Non-Consolidated Financial Statements
Yodogawa Steel Works, Ltd.
Years ended March 31, 1998 and 1999
with Report of Independent Certified Public Accountants

Yodogawa Steel Works, Ltd.
Non-Consolidated Financial Statements
Years ended March 31, 1998 and 1999

Contents

Non-Consolidated Financial Statements
Report of Independent Certified Public Accountants .................................................................................................1
Non-Consolidated Balance Sheets.................................................................................................................................2
Non-Consolidated Statements of Income .....................................................................................................................4
Non-Consolidated Statements of Shareholders’ Equity.............................................................................................5
Non-Consolidated Statements of Cash Flows..............................................................................................................6
Notes to Non-Consolidated Financial Statements.......................................................................................................7

Report of Independent Certified Public Accountantson the Non-Consolidated Financial Statements
The Board of Directors and Shareholders
Yodogawa Steel Works, Ltd.

We have examined the non-consolidated balance sheets of Yodogawa Steel Works, Ltd. as of March 31,
1998 and 1999, and the related non-consolidated statements of income, shareholders’ equity, and cash
flows for the years then ended, all expressed in yen. Our examinations were made in accordance withauditing standards, procedures and practices generally accepted and applied in Japan and, accordingly,
included such tests of the accounting records and such other auditing procedures as we considerednecessary in the circumstances.
In our opinion, the accompanying non-consolidated financial statements, expressed in yen present fairly thefinancial position of Yodogawa Steel Works, Ltd. at March 31, 1998 and 1999, and the results of its
operations and its cash flows for the years then ended in conformity with accounting principles andpractices generally accepted in Japan applied on a consistent basis.
The U.S. dollar amounts in the accompanying non-consolidated financial statements with respect to theyear ended March 31, 1999 are presented solely for convenience. Our examination also included thetranslation of yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on
the basis described in Note 2 to the non-consolidated financial statements.

Osaka, Japan
June 29, 1999

Yodogawa Steel Works, Ltd.
Non-Consolidated Balance Sheets
March 31, 1998 and 1999

Millions of yen

AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Marketable securities (Note 3)
Notes and accounts receivable:
Subsidiaries and affiliates
Trade
Less allowance for doubtful receivables
Inventories (Note 4)
Trust certificates
Other current assets
Total current assets

Property, plant and equipment, at cost
(Note 5):Land
Buildings and structures
Machinery and equipment
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net

Investments and other assets:
Investments in securities
Investments in and advances to subsidiaries andaffiliates (Note 3)
Other assets
Total investments and other assets

2

Thousands of
U.S. dollars(Note 2)

1998

1999

1999

¥ 10,689
30
26,614¥ 9,853
8,700
31,192$

24,042
25,687(286)
27,377
999
3,809
118,961

20,544
20,514(196)
27,441
2,697
2,833
123,578

170,419
170,170(1,626)
227,632
22,372
23,501
1,025,118

18,694
38,15693,547
7,374(96,565)

18,55237,78595,001
9,072(99,728)

153,895
313,438
788,063
75,255(827,275)

61,206

60,682

503,376

1,094

1,068

8,859

13,378
1,486

13,328
1,487

110,560
12,336

15,95815,883

131,755¥196,125¥200,143$1,660,249

81,734
72,169258,747

Millions of yen

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 5)
Notes and accounts payable:
Subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes (Note 7)
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Note 5)
Retirement allowances (Note 8)
Guarantee deposits (Note 5)
Total long-term liabilities

Thousands of
U.S. dollars(Note 2)

1998

1999

1999

¥ 8,990¥ 10,000$

2,833
23,718
5,807
4,232
1,774
1,029

2,330
19,134
2,448
3,646
1,997
1,111

19,328
158,723
20,30730,245
16,566
9,215

48,383

40,666337,337

–
7,623
1,615

15,0007,444
1,423

124,430
61,75011,805

9,238

23,867

197,985

23,221–
23,4972,921
88,865–23,221
23,4973,089
85,803–
192,625
194,915
25,624
711,763

