Toyo Engineering Corporation Annual Report 2004

Address : 2-8-1, Akanehama,Narashino-shi, Chiba 275-0024, Japan
Te l: 81-47-451-1111
Fax: 81-47-454-1800
http://www.toyo-eng.co.jp/

2004

Annual Report

Year ended March 31, 2004

PRINTED WITH

SOY INK

TMThis report was printed with soy ink and was produced with waterless printing methods.

2004 Toyo Engineering Corp.
Printed in Japan

Corporate Data

Corporate Profile
For more than four decades, Toyo Engineering Corporation (TOYO) has been serving clients● TEC Air Service Corporation

Founded:worldwide through its expertise in plant engineering. Flexibility has defined the Company’s

Travel and insurance services
2-6-7 Ginza Chuo-ku, Tokyo 104-0061, Japan
Tel: 81-3-3564-0130 Fax: 81-3-3564-0530

May 1, 1961

● Toyo Business Engineering Corporation¥13,018 million

operations over the years; TOYO has constantly responded to market needs, shifting quickly
in terms of market segments, geographic regions, project types and contract schemes.
To date, TOYO has completed more than 1,400 projects around the world.
Comprehensive engineering technology and project management capabilities are our corestrengths. TOYO is further distinguished by expertise in leveraging cutting-edge technology,
adopting a global networking perspective and building optimum alliances. Backed by thesePaid-in Capital:

System consulting and solutions provider
2-6-3 Akanehama Narashino-shi, Chiba 275-0024, Japan
Tel: 81-47-454-1261 Fax: 81-47-454-1145● Chiba Data Center Corporation
Data input service, documentation using word processors and printing
6-5-3 Tendai Inage-ku, Chiba-shi, Chiba 263-0016, Japan
Tel: 81-43-284-3611 Fax: 81-43-284-3533

Number of Employees:
959
Stock Exchange Listing:Tokyo Stock Exchange
Authorized Shares:
500,000,000

strengths, we are dedicated to reflecting in each and every project our corporate philosophy● TEC Accounting & Consulting Ltd.

Capital Stock Issued:of “providing total solutions that ensure the satisfaction and success of our clients.”

Business support and consulting for accounting andaccounting system development
2-8-1 Akanehama, Narashino-shi, Chiba 275-0024, Japan
Tel: 81-47-454-1690 Fax: 81-47-454-1289

175,692,539

Overseas

Transfer Agent:● International Procurement & Service Corporation

The Chuo Mitsui Trust and Banking Co., Ltd.

Procurement services in Europe
25, Route D’Esch, L-1470, Luxembourg
Tel: 352-497511 Fax: 352-487555

Number of Shareholders:
20,017

3-33-1, Shiba, Minato-ku, Tokyo 105-8574, Japan● Toyo U.S.A., Inc.
Procurement services and market development in the U.S.
15415 Katy Freeway, Suite 600, Houston, TX 77094, U.S.A.
Tel: 1-281-579-8900 Fax: 1-281-599-9337

Others0.45

Financial institutions
13.55● Toyo do Brasil Ltda.

Contents

Engineering and construction for plants and facilities
Praia de Botafogo, 228-Sala 801C-Ala “B”, Botafogo,
Rio de Janeiro-RJ, 22359-900, Brazil
Tel: 55-21-2551-1829 Fax: 55-21-2551-2048

FY2004 Highlights...................................................................1● Toyo Engineering Corporation (China)

A Letter from the President .....................................................2

Consulting for engineering and construction of plants and facilities,
procurement services
Suite 211, CIMIC Tower 800 Shangcheng Road, Pudong Shanghai 200120, China
Tel: 86-21-5835-6500 Fax: 86-21-6876-3861/2

To Our Shareholders ...............................................................3
Board of Directors and Corporate Auditors.............................7
Review of Operations
EPC Solutions Business Operations (Overseas) .......................8
EPC Solutions Business Operations (Domestic) .....................10e-Solutions Business Operations ..........................................12
HSE & Quality......................................................................13

Engineering and construction for plants and facilities"Toyo House", L.B.S. Marg, Kanjurmarg (West), Mumbai-400 078, India
Tel: 91-22-2579-9001 Fax: 91-22-2579-9061/2

Consolidated Five-Year Summary .........................................15● East Net Co., Ltd.

Consolidated Balance Sheets...............................................16

Development of computer system software and system consulting
4th Fl. Strength Bldg. Gao Xin Ave. 1.S., South, Hi-Technology Industry
Zone, Shenzhen 518057, China
Tel: 86-755-2698-2126 Fax: 86-755-2698-2130

Consolidated Statements of Shareholders’ Equity ..................19
Consolidated Statements of Cash Flows ...............................20● Toyo-Thai Corporation Ltd.

Notes to Consolidated Financial Statements ..........................21

Engineering and construction for plants and facilities
22nd Fl., Serm-Mit Tower, 159 Soi Asoke, Sukhumvit 21 Road,
Bangkok 10110, Thailand
Tel: 66-2-260-8505 Fax: 66-2-260-8525/6

Independent Auditors’ Report ...............................................29
Transnational Structure.........................................................30
Corporate Data .....................................................................31●CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This annual report includes certain “forward-looking statements.” These statements are based on management’s current expectations and are subject to uncertainty
and changes in circumstances. Actual results may differ due to changes in economic, business, competitive, technological, regulatory, and other factors.

(%)

Foreign shareholders
2.33

Domestic companies
47.82

Less than 5,000 shares
12.82

1,000,000 shares or more
51.42

● Toyo Engineering Korea Limited

Management’s Discussion and Analysis ................................14

Consolidated Statements of Operations ................................18

Type of
Shareholders● Toyo Engineering India Limited

Engineering and construction for plants and facilities
Toyo Bldg. 677-17, Yeoksam-1 Dong, Kangnam-ku, Seoul, 135-081, Korea
Tel: 82-2-2189-1619 Fax: 82-2-2189-1891

Financial Section

Individuals
35.85

5,000–49,999 shares
21.52

Number of
Shares Held(%)

50,000–499,999 shares
9.43

500,000–999,999 shares
4.81(As of March 31, 2004)● Toyo Engineering & Construction Sdn. Bhd.
Engineering and construction for plants and facilities
Suite 25.4, 25th Fl., Menara Haw Par, Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia
Tel: 60-3-2078-5796 Fax: 60-3-2078-5798(As of June 25, 2004)
Annual Report 2004 31

FY2004 Highlights
Thousands of
U.S. dollars*Millions of yen

Financial Summary

2004

2003

2004

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

¥170,529¥179,168$1,613,484

New orders......................................................................................................................

241,528

195,160

2,285,249

Backlog of contracts at end of the year..........................................................................

350,574

307,817

3,317,007

Net loss...........................................................................................................................

6,491

923

61,418

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

201,133

199,494

1,903,047

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

24,72429,694

233,930

37.00

5.27

0.35

Per share data (in yen and U.S. dollars):
Net loss........................................................................................................................
*U.S. dollar amounts are stated at ¥105.69 to $1, the exchange rate prevailing on March 31, 2004.

Operational Summary
 Revenue and earnings declined primarily due to increased losses on a petrochemical project in the Middle East.
 New orders totaled ¥241.5 billion, exceeding the year’s target, supported by large orders for energy-related projects in Russia and Iran.
 Solid operating cash flows led to reduce interest-bearing debt by ¥16.0 billion, well above the target of ¥10.0 billion.

Net Sales

New Orders

Backlog of Contracts(¥ billion)(¥ billion)(¥ billion)

179.2

241.5

232.7

350.6

170.5

159.0

155.8

324.3

195.2

119.1

300.6 307.8

222.2

131.2
117.3

’00

’01

’02

7.8

’03

’04

’00

’01

’02

3.5

9.3

’03

’04

0.1

’00

’01

5.0

9.2

’02

0.8

’03

’04

12.1

20.8

11.5

Composition of
Net Sales by
Sector(%)

30.8

Composition of
New Orders by
Sector
(%)

1.2

Composition of
Backlog ofContracts by
Sector
(%)

27.3
13.3

65.2

17.6

6.3

58.2

■ Chemical Fertilizers ■ Petrochemicals ■ Refinery ■ Energy-Related ■ General Manufacturing Facilities and Information Technology ■ Others

Annual Report 2004 1

A Letter from the President

On May 1, 2004, Toyo Engineering Corporation (TOYO) reformed its
management framework and entered a new stage of corporate
development under my leadership as newly nominated president andchief executive officer.
Our most important objective is to restore the Company to normal
profitability by achieving our profit target in fiscal 2005, ending March
31, 2005, and to realize sustainable growth in the following years.
I am strongly aware that accomplishing this objective is my principal
mission as chief executive officer. I am eager to transform TOYO into
a company that is trusted by its clients through the success of every
project we undertake and is seen as a reliable long-term partner.
We, at TOYO, strive to be a continuously evolving company that can
assist in generating new forms of value for clients while responding to
the constantly changing nature of our business operations.

Yutaka Yamada
President and Chief Executive Officer

2 Toyo Engineering Annual Report 2004

To Our Shareholders

Fiscal 2004 Operating Environment andOperating Results
Operating Environment
During fiscal 2004, ended March 31, 2004, overseas
market was brisk, mainly due to active investment innatural gas-related projects in the energy sector,
despite the unstable international situation, including
the Middle East. However, in Asia, one of our coremarkets, the business environment remained generally sluggish and capital investment was slow, except in
China. Regarding the domestic market, Japan’s oiland petrochemical companies are increasing investments in China to enhance competitiveness. Also, thepharmaceutical industry made new investments in
multi-purpose plants. In the IT-related sector, competition heated up as the cycle of brisk investment
neared the end.

New Orders
Consolidated new orders rose above the previous
year’s level to ¥241.5 billion, consisting of ¥195.5
billion in overseas orders and ¥46.0 billion in domestic

President & CEO, Yutaka Yamada

orders, allowing us to achieve our original target for
fiscal 2004. Overseas, there were two very large
orders received, one each with Chiyoda Corporation
and JGC Corporation. One is for the construction of
an LNG plant in Sakhalin, Russia, our first LNG project.
The other is for the construction of a gas processing
plant in Iran. Other significant orders included followup orders for a large ethylene oxide / ethylene glycol(EO/EG) plant in Saudi Arabia and for the world’s
largest fuel-use DME plant in China. These achievements reflect the clients’ appreciation of TOYO’s
excellent project execution record and advanced
technologies. In Japan, TOYO received an order for alarge aniline plant and several orders from Japaneseclients setting up operations in China.

