Toyo Engineering Corporation Annual Report 2008

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/

Year ended March 31, 2008

©2008 Toyo Engineering Corp.
Printed in Japan

Corporate Profile
Toyo Engineering Corporation (TOYO) is an engineering
contractor founded in 1961. Since its inception, TOYO
has actively deployed Engineering, Procurement
and Construction (EPC) businesses and successfully
implemented projects in many countries. Consequently,
TOYO is now positioned as one of the world’s leading
engineering contractors.
TOYO performs comprehensive engineeringbusinesses with information technology (IT) and othercutting-edge technologies added to and integrated
with its reliable engineering proficiency and project
management capabilities.
Our corporate philosophy is “providing totalsolutions that ensure the satisfaction and success of
our clients.” We provide total solutions through our fiveconsiderable strengths: (1) comprehensive engineering
technology based on experience accumulated
worldwide; (2) project management capabilities
promising quality, safety and delivery schedule; (3)cutting-edge technology application capabilities in

CONTENTS

Consolidated Financial Highlights ...................................1
To Our Shareholders ...................................................................2
Management System ..............................................................10

various product fields; (4) advanced global response

HSSE + Quality .............................................................................12

capabilities connecting the hubs within our worldwide

Financial Section

network; and (5) alliance formation capabilities

Consolidated Five-Year Summary ..............................................14

creating an optimal structure of collaboration withManagement’s Discussion and Analysis.................................16

world partners.
The Toyo Group consists of TOYO and 29

Business Risk and Other Risks........................................................17
Consolidated Balance Sheets ........................................................18
Consolidated Statements of Income........................................20

subsidiaries and 12 affiliates, with a total of more

Consolidated Statements of Changes in Net Assets ......21

than 6,000 people forming “Global Toyo.” Under theConsolidated Statements of Cash Flows................................22

Global Toyo structure, we would like to maintain andNotes to Consolidated Financial Statements ......................23

strengthen the image of reliability that the “Toyo

Independent Auditors’ Report.....................................................37

Brand” possesses, which assures clients that projects

Worldwide Network .................................................................38
Corporate Data ............................................................................39

will be completed safely, to a high-quality standard
and on schedule.

DEFINITION OF TERMS¡ Fiscal 2007 means the fiscal year ended March 31, 2008
(April 1, 2007–March 31, 2008).
¡ 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.

Consolidated Financial Highlights
Financial Summary

Thousands of
U.S. dollars*Millions of yen

Years ended March 31,
Net sales ..................................................................................
New orders ............................................................................
Backlog of contracts at end of the year...............
Net income............................................................................
Total assets .............................................................................
Total net assets ....................................................................
Per share data (in yen and U.S. dollars):
Net income .......................................................................
Cash dividends ...............................................................

2008

2007

2008

¥327,413
268,693444,434
8,029
280,139
57,331¥223,844
354,984499,237
5,294
282,81451,559$3,267,925
2,681,830
4,435,907
80,1392,796,075
572,223¥¥ 27.90
3.00

$

41.76
6.00

* U.S. dollar amounts are stated at ¥100.19 to U.S.$1.00, the exchange rate prevailing on March 31, 2008.

Operational Summary>>> Consolidated performance marked a record high.
>>> New orders reached ¥268.7 billion, achieving our target.

Net Sales

Net Income (Loss)(¥ billion)(¥ billion)

8.0

327.4
5.3
223.8
197.9 195.6

3.6

3.4

’05

’06

170.5

(6.5)

’04

’05

’06

’07

’08

’04

’07

New Orders

Backlog of Contracts(¥ billion)(¥ billion)

355.0

’08

499.2
444.4
268.7

257.8

241.5

350.6 337.8

373.5

192.6

’04

’05

’06

’07

’08

’04

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TOYO ENGINEERING CORPORATION

Annual Report 2008

’05

’06

’07

’08

0.42
0.06

To Our Shareholders
In fiscal 2007, ended March 31, 2008, TOYO achieved record earnings on a consolidated basis.
Supported by robust capital investment sentiment in the energy and petrochemical fields, new orders
exceeded our initial targets.
TOYO’s corporate philosophy is “providing total solutions that ensure the satisfaction and success of
our clients.” To implement this philosophy, we provide engineering services, thereby enabling clients tooptimize their production and distribution systems to create new corporate value. Our business fields
cover the energy, gas, petroleum, chemical, fertilizer, infrastructure construction and IT markets, in which
we have been playing a leading role on the global stage.
Fiscal 2008, ending March 31, 2009, will be the final year of our three-year medium-term corporate
strategic plan, in which our goal is to further enhance our management platform as a leading engineering
company by “putting innovation into practice and making it flourish.”August 2008

Yutaka Yamada
President and Chief Executive Officer

Medium-Term Corporate Strategic Plan
for Fiscal 2006 to 2008
The results we achieved for fiscal 2007 exceeded our initial targets.

Medium-Term Corporate Strategic Plan

ensure client trust in the Toyo Group and endeavor to increase

We are currently in the midst of our three-year medium-termcost-competitiveness and profitability. In project execution, we

corporate strategic plan implemented on April 1, 2006. Taking

recognize the need for greater consideration of not only quality,

into account market trends in our engineering businesses, we aredelivery schedule and cost (QDC) but also of health, safety,

steadily increasing our profitability and stabilizing our operating

security and environmental (HSSE) issues. We are striving toperformance under the plan. By constantly maintaining thefully meet the requirements posed by these issues as a sociallysystems and business base necessary to offer total solutions

responsible corporation.

for engineering, procurement and construction (EPC), we will

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TOYO ENGINEERING CORPORATION

Annual Report 2008

Unceasing Innovation for the Next Stage of Growth

Net Sales and Gross Profit Targets in the Medium-Term Corporate Strategic Plan
The net sales and gross profit targets of the medium-term corporate strategic plan are as follows:
Consolidated Net Sales
400

300

Consolidated Gross Profit(¥ billion)■ Medium-Term Plan
■ Actual■ Expectation

220.0 223.8

327.4
250.0

40

320.0
30

260.0

(¥ billion)■ Medium-Term Plan
■ Actual■ Expectation

34.4

34.0
29.0

26.0
21.0 22.2

200

20

100

10

0

0

FY2006

FY2007

FY2008FY2006

FY2007

FY2008● Gross profit on a consolidated basis in fiscal 2007 amounted to ¥34.4 billion,
exceeding its target. The gross profit margin was 10.5%.
● For fiscal 2008, the Company forecasts consolidated gross profit of ¥34.0 billion.

● Consolidated net sales in fiscal 2007 were ¥327.4 billion,
surpassing the target shown above.
● The Company projects sales of ¥320.0 billion in fiscal 2008.

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TOYO ENGINEERING CORPORATION

Annual Report 2008

To Our Shareholders

Operating Environment and Results in Fiscal 2007

The deepening sense of uncertainty about the direction of

Operating Environment

the global economy in the second half mentioned previously>>> Although the direction of the global economy
has become increasingly unclear, demandremained high in the plant engineering market.

also affected the operating environment of the Toyo Group.

>>> However, risk factors increased due to rising
prices as well as a shortage of steel products forplants, extended delivery periods for supplies ofequipment and devices, labor scarcity, soaring
labor costs and sharp appreciation of the yen.

reflecting improved profits, demand in the plant engineering

Nevertheless, backed by growing global demand for energy
and raw materials and rising capital investments by clientsmarket remained high. At the same time, risk factors haveincreased due to rising prices as well as a shortage of steel andnonferrous materials, extended delivery periods for equipment
supply, a tighter global labor supply, soaring labor costs and>>> Strengthening project management to deal
with the above risks has become an importantmanagement issue.

sharp appreciation of the yen. Consequently, strengthening
project management to deal with the above risks became an
important management issue.

In the fiscal year under review, the Japanese economy

Even under these circumstances, the Toyo Group continued

remained generally favorable in the first half. In the second

to provide the high level of expertise and reliability expected

half, however, many negative factors began to emerge. In

by the market. Pursuing aggressive development of business,

addition to skyrocketing prices for crude oil and further

the Group worked to form and strengthen relationships withincreases in the prices of raw materials, the U.S. economy

clients and respond to their changing needs for products andbegan to slow as the subprime loan crisis emerged while theservices. Moreover, guided by its corporate goal under theJapanese yen appreciated sharply against the weakening

medium-term corporate strategic plan initiated in April 2006

U.S. dollar. Under the impact of these factors, exports,of becoming a “Global Toyo for Client Value Enhancement,”

machinery orders, capital investment and production, which

the Group proceeded with various initiatives. Under the

had been favorable up to that point, began to show signs

plan, the Group strove to collaborate worldwide in businessof faltering. There were also signs of deterioration both indevelopment while independently contributing to growth

the Japanese economy and in the performances of somein consolidated earnings. The Group also worked to develop

Japanese corporations. Overseas, despite the slowdown ina system focused on increasing the overall corporate

the U.S. economy and a weakening trend in the economies

value of the Group, while boosting price competitiveness,of European countries, the economies of China, India andstrengthening project management and increasing earnings

ASEAN countries were generally favorable while remaining

capability.

cautious about the impact of the economic decline in the
United States and other countries. With exports of crude
oil and mineral resources remaining at high levels, theeconomies of countries in the Middle East and SouthAmerica also maintained firm growth.

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TOYO ENGINEERING CORPORATION

Annual Report 2008

technology and natural resource development. Looking

Performance Outline

at customer composition, there were a notable number of>>> Record-high consolidated performance(substantial year-on-year gains in sales
and profits)projects where the major investors were the national oil>>> New orders target achieved (Target, ¥240.0
billion; Actual, ¥268.7 billion)

trend, the Company was able to win further orders from thesecompanies of countries, especially with overseas projects.
By developing an order-winning strategy aligned with thisnational oil companies.
Among major overseas orders, we won orders to construct

In the fiscal year under review, the Toyo Group pushed

an ammonia and urea plant for Petroquímica De Venezuela S.A.

forward with ongoing projects related to energy and(Pequiven) in Venezuela, an expansion of a gas processing plant

petrochemicals in Brazil, India, Thailand, Saudi Arabia, Qatar,for Petróleo Brasileiro S.A. (PETROBRAS) in Brazil and a propylene

Russia and other countries. In addition, we made progressproduction plant for PT Pertamina in Indonesia. In Japan, we

in improving earnings by strengthening our execution andreceived many orders from a range of different manufacturing

management systems for sales, proposals and projects. As

companies, including orders for the installation of a hydro-

a result, consolidated net sales rose 46.3% year on year, todesulfurization unit for FCC from Taiyo Oil Co., Ltd. and for a 3EP¥327.4 billion, operating income soared 99.5%, to ¥13.7

cracking heater from Maruzen Petrochemical Co., Ltd.

billion, income before income taxes and minority interest

As a result, new orders on a consolidated basis for the fiscal

advanced 102.2%, to ¥14.9 billion, and net income jumped

year under review reached the projected level, but declined

51.7%, to ¥8.0 billion.

