE Gross profit 41,462 42,515 402,548 SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES (Note 11) 20,383 17,402 197,897 404,685 356,402 3,928,981 OTHER COMPREHENSIVE INCOME (LOSS) (Note 16): Unrealized (loss) gain on available-for-sale securities Deferred (loss) gain on derivatives under hedge accounting Foreign currency translation adjustments Share of other comprehensive income of associates accounted for using the equity method (1,664) (2,242) 3,625 5,075 2,448 1,081 (16,156) (21,768) 35,194 104 85 1,016 Operating income 21,079 25,113 204,651 Total other comprehensive (loss) income (176) 8,690 (1,713) COMPREHENSIVE INCOME ¥ 13,034 ¥ 25,082 $ 126,546 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the parent Minority interests ¥ 13,087 (53) ¥ 24,723 358 $ 127,061 (514) See notes to consolidated financial statements. OTHER INCOME (EXPENSES): Interest and dividend income Interest expense Equity in (losses) earnings of associated companies Foreign exchange loss Gain on sales of fixed assets Loss on disposal of fixed assets Loss on valuation of investment securities Retirement benefit expenses (Note 8) Other—net 2,590 (233) (374) (145) (299) (78) 2,321 (206 ) 145 (1,681 ) 1,704 (244 ) (230 ) (173 ) 25,151 (2,271) (3,636) (1,408) (2,906) (762) Other income—net 1,459 1,634 14,165 INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS 22,538 26,747 218,816 INCOME TAXES (Note 10): Current Deferred 13,101 (3,773) 11,669 (1,313 ) 127,196 (36,639) Total income taxes 9,327 10,356 90,556 NET INCOME BEFORE MINORITY INTERESTS 13,210 16,391 128,260 MINORITY INTERESTS IN NET INCOME (236) 314 (2,294) NET INCOME ¥ 13,447 ¥ 16,077 $ 130,555 Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Income Year Ended March 31, 2014 Yen U.S. Dollars 2014 2013 2014 PER SHARE OF COMMON STOCK (Notes 2.y and 17): Basic net income Cash dividends applicable to the year - 3 - ¥ 51.91 16.00 ¥ 62.06 19.00 (Continued) $ 0.50 0.16 - 5 - See notes to consolidated financial statements. 3 4 - 4 - (Concluded) Consolidated Financial StatementsConsolidated Financial Statements Consolidated Statement of Changes in Equity (Year Ended March 31, 2014) Chiyoda Corporation and Consolidated Subsidiaries Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Changes in Equity Year Ended March 31, 2014 Consolidated Statement of Changes in Equity Year Ended March 31, 2014 Thousands Outstanding Number of Shares of Common Stock Common Stock Thousands Outstanding Number of Shares of Common Stock Capital Surplus Millions of Yen Millions of Yen Accumulated Other Comprehensive Income (Loss) Retained Earnings Common Stock Treasury Stock Capital Surplus Unrealized Gain on Available- for-Sale Securities Retained Earnings Deferred Gain on Derivatives under Hedge Accounting Treasury Stock Unrealized Gain on Available- for-Sale Securities Foreign Currency Translation Adjustments Deferred Gain on Derivatives under Hedge Accounting Defined Retirement Benefit Plans Foreign Currency Translation Adjustments Total Defined Retirement Benefit Plans Minority Interests Total Equity Total Minority Interests Total Equity BALANCE, APRIL 1, 2012 BALANCE, APRIL 1, 2012 259,065 ¥ 43,396 ¥ 37,112 259,065 ¥ 89,346 ¥ 43,396 ¥ (1,328) ¥ 37,112 ¥ 1,509 ¥ 89,346 ¥ 442 ¥ (1,328) ¥ (2,358 ) ¥ 1,509 ¥ 442 ¥ 168,120 ¥ (2,358 ) ¥ 617 ¥ 168,737 ¥ 168,120 ¥ 617 ¥ 168,737 Net income Cash dividends, ¥17.00 per share Change of scope of consolidation Purchase of treasury stock Net change in the year Net income Cash dividends, ¥17.00 per share Change of scope of consolidation (19 ) Purchase of treasury stock Net change in the year 16,077 (4,404) (31) 16,077 (4,404) (31) (19 ) (21) (21) 5,075 2,448 1,123 5,075 2,448 16,077 (4,404) (31) (21) 8,646 1,123 BALANCE, MARCH 31, 2013 BALANCE, MARCH 31, 2013 259,045 43,396 37,112 259,045 100,988 43,396 37,112 (1,349) 6,584 100,988 2,890 (1,349) (1,235 ) 6,584 2,890 188,386 (1,235 ) Net income Cash dividends, ¥19.00 per share Change of scope of consolidation Purchase of treasury stock Net change in the year Net income Cash dividends, ¥19.00 per share Change of scope of consolidation Purchase of treasury stock (31 ) Net change in the year 13,447 (4,921) 12 13,447 (4,921) 12 (31 ) (40) (40) (1,664) (2,242) 3,721 (1,664) ¥ (287 ) (2,242) 13,447 (4,921) 12 (40) (472) 3,721 16,077 (4,404) (31) (21) 8,998 16,077 (4,404) (31) (21) 8,646 189,356 188,386 13,447 13,447 (4,921) (4,921) 12 12 (40) (40) (472) 178 351 969 650 ¥ (287 ) 16,077 (4,404) (31) (21) 8,998 189,356 13,447 (4,921) 12 (40) 178 351 969 650 BALANCE, MARCH 31, 2014 BALANCE, MARCH 31, 2014 259,014 ¥ 43,396 ¥ 37,112 259,014 ¥ 109,525 ¥ 43,396 ¥ (1,390) ¥ 37,112 ¥ 4,920 ¥ 109,525 ¥ 648 ¥ (1,390) ¥ 2,486 ¥ 4,920 ¥ (287 ) ¥ 648 ¥ 196,411 ¥ 2,486 ¥ 1,619 ¥ (287 ) ¥ 198,031 ¥ 196,411 ¥ 1,619 ¥ 198,031 Thousands of U.S. Dollars (Note 1) Thousands of U.S. Dollars (Note 1) Accumulated Other Comprehensive Income (Loss) Common Stock Capital Surplus Retained Earnings Common Stock Treasury Stock Capital Surplus Unrealized Gain on Available- for-Sale Securities Retained Earnings Deferred Gain on Derivatives under Hedge Accounting Treasury Stock Unrealized Gain on Available- for-Sale Securities Foreign Currency Translation Adjustments Deferred Gain on Derivatives under Hedge Accounting Defined Retirement Benefit Plans Foreign Currency Translation Adjustments Total Defined Retirement Benefit Plans Minority Interests Total Equity Total Minority Interests Total Equity BALANCE, MARCH 31, 2013 BALANCE, MARCH 31, 2013 $ 421,324 $ 360,316 $ $ 421,324 980,469 $ (13,103) $ 360,316 $ 63,924 $ 980,469 $ 28,059 $ (13,103) $ (11,991) $ 63,924 $ 28,059 $ 1,828,999 $ (11,991) $ 9,409 $ 1,838,409 $ 1,828,999 $ 9,409 $ 1,838,409 Net income Cash dividends, $0.18 per share Change of scope of consolidation Purchase of treasury stock Net change in the year Net income Cash dividends, $0.18 per share Change of scope of consolidation Purchase of treasury stock Net change in the year 130,555 (47,785) 119 130,555 (47,785) 119 (395) (395) 130,555 (47,785) 119 (395) (16,156) (21,768) 36,128 $ (2,787 ) 130,555 130,555 (47,785) (47,785) 119 119 (395) (395) (4,582) 6,311 130,555 (47,785) 119 (395) 1,728 BALANCE, MARCH 31, 2014 BALANCE, MARCH 31, 2014 $ 421,324 $ 360,316 $ 1,063,358 $ 421,324 $ (13,498) $ 360,316 $ 47,768 $ 1,063,358 See notes to consolidated financial statements. See notes to consolidated financial statements. $ 6,291 $ (13,498) $ 24,137 $ 47,768 $ (2,787 ) $ 6,291 $ 1,906,910 $ 24,137 $ 15,721 $ (2,787 ) $ 1,922,632 $ 1,906,910 $ 15,721 $ 1,922,632 - 6 - - 6 - 5 Consolidated Financial Statements Consolidated Financial Statements 6 Consolidated Statement of Cash Flows Chiyoda Corporation and Consolidated Subsidiaries (Year Ended March 31, 2014) Consolidated Statement of Cash Flows Year Ended March 31, 2014 OPERATING ACTIVITIES: Income before income taxes and minority interests ¥ 22,538 ¥ 26,747 $ 218,816 Millions of Yen 2014 2013 Thousands of U.S. Dollars (Note 1) 2014 Adjustments for: Income taxes paid Depreciation Amortization of goodwill (Reversal of) allowance for doubtful accounts—net (Reversal of) allowance for warranty costs for completed works