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					Ai mi n g H i gh e r
In Pursuit of the EXEO Way


   Annual Report 2009
     For the Year Ended March 31, 2009
                  Profile


                  KYOWA EXEO CORPORATION pioneered and has led Japan’s                               sidiaries and affiliates and adequately capture changes in the
                  telecommunications equipment and facilities construction                           business environment, thereby driving business development.
                  industry since its establishment in 1954. Our name combines                             The info-communications field is confronting a revo-
                  the Japanese word kyowa, signifying cooperation and friend-                        lution, in which all the network components are being
                  ship, and the Latin exeo, meaning "exit", conveying our                            replaced. We are embracing this environment as a growth
                  commitment to breaking the mold and to venturing out into                          opportunity, and intend to draw on this capability to
                  new challenges.                                                                    reinforce our management structure and grow sustainably
                      We are building a nationwide engineering and main-                             based on our corporate vision to provide high-value-added
                  tenance structure through strategic mergers and acquisitions,                      "total engineering" services as an industry leader in info-
                  allowing us to combine the strengths of numerous sub-                              communications network construction.




                  Consolidated Three-Year Financial Highlights
                  KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries
                                                                                                                                                                     Thousands of
                                                                                                                                                                      U.S. dollars
                                                                                                                                   Millions of yen                     (Note 1)
                                                                                                                     FY 2006        FY 2007          FY 2008             FY 2008
                   Results of operations (for the year):
                   Orders received                                                                                   ¥305,624)       ¥297,899)       ¥286,234)       $2,920,755)
                   Net sales                                                                                          303,538)        287,745)        288,017)        2,938,949)
                   Operating income                                                                                    20,454)         16,401)         18,872)          192,571)
                   Income before income taxes and minority interests                                                   20,736)          17,374)        16,760)          171,020)
                   Net income                                                                                          11,024)         10,686)          9,389)           95,806)

                   Financial position (at year-end):
                   Total assets                                                                                      ¥186,486)       ¥176,955)       ¥179,555)       $1,832,194)
                   Total property and equipment                                                                        36,728)         37,310)         38,138)          389,163)
                   Total noncurrent liabilities                                                                        27,577)         24,792)         23,413)         238,909)
                   Total net assets                                                                                     91,137)        95,573)        101,878)        1,039,571)

                   Cash flows (for the year):
                   Net cash provided by (used in) operating activities                                               ¥ 14,660)        ¥ (1,584)      ¥ 17,434)       $ 177,898)
                   Net cash provided by (used in) investing activities                                                 (4,360)          (5,691)        (4,057)         (41,398)
                   Net cash provided by (used in) financing activities                                                  8,923)          (5,052)        (2,532)         (25,837)

                   Per share of common stock (in yen and U.S. dollars):
                   Net income                                                                                        ¥ 100.3)        ¥      98.4)    ¥   88.5)       $       0.90)
                   Diluted net income                                                                                   95.3)               91.3)        82.0)               0.84)
                   Cash dividends                                                                                       18.0)               20.0)        20.0)               0.20)

                   Ratios:
                   Operating income margin                                                                                 6.7)%             5.7)%        6.6)%
                   ROE (Note 2)                                                                                           13.8)             12.3)        10.2)
                   ROA (Note 3)                                                                                            6.3)              5.9)         5.3)
                   Equity ratio                                                                                           45.3)             50.1)        53.3)

                  Notes: 1. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers, using the prevailing exchange rate at
                            March 31, 2009, which was ¥98 to U.S. $1.
                         2. ROE = Net income ÷ Net assets (yearly average)
                         3. ROA = Net income ÷ Total assets (yearly average)




KYOWA EXEO CORPORATION Annual Report 2009
   Cautionary Notes                                                                                                                                01
   This annual report contains forward-looking statements based on
   information available during this document’s production. Various
   factors may cause materially different results.
       This report does not constitute an investment solicitation.
   Management advises all readers to decide on investments at their
   own discretion.
       The Company’s fiscal year is April 1 through March 31 of the
   following calendar year.




                                                                              Contents
                                                                              02   To Our Stakeholders

                                                                              04   Interview with the President

                                                                              08   Our Strengths and Emerging Opportunities

                                                                              10   Segment Overviews

                                                                              14   Contributing to Society

                                                                              15   Topics

Net Sales                              Operating Income
                                                                              16   Corporate Governance /
 (¥ Billion)                            (¥ Billion)
                                                                                   Basic Stance on Compliance
 350                                     25
               303.5                                                          18   Board of Directors
                       287.7   288.0                  20.5
 280                                     20                           18.9
                                                              16.4            19   Consolidated Six-Year Financial Highlights
 210                                     15

 140                                     10                                   20   Consolidated Financial Review

 70                                       5
                                                                              22   Consolidated Balance Sheets
   0                                      0
               FY06    FY07    FY08                   FY06    FY07    FY08
                                                                              24   Consolidated Statements of Income

Net Income                             Total Assets                           25   Consolidated Statements of Changes
                                                                                   in Net Assets
 (¥ Billion)                            (¥ Billion)
 15                                     250                                   26   Consolidated Statements of Cash Flows
 12            11.0                     200           186.5           179.6
                       10.7                                   177.0
                               9.4
                                                                              27   Notes to Consolidated Financial Statements
  9                                     150

                                                                              41   Independent Auditors’ Report
  6                                     100

  3                                      50                                   42   Corporate Data / Corporate History

  0                                       0
               FY06    FY07    FY08                   FY06    FY07    FY08    43   Investor Information




                                                                                                                  KYOWA EXEO CORPORATION Annual Report 2009
                  To Our Stakeholders



     02




                         Seiji Takashima, Ph.D.   Kunio Ishikawa
                         Chairman                 President




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                         03



KYOWA EXEO recently deployed an operating officer system            We will continue to train engineers to handle fiber-access
to respond more swiftly to changes in the operating climate.    and next-generation networks, or NGNs while broadening
Seiji Takashima, Ph.D., and Kunio Ishikawa will remain at the   our core ENGINEERING-SOLUTIONS business by marketing
helm as chairman and president, respectively. They will lead    intensively to carriers. In the SYSTEM-SOLUTIONS segment,
the Company forward under the banner of "Aiming Higher: In      we will again concentrate resources where we can harness
Pursuit of the EXEO Way," to build corporate value groupwide    Group strengths, thereby creating more value-added business
and overcome the recessionary challenges that the financial     areas.
crisis caused.                                                      Telecommunications companies in Japan will continue in-
                                                                vesting steadily over the medium term. Telecommunications
In fiscal 2008, ended March 31, 2009, management did            networks are on the cusp of a paradigm shift. Wired access
much to prevent consecutive declines in revenues and            is migrating from copper cable to optical fiber and from
earnings. Efforts included cultivating and deepening ties       legacy networks to NGNs. Mobile communications will see
with new common carriers and other customer segments            Long-Term Evolution, or LTE take over from third-generation
to increase orders. We allocated employees more flexibly to     technology. Another anticipated advance will be fixed,
enhance construction efficiency and raised profitability by     mobile, and broadcast convergence services.
lowering indirect costs. We also harnessed business process         Such developments will present exciting new oppor-
reengineering to upgrade our key internal systems and           tunities for KYOWA EXEO. The operational reforms that we
generated synergies from consolidated management of the         have undertaken over the past few years are steadily bearing
Group.                                                          fruit, sharpening the Group’s competitive edge. We are
     Orders decreased in the second half of fiscal 2008 be-     convinced that proper management will empower us to
cause of the recession, although revenues were basically        expand sustainably.
unchanged. Operating income surged, although it was                 The KYOWA EXEO Group aims to earn the trust of share-
admittedly lower than the record high of fiscal 2006. We        holders and all other stakeholders by maintaining high
thus led the industry in terms of profits and growth at the     standards of integrity and transparency. We will fulfill our
operating level. Net income was down owing to extraordinary     social responsibilities by managing our business ethically and
factors, however, notably a loss on valuation of investment     ensuring that directors and employees fully comply with laws
securities and a tax rate hike.                                 and ordinances. We will formulate a framework to ensure that
     Our prime goal in fiscal 2009 is to cement our growth      governance functions well and that we respond flexibly to
base by reinforcing groupwide management. Business with         changes in the social and regulatory environment. We will
telecommunications companies is relatively stable, but we       also beef up our management structure to streamline Group
acknowledge that the recession will inevitably affect other     operations.
private-sector businesses.                                          We look forward to your ongoing support and encou-
     We will continue to streamline construction and slash      ragement for KYOWA EXEO in the year ahead.
indirect expenses. Still, earnings will probably fall because                                                       June 2009
of lower construction volume, intensifying competition that
will erode margins, and higher employee severance and
retirement benefits.
     We will tackle these challenges by bolstering our foun-                                              Seiji Takashima, Ph.D.
                                                                                                          Chairman
dations for growth so we can prosper as the business
environment changes. Among our endeavors will be to
expand the scope of our business, fortify Group management,
and employ our human resources more efficiently.
                                                                                                          Kunio Ishikawa
                                                                                                          President




                                                                                                        KYOWA EXEO CORPORATION Annual Report 2009
                  Interview with the President



     04
                         Aiming Higher: In Pursuit of the EXEO Way
                                                                                      Fiscal 2008 Results
                                                                                          Question 1

                                                                                          How did you perform in fiscal 2008?
                                                                                      The recession that the financial crisis triggered certainly affected operations. But sales
                                                                                      were basically unchanged, as we steadily completed orders received in the previous
                                                                                      year and the first half of the term. We nearly reached the targets we set at the start
                                                                                      of the year, notably by enhancing construction efficiency and cutting indirect costs.
                                                                                           Gross income rose because we leveled out the numerous projects under
                                                                                      way from the beginning of the year and because we flexibly allocated personnel
                                                                                      among departments and regions. Operating income rose significantly, as we more
                                                                                      efficiently managed internal business systems that we updated in fiscal 2007,
                                                                                      optimized our sales force, and lowered costs, thus constraining selling, general and
                                                                                      administrative expenses. But net income fell, mainly because of a loss on valuation
                   Orders Received                                                    of investment securities and higher tax rates.
                   (¥ Billion)
                   350
                                          305.6                                          Question 2
                   300                             297.9
                                 281.2                      286.2    284.5

                   250                                                                   What about orders in each of your business
                   200                                                                   segments?
                   150
                                                                                      In our Telecommunications Infrastructure business, all carriers maintained stable
                      0                                                               capital investment levels, so we stepped up marketing and expanded our business
                                 FY05     FY06     FY07     FY08     FY09
                                                                      (plan)          scope by strengthening our nationwide construction and maintenance structure.
                                                                                      We also broadened our upstream and downstream construction capabilities,
                   Net Sales                                                          notably in terms of planning, design, operations, and maintenance. Nonetheless,
                   (¥ Billion)                                                        total orders were down from a year earlier because a recession from the second half
                   350                                                                of the year reduced capital investment demand in the private sector.
                                          303.5                                           Our ENGINEERING-SOLUTIONS business encompasses NTT Group engineering,
                   300           278.9             287.7    288.0     284.0
                                                                                      Non-NTT Telecom engineering, and Environmental and Social Infrastructure
                   250                                                                engineering. In NTT Group engineering, we received more electrical work to
                   200                                                                support the deployment of next-generation networks, or NGNs. We attained our
                                                                                      targets in mobile engineering by undertaking projects for equipment upgrades and
                   150                                                                new frequency bands. But engineering work was down overall, as growth in access
                      0                                                               engineering projects was less than we envisaged.
                                 FY05     FY06     FY07     FY08     FY09                 On the other hand, Non-NTT Telecom engineering covers such customers as
                                                                      (plan)
                                                                                      new common carriers, railway companies, cable television companies, and national
                   Operating Income and                                               and local government agencies. Network integration orders declined, as private
                   Operating Income Margin                                            companies reduced their information technology spending. Still, overall orders
                   (¥ Billion)                                                  (%)
                                                                                      increased because we boosted our share of work for KDDI’s au mobile carrier by
                   25                                                           12    setting up a nationwide construction structure for that customer. We additionally
                   20
                                          20.5
                                                            18.9                10
                                                                                      did well in info-communications projects for railway companies and municipalities.
                                                   16.4              16.4                 We responded to intense competition in the Environmental and Social
                   15            14.5                                           8     Infrastructure engineering business by focusing on sales activities that prioritized
                                             6.7               6.6
                   10                                                           6
                                                                                      order profitability. We performed well in fields where the Group’s technological
                                                                          5.8
                                    5.2
                                                      5.7                             prowess shines. Achievements included constructing, operating, and maintaining
                     5                                                          4     waste-disposal plants for local governments, building photovoltaic generating
                     0                                                          0
                                                                                      facilities and electrical facilities for data centers, and laying electrical and
                                 FY05     FY06     FY07     FY08     FY09
                                                                     (plan)
                                                                                      telecommunications cable in underground conduits. Orders declined, however,




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                          05


                                                         with slowdowns in private-sector projects.
                                                             In the SYSTEM-SOLUTIONS business, which includes commissioned software
                                                         development and billing solutions, we concentrated resources on areas in which
                                                         we can add value and have a competitive edge. We thereby expanded our business
                                                         and cultivated new customers. Commissioned software development orders from
                                                         carriers and other customers were strong. Overall orders declined, however, as
                                                         corporate information technology spending stagnated amid the recession.

                                                            Question 3

                                                            The business environment has changed dramat-
                                                            ically since you formulated your medium-term
                                                            management plan, which covers fiscal 2007
                                                            through 2009. How do you assess the current
                                                            situation?
                                                         Most people consider telecommunications a defensive sector, yet the global
                                                         recession affected it. Consider the NTT Group’s medium-term management
                                                         strategy, which in fiscal 2004 targeted 30 million optical fiber access subscribers by
                                                         2010. The objective dropped in fiscal 2007 to 20 million subscribers. The NTT Group
                                                         no longer discloses a target. So, one assumption we made when formulating our
                                                         current plan in 2006 no longer holds true. At the same time, we have exceeded our
                                                         profitability improvement goals.
                                                             Precisely because the outlook for the operating environment is so unclear, now
                                                         is an excellent opportunity for us to build a management structure in which we
                                                         can steadily generate profits in any business environment and respond flexibly to
                                                         changes in our circumstances. Fools say they learn from experience; I prefer to learn
                                                         from the experience of others. Consequently, we will be closely monitoring changes
                                                         in the business environment to identify new opportunities.

