EBARA CORPORATION Annual Report For the Year Ended March 31, 2012

Transcription

1 EBARA CORPORATION Annual Report 2012 For the Year Ended March 31, 2012

2 EBARA pioneered in the Founded in 1912, EBARA CORPORATION has grown to become one of the world s principal manufacturers of industrial machinery, based especially on its fluid machinery and systems business, with particularly strong positions in pumps and compressors as well as other related products. With its origins in the fluid machinery and systems business, the Company expanded into the environmental engineering business centered around incinerators and gasification technology as well as into the precision machinery business, which produces semiconductor manufacturing equipment and other equipment. The EBARA Group is constantly thinking of what will be required in the future and is seeking to accurately grasp the current and future needs of its customers, while it continues to pursue the development of superior technologies and products in all its businesses. In the years to come, as in the past, the EBARA Group will continue to achieve further development and contribute to society by excelling in the development of technologies as well as the manufacturing and marketing of products and by providing high-quality support and services.

3 Issey Hatakeyama, EBARA s founder, poses together with an Inokuty Type pump made in manufacturing of pumps Contents 2 A Retrospective on EBARA s First Century 4 Financial Highlights 5 Message from the Management 6 An Interview with the Management 8 At a Glance 10 Special Feature 14 Review and Outlook 22 Governance Structure and Management Systems 26 Corporate Social Responsibility (CSR) 28 EBARA Global Network 30 Financial Section 70 EBARA Group History 71 Corporate Data Cautionary Statement with Regard to Forward-Looking Statements Certain of the statements made in this annual report are forward- looking statements, which involve certain risks and uncertainties that could cause actual results to differ materially from those projected. Readers are cautioned not to place undue reliance on these forward-looking statements, which are valid only as of the date thereof. EBARA undertakes no obligation to republish revised forward-looking statements to reflect events or circumstances after the date thereof or to reflect the occurrence of unanticipated events. 1

4 A Retrospective on EBAR Chillers Business 1930 Produced its first centrifugal chiller in Japan Fluid Machinery & Systems Company Pumps Business Issey Hatakeyama Founder 1912 Inokuty Type Machinery Office was founded Compressors and Turbines Business 1910 Elliott Corporation (a company in the U.S.A., manufacturing compressors and turbines) established Environmental Engineering Company Water Treatment Business Waste Treatment Business 1931 Developed the first rapid filter for city water in Japan Precision Machinery Company Components Business CMP System Business

5 A s First Century View our special centennial website: Received order for the first absorption chiller equipment 1956 Completed a standard pump 1968 Sold the first super-critical pressure feed water pump produced in Japan 1982 Began to install cryogenic pumps, designed and manufactured by EBARA, to LNG bases in Japan 1968 EBARA entered into technical cooperation with Elliott Group 1989 Concluded a cross-licensing agreement with Elliott Group 2000 Elliott became a wholly owned subsidiary of EBARA 2011 Integrated its compressor businesses in Japan and U.S.A A former major consolidated subsidiary is jointly owned by EBARA, MC,* and JGC (accounted for by the equity method of consolidation) * MC: Mitsubishi Corporation 1961 Sold its first mechanical stokertype incinerator 1984 Sold its first twin interchanging fluidized bed incinerator 1986 Sold its first roots-type dry vacuum pump 1987 Began to market gas abatement systems equipment 1990 Shipped its first plating systems 1992 Sold its first CMP (chemical mechanical polishing) system

6 Financial Highlights EBARA CORPORATION and Consolidated Subsidiaries Millions of yen Thousands of U.S. dollars* Years ended March Net sales 412, ,676 $5,013,711 Operating income 23,267 31, ,088 Net income 2,890 28,192 35,162 Depreciation and amortization 12,765 13, ,311 Capital expenditures 12,316 8, ,848 Shareholders equity and accumulated other comprehensive income 151, ,951 1,837,973 Total net assets 154, ,938 1,881,689 Total assets 488, ,898 5,949,191 Interest-bearing debt 143, ,413 $1,747,378 Shareholders equity and accumulated other comprehensive income to total assets (%) Ratio of dividends to shareholders equity (%) Free cash flow 3,751 37,601 45,638 Per share data: Net income (yen and U.S. dollars) $ Cash dividends (yen and U.S. dollars) Shareholders equity and accumulated other comprehensive income (yen and U.S. dollars) ROIC (%)** ROE (%)*** Debt/equity ratio * The U.S. dollar amounts are included solely for convenience and have been translated as a matter of arithmetical computation only at the rate of 82.19=US$1, the rate of exchange prevailing on March 31, ** ROIC: Net income/interest-bearing debt (Average between beginning and end of period) + Shareholders equity (Average between beginning and end of period) *** ROE: Net income/average shareholders equity and accumulated other comprehensive income of the beginning and end of the fiscal year Shareholders equity and accumulated other comprehensive income for total net assets in the calculation Net Sales (Millions of yen) 600, , , , , ,000 Net Income (Loss) (Millions of yen) 30,000 15,000 0 Net Income (Loss) per Share (Yen) , Shareholders Equity and Accumulated Other Comprehensive Income, ROIC (Millions of yen, %) Free Cash Flow (Millions of yen) Shareholders Equity and Accumulated Other Comprehensive Income per Share (Yen) 180, , , , , , , ,000 30, , Shareholders Equity and Accumulated Other Comprehensive Income ROIC (right scale)

7 Message from the Management Looking to the next 100 years, EBARA will continue to make extensive contributions to society as a manufacturer of industrial equipment by providing superior technologies and the best possible service. Natsunosuke Yago President and Representative Director During the fiscal year under review, ended March 31, 2012, the business environment showed improvement in some areas. Overseas, in the United States, despite continued high levels of unemployment and declines in housing prices, the economy remained on a moderate recovery trend. In Europe, however, the persistence of fiscal and monetary uncertainty resulted in a deceleration of growth in the region. In Asia, growth in the economies of China and India, which had been firm because of the support provided by domestic demand, showed signs of slowing. In Japan, public-sector investment, which had been delayed by the effects of the Great East Japan Earthquake, began to recover during the year because of the positive impact of the government s supplementary budgets. In addition, private-sector capital investment, which dropped temporarily following the earthquake disaster, began to bottom out, and the Japanese economy as a whole experienced moderate improvement. Amid these developments in the economic environment, the EBARA Group embarked on the first year of its new three-year medium-term management plan E-Plan2013 (covering the period from the fiscal year ended March 31, 2012, to the fiscal year ending March 31, 2014). Under this plan, EBARA has begun its drive to establish a more-solid, stabler business structure. As a result of these activities, consolidated net sales rose because of increased sales in the Fluid Machinery & Systems (FMS) Company and the Precision Machinery (PM) Company. However, operating income declined in all business segments. Net sales for the fiscal year amounted to billion, operating income was 23.2 billion, and ordinary income totaled 21.0 billion. Consolidated net income amounted to 2.8 billion. In November 2012, we will mark the 100th anniversary of the commencement of EBARA s business activities as a manufacturer of pumps. We would like to take this opportunity to express our deepest thanks to our shareholders and other stakeholders whose warm and continuing support has made our success possible over the years. The EBARA Group s products including pumps, which it has manufactured since its establishment, as well as compressors, chillers, waste treatment facilities, and semiconductor manufacturing equipment contribute to making people s lives more affluent, safer, and more secure. Looking to the next 100 years, EBARA will continue to make extensive contributions to society as a manufacturer of industrial equipment by providing superior technologies and the best possible service. We will appreciate your continuing support and understanding. 5

8 An Interview with the Management Q1 What are your views on the business environment this year? World economic conditions in the industrialized and emerging economies present a mixed pattern of favorable and unfavorable performance. What the EBARA Group must do in this business environment is to focus its resources in regions where economic growth is continuing and will enable us to secure solid expansion in our business activities. We must also respond appropriately to the major changes in energy demand that have emerged with the Great East Japan Earthquake as a watershed. Nuclear power generation is under review around the world, and demand for LNG for thermal electric power generation is rising rapidly. In the United States, extraction technology for shale gas, which formerly could not be mined and produced profitably, has advanced, and activities to develop shale gas as a new source of natural gas have picked up substantially. The EBARA Group boasts leading market shares in global markets in compressors and pumps used in LNG production. In addition, to ensure stability in Japan s energy supply, we must provide the necessary energyrelated products. Q2 What are the key points you are emphasizing under the E-Plan2013 Medium-Term Management Plan? Among our basic policies under E-Plan2013, I believe, in particular, we must move forward to implement a productivity innovation movement and strengthen our service and support business. To improve productivity, we will take the production technology that we have developed to a high level in Japan and apply it, one by one, at our overseas production bases. We want to set off a major wave of activities that will raise the level of production technologies for the Group as a whole. In our service and support business, in the area of after-sales services, which we have not been able to cover fully, we have given very thorough consideration to what 6

9 we can do to take this business back. We now want to implement measures that will enable us to make this a source of earnings for the EBARA Group. The basics for success are to keep in touch with our customers needs and to offer services that can meet every aspect of such needs. If we can do this, then I believe we can expand our service and support business quickly. Our accomplishments last fiscal year included the establishment of service and support bases for compressors in China and Saudi Arabia as well as a base for pumps in South Korea. Going forward, we will be adding service and support bases in other parts of the world. Q3 Lastly, please tell us your shareholder return policy. We consider it to be very important to maintain a stable, long-term return on investment for our shareholders. To achieve a fair return for them, we will strive to make steady growth based on the E-Plan2013. Natsunosuke Yago President and Representative Director 7

10 At a Glance CMP Precision Machinery 17% Components Vacuum pumps Gas abatement systems Components Sales by Region Sales by Industry Overseas Japan Other Semiconductor Environmental Plants Chemical Mechanical Polishing (CMP) CMP systems Sales by Region Sales by Industry Japan Semiconductor Overseas Others Plating systems Others Environmental Engineering 12% Environmental Plants Municipal waste incineration facilities Industrial waste incineration facilities Energy-related plants Sales by Region Sales by Industry Chillers Compressors and Turbines Overseas Other Japan Public Works 8

11 Others Non-Core 2% Fluid Machinery & Systems 69% Pumps Pumps Custom pumps, standard pumps, fluidrelated plants Sales by Region Electric Power Sales by Industry Other Overseas Japan Public Works Oil and Gas Building Equipment Compressors and Turbines Compressors Turbines Sales by Region Japan Sales by Industry Other Overseas Oil and Gas Chillers Refrigeration equipment and systems Sales by Region Overseas Sales by Industry Other Japan Building Equipment Others Fans Composition of Net Sales Fiscal year ended March 31, 2012 Net Sales: Billion 9

12 Special Feature Elliott Products Supporting the Oil and Gas Market Rising Worldwide Demand for Oil and Gas As economic growth continues, especially in the emerging countries, the global demand for energy is expanding steadily. Also, recent fast-moving progress in the development of the North American shale gas industry and other factors are contributing to the expansion of the oil and gas market. According to the World Oil Outlook 2011, published by the Organization of the Petroleum Exporting Countries (OPEC), from 2010 to 2035, an accumulated total of US$1.2 trillion is likely to be invested in oil refining plants. It is assumed that investments in refining capacity will become especially large in the Asia-Pacific region. underground, and, after processes to separate and eliminate impurities, it is also turned into products for many uses. When gas is exported from its source, it is cooled to extremely low temperatures and becomes liquefied natural gas (LNG) that is then transported in oceangoing LNG carriers. The compressors that are used in the gas refining and liquefaction processes as well as the turbines that provide their motive power are indispensable for running the plants involved in these production processes. Therefore, if the capital investments in oil refining plants rise at the rates that are forecast, the demand for EBARA s compressors, turbines, and pumps is expected to increase steadily. Compressors and Turbines Employed in the Oil and Gas Market The petroleum industry refines crude oil, which is extracted from beneath the earth s surface, and manufactures many products, such as gasoline and ethylene, that are essential for our daily lives. Similarly, natural gas is also obtained from Typical Orders Received by the Elliott Group EBARA s compressors and turbines business is conducted by the Elliott Group, which has an outstanding record of successful deliveries of its products to many oil refining and ethylene plants throughout the world. 10

13 Forecasts for Global Refining Investments: Europe US$120 billion Middle East US$125 billion Former Soviet Union (FSU) US$100 billion North America US$195 billion Africa US$50 billion Asia-Pacific US$480 billion Central America and South America US$125 billion Figures are approximates. Reference: OPEC World Oil Outlook

14 Ethylene How Compressors and Turbines Are Used in Ethylene Plants Naphtha Cracking furnace Quench system 750 C~ 950 C 40 C Ethane -100 C Steam turbine Cracking gas compressor Propylene Ethylene compressor Propylene compressor -40 C LPG Let us introduce two examples of typical orders received by the Elliott Group. The first was for processing equipment for a large-scale gas processing plant in the Middle East. This was a major project requiring Elliott to supply 16 compressors and 8 turbines. Since the equipment had to be manufactured to the most-exacting specifications, the production and delivery schedule was very tight. As a result of close teamwork throughout the EBARA Group, Elliott was highly honored for its work at the completion of the project through the receipt of a special certificate of thanks from the customer. The second project we would like to introduce is the delivery of an ethylene plant to the Middle East. Since the plant had to be constructed to work in tandem with a world-class oil refinery, the capacity of the plant had to be more than one million tons of ethylene annually. Downstream from the main ethylene plant, the project also involved the construction of units for the production of propylene, benzene, and other petroleum derivatives. As a result, this massive project became the largest petrochemical complex in the world. In implementing this project, the Elliott Group worked closely as a team, with marketing and interfacing with the customer conducted through Elliott s offices in the United States and manufacturing and trial runs carried out by Elliott s facility in Japan. Elliott Group Continuing Its Global Development To serve the oil and gas market that are spread out across the globe, the Elliott Group has two facilities, one in Japan and the other in the United States, as well as a global service and support network. The manufacturing facilities in Japan and the United States mutually complement each other s activities by concentrating the production of certain items and dividing up the production load when appropriate as well as by conducting global procurement and joint purchasing activities. In addition, service and support bases have been newly established in China and Latin America to strengthen capabilities for grasping customer needs. The Elliott Group aims to further expand its operations as a member of the top group of the world s compressor manufacturers. 12

15 Manufacturing Facilities and Service & Support Network Asia Pacific 1 Elliott Turbomachinery Services (Tianjin) Co., Ltd. (China) 2 Ebara-Elliott Service (Taiwan) Co., Ltd. (Taiwan) 3 Elliott Ebara Turbomachinery India Pvt. Ltd. (India) 4 Elliott Ebara Singapore Pte. Ltd. (Singapore) North America 5 Elliott Turbomachinery Canada, Inc. (Canada) 6 Elliott MVP Services, LLC. (U.S.A.) Elliott Company (U.S.A.) Elliott Ebara Turbomachinery Corporation (Japan) Europe and Middle East 0 Elliott Turbomachinery Limited (U.K.) A Elliott Turbomachinery S.A. (Switzerland) B Elliott Ebara Middle East Maintenance WLL (Bahrain) C ELLIOTT GAS Services Saudi Arabia Limited (Saudi Arabia) Central America and South America 7 Elliott Turbocharger Guatemala, S.A. (Guatemala) 8 Elliott Ebara Servicos para Equipamentos Rotativos Ltda. (Brazil) 9 Elliott Turbomachinery S.A. de C.V. (Mexico) Manufacturing facility Local subsidiary Repair plant and customer service plant 13

16 Review and Outlook Fluid Machinery & Sys Toichi Maeda Company President Net Sales 350 Billions of Yen Overview In the Fluid Machinery & System (FMS) Company, in the pumps business, demand expanded in overseas markets and led to an increase in the number of projects in the oil and gas as well as water infrastructure equipment industries, mainly in the Middle East. However, tough price competition continued due to the appreciation of the yen. In Japan, budgets in the public sector for pumps and other related equipment are on a declining trend, but the market for equipment for buildings in the private sector improved as the number of building starts continued above the level of the previous year. Amid these conditions, the FMS Company identified customer needs through its marketing activities by region and strengthened its systems, including its network of service and support bases. In the compressors and turbines business, as crude oil prices remained at a high level, the number of projects in the oil and gas market increased, but tough competition with European and U.S. companies for large projects continued. Amid these conditions, measures were taken to upgrade and expand the FMS Company s global sales and service networks. In the chillers business, although demand for high-efficiency electric-powered chillers increased in the domestic market, growth in the market as a whole was weak, while, on the other hand, sales performance continued to be favorable in the expanding Chinese market. Sales in the FMS Company for the fiscal year amounted to 286,090 million (an increase of 6.4% year on year). The segment income amounted to 15,579 million (a decrease of 27.9% year on year) Year ended/ending March 31 Target for 2014: Net sales of 350 billion Actual Plan Operating Income/ Operating Income Ratio 29 Billions of Yen 8.3% Year ended/ending March 31 Target for 2014: Operating income ratio of 8.3% Actual Plan HP carbamate pump for urea plant 14

17 tems Company Market Trends and Basic Strategies In overseas markets, the increasing worldwide demand for energy, combined with the resulting rising prices of crude oil and gas, is expected to bring expansion in the oil and gas market as well as the electric power market. In the building equipment market, although there are signs of a slowdown in China and certain other regions, on the other hand, conditions are expected to recover in the Middle East and elsewhere. In the Japa nese market, while the competitive environment in the market for public works projects is likely to remain severe, in the private sector, the outlook is for investments for maintenance and repair and promoting energy conservation to remain firm. In the compressors and turbines business, the oil and gas market, which are the principal markets, are forecast to expand in the medium-to-long term. In the chillers business, demand is expected to show continued expansion, mainly in the Chinese market. Amid these operating conditions, in overseas markets, the FMS Company will work to further develop its business operations based on clear regional and product strategies and take further steps to upgrade its after-sales service and support network. In Japan, the FMS Company will take aggressive initiatives to expand its after-sales service and support activities, reduce its procurement costs, and increase the competitiveness of its principal products through further improvements in design. Issues to Be Addressed In the pumps business, the FMS Company is implementing systematic and strategic marketing under the leadership of the Head Office and further developing its business activities based on clear regional and product strategies. With China, Southeast Asia, the Middle East, and North America as priority areas, the FMS Company is reviewing the functions, products, and output capacity of the Group s production bases, with the aim of creating manufacturing systems that can deliver to the world s markets Topic those products that satisfy customer needs. The FMS Company is also reviewing marketing methods in each region and working to strengthen marketing systems for each of its business locations. In the after-sales service and support business, the FMS Company is implementing measures to expand the scope of the activities of its business locations from emphasis on sales of parts and components to providing more in-depth service and support. Initiatives are also being taken to strengthen global strategic products, such as those for use in light Orders for Process Pumps for Evaporation Method Seawater Desalination Plants Mechanism for Seawater Desalination (Evaporation Method) Steam (from the boiler) Water intake pump Concentrated water (to the boiler) Condensate pump Evaporator (vaporizer) Brine circulation pump Cooled water Fresh water Transport pump Brine drainage Demand for seawater desalination equipment is expanding on a global scale. Along with this development, the FMS Company has received orders from Saudi Arabia for a total of 119 process pumps to be used in one of the world s largest seawater desalination plants using the evaporation method. One of the major contributing factors in winning these orders was the improved competitiveness of EBARA s vertical-type, all-super duplex stainless steel fabricated pumps that are used to circulate concentrated seawater. These pumps rely on cutting-edge design technology and attain the highest levels of efficiency in the world. Also, by combining IT and cutting-edge technology, the FMS Company has been able to make these pumps lighter in weight than previous models. Going forward, the outlook for orders for these pumps for use in seawater desalination plants is quite promising. 15

