An Interview with th e P r e s i d e n t

I would like to warmly thank all of ourshareholders for their continued supportand understanding. In the followinginterview, I discuss our performance for thesix-month period from June 1, 2008 to
November 30, 2008, the first half of the
fiscal year ending May 31, 2009.

Q

An Interview with the President

Please provide us with an overview of
Toyo Denki’s performance for the firsthalf of fiscal 2008 ending May 31, 2009.

income climbed 845 million yen compared with the corresponding
period of the previous fiscal year to 802 million yen, while ordinary
income improved 857 million yen to 703 million yen. Accounting forsuch factors as the loss on devaluation of investment securities, net
income for the period under review was 79 million yen.

Throughout the first half of fiscal 2008, the fiscal year ending May 31,
2009, the Japanese economy was confronted by increasingly harsh
operating conditions. This was attributable to a variety of factors including
the sub-prime loan crisis in the United States, which resulted in a sudden
and dramatic downturn in the U.S. economy, and was also exacerbated by
the drop in corporate sector sales, prompting a cautious approach toward
capital investment.
Against this backdrop, the Toyo Denki Group worked diligently to
expand its operations and enhance corporate value, guided by the
Innovation 90 Plan, its medium-term management plan. The Group’s
performance in the first half of the fiscal year under review, the final year of
the Innovation 90 Plan, was as follows.

Results by business segment are provided as follows.
Transportation Business
Orders received in this segment declined 10.1% compared with thecorresponding period of the previous fiscal year to 10,704 million yen.
Despite the persistent underlying strength of the domestic market, thisdecrease was attributable to a slowdown in orders from China following theconclusion of the Beijing Olympic Games. Buoyed by firm results in Japan,
segment sales rose 5.7% year on year to 9,453 million yen.
Industrial Systems
Orders received in the Industrial Systems segment amounted to 6,200
million yen. This 27.0% year-on-year decline was mainly attributable to therapid deterioration in domestic corporate sector capital investment. While
overseas segment sales remained steady, results in Japan were also
impacted by the aforementioned contraction in capital investment.
Mirroring the downturn in orders received, overall segment sales were
5,938 million yen, a drop of 19.2% year on year.
Information Systems
Orders received edged up 4.4% compared with the corresponding periodof the previous fiscal year to 1,294 million yen. This favorable result
reflected positive contributions from IC card-compatible equipment relating
particularly to railway station operations. Segment sales climbed 11.6%
year on year to 700 million yen due to the same reasons that prompted an
upswing in orders received.

(a) Orders received amounted to 18,199 million yen, a decrease of 15.8%
compared with the corresponding period of the previous fiscal year.
This mainly reflected the substantial drop in the Industrial Systems
segment.
(b) Sales were 16,092 million yen, a decline of 4.9% year on year. Despite
an increase in the Transportation Business segment, this overall
decrease was attributable to significant contraction in Industrial
Systems segment sales.
(c) Notwithstanding this drop in year-on-year sales, the Toyo Denki Group
recorded an upswing in its gross profit margin. As a result, operating

Q

What are your thoughts on the Company’s
prospects and plans for the future?

Looking ahead at future economic conditions, I believe that the current
financial crisis will continue to spill over into the real economy. On thisbasis, I am concerned that the Toyo Denki Group will confront anincreasingly difficult operating environment and that the Industrial Systems
segment in particular will be harshly affected.
Taking this and other factors into consideration, I anticipate net sales
will total 35,000 million yen, down 8.2% compared with the previous fiscalyear.
On the earnings front, our results are mixed. While operating income
for the full fiscal year is expected to improve to 1,800 million yen, thisrepresents a 200 million yen shortfall from the Company’s initiallyannounced target.
The continuous payment of a stable cash dividend is a key component of
Toyo Denki’s fundamental profit distribution policy. At the same time, theCompany retains the necessary internal reserves required to fund its
ongoing business activities including strategic research and development,
capital expenditure and overseas expansion. In this manner, we work
diligently to ensure sustained business growth and to strengthen the
Company’s management foundation and financial position.
For the fiscal year under review, Toyo Denki plans to pay a fiscal yearend cash dividend of six yen per share. In similar fashion to the previous
period, the Company will forego the payment of an interim cash dividend.

