annual report 2004 - 月島機械株式会社 · ordered included lactic acid production facilities...

Providing Environmental Solutions through Integrated Engineering

Annual Report 2004

Eco-PURECLAYA typical example of TSK’s efforts in promoting environmentalprotection is the production of Eco-PURECLAY. Sludge andsedimentary sand, generated in the process of river waterpurification for water supplies, are the basic materials of Eco-PURECLAY, a product designed for use as exterior decoration forwalls and as floor tiles. It was jointly developed by TSK and fiveother domestic companies.

For the first time in the world, Eco-PURECLAY turnssludge and sedimentary sand byproducts of water purification,which were discarded previously, into useful resources. Inparticular, 50 to 80% of Eco-PURECLAY tile materials aremade by recycling waste produced during water purification.These tiles are sold at a price equivalent to that ofconventional tiles, which consume natural resources.

Environmentallabeling

ISO 14024

Principal Equipment

• Facilities for Water Purificationand Sewage Treatment

• Centrifugal Separators

• Filtration Equipment

• Dryers

• Crystallizers

Equipment and Others(¥31,346 million)

Principal Plants

• Environmental Plants

• Water Purification Plants andSewage Treatment Plants

• Chemical Plants

• Food Plants

• Tanks, Gas Holders

• Factory Automation (FA) Plants

Plants(¥37,847 million)

Tsukishima Kikai Co., Ltd. (TSK) is a leading Japanese plant engineering company. Since its

establishment in 1905, it has consistently pioneered new technology and anticipated market

needs in the fields of plant design and construction, and in the manufacture of specialized

equipment for various industrial sectors—especially for the chemical and food industries. The

technologies that have been accumulated during TSK’s long history are used today in

environmental conservation, new materials and biotechnology ventures throughout the world.

TSK was one of the first companies to recognize the importance of environmental protection,

and it has earned an excellent international reputation as an expert in the manufacture of

environmental engineering technologies. This field has become a core business for TSK.

The corporate mission of TSK is to contribute to environmental protection and the

advancement of industry through the development of leading-edge technologies. As an integrated

engineering corporation, TSK remains committed to the protection of our precious Earth, and to

the development and growth of industry as the cornerstone of a prosperous society.

PROFILE

■ Sales by Business Category

(Total ¥69,193 million)

54.7%45.3%

1

Thousands ofU.S. dollars

Millions of yen (Note 1)

2004 2003 2004

Net sales .......................................................................................

Operating income ........................................................................

Net income...................................................................................

Total assets...................................................................................

Total liabilities .............................................................................

Shareholders’ equity.....................................................................

Yen U.S. dollars

Per share

Net income ..............................................................................

Cash dividends ........................................................................

¥69,193

4,258

2,442

91,022

45,601

45,421

¥52.07

15.00

¥73,119

2,887

873

85,291

45,460

39,831

¥17.63

15.00

$654,989

40,307

23,116

861,624

431,664

429,960

$0.49

0.14

1

CONSOLIDATED FINANCIAL HIGHLIGHTS

TSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesYears ended March 31, 2004 and 2003

Note: In this report, fiscal years refer to twelve-month periods ended March 31 of the year specified. The yen-to-dollar translations are made, for convenience only, at the rate of ¥105.64 to U.S.$1.

Consolidated Financial Highlights 1

A Message from the Management 2

Board of Directors 4

Financial Section 5

Corporate Data 36

TSK Network 37

Contents

(Millions of yen) (Millions of yen) (Millions of yen)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

90,000

80,000

39,831

45,421

37,924

0

500

1,000

1,500

2,000

2,500

0

10,000

20,000

30,000

50,000

40,000 39,32640,452

873

2,442

2,060

1,397

2,15573,119

69,193

78,94776,638

81,475

’02’01’00 ’03 ’04 ’02’01’00 ’03 ’04 ’02’01’00 ’03 ’04

■ Net Sales ■ Net Income ■ Shareholders’ Equity

22

A MESSAGE FROM THE MANAGEMENT

We are very pleased to present the annual report of Tsukishima

Kikai Co., Ltd. for fiscal 2003 (April 1, 2003–March 31, 2004).

During the year under review, the Japanese economy finally

began to show signs of recovery and emergence from a deep

slump. Private-sector capital investment turned upward thanks

to rising exports and improving corporate profits. However,

personal consumption was slow to recover, reflecting worsening

deflation and severe employment conditions. Public investment

continued to weaken, affected by the persistently stagnant fiscal

situations of the central and local governments. Thus, the business

environment remains unpredictable on the whole.

Under these circumstances, and with the aim of further

increasing profitability and strengthening competitiveness, the

Tsukishima Kikai Group (Tsukishima Kikai Co., Ltd. and its

consolidated subsidiaries) continued to develop new

technologies and markets while promoting group-wide efforts

to win orders and cut costs.

Sales and Income

Consolidated net sales for fiscal 2003 were down slightly from

the prior term year, dropping 5.4% to ¥69,193 million,

reflecting a smaller order backlog from the previous year. Major

sales items included blast furnace slag granulation system

delivered to Nippon Steel Corporation and Bisphenol-A (BPA)

production facilities exported to Taiwan.

On the income front, operating income surged by 47.5%

year on year to ¥4,258 million, due to group-wide cost-cutting

efforts, among other factors. Unlike the preceding year,

valuation losses on investments in securities did not

significantly impact net income, which reached ¥2,442 million

in fiscal 2003, a notable increase of 179.6%.

Orders

Orders received during the year under review inched up 1.5%

from the previous year to ¥69,724 million. Major products

ordered included lactic acid production facilities for Toyota

Motor Corporation and dryers for purified terephthalic acid

(PTA) production plants for export to India and China.

Capital Investment

Capital investment totaled ¥1,676 million, a sharp rise of 51.8%

from the previous year. The increase reflects the expansion of

production facilities at the Ichikawa Factory, including

electronic beam welders.

Research and Development

Investment in research and development amounted to ¥1,523

million, a year-on-year decline of 6.3%. The entire group is

engaged in R&D activities under the leadership of Tsukishima

Kikai's R&D division. The following are the principle areas of

current focus:

(1) In the field of waterworks and sewage, establishment of new

water purification processes using membranes and

technology for producing highly refined biogases and the

effective utilization of these gases, development of new

types of dryers, and commercialization of a solids separation

system for sewage water;

(2) In the field of waste treatment and recycling, development

of biomass power generation technology, establishment of

complex-waste incineration and melting processes, and

commercialization of technology for utilizing heat from

industrial wastes;

(3) In the biorefinery field, commercialization of technology for

producing ethanol from lignocellulosic biomass and

research and development of refining processes using

enzymes to produce commercially useful biochemicals such

as lactic acid;

(4) In the field of foods and pharmaceuticals, development of

equipment conforming to Hazard Analysis and Critical

33

Control Point (HACCP) and Good Manufacturing Practice

(GMP) standards and development of large-size centrifuges

and continuous crystallizers for sugar refineries and raw

sugar mills;

(5) As a new business, development of ultra-fine particle

production technology and commercialization of ultra-thin

membrane forming equipment based on high vacuum

technology.

Outlook for Future and Management Priorities

Led by improving corporate profitability and increasing capital

investment in the private sector, the Japanese economy in the

periods ahead can be expected to follow the recovery and

sustained upward growth trend seen in the world economy and

international markets. However, given lingering uncertainties,

including an ongoing mild deflationary trend, exchange-rate

fluctuations, and lackluster public investment, it is likely that

companies will continue to face a difficult environment.

For our part, we previously established our medium-term

management plan, “New Frontier 100,” for the three-year

period that began in fiscal 2003. In fiscal 2005, the final year of

the plan, we will celebrate the centennial of our foundation. The

plan aims to build a robust income structure based on advanced

technology as a foundation for success in our second century.

To achieve this aim, we will focus our management resources

on developing new markets and technologies and investing in

information technology. At the same time, group-wide efforts

will be made to further reduce costs and improve the quality of

technology. In this way, we intend to strengthen our corporate

infrastructure through operational reforms and other measures.

With these goals, accomplishments, and objectives in mind,

we sincerely hope that our shareholders, investors, and

customers will continue to give us their support and

cooperation in the years ahead.

