OBAYASHI ROAD CORPORATION. Annual Report 2010

OBAYASHI ROAD CORPORATION Annual Report 2010

FINANCIAL HIGHLIGHTS For the years ended March 31 Thousands of U.S. dollars Net sales... 91,627 92,533 $ 984,822 Net income... 1,672 355 17,979 New orders received... 88,361 90,974 949,716 Backlog at year end... 36,175 39,441 388,819 At year end Total assets... 78,628 76,168 $ 845,101 Total liabilities... 54,006 53,071 580,469 Net assets... 24,621 23,096 264,632 Per share data Basic net income per share... 35.91 7.63 $ 0.38 Net assets per share... 528.64 495.72 5.68 All figures have been translated into U.S. dollar at the rate of 93.04/$1.00, solely for the convenience of the reader. For details, see Note 2 to the consolidated financial statements. The fiscal year end of Obayashi Road Corporation and consolidated subsidiaries is March 31. Net sales (billions of yen) 160 New orders received (billions of yen) 160 120 120 80 80 40 40 0 2009 2010 0 2009 2010 Asphalt mixture sales Asphalt mixture sales Completed construction Completed construction Net income (billions of yen) 2.0 1.5 1.0 0.5 0.0 0.5 Basic net income per share (yen) 40 30 20 10 0 10 1 1.0 2009 2010 20 2009 2010

TO OUR SHAREHOLDERS This is to report on the business result of the Company Group for the consolidated fiscal year ended March 31, 2010. Corporate income substantially decreased and employment conditions remained severe at the initial phase of the term under review. Subsequently, corporate income and employment showed signs of recovery and export and consumer spending tended to improve. The road construction industry benefited from steady increases in public construction works as part of the government s economic stimulus measures. Severe circumstances continued to weigh heavily on order receipts, however, with significant declines in corporate capital investment due to decreases in corporate capital investment due to decreases in corporate income and a general sense of overcapacity. Under these circumstances, we worked to secure construction order receipts and increase products sales with an emphasis on acquiring orders for public construction works. As a result, orders received during the term under review decreased by 2.9% from the previous term, to 88,361 million (US$949,716 thousand) and sales decreased by 1.0%, to 91,627 million (US$984,822 thousand). Gross profit increased by 1,398 million from the previous term, to 7,864 million (US$84,532 thousand), mainly due to drastic cost control in the construction division and product and marketing divisions, along with curtailments in general and administrative expenses. Net income increased by 1,317 million to 1,672 million (US$17,979 thousand) due to the increase in gross profit. Judging from the signs of improvement seen in corporate income, consumer spending, and export volumes, the Japanese economy is expected to make a mild recovery in the future. In the road construction industry, recovery of corporate income is expected to improve corporate capital investment. Severe conditions for order receipts are expected to persist, however, with projected curtailments in public construction works. To secure orders received and sales volume in its mainstay paving business, civil engineering business, and plied timber business, the Company Group will strengthen its functions to acquire open bidding construction work from public offices while concentrating on sales activities to grasp the needs of private customers in the construction division. In the product and marketing divisions, the Company Group will endeavor to strengthen sales activities through product differentiation strategies such as the use of solar energy generation and improved manufacturing facilities with advanced functions for environmental preservation. We will also be further exploiting maintenance and renewal fields for social capital and in environment-related fields. Through these efforts, we will strive to become a company that generates continuous profits and holds the enduring trust of society. We believe that we will continue to merit your valuable and ongoing support. Tetsuo Ishii, President and Director 2

GROUP AND BUSINESS OPERATIONS 3 Our group, consisting of our company, 1 subsidiary, 4 affiliates and our parent company, is mainly engaged in the general contractor business, providing paving, civil engineering, construction and related works. In addition, our group manufactures and sells asphalt mixture and recycled crushed stones. Details of our business lines are explained below. CONSTRUCTION BUSINESS Our activities include obtaining orders for construction work, and carrying out actual construction, design and surveys. In addition, we have some orders which our parent company, Obayashi Corporation Co., Ltd. has made. Our subsidiary, Toyo Pipe Renovate Co., Ltd., is mainly engaged in activities that include obtaining orders for the renovation construction of pipes, and carrying out actual construction work, design and surveys. Our affiliate, Minoru Kogyo Co., Ltd., is engaged in activities that include obtaining orders for construction work, and carrying out actual construction work, design and surveys. Our affiliate, Forest Consultant Co., Ltd., is mainly engaged in activities that include design and surveys. We place orders for some of the works mentioned above with our subsidiaries and affiliates, and in some cases we take orders for works from them. Obayashi Road Corporation s construction business consists of civil engineering and building construction. Revenues earned from the construction business in FY 2010 amounted to 76,258 million (US$819,631 thousand), contributing about 83.4% of total revenue. Business in the civil engineering sector is divided into paving and non-paving works. The Company provides a complete range of such services as design, planning, consultation and construction, as a general contractor or a main subcontractor in both the public and private sectors. Paving works are projects involving laying of asphalt mixture or cement on prepared ground and include the construction of roads and expressways, surroundings of factories and other buildings (including car parks), airports and harbors and other facilities such as tennis courts and driveways and car parks at golf courses. Non-paving works consist of site formation, road and expressway related works, water and sewage works and other types of non-paving civil engineering works. In FY 2010, revenues derived from paving and non-paving works amounted to 52,426 million (US$563,479 thousand) and 23,428 million (US$251,807 thousand), respectively, representing 57.4% and 25.6% of the total revenue. The building construction division undertakes construction of medium-sized commercial, residential and other buildings such as gas stations, suburban restaurants and shopping malls. In FY 2010, revenues derived from building construction amounted to 404 million (US$4,344 thousand), representing 0.4% of the total revenue. MANUFACTURING, SELLING AND OTHER BUSINESS In addition to the above activities, we and our affiliate Minoru Kogyo Co., Ltd. manufacture asphalt mixture both for sales and use by our group. In FY 2010, we sold 1,295,805 tons of asphalt mixture. Revenues from asphalt mixture sales amounted to 15,142 million (US$162,753 thousand), contributing to 16.6% of the total revenue. The Company is also the exclusive licensee and exclusive agent in Japan for Noordhollandse Asphalt Central b.v. in the Netherlands for a binding agent marketed under the name SEALOFLEX, which, when added to asphalt, enables relatively temperature-resistant, long-lasting asphalt mixtures to be produced. SEALOFLEX can also be used to create a porous asphalt mixture for situations where drainage is important. Our subsidiary, Toyo Pipe Renovate Co., Ltd., and our affiliates, TMS Liner Co., Ltd. and Japan Snap Lock Co., Ltd., are mainly engaged in the selling of renovated pipe products.