February 2009

Teruyuki Osawa
President andRepresentative Director

Consolidated Performance
Net sales
Net
Net
Net
sales
sales
sales
(Unit: Million(Unit:(Unit:
yen)(Unit:
MillionMillionMillion
yen)
yen)
yen)

(Unit: Million(Unit:(Unit:
yen)(Unit:
MillionMillionMillion
yen)
yen)
yen)

(Unit: Million(Unit:(Unit:
yen)(Unit:
MillionMillionMillion
yen)
yen)
yen)

(Unit: Million(Unit:(Unit:
yen)(Unit:
MillionMillionMillion
yen)
yen)
yen)

(Forecast) (Forecast)(Forecast)(Forecast)
3,000
3,000
3,000 3,000
3,000
3,000
1,500 1,500
1,500
1,500
35,000 35,000
35,00035,0003,000 3,000(Forecast) (Forecast)(Forecast)(Forecast)
1,000 1,000
1,000
1,000
(Forecast) (Forecast)(Forecast)(Forecast)
1,967
1,967 1,967
1,967
1,928
1,928
1,928
1,928
1,800
1,800
1,800
1,800
30,000 30,000
30,00030,0002,000 2,000
2,000
2,000
2,000 2,000
2,000
2,000
1,600
1,600 1,600
1,600 500
1,391
1,391
1,391 1,391
500
500
500
1,197
1,197 1,197
1,197
(151)
802
802 1,000 1,000
802
802
20,000 20,000
20,00020,000
1,000
1,000
1,000
1,000
0
000
16,922
16,922
16,922 16,922
703
703
703
703
16,134
16,134
16,134 16,134
16,092
16,0921,000 1,000
16,092 16,092
451
451
451
451
441
441
441
441

38,13038,13038,130 38,130
40,000 40,000
40,00040,00036,571 36,571
36,571
36,571

10,000 10,000
10,00010,00001OperatingOperatingOperatingincomeincome
incomeincomeOrdinary
Ordinary
Ordinary
incomeincome
incomeincomeNet
income First Half FirstNet
incomeNet
incomeNetFirst Half First
First
First
Full
Half
Half
FiscalHalf Full
Year
Full
Full
FiscalFiscalFiscalYear
Year
Year OperatingFirst Half First
First
First
Full
Half
Half
FiscalHalf Full
Year
Full
Full
FiscalFiscalFiscalYear
Year
Year OrdinaryFirst Half First
First
First
Full
Half
Half
FiscalHalf Full
Year
Full
Full
FiscalFiscalFiscalYear
Year
Yearincome
First
First
Full
Half
Half
FiscalHalf Full
Year
Full
Full
FiscalFiscalFiscal
Year
Year
Year

0

000

(43)

(43)
(43)
(43)

0

000

-500

(154)

(154)
(154)
(154)

-500
-500
-500

-1,000 -1,000-1,000-1,000532(Forecast) (Forecast)(Forecast)(Forecast)

(151)
(151)
(151)

532
532
532
500
79

(452)

(452)
(452)
(452)

500
500
500
79
79
79

(1,037)(1,037)(1,037) (1,037)000-1,000 -1,000-1,000-1,000-1,000 -1,000-1,000-1,000-1,500 -1,500-1,500-1,500FY 2006FY
FY
FY
2006
FY
2006
2006
2007FY
FY
FY
2007
FY
2007
2007
2008FY
FY
FY
2008
2008
2008
FY 2006FY
FY
FY
2006
FY
2006
2006
2007FY
FY
FY
2007
FY
2007
2007
2008FY
FY
FY
2008
2008
2008
FY 2006FY
FY
FY
2006
FY
2006
2006
2007FY
FY
FY
2007
FY
2007
2007
2008FY
FY
FY
2008
2008
2008
FY 2006FY
FY
FY
2006
FY
2006
2006
2007FY
FY
FY
2007
FY
2007
2007
2008FY
FY
FY
2008
2008
2008
Note: Effective the fiscal year ending May 31, 2009, performance data for the first two quarters has been recorded on a cumulative basis in accordance with changes inaccounting standards as they relate to quarterly disclosure. For and prior to the fiscal year ended May 31, 2008, performance data was recorded on an interim basis.