Ultra-high-vacuum Multi-sputtering Device

It provides a special clean environment to depositthe nano-scale layer, achieved by an aluminumalloy chamber and a special metal gasket

Biomass-to-Ethanol Technology (BCI)

A new commercial technology to produce fuelethanol from organic lignocellulosic biomass at lowcost using genetic recombinants—a future clean-energy substitute for petrochemicals

Advanced Screw Press(Eccentric Rotating Screen Type)

An innovative dewatering machine for sludgetreatment developed under a concept featuring highefficiency, easy maintenance and energy savings

Ryuji TaharaPresident and Chief Executive Officer, Representative Director

4

BOARD OF DIRECTORS

President & CEO,Representative Director

Ryuji Tahara

Senior Managing Directors,Representative Directors

Kazuhiko Yamada

Toshio Tanei

Managing Director

Tokugoro Tanii

Directors

Katsunori Nishida

Katsumi Ishiyama

Koji Sakashita

Corporate Auditors

Hiroomi Sadachi

Tatsuro Ikeda

Seishi Yumimoto

Kazuto Nakamaru

Kazuhiko YamadaSenior Managing Director,Representative Director

Ryuji TaharaPresident & CEO,Representative Director

Toshio TaneiSenior Managing Director,Representative Director

Tokugoro TaniiManaging Director

Katsunori NishidaDirector

Koji SakashitaDirector

Katsumi IshiyamaDirector

FINANCIAL SECTION

5



2004 2003 2002 2001 2000 2004

For the year:

Net sales.......................................................

Operating income........................................

Income before income taxes .......................

Net income ..................................................

At year-end:

Total assets ..................................................

Shareholders’ equity ....................................

Yen U.S. dollars

Per Share:

Net income ..................................................

Cash dividends ............................................

Number of shares outstanding

(in thousands)................................................

Note: U.S. dollar amounts are translated from yen at the rate of ¥105.64 to US$1, solely for the convenience of the reader.

¥81,475

3,543

2,582

1,397

99,284

40,452

¥30.61

15.00

45,626

¥73,119

2,887

1,737

873

85,291

39,831

¥17.63

15.00

45,626

¥69,193

4,258

4,034

2,442

91,022

45,421

¥52.07

15.00

45,626

$654,989

40,307

38,186

23,116

861,624

429,960

$0.49

0.14

¥76,638

5,807

4,701

2,155

101,622

39,326

¥47.24

15.00

45,626

■ Net Income per Share ■ Return on Equity ■ Equity per Share

0

20

10

40

30

50

60

’03 ’04’02’01’00 ’03 ’04’02’01’00 ’03 ’04’02’01’00

0

6

4

2

8

45.17

(Yen) (%)

600

700

800

900

1,100

1,000

5.6

3.5

2.2

5.75.6

831.20

861.91

886.68

872.15

995.02

30.61

17.63

52.07

(Yen)

47.24

¥78,947

5,644

4,303

2,060

99,512

37,924

¥45.17

15.00

45,626

Five-Year Summary (Consolidated)TSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesYears ended March 31

ASSETS

6



2004 2003 2004

Current assets:

Cash and time deposits................................................................................

Marketable securities (Notes 2, 6)...............................................................

Notes and accounts receivable.....................................................................

Allowance for doubtful accounts (Note 2) ..................................................

Inventories (Notes 2, 5)...............................................................................

Deferred income taxes (Note 10) ................................................................

Other current assets.....................................................................................

Total current assets ................................................................................

Property, plant and equipment (Notes 2, 7):

Land ............................................................................................................

Buildings and structures ..............................................................................

Machinery and equipment...........................................................................

Construction in progress .............................................................................

Less: accumulated depreciation...................................................................

Net property, plant and equipment ........................................................

Investments and other assets:

Investments in securities (Notes 2, 6, 7) .....................................................

Long-term loans (Note 7) ............................................................................


Other assets..................................................................................................

Less: allowance for doubtful accounts (Note 2) ..........................................

Total investments and other assets .........................................................

Total assets ......................................................................................

See Notes to Consolidated Financial Statements.

Consolidated Balance SheetsTSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesMarch 31, 2004 and 2003

¥22,573

400

26,600

(69)

6,910

1,317

533

58,264

6,329

8,721

15,260

671

30,981

(15,880)

15,101

15,895

579

—

1,318

(135)

17,657

¥91,022

¥22,482

1,307

24,802

(39)

7,828

1,318

476

58,174

6,451

8,911

14,452

428

30,242

(15,428)

14,814

9,069

287

1,411

1,671

(135)

12,303

¥85,291

$213,679

3,786

251,799

(653)

65,411

12,467

5,044

551,533

59,911

82,554

144,453

6,352

293,270

(150,322)

142,948

150,464

5,481

—

12,476

(1,278)

167,143

$861,624

LIABILITIES AND SHAREHOLDERS’ EQUITY

7



2004 2003 2004

Current liabilities:

Notes and accounts payable

Trade .......................................................................................................

Other .......................................................................................................

Short-term bank loans (Note 7) ..................................................................

Current portion of long-term bank loans (Note 7) .....................................

Accrued income taxes (Note 10) .................................................................

Accrued expenses ........................................................................................

Accrued warranty (Note 2)..........................................................................

Advances received........................................................................................

Other current liabilities ...............................................................................

Total current liabilities .......................................................................

Long-term liabilities:

Long-term bank loans (Note 7) ...................................................................


Provision for post-employment benefits (Notes 2, 8) .................................

Reserve for retirement payments to officers (Note 2) ................................

Other............................................................................................................

Total long-term liabilities

Minority interests ......................................................................................

Contingent liability (Note 11)

Shareholders’ equity:

Common stock,

Authorized: 60 million shares

Issued: 45,625,800 shares — 2004 & 2003 ............................................

Additional paid-in capital ............................................................................

Retained earnings ........................................................................................

Net unrealized gains (losses) on available-for-sale securities......................

Treasury stock .............................................................................................

Total shareholders’ equity

Total liabilities and shareholders’ equity ................................


¥19,538

2,635

1,745

359

1,605

1,643

737

5,551

1,542

35,355

2,816

1,170

5,797

240

89

10,112

134

6,647

5,486

29,666

3,650

(28)

45,421

¥91,022

¥19,411

3,096

2,900

409

427

1,873

814

6,433

606

35,969

3,175

—

5,713

320

140

9,348

143

6,647

5,486

27,977

(258)

(21)

39,831

¥85,291

$184,949

24,943

16,518

3,398

15,193

15,553

6,977

52,546

14,597

334,674

26,657

11,075

54,875

2,272

843

95,722

1,268

62,921

51,931

280,822

34,551

(265)

429,960

$861,624

8

Consolidated Statements of IncomeTSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesYears ended March 31, 2004 and 2003



2004 2003 2004

Net sales (Note 16) ...................................................................................

Cost of sales ..............................................................................................

Gross profit ........................................................................................

Selling, general and administrative expenses .........................................

Operating income

Other income (expenses):

Interest and dividend income .................................................................

Interest expenses.....................................................................................

Gain on sales of investments in securities ..............................................

Gain on sales of property, plant and equipment.....................................

Loss on disposal of property, plant and equipment................................

Write-down of investments in securities ................................................

Loss on sales of investments in securities ...............................................

Retirement benefits for employees transferred to subsidiaries (Note 13)...

Loss on liquidation of non-consolidated subsidiary ...............................

Other, net (Note 12) ...............................................................................

Income before income taxes

Income taxes (Notes 2, 10):

Current....................................................................................................

Deferred...................................................................................................

Total income taxes

Minority interests ....................................................................................

Net income ........................................................................................

Yen U.S. dollars

Per share

Net income..............................................................................................

Cash dividends........................................................................................


¥69,193

53,590

15,603

11,345

4,258

114

(116)

—

183

(57)

—

(19)

(118)

(145)

(66)

(224)

4,034

1,674

(94)

1,580

(12)

¥2,442

¥52.07

15.00

¥73,119

58,700

14,419

11,532

2,887

119

(140)

143

—

(13)

(718)

(153)

(309)

—

(79)

(1,150)

1,737

454

407

861

(3)

¥ 873

¥ 17.63

15.00

$654,989

507,289

147,700

107,393

40,307

1,079

(1,098)

—

1,732

(540)

—

(180)

(1,117)

(1,373)

(624)

(2,121)

38,186

15,846

(890)

14,956

(114)

$23,116

$0.49

0.14

9

Consolidated Statements of Shareholders’ EquityTSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesYears ended March 31, 2004 and 2003

Thousands Millions of yen

Number of Additional Net unrealized gainsshares of common Common paid-in Retained on available-for-sale Treasury

stock issued stock capital earnings securities stock

Balance as of March 31, 2002 ............................. 45,626 ¥6,647 ¥5,486 ¥27,833 ¥ 489 ¥ (3)

Cash dividends........................................................ — — (684) — —

Bonuses to officers .................................................. — — (45) — —

Net income for the year ended March 31, 2003 ..... — — 873 — —

Change of unrealized gains

on available-for-sale securities ............................. — — — (747) —

Treasury stock......................................................... — — — — (18)

Balance as of March 31, 2003.............................. 45,626 ¥6,647 ¥5,486 ¥27,977 ¥ (258) ¥(21)

Cash dividends........................................................ — — (684) — —


Net income for the year ended March 31, 2004 ..... — — 2,442 — —


on available-for-sale securities ............................. — — — 3,908 —

Treasury stock......................................................... — — — — (7)

Balance as of March 31, 2004.............................. 45,626 ¥6,647 ¥5,486 ¥29,666 ¥3,650 ¥(28)

Thousands Thousands of U.S. dollars (Note 1)

Number of Additional Net unrealized gainsshares of common Common paid-in Retained on available-for-sale Treasury

stock issued stock capital earnings securities stock

Balance as of March 31, 2003 ............................. 45,626 $62,921 $51,931 $264,833 $ (2,442) $(199)

Cash dividends........................................................ — — (6,474) — —


Net income for the year ended March 31, 2004 ..... — — 23,116 — —


on available-for-sale securities ............................. — — — 36,993 —

Treasury stock......................................................... — — — — (66)

Balance as of March 31, 2004.............................. 45,626 $62,921 $51,931 $280,822 $34,551 $(265)


10

Consolidated Statements of Cash FlowsTSUKISHIMA KIKAI CO., LTD. and its consolidated subsidiariesYears ended March 31, 2004 and 2003



2004 2003 2004

Cash flows from operating activities (Note 3):

Cash receipts from customers .....................................................................

