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.
Consolidated Financial Statements
Years ended March 31, 1998 and 1999

Contents

Consolidated Financial Statements

Report of Independent Certified Public Accountants ...............................................................1
Consolidated Balance Sheets..................................................................................................2
Consolidated Statements of Income ........................................................................................4
Consolidated Statements of Shareholders’ EquityCash Flows..................................................5
Notes to Consolidated Financial Statements............................................................................6

Report of Independent Certified Public Accountantson the Consolidated Financial Statements

The Board of Directors and Shareholders
Yodogawa Steel Works, Ltd.

We have examined the consolidated balance sheets of Yodogawa Steel Works, Ltd. and its
consolidated subsidiaries as of March 31, 1998 and 1999, and the related consolidated
statements of income and shareholders’ equity for the years then ended, all expressed in yen.
Our examinations were made in accordance with auditing 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 considered necessary in the circumstances.
In our opinion, the accompanying consolidated financial statements, expressed in yen, present
fairly the financial position of Yodogawa Steel Works, Ltd. and its consolidated subsidiaries at
March 31, 1998 and 1999, and the results of their operations for the years then ended inconformity with accounting principles and practices generally accepted in Japan applied on aconsistent basis.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe year ended March 31, 1999 are presented solely for convenience. Our examination also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 2 to the consolidated financial
statements.

Osaka, Japan
June 2927, 1999

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

Millions of yen
1998
1999

Thousands of
U.S. dollars(Note 2)
1999

AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Marketable securities
Notes and accounts receivable:
Unconsolidated subsidiaries and affiliates
Trade
Less allowance for doubtful receivables
Inventories
Trust certificates
Other current assets
Total current assets

Property, plant and equipment, at cost:
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 tounconsolidated subsidiaries and affiliates
Other assets
Total investments and other assets

Excess of cost over net assets acquired
Foreign currency translation adjustments

2¥ 11,050
32
35,953¥ 10,327
8,702
40,590$85,66672,186
336,707

24,041
28,177(305)
31,522
999
4,548
136,017

20,543
21,974(213)
29,872
2,697
3,455
137,947

170,411
182,281(1,767)
247,798
22,372
28,6601,144,314

20,66842,386
112,7737,460(111,842)
71,44520,32841,602
112,623
10,899(114,801)
70,651

168,627
345,102934,243
90,411(952,311)
586,072

1,2424,799

1,197

9,929

4,449
1,892
7,583

4,032
1,944
7,173

33,447
16,12659,502

60
876

–
3,034

–
25,168¥ 215,981¥ 218,805$1,815,056

Millions of yen
1998
1999

Thousands of
U.S. dollars(Note 2)
1999

8,990

¥ 10,000$

2,746
24,702
5,807
4,937
2,374
1,443
50,9992,248
19,954
2,448
3,766
1,999
1,842
42,257

18,648
165,525
20,307
31,24016,582
15,280350,535

Long-term liabilities:
Long-term debt
Retirement allowances
Guarantee deposits
Other long-term liabilities
Total long-term liabilities

1,995
8,095
1,615
482
12,187

16,795
8,003
1,424
433
26,655

139,320
66,387
11,813
3,592
221,112

Minority interests and other

10,764

11,181

92,75023,221–
23,6111
95,243(4444)
142,031152,795–
23,221
23,611
91,923(43)–
192,625
195,861
762,530(357)

138,7121,150,659¥ 215,981¥ 218,805$1,815,056

Liabilities and shareholders ’ equity

Current liabilities:
Short-term bank loans
Notes and accounts payable:
Unconsolidated subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes
Other current liabilities
Total current liabilities¥

82,953

Contingent liabilities (Note 4)

Shareholders’ equity:
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
Retained earnings (Note 5)Less treasury common stock, at cost
Total shareholders’ equity

See notes to consolidated financial statements.
3

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

Millions of yen
1998
1999
Net sales (Note 6)
Cost of sales (Note 6)
Gross profit

Thousands of
U.S. dollars(Note 2)1999

¥ 182,616
150,11732,499¥ 153,127
126,449
26,678$1,270,236
1,048,934
221,30221,532
10,967

20,4896,189

169,962
51,340

1,433
(805)
1,479

1,173
(503)
9

9,730
(4,173)75(2,369)(1,257)(10,427)