Allowance for loss on construction contracts Liability for retirement benefits—net Loss (gain) on sales and disposals of fixed assets Foreign exchange gain—net Equity in losses (earnings) of associated companies Changes in operating assets and liabilities: 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 Increase in trade notes and accounts payable (Decrease) increase in advance receipts on construction contracts Decrease (increase) in accounts receivable—other Increase in jointly controlled assets of joint venture (Decrease) increase in deposits received Increase in interest and dividend receivable Other—net Total adjustments (13,709) 3,196 825 (12) (4) 2,534 (768) 31 (224) 374 (130 ) 2,580 41 (11 ) 187 723 (185 ) (1,460 ) (125 ) (145 ) (1,896) (16,974) 23,650 (20,453 ) (1,714 ) 30,130 (2,111) 2,519 (31,955) (2,141) (713) (2,334) (39,715) 992 (3,170 ) (28,603 ) 619 (674 ) 8,799 (12,599 ) (133,101) 31,034 8,016 (116) (45) 24,610 (7,461) 301 (2,179) 3,636 (18,416) (164,801) 229,617 (20,504) 24,456 (310,252) (20,787) (6,925) (22,668) (385,587) Net cash (used in) provided by operating activities ¥ (17,177) ¥ 14,147 $ (166,770) Chiyoda Corporation and Consolidated Subsidiaries Consolidated Statement of Cash Flows Year Ended March 31, 2014 INVESTING ACTIVITIES: Net decrease in time deposits Purchases of marketable securities Proceeds from redemption of marketable securities Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Purchases of intangible assets Payments for asset retirement obligations Payments for purchases of investment securities Purchase of shares of subsidiaries resulting in change in scope of consolidation Payments of short-term loans receivable Proceeds from collections of short-term loans receivable Payments of long-term loans receivable Proceeds from collections of long-term loans Other—net Millions of Yen 2014 2013 Thousands of U.S. Dollars (Note 1) 2014 192 2,400 (1,981) 90 (3,294) (7) (4,046) (9,134) (445) (712) 101 41 127 (2,400 ) (3,620 ) 7,020 (3,502 ) (66 ) (2,450 ) 81 (514 ) 35 32 1,866 23,300 (19,238) 879 (31,988) (67) (39,285) (88,682) (4,327) (6,915) 983 400 Net cash used in investing activities (16,796) (5,257 ) (163,075) FINANCING ACTIVITIES: Net increase in short-term bank loans Proceeds from long-term debt Repayments of long-term debt Payments of cash dividends Payments of cash dividends to minority shareholders Chiyoda Corporation and Consolidated Subsidiaries Other—net Consolidated Statement of Cash Flows Year Ended March 31, 2014 Net cash used in financing activities FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS INCREASE IN CASH AND CASH EQUIVALENTS FROM NEWLY CONSOLIDATED SUBSIDIARY DECREASE IN CASH AND CASH EQUIVALENTS RESULTING FROM EXCLUSION OF SUBSIDIARIES FROM CONSOLIDATION 11 (264) (4,914) (8) (72) 10,000 (10,000 ) (4,397 ) (7 ) (27 ) 109 (2,570) (47,713) (85) (704) (5,249) (4,432 ) (50,963) 3,974 Millions of Yen 2,024 2014 ¥ (35,249) 2013 ¥ 6,482 Thousands of 38,584 U.S. Dollars (Note 1) 2014 $ (342,224) 323 3,137 (22 ) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 180,229 173,769 1,749,799 CASH AND CASH EQUIVALENTS, END OF YEAR ¥ 145,303 ¥ 180,229 $ 1,410,721 - 7 - (Continued) See notes to consolidated financial statements. - 8 - (Continued) 7 8 - 9 - (Concluded) Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Chiyoda Corporation and Consolidated Subsidiaries (Year Ended March 31, 2014) Notes to Consolidated Financial Statements Year Ended March 31, 2014 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 accordance 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 have been made in the 2013 consolidated financial statements to conform to the classifications used in 2014. 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 ¥103 to $1, the approximate rate of exchange at March 31, 2014. 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 as of March 31, 2014, include the accounts of the Company and its 29 significant (18 in 2013) subsidiaries (together, the "Group"). Under the control and influence concepts, 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 five (two in 2013) associated companies are accounted for by the equity method in 2014. 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. Most of the foreign consolidated subsidiaries have a December 31 year-end which does not accord with that of the Company. As a result, adjustments have been made for any significant transactions which took place during the period between the year-end of these subsidiaries and the year-end of the Company. Effective the year ended March 31, 2014, one of these consolidated subsidiaries changed its fiscal year end to March 31 to improve the accuracy of group consolidation and closing. As a result of this change in the fiscal year end, the consolidated financial statements for the year ended March 31, 2014, included the results for a 15-month period for this consolidated subsidiary from January 1, 2013 to March 31, 2014. The excess of the cost of acquisition over the fair value of the net assets of an acquired subsidiary at the date of acquisition is being amortized over a period of 5 to 20 years. 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 also eliminated. b. Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements—In May 2006, the Accounting Standards Board of Japan (the "ASBJ") issued ASBJ Practical Issues Task Force ("PITF") No. 18, "Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or generally accepted accounting principles in the United States of America tentatively may be used for the consolidation process, except for the following items that should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP, unless they are not material: (a) amortization of goodwill; (b) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in equity; (c) expensing capitalized development costs of R&D; (d) cancellation of the fair value model of accounting for property, plant and equipment and investment properties and incorporation of the cost model of accounting; and (e) exclusion of minority interests from net income, if contained in net income. c. Business Combinations—In October 2003, the Business Accounting Council issued a Statement of Opinion, "Accounting for Business Combinations," and in December 2005, the ASBJ issued ASBJ Statement No. 7, "Accounting Standard for Business Divestitures" and ASBJ Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and Business Divestitures." The accounting standard for business combinations allowed companies to apply the pooling of interests method of accounting only when certain specific criteria are met such that the business combination is essentially regarded as a uniting of interests. For business combinations that do not meet the uniting of interests criteria, the business combination is considered to be an acquisition and the purchase method of accounting is required. This standard also prescribes the accounting for combinations of entities under common control and for joint ventures. - 10 - 9 10 - 11 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, "Accounting Standard for Business Combinations." Major