Interview with the President

I would like to warmly thank all of ourshareholders and other supporters for theirunfailing loyalty over the past year.
In the following interview, I discuss our
performance in the fiscal year from June 1,
2007 to May 31, 2008, our 147th term.

President

Teruyuki Oosawa
The 21st century is an age of increasing globalization and environmental concern. The time is right for us
to make the world a better place using the core technologies we have developed over the last 90 years.
Please give us an overview of Toyo Denki’s
performance for the fiscal year ended May 31, 2008.

Q

In the fiscal year under review, the second year of our
medium-term management plan—the “Innovation 90 Plan”—
the economy faced a series of challenges, including an
intensification of the subprime loan problem in the UnitedStates, further rises in the prices of oil and other raw
materials, and volatile exchange rates. Despite the difficult
business environment that ensued, the Toyo Denki Group

worked hard to grow its business while improving corporate
value to meet the goals of the Innovation 90 Plan.
Despite a decline in orders received for the Industrial Systems
segment in the period, orders received in the Transportation
Business segment were firm, climbing 3.3% over the previous
fiscal year to reach 38,873 million yen.

While net sales in the Information Systems segment declined,
net sales in the Transportation Business segment grew by asteady 4.3% to 38,130 million yen.

previous fiscal year, to 15,901 million yen, assisted by suchfactors as growing demand for testing equipment for
automotive development and processing equipment.

Now let me say a few words about profit. First, efforts topromote TSS manufacturing reform and improve productivity
were insufficient to overcome several adverse factors. These
included a large number of projects in the Transportation
Business segment requiring a large amount of new designand development, and a leap in manufacturing costs causedby the spike in raw materials prices. As a result, operating
income fell 27.9% to 1,391 million yen, and ordinary income
declined 39.1% to 1,197 million yen. Further, the allocationof a reserve for directors’ retirement benefits resulted in an
extraordinary loss of 125 million yen, the sum required tomake up for previous fiscal years.

In the Information Systems segment, steady demand for
IC-compatible equipment for train station operation systems
lifted orders received 12.4% to 2,318 million yen. Net sales forthe segment, however, declined 33.0% to 2,447 million yen,
as deliveries of IC card-compatible equipment for the Tokyo
metropolitan area were completed in the first half of theperiod.

A breakdown of performance by division reveals that theadverse business environment had a particular impact on the
Industrial Systems segment.

Q

Please tell us about your outlook for the current fiscal
year (ending May 31, 2009) and your company’s plans.

A number of uncertain factors could potentially impact thebusiness environment ahead. These include a widening ofpressures that would see fluctuations in the US economy andsteep increases in the cost of oil and other raw materials
being passed onto the price of products.

Orders received by the Transportation Business segment
were up 16.0%, to 21,932 million yen, buoyed domesticallyby an increase in private sector railway demand, andoverseas by China’s Chengdu subway system project.
Underpinned by firm domestic demand, net sales for thesegment climbed steadily to 19,781 million yen, a 14.8%
increase.

While some of our customers show signs of a pullback from
capital investment in some areas, we will continue to pushahead with technology development and respond to market
needs.

In the Industrial Systems segment, corporate skittishness
about capital investment from early in the year and otherfactors resulted in a 12.4% decrease in orders received to
14,623 million yen. Net sales, however, grew 1.3% over the

Our consolidated performance plan, which contains our
performance forecasts, calls for orders received in the amountof 44,000 million yen, a 13.2% year-on-year increase, and net

Consolidated PerformanceNet sales

Operating income(Unit: Million yen)

40,00030,00032,454(Unit: Million yen)

36,571

38,130

3,000

3,000

2,589
1,928

2,000

Ordinary income

20,000

1,500

2,554

0
FY2005

FY2006

FY2007

1,000

1,000

0

0
FY2005

FY2006

FY2007

(%)

10

1,271

1,000

1,967

2,000

1,197

532

500

FY2006

FY20077.9

FY2005

FY2006

FY20075.7

FY2006

Interest-bearing debt ratio Equity ratio

45.0

41.3

38.8

15.1

13.6

15.6

FY2005

FY2006

FY2007

40
3.7

30

3.4

20
10

1.0
FY2005

(%)

50

9.1

-5

-500
FY20055

ROE ROA

0

151

0

Interest-bearing debt ratio and equity ratio

ROE and ROA(Unit: Million yen)

1,391

10,000Net income(Unit: Million yen)0
FY2007

ROE: Return on Equity ROA: Return on Assets

12

Interview with the President

sales of 40,000 million yen, a 4.9% increase. We forecast
operating income to climb 43.8% year-on-year to 2,000
million yen, driven by sales gains, improvements in
productivity, and fewer projects requiring a high proportion of
new design and development work.

the environment becoming an urgent global problem, we arehelping to improve the environment in countries around theworld by supplying highly efficient power generation facilities
and systems for a diverse range of generation systems
operating in different regional conditions.

rotary presses and automotive testing equipment. In January
2008, we launched the VF66 series of next-generation
inverters which feature a control mode switching function
between ED motor with inverter motor mode, and generalpurpose motor mode (see p.8).