Cash paid to suppliers and employees.........................................................

Interest and dividend income ......................................................................

Interest paid .................................................................................................

Income taxes paid ........................................................................................

Other............................................................................................................

Net cash used in operating activities

Cash flows from investing activities:

Purchase of marketable securities................................................................

Proceeds from sales of marketable securities...............................................

Purchase of property, plant and equipment ................................................

Purchase of investments in securities ..........................................................

Proceeds from sales of investments in securities.........................................

Collection of loans receivable......................................................................

Other............................................................................................................

Net cash used in investing activities

Cash flows from financing activities:

Decrease in short-term bank loans .............................................................

Proceeds from long-term bank loans...........................................................

Repayment of long-term bank loans............................................................

Additions of treasury stock..........................................................................

Dividends paid .............................................................................................

Net cash used in financing activities ..................................................

Net decrease in cash and cash equivalents ............................................

Cash and cash equivalents at beginning of period (Note 2)..................

Cash and cash equivalents at end of period (Notes 2, 4) ......................


¥ —

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

¥ —

¥ 71,986

(70,308)

136

(151)

(1,947)

170

(114)

(1,509)

3,839

(1,416)

(3,433)

1,460

94

202

(763)

(1,262)

500

(409)

(18)

(685)

(1,874)

(2,751)

25,233

¥ 22,482

$ —

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

$ —

11



2004 2003 2004


Income before income taxes and minority interests....................................Adjustments for:

Depreciation and amortization ...............................................................Amortization of goodwill arising from consolidation.............................Increase in provision for post-employment benefits...............................Decrease in accrued bonus......................................................................Decrease in reserve for retirement payments to officers .........................Interest and dividend income .................................................................Interest expenses.....................................................................................Gain on sales of property, plant and equipment.....................................Loss on disposal of property, plant and equipment................................Loss on sales of investments in securities ...............................................Loss on liquidation of non-consolidated subsidiary ...............................Increase in notes and accounts receivable ..............................................Decrease in advances received ................................................................Decrease in inventories ...........................................................................Increase in notes and accounts payable, trade ........................................Bonuses to officers ..................................................................................Other .......................................................................................................

Subtotal...............................................................................................Interest and dividend income received........................................................Interest expenses paid..................................................................................Income taxes paid ........................................................................................

Net cash provided by operating activities ..........................................


Proceeds from sales of marketable securities...............................................Purchase of property, plant and equipment ................................................Proceeds from sales of property, plant and equipment ...............................Purchase of investments in securities ..........................................................Proceeds from sales of investments in securities.........................................Payments for loans receivable......................................................................Collection of loans receivable......................................................................Other............................................................................................................

Net cash used in investing activities...................................................


Decrease in short-term bank loans ..............................................................Repayment of long-term bank loans............................................................Additions of treasury stock..........................................................................Dividends paid .............................................................................................


Net decrease in cash and cash equivalents ............................................Cash and cash equivalents at beginning of period (Notes 2, 4)............



¥ 4,034

1,364

(8)

85

(227)

(80)

(114)

116

(183)

57

19

145

(1,798)

(882)

918

120

(70)

481

3,977

123

(113)

(495)

3,492

1,305

(1,768)

374

(577)

35

(383)

25

(311)

(1,300)

(1,155)

(409)

(7)

(685)

(2,256)

(64)

22,482

¥22,418

¥ —

—————————————————

————

—

————————

—

————

—

——

¥ —

$ 38,186

12,912

(76)

805

(2,149)

(757)

(1,079)

1,098

(1,732)

540

180

1,373

(17,020)

(8,349)

8,690

1,136

(663)

4,552

37,647

1,164

(1,070)

(4,685)

33,056

12,353

(16,736)

3,540

(5,462)

331

(3,626)

237

(2,943)

(12,306)

(10,933)

(3,872)

(66)

(6,485)

(21,356)

(606)

212,817

$212,211

12

The accompanying consolidated financial statements have been prepared from the financialstatements filed with the Financial Services Agency as required by the Japanese Securities andExchange Law in accordance with accounting principles and practices generally accepted inJapan, which are different from the accounting and disclosure requirements of InternationalAccounting Standards.

Certain reclassifications have been made to present the accompanying consolidated financialstatements in a format which is familiar to readers outside Japan.

For the convenience of the reader, the accompanying consolidated financial statements havebeen presented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of¥105.64 to $1, the approximate rate of exchange at March 31, 2004. These translations should notbe construed as representations that the Japanese yen amounts could be converted into U.S. dollaramounts at the above rate or at any other rate.

Notes to Consolidated Financial Statements

1. Basis of PresentingConsolidated FinancialStatements

(a) The accompanying consolidated financial statements include the accounts of the Companyand its subsidiaries. Significant intercompany accounts and transactions have been eliminatedin consolidation.

The investments in unconsolidated subsidiaries are stated at cost and the equity method is notapplied for the valuation of such investments since they are considered immaterial in the aggregate.

The four major subsidiaries that have been consolidated with the Company are listed below:

• Tsukishima Technology Maintenance Service Co., Ltd.• Tsukishima Techno Machinery Co., Ltd.• Asano Laboratories Co., Ltd.• Sun Eco Thermal Co., Ltd. (Former name is Kanuma Kankyo Bika Center Co., Ltd.)

(b) Marketable Securities and Investments in Securities.All of the Group’s securities are classified as follows: i) Held-to-maturity debt securities, whichmanagement has the positive intent and ability to hold to maturity, are reported at amortized cost.ii) Available-for-sale securities are reported at fair value, with unrealized gains and losses, net ofapplicable taxes, reported in a separate component of shareholders’ equity. The cost of securitiessold is determined based on the moving-average method.

Non-marketable available-for-sale securities are stated at cost, determined by the moving-average method.

(c) Inventories(1) Raw materials are stated at cost which is determined by the periodic average method.(2) Supplies are stated at cost which is determined by the moving average method.(3) Work in process is stated at cost which is determined by the specific cost method.

(d) Property, Plant and EquipmentProperty, plant and equipment are carried at cost. Depreciation is computed by the decliningbalance method over the estimated useful lives of the assets, except for buildings placed inservice after April 1, 1998, for which depreciation is computed on the straight-line method. Therange of useful lives is from 3 to 60 years for buildings and structures and from 2 to 13 years formachinery and equipment.

(e) Allowance for Doubtful AccountsThe allowance for doubtful accounts is provided for in an amount sufficient to cover possiblelosses on collection. It consists of the estimated uncollectible amount with respect toidentified doubtful receivables and an amount calculated on the historical loss experience withrespect to remaining receivables.

(f) Accrued WarrantyThe accrued warranty is provided for based on the amounts to be determined as a certainpercentage (which is distinguished between domestic and overseas construction) of the amountof completed construct contracts for the year, which is computed as a ratio of the actual repaircosts incurred under the warranty against the amounts of completed construction contractsduring the past years. In addition, the estimated repair costs for identified individualconstruction are provided.

2. Summary ofSignificant AccountingPolicies

13

(g) Provision for Post-employment BenefitsEmployees who terminate their services with the Company and its consolidated subsidiaries aregenerally entitled to lump-sum severance payments based on their current basic rates of pay andlength of service. In addition, the Company has the tax-qualified pension plans with insurancecompanies and trust banks.

The provision for post-employment benefits recorded in the balance sheets less the pension planassets was sufficient to satisfy the projected benefit obligation for employee’s services up to thebalance sheet date.

(h) Reserve for Retirement Payments to OfficersThe Company and major consolidated subsidiaries have provided for reserve for retirementpayments to officers under the retirement benefits plan which are calculated by the estimatedamount to be paid if all officers retired at the balance sheet date.

With respect to officers’ resignations, the retirement payments calculated under theretirement benefits plan are normally paid subject to approval of the shareholders. Theretirement payments to officers should be provided for when such costs can be reasonablyestimated.

