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ProfileKyowa Exeo Corporation, a pioneer in the telecommunications equipment and facilities business, has main-
tained a leading position in the industry since its founding in 1954. In 1972, the Company became the first in
its industry to list on the First Section of the Tokyo Stock Exchange. It listed on the First Section of the Osaka
Securities Exchange the following year. In 1991, the Company was renamed Kyowa Exeo. This name repre-
sents a combination of the Japanese word kyowa, meaning collaboration and affinity, and the Latin word exeo,
meaning to break out of one’s mold and seek challenges in the world beyond. Maintaining our position in the
industry under the principles of our name has seen our company grow.
In March 1999, Kyowa Exeo completed construction of its new headquarters building in Shibuya,
Tokyo. The Company conducts its business activities through a domestic nationwide network of 24 branches
and 21 sales offices and an overseas network of local affiliated companies in Thailand, the Philippines, and
Honduras. The Company has gradually expanded the scope of its business and, as a result, has increased its
paid-in capital to ¥6,889 million and 5,465 employees as of March 2002. Building on its core telecommunica-
tions business, it continues to expand steadily in areas that deeply affect the lives of people, including urban
infrastructure, living space, and environmental systems.
On April 1, 2001, Kyowa Exeo undertook a merger with Showa Technos Corporation. This move
strengthened its business foundations in the Kansai region. The Company also formulated a medium-term busi-
ness plan that summarized the issues facing the Company into three crucial categories. In keeping with the
plan, the Company conducts focused, specific initiatives to carry out reforms in three key areas: the order-tak-
ing system, profitability, and financial foundations. The Company is implementing decisive actions aimed at
achieving more efficient management so as to meet the expectations of its shareholders and investors.
Consolidated Five-Year Financial Highlights ..........1
Message from the President ......................................2
Medium-Term Business Plan
Formulation of the Medium-Term Business Plan .........4
Review of Operations
NTT-Related Telecommunications Facilities and
Equipment Construction Business...........................8
Telecommunications, Electrical Facilities and
Equipment, Environmental, and Urban Civil
Engineering Business..........................................10
Information Systems Business .................................11
Overseas Telecommunications Facilities
Construction Business and Other Businesses
(Distribution, Security, Consulting, etc.) ................13
Topics
Progress in Reforming the Profit Structure................14
Affiliated Group Profile.............................................15
Consolidated Financial Review................................16
Consolidated Statements of Income .......................19
Consolidated Balance Sheets ...................................20
Consolidated Statements of Shareholders’ Equity ...22
Consolidated Statements of Cash Flows................23
Notes to Consolidated Financial Statements.........24
Report of Independent Public Accountants ...........29
Board of Directors and Auditors .............................30
Organization ...............................................................31
Network.......................................................................32
Corporate Data and History.....................................33
The statements in this annual report contain forward-looking statements such as the future business performance of Kyowa Exeo. As thesestatements are based on the currently available information at the time of the creation of the annual report, the actual results may differmaterially due to various factors.
As this annual report is not intended for the purposes of soliciting investment, all users of this report are advised to undertake decisionsconcerning investment at their own discretion.
Contents
Consolidated Five-Year Financial Highlights
1
Results of Operations:
Net sales
Operating income
Income before income taxes
and minority interest
Net income
Per Share of Common Stock (in Yen and U.S. Dollars):
Net income
Diluted net income
Cash dividends
Financial Position:
Total assets
Net property and equipment
Total long-term liabilities
Total shareholders’ equity
Kyowa Exeo Corporation andSubsidiariesYears ended March 31, 1998, 1999, 2000, 2001and 2002
Millions of Yen
Thousands of U.S. Dollars
(Note 1)20021998 1999 2000 2001 2002
¥219,550
9,872
8,466
4,069
¥ 38.1
30.2
11.0
¥145,996
16,454
36,620
47,096
¥228,421
12,689
10,278
4,224
¥ 39.5
31.6
11.0
¥162,207
24,931
36,438
51,489
¥203,069
8,304
7,898
3,622
¥34.0
29.1
11.0
¥145,454
24,849
33,434
54,861
¥203,337
8,309
5,949
2,990
¥25.6
22.5
11.0
¥136,576
26,975
36,685
63,315
¥216,499
11,841
5,510
2,531
¥ 23.7
20.0
11.0
¥152,572
25,751
46,195
52,708
$1,528,849
62,470
44,734
22,481
$0.19
0.17
0.08
$1,026,884
202,817
275,828
476,051
Note: 1. The translations of the Japanese yen amounts into U.S. dollars are included solely for the convenience of readers, using the prevailing exchange rate at March 31, 2002, which was ¥133 to U.S.$1.00.
0
50
100
150
200
250Billions of Yen
Net Sales
’02’01’00’99’98
Billions of YenNet Income
’02’01’00’99’98
203.3203.1216.5
228.4219.6
3.0
3.6
2.5
4.24.1
136.6145.5
152.6162.2
146.0
Billions of YenTotal Assets
’02’01’00’99’980
1
2
3
4
5
0
50
100
150
200
KYOWA EXEO ANNUAL REPORT 2002
2
KYOWA EXEO ANNUAL REPORT 2002
Message from the President
Overview of Fiscal 2002 Operations During the fiscal year under review, the year ended March
31, 2002, the Japanese economy remained in a severe
state marked by a slowdown in private-sector demand.
This was mainly due to concerns about nonperforming
loans and excessive debt, the deteriorating job market,
and the sustainability of Japan’s fiscal situation and social
safety net, as well as weak investment by the public sec-
tor. Turning to the telecommunications industry, which
impacts the business climate of the Kyowa Exeo Group,
the government’s IT Strategy Headquarters formulated
the “e-Japan Plan” in an attempt to move a step ahead in
the IT revolution. One consequence, however, was a fur-
ther step-up in competition between companies in the
telecommunications sector. NTT DoCoMo, Inc., a mem-
ber of the NTT Group, which is Kyowa Exeo’s main
business partner, has been seeking to expand nationwide
its facilities and equipment for FOMA (Freedom Of
Multimedia Access), its third-generation mobile service for
voice and high-speed data communications. However, due
to the implementation of their business reform program,
NTT Telephone and Telegraph East Corporation (NTT
East) and NTT Telephone and Telegraph West
Corporation (NTT West) have been holding back on capi-
tal investments into facilities and equipment.
Under these conditions, the Kyowa Exeo Group
took decisive actions to reform its business structure. It
began by making a bid to reinforce its business presence
in the Kansai region through the merger with Showa
Technos Corporation. Attempting to address changes in
the business environment on the sales side, the Group
concentrated key personnel in growth areas such as
mobile communications and IT-related sectors. Its aim
here was the broadening of its framework so as to
respond more promptly to the changing needs and desires
of customers. As for project execution, we undertook vig-
orous reform initiatives aimed at an optimal allocation of
key personnel throughout the Group as a whole and at
reinforcing cost-competitiveness by slashing fixed costs.
We also worked energetically to enhance the reliability of
the Group’s engineering services by acquiring ISO 9001
(quality) and ISO 14001 (environment) certification and
Shunji KaibuchiPresident
3
implementing an OHSAS 18001 (occupational health)
and safety management system.
Consequently, orders received totaled ¥200,665
million on a consolidated basis, a year-on-year increase of
0.1%, and the value of completed projects amounted to
¥203,337 million, marking year-on-year growth of 0.1%.
Although ordinary profit rose to ¥9,062 million, a year-
on-year increase of 10.4%, net income fell to ¥2,990
million, a year-on-year decline of 17.5%, due to the write-
off of extraordinary charges for extraordinary retirement
benefits due to the Company’s optimization of its early
retirement program.
Overview of Cash FlowIn this severe business climate, net cash provided by
operating activities totaled ¥6,886 million, a year-on-year
increase of 1.7%. In addition, the merger with Showa
Technos Corporation added another ¥2,789 million to
cash flow. However, net cash used in financing activities
increased to ¥14,036 million. This result was attributable
to the redemption of corporate bonds and the repayment
of loans due to centralized management of Group funds.
As a result, the fiscal year-end balance of cash and cash
equivalents amounted to ¥19,326 million, a year-on-year
decline of ¥4,727 million, or 19.7%. Kyowa Exeo contin-
ues to provide stable dividends to shareholders while
adhering to its basic policy of returning profits commensu-
rate with business results and the dividend payout rate. The
Company also is working to keep sufficient internal
reserves on hand to strengthen its financial foundations
and to allow for future business growth.
Outlook for the Next Fiscal YearJapan’s economic situation is likely to remain challenging.
However, bold actions to push through structural reforms
are expected to overcome the weaknesses of the econo-
my, which should then see it embark on a gradual
recovery led by the private sector. In the telecommunica-
tions industry, the government’s e-Japan Plan, and
specifically “e-Japan 2002”—an annual program—are
likely to center on the stepped-up implementation of
focused and strategic IT-related measures.
The companies of the NTT Group, our major busi-
ness partners, are making efforts to expand their network
of high-speed, wide-area access so as to pave the way for
the growth in the high-speed, high-volume broadband
market and to provide content services. Nonetheless, the
NTT Group is expected to continue with structural
reforms aimed at cutting fixed costs while attempting to
constrain investment in facilities and equipment in order
to shore up its financial foundations.
In view of these circumstances, the Kyowa Exeo
Group is working to secure more orders in facilities and
equipment for fiber optic subscriber access networks,
where investment is currently under way, and the building
of third-generation mobile communication networks, in
keeping with its Medium-Term Business Plan.
Simultaneously, we intend to expand orders by bolstering
our sales framework to keep up with the development of
nationwide IT. In addition, we will continue intensive
efforts to enhance our cost-competitiveness by reducing
total personnel expenses through cuts in personnel and
reviewing pay scales, and by achieving greater efficiency
in project execution through a realignment of our Group
companies.
Our forecast for the fiscal year ending March 2003
is for total orders to rise by 8% year on year to amount to
¥217,000 million and completed projects to grow by 2%
to amount to ¥208,000 million. This will result in a 3%
increase in ordinary profit to ¥9,300 million and a 61%
surge in net income to ¥4,800 million.
We look forward to the continued support and
encouragement of our shareholders as we work toward
these goals.
Shunji Kaibuchi, Ph.D.
President
FORMULATION OF THE MEDIUM-TERM BUSINESS PLANAchieving Highly Efficient Business Management
4
KYOWA EXEO ANNUAL REPORT 2002
MEDIUM-TERM BUSINESS PLAN
K yowa Exeo formulated its Medium-TermBusiness Plan in November 2001. ThePlan’s objectives are to achieve highly
efficient business management by addressingthree crucial issues—reform of the order-takingsystem, of the profit structure, and of theCompany’s financial foundations—while at thesame time enhancing customer satisfaction.
Taking the Initiative on Three CrucialIssuesFor several years now Japan has been experiencing a vast
swell of domestic structural reform. This swell has inundat-
ed companies in the telecommunications equipment and
facilities business, and Kyowa Exeo has been no excep-
tion. Wave after wave of major changes, including
technological innovations in telecommunications and asso-
ciated changes in the structure of investment as well as
intensified price competition, have taken place, and over
the short term, these waves have threatened to stir up a
tempest.
