Financial Statements
Years ended March 31,2003 and 2004

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, 2003 and 2004
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, 2003 and 2004, and the related consolidated statements of income,shareholders’ equity, and cash flows for the years then ended, all expressed in yen. These
financial statements are the responsibility of the Company's management.
Our
responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in thefinancial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Yodogawa Steel Works, Ltd. andconsolidated subsidiaries at March 31, 2003 and 2004, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting
principles generally accepted in Japan.
As described in Note 1(f), Yodogawa Steel Works, Ltd. changed its method of accounting
for the valuation of finished goods, work-in-process and raw materials with respect to steel
sheets, building materials and raw materials for rolls, from the last- in, first-out method, tothe average 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, 2004 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 29, 2004

2

Yodogawa Steel Works, Ltd.
Consolidated Balance Sheets
March 31, 2003 and 2004
Millions of yen
2003
2004
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)
2004

¥ 17,487
247
3,260¥ 19,887
177
2,158

$

188,163
1,675
20,4182,215
31,564(213)
22,582
2,012
3,518
82,672

2,529
33,045(219)
21,580673
4,537
84,36723,928
312,660(2,072)
204,182
6,369
42,927798,250

24,16953,258125,6123,032(132,366)
73,70523,82052,284
123,615831(131,310)
69,240225,376494,692
1,169,600
7,862(1,242,407)
655,123

16,21325,451

240,808

3,136
1,431
2,665
23,445

3,435
341
2,069
31,29632,501
3,226
19,576296,111¥ 179,822¥ 184,903$ 1,749,484

Millions of yen
2003
2004
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)
Other current liabilities (Note 4)
Total current liabilities

¥

7,989
1,100

¥

5,828
–

Thousands of
U.S. dollars(Note 2)
2004$

55,142–557
14,739
1,297
2,939
755
2,484
31,860626
14,049
1,475
4,089
1,941
1,574
29,582

5,923
132,926
13,956
38,68918,365
14,893279,894

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

7,528
4,283
–

7,565
4,175
2,358

71,57739,502
22,311

721
677
13,209677
606
15,381

6,406
5,733
145,529

Minority interests

11,88911,941

112,981

23,221
23,611
929
77,2581,230(2,087)23,221
23,611874
80,175
7,136(3,081)

219,709223,399
8,269
758,586
67,518(29,151)(1,298)122,864(3,937)
127,999(37,250)
1,211,080¥ 179,822¥ 184,903$ 1,749,484

Contingent liabilities (Note 11)
Shareholders’ equity (Note 7):
Common stock:
Authorized: 753,814,067 shares in 2003 and2004
Issued: 184,186,153 shares in 2003 and2004
Capital surplus
Land revaluation reserve (Note 8)
Retained earnings (Note 15)
Unrealized holding gain on securities (Note 3)
Translation adjustments
Treasury stock, at cost – 6,916,693 shares in2003 and 11,656,456 shares in 2004
Total shareholders’ equity
Total liabilities, minority interests andshareholders’ equity

See accompanying notes to consolidated financial statements.
4

Yodogawa Steel Works, Ltd.
Consolidated Statements of Income
Years ended March 31, 2003 and 2004

Millions of yen
2003
2004
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 investments in securities
Impairment loss on investments in securities(Note 3)Gain (loss) on sales or disposal of property,
plant and equipment, net
Loss on disposal of inventories
Equity in loss of an affiliate
Restructuring charges
Cumulative effect of changes in method of
inventory valuation
Other, net (Note 5)
Income before income taxes and minority
interests
Income taxes (Note 6):
Current
DeferredIncome before minority interests
Minority interests in earnings of consolidated
subsidiaries
Net income

Thousands of
U.S. dollars(Note 2)
2004

¥147,124
123,248
23,876¥ 145,815
119,777
26,038$ 1,379,648
1,133,286
246,362

16,752
7,124

15,712
10,326

148,661
97,701

529
(325)
1,765

543
(171)
227

5,138
(1,618)2,148(1,594)

(38)

(360)

45
–
(165)
(1,369)

(608)
(383)
(321)
–

(5,753)(3,624)(3,037)–(2,038)
(16)

–
(119)

–
(1,126)

3,956

9,456

89,469

743
186
929
3,027

2,521
740
3,261
6,195

23,853
7,001
30,85458,615(1,802)¥ 1,225(2,269)¥ 3,926(21,469)
37,146$

See accompanying notes to consolidated financial statements.
5

Yodogawa Steel Works, Ltd.
Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2003 and 2004

Millions of yen
2003
2004

Thousands of
U.S. dollars(Note 2)
2004

¥23,221¥ 23,221$ 219,709¥23,613¥ 23,611$ 223,399

–

1

9

(2)

–

–

–
¥23,611(1)¥ 23,611(9)$ 223,399¥ 1,139
(210)
¥ 929

¥

$

¥76,884¥ 77,258$ 730,987

1,225
37
2

3,926
43
–

37,146
407
–

203

–

–

(1,070)
(14)
(9)

(972)
(18)
(22)

(9,197)
(171)
(208)

–
¥77,258(40)¥ 80,175(378)$ 758,586

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

¥ 3,721(2,491)¥ 1,230¥ 1,230
5,906¥ 7,136$ 11,638
55,880$ 67,518

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

¥ (845)(1,242)¥ (2,087)¥ (2,087)(994)¥ (3,081)$ (19,746)(9,405)$ (29,151)