Annual Report 2004 3

Revenue and Earnings

Interest-Bearing Debt

Consolidated net sales decreased ¥8.6 billion, or 4.8% from the previous year,(¥ billion)to ¥170.5 billion, representing domestic sales of ¥37.1 billion and overseas

92.5

sales of ¥133.4 billion. An operating loss of ¥3.3 billion and a net loss of ¥6.5

82.1
66.2

billion were recorded, primarily due to increased losses on a petrochemical plant
project in the Middle East. However, operating cash flows were solid, providing
adequate funds to reach TOYO’s March 2005 debt reduction target one year
ahead of schedule.

’02

’03

’04

A Strategy for Sustainable Growth
10.2

1.4
21.7

7.2

Net Sales byArea

The Strengths That Define TOYO
7.2

Flexibility to Respond to Shifts in Market Needs
For the past four decades, TOYO has constantly been responding to market(%)

needs, shifting quickly in terms of product lineup, geographic area, project types
25.7

and other aspects of operations to match the changing needs of its clients.

26.6

Thanks to this flexibility, we have completed more than 1,400 projects in 50(¥ billion)■ Japan ..................................37.1■ Southeast Asia ....................12.3■ Southwest Asia and Africa ...45.3■ Russia and Central Asia.......43.8■ Central and South America..12.2■ China...................................17.4■ U.S.A., Korea and Others .... 2.4

countries. By constantly drawing on this wealth of experience, we are continuously
working to meet an increasingly diverse spectrum of client needs and to ensure
the satisfaction of clients.

High Performance in Both EPC * and Technology
TOYO is an organization with two strong orientations, EPC and technology, key
strengths that set it apart from competitors. As a construction- and commissioning-oriented EPC company, we are uniquely positioned to handle turnkey EPC
projects. As a technology-oriented company, we can undertake front-end engineering designs (FEED) and co-create advanced technologies with our clients
through R&D Engineering.

* EPC: Engineering, Procurement, Construction

4 Toyo Engineering Corporation

To Our Shareholders

Marketing Strategy
TOYO will develop business operations based on the marketing strategy described below to acquire a certain
level of orders for preserving profitability and to invest the development of its next core businesses.

High Priority on the Energy Sector

Provision of Total Lifecycle Solutions

TOYO is now vigorously involved in gas processing,

Going beyond the construction of facilities, we wantpipeline and LNG-related projects as well as oil andto offer clients total lifecycle solutions, including con-gas development and alternative clean energy proj-

sultation for investment planning and operations andects, such as gas-to-liquid (GTL) and dimethyl ether

maintenance (O&M).

(DME). We will continue to pursue energy-related
projects as our primary business field.

Business Development in Japan Centered on
Client-Oriented Proposals

Intensified Sales Activities for
Our Distinctive Petrochemical andFertilizer Technologies

In Japan, we plan to expand business by utilizing our

TOYO will actively pursue sales activities for distinctive

and provide R&D Engineering and e-solutions corre-technologies to meet growing client needs such as

sponding to client needs for structural reforms andthose for Olefins Conversion Technology (OCT)advanced technology development.

capabilities in client-oriented proposals to assist
Japanese clients in setting up operations in China

licensed by ABB Lummus Global Inc. for modifying
ethylene plants to increase production of propylene,
which is in high demand, and TOYO’s proprietary

Upgrade Technological and Product Capabilities
Rooted in TOYO’s Own Processes

technology for energy-saving and large-granule urea

We will use our proprietary process technologies—

production.

synthesis gas generation technology, large-scale
methanol technology and DME technology—to differ-

Focus on Non-Hydrocarbon
Investments and Facilities

entiate ourselves and win more orders. One example

We will increasingly seek opportunities in investments

in China.

is the world’s first commercial DME plant for fuel-use

and facilities for non-hydrocarbon fields such as waterand electricity. Population growth and expanding
economies are creating high demand for these investments, which require our project management andrisk analysis capabilities as well as regional know-how
for project success.

Annual Report 2004 5

To Our Shareholders

New Orders
in the Energy-Related Field

Outlook for Fiscal 2005(¥ billion)

157.4

Prospects for New Orders
In fiscal 2005, we foresee a continuation in adverse market conditions due to such factors as the appreciation of the yen, a strong euro, high prices for steel, and other negative trends. On the other hand, we foresee substantial investments in gas processing

74.2

and other energy-related facilities in South America, the Middle East and Africa as wellas in the petrochemical field. We are off to a smooth start in fiscal 2005, having won

26.7

orders for a large fertilizer plant in Iran, a large pipeline project in Brazil and a Vinyl
’02

’03

’04

Chloride Monomer (VCM) plant in Japan. We are projecting a decrease of about 25%
in new orders, to ¥180.0 billion, representing a performance that is about the same asin past years. The year-on-year decline is the result of two extremely large projects thatpushed orders in fiscal year under review to an unusually high level.

Revenue and Earnings
In fiscal 2005, we are projecting consolidated net sales of ¥180.0 billion, consolidated
operating income of ¥5.0 billion and consolidated net income of ¥3.5 billion. Losses
on a petrochemical plant project in the Middle East led to disappointing results in fiscal 2004. We have examined the causes for the losses in this project and have taken
appropriate actions. Under a new management framework adopted in May 2004,
each business unit is reinforcing its various functions, clarifying its lines of accountability and strengthening its inter-divisional check and controls, which will bolster risk
management and prevent the occurrence of excess loss, and which will restore ouroperations to normal profitability.

August 2004

6 Toyo Engineering Corporation

Board of Directors and Corporate Auditors

From left: Kazuhisa Marukawa, Yoshitaka Ogata, Yutaka Yamada, Takuichi Murachi

Board of Directors and Corporate Auditors● President and Chief Executive Officer
Yutaka Yamada*● Executive Vice President
Kazuhisa Marukawa *● Directors and Senior Executive Officers
Yoshitaka Ogata (Chief Technical Officer) *Takuichi Murachi *Keiji Suda
Kuniaki Tsuyada
Hisashi Saigo
Kenji Soejima
Kazuomi Nishihara
Makoto Fusayama● Senior Executive Officers
Isao Ichikawa
Ken Wakazuki
Komei Ohta
● Executive Officers
Osamu Okura
Shuji Ueki
Masahiro Suzuki
Yoshiaki Mizoguchi
Akichika Sumi
Akhilesh Kumar
Hidetsugu Fujii
Kiyoshi Nakao
Keiichi Matsumoto(The above directors hold the position of executive officer.)* Representative Director● Senior Corporate Auditor
Masayoshi Korasaki● Corporate Auditors
Kunimichi Gamo
Ryutaro Koyasu
Terutake Kato

(As of June 25, 2004)

Annual Report 2004 7

Review of Operations

Overseas
EPC Solutions Business Operations

Overseas

Achievements in Fiscal 2004

Gas & OilPars gas field in offshore Iran.

The remarkable performance in this sector in fiscal

With regard to DME, which is gaining attention as2004 was mainly the result of aggressive sales activi-

an alternative clean energy, the world’s first commer-

ties targeting energy-related projects, primarily natural

cial plant for producing fuel-use DME with a capacity

gas. New orders in this field more than doubled, toof 10,000t/y has been operating as planned at¥157.4 billion, almost six times the level of two years

Lutianhua Group Inc. in China. This success led to aearlier. Energy-related projects accounted for 65% of

second order in fiscal 2004 to build a 110,000t/y

new orders.

fuel-use DME plant for the same client. Feedstock for

One major accomplishment was our first order from

DME production will be supplied by a 450,000t/y

Sakhalin Energy Investment Co., Ltd. for a LNG plant

methanol plant, for which we provided the basic

on Sakhalin Island in Russia. This is a joint venture

design and equipment procurement service, including

project led by Chiyoda Corporation together with two

TOYO’s proprietary MRF-Z ® Reactor.

Russian companies. When completed, it will be theworld’s largest LNG plant, with a total capacity of

Pipeline Business Grows

9,800,000t/y.

In the 1980s, TOYO constructed more than 2,000km

Another highlight of the fiscal year was the orderof pipeline in total length in the Middle East and India.

received from Petropars Ltd. with JGC Corporation

Recently, we have again started emphasizing thisand Iranian and Korean companies for the construc-pipeline business as part of our energy-related activities.

tion of a gas processing plant, with a capacity of

In September 2003, we completed well ahead of

3,000MMSCFD, in Iran. One of the largest facilities oftight schedule—only 17 months after contract effectu-

its kind in the world, the plant will produce liquefied

ation—the construction of a 90km gas pipeline (40”petroleum gas (LPG) and condensate from naturaland 28” diameter) and a compressor station neargas recovered from phases 6, 7 and 8 of the SouthBaku, Azerbaijan for JSC Azerigaz.

Earthbreaking ceremony ofgas processing plant for
Petropars Ltd., Iran

8 Toyo Engineering Corporation

DME plant for
Lutianhua Group Inc., China

For Petroleo Brasileiro S.A. (PETROBRAS) in Brazil, we are constructing a gas pipeline (12”–16” diameter) about
440km in length in the northwest region that will link Guamare and Fortaleza, another gas pipeline (28” diameter) insoutheastern Brazil that will be 460km long and link Campinas and Rio de Janeiro and related facilities. In fiscal
2004, we received another order to build a gas pipeline (26” and 14” diameter) approximately 500km in length
between Catu and Pilar in northeastern Brazil. This order raises to 1,400km the total length of pipeline underconstruction by TOYO in Brazil.

Future Prospects
TOYO has extensive experience in the construction of fertilizer, ethylene and other chemical and petrochemicalplants. In response to current market trends, we are placing greater emphasis on energy, a stance that has
raised oil, gas and other energy-related projects to about half of the total volume of business.
We have completed a large number of energy-related projects in Southeast Asia, the Middle East, SouthAmerica, Russia and other locations over the past two decades. In particular, we are confident that we are taking alead in the oil and gas field development. The energy sector will therefore continue to be TOYO’s highest priority
and the Company will focus on winning more orders in this area.