Alert to these rapid dislocations in the business
environment, we realized the need to deal quickly with the
issues by bolstering our sales force, securing more private-
sector orders, and slashing costs. Thus, we formulated
and published our Medium-Term Business Plan in
November 2001. It has been designed to clarify business
issues covering the three-year period through March
2005.
The first task is to clarify the three issues that the
Company must deal with, which are reform of the order-
taking system to accommodate changes in the structure of
telecommunications-related investment, reform of the
Company’s revenue structure to cope with intensified
price competition, and improvement in the Company’s
financial soundness centered on reductions in interest-
bearing liabilities.
When carrying out reforms in the order-taking sys-
tem, it is important to take into account that major
changes are taking place in markets. Demand for conven-
tional fixed telephony is experiencing a major decline,
while investment is shifting to mobile and IP networks. It is
necessary to reform the order-taking system in order to
benefit greatly from the changes in these markets.
Reform of the Company’s revenue structure is
absolutely essential in order to cope with intensified price
competition. Over the past several years, the Company’s
ordinary profit ratio has dipped below the level of its
KYOWA EXEO TACKLES THREE KEY ISSUES
Reform of the order-taking system to accommodatechanges in the structure of telecommunications-related investment.
Implementation of cost-cutting to cope withintensified price competition.
Reductions in interest-bearing liabilities toimprove non-operating income and expenditures.
1,000 PersonsInternet Users
’05 (est.)’99’98’97
(Source: Ministry of Posts and Telecommunications)
0
20,000
40,000
60,000
80,000
5
competitors in the industry. To rectify this situation, we
must cut costs and take other actions to reform the
revenue structure and reinforce our competitive strengths.
Improvement of the Company’s financial sound-
ness will stabilize its business foundations. Here, we are
establishing a system that will ensure stable revenues by
reducing interest-bearing liabilities and enhancing asset
efficiency.
Reform of the Order-Taking SystemReform of the order-taking system may be divided into
two sets of actions. One set consists of broadening the
business domain by expanding customer segments and
the technologies on which the segments are based. The
second is to build a sales support framework to cope with
changes in the market environment.
In order to broaden the overall business domain,
the Company is separating it into four frames, as shown
in the diagram, and proposing custom-tailored measures
for each frame.
In existing business domains, the Company’s goal
is to secure current orders in its main business frame—the
telecommunications business. Here we are reinforcing our
commitment to the third-generation mobile telecommuni-
cations services (FOMA) in a bid to supplement orders
from NTT, which are gradually diminishing due to the
ongoing shift from fixed telephony to mobile and IP net-
works, with additional orders from NTT DoCoMo. We
also are seeking to secure orders for broadband projects,
led by NTT’s FTTH (Fiber To The Home) project, which
is expected to replace fixed telephony with optic fiber in
the Tokyo, Nagoya, and Osaka regions.
In Frame (1), the objective is to effectively utilize
our existing reserves of technology to secure orders by
developing new customers. Here the main point is to bol-
ster our sales force. It is not easy to gain new customers,
given today’s fierce competition. Highlighting the exper-
tise and technologies we have built up by collaborating
with NTT, we intend to help potential customers to recog-
nize our superiority by offering solutions-oriented
proposals, thus paving the way to secure more orders. To
accomplish this, we will boost the quality and size of our
sales force by expanding the number of sales personnel
enabling us to thoroughly cover any points where cus-
tomers are weak.
In Frame (2), the objective is to expand the busi-
ness domain among existing customers. The Company
has always approached customers by focusing on project
execution for telecommunications facilities and equip-
ment. We will establish an integrated service framework to
expand the business domain centered on carrying out pro-
jects. This will be accomplished both by undertaking
initiatives to propose system solutions prior to project
implementation and by entering the area of post-project
maintenance. We will make investments in personnel and
other areas to achieve this objective, allowing us to broad-
en our IT business and carry out sales activities that go
beyond the borders of our in-house divisions and tech-
nologies by al locating account managers to our
customers. Furthermore, we will conduct “all-in-one” sales
by converting planning, design, and sales tasks into prod-
uct packages, thereby broadening the scope of orders
secured from customers.
Broadening Business Frame by Frame(Customers)
New
ExistingNew
(Technology)
Frame (1)
Frame (2)
Frame (3)
Frame (existing)
Existing : securing orders from main frame businessFrame (1) : expanding new customers in existing technologiesFrame (2) : expanding the business domain among existing customersFrame (3) : expanding the business domain by means of a new business model
6
plan is to take bold steps to increase key personnel in
sales and areas that promise growth, leading to new
orders. We will also look at taking advantage of outside
resources in order to expand beyond these limits. The
emphasis will be on business-boosting investments, includ-
ing M&A and alliances.
Reform of Revenue StructureThe reform of the Company’s revenue structure is
designed to ensure profits. Toward this goal, we are
implementing three key measures: cutting fixed costs by
thorough management of total personnel expenses,
undertaking a review to make organizations more effi-
cient, and freeing up more expenditures on sales by
constraining administrative expenses.
Cutting Fixed Costs by ThoroughManagement of Total PersonnelExpensesWe are taking positive steps to cut fixed costs as this is a
quick and effective way of getting results. Thorough control
of personnel expenses is proving to be particularly effective
in this effort. Toward this end, we are optimizing personnel
assignments throughout the Kyowa Exeo Group, which
includes seconding or transferring some personnel and
tasks from the Head Office to subsidiaries. Additional wide-
ranging measures are being implemented. For example, in
place of retirement at age 63, we have completed the intro-
duction of a job extension system centered on a 30% cut in
salaries from the age of 57 on. A program allowing
employees to select their own age of retirement has been
On-Site Information ManagementSystemIn Frame (3), we will secure totally new types of orders
by developing completely new business models. To do so,
we will restructure the functions of our R&D Center and
reinforce the capabilities of Access One Co., Ltd.—a sub-
sidiary that functions as an information-gathering
outpost—with the objective of better meeting the needs of
the end-users of telecommunications, an area of weakness
until now. We will also move into the mobile solutions
business in an effort to provide solutions for mobile
phones. An excellent example of progress in this area is
the “On-Site Information Management System” jointly
developed with Sumitomo Densetsu Co., Ltd., which has
already gone into service.
The second point related to reform of the order-
taking system is the building of a sales support framework.
This means building an effective support framework that
is responsive to changes in the sales environment. The
first step in the process is to create a set of useful data-
bases including: a plan proposal database enabling speedy
proposal of plans, a human resources database allowing
key personnel to be used laterally from division to division,
and a customer database answering a wide range of cus-
tomer needs and support the development of new
customers. This will create an infrastructure that is directly
linked to strengthening sales. To improve sales skills, we
will bolster sales strengths by cultivating a consulting-
oriented mindset among sales personnel and setting up an
incentive program. Although the entire Company is cur-
rently conducting a personnel reduction program, our
MEDIUM-TERM BUSINESS PLAN
REFORM OF REVENUE STRUCTURE
Cutting fixed costs by thorough control of total personnel expenses
Conducting a review to make organizations moreefficient
Spending more on sales by constraining administra-tive expenses
On-site information management system
7
expanded to cover those aged 48 to 59. Employment term
limits are being strictly observed, with managers aged 57 or
more subject to a 15% cut in wages.
Conducting a Review to Make Organizations More EfficientFirst, the review of internal organization will involve the
setup of a framework for building IP network projects.
The order-taking system will be strengthened by making
better use of IP engineers and establishing a dedicated
technical support framework staffed by system engineers.
Second will be a clarification of the roles of associated
companies. Clarifying roles will pave the way for a review
of the project management system and eliminate waste in
managing projects where the Company and its sub-
sidiaries play overlapping roles. This is expected to reduce
costs. Third, guidance and control will be strengthened
over Group companies. A review will be conducted of the
employment situation at subsidiaries with the objective of
raising their efficiency and capacity to take on projects. In
addition, associated companies will undergo a consolida-
tion in the interest of further enhancing efficiency.
Spending More on Sales by LimitingAdministrative ExpensesIn the current harsh business climate, it is essential to
strengthen the order-taking system to stimulate sales
activities. Consequently, an increase in expenditures on
sales will be inevitable in order to increase sales person-
nel and to set the stage for a sales support framework.
Limiting administrative costs will yield the necessary
funds. Reductions in administrative expenses will be
achieved by slashing personnel costs through seconding
and transferring management personnel or converting
them into sales personnel, cutting overhead by reducing
administrative tasks, and setting up a subsidiary as an
office center so as to centralize bookkeeping throughout
the Group. This plan envisions an increase in expendi-
tures on sales coupled with a reduction of approximately
1% in selling, general, and administrative expenses over
a three-year period.
Reform of Financial Foundations
The last issue is to carry out a reform of the Company’s
financial soundness. The most important task here is to
reduce interest-bearing liabilities. The Company currently
has more than ¥28 billion in interest-bearing liabilities,
including approximately ¥14 billion in corporate bonds
maturing at the end of March 2004. Our plan is to reduce
such liabilities by ¥20 billion over the next two years. To
reach this goal will require creating new cash flows by
boosting business results and a look at ways to rationalize
the balance sheets by achieving in-substance defeasance.
Naturally, the Company intends to enhance asset efficien-
cy while reducing interest-bearing liabilities. It has always
striven to make efficient use of its real-estate holdings.
From now on, however, it will conduct an even stricter
review of its assets, disposing of those that have become
redundant because of mergers or a realignment of Group
companies as well as those that are operating at low
capacity.
To sum up, the Kyowa Exeo Group plans to
achieve highly efficient management and enhance cus-
tomer satisfaction by undertaking reforms in three key
areas: the order-taking system, profitability, and financial
foundations. In carrying out this plan, it aims to post net
income of ¥7,700 million for the year ending March 30,
2005 and a profit of ¥55 per share.
REFORM OF FINANCIAL FOUNDATIONS
Reduction of interest-bearing liabilities
Improvement of asset efficiency
8
KYOWA EXEO ANNUAL REPORT 2002
Review of Operations
NTT-Related TelecommunicationsFacilities and Equipment ConstructionBusiness
A lthough orders from NTT East andNTT West are falling due to effortsby the NTT Group companies to
reduce their capital investment in facilities andequipment, orders in the Kansai regionincreased due to the merger with ShowaTechnos Corporat ion. Orders from NTTDoCoMo related to third-generation mobiletelecommunications services (FOMA) also rose.Consequently, orders received amounted to¥121,967 million, a year-on-year increase of0.6%, and the value of completed projectsstood at ¥129,051 million, a year-on-yearincrease of 1.8%.
The core business of Kyowa Exeo is the construction of
NTT-related telecommunications facilities and equipment.