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

¥

929
(55)
874

$

8,790
(521)
8,269

See accompanying notes to consolidated financial statements.
6

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows
Years ended March 31, 2003 and 2004

Cash flows from operating activities:
Income before income taxes and minority
interests
Adjustments for:
Depreciation and amo rtization
Amortization of goodwill arising fromconsolidation
Equity in loss of an affiliate
Impairment loss on investments in securities(Decrease) increase in accrued retirement
benefits(Decrease) increase in accrued bonuses
Decrease in allowance for doubtfulreceivables
Interest and dividend income
Interest expense
Gain on sales of investments in securities(Gain) loss on sales or disposal of property,
plant and equipment, net
Restructuring charges
Decrease (increase) 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
Net cash provided by operating activities

Millions of yen
2003
2004

Thousands of
U.S. dollars(Note 2)2004

¥ 3,956¥ 9,456$ 89,469

6,775

6,118

57,886

(30)
165
1,594

–
321
38

–
3,037
360

(952)
(29)

140
72

1,325
681

(196)
(529)
325
(1,765)

(190)
(543)
171
(227)

(1,798)(5,138)1,618(2,148)

(45)
1,369

608
–

5,753
–

1,239
6,311
(675)

(2,025)670(520)(19,160)
6,339(4,920)(23)(767)
16,723529(319)(1,253)(347)¥ 15,333(39)
294
14,344571(170)–(1,272)¥ 13,473

(369)
2,782
135,717
5,403(1,608)–(12,035)$ 127,477

7

Yodogawa Steel Works, Ltd.
Consolidated Statements of Cash Flows (continued)
Years ended March 31, 2003 and 2004

Cash flows from investing activities:
Increase in time deposits with a maturity ofmore than three months
Proceeds from time deposits with a maturity ofmore than three months
Purchases of marketable securities
Proceeds from sales of marketable securities
Purchases of property, plant and equipment
Proceeds from sales of property, plant andequipment
Purchases of other assets
Purchases of investments in securities
Proceeds from sales of investments in securities
Increase in loans receivableCollection of loans receivable
Other
Net cash used in investing activities
Cash flows from financing activities:
Decrease in short-term bank loans
Repayment of long-term loans
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) increase in cash and cash
equivalents
Cash and cash equivalents at beginning of theyear
Cash and cash equivalents at end of the year

Millions of yen
2003
2004

Thousands of
U.S. dollars(Note 2)2004

¥ (1,525)(365)$ (3,453)

2,725(10,497)
12,397(4,957)435(1,500)1,500(3,656)

4,116(14,192)
14,192(34,592)441(23)(6,743)
4,504(1,414)709
19(4,364)120(25)(3,066)
4,279(1,535)1,043
8(2,762)

1,135
(237)
(29,009)40,486(14,524)
9,868
77(26,133)(4,592)(228)(5,000)(51)(2,118)(1,100)–(2,689)(20,040)(10,408)–(25,442)(1,070)(977)(9,244)(557)(35)(11,533)(1,226)2(8,108)(11,600)
19(76,715)

(157)

(203)

(1,921)

(721)

2,400

22,70818,208¥ 17,487

17,487¥ 19,887

165,455$ 188,163¥

See notes to consolidated financial statements.
8

Yodogawa Steel Works, Ltd.
Notes to Consolidated Financial Statements
March 31, 2004

1.

Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying consolidated financial statements of Yodogawa Steel Works, Ltd.
(the “Company”) and consolidated subsidiaries are prepared on the basis ofaccounting principles generally accepted in Japan, which are different in certain
respects as to the application and disclosure requirements of International Financial
Reporting Standards, and are compiled from the consolidated financial statements
prepared by the Company as required by the Securities and Exchange Law of Japan.
(b) Basis of Consolidation
The accompanying consolidated financial statements include the accounts of theCompany and all subsidiaries over which substantial control is exerted through either
majority ownership of voting stock and/or by other means. All significant
intercompany balances and transactions have been eliminated in consolidation.
Investment in an affiliate (a company over which the Company has the ability to
exercise significant influence) is stated at cost plus equity in its undistributed earnings
or undisposed loss. Consolidated net income includes the Company’s equity in thecurrent net income or loss of this company after the elimination of unrealizedintercompany profits.
All assets and liabilities of the consolidated subsidiaries are revalued on acquisition,
if applicable. The difference, not significant in amount, between the cost ofinvestments in subsidiaries and the equity in their net assets at 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
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
Inventories are stated at cost determined principally by the average method.
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 with respect to steel
sheets, building materials and raw materials for rolls, from the last- in, first-out
method, to the average method. This change was made to mitigate the impact of any
material fluctuation in the purchase prices of raw materials and to minimize thedifferences between the carrying and market value of these inventories. The effectof this change was to decrease inventories at March 31, 2003 by ¥901 million, toincrease operating income for the year then ended by ¥1,137 million and to decrease
income before income taxes and minority interests for the year then ended by ¥901
million as a result of recognizing the cumulative effect of the change in inventory
valuation of ¥2,038 million for the year then ended.
Inventories at the Company’s overseas consolidated subsidiary are stated at the lowerof cost or market, cost being determined by the moving average method.
(g) Property, Plant and Equipment and Depreciation
Depreciation of property, plant and equipment is calculated by the declining-balancemethod over the useful lives of the respective assets, except that the straight- line
method is applied to buildings (except for structures attached to the buildings)
acquired on and after April 1, 1998.
Depreciation of property, plant and equipment at the overseas consolidated subsidiaryis calculated by the straight- line method.
The useful lives adopted for calculating depreciation are principally as follows:
Buildings and structures
Machinery, equipment and vehicles

3 to 60 years
3 to 36 years

Significant renewals and additions are capitalized at cost. 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.

