Toray Industries Inc.
Annual Report 2013

Plain-text annual report

T o r a y I n d u s t r i e s , I n c . A n n u A l R e p o R t 2 0 1 3 Defining The Way AnnuAl RepoRT 2013 April 1, 2012–March 31, 2013 One goal of this year’s Annual Report is to inform our stakeholders about the characteristics and strengths that Toray has evolved through more than 80 years of experience, and about our vision and future direction. I believe that materials have the power to bring about fundamental transformations in our lives and culture. That is why I am proud to be involved in the management of Toray as it fulfills its vital role as a materials manufacturer. Toray was established in 1926 to manufacture viscous rayon, the world’s first man- made fiber. In the eight decades since, we have become one of the world’s leading manufacturers of advanced materials. The ultimate goal of Toray Group is to become the world’s number one manufacturer of advanced materials. We continue to use the poten- tial of the materials that we have created during those years to provide solutions for the many challenges confronting the human race in the 21st century, including global envi- ronment problems. In this year’s Annual Report, we tell the corporate story of Toray, so that, by knowing our origins and heritage, stakeholders might more fully understand our characteristics as a company, the strengths acquired from our wide-ranging experience, and our think- ing—together, they define our way. Co nTe nT s 04 The Toray story 20 profile 21 Consolidated Financial Highlights 22 To Toray stockholders and Investors 28 Toray’s Global operations 34 Toray Group segments 36 Fibers & Textiles 37 Plastics & Chemicals 38 IT-related Products 39 Carbon Fiber Composite Materials 40 Environment & Engineering 41 Life Science 42 R&D and Intellectual property 48 sustainable Management 58 Corporate Information 61 Financial section Cautionary statement with respect to forward-looking statements Descriptions of predicted business results, projections and business plans contained in this annual report are based on forecasts and as- sumptions regarding the future business environment made at the pres- ent time. This annual report is not a guarantee of the Company’s future 97 Investor Information and Corporate Data business performance. 04 TOray InDuSTrIES, InC. Akihiro Nikkaku President 05 New Basic Materials — the Challenge of the Unknown “Finally done it. Produced the wonderful new fiber. Quality excellent.” Such a message was telegrammed to Yunosuke Yasukawa, Chairman of Toyo Rayon Co., Ltd. (now Toray Industries, Inc.), on August 16, 1927 by James Starley, who was then chief engineer at the Shiga Plant. In that era, the development of new technology was led by advanced companies in European countries, especially Germany, the United Kingdom and Italy. The creation of new industries was an urgent priority for Japan. Toray furthered that goal by recruiting from advanced countries 27 specialists in various fields and building a manufacturing facility for chemical fibers to recreate the process for rayon, the leading advanced fiber of its day. In August 1927, they achieved their breakthrough. Named in the United States, rayon suggests “bright thread,” highlighting its similarity to silk.　 In the same year that Toray began production of artificial fibers in Japan, Charles Lindbergh made the first non-stop flight across the Atlantic. It was also a time when more and more products of modern science were beginning to appear in day-to-day life. This was the beginning of Toray’s history as a company that uses the most ad- vanced chemistry of the era to create new materials and prepare for challenges just beyond the horizon. 06 Toray IndusTrIes, Inc. 07 AnnuAl RepoRt 201308 Toray IndusTrIes, Inc.From its founding and into the 1930s, Toray expanded its major plants in Japan while steadily developing its own technology. The next chal- lenge, in the late 1930s, was the development of nylon fiber, the first new material created using synthetic chemistry in the history of mankind. Shortly after the end of World War II, Toray began manufacturing nylon fiber using original technology. The year was 1946. The American company DuPont had pioneered the development of nylon and was acquiring pat- ents. Toray decided that the best way to establish a full-scale nylon manufacturing business was to enter into a technology agreement with DuPont, which would also prevent competitors from using DuPont technology to enter Japan’s nylon market. In 1951, Toray acquired exclusive rights to use DuPont’s patents relating to nylon fiber. The agreement did not encompass the provision of know-how. Yet, Toray had accumulated fiber- making technology through its experience with rayon and was confident in the future potential of synthetic chemistry. All corporate resources were therefore focused on the creation of a full-scale nylon business. Toray learned much through the develop- ment and commercialization of nylon, A New Era Built on Synthetic Chemistry including the importance of R&D strategies for advanced materials, and patent strategies in the international business arena. In the 1950s and 1960s, Toray earned vast profits as Japan’s first industrial producer of nylon. Those profits would provide the foundation for Toray’s future growth and development. 09 AnnuAl RepoRt 2013Surviving the Shocks By the early 1960s Toray was the most profitable company in Japan. In addition to nylon, it had begun to produce polyester fibers in 1958 and acrylic fibers in 1964, giving it a business based on the three major synthetic fibers. However, its profits depended on exports, which were almost one-half of its sales. From the mid-1960s, newcom- ers began to move into the nylon and polyester markets, and the overheated production triggered a structural recession in the synthetic fiber industry in Japan. In 1971, the value of the yen began to rise as a result of the Nixon Shock, while the signing of the Japan-U.S. Textile Agreement caused a decline in exports to the United States. The 1973 and 1979 oil shocks added to the challenges of this prolonged period of tribulation. In 1970, the name of the company was changed from Toyo Rayon to Toray. Toray also began to work toward sustainable growth through diversification into a number of new business areas that today encompass plastics, which includes films and resins, new materials, such as carbon fiber, and life sciences business. Toray also expanded its production operations into Southeast Asia and other overseas locations to create a structure that would be less vulnerable to exchange rate fluctuations and better able to meet the needs of customers that were also expanding globally. 10 Toray IndusTrIes, Inc. 11 AnnuAl RepoRt 2013Global Operations 12 Toray IndusTrIes, Inc.The overseas production activities of Toray Group began 50 years ago, in 1963, with the start-up of a fiber production operation in Thailand. Our production operations in Indone- sia and Malaysia followed only 10 years later. Until the 1980s, Toray struggled to earn reliable income from these operations, in part because of the negative impact of the oil shocks and other factors. Toray achieved a clear turnaround in Southeast Asia through in-depth cost management and product quality raised to a level at which it was possible to export to Europe and the United States. The success of overseas businesses cannot be ensured simply by transferring technology and management systems. It requires efforts over many years, including the establishment of forward-looking management strategies, local training of employees and the establishment of shared values. Toray Group’s overseas infrastructure today serves as a production and supply network for global markets. Achievements based on our past experience form the foundations for our current global operations strategy. 13 AnnuAl RepoRt 2013Toray’s DNA Throughout its history, Toray has worked constantly to develop advanced technology to support its role as a manu- facturer of materials. A key part of the corporate DNA that has been handed down within the Toray organization is our commitment to research and technology development to create the keys for our success in the future. This belief is manifested in a constant drive to maintain and strengthen our research and development capabilities. Toray’s core technologies are organic synthetic chemistry, polymer chemistry, biotechnology and nano- technology. Our efforts to achieve new advances in these areas individually also lead to the creation of new integrated technologies. One of the characteristics that make up Toray DNA is our unique approach to marketing through strategic partnerships with customers. In addition to the creation of new materials, Toray has also focused continuously on the development of applications for those materials. We carefully monitor contemporary needs and work with midstream and downstream partner companies to offer new fashion and lifestyle ideas. This commitment is as much a part of Toray DNA as technology development. 14 Toray IndusTrIes, Inc.15 AnnuAl RepoRt 201316 Toray IndusTrIes, Inc.Contributing to Society through Creation of New Value Carbon fiber supplied by Toray makes up 50% of the airframe weight of the Boeing 787 Dreamliner, which made its first commercial flight in 2011. The full acceptance of carbon fiber as a material for structural aircraft parts was a long-cherished dream for Toray, which has long led the world in carbon fiber development. By using carbon fiber, it has been possible to reduce the weight of the airframe, which in turn reduces the aircraft’s carbon dioxide emissions by 20% and makes air transport more earth-friendly. As the world’s top manufacturer of reverse osmosis membranes for seawater desalination plants, Toray Group is also helping to alleviate water shortages in various parts of the world. The water problem ranks alongside the energy problem as one of the key issues confronting mankind in the 21st century. By helping to solve this problem, Toray is making a major contribution to society. In the field of energy-related technologies, Toray Group manufactures materials for solar panels, fuel cells and other new energy systems. Toray is also a leader in green in- novation, including biomass-derived fibers and resins. In addition, Toray will continue to take up the challenges of contributing to humanity and society through life innovation activities leading to creation of revolutionary new phar- maceuticals and medical devices. 17 AnnuAl RepoRt 2013 Toward a Brighter Future We cannot bring about big changes simply by tweaking the shape of existing things. However, we believe that we will help to create new products that can fundamentally transform people’s lives by modifying the materials from which all things are made. That belief drives Toray’s efforts to develop advanced materials. In the same light, we will continue to work toward the solution of global environ- mental problems and other issues affecting all of mankind through green innovation, and we will also help to improve quality of life through our life innovation activities. We believe that the mission of Toray Group is to offer our customers advanced mate- rials made possible through continuing innovation driven by the power of chemistry. 18 Toray IndusTrIes, Inc. Toray’s way 19 AnnuAl RepoRt 2013Toray Profile: Overview and Philosophy We are involved in global manufacturing, marketing and sales in three business categories covering six segments: Foundation Businesses (Fibers & Textiles, Plastics & Chemicals), Strategically Expanding Businesses (IT-related Products, Carbon Fiber Composite Materials) and Intensively Developing and Expanding Businesses (Environment & Engineering, Life Science). Our products are found in many everyday items, including apparel, interior products, home appliances and electronic products, as well as in materials and parts for automobiles and aircraft, IT products and water treatment facilities. Today, we are active in 23 countries and regions. To successfully conduct our day-to-day operations, we rely on the strong chemistry that we have created with our stakeholders, including Toray Group employees, our customers and business partners, the people of the countries and regions in which we are active, our stockholders and people working for financial institutions. “Contributing to society through the creation of new value with innovative ideas, technologies and products”—this is Toray Group’s corporate philosophy. We will continue to put this philosophy into practice by creating new value in the spirit of respect for all of our stakeholders. CoRpoRATe pHIlosopHy Contributing to society through the creation of new value with innovative ideas, technologies and products CoRpoRATe MIssIons For our customers To provide new value to our customers through high-quality products and superior services For our employees To provide our employees with opportunities for self development in a challenging environment For our stockholders To provide our stockholders with dependable and trustworthy management For society To establish ties and develop mutual trust as a responsible corporate citizen net sales (Billions of yen) 2,000 1,500 1,000 500 0 operating Income and operating Income to net sales (Billions of yen) 120 80 40 0 net Income (loss) (Billions of yen) 80 60 40 20 0 -20 (%) 7 6 5 4 3 2 1 0 Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (Forecast) Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (Forecast) Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (Forecast) Operating income (left) Operating income to net sales (right) 20 Toray IndusTrIes, Inc. Consolidated Financial Highlights Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31 For the year: net sales Operating income net income (loss) Cash flows from operating activities Free cash flows At year-end: Total assets net assets Millions of yen Thousands of u.S. dollars 2013 2012 2011 2010 2009 2013 ¥1,592,279 ¥1,588,604 ¥1,539,693 ¥1,359,631 ¥1,471,561 $16,939,138 83,436 48,477 100,815 107,721 64,218 104,410 (6,710) 408 100,087 57,925 129,214 (50,734) 78,480 40,107 (14,158) 166,215 36,006 (16,326) 38,447 887,617 515,713 1,072,500 (121,723) (113,373) (1,143,883) 44,492 (74,926) (71,383) ¥ 1,731,830 ¥ 1,581,501 ¥1,567,470 ¥1,556,796 ¥1,523,603 $18,423,723 779,615 674,149 640,970 518,216 512,610 8,293,777 Cash flows used in investing activities (107,525) (104,002) per share of common stock (in yen and u.s. dollars): net income (loss) : Basic Diluted Cash dividends net assets Ratios: Operating income to net sales Equity ratio rOa rOE Debt/equity ratio (times) ¥ 29.75 ¥ 39.41 ¥ 36.41 ¥ (10.12) ¥ (11.66) $ 0.32 28.90 10.00 444.95 5.2% 41.9% 5.0% 7.2% 0.73 37.46 10.00 384.90 6.8% 39.7% 6.8% 10.5% 0.77 34.43 7.50 363.90 6.5% 37.8% 6.4% 10.9% 0.83 — 5.00 — 7.50 336.65 335.04 0.31 0.11 4.73 2.9% 30.3% 2.6% (3.0)% 1.34 2.4% 30.8% 2.2% (3.1)% 1.42 Note: U.S. dollar amounts have been converted from yen at the exchange rate of ¥94 = US$1, the approximate exchange rate prevailing on March 31, 2013. Cash Flows (Billions of yen) 180 net Assets and equity Ratio Cash Dividend per share (Billions of yen) 800 （%） 50 (Yen) 10 90 0 -90 -180 600 400 200 0 40 30 20 10 0 8 6 4 2 0 Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 Mar/ ‘09 ‘10 ‘11 ‘12 ‘13 ‘14 (Forecast) Cash flows from operating activities Cash flows used in investing activities Free cash flows Net assets (left) Equity ratio (right) note: Forecast for year ended March 31, 2014, announced on august 6, 2013. 21 AnnuAl RepoRt 2013To Toray Stockholders and Investors Toray’s way Toray Group is working proactively to achieve sustainable revenue and profit growth under a long-term corporate vision with a 10-year time frame, combined with medium-term management programs designed to realize that vision. akihiro nikkaku President 22 Toray IndusTrIes, Inc.Toray’s way Group-wide projects under the Medium-term Management program—project Ap-G 2013 Green Innovation Business expansion (GR) project Global development of Green Innovation Businesses based on our strengths in chemistry Asia and emerging Country Business expansion (Ae) project proactive development of business in Asia and emerging countries in other regions Total Cost Reduction (TC-II) project establishment of a robust business footing through initiatives based on group-wide projects To achieve our long-term corporate vision, we are pursuing group-wide initiatives based on the Green Innovation Business Expansion Project, the Asia and Emerging Country Business Expansion Project and the Total Cost Reduction Project. I would like to begin this report by expressing our profound gratitude to stockholders and investors for their continuing support. In the year ended March 31, 2013 (fiscal 2012), we faced challenging conditions in the world economy. real economic trends in Europe entered a prolonged recession under the im- pact of Europe’s sovereign debt problems, and this problem was compounded by economic deceleration in China and the slowing pace of economic recovery in the united States. The Japanese economy followed a gradual recovery trend, driven in part by reconstruction demand related to the Great East Japan Earthquake. However, the economy marked time from the summer of 2012 onwards, mainly because of the slowing performance of overseas economies. Some economic indicators began to show signs of improve- ment, including the correction of the overvalued yen and the revitalization of the stock market, in response to measures implemented by the new abe administration that took office in late 2012. Toray Group is responding to this business environment by working under its medium-term management program— Project aP-G 2013—to implement growth strategies cen- tering on business expansion in growth business fields and growth regions. at the same time, we have further intensi- fied our efforts to strengthen our total cost competitiveness. We are seeking new growth paths through shifting to a proactive management stance under our medium-term management program—Project AP-G 2013. Since 2002, Toray Group has adopted long-term corporate visions with a 10-year time frame and medium-term manage- ment programs covering periods of 3–5 years. We have main- tained a process of management reforms while progressively revising our visions and programs. In april 2011, we adopted a new long-term corporate vision—aP-Growth TOray 2020—as an integrated manage- ment guideline for our efforts to build a corporate group that continually increases revenues and profits. We are currently implementing Project aP-G 2013, a medium-term manage- ment program covering the first three years under aP-Growth TOray 2020. Our aims under this program are to expand business in growth business fields and growth regions, and to establish a robust business footing by cost reductions. under Project aP-G 2013, we are seeking new paths for growth through shifting to a proactive management stance, while maintaining our commitment to management reforms started under previous medium-term management programs. The year ended March 2013 was the middle year of Proj- ect aP-G 2013. The consolidated net sales of Toray Group increased by 0.2% over the previous year’s level to ¥1,592.3 billion. Operating income was 22.5% lower at ¥83.4 billion, and net income declined by 24.5% to ¥48.5 billion. Business expansion in growth business fields and growth regions was reflected in increased net sales. However, income 23 AnnuAl RepoRt 2013 To Toray Stockholders and Investors Trends in net sales of Green Innovation Business (Billions of yen) 3,000 2,500 2,000 1,500 1,000 500 0 Fiscal/ ‘10 ‘11 (Actual) ‘12 ‘13 (Initial Target) ‘15 ‘20 Around (Vision) Total net sales Net sales of Green Innovation Business Trends in net sales and Ratio of Green Innovation Business (Billions of yen) Fiscal 2010 (actual) Fiscal 2012 (actual) Around 2015 (Vision) Around 2020 (Vision) net sales ratio to total net sales 378.0 25% 450.4 28% 600 30% 1,000 33% Our Green Innovation Businesses continue to expand steadily, especially in the area of carbon fiber composite materials and water treatment membranes. was lower year on year, in part because of pressure on selling prices due to a global downturn in demand. On the other hand, we continued to make steady progress in pursuing the growth strategies and strengthening the earn- ings base, as defined in Project aP-G 2013. Continuing Progress under Project AP-G 2013 under Project aP-G 2013, we are implementing group-wide the Green Innovation Business Expansion (Gr) Project, the asia and Emerging Country Business Expansion (aE) Project and the Total Cost reduction (TC-II) Project. These three proj- ects are expected to deliver major benefits through group- wide cross-organizational activities. Green Innovation Business expansion (GR) project The aim of the Gr Project is to achieve growth by using the power of chemistry to contribute to the solution of global problems relating to the environment, resources and energy. We have identified four core business areas for prioritized technology development and business expansion, outlined below: 1. Carbon fiber composite materials We are the world’s no. 1 manufacturer of carbon fiber composite materials, which are used in a wide range of ap- plications, and we aim to achieve further rapid expansion. 2. Water treatment membranes We are also the leading company in the area of water treat- ment membranes, and we are determined to consolidate our no. 1 position by stepping up our global expansion efforts. 3. Battery materials for solar cells, fuel cells and lithium-ion batteries We are determined to use the total capabilities of Toray Group to build a position for ourselves as the world’s top manufacturer in the area of battery materials. 4. Biomass materials We will develop and commercialize new products using plant-derived materials. In the year ended March 2013, net sales from Green Innovation Businesses amounted to ¥450.4 billion, or 28% of total consolidated net sales. We aim to increase this to ¥600 billion by around 2015 and to ¥1,000 billion by around 2020. Key GR project Topics in the year ended March 2013 l Carbon fiber composite materials: We acquired 100% of the shares in DOME CarBOn MaGIC LTD. and 75% of the shares in its production subsidiary in Thailand. These companies are now Toray subsidiaries. l Water treatment membranes: We received orders to supply reverse osmosis (rO) membranes to the al Zawra Desalination Plant in the Emirate of ajman and the Ghali- lah Desalination Plant in the Emirate of ra’s al Khaymah in the united arab Emirates. l printing plates: We decided to build a new production facility for Toray Textiles Central Europe s.r.o., a subsidiary based in the Czech republic. 24 Toray IndusTrIes, Inc. Trends in net sales of Green Innovation Business Trends in net sales in Growth Countries and Regions (Billions of yen) 3,000 Trends in net sales and Ratio of Growth Countries and Regions (Billions of yen) Fiscal 2010 (actual) Fiscal 2012 (actual) Around 2015 (Vision) Around 2020 (Vision) net sales ratio to total net sales 540.3 35% 569.5 36% 900 45% 1,500 50% 2,500 2,000 1,500 1,000 500 0 Fiscal/ ‘10 ‘11 (Actual) ‘12 ‘13 (Initial Target) ‘15 ‘20 Around (Vision) Total net sales Net sales in Growth Countries and Regions We are building our business activities in growth countries and regions, by investing in future growth and expansion and establishing or expanding facilities in ASEAN countries, China and the Republic of Korea. Asia and emerging Country Business expansion (Ae) project Emerging countries in asia and other regions are expected to achieve major growth in the years ahead. The goal of the aE Project is to harness this growth potential by dynamically expanding Toray Group’s business activities in these countries and regions. Initiatives under the aE Project center on a number of priority goals. First, we aim to develop products to meet needs specific to asia and emerging countries and to strengthen our market- ing and sales capabilities in those countries. Second, we are strengthening the infrastructure of existing production opera- tions and establishing new facilities in markets where we are not yet active. Third, we are speeding up the process of business expansion by forming alliances with leading local companies. Fourth, we are expanding our activities in the field of advanced materials to keep pace with demand growth driven by the expansion of high-net-worth and middle-class populations. net sales in asian emerging countries totaled ¥569.5 billion in the year ended March 2013. Our goal is to increase this to ¥900 billion by around 2015 and to ¥1,500 billion by around 2020. Key Ae project Topics in the year under Review l ASeAN: We decided to expand our production facilities in Thailand for nylon fibers used in automobile airbags, to establish a new resin compound facility in Indonesia and to expand our vapor deposition processing capacity for food packaging films in Malaysia. l Republic of Korea: a new carbon fiber carbonization facility became operational. l China: We established a new resin compound company in Chengdu. l Emerging countries: We expanded our sales network in Bra- zil, and the Istanbul Liaison Office of Toray International Inc. opened for business. Total Cost Reduction (TC-II) project The TC-II Project is a group-wide initiative to establish a ro- bust business footing by reducing variable costs and control- ling fixed costs. Our target for variable costs is to achieve a reduction of at least 3% per annum (based on the year ended March 2011) and a total three-year reduction of 10% during the three years covered by Project aP-G 2013. In numerical terms, this represents a reduction of more than ¥70 billion. Our strate- gies for reaching this target include the extension of unit consumption improvement methods used in Toray Japanese plants to our group companies in Japan and overseas, the reduction of procurement and logistics costs through initia- tives linked to business strategies and the establishment of global procurement systems. In the year ended March 2013, variable costs were reduced by ¥24.6 billion, or 4.0% com- pared with the previous year. We have introduced a new indicator, the “Performance” (P) indicator, as a benchmark for our efforts to maintain an ap- propriate scale for fixed costs during this business expansion phase. The P indicator is calculated by dividing the rate of in- crease in fixed costs by rate of increase in marginal profit. We will manage fixed costs for each business division by keeping this indicator at 1.0 or lower, or by maintaining budget ratios. In the year ended March 2013, we reduced fixed costs by ¥17.3 billion relative to budgets. However, with a P indicator of 1.05, we failed to achieve a budget ratio of 1.00. 