24.3% year on year, to ¥268.7 billion. Of this amount, overseas

Amid the growing demand worldwide for energy and raw

orders accounted for ¥197.6 billion, a decline of 31.1% frommaterials, orders in the plant engineering market increased

a year earlier. New orders in Japan totaled ¥71.1 billion,

for material-related plants, primarily gas and petrochemical-

increasing 4.3% from the previous fiscal year.

related projects. Despite the remaining previously mentioned
negative and uncertain factors in the operating environment,

Regional Backlog of Contracts (As of March 31, 2008)

the Company pressed on with its sales activities based on its
strong relationship of trust with partners. Moreover, with the

66.9

cooperation of regional companies worldwide in winning

59.3
51.6

orders based on the Global Toyo structure, the Company
was able to achieve its initial target for new orders. The

Middle East
Africacomposition of orders was well-balanced, including orders

India

16.4
Russia 63.5
Central Asia

12.6

67.6 China

from Japan and overseas, and was not heavily weighted inJapan

Venezuela
BrazilTotal Backlog:¥444.4
Billionany specific region. Product fields were also well distributed,
Southeast Asia

including EPC projects centered on energy, petrochemicals
and chemical fertilizers, and service projects focused on(¥ billion)

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TOYO ENGINEERING CORPORATION

Annual Report 2008

101.3

FY 2007 Backlog

5.2
OthersTo Our Shareholders

Fiscal 2008 Outlook

Fiscal 2008 Performance Forecasts(Consolidated)

Fiscal 2008 Business Issues>>> 1. Continuing thorough implementation of project
management

New orders .......................................................... ¥270.0 billion (¥268.7 billion)
Net sales ................................................................ ¥320.0 billion (¥327.4 billion)
Operating income ......................................... ¥15.5 billion (¥13.7 billion)
Net income.......................................................... ¥8.5 billion (¥8.0 billion)>>> 2. Pursuing “Client support business”>>> 3. Pioneering and developing new business fields
and proprietary technologies* Figures in parentheses are fiscal 2007 results

The above figures represent our projections for business>>> 4. Making further progress in the Global Toyo
structure

performance in fiscal 2008. In the plant engineering market,
we expect capital investment to remain firm at the high levelof global demand for energy and raw materials. However,

The Toyo Group has positioned the final year of its medium-amid the deepening uncertainty about the direction ofterm corporate strategic plan as a year of “putting innovation

the global economy, it is difficult to predict the operating

into practice and making it flourish.” The Group will aim

environment for the Group. Reasons include the risk factors

to further upgrade its capabilities of project management

mentioned in the section on the operating environment,

and engineering management, and improve its global

intensifying competition from the rise of contractors in Korea

communication systems to offer the sophisticatedand Taiwan and a decline in capital investment sentimentprofessional services required by its clients. The Group willamong corporations due to the deceleration of economies.

implement the following initiatives to further enhance its

Business performance forecasts are premised on an

status as a tier-one engineering company.

exchange rate of ¥100 to U.S.$1.00 and have been madeFirst, we will continue to practice thorough projectbased on current management expectations using themanagement. As described in the section on the operating

available information at the time. Actual results may differ

environment, we intend to deal with a variety of risks byaccordingly.

collecting information on market trends, avoiding overconcentration or dependency on a single specific equipment
or material supplier by using multiple procurement sources
and implementing strict management of procurement
sources. To cope with fluctuations in exchange rates, wewill use forward exchange contracts or foreign currency
in the procurement of equipment and materials and seek
to minimize our risk exposure by enlisting the Global Toyoprocurement network. By thoroughly implementing project
management, we will endeavor to properly complete
ongoing projects, thereby building a strong relationshipwith our clients.

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TOYO ENGINEERING CORPORATION

Annual Report 2008

Second, we will tackle the rapid changes in the operating

Focusing on New Business: Zero in on the “Market Trends”

environment in Japan. To provide for clients’ advanced andUpstream:complex need for capital investment in facilities that will

◉ Resource Exploration:
Technical Assistance for Improvement of Recovery Rate of
Existing Gas Reservoir

supply them with high value-added content, we will aim toestablish an organizational structure that can offer advanced◉ FPSO (Floating Production, Storage and Offloading):
2 Projects in Australia“Client support business.” We will take such measures as
achieving greater efficiency in our production bases in theJapanese market and undergoing business administration

Energy Portfolio:

reform. To promote this “Client support business,” the◉ GTL (Gas to Liquid):
Qatar GTL-Project, ongoing

Company implemented an organizational reform effective◉ DME (Dimethyl Ether):Completed World’s Largest Plant in China

October 1, 2007. The Company integrated the Domestic Sales& Operations and Business Solution Sales & Operations, newly

Environment:

establishing the Domestic Sales & Operations Unit. Based on◉ Compact GTL:
Offshore Compact GTL Utilizing Accompanied Natural Gas

this action, we have unified our sales interfaces with clients andwill further utilize our strength as a comprehensive supplier◉ N2O CDM:
N2O Clean Development Mechanism Project in Chinaof plants and equipment and IT to provide clients with rapid,◉ CCS:
Technical Development for Carbon Capture & Storage

comprehensive and sophisticated services and solutions.
Third, our goal is the pioneering and development of new
business fields as well as proprietary technologies. Plans callSocial Infrastructure:

for redoubling efforts in the fields of 1) social infrastructure,◉ Water/Transportation/Power:
Collaboration with Alliance Partners

such as electric power generation, water and transportation, 2)energy, such as gas to liquid (GTL), dimethyl ether (DME) andIn addition, we will strengthen the foundation of the Global

heavy oil upgrading, and 3) the environment, such as carbon

Toyo structure, under which individual regional companies

dioxide separators and recovery technology. In particular, within India, Korea, Thailand, Malaysia, China and other countries

regard to energy, aiming to establish plants other than the so-

autonomously work as profit centers, while collaborating

called hydrocarbon (petroleum and petrochemical) plants aswith the parent company and others to develop business. To

the core of our engineering business, we will collaborate withstrengthen the competitiveness of the Global Toyo structure,business partner, Mitsui & Co., Ltd., in winning specific orders.

we will reinforce a governance structure for the overall

To develop our proprietary technologies for the future, weorganization and enhance the quality of management.

will continue our joint development of floating GTL facilities.
In addition, we will also expand the development of ourlicensing business, based on such proprietary processes as
the urea process technology ACES21™—originally developed
by TOYO—and our DME production technology.

7
TOYO ENGINEERING CORPORATION

Annual Report 2008

To Our Shareholders

Major Projects
In fiscal 2007, large projects in the energy and petrochemical fields were under implementation in
BRICs and the Middle East, while a high level of new orders were secured.
Domestic
New Orders
Name of Client

Type

Scope

Maruzen Petrochemical Co., Ltd.
Taiyo Oil Co., Ltd.

3EP Cracking Heater
Propylene Splitter

E.P.C.
E.P.C.

Name of Client

Type

Scope

Kyokuto Petroleum Industries, Ltd.
Tonen General Sekiyu K.K.
Nippon Petroleum Refining Co., Ltd.
Tosoh Corporation
Mitsubishi Chemical Corporation

Naphtha Desulfurization Unit
Naphtha Desulfurization Unit
Propylene Splitter
Aniline Plant Ⅱ
Cracking Heater

E.P.C.
E.P.C.
E.P.C.
E.P.C.
E.P.C.

Completion

Overseas
New Orders
Name of Client

Type

Country

Scope

Petroquímica De Venezuela S.A. (Pequiven)
Petróleo Brasileiro S.A. (PETROBRAS)
PT Pertamina

Ammonia / Urea Plant
Gas Separation Plant
Low Pressure Recovery Unit

Venezuela

E.P.C.
E.P.C.
E.P.C.

BrazilIndonesia

In Progress
Name of Client

Type

Country

Scope

Qatar Shell GTL Limited
Indian Oil Corporation Ltd.
PTT Polyethylene Co., Ltd.
PTT Polyethylene Co., Ltd.
Petróleo Brasileiro S.A. (PETROBRAS)
Shell Eastern Petroleum (Pte) Ltd.
Dow Corning (Zhangjiagang) Co., Ltd.
Sakhalin Energy Investment Co., Ltd.
Petropars Ltd.

GTL Liquid Processing Unit
Ethylene Plant
Ethylene Plant
Polyethylene Plant
Delayed Coker Unit
Ethylene Plant
Siloxane Plant
LNG Plant
Gas Processing Plant

Qatar

E.P.C.
E.P.C.
E.P.C.
E.P.C.
E.P.C.
E.Ps.SC.
E.Ps.SC.
E.P.C.
E.P.C.

India
ThailandThailandBrazilSingapore
China
RussiaIranCompletion
Name of Client

Type

Country

Scope

Petróleo Brasileiro S.A. (PETROBRAS)
Petróleo Brasileiro S.A. (PETROBRAS)
Lingtian (Nanjing) Fine Chemical Corporation
Unimatec Co., Ltd.
BHPBP / MODEC

Gas Pipeline
Delayed Coker Unit
DMF / DMAC Plant
Synthetic Rubber Plant
FPSO Topsides

Brazil

E.P.C.
E.P.
E.P.C.
E.P.C.
E.P.Cm.

BrazilChina
Singapore
Australia

E: Engineering P: Procurement C: Construction Ps: Procurement service SC: Supervision of Construction Cm: Construction management

8
TOYO ENGINEERING CORPORATION

Annual Report 2008

Aniline Plant Ⅱof Tosoh Corporation

Propylene Splitter of Nippon Petroleum Refining Co., Ltd.

Methanol Derivatives Plant of Lingtian (Nanjing) Fine Chemical Corporation

FPSO Topsides of BHPBP

Gas Pipeline of Petróleo Brasileiro S.A. (PETROBRAS)

9TOYO ENGINEERING CORPORATION

Annual Report 2008

Management System
Corporate GovernanceInternal Control System

Risk Management System

The Auditing Department of TOYO, which is under the

For risk management concerning project profitability anddirect control of the President, performs audits concerning

financial matters within TOYO, all business operations are

the execution of business activities by all divisions andconstantly monitored and supervised, and reports areverifies the appropriateness and effectiveness of the internal

submitted to the Board of Directors, the Executive Committee

management structure, including compliance and risk

and the Board of Auditors. In addition, matters of particularmanagement. In addition, there are specialized units toimportance concerning individual bidding and projects

perform other internal audits, such as the SQE (Safety, Quality

undergo a risk analysis overseen by the Commission forand Environment) Management Division and the Export

Analysis and Evaluation of Project Risks, and reports areControl Administration Division.

submitted to the Executive Committee.

In order to promote the Internal Control System of the

TOYO has drawn up the Crisis Management Policy to clearlyGroup, TOYO is making efforts to ensure proper operations

set forth risk management procedures to forestall serious risks

across Toyo Group companies by establishing corporate(crises) that have the potential to seriously affect the operations

procedures to strengthen the corporate administrativeof the Company. The Crisis Management Task Team, operating

functions of each company.

under the Crisis Management Headquarters, is always working
to prepare for potential crises.

