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Annual Securities Report (Pursuant to Article 24, paragraph (1) of the Financial Instruments and Exchange Act)

(The English translation of the

“Yukashoken-Houkokusho” for the 63rd term)

from December 1, 2011

to November 30, 2012

TOSEI CORPORATION

4-2-3, Toranomon, Minato-ku, Tokyo, Japan

(E04021)

This is an English translation prepared for the convenience of non-resident shareholders by translating the

Annual Securities Report (YUKASHOKEN-HOKOKUSHO) submitted to the Director of the Kanto Local

Finance Bureau of the Ministry of Finance of Japan on February 28, 2013 pursuant to Article 24, paragraph

(1) of the Financial Instruments and Exchange Act. Should there be any inconsistency between the translation

and the official Japanese text, the latter shall prevail.

Table of Contents

Cover

A. Company Information .......................................................................................................... 1

I. Overview of the Tosei Group ........................................................................................................ 1 1. Trends in principal management benchmarks ......................................................................................... 1 2. History ..................................................................................................................................................... 3 3. Business description ................................................................................................................................ 4 4. Status of subsidiaries and affiliates .......................................................................................................... 6 5. Status of employees ................................................................................................................................. 7

II. Review of operations ...................................................................................................................... 8 1. Overview of operating results .................................................................................................................. 8 2. Status of production, orders received and sales ..................................................................................... 11 3. Issues to be addressed ............................................................................................................................ 12 4. Business and other risks ........................................................................................................................ 15 5. Important operational contracts, etc. ..................................................................................................... 20 6. Research and development activities ..................................................................................................... 20 7. Analysis of financial position, operating results and cash flow position ............................................... 21

III. Facilities ........................................................................................................................................ 24 1. Outline of capital expenditures .............................................................................................................. 24 2. Main facilities ........................................................................................................................................ 24 3. Plans for new installation and retirement of facilities ........................................................................... 24

IV. Filing company ............................................................................................................................. 25 1. Information on the Company (Tosei)’s shares ...................................................................................... 25

(1) Total number of shares authorized, etc. ............................................................................................. 25 (2) Status of subscription rights to shares ............................................................................................... 25 (3) Exercise of bond certificates with subscription rights to shares with exercise price amendment

clause ................................................................................................................................................. 25 (4) Details of rights plan ......................................................................................................................... 25 (5) Trends in total number of shares issued, capital stock, etc. ............................................................... 25 (6) Shareholder composition ................................................................................................................... 26 (7) Status of major shareholders ............................................................................................................. 26 (8) Status of voting rights........................................................................................................................ 27 (9) Stock options ..................................................................................................................................... 27

2. Acquisition of treasury stock ................................................................................................................. 28 3. Dividend policy ..................................................................................................................................... 29 4. Trends in share price .............................................................................................................................. 29 5. Status of officers .................................................................................................................................... 30 6. Status of corporate governance, etc. ...................................................................................................... 33

V. Accounting .................................................................................................................................... 44 1. Consolidated financial statements, etc. .................................................................................................. 45

(1) Consolidated financial statements ..................................................................................................... 45 (2) Others ................................................................................................................................................ 84

2. Non-consolidated financial statements, etc. .......................................................................................... 85 (1) Non-consolidated financial statements .............................................................................................. 85 (2) Principal assets and liabilities .......................................................................................................... 105 (3) Others .............................................................................................................................................. 107

VI. Outline of filing company’s business concerning shares ........................................................ 108

VII. Reference information on filing company ................................................................................ 109 1. Information on filing company’s parent company .............................................................................. 109 2. Other reference information ................................................................................................................ 109

B. Information on Guarantee Companies, etc. of Filing Company .................................. 110 [Independent Auditors’ Audit Report and Internal Control Audit Report]

[Independent Auditors’ Audit Reports] [Management’s Report on Internal Control]

[Cover]

Document to be filed: Annual Securities Report

Provisions to base upon: Article 24, paragraph (1) of the Financial Instruments and Exchange

Act

Filing to: Director-General of the Kanto Local Finance Bureau

Date of filing: February 28, 2013

Business year: 63rd term (from December 1, 2011 to November 30, 2012)

Company name (Japanese): トーセイ株式会社 (Tosei Kabushiki-Kaisha)

Company name (English): TOSEI CORPORATION

Title and name of representative: Seiichiro Yamaguchi, President and CEO

Location of head office: 4-2-3, Toranomon, Minato-ku, Tokyo, Japan

Telephone number: +81-3-3435-2864

Contact person: Noboru Hirano, Director and CFO

Place of contact: 4-2-3, Toranomon, Minato-ku, Tokyo, Japan

Telephone number: +81-3-3435-2864

Contact person: Noboru Hirano, Director and CFO

Places where the document to be filed is

available for public inspection:

Tokyo Stock Exchange, Inc.

(2-1, Nihonbashi-kabutocho, Chuo-ku, Tokyo)

A. Company Information

I. Overview of the Tosei Group

1. Trends in principal management benchmarks

(1) Management benchmarks (consolidated)

Term 59th term 60th term 61st term 62nd term 63rd term

Accounting period Year ended

Nov. 30, 2008

Year ended

Nov. 30, 2009

Year ended

Nov. 30, 2010

Year ended

Nov. 30, 2011

Year ended

Nov. 30, 2012

Net Sales

(¥ thousand) 51,041,015 33,629,805 26,449,540 24,759,291 24,539,823

Ordinary income

(¥ thousand) 6,376,990 656,285 803,134 1,574,500 2,274,369

Net income

(¥ thousand) 3,463,965 108,249 421,606 751,982 1,405,395

Comprehensive income

(¥ thousand) – – – 748,839 1,404,469

Net assets

(¥ thousand) 21,887,249 22,253,707 24,455,632 24,976,051 26,152,100

Total assets

(¥ thousand) 78,309,499 62,235,110 62,682,616 59,967,603 64,732,965

Net assets per share

(¥) 58,081.02 56,151.60 53,532.16 54,671.33 57,245.65

Net income per share

(¥) 9,192.14 285.38 974.63 1,646.05 3,076.34


(diluted)

(¥)

– – – – –

Equity ratio

(%) 27.9 35.7 39.0 41.6 40.4

Return on equity (ROE)

(%) 16.8 0.5 1.8 3.0 5.5

Price earnings ratio (PER)

(Times) 1.72 74.99 33.30 11.36 11.65

Cash flows from operating

activities

(¥ thousand)

14,099,704 12,233,935 (1,625,695) 6,017,729 (1,005,254)

Cash flows from investing

activities

(¥ thousand)

959,332 392,585 (178,765) (116,149) 17,300

Cash flows from financing

activities

(¥ thousand)

(12,886,593) (12,090,510) 735,439 (4,416,563) 2,090,871

Cash and cash equivalents at

end of period

(¥ thousand)

7,354,299 7,890,310 6,821,288 8,306,305 9,410,622

Number of employees

[Separately, average number

of temporary employees]

(Person)

225

[174]

191

[146]

206

[167]

220

[200]

220

[228]

Notes: 1. Net sales do not include consumption taxes.

2. Net income per share (diluted) are not presented because there were no potential shares.

－ 1 －

(2) Filing company’s management benchmarks (non-consolidated)


Accounting period Year ended Nov.

30, 2008

Year ended Nov.

30, 2009

Year ended Nov.

30, 2010

Year ended Nov.

30, 2011

Year ended Nov.

30, 2012

Net sales

(¥ thousand) 41,085,825 30,524,223 23,230,287 20,719,445 19,423,088

Ordinary income

(¥ thousand) 5,647,430 671,986 809,414 1,601,947 1,975,626

Net income

(¥ thousand) 3,056,390 133,714 433,363 993,517 1,141,163

Capital stock

(¥ thousand) 4,148,020 4,452,807 5,454,673 5,454,673 5,454,673

Total number of

shares issued

(Shares)

376,840 395,840 456,840 456,840 456,840

Net assets

(¥ thousand) 21,014,875 21,406,799 23,620,480 24,382,434 25,296,620

Total assets

(¥ thousand) 74,012,141 58,198,165 58,871,182 56,313,964 61,016,621

Net assets per share

(¥) 55,766.04 54,012.08 51,704.06 53,371.94 55,373.04

Dividends per share

(¥)

[Interim dividends per share]

(¥)

1,000.00

[–]

500.00

[–]

500.00

[–]

500.00

[–]

600.00

[–]


(¥) 8,110.58 352.51 1,001.81 2,174.76 2,497.95


(diluted) (¥) – – – – –

Equity ratio

(%) 28.4 36.7 40.1 43.3 41.5

Return on equity (ROE)

(%) 15.4 0.6 1.9 4.1 4.6

Price earnings ratio (PER)

(Times) 1.95 60.71 32.39 8.60 14.35

Dividend payout ratio

(%) 12.3 141.8 49.9 23.0 24.0

Number of employees

[Separately, average number

of temporary employees]

(Person)

144

[–]

114

[–]

116

[–]

123

[–]

116

[–]

Notes: 1. Net sales do not include consumption taxes.

2. Net income per share (diluted) are not presented because there were no potential shares.

－ 2 －

2. History

Date Details of change

February 1950 Established as Yukari Kogyo Co., Ltd. with purpose of engaging in restaurant business at location of 514

Oaza Oita, Oita-shi, Oita Prefecture, Japan (Capital: ¥500,000)

April 1952 Moved head office to Kameido, Koto-ku, Tokyo

June 1964 Added real estate trading, brokerage, rental and management businesses to scope of business purpose

May 1968 Moved head office to Sotokanda, Chiyoda-ku, Tokyo

July 1969 Changed trade name to Yukari Co., Ltd.

March 1973 Obtained license of building lots and buildings transaction business (License Number: Governor of

Tokyo (1) No. 24043)

March 1983 Changed trade name to Tosei Building Co., Ltd.

April 1986 Moved head office to Iwamoto-cho, Chiyoda-ku, Tokyo

October 1994 Started sales of condominiums of “THE Palms” series

September 1995 Established Kanda Awaji-cho Building Co., Ltd.

March 1996 Changed trade name to Tosei Fudosan Co., Ltd.

April 1996 Launched revitalization business

December 1996 Moved head office to Kanda Awaji-cho, Chiyoda-ku, Tokyo

December 1997 Launched contract work, including repair and restoration, incidental to building management business

upon obtaining license of specified construction business (License Number: Governor of Tokyo (Special-

9) No. 107905)

July 1999 Started sales of detached houses of “Palms Court” series

February 2001 Launched asset management business upon registering general real estate investment advisory business

(Registration Number: Minister of Land, Infrastructure, Transport and Tourism No. 127)

March 2001 Merged with KabushikiKiasha. Konmasa Shoten, Nihon Kogyo Jutaku Kabushiki Kaisha. and Hidaka

Kogyo Kabushiki.Kaisha. by absorption-type merger using LBO (leveraged buyout) technique

April 2001 Registered first-class architectural firm (Registration Number: Governor of Tokyo No. 46219)

November 2001 Span off Building Management Division engaged in building management services and transferred it to

Tosei Community Co., Ltd. (currently consolidated subsidiary Tosei Community Co., Ltd., Japanese

name of which has changed with English name unchanged)

December 2001 Established Securitization Business Division to realize full-scale entry into real estate securitization

business

August 2002 Structured “Argo Fund,” a private placement fund investing in trust beneficiary rights in rental

condominiums, as our first real estate investment fund

December 2002 Merged with our subsidiary Kanda Awaji-cho Building Co., Ltd. by absorption-type merger

February 2004 Registered shares as over-the-counter securities at Japan Securities Dealers Association

September 2004 Obtained license of real estate specified joint enterprise (License Number: Governor of Tokyo No. 58)

December 2004 Cancelled registration as over-the-counter securities at Japan Securities Dealers Association and listed

shares on Jasdaq Securities Exchange (later delisted shares in January 2008)

March 2005 Established Tosei Revival Investment Co., Ltd. (currently consolidated subsidiary Tosei Revival

Investment Co., Ltd., Japanese name of which has changed with English name unchanged)

April 2005 Made Tosei Community Co., Ltd. (currently consolidated subsidiary Tosei Community Co., Ltd.,

Japanese name of which has changed with English name unchanged) a consolidated subsidiary by

acquiring its shares

September 2005 Established Tosei REIT Advisors, Inc. (currently consolidated subsidiary Tosei Asset Advisors, Inc.)

October 2006 Changed trade name to Tosei Corporation and moved head office to Toranomon, Minato-ku, Tokyo

November 2006 Listed shares on Second Section of Tokyo Stock Exchange

September 2007 Registered type II financial instruments business and investment advisory and agency business

(Registration Number: Director-General of Kanto Local Finance Bureau (Kinsho) No. 898)

September 2009 Launched “Restyling business” as a new business model of revitalization business

September 2011 Listed shares on First Section of Tokyo Stock Exchange

January 2012 Established Tosei Singapore Pte. Ltd.

－ 3 －

3. Business description

The Tosei Group is composed of Tosei Corporation (“Tosei” or the “Company”) and 7 subsidiaries (6

consolidated subsidiaries). Its main businesses are the revitalization business, the development business, the

rental business, the fund business, the property management business, and the alternative investment business.

The operations of each business segment and the main subsidiaries and/or affiliates conducting those

operations are as follows.

Segment Operations Main

Companies

Revitalization

Business

The Tosei Group acquires office buildings, commercial facilities, rental condominiums and other

properties whose asset value has declined, boosts their value though “value-up plans” (*) judged to

best match the characteristics of the properties’ areas and tenant requirements, and sells them as

revitalized real estate to buyers including investors, real estate funds and individual end users. In

the “Restyling Business,” the Group acquires income-producing condominium complexes and sells

units in them to end users after boosting the value of common and private areas (the Group

continues to hold and manage occupied units as rental properties).

The Tosei Group’s “value-up” activities go beyond just renewing properties and involve

realizing comprehensive regenerations of their values. This entails not only improving the

convenience and functionality of properties but also focusing on providing satisfaction to owners

and giving end users a sense of pride.

(*) Plans primarily look 10 or 20 years ahead and consist of improved designs to refurbish internal

and external elements that have deteriorated or become obsolete, functional improvement of

facilities including refurbishment, adding new functions to premises and equipment and

conversions, and boosting lease income by such means as renting out vacant space, collecting

overdue rent and raising rent.

Tosei

Corporation

Development

Business

In the main districts of Tokyo, which form the Tosei Group’s core operating area, there is a mixture

of needs for office, commercial and residential space and other uses, and these different uses create

significant differences between land values. Tosei verifies the characteristics of land it acquires

including area, shape, intended purpose, relevant needs, rent, and selling price. Based on this, Tosei

carries out development and new construction to maximize the value of the land, and then sells

whole complexes or individual units.

The Group is able to respond to diverse needs by developing office buildings, commercial

buildings (T’s BRIGHTIA series) and mixed-use buildings, residential condominiums (the Palms

series), as well as detached housing (Palms Court series). Once development is complete or tenants

have been found, the properties are sold to buyers including investors, real estate funds and end

users.

Tosei

Corporation

Rental

Business

The Tosei Group has expanded the scope of its business primarily in the main districts of Tokyo by

acquiring office buildings, apartment buildings, stores and parking lots, and renting them out to end

users and others.

As a landlord, the Tosei Group is capable of swiftly gathering accurate information on tenant

needs to further enhance “value-up plans” by reflecting these needs.

Tosei

Corporation

Fund

Business

The Tosei Group conducts business as a type II financial instruments business as well as an

investment advisory and agency business and an investment management business as provided for

in the Financial Instruments and Exchange Act. Specifically, in addition to such work as

purchasing, selling and brokering trust beneficiary rights in accordance with a wide variety of

investor needs, the Group provides advice regarding the acquisition, holding and disposition of

properties, and asset management services for real estate funds that carry out discretionary

investment.

The Tosei Group’s management approach is to provide high distributions to investors by taking

full advantage of its “value-up,” leasing and maintenance capabilities with the aim of maximizing

rental income and reducing its own rent costs. Revenues are primarily derived from accession fees

upon the purchase of properties and asset management fees for properties held.

Tosei

Corporation

Tosei Asset

Advisors, Inc

Property

Management

Business

This business carries out comprehensive property management that meets a wide variety of real

estate needs including administration, facility management, cleaning and security for condominium

complexes, office buildings and facilities, building and equipment repair work in the private

portions of condominium complexes and office interior renovation contracting.

In the management of condominium complexes, this business makes full use of the knowhow it

has accumulated over a number of years to provide consulting and advice to condominium unit

owners and condominium management associations, and provides total support to associations

from their launch to helping them operate smoothly once they are started up.

With respect to managing office buildings, in order to streamline the operations of building

owners, the business provides meticulous management services including building maintenance

and the management of equipment, water supply and drainage, sanitation and cleaning. The

business also maintains the asset values of buildings by implementing precise maintenance plans

regarding the age-related deterioration of buildings.

Tosei

Community

Co., Ltd.

－ 4 －

Segment Operations Main

Companies

Alternative

Investment

Business

This business invests in real estate collateralized claims and acquires collateral through the

collection and payment in substitution by negotiating with mortgaged property owners/debtors, and

acquires businesses including companies with real estate holdings and real estate business

operators. The business also utilizes the knowhow of the Tosei Group to boost the value of the real

estate it acquires before selling it.

Tosei Revival

Investment

Co., Ltd.

A schematic diagram of the businesses of the Tosei Group is shown below.

.

Land

Buildings

Beneficiary

rights to trusts

Purchase

Bidding

Tosei

Corporation

Revitalization

Business

Development

Business

Rental

Business

Fund

Business

“Value-up” Revitalized real

estate

Developed real

estate

Sale

Rental

End users

Investors

REITs

Funds

Investors Investment

Dividends

Real estate

funds

Investment advisor and

agency

Type II financial

instruments business

Tosei Asset Advisors,

Inc.

Fund Business

* Wholly owned subsidiary

Tosei Community Co.,

Ltd.

Property

Management

Business

Property management

Building maintenance

Managed properties Management Funds

Building owners

Tenants

Real estate

collateralized

loans

Companies with

real estate

holdings

Purchase

M&A

Tosei Revivial

Investment Co., Ltd.

Alternative

Investment Business

“Value-up”

Research title

Revitalize

Real estate

collateralized loans

Real estate acquired by

accepting substitute

performances

Stock of companies with

real estate holdings

Collection

Sale

Property sale

Investors

End users

Debtors

Property management

Investment management

business

Investment advisor and

agency

Type II financial

instruments business



－ 5 －

4. Status of subsidiaries and affiliates

Name Location

Capital or

investment in

capital

(¥ thousand)

Principal business

Holding rate

of voting

rights (%)

Relationship

(Consolidated subsidiaries)

Tosei Community Co., Ltd.

(Note 4)

Minato-ku,

Tokyo 99,500

Property Management

Business 100.0

Managing the

Company’s real

estate holdings

Interlocking

directorate

Tosei Asset Advisors, Inc. Minato-ku,

Tokyo 100,000 Fund Business 100.0

Interlocking

directorate

Tosei Singapore Pte. Ltd. Singapore 18,747 Fund Business 100.0

Tosei Revival Investment

Co., Ltd.

Minato-ku,

Tokyo 50,000

Alternative Investment

Business 100.0

Interlocking

directorate

Hestia Capital Limited

Company.

(Note 2)

Minato-ku,

Tokyo 3,000


Business

100.0

(100.0)

Green House Limited

Company.

(Note 2, 3)

Minato-ku,

Tokyo 24,600


Business

100.0

(100.0)

Notes: 1. Descriptions in the “Principal business” column are names of segments.

2. The figures in parentheses in the “Holding rate of voting rights” column are indirect holding rates included in the

figures outside the parentheses.

3. Green House Limited Company. is currently under liquidation.

4. Net sales of Tosei Community Co., Ltd. (excluding net sales among the consolidated companies) exceed 10% of

consolidated net sales.

Major profit/loss information (¥ thousand)

(1) Net sales 3,859,237

(2) Ordinary income 75,314

(3) Net loss 1,130

(4) Net assets 582,071

(5) Total assets 1,371,320

－ 6 －

5. Status of employees

(1) Consolidated companies

(As of November 30, 2012)

Segment Number of employees (Person)

Revitalization Business 35 [ – ]

Development Business 24 [ – ]

Rental Business 13 [ – ]

Fund Business 45 [ – ]

Property Management Business 65 [228]

Alternative Investment Business 1 [ – ]

Corporate (common) 37 [ – ]

Total 220 [228]

Notes: 1. The number of employees indicates the number of working employees, and the average number of temporary

employees during this fiscal year is given in brackets separately.

2. The number of employees in the “Corporate (common)” row is the number of those belonging to the administrative

department.

(2) Filing company (Tosei)


Number of employees

(Person) Average age (Year old)

Average years of service

(Year)

Average annual salary

(¥ thousand)

116 36.5 5.0 7,159

Segment Number of employees (Person)

Revitalization Business 35

Development Business 24

Rental Business 13

Fund Business 7

Corporate (common) 37

Total 116

Notes: 1. The number of employees indicates the number of working employees.

2. Average annual salary includes bonuses and surplus wages.

3. The number of employees in the “Corporate (common)” row is the number of those belonging to the administrative

department.

(3) Status of labor union

A labor union has not been formed. The Company maintains stable relations with its employees.

－ 7 －

II. Review of operations

1. Overview of operating results

(1) Operating results

During the year ended November 30, 2012 (December 1, 2011 to November 30, 2012), the Japanese

economy began to recover, supported by factors such as government policies and earthquake rebuilding

demand. Recently, however, the economy has shown signs of weakness due to a slowdown in overseas

economies such as Europe and China. The economic outlook is likely to remain uncertain against a

continued backdrop of instability in financial markets and deflationary risk in Japan.

In the real estate sector, where the Tosei Group operates, the total value of property acquisitions by J-

REITs and other real estate funds reached roughly ¥750 billion between January and the end of October

2012, the highest level for four years. This reflected active buying driven by overseas fund flows into the

domestic real estate market on expectations that real estate prices have bottomed. As a result, in the first

half of fiscal 2012, the number of real estate transactions rebounded to 329 and real estate transaction

value recovered to ¥853.3 billion, returning to the level seen in the first half of fiscal 2010 before the

Great East Japan Earthquake (market research company data). In addition, from January 2010 to October

2012, the closing rate for condominium sales contracts in the greater Tokyo area essentially remained

above the 70% level, which is viewed as a key indicator of favorable conditions in the condominium

market. From January 2012 to October 2012, the number of condominium units supplied in the greater

Tokyo area totaled 33,763 units, an increase of 2,074 units compared with the previous year (market

research company data).

In the market for leased office buildings in Tokyo’s five business wards, the average vacancy rate

increased at a modest pace in fiscal 2012, peaking at 9.43% at the end of June (up 0.62 percentage points

year on year). The rate then saw a sustained improvement in the four months from July, falling back to

8.74% at the end of October due to progress with contract closings for new and existing buildings. The

average asking rent for the same five wards continued to decline slowly, falling to ¥16,628/tsubo (1

tsubo=3.3m2) as of the end of October 2012, a decline of ¥383 year on year (market research company

data).

In the market for securitized real estate, the balance of assets under management by real estate funds as

of the end of June 2012 totaled ¥27.0 trillion, an increase of ¥0.9 trillion from the end of December 2011.

This included an increase of ¥0.4 trillion to ¥8.7 trillion for J-REITs and a rise of ¥0.5 trillion to ¥18.3

trillion for private placement funds due to an upturn in activity in the real estate investment market and

improving conditions for fund procurement (market research company data).

In this operating environment, the Tosei Group faced delays in selling some of the Restyling properties

in the Revitalization business, but the Group sold five properties it had refurbished. The development

business handed over two condominiums and registered strong sales contracts for detached houses. In

purchasing, the Group continued to focus on acquiring residential properties and land for residential

properties, demand for which has become stronger, and it also resumed full-scale investment in office

buildings and other properties for the Revitalization business. We also set up our first overseas base with

the establishment of a local subsidiary in Singapore, and concluded a membership contract with NAI

Global, a network of global commercial real estate brokers as well. The Group plans to reinforce its

relationships with overseas investors going forward.

As a result, for the year under review, net sales totaled ¥24,539 million (a decrease of 0.9% compared

with the previous year), operating income was ¥3,030 million (an increase of 26.9%), ordinary income

was ¥2,274 million (an increase of 44.5%), and net income was ¥1,405 million (an increase of 86.9%).

Segment results were as follows:

Revitalization Business

During the year under review, the Company sold a total of 106 units in the Restyling properties. The

properties sold included Hilltop Yokohama Negishi (Yokohama City, Kanagawa Prefecture), Hilltop

Yokohama Higashi Terao (Yokohama City, Kanagawa Prefecture), Estage Kaminoge (Setagaya Ward,

Tokyo), and Glenpark Ikedayama (Shinagawa Ward, Tokyo). In addition, the Company sold five

properties it had refurbished, including Uchikanda Kitahara Building (Chiyoda Ward, Tokyo) and

Belmidor Ebisu (Shibuya Ward, Tokyo).

As a result, net sales in this segment totaled ¥5,980 million, a decline of 50.3% compared with the

previous year.

－ 8 －

Also, due to the adoption of the Accounting Standard for Measurement of Inventories (the LCM

method), the Company reduced the book value of two office buildings after lowering its projection for

rental income for the vacant portion of the buildings. Book value for the two buildings was reduced by

¥265 million and charged to cost of sales. As a result, segment profit was ¥390 million, a decrease of

79.3% compared with the previous year.

Development Business

During the year under review, the Company focused on selling newly built condominiums and detached

houses, demand for which is strong. The Company sold a total of 154 newly built condominium units in

properties such as THE Palms Tsukishima Luna Garden (Chuo Ward, Tokyo) and THE Palms

Takadanobaba (Shinjuku Ward, Tokyo). The Company also sold 24 detached houses at Palms Court

Setagaya Okamoto (Setagaya Ward, Tokyo), Palms Court Hatsudai (Shibuya Ward, Tokyo), and Palms

Court Koishikawa (Bunkyo Ward, Tokyo).

As for office buildings, the Company sold Nihonbashi Hongokucho Tosei Building (Chuo Ward,

Tokyo).

As a result, net sales in this segment came to ¥10,985 million, an increase of 109.0% compared with

the previous year, and segment profit came to ¥2,318 million (segment loss in the previous year was ¥22

million).

Rental Business

During the year under review, the Company focused on leasing activities for its noncurrent assets and

inventories and worked to maintain occupancy rates. As a result, segment net sales were essentially steady

compared with the previous year.

As a result, net sales in this segment were ¥2,446 million, a decrease of 0.5% compared with the

previous year, and segment profit was ¥1,192 million, an increase of 0.8%.

Fund Business

During the year under review, the balance of assets under management grew steadily, but total asset

management fees declined due to a drop in the level of fees charged.

As a result, net sales in this segment were ¥776 million, a decrease of 44.4% compared with the

previous year while segment profit was ¥184 million, a decrease of 71.8%.

The main reason for the sharp decline in segment income year on year was the absence of brokerage

fees and other income related to large-scale transactions that were booked in the previous year.

As of November 30, 2012, the balance of assets under management* totaled ¥311,335 million.

*Note: The balance of assets under management includes a part of the balance of assets that were

subject to consulting contracts, etc. based on the Company’s internal rules.

Property Management Business

During the year under review, the number of office buildings, parking lots and schools under management

declined by two properties year on year to 306, while the number of condominiums and rental apartments

increased by 13 properties to 216. As a result, the total number of properties under management increased

by 11 year on year to 522.

As a result, although net sales in this segment rose year on year, increasing by 2.5% to ¥3,512 million,

segment profit was down 34.7% to ¥68 million, as allowance for doubtful accounts regarding certain

transactions were recorded in general and administrative expenses.

Alternative Investment Business

During the year under review, the Company focused on the sale of properties acquired through M&A and

the leasing of properties that the Company acquired through the collection and payment in substitution.

