Financial Statements
Years ended March 31,2002 and 2003

Contents

Consolidated Financial Statements ....................................................................................1
Report of Independent Auditors on Consolidated Financial Statements ...........................2
Consolidated Balance Sheets...............................................................................................3
Consolidated Statements of Operations..............................................................................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 on Non-Consolidated Financial Statements .................33
Non-Consolidated Balance Sheets.....................................................................................34
Non-Consolidated Statements of Operations....................................................................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, 2002 and 2003
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, 2002 and 2003, and the related consolidated statements of operations,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 independently on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards, procedures and practices
generally accepted and applied in Japan. Those standards, procedures and practices
require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in 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 consolidated financial position of Yodogawa Steel Works, Ltd. andconsolidated subsidiaries at March 31, 2002 and 2003, and the consolidated results of theiroperations and cash flows for the years then ended in conformity with accounting
principles and practices generally accepted in Japan.
As described in Note 1(f) to the consolidated financial statements, Yodogawa Steel Works,
Ltd. has changed its method of accounting for the valuation of finished goods,
work- in-process and raw materials of steel sheets, building materials and raw materials forrolls from the last- in, first-out method to the average cost method effective the year ended
March 31, 2003 in the preparation of its consolidated financial statements.
The U.S. dollar amounts in the accompanying consolidated financial statements withrespect to the year ended March 31, 2003 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.

June 27, 2003
See Note 1 which explains the basis of preparation of the consolidated financial statementsof Yodogawa Steel Works, Ltd. and consolidated subsidiaries under Japanese accounting
principles and practices.

2

Yodogawa Steel Works, Ltd.
Consolidated Balance Sheets
March 31, 2002 and 2003
Millions of yen
2002
2003
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 (Note 4):
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)
2003

¥ 18,208
1,447
3,302

¥ 17,487
247
3,260

$

145,483
2,055
27,121

10,517
24,816(83)
29,315873
3,515
91,9102,215
31,564(213)
22,582
2,012
3,518
82,672

18,428262,596(1,772)
187,870
16,73929,267
687,787

23,47253,862
135,150861(135,971)
77,374

24,16953,258125,6123,032(132,366)
73,705201,073443,078
1,045,025
25,225(1,101,215)
613,186

20,694

16,213

134,884

3,323
999
3,384
28,400

3,136
1,431
2,665
23,44526,09011,90522,171
195,050¥ 197,684¥ 179,822$ 1,496,023

Thousands of
U.S. dollars(Note 2)
2003

Millions of yen
2002
2003
Liabilities, minority interests andshareholders’ equity
Current liabilities:
Short-term bank loans (Note 4)
Current portion of long-term debt (Note 4)
Notes and accounts payable:
Unconsolidated subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes (Note 6)
Allowance for loss on restructuring
Other current liabilities
Total current liabilities¥ 12,897
5,228

¥

7,989
1,100

$

66,464
9,151

668
15,526
1,160
3,889
399
568
3,230
43,565557
14,739
1,297
2,939
755
–
2,484
31,8604,634
122,621
10,79024,451
6,281–
20,666
265,058

Long-term liabilities:
Long-term debt (Note 4)
Deferred income taxes on land revaluation
reserve (Notes 6 and 8)
Accrued retirement benefits (Note 5)
Guarantee deposits (Note 4)
Other long-term liabilities
Total long-term liabilities

1,100

–

–

765
8,590
4,626
571
15,652

721
7,528
4,283
677
13,2095,998
62,62935,632
5,633
109,892

Minority interests

12,215

11,88998,91023,221
23,613
1,139
76,884
3,721(845)

23,221
23,611
929
77,2581,230(2,087)

193,186
196,4317,729
642,746
10,233(17,363)(1,481)
126,252(1,298)122,864(10,799)
1,022,163¥ 197,684¥ 179,822$ 1,496,023

Contingent liabilities (Note 11)
Shareholders’ equity (Note 7):
Common stock:
Authorized: 753,814,067 shares in 2002 and2003
Issued: 184,186,153 shares in 2002 and2003
Capital surplus
Land revaluation reserve (Note 8)
Retained earnings (Note 15)
Unrealized holding gain on securities
Translation adjustments
Treasury stock, at cost – 4,951,692 shares in2002 and 6,916,693 shares in 2003
Total shareholders’ equity
Total liabilities, minority interests andshareholders’ equity

See accompanying notes to consolidated financial statements.
4

Yodogawa Steel Works, Ltd.
Consolidated Statements of Operations
Years ended March 31, 2002 and 2003

Millions of yen
2002
2003
Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses(Note 9)Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of securities
Impairment loss on securities (Note 3)(Loss) gain on sales or disposal of property,
plant and equipment, net
Loss on disposal of inventories
Equity in loss of an affiliate
Restructuring charges
Provision for business closing costs
Cumulative effect of changes in method of
inventory valuation
Other, net(Loss) income before income taxes andminority interests
Income taxes (Note 6):
Current
Deferred(Loss) income before minority interests
Minority interests in earnings of consolidated
subsidiaries
Net (loss) income

Thousands of
U.S. dollars(Note 2)2003

¥ 145,071
124,702
20,369¥147,124
123,248
23,876$1,223,993
1,025,357
198,636

18,538
1,831

16,752
7,124

139,368
59,268

562
(581)
19
(4,974)

529
(325)
1,765
(1,594)4,401(2,704)
14,684(13,261)

(310)
(613)
(1)
–
(568)

45
–
(165)
(1,369)–374–(1,373)(11,389)
–

–
(690)

(2,038)(16)(16,955)(133)(5,325)

3,956

32,912354(2,484)(2,130)(3,195)

743
186
929
3,027

6,181
1,548
7,729
25,183(560)¥ (3,755)(1,802)¥ 1,225(14,992)$ 10,191

See accompanying notes to consolidated financial statements.
5

Yodogawa Steel Works, Ltd.
Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2002 and 2003
Thousands of
U.S. dollars(Note 2)
2003

Millions of yen
2002
2003
Common stock
Balance at beginning and end of the year
Capital surplus
Balance at beginning of the year
Add:
Transfer from retained earnings
Deduct:Transfer to retained earnings
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
Increase resulting from change in ownership ratioof an affiliate
Deduct:Net loss
Decrease resulting from initial inclusionof a subsidiary in consolidation
Cash dividends paid
Bonuses to directors and statutory auditors
Bonuses to employees of an overseas subsidiary
Transfer to capital surplus
Retirement of treasury stock
Balance at end of the year
Unrealized holding gain on securities (Note 3)
Balance at beginning of the year
Net change during the year
Balance at end of the year
Translation adjustments
Balance at beginning of the year
Net change during the year
Balance at end of the year

¥23,221¥23,221$193,186¥23,612¥23,613$196,448

1

–

–

–
¥23,613(2)¥23,611(17)$196,431

¥

544
595
¥ 1,139¥ 1,139
(210)
¥ 929

$ 9,476(1,747)$ 7,729¥86,883¥76,884$639,634

–
144
–

1,225
37
2

10,191
308
17

–

203

1,689

(3,755)

