Financial Statements
Years ended March 31,2004 and 2005

Contents

Consolidated Financial Statements........................................................................................1
Report of Independent Auditors ..............................................................................................2
Consolidated Balance Sheets ..................................................................................................3
Consolidated Statements of Income........................................................................................5

Consolidated Statements of Shareholders’ Equity ..............................................................6
Consolidated Statements of Cash Flows ................................................................................7
Notes to Consolidated Financial Statements.........................................................................9

Non-Consolidated Financial Statements..............................................................................32
Report of Independent Auditors ............................................................................................33
Non-Consolidated Balance Sheets ........................................................................................34
Non-Consolidated Statements of Income .............................................................................36
Non-Consolidated Statements of Shareholders’ Equity ......................................................37
Notes to Non-Consolidated Financial Statements...............................................................38

Yodogawa Steel Works, Ltd.

Consolidated Financial Statements
Yodogawa Steel Works, Ltd.
Years ended March 31, 2004 and 2005
with Report of Independent Auditors

1

Report of Independent Auditors

The Board of Directors
Yodogawa Steel Works, Ltd.

We have audited the accompanying consolidated balance sheets of Yodogawa Steel Works,
Ltd. as of March 31, 2004 and 2005, and the related consolidated statements of income,shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits 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 of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Yodogawa Steel Works, Ltd. andconsolidated subsidiaries at March 31, 2004 and 2005, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended March 31, 2005 are presented solely for convenience. Our audit
also included the translation of yen amounts into U.S. dollar amounts and, in our opinion,such translation has been made on the basis described in Note 2.

Osaka, Japan
June 29, 2005

2

Yodogawa Steel Works, Ltd.
Consolidated Balance Sheets
March 31, 2004 and 2005

Millions of yen
2004
2005
AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Marketable securities (Note 3)
Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates
Trade
Less allowance for doubtful receivables
Inventories
Deferred income taxes (Note 6)
Other current assets
Total current assets
Property, plant and equipment:
Land (Note 8)
Buildings and structures
Machinery, equipment and vehicles
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
Investments and other assets:
Investments in securities (Notes 3 and 4)
Investments in and advances tounconsolidated subsidiaries and affiliates
Deferred income taxes (Note 6)
Other assets
Total investments and other assets

Total assets
3

Thousands of
U.S. dollars(Note 2)2005

¥ 19,887
177
2,158¥ 20,363
577
2,571

$

189,617
5,373
23,941

11,09924,475(219)
21,580673
4,537
84,367

14,22730,789(347)
23,7401,338
5,322
98,580132,480
286,703(3,231)
221,063
12,45949,558917,963

23,82052,284
123,615831(131,310)
69,24023,03752,634
123,476457(133,694)
65,910214,517490,120
1,149,790
4,256(1,244,939)
613,744

25,45130,863287,392

3,435
341
2,069
31,296

3,191
387
2,108
36,54929,714
3,604
19,629340,339¥ 184,903¥ 201,039$ 1,872,046

Liabilities, minority interests andshareholders’ equity
Current liabilities:
Short-term bank loans (Note 4)
Notes and accounts payable:
Unconsolidated subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes (Note 6)
Other current liabilities
Total current liabilities¥

Millions of yen
2004
2005

Thousands of
U.S. dollars(Note 2)
2005

5,828

$

¥

4,600

42,835651
14,024
1,475
4,089
1,941
1,574
29,582897
16,091
1,681
4,690
5,624
2,584
36,167

8,353
149,837
15,653
43,67352,37024,061
336,782

7,146

7,382

68,740Long-term liabilities:
Accrued retirement benefits to employees(Note 5)
Accrued retirement benefits to directors andstatutory auditors (Note 5)
Guarantee deposits (Note 4)
Deferred income taxes (Note 6)
Deferred income taxes on land revaluation
reserve (Notes 6 and 8)
Other long-term liabilities
Total long-term liabilities

419
4,175
2,358

90
4,044
3,410

838
37,65731,753677
606
15,381

675
773
16,374

6,286
7,198
152,472

Minority interests

11,941

13,922

129,640

23,221
23,611874
80,175
7,136(3,081)

23,221
23,222871
86,3008,335(2,686)216,231
216,2408,111
803,61377,614(25,012)(3,937)
127,999(4,687)
134,576(43,645)
1,253,152¥ 184,903¥ 201,039$ 1,872,046

Contingent liabilities (Note 11)
Shareholders’ equity (Notes 7 and 15):
Common stock:
Authorized: 753,814,067 shares in 2004 and2005
Issued: 184,186,153 shares in 2004 and2005
Capital surplus
Land revaluation reserve (Note 8)
Retained earnings (Note 15)
Unrealized holding gain on securities (Note 3)
Translation adjustments
Treasury stock, at cost – 11,656,456 shares in2004 and 13,188,866 shares in 2005
Total shareholders’ equity
Total liabilities, minority interests andshareholders’ equity

See accompanying notes to consolidated financial statements.
4

Yodogawa Steel Works, Ltd.
Consolidated Statements of Income
Years ended March 31, 2004 and 2005

Millions of yen
2004
2005
Net sales
Cost of sales
Gross profit¥ 145,815
119,777
26,038¥ 176,682
140,507
36,175$ 1,645,237
1,308,381
336,856

15,712
10,326

16,863
19,312

157,025
179,831

543
(171)
227

426
(143)
44

3,967
(1,332)
410

(38)

(23)

(214)

(608)
(383)
(321)
–
–
(119)

(209)
–
(86)
(1,461)
(456)
(315)

(1,946)–(801)(13,605)(4,246)(2,934)

9,456

17,089159,130

2,521
740
3,261
6,195

6,955
(478)
6,477
10,61264,764(4,451)60,313
98,817

Selling, general and administrative expenses(Note 9)Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of investments in securities
Impairment loss on investments in securities(Note 3)
Loss on sales or disposal of property, plantand equipment, net
Loss on disposal of inventories
Equity in loss of an affiliate
Loss on liquidation of a subsidiary
Loss on devaluation of real estate held for sale
Other, net
Income before income taxes and minority
interests
Income taxes (Note 6):
Current
DeferredIncome before minority interests
Minority interests in earnings of consolidated
subsidiaries
Net income

Thousands of
U.S. dollars(Note 2)2005¥

(2,269)3,926¥(3,094)
7,518$(28,810)70,007

See accompanying notes to consolidated financial statements.
5

Yodogawa Steel Works, Ltd.
Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2004 and 2005

Common stock
Balance at beginning and end of the year
Capital surplus
Balance at beginning of the year
Add:
Gain on disposal of treasury stock
Deduct:Transfer to retained earnings
Decrease resulting from change in ownership ratioof a consolidated subsidiary
Balance at end of the year
Land revaluation reserve (Note 8)
Balance at beginning of the year
Net change during the year
Balance at end of the year
Retained earnings
Balance at beginning of the year
Add:
Net income
Reversal of land revaluation reserve
Transfer from capital surplus
Deduct:Cash dividends paid
Bonuses to directors and statutory auditors
Bonuses to employees of an overseas subsidiary
Decrease resulting from change in ownership ratioof a consolidated subsidiary
Balance at end of the year

Millions of yen
2004
2005

Thousands of
U.S. dollars(Note 2)
2005

¥ 23,221¥ 23,221$ 216,231¥ 23,611¥ 23,611$ 219,862

1

1

9

–

(390)

(3,631)(1)¥ 23,611–¥ 23,222–$ 216,240

¥

¥

$

¥

929
(55)
874

¥

874
(3)
871

$

8,139
(28)
8,111

¥ 77,258¥ 80,175$ 746,578

3,926
43
–

7,518
1
390

70,007
9
3,631

(972)
(18)
(22)

(1,701)(57)(26)(15,839)
(531)
(242)

