Toyo Engineering Corporation Annual Report 2005

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

Annual REPORT
Year ended March 31, 2005

PRINTED WITH

SOY INK

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

쏘2005 Toyo Engineering Corp.
Printed in Japan

Corporate Profile

For more than four decades, Toyo Engineering Corporation (TOYO)
has been serving clients worldwide through its expertise in plantengineering. Flexibility has defined the Company’s operations over
the years; TOYO has flexibly responded to market needs, shifting
quickly in terms of market segments, operating regions, projecttypes and contract schemes. To date, TOYO has completed morethan 1,400 projects around the world.
Comprehensive engineering technology and project management
capabilities are our core strengths. TOYO is further distinguished byexpertise in leveraging cutting-edge technology, adopting a global
networking perspective and building optimum alliances. Backed bythese strengths, we are dedicated to reflecting in each and every
project our corporate philosophy of “providing total solutions that
ensure the satisfaction and success of our clients.”

Contents
FY2005 Highlights .....................................................1
To Our Shareholders..................................................2
Management System.................................................6
Review of Operations
EPC Solutions Business Operations (Overseas):
Gas & Oil ...........................................................8
Petrochemicals & Chemicals.............................10
EPC Solutions Business Operations (Domestic) ........12e-Solutions Business Operations..............................14
HSE＋Quality ..........................................................16
Financial Section
Consolidated Five-Year Summary ............................18
Management’s Discussion and Analysis ...................20
Business Risk and Other Risks .................................21
Consolidated Balance Sheets ..................................22
Consolidated Statements of Operations ..................24
Consolidated Statements of Shareholders’ Equity....25
Consolidated Statements of Cash Flows .................26
Notes to Consolidated Financial Statements............27
Independent Auditors’ Report.................................39
Worldwide Network................................................40
Corporate Data ........................................................41

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.

FY2005 Highlights
Thousands of
U.S. dollars

Millions of yen

Financial Summary

2005

2004

2005

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

¥197,945¥170,529 $1,844,440

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

192,600

241,528

1,794,633

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

337,760

350,574

3,147,223

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

3,598(6,491)

33,522

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

209,564

201,133

1,952,701

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

28,442

24,724265,024

20.51(37.00)0.19

Per share data (in yen and U.S. dollars):
Net income (loss) ............................................................

*U.S. dollar amounts are stated at ¥107.32 to $1, the exchange rate prevailing on March 31, 2005.

Operational Summary

Achieved increased revenues and profits
The Company posted the highest consolidated net income since it introduced
the consolidated accounting system in fiscal 1995.

Resumed dividend payments after six fiscal years
Acquired ¥192.6 billion in new orders, exceeding
the year’s target of ¥180.0 billion
Energy-related projects accounted for 44% of new orders.

Steadily improved the Company’s financial position
Interest-bearing debt was reduced by ¥12.1 billion through soundoperating cash flows.

337.8

307.8

’03

350.6

300.6

192.6

’02

(6.5)

(0.9)

(1.1)

0.9

131.2

324.3

241.5

’01

195.2

232.7

’05

170.5

3.6

(¥ billion)

197.9

Backlog of contracts(¥ billion)

179.2

New orders(¥ billion)

159.0

Net income (loss)(¥ billion)

119.1

Net sales

’01

’02

’03

’04

’05

’01

’02

’03

’04

’02

’03

’04

’05

’01

’04

TOYO ENGINEERING CORPORATION’05

Annual Report 2005

1

To Our Shareholders

In fiscal 2005, ended March 31, 2005, ToyoEngineering Corporation (TOYO) achieved its initial
profit target and restored to normal profitability,
which had been of main management concern. In
fiscal 2006, we will pursue profits and new orders
no less than in the previous year to ensure stable
operations. While striving for rigorous project management to achieve profit targets at hand,
we will also focus on upgrading our competitivenessin technologies and products as well as developing
our human capital, which will reinforce a foundationfor our sustainable growth.

Yutaka Yamada
President and Chief Executive Officer

2

TOYO ENGINEERING CORPORATION

Annual Report 2005

Fiscal 2005 Operating Environment and Results
Operating Environment
In fiscal 2005, there were several
negative factors, notably thehigher price of steel and the
yen’s appreciation against the U.S. dollar. On thefiscal 2004, when orders for large projects in Russia

positive side, there was a trend of increasing capitaland Iran were received. Overseas, major new orders

investments both in Japan and overseas. This trend

were for a natural gas pipeline project in Brazil, an

was boosted by rising demand for energy and chemi-

ammonia plant in Iran, and a bisphenol-A and polycar-

cal products especially in China, and the continuous

bonate plant in Russia. In Japan, major new orders

price hike of crude oil. All these contributed to thewere for a vinyl chloride monomer (VCM) plant andimprovement of clients’ earnings, resulting in thewaste treatment facilities. Energy-related projects

strong willingness of investment. Region-wise, there

accounted for 44% of the fiscal year’s new orders.

were substantial energy-related investments in the
Middle East as well as in the BRIC countries (Brazil,

Revenue and Earnings

Russia, India and China). Investment needs have

Consolidated net sales increased ¥27.4 billion, orbeen growing mainly in oil and gas development

16% from the previous year, to ¥197.9 billion, repre-

projects and gas-related projects, centered on lique-senting domestic sales of ¥54.5 billion and overseas

fied natural gas (LNG). These regions also saw growthsales of ¥143.4 billion. Operating income was ¥4.5

in the petrochemical sector as companies started tobillion compared with a fiscal 2004 loss of ¥3.3 bil-

resume or increase downstream investments.

lion, and net income was ¥3.6 billion compared witha loss of ¥6.5 billion one year earlier. Furthermore,

New Orders

we generated steady operating cash flows, allowing

Consolidated new orders totaled ¥192.6 billion, com-

us to lower interest-bearing debt by ¥12.1 billion.

prising ¥124.6 billion in overseas orders and ¥68.0 billion in domestic orders. This was generally in line with
our forecast for the fiscal year, although lower than in

Fiscal 2006 Corporate Strategies

Marketing Strategy

ture, a sector of emerging needs. Our policy is to

Our priority in fiscal 2006 focuses on the energy-

focus on businesses that are benefiting from market

related sector, a market sector where substantial

trends and can yield higher profit margins.

investments are being made. In addition, we will aim
for new orders in fields where we can utilize our1) Energy-Related Fieldcore technologies, especially petrochemicals andWe are building up a track record of energy-related

fertilizers, sectors in which steady investments areprojects across the entire energy supply chain, fromexpected. Another target is investments in infrastruc-upstream projects like gas and oil developments to

TOYO ENGINEERING CORPORATION

Annual Report 2005

3

To Our Shareholders

downstream projects such as gas separation plants,

3) Strategic Regions and Proposed Functions

pipelines and receiving terminals. In addition to proj-

We are placing emphasis on the BRIC countries, allects at large gas fields, there are large numbers ofof which are regions where we have accumulated

medium-sized gas fields in the world. At these fields,considerable local know-how through a number ofthere is a growing need for facilities to transform

successful projects over many years. The Middle East,

natural gas into methanol and fuel-use dimethyl

where there is a flood of investments, is anotherether (DME). This is an area where we can use ourstrategic region. We are also focusing on Japan,

proprietary technologies to differentiate ourselves

where clients continue to make strategic invest-

from competitors. Regarding DME, we are pursuingments. In addition, we have high expectations forfrom projects at large gas fields to the development

projects in Southeast Asia, another region of theof DME chains.

world where we have much experience. We areready to offer a spectrum of value-added solutions

2) Petrochemicals and Fertilizer Fields

for our clients ranging from our expertise in engi-

In these market sectors, we focus on getting orders

neering, procurement and construction (EPC) execu-

for plant construction in chemical derivatives usedtion to our information technology skills to achievefor consumer products and high-performance resins

optimal overall systems. Our solutions span thewhere substantial investments are taking place;entire lifecycle of a project, including operations andaromatics, ethylene oxide / ethylene glycol (EO/EG),

maintenance (O&M).

bisphenol-A and polycarbonate are prime examples.
Other promising opportunities rest in new sources of

Flexible Approach to Client Needs

demand for methanol and fertilizer projects to help

Our second strategy is to respond to client needs in a

feed the world’s growing population. Again, we will

flexible manner. It is therefore essential not only tohighly utilize proprietary TOYO technologies to cap-

complete large overseas EPC projects properly, butture orders. Under the current trend of the integra-

also to execute small to medium-scale projects,

tion of oil refining and petrochemical operations,domestic projects, e-solution projects and other con-there is a greater need to increase production of

tracts, which are equally important for TOYO. This

propylene. TOYO will meet client demand to

strategy will bring about a more diverse project port-

increase propylene production by applying olefin

folio and help us grow in a sustainable mannerconversion technology (OCT) licensed by ABB

through dilution of risk exposure. We are convinced

Lummus Global Inc., of the U.S., based on our long-that our provision of these kinds of total solutions tostanding collaboration.

clients will produce synergies that lead to expandedbusiness opportunities.