accounting changes under the revised accounting standard are as follows: (1) The revised standard requires accounting for business combinations only by the purchase method. As a result, the pooling of interests method of accounting is no longer allowed. (2) The previous accounting standard required research and development costs to be charged to income as incurred. Under the revised standard, in-process research and development costs (IPR&D) acquired in the business combination are capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchase gain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the liabilities assumed have been identified after a review of the procedures used in the purchase price allocation. The revised standard was applicable to business combinations undertaken on or after April 1, 2010. The Company acquired 76% of total voting right of Xodus Group (Holdings) Limited on June 28, 2013, and accounted for it by the purchase method of accounting. The related goodwill is systematically amortized over 10 years. d. Construction Contracts—In December 2007, 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, 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 is deemed to 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 as follows: 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 that are not realized are charged to income, as incurred, and are included in cost of revenue. e. Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificate of deposits, and commercial paper, all of which mature or become due within three months of the date of acquisition. f. Held-to-Maturity Securities and Investment Securities—Held-to-maturity securities and investment securities are classified and accounted for, depending on management's intent, as follows: (1) held-to-maturity debt securities, for which there is a positive intent and ability to hold to maturity, are reported at cost; and (2) available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. Nonmarketable available-for-sale securities are stated at cost determined by the moving-average method. For other-than-temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. g. Short-Term Investments—Short-term investments are time deposits, which will mature three months after the date of acquisition. Short-term investments are exposed to insignificant risk of changes in value. h. Jointly Controlled Assets of Joint Venture—The jointly controlled assets of the joint venture are jointly controlled cash recognized based on the Company's share of the venture. i. 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. j. 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 that 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 8 to 57 years for buildings and structures, from 4 to 17 years for machinery and equipment, and from 4 to 15 years for tools, furniture, and fixtures. Equipment held for leases is depreciated by the straight-line method over the respective lease periods. k. Long-Lived Assets—The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss is 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. l. Software—Software for internal use is amortized on a straight-line basis over its estimated useful life (five years at the maximum). m. Other Assets—Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight-line method over their estimated useful lives. n. Allowance for Warranty Costs for Completed Work—The allowance for warranty costs for completed work is provided based on past rate experience. o. 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-contract method applied contracts, the allowance for losses on construction contracts is offset against the costs of construction contracts in process in the balance sheet. p. Provision for Treatment of PCB Waste—A 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. 11 12 - 12 - - 13 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements q. Retirement and Pension Plans—The Company and consolidated subsidiaries have funded or unfunded defined benefit pension plans and a defined contribution pension plans for employees. Certain consolidated subsidiaries have defined benefit corporate pension plans or severance lump-sum payment plans, and calculate retirement benefit expenses by using the simplified method. Effective April 1, 2000, the Company and its domestic consolidated subsidiaries adopted a new accounting standard for 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 projected benefit obligations are attributed to periods on a straight-line basis. Actuarial gains and losses are amortized on a straight-line basis over 10 years within the average remaining service period. Past service costs are amortized on a straight-line basis over 10 years within the average remaining service period. The transitional obligation of ¥5,696 million ($55,300 thousand) is being amortized and charged to income over 15 years using the straight-line amortization method and included in an operating expense in the consolidated statements of income for the years ended March 31, 2014 and 2013. In May 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 an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009. (a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits). (b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are 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 (see Note 2.aa). (c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases. This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both 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 applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March 31, 2014. As a result, asset for retirement benefits of ¥34 million ($333 thousand) and liability for retirement benefits of ¥2,080 million ($20,202 thousand) was recorded as of March 31, 2014, and accumulated other comprehensive income for the year ended March 31, 2014, decreased by ¥287 million ($2,787 thousand). In addition, net assets per share decreased by ¥1.11 for the year ended March 31, 2014. r. Asset Retirement Obligations—In March 2008, the ASBJ issued 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 the 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 adjustment to the carrying amount of the liability and the capitalized amount of the related asset retirement cost. s. Research and Development Costs—Research and development costs are charged to income as incurred. t. 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. 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 notes 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 Company applied the revised accounting standard effective April 1, 2008. In addition, the Company continues to account for leases that 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. u. 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 income tax rates to the temporary differences. 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. 13 14 - 14 - - 15 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements v. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. 