18 industries, and improve the efficiency of mainstay products. In customer industries where stable growth is expected in the years ahead, such as oil and gas, electric power, and water infrastructure, the FMS Company is working to increase competitiveness (from the perspective of cost versus performance and functionality), with the objective of expanding business activities, especially in the emerging markets, such as China, the Middle East, India, and elsewhere. For mainstay products, the FMS Company will strive not only to upgrade and improve existing products but also launch new product groups that reflect enhanced procurement and production conditions as well as the results of reviews of product strategy that respond to customer requests and the competitive needs of the market. In the domestic market for public works projects, since future growth is expected to be moderate, the FMS Company is working aggressively to expand its after-sales service and support work through proposal-based sales tailored to specific customer needs and 16

19 requirements, with the goal of gaining market share and improving profit ratios. The FMS Company is also strengthening its activities related to comprehensive assessment projects, with the aim of securing increased market share. In the private-sector building equipment industry, the FMS Company is strengthening its marketing systems through increased emphasis on customer service, while also working to increase the attractiveness of key products through reducing procurement costs and making improvements in design. Through these various activities, as well as the launching of products for the global market and the energy-saving product series, the FMS Company is striving to increase its market share and improve profitability. In the compressors and turbines business, the FMS Company is proceeding Centrifugal compressors with steps toward the management integration of the Elliott Group. To increase awareness among customers of the Elliott brand, measures are being implemented to strengthen both products and after-sales service in China, India, South Korea, the Middle East, and other areas. In China and India in particular, the FMS Company is proceeding with the development of new procurement sources through its network of business locations. In South America, steps are being taken to upgrade sales and after-sales service locations. In addition, the FMS Company is expanding its lineup of products for the petrochemical and oil refining industries as well as enhancing its technological capabilities related to high-pressure compressors for the oil and gas industries. Similarly, to expand the repair and remodeling business, the FMS Company is implementing measures to strengthen the capabilities of its corps of marketing and technical specialists. In the chillers business, the FMS Company is conducting the joint management of its business locations in China and Japan, with the objective of attaining further growth and improvement in profitability. Measures are also being implemented in the chillers business to improve competitiveness by shortening lead times, reducing procurement costs, and lowering design costs, as well as redesigning the business model for the after-sales service and support business. In the cooling towers business, the FMS Company is implementing measures to expand sales to private-sector companies, further expand its solutions business, and develop overseas business aggressively while, at the same time, developing cooling tower products for the Chinese market. Within the FMS Company as a whole, activities are under way to accelerate innovation in production processes while strengthening key overseas production bases, such as those in China and elsewhere, as well as bolstering the global production network with Japan as the focal point. In addition, the FMS Company will strive to expand its aftersales service and support business globally and strengthen its system by upgrading its plants that are dedicated to providing superior quality service. Model RGDA absorption chiller-heater 17

20 Environmental Engine Akihiro Ushitora Company President Net Sales Billions of Yen Year ended/ending March 31 Target for 2014: Net sales of 52 billion Actual Plan Operating Income/ Operating Income Ratio Billions of Yen % 14 Year ended/ending March 31 Target for 2014: Operating income ratio of 8.7% Actual Plan Overview In the Environmental Engineering (EE) Company, construction and related activities rose to a scale above the average level in previous years as public-sector investments related to operation and maintenance (O&M) of waste processing facilities rose along with construction work connected with recovery from the Great East Japan Earthquake. Although some new engineering, procurement, and construction (EPC) investments by the public sector were delayed by the earthquake, signs of gradual recovery appeared. In the midst of these conditions, the EE Company is further strengthening its capabilities to respond accurately to changes in the market environment and customer needs by integrating its capabilities for providing new plant construction (EPC) based on its technological capabilities, and the capabilities of its domestic network for providing O&M services on a nationwide basis. Sales in the EE Company for the fiscal year amounted to 50,129 million (a decrease of 3.0% year on year), but the segment secured income of 322 million (a decrease of 65.8% year on year) despite additional losses on construction that were incurred in an overseas waste incineration plant project (the InfraServ project in Germany). Market Trends and Basic Strategies In the Japanese waste incineration facilities market, EPC projects that had been delayed are being restarted, and projects, especially those including construction as well as O&M, are increasing. Also, among O&M projects, work on projects for expanding the scope of corporate operations, renewal of existing facilities, and upgrading of core equipment is expected to increase. In view of this market outlook, to ensure profit stability, the EE Company is working to develop business with new customers and making sure it receives orders for O&M projects related to facilities it has delivered. Activities are also in progress for expanding orders for business projects by strengthening technical capabilities as well as capabilities of the EE Company for providing comprehensive proposals that include reducing costs over the life cycle of the facilities. Issues to Be Addressed In the field of managing the existing stock of facilities effectively, demand is expanding for construction work to lengthen the lifetimes of facilities as well as construction related to reforms in core plant functions to reduce CO 2 emissions. Also, in response to the difficulties that local governments and other entities are ex - periencing in securing personnel with technical training and backgrounds as well as the rising expectations for increasing the efficiency of operations through working jointly with the private sector, a trend is expected to emerge toward shifting from government bureaucracy to private-sector management. Also, the shortage of electric power that has followed the 2011 Great 18

21 ering Company East Japan Earthquake has increased expectations regarding power generation using waste materials as an energy source. In this market environment, issues within the O&M business include stabilizing income by promoting facilities-related services that include both management and repair services as well as maintenance and supervision on comprehensive long-term contract bases. Also, the EE Company is aiming to create new demand in the O&M business through making proposals for renewal work based on plans for the efficient use of existing facilities by lengthening their useful lifetimes. The EE Company is also working to generate new demand in its O&M business by making proposals for improvements in core plant functions to substantially reduce CO 2 emissions through the application of the latest EPC technology. In the EPC business, the EE Company management, which is based on its will share its plans for lengthening the extensive record of successful deliveries useful lifetimes of facilities of its O&M and its nationwide after-sales service network. The EE Company will, therefore, business throughout the EBARA Group. Also, in those cases where the replacement of facilities is expected, the EE technologies for improving heat recovery make possible the establishment of new Company will provide proposals on the and heat usage and, thereby, reduce latest EPC technology when customers greenhouse gas emissions (CO 2 ) at the request them, with the aim of capturing same time as well as enable major reductions in life-cycle costs of facilities, from demand for the replacement of facilities. In addition, the EE Company is working the construction stage to operation and to strengthen the integrated operation of business management. Strengthening the EPC and O&M businesses. This will these technologies will enable the EE involve providing the EPC business with Company to differentiate itself from information held by the O&M business competitors and win orders. related to facilities maintenance and Topic Order Received for Long-Term Comprehensive Management of Waste Treatment Plant of Urayasu City The EE Company has received an order from Urayasu City of Chiba Prefecture for the comprehensive management of that city s waste treatment plant. This project will involve the integrated management over a period of 10 years of a municipal waste incinerator (with a capacity of 270 tons/day), bulky waste treatment equipment (70 tons/five-hour period), a material recycling system (42.5 tons/five-hour period), night soil treatment facilities (35 kiloliters/day), and other facilities in the premises. The EE Company will draw on its many years of operating experience and facilities management know-how to operate these facilities safely and securely, and, through the use of improved operation management, such as optimization of electric power consumption, is working to reduce CO 2 emissions. The EE Company has received contracts for nine such projects and will strive to contribute to efficient waste management with its experience and expertise in these fields. External view of the Urayasu Waste Treatment Plant 19

22 Precision Machinery Manabu Tsujimura Company President Net Sales Billions of Yen Year ended/ending March 31 Target for 2014: Net sales of 85 billion Actual Plan Operating Income/ Operating Income Ratio Billions of Yen % 14 Year ended/ending March 31 Target for 2014: Operating income ratio of 14.1% Actual Plan Overview In the Precision Machinery (PM) Company, in the semiconductor market demand for flash memories for use in high-performance cell phones and tablettype mobile terminals increased over the course of the fiscal year, but investment plans of semiconductor manufacturers were postponed, thus leading to stagnation in demand for semiconductor manufacturing equipment. In the PM Company s customer markets other than semiconductor manufacturers, capital investment in flat panel displays, photovoltaic batteries, and LEDs remained stagnant. Amid these conditions, the PM Company continued its production innovation campaign in its manufacturing divisions, implementing measures to reduce lead times, increase productivity, and lower manufacturing costs. Through its service and support business global network, the PM Company worked to increase customer satisfaction by maintaining the stable operation of client equipment, offering proposals for making improvements in equipment to upgrade productivity, and providing other services. Sales in the PM Company for the fiscal year amounted to 68,373 million (an increase of 0.7% year on year). The segment income amounted to 6,594 million (a decrease of 17.7% year on year). Market Trends and Basic Strategies In the PM Company s core user market of semiconductor manufacturers, aggressive investments are expected to continue as trends in the foundry and flash memory segments of the industry are bolstered by rising demand for highfunction mobile units, including tablettype devices. Other favorable trends will be the further miniaturization of semiconductor devices, the introduction of larger diameter silicon wafers to increase productivity, and progress toward introducing three-dimensional ICs. Among non-semiconductor users, the revival of demand among LED users will require additional time, but recovery is expected among companies in the flat panel display and solar battery industries. Although the PM Company s markets are subject to major fluctuations, latent demand is forecast to be substantial going forward. To secure and expand its position, the PM Company is working to strengthen its service and support functions, build even closer ties with customers, and contribute to stabilizing EBARA Group profitability. Issues to Be Addressed It will be essential for the semiconductor industry to continue steady innovation in the production and development of new technology without being influenced by major fluctuations in the market. The PM Company will work to maintain its market share and profitability while continuing the production innovation and technology development that its users desire as it also helps to support the stable operation of its customers. In the non-semiconductor industries it serves, the PM Company will closely monitor trends to detect when 20

23 Company customers will move into their investment cycle and then work to capture additional market share. In the components business, the PM Company will maintain its base among the major suppliers to companies in its core industry of semiconductors. It will also work to expand sales to companies in new markets, including solar battery and LED manufacturers, as it also enters into the wider market for vacuum pumps. Additionally, the PM Company is planning to take further steps to structure a global production network as it continues to aggressively increase its overseas production and procurement. In the chemical mechanical polishing (CMP) systems business, the PM Company will continue to work with its customers to introduce and expand the range of applications of new processes along with the trends toward greater miniaturization and large wafer diameters as well as the increasingly active moves toward the introduction of 3D ICs and new semiconductor materials. With production centers in the geographically widely separated areas of Kumamoto and Fujisawa in Japan, the PM Company is well-positioned to deal with various risks. Looking ahead, with the establishment of a global supply chain and innovations in production to shorten lead times and lower costs, the PM Company is looking to expand its market share and increase profitability. In new product development, work is proceeding smoothly on a number of developments, including process equipment for 3D ICs and equipment for increasing yields. The PM Company will nurture these new products into businesses that will take their place as major supports for its activities along with the component and CMP businesses. In the after-sales service and support businesses, the PM Company will draw on the capabilities of its global network to maximum advantage in its marketing and after-sales service activities. This will include responding accurately to the wide range of needs for increasing productivity among its customers who have Topic EV-S Series of new-type dry vacuum pumps operations around the globe as well as increasing the PM Company s own sales and earnings power. The PM Company, which comprises EBARA s precision machinery and electronics operations, will strive to optimize its inventories to achieve increased efficiency in the allocation of its assets. Also, by moving ahead with the recruitment, training, and assignment of necessary personnel to implement its global strategy, the PM Company will endeavor to strengthen its management base to achieve stable expansion in profitability. EBARA s Accumulated Shipments of Dry Vacuum Pumps Reach 100,000 Units In May 2011, the accumulated total of dry vacuum pumps shipped from the PM Company s Fujisawa Plant climbed to 100,000. Since commencement of shipments in 1986, EBARA s dry vacuum pumps have been supplied not only to companies throughout the world in the semiconductor manufacturing industry but also for use in a wide range of electronic parts manufacturing companies, including those in the solar cell, LED, and other industries. In addition, the PM Company began to develop dry vacuum pumps with low electric power consumption early on, and, by providing products that respond to a wide range of user needs, has built a position as one of the leading companies in the power-saving dry pump business. Looking ahead, to continue to supply products that meet the requirements of its customers, the PM Company and all its staff members will come together to further increase quality and improve customer service, and play a key role in building a more-affluent society. 21

24 Governance Structure and Management Systems EBARA s corporate philosophy is Extensive contribution to society by providing superior technologies and services related to water, air, and the environment. Under this corporate philosophy, EBARA positions enhancing its corporate value through the attainment of sustainable growth of its business activities as one of its highest priority management issues. For the purpose of addressing these issues effectively, EBARA believes that it is important to further develop management systems, which increase the transparency and objectivity of management activities. Accordingly, EBARA is working to strengthen its corporate governance. Additionally, EBARA has established in-house rules that include the EBARA Group Code of Conduct to provide guidelines for all related parties, such as directors, officers, and employees, when they engage in their jobs with the Company. Corporate Governance Based on the Companies Act established by the Japanese government, EBARA s organization comprises the Board of Directors, the Board of Corporate Auditors, and the Independent Auditor. The Board of Directors is composed of 12 members, and 4 of these are Outside Directors who have no special interest in EBARA. Under the rules for the activities of the Board of Directors established by the Company, it is ensured that the execution of the duties by the Directors complies with laws and regulations and the Company s Articles of Incorporation. The Board of Directors holds regular monthly meetings and special sessions when necessary. The Board of Corporate Auditors comprises five members, three of whom are Outside Auditors who have no special interest in EBARA. Based on auditing plans and auditing principles drawn up by the Board of Corporate Auditors, it audits the conduct of management duties by the Directors. At the same time, it exchanges information and opinions with the Representative Director and with the Independent Auditor to ensure the effectiveness of auditing activities. The Company has appointed Ernst & Young ShinNihon LLC as its Independent Auditor, as required under the Companies Act and Japan s Financial Instruments and Exchange Act. In addition to the organizational units required by law, EBARA has formed some organizational units on its own initiative. For example, the Management Meeting is convened monthly to provide management members with the chance to discuss various issues concerning management policy and strategy. Also, to ensure the transparency and objectivity in the selection of Directors and Executive Officers as well as in the determination of their compensation, the Company has established the Nominations Committee and the Compensation Committee, both of which have a majority of Outside Directors. Moreover, EBARA has established the Corporate Ethics Committee. The key organizational units of the Company s corporate governance system, such as Outside Directors, Corporate Auditors, the Corporate Audit Depart ment, and departments in charge of internal auditing/internal control, play their own role in cooperation with each other under the Com mittee to realize the Company s effective corporate governance systems. Outline of EBARA s Corporate Governance Framework General Meeting of Shareholders Nominations Committee Compensation Committee Corporate Audit Department Reporting Internal Audits Reporting Guidance Reporting Reporting Selection/Dismissal/Surveillance Board of Directors President and Representative Director Selection/Dismissal Auditing/Reporting Auditing Exchange of Opinions Reporting Board of Corporate Auditors Supplementary Assistance Corporate Auditor s Department Selection/Dismissal Management Meeting Management Planning Committee Disclosure Committee Support for Management and Execution Company/ Corporate Guidance/ Transmission of Information Executive Officer Meeting Auditing Reporting Exchange of Information and Opinions Independent Auditor Selection/ Dismissal Advice, Directions for Improvement Risk Management Panel CSR Committee Subsidiaries and Affiliated Companies Exchange of Information and Opinions 22

25 Internal Controls Internal Control Systems In 2006, EBARA s Board of Directors established the Basic Internal Control Policy. Based on this policy, EBARA is working to improve its internal controls and assess their effectiveness. Activities related to the improvement of internal controls include the establishment of systems and/or rules for directors and employees to work in compliance with laws and ordinances, a risk management system, and the internal control systems for Group companies. As for the risk management system, the Company has organized its Risk Management Panel, which consists of all full-time Directors and is chaired by the President. This panel is in charge of the risks that may affect the Group as a whole. Business Continuity Plan To deal with the effects of major natural disasters, the Company created its Business Continuity Management System (BCMS) in the fiscal year ended March 31, 2012 under the assumption of having to deal with the effects of a major earthquake. The Company s Initial Management Plan (IMP), Business Recovery Plan (BRP), and Business Continuity Plan (BCP), which constitute the Company s BCMS, are being fully revised to take account of the Company s experience after the Great East Japan Earthquake of The next steps will include increasing the effectiveness of disaster prevention and business continuity measures through education and training programs as well as other activities. Activities to Ensure the Reliability of Financial Reporting Regarding internal controls required under Japan s Financial Instruments and Exchange Act, to ensure the reliability of financial reporting, the Company is working to increase the efficiency of its assessment activities while also striving to raise the quality of business processes; for example, the Company has instituted education and training programs for finance and accounting. Internal Auditing Systems In its internal auditing systems, the Company has organized the Corporate Audit Department (CAD) as an independent unit reporting to the President. Based on the Company s internal audit rules, the CAD selects important matters and themes and conducts audits related to the status of compliance, risk management, and other issues in the Company and other Group companies. The CAD is also in charge of internal control assessments (including financial reporting risk), from an independent perspective, under the Financial Instruments and Exchange Act. These auditing and monitoring activities make it possible to provide advice and recommendations for improvements to the business units through the auditing process, and its results are reported to the President of the Company. In addition, as deemed necessary, the CAD exchanges information and opinions with the Corporate Auditors and related departments. Compliance System The Company is fully aware that unethical behavior due to the lack of compliance may damage its management foundations. Accordingly, its approach to securing thorough compliance includes five approaches. These are the preparation of the Board of Directors Compliance Action Plan, the formation of a CSR Committee, the establishment of a Group Compliance Network, the creation of a Compliance Liaison System, and the offering of consultation functions, or a whistle-blower system. The Board of Directors Compliance Action Plan for taking specific action to promote compliance is prepared each year by the Board of Directors. The content of this plan is announced to employees to clarify what Directors should be doing to secure compliance. The results of the activities of Directors are assessed at the end of the year, and used as a basis for a plan-do-check-action (PDCA) cycle aimed at improving the effectiveness of these activities year by year. The CSR Committee was formed to further advance the roles of the previous Corporate Ethics Committee, and it commenced its activities in September The CSR Committee is chaired by the President, and outside legal counsel participates to offer its advice. This committee considers and conducts deliberations concerning how the Company should perform its social responsibilities, including the day-to-day practice of compliance. In addition, this committee invites the presidents and representatives of Group companies to confirm the status of compliance in each of these companies, and, by conducting periodic checks on the status of compliance throughout the Group, verifies the proper conduct of business activities and promotes improvements in Group activities. The Group Compliance Network is composed of the officers in charge of corporate ethics in each of the Group companies, and, to ensure that the various measures decided by the CSR Committee are properly implemented in the Group, this committee serves as a forum for introducing the related training activities and initiatives being taken by Group companies. The Compliance Liaison System provides for the stationing of liaison personnel at the workplace level. Its objectives include promoting the development of a compliance culture in the workplace as well as discovering and correcting compliance risks that may exist. Training courses for liaison personnel are conducted twice a year to sharpen their awareness of the objectives of liaison activities and enhance their skills. As part of compliance-related consultation functions, the Company offers access to advisory services provided by outside legal counsel as well as the Harassment Consultation Service, offered by the Human Rights and Compliance Department. Together, these consultation functions deal with between 20 and 30 compliance-related cases each year. In addition, the Human Rights and Compliance Department conducts a questionnaire survey each year to gain input for assessing and implementing improvements in the Company s compliance system. 23