EPC Solutions Business Operations

Overseas

Petrochemicals &Chemicals

Achievements in Fiscal 2004
Fiscal 2004 was also a year of steady progress in our petrochemical and chemical operations. Total new orders for petrochemical and chemical projects were down 25% from theprevious year to ¥50.2 billion, accounting for about 20% of total orders.
One highlight of the year was an order from Saudi Basic Industries Corporation (SABIC) tobuild a large EO/EG plant, with EG-equivalent capacity of 630,000t/y, in Saudi Arabia. Thissecond plant will be constructed beside the first EO/EG plant of similar size now under construction by TOYO. Smooth execution of the first project earned TOYO the credibility andSigning ceremony for second
ammonia and urea plant for
PIDMCO, Iranappreciation of the client, leading to the award of this second project on a non-bid basis.
The size of industrial plants is growing dramatically as is evidenced by a FEED orderfrom Formosa Petrochemical Corporation in Taiwan for a 1,200,000t/y ethylene plant—
one of the world’s largest—following the order for a 900,000t/y ethylene plant we
received in 1996.
In China, a 2,460t/d urea plant for Sichuan Chemical Works (Group) Ltd. came on
stream recently. This facility incorporates ACES21® (Improved ACES), the latest version

ACES21® urea plant for Sichuan
Chemical Works (Group) Ltd., China

of TOYO’s proprietary urea process, which realizes low energy consumption and low
investment cost.

Annual Report 2004 9

Aggressively Promoting Technology-

Future Prospects

Oriented Business

Accompanying growing demand for consumer goods

In the petrochemical and chemical sectors, we arein China, greater demand is expected for olefins, such

putting our efforts on technology-oriented businessas ethylene and propylene, as well as for value-added

development, forming alliances with licensors for

products. This expected demand indicates that invest-

sales and bidding, focusing on FEED work and pro-ments will be growing both for new facilities and formoting R&D Engineering to support clients for earlyrevamps and upgrades at existing facilities in suchcommercialization of their new technologies.

areas as the Middle East, China and Southeast Asia.

In fiscal 2004, this approach was particularly suc-In the current fiscal year, jointly with Chiyoda

cessful in China. Examples are the start-up of com-

Corporation and an Iranian company, we received inmercial operations at a DME plant and an ACES21®

April 2004 a contract from Petrochemical Industries

urea plant. Both plants incorporate TOYO’s latest pro-Development Management Co. (PIDMCO) for theprietary technology. With regard to new orders, ourconstruction of a large fertilizer plant in Iran with atechnology orientation enabled us to secure basic

capacity of 2,050t/d for ammonia and 3,250t/d fordesign orders for a 1-4 butanediol (BDO) plant and aurea. The consortium was awarded this project with-urea granulation plant.

out competition because of the outstanding project
management skills displayed at the ongoing fertilizer
plant for the same client.
In Malaysia, our FEED work at a petrochemical plant
executed in 2003 has led to the recent receipt of
EPC orders.

Domestic
EPC Solutions Business Operations

Domestic

Achievements in Fiscal 2004
As rapid economic growth continues in China, Japanese companies are increasingly pushing forward the segmentation of production bases between China and Japan by concentrating their operations solely on businesses where
they are most competitive and profitable. In this setting, TOYO was able to generate results in domestic operations
that exceeded its target for fiscal 2004.
Our accomplishments in the petrochemical plant sector were highlighted by an order received from Tosoh
Corporation for the construction of an aniline plant with a capacity of 150,000t/y, one of the major projects inJapan’s oil refining and petrochemical industry. Aniline is the primary ingredient of diphenylmethane diisocyanate(MDI), the raw material for rigid polyurethane foam.

10 Toyo Engineering Corporation

Review of Operations

Another notable order was received from Nippon Petrochemicals Co., Ltd. for the design
work of the second plant in Japan to apply OCT licensed by ABB Lummus Global Inc. toincrease propylene production. This marks the first time in Japan that butane from the Fluid
Catalytic Cracking (FCC) plant of Nippon Petroleum Refining Co., Ltd. will be used as themain feedstock for the OCT unit, making a significant contribution to the planned integrationof oil refining and petrochemical operations.

Multi-purpose plant for Wako Pure
Chemical Industries, Ltd., Japan

In the industrial plant sector, one of the highlights of the fiscal year was an order received
from Tanaka Kikinzoku Kogyo K.K. to construct a new chemical plant.

Assisting Japanese Clients Expand Operations in China
Over the past 30 years, TOYO has participated in more than 110 projects in China. We
are using this wealth of experience to assist Japanese clients set up operations in China.
Work is now proceeding on chemical products plants, electronic components plants andother projects.

Earthbreaking ceremony of flame
retardants plant for Daihachi
Chemical Industry Co., Ltd., China

In fiscal 2004, we received orders from Nippon Shokubai Co., Ltd. for the constructionof a super absorbent polymer (SAP) plant and from Daihachi Chemical Industry Co., Ltd.
for the construction of a flame retardants plant.
Having established agreements of friendship and cooperation with industrial development zones in Shanghai and surrounding major cities, we will work with our affiliatedcompany in Shanghai to assist clients from the selection of a suitable site to plant
construction. Our next goal is to extend operations to three provinces—Liaoning, Jilin
and Heilongjiang—in northeastern China.

Future Prospects
We are placing even greater importance on alliances with clients and leveraging our
extensive experience and proven record of reliability with the aim of raising orders for
projects in Japan and China. Recently, Tosoh Corporation awarded TOYO a contract toconstruct a VCM plant with an initial capacity of 400,000t/y in Japan.
In the industrial plant sector, we plan to utilize the recent completion of a multi-purpose
plant for Wako Pure Chemical Industries, Ltd. to win more orders from pharmaceuticalcompanies. We also plan to develop markets for new products, such as piXY, a new
type of XY Router ® that is suitable for handling viscous materials.
By drawing on our advanced technological skills, we will strive for further achievements
in R&D Engineering, which supports clients to realize early commercialization of their own
technologies.

Annual Report 2004 11

e-Solutions
e-Solutions Business Operations

Achievements in Fiscal 2004

new business category for TOYO. In this case, we

IT investments remained flat during fiscal 2004, anddeveloped an Internet-based securities trading front-

the market situation for systems integration projects

office system for a securities company.

continues to be severe. Despite this challenging envi-

In addition to systems integration in SCM, ECM andronment, there are solid needs at companies in every

financial solutions, we had accomplishments in theindustry for business reforms that can boost efficiency

energy solutions field for electric power and the publicand cost competitiveness. As a result, there is consid-

sector, resulting in a diverse array of achievements forerable demand for consulting and systems integration

our e-solutions business in fiscal 2004.

services that are able to meet these needs.
Fiscal 2004, the third year of our e-solutions busi-

Future Prospects

ness, was a period when we received orders for andIn fiscal 2005, we plan to begin marketing two of ourcompleted a number of highly distinctive projects inin-house-developed solutions—Scheduling Komei ®,our core business fields. One such order was in thea schedule control system, and Knowledge Bank, a

supply chain management (SCM) solutions field. For aknowledge database. Work has been completed oncompany that manufactures and sells food products,

refining both systems to meet the increasingly sophis-

we provided supply chain consulting and solutions,ticated demands of markets and clients.

building an integrated POS system to reduce loss

While making effective use of these in-house-devel-

resulting from limited shelf life of perishables. Anotheroped systems, we will extend an integrated line ofproject involved engineering chain management

support for clients’ corporate renovations, from con-

(ECM), a field of expertise that is rooted in our EPC

sulting-based planning through the engineering need-know-how. Here, we provided procurement support

ed for project completion. Through these activities,

systems for environmental business companies. A

we plan to supply clients with solutions that embody

third project was in the field of financial solutions, aeven greater value.

POS system for Kiyoken Co., Ltd., Japan

12 Toyo Engineering Corporation"TRASy®2" transportation planningsystem software

Review of Operations

HSE＋Quality
HSE & Quality

We have an uncompromising stance with regard to safety, the environment and quality that is deeply rooted inour corporate philosophy of “providing total solutions that ensure the satisfaction and success of our clients.” Incompliance with our corporate policies on Health, Safety and Environment (HSE) and Quality, we give the highest
priority to providing materials and services with quality fully meeting clients’ requirement and on completing projects without accidents or injuries. We view these capabilities as vital to winning the satisfaction of clients and as
the very basis of our reputation as a trustworthy company.
Our dedication to product quality and construction safety is clearly evident in the safety record at recent projects.
Moreover, for projects under way in Nanjing, China, we were awarded two prizes: Best Quality Management in2003 for an acrylic acid (AA) / acrylic acid ester (AE) plant project and Best Safety Management in 2003 for an
oxo-alcohol (OXO) plant project. These awards were from BASF-YPC Co., Ltd., a joint venture company owned by
BASF, of Germany, and Sinopec Yangzi Petrochemical Co., Ltd., of China. This recognition is clearly proof of theexcellent reputation we have earned among clients for our HSE and quality management.