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. w. Foreign Currency Financial Statements—Balance sheet accounts of 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. x. 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. Diluted net income per share is not disclosed because there is no potential stock, which has a dilutive effect for the fiscal years ended March 31, 2014 and 2013. z. 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 following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific transitional provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—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. Derivative financial instruments are classified and accounted for as follows: aa. New Accounting Pronouncements (1) All derivatives are recognized as either assets or liabilities and measured at fair value, with gains or losses 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. 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. 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 an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009. The major change is as follows: Amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases Foreign currency deposits are held to hedge foreign exchange risks derived from forecasted purchases of fixed assets denominated in foreign currency. The revised accounting standard also made certain amendments relating to the method of attributing expected benefits to periods and relating to the discount rate and expected future salary increases. 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. y. Per Share Information—Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants. Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year. The Company expects to apply the above from April 1, 2014. The effects of applying the revised accounting standard are estimated as follows: (1) Retained earnings as of April 1, 2014, would be decreased by ¥579 million ($5,629 thousand). (2) Operating income and income before income taxes and minority interests for the next fiscal year ending March 31, 2015, would not be material. 3. BUSINESS COMBINATION On June 28, 2013, the Company acquired 76% of total voting rights of Xodus Group (Holdings) Limited ("Xodus Group"). Xodus Group provides integrated services from conceptual definition through design and construction to operation in international oil & gas and low carbon industries. This acquisition was made to complement the Company's competence in offshore and upstream projects. The results of operations for Xodus Group are included in the Company's consolidated financial statements from July 1, 2013. The Company accounted for this business combination by the purchase method of accounting. 15 16 - 16 - - 17 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements The acquisition cost was ¥9,899 million ($96,112 thousand) in cash in accordance with the Share Purchase Agreement dated June 28, 2013. The total cost of acquisition has been allocated to the assets acquired and the liabilities assumed based on their respective fair values. Goodwill recorded in connection with the acquisition totaled ¥5,695 million ($55,297 thousand) for the reason that excess earnings are expected as a result from Xodus Group's business expansion in the future. The assets acquired and the liabilities assumed at the acquisition date are as follows: 5. HELD-TO-MATURITY SECURITIES AND INVESTMENT SECURITIES Held-to-maturity securities and investment securities at March 31, 2014 and 2013, consisted of the following: Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 Millions of Yen Thousands of U.S. Dollars Current—Held-to-maturity securities Noncurrent—Equity securities ¥ 21,131 ¥ 2,400 23,740 $ 205,163 Current assets Fixed assets Total assets Current liabilities Fixed liabilities Total liabilities ¥ 5,061 2,540 ¥ 7,602 ¥ 2,856 166 ¥ 3,022 $ 49,141 24,669 $ 73,810 $ 27,728 1,616 $ 29,345 If this business combination had been completed as of April 1, 2013, the beginning of the current fiscal year, the unaudited condensed pro forma consolidated statement of income for the year ended March 31, 2014, would be as follows: Sales Operating income Income before income taxes and minority interests Net income Millions of Yen Thousands of U.S. Dollars ¥ 6,370 (585 ) (966 ) (676 ) $ 61,848 (5,688) (9,383) (6,568) After the above stated business combination, the Company acquired additional shares of Xodus Group during this fiscal year ended March 31, 2014. The acquisition cost was ¥505 million ($4,910 thousand) in cash. Goodwill recorded in connection with the acquisition totaled ¥587 million ($5,706 thousand). 4. CONSTRUCTION CONTRACTS Costs and estimated earnings recognized with respect to construction contracts which are accounted for by the percentage-of-completion method at March 31, 2014 and 2013, were as follows: Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 The costs and aggregate fair values of held-to-maturity securities and investment securities at March 31, 2014 and 2013, were as follows: March 31, 2014 Securities classified as— Available-for-sale—equity securities March 31, 2013 Securities classified as: Available-for-sale—equity securities Held-to-maturity March 31, 2014 Millions of Yen Cost Unrealized Gains Unrealized Losses Fair Value ¥ 11,465 ¥ 7,128 ¥ 2 ¥ 18,591 Millions of Yen Cost Unrealized Gains Unrealized Losses Fair Value ¥ 11,455 2,400 ¥ 9,991 ¥ 112 ¥ 21,334 2,400 Thousands of U.S. Dollars Unrealized Gains Unrealized Losses Fair Value Cost Securities classified as— Available-for-sale—equity securities $ 111,320 $ 69,204 $ 23 $ 180,501 Available-for-sale securities whose fair value was not readily determinable at March 31, 2013, were as follows. Similar information for 2014 is disclosed in Note 13. Costs and estimated earnings Amounts billed ¥ 379,837 (363,334) ¥ 329,290 (301,813 ) $ 3,687,743 (3,527,516) Net ¥ 16,503 ¥ 27,477 $ 160,227 March 31, 2013 Securities classified as— Available-for-sale—equity securities Carrying Amount Millions of Yen ¥ 2,406 17 18 - 18 - - 19 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements 6. INVESTMENTS IN AND ADVANCES TO UNCONSOLIDATED SUBSIDIARIES AND ASSOCIATED COMPANIES Commitment-line contracts at March 31, 2014, were as follows: Investments in and advances to unconsolidated subsidiaries and associated companies at March 31, 2014 and 2013, were as follows: Investments Long-term receivables Total 7. LONG-TERM DEBT Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 ¥ 7,183 971 ¥ 4,686 477 $ 69,743 9,434 ¥ 8,155 ¥ 5,164 $ 79,177 Long-term debt at March 31, 2014 and 2013, consisted of the following: Long-term loans principally from banks, due serially through 2018, with interest rates ranging from 1.9% to 2.0% at 2014 and 2013—Unsecured Obligations under finance leases Total Less current portion Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 ¥ 10,023 99 10,122 (82) ¥ 10,221 5 10,226 (91 ) $ 97,315 962 98,277 (800) Commitment-line contracts Unused commitments 8. RETIREMENT AND PENSION PLANS Millions of Yen ¥ 15,000 ¥ 15,000 Thousands of U.S. Dollars $ 145,631 $ 145,631 The Company and consolidated subsidiaries have funded or unfunded defined benefit