26 Board of Directors (As of June 28, 2012) From left: Atsuo Ohi, Akira Ogata, Masao Namiki, Akihiro Ushitora, Akio Mikuni, Toichi Maeda, Manabu Tsujimura, Natsunosuke Yago, Tetsuji Fujimoto, Sakon Uda, Masaru Shibuya, Shiro Kuniya Directors of the Board Natsunosuke Yago President and Representative Director Tetsuji Fujimoto* Director of the Board Akihiro Ushitora* Director of the Board Manabu Tsujimura* Director of the Board Toichi Maeda* Director of the Board Akira Ogata* Director of the Board Atsuo Ohi* Director of the Board Masaru Shibuya* Director of the Board Akio Mikuni Outside Director Sakon Uda Outside Director Masao Namiki Outside Director Shiro Kuniya Outside Director Directors of the Board marked with * hold the post of Executive Officer concurrently. 24

27 Corporate Auditors and Executive Officers (As of June 28, 2012) Corporate Auditors Full-Time Corporate Auditors Toshihiro Yamashita Akira Hashimoto Corporate Auditors Yoshihiro Machida* Fumio Takahashi* Tadashi Urabe* Individuals marked with * are Outside Corporate Auditors. Executive Officers Senior Managing Executive Officer Tetsuji Fujimoto Responsible for Group Management, Finance & Accounting, Internal Control Managing Executive Officers Akihiro Ushitora President, Environmental Engineering Company Manabu Tsujimura President, Precision Machinery Company, Responsible for Technologies, R&D, Intellectual Property Toichi Maeda President, Fluid Machinery & Systems Company Akira Ogata Vice President, Fluid Machinery & Systems Company, Operations of Technology and Production, Responsible for Production Process Innovation, Information & Communication System, Division Executive, Production Process Innovation Division Atsuo Ohi Vice President, Fluid Machinery & Systems Company, Head of Business Unit, Global Pump Business Unit Masaru Shibuya Responsible for Human Resources, Legal, Public Relations & General Affairs, Division Executive, Human Resources, Legal & Public Relations Division Akira Itoh Division Executive, Enterprise Risk Control Division Shotaro Kuryu Vice President, Fluid Machinery & Systems Company, Domestic Sales, Head of Business Unit, Marketing & Service Business Unit Nobuharu Noji Division Executive, Components Division, Precision Machinery Company Senior Executive Officer Masakatsu Ohya Division Executive, Intellectual Property Division, General Manager, IP Administration, Trademark Department Executive Officers Koji Ota Division Executive, Sales and Marketing Division, Precision Machinery Company Kiyoshi Hirono Division Executive, Southeast Asia Marketing & Sales Division, Executive General Manager, Southeast Asia Regional Office, Fluid Machinery & Systems Company Takao Inoue Division Executive, Marketing & Sales Division, Fluid Machinery & Systems Company Akio Teragaki Executive General Manager, Futtsu Plant, Operations of Technology and Production, Fluid Machinery & Systems Company, Executive General Manager, Futtsu District Seiji Katsuoka Division Executive, CMP Division, Precision Machinery Company Norio Kimura Division Executive, New Business Drive Division, Precision Machinery Company Susumu Shiga Fluid Machinery & Systems Company Masao Asami Division Executive, Sales and Marketing Division, General Manager, Semiconductor Equipment Sales and Marketing Department, Precision Machinery Company Minoru Takano Division Executive, General Affairs Division, Executive General Manager, Haneda Office Kazuhiro Ogawara Head of Unit, Planning & Administration Unit, Division Executive, Planning & Administration Division, Fluid Machinery & Systems Company Kengo Choki Division Executive, Finance & Accounting Division Akihiro Kida Deputy Head of Business Unit, Domestic Sales, Marketing & Service Business Unit, Fluid Machinery & Systems Company Yoshiaki Okiyama Division Executive, China & East Asia Division, Division Executive, Business Planning & Administration Division, Executive General Manager, China & East Asia Regional Office, Precision Machinery Company Mitsuhiko Shirakashi Division Executive, Production & Assurance Division, Precision Machinery Company, Executive General Manager, Fujisawa District Kenichi Nambu Deputy Head of Business Unit, Domestic Sales, Marketing & Service Business Unit, Fluid Machinery & Systems Company Hisao Matsumoto Division Executive, Standard Pump Business Division, Fluid Machinery & Systems Company Takafumi Maehara Division Executive, Middle East Division, Executive General Manager, Middle East Regional Office, Fluid Machinery & Systems Company 25

28 Corporate Social Responsibility (CSR) The EBARA Group fulfills its corporate social responsibilities by having its Directors and all of its employees abide by the EBARA Group Code of Conduct. The EBARA Group will continue to maintain good relationships with all its shareholders and earn the trust of its customers by offering products and services that benefit society, industry, and the people s livelihood, while giving consideration to the natural environment. In addition, the EBARA Group supports the United Nations (UN) Global Compact and puts into practice the 10 principles of the Global Compact, which are grouped into four areas: human rights, labor, the environment, and anti-corruption. To acquaint stakeholders with its CSR activities, the EBARA Group prepares an annual EBARA Group CSR Report. CSR Activities Backed by External Assessments EBARA continues to be selected each year for inclusion in international SRI* Indexes: the Dow Jones Sustainability Asia Pacific Index and the FTSE4Good Index Series. In addition, in 2011, EBARA was selected for inclusion in the Morningstar Socially Responsible Investment Index. EBARA s inclusion in these indexes is evidence that the Company is recognized as an enterprise that is contributing to the sustainable development of society through active initiatives in the fields of the natural environment, human rights, responsiveness to customers, contributing to the community, and other areas. * SRI: Socially Responsible Investing The EBARA Group Code of Conduct To attain the objectives of its corporate philosophy, EBARA has established its EBARA Group Code of Conduct to provide guidelines for the proper conduct of its Directors and each and every one of its other employees. Members of EBARA Group companies in Japan act in accordance with this code of conduct, and staff members of Group companies elsewhere around the world follow codes of conduct, based on the EBARA Group Code of Conduct in Japanese, which takes account of laws and practices in their respective countries. Corporate Philosophy Extensive contribution to society by providing superior technology and the best possible service related to water, air, and the environment We will contribute to society through business by providing excellent products and services globally. We will be fully aware of corporate ethics, comply with laws and ordinances, and respect the principles of society. We will strive to conserve the global environment when proceeding with business activities. We will maintain fair and amicable relationships with stakeholders. Top management and employees will fulfill the responsibilities of their respective work. Note: Overseas Group companies have set up their own codes of conduct, taking local laws, social norms, and customs into account. 26

29 Respect for Human Rights With the UN International Labour Organization (ILO) Standards as a basis, we will protect and respect the human rights of all our stakeholders, including customers, business partners, citizens, and employees. At EBARA s CSR training programs held in 2011, a definition of human rights was explained to EBARA Group employees, and they gained a deeper understanding of the prevention and proper responses to violations of human rights in the workplace. Observance of Labor Practices EBARA is implementing activities to realize an appropriate work-life balance, which is being championed by Japan s Cabinet Office. EBARA has declared each Wednesday as a no overtime day, and stepped up its enforcement of this rule beginning in September Also, in the fiscal year ended March 31, 2012, EBARA revised its systems for providing support for the bearing and raising of children. Specifically, under the revised systems, EBARA decided to provide for an increase in the number of days off and an extension of the term. The aim of this revision was to enable male employees to have additional time off to participate more actively in the child-rearing process. Opposition to Corrupt Practices Both in Japan and overseas, the EBARA Group Code of Conduct absolutely forbids the payment of bribes to national and local government officials as a matter of course as well as the giving or receiving of bribes for the purpose of gaining profit in business activities improperly or in payment for favors received, etc. These rules are observed at all times. Activities Contributing to Society For more than 20 years, the EBARA Hatakeyama Memorial Fund (EHMF) has held international seminars, drawing on EBARA s accumulated technology, for engineers and university students, mainly in the countries of Southeast Asia. During the fiscal year ended March 31, 2012, these seminars were held in six locations, including the Asia Institute of Technology in Thailand and Hanoi University of Science and Technology in Vietnam, with a total of 348 participants in attendance. In Japan, EBARA also invites primary-school and middle-school students and adult citizens living in areas close to its plants as well as university students to tour its facilities. Preservation of the Natural Environment EBARA is implementing its environmental preservation activities under the EBARA Group Environmental Vision (2020), which cites two principal objectives: The EBARA Group is striving to create a society in which nature and technology are in harmony and The EBARA Group endeavors to conserve the global environment through supplying its technology, products, and services. EBARA conducts periodic environmental audits and environmental assessments with the objective of avoiding and minimizing environmental risk accompanying the conduct of construction work within the Group. Also, EBARA endeavors to offer ecofriendly products, such as high-efficiency standard pumps, chillers, and dry vacuum pumps. 27

30 EBARA Global Network Europe & Middle East, Africa (EMEA) Asia-Pacific Principal Subsidiaries and Affiliated Companies (As of June 30, 2012) Consolidated subsidiary Production Sales Service and support Fluid Machinery & Systems (FMS) Company <Pumps> Asia Pacific Ebara-Byron Jackson, Ltd. (Japan) Custom pumps (for nuclear power plants) Ebara Great Pumps Co., Ltd. (China) Custom pumps, small turbines Ebara Machinery (China) Co., Ltd. (China) Standard pumps Ebara Boshan Pumps Co., Ltd. (China) Custom pumps Ebara Densan (Kunshan) Mfg. Co., Ltd. (China) Standard pumps Ebara Engineering Singapore Pte. Ltd. (Singapore) Standard pumps, custom pumps, chillers, vacuum pumps, equipment for the semiconductor industry Ebara-Densan Taiwan Manufacturing Co., Ltd. (Taiwan) Standard pumps Pacific Machinery and Engineering Co., Ltd. (Japan) Special-purpose pumps, including slurry pumps, facilities for transportation of liquid, and powder processing equipment Kirloskar Ebara Pumps Limited (India) Standard pumps, custom pumps, small turbines P.T. Ebara Indonesia (Indonesia) Standard pumps Ebara Pumps Malaysia Sdn. Bhd. (Malaysia) Standard pumps Ebara (Thailand) Limited (Thailand) Standard pumps, custom pumps, engineering Ebara Vietnam Pump Company Limited (Vietnam) Custom pumps, engineering Ebara Pumps Australia Pty. Ltd. (Australia) Standard pumps Ebara Fluid Machinery Korea Co., Ltd. (Republic of Korea) Custom pumps, standard pumps Americas Ebara International Corporation (U.S.A.) Custom pumps, standard pumps Ebara Indústrias Mecánicas e Comércio Ltda. (Brazil) Standard pumps EMEA Ebara Pumps Europe S.p.A. (Italy) Standard pumps Sumoto S.r.l. (Italy) Deep well motors, standard pumps Ebara España Bombas S.A. (Spain) Standard pumps Ebara Pompy Polska sp. z o.o. (Poland) Standard pumps <Compressors & Turbines> Asia Pacific Elliott Group Holdings, Inc. (Japan) Holding Company Elliott Ebara Turbomachinery Corporation (Japan) Compressors, turbines Ebara-Elliot Service (Taiwan) Co., Ltd. (Taiwan) Compressors, turbines Elliott Ebara Singapore Pte. Ltd. (Singapore) Compressors, turbines Elliott Ebara Turbomachinery India Pvt. Ltd. (India) Compressors, turbines Elliott Turbomachinery Services (Tianjin) Co., Ltd. (China) Compressors, turbines Americas Elliott Company (U.S.A.) Compressors, turbines 28

31 FMS Pumps FMS Compressors & Turbines FMS Chillers EE PM Americas Elliott MVP Services, LLC. (U.S.A.) Compressors, turbines Elliott Turbomachinery S.A. de C.V. (Mexico) Compressors, turbines Elliott Turbomachinery Canada, Inc. (Canada) Compressors, turbines Elliott Turbocharger Guatemala, S.A. (Guatemala) Compressors, turbines Elliott Ebara Servicos para Equipamentos Rotativos Ltda. (Brazil) Compressors, turbines EMEA Elliott Turbomachinery S.A. (Switzerland) Compressors, turbines Elliott Turbomachinery Limited (U.K.) Compressors, turbines Elliott Ebara Middle East Maintenance WLL (Bahrain) Compressors, turbines ELLIOTT GAS Services Saudi Arabia Limited (Saudi Arabia) Compressors, turbines <Chillers> Asia Pacific Ebara Refrigeration Equipment & Systems Co., Ltd. (Japan) Chillers, cooling towers, heat-exchange systems Yantai Ebara Air Conditioning Equipment Co., Ltd. (China) Chillers, cooling towers, heat-exchange systems <Others> Asia Pacific EBARA DENSAN LTD. (Japan) Electrical and electronic equipment EBARA HAMADA BLOWER CO., LTD. (Japan) Industrial fans Environmental Engineering (EE) Company Asia Pacific Ebara Environmental Plant Co., Ltd. (Japan) EPC and O&M for the waste treatment business Ebara Qingdao Co., Ltd. (China) Boilers for waste incineration plants, packaged boilers Swing Corporation (Japan) EPC and O&M for the water treatment business Precision Machinery (PM) Company Asia Pacific Ebara Field Tech. Corporation (Japan) Vacuum pumps, products for the semiconductor industry Ebara Precision Machinery Taiwan Incorporated (Taiwan) Vacuum pumps, products for the semiconductor industry Ebara Precision Machinery Korea Incorporated (Republic of Korea) Vacuum pumps, products for the semiconductor industry Shanghai Ebara Precision Machinery Co., Ltd. (China) Vacuum pumps, products for the semiconductor industry Americas Ebara Technologies Incorporated (U.S.A.) Vacuum pumps, products for the semiconductor industry EMEA Ebara Precision Machinery Europe GmbH (Germany) Vacuum pumps, products for the semiconductor industry 29

32 Financial Section Contents Eleven-Year Summary Eleven-Year Summary 30 EBARA CORPORATION and Consolidated Subsidiaries Years ended March Financial Review 32 Consolidated Balance Sheets 38 Consolidated Statements of Income 40 Consolidated Statements of Comprehensive Income 41 Consolidated Statements of Changes in Net Assets 42 Consolidated Statements of Cash Flows 45 Notes to the Consolidated Financial Statements 46 Independent Auditor s Report 69 Net sales 412, , ,889 Cost of sales 318, , ,437 Gross profit 93, ,018 96,452 Operating income (loss) 23,267 31,542 18,953 Net income (loss) 2,890 28,192 5,442 Capital expenditures 12,316 8,189 19,484 R&D expenses 3,827 4,067 4,977 Shareholders equity and accumulated other comprehensive income** 151, , ,806 Total net assets 154, , ,665 Total assets 488, , ,540 Net income (loss) per share (yen and U.S. dollars) ROIC (%)*** ROE (%)**** * The U.S. dollar amounts are included solely for convenience and have been translated as a matter of arithmetical computation only at the rate of 82.19=US$1, the rate of exchange prevailing on March 31, ** The EBARA Group has applied Accounting Standards for Presentation of Net Assets on the Balance Sheets (ASBJ Statement No. 5, issued on December 9, 2005) and Guidance on Accounting Standards for Presentation of Net Assets on the Balance Sheets (ASBJ Guidance No. 8, issued on December 9, 2005) from the fiscal year ended March 31, The amount corresponding to Shareholders Equity, according to the previous method of presentation, is 151,063 million for the fiscal year 2012, 151,951 million for fiscal year 2011, 129,806 million for fiscal year 2010, 121,411 million for fiscal year 2009, and 151,237 million for fiscal year *** ROIC: Net income/interest-bearing debt (Average between beginning and end of period) + Shareholders equity (Average between beginning and end of period) **** ROE: Net income/average shareholders equity and accumulated other comprehensive income of the beginning and end of the fiscal year From the fiscal year 2007, shareholders equity and accumulated other comprehensive income for total net assets in the calculation 30

33 Thousands of Millions of yen U.S. dollars* , , , , , , , ,592 $5,013, , , , , , , , ,853 3,880,483 85,322 97, ,164 96,543 94, ,007 97, ,739 1,133, ,017 13,249 10,902 7,581 10,446 (1,424) 3, ,088 (13,113) 7,609 5,446 3,350 (19,649) 2,586 (28,538) (17,936) 35,162 23,560 22,381 17,917 14,838 12,706 13,690 19,600 25, ,848 8,829 10,812 11,357 10,883 9,994 10,965 14,116 17,287 46, , , , , , , , ,107 1,837, , , ,970 1,881, , , , , , , , ,605 5,949,191 (31.04) (64.43) 8.34 (95.49) (59.99) $ (4.1) (6.2) 0.8 (8.5) (5.2) (9.6) (18.2) 2.3 (23.1) (12.1) 31

