makino milling machine co., ltd. · 2020. 1. 23. · makino milling machine regards strong...

ANNUAL REPORTYear Ended March 31, 2011

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Millions of yenThousands of

dollars

2007 2008 2009 2010 2011 2011

Net sales ¥137,597 ¥132,739 ¥100,355 ¥57,881 ¥95,164 $1,144,485Net income (loss) 9,995 9,002 (4,835) (10,591) 2,167 26,061Net assets 97,617 98,520 88,704 79,396 79,704 958,556Total assets 170,612 171,652 159,145 165,422 168,280 2,023,812

Yen Dollars

Net income (loss) per share Basic ¥85.35 ¥75.79 ¥ (41.63) ¥ (92.40) ¥19.32 $0.23

Number of employees 3,382 3,773 3,741 3,673 3,834

Note: US dollar amounts have been translated from yen, for convenience only, at the rate of ¥83.15=US$1, the approximate Tokyo foreign exchange market rate as of March 31, 2011.

MESSAGE TO SHAREHOLDERS AND INVESTORS ........................ 1

CORPORATE GOVERNANCE ....................................................... 3

BUSINESS RISKS ......................................................................... 5

FINANCIAL REVIEW .................................................................... 5

CONSOLIDATED BALANCE SHEETS ............................................ 6

CONSOLIDATED STATEMENTS OF INCOME ................................ 8

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME .... 8

Makino Milling Machine Co., Ltd. is a manufacturer of advanced machine tools, founded in May 1937. Its corporate

mission is to contribute to the development of industry in Japan and around the world by quickly discerning and

responding to industrial trends with technological innovation.

Makino’s state-of-the-art machine tools and machining technologies are used in the manufacturing systems of

companies in a wide range of industries. Working with local partners possessing strong technical capabilities, Makino has

built an extensive sales network in the United States, Europe and Asia, capable of responding to changes in global

machine tool demand and structural changes in manufacturing operations.

Major products lines: Machining centers, Numerical control (NC) electrical discharge machines (EDM), Milling machines

and other products

PROFILE

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS ......... 9

CONSOLIDATED STATEMENTS OF CASH FLOWS......................... 10

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ................. 11

REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .... 31

BOARD OF DIRECTORS AND CORPORATE AUDITORS ................. 32

CORPORATE DATA ..................................................................... 32

GLOBAL NETWORK .................................................................... 33

CONTENTS

FIVE-YEAR FINANCIAL SUMMARYMakino Milling Machine Co., Ltd. and Consolidated SubsidiariesYears ended March 31

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(1) Business EnvironmentAs a result of the general buoyancy in capital expenditure on production goods in the global economy during fiscal 2011, orders across the Group showed quick recovery from the beginning of the year. The amount of orders stood at ¥100,069 million, rising by a factor of 1.8 year on year, which is higher than 70% of the peak level achieved in fiscal 2007. Meanwhile, the amount of orders came to ¥54,665 million on a non-consolidated basis, increasing 2.2 times year on year.

A description of orders and results by region follows:AmericasSince the start of the year, there has been an increase in the orders of horizontal machining centers from automotive component manufacturers, which is a clear indication of recovery. The Company presented new products, Horizontal Machining Centers a51nx and a61nx, at the International Manufacturing Technology Show (IMTS) in Chicago in September last year. These products have recorded good sales ever since along with high user evaluation. Furthermore in the fourth quarter, favorable orders for Large Five-axis Machining Centers MAG/A series designed for machining aircraft components, contributed largely to the amount of orders. Cumulative orders at the Group’s United States subsidiary MAKINO INC. has reached 3.2 times the level of last year, recording ¥25,106 million, to reach the peak level achieved in fiscal 2008.EuropeRecovery is gaining pace in the European economies, and the orders have been picking up at the European subsidiary MAKINO Europe GmbH, rising 1.7 times in the latter half of the year compared with the first half. However, the current yen appreciation coupled with euro depreciation means quite tough competition with European machine tool manufacturers.AsiaIn China, capital expenditure remained robust. Due to the diversity of our users across all industries, products have been shipped to destinations in all regions. Orders from automotive component manufacturers in the first quarter and those from electronic component manufacturers in the latter half were the main driving force of our sales during the year.

In India, orders for horizontal machining centers increased by 2.6 times year on year mainly in the automotive, construction machine and farm machine industries.

Orders for electric discharge machines and vertical machining centers developed and manufactured by MAKINO ASIA PTE LTD remained solid. Vertical machining centers have started to be exported to markets in Europe and America. Units of production tripled from the previous fiscal year, and plants in Singapore have been in full production.

JapanOrders in Japan are gradually recovering, but still remained at a low level. From the third quarter, however, automotive part manufacturers started spending on plant and equipment, in which the Group’s subsidiary Makino J Co., Ltd. captured orders for Machining Centers for Mass Production Applications J series. Furthermore in the fourth quarter, we saw an increase in orders for large machining centers from users in the industrial machinery and aircraft manufacturing sectors. Meanwhile, we received some business from the die and mold market, the Group’s mainstay, for high end products with high precision features, including the Precision Machining Center iQ300, capable of sub-micron machining required for applications in LED lighting, mobile phones and medical equipment facing the challenge of miniaturization, and Wire Electric Discharge Machines for Hard Metals UPV-3 and UPV-5 for the press molds in applications such as precision connectors and motor cores.

As a result of the above, the Group posted sales of ¥95,164 million (up 64.4% year-on-year), operating income of ¥2,840 million (compared to the operating loss of ¥10,427 million of fiscal 2010), and net income of ¥2,167 million (compared to the net loss of ¥10,591 million of fiscal 2010) on a consolidated basis.

Consolidated sales proved better than forecast in the interim report, but without growth in profit, largely because of the non-consolidated operating loss (¥267 million). This increase in operating loss is due to the impact from the yen appreciation continuing from the first half, soaring cost of raw materials and uneconomical production activities as a result of having complied with customers’ requests for short deliveries at all costs.

(2) Management PrioritiesThe Company is implementing the following measures to put in place systems capable of swiftly responding to fast-evolving market conditions and to establish a robust corporate structure capable of securing profits even in a tough business environment.

1) We continue to upgrade development capabilities in order to provide high-precision and high-grade machine tools in a timely manner, responding to changing market needs. At the same time, we engage in ongoing research and surveys on various themes in order to develop machine tools attuned to next-generation needs.

2) While cultivating working environments conducive to the creation of high-precision and high-grade products, we are continuously improving production systems, including upgrading of facilities and review of production methods, in order to establish efficient and flexible production systems sensitive to changing market requirements.

TO OUR SHAREHOLDERS AND INVESTORS

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AsiaBusiness in this region is believed to expand as constantly as in the previous fiscal year, since the market is extending from China, India and Indonesia to their neighboring countries.

As the products manufactured by MAKINO ASIA PTE LTD are successfully attracting orders, production capacity shall be increased 40% year on year at all of its plants such as Jurong/Singapore, Kunshan/China and Bangalore/India.JapanOur business in Japan is now on a recovery track, albeit belatedly, where industries using machine tools in some sectors or areas are quickly raising their operation rates.

We are actively marketing our horizontal machining centers such as a51nx and a61nx to a wide range of industries that are primarily manufacturing construction machines, power generators and semiconductor manufacturing equipments. For automotive industries, we are proposing the use of our new product developed by Makino J Co., Ltd., the vertical machining center L2, in the machining of precision small parts such as those used in ABS and steering knuckles.

Meanwhile in the die and mold market, demand is getting stronger for new functions catching up with new technologies developed by users, and precision machines with a level of accuracy beyond conventional products. Our development efforts shall be focused on such needs.

Although orders are expected to increase gradually, uncertainty still persists due to the impact from the appreciating yen and the aftermath of the Great East Japan Earthquake.

Consolidated performance forecasts

(Million yen) Net salesOperating

income Net income

Forecasts for the first six months(1st and 2nd quarter combined)

52,000*1 up 38.4%

2,500 2,000

Forecasts for the full fiscal year

110,000*2 up 15.6%

7,000146.4%

5,500153.8%

*1Compared to the same period of fiscal 2010*2Year-on-year

July 2011

Jiro MakinoPresident

3) We are also promoting overseas production and procurement of parts, taking quality and quantity of parts and materials and delivery lead times into account.

4) We intend to expand our global network of sales & marketing bases and service centers since manufacturers who use machine tools increasingly have production sites dispersed around the world.

(3) Outlook (Fiscal 2012)We believe that fiscal 2012 will yield more favorable results even closer to the peak level in fiscal 2007, primarily thanks to recoveries in the United States, China and India.

The Group’s main domestic plants in Kanagawa and Yamanashi prefectures are located in areas subject to the currently imposed power supply restrictions. We are coping with this constraint by measures including shifts in working hours and installment of power generators, thereby minimizing its impact on our production activities.

A description of orders and results by region follows:AmericasWe believe that our business in the United States will remain robust mainly in the automotive and aircraft industries. As we are focusing on the areas of processing of difficult-to-machine materials (e.g. titanium and Inconel) used in aircraft components, we expect that we will soon be beginning active business talks on Five-axis Machining Centers MAG/T series, in connection with the start of mass production of new passenger aircraft which has been behind schedule. In June there will be an international forum on the theme of difficult-to-machine materials at MAKINO INC. in Mason, Ohio, in which our new products and technologies shall be introduced.EuropeAs capital expenditures are on the rise in main industries of major European economies, we have reason to believe that our business will follow this trend gradually. Nonetheless, competition with European machine tool manufacturers remains severe due to the stronger yen coupled with a weaker euro.

