Annual Report 2012

CONTENTS

Corporate Profile

01

To Our Shareholders

02

Consolidated Five-Year
Financial Summary

04

President’s Message

Engineering, Procurement, and Construction (EPC) business, and has

10

HSSE + Quality

successfully delivered large and complex projects in more than 50

Toyo Engineering Corporation (TOYO) is one of the world’s leading
contractors. Since its foundation in 1961, TOYO has actively deployed

Financial Section

countries. TOYO’s engineering business focuses on the segmentsof Energy, Oil Refining, Petrochemicals & Chemicals, Oil & Gas

12

Corporate Governance

Development, Infrastructure, Environment, and other manufacturing

13

Business Risk and Other Risks

facilities.

14

Management’s Discussion
and Analysis

capable of executing work based on common work standards in17

Major Projects

close cooperation with our overseas group companies as well as in18

Consolidated Balance Sheetsan optimal formation. Under the mission entitled “Engineering for

20

Consolidated Statements of Income

Sustainable Growth of the Global Community,” our overseas group

21

Consolidated Statements ofComprehensive Income

companies maintain and strengthen TOYO’s reliability and assure

22

Consolidated Statements of Changes
in Net Assets

and on schedule.

23

Consolidated Statementsof Cash Flows24

Notes to Consolidated
Financial Statements

49

Independent Auditor’s Report

50

Corporate Information

53

Stock Information

DEFINITION OF TERMS
Fiscal 2011 means the fiscal year ended March 31,
2012 (April 1, 2011–March 31, 2012).
The word, mark, logo or any sign with a symbol“TM” means that it is a registered trademark of
Toyo Engineering Corporation in Japan.
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.

We have a globally networked organization which makes us

clients that projects will be delivered safely, to a high-quality standard,

TOYO ENGINEERING CORPORATIONTo Our Shareholders
As of June 27, 2012, I was appointed as President and CEOof Toyo Engineering Corporation. Succeeding to this postfrom former President Yutaka Yamada, I will, under a neworganization, continue our course toward TOYO’s goal of
becoming a “Global Leading Engineering Partner.” By taking
an aggressive management approach to achieving new growth,
I will endeavor to reach our management goals and to further
enhance TOYO’s corporate value.
TOYO’s current business environment presents opportunities
for growth. In emerging countries, capital investment isincreasing to meet the demand for basic materials due to
growing populations and progressive urbanization. I also believe
we will see an expansion of investment for social infrastructureand fertilizer plants. In addition, we can expect growth ininvestment for energy infrastructure due to the increase of
unconventional oil and gas from shale and oil sands. Amid thesetrends, our business scope is expanding from downstream
to upstream. On the other hand, we expect competition willfurther intensify with contractors in Europe and Korea, which areexpanding their scale of operations.
To survive these changes in our markets and achievesustained growth, TOYO will further refine its strengths andestablish a firm base on them to differentiate itself from others in
the market. At the same time, I believe it is essential to develop
new products and business models. With these factors in mind,
we kicked off our new medium-term business plan, NEXT TOYO
2015, in April 2012. We are committing all of our resources
and capabilities to attaining the goals of this plan and to further
strengthening the global operation system that we have beenbuilding up to now. We will steadily expand new products,
business models, and operating regions and take on a challenge
to build new growth for TOYO.
We have designed a new symbol logo for TOYO commonly
applied in the group and introduced it in July 2012. The newlogo keeps the motif of the previous logo while inspiring
the impression of a leap forward into the future. The logo’semphasis of the letters of TOYO symbolizes the entire groupcollaborating to achieve new growth. As we work to fulfill thesymbolism of the logo, I look forward to the continued supportof our shareholders.
August 2012

Katsumoto Ishibashi
President and Chief Executive Officer01Consolidated Five-Year Financial Summary

Annual Report 2012

Consolidated Five-Year Financial Summary
Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31
2012

2011

2010

2009

¥ 157,881¥ 155,696¥ 173,943¥ 326,248

Gross profit

24,91826,57332,98334,751

Operating income

5,341

6,815

13,07015,167

Income before
income taxes

4,941

6,917

14,236

13,036

Net income

3,728

3,773

7,131

6,515

Total assets

222,415

198,387

190,127

199,412

Total net assets

69,26567,096

65,29558,509Long-term loans payable

24,582

15,163

21,947

19,916

Purchase of property,
plant and equipment

1,595

542

508

513

Depreciation
and amortization

2,524

2,473

2,237

2,366

Capital stock

18,19818,19818,19818,198New orders

269,188

222,540

132,456

119,265

Backlog of contracts
at end of the year

359,120

224,693

168,179

224,415

Net income¥ 19.43¥ 19.65¥ 37.12¥ 33.91

Total net assets

349.42340.43329.54294.71

Cash dividends

6.00

5.00

7.00

7.00

Chemical fertilizers

10.0%

6.9%

14.0%

6.9%

Petrochemicals

15.3

22.8

23.9

29.2

Refinery

11.5

23.8

27.6

14.0

Energy-related

35.2

18.7

14.4

35.1

General manufacturing facilities
and information technology

20.3

20.0

13.1

10.6

Others

7.7

7.8

7.0

4.2

(Overseas sales ratio)

(73)

(64)

(71)

(78)

4,494

3,956

4,024

3,769

Net sales

Per share:

Net sales by sector (%):

Number of employees*U.S. dollar amounts are stated at ¥ 82.13 to U.S.$1.00, the exchange rate prevailing on March 31, 2012.

02

Consolidated Five-Year Financial Summary

Millions of yen

Thousands of
U.S. dollars*

2008

2012

¥ 327,413$ 1,922,338

34,423

303,40213,74165,034

14,90860,172

8,029

45,399280,138

2,708,092

57,331

843,369

22,038299,317830

19,4272,511

30,742

18,198

221,587

268,692

3,277,590

444,433

4,372,583

Yen

U.S. dollars*¥ 41.76$ 0.23283.98

4.25

6.00

0.07

1.9%
28.7
8.8

TOYO ENGINEERING CORPORATIONNet sales(¥ billion)

Operating income(¥ billion)

327.4 326.2
13.7
173.9

15.1
13.0

155.6 157.8
6.8

`08

`09

`10

`11

Net income`12(¥ billion)

`08

`09

`10

5.3

`12

`11

Total assets(¥ billion)

280.1
8.0
6.5

`08

`09

7.1

`10

199.4 190.1 198.3
3.7

3.7

`11

`12

New orders(¥ billion)

268.6

269.1

`08

`09

`10

`11

Backlog of contracts
at end of the year

11.8

119.2

5.1

`12

(¥ billion)

444.4
359.1

222.5

43.7

222.4

224.4

132.4

224.6
168.1

(78)
3,527
`08

`09

`10

`11

`12

`08

`09

`10

`11

`12

03

President’s Message
President
Katsumoto Ishibashi
talks about
the new medium-termbusiness plan,NEXT TOYO 2015

Annual Report 2012

Focusing
on New Growthwith TOYO’s
Consolidated
Efforts

04

President’s Message

05

TOYO ENGINEERING CORPORATION

I would like to begin our annual report by explaining NEXT TOYO 2015. I will explain its backgroundand targets, basic policies and its major initiatives as well as TOYO’s divided policy. It is my hope that
this will assist shareholders and investors in more thoroughly understanding TOYO’s activities.

Summary of Previous Medium-TermBusiness Plans

enhance human resources. To further develop
global management, we formulated TOYO’s
Mission, Vision, and Values (MVV) statement that

Under its previous medium-term business plans,

defined shared values for all TOYO employees.

TOYO made substantial progress in establishing

TOYO strived for a goal defined as the Groupan integrated global operation system.

vision to become a “Global Leading Engineering

Before going into the details of NEXT TOYO

Partner.”

2015, I would like to review the previous two busi-

During the six-year period of these twoness plans, implemented from fiscal 2006 to fiscal

medium-term business plans, TOYO’s business

2011, which provided the base for the new plan.

environment changed at a rapid pace. TOYOIn 1976, TOYO established Toyo Engineering

faced sudden changes in its business climate,

India Limited. Since then, TOYO has worked toincluding the global financial crisis initiated bybuild and expand a global network that provides

the Lehman Brothers collapse, the rise of emerg-

a comprehensive global business platform anding countries, the prolonged sovereign debt crisis

EPC (Engineering, Procurement, and Construc-in Europe, the record high exchange rates for thetion) functions. Under the catchphrase of “Global

yen against the US dollar and the euro, and theToyo” promoted by the medium-term busi-

Great East Japan Earthquake and nuclear plantness plan from fiscal 2006 to fiscal 2008, TOYO

incident thereafter. During this period, TOYO’stransformed overseas group companies in India,

management team tenaciously continued efforts

Korea, China, Malaysia, and other countries into

to achieve the goals of its medium-term busi-

independent profit centers. TOYO developed anness plans. As a result, TOYO strengthened its

integrated global operation system where Toyo-

integrated global operation system, increased

Japan and overseas group companies collaborate

orders for service-type projects, enhanced its ef-

closely to promote business.

forts in the oil & gas development field, expanded

The three-year medium-term businessbusiness in the social infrastructure field, andplan from fiscal 2009 to fiscal 2011 focused on

developed new products, such as the small- to

three basic policies: respond to changes in busi-

medium-scale Gas to Liquids (Micro-GTL) andness type and field, advance Global Toyo, andmid-scale LNG plants. In terms of a growth

Challenge for New Growth (Millions of yen)
Net Sales (Left Scale)
New Orders (Left Scale)
Net Income (Right Scale)
400,000

8,000

350,000

7,000

300,000

6,000

250,000

5,000

200,000

4,000

150,000

Global Toyo for Client Value Enhancement

50,000
0

2006

2007

2008

The Medium-Term Corporate Strategic Plan
for Fiscal 2006 to 2008
“Creating Global Toyo”

2009

2010

3,000

Challenge for
New Growth!
NEXT TOYO 2015

100,000

2011

The Medium-Term Management Plan
for Fiscal 2009 to 2011
“Formulating TOYO’s
MVV Statement”

2012

2013

2014

The Medium-Term Business Plan
for Fiscal 2012 to 2015

2,000
1,000
2015

(FY)

0

President’s Message

Annual Report 2012

strategy, TOYO has been able to build the business foundation for a future leap forward. During
the same period, TOYO also increased the number of employees at its existing overseas groupcompanies, brought new engineering companies
in Canada (Toyo-Canada) and Indonesia (PT.
Inti Karya Persada Tehnik) into TOYO, and also
invested in Atlatec, a water infrastructure project
integration company in Mexico. TOYO’s global
operations have become much more stable, andinternational division of work has expanded. Thisbusiness plan that will cover the four-year period

progress, in turn, has led to an improvement instarting in fiscal 2012. TOYO will pursue the fol-

TOYO’s cost competitiveness.

lowing management goals, taking its first step
toward the next growth stage.

Background and Targets of the New
Medium-Term Business Plan

Starting with a numerical goal, TOYO istargeting consolidated net income of ¥12 billion
in fiscal 2015, the fiscal year ending March 31,

TOYO has positioned the next four years as a2016. As we aim to build a framework that canstage to strive for new growth.

earn half of this target through overseas group

Currently, the global economy is showing

companies, we have set the consolidation ratio

real signs of recovery, such as the economicof net income at 2.0. The premise to achieve thisgrowth in Asia’s emerging countries. Several

target is imaged as consolidated orders of ¥450

concerns still remain however, such as height-

billion, consolidated net sales of ¥420 billion,

ened anxiety regarding the financial system inboth on an EPC basis, and consolidated oper-

Europe. Nevertheless, the consumer productating income of ¥20 billion or more. The plan

markets in emerging countries are growing

targets to perform new orders and net sales at

sharply against the background of populationa level more than ¥10 billion more than TOYO’s

growth and urbanization. In line with this growth,record consolidated performances to date.

robust investment sentiment continues, par-In order to reach these targets, we must

ticularly in basic materials, fertilizers, and social

restructure Toyo-Japan’s operations, expand theinfrastructures. In addition, there is vigorous new

business scope of overseas group companies

energy resource development of unconventional

and improve their earnings capacity as well as

oil and gas as well as other forms of energy on abusiness productivity. By enhancing the EPC

global scale.

execution capabilities of its overseas group

With this business environment in mind, we
formulated NEXT TOYO 2015, a medium-term

companies, TOYO will achieve steady growthand pursue maximization of its corporate value
at the same time by further pushing forward withintegration of its global operation system.

Management Targets
Targets
for the fiscal year
endingMarch 31, 2016

Leveraging TOYO’s advanced technology

Consolidated net income:and project execution capability, we will refine¥

tiation strategy in which we aim to become the

12 billion(Consolidation ratio of
net income: 2.0)
Dividend payout ratio:

25%

TOYO’s inherent strengths and follow a differencompany to be selected by clients.

Basic Policies
The following are TOYO’s three basic policies forachieving the goals of the new business plan.

06

President’s Message

TOYO ENGINEERING CORPORATION“Global Toyo” to “TOYO”
Integration of Global Operation System

More toward Upstream

Upstream Sector & Customer Value Chain

Prioritized Markets

TOYO’s prioritized markets include Japan, East
Asia, Southeast Asia, Latin America, India, andthe Middle East. These are regions where TOYO
has accumulated a strong record of successfulprojects. TOYO has overseas group companies
with EPC functions well-rooted there. These

Worthwhile Working Place
Development of Global Human Capitalcompanies not only cooperate with Toyo-Japan,
but also independently strive to win orders. In
February 2012, we further expanded our EPC

The first basic policy is “Global Toyo to

network by investing in PT. Inti Karya Persada

TOYO.” Our strategy is to further enhance an

Tehnik (IKPT), a leading engineering company inintegrated global operation system, which

Indonesia. Moreover, in Brazil, we established aunderpins TOYO’s leadership in the market. We

joint venture company with a leading local engi-

will turn the whole group organization, including

neering company to mutually target onshore andToyo-Japan, into a single TOYO. With that

offshore EPC projects. TOYO is actively trying tobranding, TOYO expands its orders and sales by

capture orders in prioritized markets with growthproviding TOYO’s highly trusted quality to cli-potential, based on the relationship of trust built

ents around the world.

with clients and partners over the years through

TOYO’s second basic policy is “Morethe many projects.

toward Upstream.” Targeting growth by ToyoJapan, TOYO plans to expand its business to the
upstream sector and concentrate on upstream
work. There are two meanings of “upstream” inthis policy. One meaning is to expand TOYO’s
range of business from the hydrocarbon EPC
downstream sector to the upstream sector,
including oil and gas development. The other

PT. Inti Karya
Persada Tehnik(IKPT)

meaning signifies TOYO’s participation in clients’ project planning right from the first stageof project formation.
“Worthwhile Working Place” is TOYO’s

Frontier Markets

third business policy, which aims to develop

TOYO’s frontier markets are Russia and otherand strengthen global human capital. Engineer-

Commonwealth of Independent States (CIS)

ing companies depend on the capability ofcountries, North America, Iraq, and Sub-Saharaneach employee and the collaborative power ofAfrica. These are regions where TOYO is seeking

teamwork. We recognize that the value created

to develop or more intensely cultivate markets.

by human capital is TOYO’s source of growth.