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

1.

Summary of Significant Accounting Policies (continued)(m) Retirement Benefits
Employees of the Company and its consolidated subsidiaries are covered by
employees’ retirement benefit and employees’ pension plans. The employees’
retirement benefit plans provide for a lump-sum payment determined by reference tothe basic salary, length of service and conditions under which the termination occurs.
The employees’ pension plans, which are funded non-contributory plans, partiallycover the benefits under the employees’ retirement benefit plans to employees who
retire after fifteen or more years of service.
Accrued retirement benefits for employees are provided principally at an amountcalculated based on the retirement benefit obligation less the fair value of the pension
plan assets as adjusted for unrecognized actuarial gain or loss and unrecognized priorservice cost. The retirement benefit obligation is attributed to each period by thestraight- line method over the estimated remaining years of service of the eligible
employees.
Actuarial gain and loss are amortized in the year following the year in which the gainor loss is recognized principally by the straight- line method over 10 years, which iswithin the estimated average remaining years of service of the eligible employees.
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.
(n) Hedge Accounting
Gain or loss on derivatives designed as hedging instruments is deferred until the gainor loss on the underlying hedged item is recognized. Interest-rate swaps which meetcertain conditions are accounted for as if the interest rates applied to the swaps hadoriginally applied to the underlying debt. Receivables and payables hedged byforward foreign exchange contracts which meet certain conditions are translated at
the corresponding foreign exchange contract rates.
(o) Appropriation of Retained Earnings
Under the Commercial Code of Japan, the appropriation of retained earnings withrespect to a given financial period is made by resolution of the 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 ¥105.69 =U.S.$1.00, the approximate exchange rate prevailing on March 31, 2004. 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, 2003 and2004 are summarized as follows:
2003
Millions of yen
Carrying
Estimated fair
Unrealized
value
value
gain (loss)
Securities whose fair value exceeds
their carrying value:
Government bonds
Other
Securities whose fair value does notexceed their carrying value:
Government bonds
Corporate bonds
Other
Total

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

¥

86
600
686

¥

91
600
691

¥

5
0
5

10
500
172
682
¥ 1,368

10
442
149
601
¥ 1,292

(0)
(58)
(23)
(81)
¥ (76)

Carrying
value

2004
Millions of yen
Estimated fairvalue

Unrealized
gain (loss)

¥

86
10
96

1,000
1,054
734
2,788
¥ 2,884

¥

87
11
98

1,000
1,043
729
2,772
¥ 2,870

¥

1
1
2

(0)
(11)
(5)
(16)
¥ (14)
14

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

3.

Securities (continued)
2004
Thousands of U.S. dollars
Carrying
Estimated fair
Unrealized
value
value
gain (loss)

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

$

814
95

$

823
104

$

9
9

909

927

18

9,462
9,972
6,944
26,378$ 27,287

9,462
9,868
6,897
26,227$ 27,154

(0)
(104)
(47)
(151)
$ (133)

Other securities with determinable market value at March 31, 2003 and 2004 aresummarized as follows:

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

2003
Millions of yen
Estimated fairvalue

Unrealized
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

15

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

3.

Securities (continued)

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

Acquisition
costs

2004
Millions of yen
Estimated fairvalue

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

(17)
(0)
(17)
¥ 12,028

2004
Thousands of U.S. dollars
Acquisition
Estimated fair
Unrealized
costs
value
gain (loss)
Securities whose carrying value exceeds
their acquisition costs:
Equity secur ities
Other
Securities whose carrying value does
not exceed their acquisition costs:
Equity securities
Government bonds
Total$ 83,811
927
84,738$ 197,776
927
198,703$ 113,965
0
113,965

3,558
662
4,220
$ 88,958

3,398
662
4,060
$ 202,763

(160)
(0)
(160)
$ 113,805

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, 2003 and2004 are summarized as follows:

Millions of yen
2003
2004
Sales
Aggregate gain
Aggregate loss

¥ 3,137
1,765
1¥ 1,728
446
243

Thousands of
U.S. dollars
2004$ 16,350
4,220
2,299

The carrying value of securities without determinable market value at March 31, 2003 and2004 were as follows:

Millions of yen
2003
2004
Held-to- maturity debt securities:
Interest-bearing financial bonds
Other securities:
Non-marketable equity securities
Money management funds
Free financial funds
Preferred stock
Preferred subscription certificates

¥

–

829
894
1,000
1,100
1,500

¥

40

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

Thousands of
U.S. dollars
2004
$

378

6,188
22,206
9,462
10,40814,192The Company and its consolidated subsidiaries recorded an impairment loss on securitiesof ¥1,594 million and ¥38 million ($360 thousand) for the years ended March 31, 2003
and 2004, respectively. At the year end, the Company and its consolidated subsidiaries
compare the market value and carrying value of their marketable equity securities andrecord 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 less than 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, 2004 is summarized as follows:
Millions of yen
Due in one year
or less
Government bonds
Corporate bonds
Other debt securities
Other
Total

¥ 1,006
620
520–¥ 2,146

Due after one
year throughfive years
¥

60
–
210
1,500
¥ 1,770

Due after five
years throughten years
¥

60
–
–
1,000
¥ 1,060

Due after ten
years
¥

¥

–
500
–
–
500

Thousands of U.S. dollars
Due in one year
or less$ 9,518
5,866
4,920

Total

$ 20,304

4.