Corporate Governance Structure (As of July 2008)
Shareholders Meeting
Appointment/Removal

Appointment/Removal

Appointment/Removal
Audit

ReportBoard of Directors
11 Directors

Board of Corporate Auditors
4 Corporate Auditors(2 External Corporate Auditors)

Accounting Auditors (CPA)

ReportConsent of Appointment/Removal & Evaluation of CPA Auditing
Liaison

Audit

ReportAppointment/
RemovalReportCorporate Planning Committee
Appointment/Removal

President (Chief Executive Officer)

Direction/Report

Supporting Committee
Human Capital Development Committee

Executive Committee

ReportRegular Committee
Direction/
Report

SQE Committee

Report

SQE Promotion Committee
ISMS Committee

Project Committee
27 Executive Officers

MH-Resource Coordination Committee

Audit

SQE Management
Division

Compliance Committee
Business Development Committee

Proposal Committee

Audit
Auditing Department

Intellectual Property Strategy Committee

Risk Control Structure
Project Risk Management Committee
Crisis Management Task Team

General Affairs Division

Seismic Disaster Front Office
Export Control
Administration Division

ReportSecurity Management DivisionCorporate Disclosure Manager
Risk Hotline System

Audit/Guidance

Operation Unit, Centers

Group Companies (Subsidiaries, Affiliates)

10
TOYO ENGINEERING CORPORATION

Annual Report 2008

Management

Yushi Nagata
Yutaka Yamada
Kazuhisa Marukawa
Yoshitaka Ogata
Kazuomi Nishihara
Kenji Soejima

Directors* Representative Director¡ Chairman
Yushi Nagata¡ President
Yutaka Yamada*¡ Directors
Kazuhisa Marukawa*
Yoshitaka Ogata*Kazuomi Nishihara*
Kenji Soejima*
Makoto Fusayama
Ken Wakazuki
Isao Ichikawa
Keiichi Matsumoto
Satoshi Kuwahara
Auditors¡Senior Corporate Auditor
Kunimichi Gamo
¡Corporate Auditors
Keiji Suda
Masato Shiode (Outside Auditor)
Koichi Sano (Outside Auditor)

Executive Officers¡Chief Executive Officer
Yutaka Yamada¡Executive Vice Presidents
Kazuhisa Marukawa
Yoshitaka Ogata¡Senior Executive Officers
Kazuomi Nishihara
Kenji Soejima
Makoto Fusayama
Ken Wakazuki
Isao Ichikawa
Keiichi Matsumoto
Satoshi Kuwahara
Komei Ohta
Masahiro Suzuki
Yoshiaki Mizoguchi
Osamu Kawanobe
Kiyoshi Nakao
Kenji Niwa

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TOYO ENGINEERING CORPORATION

Annual Report 2008

¡Executive Officers
Akhilesh Kumar
Hidetsugu Fujii
Makoto Shimagaki
Kazundo Hayashi
Masaru Takezawa
Mitsutoshi Hamamura
Koji Nagatomi
Kazuharu Murayama
Motoyoshi Kamoshima
Tadashi Hori
Masayuki Uchida(As of June 24, 2008)

HSSE + Quality
Safety Takes Priority Over Everything Else.
Safety is a journey, not a destination.

leaders in safety issues in their respective positions.

In 2007, TOYO’s incidence rate for lost time injuries and illnesses

TOYO developed a touch panel computer system for easy

(LTI), as defined by the ILO, was 0.19. Although this rate is an
improvement from 0.26 in 2006, we are not satisfied with thisaccess to collect all information on “near misses” from site

result and would like to strive to improve it toward the ultimate

members and will apply it as a tool for safety training and thetarget of zero.

sharing of information among all site members. From fiscal
2007, this system has been applied at construction sites in

We are aware that people make mistakes, therefore it isimportant to enhance the quality of safety training to introduce

Japan and will also be available at overseas construction sites.

safety practices, to facilitate their proactive safety actions and to

TOYO will extend the unified construction HSSE standard
to Group companies. In addition, TOYO is developing araise sensitivity on risk and hazards that might lead to accidents.

standardization of work procedures across Group companies.

We all share the importance of safety in project implementation.
We also train our personnel (Project Manager, Field Manager,

In this manner, the Toyo Group makes its best effort, throughConstruction Manager, Safety Manager, Construction

the promotion of standardization, to maintain and improve

Superintendent, Foreman, etc.) continuously, so as to make them

quality as well as safety.

Safety training in the office

Safety training at the site

In order to spread the philosophy of “safety is the first priority”
among our employees, we carried out safety training for
all employees in fiscal 2007. The training is aimed at all theemployees̶not only construction site management and workers
but also head office staff, including management.
TOYO also promoted a safety campaign in fiscal 2007 to enhance
its safety-oriented culture and thoroughly implement the safety
criteria throughout the Group.

At each project site of the Toyo Group, we carry out, under thecommand of a Field Manager, undertakings including the formationof a health and safety committee, a daily toolbox meeting in themorning, the implementation of safety and health standards,
safety patrols, safety meetings, the making of safety reports, thegiving of work permission, prognostication activities against unsafe
conditions and responses to the occurrence of accidents.

12
TOYO ENGINEERING CORPORATION

Annual Report 2008

Water-sprinkling fordust prevention
Award ceremony

BLUE
General industrial waste
GREEN
Domestic waste
BROWN
Timber waste
RED
Hazard waste
GREY
Hardcore/Concrete waste
YELLOW
Contaminated soil

TOYO has set up an institution to give awards to those groups and/or individuals who have been committed to safety and accident
prevention and shown remarkable achievements in the promotionof safety and health activities. In fiscal 2007, members of the China
BSRC project and others received the award.

Standards of Global Toyo

Toyo-Japan
Local
Standards

Separate collection of waste at a construction site

Group Company-Z
Local
Standards

Group Company-A
Local
Standards

Global Toyo
Standards

Group Company-Y
Local
Standards

Group Company-B
Local
Standards

Vegetation at a pipeline project in Brazil

The Toyo Group runs its projects with due consideration for theenvironment. Examples of its activities include water-sprinklingfor dust prevention and the separate collection of waste material
disposed from construction, to name just a few. In each pipeline
construction project, the site is covered with vegetation after the
pipeline has been laid underground to prevent disfigurement. We
also hold presentation meetings for residents living in the vicinity ofour projects and make efforts to gain their improved understandingof the project execution in which extra consideration to theenvironment has been given.

Standardization of work procedures provides the basis of productand service quality. TOYO is taking the initiative of developing the
Global Toyo standards. Its conceptual structure is shown above.

13
TOYO ENGINEERING CORPORATION

Annual Report 2008

Financial Section
Consolidated Five-Year Summary
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31

Thousands of
U.S. dollars(Note 1)Millions of yen
2008

2007

2006

2005

2004

2008

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

¥327,413¥223,844¥195,584¥197,945¥170,529$3,267,925

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

34,424

22,236

17,825

17,7708,640

343,583

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

13,742

6,890

4,195

4,540

(3,257)137,156

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

14,909

7,372

4,360

3,698

(3,714)

148,806

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

8,029

5,294

3,350

3,598

(6,491)80,139Total assets...............................................................

280,139

282,814202,662

209,564

201,133

2,796,075

Total net assets.........................................................

57,331

51,55935,64928,442

24,724572,223

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

22,03826,981

19,99036,454

39,691

219,967

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

831

2,752

3,455

2,096

241

8,289

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

2,511

1,995

1,701

1,453

1,315

25,067

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

18,19918,19913,01813,01813,018

181,645

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

268,693354,984

257,840

192,600

241,528

2,681,830

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

444,434

499,237

373,518

337,760

350,574

4,435,907
U.S. dollars(Note 1)Yen

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

¥41.76¥27.90¥19.11¥20.51¥(37.00)

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

6.00

3.00

3.00

3.00

—

$

0.42
0.06

“Total net assets” is a newly provided section to conform to Japanese accounting standard revisions. The figures until the year
ended March 31, 2005 have been stated as “Total shareholders’ equity” under the previous standards.

Gross Profit(¥ billion)

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

(¥)

34.4

13.7
41.76

27.90
6.9

22.2
4.5

17.8 17.8

20.51 19.11

4.2

8.6
(3.3)
(37.00)

’04

’05

’06

’07

’08

’04

’05

’06

’07

’08

14
TOYO ENGINEERING CORPORATION

Annual Report 2008

’04

’05

’06

’07

’08

S e c t i o n
2007

2006

2005

2004

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

1.9%

2.9%

7.8%

15.8%

9.3%

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

28.7

25.6

24.9

27.4

30.8

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

8.8

12.3

3.0

7.7

13.3

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

43.7

36.9

44.2

29.5

27.3

11.8

15.2

14.9

14.7

11.5

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

5.1

7.1

5.2

4.9

7.8

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

(78)

(66)

(68)

(72)

(78)

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

3,527

3,126

2,668

2,376

2,310

Total Assets

Total Net Assets

Composition of
Net Sales by Sector (FY2007)(¥ billion)(¥ billion)

(%)

57.3

282.8 280.1

5.1

1.9

51.6

11.8
201.1

28.7

209.6 202.7
35.6

43.7

28.4

8.8

24.7

’04

’05

’06

’07

’08

’04

’05

’06

’07

’08

15
TOYO ENGINEERING CORPORATION

Annual Report 2008

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

F i n a n c i a l

2008

Net sales by sector (%):

Financial Section
Management’s Discussion and Analysis

In fiscal 2007, the Toyo Group enjoyed increases in both net sales and earnings. In particular, net income increased 53.0%.
New orders retained a high level. The following items are particularly noteworthy achievements of the fiscal year under review.
New orders
New orders received for the year totaled ¥268.7 billion ($2,682 million), a reflection of overseas orders for oil refineries, petrochemical plants and other large-scale projects. The backlog of contracts at the end of March 2008 was ¥444.4 billion ($4,436
million). This provides an adequate backlog of contracts to give the Toyo Group a stable base of operations.
Sales and Earnings
Net sales increased ¥103.6 billion to ¥327.4 billion ($3,268 million) as a result of successful progress of projects. Operating
income increased ¥6.8 billion to ¥13.7 billion ($137 million). Net income was ¥8.0 billion ($80 million), which was ¥2.7 billion
more than that achieved in the previous year.
Cash Flows
Cash from operating activities was ¥25.3 billion ($252 million). The principal source of cash was income before income taxes
and minority interest and decrease in contract work in progress of ¥26.4 billion ($264 million). Cash used for investing activities was ¥5.3 billion ($52 million). This mainly represented expenditure on loan for special purpose companies established for
project implementation. Cash from financing activities was ¥9.1 billion ($91 million), reflecting continued repayment of longterm debt based on the debt reduction plan. The result of the above cash flows was a net increase of ¥10.9 billion in cash andcash equivalents compared with one year earlier to ¥86.5 billion ($864 million).