As a result, net sales in this segment came to ¥838 million, an increase of 363.7% compared with the

previous year, and segment profit was ¥59 million (segment loss in the previous year was ¥190 million).

(2) Cash flows

Cash and cash equivalents (hereinafter “cash”) as of November 30, 2012 totaled ¥9,410 million, an

increase of ¥1,104 million from the end of the previous year, as a result of ¥2,172 million in income

－ 9 －

before income taxes and minority interests and ¥15,777 million in proceeds from long-term loans payable

despite a decrease of ¥4,129 million due to an increase in inventories and ¥13,841 million in repayment of

long-term loans payable.

The respective cash flow positions and the factors thereof for the year under review are as follows.

Cash Flows from Operating Activities

Net cash used in operating activities totaled ¥1,005 million (net cash provided by operating activities

totaled ¥6,017 million in the previous year). This is a result of an increase due to the recording of ¥2,172

million in income before income taxes and minority interests and a decrease of ¥4,129 million due to an

increase in inventories.

Cash Flows from Investing Activities

Net cash provided by investing activities totaled ¥17 million (net cash used in investing activities totaled

¥116 million in the previous year). This is primarily due to proceeds from sales of property, plant and

equipment totaling ¥216 million and purchase of property, plant and equipment totaling ¥140 million.

Cash Flows from Financing Activities

Net cash provided by financing activities totaled ¥2,090 million (net cash used in financing activities in

the previous year was ¥4,416 million). This mainly reflected ¥15,777 million in proceeds from long-term

loans payable related to the purchase of new properties, and ¥13,841 million in repayment of long-term

loans payable related to the sale of properties.

－ 10 －

2. Status of production, orders received and sales

(1) Actual production

As the Tosei Group’s principle business activities are revitalization, development, rental, fund, property

management and alternative investment businesses, it is difficult to define “actual production.”

Accordingly, the Company does not report actual production.

(2) Actual orders received

As the Tosei Group does not receive orders for production, the Company does not report actual orders

received.

(3) Actual sales

Consolidated actual sales for each segment in the year under review are shown below.

Segment

Year ended November 30, 2012

(Dec. 1, 2011 to Nov. 30, 2012) Comparison with

the previous fiscal year

(%) Amount (¥ thousand)

Revitalization Business 5,980,183 49.7

Development Business 10,985,270 209.0

Rental Business 2,446,682 99.5

Fund Business 776,723 55.6

Property Management Business 3,512,228 102.5

Alternative Investment Business 838,736 463.7

Total 24,539,823 99.1

Notes: 1. Transactions between segments were eliminated.

2. The above amounts do not include consumption taxes.

－ 11 －

3. Issues to be addressed

(1) Description of present issues to be addressed

As of the end of the year under review, the following issues have been identified as needing to be

addressed.

In the real estate sector, where the Tosei Group operates, the real estate trading market is showing

signs of further recovery. The market in the greater Tokyo area has largely recovered from the stagnation

triggered by the Great East Japan Earthquake and overseas funds are flowing into the real estate market on

expectations that prices have bottomed.

In this operating environment, the Tosei Group has developed and started implementing “Next Stage

2014,” its current three-year medium-term management plan. The year ended November 30, 2012 was the

plan’s first year.

Under this management plan, the Group aims to become a world-class real estate firm by setting three

key policies: expand and grow the existing six business segments, move into overseas markets, and

reform the management infrastructure.

In order to expand and grow the existing six business segments, the Group will carefully monitor the

constantly changing trends in the real estate market and continuously respond to customer needs. To

achieve this, the Group will reinforce the revitalization and development businesses further, with a

particular focus on expanding business with end users and investors. In the Fund business, the Group will

aim to benefit from an upturn in the investment market by increasing the balance of assets under

management and expanding fee income. In particular, it will seek to capture opportunities of the

establishment of new funds.

As part of moves into overseas markets, the Group will work to reinforce relationships with global

investors in the Fund business and other segments. In January 2012, the Group established Tosei

Singapore Pte. Ltd. as a local subsidiary. The following November, it concluded a membership contract

with NAI Global, a network of global commercial real estate brokers. Membership of this network will

give the Tosei Group opportunities to diversify its real estate portfolio. We plan to step up efforts to

generate earnings from these initiatives.

In order to reform the management infrastructure, the Group aims to build an organization and

infrastructure that supports the development of human resources and the implementation of strategy,

maintain a sound financial structure, and establish an organization capable of meeting the challenges of

globalization and a disclosure system.

While tackling these areas under its three key policies, the Group will also continue to place emphasis

on compliance, risk management, and timely and appropriate disclosure in order to create a world-class

management structure by stepping up efforts to enhance group-wide corporate governance.

(2) Fundamental policy on what the person(s) should be like to control the determination of the

financial and business policies of the Company

a. Contents of basic policy

The Company believes it is necessary for persons who control decision making regarding the

Company’s financial and business policies to have a sufficient understanding of the details of the

financial and business affairs of the Company and the source of its corporate value, and for such persons

to make it possible to continuously and sustainably ensure and enhance the Company’s corporate value

and, in turn, the common interests of its shareholders.

The Company also believes that decisions regarding takeover propositions involving a change of

control of the Company should ultimately be taken by the shareholders of the Company as a whole.

Furthermore, the Company will not reject a large-scale acquisition of the shares of the Company if it

will contribute to the corporate value of the Company and, in turn, the common interests of its

shareholders.

Nevertheless, there are some forms of large-scale acquisition of shares that benefit neither the

corporate value of the target company nor the common interests of its shareholders. Such acquisitions

include those with a purpose that would obviously harm the corporate value of the target company and

the common interests of its shareholders, those with the potential to substantially coerce shareholders

into selling their shares; those that do not provide sufficient time or information for the target

company’s board of directors and shareholders to consider the details of the large-scale acquisition, or

for the target company’s board of directors to make an alternative proposal, and those that require the

target company to discuss or negotiate with the acquirer in order to procure more favorable terms for

shareholders than those presented by the acquirer.

－ 12 －

In particular, it is necessary and essential for the Company to (i) maintain the system under which

the Company internally covers the six business fields that allow the “integration of real estate and

finance,” which leads to maximization of the potential of the Tosei Group, (ii) maintain employees who

support that system with specialist knowledge and experience of real estate and finance, (iii) maintain

trust in the Company in the real estate industry, which has been built up over a long period of time

based on the establishment of ability and information networks supporting various value creation

technologies, and (iv) have an understanding of knowhow that enables comprehensive business. Unless

the acquirer of a proposed large-scale acquisition of the shares in the Company understands the source

of the corporate value of the Company as well as the details of the financial and business affairs of the

Company and would ensure and enhance these elements over the medium-to-long term, the corporate

value of the Company and, in turn, the common interests of its shareholders would be harmed.

The Company believes that persons who would make a large-scale acquisition of the shares in the

Company in a manner that does not contribute to the corporate value of the Company or the common

interests of its shareholders would be inappropriate as persons that control decisions on the Company’s

financial and business policies. The Company believes that it is necessary to ensure the corporate value

of the Company and, in turn, the common interests of its shareholders by taking necessary and

reasonable countermeasures against a large-scale acquisition by such persons.

b. Overview of the special measures to realize the basic policy

Because the Tosei Group was fully aware of the fact that as a listed company on the First Section of the

Tokyo Stock Exchange it would be required to demonstrate even higher standards of behavior, dignity

and the like from external parties in the future, the Company, aiming to move to the next stage,

established a new medium-term management plan called “Next Stage 2014” (the targeted period of the

plan is three years from December 2011 to November 2014) and commenced its efforts under the plan

from the previous fiscal year. Under the new medium-term management plan, although the Company

faces an external environment that is dramatically changing due to the financial crisis and the Great East

Japan Earthquake, in order to realize further progress as a company intending to make continuous

innovation, the Company will create new value and inspiration in all aspects of real estate in a wider

business field than in the past by (i) further strengthening each segment currently owned by the

Company group including expansion of the business for end users in Japan, (ii) making new steps

toward starting business abroad with broader global perspectives and (iii) reform its management

infrastructure.

The Company group has previously taken measures to strengthen corporate governance, such as the

appointment of an outside directors (two members), the invitation of all corporate auditors (four

members) from outside the company, the notification of two outside directors and four outside corporate

auditors (six members in total) as “independent directors and/or corporate auditors” in accordance with

the “Principles of Corporate Governance for Listed Companies” of the Tokyo Stock Exchange, the

reinforcement of the business execution function by the introduction of the executive officer system,

and the establishment of the corporate governance board, and will in the future endeavor to further

strengthen corporate governance as a listed company on the First Section of the Tokyo Stock Exchange.

Specifically, the Company group will focus on putting into practice actions based on a high-level

awareness of compliance through raising awareness from the level of “role model” to that of “ideal” in

accordance with the Compliance Principles of the Company, thorough implementation of risk

management by correctly understanding and analyzing risks involved in corporate activities, continuous

performance of accountability to various stakeholders including investors by promptly publicly

disclosing correct corporate information under the spirit of fair disclosure, and other efforts for

strengthening corporate governance.

c. Overview of the measures to prevent decisions on the Company’s financial and business policies from

being controlled by persons deemed inappropriate under the basic policy

The plan is a measure to prevent decisions on the Company’s financial and business policies from being

controlled by persons deemed inappropriate under the above basic policy, and its objective is to ensure

and enhance the Company’s corporate value and, in turn, the common interests of its shareholders.

The plan stipulates procedures that must be followed in any cases of purchase, etc. of share

certificates, etc. of the Company ((i) a purchase or other acquisition that would result in the holding

ratio of share certificates, etc. (kabuken tou hoyuu wariai)of a holder (hoyuusha) totaling at least 20% of

the share certificates, etc. issued by the company; or (ii)a tender offer (koukai kaitsukei) that would

－ 13 －

result in the party conducting the tender offer’s ownership ratio of share certificates, etc. and the

ownership ratio of share certificates, etc. of a person having a special relationshiop totaling at least 20%

of the share certificates, etc. issued by the Company; or (iii) any similar action to (i) or (ii) above)

In practical terms, the acquirer must provide the Company a statement of undertaking (acquirer’s

statement) and an acquisition document that includes essential information, etc. before making the

acquisition, etc.

Upon receiving these documents, the independent committee, while obtaining independent expert

advice, will conduct its consideration of the acquisition terms; collection of information on materials

such as the management plans and business plans of the acquirer and the Company’s board of directors

and comparison thereof; consideration of any alternative plan presented by the Company’s board of

directors, and the like; and discussion and negotiation with the acquirer. The Company will disclose

information in a timely manner.

When (i) the acquisition is not in compliance with the procedures prescribed in the plan or (ii) it

threatens to cause obvious harm to the corporate value of the Company, and, in turn, to the common

interests of shareholders, (iii) and it is reasonable to implement the gratis allotment of stock acquisition

rights, the independent committee will recommend the implementation the gratis allotment of stock

acquisition rights to the Company’s board of directors.

In addition, when a meeting of shareholders is convened to confirm the intent of the Company’s

shareholders, the Company’s board of directors will respond to the shareholders’ intent. These stock

acquisition rights will be allotted with an exercise condition that does not allow, as a general rule, the

acquirer to exercise the rights and an acquisition provision to the effect that the Company may acquire

the stock acquisition rights in exchange for shares in the Company from persons other than the acquirer.

The Company’s board of directors, in exercising its role under the Companies Act, will pass a

resolution relating to the implementation or non-implementation of the gratis allotment of stock

acquisition rights, respecting the recommendation of the Independent Committee to the maximum

extent. In addition, when a meeting of shareholders is convened to confirm the intent of the Company’s

shareholders, the Company’s board of directors will respond to the shareholders’ intent.

If the procedures for the plan have commenced, the acquirer must not effect an acquisition until and

unless the Company’s board of directors resolves not to trigger the plan. The effective period of the plan

expires at the conclusion of the ordinary general meeting of shareholders for the last fiscal year ending

within three years after the conclusion of the 62nd Ordinary General Meeting of Shareholders. However,

if, before the expiration of the effective period, the Company’s board of directors resolves to abolish the

plan, the plan will be abolished at that time.

d. Decisions by the Company’s board of directors regarding specific measures and reasons thereof

Company’s board of directors deems that the new medium-term management plan and other measures

such as the efforts to enhance the corporate value and the strengthening of corporate governance were

established as specific measures to continuously and sustainably enhance the corporate value of the

Company and, in turn, the common interests of its shareholders, and that these are truly in accordance

with the basic policy, not detrimental to the common interests of the Company’s shareholders and not

for the purpose of maintaining the positions of the Company’s corporate officers.

In addition, the Company’s board of directors deems that the plan is not detrimental to the common

interests of the Company’s shareholders, not for the purpose of maintaining the positions of the

Company’s corporate officers, and in accordance with the basic policy based on the following

reasoning: approval from the general meeting of shareholders must be obtained for its renewal; its

effective period is stipulated as a maximum of three years and it can be abolished at any time by the

resolution of the Company’s board of directors; an independent committee, which is composed of

members who are independent from the management of the Company, has been established; in the event

that the plan’s countermeasures are triggered, the Company must obtain a resolution by the independent

committee when making a decision for triggering the countermeasures in the plan, and the plan fully

satisfies the three principles set out in the Guidelines Regarding Takeover Defense for the Purposes of

Protection and Enhancement of Corporate Value and Shareholders’ Common Interests released by the

Ministry of Economy, Trade and Industry and the Ministry of Justice on May 27, 2005.

－ 14 －

4. Business and other risks

Risks that have the potential to affect the performance, stock price and financial position of the Tosei Group

include, but are not limited to, the issues discussed below. Forward-looking statements represent Tosei Group

judgments as of November 30, 2012. The Tosei Group maintains a policy of recognizing the potential for

risks to occur and working to preclude them or manage them if they arise.

(1) Business environment

1) Revitalization Business and Development Business

(i) Effects of Real Estate Market Conditions

The Tosei Group’s core revitalization and development businesses purchase properties on their own

account, and typically take several months to two years until they sell the properties after increasing

their value or developing them. During that time, changes in the general economy, such as trends in

land prices, interest rates and fiscal policy, may occur, and any resulting deterioration of conditions in

the real estate market could have an impact on the Tosei Group’s operating results and financial

position.

(ii) Changes in Business Results due to Timing of Property Transfer

These two businesses book property sales amounts as sales, and therefore the amount per transaction

is large. In addition, because the two businesses book sales upon transfer of the property, any delay in

transferring the property could affect the Tosei Group’s operating results and financial position. In

particular, the presence or absence of transfers of large-scale properties in every quarter could cause a

considerable change in sales and income.

(iii) Construction Delays and Increased Construction Costs due to Natural Disasters, Etc.

Tosei Group makes efforts to draw up a rational yearly budget using the buildup method based on

concrete purchasing and sales plans. However, construction delays and the accompanying increase in

construction/renovation costs due to natural disasters or other unforeseen events have the potential to

affect the Tosei Group’s operating results and financial position.

(iv) Application of Accounting Standard for Measurement of Inventories

The Company adopted “Accounting Standard for Measurement of Inventories” (ASBJ Statement No.

9, July 5, 2006) for inventories held for sale. As a result, inventories held at year-end are written down

if fair value (net realizable value) is lower than acquisition cost, and the loss on the write-down of the

difference is then charged as the cost of sales. In the future, the Company will lower the book values

of inventories if fair value (net realizable value) is lower than acquisition cost due to deterioration in

financial or real estate market conditions or other cause, and the resulting loss could have an impact

on the Tosei Group’s operating results and financial position.

2) Rental Business

In the rental business, a source of stable revenue for the Tosei Group, changes in general economic

conditions or interest rates, the emergence of competing properties, or the occurrence of declines in

rental fees or large numbers of vacancies due to natural disasters or other events have the potential to

affect the Tosei Group’s operating results and financial position.

3) Fund Business

(i) Management Performance of Funds

The fund business, which plays a significant role in the growth and positioning of the Tosei Group,

earns fees in compensation for asset management including locating real estate properties that match

the needs of investors, raising their value, conducting lease-up activities and then selling them.

Therefore, asset management advisory and other capabilities play a role in the performance of the real

estate funds, and the Tosei Group has accumulated expertise in both real estate and finance.

Tosei’s reputation as an asset management company may decline, which could have an impact on

the Tosei Group’s operating results and financial position in the event that rental conditions or other

aspects of the real estate properties which Tosei provides discretionary investment, management and

advises on do not achieve the performance expected by investors.

(ii) Changes in Investor Trends due to Fiscal Policy, Etc.

Real estate funds are one means of investment, and the Tosei Group’s operating results and financial

position could be affected if investors withdraw from or refrain from investing in real estate funds due

to changes in fiscal policies or the global economy, or if funds can no longer continue due to funding

－ 15 －

problems.

(iii) Compensation in Connection with Non-recourse Loans

A special purpose company operated by a real estate fund that is managed by the Tosei Group may

borrow funds via a non-recourse loan (debt can only be collected from income and sale proceeds of

underlying real estate collateral. Also known as a limited recourse loan) when acquiring real estate. In

this case, the Tosei Group, in its capacity as asset manager, may be held liable to compensate for

damages, etc. incurred by the lender on the grounds of fraud or unlawful acts, environmental pollution

or other incident resulting from willful intent or gross negligence by interested parties on the borrower

side such as the borrower or the asset manager, in connection with the non-recourse loan. This

liability is generally no guarantee of performance of the loan obligation but if such damage did occur

as a result of gross negligence on the part of the Tosei Group, the Company or the Tosei Group may

assume liability for compensation.

4) Property Management Business

(i) Decline of Management Commission Costs

Currently, management commission costs for condominiums and office buildings are continuing their

downward trend due to increasing competition with other companies and cost-reduction pressure from

customers. The Tosei Group is making efforts to raise efficiency and cut management contracting

costs, but further reductions in management commission costs or a surge in contract cancellations

have the potential to affect the Tosei Group’s operating results and financial position.

(ii) Workplace Accidents, Etc.

The Tosei Group has obtained ISO 9001 certification for its business execution and provision of

services. Although the Group is striving to enhance its business quality and services, unpredictable

workplace accidents, defects in construction or facilities, problems with services, or other incidents of

a scale that could impact society have the potential to affect the Tosei Group’s operating results and

financial position.

5) Alternative Investment Business

The alternative investment business, primarily purchases real estate collateralized loans and invests in

M&As of real estate-owning companies. However, the inability to acquire real estate-collateralized

loans in a shrinking market for non-performing loans, the failure of M&As of real estate-owning

companies to take place, or the inability to recover capital invested in acquired loans or companies as

planned have the potential to affect the operating results and financial position of the Tosei Group

(2) Reliance on interest-bearing debt and interest rates

The Tosei Group procures debt financing, primarily from financial institutions, on a project-by-project

basis, to fund expenses associated with business activities including acquisition of land and buildings and

construction. Consequently, the ratio of interest-bearing debt to total assets is consistently at a certain

level. Increases in interest rates typically increase fund procurement costs, and therefore have the potential

to affect the Tosei Group’s operating results and financial position.

In addition, lump-sum repayments due to conflicts with financial covenants on partial loans, delays of

project sales, and lower-than-expected sales revenues also have the potential to affect the operating results

and financial position of the Tosei Group.

In procuring funds, the Tosei Group negotiates with multiple financial institutions to obtain the best

financing terms. Unexpected changes in the operating environment and other factors that might impede

access to funding could delay projects or render them untenable, which could affect the operating results

and financial position of the Tosei Group.

<Balance of Interest-Bearing Debt>



Nov. 30, 2008

Year ended

Nov. 30, 2009

Year ended

Nov. 30, 2010

Year ended

Nov. 30, 2011

Year ended

Nov. 30, 2012

Balance of Interest-Bearing Debt

(¥ million) 47,631 35,296 34,264 30,075 32,401

Total Assets (¥ million) 78,309 62,235 62,682 59,967 64,732

LTV (%) 60.8 56.7 54.7 50.2 50.0

－ 16 －

(3) Business areas

1) Competitive Conditions

The Tosei Group’s primary market is the 23 wards of Tokyo, and the Group purchases and sells

primarily small and medium-sized properties. The Group has flexibly mobilized the information and

know-how of its six businesses to conduct synergistic business operations. However, declines in selling

prices of properties due to price competition caused by the recent decline in real estate transactions and

deterioration of foreign investment have the potential to affect the operating results and financial

position of the Group.

2) Occurrence of Disasters

The occurrence of a natural disaster such as a major earthquake in Tokyo, which is believed likely to

happen in the future, destructive storm or flood, or a human disaster such as war, terrorism or fire, could

cause substantial losses in the value of the real estate the Group invests in, manages, develops and

controls, and therefore has the potential to affect the Tosei Group’s results and financial position.

(4) Legal regulations

1) Legal regulations

In addition to the Companies Act and regulations in the Financial Instruments and Exchange Act that

apply to listed companies, the main legal regulations pertaining to the businesses of the Tosei Group are

as follows.

If these legal regulations are strengthened in the future, the cost of legal compliance measures could

increase. Main Legal Regulations

• Building Lots and Buildings Transaction Business Act

• National Land Use Planning Act

• City Planning Act

• Building Standards Act

• Construction Business Act

• Act on Architects and Building Engineers

• Housing Quality Assurance Act

• Financial Instruments and Exchange Act

• Act on Sales, etc. of Financial Products

• Real Estate Specified Joint Enterprise Act

• Trust Business Act

• Act on Investment Trust and Investment Corporations

• Act on Securitization of Assets

• Real Estate Investment Advisory Business Registration Rules

• Law for Execution of Warranty against Housing Defects

• Act on Prevention of Transfer of Criminal Proceeds

• Act on Advancement of Proper Condominium Management

• Act on Maintenance of Sanitation in Buildings

• Security Services Act

• Fire and Disaster Management Act

• Act on the Rational Use of Energy

• Money Lending Business Act

－ 17 －

2) Licenses and permits, etc.

The Tosei Group’s businesses have obtained the following related permits in accordance with the laws

listed above. As Tosei Group works to observe the current requirements imposed by administrative laws

and local ordinances, there has not been any issue that could result in the revocation of licenses or

permits. However, the business activities of the Group could profoundly be affected in the event that

revocation of licenses or permits occurred due to violation of law.

Moreover, an adverse change in any of the above laws may lead to a negative impact on the

operating results or financial position of the Group.

Tosei Corporation

Name of License

or Permit Authority

Content of License or

Permit

Expiration Rescission, Cancellation

or Other Reasons

Real Estate Business License

Governor of Tokyo

Tokyo Governor’s

License (12)

No. 24043

March 23, 2017

When the license has been obtained through wrongful means, or the provisions of causes for disqualification of

officers, etc. become applicable, the license shall be

rescinded. (Article 66 of the Building Lots and Buildings Transaction Business Act)

Real Estate Investment

Advisory Business

Registration

Minister of

Land,

Infrastructure, Transport and

Tourism

General–127 February 28,

2016

When the registration has been made through wrongful

means, or the provisions of causes for disqualification of

officers, etc. become applicable, the registration shall be rescinded. (Article 30 of the Real Estate Investment

Advisory Business Registration Rules)

Specified Construction Business License

Governor of Tokyo

Tokyo Governor’s

License

(Special–24) No. 107905

December 9, 2017

When a situation arises so that there is no fulltime officer or employee in the company who has experience of being

engaged for five (5) years or more in specified

construction business, the permission shall be rescinded. (Article 29 of the Construction Business Act)

First Class Architect’s

Office License

Governor of

Tokyo

Tokyo

Governor’s

Registration (No. 46219)

April 9, 2016 When the registration has been made through wrongful


the first-class registered architect, etc. become applicable, the registration shall be rescinded. (Article 26 of the Act

on Architects and Building Engineers)

Real Estate Specific Joint Enterprise Permit

Governor of Tokyo

Tokyo Governor, No.

58

– When license of the building lots and buildings transaction business has been rescinded, or the provisions

of causes for disqualification of officers, etc. become

applicable, the authorization shall be rescinded. (Article 36 of the Real Estate Specified Joint Enterprise Act)

Registered Financial

Instrument Business (Type 2 Financial

Instrument Business,

Advisor and Agency)

Kanto

Financial Bureau

Kanto Financial

Bureau Chief (Financial

Instruments)

No. 898

– When the registration has been made through wrongful

means, or there is a risk of insolvency in the light of capital or operation or the status of property, the

registration shall be rescinded. (Article 52 of the

Financial Instruments and Exchange Act)

Tosei Asset Advisors, Inc.

Name of License

or Permit Authority

Content of

License or Permit

Expiration Rescission, Cancellation or

Other Reasons

Real Estate Business

License

Governor of

Tokyo

Tokyo

Governor’s License (2)

No. 85736

April 7, 2016 When the license has been obtained through wrongful

means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be

rescinded. (Article 66 of the Building Lots and Buildings

Transaction Business Act)

Registered Financial Instrument Business

(Investment

Management Business, Type 2 Financial

Instrument Business,

Advisor and Agency)

Kanto Financial

Bureau

Kanto Financial Bureau Chief

(Financial

Instruments) No. 363

– When the registration has been made through wrongful means, or there is a risk of insolvency in the light of

capital or operation or the status of property, the

registration shall be rescinded. (Article 52 of the Financial Instruments and Exchange Act)

License for

discretionary proxy in

realty trading

Minister of

Land,


Tourism

Minister of

Land,


Tourism No. 52

– When the authorization has been obtained through

wrongful means, or damages have been caused to another

party in the course of business, the authorization shall be rescinded. (Article 67-2 of the Building Lots and

Buildings Transaction Business Act)

－ 18 －


Name of License

or Permit Authority

Content of

License or Permit


or Other Reasons


License

Governor of

Tokyo

Tokyo

Governor’s

License (3) No. 80048

September 28,

2016

When the license has been obtained through wrongful


officers, etc. become applicable, the license shall be rescinded. (Article 66 of the Building Lots and Buildings


General Construction Building License

Governor of Tokyo

Tokyo Governor’s

License

(General–19) No. 119534

March 10, 2013

When a situation arises so that there is no fulltime officer or employee in the company who has experience of being

engaged for five (5) years or more in general construction

business, the permission shall be rescinded. (Article 29 of the Construction Business Act)

Specified Construction

Business License

Governor of

Tokyo

Tokyo

Governor’s

License (Special–19)

No. 119534

March 10,

2014

When a situation arises so that there is no fulltime officer

or employee in the company who has experience of being

engaged for five (5) years or more in specified construction business, the permission shall be rescinded.

(Article 29 of the Construction Business Act)

First Class Architect’s Office License

Governor of Tokyo

Tokyo Governor’s

Registration

(No. 49526)

January 14, 2014

When the registration has been made through wrongful means, or the provisions of causes for disqualification of

the first-class registered architect, etc. become applicable,

the registration shall be rescinded. (Article 26 of the Act on Architects and Building Engineers)

Condominium

Management Business

Minister of

Land, Infrastructure,

Transport and

Tourism

Minister of

Land, Infrastructure,

Transport and

Tourism (3) No. 030488

May 21, 2017 When the registration has been made through wrongful

means, or the provisions of causes for disqualification of officers, etc. become applicable, the registration shall be

rescinded. (Article 83 of the Act on Advancement of

Proper Condominium Management)

Building

Environmental

Health Comprehensive Management Company

Governor of

Tokyo

Tokyo

Governor’s

License (Comprehensiv

e 19) No. 273

October 3,

2013

When the registration has been made through wrongful


officers, etc. become applicable, the registration shall be rescinded. (Article 12-4 of the Act on Maintenance of

Sanitation in Buildings)

Security Service License

Tokyo Public Safety

Commissioner

Security Service Law

Authorization

No. 30002591

October 14, 2016

When the recognition has been obtained through wrongful means, or the provisions of causes for

disqualification are applicable, the recognition shall be

rescinded. (Article 8 of the Security Services Act)

Tosei Revival Investment Co., Ltd.