34 Financial Review Operating Margin (Millions of yen, %) 600, , , , , , Years ended March 31 Sales Cost of sales SG&A expenses Operating margin (%) (right scale) Overview During the fiscal year ended March 31, 2012, the business environment overseas was characterized by gradual improvement in economic conditions despite the persistence of high unemployment rates in the United States, declines in housing prices, and other factors. However, in Europe, economic growth decelerated because of the continuation of unsettled fiscal and monetary conditions there. In Asia, the economies of China and India, which had shown robust performance supported mainly by domestic demand, began to weaken. In Japan, investment by the public sector, which had been delayed by the effects of the Great East Japan Earthquake, began to show a recovery trend due to the positive effects of supplementary budgets, and private-sector capital investment, which moved into a slump following the Great East Japan Earthquake, is also bottoming out, and the economy is showing moderate improvement. Amid these adverse economic conditions, the EBARA Group (the Group) launched a new three-year, medium-term management plan entitled E-Plan2013 covering the period through the year ending March 31, This plan is based on four policies: (1) Promoting regional production for regional supply in priority areas and establishing an optimally located production and supply system from a global perspective, (2) working to enter new markets by expanding core business domains, (3) aiming to optimize monozukuri (manufacturing) processes through scientific approaches, and (4) expanding the functions of the corporate headquarters in keeping with the globalization of business domains. The beginning of E-Plan2013 marks the start of EBARA s movement toward establishing a stronger and stabler business structure. As a consequence, consolidated net sales for the fiscal year amounted to 412,077 million (an increase of 2.6% year on year) and operating income amounted to 23,267 million (a decrease of 26.2% year on year). Sales in the Fluid Machinery & Systems (FMS) Company and the Precision Machinery (PM) Company increased, but operating income decreased in all business segments. Other income (expense), net, amounted to expenses of 12,402 million, as a result of the reporting of an extraordinary loss of 10,295 million in connection with the withdrawal from a business accompanying the concluding of an agreement to make a final transfer of a plant to the client in the InfraServ project in Germany. Consequently, income before income taxes and minority interests amounted to 10,865 million. Net income amounted to 2,890 million (a decrease of 89.7% year on year), as a result of the reversal of deferred tax assets by 2,453 million with tax reform in the fiscal year ended March 31, Financial Position Assets As a result of a decrease from the end of the previous year in current assets of 26,173 million and an increase in fixed assets of 7,239 million, total assets decreased 18,934 million, to 488,964 million. The principal reasons for these movements in assets were as follows. The decline in current assets was due to decreases of 16,191 million in cash and cash equivalents and 13,408 million in deferred tax assets, although inventories increased 2,836 million. The decline in property, plant and equipment was due to a 4,628 million increase in accumulated depreciation. The increase in investments and other assets was due primarily to an increase in deferred tax assets. 32

35 Liabilities Compared with the previous fiscal year-end, current liabilities decreased 9,739 million, and long-term liabilities decreased 8,913 million; thus, total liabilities decreased 18,652 million, to 334,308 million. The principal causes of these decreases were as follows. Current liabilities decreased 9,739 million as a result of a decrease in the reserve for construction losses of 8,220 million. Long-term liabilities decreased 8,913 million as a result of a decrease of 8,015 million in long-term bank loans. Net Assets Net assets at the end of the fiscal year amounted to 154,656 million, 282 million lower than at the end of the previous fiscal year. Principal changes affecting net asset items were cash dividends paid of 2,110 million, a decrease of 2,007 million in foreign currency translation adjustments, and a net income of 2,890 million. Cash Flows Net cash flow provided by operating activities decreased from the previous year and amounted to a net inflow of 12,589 million due to a decrease of 17,684 million in income before income taxes and minority interests. Among investing activities, the Group reported a cash inflow from proceeds from sales of fixed assets that was decreased 17,272 million compared with the previous year, collection of loans receivable decreased 5,622 million, and cash used in investing activities amounted to a net outflow of 8,838 million. Net cash used for financing activities amounted to an overall net outflow of 19,998 million, mainly because repayment of interest-bearing debt amounted to 16,862 million and other factors. As a consequence, consolidated cash and cash equivalents at the end of the period were 87,296 million, 16,707 million lower than at the end of the previous fiscal year. Capital Expenditures Regarding investments, during the fiscal year, the Group implemented capital investments amounting to 12,316 million. These were primarily for expansion of production capacity and the introduction of equipment to enhance productivity. This figure for investment includes expenditures for the acquisition of intangible fixed assets and long-term prepaid expenses. Principal capital investments by business segment were as follows. Please note that these investment figures include inter-segment transactions. Fluid Machinery & Systems Company Investments were made primarily in the expansion of production capacity and the amount of capital investment during the fiscal year was 7,273 million. Environmental Engineering Company This segment invested in equipment intended for the development of environment-related products. Investments by this segment totaled 440 million. Precision Machinery Company Investments were made principally for equipment intended for development. Investments by this segment totaled 2,932 million. Interest-Bearing Debt/ Equity Ratio (Millions of yen, %) 700, , , , , , , Years ended March 31 Shareholders equity and accumulated other comprehensive income Liabilities, except interest-bearing debt Interest-bearing debt Equity ratio (%) (right scale) Net Cash Provided by (Used in) Operating Activities (Millions of yen) 30,000 20,000 10, ,000 Years ended March 31 Capital Expenditures (Millions of yen) 25,000 20,000 15,000 10,000 5, Years ended March 31 Fluid Machinery & Systems Environmental Engineering Precision Machinery 33

36 Liquidity and Capital Resources (1) Capital Resources At the end of the fiscal year under review, on a consolidated basis, the Group had total interestbearing debt of 143,617 million, comprising 80,026 million in short-term interest-bearing liabilities and 63,591 million in long-term interest-bearing liabilities. Although this balance decreased 16,796 million from the total balance at the end of the previous fiscal year of 160,413 million, the Group s dependence on interest-bearing debt remains at a high level, and management believes that reducing this dependence is an important issue. We believe that increasing profitability and the efficiency of capital are basic to strengthening the Group s financial base. During the fiscal year under review, the Group s free cash flow, defined as net cash from operating activities plus net cash from investing activities, amounted to a net inflow of 3,751 million, and the amount of net outflow increased 33,850 million from the previous fiscal year. While net cash flow provided by operating activities amounted to 12,589 million, a 14,015 million decrease from 26,604 million of net cash provided by operating activities in the previous year, the increase in net outflow reflected a 19,835 million increase in net cash used in investing activities, to 8,838 million, compared with 10,997 million of net cash used in investing activities in the previous fiscal year. (2) Management of Liquidity The Group takes the position that reducing cash and cash equivalents is a basic requirement for increasing asset efficiency. To manage liquidity risk, the Company has concluded commitment line contracts with its principal banks that provide an adequate amount of financial liquidity for its operations. In addition, to increase the efficiency of cash within the Group, the Company has instituted a system whereby idle cash is concentrated in the parent company and then allocated to Group companies with cash requirements. The consolidated balance of cash and cash equivalents at the end of the fiscal year was 87,295 million. In addition, the available balance of commitment lines was 45,000 million, and available overdrafts amounted to 5,000 million. While the total funding limit from overdrafts and commitment lines was 50,000 million, the Company had no borrowings from these sources at the end of the fiscal year. R&D Expenses (Millions of yen) 12,000 10,000 8,000 6,000 4,000 2, Years ended March 31 R&D Expenses R&D expenditures of the Group can be divided into three major categories: 1. Basic research aimed at discovering and establishing seed technologies for the medium-tolong term, 2. Development research focused on the application of technologies and the creation of new products, and 3. R&D to provide the development research of existing businesses and improvement of existing products. The Company implemented R&D activities that are directly linked to its businesses and the commercialization of products by integrating these activities directly into the respective companies and subsidiaries. Regarding point 1. above, the corporate headquarters takes the leadership in this area, and, by working closely with the operating companies, research is focused on technological seeds and the search for new markets. With regard to points 2. and 3. above, the individual business divisions and Group companies take the leadership in implementing these two categories of R&D. R&D expenses amounted to 3,827 million during the year under review. 34

37 Activities by business segment are as follows: Fluid Machinery & Systems Company The FMS Company worked to strengthen its lineup of products for global markets and develop products suited to the individual regions where they are sold in the fields of water, energy, and the natural environment, where sustained growth is expected in the medium-to-long term. For example, the FMS Company launched new customized pumps for seawater desalination and high-pressure pumps for combined-cycle electric power generators, and advanced the development of new process pumps for oil and gas market, energy-saving high-efficiency standard pumps and motors, submersible pumps for use globally in sewage treatment applications, and other types of equipment. It also completed the development of a series of turbochillers equipped with a new, high-performance compressor and featuring low impact on the natural environment. In addition, the FMS Company continued to proceed with activities to increase the efficiency of its chillers and develop further applications. Amid an increasingly competitive environment, initiatives were also taken to enhance cost-competitiveness and reliability through the application of basic technologies, including advanced numerical simulation technology and materials engineering technology, as well as strengthen R&D for service and support businesses. The FMS Company made expenditures on R&D amounting to 2,793 million during the year under review. Environmental Engineering Company In the environmental engineering field, since the focus of operations is shifting from the construction of new plants to after-sales service, in today s market, more so than in the past, the EE Company is being required to provide services related to the renewal of existing facilities and strengthen its capabilities for offering proposals for operation and maintenance (O&M) services as well as improve its cost-competitiveness. In view of these circumstances, the EE Company is working to strengthen its capabilities for the renewal of facilities, develop new technologies and products that will make possible reductions in the life-cycle cost of facilities, and promote repair, maintenance, and operating technologies that will improve the performance of existing products. The EE Company made expenditures on R&D amounting to 69 million during the year under review. Precision Machinery Company In the precision machinery field, in the semiconductor wafer production equipment field, the PM Company worked to refine and improve its existing products and develop new equipment with the aims of responding to the requirements for larger-diameter wafers as well as greater miniaturization and three-dimensional integration. Among component products, in addition to equipment for the semiconductor industry, the PM Company worked to ready and expand its lineup of products for the liquid crystal display (LCD) and solar battery industries, while also striving to develop products that can contribute to energy conservation as well as reduce the burden on the natural environment. Also, by pursuing collaborative R&D with customers and universities, and participating in consortia for the development of cutting-edge technologies, the PM Company is continuing its research into next-generation semiconductor process technologies. The PM Company made expenditures on R&D amounting to 965 million during the year under review. Business Risks The Group confronts a number of business risks that may have an influence on the judgment of investors. These are described as follows. In addition to being aware of the possibility of the emergence of these risks, the Group implements measures to prevent their occurrence and deal with them when they emerge. 35

38 This section includes forward-looking statements that are based on judgments made at the time of the preparation of this report on the Group s performance. 1. Market Risk Public works projects account for a high percentage of the sales of the fluid-related plant engineering division and the EE Company. Accordingly, there is a possibility that there will be cutbacks in public works by the national government, regional governments, and related entities. In addition, the business of the PM Company is influenced by the silicon cycle. Accordingly, fluctuations in the market for semiconductors may have a detrimental impact on the Group s business activities, performance, and financial position. 2. Large-Scale Projects and Overseas Business Activities The Group manufactures and constructs machinery and plants in big projects both in Japan and foreign countries. Certain of these projects involve technical issues with a high degree of difficulty. There is a possibility that additional costs may be incurred due to failure to function properly, prolongation of the time required to achieve the specified capabilities, and other factors. Also, big projects in foreign countries involve risks related to business environments that differ from those of Japan. The Group takes possible measures to control these risks and provides for construction losses by setting aside an amount based on its estimate of such costs; however, if actual additional costs exceed the reserves, this may have a detrimental impact on the Group s performance. 3. The InfraServ Project in Germany in View of Progress Regarding the InfraServ project, agreement was reached with the client to make a final handover of the plant in its present form, but, because the client is making use of project finance arrangements to finance this plant, the final handover will require the approval of the banks providing the financing. The client is currently in the process of conducting procedures to secure the approval of the members of the project finance bank syndicate. In the event that approval of the banks cannot be secured, there is a possibility that this could have an adverse effect on the Group s performance. 4. Business Realignments, etc. The EBARA Group is allocating resources to its businesses with selectivity and focus and, in realigning its business activities, may withdraw from certain unprofitable businesses and liquidate or take other appropriate action with regard to associated companies. Such realignments may have an impact on the Group s performance and financial position. 5. Exchange Risk Transactions denominated in foreign currencies that are conducted as part of business activities overseas are converted to yen in the course of preparing the consolidated financial statements. As a result of changes in foreign exchange conversion rates at the time of conversion, there is a possibility that this may have an effect on the Group s performance. 6. Interest-Rate Risk The Group s interest-bearing debt includes fixed- and floating-rate liabilities. For that portion of interest-bearing debt borrowed at floating rates, the Group has arranged for interest-rate swaps to fix the interest liability and loans with floating rates to lessen the risk of interest-rate fluctuations; however, if interest payments on the unhedged portion rise due to higher interest rates, this may have an adverse impact on the Group s performance. 7. Risks Related to the Impact of Natural Disasters and Impairment of the Social Infrastructure If a Group place of business is struck by a major typhoon, earthquake, or other natural disaster that adversely affects its ability to conduct business activities, this may have a detrimental impact on the Group s performance. In addition, in the event of a major accident affecting the labor 36

39 force or an accident involving equipment that leads to a stoppage, or impairment, of business activities, this may have an adverse impact on the Group s performance. 8. Deferred Tax Assets The Group determines the possibility of recoveries from future taxable income. Regarding the portion of deferred tax assets for which the Group believes there is doubt about making recoveries, the Group has provided the valuation allowance for such doubtful amounts. However, the estimate of future taxable income may vary depending on performance at that time. In the event that factors influencing the estimate of taxable income occur, it may be necessary to make changes in the valuation allowance amounts. In such cases, the Group will make adjustments in the doubtful portion of deferred tax assets, and, since an equivalent amount will be reflected in the deferred tax benefit on the Consolidated Statements of Income, there is a possibility that net income may decline as a result. 9. Material Procurement The Group procures parts and materials for its manufacturing and construction activities and is influenced by fluctuations in market conditions for these materials. Increases in prices of materials result in higher material costs for the Group and may have an adverse impact on the Group s performance. 10. Legal Restrictions The Group conducts operations in Japan and foreign countries and is subject to the laws of the countries where its operations take place. In some instances, the passage of laws and changes in existing legislation may result in an alteration of assumptions for operating and business plans. Such changes in assumptions may have an adverse impact on the Group s performance. 11. Litigation Risk In conducting its business operations, the Group may be the object of lawsuits or bring lawsuits against other parties with regard to such matters as product liability, intellectual property, environmental protection, labor issues, and other matters. Depending on the outcome of such lawsuits, litigation of this kind may have an impact on the Group s performance and financial position as well as on the trust placed in the Group by society. 12. Risk of Increased Costs of Land Sales As provided for in the sales contract for the land where EBARA s former headquarters and its Haneda Plant were located, the area was handed over to Yamato Transport Co., Ltd. Subsequently, during the course of the construction of a logistics terminal by this company, slate fragments containing asbestos were discovered. This company has brought a lawsuit for compensation of damages due to defects as provided for under the contract for sale of the property. After investigating this matter, the Company has drawn the conclusion that the said slate fragments do not constitute defects under the contract. The Company has obtained a written legal opinion from a law office substantiating this view and will use this to assert the correctness of its position in this matter. Nevertheless, depending on the subsequent course of events, this matter may have an adverse effect on the Group s performance. 13. Risk of Collection of Export Receivables The Group exports its products to the Middle East. There is concern that export receivables outstanding from customers in this region may not be collectible because of international cooperation measures, changes in regional political conditions, and other factors. In the event that it is impossible to make collections, this may have a detrimental impact on the Group s business activities, performance, and financial position. 37

40 Consolidated Balance Sheets EBARA CORPORATION and Consolidated Subsidiaries As of March 31, 2012 and 2011 Thousands of U.S. dollars Millions of yen (Note 5) ASSETS Current assets: Cash and cash equivalents 87, ,003 $1,068,402 Trade receivables 160, ,512 1,958,827 Allowance for doubtful receivables (1,107) (1,448) (13,469) Inventories (Note 7) 69,711 66, ,169 Deferred tax assets (Note 12) 11,514 24, ,090 Others 17,323 16, ,768 Total current assets 346, ,422 4,212,787 Property, plant and equipment (Note 15): Land 21,669 21, ,645 Buildings 93,208 92,677 1,134,055 Machinery and equipment 129, ,182 1,580,229 Leased assets 3,185 3,192 38,752 Construction in progress 4,642 2,522 56, , ,575 3,073,160 Accumulated depreciation (163,479) (158,851) (1,989,038) Property, plant and equipment, net 89,104 89,724 1,084,122 Investments and other assets: Investment securities (Note 6) 15,881 16, ,223 Investments in and advances to subsidiaries and affiliates 7,415 7,345 90,218 Long-term loans receivable ,740 Deferred tax assets (Note 12) 19,115 8, ,571 Other investments 15,956 9, ,136 Other assets 5,766 7,435 70,155 Allowance for doubtful receivables (11,076) (3,234) (134,761) Total investments and other assets 53,611 45, ,282 Total assets 488, ,898 $5,949,191 The accompanying notes are an integral part of these statements. 38

41 Thousands of U.S. dollars Millions of yen (Note 5) LIABILITIES AND NET ASSETS Current liabilities: Bank loans (Note 9) 54,798 53,524 $ 666,723 Current portion of long-term debt (Note 9) 24,579 34, ,051 Trade payables 105,639 98,923 1,285,302 Accrued income taxes 3,324 4,760 40,443 Deferred tax liabilities Lease obligations ,896 Reserve for losses on construction completion guarantees 5,359 7,073 65,203 Reserve for product warranties 1,713 1,795 20,842 Reserve for construction losses 8,758 16, ,558 Reserve for expenses related to the sale of land 1,850 2,871 22,509 Accrued expenses and other current liabilities 43,653 38, ,123 Total current liabilities 250, ,080 3,045,881 Long-term liabilities: Long-term debt (Note 9) 62,641 70, ,149 Lease obligations ,559 Accrued severance and pension costs (Note 10) 15,250 16, ,546 Deferred tax liabilities ,163 Asset retirement obligations 1,800 1,769 21,900 Other long-term liabilities 3,066 3,470 37,304 Total long-term liabilities 83,967 92,880 1,021,621 Net assets (Note 11): Shareholders equity: Common stock: Authorized: 1,000,000,000 shares Issued: 422,899,658 shares in 2012 and 459,245,678 shares in ,314 61, ,003 Capital surplus 65,243 65, ,807 Retained earnings 41,752 40, ,994 Treasury stock, at cost 689,200 shares in 2012 and 37,168,870 shares in 2011 (278) (266) (3,382) Total shareholders equity 168, ,991 2,044,422 Accumulated other comprehensive income (loss): Net unrealized gain on investment securities 1,116 1,053 13,578 Unrealized gain (loss) from hedging instruments 6 (10) 73 Translation adjustments (18,090) (16,083) (220,100) Total accumulated other comprehensive income (loss) (16,968) (15,040) (206,449) Subscription rights to shares ,341 Minority interests in consolidated subsidiaries 3,154 2,625 38,375 Total net assets 154, ,938 1,881,689 Total liabilities and net assets 488, ,898 $5,949,191 39

