阪和興業株式会社

Annual Report 20132013Year ended March 31, 2013

Profile
Since its establishment in 1947, Hanwa has contributed to the development of theJapanese economy as a trading company handling industrial materials, such as steel—the
Company’s leading product—and metals and alloys, non-ferrous metals, food products,
lumber, machinery, petroleum and chemicals, and cement. Our steel division in particular isequipped with quay and warehouse transportation facilities as well as complete processing
sites that enable us to both handle large quantities purchased from major steel
manufacturers and cater to the special needs of our customers. This is why we have long
been known in Japan as a “steel trading company.”
Recently, with the changes and diversification in the domestic market, we havedemonstrated new capabilities as a trading company by handling seafood products, rides foramusement parks, and non-ferrous metal recycling. We have created numerous businesses inthese fields that command the top market share. The basic strategies underlying such successare internationalization, business diversification, and value enhancement.
Hanwa’s ideal function as a trading company is to be more than just a distributor. Based

Contents
01

To Our Shareholders

02

Interview with the President

05

At a Glance

06

Review of Operations

13

Topics14

Corporate Governance

16

CSR Activities

18

Financial Section

18

Five-Year Summary

19Management’s Discussion
and Analysis

22

Financial Statements &
Notes

45

Global Network

46

Corporate Information

Forward-Looking Statements
The plans, strategies and other statements
related to the outlook of future results inthis annual report reflect the assumptions

on our insight into the international market and our information-gathering capabilities, we
aim to develop new products, as well as coordinate ventures among businesses. As a
trading company with such operating skills at our disposal, we will continue to develop
new unique businesses.

Corporate Philosophy
Coping with changes times and the market quickly,
we make a great contribution to society
by satisfying various needs of customers as a
“distribution specialist.”
Success in today’s markets demands speed and the ability to meet a broad rangeof needs. Change is occurring on an unprecedented scale. Only companies that
can adapt quickly will survive. Hanwa has experience and accomplishments inthe field of “distribution” that span six decades.
We know how to build powerful businesses and move quickly in the pursuit ofvalue creation and customer satisfaction.
Dedicated to corporate citizenship, we want our business operations to help
make communities and the world a better place to live. This is why we prioritize
compliance and other activities that enable us to fulfill our obligation to society.

and beliefs of management based on
currently available information. However, it
should be noted that there is a possibility
for actual results to differ significantly
owing to such factors as changing socialand economic conditions.

Through such activities, Hanwa keeps nurturing a corporate culture that will
enhance the value and reliability of our company. We aim to make greater
contributions by fulfilling our social responsibilities.

To Our Shareholders

Hanwa supplies a broad range of products, including steel, metals andalloys, non-ferrous metals, food products, petroleum and chemicals, lumber,machinery and many other items, to an equally diverse range of customers.
Since our inception, we have based operations on the mission of serving
our customers as “distribution specialists.” Year after year, we have used
specialized skills and an extensive service network to meet customers’ needs
with precisely the right solutions. This skill has earned Hanwa a reputation
as a trading company in which customers know they can place their trust,Shuji Kita, Chairman (right)
Hironari Furukawa, President (left)

receiving outstanding products and services in return.
As the world economy is showing signs of dynamic change, Hanwa
Co., Ltd. considers 2013 to be its “first year of structural reform” toraise awareness in each individual employee, and establish a stronger
management culture. At the core is our Medium-Term Business Plan
(2013–2015), which covers the next three fiscal years and will enable us tostrengthen our management base and establish a flexible business structurethat can address the changes in the international and domestic markets.
We aim to be a corporate group that can provide services which respond to
the needs of our clients while securing a solid revenue stream in the face of
any and all changes in the business environment.
In addition, the sincere advice and support of all stakeholders forms
the basis for all our activities. We place great value on every customer
relationship together with the accompanying opportunities. As we pursue
further growth and progress, we will retain our devotion to contributing tosociety by performing functions that are unique to Hanwa, while serving as
a “trading company known for outstanding footwork.”

Shuji Kita
ChairmanHironari Furukawa
President| HANWA AR 2013 | 01

Interview with the President

Looking at the Present and the Future of the Hanwa Group“ We aim to strengthen our business structure

and our management base from a global
perspective based on a solid and accurate
understanding of the changes taking place in
the international and domestic markets.