The current fiscal year is the final year of our “Innovation 90
Plan.” While we do not expect to reach the initial targets ofthe plan due to the unforeseen changes in the businessenvironment, there is no change in the commitment tocorporate growth of the plan. Accordingly, we will work
steadily to solidify our business fundamentals based on our
long-term vision and aim to achieve our initial targets as soon
as possible after the fiscal year ending May 31, 2010.

The Information Systems segment will develop new
businesses in fields
such as remote
Brake rotor
Rotor for in-wheel motor
monitoring
Stator for in-wheel motor
systems, leveraging
its achievements intrain stationequipment
development.

For a company that develops environmental products such asthese, the growing environmental awareness in the world
today is highly advantageous. We
will always be driven to pursue
technological innovation, highenergy efficiency, and resourceconserving products.

Brake caliperQ

We will keep our sights set on growing our business andenhancing corporate value. Our main themes in this will be“contributing to the environment,” an area capturing growing
attention worldwide, and “overseas development” focused onmarkets with high growth expectations.
The Transportation Business segment will focus, domestically,
on developing products that meet the environmental needs ofcustomers in such areas as energy savings and better
environmental performance, in an effort to expand our market
share. Overseas, in recent years, demand in China has swiftly
expanded because of the demand generated by the Beijing
Olympics and Shanghai World Expo, and we have alreadyreceived numerous orders for electrical equipment for the
Beijing and Chengdu subway systems. In addition to China,
where robust demand is expected to continue, and theUnited States, where we have a strong track record, incoming years we will step up activities in markets like India
and Southeast Asia.
The Industrial Systems segment will strengthen its selective
focus on areas where the market is expected to expand. For
automakers, who need to adapt to environmental realities, weare developing direct drive in-wheel motors for electric cars
and aggressively promoting next-generation technologies forautomobile testing equipment, one of our flagship productlines. In addition, the electric motor and inverter technologies
developed over the years by the Transportation Business andIndustrial Systems segments will be applied to thedevelopment of products for electric propulsion ships, an area
attracting considerable interest, as we focus on developing
new markets. Overseas, with the need to alleviate pressure on

3

Stator bracket

What will the company focus onin the future?

Rotor bracket

ED Motor

Parts of an in-wheel motor

Q

How has rising environmental
awareness influenced your business?

Our technologies, which have supported the safe,
comfortable, and efficient operation of public transportation,
are now being applied in all of our business segments,
making major contributions to alleviating environmental
impact.

From August 2007, we began delivery of our E3 Solution
System (see p.7), a train power storage system that not only
ensures a stable supply of power but also saves energy. We
have also substantially reduced noise and vibration throughthe development of a single-arm-type pantograph andenclosed-type motor.
In addition, we contribute to the development of newenvironmentally friendly forms of urban transportation,
supplying key electrical equipment for products such as asuper-low floor light rail vehicles (LRV) developed to provide
barrier-free mobility, and Japan’s first normal-conducting
maglev linear motor car high-speed surface transport system(HSST), which was rolled out in time for the 2005 Aichi World
Expo.
Since it was developed in 1999, our permanent magnet-typesynchronous motor (ED motor), which achieves both highefficiency and compactness, has been used in industrial
equipment across a variety of fields, including newspaper

Q

Where do you see the company
in ten years?

The Group has created a long-term vision of where it wants to
be in ten years time and uses it to guide its management.
In response to markets, we are enhancing our global
competitiveness and expanding the proportion of ouroverseas sales to 30%. On the structural side, we are
expanding business and promoting innovation to ensure
continuous growth.
As a leading company in electrical equipment for railroad
rolling stock, our Transportation Business helps realize nextgeneration high-speed railroads in response to customers’
increasingly sophisticated needs. Using the technology andknow-how accumulated in the Japanese market, one of theworld’s most advanced rail operating environments, we arepromoting business globally and helping to develop railroad
networks in emerging nations and in markets all over world.
Drawing on the core electric motor drive technology we haveamassed since we first began, we are now working to create
new businesses in the Industrial Systems and Information
Systems segments in an effort to double our sales in theseareas. We are aggressively going after growing markets toestablish a steady stream of revenue that exceeds earnings in
our current Transportation Business.