In North America, TOYO expects that there will

TOYO will develop a corporate culture that at-

be opportunities on unconventional energy-

tracts human capital from around the world andrelated projects, such as shale gas and oil sands

to upgrade its human resource management

projects. Led by our local companies in thesystem.

United States and Canada, we intend to aggressively continue to target new projects. With their

Regional Strategy

abundant natural resources, Russia, Iraq, and
Sub-Saharan Africa are regions that can expect

Prioritized and frontier markets—aiming to de-high growth. Therefore, we are rapidly ramping

velop new regions and expand TOYO’s market

up activities to be able to meet their increasingpresence.

capital investment needs.

07President’s Message

Annual Report 2012

Product Strategy

08of urea technology licensing and using that market position to win orders for EPC projects. In the

Maintaining the profits of existing businesses,

petrochemicals field, TOYO views the recent move

TOYO is concentrating on expanding the enhanc-

towards new investment in mega petrochemical

ing and fostering business areas.

complexes in Asia and other regions as a business
opportunity. In the field of oil refining and gas
processing, TOYO has expectations of new capitalCore Business Areas

In TOYO’s core business areas, where TOYO caninvestments by countries with oil and gas resourc-

fully utilize its overseas group companies to ex-es and consuming countries. Therefore, we are

ercise cost competitiveness, TOYO is working tocontinuing to target further orders in this field.

keep its volume of orders. These areas cover various businesses in the downstream segment, in-Enhancing Business Areas

cluding fertilizers, petrochemicals, and oil refining

TOYO’s enhancing business areas focus on

and gas processing. With converting inexpensive

such fields as natural resource and energy

gas into high-value added products like fertilizers

development, social infrastructure, and phar-representing an option in the gas market, fertilizer

maceuticals in Japan. In the natural resources

plant projects are emerging one after the other.

and energy development field, TOYO is working

As one of the three major companies in the world

to comprehend the intensifying competition

holding urea manufacturing technology, TOYO

among countries to acquire natural resource

sees this trend is an opportunity to expand orders.

rights and pursuing active involvement in relat-

TOYO is targeting an increase in its global shareed value chains. In April 2012, TOYO concluded

Business Areas & Markets in Focus
Fostering Business
Areas
Business Participation(Social Infrastructure,
Energy Development)

Toyo-Japan Focuseson Expanding Business Areas and Markets

Enhancing Business
Areas
Upstream (Energy
Development, LNG),
Social Infrastructure,
Pharmaceuticals,
OthersCore Business
Areas
Fertilizers,
Petrochemicals,
Oil Refining and Gas
Processing

Overseas Group Companies
Focus on Implementation

Prioritized Markets

Frontier Markets

East Asia, Southeast Asia, Latin America,
India, Middle East

Russia/CIS, North America,
Iraq, Sub-Saharan Africa

President’s Message

TOYO ENGINEERING CORPORATIONa general engineering service agreement for oil
development with South Oil Company, a stateowned oil company responsible for the southern
region of Iraq. In other areas, TOYO was awarded
six Floating Production Storage and Offloading(FPSO) topsides projects jointly with MODEC,
Inc. Also, the Company is currently conducting averification test of a Micro-GTL plant which canbe mounted on an FPSO vessel. TOYO’s activities

asset management including production facilities,

in the LNG field include executing Front End

and production and maintenance. We will share

Engineering Design (FEED) for a mid-scale elec-

in the “outcome” of the business, including risks

tric-motor-driven LNG plant in Australia. Recent-and rewards.

ly, TOYO also participated in a bid for a floating
LNG project. In the social infrastructure segment,

Basic Policy for Profit Distribution

TOYO is concentrating on the projects related toelectric power, water treatment, and transporta-

TOYO aims to achieve a dividend payout ratio oftion. In the power generation field, TOYO is cur-

25% and annual dividends of ¥15 per share forrently executing gas-fired combined cycle electricfiscal 2015.

power plant projects in Thailand and Azerbaijan.

TOYO considers distributing profits to share-

Our plans in the water treatment field center onholders as one of its top management issues.

entering the market for projects that combine

Taking into consideration the need to replenish

EPC or Operation and Maintenance (O&M) con-internal reserves, which are our source of capitaltracts with direct investment in the project. Ourfor achieving sustained growth, we endeavor tofocus for such projects will be mainly on emerg-

maintain stable dividends from a medium- to long-

ing countries.

term perspective. Under the NEXT TOYO 2015
plan there will be no change in this policy. Ourbasic goal will be to achieve a dividend payout
ratio of 25%, while steadily increasing dividends
in line with the growth in our consolidated net
income. Specifically, in fiscal 2015, the last yearof the NEXT TOYO 2015 plan, we plan to pay anannual dividend of ¥15 per share if the targeted
consolidated net income of ¥12 billion is achieved.

Energy Development Facilities

Since joining TOYO in 1977, I have steadily
gained experience and knowledge of the busi-

Fostering Business Areas

ness over the years. I joined the management ofDrawing on TOYO’s knowledge in such con-TOYO in 2009 as an executive officer. I intend

ventional business fields as providing FEED and

to fully devote the leadership and enthusiasm

EPC projects, we are developing a new businessdeveloped during my career to the execution ofmodel where TOYO participates in operations to

the NEXT TOYO 2015 plan, and aim to achieve

the extent of investing in the business in some

TOYO’s expansion and the sustainable growth ofcases. In other words, we are expanding our busi-

our corporate value. In meeting this challenge,ness domain from providing “output” to clients,

I look forward to the continued support of oursuch as design documents and plant facilities, toshareholders and investors.

involvement in the overall operations, covering

09

HSSE + Quality

Annual Report 2012

“Safety First” is not simply a slogan.
“Safety” is an integral part of the TOYO brand.
In 2011, in terms of TOYO’s safety record as defined by ILO, Lost Time Incident Rate (LTIR) was 0.09 andTotal Recordable Incident Rate (TRIR) was 0.24. Although our TRIR is much improved from 0.53 in 2010,
our LTIR is higher than 0.05 in 2010. We are not satisfied with this result, and shall strive to complete
all jobs with no accidents and no harm to people.
We are aware that humans make mistakes, therefore it is important to enhance the quality ofsafety training to facilitate proactive safety actions and to raise sensitivity toward risk and hazards thatmight lead to accidents. With the recognition that “Safety takes priority over everything else,” we continuously implement safety training programs to foster the safety culture.
TOYO’s overseas group companies have applied unified standards for safety management andmoreover, through promoting standardization, TOYO is making its best effort to maintain and improve
quality as well as safety.
Loss of valuable human life must absolutely be prevented by all means in the process of TOYO’s
business solutions, such as plant construction. Our efforts, time and expenses spent to respect humanlife must take precedence over all other things.

Safety & Environmental Report 2012
TOYO’s Safety & Environmental Report 2012 is available on our
website. It introduces our various activities on safety and theenvironment during 2011.

Corporate Safety Training
In order to spread the culture of “safety is the first priority” among
our employees, we carried out safety training for all corporate
members in fiscal 2006. The training was aimed at all employees,
not only employees at construction sites. Only employees trainedby the Corporate Safety Training Program are allowed to enter ourconstruction sites.
In fiscal 2011, we also carried out renewal safety training for
all corporate members to maintain and foster safety culture andknowledge.

Leadership of Site Management
Our main goal is to hand over superior facilities to our clients
through engineering, procurement, construction and commissioning work without any accident or injuries. For this purpose, especially strong safety leadership of site management, Project Managers (PM), Field Managers (FM) and Construction Managers (CM) is
extremely important.

Safety and Environmental
Report201210

HSSE + Quality

TOYO ENGINEERING CORPORATION

Project SQE (Safety, Quality, and Environment)
Management Department
The Project SQE Management Department, established in April 2010 for the improvement of SQEmanagement function in TOYO’s executed projects, has been training personnel for performing PQM(Project Quality Manager) and HSSEM (Health, Safety, Security and Environment Manager) roles.
For this purpose, the department also facilitates the accumulation and improvement of SQErelated know-how, which can be applied in all following projects and proposals.
Feedback Knowledge Management System (FKMS)
As part of the continual improvement of the Quality Management System, TOYO has been accumulating feedback and knowledge for about 30 years from executed projects in the FKMS. Recently, FKMS
has been reconfigured to accept and share the feedback and knowledge from TOYO’s overseas groupcompanies, thereby the feedback and knowledge can be extended and utilized among all TOYO’s
overseas group companies immediately for suggestions and preventive actions in all following projects and proposals.
TOYO’s Standards
TOYO holds its own standards, which have been established on cumulative knowledge and experience gained from a number of projects TOYO has accomplished around the world. With TOYO’s
Standards consisting of TOYO-Group Standards (TGS) and the Local Standards (LS) of each overseas
group company, along with due care of clients’ requirements, TOYO guarantees to always provide
high-quality products and services.

Toyo-Japan
Local
Standards
Toyo-India
Local
Standards

Toyo-China
Local
Standards

TOYO-Group
Standards
Toyo-Malaysia
LocalStandards

Toyo-Korea
Local
Standards
Toyo-Canada
LocalStandards

Environment
Micro Gas to Liquids (Micro-GTL)
TOYO has been developing a compact, cost efficient Micro-GTL
process jointly with Velocys, Inc., and MODEC, Inc.
The main feature of Micro-GTL technology is the use of microchannel reactors, for which Velocys, Inc. holds the master patent.
TOYO integrates micro-channel reactors with other facilities suchas equipment, piping, electrical and instrument, etc., resulting in
a compact plant. A compact plant enables modulation and makes
small- and medium-sized GTL facilities more economical.
Therefore, Micro-GTL plants can be installed not only onshore, butalso offshore, onboard a ship (FPSO).
The development of Micro-GTL is reaching the final stage and
TOYO is aiming to achieve commercialization by 2013.

Computer Graphic of GTL Facilities on a Ship

11

Corporate Governance

Annual Report 2012

Internal Control System
The Auditing Department of TOYO, which is under the direct control of the President, performs audits
concerning the execution of business activities by all divisions and verifies the appropriateness andeffectiveness of the internal management structure, including compliance and risk management. In
addition, there are specialized units to perform other internal audits, such as the SQE (Safety, Quality
and Environment) Management Division and the Export Control Administration Division.
In order to promote the Internal Control System of the Group, TOYO is making efforts to ensure proper
operations across TOYO’s overseas group companies by establishing corporate procedures to strengthen
the corporate administrative functions of each company.
Risk Management System
For risk management concerning project profitability and financial matters within TOYO, all business
operations are constantly monitored and supervised, and reports are submitted to the Board of Directors, the Executive Committee, and the Board of Corporate Auditors. In addition, matters of particularimportance concerning individual bidding and projects undergo a risk analysis overseen by the Project
Risk Management Committee, and reports are submitted to the Executive Committee.
TOYO has drawn up the Crisis Management Policy to clearly set forth risk management procedures to forestall serious risks (crises) that have the potential to seriously affect the operations of theCompany. The Crisis Management Team is constantly prepared for potential crises.

Corporate Governance Structure (As of April 2012)&&

Sales Committee

Group Operation Division

Audit/Guidance12

Business Risk and Other Risks

TOYO ENGINEERING CORPORATION

The following is a list of potential risks associated with the information concerning TOYO’s operating
results and financial condition in this annual report that may have a significant bearing on investors’decisions. This is not intended to be a complete list of these potential risks.
Business risk
The nature of our business activities, which mainly involve conducting projects worldwide, is exposedto the risks listed below. Any interruption or suspension in work due to these risks could have an adverse effect on our operating results and financial condition. We are aware of the possibility that theserisks may occur and are taking actions to reduce exposure to these risks by using export credit insurance, maintaining a Risk Management System, Risk Control Structure and taking other steps.
War, civil commotion, riots, revolutions, coup d’état, terrorism and other unusual events in the
country where the project is carried out or in a neighboring country.
Regional risks that occur particularly in an area near a project site, such as a surge of political unrest and a serious outbreak of an epidemic disease.
Extraordinary natural phenomenon, such as earthquakes, floods, typhoons and other storms aswell as unusual weather, such as extreme heat or cold.
Notable changes in a country’s commerce, trade, manufacturing, and financial policies, such as
license approvals, customs clearance, export and export controls, foreign exchange systems, communications, and taxes.
A major and global contraction in capital investment activities in the Company’s business fields ora sharp decrease in opportunities to win orders due to intensified competition.
●

●

●

●

●

Foreign exchange fluctuation
For overseas plant construction contracts denominated in foreign currencies, the appreciation of theyen relative to the applicable foreign currency causes a reduction in the yen equivalent amount received. In addition, the yen’s appreciation makes us less price competitive when competing for neworders in foreign currencies. This could have an adverse effect on our operating results and financial
condition. In response, the group uses foreign exchange forward contracts, procures materials andequipment in foreign currencies, utilizes the resources of its overseas companies and takes all otherpossible steps to minimize exposure to foreign exchange risk.
Sudden increases in prices of equipment, materials and construction
In turnkey lump-sum contracts, the possibility exists of sudden and steep rises in the cost of equipment and materials, transportation, construction, 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 internationalsituation. The possibility also exists of cost increase caused by a supplier becoming insolvent or failureof quality control or delivery schedule delay by suppliers/sub-contractors. 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 our operating results and financial condition. To reduce our
exposure to these risks, we, developing our accountability system to clients and project management
system in project execution, utilize our experience to enter into contracts that incorporate measures tooffset these risks and gather information on market trends. To avoid an undue reliance on a particularsupplier, we work on placing orders with a large number of suppliers and stringently monitor the financial condition of suppliers. We also diversify contract conditions such as cost reimbursable basis to
reduce our risks.