VOLUME OF OPERATIONS The following table shows the Company s amounts and percentage shares of revenues, order backlog and new orders received, attributable to individual areas for FY 2010 and FY 2009: Backlog from the previous year New orders received during the year Revenues during the year Carried over to the next year 2010 Civil Engineering Paving works... 28,531 51,754 52,426 27,859 (72.5%) (58.7%) (57.4%) (77.1%) Non-paving works... 10,417 21,298 23,428 8,287 (26.5%) (24.1%) (25.6%) (22.9%) Building Construction... 402 1 404 (1.0%) (0.0%) (0.4%) ( %) Total construction works... 39,351 73,054 76,258 36,147 (100.0%) (82.8%) (83.4%) (100.0%) Asphalt Mixture Activities and other... 15,142 15,142 ( %) (17.2%) (16.6%) ( %) Total... 39,351 88,197 91,401 36,147 (100.0%) (100.0%) (100.0%) (100.0%) Thousands of U.S. dollars 2010 Civil Engineering Paving works... $ 306,662 $ 556,255 $ 563,479 $ 299,438 Non-paving works... 111,963 228,921 251,807 89,077 Building Construction... 4,326 18 4,344 Total construction works... 422,951 785,195 819,631 388,515 Asphalt Mixture Activities and other... 162,753 162,753 Total... $ 422,951 $ 947,949 $ 982,385 $ 388,515 2009 Civil Engineering Paving works... 28,014 52,421 51,904 28,531 (68.3%) (57.9%) (56.3%) (72.5%) Non-paving works... 12,986 22,361 24,930 10,417 (31.7%) (24.7%) (27.1%) (26.5%) Building Construction... 782 380 402 ( %) (0.9%) (0.4%) (1.0%) Total construction works... 41,001 75,565 77,215 39,351 (100.0%) (83.5%) (83.8%) (100.0%) Asphalt Mixture Activities and other... 14,960 14,960 ( %) (16.5%) (16.2%) ( %) Total... 41,001 90,526 92,176 39,351 (100.0%) (100.0%) (100.0%) (100.0%) 4

The following table shows the Company s amounts and percentage shares of revenues, order backlog and contracts awarded, divided by sources of contract, attributable to the Company s construction works for FY 2010 and FY 2009: Backlog from the previous year New orders received during the year Revenues during the year Carried over to the next year 2010 Public Sector... 21,944 31,649 32,263 21,330 (55.8%) (43.3%) (42.3%) (59.0%) Private Sector... 17,407 41,404 43,995 14,816 (44.2%) (56.7%) (57.7%) (41.0%) Total... 39,351 73,054 76,258 36,147 (100.0%) (100.0%) (100.0%) (100.0%) Thousands of U.S. dollars 2010 Public Sector... $ 235,856 $ 340,174 $ 346,767 $ 229,263 Private Sector... 187,094 445,021 472,864 159,251 Total... $ 422,951 $ 785,195 $ 819,631 $ 388,515 2009 Public Sector... 22,508 26,514 27,079 21,944 (54.9%) (35.1%) (35.1%) (55.8%) Private Sector... 18,492 49,051 50,136 17,407 (45.1%) (64.9%) (64.9%) (44.2%) Total... 41,001 75,565 77,215 39,351 (100.0%) (100.0%) (100.0%) (100.0%) 5

CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheets OBAYASHI ROAD CORPORATION At March 31, 2010 and 2009 ASSETS Current Assets Thousands of U.S. dollars (Note 2) Cash and deposits (Note 10)... 13,179 9,908 $ 141,649 Notes receivable, accounts receivable from completed ASSETS construction contracts and other (Note 10)... 33,760 31,865 362,860 Short-term investment securities (Notes 5-(3), 10 and 11)... 20 Real estate for sale (Note 4-(1) )... 17 17 185 Costs on uncompleted construction contacts (Note 5-(5))... 7,954 10,905 85,497 Raw materials and supplies... 423 339 4,548 Deferred tax assets (Note 14)... 1,010 900 10,856 Other... 1,298 1,444 13,960 Allowance for doubtful accounts... (48) (48) (520) Total current assets... 57,595 55,352 619,037 Noncurrent assets Property, plant and equipment Buildings and structures... 8,567 8,314 92,084 Machinery, equipment and vehicles... 13,172 12,925 141,573 Tools, furniture and fixtures... 1,555 1,500 16,723 Land (Note 5-(2) )... 11,766 11,740 126,467 Leased assets (Note 4-(2))... 451 329 4,854 Construction in progress... 240 2 2,585 Accumulated depreciation... (18,497) (17,767) (198,811) Total property, plant and equipment... 17,256 17,045 185,477 Intangible assets... 252 279 2,709 Investments and other assets... Investment securities (Notes 5-(1), (3) and 11)... 641 562 6,898 Deferred tax assets (Note 14)... 1,638 1,685 17,612 Others... 1,774 1,867 19,076 Allowance for doubtful accounts... (531) (625) (5,711) Total investments and other assets... 3,524 3,490 37,877 Total noncurrent assets... 21,033 20,815 226,064 Total assets... 78,628 76,168 $ 845,101 The accompanying notes to the consolidated financial statements are an integral part of these statements. 7