–

–

(142)
(1,342)
(66)
(14)
(1)
(4,823)¥76,884–(1,070)
(14)
(9)
–
–
¥77,258–(8,902)
(116)
(75)
–
–
$642,746

¥

–
3,721
¥ 3,721¥ 3,721(2,491)¥ 1,230$ 30,957(20,724)$ 10,233¥ (1,905)
1,060¥ (845)¥ (845)(1,242)¥ (2,087)$ (7,030)(10,333)$ (17,363)

See accompanying notes to consolidated financial statements.
6

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows
Years ended March 31, 2002 and 2003

Cash flows from operating activities:(Loss) income before income taxes andminority interests
Adjustments for:
Depreciation and amortization
Amortization of goodwill arising fromconsolidation
Equity in loss of an affiliate
Impairment loss on securities
Decrease in accrued retirement benefits
Decrease in accrued bonuses
Decrease in allowance for doubtfulreceivables
Interest and dividend income
Interest expense
Gain on sales of securities
Loss (gain) on sales or disposal of property,
plant and equipment, net
Restructuring charges
Provision for business closing costs
Decrease in notes and accounts receivable
Decrease in inventories
Decrease in notes and accounts payable
Bonus payments to directors, statutory
auditors and employees of an overseas
subsidiary
Other
SubtotalInterest and dividends received
Interest paid
Additional retirement benefits paid
Income taxes paid
Other
Net cash provided by operating activities

Millions of yen
2002
2003

Thousands of
U.S. dollars(Note 2)2003

¥ (5,325)¥ 3,956$ 32,912

7,744

6,775

56,364

(41)
1
4,974
(771)
(44)

(30)
165
1,594
(952)
(29)

(250)
1,373
13,261(7,920)
(241)

(619)
(562)
581
(19)

(196)
(529)
325
(1,765)(1,631)(4,401)
2,704(14,684)310–
568
12,424
4,404(10,532)

(45)
1,369
–
1,239
6,311
(675)

(374)
11,389–10,30852,504(5,616)(80)
824
13,837
567
(586)
–
(402)
(277)
¥ 13,139

(23)
(767)
16,723529(319)(1,253)(347)–¥ 15,333(191)(6,381)
139,1264,401(2,654)(10,424)(2,887)–$ 127,562

7

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows (continued)
Years ended March 31, 2002 and 2003

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
Proceeds from long-term loans
Repayment of long-term loans
Redemption of bonds
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 decrease 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
2002
2003

Thousands of
U.S. dollars(Note 2)2003

¥ (4,445)¥ (1,525)$ (12,687)

3,463(3,399)3,822(4,113)

2,725(10,497)
12,397(4,957)22,671(87,330)
103,136(41,240)471(40)(1,031)
174
(464)
473
8
(5,081)441(23)(6,743)
4,504(1,414)709
19(4,364)

3,669
(191)
(56,098)
37,471(11,764)
5,899
158(36,306)(2,421)200(5,740)–(4,331)(4,592)–(228)(5,000)(51)(38,203)–(1,897)(41,597)(424)(1,342)(1,070)(8,902)(676)
2(14,308)

(557)
(35)
(11,533)(4,634)(291)(95,948)145(6,105)

(157)
(721)

(1,306)(5,998)24,313¥ 18,208

18,208¥ 17,487

151,481$ 145,483

See notes to consolidated financial statements.
8

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements
March 31, 2003

1. Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying consolidated financial statements of Yodogawa Steel Works, Ltd.
(the “Company”) and its consolidated subsidiaries have been prepared in accordancewith accounting principles and practices generally accepted and applied in Japan,
which may differ in certain material respects from accounting principles and practices
generally accepted in countries and jurisdictions other than Japan, and have been
compiled from those prepared by the Company as required under the Securities andExchange Law of Japan.
In addition, the notes to the consolidated financial statements include information
which is not required under accounting principles generally accepted in Japan but ispresented herein as additional information.
Certain reclassifications of previously reported amounts have been made to theconsolidated financial statements for the year ended March 31, 2002 to conform themto the 2003 presentation. Such reclassifications had no effect on consolidated net
loss or shareholders’ 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 loss. Consolidated net income includes the Company’s equity in the current net
income or loss of this company after the elimination of unrealized intercompany
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 the ir 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 foreign 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
For the purpose of the consolidated statements of cash flows, 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 changes in their value and which were purchased with an 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
Up to the year ended March 31, 2002, inventories at the Company were stated at cost
determined principally by the last- in, first-out method.
Effective April 1, 2002, the Company changed its method of accounting for thevaluation of finished goods, work-in-process and raw materials of steel sheets,building materials and raw materials for rolls from the last- in, first-out method to theaverage cost method. This change was made to mitigate the impact of material
fluctuation in the purchase prices of raw materials and to minimize the difference
between the book and market value of these inventories. The effect of this change
was to decrease inventories at March 31, 2003 by ¥901 million ($7,496 thousand), toincrease operating income for the year then ended by ¥1,137 million ($9,459
thousand) and to decrease income before income taxes and minority interests for theyear then ended by ¥901 million ($7,496 thousand) by recognizing the cumulative
effect of the change in inventory valuation of ¥2,038 million ($16,955 thousand) for
the year then ended.
Inventories at the overseas consolidated subsidiary are stated at the lower of 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 (except for structures attached to the buildings)
acquired subsequent to 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. Maintenance and repairs
are charged to income as incurred.

11

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)(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.
(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) Provision for Business Closing Costs
At March 31, 2002, the Company has provided a provision for business closing costs
arising from the discontinuation of its household artic les business at an estimate of
the loss to be incurred.

12

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)(n) 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 mainly at an amountcalculated based on the retirement benefit obligation and 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.
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 are customarily entitled to lump-sum payments under the unfunded
retirement benefit plans. The provision for retirement benefits for directors andstatutory auditors has been made at an estimated amount based on the Company’s oreach consolidated subsidiary’s internal rules.
(o) 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 and others. Receivables and payables
hedged by forward foreign exchange contracts which meet certain conditions aretranslated at the corresponding foreign exchange contract rates.
(p) 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 stockholders 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.

13

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
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 ¥120.20 =U.S.$1.00, the approximate exchange rate prevailing on March 31, 2003. 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.

3.

Securities

Marketable securities classified as held-to-maturity debt securities at March 31, 2002 and2003 are summarized as follows:
2002
Millions of yen
Carrying
value
Securities whose fair value exceeds
their carrying value:
Government bonds
Securities whose fair value does notexceed their carrying value:
Government bonds
Other
Total

¥

31

65
2,341
2,406
¥ 2,437

Estimated fair
value

¥

31

64
2,294
2,358
¥ 2,389

Unrealized
holding
gain (loss)

¥

0

(1)
(47)
(48)
¥ (48)

2003
Millions of yen
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

¥

86
600
686

10
500
172
682
¥ 1,368

Estimated fair
value

¥

91
600
691

10
442
149
601
¥ 1,292

Unrealized
holding
gain (loss)

¥

5
0
5

(0)
(58)
(23)
(81)
¥ (76)

14

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
3.