                                                         Market Conditions
                                                            Question 4

                                                            What’s your outlook given the paradigm shift in
                                                            info-communications networks?
Paradigm Shift
                                                         As ubiquitous networks become mainstream in society, the government is
                                                         pushing ahead with strategic initiatives to strengthen the global competitiveness
  Telecoms      Liberalization           New market      of the nation’s information, technology, and communications industries while
   Market                                entrants
                                                         deregulating telecommunications and broadcasting. As progress in broadband
    Access      Copper cable             Optical fiber   ubiquitous technologies keeps driving info-communications services, convergence
                                                         between fixed, mobile communications, and broadcasting is accelerating. Municipal
   Network      Legacy              IP          NGNs     governments are increasingly building info-communications infrastructures to
                networks
                                                         revitalize local economies. In fixed-line communications, Optical fiber access is
   Mobile       3G               3.5G             LTE
                                                         growing, while the NTT Group is constructing fast, high-security NGNs.
                                                             Video services would be one promising fruit of NGNs. As they take hold,
                                                         these services are moving from fixed to mobile communications platforms,
 Broadcasting   Analog                         Digital
                                                         and should soon become available on digital broadcasting networks. In mobile




                                                                                                                         KYOWA EXEO CORPORATION Annual Report 2009
     06


                                                                                              communications, construction is proceeding for high-speed packet access, WiMAX,
                                                                                              and other fast wireless networks that will lead to more diverse and sophisticated
                                                                                              services. The spread of such technologies and the new services they enable should
                                                                                              enable us to broaden our business scope.

                  Three Major Japanese Carriers’
                                                                                                 Question 5
                  Equipment and Facilities Investment
                  NTT East and West (Fixed)
                  (¥ Billion)
                                                                                                 The capital investment plans of carriers are
                  1,000
                                  885.1       848.3       823.5       847.2       865.0          quite stable, so what are you doing to achieve
                    800
                                                                                                 further growth?
                    600
                                                                                              First, we are boosting our upstream and downstream business reach. Our core
                    400                                                                       competence is construction, and we are expanding upstream in planning and
                    200                                                                       development while doing more downstream in maintenance and operations. Full
                                      349.0       356.0       328.0       316.0       300.0
                                                                                              coverage at both ends of the business spectrum will empower us to offer more
                       0                                                                      high-value-added services. Such businesses are impervious to capital investment
                                  FY05        FY06        FY07        FY08        FY09
                                                                              (forecast)
                                                                                              swings, so they offer stability. Upstream and downstream operations account for
                                Fixed communications (total)
                                Optical fiber upgrades                                        about 3% of net sales, and we aim to double that revenue contribution within
                                                                                              two years.
                                                                                                  Our second priority is to increase our share of construction for the KDDI Group’
                  NTT DoCoMo (Mobile)
                  (¥ Billion)                                                                 s au mobile carrier. We started serving au about five years ago, so we were a
                  1,000                       934.4
                                  887.1                                                       latecomer among the several dozen companies doing business with that carrier.
                    800                                   758.7       737.6                   But in fiscal 2008 we won accolades in the KDDI Group’s satisfaction survey of key
                                                                                  690.0
                                                                                              vendors. The solid trust we have built with au and elsewhere within the KDDI Group
                    600
                                                                                              make us confident of further construction share growth.
                    400                                                                           Third, we are equipping ourselves for the construction of new base stations
                                                                                              employing Long-Term Evolution, or LTE technology. The Ministry of Internal Affairs
                    200
                                                                                              and Communications has announced that four mobile carriers likely to receive LTE
                       0                                                                      bandwidth are planning total capital investments exceeding ¥1 trillion. One of these
                                  FY05        FY06        FY07        FY08        FY09
                                                                              (forecast)      four companies, NTT DoCoMo, has earmarked ¥343 billion for its commercial LTE
                                                                                              services, which it intends to launch in December 2010. We are training and securing
                  KDDI (Fixed and Mobile)                                                     engineers to serve new demand for base station construction and thereby broaden
                    (¥ Billion)                                                               our operations.
                    600                                               572.7
                                                                                  537.0
                    500
                                              416.9
                                                          501.3
                                                                                              Major Initiatives for Fiscal 2009
                                  409.8
                    400
                                                                          432.1
                                                                                                 Question 6
                                                                                      397.0
                    300                                       391.7
                                      275.1
                    200
                                                  328.9
                                                                                                 What specific plans do you have for fiscal 2009
                    100
                                      134.7                   109.6       140.6       140.0
                                                                                                 regarding improving operational efficiency and
                                                  88.0
                       0
                                  FY05        FY06        FY07        FY08        FY09           other issues?
                                                                              (forecast)
                                Mobile communications
                                Fixed communications
                                                                                              In fiscal 2009, we will work to improve safety, quality, costs, and delivery while
                                                                                              building a more collaborative corporate culture congruent with our commitment
                                                                                              to creating growth foundations by strengthening the management of the entire
                                                                                              Group. We are also endeavoring to implement our initiatives more swiftly to
                                                                                              produce results more quickly. For example, we have strengthened ties between our
                                                                                              sales and construction units early in the process of filling orders, optimally deploying
                                                                                              our people to departments and Group companies as needed to streamline project
                                                                                              processes. For all this to work, it is essential to reinforce monthly administration




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                                      07


                                                                    and clarify what is happening at sites. We are accordingly taking full advantage of
                                                                    internal business systems that we revamped in fiscal 2007.
                                                                        We acquired a building for the Tokyo Integrated Engineering Center in April
                                                                    2009. The goals were to strengthen Group management, share the premises with
                                                                    other Group businesses, and employ our human resources more efficiently. This
                                                                    move has cut our annual rental costs by ¥500 million, and should boost efficiency
                                                                    by housing both parent and subsidiary engineering operations. In September 2009,
                                                                    we plan to make KANAC Corp. a wholly owned subsidiary through an exchange
                                                                    of shares. This change should bolster our nationwide construction structure
Tokyo Integrated Engineering Center                                 and enhance our construction capabilities in Shikoku, thereby improving Group
                                                                    synergies.

                                                                    Aiming to Achieve Highly Transparent Operations
                                                                    with Integrity
                                                                       Question 7

                                                                       Tell us about your corporate governance im-
                                                                       provements.
                                                                    We have deployed an operating officer system so we can better meet the chal-
                                                                    lenges of swift changes in the business environment. We thereby shifted roles
                                                                    operating from the Board of Directors to such officers. The Board of Directors can
                                                                    thus focus on monitoring implementation.
                                                                        As the Company is a going concern, it is our duty to keep producing results. But
                                                                    how we reach our goals is also important, and that is where our true capabilities
                                                                    and value lie. So, while the Companies Act mandates three statutory auditors,
                                                                    we have five statutory auditors, two internal and three external. Down the track,
                                                                    management will have to make decisions more transparently. We accordingly
                                                                    maintain Nomination, Internal Control, and Compensation committees that deepen
                                                                    deliberations on issues and report their findings to the Board of Directors.

Cash Dividends per Share and                                           Question 8
Dividend Payout Ratio
(¥)                                                           (%)      What is your stance on shareholder returns?
25                                                            50
                            20.0        20.0      20.0              Earnings per share is a priority management benchmark, and we are one of the best
20                18.0                                        40
                                                                    performers in our industry in that regard. We will continue to focus on earnings in
        15.0
15                                                            30    the medium and long terms to enhance shareholder value. We held cash dividends
                                                       21.9         at ¥20 per share in fiscal 2008. We will draw on our stable free cash flow to set up
10                               20.3      22.6               20
           18.3      17.9                                           engineering centers and other facilities and drive efficiency and profitability. At the
 5                                                            10    same time, we will maintain sufficient retained earnings to expand operations and
                                                                    keep paying dividends stably.
 0                                                            0
       FY05       FY06      FY07        FY08      FY09
                                                  (plan)
                                                                        In July 2009, we reduced our minimum stock trading unit from 1,000 shares,
      Cash Dividends per Share                                      to 100. I think that this change should broaden our individual investor base and
      Dividend Payout Ratio                                         increase the overall number of shareholders while boosting the liquidity of our
                                                                    stock.
                                                                        As a leader in info-communications network engineering, the KYOWA EXEO
                                                                    Group will endeavor to become a highly trusted and transparent operation for its
                                                                    shareholders and other stakeholders. We look forward to their ongoing support and
                                                                    encouragement as we aim higher in pursuit of the EXEO Way.



                                                                                                                                     KYOWA EXEO CORPORATION Annual Report 2009
                  Our Strengths and Emerging Opportunities

                     Poised to Seize Excellent Business Opportunities from a
     08
                     Paradigm Shift in Info-Communications Networks

                     Paradigm Shift in Info-Communications Networks
                                                         Migration Capabilities



                            Access       Copper Cable                                     Optical Fiber

                                                                                                                       Total Engineering
                                     Network      Legacy Networks                    IP                   NGNs              Services



                                               Mobile    3G                           3.5G                       LTE
                                                                                  Design, testing
                                        Total Process
                                        Management                                 Construction
                                                                              Operation, maintenance



                  Japan’s info-communications field is experiencing a revolution, with entire replacement of network components. Wired
                  access is migrating from copper cable to optical fiber and from digital exchange networks to IP and next-generation
                  networks, or NGNs. We are also seeing mobile communications move from second- to third-generation technology, while
                  3.5-generation upgrades are starting to emerge. We look for commercial Long-Term Evolution, or LTE services, to appear
                  in fiscal 2010. These advances should accelerate the deployment of fixed, mobile, and broadcast convergence services,
                  with the construction and expansion of info-communications networks continuing.
                       We view this business environment as an excellent chance to harness our strengths and seize excellent business
                  opportunities. We will draw on myriad advanced technologies and skilled personnel as a leading constructor of info-
                  communications networks to increase customer satisfaction and competitively differentiate ourselves, broadening our
                  operations and generating new value.

                    Point

                     1            Total Engineering Services
                    Point

                     2            Total Process Management
                    Point

                     3            Migration Capabilities
                    Point

                     4            Nationwide Coverage
                    Point

                     5            Multi-Carrier Compatibility

KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                          09


 Point                                                            Point


  1       Total Engineering Services                               3       Migration Capabilities

We maintain a comprehensive, advanced technological in-          The migration process for info-communications networks
frastructure to cover all aspects of info-communications, from   entails dealing with new and old facilities and software. We
constructing fixed and mobile telecommunications facilities      systematically prioritize ongoing training so our engineers
to providing information systems and software and building       can handle everything from legacy to new technologies.
home networks. We are employing our info-communications          We are cultivating multi-skilled, multi-tasking engineers to
technologies and expertise to expand into electrical and         ensure construction efficiency at sites in which new and
civil engineering and environmental infrastructure. Our          legacy technologies coexist. A good example is our training
technological clout enables the delivery of high-value-added     in construction with both copper cable and optical fiber. We
services.                                                        are stepping up training of advanced IP engineers to handle
                                                                 NGNs while securing people with expertise in conventional
 Point                                                           digital exchange networks.


  2       Total Process Management                                Point

Our service management capabilities extend from con-
struction and such upstream areas as consulting and design
                                                                   4       Nationwide Coverage

to maintenance, operations, and other downstream fields. In      We maintain world-class sales and construction bases around
maintenance for carriers, for example, we have close business    Japan, enabling us to serve customers locally and nationwide.
ties with construction teams and can thereby demonstrate         We prevent construction downtimes and enhance efficiency
our technological prowess. We will continue to expand into       by deploying our people where needed nationwide.
value-added areas that do not rely on carriers' equipment and
facilities investment plans, thus stabilizing our performance.    Point

Key examples
Upstream:    • NGNs development, inspection operations
                                                                   5       Multi-Carrier Compatibility

             • Consulting on enterprise application              Our technological structure enables us to construct tele-
               integration, business process management          communications facilities for the NT T Group and other
               solutions                                         carriers. We are broadening our business and customer
             • Defining key customer needs and carrying          base so we can also cater for cable television companies,
               out basic design of private networks              railroads, national and local government agencies, and
                                                                 other companies in the private sector. For example, we have
Downstream: • Inspection and repair of fixed-line                constructed base stations for the au mobile service of KDDI
              communication networks                             Corporation and regional intranets for municipalities, winning
            • Inspection and repair of mobile network base       a solid reputation for the reliability of our recommendations
              stations                                           and the construction technologies.
            • Supervision of communications networks
            • Customer support services
            • Operation and maintenance of waste
              treatment plants




                                                                                                         KYOWA EXEO CORPORATION Annual Report 2009
                    Segment Overviews



     10




            ENGINEERING-SOLUTIONS
            (Telecommunications Infrastructure)                                                                                          Internet
            ENGINEERING-SOLUTIONS
            (Environmental and Social Infrastructure)                                                           Software development                Electrical,
            SYSTEM-SOLUTIONS                                                                                              implementation,
                                                                                                                LAN/WAN implementation              climate-control
                                                         Mobile phone         Microwave                                                             systems             Environmental
                                                         antennas,            transmissions                     IP network design
                                                                                                                                                                        facilities (water,
                                                         base stations                                                                                                  waste treatment,
          Home networks                                                                                                                                                 ecologically sound
                                        Mobile
                                        communications                                                                                                                  equipment)
                                                                                                Switching,
                                                                                                transmission,
                                                                                                power
                                                                                                facilities


            Homes                           Communications               Communications tunnels                                  Office buildings                       Manufacturing,
                                            cabling                      (underground conduits, service tunnels)                                                        other facilities




                     Composition of Net Sales
                          Environmental and             SYSTEM-SOLUTIONS
                                                                                                                                                                                (¥ Billion)
                          Social Infrastructure         4.5%
                                                                                                                         Segment                                              FY 2009
                                         9.9%                                                                                                                   FY 2008
                                                                                                                                                                               (plan)

                                                                                                                    Telecommunications        NTT Group           187.6         177.5
                                                                                                   ENGINEERING-         Infrastructure     Non-NTT Telecom            58.9      63.5
                    Non-NTT Telecom                                        NTT Group                 SOLUTONS
                               20.5%                                       65.1%                                     Environmental and Social Infrastructure          28.4      30.5
                                                                                                  SYSTEM-SOLUTONS                                                     13.1       12.5
                                                                                                  Total                                                           288.0        284.0


                    ENGINEERING-SOLUTIONS
                    Telecommunications Infrastructure
                    We draw on our technical capabilities in broadband access, civil engineering, networks, and mobile telecommunications to
                    construct everything from carrier exchanges and mobile phone base stations, communications facilities for carriers, homes, and
                    offices, and LANs, WANs, and IP networks for residential and business buildings.