(40)
¥ 80,175–¥ 86,300–$ 803,613

Unrealized holding gain on securities (Note 3)
Balance at beginning of the year
Net change during the year
Balance at end of the year

¥ 1,230
5,906¥ 7,136¥ 7,136
1,199¥ 8,335$ 66,449
11,165$ 77,614

Translation adjustments
Balance at beginning of the year
Net change during the year
Balance at end of the year

¥ (2,087)(994)¥ (3,081)¥ (3,081)395¥ (2,686)$ (28,690)
3,678$ (25,012)

See accompanying notes to consolidated financial statements.
6

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows
Years ended March 31, 2004 and 2005

Millions of yen
2004
2005
Cash flows from operating activities:
Income before income taxes and minority
interests
Adjustments for:
Depreciation and amortization
Equity in loss of an affiliate
Impairment loss on investments in securities
Increase (decrease) in accrued retirement
benefits
Increase in accrued bonuses
Decrease in allowance for doubtfulreceivables
Interest and dividend income
Interest expense
Gain on sales of investments in securities
Loss on sales or disposal of property, plantand equipment, net
Increase in notes and accounts receivable
Decrease (increase) in inventories(Decrease) increase in notes and accounts
payableBonus payments to directors, statutory
auditors and employees of an overseas
subsidiary
Loss on liquidation of a subsidiary
Loss on devaluation of real estate held for sale
Other
SubtotalInterest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities

Thousands of
U.S. dollars(Note 2)2005

¥ 9,456¥ 17,089$ 159,130

6,118
321
38

5,758
86
23

53,618
801
214

140
72

(135)
127

(1,257)
1,183

(190)
(543)
171
(227)

(157)
(426)
143
(44)

(1,462)(3,967)
1,332
(410)

608
(2,025)670

209(9,356)(1,631)

1,946(87,122)(15,188)

(520)

2,280

21,231

(39)
–
–
294
14,344571(170)(1,272)¥ 13,473

(83)
1,461
456
1,843
17,643451(144)(2,977)¥ 14,973(773)
13,605
4,246
17,162
164,289
4,199(1,341)(27,721)$ 139,4267

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows (continued)
Years ended March 31, 2004 and 2005

Cash flows from investing activities:
Increase in time deposits with a maturity ofmore than three months
Proceeds from time deposits with a maturity ofmore than three months
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Proceeds from sales of property, plant andequipment
Purchases of other assets
Purchases of investments in securities
Proceeds from sales of investments in securities
Increase in loans receivableCollection of loans receivable
Other
Net cash used in investing activities
Cash flows from financing activities:
Decrease in short-term bank loans
Repayment of long-term loans
Purchases of treasury stock
Cash dividends paid to the Company’s
shareholders
Cash dividends paid to minority shareholders ofconsolidated subsidiaries
Other
Net cash used in financing activities
Effect of exchange rate changes on cash andcash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of theyear
Cash and cash equivalents at end of the year

Millions of yen
2005
2004

Thousands of
U.S. dollars(Note 2)
2005

¥

(675)

$ (6,286)

435(1,500)1,500(3,656)175–
500(2,765)

1,630
–
4,656
(25,747)120(25)(3,066)
4,279(1,535)1,043
8(2,762)59(211)(6,707)2,459(3,746)1,312
35(9,564)549(1,965)(62,455)
22,898(34,882)
12,217326(89,059)(2,118)(1,100)(2,689)(1,229)–(590)(11,444)–(5,494)(977)(1,711)(15,933)(1,226)2(8,108)(1,496)3(5,023)(13,930)
28(46,773)

(203)
2,400

90
476

838
4,432

17,487¥ 19,887

19,887¥ 20,363

185,185$ 189,617

(365)

¥

See notes to consolidated financial statements.
8

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements
March 31, 2005

1.

Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying consolidated financial statements of Yodogawa Steel Works, Ltd.
(the “Company”) and consolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial
Reporting Standards, and are compiled from the consolidated financial statements
prepared by the Company as required by the Securities and Exchange Law of Japan.
Certain reclassifications of previously reported amounts have been made to conformthe consolidated financial statements for the year ended March 31, 2004 to the 2005
presentation. Such reclassifications had no effect on consolidated net income orshareholders’ equity.
(b) Basis of Consolidation
The accompanying consolidated financial statements include the accounts of theCompany and all subsidiaries over which substantial control is exerted through either
majority ownership of voting stock and/or by other means. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investment in an affiliate (a company over which the Company has the ability to
exercise significant influence) is stated at cost plus equity in its undistributed earnings
or undisposed loss. Consolidated net income includes the Company’s equity in thecurrent net income or loss of this company after the elimination of unrealizedintercompany profits.
All assets and liabilities of the consolidated subsidiaries are revalued on acquisition,
if applicable. The difference, not significant in amount, between the cost ofinvestments in subsidiaries and the equity in their net assets at their respective datesof acquisition is charged to income as incurred or amortized over a period of five
years on a straight-line basis.
The financial statements of one consolidated subsidiary whose fiscal year end is
December 31 have been included in consolidation on the basis of a full fiscal year
after making the appropriate adjustments for significant transactions during the period
from its fiscal year end to the Company’s balance sheet date.

9

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

1.

Summary of Significant Accounting Policies (continued)(c) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated into
yen at the rates of exchange in effect at the balance sheet date. Other assets andliabilities denominated in foreign currencies are translated at their historical rates.
All revenues and expenses associated with foreign currencies are translated at therates of exchange prevailing when such transactions were made. The resulting
exchange loss and gain are charged or credited to income.
The balance sheet accounts of the overseas consolidated subsidiary (except forshareholders’ equity) are translated into yen at the rates of exchange in effect at thebalance sheet date. Components of shareholders’ equity are translated at theirrespective historical rates of exchange. Revenue and expense accounts aretranslated into yen at the average rate of exchange in effect during the year.
Translation adjustments have been presented as a component of shareholders’ equity
and minority interests in consolidated subsidiaries in the accompanying consolidated
financial statements.
(d) Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks withdrawable
on demand, and short-term investments which are readily convertible to cash subject
to an insignificant risk of any changes in their value and which were purchased withan original maturity of three months or less.
(e) Securities
The accounting standard for financial instruments requires that securities other thanthose of subsidiaries and affiliates be classified into three categories: trading
securities, held-to-maturity debt securities or other securities. Under this standard,
trading securities are carried at fair value and gain and loss, both realized andunrealized, are charged to income. Held-to-maturity debt securities are carried attheir amortized cost. Marketable securities classified as other securities are carriedat fair value with any changes in unrealized holding gain or loss, net of the applicable
income taxes, reported as a separate component of shareholders’ equity.
Non-marketable securities classified as other securities are carried at cost. Cost of
securities sold is determined by the moving average method.

10

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

1.

Summary of Significant Accounting Policies (continued)(f) Inventories
Inventories are stated at cost determined principally by the average method.
Inventories at the Company’s overseas consolidated subsidiary are stated at the lowerof cost or market, cost being determined by the moving average method.
(g) Property, Plant and Equipment and Depreciation
Depreciation of property, plant and equipment is calculated by the declining-balancemethod over the useful lives of the respective assets, except that the straight-line
method is applied to buildings (other than structures attached to the buildings)
acquired on and after April 1, 1998.
Depreciation of property, plant and equipment at the overseas consolidated subsidiaryis calculated by the straight-line method.
The useful lives adopted for calculating depreciation are principally as follows:
Buildings and structures
Machinery, equipment and vehicles

3 to 60 years
3 to 36 years

Significant renewals and additions are capitalized at cost.
are charged to income as incurred.

Maintenance and repairs(h) Intangible Assets
Intangible assets are stated on the basis of cost. Amortization is calculated by thestraight-line method over the useful lives of the respective assets.
(i) Allowance for Doubtful Receivables
The Company and its consolidated subsidiaries provide an allowance for doubtfulreceivables at an amount calculated based on their historical experience of bad debts
on ordinary receivables plus an additional estimate of probable specific bad debts
from customers experiencing financial difficulties.