Liabilities Current liabilities LIABILITIES AND NET ASSETS Thousands of U.S. dollars (Note 2) Notes payable, accounts payable for construction contacts and other (Note 10)... 31,164 29,857 $ 334,961 Short-term loans payable (Notes 10 and 18)... 5,300 6,400 56,964 Income taxes payable (Note 10)... 1,067 817 11,474 Advances received on uncompleted construction contracts... 5,508 6,223 59,207 Provision for warranties for completed construction... 77 54 832 Provision for loss on construction contracts (Note 5-(5))... 1,048 900 11,265 Other... 3,554 2,497 38,200 Total current liabilities... 47,720 46,750 512,907 Noncurrent liabilities Deferred tax liabilities for land revaluation (Notes 5-(2) and 14)... 2,044 2,044 21,974 Provision for retirement benefits (Note 13)... 4,009 4,096 43,098 Provision for environmental measures... 8 89 Other... 223 179 2,399 Total noncurrent liabilities... 6,285 6,320 67,562 Total liabilities... 54,006 53,071 580,469 Net assets Shareholders equity Capital stock... 6,293 6,293 67,646 Capital surplus... 6,095 6,095 65,518 Retained earnings... 12,237 10,704 131,525 Treasury stock... (50) (47) (542) Total shareholders equity... 24,576 23,046 264,148 Valuation and translation adjustments Valuation difference on other securities... 80 85 860 Revaluation reserve for land (Note 5-(2))... (34) (34) (376) Total valuation and translation adjustments... 45 50 484 Total net assets... 24,621 23,096 264,632 Total liabilities and net assets... 78,628 76,168 $ 845,101 The accompanying notes to the consolidated financial statements are an integral part of these statements. 8

Consolidated Statements of Income OBAYASHI ROAD CORPORATION For the years ended March 31, 2010 and 2009 Thousands of U.S. dollars (Note 2) Net Sales... 91,627 92,533 $ 984,822 Cost of sales (Note 6-(1))... 83,763 86,067 900,290 Gross profit... 7,864 6,466 84,532 Selling, general and administrative expenses (Notes 6-(2), (3))... 4,705 5,051 50,576 Operating income... 3,159 1,414 33,955 Other income / (expenses) Interest and dividend income... 15 35 171 Interest expenses... (93) (129) (1,002) Commission fee... 9 9 102 Equity in earnings of affiliates... 16 13 179 Gain on sales of noncurrent assets (Note 6)... 7 10 77 Loss on sales of noncurrent assets (Note 6)... (2) (4) (21) Loss on disposal of noncurrent assets (Note 6)... (76) (88) (822) Impairment loss (Note 6)... (279) Provision for environmental measures... (8) (89) Other, net... (1) (2) (19) Total other income / (expenses)... (132) (436) (1,425) Income before income taxes... 3,026 978 32,530 Income taxes (Note 14) Income taxes-current... 1,466 1,083 15,762 Income taxes-refunded... (42) Income taxes-deferred... (112) (417) (1,211) Total income taxes... 1,353 622 14,551 Net income... 1,672 355 $ 17,979 The accompanying notes to the consolidated financial statements are an integral part of these statements. 9

Consolidated Statements of Changes in Net Assets OBAYASHI ROAD CORPORATION For the years ended March 31, 2010 and 2009 Thousands of U.S. dollars (Note 2) SHAREHOLDERS EQUITY: CAPITAL STOCK: Balance at the end of previous period... 6,293 6,293 $ 67,646 Balance at the end of current period... 6,293 6,293 67,646 CAPITAL SURPLUS: Balance at the end of previous period... 6,095 6,095 65,518 Balance at the end of current period... 6,095 6,095 65,518 RETAINED EARNINGS: Balance at the end of previous period... 10,704 10,473 115,047 Dividends from surplus... (139) (139) (1,502) Net income... 1,672 355 17,979 Reversal of reserve for land revaluation... 15 Balance at the end of current period... 12,237 10,704 131,525 TREASURY STOCK: Balance at the end of previous period... (47) (43) (509) Purchase of treasury stock... (3) (4) (32) Balance at the end of current period... (50) (47) (542) Total shareholders equity... 24,576 23,046 264,148 VALUATION AND TRANSLATION ADJUSTMENTS: VALUATION DIFFERENCE ON OTHER SECURITIES: Balance at the end of previous period... 85 251 919 Change of items during the period... (5) (165) (58) Balance at the end of current period... 80 85 860 DEFERRED GAINS OR LOSSES ON HEDGES: Balance at the end of previous period... (1) Change of items during the period... 1 Balance at the end of current period... REVALUATION RESERVE FOR LAND: Balance at the end of previous period... (34) (19) (376) Change of items during the period... (15) Balance at the end of current period... (34) (34) (376) Total valuation and translation adjustments... 45 50 484 Total net assets... 24,621 23,096 $ 264,632 The accompanying notes to the consolidated financial statements are an integral part of these statements. 10