                    Environmental and Social Infrastructure
                    We integrate our capabilities in environmental and electrical facilities engineering with our information and networking
                    technologies to construct, operate, and maintain environmental plants. We also build electrical and air-conditioning facilities,
                    lay electrical and telecommunications cable in underground conduits, and otherwise provide essential support for social
                    infrastructure.


                    SYSTEM-SOLUTIONS
                    We combine technologies amassed in creating information technology infrastructure with technologies from security, Internet,
                    and business applications construction to deliver solutions that encompass everything from consulting to proposals, design,
                    construction, maintenance, and operations.

KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                                             11




                                                                               ENGINEERING-SOLUTIONS
                                                                               (Telecommunications Infrastructure)


                                  85.6%                                    As broadband services drive us toward ubiquitous connectivity, we are seeing
                                                                           telecommunications technologies diversify and advance, with the integration of
Net Sales
(¥ Billion)                                                                fixed and mobile infrastructure and telecommunications and broadcasting and
300
                          253.7
                                      240.0       246.5       241.0        growth in new Internet-based communications services. We are drawing on years of
240           227.4
                              55.7
                  51.2                    56.4        58.9         63.5    accumulating info-communications network construction technologies to provide
180
                                                                           all carriers with comprehensive facilities construction services, from planning and
120
                  176.3       198.0       183.6       187.6        177.5   design to operations and maintenance.
 60

   0                                                                       NTT Group Engineering
              FY05        FY06        FY07        FY08        FY09
                                                              (plan)
          Non-NTT Telecom engineering                                      We build and maintain telecommunications facilities for NTT Group companies.
          NTT Group engineering                                            • Access engineering: We lay optical fiber and copper cable between phone ex-
                                                                            changes and homes and offices and provide construction and maintenance
                                                                            services.
                                                                           • Network engineering: We install switchers and routers/servers at exchanges and
                                                                            construct and maintain related electrical facilities.
                                                                           • Mobile engineering: We design, construct, test frequencies, and maintain mobile
                                                                            base stations and in-building mobile communication systems.


Utility pole work                                                          In fiscal 2008, the number of access engineering projects decreased as growth in
                                                                           optical fiber service users slowed. Network engineering work rose, however, on
                                                                           the strength of next-generation networks, or NGNs and facilities upgrade projects.
                                                                           Mobile engineering work was solid, reflecting upgrade assignments and projects
                                                                           for changing frequency bands. The year saw steady completions of projects carried
                                                                           over from fiscal 2007. Category sales thus climbed 2.0%, to ¥187.6 billion.
                                                                               In fiscal 2009, we look for network engineering operations to benefit from
                                                                           ongoing investments in NGNs. At the same time, we expect access engineering
                                                                           infrastructure projects to decline, with mobile engineering work dropping because
                                                                           projects to alter frequency bands have run their course. Category sales should
                                                                           therefore decrease 5.0%, to ¥177.5 billion.
Mobile base station construction




                                                                                                                                            KYOWA EXEO CORPORATION Annual Report 2009
     12


                                                                            Non-NTT Telecom Engineering
                                                                            • Designing, constructing, and maintaining telecommunications facilities for new
                                                                             common carriers, government agencies, cable television companies, railway
                                                                             companies, and other customers
                                                                            • Network integration services for constructing Internet environments, LANs, and
                                                                             WANs


                                                                            In fiscal 2008, our network integration services suffered from lower corporate
                                                                            investment in information technology in reaction to the recession. Work for new
                                                                            common carriers expanded steadily, however, and non-NTT engineering projects
                                                                            went well. Category sales therefore rose 5.0%, to ¥58.9 billion.
                                                                                In fiscal 2009, we aim to expand work for new common carriers, cultivating
                                                                            infrastructural projects for local government bodies and securing work for digital
                                                                            terrestrial broadcasting. Category sales should thus jump 8.0%, to ¥63.5 billion.




                                                                                ENGINEERING-SOLUTIONS
                                                                                (Environmental and Social Infrastructure)


                                              9.9%                          We were swift to use limited natural resources efficiently and contribute to
                                                                            recycling. These efforts enabled us to build an environmental services business that
                  Net Sales                                                 covers everything from plant construction to facilities operations and management.
                  (¥ Billion)
                   45                                                       The electrical and civil engineering technologies that we have gathered over the
                   40           38.8                                        years have empowered us to play a major role in creating social infrastructure and
                   35                  34.8                                 helping enhance lifestyles.
                                               32.2
                                                                   30.5     • Designing, constructing, operating, and maintaining water and waste treatment
                   30                                    28.4
                                                                             plants.
                   25
                                                                            • Constructing electrical and air-conditioning facilities for office buildings and
                     0
                                FY05   FY06   FY07      FY08      FY09       plants.
                                                                   (plan)

                                                                            • Eliminating utility poles by laying electrical and telecommunications cable in
                                                                             underground conduits.


                                                                            In fiscal 2008, category sales fell 12.0%, to ¥28.4 billion, as we concentrated on
                                                                            profitable projects and experienced a downturn in private-sector work in light of
                                                                            the recession.
                                                                                For fiscal 2009, we aim to boost sales 7.0%, to ¥30.5 billion, on the strength of
                  Hachimantai                                               work to stimulate the economy and our focus on profitable projects, particularly for
                  Municipal Sanitation Center's waste-disposal plant
                                                                            urban infrastructure.



KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                                        13




                                                                              SYSTEM-SOLUTIONS

                                 4.5%


Net Sales                                                                 Our comprehensive solutions cover commissioned software development
(¥ Billion)
 20                                                                       for telecommunications and major systems, billing systems, and applications
 16                       15.0     15.6                                   integration. These services encompass everything from proposals, design, and
              12.7                                13.1     12.5
 12
                                                                          construction to operations and maintenance.
                                                                          • Commissioned software development: We handle orders from large system
   8
                                                                           integrators through government agencies for financial systems, and for the
   4
                                                                           telecommunications node software of mobile carriers.
   0
              FY05       FY06     FY07          FY08       FY09           • Billing systems: We offer proprietary packages for customer management, billing,
                                                           (plan)
                                                                           and collections.
                                                                          • Enterprise application integration, or EAI and business process management:
                                                                           We integrate data and processes by linking disparate systems within and among
                                                                           companies.

                                 Mainframe computer
                                                                          In fiscal 2008, we performed solidly in commissioned software development
 CRN System                                                               for carriers, but we suffered setbacks in cultivating new customers, as corporate
                                                              Supplier
                           EAI                                            information technology spending declined amid the recession. Category sales
 ERP System
                                                            Distributor   thereby dropped 16.0%, to ¥13.1 billion.
                                                Internet
 SCM System     Data warehouse    B to B                    Marketplace      The operating climate will probably remain adverse in fiscal 2009, and we
                                                                          expect sales to decrease 4.0%, to ¥12.5 billion, despite ongoing commissioned
EAI Solution                                                              software development orders.




                                                                                                                                       KYOWA EXEO CORPORATION Annual Report 2009
                  Contributing to Society



     14
                  KYOWA EXEO undertakes diverse initiatives that put its corporate philosophy into practice.



                  EXEO Woods Development

                  We commemorated our 50th anniversary by helping the Japanese
                  Forestry Agency to preserve and enhance woodland resources. As part
                  of this initiative, we established EXEO Woods sites in Hokkaido, Tohoku,
                  Kanto, Kansai Chugoku, and Kyushu, and we continue to promote forest
                  conservation.
                       These reserves aid environmental protection and restoration
                  and enable employees to contribute to local communities and raise
                  awareness of forest conservation issues. We hope that this interaction       EXEO Woods

                  with forests will create platforms for communication, provide education on the importance of nature preservation, and promote
                  the need for conservation.



                  Preventing Global Warming                                        Environmental Businesses

                  We introduced an environmental management system                 As well as reducing the ecological impact of our operations,
                  to cut our consumption of electricity, city gas, gasoline,       we supply processes and products that reduce environmental
                  and diesel fuel, and are participating in Team Minus 6%, a       footprints. We provide waste treatment solutions for furnaces
                  national initiative to prevent global warming. In summer,        that melt fly ash and recycling those facilities. We also offer
                  we preset air conditioners at 28º C in the summer and have       new energy technologies, including for wood biomass boilers
                  employees dress casually without ties and jackets so they        and methane fermentation plants, as well as technologies
                  can work comfortably. In winter, we preset heaters at 20 º C     for industrial waste and sewage treatment facilities. Other
                  and encourage employees to dress accordingly. We have also       capabilities that help improve the social and natural
                  introduced power conservation and eco-drive programs.            environments include advising on asbestos management and
                                                                                   installing underground lines to replace utility poles.



                  Aiding Disaster Recovery

                                                                       Info-communications services are central to modern living, so it is
                                                                       critical to quickly restore them after typhoons, earthquakes, or torrential
                                                                       rains cause utility poles to collapse, damage cables, and sever lines. We
                                                                       swiftly deploy area-wide recovery assistance operations in response to
                                                                       requests from the NTT Group and other carriers. We make every effort
                                                                       to ensure communications in affected areas and to quickly restore
                                                                       telecommunications facilities and services while working to prevent
                                                                       secondary disasters.



                  Emergency repair work




KYOWA EXEO CORPORATION Annual Report 2009
Topics


Staff, Our Most Important Resource                                                                                                                                           15




Our employees are a vital resource. We are convinced that our commitment
to personal respect, fair treatment, and professionalism will help us to drive
corporate progress. We have created workplaces in which employees and the
Company can fulfill their roles and in which all our people can realize their
potential, enabling our employees and businesses to grow together.




     Education and Training System                                                     Unwavering Efforts to Maintain and Bolster
                                                                                       Technological Skills
     Because human resources are so vital, we focus heavily on                         Technology is fundamental to the Group. It is essential to
     cultivating the skills of our people. Our training covers new                     maintain and improve our technological capabilities so we
     employees, career advancement, technical and sales training,                      can remain in business and enhance our corporate value. And
     and internships. We also maintain programs that enable                            constant and dramatic advances in info-communications are
     employees to acquire new qualifications, do further tertiary                      producing new technologies, equipment, and materials, and
     study in Japan, or take remote learning courses.                                  facilities. New and old telecommunications facilities exist side
     Technical training includes programs covering core fields for                     by side. So, as a leader in constructing info-communications
     relevant business fields and acquiring new skills, as well as                     networks we have been swif t to engage groupwide in
     programs to foster multi-skilled, multi-tasking engineers. We                     ongoing training programs for outstanding engineers so we
     also accord priority to on-the-job training and securing qual-                    can handle diverse technologies and facilities. We are also
     if ications, as par t of                                                          drawing on the latest construction techniques to improve
     which we maintain a                                                               quality and customer satisfaction while boosting efficiency.
     proprietary personnel
     management system
     that details the progress,
     training records, and
     certifications of each                                                            Demonstrating Our Technological Prowess
     employee and thus
     helps drive ongoing
     personal advancement.                                                             Our high technological standards stem from employees’
                                        Utility pole training                          devotion to improving their capabilities. Our employees
                                                                                       consistently win podium places in the Telecommunication
                                                                                       Distribution Technology category of the Japanese National
         Main Technical Training Facilities
                                                                                       Skills Olympics, and have represented the nation twice at the
         Central Technology Training Center (in Wako, Saitama Prefecture)              Worldskills Competition. They seek to compete internationally
         This facility’s programs cover everything from the technical basics for       a third straight time at the 40th Worldskills Competition, held
         laying and connecting optical fibers to applied training.                     in Calgary, in September 2009.

         Western Japan Technology Training Center (in Amagasaki, Hyogo
         Prefecture)
         Comprehensive programs range from laying optical fiber to IP
         technologies for personal computers and servers.