11

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

1.

Summary of Significant Accounting Policies (continued)(j) Research and Development Costs and Computer Software
Research and development costs are charged to income as incurred.
Expenditures relating to the development of computer software intended for internal
use are charged to income when incurred, unless these are deemed to contribute to thegeneration of future income or cost savings. Such expenditures are capitalized asassets and amortized by the straight-line method over their estimated useful life of
five years.
(k) Leases
The Company and its consolidated subsidiaries lease certain equipment under
noncancelable leases referred to as finance leases. Finance leases other than thosewhich transfer the ownership of the leased property to the lessee are accounted for as
operating leases.
(l) Income Taxes
Deferred income taxes are provided for temporary differences between the balancesof assets and liabilities for financial reporting purposes and the correspondingbalances for tax reporting purposes.
(m) Retirement Benefits
Employees of the Company and its consolidated subsidiaries are covered by
employees’ retirement benefit and employees’ pension plans. The employees’
retirement benefit plans provide for a lump-sum payment determined by reference tothe basic salary, length of service and conditions under which the termination occurs.
The employees’ pension plans, which are funded non-contributory plans, partiallycover the benefits under the employees’ retirement benefit plans to employees who
retire after fifteen or more years of service.
Accrued retirement benefits for employees are provided principally at an amountcalculated based on the retirement benefit obligation less the fair value of the pension
plan assets as adjusted for unrecognized actuarial gain or loss and unrecognized priorservice cost. The retirement benefit obligation is attributed to each period by thestraight-line method over the estimated remaining years of service of the eligible
employees.
Actuarial gain and loss are amortized in the year following the year in which the gainor loss is recognized principally by the straight-line method over 10 years, which iswithin the estimated average remaining years of service of the eligible employees.

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

1.

Summary of Significant Accounting Policies (continued)(m) Retirement Benefits (continued)
Prior service cost is being amortized as incurred by the straight-line method over 15
years, which is within the estimated average remaining years of service of the eligible
employees.
The directors and statutory auditors of the Company and its domestic consolidated
subsidiaries have customarily been entitled to lump-sum payments under theunfunded retirement benefit plans. The provision for retirement benefits for
directors and statutory auditors has been made at an estimated amount based on the
Company’s or each consolidated subsidiary’s internal rules. The Company hasreconsidered the remuneration paid to its directors and statutory auditors as part of its
management revival plan. Accordingly, the retirement benefit plan for directors andstatutory auditors of the Company, pursuant to a resolution approved at the general
meeting of the shareholders held on June 29, 2004, was discontinued.
(n) Hedge Accounting
Gain or loss on derivatives designed as hedging instruments is deferred until the gainor loss on the underlying hedged item is recognized. Interest-rate swaps which meetcertain conditions are accounted for as if the interest rates applicable to the swaps hadoriginally applied to the underlying debt. Receivables and payables hedged byforward foreign exchange contracts which meet certain conditions are translated at
the corresponding foreign exchange contract rates.
(o) Appropriation of Retained Earnings
Under the Commercial Code of Japan, the appropriation of retained earnings withrespect to a given financial period is made by resolution of the shareholders at a
general meeting held subsequent to the close of the financial period and the accounts
for that period do not, therefore, reflect such appropriations.
2.

U.S. Dollar Amounts

The translation of yen amounts into U.S. dollar amounts is included solely for theconvenience of readers outside Japan and has been made at the rate of ¥107.39 =U.S.$1.00, the approximate exchange rate prevailing on March 31, 2005. The translation
should not be construed as a representation that yen have been, could have been, or couldin the future be, converted into U.S. dollars at the above or any other rate.

13

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

3.

Securities

Marketable securities classified as held-to-maturity debt securities at March 31, 2004 and2005 are summarized as follows:

Carrying
value
Securities whose fair value exceeds
their carrying value:
Government bonds
Other
Securities whose fair value does notexceed their carrying value:
Government bonds
Corporate bonds
Other
Total

Securities whose fair value exceeds
their carrying value:
Government bonds
Other
Securities whose fair value does notexceed their carrying value:
Government bonds
Other
Total

¥

86
10
96

2004
Millions of yen
Estimated fair
value

¥

87
11
98

Unrealized
gain (loss)

¥

1
1
2

1,000
1,054
734
2,788
¥ 2,884

1,000
1,043
729
2,772
¥ 2,870

(0)
(11)
(5)
(16)
¥ (14)

Carrying
value

2005
Millions of yen
Estimated fairvalue

Unrealized
gain (loss)

¥

70
211
281

10
1,597
1,607
¥ 1,888

¥

72
213
285

10
1,526
1,536
¥ 1,821

¥

2
2
4

(0)
(71)
(71)
¥ (67)

14

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

3.

Securities (continued)
2005
Thousands of U.S. dollars
Carrying
Estimated fair Unrealized
value
value
gain (loss)

Securities whose fair value exceeds
their carrying value:
Government bonds
Other
Securities whose fair value does notexceed their carrying value:
Government bonds
Other
Total

$

652
1,965
2,617

93
14,871
14,964$ 17,581

$

671
1,983
2,654

93
14,21014,303$ 16,957

$

19
18
37

(0)
(661)
(661)
$ (624)

Other securities with determinable market value at March 31, 2004 and 2005 aresummarized as follows:

Securities whose carrying value exceeds
their acquisition costs:
Equity securities
Corporate bonds
Securities whose carrying value does
not exceed their acquisition costs:
Equity securities
Corporate bonds
Total

Acquisition
costs

2004
Millions of yen
Carrying
value

Unrealized
gain (loss)¥ 8,858
98
8,956¥ 20,903
98
21,001¥ 12,045
0
12,045376
70
446¥ 9,402359
70
429¥ 21,430

(17)
(0)
(17)
¥ 12,028

15

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

3.

Securities (continued)

Securities whose carrying value exceeds
their acquisition costs:
Equity securities
Other
Securities whose carrying value does
not exceed their acquisition costs:
Equity securities
Government bonds
Total

Acquisition
costs

2005
Millions of yen
Carrying
value

Unrealized
gain (loss)¥ 10,151
599
10,750¥ 24,263600
24,863¥ 14,112
1
14,113

1,279
1,662
2,941
¥ 13,691

1,253
1,662
2,915
¥ 27,778

(26)
(0)
(26)
¥ 14,087

2005
Thousands of U.S. dollars
Carrying
Unrealized
Acquisition
value
gain (loss)
costs
Securities whose carrying value exceeds
their acquisition costs:
Equity securities
Other
Securities whose carrying value does
not exceed their acquisition costs:
Equity securities
Government bonds
Total$ 94,525
5,578
100,103$ 225,934
5,587
231,521$ 131,409
9
131,418

11,91015,47627,386$ 127,489

11,66815,47627,144$ 258,665

(242)
(0)
(242)
$ 131,176

16

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

3.

Securities (continued)

Sales of securities classified as other securities for the years ended March 31, 2004 and2005 are summarized as follows:

Millions of yen
2004
2005
Sales
Aggregate gain
Aggregate loss

¥ 1,728
446
243

¥ 593
21
35

Thousands of
U.S. dollars
2005$ 5,522196
326

The carrying value of securities without determinable market value at March 31, 2004 and2005 were as follows:

Millions of yen
2004
2005
Held-to-maturity debt securities:
Interest-bearing financial bonds
Other securities:
Non-marketable equity securities
Money management funds
Free financial funds
Preferred stock
Preferred subscription certificates

¥

40

654
2,347
1,000
1,100
1,500

¥

50

619
2,021
1,000
1,500
1,100

Thousands of
U.S. dollars
2005
$

466

5,764
18,8199,312
13,968
10,243

The Company and its consolidated subsidiaries recorded an impairment loss on securitiesof ¥38 million and ¥23 million ($214 thousand) for the years ended March 31, 2004 and2005, respectively.