73

489

4,056

Selling, general and administrative expenses(Note 6)
Operating income (Note 6)
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 andequipment
Loss on sales or disposal of property, plantand equipment
Equity in losses of affiliates
Other, net
Income before income taxes and minority
interests
Income taxes
Income before minority interests

(291)
(35)
618

(697)
(348)
256

(5,782)(2,887)
2,124

11,070
4,475
6,595

5,311
2,594
2,717

44,056
21,51822,538

Minority interests in earnings of consolidated
subsidiaries(1,226)(806)(6,686)

Net income

¥

5,369

¥

1,911

¥ 23.49

15,852

U.S. dollars(Note 2)

Yen
Amounts per share:
Net income$¥ 8.40$0.07

See notes to consolidated financial statements.
4

Yodogawa Steel Works, Ltd.
Consolidated Statements of Shareholders ’ Equity
Years ended March 31, 1998 and 1999
Thousands of
U.S. dollars(Note 2)
1999

Millions of yen
1998
1999
Common stock

Balance at beginning of the year
Add:
Exercise of warrants
Balance at end of the year

¥ 21,217¥ 23,221$192,625

2,004¥ 23,221–¥ 23,221–$192,625¥ 21,6177¥ 23,6117$195,861

1,998
–

–
0

–
0

4
¥ 23,61161
1––¥ 23,611$195,861¥ 91,527¥ 95,243$790,071

5,369

1,911

15,852

–

8

66

4

–

–

1,568
78

1,591
78

13,198647

11––¥ 95,243

12
0
3,558
¥ 91,923

100
029,514$762,530

Additional paid-in capital

Balance at beginning of the year
Add:
Exercise of warrants
Transfer from retained earnings
Deduct:Transfer to retained earnings
Balance at end of the year
Retained earnings

Balance at beginning of the year
Add:
Net income
Increase due to merger of an
unconsolidated subsidiary
Adjustment relating to increase in common
stock of a subsidiary
Deduct:Cash dividends paid
Bonuses to directors and statutory auditors
Bonuses to employees of an overseas
subsidiary
Transfer to additional paid -in capital
Retirement of treasury common stock
Balance at end of the year

See notes to consolidated financial statements.
5

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

1. Summary of Significant Accounting Policies

The accompanying consolidated financial statements are prepared on the basis of the sameaccounting policies as those discussed in Note 1 to the non-consolidated financial statements
except for the following policies:(a) B a s i s o f P r e s e n t a t i o n

The Company and its domestic consolidated subsidiary maintain their accounting records
and prepare their financial statements in accordance with accounting principles andpractices generally accepted in Japan, and its foreign consolidated subsidiary maintains its
accounts in conformity with the requirements of its country of domicile.
The
accompanying consolidated financial statements have been compiled from those preparedby the Company under the Securities and Exchange Law of Japan and include certain
additional financial information for the convenience of readers outside Japan. Accordingly,
the accompanying consolidated financial statements are not intended to present theconsolidated financial position and results of operations in accordance with accounting
principles and practices generally accepted in countries and jurisdictions other than Japan.
Certain reclassifications of previously reported amounts have been made to conform theconsolidated financial statements for the year ended March 31, 1998 to the 1999
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 the Company
and its significant subsidiaries. All significant intercompany balances and transactions havebeen eliminated in consolidation.
The financial statements of a consolidated subsidiary whose fiscal year end is December 31
have been included in consolidation on the basis of a full fiscal year after making theappropriate adjustments for significant transactions during the period from it s year-end to
the Company’s fiscal year end date.
Investments in significant affiliates (companies owned 20% to 50%) are accounted for by
the equity method. The Company has applied the equity method to its investments in two
affiliates for the years ended March 31, 1998 and 1999.

6

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

1. Summary of Significant Accounting Policies (continued)(b) Basis of Consolidation (continued)

Investments in unconsolidated subsidiaries and affiliates other than those accounted for by
the equity method are stated at cost.
The differences between the cost of investments in consolidated subsidiaries and the equity
in their net assets at the dates of acquisition are being amortized over a period of five years.
(c) Foreign Currency Translation

Revenue and expense accounts of the foreign consolidated subsidiary and its balance sheet
accounts (except for shareholders’ equity) are translated into yen at the rate of exchange in
effect at the balance sheet date. Components of shareholders’ equity are translated attheir respective historical rates of exchange.
Translation differences are presented as “Foreign currency translation adjustments” in theaccompanying consolidated financial statements.
(d) Property, Plant and Equipment and Depreciation

Effective April 1, 1998, the Company and its domestic consolidated subsidiary shortened
the useful lives of buildings (except for structures attached to the buildings) as a result of arevision to the Corporation Tax Law. The effect of this change in useful lives increased
depreciation expense by ¥ 104 million ($863 thousand) and decreased operating income
and income before income taxes and minority interests by ¥ 104 million ($863 thousand)for the year ended March 31, 1999 from the amounts which would have been recorded if
the useful lives applied in the previous year had been used.