25 AnnuAl RepoRt 2013 To Toray Stockholders and Investors Trends in operating Income (Billions of yen) 300 250 200 150 100 50 0 Fiscal/ ‘10 ‘12 ‘11 (Actual) ‘13 (Forecast) ‘15 ‘20 Around (Vision) Vision Targets for long-term Financial Indicators (Billions of yen) Fiscal 2010 (actual) Fiscal 2012 (actual) Around 2015 (Vision) Around 2020 (Vision) net sales Operating income 1,539.7 1,592.3 100.1 83.4 2,000 180 3,000 300 Under Project AP-G 2013, Toray Group is implementing growth strategies centering on business expansion in growth business fields and growth regions, while also targeting further improvement in total cost competitiveness. We aim to achieve record income in the year ending March 2014, the final year of Project AP-G 2013. AP-Growth TORAY 2020— Enhancing the Value of Our Corporate Role In the year ending March 2014, the world economy is still af- fected by lingering uncertainty surrounding responses to the European sovereign debt problem. However, the overall eco- nomic environment is expected to follow a gradual recovery trend driven by factors that include the growth of China and other emerging economies, and expectations of economic expansion in the united States. although there is also uncertainty about the outlook for the Japanese economy, economic performance is expected to move gradually toward recovery thanks to a combination of factors, including an export rally linked to the correction of the overvalued yen, the emergence of post-earthquake recon- struction demand and a rise in confidence based on expecta- tions toward the economic policies of the abe administration. Toray Group aims to achieve record sales and operating income in the year ending March 2014 through a continuing focus on initiatives under Project aP-G 2013 and through concerted group-wide efforts to realize growth strategies and strengthen our earnings base. as mentioned earlier, in February 2011 we adopted a long- term corporate vision, known as aP-Growth TOray 2020, which encapsulates our vision for Toray around 10 years in the future, and Project aP-G 2013, a medium-term manage- ment program covering the first three-year period. In addition to the expansion of business revenue and prof- it and the achievement of further global business expansion, we are also focusing on and the expansion of our Green In- novation Businesses under our long-term corporate vision— aP-Growth TOray 2020. Our aim is to build a future as a corporate group capable of continually increasing revenues and profits, while also proactively contributing to social development and environmental stewardship and providing high value to all stakeholders. under our medium-term management program, Project aP-G 2013, which is based on this long-term corporate vision, we are pursuing growth strategies and implement- ing comprehensive and powerful initiatives designed to strengthen our corporate structure during this period of challenging business conditions in Japan and overseas. We are also undertaking facility investment aimed at global expansion in our various business fields and making steady progress on research and development efforts targeted toward the creation of new products and technologies in the future. 26 Toray IndusTrIes, Inc. Toray’s way The fundamental long-term focus of Toray Group is the continuing realization of our corporate philosophy of “contributing to society through the creation of new value with innovative ideas, technologies and products” based on the development of innovative advanced materials. Toray Group aims to achieve sustainable growth by provid- ing solutions to various social priorities through the measures described above. We will continue to work toward the real- ization of the group’s corporate philosophy of “contributing to society through the creation of new value with innovative ideas, technologies and products.” Toray Group aims to maintain robust growth as one of the world’s leading manufacturers of basic materials, while build- ing a reputation as a good and trusted partner for society. We look forward to the continuing support of our stock- holders and investors. We will help to build a brighter future for society through our role as a supplier of basic materials. Toray Group remains fundamentally committed to our role as a corporate group that is helping to build a brighter future for society through the supply of basic materials and development of advanced materials based on the power of chemistry. We express this commitment in our corporate slogan “Innovation by Chemistry.” as the basic building blocks for all products, basic mate- rials have the power to transform society intrinsically. as a leading manufacturer of basic materials, we believe that we must continue to play a pioneering role in meeting the chal- lenge of technological innovation. Because the development of advanced materials de- pends on major breakthroughs, research and development in this field requires a long-term perspective. Long-term development is not sustainable without commitment, and I believe that this commitment is the driving force for inno- vation. July 2013 President 27 AnnuAl RepoRt 2013Toray’s Global Operations —Toray’s way Global Expansion Guided by Global Expansion Guided by Global Expansion Guided by Long-term Perspectives and Long-term Perspectives and Long-term Perspectives and the “Made in Toray”* Spirit the “Made in Toray”* Spirit the “Made in Toray”* Spirit Toray is continually strengthening and expanding its global production network Toray is continually strengthening and expanding its global production network Toray is continually strengthening and expanding its global production network in Japan and overseas. That network is key to Toray’s ability to adapt flexibly to in Japan and overseas. That network is key to Toray’s ability to adapt flexibly to in Japan and overseas. That network is key to Toray’s ability to adapt flexibly to exchange rate fluctuations and demand trends. exchange rate fluctuations and demand trends. exchange rate fluctuations and demand trends. *“Made in Toray” guarantees that all Toray Group products, regardless of where in the world they are made, will always meet the same quality standards. *“Made in Toray” guarantees that all Toray Group products, regardless of where in the world they are made, will always meet the same quality standards. *“Made in Toray” guarantees that all Toray Group products, regardless of where in the world they are made, will always meet the same quality standards. 28 28 28 TOray InDuSTrIES, InC. TOray InDuSTrIES, InC. TOray InDuSTrIES, InC. Global Expansion Guided by Global Expansion Guided by Global Expansion Guided by Long-term Perspectives and Long-term Perspectives and Long-term Perspectives and the “Made in Toray”* Spirit the “Made in Toray”* Spirit the “Made in Toray”* Spirit Basic Strategy of Global Operations— Achieve growth through strong local roots Toray began to develop overseas production operations far earlier than most Japanese companies. Toray Group’s first overseas production started in Thailand in 1963. Our pro- duction network expanded to encom- pass Southeast asia in the 1960s and 1970s, Europe and the united States in the 1980s, and the republic of Korea and China in the 1990s. Today, Toray Group is building a global operating structure based on stronger organic cooperation between overseas and Japanese facilities. This structure has given Toray Group a key advantage—the ability to adapt flex- ibly to exchange rate fluctuations and demand trends. regardless of the country or region in which they are made, all Toray products must meet Toray Group’s own standard of technology and qual- ity according to “Made in Toray”. Our plants in Japan support our global growth strategy through their role as mother plants, including research and development focusing on advanced and innovative technologies, the de- velopment of advanced materials, and the development and implementation of innovative processes. We target business expansion by using this global network of produc- tion facilities in Japan and overseas to manufacture each item at the optimal location. Our global expansion is driven by our fundamental determination to ensure that each production facil- ity established goes on to put down strong local roots and achieve growth and success in partnership with local communities. 50th Anniversary of Business in Thailand This year marks the 50th anniversary of Toray Group’s first overseas pro- duction operation, Thai Toray Textile Mills, which was established in 1963 to produce polyester-rayon blend fabrics. Since then we have built a wide range of business operations in Thailand, including Luckytex (Thailand), which spins polyester-cotton fibers, pro- duces textiles for airbags, etc., and weaves and dyes the fabrics, and Thai Toray Synthetics, a manufacturer of nylon and polyester filament yarns. Thailand will continue to be a key focus for the expansion of Toray Group’s business activities in the aSEan region. In Indonesia, we established Cen- tury Textile Industry, which produces polyester-cotton blend fabrics, and the polyester-rayon blend fabrics man- ufacturer Indonesia Synthetic Textile Mills, in 1972. Other companies were subsequently established, includ- ing production subsidiaries for nylon filament yarns, high-performance polypropylene, non-woven fabrics and other products. These companies achieved strong growth thanks to their excellent cost competitiveness. Our activities in Malaysia began with the establishment of several tex- tile production sites during the 1970s. Today we have integrated production operations spanning all stages from fibers to textiles, including polyester staple fibers, and spun, woven, dyed and printed polyester-cotton blend products. Our diverse business opera- tions also include the production of resins and films. Science Foundations Four Decades of Business Development in Indonesia and Malaysia Toray first began to develop business operations in Indonesia and Malaysia 40 years ago. In 1993 and 1994, Toray established science foundations in Indonesia, Malaysia and Thailand. These founda- tions contribute to the development of scientific technology in the aSEan region by supporting the improvement and development of scientific technol- ogy and culture in all three countries. 29 AnnuAl RepoRt 2013 Global Expansion of Carbon Fiber Business Expanding Our Global Production Capacity to Match Demand Active Development of New Applications World demand for polyacrylonitrile (Pan) carbon fibers expanded to around 39,000 tons in 2012 and is expected to remain on a steep growth trend of 15% growth per year. Toray leads the global carbon fiber industry as the world’s number one producer. Our global production net- work consists of production facilities in Japan, the united States, France and the republic of Korea. We plan to invest around ¥45 billion in these four bases to increase our carbon fiber production capacity by 6,000 tons per year. This will bring Toray Group’s to- tal capacity to 27,100 tons per year by March 2015, enhancing our ability to stably supply high-quality, high-grade carbon fibers reliably to customers throughout the world. Toray Group is actively developing new applications for carbon fibers. In June 2011, we established a joint venture with the German com- pany Daimler to manufacture and sell automobile parts made from carbon fiber composite materials. This com- pany has dramatically enhanced the productivity of resin transfer molding (rTM) technology based on thermo- setting resin. It has started to supply Daimler with mass-produced parts. In april 2013, we acquired DOME CarBOn MaGIC LTD., which has an excellent reputation in the automobile industry through its involvement in racing car design and manufacturing. DOME CarBOn MaGIC LTD., brings advanced design and analysis technol- ogies and prototyping capabilities— together with a Thai manufacturing subsidiary—giving Toray a robust, vertically integrated supply chain with excellent cost competitiveness. We are also expanding our markets for environmental and energy-related applications. Examples of products in this category include compressed natural gas tanks to meet demand growth resulting from the commer- cialization of shale gas in the united States. 30 Expansion of Production Operations in Asia’s Emerging Markets Harnessing the Growth Potential of the ASEAN Region The plan calls for the installation of production facilities with capacity for 6,000 tons per year, with a target start-up date of november 2013. Toray has shifted to a more proac- tive management stance under the aP-G 2013 medium-term manage- ment program. In line with the basic strategy defined in aP-G 2013, we are focusing our global expansion efforts on countries and regions that offer particularly strong growth potential through group-wide initiatives based on asia and Emerging Country Busi- ness Expansion (aE) Project. Our target is to raise Toray Group’s sales in asia and emerging countries of other regions from ¥569.5 billion in the year ended March 2013 (fiscal 2012) to ¥1,500 billion by around 2020. Decision to establish new Resin Compound Facility Toray has decided to establish the first resin compound facility for engineer- ing plastics in Indonesia. Demand for engineering plastics in Indonesia is expected to increase by around 9% annually in volume terms, and the creation of local production capacity will allow Toray to respond quickly to the needs of local customers and pro- vide in-depth technical services. as a result, Toray will be able to expand its business by moving quickly and effec- tively to capture the growing demand for engineering plastics in Indonesia. Decision to Increase production of nylon Fibers for Airbags Demand for airbags is growing, in part because of the increasing percentage of airbag-equipped vehicles in emerg- ing markets. Toray is determined to capture this demand growth and has decided to expand its production capacity in Thailand for nylon 66 fiber for automobile airbags. The new facili- ties, which will have an annual produc- tion capacity of about 7,000 tons, are scheduled to come on line in January 2015. This capacity boost will bring Toray’s total production capacity for nylon 66 airbag fiber in Japan and Thailand to approximately 32,000 tons per year. Decision to expand production of packaging Films Demand for packaging materials in the aSEan region is expected to increase by 3–5% annually in step with improv- ing living standards. Toray Group aims to harness this demand growth by expanding the capacity of its vapor deposition equipment in Malaysia for packaging films used for food and other products. The new facilities are scheduled to become operational in april 2014. 31 Trends in net sales in Growth Countries and Regions (Billions of yen) 3,000 2,500 2,000 1,500 1,000 500 0 Fiscal/ ‘10 ‘11 (Actual) ‘12 ‘13 (Initial Target) ‘15 ‘20 Around (Vision) Total net sales Net sales in Growth Countries and Regions AnnuAl RepoRt 2013 cially high in China, and Toray has cially high in China, and Toray has cially high in China, and Toray has therefore established a production therefore established a production therefore established a production facility for Torayca® resin compounds facility for Torayca® resin compounds facility for Torayca® resin compounds in southern China. in southern China. in southern China. expansion of Dialysis Business in China at present imported products are at present imported products are at present imported products are used to meet the majority of de- used to meet the majority of de- used to meet the majority of de- mand for dialysis-related products, mand for dialysis-related products, mand for dialysis-related products, including dialysis machines and including dialysis machines and including dialysis machines and dialyzers. Toray is building supply dialyzers. Toray is building supply dialyzers. Toray is building supply capacity within China to support a capacity within China to support a capacity within China to support a timely response to market needs. a timely response to market needs. a timely response to market needs. a joint venture established with a lo- joint venture established with a lo- joint venture established with a lo- cal company in June 2011 has built cal company in June 2011 has built cal company in June 2011 has built a dialysis machine plant and has a dialysis machine plant and has a dialysis machine plant and has been producing and selling dialysis been producing and selling dialysis been producing and selling dialysis machines since april 2012. a pro- machines since april 2012. a pro- machines since april 2012. a pro- duction facility for dialyzers is now duction facility for dialyzers is now duction facility for dialyzers is now being built within the grounds of being built within the grounds of being built within the grounds of the dialysis machine plant in prepa- the dialysis machine plant in prepa- the dialysis machine plant in prepa- ration for the commencement of ration for the commencement of ration for the commencement of sales in 2014. sales in 2014. sales in 2014. Continuing Focus on China’s Growth Potential establishment of new Resin Compound Company Current projections indicate that Current projections indicate that Current projections indicate that China’s demand for engineering China’s demand for engineering China’s demand for engineering plastics, especially for use in au- plastics, especially for use in au- plastics, especially for use in au- tomobiles and home appliances, tomobiles and home appliances, tomobiles and home appliances, will grow by around 12% annually. will grow by around 12% annually. will grow by around 12% annually. Growth is expected to be even Growth is expected to be even Growth is expected to be even higher at 17% per annum in western higher at 17% per annum in western higher at 17% per annum in western China. In July 2012, Toray estab- China. In July 2012, Toray estab- China. In July 2012, Toray estab- lished a new resin compound com- lished a new resin compound com- lished a new resin compound com- pany in Chengdu, in addition to its pany in Chengdu, in addition to its pany in Chengdu, in addition to its three existing facilities in southern, three existing facilities in southern, three existing facilities in southern, eastern and northern China. eastern and northern China. eastern and northern China. Toray plans to expand its involve- Toray plans to expand its involve- Toray plans to expand its involve- ment to include nylon, PBT and PPS ment to include nylon, PBT and PPS ment to include nylon, PBT and PPS resins for use in automobiles and resins for use in automobiles and resins for use in automobiles and home appliances. Future plans also home appliances. Future plans also home appliances. Future plans also include the production of com- include the production of com- include the production of com- pounds based on carbon fibers with pounds based on carbon fibers with pounds based on carbon fibers with enhanced added value. enhanced added value. enhanced added value. establishment of Facility for Torayca® Resin Compounds Carbon fiber reinforced thermo- Carbon fiber reinforced thermo- Carbon fiber reinforced thermo- plastics (CFrTPs) are made by plastics (CFrTPs) are made by plastics (CFrTPs) are made by compounding carbon fibers with compounding carbon fibers with compounding carbon fibers with materials to increase their strength. materials to increase their strength. materials to increase their strength. World demand for these materials is World demand for these materials is World demand for these materials is expected to grow by over 10% annu- expected to grow by over 10% annu- expected to grow by over 10% annu- ally, rising from around 30,000 tons ally, rising from around 30,000 tons ally, rising from around 30,000 tons in 2012 to 70,000 tons in 2020. The in 2012 to 70,000 tons in 2020. The in 2012 to 70,000 tons in 2020. The rate of growth is likely to be espe- rate of growth is likely to be espe- rate of growth is likely to be espe- 32 32 32 TOray InDuSTrIES, InC. TOray InDuSTrIES, InC. TOray InDuSTrIES, InC. Developing Growth Markets beyond Asia In addition to its activities in asia, Toray Group is also laying foundations for business development in emerging markets in other regions. Toray’s business in Brazil is worth around ¥6 billion at present. We aim to expand this to ¥20 billion over the next five years. Expansion in Brazil New Representative Office in Turkey In november 2012, Toray’s local sub- sidiary in Brazil was restructured under a new management structure. Local staff numbers were increased, and Japanese staff members were assigned to the company for the first time. With double the number of personnel, the potential of this company as a sales base has been significantly enhanced. With a population of 190 mil- lion and a land area over 20 times greater than Japan’s Brazil is the biggest country in South america. as the world’s sixth biggest economy, Brazil has continued to achieve stable economic growth, as evidenced by an average real GDP growth rate of around 4% over the past five years. Brazil will host the Soccer World Cup in 2014 and the Olympic Games in 2016. These major international sporting events are expected to provide addition- al impetus for economic development. Toray International, the trading arm of Toray Group, has operated a repre- sentative office in Istanbul, Turkey’s largest city, since July 2012. around one-half of Turkey’s estimated popu- lation of 74 million consists of young people aged 29 or below. The Turk- ish economy continues to expand steadily, and real GDP has grown by an average of about 5% over the past eight years. Since the opening of its representa- tive office in Istanbul, Toray Interna- tional has been working to expand Toray Group’s business in Turkey and neighboring countries in product cat- egories ranging from industrial fibers and textiles to printing materials. Its approach is based on the utilization of local facilities, such as partnerships with local companies, to provide a timely response to customer needs. 15% 17% 14% 55% Japan China Other Asia Europe North America, etc. Regional Contributions to net sales in the year ended March 2013 (Fiscal 2012) In this year, overseas sales were ¥722.0 billion, or 45% of total sales. We use all of the Group’s resources and capabili- ties, such as extensive management re- sources and our overseas infrastructure, to drive the expansion of our overseas business. 33 AnnuAl RepoRt 2013Toray Group Segments Business Categories Foundation Businesses Net Sales Ratio 64.6% Operating Income Ratio 59.5% Net Sales Ratio 19.8% Operating Income Ratio 29.3% Net Sales Ratio 14.7% Operating Income Ratio 9.7% Segments Main products Application examples Note: Excludes other businesses, equivalent to ¥14.1 billion (0.9%) in net sales and ¥1.6 billion (1.5%) in operating income, and adjustment of operating income of –¥20.0 billion. 34 Fibers & Textiles plastics & Chemicals Filament yarns, staple fibers, and woven and knitted fabrics of nylon, polyester and acrylic fibers, etc.; non-woven fabrics, man-made suede and apparel products • Women’s and men’s clothes (coats: man-made suede, dress shirts: polyester-cotton blended fabric, stockings: nylon fiber, apparel products, swimwear) • automobiles (car seats: polyester fiber, airbags: nylon fiber, seatbelts: polyester fiber) • Sportswear • F urniture & interior (sofas: man-made suede, carpets: BCF nylon, curtains: halogen-free, flame retardant materials) • Disposable diapers: polypropylene filament yarn non-woven fabric • Tents: polyester fiber nylon, aBS, PBT, PPS and other resins and molded products, polyolefin foam; polyester, polypropylene, PPS and other films and processed film products; raw materials for synthetic fibers and other plastics; zeolite catalysts; fine chemicals for pharmaceuticals and agrochemicals; veterinary medicine (excludes film and resin covered in IT-related Products segment) • automobiles (radiator tanks: nylon resin, intake manifold: nylon resin, connectors: PBT resin, capacitor for hybrid cars: polypropylene film) • Home appliances (housing for washing machines, vacuum cleaners, air conditioners: aBS resin) • Power tools (circular tools housing: nylon resin) • Helmets (nylon resin) • Solar battery panels (PET film) • Potato chip bags (polypropylene film) • Veterinary medicine (for dogs and cats) • Flat panel display televisions (PET film, PDP) Toray IndusTrIes, Inc. strategically expanding Businesses Intensively Developing and expanding Businesses Net Sales Ratio 64.6% Operating Income Ratio 59.5% Net Sales Ratio 19.8% Operating Income Ratio 29.3% Net Sales Ratio 14.7% Operating Income Ratio 9.7% IT-related products Carbon Fiber Composite Materials environment & engineering life science Films and plastic products for information and tele- communications related products; materials for electronic circuits and semiconductors; color filters for LCDs and related materials and equipment; materials for plasma display panels; magnetic recording materials; graphic materials and related equipment • Flat panel display televisions (PET film, PDP rear panel pastes, LCD color filter manufacturing equipment) • PCs (circuit materials, PET film, polyimide coatings) • Cellular phones (color filters, LCP resin, circuit materials, PET film) • Printing (waterless printing plates, relief printing on resins, printing equipment) • Digital video camera recording film (PET film) • In-vehicle multimedia Lans (optical fiber) • Semiconductors (semiconductor coating materials) Carbon fibers, carbon fiber composite materials and their molded products Pharmaceuticals and medical products; analysis, physical evaluation and research services Comprehensive engineering; condominiums; industrial equipment and machinery; environment-related equipment; water treatment membranes and related equipment; materials for housing, building and civil engineering • aircraft structure (carbon fiber composite materials) • Bridge pier reinforcement (carbon fiber woven fabrics) • PC chassis (carbon fiber molded products) • Wind-power generator blades (carbon fibers) • Marine vessels (carbon fibers) • Industrial equipment materials (carbon fiber, carbon fiber composite materials) • Seawater desalination • Pharmaceuticals (natural interferon-beta preparation, prostacyclin, antipruritus drug) • Medical treatment devices (hemodialyzers, dialyzer and equipment) • Physical analytical services facilities (water treatment mem- branes and equipment) • Sewage and waste-water treatment facilities (water treatment membranes and equipment) • Condominiums • Housing (wall siding for houses, interior materials for buildings) • Plants and manufacturing facilities (comprehensive engineering services) 35 AnnuAl RepoRt 2013Toray Group Segments Foundation Businesses Fibers & Textiles Fiscal net sales Operating income 2011 2012 Changes 2013 Forecast (Billions of yen) 638.4 45.3 632.2 43.2 -1.0% -4.6% 740.0 53.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 638.4 632.2 45.3 43.2 rOa FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income Operating income to net sales Capital expenditures 9.8% 6.8% ¥27.9 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) In the Japanese market for industrial applications, sales of automotive applications followed a firm trend in the first half of the year, but the expiry of the eco-car subsidy program was reflected in slower performance in the second half. In the area of apparel applications, there was a strong demand for materials used in functional fall and winter apparel, but demand for general apparel applications remained weak because of the economic recession and other factors. Trends in overseas markets continued to show the effects of prolonged economic stagnation in Europe and slower demand in asia due to the deceleration of domestic demand in China. In the first half of the year, production and sales were also impacted by the floods in Thailand. net sales for the Fibers & Textiles segment in the year under review were 1.0% lower year on year at ¥632.2 billion, while operating income declined by 4.6% to ¥43.2 billion. outlook for the year ending March 2014 (Fiscal 2013) Within Japan, the correction of the strong yen is expected to bring growth in business fields relating to import replacement and export- ing. reconstruction after the Great East Japan Earthquake is also likely to contribute to demand expansion. Overseas, there is concern about the prospect of chronic economic stagnation in Europe, but we anticipate generally firm trends in economic conditions in the united States and China, and also in aSEan and other emerging economies. In this business environment, Toray will aggressively pursue demand in growth business fields, such as fibers and textiles for automobile airbags, disposable diaper applications and the environment, and in growth regions, such as China and emerging economies. We will also work to strengthen and expand our garment business, which is structured around a planning and proposal business model based on the development of new materials. By strengthening our corporate structure through cost reduction and other strategies, we aim to achieve earnings growth and global business expansion in keeping with expectations as a Foundation Business. 