42 Consolidated Statements of Income EBARA CORPORATION and Consolidated Subsidiaries For the years ended March 31, 2012 and 2011 Thousands of U.S. dollars Millions of yen (Note 5) Net sales 412, ,676 $5,013,711 Cost of sales 318, ,658 3,880,483 Gross profit 93, ,018 1,133,228 Selling, general and administrative expenses 69,873 68, ,140 Operating income 23,267 31, ,088 Other income (expenses): Interest and dividend income ,880 Interest expenses (2,515) (3,028) (30,600) Gain on sales of securities Write-down of securities and other investments (161) (640) (1,959) Gain (loss) on sales and disposal of fixed assets, net (126) 135 (1,533) Gain on sales of investments in subsidiaries and affiliates 462 1,167 5,621 Impairment losses (Note 8) (128) (74) (1,557) Loss on adjustment for changes of accounting standard for asset retirement obligations (907) Loss on liquidation of subsidiaries and affiliates (168) (2,044) Loss on business withdrawal (Note 20) (10,295) (125,259) Gain on transfer among severance payment plans 38 Other, net (325) (621) (3,954) (12,402) (2,993) (150,894) Income before income taxes and minority interests 10,865 28, ,194 Income taxes (Note 12): Current taxes 3,336 9,019 40,589 Deferred tax expenses (benefits) 3,596 (9,344) 43,753 6,932 (325) 84,342 Income before minority interests 3,933 28,874 47,852 Minority interests in consolidated subsidiaries 1, ,690 Net income 2,890 28,192 $ 35,162 Yen U.S. dollars Per share of common stock: Net income $0.083 Fully diluted net income Cash dividends (Note 21) The accompanying notes are an integral part of these statements. 40

43 Consolidated Statements of Comprehensive Income EBARA CORPORATION and Consolidated Subsidiaries For the years ended March 31, 2012 and 2011 Thousands of U.S. dollars Millions of yen (Note 5) Income before minority interests 3,933 28,874 $47,852 Other comprehensive income Net unrealized gain (loss) on investment securities 51 (523) 621 Unrealized gain (loss) from hedging instruments 16 (10) 195 Translation adjustments (2,014) (5,540) (24,504) Share of other comprehensive loss of associates accounted for using equity method (7) (63) (85) Total other comprehensive income (loss) (1,954) (6,136) (23,773) Comprehensive income 1,979 22,738 24,079 Comprehensive income attributable to shareholders of EBARA CORPORATION ,191 11,705 Comprehensive income attributable to minority interests 1, ,374 The accompanying notes are an integral part of these statements. 41

44 Consolidated Statements of Changes in Net Assets EBARA CORPORATION and Consolidated Subsidiaries For the year ended March 31, 2012 Millions of yen Shareholders equity Number of Common Capital Retained Treasury Total shareholders shares issued stock surplus earnings stock, at cost equity Balance at April 1, ,245,678 61,284 65,213 40,760 (266) 166,991 Changes during the year Net income 2,890 2,890 Cash dividends (2,110) (2,110) Issuance of new shares (exercise of subscription rights to shares) 174, Change of increase in scope of consolidation Net unrealized gains on investment securities Change in translation adjustments Purchase of treasury stock (13) (13) Retirement of treasury stock (36,520,020) Loss on disposal of treasury stock Changes in profit/loss deferral hedge accounting Changes in subscription rights to shares Changes in minority interests Total changes during the year (12) 1,040 Balance at March 31, ,899,658 61,314 65,243 41,752 (278) 168,031 Millions of yen Accumulated other comprehensive income (loss) Net unrealized Total accumulated Minority gain (loss) on Unrealized loss other Subscription interests in investment from hedging Translation comprehensive rights to consolidated Total net securities instruments adjustments income (loss) shares subsidiaries assets Balance at April 1, ,053 (10) (16,083) (15,040) 362 2, ,938 Changes during the year Net income 2,890 Cash dividends (2,110) Issuance of new shares (exercise of subscription rights to shares) (58) 2 Change of increase in scope of consolidation 212 Net unrealized gains on investment securities Change in translation adjustments (2,007) (2,007) (2,007) Purchase of treasury stock (13) Retirement of treasury stock Loss on disposal of treasury stock 1 Changes in profit/loss deferral hedge accounting Changes in subscription rights to shares Changes in minority interests Total changes during the year (2,007) (1,928) (282) Balance at March 31, ,116 6 (18,090) (16,968) 439 3, ,656 42

45 EBARA CORPORATION and Consolidated Subsidiaries For the year ended March 31, 2012 Thousands of U.S. dollars (Note 5) Shareholders equity Common Capital Retained Treasury stock Total shareholders stock surplus earnings at cost equity Balance at April 1, 2011 $745,638 $793,442 $495,925 $(3,236) $2,031,769 Changes during the year Net income 35,162 35,162 Cash dividends (25,672) (25,672) Issuance of new shares (exercise of subscription rights to shares) Change of increase in scope of consolidation 2,579 2,579 Net unrealized gains on investment securities Change in translation adjustments Purchase of treasury stock (158) (158) Retirement of treasury stock Loss on disposal of treasury stock Changes in profit/loss deferral hedge accounting Changes in subscription rights to shares Changes in minority interests Total changes during the year ,069 (146) 12,653 Balance at March 31, 2012 $746,003 $793,807 $507,994 $(3,382) $2,044,422 Thousands of U.S. dollars (Note 5) Accumulated other comprehensive income (loss) Net unrealized Total accumulated Minority gain (loss) on Unrealized loss other Subscription interests in investment from hedging Translation comprehensive rights to consolidated Total net securities instruments adjustments income (loss) shares subsidiaries assets Balance at April 1, 2011 $12,812 $(122) $(195,681) $(182,991) $4,404 $31,938 $1,885,120 Changes during the year Net income 35,162 Cash dividends (25,672) Issuance of new shares (exercise of subscription rights to shares) (706) 24 Change of increase in scope of consolidation 2,579 Net unrealized gains on investment securities Change in translation adjustments (24,419) (24,419) (24,419) Purchase of treasury stock (158) Retirement of treasury stock Loss on disposal of treasury stock 12 Changes in profit/loss deferral hedge accounting Changes in subscription rights to shares 1,643 1,643 Changes in minority interests 6,437 6,437 Total changes during the year (24,419) (23,458) 937 6,437 (3,431) Balance at March 31, 2012 $13,578 $ 73 $(220,100) $(206,449) $5,341 $38,375 $1,881,689 43

46 EBARA CORPORATION and Consolidated Subsidiaries For the year ended March 31, 2011 Millions of yen Shareholders equity Number of Common Capital Retained Treasury Total shareholders shares issued stock surplus earnings stock, at cost equity Balance at April 1, ,725,658 61,284 65,212 12,568 (219) 138,845 Changes during the year Net income 28,192 28,192 Shares issued on exchange of shares with a subsidiary 36,520,020 Net unrealized losses on investment securities Change in translation adjustments Purchase of treasury stock (48) (48) Loss on disposal of treasury stock Changes in profit/loss deferral hedge accounting Changes in subscription rights to shares Changes in minority interests Total changes during the year 1 28,192 (47) 28,146 Balance at March 31, ,245,678 61,284 65,213 40,760 (266) 166,991 Millions of yen Accumulated other comprehensive income (loss) Net unrealized Total accumulated Minority gain (loss) on Unrealized loss other Subscription interests in investment from hedging Translation comprehensive rights to consolidated Total net securities instruments adjustments income (loss) shares subsidiaries assets Balance at April 1, ,576 (10,615) (9,039) 104 2, ,665 Changes during the year Net income 28,192 Shares issued on exchange of shares with a subsidiary Net unrealized losses on investment securities (523) (523) (523) Change in translation adjustments (5,468) (5,468) (5,468) Purchase of treasury stock (48) Loss on disposal of treasury stock 2 Changes in profit/loss deferral hedge accounting (10) (10) (10) Changes in subscription rights to shares Changes in minority interests (130) (130) Total changes during the year (523) (10) (5,468) (6,001) 258 (130) 22,273 Balance at March 31, ,053 (10) (16,083) (15,040) 362 2, ,938 The accompanying notes are an integral part of these statements. 44

47 Consolidated Statements of Cash Flows EBARA CORPORATION and Consolidated Subsidiaries For the years ended March 31, 2012 and 2011 Thousands of U.S. dollars Millions of yen (Note 5) Cash flows from operating activities: Income before income taxes and minority interests 10,865 28,549 $ 132,194 Depreciation and amortization 12,765 13, ,311 Impairment losses ,557 Gain on sales of securities and investment securities (504) (1,246) (6,132) Loss on adjustment for changes of accounting standard for asset retirement obligations 907 Decrease in provision (3,712) (10,146) (45,164) Gain on sales of fixed assets (18) (657) (219) Other noncash expenses (income), net (190) 240 (2,312) Interest and dividend income (812) (858) (9,880) Interest expenses 2,515 3,028 30,600 Increase in trade receivables (2,839) (242) (34,542) (Increase) decrease in inventories (3,387) 1,234 (41,209) Increase in trade payables 8,613 1, ,794 Other (2,647) 583 (32,205) Sub-total 20,777 36, ,793 Interest and dividends received ,013 Interest expenses paid (2,550) (3,075) (31,026) Income taxes paid (6,461) (7,295) (78,611) Net cash provided by operating activities 12,589 26, ,169 Cash flows from investing activities: Sales of fixed assets ,516 2,969 Purchases of fixed assets (10,133) (14,647) (123,288) Sales and redemption of investment securities 3,826 1,988 46,551 Purchases of investment securities (3,392) (543) (41,270) Decrease in time deposits (516) (6,278) Sales or purchases of other investments, net ,785 Purchase of investments in subsidiaries (29) Collection of loans receivable 2,618 8,240 31,853 Disbursement of loans receivable (3,077) (1,700) (37,438) Proceeds from sales of investments in subsidiaries resulting in change in scope of consolidation ,585 Net cash provided by (used in) investing activities (8,838) 10,997 (107,531) Cash flows from financing activities: Redemption of bonds (20,000) (243,339) Net increase (decrease) in short-term loans and commercial paper 1,337 (925) 16,267 Proceeds from long-term bank loans 16,267 4, ,919 Repayment of long-term bank loans (14,466) (18,384) (176,007) Proceeds from stock issuance to minority shareholders 241 2,932 Dividends paid (2,110) (25,672) Dividends paid to minority shareholders in consolidated company (692) (438) (8,420) Purchase and sales of treasury stock (13) (46) (158) Others (562) 796 (6,836) Net cash used in financing activities (19,998) (14,096) (243,314) Translation adjustments (771) (1,214) (9,381) Increase in cash and cash equivalents (17,018) 22,291 (207,057) Cash and cash equivalents: At beginning of period: Balance brought forward 104,003 81,712 1,265,385 Increase in cash and cash equivalents resulting from change of scope of consolidation 311 3,784 At end of period 87, ,003 $1,062,112 The accompanying notes are an integral part of these statements. 45

48 Notes to the Consolidated Financial Statements EBARA CORPORATION and Consolidated Subsidiaries 1. Basis of Presenting Consolidated Financial Statements EBARA CORPORATION (the Company ) and its subsidiaries (hereinafter, collectively referred to as the Group ) maintain their records and prepare their statutory fi nancial statements in accordance with accounting principles generally accepted in Japan, and its foreign subsidiaries in conformity with those of the countries of their domicile. The accompanying consolidated fi nancial statements were also prepared in accordance with accounting principles generally accepted in Japan. 2. Summary of Significant Accounting Policies Basis of consolidation The consolidated fi nancial statements include the accounts of the Company and those of certain of its subsidiaries. All signifi cant intercompany transactions and accounts are eliminated in consolidation. As of March 31, 2012, the numbers of consolidated subsidiaries, non-consolidated subsidiaries that applied the equity method, and affi liated companies that applied the equity method were 53, 1 and 2 (48, 1 and 2 in 2011), respectively. The fi nancial statements of foreign subsidiaries are consolidated by using their fi nancial statements as of the fi scal year-end, and necessary adjustments are made to their fi nancial statements to refl ect any signifi cant transactions from January 1 to March 31. Previously, the date for closing the accounts of Elliott Group Holdings Inc. (the name of which was changed from Elliott Ebara Turbomachinery Corporation, effective July 1, 2011) was December 31. As a result of the change in the date for closing the accounts of this company to March 31, the fi nancial statements consolidated with EBARA s accounts for the fi scal year under review cover the 15-month period from January 1, 2011, through March 31, The differences, at the time of acquisition or consolidation newly made, between the cost and underlying net equity of investments in consolidated subsidiaries are included in other assets and are amortized on a straight-line basis over a reasonable estimated period of time within a 20-year period in respect of each particular difference. Foreign currency translation Foreign currency denominated trade receivables and payables are translated into yen at the balance sheet date. Investments are translated into yen at the exchange rates current when the trans actions occur. Assets and liabilities of foreign consolidated subsidiaries are translated into yen at appropriate year-end rates. Revenue, expenses and net income of these companies are also translated into yen at the appropriate year-end rates. Contributed capital to those companies by the parent company is translated at the rates at which the transactions were made. Receivables and payables with the parent company are translated at the same rates used by the parent company, and the resultant translation adjustments are stated in the net assets section. Cash and cash equivalents Cash and cash equivalents include cash on hand, demand deposits, time deposits with maturities of three months or less, and highly liquid investments. Investment securities and other financial instruments Investment securities and other fi nancial instruments are valued using the following methods: (a) Securities having market value are stated at market value, and the unrealized gain or loss, net of tax, is credited or debited to net assets as shown in the balance sheets. Cost of securities sold is determined by the gross average. (b) Securities not having market value are recorded at the gross average cost. (c) Bonds held to maturity are stated at cost less accumulated amortization. (d) Other fi nancial assets (or instruments), including golf memberships, are valued at market value, if available. 46

49 Inventories Finished products and raw materials are stated at the gross average cost (computed by lowering the value on the balance sheets from book value to account for any decline in earningsgeneration capacity of such assets), except for in the Precision Machinery Group, which employs the moving average method (computed by lowering the value on the balance sheets from book value to account for any decline in earnings-generation capacity of such assets), and work in process is valued at specifi c identifi cation cost (computed by lowering the value on the balance sheets from book value to account for any decline in earnings-generation capacity of such assets). Real estate for sale represents the specifi c identifi cation cost for each parcel of land and each structure. Property, plant and equipment and related depreciation (except leased assets) The declining balance method, applied according to the criteria specifi ed in the corporate income tax laws, is used as the primary method for computing depreciation. However, depreciation of buildings (excluding fi xtures installed in such buildings) that were acquired on or after April 1, 1998 is computed using the straight-line method. Consolidated foreign subsidiaries employ the straight-line method. Note that the method for depreciating minor assets valued from 100,000 to less than 200,000 is the lump-sum method specifi ed in the corporate income tax laws, and these assets are depreciated in equal amounts over a three-year period. Leases Leased assets under fi nance lease transactions that do not transfer ownership of the asset to the lessee are depreciated by the straight-line method over the lease term as the useful life and a residual value of zero. For fi nancial leases that do not transfer ownership to the lessee commencing on or prior to March 31, 2008, the Group adopts accounting standards normally applicable to ordinary operating lease transactions. Income taxes Deferred tax assets and liabilities are determined based on the differences between fi nancial reporting and the tax bases of the assets and liabilities and are measured by applying currently enacted tax rates and laws. Severance and pension plans The cost of the severance and pension plans, based on actuarial computations of current and future employee benefi ts, including the unfunded severance indemnities plan, is charged to income. Retirement benefi ts to directors and corporate auditors are also accrued at the amounts of the future liability in relation to the length of service at the balance sheet date and included in accrued severance and pension costs. The Company, its domestic consolidated subsidiaries, and some foreign consolidated subsidiaries have termination allowance plans and retirement pension plans as severance and defi ned benefi t pension plans. Revenue recognition Standard for cost of completed work and construction revenue The percentage-of-completion method has been applied for the completion of a portion of the construction work that is deemed to be certain by the end of the current fi scal year. (The percentage of completion is estimated based on the percentage of cost incurred compared with the estimated total cost). For other construction work, the completed-contract method has been applied. Stock and bond issue costs Stock and bond issue costs are charged to income as incurred. Research and development costs Costs relating to research and development activities are charged to income as incurred. Research and development costs charged to income were 3,827 million ($46,563 thousand) and 4,067 million for the years ended March 31, 2012 and 2011, respectively. 47

50 Allowance for doubtful receivables Allowance for doubtful receivables is provided based on past experience for normal receivables and on an estimate of the collectability of receivables from companies in fi nancial diffi culty. Reserve for losses on construction completion guarantees To provide for possible expenses arising from guarantees against defects, the Company makes reasonable estimates of the ratio of such expenses and uses this ratio to derive provisions for such losses. Reserve for product warranties To provide for expenses related to defect guarantees related to buying and selling contracts, the amount of such warranties is estimated by multiplying a reasonable percentage of defects by the value of product sales. Reserve for construction losses To prepare for possible losses on construction projects contracted to the Company, the Company makes estimates of such losses for those uncompleted projects deemed to have a strong possibility of incurring losses and for which such construction losses can be reasonably estimated. Inventories related to construction contracts on which losses are expected and the reserve for construction losses are both presented on the balance sheets without offsetting. The value of inventories related to construction contracts on which losses are expected that are contained within the reserve for construction losses is 3,289 million ($40,017 thousand) (Including work in process of 3,289 million). The provision to the reserve for construction losses contained in cost of sales was 8,152 million ($99,185 thousand) for the year ended March 31, Reserve for expenses related to the sale of land Accompanying the sale of the land formerly occupied by the Group s Haneda Plant, this reserve has been created to provide for expenses related to restoring the land to its original condition. Hedging accounting methods Hedging transactions Gains or losses and evaluation differences related to hedging transactions accounted for at fair market value are deferred as assets or liabilities until recognized. Evaluation gains and losses on foreign exchange contracts are allocated to settlement periods throughout the period of the contract. Interest-rate swaps are treated as a special method under the Accounting Standard for Financial Instruments. Hedging instruments and hedged items Hedging instruments Foreign exchange forward contracts, foreign currency option contracts, and interest-rate swap agreements were used. Hedged items Currency exchange rate risk on existing assets and liabilities in foreign currencies and interestrate risk. Hedging policy The Company and its consolidated subsidiaries use derivatives only for the purpose of hedging related to exports, imports, funding, and others in accordance with internal fund management policy. Assessing the effectiveness of hedging Interest risk The effectiveness of hedging is assessed by comparing the accumulated cash fl ows between hedging instruments and hedging items. However, with regard to the interest-rate swaps that agree with hedge criteria, the assessments are omitted. Currency exchange rate risk As long as one hedging instrument and one hedging object correspond, the hedge is considered effective. 48