pension plans and a defined contribution pension plans for employees. Under defined benefit corporate pension plans, all of which are funded, employees are entitled to certain lump-sum payments or pension payments based on cumulated points which are granted in accordance with years of continuous employment, occupational classification and performance evaluation. Under severance lump-sum payment plans, employees are entitled to certain lump-sum payments based on salary and service period. Certain consolidated subsidiaries have defined benefit corporate pension plans or severance lump-sum payment plans, and calculate retirement benefit expenses by using the simplified method. One of domestic consolidated subsidiaries implemented a defined benefit pension plan and a defined contribution pension plan in this fiscal year ended March 31, 2014, by which the former severance lump-sum payment plan was terminated, and changed the accounting method to calculate retirement benefit obligations from the simplified method to the principle method. As a result, retirement benefit expenses of ¥299 million ($2,906 thousand) is recorded as other expense for the year ended March 31, 2014. Year Ended March 31, 2014 Long-term debt, less current portion ¥ 10,040 ¥ 10,135 $ 97,477 (1) The changes in defined benefit obligation for the year ended March 31, 2014, were as follows: Annual maturities of long-term debt, excluding finance leases (see Note 12), at March 31, 2014, were as follows: Year Ending March 31 2015 2016 2017 2018 2019 2020 and thereafter Total Millions of Yen Thousands of U.S. Dollars ¥ 4 4 4 10,004 4 1 ¥ 10,023 $ 43 44 40 97,128 40 17 $ 97,315 Balance at beginning of year Current service cost Interest cost Actuarial losses Benefits paid The amount of obligation processing with the changes from simplified method to the principle method Millions of Yen ¥ 20,630 593 326 176 (1,691 ) Thousands of U.S. Dollars $ 200,294 5,761 3,171 1,713 (16,418) 1,751 17,007 Balance at end of year ¥ 21,787 $ 211,529 19 20 - 20 - - 21 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements (2) The changes in plan assets for the year ended March 31, 2014, were as follows: Balance at beginning of year Expected return on plan assets Actuarial losses Contributions from the employer Benefits paid The amount of asset processing with the changes from simplified method to the principle method Millions of Yen ¥ 17,705 707 853 1,477 (1,691 ) Thousands of U.S. Dollars $ 171,893 6,868 8,283 14,344 (16,418) 1,318 12,803 Balance at end of year ¥ 20,370 $ 197,775 (3) The changes in the liability recorded in the consolidated balance sheet by using the simplified method for the year ended March 31, 2014, were as follows: Balance at beginning of year Benefit costs Benefits paid Contribution to the plans Decrease by implementation of defined contribution plans The amount of expense processing with the changes from simplified method to the principle method Change of scope of consolidation Others Balance at end of year Millions of Yen Thousands of U.S. Dollars ¥ 943 300 (46 ) (332 ) (173 ) (433 ) 71 299 ¥ 629 $ 9,162 2,920 (451) (3,225) (1,683) (4,203) 691 2,906 $ 6,115 Others are benefit costs recognized by changing the pension plans and the accounting method to calculate retirement benefit obligations from the simplified method to the principle method. (4) Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation and plan assets as of March 31, 2014 Funded defined benefit obligation Plan assets Unfunded defined benefit obligation Millions of Yen ¥ 23,088 (21,511 ) 1,577 469 Thousands of U.S. Dollars $ 224,160 (208,847) 15,313 4,555 Net liability for defined benefit obligation ¥ 2,046 $ 19,869 Liability for retirement benefits Asset for retirement benefits Millions of Yen Thousands of U.S. Dollars ¥ 2,080 (34 ) $ 20,202 (333) Net liability for defined benefit obligation ¥ 2,046 $ 19,869 (5) The components of net periodic benefit costs for the year ended March 31, 2014, were as follows: Service cost Interest cost Expected return on plan assets Amortization of prior service cost Recognized actuarial losses Amortization of transitional obligation Benefit costs in simplified method Others Net periodic benefit costs Millions of Yen Thousands of U.S. Dollars ¥ 593 326 (707 ) (176 ) 2 608 300 299 ¥ 1,248 $ 5,761 3,171 (6,868) (1,711) 27 5,911 2,920 2,906 $ 12,117 Others are benefit costs recognized by changing the pension plans and the accounting method to calculate retirement benefit obligations from the simplified method to the principle method. (6) Accumulated other comprehensive income on defined retirement benefit plans as of March 31, 2014 Unrecognized prior service cost Unrecognized actuarial losses Unamortized transitional obligation Total (7) Plan assets as of March 31, 2014 a. Components of plan assets Plan assets consisted of the following: Debt investments Equity investments General accounts Others Total Millions of Yen Thousands of U.S. Dollars ¥ (323 ) 157 608 ¥ 442 $ (3,137) 1,524 5,911 $ 4,298 26 % 37 25 12 100 % 21 22 - 22 - - 23 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements b. Method of determining the expected rate of return on plan assets 9. EQUITY The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the future from the various components of the plan assets. 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: (8) Assumptions used for the year ended March 31, 2014, were set forth as follows: a. Dividends Discount rate Expected rate of return on plan assets 1.5 % 3.7 (9) The Company and consolidated subsidiaries have ¥550 million ($5,342 thousand) of payables to defined contribution plans. Year Ended March 31, 2013 The liability for retirement benefits at March 31, 2013, 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 Net liability for employees' retirement benefits Millions of Yen ¥ 23,727 (19,858) (1,217) (839) 499 2,310 ¥ 2,310 The components of net periodic benefit costs for the year ended March 31, 2013, 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 Net periodic benefit costs Assumptions used for the year ended March 31, 2013, 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 Millions of Yen ¥ 721 326 (275) 608 591 (176) 1,796 372 ¥ 2,168 1.5% 1.6% 10 years 15 years 10 years Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders' meeting. For companies that meet certain criteria, 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 Companies Act permits companies to distribute dividends in kind (noncash 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-in 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-in capital equals 25% of the common stock. Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. c. Treasury Stock and Treasury Stock Acquisition Rights The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders, which is determined by a 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. 