Consolidated Statements of Cash Flows OBAYASHI ROAD CORPORATION For the years ended March 31, 2010 and 2009 Thousands of U.S. dollars (Note 2) NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES: Income before income taxes... 3,026 978 $ 32,530 Depreciation and amortization... 1,333 1,338 14,331 Impairment loss... 279 Increase (decrease) in allowance for doubtful accounts... (93) 32 (1,010) Increase (decrease) in provision for retirement benefits... (86) 30 (930) Interest and dividend income... (15) (35) (171) Interest expenses... 93 129 1,002 Loss (gain) on valuation of derivatives... 8 (7) 96 Decrease (increase) in notes and accounts receivable-trade... (1,861) 4,118 (20,003) Decrease (increase) in costs on uncompleted construction contracts... 2,952 855 31,733 Increase (decrease) in notes and accounts payable-trade 1,307 (2,932) 14,055 Increase (decrease) in advances received on uncompleted construction contracts... (715) 838 (7,685) Increase (decrease) in accrued consumption taxes... (296) 188 (3,186) Increase (decrease) in deposits received... 1,135 80 12,208 Other, net... 368 1,015 3,960 Subtotal... 7,157 6,911 76,932 Interest and dividend income received... 17 47 184 Interest expenses paid... (102) (137) (1,097) Income taxes paid... (1,239) (1,035) (13,319) Income taxes refunded... 3 42 33 Net cash provided by (used in) operating activities... 5,836 5,828 62,733 NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES: Purchase of property, plant and equipment... (1,234) (1,305) (13,269) Proceeds from sales of property, plant and equipment... 15 48 170 Payments for disposal of property, plant and equipment... (38) Purchase of investment securities... (20) (215) Proceeds from redemption of investment securities... 20 214 Other payments... (77) (80) (828) Other proceeds... 67 110 728 Net cash provided by (used in) investing activities... (1,228) (1,265) (13,200) NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES: Net increase (decrease) in short-term loans payable... 200 (1,100) 2,149 Repayment of long-term loans payable... (1,300) (13,972) Repayments of lease obligations... (93) (75) (1,005) Purchase of treasury stock... (3) (4) (32) Cash dividends paid... (139) (139) (1,502) Net cash provided by (used in) financing activities... (1,336) (1,319) (14,363) Effect of exchange rate changes on cash and cash equivalents... (1) (0) (14) Net increase (decrease) in cash and cash equivalents... 3,270 3,243 35,154 Cash and cash equivalents at beginning of period... 9,908 6,664 106,495 Cash and cash equivalents at end of period (Note 8)... 13,179 9,908 $ 141,649 The accompanying notes to the consolidated financial statements are an integral part of these statements. 11

Notes to Consolidated Financial Statements OBAYASHI ROAD CORPORATION For the years ended March 31, 2010 and 2009 12 1. Basis of presenting consolidated financial statements (1) The accompanying consolidated financial statements were prepared based on the accounts maintained by OBAYASHI ROAD CORPORATION (the Company ) and its subsidiaries in accordance with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards, and are compiled from the consolidated financial statements prepared by the Company as required by the Financial Instruments and Exchange Law of Japan. Certain amounts in the prior year s financial statements were reclassified to conform to the changes made for the latest fiscal year. (2) The Company had 1 subsidiaries as of March 31, 2010 (2 as of March 31, 2009). The consolidated financial statements as of and for the years ended March 31, 2010 and 2009 included the accounts of the Company and all subsidiaries (together, the Companies ). All significant intercompany accounts and transactions have been eliminated. Investments in all affiliates (4 companies for 2010 and for 2009) are accounted for by the equity method. 2. U.S. Dollar Amounts The accounts of the consolidated financial statements presented herein are expressed in Japanese yen by rounding down to the nearest million. The U.S. dollar amounts shown in the accompanying consolidated financial statements and notes thereto were translated from the original Japanese yen into U.S.dollars on the basis of 93.04 to U.S.$1, the rate of exchange prevailing at March 31, 2010, and were then rounded down to the nearest thousand. These U.S. dollar amounts are not intended to imply that the Japanese yen amounts have been or could be converted, realized or settled in U.S.dollars at this or any other rate. 3. Summary of Significant Accounting Policies (1) Short-term investment securities and investment securities Securities other than investments in affiliates are classified into two categories: held-to-maturity and other securities. Held-to-maturity securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method. (2) Inventories Real estate held for sale, and costs on uncompleted construction contracts are all stated at cost determined by the specific identification method. Raw materials and supplies are stated at cost determined by the first-in first-out method. The net book value of inventories in the balance sheet is written down if the net realizable value declines. (3) Property, plant and equipment The Company and its domestic consolidated subsidiaries calculate depreciation by the declining-balance method, while straight-line method is applied to the buildings, excluding building fixtures, acquired on or after April 1, 1998. The useful lives and residual values of depreciable assets are estimated mainly in accordance with the Corporate Tax Law. (4) Intangible assets Intangible fixed assets are amortized by the straight-line method. Computer software for internal use is amortized by the straight-line method over the estimated useful life of 5 years. (5) Leased assets Depreciation of leased assets under finance leases that do not transfer ownership of the leased assets to the lessee is calculated by the straight-line method over the lease period with a residual value of zero. (6) Allowance for doubtful accounts The allowance for doubtful accounts is provided based on the historical experience with respect to write-offs and based on an estimate of the amount of specific uncollectible accounts. (7) Provision for warranties for completed construction The provision for warranties for completed construction is provided to cover expenses for defects claimed concerning completed work, based on the estimated amount of compensation to be paid in the future for the work completed during the fiscal year. (8) Provision for loss on construction contracts The provision for loss on construction contracts is provided at the estimated amount for the future losses on contract backlog at the balance sheet date which will be probably incurred and which can be reasonably estimated. (9) Provision for retirement benefits The provision for retirement benefits for employees is provided mainly at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets, as adjusted for unrecognized actuarial gain or loss. Prior service cost is charged or credited to income as incurred. Actuarial gain or loss is being amortized by the straight-line method over a period of 5 years starting the year of the occurrence. (10) Provision for environmental measures The provision for environmental measures is provided based on an estimate of costs for disposal of Polychlorinated Biphenyl (PCB) waste, which the Company and its domestic consolidated subsidiaries are obliged to dispose by the Act on Special Measures Concerning Promotion of Proper Treatment of PCB Waste. (11) Recognizing revenues and costs of construction contracts Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, are recognized by the percentage-of-completion method. The percentage of completion is calculated at the cost incurred as a percentage of the estimated total cost. The completed-contract method continues to be applied for contracts for which the percentage of completion cannot be reliably estimated. (12) Derivatives and hedge accounting (For the year ended March 31, 2009) a) Method of hedge accounting The interest rate swaps, which qualify for hedge accounting and meet specific matching criteria, as the exceptional treatment, are not remeasured at market value, but the differential paid or received under the swap agreements is charged to income. b) Hedging instruments and hedged items To hedge the interest-rate risks related to loans payable, interest rate swaps are employed as hedging instruments.