”

Hironari Furukawa, President

share your opinion about the economic environment of the fiscal year
Q1 Please
ended March 31, 2013.
With regard to the world economy in the fiscal
year under review, against the backdrop of a
prolonged economic slowdown due to theEuropean debt crisis, China’s economic growth slowed, and in
emerging nations economic growth came to a standstill. Overall,there was a strong sense of stagnation as the United States
constantly trended downward.
The Japanese economy also remained sluggish in terms ofA

consumer spending and capital investment. In the manufacturingindustry, where business had been relatively steady, we saw adecline in the level of operations due to the end of consumption
incentives and other factors. In the export industry, the yen began
to depreciate reflecting an expectation of policies to be introduced after the change in government. However, the market as awhole continued to stagnate because of the strong yen and a
decline in overseas demand, as seen in Europe and in China.

Q2 Please summarize operating results of the fiscal year ended March 31, 2013.
Our consolidated net sales for the fiscal year
under review were ¥1,511,325 million, representing a year-on-year decrease of 3.4% due
mainly to lower sales prices in the steel business and the metals
and alloys business. In terms of profit, operating income fell

A

16.6%, to ¥12,491 million, reflecting lower prices and lower
profit margins on sales. Net income, in contrast, rose to ¥4,721
million, up 1.9%, due mainly to a drop in valuation losses oninvestment securities.

Q3 What is your outlook for the fiscal year ending March 31, 2014?
We believe that the world economy in general isstill suffering from a strong sense of uncertainty
due to the European debt crisis, while the U.S.
economy is beginning to show signs of recovery. However, we
expect that the slow pace of this recovery—as well as the lackof actual measures to encourage the recovery in the Chinese
economy, which has entered a correction phase—will cause theA

02 | HANWA AR 2013 |world economy to remain stagnant overall.
On the other hand, the domestic economy is showing signsof recovery as the stock market enjoys the positive effects of
expectations for new economic policies and the easing in monetary policy. Moreover, the demand for earthquake reconstruction
work is also being set in motion to support this upward trend.
Optimism is difficult with regard to the future outlook, however,since there are still factors acting to dampen the competitivenessof domestic industries, such as the higher cost of electricity andthe planned increase in the consumption sales tax.
In this business environment, the Group will strive to maintain and improve its business performance by increasing thenumber of clients. It will do this by aggressively discovering newcustomers while putting into practice effective sales/inventory

policy that address customer needs and accurately forecasting
the trends in demand in each business field.
Based on these factors, in terms of consolidated operating
results for the next fiscal year, we expect net sales of ¥1,600
billion (up 5.9% compared with the previous year), operating
income of ¥14.7 billion (up 17.7%), and net income for theyear of ¥7.5 billion (up 58.9%).

Q4 Please share your vision for business management in the future.
establish a solidly profitable business structure that addresses thechanges in the business environment with flexibility as well as tostrengthen the management base, which supports our business.
Our objectives, in terms of business performance, are net
sales of ¥1,800 billion and ordinary income of ¥15.0 billion for theyear ended March 31, 2016 (Please see next page for more details).

The Group published its Medium-Term Business
Plan, which covers the three-year period between
fiscal years 2013 and 2015.
This plan is centered on the theme: “strengthening the management base and establishing a business structure that anticipates the medium- and long-term changes in the internationaland domestic markets.” It will therefore serve as the basis for us toA

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Financial Highlights
For the years ended March 31, 2013 and 2012.
Thousands of
U.S. dollars (Note)

Millions of yen

For the year:
Net sales
Operating income
Net income
Comprehensive income
At year-end:
Total assets
Total net assets

2013

2012

2013

¥ 1,511,325
12,491
4,721
6,600¥ 1,564,251
14,977
4,633
6,214$16,069,378
132,81250,19770,175¥¥$ 5,878,873
1,283,083

552,908
120,674

582,405
115,957

Yen

Per share data:
Net income
Cash dividends

¥

22.78
12.00

U.S. dollars (Note)

¥

$

22.35
12.00

0.242
0.128

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥94.05 = $1.00.