Securities (continued)

2003
Thousands of U.S. dollars
Unrealized
Carrying
Estimated fairholdingvalue
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
Corporate bonds
Other
Total

$

715
4,992

$

757
4,992

$ 42
0

5,707

5,749

42

83
4,160
1,431
5,674
$ 11,381

83
3,677
1,240
5,000
$10,749

(0)
(483)
(191)
(674)
$(632)

Other securities with determinable market value at March 31, 2002 and 2003 aresummarized as follows:
2002
Millions of yen

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

Acquisition
costs

Estimated fairvalue

Unrealized
holding
gain (loss)¥ 8,979
100
900
9,979

¥ 16,100101
911
17,112¥ 7,121
1
11
7,133

2,503
1,002
401
3,906
¥ 13,885

2,137
885
324
3,346
¥ 20,458

(366)
(117)
(77)
(560)
¥ 6,57315

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
3.

Securities (continued)
2003
Millions of yen
Acquisition
costs

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
Other bonds
Other
Total

Estimated fairvalue

Unrealized
holding
gain (loss)¥ 6,116
301
6,417

¥

8,921
301
9,222

¥ 2,805
0
2,805

3,418
901
322
499
5,140
¥ 11,557

2,902
900
322
330
4,454
¥ 13,676

(516)
(1)
(0)
(169)
(686)
¥ 2,119

2003
Thousands of U.S. dollars
Unrealized
holding
Acquisition
Estimated fair
costs
value
gain (loss)
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
Other bonds
Other
Total

$ 50,882
2,504
53,386$ 74,218
2,504
76,722$ 23,336
023,33628,436
7,496
2,679
4,151
42,762$ 96,148

24,143
7,488
2,679
2,745
37,055$ 113,777(4,293)(8)(0)(1,406)(5,707)$ 17,629

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, 2002 and2003 are summarized as follows:

Millions of yen
2002
2003
Sales
Aggregate gain
Aggregate loss

¥ 209
19
0

¥ 3,137
1,765
1Thousands of
U.S. dollars
2003$26,098
14,6848

The carrying value of other securities without determinable market value at March 31,
2002 and 2003 were as follows:

Millions of yen
2002
2003
Non-marketable equity securities
Money management funds included in
cash and cash equivalents
Free financial funds
Preferred stock
Preferred subscription certificates¥1,100
1,532
–
–
–

¥

Thousands of
U.S. dollars
2003

829

$ 6,897

894
1,000
1,100
1,500

7,438
8319
9,151
12,479The Company and its consolidated subsidiaries recorded an impairment loss on securitiesof ¥4,974 million and ¥1,594 million ($13,261 thousand) for the years ended March 31,
2002 and 2003, respectively. At the year end, the Company and its consolidated
subsidiaries compare the market value and carrying value of their marketable equity
securities and record an impairment loss on those whose market value shows a substantial
decline of 50% or more, or those whose decline is within a range of 30% or more, but lessthan 50%, and is not deemed recoverable.

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, 2003 is summarized as follows:
Millions of yen
Due in one year
or less
Government bonds
Corporate bonds
Other debt securities
Other
Total

¥

–
1,200
1,030
–
¥ 2,230

Due after one
year throughfive years
¥26
–
40
–
¥66

Due after five
years throughten years
¥

60
–
–
1,500
¥ 1,560

Due after ten
years
¥

–
500
–
1,000
¥ 1,500

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

$

Total

Due after one
year throughfive years

–
9,983
8,569

$ 216
–
333

–

–

$ 18,552$ 549

Due after five
years throughten years
$

499
–
–
12,479$12,978

Due after ten
years
$

–
4,160
–
8,319
$ 12,479

4. Short -Term Bank Loans, Long-Term Debt and Guarantee Deposits
Short-term bank loans at March 31, 2002 and 2003 represented overdrafts and notes
payable to banks. At March 31, 2002, overdrafts and notes payable to banks amounted
to ¥12,797 million at an annual interest rate of approximately 1.27% and ¥100 million atan annual interest rate of approximately 1.375%, respectively. At March 31, 2003,
overdrafts amounted to ¥7,989 million ($66,464 thousand) at an annual interest rate of
approximately 0.798%.

18

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
4. Short -Term Bank Loans, Long-Term Debt and Guarantee Deposits (continued)
Long-term debt at March 31, 2002 and 2003 was as follows:
Thousands of
U.S. dollars
2003

Millions of yen
2002
2003
1.8% unsecured bonds, payable in yen,due 2003
Unsecured loans from banks and an
insurance company, due 2004 at an
average interest rate of 2.1%
Less current portion¥ 5,000

¥

–

1,328
6,328
(5,228)¥ 1,100

1,100
1,100
(1,100)
¥
–

$

–

9,151
9,151
(9,151)$–All long-term debt at March 31, 2003 is scheduled to mature during the year ending
March 31, 2004.
The assets pledged as collateral for short-term bank loans of ¥1,034 million ($8,602
thousand) and other current liabilities of ¥42 million ($349 thousand) at March 31, 2003
were as follows:

Buildings and structures
Machinery, equipment and vehicles
Land
Other
Investments in securities

Millions of yen

Thousands of
U.S. dollars

9,078
13,101
2,897
867
50¥25,993

75,524
108,993
24,102
7,213
416$216,248

Buildings and structures, machinery, equipment and vehicles, land and other presented in
the above table were pledged as foundation mortgages for short-term bank loans of ¥1,034
million ($8,602 thousand) at March 31, 2003.
Guarantee deposits consisted of interest- free deposits, which were mainly golf
membership deposits, and interest-bearing deposits, which were principally from
customers at annual interest rates of approximately 2.01% and 0.61% at March 31, 2002
and 2003, respectively. Interest- free deposits and interest-bearing deposits at March
31 2002, and 2003 were as follows:

Interest- free deposits
Interest-bearing deposits

Millions of yen
2002
2003
¥ 4,266¥ 3,895
360
388¥ 4,626¥ 4,283

Thousands of
U.S. dollars
2003$ 32,404
3,228$ 35,632
19

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
4.

Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits (continued)

The aggregate annual maturities of guarantee deposits subsequent to March 31, 2003 aresummarized as follows:
Millions of yen
Year ending March 31,
2004
2005
2006
2007
2008
2009 and thereafter

¥

3
3
2
–
–
4,275
¥ 4,283

Thousands of
U.S. dollars
$

25
25
17
–
–
35,565$ 35,632

All interest-bearing deposits are scheduled to mature during the years ending March 31,
2009 and thereafter.

