CORPORATE PHILOSOPHY

MissionEngineering for Sustainable
Growth of the Global
Community

TOYO’s mission is to exert its best efforts to solve
the problems of its clients and to harmonize its
plant construction projects with the environmentand society. To fulfill this mission and satisfy

Visioncustomers, each individual TOYO staff member isEngineering Partner

technologies, and utilize knowledge and creativity

Global Leading

constantly endeavoring to be innovative, improveto a chi eve cl i e nt valu e e n ha n ce m e nt . T h e

ValuesIntegrity, Creativity,
Diversity, Learning, Team

Company also seeks to pursue its business withintegrity. Overall, TOYO’s goal is to be a“Global
Leading Engineering Partner.”

Contents

02

To Our Stakeholders

04

Five-Year Financial and Non-Financial Highlights

06

Overview 1

08

01

Wide-ranging Business Development

Overview 2

10Major Orders Received in Fiscal 201512

The Future of TOYO
Enhancement of Corporate Value by Utilizing Our
Global Human Capital

17

Corporate Governance20

HSSE+Quality

21

Safety24

Environment

26

Quality

27

Contribution to Society / Investor Relations

28

Human Capital

30

Management’s Discussion and Analysis

35

Business Risk and Other Risks

Financial Section
36

Consolidated Financial Statements

42

Notes to Consolidated Financial Statements

73

Independent Auditor’s Report

74

Corporate Data
Corporate Information

77

Stock Information

Editorial Policy
The TOYO Engineering Group (TOYO) operates its businesses
in line with its mission of“Engineering for Sustainable Growth of
the Global Community,”under the principle of meeting customer
needs by providing world-class engineering while contributing toa sustainable global society. To enhance the understanding ofour philosophy and activities among all of our stakeholders andto establish a deeper relationship of trust, we have published this“Integrated Report.”It provides both our financial information (suchas our management policies and financial results) and non-financial
information (such as the connections between TOYO’s businesses
and the environment and society).

CAUTION CONCERNING FORWARD-LOOKING STATEMENTS
This integrated 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.

Contents

Global Operations to Increase Customer ValueTo Our Stakeholders
02

To Our Stakeholders

In April 2015, TOYO refreshed its management and worked on reforms of our management and business
operations in all areas and improvement in profitability to revitalize the company. In fiscal 2015, the first yearof structural reforms, new orders and operating income exceeded their targets, and this helped us to achieve
our target of net income. I would like to explain about the results from the previous year and our outlook forthe future to our shareholders.
03

Summary of Consolidated Financial Results for Fiscal

Issues and Initiatives in Fiscal 2016
This fiscal year marks the second year of the revival plan.

Although sales declined year on year to ¥299.8 billion,

In addition to pressing ahead with reforms, TOYO will

operating income was ¥11.0 billion, exceeding our target

focus on three major items as a management policy of

due to an improvement in earnings and expenditures for

Fiscal 2016 to prevent project losses and improveseveral p rojec t s and reduced selling, general andprofitability.

administrative expenses. However, ordinary income was1¥3.8 billion, underperforming our target because of ¥9.2

For the FPSO Topside Project, we shifted the leadershipbillion in non-operating expenses which included ¥8.2

of project execution from our affiliate to TOYO andbillion in equity in losses of affiliates. Furthermore, after

conducts thorough risk management. Around 80% of therecorded extraordinary income on the sale of shareproject has been completed and will move forward to

holdings and real estate assets following a re-evaluation

module lifting and integration on FPSO hull. Furthermore,of assets as part of TOYO’s revival plan, and deducted

we will reduce the size of TSPI and minimize operating

corporate income tax, profit became ¥3.0 billion, in line

expenses.

with target. Equity in losses of affiliates were generated

2

mainly due to an increase in costs for the FPSO topside

Several mega-projects are currently underway, including

project that is being undertaken by a subsidiary of TSPI,

the large-scale ethylene complex in Malaysia and the

TOYO’s Brazilian equity method affiliate, and the recording

large ethylene plant in U.S., and we have started the full-of impairment losses for module fabrication yard facilities.

scale construction work for these projects. These projects

Accumulated impairment losses from the yard facilities

are revenue streams for the group, and we will ensure

combined with the total for fiscal 2014 amounted to overintensive management of these projects with full support

70% of the acquisition price. TOYO received several new

from all of our company.

orders, including for an ethylene plant project in the U.S.,

3

a natural gas-fired cogeneration power plant project in

TOYO will continue initiatives that seek to improve

Thailand, and a fertilizer complex project in India. Orders

profitability by increasing gross profit while curbing selling,rose to ¥443.5 billion (exceeding our target by more than

general and administrative expenses. We will also seek to¥100.0 billion), resulting in a record order backlog ofimprove the profitability of projects by thorough quality¥823.0 billion. The year-end dividend was ¥4 per share,control, and preventing schedule delays and occurrence

unchanged from the dividend forecast announced at theof losses by quickly identifying and resolving problems.

Enhancement of Risk Management of Brazilian BusinessThorough management for mega-projects

Continued improvement of profitability

start of the fiscal year.
Forecast for Fiscal 2016
Measures of Revival Plan

Our consolidated forecast for fiscal 2016 includes new

In April 2015, TOYO established a Revival Plan composedorders of ¥250.0 billion, net sales of ¥450.0 billion, andof four pillars of reforms, namely“restructuring of the

net profit of ¥5.0 billion. Annual dividends are forecasted

management system,”“improvement of management

as a year-end dividend of ¥6.00.

process at proposal stage,”“enhancement of project
management capabilit y,” and “change of corporate

TOYO endeavors to “return to a path of sustainableculture.”In“restructuring of the management system,”wegrowth,”which is the objective of the Revival Plan, byincreased the number of Outside Directors, reformed theworking to enhance our profit structure and continuing toE xe cu t i ve Co m m i t te e, a n d n ew ly s et u p a G ro u p

b o l ste r m ea su res to f u r t h e r im p rove p rofit a b ilit y.

Operation Committee. In“improvement of management

Fu r t h e r m o re, w e w i l l h a r n e s s o u r co m p a ny - w i d eprocess at proposal stage,”with a focus on balanced

c ap abilities an d co ntinually d raw o n o u r spirit ofsales activities, we improved the management process atinnovation to continuously provide customers with new

the final proposal stage and implemented rigorous

value.

operation. In “enhancement of project management
capability,” we are improving our project execution

We ask for your continued understanding and support ofsystem for projects with group companies and mega-

TOYO in our future endeavors.

projects, while developing and reinforcing our project
personnel. In “change of corporate culture,” we are

September 2016

promoting communication in all directions and areseeking to increase employees’ motivation and improveorganizational performance.
Kiyoshi Nakao
President and Chief Executive Officer

TOYO ENGINEERING CORPORATION Integrated Report 2016

2015

Five-Year Financial and Non-Financial Highlights
Toyo Engineering Corporation and Consolidated Subsidiaries
04

Financial Highlights:

2016

Years ended March 31

2015

2014

2013

Five-Year Financial and Non-Financial Highlights

Net sales

299,813

311,454

230,124

228,723

Gross profit

30,513

17,21425,15524,200Operating income (loss)

11,087(7,356)

455

1,593

Income (loss) before income taxes

8,697(21,989)

5,673

2,982

Net Income (Loss)

3,038(20,965)

967

1,457

Total assets

321,836

261,609257,480

240,694

Total net assets

51,03644,97974,831

71,091Long-term loans payable

18,76423,60433,53526,477

Capital stock

18,19818,19818,19818,198New orders

443,537

470,369

365,137

290,444

Backlog of contracts at end of the year

823,066

659,005

538,023

410,492

Net income (loss)

15.85  (109.34)

5.05

7.60

Total net assets

265.92234.20382.61363.15

Cash dividends

4.00

4.00

3.00

5.00

Chemical fertilizers

4.4

20.5

19.4

16.6

Petrochemicals

42.4

42.1

30.3

18.8

Refinery

22.2

16.6

13.0

7.7

Energy-related

18.4

5.0

7.2

27.0

General manufacturing facilities
and information technology

2.6

4.3

9.2

16.7

Others

10.0

11.5

20.9

13.2

(Overseas sales ratio)

（83）

(87)

(84)

(81)

4,397

4,463

4,747

4,548

1,092

1,084

1,037

1,026

CO₂ emissions (Tons)*²

2,716

2,760

2,583

2,156

Crude oil equivalent (Kiloliters)*²

1,384

1,360

1,413

1,411

Domestic construction waste volumes(Tons)*³

16,972

11,764666

832

Overseas construction waste volumes(Tons) *³

10,30029,50020,7009,900

Lost Time Incident Rate (LTIR)*⁴

0.07

0.08

0.07

0.09

Total Recordable Incident Rate (TRIR)*⁵

0.21

0.22

0.22

0.22

Per share:

Net sales by sector (%):

Non-financial Highlights:
Number of employees*¹(Number of employees at parent
company) *¹＊1. Excluding temporary employees＊2. Applies to quantity of electricity and gas utilities consumed by offices (Head Office / Engineering Center). Taken from regular reports issued to
the Ministry of Economy, Trade, and Industry＊3. The total construction disposal weight, except construction surplus soil/sludge＊4. Lost Time Incident Rate (LTIR) = Total Lost Time Incidents × 1,000,000 / Employee-Worked Man-Hours＊5. Total Recordable Incident Rate (TRIR) = Number of Recordable Incidents × 1,000,000 / Employee-Worked Man-Hours
Note: U.S. dollar amounts are stated at ¥112.62 to U.S.$1.00, the exchange rate prevailing on March 31, 2016.

2012

2016

157,881$2,662,164

24,918

270,937

5,341

98,446

4,941

77,224

3,728

26,975

222,415

2,857,716

69,265453,169

24,582

166,613

18,198

161,587

269,1883,938,350

359,120

7,308,346

Yen

U.S. dollars (Note)

19.43

＄0.14

349.42

2.36

6.00

0.03

Net sales(¥ billion)

311.4

Operating income (loss)

299.8(¥ billion)

11.0

TOYO ENGINEERING CORPORATION Integrated Report 2016

Thousands of
U.S. dollars (Note)05

Millions of yen

228.7 230.1
5.3
157.8
1.5
`12

`12

`13

`14

`15

`13

0.4

`15

`14

`16

`16
-7.3

Net Income (Loss)(¥ billion)

Total assets(¥ billion)

3.7

321.8
3.0
222.4

240.6

257.4 261.6

1.4
0.9

10.0

`15

15.3
11.5

`12

`13

`14

`16

35.2
20.3

-20.9

`12

`13

`14

`15

`16

7.7
(73)

New orders(¥ billion)

470.3

4,494

269.1

(¥ billion)

823.0

443.5
659.0

365.1

1,055
2,166

Backlog of contracts at
end of the year

538.0

290.4

1,385

359.1

410.4

2,222
17,300
0.09
0.24

`12

`13

`14

`15

`16

`12

`13

`14

`15

`16

1

O v e r v i e w

06
Overview 1

Wide-ranging
Business
Development
Since its foundation in 1961,
TOYO has implemented awide range of projects on
the global stage, mainly inthe plant engineering field.
Our rich experience covers
a broad range of fields,such as the hydrocarbon
field including oil & gas
de v el opment and o therresources, oil refining and gas

processing, petrochemicals
and gas chemicals, fertilizers,

the infrastructure field
including power generation,
tr ansp or t a tion s y s t ems,
the effective use of water
resources, and industrial
plant fields including
pharmaceuticals. We
execute projects in various
countries and regions
together with our groupcompanies to provide
comprehensive solutions todiverse customer needs andproblems.

Oil & Gas Development Field
—
—

TOYO’
s competitive edge in the
oil & gas development field is its
ability to conduct“comprehensive
engineering from subsurface
to surface.” We can optimize
subsurface and surface systems
for each phase in oil recovery, bytracking changes in subsurface
conditions and predicting future
conditions. This allows TOYO tocontinue providing customers
with the highest level of expert
service at every stage of oil & gas
recovery, from initial planning to
the closing of operations.

Oil & Gas
Development Field
Oil / Gas Development｜
EOR｜FPSO

Infrastructure Field——

The demand for infrastructure
projects, such as power
generation, transportation
systems, and the effective useof water resources, is growing
in tandem with economic
development in emerging
economies. TOYO uses its
abilities in project management,
design and procurement, andconstruction management—
cultivated in the plant engineering
field—as well as its regional
knowhow and track record toactively develop infrastructurebusiness that meets customer
needs.

Business Topics

Infrastructure Field

Power Generation｜
Transportation Systems｜
Effective Use of
Water Resources

TOYO’s Proprietary Technologies

Collaborating with overseas companies to develop
subsea resources

U r e a S y n t h e s i s Te c h n o l o g y A C E S 21 ® a n d U r e a
Granulation Technology

—
—

—
—

TOYO is collaborating with
Baker Hughes Incorporated
in the U.S. and Aker Solutions
ASA in Norway, aiming tointegrate each company’s coretechnologies and expertise inoil & gas recovery to develop
subsea resources in Japanese
coastal waters. TOYO willhandle overall project andfacilities planning, Baker will
be in charge of subsurface
energy recovery services, andAker will take care of oversee
design and fabrication ofsubsea production facilities.

TOYO licenses its ACES21®energy saving urea process and urea
granulation technology. ACES21®reduces construction costs
by simplifying urea synthesis and reduces operating costs byminimizing the amount of energy needed to produce urea. We
also offer our proprietary urea granulation technology which ishighly necessary for large-scale farming.

Kaltim (Indonesia)

Oil Refining & Gas Processing Field——

Catalytic Reforming｜
Hydrocracking｜Natural Gas
Processing｜
LNG / GTLB U S I N ES S
FI EL D
Petrochemical, Chemical &Pharmaceutical Field——

Petrochemical, Chemical &Pharmaceutical Field
Ethylene｜EO/EG｜Urea｜
Ammonia｜
Aromatics｜Methanol｜
Bio-pharmaceutical｜Containment

I n n o v a t i v e E n e r g y S a v i n g D i s t i l l a t i o n Sy s t e m
SUPERHIDIC ®

Since its founding, TOYO hasadvanced licensing technologies
in the petrochemical and fertilizer
fields as a licenser and throughtechnological partnerships. We
have numerous successes in awide variety of fields, such as
ethylene, propylene, various
polymers, aromatics, urea,
ammonia, and methanol. In thepharmaceutical field, we are
aggressively involved mainly withhighly active pharmaceutical andbiopharmaceutical plants.

COREFLUX®High-efficiency NGL recovery process
—
—

—
—

D is t i l l a t i o n is a key p a r t o f
the separation process inpetrochemicals and oil refining.
SUPERHIDIC ® , developed by TOYO,

divides the distillation column intoa rectifying section and a stripping
section. By placing a compressor,
and producing the heat exchange
in bet ween the t wo sections,energy consumption is cut in halfin this distill atio n system . T h e
first plant for Chemiway Maruzen
Petrochemical Co., Ltd. started
operations.
Chemiway Maruzen Petrochemical Co., Ltd.
(Japan)TOYO has developed COREFLUX®for gas separation andrefining. COREFLUX®is processing technology that achieves ahigh product recovery rate with low energy consumption, andis used to recover ethane, propane, butane and other highadded value raw materials from natural gas. COREFLUX®will
be adopted at a gas separation unit that TOYO is presently
building in Turkmenistan.

State Concern“Turkmengas”(Turkmenistan)

TOYO ENGINEERING CORPORATION Integrated Report 2016

FCC / RFCC｜

07

Oil Refining &Gas Processing Field

TOYO is involved in various
projects around the world
including facilities associatedwith oil refining, fromgrassroots refineries to hydrodesulphurization, catalytic
reforming, hydrocracking, andthermal cracking, as well as
facilities associated with natural
gas such as LPG*5, LNG and GTL,
pipelines, facilities for receipt,
storage and discharge, and othergas and supply chain-related
projects.

2

O v e r v i e w

08
Overview 2

GlobalOperations
to Increase
Customer ValueTOYO’s group companies
maintain close contact with
their countries, regions, andcustomers while mutually
cooperating to build a global

Toyo Engineering &Construction Sdn. Bhd.

Toyo Engineering
Corporation（China）(Kuala Lumpur, Malaysia)———(Shanghai, China)———［ Toyo-Malaysia］

Number of employees as of March

Number of employees as of March

31, 2016: Approximately 300

31, 2016: Approximately 300

Established: 1986

Established: 2004

———

———

Major ongoing projects

Major ongoing projects

Large-scale ethylene complex

Investment projects using Japanese(Malaysia)

companies’foreign capital

Collaboration within the group: Toyo-(China)Japan, Toyo-India, and IKPT

network that executes EPC
projects based on the
optimal formation and withunified standards. Throughthis ne t w ork w e gather
information about themarket, human capital andtechnology. TOYO shares
this information throughout
the group so as to continue
providing solutions toaddress customer needs.
Group companies use their

Toyo Engineering Europe, S.r.l[Toyo-EU]

experience and previous
successes to achieve highqual i t y and H S SE, me e tschedules and budgets, andensure project completion.
We continue striving to evenfurther develop our global
operations as we aim to bea corporate group that earns
solid customer trust.

[Toyo- China]

Toyo Engineering
India Private Limited[Toyo-India](Mumbai, India)———

Number of employees as of March
31, 2016: Approximately 2,000
Established: 1976———
Major ongoing projects
Large-scale ethylene complex(Malaysia)
Collaboration within the group: ToyoJapan, Toyo-Malaysia, and IKPTLarge gas chemical complex(Turkmenistan)
Collaboration within the group: ToyoJapan and Toyo-Korea
Two LNG plants (India)
Collaboration within the group: ToyoJapan
Large fertilizer complex (India)
Collaboration within the group: ToyoJapan

Toyo Engineering
Korea Limited

Toyo Engineering
Canada Ltd.

Number of employees as of March

Number of employees as of March

31, 2016: Approximately 400

31, 2016: Approximately 100

Established: 1987

Acquired Tri Ocean Engineering———

Limited in Canada in 2010

Major ongoing projects———

Large gas chemical complex

Major ongoing projects(Turkmenistan)

Oil sands SAGD facilities (Canada)

Collaboration within the group: Toyo-

Collaboration within the group:Japan and Toyo-India

Toyo-Japan and Toyo-Korea[Toyo-Canada](Calgary, Canada)———

09[Toyo- Korea](Seoul, Korea)———

TOYO ENGINEERING CORPORATION Integrated Report 2016

Polyethylene plant (U.S.)
Collaboration within the group: ToyoJapan

Toyo Engineering
Corporation

Toyo Ingeniería deVenezuela, C.A.

[Toyo-Japan](Tokyo/Chiba, Japan)———[Toyo-Venezuela]

Number of employees as of March
31, 2016: Approximately 1,500
Established: 1961

PT. Inti Karya Persada
Tehnik[IKPT](Jakarta, Indonesia)———

Toyo U.S.A., Inc.
[Toyo-USA](Houston, U.S.A.)———

Number of employees as of March

Number of employees as of March

31, 2016: Approximately 50

31, 2016: Approximately 1,000

Established: 1986

Invested: 2011

———

———

Major ongoing projects

Major ongoing projects

Large-scale ethylene plant (U.S.)

Large-scale ethylene complex

Collaboration within the group:(Malaysia)

Toyo-Japan

Collaboration within the group:
Toyo-Japan, Toyo-India, and ToyoMalaysia
Subway project (Indonesia)
Collaboration within the group:
Toyo-Japan
Synthetic rubber projects (Indonesia)
Collaboration within the group:
Toyo-JapanTS Participações e Investimentos S.A.
[TSPI]

Major Orders Received in Fiscal 201510

Order over ¥100 billion

Major Orders Received in Fiscal 2015

Large-scale Ethylene Plant Project in the U.S.
TOYO has been awarded an EPC project to construct awill be supplied as feedstock to Shintech’s existing PVC resin

500,000 t/y ethylene plant licensed by Lummus Technology

production facilities. TOYO has extensive experience inInc. of U.S., in Plaquemine, Louisiana, by Shintech Inc., aethylene plant projects. This ongoing project is the 45th to be

subsidiary of Shin-Etsu Chemical Co., Ltd., Japan. Local

added to TOYO’s ethylene plant track record, following theconstruction work for the project will be subcontracted by

Malaysian project awarded in August 2014. This is TOYO’s

CB&I in the U.S., under TOYO. The project is scheduled to belargest project in the U.S. market.

completed in the first half of 2018, and the produced ethylene

Orders over ¥50 billion
Cogeneration Power Plant Projects in Thailand
At the end of November 2014, TOYO entered into theforward, work will gradually start up again at two-month

construction contracts for 12 natural gas-fired combinedintervals from June 2016, with plans to receive orders forcycle cogeneration power plants (six 120 MW, two 125

five projects in fiscal 2016 and one project in fiscal 2017.