2

S p e c i a l F e at u r e

Background to the Comprehensive Capital and Business Alliance Proposal Submitted by Nidec Corporation
Nidec Corporation (“Nidec”) — Securities Code: 6594; First Sections of
the Tokyo Stock Exchange (“TSE”) and Osaka Securities Exchange —submitted to the Company a comprehensive capital and business allianceproposal (“the Proposal”) on September 16, 2008.
Under the Proposal, Nidec sought to secure a business alliance with
Toyo Denki by acquiring not less than 50.1% of the Company’s total
outstanding voting shares by way of a tender offer (Tender Offer Price:
635 yen per share). In submitting to the Company this initial offer, Nidec
also lodged with the TSE and other relevant exchanges details of the
Proposal on September 16.
A detailed explanation of the Proposal’s progress and proceedings isprovided below. This explanation is organized and numbered on achronological basis to coincide with the reference summary “Timeline ofInquiries, Replies, Discussions and Other Matters relating to the Proposal(in 2008),” which follows.
(1) On receipt of the Proposal on September 16, Toyo Denki began immediately toanalyze and consider its content, substance and purport in line with the Company’splan for countermeasures to large-scale acquisitions of its shares (the “Toyo Denki
Defense Plan”).
(2) On October 1, the Company dispatched an initial request asking Nidec to provide certain
essential information (“essential information”) that would allow shareholders and investors
to adequately analyze and consider the Proposal. This initial request comprised a list of 81
inquiries focusing on Nidec, the Nidec group and specific Proposal details in line with
provisions stipulated under the Toyo Denki Defense Plan.
(3) Toyo Denki received Nidec’s initial reply on October 10 and took immediate steps to assess
whether the essential information provided was sufficient.
(4) Following this assessment, Toyo Denki determined that the initial reply received would notallow shareholders, investors and the Company’s Board of Directors to adequately evaluate
and consider the Proposal. As a result, Toyo Denki dispatched a second request to Nidec
seeking additional information on October 24. This second request comprised a list of 55
inquiries seeking specific comments on the perceived synergy benefits of a capital andbusiness alliance as well as Nidec’s thoughts on certain labor issues.
(5) In a second communication received on November 5, Nidec replied that any comments
and data pertaining to both the company and the group would in principle be limited to
publicly disclosed information. Furthermore, Nidec requested that a channel of direct
dialogue be opened to allow the company to respond to additional inquiries and to provide
supplementary explanation. On this basis, Nidec withheld its reply to just over half of theinquiries outlined in the Company’s second request.
(6) On November 17, Toyo Denki dispatched a third request, which comprised a total of 20
inquiries, seeking Nidec’s written reply to the minimum number of inquiries (14) considerednecessary for shareholders, investors and the Company’s Board of Directors to objectively
consider the Proposal. As a part of this request, Toyo Denki dispatched a list of
supplementary items (six) requiring explanation at an interview to be determined. This third
request was in effect a repeat of inquiries outlined in the Company’s second
communication.
(7) Toyo Denki received Nidec’s reply to its third request on November 25. Of the 14 inquiries
requiring a written reply, eight remained unanswered. In connection with the items to beaddressed through direct dialogue, Nidec declined to respond to all six items.
(8) On November 28, Toyo Denki’s Independent Committee put forward the proposal to hold athree-party meeting, chaired by the Committee and attended by members of each subject
party’s Board of Directors. All parties agreed to hold a meeting on December 5.

3(9) At the three-party meeting held on December 5, all parties agreed to hold a separate
meeting to exchange views on all previously dispatched inquiries and written replies and to
discuss the significant gaps in the information provided by Nidec in the three key areas oftechnology, labor and finance, and management.
(10) Toyo Denki’s employees’ union announced its opposition to Nidec’s proposal to acomprehensive capital and business alliance on December 8.
(11) A meeting between Toyo Denki and Nidec to discuss matters relating to technology, laborand finance, and management was held on December 11. At this meeting, Nidec argued
that that it lacked the necessary representatives to adequately discuss technologicalsynergies particularly in the field of rail transportation.
(12) On December 15, Toyo Denki established an assessment period during which its Board of
Directors would evaluate the Proposal. At 11:00 am on the same day, the Company
dispatched a notice of completion of the provision of information to Nidec. Having initially
fixed December 15 as the Proposal’s expiration date, Nidec announced at 3:00 pm its
decision not to extend the original Proposal or to issue a new proposal. Notwithstanding
this announcement, Toyo Denki did not receive formal notification.
(13) Upon confirmation of Nidec’s decision not to communicate separately with the Company
about the aforementioned announcement on the previous day, Toyo Denki announced on
December 16 its decision to discontinue all Proposal proceedings.