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, 2002 and 2003 are summarized as follows:

Millions of yen
2002
2003
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¥(14,642)
4,998(9,644)
2,173
48(7,423)606¥ (8,029)¥(13,631)
4,038(9,593)3,221
36(6,336)557¥ (6,893)

Thousands of
U.S. dollars
2003$ (113,403)
33,594(79,809)
26,797300(52,712)4,634$ (57,346)

As allowed under the accounting standard for retirement benefits, certain domestic
consolidated subsidiaries calculate accrued retirement benefits for their employees bysimplified methods.

20

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
5. Retirement Benefits (continued)
The components of retirement benefit expenses for the years ended March 31, 2002 and2003 are outlined as follows:
Thousands of
U.S. dollars
2003

Millions of yen
2002
2003
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost

¥

821
403
(73)
163
8
¥ 1,322

¥

803
376
(43)
230
8
¥ 1,374

$

6,681
3,128
(358)
1,913
67
$ 11,431

Further to the retirement benefit expenses presented in the above table, the Company paid
additional retirement benefits of ¥73 million and ¥1,258 million ($10,466 thousand),
respectively, which are presented as “Other income (expenses) – other, net” in the
consolidated statements of operations.
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.
The assumptions used in accounting for the above benefit plans for the years ended March
31, 2002 and 2003 were as follows:

Discount rate
Expected rates of return on plan assets

2002

2003

Principally 2.5%
Principally 1.6%

Principally 2.5%
Principally 0.9%

The Company and its domestic consolidated subsidiaries recorded accrued retirement
benefits to directors and statutory auditors of ¥561 million and ¥635 million ($5,283
thousand) at March 31, 2002 and 2003, respectively.

21

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
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 ina statutory tax rate of approximately 42.0% for the years ended March 31, 2002 and 2003.
A reconciliation of the statutory tax rate and the effective tax rate for the year ended
March 31, 2003 as a percentage of income before income taxes and minority interests is
as follows:
2003
Statutory tax rate
Investment tax credits
Nondeductible expenses
Per capita portion of inhabitants’ taxes
Differences in tax rate applicable to the overseas
subsidiary
Cash dividends received from the overseas
subsidiary
Other
Effective tax rate

42.0%
(2.0)
1.1
1.7
(20.2)
2.5
(1.6)
23.5%

The corresponding information for the year ended March 31, 2002 has been omitted
because a loss before income taxes and minority interests was recorded.

22

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, 2002 and 2003 are summarized as follows:

Millions of yen
2002
2003
Deferred tax assets:
Accrued retirement benefits
Investment tax credits
Allowance for doubtful receivables
Accrued bonuses
Inventories
Allowance for loss on restructuring
Excess foreign tax deduction
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 ofproperty
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2003¥ 2,220
592
315
251
123
239
241
99
1,764
1,108
6,952
(910)
6,042

¥ 2,197
–
258
334
124
–
410
68
1,406
1,429
6,226
(545)
5,681

$ 18,278
–
2,146
2,779
1,032
–
3,411
566
11,697
11,88851,797(4,534)47,263(55)(2,702)
(765)

(44)
(941)
(721)

(366)
(7,829)(5,998)(1,413)(4,935)¥ 1,107(1,253)(2,959)¥ 2,722(10,424)(24,617)$ 22,646

In accordance with a law on amendments to local tax laws, etc. announced on March 31,
2003, the Company and its domestic consolidated subsidiaries applied a statutory tax rateof 40.5% to the calculation of deferred tax assets and liabilities at March 31, 2003, which
are expected to be reversed on April 1, 2004 and thereafter. The effect of this change inthe statutory tax rate applied was to decrease non-current defe rred tax assets (net of
non-current deferred tax liabilities) and deferred tax liabilities with respect to the land
revaluation reserve of ¥27 million ($225 thousand) and ¥26 million ($216 thousand),
respectively, and to increase the land revaluation reserve and unrealized holding gain on
securities by ¥31 million ($258 thousand) and ¥32 million ($266 thousand), respectively
at March 31, 2003. The effect of this change was also to increase income taxes –deferred and to decrease net income by ¥59 million ($491 thousand) each for the year
ended March 31, 2003.
23

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
7. Shareholders’ Equity
The Commercial Code of Japan provides that an amount equivalent to at least 10% of
cash dividends paid and bonuses to directors and statutory auditors, and exactly 10% ofinterim cash dividends paid be appropriated to the legal reserve until the sum 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 fordividends 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. The
Company’s legal reserve, which is included in retained earnings, amounted to ¥3,478
million and ¥3,478 million ($28,935 thousand) at March 31, 2002 and 2003, respectively.
Effective April 1, 2002, the Company and its consolidated subsidiaries adopted a new
accounting standard for treasury stock and reversal of legal reserves. The effect of the
adoption of this standard on the consolidated results of their operations for the year ended
March 31, 2003 was immaterial.
In accordance with the revised regulations on consolidated financial statements, additional
paid-in capital reported in shareholders’ equity in the previous year has been presented ascapital surplus as of March 31, 2002.

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 ha ve been accounted for as land revaluation reserve undershareholders’ equity at the Company’s share of the net amount of the relevant tax effect.
The method followed for land revaluation was determined in accordance with the“Enforcement Act Concerning Land Revaluation.”
At March 31, 2002 and 2003, the carrying value of land revaluated at March 31, 2000
exceeded the corresponding fair value by ¥218 million and ¥134 million ($1,115
thousand), respectively.
The carrying value of the land revalued at March 31, 2002 was as follows:
Millions of yen
Carrying value before revaluation
Carrying value after revaluation¥10,059
11,512At March 31, 2003, the carrying value of ¥11,512 million exceeded the corresponding fairvalue by ¥931 million ($7,745 thousand).
24

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
9. Research and Development Costs
Research and development costs included in selling, general and administrative expenses
for the years ended March 31, 2002 and 2003 were as follows:
Thousands of
U.S. dollars
2003

Millions of yen
2002
2003
¥705

¥654

$5,441

10. Leases
The following pro forma amounts present the acquisition costs, accumulated depreciationand net book value of the leased property as of March 31, 2002 and 2003, 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
2002
Acquisition Accumulated
costs
depreciation
Machinery,equipment andvehicles

¥ 629

¥ 397

Net book
value

¥ 232

2003
Acquisition Accumulated
costs
depreciation

¥580

¥432

Net book
value

¥148

Thousands of U.S. dollars
2003
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$4,825$3,594$1,231

The related lease payments and depreciation for the years ended March 31, 2002 and 2003
were as follows:

Millions of yen
2002
2003
Lease payments
Depreciation

¥118
118

¥112
112

Thousands of
U.S. dollars
2003
$932
932

Depreciation is calculated by the straight- line method over the respective lease terms.
25

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements (continued)
10. Leases (continued)
The related future minimum payments (including the interest portion thereon) subsequent
to March 31, 2003 under finance leases other than those which transfer the ownership ofthe leased property to the Company and its consolidated subsidiaries are summarized asfollows:

Year ending March 31,
20042005 and thereafter

Millions of yen

Thousands of
U.S. dollars

¥ 89
59
¥148

$ 740
491
$1,231

11. Contingent Liabilities
At March 31, 2003, the Company and its consolidated subsidiaries had the following
contingent liabilities:

Guarantees of housing loans of employees andindebtedness of unconsolidated subsidiaries
Contingent liability for an in-substancedefeasance on bonds
12.