c) Hedging policy The Companies utilize derivative financial instruments only for the purpose of hedging future risks of fluctuation of foreign currency exchange rates or interest rates in accordance with internal rules. d) Assessment of hedge effectiveness The evaluation of hedge effectiveness is omitted for interest rate swaps as they meet certain criteria under the exceptional treatment. (13) Consumption taxes Consumption taxes and local consumption taxes are accounted for under the tax-exclusive method. (14) Income taxes The Company and its consolidated subsidiaries apply deferred tax accounting for income taxes which requires recognition of income taxes by the asset/liability method. Under the asset/liability method, deferred tax assets and liabilities are determined based on the difference between financial reporting basis and the tax basis of the assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse. (15) Cash equivalents All highly liquid investments, generally with a maturity of three months or less when purchased, which are readily convertible into known amounts of cash and are so near maturity that they represent only an insignificant risk of any change in value attributable to changes in interest rates, are considered cash equivalents. 4. Changes in Significant Accounting Policies (1) Change in method of measurement of inventories Effective the year ended March 31, 2009, the Company and its domestic consolidated subsidiaries have adopted, the Accounting Standard for Measurement of Inventories (ASBJ Statement No. 9 issued on July 5, 2006). As a result of this change, operating income decreased by 0 million (US$ 6 thousand), and income before income taxes decreased by 11 million (US$112 thousand), for the year ended March 31, 2009, compared with the corresponding amounts that would have been recorded under the previous method. (2) Application of lease accounting Effective the year ended March 31, 2009, the Companies have adopted the Accounting Standard for Lease Transactions (ASBJ Statement No. 13, issued on June 17, 1993 by the First Committee for Business Accounting Standards; revised on March 30, 2007) and the Guidance on Accounting Standard for Lease Transactions (ASBJ Guidance No. 16, issued on January 18, 1994 by the Accounting Practice Committee of the Japanese Institute of Certified Public Accountants; revised on March 30, 2007). As a result, the accounting treatment for finance leases that do not transfer ownership of the leased assets to the lessee has been changed from the method applicable to operating lease transactions to the method applicable to the ordinary buying and selling transactions. The effect of this change on operating income and income before income taxes was immaterial for the year ended March 31, 2009. (3) Application of the Partial Amendments to Accounting Standard for Retirement Benefits (Part3) Effective the year ended March 31, 2010, the Companies have adopted the Partial Amendments to Accounting Standard for Retirement Benefits (Part3) (ASBJ Statement No. 19, issued on July 31, 2008). This change had no effect on operating income and income before income taxes and minority interests for the year ended March 31, 2010. (4) Change in recognizing revenues and costs of construction contracts Until the year ended March 31, 2009, revenues and costs of construction contracts of the Company and its domestic consolidated subsidiaries were recorded under the completed-contract method. Effective the year ended March 31, 2010, the Company and its domestic consolidated subsidiaries have adopted the Accounting Standard for Construction Contracts (ASBJ Statement No. 15, issued on December 27, 2007) and Guidance for the Application of Accounting Standard for Construction Contracts (ASBJ Guidance No. 18, issued on December 27, 2007). Under the new accounting standard and guidance, revenues and costs of construction contracts that commenced on or after April 1, 2009, of which the percentage of completion can be reliably estimated, are recognized by the percentage-of-completion method. The percentage of completion is calculated at the cost incurred as a percentage of the estimated total cost. The completed-contract method continues to be applied for contracts for which the percentage of completion cannot be reliably estimated. As a result of this change, net sales for the year ended March 31, 2010 increased by 5,802 million (US$62,362 thousand), and operating income and income before income taxes and minority interests for the year ended March 31, 2010 each decreased by 40 million (US$437 thousand) compared with the corresponding amounts that would have been recorded under the previous method. The effect of the change to segment information is disclosed in Segment Information. 5. Notes to Consolidated Balance Sheets (1) Investments in affiliates: At March 31 Thousands of U.S. dollars 196 181 $ 2,106 (2) Revaluation reserve for land Pursuant to the Law Concerning the Revaluation of Land, land used for the business operations was revalued on March 31, 2000. The excess of the revalued carrying amount over the book value before revaluation is included in net assets as reserve for land revaluation, net of applicable income taxes. The revaluation of the land was determined based on the official standard notice prices in accordance with Article 2, paragraph 4 of the Enforcement Ordinance Concerning Land Revaluation with certain necessary adjustments. The excess of the revalued carrying amount over the market value at March 31, 2010 and 2009 were 3,314 million (US$35,625 thousand) and 3,114 million respectively. (3) Pledged Assets The following assets were pledged as collateral in substitution for guarantee money paid. At March 31 Thousands of U.S. dollars Short-term investment securities... 20 $ Investment securities... 20 $ 215 13