Name of License

or Permit Authority

Content of

License or Permit


or Other Reasons


License

Governor of

Tokyo

Tokyo

Governor’s License (2)

No. 88903

February 22,

2018

When the license has been obtained through wrongful

means, or the provisions of causes for disqualification of officers, etc. become applicable, the license shall be

rescinded. (Article 66 of the Building Lots and Buildings


Money Lending Business Registration

Governor of Tokyo

Tokyo Governor, (1)

No. 31311

March 16, 2013

When the registration has been made through wrongful means, or the provisions of causes for disqualification are

applicable, the registration shall be rescinded. (Article

24-6-5 of the Money Lending Business Act)

3) Accounting Standards and Tax System

(i) Changes in Accounting Standards and the Real Estate Tax System

Changes regarding accounting standards and the real estate tax system could cause increases in the

cost of holding, acquiring and selling assets, and therefore have the potential to affect the operating

results and financial position of the Tosei Group.

(ii) Scope of Consolidation of Real Estate Funds

Consolidation or non-consolidation of real estate funds in which Tosei conducts asset management is

determined individually on the basis of the extent of Tosei’s control over and influence on the

investment partnership. Changes in interpretation of consolidation that affect accounting auditors’

opinions and cause a change in the scope of consolidation of the Tosei Group have the potential to

affect the operating results and financial position of the Tosei Group.

－ 19 －

(5) Defect liability and after-sale service

Under the Building Lots and Buildings Transaction Business Act, real estate businesses assume liability

for defects when they sell a property to parties other than real estate businesses, regardless of whether the

property is new or second-hand. Under the Housing Quality Assurance Act, real estate businesses are

obligated to provide a 10-year warranty on the main structural components of the building for new

properties. The Law for Execution of Warranty against Housing Defects, which came into effect on

October 1, 2009, requires businesses providing new properties to take out insurance that any of insurance

companies designated by the Minister of Land, Infrastructure, Transport and Tourism offers on new

properties, etc. In addition, the Tosei Group provides customers with an after-sale service warranty (valid

for 1–10 years, depending on the item) according to the Group’s “After-Sale Service Standards.”

The Tosei Group conducts quality checks through its Architectural Design and Planning Department,

and also works to mitigate business risks by taking measures such as requiring vendors and construction

companies to provide an after-sale service warranty equivalent to that of the Tosei Group. However, if for

some reason a defect arises in a property supplied by the Tosei Group, and the Group is unable to impose

the defect liability on the vendor, or the vendor or contractor is incapable of fulfilling the warranty, the

Tosei Group would incur additional expenses, which have the potential to affect the operating results and

financial position of the Tosei Group.

(6) Human resources

Because of the characteristics of the Tosei Group’s businesses, people are an extremely important

management resource, and further securing high-caliber personnel, educating them to master Tosei’s

unique competencies and developing management candidates are essential to accomplishing the medium-

term management plan. The inability of the Tosei Group to secure or train the personnel that it requires, or

the departure of management currently in office, has the potential to affect the operating results and

financial position of the Tosei Group.

(7) Personal information protection

In its revitalization business, development business, rental business, fund business, property management

business and alternative investment business, the Tosei Group holds the personal information of many

customers, including persons involved in these businesses. The volume of personal information the Group

holds is expected to increase along with future business expansion. In line with the Act on the Protection

of Personal Information, the Group has established regulations for managing information assets, trained

its employees, strengthened its information management system and taken thorough measures to manage

personal information. However, the release or leak of personal information or material corporate

information held by the Tosei Group to outside parties due to unforeseen circumstances could cause a loss

of trust in the Tosei Group, and thus have the potential to affect the Group’s operating results and

financial position.

(8) Other

When purchasing a second-hand property, the Tosei Group surveys the building’s structure, use of

asbestos, soil pollution and other elements. However, business execution may be temporarily suspended

or prolonged if, for example, a building’s structural design data has not been saved, a building that

contains asbestos is demolished, or the results of the soil pollution survey show that soil improvement is

necessary. Such suspension of business has the potential to affect the operating results and financial

position of the Tosei Group.

5. Important operational contracts, etc.

None

6. Research and development activities

None

－ 20 －

7. Analysis of financial position, operating results and cash flow position

Analysis of financial position, operating results and cash flow position for the year ended November 30, 2012

is as follows. Forward-looking statements included in this section are based on information available to the

Group’s management as of November 30, 2012.

(1) Important accounting policies and estimates

The financial statements of the Tosei Group are prepared in accordance with Japanese Generally Accepted

Accounting Principles (“Japanese GAAP”). For significant accounting policy for the presentation of these

consolidated financial statements, please refer to “Significant matters in preparing consolidated financial

statements” in V. Accounting, 1. Consolidated financial statements, etc., (1) Consolidated financial

statements.

(2) Analysis of financial position

The consolidated financial position at the end of the year under review was as follows. Total assets

increased 7.9% compared with the end of the previous year to ¥64,732 million, liabilities rose 10.3% to

¥38,580 million, and net assets rose 4.7% to ¥26,152 million. The equity ratio was 40.4%, compared with

41.6% at the end of the previous year.

(Current assets)

At the end of the year under review, the balance of current assets was ¥49,133 million, an increase of

¥5,225 million compared with the end of the previous year. This was mainly attributable to a ¥1,104

million increase in cash and deposits, which were due to robust sales, and a ¥4,141 million increase in real

estate for sale in the Tosei Group’s mainstay Revitalization Business and Real Estate Development

Business.

(Noncurrent assets)

At the end of the year under review, the balance of noncurrent assets was ¥15,599 million, down ¥460

million compared with the end of the previous year. This was mainly due to a ¥787 million decrease in

deferred tax assets.

(Current liabilities)

At the end of the year under review, the balance of current liabilities was ¥11,284 million, up ¥2,493

million compared with the end of the previous year. This was mainly due to a ¥1,569 million increase in

short-term interest-bearing debt that accompanied active purchasing in the Revitalization Business and

Real Estate Development Business.

(Noncurrent liabilities)

At the end of the year under review, the balance of noncurrent liabilities was ¥27,296 million, up ¥1,095

million compared with the end of the previous year. This was mainly due to a ¥750 million increase in

long-term interest bearing debt.

(Net assets)

Net assets were ¥26,152 million, an increase of ¥1,176 million compared with the end of the previous year.

This was mainly due to a ¥1,176 million increase in retained earnings.

(3) Analysis of operating results

For the year under review, operating results were as follows. Net sales declined 0.9% year on year to

¥24,539 million, ordinary income rose 44.5% to ¥2,274 million, and net income rose 86.9% to ¥1,405

million.

(Net sales)

In the year under review, net sales were ¥24,539 million, a decline of ¥219 million compared with the

previous year. For net sales by segment, please refer to “(1) Operating results” in “II. Review of

－ 21 －

operations, 1. Overview of operating results.”

(Cost of sales and gross profit)

In the year under review, cost of sales was ¥18,291 million, down ¥998 million compared with the

previous fiscal year due to a decline in net sales. In addition, valuation losses of ¥267 million (¥894

million in the previous year) were recorded as cost of sales due to the application of the “Accounting

Standard for Measurement of Inventories.” As a result, gross profit was ¥6,248 million, an increase of

¥778 million compared with the previous year.

The gross profit margin was 25.5%, up from 22.1% in the previous year.

(Selling, general and administrative expenses and operating income)

In the year under review, selling, general and administrative expenses were ¥3,217 million, an increase of

¥137 million compared with the previous year. This was mainly due to a ¥124 million increase in

personnel expenses.

As a result, operating income in the year under review was ¥3,030 million, an increase of ¥641 million

compared with the previous year.

(Non-operating income or loss and ordinary income)

In the year under review, non-operating income was ¥22 million, a decrease of ¥49 million compared with

the previous year, and non-operating expenses were ¥779 million, a decrease of ¥107 million. The main

reason for the decline in operating expenses was a ¥110 million decrease in interest expenses due to a

decrease in the interest rate on loans.

As a result, ordinary income was ¥2,274 million, an increase of ¥699 million compared with the

previous year.

(Extraordinary gains or losses and income before income taxes and minority interests)

In the year under review, extraordinary loss was ¥102 million, an increase of ¥65 million compared with

the previous year. The main factors for the extraordinary loss was the reporting of ¥76 million in

contributions for withdrawing from the pension fund of the consolidated subsidiaries, Tosei Community

Co., Ltd.

As a result, income before income taxes and minority interests was ¥2,172 million, an increase of ¥634

million compared with the previous year.

(Income taxes and net income)

In the fiscal year under review, income taxes were ¥766 million, a decrease of ¥18 million compared with

the previous fiscal year.

As a result, net income was ¥1,405 million, an increase of ¥653 million compared with the previous

year.

(4) Analysis of cash flow position

For the cash flow position for the fiscal year under review, please refer to “2 Cash flows” in “II. Review

of operations, 1. Overview of operating results.”

In addition, trends of cash-flow indicators are shown below.

Term 60th term 61st term 62nd term 63rd term


Nov. 30, 2009

Year ended

Nov. 30, 2010

Year ended

Nov. 30, 2011

Year ended

Nov. 30, 2012

Equity ratio (%) 35.7 39.0 41.6 40.4

Equity ratio on a market value basis (%) 13.6 23.7 14.2 25.3

Interest-bearing debt to cash flows ratio

(years)

2.9 – 5.0 –

Interest coverage ratio (times) 12.5 – 6.8 –

Equity ratio: Net assets/Total assets

Equity ratio on market value basis: Market capitalization/Total assets

Interest-bearing debt to cash flows ratio: Interest-bearing debt/Cash flows

Interest coverage ratio: Cash flows /Interest expenses

Notes: 1. All indicators are calculated using consolidated financial figures.

－ 22 －

2. Market capitalization is calculated based on the number of shares issued and outstanding, excluding treasury stock.

3. The debt redemption period employs cash flows from operating activities.

4. Interest-bearing debt includes all debt listed in the consolidated balance sheets on which interest is paid.

5. Debt redemption period and interest coverage ratio are not presented for the fiscal year ended November 30, 2010 and

the fiscal year ended November 30, 2012 because cash flows from operating activities were negative.

(5) Issue recognition of the management and future policies

In the Tosei Group’s operating environment, the economy overall has entered a recovery phase, supported

by earthquake rebuilding demand and government policies. However, the outlook remains uncertain due

to a slowdown in overseas economies, such as the financial crisis in Europe and the sluggish Chinese

economy. In the real estate sector, the market in the greater Tokyo area has largely recovered from the

downturn caused by the Great East Japan Earthquake, and overseas funds are flowing into the real estate

market on expectations that prices have bottomed. Against this backdrop, J-REITs and other players are

becoming increasingly active in the market and the recovery in real estate prices is gaining momentum.

In this environment, in the Revitalization business, the Company will continue to work to sell existing

condominium units for appropriate prices in the “Restyling Business,” which will enter its fourth year of

operations in the year ending November 30, 2013. In income-generating real estate for investors, which is

becoming an increasingly active field, the Company will step up property purchases and revitalize and sell

properties rapidly.

In the Development business, the Company will focus on selling new condominiums and detached

houses scheduled for completion during the next year, as well as step up operations at its new Kichijoji

Center and Ikebukuro Center, opened in the year under review. It will also actively purchase prime land.

The Company will also work to steadily expand its fee business, which generates stable income

without relying on asset growth.

In the Fund business, the Company will continue to capture more business for managing fund assets,

an area it has been developing since the financial crisis, as investment funds switch to contractors to

manage their assets. Tosei will also aim to establish new funds, with a particular focus on stepping up

activities at its subsidiary in Singapore. In addition, the Company will more actively promote its

consulting business (CRE operations), which helps to improve the profitability of real estate owned by

other companies.

In the Property Management business, the Company will work to boost the level of stable fee income

by increasing the number of properties under management, leveraging the expertise it has built up through

its wholly owned subsidiary Tosei Community Co., Ltd.

－ 23 －

III. Facilities

1. Outline of capital expenditures

In the year ended November 30, 2012, we made capital expenditures totaling ¥140 million. A major portion of

this amount was due to renovation work on properties in the Real Estate Rental Business. During the year

under review, there were no material transactions related to the retirement or sale etc. of facilities.

2. Main facilities

(1) Filing company (Tosei)


Office name

(Location) Segment Description

Book value (¥ thousand)

Number of employees

(Person)

Buildings

and

structures

Land (Size m2)

Other Total

Head office

(Minato-ku, Tokyo)

Supervising

administration facilities

Office facilities 1,064,715 2,219,719

(633.53) 35,698 3,320,132 116

Leasing property

(13 properties in Chiyoda-

ku, Tokyo, etc.)

Rental Business Rental Building, stores, etc.

2,881,123 7,247,887

(12,744.77) 2,376 10,131,387 –

Total – – 3,945,839 9,467,606

(13,378.30) 38,074 13,451,520 116

Note: The above amounts do not include consumption taxes.

(2) Domestic subsidiaries


Company name

Office name (Location)

Segment Description

Book value (¥ thousand)

Number of

employees

(Person)

Buildings

and structures

Land

(Size m2) Other Total

Tosei Community

Co., Ltd.

Leasing property

(1 property in

Arakawa-ku, Tokyo)

Property Management

Business

Rental

condominium 167,556

235,123

(485.51) – 402,679 –

Tosei

Revival

Investment Co., Ltd.

Leasing property (2 properties in

Arakawa-ku, Tokyo, etc.)


Business

Rental Building 356,988 329,261

(592.19) 109 686,359 –

Note: The above amounts do not include consumption taxes.

3. Plans for new installation and retirement of facilities

None

－ 24 －

IV. Filing company

1. Information on the Company (Tosei)’s shares

(1) Total number of shares authorized, etc.

a. Total number of shares authorized

Class Total number of shares authorized (Share)

Common stock 1,500,000

Total 1,500,000

b. Number of shares issued

Class

Number of shares

issued

(Share; as of

Nov. 30, 2012)

Number of shares

issued

(Share; as of

the date of filing:

Feb. 28, 2013)

Name of financial instruments

exchange where the stock of Tosei is

traded or the name of authorized

financial instruments firms

association where Tosei is registered

Details

Common stock 456,840 456,840 Tokyo Stock Exchange

(First Section)

No unit share

system is adopted.

Total 456,840 456,840 – –

(2) Status of subscription rights to shares

None

(3) Exercise of bond certificates with subscription rights to shares with exercise price amendment

clause

None

(4) Details of rights plan

None

(5) Trends in total number of shares issued, capital stock, etc.

Date

Fluctuation in

the number of

shares issued

(Shares)

Balance of

shares issued

(Shares)

Fluctuation in

capital stock

(¥ thousand)

Balance of

capital stock

(¥ thousand)

Fluctuation in

capital reserve

(¥ thousand)

Balance of

capital reserve

(¥ thousand)

Dec. 1, 2008

to Nov. 30, 2009

(Note)

19,000 395,840 304,787 4,452,807 304,787 4,536,283

Dec. 1, 2009

to Nov. 30, 2010

(Note)

61,000 456,840 1,001,866 5,454,673 1,001,866 5,538,149

Note: The increases were due to the exercise of subscription rights to shares.

－ 25 －

(6) Shareholder composition


Category

Shareholder composition Shares

less than

one unit

(Share)

Public

sector Financial

institutions

Financial instruments

business

operators

Other

corporations

Foreign investors Individuals,

etc. Total

Companies,

etc. Individuals

Number of

shareholders

(Person)

– 23 28 42 91 7 5,812 6,003 –

Number of shares held

(Unit)

– 80,943 7,746 61,181 78,816 169 227,985 456,840 –

Holding rate of shares

(%)

– 17.72 1.70 13.39 17.25 0.04 49.90 100.00 –

Note: The number of “Other corporations” includes 4 shares in the name of Japan Securities Depository Center, Inc.

(7) Status of major shareholders


Name of shareholder Address

Number of shares

held (Share)

Percentage of number of shares held in the

total number of

shares issued (%)

Seiichiro Yamaguchi Shibuya-ku, Tokyo, Japan 138,855 30.39

Zeus Capital Limited 2-22-26-103 Uehara, Shibuya-ku, Tokyo, Japan

60,000 13.13

Japan Trustee Services Bank, Ltd. (Trust

Account) 1-8-11, Harumi, Chuo-ku, Tokyo, Japan 40,446 8.85

The Master Trust Bank of Japan, Ltd. (Trust Account)

2-11-3, Hamamatsucho, Minato-ku, Tokyo, Japan

13,482 2.95

Bank of New York GCM Client Account JPRD

ISG (FE-AC)

(Standing proxy: Settlement Services Department The Bank of Tokyo-Mitsubishi

UFJ, Ltd.)

PETERBOROUGH COURT 133 FLEET

STREET LONDON EC4A 2BB UNITED KINGDOM

(2-7-1 Marunouchi, Chiyoda-ku, Tokyo,

Japan)

11,527 2.52

The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account

(Standing proxy: Mizuho Corporate Bank, Ltd., Settlement Sales Department)

WOOLGATE HOUSE, COLEMAN STREET LONDON EC2P 2HD,

ENGLAND

(4-16-13, Tsukishima, Chuo-ku, Tokyo, Japan)

10,297 2.25

State Street Bank and Trust Company 505104

(Standing proxy: Mizuho Corporate Bank, Ltd.,

Settlement Sales Department)

P. O. BOX 351 BOSTON

MASSACHUSETTS 02101 U.S.A. (4-16-13, Tsukishima, Chuo-ku, Tokyo,

Japan)

7,630 1.67

RBC ISB A/C LUX NON

RESIDENT/DOMESTIC RATE (Standing proxy: Citibank Japan Ltd.)

14 PORTE DE FRANCE, ESCH-SUR-

ALZETTE, LUXEMBOURG, L-4360 (2-3-14 Higashi-shinagawa, Shinagawa-ku,

Tokyo, Japan)

4,176 0.91

SBI SECURITIES Co., Ltd. 1-6-1 Roppongi, Minato-ku, Tokyo, Japan) 4,053 0.88

SUMITOMO LIFE INSURANCE COMPANY

(Special account)

(Standing proxy: Japan Trustee Services Bank, Ltd.)

7-18-24 Tsukiji, Chuo-ku, Tokyo, Japan

(1-8-11 Harumi, Chuo-ku, Tokyo, Japan)

3,976 0.87

Total – 294,442 64.45

Note: The Company received a copy of the Change Report of the Significant Share Holdings Report dated May 17, 2012,

which purport that SPARX Asset Management Co., Ltd. held 23,562 shares of Tosei shares as of May 15, 2012.

However, as the Company could not confirm the number of shares effectively held by SPARX Asset Management Co.,

Ltd., its name was not included in the list of major shareholders above.

The substance of the copy of the Significant Share Holdings Report is as follows:

Large volume holder SPARX Asset Management Co., Ltd.

Address Tennoz First Tower, 2-2-4 Higashi-shinagawa, Shinagawa-ku, Tokyo, Japan

Share certificates, etc. held 23,562

Holding ratio of share certificates, etc. 5.16%

－ 26 －

(8) Status of voting rights

a. Shares issued


Classification Number of shares

(Share) Number of voting rights Details

Shares without voting rights – – –

Shares with restricted voting rights

(Treasury stock, etc.) – – –

Shares with restricted voting rights

(Other) – – –

Shares with full voting rights

(Treasury stock, etc.) – – –

Shares with full voting rights

(Other)

Common stock

456,840 456,840

Tosei’s standard class of

shares with no rights

limitations

Shares less than one unit – – –

Total number of shares issued 456,840 – –

Total number of voting rights – 456,840 –

Note: The number of “Shares with full voting rights (Other)” includes 4 shares in the name of Japan Securities Depository

Center, Inc. “Number of voting rights” includes 4 units of voting rights related to shares with full voting rights in its

name.

b. Treasury stock, etc.


Name of shareholders Address

Number of

shares held

under own name

(Share)

Number of

shares held under

the name of

others

(Share)

Total number of

shares held

(Share)

Percentage of

number of shares

held in the total

number of shares

issued

(%)

– – – – – –

Total – – – – –

(9) Stock options

None

－ 27 －

2. Acquisition of treasury stock

[Class of shares] None

(1) Acquisition by resolution of the General Meeting of Shareholders

None

(2) Acquisition by resolution of the Board of Directors

None

(3) Items not based on resolutions of the General Meeting of Shareholders or Board of Directors

None

(4) Status of disposal and ownership of acquired treasury stock

None

－ 28 －

3. Dividend policy

Tosei’s fundamental earnings distribution policy is to strive to continuously provide stable dividends while

comprehensively considering operating results, the future operating environment and progress in its business

plan to balance dividends with the need for internal capital resources to generate long-term growth in

corporate value by taking advantage of highly profitable business opportunities.

It is also a basic policy of Tosei to pay a year-end dividend annually, determined by the General Meeting

of Shareholders. Based on the above policy, Tosei decided to pay an annual dividend of ¥600 per share for the year under

review. As a result, the Company’s consolidated dividend payout ratio came to 19.5% for the year ended

November 30, 2012. Tosei plans to use its internal reserves for future business expansion and to strengthen the management

structure.

Tosei’s articles of incorporation stipulate that “Tosei may pay interim dividends to shareholders with the

record date of May 31 each year, upon a resolution by the Board of Directors.” The dividend for the year ended November 30, 2012 is as follows.

Resolution date Total amount of dividends

(¥ thousand)

Dividends per share

(¥)

Ordinary General Meeting of

Shareholders held on Feb. 26, 2013 274,104 600

4. Trends in share price

(1) Highest and lowest share prices for the most recent 5 years by term


Accounting

period

Year ended

Nov. 30, 2008

Year ended

Nov. 30, 2009

Year ended

Nov. 30, 2010

Year ended

Nov. 30, 2011

Year ended

Nov. 30, 2012

Highest (¥) 74,700

45,000 44,700 23,490

37,650 * 69,200 ** 43,000

Lowest (¥) 12,500

8,600 18,610 18,020

18,800 * 55,400 ** 19,810

Note: The highest and lowest share prices shown above were the share prices listed on the Second Section of Tokyo Stock

Exchange from November 22, 2006 to August 31, 2011, and on the First Section of Tokyo Stock Exchange from

September 1, 2011. The highest and lowest share prices prefixed by one asterisk in the 59th term were prices on the

Jasdaq Securities Exchange, and the highest and lowest share prices prefixed by two asterisks in the 62nd term were

prices on the Second Section of Tokyo Stock Exchange.

(2) Monthly highest and lowest share prices for the most recent 6 months

Month Jun. 2012 Jul. 2012 Aug. 2012 Sep. 2012 Oct. 2012 Nov. 2012

Highest (¥) 31,700 33,900 30,700 27,890 31,900 37,650

Lowest (¥) 24,070 28,400 26,610 23,580 26,060 29,700

Note: The highest and lowest prices were prices on the First Section of Tokyo Stock Exchange.

－ 29 －

5. Status of officers

Title Post Name Date of birth Career summary Term of

office

Number of

shares held

(Share)

President

and CEO

President

and CEO

Seiichiro

Yamaguchi Jan. 5, 1961

Apr. 1983 Entered Mitsui Real Estate Sales Co.,

Ltd. (the predecessor of Mitsui Fudosan Realty

Co., Ltd.)

Note 3 138,855

Apr. 1986 Entered Tosei-Shoji Corporation

Aug. 1990 Director of the Company

Jun. 1994 President and Representative Director of the Company (current position)

Dec. 1995 Representative Director of Palms

Community Management Co. Ltd. (the

predecessor of Tosei Community Co., Ltd.)

Jul. 2004 President and CEO of the Company

(current position)

Director

COO Senior

Executive

Officer of

Business Division; in

charge of

Asset Solutions 1

and 2, Asset Solutions

Business

Promotion Department,

and

Architecture Planning

Department;

and General Manager of

Asset

Solutions Business

Promotion

Department

Katsuhito Kosuge

Jul. 17, 1960

Apr. 1983 Entered Tokyu Construction Co., Ltd.

Note 3 2,000


Jan. 1996 Director of the Company

Dec. 2000 Managing Director of the Company

Jul. 2004 Director and Managing Executive

Officer of the Company

Sep. 2005 Representative Director of Tosei

Revival Investment Co., Ltd.

Feb. 2006 COO Senior Executive Officer of the Company

Oct. 2007 Representative Director of Tosei Asset

Management, Corp.

Apr. 2008 Director of Tosei Asset Advisors, Inc.

Feb. 2012 Director of Tosei Asset Advisors, Inc. (current position)

Dec. 2012 COO Senior Executive Officer of

Business Division; in charge of Asset Solutions 1 and 2, and Asset Solutions

Business Promotion Department of the

Company (current position)

Director

CFO Senior

Executive Officer of

Administrati

ve Division; and in

charge of

Corporate Planning

Department,

and Administrati

on and HR

Department

Noboru

Hirano Oct. 17, 1959

Apr. 1982 Entered Kokubu & Co., Ltd.

Note 3 1,580


May 1995 Director of Tosei-Shoji Corporation

Mar. 2001 General Manager of Finance and

Accounting Department of the Company

Oct. 2002 Managing Director of the Company

Jul. 2004 Director and Managing Executive

Officer of the Company

Mar. 2005 Corporate Auditor of Tosei Revival Investment Co., Ltd.

Apr. 2005 Corporate Auditor of Tosei Community

Co., Ltd. (current position)

Sep. 2005 Representative Director of Tosei REIT

Advisors, Inc. (the predecessor of Tosei

Asset Advisors, Inc.)

Feb. 2006 CFO Senior Executive Officer of the Company

Dec. 2007 CFO Senior Executive Officer of

Administrative Division of the Company

Dec. 2007 Representative Director of Tosei

Revival Investment Co., Ltd.

Mar. 2011 CFO Senior Executive Officer of Administrative Division; and in charge

of Corporate Planning Department, and

Administration and HR Department of the Company (current position)

Jan. 2013 Representative Director of Tosei

Revival Investment Co., Ltd. (current

position)

Feb. 2013 Director of Tosei Community Co., Ltd.

(current position)

－ 30 －


office

Number of

shares held

(Share)

Director Goro

Kamino Aug. 29, 1960

Apr. 1983 Entered Mitsui Trust and Banking

Company, Limited (the predecessor of Sumitomo Mitsui Trust Bank, Limited)

Note 3 –

Aug. 1990 Entered Chubu Gas Co., Ltd.

May 1995 Entered Gastec Service, Inc. and

appointed as Corporate Planning Department Chief

Dec. 1995 Director of Toyohashi Cable Network

Inc. (current position)

Aug. 2000 President CEO of Gastec Service, Inc. (current position)

May 2002 President and representative director of

Sala Corporation (current position)

Jun. 2002 Director of System Location Co., Ltd.

Jan. 2004 Director of Sala House Co., Ltd.

(current position)

Mar. 2006 Representative Director of Chubu Gas Co., Ltd. (current position)

Feb. 2007 Chairperson of Sala Cars Japan Co.,

Ltd. (current position)

Feb. 2007 Director of the Company (current position)

Oct. 2009 Director of Japan Post Holdings Co.,


Mar. 2012

President and Representative Director of Chubu Gas Co., Ltd. (current

position)

Jun. 2012 Director of Musashi Seimitsu Industry


Director Kenichi

Shotoku Jan. 20, 1971

Oct. 1995 Entered Asahi & Co., Ltd. (the

predecessor of KPMG AZSA LLC)

Note 3 –

Sep. 1999 Transferred to Arthur Andersen & Co.,

Kuala Lumpur Office

Sep. 2002 Entered SCS Global Accounting Co.,

Ltd. (the predecessor of SCS Global

Consulting (S) Pte Ltd)

Nov. 2003 Representative Director of SCS Global

Accounting Co., Ltd. (the predecessor

of SCS Global Consulting (S) Pte Ltd) (current position)

Sep. 2005 Director of O-RID GLOBAL BPO

PTE. LTD. (current position)

Dec. 2010 Statutory Auditor of ROKI TECHNO CO., LTD (current position)

Feb. 2012 Director of the Company (current

position)

Jan. 2013 Corporate Auditor of ROKI GROUP HOLDINGS CO., LTD. (current

position)

Corporate

Auditor (full-time)

Yasuhiro

Honda Jun. 20, 1940

Apr. 1963 Entered TAISEI CORPORATION

Note 4 –

Jun. 1991 General Manager of Machinery & Materials Department of of TAISEI

CORPORATION (in charge of

planning and management)

Jun. 1995 Managing Director of TAISEI TOURIST AGENCY LTD.