Government bonds
Corporate bonds
Other debt securities
Other

–

Due after one
year throughfive years
$

568
–
1,987
14,192$ 16,747

Due after five
years throughten years
$

568
–
–
9,462
$ 10,030

Due after ten
years
$

–
4,731
–
–
$ 4,731

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

Short-term bank loans represent overdrafts at average annual interest rates ofapproximately 0.798% and approximately 0.567% at March 31, 2003 and 2004,
respectively.

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, 2003 and 2004 was as follows:
Millions of yen
2003
2004
Unsecured loans from banks and an
insurance company, due 2004 at an
average interest rate of 2.1%
Less current portion¥ 1,100
1,100(1,100)
¥
–

¥
¥

–
–
–
–

Thousands of
U.S. dollars
2004
$
$

–
–
–
–

At March 31, 2004, investments in securities of ¥50 million ($473 thousand) were
pledged as collateral for employees’ internal deposits of ¥47 million ($445 thousand), a
component of other current liabilities.
Guarantee deposits consisted of interest- free deposits, most of which were golf
membership deposits, and interest-bearing deposits, which were principally deposits from
customers at average annual interest rates of 0.61% and 0.53% at March 31, 2003 and2004, respectively. Interest- free deposits and interest-bearing deposits at March 31,
2003, and 2004 were as follows:

Interest- free deposits
Interest-bearing deposits

Millions of yen
2003
2004
¥ 3,895¥ 3,683388
492¥ 4,283¥ 4,175

Thousands of
U.S. dollars
2004$ 34,847
4,655$ 39,502

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, 2004 aresummarized as follows:Year ending March 31,

Millions of yen

2005
2006
2007
2008
2009
2010 and thereafter

¥

3
2
–
–
–
4,170
¥ 4,175

Thousands of
U.S. dollars
$

28
19
–
–
–
39,455$ 39,502

All interest-bearing deposits are scheduled to mature during the years ending March 31,
2010 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, 2003 and 2004 are summarized as fo llows:

Millions of yen
2003
2004
Retirement benefit obligation
Plan assets at fair value
Unfunded retirement benefit obligation
Unrecognized actuarial loss
Unrecognized prior service cost
Net retirement benefit obligation
Prepaid pension costAccrued retirement benefits¥ (13,631)
4,038(9,593)3,221
36(6,336)557¥ (6,893)¥ (13,892)
4,170(9,722)2,975
26(6,721)425¥ (7,146)

Thousands of
U.S. dollars
2004$ (131,441)
39,455(91,986)
28,148
246(63,592)
4,021$ (67,613)

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, 2003 and2004 are outlined as follows:
Thousands of
U.S. dollars
2004

Millions of yen
2003
2004
Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Amortization of prior service cost

¥

803
376
(43)
230
8
¥ 1,374

¥

608
330
(12)
302
7
¥ 1,235

$

5,753
3,122
(113)
2,857
66
$ 11,685

Further to the retirement benefit expenses presented in the above table, the Company paid
additional retirement benefits of ¥1,258 million which are included in “Other income(expenses) – other, net” in the consolidated statement of income for the year ended March
31, 2003.
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, 2003 and 2004 were as follows:

Discount rate
Expected rates of return on plan assets

2003

2004

Principally 2.5%
Principally 0.9%

Principally 2.5%
Principally 0.0%

The Company and its domestic consolidated subsidiaries recorded accrued retirement
benefits to directors and statutory auditors of ¥635 million and ¥419 million ($3,964
thousand) at March 31, 2003 and 2004, 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, 2003 and 2004.
A reconciliation of the statutory tax rate and the effective tax rates for the years ended
March 31, 2003 and 2004 as a percentage of income before income taxes and minority
interests is as follows:

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

2003

2004

42.0%
(2.0)
1.1
1.7

42.0%
(4.5)
0.5
0.6

(20.2)

(9.9)

2.5
1.7
(3.3)
23.5%

2.2
1.6
2.0
34.5%

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, 2003 and 2004 are summarized as follows:

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

Millions of yen
2003
2004

Thousands of
U.S. dollars
2004¥ 2,197
258
334
124
410
68
1,406
1,429
6,226
(545)
5,681

¥ 2,515
233
442
141
607
23
335
1,392
5,688
(893)
4,795

$ 23,796
2,204
4,182
1,334
5,743
218
3,170
13,17053,817(8,449)45,368

(44)
(941)
(721)

(113)
(4,871)(677)(1,069)(46,087)(6,406)(1,253)(2,959)¥ 2,722(1,155)(6,816)¥ (2,021)(10,928)(64,490)$ (19,122)

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 deferred tax assets (net of
non-current deferred tax liabilities) and deferred tax liabilities with respect to the land
revaluation reserve of ¥27 million and ¥26 million, respectively, and to increase the land
revaluation reserve and unrealized holding gain on securities by ¥31 million and ¥32
million, 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 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.
Additional paid- in capital and the legal reserve are included in capital surplus and retained
earnings, respectively, in the accompanying consolidated balance sheets and statements ofshareholders’ equity. The Company’s legal reserve amounted to ¥3,478 million and nil
at March 31, 2003 and 2004, 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.