51 Net income (loss) and dividends per share Primary net income (loss) per share of common stock is based on the average number of shares of common stock outstanding during each period. Common stock equivalents on warrants and convertible bonds are not taken into consideration for the above computation. Fully diluted net income per share of common stock is computed assuming outstanding convertible bonds at that date are all converted to common shares after adjustment of after-tax debt servicing costs, unless antidilutive effect results. 3. Change in Accounting Policies Application of the Accounting Standard for Asset Retirement Obligations From the beginning of the fi rst quarter of the fi scal year ended March 31, 2011, the Accounting Standard for Asset Retirement Obligations (Accounting Standards Bureau of Japan (ASBJ) Statement No. 18, issued on March 31, 2008) and the Implementation Guidance on Accounting Standard for Asset Retirement Obligations (ASBJ Guidance No. 21, issued on March 31, 2008) have been adopted. As a consequence, for accumulated consolidated results through the third quarter, the operating income and ordinary income were decreased by 163 million, and income before income taxes was decreased by 1,070 million compared to the previous method for the recognition of calculation. Application of the Accounting Standard for Business Combinations and Related Matters From the beginning of the fi scal year ended March 31, 2011, the Accounting Standard for Business Combinations (ASBJ Guidance No. 21, issued on December 26, 2008), Accounting Standard for Consolidated Financial Statements (ASBJ Guidance No. 22, issued on December 26, 2008), Partial Amendments to Accounting Standard for Research and Development Costs (ASBJ Guidance No. 23, issued on December 26, 2008), Revised Accounting Standard for Business Divestitures (ASBJ Guidance No. 7, issued on December 26, 2008), Revised Accounting Standard for Equity Method of Accounting for Investments (ASBJ Guidance No. 16, issued on December 26, 2008) and Revised Accounting Standard for Business Combinations and Accounting Standard for Business Divestitures (ASBJ Guidance No. 10, issued on December 26, 2008) have been adopted. Application of the Accounting Standard for Earnings Per Share From the fi scal year ended March 31, 2012, we have applied the Accounting Standard for Earnings Per Share (Accounting Standards Board of Japan [ASBJ] Statement No. 2 of June 30, 2010), the Guidance on Accounting Standard for Earnings Per Share (ASBJ Guidance No. 4 of June 30, 2010), and the Practical Solution on Accounting for Earnings Per Share (ASBJ PITF No. 9 of June 30, 2010). To calculate diluted net income per share of the quarter, we have changed the method to include potential services offered by the employees in the fair valuation of stock options of payment when exercising the right regarding stock options whose rights are secured after a certain period of employment. This change in accounting policy has been applied retroactively, and the fi gures for the previous fi scal year are shown after taking account of the dilutive effect of latent shares retroactively. As a result, compared with the fi nancial statements prior to these retroactive adjustments, the net income per share after adjustments for latent shares and retroactive adjustments was 0.02 higher. 4. Additional Information Adoption of Accounting Standard for Accounting Changes and Error Corrections For accounting changes and corrections of prior period errors made on and after the beginning of the fi scal year under review, we adopted the Accounting Standard for Accounting Changes and Error Corrections (ASBJ Statement No. 24, December 4, 2009) and the Guidance on Accounting Standard for Accounting Changes and Error Corrections (ASBJ Guidance No. 24, December 4, 2009). 49

52 5. U.S. Dollar Amounts The U.S. dollar amounts are included solely for convenience and have been translated as a matter of arithmetical computation only at the rate of 82.19=US$1, the rate of exchange prevailing on March 31, This translation should not be construed as a representation that yen amounts actually represent or could be converted into U.S. dollars. 6. Marketable and Investment Securities Marketable and investment securities comprise securities which have fair value. The book value, gross unrealized gains and losses, and fair value for such securities at March 31, 2012 and 2011 are as follows: Other securities: Millions of yen Historical Unrealized Unrealized Book As of March 31, 2012 value gains losses value Book value over historical cost: Equity securities 4,139 2,907 7,046 Historical cost over book value: Equity securities 5,134 1,161 3,973 Others 2,855 2,855 Millions of yen Historical Unrealized Unrealized Book As of March 31, 2011 value gains losses value Book value over historical cost: Equity securities 2,939 3,291 6,230 Historical cost over book value: Equity securities 6,899 1,674 5,225 Others 3,326 3,326 Thousands of U.S. dollars Historical Unrealized Unrealized Book As of March 31, 2012 value gains losses value Book value over historical cost: Equity securities $50,359 $35,369 $ $85,728 Historical cost over book value: Equity securities 62,465 14,126 48,339 Others 34,737 34,737 Proceeds from sales of marketable and investment securities and realized gains and losses at March 31, 2012 and 2011 are as follows: Other securities: Millions of yen As of March 31, 2012 Proceeds of sales Realized gains Realized losses Equity securities 3, Millions of yen As of March 31, 2011 Proceeds of sales Realized gains Realized losses Equity securities 1, Thousands of U.S. dollars As of March 31, 2012 Proceeds of sales Realized gains Realized losses Equity securities $46,551 $1,010 $499 50

53 Impairment losses on securities: Thousands of Millions of yen U.S. dollars As of March Valuation losses on investment securities $1,691 Loss on valuation of membership Total $1, Inventories Inventories comprise the following: Thousands of Millions of yen U.S. dollars As of March Finished products 10,622 7,989 $129,237 Materials 18,977 18, ,892 Work in process 40,112 40, ,040 Total 69,711 66,875 $848, Impairment Losses on Long-Lived Assets Fiscal year ended March 31, 2012 The EBARA Group reported impairment losses of long-lived assets amounting to 128 million ($1,557 thousand) in the fi scal year ended March 31, These impairment losses were recognized in the following asset groups: Idle assets. Outline of asset grouping: The Group groups its assets according to its business segments, but idle assets are grouped individually. Recognition of impairment losses: Regarding machinery and equipment, patent and others that are no longer expected to contribute to future income, the value of such assets has been derogated to the memorandum value. Regarding land and buildings, since the market value has decreased signifi cantly compared with the book value, the book value has been reduced to the recoverable value. Computation of recoverable value: The Company employs the net sale value as the recoverable amounts of idle assets. The net sale value is estimated by reasonable methods, taking offi - cially announced land prices along railways and other information as a base. Fiscal year ended March 31, 2011 The EBARA Group reported impairment losses of long-lived assets amounting to 74 million in the fi scal year ended March 31, These impairment losses were recognized in the following asset groups: Idle assets. Outline of asset grouping: The Group groups its assets according to its business segments, but idle assets are grouped individually. Recognition of impairment losses: Regarding land, buildings, and structures, since the market value has decreased signifi cantly compared with the book value, the book value has been reduced to the recoverable value. Computation of recoverable value: Recoverable value is calculated based on the net selling price. The net selling price is estimated from data on land prices issued by Japan s Ministry of Land, Infrastructure, Transport and Tourism using reasonable methods. Fiscal year ended March 31, 2010 The EBARA Group reported impairment losses of long-lived assets amounting to 221 million in the fi scal year ended March 31, These impairment losses were recognized in the following asset groups: Wind power generation facilities and idle assets. Outline of asset grouping: The Group groups its assets according to its business segments, but idle assets are grouped individually. Recognition of impairment losses: The book value of wind power generation facilities has been reduced to their recoverable value based on a review of the future cash fl ows owing to transfer of shares of Eco Power Co., Ltd. to be generated by these facilities. 51

54 Regarding land, buildings, and structures, since the market value has decreased signifi cantly compared with the book value, the book value has been reduced to the recoverable value. Regarding value of telephone rights, since the market value has decreased signifi cantly compared with the book value, the book value has been reduced to the recoverable value in the case of land for which the future use has not been determined. Computation of recoverable value: Recoverable value is calculated based on the value in use of the asset or the net sales value of the asset. For wind power generation equipment, recoverable value is computed based on the difference from the future cash fl ow of the facilities. For land, buildings, and structures, recoverable value is estimated based on the appraised real estate value of the assets. Recoverable value of telephone rights is assessed based on the expected disposal value of these rights. When recoverable value is estimated based on value in use, the discount rates for future cash fl ows are assumed to be %. 9. Bank Loans and Long-Term Debt As of March 31, 2012 and 2011, bank loans amounted to 54,798 million ($666,723 thousand) and 53,524 million, respectively, and generally represent short-term notes (having a life of less than 365 days), of which 1,446 million ($17,593 thousand) and 1,992 million are secured. As of March 31, 2012 and 2011, 8,208 million ($99,866 thousand) and 9,289 million of bank loans and long-term loans were collateralized by assets amounting to 4,406 million ($53,607 thousand) and 4,802 million, respectively. The weighted-average interest rates for short-term loans and current portion of long-term loans as of March 31, 2012 and 2011 were 1.188% and 1.319%, respectively. Long-term debt comprised: Thousands of Millions of yen U.S. dollars As of March Loans from banks, insurance companies, and other, due 2012 to 2021 with interest rate of 0.7% to 12.0% at March 31, 2012 and with interest rate of 1.05% to 14.4% at March 31, 2011 Secured 6,762 7,297 $ 82,273 Unsecured 60,458 58, , % unsecured bonds with stock acquisition rights due 2011 issued in the overseas market 20, % unsecured bonds with stock acquisition rights due 2013 issued in the overseas market 20,000 20, ,339 87, ,515 1,061,200 Less current portion due within one year (24,579) (34,859) (299,051) Total 62,641 70,656 $ 762,149 The aggregate annual maturities of long-term debt during the succeeding fi ve years are as follows: Thousands of As of March 31 Millions of yen U.S. dollars ,579 $299, , , ,098 98, ,311 40, , ,556 52

55 10. Severance and Pension Plans The Company, its domestic consolidated subsidiaries, and some foreign consolidated subsidiaries have severance and defi ned benefi t pension plans as follows: Thousands of Millions of yen U.S. dollars As of March Benefi t obligation: Benefi t obligation 54,567 55,835 62,810 $663,913 Fair value of plan assets (35,692) (35,738) (38,379) (434,262) Unrecognized actuarial loss (3,215) (3,794) (3,232) (39,117) Unrecognized prior service cost (612) (622) (495) (7,446) Net amount recognized 15,048 15,681 20,704 $183,088 Accrued severance and pension costs as of March 31, 2012, 2011 and 2010 include the directors retirement allowance reserve of 202 million ($2,458 thousand), 360 million and 363 million, respectively. Thousands of Millions of yen U.S. dollars Years ended March Benefit cost: Service cost 2,840 2,918 2,889 $34,554 Interest cost 1,736 1,889 2,204 21,122 Expected return on plan assets (1,020) (876) (235) (12,410) Recognized prior service cost Recognized actuarial loss ,424 9,405 Special retirement benefits Others ,845 Net periodic benefit cost 5,151 5,228 6,928 $62,672 Years ended March Assumptions to determine above obligation and cost: Discount rate 2.0% 2.0% 2.0% Discount rate (Subsidiaries outside Japan) 4.4% 5.4% 5.8% Expected return rate on plan assets 2.7% 2.7% 2.7% Expected return rate on plan assets (Subsidiaries outside of Japan) 8.0% 8.0% 8.0% Amortization period of actuarial loss 10 years 10 years 10 years Amortization period of prior service cost 10 years 10 years 10 years 11. Net Assets The Corporation Law of Japan provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the total of the capital reserve and the legal reserve equals 25% of the common stock account. Such distribution can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions. 53

56 12. Income Taxes Signifi cant components of the deferred tax assets and liabilities are as follows: Thousands of Millions of yen U.S. dollars As of March Deferred tax assets: Excess provision of accrued bonuses to employees 2,087 2,326 $ 25,392 Loss recognized on a percentage-of-completion basis ,219 7,811 Accrued enterprise tax ,424 Unrealized gain on fixed assets ,792 Accrued severance and pension costs 5,545 6,563 67,466 Tax loss carried forward 21,268 5, ,766 Write-down of other investments 2,232 3,173 27,157 Loss from liquidation of investments in subsidiaries and affiliates Loss on write-down of real estate for sale 2 Loss on write-down of inventories 3,794 3,625 46,161 Research and development expenses ,064 Reserve for losses on construction completion guarantees 5,027 7,041 61,163 Allowance for doubtful receivables 4,033 1,492 49,069 Others based on overseas tax codes outside Japan 4,241 3,982 51,600 Others 5,604 6,659 68,183 55,857 58, ,608 Valuation allowance (20,798) (20,338) (253,048) Total deferred tax assets 35,059 38, ,560 Deferred tax liabilities: Reserve for advanced depreciation of fixed assets (1,415) (1,656) (17,216) Net unrealized gain on investment securities (617) (649) (7,507) Others (2,677) (2,456) (32,571) Total deferred tax liabilities (4,709) (4,761) (57,294) Net deferred tax assets 30,350 33,328 $369,266 A summary of the major differences between the Japanese statutory tax rate and the Company s effective tax rate is as follows: As of March Statutory tax rate, giving tax effect on enterprise tax payable 40.7% 40.7% Entertainment expenses and other expenses not deductible Per capital equalization inhabitants taxes Dividends received not taxable (62.7) (18.4) Dividends received effected by the exclusion from consolidation Valuation allowance 25.7 (41.6) Tax rate differences with overseas consolidated subsidiaries (21.5) (7.4) Reduction in deferred tax assets at the end of the period due to changes in tax rate 21.8 Others (16.2) (2.5) Effective tax rate as shown in statements of income 63.8 (1.1) Correction of deferred tax assets and liabilities due to change in effective corporation tax rates December 2, 2011 of the Act for Partial Revision of the Income Tax Act, etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social Structures (Act No. 114 of 2011) and the Act on Special Measures for Securing Financial Resources Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake (Act No. 117 of 2011), corporation tax rates will be reduced, and the special reconstruction corporation tax, a surtax for reconstruction funding after the Great East Japan Earthquake, will be imposed, for the fi scal years beginning on or after April 1,

57 Accompanying these revisions, the statutory tax rate used in the calculation of deferred tax assets and deferred tax liabilities will be changed from the previous 40.7% to 38.0% for consolidated accounts covering the fi scal year beginning April 1, 2012, through the fi scal year beginning April 1, 2014, and then to 35.6% for the fi scal years beginning April 1, 2015, and subsequent fi scal years. As a result of this change, deferred tax assets (net of deferred tax assets and liabilities) decreased by 2,453 million ($29,845 thousand). Moreover, deferred income taxes increased by 2,366 million ($28,787 thousand). 13. Other Comprehensive Income The following table presents reclassifi cation adjustments and tax effects allocated to each component of other comprehensive income for the fi scal year ended March 31, 2012: Thousands of For the year ended March 31, 2012 Millions of yen U.S. dollars Unrealized holding gain on securities: Amount arising during the year 86 $ 1,046 Reclassification adjustments for gains or losses realized in net income (72) (876) The amount of unrealized holding gain on securities before tax effect Tax effect Unrealized holding gain on securities Unrealized gain from hedging instruments: Amount arising during the year Reclassification adjustments for gains or losses realized in net income The amount of unrealized holding gain (loss) on securities before tax effect Tax effect (11) (134) Unrealized gain from hedging instruments Translation adjustment: Amount arising during the year (2,015) (24,515) Share of other comprehensive income (loss) of associates accounted for using equity method: Amount arising during the year (6) (74) Total other comprehensive income (loss) (1,954) $(23,773) 14. Commitments and Contingent Liabilities The Company and its consolidated subsidiaries had the following commitments and contingent liabilities: Thousands of Millions of yen U.S. dollars As of March Loans guaranteed: Unconsolidated subsidiaries and affiliates 736 1,551 $8,955 Others 359 3,084 4,368 55

58 15. Leases For fi nance lease transactions that do not transfer ownership to the lessee commencing on or prior to March 31, 2008, the Group adopts accounting treatment normally applicable to ordinary operating lease transactions. The following pro forma amounts concern the fi nance leases, which would have been refl ected in the fi nancial statements if fi nance lease accounting had been applied to the fi nance lease transactions currently accounted for as operating leases: (As lessee) Thousands of Millions of yen U.S. dollars As of March Acquisition costs: Machinery and equipment 3,144 3,758 $38,253 Accumulated depreciation: Machinery and equipment 1,824 1,901 22,192 Net book value: Machinery and equipment 1,320 1,857 16,061 Future lease payments: Due within one year ,986 Due after one year ,830 Total 889 1,455 $10,816 Amounts equivalent to lease payments, depreciation expenses and interest expense: Lease payments $ 6,229 Depreciation expense ,913 Interest expense The depreciation expense is computed by the straight-line method over the lease terms. Interest is computed as the difference between the total lease payments and the value of leased assets and is allocated to each period using the interest method. Information concerning operating leases is as follows: (As lessee) Thousands of Millions of yen U.S. dollars As of March Future lease payments for operating lease transactions: Due within one year $ 6,108 Due after one year 2,103 2,134 25,587 Total 2,605 2,810 $31, Financial Instruments 1. Status of financial instruments (1) Policies regarding financial instruments The Company raises the necessary long-term funds for its capital investment and other requirements principally from bank borrowings, the issuance of bonds, and other means. Short-term working capital is raised through bank borrowings and others. Available short-term funds are invested in highly secure fi nancial assets. In addition, as noted below, derivatives are used to avoid risk, and the Company s policy is not to use derivatives for speculative purposes. (2) Types and risk for financial instruments Notes and accounts receivable, which are operating assets, are exposed to customer credit risk. In addition, since the Company conducts its business activities globally, its operating assets denominated in foreign currencies are exposed to foreign currency risk. To manage foreign currency risk, the Company hedges its net foreign currency assets and liabilities position through the use of foreign currency borrowings and deposits. The Company s con solidated subsidiaries use foreign currency forward contracts to hedge foreign currency exposure. Securities and investment securities are principally money market funds (MMFs) and stocks in other companies that are held for business relationship purposes and are, therefore, exposed to market price fl uctuations. 56

