Balance Sheet for the 131st Term (As of March 31, 2006) Accounts Amount Accounts Amount Assets Current Assets Cash on hand and in banks Notes receivable Accounts receivable Land and buildings for sale Merchandise Costs accrued on construction contract Stock Prepaid expenses Deferred tax assets Accrued income Allowance for doubtful accounts Millions 12,242 5,964 36 1,392 833 2,485 1,160 15 197 38 128 2-13 Liabilities Current Liabilities Notes payable Accounts payable-trade Short-term loans payable Accounts payable Accrued corporate taxes Accrued consumption taxes Advances received Deposits received Accrued bonuses to employees Reserve for compensation for completed works Fixed Liabilities Millions 9,180 892 812 6,024 247 17 75 259 136 73 641 10,622 3,093 Fixed Assets Tangible fixed assets Buildings Structures Machinery and equipment Ships and vessels Autos and trucks Tools, furniture and fixtures Land Construction in progress Intangible fixed assets Software Investments and other assets Investment securities Investments in affiliated Companies Investments in partnerships Long-term loans receivable Deposits and guaranty money Long-term prepaid expenses Allowance for doubtful accounts 16,864 (9,985) 2,629 379 311 1 0 12 6,640 10 (98) 37 60 (6,780) 2,201 275 37 1,483 2,404 67 442-131 Long-term loans payable Guaranty money for deposits Received Long-term accounts payable Deferred tax liabilities Restated deferred tax liabilities Reserve for retirement benefits Reserve for loan guarantee losses Total liabilities Shareholders Equity Capital Stock Capital Surplus Legal capital reserve capital surplus Gain in legal capital reserve Decrease Earned surplus Legal earned surplus Voluntary earned surplus Reserve for specific purposes Unappropriated retained earnings Variance in land reappraisal Variance in other securities Reappraisal Treasury stock Total shareholders equity 3,761 525 616 1,281 220 1,124 19,803 3,782 2,873 1,431 1,442 1,442 875 5 226 226 643 695 1,078-1 9,303 Total assets 29,106 Total liabilities and shareholders Equity 29,106
131 st Income Statement (For the period from April 1, 2005 to March 31, 2006) Item Amount Millions Sales 19,883 Cost of sales 17,198 Gross profit on sales 2,684 Selling, general and administrative expenses 2,112 Operating income 572 Non-operating operating income 394 Interest received 43 Dividends received 317 33 Non-operating operating expenses 277 Interest paid 191 86 Ordinary income 689 Extraordinary income 838 Gain on disposal of fixed assets 4 Gain on disposal of investment securities 109 Rent litigation out-of-court settlement payment received 712 11 Extraordinary losses Loss on demolition of fixed assets Loss on reappraisal of golf club memberships Depreciation loss Loss on disposal of subsidiaries Provision for compensation for completed works Provision for loan guarantee losses Valuation loss of real estate for sale 2,148 16 31 120 68 641 1,124 144 2 Income before taxes 621 Corporate, residential and business taxes 8 Corporate tax adjustment 686 Net income 1,316 Retained earnings brought forward 1,950 Disposition of funds at variance in land reappraisal 8 Unappropriated retained earnings 643
Significant Accounting Policies 1. Securities valuation criteria and methods Shares in subsidiaries and affiliated companies are stated at cost determined by the moving average cost method. securities: Securities with fair market value are stated at fair market value based on quoted market price on the account closing date (all valuation variances are accounted for by directly charging or crediting to the shareholders equity and the cost of securities sold is calculated by the moving average method.) Securities without fair market value are stated at cost determined by the moving average cost method. 2. Derivatives valuation criteria and methods Derivatives are stated at fair market value. 3. Inventories valuation criteria and methods Merchandise (excluding imported charcoal) and stock are stated at cost determined by the periodic average method. Imported charcoal, land & buildings for sale and costs accrued on construction contract are stated at cost determined by the specific cost method. 4. Depreciation and amortization of fixed assets (i) Tangible fixed assets are depreciated by the declining balance method. However, buildings acquired on and after April 1, 1999, are depreciated by the straight-line method (excluding building attachments). Examples of useful lives of major items are: Buildings and structures: 3 65 years Machinery and equipment: 3 17 years (ii) Intangible fixed assets are amortized by the straight-line method. However, software for internal use is amortized by the straight-line method over the expected longest usable life of 5 years. 5. Deferred assets (i) Debenture issue expenses are accounted for in full at the time of defrayal. (ii) New share issue expenses are accounted for in full at the time of defrayal. 6. Accounting for significant allowances and reserves (i) Allowance for doubtful accounts To provide for credit losses, an allowance for general credit is established using a rate determined by past bad debts experience and an allowance for specific credit and doubtful accounts is established for an estimated amount considered to be