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TOYO ENGINEERING CORPORATION

Annual Report 2005

Working with Clients Closely
Our third strategy is to build close relationships withour clients. In today’s marketplace, clients place
equal importance on a contractor’s ability to offer
value-added solutions and reliability of scheduled
completion, quality and safety as well as on costcompetitiveness.
We are required to serve as a trusted partner,
assisting clients at a high level to execute theirstrategies and meet their needs. In order to earn thetrust of clients and foster relationships of trust, wemust be highly cost competitive and excellent in EPC
execution and management. In addition, we feelPresident Yamada made a presentation titled “Toyo's Contribution to theSuccess of Projects in Iran” at the 7th annual Iran Petrochemical Forum in
Tehran on May 7, 2005.

that our customers highly value our regional knowhow, a successful project record of achieving clients’satisfaction and involvement in projects from theinitial planning stage.

Outlook for Fiscal 2006
Prospects for New Orders
It is expected that strong investments will continue in association with the growing global
demand for energy and basic materials. In conjunc-

New Orders, Revenue and Earnings

tion with the integration of oil refining and petro-

In fiscal 2006, we are forecasting a slight increase inchemical operations, prospects are also good forconsolidated new orders from the previous fiscal

investments to raise the efficiency of production. In

year to ¥200.0 billion. For the time being, energy-

Japan, we foresee strategic investments driving

related projects will probably continue to account forclients to distinguish themselves from competitors.

a major share of new orders. Our goal is to achieve a

Many Japanese companies are faced with the deci-well-balanced composition of orders among energy-

sion of whether to promote the vertical integration

related, petrochemicals and other sectors where weof production in Japan or to shift their production

can offer highly differentiated products. Our forecast

bases abroad, mainly to China. On the other hand,

is for consolidated net sales of ¥200.0 billion, oper-

we need to remain vigilant concerning the higher

ating income of ¥5.0 billion and net income of ¥3.5

cost of raw materials, including special metals, andbillion. Following the achievement of restoring

delivery management for the procurement of items

normal profitability in fiscal 2005, we will remain

in short supply. In addition, we will continue tofocused on reaching our profit target in fiscal 2006

adhere to our policy of fully hedging foreign curren-

in order to secure a consistently profitable operatingcy exposure to shield our earnings from foreign

framework.

exchange fluctuation.
August 2005

TOYO ENGINEERING CORPORATION

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5

Management System

Corporate Governance

TOYO is dedicated to contributing to shareholders,

Status of internal control systemclients and all other stakeholders, as well as to fulfill-

To provide an internal control system, the Auditinging its social obligations in Japan and worldwide. For

Department, which is under the direct control of thethis purpose, measures are taken to heighten man-president, performs audits concerning the execution

agement transparency from the standpoints ofof business activities by all divisions. In addition,

investors and the public. TOYO places importance on

there are specialized units to perform other audits.

building a fair management system and ensuring the

The Safety, Quality and Environmental Management

proper operation of that system as well as the suit-

Division performs audits concerning safety, quality

able disclosure of information.

and environmental protection, and the Export
Control Administration Division carries out export

Corporate governance structure

control to verify that no prohibited materials are

By implementing structural reforms to enhance its

being exported.

management systems, such as reducing the numberof directors and adopting the executive officer sys-

Status of risk management systemtem, TOYO has established a framework for making

For risk management concerning project profitability

management decisions smoothly and efficiently.

and financial matters, all business operations are con-

In addition, TOYO has reinforced the auditing sys-

stantly monitored and supervised and reports are sub-tem, including an internal control system, to ensure

mitted to the Board of Directors, the Executivethat management is transparent, sound and appro-

Committee and the Board of Auditors. In addition,

priate.

matters of particular importance concerning individual
bidding and projects undergo a risk analysis overseenby the Commission for Analysis and Evaluation of

Corporate Governance Structure

Project Risks, and reports are submitted to theGeneral Meeting of Shareholders

Executive Committee. In addition, efforts will bemade to ensure that our risk management system

Board of Directors

Auditors / Board of Auditors

functions effectively by reinforcing the system ofinter-divisional checks and balances. The Company

Corporate Planning Committee

has drawn up Crisis Management Policy to clearly set
Executive Officer System(Execution of Business
Operations)Auditing
Department

President & CEO

Safety,Quality andEnvironmental
Management
Division
Export Control
Administration
Division

forth risk management procedures and increase risk
Corporate
Auditors

awareness throughout the Company and forestallcrises which have the potential to seriously affect the

Executive
Committee

Operating Divisions

Commission for
Analysis and
Evaluation of
Project Risks

Legal Counsel

operations of the Company. In the event of a crisis, aCrisis Management Task Team reporting directly to
management is quickly established. The Crisis
Management Task Team takes up the crisis as an
issue affecting the entire Company and implements
measures to resolve the state of emergency.

6

TOYO ENGINEERING CORPORATION

Annual Report 2005

Management● President and Chief Executive Officer
Yutaka Yamada* (photo A)● Executive Vice President
Kazuhisa Marukawa * (photo B)● Directors and Senior Executive Officers
Yoshitaka Ogata (Chief Technical Officer) * (photo C)
Takuichi Murachi * (photo D)
Kazuomi Nishihara
Keiji Suda
Kuniaki Tsuyada
Hisashi Saigo
Kenji Soejima
Makoto Fusayama(The above directors hold the position of executive officer.)● Senior Corporate Auditor
Masayoshi Korasaki

A

B

C

D

* Representative Director● Corporate Auditors
Kunimichi Gamo
Ryutaro Koyasu
Terutake Kato
● Senior Executive Officers
Isao Ichikawa
Ken Wakazuki
Komei Ohta
Masahiro Suzuki
Yoshiaki Mizoguchi● Executive Officers
Osamu Okura
Shuji Ueki
Akichika Sumi
Akhilesh Kumar
Hidetsugu Fujii
Kiyoshi Nakao
Keiichi Matsumoto
Osamu Kawanobe
Kenji Niwa
Makoto Shimagaki(As of June 28, 2005)

TOYO ENGINEERING CORPORATION

Annual Report 2005

7

Review of Operations

A large volume of investment is being made worldwide in oil, gas and other energy-related
projects. The outlook is for a continuation of investment by the oil majors, oil-producing
nations, BRIC countries and others. TOYO is aggressively pursuing these business
opportunities to win orders by leveraging its experience, track record and regional
know-how that spans the entire energy supply chain, from upstream to downstream projects.

EPC Solutions Business Operations(OVERSEAS)

Gas & Oil

Achievements in Fiscal 2005
As in the previous fiscal year, TOYO benefited fromextensive sales activities targeting energy-related projects, particularly those involving natural gas. As a result,new orders for energy-related projects totaled ¥85.1
billion, accounting for 44% of all new orders. However,this was 54% of the total of the previous fiscal year,
when TOYO received orders for two large energyrelated projects: an LNG plant on Sakhalin Island in
Russia and a large gas processing plant in Iran. One
highlight of fiscal 2005 was an order from Petroleo
Brasileiro S.A. (PETROBRAS) for the construction of anatural gas pipeline approximately 500km in total
length in northeastern Brazil. The energy-related sector
accounted for 30% of total sales, making it the largest
component by sector. Currently, TOYO is at work on
three large-scale projects in this sector: the Sakhalin II
LNG plant, the Iran South Pars gas processing plant andpipelines in Brazil.

8

TOYO ENGINEERING CORPORATION

Annual Report 2005

A

C

B
A Construction site of South Pars gas processing project in IranB Gas pipeline project in Brazil
C Maintenance and modernization of the Al-Khafji oil field in Saudi Arabia

From Upstream to Downstream
In the upstream energy field, since 2002, TOYO has
been working as a client-side alliance partner with
Al-Khafji Joint Operations (KJO)* to provide technology services for the maintenance and modernizationof the Al-Khafji offshore oil field in Saudi Arabia.
During fiscal 2005, TOYO performed engineering for
crude oil loading, crude oil production and offshore

Major Projects

Oil and Gas Development• Technical services for Al-Khafji Joint
Operations in Saudi Arabia
Gas Processing / LNG• Gas processing plant for Petropars Ltd. in Iran
• LNG plant for Sakhalin Energy Investment
Co., Ltd. in Russia

production facilities as well as for a condensate recov-

Pipeline

ery system. In downstream activities, TOYO is now• Gas pipeline for PETROBRAS in Brazil

constructing a total of 1,400km of natural gas
pipelines and related facilities in northeastern andsoutheastern Brazil for PETROBRAS. In the alterna-

Alternative Clean Energy• Fuel-use DME plant for Lutianhua Group Inc.
in Chinative clean energy fields, TOYO used its own technology for making methanol and DME from mediumsized natural gas field to build a fuel-use DME plantfor Lutianhua Group Inc. in China. After completionof the world’s first fuel-use DME in 2004, TOYO is
working on building the DME chain.

*A joint venture comprising Kuwait Oil Company and Saudi Aramco.

TOYO ENGINEERING CORPORATION

Annual Report 2005

9

Review of Operations

Due to very strong demand, particularly in China, the outlook is for substantial investments inplants for basic chemicals and for performance chemicals and engineered materials accompanying rising demand for consumer products. Steady growth is foreseen in fertilizer plants due
to increasing demand for food supplies. In addition, new investments are foreseen in conjunction with the integration of oil refining and petrochemical operations. TOYO is strongly
seeking orders by differentiating itself through the utilization of proprietary
technologies and technologies made available through alliances with licensers.