17

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

3.

Securities (continued)

The redemption schedule for other securities with maturities and held-to-maturity debt
securities as of March 31, 2005 is summarized as follows:
Millions of yen
Due in one year
or less
Government bonds
Corporate bonds
Other debt securities
Other
Total

¥

10
1,560
10
–
¥ 1,580

Due after one
year throughfive years
¥

10
100
250
500
¥ 860

Due after five
years throughten years
¥

60
–
–
1,000
¥ 1,060

Due after ten
years
¥

–
1,600
–
–
¥ 1,600

Thousands of U.S. dollars
Due in one year
or less
Government bonds
Corporate bonds
Other debt securities
Other
Total

$

93
14,52693–$ 14,712

Due after one
year throughfive years
$

93
931
2,328
4,656
$ 8,008

Due after five
years throughten years
$

559
–
–
9,312
$ 9,871

Due after ten
years
$

–
14,899––$ 14,899

18

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

4.

Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits

Short-term bank loans represent overdrafts at average annual interest rates ofapproximately 0.567% and approximately 0.568% at March 31, 2004 and 2005,
respectively.
At March 31, 2005, investments in securities of ¥50 million ($466 thousand) were
pledged as collateral for employees’ internal deposits of ¥46 million ($428 thousand), a
component of other current liabilities.
Guarantee deposits consisted of interest-free deposits, most of which were golf
membership deposits, and interest-bearing deposits, which were principally deposits from
customers at average annual interest rates of 0.53% and 0.59% at March 31, 2004 and2005, respectively.
Interest-free deposits and interest-bearing deposits at March 31, 2004, and 2005 were as
follows:

Interest-free deposits
Interest-bearing deposits

Thousands of
U.S. dollars
2005$ 32,461
5,196$ 37,657

Millions of yen
2004
2005
¥ 3,683¥ 3,486492
558¥ 4,175¥ 4,044

The aggregate annual maturities of guarantee deposits subsequent to March 31, 2005 aresummarized as follows:

Millions of yen

Thousands of
U.S. dollars

Year ending March 31,
2006
2007
2008
2009
2010
2011 and thereafter

¥

2
–
–
–
–
4,042
¥ 4,044

$

19
–
–
–
–
37,638$ 37,657

All interest-bearing deposits are scheduled to mature during the year ending March 31,
2011 and thereafter.

19

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

5.

Retirement Benefits

The funded and accrued status of the employees’ defined benefit plans of the Company
and its consolidated subsidiaries, and the amounts recognized in the consolidated balance
sheets at March 31, 2004 and 2005 are summarized as follows:

Millions of yen
2005
2004
Retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension costAccrued retirement benefits¥ (13,892)
4,170(9,722)2,975
26(6,721)425¥ (7,146)¥ (14,114)
5,809(8,305)1,303
20(6,982)400¥ (7,382)

Thousands of
U.S. dollars
2005$(131,428)
54,093(77,335)
12,133
186(65,016)3,724$ (68,740)

As allowed under the accounting standard for retirement benefits, certain domestic
consolidated subsidiaries calculate accrued retirement benefits for their employees bysimplified methods.
The components of retirement benefit expenses for the years ended March 31, 2004 and2005 are outlined as follows:

Millions of yen
2004
2005
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost

¥

608
330
(12)
302
7
¥ 1,235

¥

795
340
(63)
178
7
¥ 1,257

Thousands of
U.S. dollars
2005
$

7,403
3,166
(587)
1,658
65
$ 11,705

The retirement benefit expenses of certain domestic consolidated subsidiaries which were
calculated by simplified methods have been included in service cost in the above table.

20

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

5.

Retirement Benefits (continued)

The assumptions used in accounting for the above benefit plans for the years ended March
31, 2004 and 2005 were as follows:

Discount rate
Expected rates of return on plan assets

2004

2005

Principally 2.5%
Principally 0.0%

Principally 2.5%
Principally 1.5%

The Company and its domestic consolidated subsidiaries recorded accrued retirement
benefits to directors and statutory auditors of ¥419 million at March 31, 2004 and theCompany’s domestic consolidated subsidiaries recorded similar benefits of ¥90 million($838 thousand) at March 31, 2005.

6.

Income Taxes

Income taxes applicable to the Company and its domestic consolidated subsidiaries
comprise corporation, enterprise and inhabitants’ taxes which, in the aggregate, resulted instatutory tax rates of approximately 42.0% and 40.5% for the years ended March 31, 2004
and 2005, respectively.
A reconciliation of the statutory tax rates and the effective tax rates for the years ended
March 31, 2004 and 2005 as a percentage of income before income taxes and minority
interests are as follows:

Statutory tax rates
Investment tax credits
Nondeductible expenses
Per capita portion of inhabitants’ taxes
Difference in tax rates applicable to the overseas
consolidated subsidiary
Cash dividends received from the overseas
consolidated subsidiary
Equity in loss of an affiliate
Other
Effective tax rates

2004

2005

42.0%
(4.5)
0.5
0.6

40.5%
(0.5)
2.4
0.4

(9.9)

(7.5)

2.2
1.6
2.0
34.5%

1.5
0.2
0.9
37.9%

21

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

6.

Income Taxes (continued)

The significant components of deferred tax assets and liabilities of the Company and its
consolidated subsidiaries at March 31, 2004 and 2005 are summarized as follows:

Millions of yen
2004
2005
Deferred tax assets:
Accrued retirement benefits
Allowance for doubtful receivables
Accrued bonuses
Inventories
Foreign tax credit
Depreciation
Tax loss carryforwards
Other
Gross deferred tax assets
Less valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Dividends from an overseas subsidiary
Unrealized holding gain on securities
Land revaluation reserve
Reserve for deferred taxation oncontributions for acquisition of property
Total deferred tax liabilities
Net deferred tax liabilities

Thousands of
U.S. dollars
2005¥ 2,515
233
442
141
607
23
335
1,392
5,688
(893)
4,795

¥ 2,639
87
491
385
366
–
348
1,730
6,046
(775)
5,271

$ 24,574
810
4,572
3,585
3,408
–
3,241
16,11056,300(7,217)49,083(113)(4,871)
(677)

(164)
(5,706)(675)(1,527)(53,133)(6,286)(1,155)(6,816)¥ (2,021)(1,086)(7,631)¥ (2,360)(10,113)(71,059)$ (21,976)

22

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

7.

Shareholders’ Equity

The Commercial Code of Japan (the “Code”) provides that an amount equivalent to atleast 10% of cash dividends paid and bonuses to directors and statutory auditors, andexactly 10% of interim cash dividends paid be appropriated to the legal reserve until thesum of additional paid-in capital and the legal reserve equals 25% of stated capital. The
Code also provides that neither additional paid-in capital nor the legal reserve is available
for dividends but both may be used to reduce or eliminate a deficit by resolution of theshareholders or may be transferred to stated capital by resolution of the Board of Directors.
The Code also stipulates that, to the extent that the sum of the additional paid-in capital
account and the legal reserve exceeds 25% of the common stock account, the amount of
any such excess is available for appropriation by resolution of the shareholders.
Additional paid-in capital and the legal reserve are included in capital surplus and retained
earnings, respectively, in the accompanying consolidated balance sheets and statements ofshareholders’ equity. The Company’s legal reserve amounted to nil at March 31, 2004
and 2005.
In accordance with the Code, a stock option plan for certain directors and executive
officers of the Company was approved at the annual general meeting of the shareholders
held on June 29, 2004. Under the terms of this plan, 81,000 shares of common stock
were granted at ¥1 ($0.01) per share. The options became exercisable on July 13, 2004
and are scheduled to expire on June 29, 2024.
In accordance with the Code, a stock option plan for certain directors and executive
officers of the Company was approved at the annual general meeting of the shareholders
held on June 29, 2005. Under the terms of this plan, up to 62,000 shares of common
stock were granted at ¥1 ($0.01) per share. The options become exercisable on June 30,2005 and are scheduled to expire on June 29, 2025.