Q

Please tell us about your policy
on shareholder returns.

Our basic policy is to maintain stable dividends for ourshareholders. The total dividend for the fiscal year underreview was 6 yen per share, unchanged from the previous
year, and we also aim to keep dividends at 6 yen or higher inthe current fiscal year, ending in May 2009, and beyond.
We strategically allocate a portion of some revenues, as
retained earnings, to such purposes as R&D, capital
investment, and overseas development, and we set aside
another portion to improve our financial position. Goingforward, we are committed to growing our business andstrengthening our business foundation in order to maintainstable dividends for our shareholders.
During the fiscal year under review, we purchased 900,000 of
our own shares. As a result, the company now owns about
4.4% of its total outstanding shares.
As we go forward, our aim is to achieve balanced growth andto prove worthy of the hopes placed in us. We ask for yourcontinuing support and cooperation in the future.

4

90th
Anniversary

Toyo Denki Milestone

Operations get underway
In the autumn of 1917, construction of a factory (about
26,400 m2) began in Kubocho, Yokohama. By March 1918,
work was complete, and in September of the same year theplant began operating. (At this time, the company had a totalof 265 employees, with 44 at the head office and 221 on thefactory floor). In September 1919, the first traction motor andcontroller were delivered to Keihan Electric Railway.

Thanks to the faithful support of our shareholders and other stakeholders, on June 20, 2008, we celebrated our
90th anniversary. These pages present the major milestones we have achieved from the beginning through today.
Toyo Denki established
Our first president, Kaichi Watanabe (at that time, president ofIshikawajima Shipbuilding & Engineering Co., Ltd., and a
director of Keihan Electric Railway Co., Ltd.), planned thedomestic production of electrical equipment for rolling stock.
He negotiated with the British company Dick Kerr & Co., Ltd.,a famous name all over the world at the time (which became“The English Electric Co.” in 1919), and signed a production
and sales contract with the company. Based on this,Watanabe drafted a charter and obtained the backing of anumber of influential figures such as Eiichi Shibusawa, aleading light in financial circles. On June 20, 1917, aninaugural general meeting was held and the company waslaunched. (Capital stood at 3 million yen.)

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Historical background
Although the domestic production of rolling stock, rails, andother items was quite advanced, based on the importation of
steam locomotives, Japan lacked the technology for
producing the main electrical equipment such as traction
motors and controllers that were at the heart of electric trains
and locomotives. Up until the start of the Taisho Period(1912), almost all these items had to be imported. Prior to theoutbreak of World War I in 1914, Japan had imported most of
its electrical equipment and similar items from Germany, andwith the interruption of these imports, momentum gathered to
produce them locally.

Third-generation electric locomotive for towing
ships through Panama Canal (2002)

The story of our company is told by the milestones below,
which each represent a chapter in our history. Recently, on
June 20, 2008, we turned a new page when we celebrated
our 90th anniversary. Going forward, we will continue to put
into practice our core commitments—“Maintaining an ethicalstance and contributing to society and customers,”“Developing a culture of enterprise and originality andembracing the challenges of the future,” and “Insisting on
quality and enhancing levels of trust.” Based on theseunchanging principles, we will continue to develop ourbusiness operations and work to meet the expectations of all
those who have placed their trust in us.

D
T
L
HISTORY OF TOYO ELECTRIC MFG CO.,80-ton electric locomotive (1934)

1918

1921

Papermaking machine using
static Leonard system (1965)

1932

1950

2007

Subway Line 10, Beijing (2005)

2006

2005

2004

1952

1960

1965

1972

1977

1988

1991

1997

1998

1999

2002



PASMO-compatible commuter ticket
issuing machine (2006)

5

6

Feature Transportation Business Segment Products

Feature Industrial Systems Segment Products

Railroad electricity storage system

Next-generation inverters

VF66 series

E 3 Solution System
EnergyJointly developed by Toyo Denki and GS Yuasa Power Supply Ltd., the E3 (pronounced“e-three”) Solution System is an electricity storage system for railroads. It consists of a newlarge-capacity lithium ion battery and a reversible DC/DC converter control circuit. Thissystem, which offers a voltage drop compensation function, regenerative power absorption,
and a power peak cut function, is an excellent substation assist system for trains, allowing
railways to operate on less energy, thereby helping in the fight against global warming.
E3 Solution System
Substation

Point A

Substation

Discharge

1

Substation

Function!

te
Accelera2Function

E3 Solution System

3 Brake!

EcologyUse of energy-efficient lithium
ion batteries avoids power
being wasted as heat, etc.—aproblem up to now—andcontributes to effective use of
power.