EPC Solutions Business Operations(OVERSEAS)

Petrochemicals & Chemicals

Achievements in Fiscal 2005
There was a strong performance by the petrochemical
sector, resulting in new orders in this category of¥46.5 billion, which was 24% of all new orders. Major
orders were for an ammonia plant for Petrochemical
Industries Development Management Company(PIDMCO) in Iran; a propylene plant by Olefins
Conversion Technology (OCT) for Korea Petrochemical
Industry Co., Ltd.; a methanol plant for Oman
Methanol Company L.L.C. (MAN Ferrostaal
Aktiengesellschaft, of Germany); and a bisphenol-Aand polycarbonate plant using the latest Japanesetechnologies for OAO Kazanorgsintez in the republicof Tatarstan, Russia. Major completions included a
specialty bisphenol plant in eastern Germany for a
joint venture company Hi-Bis GmbH*; an EO/EG plant
for Jubail United Petrochemical Company in Saudi
Arabia; and an acrylic acid (AA) / acrylic acid ester (AE)plant and OXO alcohol (OXO) plant in Nanjing, China,
for BASF-YPC Co., Ltd., a joint venture of BASF, of
Germany, and Sinopec Yangzi Petrochemical Co., Ltd.,of China.

10

TOYO ENGINEERING CORPORATION

Annual Report 2005

C

A

B
A Contract signing for methanol plant of Oman Methanol Company L.L.C.
B EO / EG plant of Jubail United Petrochemical Company in Saudi Arabia
C AA / AE plant of BASF-YPC Co., Ltd. in China

Distinguishing TOYO with Proprietaryand Licensed Technology
A 3,000t/d methanol plant licensed and engineeredby TOYO incorporates two proprietary TOYO technologies. One is methanol synthesis technology,
incorporated with the MRF-Z® Reactor, a TOYO-

Major Projects

Fertilizer / Methanol• Ammonia plant for PIDMCO in Iran• Ammonia / Urea plant for P.T. Pupuk Kujang
in Indonesia• Methanol plant for Oman Methanol Company
L.L.C. in Oman

developed technology that enables production of
6,000t/d of methanol in a single reactor vessel. The
other is TOYO’s steam reforming technology. In theurea sector, TOYO received three orders for urea
granulation plants using exclusive TOYO technology
from clients in Brazil, China and others. In 2004,
operations began in China at the first urea plantusing TOYO’s ACES21®—TOYO’s sophisticated ener-

Petrochemicals• EO / EG plant for Jubail United Petrochemical
Company in Saudi Arabia• AA / AE plant and OXO plant for BASF-YPC
Co., Ltd. in China• Bisphenol-A / Polycarbonate plant for
OAO Kazanorgsintez in Tatarstan, Russia• Propylene plant by OCT for Korea
Petrochemical Industry Co., Ltd. in Korea

gy-saving urea production technology. Regarding
licensed technology, TOYO will go after new orders
in the olefins field jointly with ABB Lummus Global
Inc., of the U.S., by stressing new technologies suchas the latest SRT-X furnace that enables the production of 300,000t/y of ethylene per furnace as well as
OCT for increasing propylene production.

*A joint venture company of Honshu Chemical Industry Co., Ltd.,
Mitsui & Co., Ltd. and Bayer AG.

TOYO ENGINEERING CORPORATION

Annual Report 2005

11

Review of Operations

In Japan, companies in all industries are shifting to a strategy of selective focus to differentiate themselves from competitors. As a result, there is a shift in production bases abroad,mainly to China, along with investments to integrate production systems vertically in Japanfor specializing in specific products. Furthermore, investments are being made in Japan tointegrate oil refining and petrochemical operations to achieve overall optimization. There
are also investments in production facilities needed to match changes in demand. TOYOis actively pursuing orders associated with the investment plans of client companies in line with all these trends.

EPC Solutions Business Operations(Domestic)

Achievements in Fiscal 2005
Due to aggressive sales activities, domestic operations
recorded a big increase in new orders over the previous fiscal year. New orders in Japan totaled ¥68.0 billion. This was 35% of all new orders, ranking Japanfirst in the new order breakdown by region.
In the petrochemical field, a highlight of the year
was an order to build a large VCM plant for Tosoh
Corporation. Support services for Japanese companies
expanding their operations outside Japan wereanother source of new business. Orders were received
for a number of overseas production facilities, including fine chemical plants of Toyo Ink Mfg. Co., Ltd. andOtsuka Chemical Co., Ltd. in China as well as a superabsorbent polymer (SAP) plant for Nippon ShokubaiCo., Ltd. in Belgium.
Major projects completed in Japan included an aniline plant for Tosoh Corporation, a plant for Mitsui
Chemicals, Inc. to increase propylene production by
OCT, a multi-purpose bulk pharmaceuticals plant for
Wako Pure Chemical Industries, Ltd., and R&D andproduction sites of positron emission tomography(PET) diagnostics for Nihon Medi-Physics Co., Ltd. In
China, an SAP plant for Nippon Shokubai was completed and started operation.
12

TOYO ENGINEERING CORPORATION

Annual Report 2005

C

A

B
A Aniline plant of Tosoh Corporation in Japan
B Opening ceremony for SAP plant of Nisshoku Chemical Industry (Zhangjiagang) Co., Ltd. in China
C Propylene plant of Mitsui Chemicals, Inc. in Japan

Growing Demand for Assisting JapaneseCompanies Expanding Operations in China
In 2004, TOYO established Toyo Engineering
Corporation, China (TOYO-China), a company that isable to conduct all business operations including EPC
under China’s new legal framework for the construction industry. This company is actively engaged inassisting Japanese clients set up operations in China.
TOYO-China is currently building many factories,
including facilities to manufacture chemical products

Major Projects

Petrochemicals• VCM plant and Aniline plant for
Tosoh Corporation• Propylene plant for Mitsui Chemicals, Inc.
Industrial Plants• Multi-purpose bulk pharmaceuticals plant for
Wako Pure Chemical Industries, Ltd.
• R&D and production sites of PET diagnostics
for Nihon Medi-Physics Co., Ltd.

and electronic components. New orders during the

Projects in China

fiscal year under review included an ink solvent plant• SAP plant for Nisshoku Chemical Industry(Zhangjiagang) Co., Ltd.
• Fine chemical plant for
Sankyo Chemical Co., Ltd.

for Toyo Ink Mfg./STIM, a potassium titanate fiber
plant for Zhangjiagang Otsuka Chemical Co., Ltd. anda paper making chemicals plant for Seiko PMC(Zhangjiagang) Corporation. We have cooperative
agreements with the economic development zones ofNanjing, Daqing and Jilin, adding to the four existing
agreements in eastern China with Changshu,
Zhangjiagang, Nantong and Zhenjiang. Thus, TOYO's
service to help clients start operations in China has
been extended to three northeastern provinces ofChina.

TOYO ENGINEERING CORPORATION

Annual Report 2005

13

Review of Operations

Strategic investments in the manufacturing, distribution and service sectors are climbing
and needs associated with business reforms that can boost efficiency and competitivenessare growing as well. The result is increasing demand for consulting services and systems
integration services that target these needs. In response, TOYO offers integrated
solutions centered on its own products and services. These solutions extend fromconsulting services for renovation planning and systems design and development
through the execution of a project.

e-Solutions Business Operations

Achievements in Fiscal 2005
Fiscal 2005 orders in the IT sector were up sharply, rising 40% to ¥19.9 billion, which comprise domestic
new orders. This accomplishment is primarily a reflection of the consistent progress being made by the esolutions business, which is now in its fourth year ofoperation. In the supply chain management (SCM)
solutions field, we received an order from Tohan Co.,
Ltd.—a leading distributor of books and magazines inJapan—for the construction of a reverse logistic centerfor books at its Okegawa Logistics Complex. By utilizing our expertise in the field of plant operation andmaintenance, we have a business that provides support for building integrated facility maintenance systems for clients, including electric power companies. In
the financial solutions field, a multichannel front-officesystem for securities trading that uses TOYO’s proprietary ProTradeV® continues to perform well at SMBC
Friend Securities Co., Ltd. Furthermore, a system forsecurities intermediary business was put into operation. In all, fiscal 2005 was highlighted by aggressive
measures to establish systems, primarily by using
TOYO products like Komei7®, a production schedule
control system, and Knowledge Bank®, a knowledge
management system that applies TOYO know-how.
14

TOYO ENGINEERING CORPORATION

Annual Report 2005

C

A

B
A Okegawa logistics complex of Tohan Co., Ltd.
B ProTradeV® for multichannel front-office system for securities trading
C Knowledge Bank®—knowledge management system

Knowledge Support System for
Field Operators at Oil Refinery
In July 2004, TOYO began developing a program
called Knowledge Support System for Field
Operators at Oil Refinery, a three-year joint projectwith the Research Institute of Human Engineeringfor Quality Life sponsored by Japan’s Ministry of
Economy, Trade and Industry. The purpose of the system is to pass down the know-how of veteran workers and enhance the skills of younger workers inorder to prevent industrial accidents. In fiscal 2005,

Major Projects

Publishing distribution industry• Logistics center for distributor ofbooks and magazines(Tohan Co., Ltd.)
Beverage industry• Manufacturing execution system Komei ®
(Asahi Soft Drinks Co., Ltd.)Oil industry• Manufacturing execution system Komei ®
(Showa Shell Sekiyu K.K.)

an explosion-protected wearable camera and aknowledge support system were developed. In fiscal
2006, the newly developed devices will be used for

Financial industry• Multichannel front-office system ProTradeV®
(SMBC Friend Securities Co., Ltd.)

demonstration experiment at two oil refineries inJapan. Video recordings will be used to examine theElectric utility industry

movements of workers using a human engineering• Knowledge management system
Knowledge Bank®
(Tokyo Electric Power Company)• Improvement of the maintenance system(Japan Atomic Power Co.)

analysis method to create a database of the resulting
know-how. In the final year of this project, educational tools will be developed for young workers.
The new equipment and educational tools are to beadapted for use at oil refineries, petrochemicalplants, LNG plants and other facilities.