13

Management’s Discussion and Analysis

Annual Report 2012

In fiscal 2011, the overall Japanese economy remained sluggish despite signs of an upturn in some areas, such as demand for recovery in the aftermath of the Great East Japan Earthquake. Overall, growing uncertainty about corporate environment put downward pressure on the economy. In the global
economy, concerns about the risk of a downturn brought on by the sovereign debt crisis in Europe
could not be dispelled. However, robust economic activities and business investments have continued
in emerging countries.
Under this environment, TOYO actively conducted detailed marketing activities to capture orders
in markets with strong potential. Domestically, we aimed to win orders for support services for clientsin the O&M market, and projects in the pharmaceutical and industrial systems markets. Overseas,
firm capital investments have continued in resource-rich countries supported by the high price of oil.
Against the backdrop of economic development and population growth, the expansion of domestic
demand drove robust capital investments in emerging countries, such as Brazil, China, and India.
However, fierce competition became common during fiscal 2011 because Korean, Chinese, andother contractors stepped up their aggressive sales efforts not only in the Middle East, but also in Asiaand other regions.
In response, TOYO placed strategic emphasis on emerging markets, aggressively working to win
orders in the energy, hydrocarbon, and social infrastructure fields. In addition, we strengthened ourefforts to win upstream oil & gas development projects and expanded our service-type businesses in
response to business transformations. At the same time, TOYO concentrated on exploiting projects in
new regions, such as Iraq and Sub-Saharan Africa. TOYO also has taken steps to expand orders andimprove profitability by meeting demand for Engineering, Procurement, and Construction (EPC) services in emerging markets.
We expanded our global operations system, under which our overseas group companies independently and consistently manage all operations, from marketing to EPC services. Moreover, wehave made progress in sharing marketing information among overseas group companies, integrated
marketing activities, and sharing project management systems. TOYO also initiated measures to improve quality, safety and environmental management.
Performance Outline (Consolidated)
Net sales¥ 157.8 billion (1% up)

Operating income¥

5.3 billion (22% down)

Net income¥

3.7 billion (1% down)

New orders¥ 269.1 billion (21% up)

Cash dividends (annual)

¥

6.00

Fiscal 2011 Business Results
In fiscal 2011, consolidated net sales increased ¥2.1 billion year on year, to ¥157.8 billion ($1,922 million). TOYO strove to achieve steady progress in implementing projects during fiscal 2011 such as
power plants in Thailand and Azerbaijan, fertilizer plants in Venezuela, topsides of Floating Production
Storage and Offloading (FPSO) in Brazil (MV23 Project), a Gas to Liquids (GTL) liquid processing unit
in Qatar. However, operating income decreased ¥1.4 billion to ¥5.3 billion ($65 million) because of adecrease in the number of projects on a cost reimbursable basis and soft services. Net income totaled¥3.7 billion ($45 million), about the same level as in fiscal 2010.
New orders in fiscal 2011 increased ¥46.6 billion to ¥269.1 billion ($3,277 million), expandinglargely our backlog of contracts at end of the year by ¥134.4 billion to ¥359.1 billion ($4,372 million).
TOYO focused on winning EPC orders on a lump-sum turnkey basis, particularly energy-related orders.
We strengthened marketing collaborations among our overseas group companies and conductedmarketing activities targeting service-type businesses in response to the business transformations of
our clients. Major orders acquired overseas during fiscal 2011 are mentioned below. In Japan, TOYO
provided support services for clients to enter the overseas market and won projects from various newclients in the pharmaceutical and industrial systems market.
Cash from operating activities was ¥5.7 billion ($69 million). The principal source of cash was income before income taxes and increase in advances received on uncompleted construction contracts.

14

Management’s Discussion and Analysis

TOYO ENGINEERING CORPORATIONCash used for investing activities was ¥2.4 billion ($29 million). This mainly represented expenditure onpurchase of property, plant, equipment and investments in subsidiaries. Cash from financing activitieswas ¥102 million ($1.2 million), reflecting the redemption of bonds and proceeds from long-term loans
payable. The result of the above cash flows was a net increase of ¥3.1 billion ($37 million) in cash andcash equivalents.
TOYO’s dividend policy is to endeavor to distribute profits to shareholders in accordance with
operating performance. We also strive to maintain stable dividends from a medium- to long-term perspective while taking into consideration the need for internal reserves which form our business base.
Fiscal 2011 dividends were ¥6.00, consisted of ¥5.00 per share as a common dividend and ¥1.00 as acommemorative dividend for our 50th anniversary.
Fiscal 2011 New Orders
At ¥269.1 billion, consolidated new orders nearly reached TOYO’s original target of ¥280 billion. The
following are the major projects won in fiscal 2011.
Utility Facilities for Brazilian Large-Scale Petrochemical Complex
TOYO is building the utility facilities for the COMPERJ large-scale petrochemical complex in Rio deJaneiro. The facilities consist of water treatment facilities, a 260 MW power plant, and a steam supply
facility, and are constructed by a three-company consortium consisting of TOYO, Brazilian UTC, andOdebrecht.
Ethylene Plant in Egypt
Jointly with local engineering company ENPPI, TOYO is constructing a 460,000 t/y ethylene plant anda 20,000 t/y butadiene extraction unit. This is the second and the largest ethylene plant that TOYO hasbuilt in Egypt. The Company completed the first 300,000 t/y ethylene plant in 2001.
Two FPSO Topsides for Brazil
TOYO built two FPSO topsides, for OSX and Petrobras, to be used in the pre-salt layer located offshore
Brazil. The Singapore joint venture of MODEC and TOYO (MTOPS) received the order from MODEC’s
Singapore subsidiary. These orders bring the total number of topsides TOYO was awarded to six.
Energy Optimization of Ammonia Project in Saudi Arabia
TOYO is replacing and renovating equipment to optimize energy use at an existing ammonia plant andpackage boilers in Saudi Arabia.
Large-Scale Synthetic Rubber Plant in India
TOYO is building a large-scale 120,000 t/y synthetic rubber plant in India. The plant is being constructed for Indian Synthetic Rubber Limited and this project is the largest EPC order ever received by ToyoIndia.
Butadiene Plant in Indonesia
TOYO is building Indonesia’s first 100,000 t/y butadiene plant. The plant is being constructed to meetthe expansion of demand for synthetic rubber and its raw material butadiene to meet the growing
demand for automotive tires in emerging countries.
PMC Contract for Venezuelan Large-Scale Heavy Oil Upgrading
TOYO is handling the Project Management Consultant (PMC) work with local engineering company
Y&V for a heavy oil upgrading project at the Puerto La Cruz Refinery in Venezuela. The heavy oil comesfrom the Orinoco Oil Belt.
Caprolactam Plant in China
TOYO is constructing a 200,000 t/y caprolactam plant in Nanjing, China, for DSM Nanjing Chemical
Company Ltd., a joint venture between DSM and Sinopec Group. TOYO is providing Engineering,
Procurement services and Construction management (EPsCm) for the project.
●

●

●

●

●

●

●

●

15

Management’s Discussion and Analysis

Annual Report 2012

Fiscal 2012 Performance Forecast (Consolidated)
Net sales¥ 300.0 billion

Operating income¥

8.5 billion

Net income¥

3.5 billion

New orders¥ 310.0 billion

Cash dividends (annual)

¥

5.00

Fiscal 2012 Performance Forecast (Consolidated)
TOYO forecasts that there will continue to be expansion in capital investment in emerging countries,
primarily in the natural resources and energy fields. This view is based on their strong economic activity and population growth. On the other hand, TOYO predicts that competition will further intensify inall markets around the world. We now must compete not only with U.S. and European companies, butalso with Korean companies, which are expanding their business scopes and increasing their presencein the global market. At the same time, the structure of the global economy is rapidly changing to one
driven by emerging countries. Amid this trend, TOYO believes that, more than ever, it is necessary toquickly and accurately adapt to the business transformations in its markets. Based on this businessenvironment, we have set the goal for new orders and the performance forecast for fiscal 2012 indicated above.
In 2012, TOYO’s goal for new orders exceeds that in fiscal 2011. There are several reasons for thispositive outlook. The economies of emerging countries in regions that TOYO has positioned as prioritized markets, such as China, India, Asia, and Brazil, are expected to expand. In addition, we now havewell-established local EPC companies in these regions. We expect that economies in regions that wehave positioned as frontier markets, such as Africa, Iraq, and Russia and other CIS countries, will continue to grow. In fiscal 2012, we will be particularly targeting winning fertilizer-related orders in Asia,
India, Sub-Saharan Africa, Russia, and other regions. We expect fertilizer-related projects to increaseby the population growth and the diversification in the uses of natural gas. In the infrastructure field,
we will concentrate our efforts on winning orders in Asia, Australia, and other regions. Our focus in
the upstream field will be on winning contracts in the Middle East, Russia, Canada, and Brazil.
Looking at sales forecasts, TOYO expects that net sales in fiscal 2012 will increase year on year
because of a significant build up in our backlog of contracts. Although gross profit will increase alongwith sales growth, we forecast that the gross profit margin will decline compared with fiscal 2011. We
have tried to win EPC orders under the fierce competition, while service-type projects are forecast to
decline from fiscal 2011 relatively. Moreover, few large-scale projects will be completed in fiscal 2012
because of the decrease of orders in the two years after the Lehman Brothers crisis. However, TOYO’s
stock of projects will increase because of the recent recovery in new orders. Completion of thoseprojects is scheduled for 2013 and later.

16

Major Projects

TOYO ENGINEERING CORPORATION

17

12

4

5
14
15

13

9

6

10

2

7
11
1
3
8

New Orders		Name of Client

Type

Location

Scope

1
		

Petróleo Brasileiro S.A.
(PETROBRAS)

Refinery Utility Complex

BrazilEPC

2
		

Egyptian Ethylene and Derivatives
Company (ETHYDCO)

Ethylene Plant and Butadiene
Extraction Unit

Egypt

EPC

3

OSX / MODEC, Inc.

FPSO Topsides

BrazilEPC

4
		

Al-Jubail Fertilizer Company(Albayroni)

Energy Optimization
Project for Existing Ammonia Plant

Saudi
ArabiaEPC

5
		

DSM Nanjing
Chemical Company Ltd.

Caprolactam Plant

China

EPsCm

6

Indian Synthetic Rubber Limited (ISRL)

Styrene-Butadiene Rubber (SBR) Plant

India

EPC

7

Petróleos de Venezuela, S.A. (PDVSA)

Heavy Oil Upgrading Units

Venezuela

PMC

8

PETROBRAS / MODEC, Inc.

FPSO Topsides

BrazilEPC

9GULF JP COMPANY LIMITED			

Small Power Producer Cogeneration
Plant (7 projects)

ThailandEPC

10

Ammonia and Urea Plants

Indonesia

EPC

Ongoing

PT Pupuk Kalimantan Timur (Kaltim)

11

Petroquímica de Venezuela, S.A. (Pequiven)

Ammonia and Urea Granulation Plants

Venezuela

EPC

12

Azerenerji Joint Stock Company

Gas Combined Cycle Power Plant

Azerbaijan

EP

Completed
13

Qatar Shell GTL Limited

Liquid Processing Unit of GTL Plant

Qatar

EPC

14
		

Lingyou Engineering-Plastics(Shanghai) Co., Ltd.

Polycarbonate Plant

China

EPC

15

Dalian Sumika Jingang Chemicals Co., Ltd.

Nutritional Feed Additive Manufacturing Facilities

China

EPsCm

EPC: Engineering, Procurement and Construction
EPsCm: Engineering, Procurement service and Construction management
PMC: Project Management Contract

Financial Section

Annual Report 2012

Consolidated Balance Sheets
Toyo Engineering Corporation and Consolidated Subsidiaries

March 31, 2012 and 2011
Thousands of U.S.
dollars (Note 1)

Millions of yen

2012

2011

¥ 48,041¥ 45,069$ 584,939

Notes receivable, accounts receivable fromcompleted construction contracts

35,83230,737436,284

Short-term investment securities (Note 15)

44,49943,992541,818

Costs on uncompleted construction contracts

26,37018,763321,076

Deferred tax assets (Note 18)

1,655

1,111

20,154

Accounts receivable—other

14,472

8,400

176,215

Other

3,503

2,989

42,663

Assets2012

Current assets:
Cash and deposits (Note 12)(3,530)(2,372)(42,981)

170,844

148,6932,080,171

Buildings and structures (Note 5)

28,07829,478341,884

Machinery, vehicles, tools, furniture and fixtures (Note 5)

4,577

3,896

55,739Land (Note 5)

17,60816,805214,395

Lease assets

1,890

2,107

23,0244

119

60(19,996)(20,850)(243,475)

32,16431,557

391,627

Goodwill

3,322

1,860

40,451

Other

3,081

2,856

37,516

6,403

4,717

77,967

Investment securities (Notes 4, 15)

9,551

9,572

116,299

Long-term loans receivable

4,575

4,588

55,707

Deferred tax assets (Note 18)

361

470

4,398

3,510

4,013

42,739Allowance for doubtful accounts
Total current assets

Property, plant and equipment:

Construction in progress
Accumulated depreciation
Total property, plant and equipment

Intangible assets:

Total intangible assets

Investments and other assets:

Other (Note 4)
Allowance for doubtful accounts
Total investments and other assets
Total assets
See notes to consolidated financial statements.