16
TOYO ENGINEERING CORPORATION

Annual Report 2008

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.
1. Business risk
The nature of our business activities, which mainly involve conducting projects outside Japan, is exposed to the risks listed
below. Any interruption or suspension in work due to these risks could have an adverse effect on our operating results andfinancial condition. We are aware of the possibility that these risks may occur and are taking actions to reduce exposure tothese risks by using export credit insurance, maintaining a risk management system and taking other steps.
(1) War, civil commotion, riots, revolutions, coup d'état, terrorism and other unusual events in the country where the projectis carried out or in a neighboring country. (2) Regional risks that occur particularly in an area near a project site, such as asurge of political unrest and a serious outbreak of a epidemic disease. (3) Extraordinary natural phenomenon, such as earthquakes, floods, typhoons and other storms as well as unusual weather, such as extreme heat or cold. (4) Drastic changes inindustrial or financial policies in the host country affecting the permission, laws and regulations involving import duties, immigration, foreign exchange, telecommunications, taxation and other items. (5) A sudden and substantial reduction of investments globally in business fields where we are active.
2. Foreign exchange fluctuation
For overseas plant construction contracts denominated in foreign currencies, the appreciation of the yen relative to the applicable foreign currency causes a reduction in the yen equivalent amount received. In addition, the yen’s appreciation makes
TOYO less price competitive when competing for new orders in foreign currencies. This could have an adverse effect on ouroperating results and financial condition. In response, the group uses foreign exchange forward contracts, procures materials
and equipment in foreign currencies, utilizes the resources of its overseas bases and takes all other possible steps to minimize
exposure to foreign exchange risk.
3. 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 suppliesof these items, due to rapid change in the international situation. The possibility also exists of cost increase caused by a supplier becoming insolvent or failure of 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 toenter into contracts that incorporate measures to offset these risks and gather information on market trends. To avoid an
undue reliance on a particular supplier, 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 reimbursement to reduce our risks.

17
TOYO ENGINEERING CORPORATION

Annual Report 2008

F i n a n c i a l

The following is a list of potential risks associated with the information concerning the Toyo Group’s operating results andS e c t i o nBusiness Risk and Other Risks

Financial Section
Consolidated Balance Sheets
Toyo Engineering Corporation and Consolidated Subsidiaries

March 31, 2008 and 2007

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

Assets

2008

2007

2008

Cash and deposits (Note 17) .......................................................................................

¥ 34,311¥ 43,225$ 342,463

Marketable securities (Note 13)...................................................................................

52,96632,976528,652

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

36,31331,823362,440

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

(8,814)(3,545)(87,969)

27,49928,278274,471

Contract work in progress.............................................................................................

65,025

92,123649,020

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

46,49430,699464,056

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

226,295

227,301

2,258,662

Investment securities (Note 13) ...................................................................................

6,466

9,705

64,531

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

3,719

3,311

37,121Long-term loans .........................................................................................................

150

141

1,496

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

4,987

3,910

49,774

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

(735)

(789)

(7,332)

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

14,587

16,278145,590

Land (Note 3)..............................................................................................................

17,80018,543

177,658

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

31,696

31,653

316,362

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

4,066

3,771

40,587

Leased assets ..........................................................................................................................

2,049

—

20,450Construction in progress .............................................................................................

23

136

231

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

55,634

54,103555,288

Less: Accumulated depreciation (Note 3)..................................................................

(18,692)(17,130)(186,572)

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

36,942

36,973368,716

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

2,315

2,262

23,107

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

¥280,139¥282,814$2,796,075

Current assets:

Investments:

Property, plant and equipment, at cost:

See notes to consolidated financial statements.

18
TOYO ENGINEERING CORPORATION

Annual Report 2008

Liabilities and Net Assets

2008

2007

¥

3,142
6,091
—
42,277
3,384
126,125684
10,082
191,785¥ 2,398
7,719
2,000
38,006
1,229
134,511
1,457
11,176
198,496$

22,038
2,709
3,244
3,032
31,023
222,808

26,981
—
2,953
2,825
32,759231,255

219,967
27,041
32,37730,262309,647
2,223,852

Net assets:
Shareholders’ equity (Note 6)
Common stock
Authorized: 500,000,000 shares in 2008 and 2007
Issued: 192,792,539 shares in 2008 and 2007......................................................
Capital surplus.........................................................................................................
Retained earnings ....................................................................................................
Treasury stock: 553,293 shares in 2008 and 474,172 shares in 2007 .......................
Total shareholders’ equity ..............................................................................................

18,19920,762
14,435(214)53,182

18,19920,761
6,983(159)
45,784

181,645
207,226
144,079(2,139)530,811

Valuation and translation adjustments
Net unrealized gain on securities..............................................................................
Deferred hedge loss.................................................................................................
Foreign currency translation adjustments .................................................................
Total valuation and translation adjustments ..........................................................

1,248
(2)
163
1,409

3,324
(220)
249
3,353

12,459(16)
1,622
14,065

Minority interest .........................................................................................................
Total net assets.....................................................................................................
Total liabilities and net assets .......................................................................

2,740
57,331¥280,139

2,422
51,559¥282,814

27,347572,223$2,796,075

Current liabilities:
Short-term borrowings ...............................................................................................
Current portion of long-term debt (Note 3).................................................................
Bonds due within one year (Note 3) ............................................................................
Notes and accounts payable .......................................................................................
Income taxes payable .............................................................................................................
Advance receipts on uncompleted contracts ...................................................................
Reserve for anticipated loss on contract work .............................................................
Other current liabilities (Note 4) ..................................................................................
Total current liabilities...........................................................................................
Long-term liabilities:
Long-term debt (Note 3) .............................................................................................
Lease obligations ........................................................................................................
Accrued retirement benefits (Note 5) ..........................................................................
Other long-term liabilities (Notes 4, 5).........................................................................
Total long-term liabilities.......................................................................................
Total liabilities....................................................................................................

2008

31,36060,788—421,964
33,772
1,258,862
6,825
100,634
1,914,205

Contingent liabilities (Note 7)

19
TOYO ENGINEERING CORPORATION

Annual Report 2008

S e c t i o n
F i n a n c i a l

Millions of yen

Thousands of
U.S. dollars(Note 1)

Financial Section
Consolidated Statements of Income
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2008 and 2007

Thousands of
U.S. dollars(Note 1)Millions of yen
2008

2007

2008

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

¥327,413¥223,844$3,267,925

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

292,989

201,608

2,924,342

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

34,424

22,236

343,583

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

20,682

15,346

206,427

Operating income...................................................................................................................

13,742

6,890

137,156

2,787

1,892

27,819Gain on sales of investment securities ....................................................................................

26

348

264

Gain on sales of fixed assets ..........................................................................................

110

55

1,095

Other income:Interest and dividend income.........................................................................................

Gain on sales of memberships .......................................................................................

—

54

—

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

479

341

4,777

3,402

2,690

33,955

Other expenses:
Interest expense..........................................................................................................

871

986

8,691

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

—

255

—

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

11

38

108

Loss on impairment of fixed assets (Note 11) ..............................................................

1,101

221

10,990

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

252

708

2,516

2,235

2,208

22,305

14,9097,372

148,806

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

7,569

1,714

75,548Deferred .....................................................................................................................

(1,152)

74(11,496)

6,417

1,788

64,052

(463)

(290)

(4,615)8,029¥ 5,294

Income before income taxes and minority interest .................................................
Income taxes (Note 4):

Minority interest income............................................................................................
Net income ..................................................................................................................

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

20
TOYO ENGINEERING CORPORATION

Annual Report 2008¥

Yen

¥ 41.76¥ 27.90$

80,139U.S. dollars(Note 1)$0.42

Consolidated Statements of Changes in Net Assets (Note 16)
S e c t i o nYears ended March 31, 2008 and 2007

Millions of yen
Commonstock

CapitalsurplusRetainedearnings(Note 6)

TreasurystockNetunrealized
gain onsecurities

Balance at March 31, 2006 ............

¥13,018¥15,595¥ 2,218¥(118)¥ 3,062

Common stock issued ...................

5,181

5,164

Deferred Foreign
Minorityhedge
currencyinterest
loss
translation
adjustments¥ —¥(167)¥2,041

Total
net
assets¥35,649
10,345

Dividends paid to shareholders......

(526)

(526)

Bonus paid to directors .................

(3)

(3)

Net income .......................................

5,294

5,294

Purchase of treasury stock ..............
Sale of treasury stock ......................

2

(43)

(43)

2

4

Changes of items other thanshareholders' equity...................
Balance at March 31, 2007 ............

18,19920,761

6,983

(159)

Dividends paid to shareholders......

(577)

Net income .......................................

8,029

(220)

416

381

839

3,324

(220)

249

2,422

51,559(577)
8,029

Purchase of treasury stock ..............
Sale of treasury stock ......................

262

1

(58)

(58)

3

4

Changes of items other thanshareholders' equity...................
Balance at March 31, 2008 ...........

(2,076)¥18,199¥20,762¥14,435¥(214)¥ 1,248

¥

218

(86)

318

(1,626)

(2)

¥ 163

¥2,740¥57,331

Thousands of U.S. dollars (Note 1)
Commonstock

CapitalsurplusRetainedearnings(Note 6)

TreasurystockNetunrealized
gain onsecurities

Deferred Foreign Minority
hedge
currency interest
loss
translation
adjustments

Balance at March 31, 2007 ............ $181,645 $207,216 $ 69,699 $(1,586) $ 33,173 $(2,193) $2,489$24,172

Total
net
assets$514,615

Dividends paid to shareholders......

(5,759)(5,759)Net income .......................................

80,13980,139Purchase of treasury stock ..............
Sale of treasury stock ......................

10

(583)

(583)

30

40

Changes of items other thanshareholders' equity...................

(20,714)

Balance at March 31, 2008 ........... $181,645 $207,226 $144,079 $(2,139) $ 12,459 $See notes to consolidated financial statements.

21
TOYO ENGINEERING CORPORATION

Annual Report 2008

2,177

(867)

3,175

(16,229)(16) $1,622$27,347$572,223

F i n a n c i a l

Toyo Engineering Corporation and Consolidated Subsidiaries

Financial Section
Consolidated Statements of Cash Flows
Toyo Engineering Corporation and Consolidated Subsidiaries

Years ended March 31, 2008 and 2007

Millions of yen

Thousands of
U.S. dollars(Note 1)

2008

2007

2008

¥ 14,909¥ 7,372$ 148,806

2,511
1,101
105
11
5,216
(773)
(294)
440
3,154
(2,787)871(903)(5,703)(2,237)

1,995
221
(353)
38
(475)
322
(163)
267
2,044
(1,892)986(1,000)(1,400)(3,508)25,067
10,9901,049
10852,066(7,719)(2,932)
4,396
31,483(27,819)
8,691(9,010)(56,922)(22,341)(4,843)
26,417(8,666)
4,368(7,636)25,261(2,371)(17,856)—
15,15951,59450,980(48,341)
263,670(86,495)
43,598(76,216)
252,129

Cash flows from investing activities:
Purchases of property, plant and equipment ...............................................................
Purchases of other assets ............................................................................................
Purchases of investment securities ..............................................................................
Proceeds from sales of investment securities ...............................................................
(Increase) decrease in loans, net ..................................................................................
Other, net...................................................................................................................
Cash used for investing activities........................................................................

(831)
(681)
(535)
226
(3,292)(137)(5,250)(2,752)
(789)
(34)
505
(3,139)765(5,444)(8,289)(6,802)(5,344)
2,257(32,853)(1,369)(52,400)

Cash flows from financing activities:
Increase (decrease) in short-term borrowings, net .......................................................
Proceeds from long-term debt ....................................................................................
Repayment of long-term debt .....................................................................................
Issuance of corporate bonds .......................................................................................
Redemption of corporate bonds .................................................................................
Issuance of common stock ..........................................................................................
Repayment of lease obligations...................................................................................
Cash dividends paid....................................................................................................
Other .........................................................................................................................
Cash from (used for) financing activities.............................................................
Effect of exchange rate changes on cash and cash equivalents .............................
Net increase in cash and cash equivalents................................................................
Cash and cash equivalents, beginning of the year ..................................................
Cash and cash equivalents, end of the year (Note 17).............................................