59 Notes and accounts payable, which are operating liabilities, come due for payment, for the most part, within one year. In addition, a portion of these, which arise in connection with imports of raw materials and other items, are denominated in foreign currencies and are exposed to foreign currency risk; however, in general, the balance of these liabilities is within the amounts of accounts and notes payable denominated in foreign currencies. Among these, a portion of borrowings have fl oating interest rates and are subject to interest-rate risk. These are hedged through the use of derivatives (interest-rate swaps). The Company also makes use of other derivatives: namely, foreign currency forward contracts that are employed to hedge the foreign currency risk of operating assets and liabilities denominated in foreign currencies as well as interest-rate swaps that are arranged to hedge the foreign currency risk of interest paid on borrowings. Please note that further information on hedge accounting, including hedging instruments, hedging items, hedging policy, and assessing the effectiveness of hedging, may be found in a previous section entitled Hedging accounting methods contained in the section 2. Summary of Signifi cant Accounting Policies. (3) Risk management systems for financial instruments a. Management of credit risk (risk related to nonperformance of contractual obligations by transaction counterparties) Regarding operating assets, the Company s fi nance and business departments, based on the Company regulations related to invoices and the receipt of payments, monitor the condition of principal business customers, and supervise the payment dates and balances by customer with the aims of identifying possible deterioration in the fi nancial condition of customers and other issues related to the recovery of exposure at an early date and taking steps to minimize credit risk. For securities held to maturity, under the Company s regulations, investments are made only in securities with high credit ratings, and the credit risk of these investments is minimal. The maximum value of credit risk, as of the date of the closing of accounts, is shown by the value on the balance sheets of fi nancial assets subject to credit risk. b. Management of market risk (risk of fl uctuations in foreign currency rates, interest rates, and other indicators) To manage foreign currency risk, assets and liabilities denominated in foreign currencies are classifi ed by currency, and risk is hedged through the use of foreign currency borrowings and deposits. Also, for foreign currency assets and liabilities, the Company makes use of foreign currency forward contracts to hedge its exposure. Please note that, depending on conditions in foreign currency markets, for confi rmed and scheduled foreign currency assets and obligations that are certain to take place, the Company makes arrangements for foreign currency forward contracts. To hedge against interest-rate fl uctuations, the Company makes use of interest-rate swaps. For securities and investment securities, the Company confi rms the market prices and the fi nancial condition of the issuers (transactions counterparties). In addition, for securities other than those held to maturity, the Company reviews its holdings on a continuing basis, taking account of the relationship with the issuer (counterparty). For derivatives, the Company and its consolidated subsidiaries manage such exposure based on Company regulations for accounting for fi nancial instruments. c. Management of liquidity risk related to fund-raising (risk of being unable to meet payment obligations on the scheduled date) The Company s Finance Department prepares and revises cash fl ow plans based on reports of the Company departments, and manages liquidity risk by maintaining a volume of liquidity appropriate for business conditions. Also, as an alternative to liquid assets, the Company manages its liquidity by arranging for commitment lines in a specifi ed amount. (4) Supplementary information on the fair value of financial instruments The fair value of fi nancial instruments, in addition to values based on market prices, also includes the value of instruments that do not have market prices that have been calculated based on reasonable methods. Since factors that may fl uctuate are taken into account in these calculations, the respective values may change when different assumptions are adopted. In addition, the contract value of derivatives, as contained in Information of the fair value of fi nancial instruments, does not indicate the value of the market risk of these derivative transactions. 57

60 2. Information on the fair value of financial instruments The amounts shown on the consolidated balance sheets as of March 31, 2012 and 2011 (the date of settlement of the consolidated accounts), the corresponding fair values, and differences between book and fair value are as follows. Please note that the values of securities and investment securities for which ascertaining the fair value is recognized to be extremely diffi cult have not been included (Refer to Note 2.). Millions of yen On consolidated As of March 31, 2012 balance sheets Fair value Difference Cash and time deposits 84,956 84,956 Trade receivables 160,996 Allowance for doubtful receivables (1,107) 159, ,750 (139) Securities and investment securities 13,876 13,876 Total 258, ,582 (139) Trade payables 105, ,639 Short-term loans 79,377 79,377 Bonds with subscription rights to shares 20,000 19,830 (170) Long-term loans 42,641 41,916 (725) Total 247, ,762 (895) Derivative transactions* Millions of yen On consolidated As of March 31, 2011 balance sheets Fair value Difference Cash and time deposits 100, ,676 Trade receivables 161,512 Allowance for doubtful receivables (1,448) 160, ,314 (750) Securities and investment securities 14,783 14,783 Total 275, ,773 (750) Trade payables 98,923 98,923 Short-term loans 68,383 68,383 Current portion of bonds with subscription rights to shares 20,000 20,000 Bonds with subscription rights to shares 20,000 19,343 (657) Long-term loans 50,656 50,510 (146) Total 257, ,159 (803) Derivative transactions* (16) (16) Thousands of U.S. dollars On consolidated As of March 31, 2012 balance sheets Fair value Difference Cash and time deposits $1,033,648 $1,033,648 $ Trade receivables 1,958,827 Allowance for doubtful receivables (13,469) 1,945,358 1,943,667 (1,691) Securities and investment securities 168, ,828 Total $3,147,834 $3,146,143 $ (1,691) Trade payables $1,285,302 $1,285,302 $ Short-term loans 965, ,783 Bonds with subscription rights to shares 243, ,270 (2,069) Long-term loans 518, ,988 (8,821) Total $3,013,233 $3,002,343 $(10,890) Derivative transactions* $ 122 $ 122 $ * The net amount of the assets and liabilities is shown. If the net amount is a liability, it is written in parentheses ( ). 58

61 Note 1: Methods of calculating the fair value of financial instruments and matters related to securities and derivatives (1) Assets a. Cash and time deposits These items are settled within short periods and are shown at their respective book value, which is almost equivalent to their settlement values. b. Trade receivables The fair value of these fi nancial instruments is calculated, by specifi ed period and type of security, as the present value by discounting the cash fl ow to maturity using a discount rate that takes account of credit risk. c. Securities and investment securities These fair values for stocks are based on quoted market prices. Also, for the note related to securities to be held to maturity, please refer to the Marketable and Investment Securities section of these notes. (2) Liabilities a. Trade payables and Short-term loans and Current portion of bonds with subscription rights to shares Since these items are settled within short periods of time and the book value is close to fair value, they are presented at book value. b. Bonds with subscription rights to shares and Long-term loans These fair values are calculated using the discount rate that would apply if the full amount of the principal were newly borrowed. Long-term borrowings at fl oating rates are subject to special treatment as interest-rate swaps, with the total amount of principal being treated together with the related interest-rate swap, and the value is calculated as the present value, of the same kind of borrowing, using a discount rate determined by reasonable estimation methods. (3) Derivative transactions Please refer to 18. Derivative Financial Instruments. Note 2: Financial instruments for which ascertaining the fair value is recognized to be extremely difficult On consolidated balance sheets Thousands of Millions of yen U.S. dollars As of March Stocks of associated companies 6,356 5,795 $ 77,333 Unlisted stocks 4,863 4,950 59,168 Total 11,219 10,745 $136,501 Note: Market values are not available for these stocks, and, since ascertaining their fair value is recognized to be extremely diffi cult, the values of these stocks have not been included in Securities and investment securities. Note 3: Monetary claims and securities with maturity dates that are scheduled to be amortized after the closing date of the consolidated accounts Millions of yen Over 1 year and Over 5 years and As of March 31, 2012 Within 1 year within 5 years within 10 years Over 10 years Cash and time deposits 84,956 Trade receivables 157,872 3, Investment securities and other securities: Claims to be held to maturity: Other Other securities with maturity: Other 2,855 Total 245,684 3,

62 Millions of yen Over 1 year and Over 5 years and As of March 31, 2011 Within 1 year within 5 years within 10 years Over 10 years Cash and time deposits 100,676 Trade receivables 146,271 15,241 Investment securities and other securities: Claims to be held to maturity: Other Other securities with maturity: Other 3,326 Total 250,274 15, Thousands of U.S. dollars Over 1 year and Over 5 years and As of March 31, 2012 Within 1 year within 5 years within 10 years Over 10 years Cash and time deposits $1,033,648 $ $ $ Trade receivables 1,920,818 37, Investment securities and other securities: Claims to be held to maturity: Other 12 4, Other securities with maturity: Other 34,737 Total $2,989,215 $42,073 $256 $ Note 4: Bonds with subscription rights to shares and the amount of long-term loans that are scheduled to be repaid after the closing date of the consolidated accounts Millions of yen Over 1 year and Over 2 years and Over 3 years and Over 4 years and As of March 31, 2012 Within 1 year within 2 years within 3 years within 4 years within 5 years Long-term loans 24,579 13,692 8,098 3,311 17,470 Bonds with subscription rights to shares 20,000 Total 24,579 33,692 8,098 3,311 17,470 Millions of yen Over 1 year and Over 2 years and Over 3 years and Over 4 years and As of March 31, 2011 Within 1 year within 2 years within 3 years within 4 years within 5 years Long-term loans 14,859 24,351 13,377 7,538 3,060 Bonds with subscription rights to shares 20,000 20,000 Total 34,859 24,351 33,377 7,538 3,060 Thousands of U.S. dollars Over 1 year and Over 2 years and Over 3 years and Over 4 years and As of March 31, 2012 Within 1 year within 2 years within 3 years within 4 years within 5 years Long-term loans $299,051 $166,590 $98,528 $40,285 $212,556 Bonds with subscription rights to shares 243,339 Total $299,051 $409,929 $98,528 $40,285 $212,556 60

63 17. Stock Options Fiscal year ended March 31, Items and amounts of related expenses presented in the consolidated accounts for the fiscal year 2012 and 2011 are as follows: Thousands of Millions of yen U.S. dollars As of March Cost of sales $ 377 Selling, general and administrative expenses , Description and Movement of Stock Options (1) Description of stock options awarded during the consolidated fiscal year under review 1st subscription rights to shares Scope and number of people eligible 1. Directors excluding outside directors: 9 persons for the award of stock options 2. Executive officers: 23 persons Number of stock options awarded by type of stock Common stock: 1,223,000 shares (Note 1) Granted date November 5, 2009 Vesting conditions (Note 3) Vesting period No relevant service period has been established. Exercise period From July 1, 2011 to November 5, 2024 Notes: 1. Options are presented after conversion to the number of shares. 2. Those awarded share options may exercise those options only while serving as directors or executive offi cers of the Company and during a period of fi ve years after retiring from those positions. 3. When the Company s consolidated return on equity (ROE; the attained performance ) is less than 8.0% (the target performance ) as of the fi nal fi scal year-end within a two-year period (the fi nal fi scal year ), those awarded share options may only exercise share option rights for a number of shares calculated by multiplying the number of share options rights by the vesting ratio (a fi gure with a lower limit of 0.5 calculated by dividing the attained performance by the target performance). 4. When those awarded share options are those newly appointed as directors or executive offi cers after July 1, 2009, or when those awarded share options retire from their positions as directors or executive offi cers before the fi nal day of the fi nal fi scal year, the number of share option rights they may exercise is calculated by multiplying the adjusted fi gure described in Note 2 above by a tenure period ratio (a fi gure representing the ratio of days of tenure to the number of days in the period from April 1, 2009, through March 31, 2011). 5. When the calculations described in notes 3 and 4 above result in numbers of exercisable share options rights including a fraction of a right (a fi gure less than one), this fractional right is to be discarded. 6. When those who were awarded share options are recognized to have executed their offi cial duties in an illegal or improper manner during their tenure, it is possible for the Company to restrict the number of share option rights that the people in question may exercise based on a decision by the Board of Directors. In such cases, the people awarded share options in question may not exercise a number of share options in excess of the restricted number. 7. When those awarded share options die, the heirs of those people may exercise the share options until a date three months after the day following the date of death or until a date six months after the last day of the fi nal fi scal year, whichever is later. 8. In addition to the provisos described in each of the previous notes, the exercise of share options is to be undertaken in accordance with the conditions stipulated in share option award contracts concluded between the Company and those awarded share options. 61

64 2nd subscription rights to shares Scope and number of people eligible Executive officers: 4 persons for the award of stock options Number of stock options awarded by type of stock Common stock: 36,000 shares (Note 1) Granted date September 28, 2010 Vesting conditions (Note 3) Vesting period No relevant service period has been established. Exercise period From July 1, 2011 to November 5, 2024 Notes: 1. Options are presented after conversion to the number of shares. 2. Those awarded share options may exercise those options only while serving as directors or executive offi cers of the Company and during a period of fi ve years after retiring from those positions. 3. When the Company s consolidated return on equity (ROE; the attained performance ) is less than 8.0% (the target performance ) as of the fi nal fi scal year-end within a three-year period (the fi nal fi scal year ), those awarded share options may only exercise share option rights for a number of shares calculated by multiplying the number of share options rights by the vesting ratio (a fi gure with a lower limit of 0.5 calculated by dividing the attained performance by the target performance). 4. When those awarded share options are those newly appointed as directors or executive offi cers after July 1, 2009, or when those awarded share options retire from their positions as directors or executive offi cers before the fi nal day of the fi nal fi scal year, the number of share option rights they may exercise is calculated by multiplying the adjusted fi gure described in Note 2 above by a tenure period ratio (a fi gure representing the ratio of days of tenure to the number of days in the period from April 1, 2010, through March 31, 2011). 5. When the calculations described in notes 3 and 4 above result in numbers of exercisable share options rights including a fraction of a right (a fi gure less than one), this fractional right is to be discarded. 6. When those who were awarded share options are recognized to have executed their offi cial duties in an illegal or improper manner during their tenure, it is possible for the Company to restrict the number of share option rights that the people in question may exercise based on a decision by the Board of Directors. In such cases, the people awarded share options in question may not exercise a number of share options in excess of the restricted number. 7. When those awarded share options die, the heirs of those people may exercise the share options until a date three months after the day following the date of death or until a date six months after the last day of the fi nal fi scal year, whichever is later. 8. In addition to the provisos described in each of the previous notes, the exercise of share options is to be undertaken in accordance with the conditions stipulated in share option award contracts concluded between the Company and those awarded share options. 3rd subscription rights to shares Scope and number of people eligible 1. Directors excluding outside directors: 8 persons for the award of stock options 2. Executive officers: 23 persons Number of stock options awarded by type of stock Common stock: 1,615,000 shares (Note 1) Granted date September 27, 2011 Vesting conditions (Note 3) Vesting period No relevant service period has been established. Exercise period From July 1, 2014 to June 30, 2026 Notes: 1. Options are presented after conversion to the number of shares. 2. Those awarded share options may exercise those options only while serving as directors or executive offi cers of the Company and during a period of fi ve years after retiring from those positions. 3. When the Company s consolidated return on invested capital (ROIC; the attained performance ) is less than 8.0% (the target performance ) as of the fi nal fi scal year-end within a three-year period (the fi nal fi scal year ), those awarded share options may only exercise share option rights for a number of shares calculated by multiplying the number of share options rights by the vesting ratio (a fi gure with a lower limit of 0.5 calculated by dividing the attained performance by the target performance). 4. When those awarded share options are those newly appointed as directors or executive offi cers after July 1, 2009, or when those awarded share options retire from their positions as directors or executive offi cers before the fi nal day of the fi nal fi scal year, the number of share option rights they may exercise is calculated by multiplying the adjusted fi gure described in Note 2 above by a tenure period ratio (a fi gure representing the ratio of days of tenure to the number of days in the period from April 1, 2011, through March 31, 2012). 5. When the calculations described in notes 3 and 4 above result in numbers of exercisable share options rights including a fraction of a right (a fi gure less than one), this fractional right is to be discarded. 6. When those who were awarded share options are recognized to have executed their offi cial duties in an illegal or improper manner during their tenure, it is possible for the Company to restrict the number of share option rights that the people in question may exercise based on a decision by the Board of Directors. In such cases, the people awarded share options in question may not exercise a number of share options in excess of the restricted number. 7. When those awarded share options die, the heirs of those people may exercise the share options until a date three months after the day following the date of death or until a date six months after the last day of the fi nal fi scal year, whichever is later. 8. In addition to the provisos described in each of the previous notes, the exercise of share options is to be undertaken in accordance with the conditions stipulated in share option award contracts concluded between the Company and those awarded share options. 62

65 (2) Movement of stock options and status of related changes With respect to stock options existing during the consolidated fi scal year ended March 31, 2012, the relevant numbers of stock options and numbers of shares issuable on the conversion of stock options are as follows. a. Number of Stock Options 1st subscription 2nd subscription 3rd subscription rights to shares rights to shares rights to shares Share subscription rights which are not yet vested Outstanding as of March 31, ,223,000 36,000 Granted 1,615,000 Forfeited 39,000 Vested 1,184,000 36,000 Undetermined balance 1,615,000 Share subscription rights which have already been vested Outstanding as of March 31, 2011 Vested 1,184,000 36,000 Exercised 174,000 Forfeited Unexercised balance 1,010,000 36,000 b. Price Information 1st subscription 2nd subscription 3rd subscription rights to shares rights to shares rights to shares Exercise price (yen) Weighted average exercise price (yen) 419 Weighted average fair value per stock at the granted date (yen) Method of Estimating the Fair Value of Stock Options Regarding 3rd subscription rights to shares issued during the consolidated fi scal year under review, the method of estimating the fair value of the share options is as follows. a. Evaluation Method Used: Black-Scholes Method b. Main Basic Parameters and Evaluation Methods 3rd subscription rights to shares Expected volatility (Note 1) 38.62% Expected holding period (Note 2) 9.0 years Expected dividend (Note 3) 5.55 per share Risk-free rate (Note 4) % Notes: 1. Expected volatility is calculated based on actual stock prices during the preceding seven years (from September 27, 2002, through September 26, 2011). 2. Because suffi cient data has not yet been accumulated and a rational estimate is diffi cult, estimates were performed based on an assumption that share options are exercised at the midpoint of the period in which the options may be exercised. 3. The expected dividend is a simple average value calculated based on actual dividends during the most recent seven fi scal years. 4. The risk-free rate corresponds to the interest rate (compounded) on Japanese government bonds with remaining periods to maturity of approximately seven years as of September 26, Method of Estimating the Number of Vested Stock Option Rights Fundamentally, because rationally estimating the number of rights invalidated in the future is diffi cult, the method used is to refl ect only the number of rights that are actually invalidated. 63