(4,995)(5,226)(60,819)

13,003

13,419158,325¥222,415¥198,387$2,708,092

18

Financial Section

TOYO ENGINEERING CORPORATION

Thousands of U.S.
dollars (Note 1)

Millions of yen

Liabilities and Net Assets

2012

2011

2012

Current liabilities:
Notes payable, accounts payable for construction
contracts and other¥ 50,096¥ 40,811$ 609,967

Short-term loans payable (Note 5)

12,983

18,774

158,088

Current portion of bonds (Note 5)

—

1,000

—

355

533

4,323

Income taxes payable

46,16433,951

562,085

Provision for bonuses

998

1,053

12,163

Provision for warranties for completed construction

596

1,892

7,257

1,489

677

18,134

—

95

—

5,263

6,472

64,091

117,947

105,261

1,436,110

24,582

15,163299,317

913

1,281

11,121

5

5

69

5,314

4,971

64,713913

842

11,124

Advances received on uncompleted construction contracts

Provision for loss on construction contracts
Provision for loss on disaster
Other
Total current liabilities
Noncurrent liabilities:
Long-term loans payable (Note 5)
Lease obligations
Deferred tax liabilities (Note 18)
Provision for retirement benefits (Note 17)
Provision for repairs

3,471

3,764

42,26535,201

26,029428,613

153,149

131,290

1,864,723

Capital stock (Note 11)18,19818,198

221,587

Capital surplus

20,75920,759252,759Retained earnings

31,20328,434379,929

(363)

(347)

(4,425)69,79867,045

849,850

225

471

2,749

Other
Total noncurrent liabilities
Total liabilities
Net assets:
Shareholders’ equity

Treasury stock
Total shareholders’ equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges
Foreign currency translation adjustment
Total accumulated other comprehensive income

(45)

(18)

(552)

(2,931)(2,157)(35,699)(2,751)(1,705)(33,502)

Minority interests

2,219

1,756

27,020Total net assets

69,26567,096843,369¥222,415¥198,387$2,708,092

Contingent liabilities (Note 6)
Total liabilities and net assets

19

Financial Section

Annual Report 2012

Consolidated Statements of Income
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2012 and 2011
Thousands of U.S.
dollars (Note 1)

Millions of yen

2012

2011

Net sales¥157,881¥155,696$1,922,338

2012

Cost of sales (Note 8)

132,963

129,123

1,618,935

Gross profit

24,91826,573

303,402

Selling, general and administrative expenses (Notes 7, 8)

19,577

19,758238,368

Operating income

5,341

6,815

65,034

Interest income

414

427

5,048

Dividends income

160

104

1,959

Equity in earnings of affiliates

543

608

6,615

Non-operating income:

Miscellaneous income
Total non-operating income

347

214

4,236

1,466

1,354

17,8601,064

771

12,956

151

175

1,847

Non-operating expenses:
Interest expenses
Foreign exchange losses
Miscellaneous expenses
Total non-operating expenses
Ordinary income

490

209

5,966

1,705

1,156

20,770

5,102

7,012

62,124Extraordinary loss:
Loss on valuation of investments in capital of subsidiaries andaffiliates

160

—

1,951

Provision for loss on disaster

—

95

—

Total extraordinary loss

160

95

1,951

Income before income taxes

4,941

6,917

60,172

Income taxes—current

1,454

3,768

17,708

Income taxes—deferred

(255)

(506)

(3,109)Total income taxes

1,198

3,262

14,598

3,743

3,654

45,574

Income before minority interests

14

Minority interests in income (loss)
Net income (Note 22)
See notes to consolidated financial statements.

¥

3,728

174

(118)
¥

3,773

$

45,39920

Financial Section

TOYO ENGINEERING CORPORATION

Consolidated Statements of Comprehensive Income
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2012 and 2011
Thousands of U.S.
dollars (Note 1)

Millions of yen

2012
Income before minority interests

2012

2011

¥ 3,743¥3,654$ 45,574

Valuation difference on available-for-sale securities

(245)

(147)

(2,986)

Deferred gains or losses on hedges

(26)

6

(326)

Foreign currency translation adjustment

(784)

(743)

(9,556)

Share of other comprehensive income of associates accounted forusing equity method

(88)

(19)

(1,082)Other comprehensive income:(1,145)(903)(13,951)¥ 2,597¥2,751$ 31,622

2,682

2,949

32,661(85)¥ (198)$ (1,038)

Total other comprehensive income
Comprehensive income (Note 10)
Comprehensive income attributable to:
Owners of the parent
Minority interests
See notes to consolidated financial statements.

¥

21

Financial Section

Annual Report 2012

Consolidated Statements of Changes in Net Assets (Note 11)
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2012 and 2011
Millions of yen

Balance at April 1, 2010

Capitalstock

CapitalsurplusRetainedearnings

Treasurystock¥18,198¥20,759¥25,525¥(315)

Dividends from surplus(864)

Net income

3,773

Purchase of treasury stock
Disposal of treasury stock(0)

ValuationdifferenceonDeferredForeignavailable- gains orcurrency
for-sale losses on translation
securities hedges adjustment

¥ 618

¥(25)

¥(1,475)

Minority
interests

Total
net
assets¥2,009¥65,295
(864)
3,773

(32)

(32)

0

0

Net changes of items
other than shareholders’equity

(147)

6

(682)

(252)

(1,075)

Balance at March 31, 2011¥18,198¥20,759¥28,434¥(347)

¥ 471

¥(18)

¥(2,157)¥1,756¥67,096

Balance at April 1, 2011¥18,198¥20,759¥28,434¥(347)

¥ 471

¥(18)

¥(2,157)¥1,756¥67,096

Dividends from surplus(959)

Net income

3,728

Purchase of treasury stock(0)

Disposal of treasury stock

(959)
3,728
(16)

(16)

0

0

Net changes of items
other than shareholders’equityBalance at March 31, 2012 ¥18,198 ¥20,759¥31,203¥(363)

(245)

(26)

¥ 225

¥(45)

(774)

462

(583)

¥(2,931) ¥2,219¥69,265

Thousands of U.S. dollars (Note 1)

Capitalstock

Capitalsurplus

ValuationdifferenceonDeferredForeignavailable- gains orcurrency
for-sale losses on translation
securities hedges adjustment

Total
net
assetsRetainedearnings

Treasurystock

Balance at April 1, 2011

$221,587 $252,761 $346,214$(4,234)

Dividends from surplus(11,684)(11,684)

Net income

45,39945,399Purchase of treasury stock
Disposal of treasury stock
Net changes of items
other than shareholders’equity(2)$5,735$(225) $(26,273) $21,391 $816,957

(201)

(201)

9

6

(2,986)

Balance at March 31, 2012 $221,587 $252,759 $379,929 $(4,425) $2,749
See notes to consolidated financial statements.

Minority
interests(326)(9,425)

5,629(7,108)$(552) $(35,699) $27,020 $843,369

22

Financial Section

TOYO ENGINEERING CORPORATION

Consolidated Statements of Cash Flows
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2012 and 2011
Thousands of U.S.
dollars (Note 1)

Millions of yen

Cash flows from operating activities:
Income before income taxes
Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in provision for retirement benefits
Increase (decrease) in provision for loss on construction contracts
Increase (decrease) in provision for loss on disaster
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Equity in (earnings) losses of affiliates
Loss (gain) on valuation of investment securities
Decrease (increase) in notes receivable, accounts receivable fromcompleted construction contracts
Decrease (increase) in costs on uncompleted construction contracts
Decrease (increase) in accounts receivable—other
Increase (decrease) in notes and accounts payable—trade
Increase (decrease) in advances received on uncompleted
construction contracts
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Net decrease (increase) in time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Purchase of investments in subsidiaries
Collection of short-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Redemption of bonds
Repayments of finance lease obligations
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period (Note 12)
See notes to consolidated financial statements.

2012

2011

2012

¥ 4,941
2,524
926
(209)
812
(95)
(575)
1,064
(43)
(543)
174

¥ 6,917
2,473
(76)
162
(227)
95
(531)
771
11
(608)
5

(3,848)(6,923)(5,784)
7,835(4,013)
2,950
3,722
6,064

(46,861)(84,304)(70,426)
95,404

9,892(2,385)
7,762
1,035(1,043)(2,044)
5,710(1,512)(1,069)15,135
1,032(781)(4,081)
11,305

120,447(29,043)
94,514
12,612(12,701)(24,897)
69,527940(1,595)980(1,048)(397)
33(1,737)—407(2,417)

(841)
(542)
87
(1,157)(305)
6(2,562)
4,042(97)(1,371)

11,446(19,427)
11,933(12,762)(4,836)403(21,157)—
4,967(29,433)

3,557
13,200(14,063)(1,000)
(565)
(959)
(66)
102
(280)
3,115
87,337¥ 90,452

2,426
7,600
(4,673)
—
(580)
(864)
(85)
3,822
(374)
13,38373,954¥87,337

43,316
160,720(171,233)(12,175)(6,882)(11,684)
(813)
1,246
(3,409)37,9301,063,405$1,101,336$

60,17230,742
11,280(2,549)9,888(1,160)(7,008)
12,956(531)(6,615)2,121

23

Financial Section

Annual Report 2012

Notes to Consolidated Financial Statements
Toyo Engineering Corporation and Consolidated Subsidiaries

1. BASIS OF PREPARATION
Toyo Engineering Corporation (the “Company”) and its domestic consolidated subsidiaries maintain their accounting
records and prepare their financial statements in accordance with accounting principles generally accepted in Japan,
and its overseas consolidated subsidiaries maintain their books of account in conformity with those of their respective
countries of domicile. The accompanying consolidated financial statements have been compiled from the accounts
prepared by the Company in accordance with the provisions set forth in the Financial Instruments and Exchange Law
of Japan and with accounting principles generally accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards. Certain reclassifications havebeen made to present the accompanying consolidated financial statements in a format which is familiar to readers
outside Japan.
For the convenience of readers, the accompanying consolidated financial statements and the relevant notes havealso been presented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of ¥82.13 to U.S.$1.00
prevailing on March 31, 2012.

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. As of March 31, 2012, thenumbers of consolidated subsidiaries and affiliates accounted for by the equity method were 14 and 3, respectively.
Toyo Engineering Korea Limited, Toyo Engineering Corporation, China and 4 other subsidiaries are consolidated using
their financial statements as of their respective fiscal year end, which falls on December 31, and necessary adjustments
are made to their financial statements to reflect any significant transactions from January 1 to March 31. 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 within twenty years on a straight-line basis.
(b) Securities

All debt and equity securities other than equity securities issued by subsidiaries and affiliates are classified into oneof three categories: trading, held-to-maturity, or available-for-sale securities. Trading securities are bought and heldprincipally for the purpose of selling them in the near term. Held-to-maturity securities are those securities which theCompany and its consolidated subsidiaries have the ability and intent to hold until maturity. All securities not included in
trading or held-to-maturity are classified as available-for-sale securities.
Trading securities are recorded at fair value. Held-to-maturity securities are recorded at amortized cost, adjusted
for the amortization or accumulation of premiums or discounts. Unrealized gains or losses on trading securities areincluded in earnings. Short-term investment securities classified as available-for-sale securities are recorded at fair value
with changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in net assets. Nonmarketable securities classified as available-for-sale securities are recorded at cost.
Cost of securities sold is determined by the moving-average method.
(c) Derivative Financial Instruments

The Company and certain consolidated subsidiaries enter into various derivative transactions in order to manage
certain risk arising from adverse fluctuations in foreign currency exchange rates and interest rates. 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 of loss is deferred as acomponent of net assets.
Deferral hedge accounting is adopted for derivatives which qualify as hedges, under which unrealized gain or loss isdeferred. Hedging instruments are derivative transactions such as foreign exchange forward contract and interest rateswap, and hedged items are primarily forecast sales denominated in foreign currencies, and receivables and payables
denominated in foreign currencies. Hedge effectiveness is not assessed if the substantial terms and conditions of thehedge instruments and the hedged forecasted transactions are the same. The Company and its consolidated manages its
derivative transactions in accordance with its internal “Policies and Procedures for Risk Management.”(d) Costs on Uncompleted Construction Contracts

Costs on uncompleted construction contracts is stated at cost, determined by the identified-cost method.
(e) Depreciation and Amortization

Depreciation of property, plant and equipment is principally computed by the declining-balance method based on theestimated useful lives of the assets.

24

Financial Section

TOYO ENGINEERING CORPORATION

However, buildings and rental properties acquired after April 1, 1998 are depreciated on a straight-line method.
The useful lives of property, plant and equipment are as follows:		
Buildings and structures:
3 to 50 years
		
Machinery, vehicles, tools, furniture and fixtures: 2 to 20 years
Amortization of intangible assets of the Company and its consolidated subsidiaries is calculated principally by straight-line.
Software is amortized on a straight-line method over 3 to 5 years of the estimated available period.
(f) Leases

Depreciation of assets on finance leases which do not transfer ownership of the leased assets to the lessee are calculatedby the straight-line method over the lease period with their residual value zero.
(g) Allowance for Doubtful Accounts

The Company and its consolidated subsidiaries have provided an allowance for doubtful accounts at an estimated amountof probable and reasonably possible bad debts and an estimated amount computed on the actual percentage of credit
losses.
(h) Provision for Bonuses

Provision for bonuses to employees is provided at the expected payment amount for the fiscal year.
(i) Provision for Warranties for Completed Construction

Provision for warranties for completed construction is provided based on past experience.
(j) Provision for Retirement Benefits

The provision for retirement benefits at the year-end are stated in accordance with the projected plan assets and the
projected benefit obligation. The difference arising from the adoption of the new standard of accounting of ¥3,695 million($45,000 thousand) is amortized over 15 years by the straight-line method. Actuarial gain or loss is amortized by thestraight-line method over nine years within the average of the estimated remaining service years of the employees in theyear following the year of recognition. Prior service cost is amortized as incurred over 13 years within the average of theestimated remaining service years when incurred.
(k) Provision for Loss on Construction Contracts

Provision for loss on construction contracts is provided in case the material loss is forecasted for a certain large-scale
contract work.
The amounts of loss on costs on uncompleted construction contracts of ¥747 million ($9,097 thousand) is included
in provision for loss on construction contracts and shown as a liability, not as a deduction from the amount of costs on
uncompleted construction contracts.
The amount of provision for loss on construction contracts included in cost of sales is ¥1,077 million ($13,118
thousand).
(l) Provision for Repairs

The Company and its consolidated subsidiaries have provided provision for repair at estimated amount for preparing theexpenditure for major repairs.
The Company provides a portion of estimated expenditure equally divided to each fiscal term from decision of repair
plan to end of repair work.
(m) Provision for Loss on Disaster

The Company and its consolidated subsidiaries have provided Provision for loss on disaster at estimated amount for
preparing the expenditure to recover from the Great East Japan Earthquake.
(n) Foreign Currency Translation

Both short-term and long-term receivables and payables in foreign currencies are translated at the rates of exchange in
effect at the balance sheet date and differences arising from the translation are included in the consolidated statements
of income.
The balance sheet accounts of the consolidated foreign subsidiaries are translated at the rates of exchange in effectat the balance sheet date, except for capital stock and capital surplus, which are translated at their historical exchange
rates. Revenues, expenses and net income for the year are translated at the rates of exchange in effect at the balance
sheet date. Differences arising from translation are presented as “Foreign currency translation adjustment” and “Minority
interests” in the accompanying consolidated balance sheets.