36 TOPICS Decision to Increase production Capacity of Nylon Fiber for Automobile Airbags in Thailand Toray has decided to increase its produc- tion facilities for nylon 66 fiber, which is used in automobile airbags, at the ayut- thaya Plant of its subsidiary Thai Toray Synthetics Co., Ltd. in Thailand. When the new facilities become operational in January 2015, they will have production capacity for approximately 7,000 tons per year. The company’s current capacity will increase by around 40% to 23,000 tons per year. Toray Group’s total production capac- ity for nylon 66 fiber for airbags, including production at the Okazaki Plant in aichi Prefecture, Japan, will expand to 32,000 tons per year. Toray has been expanding its airbag business globally since 2003. Original yarn produced in Japan and Thailand is sup- plied to textile manufacturing plants in Japan, Thailand, China and the Czech re- public, creating an integrated production chain from yarn to fabric. We will use this integrated structure to enhance our quality competitiveness, while also strengthening our global production network and our research and development and marketing functions. Our aim is to supply products that match global needs. Toray IndusTrIes, Inc. Foundation Businesses plastics & Chemicals Fiscal net sales Operating income 2011 2012 Changes 2013 Forecast (Billions of yen) 397.8 27.4 395.8 -0.5% 18.3 -33.2% 460.0 24.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 397.8 395.8 27.4 18.3 rOa FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income Operating income to net sales Capital expenditures 4.2% 4.6% ¥23.2 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) There was volume growth in sales of engineering plastics for automo- tive applications in the first half of the year because of increased production by automobile manufacturers, especially in Japan. However, the expiry of eco-car subsidy scheme brought a decline in demand for plastic resins from the third quarter onwards. Overseas, shipments of general-purpose aBS resins remained slow because of stagnation in the Chinese market. However, there was growth in sales of resin compounds and other automotive applications in the united States. In the films business, economic stagnation and other factors were reflected in slower demand in domestic and overseas markets. In addition, the global expansion of production resulted in a deteriorat- ing supply-demand balance and escalating price competition. net sales for the Plastics & Chemicals segment declined by 0.5% year on year to ¥395.8 billion. Operating income was 33.2% lower at ¥18.3 billion. outlook for the year ending March 2014 (Fiscal 2013) Despite continuing uncertainties, including wide fluctuations in the prices of raw materials and fuels, we anticipate increased demand driven by the recovery of the Japanese economy and the expan- sion of our customers’ exports due to the correction of the strong yen. Particularly high growth is expected in high value-added fields. Overseas economies, centered on emerging countries, are expected to lead a recovery in global demand. In this business environment, through every possible effort we aim to maximize sales of best-selling products in the plastic resins business. We anticipate sales growth in China, aSEan and emerging countries, and we aim to maintain and expand the spreads between selling prices and fuel and raw material prices by passing on increased costs quickly to selling prices. In the films business, there is likely to be strong price-reduction pressure from customers, but we will focus on the expansion of sales of high value-added packaging and industrial applications. TOPICS expansion of packaging Film production in Japan and Asia Decisions were taken to expand vapor deposition facilities used in the metalliza- tion processing of food packaging films at several production sites in asia. Toray advanced Film Co., Ltd. (TaF) plans to commence production with a newly installed state-of-the-art vapor deposi- tion equipment for polypropylene (PP) packaging film at its Fukushima Plant in October 2013. In addition, the Malaysian company Penfibre Sdn. Berhad plans to install state-of-the-art vapor deposi- tion equipment with technical support from TaF in preparation for the start of metallized polyester (PET) packaging film production. The advanced vapor deposi- tion equipment installed at the Fukushima Plant is capable of producing 580 tons of film per month and will double the plant’s current vapor deposition capacity. The existing PET film-production facilities in Malaysia have a monthly capacity of 3,600 tons. The new facilities will have capacity for 375 tons of metallized PET film per month and will allow the company to newly enter into processed film business. In Thailand, Thai Toray Synthetics, Ltd. completed its vapor deposition capac- ity for cast polypropylene (CPP) film in October 2012. The total investment by these three companies will amount to approximately ¥3 billion. 37 AnnuAl RepoRt 2013 Toray Group Segments strategically expanding Businesses IT-related products Fiscal net sales Operating income 2011 2012 Changes 2013 Forecast (Billions of yen) 243.4 34.5 237.6 -2.4% 23.0 -33.5% 270.0 35.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 243.4 237.6 34.5 23.0 rOa FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income Operating income to net sales Capital expenditures 7.0% 9.7% ¥21.7 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) With LCD panel production adjustments necessitated by a slump in the flat-screen television market mostly completed, a gradual recovery trend emerged. While this produced a recovery trend in demand for products used in flat-screen televisions, such as films and processed film products, price competition intensified. In the area of materi- als for small and medium-sized flat panel displays (FPDs), sales of smartphone-related products remained strong, but demand for other applications was generally slow. net sales for the IT-related Products segment in the year under re- view were 2.4% lower year on year at ¥237.6 billion. Operating income declined by 33.5% to ¥23.0 billion. sub-segments Fiscal Display Materials Electronic components, semiconductors, electric circuit materials Data storage materials Equipment, others (Billions of yen) 2011 2012 Changes 90.3 79.0 -13% 86.2 96.6 +12% 34.1 32.8 31.2 30.7 -8% -6% outlook for the year ending March 2014 (Fiscal 2013) With television demand in China lacking in buoyancy, the outlook for manufacturers of medium and large flat-screen televisions looks increasingly uncertain. This is reflected in continuing price- reduction pressure from customers. Demand for materials used in smartphones is expected to remain on a growth trend. Our priority in this business environment is to increase sales of and expand our market shares for high value-added films and processed film products for use in displays and electronic compo- nents. Our approach to this goal will include capacity expansion. We will also work to increase sales of organic EL materials, semi- conductor materials and graphic materials. 38 TOPICS New plant for Waterless printing plates in the Czech Republic Toray, decided to build a new plant for waterless printing plates at Toray Textiles Central Europe s.r.o. (TTCE), its subsidiary in the Czech republic. Waterless print- ing plates are extremely friendly to the environment. They do not require damp- ening agents containing isopropyl alcohol (IPa), which is subject to environmental restrictions, and because alkaline develop- ing solution is not used, the waste effluent is not contaminated. In addition, these products reduce production losses and improve printing quality and stability while also helping to reduce printing costs. The environment-friendly characteristics of waterless plates have earned considerable recognition in Europe, where there is a strong awareness of environmental issues. Toray already has a production facility in Japan, but the new facility will be the first large-scale dedicated production plant in Europe. The addition of the new facility to the plant in Okazaki, Japan will double total production capacity for waterless plates. Toray IndusTrIes, Inc.strategically expanding Businesses Carbon Fiber Composite Materials Fiscal net sales Operating income 2011 2012 Changes 2013 Forecast (Billions of yen) 69.9 7.7 77.6 +11.0% 7.3 -4.8% 105.0 13.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 69.9 77.6 7.7 7.3 FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income rOa Operating income to net sales Capital expenditures 3.4% 9.4% ¥15.3 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) Expanding demand for aircraft and environment and energy-related products such as compressed natural gas (CnG) tanks, was reflected in firm trends in sales of aerospace and industrial applications. Delayed recovery in demand for sporting goods applications, affected by global economic stagnation, resulted in escalating price competition. net sales for the Carbon Fiber Composite Materials segment increased by 11.0% year on year to ¥77.6 billion in the year under review. at ¥7.3 billion, operating income was 4.8% below the previous year’s level. sub-segments Fiscal aircraft Sporting goods Industrial (Billions of yen) 2011 2012 Changes 26.7 13.3 29.9 30.4 12.2 35.0 +14% -8% +17% outlook for the year ending March 2014 (Fiscal 2013) World demand for carbon fiber is expected to remain on a steady growth trend, led by aircraft applications and environment and energy-related applications. However, due to an oversupply situation, especially in Europe and asia, severe share competition is predicted in the commodity areas of industrial and sporting goods applications, and the recovery of market prices is likely to take a little longer. In these business circumstances, we anticipate continued strong sales of aircraft applications, including for Boeing for the 787. In addition, we will also expand our sales to manufacturers of environment and energy-related products, take advantage of continuing market growth in those areas. In sporting goods appli- cations, we will make efforts to shift our sales to high value-added products, and normalize prices of commodity products. TOPICS Acquisition of DoMe CARBoN MAGIC LTD. In april 2013, we purchased the entire stake in DOME CarBOn MaGIC LTD. from the DOME Group, a racing car de- signer and manufacturer highly acclaimed by the automobile industry, in order to expand our carbon fiber composite materials business, especially for auto- motive applications. (The newly acquired company was renamed as Toray Carbon Magic Co., Ltd.) We also acquired a 75% stake in Dome Composites (Thailand) Co., Ltd., the DOME Group’s manufacturing subsidiary in Thailand, and renamed it Carbon Magic (Thailand) Co., Ltd. These acquisitions dramatically enhance Toray’s CFrP (Carbon Fiber reinforced Plastic) parts design technol- ogy, and the synergy effects with its existing various CFrP molding tech- nologies should strengthen the Toray Group’s ability to rapidly respond to customer requirements. We will also be able to build a highly competitive supply chain linking all stages from materials, parts designing and prototype proposal to mass production. 39 AnnuAl RepoRt 2013 Toray Group Segments Intensively Developing and expanding Businesses environment & engineering Fiscal net sales 2011 2012 Changes 2013 Forecast (Billions of yen) 170.2 178.4 +4.8% 195.0 Operating income 4.9 2.6 -46.2% 6.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 170.2 178.4 4.9 2.6 FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income rOa Operating income to net sales Capital expenditures 1.5% 1.5% ¥4.3 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) The water treatment business was affected by slow demand in key markets, including Europe, the united States, the Middle East and China. We continued our efforts to expand global sales of reverse osmosis (rO) and other water treatment membranes and reduce costs. Japanese subsidiaries were generally able to increase their sales. However, construction and real estate subsidiaries were affected by cost increases, while the order prices of an engineering subsidiary were eroded by increasing competition. In the year under review, the net sales for the Environment & Engineering segment increased by 4.8% year on year to ¥178.4 billion. Operating income was 46.2% lower at ¥2.6 billion. outlook for the year ending March 2014 (Fiscal 2013) In the water treatment business, we anticipate continuing strong trends in asia and a gradual recovery in the markets of the united States and China. We will target further sales growth while working to minimize costs. We still face challenges in the business environment for the engi- neering business. However, we aim to expand orders for industrial, solar cell-related and lithium-ion battery-related equipment. 40 TOPICS Continuing orders for RoMeMBRA® Reverse osmosis (Ro) Membranes for Two Seawater Desalination plants in the United Arab emirates In recent years, the arabian Gulf countries have been extensively investing in infrastructure using profits from rising oil prices. Of particular significance is the proliferation of plans for the construction of seawater desalination plants to secure drinking water supplies. Toray is already the industry leader in the area of rO membranes, having supplied products to seawater desalination plants in Bahrain, Kuwait, Saudi arabia and other arabian Gulf countries. This track record allowed Toray to win continuing orders for the supply of rO membranes to two seawater desalination plants at al Zawra, Emirate of ajman and Ghalilah, Emirate of ra’s al Khaimah in the united arab Emirates. Toray supply rO membranes to plants with the capacity to produce more than 30.7 million cubic meters of water per day. This equals enough water for home use for 120 million people (about 1.7% of the world population). The rO membranes Toray has shipped for seawater desalina- tion to these plants cumulatively produce more than 7 million cubic meters per day, giving Toray the biggest market share in this field. Toray IndusTrIes, Inc. Intensively Developing and expanding Businesses life science Fiscal net sales Operating income 2011 2012 Changes 2013 Forecast (Billions of yen) 55.6 6.0 56.6 +1.9% 7.5 +24.7% 65.0 7.0 Fiscal 2013 forecasts announced on Aug. 6, 2013. 55.6 56.6 7.5 6.0 rOa FY2011 FY2012 FY2011 FY2012 Net Sales Operating Income Operating income to net sales Capital expenditures 11.6% 13.2% ¥3.7 billion summary of Consolidated Financial Results for the year ended March 31, 2013 (Fiscal 2012) Toray Group recorded increased sales of medical devices, including the polysulfone membrane dialyzer TOrayLIGHT™ nV, and TOrayMyXIn™, a hemoperfusion absorption column for removing endotoxin. Sales of pharmaceuticals were affected by escalating competition and lowering of selling prices following the april 2012 adjustments to the national health insurance pricing scheme. In the year under review, net sales for the Life Science segment amounted to ¥56.6 billion, a year-on-year increase of 1.9%. Operating income was 24.7% higher at ¥7.5 billion. outlook for the year ending March 2014 (Fiscal 2013) In general we expect the market for pharmaceuticals and medical devices to expand. However, competition is likely to remain intense because of expanding sales of generic pharmaceuticals. One of our goals in the area of pharmaceuticals in this environment is to achieve further growth in sales of rEMITCH®*, an oral pruritus improvement drug for hemodialysis patients. In the medical products field, we will work to expand sales of dialyzers including TOray- LIGHT™ nV and dialysis machines, including Tr-3000Ma. *rEMITCH® is a registered trademark of Torii Pharmaceutical Co., Ltd. TOPICS Construction of New production Facility for ToRAYMYXIN™ Toray decided to build a new production facility for TOrayMyXIn™ at the Okazaki Plant. TOrayMyXIn™ has been manu- factured at the Shiga Plant, but we now have a plan to invest approximately ¥1.8 billion to construct a new facility, which has double the production capacity, at the Okazaki Plant. The aims of this movement are to expand our business on a full scale all over the world including Europe and the united States and to aggregate and intensify the efficiency of the development and manufacturing of medical devices. TOrayMyXIn™ is a hemoperfusion column approved for use in endotoxin re- moval with a blood purification treatment. First launched in Japan in 1994, it is now clinically used in many countries to treat patients complicated with severe sepsis and septic shock leading to multiorgan dysfunction. 41 AnnuAl RepoRt 2013 R&D and Intellectual Property R&D and Intellectual Property Toray is built on research and development, and as a manufacturer of basic materials, will continue to pursue highly original advances and technologies. 42 CoreTechnologiesPolymer ChemistryBiotechnologyOrganic Synthetic ChemistryNanotechnologyMedical ChemistryFilm TechnologySpecialty PolymersFine PatterningTextile TechnologyMicrostructure ControlMoldingHigh-performance PolymersPolymer DesignFiber TechnologyPharmaceuticalsFine Chemicals,Veterinary MedicinesArtificial Organs andMedical DevicesPrinting MaterialsMan-made SuedeSynthetic Raw MaterialsElectronic MaterialsHigh-performance Membranes,Water Treatment SystemsIndustrial Materials andAmenity MaterialsEngineering PlasticsTextiles, ApparelsCarbon Fibers, AdvancedComposite MaterialsHigh-performance FilmsSynthetic FibersUltramicro FiberTechnologyFilm ProcessingTechnologyCarbonization TechnologyFine and CompositeTechnologyToray IndusTrIes, Inc.Property Basic R&D Policy—Characteristics and Strengths Toray’s Approach to R&D Founded on the belief that its future would be built on a foundation of research and technological development, Toray has worked continually to create new technologies and expand the scope of its technological resources. Our mission is to protect the environment of the planet on which we all live and bring safety and security to everyone’s life by continually creating advanced materials through technological innovation. The concepts that guide these continuing efforts are the pursuit of new breakthrough technologies, and the convergence of technologies. Toray’s four core fields of technology are organic synthetic chemistry, polymer chemistry, biotechnology and nanotechnology. We create new value and contribute to society through the creation of advanced materials based on these four fields. Characteristics and Strengths lCulture of Commitment to Basic Research Toray has maintained a culture of commitment to basic research as a vital step toward the development of revolutionary materials. Continuing R&D are the sources of our competitiveness. Our carbon fiber materials and RO membranes have reached their present stage of development and gained market recognition thanks to a management policy that emphasizes R&D based on long- term perspectives. lExpertise from Many Fields Toray’s team of specialists develops world-class advanced materials using their wide-ranging experience and knowl- edge in fields that include polymer design, functional enhancement technology, drug development and formula- tion and pharmacology. All of this work is linked to Toray’s four core fields of technology: organic synthetic chemistry, polymer chemistry, biotechnology and nanotechnology. lIntegrated R&D Organization Toray’s unified R&D organization works as a single, undi- vided unit. At the core of the organization is the Technology Center, which formulates company-wide R&D strategies and proposes key projects. By supporting cross-organizational technology sharing, this structure provides an environment that is conducive to inspiration, new ideas and technology convergence. In addition, individual technologies and basic chemical materials combined with those created in other fields can make major contributions to a variety of business activities through this structure. lLeadership in Research Based on Industry-govern- ment-academia Collaboration As part of its commitment to the continuous creation of revo- lutionary advanced materials, Toray Group is strengthening its involvement in external collaboration linking industry, the government and academia, including national projects, and global open innovation. We also accelerate the creation of advanced materials by working with leading companies and venture businesses in Japan and overseas through strategic partnerships and other relationships. lAdvanced Analytical Capabilities Toray Research Center Inc. (TRC), which was spun off from Toray’s R&D organization as an independent company in 1978, provides technical support based on its analytical technology, including the analysis of physical properties. TRC has improved its technology through the process surviving against fierce competition from independent analysis. It continues to contribute to maintenance of Toray Group’s advanced analytical capabilities through by carrying out analyses, including analyses of physical properties, in response to requests from Toray for assistance with identify- ing the causes of the problems and finding solutions. 43 AnnuAl RepoRt 2013R&D Expenditure and Achievements Through its R&D activities, Toray Group aims to expand its earnings by building and strengthening reliable income streams in two Foundation Businesses: Fibers & Textiles and Plastics & Chemicals. R&D also plays a major role in our ability to supply advanced materials in four major growing business fields: environment, water-related and energy; information, telecommunications and electronics; automobiles and aircraft, and life science. R&D expenses by Toray Group in the year ended March 31, 2013 (fiscal 2012) amounted to ¥53.3 billion. Percentages of Total R&D Expenses in Fiscal 2012 R&D Expenses (Billions of yen) 8% 14% 37% 53.3 billions of yen 19% 14% 4% 4% Fibers & Textiles Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering Life Science Head Office R&D 60 50 40 30 20 10 0 Fiscal/ ‘08 ‘09 ‘10 ‘11 ‘12 Toray Consolidated subsidiaries 44 　 R&D and Intellectual Property R&D Achievements Fibers & Textiles Our goal is to strengthen stable income streams and expand earnings in this foundation business area through the pursuit of breakthrough technologies that lead to the creation and expan- sion of high-performance products and advanced materials. One key success in this segment was the development of the world’s thinnest modified cross-section nanofibers. We also developed UTS-MelangeTM, ultramicro polyester filament yarns that provide a mottled effect based on a mixture of colors. Another development success was PoliloftTM NP, which helps to reduce environmental loads as a polyester filament yarn with dye-affinity at normal atmospheric pressure. Plastics & Chemicals R&D activities in this foundation business segment are targeted to- ward the reinforcement and expansion of a stable income structure, and the development of a sustainable recycling-based society. A key achievement was the full-scale start of sales of 0S (“Zero S”) Grade, a new type of Toraypef® polyolefin foam with supe- rior flexibility and formability. We also developed a high-plant grade of the environment-friendly biomass resin Ecodear®. Over 50% of the polylactic resin in the new product is plant-derived. IT-related Products Our R&D activities in this field reflect its status as a core strate- gically expanding business area. A major achievement was the development of an olefin- based mold release film that combines the previously incompat- ible characteristics of heat resistance and enhanced formability. We also installed the PS Laboratory, a semiconductor mounting R&D system, at the Shiga Plant to improve the efficiency and speed of R&D relating to semiconductor materials and expand the range of applications. In addition, we won the National Commendation for Invention award for the invention of a light- sensitive paste for use in plasma display barriers. Carbon Fiber Composite Materials This is a key area of market leadership for Toray, and has been targeted for strategic expansion as a business area offering key environmental benefits. Significant achievements include the acquisition of all shares in DOME CARBON MAGIC LTD. from the Dome Group, which became a wholly owned subsidiary, with the aim of strength- ening our design technology. In addition, Toray received the Prime Minister Prize in the 41st Japan Industrial Grand Prix for the development of carbon fiber and prepreg materials for use in the Boeing 787, as well as the Chemical Society of Japan’s 61st Chemical Technology Award for the commercialization of a lightweight composite material for use in aircraft. Environment & Engineering R&D activities in these areas reflect this segment’s selection for intensive development and expansion. An important success in the field of water treatment was the winning of an order for the supply of ROMEMBRA® reverse osmosis (RO) membranes for seawater desalination plants in the United Arab Emirates. In addition, the TorayvinoTM CassettyTM 205MX won the 2012 Good Design Award. We also commenced sales of the TorayvinoTM PT304V, a pot-type water purifier that combines large capacity with ease of storage. Life Science R&D activities in this area reflect the Life Science segment’s sta- tus as a field selected for intensive development and expansion. In the medical area, we concluded a licensing agreement for the injectable antipruritic agent TRK-820, which was jointly developed with Fresenius Medical Care AG&Co KGaA, the world’s biggest supplier of dialysis services and related equip- ment. Another success in the medical products field was the development of the Filtryzer® NF. Developed using membrane processing technology, this new dialyzer uses polymethylmeta- crylate (PMMA) membranes to provide improved functionality compared with earlier products. Basic Research, Development of Foundational Technologies Though not linked to any particular business segment, basic research and the development of foundational technologies are a priority for Toray because of their importance to the creation of new businesses and products for the future. Our management policy in relation to bio-based polymers, innovative battery materials and organic membrane solar pan- els is to contribute to the establishment of a sustainable low- carbon society by making the global environment the focus for all business strategies. We have also decided to make a full commitment to the development of Nanoalloy® technology as a technology brand because of its potential to enhance the per- formance and functions of polymer materials. Toray holds basic patents, key manufacturing patents and application patents. 45 AnnuAl RepoRt 2013 ToPIcs1 Development of the World’s Thinnest Innovative Nanofibers Toray has succeeded in developing the world’s thinnest filament nanofiber with a diameter of just 150nm—just one-half the thickness of previous minimum fiber diam- eter of 300nm, and a Y-shaped modified cross-section nanofiber with a diameter of 500nm. These fibers allow a greater surface area per unit of fiber weight than was previously possible. In addition, the spaces between the fibers can be modified at will to enhance various charac- teristics, including moisture absorption, water absorp- tion, water retention and friction coefficients. It will also be possible to achieve higher levels of filtration, separa- tion and elimination performance. The functional properties of the innovative nanofibers created using this technology will be ideal for use in apparel and sportswear providing new levels of comfort and functionality. There are many other potential appli- cations, including filter materials, medical materials and other high-performance industrial materials. ToPIcs2 Environment-friendly Biodegradable Microporous Film Toray has succeeded in the development of a biode- gradable multiporous polylactic* film that can be used as a new material for various applications, including agricul- tural multifilm, healthcare products, such as disposable diapers, and disposable heat packs. There are still issues with existing multiporous polyethylene film products, in- cluding waste disposal and the environmental load. The newly developed multiporous polylactic film is expected to make an important contribution to the development of a sustainable, recycling-based society, since all of the polymers used are biodegradable, and the product is largely based on biomass materials. Toray is determined to commercialize the product as soon as possible and has accelerated efforts to develop mass-production technology. * Polylactic polymers are biodegradable substances synthesized from starch obtained from maize and other biomass materials. 