EMO Hannover will be held Germany this September. European machine tool manufacturers have a good reputation for their five-axis machining centers, and Europe is the market with the largest demand for this type of product. As we are scheduled to present a few state-of-the-art five-axis machining centers in this trade show, we will do our best to firm up our reputation in this promising market to further expand our sales.

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1. Corporate governanceBasic corporate governance rationaleMakino Milling Machine regards strong management oversight functions as a vital element in the strengthening of competitiveness, swifter decision-making and greater transparency.

(1) Corporate governance status1) Governing body

Makino Milling Machine is a company with Board of Directors. As of June 23, 2011, the Company’s Board of Directors consists of six directors and at present the Company has no outside directors. The Board of Directors meets once a month and, in addition to carrying out the tasks specified by laws and regulations and by the Articles of Incorporation, makes decisions on important matters and supervises operational duties. Whereas the representative director elected by the Board of Directors engages in execution of operational duties as the representative of the Company, specific operational duties are allocated among non-representative directors and executed by them. The term of office of a director is one year and directors are elected by vote of the annual general meeting of shareholders.Makino Milling Machine is also a company with corporate auditors and with Board of Auditors. As of June 23, 2011, the Company’s Board of Auditors consists of three statutory auditors (one of whom is a full-time corporate auditor), of whom two are external auditors. The statutory auditors attend meetings of the Board of Directors and make remarks, as necessary, in the course of deliberation on the agenda. Also, the Board of Auditors meets periodically and, in addition to items specified by laws and regulations, deliberates and makes decisions on matters necessary for statutory auditors’ activities, and audits directors’ execution of operational duties from an independent standpoint.

2) Internal control systems and risk management systemsAt its meeting held on May 1, 2006, the Company’s Board of Directors passed a resolution concerning ”the development of systems necessary to ensure that the execution of duties by directors complies with laws and regulations and the articles of incorporation, and other systems prescribed by the applicable Ordinance of the Ministry of Justice as systems necessary to ensure the properness of operations of a Stock Company (internal control systems)” provided for in Article 348 Paragraph 4 and in Article 362 Paragraph 5 of the Corporation Law. The Company’s internal control systems and risk management systems are described below.Positioning risk management as the basis of systems

CORPORATE GOVERNANCE

ensuring properness of execution of duties, the Company is putting in place risk management systems not only for the purpose of managing risks that may cause losses to the Company but also for preventing deviation from laws and regulations and the Articles of Incorporation and for ensuring efficient execution of duties. Directors in charge of operations and departmental heads are responsible for management of usual risks. Risks that the directors or the statutory auditors consider material, and moreover, that they consider should be examined by the Board of Directors are examined, judged and dealt with by the Board of Directors.The Company has formulated internal rules, including the Risk Management Rules in which deviation from laws and regulations and the Articles of Incorporation is provided for as a type of risk, Employment Rules and the Security Export Control Program. The Company is endeavoring to ensure compliance with laws and regulations, rules and norms by raising employee awareness through the provision of training for new employees and periodic and non-periodic training. Regarding the recording of operational activities, records are prepared and retained in accordance with the Rules of the Board of Directors in the case of information on execution of duties of directors and in accordance with the Rules for Formal Approvals in the case of decision-making for routine operations. Subsidiaries are required to report to the Company on their execution of duties and risk situations, as necessary, and the Company’s directors or employees are dispatched as directors of subsidiaries to participate in management and be responsible for oversight.Regarding audit by auditors, as well as reporting on important matters at meetings of the Board of Directors, based on the statutory auditors’ requests directors make reports or hold a meeting with statutory auditors, as necessary. Directors and employees are required to report to statutory auditors without delay concerning any eventuality that may cause significant damage or that caused damage to the Company. In the event that statutory auditors request assistants, the Company selects such assistants based on the discussion with statutory auditors about the number of assistants, positions, affiliation, etc., and secures the consent of the Board of Auditors for treatment of such assistants.In addition, with respect to the system specified by a Cabinet Office Ordinance as necessary for ensuring appropriateness of statements on finance and accounting and other information as set forth in Article 24-4-4, Paragraph 1 of the Financial Instruments and Exchange Law, the Company

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(2) Compensation paid to directors and corporate auditorsThe compensation paid to directors and corporate audi-tors of the Company is as follows:

Note: The Company has no outside directors.

On Introduction of Measures against Large-scale purchases of the Company’s Shares (Anti-Takeover Measures) The Company aims to produce reliable products, providing the machine tools and technologies that are most suitable for our customers so that they can manufacture their products efficiently. It is an invaluable asset to the Company to satisfy their demand and to maintain strict confidentiality of them.We believe that we must eliminate large-scale purchases of the shares which will damage this relationship based on trust.The introduction of the Anti-takeover Measures was approved by the shareholders at the Ordinary General Meeting of Shareholders on June 20, 2008 and came into effect.

maintains and manages such system in accordance with the basic framework of internal control as indicated in the” On the Setting of the Standards and Practice Standards for Management Assessment and Audit concerning Internal Control Over Financial Reporting (Council Opinions)” published by the Business Accounting Council.

3) Internal audit and audit by corporate auditorsNecessary audits are performed at the Company on the basis of close cooperation between the corporate auditors, the accounting auditor and relevant staff at the Finance Department, the General Affairs Department and the Internal Audit Office. Internal audit on maintenance and management of internal control over financial reporting is conducted by the Internal Audit Office (consists of three members), which is established as an independent organization and directly reports to the President, in cooperation with relevant departments of the Company and its consolidated subsidiaries. Regarding audits by the accounting auditor, necessary coordination such as scheduling is made internally through discussion between the corporate auditors, the Finance Department, the General Affairs Department and the Internal Audit Office. Corporate auditors and the Finance Department periodically exchange views with the accounting auditor and the necessary coordination is made. In addition, corporate auditors witness the audit process, as deemed necessary, to monitor the accounting auditor’s audit proceedings. Regarding audits by auditors, the statutory auditors gather necessary and sufficient information for conducting audits, including the situation of the Company and situations of its subsidiaries and affiliates, on a routine basis through systematic exchanges of views with directors, managerial personnel, key employees, and the accounting auditor of the Company and its subsidiaries and affiliates. Also, statutory auditors receive reports on the accounting auditor’s audit results, and use such information in conducting stringent audits.

4) Accounting auditsCertified public accountants engaged in the Company’s accounting audits are Mr. Takayuki Nakagawa, and Mr. Naruhito Minami, all of whom are with Gyosei & Co. Assistants engaged in the accounting audits comprise five certified public accountants, three junior accountants and two other persons.

5) Relation with external auditorsThere are no personal, capital or transactional relations between the Company and its two external auditors.

Number of persons Amount of compensa-tion (Millions of yen)Director 9 130Corporate auditor 3 35

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(Assets, Liabilities and Net Assets)Total assets on a consolidated basis at the end of fiscal 2011 increased by ¥2,858 million from the end of fiscal 2010 to ¥168,280 million. This is primarily attributable to a reduction of ¥14,308 million in cash and time deposits, an increase of ¥7,473 million in notes and accounts receivable and an increase of ¥7,578 million in inventories.

Total liabilities increased by ¥2,549 million from the end of fiscal 2010 to ¥88,576 million. This is primarily due to the effect of ¥10,395 million increase in notes and accounts payable, trade, ¥2,864 million decrease in short-term loans and ¥10,000 million decrease in current portion of long-term debt.

Net assets increased by ¥308 million from the end of fiscal 2010 to ¥79,704 million, mainly due to an increase of ¥2,266 million in retained earnings and acquisition of treasury stock of ¥2,005 million.

(Cash Flow)Cash provided by operating activities at the end of fiscal 2011 was ¥3,994 million, principally reflecting an increase of ¥8,110 million in notes and accounts receivable, trade, an increase of ¥8,054 million in inventories and an increase of ¥10,834 million in notes and accounts payable, trade.

Cash provided by investing activities was ¥5,300 million, principally reflecting the effect of ¥8,120 million decrease in time deposits and ¥2,312 million payment for purchases of property, plant and equipment.

Cash used in financing activities was ¥15,365 million. This resulted principally from expenditures of ¥10,000 million for the redemption of bonds, ¥5,264 million for the repayments of long-term loans payable, as well as from an increase of ¥4,750 million in proceeds from long-term loans payable.

As a result of the above, cash and cash equivalents on a consolidated basis at the end of fiscal 2011 decreased by ¥6,186 million from the end of fiscal 2010 to ¥36,604 million.

The table below shows trends in cash-flow indicators.

FINANCIAL REVIEW

The Group operates around the world, and the

operations are influenced by a range of different factors,

the most important of which are as follows:

- Changes in global economic conditions: The sales

of the Company heavily depend on capital expenditures

in the manufacturing industry in Japan, Asia, and

America. Since the investment appetite of companies is

likely to fall more sharply than the general economy,

there is the possibility that orders and sales of producer

goods will decline rapidly if the global economy slows.