Safety Record
Jubail United Petrochemical Co. (Saudi Arabia)

2003–

Petrochemical plant: 6,000,000 Man-hr without LTA

BASF-YPC Co., Ltd. (China)

2003–

Best Quality Management Award 2003

Petrochemical plant: 2,700,000 Man-hr without LTA

JSC Azerigaz (Azerbaijan)

2002-2003 Gas pipeline / related facilities: 800,000 Man-hr without LTA
KAO Corporation (Malaysia)

2001-2002 Chemical plant: 1,400,000 Man-hr without LTA
Mitsui Bisphenol Singapore Pte. Ltd. (Singapore)

Best Safety Management Award 2003

2000-2002 Petrochemical plant: 1,200,000 Man-hr without LTA
Rayon Olefins Co., Ltd. (Thailand)

2000-2001 Petrochemical plant: 2,200,000 Man-hr without LTA
Optimal Glycol (M) Sdn. Bhd. (Malaysia)

1999-2001 Petrochemical plant: 5,200,000 Man-hr without LTA
Sidi Kerir Petrochemicals Co. (Egypt)

1999-2000 Petrochemical plant: 8,100,000 Man-hr without LTA
LTA: Lost time accident

Annual Report 2004 13

Financial Section
Management’s Discussion and Analysis

In the fiscal year, ended March 31, 2004, TOYO recorded a net loss primarily due to increased losses on a petrochemical project in the Middle East and the partial reversal of deferred tax assets.
The most significant points concerning operating results in fiscal 2004 were as follows:
1. Operating loss due to losses at a specific project
Large losses were recorded at a petrochemical project in the Middle East, primarily the result of increased costs incurred
due to substantial delays in construction schedule. To prevent the occurrence of losses at other projects, TOYO is thoroughly examining other ongoing projects so that more accurate earnings projections can be established.
2. High volume of new orders due to contribution of large-scale projects
Orders received during fiscal 2004 totaled ¥241.5 billion ($2,285.2 million), a figure that includes orders at large energy
projects in Russia and Iran. The backlog of contracts at the end of the year totaled ¥350.6 billion ($3,317.0 million). Thisequates to approximately two years’ revenue for TOYO, which is a sufficient volume to establish a stable base of operations.
3. Significant progress in reducing interest-bearing debt
During fiscal 2004, operating cash flows were solid and adequate enough to reduce interest-bearing debt by ¥16.0
billion to ¥66.2 billion ($626.0 million).
Revenue and Earnings
Net sales decreased ¥8.6 billion to ¥170.5 billion ($1,613.5 million), mainly due to the effect of fluctuations in exchange
rates. The operating loss was ¥3.3 billion ($30.8 million), a decrease of ¥8.7 billion from the previous fiscal year’s operating income. This was mainly attributable to losses at a petrochemical project. In addition, a partial reversal of deferredincome taxes and other items led to a net loss of ¥6.5 billion ($61.4 million).
Cash FlowsNet cash provided by operating activities was ¥17.6 billion ($166.3 million). There was a decrease in notes andaccounts receivable because of measures to speed up collection of trade receivables and an increase in advancereceipts on uncompleted contracts. Joint-venture projects also contributed to increasing cash flows.
Net cash used in investing activities was ¥0.6 billion ($5.6 million), mainly the result of the acquisition of intangible fixed
assets involving the development and upgrading of our own software for the e-solutions business.
Net cash used in financing activities was ¥15.7 billion ($148.6 million) as cash was used to repay interest-bearing debt
in accordance with the debt reduction plan.
After including the effect of exchange rate changes on yen conversions of foreign currency denominated cash andcash equivalents, there was a net increase of ¥1.1 billion in cash and cash equivalents compared with the end of theprevious fiscal year to ¥43.6 billion ($412.7 million).

14 Toyo Engineering Corporation

Consolidated Five-Year Summary
Toyo Engineering Corporation and Consolidated Subsidiaries
Years ended March 31

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

2004

2003

2002

2001

2000

2004

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

¥170,529¥179,168¥158,963¥119,067¥155,812$1,613,484

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

8,640

17,291

14,415

11,136

12,14381,745

Operating income (loss) .......................................

(3,257)

5,424

2,961

147

279

(30,820)

Income (loss) before income taxes and minority interests.....

(3,714)657(1,370)

2,194

334

(35,138)

Net income (loss) .................................................

(6,491)(923)(1,081)

912

(627)

(61,418)

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

201,133

199,494

196,177

239,778

237,170

1,903,047

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

24,72429,69430,90632,08931,148233,930

Long-term debt....................................................

39,691

41,84046,03828,76569,435375,540

Purchases of property, plant and equipment ......

241

282

272

334

774

2,279

Depreciation and amortization.............................

1,315

1,347

1,339

1,304

1,434

12,448

Common stock.....................................................

13,01813,01813,01813,01813,018123,169

New orders...........................................................

241,528

195,160

131,211

232,666

117,3442,285,249

Backlog of contracts at end of the year...............

350,574

307,817300,636

324,259

222,200

3,317,007
U.S. dollars(Note 1)Yen

Per share:
Net income (loss ) .............................................

¥(37.00)¥(5.27)¥(6.15)¥5.19¥(3.57)$(0.35)

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

—

—

—

—

—

—

Chemical fertilizers ...........................................

9.3%

7.1%

11.2%

8.7%

4.5%

Petrochemicals.................................................

30.8

32.9

41.8

30.6

54.5

Refinery.............................................................

13.3

21.3

14.5

7.1

11.5

Energy-related ..................................................

27.3

19.2

11.9

23.9

10.6

General manufacturing facilities and information technology...

11.5

12.2

16.4

19.7

13.3

Net sales by sector (%):

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

7.8

7.3

4.2

10.0

5.6

(Overseas sales)................................................

(78)

(79)

(74)

(72)

(71)

Number of employees .........................................

2,310

2,146

1,939

1,475

1,607

Gross Profit

Income (Loss) before Income Taxes
and Minority Interests

Net Income (Loss) Per Share(¥ billion)(¥ billion)

(¥)

17.3

2.2

14.4
12.1

5.19

11.1

0.7
8.6

0.3

(3.57)(6.15)

(1.4)
’00

’01

’02

’03

’04

’00

’01

’02

(5.27)

(3.7)
’03

’04

(37.00)
’00

’01

’02

’03

’04

Annual Report 2004 15

Consolidated Balance Sheets
Toyo Engineering Corporation and Consolidated Subsidiaries
March 31, 2004 and 2003

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

Assets

2004

2003

2004

Current assets:
Cash and deposits (Note 3 )......................................................................................
Notes and accounts receivable (Note 3 ) ..................................................................
Less: Allowance for doubtful receivables ..............................................................

¥ 44,098
37,247
2,117¥ 42,773
51,996
1,281$ 417,237
352,417
20,025Contract work in progress ........................................................................................
Prepaid expenses and other current assets (Note 4)................................................

35,13062,6597,465

50,71541,876
11,400332,392
592,860
70,627

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

149,352

146,764

1,413,116

Investments:
Investment securities (Note 12).................................................................................
Investments in unconsolidated subsidiaries and affiliates (Note 12 ) .......................
Long-term loans........................................................................................................
Other .........................................................................................................................
Less: Allowance for doubtful receivables ..............................................................

5,771
3,871
3,239
6,169
3,903

4,745
3,290
4,415
6,814
4,315

54,60036,62930,64558,36836,933

Total investments ...............................................................................................

15,147

14,949143,309

Property, plant and equipment, at cost:
Land (Note 3).............................................................................................................
Buildings and structures (Note 3) .............................................................................
Tools, furniture and fixtures ......................................................................................
Construction in progress...........................................................................................

18,80325,738
4,423—

18,65025,7414,601
1177,908
243,528
41,845—

Total....................................................................................................................
Less: Accumulated depreciation ..........................................................................

48,96415,75848,993
15,179463,281
149,097

Property, plant and equipment, net....................................................................

33,20633,814314,184

Other assets (Note 4) .................................................................................................

3,428

3,967

32,438¥201,133¥199,494$1,903,047

See notes to consolidated financial statements.

16 Toyo Engineering Corporation

Financial Section

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

Liabilities and Shareholders’ Equity

2004

2003

2004

Short-term bank loans (Note 3).................................................................................

¥ 11,916¥ 25,637$ 112,739

Current portion of long-term debt (Note 3) ...............................................................

14,555

14,638

137,712

Notes and accounts payable ....................................................................................

30,14733,228285,242

Income taxes payable (Note 4)..................................................................................

528

826

4,998

Advance receipts on uncompleted contracts ...........................................................

61,91538,854585,819

Reserve for anticipated loss on contract work .........................................................

468

321

4,429

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

10,038

7,414

94,977

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

129,567

120,918

1,225,916

Long-term debt (Note 3) ............................................................................................

39,691

41,840375,540

Accrued retirement benefits (Note 5) .......................................................................

2,660

2,313

25,169Other long-term liabilities (Note 4) ...........................................................................

2,621

2,616

24,799

1,870

2,113

17,693Current liabilities:

Contingent liabilities (Note 7)
Minority interests .......................................................................................................
Shareholders’ equity:
Common stock
Authorized: 500,000,000 shares
Issued: 175,480,492 shares...................................................................................

13,01813,018123,169

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

15,593

15,592

147,537

Retained earnings (Note 6)........................................................................................

(4,278)2,216(40,479)

Net unrealized gain (loss) on securities.....................................................................

1,231

(541)

11,649Foreign currency translation adjustments.................................................................

(805)

(566)

(7,613)

Less: Treasury stock, at cost: 212,047 shares ......................................................

24,75935

29,71925

234,263333

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

24,72429,694

233,930¥201,133¥199,494$1,903,047

Annual Report 2004 17

Consolidated Statements of Operations
Toyo Engineering Corporation and Consolidated Subsidiaries
Years ended March 31, 2004 and 2003

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

2004

2003

2004

Net sales (Note 8) .......................................................................................................

¥170,529¥179,168$1,613,484

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

161,889

161,877

1,531,739

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

8,640

17,29181,745

Selling, general and administrative expenses (Note 9)...........................................

11,897

11,867

112,565

Operating income (loss).............................................................................................

(3,257)

5,424(30,820)

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

1,743

2,156

16,487

Gain on sales of investment securities......................................................................

452

—

4,278

Reversal of allowance for doubtful receivables.........................................................

—

315

—

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

162

112

1,540

2,357

2,583

22,305Interest expense .......................................................................................................

1,719

2,149

16,268Foreign exchange loss ..............................................................................................

252

2,758

2,387

Loss on valuation of investment securities ...............................................................

481

1,303

4,548

Other (Note 10)..........................................................................................................

362

1,140

3,420

2,814

7,350

26,623(3,714)657(35,138)

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

712

1,282

6,741

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

1,882

(47)

17,811

2,594

1,235

24,552

(183)

(345)

Other income:

Other expenses:

Income (loss) before income taxes and minority interests ....................................
Income taxes (Note 4)

Minority interests .......................................................................................................
Net loss........................................................................................................................

¥

See notes to consolidated financial statements.

18 Toyo Engineering Corporation

¥

923

¥

37.00

(1,728)$61,418

U.S. dollars(Note 1)Yen

Per share of common stock:
Net loss .....................................................................................................................

6,491

¥

5.27

$

0.35

Financial Section

Consolidated Statements of Shareholders’ Equity
Toyo Engineering Corporation and Consolidated Subsidiaries
Years ended March 31, 2004 and 2003

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

2003

2004

2004

Common stock:
Balance at beginning of the year ..............................................................................