750
1,200
(7,720)—(2,000)
—
(604)
(577)
(136)
(9,087)(47)
10,87775,656¥ 86,533(1,807)
16,407(22,863)
1,000(1,000)10,345
—
(526)
(95)
1,461
353
47,35028,306¥ 75,656

7,487
11,977(77,054)—(19,962)—(6,025)(5,759)(1,358)(90,694)(473)
108,562755,124$ 863,686

Cash flows from operating activities:
Income before income taxes and minority interest ......................................................
Adjustments to reconcile income before income taxes andminority interest to cash from operating activities:
Depreciation and amortization.................................................................................
Loss on impairment of fixed assets...........................................................................
Loss (gain) on sales of marketable and investment securities, net .............................
Loss on valuation of investment securities ................................................................
Changes in allowance for doubtful receivables.........................................................
Changes in allowance for anticipated loss on contract work ....................................
Equity in earnings of affiliated companies ................................................................
Changes in accrued retirement benefits ...................................................................
Interest and dividends received ................................................................................
Interest and dividend income ...................................................................................
Interest expense.......................................................................................................
Interest paid ............................................................................................................
Income taxes paid....................................................................................................
Other, net................................................................................................................
Changes in operating assets and liabilities:(Increase) decrease in notes and accounts receivable.............................................
(Increase) decrease in contract work in progress....................................................
(Increase) decrease in other receivables .................................................................
Increase (decrease) in notes and accounts payable ................................................
Increase (decrease) in advance receipts on uncompleted contracts ........................
Cash from (used for) operating activities ............................................................

See notes to consolidated financial statements.

22
TOYO ENGINEERING CORPORATION

Annual Report 2008

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 inJapan, and its overseas consolidated subsidiaries maintain their books of account in conformity with those of theirrespective countries of domicile. The accompanying consolidated financial statements have been compiled fromthe 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 the application and disclosure requirements of International Financial Reporting Standards.
Certain reclassifications have been 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 ¥100.19 to
U.S.$1.00 prevailing on March 31, 2008.

2

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and its significant subsidiaries.
Investment in significant affiliates is accounted for by the equity method. Intercompany accounts and transactions are
eliminated in consolidation. The difference between the acquisition cost and the equity in the net assets at the time ofacquisition is amortized in principle within twenty years on a straight-line basis.
(b) Securities
All debt and equity securities are classified into one of three categories: trading, available-for-sale or held-to-maturity
securities. Trading securities are bought and held principally for the purpose of selling them in the near term. Held-to-maturity securities are those securities in which the Company and its domestic subsidiaries have the ability and intent to holduntil maturity. All securities not included in trading or held-to-maturity are classified as available-for-sale.
Trading and available-for-sale securities are recorded at fair value. Held-to-maturity securities are recorded at amortized
cost, adjusted for the amortization or accumulation of premiums or discounts. Unrealized gains or losses on trading securities are included in earnings. Unrealized gains or losses on available-for-sale securities are excluded from earnings and arereported, net of the related tax effect, as a separate component of net assets.
Cost of securities sold is determined by the moving average-method.
(c) Contract Work in Progress
Contract work in progress is stated at cost, determined by the identified-cost method.
(d) Depreciation
Depreciation of property, plant and equipment is principally computed by the declining-balance method based on the estimated useful lives of the assets.
Effective April 1, 2007, the Company and its domestic consolidated subsidiaries have changed their method of depreciation based on an amendment to the Corporation Tax Law of Japan for property, plant and equipment acquired on or after
April 1, 2007. The impact on operating income and income before income taxes and minority interests was immaterial forthe year ended March 31, 2008.
Effective April 1, 2007, the Company and its domestic consolidated subsidiaries have changed their method of depreciation based on an amendment to the Corporation Tax Law of Japan for property, plant and equipment acquired on or prior
to March 31, 2007. Such assets are to be depreciated based on the difference between the equivalent of 5% of acquisition cost and memorandum value over a period of five years once they have been fully depreciated to the limits of theirrespective depreciable amounts effective April 1, 2007. The impact on operating income and income before income taxes
and minority interests was immaterial.

23
TOYO ENGINEERING CORPORATION

Annual Report 2008

F i n a n c i a l

Toyo Engineering Corporation and Consolidated Subsidiaries

S e c t i o n

Notes to Consolidated Financial Statements

Financial Section(e) Leases
Effective from April 1, 2007, the Company and its consolidated subsidiaries have adopted new accounting standards,“Accounting Standard for Lease Transactions” (“Statement No.13” issued by the Accounting Standards Board of Japan,
hereinafter ASBJ, on March 30, 2007) and “Guidance on Accounting Standard for Lease Transactions” (“Guidance
No.16” issued by ASBJ on March 30, 2007) in advance to mandatory adoption.
By applying these standards, depreciation of assets on finance leases which do not transfer ownership of the leased
assets to the lessee are calculated by the straight-line method over the lease period with their residual value zero.
As a result, “current assets”, “investments”, ”property, plant and equipment, at cost”, “current liabilities” and “longterm liabilities” were increased by ¥257 million ($2,561 thousand), ¥1,244 million ($12,415 thousand), ¥1,769 million($17,661 thousand), ¥561 million ($5,603 thousand) and ¥2,709 million ($27,040 thousand), compared with the amounts
which would have been recognized under the previous method of accounting. The adoption of the standards above had
no material effect on the statement of income for the year ended March 31, 2008.
(f) Allowance for Doubtful Receivables
The Company and its domestic subsidiaries have provided an allowance for doubtful receivables principally at an estimatedamount of probable and reasonably possible bad debts plus an estimated amount computed on the actual percentage ofcredit losses.
(g) Advance Receipts on Uncompleted Contracts
Advance receipts on uncompleted contracts from customers are shown as a liability, not as a deduction from the amountof contract work in progress.
(h) Reserve for Anticipated Loss on Contract Work
Reserve for anticipated loss on contract work is provided in case the material loss is forecasted for a certain large-scale
contract work.
(i) Accrued Retirement Benefits
The accrued retirement benefits at the year-end are stated in accordance with the projected plan assets and the projected
retirement benefit obligation. The difference arising from the adoption of the new standard of accounting of ¥3,696 million ($36,889 thousand) is amortized over 15 years on a straight-line basis. Actuarial loss is amortized over certain years(13 years ended March 31, 2008 and 15 years ended March 31, 2007) within the average of the estimated remaining service years when incurred, starting following the year of recognition. Prior service cost is amortized over certain years (13years ended March 31, 2008 and 15 years ended March 31, 2007) within the average of the estimated remaining service
years when incurred. As the average of the estimated remaining service years was shortened, the above amortization period was changed from 15 years to 13 years.
(j) Derivative Financial Instruments
Derivative financial instruments are carried at fair value with changes in unrealized gain or loss charged or credited tooperations, except for those which meet the criteria for deferral hedge accounting under which unrealized gain or loss isdeferred as a separate component of net assets. Receivables and payables hedged by qualified forward foreign exchange
contracts are translated at the corresponding foreign exchange contract rates.
Deferred hedge gain or loss is excluded from earnings and is reported, net of the related tax effect, as a separate component of net assets.
(k) Foreign Currency Translation
Both short-term and long-term receivables and payables in foreign currencies are translated at the exchange rates at thebalance sheet date. The balance sheet accounts of the consolidated foreign subsidiaries are translated at the rate ofexchange in effect at the balance sheet date, except for common stock and capital surplus, which are translated at their
historical exchange rates. Revenues, expenses and net income for the year are translated at the rate of exchange in effectat the balance sheet date.
Differences arising from translation are presented as “Foreign currency translation adjustments” in the accompanying
consolidated balance sheets.

24
TOYO ENGINEERING CORPORATION

Annual Report 2008

contracts.
For contracts with prices equal to or in excess of ¥5 billion ($50 million) and construction periods in excess of eighteenmonths, revenues are recognized by the percentage-of-completion method. According to this method, revenue is computed by multiplying the contract price by the ratio of costs incurred at the balance sheet date to the total estimated cost.
(m) Net Income per Share
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 in 2008 or 2007.
(n) Income Taxes
Deferred tax assets and liabilities are determined based on the differences between carrying amounts of existing assets
and liabilities in the financial statements and their respective tax bases. 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.
(o) Consolidated Tax Return
The Company files a consolidated tax return with certain domestic subsidiaries.
(p) Cash and Cash Equivalents
For the purposes of the consolidated statements of cash flows, the Company and its consolidated subsidiaries consider all
highly liquid investments with insignificant risk of changes in value purchased with an original maturity of three months orless to be cash equivalents.
(q) Accounting Standard for Presentation of Net Assets in the Balance Sheet
Effective the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries have adopted new
accounting standards, “Accounting Standard for Presentation of New Assets in the Balance Sheet” (“Statement No.5”
issued by the Accounting Standards Board of Japan, hereinafter ASBJ, on December 9, 2005), and “Guidance on
Accounting Standard for Presentation of Net Assets in the Balance Sheet” (“Guidance No.8” issued by ASBJ on
December 9, 2005).
The balance sheet is divided into “Assets”, “Liabilities”, and “Net Assets” section. “Net Assets” section is divided into
“Shareholders’ equity”, “Valuation and translation adjustments”, and “Minority interest”. “Shareholders’ equity” is divided into “Common stock”, “Capital surplus”, “Retained earnings” and “Treasury stock”. “Valuation and translation
adjustments” is divided into “Net unrealized gain on securities”, “Deferred hedge loss” and “Foreign currency translation
adjustments”.
In addition, effective the year ended March 31, 2007, the Company is required to prepare consolidated statements ofchanges in net assets instead of consolidated statements of shareholders’ equity.
The adoption of standards above had no effect on the statements of income for the year ended March 31, 2007.
In addition, the amount corresponding to shareholders’ equity for the year ended March 31, 2007 under the previous
standards was ¥49,357 million.
(r) Accounting Standard for Directors’ Bonus
Effective the year ended March 31, 2007, the company and domestic consolidated subsidiaries have adopted “AccountingStandard for Directors’ Bonus” (“Statement No.4” issued by ASBJ, on November 29, 2005).
The standard requires that directors’ bonuses be accounted for as an expense of the accounting period in which suchbonuses were accrued. Accordingly, “Operating income” and “Income before income taxes and minority interest” for theyear ended March 31, 2007 were decreased by ¥10 million compared to the previous method.
(s) Accounting Standard for Business Combinations
Effective the year ended March 31, 2007, the Company and its domestic consolidated subsidiaries have adopted“Accounting Standard for Business Combinations” (issued by Business Accounting Council on October 31, 2003) andDivestitures” (“Guidance No.10” issued by ASBJ on December 22, 2006).

25
TOYO ENGINEERING CORPORATION

Annual Report 2008

S e c t i o n

Revenues are recognized on the completion of construction work and acceptance by the client, except for the following

F i n a n c i a l(l) Recognition of Revenues

Financial Section
3

LONG-TERM DEBT
Long-term debt at March 31, 2008 and 2007 is summarized as follows:
Millions of yen

Years ended March 31,
Secured Loans ..................................................................................................
Unsecured Loans ..............................................................................................
1.470% bonds, due 2007...........................................................................................
1.450% bonds, due 2012...........................................................................................
Total long-term debt................................................................................................
Less: Current portion..........................................................................................