- Trends in individual industries: Many of the

Company’s products are used in automotive companies.

Although trends in capital expenditure in the auto sector

are the most stable in the manufacturing industry, they

have a very substantial effect on sales of the Company

because the capital expenditure, which is large, has a

very significant influence on supply and demand in the

market for machine tools. Sales in growth industries,

including IT and digital home appliances, change sharply

every fiscal year because of violent fluctuations in supply

and demand.

- Exchange rate fluctuations: More than half of the

Company’s products are sold overseas. Moreover, we

have developed a range of operations overseas.

Exchange rates consequently have a significant impact on

the sales and income of the Company.

- Changes in the supply-demand of parts and raw

materials: Machine tools contain many parts and raw

materials. If supply of parts and raw materials tightens,

prices may rise, and this in turn could influence income.

If the needed quality, quantity, and delivery dates are not

secured, it could influence production and sales.

- Country risk: The Company has made inroads into

countries that are modernizing their industries. If

unexpected changes occur in the political, economic, or

social circumstances in these countries, or if legal

regulations are established or tightened, it could affect

the sales and income of the Company.

BUSINESS RISKS

68th term 69th term 70th termTerm ended March 2007

Term ended March 2008


Shareholders’ equity ratio (%) 54.9 55.8 55.0

Shareholders’ equity ratio on a market value basis (%) 105.6 48.4 19.0

Ratio of interest-bearing debt to cash flows (%) 1.7 2.5 15.6

Interest coverage ratio (times) 16.2 17.0 4.9

71st term 72nd termTerm ended March 2010


Shareholders’ equity ratio (%) 47.6 47.0

Shareholders’ equity ratio on a market value basis (%) 42.0 46.7

Ratio of interest-bearing debt to cash flows (%) 18.1 10.4

Interest coverage ratio (times) 3.4 4.2

Shareholders’ equity ratio: Shareholders’ equity / Total assetsShareholders’ equity ratio on a market value basis: Market capitalization / Total assetsRatio of interest-bearing debt to cash flows: Interest-bearing debt / Cash flowsInterest coverage ratio: Cash flows / Interest payment

* Each indicator is calculated from consolidated financial data.

* Market capitalization is computed based on the number of shares issued, excluding treasury stock.

* Cash flows mean cash flows from operating activities.* Interest-bearing debt includes all liabilities bearing interest

posted in the consolidated balance sheets.Interest payment is interest paid recorded in the consolidated statements of cash flows.

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dollars

2009 2010 2011 2011

ASSETS

Current assets:

Cash and time deposits (Notes 3 and 14) ¥ 39,235 ¥ 51,022 ¥ 36,714 $ 441,539

Marketable securities (Notes 2.e, 3 and 4) 2,160 2,019 2,021 24,305

Notes and accounts receivable (Notes 2.k, 3 and 5) 24,529 24,153 31,626 380,348

Inventories (Notes 2.f and 6) 34,365 29,655 37,234 447,793

Deferred income taxes (Notes 2.j and 10) 828 791 1,906 22,922

Other current assets 3,414 2,682 3,865 46,482

Allowance for doubtful accounts (Notes 2.h and 3) (1,079) (800) (893) (10,739)

Total current assets 103,454 109,523 112,476 1,352,687

Investments and other assets:

Investment securities (Notes 2.e, 3 and 4) 7,261 10,383 11,790 141,791

Long-term loans receivable 493 671 662 7,961

Deferred income taxes (Notes 2.j and 10) 1,231 990 937 11,268

Other long-term assets 6,956 5,728 5,735 68,971

Allowance for doubtful accounts (Notes 2.h and 3) (266) (566) (603) (7,251)

Total investments and other assets 15,676 17,207 18,523 222,766

Property, plant and equipment (Note 2.g):

Land 9,628 9,856 9,769 117,486

Buildings and structures 49,479 49,499 49,592 596,416

Machinery and equipment 24,006 23,298 23,365 280,998

Lease assets (Note 9) 1,666 2,400 2,584 31,076

Construction in progress 228 461 213 2,561

85,010 85,515 85,526 1,028,574

Accumulated depreciation (44,995) (46,825) (48,245) (580,216)

Total property, plant and equipment 40,014 38,690 37,280 448,346

Total assets ¥ 159,145 ¥ 165,422 ¥ 168,280 $ 2,023,812

The accompanying notes are an integral part of these statements.

CONSOLIDATED BALANCE SHEETSMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries March 31, 2009, 2010 and 2011

US$1=¥83.15

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dollars

2009 2010 2011 2011

LIABILITIES AND NET ASSETSCurrent liabilities:

Notes and accounts payable (Note 3):Trade ¥ 11,063 ¥ 14,278 ¥ 24,673 $ 296,728Other 375 2,051 5,569 66,975

Short-term loans (Notes 3 and 7) 4,752 5,186 2,322 27,925Current portion of long-term debt

(Notes 2.k, 3, 5 and 7) 611 14,677 3,011 36,211Short-term lease obligations (Note 7) 247 624 678 8,153Accrued expenses 4,608 4,129 4,632 55,706Income taxes payable 603 581 1,116 13,421Other current liabilities 1,881 941 1,519 18,268Total current liabilities 24,143 42,471 43,523 523,427

Long-term liabilities:Long-term debt (Notes 2.k, 3, 5 and 7) 39,314 35,146 36,268 436,175Long-term lease obligations (Note 7) 1,905 2,207 2,103 25,291Allowance for employees’

retirement benefits (Notes 2.i and 8) 642 827 462 5,556Allowance for directors' and corporate

auditors’ retirement benefits (Note 2.i) 1,309 279 295 3,547Deferred income taxes (Notes 2.j and 10) 2,699 3,477 3,944 47,432Other long-term liabilities 424 1,615 1,978 23,788Total long-term liabilities 46,297 43,554 45,052 541,815

Net assets:Shareholders’ equity

Common stock, no par value 19,263 19,263 19,263 231,665Authorized : 300,000,000 sharesIssued :119,944,543 shares

as of March 31, 2009, 2010 and 2011Capital surplus 32,595 32,595 32,595 392,002Retained earnings (Note 12) 42,455 31,832 34,099 410,090Treasury stock (Note 2.m) (2,764) (2,767) (4,772) (57,390)

5,309,334, 5,316,080 and 8,683,036 shares as of March 31, 2009, 2010 and 2011, respectively

Total shareholders' equity 91,550 80,924 81,185 976,368Accumulated other comprehensive loss

Unrealized gain on available-for-salesecurities (Note 2.e) 1,692 3,563 4,299 51,701

Deferred gains (losses) on hedges (Note 2.k) — — (58) (697)Foreign currency

translation adjustments (Note 2.d) (5,786) (5,680) (6,318) (75,983)Total accumulated other comprehensive loss (4,094) (2,116) (2,077) (24,978)

Minority interests 1,249 588 597 7,179Total net assets 88,704 79,396 79,704 958,556Total liabilities and net assets ¥ 159,145 ¥ 165,422 ¥ 168,280 $ 2,023,812


US$1=¥83.15

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CONSOLIDATED STATEMENTS OF INCOMEMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2009, 2010 and 2011


dollars

2009 2010 2011 2011Net sales ¥ 100,355 ¥ 57,881 ¥ 95,164 $ 1,144,485Cost of sales 76,641 50,529 70,603 849,104

Gross profit 23,714 7,352 24,561 295,381

Selling, general and administrative expenses 23,976 17,780 21,720 261,214 Operating income (loss) (262) (10,427) 2,840 34,155

Other income (expenses):Interest and dividend income 375 212 258 3,102 Interest expense (626) (896) (949) (11,413)Subsidy income 12 257 18 216 Loss on valuation of derivatives (250) (34) (54) (649)Gain on sales of property, plant and equipment 11 56 77 926 Gain on sales of subsidiaries' and affiliates' stocks 122 — — — Loss on disposal of property, plant and equipment (48) (34) (30) (360)Loss on valuation of investment securities (134) — (1) (12)Provision of allowance for doubtful accounts

for subsidiaries and affiliates (814) — — — Loss on valuation of stocks of subsidiaries and affiliates (89) — — — Exchange gain (loss), net 727 (328) (873) (10,499)Other, net 217 207 341 4,101

Income (loss) before income taxes (759) (10,989) 1,626 19,555 Income taxes (Notes 2.j and 10) - Current 1,095 147 672 8,081

- Deferred 2,965 (541) (1,240) (14,912)Income (loss) before minority interests (4,819) (10,595) 2,193 26,374 Minority interests in earnings (losses)

of consolidated subsidiaries 15 (3) 26 312 Net income (loss) ¥ (4,835) ¥ (10,591) ¥ 2,167 $ 26,061

Yen Dollars

Per share of common stock (Note 12):Net income (loss) ¥ (41.63) ¥ (92.40) ¥ 19.32 $ 0.23Cash dividends applicable to the period 7.50 0.00 4.00 0.04

US$1=¥83.15

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOMEMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2009, 2010 and 2011


dollars

2009 2010 2011 2011Income before minority interests — — 2,193 26,374 Other comprehensive income (Notes 2.p and 13)