¥13,018¥13,018$123,169

Balance at end of the year..................................................................................

¥13,018¥13,018$123,169

Balance at beginning of the year ..............................................................................

¥15,592¥15,592$147,531

Add–gain on disposal of treasury stock ...................................................................

1

—

6

Balance at end of the year..................................................................................

¥15,593¥15,592$147,537¥ 2,216¥ 3,051$ 20,968

Additional paid-in capital

Retained earnings (Note 6):
Balance at beginning of the year ..............................................................................
Add–increase in consolidated subsidiaries...............................................................

—

94

—

Deduct–net loss ........................................................................................................

6,491

923

61,418–Bonuses to directors ...................................................................................

3

6

29

Balance at end of the year..................................................................................

¥ (4,278)¥ 2,216$ (40,479)¥ (541)¥(281)$ (5,123)

Net unrealized gain (loss) on securities:
Balance at beginning of the year ..............................................................................
Adjustment for the year.............................................................................................

1,772

(260)

16,772

Balance at end of the year..................................................................................

¥ 1,231¥(541)$ 11,649

Balance at beginning of the year...............................................................................

¥ (566)¥(471)$ (5,353)

Adjustment for the year.............................................................................................

(239)

Balance at end of the year..................................................................................

¥ (805)¥¥¥

Foreign currency translation adjustments:(95)(2,260)(566)$ (7,613)

Treasury stock:
Balance at beginning of the year...............................................................................
Balance at end of the year..................................................................................

(25)
(10)

Shares increased, net ...........................................................................................
¥

(35)

(3)

$

(22)
¥

(25)

(234)
(99)

$

(333)

See notes to consolidated financial statements.

Annual Report 2004 19

Consolidated Statements of Cash Flows
Toyo Engineering Corporation and Consolidated Subsidiaries
Years ended March 31, 2004 and 2003

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

2003

2004

2004

Operating activities:
Income (loss) before income taxes and minority interests........................................

¥ (3,714)¥

657$ (35,138)

1,347

12,448Adjustments to reconcile income (loss) before income taxes andminority interests to net cash provided by operating activities:
Depreciation and amortization...............................................................................

1,315

Loss (gain) on sales of marketable and investment securities, net .......................

(452)

0

(4,280)Loss on valuation of investment securities............................................................

481

1,303

4,548

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

—

98

—

Allowance for (reversal of) doubtful receivables ....................................................

425(1,679)4,020

Allowance for anticipated loss on contract work...................................................

147

28

1,388

Equity in earnings of affiliated companies .............................................................

(32)

(32)

(305)

Increase in retirement benefits ..............................................................................

299

1,219

2,835

Interest and dividends received.............................................................................

1,783

3,559

16,868Interest and dividend income ................................................................................

(1,743)(2,156)(16,487)

Interest expense ....................................................................................................

1,719

2,149

16,268Interest paid...........................................................................................................

(1,762)(2,210)(16,675)

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

(961)

(882)

(9,092)Other, net...............................................................................................................

6,117

372

57,876(Increase) decrease in notes and accounts receivable ......................................

14,663

3,971

138,740(Increase) decrease in contract work in progress ..............................................

(21,058)(10,108)(199,244)

Increase (decrease) in notes and accounts payable ..........................................

(2,878)

6,077(27,231)

Increase (decrease) in advance receipts on uncompleted contracts.................

23,2285,107

219,772

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

17,577

8,820

166,311Purchases of investment securities...........................................................................

(138)

(108)

(1,308)Proceeds from sales of marketable securities and investment securities................

1,015

516

9,602

Purchases of property, plant and equipment ...........................................................

(241)

(282)

(2,279)Changes in operating assets and liabilities:

Investing activities:

Proceeds from sales of property, plant and equipment ...........................................

—

57

—

Purchases of other assets.........................................................................................

(913)

(460)

(8,638)Other, net ..................................................................................................................

(318)

19

(3,009)Net cash used in investing activities...............................................................

(595)

(258)

(5,632)(13,727)(6,248)(129,876)

Financing activities:
Decrease in short-term bank loans, net....................................................................
Proceeds from long-term debt..................................................................................

12,05011,470114,013

Repayment of long-term debt...................................................................................

(14,863)(15,241)(140,625)

Proceeds from issuance of bonds ............................................................................

1,000

—

9,462

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

(167)

(58)

(1,582)

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

(15,707)(10,077)(148,608)

Effect of exchange rate changes on cash and cash equivalents ..........................

(191)

(132)

(1,808)Net increase (decrease) in cash and cash equivalents...........................................

1,084(1,647)

10,263

Cash and cash equivalents, beginning of the year..................................................

42,531

43,476402,410

Increase in cash and cash equivalents addition to consolidation.........................

—

702

—

Cash and cash equivalents, end of the year ............................................................

¥ 43,615¥ 42,531$ 412,673

See notes to consolidated financial statements.

20 Toyo Engineering Corporation

Financial Section

Notes to Consolidated Financial Statements
Toyo Engineering Corporation and Consolidated Subsidiaries

1.
BASIS OF PREPARATION

2.
SUMMARY OF
SIGNIFICANTACCOUNTING POLICIESThe accompanying consolidated financial statements of Toyo Engineering Corporation (the “Company”) andconsolidated subsidiaries are prepared on the basis of accounting principles generally accepted in Japan, which
are different in certain respects as to application and disclosure requirements of International Financial ReportingStandards, and are compiled from the consolidated financial statements prepared by the Company as required by
the Securities and Exchange Law of Japan.
The relevant notes and consolidated statements of shareholders’ equity have been added and certain reclassifications have been made to present the accompanying consolidated financial statements in a format that is familiar toreaders outside Japan. For the convenience of the readers, the accompanying consolidated financial statements
have also been presented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of ¥105.69 to
U.S.$1.00 prevailing on March 31, 2004.

(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant
subsidiaries. Investment in significant affiliates is accounted for by the equity method. Intercompany accounts andtransactions are eliminated in consolidation. The difference between the acquisition cost and the equity in the net
assets at the time of acquisition is amortized in principle over twenty years on a straight-line basis.
(b) Securities
All debt and equity securities is classified into one of three categories: trading, available-for-sale or held-to-maturity
securities. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-tomaturity securities are those securities in which the Company and its domestic subsidiaries have the ability and intent
to hold until maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded atamortized cost, adjusted for the amortization or accumulation of premiums or discounts. Unrealized gains or losseson trading securities are included in earnings. Unrealized gains or losses on available-for-sale securities are excluded
from earnings and are reported, net of the related tax effect, as a separate component of shareholders’ equity.
Cost of securities sold is determined by the moving average-method.
(c) Contract Work in Progress
Contract work in progress is stated at cost, determined by the identified-cost method.
(d) Depreciation
Depreciation of property, plant and equipment is principally computed by the declining-balance method based on
the estimated useful lives of the assets.
(e) Leases
Noncancelable leases are primarily accounted for as operating leases except that leases which stipulate the transferof ownership of the leased assets to the lessee are accounted for as finance leases.
(f) Allowance for Doubtful Receivables
The Company and its domestic subsidiaries have provided an allowance for doubtful receivables principally at
an estimated amount of probable and reasonably possible bad debts plus an estimated amount computed on
the actual percentage of credit losses.
(g) Advance Receipts on Uncompleted Contracts
Advance receipts on uncompleted contracts from customers are shown as a liability, not as a deduction from theamount of contract work in progress.
(h) Accrued Retirement Benefits
The accrued retirement benefits at the year-end is stated in accordance with the projected plan assets and the projected retirement benefit obligation. The difference arising from the adoption of the new standard of accounting of¥4,021 million ($38,044 thousand) is amortized over fifteen years on a straight-line basis. Actuarial loss is amortizedover mainly fifteen years starting following year of recognition. Prior service cost is amortized over fifteen years.
(i) Derivative Financial Instruments
Derivative financial instruments are carried at fair value with changes in unrealized gain or loss charged or credited
to operations, except for those which meet the criteria for deferral hedge accounting under which unrealized gain orloss is deferred as an asset or a liability. Receivables and payables hedged by qualified forward foreign exchange
contracts are translated at the corresponding foreign exchange contract rates.
(j) Foreign Currency Translation
Both short-term and long-term receivables in foreign currencies are translated at the exchange rates at the balance
sheet date. The balance sheet accounts of the consolidated foreign subsidiaries are translated at the rate ofexchange in effect at the balance sheet date, except for common stock and additional paid-in capital, which aretranslated at their historical exchange rates. Revenues, expenses and net income for the year are translated at therate of exchange in effect at the balance sheet date.
Differences arising from translation are presented as “Foreign currency translation adjustments” in the accompanying
consolidated balance sheets.
(k) Recognition of Revenues
Revenues are recognized on the completion of construction work and acceptance by the client, except for thefollowing contracts.
For contracts with prices equal to or in excess of ¥5 billion ($47 million) and construction periods in excess of two
years, revenues are recognized by the percentage-of-completion method. According to this method, the revenue iscomputed by multiplying the contract price by the ratio of costs incurred at the balance sheet date to the total
estimated cost.
(l) Net Income (Loss) per Share
Net income (loss) per share is computed based on the weighted average number of shares outstanding during eachyear. Diluted net income (loss) per share is not presented since there was no potential for dilution by the issuance ofcommon stock in 2004 or 2003.
Annual Report 2004 21

(m) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between carrying amounts of existing
assets and liabilities in the financial statements and their respective tax bases and operating loss carryforwards.
Deferred tax assets and liabilities are measured using the enacted tax rates and laws which will be in effect when the
differences are expected to be reversed.
(n) Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, the Company and its consolidated subsidiaries
consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.

3.
SHORT-TERM
BANK LOANS AND
LONG-TERM DEBT

Short-term bank loans are represented by notes maturing generally within 180 days or overdrafts. The annualinterest rates applicable to the loans outstanding at March 31, 2004 ranged principally from 0.69% to 2.12% and at
March 31, 2003 ranged from 0.68% to 2.12%. Customarily, these notes are renewed at maturity without difficulty,
and management anticipates that this method of financing will continue.
Long-term debt at March 31, 2004 and 2003 is summarized as follows:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2004

2003

2004

Loans, principally from banks, at interest rates ranging
from zero to 6.800%, due 2004-2033:
Secured .............................................................................................
Unsecured .........................................................................................
1.080% bonds, due 2007 ..................................................................