Consistent throughout Proposal proceedings, Toyo Denki has in goodfaith endeavored to secure from Nidec the information required for theCompany’s shareholders and investors to make an informed assessment
and decision. At the same time, Toyo Denki has sought to ascertain the
expectations of all stakeholders including customers, business partners andemployees. The Company sincerely apologizes for any inconveniencecaused as it attended to the aforementioned procedures from (1) to (13)over the three-month period ended December 16, 2008. We also offer ourheartfelt appreciation for your continued support and understanding.
Looking ahead, Toyo Denki will continue its efforts to secure sustainable
short-term improvements in the Company’s performance and to further
enhance Group corporate value from a medium- to long-term perspective.
Timeline of Inquiries, Replies, Discussions and Other Matters relating to the Proposal (in 2008)(1) Sep. 16		Comprehensive capital and business alliance proposal letter received
			
Analysis and deliberations commence(2) Oct. 1		
Initial list of 81 inquiries dispatched(3) Oct. 10		
Initial reply received(4) Oct. 24		
Second list of 55 inquiries dispatched(5) Nov. 5		
Second reply received(6) Nov. 17		
Third list of 20 inquiries dispatched(7) Nov. 25		
Third reply received(8) Nov. 28		A meeting between three parties proposed by Toyo Denki’s Independent
Committee(9) Dec. 5		
Three-party meeting held(10) Dec. 8		
Objection notice issued by Toyo Denki’s employees’ union(11) Dec. 11		
Meeting between the two involved companies to discuss matters relating
to technology, labor and finance, and management held
(12) Dec. 15 (11:00 am) Notification of completion of the provision of information issued by Toyo
Denki(12) Dec. 15 (3:30 pm) In line with the expiry of the original proposal submitted on Sep. 16, Nidec
Corporation announced its decision not to extend or issue a new proposal(13) Dec. 16		Toyo Denki announced its decision to discontinue all response measures

Leading-Edge Technology
SpecialFeatureTraction Control Equipment— Controlling the Movement of Trains

Toyo Denki’s ability to consistently identify and develop innovative technologies is a key factor in the Company’s ongoinggrowth. In this Special Feature titled "Traction Control Equipment — Controlling the Movement of Trains," we hope toprovide a deeper understanding of our leading-edge technology development capabilities.

R

egulated by a driver-operated master controller, electric
devices such as traction control equipment play animportant role in regulating the acceleration and decelerationof trains by controlling motor rotational speed. In conjunction
with advances in the field of electronics, the shift from a
resistance control to the chopper control system, and therapid progress culminating in the development of a variable
voltage variable frequency (VVVF) inverter, this control
mechanism has contributed significantly to eliminating
commutation, a major weakness in motors.

R

epresenting the peak in electronic technology, the VVVF
inverter accounts for the vast majority of current
production. Minute electronic circuits are packed tightly into
each inverter case. In similar fashion to the internal workingsof a personal computer, each VVVF inverter incorporates aseries of printed substrates embedded with delicate electronic
components. Banks of LED lights indicate the operating
status of each inverter, while dozens of terminals are linked byrows of connectors. The VVVF inverter control mechanism
converts the direct current that runs from the overhead wire
through each pantograph into a three-phase alternating
current, and in regulating both power voltage and frequency
controls motor rotational speed. Each inverter also contains aswitching semiconductor element that can be turned on andoff several hundred times per second. In finely shredding theflow of power to create a wave pattern, referred to as a pulse
train, the direct current is converted into a three-phasealternating current.
he use of conventional rheostatic controllers that serve toalter resistance values by switching voltage has given
way to significant advances in leading-edge technology.
Moving forward, Toyo Denki willcontinue in its endeavors todevelop a wide variety of diverse
technologies.