Millions of yen

Thousands of
U.S. dollars¥2,761$22,970

5,002

41,614

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 risk that thecounterparties may default on their obligations. Forward foreign exchange contracts andinterest-rate swaps entail the risk of fluctuation in foreign currency exchange rates andinterest rates, respectively. The Company and its consolidated subsidiaries select only
financial institutions with high credit ratings as counterparties in order to minimize theirrisk.
The Company and its consolidated subsidiaries have not entered into derivatives
transactions whose fluctuation in fair value is material and which could thus impact
significantly on their operations. The Company and its consolidated subsidiaries haveestablished policies to report and approve the purpose, nature, counterparties, inherent risk,
limit on loss and the level of risk of each transaction. Under their policies for derivatives,
trading is not entered into for speculative purposes.
At March 31, 2002 and 2003, 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, 2002 and 2003 and for the years then ended were as
follows:
Yen
Net assets
Net (loss) income
Cash dividends applicable tothe year

2002

2003

U.S. dollars
2003¥704.39(19.52)¥683.16
6.59

$5.68
0.05

7.00

5.00

0.04

Diluted net income has not been presented for the year ended March 31, 2003 since theCompany had not issued any potentially dilutive stocks at March 31, 2003.
Until the year ended March 31, 2002, amounts per share of net assets were computed
based on the net assets reported in the consolidated balance sheets and the number ofshares of common stock outstanding at each balance sheet date. Net income or loss per
share was computed based on the net income or loss reported in the consolidated
statements of operations and the weighted average number of shares of common stock
outstanding during each year.
In accordance with a new accounting standard for earnings per share which became
effective April 1, 2002, the amo unt per share of net assets at March 31, 2003 has been
computed based on net assets available for distribution to the shareholders and the numberof shares of common stock outstanding at the year end. Net income per share has been
computed based on the ne t income available for distribution to shareholders of common
stock and the weighted average number of shares of common stock outstanding during theyear. If the Company and its consolidated subsidiaries had applied the new standard, theper share amounts of net assets at March 31, 2002 and net loss for the year then ended
would have been ¥701.83 ($5.84) and ¥19.48 ($0.16), respectively.
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, 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 subsidiarie s
for the years ended March 31, 2002 and 2003 are outlined as follows:Business Segments
Millions of yen
Year ended March 31, 2002

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

Steel sheet
products

Electric
furnaceproducts

Other

Total

Eliminations andgeneralcorporate
assets¥ 127,020¥ 9,229¥ 8,822¥145,071¥–¥ 145,0710127,020
125,270¥ 1,750

–
9,229
9,181
¥
48

4,527
13,34912,433¥ 916

4,527
149,598
146,884¥ 2,714(4,527)(4,527)(3,644)¥ (883)–145,071
143,240¥ 1,831¥ 119,342
6,638
2,083

¥ 10,098
452
173¥ 24,295
535
410¥153,735
7,625
2,666

¥ 43,949
123
102¥ 197,684
7,748
2,768

Consolidated

Consolidated

Millions of yen
Year ended March 31, 2003

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¥ 130,649¥ 7,517¥ 8,958¥147,124¥–¥ 147,124

0
130,649
123,883¥ 6,766

–
7,517
7,783
¥ (266)

6,415
15,373
13,858¥ 1,515

6,415
153,539
145,524¥ 8,015(6,415)(6,415)(5,524)¥ (891)–
147,124140,000¥ 7,124¥ 106,388
5,821
2,325

¥ 9,075
401
216¥ 23,188
441
260¥138,651
6,663
2,801

¥ 41,171115
27¥ 179,822
6,778
2,828

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, 2003
Eliminations andgeneralcorporate
assetsConsolidated$–$1,223,993

Steel sheet
products

Electric
furnaceproducts

Other

Total

$1,086,930$ 62,537$ 74,526$1,223,993

0
1,086,930
1,030,641–
62,53764,75053,369127,895
115,291

53,3691,277,362
1,210,682(53,369)(53,369)(45,957)–
1,223,993
1,164,725

56,289$ (2,213)$ 12,604$

66,680$ (7,412) $59,268

II. Assets, depreciation andcapital expenditures
Total assets$ 885,092
Depreciation
48,428
Capital expenditures
19,343$ 75,499
3,336
1,797

$ 192,911
3,669
2,163

$1,153,502
55,43323,303

I. Sales and operating
incomeSales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income(loss)$$ 342,521
957
224$1,496,023
56,39023,527

As described in Note 1(f), the Company has changed its method of accounting for thevaluation of finished goods, work- in-process and raw materials of steel sheets, building
materials and raw materials for rolls from the last- in, first-out method to the average cost
method effective the year ended March 31, 2003. The effect of this change in method ofvaluation for inventories was to increase operating income for the year ended March 31,
2003 by ¥1,138 million ($9,468 thousand) and decrease total assets at March 31, 2003 by¥903 million ($7,512 thousand) in the steel sheet products segment, and to decrease
operating loss for the year ended March 31, 2003 by ¥1 million ($8 thousand) andincrease total assets at March 31, 2003 by ¥2 million ($17 thousand) in the electric
furnace produc ts segment.
Geographical Segments
Millions of yen
Year ended March 31, 2002
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated¥104,337¥ 40,734¥ 145,071

60
104,397
103,956¥
441–
40,734
39,413¥ 1,321¥131,031¥ 30,000

Japan
I .Sales and operating income
Sales to third parties
Interarea sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets¥–¥145,07160
145,131
143,369¥ 1,762

¥

(60)
(60)
(129)
69

–
145,071
143,240¥ 1,831¥ 161,031¥ 36,653¥197,684

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, 2003
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated¥ 99,073¥ 48,051¥ 147,124¥–¥ 147,124

1,826
100,899
98,726¥ 2,173–
48,051
43,193¥ 4,858

1,826
148,950
141,919¥
7,031(1,826)(1,826)(1,919)¥93–
147,124140,000¥
7,124¥116,152¥ 28,815¥ 144,967¥ 34,855¥ 179,822

Thousands of U.S. dollars
Year ended March 31, 2003
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated$824,234$399,759$1,223,993$–$1,223,993

15,192
839,426
821,348$ 18,078–
399,759359,343$ 40,416

15,192
1,239,185
1,180,691$ 58,494(15,192)(15,192)(15,966)$774–
1,223,993
1,164,725$ 59,268$966,323$239,725$1,206,048$289,975$1,496,023

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

As described in Note 1(f), the Company has changed its method of accounting for thevaluation of finished goods, work- in-process and raw materials of steel sheets, building
materials and raw materials for rolls from the last- in, first-out method to the average cost
method effective the year ended March 31, 2003. The effect of this change in method ofvaluation for inventories was to increase operating income for the year ended Mach 31,
2003 in Japan by ¥1,137 million ($9,459 thousand) and to decrease total assets at March
31, 2003 by ¥901 million ($7,496 thousand).