Thousands of
U.S. dollars

2008

2007

2008

¥ 9,888
17,241—
1,000
28,1296,091¥22,038¥11,438
22,2612,000
1,000
36,6999,718¥26,981$ 98,688
172,086—
9,981
280,755
60,788$219,967

The following assets at March 31, 2008 and 2007 were pledged as collateral principally for long-term debt:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2008

2007

2008

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

¥ 610
18,289¥18,899¥ 1,962
18,574¥20,536$ 6,087
182,546$188,633

The following schedule shows the maturities of long-term debt subsequent to March 31, 2008:
Years ending March 31,
2009 ..................................................................................................................................
2010 ..................................................................................................................................
2011 ..................................................................................................................................
2012 ..................................................................................................................................
2013 ..................................................................................................................................
2014 and thereafter ...........................................................................................................

Millions of yen

Thousands of
U.S. dollars¥ 6,091
2,622
3,397
12,047995
2,977¥28,129$ 60,788
26,16933,911
120,247
9,931
29,709$280,755

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 balance of unused commitment-line based on these contracts at the end of the consolidated reporting period
is ¥5,000 million ($49,905 thousand) in 2008 and 2007.

4

INCOME TAXESThe statutory tax rates applicable to the Company and its domestic subsidiaries for the year ended March 31, 2008
and 2007 were approximately 40.4%. Income taxes of the foreign subsidiaries are based generally on the tax rates
applicable in their countries of incorporation.

26
TOYO ENGINEERING CORPORATION

Annual Report 2008

Statutory tax rate in Japan ...........................................................................................................................
Adjustments:
Permanently nondeductible expenses..................................................................................................................
Permanently nontaxable dividends received ........................................................................................................
Temporary differences excluded from calculation of deferred tax assets.............................................................
Foreign tax sparing credit.....................................................................................................................................
Difference in tax rates for foreign subsidiaries .....................................................................................................
Other....................................................................................................................................................................
Effective tax rate ...........................................................................................................................................

S e c t i o n
40.4%
1.6
(0.3)
10.0
(4.7)
(2.7)
(1.3)
43.0%

Year ended March 31, 2007
Statutory tax rate in Japan ...........................................................................................................................
Adjustments:
Permanently nondeductible expenses..................................................................................................................
Permanently nontaxable dividends received ........................................................................................................
Temporary differences excluded from calculation of deferred tax assets.............................................................
Other....................................................................................................................................................................
Effective tax rate ...........................................................................................................................................

40.4%
3.7
(0.6)
(20.5)
1.3
24.3%(2) Significant components of the deferred income tax assets and liabilities at March 31, 2008 and 2007 are as follows:
Millions of yen
2008

2007

Thousands of
U.S. dollars
2008

Deferred tax assets:¥ 2,318¥ 365$ 23,133
Allowance for doubtful receivables ................................................................
Accrued retirement benefits ..........................................................................
1,009
995
10,068Provision for anticipated loss on contract work ..............................................
255
527
2,547
Other ............................................................................................................
1,930
2,520
19,256
Total deferred tax assets ...................................................................................
5,512
4,407
55,004
Deferred tax liabilities offset to deferred tax assets:(765)(2,060)(7,622)Difference in net unrealized gain on securities ...............................................
Undistributed earnings of foreign subsidiaries................................................
(455)
(372)
(4,542)
Depreciation expense ....................................................................................
(129)
(92)
(1,285)
Other ............................................................................................................
(132)
(199)
(1,325)
Total deferred tax liabilities ...............................................................................
(1,481)(2,723)(14,774)
Net deferred tax assets..............................................................................................
¥ 4,031¥ 1,684$ 40,230
Note: The Company and its subsidiaries had temporary differences excluded from calculation of deferred tax assetsof ¥3,366 million ($33,600 thousand) and ¥2,493 million at March 31, 2008 and 2007, respectively, which areavailable to be offset against future taxable income.
(3) Net deferred tax assets at March 31, 2008 and 2007 are included in the consolidated balance sheets as follows:
Millions of yen

Current assets–prepaid expenses and other current assets ................................
Other assets .....................................................................................................
Other current liabilities .....................................................................................
Other long-term liabilities .................................................................................
Net deferred tax assets .....................................................................................
27
TOYO ENGINEERING CORPORATION

Annual Report 2008

Thousands of
U.S. dollars

2008

2007

2008

¥3,773
365
(21)
(86)
¥4,031¥1,524318—(158)¥1,684$37,654
3,642
(209)
(857)
$40,230

F i n a n c i a l(1) The effective tax rates on income before income taxes in the accompanying consolidated statements ofoperations differed from the above-mentioned statutory tax rate for the following reasons:Year ended March 31, 2008

Financial Section
5

RETIREMENT BENEFITSThe Company and certain subsidiaries have defined benefit pension plans which provide for pension annuity payments or lump-sum payments to eligible employees upon retirement.
The Company also has defined contribution pension plan, which was transferred from a portion of defined benefit
pension plan in May, 2003.
(1) Accrued retirement benefits for employees at March 31, 2008 and 2007 consisted of the following:
Millions of yen

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

Thousands of
U.S. dollars

2008

2007

2008

¥(16,438)
9,016(7,422)
1,733
3,948(1,503)¥ (3,244)¥(16,366)
9,628(6,738)
1,980
3,634(1,692)¥ (2,816)$(164,067)
89,991(74,076)
17,30139,409(15,011)$ (32,377)

Directors’ and statutory auditors’ retirement allowance ¥137 million, was included in the consolidated balance sheet
at March 31, 2007.
Effective the year ended March 31, 2008, the Company reclassified it from “Accrued retirement benefits” to“Other long-term liabilities” under “long-term liabilities”.
(2) Net periodic pension cost for the years ended March 31, 2008 and 2007 consisted of the following:
Millions of yen

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

Thousands of
U.S. dollars

2008

2007

2008

¥1,083
302
(13)
246
453
(188)
122
2,005
—
¥2,005

¥ 832
294
(230)
247
332
(153)
122
1,444
—
¥1,444$10,812
3,016
(127)
2,460
4,522
(1,876)
1,209
20,016—$20,016(3) Basis of calculation of projected benefit obligation for the years ended 2008 and 2007, respectively.
Method of allocation of estimated pension cost
Straight-line method
Discount rate
Mainly 2.0%
Expected rate of return on plan assets
Mainly 0.0% in 2008, mainly 2.5% in 2007
Amortization period for unrecognized actuarial loss
Mainly 13 years in 2008, mainly 15 years in 2007
Amortization period for unrecognized obligation at transition
15 years
Amortization period for unrecognized prior service cost
13 years in 2008, mainly 15 years in 200728
TOYO ENGINEERING CORPORATION

Annual Report 2008

S e c t i o n

SHAREHOLDERS’ EQUITY
The new Corporation Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Codeof Japan, went into effect on May 1, 2006. The Law provides that an amount equal to 10% of the amount to be
distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than thelegal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capitalreserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any timeby resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capitalreserve nor the legal reserve is available for distributions.

7

CONTINGENT LIABILITIESThe Company and its subsidiaries were contingently liable as guarantors of loans to others in the aggregate amountof ¥3,169 million ($31,626 thousand) and ¥4,157 million at March 31, 2008 and 2007, respectively.

8

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

Years ended March 31,

9Thousands of
U.S. dollars

2008

2007

2008

¥178,343¥136,612$1,780,044

RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in selling, general and administrative expenses for the years ended March
31, 2008 and 2007 amounted to ¥1,113 million ($11,114 thousand) and ¥706 million, respectively.

10

OTHER EXPENSES“Other” in “Other expenses” for the years ended March 31, 2008 and 2007 consisted of the following:
Millions of yen

Years ended March 31,

2008

Taxes and dues.................................................................................................
Loss on valuation of memberships ....................................................................
Loss on sales of investment securities................................................................
Other ...............................................................................................................
Total .......................................................................................................

29
TOYO ENGINEERING CORPORATION

Annual Report 2008

¥ —
—
131
121
¥252

2007

¥ 255
76
—
377
¥708

Thousands of
U.S. dollars
2008

$

—
—
1,313
1,203
$2,516F i n a n c i a l

6Financial Section
11

IMPAIRMENT OF FIXED ASSETSThe Company and its consolidated subsidiaries adopted the accounting standard for impairment of fixed assets. The
loss on impairment of fixed assets for the year ended March 31, 2008 and 2007 were comprised of the following:
Year ended March 31, 2008
Location: Chiba Prefecture, etc
Major use: Real Estate
Asset category: Land, etc
Amount: ¥1,101 million ($10,990 thousand)Year ended March 31, 2007
Location: Chiba Prefecture, etc
Major use: Real Estate, EPC Business
Asset category: Buildings and structures, etc.
Amount: ¥221 million
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.
Due to decline in rents’ level and plans for disposals, the Company and its consolidated subsidiaries reduced thebook value of some assets to the recoverable amounts.
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.

12

LEASES
Effective the year ended March 31, 2008, the Company and its consolidated subsidiaries have adopted “AccountingStandard for Lease Transactions.”
Because of the adoption, leased assets and lease obligations based on finance lease contracts are recorded on the
Balance Sheet as of March 31, 2008.
(a) Finance Leases(a-1) Finance Leases (as Lessee)
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value ofleased property as of March 31, 2007 which would have been reflected in the balance sheets if finance leaseaccounting had been applied to the finance leases currently accounted for as operating leases:
Millions of yen

Year ended March 31,

2007

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

¥2,115407
1,708

Future minimum lease payments (including the interest portion thereon) subsequent to March 31, 2007 for financeleases accounted for as operating leases are summarized as follows:
Millions of yen

Year ended March 31,

2007

Within one year ..................................................................................................................................
Over one year .....................................................................................................................................
Total..........................................................................................................................................

30
TOYO ENGINEERING CORPORATION

Annual Report 2008

¥ 557
2,904
¥3,461

(a-2) Finance Leases (as Lessor)
Future minimum lease receivables (including the interest portion thereon) subsequent to March 31, 2007 for financeleases accounted for as operating leases are summarized as follows:
Millions of yen

Year ended March 31,

2007

Within one year ...................................................................................................................................
Over one year ......................................................................................................................................
Total ...........................................................................................................................................

¥ 296
1,458
¥1,754

All the above lease receivables were derived from the subleasing business. As every subleased property was leased tothird parties through the Company’s subsidiary on approximately the same terms, approximately the same amountof future lease receivables as those presented above are included in Table (a-1) as the amount of the future sublease
payments.
(b) Operating Leases(b-1) Operating Leases (as Lessee)
Future minimum lease payments subsequent to March 31, 2008 and 2007 for noncancelable operating leases are
summarized as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

2008

Within one year................................................................................................
Over one year...................................................................................................
Total .......................................................................................................

2007

¥168
499
¥667

2008

¥13
13
¥26

$1,681
4,976$6,657(b-2) Operating Leases (as Lessor)
Future minimum lease receivables subsequent to March 31, 2008 and 2007 for noncancelable operating leases are
summarized as follows:
Thousands of
U.S. dollars

Millions of yen

13Years ended March 31,

2008

2007

2008

Within one year................................................................................................
Over one year...................................................................................................
Total .......................................................................................................