T

A VVVF Inverter

The aforementioned information is based on Tetsudo no Professhionaruzu (Railroad Professionals) (December
2008 Edition), part of the Rekishi Gunzo series of picture books published by Gakken Co., Ltd.
Photo: Kenichi Kawabe

4

s
t
h
g
i
l
h
g
i
H

Highlights

Major Exhibitions

Inno Trans 2008

Recognition for Contributions to the Beijing Olympic Games
Toyo Denki was invited to the Award Ceremony held in
Beijing, China on October 10, 2008 for companies
contributing the most to the transportation of global guests
and athletes via the Beijing Metro to the Beijing Olympic
Games, by the Beijing Mass Transit Railway Operation
Corporation, Ltd., and received an award for its help inproviding uninterrupted subway transportation andcontributing to a successful Beijing Olympic Games. In
addition to the supply of more than 40% of the mainelectrical equipment used in rail vehicles for both the mainstadium subway line 10 and branch line 8, the Company
was honored for its outstanding maintenance systems andservice as well as its proactive stance and support to ensuretransportation safety.
Looking ahead, Toyo Denki will actively participate ininfrastructure projects in China. By providing electrical

15-Year History Published
Toyo Denki celebrated its 90th
year since foundation on June20, 2008. While the Company
published a 75-year history tocommemorate its anniversary in
1993, a second publication
tracing Toyo Denki’s steps overthe last 15 years was publishedto mark this recent milestone.

systems for rail vehicles, the Company will contribute to thedevelopment of urban transportation in China.

Toyo Denki employees
at the awards ceremony
and the award

Construction Commences in a New
Research, Development and Design
Building at Yokohama Works
At a meeting of its Board of Directors held on October 10,
2007, Toyo Denki approved specific capital expenditures withthe aim of expanding production capacity as well as theCompany’s development and design capabilities at its
Yokohama Works. Plans call for the construction of a newbuilding adjacent to the existing works and office facility at an
estimated cost exceeding two billion yen. A groundbreaking
ceremony for the research, development and design building
was held within the Yokohama Works site on January 22,
2009.
Construction
completionis scheduled
in 2010.

The 15-Year History

Artist’s rendition of the finished building5

In conjunction with the Japan Overseas Rolling Stock
Association, Toyo Denki participated in InnoTrans 2008,
the world’s leading international trade fair focusing on railtransport technology. The exhibition was held in Berlin,
Germany from September 23 to 26, 2008.
In addition to actual size single-arm pantographs for
Shinkansen bullet trains and multi-divided contact strip
pan heads that contribute to high pantograph tracking
performance, Toyo Denki exhibited an extensive lineup of
its electrical equipment for rail vehicles as well as an
explanatory panel for theCompany’s E3 Solution
System, a power storage
system that effectively
stores and supplies energythat might otherwise be
wasted, enabling railway
operators to reuse andconserve energy.

APTA EXPO 2008
Organized by the American Public Transportation
Association, Toyo Denki participated in APTA EXPO 2008,
held at the San Diego Convention Center in San Diego,
California from October 6 to 8, 2008.
Encompassing a wide array of the Company’s latest
technology and products, Toyo Denki’s exhibit displayed
an explanatory panel for its E3 Solution System, a mockup of a lithium ion battery module for use both in E3
Solution System applications as well as hybrid light rail
vehicles (LRVs) that source
power from overhead wires
and on-board batteries, apanel for electricalequipment for use in thesehybrid LRVs, and a displayof actual LRV converter
power units.

To y o De n ki ’s
CS R Ac t i v i t i e s
Field Lectures on the Environment— Building Eco-Friendly Railway
Systems for a Cleaner Environment
Toyo Denki organized onsite
lectures at elementary schools
in Yokohama in November 2008
based on the theme “Building
Eco-Friendly Railway Systems— Promoting Ecological
Integrity through Increased
Railway System Use.” These
lectures were conducted at thebehest of the City of Yokohama,
which is working aggressively topromote environmental
Lecturer explaining theawareness and education.
function and mechanism of
Implementing a slide andthe pantograph using a
mock-upquiz format, a series of easy-tounderstand lectures on rail transportation and theenvironment were held at elementary schools in
Yokohama. Attended by approximately 150 year-six
students, these lectures encompassed such topics as thehistory of rail transportation in Yokohama, the types of rail
vehicles, why rail transportation is eco friendly, and how to
go about eco-friendly travel. Among this host of topics,
students gained invaluable knowledge on the amount of
CO2 emissions discharged when a single individual travels
one kilometer by various modes of transportation. The
students gasped in astonishment when learning thattrains discharged the least amount of CO2 whencompared with other transportation modes including
passenger vehicles and aircraft.
These field lectures on the environment were also
reported by the local newspaper.
Looking ahead, Toyo Denki will utilize the information
gathered in the natural course of its business activities toenhance the efficacy of its CSR activities.

A reporter from the newspaper
publishing company gathering
material

Students listening attentively to theslide presentation

6