Function

Charge1Function

Problem
The greater the distance from thesubstation, the greater the voltage drop.
Voltage can go particularly low at peaktimes when many trains are operating.

Energy-saving measures
are applied in all areas toensure effective use ofenergy resources. Our energy
solutions contribute to energy
saving measures by using
power effectively.

2

Function

1 Versatility

Advantage

Drawing on our variable speed drive technologies derived frominverters, we have developed a new series of products with broad
application to variable speed systems based on AC electric motors.
They are able to drive either an induction motor or an interior
permanent magnet synchronous motor.

Advantage
Advantages

EconomyOur energy solutions effectively
reduce expenses by eliminating theconstruction costs involved in building
the new substation facilities that would
otherwise be needed to counter dropoff in voltage and power shortages,
and by avoiding the need to expand
contract power and increase capacityof power receiving facilities.

3

Function

Problem

Problem

The morning and evening power peaks
during rush hours can push up electricity
costs. The ever-increasing carrying capacityof trains creates the need for more power
and more substations.

On track employing regenerative trains, the voltage increases andregenerative power is lost if there are no other trains making power
demands on the line. The more regenerative trains there are, themore pronounced this phenomenon becomes, meaning more power
regenerated by the rolling stock is lost as heat, etc., is wasted.

2 Environmental friendliness

The VF66B series inverter is environmentally friendly and complies with the
EU RoHS (Restriction on Hazardous Substances) Directive. All components
used are lead-free, and no mercury or any other substance specified under
the RoHS Directive is used.

3 Focus on energy savings

Advantage

By extending the VF66B inverter series, we focused on expanding salesof drive systems based on highly energy efficient interior permanent
magnet synchronous motors, sought to increase the energy-savings
offered by our production line system, and offered a product with asmaller environmental footprint able to counter global warming.

Intelligent invertor VF66

VF66 series market positioning
The VF66B inverter is the successor to the VF64/ED64sp series and was developed for applications where
advanced functions are required. It is expected to attract new customers as well as retain existing ones. We plan to7

Solution
Voltage drop compensation

Solution
Cutting power peaks

Solution
Absorbing regenerative power

develop an upgraded version of the VF66B series that will become the industry’s top performer. Research andVoltage drop can be controlled by splicing
the E3 Solution System into locations wherethe voltage goes low.

The E3 Solution System can control power
expenses at peak times and reduce theneed for contract power.

The E3 Solution System effectively stores
regenerative power and supplies thatpower to other active trains.

targeting applications in dynamo systems like automotive testing equipment for hybrid automobiles.

development are underway to create an inverter that offers high speed, high precision, and advanced functions,8Highlights
Beijing Subway Line 10 goes into operation
Beijing Subway Line 10, which
provides access to the main
venues for the Olympics thatstarted on August 8, 2008, went
into commercial operation on July
20. Toyo Denki delivered complete
sets of controllers, traction motors,
gear units, auxiliary power supply
systems, and other equipment for
240 vehicles operating on the line.
The photo at right offers a scenefrom the July 19 line opening
ceremony attended by Toyo Denki
president Teruyuki Oosawa.

Olympic Green
44% of the sporting facilities
are concentrated here
Line 4
University Area
Offers sporting facilities

Line 10

Line L1
Olympic Village

Line 10

Tiananmen SquareLine 1

Line 1
Western Community Area
Offers sporting facilities

Line 4

Line 5

Line L2

Line Opening ceremony

Beijing Subway Lines

CSR at Toyo Denki

On June 20, 2008, the anniversary of thecompany’s establishment, we unveiled a newversion of our website featuring an improved
design and even easier access and content
search. We revamped the site’s structure withpotential customers in mind.

Environmental housekeeping book
To remind employees of the Toyo DenkiGroup and their families of the need to saveenergy at home and support their efforts, we
handed out environmental housekeeping
books. We also made it available on our
website to the general public.

Plant tours given to railway societies

9Line 13

Line 2
Line 9*Not yetopen

Website Upgraded

http://www.toyodenki.co.jp/en/

Olympic BranchLine

To help the young people who hold the future in
their hands understand our products andtechnologies, we invited members of university
railway societies to tour our Yokohama Plant.
The participants were very interested in thelocomotive electric motors, inverters, and othermain products of our Transportation Businesssegment, and asked many questions.

North Scenic Area
Offers sporting facilities

Line 5

Ba Tong Line