82,953

Commitments and contingent liabilities (Note 11)
Shareholders’ equity (Note 6):
Common stock, ¥50 par value:
Authorized - 800,000,000 shares;
Issued March 31, 1998 - 230,372,086 shares
March 31, 1999 - 222,538,086 shares
Additional paid-in capital
Legal reserve (Note 12)
Retained earnings (Note 12)
Total shareholders’ equity

138,504

135,610

1,124,927¥196,125¥200,143$1,660,249

See notes to non-consolidated financial statements.
3

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Income
Years ended March 31, 1998 and 1999

Thousands of
U.S. dollars(Note 2)Millions of yen

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses (Note 9)
Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of marketable equity securities
Loss on revaluation of marketable equity securities
Gain on sales of property, plant and equipment
Loss on sales or disposal of property, plant andequipment
Other, net
Income before income taxes
Income taxes (Note 7)
Net income

1998

1999

1999

¥140,377
113,674¥121,274
98,447$1,006,006
816,649

26,703

22,827

189,357

18,807

17,951

148,909

7,896

4,876

40,448

1,940
(571)
1,479
(2,369)
72

1,430
(359)
9
(1,252)488

11,862(2,978)75(10,386)
4,048

(286)
561

(682)
59

(5,657)
489

8,722

4,569

37,901

3,587

2,234

¥ 5,135¥ 2,335¥22.46
7.00

19,370U.S. dollars(Note 2)

Yen
Amounts per share:
Net income
Cash dividends

18,531$¥10.26
7.00

$0.09
0.06

See notes to non-consolidated financial statements.
4

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Shareholders’ Equity
Years ended March 31, 1998 and 1999

Thousands of
U.S. dollars(Note 2)Millions of yen
1998

1999

1999

¥21,217¥23,221$192,625

Exercise of warrants

2,004

–

–

Balance at end of the year

¥23,221¥23,221$192,625

Additional paid-in capital
Balance at beginning of the year
Add:

¥21,499¥23,497$194,915

1,998¥23,497–¥23,497–$194,915¥ 2,756¥ 2,921$ 24,231165¥ 2,921168¥ 3,089

1,393$ 25,624¥85,543¥88,865$737,163

5,135

2,335

19,370

1,583
65
165
–

1,606
65
168
3,558

13,322539
1,394
29,515¥88,865¥85,803$711,763

Common stock
Balance at beginning of the year
Add:

Exercise of warrants
Balance at end of the year
Legal reserve
Balance at beginning of the year
Add:
Transfer from retained earnings
Balance at end of the year
Retained earnings
Balance at beginning of the year
Add:
Net income
Deduct:Cash dividends paid
Bonuses to directors and statutory auditors
Transfer to legal reserve
Retirement of treasury common stock
Balance at end of the year

See notes to non-consolidated financial statements.
5

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Cash Flows
Years ended March 31, 1998 and 1999

Operating activities
Net income
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization
Reversal of retirement allowances, less payments
Gain on sales of property, plant and equipment
Loss on sales or disposal of property, plant and equipment
Gain on sales of marketable equity securities
Loss on revaluation of marketable equity securities
Changes in operating assets and liabilities:
Notes and accounts receivable
Inventories
Other current assets
Notes and accounts payable
Accrued expenses
Accrued income taxes
Other current liabilities
Guarantee deposits
Net cash provided by operating activities
Investing activities
Decrease (increase) in short-term investments and marketablesecurities
Increase in short-term loans receivable from subsidiaries andaffiliates
Increase in trust certificates
Purchases of property, plant, and equipment
Proceeds from sales of property, plant, and equipment(Increase) decrease in investments in securities(Increase) decrease in investments in and advances tosubsidiaries and affiliates
Increase in other assets
Net cash provided by (used in) investing activities
Financing activities
Increase in short-term bank loans
Proceeds from exercise of warrants
Reduction of principal of long-term debt
Proceeds from long-term debt
Cash dividends to shareholders and bonuses to directors andstatutory auditors
Retirement of treasury common stock
Net cash (used in) provided by financing activities
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest

Millions of yen
1998
1999

Thousandsof U.S.
dollars(Note 2)
1999

¥ 5,135¥ 2,335$ 19,370

5,415
(265)
(72)
159
(1,479)
2,369

5,209
(179)
(488)
416
(9)
1,252

43,210(1,485)(4,048)3,451(75)
10,3862,802(2,617)
(328)
843
(134)
(2,112)(1,291)
(543)
7,882