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 and are stated at the Company’s share of the net amount of therelevant tax effect. The me thod followed for land revaluation was determined inaccordance with the “Enforcement Act Concerning Land Revaluation.”
The fair value of the land revalued at March 31, 2000 and 2002 was less than thecorresponding carrying value by the following amounts at March 31, 2003 and 2004.

Land revalued at March 31, 2000
Land revalued at March 31, 2002

Millions of yen
2003
2004

Thousands of
U.S. dollars
2004¥ (134)(931)¥ (1,065)$ (1,088)(10,228)$ (11,316)¥ (115)(1,081)¥ (1,196)

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, 2003 and 2004 were as follows:
Thousands of
U.S. dollars
2004

Millions of yen
2003
2004
¥654

¥613

$5,800

10. Leases
The following pro forma amounts present the acquisition costs, accumulated depreciationand net book value of the leased property as of March 31, 2003 and 2004, 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
2003
Acquisition Accumulated
costs
depreciation
Machinery,equipment andvehicles¥580

Net book
value

¥432

¥148

2004
Acquisition Accumulated
costs
depreciation

¥ 619

¥ 468

Net book
value

¥ 151

Thousands of U.S dollars
2004
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$5,857$4,428$1,429The related lease payments and depreciation for the years ended March 31, 2003 and 2004
were as follows:

Millions of yen
2003
2004
Lease payments
Depreciation

¥112
112

¥91
91

Thousands of
U.S. dollars
2004
$861
861

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, 2004 under finance leases other tha n those which transfer the ownership ofthe leased property to the Company and its consolidated subsidiaries are summarized asfollows:
Year ending March 31,

Millions of yen

Thousands of
U.S. dollars

2005
2006 and thereafter

¥ 62
89
¥151

$ 587
842
$1,429

11. Contingent Liabilities
At March 31, 2004, the Company and its consolidated subsidiaries had the following
contingent liabilities:

Guarantees of housing loans of employees andindebtedness of unconsolidated subsidiaries
and other

Millions of yen

Thousands of
U.S. dollars¥2,742$25,944

12. Derivatives
The Company and its consolidated subsidiaries have entered into various transactions
involving derivatives in order to manage risk arising from adverse fluctuation in foreign
currency exchange rates and interest rates. Derivatives positions involve the 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, 2003 and 2004, 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, 2003 and 2004 and for the years then ended were as
follows:
Yen
Net assets
Net income
Cash dividends applicable tothe year

2003

2004

U.S. dollars
2004¥683.166.59¥741.41
21.66

$7.01
0.20

5.00

8.00

0.08

Diluted net income has not been presented for the years ended March 31, 2003 and 2004
since the Company had not issued any potentially dilutive stocks at March 31, 2003 or
2004.
The amount per share of net assets is computed based on the net assets available for
distribution to the shareholders and the number of shares of common stock outstanding at
the year end. Net income per share is computed based on the net income available for
distribution to shareholders of common stock and the weighted-average number of sharesof common stock outstanding during the year.
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 it s consolidated subsidiaries
for the years ended March 31, 2003 and 2004 are outlined as follows:Business Segments
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

Consolidated

Consolidated

Millions of yen
Year ended March 31, 2004

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

Steel sheet
products

Electric
furnaceproducts

Other

Total

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

1
130,282
119,743¥ 10,539

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

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

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

¥ 48,808
106
19¥ 184,903
6,127
5,984

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, 2004
Eliminations andgeneralcorporate
assetsConsolidated$–$1,379,648

Steel sheet
products

Electric
furnaceproducts

Other

Total

$ 1,232,671$ 71,341$ 75,636$1,379,648

91,232,680
1,132,964–
71,34173,69743,902
119,538
110,228

43,911
1,423,559
1,316,889(43,911)(43,911)(34,942)–
1,379,648
1,281,947

99,716$ (2,356)

$

9,310

$ 106,670$ (8,969) $97,701

II. Assets, depreciation andcapital expenditures
Total assets$ 989,573
Depreciation
49,465
Capital expenditures
53,146$ 80,585
3,548
965$ 217,523
3,955
2,328

$1,287,681
56,96856,439$ 461,803
1,003
179

I. Sales and operating
incomeSales to third parties
Intergroup sales andtransfers
Total sales
Operating expenses
Operating income(loss)$$1,749,484
57,971
56,618Geographical Segments
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

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

29

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

14. Segment Information (continued)
Geographical Segments (continued)

Japan
I .Sales and operating
incomeSales to third parties
Interarea sales andtransfers
Total sales
Operating expenses
Operating income
II. Assets¥ 99,717¥ 46,098¥ 145,815

79
99,796
95,203¥ 4,593–
46,09840,436¥ 5,662¥ 114,505¥ 26,289

II. Assets

Consolidated¥–¥145,81579
145,894
135,639¥ 10,255

¥

(79)
(79)
(150)
71

–
145,815
135,489¥ 10,326¥ 140,794¥ 44,109¥184,903

Thousands of U.S. dollars
Year ended March 31, 2004
Eliminations
and general
Southeast
corporate
Asia
Total
assetsConsolidated$ 943,486$ 436,162$ 1,379,648$–$ 1,379,648