MW, and four 130 MW, total generation capacity 1,490

TOYO and Mitsui have previously completed the sevenMW) in the suburbs of Bangkok with companies jointly

cogeneration power plant projects (total generation

owned by Mitsui & Co., Ltd., and Gulf Energy Development

capacity 790MW) in the suburbs of Bangkok in 2013, andCompany Limited (GED). The projects were started

work was completed by the planned construction

subsequently from February 2015, and TOYO has been

deadlines for all of the projects.

awarded EPC projects for five plans in fiscal 2015. Going
Fertilizer Projects in India
TOYO has been awarded a contract for an EPC project of

ACES21 ® and urea granulation technology will be

Chambal Fertilisers and Chemicals Limited (CFCL), a major

employed for the urea plant. In addition, Toyo-India has

private sector fertilizer producer in India, to construct abeen awarded construction works for the utility facilities oflarge-scale fertilizer complex in Kota, Rajasthan, India. The

the fertilizer complex. Previously, in 1999, TOYO

complex will have an ammonia plant with capacity ofsuccessfully completed a fertilizer complex for CFCL (an2,200 t/d, and a urea plant with capacity of 2,000 t/d. For

ammonia plant with capacity of 1,350 t/d and a urea plant

the ammonia plant, the ammonia production technologies

with capacity of 2,350 t/d). This project is the 15thby KBR in the U.S. will be employed, while TOYO’sfertilizer project that TOYO will construct in India.

Orders over ¥10 billion
Synthetic Rubber Plant Project in Indonesia
TOYO and IKPT have been awarded a contract for an EPC

CAP, and the plant will produce Solution Styrene

project of Synthetic Rubber Plant with production capacity

Butadiene Rubber (SSBR) and Polybutadiene Rubber withof 120,000 tons per annum in Cilegon on the western tip

Neodymium Catalyst (PBR) licensed by Michelin, which willof Java, from PT. Synthetic Rubber Indonesia (SRI), Jointbe used to produce tires. Toyo-Japan is in charge ofVenture company of Compagnie Financiere Du Groupe

project management and offshore supply contract andMichelin (Michelin), a major tire manufacturer in France,

IKPT entered into detail engineering, onshore procurement

and PT Chandra Asri Petrochemical Tbk (CAP), a major

and construction contract. The target for completion is in

private sector petrochemical company in Indonesia.

2018.

Butadiene feedstock will be provided by a subsidiary ofLarge-scale Photovoltaic Power Plant Project in Japan (Miyagi)
TOYO has been awarded an EPC project of a large-scaleconstruction projects of large-scale photovoltaic power

photovoltaic power plant planned in Osaki City, Miyagi

plants such as in Setouchi City, Okayama Prefecture

Prefecture, Japan by Pacifico Energy Furukawa G.K. The(230MW), Miyazaki City, Miyazaki Prefecture (96MW), andplant will have a power generation capacity of 56.87 MW

Mimasaka City, Okayama Prefecture (42MW). Accordingly,(DC) and is scheduled for completion by the end of 2016.

TOYO has been awarded photovoltaic power plant

The power generated will be sold to the Tohoku Electric

projects with a total output of over 450 MW including thisPower Co., Inc. TOYO is now executing the several

project.

11

Major Projects

14

15
11
20 19

24
5

3
9

18

12 1

2

23 8
22 21

17 16

6

10

4

7
25

13

Type

New
OrdersScope

Ethylene Plant

U.S.A.

EPC

2Natural Gas Fired Cogeneration Power Plants (5 of 12)

ThailandEPC

3

Chemical Fertilizer Complex

India

EPC

4

Synthetic Rubber Plant

Indonesia

EPC

5

Photovoltaic Power Generation Plant (Furukawa, Miyagi)

Japan

EPC

6

Railroad system and train track construction

Indonesia

EPC

7

Construction of coal-fired power plant facility

Japan

EPC

8

Ethylene Complex

Malaysia

EPC

9

Natural Gas Fired Cogeneration Power Plants (1 of 12)

ThailandEPC

10Photovoltaic Power Generation Plant (Setouchi, Okayama)

Japan

EPC

11

Gas Chemical Complex

Turkmenistan

EP

12Polyethylene Plant

U.S.A.

EP

13

Photovoltaic Power Generation Plant (Hosoe, Miyazaki)

Japan

EPC

Oil Sands Facilities

CanadaEPC

15

Oil Refinery Modernization (Heavy Residue Conversion Complex)

RussiaEP

16

Photovoltaic Power Generation Plant (Mimasaka, Okayama)

Japan

EPC

17

Photovoltaic Power Generation Plant (Kumenan, Okayama)

Japan

EPC

18

Ammonia and Urea Plant

NigeriaEP

19

Ethylene and Butadiene Plants

Egypt

EPC

20

Polyethylene Plant

Egypt

EPC

21

Chemical Fertilizer Plant

Indonesia

EPC

22

Ethylene Plant Expansion

Indonesia

EPC

23

Gas Processing Plant Modernization

Malaysia

EPC

24

Ethylene Plant

U.S.A.

EP25

EPC of FPSO topside processing units for vessels

BrazilEPC

Ongoing 14

Completed

Location1

EP: Engineering and Procurement
EPC: Engineering, Procurement and Construction

TOYO ENGINEERING CORPORATION Integrated Report 2016

Projects progressing in the world for the development of sustainable society

The Future of TOYO
Enhancement of Corporate Value by Utilizing Our Global Human Capital
12
The Future of TOYO

Enhancement of Corporate Value by
Utilizing Our Global Human CapitalTomonori Ito
Professor,
Graduate School of International Corporate Strategy,
Hitotsubashi University

Kiyoshi Nakao
President and Chief Executive Officer
Toyo Engineering Corporation(Hitotsubashi ICS)TOYO believes that people, or“human capital,”are assets that generate corporate
growth, hence it is working toward fostering its people.
How should human capital be cultivated, utilized, and linked to corporate value so thatit can play active role on the global stage?
We invited Mr. Tomonori Ito, a Professor at Hitotsubashi ICS, to hear his candid opinions
as a person that has been involved in management training across TOYO, including its
overseas group companies.

The state of communications between headquarter in Japan and overseas groupcompanies is an issue

Mr. ItoPromoting omnidirectional communication as“corporate culture reform”

Mr. Nakao

company overall through practical training
TOYO understands that people, orcompany as a whole from a managerial perspective,
not limited to seeing things from a departmental
perspective.

“human capital,”are assets that generate corporate

Mr. Nakao I also participated in the final presentation,

growth, and so it has been conducting various humanand it appears that even employees that had only

resource systems. Mr. Ito was engaged in from thebeen active in their present work were able toplanning and the implementation to the lecture of theunderstand the importance of arming themselves with“TOYO Management Program,”held in 2013 anda theoretical background when undertaking global

2014, a training geared toward the management

management. After actually coming into contact withlayer of both Toyo-Japan and overseas groupthe employees, what are your feelings on thecompanies. Today, we want to have your insights onstrengths and weaknesses of TOYO’s human capital?

how to link human capital with corporate value anddemonstrate TOYO’s value globally while looking

Cultivating and utilizing human capital on aback on these training activities.
Mr. Itoglobal scale

In corporate training course at my university(The Graduate School of International Corporate

Mr. ItoStrategy, Hitotsubashi University), usefulness in real-

will take on the role of the next generation of TOYO

world application is emphasized in staff lectures,

management, participants were very bright anddebates based on case studies and group work

debated actively and openly, and it was here that I

regarding various management issues. Therefore

felt the TOYO culture. Their level of English was also

custom-made programs are put in place to meet

high, which was expected from a global nature of thecorporate needs.

company. However, as discussions deepened on

This training was a one-week input session composed

various topics, it became clear that in a businessof business administration by faculty and lecturescontext, communication between Japan and overseas

regarding corporate strategy by TOYO executives,group companies was a one-way street, making it

and after deepening their understanding anddifficult for those from overseas to express opinions

reflecting on overall corporate management strategy,

to the Japanese side. Communications were also

various issues were tackled across the group over a

weak among differing overseas group companies.

period of about six months. I figured it must have

These issues possibly emerged as factors linked tobeen difficult to do joint work on a global scale while

frustration among overseas members.

also handling routine operations. At the presentation

In light of this, the“conflict management”lecture wasmade six months later, executives were also present,

added to the training program for the following year.

and a lot of feedback was given by them. While

Through a management method that seeks to solve

sharing views on issues across the company, I thinkchallenges by actively accepting differing opinions

As should be expected from candidates who———————————————

Kiyoshi Nakao
President and Chief Executive Officer
Toyo Engineering Corporation——
Joined Toyo Engineering Corporation in 1977. He took charge of theengineering unit as a head of Equipment Engineering Division in 1999.
He assumed the office of Executive Officer in 2004 and contributed toacquisition of new orders as a head of Proposal Division. In 2006 he
was assigned as a head of Procurement Division.
Afterwards, he became a Senior Executive Officer in 2008 before his
assignment to Toyo-China as President in 2009, in which he promoted
reforms at Toyo-China in response to the changes in the market. He
returned to his post in Japan in April 2013, where he then took theoffice of Senior Executive Officer, Unit Director of Plant Project Unit, anddirector before current position starting April 2015.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Mr. Nakao

those participants gained the opportunity to see the13

Nurturing a managerial perspective on theThorough use of“explicit knowledge”is essential in the utilization of global human capital

Mr. Ito14
The Future of TOYOand confrontations, which are generally seen as

The third point can be signified by the“importance ofnegative in Japan, various issues were raised andclearly stated communication.”In the past, Japaneseopinions were exchanged via case studies, including

companies held“tacit knowledge,”or knowledge

the ideal method of internal communication.

based on experience and instincts that could not be

Mr. Nakao

From personal experience serving as

quantified, as a source of competitive strength.

President of Toyo-China, I realize the necessity ofHowever, in the realm of global business, wherelistening to opinions from the field on a daily basis.

languages and cultures differ, such “wordless

The Revival Plan that is currently underway also

communication”cannot function. Thus, it becomespromotes omnidirectional communication asnecessary to change“tacit knowledge”to“explicit“corporate culture reform,”but improvement on

knowledge.”In essence, it is important to practice

Jap a n e s e -s t yl e c o m m u n ic a t io n c o u l d a l s o b ecultural communication, such as words and numbers,considered an issue shared by all Japanese

via various methods.

companies, TOYO included. May I ask for your views

Mr. Nakao Another issue is thorough implementation

on cultivating and utilizing global personnel in relationof English communication. It is not uncommon toto the matters brought up in this conversation?

resort to using Japanese in situations where decision-

Mr. ItoBroadly speaking, I think there are three

making is conducted under nuanced conditions. I feelpoints. First is“establishing a flat organization.”Tothat it is also important to undertake the creation ofpromote business in a global market that isframeworks that allow for fair participation from aundergoing constant change, swift decision-making

language perspective in decision-making at meetingsand implementation is essential. Although a pyramidby capable engineers overseas.

style organization, found commonly in traditional
Japanese companies, is the strength in working

TOYO’s three persistence

toward unifying opinions across a company, it cannot
cope with the speed of businesses overseas. To aim

Mr. Itoto speed up management, it is essential to create

who is known for competitive strategy, WTP

methods of open communication that cross layer(Willingness to Pay: Users willfully making payment,boundaries with a flat organization.

and the amount thereof) is the source of

The second key is “management of knowledge

competitiveness, and from the definition“WTP – Cost

workers.”As Peter Drucker, a management scholar,= Profit,”in order to win the competition and create

points out,“knowledge workers”seek“something to

profit, there is no other way than to raise WTP, or

live for and purpose,”“fair evaluation,”and“self-lower cost. However, competitors such as China andgrowth”in their work. That is to say, previous humanSouth Korea have significant advantage with regard toresource systems may cause them to be easily

cost, and I feel that we must transition to the idea of

discouraged. To prevent the loss of talented

raising WTP.

personnel, it is a requirement to create meaningful

Mr. Nakao

work and fair evaluation systems.

companies in general are all facing such an issue. The

According to Michael Porter, an economist

As you stated, I think that Japanese——————————————

Tomonori Ito
Professor, Graduate School of International Corporate Strategy,
Hitotsubashi University (Hitotsubashi ICS)——
Joined the Bank of Tokyo (currently The Bank of Tokyo-Mitsubishi
UFJ, Ltd.) after graduation from the University of Tokyo, Faculty of
Economics. After receiving his MBA from Harvard Business School,
he worked for UBS in Japan as Managing Director and (co-)Head ofInvestment Banking, and led many transactions such as IPOs, equity
finance for public companies, and M&As. In 2011, he assumed the officeof Adjunct Professor of Hitotsubashi ICS before assuming the current
position in 2012, specializing in corporate finance, business finance,
M&A, etc.
He also serves as an external board member to Parco Co., Ltd., Aozora
Bank, Ltd. and Electric Power Development Co., Ltd.

Both economic prosperity activities and creating social value are crucial, which leads to higher
motivation of employee

Mr. ItoKeys to a track for sustainable growth are TOYO’s“persistence”and innovation

Mr. Nakao

more value,”and I feel that in order for a company toconcept advocated by Michael Porter in recent years

improve its performance, all employees must thinkof CSV (Creating Shared Value: A new way of thinking

about what types of value that their company canthat realizes both social issue resolution andcreate.

improved corporate competitiveness at the same

Mr. ItoIt’s also an issue to provide overall systemstime), which leads to the achievement of economic

that capture the needs of clients and areprosperity activities and creating social value. As

concentrated on services. For example, with projects,

TOYO’s job is to operate a business that create

unless the client’s needs are not understood from asocial infrastructure, it serves a very important role. Ivery early stage prior to bidding, the end result is abelieve that this thinking is very important in terms

race to the bottom on price.

employee motivation. It will also ultimately lead to

Mr. Nakao

profits, and the aforementioned WTP.

Differentiation is not possible by simply

waiting an ITB (invitation to bid). One of TOYO’s

Mr. Nakao

differentiating qualities is its ability to provide

achievement in various forms, and I think these serve

alternative solutions valuable to customers from theiras our motivation.

standpoint, and I think that this is the greatest service

Mr. Itowe provide to customers. I believe that it also

were in a tradeoff relationship, but the importance ofcontributes to a higher WTP. To achieve this, it isachieving both is increasing year by year. In suchnecessary for TOYO to hold“persistence”in safety,

times, the words stated by the President become

quality, schedule, costs, and technology, and I am

important; customers pay as a result of providing

certain that these will lead to competitiveness inservices and systems with an extremely high level ofgetting new orders, improvement of project execution

quality. To achieve this, the importance of innovation

ability, and enhancement of profitability.

cannot be understated. Innovation cannot be

Mr. Itoachieved by utilizing the traditional methods. New

The “persistence” you mentioned are

We all have experienced such feelings ofPreviously, social contribution and profits

extremely important, and I think that the Japanese

ways must be forged.

are strong with these“persistence”.

Mr. Nakao

Mr. Nakao To explain as to what these“persistence”
are, in my understanding, I think there are three
aspects. First is“aspirations and excitement”toward
work. Second is the concept of“reverence.”Third is“sensibility.”In the context of a TOYO member, each
one should be thrilled to participate in the constructionof plants that will become essential infrastructure forthe economic development of various countries, while
being aware that the occurrence of an accident will
result in serious consequences. To create higher values,
there is a need to always think of ways to improve, andhave the sensibility to be on the lookout for new
information. The result should be a higher quality ofwork, and solid value provided to customers. Steady
execution of work under these three“persistence”isTOYO’s corporate culture, and I think that employees
who are able to keep this in mind will lead to improved
corporate value.

Origins in the engineering industry
Mr. Ito

The thrill felt toward work that were justmentioned also serve as motivation for knowledge

I also think that alongside the

The seven distinctions
Let’s return to our roots!!

The engineering industry is essentially global
It is an industry looking toward the future

I t is a n i n d u s t r y t h at s el l s i ntel l e c t a n dtechnology
It is an industry that consolidates knowledge
The greatest asset is people

Specialized knowledge and boundar yknowledge

Free development and the first to capture thetrends of the times

TOYO ENGINEERING CORPORATION Integrated Report 2016

workers, which were mentioned earlier. It is also a

15

issue is not“cheaper is better,”but“how to create

The roots of engineering are immovable;
importance lies in change of the mindset and alignment of the direction of middle management

Mr. Nakao

16
The Future of TOYO

aforementioned“persistence,”innovation is also aemployees; the reality is that without any active

key. What came to mind when I thought of themeasures, it can be difficult to produce results.

Company’s future growth were the seven items of

Mr. Nakao“Let’s return to our roots!!”that were announced at

President last year, one of the matters to which

the New Year’s greeting to the employees in January

particular attention was paid during that one yearof this year (see chart). Actually, these were printed

was discussion with middle managements. As

in a pamphlet that I received when I joined thediscussions progressed, it reaffirmed the fact that it

Company, showing that the Company had already set

was important to implement change of the mindset offorth this mission over 40 years ago.

employees in their 40s and 50s, and unless thisMr. ItoThis is truly progressive. It is a superb visionchanged, the Company would not move forwardthat perfectly captures the universality of theeither. In the future, the important issue will become

engineering business, no matter the times.

how they connect management and young workers,

Mr. Nakao

and I think that ensuring that we are all on the same

When looking upon these again, I myself

Actually, after assuming the position offelt that they should be stated in our mission 10 years

page is an issue that will persist for some time.

and 20 years into the future as the roots from which

Mr. ItoTOYO comes, and I spoke of this to the employees.

messages to the market via methods such as IR and

Although the products and places where we do work

media activities to highlight matters including positive

may change, I don’t think that the essential aspect ofcorporate aspects, ways of thinking, and inherent

engineering as our business will change. I feel that tocorporate value that cannot be understood fromshare and jointly recognize the“persistence”andfinancial information.

“innovation”that we all inherently hold will require

Mr. Nakaochange of the mindset.

toward issues such as quality defines competitiveness,It’s important to continue to put forth

Mindset of each individual employee

and I think it is the biggest aspect of WTP. By once
Dialogue with employees a key to revival

again restructuring the experiences and awarenessstructures that TOYO has built up over 55 years,

Mr. Ito This is a reason that communication via

fostering the innovative spirit, and embarking on new“explicit knowledge”is important, and for change ofchallenges, I believe that these can lead to further

the mindset to occur, leaders of global companies

competitive strength and higher value. By providing ourmust hold town hall meetings including overseas, andhuman capital with opportunities and throughmake announcements persistently via various

cooperation, I am certain that results can be produced.

methods such as email and letters. In particular,

I want to thank you for the opportunity to hear yourmessages must be delivered to middle managements,

thoughts today.

who are tasked with local operations, and it isimportant to create structures to educate young

Corporate Governance17

Fundamental Concept
Governance Code, TOYO has published Corporate
Governance Guidelines on the website outlining our basic
corporate governance framework and philosophy.

Governance system chart (As of June 29, 2016)
Structure

Company with Audit& Supervisory Board

Usage of an executive officer system

Yes

Number of Directors

10

Number who are Outside Directors(Independent Officers)

3 (3)Director term length

1 yearNumber of Audit & Supervisory Board
Members4

Number who are Outside Auditors(Independent Officers)
Number of independent officers

2 (2)
5

Corporate Governance System
TOYO recognizes that it is essential to gain trust from ourstakeholders—including shareholders and customers—
and ensure transparency and fairness in management
decision making as we fulfill our responsibilities to society.
Therefore, we work to properly establish and effectively
administer the following corporate governance system.
The Board of Directors is composed of 10 Directors,
including three Outside Directors; they deliberate anddetermine all important matters related to management
and the execution of business, and also monitor andsupervise one another with respect to the execution of
Directors’duties. Additionally, TOYO introduces an
executive officer system in order to strengthen the Boardof Directors’monitoring and supervising capabilities, andto ensure a swift and effective business execution system.
Executive Officers (23 members, including concurrent

posts of ten Directors) are appointed by the Board of
Directors and, under the CEO’s directions, execute theduties they have been delegated. Additionally, as anadvisory board for the President and CEO, the Executive
Committee consists of Executive Officers with specificroles (Senior Executive Officers or above) and the heads ofmain divisions. Important matters related to the executionof business are reported and deliberated in the Executive
Committee.
The Audit & Supervisory Board consists of four Audit &Supervisory Board Members, including two Outside
Auditors, they report and deliberate on the Directors’
execution of their duties, the status of developing andoperation of internal controls, and internal audit guidelines
such as quarterly settlements and end-of-year settlements
as well as the contents and results of audits.