(i) Income TaxesThe Company and its consolidated subsidiaries have adopted the asset-liability method of tax effectaccounting to recognize the effect of all temporary differences in the recognition of the tax basisassets and liabilities and their financial reporting amounts.

(j) Translation of Foreign CurrenciesForeign currency receivables and payables are translated at the appropriate year-end current rate.

Revenue and expense accounts are translated at the rates closely approximate to thoseprevailing on the transaction dates.

Exchange gains and losses arising from the above foreign currency translations and transactionsare included in other income or expenses.

(k) Research and Development CostsResearch and development costs are charged to income as incurred.

(l) Recognition of Contract RevenueSales of construction regarding contracts both with an amount of over ¥1.5 billion and a period ofover one year are recognized by the percentage of completion method. Other sales are recognizedby the completed contract method.

(m) Cash EquivalentsFor the purpose of the consolidated statements of cash flows, cash and cash equivalentsinclude highly liquid investments which can be withdrawn without any restriction and withminimum market risk.

(n) Derivative Financial InstrumentsDerivative financial instruments utilized by the Company are comprised principally of foreignexchange contracts used to hedge currency risk. The carrying amount of derivative financialinstruments, consisting principally of foreign exchange contracts, all of which are used for hedgepurposes, are estimated by obtaining quotes from brokers.

Effective from this year, the Company and its consolidated subsidiaries have changed theiraccounting policy with respect to preparation of consolidated statements of cash flows from thedirect method to the indirect method.

This change was made for the purpose of preparing them more quickly, reviewing results ofcash control activities more clearly and comparing them with those of other companies.

This change has no effect on cash flows from each activity.

3. Change inAccounting Policy

14

Inventories as of March 31, 2004 and 2003 consisted of the following:

Thousands ofMillions of yen U.S. dollars

2004 2003 2004Work in process .............................................................Raw materials and supplies ............................................

5. Inventories

(a) Marketable securities and investments in securities as of March 31, 2004 and 2003 consisted ofthe following:


2004 2003 2004Current:

Government and corporate bonds ............................

Non-current:Equity securities ........................................................Government and corporate bonds ............................Investment trusts.......................................................

(b) The carrying amounts and aggregate fair values of marketable and investment securities atMarch 31, 2004 and 2003 were as follows:

Millions of yen

2004Unrealized Unrealized

Cost gains losses Fair value

Securities classified as:Available-for-sale:

Equity securities.................................................. ¥6,148 ¥6,184 ¥(32) ¥12,300Others.................................................................. 10 — (2) 8

¥6,158 ¥6,184 ¥(34) ¥12,308

Held-to-maturity securities...................................... ¥3,812 ¥ 20 ¥ (3) ¥ 3,829

6. Marketable Securitiesand Investments inSecurities

¥6,693217

¥6,910

¥7,608220

¥7,828

$63,3572,054

$65,411

Cash and cash equivalents as of March 31, 2004 and 2003 consisted of the following:


2004 2003 2004Cash and time deposits ..................................................Less: time deposits that mature or become due overthree months after the date of acquisition ...................

Cash and cash equivalents .............................................

4. Cash and CashEquivalents

¥22,573

(155)

¥22,418

¥22,482

(—)

¥22,482

$213,679

(1,468)

$212,211

¥ 400

¥ 400

¥12,4713,417

7

¥15,895

¥1,307

¥1,307

¥5,2413,823

5

¥9,069

$ 3,786

$ 3,786

$118,05232,346

66

$150,464

15

Millions of yen




Equity securities.................................................. ¥5,081 ¥754 ¥(1,182) ¥4,653Others.................................................................. 10 — (5) 5

¥5,091 ¥754 ¥(1,187) ¥4,658

Held-to-maturity securities...................................... ¥4,325 ¥ 32 ¥ (10) ¥4,347

Thousands of U.S. dollars




Equity securities.................................................. $58,197 $58,538 $(302) $116,433Others.................................................................. 95 — (19) 76

$58,292 $58,538 $(321) $116,509

Held-to-maturity securities...................................... $36,085 $ 189 $ (28) $ 36,246

(c) Available-for-sale securities and held-to-maturity securities whose fair values were not readilydeterminable as of March 31, 2004 and 2003 were as follows:

Carrying AmountThousands of

Millions of yen U.S. dollars

2004 2003 2004Available-for-sale:

Equity securities ........................................................

Held-to-maturity securities ............................................

Short-term bank loans are represented by 12-month notes, and the weighted average interest rateapplicable to such loans as of March 31, 2004 and 2003 were approximately 0.9 percent and 1.1percent respectively.

Long-term bank loans as of March 31, 2004 and 2003 consisted of the following:Thousands of


2004 2003 2004Loans, from banks, due 2011.........................................Less: portion due within one year..................................

7. Short-term BankLoans and Long-termBank Loans

¥64

¥64

¥ 5

¥439

¥439

¥805

$606

$606

$ 47

¥3,175(359)

¥2,816

¥3,584(409)

¥3,175

$30,055(3,398)

$26,657

16

The following assets were pledged as collateral for the above short-term bank loans:


2004 2003 2004Property, plant and equipment (Net book value)Land................................................................................Buildings and structures.................................................Investments in securities................................................Long-term loans .............................................................

Interest rates of long-term bank loans as of March 31, 2004 and 2003 were between 0.65 percentand 3.15 percent for both years.

The aggregate annual maturities of long-term bank loans outstanding as of March 31, 2004 wereas follows:

The aggregate annual maturitiesof long-term bank loans payable

Thousands ofYears ending March 31 Millions of yen U.S. dollars

2005 ................................................................................ ¥ 359 $ 3,3982006 ................................................................................ 342 3,2372007 and thereafter ........................................................ 2,474 23,420

Employees who terminate their service with the Company and its consolidated subsidiaries aregenerally entitled to lump-sum severance payments. In addition, the Company has tax-qualifiedpension plans.

Provision for post-employment benefit obligations as of March 31, 2004 and 2003 consisted ofthe following:


2004 2003 2004a. Post-employment benefit obligations .......................b. Pension assets............................................................c. Net-total (a+b)...........................................................d. Unrecognized actuarial differences...........................e. Unrecognized past service obligations......................f. Net-total (c+d+e).......................................................g. Prepaid pension expenses .........................................h. Provisions for post-employment benefits (f-g).........

Post-employment benefit expenses for the year ended March 31, 2004 and 2003 consisted ofthe following:


2004 2003 2004a. Service costs ..............................................................b. Interest costs .............................................................c. Expected return ........................................................d. Amortization of unrecognized actuarial differences e. Amortization of unrecognized past

service obligations ...................................................f. Post-employment benefit expenses total ..................

8. Provision for Post-employmentBenefits

¥(8,503)1,631

(6,872)1,075

—(5,797)

—(5,797)

¥(9,247)2,141

(7,106)1,394

—(5,713)

—(5,713)

$(80,490)15,439

(65,051)10,176

—(54,875)

—(54,875)

¥573220(32)222

—983

¥509276(51)125

—859

$5,4242,083(303)

2,101

—9,305

¥ 994862575

¥685

¥ 99524

——

¥623

$ 9374,600

237710

$6,484

17

Research and development costs charged to income for the years ended March 31, 2004 and 2003amounted to ¥1,523 million ($14,417 thousand) and ¥1,625 million respectively.

Basic measurement of post-employment benefit obligations and other items

2004 2003a. Allocation method for projected post-employment benefits ... Straight-line method Straight-line methodb. Discount rate ................................................................. 2.5% 2.5%c. Expected rate of return ................................................. 1.5% 1.5%d. Year over which the actuarial differences obligations

are allocated ................................................................ 7 years 7 years

9. Research andDevelopment Costs

Income taxes applicable to the Company and its consolidated subsidiaries consist of corporateincome tax, enterprise taxes and corporate inhabitants’ taxes.

The effective income tax rates of the Company and its consolidated subsidiaries differ fromthe statutory tax rate for the following reasons:

2004 2003Statutory tax rate ............................................................

Expenses not deductible for tax purposes ................Non-taxable dividend income...................................Effects from the income tax rate change .................Per capita levy of inhabitant taxes ............................Use of net operating loss carry forwards ..................Other—net ................................................................

Effective tax rate .............................................................

Deferred tax assets and liabilities at March 31, 2004 and 2003 were composed of the following:


2004 2003 2004Deferred tax assets:

Accrued cost of sales .................................................Accrued enterprise taxes ...........................................Accrued warranty ......................................................Provision for post-employment benefits...................Intangible fixed assets ...............................................Unrealized profit .......................................................Accrued bonus to employees ....................................Net operating loss carry forwards .............................Net unrealized losses onavailable-for-sale securities ....................................

Others ........................................................................

Subtotal.................................................................

Less—valuation allowance........................................

Total deferred tax assets............................................

Deferred tax liabilities:Reserve for deferred gains on sales offixed assets for tax purposes ...................................

Net unrealized gains on available-for-sale securities .....................................

Total deferred tax liabilities ......................................