23

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

8.

Revaluation of Land

At March 31, 2000 and 2002, certain consolidated subsidiaries and an affiliate revalued
their land held for business use in accordance with the “Law on Land Revaluation.”
Differences on land revaluation have been accounted for as land revaluation reserve undershareholders’ equity and are stated at the Company’s share of the net amount of therelevant tax effect. The method followed for land revaluation was determined inaccordance with the “Enforcement Act Concerning Land Revaluation.”
The fair value of the land revalued at March 31, 2000 and 2002 was less than thecorresponding carrying value by the following amounts at March 31, 2004 and 2005:

Millions of yen
2004
2005
Land revalued at March 31, 2000
Land revalued at March 31, 20029.

¥ (115)(1,081)¥ (1,196)¥ (146)(2,203)¥ (2,349)

Thousands of
U.S. dollars
2005$ (1,360)(20,514)$ (21,874)

Research and Development Costs

Research and development costs included in selling, general and administrative expenses
were ¥613 million and ¥503 million ($4,684 thousand) for the years ended March 31,
2004 and 2005, respectively.

24

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

10. Leases
The following pro forma amounts present the acquisition costs, accumulated depreciationand net book value of the leased property as of March 31, 2004 and 2005, which would
have been reflected in the balance sheets if finance leases other than those which transfer
the ownership of the leased property of the Company and its consolidated subsidiaries(which are currently accounted for as operating leases) were capitalized:
Millions of yen
2004
Acquisition Accumulated
costs
depreciation
Machinery,equipment andvehicles

¥ 619

¥ 468

Net book
value

¥ 151

2005
Acquisition Accumulated
costs
depreciation

¥ 476

¥ 257

Net book
value

¥ 219

Thousands of U.S dollars
2005
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$4,432$2,393$2,039The related lease payments and depreciation for the years ended March 31, 2004 and 2005
were as follows:
Millions of yen
2004
2005
Lease payments
Depreciation¥91
91

Thousands of
U.S. dollars
2005

¥80
80

$745
745

Depreciation is calculated by the straight-line method over the respective lease terms.
The related future minimum payments (including the interest portion thereon) subsequent
to March 31, 2005 under finance leases other than those which transfer the ownership ofthe leased property to the Company and its consolidated subsidiaries are summarized asfollows:
Millions of yen

Thousands of
U.S. dollars

¥ 66
153
¥219

$ 614
1,425
$2,039Year ending March 31,
20062007 and thereafter25

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

11. Contingent Liabilities
At March 31, 2005, the Company and its consolidated subsidiaries had the following
contingent liabilities:

Guarantees of housing loans of employees andindebtedness of unconsolidated subsidiaries

Millions of yen

Thousands of
U.S. dollars¥443$4,125

12. Derivatives
The Company and its consolidated subsidiaries have entered into various transactions
involving derivatives in order to manage risk arising from adverse fluctuation in foreign
currency exchange rates and interest rates. Derivatives positions involve the credit riskthat the counterparties may default on their obligations. Forward foreign exchange
contracts and interest-rate swaps entail the market risk of fluctuation in foreign currency
exchange rates and interest rates, respectively. The Company and its consolidated
subsidiaries select only financial institutions with high credit ratings as counterparties inorder to minimize their credit risk. The Company and its consolidated subsidiaries havenot entered into derivatives transactions whose fluctuation in fair value is material andwhich could thus impact their operations significantly.
The Company and its consolidated subsidiaries have established policies to report andapprove the purpose, nature, counterparties, inherent risk, limit on loss and the level ofrisk of each transaction. Under their policies governing derivatives, trading is notentered into for speculative purposes.
At March 31, 2004 and 2005, all derivatives positions qualified for the application ofdeferral hedge accounting and, thus, have not been separately disclosed.

26

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

13. Amounts per Share
Amounts per share at March 31, 2004 and 2005 and for the years then ended were as
follows:
Yen
Net assets
Net income:
Basic
DilutedCash dividends applicable to the
year

2004

2005

U.S. dollars
2005¥741.41¥785.36

$7.31

21.66
–

43.06
43.04

0.40
0.40

8.00

14.00

0.13

Diluted net income has not been presented for the year ended March 31, 2004 since theCompany had not issued any potentially dilutive stocks at March 31, 2004.
The amount per share of net assets is computed based on the net assets available for
distribution to the shareholders and the number of shares of common stock outstanding at
the year end.
Basic net income per share is computed based on the net income available for distribution
to shareholders of common stock and the weighted-average number of shares of common
stock outstanding during the year. Diluted net income per share is computed based on
the net income available for distribution to the shareholders and the weighted-average
number of shares of common stock outstanding during each year after giving effect to thedilutive potential of shares of common stock to be issued upon the exercise of stock
option.
Cash dividends per share represent the cash dividends proposed by the Board of Directors
as applicable to the respective years together with the interim cash dividends paid.

27

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

14. Segment Information
The Company and its consolidated subsidiaries are primarily engaged in the manufactureand sale of a variety of steel products such as steel sheets, construction materials,
prefabricated structures, home furnishings, and steel rolls and gratings. The Company
also engages in other activities such as real estate rental and engineering projects.
The business and geographical segments of the Company and its consolidated subsidiaries
for the years ended March 31, 2004 and 2005 are outlined as follows:Business Segments
Millions of yen
Year ended March 31, 2004

I. Sales and operating income
Sales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income (loss)
II. Assets, depreciation andcapital expenditures
Total assets
Depreciation
Capital expenditures

Steel sheet
products

Electric
furnaceproducts

Other

Total

Eliminations andgeneralcorporate
assets¥ 130,281¥ 7,540¥ 7,994¥145,815¥–¥ 145,815

1
130,282
119,743¥ 10,539

–
7,540
7,789
¥ (249)4,640
12,634
11,650¥ 984

4,641
150,456
139,182¥ 11,274(4,641)(4,641)(3,693)¥ (948)–145,815
135,489¥ 10,326¥ 104,588
5,228
5,617

¥ 8,517375
102¥ 22,990
418
246¥136,095
6,021
5,965

¥ 48,808
106
19¥ 184,903
6,127
5,984

Eliminations andgeneralcorporate
assetsConsolidated

Consolidated

Millions of yen
Year ended March 31, 2005

Steel sheet
products

Electric
furnaceproducts

Other

Total

I. Sales and operating income
Sales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income (loss)¥ 161,235¥ 7,444¥ 8,003¥ 176,682¥–¥ 176,682–
161,235
141,666¥ 19,569

–
7,444
7,558
¥ (114)

4,461
12,464
11,672¥
792

4,461
181,143
160,896¥ 20,247(4,461)(4,461)(3,526)¥ (935)–
176,682
157,370¥ 19,312

II. Assets, depreciation andcapital expenditures
Total assets
Depreciation
Capital expenditures¥ 112,279
4,967
2,726

¥ 8,823327
338¥ 22,707
393
235¥ 143,809
5,687
3,299

¥ 57,230
92
22¥ 201,039
5,779
3,321

28

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

14. Segment Information (continued)
Business Segments (continued)
Thousands of U.S. dollars
Year ended March 31, 2005
Eliminations andgeneralcorporate
assetsSteel sheet
products

Electric
furnaceproducts

Other$ 1,501,397$ 69,317$ 74,523$ 1,645,237 $–
1,501,397
1,319,173–
69,31770,37941,540116,063
108,688