TOYO ENGINEERING CORPORATION

Annual Report 2005

15

Review of Operations

HSE + Quality

Safety Record
During calendar 2004, TOYO’s incidence rate for losttime injuries and illnesses (LTI), as defined by U.S.

Petropars Ltd.
(Iran)
ongoing

OSHA*, was 0.03, the lowest in the past five years.

Gas Processing Plant:

Our LTI rate has been constantly decreasing.

13,000,000 LTI-free man-hours*Number of persons per 200,000 man-hours

Jubail United Petrochemical Company(Saudi Arabia)

TOYO Safety Record

ongoing
Total Man-Hours
50,000,000

LTI
0.12

0.10
40,000,000

0.08
30,000,000

Petrochemical Plant (No.2 EO/EG):

2,500,000 LTI-free man-hours
2003–2004 (Sept.) (completed)

Petrochemical Plant(No.1 EO/EG):

7,000,000 LTI-free
man-hours

0.06
20,000,000
0.04

BASF-YPC Co., Ltd.
(China)2003–2004 (Dec.) (completed)

Petrochemical Plant (AA/AE):

10,000,000

0.02

7,000,000 LTI-free man-hours
Petrochemical Plant (OXO):0

CY ’00

’01

’02

’03

’04

■ Overseas & Domestic Total Man-Hours– TOYO LTI Rate

16

TOYO ENGINEERING CORPORATION

Annual Report 2005

0.00

5,000,000 LTI-free man-hours

New Corporate Safety, Quality andISO 14001 Certification

Environment Policy

TOYO received ISO 14001 certification in October

TOYO has established a new Corporate Safety,

2004. Certification covers oil, gas, refinery, chemical

Quality and Environment Policy. Based on ourand petrochemical plants as well as industrial plants,

Corporate Philosophy, the policy is structured toincluding power generation, nuclear energy, phar-meet ISO demands, thus fulfilling the Company’s

maceutical and food processing plants, and environ-mission as an engineering company. The policy has

mental protection facilities. We have an

five elements: the supply of products and services

Environmental Planning Department within ourthat are safe and have the least burden on the envi-

Safety, Quality and Environmental Management

ronment; the creation of a safety-oriented culture;

Division that is overseen

the preservation of the regional and global environ-directly by the president andments; adherence to ethics and compliance withis independent of all otherlaws and regulations regarding Safety, Quality and

TOYO divisions. This depart-

Environment; and continuous improvements based

ment is responsible foron the belief that safety, quality and environmental

management activities asso-

protection are the basis of an ongoing concern. The

ciated with operating andpolicy also includes elements from the standpoint of

improving our environmental

business continuity management. Moreover, the pol-management system.

icy unifies separate policies for product quality andsafety, health and the environment to integrate all
management systems.

TOYO ENGINEERING CORPORATION

Annual Report 200517

Consolidated Five-Year Summary
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

2004

2003

2002

2001

2005

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

¥197,945¥170,529¥179,168¥158,963¥119,067$1,844,440

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

17,7708,640

17,291

14,415

11,136

165,578

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

4,540(3,257)

5,424

2,961

147

42,301

Income (loss) before income taxes andminority interests....................................................

3,698(3,714)657(1,370)2,194

34,458Net income (loss).......................................................

3,598(6,491)(923)(1,081)

912

33,522

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

209,564

201,133

199,494

196,177

239,778

1,952,701

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

28,442

24,72429,69430,90632,089265,024

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

36,454

39,691

41,84046,03828,765

339,674

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

2,096

241

282

272

334

19,528Depreciation and amortization..................................

1,453

1,315

1,347

1,339

1,304

13,535

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

13,01813,01813,01813,01813,018121,298

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

192,600

241,528

195,160

131,211

232,666

1,794,633

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

337,760

350,574

307,817300,636

324,259

3,147,223
U.S. dollars(Note 1)Yen

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

¥20.51¥(37.00)¥(5.27)¥(6.15)

¥5.19

$0.19

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

3.00

—

—

—

—

0.03

Gross Profit

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

(¥)

17.8

17.3

20.51

5.4

14.4

4.5
3.0

11.1

5.19
8.6

0.1
(6.15) (5.27)(3.3)(37.00)

’01

18

’02

’03

TOYO ENGINEERING CORPORATION

’04

’05

Annual Report 2005

’01

’02

’03

’04

’05

’01

’02

’03

’04

’05

2005

2004

2003

2002

2001

Net sales by sector (%):
Chemical fertilizers ....................................................................

15.8%

9.3%

7.1%

11.2%

8.7%

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

27.4

30.8

32.9

41.8

30.6

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

7.7

13.3

21.3

14.5

7.1

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

29.5

27.3

19.2

11.9

23.9

General manufacturing facilities andinformation technology ..........................................................

14.7

11.5

12.2

16.4

19.7

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

4.9

7.8

7.3

4.2

10.0

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

(72)

(78)

(79)

(74)

(72)

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

2,376

2,310

2,146

1,939

1,475

Total Assets

Total Shareholders’ Equity

Composition of
Net Sales by Sector(¥ billion)(¥ billion)

(%)

4.9
239.8

32.1
196.2 199.5 201.1

209.6

14.7

30.9 29.7

15.8

28.4
24.7

27.4
29.5
7.7

’01

’02

’03

’04

’05

’01

’02

’03

’04

’05

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

TOYO ENGINEERING CORPORATION

Annual Report 2005

19

Management’s Discussion and Analysis

In fiscal 2005, ended March 31, 2005, TOYO posted large increases in sales and earnings. Net income rose to the highest
level since TOYO began reporting consolidated results in fiscal 1995. On a non-consolidated basis, TOYO resumed paying
a dividend for the first time since the dividend applicable to fiscal 1998. The following items are particularly noteworthy
achievements of the fiscal year under review.
1) New orders surpassed our target
Fiscal 2005 consolidated new orders totaled ¥192.6 billion ($1,795 million). This was less than in fiscal 2004 when orders
were received for large projects in Russia and Iran. However, energy-related orders were strong as in the previous fiscal year
and new orders of domestic operations increased. The backlog of contracts at the end of the fiscal year was ¥337.8 billion($3,147 million), which equates to about 1.8 years of forecasted fiscal 2006 net sales. This provides an adequate backlog ofcontracts to give TOYO a stable base of operations.
2) Significant improvement in cash provided by changes in operating assets
and liabilities and reduction in interest-bearing debt
Due to a significant improvement in cash provided by changes in operating assets and liabilities, sufficient operating cash
flows were generated to reduce interest-bearing debt. As a result, interest-bearing debt totaled ¥54.1 billion ($504 million)at the end of the fiscal year, ¥12.1 billion (US$113 million) less than one year earlier.
Sales and Earnings
Consolidated net sales increased ¥27.4 billion (US$255 million) to ¥197.9 billion ($1,844 million), due in part to satisfactory
progress in implementing large projects. At the operating level, TOYO returned to profitability with operating income of ¥4.5
billion ($42 million), an improvement of ¥7.8 billion (US$73 million) over the fiscal 2004 operating loss. This was achieved
even though earnings were slightly less than had been planned on average. Net income was ¥3.6 billion ($34 million) as
planned.
Cash FlowsNet cash provided by operating activities was ¥16.0 billion ($149 million). The principal sources of cash were income before
income taxes and minority interests of ¥3.7 billion ($34 million), in addition to an increase in advance receipts on uncompleted
work. Another reason for the improvement was the positive effect on cash flows of progress in construction work at joint venture projects. Net cash used in investing activities was ¥2.1 billion ($20 million). This was mainly attributable to the purchases ofproperty, plant and equipment. Net cash used in financing activities was ¥12.2 billion ($114 million) as repayments of interestbearing debt were made based on the debt reduction plan. The net result of the above cash flows, after including the effect of
exchange rate changes, was a net increase of ¥1.8 billion ($17 million) in cash and cash equivalents compared with the end of
the previous fiscal year to ¥45.4 billion ($423 million).