Net deferred tax assets ..............................................

10. Income Taxes

42.0%4.1

(1.1)1.00.7

(8.2)0.7

39.2%

42.0%7.7

(1.0)1.90.7—

(1.7)49.6%

¥ 207134306

2,14515513756569

—425

4,143

(69)

4,074

(1,427)

(2,500)

(3,927)

¥ 147

¥ 17224

3361,972

242157581401

176543

4,604

(440)

4,164

(1,435)

—

(1,435)

¥ 2,729

$ 1,9591,2682,897

20,3051,4671,2975,348

653

—4,024

39,218

(653)

38,565

(13,508)

(23,665)

(37,173)

$ 1,392

18

Other income/(expenses)—other, net consisted of the following items:


As of March 31 2004 2003 2004Depreciation of intangible fixed assets........................Other, net........................................................................

12. Other Income/(Expenses)—Other,Net

Retirement benefits for transferred employees of ¥118 million ($1,117 thousand) representspayments made upon the transfer of employees from the Company to Tsukishima TechnoSolution Co., Ltd. (¥113 million) and others.

13. Retirement Benefitsfor EmployeesTransferred toSubsidiaries

The following appropriations of unappropriated retained earnings were approved at the meeting ofshareholders of the Company held on June 29, 2004.


Cash dividends ............................................................... ¥365 $3,455¥8.0 per share (applicable to the six-month periodended March 31, 2004)

Bonuses to directors and statutory auditors .................. 53 502

14. Subsequent Events

The Company was contingently liable for the following items:


2004 2003 2004Guarantees for indebtedness of non-consolidated

subsidiaries and others..............................................

11. Contingent Liability

¥860 ¥1,095 $8,141

¥(54)(12)

¥(66)

¥(140)61

¥ (79)

$(511)(113)

$(624)

19

Finance leases, except those leases for which the ownership of the leased assets is considered to betransferred to the lessee, are accounted for as operating leases.

The Company and its consolidated subsidiaries lease certain tools, furniture, fixtures, andother assets.

The pro forma information of leased assets under finance leases that do not transfer ownership ofthe leased assets to the lessee on an “as if capitalized” basis for the years ended March 31, 2004 and2003 is as follows:


2004 2003 2004Tools, furniture and fixtures ..........................................Other assets ....................................................................Less: accumulated depreciation .....................................

Obligations under finance leases as of March 31, 2004 and 2003 were as follows:


2004 2003 2004Due within one year .......................................................Due after one year ..........................................................

Total rental expenses for the above leases were ¥130 million ($1,231 thousand) and ¥178 millionfor the years ended March 31, 2004 and 2003, respectively.

The pro forma depreciation expense computed by the straight-line method was ¥130 million($1,231 thousand) and ¥178 million for the years ended March 31, 2004 and 2003, respectively.

The pro forma information above does not exclude the imputed interest portion because theremaining financial lease obligations are not material, compared with the book values ofproperty, plant and equipment.

15. Finance Leases

¥ 671151

(786)

¥ 36

¥ 757152

(705)

¥ 204

$ 6,3521,429

(7,440)

$ 341

¥ 1719

¥ 36

¥14460

¥204

$ 161180

$ 341

(a) Information by Industry SegmentThe Companies are primarily engaged in the following two major industry segments:

Plant: Plants for environmental protection, plants for the production of chemicals, food, sugar, pulp, etc.

Equipment and other: Tanks, gas holders, filters, centrifuges, dryers, repairs, parts, etc.

Year ended March 31, 2004 Millions of yenEquipment

Plant and other Total Eliminations Consolidated

Sales:Customers .............................. ¥37,847 ¥31,346 ¥69,193 ¥ — ¥69,193Inter-segment......................... — — — — —

Total .................................. 37,847 31,346 69,193 — 69,193Operating expenses................ 34,734 30,201 64,935 — 64,935Operating income .................. 3,113 1,145 4,258 — 4,258Total assets............................. 23,795 26,343 50,138 40,884 91,022Depreciation........................... 433 878 1,311 — 1,311Capital expenditures.............. 384 1,292 1,676 — 1,676

16. Segment Information

20

Year ended March 31, 2003 Millions of yenEquipment


Sales:Customers .............................. ¥42,000 ¥31,119 ¥73,119 ¥ — ¥73,119Inter-segment......................... — — — — —

Total .................................. 42,000 31,119 73,119 — 73,119Operating expenses................ 39,460 30,772 70,232 — 70,232Operating income .................. 2,540 347 2,887 — 2,887Total assets............................. 25,435 24,549 49,984 35,307 85,291Depreciation........................... 461 849 1,310 — 1,310Capital expenditures.............. 439 665 1,104 — 1,104

Year ended March 31, 2004 Thousands of U.S. dollarsEquipment


Sales:Customers .............................. $358,264 $296,725 $654,989 $ — $654,989Inter-segment......................... — — — — —

Total .................................. 358,264 296,725 654,989 — 654,989Operating expenses................ 328,796 285,886 614,682 — 614,682Operating income .................. 29,468 10,839 40,307 — 40,307Total assets............................. 225,246 249,366 474,612 387,012 861,624Depreciation........................... 4,099 8,311 12,410 — 12,410Capital expenditures.............. 3,635 12,230 15,865 — 15,865

(b) Overseas SalesOverseas sales by area and percentage of overseas sales over consolidated net sales for the yearsended March 31, 2004 and 2003 were as follows:

Thousands of Millions of yen U.S. dollars Percentage

2004 2003 2004 2004 2003Area:Asia......................................... ¥4,681 ¥3,294 $44,311 6.8% 4.5%Other ...................................... 94 1,635 890 0.1% 2.2%

¥4,775 ¥4,929 $45,201 6.9% 6.7%

Major countries and areas included in each geographic area are as follows:Asia: Thailand, China, IndonesiaOther: Saudi Arabia

21

The Board of Directors Tsukishima Kikai Co., Ltd.

We have audited the accompanying consolidated balance sheets of Tsukishima Kikai Co., Ltd. and consolidated

subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of income, shareholders’

equity, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial

statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on

these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the consolidated financial position of Tsukishima Kikai Co., Ltd. and consolidated subsidiaries as of March 31,

2004 and 2003, and the consolidated results of their operations and their cash flows for the years then ended in

conformity with accounting principles generally accepted in Japan.

As described in Note 3, Tsukishima Kikai Co., Ltd. and consolidated subsidiaries changed their accounting

policy for cash flows from the direct method to the indirect method, effective the year ended March 31, 2004.

The accompanying consolidated financial statements as of and for the year ended March 31,2004 have been

translated into United States dollars solely for the convenience of the reader. We have recomputed the

translation and, in our opinion, the consolidated financial statements expressed in yen have been translated into

United States dollars on the basis set forth in Note 1 of the notes to the consolidated financial statements.

Inoue Auditing Co., Inc.

Tokyo, Japan

June 29, 2004

Report of the Independent Certified Public Accountant

22

ASSETSThousands ofU.S. dollars


2004 2003 2004

Current assets:

Cash and time deposits................................................................................

Marketable securities (Notes 2, 6)...............................................................

Notes and accounts receivable.....................................................................

Allowance for doubtful accounts (Note 2) ..................................................

Inventories (Notes 2, 5)...............................................................................

Deferred income taxes (Note 9) ..................................................................

Other current assets.....................................................................................

Total current assets .................................................................................

Property, plant and equipment (Notes 2, 7):

Land ............................................................................................................

Buildings and structures ..............................................................................

Machinery and equipment...........................................................................

Construction in progress .............................................................................

Less: accumulated depreciation...................................................................

Net property, plant and equipment ........................................................

Investments and other assets:

Investments in securities (Notes 2, 6, 7) .....................................................

Investments and long-term loans to subsidiaries (Note 7) .........................

Deferred income taxes (Note 9) ..................................................................

Other assets..................................................................................................

Less: allowance for doubtful accounts (Note 2) ..........................................

Total investments and other assets .........................................................

Total assets ...........................................................................................

See Notes to Non-Consolidated Financial Statements.

Non-Consolidated Balance SheetsTSUKISHIMA KIKAI CO., LTD. March 31, 2004 and 2003

¥ 18,921

400

23,709

(50)

5,967

984

587

50,518

6,078

7,391

10,904

636

25,009

(12,812)

12,197

15,780

2,388

—

1,323

(135)

19,356

¥ 82,071

¥ 19,143

1,307

22,676

(19)

7,402

1,062

602

52,173

6,200

7,591

10,106

414

24,311

(12,631)

11,680

8,913

2,385

613

1,376

(135)

13,152

¥ 77,005

$ 179,108

3,786

224,432

(473)

56,484

9,315

5,557

478,209

57,535

69,964

103,219

6,020

236,738

(121,280)

115,458

149,375

22,605

—

12,524

(1,278)

183,226

$ 776,893

23

LIABILITIES AND SHAREHOLDERS’ EQUITYThousands ofU.S. dollars


2004 2003 2004

Current liabilities:

Notes and accounts payable

Trade............................................................................................................