41,5401,686,777
1,498,240

182,224$ (1,062)$

II. Assets, depreciation andcapital expenditures
Total assets$ 1,045,526
Depreciation
46,252
Capital expenditures
25,384$ 82,158
3,045
3,147

$ 211,444
3,660
2,189

I. Sales and operating
incomeSales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income(loss)

$

7,375

Total

$

Consolidated–$ 1,645,237(41,540)(41,540)(32,834)–
1,645,237
1,465,406

188,537 $(8,706) $ 179,831$ 1,339,128 $ 532,918
52,957857
30,720205$ 1,872,046
53,81430,925

Geographical Segments
Millions of yen
Year ended March 31, 2004
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated¥ 99,717¥ 46,098¥ 145,815¥–¥145,815

79
99,796
95,203¥ 4,593–
46,09840,436¥ 5,66279
145,894
135,639¥ 10,255

(79)
(79)
(150)
¥
71

–
145,815
135,489¥ 10,326¥ 114,505¥ 26,289¥ 140,794¥ 44,109¥184,903

Japan
I. Sales and operating
incomeSales to third parties
Interarea sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets

29

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

14. Segment Information (continued)
Geographical Segments (continued)
Millions of yen
Year ended March 31, 2005
Eliminations
and general
corporate
Southeast
assetsAsia
Total

Consolidated¥ 115,283¥ 61,399¥ 176,682

16
115,299
106,067¥ 9,232–
61,39951,439¥ 9,960¥ 117,610¥ 31,823

Japan
I. Sales and operating
incomeSales to third parties
Interarea sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets

Japan
I. Sales and operating
incomeSales to third parties
Interarea sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets¥–¥ 176,682

16
176,698
157,506¥ 19,192

¥

(16)
(16)
(136)
120

–
176,682
157,370¥ 19,312¥ 149,433¥ 51,606¥ 201,039

Thousands of U.S. dollars
Year ended March 31, 2005
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated$ 1,073,498$ 571,739$ 1,645,237$–$ 1,645,237

149
1,073,647
987,680$ 85,967–
571,739
478,992$ 92,747

149
1,645,386
1,466,672$ 178,714

(149)
(149)
(1,266)$ 1,117–
1,645,237
1,465,406$ 179,831$ 1,095,167$ 296,331$ 1,391,498$ 480,548$ 1,872,04630

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

14. Segment Information (continued)
Geographical Segments (continued)
Overseas sales which include export sales of the Company and its domestic consolidated
subsidiaries and sales (other than exports to Japan) of the overseas consolidated subsidiaryfor the years ended March 31, 2004 and 2005 are summarized as follows:
Millions of yen
Year ended March 31, 2004
Other
Total
Asia
Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales¥ 45,657–¥ 6,963–¥ 52,620
145,815

31.3%

4.8%

36.1%

Millions of yen
Year ended March 31, 2005
Asia
Other
Total
Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales¥ 44,661–¥ 23,207–¥ 67,868
176,682

25.3%

13.1%

38.4%

Thousands of U.S. dollars
Year ended March 31, 2005
Asia
Other
Total
Overseas sales
Consolidated net sales$415,877–$216,100–$ 631,977
1,645,237

15. Subsequent Event
The following appropriations of retained earnings of the Company, which have not beenreflected in the accompanying consolidated financial statements for the year ended March
31, 2005, were approved at a meeting of the shareholders held on June 29, 2005:

Cash dividends of ¥9 (U.S.$0.08) per share

Millions of yen

Thousands of
U.S. dollars¥1,579$14,70331

Non-Consolidated Financial Statements
Yodogawa Steel Works, Ltd.
Years ended March 31, 2004 and 2005
with Report of Independent Auditors

32

Report of Independent Auditors

The Board of Directors
Yodogawa Steel Works, Ltd.

We have audited the accompanying non-consolidated balance sheets of Yodogawa SteelWorks, Ltd. as of March 31, 2004 and 2005, and the related non-consolidated statements
of income and shareholders’ equity for the years then ended, all expressed in yen. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted inJapan. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosuresin the financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the financial position of Yodogawa Steel Works, Ltd. at March 31, 2004 and2005, and the results of its operations for the years then ended in conformity withaccounting principles generally accepted in Japan.
The U.S. dollar amounts in the accompanying non-consolidated financial statements withrespect to the year ended March 31, 2005 are presented solely for convenience. Our
audit also included the translation of yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made on the basis described in Note 2.

Osaka, Japan
June 29, 2005

33

Yodogawa Steel Works, Ltd.
Non-Consolidated Balance Sheets
March 31, 2004 and 2005

Millions of yen
2004
2005
AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Marketable securities
Notes and accounts receivable:
Subsidiaries and affiliates
Trade
Less allowance for doubtful receivables
Inventories (Note 4)
Deferred income taxes (Note 6)
Short-term loans receivable
Other current assets
Total current assets
Property, plant and equipment:
Land
Buildings and structures
Machinery, equipment and vehicles
Construction in progress
Less accumulated depreciation
Property, plant and equipment, net
Investments and other assets:
Investments in securities
Investments in and advances to subsidiaries
and affiliates (Note 3)
Allowance for loss on investment in a
subsidiary
Other assets
Total investments and other assets

Total assets
34

Thousands of
U.S. dollars(Note 2)
2005

¥ 15,225–
2,124¥ 15,635
500
2,571

$

145,591
4,656
23,941

15,89014,977(24)
17,790
568
7,179
1,036
74,765

19,625
17,786(3)
15,764
1,182
7,339
620
81,019182,745
165,621(28)
146,792
11,007
68,3405,772
754,437

12,18439,897
95,531
531(108,189)
39,954

11,35339,98996,09962(110,195)
37,308105,717372,372
894,860577(1,026,119)
347,407

24,35929,718276,730

18,873

18,835

175,389–
1,315
44,547(1,547)
1,380
48,386(14,406)
12,850450,563¥ 159,266¥ 166,713$ 1,552,407

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 6)
Other current liabilities
Total current liabilities
Long-term liabilities:
Accrued retirement benefits to employees
Accrued retirement benefits to directors andstatutory auditors
Guarantee deposits (Note 5)
Deferred income taxes (Note 6)
Other long-term liabilities
Total long-term liabilities¥

Millions of yen
2004
2005

Thousands of
U.S. dollars(Note 2)
2005

5,800

$

¥

4,600

42,835

1,536
11,083
1,237
3,090
1,138
799
24,683

1,158
11,807
1,634
3,301
3,788
1,706
27,994

10,783109,945
15,21630,73835,273
15,886
260,676

5,248

5,144

47,900

297
964
2,416
–
8,925

–
1,025
2,803
207
9,179

–
9,545
26,101
1,928
85,474

23,221
23,49774,651
7,015

23,221
23,49877,913
8,216

216,231
218,810725,51476,506(2,726)125,658¥ 159,266(3,308)
129,540¥ 166,713(30,804)
1,206,257$ 1,552,407

Contingent liabilities (Note 10)

Shareholders’ equity (Note 7):
Common stock:
Authorized: 753,814,067 shares in 2004 and2005
Issued: 184,186,153 shares in 2004 and 2005
Capital surplus
Retained earnings (Note 12)
Unrealized holding gain on securities (Note 3)
Treasury stock, at cost – 7,564,251 shares in2004 and 8,735,702 shares in 2005
Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying notes to non-consolidated financial statements.
35

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Income
Years ended March 31, 2004 and 2005

Millions of yen
2004
2005

Thousands of
U.S. dollars(Note 2)
2005

Net sales
Cost of sales
Gross profit¥ 89,651
72,43017,221¥ 104,581
82,322
22,259$ 973,843
766,570
207,273

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

12,867
4,354

13,206
9,053

122,972
84,301

1,652
(64)
227

2,018
(61)
28

18,791
(568)
261

(558)
(381)