         Shinagawa Training Center (in Minato Ward, Tokyo)
         This facility employs routers, servers, and other leading-edge for training
         in advanced IP technologies. It also offers career advancement, project
         head, and sales courses conducted either in large numbers in a school-
         type format or in a group study format.                                       Yuki Yamaguchi won a gold medal       Shigehiro Nose will represent Japan
                                                                                       at the 39th Worldskills Competition   at the 40th Worldskills Competition
                                                                                       in Shizuoka 2007                      in Calgary 2009




                                                                                                                                            KYOWA EXEO CORPORATION Annual Report 2009
                  Coporate Governance / Basic Stance on Compliance



     16




                   Corporate Governance

                  The KYOWA EXEO Group aims to maintain the full trust of                     important issues and oversees their implementation by
                  shareholders and all other stakeholders by operating with                   operating officers.
                  integrity and a high standard of transparency. Because of the                    In principle, the Board of Directors and Company De-
                  importance of corporate governance, we regularly assess                     partments Committee meet monthly, while the Management
                  structures for monitoring management in light of changes                    Council meets weekly to assist the Board of Directors with
                  in social conditions, laws, and other developments. We                      deliberative and business implementation matters and to
                  strengthen corporate governance mechanisms and tailor                       confirm operational progress.
                  them to our circumstances.                                                       Within the Board of Directors are Nomination, Internal
                      In June 2009, we reinforced governance by separating man-               Control, and Compensation committees. The Nomination
                  agement decision-making, and monitoring from executive                      Committee’s tasks include discussing the selection of director
                  roles, deploying an operating officer system that aims to                   candidates. The Internal Control Committee monitors
                  accelerate decision-making and implementation. The Board                    the operational progress of directors. The Compensation
                  of Directors now comprises eight members. It resolves on                    Committee assesses remuneration and bonuses for Group




                  KYOWA EXEO’s Corporate Governance System


                                                                           General meeting of shareholders



                                                                                                                                               Nomination Committee
                              Independent auditor       Board of Corporate Auditors                    Board of Directors                    Internal Control Committee
                                                                                                                                              Compensation Committee



                                                                                                         President
                                                                                                     Management Council


                                                                                                                             Committees


                                                                                           Operating officers and organizational heads
                                                                                      Business and administrative departments and branches



                                                                                                       Group companies




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                                   17


directors. These committees report to the Board of Directors.      Directors meetings, gather information from directors and
    Chief executives of Group companies meet to discuss            other executives on the execution of their duties, examine
important Group matters and ensure that decision-making            impor tant account-settlement and other documents,
streamlines operations.                                            and audit the operations and assets of major offices and
    The Audit Division focuses on operations and risk man-         subsidiaries.
agement for all parent departments and consolidated                    Standing statutory auditors hold groupwide liaison meet-
subsidiaries.                                                      ings with auditors from each subsidiary to coordinate, share
    The Board of Corporate Auditors has five members, in-          information, and enhance auditing, thereby ensuring the
cluding three external auditors. Its goals are to ensure that      effectiveness corporate auditor work. Independent auditor
the Group develops soundly and sustainably and to create a         KPMG AZSA & Co. separately audits accounts to confirm
corporate governance system that merits public trust. Based        accuracy.
on annual auditing plans, these auditors attend Board of




Basic Stance on Compliance

The KYOWA EXEO Group believes that it must not only abide                                                Fulfillment of
                                                                                                    economic responsibilities
by the law but also maintain a high standard of ethics—
integrity—when conducting business. We regard compliance
as the conscientious acts of individual employees to meet the
economic, social, legal, and other expectations of the Group.                                           Achievement of
                                                                                                        business plans
    Individual directors and employees in the Group make
principled actions grounded in compliance, the guiding force
of our business activities, and seek to boost profitability as a                                     Day-to-day operations

means of fulfilling our economic obligations.
    Conscientious compliance-based actions are a key to
                                                                                            Compliance (actions with integrity)
avoiding various risks, earning the trust of society, and
discharging our social and legal obligations. We promote
                                                                                                         Risk avoidance
compliance by positioning the execution of these duties as
part of our corporate ethic of contributing to society.
                                                                              Fulfillment of                                        Fulfillment of
                                                                           legal responsibilities                               social responsibilities




                                                                                                                                  KYOWA EXEO CORPORATION Annual Report 2009
                  Board of Directors
                  (As of June 23, 2009)




     18




                                             Chairman                                                       President
                                             Seiji Takashima, Ph.D.                                         Kunio Ishikawa




                                          Director and                                 Director and                               Director and
                                          Executive Operating                          Managing Operating                         Managing Operating
                                          Officer                                      Officer                                    Officer
                                          Terutaka Sakai                               Yoshiaki Suzuki                            Yuji Sugita




                                          Director and                                 Director and                               Director and
                                          Managing Operating                           Managing Operating                         Managing Operating
                                          Officer                                      Officer                                    Officer
                                          Katsumi Takahashi                            Takayuki Watanabe                          Akira Yabiki




                  Standing Statutory Auditors                    Senior Operating Officers                  Operating Officers
                  Sadao Ikeda                                    Yutaka Horibe                              Yutaka Mugitani
                  Mitsuaki Iwata                                 Tsuyoshi Yagi                              Junzo Fukuno
                                                                 Osamu Shoji                                Yoshimichi Takayabu
                  Statutory Auditors                             Teruyuki Takahashi                         Akira Gohara
                  Toyohiko Yamashita                             Tatsunori Nagao                            Hiroshi Fukunaga
                  Toshihisa Ono                                  Kuniaki Shinya                             Shigeru Tanaka
                  Hideo Oshima                                   Takashi Sakai                              Tsuneto Hinohara
                                                                 Yoshiharu Yamazaki                         Naoe Takeda
                                                                                                            Yukio Sano
                                                                                                            Takashi Shikano




KYOWA EXEO CORPORATION Annual Report 2009
Consolidated Six-Year Financial Highlights
KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries




                                                                                                                                                                   Thousands of
                                                                                                                                                                    U.S. dollars
                                                                                                               Millions of yen                                       (Note 1)         19
                                                            FY2003           FY2004           FY2005             FY2006           FY2007         FY2008               FY2008

 Results of operations (for the year):
 Orders received                                             ¥199,767)       ¥255,954)         ¥281,231)          ¥305,624)       ¥297,899)      ¥286,234)        $2,920,755)
 Net sales                                                    203,931)            247,687)      278,869)           303,538)        287,745)        288,017)         2,938,949)
 Selling, general, and administrative
                                                                 15,185)           18,975)         19,846)           19,798)          19,898)        18,089)           184,582)
 expenses (SG&A)
 Operating income                                                 9,109)           11,989)         14,537)           20,454)          16,401)        18,872)           192,571)
 Income before income taxes and
                                                                  6,809)           12,052)         14,180)           20,736)          17,374)         16,760)          171,020)
  minority interests
 Net income                                                       3,407)            6,424)          9,175)            11,024)         10,686)          9,389)           95,806)


 Financial position (at year-end):
 Total assets                                                ¥131,791)        ¥154,281)       ¥162,640)          ¥186,486)        ¥176,955)       ¥179,555)       $1,832,194)
 Total property and equipment                                    25,697)          35,450)          36,786)           36,728)          37,310)         38,138)          389,163)
 Total noncurrent liabilities                                    22,821)           21,162)         15,603)           27,577)          24,792)         23,413)          238,909)
 Total net assets                                                63,919)          70,760)          81,767)            91,137)         95,573)        101,878)         1,039,571)


 Cash flows (for the year):
 Net cash provided by (used in) operating
                                                             ¥ 16,452)        ¥     4,112)    ¥     7,529)        ¥ 14,660)        ¥ (1,584)      ¥ 17,434)       $ 177,898)
 activities
 Net cash provided by (used in) investing
                                                                   (257)           (2,419)         (2,859)            (4,360)         (5,691)         (4,057)           (41,398)
 activities
 Net cash provided by (used in) financing
                                                                 (15,919)          (7,617)         (12,126)            8,923)         (5,052)         (2,532)          (25,837)
 activities


 Per share of common stock
  (in yen and U.S. dollars):
 Net income                                                  ¥     29.5)      ¥      56.6)     ¥      81.9)       ¥ 100.3)        ¥     98.4)    ¥      88.5)     $        0.90)
 Diluted net income                                                 27.5)            56.6)           81.8)              95.3)           91.3)           82.0)              0.84)
 Cash dividends                                                    12.0)             11.0)           15.0)              18.0)           20.0)           20.0)              0.20)


 Ratios:
 Operating income margin                                             4.4)%            4.8)%            5.2)%              6.7)%          5.7)%           6.6)%
 SG&A ratio                                                          7.5)             7.7)             7.1)               6.5)           6.9)            6.2)
 ROE (Note 2)                                                        5.5)             9.8)           12.9)              13.8)           12.3)           10.2)
 ROA (Note 3)                                                        2.6)             4.5)             5.8)               6.3)           5.9)            5.3)
 Equity ratio                                                      48.3)             43.5)           46.5)              45.3)           50.1)           53.3)


Notes: 1. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers, using the prevailing exchange rate at March 31, 2009,
          which was ¥98 to U.S. $1.
       2. ROE = Net income ÷ Net assets (yearly average)
       3. ROA = Net income ÷ Total assets (yearly average)




                                                                                                                                                     KYOWA EXEO CORPORATION Annual Report 2009
                  Consolidated Financial Review



     20
                  Operating Results                                                                                Financial Position
                  In fiscal 2008, ended March 31, 2009, management drew                                            At the close of the term, total assets were ¥179,555 million, up
                  on the corporate slogan of "Aiming Higher: In Pursuit of the                                     ¥2,600 million, or 1.5%, from a year earlier. The main changes
                  EXEO Way" to solidify KYOWA EXEO’s operating foundations                                         were a ¥11,099 million increase in marketable securities
                  and boost corporate value. In the ENGINEERING-SOLUTIONS                                          included in cash and cash equivalents and a combined ¥8,804
                  segment, we marketed aggressively and beefed up our sales                                        million decline in notes receivable and accounts receivable
                  and engineering centers nationwide. We broadened our                                             from completed construction contracts.
                  capabilities in upstream areas like planning and development                                           Total liabilities dropped ¥3,705 million, or 4.6%, to ¥77,677
                  and downstream in operations and maintenance while                                               million. This reflected an aggregate ¥4,725 million decrease
                  streamlining real-time on-site management.                                                       in notes payable and accounts payable for construction
                         SYSTEM-SOLUTIONS segment initiatives included adding                                      contracts, against which income taxes payable were up
                  value, focusing resources in particularly competitive fields,                                    ¥2,105 million.
                  expanding our business, and cultivating new customers. We                                              Total net assets climbed ¥6,305 million, or 6.6%, to
                  took advantage of internal systems improvements that we                                          ¥101,878 million, the principal factor being a ¥7,161 million
                  made in the previous term to enhance operational efficiency                                      increase in retained earnings.
                  while generating synergies by sharing real estate and people
                  and supporting training. We harnessed our monitoring                                             Cash Flows
                  systems to boost earnings management.                                                            Cash and cash equivalents at the end of fiscal 2008 were
                         While orders received during the term were down 3.9%,                                     ¥26,261 million, up ¥10,830 million from a year earlier.
                  to ¥286,234 million, net sales increased 0.1%, to ¥288,017                                             Net cash used in operating activities was ¥17,434 million.
                  million. Operating income advanced 15.1%, to ¥18,872 million.                                    Key factors were ¥16,760 million in income before income
                  Ordinary income rose 13.3%, to ¥19,489 million. Net income                                       taxes and minority interests and an ¥8,804 million drop in
                  fell 12.1%, to ¥9,389 million, however, largely because we                                       trade notes and accounts receivable, which offset a ¥4,725
                  posted a loss on valuation of investment securities.                                             million decrease in trade notes and accounts payable and the
                                                                                                                   impact of ¥4,506 million in income taxes paid.
                                                                                                                         Net cash used in investing activities was ¥4,057 million.




                                                                    SG&A                                               Operating Income
                  Net Sales                                         SG&A Ratio                                         Operating Income Margin                        Net Income per Share

                    (¥ Billion)                                  (¥ Billion)                                 (%)    (¥ Billion)                                 (%)    (¥)
                   350                                           25                                          10     25                                           8     125
                                           303.5
                                   278.9           287.7 288.0                          19.9                                                  20.5                                         100.3 98.4
                   280                                           20      19.0 19.8 19.8                      9      20                                     18.9 7      100
                           247.7                                                                   18.1                                          6.7                                                    88.5
                                                                                                                                                    16.4       6.6                  81.9
                   210                                           15                                          8      15              14.5                         6      75
                                                                               7.7                                          12.0                       5.7
                                                                                                                                                                             56.6
                                                                                     7.1                                                5.2
                   140                                           10                              6.9         7      10                                           5      50
                                                                                                                                  4.8
                                                                                           6.5
                                                                                                       6.2
                    70                                            5                                          6       5                                           4     25

                     0                                            0                                          0       0                                           0      0
                           FY04 FY05 FY06 FY07 FY08                     FY04 FY05 FY06 FY07 FY08                           FY04 FY05 FY06 FY07 FY08                          FY04 FY05 FY06 FY07 FY08




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                                                                                                  21
This reflected ¥3,023 million in purchase of property and                                              Systems certification in January 2006. We gained Privacy
equipment and ¥1,018 million in purchase of intangible                                                 Mark certification in March that year.
assets, offsetting ¥551 million increase in proceeds from sales                                                  Even with such comprehensive measures, leaks of
of investment securities.                                                                              important information could occur because of unforeseen
       Net cash used in financing activities was ¥2,532 million,                                       developments. We could thus lose customer trust or have
mainly because of ¥2,228 million in cash dividends paid.                                               to pay compensation, which could negatively affect Group
                                                                                                       performance.
Business and Other Risks                                                                           3. Major accidents resulting in death, injury, or equipment
KYOWA EXEO categorizes these risks as follows:                                                         damage
1. Overdependence on specific customers                                                                Ensuring safety and quality is critical to preventing such
   The Group’s core business is building and maintaining                                               accidents at construction sites. It is also essential to
   information and communications networks, so many                                                    strengthen administrative policies to make preventing
   transactions are with companies in this sector. This trend is                                       accidents central to the business routine.
   expected to continue.                                                                                         Major accidents could erode customer trust, cause sales
              Info-communications market trends and changes in                                         to decline, and involve compensation payments, which
   capital investment among communications companies in                                                could detract from Group performance.
   response to technological innovations could harm Group                                          4. Uncollectible loans from counterparty bankruptcies
   performance.                                                                                        To minimize the impact of bad loans, we established a
2. Management of important information                                                                 system to manage credit, administer and collect payments
   The Group handles important information for its clients                                             from counterparties, and promptly collect construction
   and other parties, including the technical and personal                                             and other payments. As we expand operations, however,
   data of their customers. We therefore built and deployed                                            unforeseen occurrences could cause counterparties to
   an information management system and took steps                                                     become insolvent and default on loans to the detriment of
   that included appointing a chief security officer and                                               Group performance.
   establishing the Information Security Committee. All
   departments obtained Information Security Management