20

TOYO ENGINEERING CORPORATION

Annual Report 2005

Business Risk and Other Risks

The following is a list of potential risks associated with the information concerning operating results and financial condition inthis annual report that may have a significant bearing on investors’ decisions. This is not intended to be a complete list ofthese potential risks.
1. Overseas business risk
The nature of TOYO Group business activities, which mainly involve conducting projects outside Japan, is exposed to the following risks. (1) War, civil commotion, riots, revolutions, sudden changes in governments and other unusual events in the
country where the project is carried out or in a neighboring country. (2) Regional risks that occur particularly in an area near a
project site, such as a surge of political unrest and a serious outbreak of a contagious disease. (3) Extraordinary natural phenomenon, such as earthquakes, floods, typhoons and other storms as well as unusual weather, such as extreme heat or cold.
(4) Drastic changes in industrial or financial policies in the host country affecting the permission, laws and regulations involving import duties, immigration, foreign exchange, telecommunications, taxation and other items. (5) A sudden and substantial
reduction of investments globally in business fields where TOYO is active. Any interruption or suspension in work due to theabove risks could have an adverse effect on TOYO’s consolidated operating results and financial condition. The Group isaware of the possibility that these risks may occur and is taking actions to reduce exposure to these risks by using export credit
insurance, maintaining a risk management system and taking other steps.
2. Foreign exchange fluctuation
For overseas plant construction contracts denominated in foreign currencies, the appreciation of the yen relative to the applicable foreign currency causes a reduction in the yen equivalent amount received. In addition, the yen’s appreciation makes
TOYO less price competitive when competing for new orders in foreign currencies. This could have an adverse effect on
TOYO’s consolidated operating results and financial condition. In response, the Group uses foreign exchange forward contracts, procures materials and equipment in foreign currencies, utilizes the resources of its overseas bases, and takes all otherpossible steps to minimize exposure to foreign exchange risk.
3. Sudden increases in prices of equipment and materials
A large share of contracts signed with clients involves turnkey lump-sum projects. Therefore, the possibility exists of sudden
and steep rises in the cost of equipment and materials, transportation, labor and other items associated with a project, or of
problems caused by tight demand and supplies of these items, due to rapid change in the international situation. The possibility also exists of a supplier becoming insolvent. These events may deteriorate the profitability of a project affected by soaring
cost, delivery delay and other problems. Such events may therefore have a detrimental effect on TOYO’s consolidated operating results and financial condition. To reduce its exposure to these risks, TOYO utilizes its experience to enter into contracts
that incorporate measures to offset these risks and gathers information on market trends. To avoid an undue reliance on aparticular supplier, TOYO works on placing orders with a large number of suppliers and stringently monitors the financial
condition of suppliers.

TOYO ENGINEERING CORPORATION

Annual Report 200521

Consolidated Balance Sheets
Toyo Engineering Corporation and Consolidated Subsidiaries

March 31, 2005 and 2004

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

Assets

2005

2004

2005

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

¥ 45,972¥ 44,098$ 428,359

Notes and accounts receivable (Note 3).......................................................................

40,15537,247374,160

Less: Allowance for doubtful receivables ..................................................................

(3,637)(2,117)(33,884)

36,51835,130340,276Contract work in progress.............................................................................................

61,78862,659575,734

Prepaid expenses and other current assets (Note 4) .....................................................

14,742

7,465

137,370

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

159,020

149,352

1,481,739

Investment securities (Note 12)....................................................................................

5,648

5,771

52,623

Investments in unconsolidated subsidiaries and affiliates (Note 12)..............................

3,717

3,871

34,636Long-term loans..........................................................................................................

1,394

3,239

12,989Current assets:

Investments:

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

6,081

6,169

56,666

Less: Allowance for doubtful receivables ..................................................................

(3,654)(3,903)(34,050)

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

13,18615,147

122,864

Property, plant and equipment, at cost:
Land (Note 3)..............................................................................................................

19,40818,803

180,841

Buildings and structures (Note 3).................................................................................

26,41125,738246,098

Tools, furniture and fixtures ........................................................................................

3,418

4,423

31,843

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

181

—

1,689

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

49,41848,964

460,471

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

(15,186)(15,758)(141,500)

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

34,232

33,206

318,971

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

3,126

3,428

29,127¥209,564¥201,133$1,952,701

See notes to consolidated financial statements.

22

TOYO ENGINEERING CORPORATION

Annual Report 2005

Millions of yen

Liabilities and Shareholders’ Equity
Current liabilities:
Short-term bank loans (Note 3) ...................................................................................
Current portion of long-term debt (Note 3).................................................................
Notes and accounts payable........................................................................................
Income taxes payable (Note 4).......................................................................................
Advance receipts on uncompleted contracts ...................................................................
Reserve for anticipated loss on contract work..............................................................
Other current liabilities (Note 4)....................................................................................
Total current liabilities...........................................................................................
Long-term debt (Note 3).............................................................................................
Accrued retirement benefits (Note 5)........................................................................
Other long-term liabilities (Note 4)............................................................................
Contingent liabilities (Note 7)
Minority interests........................................................................................................
Shareholders’ equity:
Common stock
Authorized: 500,000,000 shares
Issued: 175,692,539 shares .....................................................................................
Additional paid-in capital ............................................................................................
Retained earnings (Note 6)..........................................................................................
Net unrealized gain on securities.................................................................................
Foreign currency translation adjustments.....................................................................
Less: Treasury stock, at cost: 291,522 shares............................................................
Total shareholders’ equity .....................................................................................

Thousands of
U.S. dollars(Note 1)

2005

2004

¥ 6,514
11,10931,715244
73,756
1,628
12,582
137,548¥ 11,916
14,55530,147528
61,915468
10,038
129,567

36,454
2,477
2,762

39,691
2,660
2,621

339,674
23,07525,738

1,881

1,870

17,52513,01813,01815,594
15,593(606)(4,278)
1,133
1,231
(638)
(805)
28,501
24,759(59)(35)
28,442
24,724¥209,564 ¥201,133

121,298
145,303(5,645)
10,562(5,945)265,573(549)
265,024$1,952,701

TOYO ENGINEERING CORPORATION

2005

$

60,697
103,510295,5222,272
687,260
15,167
117,237
1,281,665

Annual Report 2005

23

Consolidated Statements of Operations
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

2004

2005

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

¥197,945¥170,529$1,844,440

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

180,175

161,889

1,678,862

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

17,7708,640

165,578

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

13,23011,897

123,277

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

4,540(3,257)42,301

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

1,225

1,743

11,410Gain on sales of investment securities.............................................................................

36

452

334

Gain on revision of pension plan....................................................................................

248

—

2,309

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

169

162

1,578

1,678

2,357

15,631

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

1,391

1,719

12,956

Foreign exchange loss .................................................................................................

406

252

3,782

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

130

481

1,212

Other income:

Other expenses:

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

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

593

362

5,524

2,520

2,814

23,474

3,698(3,714)34,458

Income taxes (Note 4)
Current.......................................................................................................................

407

712

3,795

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

(326)

1,882

(3,035)

81

2,594

760

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

(19)

(183)

(176)

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

¥ 3,598¥ (6,491)

Per share of common stock:
Net income (loss) ........................................................................................................
See notes to consolidated financial statements.

24

TOYO ENGINEERING CORPORATION

Annual Report 2005

33,522

U.S. dollars(Note 1)

Yen

¥20.51$¥(37.00)$0.19

Consolidated Statements of Shareholders’ Equity
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

2004

2005

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

¥13,018¥13,018$121,298

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

¥13,018¥13,018$121,298¥15,593¥15,592$145,296

Common stock:

Additional paid-in capital
Balance at beginning of the year....................................................................................
Add–gain on disposal of treasury stock...........................................................................

1

1

7

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

¥15,594¥15,593$145,303

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

¥ (4,278)¥ 2,216$ (39,864)

Add–net income .........................................................................................................

3,598

—

33,522–Increase due to newly consolidated subsidiaries..............................................

77

—

726

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

—

6,491

—

–Bonuses to directors .......................................................................................

3

3

29

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

¥ (606)¥ (4,278)$ (5,645)

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

¥ 1,231¥ (541)$ 11,472

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

(98)

1,772

(910)

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

¥ 1,133¥ 1,231$ 10,562¥ (805)¥ (566)$ (7,497)

Retained earnings (Note 6):

Net unrealized gain (loss) on securities:

Foreign currency translation adjustments:
Balance at beginning of the year.................................................................................
Adjustment for the year ..............................................................................................

167

(239)

1,552

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

¥ (638)¥ (805)$ (5,945)¥¥$

Treasury stock:
Balance at beginning of the year..................................................................................
Shares increased, net.................................................................................................
Balance at end of the year......................................................................................

(35)
(24)

¥

(59)

(25)
(10)

¥

(35)

(328)
(221)

$

(549)

See notes to consolidated financial statements.

TOYO ENGINEERING CORPORATION

Annual Report 2005

25

Consolidated Statements of Cash Flows
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2005 and 2004

Thousands of
U.S. dollars(Note 1)Millions of yen
2005

2004

2005

¥ 3,698¥ (3,714)$ 34,458

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

1,453

1,315

13,535Gain on sales of marketable and investment securities, net ......................................

(36)

(452)

(334)

Operating activities:
Income (loss) before income taxes and minority interests.............................................
Adjustments to reconcile income (loss) before income taxes andminority interests to net cash provided by operating activities:

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

130

481

1,213

Allowance for doubtful receivables ..........................................................................

1,269

425

11,830Allowance for anticipated loss on contract work ......................................................

1,160

147

10,805Equity in earnings of affiliated companies ................................................................

(18)

(32)

(171)

Increase (decrease) in retirement benefits.................................................................

(19)

299

(173)

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

1,380

1,783

12,857

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

(1,225)(1,743)(11,410)

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

1,390

1,719

12,956

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

(1,400)(1,762)(13,045)

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

(968)

(961)

(9,024)

Other, net................................................................................................................