However, the NTT Group continues to reduce fixed costs
and repress facilities investments as it undertakes a
restructuring plan, centered on NTT East and NTT West,
to establish a solid financial foundation. As part of this
plan, the NTT Group is cutting back sharply on invest-
ments into facilities and equipment for fixed telephony,
which used to be its main focus. As a result, Kyowa Exeo
faces an exceedingly harsh business environment in its
project business. Alert to the implications of this situation,
the Kyowa Exeo Group carried out a merger with Showa
Technos Corporation in an attempt to boost orders in the
Kansai region and has redoubled its efforts to offset the
decline in fixed telephony-related orders with orders relat-
ed to mobile telecommunications and the installation of
optic fiber. Although fixed telephony exchange-related
projects plunged more than 20% year-on-year, orders
from NTT DoCoMo related to third-generation mobile
telecommunications services (FOMA) performed favor-
ably, in contrast. Consequently, sales to NTT DoCoMo
surged approximately 38% year-on-year. Similarly, pro-
jects related to NTT’s FTTH program increased, with the
result that cable-installation projects rose by approximate-
ly 12% on the year.
Although NTT Group companies continued to
place limitations on overall capital investment into facili-
t ies and equipment, they fol lowed a program of
undertaking aggressive initiatives in mobile communica-
tion networks and the broadband market. In keeping with
the program of the NTT Group, Kyowa Exeo consolidat-
ed the Telecommunications Software Department, of the
Software Designing Headquarters, into the Mobile
Communications Engineering Headquarters, establishing
an integrated hardware and software framework to pro-
vide mobile solutions. In addition, sales aimed at the NTT
Group were consolidated in the Information Technology
Headquarters in a bid to expand orders through aggres-
sive, focused sales activities.
9
Share of NTT-related telecommunications facilities and equipment construction business
as a percentage of total orders received
NTT-related telecommunications facilities and equipmentconstruction business
Other 1.6%
Overseas telecommunicationsfacilities constructionbusiness 0.3%
Information systems business4.5%
Telecommunications, electricalfacilities and equipment,environmental, and urbancivil engineering business
32.9%
60.8%
Third-generation mobile telecommunications services (FOMA)
10
The telecommunications facilities construction business
benefited from the construction of domestic telecommuni-
cations networks. Besides NTT, the Company is
developing a broad customer base centered on domestic
and overseas communications infrastructure companies as
well as government agencies, cable television providers,
railroads, trading companies and general contractors.
Taking full advantage of the experience and expertise
developed in NTT-related work, we are creating infra-
structure for an information distribution-based society.
Thanks to the tail-wind generated by the government’s e-
Japan initiative, we were able to register a year-on-year
increase of over 10% in orders taken, even though some
customers took actions to reduce investment. With invest-
ment by government agencies and local government units
scheduled to continue, the Company has forged alliances
with NTT and manufacturers, and is increasing efforts to
propose solutions to local government units. We also plan
to broaden our presence downstream by making a full-
fledged entrance into system repair and maintenance.
Working to establish low-cost operations under our cost-
reduction program, we intend to further increase orders
from the general telecommunications sector.
In electrical facilities construction, the Company is
benefiting from its accumulated expertise and technology
in telecommunications-related facilities resulting in the
posting of excellent business results in the construction of
air conditioning, lighting equipment, and sanitary facilities.
We are also providing comfortable living environments
ranging from pleasant urban living and office spaces
through to amusement and entertainment spaces.
Nonetheless, order-taking efforts have faced a harsh busi-
ness climate over the past year, with competition
intensifying amidst a weak trend in private-sector demand.
We executed an aggressive sales drive with an emphasis on
profitability, resulting in only a modest decline in orders
year-on-year. As the outlook is for major changes in the
current challenging business environment, we intend to
expand opportunities for securing orders by making
progress in our program to bolster cost competitiveness.
In environmental and urban civil engineering busi-
ness, we have an excellent track record reflecting our
Review of Operations
Telecommunications, ElectricalFacilities and Equipment,Environmental, and Urban CivilEngineering Business
A n increase in orders for telecommuni-cations facilities construction wasspearheaded by CATV- and IT-
related construction. However, orders for electrical and environmental facilities constructionwere held back by constraints on public works.As a result of order-taking campaigns orientedtoward profitability and risk-avoidance, ordersreceived amounted to ¥65,970 million, a year-on-year decl ine of 1.6%, and completedprojects amounted to ¥61,823 million, a year-on-year decline of 2.0%.
11
development of proprietary, advanced construction tech-
niques based on the civil engineering technology we
accumulated through construction projects for telecommu-
nications facilities. For example, we led the industry in
applying shield tunneling in the construction of tunnels for
communications facilities. Using this revolutionary con-
struction method, we have been able to tunnel through
the riverbeds of the Arakawa River in Tokyo and the
Yodogawa River in Osaka, which have never been able to
support rail, roadway, or sewer tunnels.
We also employ a variety of advanced construction
techniques in building urban infrastructure, such as laying
underground conduits, constructing common cable (CC)
boxes, and carrying out other telecommunications-related
construction.
In our environmental systems business, we are
making strenuous efforts to address global environmental
problems in our role as a general engineering company.
We will continue to build on our accumulated technologies
and vigorously promote the research and development of
new environmental technology. In addition, we play an
important role in rivers, electric power, subways, sewers,
and other public facilities that are indispensable to modern
urban life. With public interest in environmental issues on
the upswing, we are putting effort into building environ-
mental systems, especially in the water-related area. Last
year, this area posted a slight year-on-year decline despite
a thorough sales drive focused on profitability. This year,
however, we are aiming at major increases in orders by
embarking on new business areas designed to resolve
environmental issues, such as our move into the incinera-
tion ash business and incinerators for meat processing
centers, as well as by strengthening our sales efforts in the
area of proprietary, advanced construction techniques.
Information Systems Business
W i th the development of web-related and telecommunications-related software performing well
amidst the expanding use of the Internet, totalorders amounted to ¥9,010 million, a year-on-year increase of 14.5%, and completedprojects amounted to ¥8,589 mil l ion, anincrease of 5.5%.
From our perspective, information systems is an area
offering great growth potential. Having started by devel-
oping software for general machinery, we are
accumulating technology and expertise in a broad range
of areas, including software to support telephone switching
Share of telecommunications, electrical facilities and equipment, environmental, and
urban civil engineering business as a percentage of total orders received
NTT-related telecommunications facilities and equipmentconstruction business
Other 1.6%
Overseas telecommunicationsfacilities constructionbusiness 0.3%
Information systems business 4.5%
Telecommunications, electricalfacilities and equipment,environmental, and urbancivil engineering business
32.9%
60.8%
12
systems, directory assistance, and telephone billing
systems. Additionally, we are developing online systems
that combine our extensive reserves of communications
technology with computers. We have also accomplished
results in high-profile national projects involving communi-
cations systems. Such results include our participation in
the development of postal savings and other financial
online systems, air traffic control systems, an area meteo-
rological observation system known as AmeDAS
(Automated Meteorological Data Acquisition System), as
well as “MYLINE” systems. Over the past several years,
the proportion of our development work with open client-
server systems has gradually increased. This has allowed
the Company to spotlight the vast strength of its systems
development business, which is based on network installa-
tion technology. There is also growing demand for
packaged solutions emphasizing lower cost and speed in
the area of software. In response we are forging alliances
with companies specializing in package applications.
Consequently, we achieved an increase in orders, despite
the difficult business climate. To take advantage of current
opportunities, we are boosting the number of personnel
working on open systems and taking actions to hire both
experienced personnel and train new recruits.
Review of Operations
Share of information systems business as a percentage of total orders received
NTT-related telecommunications facilities and equipmentconstruction business
Other 1.6%
Overseas telecommunicationsfacilities constructionbusiness 0.3%
Information systems business 4.5%
Telecommunications, electricalfacilities and equipment,environmental, and urbancivil engineering business
32.9%
60.8%
13
Since 1963, Kyowa Exeo’s overseas telecommunications
facilities construction business has capitalized on its tech-
nological strengths to build communications infrastructures
throughout the world, thereby contributing to the develop-
ment of global communications. With orders growing
steadily year by year, we have completed construction pro-
jects in 90 countries. Establishing joint ventures with local
firms in Thailand, the Philippines, and Honduras, we have
made world markets our stage. One example is our contri-
bution to a national project in Thailand, where we have
installed 4.1 million telephone lines in five years.
Nonetheless, construction volumes have dropped sharply,
reflecting weak investment in telecommunications facilities
in the wake of the ongoing economic slowdown
in Southeast Asia and the Company’s emphasis on
profitability and risk-avoidance in its order-taking activities.
Under our motto, “Support for Affluent Living
through Cooperation with Companies in Other
Industries,” Kyowa Exeo provides distribution, security,
and consulting services as part of its multifaceted support.
This, in conjunction with close coordination with other
divisions, allows the Company to deliver efficient, stream-
lined services. Although price and order competition were
intense during the year under review, the distribution seg-
ment turned in a favorable performance.
Overseas TelecommunicationsFacilities Construction Business and Other Business (Distribution, Security, Consulting, etc.)
R ecognizing the trend of weak invest-ment in communications facilities inSoutheas t Asia, the Company
emphasized profitability and risk-avoidance inits order-taking activities for the overseastelecommunications facilities construction busi-ness. Orders received in th is segmentamounted to ¥542 million, a year-on-years l ide of 58.8%, and comple ted projec tsamounted to ¥731 million, a decline of 66.4%.Although the other business segment wasimpacted by fierce order and price competi-tion, the distribution area performed well.Orders received in the other business segmentamounted to ¥3,176 million, up 9.2% on theyear, and completed projects amounted to¥3,143 million, up 8.1%.
Share of overseas telecommunications facilities construction business, and other business,
as a percentage of total orders received
NTT-related telecommunications facilities and equipmentconstruction business
Other 1.6%
Overseas telecommunicationsfacilities constructionbusiness 0.3%
Information systems business 4.5%
Telecommunications, electricalfacilities and equipment,environmental, and urbancivil engineering business
32.9%
60.8%
strengthen its cost competitiveness even more inorder to satisfy demands from the NTT Group andother customers for further cost cuts and to gainnew customers. Aware that even deeper cost reduc-tions are in order, we have decided to revise targetsupwards. The revisions aim at an additional cut ofan additional 200 personnel over the remaining twoyears of the Plan, resulting in a total reduction of¥7,000 million, including an additional reduction of¥2,000 mil l ion in total personnel expenses.Strengthening control over Group companies willbring a reduction of ¥1,300 million in outsourcingexpenses, and making in-house operations moreefficient will slash another ¥300 million, resulting infoundations that will ensure profitability under themost severe business conditions. Nonetheless,Kyowa Exeo will continue to make itself stronger,taking full advantage of the benefits derived fromthe reform of the profit structure.
14
KYOWA EXEO ANNUAL REPORT 2002
Topics
H aving fast-tracked and achieved signif-icant reductions in personnel expenses,the Company is forging ahead with
further cost reductions, as steady progress ismade in reforming the profit structure.