Apr. 2003 Full-time Corporate Auditor of the

Company (current position)

－ 31 －

http://www.scsglobal.co.jp/network/singapore.html




office

Number of

shares held

(Share)

Corporate Auditor

(full-time)

Yutaka

Kitamura Feb. 27, 1950

Apr. 1972 Entered The Yasuda Trust and Banking

Co., Ltd. (the predecessor of Mizuho Trust & Banking Co., Ltd.)

Note 4 –

May 1996 General Manager of Singapore Branch

of The Yasuda Trust & Banking Co., Ltd. (the predecessor of Mizuho Trust

& Banking Co., Ltd.)

Oct. 1998 Joint General Manager of Credit

Division of The Yasuda Trust & Banking Co., Ltd. (the predecessor of

Mizuho Trust & Banking Co., Ltd.)

Oct. 1999 General Manager of Niigata Branch of

The Dai-Ichi Kangyo Fuji Trust &

Banking Co., Ltd. (the predecessor of Mizuho Trust & Banking Co., Ltd.)

Mar. 2005 Full-time Corporate Auditor of Nippon

Carbon Co., Ltd.

May 2010 Full-time Adviser of J-COACH Corporation

Jun. 2010 Full-time Corporate Auditor of

J-COACH Corporation

Feb. 2013 Full-time Corporate Auditor of the Company (current position)

Feb. 2013 Corporate Auditor of Tosei Community


Corporate Auditor

Tatsuki Nagano

Apr. 16, 1959

Apr. 1983 Entered The Chuo Trust & Banking Co., Ltd. (the predecessor of Sumitomo

Mitsui Trust Bank, Limited)

Note 4 –

Jul. 1995 Financial Planning Chief of Corporate Planning Dept. at headquarters of The

Chuo Trust & Banking Co., Ltd. (the

predecessor of Sumitomo Mitsui Trust Bank, Limited)

Jul. 2000 Management Director of RG Asset

Management PTE. LTD. (current position)

Jul. 2004 Director of Reference Group Holdings


Aug. 2004 Representative Director of RG Asset Management Services Co., Ltd. (the

predecessor of RG Asset Management

K.K.) (current position)

Feb. 2012 Corporate Auditor of the Company (current position)

Corporate

Auditor Osamu Doi Feb. 23, 1964

Apr. 1987 Entered The Nikko Securities Co., Ltd.

(the predecessor of SMBC Nikko Securities Inc.)

Note 4

Jul. 1993 Transferred to Nikko Europe PLC

Feb. 1998 Returned to The Nikko Securities Co.,

Ltd. (the predecessor of SMBC Nikko

Securities Inc.)

Apr. 2002 Entered FinTech Global Incorporated

Oct. 2005 Senior Vice President of Structured

Finance Division of FinTech Global Incorporated

Oct. 2006 Deputy Head of Investment Banking

Division of FinTech Global Incorporated

Apr. 2007 Head of Investment Department of

FinTech Global Incorporated

Feb. 2013 Corporate Auditor of the Company (current position)

Total 142,435

Notes: 1. Goro Kamino and Kenichi Shotoku are outside directors provided for by Article 2, Item 15 of the Companies Act.

2. Yasuhiro Honda, Yutaka Kitamura, Tatsuki Nagano and Osamu Doi are outside auditors provided for by Article 2,

Item 16 of the Companies Act.

3. Two-year period from the conclusion of the Ordinary General Meeting of Shareholders held February 24, 2012.

4. Four-year period from the conclusion of the Ordinary General Meeting of Shareholders held February 26, 2013

－ 32 －

6. Status of corporate governance, etc.

(1) Status of corporate governance

a. Basic thinking on corporate governance

The Group aspires to continue to be a group of companies that make a meaningful contribution to their

shareholders, employees, business partners, and other stakeholders by promptly and accurately

responding to changes in the management environment and continually carrying out business activities

that enable the Group to achieve sound growth. The Group has positioned the enhancement of corporate

governance as the most important means of achieving these aims, with thorough promotion of

consciousness regarding compliance, strengthening of risk management, and implementation of timely

disclosure as the three main initiatives. In addition, the Group works in a unified manner to strengthen

the system further, from the top management down to each employee of Group companies, in order to

construct an internal control system as required by the Companies Act and the Financial Instruments

and Exchange Act and a system as a financial instruments business operator that is credible to investors.

b. Details of internal company bodies and development of internal control system

(a) Basic explanation of internal company bodies

The Company has the Board of Directors and the Board of Auditors in place. In order to execute

business transparently, the Company appoints outside directors, and all of its corporate auditors are

from outside the Company. The Company also employs the executive officer system.

All corporate auditors of the Company are outside corporate auditors and have been since the

Company was listed. The corporate auditors continuously perform audits on the management of the

Company from the point of view of securing and improving the Company’s corporate value and the

common interests of its shareholders. Furthermore, by inviting outside directors to the Board of

Directors, the Company is strengthening its management supervisory function further. On the

management side, by employing the executive officer system, the Company promotes optimal

decision-making capabilities and distribution of duties, as well as the delegation of authority in the

execution of business, thus enhancing corporate governance.

The current system is in place because it is a system that enables the management of the Company

and management oversight to function sufficiently.

i) Operation of Board of Directors

The Board of Directors is composed of five directors, two of whom are outside directors . Based on

the regulations of the Board of Directors, regular meetings of the Board of Directors are held every

month and extraordinary meetings are held as necessary. As the highest management decision-

making body, the Board of Directors makes resolutions on management policy and important

matters, and also supervises the execution of duties by directors.

ii) Auditing by corporate auditors

The Company employs a corporate auditor system with two full-time corporate auditors and two

part-time corporate auditors. All of these four persons are outside corporate auditors as provided for

in Article 2, Item 16 of the Companies Act. Meetings of the Board of Auditors are held once a

month in principle. At these meetings, the four corporate auditors deliberate on necessary items and

work to share information by having the full-time corporate auditors report to the part-time

corporate auditors about their auditing activities.

The corporate auditors also attend meetings of the Board of Directors and management meetings

(composed of all executive officers), which is an advisory body regarding matters to be approved by

the President and CEO.

The auditing activities of corporate auditors are performed in accordance with a yearly audit

plan. Since such activities are carried out in coordination with the accounting auditor and the

Internal Audit Department, an efficient and effective auditing system is in place. Furthermore, the

full-time corporate auditors work to gain an understanding of the status of the execution of business

by holding regular interviews with each director and those in charge of each division.

iii) Executive officer system

The Company employs an executive officer system, under which executive officers appointed by

the Board of Directors execute and exert control over the Company’s business in accordance with

internal regulations, in addition to matters resolved by the Board of Directors.

In addition, the President and CEO holds management meetings twice a month in principle, at

－ 33 －

which advance consultation is provided for important decisions to be made by the President and

CEO.

iv) Corporate governance meeting

With the aim of continuous strengthening of corporate governance, the Company holds corporate

governance meetings consisting of full-time directors and full-time corporate auditors once a month

in principle.

At the meeting, directors and corporate auditors check and deliberate over corporate governance

concerns for improving corporate value and items regarding internal control. Where necessary, they

receive advice from outside experts such as corporate attorneys and certified public accountants.

v) Internal auditing

Four members of the Internal Audit Department under the direct supervision of the President and

CEO perform audits of the entire Group in accordance with a yearly plan. If they discover

inadequacies, they demand improvements by providing recommendations for their rectification to

the audited division. Audits are performed effectively, with matters for rectification handled through

enhanced follow-up work including deliberation with the audited division and the provision of

detailed guidance.

vi) Information disclosure

The Company not only prepares documents, etc. specified in laws and regulations such as the

Companies Act and the Financial Instruments and Exchange Act and discloses information in

accordance with the regulations set forth by securities exchanges, but also provides timely and

appropriate corporate information to stakeholders including shareholders and investors by such

means as investor relations activities and its website.

vii) Auditing by accounting auditor

The Company’s accounting auditor is Shinsoh Audit Corporation, with which the Company has

concluded an auditing agreement in accordance with the Companies Act and the Financial

Instruments and Exchange Act. On this basis, Shinsoh Audit Corporation performs audits in

accordance with a yearly audit plan.

－ 34 －

(b) The following is an outline of the Company’s corporate governance and internal management system

General Meeting of Shareholders

Management

meeting

Executive

officers

(attendance of

corporate

auditors)

Co

mp

lian

ce C

om

mit

tee

Internal Audit Department

Election/

Dismissal

Info

rmat

ion

Dis

clo

sure

Co

mm

itte

e

Ris

k M

anag

emen

t

Co

mm

itte

e

Report (exchange of opinion)

Election/

Dismissal

Election/

Dismissal

Audit Audit/Report

Advice

Consultation Audit

Audit

Report

Report Instruction

Instruction/

Order

Report/

Consultation

Appointment/

Dismissal of executive

officers of

Group

companies

Report

(exchange of opinion)

Audit

Accounting

auditor

Instruction Report Instruction

President consultation

President and CEO

Executive officers

(execution of

business)

Board of Auditors

4 corporate auditors

(all 4 are outside

corporate auditors)

Instruction

Report

Instruction

Report

Instruction

Report

Each division/Group companies

Corporate

governance meeting

3 full-time directors

2 full-time corporate

auditors

Outside

experts

Board of Directors

5 directors

(of which 2 outside

directors)

－ 35 －

(c) Details of internal company bodies and development of internal control system

Regarding systems to ensure that directors’ execution of their duties is in compliance with laws and

regulations and the Articles of Incorporation and other systems necessary to ensure the properness of

a company’s operations (internal control system), the Company passed a resolution at a meeting of its

Board of Directors held on November 28, 2008 that its basic policy on ensuring the properness of a

company’s operations is as follows.

i) Basic policy on compliance with laws and regulations, etc.

• Thoroughly promote consciousness regarding compliance with laws and regulations, etc.

• Strengthen capability of checking for violations of laws and regulations, etc.

• Swiftly address any violations of laws and regulations, etc. and carry out timely and appropriate

information disclosure regarding such violations

• Reject any association with anti-social forces

ii) Basic policy on retaining and managing information

• Thoroughly promote awareness of importance of retaining and managing information

• Strengthen initiatives for the prevention of leakage of important information

• Thoroughly promote knowledge of information for timely disclosure and prevent misstatements and

material omissions

iii) Basic policy on management of risk of loss

• Thoroughly promote awareness, analysis and evaluation of risks that may obstruct the continuation

of corporate activities

• Strengthen monitoring of risk management

• Enhance whistle-blowing system regarding the occurrence of contingencies or signs that they may

occur

• Swiftly address any occurrences of contingencies, accidents, etc. and carry out timely and

appropriate information disclosure regarding such occurrences

iv) Basic policy on efficient execution of duties by directors

• Carry out deliberation and decision making on significant management matters efficiently and in a

timely and appropriate manner

• Eliminate excessive pursuit of efficiencies in management plans and business goals and carry out

decision making in consideration of soundness of the Company

• Develop a system to allow efficient execution of business in accordance with regulations on

operational authority

v) Basic policy on properness of operations of entire Group

• Thoroughly promote penetration of consciousness regarding company principles and compliance

among officers and employees across the entire Group

• Strive to share and resolve the management issues of each Group company

• Strengthen the internal control systems of each Group company through timely and appropriate

information sharing

• Strengthen the system for ensuring the appropriateness of financial reporting relevant to the entire

Group

• Eliminate wrongful acts or irregular transactions carried out through the Group

vi) Basic policy on system to ensure effective auditing by corporate auditors

• Provide employees that are independent from directors to assist in the duties of corporate auditors

• Secure agreement of the Board of Auditors regarding personnel transfers, evaluation, etc. of the

afore-mentioned employees

• Thoroughly promote prompt reporting to the Board of Auditors in the case of an occurrence or risk

of serious loss or discovery by officers or employees of a violation of laws and regulations, etc. or

wrongful act

• Thoroughly promote timely reporting by directors and important employees to corporate auditors

• Make important documents available for inspection in a timely manner

• Promptly report any whistle blowing to corporate auditors

• Directors strive to comprehend and assist audits by corporate auditors and proactively make improvements based on directions from corporate auditors

• In order to enhance corporate auditors’ audits of the entire Group, directors cooperate with

corporate auditors as necessary

－ 36 －

The internal control system developed at the Group and the details of new initiatives implemented in

the fiscal year ended November 30, 2012 are as follows.

i) Compliance with laws and regulations, etc.

• For the purpose of supervising directors who execute business, the Company has newly appointed

one more outside director, bringing the number of outside directors to two, and all four of the

corporate auditors are outside corporate auditors. The Company has notified all six of these officers

(two outside directors and four outside corporate auditors) as “independent directors/auditors” in

accordance with the Tokyo Stock Exchange’s “Principles of Corporate Governance for Listed

Companies.”

• A corporate governance meeting attended by full-time directors and full-time corporate auditors is

held every month (held 13 times during the current period). Matters regarding all aspects of

management are deliberated upon and considered at the meetings in order to realize a higher quality

governance system. In addition, education, training, explanation of issues and deliberations

regarding steps and measures, etc. are carried out at the Compliance Committee, which is composed

of heads of divisions and the compliance officers of each Group company (held 12 times during the

current period), and the details are reported at the monthly meetings of the Board of Directors.

• In order to thoroughly promote consciousness regarding violations of laws and regulations and

strengthen the capability to check such violations, a compliance program is set at the beginning of

the fiscal year, and various training sessions and seminars are held, while various regulations are

developed. (Regular training: general compliance training, insider trading and financial instruments

business training).

In the current period, compliance training tailored to different employee levels was carried out.

Additionally, on a monthly basis, compliance slogans are gathered and published, and a booklet

titled “Compliance Mind” is distributed to foster the legal awareness of employees.

• A compliance questionnaire was carried out to check the extent of the penetration of consciousness

regarding compliance.

• A business law forum is held. It is attended by responsible personnel from each department of the

Asset Solutions business and each group company. Participants could share their practical legal

concerns, gather cautionary information regarding client solicitation, and make information widely

known. (The forum was held twelve times in the year under review, once per month.)

• Regular training on action against anti-social forces is carried out in order to eliminate any

association with anti-social forces. In addition, a manual on action against anti-social forces has

been formulated, and an employee has been assigned to be in charge of preventing unreasonable

demands.

In the current period, in accordance with the Tokyo Metropolitan Ordinance for Eliminating the

Organized Crime Groups, clauses for the elimination of organized crime groups stated in relevant

agreements were inspected to confirm their compliance.

• A whistle-blowing system has been established providing contact points inside and outside the

Company.

ii) Retaining and managing information

• Administrative offices have been set up in each of the Board of Directors and important meetings

and committees as part of efforts to enable the thorough retaining and management of information.

• The Information Disclosure Committee, which consists of executive officers in charge of each

division (held 18 times during the current period), inspects material including bulletins from the

Tokyo Stock Exchange to gain an understanding of information for timely disclosure. When

information is disclosed, meetings of the Committee are held flexibly, at which deliberations are

held regarding the appropriateness, etc. of information for disclosure and such information is

managed with the use of reports and check sheets regarding disclosure. Details of meetings of the

Information Disclosure Committee are reported at the monthly meetings of the Board of Directors.

• Important information is retained in a manner that makes it easy to find in accordance with the

regulations on the retention of written documents.

In the current period, while continuing the protection of information security, the extent to which

various types of information can be inspected was clarified by such means as implementing the

unified management of a list of details pertaining to the retention of written documents and

confidential information, which was prepared at each division based on inventories of information

assets, at the Administration and HR Department. By these means, the Company worked to develop

－ 37 －

its information management framework (including personal information).

• An extraordinary report regarding the voting results at the 62nd Ordinary General Meeting of

Shareholders was submitted to the Director-General of the Kanto Local Finance Bureau and

disclosed through EDINET (Electronic Disclosure for Investors’ NETwork, an electronic disclosure

system to file the corporate disclosure documnets such as Securities Reports required under the

Financial Instruments and Exchange Act).

iii) Management of risk of loss

• At the Risk Management Committee, which is composed of the heads of each section and

department, and the risk management officers of each Group company, risks for the entire Group

are identified, analyzed and evaluated, while information is gathered about individual events and

countermeasures are deliberated upon (held 12 times during the current period). Risk information is

reported regularly by the full-time directors to the full-time corporate auditors at corporate

governance meetings. The details of the deliberations of the Risk Management Committee are

reported at the monthly meetings of the Board of Directors.

• Matters regarding the evaluation of risks associated with financial reporting are reviewed every

quarter.

• In order to enhance the whistle-blowing system regarding the occurrence of contingencies or signs

that they may occur, a risk management program is set at the beginning of the fiscal year and a risk

management cycle is implemented, consisting of risk evaluation and analysis, planning and

implementation of risk countermeasures, reviews of the effectiveness of countermeasures and

checks of functions disseminating information about them.

• In the current period, earthquake countermeasures and human-resources related risks were managed

with risk survey sheets.

• Following a revision of the risk management system, the “Risk and Crisis Management Guidebook”

was revised and distributed to all employees.

• The Business Continuity Plan (BCP) was revised to better reflect the individual circumstances of

each section and department.

• While promoting understanding among the section and department heads of labor management

issues, mental health measures were made more effective by establishing a mental health hotline

that operates independently from the company.

• Disaster practice drills etc., were conducted to boost readiness for unforeseen events.

iv) Efficient execution of duties by directors

• Company principles have been formulated to thoroughly communicate management policy and the

correct direction to take to all officers and employees of the Group, and a medium-term

management plan and business plans for single fiscal years are formulated in accordance with these

principles. In order to achieve the management plan and business goals, progress made in plans for

single fiscal years is checked on a quarterly basis, while those at management level who are middle

management leaders, are required to participate in progress confirmation meetings on a half-yearly

basis to disseminate the management policy.

• In addition to regular meetings of the Board of Directors, which are held on a monthly basis,

extraordinary meetings of the Board of Directors are held as necessary in order to make decisions

swiftly, including extraordinary meetings to approve quarterly financial results (regular meetings

have been held 12 times during the current period, and extraordinary meetings, including those for

quarterly financial results, have been held seven times).

• In order to ensure that deliberations by the Board of Directors are carried out efficiently and fully,

management meetings attended by all executive officers and corporate auditors, at which details of

the matters for deliberation are examined, are held before meetings of the Board of Directors

(regular meetings have been held 24 times during the current period and extraordinary meetings

have been held two times).

• To strengthen corporate governance, the number of directors was increased by one outside director.

v) Properness of operations of entire Group

• All Group companies are required to construct an internal management system to the same level of

that of the Company (the parent), and measures to assist them in this aim are taken where necessary.

In addition, evaluation of their independence by the Internal Audit Department of the Company to

ensure appropriateness in financial reporting has been enhanced.

Employees of Group companies are provided with some of the same training that is carried out at

the Company in order to thoroughly promote the penetration of consciousness regarding compliance.

－ 38 －

• Reports are given on the management conditions of all Group companies to the monthly

management meeting. In addition, an understanding of detailed conditions and individual issues for

each month is built up at the meeting of associated companies, which is held by the Corporate

Planning Department. Furthermore, the business support projects for Group companies, which are

carried out at the Company, are implemented, and efforts are being focused on solving management

issues. Timely reporting is required to be made to the chairman of the Risk Management Committee

in the case of an accident or other such event at any Group company.

• Outside experts were invited to act as advisors for group companies, and they provided assistance

and guidance on management and business strategies to construct internal control systems and

improve profitability.

• Responsible personnel from group companies also joined in business law forums established to hear

practical legal concerns, compile cautionary information related to customer solicitation and make

information widely known. (Twelve monthly forums were held.)

• Necessary cooperation is given for the Group company corporate auditor liaison meeting (held on a

half-yearly basis), which is held by the corporate auditors of the Company.

• As a general rule, various training sessions and diagnosis of risks are carried out for all officers and

employees of all Group companies. Meetings of the Compliance Committee and the Risk

Management Committee are attended by those responsible for such matters at each Group company.

• Rules have been established requiring any significant transactions between Group companies to be

reported in advance to the Board of Directors of the Company (in the current period there were no

such transactions).

vi) System to ensure effective auditing by corporate auditors

• The Internal Audit Department has been assigned as the department in charge of assisting the

corporate auditors in their duties. In addition to providing such assistance, this department carries

out administrative duties for the Board of Auditors.

• The duties mentioned above are performed in accordance with direct orders from the corporate

auditors. In addition, evaluations of personnel, rewards and punishments, and transfers of relevant

personnel are carried out after securing the agreement of the Board of Directors.

• In addition to regular and extraordinary meetings of the Board of Directors, corporate auditors

attend the regular management meetings that are held twice a month and also attend extraordinary

meetings as necessary, and directors and executive officers make timely and appropriate reports to

them. Directions received from corporate auditors in business audits and at meetings of the Board of

Directors and management meetings, are implemented as promptly as possible, and progress made

on this is reported at the meeting of the Board of Directors once every three months. Documents the

corporate auditors request to inspect are provided promptly.

• Full-time corporate auditors are provided with reports about various issues regarding all aspects of

management at corporate governance meetings. Representative directors make reports on their areas

of responsibility in interviews once a month, while other directors make such reports once a quarter

and other important employees make reports on a half-yearly basis. Interviews are also held

between presidents and officers of Group companies and the Company’s full-time corporate

auditors (once for each subsidiary). Events that have the potential to develop into matters that pose a

serious risk to the continuation of corporate activities or signs that such events may occur, as well as

individual cases including controversies, accidents and complaints are reported to the corporate

auditors in a timely and appropriate manner.

• The directors receive explanations of the corporate auditors’ yearly audit plans and make efforts to

understand such plans and cooperate in their implementation.

• The corporate auditors attend meetings in which the audit corporation explains its audit findings to

the directors, which are held for each quarterly book closing, and confirm the contents of such

explanation as well as the actions taken by directors in response.

• With the aim of enhancing the threefold auditing structure, there are periodic meetings at which the

accounting auditor reports to the corporate auditors and the Board of Auditors (held six times during

the current period) and periodic meetings at which the corporate auditors and Internal Audit

Department exchange opinions (held six times during the current period).

• With the aim of enhancing audits by corporate auditors across the entire Group, efforts are made to

provide necessary cooperation for holding the Group company corporate auditor liaison meeting on a half-yearly basis.

• A system has been developed in which all whistle blowing is reported promptly to the corporate

auditors, and even when no whistle blowing has occurred, this fact is reported on a monthly basis.

－ 39 －

• Discussion meetings were held for outside directors and corporate auditors. (Meetings were held

twice during the period under review.)

• Discussion meetings were held with legal advisors to promote understanding of legal matters

relevant to the Tosei Group. (Meetings were held twice during the period under review.)

(d) Internal auditing and auditing by corporate auditors

i) Coordination between corporate auditors and accounting auditor

In the course of their auditing activities in accordance with the yearly audit plan, the corporate

auditors regularly exchange information and opinions with the accounting auditor. They also

receive reports on the results of audits by the accounting auditor and coordinate closely with them

by such means as observing their audits as appropriate.

ii) Coordination between corporate auditors and Internal Audit Department

The corporate auditors hold a regular exchange of opinions session between the Board of Auditors

and the Internal Audit Department once every two months, and receive timely updates on internal

audit results from the General Manager of the Internal Audit Department. The full-time corporate

auditors attend hearings conducted by the Internal Audit Department with audited divisions, while

members of the Internal Audit Department attend hearings conducted by the corporate auditors with

the accounting auditor, directors and others as assistants to the corporate auditors. Through such

activities, the Company works to enhance the quality of its internal audits and to carry out efficient

business audits.

(e) Accounting audits

i) Names of certified public accountants who executed audit, name of audit corporation they belong to,

and years of continuous auditing

(Name of certified public accountant) (Name of audit corporation) (Years of continuous auditing)

Designated and Engagement Partner

Giichi Yanagisawa Shinsoh Audit Corporation (Note)

Designated and Engagement Partner

Takashi Aikawa Shinsoh Audit Corporation (Note)

(Note) Since the years of continuous auditing are seven years or less, this information is omitted.

ii) Breakdown of assistants in auditing operations

Certified public accountants 3 persons

Other 3 persons

(f) Relationship between outside directors and outside corporate auditors

The Company has two outside directors and four outside corporate auditors.

The Company appoints people who are considered to be fully independent from the business

management and have knowledge, experience and insight that are sufficient to execute the duty of

outside directors and outside corporate auditors, after comprehensive consideration of their career and

qualifications. The Company has not formulated clear standards or policies on independence.

Outside director Goro Kamino has extensive experience and a high level of insight as a

management executive at listed companies, including gas companies of a highly public nature, and the

Company believes that he can adequately supervise other directors and provide advice and

recommendations from his objective standpoint to ensure the adequacy and appropriateness of the

directors’ decision-making.

Outside director Kenichi Shotoku has extensive experience and expertise as a certified public

accountant, including overseas service, and the Company believes that he can provide appropriate

supervision of the Company’s management from his objective standpoint as an accounting expert.

Outside director Kenichi Shotoku is Representative Director of SCS Global Consulting (S) Pte Ltd,

with which the Company has entered into a consignment contract of consulting on overseas business

deployment etc. However, in light of the content and scale of the transactions and other factors, the

Company believes that this will not cause a conflict of interest with general shareholders.

Full-time outside corporate auditor Yasuhiro Honda has abundant managerial and practical

experience, primarily at the administration department of a major construction company, as well as

specialist knowledge. On that basis, the Company believes that he can perform a role in ensuring the

－ 40 －

adequacy and appropriateness of the Company’s management.

Full-time outside corporate auditor Yutaka Kitamura has abundant experience including overseas

assignment primarily at a major financial institution as well as specialist knowledge. As such, the

Company believes that he can perform a role in ensuring the adequacy and appropriateness of the

Company’s management, particularly from a financial and global standpoint. Yutaka Kitamura was an

employee of Mizuho Trust & Banking Co., Ltd., with which the Company has transactions, until 2005.

However, in light of the content and scale of the transactions and other factors, the Company believes

that this will not cause a conflict of interest with general shareholders.

Outside corporate auditor Tatsuki Nagano has experience at major financial institutions and

continues to be involved in corporate management as a company representative, and the Company

believes that he can utilize his extensive experience and a high level of expert insight to perform a

role in ensuring the adequacy and appropriateness of the Company’s management.

The Company believes that Osamu Doi can perform a role in ensuring the adequacy and

appropriateness of the Company’s management based on his abundant experience at major securities

companies and at companies that conduct investment banking activities as well as his specialist

knowledge.

c. Development of risk management structure

The Company has established the Compliance Committee with the primary purpose of fostering

consciousness regarding compliance at the Group, and the Risk Management Committee, which

examines the Group’s risk countermeasures. By these means, the Company deliberates on and examines

ways of handling risk management not just from the point of view of compliance with laws and

regulations but also in terms of company ethics and making a social contribution.

d. Remuneration, etc. of officers

(a) Total amount of remuneration, etc. by position, total amount by type of remuneration, etc., and

number of recipients at the Company

Position

Total amount of

remuneration,

etc.

(¥ thousand)

Total amount by type of remuneration, etc.

(¥ thousand) Number of

recipients Basic

remuneration

Stock

options Bonus

Retirement

benefits

Directors

(excluding outside

directors)

114,000 96,000 – – 18,000 3

Corporate auditors

(excluding outside

corporate auditors)

– – – – – –

Outside officers 34,886 32,400 – – 2,486 7

(b) Total amount of consolidated remuneration, etc. by each officer of the Company

Since there is no officer for whom the total amount of remuneration, etc. is ¥100 million or more, this

information is omitted.