747
944,233
900,776$ 43,457–
436,162
382,590$ 53,572

747
1,380,395
1,283,366$ 97,029

(747)
(747)
(1,419)$672–
1,379,648
1,281,947$ 97,701$ 1,083,404$ 248,737$ 1,332,141$ 417,343$ 1,749,484

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

Millions of yen
Year ended March 31, 2004
Eliminations
and general
Southeast
corporate
Asia
Total
assets30

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, 2003 and 2004 are summarized as follows:
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%

Millions of yen
Year ended March 31, 2004
Asia
Other
Total
Overseas sales
Consolidated net sales
Overseas sales as a percentage ofconsolidated net sales¥ 45,657¥ 6,963

31.3%

4.8%

¥

52,620145,815
36.1%

Thousands of U.S. dollars
Year ended March 31, 2004
Asia
Other
Total
Overseas sales
Consolidated net sales$431,990$65,881$ 497,871
1,379,648

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, 2004, were approved at a shareholders’ meeting held on June 29, 2004:

Cash dividends of ¥5 ($0.05) per share

Millions of yen

Thousands of
U.S. dollars¥883$8,35531

Non-Consolidated Financial Statements
Yodogawa Steel Works, Ltd.
Years ended March 31, 2003 and 2004
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, 2003 and 2004, and the related non-consolidated statements of income
and shareholders’ equity for the years then ended, all expressed in yen. These financial
statements are the responsibility of the Company's management. Our responsibility is toexpress an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in 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, 2003 and 2004, and theresults of its operations for the years then ended in conformity with accounting principles
generally accepted in Japan.
As described in Note 1(e), Yodogawa Steel Works, Ltd. changed its method of accounting forthe valuation of finished goods, work-in-process and raw materials with respect to steel sheets,building materials and raw materials for rolls, from the last-in, first-out method, to the averagemethod 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, 2004 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 29, 2004

33

Yodogawa Steel Works, Ltd.
Non-Consolidated Balance Sheets
March 31, 2003 and 2004

Millions of yen
2003
2004
AssetsCurrent assets:
Cash and cash equivalents
Marketable securities
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
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)
2004

¥ 15,112
2,523¥ 15,225
2,124$ 144,053
20,097

13,956
13,775(25)
18,145
1,836
5,928
71,25015,89014,977(24)
17,790568
8,215
74,765150,345
141,707(227)
168,3225,374
77,728707,399

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

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

115,281
377,491
903,879
5,024(1,023,645)
378,030

15,31624,359230,476

18,873936
1,579
36,704

18,873–
1,315
44,547

178,569–
12,442
421,487¥ 150,558¥ 159,266$ 1506,916

Liabilities and shareholders’ equity
Current liabilities:
Short-term bank loans (Note 5)
Notes and accounts payable:
Subsidiaries and affiliates
Trade
Construction
Accrued expenses
Accrued income taxes (Note 6)
Other current liabilities
Total current liabilities
Long-term liabilities:
Accrued retirement benefits
Guarantee deposits (Note 5)
Deferred income taxes (Note 6)
Total long-term liabilities¥

Millions of yen
2003
2004

Thousands of
U.S. dollars(Note 2)
2004

6,270

$

¥

5,800

54,877

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

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

14,533
104,863
11,70429,237
10,767
7,560
233,541

5,507
991
–
6,498

5,545
964
2,416
8,925

52,465
9,121
22,85984,44523,221
23,49772,645
1,205

23,221
23,49774,651
7,015

219,709222,320
706,320
66,373(45)
120,523¥ 150,558(2,726)125,658¥ 159,266(25,792)
1,188,930$ 1,506,916

Contingent liabilities (Note 10)
Shareholders’ equity (Note 7):
Common stock:
Authorized: 753,814,067 shares in 2003 and2004
Issued: 184,186,153 shares in 2003 and 2004
Capital surplus
Retained earnings (Note 12)
Unrealized holding gain on securities (Note 3)
Treasury stock, at cost – 157,901 shares in 2003
and 7,564,251 shares in 2004
Total shareholders’ equity
Total liabilities and shareholders’ equity

See accompanying notes to non-consolidated financial statements.
35

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Income
Years ended March 31, 2003 and 2004

Net sales
Cost of sales
Gross profit

Millions of yen
2003
2004

Thousands of
U.S. dollars(Note 2)
2004

¥ 90,829
74,987
15,842¥ 89,651
72,43017,221$ 848,245
685,306
162,939

13,553
2,289

12,867
4,354

121,743
41,196

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

1,652
(64)
227
(0)

15,631
(606)
2,148
(0)

78
–
(1,369)

(558)
(381)
–

(5,280)(3,604)(2,038)
180
193

–
(139)
5,091

–

(1,316)48,169

51
(89)
(38)
231

1,398
683
2,081
¥ 3,010

13,227
6,462
19,689$ 28,480

Selling, general and administrative expenses(Note 8)Operating income
Other income (expenses):
Interest and dividend income
Interest expense
Gain on sales of investments in securities
Impairment loss on investments in securities
Gain (loss) on sales or disposal of property, plantand equipment, net
Loss on disposal of inventories
Restructuring charges
Cumulative effect of changes in method of
inventory valuation
Other, net
Income before income taxes
Income taxes (Note 6):
Current
Deferred
Net income¥–