46 R&D and Intellectual Property Basic Policy and Priority Strategies on Intellectual Property http://www.toray.com/ir/library/lib_005.html For detailed information, please refer to the Intellectual Prop- erty Report, which describes intellectual property initiatives by Toray Group Intellectual Property Strategies Intellectual property strategies must be organically linked to business strategies and R&D strategies. Toray is pursu- ing intellectual property strategies based on an integrated trinity of these elements in line with management policies. One priority of the medium-term management program AP-G 2013 is the expansion of Green Innovation Busi- nesses. Toray is currently filing patent applications and strengthening its rights in four major growing business fields: environment, water-related and energy; information, telecommunications and electronics; automobiles and air- craft; and life science. We are building a patent portfolio in fields with the potential to solve to the world’s increasingly urgent and significant environmental problems. To support business expansion in growth business fields and regions, we are strategically moving to converge the R&D activities and intellectual property activities of the global Toray Group. The parent company will step up its efforts to secure overseas patents and rights, while overseas group companies will work to protect inventions made at Toray Group R&D facilities in various countries by intensifying their patent application activities and efforts to secure rights. In the year ended March 31, 2013 (fiscal 2012), Toray Group filed 1,683 applications in Japan and 4,220 in other countries. The Group holds 1,013 patents in Japan and 1,001 overseas. Toray Patents Filed in Year Ended March 31, 2013 Total Patents Held to Date 1,683 1,013 4,220 1,001 Overseas Domestic Overseas Domestic 47 　 　 Sustainable Management For our customers Provide new value through high-quality products and superior services Basic Management Philosophy For our employees Provide opportunities for self development in a challenging working environment Product safety and quality Green Innovation Businesses CSR procurement Promoting human rights and human resource development Safety, accident prevention, environmental protection CSR guidelines Safety, accident prevention, environmental protection Communication Social contribution activities Corporate governance and management transparency Business ethics and regulatory compliance Risk management For society Establish ties and develop mutual trust as a responsible corporate citizen For our stockholders Provide dependable and trustworthy management sustainable Management We regard safety, accident prevention and environmental preservation as well as corporate ethics and legal compliance as the most important management priorities for Toray Group. Our goal is to earn respect and support in the international community and provide high value for all stakeholders by contributing to society through our core business activities. 48 Toray IndusTrIes, Inc.CSR Initiatives Toray Group’s Corporate Philosophy and CSR Activities Environmental Management Initiatives The Corporate Philosophy of Toray Group is expressed in the words “Contributing to society through the creation of new value with innovative ideas, technologies and products.” Throughout our history, we have sought to contribute to society through our core business activities. Today we continue to put this philosophy into effect through carefully planned CSR activities. Our Corporate Missions identify four key types of stake- holders: stockholders, customers, employees and society. Our commitment to good corporate citizenship is reflected in our Corporate Guiding Principles, which set targets for the conduct of individual employees. Our Corporate Philosophy is also supported by our Corporate Ethics and Legal Compliance Code of Conduct, which define specific standards of conduct to which all employees can refer. General plans for CSR activities are shared across the entire Toray Group, and we formulate CSR road maps as the basis for continuing initiatives based on a continual PDCA cycle. In the year ended March 31, 2013 (fiscal 2012), our progress along our CSR roadmap was generally in line with our plans. However, there were some key performance indicators (KPIs) that were not achieved. We will continue to work dynamically toward the achievement of our targets for the end of fiscal 2013. Toray’s Management Philosophy and Code of Conduct Declaration outlining the obligations of Toray Group as a good corporate citizen Corporate Philosophy Management Philosophy Corporate Missions Basic objectives are based on a breakdown of the Corporate Philosophy as related to each type of stakeholder Corporate Guiding Principles Putting the Corporate Philosophy and the Corporate Mission into practice together with the aims and goals of each and every employee Corporate Ethics and Legal Compliance Code of Conduct Concrete standards relating to ethics and compliance with laws and regulations Promotion of LCM-based Environmental Management Toray Group’s approach to environmental management is based on lifecycle management (LCM). With the LCM concept, all business activities are viewed from the perspective of product and service lifecycles. The aim is to improve economic and social value while reducing environmental loads. Our Green Innovation products all embody this concept. Our LCM initiatives include the introduction of lifecycle assessment and the T-E2A efficiency analysis tool. We are now working to disseminate and consolidate these concepts. A key source of impetus for LCM-based environmental management has been the guidelines used to calculate con- tributions to the reduction of CO2 emissions. We are currently using the Japanese guidelines, which were published by the Japan Chemical Industry Association in February 2012. Global guidelines are now being developed and should be completed before the end of 2013. Toray is cooperating fully in the formulation of both the Japanese and international versions of the guidelines. Initiatives to Fight Global Warming Since 2000, Toray Group has enhanced and expanded its ef- forts to prevent global warming and contribute to the emer- gence of a recycling- oriented society through independent initiatives under Three-year Environmental Plans. Fiscal 2011 was the first year of the Fourth Medium-Term Environmental Plan, under which we will further expand our environmental initiatives. We are working systematically to re- duce greenhouse gas (GHG) emissions. For example, we have reduced energy consumption through process improvements, and we have switched from fuel oil to city gas. The entire Toray Group is implementing carefully planned measures to ensure the achievement of targets under this plan, which runs through fiscal 2015. Voluntary Reduction of Atmospheric Emission of Chemical Substances Toray Group regards the reduction of environmental loads, in- cluding releases of chemical substances into the atmosphere, as one of its most important priorities. We are working to achieve this goal through group-level initiatives. Under the Fourth Medium-Term Environmental Plan, launched in April 2011, we are systematically implementing voluntary initia- tives to resolutely achieve the targets of fiscal 2015 for reducing emissions of substances covered by the PRTR law and volatile organic substances (VOCs). 49 AnnuAl RepoRt 2013Sustainable Management CSR Initiatives Initiatives to Prevent Air and Water Pollution Measures to prevent air and water pollution are an important part of Toray Group’s efforts to protect the environment at the production stage. We have reduced SOx emissions by install- ing desulfurization systems and switching to alternative fuels at our facilities, including those in other countries. We are also working to reduce chemical oxygen demand (COD) levels by expanding our wastewater treatment facilities. Water Resource Management Initiatives Toray Group has long relied on the following policies to de- velop solutions to water resource problems around the world through water treatment projects and other initiatives from its business activities. 1. Toray Group recognizes that water is one the most important resources for the human race, and that people in many parts of the world face problems relating to water resources. 2. Toray Group will contribute to the solution of the world’s water resource problems through its products, technol- ogy and services. 3. Toray Group is committed to the appropriate manage- ment of water resources, in line with its basic policy that the status of water resources in each region should be constantly monitored so that regional communities can share these precious resources. 50 Initiatives to Reduce Waste As part of its contribution to a sustainable, recycling-oriented society, Toray Group aims to achieve zero-emission status. Related initiatives under the Fourth Medium-Term Environ- mental Plan are based on numerical targets linked to specific indicators for fiscal 2015, including simple disposal ratios, landfill disposal ratios and recycling ratios. Biodiversity Conservation Initiatives Together with the reduction of greenhouse gas emissions, biodiversity conservation is recognized by Toray Group as a key global environmental priority. Our initiatives relating to biodiversity conservation and sustainable use are guided by the Toray Group Biodiversity Basic Policy, which was adopted in 2010. Mapping the Relationship between Business Activities and Biodiversity Biodiversity is affected by the business activities of Toray Group at all lifecycle stages, starting with the procurement of raw materials. An in-house working group has analyzed this relationship from the perspectives of risks and opportunities and produced a relationship map. CSR Procurement and Purchasing CSR Procurement and Purchasing Activities As a manufacturer of advanced materials, Toray places consid- erable importance on source control linked to end-user needs in a number of areas, such as raw materials used to make the materials and products that it supplies, and also in relation to its production facilities. This perception, and our commitment to fair trade, are reflected in our Basic Purchasing Policies. We have also formulated CSR Procurement Guidelines, which call for the development of value chains that allow us to fulfill our social responsibilities in partnership with our suppliers, and for the supply of environmentally and socially responsible materi- als and products to our customers. Toray has also adopted CSR procurement compliance rules covering all corporate activities to ensure that it is able to provide customers with accurate reports about its CSR initiatives. Toray has established contact points for CSR procurement, through which we manage and internally share customer and supplier information. Toray IndusTrIes, Inc.Environmentally Conscious Distribution Policies Toray’s Basic Distribution Policies defines key policies relat- ing to the equity and fairness of business transactions, and to environmental preservation. In addition to our ongoing efforts to reduce logistics-related environmental loads and improve quality, we also hold annual briefings on our Basic Distribu- tion Policies to ensure that our logistics partners are fully conversant with Toray policies on logistics, and to enhance performance. Training and Human Rights Promoting Human Rights Toray Group regards respect for human rights as a vital aspect of its business operations. In addition to our efforts to improve awareness of human rights, we totally prohibit discrimination based on ethnicity, beliefs, gender, educational background, nationality, religion, physical characteristics or other attributes. This prohibition applies to recruitment activities, deployment, remuneration, education and retirement. In compliance with international rules, including the United Nations Universal Declaration of Human Rights and the ILO Convention, we also prohibit forced labor and child labor. In addition, we are com- mitted to full compliance with the laws and regulations of each country and region. Retaining Key Employees Protection of employment is a basic management policy of Toray Industries, Inc. Staffing adjustments are not made for short-term reasons, and we aim to provide stable, continuous employment for our core employees, regardless of economic trends or corporate performance. Toray Group needs highly motivated employees capable of working globally and will actively recruit and train talented people in Japan and overseas. We will also continue to provide a wide range of training programs to strengthen the manage- ment and market skills of employees at all levels and in all areas, to improve their knowledge of production technology and other specialist fields, and to enhance their ability to adapt to a globalized environment. Promoting Diversity Toray Group promotes diversity as part of its efforts to create energetic workplaces in which people from wide-ranging backgrounds can achieve their full potential. Throughout its history Toray has actively employed women and sought to create amenable working environments for them. In recent years, we have improved our systems to help both male and female workers achieve a healthy work-life balance for their chosen lifestyles. Our systems, which provide readily acces- sible support according to the circumstances of individual employees, exceed the legally mandated requirements relat- ing to childcare, care for aged and infirm family members, and maternity protection. 51 Sustainable Management CSR Initiatives Communication Activities Social Contribution Activities Our Social Contribution Policy Through our core business activities, we fulfill our Corporate Philosophy of “Contributing to society through the creation of new value with innovative ideas, technologies and products.” We also contribute to society in various other ways under the Toray Group Social Initiative Policies. Our wide-ranging activities include the provision of funding for the Toray Science Foundation (Public Interest Incorporated Foundation), which was founded in 1960. Contributing to Future Generations Children will inherit the future. Toray Group supports educa- tion by providing products, technology and human resources. Employees act as special instructors for elementary and junior high school programs that teach children to enjoy scientific experiments and understand the role of technology in solving global environmental problems. Toray and Toray Research Center Inc. host science camps, which are science and technol- ogy experiment programs for high school students with an interest in science. Front-line researchers and engineers use experiments and other activities to provide direct instruction to high schools students from throughout Japan. All of our business activities depend on good dialog with stakeholders. Toray Group is committed to communication in good faith, including the timely disclosure of accurate information, as the basis for mutual understanding with our wide-ranging stakeholders, including stockholders, customers, employees and local communities. Stakeholder Communication One way we communicate with stockholders and investors is through quarterly financial presentations. We also hold requi- site briefings for individual investors. In addition, we communi- cate directly with investors and analysts in individual meetings, as required. We also ensure fair disclosure of information by distributing annual reports and other documents, and by post- ing information that is useful to stockholders and investors on our website. Toray lives up to its reputation for putting the customer first by actively communicating with our customers, primarily through our sales and marketing divisions. Many customers also attend our exhibitions and briefings. Various media, including in-house newsletters, the intranet and other methods, are used to communicate with employ- ees. In addition to messages from the President, these chan- nels are also used to share information about management and business topics and build understanding about these and other matters. Dialog with the local communities surrounding group companies, offices and plants is an important priority for Toray Group. Regular gatherings are held for local residents, includ- ing briefings on our business activities and products. We also build friendly relations with communities through initiatives, in- cluding clean-up projects for rivers and roads near our plants. Principal SRI indexes in which Toray is included l FTSE KLD Global Climate 100 Index l Morningstar Socially Responsible Investment Index (as of March 31, 2013) http://www.toray.com/csr/index.html The Toray Group CSR Report contains information about the CSR activities of Toray Group. Detailed information can be found at this website. 52 Toray IndusTrIes, Inc.ToPIcs Helping to Establish the Toray UsM Knowledge Transfer centre Toray has been active in Malaysia since the 1970s. Today there are four group companies involved in fibers & textiles, plastics and other fields. Our fundamen- tal approach to activities is to achieve growth through our local roots. In 1993, we established the Malaysia Toray Science Foundation with the aim of contributing to the advancement of sci- ence and technology in Malaysia. Each year the Foundation awards prizes and grants, including support from Toray Group companies in Malaysia. To commemorate the 40th anniversary of Toray’s presence in Malaysia, we do- nated 4 million ringgits (approximately ¥110 million) to the Universiti Sains Malaysia (USM) in Penang. The funds will be used to establish the Toray USM Knowledge Transfer Centre, a place for human resource development and the preservation and study of Malaysia’s culture, history and traditions. A build- ing for the facility will be built on the main USM campus and is expected to complete in 2015. The USM is one of Malaysia’s lead- ing educational institutions. It is highly regarded for its research activity and was selected by the Ministry of Higher Education as the base for the Acceler- ated Programme for Excellence (APEX). USM graduates work for Toray Group companies in Malaysia, and Toray Indus- tries Inc. supports internship training for USM students. In keeping with its corporate phi- losophy of “contributing to society through the creation of new value with innovative ideas, technologies and products,”Toray Group carries out a va- riety of CSR initiatives focused on local communities. 53 AnnuAl RepoRt 2013 Sustainable Management Corporate Governance Toray Group’s Basic Policy on Corporate Governance Toray Group’s basic policy on corporate governance is contained in our Corporate Missions, which requires us to provide stockholders with dependable and trustworthy management. Our Corporate Guiding Principles require us to obtain the trust of society and meet the expectations by acting fairly while maintaining high ethical standards and a strong sense of responsibility and maintaining transparency in management. We regard these as our most important management policies. Outline of Corporate Governance Structure and Rea- sons for Adoption Our Board of Directors has 26 members. As a company in the basic material sector, Toray is involved in a wide range of busi- ness fields globally based on our core technologies, including organic synthetic chemistry, polymer chemistry, biotechnol- ogy and nanotechnology. Our present governance structure reflects our belief that when decisions are taken by members of the Board who have extensive knowledge of our business activities it helps us accomplish our management responsibili- ties to stockholders. Toray operates under a corporate auditor system. Two members of the four-member Board of Corporate Auditors are outside corporate auditors. To ensure management transpar- ency and objective and impartial management oversight, the Board of Corporate Auditors is completely independent from the Board of Directors. The selection of outside corporate au- ditors is based on the stock exchange standards for decisions concerning the independence of independent auditors. The task of the outside corporate auditors is to improve oversight of the performance of duties by members of the Board from an independent perspective. Basic Policy on Internal Control Systems and Their Development We develop and maintain internal control systems as a framework for the development of appropriate organizational structures, the formulation of rules and regulations, the dis- semination of information and the monitoring of business operations. The purpose of these systems is to ensure that all Toray Group executives and employees are able to realize the Corporate Philosophy, Corporate Missions and Corporate Guiding Principles of Toray Group, as expressed in the words “contributing to society through the creation of new value with innovative ideas, technologies and products.” We review and improve these systems as required to ensure that our business operations are conducted efficiently and in compliance with the law. The following specific systems have been established. lSystem to ensure that the execution of duties by members of the Board and employees comply with laws and regulations and the Company’s Articles of Incorporation lSystem to ensure the efficient execution of duties by members of the Board lSystem for preserving and managing information pertaining to the execution of duties by the members of the Board lRules and other systems pertaining to controls over risks of loss lSystem of reporting to corporate auditors and other systems for ensuring effective implementation of audits by corporate auditors lItems pertaining to employees assisting with corporate auditors’ duties and items pertaining to the independence of said employees lSystem for ensuring appropriate business operations by Toray Group 54 Toray IndusTrIes, Inc.Governance Structure Toray Group is determined to justify the trust placed in it by society by working in good faith to maintain highly transparent governance systems. General Stockholders Meeting Election Election Election Audit Board of Corporate Auditors Audit Board of Directors Resolution Auditing Department President Approval Deliberations Council Executive Committee and Board of Senior Vice Presidents Accounting Auditor Internal audit Audit Company-wide Committees CSR Committee Management execution Divisions and plants in Japan Japanese subsidiaries and affiliates Overseas subsidiaries and affiliates Departmental Committees Auditing by Corporate Auditors, Internal Auditors The corporate auditors, including the outside corporate au- ditors, possess considerable expertise of financial matters and accounting. They thoroughly monitor the execution of duties by members of the Board by attending important cor- porate meetings, including meetings of the Board of Direc- tors, and meeting with all members of the Board, divisional and departmental general managers, and by conducting on- site audits of Toray offices and plants worldwide, including subsidiaries and affiliated companies. The corporate auditors also work closely with internal control organizations. For example, they attend as observ- ers at meetings of the Corporate Ethics Committee, which was established to promote corporate ethics and regulatory compliance as key elements of corporate social responsibil- ity, and the Company-Wide Legal Compliance Committee. The Audit Department, which reports directly to the President, was established as part of our internal control structure. Its task is to conduct internal audits of Toray and its subsidiaries and affiliated companies. Information is con- tinually exchanged. For example, all audit reports submitted to the President by the Audit Department are also submit- ted to the corporate auditors. 55 AnnuAl RepoRt 2013Sustainable Management Corporate Governance Remuneration 1. Details of Remuneration Position Total remuneration (millions of yen) Total remuneration (millions of yen) by type Basic Bonuses Provision for the allowance for retirement benefits Stock options as remuneration Recipients Members of the Board Corporate auditors (excluding outside corporate auditors) Outside corporate auditors 1,568 1,153 125 85 21 79 19 6 2 32 — — 257 — — 33 3 2 Notes: 1. Recipients included seven directors who retired during fiscal 2012, and one corporate auditor (excluding outside corporate auditors). 2. Total amounts of remuneration do not include ¥84 million paid in salaries to eleven employee-directors. 2. Total Remuneration Received by Members of the Board and Corporate Auditors Name Total consolidated remuneration (millions of yen) Position Status of company Basic Bonuses Provision for the allowance for retirement benefits Total remuneration (millions of yen) by type Sadayuki Sakakibara Akihiro Nikkaku 149 132 Member of the Board Filing company Member of the Board Filing company 115 98 13 13 — — Note: Information about consolidated remuneration is shown only for persons receiving more than ¥100 million. Stock options as remuneration 21 21 3. Policy on Remuneration for Members of the Board and Corporate Auditors Remuneration for members of the Board and corporate auditors consists of monthly remuneration, a bonus and stock acquisition rights in the form of stock options. The purpose of this structure is to ensure management transparency and fairness, and to provide enhanced incentives for the improvement of financial perfor- mance and corporate value in the short-, medium- and long-term perspectives. Remuneration for corporate auditors consists of monthly remuneration and a bonus. Furthermore, the amount of remuneration to directors and auditors members of the Board and corporate auditors is deter- mined while taking into account the results of research conduct- ed by a third-party organization to ensure objectivity. The maximum total amount of monthly remuneration is deter- mined by resolution at the Ordinary General Meeting of Stock- holders. Resolutions are passed as required to determine whether or not bonuses should be paid and the amount of such bonuses. General Ordinary Meetings of Stockholders set upper limits for the number of stock options granted to members of the Board as remuneration, and for the total amount of remunera- tion provided. The Board of Directors determines the number of stock options granted to members of the Board within those lim- its according to internal regulations established by the Company. Corporate Ethics and Legal Compliance Corporate ethics and legal compliance are among Toray Group’s most important management priorities. Our top management has established clear guidelines and provides proactive leader- ship with the aim of ensuring that all Toray Group employees will maintain high ethical standards and a strong commitment to compliance with laws and regulations. Framework for Promoting Corporate Ethics and Legal Compliance Toray has established a Corporate Ethics Committee under the chairmanship of the President as a framework for cooperative initiatives by labor and management. This committee deliberates on all policies pertaining to corporate ethics. The Company-Wide Legal Compliance Committee works under the auspices of the Corporate Ethics Committee to promote independent activi- ties, and is specifically tasked with advancing initiatives relating Framework for Promoting Corporate Ethics and Legal Compliance in Toray Corporate Ethics Committee * Chaired by Toray’s company president Company-wide Legal Compliance Committee Division-and Plant-level CSR/Legal Compliance Committees 56 Toray IndusTrIes, Inc. to company-wide priorities. The committee’s administration is based on close communication between committee members, who are mainly section managers from each business line, and top management. All divisions, offices and plants have estab- lished CSR/Legal Compliance Committees to carry out activities involving individual employees in their workplaces. To ensure that all executives and employees, including contract, part-time and temporary employees, are fully informed about compliance requirements, we distribute copies of the Cor- porate Ethics and Legal Compliance Handbook, which defines standards of conduct and provides detailed information about aspects that require special care. The Handbook is updated as required, such as when laws and regulations are amended. The subsidiaries and affiliated companies in Japan and overseas have also established CSR/Legal Compliance Committees and are working to ensure consistent compliance by compiling similar codes of conduct, guidelines, handbooks and other materials. Risk Management We regard risk management as a fundamental element in the corporate management of Toray Group. Under our corporate risk management policies, which are administered over three-year cycles, we aim to identify and reduce potential risk factors in our business activities and prevent recurrences. We have also formu- lated Crisis Management Regulations as the basis for the devel- opment and administration of an Emergency Quick Response System designed to prevent emergency situations from expand- ing and ensuring the early restoration of normal operations. Promotion of Group-Wide Risk Management Under the corporate risk management system introduced in fiscal 2008, we evaluate potential risk factors that could affect the busi- ness operations of Toray Group from a group-wide perspective. This system consists of a series of specific steps based on the Plan-Do-Check-Act cycle. Step 1 (Plan): A risk survey is carried out using questionnaires and interviews. Step 2: Results from these surveys are used to as- sess risks, and the seriousness of potential risks is calculated by mul- tiplying probability by impact. Step 3 (Do): A risk map is compiled based on findings from Step 2. This is used to provide an overview of all risks and identify major risks. Step 4: Priority risks are selected from among the risks identified through Step 3 (Group-Wide Risk Management Committee and CSR Committee) and countermea- sures are implemented by the units concerned. Step 5 (Check, Act): Activities undertaken to reduce priority risks are checked and added, and follow-up measures are implemented (Group- Wide Risk Management Committee and CSR Committee). Risk reduction measures relating to priority risks are imple- mented by the units responsible for each risk category, or by working groups. The Group-Wide Risk Management Committee receives regular reports about priority risks and assesses prog- ress toward the reduction of risks after seeking input from the director in charge of each area. Working groups are established to take action in relation to the following types of priority risks. 