2.

U.S. Dollar Amounts

The same method of translating yen amounts into U.S. dollar amounts as that described in Note
2 to the non-consolidated financial statements has been followed.

7

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

3.

Leases

The following pro forma amounts present the acquisition costs, accumulated depreciation andnet book value of leased property as of March 31, 1999, 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 consolidated subsidiaries (which are currently accounted for as
operating leases) were capitalized:

Millions of yen
1999
Acquisition Accumulated
costs
depreciation
Machineryandequipment

¥ 536

¥ 264

Net book
value

¥ 272

Thousands of U.S. dollars
1999
Acquisition Accumulated Net bookcosts
depreciation
value$4,446$2,190$2,256

The related lease payments and depreciation for the years ended March 31, 1998 and 1999
were as follo ws:

Millions of yen
1998
1999
Lease payments
Depreciation expense

¥ 105
–

Thousands of
U.S. dollars
1999

¥ 100
100

$830
830

Depreciation is calculated by the straight-line method over the respective lease terms.
The related future minimum payments (including the interest portion thereon) subsequent toMarch 31, 1999 under finance leases other than those which transfer the ownership of theleased property to the Company and its consolidated subsidiaries are summarized as follows:
Millionsof yenThousands of
U.S. dollars

Year ending March 31,
2000
2001 and thereafter

¥

89
183

¥ 272

$

738
1,518

$ 2,256

8

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

4.

Contingent Liabilities

At March 31, 1999, the Company and its consolidated subsidiaries had the following contingent
liabilities:

As guarantor of housing loans of employees and indebtednessof unconsolidated subsidiaries

5.

Millionsof yenThousands of
U.S. dollars¥ 514$ 4,264

Legal Reserve

The Commercial Code of Japan provides that an amount equivalent to at least 10% of cash
dividends and other 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 toreduce or eliminate a deficit or may be transferred to common stock through suitableshareholders’ and directors’ action, but is not available for the payment of dividends. At
March 31, 1998 and 1999, retained earnings included a legal reserve of ¥ 2,921 million and¥ 3,089 million ($25,624 thousand), respectively.

6.

S e gment Information

The Company and its consolidated subsidiaries are primarily engaged in the manufacture andsale of a variety of steel products such as steel sheets, construction materials, prefabricatedstructures and home furnishings, steel rolls and billets, and gratings. The Company also
engages in other activities such as real estate rental and engineering.

9

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

6.

Segment Information (continued)

Business Segments

The business and geographical segments information of the Company and its consolidated
subsidiaries for the years ended March 31, 1998 and 1999 are outlined as follows:Business Segments
Year ended March 31, 1998
Millions of yen

I.

Sales to third parties
Intergroup sales andtransfers
Total sales

Eliminations
and general
corporate
assetsConsolidated¥¥182,616178,599

Steel sheet
products

Electric
furnaceproducts¥160,278157,
143¥18,84717,929¥3,491527¥182,616178,
599–3
160,278157,1
46–27527918,84717,92
9 3,7663,806
18,44117,73
5 2,3202,299

275282
182,891178,881(275282)

170,911738760¥((1,0421,013)

Other

Total

Operating expenses

150,150

Operating income¥ 10,128841¥¥1,446507¥ 11,980¥134,981125,
069
5,8376,114
4,7644,327¥18,23617,5 ¥11,04215
074837800239258654910129226¥164,259153,
731
6,9137,172
5,547462

406194–(275282))–
182,616178,59
9
171,649¥ 10,967

II. Assets, depreciation andcapital expenditures
Total assets
Depreciation
Capital expenditures¥¥215,981243,6
51,72280,872
03
9997
7,012269
920434
6,4675,896

Year ended March 31, 1999
Millions of yen

I.