(2,122)

6,117(19,772)(Increase) decrease in notes and accounts receivable.............................................

(2,666)

14,663(24,837)(Increase) decrease in contract work in progress....................................................

1,281(21,058)

11,933

Changes in operating assets and liabilities:

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

1,358(2,878)12,654

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

11,28723,228105,169

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

15,952

17,577

148,644

(20)

(138)

(189)

Proceeds from sales of marketable securities and investment securities........................

99

1,015

927

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

(2,096)(241)(19,528)

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

(871)

(913)

(8,119)Proceeds from collection of long-term loans................................................................

570

—

5,307

Investing activities:
Purchases of investment securities...............................................................................

Other, net...................................................................................................................

219

(318)

2,037

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

(2,099)(595)(19,565)(5,401)(13,727)(50,330)

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

6,038

12,05056,262

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

(14,770)(14,863)(137,627)

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

2,000

1,000

18,636

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

(65)

(167)

(605)

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

(12,198)(15,707)(113,664)

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

121

(191)

1,129

Net increase in cash and cash equivalents................................................................

1,776

1,084

16,544

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

43,61542,531

406,405

Increase in cash and cash equivalents due to newly consolidated subsidiaries ....

56

—

523

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

¥45,447¥ 43,615$423,472

See notes to consolidated financial statements.

26

TOYO ENGINEERING CORPORATION

Annual Report 2005

Notes to Consolidated Financial Statements
Toyo Engineering Corporation and Consolidated Subsidiaries

1

BASIS OF PREPARATION
The 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 requiredby 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 ¥107.32 to
U.S.$1.00 prevailing on March 31, 2005.

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(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
and transactions are eliminated in consolidation. The difference between the acquisition cost and the equity inthe 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 are classified into one of three categories: trading, available-for-sale or held-tomaturity securities. Trading securities are bought and held principally for the purpose of selling them in the nearterm. Held-to-maturity securities are those securities in which the Company and its domestic subsidiaries have theability and intent to hold until maturity. All securities not included in trading or held-to-maturity are classified asavailable-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 orlosses on 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 basedon the estimated useful lives of the assets.
(e) Leases
Noncancelable leases are primarily accounted for as operating leases except that leases which stipulate thetransfer of 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 theactual 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.

TOYO ENGINEERING CORPORATION

Annual Report 200527

(h) Reserve for anticipated loss on contract work
Reserve for anticipated loss on contract work is provided in case the material loss is forecasted for a certain
large-scale contract work.
(i) Accrued Retirement Benefits
The accrued retirement benefits at the year-end are stated in accordance with the projected plan assets andthe projected retirement benefit obligation. The difference arising from the adoption of the new standard ofaccounting of ¥3,701 million ($34,490 thousand) is amortized over fifteen years on a straight-line basis.
Actuarial loss is amortized over mainly fifteen years starting following the year of recognition. Prior service
cost is amortized over fifteen years.
Amendment was made to the pension plan on June 1, 2004 to limit future pension annuity payment topensioners. In accordance with the provision stipulated in "Accounting for transfer between pension plan",gain on the amendment of pension plan, in the amount of ¥248 million ($2,309 thousand), is recorded asother income for the year ended March 31, 2005.
(j) 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 or loss 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.
(k) Foreign Currency Translation
Both short-term and long-term receivables in foreign currencies are translated at the exchange rates at thebalance sheet date. The balance sheet accounts of the consolidated foreign subsidiaries are translated at therate of exchange in effect at the balance sheet date, except for common stock and additional paid-in capital,
which are translated at their historical exchange rates. Revenues, expenses and net income for the year aretranslated at the rate of exchange in effect at the balance sheet date.
Differences arising from translation are presented as “Foreign currency translation adjustments” in theaccompanying consolidated balance sheets.
(l) 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 excessof two years, revenues are recognized by the percentage-of-completion method. According to this method,
the revenue is computed by multiplying the contract price by the ratio of costs incurred at the balance sheet
date to the total estimated cost.
(m) Net Income (Loss) per Share
Net income (loss) per share is computed based on the weighted average number of shares outstanding during
each year. Diluted net income (loss) per share is not presented since there was no potential for dilution by theissuance of common stock in 2005 or 2004.
(n) 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 ineffect when the differences are expected to be reversed.
(o) Consolidated Tax Return
Effective from the year ended March 31, 2005, the Company files a consolidated tax return with certain
domestic subsidiaries.
(p) 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.
28

TOYO ENGINEERING CORPORATION

Annual Report 2005

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 annual interest rates applicable to the loans outstanding at March 31, 2005 ranged principally from 0.94% to 6.8% and at
March 31, 2004 ranged from 0.69% 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, 2005 and 2004 is summarized as follows:
Millions of yen

Years ended March 31,
Loans, principally from banks, at interest rates ranging
from zero to 6.800%, due 2005-2033:
Secured ......................................................................................................
Unsecured ..................................................................................................
1.080% bonds, due 2007.............................................................................
1.470% bonds, due 2007.............................................................................
Total long-term debt .................................................................................
Less: Current portion .........................................................................................

Thousands of
U.S. dollars

2005

2004

2005

¥22,955
21,6081,000
2,000
47,563
11,109¥36,454¥25,21128,0351,000—
54,246
14,555¥39,691$213,887
201,343
9,318
18,636443,184
103,510$339,674

The following assets at March 31, 2005 and 2004 were pledged as collateral principally for long-term debt:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2005

2004

2005

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

¥ 6,705
25,340¥32,045¥ 7,881
27,760¥35,641$ 62,476
236,121$298,597

The following schedule shows the maturities of long-term debt subsequent to March 31, 2005:
Years ending March 31,
2006 ..................................................................................................................................
2007 ..................................................................................................................................
2008 ..................................................................................................................................
2009 ..................................................................................................................................
2010 ..................................................................................................................................
2011 and thereafter ...........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥11,10922,370
7,468
2,225
1,694
2,697
¥47,563$103,510
208,442
69,58920,72915,78025,134$443,184

The Company and its subsidiaries had committed line of credit of ¥10 billion ($93,179 thousand) at March 31, 2005.
There were no borrowings outstanding under the line of credit.

TOYO ENGINEERING CORPORATION

Annual Report 2005

29

4

INCOME TAXESThe statutory tax rates applicable to the Company and its domestic subsidiaries for the year ended March 31, 2005
and 2004 were approximately 40.4% and 41.8%, respectively. 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 ofoperations differed from the above-mentioned statutory tax rate for the following reasons:Year ended March 31, 2005
Statutory tax rate in Japan............................................................................................................................
Adjustments:
Permanently nondeductible expenses........................................................................................................
Permanently nontaxable dividends received ...............................................................................................
Effect on operating loss carryforwards, etc.................................................................................................
Other .....................................................................................................................................................
Effective tax rate............................................................................................................................................

40.4%
7.3
(0.3)
(52.0)
6.8
2.2%

Year ended March 31, 2004
The details of effective tax rate are omitted because of the loss taken up instead of income before income taxes in
the accompanying statements of operations for the year.
(2) Significant components of the deferred income tax assets and liabilities at March 31, 2005 and 2004 are as follows:
Millions of yen
2005

2004

Thousands of
U.S. dollars
2005

Deferred tax assets:
Allowance for doubtful receivables ................................................................
¥1,331¥1,573$12,402
Accrued retirement benefits...........................................................................
838
845
7,809
Provision for anticipated loss on contract work ..............................................
588
—
5,483
Difference in net sales recognized—405—
by the percentage-of-completion method...................................................
Other ............................................................................................................
1,151
777
10,722
Total deferred tax assets ...................................................................................
3,908
3,600
36,416
Deferred tax liabilities offset to deferred tax assets:
(680)
(726)
(6,336)
Difference in net unrealized gain on securities................................................
Reserve for overseas investment losses...........................................................
(3)
(8)
(32)
Depreciation expense ....................................................................................
(113)
(126)
(1,054)
Other ............................................................................................................
(46)
(36)
(427)
Total deferred tax liabilities ...............................................................................
(842)
(896)
(7,849)Net deferred tax assets .....................................................................................
¥3,066¥2,704$28,567
Note: The Company and its subsidiaries had operating loss carryforwards equivalent to unrecognized tax assets of¥5,005 million ($46,634 thousand) and ¥6,503 million at March 31, 2005 and 2004, respectively, which areavailable to be offset against future taxable income.

30

TOYO ENGINEERING CORPORATION

Annual Report 2005

(3) Net deferred tax assets at March 31, 2005 and 2004 are included in the consolidated balance sheets as follows:
Millions of yen

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

5

Thousands of
U.S. dollars

2005

2004

2005

¥2,112
1,113
(1)
(158)
¥3,066¥1,136
1,729
—
(161)
¥2,704$19,674
10,374(7)(1,474)$28,567

RETIREMENT BENEFITSThe 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, 2005 consisted of the following:
Year ended March 31, 2005

Millions of yen

Thousands of
U.S. dollars¥(15,402)
8,212(7,190)2,476
4,408(1,997)¥ (2,303)$(143,512)
76,520(66,992)
23,07341,074(18,611)$ (21,456)

Projected benefit obligation................................................................................................
Plan assets..........................................................................................................................
Unreserved projected benefit obligation .............................................................................
Unamortized obligation at transition...................................................................................
Unamortized actuarial loss..................................................................................................
Unrecognized prior service cost...........................................................................................
Accrued retirement benefits for employees.........................................................................