(4) Contingent liabilities: The Company is contingently liable for the following: Thousands of U.S. dollars Trade notes receivable discounted... 242 893 $ 2,605 (5) Estimated loss on uncompleted construction contracts An estimated loss on uncompleted construction was recognized and included in the inventory account but was not offset against the amount on the balance sheet. It was recorded as a provision for loss on construction contracts in the amount of 65 million (US$706 thousand) at March 31, 2010. 6. Notes to Consolidated Statements of Income (1) Provision for loss on construction contracts included in cost of sales For the years ended March 31 Thousands of U.S. dollars 1,029 $ 11,067 (2) The major components of Selling, general and administrative expenses For the years ended March 31 Thousands of U.S. dollars Employees salaries and allowances... 2,331 2,381 $ 25,054 Provision of allowance for doubtful accounts... 65 235 $ 702 Retirement benefit expenses... 174 202 $ 1,876 (3) Research and development costs included in Selling, general and administrative expenses For the years ended March 31 Thousands of U.S. dollars 219 211 $ 2,356 (4) Gain on sales of noncurrent assets For the years ended March 31 Thousands of U.S. dollars Machinery, equipment and vehicles... 7 10 $ 77 Tools, furniture and fixtures... 0 0 Total... 7 10 $ 77 (5) Loss on sales of noncurrent assets For the years ended March 31 Thousands of U.S. dollars Buildings and structures... 0 $ Machinery, equipment and vehicles... 2 3 21 Tools, furniture and fixtures... 0 0 0 Other... 0 Total... 2 4 $ 21 (6) Loss on disposal of noncurrent assets For the years ended March 31 Thousands of U.S. dollars Buildings and structures... 46 55 $ 498 Machinery, equipment and vehicles... 25 29 276 Tools, furniture and fixtures... 2 3 22 Other... 2 0 25 Total... 76 88 $ 822 14 (7) Impairment loss For the year ended March 31, 2009, the Company and its consolidated subsidiaries recognized impairment losses on the following assets: At March 31, 2009 Use Location Type of assets Product division Hyogo Pref. Buildings and structures 65 Machinery and equipment 41 Tools, furniture and fixtures 1 Land 127 Idle assets Kanagawa Pref. Land 44 Assets are grouped by branch office in the construction division and by business unit in the product division.

For idle assets, recoverability is assessed on an individual basis. In the product division, the book value of the asset group is written down to its recoverable value mainly based on any deterioration in profitability. For idle assets, the book value of land which currently serves no business purpose and whose current value has significantly decreased is written down to its recoverable value. The resulting decreases in book values are recorded as impairment losses. With regard to the recoverable value of the above asset groups and assets, in the product division, their book values are calculated by writing them down to memorandum values because the depreciable assets are considered to have no substantive value. The recoverable value of land is calculated at a net selling price based on the appraisal value of the fixed asset tax. The recoverable value of land as an idle asset is calculated at a net selling price based on the appraisal value of the fixed assets as determined by the tax authorities. 7. Notes to Consolidated Statements of Changes in Net Assets (1) Type and number of outstanding shares For the year ended March 31, 2010 Balance at beginning of year Number of shares (thousand) Decrease in shares during the year Increase in shares during the year Balance at end of year Type of shares Issued stock: Common stock 46,818 46,818 Treasury stock: Common stock 226 17 243 Notes: Treasury stock increased by 17 thousand shares due to the repurchase of shares less than one unit. For the year ended March 31, 2009 Balance at beginning of year Number of shares (thousand) Decrease in shares during the year Increase in shares during the year Balance at end of year Type of shares Issued stock: Common stock 46,818 46,818 Treasury stock: Common stock 198 27 226 Notes: Treasury stock increased by 27 thousand shares due to the repurchase of shares less than one unit. (2) Dividends a) Dividends paid to shareholders For the year ended March 31, 2010 Amount Amount per share Type of Millions of Thousands of shares yen U.S. dollars Resolution approved by Annual General Meeting of Shareholders (June 23, 2009) Yen U.S. dollars Shareholders cut-off date Common stock 139 $ 1,502 3 $ 0.03 March 31, 2009 Effective date June 24, 2009 For the year ended March 31, 2009 Amount Amount per share Type of Millions of Yen Shareholders Effective Resolution approved by shares yen cut-off date date Annual General Meeting of Common March 31, June 25, Shareholders (June 24, 2008) stock 139 3 2008 2008 b) Dividends with a shareholders cut-off date during the fiscal year but an effective date subsequent to the fiscal year For the year ended March 31, 2010 Amount Amount per share Type of Millions of Thousands of shares yen U.S. dollars Resolution approved by Annual General Meeting of Shareholders (June 23, 2010) Common stock 279 $ 3,003 Paid from Yen U.S. dollars Shareholders cut-off date Retained earnings 6 $ 0.06 March 31, 2010 Effective date June 24, 2010 For the year ended March 31, 2009 Amount Amount per share Type of Millions of shares yen Resolution approved by Annual General Meeting of Shareholders (June 23, 2009) Common stock 139 Paid from yen Shareholders cut-off date Retained earnings 3 March 31, 2009 Effective date June 24, 2009 (3) Shareholders equity 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 he legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met. 15