(c) Significant items among employee salaries paid to officers concurrently serving as employees

None

(d) Policy on determining amount of remuneration, etc. for officers

Regarding remuneration for officers, the maximum amounts of remuneration, etc. paid to directors

and corporate auditors respectively are determined by resolution of the General Meeting of

Shareholders. Regarding the amounts of remuneration for directors and corporate auditors, those for

directors are determined by resolution of the Board of Directors and those for corporate auditors are

determined by deliberation of the corporate auditors.

－ 41 －

e. Status of shareholding

(a) Investment shares held for purposes other than pure investment

Number of issues 1 issue

Total carrying amount ¥1,200 thousand

(b) Investment shares held for purposes other than pure investment and for which the carrying amount in

the current period is over 1% of stated capital

None

(c) Investment shares held for pure investment purposes

None

f. Outline of contracts for limitation of liability

Pursuant to the provisions of Article 427, Paragraph 1 of the Companies Act, the Company has entered

into contracts with its outside directors and outside corporate auditors that limits their liability for

damages provided for in Article 423, Paragraph 1 of the same Act. The maximum amount of liability

for damages under the contract will be the amount stipulated by laws and regulations.

g. Stipulations of Articles of Incorporation regarding number, etc. of directors

(a) Number of directors

The Company stipulates in its Articles of Incorporation that the number of directors of the Company

shall be six persons or less.

(b) Requirements for resolutions regarding election and dismissals of directors

The Company stipulates in its Articles of Incorporation that resolutions for election of directors shall

be decided by a majority of the voting rights of the shareholders present at a meeting where the

shareholders holding one third or more of the voting rights of the shareholders who are entitled to

exercise their voting rights are present, and shall not be effected by cumulative voting

Regarding resolutions for dismissal of directors, the Company stipulates in its Articles of

Incorporation that they shall be decided by two thirds or more of the voting rights of the shareholders

present at a meeting where the shareholders holding a majority of the voting rights of the shareholders

who are entitled to exercise their voting rights are present.

h. In cases where the Company stipulates that items for resolution at General Meeting of Shareholders

may be resolved by Board of Directors, applicable items and reasons for the stipulation

(a) Acquisition of treasury stock

The Company stipulates in its Articles of Incorporation that the Company can acquire its treasury

stocks by resolution of the Board of Directors as provided for in Article 165, Paragraph 2 of the

Companies Act. The purpose of this is for the Company to acquire its own shares in market

transactions and the like in order to enable the execution of a flexible capital policy in response to

changes in the management environment.

(b) Exemption from liability of directors and corporate auditors

The Company stipulates in its Articles of Incorporation that directors and corporate auditors

(including those who previously held these positions) may be exempted from liability to the extent

provided for in laws and regulations in relation to acts provided for in Article 423, Paragraph 1 of the

Companies Act by resolution of the Board of Directors, as provided for in Article 426, Paragraph 1 of

the same Act. The purpose of this is to create an environment in which directors and corporate

auditors can make use of their abilities sufficiently and fulfill the roles expected of them when

carrying out their duties.

(c) Payment of interim dividend

The Company stipulates in its Articles of Incorporation that an interim dividend may be paid with a

－ 42 －

record date of May 31 each year by resolution of the Board of Directors as provided for in Article 454,

Paragraph 5 of the Companies Act, in order to flexibly distribute profits to shareholders.

i. Requirements for special resolutions of General Meeting of Shareholders

The Company stipulates in its Articles of Incorporation that special resolutions of the General Meeting

of Shareholders provided for in Article 309, Paragraph 2 of the Companies Act shall be passed by two

thirds or more of the voting rights of the shareholders present at the meeting where the shareholders

holding one third or more of the voting rights of the shareholders who are entitled to exercise their

voting rights are present.The purpose of this is to operate the General Meeting of Shareholders smoothly

by easing the quorum required for special resolutions at the General Meeting of Shareholders.

(2) Audit fees

a. Audit fees paid to certified public accountants, etc.

Classification

Year ended Nov. 30, 2011 Year ended Nov. 30, 2012

Fees for audit

attestation services

(¥ thousand)

Fees for non-audit

services

(¥ thousand)

Fees for audit

attestation services

(¥ thousand)

Fees for non-audit

services

(¥ thousand)

Filing company 31,000 – 31,000 –

Consolidated

subsidiaries – – 3,000 –

Total 31,000 – 34,000 –

b. Other important fees

(Year ended November 30, 2011)

None


None

c. Non-audit services to filing company


None


None

d. Policy for determining audit fees

Although there are no applicable matters, audit fees are determined appropriately after considering such

factors as the number of auditing days, the size of the company, and the nature of the business activities,

etc.

－ 43 －

V. Accounting 1. Preparation policy of the consolidated and non-consolidated financial statements

(1) Tosei prepares consolidated financial statements in accordance with the Ordinance on Terminology,

Forms, and Preparation Methods of Consolidated Financial Statements (Ordinance of the Ministry of

Finance No. 28 of 1976).

(2) Tosei prepares non-consolidated financial statements in accordance with the Ordinance on Terminology,

Forms, and Preparation Methods of Financial Statements, etc. (Ordinance of the Ministry of Finance No.

59 of 1963).

2. Audit attestation

The consolidated financial statements for the fiscal year ended November 30, 2012 (from December 1,

2011 to November 30, 2012) and the non-consolidated financial statements for the fiscal year ended

November 30, 2012 (from December 1, 2011 to November 30, 2012) were audited by Shinsoh Audit

Corporation pursuant to Article 193-2, paragraph 1 of the Financial Instruments and Exchange Act.

3. Special efforts made to ensure the properness of consolidated financial statements, etc.

Tosei is carrying out the special efforts in order to ensure the properness of consolidated financial

statements, etc.

Specifically, for the purpose of both ensuring that Tosei has an appropriate grasp of the contents of

Accounting Standards and related regulations, and establishing a system by which it is possible to

accurately respond to changes in Accounting Standards and related regulations, Tosei became a member

of the Financial Accounting Standards Foundation, and participates in seminars and other events hosted

by the foundation.

－ 44 －

1. Consolidated financial statements, etc.

(1) Consolidated financial statements

a. Consolidated balance sheets

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Assets

Current assets

Cash and deposits 8,326,305 *2 9,430,622

Notes and accounts receivable-trade 399,856 314,348

Short-term investment securities 10,000 10,000

Real estate for sale *2 27,360,973 *2 31,502,387

Real estate for sale in process *2 6,374,335 *2 5,675,757

Purchased receivables 81,361 2,951

Supplies 3,254 2,426

Deferred tax assets 966,545 990,487

Other 391,300 1,211,089

Allowance for doubtful accounts (5,697) (6,109)

Total current assets 43,908,234 49,133,960

Noncurrent assets

Property, plant and equipment

Buildings and structures *2 5,337,567 *2 5,579,356

Accumulated depreciation (947,482) (1,106,822)

Buildings and structures, net 4,390,084 4,472,533

Tools, furniture and fixtures 120,979 122,220

Accumulated depreciation (88,678) (90,878)

Tools, furniture and fixtures, net 32,301 31,342

Land *2 10,175,285 *2 10,031,990

Other 6,777 21,629


Other, net 1,882 16,441

Total property, plant and equipment 14,599,553 14,552,308

Intangible assets

Software 65,816 41,202

Leasehold right – 346,164

Telephone subscription right 1,889 1,889

Total intangible assets 67,705 389,256

Investments and other assets

Investment securities 380,612 *1 403,001

Long-term loans receivable 10,325 3,355


Other 145,100 254,175


Total investments and other assets 1,392,110 657,440

Total noncurrent assets 16,059,369 15,599,004

Total assets 59,967,603 64,732,965

－ 45 －

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Liabilities

Current liabilities

Notes and accounts payable-trade 806,396 1,670,415

Short-term loans payable – *2 384,400

Current portion of long-term loans payable *2, 4 6,170,937 *2, 4 7,356,272

Income taxes payable 79,271 72,921

Advances received 545,967 990,100

Provision for bonuses 150,520 125,659

Other 1,038,122 684,780

Total current liabilities 8,791,215 11,284,548

Noncurrent liabilities

Long-term loans payable *2, 4 23,904,245 *2, 4 24,654,459

Deferred tax liabilities 15,200 –

Provision for retirement benefits 133,154 147,211

Provision for directors' retirement benefits 312,586 328,667

Guarantee deposits 1,810,439 2,130,063

Asset retirement obligations 24,710 24,842

Other – 11,071

Total noncurrent liabilities 26,200,336 27,296,315

Total liabilities 34,991,552 38,580,864

Net assets

Shareholders' equity

Capital stock 5,454,673 5,454,673

Capital surplus 5,538,149 5,538,149

Retained earnings 13,985,597 15,162,573

Total shareholders' equity 24,978,420 26,155,396

Accumulated other comprehensive income

Valuation difference on available-for-sale

securities (2,369) (926)

Deferred gains or losses on hedges – (3,751)

Foreign currency translation adjustment – 1,382

Total accumulated other comprehensive income (2,369) (3,295)

Total net assets 24,976,051 26,152,100

Total liabilities and net assets 59,967,603 64,732,965

－ 46 －

b. Consolidated statements of operations and consolidated statements of comprehensive income

Consolidated statements of operations

(¥ thousand)

Year ended Nov. 30, 2011

(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Net sales 24,759,291 24,539,823

Cost of sales *1 19,290,132 *1 18,291,818

Gross profit 5,469,158 6,248,005

Selling, general and administrative expenses *2 3,080,121 *2 3,217,373

Operating income 2,389,037 3,030,631

Non-operating income

Interest income 2,797 1,679

Dividends income 2,861 2,861

Amortization of negative goodwill 1,490 –

Penalty income 34,035 –

Miscellaneous income 30,724 18,209

Total non-operating income 71,908 22,750

Non-operating expenses

Interest expenses 885,646 775,254

Foreign exchange losses – 1,448

Miscellaneous loss 799 2,310

Total non-operating expenses 886,445 779,013

Ordinary income 1,574,500 2,274,369

Extraordinary loss

Loss on sales of noncurrent assets – *3 18,874

Loss on retirement of noncurrent assets – *4 2,377

Loss on valuation of membership 16,976 4,366

Loss on adjustment for changes of accounting

standard for asset retirement obligations 19,932 –

Special contribution at the time of withdrawal from

employee pension funds – 76,442

Total extraordinary losses 36,909 102,061

Income before income taxes and minority interests 1,537,591 2,172,307

Income taxes-current 65,899 110,535

Income taxes-deferred 719,708 656,376

Total income taxes 785,608 766,911

Income before minority interests 751,982 1,405,395

Net income 751,982 1,405,395

－ 47 －

Consolidated statements of comprehensive income

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Income before minority interests 751,982 1,405,395

Other comprehensive income

Valuation difference on available-for-sale securities (3,143) 1,442

Deferred gains or losses on hedges – (3,751)

Foreign currency translation adjustment – 1,382

Total other comprehensive income (3,143) *1 (926)

Comprehensive income 748,839 1,404,469

Comprehensive income attributable to:

Comprehensive income attributable to owners of the

parent 748,839 1,404,469

－ 48 －

c. Consolidated statements of changes in net assets

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


Capital stock

Balance at the beginning of current period 5,454,673 5,454,673

Balance at the end of current period 5,454,673 5,454,673

Capital surplus



Retained earnings


Changes of items during the period

Dividends from surplus (228,420) (228,420)

Net income 751,982 1,405,395

Total changes of items during the period 523,562 1,176,975


Total shareholders' equity




Net income 751,982 1,405,395



Accumulated other comprehensive income

Valuation difference on available-for-sale securities

Balance at the beginning of current period 774 (2,369)


Net changes of items other than shareholders'

equity (3,143) 1,442

Total changes of items during the period (3,143) 1,442

Balance at the end of current period (2,369) (926)

Deferred gains or losses on hedges

Balance at the beginning of current period – –



equity – (3,751)

Total changes of items during the period – (3,751)

Balance at the end of current period – (3,751)

Foreign currency translation adjustment

Balance at the beginning of current period – –



equity – 1,382

Total changes of items during the period – 1,382

Balance at the end of current period – 1,382

Total accumulated other comprehensive income




equity (3,143) (926)

Total changes of items during the period (3,143) (926)

Balance at the end of current period (2,369) (3,295)

－ 49 －

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Total net assets




Net income 751,982 1,405,395


equity (3,143) (926)



－ 50 －

d. Consolidated statements of cash flows

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Net cash provided by (used in) operating activities

Income before income taxes and minority interests 1,537,591 2,172,307

Depreciation and amortization 336,398 328,464

Amortization of negative goodwill (1,490) –

Increase (decrease) in provision 17,654 77,642

Interest and dividends income (5,658) (4,540)

Interest expenses paid on loans and bonds 885,646 775,254

Loss on retirement of property, plant and equipment – 2,377

Loss (gain) on sales of property, plant and

equipment – 18,874




Decrease (increase) in notes and accounts

receivable-trade 64,280 11,241

Decrease(increase) in purchased receivables 5,106 78,409

Decrease (increase) in inventories 3,305,302 (4,129,276)

Decrease (increase) in advance payments (220,082) 147,853

Increase (decrease) in notes and accounts payable-

trade 438,233 864,185

Increase (decrease) in advances received 260,461 444,132

Increase (decrease) in guarantee deposits received (76,084) 319,624

Decrease (increase) in other current assets 67,194 (964,675)

Other, net 265,944 (254,899)

Subtotal 6,917,407 (108,659)

Interest and dividends income received 4,923 4,530

Interest expenses paid (881,503) (778,399)

Income taxes paid (23,098) (122,725)

Net cash provided by (used in) operating activities 6,017,729 (1,005,254)

Net cash provided by (used in) investing activities

Net decrease (increase) in time deposits 286,136 –

Purchase of property, plant and equipment (61,532) (140,303)

Proceeds from sales of property, plant and

equipment – 216,965

Purchase of intangible assets (36,717) (4,560)

Purchase of investment securities (353,350) (22,000)

Proceeds from sales of investment securities 0 –

collection of investment securities 15,347 150

Decrease(increase) in deposits and guarantee money (17,740) (38,927)

Collection of loans receivable 51,705 7,466

Other, net – (1,490)

Net cash provided by (used in) investing activities (116,149) 17,300

Net cash provided by (used in) financing activities

Net increase (decrease) in short-term loans payable – 384,400

Proceeds from long-term loans payable 11,474,100 15,777,100

Repayment of long-term loans payable (15,661,377) (13,841,551)

Cash dividends paid (227,718) (227,857)

Other, net (1,567) (1,219)

Net cash provided by (used in) financing activities (4,416,563) 2,090,871

－ 51 －

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Effect of exchange rate change on cash and cash

equivalents – 1,399

Net increase (decrease) in cash and cash equivalents 1,485,016 1,104,317

Cash and cash equivalents at beginning of period 6,821,288 8,306,305

Cash and cash equivalents at end of period * 8,306,305 * 9,410,622

－ 52 －

[Significant matters in preparing consolidated financial statements]

1. Scope of consolidation

(1) Number of consolidated subsidiaries: 6

Names of consolidated subsidiaries:


Tosei Asset Advisors, Inc.

Tosei Singapore Pte. Ltd.

Tosei Revival Investment Co., Ltd.

Hestia Capital Limited Company

Green House Limited Company

Of the above consolidated subsidiaries, Tosei Singapore Pte. Ltd. was included in the scope of

consolidation since it was newly established during the year under review.

Metis Capital Co., Ltd., which was a consolidated subsidiary of the Company until the previous year,

was excluded from the scope of consolidation from the year under review, since it was merged into

Tosei Revival Investment Co., Ltd. on May 31, 2012.

(2) Name and others of unconsolidated subsidiary

Sannomiya Real Estate Sales LLC

(Reason for exclusion from scope of consolidation)

The unconsolidated subsidiary is small, and total assets, net sales, net income or loss (amount equal to

the equity share), retained earnings (amount equal to the equity share) and others have no significant

impact on the consolidated financial statements.

2. Application of the equity method

Name and others of unconsolidated subsidiary not to be accounted for by the equity method

Sannomiya Real Estate Sales LLC

(Reason for exclusion from scope of application of the equity method)

The company is not accounted for by the equity method, as its impact is not significant on the net

income or loss (amount equal to the equity share), retained earnings (amount equal to the equity share)

and others.

3. Fiscal year-end of consolidated subsidiaries

All consolidated subsidiaries have the same fiscal year-end as the consolidated balance sheet date.

From the year under review, the closing date of Tosei Community Co., Ltd. was changed from

October 31 to the consolidated closing date for the purpose of improvement of efficiency of management

and business operation of the Group. Accordingly, the accounting period of the subsidiary was for 13

months, and the difference was adjusted through the consolidated statements of operations.

4. Accounting policies

(1) Valuation standards and methods for significant assets

1) Securities

Available-for-sale securities

i. With market value

Stated at fair value based on market value and others as of the consolidated closing date (unrealized

gains and losses, net of applicable taxes, are reported in a separate component of net assets, and

costs of securities sold are determined by the moving-average method).

ii. Without market value

Stated at cost determined by the moving-average method.

2) Derivatives

Stated at fair value.

－ 53 －

3) Inventories

The cost method (the carrying amounts in the consolidated balance sheets are written down due to a

decline in profitability of assets) is used as the valuation basis.

i. Real estate for sale and real estate for sale in process

Specific identification method

ii. Purchased receivables


iii. Supplies

Last purchase price method

(2) Depreciation of significant depreciable assets

1) Property, plant and equipment (excluding lease assets)

Property, plant and equipment are depreciated by the declining-balance method.

However, buildings acquired on or after April 1, 1998 (excluding facilities attached to buildings)

are depreciated by the straight-line method.

Useful lives are summarized as follows:

Buildings 3 to 50 years

Structures 10 to 30 years

Machinery and equipment 8 years

Tools, furniture and fixtures 3 to 20 years

2) Intangible assets (excluding lease assets)

Intangible assets are amortized by the straight-line method.

Internal use software is amortized over the estimated useful life (5 years).

3) Lease assets

Lease assets are depreciated by the straight-line method over the lease term with no residual value.

Finance leases that do not transfer ownership and commenced on or before March 31, 2008 are

accounted for in a similar manner with ordinary rental transactions.

(3) Significant allowances

1) Allowance for doubtful accounts

To cover losses from bad debts, allowance for doubtful accounts is provided in the amount expected to

be uncollectible based on historical experience of bad debt for general receivables and individual

collectability for specific receivables such as doubtful receivables.

2) Provision for bonuses

To cover bonus payments to employees, provision for bonuses is provided in the amount for the fiscal

year based on the estimated amount of payment.

3) Provision for retirement benefits

To cover retirement benefits to employees, the amount that would be required to pay if all eligible

employees retired at the fiscal year-end is provided based on the estimated amount of retirement benefit

obligations as of the fiscal year-end.

4) Provision for directors’ retirement benefits

Provision for directors’ retirement benefits is provided in the amount required as of the fiscal year-end

to cover retirement benefit payments to directors and corporate auditors according to the rule for

retirement benefits to directors and corporate auditors.

(4) Translation of significant assets and liabilities denominated in foreign currencies into Japanese currency

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at

the spot exchange rate prevailing at the consolidated closing date, and differences arising from such

translation are recognized in the consolidated statements of operations. Assets and liabilities of

consolidated foreign subsidiaries are translated into Japanese yen at the spot exchange rate prevailing at

the consolidated closing date, and revenues and expenses of consolidated foreign subsidiaries are

translated into Japanese yen at the average exchange rate during the period. Differences arising from such

－ 54 －

translation are recorded in foreign currency translation adjustment in net assets.

(5) Significant hedge accounting

1) Hedge accounting

Deferral hedge accounting is applied.

2) Hedging instruments and hedged items

Hedging instruments: Interest rate swaps

Hedged items: Loans payable

3) Hedging policy

Hedging is undertaken to the extent of hedged liabilities to reduce interest rate risk.

4) Assessment of hedge effectiveness

The Company and its consolidated subsidiaries assess the hedge effectiveness by comparing the

cumulative changes in fair value of the hedged item with the corresponding changes in fair value of the

hedging instrument to date from the inception of the hedge.

(6) Scope of funds in consolidated statements of cash flows

Cash and cash equivalents consist of cash on hand, readily available deposits, and highly liquid short-term

investments with original maturities of three months or less that are exposed to an insignificant risk of

changes in value.

(7) Other significant matters for preparing consolidated financial statements

1) Accounting for consumption taxes

Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.

However, non-deductible consumption taxes related to noncurrent assets and others are recorded as

long-term prepaid expenses (amortized over five years), and other non-deductible consumption taxes are

recorded as expenses for the term in which they arise.

2) Accounting for investments in silent partnership

For investments in an investment limited partnership and other similar partnerships (considered

securities according to Article 2-2 of Financial Instruments and Exchange Act), an amount equivalent to

the equity interest in the property of the silent partnership is recorded as “Investment securities.”

“Investment securities” is recorded at the time of contribution to a silent partnership. An amount

equivalent to the equity interest in profit and loss earned from operating activities by the silent

partnership is recorded as “Operating income or loss,” and the same amount is added to or deducted

from “Investment securities.” For the repayment of the contribution (including the amount equivalent to

the equity interest in profit and loss earned from operating activities) from a business operator,

“Investment securities” is reduced.

3) Accounting for purchased receivables

When a payment for purchased receivables is collected, the amount collected is deducted from the

acquisition cost of the purchased receivables for each receivable, and the amount collected for each

receivable in excess of the acquisition cost is recorded as revenue on a net basis.

However, as for the amount collected that the division between principal and interest is defined, the

principal portion is deducted from the acquisition cost, and the interest portion is recorded as revenue.

－ 55 －

[Change in Accounting Policy]

(Change in Depreciation Method)

From the year under review, following the revision of the Corporation Tax Act, the Company and its domestic

consolidated subsidiaries adopted the depreciation method in accordance with the revised Corporation Tax

Act for property, plant and equipment acquired on or after April 1, 2012.

The impact of this change on profit and loss for the year under review was immaterial.

[Change in Presentation]

(Consolidated Statements of Cash Flows)

“Decrease (increase) in other current assets” included in “Other, net” in “Net cash provided by (used in)

operating activities” for the previous year was reported as a separate line item from the year under review due

to the increased materiality. The consolidated statement of cash flows for the previous year was reclassified to

reflect this change in presentation.

Consequently, 333,139 thousand yen included in “Other, net” in “Net cash provided by (used in) operating

activities” on the consolidated statement of cash flows for the previous year was reclassified to ¥67,194

thousand of “Decrease (increase) in other current assets” and 265,944 thousand yen of “Other, net.”

[Additional Information]

(Application of Accounting Standard for Accounting Changes and Error Corrections)

The Group adopted the “Accounting Standard for Accounting Changes and Error Corrections” (ASBJ

Statement No. 24, December 4, 2009) and the “Guidance on Accounting Standard for Accounting Changes

and Error Corrections” (ASBJ Guidance No. 24, December 4, 2009) for the accounting changes and

corrections of prior period errors made after the beginning of the year under review.

(Change in Holding Purpose)

Leasehold property previously held as real estate for sale (Buildings and structures: 194,770 thousand yen,

Leasehold right: 346,164 thousand yen) was transferred to noncurrent assets due to the change in business

policy.

－ 56 －

[Notes to consolidated financial statements]

(Notes to consolidated balance sheets)

*1. Investments in the unconsolidated subsidiary are as follows:

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Investment securities – 20,000

*2. Pledged assets and secured debts are as follows:

Pledged assets

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Cash and deposits – 485,750

Real estate for sale 27,209,729 30,967,255

Real estate for sale in process 6,285,709 5,585,460

Buildings and structures 4,187,146 4,238,783

Land 9,983,334 9,692,968

Total 47,665,919 50,970,218

Debts secured by security interests

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Short-term loans payable – 384,400

Current portion of long-term loans payable 6,067,377 7,286,312

Long-term loans payable 23,757,845 24,613,619

Total 29,825,222 32,284,331

3. Contingent liabilities

The Company guarantees borrowings of the following individuals who purchased properties sold by the

Company from Kabushiki Kaisha Aruka. (¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

3 individuals 4,375 4,071

*4. Financial covenants

Year ended November 30, 2011 (as of November 30, 2011)

(1) Of the Group’s loans payable, the individual contract of cash loan for consumption with The Bank of

Tokyo-Mitsubishi UFJ, Ltd. (total balance: 1,039,375 thousand yen) includes financial covenants. If the

Group violates any two items of the following covenants, the Group may repay the amount of the

relevant loans to the lender in a lump sum.

Covenants

• In the consolidated statements of operations and interim consolidated statements of operations, loss

shall not be posted on the operating level and on the ordinary level.

• In the consolidated balance sheets and interim consolidated balance sheets, the amount calculated by

dividing total net assets by total assets shall be not less than 0.15.

• In the consolidated balance sheets, consolidated statements of operations and consolidated statements

of cash flows as well as the interim consolidated balance sheets, interim consolidated statements of

operations and interim consolidated statements of cash flows, the criterion value, which is calculated

by the formula below, shall be less than 15.

Criterion value = interest-bearing debt ÷ (operating income + depreciation and amortization) * However, for operating income, the above formula uses the amount calculated by adding loss on valuation of

inventories that are included in cost of sales, which are described in notes to the consolidated statements of

operations, to operating income in the consolidated statements of operations.

－ 57 －

(2) Of the Group’s loans payable, the individual contract of cash loan for consumption with The Bank of

Tokyo-Mitsubishi UFJ, Ltd. (total balance: 375,000 thousand yen) includes financial covenants. If the

Group violates any two items of the following covenants, the Group may repay the amount of the


Covenants












(3) Of the Group’s loans payable, the syndicated loan contract with The Bank of Tokyo-Mitsubishi UFJ,

Ltd. as the agent (total balance: 1,906,400 thousand yen) includes financial covenants. If the Group

violates either of the following covenants, the Group may repay the amount of the relevant loans to the

lender in a lump sum.

Covenants

• The amount of net assets in the consolidated and non-consolidated balance sheets shall be kept at 75%

or more of the higher of net assets in the consolidated and non-consolidated balance sheets as of the

end of the immediately preceding fiscal year, and net assets in the consolidated and non-consolidated

balance sheets as of November 30, 2009.

• In the consolidated and non-consolidated balance sheets for any fiscal year, loss shall not be posted on

the ordinary level.

(4) Of the Group’s loans payable, the individual contract of cash loan for consumption with Japan Finance

Corporation (total balance: 525,680 thousand yen) includes financial covenants. If the Group violates

either of the following covenants, the Group may repay the amount of the relevant loans to the lender in

a lump sum.

Covenants

• The amount of net assets in the non-consolidated balance sheets shall be higher than 21,014,900

thousand yen.

• Without prior written approval from Japan Finance Corporation, the Group shall not provide loans,

investments or guarantees of more than 6,104,300 thousand yen to any third party.

(5) Of the Group’s loans payable, the individual contract of cash loan for consumption with Japan Finance

Corporation (total balance: 78,000 thousand yen) includes financial covenants. If the Group violates

either of the following covenants, the Group may repay the amount of the relevant loans to the lender in

a lump sum.

Covenants

• The amount of net assets of Tosei Community Co., Ltd. shall be higher than 247,900 thousand yen.

• Without prior written approval from Japan Finance Corporation, Tosei Community Co., Ltd. shall not

provide loans, investments or guarantees of more than 56,100 thousand yen to any third party.


(1) Of the Company’s loans payable, the individual contract of cash loan for consumption with The Bank of


Company violates any two items of the following covenants, the Company may repay the amount of the


Covenants


－ 58 －












Tokyo-Mitsubishi UFJ, Ltd. (Total balance: 120,000 thousand yen) includes financial covenants. If the



Covenants
















Covenants



• The total net assets in the consolidated and non-consolidated balance sheets shall be kept at 75% or

more of the higher of total net assets in the consolidated and non-consolidated balance sheets as of

November 30, 2011, or total net assets in the consolidated and non-consolidated balance sheets as of

November 30, 2010.