Corporate
Governance Structure

Shareholders Meeting
Appointment/Removal

Board of Directors
Appointment/Removal

Audit

Appointment/Removal

Appointment/Removal
Audit & Supervisory Board(Members)

LiaisonAccounting Auditors
LiaisonAudit

President & CEO
LiaisonExecutive Committee
Reports to
Crisis (Disaster)
Headquarters
Crisis Management Team

Compliance Committee
Project Risk Management Committee
Group Operation Committee

J-SOX Steering Committee
ReportInternal Auditing Division
Audit
Group Management Division
Supervise

Operation UnitsGroup Companies

TOYO ENGINEERING CORPORATION Integrated Report 2016

TOYO’s corporate philosophy is to make contributions to
our stakeholders, including shareholders and customers,
and also to fulfill our responsibilities to society throughoperating our global engineering and construction
business in fields such as energy, oil refining,
petrochemicals, chemicals, social infrastructure facilities,
and industrial facilities of various types. We establish andadminister a fair management system to ensuretransparency and soundness in management, disclose
corporate information in an appropriate and timely mannerin order to be properly accountable to our stakeholders,
and we work to thoroughly prevent unfair transactions,such as insider trading. Additionally, with regards tomanagement decision making, we give due consideration
to general shareholder returns. We strive to fully establish
and operate an internal control system—including
compliance and risk management, the foundations ofcorporate governance—as we increase the efficacy of ourmanagement monitoring and observation capabilities.
Furthermore, in addition to adhering to the Corporate

18

Outside Directors and Audit & Supervisory Board Members (Outside Auditors)

Corporate Governance

TOYO has three Outside Directors among 10 Directors,
and two Outside Auditors among four Audit & Supervisory
Board Members. TOYO has submitted notifications to theTokyo Stock Exchange for these directors and two Audit &Supervisory Board Members (Outside Auditors) to serve as
Independent Officers. In the course of deciding
appointments, TOYO shall evaluate the independence ofoutside officers pursuant to the independence standards
for outside officers as prescribed by the Tokyo Stock
Exchange. With regard to qualifications, the Company
takes a comprehensive view, determining whether
candidates possess significant expertise and experience infields such as corporate management, risk management,compliance, and global management practices, and arecapable of offering objective, practical opinions and advice
in overseeing management or have the ability to perform
appropriate audits.

In order for these Outside Officers to effectively fulfill
their roles and duties, they shall cooperate with Outside
Directors and Audit & Supervisory Board Members(including Outside Auditors), hold meetings that facilitate
the sharing of information and issues of mutual concern,and outside officers shall hold meetings with the President& CEO to exchange views on the cultivation andnomination of Directors and executives, and related
remuneration policies.
TOYO believes that by establishing and administering aframework that complies with the Corporate Governance
Guidelines, management executives will be accountable
and transparency can be ensured in management. In viewof the content and structure of our business, we believethat the current system is effective in ensuring corporate
governance to function properly.

Outside Directors

Reason for election

Hirokazu Hayashi(Independent Officer)

Having served in the Japan’s Ministry of Economy, Trade and Industry for many years, Hirokazu Hayashi possesses
ample experience and deep insights in public policies mainly of the trade promotion and trade policy. In addition, hepossesses outstanding experience and knowledge in corporate management. He has been elected with expectations
that he will make fair and precise comments and opinions from an independent standpoint and based on his expertise.

Masami Tashiro(Independent Officer)

Possessing extensive international experience at financial institutions as well as rich experience and considerable insight
as a manager, Masami Tashiro has been providing accurate suggestions and opinions, delivered from a position of
independence and with a global perspective, and supervising the Company’s management appropriately.
He has been elected with expectations that he will continue to perform his duties appropriately.

Yusuke Yamada(Independent Officer)

Possessing knowledge related to securities, finance, and capital markets as well as rich experience and considerable
insight as a manager, Yusuke Yamada has been providing accurate suggestions and opinions concerning all aspects of
the Company’s management, delivered from a position of independence. He has been elected with expectations that hewill continue to perform his duties appropriately.

Audit & Supervisory Board
Members (Outside Auditors)

Reason for election

Yoshiyuki Funakoshi(Independent Officer)

Having spent many years in the management of a chemical company, Yoshiyuki Funakoshi has wide-ranging experienceand high-level insight concerning management. He has been auditing appropriately from an independent position andviewpoint that utilizes these abilities, and elected with expectations that he will continue to perform his duties
appropriately.

Kiyohito Uchida(Independent Officer)

Possessing knowledge of law and experience as a lawyer, Kiyohito Uchida has been auditing the management
appropriately from an independent position and viewpoint that utilizes these abilities. He has been elected withexpectations that he will continue to perform his duties appropriately.

Policies of Remuneration for Directors and Audit & Supervisory Board Members
Remuneration for TOYO’s Directors (excluding Outside
Directors) composed of the fixed remuneration according
to the post and the performance-linked remuneration.
The performance-linked remuneration is calculated on
the basis of the current net profit attributable to ownersof the parent and determined by the President & CEO
after reviewing the contribution of each Director.
Furthermore, in order to set appropriate remunerationlevels for Directors’remuneration and strengthen
accountability, the ratio of fixed remuneration andperformance-linked compensation, as well as thecalculation formula for performance-linked remuneration
shall be decided by the Board of Directors, upon
discussions between the President & CEO and outside
officers.
As for the Outside Directors and Audit & Supervisory
Board Members, with consideration for the independenceof these positions, remuneration is fixed and is not linked
to the business performance .

Internal Controls
Based on the recognition that internal controls are thefoundation of corporate governance, Directors
appropriately establish, operate, and assess the system
of internal controls. Also, Directors carry out continuous
inspection and improvement of internal controls, andperiodically revise the Fundamental Policies of Internal
Controls System. Additionally, as the Company ensures

the reliability of compliance, risk management, andfinancial reports through internal controls, we also pay
sufficient attention to ensuring work effectiveness andefficiency. TOYO establishes the system so that the Boardof Directors will make decisions based on appropriate
information and business will be executed according tothese decisions.

19

Risk Management

are carried out regularly, and the compliance system isbeing continually strengthened. Additionally, TOYO hasdeveloped a risk hotline system for compliance as aframework for properly reporting to the Board of Directors
and the Audit & Supervisory Board Members, andestablished internal / external contacts for consultation
and reporting. In our internal rules, we prohibit unfair
treatment of whistle-blowers on the grounds of the act ofreporting.

Business Risks
To manage business profits and financial risks, TOYO has
implemented the following measures:Stage before order is received (Proposal selection and estimation)

Stage after order is received (Project execution)

TOYO has developed and operates a system in order toformulate reasonable measures for risks throughexamination of the technology and contents for each
proposal, considering the potential severity of impact andlikelihood of occurrence and to ensure transparency andchecks-and-balance functions in formulating process.

TOYO has established and been operating a project
management system which manages risks properly
through planning and execution of project execution
policies that reflect risk assessment and preconditions at
the proposal stage in addition to regular reporting andmonitoring during project execution.

Management of Group Companies
Through the Group Management Division and GroupOperation Committee’s set of interrelated activities, we
promote strengthening of the project execution

capabilities of group companies and thoroughmanagement of consolidated profits targets.

Other Risk and Crisis Management
According to internal rules for crisis management, TOYO
has put in place a crisis management system and its
outline as follows. During ordinary times, the Crisis
Management Team as a permanent organization detects
and understands potential dangers at an early stage and,after the occurrence of a crisis, the Crisis (Disaster)
Headquarters which is directly under the President andCEO makes necessary decisions on all matters concerning

crisis response. Also, TOYO has procedures forresponding to dangers to executives, employees andrelated personal overseas, and accidents of plant andequipment concerning TOYO’s projects. Also, TOYO has
a Business Continuity Plan for responding to risks thatshould be anticipated as a company’s responsibility, suchas damage from earthquakes and other disasters.

Auditing by Internal Auditing and Audit & Supervisory Board Members
TOYO has established an Auditing Division that is directly
controlled by the President & CEO. As it assesses thelegality and rationality of company operations, theAuditing Division provides advice and counsel regarding
operational effectiveness and efficiency. Additionally, it
independently assesses the maintenance and operationof internal controls related to financial reports, and it
reports these results to the J-SOX Steering Committee,
which is immediately under the President & CEO.
Audit & Supervisory Board Members audit Directors’
execution of duties through attending important
meetings, including those of the Board of Directors, andlistening to information from Directors, executives, andemployees regarding operations and the execution ofduties, and surveying the progress of the Company’s
operations and finances.
In addition, through actions such as exchanging opinions
on various topics—including explanations of observations
related to the Company’s operations, their respective
yearly auditing plans and critical items for auditing,auditing methods, inspection and quality control systems
of auditing, and audit results—the Audit & Supervisory
Board, Accounting Auditors, and the Auditing Division
conduct their auditing in cooperation with one another,
striving for close communication while maintaining due
concern for independence.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Compliance Risk
As the core principles of Corporate Activities, TOYO hasestablished a Code of Conduct, Compliance Manuals, andrelated rules in order to comply with laws and regulations
as well as social justice and ethics. Also, TOYO hasestablished the Compliance Committee headed by Chief
Compliance Officer (CCO). The Compliance Committee
plans educational campaigns out, and ensures theoperation and monitoring of compliance systems.
Moreover, compliance-related inspections by the internal
auditing division and Audit & Supervisory Board Members

HSSE+Quality
20

Responsibility for Safety and Environment

HSSE+Quality

We, TOYO, having set our mission as“Engineering for
Sustainable Growth of the Global Community,”aim torealize a global society that is sustainable, contributing toour clients by conserving the environment and harmonizing
with human evolution. To accomplish this during theprocess of performing engineering services, we consider it
our Corporate Social Responsibility (CSR) to fulfill
provisions regarding quality and HSSE (Health, Safety,
Security and Environment).
In particular, we place the highest priority on safety. In theprocess of providing business solutions to our valued
clients, we take the utmost care to prevent the loss ofvaluable human life. We strive to ensure awareness inevery member of the organization that respect for humanlife takes precedence over any amount of effort, time andexpenditure during business operations. We firmly believethat safety is not just relevant to construction site staff, but

Safety, Quality andEnvironment (SQE)Management Structure
TOYO has set up the SQE Committee,
which reports directly to the
President, to review companywide
SQE management activities. The
Committee establishes the operating
policies and assesses and approves
the results of SQE activities.
The SQE Promotion Committee
promotes companywide activities inline with the basic policies of the
SQE Committee, and also promotes
specific SQE activities of individual
Operating Divisions and individual
Project Execution Divisions.
The SQE Management Unit monitors
the SQE activities performed byindividual Operating Divisions andindividual Project Execution Divisions,and conducts SQE audits and reports
the results to the SQE Promotion
Committee and the SQE Committee.
The SQE Promotion Committee andthe SQE Management Unit cooperate
systematically on the axis of the SQECommittee, which is connected
directly to the management, toimplement the PDCA cycle of theindividual Operating Divisions andindividual Project Execution Divisions,for continual improvement of the
SQE management system andperformance.

should be a foundation for every member of theorganization.
While providing specialized services, TOYO is committed
to energy saving and natural resources conservation
designs. In addition, during construction work, we follow
practices that take account of the reduction ofenvironmental impact such as harmlessness, reduction andrecycle of waste, and prevention of pollution.
In order to maximize the capability of our overseas groupcompanies and simultaneously integrate our global
operations as we move towards the creation of the next
generation of the engineering business, we will continue tochallenge new frontiers. Thus, we aim to become the mosttrusted“Global Leading Engineering Partner”for our clientsby offering know-how and providing solutions to ourclient’s needs.

SQE Management Structure

President

Direction

SQE Management Unit
・HSE Management Division
・Quality Management
Division

SQE Committee（Management review）

Reporting aboutwork-related
issues and theirsolutionsSQE Promotion
Committee

SQE monitoring and audit

Units, divisions, departments and sections（Engineering, Procurement, Construction,and Head Oﬃce management）

Project Execution Divisions

Safety

21
TOYO ENGINEERING CORPORATION Integrated Report 2016

An industrial establishment promises foremost to pay attention to safety in thesurrounding community and throughout society. TOYO strictly pledges that lossof human life must absolutely be prevented and applies all efforts and initiatives
to safety. Time and value dedicated to safety initiatives are given the utmost
priority.
“Safety”is a key component of the TOYO brand. In order to boost our brandglobally, we actively promote various safety measures and shall actively strive
to consolidate a firm safety culture.

Safety Record
TOYO’s safety record for 2011 to 2015 is as follows:
TOYO aims for zero accidents as a safety management objective. Hence ourtarget is to further reduce the Lost Time Incident Rate (LTIR) and the TRIR.

Safety Record over the Past 5 Years (One million hour base)
Year(Jan. to Dec.)

EmployeeWorked
Man-Days(Thousands)

EmployeeWorked
Man-Hours(Thousands)(A)

Number of Incidents

2011

8,521

80,783

1

6

12

7

19

0.09

0.24

2012

12,739120,760

3

8

16

11

27

0.09

0.22

2013

10,790105,164

0

7

16

7

23

0.07

0.22

2014

9,201

89,777

1

6

13

7

20

0.08

0.22

2015

6,968

67,309

1

4

9

5

14

0.07

0.21

Fatalities

LTIR*¹

Lost Time
Incidents(LTI)

MedicalTreatment(No Lost Time)LTI Total (B)TRIR*²

Recordable(C)*1. Lost Time Incident Rate (LTIR) = (B) × 1,000,000 / (A)*2. Total Recordable Incident Rate (TRIR) = (C) × 1,000,000 / (A)Lost Time Incident Rate (LTIR)

Total Recordable Incident Rate (TRIR)(Rate)(Rate)

0.10

0.24

0.09

0.24

0.09

0.22

0.22

0.22

2012

2013

2014

0.21

0.08

0.08

0.07

0.18

0.07

0.06
0.12
0.04
0.06

0.02

0.00

0.00
2011

2012

2013

2014

2015

(Year)

2011

2015(Year)

Toyo-Japan
22

Safety Management Rules

HSSE+Quality

TOYO has established unified rules(TOYO Group HSE Standards) toensure that safety management is
implemented at the same level,irrespective of country and region,
throughout TOYO group companies.

TPS

Toyo-India

TOYO Group
HSE
Standards

Toyo-China•HSE control general•Risk assessment•Health control•Traffic control•Action on emergency•Safety record

Toyo-Malaysia•HSE audit•Award and penalty

Toyo-Korea

Toyo-Canada

TOYO Group Safety Meeting
The designated heads of HSSE at
TOYO group companies conductperiodic meetings at pre-decided
locations, exchange experience andideas, and maintain close
communication regarding theimprovement of safety management
activities.

TOYO group companies participating in themeeting・Toyo-Japan ・Toyo-China
・Toyo-India ・Toyo-Malaysia
・Toyo-Korea ・IKPT（Indonesia）

Held in 2016 at Toyo-Malaysia

Safety Campaign
TOYO holds the Safety Campaign at
all its group companies andconstruction sites. The Campaign
calls attention to safety awarenessfor one month, starting on July 1
every year. Various safety programs
take place during this period.

Firefighting demonstration

Rescue training at group company

Evacuation drill at group company

Periodic community cleanup campaigns run
by construction workers

Major Campaign Programs
1. President Message
2. Introduction of site safety
3. Lectures on lifestyle-related diseases
4. Safety assessment training
5. D i s t r i b u t i o n o f i n f o r m a t i o n o noverseas safety measures
6. Morning radio exercise
7. Introduction of campaigns at groupcompanies
8. D i s p l a y o f p o s t e r s , b a n n e r s a n dpanels
9. Safety awards

Countermeasures• Ensure conducting the morning

Around noon 11.0%

Afternoon 37.8%

meeting, TBM*1 and KYK*2 before
Time ofOccurrence

work start.
• Make all workers aware of safety
conditions at the workplace before
work start.
• Check health conditions before

Morning 40.4%

work start.

Focused on fall and tumble:
Fall 40.9%

Countermeasures

Others 18.7%
Electric Shock 5.2%
Touch High /Low Temp. Object 5.9%

• Ensure using harness and fall
protection.
Anticipated Accidents(Human factor-related)• Maintain a safety access route.
• Don’t hurry or run.

Crash 14.6%
Tumble / Stumbling /Tripping 14.7%

Neglecting Rules
12.8%
Lack of Arrangement
12.7%

Focused on neglecting rules, lackof arrangement:

Countermeasures• Conduct induction training andOthers 43.1%
Inadequate
Management 11.8%

Causes(Human factor-related)

Lack of Preparation
9.8%

re-training.
• Ensure order and clear up of workarea.
• Ensure safety patrol and introduceaward and penalty system.

Skip Safety Check
9.7%*1. TBM (Tool Box Meeting): Activity to confirm outline, procedure and remarkable matter of work at work place.
*2. KYK (Risk Prediction Activities): Activity to predict latent risks of work and take countermeasures at work place.

Lessons Learned from Accidents — pinched
Situation

System started suddenly whena d j u s t i n g c o n v e y o r t e n s i o n. A
worker’s right arm was lodged in the
belt.
Causes・Lack of communication between
workers
・Inadequate guidelines to prevent
malfunctions
・Machine not covered withprotection cover・Start-up alarm system not installed
・No supervision

Countermeasures

・Strengthen communication between
workers
・Prepare thorough guidelines toprevent malfunctions・Protection cover device completely
installed・Installed start-up alarm system
・Ensure presence of supervisor during
test operation

TOYO ENGINEERING CORPORATION Integrated Report 2016

A“near-miss”is an incident which
was prevented just before theoccurrence of human or physicaldamage.
TOYO is proactively collecting thenear-miss data at sites, analyzing it,
and utilizing the results in our safety
management to prevent accidents.
Data on 9,844 near-miss occurrences
w a s c o l l e c t e d f r o m 2008 t o
December 2015 and analyzed. Major
findings are as presented to the right:

Focused on the morning hours:

Others 2.6%
Night 2.6%
Evening 5.6%

23

Near-missEnvironment

24
HSSE+Quality

Considering that the preservation of the global environment and prevention of
global warming are recognized as common issues facing all of humanity, TOYO
has established the following philosophy:◦Contribute to sustainable development capable of both environmental
protection and the development of mankind.
◦Provide engineering services in harmony with the global environment as a
global company.
In order to realize this philosophy, TOYO will continue actively resolving theenvironmental issues of our clients in the future.

Applying Technology to Preserve the Environment
TOYO, by promoting the development, application and improvement oftechnologies that contribute to the preservation of the environment, offers thetechnology that best suits our clients and a variety of solutions that contributeto the preservation of the environment as well as the prevention of pollution.

Photovoltaic Power Plant
TOYO has enhanced its development
and promotion of social infrastructure
projects.
As a result, as of March 2016, wehave received orders for five mega
solar photovoltaic power plant
projects in Japan, which are currently
under way. Renewable energy suchas solar power is expected to play anincreasingly important role from theviewpoint of preserving the global
environment. TOYO will continue towork on photovoltaic power plant
projects as part of its infrastructurebusiness.

Overview of Photovoltaic Power Plant Projects
ClientSite

Power Generation（MW）

ScheduledCompletion Time

Pacifico Energy Kumenan G.K.

Kumenan City,
Kume-gun, Okayama
Prefecture,
Japan

32

Spring of 2016

Pacifico Energy Mimasaka Musashi
G.K.

Mimasaka City,
Okayama Prefecture,
Japan

42

Summer of 2016

Pacifico Energy Furukawa G.K.

Osaki City, Miyagi
Prefecture, Japan

57

Winter of 2016

Pacifico Energy Hosoe G.K.

Miyazaki City,
Miyazaki Prefecture,
Japan

96

Spring of 2018

Setouchi Future Creations LLC(Setouchi Kirei Mirai-dukuri)

Setouchi City,
Okayama Prefecture,
Japan

231

Spring of 2019

Expected view at completion(Left: Miyazaki City’s photovoltaic power generation, Right: Setouchi City’s photovoltaic power generation)

25

Efforts for Reducing Environmental Load

TOYO ENGINEERING CORPORATION Integrated Report 2016

Percentage of construction waste by disposal method

Construction Waste Disposal(Ton)

Project sites in Japan

18,000The percentage of constructionwaste by disposal method (recycle,
landfill, and incineration) is shown in
the figure to the right.
For fiscal 2015, it was 96% recycle,
3% l a n d f i l l a n d 1% i n c i n e r a t i o nwaste.
Recycled waste disposal increased infiscal 2015 due to concrete waste
and asphalt/concrete waste fromcivil engineering works forphotovoltaic power generation.

Incineration
Landﬁll
Recycle15,00012,000
9,000
6,000

3

1

0.1

2

4

1

1
3
96

2013

99

95

2012

1

5

2011

0

0
71

93

2010

26

6

2009

80

94.9

2008

19

5

2007

73

2006

25

79

92

2005

17

7

89

0

1

1
10

3,000

2015 (Year)

2014

Overseas project sites

The total amount of construction waste disposal in calendar year 2015 atoverseas project sites, excluding surplus soil/sludge, was 10,300 tons. Total
waste disposal declined following completion of constructions.
TOYO will continue to summarize construction waste disposal weights to utilize
the data for reducing environmental load.