Other............................................................................................................

Short-term bank loans (Note 7).......................................................................

Current portion of long-term bank loans (Note 7).........................................

Accrued income taxes (Note 9) .......................................................................

Accrued expenses.............................................................................................

Accrued warranty (Note 2)..............................................................................

Advances received............................................................................................

Other current liabilities....................................................................................

Total current liabilities ...........................................................................

Long-term liabilities:

Long-term bank loans (Note 7) .......................................................................

Deferred income taxes (Note 9) ......................................................................

Provision for post-employment benefits (Note 2) ..........................................

Reserve for retirement payments to officers (Note 2).....................................

Other ................................................................................................................

Total long-term liabilities .......................................................................

Contingent liability (Note 10)

Shareholders’ equity:

Common stock,

Authorized: 60 million shares

Issued: 45,625,800 shares — 2004 & 2003 ...............................................

Additional paid-in capital ................................................................................

Retained earnings.............................................................................................

Net unrealized gains (losses) on available-for-sale securities ........................

Treasury stock..................................................................................................

Total shareholders’ equity ......................................................................

Total liabilities and shareholders’ equity ....................................


¥19,982

2,135

945

16

1,155

925

722

5,343

1,303

32,526

—

2,048

3,790

216

7

6,061

6,647

5,486

27,729

3,650

(28)

43,484

¥82,071

¥20,687

2,737

1,880

67

121

1,040

806

6,398

399

34,135

16

—

3,823

320

7

4,166

6,647

5,486

26,850

(258)

(21)

38,704

¥77,005

$189,152

20,210

8,945

151

10,933

8,756

6,835

50,577

12,336

307,895

—

19,387

35,877

2,045

65

57,374

62,921

51,931

262,486

34,551

(265)

411,624

$776,893

24

Non-Consolidated Statements of IncomeTSUKISHIMA KIKAI CO., LTD. Years ended March 31, 2004 and 2003



2004 2003 2004

Net sales .........................................................................................................

Cost of sales ...................................................................................................

Gross profit .............................................................................................

Selling, general and administrative expenses ............................................

Operating income...................................................................................

Other income (expenses):

Interest and dividend income .....................................................................

Interest expenses .........................................................................................

Gain on sales of investments in securities ..................................................

Gain on sales of property, plant and equipment ........................................

Loss on disposal of property, plant and equipment ...................................

Write-down of investments in securities ....................................................

Loss on sales of investments in securities ..................................................

Retirement benefits for employees transferred to subsidiaries (Note 12)...

Loss on liquidation of subsidiary.................................................................

Other, net (Note 11) ...................................................................................

Income before income taxes...................................................................

Income taxes (Notes 2, 9):

Current ........................................................................................................

Deferred .......................................................................................................

Total income taxes..................................................................................

Net income.............................................................................................

Yen U.S. dollars

Per share

Net income ..................................................................................................

Cash dividends ............................................................................................


¥56,514

44,086

12,428

9,623

2,805

174

(14)

—

179

(55)

—

(19)

(118)

(145)

61

63

2,868

1,182

63

1,245

¥ 1,623

¥ 34.45

15.00

¥62,228

50,396

11,832

9,670

2,162

178

(29)

143

—

(11)

(718)

(153)

(309)

—

200

(699)

1,463

189

466

655

¥ 808

¥ 16.42

15.00

$534,968

417,323

117,645

91,093

26,552

1,647

(133)

—

1,694

(521)

—

(180)

(1,117)

(1,373)

580

597

27,149

11,189

597

11,786

$ 15,363

$ 0.33

0.14

25

Non-Consolidated Statements of Shareholders’ EquityTSUKISHIMA KIKAI CO., LTD. Years ended March 31, 2004 and 2003

Thousands Millions of yen

Number of Additional Net unrealized gainsshares of common Common paid-in Legal Retained on available-for-sale Treasury

stock issued stock capital reserve earnings securities stock

Balance as of March 31, 2002 .......................... 45,626 ¥6,647 ¥5,486 ¥ 1,027 ¥25,734 ¥ 489 ¥ (3)

Cash dividends ..................................................... — — — (684) — —

Transfer to retained earnings................................ — — (1,027) 1,027 — —

Bonuses to officers................................................ — — — (35) — —

Net income for the year ended March 31, 2003... — — — 808 — —

Change of unrealized gains on

available-for-sale securities................................. — — — — (747) —

Treasury stock ...................................................... — — — — — (18)

Balance as of March 31, 2003 .......................... 45,626 ¥6,647 ¥5,486 ¥ — ¥26,850 ¥(258) ¥ (21)

Cash dividends ..................................................... — — — (684) — —


Net income for the year ended March 31, 2004... — — — 1,623 — —


available-for-sale securities................................. — — — — 3,908 —

Treasury stock ...................................................... — — — — — (7)

Balance as of March 31, 2004 .......................... 45,626 ¥6,647 ¥5,486 ¥ — ¥27,729 ¥3,650 ¥ (28)

Thousands Thousands of U.S. dollars (Note 1)

Number of Additional Net unrealized gainsshares of common Common paid-in Legal Retained on available-for-sale Treasury

stock issued stock capital reserve earnings securities stock

Balance as of March 31, 2003 .......................... 45,626 $62,921 $51,931 $ — $254,165 $ (2,442) $(199)

Cash dividends ..................................................... — — — (6,475) — —


Net income for the year ended March 31, 2004... — — — 15,363 — —


available-for-sale securities................................. — — — — 36,993 —

Treasury stock ...................................................... — — — — — (66)

Balance as of March 31, 2004 .......................... 45,626 $62,921 $51,931 $ — $262,486 $34,551 $(265)


26

Non-Consolidated Statements of Cash FlowsTSUKISHIMA KIKAI CO., LTD. Years ended March 31, 2004 and 2003



2004 2003 2004

Cash Flows from operating activities (Note 3):

Cash receipts from customers..........................................................................

Cash paid to suppliers and employees ............................................................

Interest and dividend income ..........................................................................

Interest paid......................................................................................................

Income taxes paid ............................................................................................

Other ................................................................................................................

Net cash used in operating activities......................................................


Purchase of marketable securities....................................................................

Proceeds from sales of marketable securities ..................................................

Purchase of property, plant and equipment ....................................................

Purchase of investments in securities..............................................................

Proceeds from sales of investments in securities.............................................

Collection of loans receivable ..........................................................................

Other ................................................................................................................

Net cash used in investing activities ......................................................


Decrease in short-term bank loans .................................................................

Repayment of long-term bank loans................................................................

Additions of treasury stock..............................................................................

Dividends paid .................................................................................................

Net cash used in financing activities......................................................

Net decrease in cash and cash equivalents .................................................

Cash and cash equivalents at beginning of period (Note 2) .....................

Cash and cash equivalents at end of period (Notes 2, 4)..........................


¥ —

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

¥ —

¥ 61,160

(61,053)

195

(27)

(1,849)

394

(1,180)

(1,509)

3,839

(1,335)

(3,391)

1,449

88

80

(779)

(980)

(67)

(18)

(684)

(1,749)

(3,708)

22,851

¥ 19,143

$ —

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

$ —

27



2004 2003 2004


Income before income taxes ........................................................................Adjustments for:

Depreciation and amortization ...............................................................Decrease in provision for post-employment benefits..............................Decrease in accrued bonus......................................................................Decrease in reserve for retirement payments to officers .........................Interest and dividend income .................................................................Interest expenses.....................................................................................Gain on sales of property, plant and equipment.....................................Loss on disposal of property, plant and equipment................................Loss on sales of investments in securities ...............................................Loss on liquidation of subsidiary ............................................................Increase in notes and accounts receivable ..............................................Decrease in advances received ................................................................Decrease in inventories ...........................................................................Decrease in notes and accounts payable, trade .......................................Bonuses to officers ..................................................................................Other .......................................................................................................

Subtotal...............................................................................................Interest and dividend income received........................................................Interest expenses paid..................................................................................Income taxes paid ........................................................................................

Net cash provided by operating activities ..........................................


Proceeds from sales of marketable securities...............................................Purchase of property, plant and equipment ................................................Proceeds from sales of property, plant and equipment ...............................Purchase of investments in securities ..........................................................Proceeds from sales of investments in securities.........................................Payments for loans receivable......................................................................Collection of loans receivable......................................................................Other............................................................................................................

Net cash used in investing activities...................................................


Decrease in short-term bank loans ..............................................................Repayment of long-term bank loans............................................................Additions of treasury stock..........................................................................Dividends paid .............................................................................................


Net decrease in cash and cash equivalents ............................................Cash and cash equivalents at beginning of period (Notes 2, 4)............