1. Information security risks Toray uses e-learning to provide security training for its execu- tives. A total of 1,108 executives have completed this pro- gram to date, which is designed to improve awareness among front-line management personnel. 2. Supply-chain risks Toray has developed initiatives to ensure that customer inquiries about conflict minerals are answered promptly and efficiently. Steps taken by affiliated companies in Japan and overseas in relation to conflict minerals are also checked. Crisis Management System Toray’s Crisis Management Regulations set out basic principles for a group-wide response to serious risks affecting Toray Group. The purpose of the regulations is to ensure a consistent and com- prehensive response in a crisis situation. When anti-Japanese demonstrations occurred in China in August 2012, Toray immediately established an Emergency Re- sponse Headquarters in accordance with the Crisis Management Regulations. By implementing timely and effective measures, we were able to minimize the impact on Toray Group. Promotion of Business Continuity Plan (BCP) We have always regarded major earthquakes as a significant risk factor. Activities under our Major Earthquake Business Continuity Plan include drills concerning the confirmation of personnel safety systems, including its effect on the supply chain. In the year ended March 31, 2013 (fiscal 2012), we applied lessons learned through the Great East Japan Earthquake to the development administration guidelines for a Company-Wide Re- sponse Headquarters. We also conducted division-level drills on setting up a company-wide earthquake response headquarters based on a scenario in which a Tokyo is directly hit by a major earthquake. Around 1,000 people took part. In April 2013, the Tokyo Metropolitan Government enacted an ordinance concerning measures to assist people stranded by natural disasters. In accordance with the ordinance, Toray imple- mented an e-learning program for all employees at its Tokyo Of- fice concerning initial response measures in the event of a major earthquake. Other measures include the introduction of a system to check the safety and whereabouts of employees at all Toray offices and plants, a program of earthquake strengthening for plant build- ings, a review of continuity planning for corporate functions and key business operations, and the identification of potential prob- lems affecting supply chains for each product. We are continu- ally working to mitigate risk factors with the potential to affect business continuity. 57 AnnuAl RepoRt 2013 Corporate Information Board of Directors and Corporate Auditors (As of June 26, 2013) Chairman of the Board and Representative Member of the Board President and Representative Member of the Board Sadayuki Sakakibara Akihiro Nikkaku Executive Vice President and Representative Member of the Board Executive Vice President and Representative Member of the Board Executive Vice President and Representative Member of the Board Junichi Fujikawa Eizo Tanaka Nobuo Suzui In charge of General Administration & Legal Division (Security Trade Administration Department); General Manager, Corporate Strategic Planning Division; General Manager, IT Business SBU In charge of Marketing and Sales; In charge of Corporate Marketing Planning Department, Automotive Material Strategic Planning Department and branches; General Manager, Fibers & Textiles Division; General Manager, Osaka Head Office In charge of Purchasing & Logistics Division; Product Safety & Quality Assurance Planning Depart- ment; General Manager, Manufacturing Division Senior Vice President and Representative Member of the Board (Member of the Executive Committee) Koichi Abe Senior Vice Presidents (Members of the Board & Members of the Executive Committee) Moriyuki Onishi Shinichi Okuda Kazushi Hashimoto Ryo Murayama Senior Vice Presidents (Members of the Board) Akira Uchida Susumu Yamaguchi Shogo Masuda Akira Umeda Yukichi Deguchi Hiroshi Murakami Akio Sato Vice Presidents (Members of the Board) Hisae Sasaki Hiroshi Otani Minoru Yoshinaga Kunihiko Yoshida Toru Fukasawa Mitsuo Oya Satoru Hagiwara Yasuo Suga Hirofumi Kobayashi Corporate Auditors (Full-time) Kiyoshi Fukuchi Motoyuki Yagita Corporate Auditors Mitsuaki Yahagi Makoto Matsuo 58 Toray IndusTrIes, Inc.Organization (As of July 1, 2013) Corporate Strategic Planning Division General Administration & Legal Division Board of Directors Personnel & Industrial Relations Division President & Executive Vice President Investor Relations Dept. Finance & Controller’s Division Executive Committee & Board of Senior Vice Presidents Board of Corporate Auditors Corporate Auditors Corporate Communications Dept. Auditing Dept. Intellectual Property Division Information Systems Division Purchasing & Logistics Division International Division Advertising Dept. Corporate Marketing Planning Dept. Automotive Material Strategic Planning Dept. Global Environment Business Strategic Planning Dept. Affiliated Companies Division Fibers & Textiles Division Resins & Chemicals Division Films Division Torayca & Advanced Composites Division Electronic & Information Materials Division Pharmaceuticals & Medical Products Division Water Treatment & Environment Division Product Safety & Quality Assurance Planning Dept. Regulatory Compliance Division Technology Center Manufacturing Division Engineering Division Research & Development Division 59 AnnuAl RepoRt 2013Corporate Information Toray Group Worldwide Network (Major consolidated subsidiaries and affiliates) (As of March 31, 2013) EUROPE United Kingdom Consolidated Subsidiaries l Toray Textiles Europe Ltd. (TTEL) n Toray International U.K. Ltd. (TIUK) France Consolidated Subsidiaries n l Toray Films Europe S.A.S. (TFE) n Toray Carbon Fibers Europe S.A. (CFE) Switzerland Subsidiary Accounted for by Equity Method l Toray Membrane Europe AG (TMEu) Italy Consolidated Subsidiaries l Alcantara S.p.A. Subsidiary Accounted for by Equity Method n Toray International Italy S.r.l. (TIIT) Czech Republic Consolidated Subsidiaries l Toray Textiles Central Europe s.r.o. (TTCE) Germany Consolidated Subsidiaries n Toray International Europe GmbH (TIEU) Others ASIA China Consolidated Subsidiaries n Toray Industries (China) Co., Ltd. (TCH) l Toray Fibers (Nantong) Co., Ltd. (TFNL) l l Toray Polytech (Nantong) Co., Ltd. (TPN) l Toray Jifa (Qingdao) Textile Co., Ltd. (TJQ) Toray Sakai Weaving & Dyeing (Nantong) Co., Ltd. (TSD) n l Toray Plastics (Shenzhen) Ltd. (TPSZ) n l Toray Plastics (China) Co., Ltd. (TPCH) n l Toray Sanko Precision (Zhongshan) Ltd. (RKZ) n l Toray Sanko Precision (Hong Kong) Ltd. (RKH) n Toray Industries (H.K.) Ltd. (THK) n Toray International (China) Co., Ltd. (TICH) n Toray Film Products (Zhongshan) Ltd. n Toray Film Products (Hong Kong) Ltd. l Toray BlueStar Membrane Co., Ltd. (TBMC) Others Subsidiaries Accounted for by Equity Method n Toray Industries (South China) Co., Ltd. (TSCH) Others Affiliate Accounted for by Equity Method n Yihua Toray Polyester Film Co., Ltd. (YTP) Republic of Korea Consolidated Subsidiaries l n l Toray Advanced Materials Korea Inc. l STEMCO, Ltd. (STEMCO) Affiliates Accounted for by Equity Method l STECO, Ltd. (STECO) Others Chinese Taipei Subsidiary Accounted for by Equity Method n Toray International Taipei Inc. (TITP) Others Malaysia Consolidated Subsidiaries l Penfabric Sdn. Berhad (PAB) l n l Penfibre Sdn. Berhad (PFR) n l Toray Plastics (Malaysia) Sdn. Berhad (TPM) Others Subsidiary Accounted for by Equity Method n Toray Industries (Malaysia) Sdn. Berhad (TML) Affiliate Accounted for by Equity Method n Toray BASF PBT Resin Sdn. Berhad (TBPR) Singapore Consolidated Subsidiary n Toray International Singapore Pte. Ltd. (TISP) Consolidated subsidiaries Subsidiaries accounted for by equity method Total subsidiaries Affiliates accounted for by equity method Companies subject to consolidation Japan Overseas Total 86 147 61 27 88 12 24 51 110 198 26 38 100 136 236 (As of March 31, 2013) Japan Consolidated Subsidiaries l n Ichimura Sangyo, Co., Ltd. l n l Toray Fine Chemicals Co., Ltd. n l Toyo Plastic Seiko Co., Ltd. n l Toray Advanced Film Co., Ltd. l Toray KP Films Inc. l Toray Battery Separator Film Co., Ltd. n Soda Aromatic Co., Ltd. l l Toray Engineering Co., Ltd. l Toray Construction Co., Ltd. l Suido Kiko Kaisha, Ltd. n Toray Medical Co., Ltd. n Toray Research Center Inc. n Toray International, Inc. n Chori Co., Ltd. Others Subsidiaries Accounted for by Equity Method n Toyo Business Support Inc. Others Affiliates Accounted for by Equity Method l n l Du Pont-Toray Co., Ltd. l Toray Opelontex Co., Ltd. n l Dow Corning Toray Co., Ltd. n Sanyo Chemical Industries, Ltd. Others Indonesia Consolidated Subsidiaries l P.T. Acryl Textile Mills (ACTEM) l P.T. Century Textile Industry Tbk (CENTEX) l P.T. Easterntex (ETX) l P.T. Indonesia Synthetic Textile Mills (ISTEM) l P.T. Indonesia Toray Synthetics (ITS) Subsidiaries Accounted for by Equity Method n P.T. Toray Industries Indonesia (TIN) Others Affiliates Accounted for by Equity Method n P.T. Petnesia Resindo (PNR) Others Thailand Consolidated Subsidiaries l Luckytex (Thailand) Public Co., Ltd. (LTX) l Thai Toray Textile Mills Public Co., Ltd. (TTTM) l n l Toray Synthetics Co., Ltd. (TTS) Subsidiary Accounted for by Equity Method n Toray Industries (Thailand) Co., Ltd. (TTH) Affiliate Accounted for by Equity Method n Thai PET Resin Co., Ltd. (TPRC) NORTH AMERICA U.S.A. Consolidated Subsidiaries l Toray Fluorofibers (America), Inc. (TFA) l n Toray International America Inc. (TIAM) n Toray Plastics (America), Inc. (TPA) n Toray Resin Co. (TREC) n Toray Carbon Fibers America, Inc. (CFA) n Toray Composites (America), Inc. (TCA) l Toray Membrane USA, Inc. (TMUS) Others n Regional Supervisory Organization l Fibers & Textiles n Plastics & Chemicals l IT-related Products n Carbon Fiber Composite Materials l Environment & Engineering n Life Science & Other Businesses n Trading Major Offices in Japan Overseas Offices and Branches 2nd Head Office Building 8-1, Mihama 1-chome, Urayasu, Chiba 279-8555, Japan Telephone: 81 (47) 350-6001 Facsimile: 81 (47) 350-6075 Osaka Head Office Nakanoshima Mitsui Building, 3-3, Nakanoshima 3-chome, Kita-ku, Osaka 530-8222, Japan Telephone: 81 (6) 6445-4101 Facsimile: 81 (6) 7688-3774 New York Toray Industries (America) Inc. (TAM) 461 Fifth Ave., 9th Fl., New York, NY 10017, U.S.A. Telephone: 1 (212) 697-8150 Facsimile: 1 (212) 972-4279 London Toray Industries, Inc., Europe Office (TEU) Verulam Gardens, 70 Gray’s Inn Road, London, WC1X 8NH, U.K. Telephone: 44 (20) 7663-7760 Facsimile: 44 (20) 7663-7770 Beijing Toray Industries, Inc., Beijing Office Beijing Fortune Bldg., No. 917, 5, Dong San Huan Bei-Lu, Chao Yang District, Beijing 100004, China Telephone: 86 (10) 6590-8961—3 Facsimile: 86 (10) 6590-8964 Seoul Toray Industries, Inc., Seoul Office 10th Floor, LG Mapo Bldg., 275, Gongdeok2-dong, Mapo-gu, Seoul, 121-721 Korea Telephone: 82 (2) 707-0381—2 Facsimile: 82 (2) 707-0067 India Toray Industries, Inc., India Liaison Office Unit No. 504, 5th Floor, Vatika City Point, MG Road Gurgaon, Haryana 122002, India Telephone: 91 (12) 4387-7900 Facsimile: 91 (12) 4387-7901 Brazil Toray do Brasil Ltda. Av. Paulista, 1048-Conj 71 Bela Vista Sao Paulo - SP 01310-100, Brasil Telephone/Facsimile: 55 (11) 4314-7792 60 Toray IndusTrIes, Inc. Financial Section Co n t e n t s 62 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA 63 MANAGEMENT’S DISCUSSION AND ANALYSIS 68 CONSOLIDATED BALANCE SHEETS 70 CONSOLIDATED STATEMENTS OF INCOME 70 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME 71 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS 72 CONSOLIDATED STATEMENTS OF CASH FLOWS 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 96 INDEPENDENT AUDITOR’S REPORT 61 SIX-YEAR SUMMARY OF SELECTED FINANCIAL DATA Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31 2013 2012 2011 2010 2009 2008 Millions of yen net sales* ¥1,592,279 ¥1,588,604 ¥1,539,693 ¥1,359,631 ¥1,471,561 ¥1,649,670 Fibers & Textiles Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering Life Science Others Life Science & Other Businesses operating income Income (loss) before income taxes and minority interests net income (loss) net cash provided by operating activities Depreciation and amortization Capital expenditures total assets 632,150 395,835 237,593 77,620 178,355 56,599 14,127 — 83,436 77,828 48,477 638,375 397,815 243,404 69,914 170,247 55,554 13,295 — 584,115 382,299 262,027 67,018 178,183 52,430 13,621 — 107,721 100,087 525,204 332,735 230,433 50,676 159,787 46,656 14,140 — 40,107 568,996 377,644 229,421 70,390 160,207 — — 64,903 36,006 637,343 404,015 283,734 83,580 173,213 — — 67,785 103,429 101,091 82,893 (2,415) (19,751) 78,565 64,218 57,925 (14,158) (16,326) 48,069 100,815 104,410 129,214 166,215 38,447 110,367 67,588 99,135 67,443 98,384 70,479 55,942 74,904 57,073 83,764 92,349 86,423 146,787 1,731,830 1,581,501 1,567,470 1,556,796 1,523,603 1,698,226 Property, plant and equipment, net Interest-bearing liabilities net assets 627,240 532,002 779,615 561,923 481,906 674,149 531,595 493,509 640,970 580,344 632,160 518,216 596,261 663,945 512,610 680,993 591,182 642,159 Yen Per share of common stock: Net income (loss): Basic Diluted Cash dividends Net assets Ratios: ¥ 29.75 ¥ 39.41 ¥ 36.41 ¥ (10.12) ¥ (11.66) ¥ 34.34 28.90 10.00 444.95 37.46 10.00 384.90 34.43 7.50 363.90 — 5.00 — 7.50 336.65 335.04 — 10.00 423.78 Operating income to net sales 5.24% 6.78% 6.50% 2.95% 2.45% 6.27% Net income (loss) to net sales Equity ratio Return on equity Debt/equity ratio (times) 3.04 41.9 7.2 0.73 4.04 39.7 10.5 0.77 (1.04) 30.3 (3.0) 1.34 (1.11) 30.8 (3.1) 1.42 2.91 34.9 8.1 1.00 3.76 37.8 10.9 0.83 Yen Common stock price range: High Low ¥ 654 ¥ 631 ¥ 643 ¥ 591 ¥ 694 ¥ 998 421 511 420 390 350 529 number of employees 42,584 40,227 38,740 37,936 37,924 38,565 * Effective from the year ended March 31, 2011, “Revised Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (Accounting Standards Board of Japan (ASBJ) Statement No.17, March 27, 2009) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No.20, March 21, 2008) are applied. Accordingly, segment information for the year ended March 31, 2010 is restated. 62 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 63 MANAGEMENT’S DISCUSSION AND ANALYSIS oVeRVIeW InCoMe AnALYsIs During the period covered by year ended March 31, 2013 (fiscal 2012), the global economy on the whole remained under harsh conditions, as the European real economy’s protracted struggle with its sovereign debt problems continued while the Chinese economy and the U.S. economic recovery slowed down. The Japanese economy recovered at a gradual pace on the back of mainly reconstruction demand related to the Great East Japan Earthquake, though the recovery leveled off from summer reflecting primarily the global economic slowdown. Since the end of 2012, there have been some positive signs on the back of expectations for the economic measures by the administration led by Prime Minister Shinzo Abe. Under such circumstances, Toray Group has been implementing the growth strategy with focus on pursuing business expansion in growth business fields and growth regions and further bolstering its total cost competitiveness in accordance with the medium-term management program “Project AP-G 2013.” As a result, Toray Group achieved an increase in revenues from the previous fiscal year but earnings fell during the same period. net sales Consolidated net sales in the year ended March 31, 2013 amounted to ¥1,592.3 billion, up 0.2% or ¥3.7 billion from the previous fiscal year. Sales increased in the Carbon Fiber Composite Materials, the Environment & Engineering, the Life Science segments and the Others. sales by segment Fibers & Textiles Total sales in this segment declined ¥6.2 billion, or 1.0%, to ¥632.2 billion. In Japan, while sales of industrial-use materials grew strongly fueled by factors including rising sales for automotive applications reflecting production expansion by automobile manufacturers in the first half, the demand showed a decelerating trend in the second half as the subsidies for purchase of eco-cars ended. Demand for apparel applications remained weak due to the slowing economy, except for functional apparel materials for fall and winter, sales of which were strong. Overseas, in addition to sluggish demand in Asia given the impact of the slowdown in the United States and European economies and deceleration of China’s domestic demand, both production and sales in the first half were affected by the floods in Thailand. net sales by segment (Billions of yen) operating Income by segment (Billions of yen) 1,649.7 1,471.6 1,588.6 1,592.3 1,539.7 1,359.6 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 103.4 107.7 100.1 83.4 40.1 36.0 120 90 60 30 0 -30 Mar/’08 ’09 ’10 ’11 ’12 ’13 Mar/’08 ’09 ’10 ’11 ’12 ’13 n Fibers & Textiles n Plastics & Chemicals n IT-related Products n Carbon Fiber Composite Materials n Environment & Engineering n Life Science & Other Businesses n Life Science n Others n Fibers & Textiles n Plastics & Chemicals n IT-related Products n Carbon Fiber Composite Materials n Environment & Engineering n Life Science & Other Businesses n Life Science n Others n Elimination & Corporate n Adjustment *1 Effective from the year ended March 31, 2011, “Revised Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No.17 of March 27, 2009) and “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No.20 of March 21, 2008) are applied. Accordingly, segment Information for the year ended March 31, 2010 is restated. *2 Operating income by segment that is not attributable to any segment is included in “Elimination & Corporate” for the fiscal years ended March 31, 2008 and 2009, respectively, and included in “Adjustment” for the fiscal years ended March 31, 2010, 2011, 2012 and 2013, respectively. 62 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 63 Plastics & Chemicals Total sales in this segment decreased ¥2.0 billion, or 0.5%, to ¥395.8 billion. Sales volume of engineering plastics for automotive applications in the resin business increased in the first half on expanded production primarily by automobile manufacturers in Japan, though demand declined from the third quarter due to the ending of subsidies for purchase of eco-cars. Overseas, while freight movement of general-purpose ABS resins remained sluggish reflecting the continued stagnation in the Chinese market, sales of resin compounds, etc. for automotive applications in the United States expanded. Demand for film products remained sluggish in Japan and overseas due to the worldwide economic slowdown, while price competition continued to intensify. IT-related Products Total sales in this segment declined ¥5.8 billion, or 2.4%, to ¥237.6 billion. Despite production adjustments for LCD panels caused by the slowdown in the flat-screen television market being almost over and production showing signs of recovery, the flat-screen television-related products including films and processed film products did not reach the levels marked in the same period a year earlier, as recovery in demand was slow, and price competition intensified. Among materials for small and mid- sized displays, sales of smartphone-related products increased, while those for other applications remained sluggish in general. Carbon Fiber Composite Materials Total sales in this segment rose ¥7.7 billion, or 11.0%, to ¥77.6 billion. Sales in aerospace and general industrial applications were strong, as demand for aircraft applications grew and that for environmental and energy-related applications, including compressed natural gas tank applications, expanded. The recovery of the market for sporting goods applications stalled reflecting the economic slowdown in Japan and abroad, and price competition has been intensifying. Environment & Engineering Total sales in this segment increased ¥8.1 billion, or 4.8%, to ¥178.4 billion. Demand for water treatment membranes was sluggish in main markets such as Europe, the United States, Middle East and China. Japanese subsidiaries in general expanded sales, while an engineering subsidiary was affected by order price declines due to intensifying competition. Life Science Total sales in this segment were up ¥1.0 billion, or 1.9%, to ¥56.6 billion. Sales of medical products including TORAYLIGHTTM NV, a polysulfone membrane dialyzer, and TORAYMYXIN TM a hemoperfusion absorption column for removing endotoxins, increased strongly. Sales of pharmaceutical products, however, were affected by intensified competition as well as the lowering of the selling price under the National Health Insurance price revision in April 2012. Others Net sales rose ¥0.8 billion, or 6.3%, to ¥14.1 billion. Costs and expenses The ratio of total costs and expenses to net sales for the year was 94.8%, up 1.5 percentage points from the previous fiscal year. Consolidated net sales increased 0.2% year on year, and cost of sales increased 1.5%. As a result, the cost of sales ratio increased 1.0 percentage points to 80.4%. Selling, general and administrative expenses increased ¥8.4 billion, or 3.8%, to ¥228.2 billion. The ratio of selling, general and administrative expenses to net sales increased 0.5 percentage points to 14.3%. R&D expenses increased ¥1.9 billion, or 3.7%, to ¥53.3 billion. operating Income and net Income Operating income fell ¥24.3 billion, or 22.5%, from the previous fiscal year, to ¥83.4 billion, while operating income to net sales fell 1.5 percentage points to 5.2%. By segment, operating income decreased in all segments except for the Life Science segment and Others. Operating income in the Fibers & Textiles segment fell ¥2.1 billion, or 4.6%, from the previous fiscal year to ¥43.2 billion. Demand was soft in the Asia region, due to the economic situation in Europe and the United States and to the slowdown in Chinese demand, while first-half results were also affected by the floods in Thailand. In the Plastics & Chemicals segment, operating income decreased ¥9.1 billion, or 33.2% to ¥18.3 billion. In the resin business, demand decreased for automotive applications in Japan due to the end of eco-car subsidies, while overseas, the continued slowdown in the Chinese market led to lower movement of goods. In the film business, there was weakening demand due to such factors as the worldwide economic slowdown, as well as the continued intensification of price competition. Operating income in the IT-related Products segment fell ¥11.6 billion, or 33.5%, to ¥23.0 billion. A major contributor was the weakness that emerged in small and mid-size display-related materials outside of smartphone-related products. In the Carbon Fiber Composite Materials segment, operating income decreased from the previous fiscal year by ¥0.4 billion, or 4.8%, to ¥7.3 billion. Major contributors were the slow speed of demand recovery for sporting goods applications, as a result of a weak economy, both in Japan and overseas, and intensifying price competition. Operating income in the Environment & Engineering segment fell ¥2.3 billion, or 46.2%, to ¥2.6 billion. Major factors include cost increases at a construction and real estate subsidiary and falling order prices stemming from intense price competition at an engineering subsidiary. In the Life Science segment, operating income rose ¥1.5 billion, or 24.7%, to ¥7.5 billion, boosted by strong sales expansion in medical products and other factors. Operating income of Others increased ¥0.2 billion, or 16.7%, to ¥1.6 billion. 