Weight of construction waste disposal and percentage by category (Overseas project sites)(Proportions of individual waste categories to the total disposal weight except construction surplus soil/sludge in each year shown as percentage)(Ton)

25,000

Disposal (Ton)71％(Except construction
surplus earth/sludge)

20,0002010 12,500
75％

2012

2014 29,500
2015 10,300

78％
42％

0％

Miscellaneous

1％

3％

0％

1％

0％

3％

4％

8％

Metal waste

7％

6％

8％

9％

Wood waste

5％

1％

5％

7％

20％

Camp garbage,
Waste plastic,
Glass andceramic waste

9％

7％

0％

Hazardous waste

3％

0％

1％

1％

5％

Concrete waste,
Asphalt/Concrete waste,
Mixture, Other wreckage

12％

14％

28％

0

19％

77％

10,0009,900

2013 20,700

70％

15,0005,000

2011 17,300

Quality

ISO 9001: Certificate(unified accreditation, including major global subsidiaries)

ISO14001: Certificate

ISO 27001: Certificate

Feedback Knowledge Management System (FKMS)
As part of continual improvement of the Quality Management System, TOYO
has been accumulating examples of problems and best practices for about 30
years from executed projects in the FKMS. The FKMS accepts and shares
examples of problems and best practices from TOYO group companies.
Thereby, they can be extended and utilized among all TOYO group companies
immediately for suggestions and preventive actions in all subsequent projects
and proposals.

GS（Global Standards）

SQE Training
We regularly hold new employee training, TOYO Academy classes for young
and mid-level employees, quality management (QM) training for mid-level
employees, and internal project quality manager training. We use common QM
training materials and aim to improve TOYO’s overall quality.

QM training

Canada(CA)Malaysia(MY)China(CN)TOYO has established unified standards used commonly with global
subsidiaries as Global Standards (GS). We have continued to use them, as well
as Local Standards (LS) specific to individual overseas group companies andimproved TOYO’s overall quality management. We will continue to further
improve TOYO Standards while providing clients with reliable quality.

Korea(KR)

LS（Local Standards）

TOYO's Standards

India(IN)

HSSE+Quality

TOYO acts for further quality, environmental, and information security
management based on the following ISO certificates, which are international
standards.

Japan(JP)26

ISO ApprovalContribution to Society / Investor Relations
Contribution to Society / IR activities

Seminars for Technology Transfers
In response to requests from abroad, TOYO offers seminars related toproject management, environmental technologies and other subject areas.
Cooperating mainly with the business courses at the Japan Center of JICA
(Japan International Cooperation Agency), we offer three-week technicaltraining courses to approximately 50 trainees from private enterprises in therequesting countries. These courses have been offered in Kazakhstan,
Uzbekistan, Malaysia, Vietnam, Indonesia, Myanmar, Mozambique and othercountries.

Accepting Trainees
TOYO has accepted trainees in various areas in response to requests fromgovernments and public institutions of other countries. The content of the
training varies according to the requests. There are long-term courses that
include OJT run for two years, while short-term intensive courses run about two
weeks. We have accepted trainees from Russia, Kazakhstan, Uzbekistan,Cambodia, Malaysia, Vietnam, Venezuela and other countries.
In particular, TOYO has accepted about 370 trainees from Iraq since 2005 to
support reconstruction after the war. Trainees were from a diverse range oforganizations, such as the Iraqi Ministry of Oil, oil refining companies, gas
distributors, petroleum distributors, engineering companies and more. All
attended the courses with dedication and enthusiasm.

IR activities
We work to ensure effective communication with market participants andpromote IR activities that reflect opinions of these participants in management
The following are the IR activities in the fiscal year ended March 2016.

● Meeting for Analysts and Institutional Investors【Twice】
Meetings in May and November to explain financial results, performance
forecasts, and management policies to market participants (Speakers: President
and the CFO)
● Business Meeting for Analysts and Institutional Investors (Meetings held bySecurities Companies)【Twice】
Meetings during which the President explained the status of our business andmanagement policies● Briefing for Analysts and Institutional Investors【100 times】
Individual briefings for analysts and institutional investors● Published on the IR information homepage (updated as necessary)
Updates of financial statements, financial information, securities reports andintegrated reports

TOYO ENGINEERING CORPORATION Integrated Report 2016

TOYO has been engaged in numerous overseas projects ever since winning afertilizer plant construction contract in India in 1963–shortly after ourestablishment. As such, we have maintained deep ties with overseas businesses
and have implemented various support activities.

27

TOYO’s Social Contribution Activities

Human Capital
28

TOYO works to develop our human capital—the source of our value creation.

Human Capital

To an engineering company, people are not simply humanresources but are precious human capital capable ofcreating new value. Under this belief, TOYO has long usedt h e t e r m “h u m a n c a p i t a l” i n s t e a d o f “h u m a n
resources.” For human capital, high-level expertise andknowledge, excellent project management capability,
sophisticated sense and leadership for global business are
required in order to stand together with customers
receiving our services and to provide services with added
value that exceed what customers seek.
TOYO has fully prepared comprehensive stratified
development systems and training programs in order tocultivate a great deal of talented human capital capable tomeet these requirements. We also support the growth of
our employees by creating opportunities for them toactively challenge new things.

TOYO’s Human Capital
Development
A t T O Y O, w e b e l i e v e t h a t a
combination of classroom learningand practical training, such as OJT(On the Job Training), is the best way
to develop human capital. Classroom
learning involves business knowledge
and management skills and knowh o w, t a u g h t t h r o u g h s t r a t i f i e dtraining. These trainings include new
employees, young employees, newlya p p o i n t e d m a n a g e r s, m i d d l e
m a n a g e r s, a n d n e x t-g e n e r a t i o nmanagement candidates. In practicalt r a i n i n g, w e p r o v i d e t r a i n i n gopportunities to allow for our
diversified personnel to be able toproduce results anywhere in theworld, including on-site workshops
and OJT at our overseas groupcompanies. Additionally, we havevarious and effective human capitaldevelopment programs for cultivating
the capabilities of our local
employees at overseas groupcompanies such as technicalinstruction from engineers sent fromToyo-Japan and personnel
exchanges between groupcompanies.

India

China

Korea

For the realization of these initiatives, TOYO has a Human
Capital Development Committee directly under the
President. It was created in 2003 to achieve three goals:(1) t o c r e a t e a g r o u p o f h u m a n c a p i t a l w h o c a nsophisticate the level of businesses and enhancecompetitive strength, (2) to realize improvements in
employees’ work satisfaction and motivation, and (3) toenergize the corporate culture. In the Committee,
management policies and companywide issues are taken
up in a timely manner, and training subjects that matchthe direction of our businesses are considered throughout
the company.
Under the policy of promoting human capital development
in all of TOYO, we plan to expand systems and programs
i n T o y o-J a p a n a c r o s s t h e g r o u p i n a d d i t i o n t oindividualized programs in each overseas group company.

Malaysia

Indonesia

CanadaJapan

Maintaining a common global human capital platform●

Common qualiﬁcation of capabilities and characteristics, creation of a common human resource database●

Common system for assessment●

Common hiring and training plans●

Personnel interaction●

Common seminars●Plan proposals at
each company

Local human capital systems foreach location●Hiring of personnel,
training, andretention at eachcompany●Regular sharing of
human capital
activity reports

Human capitalsystem at
Head Oﬃce
in Japan●Advice and support
from Head Oﬃce
in Japan

Human capital at local subsidiaries is basically left to each subsidiary, but the
Head Office offers aggressive support through activities such as regularly
holding human capital division head meetings as well as issuing human capital
activity reports.
Ahead of utilizing human capital globally, we are making use of our humancapital that can flourish locally.

29

TOYO Academy

OJT at Overseas Sites
Through OJT at overseas sites, young engineers experience fieldwork, such as
construction and operations, at plant construction sites overseas. Accepting
responsibility and working hands-on there is a valuable opportunity to apply
the knowledge gained from work and training in Japan. Additionally, we offer
practical OJT at our overseas group companies such as Toyo-Korea and ToyoIndia, where trainees can acquire detailed engineering skills from employees atoverseas group companies.

TOYO Global Leaders Seminar
To cultivate personnel that can provide value on the global stage, we hold the“TOYO Global Leaders Seminar” on an annual basis, in which young
employees from various locations, including Toyo-Japan, participate.
Group discussions and group work are conducted by multinational teams
including participants from Japan, China, South Korea, Malaysia, Indonesia, andIndia, with the intent of experiencing working together in a cross-culturalenvironment. Through this seminar, we aim to cultivate next-generation leadersthat can produce results while recognizing individual differences.

Topic

Training personnel who can
perform globally

Interview with a participant inglobal training

As a Proposal Manager, my role is to prepare competitive proposals. It also involves
communicating with customers and partners. Currently, I am responsible primarily forbidding of a joint project with a company out of TOYO Group.
TOYO is placing heavy emphasis on personnel development where various education
programs are offered. A program in which I participated last year was targeted
towards middle management of various Toyo Group Companies who will serve as thecore of the TOYO Group in the future, and are expected to produce results when
undertaking global work. This program focused on the importance of understanding
cultural differences when members from different countries work together. Program
also showcased an example of a failed project caused due to misunderstanding arose
Proposal Manager,

from cultural differences, and case studies for issue resolution via constructive

Girish.T. Sadalge

function and also about synergies that can be created. Recently, I tried to put theseToyo-India

dialogue. I learned about things those should be considered for an organization tolearnings into practice while interacting with partner in a recent bidding project, andas a result, our proposal to the client was highly regarded.
Moving forward, I would like to see the proposal for which I am responsible getsconverted into a project and become a member of its execution team. In future, I aim
to assume a position where I can participate in important decision-making for TOYO.

TOYO ENGINEERING CORPORATION Integrated Report 2016

TOYO Academy is a seminar which enables participants to acquire not only
principles but practical knowledge and know-how that can be learned fromin-house instructors who are in front-line. The Academy serves as a place wheresenior engineers can pass on their experience, know-how, and our persistence
in technologies to younger engineers. This also provides participants with
opportunities to acquire knowledge that is unable to be experienced in own
work, and foster awareness of seeking to optimize the overall project.
With the intent of improving quality across the entire group, the TOYO
Academy is being expanded from Japan to the overseas locations.

Management’s Discussion and Analysis
30

Business Overview

Management’s Discussion and Analysis

Under conditions in which the outlook for future
investment plans remains unclear due to the effects
of a decline in crude oil prices, capital expenditures inpetrochemicals and chemical fertilizers maintained solid
ground, and investment trends in infrastructure equipment
such as power generation and transportation were strong.
Amid such circumstances, TOYO worked as a groupin sales activities and project execution. As a result,concerning orders booked, we received new orders for
projects such as an ethylene plant in the U.S., natural

gas-fired cogeneration power plant projects in Thailand,a chemical fertilizer complex in India, a synthetic rubber
plant in Indonesia, a complete railway system and track
construction in Indonesia, and a mega solar project inFurukawa. Meanwhile, progress was seen in project
execution overseas, such as oil sands facilities in Canada,an ethylene complex project in Malaysia, a gas chemicalcomplex in Turkmenistan, and oil refinery modernization in
Russia. In Japan, mega solar projects among others weremaking progress.

Consolidated Financial Results
Net sales¥299.8 billion(Down 3.7% year on year)

Operating income¥11.0 billion(Previous fiscal year: Operating loss of ¥7.3 billion)

Ordinary income¥3.8 billion(Previous fiscal year: Ordinary loss of ¥25.2 billion)

Net Income (Loss)¥3.0 billion(Previous fiscal year: Loss attributable to owners of parent of ¥20.9 billion)

New orders
Cash dividends¥443.5 billion¥4.00 per share(Down 5.7% year on year)(Annual)Fiscal 2015 Performance Outline
In fiscal 2015, net sales were ¥299.8 billion, down
3.7% year on year; operating income was ¥11.0 billion,
compared to an operating loss of ¥7,356 million in theprevious fiscal year, due to improvements at profitability
in certain projects and reduction of selling, generaland administrative expenses. Despite recording nonoperating income of ¥2.0 billion including ¥0.7 billion inforeign exchange gains, equity in losses of affiliates of¥8.2 billion was recorded in connection with a wholly
owned subsidiary of our joint venture TS Participações e
Investimentos S.A. (TSPI); hence ordinary income was ¥3.8

billion, compared to an ordinary loss of ¥25.2 billion in
the previous fiscal year. Additionally, due to extraordinary
income of ¥4.8 billion from sales of stock and sales of realestate and recording ¥5.6 billion in income taxes, etc., net
income was ¥3.0 billion, compared to a loss attributableto owners of the parent of ¥20.9 billion in the previous
fiscal year. New orders received were ¥113.5 billion higher
than the target at ¥443.5 billion (down 5.7% year on year)
and backlog of contracts rose to a record high of ¥823.0
billion (up 24.9% year on year) in fiscal 2015.

31

Net sales(¥ billion)

Breakdown by segment details

350

350

300

300

250

250

200

200

150

150

100

100

50

50

0

0
2013/3

2014/3

2015/3

2016/3

2013/3

2014/3

2015/3

2016/3

Japan

44.4

36.2

40.9

49.9

Chemical fertilizers

37.9

44.7

63.7

13.0

Southeast Asia

69.3

54.5

69.3

84.0

Petrochemicals

43.1

69.8

131.2

127.1

Southwest Asia, Middle East and Africa 31.8

42.4

70.2

39.6

Oil reﬁnery

17.6

29.9

51.7

66.5

Russia and Central Asia

6.4

10.6

26.2

44.2

Energy-related

61.8

16.6

15.6

55.3

North America*

－

17.7

52.1

65.3

General manufacturing facilities

27.2

9.1

4.9

7.7

Central and South America

52.8

42.8

29.4

5.4

IT

11.0

12.1

8.4

－

China

17.2

13.7

10.0

8.0

Real estate

2.2

2.1

2.0

－

Others

6.8

12.2

13.3

3.4

Others

27.9

45.8

33.9

30.2

Total

228.7

230.1

311.4

299.8

Total

228.7

230.1

311.4

299.8

*We disclosed the region of North America starting from 2014/3.

Backlog of contracts(¥ billion)

Breakdown by region(¥ billion)

Breakdown by segment details

1,000

1,000

800

800

600

600

400

400

200

200

0

0
2013/3

2014/3

2015/3

2016/3

Japan

24.4

20.8

123.9

111.6

Southeast Asia

2013/3

2014/3

2015/3

2016/3Chemical fertilizers

151.3

138.6

39.5

105.1

123.7

113.4

276.8

338.4

Petrochemicals

105.5

210.8

376.6

494.7

Southwest Asia, Middle East and Africa 90.6

117.8

54.0

89.2

Oil reﬁnery

51.8

109.1

65.2

18.7

Russia and Central Asia 31.3

112.9

96.3

56.7

Energy-related

41.5

14.9

135.8

177.4

－

86.0

68.6

190.1

General manufacturing facilities

7.2

1.1

4.4

1.7

Central and South America

96.0

65.9

31.6

29.2

IT

4.0

3.9

－

－

China

14.3

8.3

4.6

5.9

Others

49.1

59.6

37.5

25.4

Total

410.4

538.0

659.0

823.0

North America*

Others

30.1

12.9

3.2

1.9

Total

410.4

538.0

659.0

823.0

*We disclosed the region of North America starting from 2014/3.

TOYO ENGINEERING CORPORATION Integrated Report 2016(¥ billion)

Breakdown by region

32

Consolidated Statement of Income Summary(¥ million)

Management’s Discussion and Analysis

Net sales

Net sales

311,454299,813▲…Increase▼…Decrease▼ Cost of sales 269,299▼ Selling, general andadministrative expenses

19,426▼ Cost of sales 294,240

Gross proﬁt

30,513▲ Non-operating income▼ Selling, general and▼ Non-operating expenses

administrative expenses

Proﬁt attributableto owners
Operatingof parent
income Ordinary 3,038
11,087 income
3,873

24,570Gross proﬁt

17,214Lossattributableto ownersof parent

Operatingloss(20,965)(7,356)▲ Non-operating income

3,360▼ Non-operating expenses 21,284

Ordinary loss

▲ Extraordinary income▲ Extraordinary income▼ Extraordinary loss
▼ Income tax(1,076)

non-controlling interests

52

Previous fiscal year

Cash and cash
equivalents at
beginning of
period46,376（11,776）

Cash ﬂows
fromﬁnancing
activities

1,099

Eﬀect ofexchange ratechange on
cash and cash
equivalents（2,035）90,462Current fiscal year

(April 1, 2015 to March 31, 2016)(current and deferred) 5,682▲ Loss attributable tonon-controlling interests

22(April 1, 2015 to March 31, 2016)

Net cash provided by operating activities was ¥46.3
billion, compared to net cash used in operating activitiesof ¥4.1 billion in the previous fiscal year. While anincrease in costs on uncompleted construction contracts
caused a ¥21.3 billion deficit, the recording of ¥8.6 billion
profit before income taxes (compared to a loss before
income taxes of ¥21.9 billion in the previous fiscal year)
and increase in advances received on uncompleted
construction contracts owing to progress in large-scale
projects led to a surplus of ¥70.2 billion.
In cash flows from investing activities, there was a net cashused in investing activities of ¥11.7 billion, compared to a
net cash provided by investing activities of ¥9.5 billion in

Cash ﬂows
used ininvestingactivities

4,824▼ Income tax

Current fiscal year

(April 1, 2014 to March 31, 2015)

Cash ﬂows
From
Operatingactivities

7,949
4,657

(current and deferred)▼ Proﬁt attributable to(25,280)

Consolidated Statement of Cash Flows Summary

2,041
9,255

(¥ million)

Cash andcash
equivalents
at endof period

124,125

the previous fiscal year. Despite an increase to ¥4.9 billion
in proceeds from sales of property, plant and equipment,
there was a decrease in short-term loans receivable toequity method affiliates to ¥18.5 billion.
Net cash provided by financing activities was ¥1.0 billion,
compared to a net cash used in financing activities of¥14.3 billion in the previous fiscal year, as long-term loans
payable, etc., were higher after the repayment of existing
payables.
As a result, cash and cash equivalents at end of period
increased by ¥33.6 billion from the beginning of period, to¥124.1 billion. This total includes ¥5.6 billion received on
deposit from our joint venture construction work project.

Consolidated Balance Sheet Summary(¥ million)

Total assets
321,836

Total liabilities and net assets
321,836

Total
liabilities
andnet assets
261,609

Total assets
261,609

Current
liabilities
233,905

Current
assets214,561

Property,plant andequipment
16,247
Intangible assets
2,133
Investments
and other assets
28,666

Fixed
assets
47,047

Previous fiscal year
March 31, 2015

Current
liabilities
170,483

Current
assets279,889

Fixed
assets41,946

Property,plant andequipment
12,986
Intangible assets
1,898
Investments
and other assets
27,061

Current fiscal year
March 31, 2016

Shareholders'equity46,249
Accumulated othercomprehensive
income(1,350)Non-controllinginterests
79

Noncurrent
liabilities
46,146Total
net assets
44,979Previous fiscal year
March 31, 2015

Noncurrent
liabilities
36,894Total
net assets
51,036

Shareholders'equity46,852
Accumulated othercomprehensive
income4,124
Non-controllinginterests
58

Current fiscal year
March 31, 2016

TOYO ENGINEERING CORPORATION Integrated Report 2016

in current liabilities caused primarily by an increase inadvances received on uncompleted construction contracts
due to progress in large-scale projects, as well as adecrease of ¥9.2 billion in non-current liabilities.
Net assets were up ¥6.0 billion year on year to ¥51.0
billion, due to recording of profit attributable to owners ofparent and a decrease of deferred losses on hedges fromthe effects of foreign exchange fluctuations.
Additionally, the capital adequacy ratio declined by 1.4
points year on year to 15.8%, mainly due to an increase intotal assets.

33

Total assets increased ¥60.2 billion year on year, to¥321.8 billion. The main cause was deposits from
customers and an increase in cash and deposits due tothe sale of assets, in addition to an increase in costs on
uncompleted construction contracts due to progress inlarge-scale projects, leading to an increase of ¥65.3 billion
in current assets, and a decline in non-current assets of¥5.1 billion, mainly attributed to a decrease in property,
plant and equipment caused of factors such as transfers ofownership for some real estate.
Total liabilities were up ¥54.1 billion year on year to¥270.7 billion, the result of an increase of ¥63.4 billion

34Management’s Discussion and Analysis

TOYO’s dividend policy is to endeavor to distributeprofits to shareholders in accordance with operating
performance. We also strive to maintain stable dividends
from a medium-to long-term perspective while taking into
consideration the need for internal reserves that underpin
our business base. Our internal reserves are allocated todifferent reserves for strategic investment in new businessfields, for R&D investment, and in preparation for possible
business risk-related losses, and we intend to use thesefunds effectively to ensure growth going forward. The
year-end dividend for fiscal 2015 was ¥4.00 per share as
announced at the beginning of the period.