(4) Of the Company’s loans payable, the individual contract of cash loan for consumption with Japan

Finance Corporation (total balance: 322,400 thousand yen) includes financial covenants. If the

Company violates either of the following covenants, the Company may repay the amount of the relevant

loans to the lender in a lump sum.

Covenants


thousand yen.

• Without prior written approval from Japan Finance Corporation, the Company shall not provide loans,

－ 59 －






Covenants


thousand yen.



－ 60 －

(Notes to consolidated statements of operations)

*1. The inventory balance at the end of the fiscal year is presented after book values were written down due to

a decline in profitability of assets and the following loss on valuation of inventories are included in cost of

sales.

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Cost of sales 894,137 267,699

*2. Main components of selling, general and administrative expenses are as follows:

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Advertising expenses 47,464 27,992

Directors’ compensations 191,933 220,036

Salaries and allowances 1,333,655 1,414,923


Retirement benefit expenses 45,484 47,512

Provision for directors’ retirement benefits 25,837 23,903

Legal welfare expenses 209,120 222,556

Commission fee 184,516 167,587

Taxes and dues 228,145 266,090

Provision of allowance for doubtful accounts 485 78,132

Depreciation and amortization 60,318 63,523

*3. Components of loss on sales of noncurrent assets are as follows: (¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Buildings and Land – 18,874

*4. Components of loss on retirement of noncurrent assets are as follows: (¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Buildings and structures – 1,767

Tools, furniture and fixtures – 610

Total – 2,377

－ 61 －

(Notes to consolidated statements of comprehensive income)

Year ended November 30, 2012 (from December 1, 2011 to November 30, 2012)

*1. Reclassification adjustments related to other comprehensive income

(¥ thousand)


securities

Amount arising during the period 2,575

Reclassification adjustments – 2,575

Deferred gains or losses on hedges

Amount arising during the period (6,193)

Reclassification adjustments – (6,193)

Foreign currency translation adjustment

Amount arising during the period 1,382

Reclassification adjustments – 1,382

Before tax effect adjustments (2,235)

Tax effect amount 1,308

Total other comprehensive income (926)

*2. Tax effect related to other comprehensive income

(¥ thousand)

Before tax effect

adjustments Tax effect amount

After tax effect

adjustments

Valuation difference on available-for-

sale securities 2,575 (1,133) 1,442

Deferred gains or losses on hedges (6,193) 2,441 (3,751)

Foreign currency translation adjustment 1,382 – 1,382

Total other comprehensive income (2,235) 1,308 (926)

－ 62 －

(Notes to consolidated statements of changes in net assets)


1. Issued shares

(Shares)

Class of shares

Number of shares

at the beginning of

the current fiscal year

Increase Decrease

Number of shares

at the end of


Common stock 456,840 – – 456,840

2. Dividend

(1) Dividends paid

Resolution Class of shares Total dividends

(¥ thousand)

Dividends per share

(¥) Record date Effective date

Ordinary General

Meeting of

Shareholders held on

Feb. 23, 2011

Common stock 228,420 500 Nov. 30, 2010 Feb. 24, 2011

(2) Dividends whose effective date is after the end of the current fiscal year and record date is included in


Resolution Class of

shares

Total dividends

(¥ thousand)

Source of

dividends

Dividends per

share (¥) Record date Effective date

Ordinary General

Meeting of


Feb 24, 2012

Common

stock 228,420

Retained

earnings 500 Nov. 30, 2011 Feb. 27, 2012

－ 63 －


1. Issued shares

(Shares)

Class of shares

Number of shares

at the beginning of


Increase Decrease

Number of shares

at the end of


Common stock 456,840 – – 456,840

2. Dividend

(1) Dividends paid

Resolution Class of shares Total dividends

(¥ thousand)

Dividends per share

(¥) Record date Effective date

Ordinary General

Meeting of


Feb 24, 2012

Common stock 228,420 500 Nov. 30, 2011 Feb. 27, 2012

(2) Dividends whose effective date is after the end of the current fiscal year and record date is included in


Resolution Class of

shares

Total dividends

(¥ thousand)

Source of

dividends

Dividends per

share (¥) Record date Effective date

Ordinary General

Meeting of


Feb. 26, 2013

Common

stock 274,104

Retained

earnings 600 Nov. 30, 2012 Feb. 27, 2013

－ 64 －

(Notes to consolidated statements of cash flows)

* The reconciliation between the ending balance of “Cash and cash equivalents” and “Cash and deposits” in

the consolidated balance sheets are as follows:

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Cash and deposits 8,326,305 9,430,622

Time deposits with maturity over three months (20,000) (20,000)

Cash and cash equivalents 8,306,305 9,410,622

(Lease transactions)

1. Finance lease transactions (Lessee)

Finance lease transactions that do not transfer ownership

1) Details of lease assets


Multi-purpose machines at the head office (“Tools, furniture and fixtures”)

2) Depreciation method for lease assets

Depreciation method for lease assets is as stated in “4. Accounting policies (2) Depreciation of

significant depreciable assets” under “Significant matters in preparing consolidated financial

statements.”

Finance lease transactions that do not transfer ownership whose start date falls on or before March

31, 2008 are accounted for by a method similar to that applicable to ordinary rental transactions. The

details of these lease assets are as follows.

(i) Acquisition cost equivalent, accumulated depreciation equivalent and ending balance equivalent of

lease properties

(¥ thousand)

As of Nov. 30, 2011

Acquisition cost equivalent Accumulated depreciation

equivalent Ending balance equivalent

Tools, furniture and fixtures 16,462 13,719 2,743

Total 16,462 13,719 2,743

(¥ thousand)

As of Nov. 30, 2012

Acquisition cost equivalent Accumulated depreciation

equivalent Ending balance equivalent

Tools, furniture and fixtures 16,462 16,462 –

Total 16,462 16,462 –

(Note) Acquisition cost equivalent is calculated using the inclusive-of-interest method, as the ending balance of future lease

payments constitutes a small portion of the ending balance of property, plant and equipment, etc.

(ii) Future lease payments, etc.

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Future lease payments

Due within one year 2,743 –

Total 2,743 –



－ 65 －

(iii) Lease payments and depreciation expenses equivalent

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Lease payments 2,743 2,743

Depreciation expenses equivalent 2,743 2,743

(iv) Calculation method of depreciation expenses equivalent

Depreciation expense is calculated by the straight-line method by considering lease period to be

useful life and residual value to be zero.

2. Operating lease transactions (Lessee)

Future lease payments related to irrevocable operating lease transactions (¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012


Total 1,974 –

3. Operating lease transactions (Lessor)

Future lease payments related to irrevocable operating lease transactions (¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Due within one year 510,138 668,171

Due over one year 1,614,907 1,679,477

Total 2,125,045 2,347,649

－ 66 －

(Financial instruments)

1. Status of financial instruments

(1) Policy on handling financial instruments

The Group procures necessary funds for purchasing real properties that are articles for sale mainly in the

Revitalization Business and the Development Business through bank loans. Funds are invested in highly

secure financial assets (such as deposits). The Group hedges interest rate fluctuation risk on some of

borrowings by using interest rate swap transactions. The Group uses derivative transactions not for

speculative purposes, but for hedging risks of fluctuations in interest rates on borrowings.

(2) Description of financial instruments and related risks and risk management system

Notes and accounts receivable–trade, which are operating receivables, are exposed to credit risks of

customers. With respect to these risks, the due dates and outstanding balances are managed for each

business partner. Past due receivables are periodically reported to the management meeting and

individually monitored and responded to.

Securities and investment securities are exposed to market fluctuation risk. For this risk, the market

values are periodically monitored and reported to the management meeting.

With respect to notes and accounts payable–trade, which are operating payables, the majority of

them are due within a year.

Loans payable are to raise funds for purchasing real properties that are articles for sale mainly in the

Revitalization Business and the Development Business. Most of them are with floating interest rates and

are exposed to interest rate fluctuation risk. For this risk, the Group periodically makes a list of interests

on loans for each financial institution and monitors the fluctuations of interests on loans.

For some of loans payable, the Group uses derivative transactions (interest rate swaps) in order to

hedge the interest rate fluctuation risk and fix interest expenses. The effectiveness of hedges is assessed

based on fluctuations in interest rates and others of hedged items and hedging instruments by comparing

cumulative changes in fair value of hedged items and hedging instruments.

Loans payable, which are extended by financial institutions, are exposed to the liquidity risks

stemming from changes in attitudes of such financial institutions toward transactions with the Group.

For these risks, the Group appropriately monitors information on fund demand of the Group and cash

flow situation, strengthens relations with financial institutions with which we do business as needed,

and also makes efforts to diversify financing methods.

(3) Supplementary explanation of fair values of financial instruments

The fair values of financial instruments include, other than values based on market prices, reasonably

measured values when market prices are unavailable. As variable factors are incorporated into the

measurement of such values, the values may vary depending on the assumptions used.

2. Fair values of financial instruments

The carrying amounts in consolidated balance sheet and the fair values, and variances thereof are shown

below. However, items for which it is considered extremely difficult to determine the fair values are not

included in the following table (See note 2).

As of November 30, 2011

(¥ thousand)

Carrying amount in

consolidated balance sheet Fair value Variance

(1) Cash and deposits 8,326,305 8,326,305 –

(2) Notes and accounts receivable–trade 399,856 399,856 –

(3) Investment securities 18,068 18,068 –

Total assets 8,744,230 8,744,230 –

(1) Notes and accounts payable–trade 806,396 806,396 –

(2) Long-term loans payable (including

current portion of long-term loans

payable)

30,075,182 30,100,490 25,307

Total liabilities 30,881,579 30,906,886 25,307

－ 67 －


(¥ thousand)

Carrying amount in

consolidated balance sheet Fair value Variance

(1) Cash and deposits 9,430,622 9,430,622 –

(2) Notes and accounts receivable–trade 314,348 314,348 –

(3) Investment securities 20,643 20,643 –

Total assets 9,765,614 9,765,614 –

(1) Notes and accounts payable–trade 1,670,415 1,670,415 –

(2) Short-term loans payable 384,400 384,400 –

(3) Long-term loans payable (including

current portion of long-term loans

payable)

32,010,731 32,019,976 9,245

Total liabilities 34,065,547 34,074,792 9,245

Derivative transactions (*) (6,193) (6,193) –

(*) The values of assets and liabilities arising from derivative transactions are shown at net value, and with the amount in

parentheses representing net liability position.

(Note 1) Method of measurement of fair values of financial instruments and matters concerning securities

and derivative transactions

Assets

(1) Cash and deposits

The fair values of cash and deposits are based on the relevant book values since these assets are settled in

a short period of time and their fair values are virtually equal to their book values.

(2) Notes and accounts receivable–trade

The fair values of notes and accounts receivable–trade are based on the relevant book values since these

assets are settled in a short period of time and their fair values are virtually equal to their book values.

(3) Investment securities

The fair values of investment securities are based on their prices on the stock exchange if investment

securities are shares. Please refer to Notes on Securities for matters concerning securities by purpose of

holding.

Liabilities

(1) Notes and accounts payable–trade

The fair values of notes and accounts payable–trade are based on the relevant book values since these

liabilities are settled in a short period of time and their fair values are virtually equal to their book values.

(2) Short-term loans payable

The fair values of short-term loans payable are based on the relevant book values since these liabilities are

settled in a short period of time and their fair values are virtually equal to their book values.

(3) Long-term loans payable (including current portion of long-term loans payable)

The fair values of long-term loans payable with floating interest rates are based on the relevant book

values because interest rates reflect market interest rates in short-term intervals and the fair values are

virtually equal to the book values. The fair values of those with fixed interest rates are measured based on

the present value of the total amount of principal and interest discounted by the interest rate that would be

charged for a new similar borrowing.

(Change in presentation)

“Current portion of long-term loans payable” was presented as a separate account for the previous fiscal year,

but it was changed to be included in “long-term loans payable” account for the current fiscal year in order to

present the market value of loans payable more adequately. To reflect this change in presentation,

reclassification of accounts has been made for notes to consolidated financial statements for the previous

fiscal year. As a result, 6,170,937 thousand yen of “current portion of long-term loans payable” has been

reclassified into “long-term loans payable (including current portion of long-term loans payable)” for the

previous fiscal year.

－ 68 －

Derivative transactions

Please refer to “Derivative transactions.”

(Note 2) Financial instruments for which it is considered extremely difficult to determine fair values

(¥ thousand)

Classification As of Nov. 30, 2011 As of Nov. 30, 2012

(1) Unlisted stocks 21,388 41,238

(2) Other (investments in silent partnership

and preferred equity securities) 351,155 351,119

(3) Lease and guarantee deposits 115,368 154,296

(4) Guarantee deposits 1,810,439 2,130,063

(1) As unlisted stocks have no market prices and it is considered to be extremely difficult to determine the fair values of

these stocks, they are not subject to the disclosure of fair value.

(2) As investments in silent partnership and preferred equity securities have no market prices and it is considered to be

extremely difficult to determine the fair values of these investments, they are not subject to the disclosure of fair value.

(3) Lease and guarantee deposits offered for leasehold properties have no market prices, and at the same time, it is difficult

to determine the virtual deposit period. Therefore, it is considered to be extremely difficult to estimate the reasonable

cash flows, and they are not subject to the disclosure of fair value.

(4) Guarantee deposits offered by tenants of leasehold properties have no market prices, and at the same time, it is difficult

to determine the virtual deposit period from move-in to leaving of tenants. Therefore, it is considered to be extremely

difficult to estimate the reasonable cash flows, and they are not subject to the disclosure of fair value.

(Note 3) Expected redemption amount of monetary receivables and securities with maturity dates reaching

after the consolidated balance sheet date


(¥ thousand)

Within 1 year Over 1 year

to 5 years

Over 5 years

to 10 years Over 10 years

Cash and deposits 8,326,305 – – –

Notes and accounts receivable–trade 399,856 – – –

Short-term investment securities and

investment securities

Available-for-sale securities with maturity

(1) Other 10,000 10,000 – –

Total 8,736,162 10,000 – –


(¥ thousand)

Within 1 year Over 1 year

to 5 years

Over 5 years

to 10 years Over 10 years

Cash and deposits 9,430,622 – – –

Notes and accounts receivable–trade 314,348 – – –

Short-term investment securities and

investment securities

Available-for-sale securities with maturity

(1) Other 10,000 10,000 – –

Total 9,754,970 10,000 – –

(Note 4) Scheduled repayment amounts for long-term loans payable after the consolidated balance sheet date

Please refer to the section of “Detailed statement of loans payable” in the “Supplementary statements–

consolidated.”

－ 69 －

(Securities)

Available-for-sale securities


(¥ thousand)

Description

Carrying amount on the

consolidated balance

sheet

Acquisition cost Variance

Securities whose

carrying amount on the


sheet exceeds their

acquisition cost

(1) Stocks – – –

(2) Bonds

1) Government and

local bonds – – –

2) Corporate bonds – – –

3) Other – – –

(3) Other 710 625 85

Subtotal 710 625 85

Securities whose

acquisition cost exceeds

their carrying amount on

the consolidated balance

sheet

(1) Stocks – – –

(2) Bonds

1) Government and



3) Other – – –

(3) Other 17,358 21,458 (4,100)

Subtotal 17,358 21,458 (4,100)

Total 18,068 22,083 (4,015)

(Note) With regard to the Company’s shareholdings of unlisted stocks, investments in silent partnership, etc. (372,544 thousand

yen reported on the consolidated balance sheet), as they do not have market prices and it is considered extremely

difficult to determine their fair values, they are not included in “Available-for-sale securities” in the above table.


(¥ thousand)

Description

Carrying amount on the


sheet

Acquisition cost Variance

Securities whose

carrying amount on the


sheet exceeds their

acquisition cost

(1) Stocks – – –

(2) Bonds

1) Government and



3) Other – – –

(3) Other 865 625 240

Subtotal 865 625 240

Securities whose

acquisition cost exceeds

their carrying amount on

the consolidated balance

sheet

(1) Stocks – – –

(2) Bonds

1) Government and



3) Other – – –

(3) Other 19,778 21,458 (1,679)

Subtotal 19,778 21,458 (1,679)

Total 20,643 22,083 (1,439)

(Note) With regard to the Company’s shareholdings of unlisted stocks, investments in silent partnership, etc. (372,358 thousand

yen reported on the consolidated balance sheet), as they do not have market prices and it is considered extremely

difficult to determine their fair values, they are not included in “Available-for-sale securities” in the above table.

－ 70 －

(Derivative transactions)

Derivative transactions to which the hedge accounting is adopted

Interest rate derivatives


None


(¥ thousand)

Hedge accounting

method

Derivative

transaction type

Principle

hedged item Contract amount

Contract amount due

after one year Fair value

Deferral hedge

treatment of

interest rate swaps

Interest rate swaps

Pay-fixed/

Receive-floating

Loans payable 491,760 466,800 (6,193)

(Note) Measurement of fair values

Fair values are measured using the prices offered by financial institutions with which we do business and others.

－ 71 －

(Retirement benefits)

1. Summary of retirement benefit system adopted

The Company and its domestic consolidated subsidiaries have adopted the system of lump sum payment

on retirement based on the internal retirement benefit regulations. In addition, the Company and certain

domestic consolidated subsidiaries have adopted defined-contribution pension plans. Tosei Community

Co., Ltd., a consolidated subsidiary, adopted welfare pension fund plans, but it contracted out of Nihon

Jutaku Kensetsu Sangyo Welfare Pension Fund in September 2012.

2. Retirement benefit obligations

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Retirement benefit obligations (133,154) (147,211)

Provision for retirement benefits (133,154) (147,211)

The Company and its domestic consolidated subsidiaries apply a simplified method in the calculation of

their retirement benefit obligations.

3. Retirement benefit costs

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Retirement benefit costs 39,490 40,316

Premium payment for defined-contribution pension plans 5,994 7,196

Total retirement benefit costs 45,484 47,512

4. Calculation basis of retirement benefit obligations

The Company and its domestic consolidated subsidiaries apply a simplified method, in which an assumed

amount to be required for voluntary base retirement benefits at the year-end is fully deemed as retirement

benefit obligations, in the calculation of their retirement benefit obligations. Therefore, the basic rate, etc.

is omitted.

(Stock options, etc.)

None

－ 72 －

(Tax effect accounting)

1. Significant components of deferred tax assets and liabilities

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Deferred tax assets

Current assets

Excess amount over limitation of taxable depreciation

expenses 202,352 216,500

Unrealized gains from payment in substitution 179,702 154,692

Deficit carried forward on tax 534,701 524,783

Other 116,072 145,325

Valuation reserves (66,284) (50,814)

Total 966,545 990,487

Noncurrent assets

Excess amount over limitation of taxable provision

for retirement benefits 54,925 53,041


for directors’ retirement benefits 125,261 117,518

Impairment loss 68,248 58,447

Loss on valuation of investment securities 12,137 10,550

Deficit carried forward on tax 1,012,408 –

Other 23,909 51,415


Total 875,473 88,496

Total Deferred tax assets 1,842,019 1,078,984

Deferred tax liabilities

Current liabilities

Valuation difference from valuation of subsidiaries’

assets and liabilities at market value (122,053) (29,052)

Total (122,053) (29,052)


Valuation difference from valuation of subsidiaries’

assets and liabilities at market value (15,200) –

Other (5,069) (5,302)

Total (20,269) (5,302)

Total Deferred tax liabilities (142,322) (34,355)

Net deferred tax assets 1,699,696 1,044,629

(Note) Net deferred tax assets as of November 30, 2011 and 2012 are included in the following items on the consolidated

balance sheets:

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Current assets–Deferred tax assets 966,545 990,487

Noncurrent assets–Deferred tax assets 870,404 83,194

Current liabilities–Other 122,053 29,052

Noncurrent liabilities–Deferred tax liabilities 15,200 –

－ 73 －

2. The reconciliation between the statutory effective tax rate and the effective tax rate after adoption of tax

effect accounting

As of Nov. 30, 2011 As of Nov. 30, 2012

Statutory effective tax rate 41.0% 41.0%

(Adjustments)

Expenses not deductible permanently such as

entertainment expenses 0.8 0.3

Valuation reserves for deferred tax assets 0.9 (10.5)

Difference due to tax-rate changes – 4.3

Consolidation adjustments 8.1 –

Other 0.3 0.2

Effective tax rates after adoption of tax-effect accounting 51.1 35.3

3. Amendments to deferred tax assets and liabilities due to changes in corporate tax rates, etc.

Following the promulgation on December 2, 2011 of the “Act for Partial Revision of the Income Tax Act,

etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social

Structures” (Act No. 114 of 2011) and the “Act on Special Measures for Securing Financial Resources

Necessary to Implement Measures for Reconstruction Following the Great East Japan Earthquake” (Act

No. 117 of 2011), corporate tax rates was changed for the fiscal years beginning on or after April 1, 2012.

In line with this change, the statutory effective tax rate used to measure deferred tax assets and liabilities

was changed to 38.01% from the fiscal year ending November 30, 2013 to the fiscal year ending

November 30, 2015, and to 35.64% in and after the fiscal years ending November 30, 2016.

Due to this change, deferred tax assets (current assets) and deferred tax assets (non-current assets)

decreased by 82,379 thousand yen and 11,297 thousand yen, respectively, while valuation difference on

available-for-sale securities, deferred gains and losses on hedges and income taxes–deferred increased by

77 thousand yen, 159 thousand yen and 93,440 thousand, respectively.

－ 74 －

(Asset retirement obligations)

Asset retirement obligations recorded in the consolidated balance sheets

(1) Summary of relevant asset retirement obligations

Some of property, plant and equipment held by the Company contain asbestos or polychlorinated biphenyl

(PCB), which must be treated in special ways specified by laws and regulations when they are dismantled

or removed. The Group recognizes the disposal costs of them as asset retirement obligations. The laws

and regulations that are grounds for them are as follows: Disposal costs for asbestos Ordinance on Prevention of Health Impairment Due to Asbestos

Disposal costs for equipment

containing PCB

Act on Special Measures Concerning Promotion of Proper Treatment of

Polychlorinated Biphenyl Waste (Act on Special Measures concerning PCB)

(2) Method for calculating the amount of relevant asset retirement obligations

The amount of asset retirement obligations is calculated by estimating the period of use as useful life of

the property and using a discount rate of 2.26% to 2.40%.

(3) Changes in amounts of relevant asset retirement obligations

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Balance at the beginning of the fiscal year (Note) 24,581 24,710

Adjustment due to passage of time 129 131

Balance at the end of the fiscal year 24,710 24,842

(Note) For the fiscal year ended November 30, 2011, the “Accounting Standard for Asset Retirement Obligations” (ASBJ

Statement No. 18, March 31, 2008) and the “Guidance on Accounting Standard for Asset Retirement Obligations”

(ASBJ Guidance No. 21, March 31, 2008) were applied. Consequently, the beginning balance for the fiscal year ended

November 30, 2011 was calculated in accordance with the Accounting Standard and Guidance.

－ 75 －

(Investment and rental properties)

The Company and certain consolidated subsidiaries own rental office and condominium buildings mainly in

Tokyo to earn rental revenue. Net rental revenue from these investment and rental properties during the fiscal

year ended November 30, 2011 amounted to 585,522 thousand yen (rental revenue and rental expense were

recorded as sales and cost of sales, respectively). Net rental revenue from these investment and rental

properties during the fiscal year ended November 30, 2012 totaled 553,332 thousand yen (rental revenue and

rental expense were recorded as sales and cost of sales, respectively).

The carrying amounts in the consolidated balance sheets, increases/decreases thereof and fair values as of

November 30, 2011 and 2012 of these investment and rental properties are as follows: (¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Carrying amount in


sheet

Balance at the beginning of

the fiscal year 11,949,112 11,826,524

Increase/decrease during

the fiscal year (122,587) 299,803

Balance at the end of the

fiscal year 11,826,524 12,126,327

Fair value at the end of the fiscal year 12,582,805 14,133,184

Notes: 1. The carrying amount in consolidated balance sheet shown above is calculated by deducting the relevant accumulated

depreciation and impairment loss from the property’s acquisition cost.

2. Of increase/decrease during the fiscal year ended November 30, 2011, the increase mainly resulted from the transfer

from property for sale due to change of holding purpose (506,978 thousand yen), while the decrease mainly resulted

from the transfer to properties for sale (235,581 thousand yen) due to change of holding purpose. During the fiscal year

ended November 30, 2012, the increase mostly stemmed from the transfer from properties for sale due to change of

holding purpose (540,934 thousand yen), while the decrease stemmed from sales of properties (235,840 thousand yen).

3. The fair value as of November 30, 2012 was internally calculated in accordance with the Real Estate Appraisal

Standards.

4. With regard to Toranomon Tosei Building, which is partly used as the head office by the Company and consolidated

subsidiaries, only the portion that is not used as the head office is included in the amount shown in the above table.

－ 76 －

[Segment information]

(Segment information)

1. Summary of reportable segments

The Group’s reportable segments are components of the Company for which separate financial

information is available that is evaluated regularly by the Board of Directors to determine allocation of

management resources and assess performance. The Group’s head office draws up comprehensive

domestic strategies for each business, and the Group conducts business activities accordingly.

Consequently, the Group is made up of segments based on business, as determined by the head office, and

has six reportable segments: “Revitalization Business,” “Development Business,” “Rental Business,”

“Fund Business,” “Property Management Business” and “Alternative Investment Business.” In the

“Revitalization Business,” the Group increases the value of properties whose asset value has declined and

resells them. In the “Development Business,” the Group sells condominium units and detached houses in

lots to individual customers, and rental apartments and office buildings to investors. In the “Rental

Business,” the Group rents office buildings and condominiums. The “Fund Business” mainly provides

REIT fund asset management services. The “Property Management Business” provides comprehensive

property management services. In the “Alternative Investment Business,” the Group acquires real estate

collateralized loans and sells properties acquired by collecting receivables and accepting substitute

performances.

2. Method for calculating net sales, profit or loss, assets, liabilities and other items by reportable segment

Accounting policies of reported business segments are consistent with those disclosed in “Significant

Matters Forming the Basis of Preparing Consolidated Financial Statements.”

The reported segment profit is calculated on an operating income basis. Intersegment sales or transfers

are based on actual market prices.

－ 77 －

3. Information about net sales, profit or loss, assets, liabilities and other items by reportable segment


(¥ thousand)

Reportable segments

Reconciliations

(Note 1)

Amount

recorded on

the consolidated

financial

statements (Note 2)

Revitalization

Business

Development

Business

Rental

Business

Fund

Business

Property

Management Business

Alternative

Investment Business

Total

Net sales

Sales from external customers

12,040,886 5,256,145 2,459,614 1,396,347 3,425,416 180,880 24,759,291 – 24,759,291

Intersegment sales or

transfers – – 48,119 18,017 485,731 – 551,869 (551,869) –

Total 12,040,886 5,256,145 2,507,733 1,414,365 3,911,147 180,880 25,311,160 (551,869) 24,759,291

Segment profit (loss) 1,891,898 (22,238) 1,182,925 652,879 104,845 (190,258) 3,620,051 (1,231,014) 2,389,037

Segment assets 19,048,273 13,562,936 13,258,186 856,286 1,669,912 2,433,173 51,098,768 8,868,835 59,967,603

Others

Depreciation – – 254,418 2,281 24,509 16,657 297,866 38,532 336,398

Increase in property,

plant and equipment

and intangible assets

– – 44,049 3,605 5,376 2,661 55,693 49,204 104,897

Notes: 1. The details of reconciliations are as follows:

(1) Reconciliations of segment profit (loss) of (1,231,014) thousand yen include eliminations of intersegment

transactions of (20,063) thousand yen and corporate expenses that are not allocated to any particular reportable

segment of ¥(1,210,951) thousand . Corporate expenses mainly consist of selling, general and administrative

expenses of the parent company that are not attributable to any particular reportable segment.