64 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 65 In net other income (expenses), Toray Group reported ¥5.6 billion in expenses, a ¥1.0 billion year-on-year decrease. Interest and dividend income was generally even at ¥3.2 billion, while interest expense fell ¥0.3 billion to ¥5.5 billion. This led to a ¥0.4 billion improvement in net financial expenses to ¥2.2 billion. Equity in earnings of unconsolidated subsidiaries and affiliated companies increased ¥2.2 billion to ¥7.4 billion. Loss on impairment of fixed assets increased ¥1.7 billion year on year to ¥2.0 billion. Loss on sales and disposal of property, plant and equipment, net, increased by ¥0.4 billion to ¥4.4 billion. As a result of the above, income before income taxes and minority interests decreased ¥23.3 billion to ¥77.8 billion. After deductions for income taxes and minority interests in earnings of consolidated subsidiaries, net income amounted to ¥48.5 billion, down ¥15.7 billion from the previous fiscal year. Net income per share was ¥29.75, a decrease of ¥9.66. The Company declared a year-end cash dividend of ¥5.00 per share in light of the profit conditions for the year under review and the profit outlook for the next fiscal term. Added to the interim cash dividend, this brought the total annual dividend to ¥10.00 per share. FInAnCIAL PosItIon Assets Total assets on March 31, 2013, stood at ¥1,731.8 billion, up ¥150.3 billion or 9.5% from the end of the previous fiscal year. This was mainly due to the increases in cash and time deposits, in inventories and in property, plant and equipment, net of depreciation. total Assets and net Assets (Billions of yen) 2,000 (%) 60 1,698.2 1,731.8 1,500 1,523.6 1,556.8 1,567.5 1,581.5 34.9 39.7 37.8 1,000 30.8 30.3 642.2 641.0 674.1 500 512.6 518.2 0 45 41.9 30 779.6 15 0 Mar/’08 ’09 ’10 ’11 ’12 ’13 n Total Assets n Net Assets Equity Ratio Current Assets Current assets were up 9.7%, or ¥70.5 billion, to ¥796.7 billion. Cash and time deposits were up 33.5%, or ¥27.3 billion, to ¥108.7 billion. Inventories rose to ¥313.7 billion, up ¥18.0 billion or 6.1%. Property, Plant and equipment Property, plant and equipment, net of depreciation compared with the end of the previous fiscal year grew 11.6%, or ¥65.3 billion, to ¥627.2 billion. Capital expenditures totaled ¥98.0 billion, up 3.9% or ¥3.7 billion based on our policy of investing selectively in prospective growth areas while streamlining and modernizing production facilities to enhance production efficiency. In the Fibers & Textiles segment, capital expenditures totaled ¥27.9 billion, which included new polypropylene spunbond production facilities at P.T. Toray Polytech Jakarta. In the Plastics & Chemicals segment, capital expenditures amounted to ¥23.2 billion, which included additional PPS resin production facilities at the Company. Capital expenditures in the IT-related Products segment were ¥21.7 billion, which included new polyolefin film production facilities at Toray Advanced Film Kaohsiung Co., Ltd. In the Carbon Fiber Composite Materials segment, capital expenditures amounted to ¥15.3 billion, which included additional carbon fiber production facilities at Toray Carbon Fibers Europe S.A. and new one at Toray Advanced Materials Korea Inc. In the Environment & Engineering segment, capital expenditures amounted to ¥4.3 billion. In the Life Science segment, capital expenditures amounted to ¥3.7 billion, which included new dialyzer production facilities at Toray Medical (Qingdao) Co., Ltd. Liabilities Total liabilities increased ¥44.9 billion, or 4.9%, to ¥952.2 billion. A major factor was the increase in total interest-bearing liabilities—consisting of short-term bank loans, current portion of long-term debt, commercial paper, long-term debt and lease obligations—up ¥50.1 billion, or 10.4%, to ¥532.0 billion. net Assets Net assets came to ¥779.6 billion and net assets less minority interests in consolidated subsidiaries and stock acquisition rights stood at ¥725.0 billion. As a result, net assets per share increased ¥60.05 to ¥444.95. The equity ratio rose 2.2 percentage points to 41.9%, while the debt/equity ratio improved by 0.03 point to 0.73. CAsH FLoWs In the year ended March 31, 2013, net cash used in investing activities exceeded net cash provided by operating activities by ¥6.7 billion. On the other hand, net cash provided by financing activities was ¥26.2 billion due mainly to an increase in interest- bearing liabilities. As a result of these and other factors, cash and cash equivalents at fiscal year-end stood at ¥107.7 billion, up ¥26.4 billion or 32.5% from the end of the previous fiscal year. 64 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 65 Cash Flows from operating Activities Net cash provided by operating activities amounted to ¥100.8 billion, down ¥3.6 billion from the previous fiscal year. Major factors for provision of cash include income before income taxes and minority interests of ¥77.8 billion and depreciation and amortization of ¥67.6 billion, while major factors for use of cash include an increase in trade receivables of ¥10.2 billion, and income taxes paid of ¥20.9 billion. Cash Flows from Investing Activities Net cash used in investing activities totaled ¥107.5 billion, up ¥3.5 billion from the previous fiscal year. Main factors include capital expenditures of ¥105.1 billion. Cash Flows from Financing Activities Net cash provided by financing activities was ¥26.2 billion, up ¥49.8 billion from the previous fiscal year. Main factors include proceeds from long-term debt of ¥101.6 billion, which contrasted with repayment of long-term debt of ¥53.8 billion and cash dividends paid of ¥17.2 billion. BUsIness RIsKs Operational and other risks faced by Toray Group that could have a major influence on the decisions of investors are described below. Toray Group works constantly to avoid such potential risks, minimize their impact, and build a system to enable swift responses and accurate information disclosure on the occurrence of unforeseen situations. Please note that the risks described below are those identified by Toray Group when this annual report was produced, and do not represent all the operational and other risks that could affect Toray Group. (1) Domestic and overseas demand and market trends As a supplier of basic materials to a broad range of industries, Toray Group is exposed to various factors that could cause a sharp drop in demand for its products. These include changes in both worldwide and regional supply-demand conditions, increased use of substitute materials, and changes to the purchasing policies of business partners. In addition to severe competition with other companies, Toray Group’s various businesses also face the risk of new players entering the market. Price fluctuations, stemming from the reduction of National Health Insurance (NHI) drug prices and reimbursement prices, also affect the pharmaceuticals and medical products business. Although Toray Group takes steps to maintain its competitive advantage, a decline in demand for, or falling prices of, such items, or the appearance of a credit risk affecting Toray Group’s business partners, could have a negative impact on Toray Group’s results of operations and financial conditions. (2) Rising prices of fuel and raw materials The prices of petrochemical raw materials and fuel used by Toray Group are subject to significant fluctuations. If Toray Group is unable to fully pass the increases in such prices on to its product prices, or cannot raise its product prices due to lack of progress in shifting to high-value-added products, its results of operations and financial conditions could be negatively affected. Interest-bearing Liabilities and D/e Ratio (Billions of yen) 700 663.9 632.2 600 591.2 1.42 (Times) 1.60 1.40 1.20 1.00 1.34 532.0 493.5 481.9 1.00 0.83 0.77 0.80 0.73 0.60 0.40 0.20 500 400 300 200 100 0 Cash Flows (Billions of yen) 200 150 100 50 0 -50 166.2 129.2 110.4 104.4 100.8 78.5 38.4 44.5 0.4 -6.7 -53.8 -100 -74.9 -50.7 -113.4 -121.7 -104.0 -107.5 -150 -200 -164.2 Mar/’08 ’09 ’10 ’11 ’12 ’13 Mar/’08 ’09 ’10 ’11 ’12 ’13 n Interest-bearing Liabilities D/E Ratio n Cash Flows from Operating Activities n Cash Flows from Investing Activities Free Cash Flows 66 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 67 (3) Capital expenditures, joint ventures, — Unforeseen introduction, changes or abolition of laws and alliances and acquisitions Toray Group makes capital expenditures in a wide range of business fields. Its other activities include formation of various joint ventures or strategic alliances with third parties, as well as business acquisitions. When Toray Group becomes involved in capital expenditures, joint ventures, alliances and acquisitions, it considers the potential for profitability and return on investment. However, there is not necessarily any guarantee that the outcome will be consistent with expectations. If unforeseen market changes or significant discrepancies between actual results and initial business plans occur due to sudden changes in the operating environment, there could be a loss on impairment of fixed assets or equity in losses of unconsolidated subsidiaries and affiliated companies. As a result, Toray Group’s results of operations and financial conditions could be negatively affected. (4) Foreign currency, interest rate and securities market fluctuations Foreign currency exchange rate fluctuations affect Toray Group’s consolidated financial statements when the financial statements of the overseas operations presented in local currencies are translated into yen. Toray Group takes measures, such as entering forward exchange contracts, to alleviate risks associated with transactions denominated in foreign currencies. However, unforeseen exchange rate fluctuations could have an impact on Toray Group’s results of operations and financial conditions. Moreover, changes in interest rates and other aspects of financial markets, as well as changes in the value of securities and pension assets held by Toray Group, may have an impact on Toray Group’s results of operations and financial conditions. (5) Changes in assumptions on which forecasts are based that might affect employee retirement benefit obligations and deferred tax assets Toray’s consolidated financial statements contain employee retirement benefit obligations based on future pension payments calculated in accordance with certain criteria, as well as deferred tax assets stated according to likely tax refunds based on taxable income estimates for the future fiscal years. However, if changes in the criteria used to calculate pension payments were to occur, or if fluctuations arose in the estimates of future taxable income, Toray Group’s results of operations and financial conditions could be affected. (6) Overseas operations Toray Group is developing a broad geographical presence, with operations in various countries of Asia, Europe, and the Americas. Some of the major potential risks associated with various regions are summarized below. If such risks were to become reality, Toray Group’s results of operations and financial conditions could be negatively affected. regulations such as changes in taxation systems —Unforeseen economic or political events —Social upheaval, including acts of terror or war (7) Product liability Toray Group strives to supply the world’s best-in-class product quality. However, it cannot always guarantee against a major unforeseen quality problem. If quality-related serious situations were to occur, Toray Group’s results of operations and financial conditions could be negatively affected. (8) Lawsuits In the course of conducting its wide range of business activities, Toray Group faces the risk of being targeted by legal action pertaining to various matters such as intellectual property, product liability, environment, and labor issues. If Toray Group were subject to a major lawsuit, its results of operations and financial conditions could be negatively affected. (9) Laws and regulations, taxes, competition policies and internal controls Various laws and regulations apply in the countries and regions where Toray Group conducts its business. These laws and regulations include regulations related to the environment, commercial trading, labor, intellectual property, taxation and foreign exchange, investment approval protocols and import/ export controls, and policies on competition based on antitrust laws. Through the establishment and maintenance of internal control systems, Toray Group endeavors to comply with all such laws and regulations. However, changes to such laws and regulations, including the introduction of new environmental regulations and taxes, as well as changes to the corporate income tax rate could affect Toray Group’s results of operations and financial conditions. Also, if Toray Group is judged as having violated such laws and regulations, is subject to government sanctions initiated by a fair trade commission, receives a notice of correction from tax authorities, has an employee who engages in illicit behavior, or is unable to uphold internal controls pertaining to financial statements, its results of operations and financial conditions could be negatively affected. (10) Natural disasters and accidents Toray Group places top priority on safety, accident prevention, and environmental preservation. To minimize losses caused by the suspension of production, Toray Group conducts regular a c c i d e n t p r e v e n t i o n i n s p e c t i o n s , m a i n t e n a n c e o f i t s manufacturing facilities, and safety activities. However, the advent of a major natural disaster or unprecedented accident could cause damage to Toray Group’s manufacturing facilities, or could cause inadequate supply of raw materials, which could have a negative impact on its results of operations and financial conditions. 66 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 67 CONSOLIDATED BALANCE SHEETS Toray Industries, Inc. and Consolidated Subsidiaries March 31, 2013 and 2012 Assets Current assets: Cash (Note 5) Time deposits (Notes 4 and 5) Trade receivables (Notes 5 and 7): Notes receivable accounts receivable Inventories (Note 3) Deferred tax assets (Note 10) Prepaid expenses and other current assets (Notes 5 and 6) allowance for doubtful accounts Total current assets Property, plant and equipment (Notes 4 and 13) : Land Buildings Machinery and equipment Construction in progress accumulated depreciation Property, plant and equipment, net Intangible assets (Note 13) : Goodwill Other Total intangible assets Investments and other assets: Investments in unconsolidated subsidiaries and affiliated companies (Note 5) Investment securities (Notes 4, 5 and 6) Long-term loans receivable Deferred tax assets (Note 10) Other (Note 8) allowance for doubtful accounts Total investments and other assets Millions of yen Thousands of U.S. dollars (Note 2) 2013 2012 2013 ¥ 87,276 ¥ 63,519 $ 928,468 21,390 17,879 227,553 32,747 275,483 313,707 21,405 46,852 (2,128) 34,935 248,693 295,745 18,220 49,517 (2,269) 348,372 2,930,670 3,337,309 227,713 498,426 (22,638) 796,732 726,239 8,475,872 69,672 489,399 69,595 454,542 741,191 5,206,372 1,572,900 1,439,318 16,732,979 62,998 76,971 670,191 2,194,969 2,040,426 23,350,734 (1,567,729) (1,478,503) (16,677,968) 627,240 561,923 6,672,766 29,767 12,853 42,620 31,862 10,758 42,620 316,670 136,734 453,404 78,031 120,851 929 19,399 48,144 (2,116) 265,238 72,023 98,949 1,236 34,067 46,836 (2,392) 250,719 830,117 1,285,649 9,883 206,372 512,170 (22,511) 2,821,681 Total assets ¥ 1,731,830 ¥ 1,581,501 $ 18,423,723 See accompanying notes to consolidated financial statements. 68 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 69 Liabilities and net Assets Current liabilities: Millions of yen Thousands of U.S. dollars (Note 2) 2013 2012 2013 Short-term bank loans (Notes 4, 5 and 7) ¥ 98,633 ¥ 101,758 $ 1,049,287 Current portion of long-term debt (Notes 4, 5 and 7) Commercial paper (Note 5) Trade payables (Notes 5 and 7): Notes payable accounts payable Income taxes payable (Note 10) accrued liabilities Other current liabilities (Notes 4 and 10) Total current liabilities 98,225 30,000 31,077 154,850 9,764 45,593 82,136 56,246 25,000 35,756 146,315 12,494 43,969 94,291 1,044,947 319,149 330,606 1,647,340 103,872 485,032 873,787 550,278 515,829 5,854,021 Long-term debt (Notes 4, 5 and 7) 302,739 295,961 3,220,628 Deferred tax liabilities (Note 10) 9,214 5,674 98,021 Accrued employees’ retirement benefits (Note 8) 68,101 65,684 724,479 Customers’ guarantee deposits and other liabilities (Note 4) Total liabilities 21,883 952,215 24,204 907,352 232,798 10,129,947 Commitments and contingent liabilities (Note 12) net assets (Note 11): Stockholders’ equity: Common stock: authorized—4,000,000,000 shares Issued—1,631,481,403 shares Capital surplus Retained earnings Treasury stock, at cost Total stockholders’ equity accumulated other comprehensive income: Net unrealized gains on securities Net deferred losses on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Stock acquisition rights (Note 9) Minority interests in consolidated subsidiaries Total net assets Total liabilities and net assets 147,873 136,748 462,536 (1,170) 745,987 35,388 (883) (55,515) (21,010) 566 54,072 779,615 147,873 136,740 430,365 (1,194) 713,784 20,659 (78) (107,254) (86,673) 287 46,751 674,149 1,573,117 1,454,766 4,920,596 (12,447) 7,936,032 376,468 (9,394) (590,585) (223,511) 6,021 575,234 8,293,777 ¥1,731,830 ¥1,581,501 $18,423,723 68 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 69 CONSOLIDATED STATEMENTS OF INCOME Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2013 and 2012 net sales Costs and expenses: Cost of sales (Notes 3, 8, 13 and 14) Selling, general and administrative expenses (Notes 8, 13 and 14) Operating income other income (expenses): Interest expense Interest and dividend income Equity in earnings of unconsolidated subsidiaries and affiliated companies Loss on sales and disposal of property, plant and equipment, net Loss on impairment of fixed assets Gain on sales and loss on write-down of investment securities, net Restructuring costs Other, net Income before income taxes and minority interests Income taxes (Note 10): Current Deferred Income before minority interests Minority interests in earnings of consolidated subsidiaries Net income See accompanying notes to consolidated financial statements. Millions of yen Thousands of U.S. dollars (Note 2) 2013 2012 2013 ¥1,592,279 ¥1,588,604 $16,939,138 1,280,649 228,194 1,508,843 83,436 1,261,114 219,769 1,480,883 107,721 13,623,926 2,427,596 16,051,521 887,617 (5,460) 3,247 7,431 (4,444) (1,972) (1,267) (287) (2,856) (5,608) 77,828 (5,766) 3,200 5,194 (4,064) (232) (49) (1,629) (3,284) (6,630) 101,091 (58,085) 34,543 79,053 (47,277) (20,979) (13,479) (3,053) (30,383) (59,660) 827,957 17,876 8,870 26,746 51,082 (2,605) ¥ 48,477 18,639 14,689 33,328 67,763 (3,545) ¥ 64,218 190,170 94,362 284,532 543,426 (27,713) $ 515,713 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2013 and 2012 Income before minority interests Other comprehensive income (Note 15) Net unrealized gains (losses) on securities Net deferred losses on hedges Foreign currency translation adjustments Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method Total other comprehensive income Comprehensive income Total comprehensive income attributable to: Owners of the parent Minority interests See accompanying notes to consolidated financial statements. Millions of yen 2013 ¥ 51,082 14,981 (807) 52,466 2,607 69,247 ¥120,329 2012 ¥ 67,763 (441) (185) (13,778) (706) (15,110) ¥ 52,653 Thousands of U.S. dollars (Note 2) 2013 $ 543,426 159,372 (8,585) 558,149 27,734 736,670 $1,280,096 ¥114,140 6,189 ¥ 50,528 2,125 $1,214,255 65,840 70 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 71 CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2013 and 2012 Stockholders’ equity Accumulated other comprehensive income Millions of yen Common stock Capital surplus Retained earnings Treasury stock, at cost Total stockholders’ equity Net unrealized gains on securities Net deferred losses on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Stock acquisition rights Minority interests in consolidated subsidiaries Total net assets Balance as of April 1, 2011 ¥147,873 ¥136,739 ¥382,454 ¥(1,160) ¥665,906 ¥21,164 ¥ 105 ¥(94,252) ¥(72,983) ¥ — ¥48,047 ¥640,970 Changes in: Dividends Net income acquisition of treasury stock Disposition of treasury stock Other Items other than stockholders’ equity, net (16,302) 64,218 1 (5) (16,302) 64,218 (38) 5 (5) (38) 4 (16,302) 64,218 (38) 5 (5) (505) (183) (13,002) (13,690) 287 (1,296) (14,699) Total changes — 1 47,911 (34) 47,878 (505) (183) (13,002) (13,690) Balance as of March 31, 2012 ¥147,873 ¥136,740 ¥430,365 ¥(1,194) ¥713,784 ¥20,659 ¥ (78) ¥(107,254) ¥(86,673) Balance as of April 1, 2012 ¥147,873 ¥136,740 ¥430,365 ¥(1,194) ¥713,784 ¥20,659 ¥ (78) ¥(107,254) ¥(86,673) 287 ¥287 ¥287 (1,296) 33,179 ¥46,751 ¥674,149 ¥46,751 ¥674,149 Changes in: Dividends Net income acquisition of treasury stock Disposition of treasury stock Other Items other than stockholders’ equity, net (16,302) 48,477 8 (4) (16,302) 48,477 (36) 68 (4) (36) 60 14,729 (805) 51,739 65,663 Total changes — 8 32,171 24 32,203 14,729 (805) 51,739 65,663 (16,302) 48,477 (36) 68 (4) 279 279 7,321 73,263 7,321 105,466 Balance as of March 31, 2013 ¥147,873 ¥136,748 ¥462,536 ¥(1,170) ¥745,987 ¥35,388 ¥(883) ¥ (55,515) ¥(21,010) ¥566 ¥54,072 ¥779,615 Stockholders’ equity Accumulated other comprehensive income Thousands of U.S. dollars (Note 2) Common stock Capital surplus Retained earnings Treasury stock, at cost Total stockholders’ equity Net unrealized gains on securities Net deferred losses on hedges Foreign currency translation adjustments Total accumulated other comprehensive income Stock acquisition rights Minority interests in consolidated subsidiaries Total net assets Balance as of April 1, 2012 $1,573,117 $1,454,681 $4,578,351 $(12,702) $7,593,447 $219,777 $ (830) $(1,141,000) $(922,053) $3,053 $497,351 $7,171,798 Changes in: Dividends Net income acquisition of treasury stock Disposition of treasury stock Other Items other than stockholders’ equity, net (173,426) 515,713 85 (43) (173,426) 515,713 (383) 723 (43) (383) 638 (173,426) 515,713 (383) 723 (43) 156,691 (8,564) 550,415 698,543 2,968 77,883 779,394 Total changes — 85 342,245 255 342,585 156,691 (8,564) 550,415 698,543 2,968 77,883 1,121,979 Balance as of March 31, 2013 $1,573,117 $1,454,766 $4,920,596 $(12,447) $7,936,032 $376,468 $(9,394) $ (590,585) $(223,511) $6,021 $575,234 $8,293,777 See accompanying notes to consolidated financial statements. 70 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 71 CONSOLIDATED STATEMENTS OF CASH FLOWS Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2013 and 2012 Cash flows from operating activities: Income before income taxes and minority interests ¥ 77,828 ¥ 101,091 $ 827,957 Millions of yen Thousands of U.S. dollars (Note 2) 2013 2012 2013 adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation and amortization Loss on impairment of fixed assets Interest and dividend income Equity in earnings of unconsolidated subsidiaries and affiliated companies Interest expense Loss on sales and disposal of property, plant and equipment, net Gain and loss on sales and loss on write-down of investment securities, net Increase (decrease) in accrued employees’ retirement benefits Increase in trade receivables Increase in inventories (Decrease) increase in trade payables Other, net Subtotal Interest and dividends received Interest paid Income taxes paid Net cash provided by operating activities Cash flows from investing activities: Capital expenditures Purchases of investment securities Proceeds from sales of property, plant and equipment Proceeds from sales of investment securities additional acquisition of shares of consolidated subsidiaries Other, net Net cash used in investing activities Cash flows from financing activities: Net (decrease) increase in short-term debt Proceeds from long-term debt Repayment of long-term debt Cash dividends paid Other, net Net cash provided by (used in) financing activities effect of exchange rate changes on cash and cash equivalents net increase (decrease) in cash and cash equivalents 67,588 1,972 (3,247) (7,431) 5,460 4,444 1,442 1,844 (10,223) (4,473) (5,170) (12,364) 117,670 9,647 (5,565) (20,937) 100,815 (105,093) (1,951) 1,635 257 (374) (1,999) (107,525) (5,788) 101,565 (53,806) (17,210) 1,406 26,167 6,811 26,268 67,443 232 (3,200) (5,194) 5,766 4,064 54 (1,116) (2,301) (26,210) 1,810 (18,055) 124,384 7,569 (5,896) (21,647) 104,410 (90,284) (5,509) 1,236 299 (4,389) (5,355) 719,021 20,979 (34,543) (79,053) 58,085 47,277 15,340 19,617 (108,755) (47,585) (55,000) (131,532) 1,251,809 102,628 (59,202) (222,734) 1,072,500 (1,118,011) (20,755) 17,394 2,734 (3,979) (21,266) (104,002) (1,143,883) 56,197 22,341 (85,094) (17,067) (22) (23,645) (1,658) (24,895) (61,574) 1,080,479 (572,404) (183,085) 14,957 278,372 72,457 279,447 Cash and cash equivalents at beginning of year 81,289 105,257 864,777 Beginning balance of cash and cash equivalents at subsidiaries not previously included in consolidation 133 927 1,415 Cash and cash equivalents at end of year ¥ 107,690 ¥ 81,289 $ 1,145,638 See accompanying notes to consolidated financial statements. 72 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Toray Industries, Inc. and Consolidated Subsidiaries Years ended March 31, 2013 and 2012 1. sIGnIFICAnt ACCoUntInG PoLICIes a) Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of Toray Industries, Inc. (the “Company”) and its consolidated subsidiaries have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. For the preparation of consolidated financial statements, the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should be unified, in principle. However, financial statements prepared by overseas subsidiaries in accordance with International Financial Reporting Standards or the generally accepted accounting principles in the United States tentatively may be used for the consolidation process. In addition, some items should be adjusted in the consolidation process so that net income is accurately accounted for, unless they are not material. Certain items presented in the original consolidated financial statements in Japanese have been reclassified for the convenience of readers outside Japan. b) Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and substantially all of its subsidiaries. Assets and liabilities of the consolidated subsidiaries are revalued to fair market value when the majority interest in the subsidiaries is purchased. Investments in unconsolidated subsidiaries and affiliated companies are accounted for by the equity method. All intercompany accounts and transactions have been eliminated in consolidation. The difference between the acquisition cost and the underlying net assets of the subsidiaries is recognized as goodwill and amortized principally over its estimated useful life not exceeding twenty years on a straight- line method. c) Cash and Cash Equivalents Cash and cash equivalents at March 31, 2013 and 2012 include cash, short-term time deposits which may be withdrawn on demand without diminution of principal and highly liquid investments with original maturities of three months or less. Cash and cash equivalents consisted of: Cash Time deposits Less — Time deposits with maturities of over 3 months Millions of yen Thousands of U.S. dollars 2013 ¥ 87,276 21,390 2012 2013 ¥63,519 $ 928,468 227,553 17,879 (976) (109) (10,383) Cash and cash equivalents ¥107,690 ¥81,289 $1,145,638 d) Financial Instruments Derivatives: All derivatives are stated at fair value, with changes in fair value included in net income or loss for the period in which they arise, except for derivatives that are designated as “hedging instruments” (see Hedge Accounting below). Securities: Held-to-maturity debt securities that the Company and its consolidated subsidiaries have the intent to hold to maturity, are stated at cost after accounting for premium or discount on acquisition, which are amortized over the period to maturity. Other securities for which market quotations are available are stated at fair value. Net unrealized gains or losses on these securities are reported as a separate item in net assets at a net-of-tax amount. Other securities for which market quotations are unavailable are stated at cost, except as stated in the paragraph below. In cases where the fair value of held-to-maturity debt securities or other securities has declined significantly and such impairment of the value is not deemed temporary, those securities are written down to fair value and the resulting losses are included in net income or loss for the period. Hedge Accounting: Gains or losses arising from changes in fair value of derivatives designated as “hedging instruments” are deferred as a separate item of net assets at a net-of-tax amount and included in net income or loss in the same period during which the gains and losses on the hedged items or transactions are recognized. The derivatives designated as hedging instruments by the Company and its consolidated subsidiaries are principally interest rate swaps and forward foreign exchange contracts. The related hedged items are trade accounts receivable and payable, long-term bank loans and debt securities issued by the Company and its consolidated subsidiaries. The Company and its consolidated subsidiaries have a policy to utilize the above hedging instruments in order to reduce their exposure to the risk of interest rate and foreign currency fluctuations. Thus, their purchases of the hedging instruments are limited to, at maximum, the amounts of the hedged items. The Company and its consolidated subsidiaries evaluate the effectiveness of hedging activities by reference to the accumulated gains or losses on the hedging instruments and the related hedged items from the commencement of the hedges. e) Allowance for Doubtful Accounts In the Company and its domestic consolidated subsidiaries, an allowance for doubtful accounts, including receivables and loans, is determined from the amounts considered unlikely to be recovered, estimated from past actual bad debt ratio records for general receivables and from studying the probability of recovery in individual cases where there is concern over claims. 