Fiscal 2016 Performance Forecast Outline (Consolidated)
Net sales¥450.0 billion

Operating income¥12.5 billion

Ordinary income¥10.5 billion

Profit attributable to owners of parent¥5.0 billion

New orders¥250.0 billion

Cash dividends¥6.00 per share

Forecast for Fiscal 2016
In fiscal 2016, in TOYO’s core plant market, although
restraints in the global large-scale upstream investment
can be seen due to the effects of a decline in crude oil
prices, conversely, TOYO expects an outlook where capital
investment in plants in areas such as petrochemicals andchemical fertilizers will remain on solid ground, back by
the expanded demand for energy, materials, and foodstuffs
in emerging markets. Additionally, in the infrastructure
field, demand is predicted for the coal-fired power plants
and mega-solar projects, and in the natural resources andenergy field, inquiries are being fielded for service work
ahead of future upstream development investment.
Taking these factors into account, TOYO has set its goal
for new orders in fiscal 2016 at ¥250.0 billion, which is¥100.0 billion lower than the ¥350.0 billion target for thesecond year of the Revival Plan announced in May 2015,

in consideration of an excess of ¥113.5 billion over thetarget of ¥330.0 billion in actual orders received for the
first year of the Revival Plan in fiscal 2015, and outstandingorders of over ¥800.0 billion.
Looking at performance in fiscal 2016 while speculating
for new orders, the current backlog of contracts and theprogress of projects in the future, TOYO expects net
sales of ¥450.0 billion, operating income of ¥12.5 billion,
ordinary income of ¥10.5 billion, and profit attributable toowners of parent of ¥5.0 billion.
In order to achieve these targets, the group intends
to continue with its aim to bolster profitability while
improving its financial standing, working across theCompany to regain the trust of stakeholders as soon as
possible.

Business Risk and Other Risks
bearing on investors’decisions. This is notoperating results and financial condition in thisrisks, but examples recognized by TOYO.

with the information concerning TOYO’s

intended to be a complete list of these potential

Business Risks
In the execution of our business operations, we

corporate governance. However, we are aware of

the purpose of ensuring an appropriate amountoccur, and may have a negative impact on our

promote sales activities to obtain new orders forof work, and have created and maintain various
risk management systems to prevent project
losses, from the proposal stage until thecompletion of the project, as part of our

the possibility that the risks listed below may
operating results and financial condition

stemming from a large decrease in order volume
or the suspension, termination, or significant
decline in project profitability:

1. Emergency situations such as war, civil commotion, riots, revolution, coup d’etat, terrorism, significant security concerns, and force
majeure events such as the spread of infectious disease, extraordinary natural phenomena, unusual weather or other acts ofnature, in the country or region where a project is carried out.
2. Notable changes in a country’s commerce, trade, manufacturing or financial policies, such as license approvals, customs clearance,
immigration controls, foreign exchange systems, communications, taxes and others.
3. Remarkable foreign exchange rate fluctuations.
4. Sudden increases in prices of equipment and materials, transportation, construction and others, tightening demand and supply.
5. Concerns over credit risk of main suppliers or contracted partners.
6. Significant or global contraction in capital investment activities in TOYO’s business fields, or a sharp decrease in opportunities toobtain new orders due to intensified competition.

To address these risks, TOYO will examine possible countermeasures by carefully gathering

information beforehand and working to fully understand the situation. We will strive to mitigate theserisks through such measures as enrolling in trade insurance, signing exchange contracts, setting

contract conditions with customers (including diversifying our contracts, setting quotations of contract

price, and setting payment conditions and risk sharing conditions with the customer), anddecentralizing the suppliers of our equipment and materials, and construction contractors.

Compliance Risks
TOYO’s business follows a wide range of laws

internal reporting system, and awareness building

international labor laws, privacy protection laws,

Committee with Chief Compliance Officer (CCO)

and regulations, including domestic andtax laws, import and export control regulations,and unfair competition prevention laws. There is apossibility that changes to these laws,
unforeseeable interpretations of these laws, orthe like will increase the burden of compliance. By
thorough familiarization of TOYO’s codes ofconduct, compliance manual and otherdocuments, development and operation of anand promotion activities by the Complianceas chairperson, TOYO is working diligently tobolster our compliance system. In the case wherean act that violates the law or is questionable may

occur, it would lead TOYO to confront problems
such as an increased burden, an interruption insales, or a loss of credibility, which may negatively
impact business performance.

Investment Risks
We strive to reduce the aforementioned risks inmethod affiliate, situations where we cannot

companies by creating the appropriate

or where additional funding is needed due tothe business operations of TOYO’s groupcollaboration system in which the division thatadministrates group companies can accurately

understand and manage their situation. For ourbusiness operations through our Brazilian equity

receive the corresponding return on investment,changes in the political and economic climate ofBrazil or trust problems with our business partners

may negatively impact TOYO’s businessperformance.

TOYO ENGINEERING CORPORATION Integrated Report 2016

integrated report that may have a significant

35

The following is a list of potential risks associatedConsolidated Financial Statements
Consolidated Balance Sheets
36

Toyo Engineering Corporation and Consolidated Subsidiaries March 31, 2016 and 2015

Consolidated Financial Statements

Thousands of U.S.
dollars (Note 1)

Millions of yen

Assets

2016

2015

2016

¥126,815¥ 90,753$1,126,043

78,261

62,556694,912

998

2,354

8,861

Costs on uncompleted construction contracts (Note 7)

54,41833,744483,200

Deferred tax assets (Note 22)

3,536

2,928

31,397

Accounts receivable-other

12,535

15,474111,303

Other

4,925

8,738

43,731(1,601)(1,988)(14,215)

279,889

214,561

2,485,251

Buildings and structures (Note 4)

16,29916,574

144,725

Machinery, vehicles, tools, furniture and fixtures

5,274

5,680

46,830Land (Note 4)

6,944

9,398

61,658

Lease assets

197

291

1,749

6

8

53

(15,735)(15,705)(139,717)

12,986

16,247

115,308

5

6

44

1,893

2,126

16,808

1,898

2,133

16,853

Investment securities (Note 3, 19)

21,47018,702

190,641

Long-term loans receivable

4,575

4,580

40,623

Deferred tax assets (Note 22)

1,168

5,559

10,371Other (Note 3)

4,502

4,175

39,975Current assets:
Cash and deposits (Note 16)
Notes receivables, accounts receivable fromcompleted construction contracts
Short-term investment securities (Note 19)

Allowance for doubtful accounts
Total current assets

Property, plant and equipment：

Construction in progress
Accumulated depreciation and impairment loss
Total property, plant and equipment

Intangible assets:
Goodwill
Other
Total intangible assets

Investment and other assets:(4,654)(4,351)(41,324)

Total investments and other assets

27,061

28,666240,285

Total non-current assets

41,94647,047372,456¥321,836¥261,609＄2,857,716

Allowance for doubtful accounts

Total assets
See notes to consolidated financial statements.

37

Liabilities and Net Assets

2016

2015

2016

¥ 85,653¥ 86,007

Short-term loans payable (Note 4, 6)

13,793

8,233

122,473

Income taxes payable

1,928

472

17,119112,994

44,2881,003,320

724

555

6,428

Current liabilities：
Notes payable, accounts payable for construction
contracts and other

Advances received on uncompleted construction contracts
Provision for bonuses$

760,548

Provision for warranties for completed construction

67

123

594

Provision for loss on construction contracts (Note 7)

1,404

3,924

12,466

Forward exchange contracts

7,316

15,37364,961

10,021

11,50588,980233,905

170,483

2,076,940

18,76423,604

166,613

Lease obligations

52

64

461

Deferred tax liabilities (Note 22)

835

9

7,414

5,732

4,693

50,896

Other
Total current liabilities
Non-current liabilities:
Long-term loans payable (Note 4, 6)

Net defined benefit liability (Note 21)

458

508

4,066

Liabilities from application of equity method

9,288

15,447

82,472

Other

1,762

1,818

15,645

Provision for loss on business of subsidiaries and affiliates

36,894

46,146

327,597

270,799

216,630

2,404,537

Capital stock (Note 15)

18,19818,198

161,587

Capital surplus

17,656

20,759156,774Retained earnings

11,433

7,724

101,518

(436)

(432)

(3,871)

46,852

46,249416,018

Total non-current liabilities
Total liabilities
Net assets:
Shareholders’ equity

Treasury stock
Total shareholders' equity
Accumulated other comprehensive income:
Valuation difference on available-for-sale securities

3,862

2,299

34,292

Deferred gains or losses on hedges(4,761)(9,717)(42,274)

Foreign currency translation adjustment

4,936

4,759

43,828Remeasurements of defined benefit plans
Total accumulated other comprehensive income
Non-controlling interests
Total net assets

87

1,308

772

4,124

(1,350)36,61858
51,03679
44,979515
453,169¥321,836¥261,609$2,857,716

Contingent liabilities (Note 5)
Total liabilities and net assets

TOYO ENGINEERING CORPORATION Integrated Report 2016

Thousands of U.S.
dollars (Note 1)

Millions of yen

Consolidated Statements of Income
38

Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015

Consolidated Financial Statements

Thousands of U.S.
dollars (Note 1)

Millions of yen

Net sales

Cost of sales (Note 9, 10)

2016

2015

2016

¥299,813¥311,454$2,662,164

30,513

17,214

269,299

Gross profit

Selling, general and administrative expenses (Note 8, 9)
Operating income (loss)

Non-operating income：Interest income
Dividends income
Foreign exchange gains
Reversal of allowance for doubtful accounts
Total non-operating income
Non-operating expenses：
Interest expenses
Equity in losses of affiliates
Total non-operating expenses
Ordinary income (loss)
Extraordinary income：Gain on sales of property, plant and equipment (Note 11)
Gain on sales of investment securities
Gain on sales of shares of subsidiaries and affiliates
Gain on sales of shares of subsidiaries
Reversal of reserve for repairs(7,356)

585

939

735

388

Extraordinary loss：

Loss on sales of shares of subsidiaries
Provision for loss on business of subsidiaries and affiliates
Total extraordinary loss
Profit (loss) before income taxes

Income taxes-deferred

3,360

18,122

356

740

3,161

Profit (loss)

Profit (loss) attributable to :
¥

2,734
6,526

665

2,992

652

8,281

19,712

9,255

21,28473,530
5,478

831

3,873

(25,280)

2,502

6,175

880

―

1,442

―

―

908

―

766

82,17934,38922,216
12,804
7,813

―

―

98

―

7,949

42,834

138

―
―

1,453

―

2,522

―

508

―
―

34

―

―

4,657

8,697

(21,989)

77,224

1,203

23,0503,085(2,279)3,015(20,913)

(22)

52

5,682

Total income taxes

5,194

2,041

2,596

Income taxes-current

98,446

1,218―

Loss on valuation of shares of subsidiaries

172,491

75―

Amortization of goodwill (Note 13)

270,937

160―

Loss on sales of property, plant and equipment (Note 12)

2,391,218

308

4,824

Total extraordinary income

Owners of parent (Note 25)

11,087―

Gain on sales of investments in capital of subsidiaries and affiliates

See notes to consolidated financial statements.

24,570617

Miscellaneous expenses

Non-controlling interests

19,426337

Miscellaneous income

294,240

3,038―

27,39350,452(1,076)¥(20,965)

26,771$(195)

26,975

Consolidated Statements of Comprehensive Income

2016

2015

2016

¥3,015¥(20,913)$26,771

Other comprehensive income:
Valuation difference on available-for-sale securities

1,563

1,010

13,878Deferred gains or losses on hedges

3,064(7,660)27,206

Foreign currency translation adjustment(1,418)

1,587(12,591)

Remeasurements of defined benefit plans(1,221)

613(10,841)

Share of other comprehensive income of affiliates accounted forusing equity method

3,489

(172)

30,980Total other comprehensive income
Comprehensive income (Note 14)

5,477(4,621)

48,632¥8,492¥(25,534)$75,404

8,513(25,593)

75,590

(21)

58

(186)

Comprehensive income attributable to :Owners of parent
Non-controlling interests
See notes to consolidated financial statements.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Thousands of U.S.
dollars (Note 1)

Millions of yen

Profit (loss)

39

Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015

Consolidated Statements of Changes in Net Assets (Note 15)
40

Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015

Consolidated Financial Statements

Millions of yen
Valuation

CapitalBalance at April 1, 2014stock

CapitalsurplusRetained

Treasury¥18,198¥20,759¥31,546

Cumulative effects of changes inaccounting policies
Balance at beginning of year
applied the change inaccounting policies

earnings

difference
on available

Deferred
gains or

Foreigncurrency

Remesurements

stockfor-salesecurities

losses ontranslationof defined

hedgesadjustment

benefit plans¥(408)¥1,288¥(1,133)¥2,427

¥695

Non-

Total

interests

assets¥1,458¥74,831controlling(1,514)
18,19820,75930,032

net(1,514)
(408)

1,288

(1,133)

2,427

695

1,458

73,317

Dividends from surplus(1,342)(1,342)

Loss attributable to ownersof parent(20,965)(20,965)

Purchase of treasury stock(23)

Net changes of items otherthan shareholders' equity
Balance at March 31, 2015

¥18,198¥20,759¥7,724¥(432)(23)
1,010(8,584)

2,332

613

(1,378)(6,006)¥2,299¥(9,717)¥4,759¥1,308¥79¥44,979

Millions of yen
Valuationdifference

DeferredForeign

Capitalstock

CapitalsurplusRetainedearnings

Treasurystock

on available
for-salesecurities¥18,198¥20,759¥7,724¥(432)¥2,299(3,102)

3,102―

Profit attributable toowners of parent

3,038

3,038

Change of scope of equity
method(2,431)(2,431)

Balance at April 1, 2015
Reversal of capital surplus

currencytranslation
adjustment

Remesurementsof defined
benefit plans

Noncontrollinginterests¥(9,717)¥4,759¥1,308¥79(3)

Purchase of treasury stock
Net changes of items other thanshareholders' equity
Balance at March 31, 2016

gains orlosses onhedges¥18,198¥17,656¥11,433¥(436)

Total
net
assets¥44,979

(3)
1,563

4,956

177

(1,221)

(21)

5,454

¥3,862¥(4,761)¥4,936¥87¥58¥51,036

Thousands of U.S. dollars (Note 1)

Capitalstock

CapitalsurplusRetainedearnings

Treasurystock

Valuationdifference
on available
for-salesecurities$161,587$184,327$68,584$(3,835)$20,413(27,543)

27,543―

Profit attributable to ownersof parent

26,97526,975

Change of scope of equity
method(21,585)

Balance at April 1, 2015
Reversal of capital surplus

Foreigncurrencytranslation
adjustment

Remesurementsof defined
benefit plans

Noncontrollinginterests

Total
net
assets$(86,281)$42,257$11,614$701$399,387(21,585)(26)

Purchase of treasury stock
Changes of items other thanshareholders' equity
Balance at March 31, 2016

Deferred
gains orlosses onhedges$161,587$156,774

See notes to consolidated financial statements.

$101,518$(3,871)(26)
13,87844,006

1,571(10,841)(186)

48,428$34,292$(42,274)$43,828

$772

$515

$453,169

Consolidated Statements of Cash Flows

Cash flows from investing activities:
Net decrease (increase) in time deposits
Purchase of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchase of intangible assets
Purchase of investment securities
Proceeds from sales of investment securities
Proceeds from sales of shares of subsidiaries and affiliates
Payments for sales of shares of subsidiaries resulting in change
in scope of consolidation
Proceeds from sales of shares of subsidiaries resulting in change
in scope of consolidation
Net decrease (increase) in short-term loans receivable
Other, net
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Net increase (decrease) in short-term loans payable
Proceeds from long-term loans payable
Repayment of long-term loans payable
Repayment of finance lease obligations
Cash dividends paid
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate change on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of period
Cash and cash equivalents at the end of period (Note 16)

See notes to consolidated financial statements.

2016

2015

2016

¥8,697
1,532
(9)
(84)
(1,020)¥(21,989)
2,489
1,686
(1,363)
2,127$77,224
13,603(79)(745)(9,057)(2,514)
(893)
356
(100)
(2,501)8,281(1,442)
―
(880)
―

409
(1,100)740
584(6,157)
19,712
(20)
1,613
―
34

(22,322)(7,929)3,161(887)(22,207)73,530(12,804)―(7,813)―(17,637)(13,986)(156,606)(21,300)
2,154
1,481

529
(1,738)29,353(189,131)
19,126
13,15070,293―(14,039)(685)

624,160―(50)
102
44,465
2,782
(351)
(519)
46,376508(2,659)(3,952)
2,059(767)(1,532)(4,192)(443)
905
394,823
24,702(3,116)(4,608)411,791

(512)
(281)
4,988
(581)
(3)
2,358
1,661

(528)
(575)
17,022
(903)
(274)
38
―

(4,546)(2,495)44,290(5,158)(26)
20,937
14,748

―

(196)

―

―
(18,527)(878)(11,776)852(5,554)
(291)
9,587

―
(164,508)(7,796)(104,564)

532
6,685
(6,059)
(55)
―
(3)
1,099
(2,035)33,66390,462¥124,125(2,608)1,800(11,877)(243)(1,342)(69)(14,341)
2,473(6,472)
96,934¥90,462

4,723
59,358(53,800)
(488)
―
(26)
9,758
(18,069)
298,907803,249$1,102,157

TOYO ENGINEERING CORPORATION Integrated Report 2016

Thousands of U.S.
dollars (Note 1)

Millions of yen

Cash flows from operating activities:
Profit (loss) before income taxes
Depreciation and amortization
Amortization of goodwill
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in net defined benefit liability
Increase (decrease) in provision for loss on construction
contracts
Interest and dividends income
Interest expenses
Foreign exchange losses (gains)
Loss (gain) on sales of property, plant and equipment
Equity in (earnings) losses of affiliates
Loss (gain) on sales of investment securities
Loss (gain) on sales of shares of subsidiaries
Loss (gain) on sales of shares of subsidiaries and affiliates
Loss (gain) on valuation of shares of subsidiaries
Decrease (increase) in notes receivable, accounts receivablefrom completed construction contracts
Decrease (increase) in costs on uncompleted construction
contracts
Decrease (increase) in accounts receivable-other
Increase (decrease) in notes and accounts payable-trade
Increase (decrease) in advances received on uncompleted
construction contracts
Increase (decrease) in reserve for repairs
Increase (decrease) in provision for loss on business of
subsidiaries and affiliates
Other, net
SubtotalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities

41

Toyo Engineering Corporation and Consolidated Subsidiaries Years ended March 31, 2016 and 2015

Notes to Consolidated Financial Statements
42

Toyo Engineering Corporation and Consolidated Subsidiaries

Consolidated Financial Statements

1. BASIS OF PREPARATION
Toyo Engineering Corporation (the“Company”) and its domestic consolidated subsidiaries maintain their accounting
records and prepare their financial statements in accordance with accounting principles generally accepted in Japan,
and its overseas consolidated subsidiaries maintain their books of account in conformity with those of their respective
countries of domicile. The accompanying consolidated financial statements have been compiled from the accounts
prepared by the Company in accordance with the provisions set forth in the Financial Instruments and Exchange Law
of Japan and with accounting principles generally accepted in Japan, which are different in certain respects as to theapplication and disclosure requirements of International Financial Reporting Standards. Certain reclassifications havebeen made to present the accompanying consolidated financial statements in a format which is familiar to readers
outside Japan.										For the convenience of readers, the accompanying consolidated financial statements and the relevant notes havealso been presented in U.S. dollars by translating all Japanese yen amounts at the exchange rate of ¥112.62 to U.S.$1.00
prevailing on March 31, 2016.										2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Principles of Consolidation

The accompanying consolidated financial statements include the accounts of the Company and its significant
subsidiaries. Investment in significant affiliates is accounted for by the equity method. As of March 31, 2016, thenumbers of consolidated subsidiaries and affiliates accounted for by the equity method were 13 and 6, respectively.
Toyo Engineering Korea Limited, Toyo Engineering Corporation, China and 5 other subsidiaries are consolidated using
their financial statements as of their respective fiscal year end, which falls on December 31, and necessary adjustments
are made to their financial statements to reflect any significant transactions from January 1 to March 31. Intercompany
accounts and transactions are eliminated in consolidation. The difference between the acquisition cost and the equity inthe net assets at the time of acquisition is amortized in principle within twenty years on a straight-line basis.
(b) Securities

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

The Company and certain consolidated subsidiaries enter into various derivative transactions in order to manage
certain risk arising from adverse fluctuations in foreign currency exchange rates and interest rates. Derivative financial
instruments are carried at fair value with changes in unrealized gain or loss charged or credited to operations, except
for those which meet the criteria for deferral hedge accounting under which unrealized gain of loss is deferred as acomponent of net assets.
Deferral hedge accounting is adopted for derivatives which is qualified as hedges, under which unrealized gainor loss is deferred. Hedging instruments are derivative transactions such as foreign exchange forward contract andinterest rate swap, and hedged items are primarily forecast sales denominated in foreign currencies, and receivables andpayables denominated in foreign currencies. Hedge effectiveness is not assessed if the substantial terms and conditionsof the hedging instruments and the hedged forecasted transactions are the same. The Company and its consolidated
subsidiaries manages its derivative transactions in accordance with its internal“Policies and Procedures for Risk
Management.”(d) Costs on Uncompleted Construction Contracts

Costs on uncompleted construction contracts is stated at cost, determined by the identified-cost method.