25

Financial Section

Annual Report 2012(o) Recognition of Revenues

Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, arerecognized by the percentage-of-completion method. The percentage of completion is calculated at the cost incurred asa percentage of the estimated total cost. The completed-contract method continues to be applied for contracts for which
the percentage of completion cannot be reliably estimated.
(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 with insignificant risk of changes in value purchased with an original maturity of threemonths or less to be cash equivalents.
(q) Consumption Tax

Transactions subject to consumption tax are recorded at amounts exclusive of consumption taxes.
(r) Consolidated Tax Return

The Company files a consolidated tax return with certain domestic subsidiaries.
(s) Capitalization of Interest Expenses

Interest expenses incurred for real estate development projects conducted by certain subsidiaries have been capitalized
as a part of the development cost of such projects.
(t) Advances Received on Uncompleted Construction Contracts

Advances received on uncompleted construction contracts from customers are shown as a liability, not as a deduction
from the amount of costs on uncompleted construction contracts.
(u) 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. Deferred tax assets and liabilities are measured
using the enacted tax rates and laws which will be in effect when the differences are expected to be reversed.
(v) Per Share Information

Net income per share is computed based on the weighted average number of shares outstanding during each year. Diluted net
income per share is not presented since there was no potential for dilution by the issuance of common stock.
Total net assets per share is computed based on outstanding shares at the balance sheet date.
(w) Research and Development Costs

Research and development costs are charged to income when incurred.
(x) Impairment of Fixed Assets

The Company and its consolidated subsidiaries have grouped their fixed assets into each company for EPC Business,each object for Real Estate and Idle Assets.
The recoverable amounts of the asset groups were measured by applying net selling prices which were assessed
based on the current market price of land and other salable prices or value in use which was computed by using realestate appraisal value, etc., for the year ended March 31, 2012.

3. ACCOUNTING CHANGES
There are no significant accounting changes for the year ending March 31, 2012.

4. INVESTMENTS and other assets
Among investment securities and other in investment and other assets, the amounts of shares of unconsolidated
subsidiaries and affiliates as of March 31, 2012 and 2011 are as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Investments and other assets
Investment securities
Other

2012
¥3,583951

2011¥3,348967

2012$43,631
11,58026

Financial Section

TOYO ENGINEERING CORPORATION

5. Short-Term LOANS PAYABLE and Long-term LOANS PAYABLEAt March 31, 2012 and 2011, short-term loans payable and long-term loans payable consisted of the followings:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Short-term loans payable
Loans payable with collateral
Loans from banks and other financial institutions
Loans payable without collateral
Loans from banks and other financial institutions
Bonds, due 2012
Current portion of long-term loans payable
Long-term loans payable
Loans payable with collateral
Loans from banks and other financial institutions
Loans payable without collateral
Loans from banks and other financial institutions
Bonds, due 2012
Less: Current portion
Total

2012

2011

2012

¥ 2,709¥ 1,099$ 32,992

10,274—
3,260
12,983

17,6751,000
14,383
19,774125,095—
39,701
158,088—743—

27,843—
27,843
3,260
24,582¥37,566

27,8031,000
29,547
14,383
15,163¥34,937

339,019—
339,019
39,701
299,317$457,405

The following assets at March 31, 2012 and 2011 were pledged as collateral principally for long-term loans payable:
Millions of yen

Years ended March 31,
Cash and deposits
Short-term investment securities
Buildings, net of accumulated depreciation
Land
Total

2012
¥2,924
177
1,049
938
¥5,090

2011
¥ 831
—
834
20
¥1,686

Thousands of
U.S. dollars

2012$35,609
2,160
12,782
11,430$61,982

The following schedule shows the maturities of long-term loans payable subsequent to March 31, 2012:
Years ending March 31,
2013
2014
2015
2016
2017
2018 and thereafter

Millions of yen

Thousands of
U.S. dollars¥3,260
3,588
3,876
3,676
5,614
7,827

$39,701
43,68947,19944,76468,363
95,301

In order to maintain access to a stable and effective source of operating capital, the company has entered into
commitment-line contracts with seven trading banks.
The balances of unused commitment-line based on these contracts at the end of the consolidated reporting periods
are ¥9,500 million ($115,670 thousand) in 2012 and ¥11,000 million in 2011.

6. CONTINGENT LIABILITIESThe Company and its subsidiaries were contingently liable as guarantors of loans to others in the aggregate amount of¥541 million ($6,587 thousand) and ¥529 million at March 31, 2012 and 2011, respectively.

27

Financial Section

Annual Report 2012

7. Selling, General and Administrative Expenses
The main components of selling, general and administrative expenses for the year ended March 31, 2012 and 2011 are as
follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,
Salaries
Provision for bonuses
Retirement benefit expenses
Depreciation
Research and development costs

2012¥8,001
432
428
415
825

2011
¥8,133
381
457
279
1,277

2012
$97,418
5,261
5,219
5,062
10,053

8. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in cost of sales and selling, general and administrative expenses for the years
ended March 31, 2012 and 2011 amounted to ¥825 million ($10,053 thousand) and ¥1,277 million, respectively.

9. IMPAIRMENT OF FIXED ASSETSThe Company and its consolidated subsidiaries adopted the accounting standard for impairment of fixed assets. There
were no material impairments of fixed assets for the years ended March 31, 2012 and 2011.

10. OTHER COMPREHENSIVE INCOME

Years ended March 31,
Valuation difference on available-for-sale securities:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
The amount of valuation on available-for-sale securities before tax effectTax effect
Valuation difference on available-for-sale securities
Deferred gains or losses on hedges:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
The amount of deferred gains or losses on hedges before tax effect:
Tax effect
Deferred gains or losses on hedges
Foreign currency translation adjustment:
Amount arising during the year
Reclassification adjustments for gains and losses realized in net income
The amount of foreign currency translation adjustment before tax effect:
Tax effectForeign currency translation adjustment
Share of other comprehensive income of associates accounted
for using equity method
Amount arising during the year
Total other comprehensive income

Millions of yen

Thousands of
U.S. dollars

2012

2012

¥ (438)
2
(435)
190
(245)

$ (5,337)
32(5,304)
2,318(2,986)

(51)
—
(51)
25
(26)

(631)
—
(631)
304
(326)

(784)
—
(784)
—
(784)

(9,556)—(9,556)—(9,556)(88)¥(1,145)(1,082)$(13,951)

28

Financial Section

TOYO ENGINEERING CORPORATION

11. SUPPLEMENTARY INFORMATION FOR CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2012(a) Type and number of outstanding shares
Number of shares
Balance at beginningof yearType of shares

Issued stock:
Common stock
Total
Treasury stock:
Common stock
Total

Increase in shares
during the year

Decrease in shares
during the year

Balance at end ofyear

192,792,539
192,792,539

—
—

—
—

192,792,539
192,792,539

858,030
858,030

54,462
54,462

1,950
1,950

910,542
910,542

Notes: 1. Treasury stock increased by 54,462 shares due to the repurchase of shares less than one unit.
		 2. Treasury stock decreased by 1,950 shares due to the sale of shares less than one unit.
(b) Dividends(b-1) Dividends from surplus
Date ofapproval

Resolution
approved byType ofsharesAnnualgeneralJune 23, meeting of Common
2011shareholders
stock

AmountAmount(Millions of yen)(Thousands of
U.S. dollars)

959

11,684

Amount per
share
(Yen)

5.0

Amount per
Shareholders’share
cut-off date
(U.S. Dollars)

Effective
date

March 31,2011

June 24,
2011

0.06

(b-2) Dividends with a shareholders’ cut-off date during the current fiscal year but an effective date subsequent to thecurrent fiscal year
Date ofapproval

Resolution
approved byType ofsharesPaid fromAmountAmount(Millions of yen)(Thousands of
U.S. dollars)

1,151

14,017

AnnualgeneralJune 27, meeting of Common Retained
2012
shareholders
stock
earnings

Amount per
share
(Yen)

6.0

Amount per
Shareholders’share
cut-off date
(U.S. Dollars)

Effective
date

March 31,2012

June 28,
2012

0.07

For the year ended March 31, 2011(a) Type and number of outstanding shares
Number of shares
Type of shares

Issued stock:
Common stock
Total
Treasury stock:
Common stock
Total

Balance at beginningof yearIncrease in shares
during the year

Decrease in shares
during the year

Balance at end ofyear

192,792,539
192,792,539

—
—

—
—

192,792,539
192,792,539

751,115
751,115

108,176108,176

1,261
1,261

858,030
858,030

Notes: 1. Treasury stock increased by 108,176 shares due to the repurchase of shares less than one unit.
		 2. Treasury stock decreased by 1,261 shares due to the sale of shares less than one unit.

29

Financial Section

Annual Report 2012(b) Dividends(b-1) Dividends from surplus
Date ofapproval

Resolution
approved by

AnnualgeneralJune 23, meeting of
2010
shareholders

Type ofsharesAmount(Millions of yen)

Commonstock

864

Amount per
share
(Yen)

Shareholders’
cut-off date

Effective
date

4.5

March 31,2010

June 24,2010(b-2) D
 ividends with a shareholders’ cut-off date during the current fiscal year but an effective date subsequent to thecurrent fiscal year
Date ofapproval

Resolution
approved by

AnnualgeneralJune 23, meeting of
2011
shareholders

Type ofsharesCommonstock

Paid fromAmount(Millions of yen)Amount per
share
(Yen)

Shareholders’
cut-off date

Effective
date

Retainedearnings959

5.0

March 31,2011

June 24,
2011

12. CONSOLIDATED STATEMENTS OF CASH FLOWS
A reconciliation between the balance of cash and deposits reflected in the accompanying consolidated balance sheets andthat of cash and cash equivalents in the accompanying consolidated statements of cash flows as of March 31, 2012 and2011 is summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Cash and deposits
Time deposits with maturities over three months
Short-term investments with maturities within three months
included in securities
Cash and cash equivalents

2012¥48,041(1,582)

2011¥45,069(1,725)2012$ 584,939(19,267)

43,994¥90,452

43,992¥87,337

535,664$1,101,336

13. LEASESThe Company and its consolidated subsidiaries have adopted “Accounting Standard for Lease Transactions.”(a) Finance Leases
Finance leases are capitalized, and recorded on the balance sheet based on finance lease contracts.
(b) Operating Leases
Operating leases are not capitalized, but future minimum lease payments and receivables are as follows:(b-1) Operating Leases (as Lessee)
Future minimum lease payments subsequent to March 31, 2012 and 2011 for noncancelable operating leases are
summarized as follows:
Millions of yen

Years ended March 31,
Within one year
Over one year
Total

2012
¥182
260
¥442

2011
¥310
404
¥715

Thousands of
U.S. dollars

2012$2,216
3,174$5,39030

Financial Section

TOYO ENGINEERING CORPORATION(b-2) Operating Leases (as Lessor)
Future minimum lease receivables subsequent to March 31, 2012 and 2011 for noncancelable operating leases are
summarized as follows:
Millions of yen

Years ended March 31,
Within one year
Over one year
Total

2012
¥ 894
4,454
¥5,348

2011
¥ 897
5,491
¥6,389Thousands of
U.S. dollars

2012$10,889
54,234$65,123(c) Operating Sub-leases
Future minimum lease payments for noncancelable operating sub-leases are summarized as follows:(c-1) Lease Investment Assets and Lease Receivables
Millions of yen

Years ended March 31,
Current assets
Investment and other assets

2012
¥216
67

2011
¥302
282

Thousands of
U.S. dollars

2012$2,633818(c-2) Lease Obligations
Millions of yen

Years ended March 31,
Current liabilities
Noncurrent liabilities

2012
¥216
67

2011
¥302
282

Thousands of
U.S. dollars

2012$2,632818

14. FINANCIAL INSTRUMENTS
For the year ended March 31, 2012
1. Condition of Financial Instruments
The Company and its consolidated subsidiaries hold their temporary cash surplus through low-risk financial assets and raise
funds through borrowing from banks and issuing corporate bonds.
Derivative financial instruments are utilized for reducing the risk of exchange fluctuations, interest fluctuations, and credit.
Therefore, there is no derivatives for speculative purpose.
Notes receivable, accounts receivable from completed construction contracts are exposed to credit risks of customers
and risks of exchange fluctuations. The Company deals with these risks by organizing careful reviews on awarding contracts,
letters of credit, and export credit insurance. The Company minimizes exchange fluctuation risks by organizing theircorresponding forward-exchange contracts, in principle.
Short-term investment securities and investment securities are exposed to volatility risks of market price. The Company
deals with these risks by periodic monitoring, as they mainly consist of short-term held-to-maturity bonds and stocks of ourbusiness partner.
Notes payable, accounts payable for construction contracts and other are mostly due within one year.
Borrowings from banks and corporate bonds are raised mainly for capital investment or working capital. For some longterm loans payable, the Company entered into interest swap agreements to minimize risks of interest rate fluctuations.
Regarding derivatives, forward-exchange contracts are used to minimize exchange fluctuation in foreign-currency
operations, and interest-swap contracts are used to minimize interest rate fluctuations.
The fair value of financial instruments is based on their quoted market prices, if available, or reasonably estimatedamounts if there is no market price. Since various assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in different fair value. In addition, the notional amounts below are not necessarily
indicative of the actual market risk involved in derivative transactions.

31Financial Section

Annual Report 2012

2. Fair Value of Financial Instruments
Book value, fair value, and net unrealized gain or loss of financial instruments consist of the following:
It does not include items for which it is extremely difficult to determine the fair value.
Millions of yen

At March 31, 2012
(1) Cash and deposits(2) Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts
Notes receivable, accounts receivable fromcompleted construction contracts, net

Fair value¥ 48,041¥ 48,041¥ —35,30635,286(20)

14,472(1)
14,47014,470—43,994
4,665
146,478
50,096
9,723
27,84387,66343,993
4,665
146,457
50,093
9,723
28,02887,845

1
(69)
(68)

1
(69)
(68)

35,832(525)(3) Accounts receivable—otherLess: Allowance for doubtful accounts
Accounts receivable—other, net(4) Short-term investment securities and investment securities
Held-to-maturity securities
Available-for-sale securities
Total of assets(1) Notes payable, accounts payable for construction contracts and other(2) Short-term loans payable(3) Long-term loans payable (including current portion)
Total of liabilities
Derivatives
not designated as hedging instruments
designated as hedging instruments
Total derivatives

Unrealized
gain / loss

Book value

¥

¥

0

—(0)
—
(20)
(2)
—
185
182
—
—
¥ —

Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed
above are offset by the corresponding figures of allowance for doubtful accounts listed above. Net receivables and payables
derived as a result of derivative transactions are presented. Values in parentheses show contra-asset account, net liabilities andunrealized loss.