Unrealized gain on available-for-sale securities (Note 2.e) — — 735 8,839

Deferred gains (losses) on hedges (Note 2.k) — — (58) (697)Foreign currency translation adjustments (Note 2.d) — — (640) (7,696)

Other comprehensive income — — 36 432 Total comprehensive income ¥ — ¥ — ¥ 2,230 $ 26,819

Total comprehensive income attributable to (Notes 2.p and 13):Owners of the parent — — 2,205 26,518 Minority interests — — 24 288

¥ — ¥ — ¥ 2,230 $ 26,819

US$1=¥83.15

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dollars

2009 2010 2011 2011

Common stock:

Balance at beginning of year ¥ 19,263 ¥ 19,263 ¥ 19,263 $ 231,665

Balance at end of year ¥ 19,263 ¥ 19,263 ¥ 19,263 $ 231,665

Capital surplus:



Retained earnings (Note 12):


Increase in retained earnings resulting from adoption of

a new accounting standard on unification of

accounting policies applied to foreign subsidiaries

for consolidated financial statements 1,790 — — —

Net income (loss) (4,835) (10,591) 2,167 26,061

Cash dividends (1,752) — — —

Increase due to newly consolidated subsidiaries 2,081 — — —

Other — (31) 98 1,178


Treasury stock (Note 2.m):

Balance at beginning of year ¥ (2,233) ¥ (2,764) ¥ (2,767) $ (33,277)

Acquisition of treasury stock (531) (2) (2,005) (24,113)

Balance at end of year ¥ (2,764) ¥ (2,767) ¥ (4,772) $ (57,390)

Unrealized gain on available-for-sale securities

(Note 2.e):


Net change during the year (2,562) 1,871 735 8,839


Deferred gains (losses) on hedges (Note 2.k):

Balance at beginning of year ¥ — ¥ — ¥ — $ —

Net change during the year — — (58) (697)

Balance at end of year ¥ — ¥ — ¥ (58) $ (697)

Foreign currency translation adjustments

(Note 2.d):

Balance at beginning of year ¥ (3,211) ¥ (5,786) ¥ (5,680) $ (68,310)

Net change during the year (2,575) 106 (638) (7,672)

Balance at end of year ¥ (5,786) ¥ (5,680) ¥ (6,318) $ (75,983)

Minority interests:

Balance at beginning of year ¥ 2,680 ¥ 1,249 ¥ 588 $ 7,071

Net change during the year (1,430) (661) 9 108

Balance at end of year ¥ 1,249 ¥ 588 ¥ 597 $ 7,179


CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2009, 2010 and 2011

US$1=¥83.15

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CONSOLIDATED STATEMENTS OF CASH FLOWSMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries For the years ended March 31, 2009, 2010 and 2011

US$1=¥83.15


dollars

2009 2010 2011 2011Cash flows from operating activities:

Income (loss) before income taxes ¥ (759) ¥ (10,989) ¥ 1,626 $ 19,555Adjustments for:

Income taxes (paid) refund (3,168) 379 (170) (2,044)Depreciation and amortization 3,766 3,377 3,262 39,230Amortization of goodwill 39 33 15 180Increase (decrease) in allowance for directors'

and corporate auditors' retirement benefits (193) (1,030) 15 180Increase (decrease) in allowance for

employees' retirement benefits 827 299 (177) (2,128)Increase (decrease) in reserve for directors' bonus (70) — — —Increase (decrease) in allowance for

doubtful accounts 918 142 159 1,912(Gain) loss on sales of property, plant and equipment (11) (56) (77) (926)Loss on disposal of property, plant and equipment 48 34 30 360(Increase) decrease in notes and accounts receivable, trade 18,877 (156) (8,110) (97,534)(Increase) decrease in inventories 1,146 4,465 (8,054) (96,861)Increase (decrease) in notes and accounts payable, trade (15,370) 3,412 10,834 130,294Other, net (3,177) 3,123 4,640 55,802

Net cash provided by (used in) operating activities 2,872 3,035 3,994 48,033

Cash flows from investing activities:(Increase) decrease in time deposits (1,500) (8,980) 8,120 97,654Purchases of investment securities (56) (51) (3) (36)Purchases of investments in subsidiaries — (316) — —Purchases of property, plant and equipment (6,102) (1,738) (2,312) (27,805)Proceeds from sales of property, plant and equipment 333 477 190 2,285Other, net (97) (3) (693) (8,334)

Net cash provided by (used in) investing activities (7,422) (10,613) 5,300 63,740

Cash flows from financing activities:Increase (decrease) in short-term loans, net 529 924 (2,534) (30,475)Repayment of lease obligations (115) (333) (296) (3,559)Proceeds from long-term loans payable 15,000 535 4,750 57,125Repayment of long-term loans payable (3,731) (611) (5,264) (63,307)Proceeds from issue of bonds 10,000 10,000 — —Redemption of bonds — — (10,000) (120,264)Purchases of treasury stock (531) (2) (2,005) (24,113)Purchases of treasury stock of subsidiaries

in consolidation — (316) (14) (168)Dividends paid (1,755) (1) (0) (0)

Net cash provided by (used in) financing activities 19,396 10,194 (15,365) (184,786)

Effect of exchange rate changes on cash and cash equivalents (824) 194 (116) (1,395)

Net increase (decrease) in cash and cash equivalents 14,021 2,811 (6,186) (74,395)Increase in cash and cash equivalents arising

from newly consolidated subsidiaries 335 — — —Cash and cash equivalents, beginning of

period (Notes 2.b and 14) 25,621 39,978 42,790 514,612Cash and cash equivalents, end of period

(Notes 2.b and 14) ¥ 39,978 ¥ 42,790 ¥ 36,604 $ 440,216

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1. Basis of Presenting Financial StatementsThe accompanying consolidated financial statements of Makino Milling Machine Co., Ltd. (the "Company") have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted and applied in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

In preparing the consolidated financial statements, certain reclassifications and rearrangements have been made to the financial statements issued domestically in Japan in order to present these statements in a form, which is more familiar to the readers outside Japan.

In addition, the notes to the consolidated financial statements include information, which is not required under generally accepted accounting principles and practices in Japan but is presented herein as additional information.

Amounts of less than one million yen have been omitted as permitted under generally accepted accounting principles and practices in Japan. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and dollars) do not necessarily agree with the sum of individual amounts.

The United States dollar amounts presented in the accompanying consolidated financial statements are included solely for convenience and are stated, as a matter of arithmetical computation only, at the rate of ¥83.15 = US$1, which was the prevailing exchange rate on March 31, 2011.

2. Summary of Significant Accounting Policies(a) Principles of consolidationThe accompanying consolidated financial statements include the accounts of the Company and its subsidiaries (26 subsidiaries for 2009, 2010 and 2011). The significant subsidiaries, which are consolidated with the Company, are listed below:

MAKINO ASIA PTE LTDMAKINO INC.MAKINO Europe GmbHMAKINO RESOURCE DEVELOPMENT PTE LTDMakino J Co., Ltd.Makino Denso Co., Ltd.Makino Technical Service Co., Ltd.Kanto Bussan Kaisha, Ltd.Makino Giken Co., Ltd.Makino Logistics Co., Ltd.

The remaining four subsidiaries, whose assets, net sales, net income and the underlying net equity of retained earnings in the aggregate are not significant in the consolidated totals, have not been consolidated with the Company.

The fiscal year of the consolidated subsidiaries is the same as the Company’s except for three subsidiaries, Makino do Brasil Ltda., Single Source Technologies S. de R.L. de C.V. and MAKINO CHINA Co., LTD., whose fiscal years end on December 31. Significant transactions between January 1 and March 31 are reflected in the consolidated financial statements.

The equity method is not applied since the combined net profit and loss and the underlying net equity of retained earnings in the aggregate in the four unconsolidated subsidiaries and an affiliate are not significant in the consolidated totals.

All significant intercompany accounts and transactions are eliminated in consolidation. The difference between acquisition cost and the underlying net equity at the time of acquisition is amortized evenly over five years.

(b) Cash equivalentsCash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits and certificate of deposits, all of which mature or become due within three months of the date of acquisition.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTSMakino Milling Machine Co., Ltd. and Consolidated Subsidiaries

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(c) Foreign currency translationsAll short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income unless they are hedged by forward exchange contracts.

(d) Foreign currency financial statementsThe balance sheet accounts of the overseas consolidated subsidiaries are translated into Japanese yen at the rates of exchange at the balance sheet date except as to capital, which is translated at the historical rates of exchange at dates of acquisition.

Since the fiscal year ended March 31, 2009 the Company has applied the average rates of exchange in effect during each fiscal year to translate the revenue and expense accounts of those subsidiaries into Japanese yen.

Differences arising from translation are shown as “Foreign currency translation adjustments” in the net assets in the accompanying consolidated balance sheets.

(e) Marketable securities and investment securitiesInvestments in the unconsolidated subsidiaries and the affiliate are stated at cost. Equity method is not applied as in Note 2(a). Marketable securities and investment securities other than investment securities in the subsidiaries and the affiliate are stated at market value. However, such securities without market value are stated at cost if they are not significantly impaired. The Company credits or charges unrealized gain or loss, net of income taxes, on the above securities to net assets as “Unrealized gain on available-for-sale securities”.