43

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

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

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

Provision for bonuses to employees is provided at the expected payment amount for the fiscal year.
(i) Provision for Warranties for Completed Construction
Provision for warranties for completed construction is provided based on past experience.
(j) Provision for Loss on Construction Contracts
Provision for loss on construction contracts is provided in case the material loss is expected for a certain large-scale
contract work.
(k) Provision for Loss on Business of Subsidiaries and Affiliates
Provision for loss on business of subsidiaries and affiliates is provided based on the financial position of the subsidiaries
and affiliates.
(l) Retirement Benefits
Net defined benefit liability at year-end is stated based on the fair value of plan assets and the projected benefit
obligation.
As to calculation of the projected benefit obligation, the expected benefit payments at the year-end have beenrecorded mainly at the amount calculated based on benefit formula.
Actuarial gain or loss is amortized by the straight-line method over 9 years within the average of the estimatedremaining service years of the employees in the year following the year of recognition. Past service cost is amortized as
incurred over 13 years within the average of the estimated remaining service years when incurred.
Unamortized actuarial gain or loss are provided with tax effect at remeasurements of defined benefit plans under total
other comprehensive income of net assets.
(m)   Foreign Currency Translation
Both short-term and long-term receivables and payables in foreign currencies are translated at the rates of exchange in
effect at the balance sheet date and differences arising from the translation of the accounts of foreign subsidiaries andaffiliates are included in the consolidated statements of income.
The balance sheet accounts of the consolidated foreign subsidiaries are translated at the rates of exchange in effectat the balance sheet date, except for capital stock and capital surplus, which are translated at their historical exchange
rates. Revenues, expenses and net income for the year are translated at the rates of exchange in effect at the balance
sheet date. Differences arising from translation of the accounts of foreign subsidiaries and affiliates are presented as“Foreign currency translation adjustment”and“Non-controlling interests”in the accompanying consolidated balance
sheets.

TOYO ENGINEERING CORPORATION Integrated Report 2016(e) Depreciation and Amortization

44
Consolidated Financial Statements(n) Recognition of Revenues

Revenues and costs of construction contracts of which the percentage of completion can be reliably estimated, arerecognized by the percentage-of-completion method. The percentage of completion is calculated at the cost incurred asa percentage of the estimated total cost. The completed-contract method continues to be applied for contracts for which
the percentage of completion cannot be reliably estimated.
(o) Cash and Cash Equivalents

For the purposes of the consolidated statements of cash flows, the Company and its consolidated subsidiaries consider
all highly liquid investments with insignificant risk of changes in value purchased with an original maturity of threemonths or less to be cash equivalents.
(p) Consumption Tax

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

The Company files a consolidated tax return with domestic subsidiaries.
(r) Advances Received on Uncompleted Construction Contracts
Advances received on uncompleted construction contracts from customers are shown as a liability, not as a deduction
from the amount of costs on uncompleted construction contracts.
(s) 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.
(t) Per Share Information
Net income per share is computed based on the weighted average number of shares outstanding during each year.
Diluted net income per share is not presented since there was no potential for dilution by the issuance of common stock.
Total net assets per share is computed based on outstanding shares at the balance sheet date.
(u) Research and Development Costs
Research and development costs are charged to income when incurred.
(Accounting change)
The“Revised Accounting Standard for Business Combinations”(Accounting Standards Board of Japan (ASBJ) Statement
No. 21, September 13, 2013, hereinafter referred to as the“Business Combinations Accounting Standards”), the“Revised
Accounting Standard for Consolidated Financial Statements”(ASBJ Statement No. 22, September 13, 2013, hereinafterreferred to as the“Consolidated Financial Statements Accounting Standard”), and the“Revised Accounting Standard forBusiness Divestitures”(ASBJ Statement No. 7, September 13, 2013, hereinafter referred to as the“Business Divestitures
Accounting Standard”) became applicable from the fiscal year ended March 31, 2016. As a result, for subsidiaries theCompany continues to control, differences arising from changes in its ownership interests are entered in capital surplus,
and costs associated with the acquisition of shares are now treated as expenses in the fiscal year in which they are
incurred. In addition, for business combinations that are implemented on and after the beginning of the fiscal year ended
March 31, 2016, the allocation of the cost of acquisitions, as determined after review of provisional accounting treatment,is reflected in the consolidated financial statements for the period in which the business combination took place.
Additionally, the Company has changed the method of presenting consolidated net income and changed minority
interests in income to the non-controlling interests item. To reflect these changes, the Company has reclassified theconsolidated financial statements for the previous fiscal year.
Regarding the application of the Business Combinations Accounting Standards, the Company has applied theprovisional accounting treatment contained in Business Combination Accounting Standard 58-2 (4), Consolidated
Financial Statements Accounting Standard 44-5 (4), and Business Divestitures Accounting Standard 57-4 (4) and will apply
these standards from the beginning of the fiscal year ended March 31, 2016.
In the consolidated statements of cash flows effective for the fiscal year ended March 31, 2016, the following changes
were made in the method of classification. Cash flows related to purchases or sales of shares of subsidiaries that do not
result in a change in the scope of consolidation have been included in“Cash flows from financing activities.”Cash flows
related to expenses arising due to purchases of shares of subsidiaries that result in a change in the scope of consolidationor cash flows related to expenses due to purchases or sales of shares of subsidiaries that do not result in a change of thescope of consolidation have been included in“Cash flows from operating activities.”
There was no impact on the consolidated financial statements and per share information for the fiscal year ended
March 31, 2016 as a result of these changes.

45(1) Overview
While the accounting treatment on recoverability of deferred tax assets basically follows the framework of the Auditing
Treatment Regarding Judgment of the Recoverability of Deferred Tax Assets outlined in the Japanese Institute of Certified
Public Accountants (JICPA) Industry Audit Committee Statement No. 66, i.e. a framework for estimating deferred tax
assets by classifying entities into five categories and calculating the amount according to those categories, it has made thefollowing necessary revisions on treatment.
(i) Accounting treatments for entities not satisfying any of the category criteria from (Category 1) to (Category 5).
(ii) Category criteria of (Category 2) and (Category 3).
(iii) Accounting treatments for unscheduled deductible temporary differences for entities in (Category 2).
(iv) Accounting treatments for reasonably estimated period for taxable income before temporary differences for entities in(Category 3).
(v) Accounting treatments for entities satisfying the category criteria of (Category 4) and also falling in (Category 2) or(Category 3).
(2) Effective date
The above revisions are scheduled to be applied from the beginning of the fiscal year ending March 31, 2017.
(3) Effects of application of the implementation guidance
At present, the Company is in the process of evaluating the impact on the consolidated financial statements from theadoption of this implementation guidance.

TOYO ENGINEERING CORPORATION Integrated Report 2016

(Accounting standards issued but not yet effective)
Implementation Guidance on Recoverability of Deferred Tax Assets (ASBJ Guidance No. 26, March 28, 2015)		

46
Consolidated Financial Statements

3. INVESTMENTS AND OTHER ASSETS
Among investment securities and other in investment and other assets, the amounts of shares of unconsolidated
subsidiaries and affiliates as of March 31, 2016 and 2015 are as follows:
Millions of yen

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

2016

2015

¥11,441524¥10,347
428

Thousands of
U.S. dollars

2016$101,589
4,652

4. SHORT-TERM LOANS PAYABLE AND LONG-TERM LOANS PAYABLE
The following assets at March 31, 2016 and 2015 were pledged as collateral:
Millions of yen

Years ended March 31,
Collateral
Buildings
Land
Total

2016

2015

¥1,155
1,186¥2,341¥1,231
1,186¥2,418

Thousands of
U.S. dollars

2016$10,255
10,530$20,786

These assets were pledged for issuing the performance bonds. There is not any corresponding obligation as of March 31,
2016.
The following schedule shows the maturities of long-term loans payable subsequent to March 31, 2016:

Years ended March 31,
2017
2018
2019
2020
2021
2022 and thereafter

Millions of yen

Thousands of
U.S. dollars¥9,793
6,019
4,756
1,711
5,267
1,009

$86,956
53,44542,23015,192
46,7678,959

5. CONTINGENT LIABILITIESFor the year ended March 31, 2016

(Guarantee obligations and Guarantees)

Guaranteed parties
ATLATEC,S.A.DE C.V.
Toyo Setal Empreendimentos Ltda.
Estaleiros do Brasil Ltda.
Other
Total

Millions of yen

Thousands of
U.S. dollars

¥ 400
2,325
599
79
¥3,405$ 3,551
20,644
5,318
701$30,234

Details

Loan guarantee
Performance bondPayment guarantee
Loan guarantee etc.

For the year ended March 31, 2015

(Guarantee obligations and Guarantees)

Guaranteed parties
ATLATEC,S.A.DE C.V.
Toyo Setal Empreendimentos Ltda.
Other
Total

Millions of yen

¥ 180
2,764
52
¥2,996

Details

Loan guarantee
Performance bond
Loan guarantee etc.

47

In order to maintain access to a stable and effective source of operating capital, the Company has entered into
commitment-line contracts with nine trading banks.

Years ended March 31,
Commitment Line
Amount of commitment line contract
Used amount
Balance of unused commitment line

Millions of yen

2016

2015

¥26,646
10,258¥16,387¥20,0115,604¥14,406

Thousands of
U.S. dollars

2016$236,600
91,085$145,507

7. COSTS ON UNCOMPLETED CONSTRUCTION CONTRACTS
Costs on uncompleted construction contracts and provision for loss on construction contracts related to the construction
contracts with substantial anticipated losses are not offset as follows:

Years ended March 31,
Costs on uncompleted construction contracts

Millions of yen

2016
¥600

2015
¥2,575

Thousands of
U.S. dollars

2016$5,327

8. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
The main components of selling, general and administrative expenses for the years ended March 31, 2016 and 2015 are as
follows:

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

Millions of yen

2016¥9,195
236
957
549
449

2015
¥11,048
463
874
530
762

Thousands of
U.S. dollars

2016$81,646
2,095
8,497
4,874
3,986

9. RESEARCH AND DEVELOPMENT COSTS
Research and development costs included in cost of sales and selling, general and administrative expenses for the years
ended March 31, 2016 and 2015 amounted to ¥449 million ( $3,986 thousand) and ¥762 million, respectively.

10. PROVISION FOR LOSS ON CONSTRUCTION CONTRACTS
Gross amount of increase in provision for loss on construction contracts as of March 31, 2016 and 2015 are as follows:

Years ended March 31,
Amount of provision for loss on construction contracts

Millions of yen

2016¥1,1102015¥3,389Thousands of
U.S. dollars

2016$9,856TOYO ENGINEERING CORPORATION Integrated Report 2016

6. COMMITMENT LINE CONTRACTS

48
Consolidated Financial Statements

11. GAIN ON SALES OF PROPERTY, PLANT AND EQUIPMENT
Breakdown of gain on sales of property, plant and equipment is as follows:
Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

Building and structures
Land
Total

2016

¥ 393
2,109
¥2,502

2015

¥ 461
5,714
¥6,1752016$ 3,489
18,726$22,215

12. LOSS ON SALES OF PROPERTY, PLANT AND EQUIPMENT
Breakdown of gain on sales of property, plant and equipment is as follows:

Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

Land

2016

¥―

2015

¥138

2016

13. AMORTIZATION OF GOODWILL
In accordance with Section 32 of“Practical Guidelines on Accounting Standard for Capital Consolidation Procedures in
Preparing Consolidated Financial Statements”(JICPA Accounting Practice Committee Statement No.7, November 28,2014), as write-down of its investment in a subsidiary being recognized, the Company recognized a full amortizationof goodwill associated with the affiliate for the year ended March 31, 2015.

$―

49

Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

2016

2015

¥3,648¥ 1,387$32,392

2,206

1,366

19,587

Valuation difference on available-for-sale securities

1,563

1,010

13,878Amount arising during the year

4,254

(10,871)

37,773

4,658(10,871)

Valuation difference on available-for-sale securities:
Amount arising during the year

(1,442)

Reclassification adjustments for gains and losses realized in net income
The amount of valuation on available-for-sale securities before tax effect

(20)

(642)

Tax effect

Deferred gains and losses on hedges:

Reclassification adjustments for gains and losses realized in net income

The amount of deferred gains and losses on hedges before tax effect

2016

(356)

403

―

(5,700)3,578

41,360

3,064

3,210

(7,660)(14,144)

Amount arising during the year

(1,139)1,587(10,113)

The amount of foreign currency translation adjustment before tax effect(1,418)

1,587(12,591)

Foreign currency translation adjustment(1,418)

1,587(12,591)

Amount arising during the year

(1,756)973(15,592)

The amount of remeasurements of defined benefit plans adjustment(1,832)884(16,267)

Remeasurements of defined benefit plans adjustment(1,221)

Tax effect

Deferred gains or losses on hedges

Foreign currency translation adjustments:(1,593)(12,804)(278)

Reclassification adjustments for gains and losses realized in net income――

Tax effectRemeasurements of defined benefit plans adjustment:

―

(76)

Reclassification adjustments for gains and losses realized in net income

Tax effect

Share of other comprehensive income of associates accounted forusing equity method:Amount arising during the year
Total other comprehensive income(89)

27,206(2,468)
―

(674)

611

(270)
613

(10,841)

5,425

3,489
¥5,477(172)¥(4,621)30,980$48,632

15. SUPPLEMENTARY INFORMATION FOR CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2016(a) Type and number of outstanding shares
Number of shares
Type of shares

Balance at beginningof yearIncrease in shares
during the year

Decrease in shares
during the year

Balance at end ofyear

Issued stock:
Common stock

192,792,539――

192,792,539

Treasury stock:
Common stock
Total

1,076,735
1,076,735

12,521
12,521――

1,089,256
1,089,256

Total

192,792,539――

Note：Treasury stock increased by 12,521 shares due to the purchase of shares less than one unit.

192,792,539

TOYO ENGINEERING CORPORATION Integrated Report 2016

14. OTHER COMPREHENSIVE INCOME

50
Consolidated Financial Statements(b) Dividends(b-1) Dividends with a shareholders’cut-off date during the fiscal year ended March 31, 2016 but an effective date
subsequent to the fiscal year ended March 31, 2017.
Date ofapproval

Resolution
approved by

Paid
from

Type ofsharesAmount(Millions ofyen)Amount(Thousands of
U.S. dollars)

Amount par
share (Yen)

June 29,2016

Annualgeneralmeeting ofshareholders

CapitalSurplus

Common
stock

766

6,801

4.0

Amount par
Shareholders’ Effective
share
cut-off date
date
(U.S. dollars)

March 31,
2016

0.03

June 30,
2016

For the year ended March 31, 2015(a) Type and number of outstanding shares
Number of shares
Type of shares

Issued stock:
Common stock
Total

Treasury stock:
Common stock
Total

Balance at beginningof yearIncrease in shares
during the year

Decrease in shares
during the year

Balance at end ofyear

192,792,539
192,792,539

―
―

―
―

192,792,539
192,792,539

1,024,116
1,024,116

52,61952,619

――1,076,735
1,076,735

Note：Treasury stock increased by 52,619 shares due to the purchase of shares less than one unit.

(b) Dividends(b-1) Dividends from surplus
Date ofapproval

Resolution
approved byType ofsharesJune 25,
2014

Annualgeneralmeeting ofshareholders

Commonstock

November 13,
2014

Board of directors

Commonstock

Amount par
share
(Yen)

Shareholders’
cut-off date

Effective
date

575

3.0

March 31,2014

June 26,
2014

766

4.0

September 30,
2014

December 1,
2014

Amount(Millions of yen)

51

A reconciliation between the balance of cash and deposits reflected in the accompanying consolidated balance sheets andthat of cash and cash equivalents in the accompanying consolidated statements of cash flows as of March 31, 2016 and2015 are summarized as follows:

Millions of yen

Cash and deposits
Time deposits with maturities over three months

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

Thousands of
U.S. dollars

2016

2015

¥90,753(2,290)$1,126,043(23,876)―¥124,125

1,999¥90,462―$1,102,157¥126,815(2,689)2016

The amounts of assets and liabilities of Toyo Business Engineering Corporation, over which the Company lost control

during the fiscal year ended March 31, 2015, the total consideration and net cash and cash equivalents received arisingfrom the sales of shares are as follows:

Millions of yen

Current assets
Non-current assets
Current liabilities

Non-controlling interests

Company's interests after losing control
Gain on sales of shares

Total consideration received

Cash and cash equivalents of subsidiary over which control is lost
Net cash and cash equivalents received

2015¥3,7091,751(2,629)(1,387)
(917)
908

1,435

(583)
¥   852

The amounts of assets and liabilities of Tec Estate Corporation, over which the Company lost control during the fiscal year

ended March 31, 2015, the total consideration and net cash and cash equivalents paid arising from the sales of shares are
as follows:

Millions of yen

Current assets
Non-current assets
Current liabilities

Non-current liabilities

2015

¥ 787
3,029

(579)
(292)

Loss on sales of shares(2,522)

Cash and cash equivalents of subsidiary over which control is lost
Net cash and cash equivalents paid

(619)¥(196)

Total consideration received

423

TOYO ENGINEERING CORPORATION Integrated Report 2016

16. CONSOLIDATED STATEMENTS OF CASH FLOWS

52
Consolidated Financial Statements

17. LEASESThe Company and its consolidated subsidiaries have adopted“Accounting Standard for Lease Transactions.”(a) Finance Leases

Finance leases are capitalized, and recorded on the balance sheet based on finance lease contracts.
(b) Operating Leases

Operating leases are not capitalized. The followings are future minimum lease payments and receivables:(b-1) Operating Leases (as Lessee)

Future minimum lease payments subsequent to March 31, 2016 and 2015 for noncancelable operating leases are
summarized as follows:

Thousands of
U.S. dollars

Millions of yen

Years ended March 31,

Within one year
Over one year
Total

2016

¥ 704
1,621
¥2,326

2015

¥493
271
¥765

2016

$ 6,251
14,393$20,653

18. FINANCIAL INSTRUMENTS
For the year ended March 31, 2016

1. Condition of Financial Instruments

The Company and its consolidated subsidiaries hold their temporary cash surplus through low-risk financial assets and raise
funds through borrowing from banks.

Derivative financial instruments are utilized for reducing the risk of exchange rate fluctuations, interest rate fluctuations, andcredit. Therefore, there are no derivatives for speculative purpose.

Notes receivable, accounts receivable from completed construction contracts are exposed to credit risks of customers

and risks of exchange rate fluctuations. The Company deals with these risks by organizing careful reviews on being awarded

contracts, letters of credit, and export credit insurance. The Company minimizes exchange fluctuation risks by organizing theircorresponding forward-exchange contracts, in principle.

Short-term investment securities and investment securities are exposed to volatility risks of market price. The Company

deals with these risks by periodic monitoring, as they mainly consist of short-term held-to-maturity bonds and stocks of ourbusiness partner.

Notes payable, accounts payable for construction contracts and other are mostly due within one year.

Borrowings from banks are raised mainly for capital investment or working capital. For some long-term loans payable, theCompany entered into interest swap agreements to minimize risks of interest rate fluctuations.

Regarding derivatives, forward-exchange contracts are used to minimize exchange fluctuation in foreign-currency

operations, and interest-swap contracts are used to minimize interest rate fluctuations.

The fair value of financial instruments is based on their quoted market prices, if available, or reasonably estimatedamounts if there is no market price. Since various assumptions and factors are reflected in estimating the fair value, different
assumptions and factors could result in different fair value. In addition, the notional amounts below are not necessarily
indicative of the actual market risk involved in derivative transactions.
2 Fair Value of Financial Instruments

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

53

Unrealized
gain / (loss)

At March 31, 2016

Book value

Fair value(1)Cash and deposits¥126,815¥126,815¥―(2)Notes receivable, accounts receivables fromcompleted construction contracts

78,261

Less: Allowance for doubtful accounts (*1)(307)

Notes receivable, accounts receivable fromcompleted construction contracts, net

77,953

77,981

27(3)Accounts receivables-otherLess: Allowance for doubtful accounts (*1)
Accounts receivable-other, net

12,535(80)
12,454

12,455

0(4)Short-term investment securities and investments securities
Available-for-sale securities
Total of assets

9,200
226,4249,200
226,451
85,6544,000
28,752
118,406

―
27

0
―
194
195

(113)
(6,478)¥ (6,592)(113)(6,478)¥ (6,592)――¥―(1)Notes and accounts payable for construction contracts and other(2)Short-term loans payable(3)Long-term loans payable (including current portion)
Total of liabilities
Derivatives (*2)
not designated as hedging instruments
designated as hedging instruments
Total derivatives

85,6534,000
28,557
118,211(*1) Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed above
are offset by the corresponding figures of allowance for doubtful accounts listed above.