66 18. Derivative Financial Instruments Fiscal year ended March 31, Derivatives not subject to hedge accounting No items reported 2. Derivatives subject to hedge accounting (1) Currency related Millions of yen Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Deferred Forward exchange Trade hedge contract receivables accounting To sell: and Trade CAD payables 40 2 EUR JPY 233 (1) To buy: EUR 86 (1) JPY 56 0 Total Thousands of U.S. dollars Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Deferred Forward exchange Trade hedge contract receivables accounting To sell: and Trade CAD payables $ 488 $ 25 EUR 3, JPY 2,836 (11) To buy: EUR 1,046 (11) JPY Total $8,202 $122 Note: Fair value is computed based on quotes from fi nancial institutions, among other sources. (2) Interest-rate related Millions of yen Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Special Interest-rate swap Long-term 42,563 27,038 (See note treatment of contract loans below) interest-rate Receipts floating, swaps payments fixed Thousands of U.S. dollars Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Special Interest-rate swap Long-term $517,861 $328,969 (See note treatment of contract loans below) interest-rate Receipts floating, swaps payments fixed Note: Items subject to special treatment of interest-rate swaps are handled together with long-term loans that are subject to hedging. The fair value is presented in the section entitled, 2. Information on the fair value of fi nancial instruments contained in the section 16. Financial Instruments. 64

67 Fiscal year ended March 31, Derivatives not subject to hedge accounting No items reported 2. Derivatives subject to hedge accounting (1) Currency related Millions of yen Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Deferred Forward exchange Trade hedge contract receivables accounting To sell: and Trade CAD payables 13 0 EUR JPY 145 (13) To buy: USD 120 (1) CAD 81 1 EUR 580 (30) Total 1,331 (16) Note: Fair value is computed based on quotes from fi nancial institutions, among other sources. (2) Interest-rate related Millions of yen Contractual Hedging Contractual value over Fair Classification Transaction instruments value 1 year value Special Interest-rate swap Long-term 35,588 27,563 (See note treatment of contract loans below) interest-rate Receipts floating, swaps payments fixed Note: Items subject to special treatment of interest-rate swaps are handled together with long-term loans that are subject to hedging. The fair value is presented in the section entitled, 2. Information on the fair value of fi nancial instruments contained in the section 16. Financial Instruments. 19. Segment Information For the years ended March 31, 2012 and Overview of reportable segments The reportable segments are constituent units of the EBARA Group for which separate fi nancial information is available. The Board of Directors periodically examines these segments for the purpose of deciding the allocation of management resources and evaluating operating performance. The Group operates in three business segments as follows: Segments Principal Products Contents Fluid Machinery & Systems Environmental Engineering Precision Machinery Pumps, blowers, turbo-compressors, turbines, freezer chillers, and others Municipal waste processing plants, industrial waste incineration plants, and others Dry vacuum pumps, CMP equipment, planting systems, and other machinery and equipment used in the semiconductor manufacturing industry Manufacture, sale, operation and maintenance (O&M) services, and others Engineering, construction, O&M services, and others Manufacture, sale, and maintenance 2. Calculation method used for sales, profits and losses, assets and liabilities, and other items for each reportable segment The accounting method used for reportable business segments is the same as the method stated in NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. Profi ts from reportable segments are fi gures based on operating income. Intersegment sales are recorded at the same prices used in transactions with third parties. 65

68 3. Information about sales, profits and losses, assets and liabilities, and other items for each reportable segment under new segmentation for the years ended March 31, 2012 and 2011, is as follows: Millions of yen Reportable segments Fluid Machinery Environmental Precision Others Adjustments Consolidated Year ended March 31, 2012 & Systems Engineering Machinery Total (Note 1) Total (Note 2) (Note 3) Sales to third parties 286,090 50,129 68, ,592 7, , ,077 Intersegment sales and transfers ,593 4,554 (4,554) Total 287,044 50,129 68, ,553 11, ,631 (4,554) 412,077 Segment income 15, ,594 22, , ,267 Segment assets 268,430 47,974 67, ,995 18, ,056 86, ,964 Others: Depreciation expense 8, ,264 12, ,885 (120) 12,765 Amortization of goodwill Investments for companies applying equity method 1,187 3,966 5,153 5,153 5,153 Increase in tangible and intangible assets 7, ,932 10,645 1,685 12,330 (14) 12,316 Thousands of U.S. dollars Reportable segments Fluid Machinery Environmental Precision Others Adjustments Consolidated Year ended March 31, 2012 & Systems Engineering Machinery Total (Note 1) Total (Note 2) (Note 3) Sales to third parties $3,480,837 $609,916 $831,890 $4,922,643 $ 91,068 $5,013,711 $ $5,013,711 Intersegment sales and transfers 11, ,692 43,716 55,408 (55,408) Total $3,492,444 $609,916 $831,975 $4,934,335 $134,784 $5,069,119 $ (55,408) $5,013,711 Segment income $ 189,548 $ 3,918 $ 80,229 $ 273,695 $ 7,506 $ 281,201 $ 1,887 $ 283,088 Segment assets $3,265,969 $583,696 $822,375 $4,672,040 $219,747 $4,891,787 $1,057,404 $5,949,191 Others: Depreciation expense $ 104,259 $ 4,319 $ 39,713 $ 148,291 $ 8,480 $ 156,771 $ (1,460) $ 155,311 Amortization of goodwill 2,859 2,859 2,859 2,859 Investments for companies applying equity method 14,442 48,254 62,696 62,696 62,696 Increase in tangible and intangible assets 88,490 5,354 35, ,517 20, ,018 (170) 149,848 Notes: 1. The Others item in the table above is the business segment for operations that are not included among reporting segments. It contains business support services and other activities. 2. The Adjustments item is as follows: (1) Segment income shows eliminations among intersegment sales and transfers. (2) Segment assets consisted of 90,091 million for corporate assets and (3,183) million for eliminations among intersegment sales and transfers. The corporate assets primarily consisted of cash and cash equivalents, some investment securities, and deferred tax assets of the Group. 3. Segment income (loss) has been adjusted within operating income in the consolidated statements of income. 66

69 Millions of yen Reportable segments Fluid Machinery Environmental Precision Others Adjustments Consolidated Year ended March 31, 2011 & Systems Engineering Machinery Total (Note 1) Total (Note 2) (Note 3) Sales to third parties 268,943 51,661 67, ,506 13, , ,676 Intersegment sales and transfers 1, ,341 4,697 6,038 (6,038) Total 270,108 51,837 67, ,847 17, ,714 (6,038) 401,676 Segment income 21, ,016 30, , ,542 Segment assets 256,912 55,639 70, ,528 23, , , ,898 Others: Depreciation expense 8, ,931 12, ,646 (122) 13,524 Amortization of goodwill Investments for companies applying equity method 1,055 3,333 4,388 4,388 4,388 Increase in tangible and intangible assets 5, ,249 7, ,189 8,189 Notes: 1. The Others item in the table above is the business segment for operations that are not included among reporting segments. It contains business support services and other activities. 2. The Adjustments item is as follows: (1) Segment income (loss) shows eliminations among intersegment sales and transfers. (2) Segment assets consisted of 105,099 million for corporate assets and (4,334) million for eliminations among intersegment sales and transfers. The corporate assets primarily consisted of cash and cash equivalents, some investment securities, and deferred tax assets of the Group. (3) An increase in tangible and intangible assets shows eliminations among intersegment sales and transfers. 3. Segment income (loss) has been adjusted within operating income in the consolidated statements of income. Reference information 1. Geographical segment information for the year ended March 31, 2012 is as follows: a. Net sales Thousands of Year ended March 31, 2012 Millions of yen U.S. dollars Japan 230,863 $2,808,894 Asia 99,408 1,209,490 North America 36, ,044 Others 45, ,283 Total 412,077 $5,013,711 Note: Net sales information above is based on the location of the customer. b. Property, plant and equipment Thousands of As of March 31, 2012 Millions of yen U.S. dollars Japan 68,734 $ 836,282 North America 10, ,356 Others 10, ,484 Total 89,104 $1,084,122 Information about impairment losses on fixed assets by reportable segments for the years ended March 31, 2012 and 2011 is as follows: Millions of yen Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2012 & Systems Engineering Machinery Total Others Adjustments Consolidated Impairment losses Millions of yen Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2011 & Systems Engineering Machinery Total Others Adjustments Consolidated Impairment losses

70 Thousands of U.S. dollars Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2012 & Systems Engineering Machinery Total Others Adjustments Consolidated Impairment losses $ $ $ $ $1,557 $ $1,557 Information about amortization and balances as of year ended to goodwill by reportable segments for the years ended March 31, 2012 and 2011 is as follows: Millions of yen Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2012 & Systems Engineering Machinery Total Others Adjustments Consolidated Amortization of goodwill Balances as of March Millions of yen Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2011 & Systems Engineering Machinery Total Others Adjustments Consolidated Amortization of goodwill Balances as of March 31 1,187 1,187 1,187 Thousands of U.S. dollars Reportable segments Fluid Machinery Environmental Precision Year ended March 31, 2012 & Systems Engineering Machinery Total Others Adjustments Consolidated Amortization of goodwill $ 2,859 $ $ $ 2,859 $ $ $ 2,859 Balances as of March 31 10,451 10,451 10, Loss on Business Withdrawal The loss on business withdrawal is the estimate of loss to be incurred in connection with the withdrawal from the InfraServ project in Germany. The breakdown of this loss is as follows: Thousands of Millions of yen U.S. dollars As of March Provision of allowance for doubtful accounts accompanying the aging of accounts receivable (accompanying the payment of certain accounts receivable on a long-term basis) 7,000 $ 85,169 Portion of cost incurred related to additional construction for improvements 3,295 40,090 Total 10,295 $125, Subsequent Events Appropriation of unappropriated retained earnings The following appropriation of unappropriated retained earnings for the year ended March 31, 2012, was approved at the general meeting of shareholders of the Company held on June 28, 2012: Millions of yen Thousands of U.S. dollars Cash dividends: Cash dividends per share 5.0 ($0.06) 2,111 $25,684 68

71 Independent Auditor s Report The Board of Directors EBARA CORPORATION We have audited the accompanying consolidated fi nancial statements of EBARA CORPORATION and its consolidated subsidiaries, which comprise the consolidated balance sheet as at March 31, 2012, and the consolidated statements of income, comprehensive income, changes in net assets, and cash fl ows for the year then ended and a summary of signifi cant accounting policies and other explanatory information, all expressed in Japanese yen. Management s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated fi nancial statements in accordance with accounting principles generally accepted in Japan, and for designing and operating such internal control as management determines is necessary to enable the preparation and fair presentation of the consolidated fi nancial statements that are free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express an opinion on these consolidated fi nancial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated fi nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated fi nancial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the consolidated fi nancial statements, whether due to fraud or error. The purpose of an audit of the consolidated fi nancial statements is not to express an opinion on the effectiveness of the entity s internal control, but in making these risk assessments the auditor considers internal controls relevant to the entity s preparation and fair presentation of the consolidated fi nancial statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated fi nancial statements. We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated fi nancial statements referred to above present fairly, in all material respects, the consolidated fi nancial position of EBARA CORPORATION and consolidated subsidiaries as at March 31, 2012, and their consolidated fi nancial performance and cash fl ows for the year then ended in conformity with accounting principles generally accepted in Japan. Convenience Translation We have reviewed the translation of these consolidated fi nancial statements into U.S. dollars, presented for the convenience of readers, and, in our opinion, the accompanying consolidated fi nancial statements have been properly translated on the basis described in Note 5. Ernst & Young ShinNihon LLC June 28, 2012 Tokyo, Japan 69

72 EBARA Group History 1912 (Nov.) 1920 (May) 1938 (Apr.) 1941 (Dec.) 1945 (Apr.) 1955 (Jan.) 1956 (Jan.) 1964 (Apr.) 1964 (June) 1965 (Apr.) 1975 (Jan.) 1975 (Nov.) 1979 (Dec.) 1981 (Jan.) 1985 (Jan.) 1987 (July) 1989 (Jan.) 1992 (Aug.) Inokuty Type Machinery Office founded. Issey Hatakeyama was appointed general manager, under the supervision of Ariya Inokuty, a professor of Tokyo Imperial University. EBARA CORPORATION established A plant was constructed at Minami-Shinagawa, Shinagawa-cho, Ebara-gun, Tokyo, marking the establishment of the Company, which assumed the responsibilities of the Inokuty Type Machinery Office and began the manufacturing of centrifugal pumps. New plant built in Haneda, Kamata-ku, Tokyo The Head Office and manufacturing operations shifted from Shinagawa to the new facility in Haneda. New plant built in Kawasaki The new plant began manufacturing machine tools in accordance with the Machine Tool Manufacturing Law. Haneda Plant damaged in war. All operations, except for a pump testing facility, fabrication and welding shop, and main building, deemed no longer functional. As a result, production was transferred to the Kawasaki Plant. The Haneda Plant was reopened to spearhead the Company s manufacturing operations. Ebara-Infilco was set up to manufacture and sell water treatment equipment. EBARA s first post-world War II overseas sales office was opened in Bangkok. Ebara Service Co., Ltd., was established to provide for after-sales service for EBARA s products. The Fujisawa Plant was opened as the first facility in Japan to mass-produce standard pumps, and it took over the production of chillers from the Haneda Plant. EBARA s first overseas production facility, Ebara Indústrias Mecánicas e Comércio Ltda., was established in Brazil. The Sodegaura Plant was opened to manufacture mainly compressors and turbines. P.T. Ebara Indonesia was established in Indonesia to manufacture standard pumps in Southeast Asia. Ebara International Corporation was established in the United States to provide a North American base for the pumps business. EBARA realigned its production systems by integrating the Kawasaki Plant into the Fujisawa Plant. A precision machining facility was opened at the Fujisawa Plant dedicated to production of vacuum equipment for the semiconductor industry. Ebara Italia S.p.A. (currently, Ebara Pumps Europe S.p.A.) was established to manufacture stainless steel standard pumps. Ebara Qingdao Co., Ltd., was founded in China as a center for pump production (Oct.) 2000 (Apr.) 2000 (Apr.) 2001 (June) 2002 (Apr.) 2002 (June) 2002 (Sept.) 2003 (May) 2005 (Apr.) 2005 (Aug.) 2006 (May) 2009 (Apr.) 2009 (Oct.) 2010 (Jan.) 2010 (Mar.) 2010 (Oct.) 2012 (Apr.) 2012 (Nov.) Ebara-Infilco was merged into the Company. Ebara Techno-serve Co., Ltd., was formed to combine sales and maintenance services for the standard pumps business. New Elliott Corporation, a leading company in the compressors and turbines business, became a wholly owned subsidiary. Ebara Kyushu Co., Ltd., established in Kumamoto Prefecture for producing CMP and other equipment, went into full operation. The compressors and turbines business was split off into a separate company, Elliott Ebara Turbomachinery Corporation, located in Chiba Prefecture. The Executive Officer System was introduced. The chillers business was split off into a separate company, Ebara Refrigeration Equipment & Systems Co., Ltd. Ebara Great Pumps Co., Ltd., was established in China to manufacture and sell pumps in China for the oil and gas industries. An in-house company system was introduced with a corporate structure comprising a Corporate Sector for headquarters functions and three core companies: Fluid Machinery & Systems, Environmental Engineering, and Precision Machinery. Ebara Boshan Pumps Co., Ltd., was established in China to manufacture and sell large-scale, highpressure pumps in China. Ebara Machinery (China) Co., Ltd., was formed to serve as the manufacturing, sales, and service center for standard pumps in China. EBARA integrated its water treatment plant businesses into Ebara Engineering Service Co., Ltd. EBARA integrated its environmental plant businesses into Ebara Environmental Plant Co., Ltd. The Futtsu Plant (Chiba, Japan) was newly established, and the functions of the former Haneda Plant were transferred there. EBARA, Mitsubishi Corp., and JGC Corp. started a joint venture in the water business, Ebara Engineering Service Co., Ltd. (renamed Swing Corporation). Ebara Kyushu Co., Ltd., was merged into the Company. In a realignment of the pumps business, Ebara Technoserve Co., Ltd., Ebara Yoshikura Hydro-Tech Co., Ltd., and Ebara Environmental Technologies Hokkaido Co., Ltd., were merged. 100th anniversary of the commencement of Ebara operations 70

73 Corporate Data (As of March 31, 2012) Corporate Profile EBARA CORPORATION Head Office 11-1, Haneda Asahi-cho, Ohta-ku, Tokyo , Japan Phone: Fax: URL: Date of Foundation November 1912 Number of Employees (Consolidated) 14,695 Paid-in Capital 61,314 million Stock Information Securities Code 6361 (Japan) Common Stock Issued and outstanding: 422,899,658 shares Number of Shareholders 46,236 Securities Traded Tokyo Stock Exchange and Sapporo Securities Exchange Major Shareholders (% of total) The Master Trust Bank of Japan, Ltd. (Trust Account) 7.3 Japan Trustee Services Bank, Ltd. (Trust Account) 6.8 Mizuho Corporate Bank, Ltd. 2.4 Japan Trustee Services Bank, Ltd. (Trust Account 9) 2.1 PICTET AND CIE (EUROPE) S.A. 1.7 The Bank of Tokyo-Mitsubishi UFJ, Ltd. 1.7 EBARA CORPORATION Employee Shareholders 1.2 Nippon Life Insurance Company 1.2 Aioi Nissay Dowa Insurance Co., Ltd. 1.2 Mizuho Securities Co., Ltd. 1.2 Note: Treasury stock is eliminated from the total number of shares issued in calculating the percentage. Transfer Agent and Registrar Sumitomo Mitsui Trust Bank, Limited 4-1, Marunouchi 1-chome, Chiyoda-ku, Tokyo , Japan Number of Shares Constituting One Unit 1,000 Accounting Auditor Ernst & Young ShinNihon LLC Composition of Shareholders Treasury Stock 0.2% Foreign Corporations and Individuals 22.2% Other Domestic Corporations 6.6% Securities Companies 4.9% Individuals and Others 32.2% Financial Institutions 33.9% Stock Price Range and Turnover EBARA Stock Price (Yen) 1,000 Nikkei Average (Yen) 12, ,000 Nikkei Average EBARA Stock Price EBARA Stock Turnover (Thousand shares per month) 500 6, , , , , /09 12/09 2/10 4/10 6/10 8/10 10/10 12/10 2/11 4/11 6/11 8/11 10/11 12/11 2/12 0 For more investor relations information, please access 71

74 EBARA CORPORATION Head Office 11-1, Haneda Asahi-cho, Ohta-ku, Tokyo , Japan Phone: URL: On the cover: This horizontal shaft type mixed flow pump serves in many heavy-duty applications, including sewage intake and output, supplying and draining agricultural water, and pumping water to and from rivers. Printed in Japan on recycled paper using non-voc ink