One of the main pillars of the Medium-TermBusiness Plan formulated in November 2001 is thereform of the profit structure, the core of which iscost reductions centered on cuts in personnelexpenses. When the Plan was formulated, the origi-nal target was a reduction of ¥5,000 million inpersonnel expenses on a consolidated basis by cut-ting 650 personnel over a three-year period. As theresult of energetic progress in achieving the Plan,Kyowa Exeo succeeded in cutting 655 personnel asof the end of March 2002, two years ahead ofschedule. Nonetheless, the Company needs to
PROGRESS IN REFORMING THE PROFIT STRUCTURE
¥3,600 million ¥2,600 million ¥6,200 million
¥0,400 million ¥1,300 million ¥1,700 million
¥0,100 million ¥0,300 million ¥0,400 million
¥4,100 million
Cuts in personnel expenses
Cuts in outsourcing, etc.
Reductions in overhead
Total ¥4,200 million ¥8,300 million
Business results asof end March 2002
Planned results asof end March 2003
Aggregate
15
KYOWA EXEO ANNUAL REPORT 2002
Affiliated Group Profile
KYODEN KOGYO CORP.
SANKO TSUSHINKOGYO CORP.
K-TECHNOS CO., LTD.
BAYTECH EXEO CORP.
EXEO SANKYO CORP.
KOYO DENSETSU CO., LTD.
SHINYEI TSUSHIN CORP.
SOSHIN KENSETSU CORP.
ALTEC CORP.
INFRA TECHNO CO., LTD.
TAIYO DENSETSU CORP.
TAIYO DENSETSU CORP.
E-NET CORP.
MULTIMEDIATECHNOS CORP.
MULTIMEDIATECHNOS CORP.
DENSEISHACO., Ltd.
DENSEISHACO., Ltd.
SHINWA MFGCO., LTD.
KYSTEM CORP.
KYOKUYO CORP.
OSAKA SHINKYOSANGYO CORP.
EXEO TECHNOCONSULTANT
CORP.
EXEO TECHNOCONSULTANT
CORP.
EXEO TECHNOCONSULTANT
CORP.
KYOEI DENSETSUKOGYO CORP.
Insurancebusiness
Telecommunicationsfacility installation work
Consultation business
EXEO GROUPElectric
equipmentinstallation
work
Informationsystem
business
Sales ofmaterials andcommodity
leasing
Securitybusiness
EXEO BUTSURYUSERVICE CORP.
EXEO BUTSURYUSERVICE CORP.
“Outside Project” “Inside Project”
16
Operating ResultsDuring the fiscal year ended March 31, 2002, theJapanese economy continued to face a harsh eco-nomic environment, characterized by sluggishprivate-sector demand and restrained corporateactivity. In these difficult circumstances, KyowaExeo and its consolidated subsidiaries succeeded inposting consolidated net sales of ¥203,337 million(US$1,529 million), up 0.1% from a year earlier.Cost of sales rose 0.1%, to ¥178,691 million(US$1,344 million), and comprised 87.9% of netsales, the same level as the prior year. Selling, gen-eral and administrative expenses edged up 0.7%, to¥16,337 million (US$123 million), and represented8.0% of net sales, the same percentage as a yearearlier. Operating income was up 0.1%, to ¥8,309million (US$62 million), while the operating marginremained at 4.1%.
Non-operating expenses exceeded non-operating income by ¥2,360 million (US$18 million),compared with net non-operating expenses of ¥406million the year before. The main components ofnon-operating expenses were a charge of ¥1,636million (US$12 million) for special retirement bene-fits, interest expenses of ¥585 million (US$4million), losses of ¥545 million (US$4 million) on
write-off of uncollectible accounts, losses of ¥487million (US$4 million) on devaluation of securities,and losses of ¥345 million (US$3 million) on devalu-ation of investment in memberships.
Owing mainly to the higher amount of netnon-operating expenses compared with the prioryear, income before income taxes and minorityinterests dropped 24.7%, to ¥5,949 million (US$45million). After current income taxes of ¥1,899 mil-lion (US$14 million), deferred income taxes of¥1,013 million (US$8 million), and minority inter-ests of ¥47 million (US$356 thousand), KyowaExeo and its consolidated subsidiaries posted netincome of ¥2,990 million (US$22 million), down17.5% from a year earlier. The net profit margindeclined to 1.5%, from 1.8%.
Primary net income per share decreased to¥25.6 (US$0.19), from ¥34.0 the prior year.Diluted net income per share totaled ¥22.5(US$0.17), as against ¥29.1 a year earlier. Returnon average assets and return on average equitydeclined to 2.1% and 5.1%, respectively, from2.4% and 6.7%, respectively, the previous year.Cash dividends applicable to the year were main-tained at ¥11.0 (US$0.08) per share.
Consolidated Financial Review
Sales by business category
NTT-related telecommunications facilitiesand equipment construction business
Other 1.5%
Overseas telecommunications facilities construction business 0.4%
Information systems business 4.2%Telecommunications, electrical facilities andequipment, environmental, and urban civilengineering business
30.4%
63.5%
17
Financial PositionA significant event affecting Kyowa Exeo’s financialposition during the fiscal year was a mergerbetween it and Showa Technos Corporation thattook effect on April 1, 2001 with Kyowa Exeo asthe surviving entity. As a result of the merger, theCompany inherited from Showa Technos totalassets of ¥13,682 million (US$103 million), totalliabilities of ¥5,664 million (US$43 million), and netassets of ¥8,018 million (US$60 million).
At the fiscal year-end, the total assets ofKyowa Exeo and its consolidated subsidiaries weredown 6.1%, to ¥136,576 million (US$1,027 mil-l ion). Total current assets declined 8.7%, to¥95,143 million (US$715 million), primarilybecause of a drop in cash and cash equivalents andtrade notes and accounts receivable. Total currentassets comprised 69.7% of total assets, down from71.7% a year earlier. The current ratio improved to2.66 times, from 1.88 times.
Total property and equipment, net of accu-mulated depreciation, rose 8.6%, to ¥26,975million (US$203 million), mainly because of increasesin land and buildings and structures. Net property,plant and equipment rose to 19.8% of total assets,from 17.1% the prior year.
Total investments and other assets declined8.1%, to ¥11,747 million (US$88 million), primarilyreflecting a drop in investment securities. Total invest-ments and other assets represented 8.6% of totalassets, compared with 8.8% a year earlier.
Total intangible assets, consisting mainly ofsoftware, declined 24.1%, to ¥2,711 million(US$20 million), and represented 2.0% of totalassets, versus 2.5% the year before.
Total liabilities at the fiscal year-end werereduced 18.6%, to ¥72,392 million (US$544 mil-lion). Total current liabilities declined 35.7%, to¥35,707 million (US$268 million), primarily reflect-ing the absence of short-term borrowings or currentportion of long-term debt, as well as a decline intrade notes and accounts payable. Total long-termliabilities rose 9.7%, to ¥36,685 million (US$276million), owing mainly to an increase in accruedpension and severance cost.
Total shareholders’ equity expanded 15.4%,to ¥63,315 million (US$476 million), primarilybecause of the merger with Showa Technos, whichincreased common stock, additional paid-in capitaland retained earnings by ¥7,821 million (US$59million). As a result of the merger, 10,951,774shares of Kyowa Exeo’s stock were issued to the
Percent
Operating Margin
Net Profit Margin
Operating Margin and Net Profit Margin
’02’01’00’99’98
YenNet Income per Share
’02’01’00’99’98
4.14.1
5.55.6
4.5
1.51.8
1.2
1.81.9
25.6
34.0
23.7
39.538.1
0
2
4
6
0
10
20
30
40
50
18
shareholders of Showa Technos, increasing thenumber of Kyowa Exeo’s outstanding shares to117,812,419 shares.
The equity ratio rose to 46.4%, from 37.7%the prior year, and the debt-equity ratio improved to45.4%, from 73.5% a year earlier.
Cash FlowsNet cash provided by operating activities totaled¥6,886 million (US$52 million), up 1.7% comparedto the prior year.
The major components of cash flows provided by operating activities were changes in tradenotes and accounts receivable of ¥10,082 million(US$76 million), income before income taxes andminority interests of ¥5,949 million (US$45 million);depreciation and amortization of ¥2,222 million(US$17 million); and a charge of ¥1,636 million(US$12 million) for special retirement benefits.
Cash flows used in operating activities consisted primarily of a decrease in trade accountspayable of ¥7,509 million (US$56 million) andother, net changes of ¥2,296 million (US$17 million).
Net cash used in investing activities rose near-ly f ivefold, to ¥357 mil l ion (US$3 mil l ion).Payments for purchases of property and equipmentdeclined 20.3%, to ¥721 million (US$5 million).
Net cash used in financing activities rose84.9%, to ¥14,036 million (US$106 million). Ofthis total, payments of long-term debt and bondstotaled ¥10,866 million (US$82 million), cash divi-dends paid amounted to ¥1,170 million (US$9million), and net changes in short-term borrowingwere ¥1,098 million (US$8 million).
At year-end, cash and cash equivalents weredown 19.7% from the beginning of the year, to¥19,326 million (US$145 million).
Billions of YenTotal Assets
’02’01’00’99’98
YenCash Dividends per Share
’02’01’00’99’98
136.6145.5
152.6
162.2
146.0
11.011.011.011.011.0
63.3
5.1%
54.9
6.7%
52.7
4.9%
51.5
8.6%
47.1
8.9%
PercentBillions of YenTotal Shareholders’ Equity and Return on Average Equity
’02’01’00’99’980
50
100
150
200
0
4
8
12
0
15
30
45
60
75
0
2
4
6
8
10
Total Shareholders’ Equity
Return on Average Equity
19
2000 2001 2002 2002
Net sales ¥216,499 ¥203,069 ¥203,337 $1,528,849
Cost and expenses:Cost of sales 186,213 178,544 178,691 1,343,545Selling, general and administrative expenses (Note10) 18,445 16,221 16,337 122,834
Operating income 11,841 8,304 8,309 62,470
Non-operating income (expenses):Interest and dividends income 778 299 189 1,425Commission income – 99 250 1,881Interest expenses (667) (607) (585) (4,398)Losses on devaluation of securities – – (487) (3,662)Gains on securities contributed to employee
retirement benefit trust – 3,042 – –Amortization of transition obligation
under new pension accounting – (3,168) – –Losses on business of affiliated company – (325) – –Special retirement benefits – (404) (1,636) (12,300)Provision for allowance for
foreign investment losses (2,803) – – –Provision for allowance for prior service cost
of welfare pension plan (2,953) – – –Foreign currency transaction exchange gains (losses) (675) (110) 112 845Gains (losses) on sales of investment securities 205 544 (100) (749)Losses on devaluation of investment in memberships – – (345) (2,595)Losses on write-off of uncollectible accounts – – (545) (4,099)Other, net (216) 224 787 5,916
Income before income taxes and minority interests 5,510 7,898 5,949 44,734
Income taxes (Note 6):Current 4,046 5,182 1,899 14,276Deferred (1,236) (935) 1,013 7,621
Minority interests 169 29 47 356Net income ¥ 2,531 ¥ 3,622 ¥ 2,990 $ 22,481
Per share of common stock:Net income ¥ 23.7 ¥ 34.0 ¥ 25.6 $ 0.19Diluted net income 20.0 29.1 22.5 0.17Cash dividends, applicable to the year 11.0 11.0 11.0 0.08
The accompanying notes to consolidated financial statements are an integral part of these statements.