The cost of sold securities is calculated using the gross average method.

(f) InventoriesFinished products and work in process are principally valued at the lower of cost or net realized value, determined by the specific identification method. Raw materials and supplies are stated at the most recent purchase prices.

Effective from the fiscal year ended March 31, 2009, the Company and its domestic consolidated subsidiaries adopted “Accounting Standard for Measurement of Inventories” (Accounting Standards Board of Japan Statement No.9). As a result of the adoption, loss before income taxes increased by ¥160 million ($1,924 thousand) for the fiscal year ended March 31, 2009.

(g) Property, plant, equipment and depreciationProperty, plant and equipment, including significant renewals and additions, are carried at cost. The cost of property, plant and equipment retired or otherwise disposed of and accumulated depreciation in respect thereof are eliminated from the related accounts, and the resulting gain or loss is reflected in income. Maintenance and repairs, including minor renewals and improvements, are charged to income as incurred.

Depreciation of the Company and the domestic consolidated subsidiaries is mainly computed by the declining balance method using the rates based on estimated useful lives of the assets. Depreciation of the overseas consolidated subsidiaries is computed by the straight-line method. The range of useful lives is principally from 5 to 50 years for buildings and structures and from 3 to 12 years for machinery and equipment.

(h) Allowance for doubtful accountsThe Group provides for possible losses due to uncollectibility of notes, accounts, loans receivable, etc. based on the Company’s past credit loss experience and management’s estimate.

(i) Allowance for employees’ retirement benefits and directors’ and corporate auditors’ retirement benefitsEmployees (excluding directors and corporate auditors) of the Company and most of its domestic consolidated subsidiaries are covered by a retirement plan whereby each employee, under most circumstances, upon mandatory retirement at the age of 60 years or earlier termination of employment, is entitled to either a lump sum retirement payment or pension payment based on compensation at the time of retirement and years of service. These employees’ retirement plans are funded.

The employees’ retirement benefits are accounted for as the liability for retirement benefits based on projected benefit obligations and plan assets in conformity with the accounting standard for the employees’ retirement benefits.

Directors and corporate auditors are not covered by these plans. However, liabilities for directors’ and corporate auditors’ retirement benefits include amounts equal to management’s estimate of the amounts which would be payable

010_0774001372308.indd 12 2011/09/07 14:15:51

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to them if they retired at the balance sheet date. Amounts payable to directors and corporate auditors upon retirement are subject to the approval of shareholders.

(j) Income taxesDeferred income taxes are recognized applying the asset and liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and the tax basis of the assets and liabilities, and are measured using enacted tax rates and laws that will be in effect when the differences are expected to reverse.

(k) Hedge accountingThe Group uses derivative financial instruments to manage exposures to fluctuations in foreign exchange and interest rates and does not enter into the derivatives for trading or speculative purposes.

Forward exchange contracts are used for accounts receivable and payable denominated in foreign currencies. If the contracts meet certain hedging criteria, the hedged items are translated at the contracted rates, and the Group defers recognition of gains and losses resulting from changes in the fair value of the derivatives for future transactions until the related losses and gains on the hedged transactions are recognized.

The Group enters into interest rate swap contracts for long-term loans. The swaps which qualify for hedge accounting are not re-measured at market value, but the differential to be paid or received under the swap contracts are accrued and included in interest expense or income (the special hedge accounting short-cut method for interest rate swaps).

The Company assesses the effectiveness of the forward exchange contracts by comparing the contracted rate and spot rate at the balance sheet date and expiration date. The effectiveness assessment of the interest rate swaps, however, is not undertaken as they meet the hedging criteria for the special hedge accounting short-cut method.

(l) Appropriations of retained earningsAppropriations of retained earnings are accounted for and reflected in the accompanying consolidated financial statements basically when they are approved by the shareholders or resolved by the board of directors.

(m) Treasury stockThe portion of treasury stock attributable to minority shareholders is deducted from minority interests in the accompanying consolidated balance sheets, and the portion attributable to the Company is deducted from shareholders’ equity.

(n) ReclassificationsCertain reclassifications have been made to the prior years’ consolidated financial statements to conform to the current year’s presentation.

(o) Unification of accounting policies applied to foreign subsidiaries for consolidated financial statementsEffective from April 1, 2008, the Company adopted “Practical Solution on Unification of Accounting Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements” (Accounting Standards Board of Japan PITF No.18) and necessary adjustments were made. As a result, operating loss and loss before income taxes increased by ¥47 million ($565 thousand) and ¥16 million ($192 thousand), respectively.

(p) Comprehensive incomeEffective from the fiscal year ended March 31, 2011, “Accounting Standard for Presentation of Comprehensive Income” (Accounting Standards Board of Japan Statement No.25) was adopted. In accordance with the standard, consolidated statements of comprehensive income for the year ended March 31, 2009 and 2010 are not presented. The comparative information for the year ended March 31, 2010 is disclosed in Note 13.

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3. Financial InstrumentsEffective from the fiscal year ended March 31, 2010, “Accounting Standard for Financial Instruments” (Accounting Standards Board of Japan Statement No.10) and “Guidance on Disclosures about Fair Value of Financial Instruments” (Accounting Standards Board of Japan Guidance No.19) were adopted.

(1) Management policyIn consideration of plans for capital expenditure, the Group raises funds through loans and bonds. Temporary cash surpluses are invested in low-risk financial assets, and short-term capital is raised through loans. The Group uses derivatives for the purpose of reducing risk and does not enter into derivatives for speculative or trading purposes.

(2) Financial instruments and risk managementNotes and accounts receivable are exposed to customer credit risk. The Group identifies and reduces risk of bad debt by reviewing the financial positions of major customers and outstanding balances.

Notes and accounts receivable denominated in foreign currencies are also exposed to foreign exchange risk. To reduce the risk, the Group enters into forward exchange contracts.

The Group holds marketable securities and investment securities, most of which are shares of other companies with which the Group has business relationships, the subsidiaries and the affiliate. Those securities are exposed to market risk, and the Group regularly reviews the fair values of the securities and the financial positions of the issuers.

The purpose of loans, bonds and finance leases is mainly to finance capital expenditure. Interest rate swaps are used to avoid interest rate risk from loans with floating interest rates.

The Group manages liquidity risk by preparing and updating cash flow plans and maintaining sufficient funds.

The amount of financial instruments on the consolidated balance sheets and the fair value are as follows:Year ended March 31,

Millions of yen

2010Amount on

balance sheetFair value Difference

AssetsCash and time deposits ¥ 51,022 ¥ 51,022 —Notes and accounts receivable 24,153 n/a n/aAllowance for doubtful accounts (800) n/a n/aMarketable securities and investment securities 12,310 12,310 —

Total assets ¥ 86,686 ¥ 86,686 —Liabilities

Notes and accounts payable ¥ 14,278 ¥ 14,278 —Short-term loans 5,186 5,186 —Current portion of bonds 10,000 10,000 —Current portion of long-term loans 4,677 4,677 —Bonds 20,000 20,030 30Long-term loans 15,146 15,231 84

Total liabilities ¥ 69,289 ¥69,401 ¥ 114Derivatives — — —

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Year ended March 31,

Millions of yen

2011Amount on


AssetsCash and time deposits ¥ 36,714 ¥ 36,714 —Notes and accounts receivable 31,626 n/a n/aAllowance for doubtful accounts (893) n/a n/aMarketable securities and investment securities 13,720 13,720 —

Total assets ¥ 81,168 ¥ 81,168 —Liabilities

Notes and accounts payable ¥ 24,673 ¥ 24,673 —Short-term loans 2,322 2,322 —Current portion of long-term loans 3,011 3,011 —Bonds 20,000 20,031 31Long-term loans 16,268 16,414 145

Total liabilities ¥ 66,275 ¥ 66,451 ¥ 176Derivatives ¥ 8 ¥ 8 —


Thousands of dollars

2011Amount on


AssetsCash and time deposits $ 441,539 $ 441,539 —Notes and accounts receivable 380,348 n/a n/aAllowance for doubtful accounts (10,739) n/a n/aMarketable securities and investment securities 165,003 165,003 —

Total assets $ 976,163 $ 976,163 —Liabilities

Notes and accounts payable $ 296,728 $ 296,728 —Short-term loans 27,925 27,925 —Current portion of long-term loans 36,211 36,211 —Bonds 240,529 240,901 372Long-term loans 195,646 197,402 1,743

Total liabilities $ 797,053 $ 799,170 $ 2,116Derivatives $ 96 $ 96 —

4. Marketable Securities and Investment Securities(1) Marketable securities and investment securities quoted at an exchange as of March 31, 2009, 2010 and 2011

As of March 31,

Millions of yen

2009

Acquisition costAmount on

balance sheetDifference

Available-for-sale securities whose amount on balance sheet exceeds acquisition cost(1) Stocks ¥ 4,001 ¥ 6,896 ¥ 2,895(2) Other 1,016 1,016 0

Subtotal ¥ 5,017 ¥ 7,913 ¥ 2,895Available-for-sale securities whose amount on balance sheet does not exceed acquisition cost(1) Stocks ¥ 448 ¥ 253 ¥ (194)(2) Other 20 14 (5)