¥ 999
8,809
¥9,808¥ 1,127
9,812¥10,939$ 9,965
87,925$97,890

INVESTMENT SECURITIESThe book value, unrealized gain and loss and the related fair value of held-to-maturity securities at March 31, 2008
are summarized as follows:
Millions of yen

At March 31, 2008
Government bonds ...........................................................................
Corporate bonds...............................................................................

31
TOYO ENGINEERING CORPORATION

Annual Report 2008

Book
Value

¥25,980
26,985

Unrealized
Gain

Unrealized
Loss

¥1
—

¥(0)
(0)

Fair
Value

¥25,981
26,985S e c t i o n
F i n a n c i a l

Lease payments relating to finance leases accounted for as operating leases for the year ended March 31, 2007
amounted to ¥260 million, respectively, which was equal to the depreciation expense of the leased assets computedby the straight-line method over the respective lease terms.

Financial Section
The cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31, 2008 are summarized as follows:
Millions of yen

At March 31, 2008
Equity securities ................................................................................

Cost¥5,453

Unrealized
Gain

Unrealized
Loss¥2,326¥(264)

Book
Value¥7,515The contractual maturities of debt securities classified as available-for-sale and held-to-maturity were as follows:
At March 31, 2008

Millions of yen

Thousands of
U.S. dollars¥52,966———¥52,966$528,655———$528,655

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

The book value, unrealized gain and loss and the related fair value of held-to-maturity securities at March 31, 2007
are summarized as follows:
Millions of yen

At March 31, 2007
Government bonds ...........................................................................
Corporate bonds...............................................................................

Book
Value

Unrealized
Gain

Unrealized
Loss

¥1
—

¥(0)
(0)

¥20,984
11,992

Fair
Value¥20,985
11,992The cost, unrealized gain and loss and the related book value of available-for-sale securities with available fair values
at March 31, 2007 are summarized as follows:
Millions of yen

At March 31, 2007
Equity securities ................................................................................
Debt securities ..................................................................................

Cost¥5,160304

Unrealized
Gain

Unrealized
Loss¥5,532
—

¥ (2)
(101)

Book
Value

¥10,690
203

The contractual maturities of debt securities classified as available-for-sale and held-to-maturity were as follows:
At March 31, 2007
Due within one year ...........................................................................................................
Due after one year through five years.................................................................................
Due after five years through ten years ................................................................................
Due after ten years.............................................................................................................
Total .........................................................................................................................

14

Millions of yen

Thousands of
U.S. dollars¥32,976——
203¥33,179$279,245——
1,721$280,966

DERIVATIVE TRANSACTIONSThe Company operates internationally in circumstances which give rise to exposure to market risks from fluctuations inforeign currency exchange rates and interest rates. In order to limit those risks, the Company enters into forward foreignexchange contracts, currency swaps and interest rate swaps, etc. in accordance with the Company’s own internal risk control rules. The Company does not have derivative positions for speculative trading purposes. The Company is subject tocredit risk incurred by the default of counter parties to the derivatives. As the Company enters into such agreements onlywith credible counter parties, the risk of any such default is deemed negligible. The Company’s Finance Division is incharge of entering into and monitoring the Company’s derivative positions in order to ensure risk control.

32
TOYO ENGINEERING CORPORATION

Annual Report 2008

Thousands of
U.S. dollars

Millions of yen

At March 31,
Forward foreign exchange contracts to buy U.S. dollars:
Contract amounts .........................................................................................
Related market value .....................................................................................
Net (loss) gain................................................................................................

2008

¥55
51
¥ (4)

2007

2008

¥147
151
¥ 4

$552
509
$ (43)

The contract and related market value amounts above exclude forward foreign exchange contracts designated ashedges on forecasted transactions with a firm commitment to the hedged items since such contracts are accounted
for in the financial statements in conjunction with the computation of foreign exchange gain and loss by the deferral of gain and loss.
The contract and related market value amounts above do not directly indicate the level of market risk or credit
risk incurred, as these amounts do not indicate the potential risk of the forward foreign exchange contracts.
Interest rate swaps
The Company has entered into interest rate swap agreements to reduce its interest expense or its exposure toadverse fluctuations in interest rates relating to loans payable. The total notional amounts and related market valueof these interest rate swap agreements at March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

At March 31,

2008

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

¥200
0
¥ 0

2007

2008

¥400
0
¥ 0

$1,996
1$
1

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

15

SEGMENT INFORMATION(1) Business Segments
Millions of yen

Year ended March 31, 2008
I Net sales and operating income:Net sales(1) Net sales to outside customers ................................
(2) Inter-segment net sales ...........................................
Total ............................................................................
Operating expenses.........................................................
Operating income ........................................................
II Assets, depreciation and capital expenditures:
Assets .............................................................................
Depreciation....................................................................
Capital expenditures........................................................

EPC
BusinessReal
EstateTotal¥323,575
15
323,590
310,993
12,597¥ 3,838
297
4,135
2,997
1,138

¥327,413
312
327,725
313,990
13,735¥¥245,110
1,659
2,320

¥26,842842
1,367¥271,952
2,501
3,687

¥8,187 ¥280,139
(1)
2,500
—
3,687

33
TOYO ENGINEERING CORPORATION

Annual Report 2008

Eliminations
and Other Consolidated— ¥327,413(312)—(312) 327,413(319) 313,671
7
13,742S e c t i o n
F i n a n c i a l

Forward foreign exchange contracts
The Company has entered into forward foreign exchange contracts to reduce its exposure to adverse fluctuations in foreign exchange rates relating to receivables and payables denominated in foreign currencies. The contract amounts and therelated market values of those contracts without firm commitments related to receivables or payables at March 31, 2008
and 2007 were as follows:Financial Section
Millions of yen
EPC
BusinessYear ended March 31, 2007

Real
EstateTotal

Eliminations
and Other Consolidated

I Net sales and operating income:Net sales¥220,856¥ 2,988 ¥223,844¥— ¥223,844(1) Net sales to outside customers ................................
(2) Inter-segment net sales ...........................................
15
321
336
(336)
—
Total ............................................................................
220,871
3,309
224,180(336) 223,844
Operating expenses.........................................................
215,0812,224
217,305(351) 216,954
Operating income ........................................................
5,790
1,085
6,875
15
6,890
II Assets, depreciation and capital expenditures:¥250,968¥20,443 ¥271,411¥11,403 ¥282,814
Assets .............................................................................
Depreciation....................................................................
1,416
580
1,996
(1)
1,995
Capital expenditures........................................................
1,593
1,948
3,541
—
3,541
Notes: 1.The classification of the business segments adopted is based on the Company segmentation which isdetermined by the similarity of each business.
2.The Companies’ reportable operating segments consist of the following two business groups:
EPC Business — Engineering, procurement and construction for chemical fertilizer, petrochemical andrefinery plants, energy-related businesses, general manufacturing facilities and information technology
Real Estate — Rent and administration of real estate
3.All administrative department expenses of the Company and its consolidated subsidiaries are allocated tothe corresponding business segments.
4.Assets included in “Eliminations and Other” for the years ended March 31, 2008 and 2007 totaling¥8,384 million ($83,682 thousand) and ¥11,583 million primarily consisted of investment in securities.
5.The impairment losses recorded in Real Estate for the years ended March 31, 2008 and 2007 were ¥1,101
million ($10,990 thousand) and ¥165 million, respectively, in EPC Business for the year ended March 31,
2007 was ¥56 million.
6. Effective the year ended March 31, 2008, the Company and its consolidated subsidiaries have adopted“Accounting Standard for Lease Transactions.” As a result, assets, depreciation and capital expenditures
have increased as follows:• EPC Business: assets ¥584 million ($5,830 thousand), depreciation ¥182 million ($1,820 thousand) andcapital expenditures ¥778 million ($7,770 thousand)• Real Estate: assets ¥2,685 million ($26,808 thousand), depreciation ¥147 million ($1,469 thousand) andcapital expenditures ¥1,328 million ($13,257 thousand)In addition, increased amount of capital expenditures includes the amounts of leased assets which corresponding
lease contracts carried out in or before FY2006.
These amounts are ¥358 million ($3,577 thousand) in EPC Business and ¥1,328 million ($13,257 thousand) in
Real Estate, respectively.
(2) Geographic Segments
Millions of yen

Year ended March 31, 2008
I Net sales and operating income:Net sales(1) Net sales to outside customers ................................
(2) Inter-segment net sales ...........................................
Total ............................................................................
Operating expenses.........................................................
Operating income ........................................................
II Assets:
Assets .............................................................................

OthersTotal¥307,296
223
307,519
296,752
10,767¥20,11722,70442,821
40,0872,734¥327,413
22,927350,340
336,839
13,501¥¥266,455¥29,454¥295,909¥(15,770) ¥280,139

34
TOYO ENGINEERING CORPORATION

Eliminations
and Other ConsolidatedJapan

Annual Report 2008— ¥327,413(22,927)—(22,927) 327,413(23,168) 313,671
241
13,742

JapanOthersTotal

Eliminations
and Other Consolidated

I Net sales and operating income:Net sales¥210,865¥12,979 ¥223,844 ¥— ¥223,844(1) Net sales to outside customers ................................
(2) Inter-segment net sales ...........................................
31
18,06818,099(18,099)—
Total ............................................................................
210,896
31,047
241,943(18,099) 223,844
Operating expenses.........................................................
205,328
29,439234,767(17,813) 216,954
Operating income ........................................................
5,568
1,608
7,176
(286)
6,890
II Assets:
Assets .............................................................................
¥264,355¥34,824 ¥299,179 ¥(16,365) ¥282,814
Notes: 1.Geographic segmentation is according to geographic proximity.
2.Countries included in Others: Korea, Malaysia, India, Luxembourg, U.S.A. and PR China
3.Net sales and Assets included in “Eliminations and Other” are mainly due to inter-segment transaction.
(3) Sales to Foreign Customers
Millions of yen

Year ended March 31, 2008
Overseas sales (A) ..........................................
Consolidated sales (B) ....................................
Overseas sales ratio (A/B) ............................

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

OthersTotal¥34,073¥71,586¥35,290¥92,831¥22,875¥256,655

10.4%

21.9%

10.8%

28.4%

7.0%

78.5%

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

Year ended March 31, 2007

Overseas sales (A) ..........................................
¥10,517¥52,506¥36,034
Consolidated sales (B) ....................................
4.7%
23.5%
16.1%
Overseas sales ratio (A/B) ............................
Each area represents the following countries:
Southeast Asia: Thailand and Singapore
Southwest Asia, Middle East and Africa: India, Saudi Arabia, Qatar and Iran
Russia and Central Asia: Russia
Central and South America: Brazil
Others: PR China, Korea, Australia and European countries

16

OthersTotal¥25,114¥22,514

11.2%

10.0%

¥146,685
223,844
65.5%

SUPPLEMENTARY INFORMATION FOR CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS(a) Type and number of outstanding sharesYear ended March 31, 2008
Number of shares
Type of shares

Balance at
beginning of year

Increase in shares
during the year

Decrease in shares
during the year

Balance at
end of year

Issued stock:
Common stock

192,792,539——

192,792,539

Total

192,792,539——

192,792,539

474,172

87,027

7,906

553,293

Treasury stock:
Common stock

Total
474,172
87,027
7,906
553,293
Notes: 1.Treasury stock increased by 87,027 shares due to the repurchase of shares less than one unit.
2.Treasury stock decreased by 7,906 shares due to the sale of shares less than one unit.