(217)
–

(2,021)
–

–
–
(139)
5,091

(1,547)
(456)
(162)
8,656

(14,405)(4,246)(1,509)80,604

1,398
683
2,081
¥ 3,010

4,642(1,045)3,597¥ 5,059

43,226(9,731)33,495$ 47,109

Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of investments in securities, net
Loss on sales or disposal of property, plant andequipment, net
Loss on disposal of inventories
Provision of allowance for loss on investment
in a subsidiary
Loss on devaluation of real estate held for sale
Other, net
Income before income taxes
Income taxes (Note 6):
Current
Deferred
Net income

See accompanying notes to non-consolidated financial statements.
36

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2004 and 2005

Millions of yen
2004
2005
Common stock
Balance at beginning and end of the year
Capital surplus
Balance at beginning of the year
Add:
Gain on disposal of treasury stock
Balance at end of the year

Thousands of
U.S. dollars(Note 2)
2005

¥ 23,221¥ 23,221$ 216,231¥ 23,497¥ 23,497$ 218,801

0¥ 23,497

1¥ 23,498

9$ 218,810¥72,645¥ 74,651$ 695,139

Retained earnings
Balance at beginning of the year
Add:
Net income
Deduct:Cash dividends paid
Balance at end of the year

3,010

5,059

47,109(1,004)¥ 74,651(1,797)¥ 77,913(16,734)$ 725,514

Unrealized holding gain on securities (Note 3)
Balance at beginning of the year
Net change during the year
Balance at end of the year

¥ 1,205
5,810¥ 7,015¥ 7,0151,201¥ 8,216$ 65,323
11,183$ 76,506

See accompanying notes to non-consolidated financial statements.
37

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements
March 31, 2005

1.

Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying non-consolidated financial statements of Yodogawa Steel Works,
Ltd. (the “Company”) are prepared on the basis of accounting principles generally
accepted in Japan, which are different in certain respects as to the application anddisclosure requirements of International Financial Reporting Standards, and arecompiled from the non-consolidated financial statements prepared by the Company as
required by the Securities and Exchange Law of Japan.
Certain reclassifications of previously reported amounts have been made to conformthe non-consolidated financial statements for the year ended March 31, 2004 to the2005 presentation. Such reclassifications had no effect on non-consolidated net
income or shareholders’ equity.
(b) Foreign Currency Translation
Monetary assets and liabilities denominated in foreign currencies are translated into
yen at the rates of exchange in effect at the balance sheet date. Other assets andliabilities denominated in foreign currencies are translated at their historical rates.
All revenues and expenses associated with foreign currencies are translated at therates of exchange prevailing when such transactions were made. The resulting
exchange loss and gain are charged or credited to income.
(c) Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks withdrawable
on demand, and short-term investments which are readily convertible to cash subject
to an insignificant risk of any changes in their value and which were purchased withan original maturity of three months or less.

38

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

1.

Summary of Significant Accounting Policies (continued)(d) Securities
The accounting standard for financial instruments requires that securities other thanthose of subsidiaries and affiliates be classified into three categories: trading
securities, held-to-maturity debt securities or other securities. Under this standard,
trading securities are carried at fair value and gain and loss, both realized andunrealized, are charged to income. Held-to-maturity debt securities are carried attheir amortized cost. Marketable securities classified as other securities are carriedat fair value with any changes in unrealized holding gain or loss, net of the applicable
income taxes, reported as a separate component of shareholders’ equity.
Non-marketable securities are classified as other securities and investments in
subsidiaries and an affiliate are carried at cost. Cost of securities sold is determinedby the moving average method.
(e) Inventories
Finished goods, work-in-process and raw materials such as steel sheets, building
materials and raw materials for rolls are stated at cost determined by the averagemethod.
Finished goods and work-in-process such as rolled products and real estate held forsale are stated at cost determined by the specific identification method.
Supplies are stated at cost determined by the first-in, first-out method.
(f) 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-balancemethod over the useful lives of the respective assets, except that the straight-line
method is applied to buildings (other than structures attached to the buildings)
acquired on and after April 1, 1998.
The useful lives adopted for calculating depreciation are principally as follows:
Buildings and structures
Machinery, equipment and vehicles

3 to 60 years
3 to 17 years

Significant renewals and additions are capitalized at cost. Maintenance and repairs
are charged to income as incurred.
39

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

1.

Summary of Significant Accounting Policies (continued)(g) Intangible Assets
Intangible assets are stated on the basis of cost. Amortization is calculated by thestraight-line method over the useful lives of the respective assets.
(h) Allowance for Doubtful Receivables
The Company provides an allowance for doubtful receivables at an amount calculated
based on the Company’s historical experience of bad debts on ordinary receivables
plus an additional estimate of probable specific bad debts from customers
experiencing financial difficulties.
(i) Research and Development Costs and Computer Software
Research and development costs are charged to income as incurred.
Expenditures relating to the development of computer software intended for internal
use are charged to income when incurred, unless these are deemed to contribute to thegeneration of future income or cost savings. Such expenditures are capitalized asassets and amortized by the straight-line method over their estimated useful life of
five years.
(j) Leases
The Company leases certain equipment under noncancelable leases referred to asfinance leases. Finance leases other than those which transfer the ownership of theleased property to the Company are accounted for as operating leases.
(k) Income Taxes
Deferred income taxes are provided for temporary differences between the balances ofassets and liabilities for financial reporting purposes and the corresponding balances
for tax reporting purposes.

40

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

1.

Summary of Significant Accounting Policies (continued)(l) Retirement Benefits
Employees of the Company are covered by an employees’ retirement benefit plan andan employees’ pension plan. The employees’ retirement benefit plan provides for a
lump-sum payment determined by reference to the basic salary, length of service andconditions under which the termination occurs. The employees’ pension plan, which
is a funded non-contributory plan, partially covers the benefits under the employees’
retirement benefit plan to employees who retire after fifteen or more years of service.
Accrued retirement benefits for employees are provided principally at an amountcalculated based on the retirement benefit obligation less the fair value of the pension
plan assets as adjusted for unrecognized actuarial gain or loss. The retirement
benefit obligation is attributed to each period by the straight-line method over theestimated remaining years of service of the eligible employees.
Actuarial gain and loss are amortized in the year following the year in which the gainor loss is recognized by the straight-line method over 10 years, which is within theestimated average remaining years of service of the eligible employees.
The directors and statutory auditors of the Company were customarily entitled to
lump-sum payments under the unfunded retirement benefit plan. Up to the year
ended March 31, 2004, the provision for retirement benefits for directors and statutory
auditors was made at an estimated amount based on the Company’s internal rules.
The Company has reconsidered the remuneration paid to its directors and statutory
auditors as part of its management revival plan. Accordingly, the retirement benefit
plan for directors and statutory auditors of the Company, pursuant to a resolution
approved at the general meeting of the shareholders held on June 29, 2004, wasdiscontinued.
(m) Allowance for Loss on Investments
The Company provides an allowance for loss on investments in subsidiaries andaffiliates in order to provide for future losses on such investments at the amount of theestimated losses to be borne by the Company. This estimate is based on aconsideration of the financial condition of the relevant subsidiaries and affiliates.

41

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

1.

Summary of Significant Accounting Policies (continued)(n) Hedge Accounting
Gain or loss on derivatives designed as hedging instruments is deferred until the gainor loss on the underlying hedged item is recognized. Interest-rate swaps which meetcertain conditions are accounted for as if the interest rates applied to the swaps hadoriginally applied to the underlying debt. Receivables and payables hedged byforward foreign exchange contracts which meet certain conditions are translated at thecorresponding foreign exchange contract rates.
(o) Appropriation of Retained Earnings
Under the Commercial Code of Japan, the appropriation of retained earnings withrespect to a given financial period is made by resolution of the shareholders at a
general meeting held subsequent to the close of the financial period and the accounts
for that period do not, therefore, reflect such appropriations.

2.