30

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, 2002 and 2001 are summarized as follows:
Millions of yen
Year ended March 31, 2002
Asia
Other
Total
Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales¥ 36,958¥ 9,227

25.5%

6.3%

¥

46,185145,071
31.8%

Millions of yen
Year ended March 31, 2003
Asia
Other
Total
Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales¥ 50,113¥ 6,691

34.1%

4.5%

¥

56,804
147,124
38.6%

Thousands of U.S. dollars
Year ended March 31, 2003
Asia
Other
Total
Overseas sales
Consolidated net sales$416,913$55,666$ 472,579
1,223,993

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, 2003, were approved at a shareholders’ meeting held on June 27, 2003:

Cash dividends of ¥2.5 ($0.02) per share

Millions of yen

Thousands of
U.S. dollars¥460$3,82731

Non-Consolidated Financial Statements
Yodogawa Steel Works, Ltd.
Years ended March 31, 2002 and 2003
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 Steel Works,
Ltd. as of March 31, 2002 and 2003, and the related non-consolidated statements of operations
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 toexpress an opinion independently on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices
generally accepted and applied in Japan. Those standards, procedures and practices requirethat 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 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, 2002 and 2003, and theresults of its operations for the years then ended in conformity with accounting principles andpractices generally accepted in Japan.
As described in Note 1(e) to the non-consolidated financial statements, Yodogawa Steel Works,
Ltd. has changed its method of accounting for the valuation of finished goods, work-in-process
and raw materials of steel sheets, building materials and raw materials for rolls from the last-in,
first-out method to the average cost method effective the year ended March 31, 2003 in the
preparation of its non-consolidated financial statements.
The U.S. dollar amounts in the accompanying non-consolidated financial statements with respect
to the year ended March 31, 2003 are presented solely for convenience. Our audit 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.

June 27, 2003
See Note 1 which explains the basis of preparation of the non-consolidated financial
statements of Yodogawa Steel Works, Ltd. under Japanese accounting principles andpractices.

33

Yodogawa Steel Works, Ltd.
Non-Consolidated Balance Sheets
March 31, 2002 and 2003

Millions of yen
2002
2003
AssetsCurrent assets:
Cash and cash equivalents
Short-term investments
Marketable securities (Note 3)
Notes and accounts receivable:
Subsidiaries and affiliates
Trade
Less allowance for doubtful receivables
Inventories (Note 4)
Deferred income taxes (Note 6)
Other current assets
Total current assets

Property, plant and equipment (Note 5):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 (Note 3)
Investments in and advances to subsidiaries andaffiliates (Note 3)
Deferred income taxes (Note 6)
Other assets
Total investments and other assets

Total assets
34

Thousands of
U.S. dollars(Note 2)
2003

¥ 14,025
1,000
3,112

¥ 15,112
02,523$ 125,724
0
20,99015,38014,747(59)
24,556583
4,774
78,118

13,956
13,775(25)
18,145
1,836
5,928
71,250116,106
114,601(208)
150,957
15,27549,317592,762

12,17640,781
102,788
270(109,968)
46,047

12,18040,68895,870654(106,788)
42,604

101,331
338,502797,587
5,441(888,419)
354,442

19,533

15,316

127,42118,829242
1,629
40,233

18,873936
1,579
36,704

157,013
7,787
13,137305,358¥ 164,398¥ 150,558$1,252,562

Millions of yen
2002
2003
Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 5)
Current portion of long-term debt (Note 5)
Notes and accounts payable:
Subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes (Note 6)
Allowance for loss on restructuring
Other current liabilities
Total current liabilities
Long-term liabilities:
Accrued retirement benefits
Guarantee deposits (Note 5)
Total long-term liabilities¥

Thousands of
U.S. dollars(Note 2)
2003

7,780
5,000

¥ 6,270–$

52,163–

1,686
11,184
1,091
2,902
135
568
2,271
32,617

1,590
10,781
1,252
2,555
37
–
1,052
23,537

13,22889,692
10,416
21,256308–
8,752
195,815

6,783
1,041
7,824

5,507
991
6,498

45,815
8,245
54,06023,221
23,49773,5193,722

23,221
23,49772,645
1,205

193,186
195,482
604,368
10,025(2)
123,957(45)
120,523(374)
1,002,687

Contingent liabilities (Note 10)
Shareholders’ equity (Note 7):
Common stock:
Authorized:
753,814,067 shares in 2002 and 2003
Issued:184,186,153 shares in 2002 and 2003
Capital surplus
Retained earnings (Note 12)
Unrealized holding gain on securities (Note 3)
Treasury stock, at cost – 5,833 shares in 2002
and 157,901 shares in 2003
Total shareholders’ equity

See accompanying notes to non-consolidated financial statements.
35

Total liabilities and shareholders’ equity¥164,398¥150,558$1,252,562

See accompanying notes to non-consolidated financial statements.
36

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements Operations
Years ended March 31, 2002 and 2003

Millions of yen
2002
2003

Thousands of
U.S. dollars(Note 2)
2003

Net sales
Cost of sales
Gross profit¥ 93,688
78,096
15,592¥ 90,829
74,987
15,842$ 755,649
623,852
131,797

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

15,061531

13,553
2,289

112,754
19,043

1,109
(230)
(82)
(5,065)

941
(117)
1,765
(1,536)

7,829
(973)
14,684(12,779)

(298)
(583)
–
(568)

78
–
(1,369)–649–(11,389)–(385)(5,571)(2,038)180
193(16,955)
1,497
1,606

142
(2,414)2,272¥ (3,299)

51
(89)
38
231

424
(740)
316
1,922

Other income (expenses):
Interest and dividend income
Interest expense(Loss) gain on sales of securities
Impairment loss on securities(Loss) gain on sales or disposal of property, plantand equipment, net
Loss on disposal of inventories
Restructuring charges
Provision for business closing costs
Cumulative effect of changes in method of
inventory valuation
Other, net(Loss) income before income taxes
Income taxes (Note 6):
Current
Deferred
Net (loss) income

¥

–

$

See accompanying notes to non-consolidated financial statements.
37

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2002 and 2003

Millions of yen
2002
2003

Thousands of
U.S. dollars(Note 2)
2003

Common stock
Balance at beginning and end of the year

¥ 23,221¥ 23,221$ 193,186

Capital surplus
Balance at beginning and end of the year

¥ 23,497¥ 23,497$ 195,482¥83,087¥ 73,519$ 611,639

–

231

1,922

3,299
1,396
50
4,823
¥ 73,519

–
1,105
–
–
¥ 72,645

–
9,193
–
–
$ 604,368¥¥ 3,722(2,517)¥ 1,205$ 30,965(20,940)$ 10,025

Retained earnings
Balance at beginning of the year
Add:
Net income
Deduct:Net loss
Cash dividends paid
Bonuses to directors and statutory auditors
Retirement of treasury stock
Balance at end of the year
Unrealized holding gain on securities (Note 3)
Balance at beginning of the year
Net change during the year
Balance at end of the year–
3,722
¥ 3,722