8,581
(56)
1,603
(5,087)
(586)
223
82
(192)
13,104

71,182(465)
13,297(42,198)(4,861)
1,850
680(1,592)
108,702

27,779(14,476)(120,083)

(180)
(96)
(9,461)
82
(6)

(607)
(1,698)(8,678)779
11(5,035)(14,085)(71,987)
6,462
91(2,755)(52)
15,31130(17)(24,656)249(141)(204,529)

1,000
4,002
(29,528)
–

1,010
–
–
14,935

8,378––
123,890(1,648)–(26,174)(2,981)
13,670¥ 10,689(1,671)(3,558)
10,716(836)
10,689¥ 9,853(13,861)(29,515)88,892(6,935)88,669$ 81,734

¥

¥

$

654

273

2,265

See notes to non-consolidated financial statements.
6

Yodogawa Steel Works, Ltd.
Income taxes

5,699

2,010

16,674

See notes to non-consolidated financial statements.
7

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements
March 31, 1998 and 1999

1. Summary of Significant Accounting Policies(a)Basis of Presentation
Yodogawa Steel Works, Ltd. (the “Company”) maintains its accounting records and prepares its
financial statements in accordance with accounting principles and practices generally accepted inJapan. The accompanying non-consolidated financial statements have been compiled from thefinancial statements prepared by the Company as required by the Securities and Exchange Law ofJapan and include certain additional financial information for the convenience of readers outside
Japan. Accordingly, the accompanying non-consolidated financial statements are not intended topresent the financial position, results of operations and cash flows in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
Non-consolidated statements of cash flows have been prepared for the purpose of inclusion in thesefinancial statements, although such statements are not currently required in Japan.
Certain reclassifications of previously reported amounts have been made to conform thenon-consolidated balance sheet and statement of cash flows for the year ended March 31, 1998 to the1999 presentation. Such reclassifications had no effect on non-consolidated net income orshareholders’ equity.

(b)

Foreign Currency Translation
Current monetary assets denominated in foreign currencies are translated into yen at the exchange
rates prevailing at the balance sheet date. Other assets denominated in foreign currencies aretranslated at their historical rates. All revenues and expenses associated with foreign currencies aretranslated at the rates of exchange prevailing when such transactions were made. The resulting
exchange losses and gains are charged or credited to income.

(c)Marketable Securities and Investments in Securities
Marketable securities are stated at the lower of cost or market, cost being determined by the moving
average method.
Securities other than marketable securities are stated at cost determined by the moving averagemethod.

8

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)(d)Inventories
Finished goods, work in process and raw materials are stated at cost principally determined by thelast-in, first-out method. Supplies are stated at cost determined by the first-in, first-out method.
Real estate held for sale is stated at cost determined by the specific identification method.

(e)

Property, Plant and Equipment and Depreciation
Property, plant and equipment is stated on the basis of cost.
Depreciation of property, plant and equipment is calculated by the declining-balance method over theuseful lives of the respective assets as prescribed by the Corporation Tax Law, except that thestraight-line method is applied to buildings (except for structures attached to the buildings) acquired
subsequent to April 1, 1998.
Effective April 1, 1998, the Company shortened the useful lives of buildings (except for the structuresattached to the buildings) as a result of a revision to the Corporation Tax Law. The effect of thischange in useful lives increased depreciation expense by ¥104 million ($863 thousand) and decreased
operating income and income before income taxes by ¥104 million ($863 thousand) for the year
ended March 31, 1999 from the amounts which would have been recorded if the useful lives appliedin the previous year had been used.
Significant renewals and additions are capitalized at cost. Maintenance and repairs are charged toincome as incurred.

(f)Cash Equivalents
The Company considers all highly liquid investments with a maturity of three months or less whenpurchased to be cash equivalents.

(g)

Research and Development Expenses
Research and development expenses are charged to income as incurred.

9

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)(h)Bond Issuance Expenses
Bond issuance expenses are charged to income as incurred.