The consolidated balance sheet includes directors’ and statutory auditors’ retirement allowances of ¥174 million($1,619 thousand) in addition to the accrued retirement benefits for employees presented above.
(2) Net periodic pension cost for the year ended March 31, 2005 consisted of the following:
Year ended March 31, 2005
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 ..............................................................................................................................
Net periodic pension cost ...................................................................................................
Gain on revision of pension plan.........................................................................................
Total...................................................................................................................................

Millions of yen

Thousands of
U.S. dollars

¥ 568
298
(206)
250
383
(153)
120
1,260
(248)
¥1,012$ 5,288
2,774(1,916)2,332
3,565(1,422)
1,119
11,740(2,309)$ 9,431

TOYO ENGINEERING CORPORATION

Annual Report 200531

(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

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

RETAINED EARNINGSThe 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.

7

CONTINGENT LIABILITIESAt March 31, 2005, the Company and its subsidiaries were contingently liable as guarantors of loans to others in theaggregate amount of ¥2,770 million ($25,815 thousand).

8

NET SALESNet sales include revenues recognized by the percentage-of-completion method as described in Note 2 (l).
The following table shows net sales recognized by the percentage-of-completion method:
Millions of yen

Years ended March 31,

9Thousands of
U.S. dollars

2005

2004

2005

¥126,496¥109,235$1,178,682

RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses for the years ended March
31, 2005 and 2004 amounted to ¥654 million ($6,098 thousand) and ¥550 million, respectively.

32

TOYO ENGINEERING CORPORATION

Annual Report 2005

10

OTHER EXPENSES“Other” in “Other expenses” for the years ended March 31, 2005 and 2004 consisted of the following:Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

2005

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

11

¥162
—
179
252
¥593

2004

¥118
17
—
227
¥362

2005

$1,514
—
1,664
2,346
$5,524LEASES(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, 2005 and 2004 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,

2005

Acquisition costs:
Tools, furniture and fixtures...........................................................................
Accumulated depreciation:
Tools, furniture and fixtures...........................................................................
Net book value:
Tools, furniture and fixtures...........................................................................

2004

2005

¥730

¥749

$6,805

397

389

3,700

333

360

3,105

Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2005 for financeleases accounted for as operating leases are summarized as follows:
Years ending March 31,

Millions of yen

2006 ..................................................................................................................................
2007 and thereafter ...........................................................................................................
Total .........................................................................................................................

¥174
193
¥367

Thousands of
U.S. dollars$1,617
1,801$3,418

Lease payments relating to finance leases accounted for as operating leases for the years ended March 31, 2005 and2004 amounted to ¥199 million ($1,854 thousand) and ¥210 million, respectively, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the respective lease terms.

TOYO ENGINEERING CORPORATION

Annual Report 200533

(a-2) Finance Leases (as Lessor)
Future minimum lease receivables (including the interest portion thereon) subsequent to March 31, 2005 for financeleases accounted for as operating leases are summarized as follows:
Years ending March 31,
2006 ..................................................................................................................................
2007 and thereafter ...........................................................................................................
Total .........................................................................................................................

Millions of yen

¥19
15
¥34

Thousands of
U.S. dollars

$177
144
$321

All the above lease receivables were derived from the subleasing business. As every subleased property was leased tothird 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, 2005 for noncancelable operating leases are summarized
as follows:
Years ending March 31,
2006 ..................................................................................................................................
2007 and thereafter ...........................................................................................................
Total .........................................................................................................................

Millions of yen

¥1
3
¥4

Thousands of
U.S. dollars

$11
32
$43

(b-2) Operating Leases (as Lessor)
Future minimum lease receivables subsequent to March 31, 2005 for noncancelable operating leases are summarized as follows:
Years ending March 31,
2006 ..................................................................................................................................
2007 and thereafter ...........................................................................................................
Total .........................................................................................................................

34

TOYO ENGINEERING CORPORATION

Annual Report 2005

Millions of yen

Thousands of
U.S. dollars¥ 1,144
12,555¥13,699$ 10,663
116,986$127,649

12

INVESTMENT SECURITIESThe cost, unrealized gain and loss and the related fair value of investment securities in Investments at March 31,
2005 are summarized as follows:
Millions of yen

At March 31, 2005

Cost

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

¥5,250367

Unrealized
Gain

Unrealized
Loss

Fair
Value

¥1,656594¥(402)—¥6,504961

Millions of yen

Thousands of
U.S. dollars

The contractual maturities of debt securities classified as available-for-sale were as follows:
At March 31, 2005
Due within one year ...........................................................................................................
Due after one year through five years.................................................................................
Due after five years through ten years ................................................................................
Due after ten years.............................................................................................................
Total .........................................................................................................................

¥ 13
167
251
532
¥963

$ 118
1,560
2,338
4,953
$8,969The 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

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

¥5,296367

Unrealized
Gain

Unrealized
Loss

Fair
Value

¥1,649569¥(212)—¥6,733936

Millions of yen

Thousands of
U.S. dollars¥$

The contractual maturities of debt securities classified as available-for-sale were as follows:
At March 31, 2004
Due within one year ...........................................................................................................
Due after one year through five years.................................................................................
Due after five years through ten years ................................................................................
Due after ten years.............................................................................................................
Total .........................................................................................................................

0
124
251
563
¥938

TOYO ENGINEERING CORPORATION

1
1,170
2,380
5,326
$8,877

Annual Report 2005

35

13

DERIVATIVE TRANSACTIONSThe Company operates internationally in circumstances which give rise to exposure to market risks from fluctuations inforeign currency exchange rates and interest rates. In order to limit those risks, the Company enters into forward foreignexchange 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 tocredit risk incurred by the default of counter parties to the derivatives. As the Company enters into such agreement onlywith credible counter parties, the risk of any such default is deemed negligible. The Company’s Finance Division is incharge of entering into and monitoring the Company’s derivative positions in order to ensure risk control.
Forward foreign exchange contracts
The Company has entered into forward foreign exchange contracts to reduce its exposure to adverse fluctuations in foreign exchange rates relating to receivables and payables denominated in foreign currencies. The contract amounts and therelated market values of those contracts without firm commitments related to receivables or payables at March 31, 2005
and 2004 were as follows:
Millions of yen

At March 31,

2005(i) Forward foreign exchange contracts to sell U.S. dollars:
Contract amounts..........................................................................................
Related market value .....................................................................................
Net gain .......................................................................................................
(ii) Forward foreign exchange contracts to buy U.S. dollars:
Contract amounts..........................................................................................
Related market value .....................................................................................
Net gain (loss)................................................................................................

2004

Thousands of
U.S. dollars
2005

¥—
—
¥—

¥862
827
¥ 35

$—
—
$—

¥30
30
¥ 0

¥122
118
¥ (4)

$284
288
$ 4

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 deferral of 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 valueof these interest rate swap agreements at March 31, 2005 and 2004 were as follows:
Millions of yen

At March 31,

2005

Notional amounts.............................................................................................
Related market value ........................................................................................
Net gain .......................................................................................................

¥800
2
¥ 2

2004

¥1,0003¥
3

Thousands of
U.S. dollars
2005$7,45417$ 17

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.

36

TOYO ENGINEERING CORPORATION

Annual Report 2005

14

SEGMENT INFORMATION(1) Business Segments
Millions of yen

Year ended March 31, 2005
I Net sales and operating income:Net sales(1) Net sales to outside customers.................................
(2) Inter-segment net sales............................................
Total.............................................................................
Operating expenses.........................................................
Operating income.........................................................
II Assets, depreciation and capital expenditures:
Assets..............................................................................
Depreciation....................................................................
Capital expenditures........................................................

EPC
BusinessReal
EstateTotal

Eliminations
and Other Consolidated¥195,654
2
195,656
192,171
3,485¥ 2,291
252
2,543
1,495
1,048

¥197,945
254
198,199
193,666
4,533¥¥186,695
1,067
1,115

¥15,804
394
1,842¥202,499
1,461
2,957

¥7,065 ¥209,564
(0)
1,461
(0)
2,957

— ¥197,945(254)—(254) 197,945(261) 193,405
7
4,540

Millions of yen

Year ended March 31, 2004

EPC
BusinessReal
EstateTotal

Eliminations
and Other Consolidated

I Net sales and operating income (loss):
Net sales¥168,155¥ 2,374 ¥170,529¥— ¥170,529(1) Net sales to outside customers.................................
(2) Inter-segment net sales............................................
3
255
258
(258)
—
Total.............................................................................
168,158
2,629
170,787(258) 170,529
Operating expenses.........................................................
172,606
1,418
174,024(238) 173,786
Operating income (loss)................................................
(4,448)1,211(3,237)(20)(3,257)
II Assets, depreciation and capital expenditures:¥178,271¥15,219 ¥193,490¥7,643 ¥201,133
Assets..............................................................................
Depreciation....................................................................
915
396
1,311
0
1,311
Capital expenditures........................................................
855
11
866
(0)
866
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 to thecorresponding business segments.
4.Assets included in “Eliminations and Other” for the years ended March 31, 2005 and 2004 totaling ¥7,349
million ($68,478 thousand) and ¥7,643 million primarily consisted of investment in securities.