32

Financial Section

TOYO ENGINEERING CORPORATION

Thousands of U.S. dollars

At March 31, 2012
(1) Cash and deposits(2) Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts
Notes receivable, accounts receivable fromcompleted construction contracts, net

Book value

Fair value

Unrealized
gain / loss

$ 584,939$ 584,939$

436,284(6,397)(3) Accounts receivable—otherLess: Allowance for doubtful accounts
Accounts receivable—other, net(4) Short-term investment securities and investment securities
Held-to-maturity securities
Available-for-sale securities
Total of assets(1) Notes payable, accounts payable for construction contracts and other(2) Short-term loans payable(3) Long-term loans payable (including current portion)
Total of liabilities
Derivatives
not designated as hedging instruments
designated as hedging instruments
Total derivatives—$

429,886

429,641(244)

176,215(24)
176,191

176,191—

535,664
56,807
1,783,489
609,967
118,386
339,019
1,067,373

535,659
56,807
1,783,239
609,932
118,386
341,272
1,069,591

(5)
—
(250)
(34)
—
2,252
2,218

12
(847)
(835)

12
(847)
(835)

—
—
—

$

$

(Note 1) Computational method and related issues
Assets(1) Cash and deposits
Book values are used as fair values because they are nearly equal to such book values.
(2) (3) N otes receivable, accounts receivable from completed construction contracts and accounts
receivable—otherBook values for items which are settled in a short-term used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by the proper discount rate coupledwith period for settlement and credit risks.
(4) Short-term investment securities and investment securities
Fair value of stock items are based on the market prices and bond items are based on the market prices or their priceprovided by the financial institution.
Liabilities(1) Notes payable, accounts payable for construction contracts and otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by the proper discount rate coupledwith period for settlement and credit risks.
(2) Short-term loans payable
Book values are used as fair values because they are nearly equal to such book values.
(3) Long-term loans payable (including Current portion)
The present values of the principal and total interest, discounted by the rate assumed to be applied to the new borrowings
under the same conditions, are used as the fair values.
Derivative Transactions
See “16. DERIVATIVE TRANSACTIONS.”

33

Financial Section

Annual Report 2012

(Note 2) Financial instruments of which it is extremely difficult to determine the fair value
Unlisted securities that amounted to ¥2,606 million ($31,737 thousand) as of March 31, 2012 are excluded from theabove table because they are deemed extremely difficult to determine the fair values; they do not have market prices andit is not possible to conduct alternative methods such as the estimation of their future cash flows.
(Note 3) Redemption schedule for monetary assets with maturity date and short-term investment andinvestment securities

Within one year

Cash and deposits
Notes receivable, accounts receivablefrom completed construction contracts
Accounts receivable—otherHeld-to-maturity securities
Total

After ten years¥ 48,041

¥

—

¥—

¥—

29,075
14,47043,994¥135,581

6,756
1—¥6,758

—
—
—
¥—

—
—
—
¥—

Within one year

Cash and deposits
Notes receivable, accounts receivablefrom completed construction contracts
Accounts receivable—otherHeld-to-maturity securities
Total

Millions of yen
After one year
After five years
through five years
through ten years

Thousands of U.S. dollars
After one year
After five years
through five years
through ten years

After ten years$ 584,939

$

—

$—

$—

354,019
176,191
535,664$1,650,814

82,265
24—$82,289

—
—
—
$—

—
—
—
$—

(Note 4) Schedule for repayment of bonds and long-term loans payable
See “5. SHORT-TERM LOANS PAYABLE AND LONG-TERM LOANS PAYABLE.”
For the year ended March 31, 2011
1. Condition of Financial Instruments
The Company and its consolidated subsidiaries hold their temporary cash surplus through low-risk financial assets andraise funds through borrowing from banks and issuing corporate bonds.
Derivative financial instruments are utilized for reducing the risk of exchange fluctuations, interest fluctuations, andcredit. Therefore, there is no derivatives for speculative purpose.
Notes receivable, accounts receivable from completed construction contracts are exposed to credit risks ofcustomers and risks of exchange fluctuations. The Company deals with these risks by organizing careful reviews on
awarding contracts, letters of credit, and export credit insurance. The Company minimizes exchange fluctuation risks byorganizing their corresponding forward-exchange contracts, in principle.
Short-term investment securities and investment securities are exposed to volatility risks of market price. The
Company deals with these risks by periodic monitoring, as they mainly consist of short-term held-to-maturity bonds andstocks of our business partner.
Notes payable, accounts payable for construction contracts and other are mostly due within one year.
Borrowings from banks and corporate bonds are raised mainly for capital investment or working capital. For
some long-term loans payable, the Company entered into interest swap agreements to minimize risks of interest rate
fluctuations.
Regarding derivatives, forward-exchange contracts are used to minimize exchange fluctuation in foreign-currency
operations, and interest-swap contracts are used to minimize interest rate fluctuations.
The fair value of financial instruments is based on their quoted market prices, if available, or reasonably estimatedamounts if there is no market price. Since various assumptions and factors are reflected in estimating the fair value,
different assumptions and factors could result in different fair value. In addition, the notional amounts below are notnecessarily indicative of the actual market risk involved in derivative transactions.

34

Financial Section

TOYO ENGINEERING CORPORATION

2. Fair Value of Financial Instruments
Book value, fair value, and net unrealized gain or loss of financial instruments consist of the following:
It does not include items for which it is extremely difficult to determine the fair value.
Millions of yen

At March 31, 2011
(1) Cash and deposits(2) Notes receivable, accounts receivable fromcompleted construction contracts
Less: Allowance for doubtful accounts
Notes receivable, accounts receivable fromcompleted construction contracts, net

Book value¥ 45,069

Unrealized
gain / loss

¥ 45,069¥ —30,32730,326

(0)

8,400
(1)
8,398

8,398

—

43,992
4,329
132,118
40,8115,390
1,000
28,54775,74943,992
4,329
132,11740,808
5,390
1,009
28,791
76,000

0
—
(0)
(2)
—
9
244
251

9
(17)
(8)

9
(17)
(8)

—
—
¥ —

30,737(409)(3) Accounts receivable—otherLess: Allowance for doubtful accounts
Accounts receivable—other, net(4) Short-term investment securities and investment securities
Held-to-maturity securities
Available-for-sale securities
Total of assets(1) Notes payable, accounts payable for construction contracts and other(2) Short-term loans payable(3) Current portion of bonds(4) Long-term loans payable (including current portion)
Total of liabilities
Derivatives
not designated as hedging instruments
designated as hedging instruments
Total derivatives

Fair value¥¥

Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed
above are offset by the corresponding figures of allowance for doubtful accounts listed above. Net receivables andpayables derived as a result of derivative transactions are presented. Values in parentheses show contra-asset account,net liabilities and unrealized loss.
(Note 1) Computational method and related issues
Assets(1) Cash and deposits
Book values are used as fair values because they are nearly equal to such book values.
(2) (3) N otes receivable, accounts receivable from completed construction contracts and accounts
receivable—otherBook values for items which are settled in a short-term used as fair values of these items because they are nearly equal
to such book values. Fair values of other items are based on the present value discounted by the proper discount rate
coupled with period for settlement and credit risks.
(4) Short-term investment securities and investment securities
Fair value of stock items are based on the market prices and bond items are based on the market prices or their priceprovided by the financial institution.
Liabilities(1) Notes payable, accounts payable for construction contracts and otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly
equal to such book values. Fair values of other items are based on the present value discounted by the proper discountrate coupled with period for settlement and credit risks.

35

Financial Section

Annual Report 2012(2) Short-term loans payable
Book values are used as fair values because they are nearly equal to such book values.
(3) Current portion of bonds
Fair values are shown as the present value discounted by the proper discount rate coupled with period for settlement andcredit risks.
(4) Long-term loans payable (including current portion)
The present values of the principal and total interest, discounted by the rate assumed to be applied to the newborrowings under the same conditions, are used as the fair values.
Derivative Transactions
See “16. DERIVATIVE TRANSACTIONS.”(Note 2) Financial instruments for which it is extremely difficult to determine the fair value
Unlisted securities that amounted to ¥2,436 million as of March 31, 2011 are excluded from the above table because
they are deemed extremely difficult to determine the fair values; they do not have market prices and it is not possible toconduct alternative methods such as the estimation of their future cash flows.
(Note 3) Redemption schedule for monetary assets with maturity date and short-term investment andinvestment securities
Millions of yen
Within one year

Cash and deposits
Notes receivable, accounts receivablefrom completed construction contracts
Accounts receivable—otherHeld-to-maturity securities
Total

After one year
through five years

After five years
through ten years

After ten years¥ 45,069

¥ —

¥—

¥—

29,716
8,398
43,992¥127,177

611
1
—
¥613

—
—
—
¥—

—
—
—
¥—

15. INVESTMENT SECURITIESThe book value, unrealized gain and loss and the related fair value of held-to-maturity securities at March 31, 2012 aresummarized as follows:
Millions of yen

At March 31, 2012
Securities whose fair value exceeds their carrying value:
Government bonds
Securities whose fair value does not exceed their carrying value:
Government bonds
Total

Book
Value

Fair
Value

Unrealized
Gain¥26,996¥26,996¥0

16,997¥43,994

16,996¥43,993(0)¥(0)

Thousands of U.S. dollars

At March 31, 2012
Securities whose fair value exceeds their carrying value:
Government bonds
Securities whose fair value does not exceed their carrying value:
Government bonds
Total

Book
Value

Fair
Value

Unrealized
Gain$328,703$328,707$4

206,960$535,664

206,951$535,659

(9)
$(5)

36

Financial Section

TOYO ENGINEERING CORPORATIONThe cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31,2012 are summarized as follows:
Millions of yen

At March 31, 2012
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Other
Subtotal
Securities whose carrying value does not exceed their acquisition
costs:
Equity securities
Other
Subtotal
Total

Book
Value

Acquisition
Cost

Unrealized
Gain¥3,644177¥3,821¥2,790155¥2,946

¥853
21
¥875

¥ 515
328
843
¥4,665

¥ 534
328
862
¥3,808¥ (18)—(18)¥856

Thousands of U.S. dollars

At March 31, 2012
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Other
Subtotal
Securities whose carrying value does not exceed their acquisition
costs:
Equity securities
Other
Subtotal
Total

Book
Value

Acquisition
Cost

Unrealized
Gain$44,375
2,160$46,535$33,981
1,899$35,880$10,394261$10,655$ 6,277
3,993
10,271$56,807$ 6,502
3,993
10,496$46,376

$

(224)
—
(224)
$10,431

The book value, unrealized gain and loss and the related fair value of held-to-maturity securities at March 31, 2011 aresummarized as follows:
Millions of yen

At March 31, 2011
Securities whose fair value exceeds their carrying value:
Government bonds
Securities whose fair value does not exceed their carrying value:
Government bonds
Total

Book
Value

Fair
Value

Unrealized
Gain¥26,995¥26,996¥0

16,997¥43,992

16,996¥43,992(0)¥0

The cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31,2011 are summarized as follows:
Millions of yen

At March 31, 2011
Securities whose carrying value exceeds their acquisition costs:
Equity securities
Securities whose carrying value does not exceed their acquisition
costs:
Equity securities
Total

Book
Value

Acquisition
Cost

Unrealized
Gain¥4,199¥2,970¥1,229129¥4,329144¥3,114(14)¥1,21437

Financial Section

Annual Report 2012

16. DERIVATIVE TRANSACTIONS
For the year ended March 31, 2012
1. Derivatives not designated as hedging instruments(1) Currency-related
Millions of yen
All notionalamounts

Non-market transaction:
Foreign exchange forward contracts
Buying
USD
EUR
THB
Total

¥ 0
51
0
¥51

Notional
amounts due
over one year

¥  —
51
—
¥51

Fair value

Unrealized
gain / loss

¥0
1
0
¥1

¥0
1
0
¥1

Thousands of U.S. dollars

Non-market transaction:
Foreign exchange forward contracts
Buying
USD
EUR
THB
Total

All notionalamounts

Notional
amounts due
over one year

$   1
630
0
$632

$   —
630
—
$630

Fair value

$ 0
12
0
$12

Unrealized
gain / loss

$ 0
12
0
$12

2. Derivatives designated as hedging instruments(1) Currency-related

Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling
USD
BuyingUSD
EUR
Alternative method:
Foreign exchange forward
contracts
Selling
USD
SEK
Buying
USD
EUR
SEK
THB
BRL
CHF
SGD
Total

Accounts
receivable andaccounts
payableAccounts
receivable andaccounts
payableAll notionalamounts

Millions of yen
Notional
amounts due
over one year

¥ 5,227¥1,708

1,298
1

127
—

20,368
1,412

4,826
825

10,816
5,031
1,678
2,761
3,822
347
636
¥53,404

608
1,438
—
—
—
—
—
¥9,536

Fair value

Computational
method of fairvalues¥(82) Based on prices
offered by thefinancial
12
institution
0

N/A

¥(69)

Based onforwardexchange
contract prices

38

Financial Section

TOYO ENGINEERING CORPORATION

Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling
USD
BuyingUSD
EUR
Alternative method:
Foreign exchange forward
contracts
Selling
USD
SEK
Buying
USD
EUR
SEK
THB
BRL
CHF
SGD
Total

Accounts
receivable andaccounts
payableThousands of U.S. dollars
Notional
All notionalamounts due
amountsover one year
Fair value$(1,005) Based on prices
offered by thefinancial
157
institution
0$ 63,654$ 20,804

15,81518

1,557—

248,006
17,20058,765
10,056

131,696
61,262
20,43433,622
46,5444,235
7,748$650,239

7,413
17,512—————$116,109

Main hedged
items

All notionalamounts

Millions of yen
Notional
amounts due
over one year

Long-termloans payable¥10,242¥9,910N/A¥10,242¥9,910¥—Accounts
receivable andaccounts
payableComputational
method of fair
value