uncollectible after reviewing the collectibility of individual accounts. (ii) Accrued bonuses to the employees To provide for payment of bonuses to the employees, a reserve for accrued bonuses is established up for an estimated amount of payment due. (iii) Reserve for retirement benefits To provide for the employees retirement benefits, a reserve is established for an estimated amount based on the projected retirement benefit obligations and pension assets at the end of the fiscal year under review. Actuarial variances are charged to expenses from the next fiscal year in a proportionate amount determined using a straight-line method based on a preset number of years within the range of the average remaining service years of the employees (5 years). (iv) Reserve for compensation for completed works To provide for liability for defect warranty on completed works, a reserve is established based on an estimated amount of future liabilities. Note: The Company had accounted for expenses for liability for defect warranty at the time of defrayal in the past fiscal years. However, in view of increased significance of these expenses in amount, it has started providing the estimated amount of expenses for defect warranty as the reserve for compensation for complete works starting from the fiscal year under review. As a result, net loss before tax has increased by 641 million yen. (v) Reserve for loan guarantee losses To provide for losses caused by liability for loan guarantee, a reserve is established for an estimated amount of such losses. N.B.: the provision of this reserve is stipulated in Article 43 of the Commercial Code Enforcement Regulations. Note: In view of increased possibility of incurring losses caused by loan guarantee it provided to certain counterparties, the Company has started the practice of accounting for an estimated amount of losses to be borne by the Company in connection with such guarantee as the reserve for loan guarantee losses starting from the fiscal year under review. As a result, net loss before tax has increased by 1,124 million yen. 7. Accounting for lease transactions Finance lease transactions, except for those in which the ownership of the lease property is considered to be transferred to the lessee, are accounted for mutatis mutandis by a method used in ordinary lease transactions.
8. Hedge accounting (i) Accounting for hedge transactions Foreign exchange contracts that meet the specified requirements are accounted for by the assignment method of hedge accounting and interest rate swap transactions that meet the specified requirements are accounted for by the exceptional case method of hedge accounting. (ii) Means of hedging and hedged assets Means of hedging Hedged assets Foreign exchange contract Liabilities for stock denominated in foreign currency Interest rate swap Loans (iii) Hedging policy The Company hedges against risks of fluctuations in foreign exchange and interest rates in accordance with its risk management policy. (iv) Evaluating the effectiveness of hedge The Company is evaluating the requirements of the assignment method and the exceptional case method of hedge accounting to determine the effectiveness of hedges. 9. Accounting for consumption taxes Consumption and local consumption taxes are accounted for using the tax excluded method. Notes to Balance Sheet 1. Debts and credits to affiliated companies Short-term credits: 80 million yen Long-term credits: 1,426 million yen Short-term debts: 485 million yen Long-term debts: 2,341 million yen 2. Total depreciation taken on tangible fixed assets: 5,566 million yen 3. Significant lease assets The Company uses computers under lease contract in addition to fixed assets accounted for on Balance Sheet. 4. Assets pledged as security Inventories: 3,928 million yen Tangible fixed assets: 8,900 million yen Investment securities: 610 million yen Investments and other assets: 186 million yen
In addition, the following tangible assets are pledged as security for bank loans. Land: 1,387 million yen (Debtor: Taiheiyo Tanko K.K.) Land: 196 million yen (Debtor: Taiheiyo Sekitan Hanbai Yuso K.K.) 5. Liabilities for guarantee: 14,693 million yen 6. Net assets as provided for in Paragraph 3, Article 124 of the Commercial Code Enforcement Regulations Securities at fair market value: 1,078 million yen Assets stipulated in the Law concerning Land Reappraisal: 695 million yen 7. Land reappraisal The Company makes the reappraisal of land used in business and, in accordance with the Law concerning Land Reappraisal (Law No. 34 promulgated on March 31, 1998), accounts for the amounts at variance in land reappraisal in the section of Shareholders Equity. Method of reappraisal The Company calculates the value of land at the time of reappraisal using the method of making rational adjustment for the value recorded in the Land Taxation Register as provided for in Paragraph 3, Article 2 of the Law concerning Land Reappraisal Enforcement Ordinance (Government Ordinance No. 119 promulgated on March 31, 1998), part of the appraisal method as provided for in Paragraph 5, Article 2 of the same Government Ordinance or the method of making rational adjustment for the land value determined by the tax office for inheritance tax purposes as provided for in Paragraph 4, Article 2 of the same Government Ordinance. Date on which reappraisal was made: March 31, 2002. Difference between the fair market value of land as of the end of the fiscal year in which reappraisal was made and the carrying value after reappraisal: 394 million yen Notes to Income Statement 1. Transactions with affiliated companies Sales: 1,095 million yen Operating expenditure: 499 million yen Transactions other than business operation: 85 million yen 2. Net loss per share Note: Net loss per share has been calculated based on the following: Net loss: 1,316 million yen
Net loss attributable to common shares: 1,316 million yen Average number of shares outstanding during the fiscal year: 63,432,429 Indication of amounts Amounts on Balance Sheet and Income Statements are shown after discarding fractional sums less than one million yen.