Sales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income (loss)

Steel sheet
products

Electric
furnaceproducts

Other

Total

Eliminations
and general
corporate
assets¥137,251¥13,064¥ 2,812¥153,127¥–¥153,127–
137,251
130,831¥ 6,420–
13,064
13,391¥ (327)

1,857
4,669
3,520
¥ 1,149

1,857
154,984
147,742¥ 7,242(1,857)(1,857)(804)¥ (1,053)–
153,127
146,938¥ 6,189

Consolidated

II. Assets, depreciation and10

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

capital expenditures
Total assets
Depreciation
Capital expenditures¥125,836
5,491
2,373

¥14,678
819
1,344¥11,441249
164¥151,955
6,559
3,881

¥ 66,850
177
220¥218,805
6,736
4,101

11

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

6.

Segment Information (continue d)Business Segments (continued)
Year ended March 31, 1999
Thousands of U.S. dollars

I.

Eliminations
and general
corporate
assetsSteel sheet
products

Electric
furnaceproducts

Other

Total

$1,138,540$108,370$23,326$1,270,236$–$1,270,236–
1,138,540
1,085,284$ 53,256–
108,370
111,083$ (2,713)

15,40538,731
29,199$ 9,532

15,405
1,285,641
1,225,566$ 60,075(15,405)(15,405)(6,670)$ (8,735)–
1,270,236
1,218,896$ 51,340$1,043,849
45,55019,685$121,759
6,794
11,149$94,906
2,065
1,360

$1,260,514
54,40932,194$ 554,542
1,468
1,825

$1,815,056
55,87734,019

Sales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income (loss)

II. Assets, depreciation andcapital expenditures
Total assets
Depreciation
Capital expenditures

Consolidated

As mentioned in Note 1, the Company and its domestic consolidated subsidiary shortened theuseful lives of buildings. The effect of this change increased operating expenses of steel sheet
products, electric furnace products and other by ¥ 72 million ($597 thousand), ¥ 11 million($91 thousand) and ¥ 21 million ($174 thousand), respectively, from the amounts which would
have been recorded if the useful lives applied in the previous year had been used.

Geographical Segments
Year ended March 31, 1998
Millions of yen
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated¥141,244245
3635
141,280
133,639¥ 7,641¥41,372–
41,372
38,046¥ 3,326¥182,616617
3635
182,652
171172,685¥ 10,967–(3635)(3635)(3635)¥–¥182,616617–
182,616617
171,649178¥ 10,967¥137,201¥27,035¥164,236¥ 51,745¥215,981

Japan
Sales to third parties
Interarea sales and transfers
Total sales
Operating expenses
Operating income
Assets¥12

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

6.

Segment Information (continued)

Geographical Segments (continued)

Japan

Year ended March 31, 1999
Millions of yen
Eliminations
and general
Southeast
corporate
Asia
Total
assetsSales to third parties
Interarea sales and transfers
Total sales
Operating expenses
Operating income¥120,308
1,664
121,972
117,241¥ 4,731¥32,819–
32,81931,361¥ 1,458¥153,127
1,664
154,791
148,602¥ 6,189¥–(1,664)(1,664)(1,664)¥–¥153,127–
153,127
146,938¥ 6,189

Assets¥139,080¥ 24,159¥163,239¥ 55,566¥218,805

Japan

Year ended March 31, 1999
Thousands of U.S. dollars
Eliminations
and general
Southeast
corporate
Asia
Total
assetsSales to third parties
Interarea sales and transfers
Total sales
Operating expenses
Operating income$ 997,992
13,804
1,011,796
972,551$ 39,245$272,244–
272,244
260,149$ 12,095$1,270,236
13,804
1,284,040
1,232,700$ 51,340$–(13,804)(13,804)(13,804)$–$1,270,236–
1,270,236
1,218,896$ 51,340

Assets$1,153,712$200,407$1,354,119$ 460,937$1,815,056

Consolidated

Consolidated

As mentioned in Note 1, the Company and its domestic consolidated subsidiary shortened theuseful lives of buildings. The effect of this change increased operating expenses of the Japan
segment by ¥ 104 million ($863 thousand) from the amount which would have been recorded if
the useful lives applied in the previous year had been used.
Overseas sales, which include export sales of the Company and its domestic consolidated
subsidiaries and sales (other than exports to Japan) of the foreign consolidated subsidiary,
totaled ¥ 47,670 million and ¥ 39,903 million ($331,008 thousand), or 26.1% and 26.1% of
the consolidated net sales for the years ended March 31, 1998 and 1999, respectiv ely.

6.

Subsequent Event

See Note 12 to the non-consolidated financial statements.
13