(*2) Net receivables and payables derived as a result of derivative transactions are presented. Values in parentheses show
contra-asset account, net liabilities and unrealized loss.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Millions of yen

54Consolidated Financial Statements

Thousands of U.S. dollars
Unrealized
gain / (loss)

At March 31, 2016

Book value

Fair value(1)Cash and deposits$1,126,043$1,126,043$―

692,177

692,425

239

111,303(710)
110,584

110,593

981,6902,010,513

81,6902,010,752
760,557
35,517
255,301
1,051,376

―
239

9
―
1,722
1,731

(1,003)(57,520)(58,533)(1,003)(57,520)(58,533)――$―(2)Notes receivable, accounts receivables fromcompleted construction contracts

694,912(2,725)

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

760,548
35,517
253,569
1,049,644$$

Millions of yen

At March 31, 2015

Book value

Fair value(1)Cash and deposits(2)Notes receivable, accounts receivables fromcompleted construction contracts
Less: Allowance for doubtful accounts (*1)
Notes receivable, accounts receivable fromcompleted construction contracts, net¥90,753

62,45762,453(4)(3)Accounts receivables-otherLess: Allowance for doubtful accounts (*1)
Accounts receivable-other, net

15,474(71)
15,403

15,403(0)(4)Short-term investment securities and investment securities
Held-to-maturity securities
Available-for-sale securities
Total of assets

1,999
6,748
177,362

1,999
6,748
177,357(0)―(4)(1)Notes and accounts payable for construction contracts and other(2)Short-term loans payable(3)Long-term loans payable (including current portion)
Total of liabilities

Derivatives (*2)
not designated as hedging instruments
designated as hedging instruments
Total derivatives¥90,753

Unrealized
gain / (loss)¥―

62,556(98)

86,0073,473
28,364
117,845

86,003
3,473
28,477
117,953

(4)
―
112
108

(136)
(11,826)¥(11,962)(136)(11,826)¥(11,962)

―
―
―

¥

(*1) Notes receivable, accounts receivable from completed construction contracts and accounts receivable—other listed above
are offset by the corresponding figures of allowance for doubtful accounts listed above.

(*2) Net receivables and payables derived as a result of derivative transactions are presented. Values in parentheses show
contra-asset account, net liabilities and unrealized loss.

55

Assets(1) Cash and deposits
Book values are used as fair values because they are nearly equal to such book values.
(2) (3) Notes receivable, accounts receivable from completed construction contracts and accounts receivable—otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by the proper discount rate coupledwith period for settlement and credit risks.
(4) Short-term investment securities and investment securities
Fair value of stock items are based on the market prices and bond items are based on the market prices or their price provided
by the financial institution.
Liabilities(1) Notes payable, accounts payable for construction contracts and otherBook values for items which are settled in a short-term are used as fair values of these items because they are nearly equal tosuch book values. Fair values of other items are based on the present value discounted by the proper discount rate coupledwith period for settlement and credit risks.
(2) Short-term loans payable
Book values are used as fair values because they are nearly equal to such book values.
(3) Long-term loans payable (including current portion)
The present values of the principal and total interest, discounted by the rate assumed to be applied to the new borrowings
under the same conditions, are used as the fair values.
Derivative Transactions
See“20. DERIVATIVE TRANSACTIONS.“(Note 2) Financial instruments of which it is extremely difficult to determine the fair value
Unlisted securities that amounted to ¥2,210 million ($19,623 thousand) as of March 31, 2016 and ¥2,356 million
as of March 31, 2015 are excluded from the above table because they are deemed extremely difficult to determine
the fair values; they do not have market prices and it is not possible to conduct alternative methods such as theestimation of their future cash flows.
For the fiscal year ended March 31, 2016, ￥1 million ($8 thousand) is recognized as impairment
associated with unlisted securities.
(Note 3) Redemption schedule for monetary assets with maturity date and short-term investment and investment securities
Millions of yen

At March 31, 2016
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-other
Available-for-sale securities
Total

After five years
through ten years

After ten years

―

¥―

¥―

71,342

6,919

―

―

12,405998¥ 211,561

129―¥7,048

―
―
¥―

―
―
¥―

Within one year

After one year
through five years

After five years
through ten years

After ten years$―$―

Within one year¥

126,815After one year
through five years¥

Thousands of U.S. dollars

At March 31, 2016
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-other
Available-for-sale securities
Total$ 1,126,043$―

633,475

61,436――110,149
8,861$1,878,538

1,145―$62,582

―
―
$―

―
―
$―

TOYO ENGINEERING CORPORATION Integrated Report 2016

(Note 1) Computational method and related issues

56
Consolidated Financial Statements

Millions of yen

At March 31, 2015
Cash and deposits
Notes and accounts receivablefrom completed construction contracts
Accounts receivable-otherHeld-to-maturity securities
Available-for-sale securities
Total

Within one year

After one year
through five years¥ 90,753¥

After five years
through ten years

After ten years

―

¥―

¥―

56,511

6,045

―

―

15,3501,999
354¥164,969

123――¥6,169

―
―
―
¥―

―
―
―
¥―

(Note 4) Schedule for repayment of bonds and long-term loans payable
See“4. SHORT-TERM LOANS PAYABLE AND LONG-TERM LOANS PAYABLE.”

19. INVESTMENT SECURITIESThe acquisition cost, unrealized gain and loss and the related book value of available-for-sale securities with available fairvalues at March 31, 2016 are summarized as follows:

Millions of yen

At March 31, 2016

Book
value

Acquisition
cost

Unrealized
Gain

Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal

Securities whose carrying value does not exceed their acquisition
costs:
Other
Subtotal
Total¥8,201¥8,201¥2,332¥2,332¥5,869¥5,869¥ 998
998¥9,200¥ 998
998¥3,330¥At March 31, 2016

Book
value

Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal$72,820$72,820$20,706$20,706$52,113$52,113$ 8,861
8,861$81,690$ 8,861
8,861$29,568$――¥5,869Thousands of U.S. dollars

Securities whose carrying value does not exceed their acquisition
costs:
Other
Subtotal
Total

Acquisition
cost

Unrealized
Gain

―
―
$52,113

57

Millions of yen

At March 31, 2016

Sales

Equity securities¥2,402Sum of gainon salesSum of loss
on sales¥1,442¥―Thousands of U.S. dollars

At March 31, 2016

Sales

Equity securities$21,328

Sum of gainon salesSum of loss
on sales$12,804$―

The book value, unrealized gain and loss and the related fair value of held-to-maturity securities at March 31, 2015 aresummarized as follows:

Millions of yen

At March 31, 2015

Book
value

Fair
value

Securities whose fair value does not exceed their carrying value:
Commercial paper
Total¥1,999¥1,999¥1,999¥1,999Unrealized
gain

¥(0)
¥(0)

The acquisition cost, unrealized gain and loss and the related book value of available-for-sale securities with available fairvalues at March 31, 2015 are summarized as follows:

Millions of yen

At March 31, 2015

Book
value

Securities whose carrying value exceeds their acquisition costs:
Equity securities
Subtotal¥6,393¥6,393¥2,863¥2,863¥3,530¥3,530¥   354354¥6,748¥   354354¥3,218¥

Securities whose carrying value does not exceed their acquisition costs:
Other
Subtotal
Total

Selling amount and gain on sales of securities at March 31, 2015 are as follows:		

At March 31, 2015

Sales

Equity securities¥32

Acquisition
cost

Unrealized
gain

―
―
¥3,530Millions of yen
Sum of gainon sales¥20

Sum of loss
on sales¥―

For the fiscal year ended March 31, 2015, ¥34 million under securities (share of subsidiaries ¥34 million, and other of ¥0
million are recognized as impairment loss associated with unlisted securities.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Selling amount and gain on sales of securities at March 31, 2016 are as follows:58
Consolidated Financial Statements

20. DERIVATIVE TRANSACTIONS
For the year ended March 31, 2016

1. Derivatives not designated as hedging instruments(1) Currency-related

Millions of yen

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

All notionalamounts

Notional
amounts due
over one year

¥4,844
1,581

¥347
―

¥ (55)(13)¥ (55)
(13)

314
1,325
0
¥8,067

295
163
―
¥806

(25)
(19)
(0)
¥(113)

(25)
(19)
(0)
¥(113)

Fair value

Unrealized
gain / (loss)

Thousands of U.S. dollars

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

All notionalamounts

Notional
amounts due
over one year

$43,011
14,038$3,081―$ (488)(115)$ (488)
(115)

2,788
11,765
0$71,630

2,619
1,447
―
$7,156

(221)
(168)
(0)
$(1,003)

(221)
(168)
(0)
$(1,003)

Fair value

Unrealized
gain / (loss)

59(1) Currency-related

Millions of yen
Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling

USD
EUR
CAD
SEK
Buying
USD
EUR
SEK
KRW
Alternative method
Foreign exchange forward
contracts
Selling
USD
EUR
CAD
Buying
USD
EUR
KRW
Total

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional
amounts due
over one year

Fair value¥101,256
4,107
348
13,977¥47,368
1,012
―
6,465

¥(4,850)
145
20
(118)

66,645
15,684
11,238
1,709

39,440
5,385
5,608
583

(932)
(557)
(61)
(123)

30,801
17
3,010

―
―
―

993
2,398
692
¥252,883―――¥105,865

N/A

Computational
method of fairvalue

Based onpricesoffered byfinancial
institutions

Based onforwardexchange
contract prices

TOYO ENGINEERING CORPORATION Integrated Report 2016

2. Derivatives designated as hedging instruments

60
Consolidated Financial Statements

Thousands of U.S. dollars
Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling

USD
EUR
CAD
SEK
Buying
USD
EUR
SEK
KRW
Alternative method
Foreign exchange forward
contracts
Selling
USD
EUR
CAD
Buying
USD
EUR
KRW
Total

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional
amounts due
over one year

$899,094
36,467
3,090
124,107$420,600
8,985―
57,405$(43,065)
1,287
177(1,047)591,768
139,264
99,78615,174350,204
47,81549,795
5,176(8,275)(4,945)(541)(1,092)

273,494150
26,727

―
―
―

8,817
21,292
6,144$2,245,453―――$940,019

Fair value

N/A

Computational
method of fairvalue

Based onpricesoffered byfinancial
institutions

Based onforwardexchange
contract
prices(2)Interest-related
Millions of yen
Transaction
type

Main hedged
items

All notionalamounts

Notional
amounts due
over one year

Special method for Interest swap
interest rate
contracts
swaps
floating for
fixed rateswap

Long-termloans payable¥9,740¥8,340¥9,740¥8,340Accounting method

Total

Fair value

N/A

Computational
method of fairvalue

Based on prices
offered byfinancial
institutions

Thousands of U.S. dollars
Transaction
type

Main hedged
items

All notionalamounts

Notional
amounts due
over one year

Special method for Interest swap
interest rate
contracts
swaps
floating for
fixed rateswap

Long-termloans payable$86,485$74,054$86,485$74,054

Accounting method

Total

Fair value

N/A

Computational
method of fairvalue

Based on prices
offered byfinancial
institutions

61

1. Derivatives not designated as hedging instruments(1) Currency-related

Millions of yen
All notionalamounts

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

Notional amounts due
over one year

Fair value

Unrealized
gain/(loss)¥10,869
459
2,672

¥964
50
―

¥16
(2)
124

¥16
(2)
124

402
1,833
¥16,237――¥1,014(3)(270)¥(136)(3)(270)¥(136)

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

Millions of yen
Main hedged
items

Deferral hedge accounting method:
Foreign exchange forward
contracts
Selling

USD
EUR
SGD
CAD
Buying
USD
EUR
SEK
KRW
JPY
Alternative method
Foreign exchange forward
contracts
Selling
USD
CAD
Buying
USD
EUR
SEK
Total

Accounts
receivableandaccounts
payableAccounts
receivableandaccounts
payableAll notionalamounts

Notional amounts due
over one year

Fair value¥141,107
3,786
391
540

¥74,8542,274―
27¥(16,026)
68
(44)
(6)

67,37024,513
34
5,437
158

38,75910,377
―
1,536
―

6,534
(1,364)(0)(34)
011,971
656

―
610

2,438
942
185
¥259,534―――¥128,439(2)Interest-related

N/A

Computational
method of fair value

Based onpricesoffered byfinancial
institutions

Based onforwardexchange
contract prices

Millions of yen
Transaction
type

Main hedged
itemsInterest swap
contracts
floating for
fixed rateswap

Long-termloans payable

All notionalamounts

Notional amounts due
over one year

Fair value

Computational
method of fair value

Accounting method:
Special method forinterest rate
swap

Total

¥9,400¥8,120¥9,400¥8,120

N/A

Based onprices offeredby financial
institutions

TOYO ENGINEERING CORPORATION Integrated Report 2016

For the year ended March 31, 2015

62
Consolidated Financial Statements

21. RETIREMENT BENEFITSThe Company and parts of consolidated subsidiaries have either funded or unfunded defined benefit plans and lump-sum
payment plans and the defined contribution plans.

The Company and parts of consolidated subsidiaries provide lump-sum or pension which is based on salary andservice time in the defined benefit plans and introduce cash balance-style pension plans in a part of defined benefit plans.
In this institution, hypothetical individual employee accounts which are equal to the source of deposit and pension byeach buyer are established. In this account, the interest credit which is based on the movement of market interest rate
and the contribution credit which is based on the salary level are accumulated.

In lump-sum payments plans, the lump-sum based on the salary and service time as retirement benefits is provided.

Defined contribution plans and lump-sum payments for parts of consolidated subsidiaries adopt the simplified method

which calculates retirement benefit liabilities and retirement benefit expenses.
(1) Changes in defined obligations

Thousands of
U.S. dollars

Millions of yen

April 1
Cumulative effects of changes in accounting policies
Balance at beginning of year applied the change in accounting
policies
Service cost
Interest cost
Actuarial gains and losses
Benefit paid
Other
March 312016

¥18,461
―

2015

2016

¥15,721
2,222$163,922―

18,461

17,944

163,922

1,042
315
1,494
(1,185)(295)¥19,833

985
319
322
(1,394)283¥18,461

9,252
2,797
13,265(10,522)(2,619)$176,105(2) Changes in plan assets
Thousands of
U.S. dollars

Millions of yen

April 1
Expected return on plan assets
Actuarial gains and losses
Contributions by the employer
Benefit paid
Other
March 312016

¥13,767
332
(228)
1,389
(980)
(181)
¥14,100

2015¥12,044
307
1,011
1,408
(1,163)
159¥13,7672016$  122,242
2,947(2,024)
12,333(8,701)(1,607)$(125,199)(3) Reconciliation of defined benefit obligations and plan assets to net benefit liability				The reconciliation of the defined benefit obligations and plan assets to net defined benefit liability recognized in the
consolidated balance sheets as of March 31, 2016 and 2015 are as follows:

Thousands of
U.S. dollars

Millions of yen

Funded defined benefit obligations
Plan assets
Subtotal
Unfunded defined benefit obligations
Net amount of liabilities and assets recognized in consolidatedbalance sheets
Liabilities (net defined benefit liability)
Net amount of liabilities and assets recognized in consolidatedbalance sheets

2016¥17,969(14,100)
3,868
1,864

2015

2016

¥16,507(13,767)
2,739
1,953

$159,554(125,199)
34,345
16,551

5,732
5,732

4,693
4,693

50,89650,896

5,732

4,693

50,896

63

Thousands of
U.S. dollars

Millions of yen

Service cost
Interest cost
Expected return on plan assets
Amortization of retirement benefit obligation at transition
Amortization of actuarial loss
Amortization of past service cost
Other
Total

2016

2015

¥1,042
315
(332)
―
59
(168)
(91)
¥ 824

¥     985
319
(307)
246
126
(177)
4
¥1,1982016$9,252
2,797(2,947)―523(1,491)(808)$7,316(5) Remeasurements of defined benefit plans
Thousands of
U.S. dollars

Millions of yen

Past service cost
Transition obligations
Actuarial loss
Total

2016

2015

¥ (167)―(1,665)¥(1,832)¥(180)
246
818
¥ 884

2016

$ (1,482)―(14,784)$(16,267)(6) Remesurements of defined benefit plans

The unrecognized past service cost, obligation at transition and unrecognized actuarial gains and losses recognized inaccumulated other comprehensive income (amount before income tax effect) as of March 31, 2016
and 2015 are as follows:

Thousands of
U.S. dollars

Millions of yen

Unrecognized past service cost
Obligation at transition
Unrecognized actuarial loss
Total

2016

2015

¥ ―
―
122
¥122

¥ 167
(8)
1,796
¥1,955

2016
$

―
―
1,083
$1,083(7) Major breakdown of plan assets

Components of net periodic benefit cost
Securities
StocksCash and deposits
Other
Total

2016

2015
44%
27%
13%
16%

100%

41%
31%
12%
16%

100%

(8)Basis of actuarial calculation

Basis of calculation of projected benefit obligation for the years ended March 31, 2016 and 2015 are as follows:

Discount rate
Expected rate of return on plan assets
Expected salary increase rate

2016

Mainly 0.08%
Mainly 2.0%
Mainly 3.2%

2015

Mainly 0.9%
Mainly 2.0%
Mainly 3.2%

The contributions by the Company and subsidiaries to the defined contribution plans were ¥756 million ($6,712 thousand) and¥404 million for the years ended March 31, 2016 and 2015, respectively.

TOYO ENGINEERING CORPORATION Integrated Report 2016

(4) Retirement of benefit expenses

64
Consolidated Financial Statements

22. INCOME TAXESThe statutory tax rates applicable to the Company and its domestic subsidiaries for the year ended March 31, 2016 and2015 were approximately 32.8%. Income taxes of the foreign subsidiaries are based generally on the tax rates applicablein their countries of incorporation.

(1) Significant components of the deferred income tax assets and liabilities
Millions of yen

Deferred tax assets (gross):
Net defined benefit liability
Deferred gains or losses on hedges
Operating loss carry forwards
Tax adjustment of sales by percentage of completion method
Provision of allowance for doubtful accounts
Provision for loss on construction contracts
Provision for bonuses
Other
Total deferred tax assets (gross)
Deferred tax assets-Deferred tax liabilities
Total deferred tax assets
Deferred tax liabilities (gross):
Undistributed earnings of subsidiaries and affiliates
Valuation difference on available-for-sale securities
Other
Total deferred tax liabilities (gross)
Deferred tax assets-Deferred tax liabilities
Deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars

2016

2015

2016

¥1,727
1,717
1,159
461
457
313
150
1,393
¥7,381(2,676)¥4,704¥ 1,307
3,264
3,293
129
548
902
127
1,176
¥10,748(2,259)¥8,488$15,334
15,245
10,291
4,093
4,057
2,779
1,331
12,369$65,538(23,761)$41,768

1,276
1,695
731
3,703
(2,676)(1,026)¥3,678

976
1,052
240
2,269
(2,259)(9)¥ 8,479

11,33015,0506,490
32,880(23,761)(9,110)$32,658

Note：The Company and its consolidated subsidiaries had temporary differences excluded from calculation of deferred
tax assets of ¥5,193 million ($46,110 thousand) and ¥5,250 million at March 31, 2016 and 2015, respectively,
which are available to be offset against future taxable income.
(Changes in Presentation)			

The impact of the tax adjustment of sales by percentage of completion method, which had previously been included in other
under deferred tax assets, is presented separately under deferred tax assets because its materiality has increased.

To reflect this change in presentation, the tax adjustment of sales by percentage of completion method of ¥129 million, which
had been previously included in other under deferred tax assets, is reclassified as tax adjustment of sales by percentage ofcompletion method as of March 31, 2015.

65

equal to the above-mentioned statutory tax rate for the following reasons:Years ended March 31,

Statutory tax rate in Japan
Adjustments:
Permanently nondeductible expenses
Permanently nontaxable dividends received
Per capita levy on corporate inhabitant tax
Temporary differences excluded from calculation of deferred tax assets
Tax Credit
Difference in tax rates for foreign subsidiaries

2016

32.8%

*

1.9
(9.8)
0.1
(1.9)
(0.4)
(3.3)

Difference in tax base between corporate income tax and enterprise tax
Operating loss carry forwards for subsidiaries
Equity in earnings of affiliates

2.2
(6.6)
41.0

Decrease of deferred tax assets, net of liabilities, at fiscal year-end due tochange in statutory tax rate

1.7

Other
Effective tax rate

2015

7.6
65.3

*As loss before income taxes was recognized for the year, this information was omitted.
(3) Change in deferred tax assets and deferred tax liabilities due to tax rate changes

As the "Act for Partial Amendment of the Income Tax Act, etc. (Act No. 15 of 2016) and the "Act for Partial Amendment of the
Local Tax Act, etc. (ACT No. 13 of 2016) were approved in the Japanese Diet on March 29, 2016, the effective statutory tax

rates, which are used to measure deferred tax assets and deferred tax liabilities, have been changed from 32.1% to 30.7% (fortemporary differences expected to be realized or settled from April 1, 2016 to March 31, 2018) and to 30.5% (for temporary
differences expected to be realized or settled on or after April 1, 2018).

As a result, the deferred tax assets decreased by ¥183 million ($1,625 thousand), income taxes increased by ¥146 million($1,296 thousand), valuation difference on available-for-sale securities increased by ¥32 million ($284 thousand), and deferredgains on hedges decreased by ¥69 million ($612 thousand) as of and for the year ended March 31, 2016.