Consolidated Statements of IncomeKYOWA EXEO Corporation and subsidiariesYears Ended March 31, 2000, 2001 and 2002
U.S. dollars(Note 1)Yen
Millions of yen
Thousands ofU.S. dollars
(Note 1)
20
Consolidated Balance SheetsKYOWA EXEO Corporation and subsidiariesMarch 31, 2001 and 2002
Millions of yen
Thousands ofU.S. dollars
(Note 1)
2001 2002 2002
ASSETS
Current assets:
Cash and cash equivalents ¥ 24,053 ¥ 19,326 $ 145,306
Notes and accounts receivable, trade (Note 11) 57,265 52,652 395,881
Allowance for doubtful receivables (143) (99) (745)
Marketable securities (Note 3) 200 489 3,677
Contracts in process 19,157 20,309 152,701
Deferred tax assets (Note 6) 1,124 679 5,107
Other 2,596 1,787 13,433
Total current assets 104,252 95,143 715,360
Property and equipment (Note 8):
Land 13,663 15,271 114,822
Buildings and structures 16,301 18,388 138,259
Accumulated depreciation (6,488) (8,066) (60,647)
Machinery, vehicles, tools and equipment 7,601 7,655 57,550
Accumulated depreciation (6,228) (6,273) (47,167)
Total property and equipment 24,849 26,975 202,817
Intangible assets:
Software 3,266 2,400 18,043
Other 306 311 2,342
Total intangible assets 3,572 2,711 20,385
Investment and other assets:
Investment securities (Note 3) 6,116 5,083 38,216
Long-term loan receivable 171 256 1,925
Deferred tax assets (Note 6) 3,742 4,132 31,067
Allowance for doubtful receivables (237) (257) (1,929)
Other (Note 4) 2,989 2,533 19,043
Total investments and other assets 12,781 11,747 88,322
Total assets ¥145,454 ¥136,576 $1,026,884
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
21
2001 2002 2002
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Short-term borrowings (Note 5) ¥ 527 ¥ – $ –
Current portion of long-term debt (Note 5) 10,249 – –
Notes and accounts payable, trade 28,115 22,836 171,702
Income taxes payable 3,796 1,424 10,709
Advances received on contracts in process 5,581 6,127 46,068
Allowance for compensation for construction damages 131 131 981
Other 7,131 5,189 39,014
Total current liabilities 55,530 35,707 268,474
Long-term liabilities:
Long-term debt (Note 5 and 9) 29,547 28,764 216,271
Allowance for retirement benefits for directors and
corporate auditors 654 602 4,528
Accrued pension and severance cost (Note 12) 2,363 5,578 41,938
Deferred tax liabilities (Note 6) – 111 834
Other 870 1,630 12,257
Total long-term liabilities 33,434 36,685 275,828
Contingent liabilities (Note 11)
Minority interests in consolidated subsidiaries 1,629 869 6,531
Shareholders’ equity (Note 7):
Common stock, no par value
Authorized—160,000,000 shares
Issued—117,812,419 shares 5,408 6,889 51,795
Additional paid-in capital 4,322 5,761 43,318
Retained earnings 45,319 51,914 390,334
Net unrealized holding gains on securities 374 210 1,577
Treasury stock (562) (1,459) (10,973)
Total shareholders’ equity 54,861 63,315 476,051
Total liabilities and shareholders’ equity ¥145,454 ¥136,576 $1,026,884
The accompanying notes to consolidated financial statements are an integral part of these balance sheets.
Millions of yen
Thousands ofU.S. dollars
(Note 1)
22
Millions of yen
Common stock
Additionalpaid-incapital
Retained earnings
Netunrealized
holding gainson securities
Treasury stock
Consolidated Statements of Shareholders’ EquityKYOWA EXEO Corporation and subsidiariesMarch 31, 2000, 2001 and 2002
Balance at March 31, 1999 ¥ 5,408 ¥ 4,322 ¥ 41,761 ¥ – ¥ (1)
Effect due to exclusion from consolidation
of a subsidiary (1)
Net income 2,531
Treasury stock –
Cash dividends paid (1,175)
Bonuses to directors (137)
Balance at March 31, 2000 5,408 4,322 42,979 – (1)
Net income 3,622
Adoption of new accounting standard for
financial instrument 374
Treasury stock (561)
Cash dividends paid (1,176)
Bonuses to directors (106)
Balance at March 31, 2001 5,408 4,322 45,319 374 (562)
Increase due to merger 1,481 1,439 4,901
Net income 2,990
Net unrealized holding gains on securities (164)
Treasury stock (897)
Cash dividends paid (1,170)
Bonuses to directors (126)
Balance at March 31, 2002 ¥6,889 ¥5,761 ¥51,914 ¥210 ¥(1,459)
Balance at March 31, 2001 $ 40,659 $ 32,495 $ 340,748 $ 2,810 $ (4,226)
Increase due to merger 11,136 10,823 36,851
Net income 22,481
Net unrealized holding gains on securities (1,233)
Treasury stock (6,747)
Cash dividends paid (8,801)
Bonuses to directors (945)
Balance at March 31, 2002 $51,795 $43,318 $390,334 $1,577 $(10,973)
The accompanying notes to consolidated financial statements are an integral part of these statements.
Thousands of U.S. dollars (Note 1)
23
Consolidated Statements of Cash FlowsKYOWA EXEO Corporation and subsidiariesMarch 31, 2000, 2001 and 2002
Millions of yen
Thousands ofU.S. dollars
(Note 1)
2000 2001 2002 2002
Cash flows from operating activities:Income before income taxes and minority interest ¥ 5,510 ¥ 7,898 ¥ 5,949 $ 44,734Depreciation and amortization 2,216 2,231 2,222 16,705Special retirement benefit – – 1,636 12,300Losses on devaluation of investment securities – – 487 3,662Losses on devaluation of investment in memberships – – 345 2,595Gains on securities contributed to employee retirement
benefit trust – (3,042) – –Post-employment benefit expenses on establishment
of retirement benefit trust – 2,878 – –Decrease in allowance for doubtful accounts (794) (166) (44) (328)Changes in accrued pension and severance cost – (1,409) 908 6,826Changes in allowance for foreign investment losses 2,803 (2,803) – –Increase in allowance for prior service cost of welfare
pension plan 2,953 – – –Interest and dividends income (778) (299) (189) (1,425)Interest expenses paid 667 607 585 4,398Gains (losses) on sales of investment securities – (544) 100 749Changes in notes and accounts receivable, trade 9,539 (3,382) 10,082 75,805Changes in contracts in process 5,120 6,802 944 7,096Decrease in accounts payable, trade (3,361) (946) (7,509) (56,461)Changes in advance received on contracts in process (2,516) (3,456) (181) (1,363)Other, net (1,453) 7,373 (2,296) (17,253)
Sub-total 19,816 11,742 13,039 98,040Interest and dividends received 719 305 193 1,453Interest expenses paid (672) (610) (583) (4,380)Income taxes paid (6,574) (4,665) (4,225) (31,770)Special retirement paid – – (1,538) (11,566)
Net cash provided by operating activities 13,289 6,772 6,886 51,777
Cash flows from investing activities:Payments for purchases of marketable securities (1,000) (200) (500) (3,759)Payments for purchases of property and equipment (1,183) (905) (721) (5,423)Payments for intangible fixed assets and other investments (2,719) (145) (100) (750)Payments for purchases of investment securities (1,019) (1,595) (409) (3,072)Other, net 517 2,772 1,373 10,314
Net cash used in investing activities (5,404) (73) (357) (2,690)
Cash flows from financing activities:Net changes in short-term borrowing (1,665) (4,661) (1,098) (8,255)Proceeds from long-term debt 5,625 95 – –Payments of long-term debt and bonds (10,427) (1,280) (10,866) (81,696)Payments for purchases of treasury stock – (561) (940) (7,070)Cash dividends paid (1,175) (1,175) (1,170) (8,801)Decrease in deposits received from employees (1,840) – – –Other, net (9) (10) 38 288
Net cash used in financing activities (9,491) (7,592) (14,036) (105,534)
Effect of exchange rate changes on cash and cash equivalents 7 12 (9) (69)Net decrease in cash and cash equivalents (1,599) (881) (7,516) (56,516)Cash and cash equivalents at the beginning of the year 26,543 24,934 24,053 180,850Decrease in cash and cash equivalents due to exclusion from
consolidation of subsidiaries (10) – – –Increase in cash and cash equivalents due to merger – – 2,789 20,972Cash and cash equivalents at the end of the year ¥24,934 ¥24,053 ¥19,326 $145,306
The accompanying notes to consolidated financial statements are an integral part of these statements.
24
Notes to Consolidated Financial StatementsKYOWA EXEO Corporation and subsidiaries
KYOWA EXEO Corporation (the “Company”) and its consolidated domestic subsidiaries maintain their accounts and records in accordance with the provisions set forth in the Japanese Commercial Code (the “Code”) and theSecurities and Exchange Law and in conformity with accounting principles and practices generally accepted in Japan. Certain accounting principles and practices generally accepted in Japan are different from InternationalAccounting Standards and standards in other countries in certain respects as toapplication and disclosure requirements. Accordingly, the accompanying financialstatements are intended for use by those who are informed about Japaneseaccounting principles and practices.
The accompanying consolidated financial statements are a translation of the audited consolidated financial statements of the Company which were pre-pared in accordance with accounting principles and practices generally acceptedin Japan from the accounts and records maintained by the Company and its con-solidated subsidiaries were filed with the appropriate Local Finance Bureau of theMinistry of Finance as required by the Securities and Exchange Law.
In preparing the accompanying consolidated financial statements, certain reclassifications have been made in the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. The consolidated statements of shareholders’ equity for 2000, 2001 and 2002 have been prepared for the purpose of inclusion in the accompanying consolidated financial statements,although such statements were not required for domestic purposes and were not filed with the regulatory authorities.
The translation of the Japanese yen amounts into U.S. dollars are includedsolely for the convenience of readers, using the prevailing exchange rate at March31, 2002, which was ¥133 to U.S.$1.00. The convenience translations should notbe construed as representations that the Japanese yen amounts have been, couldhave been, or could in the future be, converted into U.S. dollars at this or anyother rate of exchange.
1. Basis of presenting consolidated financial statements
Consolidation––The consolidated financial statements include the accounts ofthe Company and substantially all of its 21 subsidiaries except 10 subsidiaries. Allsignificant intercompany transactions and account balances are eliminated in consolidation.
Application of the equity method of accounting forinvestments––Investments in non-consolidated subsidiary and affiliated compa-nies have not been accounted for by the equity method because they have notbeen significant to the consolidated net income and retained earnings.
Revenue recognition––Construction revenue is recorded on a completed-contract basis.
Cash and cash equivalents––Cash equivalents include readily-availabledeposits and short-term highly liquid investments with maturity of not exceedingthree months at the time of purchase.