Net Sales

Operating Income

Net Income(Millions of yen)

(Millions of yen)

(Millions of yen)

25,00015,00020,00012,00015,0009,000

10,000

6,000

5,000

3,000

2,000,000
1,500,000
1,000,000
500,000
0

0
09

10

11

12

13

0
09

10

11

12

13

09

10

11

12

13

| HANWA AR 2013 | 03

Q5 Please add some additional comments for shareholders and investors.
To this end, the Group will resolutely carry out thestructural reform on the entire Group and continue
to implement its business strategy based on the
new Medium-Term Business Plan. In addition, we will improve theGroup’s overall value and maintain the rate of its business growthA

while further boosting customer satisfaction and recognizing theimportance of corporate social responsibility.
We would like to conclude by asking our shareholders andinvestors for their continued support in the future.

The New Medium-Term Business Plan: An Overview
In our new Medium-Term Business Plan, we chose to focus on addressing the changes in the business environment during
the first three years of a period of 10 years, to work toward building a solidly profitable business as well as a strong
management base that supports our business.
Target

Theme(Million of yen)

Establish thriving businesses and reinforce
the base of operations that envisage medium
and long-term changes in markets in Japanand overseas.

FY2012 (result)

FY2015 (planned)¥1,511,325¥1,800,000

8,871

15,0000.6

0.8

Net sales
Ordinary income
Ratio of ordinary income
to net sales (%)

Three Strategic Concepts

1
2
3

Always close to the viewpoint of users• Target problems and issues of users and create the best possible solutions.
• View users as suppliers and build mutually beneficial models with partnership.
Diversification of business activities• Create business variations that can meet new needs that emerge along the value chain.
• Embrace different cultures by using M&A, global recruiting and other measures in orderto preserve organizational flexibility that can realize the full potential of everyone.
Manage the group as a whole• Make the entire group more profitable, create a framework for group companies withthe proper balance between autonomy and control.
• Pursue earnings efficiently, streamline business domains among group companies andimprove operations.

Professional&
GlobalProfessional and Global

Human Resources
Nurture professionals, andan organization
with a global reach< Resonant business management: Optimizing our value chain >• Make optimal use of expertise and know-how within the Hanwa Group and expand both upstream anddownstream.
• Expand business areas and maximize customer satisfaction.
Past business areas

Upstream

Makers/suppliers

04 | HANWA AR 2013 |Trade

Temporary
distribution

Downstream

Manufacturing
process

Intermediate
distribution

Users

At a Glance
SectionOverview

Steel

Steel is Hanwa's major product, accounting for about half of total
sales. We sells steel bars, building materials, sheets, pipes, wires,and many other steel products. With this broad lineup, we can meetthe requirements of customers in almost any industry. With some ofJapan's largest steel distribution centers and a network of overseas
coil centers, Hanwa ranks among the leaders in terms of inventories
and steel processing volume. In recent years, offshore trading has
become another source of growth in the steel business.

MetalsandalloysHanwa fulfills an important social responsibility as a supplier of many
metals for which there are no resources in Japan, such as nickel,
chromium, manganese, silicon and ferroalloys of primary products. We
procure these metals directory from procedures in China, South Africa,
Kazakhstan, India, Turkey, Germany, Russia, Brazil and other countries.
Using our own global network as well as relationships with strategic
partners, we are constantly seeking to increase supplies of metal
resources through various measures that include investment.

Nonferrous
metalsHanwa was one of the first companies in Japan to establish a nonferrous metals and specialty metals recycling business. Operations involve
mainly aluminum, copper, zinc, lead and other metals where demandis substantial in Japan. We have solid positions in there market sectors,
backed by expertise in organizing business activities on a global scale,an advantage that only a trading company can offer. In our recycling
business of aluminum cans, we fully utilize expertise in collection,
inventory and supply activities to aluminum rolling plants.

Food
PRODUCTS

Hanwa's food business is Japan's largest importer of seafood, handling adiverse selection of products. Developing products with a higher degreeof processing has been a central theme in recent years. We have tie-ups
with many seafood processing plants in China, Thailand, Vietnam andother countries. All these facilities are highly competitive in terms of cost,quality and hygiene. Furthermore, Hanwa also uses its own purchasing
method for processed food products. We send special staffs to plants sothey can monitor quality assurance programs.

Petroleumandchemicals

In the petroleum business, Hanwa supplies fuel, lubricants and otherproducts to companies in the steel, chemicals, papermaking andother industries. Overseas, we sell fuel for shipping companies andare involved in the import and export of petroleum products. In thechemicals business, Hanwa’s primary export is synthetic resin raw
materials. Major imports include synthetic resin raw materials andpolyethylene products. In paper category, we have a recycling business
and we expert recycled paper to Southeast Asian countries.