¥ 2,868

967

(33)

(193)

(47)

(174)

14

(179)

55

19

145

(1,033)

(1,055)

1,435

(704)

(60)

391

2,416

183

(12)

(148)

2,439

1,305

(1,617)

369

(571)

35

(375)

23

(182)

(1,013)

(935)

(67)

(7)

(684)

(1,693)

(267)

19,143

¥18,876

¥ —

—————————————————

————

————————

—

————

—

——

¥ —

$ 27,149

9,154

(312)

(1,827)

(445)

(1,647)

133

(1,694)

521

180

1,373

(9,778)

(9,987)

13,584

(6,664)

(567)

3,697

22,870

1,732

(114)

(1,400)

23,088

12,353

(15,307)

3,493

(5,405)

331

(3,550)

218

(1,722)

(9,589)

(8,851)

(634)

(66)

(6,475)

(16,026)

(2,527)

181,209

$178,682

28

The accompanying non-consolidated financial statements have been prepared from the financialstatements filed with the Financial Services Agency as required by the Japanese Securities andExchange Law in accordance with accounting principles and practices generally accepted inJapan, which are different from the accounting and disclosure requirements of InternationalAccounting Standards.

Certain reclassifications have been made to present the accompanying non-consolidatedfinancial statements in a format which is familiar to readers outside Japan.

For the convenience of the reader, the accompanying non-consolidated financial statementshave been presented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of¥105.64 to $1, the approximate rate of exchange at March 31, 2004. These translations should notbe construed as representations that the Japanese yen amounts could be converted into U.S. dollaramounts at the above rate or at any other rate.

Notes to Non-Consolidated Financial Statements

1. Basis of PresentingNon-ConsolidatedFinancial Statements

(a) Marketable Securities and Investments in SecuritiesThe Company’s securities are classified as follows: i) Held-to-maturity debt securities, whichmanagement has the positive intent and ability to hold to maturity, are reported at amortized cost.ii) Equity securities, which were issued by subsidiaries, are stated at moving-average cost. iii)Available-for-sale securities are reported at fair value, with unrealized gains and losses, net ofapplicable taxes, reported in a separate component of shareholders’ equity. The cost of securitiessold is determined based on the moving-average method.

Non-marketable available-for-sale securities are stated at cost, determined by the moving-average method.

(b) Inventories(1) Raw materials are stated at cost which is determined by the periodic average method.(2) Supplies are stated at cost which is determined by the moving average method.(3) Work in process is stated at cost which is determined by the specific cost method.

(c) Property, Plant and EquipmentProperty, plant and equipment are carried at cost. Depreciation is computed by the decliningbalance method over the estimated useful lives of the assets, except for buildings placed in serviceafter April 1, 1998, for which depreciation is computed on the straight-line method. The range ofuseful lives is from 3 to 60 years for buildings and structures and from 2 to 13 years for machineryand equipment.

(d) Allowance for Doubtful AccountsThe allowance for doubtful accounts is provided for in an amount sufficient to cover possiblelosses on collection. It consists of the estimated uncollectible amount with respect to identifieddoubtful receivables and an amount calculated on the historical loss experience with respect toremaining receivables.

(e) Accrued WarrantyThe accrued warranty is provided for based on the amounts to be determined as a certainpercentage (which is distinguished between domestic and overseas construction) of the amountof completed construct contracts for the year, which is computed as a ratio of the actual repaircosts incurred under the warranty against the amounts of completed construction contractsduring the past years. In addition, the estimated repair costs for identified individualconstruction are provided.

(f) Provision for Post-employment BenefitsEmployees who terminate their services with the Company are generally entitled to lump-sumseverance payments based on their current basic rates of pay and length of service. In addition, theCompany has the tax-qualified pension plans with insurance companies and trust banks.

The provision for post-employment benefits recorded in the balance sheets less the pension planassets was sufficient to satisfy the projected benefit obligation for employee’s services up to thebalance sheet date.

2. Summary ofSignificant AccountingPolicies

29

(g) Reserve for Retirement Payments to OfficersThe Company has provided for reserve for retirement payments to officers under the retirementbenefits plan which are calculated by the estimated amount to be paid if all officers retired at thebalance sheet date.

With respect to officers’ resignations, the retirement payments calculated under the retirementbenefits plan are normally paid subject to approval of the shareholders. The retirement paymentsto officers should be provided for when such costs can be reasonably estimated.

(h) Income TaxesThe Company has adopted the asset-liability method of tax effect accounting to recognize the effectof all temporary differences in the recognition of the tax basis assets and liabilities and theirfinancial reporting amounts.

(i) Translation of Foreign CurrenciesForeign currency receivables and payables are translated at appropriate year-end current rate.

Revenue and expense accounts are translated at the rates closely approximate to thoseprevailing on the transaction dates.

Exchange gains and losses arising from above foreign currency translations and transactions areincluded in other income or expenses.

(j) Research and Development CostsResearch and development costs are charged to income as incurred.

(k) Recognition of Contract RevenueSales of construction regarding contracts both with an amount of over ¥1.5 billion and a period ofover one year are recognized by the percentage of completion method. Other sales are recognizedby the completed contract method.

(l) Cash EquivalentsFor the purpose of the non-consolidated statements of cash flows, cash and cash equivalentsinclude highly liquid investments which can be withdrawn without any restriction and withminimum market risk.

(m) Derivative Financial InstrumentsDerivative financial instruments utilized by the Company are comprised principally of foreignexchange contracts used to hedge currency risk. The carrying amount of derivative financialinstruments, consisting principally of foreign exchange contracts, all of which are used for hedgepurposes, are estimated by obtaining quotes from brokers.

Effective from this year, the Company has changed its accounting policy with respect to preparationof non-consolidated statements of cash flows from the direct method to the indirect method.

This change was made for the purpose of preparing them more quickly, reviewing results ofcash control activities more clearly and comparing them with those of other companies.

This change has no effect on cash flows from each activity.

3. Change inAccounting Policy

Cash and cash equivalents as of March 31, 2004 and 2003 consisted of the following:


2004 2003 2004Cash and time deposits ..................................................Less: time deposits that mature or become due overthree months after the date of acquisition ...................

Cash and cash equivalents .............................................

4. Cash and CashEquivalents

¥18,921

(45)

¥18,876

¥19,143

(—)

¥19,143

$179,108

(426)

$178,682

30

Inventories as of March 31, 2004 and 2003 consisted of the following:


2004 2003 2004Work in process .............................................................Raw materials and supplies ............................................

5. Inventories

(a) Marketable securities and investments in securities as of March 31, 2004 and 2003 consistedof the following:


2004 2003 2004Current

Government and corporate bonds ...........................

Non-currentEquity securities .......................................................Government and corporate bonds ...........................Investment trusts.......................................................

(b) The carrying amounts and aggregate fair values of marketable and investment securities atMarch 31, 2004 and 2003 were as follows:

Millions of yen




Equity securities.................................................. ¥6,146 ¥6,184 ¥(31) ¥12,299Others.................................................................. 10 — (2) 8

¥6,156 ¥6,184 ¥(33) ¥12,307

Held-to-maturity securities...................................... ¥3,812 ¥ 20 ¥ (3) ¥ 3,829

Millions of yen




Equity securities.................................................. ¥5,081 ¥754 ¥1,182 ¥4,653Others.................................................................. 10 — 5 5

¥5,091 ¥754 ¥1,187 ¥4,658

Held-to-maturity securities...................................... ¥4,325 ¥ 32 ¥ 10 ¥4,347

6. Marketable Securitiesand Investments inSecurities

¥5,822145

¥5,967

¥7,250152

¥7,402

$55,1121,372

$56,484

¥ 400

¥ 400

¥12,3613,412

7

¥15,780

¥1,307

¥1,307

¥5,2323,818

5

¥9,055

$ 3,786

$ 3,786

$117,01132,298

66

$149,375

31

Thousands of U.S. dollars




Equity securities.................................................. $58,179 $58,538 $(293) $116,424Others.................................................................. 95 — (19) 76

$58,274 $58,538 $(312) $116,500

Held-to-maturity securities...................................... $36,085 $ 189 $ (28) $ 36,246

(c) Available-for-sale securities and held-to-maturity securities whose fair values were not readilydeterminable as of March 31, 2004 and 2003 were as follows:

Carrying AmountThousands of


2004 2003 2004Available-for-sale:

Equity securities ........................................................Investment trusts.......................................................

Held-to-maturity securities ............................................

¥63—

¥63

¥—

¥438—

¥438

¥800

$596—

$596

$ —

The following assets were pledged as collateral for the above short-term bank loans.


2004 2003 2004Property, plant and equipment (Net book value)Land................................................................................Buildings and structures.................................................Investments and long-term loans to subsidiaries .........

Short-term bank loans are represented by 12-month notes, and the weighted average interest ratesapplicable to such loans as of March 31, 2004 and 2003 were approximately 0.9 percent and 1.1percent respectively.