Foreign currency translation––Short-term receivables and payables denomi-nated in foreign currencies are translated into Japanese yen at the year-end rates.Prior to April 1, 2000, long-term receivables and payables denominated in foreign currencies were translated at historical rates.
Effective April 1, 2000, the Company adopted the revised accounting standard for foreign currency translation, “Opinion Concerning Revision ofAccounting Standard for Foreign Currency Translation.” issued by the BusinessAccounting Deliberation Council on October 22, 1999 (the “Revised AccountingStandard”). Under the Revised Accounting Standard, long-term receivables andpayables denominated in foreign currencies are also translated into Japan yen atthe year-end rate.
Marketable and investment securities––Investment in unconsolidated subsidiaries and affiliated companies are stated at cost determined by the moving-average method.
Available-for-sale securities with available fair market values are stated atfair value, with unrealized gains and losses excluded from earnings and includedin a separate component of shareholders’ equity on a net-of-tax basis. The cost ofsecurities sold is determined by the moving-average method.
Other securities that do not have fair values are stated at cost determinedat cost determined by the moving average method.
Valuation of inventories––Contracts in process are stated at cost using thespecific identification cost method. Raw materials and supplies are stated at costusing the first-in, first-out method.
Property and equipment, and depreciation––Property and equipmentare stated at cost. For both financial and tax purposes, depreciation of propertyand equipment is computed using the declining balance method at rates based onthe estimated useful lives of the respective assets. Buildings acquired after March31, 1998 are depreciated using the straight-line method.
Software costs––In accordance with new accounting standards in Japan effec-tive for the year ended March 31, 2000, the Company and its consolidated sub-sidiaries include internal use software in intangible assets and amortize it on thestraight-line method over the estimated useful life of five years.
Allowance for doubtful receivables––The Company and its consolidatedsubsidiaries provide for doubtful receivables principally at an amount computedbased on the historical bad debt ratio during a certain reference period plus anestimated uncollectible amount based on the analysis of certain individualaccounts, including claims in bankruptcy.
Allowance for compensation for construction damages––Allowancefor compensation for construction damages is provided at the amount equal
to 1/1000 of total net sales for each fiscal year, except for sales of a portion thatothers are responsible for completion of construction, in order to cover possiblelosses of incompletion.
Retirement and severance costs––Effective April 1, 2000, the Companyand its consolidated subsidiaries adopted the new accounting standard, “Opinionon Setting Accounting Standard for Employees’ Severance and Pension Benefits”,issued by the Business Accounting Deliberation Council on June 16, 1998 (the“New Accounting Standard”). Under the New Accounting Standard, allowanceand expenses for retirement and severance costs are determined based on theamounts actuarially calculated using certain assumptions. The Company and itsconsolidated subsidiaries provided for accrued retirement and severance cost atMarch 31, 2002 and 2001, based on the estimated amounts of projected benefitobligation and the fair value of plan assets at the end of the fiscal year. The entiretransition obligation of ¥3,167 million was expensed in the year ended March 31,2001. As a result of this change, “net income before income taxes and minorityinterest” for 2001 decreased by ¥53 million. Allowance for retirement benefits todirectors and corporate auditors is provided in accordance with the Company andits consolidated subsidiaries’ internal regulations.
Income taxes––Income taxes consist of corporation, enterprise and inhabitants taxes.
The provision for income taxes is computed based on the pretax incomeincluded in the consolidated statement of income. The asset and liability approachis used to recognize deferred tax assets and liabilities for the expected future taxconsequences of temporary differences between the carrying amounts of assetsand liabilities for financial reporting purposes and the amounts used for incometax purposes.
Accounting for certain lease transactions––Finance lease which do not transfer titles to lessees are accounted for in the same manner as operating leases.
Per share of common stock––In computing net income per share of common stock, the average number of shares outstanding during each year hasbeen used.
Cash dividends per share represent the actual amount declared as applica-ble to the respective year.
Accounting for consumption tax––Consumption tax is excluded from eachaccount which is subject to such tax.
Consolidation goodwill––Consolidation goodwill is amortized over an estimated useful life of five years.
Accounting changes––Effective April 1, 1999, the Company changed themethod accounting for past service cost with respect to welfare pension plan torecognize such cost as expense when actuarially determined and when paymentbecomes liable. Until the year ended March 31, 1999, past service cost wascharged to income when the corresponding contributions to the pension planswere actually made. This change was in order to reflect the financial position andoperating results of the Company more accurately in the financial statements, con-sidering the changes in circumstances surrounding the pension plans. This changedecreases income before income taxes by ¥2,953 million for the year endedMarch 31, 2000.
Reclassification––Certain prior year accounts have been reclassified to conform to the 2002 presentation.
These changes had no impact on previously reported results of operations or shareholders’ equity.
2. Significant accounting policies
25
3. SecuritiesThe following tables summarize acquisition costs, book values and fair value of securities with fair value as of March 31, 2001 and 2002:
Available-for-sale securities:Securities with book values exceeding acquisition costs
Total sales amounts of available-for-sale securities sold in the year ended March 31, 2001 and 2002 amounted to ¥6,658 million and ¥1,191 million ($8,961 thousand), respectively, and the net gains amounted to ¥3,584 million and ¥97 million ($730 thousand), respectively.
The following tables summarize book values of securities with no available fair value as of March 31, 2001 and 2002.
Maturities of available-for-sale securities with maturity and held-to-maturity debt securities are the following:Other securities
Book valueMillions of yen Thousands of U.S. dollars
Type 2001 2002 2002Unlisted equity securities ¥1,045 ¥1,167 $ 8,778Public bond investment trust 7,637 4,708 35,398Other 5 504 3,793
4. Other assetsOther assets as of March 31, 2001 and 2002 were as follows:
5. Short-term debt and long-term debt(1) Short-term borrowings are represented by bank loans whose original maturities are within one year. The weighted-average interest rate on short-term borrowings was 1.1% at March 31, 2001. (2) Long-term debt at March 31, 2001 and 2002 is summarized as follows:
Millions of yen Thousands of U.S. dollars2001 2002 2002
Long-term prepaid expenses ¥ 249 ¥ 274 $ 2,059Other 2,740 2,259 16,984Total ¥2,989 ¥2,533 $19,043
Millions of yen Thousands of U.S. dollars2001 2002 2002
Long-term borrowing from banks:Secured ¥ 328 ¥ – $ –Unsecured 204 – –
Bonds:0.6% unsecured domestic convertible bond due in 2002 10,000 – –1.0% unsecured domestic convertible bond due in 2004 14,664 14,664 110,2562.25% unsecured domestic straight bond due in 2005 9,900 9,600 72,1802.1% unsecured domestic straight bond due in 2006 4,700 4,500 33,835
39,796 28,764 216,271Less-Current maturities 10,249 – –Total long-term debt ¥29,547 ¥28,764 $216,271
Millions of yen Thousands of U.S. dollars2001 2002 2002
Over one Over five Over one Over five Over one Over five year but years but year but years but year but years but
Within within within Over Within within within Over Within within within Over Type one year five years ten years ten years Total one year five years ten years ten years Total one year five years ten years ten years TotalBonds ¥290 ¥10 ¥– ¥– ¥300 ¥ – ¥10 ¥– ¥– ¥ 10 $ – $75 $– $– $ 75Others – 5 – – 5 504 – – – 504 3,793 – – – 3,793Total ¥290 ¥15 ¥– ¥– ¥305 ¥504 ¥10 ¥– ¥– ¥514 $3,793 $75 $– $– $3,868
Millions of yen Thousands of U.S. dollars2001 2002 2002
Acquisition Acquisition AcquisitionType cost Book value Difference cost Book value Difference cost Book value DifferenceEquity securities ¥ 970 ¥2,040 ¥1,070 ¥ 449 ¥1,422 ¥ 973 $ 3,381 $10,698 $ 7,317Bonds 210 210 0 10 10 0 74 75 1Others 900 901 1 – – – – – –Total ¥2,080 ¥3,151 ¥1,071 ¥ 459 ¥1,432 ¥ 973 $ 3,455 $10,773 $ 7,318
Other securities Millions of yen Thousands of U.S. dollars2001 2002 2002
Acquisition Acquisition AcquisitionType cost Book value Difference cost Book value Difference cost Book value DifferenceEquity securities ¥ 939 ¥ 781 ¥ (158) ¥1,128 ¥ 875 ¥(253) $ 8,487 $ 6,580 $(1,907)Bonds 90 90 (0) – – – – – –Others 2,074 1,819 (255) 1,446 1,095 (351) 10,871 8,235 (2,636)Total ¥3,103 ¥2,690 ¥ (413) ¥2,574 ¥1,970 ¥(604) $19,358 $14,815 $(4,543)
26
The indentures relating to the domestic convertible bonds (1.0%) provide, amongother conditions, for conversion into shares of common stock at the current conversion prices per share of ¥1,179.20 ($8.87) and through March 31, 2004.At March 31, 2002, 12,436 thousand shares of common stock in the aggregatewere issuable upon full conversion of the outstanding convertible bonds.
For the computation of the diluted net income per share, the average num-ber of shares has been computed assuming all convertible bonds were convertedat the beginning of the respective year. Related interest expense, net of incometaxes, has been eliminated.
The convertible bonds place limitations on the payment of the cash dividends which relate to earnings of the Company.
There were no assets pledged as collateral for obligations of the Companyat March 31, 2002, except for negligible ones at March 31, 2001.
The annual maturity of long-term debt at March 31, 2002, was as follows:
Year ending March 31 Thousands of Millions of yen U.S. dollars
2002 20022003 ¥ – $ –2004 14,664 110,2562005 – –2006 9,600 72,1802007 4,500 35,338
¥28,764 $216,271
The Company is subject to a number of income taxes, which, in the aggregate,indicate a statutory rate in Japan of approximately 42.0% for the years endedMarch 31, 2000, 2001 and 2002.