¥25,21128,0351,000¥28,851
27,627—$238,535
265,255
9,462

Total long-term debt.......................................................................
Less: Current portion................................................................................

54,246
14,55556,478
14,638513,252
137,712¥39,691¥41,840$375,540

The following assets at March 31, 2004 and 2003 were pledged as collateral principally for long-term debt:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2004

2003

2004

Notes and accounts receivable................................................................
Land and buildings, net of accumulated depreciation.............................
Cash and deposits....................................................................................

¥ 7,881
27,760—¥10,666
28,32350$ 74,564
262,655—¥35,641¥39,039$337,219

The following schedule shows the maturities of long-term debt subsequent to March 31, 2004:
Years ending March 31,
2005..............................................................................................................................
2006..............................................................................................................................
2007..............................................................................................................................
2008..............................................................................................................................
2009..............................................................................................................................
2010 and thereafter......................................................................................................

Millions of yen

Thousands of
U.S. dollars¥14,555
10,27020,978
3,303
1,818
3,322

$137,712
97,167
198,482
31,255
17,20531,431¥54,246$513,252

The Company and its subsidiaries had committed line of credit of ¥10 billion ($94,616 thousand) at March 31, 2004.
There were no borrowings outstanding under the line of credit.

4.
INCOME TAXESThe statutory tax rate applicable to the Company and its domestic subsidiaries was approximately 41.8% for theyears ended March 31, 2004 and 2003. Income taxes of the foreign consolidated subsidiaries are based generally on
the tax rates applicable in their countries of incorporation.
(1) The effective tax rates on income before income taxes in the accompanying consolidated statements of operations
differed from the above-mentioned statutory tax rate for the following reasons:Year ended March 31, 2004
The details of effective tax rate are omitted because of the loss taken up instead of income before taxes in theaccompanying statements of operations for the year.
Year ended March 31, 2003
Statutory tax rate in Japan .......................................................................................................................
Adjustments:
Permanently nondeductible expenses...............................................................................................
Permanently nontaxable dividends received .....................................................................................
Effect on operating loss carryforwards, etc. ......................................................................................
Other...................................................................................................................................................

41.8%
36.9
(13.5)
93.0
29.8

Effective tax rate....................................................................................................................................... 188.0%

22 Toyo Engineering Corporation

Financial Section(2) Significant components of the deferred income tax assets and liabilities at March 31, 2004 and 2003 are as follows:
Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

¥1,573845¥1,071
719$14,888
7,994

405
—
—
777

1,776
325
123
1,686

3,831
—
—
7,352

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

3,600

5,700

34,065

Deferred tax liabilities offset to deferred tax assets:
Difference in net unrealized gain on securities .....................................
Reserve for overseas investment losses ..............................................
Depreciation expense ...........................................................................
Other .....................................................................................................

(726)
(8)
(126)
(36)

—
(13)
(51)
(2)

(6,873)(76)(1,191)(343)

Deferred tax assets:
Allowance for doubtful receivables.......................................................
Accrued retirement benefits..................................................................
Difference in net sales recognizedby the percentage-of-completion method ........................................
Difference in net unrealized loss on securities......................................
Provision for anticipated loss on contract work....................................
Other......................................................................................................

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

(896)

(66)

(8,483)Net deferred tax assets............................................................................

¥2,704¥5,634$25,582

Note: The Company and its subsidiaries had operating loss carryforwards equivalent to unrecognized tax assets of¥6,503 million ($61,530 thousand) and ¥8,474 million at March 31, 2004 and 2003, respectively, which areavailable to be offset against future taxable income.
(3) Net deferred tax assets at March 31, 2004 and 2003 are included in the consolidated balance sheets as follows:
Thousands of
U.S. dollars

Millions of yen

5.
RETIREMENT BENEFITS

2004

2003

2004

Current assets–prepaid expenses and other current assets....................
Other assets .............................................................................................
Other long-term liabilities .........................................................................

¥1,136
1,729(161)¥2,9372,750(53)$10,746
16,358(1,522)

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

¥2,704¥5,634$25,582

The Company and certain subsidiaries have defined benefit pension plans which provide for pension annuity payments
or lump-sum payments to eligible employees upon retirement.
The Company also has defined contribution pension plan, which was transferred from a portion of defined benefit
pension plan in May, 2003.
(1) Accrued retirement benefits for employees at March 31, 2004 consisted of the following:
Millions of yen

Thousands of
U.S. dollars

Projected benefit obligation.........................................................................................
Plan assets...................................................................................................................

¥(16,612)
8,197$(157,177)
77,552Unreserved projected benefit obligation......................................................................
Unamortized obligation at transition............................................................................
Unamortized actuarial loss...........................................................................................
Unrecognized prior service cost ..................................................................................

(8,415)2,957
5,288(2,150)(79,625)
27,98150,037(20,342)

Accrued retirement benefits for employees ................................................................

¥ (2,320)$ (21,949)

Year ended March 31, 2004

The consolidated balance sheet includes directors’ and statutory auditors’ retirement allowances of ¥340 million($3,220 thousand) in addition to the accrued retirement benefits for employees presented above.
(2) Net periodic pension cost for the year ended March 31, 2004 consisted of the following:
Millions of yen

Thousands of
U.S. dollars

Components of net periodic benefit cost:Service cost ..............................................................................................................
Interest cost..............................................................................................................
Expected return on plan assets................................................................................
Amortization of unrecognized retirement benefit obligation at transition.................
Amortization of unrecognized actuarial loss.............................................................
Amortization of prior service cost.............................................................................
Other.........................................................................................................................

¥ 515
381
(184)
268
374
(140)
90

$ 4,871
3,604(1,743)2,536
3,542(1,324)854

Net periodic pension cost............................................................................................

¥1,304$12,340

Year ended March 31, 2004

Annual Report 2004 23

(3) Basis of calculation of projected benefit obligation
Method of allocation of estimated pension cost
Discount rate
Expected rate of return on plan assets
Amortization period for unrecognized actuarial loss
Amortization period for unrecognized obligation at transition
Amortization period for unrecognized prior service cost

6.
RETAINED EARNINGS

7.

Straight-line method
Mainly 2.0%
Mainly 2.5%
Mainly 15 years
15 years
15 years

The Commercial Code of Japan has provided that earnings in an amount equal to at least 10% of appropriations ofretained earnings to be paid in cash be appropriated as a legal reserve until total additional paid-in capital and legal
reserve equals 25% of stated common stock. Either additional paid-in capital or legal reserve may be available fordividends by resolution of the shareholders to the extent that the amount of total additional paid-in capital and legal
reserve exceeds 25% of stated common stock.
At March 31, 2004, the Company and its subsidiaries were contingently liable as guarantors of loans to others in theaggregate amount of ¥3,900 million ($36,900 thousand).

CONTINGENT LIABILITIES

8.

Net sales include revenues recognized by the percentage-of-completion method as described in Note 2 (k).
The following table shows net sales recognized by the percentage-of-completion method:

NET SALES
Years ended March 31,

9.

Thousands of
U.S. dollars

Millions of yen

2004

2003

2004

¥109,235¥106,038$1,033,540

Research and development costs included in selling, general and administrative expenses for the years ended
March 31, 2004 and 2003 amounted to ¥550 million ($5,205 thousand) and ¥781 million, respectively.

RESEARCH AND
DEVELOPMENT COSTS

10.

“Other” in “Other expenses” for the years ended March 31, 2004 and 2003 consisted of the following:

OTHER EXPENSES

Years ended March 31,

11.
LEASES

Thousands of
U.S. dollars

Millions of yen

2003

2004

Loss on liquidation of nonconsolidated subsidiaries ...............................
Loss on prior-period adjustment..............................................................
Loss on valuation of property, plant and equipment ...............................
Other.........................................................................................................

¥ 17
118
—
227

¥ 124
754
53
209

$ 164
1,114
—
2,142

Total................................................................................................

¥362¥1,140$3,4202004(a) Finance Leases(a-1) Finance Leases (as Lessee)
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value ofleased property as of March 31, 2004 and 2003 which would have been reflected in the balance sheets if financelease accounting had been applied to the finance leases currently accounted for as operating leases:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Acquisition costs:
Tools, furniture and fixtures ..................................................................
Accumulated depreciation:
Tools, furniture and fixtures ..................................................................
Net book value:
Tools, furniture and fixtures ..................................................................

2004

2003

2004

¥749

¥787

$7,091

389

382

3,680

360

405

3,411

Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2004 for financeleases accounted for as operating leases are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2005 .............................................................................................................................
2006 and thereafter......................................................................................................

¥192
201

$1,815
1,906

Total ...................................................................................................................

¥393$3,721Years ending March 31,

Lease payments relating to finance leases accounted for as operating leases for the years ended March 31, 2004 and2003 amounted to ¥210 million ($1,984 thousand) and ¥209 million, respectively, which were equal to the depreciation
expense of the leased assets computed by the straight-line method over the respective lease terms.

24 Toyo Engineering Corporation

Financial Section(a-2) Finance Leases (as Lessor)
Future minimum lease receivables (including the interest portion thereon) subsequent to March 31, 2004 for financeleases accounted for as operating leases are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

2005 .............................................................................................................................
2006 and thereafter......................................................................................................

¥15
18

$143
169

Total ...................................................................................................................

¥33

$312

Years ending March 31,

All the above lease receivables were derived from the subleasing business. As every subleased property was leased
to third parties through the Company’s subsidiary on approximately the same terms, approximately the same amountof future lease receivables as those presented above are included in Table (a-1) as the amount of the future sublease
payments.
(b) Operating Leases(b-1) Operating Leases (as Lessee)
Future minimum lease payments subsequent to March 31, 2004 for noncancelable operating leases are summarized
as follows:
Millions of yen

Thousands of
U.S. dollars

2005 .............................................................................................................................
2006 and thereafter......................................................................................................

¥ 1
—

$ 6
—

Total ...................................................................................................................

¥ 1

$ 6

Years ending March 31,(b-2) Operating Leases (as Lessor)
Future minimum lease receivables subsequent to March 31, 2004 for noncancelable operating leases are summarized
as follows:
Millions of yen

Thousands of
U.S. dollars

2005 .............................................................................................................................
2006 and thereafter......................................................................................................