(2) Reconciliations of segment assets of 8,868,835 thousand yen include corporate assets that are not allocated to any

particular reportable segment of 9,783,874 thousand yen. Corporate assets mainly consist of surplus funds that are

not attributable to any particular reportable segment (cash and deposits and short-term investment securities) and

assets related to the administrative division of the Company.

(3) Reconciliations of depreciation of 38,532 thousand yen consist of corporate expenses that are not attributable to

any particular reportable segment.

(4) Reconciliations of increase in property, plant and equipment and intangible assets of 49,204 thousand yen consist

of increase in corporate assets that are not attributable to any particular reportable segment.

2. Segment profit (loss) is reconciled to operating income on the consolidated statements of operations.

－ 78 －


(¥ thousand)

Reportable segments

Reconciliations

(Note 1)

Amount recorded on

the

consolidated financial

statements

(Note 2)

Revitalization

Business

Development

Business

Rental

Business

Fund

Business

Property Management

Business


Business

Total

Net sales

Sales from external

customers 5,980,183 10,985,270 2,446,682 776,723 3,512,228 838,736 24,539,823 – 24,539,823

Intersegment sales or transfers

– 274,003 55,044 23,065 343,859 2,269 698,243 (698,243) –

Total 5,980,183 11,259,274 2,501,727 799,788 3,856,087 841,006 25,238,066 (698,243) 24,539,823

Segment profit 390,895 2,318,788 1,192,557 184,135 68,442 59,189 4,214,010 (1,183,378) 3,030,631

Segment assets 23,114,013 14,643,328 13,583,668 942,624 1,349,101 1,905,916 55,538,653 9,194,311 64,732,965

Others

Depreciation – – 240,391 5,424 21,488 15,822 283,125 45,338 328,464

Increase in property, plant and equipment

and intangible assets

– – 114,531 10,079 2,412 714 127,737 17,125 144,863

Notes: 1. The details of reconciliations are as follows:

(1) Reconciliations of segment profit of (1,183,378) thousand yen include eliminations of intersegment transactions of

(12,536) thousand yen and corporate expenses that are not allocated to any particular reportable segment of

(1,170,841) thousand yen. Corporate expenses mainly consist of selling, general and administrative expenses of

the parent company that are not attributable to any particular reportable segment.

(2) Reconciliations of segment assets of 9,194,311 thousand yen include corporate assets that are not allocated to any

particular reportable segment of 10,387,815 thousand yen. Corporate assets mainly consist of surplus funds that

are not attributable to any particular reportable segment (cash and deposits and short-term investment securities)

and assets related to the administrative division of the Company.

(3) Reconciliations of depreciation of 45,338 thousand yen consist of corporate expenses that are not attributable to

any particular reportable segment.

(4) Reconciliations of increase in property, plant and equipment and intangible assets of 17,125 thousand yen consist of

increase in corporate assets that are not attributable to any particular reportable segment.

2. Segment profit is reconciled to operating income on the consolidated statements of operations.

[Related information]

I Year ended November 30, 2011 (from December 1, 2010 to November 30, 2011)

1. Information by product and service

Information by product and service is omitted since similar information is disclosed in segment

information.

2. Information by geographical area

(1) Net sales

Information about net sales is omitted since sales from external customers in Japan exceeded 90% of

net sales on the consolidated statements of operations.

(2) Property, plant and equipment

Information about property, plant and equipment is omitted since the amount of property, plant and

equipment located in Japan exceeded 90% of property, plant and equipment on the consolidated

balance sheet.

3. Information by major customer

Information by major customer is omitted since there were no sales from a single external customer

accounting for 10% or more of net sales on the consolidated statements of operations.

－ 79 －

II Year ended November 30, 2012 (from December 1, 2011 to November 30, 2012)

1. Information by product and service

Information by product and service is omitted since similar information is disclosed in segment

information.

2. Information by geographical area

(1) Net sales

Information about net sales is omitted since sales from external customers in Japan exceeded 90% of

net sales on the consolidated statements of operations.

(2) Property, plant and equipment

Information about property, plant and equipment is omitted since the amount of property, plant and

equipment located in Japan exceeded 90% of property, plant and equipment on the consolidated

balance sheet.

3. Information by major customer

Information by major customer is omitted since there were no sales from a single external customer

accounting for 10% or more of net sales on the consolidated statements of operations.

[Information about impairment loss on noncurrent assets by reportable segment]


None


None

[Information about amortization of goodwill and balance of unamortized goodwill by reportable

segment]


Information about amortization of goodwill and balance of unamortized goodwill by reportable segment is

omitted since their amounts are immaterial.


None

[Information about gain on negative goodwill by reportable segment]


None


None

－ 80 －

[Information on related parties]

Transactions with related parties

Transactions between the company filing the consolidated financial statements and related parties

Officers and principal individual shareholders of the company filing the consolidated financial statements, etc.


None


Attribute Name Address

Capital or

investments

in capital

(¥ thousand)

Business or

occupation

Percentage of

voting rights

(%)

Business

relationship Transaction

Trading amount

(¥ thousand) Account title

Ending balance

(¥ thousand)

Officer Seiichiro

Yamaguchi – –

President and

Representative

Director of the

Company

30.39%

owned, directly –

Intermediary

for sale or

purchase of

real estate

15,069 Net sales –

Transaction’s term and policy

Notes: 1. All prices and other transaction terms are determined in consideration of the market prices and actual situation.

2. Trading amounts exclude consumption taxes.

－ 81 －

(Per Share Information)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Net assets per share ¥54,671.33 ¥57,245.65

Net income per share ¥1,646.05 ¥3,076.34

Notes: 1. Diluted net income per share is not presented since the Company has no potential shares.

2. The basis for calculation of net income per share is as follows:

Item Year ended Nov. 30, 2011

(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


Net income (¥ thousand) 751,982 1,405,395

Amount not attributable to common shareholders

(¥ thousand) – –

Net income related to common stock (¥ thousand) 751,982 1,405,395

Average number of shares of common stock outstanding

(Shares) 456,840 456,840

3. The basis for calculation of net assets per share is as follows:

Item As of Nov. 30, 2011 As of Nov. 30, 2012

Total net assets (¥ thousand) 24,976,051 26,152,100

Deduction from total net assets (¥ thousand) – –

Net assets related to common stock at fiscal year-end

(¥ thousand) 24,976,051 26,152,100

Number of shares of common stock outstanding at fiscal

year-end used for calculation of net assets per share

(Shares)

456,840 456,840

(Important subsequent events)

(Issuance of shares)

The Company passed a resolution at a meeting of its Board of Directors held on February 22, 2013 to

issue shares as Common stock. The number of shares to be issued will be 29,000, and the method of issue

will be by general public offering in the Singapore region and the overseas market (except for the US and

Canada) with the last payment date on 18 March, 2013.

The determination of the amount to be paid in, the amount of stated capital and capital reserves to be

increased, the issue price (the offer price), and any other matters necessary for the Offering will be

delegated to the Representative Director of the Company.

The funds will be allocated for acquisition of new properties, etc. in the Revitalization Business and the

Development Business and for investments made in Fund Business.

－ 82 －

e. Supplementary statements–consolidated

[Detailed statement of bonds payable]

None

[Detailed statement of loans payable]

Category

Balance as of

Dec. 1, 2011

(¥ thousand)

Balance as of

Nov. 30, 2012

(¥ thousand)

Average

interest rate

(%)

Payment due

Short-term loans payable – 384,400 2.00 –

Current portion of long-term loans

payable 6,170,937 7,356,272 2.04 –

Current portion of lease obligations 783 1,771 – –

Long-term loans payable

(excluding current portion) 23,904,245 24,654,459 2.04 2013 - 2032

Lease obligations

(excluding current portion) – 4,878 – 2013 - 2016

Other interest-bearing debts – – – –

Total 30,075,966 32,401,781 – –

Notes: 1. “Average interest rate” shows weighted average interest rate on the ending balance of loans payable.

2. Average interest rates on leasing obligations are omitted because the amount of lease obligations before deducting

interest equivalent included in the total leasing obligations is recorded in the consolidated balance sheets.

3. Repayment of long-term loans payable and lease obligations (excluding current portion) scheduled within five years

after the closing date of accounting period are as follows:

(¥ thousand)

Category Due after 1 year

through 2 years

Due after 2 years

through 3 years

Due after 3 years

through 4 years

Due after 4 years

through 5 years

Long-term loans

payable 8,471,132 3,266,292 3,153,240 3,823,201

Lease obligations 1,771 1,771 1,335 –

[Detailed statement of asset retirement obligations]

As the amount of asset retirement obligations as of December 1, 2011 and November 30, 2012 is not more

than 1% of the total amount of liabilities and net assets as of the same dates, this information is omitted

pursuant to the provisions of Article 92-2 of the Ordinance on Consolidated Financial Statements.

－ 83 －

(2) Others

Quarterly data of the year ended November 30, 2012

(Cumulative period)

First quarter

(Three months ended

Feb. 29, 2012)

Second quarter

(Six months ended

May 31, 2012)

Third quarter

(Nine months ended

Aug. 31, 2012)

Year ended

Nov. 30, 2012

Net sales (¥ thousand) 5,023,693 10,151,048 14,767,812 24,539,823

Income before income taxes and

minority interests (¥ thousand) 524,159 535,416 796,801 2,172,307

Net income (¥ thousand) 233,646 286,046 444,307 1,405,395

Net income per share (¥) 511.44 626.14 972.57 3,076.34

(Each quarter)

First quarter

(Dec. 1, 2011 -

Feb. 29, 2012)

Second quarter

(Mar. 1, 2012 -

May 31, 2012)

Third quarter

(Jun. 1, 2012 -

Aug. 31, 2012)

Fourth quarter

(Sep. 1, 2012 -

Nov. 30, 2012)

Net income per share (¥) 511.44 114.70 346.43 2,103.77

－ 84 －

2. Non-consolidated financial statements, etc.

(1) Non-consolidated financial statements

a. Non-consolidated balance sheets

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Assets

Current assets

Cash and deposits 7,098,060 *1 8,113,658

Accounts receivable-trade 48,000 17,700

Short-term investment securities 10,000 10,000

Real estate for sale *1 25,912,582 *1 30,333,200

Real estate for sale in process *1 6,374,364 *1 5,444,385

Supplies 1,932 1,228

Advance payments-trade 225,752 77,899

Prepaid expenses 49,260 62,805

Short-term loans receivable from subsidiaries and

affiliates – 379,000


Accounts receivable-other 36,524 819,517

Other 48,216 104,755


Total current assets 40,604,905 46,095,853

Noncurrent assets


Buildings *1 4,918,293 *1 4,969,139

Accumulated depreciation (903,432) (1,015,923)

Buildings, net 4,014,860 3,953,216

Structures 22,137 22,137


Structures, net 8,871 7,787

Machinery and equipment 880 880

Accumulated depreciation (624) (704)

Machinery and equipment, net 255 175

Vehicles – 12,581

Accumulated depreciation – (2,793)

Vehicles, net – 9,788

Tools, furniture and fixtures 98,146 101,426


Tools, furniture and fixtures, net 24,504 21,902

Land *1 9,401,475 *1 9,467,606

Lease assets 4,478 6,748

Accumulated depreciation (3,732) (415)

Lease assets, net 746 6,333

Total property, plant and equipment 13,450,714 13,466,809

Intangible assets

Software 52,215 36,501

Telephone subscription right 1,889 1,889

Total intangible assets 54,104 38,390

－ 85 －

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Investments and other assets

Investment securities 380,612 383,001

Stocks of subsidiaries and affiliates 785,372 824,119

Investments in capital 6,000 6,000

Long-term loans receivable 10,325 3,355

Claims provable in bankruptcy, claims

provable in rehabilitation and other 9,497 6,997

Lease and guarantee deposits 110,193 148,995


Other 8,380 4,014


Total investments and other assets 2,204,240 1,415,567

Total noncurrent assets 15,709,058 14,920,767

Total assets 56,313,964 61,016,621

Liabilities

Current liabilities

Notes payable-trade 325,850 1,119,380

Accounts payable-trade 200,611 387,572

Short-term loans payable – *1 384,400

Current portion of long-term loans payable *1, 3 4,815,837 *1, 3 7,103,187

Lease obligations 783 1,771

Accounts payable-other 226,114 211,599

Accrued expenses 46,680 28,953

Income taxes payable 26,653 25,021

Accrued consumption taxes 188,800 –

Advances received 510,249 965,969

Deposits received 79,210 31,446


Total current liabilities 6,517,581 10,349,128


Long-term loans payable *1, 3 23,123,045 *1, 3 22,856,149

Guarantee deposits 1,755,235 2,045,612

Lease obligations – 4,878

Provision for retirement benefits 96,726 108,045

Provision for directors' retirement benefits 282,981 302,747

Allowance for Investment loss 131,248 28,596

Asset retirement obligations 24,710 24,842

Total noncurrent liabilities 25,413,947 25,370,872

Total liabilities 31,931,529 35,720,000

－ 86 －

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Net assets


Capital stock 5,454,673 5,454,673

Capital surplus

Legal capital surplus 5,538,149 5,538,149

Total capital surpluses 5,538,149 5,538,149

Retained earnings

Legal retained earnings 7,250 7,250

Other retained earnings

General reserve 15,000 15,000

Retained earnings brought forward 13,369,731 14,282,474

Total retained earnings 13,391,981 14,304,724

Total shareholders' equity 24,384,803 25,297,547

Valuation and translation adjustments


securities (2,369) (926)

Total valuation and translation adjustments (2,369) (926)

Total net assets 24,382,434 25,296,620

Total liabilities and net assets 56,313,964 61,016,621

－ 87 －

b. Non-consolidated statements of operations

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Net sales

Sales on Revitalization business 12,040,886 5,531,217

Sales on development business 5,256,145 11,242,479

Sales on lease business 2,507,733 2,463,150

sales on Fund business 914,679 186,240

Total net sales 20,719,445 19,423,088

Cost of sales

Revitalization business cost 9,905,759 4,909,990

Development business cost 5,123,016 8,712,000

Lease business cost 1,187,719 1,154,349

Fund business cost 78,958 42,968

Total cost of sales 16,295,454 14,819,308

Gross profit 4,423,991 4,603,780

Selling, general and administrative expenses *2 2,078,829 *2 1,937,138

Operating income 2,345,162 2,666,642

Non-operating income

Interest income 2,574 *1 7,847

Dividends income 2,821 2,821

Penalty income 34,035 –

Reversal of allowance for doubtful accounts – 457

Miscellaneous income 24,922 18,959

Total non-operating income 64,353 30,086

Non-operating expenses

Interest expenses 806,769 717,431

Foreign exchange losses – 1,448

Miscellaneous loss 798 2,222

Total non-operating expenses 807,567 721,101

Ordinary income 1,601,947 1,975,626

Extraordinary income

Reversal of allowance for doubtful accounts 1,726 –

Reversal of allowance for investment loss 172,969 102,652

Total extraordinary income 174,695 102,652

Extraordinary loss

Loss on retirement of noncurrent assets – *3 1,585




Total extraordinary losses 36,909 5,951

Income before income taxes 1,739,733 2,072,326

Income taxes-current 3,800 3,800

Income taxes-deferred 742,416 927,362

Total income taxes 746,216 931,162

Net income 993,517 1,141,163

－ 88 －

Detailed schedule of cost of sales

Schedule of the cost in the Revitalization Business


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Accounts Notes Amounts

(¥ thousand)

Ratio

(%)

Amounts

(¥ thousand)

Ratio

(%)

I. Land 5,511,630 55.6 2,520,736 51.3

II. Acquisition and improvement cost of buildings

3,786,421 38.2 1,828,190 37.2

III. Overhead costs 563,758 5.7 295,928 6.0

IV. Book values written down following a decline in the revenue in the revenue expected to be generated from the inventories

43,948 0.5 265,135 5.5

Total 9,905,759 100.0 4,909,990 100.0

(Note) The cost is calculated based on specific-order cost system.

Schedule of the cost in the Development Business


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


(¥ thousand)

Ratio

(%)

Amounts

(¥ thousand)

Ratio

(%)

I. Land costs 2,403,615 46.9 4,535,175 52.1

II. Construction costs 1,776,420 34.7 3,173,143 36.4

III. Overhead costs 342,845 6.7 1,003,680 11.5

IV. Book values written down following a decline in the revenue in the revenue expected to be generated from the inventories

600,135 11.7 – –

Total 5,123,016 100.0 8,712,000 100.0

(Note) The cost is calculated based on specific-order cost system.

Schedule of the cost in the Rental Business


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


(¥ thousand)

Ratio

(%)

Amounts

(¥ thousand)

Ratio

(%)

I. Outsourcing costs 228,096 19.2 218,544 18.9

II. Miscellaneous expenses 959,623 80.8 935,805 81.1

[Of which taxes and dues] [259,811] [228,473]

[Of which depreciation and amortization]

[254,418] [238,214]

[Of which water and power] [180,963] [207,684]

Total 1,187,719 100.0 1,154,349 100.0

Schedule of the cost in the Fund Business


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


(¥ thousand)

Ratio

(%)

Amounts

(¥ thousand)

Ratio

(%)

Miscellaneous expenses 78,958 100.0 42,968 100.0

Total 78,958 100.0 42,968 100.0

－ 89 －

c. Non-consolidated statements of changes in net assets

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)


Capital stock



Capital surplus

Legal capital surplus



Total capital surplus



Retained earnings

Legal retained earnings

Balance at the beginning of current period 7,250 7,250

Balance at the end of current period 7,250 7,250

Other retained earnings

General reserve

Balance at the beginning of current period 15,000 15,000

Balance at the end of current period 15,000 15,000

Retained earnings brought forward




Net income 993,517 1,141,163

Total changes of items during the period 765,097 912,743


Total retained earnings




Net income 993,517 1,141,163



Total shareholders' equity




Net income 993,517 1,141,163



－ 90 －

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Valuation and translation adjustments

Valuation difference on available-for-sale securities




equity (3,143) 1,442



Total valuation and translation adjustments




equity (3,143) 1,442



Total net assets




Net income 993,517 1,141,163


equity (3,143) 1,442



－ 91 －

[Significant accounting policies]

1. Valuation basis and method for securities

(1) Stocks of subsidiaries

Stated at cost determined by the moving-average method

(2) Available-for-sale securities

1) With market value

Stated at fair value based on market value and others as of the balance sheet date (unrealized gains

and losses, net of applicable taxes, are reported in a separate component of net assets, and costs of

securities sold are determined by the moving-average method).

2) Without market value

Stated at cost determined by the moving-average method.

2. Valuation basis and method for inventories

The cost method (the carrying amounts in the consolidated balance sheets are written down due to a

decline in profitability of assets) is used as the valuation basis.

(1) Real estate for sale and real estate for sale in process


(2) Supplies

Last purchase price method

3. Depreciation methods for noncurrent assets

(1) Property, plant and equipment (excluding lease assets)

Declining-balance method

However, buildings acquired on or after April 1, 1998 (excluding facilities attached to buildings) are

depreciated by the straight-line method.

Useful lives of major items:

Buildings 3 to 50 years

Structures 10 to 30 years

Machinery and equipment 8 years

Tools, furniture and fixtures 3 to 20 years

(2) Intangible assets (excluding lease assets)

Straight-line method

Internal use software is amortized by the straight-line method over the estimated useful life (5 years).

(3) Lease assets

Lease assets are depreciated by the straight-line method over the lease term with no residual value.

Finance leases that do not transfer ownership and commenced on or before March 31, 2008 are

accounted for in a similar manner with ordinary rental transactions.

4. Translation of assets and liabilities denominated in foreign currencies into Japanese currency

Monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at

the spot exchange rate prevailing at the balance sheet date, and differences arising from such translation

are recognized in the non-consolidated statements of operations.

5. Allowances

(1) Allowance for doubtful accounts

To cover losses from bad debts, allowance for doubtful accounts is provided in the amount expected to

be uncollectible based on historical experience of bad debts for general receivables and individual

collectability for specific receivables such as doubtful receivables.

(2) Provision for bonuses

To cover bonus payments to employees, provision for bonuses is provided in the amount for the fiscal

year based on the estimated amount of payment.

－ 92 －

(3) Provision for retirement benefits

To cover retirement benefits to employees, the amount that would be required to pay if all eligible

employees retired at the fiscal year-end is provided based on the estimated amount of retirement benefit

obligations as of the fiscal year-end.

(4) Provision for directors’ retirement benefits

Provision for directors’ retirement benefits is provided in the amount required as of the fiscal year-end

to cover retirement benefit payments to directors and corporate auditors according to the rule for

retirement benefits to directors and corporate auditors as of the fiscal year-end.

(5) Allowance for investment loss

To provide for losses on investments in subsidiaries, necessary funds, which are determined by

individually reviewing the investment, are recorded with actual financial conditions taken into account.

6. Other significant matters for preparing financial statements

(1) Accounting for consumption taxes

Transactions subject to consumption taxes are recorded at amounts exclusive of consumption taxes.

However, non-deductible consumption taxes related to noncurrent assets and others are recorded as

long-term prepaid expenses (amortized over five years), and other non-deductible consumption taxes are

recorded as expenses for the term in which they arise.

(2) Accounting for investments in silent partnership

For investments in an investment limited partnership and other similar partnerships (considered

securities according to Article 2-2 of Financial Instruments and Exchange Act), an amount equivalent to

the equity interest in the property of the silent partnership is recorded as “Investment securities.”

“Investment securities” is recorded at the time of contribution to a silent partnership. An amount

equivalent to the equity interest in profit and loss earned from operating activities by the silent

partnership is recorded as “Operating income or loss,” and the same amount is added to or deducted

from “Investment securities.” For the repayment of the contribution (including the amount equivalent to

the equity interest in profit and loss earned from operating activities) from a business operator,

“Investment securities” is reduced.

[Change in Accounting Policy]

(Change in Depreciation Method)

From the year under review, following the revision of the Corporation Tax Act, the Company adopted the

depreciation method in accordance with the revised Corporation Tax Act for property, plant and equipment

acquired on or after April 1, 2012.

The impact of this change on profit and loss for the year under review was immaterial.

[Change in Presentation]

(Non-consolidated Statements of Cash Flows)

Accounts receivable-other, which were included in “Other” of current assets in the fiscal year ended

November 30, 2011, exceeded one hundredth (1%) of assets, and therefore are separately shown from the

fiscal year ended November 30, 2012. To reflect this change in presentation, items were reclassified for the

fiscal year ended November 30, 2011.

As a result, 84,740 thousand yen included in “Other” of current assets in the balance sheets as of

November 30, 2011 was reclassified to “Accounts receivable-other” (36,524 thousand yen) and “Other”

(48,216 thousand yen).

[Additional Information]

(Application of Accounting Standard for Accounting Changes and Error Corrections)

The Company adopted the “Accounting Standard for Accounting Changes and Error Corrections”

(Accounting Standards Board of Japan Statement No. 24, issued on December 4, 2009) and the “Guidance on

Accounting Standard for Accounting Changes and Error Corrections” (Accounting Standards Board of Japan

Guidance No. 24, issued on December 4, 2009) for the accounting changes and corrections of prior period

errors made after the beginning of the year ended November 30, 2012.

Based on the Practical Guidelines on Accounting Standards for Financial Instruments (JICPA Accounting

－ 93 －

System Committee Report No. 14), reversal of allowances for doubtful accounts for the year ended November

30, 2012 is recorded in non-operating income. However, retrospective adjustment was not made for the year

ended November 30, 2011.

[Notes to non-consolidated financial statements]

(Notes to non-consolidated balance sheets)

*1. Pledged assets and secured debts are as follows:

Pledged assets

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Cash and deposits – 485,750

Real estate for sale 25,797,311 30,092,608

Real estate for sale in process 6,285,738 5,354,088

Buildings 3,831,494 3,741,423

Land 9,209,524 9,128,584

Total 45,124,068 48,802,455

Debts secured by security interests

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Short-term loans payable – 384,400

Current portion of long-term loans payable 4,712,277 7,033,227

Long-term loans payable 22,976,645 22,815,309

Total 27,688,922 30,232,936

2. Contingent liabilities

The Company guarantees debts of the following individuals who purchased properties sold by the

Company from Kabushiki Kaisha Aruka. (¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

3 individuals 4,375 4,071

The Company guarantees the borrowings of the following company from financial institutions as follows: (¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Tosei Revival Investment Co., Ltd. 1,838,300 1,863,895

*3. Financial covenants



Tokyo-Mitsubishi UFJ, Ltd. (total balance: 1,039,375 thousand yen) includes financial covenants. If the



Covenants









Criterion value = interest-bearing debt ÷ (operating income + depreciation and amortization)

－ 94 －

* However, for operating income, the above formula uses the amount calculated by adding loss on valuation of







Covenants












(3) Of the Company’s loans payable, the syndicated loan contract with The Bank of Tokyo-Mitsubishi UFJ,

Ltd. as the agent (total balance: 1,906,400 thousand yen) includes financial covenants. If the Company

violates either of the following covenants, the Company may repay the amount of the relevant loans to

the lender in a lump sum.

Covenants

• The amount of net assets in the consolidated and non-consolidated balance sheets as of the end of the

year ended November 30, 2011 shall be kept at 75% or more of the higher of net assets in the

consolidated and non-consolidated balance sheets for the immediately preceding financial year, or net

assets in the consolidated and non-consolidated balance sheets for the year ended November 30, 2009.

• In the consolidated and non-consolidated balance sheets for any financial year, loss shall not be

posted on the ordinary level.





Covenants

• The amount of net assets of Tosei Community Co., Ltd. shall be higher than 21,014,900 thousand yen.

• Without prior written approval from Japan Finance Corporation, Tosei Community Co., Ltd. shall not

provide loans, investments or guarantees of more than 6,104,300 thousand yen to any third party.

Year ended November 30, 2012(as of November 30, 2012)





Covenants








－ 95 －









Covenants
















Covenants



• The total amount of net assets in the consolidated and non-consolidated balance sheets shall be kept at

75% or more of the higher of total net assets in the consolidated and non-consolidated balance sheets

as of the end of the year ended November 30, 2011, or total net assets in the consolidated and non-

consolidated balance sheets as of the end of the immediately preceding financial year.












Covenants


thousand yen.







Covenants


thousand yen.

－ 96 －



(Notes to non-consolidated statements of operations)

*1. The following shows the item that includes transactions with associated companies.

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Interest income – 6,397

Miscellaneous income – 7,120

*2. The approximate ratio to selling expenses is 4.3% in the year ended November 30, 2011 and 2.6% in the

year ended November 30, 2012, while the approximate ratio to general and administrative expenses is

95.7% in the year ended November 30, 2011 and 97.4% in the year ended November 30, 2012.Main

components of selling, general and administrative expenses are as follows:

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Advertising expenses 47,705 26,201

Directors’ compensations 123,995 128,400

Salaries and allowances 764,725 703,096


Retirement benefit expenses 27,197 31,872

Provision for directors’ retirement benefits 20,063 20,445

Legal welfare expenses 123,028 113,234

Commission fee 126,114 119,548

Compensations 88,822 180,316

Taxes and dues 223,329 248,085

Provision of allowance for doubtful accounts 168,051 0

Depreciation 40,971 45,453

(Change in presentation)

“Compensations” has been noted for the current fiscal year due to its increased financial materiality. To

reflect this change in presentation, this item and the amount have been presented for the previous fiscal

year.

*3. Losses on disposal of noncurrent assets are as follows:

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2011)


(Dec. 1, 2011 - Nov. 30, 2012)

Buildings – 1,585

(Notes to non-consolidated statements of changes in net assets)

None

－ 97 －

(Lease transactions)

1. Finance lease transactions (Lessee)

Finance lease transactions that do not transfer ownership

1) Details of lease assets


Multi-purpose machines at the head office (“Tools, furniture and fixtures”)

2) Depreciation method for lease assets

Depreciation method for lease assets was stated in “3. Depreciation methods for noncurrent assets under

Significant accounting policies.