Other
business

Hanwa that imports lumber, plywood and other wood products
are selling to building material trading companies, building material
manufactures, sales agents, wholesalers, home builders and many othercompanies. We are supplying to the thriving construction market in
the Middle East and other regions by focusing on offshore trade. The
machinery business has two components: amusement facilities, mainly
amusement park rides and other facilities; and industrial machinery,
mainly steel processing machinery.

| HANWA AR 2013 | 05

Review of Operations

Steel (Domestic)
Fiscal 2012 Results
In fiscal 2012, the new Japanese administration’s financial and economy policy known
as “Abenomics” triggered a recovery in the overall Japanese economy at the fiscalyear end, leading to a correction of a surge in the yen as well as higher stock prices.
Up until then, however, we had observed a strong sense of stagnation as seen in a
prolonged European economic slump, a slowdown in the Chinese economy, theboycotting of Japanese products in China and a dramatic decrease in exports to China
due to the Senkaku Islands dispute, a slowdown in exports caused by the strong yen,
and a rapid increase in the relocation of manufacturing operations overseas.
Demand for steel products for the construction industry was steady, especially in theTokyo metropolitan area. While reconstruction demand started to have positive effects
in the field of civil engineering, business was still poor in the field of architecture. In theenvironmental and energy sector, our solar power business boomed, with robust salesof related merchandise, such as products for stands. Our business targeting the automobile and other manufacturing businesses remained strong overall, despite a concern overa slowdown in demand due to the strong yen and the end of consumption incentives.
During the first half of the financial year, we saw a downturn in the steel material market, despite an attempt at market reconstruction, because of a slump inexports caused by a decrease in overseas demand, which led each manufacturer toturn to securing domestic sales volumes. In 2013, the export business recovered
thanks to the correction of the yen’s sharp depreciation, while prices for raw materials increased. As a result, the market bottomed out and entered an upward phase.
The(Millions
domestic
to thedownturn in the steelof yen)of yen) steel business struggled overall due(Millions
market, the slump in exports, a struggle in binding contractual business for the
manufacturing industry, losses on valuation of inventory in retail sales, and other
200,000
80,000factors. Nevertheless,
we managed to expand transaction
volume as a result of ourmeasures such as improving functions through enhanced beneficial relationships
with businessconstruction projects and
150,000 partners and M&A, improving sales to60,000
increasing the number of local satellite offices, as well as our commitment to seeking
new customers and digging deep into the market.

Net sales(Millions of yen)

1,000,000
800,000
600,000

100,000

400,000

40,000

LookingAhead and Key Strategies 20,000
50,000200,000
0

09

10

11

12

13

Net sales composition

46.4%

With regard to demand for steel products in fiscal 2013, we started to see positiveeffects from our financial policies and business expansion strategies in the second0
half of the fiscal
year under review. We expect construction0 demand to strengthen
09
10
11
12
09
10
11
12
13
throughout the year, coupled with reconstruction demand.
Furthermore, we expect demand related to the manufacturing industry to be robust, due
to the correction of the yen appreciation, it is likely that we will see an increase in exports,
growth in earnings and temporary suspension of relocation of production facilities overseas.
In the steel material market, we expect to see an upward trend, given the recovery inexports and strong domestic demand brought by the correction of the strong yen. However,global market conditions are weak against the backdrop of problems of excess inventory andexcess capacity having surfaced in China and the struggle to make production adjustments.
We are concerned about the potential for a negative impact on the domestic market.
Given this background, in fiscal 2013 we will continue to implement measures,such as promoting community-based sales strategies, reinforcing local satellite
offices, improving prompt delivery/small lot orders/processing, expanding sales
targeted for construction projects, building mutually beneficial alliances with business partners, incorporating stand materials for the solar power generation businessand attracting reconstruction demand, and we will identify new customers while
increasing sales volume of existing customers.

Note: Effective from the year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
changed its classification of consolidated business segments from one based on product similarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.