(i)

LeasesThe Company leases certain equipment under noncancelable lease agreements referred to as financeleases. Finance leases other than those which transfer the ownership of the leased property to theCompany are accounted for as operating leases.

(j)

Income Taxes
Income taxes are calculated on taxable income and charged to income on an accrual basis. Deferredincome taxes pertaining to timing differences between financial and tax reporting are not provided.

(k) Retirement Allowances and Pension Plans
Employees of the Company are covered by an employees’ retirement allowances plan and an
employees’ pension plan. The employees’ retirement allowances plan provides for a lump -sumpayment determined by reference to the basic salary, length of service and conditions under which thetermination occurs. The employees’ pension plan, which is a funded non-contributory plan, partiallycovers the benefits under the employees’ retirement allowances plan to employees who retire after
fifteen or more years of service.
Retirement allowances are stated at the amount which would be required to be paid if all employees
covered by the retirement allowances plan voluntarily terminated their employment at the balance
sheet date, less the assets of the pension fund.
The Company’s officers, including the directors and statutory auditors, are customarily entitled tolump -sum payments under the unfunded retirement allowances plan. Retirement allowances forthese officers have been made at estimated amounts based on the Company’s internal rules.

10

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

1. Summary of Significant Accounting Policies (continued)(l)Amounts per Share
The computation of net income per share is based on the weighted average number of shares ofcommon stock outstanding during each year.
Cash dividends per share represent the cash dividends declared as applicable to the respective years.

2. U.S. Dollar Amounts
The translation of yen amounts into U.S. dollar amounts is included solely for convenience, as a matter ofarithmetic computation only, at the rate of ¥120.55 = U.S.$1.00, the approximate exchange rate prevailingon March 31, 1999. The translation should not be construed as a representation that yen have been, could
have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

3. Marketable Securities and Investments in Subsidiaries and Affiliates
Information with respect to the book and market value of the marketable securities included in current
assets and investments in subsidiaries and affiliates at March 31, 1998 and 1999 is summarized as follows:
Thousands of
U.S. dollars

Millions of yen
1998

Marketable securities
Investments in subsidiaries
and affiliates

1999

1999

Book
value

Market
value

Book
value

Marketvalue

Book valueMarketvalue¥19,819¥41,894¥18,702¥37,245$155,139$308,959

11,31020,12011,31013,12093,820108,835

11

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

4. Inventories
Inventories at March 31, 1998 and 1999 were as follows:

Millions of yen
1998
1999
Finished goods
Work in process
Raw materials and supplies
Real estate held for sale

Thousands of
U.S. dollars
1999¥16,282
3,838
7,073
184

¥16,282
3,692
7,283
184

$135,064
30,62660,415
1,527¥27,377¥27,441$227,632

5. Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits
Short-term bank loans represent overdrafts at annual interest rates of approximately 1.590% and 0.9% at
March 31, 1998 and 1999, respectively.
Long-term debt at March 31, 1998 and 1999 was as follows:

Millions of yen
1998
1.8% unsecured bonds, payable in yen,due 2002
2.0% unsecured bonds, payable in yen,due 2003
Unsecured loans from banks and an insurancecompany, due 2001 withan interest rate of 1.72%¥¥

Thousands of
U.S. dollars

1999

–

¥

5,000

1999

$

41,477–5,000

41,477–5,000

41,476–¥15,000$124,430

12

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

5. Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits (continued)
The aggregate annual maturities of long-term debt subsequent to March 31, 1999 are summarized asfollows:
Millionsof yenThousands of
U.S. dollars

Year ending March 31,
2002
2003

¥

5,000
5,000
5,000
15,000

2004
¥

$

$

41,477
41,477
41,476
124,430

The assets pledged as collateral for short-term bank loans at March 31, 1998 and 1999 were as follows:

Millions of yen
1998
1999
Property, plant and equipment,
at net book value¥28,118

Thousands of
U.S. dollars
1999¥26,527$220,050

Guarantee deposits consist principally of guarantee deposits from tenants at annual interest rates from 1%
to 4%. The aggregate annual maturities of guarantee deposits subsequent to March 31, 1999 aresummarized as follows:
Millionsof yenThousands of
U.S. dollars

¥

3
3
3
3
3
1,408

$

25
25
25
25
25
11,680¥ 1,423$

11,805

Year ending March 31,
2000
2001
2002
2003
2004
2005 and thereafter13

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

6. Shareholders’ Equity
The Commercial Code of Japan provides that an amount equivalent to at least 10% of cash dividends andother cash appropriations from retained earnings be transferred to the legal reserve until such reserve equals
25% of common stock. The legal reserve may be used to reduce or eliminate a deficit or may betransferred to common stock through suitable shareholders’ and directors’ action, but is not available for thepayment of dividends.