See accompanying notes to non-consolidated financial statements.
38

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements
March 31, 2003

1. Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying non-consolidated financial statements of Yodogawa Steel Works, Ltd.
(the “Company”) have been prepared in accordance with accounting principles andpractices generally accepted and applied in Japan, which may differ in certain material
respects from accounting principles and practices generally accepted in countries andjurisdictions other than Japan, and have been compiled from those prepared by theCompany as required under the Securities and Exchange Law of Japan.
In addition, the notes to the non-consolidated financial statements include information which
is not required under accounting principles generally accepted in Japan but is presented
herein as additional information.
Certain reclassifications of previously reported amounts have been made to thenon-consolidated financial statements for the year ended March 31, 2002 to conform themto the 2003 presentation. Such reclassifications had no effect on net loss 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 and liabilities
denominated in foreign currencies are translated at their historical rates. All revenues andexpenses associated with foreign currencies are translated at the rates of exchange
prevailing when such transactions were made. The resulting exchange losses and gains arecharged 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 changes in their value and which were purchased with an original maturityof three months or less.

39

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 than those of
subsidiaries and affiliates are 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 and unrealized, are charged toincome. Held-to-maturity debt securities are carried at their amortized cost. Marketablesecurities classified as other securities are carried at fair value with any changes in unrealized
holding gain or loss, net of the applicable income taxes, reported as a separate componentof shareholders’ equity. Non-marketable securities classified as other securities andinvestments in subsidiaries and an affiliate are carried at cost.
(e) Inventories
Up to the year ended March 31, 2002, inventories at the Company were stated at cost
determined principally by the last-in, first-out method.
Effective April 1, 2002, the Company changed its method of accounting for the valuation offinished goods, work-in-process and raw materials of steel sheets, building materials andraw materials for rolls from the last-in, first-out method to the average cost method. Thischange was made to mitigate the impact of material fluctuation in the purchase prices of raw
materials and to minimize the difference between the book and market value of theseinventories. The effect of this change was to decrease inventories at March 31, 2003 by¥901 million ($7,496 thousand), to increase operating income for the year then ended by¥1,137 million ($9,459 thousand) and to decrease income before income taxes for the year
then ended by ¥901 million ($7,496 thousand) by recognizing the cumulative effect of thechange in inventory valuation of ¥2,038 million ($16,955 thousand) for the year then ended.
Supplies are stated at cost determined by the first-in, first-out method.
Finished goods and work-in-process of roll products and real estate held for sale are statedat cost determined by the specific identification method.

40

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)(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 isapplied to buildings (except for structures attached to the buildings) acquired subsequent toApril 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 arecharged to income as incurred.
(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 anadditional 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 arecharged to income when incurred, unless these are deemed to contribute to the generationof future income or cost savings. Such expenditures are capitalized as assets andamortized by the straight-line method over their estimated useful life of five years.

41

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
1. Summary of Significant Accounting Policies (continued)(j) Leases
The Company leases certain equipment under noncancelable leases referred to as financeleases. Finance leases other than those which transfer the ownership of the leased
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.
(l) Provision for Business Closing Costs
At March 31, 2002, the Company has provided a provision for business closing costs
arising from the discontinuation of its household articles business at an estimate of the loss to
be incurred.
(m) Retirement Benefits
Employees of the Company are covered by an employees’ retirement benefit plan and an
employees’ pension plan. The employees’ retirement benefit plan provides for a lump-sum
payment determined by reference to the basic salary, length of service and the conditions
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 at March 31, 2003 were provided mainly at an
amount calculated based on the retirement benefit obligation less the fair value of thepension plan assets as of March 31, 2003, as adjusted for unrecognized actuarial loss.
The retirement benefit obligation is allocated to each period by the straight-line method overthe estimated years of service of the eligible employees.
Actuarial gain and loss are amortized in the year following the year in which the gain or loss
is recognized by the straight-line method over 10 years, which is within the estimatedaverage remaining years of service of the eligible employees.
The directors and statutory auditors of the Company are customarily entitled to lump-sum
payments under the unfunded retirement benefit plan. The provision for retirement benefits
for directors and statutory auditors has been made at an estimated amount based on the42

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
Company’s internal rules.

43

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 gain or loss
on the underlying hedged item is recognized. Interest-rate swaps which meet certain
conditions are accounted for as if the interest rates applied to the swaps had originallyapplied to the underlying debt and others. Receivables and payables hedged by forward
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 with respect
to a given financial period is made by resolution of the stockholders 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 the convenience ofreaders outside Japan and has been made at the rate of ¥120.20 = U.S.$1.00, the approximate
exchange rate prevailing on March 31, 2003. The translation should not be construed as arepresentation that yen have been, could have been, or could in the future be, converted into U.S.
dollars at the above or any other rate.

3.

Securities

Information with respect to securities at March 31, 2002 and 2003 is disclosed on aconsolidation basis. See Note 3 to the consolidated financial statements.
Information with respect to the carrying and fair value of, and unrealized loss or gain on,
securities with determinable fair value included in investments in and advances to subsidiaries andaffiliates at March 31, 2002 and 2003 is summarized as follows:
Millions of yen
2002
Carrying
value

Fair value

2003
Unrealized
loss

Carrying
Unrealized
value
Fair valuegain
44

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

Investments in a
subsidiary¥11,310¥8,699¥(2,611)¥11,310¥21,626¥10,31645

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
3.

Securities (continued)
Thousands of U.S. dollars
2003
Carrying
Unrealized
value
Fair value
gain

Investments in a
subsidiary$94,093$179,917$85,824

4. Inventories
Inventories at March 31, 2002 and 2003 were as follows:

Millions of yen
2002
2003
Finished goods
Work in process
Raw materials and supplies
Real estate held for sale

¥13,632
3,275
6,932
717
¥24,556¥10,506
2,766
4,299
574
¥18,145

Thousands of
U.S. dollars
2003$ 87,404
23,01235,765
4,776$150,957

5. Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits
Short-term bank loans represent overdrafts at annual interest rates of approximately 0.846%
and 0.562% at March 31, 2002 and 2003, respectively.
Long-term debt at March 31, 2002 and 2003 was as follows:

Millions of yen
2002
2003
1.8% unsecured bonds, payable inyen, due 2003
Less current portion¥ 5,000(5,000)
¥
–

¥–
–
¥–

Thousands of
U.S. dollars
2003
$–
–
$–

46

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
5.