16 8. Notes to Consolidated Statements of Cash Flows The reconciliation between cash and cash equivalents reported in the consolidated statements of cash flows and amounts reported in the consolidated balance sheets is as follows: Thousands of U.S. dollars Cash and deposits... 13,179 9,908 $141,649 Cash and cash equivalents at end of period... 13,179 9,908 $141,649 9. Lease Transactions (1) Finance leases Financial leases that do not transfer ownership of the leased assets to the lessee (a) Lessee s accounting Property, plant and equipment Mainly consist of heavy machinery for manufacturing, selling and other business (Machinery, equipment and vehicles) (2) Operating leases (a) Lessee s accounting Future minimum payments under non-cancelable lease contracts at March 31, 2010 and 2009 At March 31 Thousands of U.S. dollars Within 1 year 59 81 $ 641 Over 1 year 64 105 696 Total 124 186 $ 1,338 10. Financial instruments (1) Overview (a) Policy for financial instruments The Companies chiefly invest in financial assets with high safety such as short-term deposits for surplus funds and plan to raise funds by borrowing from financial institutions. The Companies use derivatives in order to avoid the risks, fluctuations of particular assets and liabilities, and fluctuations of interest rates. The Companies do not use derivative transactions to gain short-term profits or for speculative purposes. However, the Companies use low-risk derivative transactions for the long-term management of surplus funds. (b) Types of financial instruments related risks and risk management Notes receivable, accounts receivable from completed construction contracts and other and Accounts receivableother, which are operating receivables, are exposed to the credit risk of customers. In order to mitigate the risk when orders are received, the Companies conduct a strict screening and determine project plans so that potential risks are minimized. Investment securities mainly consist of stocks with relationships with the Companies, such as customers. While investment securities are exposed to market risk, the Companies monitor market prices of these securities. Notes payable, accounts payable for construction contracts and other which are operating liabilities, are due within one year. Short-term loans payable, are used for operations or capital investment. With regard to complex financial instruments, the Companies use derivative-embedded deposits whose principals are guaranteed and whose interest rates do not become negative, for the long-term management of surplus funds. The derivative-embedded deposit is a time deposit with a variable interest rate that may be determined in conjunction with the foreign exchange market. Accordingly, it is subject to a risk of a fall in the interest rate to below the market interest rate. There is also a risk of an additional payment obligation if the Companies cancel the contract before the expiry date. The Companies trade derivative transactions with major financial institutions and therefore consider there is no credit risk underlying those transactions. The transactions of derivative financial instruments are carried out in accordance with the Companies internal rules, and the status of the transactions is reported regularly to the Board of Directors. While operating debt and borrowings are exposed to liquidity risk, the Companies manage the risk mainly by preparing quarterly and monthly cash management plans. (2) Fair value of financial instruments The following table shows the carrying values and fair values of financial instrument as of March 31, 2010, and any differences. Certain financial instruments for which it is extremely difficult to determine the fair value are not included (see Note 2 below). Thousands of U.S. dollars Carrying Estimated value fair value Difference Carrying Estimated value fair value Difference Cash and deposits... 13,179 13,179 $ 141,649 $ 141,649 $ Notes receivable, accounts receivable from completed construction contracts and other... 33,760 33,760 (0) 362,860 362,857 (2) Investment securities Held-to-maturity securities... 20 20 0 215 215 (0) Marketable other securities... 290 290 3,121 3,121 subtotal... 47,250 47,249 (0) $ 507,846 $ 507,844 $ (1) Notes payable, accounts payable for construction contacts and other... 31,164 31,164 $ 334,961 $ 334,961 $ Short-term loans payable... 5,300 5,300 56,964 56,964 Income taxes payable... 1,067 1,067 11,474 11,474 subtotal... 37,532 37,532 $ 403,400 $ 403,400 $ Derivative transactions (*)... (53) (53) $ (570) $ (570) $ (*) Assets and liabilities arising from derivative transactions are shown at net value, with the amount in parentheses representing net liability position.

Note 1. Method to determine the fair values of financial instruments, and other information related to marketable securities and derivatives Assets Cash and deposits Since cash and deposits are settled in a short period of time, the carrying value approximates fair value. The carrying value is the same as fair value. Notes receivable, accounts receivable from completed construction contracts and other The fair value of these items is determined based on the present value of carrying value, grouped by term of settlement, discounted at an interest rate determined taking into account the remaining period of those and credit risk. Investment securities The fair value of stocks is determined based on quoted market price and the fair value of debt securities is determined based on either quoted market price or prices provided by financial institutions making markets in these securities. Liabilities Notes payable, accounts payable for construction contracts and other, Short-term loans payable and Income taxes payable Since these accounts are settled or paid out in a short period of time, the carrying value approximates fair value. The carrying value is the same as fair value. Derivatives See Note 12. Note 2. Financial instruments for which it is extremely difficult to determine the fair value Carrying value Thousands of U.S. dollars Carrying value Non-listed stocks (*)... 331 $ 3,562 (*) Consists of stocks of affiliates of 196 million (US$2,106 thousand) and other short-term investment securities of 135 million (US$1,455 thousand) It is extremely difficult to determine the fair values for these securities, because they have no quoted market price and future cash flows from them cannot be estimated. Thus, they are not included in Investment securities above. Note 3. Redemption schedule for money claims and securities with maturities at March 31, 2010 Due in 1 year Due after 1 year Due after 5 year Due after or less through 5 years through 10 years 10 years Deposits... Notes receivable, accounts receivable from... 13,116 completed construction contracts and other 33,653 106 Investment securities Held-to-maturity securities (1) Government bonds, local government bonds and other... 20 (2) Corporate bonds... Other securities with maturity... (1) Debentures Corporate bonds... (2) other... Total... 46,770 126 Thousands of U.S. dollars Due in 1 year Due after 1 year Due after 5 year Due after or less through 5 years through 10 years 10 years Deposits... Notes receivable, accounts receivable from... $ 140,976 $ $ $ completed construction contracts and other 361,712 1,147 Investment securities Held-to-maturity securities (1) Government bonds, local government bonds and other... 215 (2) Corporate bonds... Other securities with maturity (1) Debentures Corporate bonds... (2) other... Total... $ 502,688 $ 1,362 $ $ (Additional information) Effective the year ended March 31, 2010, the Companies have adopted the Accounting Standard for Financial Instruments (ASBJ Statement No. 10, issued on March 10, 2008) and Guidance on Disclosures about Fair Value of Financial Instruments (ASBJ Guidance No. 19, issued on March 10, 2008). 17