Subtotal ¥ 468 ¥ 268 ¥ (199)Total ¥ 5,486 ¥ 8,181 ¥ 2,695

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As of March 31,

Millions of yen

2010



Available-for-sale securities whose amount on balance sheet exceeds acquisition cost(1) Stocks ¥ 4,357 ¥ 10,261 ¥ 5,904 (2) Other 1,018 1,019 0

Subtotal ¥ 5,376 ¥ 11,280 ¥ 5,904 Available-for-sale securities whose amount on balance sheet does not exceed acquisition cost(1) Stocks ¥ 39 ¥ 30 ¥ (9)(2) Other 20 19 (0)

Subtotal ¥ 60 ¥ 49 ¥ (10)Total ¥ 5,436 ¥ 11,330 ¥ 5,893

As of March 31,

Millions of yen

2011



Available-for-sale securities whose amount on balance sheet exceeds acquisition cost(1) Stocks ¥ 3,427 ¥ 10,861 ¥ 7,434 (2) Other 1,020 1,020 0

Subtotal ¥ 4,448 ¥ 11,882 ¥ 7,434 Available-for-sale securities whose amount on balance sheet does not exceed acquisition cost(1) Stocks ¥ 972 ¥ 836 ¥ (135)(2) Other 20 19 (0)

Subtotal ¥ 992 ¥ 856 ¥ (135)Total ¥ 5,440 ¥ 12,738 ¥ 7,298

As of March 31,


2011



Available-for-sale securities whose amount on balance sheet exceeds acquisition cost(1) Stocks $ 41,214 $ 130,619 $ 89,404(2) Other 12,266 12,266 0

Subtotal $ 53,493 $ 142,898 $ 89,404Available-for-sale securities whose amount on balance sheet does not exceed acquisition cost(1) Stocks $ 11,689 $ 10,054 $ (1,623)(2) Other 240 228 (0)

Subtotal $ 11,930 $ 10,294 $ (1,623)Total $ 65,423 $ 153,193 $ 87,769

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5. Derivative Financial Instruments(1) Derivatives as of March 31, 2009

(a) Currency relatedAs of March 31,

Millions of yen

2009

Contracted amountContracted amount

over one yearFair value Unrealized gain (loss)

Forward exchange contractsSales contracts

US$ ¥401 ¥344 ¥379 ¥(21)

Currency option contractsSales contracts

US$ 302 — (2) (2)Euro 84 — (5) (5)

Total ¥787 ¥344 ¥370 ¥(30)

(2) Derivatives to which hedge accounting is not applied(a) Currency related

As of March 31,

Millions of yen

2010




US$ ¥465 — — —Total ¥465 — — —

As of March 31,

Millions of yen

2011




US$ ¥ 498 — — —


US$ 4,631 — 118 (54)Total ¥5,130 — ¥118 ¥(54)

As of March 31,


2011




US$ $ 5,989 — — —


US$ 55,694 — 1,419 (649)Total $61,695 — $1,419 $(649)

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(3)Derivatives to which hedge accounting is applied(a) Currency related

As of March 31,

Millions of yen

2010Hedge accounting

methodNature of

transactionHedged item Contracted amount

Contracted amount over one year

Fair value

Method where hedged items are translated at contracted rates

Forward exchange contracts

Sales contracts

US$Account receivable

¥337 — ¥(8)

EuroAccount receivable

¥649 — 45

Total ¥986 — ¥ 36

As of March 31,

Millions of yen


methodNature of



Fair value



Sales contracts


¥1,160 — ¥ (42)

Principle method Forward exchange contracts

Sales contracts


2,307 1,908 (110)

Total ¥3,468 ¥1,908 ¥(152)

As of March 31,



methodNature of



Fair value



Sales contracts


$13,950 — $ (505)

Principle method Forward exchange contracts

Sales contracts


27,745 22,946 (1,322)

Total $41,707 $22,946 $(1,828)

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(b) Interest relatedAs of March 31,

Millions of yen


methodNature of



Fair value

Special hedge accounting short-cut method for interest rate swaps

Interest rate swap contractsReceive floating, pay fixed

Long-term loans ¥16,194 ¥12,637 *

Total ¥16,194 ¥12,637 *

As of March 31,

Millions of yen


methodNature of



Fair value


Interest rate swaps contractsReceive floating, pay fixed

Long-term loans ¥16,959 ¥14,615 *

Total ¥16,959 ¥14,615 *

As of March 31,



methodNature of



Fair value


Interest rate swap contractsReceive floating, pay fixed

Long-term loans $203,956 $175,766 *

Total $203,956 $175,766 *

* Interest rate swaps are accounted for as part of long-term loans. Therefore the fair value of the swaps is included in the fair value of the underlying long-term loans.

6. InventoriesInventories as of March 31, 2009, 2010 and 2011 comprise the following:

As of March 31,


dollars

2009 2010 2011 2011Finished products ¥ 11,100 ¥ 9,591 ¥ 8,640 $ 103,908Work in process 9,136 7,331 10,922 131,352Raw material and supplies 14,128 12,733 17,671 212,519

Total ¥ 34,365 ¥ 29,655 ¥ 37,234 $ 447,793

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7. Short-term and Long-term Debts and Lease ObligationsAs of March 31, 2011, the Company has unused lines of credit with four banks amounting up to ¥5,000 million ($60,132 thousand).

The table below shows information on short-term and long-term debts and lease obligations:As of March 31,


dollars

Interest rate Date of maturity 2009 2010 2011 2011Short-term loans 1.45* — ¥ 4,752 ¥ 5,186 ¥ 2,322 $ 27,925Current portion of long-term loans 2.19* — 611 4,677 3,011 36,211

Long-term loans less current portion 2.24* from June 30, 2013 to June 30, 2015 ¥19,314 ¥15,146 ¥16,268 $195,646

Yen unsecured bonds 1.23 September 10, 2010 10,000 10,000 — — Yen unsecured bonds 1.70 July 26, 2013 10,000 10,000 10,000 120,264Yen unsecured bonds 1.73 March 19, 2015 — 10,000 10,000 120,264

Short-term lease obligations — — ¥ 247 ¥ 624 ¥ 678 $ 8,153

Long-term lease obligations — from April 30, 2012 to October 31, 2028 1,905 2,207 2,103 25,291

* the weighted average interest rate

The aggregate annual maturities of long-term debt and lease obligations subsequent to March 31, 2011 are as follows:

Long-term debt Lease obligations

Year ending March 31, Millions of yenThousands of

dollarsMillions of yen


2012 ¥ 3,011 $ 36,211 ¥678 $8,1532013 3,078 37,017 392 4,7142014 22,055 265,243 364 4,3772015 10,134 121,876 231 2,7782016 1,000 12,026 137 1,647

8. Employees’ Retirement Benefits

The Company and its domestic consolidated subsidiaries have defined benefit pension plans, which consist of a benefit plan provided under the Welfare Pension Insurance Law of Japan, a corporate pension plan and a lump-sum payment plan as well as defined contribution pension plans. As of March 31, 2011, the fair value of the plan assets exceeds the projected benefit obligations at the Company and five of its domestic consolidated subsidiaries. The excess is accounted for as prepaid pension cost, which is included in “Other long-term assets” on the consolidated balance sheets.

Some of the overseas consolidated subsidiaries have defined contribution plans as well as defined benefit plans.

(1) The multi-employer pension plan under which required contributions are accounted for as benefit costs(a) Funded status

As of March 31,


dollars

2008 2009 2010 2010Fair value of plan assets ¥ 116,372 ¥ 93,997 ¥ 108,492 $ 1,304,774Benefit obligation 147,188 148,468 136,167 1,637,606

Net amount ¥ (30,815) ¥ (54,471) ¥ (27,675) $ (332,832)

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(b) The Group’s proportion of the contributions to the aggregate pension contributions

As of March 31,

2008 2009 2010

The Group's proportion 7.23% 7.48% 7.29%

(2) The liability (asset) for employees’ retirement benefitsAs of March 31,


dollars

2009 2010 2011 2011Projected benefit obligation ¥ 13,341 ¥ 14,299 ¥ 14,199 $ 170,763Fair value of plan assets (10,671) (12,293) (12,032) (144,702)Unrecognized actuarial loss (5,661) (3,874) (3,880) (46,662)Unrecognized prior service cost 391 332 273 3,283Prepaid pension cost 3,242 2,364 1,902 22,874

Allowance for employees' retirement benefits ¥ 642 ¥ 827 ¥ 462 $ 5,556

(3) The components of net periodic benefit costsYear ended March 31,


dollars

2009 2010 2011 2011Service cost ¥ 389 ¥ 436 ¥ 453 $ 5,447 Interest cost 497 470 420 5,051 Expected return on plan assets (517) (320) (377) (4,533)Amortization of unrecognized actuarial loss 382 1,115 599 7,203 Amortization of unrecognized prior service cost (55) (56) (76) (914)Contribution for Welfare Pension Insurance Fund 527 428 448 5,387 Extra retirement benefit and others 51 7 16 192 Contribution for defined contribution pension plan 163 166 167 2,008 Net periodic benefit costs ¥1,439 ¥2,248 ¥1,650 $19,843

(4) Assumptions used in accounting for the plans


2009 2010 2011Period allocation method for estimated retirement benefits Mainly straight-line Mainly straight-line Mainly straight-lineDiscount rate Mainly 2.5% Mainly 2.0% Mainly 2.0%Expected rate of return on plan assets Mainly 2.5% Mainly 2.0% Mainly 2.0%Amortization of prior service cost Mainly 10 years Mainly 10 years Mainly 10 yearsRecognition period of actuarial gain/loss Mainly 10 years Mainly 10 years Mainly 10 years

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9. LeasesLease assets accounted for as finance leases are depreciated using the same methods applied to the tangible fixed assets which the Company owns, except for those not accompanying the transfer of ownership, which are depreciated to residual value of zero by the straight-line method over the lease terms.