¥ 1,162
13,609$ 10,989
128,765

Total ...................................................................................................................

¥14,771$139,754

Years ending March 31,

12.
INVESTMENT
SECURITIESThe cost, unrealized gain and loss and the related fair value of investment securities in Investments at March 31,
2004 are summarized as follows:
Millions of yen

At March 31, 2004

Cost

Unrealized
Gain

Investment securities classified as:
Available-for-sale:
Equity securities....................................................................
Debt securities......................................................................

¥5,296367¥1,649569

Unrealized
Loss¥(212)
—

Fair
Value

¥6,733936

The contractual maturities of debt securities classified as available-for-sale were as follows:
At March 31, 2004

Millions of yen

Thousands of
U.S. dollars

Due within one year .....................................................................................................
Due after one year through five years..........................................................................
Due after five years through ten years.........................................................................
Due after ten years.......................................................................................................

¥ 0
124
251
563

$

1
1,170
2,380
5,326

Total ...................................................................................................................

¥938$8,877The cost, unrealized gain and loss and the related fair value of investment securities in Investments at March 31,
2003 are summarized as follows:
Millions of yen

At March 31, 2003

Cost

Investment securities classified as:
Available-for-sale:
Equity securities....................................................................
Debt securities......................................................................

¥5,686367

Unrealized
Gain

Unrealized
Loss

Fair
Value

¥ 52
569

¥(1,437)—¥4,301
936

The contractual maturities of debt securities classified as available-for-sale were as follows:
At March 31, 2003

Millions of yen

Thousands of
U.S. dollars

Due within one year .....................................................................................................
Due after one year through five years..........................................................................
Due after five years through ten years.........................................................................
Due after ten years.......................................................................................................

¥ 2
85
251
602

$

14
703
2,090
5,012

Total ...................................................................................................................

¥940$7,819Annual Report 2004 25

13.
DERIVATIVE
TRANSACTIONSThe Company operates internationally in circumstances which give rise to exposure to market risks from fluctuations
in foreign currency exchange rates and interest rates. In order to limit those risks, the Company enters into forward
foreign exchange contracts, currency swaps and interest rate swaps, etc. in accordance with the Company’s own
internal risk control rules. The Company does not have derivative positions for speculative trading purposes. The
Company is subject to credit risk incurred by the default of counter parties to the derivatives. As the Company
enters into such agreement only with credible counter parties, the risk of any such default is deemed negligible.
The Company’s Finance Division is in charge of entering into and monitoring the Company’s derivative positions inorder to ensure risk control.
Forward foreign exchange contracts
The Company has entered into forward foreign exchange contracts to reduce its exposure to adverse fluctuations inforeign exchange rates relating to receivables and payables denominated in foreign currencies. The contract amounts
and the related market values of those contracts without firm commitments related to receivables or payables at
March 31, 2004 and 2003 were as follows:
Thousands of
U.S. dollars

Millions of yen

At March 31,

2004

2003

2004

(i) Forward foreign exchange contracts to sell U.S. dollars:
Contract amounts .................................................................................
Related market value ............................................................................

¥862
827

¥

—
—

$8,154
7,825

Net gain.................................................................................................

¥ 35

¥

—

$ 329

(ii) Forward foreign exchange contracts to buy U.S. dollars:
Contract amounts .................................................................................
Related market value ............................................................................

¥122
118

¥13,763
14,247$1,154
1,116

Net gain (loss) .......................................................................................

¥ (4)

¥

484

$

(38)

(iii) Forward foreign exchange contracts to buy other currencies:
Contract amounts .................................................................................
Related market value ............................................................................

¥ —
—

¥

604
739

$

—
—

Net gain.................................................................................................

¥ —

¥

135

$

—

Foreign currency options contracts
Thousands of
U.S. dollars

Millions of yen

At March 31,

2003

2004

2004

Buy:
Call
Contract amounts.....................................................................................
Related market value................................................................................

¥—
—

¥49
50

$—
—

Net gain.................................................................................................

¥—

¥ 1

$—

The contract and related market value amounts above exclude forward foreign exchange contracts designated ashedges on forecasted transactions with a firm commitment to the hedged items since such contracts are accounted
for in the financial statements in conjunction with the computation of foreign exchange gain and loss by the deferralof gain and loss.
The contract and related market value amounts above do not directly indicate the level of market risk or credit risk
incurred, as these amounts do not indicate the potential risk of the forward foreign exchange contracts.
Interest rate swaps
The Company has entered into interest rate swap agreements to reduce its interest expense or its exposure toadverse fluctuations in interest rates relating to loans payable. The total notional amounts and related market value ofthese interest rate swap agreements at March 31, 2004 and 2003 were as follows:
Thousands of
U.S. dollars

Millions of yen

At March 31,

2004

2003

2004

Notional amounts .....................................................................................
Related market value ...............................................................................

¥1,0003¥1,200
4$9,462
26¥¥$

Net gain ..........................................................................................

3

4

26

The notional amounts and related market value amounts above exclude interest rate swaps agreements designatedas hedges on forecasted transactions with a firm commitment to the hedged items since such agreements are or will
be accounted for in the financial statements as interest on borrowings allocated periodically based on fixed rate.

26 Toyo Engineering Corporation

Financial Section

14.
SEGMENTINFORMATION(1) Business Segments
Millions of yen
EPC
BusinessReal
EstateTotal

I Net sales and operating income (loss):
Net sales(1) Net sales to outside customers......................
(2) Inter-segment net sales..................................

¥168,1553¥ 2,374
255¥170,529
258

Year ended March 31, 2004

Eliminations
and Other¥

Consolidated

—
(258)

¥170,529—

Total ....................................................................

168,158

2,629

170,787(258)

170,529

Operating expenses........................................................
Operating income (loss)...............................................

172,606(4,448)

1,418
1,211

174,024(3,237)

(238)
(20)

173,786(3,257)

II Assets, depreciation and capital expenditures:
Assets..............................................................................
Depreciation....................................................................
Capital expenditures .......................................................

¥178,271
915
855¥15,219396
11¥193,490
1,311
866¥7,6430(0)¥201,133
1,311
866

EPC
BusinessReal
EstateTotal

Eliminations
and Other

Consolidated¥176,38042¥ 2,788244¥179,168
286

Millions of yen

Year ended March 31, 2003
I Net sales and operating income:Net sales(1) Net sales to outside customers......................
(2) Inter-segment net sales..................................

¥

—
(286)

¥179,168—

Total ....................................................................

176,422

3,032

179,454(286)

179,168

Operating expenses........................................................
Operating income .......................................................

172,592
3,830

1,454
1,578

174,046
5,408

(302)
16

173,744
5,424

II Assets, depreciation and capital expenditures:
Assets..............................................................................
Depreciation....................................................................
Capital expenditures .......................................................

¥178,331
861
637¥16,112404
2¥194,443
1,265
639¥5,051—
1¥199,494
1,265
640

Notes: 1. The classification of the business segments adopted is based on the Company segmentation which isdetermined by the similarity of each business.
2. The Companies’ reportable operating segments consist of the following two business groups:
EPC Business — Engineering, procurement and construction for chemical fertilizer and petrochemicalplants, energy-related businesses, general manufacturing facilities and information technology
Real Estate — Rent and administration of real estate
3. All administrative department expenses of the Company and consolidated subsidiaries are allocated tothe corresponding business segments.
4. Assets included in “Eliminations and Other” for the years ended March 31, 2004 and 2003 totaling ¥7,643
million ($72,320 thousand) and ¥5,040 million primarily consisted of investment in securities.

Annual Report 2004 27

(2) Geographic Segments
Millions of yen

Year ended March 31, 2004

Japan

OthersTotal

I Net sales and operating income (loss):
Net sales(1) Net sales to outside customers......................
(2) Inter-segment net sales..................................

¥160,217
97¥10,31223,718¥170,529
23,815

Eliminations
and Other¥

Consolidated—(23,815)¥170,529—

Total ....................................................................

160,31434,030

194,344(23,815)

170,529

Operating expenses........................................................
Operating income (loss)...............................................

163,630(3,316)34,013
17

197,643(3,299)(23,857)
42

173,786(3,257)

II Assets:
Assets..............................................................................

189,532

21,875

211,407(10,274)

201,133

Eliminations
and Other

Consolidated

Millions of yen

Year ended March 31, 2003
I Net sales and operating income:Net sales(1) Net sales to outside customers......................
(2) Inter-segment net sales..................................

Japan

OthersTotal¥169,536
432¥ 9,632
36,337¥179,168
36,769¥—(36,769)¥179,168—

Total ....................................................................

169,968

45,969215,937(36,769)

179,168

Operating expenses........................................................
Operating Income .......................................................

165,976
3,992

44,595
1,374

210,571
5,366(36,827)
58

173,744
5,424

II Assets:
Assets..............................................................................

188,465

28,303

216,768(17,274)

199,494

Notes: 1. Geographic segmentation is according to geographic proximity.
2. Countries included in Others:
Korea, Malaysia, India, Luxembourg, U.S.A.
3. Net sales and Assets included in “Eliminations and Other” are mainly due to inter-segment transaction.
(3) Sales to Foreign Customers
Millions of yen

Year ended March 31, 2004
Overseas sales (A) ..............................
Consolidated sales (B) .......................

Southeast
Asia¥12,329

Overseas sales ratio A/B .................

7.2%

Southwest
Russia andAsia and Africa Central Asia

¥45,259
26.6%¥43,806

Central andSouth America

OthersTotal¥12,210¥19,845¥133,449
170,529

25.7%

7.2%

11.6%

78.3%

Millions of yen

Year ended March 31, 2003
Overseas sales (A) ..............................
Consolidated sales (B) .......................

Southeast
Asia¥19,037

Overseas sales ratio A/B .................