35
TOYO ENGINEERING CORPORATION

Annual Report 2008

S e c t i o nYear ended March 31, 2007

F i n a n c i a l

Millions of yen

Financial Section(b) Dividends(b-1) Dividends paid to shareholders
AmountDate ofapproval

Resolution
approved byType ofsharesAmountJune 26,
2007

Annualgeneralmeeting ofshareholders

Commonstock(Millions of yen)(Thousands of
U.S. Dollars(Note 1))

577

4,886

Amountper share

Amountper share(Yen)(U.S. Dollars(Note 1))3

0.03

Shareholders’
cut-off date

Effective
date

March 31,2007

June 27,2007(b-2) Dividends with a shareholders’ cut-off date during the current fiscal year but an effective date subsequent to thecurrent fiscal year
Amount17

Date ofapproval

Resolution
approved byType ofsharesJune 24,2008

Annualgeneralmeeting ofshareholders

Commonstock

Amount(Thousands of(Millions of yen) U.S. Dollars(Note 1))

1,153

11,512Paidfrom

Retainedearnings

Amountper share

Amountper share(Yen)(U.S. Dollars(Note 1))6

0.06

Shareholders’
cut-off date

Effective
date

March 31,2008

June 25,
2008

CONSOLIDATED STATEMENTS OF CASH FLOWS
A reconciliation between the balance of cash and deposits reflected in the accompanying consolidated balance
sheets and that of cash and cash equivalents in the accompanying consolidated statements of cash flows as ofMarch 31, 2008 and 2007 is summarized as follows:
Millions of yen

Thousands of
U.S. dollars

Years ended March 31,

2008

2007

2008

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................................................................................

¥34,311(744)¥43,225(545)$342,463(7,429)52,966¥86,533

32,976¥75,656

528,652$863,686

36
TOYO ENGINEERING CORPORATION

Annual Report 2008

F i n a n c i a l

S e c t i o n

Independent Auditors’ Report

37
TOYO ENGINEERING CORPORATION

Annual Report 2008

Worldwide Network
Jakarta

Kuala Lumpur

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

Overseas Offices◉ Beijing

E. 7th Fl., Bldg. D, Fuhua Mansion,
Chaoyangmen North Avenue No. 8,
Beijing 100027, China
Tel: 86-10-6554-4515
Fax: 86-10-6554-3212◉ Shanghai

17th Fl., Shanghai Zhongrong Plaza,No. 1088 Pudong South Road, Pudong New
District, Shanghai 200122, China
Tel: 86-21-5888-9935
Fax: 86-21-5888-8864/8874◉ Jakarta

Midplaza, 8th Fl., Jl. Jendral Sudirman Kav. 10-11,
Jakarta 10220, Indonesia
Tel: 62-21-570-6217/5154
Fax: 62-21-570-6215◉ DohaBldg. No. 9, 802 Al Abbas Street,
P.O. Box 24131, Doha, Qatar
Tel: 974-437-8860
Fax: 974-437-8861◉ TehranWest Side / Ground Floor, No. 4 Alvand Street,Argentine Square, Tehran, Iran
Tel: 98-21-8866-3088/4598
Fax: 98-21-8879-4019◉ Moscow

Room No. 605, World Trade Center,
Krasnopresnenskaya Nab., 12, Moscow 123610, Russia
Tel: 7-495-258-2064/1504
Fax: 7-495-258-2065
MAJOR SUBSIDIARIESAND AFFILIATED COMPANIESDomestic● TEC Estate, Ltd.
Property development and real estate business
2-6-3 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-408-2171
Fax: 81-47-453-3250● Suntec Corporation
Real estate and building maintenance
2-6-3 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-454-1639
Fax: 81-47-454-1842【HEAD OFFICE】
2-2-7 Honcho, Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-433-4511
Fax: 81-47-433-4593

Doha

Mumbai

Qatar

India

Thailand

TehranIranShanghai

Beijing

China

China

Moscow

Seoul

RussiaKorea● TOKYO HEAD OFFICE
11th Fl., Shin-Marunouchi Building,
1-5-1 Marunouchi, Chiyoda-ku,
Tokyo 100-6511, Japan
Tel: 81-3-6268-6611
Fax: 81-3-3214-6011● TECHNOLOGY RESEARCH CENTER
2-6-3 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-408-2371
Fax: 81-47-408-2372

Malaysia

Bangkok

Luxembourg

Japan

Calgary

Rio de Janeiro

Canada●T
 EC Software &Technical Services Corporation
Staffing services, Job placement services andTranslation / Interpretation
7-11-5 Honcho, Funabashi-shi,
Chiba 273-0005, Japan
Tel: 81-47-425-8461
Fax: 81-47-425-8464● Tecno Frontier Co., Ltd.
Environmental engineering and construction of facilities
2-8-1 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-454-1178
Fax: 81-47-454-1550【HEAD OFFICE】
2-2-7 Honcho, Funabashi-shi, Chiba 273-0005, Japan
Tel: 81-47-433-7234● TEC Air Service Corporation
Travel and insurance services
2-6-7 Ginza, Chuo-ku, Tokyo 104-0061, Japan
Tel: 81-3-3564-0130
Fax: 81-3-3564-0530● Toyo Business Engineering Corporation
System consulting and solutions provider
17th / 20th Fl., KDDI Otemachi Bldg., 1-8-1
Otemachi, Chiyoda-ku, Tokyo 100-0004, Japan
Tel: 81-3-3510-1600
Fax: 81-3-3510-1624● Chiba Data Center Corporation
Data input service, documentation using word
processors and printing
6-5-3 Tendai, Inage-ku, Chiba-shi,
Chiba 263-0016, Japan
Tel: 81-43-284-3611
Fax: 81-43-284-3533● TEC Accounting & Consulting Ltd.
Business support and consulting for accounting
and accounting system development
2-8-1 Akanehama, Narashino-shi,
Chiba 275-0024, Japan
Tel: 81-47-454-1690
Fax: 81-47-454-1289
Overseas■ Toyo Engineering Korea Limited

Engineering and construction for plants and facilities
Toyo Bldg., 677-17, Yeoksam-1 Dong, Kangnamku, Seoul, 135-915, Korea
Tel: 82-2-2189-1619
Fax: 82-2-2189-1891■ Toyo Engineering Corporation, China

Engineering and construction for plants and facilities
17th Fl., Shanghai Zhongrong Plaza,No. 1088 Pudong South Road, Pudong New
District, Shanghai 200122, China
Tel: 86-21-5888-9935
Fax: 86-21-5888-8864/8874

38
TOYO ENGINEERING CORPORATION

Annual Report 2008

BrazilHoustonU.S.A.

■ Toyo Engineering Corporation(China) Procurement
Procurement services in China
17th Fl., Shanghai Zhongrong Plaza, No. 1088
Pudong South Road, Pudong New District,
Shanghai 200122, China
Tel: 86-21-5888-9935
Fax: 86-21-5888-8864/8874■ Toyo-Thai Corporation Public Company Limited

Engineering and construction for plants and facilities
22nd Fl., Serm-Mit Tower, 159 Soi Asoke,
Sukhumvit 21 Road, Bangkok 10110, Thailand
Tel: 66-2-260-8505
Fax: 66-2-260-8525/8526■ Toyo Engineering & Construction Sdn. Bhd.

Engineering and construction for plants and facilities
Suite 25.4, 25th Fl., Menara Haw Par, Jalan Sultan
Ismail, 50250 Kuala Lumpur, Malaysia
Tel: 603-2731-1100
Fax: 603-2731-1110■ Toyo Engineering India Limited

Engineering and construction for plants and facilities"Toyo House", L.B.S. Marg, Kanjurmarg (West),
Mumbai-400 078, India
Tel: 91-22-2573-7000
Fax: 91-22-2573-7520/7521■ Toyo Engineering Europe, S.A.

Procurement services in Europe
25, Route d’Esch, L-1470, Luxembourg
Tel: 352-497511
Fax: 352-487555■ Toyo Canada Corporation

Engineering and construction for plants and facilities#640 Ford Tower, 633, 6th Avenue SW, Calgary,Alberta T2P 2Y5, Canada
Tel: 1-403-237-8117
Fax: 1-403-237-8385■ Toyo U.S.A., Inc.

Procurement services and market developmentin the U.S.
15415 Katy Freeway, Suite 600, Houston,
TX 77094, U.S.A.
Tel: 1-281-579-8900
Fax: 1-281-599-9337■ Toyo do Brasil–Consultoria E Construcoes

Industriais Ltda.
Engineering and construction for plants and facilities
Praia de Botafogo, 228-Sala 801C-Ala B, Botafogo,
22250-906, Rio de Janeiro-RJ, Brazil
Tel: 55-21-2551-1829
Fax: 55-21-2551-2048(As of August 1, 2008)

Corporate Data
(As of March 31, 2008)

Founded:Common Stock:
Number of Employees:
Stock Exchange Listing:Authorized Shares:
Capital Stock Issued:
Number of Shareholders:
Administrator of
Shareholders’ Register:

May 1, 1961
¥18,199 million
1,066Tokyo Stock Exchange
500,000,000
192,792,539
17,986The Chuo Mitsui Trust and Banking Co., Ltd.
3-33-1 Shiba, Minato-ku, Tokyo 105-8574, Japan

Major Shareholders:

Others0.53

Number of shares(thousands)

Percentage of total(%)

Mitsui & Co., Ltd.

43,77022.70

Mitsui Chemicals, Inc.

25,343

13.14

Japan Trustee Services Bank, Ltd.

9,587

4.97

Bank of New York, GCM Client Accounts EISG

6,068

3.14

Taisei Corporation

4,000

2.07

Kanto Natural Gas Development Co., Ltd.

3,956

2.05

The Master Trust Bank of Japan, Ltd. Trust Account

3,303

1.71

HSBC Bank Plc-Clients Nontax Treaty

3,040

1.57

Morgan Stanley & Co. Incorporated

2,408

1.24

Sumitomo Mitsui Banking Corporation

2,350

1.21

Financial institutions
16.30

Less than 5,000 shares
10.33

1,000,000 shares or more
59.60

5,000–49,999 shares
14.29

Individuals
24.68

Number of
Shares Held(%)

Type of
Shareholder(%)

Foreign shareholders
15.59

50,000–499,999 shares
10.62

Domestic companies
42.90

500,000–999,999 shares
5.16

Stock Price:
1,000

Stock Price Range

(Yen)

900
800
700
600
500
400
300
200
100
0

(Thousands of Shares)

Trading Volume200,000
150,000
100,000
50,000
0

4

5

6

7

8

9 10 11 12 1

2

3

4

5

6

7

FY20058

9 10 11 12 1
FY2006

39
TOYO ENGINEERING CORPORATION

Annual Report 2008

2

3

4

5

6

7

8

9 10 11 12 1
FY20072

3

Toyo Engineering Corporation Annual Report 2008

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/

Year ended March 31, 2008

©2008 Toyo Engineering Corp.
Printed in Japan