72 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 73 f) Inventories Inventories are stated at the lower of acquisition cost, principally determined by the moving average method, or net selling value to reflect any decreased profitability of inventories. g) Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation for property, plant and equipment (except leased assets) of the Company and its domestic consolidated subsidiaries is principally computed by the declining balance method, and depreciation for those of its overseas consolidated subsidiaries is principally computed by the straight-line method at rates based on estimated useful lives that are as follows: Buildings Machinery and equipment 3–60 years 3–15 years Principally, a depreciation method of leased assets is identical to the method applicable to its own fixed assets. In the Company and its domestic consolidated subsidiaries, finance lease transactions which do not transfer ownership of the leased assets whose lease inceptions are on or before March 31, 2008 are accounted for by a method similar to the method applicable to ordinary operating lease transactions. h) Income Taxes Income taxes of the Company and its domestic consolidated subsidiaries consist of corporate income taxes, local inhabitants taxes and enterprise taxes. Deferred income taxes are determined using the asset and liability approach, where deferred tax assets and liabilities are recognized for temporary differences between the tax basis of assets and liabilities and their reported amount in the financial statements. The Company also provides for the anticipated tax effect of future remittances of retained earnings from overseas subsidiaries and affiliated companies. i) Retirement Benefits The Company and its domestic consolidated subsidiaries have an unfunded lump-sum benefit plan, a funded contributory pension plan and a defined contribution pension plan covering all eligible employees. Under the terms of the unfunded lump-sum benefit plan, eligible employees are entitled under most circumstances, upon mandatory retirement or earlier voluntary severance, to indemnities based on compensation at the time of severance and years of service. The funded contributory pension plan and the defined contribution pension plan provide, in general, pension payments for life commencing from age 60. Accrued employees’ retirement benefits represents the estimated present value of projected benefit obligations in excess of the fair value of the plan assets except that, as permitted under the standard, unrecognized actuarial differences and unrecognized prior service cost are amortized on a straight-line basis over a period of 15 years. Allowance for retirement benefits for members of the Board and corporate auditors (“executives”) of the Company and certain of its domestic consolidated subsidiaries is provided based on the companies’ pertinent rules and is calculated as the estimated amount which would be payable if all executives were to retire at the balance sheet date. Any amounts payable to executives upon retirement are subject to approval at the annual stockholders’ meeting. The amount is included in “customers’ guarantee deposits and other liabilities” on the consolidated balance sheets. j) Appropriation of Retained Earnings Cash dividends are recorded in the fiscal year when the proposed appropriation of retained earnings is approved by the Board of Directors and/or stockholders. k) Foreign Currency Transactions All monetary assets and liabilities denominated in foreign currencies, whether long-term or short-term, are translated into Japanese yen at the exchange rates prevailing at the balance sheet date. Resulting gains and losses are included in net income or loss for the period. l) Translation of Foreign Currency Financial Statements Translation of foreign currency financial statements of overseas subsidiaries into Japanese yen for consolidation purposes is made by using the current exchange rates prevailing at their balance sheet dates, with the exception that the translation of stockholders’ equity is made by using historical rates. Revenue and expense accounts are principally translated at the average exchange rates during the year. Differences in yen amounts arising from the use of different rates are presented as “foreign currency translation adjustments” in net assets except for the portion belonging to minority stockholders, which is included in “minority interests in consolidated subsidiaries” in net assets. m) Standards Issued but Not Yet Adopted On May 17, 2012, the Accounting Standards Board of Japan (ASBJ) issued “Accounting Standard for Retirement Benefits” (ASBJ Statement No.26) and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ Guidance No.25), which replaced the Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000 and the other related practical guidance, being followed by partial amendments from time to time through 2009. (1) Overview Revisions apply mainly to the accounting treatments for unrecognized actuarial differences as well as unrecognized prior service costs, the calculation methods for projected benefit obligations as well as service costs, and broadening disclosure taking into consideration improvements to financial reporting and international trends. (2) Scheduled Date of Adoption The revised accounting standard and guidance are scheduled to be adopted from the end of the fiscal year 74 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 75 ending March 31, 2014. However, revisions to the calculation methods for projected benefit obligations and service costs are scheduled to be adopted from the beginning of the fiscal year ending March 31, 2015. (3) Impact of Adopting Revised Accounting Standard and Guidance The impact of adopting the revised accounting standard and guidance on consolidated financial statements is currently under evaluation. 2. U.s. DoLLAR AMoUnts The Company and its domestic consolidated subsidiaries maintain their accounting records in yen. The U.S. dollar amounts included in the accompanying consolidated financial statements and notes thereto represent the arithmetic results of translating yen into U.S. dollars at the rate of ¥94 to $1.00, the approximate exchange rate prevailing on March 31, 2013. The inclusion of such U.S. dollar amounts is solely for the convenience of readers outside Japan and is not intended to imply that yen amounts and assets and liabilities that originated in yen have been or could be readily converted, realized or settled in U.S. dollars at this or at any other rate. 3. InVentoRIes At March 31, 2013 and 2012, inventories consisted of the following: Merchandise and finished goods Work in process Raw materials and supplies Millions of yen 2013 ¥175,553 70,121 68,033 ¥313,707 2012 ¥161,757 73,032 60,956 ¥295,745 Thousands of U.S. dollars 2013 $1,867,585 745,968 723,755 $3,337,309 Losses recognized and charged to cost of sales as a result of valuation at March 31, 2013 and 2012 were ¥2,139 million ($22,755 thousand) and ¥3,593 million, respectively. 4. sHoRt-teRM BAnK LoAns, LonG-teRM DeBt AnD LeAse oBLIGAtIons Short-term bank loans at March 31, 2013 and 2012 represented bank overdrafts and short-term notes. The Company is not required to pay commitment fees on unused balances of the bank overdraft agreements. Long-term debt and lease obligations at March 31, 2013 and 2012 were as follows: Loans principally from banks and insurance companies with interest rates primarily from 0.04% to 7.05%, maturing serially through 2020: unsecured Lease obligations maturing serially through 2022: unsecured yen notes with an interest rate of 2.00% due 2013 yen notes with an interest rate of 1.61% due 2013 yen notes with an interest rate of 0.93% due 2022 Zero coupon convertible bonds due 2014 Less amounts due within one year Millions of yen 2013 2012 Thousands of U.S. dollars 2013 ¥320,964 ¥282,207 $3,414,511 2,405 — 10,000 20,000 50,000 403,369 99,115 ¥304,254 2,941 10,000 10,000 — 50,000 355,148 57,044 ¥298,104 25,585 — 106,383 212,766 531,915 4,291,160 1,054,415 $3,236,745 74 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 75 At March 31, 2013, assets pledged as collateral were as follows: Time deposits Property, plant and equipment, net Investment securities Others Millions of yen ¥ 8 5,933 633 376 ¥6,950 Thousands of U.S. dollars $ 85 63,117 6,734 4,000 $73,936 The annual maturities of long-term debt and lease obligations subsequent to March 31, 2013 were as follows: years ending March 31: 2014 2015 2016 2017 2018 2019 and thereafter Millions of yen Thousands of U.S. dollars ¥ 99,115 69,548 57,291 30,661 59,002 87,752 ¥403,369 $1,054,415 739,872 609,479 326,181 627,681 933,532 $4,291,160 5. FInAnCIAL InstRUMents Conditions of Financial Instruments a) Policy in Relation to Financial Instruments The policy of the Company and its consolidated subsidiaries is to manage funds only by short-term deposits, etc. and to raise funds by borrowing from banks and issuing corporate bonds. The Company and its consolidated subsidiaries use derivatives to hedge risks associated with foreign currency exchange rates and fluctuations of borrowing interest rates and do not enter into derivative transactions for speculative or trading purposes. b) Contents and Risk of Financial Instruments and Risk Management System Trade receivables are operating receivables and therefore are exposed to customer credit risk. Under their internal regulations, the Company and its consolidated subsidiaries carefully manage payment periods for receivables and outstanding balances of all customers and regularly monitor the credit standing of major clients. Operating receivables and payables denominated in foreign currencies that arise from the global business operations are also exposed to foreign currency exchange risk. The Company and its consolidated subsidiaries hedge this risk mainly through the use of forward exchange contracts against positions after netting receivables and payables denominated in the same foreign currencies. Likewise, the Company and its consolidated subsidiaries mainly use currency swaps to hedge the foreign currency exchange risk of bank loans denominated in foreign currencies. Investment securities are exposed to the risk of market price fluctuations. Most of these securities are the shares of corporations with which the Company and its consolidated subsidiaries have business relationships. The fair value and financial positions of the issuing entities (clients) are regularly monitored. Trade payables are operating payables, most of which are due and payable within one year. Short-term bank loans and commercial paper are financing instruments mainly for operating transactions, while long-term bank loans and bonds (due within ten years, in principle) are primarily for capital expenditures. Bank loans and bonds are exposed to the risk of interest rate fluctuation. Bank loans at floating interest rates carry the risk of higher interest expenses when rates rise, while bank loans and bonds at fixed interest rates carry the risk of higher interest expenses when rates fall. The Company and its consolidated subsidiaries use derivative transactions (interest rate swap transactions) to minimize the risk of interest rate fluctuation, taking into consideration the balance between fixed interest rates and floating interest rates. Hedging instruments, hedged items, the policy for utilizing such hedging instruments and the method for evaluating the effectiveness of hedging activities are described in Note 1. S I G N I F I C A N T A C C O U N T I N G P O L I C I E S d ) F i n a n c i a l I n s t r u m e n t s , H e d g e A c c o u n t i n g i n t h e N o t e s t o t h e Consolidated Financial Statements. Derivative transactions are executed and managed in accordance with the internal regulations prescribing the authorization for transactions. To mitigate credit risk, the Company and its consolidated subsidiaries carry out derivative transactions only with highly rated financial institutions. c) Supplemental Explanation on Fair Value of Financial Instruments The fair value of financial instruments is based on market prices, or reasonable estimate of fair value for instruments for which market prices are not available. Estimates of fair value are 76 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 77 subject to fluctuation because they employ various factors and assumptions. In addition, the contract amount of derivatives in Note 7. DERIVATIVES in the Notes to the Consolidated Financial Statements is not an indicator of market risk associated with derivative transactions. Fair Value of Financial Instruments Carrying value, fair value and unrealized gain (loss) as of March 31, 2013 and 2012 were as follows. In addition, financial instruments, for which it is extremely difficult to measure the fair value, are not included. (Please refer to Note 2 below). Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities assets Trade payables Short-term bank loans Commercial paper Bonds *1 Long-term bank loans *2 Liabilities Derivative transactions *3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities assets Trade payables Short-term bank loans Commercial paper Bonds *1 Long-term bank loans *2 Liabilities Derivative transactions *3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions Millions of yen 2013 Carrying value Fair value Unrealized gain (loss) ¥108,666 308,230 ¥108,666 308,230 92 15,355 115,575 ¥547,918 ¥185,927 98,633 30,000 80,000 320,964 ¥715,524 ¥ 426 (1,145) ¥ (719) 92 9,817 115,575 ¥542,380 ¥185,927 98,633 30,000 80,222 327,307 ¥722,089 ¥ 426 (1,145) ¥ (719) Millions of yen 2012 ¥ — — — (5,538) — ¥(5,538) ¥ — — — 222 6,343 ¥ 6,565 ¥ — — ¥ — Carrying value Fair value Unrealized gain (loss) ¥ 81,398 283,628 177 14,674 92,962 ¥472,839 ¥182,071 101,758 25,000 70,000 282,207 ¥661,036 ¥ 955 3,408 ¥ 4,363 ¥ 81,398 283,628 177 10,564 92,962 ¥468,729 ¥182,071 101,758 25,000 69,861 288,507 ¥667,197 ¥ 955 3,408 ¥ 4,363 ¥ — — — (4,110) — ¥(4,110) ¥ — — — (139) 6,300 ¥ 6,161 ¥ — — ¥ — 76 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 77 Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Investment securities in subsidiaries and affiliated companies Other securities assets Trade payables Short-term bank loans Commercial paper Bonds *1 Long-term bank loans *2 Liabilities Derivative transactions *3 Hedge accounting is not applied Hedge accounting is applied Derivative transactions Thousands of U.S. dollars 2013 Carrying value Fair value Unrealized gain (loss) $1,156,021 3,279,043 $1,156,021 3,279,043 $ — — 979 163,351 1,229,521 $5,828,915 $1,977,947 1,049,287 319,149 851,064 3,414,511 $7,611,957 979 104,436 1,229,521 $5,770,000 $1,977,947 1,049,287 319,149 853,426 3,481,989 $7,681,798 $ 4,532 (12,181) $ (7,649) $ 4,532 (12,181) $ (7,649) — (58,915) — $(58,915) $ — — — 2,362 67,479 $ 69,840 $ — — $ — *1: Bonds include bonds due within one year. *2: Long-term bank loans include long-term bank loans due within one year. *3: Receivables and payables arising from derivative transactions are indicated in net amounts. Total net payables, if any, are shown in parentheses. Notes: 1. Estimation method for fair value of financial instruments and items related to securities and derivative transactions Assets Cash and time deposits and Trade receivables Carrying value is used for fair value since the items will be settled within the short term and the fair value is approximately equal to the carrying value. Investment securities Securities are valued at quoted market price. Debt securities are valued at quoted market price or at the price provided by correspondent financial institutions. For information on securities classified by holding purpose, please refer to Note 6. SECURITIES of the Notes to the Consolidated Financial Statements. Liabilities Trade payables, Short-term bank loans and Commercial paper Carrying value is used for fair value since the items will be settled within the short term and the fair value is approximately equal to the carrying value. Bonds The fair value of bonds issued by the Company is based on market price. However, in cases where the special accounting method for interest rate swaps is applied, the fair value is approximately equal to the carrying value because the interest rates fluctuate and are adjusted periodically. Therefore, the fair value is based on the carrying value. Long-term bank loans The fair value of long-term bank loans is estimated by discounting the principal amounts and interest based on estimated interest rates if similar new loans were entered into in the current period. The fair value of long-term bank loans for which the special accounting method for interest rate swaps is applied is estimated by discounting the total principal amount and interest (accounted for together with the interest rate swaps) based on estimated interest rates if similar new loans were entered into in the current period. For long-term bank loans at floating interest rates, however, the fair value is approximately equal to the carrying value because the interest rates are adjusted periodically. Therefore, the fair value is based on the carrying value. Derivative transactions Please refer to Note 7. DERIVATIVES in the Notes to the Consolidated Financial Statements. 78 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 79 2. Financial instruments for which it is extremely difficult to determine the fair value unlisted securities Millions of yen 2013 ¥54,075 2012 ¥52,382 Thousands of U.S. dollars 2013 $575,266 Unlisted securities have no quoted market price and the fair value is extremely difficult to determine. Therefore, they are not included in the preceding table. 3. Redemption schedule for receivables and investment securities with maturities at March 31, 2013 and 2012 Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Cash and time deposits Trade receivables Investment securities Held-to-maturity debt securities Other securities Millions of yen 2013 Due within one year Due after one year through five years Due after five years through ten years Due after ten years ¥108,666 308,230 14 — ¥416,910 ¥ — — 72 574 ¥646 ¥ — — 6 10 ¥16 ¥ — — — 800 ¥800 Millions of yen 2012 Due within one year Due after one year through five years Due after five years through ten years Due after ten years ¥ 81,398 282,738 22 — ¥364,158 ¥ — 890 147 504 ¥1,541 ¥— — 8 — ¥ 8 ¥ — — — 800 ¥800 Thousands of U.S. dollars 2013 Due within one year $1,156,021 3,279,043 149 — $4,435,213 Due after one year through five years Due after five years through ten years Due after ten years $ — — 766 6,106 $6,872 $ — — 64 106 $170 $ — — — 8,511 $8,511 4. The redemption schedule for long-term debt is disclosed in Note 4. SHORT-TERM BANK LOANS, LONG-TERM DEBT AND LEASE OBLIGATIONS of the Notes to the Consolidated Financial Statements. 78 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 79 6. seCURItIes At March 31, 2013 and 2012, information on securities classified as held-to-maturity debt securities was as follows: Held-to-maturity debt securities ¥92 Carrying value Fair value ¥92 Unrealized gains Unrealized losses ¥— ¥— Carrying value $979 Fair value $979 Unrealized gains Unrealized losses $— $— Millions of yen 2013 Thousands of U.S. dollars 2013 Held-to-maturity debt securities Carrying value ¥177 Fair value ¥177 Unrealized gains Unrealized losses ¥— ¥— Millions of yen 2012 At March 31, 2013 and 2012, information on securities classified as other securities was as follows: Millions of yen 2013 Thousands of U.S. dollars 2013 Carrying value Acquisition cost Unrealized gains Unrealized losses Carrying value Acquisition cost Unrealized gains Unrealized losses Other securities ¥115,575 ¥62,341 ¥56,236 ¥3,002 $1,229,521 $663,202 $598,255 $31,936 Millions of yen 2012 Carrying value Acquisition cost Unrealized gains Unrealized losses Other securities ¥92,962 ¥62,569 ¥36,611 ¥6,218 80 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 81 7. DeRIVAtIVes The Company and its consolidated subsidiaries had the following derivative contracts outstanding at March 31, 2013 and 2012: Hedge accounting is not applied Millions of yen Thousands of U.S. dollars Forward foreign exchange contracts: Buying u.S. dollar Buying euro Buying Thai baht Buying Japanese yen Selling u.S. dollar Selling euro Selling British pound Selling Chinese yuan Selling Japanese yen Foreign currency swaps: Contract amount ¥4,468 281 422 362 5,314 218 147 50 823 2013 Fair value ¥292 0 116 (9) (30) 0 0 1 16 Unrealized gain (loss) Contract amount ¥292 0 116 (9) (30) 0 0 1 16 $47,532 2,989 4,489 3,851 56,532 2,319 1,564 532 8,755 2013 Fair value $3,106 0 1,234 (96) (319) 0 0 11 170 Unrealized gain (loss) $3,106 0 1,234 (96) (319) 0 0 11 170 Receiving u.S. dollar, paying Korean won 1,477 (31) (31) 15,713 (330) (330) Foreign currency options: Buying Japanese yen (put) Selling Japanese yen (call) Interest rate swaps: 600 600 76 0 76 0 6,383 6,383 809 0 809 0 Floating-rate receipt, fixed-rate payment 693 ¥ — (5) ¥426 (5) ¥426 7,372 $ — (53) $4,532 (53) $4,532 Forward foreign exchange contracts: Buying u.S. dollar Buying euro Buying Indonesian rupiah Buying Thai baht Buying Japanese yen Selling u.S. dollar Selling euro Selling British pound Selling Chinese yuan Selling Japanese yen Foreign currency swaps: Receiving Japanese yen, paying u.S. dollar Receiving u.S. dollar, paying Korean won Receiving u.S. dollar, paying Malaysian ringgit Interest rate swaps: Floating-rate receipt, fixed-rate payment Millions of yen 2012 Fair value Unrealized gain (loss) ¥238 13 0 43 (4) (71) 2 (2) 0 (6) 807 (52) (5) (8) ¥955 ¥238 13 0 43 (4) (71) 2 (2) 0 (6) 807 (52) (5) (8) ¥955 Contract amount ¥6,532 260 466 485 306 3,639 139 88 5 787 3,140 1,978 829 622 ¥ — 80 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 81 Hedge accounting is applied Millions of yen 2013 Hedge accounting method Type of derivative and principal hedged items Contract amount Fair value Estimation method for fair value Deferral hedge method Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying euro Buying Japanese yen Selling u.S. dollar Selling euro Selling Japanese yen Foreign currency options: accounted for as part of trade payables Buying Japanese yen (call) Selling Japanese yen (put) Interest rate swaps: ¥ 26 199 5,818 402 107 783 ¥ 2 Forward foreign exchange quotes 7 (463) 8 2 86 5,787 2,974 (520) the price provided by 269 correspondent financial institutions accounted for as part of long-term bank loans Floating-rate receipt, fixed-rate payment 8,386 (224) the price provided by correspondent financial institutions special accounting method for interest rate swaps Interest rate swaps: accounted for as part of bonds and long-term bank loans Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment Fixed-rate receipt, floating-rate payment 72,500 *1 49,400 48,000 — Allocation method for forward foreign exchange contracts Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables (Forecasted transactions) Buying u.S. dollar Buying euro Buying Canadian dollar Buying Czech koruna Buying Chinese yuan Selling u.S. dollar Selling euro Selling British pound Selling Chinese yuan 20,183 1,232 467 1,800 510 14,639 2,070 3 1 501 Forward foreign exchange quotes 18 (5) (33) 100 (639) (61) 0 0 Foreign currency swaps: accounted for as part of long-term bank loans (Forecasted transactions) Receiving u.S. dollar, paying Japanese yen 20,000 (193) the price provided by correspondent financial institutions Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying euro Buying Canadian dollar Buying Thai baht Selling u.S. dollar Selling euro Selling British pound Selling Canadian dollar Selling Thai baht Foreign currency swaps: accounted for as part of long-term bank loans Receiving u.S. dollar, paying Japanese yen Receiving australian dollar, paying Japanese yen 15,161 *2 44 3 4 30,361 4,258 15 21 75 44,417 *2 3,129 ¥ — ¥(1,145) — — 82 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 83 Hedge accounting method Type of derivative and principal hedged items Contract amount Fair value Estimation method for fair value Millions of yen 2012 Deferral hedge method Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying Japanese yen Selling u.S. dollar Selling euro Foreign currency swaps: Forward foreign exchange quotes ¥ 81 1,314 54 125 ¥ (1) 81 0 0 accounted for as part of long-term bank loans Receiving Japanese yen, paying u.S. dollar 10,715 3,708 The price provided by correspondent financial institutions Interest rate swaps: accounted for as part of long-term bank loans Floating-rate receipt, fixed-rate payment 8,624 (207) Interest rate caps: accounted for as part of long-term bank loans 216 0 The price provided by correspondent financial institutions The price provided by correspondent financial institutions special accounting method for interest rate swaps Interest rate swaps: accounted for as part of long-term bank loans Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment Fixed-rate receipt, floating-rate payment 81,200*1 30,700 28,000 Allocation method for forward foreign exchange contracts Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables (Forecasted transactions) Buying u.S. dollar Buying euro Buying Canadian dollar Buying Chinese yuan Buying Korean won Selling u.S. dollar Selling euro Selling British pound Selling Thai baht Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying euro Selling u.S. dollar Selling euro Selling British pound Selling Canadian dollar Selling Thai baht Foreign currency swaps: accounted for as part of long-term bank loans Receiving u.S. dollar, paying Japanese yen 225 58 0 (44) 10 (364) (57) 0 (1) 16,396 7,051 8 1,668 1,423 10,376 1,950 18 9 11,659*2 57 27,433 3,987 20 40 75 16,138*2 ¥ — ¥3,408 — Forward foreign exchange quotes — — 82 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 83 Hedge accounting method Type of derivative and principal hedged items Contract amount Fair value Estimation method for fair value Thousands of U.S. dollars 2013 Deferral hedge method Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying euro Buying Japanese yen Selling u.S. dollar Selling euro Selling Japanese yen Foreign currency options: accounted for as part of trade payables Buying Japanese yen (call) Selling Japanese yen (put) Interest rate swaps: $ 277 2,117 61,894 4,277 1,138 8,330 $ 21 Forward foreign exchange quotes 74 (4,926) 85 21 915 61,564 31,638 (5,532) the price provided by 2,862 correspondent financial institutions accounted for as part of long-term bank loans Floating-rate receipt, fixed-rate payment 89,213 (2,383) the price provided by correspondent financial institutions special accounting method for interest rate swaps Interest rate swaps: accounted for as part of bonds and long-term bank loans Floating-rate receipt, fixed-rate payment Floating-rate receipt, floating-rate payment Fixed-rate receipt, floating-rate payment 771,277 *1 525,532 510,638 — Allocation method for forward foreign exchange contracts Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables (Forecasted transactions) Buying u.S. dollar Buying euro Buying Canadian dollar Buying Czech koruna Buying Chinese yuan Selling u.S. dollar Selling euro Selling British pound Selling Chinese yuan 214,713 13,106 4,968 19,149 5,426 155,734 22,021 32 11 5,330 Forward foreign exchange quotes 191 (53) (351) 1,064 (6,798) (649) 0 0 Foreign currency swaps: accounted for as part of long-term bank loans (Forecasted transactions) Receiving u.S. dollar, paying Japanese yen 212,766 (2,053) the price provided by correspondent financial institutions Forward foreign exchange contracts: accounted for as part of trade receivables and trade payables Buying u.S. dollar Buying euro Buying Canadian dollar Buying Thai baht Selling u.S. dollar Selling euro Selling British pound Selling Canadian dollar Selling Thai baht Foreign currency swaps: accounted for as part of long-term bank loans Receiving u.S. dollar, paying Japanese yen Receiving australian dollar, paying Japanese yen 161,287 *2 468 32 43 322,989 45,298 160 223 798 472,521 *2 33,287 — — *1 The fair value of interest rate swaps to which a special accounting method is applied is included in the fair value of bonds and long-term bank loans in Note 5. FINANCIAL INSTRUMENTS of the Notes to the Consolidated Financial Statements because such interest rate swaps are accounted for together with the corresponding bonds and long-term bank loans. *2 The fair value of forward foreign exchange contracts to which the allocation method is applied, except for forecasted transactions, is included in the fair value of trade receivables, trade payables and long-term bank loans in Note 5. FINANCIAL INSTRUMENTS of the Notes to the Consolidated Financial Statements since such forward foreign exchange contracts are accounted for together with the corresponding trade receivables, trade payables and long-term bank loans. $ — $(12,181) 84 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 85 8. RetIReMent BeneFIt PLAn Accrued employees’ retirement benefits as of March 31, 2013 and 2012 were analyzed as follows: Projected benefit obligations Plan assets unrecognized actuarial differences unrecognized prior service cost Prepaid pension cost (included in other assets) accrued employees‘ retirement benefits Millions of yen 2013 ¥(181,735) 117,661 (64,074) 44,204 (19,222) (39,092) 29,009 ¥ (68,101) 2012 ¥(190,661) 115,172 (75,489) 59,886 (22,174) (37,777) 27,907 ¥ (65,684) Thousands of U.S. dollars 2013 $(1,933,351) 1,251,713 (681,638) 470,255 (204,489) (415,872) 308,606 $ (724,479) The components of net periodic benefit cost related to the employees’ retirement benefits for the years ended March 31, 2013 and 2012 were as follows: Service cost Interest cost Expected return on plan assets amortization of actuarial differences amortization of prior service cost Net periodic benefit cost Contribution to defined contribution pension plan and other Millions of yen 2013 ¥ 5,552 3,782 (3,359) 6,976 (2,871) 10,080 4,706 ¥14,786 2012 ¥ 5,728 3,863 (3,575) 6,834 (2,965) 9,885 3,657 ¥13,542 Thousands of U.S. dollars 2013 $ 59,064 40,234 (35,734) 74,213 (30,543) 107,234 50,064 $157,298 In addition to the above, special severance payments of ¥752 million ($8,000 thousand) and ¥1,283 million were charged to net income for the years ended March 31, 2013 and 2012, respectively. Assumptions used in calculation of the above information were as follows: Method of attributing the projected benefits to periods of services Discount rate Expected rate of return on plan assets amortization period of prior service cost amortization period of actuarial differences 2013 straight-line basis primarily 2.0% primarily 3.0% primarily 15 years primarily 15 years 2012 straight-line basis primarily 2.0% primarily 3.0% primarily 15 years primarily 15 years 84 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 85 9. stoCK oPtIon PLAns 1. Stock option expense included in selling, general and administrative expenses amounted to ¥345 million ($3,670 thousand) and ¥287 million for the years ended March 31, 2013 and 2012, respectively. 