TOYO ENGINEERING CORPORATION

Annual Report 200537

(2) Geographic Segments
Millions of yen

Year ended March 31, 2005
I Net sales and operating income:Net sales(1) Net sales to outside customers.................................
(2) Inter-segment net sales............................................
Total.............................................................................
Operating expenses.........................................................
Operating income ........................................................
II Assets:
Assets..............................................................................

Japan

OthersTotal¥190,44783
190,530
186,2074,323¥ 7,498
15,802
23,30022,943357¥197,945
15,885
213,830
209,150
4,680

200,823

17,338218,161

Eliminations
and Other Consolidated¥—(15,885)(15,885)(15,745)(140)¥197,945—
197,945
193,405
4,540(8,597)

209,564

Millions of yen

Year ended March 31, 2004

Japan

OthersTotal

Eliminations
and Other Consolidated

I Net sales and operating income (loss):
Net sales¥160,217¥10,312 ¥170,529 ¥— ¥170,529(1) Net sales to outside customers.................................
(2) Inter-segment net sales............................................
97
23,71823,815(23,815)—
Total.............................................................................
160,31434,030
194,344(23,815) 170,529
Operating expenses.........................................................
163,630
34,013
197,643(23,857) 173,786
Operating income (loss)................................................
(3,316)17(3,299)42(3,257)
II Assets:
Assets..............................................................................
189,532
21,875
211,407(10,274) 201,133
Notes: 1.Geographic segmentation is according to geographic proximity.
2.Countries included in Others: Korea, Malaysia, India, Luxembourg, U.S.A. and PR China
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, 2005
Overseas sales (A) ..........................................
Consolidated sales (B) ....................................
Overseas sales ratio (A/B) ............................

Southeast
Southwest Asia,
Russia andCentral andAsia
Middle East and Africa Central Asia South America

OthersTotal¥26,586¥44,151¥39,647¥8,690¥24,370

13.5%

22.3%

20.0%

4.4%

12.3%

¥143,444
197,945
72.5%

Millions of yen

Year ended March 31, 2004

Southeast
Southwest Asia,
Russia andCentral andAsia
Middle East and Africa Central Asia South America

Overseas sales (A) ..........................................
¥12,329¥45,259¥43,806
Consolidated sales (B) ....................................
7.2%
26.6%
25.7%
Overseas sales ratio (A/B) ............................
Each area represents the following countries:
Southeast Asia: Indonesia, Singapore, Thailand and Malaysia
Southwest Asia, Middle East and Africa: India, Egypt, Saudi Arabia and Iran
Russia and Central Asia: Russia and Azerbaidjan
Central and South America: Brazil
Others: U.S.A., PR China, Korea and European countries

38

TOYO ENGINEERING CORPORATION

Annual Report 2005

OthersTotal¥12,210¥19,845

7.2%

11.6%

¥133,449
170,52978.3%

Independent Auditors’ Report

TOYO ENGINEERING CORPORATION

Annual Report 2005

39

Jakarta

Kuala Lumpur

Indonesia

Malaysia

MumbaiBangkok

India

Thailand

TehranIranShenzhen

Worldwide Network

China

Shanghai
Beijing

China

China

Seoul

Moscow

Korea

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● TECHNOLOGY RESEARCH CENTER
1818 Azafujimi, Togo, Mobara-shi,
Chiba 297-0017, Japan
Tel: 81-475-24-4551 Fax: 81-475-22-1338
Overseas Offices● 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
17th Fl., Shanghai Zhongrong Plaza, No.
1088 Pudong South Road, Pudong New
District, Shanghai 200122, China
Tel: 86-21-5888-9935 Fax: 86-21-5888-8864/8874● Jakarta
Midplaza, 8th Fl., Jl. Jendral Sudirman Kav.
10-11, Jakarta 10220, Indonesia
Tel: 62-21-570-6217/5154 Fax: 62-21-570-6215● Moscow
Room No. 605, World Trade Center,
Krasnopresnenskaya Nab., 12,
Moscow 123610, Russia
Tel: 7-095-258-2064/1504 Fax: 7-095-258-2065● TehranWest Side / Grand Floor, No. 4 Alvand Street,Argentine Square, Tehran, Iran
Tel: 98-21-8866-3088/4598 Fax: 98-21-8879-4019● TEC Software &Technical Services Corporation
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● Tecno Frontier Co., Ltd.
Environmental engineering and constructionof facilities
2-8-1 Akanehama Narashino-shi, Chiba
275-0024, Japan
Tel: 81-47-454-1178 Fax: 81-47-454-1550【HEAD OFFICE】
2-2-7 Honcho Funabashi-shi, Chiba
273-0005, Japan
Tel: 81-47-433-7234● TEC Air Service Corporation
Travel and insurance services
2-6-7 Ginza Chuo-ku, Tokyo 104-0061, Japan
Tel: 81-3-3564-0130 Fax: 81-3-3564-0530● Toyo Business Engineering Corporation
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● TEC Accounting & Consulting Ltd.
Business support and consulting for accounting
and accounting system development
2-8-1 Akanehama, Narashino-shi, Chiba
275-0024, Japan
Tel: 81-47-454-1690 Fax: 81-47-454-1289

MAJOR SUBSIDIARIESAND AFFILIATED COMPANIESOverseas

Domestic● TEC Estate, Ltd.
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

40● International Procurement &Service Corporation
Procurement services in Europe
25, Route d’Esch, L-1470, Luxembourg
Tel: 352-497511 Fax: 352-487555● Suntec Corporation
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● 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● Toyo Logistics Corporation
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● Toyo do Brasil Ltda.
Engineering and construction forplants and facilities
Praia de Botafogo, 228-Sala 801C-Ala B,
Botafogo, 22359-900, Rio de Janeiro-RJ, Brazil
Tel: 55-21-2551-1829 Fax: 55-21-2551-2048

TOYO ENGINEERING CORPORATION

Annual Report 2005

RussiaLuxembourg

Rio de Janeiro
BrazilHoustonU.S.A.

● Toyo Engineering Corporation, China
Engineering and construction for plants
and facilities
17th Fl., Shanghai Zhongrong Plaza, No.
1088 Pudong South Road, Pudong New
District, Shanghai 200122, China
Tel: 86-21-5888-9935 Fax: 86-21-5888-8864/8874● Toyo Engineering Corporation (China)
Procurement
Procurement services in China
17th Fl., Shanghai Zhongrong Plaza, No.
1088 Pudong South Road, Pudong New
District, Shanghai 200122, China
Tel: 86-21-5888-9935 Fax: 86-21-5888-8864/8874● Toyo Engineering India Limited
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: 91-22-2579-9061/9062● Toyo Engineering Korea Limited
Engineering and construction for plants
and facilities
Toyo Bldg. 677-17, Yeoksam-1Dong,
Kangnam-ku, Seoul, 135-081, Korea
Tel: 82-2-2189-1619 Fax: 82-2-2189-1891● East Net Co., Ltd.
Development of computer system softwareand 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● Toyo-Thai Corporation Ltd.
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: 66-2-260-8525/8526● 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: 603-2078-5796 Fax: 603-2078-5798(As of June 28, 2005)

Corporate Data

Founded:May 1, 1961

Paid-in Capital:¥13,018 million

Number of Employees:

973

Stock Exchange Listing:Tokyo Stock Exchange

Authorized Shares:

500,000,000

Capital Stock Issued:

175,692,539

Number of Shareholders:

17,063

Transfer Agent:

The Chuo Mitsui Trust and Banking Co., Ltd.
3-33-1, Shiba, Minato-ku, Tokyo 105-8574, Japan

Major Shareholders:

Others0.45

Number of shares(thousands)

Percentage of total(%)

Mitsui Chemicals, Inc.

43,34324.67

Mitsui & Co., Ltd.

26,67015.17

Japan Securities Finance Co., Ltd.

4,015

2.28

Taisei Corporation

4,000

2.27

Kanto Natural Gas Development Co., Ltd.

3,956

2.25

The Master Trust Bank of Japan, Ltd.

3,845

2.18

Sumitomo Mitsui Banking Corporation

2,350

1.33

Japan Trustee Services Bank, Ltd.

2,258

1.28

Trust & Custody Services Bank, Ltd.

2,047

1.16

Taisei Welfare Co.

2,000

1.13

Financial institutions
16.53

Less than 5,000 shares
10.49
5,000–49,999 shares
17.27

Individuals
29.32

Number of
Shares Held

Type of
Shareholders

(%)

(%)

Foreign shareholders
6.27

Stock Price:

1,000,000 shares or more
57.93

Domestic companies
47.43

400

50,000–499,999 shares
10.84

500,000–999,999 shares
3.47

Stock Price Range(Yen)

Trading Volume(Thousands of Shares)

300

200

100

150,000
100,000
50,0000

0
4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3 4 5 6 7 8 9 10 11 12 1 2 3
FY2003

FY2004

FY2005(As of March 31, 2005)

TOYO ENGINEERING CORPORATION

Annual Report 2005

41

Toyo Engineering Corporation Annual Report 2005

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

Annual REPORT
Year ended March 31, 2005

PRINTED WITH

SOY INK

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

쏘2005 Toyo Engineering Corp.
Printed in Japan