See accompanying notes to non-consolidated financial statements.
36

Yodogawa Steel Works, Ltd.
Non-Consolidated Statements of Shareholders’ Equity
Years ended March 31, 2003 and 2004

Millions of yen
2003
2004
Common stock
Balance at beginning and end of the year
Capital surplus
Balance at beginning of the year
Add:
Gain on disposal of treasury stock
Balance at end of the year
Retained earnings
Balance at beginning of the year
Add:
Net income
Deduct:Cash dividends paid
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

Thousands of
U.S. dollars(Note 2)
2004

¥ 23,221¥ 23,221$ 219,709¥ 23,497¥ 23,497$ 222,320–¥ 23,4970¥ 23,4970$ 222,320¥ 73,519¥72,645$ 687,340

231

3,010

28,480(1,105)¥ 72,645(1,004)¥ 74,651(9,500)$ 706,320¥ 3,722(2,517)¥ 1,205¥ 1,205
5,810¥ 7,015$ 11,401
54,972$ 66,373

See accompanying notes to non-consolidated financial statements.
37

Yodogawa Steel Works, Ltd.
Notes to Non-Consolidated Financial Statements
March 31, 2004

1.

Summary of Significant Accounting Policies(a) Basis of Preparation
The accompanying non-consolidated financial statements of Yodogawa Steel Works, Ltd.
(the “Company”) are prepared on the basis of accounting principles generally accepted inJapan, which are different in certain respects as to the application and disclosure
requirements of International Financial Reporting Standards, and are compiled from thenon-consolidated financial statements prepared by the Company as required by the
Securities and Exchange Law of Japan.

(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 loss and gain are
charged or credited to income.
(c) Cash Equivalents
Cash and cash equivalents consist of cash on hand, deposits with banks withdrawable on
demand, and short-term investments which are readily convertible to cash subject to an
insignificant risk of changes in their value and which were purchased with an original maturityof three months or less.

38

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

1.

Summary of Significant Accounting Policies (continued)(d) Securities
The accounting standard for financial instruments requires that securities other than those 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 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 are classified as other securities andinvestments in subsidiaries and an affiliate are carried at cost. Cost of securities sold isdetermined by the moving average method.
(e) Inventories
Finished goods, work-in-process and raw materials of steel sheets, building materials andraw materials for rolls are stated at cost determined by the average method.
Up to the year ended March 31, 2002, ni ventories were stated at cost determinedprincipally 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 with respect to steel sheets, building
materials and raw materials for rolls, from the last-in, first-out method, to the averagemethod. This change was made to mitigate the impact of any material fluctuation in thepurchase prices of raw materials and to minimize the differences between the carrying andmarket value of these inventories. The effect of this change was to decrease inventories at
March 31, 2003 by ¥901 million, to increase operating income for the year then ended by¥1,137 million and to decrease income before income taxes for the year then ended by¥901 million as a result of recognizing the cumulative effect of the change in inventory
valuation of ¥2,038 million for the year then ended.
Finished goods and work-in-process of roll products and real estate held for sale are statedat cost determined by the specific identification method.
Supplies are stated at cost determined by the first-in, first-out method.

39

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 on and after
April 1, 1998.
The useful lives adopted for calculating depreciation are principally as follows:
Buildings and structures
Machinery, equipment and vehicles

3 to 60 years
3 to 17 years

Significant renewals and additions are capitalized at cost. Maintenance and repairs 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.

40

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) 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 conditions underwhich the termination occurs. The employees’ pension plan, which is a funded
non-contributory plan, partially covers the benefits under the employees’ retirement benefit
plan to employees who retire after fifteen or more years of service.
Accrued retirement benefits for employees are provided principally at an amount calculated
based on the retirement benefit obligation less the fair value of the pension plan assets as
adjusted for unrecognized actuarial gain or loss. The retirement benefit obligation is
attributed to each period by the straight-line method over the estimated remaining years ofservice 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 the
Company’s internal rules.

41

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

1.

Summary of Significant Accounting Policies (continued)(m) 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. Receivables and payables hedged by forward foreignexchange contracts which meet certain conditions are translated at the corresponding
foreign exchange contract rates.
(n) 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 ¥105.69 = U.S.$1.00, the approximate
exchange rate prevailing on March 31, 2004. 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 the carrying and fair value of and unrealized gain on securities withdeterminable fair value included in investments in and advances to subsidiaries and affiliates at
March 31, 2003 and 2004 is summarized as follows:
Millions of yen
2003

Investments in a
subsidiary

2004

Carrying
value

Unrealized
Fair value
gain

Carrying
Unrealized
value
Fair value
gain¥11,310¥21,626¥11,310¥10,316¥21,527¥10,21742

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

3.

Securities (continued)
Thousands of U.S. dollars
2004
Carrying
Unrealized
value
Fair value
gain

Investments in a
subsidiary4.

$107,011$203,681$96,670

Inventories

Inventories at March 31, 2003 and 2004 were as follows:

Millions of yen
2003
2004
Finished goods
Work-in-process
Raw materials and supplies
Real estate held for sale

¥10,506
2,766
4,299
574
¥18,145¥ 9,813
2,652
4,805
520
¥ 17,790

Thousands of
U.S. dollars
2004$ 92,847
25,092
45,4634,920$ 168,32243

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

5.