2. Information on stock options issued The following table summarizes the stock options outstanding as of March 31, 2013. Position and number of grantees Type and number of shares to be issued upon exercise Grant date Vesting conditions Vesting period Exercise period no.1 stock option Plan no.2 stock option Plan Members of the Board of the Company Directors of the Company 28 32 Common stock 747,000 shares August 20, 2011 26 32 844,000 shares August 4, 2012 Based on the number of months that have elapsed during the vesting period Based on the number of months that have elapsed during the vesting period June 24, 2011 – June 22, 2012 August 21, 2011 – August 20, 2041 June 22, 2012 – June 26, 2013 August 5, 2012 – August 4, 2042 The following table summarizes movement of stock options during the year and price information on stock options as of March 31, 2013. Number of stock options are translated into the number of shares. (1) Number of stock options no.1 stock option Plan no.2 stock option Plan Stock acquisition rights not yet vested as of March 31, 2012 Granted Forfeited Vested as of March 31, 2013 Stock acquisition rights already vested as of March 31, 2012 Vested Exercised Forfeited as of March 31, 2013 (2) Price information Exercise price Weighted average exercise price Fair value per share at the grant date Exercise price Weighted average exercise price Fair value per share at the grant date 211,000 — — 211,000 — 536,000 211,000 129,000 — 618,000 — 844,000 — 607,000 237,000 — 607,000 — — 607,000 no.1 stock option Plan ¥ 1 529 513 Yen U.S. dollars no.2 stock option Plan ¥ 1 — 394 no.1 stock option Plan $0.01 5.63 5.46 no.2 stock option Plan $0.01 — 4.19 86 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 87 3. Estimation method and assumptions used for the per share fair value of stock options (1) Estimation method Black-Scholes model (2) Assumptions used for the per share fair value of stock options. Expected volatility *1 Expected holding period *2 Expected dividend *3 Risk-free rate *4 no.2 stock option Plan 32.885% 8 years ¥10 per share ($0.11) 0.476% *1 Expected volatility is based on actual share prices during 8 years from August 5, 2004 to August 3, 2012. *2 The expected holding period is calculated based on the service period of past members of the Board. *3 This is based on the dividend for the year ended March 31, 2012. *4 The risk-free interest rate is the yield on government bonds for the period that corresponds to the remaining life of the option. Because it is difficult to reasonably estimate the number of options that will expire in the future, only the number of options that have actually forfeited is applied. 10. InCoMe tAXes The statutory tax rates in Japan used for calculating deferred tax assets and liabilities for the years ended March 31, 2013 and 2012 were 38.0% and 40.7%, respectively. At March 31, 2013 and 2012, significant components of deferred tax assets and liabilities were as follows: Deferred tax assets: accrued bonuses accrued employees’ retirement benefits Tax loss carryforwards unrealized intercompany profits Investments in subsidiaries and affiliated companies Other Valuation allowance Total deferred tax assets Deferred tax liabilities: Reserve for advanced depreciation Depreciation undistributed earnings of overseas subsidiaries and affiliated companies unrealized gains on securities Other Total deferred tax liabilities Net deferred tax assets Millions of yen 2013 2012 ¥ 5,975 27,232 35,273 11,464 22,631 34,602 137,177 (41,467) 95,710 10,220 14,711 7,926 19,181 12,091 64,129 ¥ 31,581 ¥ 5,923 26,777 26,017 11,371 33,942 35,833 139,863 (39,981) 99,882 10,507 12,190 6,081 12,195 12,478 53,451 ¥ 46,431 At March 31, 2013 and 2012, deferred tax assets and liabilities were classified as follows: Deferred tax assets - current Deferred tax assets - non-current Deferred tax liabilities - current (included in other current liabilities) Deferred tax liabilities - non-current Millions of yen 2013 ¥21,405 19,399 9 9,214 2012 ¥18,220 34,067 182 5,674 Thousands of U.S. dollars 2013 $ 63,564 289,702 375,245 121,957 240,755 368,106 1,459,330 (441,138) 1,018,191 108,723 156,500 84,319 204,053 128,628 682,223 $ 335,968 Thousands of U.S. dollars 2013 $227,713 206,372 96 98,021 86 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 87 The reconciliation of the statutory tax rates and the effective income tax rates for the years ended March 31, 2013 and 2012 was as follows: Statutory tax rates Increase (decrease) in taxes resulting from: Permanent differences Recognition of certain deferred tax assets by reversal of valuation allowance Equity in earnings of unconsolidated subsidiaries and affiliated companies Differences of tax rates for overseas consolidated subsidiaries undistributed earnings of overseas subsidiaries and affiliated companies Change in statutory tax rate Differences of tax rates for special reconstruction corporation tax amortization of goodwill Other Effective income tax rates 2013 38.0% 0.7 (1.1) (3.6) (7.2) 2.4 — 1.6 1.5 2.1 34.4% 2012 40.7% 0.6 (2.5) (2.1) (6.4) 0.6 3.4 — — (1.3) 33.0% 11. net Assets The Corporation Law of Japan provides that an amount equal to 10% of the amount to be disbursed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the earned reserve) be transferred to the capital reserve and the earned reserve, respectively, until the sum of the capital reserve and the earned reserve equals 25% of the capital stock account. Such distributions can be made at any time by resolution of the stockholders, or by the Board of Directors if certain conditions are met. At the June 2013 annual stockholders’ meeting, stockholders approved the payment of cash dividends of ¥5.00 per share, aggregating to ¥8,151 million ($86,713 thousand) which has not been reflected in the accompanying consolidated financial statements for the year ended March 31, 2013. 12. CoMMItMents AnD ContInGent LIABILItIes At March 31, 2013, commitment line of credit to unconsolidated subsidiaries and affiliated companies was as follows: Total commitment line of credit Loans receivable outstanding Balance This commitment does not necessarily imply that the unused amount may be fully utilized. At March 31, 2013 and 2012, contingent liabilities were as follows: Millions of yen ¥775 355 ¥420 Thousands of U.S. dollars $8,245 3,777 $4,468 as guarantors of loans to: unconsolidated subsidiaries and affiliated companies Other Export bills discounted Notes endorsed Contingent liabilities associated with securitization of receivables Millions of yen 2013 2012 ¥ 1,432 6,959 ¥ 8,391 ¥ 541 640 ¥10,361 ¥ 1,056 6,368 ¥ 7,424 ¥ 1,564 269 ¥10,233 Thousands of U.S. dollars 2013 $ 15,234 74,032 $ 89,266 $ 5,755 6,809 $110,223 88 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 89 13. LeAses Finance leases The Group holds certain buildings, machinery and equipment and intangible assets by leases. Finance lease transactions which do not transfer ownership of the leased assets whose lease inceptions are on or before March 31, 2008 are accounted for by a method similar to the method applicable to ordinary operating lease transactions. Total lease payments under these leases were ¥383 million ($4,074 thousand) and ¥729 million for the years ended March 31, 2013 and 2012, respectively. Pro forma information relating to acquisition costs, accumulated depreciation/amortization and accumulated loss on impairment and net book value for property held under finance lease transactions which do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis at March 31, 2013 and 2012 was as follows: March 31, 2013: Machinery and equipment March 31, 2012: Buildings Machinery and equipment Intangible assets March 31, 2013: Machinery and equipment Millions of yen Accumulated depreciation/ amortization ¥1,793 ¥1,793 Millions of yen Accumulated depreciation / amortization ¥ 62 2,815 377 ¥3,254 Acquisition costs ¥2,160 ¥2,160 Acquisition costs ¥ 64 3,503 458 ¥4,025 Thousands of U.S. dollars Acquisition costs $22,979 $22,979 Accumulated depreciation/ amortization $19,074 $19,074 Future minimum lease payments under finance leases subsequent to March 31, 2013 and 2012 were as follows: Due within one year Due after one year Total Millions of yen 2013 ¥220 147 ¥367 2012 ¥405 366 ¥771 Net book value ¥367 ¥367 Net book value ¥ 2 688 81 ¥771 Net book value $3,904 $3,904 Thousands of U.S. dollars 2013 $2,340 1,564 $3,904 The acquisition costs and future minimum lease payments under finance leases include the imputed interest expense portion. Operating leases Future minimum lease payments under noncancellable operating leases subsequent to March 31, 2013 and 2012 were as follows: Due within one year Due after one year Total Millions of yen 2013 ¥247 586 ¥833 2012 ¥203 635 ¥838 Thousands of U.S. dollars 2013 $2,628 6,234 $8,862 88 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 89 14. ReseARCH AnD DeVeLoPMent eXPenses Research and development expenses included in cost of sales and selling, general and administrative expenses for the years ended March 31, 2013 and 2012 were ¥53,342 million ($567,468 thousand) and ¥51,450 million, respectively. 15. otHeR CoMPReHensIVe InCoMe The following table presents reclassification adjustments and tax effects allocated to each component of other comprehensive income for the years ended March 31, 2013 and 2012. Net unrealized gains (losses) on securities: amount arising during the year Reclassification adjustments for gains and losses included in net income Before tax effect Tax effect Net unrealized gains (losses) on securities Net deferred losses on hedges: amount arising during the year Reclassification adjustments for gains and losses included in net income assets acquisition cost adjustment Before tax effect Tax effect Net deferred losses on hedges Foreign currency translation adjustments: amount arising during the year Reclassification adjustments for gains and losses included in net income Foreign currency translation adjustments Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method: amount arising during the year Reclassification adjustments for gains and losses included in net income Share of other comprehensive income of unconsolidated subsidiaries and affiliated companies accounted for by the equity method Millions of yen 2013 2012 ¥21,611 1,467 23,078 (8,097) 14,981 (955) (17) (385) (1,357) 550 (807) 51,585 881 52,466 2,614 (7) 2,607 ¥ (3,252) 28 (3,224) 2,783 (441) (212) (124) 4 (332) 147 (185) (13,778) — (13,778) (706) — (706) Thousands of U.S. dollars 2013 $229,904 15,606 245,511 (86,138) 159,372 (10,160) (181) (4,096) (14,436) 5,851 (8,585) 548,777 9,372 558,149 27,809 (74) 27,734 Total other comprehensive income ¥69,247 ¥(15,110) $736,670 90 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 91 16. seGMent InFoRMAtIon (Segment information) 1. Outline of reportable segments The reportable segments of the Group are components for which discrete financial information is available and whose operating results are regularly reviewed by the Board of Directors to make decisions about resource allocation to the segments and assess performance. The Company identifies the following six segments according to the nature of the products and market for their products. Reportable segment Main products Fibers & Textiles Plastics & Chemicals IT-related Products Filament yarns, staple fibers, and woven and knitted fabrics of nylon, polyester and acrylic fibers, etc.; non-woven fabrics, man-made suede and apparel products Nylon, aBS, PBT, PPS and other resins and molded products, polyolefin foam; polyester, polypro- pylene, PPS and other films and processed film products; raw materials for synthetic fibers and other plastics; zeolite catalysts; fine chemicals for pharmaceuticals and agrochemicals; veterinary medicine (excludes film and resin covered in IT-related Products segment) Films and plastic products for information and telecommunications related products; materials for electronic circuits and semiconductors; color filters for LCDs and related materials and equip- ment; materials for plasma display panels; magnetic recording materials; graphic materials and related equipment Carbon Fiber Composite Materials Carbon fibers, carbon fiber composite materials and their molded products Environment & Engineering Comprehensive engineering; condominiums; industrial equipment and machinery; environment- related equipment; water treatment membranes and related equipment; materials for housing, building and civil engineering Life Science Pharmaceuticals and medical products 2. Measurement of sales, income, assets and other material items of reportable segments The accounting policies for the reportable segments are the same as those described in Note 1. SIGNIFICANT ACCOUNTING POLICIES. The figures of segment income are based on operating income. Intersegment sales are determined based on consideration of the market price and related information. 3. Information on sales, income, assets and other material items of reportable segments Year ended March 31, 2013: Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Fibers & Textiles ¥632,150 839 ¥632,989 ¥ 43,222 ¥456,704 Plastics & Chemicals IT- related Products Carbon Fiber Composite Materials Millions of yen Environment & Engineering Life Science Others Total Adjustments Consolidated Total ¥395,835 27,946 ¥423,781 ¥ 18,302 ¥456,669 ¥237,593 7,403 ¥244,996 ¥ 22,959 ¥334,140 ¥ 77,620 652 ¥ 78,272 ¥ 7,299 ¥233,085 ¥178,355 64,485 ¥242,840 ¥ 2,628 ¥176,568 ¥56,599 1 ¥56,600 ¥ 7,456 ¥69,087 ¥14,127 16,301 ¥30,428 ¥ 1,557 ¥47,238 ¥1,592,279 117,627 ¥1,709,906 ¥ 103,423 ¥1,773,491 ¥ — (117,627) ¥(117,627) ¥ (19,987) ¥ (41,661) ¥1,592,279 — ¥1,592,279 ¥ 83,436 ¥1,731,830 15,572 17,704 15,850 11,760 2,626 1,905 1,257 66,674 914 67,588 16,308 36,386 3,205 224 6,938 2,933 5,075 71,069 (631) 70,438 Capital expenditures 27,297 24,521 23,393 15,561 4,251 4,488 889 100,400 (1,265) 99,135 90 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 91 year ended March 31, 2012: Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Plastics & Chemicals IT- related Products Carbon Fiber Composite Materials Millions of yen Environment & Engineering Life Science Others Total Adjustments Consolidated Total ¥397,815 27,829 ¥425,644 ¥ 27,381 ¥416,545 ¥243,404 7,663 ¥251,067 ¥ 34,512 ¥324,137 ¥ 69,914 679 ¥ 70,593 ¥ 7,671 ¥192,898 ¥170,247 57,320 ¥227,567 ¥ 4,882 ¥166,834 ¥55,554 1 ¥55,555 ¥ 5,981 ¥59,016 ¥13,295 16,358 ¥29,653 ¥ 1,334 ¥38,500 ¥1,588,604 110,505 ¥1,699,109 ¥ 127,088 ¥1,623,090 ¥ — (110,505) ¥(110,505) ¥ (19,367) ¥ (41,589) ¥1,588,604 — ¥1,588,604 ¥ 107,721 ¥1,581,501 Fibers & Textiles ¥638,375 655 ¥639,030 ¥ 45,327 ¥425,160 17,006 17,681 14,593 11,827 2,614 2,030 1,222 66,973 470 67,443 14,641 36,140 2,643 188 5,126 3,038 4,674 66,450 (723) 65,727 Capital expenditures 23,928 24,215 28,271 13,531 3,028 3,913 2,017 98,903 (519) 98,384 Year ended March 31, 2013: Sales to outside customers Intersegment sales Total sales Segment income Segment assets Depreciation and amortization Investment in unconsolidated subsidiaries and affiliated companies accounted for by the equity method Fibers & Textiles Plastics & Chemicals IT- related Products Carbon Fiber Composite Materials Thousands of U.S. dollars Environment & Engineering Life Science Others Total Adjustments Consolidated Total 8,926 297,298 $6,725,000 $4,211,011 $2,527,585 $ 825,745 $1,897,394 686,011 $6,733,926 $4,508,309 $2,606,340 $ 832,681 $2,583,404 $ 459,809 $ 194,702 $ 244,245 $ 77,649 $ 27,957 $4,858,553 $4,858,181 $3,554,681 $2,479,628 $1,878,383 78,755 6,936 $602,117 11 $602,128 $ 79,319 $734,968 1,251,351 $150,287 $16,939,138 $ — $16,939,138 — 173,415 $323,702 $18,190,489 $(1,251,351) $16,939,138 $ 16,564 $ 1,100,245 $ (212,628) $ 887,617 $502,532 $18,866,926 $ (443,202) $18,423,723 (1,251,351) 165,660 188,340 168,617 125,106 27,936 20,266 13,372 709,298 9,723 719,021 173,489 387,085 34,096 2,383 73,809 31,202 53,989 756,053 (6,713) 749,340 Capital expenditures 290,394 260,862 248,862 165,543 45,223 47,745 9,457 1,068,085 (13,457) 1,054,628 Notes: 1) “Others” represents service-related businesses such as analysis, survey and research. 2) a) “Adjustments” of segment income for the year ended March 31, 2013 of ¥(19,987) million ($(212,628) thousand) includes intersegment eliminations of ¥(27) million ($(287) thousand) and corporate expenses of ¥(19,960) million ($(212,340) thousand). “Adjustments” of segment income for the year ended March 31, 2012 of ¥(19,367) million includes intersegment eliminations of ¥(793) million and corporate expenses of ¥(18,574) million. The corporate expenses consist of the headquarters’ research expenses, etc. that are not allocated to each reportable segment. b) “Adjustments” of segment assets for the year ended March 31, 2013 of ¥(41,661) million ($(443,202) thousand) includes intersegment eliminations of ¥(61,374) million ($(652,915) thousand) and corporate assets of ¥19,713 million ($209,713 thousand). “Adjustments” of segment assets for the year ended March 31, 2012 of ¥(41,589) million includes intersegment eliminations of ¥(63,215) million and corporate assets of ¥21,626 million. The corporate assets consist of the headquarters’ research assets, etc. that are not allocated to each reportable segment. 3) “Segment income” is reconciled to operating income. 92 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 93 (Related information) Geographic information Sales to outside customers Year ended March 31, 2013: Sales to outside customers year ended March 31, 2012: Sales to outside customers Year ended March 31, 2013: Sales to outside customers Japan China Others Millions of yen Asia North America, Europe and other areas Total ¥870,315 ¥222,514 ¥268,291 ¥231,159 ¥1,592,279 Japan China Others Millions of yen Asia North America, Europe and other areas Total ¥876,224 ¥203,419 ¥284,430 ¥224,531 ¥1,588,604 Thousands of U.S. dollars Japan China Others Asia North America, Europe and other areas Total $9,258,670 $2,367,170 $2,854,160 $2,459,138 $16,939,138 Sales amounts are allocated to countries or regions according to the customers’ location. Property, plant and equipment, net Millions of yen Asia March 31, 2013: Japan Republic of Korea Others North America, Europe and other areas Total Property, plant and equipment, net ¥317,658 ¥84,534 ¥124,686 ¥100,362 ¥627,240 March 31, 2012: Japan Republic of Korea Others Millions of yen Asia North America, Europe and other areas Total Property, plant and equipment, net ¥319,736 ¥60,344 ¥92,898 ¥88,945 ¥561,923 March 31, 2013: Japan Republic of Korea Others Asia North America, Europe and other areas Total Property, plant and equipment, net $3,379,340 $899,298 $1,326,447 $1,067,681 $6,672,766 Thousands of U.S. dollars (Information about loss on impairment of fixed assets by reportable segments) Year ended March 31, 2013: Loss on impairment Fibers & Textiles ¥150 Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering ¥280 ¥225 ¥264 ¥990 Life Science ¥63 Others ¥— Elimination & corporate Total ¥— ¥1,972 Millions of yen Year ended March 31, 2012: No significant items to be reported. Year ended March 31, 2013: Fibers & Textiles Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering Loss on impairment $1,596 $2,979 $2,394 $2,809 $10,532 Life Science $670 Others $— Elimination & corporate Total $— $20,979 Thousands of U.S. dollars 92 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 93  (Information about amortization and balance of goodwill by reportable segments) Year ended March 31, 2013: Fibers & Textiles Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering amortization of goodwill ¥(248) ¥ 16 ¥ 3,132 ¥ 238 ¥(16) Balance of goodwill (72) 907 27,871 1,060 — Life Science ¥— — Others ¥1 1 Elimination & corporate ¥— — Total ¥ 3,123 29,767 Millions of yen year ended March 31, 2012: Balance of goodwill Fibers & Textiles ¥(320) Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering ¥29 ¥31,003 ¥1,164 ¥(16) Life Science ¥— Others ¥2 Elimination & corporate Total ¥— ¥31,862 Millions of yen Year ended March 31, 2013: Fibers & Textiles Plastics & Chemicals IT-related Products Carbon Fiber Composite Materials Environment & Engineering amortization of goodwill $(2,638) $ 170 $ 33,319 $ 2,532 $(170) Balance of goodwill (766) 9,649 296,500 11,277 — Life Science $— — Others $11 11 Elimination & corporate Total $— — $ 33,223 316,670 Thousands of U.S. dollars “Others” represents service-related businesses such as analysis, survey and research. 17. AMoUnts PeR sHARe Basic net income per share is computed based on the net income attributable to stockholders of common stock and the weighted-average number of shares of common stock outstanding during the year. Diluted net income per share is computed based on the net income available for distribution to the stockholders and the weighted-average number of shares of common stock outstanding during the year after giving effect to the dilutive potential of shares of common stock to be issued upon the exercise of warrants and stock acquisition rights. Amounts per share of net assets are computed based on the net assets available for distribution to the stockholders and the number of shares of common stock outstanding at year end. Cash dividends per share represent the cash dividends proposed by the Board of Directors applicable to the respective years together with any interim cash dividends paid. Net income: Basic Diluted Cash dividends applicable to the year Net assets Yen 2013 2012 ¥ 29.75 28.90 10.00 444.95 ¥ 39.41 37.46 10.00 384.90 U.S. dollars 2013 $0.32 0.31 0.11 4.73 94 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 95 18. ReLAteD PARtY tRAnsACtIons Year ended March 31, 2013 Related Party Transactions No items to be reported. Year ended March 31, 2012 Related Party Transactions Name Category Location Common stock Description of the business Ownership percentage of voting rights Relationship The Company’s transaction with the related company Repayment of deposits Balance at year end Other current liabilities Toray Battery Separator Film Godo Kaisha Subsidiary Tochigi, Japan ¥301 million Production and sales of battery separator film Direct 100% Repayment of deposits ¥28,464 million — Consumption taxes are not included in the above amounts. Toray Tonen Specialty Separator Godo Kaisha, which was formerly disclosed as an affiliated company, became a consolidated subsidiary during the fiscal year ended March 31, 2012, and ceased to qualify as a related party. Therefore, transactions during the period Toray Tonen Specialty Separator Godo Kaisha was an affiliated company are reported. In addition, its name has been changed to Toray Battery Separator Film Godo Kaisha. The interest rate for the deposits received from Toray Battery Separator Film Godo Kaisha is determined based on consideration of market interest rates. 94 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 95 96 TORay INDuSTRIES, INC. aNNuaL REPORT 2013 PB Investor Information (As of March 31, 2013) Common Stock: Issued: 1,630,179,785 shares (excluding treasury stock) Number of Stockholders: 187,006 Annual General Meeting: The annual general meeting of stockholders is normally held in June in Tokyo. Listings: Common stock is listed on the Tokyo Stock Exchange, the Osaka Securities Exchange and three other domestic stock exchanges. Overseas listings are on exchanges in London and Luxembourg. Independent Auditors: Ernst & Young ShinNihon LLC Transfer Agent: Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi Chiyoda-ku, Tokyo 100-0005, Japan Cash Dividends Per Share Total for the year Interim Principal Stockholders The Master Trust Bank of Japan, Ltd. (Trust account) Japan Trustee Services Bank, Ltd. (Trust account) Nippon Life Insurance Co. Mitsui Life Insurance Co., Ltd. SSBT OD05 OMNIBUS ACCOUNT — TREATY CLIENTS Sumitomo Mitsui Banking Corporation Japan Trustee Services Bank, Ltd. (Trust 4 account) Mitsui Fudosan Co., Ltd. Mitsui Sumitomo Insurance Co., Ltd. Sumitomo Mitsui Trust Bank, Ltd. 2013 2012 ¥10.00 ¥10.00 5.00 5.00 Percentage of shares held Thousands of shares 7.77 4.76 4.37 2.21 1.90 1.84 1.38 1.19 1.08 1.04 126,677 77,522 71,212 35,961 30,966 30,022 22,550 19,460 17,638 17,018 * Percentage of shares held is calculated excluding 1,301,618 shares of treasury stock. Stock Price Range Composition of Stockholders (Thousands of shares) (Yen) 1,200 1,000 800 600 400 200 0 Individuals and Others 486,869 29.84% Companies and Individuals in Foreign Countries 359,334 22.03% Financial Institutions 618,415 37.91% Securities Companies 20,229 1.24% Other Japanese Companies 146,634 8.99% 2008 April 2009 April 2010 April 2011 April 2012 April 2013 March Corporate Data (As of March 31, 2013) Toray Industries, Inc. Head Office Nihonbashi Mitsui Tower, 1-1, Nihonbashi-Muromachi 2-chome, Chuo-ku, Tokyo 103-8666, Japan Telephone: 81 (3) 3245-5111 Facsimile: 81 (3) 3245-5054 URL: http://www.toray.com Established: January 1926 Paid-in Capital: ¥147,873,030,771 Number of Employees: 42,584 Parent company: 7,097 Japanese subsidiaries: 10,177 Overseas subsidiaries: 25,310 97 AnnuAl RepoRt 2013 Toray Industries, Inc. Toray Industries, Inc. Toray Industries, Inc. 1-1, nihonbashi-Muromachi 2-chome, 1-1, nihonbashi-Muromachi 2-chome, 1-1, nihonbashi-Muromachi 2-chome, Chuo-ku, tokyo 103-8666, Japan Chuo-ku, tokyo 103-8666, Japan Chuo-ku, tokyo 103-8666, Japan telephone: 81(3)3245-5111 telephone: 81(3)3245-5111 telephone: 81(3)3245-5111 Facsimile: 81(3)3245-5054 Facsimile: 81(3)3245-5054 Facsimile: 81(3)3245-5054 uRl: uRl: uRl: http://www.toray.com http://www.toray.com http://www.toray.com For questions about this report: For questions about this report: For questions about this report: Contact IR Dept. Contact IR Dept. Contact IR Dept. telephone: 81(3)3245-5113 telephone: 81(3)3245-5113 telephone: 81(3)3245-5113 Facsimile: 81(3)3245-5459 Facsimile: 81(3)3245-5459 Facsimile: 81(3)3245-5459 e-mail: e-mail: e-mail: ir@nts.toray.co.jp ir@nts.toray.co.jp ir@nts.toray.co.jp T o r a y I n d u s t r i e s , I n c . A n n u A l R e p o R t 2 0 1 3 Printed in Japan Printed in Japan Printed in Japan Issued: October 2013 Issued: October 2013 Issued: October 2013 

Continue reading text version or see original annual report in PDF format above