Short-Term Bank Loans, Long-Term Debt and Guarantee Deposits (continued)

The assets pledged as foundation mortgages and collateral for short-term bank loans of ¥1,034
million ($8,602 thousand) at March 31, 2003 were as follows:

Property, plant and equipment, at net book value

Millions of yen

Thousands of
U.S. dollars¥25,943$215,832

Guarantee deposits consisted of interest-free deposits, which were mainly golf membershipdeposits, and interest-bearing deposits, which were principally from customers at annual interest
rate of approximately 0.5% at March 31, 2002 and 2003. Interest-free deposits andinterest-bearing deposits at March 31, 2002 and 2003 were as follows:

Interest-free deposits
Interest-bearing deposits

Millions of yen
2002
2003
¥ 742
¥678
299
313
¥ 1,041¥991

Thousands of
U.S. dollars
2003$5,641
2,604$8,245The aggregate annual maturities of guarantee deposits subsequent to March 31, 2003 aresummarized as follows:
Millions of yen
Year ending March 31,
2004
2005
2006
2007
2008
2009 and thereafter

¥

3
3
2
–
–
983
¥ 991

Thousands of
U.S. dollars
$

25
25
17
–
–
8,178
$ 8,245

All interest-bearing deposits are scheduled to mature during the years ending March 31, 2009
and thereafter.

47

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 a statutory tax rate of approximately 42.0% for the years
ended March 31, 2002 and 2003.
A reconciliation of the statutory tax rate and the effective tax rate for the year ended March 31,
2003 as a percentage of income before income taxes is as follows:

2003
Statutory tax rate
Nondeductible expenses
Nontaxable income
Foreign tax credit
Per capita portion of inhabitants’ taxes
Other
Effective tax rate

42.0%
12.9
(33.7)(74.5)
26.4
7.2(19.7)%

The corresponding information for the year ended March 31, 2002 has been omitted because aloss before income taxes was recorded.

48

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
6. Income Taxes (continued)
The significant components of deferred tax assets and liabilities of the Company at March 31,
2002 and 2003 are summarized as follows:

Millions of yen
2002
2003
Deferred tax assets:
Accrued retirement benefits for
employees
Accrued retirement benefits for
directors and statutory auditors
Accrued bonuses
Allowances for doubtful receivables
Allowance for loss on restructuring
Excess foreign tax deduction
Loss on devaluation of securities
Tax loss carryforwards
Other
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gain on securities
Reserve for deferred taxation oncontributions for acquisition ofproperty
Total deferred tax liabilities
Net deferred tax assets

Thousands of
U.S. dollars
2003¥ 1,590¥ 1,364$ 11,348

174
225
81
239
241
524
1,764
94
4,932

188
285
34
–
410
1,045
1,407
129
4,862

1,564
2,371
283
–
3,411
8,694
11,705
1,074
40,450(2,695)(837)(6,964)(1,412)(4,107)(1,253)(2,090)(10,424)(17,388)¥¥ 2,772$ 23,062

825

In accordance with a law on amendments to local tax laws, etc. announced on March 31, 2003,
the Company applied a statutory tax rate of 40.5% to the calculation of deferred tax assets andliabilities at March 31, 2003, which are expected to be reversed on April 1, 2004 and thereafter.
The effect of this change in the statutory tax rate applied was to decrease non-current deferred
tax assets (net of non-current deferred tax liabilities) by ¥19 million ($158 thousand) and toincrease unrealized holding gain on securities by ¥31 million ($258 thousand) at March 31, 2003
and to decrease income taxes – deferred (credit) and net income before income taxes by ¥50
million ($416 thousand) for the year ended March 31, 2003

49

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
7. Shareholders’ Equity
The Commercial Code of Japan provides that an amount equivalent to at least 10% of cash
dividends paid and bonuses to directors and statutory auditors, and exactly 10% of interim cash
dividends paid be appropriated to the legal reserve until the sum of additional paid-in capital andthe 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 the shareholders or may be transferred to stated capital byresolution of the Board of Directors. The Code also stipulates that, to the extent that the sumof 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 theshareholders. The Company’s legal reserve, which is included in retained earnings, amounted
to ¥3,478 million and ¥3,478 million ($28,935 thousand) at March 31, 2002 and 2003,
respectively.
Effective April 1, 2002, the Company adopted a new accounting standard for treasury stockand reversal of legal reserves. The effect of the adoption of this standard on the result of its
operations for the year ended March 31, 2003 was immaterial.
In accordance with the revised regulations on financial statements, additional paid-in capital andlegal reserve reported in shareholders’ equity in the previous year has been presented as capitalsurplus and a component of retained earnings as of March 31, 2002, respectively.

8. Research and Development Costs
Research and development costs included in selling, general and administrative expenses for theyears ended March 31, 2002 and 2003 were as follows:

Millions of yen
2002
2003
¥453

¥364

Thousands of
U.S. dollars
2003$3,02850

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
9.

Leases

The following pro forma amounts present the acquisition costs, accumulated depreciation and net
book value of the leased property as of March 31, 2002 and 2003, which would have beenreflected in the balance sheets if finance leases other than those which transfer the ownership ofthe leased property to the Company (which are currently accounted for as operating leases)
were capitalized:
Millions of yen
2002
Acquisition Accumulated
costs
depreciation
Machinery,equipment andvehicles

¥ 329

¥ 186

Net bookvalue

Acquisition
costs

2003
Accumulated
depreciation

Net book
value

¥143

¥279

¥175

¥104

Thousands of U.S. dollars
2003
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$2,321$1,456$865

The related lease payments and depreciation for the years ended March 31, 2002 and 2003
were as follows:

Millions of yen
2002
2003
Lease payments
Depreciation¥66
66

Thousands of
U.S. dollars
2003

¥61
61

$507
507

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, 2003 under finance leases other than those which transfer the ownership of the leased
property to the Company are summarized as follows:

Millions of yen

Thousands of
U.S. dollars

¥ 61
43

$507
358

Year ending March 31,
20042005 and thereafter

51

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
¥ 104

$865

52

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements (continued)
10. Contingent Liabilities
At March 31, 2003, the Company had the following contingent liabilities:

Millions of yen

Thousands of
U.S. dollars

¥ 161
5,002

$ 1,339
41,614

Guarantees of housing loans of employees andindebtedness of subsidiaries
Contingent liability for in-substance defeasance on bonds

11. Amounts per Share
Amounts per share at March 31, 2002 and 2003 and for the years then ended were as follows:Yen
Net assets
Net (loss) income
Cash dividends applicable to the year

2002
¥673.02(16.94)7.00

2003¥654.91
1.25
5.00

U.S. dollars
2003
$5.45
0.01
0.04

Diluted net income has not been presented for the year ended March 31, 2003 since theCompany had not issued any potentially dilutive stocks at March 31, 2003.
Effective April 1, 2002, the Company adopted a new accounting standard for earning per share.
The effect of the adoption of this standard was nil.
Cash dividends per share represent the cash dividends proposed by the Board of Directors asapplicable to the respective years together with the interim cash dividends paid.

12. Subsequent Events
See Note 15 to the consolidated financial statements.

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