The following table summarizes the significant differences between thestatutory tax rate and the Company’s effective tax rate for financial statement purposes for the years ended March 31, 2000, 2001 and 2002:
6. Income taxes
2000 2001 2002Statutory tax rate 42.0% 42.0% 42.0%Non-deductible expenses 7.2 3.3 3.1Per capita inhabitant tax 2.6 1.5 1.8Other (0.8) 7.0 2.0Effective tax rate 51.0% 53.8% 48.9%
Significant components of the Company’s deferred tax assets and liabilities as of March 31, 2000, 2001 and 2002 are as follows:
Millions of yen Thousands of U.S. dollars2000 2001 2002 2002
Current deferred tax:Assets:Excess bonuses accrued ¥ 340 ¥ 731 ¥ 517 $ 3,888Accrued enterprise tax 304 357 113 852Other 216 36 49 367Total current deferred tax ¥ 860 ¥1,124 ¥ 679 $ 5,107
Long-term deferred tax:Assets:Excess allowance for doubtful account ¥ 371 ¥ 537 ¥ 861 $ 6,472Excess retirement benefits 214 1,494 2,686 20,198Provision for allowance for prior service cost
of welfare pension plan 1,239 – – –Allowance for retirement benefit to directors and
corporate auditors 249 225 231 1,740Losses on devaluation of investment in membership 150 209 349 2,627Losses on devaluation of securities – 1,277 – –Provision for allowance for foreign investment losses 1,176 – – –Other 70 395 234 1,753Sub-total long-term deferred tax assets ¥3,469 ¥4,137 ¥4,361 $32,790Valuation allowance – – (69) (518)Total long-term deferred tax assets ¥3,469 ¥4,137 ¥4,292 $32,272Liabilities:Deferred gains on real properties ¥ (113) ¥ (110) ¥ (107) $ (807)Net unrealized holding gains on securities – (285) (164) (1,232)Total long-term deferred tax liabilities (113) (395) (271) (2,039)
Net long-term deferred tax assets ¥3,356 ¥3,742 ¥4,021 $30,233
Under the Code, the entire amount of the issue price of shares is required to beaccounted for as capital, although a company may, by resolution of its board ofdirectors, account for an amount not exceeding one-half of the issue price of thenew shares as additional paid-in capital.
Effective October 1, 2001, the Code provides that an amount equal to atleast 10% of cash dividends and other cash appropriations shall be appropriatedand set aside as a legal reserve until the total amount of legal reserve and additional paid-in capital equals 25% of common stock. The legal reserve andadditional paid-in capital may be used to eliminate or reduce a deficit by resolu-tion of the stockholders’ meeting or may be capitalized by resolution of the Boardof Directors. On condition that the total amount of legal reserve and additional
paid-in capital remains being equal to or exceeding 25% of common stock, theyare available for distribution by the resolution of shareholders’ meeting.
Legal reserve is included in retained earnings in the accompanying finan-cial statements. In June 2002, the shareholders approved the declaration of cashdividends and bonuses to directors and corporate auditors applicable to the yearended March 31, 2002, totaling ¥1,278 million ($9,614 thousand) and ¥55 million ($413 thousand), respectively. In conformity with the Code, this declarationof a cash dividend is not reflected in the consolidated financial statements as ofMarch 31, 2002.
7. Shareholders’ equity
27
(1) Finance leases which do not transfer ownership of properties to lessees are not capitalized and are accounted for in the same manner as operating leases. Certaininformation for such non-capitalized finance leases on a consolidated basis is as follows:
(a) Assumed amounts of acquisition cost, accumulated depreciation and net book value at March 31, 2001 and 2002, are summarized as follows:
(b) Future minimum lease payments, inclusive of interest are summarized as follows:
(c) Lease payments and depreciation and interest equivalents for the years ended March 31, 2001 and 2002 are summarized as follows:
(d) Depreciation equivalents charges are computed using the straight-line method over the lease terms assuming no residual value.
(2) Future operating lease payments under non-cancelable operating leases at March 31, 2001 and 2002 are summarized as follows:
8. Leases
Millions of yen Thousands of U.S. dollars2001 2002 2002
Assumed acquisition cost:Buildings and structures ¥ 11 ¥ 11 $ 84Machinery and tools 5,685 5,905 44,401Other 89 92 691
Accumulated depreciation (2,872) (3,325) (24,997)Net book value ¥2,913 ¥2,683 $20,179
Millions of yen Thousands of U.S. dollars2001 2002 2002
Due within one year ¥1,066 ¥1,142 $ 8,590Due after one year 1,971 2,080 15,638Total ¥3,037 ¥3,222 $24,228
Millions of yen Thousands of U.S. dollars2001 2002 2002
Due within one year ¥19 ¥13 $ 96Due after one year 16 19 144Total ¥35 ¥32 $240
Millions of yen Thousands of U.S. dollars2002 2002
As guarantor for affiliated companies from banks and other ¥2,745 $20,638Note receivable-endorsed 120 903
Millions of yen Thousands of U.S. dollars2001 2002 2002
Lease payments ¥1,215 ¥1,261 $9,484Depreciation equivalent 1,122 1,160 8,721Interest equivalent 102 91 682
The Company enters into interest rate swap contracts as derivative financial instru-ments. Interest rate swap transactions are made in order to minimize the risk ofinterest rate increase on floating rate borrowings.
At March 31, 2001 and 2002, the Company had interest rate swap agree-ments to convert interest on long-term debt of ¥8,800 million and ¥8,800 million($66,165 thousand) from floating rate to fixed rate. There were unrecognized
gains of ¥52 million and ¥37 million ($278 thousand) with respect to this contractat March 31, 2001 and 2002, respectively.
The Company does not use derivative financial instruments for speculativetrading purpose. The derivative financial instruments are executed with creditwor-thy financial institutions, and the Company’s management believes there is littlerisk of default by counterparties.
9. Derivative transactions
Research and development expense is charged to income as incurred. Such amounts charged to income for the years ended March 31, 2000, 2001 and 2002 on a consolidated basis were ¥515 million, ¥433 million and ¥430 million ($3,235 thousand), respectively.
10. Research and development expense
At March 31, 2002, the Company and its consolidated subsidiaries had the following contingent liabilities:
As guarantor for affiliated companies from banks and other includes ¥1,340 million ($10,076 thousand) to be guaranteed by other companies.
11. Contingent liabilities
28
As explained in Note 2, effective April 1, 2000, the Company and its consolidated subsidiaries adopted the new accounting standard for employees’ severance and retirement benefits are determined based on the amounts obtained by actuarial calculations.
Allowance for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2001 and 2002 consists of the following:
The discount rate and the rate of expected return on plan assets used by theCompany are 3.5% and 5.5%, respectively. The estimated amount of all retire-ment benefits to be paid at the future retirement date is allocated equally to eachservice year using the “point-standard”. Prior service costs are recognized in
expenses in equal amounts over the average of the estimated remaining servicelives of the employees (14 years), and unrecognized actuarial net gains or lossesare amortized over 13 years on a straight-line basis commencing from the succeeding period.
Included in the consolidated statements of income for the years ended March 31, 2001 and 2002 are severance and retirement benefit expense comprised of the following:
12. Employees’ severance and retirement benefits
The amounts of assets and liabilities at the time the Company was merged withShowa Technos on April 1, 2001 are as follows:
The merger increased common stock by ¥1,481 million ($11,136 thousand),additional paid-in-capital by ¥1,439 million ($10,823 thousand), legal reserveby ¥195 million ($1,470 thousand) and retained earnings by ¥4,871 million($36,627 thousand).
13. Significant non-cash transactions
Millions of yen Thousands of U.S. dollars2001 2002 2002
Projected benefit obligation ¥49,108 ¥52,852 $397,387Unrecognized prior service costs – 656 4,934Unrecognized actuarial differences (7,635) (11,572) (87,014)Less fair value of pension assets (39,110) (36,358) (273,369)Allowance for severance and
retirement benefits ¥ 2,363 ¥ 5,578 $ 41,938
Millions of yen Thousands of U.S. dollars2001 2002 2002
Service costs-benefits earned during the year ¥3,053 ¥3,447 $25,920Interest cost on projected benefit obligation 1,537 1,718 12,915Expected return on plan assets (2,056) (1,928) (14,493)Amortization of net transition obligation 3,168 – –Amortization of actuarial differences – 594 4,464Amortization of prior service cost – (4) (30)Severance and retirement benefit expense ¥5,702 ¥3,827 $28,776
Thousands of Millions of yen U.S. dollars
Current assets ¥10,191 $ 76,625Fixed assets 3,491 26,254
Total assets 13,682 102,879Current liabilities 3,385 25,455Long-term liabilities 2,279 17,137
Total liabilities ¥ 5,664 $ 42,592
29
Report of Independent Public Accountants
To the Shareholders and the Board of Directors ofKYOWA EXEO CORPORATION:
We have audited the accompanying consolidated balance sheets of KYOWA EXEO CORPORATION (a Japanesecorporation) and its subsidiaries as of March 31, 2002 and 2001, and the related consolidated statements ofincome, shareholders’ equity and cash flows for each of the three years in the period ended March 31, 2002,expressed in Japanese yen. Our audits were made in accordance with generally accepted auditing standards inJapan and, accordingly, included such tests of the accounting records and such other auditing procedures as weconsidered necessary in the circumstances.
In our opinion, the consolidated financial statements referred to above present fairly the consolidated financial positionof KYOWA EXEO CORPORATION and its subsidiaries as of March 31, 2002 and 2001, and the consolidatedresults of their operations and their cash flows for each of the three years in the period ended March 31, 2002 inconformity with accounting principles generally accepted in Japan (Note 1) applied on a consistent basis during theperiods, except as noted in the following paragraph.
As explained in Note 2, KYOWA EXEO CORPORATION and its subsidiaries prospectively adopted new Japaneseaccounting standards for research and development costs in the year ended March 31, 2000, and adopted newJapanese accounting standards for financial instruments and employees’ retirement benefits and the revisedJapanese accounting standards for foreign currency translation in the year ended March 31, 2001. Also, theCompany and its subsidiaries changed the method of accounting for past service cost with respect to welfare pension plan, effective April 1, 1999, as referred to in Note 2, with which we concur.
Also, in our opinion, the U.S. dollar amounts in the accompanying consolidated financial statements have beentranslated from Japanese yen on the basis set forth in Note 1.
Tokyo, JapanJune 27, 2002
30
KYOWA EXEO ANNUAL REPORT 2002
Board of Directors and Auditors
PRESIDENTShunji Kaibuchi
EXECUTIVE MANAGINGDIRECTOR
Seiji Takashima
MANAGING DIRECTORSNouo TaguchiKozo MiyamotoTakaaki KoideGunji TanakaTokuyuki KomatsuAkio NagamoriTamotsu Aoyama
DIRECTORSAtsushi OkumuraSadao IkedaKatsuyuki OmoriMitsuaki IwataTadashige OkagawaGengo HiranoSusumu AsakawaSumio KimuraTerutaka SakaiYoshiaki Suzuki
STANDING STATUTORYAUDITORS
Hiroki ObataTakayoshi MitomaHiroshi Kawata
STATUTORY AUDITORKazuo Wakasugi
(As of June 28, 2002)
Shunji Kaibuchi, Ph.D.President
Seiji Takashima, Ph.D.Executive Managing Director
Gunji TanakaManaging Director
Tokuyuki KomatsuManaging Director
Akio NagamoriManaging Director
Nouo TaguchiManaging Director
Kozo MiyamotoManaging Director
Takaaki KoideManaging Director
Tamotsu AoyamaManaging Director
31
President
Board of Auditors
Statutory Auditors
Safety & Quality Control Headquarters
Engineering Headquarters
Mobile Communications Engineering Headquarters
Sales & Marketing Headquarters
West Japan Head Office
Domestic Branches
Board of Directors
Safety & Quality Control Department
Safety & Quality Audit Department
Inspection Department
Marketing & Planning Department
Sales & Marketing, NTT Telecommunications Engineering Department
Sales & Marketing, General Engineering Department
Sales & Marketing II, General Telecommunications Engineering Department
Sales & Marketing I, General Telecommunications Engineering Department
Sales & Marketing, Civil Engineering Department
Environmental System Integration Department
Global Business Department
Cost Planning Department
Engineering & Planning Department
Research & Development Center
Customer Service Department
Cable Engineering Department
Civil Engineering Department
Telecommunications Network Engineering Department
Electrical Engineering Department
ISO Division
Software Designing Headquarters
Information Technology Headquarters
Procurement Division
Corporate Planning Division
Group Business Development Division
Public Relations Division
Audit Division
Accounts & Finance Division
General Affairs Division
Human Resources Division
(As of July 1, 2002)
KYOWA EXEO ANNUAL REPORT 2002
Organization
32
KYOWA EXEO ANNUAL REPORT 2002
Network
Overseas OperationalBases
THAILAND REPRESENTATIVE OFFICEThai Exeo Corporation Ltd.Thai Kyowa Engineering &Construction Co., Ltd.15th Floor, Alma Link Building,25 Soi Chidiom, Ploenchit RD,Pathumwan, Bangkok 10330, Thailand
PHILIPPINES REPRESENTATIVEOFFICE
MG Exeo Network, Inc.7th Floor DPC Place, 2322 Don ChinoRoces Avenue, Makati City Metro,Manila, Philippines
HONDURAS REPRESENTATIVE OFFICECOLTEL-EXEO INGENIERIA Y CONSTRUCCION11 Y 12 Avenue, 19 Calle A, N. O. Bo.El Platon, San Pedro Sula Honduras,C.A.