N/A

Based onforwardexchange
contract prices$ (847)(2) Interest-related

Special method for interest rate
swaps:
Interest swap contracts
floating-for-fixed rate swap

Total

Main hedged
items

Special method for interest rate
swaps:
Interest swap contracts
floating-for-fixed rate swap

Total

Long-termloans payable

Fair value

Thousands of U.S. dollars
Notional
All notionalamounts due
amountsover one year
Fair value$124,710$120,662

N/A$124,710$120,662$—

Computational
method of fairvalue

Based on prices
offered by thefinancial
institution

Computational
method of fairvalue

Based on prices
offered by thefinancial
institution

39

Financial Section

Annual Report 2012

For the year ended March 31, 2011
1. Derivatives not designated as hedging instruments(1) Currency-related
Millions of yen
Notional
amounts due
over one year

All notionalamounts

Non-market transaction:
Foreign exchange forward contracts
Selling
USD
Buying
USD
EUR
Total

Unrealized
gain / loss

Fair value

¥421

¥—

¥4

¥4

2
47
¥471

—
—
¥—

(0)
5
¥9

(0)
5
¥9

2. Derivatives designated as hedging instruments(1) Currency-related

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling
USD
EUR
BuyingUSD
EUR
Alternative method:
Foreign exchange forward
contracts
Selling
USD
EUR
SEK
Buying
USD
EUR
SEK
Total

Main hedged
items

All notionalamounts

Accounts
receivable andaccounts
payable¥Accounts
receivable andaccounts
payableMillions of yen
Notional
amounts due
over one year

683
77

¥ 384
—

414
153

246
—

6,959
705
4,682

884
—
1,300

11,102
228
5,981¥30,989

2,487
51
449
¥5,804Computational
method of fair
value

Fair value¥(5) Based on prices(3) offered by thefinancial
institution
4
5

N/A

¥2

Based onforwardexchange
contract prices

40

Financial Section

TOYO ENGINEERING CORPORATION(2) Interest-related

Deferral hedge accounting method:
Interest swap contracts
floating-for-fixed rate swap

Special method for interest rate
swaps:
Interest swap contracts
floating-for-fixed rate swap

Millions of yen
Notional
amounts due
over one year

Computational
method of fairvalue

Main hedged
items

All notionalamounts

Long-termloans payable

¥

282

¥ 247

¥(19) Based on prices
offered by thefinancial
institution

Long-termloans payable

10,978

1,467

N/A¥11,260¥1,714

¥(19)

Total

Fair value

Based on prices
offered by thefinancial
institution

17. RETIREMENT BENEFITSThe Company and certain consolidated 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) Provision for retirement benefits for employees at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2012

2011

¥(15,252)¥(15,099)$(185,715)

Plan assets

9,390

8,865

114,332

Unreserved projected benefit obligation

Projected benefit obligation

2012(5,862)(6,233)(71,383)

Unamortized obligation at transition

747

994

9,105

Unamortized actuarial loss

545

1,257

6,642

Unrecognized prior service cost

(714)

(939)

(8,697)

Net projected benefit obligation(5,283)(4,922)(64,334)

31

49

379

¥ (5,314)¥ (4,971)$ (64,713)

Prepaid pension cost
Provision for retirement benefits for employees

41Financial Section

Annual Report 2012

(2) Net periodic pension cost for the years ended March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2012

2012

2011

Components of net periodic benefit cost:Service cost

¥ 599

¥ 594

$ 7,303

Interest cost

301

310

3,676

Expected return on plan assets

(18)

(20)

(228)

Amortization of unrecognized retirement benefit obligation attransition

246

246

3,000

Amortization of unrecognized actuarial loss

488

727

5,950

Amortization of prior service cost

(187)

(187)

(2,289)

Other

107

111

1,311

Net periodic pension cost
Total

1,537

1,782

18,724¥1,537¥1,782$18,724(3) Basis of calculation of projected benefit obligation for the years ended 2012 and 2011, respectively.
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

Straight-line method
Mainly 2.0%
Mainly 0.0%
Mainly nine years
15 years
Mainly 13 years

18. INCOME TAXESThe statutory tax rates applicable to the Company and its domestic subsidiaries for the year ended March 31, 2012 and2011 were approximately 40.4%. Income taxes of the foreign subsidiaries are based generally on the tax rates applicablein their countries of incorporation.
(1) The effective tax rates on income before income taxes in the accompanying consolidated statements of income are
not equal to the above-mentioned statutory tax rate for the following reasons:Year ended March 31,
Statutory tax rate in Japan
Adjustments:
Permanently nondeductible expenses
Permanently nontaxable dividends received
Per capita levy on corporate inhabitant tax
Temporary differences excluded from calculation of deferred tax assets
Difference in tax rates for foreign subsidiaries
Effective tax rate in the past years
Difference in tax base between corporate income tax and enterprise tax
Amendment of statutory tax rate
Other
Effective tax rate

2012

2011

40.4%

40.4%

3.1
(3.0)
0.5
(23.9)
1.4
2.8
(1.6)
4.4
0.2
24.3%

2.3
(2.3)
0.3
9.4
(0.9)
4.5
(1.8)
—
(4.7)
47.2%

42

Financial Section

TOYO ENGINEERING CORPORATION(2) Significant components of the deferred income tax assets and liabilities at March 31, 2012 and 2011 are as follows:
Thousands of
U.S. dollars

Millions of yen

2012
Deferred tax assets (gross):
Provision for retirement benefits
Provision for warranties for completed construction
Provision for bonuses
OthersTotal deferred tax assets (gross)
Deferred tax liabilities (gross):
Undistributed earnings of subsidiaries and affiliates
Valuation difference on available-for-sale securities
OthersTotal deferred tax liabilities (gross)
Net deferred tax assets

2011

2012

¥1,372
164
212
1,213
2,963

¥1,261
497
192
860
2,811

$16,708
2,008
2,592
14,77936,088

562
269
121
953
¥2,010

669
459
106
1,235
¥1,576

6,849
3,281
1,481
11,611$24,484

Note: The Company and its consolidated subsidiaries had temporary differences excluded from calculation of deferred
tax assets of ¥8,689 million ($105,798 thousand) and ¥13,085 million at March 31, 2012 and 2011, respectively,
which are available to be offset against future taxable income.
(3) Net deferred tax assets at March 31, 2012 and 2011 are reflected in the consolidated balance sheets as follows:
Millions of yen

Current assets—deferred tax assets
Investments and other assets—deferred tax assets
Current liabilities—otherNoncurrent liabilities—deferred tax liabilities
Net deferred tax assets

2012¥1,655361(0)(5)¥2,0102011¥1,111470(0)(5)¥1,576

Thousands of
U.S. dollars

2012$20,154
4,398
(6)
(69)
$24,484

The “Act for Partial Revision of the Income Tax Act etc. for the Purpose of Creating Taxation System Responding toChanges in Economic and Social Structures” (Act No. 114 of 2011) and the “Act on Special Measures for Securing
Financial Resources Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake”(Act No. 117 of 2011) were promulgated on December 2, 2011 and the staged reduction of the national corporate tax
rate and a special reconstruction corporate tax will apply to corporate taxes effective fiscal years beginning on or after
April 1, 2012.
As a result, the effective corporate tax rate used to measure the Company’s deferred tax assets and liabilities waschanged from 40.4% to 37.8% for the temporary differences expected to be utilized in fiscal years beginning April 1,2012 to March 31, 2014 and from 37.8% to 35.4% for temporary differences expected to be utilized from fiscal years
beginning April 1, 2015. The effect of the announced reduction of the effective corporate tax rate was to decreasedeferred tax assets, net by ¥147 million ($1,792 thousand) and increase deferred income taxes by ¥215 million ($2,622
thousand).

43

Financial Section

Annual Report 2012

19. RENTAL PROPERTIESFor the year ended March 31, 2012
The Company and some of its consolidated subsidiaries own their commercial facilities, residences and office buildings(including land) for rent in Chiba prefecture and the other areas. For the year ended March 31, 2012, the Company andsome of its consolidated subsidiaries recorded ¥792 million ($9,647 thousand) of rental revenues.
Book value, increase (decrease) in value, and fair value of rental properties are listed below.
Millions of yen

Thousands of U.S. dollars

Book value
at March 31,
2011

Increase(decrease)in book value

Book value
at March 31,
2012

Fair value
at March 31,
2012Book value
at March 31,
2011

Increase(decrease)in book value

Book value
at March 31,
2012

Fair value
at March 31,
2012¥17,615¥(1,462)¥16,152¥22,430$214,485$(17,810)$196,674$273,105

Notes: 1. Book value is calculated by deducting accumulated depreciation and accumulated impairment loss from its
acquisition cost.
		
2. The major items in “Increase (decrease) in value” consist of ¥946 million ($11,522 thousand) of sales of rental
offices and ¥489 million ($5,960 thousand) of depreciation of buildings.
		
3. Computational method of fair value		
Mainly based on Real Estate Appraisal Standards.
For the year ended March 31, 2011
The Company and some of its consolidated subsidiaries own their commercial facilities, residences and office buildings(including land) for rent in Chiba prefecture and the other areas. For the year ended March 31, 2011, the Company andsome of its consolidated subsidiaries recorded ¥992 million of rental revenues.
Book value, increase (decrease) in value, and fair value of rental properties are listed below.
Millions of yen
Book value
at March 31,
2010

Increase(decrease)in book value

Book value
at March 31,
2011

Fair value
at March 31,
2011¥18,154¥(538)¥17,615¥23,102

Notes: 1. Book value is calculated by deducting accumulated depreciation and accumulated impairment loss from its
acquisition cost.
		
2. Major item in “Increase (decrease) in value” consists of depreciation expense.
		
3. Computational method of fair value		
Mainly based on Real Estate Appraisal Standards.

20. SEGMENT INFORMATION
Effective the fiscal year ended March 31, 2012, the Company has adopted new accounting standards for disclosuresabout segments of an enterprise and related information. Segment information for the year ended March 31, 2011 has
been restated in accordance with such accounting standards for comparative purposes.
(1) Operating Segments
The operating segments of the Group are components for which discrete financial information is available and whose
operating results are regularly reviewed by the Executive Committee to make decisions about resource allocation and toassess performance.
The Companies’ reportable operating segments consist of the following three business groups:
		 EPC Business—	Research and development, design, engineering, procurement, and construction of a variety ofplants, such as oil, gas, petrochemical, and general chemical.
		 IT Business— 	Solution business based on other companies’ ERP package products and product business basedon our subsidiary ERP package products, etc.
		 Real Estate— Rent of commercial facilities and residences, and administration.

44

Financial Section

TOYO ENGINEERING CORPORATION

Millions of yen

Year ended March 31, 2012
I Net sales and segment profits:
Net sales(1) Net sales to outside customers(2) Inter-segment net sales
Total
Segment profits
II Segment assets
III Others
Depreciation
Amortization of goodwill
Amount invested in equity method
affiliates
Increase of fixed assets

EPC Business

IT Business

Real Estate

Total

Adjustments

Consolidated¥143,017
239
143,256
4,121¥191,198¥12,228
25
12,253318¥ 6,257¥ 2,635
230
2,866
897
¥19,468¥157,881
495
158,376
5,337¥216,924

¥

—
(495)
(495)
3
¥5,491¥157,881—
157,881
5,341¥222,415

¥

¥

¥

¥

¥

¥

1,203
179
2,974
2,124

764
—
—
500

541
—
—
13

2,509
179
2,974
2,637

(0)
—

2,508
179

—
—

2,974
2,637

Adjustments

Consolidated

Thousands of U.S. dollars

Year ended March 31, 2012
I Net sales and segment profits:
Net sales(1) Net sales to outside customers(2) Inter-segment net sales
Total
Segment profits
II Segment assets
III Others
Depreciation
Amortization of goodwill
Amount invested in equity method
affiliates
Increase of fixed assets

EPC Business

IT Business

Real Estate

Total$1,741,353
2,915
1,744,268
50,186$2,328,000$148,893
304
149,198
3,880$ 76,186$ 32,091
2,807
34,898
10,926$237,042$1,922,338
6,027
1,928,365
64,993$2,641,229

$

$

$

$

$

$

14,652
2,191
36,221
25,861

9,303
—
—
6,088

6,596
—
—
164

30,552
2,191
36,221
32,114— $1,922,338(6,027)—(6,027) 1,922,338
41
65,034$66,863 $2,708,092(9) $—30,542
2,191——

36,221
32,114

Notes: 1. “Adjustments” for Segment profits and Depreciation represent the elimination of inter-segment transactions.
		
2. “Segment profits” represents operating income from Consolidated Statement of Income.
		
3. Segment assets adjustments include (¥466) million (($5,678) thousand) of inter-segment eliminationsand ¥5,957 million ($72,541 thousand) of non-allocated corporate assets, which is chiefly the Company’s
investment securities attributed to the administrative department.

45

Financial Section

Annual Report 2012

Millions of yen

Year ended March 31, 2011
I Net sales and segment profits:
Net sales(1) Net sales to outside customers(2) Inter-segment net sales
Total
Segment profits
II Segment assets
III Others
Depreciation
Amortization of goodwill
Amount invested in equity method
affiliates
Increase of fixed assets

EPC Business

IT Business

Real Estate¥141,728
203
141,931
5,561¥164,208¥11,06150
11,112225¥ 7,096

¥

¥

1,112
1

742
—

3,005
984

Total

Adjustments

Consolidated¥ 2,907
242
3,149
1,025
¥21,390¥155,696
496
156,193
6,813¥192,695

¥

—
(496)
(496)
1
¥5,692¥155,696—
155,696
6,815¥198,387

¥

¥

¥

¥

—
676

583
—
—
23

2,438
1
3,005
1,684

(0)
—
—
—

2,437
1
3,005
1,684

Notes: 1. “Adjustments” for Segment profits and Depreciation represent the elimination of inter-segment transactions.
		
2. “Segment profits” represents operating income from Consolidated Statement of Income.
		