23 24 - 24 - - 25 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements 10. INCOME TAXES 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 38% for the years ended March 31, 2014 and 2013. The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities at March 31, 2014 and 2013, were as follows: Deferred tax assets: Cost of revenue Allowance for employees' bonus Allowance for losses on construction contracts Retirement benefits Defined retirement benefit plans Future deductible depreciation Costs of construction contracts in process Other Less valuation allowance Millions of Yen 2014 2013 ¥ 14,927 1,438 1,305 647 1,079 657 3,224 (1,084) ¥ 11,438 1,641 104 792 636 566 4,220 (1,082 ) Thousands of U.S. Dollars 2014 $ 144,926 13,965 12,679 6,282 10,478 6,385 31,306 (10,530) Total 22,195 18,317 215,493 Deferred tax liabilities: Unrealized gain on available-for-sale securities Deferred gain on derivatives under hedge accounting Profit/loss in joint venture Other Total 2,460 433 145 457 3,414 1,852 402 380 23,889 4,208 1,412 4,438 3,496 6,050 33,949 A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying consolidated statement of income for the year ended March 31, 2014, is as follows: Normal effective statutory tax rate Expenses not deductible for income tax purposes Nontaxable dividend income Tax rate changes due to tax reform Actual effective tax rate 2014 38 % 1 (1) 3 41 % For the year ended March 31, 2013, a reconciliation was not disclosed because the difference is less than 5% of the normal effective statutory tax rate. New tax reform laws enacted in 2014 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after April 1, 2014, from approximately 38% to 35%. The effect of this change was to decrease deferred tax assets in the consolidated balance sheet as of March 31, 2014, by ¥740 million ($7,191 thousand) and to increase income taxes—deferred in the consolidated statement of income for the year then ended by ¥757 million ($7,354 thousand). 11. RESEARCH AND DEVELOPMENT COSTS Research and development costs charged to income were ¥2,424 million ($23,537 thousand) and ¥2,323 million for the years ended March 31, 2014 and 2013, respectively. 12. LEASES The Group leases certain machinery, computer equipment, and other assets. Obligations under finance leases and future minimum payments under noncancelable operating leases were as follows: Net deferred tax assets ¥ 18,699 ¥ 12,267 $ 181,543 Year Ended March 31, 2014 Prior to April 1, 2013, "Allowance for losses on construction contracts" and "Costs of construction contracts in process" were included in "Other" within the deferred tax assets section. From this fiscal year ended March 31, 2014, the amounts are disclosed separately due to the increase in materiality. Prior to April 1, 2013, "Enterprise tax" and "Loss on valuation of investment securities" were disclosed separately. From this fiscal year ended March 31, 2014, the amounts are included in "Other" within the deferred tax assets section due to the decrease in materiality. Net deferred tax assets as of March 31, 2014 and 2013, were recorded in the accompanying consolidated balance sheet as follows: Current assets—Deferred tax assets Investments and other assets—Other assets Long-term liabilities—Other Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 ¥ 18,868 685 (854) ¥ 13,162 570 (1,465 ) $ 183,185 6,655 (8,296) Due within one year Due after one year Total Millions of Yen Finance Leases Operating Leases Thousands of U.S. Dollars Finance Leases Operating Leases ¥ 77 21 ¥ 99 ¥ 214 917 ¥ 1,132 $ 756 205 $ 962 $ 2,084 8,908 $ 10,992 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 without ownership transfer 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 accounted for such leases as operating lease transactions. 25 26 - 26 - - 27 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements 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, 2013 Acquisition cost Accumulated depreciation Net leased property Millions of Yen Buildings and Structures Tools, Furniture, and Fixtures Other Total ¥ 16 9 ¥ 6 ¥ 51 42 ¥ 8 ¥ 26 18 ¥ 8 ¥ 93 70 ¥ 23 Obligations under finance leases for the year ended March 31, 2013, were as follows: Due within one year Due after one year Total Millions of Yen 2013 ¥ 9 13 ¥ 23 Depreciation expense as lessee, which is not reflected in the accompanying consolidated statement of income, computed by the straight-line method was ¥13 million for the year ended March 31, 2013. Lease payments were approximately equal to the depreciation expense. The amounts of obligations, acquisition cost, and depreciation under finance leases include the imputed interest income portion and interest expense portion. For the year ended March 31, 2014, pro forma information of leased property whose lease inception was before March 31, 2008, on an "as if capitalized" basis was not disclosed because the balances are not material. 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 certificates of deposit 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. (2) Nature and Extent of Risks Arising from Financial Instruments 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 have short maturities and are used for cash surpluses. Short-term 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.x and 14 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. Certificates of deposit and deposits at call are exposed to insignificant default risk because transactions are limited to major financial institutions. 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. 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 replies is made, and the transactions related to foreign currency forward contracts are executed and accounted for under internal guidelines. 27 28 - 28 - - 29 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Marketable and 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. March 31, 2013 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 14 for the detail of fair value for derivatives. (a) Fair values of financial instruments March 31, 2014 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 Short-term bank loans Current portion of long-term debt Notes and accounts payable—trade Income taxes payable Long-term debt Total Unrealized Gain (Loss) Carrying Amount ¥ 145,303 64 56,502 16,503 127,466 18,591 Millions of Yen Fair Value ¥ 145,303 64 56,502 16,503 127,466 18,591 ¥ 364,431 ¥ 364,431 ¥ 1,283 4 145,392 5,513 10,018 ¥ 1,283 4 145,392 5,513 10,018 ¥ 162,212 ¥ 162,212 Cash and cash equivalents Held-to-maturity securities—current 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 March 31, 2014 Unrealized Gain (Loss) Carrying Amount ¥ 180,229 2,400 226 37,917 27,477 94,696 21,334 Millions of Yen Fair Value ¥ 180,229 2,400 226 37,917 27,477 94,696 21,334 ¥ 364,280 ¥ 364,280 ¥ 88 117,769 8,500 10,132 ¥ 88 117,769 8,500 10,132 ¥ 136,490 ¥ 136,490 Thousands of U.S. Dollars Carrying Amount Fair Value Unrealized Gain (Loss) 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 Short-term bank loans Current portion of long-term debt Notes and accounts payable—trade Income taxes payable Long-term debt Total $ 1,410,712 622 548,564 $ 1,410,712 622 548,564 160,227 1,237,539 180,501 160,227 1,237,539 180,501 $ 3,538,168 $ 3,538,168 $ 12,464 43 1,411,574 53,527 97,271 $ 12,464 43 1,411,574 53,527 97,271 $ 1,574,881 $ 1,574,881 29 30 - 30 - - 31 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Cash and Cash Equivalents, Held-to-Maturity Securities—Current, 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. Jointly Controlled Assets of Joint Venture The jointly controlled assets of the joint venture are jointly controlled cash recognized based on the Company's share of the venture. The carrying values of jointly controlled assets of the 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. Short-Term Bank Loans, 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) and Long-Term 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 a 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 14. (b) Carrying amount of 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 Millions of Yen 2013 2014 Thousands of U.S. Dollars 2014 ¥ 2,537 ¥ 2,403 $ 24,633 2 2 28 7,183 4,686 69,743 (5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities March 31, 2014 Cash and cash equivalents Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Total March 31, 2013 Cash and cash equivalents Held-to-maturity securities—current Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Total March 31, 2014 Millions of Yen Due after 1 Year through 5 Years Due after 5 Years through 10 Years Due in 1 Year or Less ¥ 145,266 64 71,347 127,466 ¥ 1,658 ¥ 344,144 ¥ 1,658 Millions of Yen Due after 1 Year through 5 Years Due after 5 Years through 10 Years Due in 1 Year or Less ¥ 180,194 2,400 226 64,861 94,696 ¥ 532 ¥ 342,378 ¥ 532 Thousands of U.S. Dollars Due after 1 Year through 5 Years Due after 5 Years through 10 Years Due in 1 Year or Less Cash and cash equivalents Short-term investments Notes and accounts receivable, and costs and estimated earnings on long-term construction contracts Jointly controlled assets of joint venture Total $ 1,410,357 622 692,689 1,237,539 $ 16,102 $ 3,341,209 $ 16,102 31 32 - 32 - - 33 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Please see Note 7 for annual maturities of long-term debt and Note 12 for obligations under finance leases. March 31, 2014 14. DERIVATIVES Derivative Transactions to Which Hedge Accounting Is Not Applied March 31, 2014 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 AUD/selling Euro Buying TWD/selling U.S.$ Total March 31, 2013 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 Total Millions of Yen Contract Amount Due after One Year ¥ 2 22 Fair Value (Loss) ¥ (18 ) (1 ) 13 8 5 (59 ) Unrealized Gain (Loss) ¥ (18) (1) 13 8 5 (59) Contract Amount ¥ 21,406 4,771 1,259 6,939 56 13 1,699 39 ¥ 36,185 ¥ 24 ¥ (54 ) ¥ (54) Millions of Yen Contract Amount Due after One Year Fair Value (Loss) Unrealized Gain (Loss) ¥ (15 ) ¥ (15) ¥ 36 51 ¥ 87 (4 ) 52 12 (4) 52 12 ¥ 45 ¥ 45 Contract Amount ¥ 14,267 11,243 284 1,933 276 79 ¥ 28,085 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 AUD/selling Euro Buying TWD/selling U.S.$ Thousands of U.S. Dollars Contract Amount Due after One Year $ 25 213 Fair Value (Loss) $ (181 ) (18 ) (6 ) 129 80 53 (574 ) (9 ) Unrealized Gain (Loss) $ (181) (18) (6) 129 80 53 (574) (9) Contract Amount $ 207,829 46,327 12,223 67,369 552 126 16,502 387 Total $ 351,319 $ 239 $ (525 ) $ (525) Derivative Transactions to Which Hedge Accounting Is Applied March 31, 2014 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 Euro/selling U.S.$ Buying TWD/selling U.S.$ Buying KRW/selling U.S.$ Total Other*1: Selling U.S.$/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Total Millions of Yen Hedged Item Contract Amount Contract Amount Due after One Year Fair Value (Loss) Foreign currency forecasted transaction ¥ 9,921 909 22 10,074 84 4,029 ¥ 5,689 193 5,329 2,766 ¥ (405) 29 7 296 (1) 184 ¥ 25,041 ¥ 13,978 ¥ 111 Receivables Payables ¥ 32 365 186 ¥ 584 Interest rate swaps*2 (fixed rate payment, Long-term debt ¥ 10,000 ¥ 10,000 floating rate receipt) Total ¥ 10,000 ¥ 10,000 33 34 - 34 - - 35 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements March 31, 2013 March 31, 2014 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.$/buying yen Buying U.S.$/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 Buying SGD/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 ¥ 1,863 4,489 584 221 ¥ 513 1,056 461 ¥ (220) 851 116 3 ¥ 7,158 ¥ 2,031 ¥ 752 ¥ 693 948 372 18 ¥ 101 ¥ 2,032 ¥ 101 ¥ 10,000 ¥ 10,000 ¥ 10,000 ¥ 10,000 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 Euro/selling U.S.$ Buying TWD/selling U.S.$ Buying KRW/selling U.S.$ Total Other*1: Selling U.S.$/buying yen Buying U.S.$/selling yen Buying Euro/selling yen Total Thousands of U.S. Dollars Hedged Item Contract Amount Contract Amount Due after One Year Fair Value (Loss) Foreign currency forecasted transaction $ 96,325 8,831 218 97,807 816 39,122 $ 55,234 1,877 51,740 26,858 $ (3,936) 286 74 2,879 (19) 1,795 $ 243,120 $ 135,710 $ 1,079 Receivables Payables $ 311 3,551 1,811 $ 5,674 Interest rate swaps*2 (fixed rate payment, Long-term debt $ 97,087 $ 97,087 floating rate receipt) Total $ 97,087 $ 97,087 *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 for under a specific method, are treated as part of the hedged long-term debt thus, their fair values are integrally computed with those of the hedged long-term debt. See Note 13 for the fair value of long-term debt. 15. CONTINGENT LIABILITIES At March 31, 2014, the Group had the following contingent liabilities: Guarantees on employees' housing loans Performance bond for an unconsolidated subsidiary ¥ 89 1,907 $ 871 18,520 Millions of Yen Thousands of U.S. Dollars 35 36 - 36 - - 37 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements 16. COMPREHENSIVE INCOME There is no dilutive effect for the year ended March 31, 2014. The components of other comprehensive income for the years ended March 31, 2014 and 2013, were as follows: Year Ended March 31, 2013 Millions of Yen 2014 2013 Thousands of U.S. Dollars 2014 ¥ (2,619) (2,619) 955 ¥ 7,564 231 7,796 (2,721 ) $ (25,429) (25,429) 9,273 Millions of Yen Net Income Thousands of Shares Weighted-Average Shares Yen EPS Basic EPS—Net income available to common shareholders ¥ 16,077 259,053 ¥ 62.06 There is no dilutive effect for the year ended March 31, 2013. ¥ (1,664) ¥ 5,075 $ (16,156) 18. SUBSEQUENT EVENT Unrealized (loss) gain on available-for-sale securities: (Losses) gains arising during the year Reclassification adjustments to profit or loss Amount before income tax effect Income tax effect Total Deferred (loss) gain 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 of associates accounted for using the equity method— Gains arising during the year Total ¥ 2,651 (3,573) (2,729) (3,652) 1,410 ¥ 6,362 (2,299 ) (117 ) 3,945 (1,497 ) $ 25,739 (34,697) (26,503) (35,462) 13,693 ¥ (2,242) ¥ 2,448 $ (21,768) ¥ 3,625 ¥ 1,081 $ 35,194 ¥ 3,625 ¥ 1,081 $ 35,194 ¥ ¥ 104 104 ¥ ¥ 85 85 $ $ 1,016 1,016 Total other comprehensive (loss) income ¥ (176) ¥ 8,690 $ (1,713) 17. NET INCOME PER SHARE A reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended March 31, 2014 and 2013, is as follows: Year Ended March 31, 2014 Millions of Yen Net Income Thousands of Shares Weighted-Average Shares Yen U.S. Dollars EPS Basic EPS—Net income available to common shareholders ¥ 13,447 259,030 ¥ 51.91 $ 0.50 The following appropriation of retained earnings at March 31, 2014, was approved at the Company's shareholders' meeting on June 25, 2014: Millions of Yen Thousands of U.S. Dollars Year-end cash dividends, ¥16.00 ($0.15) per share ¥ 4,144 $ 40,235 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. (1) Description of Reportable Segments 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 with those disclosed in Note 2, "Summary of Significant Accounting Policies." The profit in reporting segments is based on the operating income. Intersegment income and transfers are measured at the quoted market price. 