                                                                                                   Cash Flows
    Total Net Assets                                                                                 Net Cash Provided by Operating Activities                   Cash Dividends per Share
                                                                                                     Net Cash Used in Investing Activities
    Equity Ratio                                       ROE                                           Net Cash Used in Financing Activities
                                                                                                                                                                 Dividend Payout Ratio

(¥ Billion)                                      (%)    (%)                                        (¥ Billion)                                                 (¥)                                          (%)
125                                              100    16                                         30,000                                                      25                                           50
                                                                                                                                    8,923
                                      101.9                                                                                                                                                20.0 20.0
100                            95.6              80     14                    13.8                 20,000                                                      20                                           40
                        91.1                                                                                                                          17,434                        18.0
                 81.8
                                                                       12.9          12.3                                                                                    15.0
 75       70.8                                   60     12                                         10,000                  7,529 14,660                        15                                           30
                                          53.3                                                                    4,112
                     46.5          50.1                                                     10.2                                                                     11.0
                            45.3                                                                                                             -1,584                                                  22.6
 50           43.5                               40     10                                                0 -2,419 -2,859                                      10                                           20
                                                                 9.8                                                                                  -4,057                                  20.3
                                                                                                                                             -5,691                     19.4    18.3   17.9
                                                                                                                                    -4,360
                                                                                                                                                      -2,532
 25                                              20      8                                         -10,000 -7,617                                               5                                           10
                                                                                                                                             -5,052
                                                                                                                          -12,126
   0                                             0       0                                         -20,000                                                      0                                           0
         FY04 FY05 FY06 FY07 FY08                             FY04 FY05 FY06 FY07 FY08                           FY04 FY05 FY06 FY07 FY08                            FY04 FY05 FY06 FY07 FY08




                                                                                                                                                                            KYOWA EXEO CORPORATION Annual Report 2009
                  Consolidated Balance Sheets
                  KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries
                  March 31, 2008 and 2009



                                                                                                                                              Thousands of
                                                                                                                                               U.S. dollars
     22                                                                                                           Millions of yen               (Note 1)

                                                                                                              2008              2009             2009
                  ASSETS

                  Current assets:
                  Cash and cash equivalents (Notes 2 and 11)                                                 ¥ 15,431        ¥ 26,261         $ 267,969

                  Notes receivable and accounts receivable from completed construction contracts (Note 14)     80,931               72,128      736,000
                  Costs on uncompleted construction contracts and other (Note 6)                              18,887                21,097      215,276

                  Deferred tax assets (Note 9)                                                                  4,202               4,227         43,133

                  Other                                                                                         2,551               2,806         28,632
                  Allowance for doubtful accounts                                                               (268)                 (202)        (2,061)

                  Total current assets                                                                        121,734          126,317        1,288,949




                  Property and equipment (Notes 5 and 12):
                  Land                                                                                         23,118           23,333          238,092

                  Buildings and structures, net                                                               12,252            12,240          124,898

                  Machinery, vehicles, tools, furniture and fixtures, net                                       1,904                1,473        15,030
                  Construction in progress                                                                        36                 1,003        10,235

                  Other                                                                                              –                 89             908
                  Total property and equipment                                                                 37,310               38,138      389,163




                  Intangible assets                                                                             3,510               3,245         33,113




                  Investments and other assets:

                  Investment securities (Note 4)                                                                7,107                5,441        55,520
                  Long-term loans receivable                                                                    1,855                1,266        12,919

                  Deferred tax assets (Note 9)                                                                  1,518                 702           7,163

                  Other                                                                                         5,784                7,116        72,612
                  Allowance for doubtful accounts                                                              (1,863)              (2,670)      (27,245)
                  Total investments and other assets                                                           14,401               11,855      120,969




                  Total assets                                                                               ¥176,955        ¥179,555         $1,832,194
                  The accompanying notes are an integral part of these consolidated financial statements.




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                           Thousands of
                                                                                                                            U.S. dollars
                                                                                               Millions of yen               (Note 1)             23
                                                                                           2008              2009              2009
LIABILITIES

Current liabilities:
Short-term loans payable (Note 5)                                                         ¥ 1,410         ¥ 1,251          $    12,765
Notes payable and accounts payable for construction contracts                               33,455           28,730            293,163
Accrued expenses                                                                            8,589                 9,057         92,418
Income taxes payable                                                                         3,016                5,121         52,255
Advances received on uncompleted construction contracts                                      4,392               5,088          51,918
Provision for bonuses                                                                         490                  449           4,582
Provision for directors’ bonuses                                                              180                  193           1,970
Provision for warranties for completed construction                                           277                  369           3,765
Provision for loss on construction contracts                                                  108                  215           2,194
Other                                                                                        4,673                3,791         38,684
Total current liabilities                                                                  56,590            54,264            553,714


Noncurrent liabilities:
Long-term debt (Note 5)                                                                     15,058               15,071        153,786
Provision for retirement benefits (Note 16)                                                  5,821                5,515         56,276
Provision for directors’ retirement benefits                                                  699                  737           7,520
Allowance for investment loss                                                                 350                  283           2,888
Deferred tax liabilities (Note 9)                                                             314                  724           7,388
Negative goodwill                                                                             403                  205           2,092
Other                                                                                        2,147                 878           8,959
Total noncurrent liabilities                                                                24,792               23,413        238,909


Contingent liabilities (Note 14)


Net assets (Note 10):
Shareholders’ equity
Capital stock
  Authorized—300,000,000 shares
  Issued—117,812,419 shares                                                                 6,889                6,889          70,296
Capital surplus                                                                              5,953                5,959         60,806
Retained earnings                                                                          84,024                91,185        930,459
Treasury stock                                                                              (8,439)              (8,495)       (86,684)
Total shareholders’ equity                                                                 88,427            95,538            974,877


Valuation and translation adjustments:
Valuation difference on available-for-sale securities                                         293                  250           2,551
Total valuation and translation adjustments                                                   293                  250           2,551


Subscription rights to shares (Note 17)                                                        78                  182           1,857
Minority interests                                                                           6,775               5,908          60,286
Total net assets                                                                           95,573           101,878         1,039,571
Total liabilities and net assets                                                          ¥176,955        ¥179,555         $1,832,194
The accompanying notes are an integral part of these consolidated financial statements.




                                                                                                                 KYOWA EXEO CORPORATION Annual Report 2009
                  Consolidated Statements of Income
                  KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries
                  Years ended March 31, 2007, 2008 and 2009



                                                                                                                                                      Thousands of
                                                                                                                                                       U.S. dollars
     24                                                                                                                 Millions of yen                 (Note 1)

                                                                                                             2007           2008           2009             2009
                  Net sales of completed construction contracts                                             ¥303,538     ¥287,745         ¥288,017    $2,938,949



                  Cost and expenses:

                  Cost of sales of completed construction contracts                                          263,286      251,446          251,056        2,561,796
                  Selling, general, and administrative expenses (Notes 13 and 16)                             19,798        19,898          18,089         184,582

                  Operating income                                                                            20,454        16,401          18,872         192,571


                  Non-operating income (expenses):
                  Interest income                                                                                65             205           267              2,725
                  Dividends income                                                                              206             123           173              1,765

                  Reversal of allowance for doubtful accounts                                                       –            213              –                  –
                  Amortization of negative goodwill                                                             509             367           266              2,714
                  Interest expenses                                                                              (51)              (20)        (18)              (184)

                  Bad debts expenses                                                                                –              (99)       (103)           (1,051)
                  Foreign exchange losses                                                                       290            (288)          (262)           (2,673)
                  Loss on retirement of noncurrent assets                                                       (111)           (103)         (175)           (1,786)

                  Loss on valuation of investment securities                                                        –              (75)     (1,755)         (17,908)

                  Gain on sales of noncurrent assets                                                                –               –         126              1,286
                  Gain on sales of investment securities                                                         52                 –         151              1,541

                  Provision for doubtful accounts of noncurrent past due accounts receivable                        –            171              –                  –
                  Impairment loss (Note 8)                                                                          –               –         (167)           (1,704)

                  Provision of allowance for doubtful accounts                                                  (305)               –         (910)           (9,286)

                  Other, net                                                                                    (373)           479           295              3,010
                  Income before income taxes and minority interests                                           20,736         17,374         16,760         171,020
                  Income taxes (Note 9)

                    Income taxes—current                                                                       8,597          4,020          6,850           69,898

                    Income taxes—deferred                                                                       418           2,299          1,133           11,561
                  Minority interests in income (loss)                                                           697             369           (612)           (6,245)

                  Net income                                                                                ¥ 11,024      ¥ 10,686        ¥ 9,389     $      95,806


                                                                                                                                                          U.S. dollars
                                                                                                                             Yen                           (Note 1)

                  Per share of capital stock:

                  Net income                                                                                  ¥100.3          ¥98.4          ¥88.5             $0.90

                  Diluted net income                                                                            95.3            91.3          82.0              0.84
                  Cash dividends, applicable to the year                                                        18.0           20.0           20.0               0.20
                  The accompanying notes are an integral part of these consolidated financial statements.




KYOWA EXEO CORPORATION Annual Report 2009
Consolidated Statements of Changes in Net Assets
KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries
Years ended March 31, 2007, 2008 and 2009



                                                                                                                                      Thousands of
                                                                                                                                       U.S. dollars
                                                                                                       Millions of yen                  (Note 1)             25
                                                                                          2007             2008           2009            2009
Shareholders’ equity
 Capital stock
   Balance at the end of previous period                                                  ¥ 6,889        ¥ 6,889         ¥ 6,889      $    70,296
   Changes of items during the period
     Total changes of items during the period                                                   –                –              –               –
   Balance at the end of current period                                                     6,889            6,889          6,889          70,296
 Capital surplus
   Balance at the end of previous period                                                    5,869            5,866          5,953          60,745
   Changes of items during the period
     Disposal of treasury stock                                                                 (3)             87              6             61
     Total changes of items during the period                                                   (3)             87              6             61
   Balance at the end of current period                                                     5,866            5,953          5,959         60,806
 Retained earnings
   Balance at the end of previous period                                                  66,341           75,538          84,024         857,388
   Changes of items during the period
     Dividends from surplus                                                               (1,648)          (2,200)         (2,228)        (22,735)
     Directors’ bonuses                                                                      (175)              –               –               –
     Net income                                                                           11,024           10,686           9,389          95,806
     Decrease due to exclusion of consolidated subsidiaries                                    (4)              –               –               –
     Total changes of items during the period                                              9,197            8,486           7,161          73,071
   Balance at the end of current period                                                   75,538           84,024          91,185         930,459
 Treasury stock
   Balance at the end of previous period                                                   (5,317)          (5,355)        (8,439)        (86,112)
   Changes of items during the period
     Purchase of treasury stock                                                               (75)          (3,290)            (76)          (776)
     Disposal of treasury stock                                                                37              206              20            204
     Total changes of items during the period                                                 (38)          (3,084)           (56)           (572)
   Balance at the end of current period                                                    (5,355)          (8,439)        (8,495)        (86,684)
 Total shareholders' equity
 Balance at the end of previous period                                                    73,782           82,938          88,427         902,317
 Changes of items during the period
     Dividends from surplus                                                                (1,648)         (2,200)         (2,228)        (22,735)
     Directors’ bonuses                                                                       (175)             –                –              –
     Net income                                                                            11,024          10,686           9,389          95,806
     Purchase of treasury stock                                                                (75)        (3,290)             (76)          (776)
     Disposal of treasury stock                                                                 34            293               26            265
     Decrease due to exclusion of consolidated subsidiaries                                      (4)            –                –              –
     Total changes of items during the period                                               9,156           5,489            7,111         72,560
   Balance at the end of current period                                                    82,938          88,427          95,538         974,877
Valuation and translation adjustments
 Valuation difference on available-for-sale securities
   Balance at the end of previous period                                                    1,794            1,541            293           2,990
   Changes of items during the period
     Net changes of items other than shareholders’ equity                                    (253)          (1,248)            (43)          (439)
     Total changes of items during the period                                                (253)          (1,248)            (43)          (439)
   Balance at the end of current period                                                     1,541              293            250           2,551
 Total valuation and translation adjustments
   Balance at the end of previous period                                                    1,794            1,541            293           2,990
   Changes of items during the period
     Net changes of items other than shareholders’ equity                                    (253)          (1,248)            (43)          (439)
     Total changes of items during the period                                                (253)          (1,248)            (43)          (439)
   Balance at the end of current period                                                     1,541              293            250           2,551
Subscription rights to shares (Note 18)
 Balance at the end of previous period                                                           –                 –           78             796
 Changes of items during the period
   Net changes of items other than shareholders’ equity                                          –               78           104           1,061
   Total changes of items during the period                                                      –               78           104           1,061
 Balance at the end of current period                                                            –               78           182           1,857
Minority interests
 Balance at the end of previous period                                                      6,191            6,658          6,775          69,132
 Changes of items during the period
   Net changes of items other than shareholders’ equity                                       467              117           (867)        (8,846)
   Total changes of items during the period                                                   467              117           (867)        (8,846)
 Balance at the end of current period                                                       6,658            6,775          5,908         60,286
Total net assets
 Balance at the end of previous period                                                     81,767           91,137         95,573         975,235
 Changes of items during the period
   Dividends from surplus                                                                  (1,648)         (2,200)         (2,228)       (22,735)
   Directors’ bonuses                                                                         (175)              –               –              –
   Net income                                                                              11,024          10,686           9,389         95,806
   Purchase of treasury stock                                                                  (75)        (3,290)             (76)          (776)
   Disposal of treasury stock                                                                   34             293              26            265
   Decrease due to exclusion of consolidated subsidiaries                                        (4)             –               –              –
   Net changes of items other than shareholders’ equity                                        214          (1,053)          (806)         (8,224)
   Total changes of items during the period                                                 9,370            4,436          6,305         64,336
 Balance at the end of current period                                                     ¥91,137         ¥95,573        ¥101,878     $1,039,571
The accompanying notes are an integral part of these consolidated financial statements.