Domestic Network
HEAD OFFICE3-29-20, Shibuya, Shibuya-ku,Tokyo 150-0002
WEST JAPAN HEAD OFFICE3-6-13, Kyomachibori, Nishi-ku, Osaka 550-0003
BRANCH OFFICESHokkaido Branch Office3-4-1, Atsubetsu Minami, Atsubetsu-ku,Sapporo, Hokkaido 004-0022Tohoku Branch Office1-2-7, Shindera, Wakabayashi-ku, Sendai,Miyagi 984-8567Yamagata Branch Office9-10, Minami Yonbancho, Yamagata 990-2444Joshinetsu Branch Office20, Yatsushimacho, Takasaki, Gunma 370-0849
Chiba Branch Office24-9, Shinmachi, Chuo-ku, Chiba 260-0028Kita Kanto Branch Office1-38-1, Miyamachi, Saitama 330-0802Ibaraki Branch Office1486, Kasaharacho, Mito, Ibaraki 310-0852Nishi Tokyo Branch Office3-14-24, Hagoromocho, Tachikawa, Tokyo 190-0021Koshin Branch Office3-16-12, Asake, Kofu, Yamanashi 400-0862Minami Kanto Branch Office12-1, Kanagawahoncho, Kanagawa-ku,Yokohama, Kanagawa 221-0046Tokai Branch Office9-58, Ibukacho, Nakamura-ku, Nagoya,Aichi 453-0012Kansai Branch Office3-6-13, Kyomachibori, Nishi-ku, Osaka 550-0003Kyoto Branch Office 539-20, Monzencho, Oike-doriOmiyanishi-iru, Nakagyo-ku, Kyoto 604-8306Hyogo Branch Office2-1-13, Ekiminamidori, Hyogo-ku, Kobe, Hyogo 652-0897Nara Branch Office2-1-22, Shijo-oji, Nara 630-8014Shiga Branch Office737, Tannai, Ono, Ritto, Shiga 520-3016Wakayama Branch Office1704, Nakanoshima, Wakayama 640-8392Hokuriku Branch Office53-1, Ni, Hutakuchimachi, Kanazawa,Ishikawa 920-0051Shikoku Branch Office2-2-15, Kankodori, Takamatsu, Kagawa760-0055Chugoku Branch Office2-7-11, Ogouchicho, Nishi-ku, Hiroshima 733-0025Yamaguchi Branch Office19-2, Ekiminamicho, Hofu, Yamaguchi 747-0801Kyushu Branch Office1-3-6, Nanokawa, Minami-ku, Fukuoka 815-0081Kumamoto Branch Office126, Motoyamacho, Kumamoto 860-0822Okinawa Branch Office1-30-52, Koroku, Naha, Okinawa 901-0152
SALES OFFICESAomori Sales Office1-16-22, Matsubara, Aomori 030-0813Iwate Sales Office2-5-7, Honmachidori, Morioka, Iwate 020-0015Akita Sales Office6-1-24, Nakadori, Akita 010-0001Fukushima Sales Office8-13, Kitagoronaicho, Fukushima 960-8131Niigata Sales Office4-17-26, Meike, Niigata 950-0889Nagano Sales Office2-12-1, Minamichitose, Nagano 380-0823Tochigi Sales Office2-4-7, Oodori, Utsunomiya, Tochigi 320-0811Wako Sales Office382-4, Niikura, Wako, Saitama 351-0115Kawasaki Sales Office388, Shimoguchi, Takatsu-ku, Kawasaki,Kanagawa 223-0052Numazu Sales Office448-1, Okaisshiki, Numazu, Shizuoka 410-0012Shizuoka Sales Office1-5-32, Inari, Shimada, Shizuoka 427-0038Gifu Sales Office2-14, Obora Momijigaoka, Gifu 501-3122Mie Sales Office3424-55, Handa, Tsu, Mie 514-0823Matsuyama Sales Office1-15-2, Ichiban-cho, Matsuyama, Ehime 790-0001Okayama Sales Office498-1, Niwase, Okayama 701-0153Yonago Sales Office339, Fujina, Tamayu-cho, Yatsuka-gun,Shimane 699-0203Kita Kyushu Sales Office9-6, Akasaka Kaigan, Kokurakita-ku,Kitakyushu, Fukuoka 802-0031Nagasaki Sales Office1020-3, Tanakacho, Nagasaki 851-0134Oita Sales Office5-1, Harushinmachi, Oita 870-0912Miyazaki Sales Office1-7-18, Tsunehisa, Miyazaki 880-0913Minami Kyushu Sales Office4-11, Daikokucho, Kagoshima 892-0825
(As of September 1, 2002)
33
Company DataCompany Name: Kyowa Exeo Corporation
Head Office: 3-29-20, Shibuya, Shibuya-ku,Tokyo 150-0002, Japan
Established: May 17, 1954
Paid-in Capital: ¥6,899 million
Number of Employees:Parent Company 3,870Consolidated Subsidiaries 1,595Total 5,465(as of March 31, 2002)
Lines of Business:• Planning, design, execution and maintenance
of electrical communications facilities andequipment
• Planning, design, construction and maintenanceof electrical facilities and equipment
• Planning, design, construction and maintenanceof civil engineering and related projects
• Planning, design, execution and maintenanceof environment-related facilities and equipment
• Planning, design, construction and mainte-nance of telecommunications systems
• Planning, development, marketing and main-tenance of various software products
Number of Business Offices:Head office and branches: 26Sales offices: 21Construction offices: 9Overseas representative offices: 3
Fiscal Year-End: March 31
Major Shareholders:Japan Trustee Services Bank, Ltd.
(Trust Account)UFJ Trust Bank, Ltd. (Account A)The Furukawa Electric Co., Ltd.Sumitomo Electric Industries, Ltd.Mizuho Trust & Banking Co., Ltd.
(Trust Account)The Mitsubishi Trust & Banking Corp.Fujikura Ltd.NEC Corp.Fujitsu Ltd.The Fuji Bank, Ltd.
Major Banks:Mizuho Bank, LtdSumitomo Mitsui Banking Corp.The Bank of Tokyo-Mitsubishi, Ltd.
Independent Certified Public AccountantsAsahi & Co., acting in co-operation withmember firms of KPMG International
Qualifications:July 19, 1954Certified as general contractor. SinceNovember 1, 1972, the Company hasobtained licenses to perform constructionwork in telecommunications, civil engineering,electrical, steel structures, architecture, waterservice facilities, garbage disposal facilities andplumbing (all of the foregoing are “specialconstruction” categories) as well as in fire-fighting facilities, painting, scaffolding andengineering (which are “general construction”categories).July 31, 1954Certified by NTT as Class 1 Contractor forconstruction of communications lines(including communications-related civil engi-neering), communications equipment andradio transmission equipment.April 1991Obtained communications equipment generalcertification from NTT for work in communi-cations equipment, radio transmissionequipment and communication lines (includ-ing communications-related civil engineering).
3-29-20, Shibuya, Shibuya-ku, Tokyo 150-0002, JapanTEL: 03-5778-1075 FAX: 03-5778-1230 URL://www.exeo.co.jp
Company HistoryMay 1954The Company was founded.July 1954Certified as general contractor and registeredwith the Ministry of Construction.December 1955Started cable-laying work (between Tokyo andTakasaki; railway track/civil engineering work).June 1957Started crossbar work (Musashi-fuchu).February 1963Began overseas work. Started railway track andcivil engineering work in Honduras, CentralAmerica.December 1963Adopted the shield tunneling method intelephone-tunnel construction work (Shirogane).August 1967Started installation of communications forTomei Expressway.August 1968Started electric power unit work for electronicswitchboards (DEX-2).November 1972Certified by the Ministry of Construction forperforming civil engineering work.February 1973Certified by the Ministry of Construction forperforming construction work, as well as instal-lation of water service facilities and fire-fightingfacilities.
January 1975Developed MK construction method for earth-quake-proof installation of computers.April 1978Started work for car phones (within the 23-wards of Tokyo).June 1978Started laying submarine coaxial cables (Libya).January 1981Branched out into the software business.June 1982Started construction of a ground station forpractical satellite communications (Ogasawara).March 1983Started laying fiber-optic cable (betweenNichinan and Kushima).January 1986Started installation of video transmission equip-ment (CATV) (Shin-Honmoku area).March 1987Started installation of electrical equipment (full-scale underwater lighting) for the TokyoMunicipal Kasai Rinkai Park Aquarium.August 1987Installed the first Road Map Unit 1 in GloverPark, Nagasaki Prefecture.August 1988Won a construction technology award from theMinister of Construction for development of aseepage-type runoff control system (EARKIS).September 1989Started construction of the Tomei Expresswayusing the jet technique (Gotemba).
January 1990Started installation of electrical equipment for acomplex high-tech building (Urawa Techno CityBuilding).April 1991Acquired communications equipment construc-tion general certification from NTT.May 1991Changed company name to Kyowa Exeo.October 1991Put into operation the 200th shielding machinefor civil engineering.December 1991Installation of communications equipment for ahigh-rise (MM21 Landmark Tower).September 1992Started engineering work of radio communica-tions equipment for NTT DoCoMo (fromdesigning to testing stages).December 1992Started upgrading work of a domestic effluentand polluted waterway treatment facility(Kasumigaura).May 1993Opened the Research and DevelopmentCenter.October 1993Formulated “Exeo 21,” the Company’s visionfor the 21st century.April 1999Relocated the head office.April 2001Merged with Showa Technos Corporation.
KYOWA EXEO ANNUAL REPORT 2002
Corporate Data and History