Effective from April 1, 2008, the Company and its domestic consolidated subsidiaries adopted “Accounting Standard for Lease Transactions” (Accounting Standards Board of Japan Statement No.13) and “Guidance on Accounting Standard for Lease Transactions” (Accounting Standards Board of Japan Guidance No.16). This change has no effect on operating loss or loss before income taxes.

Note that finance leases not accompanying the transfer of ownership which commenced before March 31, 2008 continue to be accounted for as operating leases in accordance with accounting principles and practices generally accepted in Japan. A summary of assumed amounts of acquisition cost which includes interest portion, accumulated depreciation, and net book value of those leases as of March 31, 2009, 2010 and 2011 is as follows:

As of March 31,

Millions of yenThousands of dollars

2009 2010 2011 2011Acquisition cost ¥2,722 ¥2,063 ¥1,621 $19,494 Accumulated depreciation 1,624 1,420 1,283 15,429Net book value ¥1,097 ¥ 643 ¥ 337 $ 4,052

Future lease payments (including interest portion) subsequent to March 31, 2009, 2010 and 2011 for finance leases accounted for as operating leases are as follows:


2009 2010 2011 2011Due within one year ¥ 468 ¥319 ¥234 $2,814 Due after one year 628 323 103 1,238Total ¥ 1,097 ¥643 ¥337 $4,052

Lease payments (including interest portion) for finance leases accounted for as operating leases are as follows:Year ended March 31,


2009 2010 2011 2011Lease payments ¥626 ¥483 ¥327 $3,932 Equivalent of depreciation expense ¥626 ¥483 ¥327 $3,932

Future lease payments (including interest portion) subsequent to March 31, 2009, 2010 and 2011 for non-cancelable operating leases are as follows:


2009 2010 2011 2011Due within one year ¥ 480 ¥ 521 ¥ 551 $ 6,626 Due after one year 3,449 3,318 2,958 35,574Total ¥3,929 ¥3,839 ¥3,510 $42,212

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10. Income TaxesBreakdown of deferred tax assets and deferred tax liabilities by their main occurrence causes is as follows:


Millions of yen


2009 2010 2011 2011Deferred tax assets:

Tax loss carry forward ¥ 988 ¥ 6,891 ¥ 6,870 $ 82,621 Accrued expenses 903 665 970 11,665 Directors’ and corporate auditors’ retirement benefits 534 117 124 1,491

Valuation loss on investment securities — 875 845 10,162 Long-term accounts payable — 428 427 5,135 Employees’ retirement benefits 887 131 45 541 Other 552 1,269 1,168 14,046

Subtotal 3,867 10,378 10,451 125,688 Valuation allowance (1,807) (8,486) (7,499) (90,186)

Deferred tax assets ¥ 2,059 ¥ 1,891 ¥ 2,952 $ 35,502

Deferred tax liabilities:Unrealized gain on available-for-sale securities ¥(1,125) ¥ (2,329) ¥ (2,998) $ (36,055)

Prepaid pension cost (1,305) (878) (691) (8,310)Tax depreciation over book (311) (324) (311) (3,740)Other 42 (55) (51) (613)

Deferred tax liabilities (2,699) (3,587) (4,052) (48,731)Net deferred tax assets (liabilities) ¥ (640) ¥ (1,695) ¥ (1,100) $ (13,229)

Reconciliation between the statutory and effective tax rates is as follows:Year ended March 31,

2011Statutory tax rate 40.6%Valuation allowance (60.8)Difference in statutory tax rates for subsidiaries (31.1)Losses for which no deferred tax is recognized 22.1Other (9.6)Effective tax rate (38.7)%

Reconciliation for the years ended March 31, 2009 and 2010 is not shown as losses before income taxes were recorded for each year.

11. Research and Development CostsResearch and development costs are as follows:



2009 2010 2011 2011Research and development costs ¥4,900 ¥4,408 ¥4,784 $57,534

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12. Retained Earnings and Per Share DataIn accordance with the Japanese Corporation Law, dividends and the related appropriations of retained earnings may be approved by the shareholders or resolved by the board of directors after the end of each fiscal year. The dividends and the related appropriations of retained earnings are not reflected in the financial statements at the end of such fiscal years but recorded at the time they are approved or become effective. However, dividends per share shown in the accompanying consolidated statements of income are included in the periods to which they are applicable.

Net income (loss) per share is based on the weighted average number of shares of common stock outstanding during each period.

Cash dividends per share are based on cash dividends declared as applicable to the respective periods.Diluted net income per share is not disclosed because potentially dilutive securities were not issued for the fiscal years

ended March 31, 2009, 2010 or 2011.A summary of information regarding dividends is as follows:

(1) Dividends paid in the year ended March 31, 2009

Resolution Class of shares Amount of dividends Dividend per share

Record date Effective date

General shareholders’ meeting (June 20, 2008) Common stock

¥ 876 million ¥ 7.50March 31, 2008 June 23, 2008

$ 10,535 thousand $ 0.09

Board of directors (October 31, 2008) Common stock¥ 876 million ¥ 7.50

September 30, 2008 December 05, 2008$ 10,535 thousand $ 0.09

(2) Dividend in respect of the year ended March 31, 2009No dividend was declared.

(3) Dividends paid in the year ended March 31, 2010No dividends were paid.

(4) Dividend in respect of the year ended March 31, 2010 No dividend was declared.

(5) Dividends paid in the year ended March 31, 2011No dividends were paid.

(6) Dividend in respect of the year ended March 31, 2011

Resolution Class of shares Amount of dividends Dividend per share

Record date Effective date

General shareholders’ meeting (June 23, 2011) Common stock

¥ 445 million ¥ 4.00March 31, 2011 June 24, 2011

$ 5,351 thousand $ 0.04

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13. Comprehensive IncomeInformation on comprehensive income for the year ended March 31, 2010 is as follows:


Millions of yen

2010 Other comprehensive income

Unrealized gain on available-for-sale securities ¥1,870 Foreign currency translation adjustments 199

Total ¥2,070


Millions of yen

2010 Total comprehensive income attributable to:

Owners of the parent ¥(8,613)Minority interests 88

Total ¥(8,524)

14. Cash and Cash EquivalentsReconciliation of cash and time deposits on the consolidated balance sheets to cash and cash equivalents on the consolidated statements of cash flows is as follows:

As of March 31,


dollars

2009 2010 2011 2011Cash and time deposits ¥39,235 ¥51,022 ¥36,714 $441,539 Marketable securities 2,160 2,019 2,021 24,305

Subtotal 41,395 53,042 38,735 465,844

Time deposits with maturities over three months (1,417) (10,251) (2,131) (25,628)

Cash and cash equivalents ¥39,978 ¥42,790 ¥36,604 $440,216

15. Segment Information(1) Change of accounting standardEffective from the fiscal year ended March 31, 2011, the Group adopted “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (Accounting Standards Board of Japan Statement No. 17) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (Accounting Standards Board of Japan Guidance No. 20).

(2) Segment information under the previous accounting standard

(a) Geographical segment informationYear ended March 31, 2009 (Millions of yen)

Japan Asia Americas Europe Subtotal Elimination Total

Net sales:

External customers ¥ 42,484 ¥ 19,397 ¥ 26,154 ¥ 12,319 ¥ 100,355 — ¥ 100,355

Intersegment 61,501 4,074 479 51 66,107 (66,107) —

Total 103,986 23,471 26,633 12,370 166,462 (66,107) 100,355

Operating expenses 106,331 23,686 25,161 11,922 167,101 (66,484) 100,617

Operating income (loss) ¥ (2,345) ¥ (214) ¥ 1,472 ¥ 448 ¥ (639) ¥ 377 ¥ (262)

Total assets ¥ 151,714 ¥ 21,716 ¥ 17,255 ¥ 8,812 ¥ 199,498 ¥(40,353) ¥ 159,145

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Year ended March 31, 2010 (Millions of yen)

Japan Asia Americas Europe Subtotal Elimination Total

Net sales:

External customers ¥ 27,545 ¥ 13,113 ¥ 12,059 ¥ 5,163 ¥ 57,881 — ¥ 57,881

Intersegment 12,067 1,272 180 29 13,549 (13,549) —

Total 39,612 14,386 12,239 5,192 71,431 (13,549) 57,881

Operating expenses 48,355 14,942 13,228 6,104 82,631 (14,321) 68,309

Operating loss ¥ (8,742) ¥ (556) ¥ (988) ¥ (911) ¥ (11,199) ¥ 771 ¥ (10,427)

Total assets ¥ 142,435 ¥ 22,300 ¥ 12,150 ¥ 7,086 ¥183,972 ¥(18,550) ¥ 165,422

(b) Overseas salesYear ended March 31, 2009 (Millions of yen)

Americas Europe Asia Other Total

Overseas sales ¥26,071 ¥13,888 ¥25,291 ¥2,167 ¥ 67,418

Consolidated sales — — — — ¥100,355

Proportion of overseas sales to consolidated sales 26.0% 13.8% 25.2% 2.2% 67.2%


Americas Europe Asia Other Total

Overseas sales ¥12,220 ¥6,094 ¥21,261 ¥1,253 ¥40,830

Consolidated sales — — — — ¥57,881

Proportion of overseas sales to consolidated sales 21.1% 10.5% 36.7% 2.2% 70.5%

(3) Reportable segment informationThe Group’s reportable segments are defined as individual units where independent financial information is available and which are subject to regular review by the board of directors to evaluate their results and decide the allocation of management resources. The reportable segments are summarized as follows:

Reportable segment I is a segment taken charge of by Makino Milling Machine Co., Ltd. and its subsidiaries in Japan. Its main areas are Japan, the Republic of Korea, China, Oceania, Russia, Norway, the United Kingdom, and all other areas not included in reportable segments II, III or IV.