                                                                                                                            KYOWA EXEO CORPORATION Annual Report 2009
                  Consolidated Statements of Cash Flows
                  KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries
                  Years ended March 31, 2007, 2008 and 2009



                                                                                                                                                    Thousands of
                                                                                                                                                     U.S. dollars
     26                                                                                                                Millions of yen                (Note 1)

                                                                                                            2007           2008          2009          2009
                  Net cash provided by (used in) operating activities:
                  Income before income taxes                                                                ¥20,736       ¥17,374        ¥16,760     $171,020
                  Depreciation and amortization                                                               1,861          2,632         2,554        26,061
                  Impairment loss                                                                                  –               –        167          1,704
                  Amortization of goodwill                                                                     (450)           (324)        (237)        (2,418)
                  Increase (decrease) in allowance for doubtful accounts                                       125             (433)        741           7,561
                  Increase (decrease) in provision for retirement benefits                                     (677)          (360)         (306)        (3,122)
                  Interest and dividends income                                                                (271)          (328)         (440)       (4,490)
                  Interest expenses                                                                             50               20           18            184
                  Decrease (increase) in notes and accounts receivable—trade                                 (1,300)        (4,138)       8,804         89,837
                  Decrease (increase) in costs on uncompleted construction contracts and other                 (293)           867        (2,211)      (22,561)
                  Decrease (increase) in other assets                                                          494          (1,449)       (1,371)      (13,990)
                  Increase (decrease) in notes and accounts payable—trade                                      561          (1,078)       (4,725)      (48,214)
                  Increase (decrease) in advances received on uncompleted construction contracts               309          (1,066)         696           7,102
                  Increase (decrease) in other liabilities                                                     485          (5,670)       (1,038)      (10,592)
                  Other, net                                                                                   (412)           540         2,107        21,500
                    Subtotal                                                                                 21,218          6,587        21,519      219,582
                  Interest and dividends income received                                                       263             340          440          4,490
                  Interest expenses paid                                                                        (59)            (20)         (19)          (194)
                  Income taxes paid                                                                          (6,762)        (8,491)       (4,506)      (45,980)
                  Net cash provided by (used in) operating activities                                        14,660         (1,584)       17,434      177,898


                  Net cash provided by (used in) investing activities:
                  Purchase of property and equipment                                                         (1,201)        (2,713)       (3,023)      (30,847)
                  Proceeds from sales of property and equipment                                                 119              19         282          2,878
                  Purchase of intangible assets                                                              (1,277)        (2,037)       (1,018)      (10,388)
                  Purchase of investment securities                                                          (1,344)           (701)        (684)       (6,980)
                  Proceeds from sales of investment securities                                                 809             298          551          5,622
                  Other, net                                                                                 (1,466)          (557)         (165)        (1,683)
                  Net cash provided by (used in) investing activities                                        (4,360)        (5,691)       (4,057)      (41,398)


                  Net cash provided by (used in) financing activities:
                  Net increase (decrease) in short-term loans payable                                          251             242          (170)        (1,735)
                  Repayment of long-term debt                                                                (4,539)              (9)        (30)          (306)
                  Proceeds from long-term debt                                                               15,000                –         55             561
                  Purchase of treasury stock                                                                    (75)        (3,290)             –              –
                  Proceeds from sales of treasury stock                                                         34             293              –              –
                  Cash dividends paid                                                                        (1,648)        (2,197)       (2,228)      (22,735)
                  Other, net                                                                                   (100)            (91)        (159)        (1,622)
                  Net cash provided by (used in) financing activities                                         8,923         (5,052)       (2,532)      (25,837)


                  Effect of exchange rate change on cash and cash equivalents                                   16              (19)         (15)          (153)
                  Net increase (decrease) in cash and cash equivalents                                       19,239       (12,346)        10,830       110,510
                  Cash and cash equivalents at beginning of period                                            8,538         27,777        15,431       157,459
                  Cash and cash equivalents at end of period (Note 11)                                      ¥27,777       ¥15,431        ¥26,261     $267,969
                  The accompanying notes are an integral part of these consolidated financial statements.




KYOWA EXEO CORPORATION Annual Report 2009
Notes to Consolidated Financial Statements
KYOWA EXEO CORPORATION and Its Consolidated Subsidiaries




1. Basis of presenting the consolidated financial statements
                                                                                                                                     27
KYOWA EXEO CORPORATION (“the Company”) prepared the accompanying consolidated financial statements in
accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related
accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese
GAAP”), which differ in certain respects from application and disclosure requirements of International Financial
Reporting Standards.
    The accompanying consolidated financial statements have been restructured and translated into English
(with some expanded disclosures) from the consolidated financial statements of the Company prepared in
accordance with Japanese GAAP and filed with the appropriate Local Finance Bureau of the Ministry of Finance
as required by the Japanese Financial Instruments and Exchange Law. Some supplementary information
included in the statutory Japanese language consolidated financial statements, but not required for fair
presentation, is not presented in the accompanying consolidated financial statements.
    The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of
readers outside Japan, using the prevailing exchange rate at March 31, 2009, which was ¥98 to U.S. $1. These
translations should not be construed as representations that the Japanese yen amounts have been, could have
been, or could in the future be, converted into U.S. dollars at this or any other rate of exchange.

2. Significant accounting policies
Consolidation
The consolidated financial statements include the accounts of the Company and its 46, 45 and 43 material
subsidiaries in 2007, 2008 and 2009, respectively. All significant intercompany transactions and account balances
are eliminated in consolidation.
     In the elimination of investments in subsidiaries, the assets and liabilities of the subsidiaries, including the
portion attributable to minority shareholders, are evaluated using the fair value at the time the Company took
control over the respective subsidiaries.

Application of the equity method of accounting for investments
Investments in non-consolidated subsidiaries and affiliated companies have not been accounted for by the
equity method because they have not been significant for the consolidated net income and retained earnings.

Marketable and investment securities
The Company and its consolidated subsidiaries examine the intent of holding each security and classify those
securities as (a) securities held for trading purposes (hereafter, “trading securities”), (b) debt securities intended
to be held to maturity (hereafter, “held-to-maturity debt securities”), (c) equity securities issued by subsidiaries
and affiliated companies, or (d) all other securities that are not classified in any of the above categories (hereafter,
“available-for-sale securities”).
    The Company and its consolidated subsidiaries had no trading securities and held-to-maturity debt
securities. Equity securities issued by subsidiaries and affiliated companies that are not consolidated or
accounted for using the equity method are stated at moving-average cost. Available-for-sale securities with
available fair market values are stated at fair market value. Net unrealized holding gains on securities are




                                                                                                    KYOWA EXEO CORPORATION Annual Report 2009
                  reported, net of applicable income taxes, as a separate component of net assets. Realized holding gains and
                  losses on sale of such securities are computed using moving-average cost.
                      Available-for-sale securities with no available fair market value are stated at moving-average cost.


     28           Valuation of inventories
                  Costs on uncompleted construction contracts are stated at cost using the specific identification cost method.
                  Raw materials and supplies are stated at cost using the moving-average method. (Amounts shown on the
                  consolidated balance sheets are lower than book value due to decline in profitability.)
                  Changes in accounting policy: Commencing in the year ended March 31, 2009, the Company applied the
                  “Accounting Standard for Measurement of Inventories” (Accounting Standards Board of Japan [ASBJ] Statement
                  No. 9, issued on July 5, 2006).
                      The effect of this change is not material on income.

                  Property and equipment and depreciation (Except for leased assets)
                  Property and equipment are stated at cost. Depreciation is computed using the declining-balance method at
                  rates based on the estimated useful lives of the respective assets. Buildings acquired after March 31, 1998 are
                  depreciated using the straight-line method.

                  Intangible assets
                  Goodwill is amortized on a straight-line basis over five years. Software for internal use is amortized on a straight-
                  line basis over the estimated useful life of five years.

                  Leased assets
                  Leased assets are depreciated using the straight-line method over the period of the lease, with zero residual
                  value.
                      For finance lease transactions that do not transfer ownership to the lessee, commencing prior to April 1,
                  2008 are accounted for in the same manner as operating leases.

                  Allowance for doubtful accounts
                  The Company and its consolidated subsidiaries provide for doubtful accounts principally at an amount
                  computed based on the historical bad debt ratio during a certain reference period and an estimated
                  uncollectible amount based on the analysis of certain individual accounts, including claims in bankruptcy.

                  Provision for bonuses
                  Provision for bonuses is provided for the portion relevant to the current year of the estimated amount of bonus
                  payments to employees in certain consolidated subsidiaries.

                  Provision for directors’ bonuses
                  Provision for directors’ bonuses is provided for the portion relevant to the current year of the estimated amount
                  of bonus payments.

                  Provision for warranties for completed construction
                  Provision for warranties for completed construction is provided at the amount calculated based on the
                  estimated compensation for repairs to completed construction for which the Company and its consolidated
                  subsidiaries are responsible.

KYOWA EXEO CORPORATION Annual Report 2009
Provision for loss on construction contracts
Provision for losses on construction contracts is provided at an amount sufficient to cover probable and
determinable future losses on the construction contracts outstanding at the balance sheet date.

Provision for retirement benefits                                                                                               29
The liabilities and expenses for retirement benefits are determined based on the amounts actuarially calculated
using certain assumptions. The Company and its consolidated subsidiaries provide for retirement benefits, based
on the estimated amounts of projected benefit obligation and the fair value of plan assets at the end of the
fiscal year.
     Prior service costs are mainly recognized in expenses in equal amounts over the average of the estimated
remaining service lives of the employees, and actuarial gains and losses are mainly recognized in expenses
in equal amounts over the average of the estimated remaining service lives commencing with the following
period.

Provision for directors’ retirement benefits
Provision for directors’ and corporate auditors’ retirement benefits are provided in accordance with the
Company’s and consolidated subsidiaries’ bylaws.

Allowance for investment loss
Allowance for investment loss is provided to cover possible future losses on investments in affiliated companies.

Accounting for consumption taxes
Consumption taxes are excluded from each account that is subject to such taxes.

Amortization of goodwill and negative goodwill
Goodwill and negative goodwill are amortized primarily within five years.

Cash and cash equivalents
Cash and cash equivalents include cash on hand, readily available deposits, and short-term highly liquid
investments with maturities of three months or less at the time of purchase.

Net income and dividends per share
Net income per share of common stock is based on the weighted-average number of shares of common stock
outstanding during each year.
    Diluted net income per share of common stock reflects the potential dilution that could occur if securities
or other contracts to issue common stock were converted or exercised into common stock or resulted in the
issuance of common stock.
    Cash dividends per share shown for each year in the consolidated statements of income represent dividends
declared as applicable to the respective year.

Reclassifications
Certain reclassifications are made to the prior years’ consolidated financial statements to conform to the
presentation used for the year ended March 31, 2009.




                                                                                               KYOWA EXEO CORPORATION Annual Report 2009
                  3. Change in accounting for the consolidated financial statements
                  Application of accounting standard for lease transactions
                  Finance lease transactions without title transfer were formerly accounted for in accordance with the method
                  used for ordinary lease transactions. Effective from the year ended March 31, 2009, the “Accounting Standard
     30           for Lease Transactions” (ASBJ Statement No. 13, issued on March 30, 2007; revised from the standard originally
                  issued by the Corporate Accounting Council on June 17, 1993) and “Guidance on Accounting Standard for Lease
                  Transactions” (ASBJ Guidance No. 16, issued on March 30, 2007; revised from the standard originally issued by
                  the Japanese Institute of Certified Public Accountants on January 18, 1994) were applied.
                       For finance lease transactions that do not transfer ownership to the lessee, commencing prior to April 1,
                  2008, are accounted for in the same manner as operating leases.
                       The effect of this change is not material on income and assets.

                  4. Securities
                  The following tables summarize acquisition costs and book values of securities with available fair value as of
                  March 31, 2008 and 2009:

                  Available-for-sale securities
                  Securities with book values exceeding acquisition costs
                                                                      Millions of yen                                Thousands of U.S. dollars

                                                          2008                              2009                              2009
                                            Acquisition   Book     Difference Acquisition   Book     Difference Acquisition   Book      Difference
                  Type                         cost       value                  cost       value                  cost       value

                  Equity securities           ¥1,402      ¥2,624    ¥1,222        ¥764      ¥1,576      ¥812      $7,796 $16,082         $8,286
                  Others                          54          57         3           –           –         –           –       –              –
                  Total                       ¥1,456      ¥2,681    ¥1,225        ¥764      ¥1,576      ¥812      $7,796 $16,082         $8,286

                  Securities with book values not exceeding acquisition costs
                                                                      Millions of yen                                Thousands of U.S. dollars

                                                          2008                              2009                              2009
                                            Acquisition   Book
                                                                   Difference Acquisition
                                                                                            Book
                                                                                                     Difference Acquisition
                                                                                                                              Book
                  Type                         cost       value                  cost       value                  cost       value     Difference

                  Equity securities          ¥2,725       ¥2,039     ¥(686)     ¥2,130      ¥1,769     ¥(361) $21,735 $18,051 $(3,684)
                  Others                        501          476       (25)        433         349       (84)   4,418   3,561    (857)
                  Total                      ¥3,226       ¥2,515     ¥(711)     ¥2,563      ¥2,118     ¥(445) $26,153 $21,612 $(4,541)

                  The proceeds from the sale of available-for-sale securities for the years ended March 31, 2008 and 2009
                  amounted to ¥298 million and ¥523 million (U.S. $5,337 thousand), respectively, and the net realized gains
                  amounted to ¥103 million and ¥103 million (U.S. $1,051 thousand), respectively.
                  The following tables summarize book values of securities without available fair value as of March 31, 2008 and
                  2009.




KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                                          Thousands of
                                                                                           Millions of yen                                  U.S. dollars

Type                                                                              2008                        2009                          2009
Unlisted equity securities                                                        ¥1,293                     ¥ 1,163                      $ 11,867
Unlisted bonds                                                                     4,997                      16,978                       173,245
                                                                                                                                                                      31
Public and corporate bond investment trust                                         3,906                       3,024                        30,857
Non-consolidated subsidiaries and affiliates                                         618                         584                         5,959

Available-for-sale securities with maturity as of March 31, 2008 and 2009 are as follows:
                                                   Millions of yen                                                        Thousands of U.S. dollars

                               2008                                               2009                                              2009
            Within 1 Over 1 to Over 5 to Over 10            Within 1 Over 1 to Over 5 to Over 10                 Within 1 Over 1 to Over 5 to Over 10
                                                    Total                                            Total                                              Total
Type         year     5 years 10 years years                 year     5 years 10 years years                      year     5 years 10 years years

Corporate
bonds     ¥4,997        ¥–         ¥–        ¥–     ¥4,997 ¥16,978      ¥–          ¥–       ¥– ¥16,978 $173,245 $ –                    $–        $– $173,245
Others         –         14         –         –         14       4       10          –        –      14       41 102                     –         –      143
Total     ¥4,997        ¥14        ¥–        ¥–     ¥5,011 ¥16,982      ¥10         ¥–       ¥– ¥16,992 $173,286 $102                   $–        $– $173,388



5. Short-term loans payable and long-term debt
(a) Short-term loans payable consist of bank loans whose original maturities are within one year. The weighted-
    average interest rates on short-term loans payable were 1.3% and 1.5% at March 31, 2008 and 2009.
(b) Long-term debt at March 31, 2008 and 2009 are summarized as follows:
                                                                                                                                          Thousands of
                                                                                           Millions of yen                                  U.S. dollars

                                                                                  2008                           2009                         2009
Long-term loans payable from banks:
Unsecured                                                                     ¥       –                      ¥       55                   $       561
Secured                                                                              88                              57                           582
Bonds:
Zero coupon Japanese yen convertible bonds with
 subscription rights to shares due in 2011                                     15,000                         15,000                        153,061
                                                                               15,088                          15,112                       154,204
Amount due within one year                                                         (30)                            (41)                         (418)
Total long-term debt                                                          ¥15,058                        ¥15,071                       $153,786

At March 31, 2009, the book values of assets pledged as collateral for loans payable from banks are as follows:

                                                                                                                                          Thousands of
                                                                                                        Millions of yen                     U.S. dollars

                                                                                                                 2009                         2009
Buildings                                                                                                         ¥152                        $1,551
Land                                                                                                               793                         8,092
Total                                                                                                             ¥945                        $9,643




                                                                                                                                     KYOWA EXEO CORPORATION Annual Report 2009
                  The annual maturities of long-term debt at March 31, 2009 are as follows:

                                                                                                                     Thousands of
                                                                                                   Millions of yen     U.S. dollars

                  Due years ending March 31,                                                             2009           2009
     32
                  2010                                                                                  ¥ 41          $     418
                  2011                                                                                       39            398
                  2012                                                                                   15,011         153,174
                  2013                                                                                       11             112
                  2014                                                                                       10            102
                                                                                                        ¥15,112       $154,204



                  6. Costs on uncompleted construction contracts and other
                  Costs on uncompleted construction contracts and other at March 31, 2008 and 2009 are as follows:

                                                                                                                     Thousands of
                                                                                      Millions of yen                  U.S. dollars

                                                                             2008                        2009           2009
                  Merchandise and finished goods                            ¥     –                     ¥    69       $ 704
                  Costs on uncompleted construction contracts                     –                      20,095        205,051
                  Raw materials and supplies                                      –                         933          9,521
                  Costs on uncompleted construction contracts
                   and other                                                 18,887                           –             –
                                                                            ¥18,887                     ¥21,097      $215,276

                  7. Accumulated depreciation
                  Accumulated depreciation of property and equipment as of March 31, 2008 and 2009 amounted to ¥22,243 and
                  ¥22,950 million (U.S. $234,184 thousand).

                  8. Impairment loss
                  Impairment losses for the years ended March 31, 2007, 2008 and 2009 are as follows:
                                                                                                                     Thousands of
                                                                          Millions of yen                              U.S. dollars

                                                         2007                 2008                      2009              2009
                  Business-use assets:
                    Buildings                              ¥–                    ¥–                      ¥ 45          $ 459
                    Structures                              –                     –                         3             31
                  Idle assets:
                    Buildings and structures                –                     –                         5              51
                    Land                                    –                     –                       114           1,163
                  Total                                    ¥–                    ¥–                      ¥167          $1,704




KYOWA EXEO CORPORATION Annual Report 2009
Business-use assets are generally grouped according to accounting for management. Idle assets are grouped
according to each separate property. Business-use assets that are decreasing profitability have been devalued
from the book value to the recoverable value, with the differences reported as impairment loss. Idle assets
whose market value has declined have been devalued from the book value to the recoverable value, with the
differences reported as impairment loss. Recoverable values are calculated according to estimated net sale value,                33
which are mainly based on real estate appraisal values.

9. Income taxes
The Company and its consolidated subsidiaries are subject to a number of different income taxes, which indicate
a statutory tax rate in Japan of approximately 40.7% in the aggregate for the years ended March 31, 2007, 2008
and 2009.
     The following table summarizes the significant differences between the statutory tax rate and the effective
tax rate of the Company and its consolidated subsidiaries for financial statement purposes for the years ended
March 31, 2007, 2008, and 2009:

                                                           2007                        2008           2009
Statutory tax rate                                         40.7%                       40.7%          40.7%
Nontaxable income                                            1.3                         1.0            0.5
Per capita inhabitant tax                                    0.7                         0.8            0.7
Valuation allowance                                          1.0                        (3.5)           4.7
Amortization of (negative) goodwill                         (0.9)                       (0.8)          (0.6)
Other                                                        0.7                        (1.8)           1.6
Effective tax rate                                         43.5%                       36.4%          47.6%

Significant components of the Company’s and its consolidated subsidiaries’ deferred tax assets and liabilities as
of March 31, 2008 and 2009 are as follows:
                                                                                                   Thousands of
                                                                    Millions of yen                  U.S. dollars

                                                           2008                        2009           2009
Deferred tax assets:
Provision for bonuses and other                          ¥ 2,898                  ¥ 3,034            $30,959
Accrued enterprise tax                                       263                      409              4,173
Accounts payable, other for the transfer to the
  defined-contribution plan                                  496                         406           4,143
Allowance for doubtful accounts                              902                       1,295          13,214
Provision for retirement benefits and other                2,490                       2,047          20,888
Long-term accounts payable, other for the transfer
  to the defined-contribution plan                           883                           -               -
Provision for directors’ retirement benefits                 281                         300           3,061
Loss on valuation of membership                              304                         273           2,786
Net operating loss carried forward                           665                         753           7,684
Write-down of lands                                          512                         503           5,133
Other                                                      1,545                       1,774          18,102
Subtotal deferred tax assets                              11,239                      10,794         110,143
Valuation allowance                                       (3,808)                     (4,589)        (46,827)
Total deferred tax assets                                  7,431                       6,205          63,316

                                                                                                KYOWA EXEO CORPORATION Annual Report 2009
                                                                                                                       Thousands of
                                                                                         Millions of yen                 U.S. dollars

                                                                               2008                         2009          2009
                  Deferred tax liabilities:
                  Reserve for advanced depreciation of noncurrent
     34
                   assets                                                        (125)                     (152)           (1,551)
                  Valuation difference on available-for-sale securities          (352)                     (283)          (2,888)
                  Unrealized holding gains on lands                            (1,475)                   (1,476)         (15,061)
                  Other                                                           (73)                      (89)             (908)
                  Total deferred tax liabilities                              (2,025)                   (2,000)         (20,408)
                  Net deferred tax assets                                    ¥ 5,406                   ¥ 4,205          $42,908

                  10. Net assets
                  Under Japanese Corporation Low (“the Law”) the entire amount of payment for new shares is required to
                  be designated as capital stock, although generally a company may, by a resolution of the Board of Directors,
                  designate an amount not exceeding one-half of the price of the new shares as additional paid-in capital.
                      Under the Law, in cases when dividends are paid, an amount equal to 10% of the dividends or the excess of
                  25% of capital stock over the total of additional paid-in capital and legal earnings reserve, whichever is smaller,
                  must be set aside as additional paid-in capital or legal earnings reserve. Legal earnings reserve is included in
                  retained earnings in the accompanying consolidated balance sheets.
                      Additional paid-in capital and legal earnings reserve may not be distributed as dividends. However, all
                  additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained
                  earnings, respectively, which are potentially available for dividends. Additional paid-in capital and legal earnings
                  reserve are included in capital surplus and retained earnings, respectively.
                      The maximum amount that the Company can distribute as dividends is calculated based on the non-
                  consolidated financial statements of the Company in accordance with the Law.
                      At the annual shareholders’ meeting held on June 23, 2009 the shareholders resolved cash dividends (¥10.0
                  per share) amounting to ¥1,061 million (U.S. $10,827 thousand). Such appropriations have not been accrued in
                  the consolidated financial statements as of March 31, 2009. Such appropriations will be recognized in the period
                  when they are resolved by the shareholders.

                  11. Cash and cash equivalents
                  Cash and cash equivalents as of March 31, 2008 and 2009 on the consolidated balance sheets and on the
                  consolidated statements of cash flows are summarized as follows:

                                                                                                                       Thousands of
                                                                                         Millions of yen                 U.S. dollars

                                                                              2008                          2009         2009
                  Cash and bank deposits                                     ¥ 6,576                       ¥ 6,317     $ 64,459
                  Short-term investment securities                             8,903                        20,002      204,102
                  Time deposits available of more than three months              (48)                           (58)       (592)
                  Cash and cash equivalents                                  ¥15,431                       ¥26,261     $267,969




KYOWA EXEO CORPORATION Annual Report 2009
12. Leases
(a) As lessee
1 For finance lease transactions that do not transfer ownership
(1)Contents of leased assets: Property and equipment (mainly machinery, vehicles, tools, furniture and fixtures)
(2)Lease assets are depreciated using the straight-line method over the period of the lease, with zero residual                    35
value.
For finance lease transactions that do not transfer ownership to the lessee, commencing prior to April 1, 2008,
are accounted for in the same manner as operating leases. Certain information for such noncapitalized finance
leases on a consolidated basis is as follows:
(i) Assumed amounts of acquisition cost, accumulated depreciation, and net book value at March 31, 2008 and
2009 are summarized as follows:

                                                                                                     Thousands of
                                                                     Millions of yen                   U.S. dollars

                                                            2008                        2009            2009
Acquisition cost:
 Machinery, vehicles, tools, furniture and fixtures       ¥3,679                       ¥3,325         $33,929
 Other                                                        183                          161           1,643
Accumulated depreciation                                   (1,525)                      (1,862)        (19,000)
 Net book value                                           ¥2,337                       ¥1,624         $16,572



(ii) Future minimum lease payments, inclusive of interest, are summarized as follows:
                                                                                                     Thousands of
                                                                     Millions of yen                   U.S. dollars

                                                            2008                        2009            2009
Due within one year                                        ¥ 825                       ¥ 597           $ 6,092
Due after one year                                          1,737                       1,093           11,153
Total                                                      ¥2,562                      ¥1,690          $17,245

(iii) Lease payments, depreciation and interest expenses for the years ended March 31, 2008 and 2009 are
summarized as follows:
                                                                                                     Thousands of
                                                                     Millions of yen                   U.S. dollars

                                                            2008                        2009             2009
Lease payments                                              ¥748                        ¥721            $7,357
Depreciation                                                 691                         666             6,796
Interest expenses                                             62                          51               520

(iv) Depreciation equivalents are computed using the straight-line method over the lease terms assuming no
residual value.

(v) The excess of total lease payments over assumed acquisition cost is regarded as amounts representing
interest payable equivalents and is allocated to each period using the interest method.




                                                                                                  KYOWA EXEO CORPORATION Annual Report 2009
                  2 Future operating lease payments under noncancelable operating leases at March 31, 2008 and 2009 are
                  summarized as follows:

                                                                                                                   Thousands of
                                                                                        Millions of yen              U.S. dollars
     36
                                                                               2008                        2009      2009
                  Due within one year                                         ¥ 380                       ¥ 435     $ 4,439
                  Due after one year                                            1,171                      1,083     11,051
                  Total                                                       ¥1,551                      ¥1,518    $15,490

                  (b) As lessor
                  (1) For finance lease transactions that do not transfer ownership
                  For finance lease transactions that do not transfer ownership to the lessee, commencing prior to April 1, 2008,
                  are accounted for in the same manner as operating leases. Certain information for such noncapitalized finance
                  leases on a consolidated basis is as follows:

                  (i) Amounts of acquisition cost, accumulated depreciation, and net book value at March 31, 2008 and 2009 are
                  summarized as follows:

                                                                                                                   Thousands of
                                                                                        Millions of yen              U.S. dollars

                                                                               2008                       2009        2009
                  Acquisition cost:
                   Machinery, vehicles, tools, furniture and fixtures           ¥91                        ¥44        $449
                  Accumulated depreciation                                      (61)                        (28)       (286)
                   Net book value                                               ¥30                        ¥16        $163



                  (ii) Future minimum lease receipts, inclusive of interest, are summarized as follows:
                                                                                                                   Thousands of
                                                                                        Millions of yen              U.S. dollars

                                                                               2008                       2009        2009
                  Due within one year                                           ¥14                        ¥ 6        $ 61
                  Due after one year                                             18                         12         123
                  Total                                                         ¥32                        ¥18        $184

                  (iii) Lease receipts, depreciation, and interest income for the years ended March 31, 2008 and 2009 are
                  summarized as follows.