11. Securities (a) Information regarding marketable securities classified as held-to-maturity debt securities and other securities as of March 31, 2010 and 2009 is as follows: Marketable held-to-maturity debt securities At March 31, 2010 Thousands of U.S. dollars Carrying Estimated value fair value Unrealized Carrying Estimated gain value fair value Unrealized gain Securities whose fair value exceeds their carrying value: Government bonds and municipal bonds... 20 20 0 $ 215 $ 215 $ 0 Securities whose carrying value exceeds their fair value: Government bonds and municipal bonds... Total... 20 20 0 $ 215 $ 215 $ 0 At March 31, 2009 Carrying Estimated value fair value Unrealized loss Securities whose fair value does not exceed their carrying value: Government bonds and municipal bonds... 20 20 0 Securities whose carrying value exceeds their fair value: Government bonds and municipal bonds... Total... 20 20 0 Marketable other securities At March 31, 2010 Thousands of U.S. dollars Carrying Acquisition Unrealized Carrying Acquisition Unrealized value cost gain (loss) value cost gain (loss) Securities whose carrying value exceeds their acquisition costs: Stock... 290 155 134 $ 3,121 $ 1,672 $ 1,448 Subtotal... 290 155 134 3,121 1,672 1,448 Securities whose acquisition cost exceeds their carrying value: Stock... Subtotal... Total... 290 155 134 $ 3,121 $ 1,672 $ 1,448 Non-listed stocks (amount on the consolidated balance sheet: 135 million) are not included in Other securities in the above table because their fair value, as securities without market prices, is considered to be extremely difficult to recognize. At March 31, 2009 Acquisition cost Carrying value Unrealized gain (loss) Securities whose carrying value exceeds their acquisition costs: Stock... 140 231 91 Subtotal... 140 231 91 Securities whose acquisition cost exceeds their carrying value: Stock... 15 14 (1) Subtotal... 15 14 (1) Total... 155 246 90 The Companies recognized valuation losses due to write-downs of 3 million on marketable other securities for the year ended March 31, 2009. When the fair market value of a security declines by 50% or more from the acquisition cost, the Companies automatically recognize a valuation loss on the security. When the fair market value of a security declines by 30% or more, but less than 50%, from the acquisition cost, the Companies recognize a valuation loss on the security based on the estimate of management. (b) Sales of securities classified as other securities Thousands of U.S. dollars Sales amount... 0 0 $ 1 Aggregate gain... 0 Aggregate loss... 0 0 18

(c) In addition to the securities above, the Companies held the following investment securities with no available market value at March 31, 2009: At March 31, 2009 Carrying value Other securities Non-listed stocks... 135 (d) The redemption schedules for other securities with maturity dates and held-to-maturity debt securities as of March 31, 2009 are summarized as follows: At March 31, 2009 Due in one year or less Due after one year through five years Bonds Government and municipal bonds... 20 Total... 20 12. Derivative financial instruments (1) Status of Derivative Transactions As a rule, the Companies only utilize derivative transactions as hedges against risk arising from price or interest rate fluctuations related to certain assets or debt, and not for short-term capital gains or speculation. However, the Companies use low-risk derivative transactions in for long-term management of surplus funds. The Companies use foreign exchange contracts to the hedge against foreign exchange risk relating to foreign-currencydenominated expenditures related to overseas construction. The Companies use interest rate swaps to hedge against interest rate risk relating to certain assets or debt. The Companies use derivative-embedded deposits whose principals are guaranteed and whose interest rates do not become negative, for the long-term management of surplus funds. Foreign exchange contracts and interest rate swaps are now being used to effectively offset potential risks related to assets or debts, and their market risk is not considered to be significant. A derivative-embedded deposit is a time deposit with a variable interest rate that may be determined in conjunction with the foreign exchange market. Accordingly, it is subject to a risk of a fall in the interest rate to below the market interest rate. There is also a risk an additional payment allegation if the Companies cancel the contract before the expiry date. As the counterparties to the derivative transactions are major financial institutions, the Companies do not anticipate any losses related to credit risk. Derivative transactions are executed in accordance with internal rules with regular reports provided to the Board of Directors. (2) Market Value of Derivative Transactions The Company utilizes the following complex financial instruments for which hedge accounting method is not applied: At March 31, 2010 Contract amount Notional amount (more than 1 year) Estimated fair value Unrealized loss Derivative-embedded deposits... 300 300 (53) (53) (Cancellation rights / Variable interest rate) Total... 300 300 (53) (53) At March 31, 2010 Thousands of U.S. dollars Contract amount Notional amount (more than 1 year) Estimated fair value Unrealized loss Derivative-embedded deposits... $ 3,224 $ 3,224 $ (570) $ (570) (Cancellation rights / Variable interest rate) Total... $ 3,224 $ 3,224 $ (570) $ (570) At March 31, 2009 Contract amount Notional amount (more than 1 year) Estimated fair value Unrealized loss Derivative-embedded deposits... 300 300 (44) (44) (Cancellation rights / Variable interest rate) Total... 300 300 (44) (44) Notes: 1. Market prices are calculated based on prices quoted by the financial institutions that are counterparties to the derivative transactions. 2. Market prices of derivative-embedded deposits are derived from built-in derivatives in complex financial instruments. 3. Contract amounts means the principal of the derivative-embedded deposit. The amount of contract, etc. itself does not reflect any quantities of market risk of derivative transactions. 19