Short-Term Bank Loans and Guarantee Deposits

Short-term bank loans represent overdrafts at average annual interest rates of 0.562% and0.561% at March 31, 2003 and 2004, respectively.
Guarantee deposits consisted of interest-free deposits, most of which were from tenants, andinterest-bearing deposits, which were principally deposits from customers at average annualinterest rate of 0.5% at March 31, 2003 and 2004. Interest-free deposits and interest-bearing
deposits at March 31, 2003 and 2004 were as follows:

Interest-free deposits
Interest-bearing deposits

Millions of yen
2003
2004
¥678
¥ 575
313
389
¥991
¥ 964

Thousands of
U.S. dollars
2004$5,4403,681$9,121

The aggregate annual maturities of guarantee deposits subsequent to March 31, 2004 aresummarized as follows:Year ending March 31,
2005
2006
2007
2008
2009
2010 and thereafter

Millions of yen
¥

3
2
–
–
–
959
¥ 964

Thousands of
U.S. dollars
$

28
19
–
–
–
9,074
$ 9,121All interest-bearing deposits are scheduled to mature during the years ending March 31, 2010
and thereafter.

44

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

6.

Income Taxes

Income taxes applicable to the Company comprise corporation, enterprise and inhabitants’ taxes
which, in the aggregate, resulted in a statutory tax rate of approximately 42.0% for the years
ended March 31, 2003 and 2004.
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 was 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)%A reconciliation of the statutory tax rate and the effective tax rate for the year ended March 31,
2004 has been omitted since the difference between the statutory tax rate and the effective tax
rate is within 5% of the statutory tax rate.

45

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,
2003 and 2004 are summarized as follows:

Millions of yen
2003
2004
Deferred tax assets:
Accrued retirement benefits
Accrued bonuses
Allowances for doubtful receivables
Foreign tax credit
Loss on devaluation of securities
Tax loss carryforwards
Other
Total deferred tax assets

Thousands of
U.S. dollars
2004¥ 1,552
285
34
410
1,045
1,406
130
4,862

¥ 1,886
372
8
607
847
–
361
4,081

$ 17,845
3,520
75
5,743
8,014
–
3,416
38,613

Deferred tax liabilities:
Unrealized holding gain on securities
Reserve for deferred taxation oncontributions for acquisition ofproperty
Total deferred tax liabilities(837)(4,774)(45,170)(1,253)(2,090)(1,155)(5,929)(10,928)(56,098)

Net deferred tax assets (liabilities)¥ 2,772¥ (1,848)$ (17,485)

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 and to increase unrealized
holding gain on securities by ¥31 million at March 31, 2003 and to decrease income taxes –deferred (credit) and net income by ¥50 million for the year ended March 31, 2003.

46

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. Additional paid-in capital and the legal reserve are included in capital surplus andretained earnings, respectively, in the accompanying non-consolidated balance sheets andstatements of shareholders’ equity. The Company’s legal reserve amounted to ¥3,478 million
and nil at March 31, 2003 and 2004, 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.

8.

Research and Development Costs

Research and development costs included in selling, general and administrative expenses for theyears ended March 31, 2003 and 2004 were as follows:

Millions of yen
2003
2004
¥364

¥328

Thousands of
U.S. dollars
2004$3,10347

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, 2003 and 2004, 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
2003
Acquisition Accumulated
costs
depreciation
Machinery,equipment andvehicles

¥279

¥175

Net bookvalue

Acquisition
costs

2004
Accumulated
depreciation

Net book
value

¥104

¥ 261

¥ 204

¥57

Thousands of U.S. dollars
2004
Acquisition Accumulated Net bookcosts
depreciation
value
Machinery,equipment andvehicles$2,469$1,930$539

The related lease payments and depreciation for the years ended March 31, 2003 and 2004
were as follows:

Millions of yen
2003
2004
Lease payments
Depreciation¥61
61

Thousands of
U.S. dollars
2004

¥55
55

$520
520

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, 2004 under finance leases other than those which transfer the ownership of the leased
property to the Company are summarized as follows:Year ending March 31,
2005

Millions of yen

Thousands of
U.S. dollars

¥ 38

$359
48

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

2006 and thereafter

19
¥ 57

180
$539

49

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

10. Contingent Liabilities
At March 31, 2004, the Company had the following contingent liabilities:

Millions of yen

Thousands of
U.S. dollars¥ 118$ 1,116

Guarantees of housing loans of employees andindebtedness of a subsidiary

11. Amounts per Share
Amounts per share at March 31, 2003 and 2004 and for the years then ended were as follows:Yen
Net assets
Net income
Cash dividends applicable to the year

2003

2004

U.S. dollars
2004¥654.91
1.25
5.00¥711.25
16.38
8.00

$6.73
0.15
0.08

Diluted net income has not been presented for the years ended March 31, 2003 and 2004 since
the Company had not issued any potentially dilutive stocks at March 31, 2003 or 2004.
The amount per share of net assets is computed based on the net assets available for distribution
to the shareholders and the number of shares of common stock outstanding at the year end.
Net income per share is computed based on the net income available for distribution toshareholders of common stock and the weighted-average number of shares of common stock
outstanding during the year.
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 Event
See Note 15 to the consolidated financial statements.

50