                                                                                                                   Thousands of
                                                                                        Millions of yen              U.S. dollars

                                                                               2008                       2009        2009
                  Lease receipts                                                ¥20                        ¥11        $112
                  Depreciation                                                   17                          9          92
                  Interest income                                                 3                          3          31




KYOWA EXEO CORPORATION Annual Report 2009
(iv) Amounts representing interest receivable equivalents are allocated to each period using the interest method.

(2) Future operating lease receipts under noncancelable operating leases at March 31, 2008 and 2009 are
summarized as follows:                                                                                                         37


                                                                                                 Thousands of
                                                                    Millions of yen                U.S. dollars

                                                            2008                      2009          2009
Due within one year                                          ¥2                        ¥ 4          $ 41
Due after one year                                            5                         10           102
Total                                                        ¥7                        ¥14          $143

13. Research and development expenses
Research and development expenses for the years ended March 31, 2007, 2008, and 2009 are as follows:
                                                                                                 Thousands of
                                                        Millions of yen                            U.S. dollars

                                       2007                 2008                      2009          2009
Research and development
 expenses                              ¥295                 ¥241                      ¥223         $2,276

14. Contingent liabilities
Contingent liabilities at March 31, 2008 and 2009 are summarized as follows:

                                                                                                 Thousands of
                                                                    Millions of yen                U.S. dollars

                                                            2008                      2009          2009
As a guarantor for bank loans and others of
 affiliated companies and others                            ¥106                      ¥68           $694
Notes receivable, discounted                                  98                        –              –
Notes endorsed                                                43                        –              –

15. Segment information
The Company and its consolidated subsidiaries operate primarily in the segment of construction of
telecommunications and electric facilities. Each of sales, operating income and identifiable assets of this
segment comprises over 90% of the corresponding total amount for all segments. Geographic segment
information is not required to be disclosed because there are no overseas subsidiaries or branches. As overseas
sales represent not more than 10% in the years ended March 31, 2007, 2008, and 2009, information on overseas
sales is not disclosed.




                                                                                              KYOWA EXEO CORPORATION Annual Report 2009
                  16. Provision for retirement benefits
                  The Company and its consolidated subsidiaries have contract-type corporation pension plans, tax-qualified
                  pension plans, defined-contribution pension plan and lump-sum payment plans.
                       As explained in Note 2, the liabilities and expenses for retirement benefits are determined based on the
     38           amounts obtained by actuarial calculations.
                  Provision for retirement benefits included in the liability section of the consolidated balance sheets as of March
                  31, 2008 and 2009 consists of the following:
                                                                                                                       Thousands of
                                                                                     Millions of yen                     U.S. dollars

                                                                              2008                       2009             2009
                  Projected benefit obligation                              ¥46,226                    ¥45,942         $468,796
                  Unrecognized prior service costs                              2,315                     2,110           21,531
                  Prepaid pension cost                                          2,010                     2,527           25,786
                  Unrecognized actuarial differences                          (11,175)                  (15,516)        (158,327)
                  Less fair value of plan assets                             (33,555)                  (29,548)         (301,510)
                  Provision for retirement benefits                         ¥ 5,821                    ¥ 5,515         $ 56,276

                  Included in the consolidated statements of income for the years ended March 31, 2007, 2008 and 2009 are
                  retirement benefit expenses comprised of the following:
                                                                                                                         Thousands of
                                                                                     Millions of yen                       U.S. dollars

                                                                       2007              2008                 2009         2009
                  Service costs–benefits earned during the year        ¥1,878            ¥1,868              ¥1,782       $18,184
                  Interest cost on projected benefit obligation           942               932                 906          9,245
                  Expected return on plan assets                         (644)             (687)               (626)       (6,388)
                  Amortization of actuarial differences                 1,003               922               1,274        13,000
                  Amortization of prior service cost                      (213)            (205)               (205)        (2,092)
                  Retirement benefit expenses                           2,966             2,830               3,131        31,949
                  Premium for defined contribution pension plan           625               701                 692          7,061
                  Total                                                ¥3,591            ¥3,531              ¥3,823       $39,010

                  The discount rates and the rates of expected return on plan assets for the years ended March 31, 2007, 2008 and
                  2009 are as follows:
                                                                            2007                  2008               2009
                  Discount rates                                         Mainly 2.0%          Mainly 2.0%        Mainly 2.0%
                  Rates of expected return on plan assets                Mainly 2.0%          Mainly 2.0%        Mainly 2.0%

                  The estimated amount of all retirement benefits to be paid at the future retirement date is allocated equally to
                  each service year using the “point-standard.” Prior service costs are recognized in expenses in equal amounts
                  over the average of the estimated remaining service lives of the employees (mainly 15 years for the years ended
                  March 31, 2007, 2008 and 2009) and unrecognized actuarial net gains or losses are recognized in expenses in
                  equal amounts over the average of the estimated remaining service lives (mainly 15 years for the years ended
                  March 31, 2007, 2008 and 2009) commencing with the following period.




KYOWA EXEO CORPORATION Annual Report 2009
17. Stock option plans
The following tables summarize contents of stock options as of March 31, 2009.

                                                            No. 2                No. 3-A                 No. 3-B
Date of the annual shareholders’ meeting               June 28, 2005          June 25, 2007          June 25, 2007                  39
Position, number of grantees                       20 directors           20 directors            111 employees
                                                   103 employees                                  22 directors of
                                                   21 directors of                                subsidiaries
                                                   subsidiaries
Class and number of shares                         Capital stock          Capital stock           Capital stock
                                                   655,000 shares         206,000 shares          484,000 shares
Grant date                                         July 11, 2005          July 10, 2007           July 10, 2007
Vesting conditions                                 No vesting             No vesting              No vesting
                                                   conditions             conditions              conditions
Service period                                     No requisite           No requisite            No requisite
                                                   service period         service period          service period
Exercise period                                    From July 2, 2007      From July 1, 2009       From July 1, 2009
                                                   to June 30, 2009       to June 30, 2011         to June 30, 2011

The following tables summarize scale and movement of stock options as of March 31, 2009.

                                                           No. 2                No. 3-A                 No. 3-B
Not exercisable stock options
Date of the annual shareholders’ meeting               June 28, 2005         June 25, 2007           June 25, 2007
Balance at March 31, 2008                                     386,000               206,000                 484,000
Stock options granted                                                –                     –                       –
Forfeitures                                                          –                     –                       –
Conversion to exercisable stock options                       386,000                      –                       –
Balance at March 31, 2009                                            –              206,000                 484,000
Exercisable stock options
Date of the annual shareholders’ meeting               June 28, 2005         June 25, 2007           June 25, 2007
Balance at March 31, 2008                                            –                        –                       –
Conversion from not exercisable stock options                 386,000                         –                       –
Stock options exercised                                        (2,000)                        –                       –
Forfeitures                                                          –                        –                       –
Balance at March 31, 2009                                     384,000                         –                       –

The following tables summarize price information of stock options as of March 31, 2009.

                                                            No. 2               No. 3-A                 No. 3-B
Date of the annual shareholders’ meeting                June 28, 2005        June 25, 2007           June 25, 2007
Exercise price                                                   ¥1,002               ¥1,489                  ¥1,489
Average market price of the stock at the time of exercise           926                    –                       –
Fair value of the stock option at the grant date                      –                  301                     301



                                                                                                   KYOWA EXEO CORPORATION Annual Report 2009
                  18. Subsequent events
                  The Company and KANAC Corp. (“KANAC”, one of the Company’s consolidated subsidiaries) announced that
                  at meeting of their respective Board of Directors on May 12, 2009, the Company approved resolutions to make
                  KANAC a wholly-owned subsidiary through an exchange of shares and that both companies concluded a share
     40           exchange agreement.
                       One common share issued by KANAC, except for the 3,286,800 shares held by the Company, will be
                  allocated to 0.20 common share of the Company on September 1, 2009.
                       As a result, treasury stock of 646,231 shares owned by the Company will be allocated and delivered, instead
                  of the issuance of new shares.




KYOWA EXEO CORPORATION Annual Report 2009
Independent Auditors' Report



                                                                41




                               KYOWA EXEO CORPORATION Annual Report 2009
                  Corporate Data                                             Corporate History
                  (As of March 31, 2009)




     42

                  Company Name                                               May 1954        The Company was founded.
                  KYOWA EXEO CORPORATION                                     February 1963   Listed on the Second Section of the Tokyo
                                                                                             Stock Exchange.

                  Head Office                                                December 1963 Adopted the shield tunneling method in
                  29-20 Shibuya 3-chome, Shibuya-ku, Tokyo 150-0002, Japan                 telephone tunnel construction work
                                                                                           (Shirogane).
                                                                             February 1972   Listed on the First Section of the Tokyo
                  Established
                                                                                             Stock Exchange.
                  May 17, 1954
                                                                             June 1978       Started laying submarine coaxial cables
                                                                                             (Libya).
                  Paid-in Capital                                            April 1982      Branched out into the software business.
                  ¥6,889 million
                                                                             February 1983   Began work on the 1,200-km optical fiber
                                                                                             cable that runs the length of Japan.
                  Number of Employees                                        June 1986       Entered the environment business.
                  Parent company: 3,466                                      May 1991        Changed company name to KYOWA EXEO
                  Consolidated subsidiaries: 3,868                                           CORPORATION.
                  Total: 7,334
                                                                             May 1993        Opened the Research and Development
                                                                                             Center.
                  Number of Business Offices                                 April 1998      Entered the IT business.
                  Branch offices: 20                                         April 1999      Relocated the head office.
                  Sales offices: 20
                                                                             April 2001      Merged with Showa Technos Corp.
                  Construction offices: 8
                                                                             June 2002       Acquired ash fusion business from Niigata
                  Overseas representative offices: 2
                                                                                             Engineering Co., Ltd.
                                                                             July 2002       Established Customer Service Center
                  Major Banks                                                                offering maintenance and repair service 24
                  Mizuho Bank, Ltd.                                                          hours a day, 365 days a year.
                  Sumitomo Mitsui Banking Corporation                        May 2003        Completed first unit of a biogas plant
                  The Bank of Tokyo-Mitsubishi UFJ, Ltd.                                     (Iwate Prefecture).
                                                                             April 2004      Acquired Daiwa Densetsu Corp.
                  Independent Certified Public Accountants                   May 2004        Acquired Wako Engineering Corp.
                  KPMG AZSA & Co.                                            April 2005      Acquired KANAC Corp.




KYOWA EXEO CORPORATION Annual Report 2009
Investor Information
(As of March 31, 2009)




                                                                                                                                                                                                    43

Fiscal Year-End                                               Major Shareholders
March 31                                                                                                                             Number of shares held            Percentage of total
                                                                                             Name
                                                                                                                                        (Thousand)                     shares issued (%)
Annual Shareholders’ Meeting
                                                                  Japan Trustee Services Bank, Ltd.
June 23, 2009                                                     (Trust Account 4G)
                                                                                                                                               9,497                           8.06

Stock Listing                                                     The Master Trust Bank of Japan, Ltd.
                                                                  (Trust Account)
                                                                                                                                               8,647                           7.34
Tokyo Stock Exchange (First Section)
                                                                  Japan Trustee Services Bank, Ltd.
                                                                  (Trust Account)
                                                                                                                                               8,193                           6.95
Ticker Code
1951                                                              Furukawa Electric Co., Ltd.                                                  5,767                           4.90
                                                                  Japan Trustee Services Bank, Ltd.
Common Stock                                                      (Sumitomo Electric Industries, Ltd.
                                                                  Retirement Benefit Trust Account reentrusted by
                                                                                                                                               5,766                           4.89
Authorized: 300,000,000 shares
                                                                  the Sumitomo Trust & Banking Co., Ltd.)
Issued: 117,812,419 shares
                                                                  Fujitsu Ltd.                                                                 3,594                           3.05
Total Number of Shareholders                                      Trust & Custody Services Bank, Ltd. as
7,419                                                             trustee for Fujikura Ltd. Retirement Benefit Trust
                                                                  Account re-entrusted by Mizuho Trust & Banking
                                                                                                                                               2,930                           2.49
Transfer Agent and Registrar                                      Co., Ltd.
The Sumitomo Trust and Banking Co., Ltd.                          Trust & Custody Services Bank, Ltd.
                                                                  (Trust Account B)
                                                                                                                                               2,800                           2.38
3-1 Yaesu 2-chome,
                                                                  Mizuho Bank, Ltd.                                                            2,688                           2.28
Chuo-ku, Tokyo 104-8476, Japan
                                                                  Holding company for KYOWA EXEO
                                                                  employees
                                                                                                                                               2,102                           1.78
Composition of Shareholders                                   Note: KYOWA EXEO held 11,752 thousand shares (9.98%) as treasury stock, which is excluded from the above list.

                      Treasury stock
                            9.98%
Individuals and others
                   13.47%


                                                         Financial institutions
                                                         45.91%
    Foreign investors
                  14.57%

                   Other corporations      Securities companies
                            14.36%         1.71%

Stock Price Range and Trading Volume on the Tokyo Stock Exchange
Years ended March 31

     Stock Price
            (¥)
        2,000

        1,600

        1,200

          800

          400                                                                                                                                                                    Trading Volume
                                                                                                                                                                                 (Million Shares)
             0                                                                                                                                                                   50

                                                                                                                                                                                 40

                                                                                                                                                                                 30

                                                                                                                                                                                 20

                                                                                                                                                                                 10

                    4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3                       0
                    2004                 2005                       2006                       2007                       2008                       2009




                                                                                                                                                                KYOWA EXEO CORPORATION Annual Report 2009
29-20 Shibuya 3-chome, Shibuya-ku, Tokyo 150-0002, Japan
TEL: +81-3-5778-1111 FAX: +81-3-5778-1230
URL: http://www.exeo.co.jp/overseas/index.html




                                                           Printed in Japan

				
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