Reportable segment II is a segment taken charge of by MAKINO ASIA PTE LTD (Singapore). Its main areas are China, ASEAN and India.

Reportable segment III is a segment taken charge of by MAKINO INC. (Mason, Ohio, the United States of America). Its main areas are all countries in North and South America.

Reportable segment IV is a segment taken charge of by MAKINO Europe GmbH (Hamburg, Germany). Its main areas are all countries in the European continent except Norway.

The accounting policies on the reportable segments are consistent with those presented in the “Summary of Significant Accounting Policies”. Income for each reportable segment denotes operating income, and intersegments are based on market prices in general.

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I II III IV Total

Net sales:

External customers ¥ 27,545 ¥13,113 ¥12,059 ¥5,163 ¥ 57,881

Intersegment 12,067 1,272 180 29 13,549

Total 39,612 14,386 12,239 5,192 71,431

Segment loss ¥ (8,742) ¥ (556) ¥ (988) ¥ (911) ¥ (11,199)

Segment assets ¥142,435 ¥22,300 ¥12,150 ¥7,086 ¥183,972

Depreciation and amortization 2,651 490 151 124 3,418

Amortization of goodwill 0 — — 39 39

Capital expenditure ¥ 1,602 ¥ 677 ¥ 201 ¥ 295 ¥ 2,777


I II III IV Total

Net sales:

External customers ¥ 44,039 ¥26,086 ¥18,806 ¥6,231 ¥ 95,164

Intersegment 29,335 3,866 190 — 33,392

Total 73,375 29,953 18,996 6,231 128,557

Segment income (loss) ¥ 937 ¥ 1,836 ¥ 633 ¥ (405) ¥ 3,001

Segment assets ¥143,737 ¥31,077 ¥16,132 ¥6,573 ¥197,519

Depreciation and amortization 2,552 491 142 100 3,287


Capital expenditure ¥ 2,034 ¥ 832 ¥ 93 ¥ 165 ¥ 3,124

Year ended March 31, 2011 (Thousands of dollars)

I II III IV Total

Net sales:

External customers $ 529,633 $313,722 $226,169 $74,936 $1,144,485

Intersegment 352,796 46,494 2,285 — 401,587

Total 882,441 360,228 228,454 74,936 1,546,085

Segment income (loss) $ 11,268 $ 22,080 $ 7,612 $ (4,870) $ 36,091

Segment assets $1,728,647 $373,746 $194,010 $79,049 $2,375,453

Depreciation and amortization 30,691 5,904 1,707 1,202 39,530


Capital expenditure $ 24,461 $ 10,006 $ 1,118 $ 1,984 $ 37,570

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Reconciliation of reportable segment information to consolidated financial statementsYear ended March 31,


dollars

2010 2011 2011Net sales ¥ 71,431 ¥128,557 $1,546,085Elimination ¥(13,549) ¥ (33,392) $ (401,587)Consolidated net sales ¥ 57,881 ¥ 95,164 $1,144,485



dollars

2010 2011 2011Segment income (loss) ¥(11,199) ¥3,001 $36,091Elimination ¥ 771 ¥ (160) $ (1,924)Consolidated operating income (loss) ¥(10,427) ¥2,840 $34,155



dollars

2010 2011 2011Segment assets ¥183,972 ¥197,519 $2,375,453Elimination ¥ (18,550) ¥ (29,238) $ (351,629)Consolidated total assets ¥165,422 ¥168,280 $2,023,812



dollars

2010 2011 2011Depreciation and amortization ¥3,418 ¥3,287 $39,530Elimination ¥ (27) ¥ (24) $ (288)Amount on consolidated financial statements ¥3,390 ¥3,262 $39,230



dollars

2010 2011 2011Capital expenditure ¥2,777 ¥3,124 $37,570Elimination ¥ — ¥ (42) $ (505)Amount on consolidated financial statements ¥2,777 ¥3,082 $37,065

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(4) Geographical informationYear ended March 31,


dollars

2011 2011Sales by destination

Japan ¥21,305 $ 256,223U.S.A 15,188 182,657Americas, excluding U.S.A 3,650 43,896China 30,765 369,993Asia, excluding China 16,004 192,471Europe 7,250 87,191Other 999 12,014

Total ¥95,164 $1,144,485

As of March 31,


dollars

2011 2011Property, plant and equipment

Japan ¥28,092 $337,847Americas 1,382 16,620Asia 6,147 73,926Europe 1,657 19,927

Total ¥37,280 $448,346

(5) Information on major customerYear ended March 31,


dollars

2011 2011Net sales

EA-SUN PRECISION TECHNOLOGY CORPORATION ¥15,793 $189,933

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16. Quarterly ResultsQuarterly results for the years ended March 31, 2009, 2010 and 2011 are as follows:

Three months ended

Millions of yen

June 30, 2008 September 30, 2008 December 31, 2008 March 31, 2009Net sales ¥23,288 ¥36,015 ¥21,866 ¥19,185Income (loss) before income taxes 514 2,398 (2,191) (1,480)Net income (loss) (138) 1,831 (4,070) (2,457)

Yen

Net income (loss) per share ¥(1.19) ¥15.67 ¥(35.04) ¥(21.44)

Three months ended

Millions of yen

June 30, 2009 September 30, 2009 December 31, 2009 March 31, 2010Net sales ¥10,896 ¥10,193 ¥12,070 ¥24,721Loss before income taxes (3,822) (4,141) (2,693) (332)Net income (loss) (3,672) (3,892) (3,330) 303

Yen

Net income (loss) per share ¥(32.04) ¥(33.95) ¥(29.05) ¥2.65

Three months ended

Millions of yen

June 30, 2010 September 30, 2010 December 31, 2010 March 31, 2011Net sales ¥15,009 ¥22,559 ¥21,884 ¥35,710Income (loss) before income taxes (1,773) 65 (642) 3,975Net income (loss) (1,760) 99 (900) 4,728

Yen

Net income (loss) per share ¥(15.40) ¥0.89 ¥(8.09) ¥42.50

Three months ended


June 30, 2010 September 30, 2010 December 31, 2010 March 31, 2011Net sales $180,505 $271,304 $263,187 $429,464Income (loss) before income taxes (21,322) 781 (7,720) 47,805Net income (loss) (21,166) 1,190 (10,823) 56,861

Dollars

Net income (loss) per share $(0.18) $0.01 $(0.09) $0.51

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REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We have audited the accompanying consolidated balance sheets of Makino Milling Machine Co.,

Ltd. and subsidiaries (the “Company”) as of March 31, 2011, 2010 and 2009, and the related consolidated

statements of income, changes in net assets and cash flows for the years then ended and comprehensive

income for the years then ended March 31, 2011, 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 the 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 financial position of the Company as of March 31, 2011, 2010 and 2009,, and the results of

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

generally accepted in Japan.

As discussed in Note 2(f) to the consolidated financial statements, effective March 31, 2009, the

Company adopted Accounting Standards Board of Japan Statement No.9, “Accounting Standard for

Measurement of Inventories”.

As discussed in Note 2(o) to the consolidated financial statements, effective April 1, 2008, the

Company adopted Practical Issues Task Force No.18, “Practical Solution on Unification of Accounting

Policies Applied to Foreign Subsidiaries for Consolidated Financial Statements”.

As discussed in Note 2(d) to the consolidated financial statements, effective March 31, 2009, the

Company changed its method of accounting for translating revenue and expense accounts of its foreign

subsidiaries recorded in local currencies into Japanese yen, from using exchange rates effective at the

balance sheet date to average exchange rates during the year.

The United States dollar amounts shown in the consolidated financial statements referred to above

have been translated solely for convenience. We have reviewed this translation and, in our opinion, the

United States dollar amounts in the accompanying consolidated financial statements have been translated

from Japanese yen on the basis set forth in Note 1.

June 23, 2011

Tokyo, Japan

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INDIA

CHINA

Head QuarterPlant / Technical CenterTechnical CenterSales & Service Office

NORTH AMERICA∙CENTRAL AMERICA

EUROPE

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