37 38 - 38 - - 39 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements (3) Information about Sales, Profit (Loss), Assets, Liabilities, and Other Items Year Ended March 31, 2014 Year Ended March 31, 2014 Millions of Yen Reportable Segment Engineering Other*1 Total Reconcili- ations*2 Consoli- dated*3 Sales: Sales to external customers Intersegment sales or transfers ¥ 441,615 14 ¥ 4,532 6,280 ¥ 446,147 6,295 ¥ (6,295 ) ¥ 446,147 Total ¥ 441,629 ¥ 10,813 ¥ 452,443 ¥ (6,295 ) ¥ 446,147 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, 2013 ¥ 20,788 470,188 267,501 ¥ 282 4,773 1,781 ¥ 21,070 474,961 269,283 ¥ 8 326 7,973 ¥ 21,079 475,288 277,257 3,175 795 5,375 21 29 3,196 825 5,375 4,126 27 4,154 3,196 825 5,375 4,154 Millions of Yen Reportable Segment Engineering Other*1 Total Reconcili- ations*2 Consoli- dated*3 Sales: Sales to external customers Intersegment sales or transfers ¥ 392,037 9 ¥ 6,881 8,504 ¥ 398,918 8,513 ¥ (8,513 ) ¥ 398,918 Total ¥ 392,046 ¥ 15,385 ¥ 407,432 ¥ (8,513 ) ¥ 398,918 Segment profit Segment assets Segment liabilities Other: Depreciation Amortization of goodwill Investment in associated companies Increase in property, plant and equipment and intangible assets ¥ 24,499 429,400 236,130 ¥ 848 4,874 1,943 ¥ 25,348 434,274 238,073 ¥ (235 ) 1,104 7,949 ¥ 25,113 435,379 246,023 2,593 5 1,151 22 35 2,616 41 1,151 (36 ) 2,580 41 1,151 9,215 43 9,259 (300 ) 8,958 Thousands of U.S. Dollars Reportable Segment Engineering Other*1 Total Reconcili- ations*2 Consoli- dated*3 Sales: Sales to external customers Intersegment sales or transfers $ 4,287,526 $ 44,004 $ 4,331,530 $ 4,331,530 142 60,978 61,120 $ (61,120 ) Total $ 4,287,668 $ 104,982 $ 4,392,651 $ (61,120 ) $ 4,331,530 Segment profit Segment assets Segment liabilities Other: Depreciation Amortization of goodwill Investment in associated companies Increase in property, plant and equipment and intangible assets 201,825 $ $ 4,564,932 2,597,104 2,740 $ 204,566 $ 84 $ 46,344 17,300 4,611,277 2,614,404 3,174 77,414 204,651 4,614,451 2,691,819 30,825 7,725 52,186 208 291 31,034 8,016 52,186 40,061 269 40,331 31,034 8,016 52,186 40,331 Notes for the year ended March 31, 2014: *1 "Other" represents industry segments, which are not included in the reportable segment, consisting of temporary staffing services and travel services. *2 The detail of the reconciliations is as follows: (1) The reconciliation in segment profit of ¥8 million ($84 thousand) is the elimination of intersegment trades. (2) The reconciliation in segment assets of ¥326 million ($3,174 thousand) is the result of the elimination of intersegment trades of ¥(2,047) million ($(19,881) thousand) and the Group's assets of ¥2,374 million ($23,056 thousand), which are not included in the reportable segment. (3) The reconciliation in segment liabilities of ¥7,973 million ($77,414 thousand) is the result of the elimination of intersegment trades of ¥(2,026) million ($(19,672) thousand) and the Group's liabilities of ¥10,000 million ($97,087 thousand), which are not included in the reportable segment. *3 The calculation of the segment profit is based on the operating income in the consolidated statement of income. 39 40 - 40 - - 41 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Notes for the year ended March 31, 2013: Year Ended March 31, 2013 *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 the reconciliations is as follows: (1) The reconciliation in segment profit of ¥(235) million is the elimination of intersegment trades. (2) The reconciliation in segment assets of ¥1,104 million is the result of the elimination of intersegment trades of ¥(2,066) million and the Group's assets of ¥3,170 million, which are not included in the reportable segment. (3) The reconciliation in segment liabilities of ¥7,949 million is the result of the elimination of intersegment trades of ¥(2,050) million and the Group's liabilities of ¥10,000 million, which are not included in the reportable segment. (4) The reconciliation in depreciation of ¥(36) million is the elimination of intersegment trades. (5) The reconciliation in increase in property, plant and equipment and intangible assets of ¥(300) million is the elimination of intersegment trades. *3 The calculation of the segment profit is based on the operating income on the consolidated statement of income. Related Information (1) Information about Products and Services 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. (2) Information about Geographical Areas (a) Revenue Year Ended March 31, 2014 Japan Australia Papua New Guinea Malaysia Others Total Millions of Yen ¥ 128,743 114,894 68,990 53,380 80,138 Thousands of U.S. Dollars $ 1,249,936 1,115,482 669,810 518,254 778,046 ¥ 446,147 $ 4,331,530 Japan Malaysia Papua New Guinea Australia Others Total Millions of Yen ¥ 150,800 83,685 66,143 44,559 53,729 ¥ 398,918 Note: Revenue is classified in countries or regions based on location of construction site. (b) Property, plant and equipment Year Ended March 31, 2014 Japan Asia Others Total Year Ended March 31, 2013 Japan Asia Others Total (3) Information about Major Customers Year Ended March 31, 2014 Name Related Segment Millions of Yen Ichthys Lng Pty Ltd. Esso Highlands Ltd. Tokuyama Malaysia Sdn. Bhd Engineering Engineering Engineering ¥ 109,964 68,788 49,934 Millions of Yen ¥ 12,454 1,746 757 Thousands of U.S. Dollars $ 120,914 16,957 7,354 ¥ 14,958 $ 145,226 Millions of Yen ¥ 12,935 1,377 234 ¥ 14,547 Thousands of U.S. Dollars $ 1,067,617 667,847 484,804 41 42 - 42 - - 43 - Consolidated Financial StatementsConsolidated Financial Statements Notes to Consolidated Financial Statements Independent Auditor’s Report Year Ended March 31, 2013 Name Tokuyama Malaysia Sdn. Bhd Esso Highlands Ltd. Ichthys Lng Pty Ltd. Related Segment Millions of Yen Engineering Engineering Engineering ¥ 82,921 65,159 42,185 (4) Information about Goodwill by Segments Ending balance of goodwill as of March 31, 2014 and 2013, was as follows: Millions of Yen 2014 ¥ 11,930 464 2013 ¥ 180 494 Thousands of U.S. Dollars 2014 $ 115,829 4,513 ¥ 12,395 ¥ 675 $ 120,343 Engineering Other* Total * Other involves temporary staffing services. * * * * * * 43 44 - 44 - Consolidated Financial StatementsConsolidated Financial Statements Minato Mirai 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. (As of August 2014) Selected in FTSE Group’s responsible investment index ANNUAL REPORT FY2012 For the year ended March 31, 2013