7. Income Taxes
Income taxes applicable to the Company comprise corporation, inhabitants ’ and enterprise taxes which, inthe aggregate, resulted in statutory tax rates of approximately 51.4% for 1998 and 47.4% for 1999. The
effective tax rates reflected in the accompanying non-consolidated statements of income differ from thestatutory tax rates primarily due to the effect of timing differences in the recognition of certain income andexpenses for tax and financial reporting purposes and the effect of permanent non-deductible expenses.

8. Retirement Allowances and Pension Plans
The charges to income for retirement allowances and pension plans for the years ended March 31, 1998 and1999 were as follows:

Millions of yen

Provision for retirement allowances
Pension costs

Thousands of
U.S. dollars

1998

1999

1999

¥901
334

¥881
323

$7,3082,679

The assets of the pension fund at March 31, 1998 and 1999 were as follows:

Millions of yen

Thousands of
U.S. dollars

1998

1999

1999

¥2,847¥2,812$23,326

14

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

9. Research and Development Expenses
Research and development expenses included in selling, general and administrative expenses for the years
ended March 31, 1998 and 1999 were as follows:
Thousands of
U.S. dollars

Millions of yen
1998
1999
¥549

1999

¥669

$5,550

10. Leases
The following pro forma amounts present the acquisition costs, accumulated depreciation and net bookvalue of leased property as of March 31, 1998 and 1999, which would have been reflected in the balance
sheets if finance leases other than those which transfer the ownership of the leased property to the Company(which are currently accounted for as operating leases) were capitalized:
Millions of yen

Machineryandequipment

Acquisi-t
ion costs

1998
Accumu -l
ated
depreci-at
ion

Net
book
value

¥322

¥171

¥151

Acquisi-t
ion cost

1999
Accumu -l
ated
depreci-at
ion

Net
book
value

Thousands of U.S. dollars
1999
Accumu -latedNet
Acquisi-t depreci-at
book
ion costs
ion
value

¥286

¥144

¥142

$2,372$1,194$1,178The related lease payments and depreciation expense for the years ended March 31, 1998 and 1999 were as
follows:

Millions of yen
1998
1999
Lease payments
Depreciation expense

¥67
67

¥62
62

Thousands of
U.S. dollars
1999
$514
514

Depreciation is calculated by the straight-line method over the respective lease terms.

15

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)

10. Leases (continued)
Future minimum payments (including the interest portion thereon) subsequent to March 31, 1999 underfinance leases other than those which transfer the ownership of the leased property to the Company aresummarized as follows:Year ending March 31,
2000
2001 and thereafter

Millionsof yenThousands of
U.S. dollars

¥ 59
83

$ 489
689

¥142

$1,178

11. Commitments and Contingent Liabilities
The Company enters into forward foreign currency exchange contracts, interest rate swap agreements, andother agreements to manage its risk exposure to fluctuations in foreign currency exchange rates and interest
rates. At March 31, 1999, no such contracts or agreements remained open.
At March 31, 1999, the Company had the following contingent liabilities:

As guarantor of housing loans of employees and indebtedness of a
subsidiary

Millionsof yenThousands of U.S.
dollars¥230$1,908

12. Subsequent Event
The following appropriations of retained earnings, which have not been reflected in the accompanying
non-consolidated financial statements for the year ended March 31, 1999, were approved at a shareholders’meeting held on June 29, 1999:

Cash dividends of ¥3.5 ($0.03) per share
Transfer to legal reserve
Bonuses to directors and statutory auditors

Millionsof yenThousands of
U.S. dollars

¥779
84
60

$6,462697
498

16