U.S. Dollar Amounts

The translation of yen amounts into U.S. dollar amounts is included solely for theconvenience of readers outside Japan and has been made at ¥107.39 = U.S.$1.00, theapproximate exchange rate prevailing on March 31, 2005. 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.

42

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

3.

Securities

Information with respect to the carrying value and fair value of, and unrealized gain on,
securities with determinable fair value included in investments in and advances tosubsidiary at March 31, 2004 and 2005 is summarized as follows:
Millions of yen

Investment in a
subsidiary

Carrying
value

2004
Fair
value

¥11,310¥21,527

Unrealized Carrying
gain
value

2005
Fair
value

Unrealized
gain¥10,217¥22,944¥11,634¥11,310

Thousands of U.S. dollars
2005
Carrying
Unrealized
value
Fair value
gain
Investment in a
subsidiary4.

$105,317$213,651$108,334

Inventories

Inventories at March 31, 2004 and 2005 were as follows:

Millions of yen
2004
2005
Finished goods
Work-in-process
Raw materials and supplies
Real estate held for sale

¥ 9,813
2,652
4,805
520
¥ 17,790¥ 8,001
2,813
4,066
884
¥ 15,764

Thousands of
U.S. dollars
2005$ 74,504
26,19437,8628,232$ 146,792

43

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

5.

Short-Term Bank Loans and Guarantee Deposits

Short-term bank loans represent overdrafts at average annual interest rates of 0.561% and0.568% at March 31, 2004 and 2005, respectively.
Guarantee deposits consisted of interest-free deposits, most of which were from tenants,
and interest-bearing deposits, which were principally deposits from customers at an
average annual interest rate of 0.5% at March 31, 2004 and 2005.
Interest-free deposits and interest-bearing deposits at March 31, 2004 and 2005 were as
follows:

Millions of yen
2004
2005
Interest-free deposits
Interest-bearing deposits

¥ 575
389
¥ 964

¥ 614
411
¥ 1,025

Thousands of
U.S. dollars
2005$5,7183,827$9,545The aggregate annual maturities of guarantee deposits subsequent to March 31, 2005 aresummarized as follows:

Millions of yen

Thousands of
U.S. dollars

Year ending March 31,
2006
2007
2008
2009
2010
2011 and thereafter

¥

2
–
–
–
–
1,023
¥ 1,025

$

19
–
–
–
–
9,526
$ 9,545

All interest-bearing deposits are scheduled to mature during the year ending March 31,
2011 and thereafter.

44

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

6.

Income Taxes

Income taxes applicable to the Company comprise corporation, enterprise and inhabitants’taxes which, in the aggregate, resulted in statutory tax rates of approximately 42.0% and40.5% for the years ended March 31, 2004 and 2005, respectively.
Reconciliations of the statutory tax rates and the effective tax rates for the years ended
March 31, 2004 and 2005 have been omitted since the differences between these rates arewithin 5% of the statutory tax rates.
The significant components of deferred tax assets and liabilities of the Company at March
31, 2004 and 2005 are summarized as follows:

Millions of yen
2004
2005
Deferred tax assets:
Accrued retirement benefits
Accrued bonuses
Allowance for doubtful receivables
Foreign tax credit
Loss on devaluation of securities
Allowance for loss on investment in a
subsidiary
Other
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gain on securities
Reserve for deferred taxation oncontributions for acquisition of property
Total deferred tax liabilities
Net deferred tax liabilities

Thousands of
U.S. dollars
2005¥ 1,886
372
8
607
847

¥ 1,920
418
5
366
832

$ 17,879
3,892
47
3,408
7,747

–
361
4,081

626
890
5,057

5,829
8,288
47,090(4,774)(5,592)(52,072)(1,155)(5,929)(1,086)(6,678)(10,112)(62,184)¥ (1,848)¥ (1,621)$ (15,094)45

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

7.

Shareholders’ Equity

The Commercial Code of Japan (the “Code”) provides that an amount equivalent to atleast 10% of cash dividends paid and bonuses to directors and statutory auditors, andexactly 10% of interim cash dividends paid be appropriated to the legal reserve until thesum of additional paid-in capital and the legal reserve equals 25% of stated capital. The
Code also provides that neither additional paid-in capital nor the legal reserve is available
for dividends but both may be used to reduce or eliminate a deficit by resolution of theshareholders or may be transferred to stated capital by resolution of the Board of Directors.
The Code also stipulates that, to the extent that the sum of the additional paid-in capital
account and the legal reserve exceeds 25% of the common stock account, the amount of
any such excess is available for appropriation by resolution of the shareholders.
Additional paid-in capital and the legal reserve are included in capital surplus and retained
earnings, respectively, in the accompanying non-consolidated balance sheets andstatements of shareholders’ equity. The Company’s legal reserve amounted to nil at
March 31, 2004 and 2005.
In accordance with the Code, a stock option plan for certain directors and executive
officers of the Company was approved at the annual general meeting of the shareholders
held on June 29, 2004. Under the terms of this plan, 81,000 shares of common stock
were granted at ¥1 ($0.01) per share. The options became exercisable on July 13, 2004
and are scheduled to expire on June 29, 2024.

8.

Research and Development Costs

Research and development costs included in selling, general and administrative expenses
were ¥328 million and ¥157 million ($1,462 thousand) for the years ended March 31,
2004 and 2005, respectively.

46

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

9.

Leases

The following pro forma amounts present the acquisition costs, accumulated depreciationand net book value of the leased property as of March 31, 2004 and 2005, 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
2004
Acquisition Accumulated
depreciation
costs
Machinery,equipment andvehicles

¥ 261

¥ 204

Net book
value

¥57

2005
Acquisition Accumulated
depreciation
costs

¥ 227

¥ 169

Net book
value

¥58

Thousands of U.S. dollars
2005
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$2,114$1,574$540

The related lease payments and depreciation for the years ended March 31, 2004 and 2005
were as follows:
Millions of yen
2004
2005
Lease payments
Depreciation

¥55
55

¥45
45

Thousands of
U.S. dollars
2005
$419
419

Depreciation is calculated by the straight-line method over the respective lease terms.
The related future minimum payments (including the interest portion thereon) subsequent
to March 31, 2005 under finance leases other than those which transfer the ownership ofthe leased property to the Company are summarized as follows:
Millions of yen

Thousands of
U.S. dollars

¥ 25
33
¥ 58

$233
307
$540

Year ending March 31,
20062007 and thereafter47

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

10. Contingent Liabilities
At March 31, 2005, the Company had the following contingent liabilities:
Millions of yen

Thousands of
U.S. dollars¥153$1,423

Guarantees of housing loans of employees andindebtedness of a subsidiary

11. Amounts per Share
Amounts per share at March 31, 2004 and 2005 and for the years then ended were as
follows:
Yen
Net assets
Net income:
Basic
DilutedCash dividends applicable to the year

2004

2005

U.S. dollars
2005¥711.25¥738.03

$6.87

16.38
–
8.00

28.45
28.44
14.00

0.26
0.26
0.13

Diluted net income has not been presented for the year ended March 31, 2004 since theCompany had not issued any potentially dilutive stocks at March 31, 2004.
The amount per share of net assets is computed based on the net assets available for
distribution to the shareholders and the number of shares of common stock outstanding at
the year end.
Basic net income per share is computed based on the net income available for distribution
to shareholders of common stock and the weighted-average number of shares of common
stock outstanding during the year. Diluted net income per share is computed based on
the net income available for distribution to the shareholders and the weighted-average
number of shares of common stock outstanding during each year after giving effect to thedilutive potential of shares of common stock to be issued upon the exercise of the stock
options.
Cash dividends per share represent the cash dividends proposed by the Board of Directors
as applicable to the respective years together with the interim cash dividends paid.

12. Subsequent Event
See Note 15 to the consolidated financial statements.
48