TOYO ENGINEERING CORPORATION Integrated Report 2016

(2) The effective tax rates on income before income taxes in the accompanying consolidated statements of income are not

66
Consolidated Financial Statements

23. SEGMENT INFORMATION
For the year ended March 31, 2016
The Company sold some shares of Toyo-Business Engineering Corporation, which was part of the IT Business, and all of its

shares of Tec Estate Corporation, which mainly comprised of the Real Estate Business in the fiscal year ended March 31, 2015.
Accordingly, from the first quarter of fiscal year ended March 31, 2016, the Company's reportable operating segment haschanged to a single segment, namely the EPC Business.
For the year ended March 31, 2015
The operating segments of the Group are components for which discrete financial information is available and whose

operating results are regularly reviewed by the Executive Committee to make decisions about resource allocation and toassess performance.

The Companies’reportable operating segments consist of the following three business groups:

EPC Business—Research and development, design, engineering, procurement, and construction of a variety ofplants, such as oil, gas, petrochemical, and general chemical.

IT Business—Solution business based on other companies’ERP package products and product business basedon our subsidiary ERP package products, etc.

Real Estate—Rent of commercial facilities and residences, and administration.
(The Calculation Method of Net Sales, Gain or Loss, Assets, Liabilities and Other Amounts)

The accounting policies of the segments are substantially the same as those described in the summary of significant
accounting policies in Note 2 and intersegment sales are recorded at the market value.

The calculation method of project benefit obligation and service cost was changed from the fiscal year ended March 31,

2015. Accordingly, the calculation method of project benefit obligation and service cost in segment information was alsochanged. The effect on segment profit (losses) are immaterial, as a result of this accounting change.

67

Year ended March 31, 2015
I Net sales and segment profits:
Net sales(1)Net sales to outside customers(2)Inter-segment net sales
Total
Segment profits
II Segment assets
III Others
Depreciation
Amortization of goodwill
Amount invested in equity method
affiliates
Increase of fixed assets

EPC businessIT business

Real estate

Total¥301,062
129
301,191(8,367)¥253,256¥8,426
50
8,476
178
―
¥

¥1,966
179
2,145
812
¥
―

¥311,454
359
311,813(7,376)¥253,256

¥

1,549
1,697

¥ 476
―

¥ 445
―

¥

9,952
966

―
463

―
20

Adjustment

¥

―
(359)
(359)
19
¥8,352

2,471
1,697

¥53
―

9,952
1,450

―
(5)

Consolidated¥311,454―
311,454(7,356)¥261,609
¥

2,525
1,697
9,952
1,445

Notes：1.“Adjustments”for Segment profits and Depreciation represent the elimination of inter-segment transactions.
2.“Segment profits”represents operating income from Consolidated Statement of Income.
3. Segment assets adjustments include ¥8,352 million of non-allocated corporate assets, which is chiefly the Company’s
investment securities attributed to the administrative department.
4. Amortization of goodwill include the amortization of goodwill captured in extraordinary loss.

TOYO ENGINEERING CORPORATION Integrated Report 2016

Millions of yen

68Consolidated Financial Statements（1）Information by Geographical Segment Based on the Locations of Projects		
Millions of yen

Year ended March 31, 2016
Net salesJapan

CanadaMalaysia

Other

Total

¥49,925¥51,244¥43,331¥155,311¥299,813

Thousands of U.S. dollars

Year ended March 31, 2016
Net salesJapan

CanadaMalaysia

Other

Total

$443,304$455,016$384,754$1,379,071$2,662,164(Changes in presentation)

Canada and Malaysia, which had been included in "Other" for the year ended March 31, 2015, were presented separately forthe year ended March 31, 2016, because the amounts were above 10 percent of net sales on the consolidated statement ofincome.

Brazil, Indonesia and Nigeria, which had been presented separately for the year ended March 31, 2015, were included in"Other" for the fiscal year ended March 31, 2016, because the amount is below 10 percent of net sales on the consolidated
statement of income.

To reflect this change in presentation, Canada of ¥30,247 million and Malaysia of ¥26,427 million, which had been previously
included in "Other", were reclassified to Canada and Malaysia as of March 31, 2015.
Millions of yen

Year ended March 31, 2016

Property, plant and equipment

Japan

Indonesia

Other

Total

¥8,933¥2,869¥1,183¥12,986

Thousands of U.S. dollars

Year ended March 31, 2016

Property, plant and equipment

Japan

Indonesia

Other

Total

$79,319$25,475$10,504$115,308

Millions of yen

Year ended March 31, 2015

Japan

CanadaMalaysia

Other

Total

Net sales¥40,906¥30,247¥26,427¥213,873¥311,454

Year ended March 31, 2015

Japan

Indonesia

Property, plant and equipment¥11,630

Millions of yen¥2,944

Other

Total

¥1,672¥16,247

69
TOYO ENGINEERING CORPORATION Integrated Report 2016（2）Information by Major Clients
Millions of yen

Year ended March 31, 2016

JAPAN CANADA OIL SANDS LIMITEDPRPC REFINERY AND CRACKER SDN. BHD.

Net Sales

Segment¥50,854¥36,042EPC
EPC

Thousands of U.S. dollars

Year ended March 31, 2016

Net Sales

Segment

JAPAN CANADA OIL SANDS LIMITEDPRPC REFINERY AND CRACKER SDN. BHD.

$451,553$320,031

EPC
EPC

Year ended March 31, 2015

Net Sales

Segment

Indorama Eleme Fertilizer & Chemicals Limited¥32,316

EPC

Millions of yen(3) Amortization and unamortized balance of goodwill by reportable segment

For the year ended March 31, 2016, the disclosure is omitted because the Company has a single segment, namely the EPC
Business.

The following table presents the amortization and balance of goodwill as of and for the year ended March 31, 2016 and 2015
by reportable segments:

Millions of yen

Year ended March 31, 2015
Goodwill
Amortization of goodwill
Balance at March 31, 2015
Negative goodwill
Amortization of negative goodwill
Balance at March 31, 2015

EPC
Business

IT Business Real Estate

Total¥1,697
6

¥―
―

¥―
―

¥1,697
6

10
¥ 106

―
¥―

―
¥―

10
¥ 106

70
Consolidated Financial Statements

24. RELATED PARTY TRANSACTIONS
Affiliate
For the year ended March 31, 2016
Name: NEDL CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.

Millions of yen
Summary oftransactions

Transaction
amountTitle ofaccount

Thousands of U.S. dollars
Accountbalance

Transaction
amount¥3,707$—

Summery oftransactions

Transaction
amountTitle ofaccount

Accountbalance

Address
BrazilCapital and investments:
7,933 thousands BRL
Business
Construction
Equity ownership percentage

Loan for

operatingfund¥—

Long-term
loans

receivable

Long-term
loans

receivable$32,916

Holding 42% directly
Relation with related party
Loan for operating fund
For the year ended March 31, 2015

Millions of yen

Name: NEDL CONSTRUCOES DE
DUTOS DO NORDESTE LTDA.

Title ofaccount

Accountbalance

Address
BrazilCapital and investments:
2,524 thousands BRL

Loan forBusiness

operatingConstruction

fund

Equity ownership percentage¥—

Long-term
loans

receivable¥3,707

Holding 42% directly
Relation with related party
Loan for operating fundNote：1. Interest rate on loan is determined by considering effective market rates.
2. The Company reserved ¥3,707 million ($32,916 thousand) of allowance for doubtful accounts at March 31, 2016,
against the loan above.
3. The Company reserved ¥3,707 million of allowance for doubtful accounts at March 31, 2015, against the loan above.

For the year ended March 31, 2016
Name: ESTALEIROS DO BRASIL LTDA.
Address
BrazilCapital and investments:
57,749 thousands BRL
Business
Construction
Equity ownership percentage
Holding 50% indirectly
Relation with related party
Loan for operating fundMillions of yen
Summary oftransactions

Loan for

operatingfund

Accruedinterest
incomeGuarantee
obligation

Thousands of U.S. dollars

Transaction
amountTitle ofaccount

Accountbalance

Transaction
amountTitle ofaccount

Accountbalance¥18,306¥—¥—$162,546

$—

$—

303

—

2,690

$—

$—

5,604

—

49,760

$—

$—

71

Name: ESTALEIROS DO BRASIL LTDA.
Address

Millions of yen
Summary oftransactions

Loan forBrazilCapital and investments:
57,749 thousands BRL
Business

operatingfund

AccruedConstruction
Equity ownership percentage
Holding 50% indirectly
Relation with related party
Loan for operating fundinterest
incomeGuarantee
obligation

Transaction
amount¥5,00238

Accountbalance

Title ofaccount

Short-term
loans¥5,002Other

current

1

assets

5,948

—

—

Notes：1. Interest rate on loan is determined by considering effective market rates
2. Guarantee obligation is provided based on the bank loan of the subsidiaries
3. On the consolidated financial statements,￥5,002 million ($41,631) about short-term-loans is deducted.
For the year ended March 31, 2015
Name: TOYO-THAI CORPORATIONPUBLIC COMPANY LTD

Millions of yen
Summary oftransactions

Transaction
amountTitle ofaccount

Accountbalance

Address
Thailand
Capital and investments:
560,000 thousands TBH
Business
Construction
Equity ownership percentage

Ordering ofdesigningand¥3,247

construction

Account
payable¥3,085

Holding 22.2% directly
Relation with related party
Ordering of designing and construction

Note：1. TOYO-THAI CORPORATION PUBLIC COMPANY LTD changed the name to TTCL Public Company Limited from April 9, 2015.

For the year ended March 31, 2015
Name: TOYO SETAL EMPREENDIMENTOS LTDA.

Millions of yen
Summary oftransactions

Transaction
amountTitle ofaccount

Accountbalance¥2,764—¥—Address
BrazilCapital and investments:
38,904 thousands BRL
Business
Construction

Guarantee
obligation

Equity ownership percentage
Holding 50% indirectly
Relation with related party
Loan for operating fundNote：1. The Company was responsible for the guarantee obligation in the execution of project at March 31,2015, against theaffiliate above.

TOYO ENGINEERING CORPORATION Integrated Report 2016

For the year ended March 31, 2015

72
Consolidated Financial Statements

Significant affiliates

For the year ended March 31, 2016, the significant affiliates were Moeco Thai Oil Development Co.,Ltd, Modec and Toyo Offshore
Production Systems Pte.Ltd., and TS Participacoes e Investimentos S.A., whose condensed financial information is as follows:Year ended March 31,

Millions of yen

Thousands of
U.S. dollars¥66,865
14,589$593,722
129,541

5,185

46,0392016

Total current assets
Total non-current assets

2016

79,299Total current liabilities

Total non-current liabilities
Total net assets
Net sales

704,128(3,029)(26,895)

120,796

1,072,598

3,139¥ (1,739)

Profit before income tax
Loss

27,872$ (15,441)

For the year ended March 31, 2015, the significant affiliates were Moeco Thai Oil Development Co.,Ltd, .TOYO-THAI

CORPORATION PUBLIC COMPANY LTD.,*1 Modec and Toyo Offshore Production Systems Pte.Ltd., and TS Participacoes e
Investimentos S.A., whose condensed financial information is as follows:

Millions of yen

Year ended March 31,

2015

Total current assets
Total non-current assets
Total current liabilities
Total non-current liabilities
Total net assets¥142,990
28,106
149,318
8,943
12,834

Net sales
Loss before income tax
Loss

211,300(7,959)¥ (13,447)

Note：1. TOYO-THAI CORPORATION PUBLIC COMPANY LTD changed the name to TTCL Public Company Limited from April 9, 2015.

25. AMOUNTS PER SHARE
Yen

Years ended March 31,

Net assets per share
Profit (loss) attributable to owners of parent per share2016¥265.92
15.85

U.S. dollars

2015¥234.20(109.34)

2016

$2.36
0.14

Profit attributable to owners of parent per share is computed based on the profit available for distribution to shareholders ofcommon stock and the weighted average number of shares of common stock outstanding during each year.

Net assets per share are computed based on the number of common stock outstanding and the net assets excluding non-controlling interests at the year end.

73

TOYO ENGINEERING CORPORATION Integrated Report 2016

Corporate Data
Corporate Information
74

Corporate Data

Consolidated Financial Statements

Corporate Name:

Toyo Engineering Corporation (TOYO)Founded:May 1, 1961

Number of Employees: 4,397 (Consolidated, As of March 31, 2016)
Corporate Philosophy: Mission: Engineering for Sustainable Growth of the Global Community
Vision: Global Leading Engineering Partner

Values: Integrity, Creativity, Diversity, Learning, Team
Business Activities:

Engineering and Construction for Industrial Facilities

R&D support, design, engineering, procurement, construction, commissioning, technical assistancefor industrial facilities: oil, gas, oil & gas development, petrochemicals, chemicals, water treatment,
transportation systems, power generation, nuclear power, advanced production systems,

pharmaceutical, fine chemical, distribution systems, biotechnology, environment and others

History
1961 ◦TOYO was established. Capital: 300 million
yen1962 ◦An agreement for engineering service and technical assistance was concluded with Lummus
Co. (U.S.A.).
1963 ◦The first overseas contract for a fertilizer plantwith The Fertilizer Corporation of India Ltd.
was awarded.
1964 ◦The first urea plant contract in the former Soviet Union was awarded.
1965 ◦TOYO was awarded its first ethylene plant
contract (Osaka, Japan).
1969 ◦TOYO was awarded the contract for the firstammonia plant in the former Soviet Union.
1970 ◦TOYO was awarded the contract for two ammonia plants in the former East Germany.
1972 ◦International Procurement & Service Corporation (Currently Toyo Engineering Europe, S.r.l.)established.
1973 ◦A contract for a urea plant for China wasawarded.
1975 ◦Capital: 1,890 million yen

1985 ◦Toyo-Thai Corporation Ltd. established.
1986 ◦Toyo U.S.A., Inc. established.
◦Toyo Engineering & Construction Sdn. Bhd. established in Malaysia.
1987 ◦Toyo Engineering Korea Limited established.
1989 ◦Capital: 12,219 million yen
1990 ◦Head Office/Engineering Center (Baytec Building) started operation in Narashino, Chiba.
1993 ◦Capital: 13,017 million yen
1994 ◦TOYO received ISO 9001 registration.
1999 ◦Toyo Business Engineering Corporation established.
2004 ◦TOYO received ISO 14001 registration.
◦Toyo Engineering Corporation, China established.
2006 ◦Capital: 18,198 million yen
2007 ◦Relocation of Tokyo head office.
2008 ◦TOYO invested in Atlatec, S.A. de C.V. in Mexico.
2009 ◦TOYO formulated the Group MVV (Mission,
Vision, Values).
2010 ◦TOYO acquired Tri Ocean Engineering Lim-

1976 ◦Toyo Engineering India Limited established.

ited in Calgary, Alberta, Canada (Currently

1977 ◦Research Center in Mobara, Chiba was com-Toyo-Canada).

pleted.
1978 ◦Capital: 2,970 million yen
1980 ◦Capital: 3,300 million yen◦TOYO was listed on the second section of theTokyo Stock Exchange.
1982 ◦Capital: 5,040 million yen◦TOYO was listed on the first section of the Tokyo Stock Exchange.

2011 ◦The 50th Anniversary◦TOYO invested in PT. Inti Karya Persada Tehnik(IKPT) in Indonesia.
2012 ◦TS Participações e Investimentos S.A. established in Brazil.
◦Consolidated Group logo developed.
2015 ◦Kiyoshi Nakao was elected as President and
CEO.

75

Board of Directors, Audit & Supervisory Board Members and Executive Officers

TOYO ENGINEERING CORPORATION Integrated Report 2016

Chairman

Senior Audit &Supervisory Board Member

Makoto Fusayama

Masayuki Uchida

President & CEO

Kiyoshi Nakao

Audit &
Supervisory Board Members＊1

Hiroshi Inoue

Executive Vice President

Yoshiyuki Funakoshi ＊5

Takaya Naito ＊1

Kiyohito Uchida＊5

Senior Executive Officers

Directors

Masayuki Yoshizawa＊1 ＊2

Tadashi Hori

Masaaki Yamaguchi＊3

Hiroshi Sato

Shoji Koshikawa
Tomohisa Abe
Hirokazu Hayashi＊4
Masami Tashiro＊4

Yusuke Yamada＊4Masahiko Kita ＊6

Executive Officers

Motoyoshi Kamoshima

Toru Osanai

B

A

C

Takayoshi Imanishi
Koji Kojima
Itsuya Yanagi
Eiichi Ide
Hideki Shida
Keisuke Ishii
Shinichi Okazaki
Eiji Hosoi
Kensuke Waki
Hiroshi Fujita

Haruo Nagamatsu
Teruhiko InoueD＊1

Representative Director＊2

CCO (Chief Compliance Officer)＊3

CFO (Chief Financial Officer)＊4

Outside Director＊5Outside Auditor＊6

CTO (Chief Technology Officer)(As of June 29, 2016)

A

Kiyoshi Nakao

B

Makoto Fusayama

C

Takaya Naito

D

Masayuki Yoshizawa

76Worldwide Network

CA

Consolidated Financial Statements

LG
AR
Y

M

O

N

TE

HO
US
TO
N

RR

EY

TOK

YO,

C H IB

A

CARAC
AS
SEOUL
SH AN GH AI

B EI JI N GULOSAO PA

JAKA
RTA
KU
A
BA LA LU
MP
NG
UR
KO
K

■

TOKYO HEAD OFFICE■■

Overseas Offices●

Beijing, China●

Jakarta, Indonesia●

Dubai, United Arab Emirates●

Tehran, Iran●Moscow, Russia

■

■

■

OVERSEAS GROUP COMPANIES■

Toyo Engineering Korea Limited■■

Toyo Engineering Corporation (China)■■

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

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

TEC Air Service Corporation
Travel and insurance services
TEC Business Services Corporation
Staffing service, contracted business service,translation and interpretation service, facility

Toyo Engineering Canada Ltd.

management service

Calgary, Canada

TEC Project Services Corporation

Toyo U.S.A., Inc.

EPC and maintenance services for plants andHouston, U.S.A.

facilities, environmental technology

Toyo Ingeniería de Venezuela, C.A.

Chiba Data Center Corporation

TS Participações e Investimentos S.A.

TTCL Public Company Limited
Bangkok, Thailand

Shanghai, China

DOMESTIC GROUP COMPANIESMilan, Italy

Sao Paulo, Brazil

Seoul, Korea

—
—
—
—
—
—
—
—
—
—
—
—
—
—
—
—

Toyo Engineering Europe, S.r.I.

Caracas, Venezuela

—
—
—
—
—
—
—
—
—
—
—
—

■

Saudi Toyo Engineering Company
Al Khobar, Saudi Arabia

Tokyo, Japan
—
—
—
—
—
—
—
—
—
—
—
—

Toyo Engineering India Private Limited
Mumbai, India

Chiba, Japan●MOSCOW

MIL
AN

I
BA
M
U
M

HEAD OFFICE / ENGINEERING CENTER

BAI
DU
RAN
TEH HOBAR
AL K

—
—
—
—
—
—
—
—
—
—
—
—
●

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

Data entry, scanning services andcommercial printing
Toyo Business Engineering Corporation
System consulting and solutions provider
TEC Accounting & Consulting Ltd.
Business support and consulting for accounting andaccounting system development

Stock information(As of March 31, 2016)

77¥18,198 million

Stock Exchange Listing

Tokyo Stock Exchange

Authorized Shares

500,000,000

Capital Stock Issued

192,792,539

Number of Shareholders

16,631

Administrator of Shareholders’Register

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

Major Shareholders:Number of shares(thousands)

Percentage of total(%)

Mitsui & Co., Ltd.

43,77022.70

Japan Trustee Services Bank, Ltd.
(Mitsui Chemicals, Inc. Retirement Benefit Trust Account re-entrusted by
Sumitomo Mitsui Trust Bank, Limited)

25,703

13.33

Taisei Corporation

5,000

2.59

Japan Trustee Services Bank, Ltd. Trust Account 9

4,162

2.15

The Bank Of New York 133522

3,497

1.81

State Street Bank And Trust Company

3,325

1.72

Japan Trustee Services Bank, Ltd. Trust Account

3,221

1.67

The Master Trust Bank of Japan, Ltd. Trust Account

2,892

1.50

Sumitomo Mitsui Banking Corporation

2,350

1.21

State Street Bank And Trust Company 505103

2,171

1.12

Others1.01

Individuals
28.43

Financial institutions
27.51

Type of
Shareholder（%）
Foreign shareholders
15.92

Domestic companies
27.13

Stock chart
(Yen)

700
600

Stock Price

500
400
300
200
100
0

Trading Volume (Thousands of Shares)

60,00030,000

0

4

5

6

7

8

9

10

FY2013

11 12

1

2

3

4

5

6

7

8

9

10

FY2014

11 12

1

2

3

4

5

6

7

8

9

10

FY2015

11

12

1

2

3

TOYO ENGINEERING CORPORATION Integrated Report 2016

Capital Stock