3. Segment assets adjustments include (¥475) million of inter-segment eliminations and ¥6,167 million of non-allocatedcorporate assets, which is chiefly the Company’s investment securities attributed to the administrative department.
(2) Information by Geographical Segments Based on the Location of Projects
Millions of yen

Year ended March 31, 2012
Net salesJapan

Year ended March 31, 2012
Net salesJapan

ThailandChina$515,367$341,058$230,002

Thailand¥42,327¥28,011

China

India

Other

Total

¥18,890¥15,849¥52,804¥157,881

India

Other

Total

$192,976$642,933$1,922,338

Thousands of U.S. dollars

Millions of yen

Year ended March 31, 2012
Property, plant and equipment

Japan

Other

¥28,549

Total¥3,615¥32,164

Thousands of U.S. dollars

Year ended March 31, 2012
Property, plant and equipment

Japan

Other

Total

$347,608$44,019$391,627

Japan

Brazil

India

China

Other

Total

¥55,408¥26,638¥17,612¥17,301¥38,735¥155,696

Millions of yen

Year ended March 31, 2011
Net sales

Millions of yen

Year ended March 31, 2011
Property, plant and equipment

Japan¥30,324

Other

Total

¥1,233¥31,557(3) Information by Major Customer
Year ended March 31, 2012
There are no customers which have 10% of our consolidated net sales for the fiscal year ended March 31, 2012.
Millions of yen

Year ended March 31, 2011
Net sales

COMPANHIA DE DESENVOLVIMENTO E
MODERNIZAÇÃO DE PLANTAS INDUSTRIAIS S.A.

Related business segment¥16,853

EPC

46

Financial Section

TOYO ENGINEERING CORPORATION

21. RELATED PARTY TRANSACTIONS
Affiliate
For the year ended March 31, 2012
Name: N EDL CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.
Address:
BrazilCapital and investments:
2,524 thousand BRL
Business:
Construction
Equity ownership percentage:
Holding 42% directly
Relation with related party:
Loan for operating fund
Summary of transactions:
Loan for operating fund
For the year ended March 31, 2011
Name: N EDL CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.
Address:
BrazilCapital and investments:
2,524 thousand BRL
Business:
Construction
Equity ownership percentage:
Holding 42% directly
Relation with related party:
Loan for operating fund
Summary of transactions:
Loan for operating fundMillions of yen
Transaction
amount—Title ofaccount

Long-term
loans
receivableThousands of U.S. dollars
Accountbalance¥3,707

Transaction
amount—Title ofaccount

AccountbalanceLong-term
loans
receivable$45,146

Millions of yen
Transaction
amount—Title ofaccount

Long-term
loans
receivable

Accountbalance¥3,707

Note: Interest rate on loan is determined by considering effective market rates.
		The Company reserved ¥3,707 million ($45,146 thousand) and ¥3,707 million of allowance for doubtful accounts at
March 31, 2012 and 2011, against the loan above.

47

Financial Section

Annual Report 2012

Other affiliates subsidiary
For the year ended March 31, 2012
Name: MIT-POWER LIMITED
Address:
Thailand
Capital and investments:
14,019 thousand THB
Business:
Construction
Equity ownership percentage:
N/A
Relation with related party:
Contract for engineering andconstruction
Summary of transactions:Contract for engineering andconstruction

For the year ended March 31, 2011
Name: MIT-POWER LIMITED
Address:
Thailand
Capital and investments:
14,019 thousand THB
Business:
Construction
Equity ownership percentage:
N/A
Relation with related party:
Contract for engineering andconstruction
Summary of transactions:Contract for engineering andconstruction

Millions of yen
Transaction
amountTitle ofaccount¥10,210

Advances
received on
uncompleted
construction
contracts
Accounts
receivableThousands of U.S. dollars
Accountbalance

Transaction
amountTitle ofaccount

Accountbalance$67,365$124,321

Advances
received on
uncompleted
construction
contracts¥5,532

Accounts
receivable——

Millions of yen
Transaction
amount¥2,829Title ofaccount

Advances
received on
uncompleted
construction
contracts
Accounts
receivable

Accountbalance¥3,25314

Note:	“Contract for engineering and construction” is determined by price negotiation based on market price, which issimilar to general transaction. “Transaction amount” does not include consumption tax while “Account balance”
includes consumption tax.

22. AMOUNTS PER SHARE
Yen

Years ended March 31,
Net income per share
Net assets per share
Dividends per share2012¥ 19.43
349.42
6.00

U.S. dollars

2011¥ 19.65
340.43
5.00

2012
$0.23
4.25
0.07

Net income per share is computed based on the net income available for distribution to shareholders of common stockand the weighted average number of shares of common stock outstanding during each year.
Cash dividends per share represent the cash dividends proposed by the Board of Directors as applicable to therespective years.
Net assets per share are computed based on the net assets excluding minority interests and the number of common
stock outstanding at the year end.

48

Financial Section

TOYO ENGINEERING CORPORATION

49

Corporate Information

Annual Report 2012

Corporate Data
Corporate Name:		 Toyo Engineering Corporation (TOYO)Founded:		 May 1, 1961
Number of Employees:		 4,494 (Consolidated, As of March 31, 2012)
Business Activities:		 Engineering and Construction for Industrial Facilities

	R&D support, design, engineering, procurement, construction, commissioning,		 technical assistance for industrial facilities: oil, gas, oil & gas development,		 petrochemicals, chemicals, water treatment, transportation systems,
		 power generation, nuclear power, advanced production systems, pharmaceutical,
		 fine chemical, distribution systems, biotechnology, environment and others
	IT engineering services and system software supply●●

History
1961●

TOYO was established. Capital: 300 million yen

1985

●

Toyo-Thai Corporation Ltd. established.

An agreement for engineering service and		 technical assistance was concluded with
		 Lummus Co. (U.S.A.).

Toyo U.S.A., Inc. established.
Toyo Engineering & Construction Sdn. Bhd.
		 established in Malaysia.

The first overseas contract for a fertilizer plant		 with The Fertilizer Corporation of India Ltd.
		 was awarded.

1987

●

Toyo Engineering Korea Limited established.

1989

●

Capital: 12,219 million yen

1962

1963

●

●

The first urea plant contract in the former
		 Soviet Union was awarded.
1964●

TOYO was awarded its first ethylene plant contract		 (Osaka, Japan).
1965●

TOYO was awarded the contract for the first		 ammonia plant in the former Soviet Union.
1969●

TOYO was awarded the contract for two ammonia
		 plants in the former East Germany.
1970●

International Procurement & Service Corporation
		 (Currently Toyo Engineering Europe, S.r.l.)		 established.
1972

1973

●

●

A contract for a urea plant for China was awarded.

1975

●

Capital: 1,890 million yen

1976

●

Toyo Engineering India Limited established.

Construction of the Research Center completed		 in Mobara, Chiba Prefecture.
1977

●

1978

●

Capital: 2,970 million yen

Capital: 3,300 million yen
TOYO was listed on the second section of the Tokyo
		 Stock Exchange.
1980

●

●

Capital: 5,040 million yen
TOYO was listed on the first section of the Tokyo
		 Stock Exchange.
1982

●

●

1986

●

●

Head Office/Engineering Center (Baytec Building)		 started operation in Narashino, Chiba.
1990

●

1993

●

Capital: 13,017 million yen

1994

●

TOYO received ISO 9001 registration.

1998 Toyo do Brasil Consultoria e Construções
		 Industriais Ltda. established.
●

1999

●

2004

●

●

Toyo Business Engineering Corporation established.
TOYO received ISO 14001 registration.
Toyo Engineering Corporation, China established.

2006

●

Capital: 18,198 million yen

2007

●

Relocation of Tokyo head office.

2008

●

TOYO invested in Atlatec, S.A. de C.V. in Mexico.

TOYO formulated TOYO’s MVV (Mission, Vision,
		 Values).
2009●

2010 TOYO acquired Tri Ocean Engineering Limited
		 in Calgary, Alberta, Canada.
●

The 50th Anniversary
TOYO invested in PT. Inti Karya Persada
		 Tehnik (IKPT) in Indonesia.
2011

●

●

Medium-Term Business Plan (FY2012–FY2015)
		 started.
Katsumoto Ishibashi was elected as President		 and CEO.
Consolidated group logo developed.
2012

●

●

●

50

Corporate Information

TOYO ENGINEERING CORPORATION

Board of Directors

Directors*Representative Director

Executive Officers

Chairman

Chief Executive Officer

Yushi Nagata

Katsumoto Ishibashi

Vice Chairman

Executive Vice President

Kenji Soejima

Makoto Fusayama

President

Senior Executive Officers

Katsumoto Ishibashi*

Hideki Shiinoki
Keiichi Matsumoto
Satoshi Kuwahara
Mitsutoshi Hamamura
Masayuki Uchida
Takaya Naito
Kiyoshi Nakao
Akhilesh Kumar
Tadashi Hori
Masaru Takezawa
Hisashi Osone

Directors

Makoto Fusayama*
Hideki Shiinoki*
Keiichi Matsumoto
Satoshi Kuwahara
Mitsutoshi Hamamura
Masayuki Uchida
Takaya Naito

Executive Officers

Kazuharu Murayama
Motoyoshi Kamoshima
Seiichi Itakura
Yutaka Kita
Masaaki Yamaguchi
Takayoshi Imanishi
Shoji Koshikawa
Hiroshi Sato
Koji Kojima
Masayuki Yoshizawa
Ryuji Oka
Itsuya Yanagi
Tomohisa Abe(As of June 27, 2012)

Auditors
Senior Corporate Auditor

A Yushi Nagata

Makoto Shimagaki

B Kenji Soejima
C Katsumoto Ishibashi

Corporate Auditors

Hideaki Kinoshita
Shingo Sato (Outside Auditor)
Yoshiyuki Shinohara (Outside Auditor)

D Makoto Fusayama
E

D

C

A

B

E Hideki Shiinoki

51

Corporate Information

Annual Report 2012

Worldwide Network
CA
LG

O

US

Y

HO

AR

M

N

TE

TO

R

R

EY

N

TOK
CARA

YO,

CHI

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CAS

SEOU LSH AN GH AI

SAO PARIO

DE J

B E IJ IN

U LO

ANE

JAKA

IRO

G

RTA

KU
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BA LA L
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UM
KO
PU
R
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M
U
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BA

MOS COW

MI

LA

N

I

I
BA
DU
RAN
TEH HOBAR
AL K
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

●

HEAD OFFICE / ENGINEERING CENTER
Chiba, Japan■

Toyo Engineering India Limited
Mumbai, India●

TOKYO HEAD OFFICETokyo, Japan■

Saudi Toyo Engineering Company
Al Khobar, Saudi Arabia

TEC Air Service Corporation
Travel and insurance services■

Toyo Engineering Europe, S.r.I.
Milan, Italy■

Toyo Engineering Canada Ltd.
Calgary, Canada

TEC Business Services Corporation
Staffing service, contracted business service,translation and interpretation service,facility management service■

Toyo U.S.A., Inc.
Houston, U.S.A.

■

Toyo Ingeniería de Venezuela, C.A.
Caracas, Venezuela■

Toyo do Brasil Consultoria e Construções
Industriais Ltda.
Rio de Janeiro, Brazil

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

Overseas Offices●

Beijing, China●

Jakarta, Indonesia●

Dubai, United Arab Emirates●

Tehran, Iran●Moscow, Russia

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

OVERSEAS GROUP COMPANIES
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

■

Toyo Engineering Korea Limited
Seoul, Korea■

Toyo Engineering Corporation, China
Shanghai, China■

PT. Inti Karya Persada Tehnik (IKPT)Jakarta, Indonesia■

Toyo Engineering & Construction Sdn. Bhd.
Kuala Lumpur, Malaysia

OTHER AFFILIATES■TS Participações e Investimentos S.A.
Sao Paulo, Brazil■

Toyo-Thai Corporation Public Company Limited
Bangkok, Thailand■

Atlatec, S.A. de C.V.
Monterrey, Mexico

DOMESTIC GROUP COMPANIESTEC Project Services Corporation
EPC for plants and facilities
Chiba Data Center Corporation
Website planning and its production &maintenance, data entry, and commercial printing
TEC Estate, Ltd.
Property development and real estate businessToyo Business Engineering Corporation
System consulting and solutions provider
TEC Accounting & Consulting Ltd.
Business support and consulting
for accounting and accounting systems(As of July 1, 2012)52

Stock Information

TOYO ENGINEERING CORPORATION(As of March 31, 2012)————————————————————————— ————————————————————————————————————————————————

Capital Stock¥18,198 million

Stock Exchange Listing

Tokyo Stock Exchange

Authorized Shares

500,000,000

Capital Stock Issued

192,792,539

Number of Shareholders

13,875Administrator of
Shareholders’ Register

Sumitomo Mitsui Trust Bank, Limited
1-4-1 Marunouchi, Chiyoda-ku, Tokyo 100-0005, Japan————————————————————————— ————————————————————————————————————————————————————————————————————————— ————————————————————————————————————————————————————————————————————————— ————————————————————————————————————————————————————————————————————————— ————————————————————————————————————————————————————————————————————————— ————————————————————————————————————————————————

Number of shares(thousands)

Major Shareholders:

Percentage of total(%)

Mitsui & Co., Ltd.

43,77022.70

Japan Trustee Services Bank, Ltd.

25,70313.33(Mitsui Chemicals, Inc. Retirement Benefit Trust Account re-entrusted by Chuo Mitsui Asset Trustand Banking Company, Ltd.)The Master Trust Bank of Japan, Ltd. Trust Account10,653

5.52

Japan Trustee Services Bank, Ltd. Trust Account

7,043

3.65

The Nomura Trust & Banking Co., Ltd. Trust Account

5,422

2.81

Taisei Corporation

5,000

2.59

Trust and Custody Services Bank, Ltd. Pension Trust Account

4,424

2.29

Japan Trustee Services Bank, Ltd. Trust Account 9

3,335

1.72

Sumitomo Mitsui Banking Corporation

2,350

1.21

The Chase Manhattan Bank, N.A. London S.L. Omnibus Account

1,923

0.99

Others0.79

Individuals
20.09

Financial institutions
37.34

Type of
Shareholder(%)

Foreign shareholders
13.75

Domestic companies
28.03

Stock Chart:
(Yen)
500

400

Stock Price

300

200

100

0

Trading Volume (Thousands of Shares)

50,00025,000

0

4

5

6

7

8

9 10 11 12 1
FY2009

2

3

4

5

6

7

8

9 10 11 12 1
FY2010

2

3

4

5

6

7

8

9 10 11 12 1
FY20112

3

53

Toyo Engineering Corporation
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/©2012 Toyo Engineering Corp.
Printed in Japan