Finance lease transactions that do not transfer ownership whose start date falls on or before March

31, 2008 are accounted for by the same method as that applied to operating leases. The details of these

lease assets are as follows.

(1) Acquisition cost equivalent, accumulated depreciation and ending balance equivalent of lease

properties

(¥ thousand)

As of Nov. 30, 2011

Acquisition cost equivalent Accumulated depreciation Ending balance

equivalent

Tools, furniture and fixtures 16,462 13,719 2,743

Total 16,462 13,719 2,743

(¥ thousand)

As of Nov. 30, 2012

Acquisition cost equivalent Accumulated depreciation Ending balance

equivalent

Tools, furniture and fixtures 16,462 16,462 –

Total 16,462 16,462 –



(2) Future lease payments, etc.

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Future lease payments


Total 2,743 –

(Note) The ending balance of future lease payments equivalent is calculated using the inclusive-of-interest method, as the

ending balance of future lease payments constitutes a small portion of the ending balance of property, plant and

equipment, etc.

(3) Lease payments and depreciation equivalent

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2012)


(Dec. 1, 2011 - Nov. 30, 2012)

Lease payments 2,743 2,743

Depreciation expenses equivalent 2,743 2,743

(4) Calculation method of depreciation expenses equivalent

Depreciation expense is calculated by the straight-line method by considering lease period to be

useful life and residual value to be zero.

－ 98 －

2. Operating lease transactions (Lessee)

Future lease payments related to irrevocable operating lease transactions

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012


Total 1,974 –

3. Operating lease transactions (Lessor)

Future lease payments related to irrevocable operating lease transactions

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Due within one year 478,815 625,984

Due over one year 1,606,164 1,559,992

Total 2,084,980 2,185,977

(Securities)


As shares in subsidiaries (book value in the balance sheets: 785,372 thousand yen) have no market values

and, at the same time, it is considered extremely difficult to determine the fair values, they are omitted.


As shares in subsidiaries (book value in the balance sheets: 824,119 thousand yen) have no market

values and, at the same time, it is considered extremely difficult to determine the fair values, they are

omitted.

－ 99 －

(Tax effect accounting)

1. Significant components of deferred tax assets and liabilities

(¥ thousand)

As of Nov. 30, 2011 As of Nov. 30, 2012

Deferred tax assets

Current assets

Excess amount over limitation of taxable depreciation

expenses 188,420 213,137

Loss carried forward 534,701 470,659

Other 81,962 61,683

Subtotal 805,085 745,480

Noncurrent assets


for retirement benefits 39,625 38,507


for directors’ retirement benefits 116,022 107,899

Loss on valuation of subsidiaries’ stocks 53,811 10,869

Impairment loss 68,248 58,447

Loss on valuation of investment securities 12,137 10,550

Deficit carried forward on tax 813,094 –

Other 18,101 16,370

Subtotal 1,121,040 242,644


Total deferred tax assets 1,713,423 795,411

Deferred tax liabilities

Current liabilities

Other – (10,249)

Subtotal – (10,249)


Other (5,069) (5,302)

Subtotal (5,069) (5,302)

Total deferred tax liabilities (5,069) (15,552)

Net deferred tax assets 1,708,354 779,858

2. The reconciliation between the statutory effective tax rate and the effective tax rate after adoption of tax-

effect accounting

As of Nov. 30, 2011 As of Nov. 30, 2012

Statutory effective tax rate 41.0% 41.0%

(Adjustments)

Expenses not deductible permanently such as

entertainment expenses 0.7 0.2

Valuation reserves for deferred tax assets 0.9 0.4

Difference due to tax-rate changes – 3.1

Other 0.3 0.2

Effective tax rates after adoption of tax-effect accounting 42.9 44.9

3. Amendments to deferred tax assets and deferred tax liabilities due to changes in income tax rates, etc.

Following the promulgation on December 2, 2011 of the “Act for Partial Revision of the Income Tax Act,

etc. for the Purpose of Creating Taxation System Responding to Changes in Economic and Social

Structures” (Act No. 114 of 2011) and the “Act on Special Measures for Securing Financial Resources

Necessary to Implement Measures for Reconstruction following the Great East Japan Earthquake” (Act

No. 117 of 2011), corporate tax rates will be changed for the fiscal years beginning on or after April 1,

2012. In line with this change, the statutory effective tax rate used to measure deferred tax assets and

liabilities will be changed to 38.01% for calculating deferred tax assets and deferred tax liabilities from

－ 100 －

the fiscal year ending November 30, 2013 to the fiscal year ending November 30, 2015, and to 35.64% in

and after the fiscal years ending November 30, 2016.

Due to this change, deferred tax assets (current assets) and deferred tax assets (non-current assets)

decreased by 57,835 thousand yen and 5,929 thousand yen, respectively, while unrealized holding gains

and losses on securities and income taxes-deferred increased by 77 thousand yen and 63,687thousand yen,

respectively.

(Asset retirement obligations)

Asset retirement obligations recorded in the non-consolidated balance sheets

(1) Summary of relevant asset retirement obligations

Some of property, plant and equipment held by the Company contain asbestos or polychlorinated biphenyl

(PCB), which must be treated in special ways specified by laws when they are dismantled or removed.

The Company recognizes the disposal costs of them as asset retirement obligations. The laws that are

grounds for them are as follows: Disposal costs for asbestos Ordinance on Prevention of Health Impairment due to Asbestos

Disposal costs for equipment

containing PCB

Act on Special Measures Concerning Promotion of Proper Treatment of

Polychlorinated Biphenyl Waste (Act on Special Measures concerning PCB)

(2) Method for calculating the amount of relevant asset retirement obligations

The amount of asset retirement obligations is calculated by estimating the period of use as useful life of

the property and using a discount rate of 2.26% to 2.40%.

(3) Changes in amounts of relevant asset retirement obligations

(¥ thousand)


(Dec. 1, 2010 - Nov. 30, 2012)


(Dec. 1, 2011 - Nov. 30, 2012)

Balance at the beginning of the fiscal year (Note) 24,581 24,710

Adjustment due to passage of time 129 131

Balance at the end of the fiscal year 24,710 24,842

Note: For the fiscal year ended November 30, 2011, the “Accounting Standard for Asset Retirement Obligations” (ASBJ

Statement No. 18 of March 31, 2008) and the “Guidance on Accounting Standard for Asset Retirement Obligations”

(ASBJ Guidance No. 21 of March 31, 2008) were applied. Consequently, the balance is that of the beginning of the

fiscal year.

－ 101 －

(Per Share Information)


(Dec. 1, 2010 - Nov. 30, 2011)

Year ended Nov.30, 2012

(Dec. 1, 2011 - Nov. 30, 2012)

Net assets per share ¥53,371.94 ¥55,373.04

Net income per share ¥2,174.76 ¥2,497.95

Notes: 1. Diluted net income per share is not presented since the Company has no potential shares.

2. The basis for calculation of net income per share is as follows:

Item Year ended Nov. 30, 2011

(Dec. 1, 2010 - Nov. 30, 2011)

Year ended Nov.30, 2012

(Dec. 1, 2011 - Nov. 30, 2012)


Net income (¥ thousand) 993,517 1,141,163

Amount not attributable to common shareholders

(¥ thousand) – –

Net income related to common stock (¥ thousand) 993,517 1,141,163

Average number of shares of common stock outstanding

(Shares) 456,840 456,840

3. The basis for calculation of net assets per share is as follows:

Item As of Nov. 30, 2011 As of Nov. 30, 2012

Total net assets (¥ thousand) 24,382,434 25,296,620

Deduction from total net assets (¥ thousand) – –

Net assets related to common stock at fiscal year-end

(¥ thousand) 24,382,434 25,296,620

Number of shares of common stock outstanding at fiscal

year-end used for calculation of net assets per share

(Shares)

456,840 456,840

(Important subsequent events)

(Issuance of shares)

The Company passed a resolution at a meeting of its Board of Directors held on February 22, 2013 to

issue shares as Common stock. The number of shares to be issued will be 29,000, and the method of issue

will be by general public offering in the Singapore region and the overseas market (except for the US and

Canada) with the last payment date on 18 March, 2013.

The determination of the amount to be paid in, the amount of stated capital and capital reserves to be

increased, the issue price (the offer price), and any other matters necessary for the Offering will be

delegated to the Representative Director of the Company.

The funds will be allocated for acquisition of new properties, etc. in the Revitalization Business and the

Development Business and for investments made in Fund Business.

－ 102 －

d. Supplementary statements

[Detailed schedule of securities]

[Shares]

Issue Number of shares

(Shares)

Book value on the non-


sheet

(¥ thousand)

Investment securities Available-for-sale

securities

Jyutaku Sangyo Shinyou

Hoshou Kabushiki

Kaisha

120 1,200

Total 120 1,200

[Bonds]

Issue

Aggregate nominal

amount

(¥ thousand)



sheet

(¥ thousand)

Short-term investment

securities

Available-for-sale

securities

Shoko Chukin Bank

Warisho 10,000 10,000

Investment securities Available-for-sale

securities

Shoko Chukin Bank

Rissho 10,000 10,000

Total 20,000 20,000

[Other]

Type and issue

Number of

investment units

(Units)



sheet

(¥ thousand)

Investment

securities

Available-for-sale

securities

(Investment trust beneficiary

certificate)

Nippon Building Fund Inc. 1 865

Daiwa J-REIT Open 34,925,957 19,778

Jei Hudosan Shoken Toshi Houjin 1 38

(Preferred securities etc.)

Godo Kaisha Mariken Park – 200,000

Godo Kaisha Himawari – 17,769

Japan Opportunity 1 Tokutei

Mokuteki Kaisha 2,667 133,350

Clover Shiba Koen Tokutei Mokuteki

Kaisha 23,000 0

Gin Roku Tokutei Mokuteki Kaisha 35,615 0

Total 34,987,241 371,801

－ 103 －

[Detailed schedule of property, plant and equipment and others]

(¥ thousand)

Type of assets Balance as of Dec. 1, 2011

Increase in the

year ended

Nov. 30, 2012

Decrease in the

year ended

Nov. 30, 2012

Balance as of Nov. 30, 2012

Accumulated depreciation or

amortization

as of Nov. 30, 2012

Depreciation

during the year ended

Nov. 30, 2012

Carrying value

as of

Nov. 30, 2012


Buildings 4,918,293 54,776 3,929 4,969,139 1,015,923 114,834 3,953,216

Structures 22,137 – – 22,137 14,350 1,084 7,787

Machinery and equipment 880 – – 880 704 79 175

Vehicles – 12,581 – 12,581 2,793 2,793 9,788

Tools, furniture and fixtures 98,146 4,753 1,473 101,426 79,524 7,355 21,902

Land 9,401,475 66,130 – 9,467,606 – – 9,467,606

Lease assets 4,478 6,748 4,478 6,748 415 1,161 6,333

Total property, plant and equipment

14,445,411 144,990 9,881 14,580,520 1,113,710 127,309 13,466,809

Intangible assets

Software 98,551 4,150 3,014 99,686 63,185 19,864 36,501

Telephone subscription right 1,889 – – 1,889 – – 1,889

Total intangible assets 100,440 4,150 3,014 101,575 63,185 19,864 38,390

[Detailed schedule of allowances]

(¥ thousand)

Category Balance as of

Dec. 1, 2011

Increase in the year ended

Nov. 30, 2012

Decrease in

the year ended

Nov. 30, 2012 (specific purposes)

Decrease in the year ended

Nov. 30, 2012 (other)

Balance as of

Nov. 30, 2012

Allowance for doubtful

accounts 14,286 9,074 4,753 9,532 9,074

Provision for bonuses 96,789 89,826 96,789 – 89,826

Provision for directors’ retirement benefits

282,981 20,445 679 – 302,747

Allowance for investment loss 131,248 – – 102,652 28,596

Notes: 1. The amount shown in the decrease (other) in allowance for doubtful accounts in the year ended November 30, 2012

represents the reversal of the allowance after revaluation.

2. The amount shown in the decrease (other) in allowance for investment loss in the year ended November 30, 2012

represents the reversal of the allowance due to recovery of the financial status of subsidiaries.

－ 104 －

(2) Principal assets and liabilities

1) Current assets

i. Cash and deposits

(¥ thousand)

Category Amount

Cash 548

Deposits

Current deposits 1,123,102

Ordinary deposits 6,354,257

Time deposits 635,750

Subtotal 8,113,109

Total 8,113,658

ii. Accounts receivable-trade

Breakdown by customer

(¥ thousand)

Customers Amount

ORIX Corporation 5,157

Helios Capital Yugen Kaisha 3,838

Tosei Asset Advisors, Inc. 2,100

MEAL SYSTEM CO.,LTD. 1,314

Other 5,290

Total 17,700

Accrual, collection and retention of accounts receivable-trade

Balance as of

Dec. 1, 2011 (¥ thousand)

Accrual in the year

ended Nov. 30, 2012 (¥ thousand)

Collection in the year

ended Nov. 30, 2012 (¥ thousand)

Balance as of

Nov. 30, 2012 (¥ thousand)

Collection rate

(%)

Retention period

(Day)

(A) (B) (C) (D)

(C) ———————

(A) + (B)

× 100

(A) + (D) ———————

2 ———————————

(B) ———————

366

48,000 579,240 609,540 17,700 97.2 20.8

－ 105 －

iii. Real estate for sale

(¥ thousand)

Regions Land area (m2) Amount

Yokohama-shi, Kanagawa 26,169.32 5,740,969

Ota-ku, Tokyo 1,617.13 5,240,289

Shinjuku-ku, Tokyo 7,817.63 2,792,296

Chiyoda-ku, Tokyo 873.38 2,730,447

Other 27,240.18 13,829,197

Total 63,717.64 30,333,200

iv. Real estate for sale in process

(¥ thousand)

Regions Land area (m2) Amount

Shibuya-ku, Tokyo 1,024.34 1,230,925

Kita-ku, Tokyo 1,193.24 858,794

Chuo-ku, Tokyo 300.11 588,829

Bunkyo-ku, Tokyo 1,254.00 531,155

Other 273,041.82 2,234,679

Total 276,813.51 5,444,385

v. Supplies

(¥ thousand)

Item Amount

Postage stamps 102

Revenue stamps 138

Envelopes 106

Other 882

Total 1,228

2) Current liabilities

i. Notes payable-trade

Breakdown by customer

(¥ thousand)

Customers Amount

Tokyu Construction Co., Ltd. 738,650

Dai Nippon Construction 380,730

Total 1,119,380

Breakdown by maturity date

(¥ thousand)

Maturity date Amount

December 2012 380,730

January 2013 738,650

Total 1,119,380

ii. Accounts payable-trade

(¥ thousand)

Customers Amount

NIHON KEIZAI ADVERTISING CO.,LTD. 145,214

Kabushiki Kaisha Kouwa 34,215

TAKIGUCHI KOUGYOU 33,250

COSMOS MORE CO., LTD. 23,100

Other 151,792

Total 387,572

－ 106 －

iii. Current portion of long-term loans payable

(¥ thousand)

Customers Amount

The Bank of Yokohama, Ltd. 1,128,300

Sumitomo Mitsui Trust Bank, Limited 986,000

The Bank of Tokyo-Mitsubishi UFJ, Ltd . 810,835

Aozora Bank, Ltd. 751,000

Other 3,427,052

Total 7,103,187

iv. Long-term loans payable

(¥ thousand)

Customers Amount

The Shoko Chukin Bank, Ltd. 4,074,108

Kansai Urban Banking Corporation 2,850,200

The Tokyo Star Bank, Limited 1,903,000

Mizuho Bank, Ltd. 1,843,408

Other 12,185,433

Total 22,856,149

(3) Others

None

－ 107 －

VI. Outline of filing company’s business concerning shares

Business year From December 1 to November 30

Ordinary General Meeting of

Shareholders February

Record date November 30

Record dates for dividends

from surplus

May 31

November 30

Share trade unit –

Purchase of shares less than

one unit:

Office for handling business None

Shareholder registry

administrator None

Forwarding office None

Handling charge for

purchase None

Method of public notice

Electronic public notice will be made.

URL for public notice:

http://www.toseicorp.co.jp/ir/publicly/index.html

However, if it is impossible to publish public notices electronically

because of an accident or other unavoidable circumstances, the public

notices shall be made by publication in the Nihon Keizai Shimbun.

Special benefits for

shareholders None

－ 108 －

VII. Reference information on filing company

1. Information on filing company’s parent company

Tosei does not have a parent company as described by the provisions of Article 24-7, Paragraph 1 of the

Financial Instruments and Exchange Act.

2. Other reference information

From the beginning of this fiscal year until the filing date of this Annual Securities Report, Tosei has filed

the following documents.

(1) Annual Securities Report and Appendices, and Written Confirmation

62nd term; from December 1, 2010 to November 30, 2011, filed to Director-General of Kanto Local

Finance Bureau on February 28, 2012.

(2) Internal Control Report and Appendices

Filed to Director-General of Kanto Local Finance Bureau on February 28, 2012.

(3) Quarterly Securities Reports and Written Confirmations

First quarter of the 63rd term; from December 1, 2011 to February 29, 2012, filed to Director-General

of Kanto Local Finance Bureau on April 9, 2012.

Second quarter of the 63rd term; from March 1, 2012 to May 31, 2012, filed to Director-General of

Kanto Local Finance Bureau on July 10, 2012.

Third quarter of the 63rd term; from June 1, 2012 to August 31, 2012, filed to Director-General of

Kanto Local Finance Bureau on October 10, 2012.

(4) Extraordinary Reports


Extraordinary Report based on Article 24-5, Paragraph 4 of the Financial Instruments and Exchange

Act, Article 19, Paragraph 1 of the Cabinet Office Ordinance on Disclosure of Corporate Information,

etc. and Article 19, Paragraph 2, Item 1 of the same Ordinance.


Extraordinary Report based on Article 19, Paragraph 2, Item 9-2 (Results of Exercise of Voting

Rights) of the Cabinet Office Ordinance on Disclosure of Corporate Information, etc.

－ 109 －

B. Information on Guarantee Companies, etc. of Filing Company No items to report

－ 110 －

Independent Auditors’ Audit Report and Internal Control Audit Report

February 25, 2013

To the Board of Directors of

Tosei Corporation

Shinsoh Audit Corporation

Designated and Engagement Partner,

Certified Public Accountant:

Giichi Yanagisawa (Seal)



Takashi Aikawa (Seal)

[Audit of Financial Statements]

Pursuant to the first paragraph of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act,

we have audited the consolidated financial statements included in the Accounting Section, namely, the

consolidated balance sheets, and the related consolidated statements of operations, comprehensive income,

changes in net assets and cash flows, the significant accounting policies, the other related notes and

consolidated supplementary schedules of Tosei Corporation and consolidated subsidiaries for the fiscal year

from December 1, 2011 to November 30, 2012.

Management’s Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of these consolidated financial

statements in accordance with accounting principles generally accepted in Japan, and for designing and

operating such internal control as management determines is necessary to enable the preparation and fair

presentation of the consolidated financial statements that are free from material misstatement, whether

due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We

conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated

financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the

assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud

or error. The purpose of an audit of the consolidated financial statements is not to express an opinion on the

effectiveness of the entity’s internal control, but in making these risk assessments the auditor considers

internal controls relevant to the entity’s preparation and fair presentation of the consolidated financial

statements in order to design audit procedures that are appropriate in the circumstances. An audit also includes

evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates

made by management, as well as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our

audit opinion.

Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the financial position of Tosei Corporation and consolidated subsidiaries as of November 30, 2012, and the

consolidated results of their operations and their cash flows for the year then ended in conformity with

accounting principles generally accepted in Japan.

Matter for Emphasis As stated in “important subsequent events,” Tosei Corporation passed a resolution at a meeting of its Board of

Directors held on February 22, 2013 to issue shares as Common stock.

This matter did not have a material effect on our opinion.

[Audit of Internal Control over Financial Reporting]

Pursuant to the second paragraph of Article 193-2, Paragraph 2of the Financial Instruments and Exchange Act,

we have audited management’s report on internal control over financial reporting of Tosei Corporation as of

November 30, 2012.

Management’s Responsibility for the Management’s Report Management is responsible for designing and operating internal control over financial reporting, and for the

preparation and fair presentation of the Management’s Report in accordance with standards for assessment of

internal control over financial reporting generally accepted in Japan.

Internal control over financial reporting may not prevent or detect misstatements.

Auditor’s Responsibility

Our responsibility is to express an opinion on the Management’s Report based on our internal control audit.

We conducted our internal control audit in accordance with auditing standards for internal control over

financial reporting generally accepted in Japan. Those standards require that we plan and perform the audit to

obtain reasonable assurance about whether the Management’s Report is free from material misstatement.

An internal control audit involves performing procedures to obtain audit evidence about the result of

management’s assessment on internal control over financial reporting in the Management’s Report. The

procedures selected depend on the auditor’s judgment, including the materiality of effect on the reliability of

financial reporting. An internal control audit also includes evaluating the overall presentation of the

Management’s Report, including disclosures on scope, procedures and conclusions of management’s

assessment of internal control over financial reporting.


audit opinion.

Opinion In our opinion, the Management’s Report referred to above, which represents that the internal control over

financial reporting as at November 30, 2012 of Tosei Corporation is effective, present fairly, in all material

respects, the result of management’s assessment on internal control over financial reporting in conformity

with standards for assessment of internal control over financial reporting generally accepted in Japan.

Conflicts of Interest We have no interest in the Company which should be disclosed in compliance with the Certified Public

Accountants Act.

*1. The above is a digitization of the text contained in the original copy of the Audit Report, which is in the custody of the

Company as attachments to the financial statements.

2. The section of financial statements of this report does not contain their XBRL data.

※The English version of the financial statements consists of an English translation of the audited Japanese

financial statements. The actual text of the English translation of the financial statements was not covered by

our audit. Consequently, for the auditor’s report of the English financial statements, the Japanese original is

the official text, and the English version is a translation of that text.

Independent Auditors’ Audit Report

February 25, 2013

To the Board of Directors of

Tosei Corporation

Shinsoh Audit Corporation



Giichi Yanagisawa (Seal)



Takashi Aikawa (Seal)

Pursuant to the first paragraph of Article 193-2, Paragraph 1 of the Financial Instruments and Exchange Act,

we have audited the financial statements included in the Accounting Section, namely, the balance sheets and

the related statements of operations and changes in net assets, the significant accounting policies, the other

related notes and supplementary schedules of Tosei Corporation for the 63rd fiscal year from December 1,

2011 to November 30, 2012.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in

accordance with accounting principles generally accepted in Japan, and for designing and operating such

internal control as management determines is necessary to enable the preparation and fair presentation of

the non-consolidated financial statements that are free from material misstatement, whether due to fraud

or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our

audit in accordance with auditing standards generally accepted in Japan. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the

financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of

the risks of material misstatement of the financial statements, whether due to fraud or error. The purpose of an

audit of the financial statements is not to express an opinion on the effectiveness of the entity’s internal

control, but in making these risk assessments, the auditor considers internal controls relevant to the entity’s

preparation and fair presentation of the non-consolidated financial statements in order to design audit

procedures that are appropriate in the circumstances. An audit also includes evaluating the appropriateness of

accounting policies used and the reasonableness of accounting estimates made by management, as well as

evaluating the overall presentation of the financial statements.


audit opinion.

Opinion

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial

position of Tosei Corporation as of November 30, 2012, and its financial performance for the year then ended

in conformity with accounting principles generally accepted in Japan.

Matter for Emphasis

As stated in “important subsequent events,” Tosei Corporation passed a resolution at a meeting of its Board of

Directors held on February 22, 2013 to issue shares as Common stock.

This matter did not have a material effect on our opinion.

Conflicts of Interest We have no interest in the Company which should be disclosed in compliance with the Certified Public

Accountants Act.

*1. The above is a digitization of the text contained in the original copy of the Audit Report, which is in the custody of the

Company as attachments to the financial statements.

2. The section of financial statements of this report does not contain their XBRL data.

※The English version of the financial statements consists of an English translation of the audited Japanese

financial statements. The actual text of the English translation of the financial statements was not covered by

our audit. Consequently, for the auditor’s report of the English financial statements, the Japanese original is

the official text, and the English version is a translation of that text.

[Cover]

Document to be filed: Management’s Report on Internal Control

Provisions to base upon: Article 24-4-4, paragraph (1) of the Financial Instruments and

Exchange Act

Filing to: Director-General of the Kanto Local Finance Bureau

Date of filing: February 28, 2013

Company name (Japanese): トーセイ株式会社 (Tosei Kabushiki-Kaisha)

Company name (English): TOSEI CORPORATION

Title and name of representative: Seiichiro Yamaguchi, President and CEO

Title and name of Chief Financial

Officer

Noboru Hirano, Director and CFO

Location of head office: 4-2-3, Toranomon, Minato-ku, Tokyo, Japan

Places where the document to be filed is

available for public inspection:

Tokyo Stock Exchange, Inc.

(2-1, Nihonbashi-kabutocho, Chuo-ku, Tokyo)

1. Basic Framework of Internal Control Over Financial Reporting

Seiichiro Yamaguchi, President and CEO of TOSEI CORPORATION (the “Company”) and Noboru Hirano,

CFO Senior Executive Officer of the Company, having the responsibility to design and operate internal

control over financial reporting of the Company, designs and operates such internal control of the Company in

accordance with the basic framework set forth in “On the Setting of the Standards and Practice Standards for

Management Assessment and Audit concerning Internal Control Over Financial Reporting (Council

Opinions)” published by the Business Accounting Council.

Note that internal control aims at achieving its objectives to a reasonable extent given that all individual

components of internal control are integrated, and function as a whole. Thus, internal control over financial

reporting may not be able to completely prevent or detect misstatement in financial reporting.

2. Scope of Assessment, Assessment Date and Assessment Procedure

Assessment of internal control over financial reporting was performed as of November 30, 2012 (i.e., the last

day of this fiscal year) in accordance with assessment standards for internal control over financial reporting

generally accepted in Japan.

In this assessment, the management first assessed company-level control which would have a material

impact on the reliability of overall financial reporting on a consolidated basis, and based on such result, the

management then selected the business processes to be assessed. In the process-level control assessment, the

management assessed the effectiveness of internal control by analyzing the business processes in scope,

identifying key controls that would have a material impact on the reliability of the financial reporting, and

assessing the design and operation of such key controls.

Management determined the scope of assessment of internal control over financial reporting, by selecting

the Company, consolidated subsidiaries and companies accounted for by the equity method based on their

materiality of impacts on the reliability of financial reporting. The materiality of the impacts on the reliability

of financial reporting was determined in consideration of both quantitative and qualitative aspects, and the

management reasonably determined the scope of assessment of process-level control based on the result of the

company-level control assessment, which included the Company and its 3 significant consolidated

subsidiaries.

For the purpose of determining the scope of process-level control assessment, 1 business location was

selected as “Significant Business Locations”, which comprises the Company and its consolidated subsidiaries

selected in descending order based on their fiscal year’s consolidated net sales (after elimination) and

contributed approximately two-thirds of the Company’s consolidated net sales in the aggregate. Note that the

management confirmed that the scope of internal control assessment was sufficient based on this fiscal year’s

consolidated net sales. In such Significant Business Locations, all business processes related to the accounts

that are closely associated with the Company’s business objectives, such as sales, accounts receivable, and

inventory were included in the scope of assessment. Furthermore, regardless of the Significant Business

Locations, certain business processes related to significant accounts involving estimates and management’s

judgment were added to the scope of assessment as “business processes with material impacts on financial

reporting.”

3. Assessment Result

Based on the above mentioned assessment results, the management concluded that the internal control over

financial reporting at the end of this fiscal year was effective.

4. Supplementary Information

None

5. Special Affairs

None