Long-term bank loans as of March 31, 2004 and 2003 consisted of the following:


2004 2003 2004Loans, from banks, due 2005.........................................Less: portion due within one year..................................

7. Short-term BankLoans and Long-termBank Loans

¥ 16(16)

¥ —

¥ 83(67)

¥ 16

$ 151(151)

$ —

¥ 96320100

¥516

¥ 96345

—

¥441

$ 9093,029

947

$4,885

32

Research and development costs charged to income for the years ended March 31, 2004 and 2003amounted to ¥1,505 million ($14,246 thousand) and ¥1,604 million respectively.

8. Research andDevelopment Costs

Income taxes applicable to the Company consist of corporate income tax, enterprise taxes andcorporate inhabitants’ taxes.

The effective income tax rates of the Company differ from the statutory tax rate for the followingreasons (not shown for the year ended March 31, 2004 due to the difference being immaterial):

2004 2003Statutory tax rate ............................................................

Expenses not deductible for tax purposes ................Non-taxable dividend income...................................Other—net ................................................................

Effective tax rate .............................................................

Deferred tax assets and liabilities at March 31, 2004 and 2003 were composed of the following:


2004 2003 2004Deferred tax assets:

Accrued cost of sales .................................................Accrued enterprise taxes ...........................................Accrued warranty ......................................................Provision for post-employment benefits ..................Intangible fixed assets ..............................................Accrued bonus to employees ....................................Net unrealized losses onavailable-for-sale securities ....................................

Others ........................................................................

Total deferred tax assets.......................................

Deferred tax liabilities:Reserve for deferred gains on sales offixed assets for tax purposes ...................................

Net unrealized gains on available-for-sale securities .....................................

Total deferred tax liabilities ......................................

Net deferred tax assets (liabilities)............................

9. Income Taxes

¥ 203106300

1,406155294

—399

2,863

(1,427)

(2,500)

(3,927)

¥(1,064)

¥ 1687

3361,335

242336

175510

3,109

(1,435)

—

(1,435)

¥ 1,674

$ 1,9221,0032,840

13,3091,4672,783

—3,777

27,101

(13,508)

(23,665)

(37,173)

$(10,072)

42.0%7.0

(2.9)(1.3)44.8%

—————

Interest rates of long-term bank loans as of March 31, 2004 and 2003 were 0.65 percent forboth years.

The aggregate annual maturities of long-term bank loans outstanding as of March 31, 2004 wereas follows:

The aggregate annual maturitiesof long-term bank loans payable

Thousands ofYears ending March 31 Millions of yen U.S. dollars

2005 ................................................................................ ¥16 $1512006 ................................................................................ — —2007 and thereafter ........................................................ — —

33

The Company was contingently liable for the following items:


2004 2003 2004Guarantees for indebtedness of subsidiaries

and others..................................................................

10. Contingent Liability

¥4,419 ¥5,316 $41,831

Other income/(expenses)—other, net consisted of the following items:


As of March 31 2004 2003 2004Depreciation of intangible fixed assets........................Other, net........................................................................

11. Other Income/(Expenses)—Other,Net

The following appropriations of unappropriated retained earnings were approved at the meeting ofshareholders of the Company held on June 29, 2004.


Cash dividends ............................................................... ¥365 $3,455¥8.0 per share (applicable to the six-month period ended March 31, 2004)

Bonuses to directors and statutory auditors .................. 53 502

13. Subsequent Events

¥ (42)103

¥ 61

¥(110)310

¥ 200

$ (398)978

$ 580

Retirement benefits for transferred employees of ¥118 million ($1,117 thousand) representspayments made upon the transfer of employees from the Company to Tsukishima TechnoSolution Co., Ltd. (¥113 million) and others.

12. Retirement Benefitsfor EmployeesTransferred toSubsidiaries

34

Finance leases, except those leases for which the ownership of the leased assets is considered to betransferred to the lessee, are accounted for as operating leases.

The company leases certain tools, furniture, fixtures, and other assets.

The pro forma information of leased assets under finance leases that do not transfer ownership ofthe leased assets to the lessee on an “as if capitalized” basis for the years ended March 31, 2004 and2003 is as follows:


2004 2003 2004Tools, furniture and fixtures ..........................................Other assets ....................................................................Less: accumulated depreciation .....................................

Obligations under finance leases as of March 31, 2004 and 2003 were as follows:


2004 2003 2004Due within one year .......................................................Due after one year ..........................................................

Total rental expenses for the above leases were ¥119 million ($1,126 thousand) and ¥153million for the years ended March 31, 2004 and 2003, respectively.

The pro forma depreciation expense computed by the straight-line method was ¥119 million($1,126 thousand) and ¥153 million for the years ended March 31, 2004 and 2003, respectively.

The pro forma information above does not exclude the imputed interest portion because theremaining financial lease obligations are not material, compared with the book values ofproperty, plant and equipment.

14. Finance Leases

¥ 617148

(756)

¥ 9

¥624148

(644)

¥128

$ 5,8401,401

(7,156)

$ 85

¥ 54

¥ 9

¥1199

¥128

$ 4738

$ 85

35

Report of the Independent Certified Public Accountant

The Board of Directors Tsukishima Kikai Co., Ltd.

We have audited the accompanying non-consolidated balance sheets of Tsukishima Kikai Co., Ltd. as of March

31, 2004 and 2003, and the related non-consolidated statements of income, shareholders’ equity, and cash flows

for the years then ended, all expressed in Japanese yen. These non-consolidated financial statements are the

responsibility of the Company’s management. Our responsibility is to express an opinion on these non-

consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those

standards require that we plan and perform the audit to obtain reasonable assurance about whether the

financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the non-consolidated financial statements referred to above present fairly, in all material

respects, the financial position of Tsukishima Kikai Co., Ltd. as of March 31, 2004 and 2003, and the results of

its operations and its cash flows for the years then ended in conformity with accounting principles generally

accepted in Japan.

As described in Note 3, Tsukishima Kikai Co., Ltd. changed its accounting policy for cash flows from the direct

method to the indirect method, effective the year ended March 31, 2004.

The accompanying non-consolidated financial statements as of and for the year ended March 31,2004 have

been translated into United States dollars solely for the convenience of the reader. We have recomputed the

translation and, in our opinion, the non-consolidated financial statements expressed in yen have been translated

into United States dollars on the basis set forth in Note 1 of the notes to the non-consolidated financial statements.

Inoue Auditing Co., Inc.

Tokyo, Japan

June 29, 2004

36

CORPORATE DATA (As of March 31, 2004)

Head Office

17-15, Tsukuda 2-chome, Chuo-ku, Tokyo 104-0051, JapanTEL: (03)5560-6537FAX: (03)3536-0573

Website

http://www.tsk-g.co.jp

Founded

August 1905

Common Stock

Authorized: 60,000,000 sharesIssued: 45,625,800 shares

Paid-in Capital

¥6,647 million

Number of Shareholders

5,904

Number of Employees

745

Stock Listing

Tokyo and Osaka Stock Exchanges

Transfer Agent

UFJ Trust Bank Limited4-3, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan

Sapporo

Aomori

Sendai

Niigata

Saitama

TokyoNagoya

Osaka

WakayamaShikoku

Hiroshima

Fukuoka

Kumamoto

Ichikawa

Yokohama

Okinawa

Hokuriku

37

TSK NETWORK

OVERSEAS

Subsidiaries

Tsukishima Engineering Singapore Pte. Ltd.Tsukishima Engineering Malaysia Sdn. Bhd.TSK Engineering (Thailand) Co., Ltd.TSK Engineering Taiwan Co., Ltd.

Offices

Jakarta Representative OfficeHanoi Representative Office

DOMESTIC

Subsidiaries

*Tsukishima Technology Maintenance Service Co., Ltd.

*Tsukishima Techno Machinery Co., Ltd.*Asano Laboratories Co., Ltd.*Sun Eco Thermal Co., Ltd. (SET)Tsukishima Machinery Sales Co., Ltd.Tsukishima Techno Solution Co., Ltd.TSK Print Co., Ltd.Tsukishima Real Estate Co., Ltd.

Offices

Environment Sales Tokyo Representative Branch

Osaka BranchSapporo BranchSendai BranchYokohama BranchNagoya BranchHiroshima BranchFukuoka BranchNiigata BranchSaitama BranchAomori OfficeKumamoto OfficeHokuriku OfficeShikoku OfficeOkinawa OfficeWakayama Office

Factory and Laboratories

Ichikawa PlantIchikawa R&D CenterEnvironmental Technology

Development Center

*Consolidated subsidiary

TAIWAN

THAILAND

MALAYSIA

SINGAPORE

Hanoi

Jakarta

17-15, Tsukuda 2-chome, Chuo-ku, Tokyo 104-0051, JapanTEL. (03) 5560-6537FAX. (03) 3536-0573http://www.tsk-g.co.jp

Printed in Japan

annual report 2004 - 月島機械株式会社 · ordered included lactic acid production facilities...

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