10.6%

Each area represents the following countries:
Southeast Asia: Indonesia, Singapore, Thailand, Malaysia
Southwest Asia and Africa: India, Egypt, Saudi Arabia, Iran
Russia and Central Asia: Russia, Azerbaidjan
Central and South America: Brazil
Others: U.S.A., PR China, Korea, European countries

28 Toyo Engineering Corporation

Southwest
Russia andAsia and Africa Central Asia

¥55,12630.8%¥7,292
4.1%

Central andSouth America

OthersTotal¥39,800¥20,076¥141,331
179,168

22.2%

11.2%

78.9%

Financial Section

Independent Auditors’ Report

Annual Report 2004 29

Transnational Structure
Jakarta

Kuala Lumpur

Indonesia

Malaysia

MumbaiBangkok

India

Thailand

TehranIranShenzhen
China

Shanghai
Beijing

China

China

Seoul

Moscow

Korea

RussiaLuxembourg

Japan● HEAD OFFICE
2-8-1 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-451-1111 Fax: 81-47-454-1800
URL http://www.toyo-eng.co.jp/● TOKYO HEAD OFFICE
Kasumigaseki Bldg. 3-2-5 Kasumigaseki
Chiyoda-ku, Tokyo 100-6007, Japan
Tel: 81-3-3592-7411 Fax: 81-3-3593-0749● KANSAI BRANCH
6-1-1 Nishi-Nakajima Yodogawa-ku,
Osaka 532-0011, Japan
Tel: 81-6-6390-1101 Fax: 81-6-6390-1201● TECHNOLOGY RESEARCH CENTER
1818 Azafujimi Togo Mobara-shi,
Chiba 297-0017, Japan
Tel: 81-475-24-4551 Fax: 81-475-22-1338

Rio de Janeiro
BrazilHoustonOverseas Offices

U.S.A.

● Beijing
E. 7th Fl. Bldg. D, Fuhua Mansion,
Chaoyangmen North Avenue No.8,
Beijing 100027, China
Tel: 86-10-6554-4515 Fax: 86-10-6554-3212● Shanghai
Suite 211, CIMIC Tower 800 ShangchengRoad, Pudong Shanghai 200120, China
Tel: 86-21-5835-6500 Fax: 86-21-6876-3861/2

MAJOR SUBSIDIARIESAND AFFILIATED COMPANIESDomestic● Jakarta● TEC Estate, Ltd.

Midplaza 8th Fl., Jl. Jendral Sudirman Kav.
10-11, Jakarta 10220, Indonesia
Tel: 62-21-570-6217/5154
Fax: 62-21-570-6215

Property development and real estate business
7-7-1 Yatsu Narashino-shi,
Chiba 275-0026, Japan
Tel: 81-47-470-8381 Fax: 81-47-474-7381● Moscow● Suntec Corporation

Room No.605, World Trade Center,
Krasnopresnenskaya Nab., 12,
Moscow 123610, Russia
Tel: 7-095-258-2064/1504
Fax: 7-095-258-2065

Real estate and building maintenance
2-2-7 Honcho Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-433-4511 Fax: 81-47-433-4593● Tehran

Sea and land transportation, packaging forplant components
2-2-7 Honcho Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-495-7111 Fax: 81-47-495-7112

No.4 Sixth Street, Ahmad Ghasir Ave.
(Ex. Bokharest), Tehran, Iran
Tel: 98-21-873-8414 Fax: 98-21-873-2642● Toyo Logistics Corporation

Group Management● TEC Software &Technical Services Corporation

TOYO conducts its business activities as a cohesive organization that includes sub-Staffing services, Job placement service,Translation/Interpretation
7-11-5 Honcho Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-425-8461 Fax: 81-47-425-8464

sidiaries and affiliated companies in Japan and overseas. In the EPC business, wehave established a worldwide network to become even more competitive on a global
scale. Components of this network include Toyo Engineering India Ltd., ToyoEngineering Korea Ltd., Toyo Engineering & Construction Sdn. Bhd. in Malaysia,
Toyo-Thai Corporation Ltd. and other companies. In the IT-related business, ToyoBusiness Engineering Corporation provides high added-value solutions centered onbuilding Enterprise Resource Planning (ERP) systems.

30 Toyo Engineering Corporation● Tecno Frontier Co., Ltd.
Environmental engineering andconstruction of facilities
7-7-1 Honcho Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-422-8123 Fax: 81-47-422-8145

Corporate Data

Corporate Profile
For more than four decades, Toyo Engineering Corporation (TOYO) has been serving clients● TEC Air Service Corporation

Founded:worldwide through its expertise in plant engineering. Flexibility has defined the Company’s

Travel and insurance services
2-6-7 Ginza Chuo-ku, Tokyo 104-0061, Japan
Tel: 81-3-3564-0130 Fax: 81-3-3564-0530

May 1, 1961

● Toyo Business Engineering Corporation¥13,018 million

operations over the years; TOYO has constantly responded to market needs, shifting quickly
in terms of market segments, geographic regions, project types and contract schemes.
To date, TOYO has completed more than 1,400 projects around the world.
Comprehensive engineering technology and project management capabilities are our corestrengths. TOYO is further distinguished by expertise in leveraging cutting-edge technology,
adopting a global networking perspective and building optimum alliances. Backed by thesePaid-in Capital:

System consulting and solutions provider
2-6-3 Akanehama Narashino-shi, Chiba 275-0024, Japan
Tel: 81-47-454-1261 Fax: 81-47-454-1145● Chiba Data Center Corporation
Data input service, documentation using word processors and printing
6-5-3 Tendai Inage-ku, Chiba-shi, Chiba 263-0016, Japan
Tel: 81-43-284-3611 Fax: 81-43-284-3533

Number of Employees:
959
Stock Exchange Listing:Tokyo Stock Exchange
Authorized Shares:
500,000,000

strengths, we are dedicated to reflecting in each and every project our corporate philosophy● TEC Accounting & Consulting Ltd.

Capital Stock Issued:of “providing total solutions that ensure the satisfaction and success of our clients.”

Business support and consulting for accounting andaccounting system development
2-8-1 Akanehama, Narashino-shi, Chiba 275-0024, Japan
Tel: 81-47-454-1690 Fax: 81-47-454-1289

175,692,539

Overseas

Transfer Agent:● International Procurement & Service Corporation

The Chuo Mitsui Trust and Banking Co., Ltd.

Procurement services in Europe
25, Route D’Esch, L-1470, Luxembourg
Tel: 352-497511 Fax: 352-487555

Number of Shareholders:
20,017

3-33-1, Shiba, Minato-ku, Tokyo 105-8574, Japan● Toyo U.S.A., Inc.
Procurement services and market development in the U.S.
15415 Katy Freeway, Suite 600, Houston, TX 77094, U.S.A.
Tel: 1-281-579-8900 Fax: 1-281-599-9337

Others0.45

Financial institutions
13.55● Toyo do Brasil Ltda.

Contents

Engineering and construction for plants and facilities
Praia de Botafogo, 228-Sala 801C-Ala “B”, Botafogo,
Rio de Janeiro-RJ, 22359-900, Brazil
Tel: 55-21-2551-1829 Fax: 55-21-2551-2048

FY2004 Highlights...................................................................1● Toyo Engineering Corporation (China)

A Letter from the President .....................................................2

Consulting for engineering and construction of plants and facilities,
procurement services
Suite 211, CIMIC Tower 800 Shangcheng Road, Pudong Shanghai 200120, China
Tel: 86-21-5835-6500 Fax: 86-21-6876-3861/2

To Our Shareholders ...............................................................3
Board of Directors and Corporate Auditors.............................7
Review of Operations
EPC Solutions Business Operations (Overseas) .......................8
EPC Solutions Business Operations (Domestic) .....................10e-Solutions Business Operations ..........................................12
HSE & Quality......................................................................13

Engineering and construction for plants and facilities"Toyo House", L.B.S. Marg, Kanjurmarg (West), Mumbai-400 078, India
Tel: 91-22-2579-9001 Fax: 91-22-2579-9061/2

Consolidated Five-Year Summary .........................................15● East Net Co., Ltd.

Consolidated Balance Sheets...............................................16

Development of computer system software and system consulting
4th Fl. Strength Bldg. Gao Xin Ave. 1.S., South, Hi-Technology Industry
Zone, Shenzhen 518057, China
Tel: 86-755-2698-2126 Fax: 86-755-2698-2130

Consolidated Statements of Shareholders’ Equity ..................19
Consolidated Statements of Cash Flows ...............................20● Toyo-Thai Corporation Ltd.

Notes to Consolidated Financial Statements ..........................21

Engineering and construction for plants and facilities
22nd Fl., Serm-Mit Tower, 159 Soi Asoke, Sukhumvit 21 Road,
Bangkok 10110, Thailand
Tel: 66-2-260-8505 Fax: 66-2-260-8525/6

Independent Auditors’ Report ...............................................29
Transnational Structure.........................................................30
Corporate Data .....................................................................31●CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This annual report includes certain “forward-looking statements.” These statements are based on management’s current expectations and are subject to uncertainty
and changes in circumstances. Actual results may differ due to changes in economic, business, competitive, technological, regulatory, and other factors.

(%)

Foreign shareholders
2.33

Domestic companies
47.82

Less than 5,000 shares
12.82

1,000,000 shares or more
51.42

● Toyo Engineering Korea Limited

Management’s Discussion and Analysis ................................14

Consolidated Statements of Operations ................................18

Type of
Shareholders● Toyo Engineering India Limited

Engineering and construction for plants and facilities
Toyo Bldg. 677-17, Yeoksam-1 Dong, Kangnam-ku, Seoul, 135-081, Korea
Tel: 82-2-2189-1619 Fax: 82-2-2189-1891

Financial Section

Individuals
35.85

5,000–49,999 shares
21.52

Number of
Shares Held(%)

50,000–499,999 shares
9.43

500,000–999,999 shares
4.81(As of March 31, 2004)● Toyo Engineering & Construction Sdn. Bhd.
Engineering and construction for plants and facilities
Suite 25.4, 25th Fl., Menara Haw Par, Jalan Sultan Ismail,50250 Kuala Lumpur, Malaysia
Tel: 60-3-2078-5796 Fax: 60-3-2078-5798(As of June 25, 2004)
Annual Report 2004 31

Toyo Engineering Corporation Annual Report 2004

Address : 2-8-1, Akanehama,Narashino-shi, Chiba 275-0024, Japan
Te l: 81-47-451-1111
Fax: 81-47-454-1800
http://www.toyo-eng.co.jp/

2004

Annual Report

Year ended March 31, 2004

PRINTED WITH

SOY INK

TMThis report was printed with soy ink and was produced with waterless printing methods.

2004 Toyo Engineering Corp.
Printed in Japan