06 | HANWA AR 2013 |13

Steel (Overseas)
Fiscal 2012 Results
In fiscal 2012, while the global economic outlook remained uncertain, Japan’s export
competitiveness remained low due to the strong yen. Although the climate forexports improved as the change in government brought a rapid weakening of theyen in 2013, conditions continued to be unstable due to sluggish demand overseas,
including from China.
The steel market in Asia remained stagnant in fiscal 2012, but the market pricerecovered nearly $100 after the turn of the year, supported by the spike in raw
materials from the year-end.
In these circumstances, although Japanese steel export volume on a calendar-yearbasis in 2012 reached 42.49 million tons, up 3.1% from the previous year, theCompany’s export volume increased 13.4%, indicating the success of our hard work.

Looking Ahead and Key Strategies
In fiscal 2013, the upturn seen in the overseas market early in 2013 will end, and we
expect the market to be weak in the first half and rebound in the second half. Crude steel
production in China has remained high from the beginning of the year, with domestic
inventory at a higher level than ever. There are concerns that the inventory growth andoversupply in China have generated pressure to sell to neighboring countries, causing anegative impact on market conditions.
We clearly see slower growth in steel demand in China. Under the new regime, China
has a goal to achieve sustainable growth, aiming at a GNP growth rate of 7.5%. The real
economy, however, lacks momentum. Demand in ASEAN countries continues to rise
gradually, but domestic production is decreasing. With regard to the European economy,
there is still no sign that the bottom has been reached, while demand for steel products
has also declined. Although the United States has sustained a gradual recovery, its growthrate has fallen, which indicates that the market will move into a correction phase. As
described above, there are many uncertainties overall. Thus, we cannot expect a significant
increase in demand for steel.
We must focus our efforts on exporting mill materials manufactured in China andother emerging countries while maintaining exports from Japan, gaining momentum fromthe yen’s depreciation.
Furthermore, it is essential to grasp overseas customers’ needs, offer a wider variety of
products and promptly establish new systems that can deal with logistics and processing
according to customer needs.
As target regions, we will include Myanmar, where we opened a new office during
the previous fiscal year. In addition, ASEAN countries will remain important strategic
regions. We will develop a newmarket in Mexico, where wealso opened an office, while
pushing further into the U.S.
market. Turkey, a country witha rapidly growing economy,
will remain a target region.
We will strive to achievesales expansion while implementing a range of measures
for Japanese materials known
for high quality and credibility
and general-purpose materials,
respectively.

| HANWA AR 2013 | 07

Review of Operations

Metals and Alloys
Fiscal 2012 Results
In the recycling business, while both the domestic and export stainless steel markets
struggled, Hanwa Metals Co., Ltd., which we established during the previous year,
expanded business by diversifying the products it handled.
In the nickel business, against the backdrop of a decrease in domestic demandand sluggish growth in demand in China, a large quantity of nickel cathode wasaccumulated in bonded areas in China, showing no signs of improvement at the
fiscal year-end.
The Company’s sales volume also stagnated, and we started to see inventory
that we have held for a long period of time.
In the ferroalloy business, to disperse the risk of relying on supply from China,
we made a capital investment in OM Holdings Ltd., which is scheduled to produce
ferroalloy in Malaysia, as a measure to increase sources of supply in the future.
In the solar battery/silicon business, as the whole industry ran a large deficit,
causing one company after another to withdraw, the Company was also forced to
drastically reduce its solar battery business. The semiconductor and solar buttery
business suffered a slump, and Dalian Solar Valley Silicon Industry Co., Ltd. (a joint
venture for silicon grinding business) also struggled.

Looking Ahead and Key Strategies
Net sales

It is unlikely that the overall supply and demand environment will improve greatly.
We expect that, in particular, the electric furnacesteel industries which consume(Millions of yen)
heavy power, including stainless steel, will be affected by the weakened yen andthat it will take some time before domestic production improves.
100,000
80,000With respect to the recycling business, although the correction of the yen’s
appreciation is favorable to stainless steel and special steel manufacturers in Japan,
80,000we cannot expect significant growth in domestic final demand. While reinforcing a
60,000stable domestic supply, stable quality and just-in-time delivery, we will work to
60,000diversify our customer base.
40,000In the nickel business, we will expand sales of nickel bullion, ores and chemical
40,000products, which have been promoted mainly in Japan and China, to the Southeast
Asia and India, capturing growing demand. We will also actively consider alliances
20,00020,000with supply sources if opportunities arise.
In the ferroalloy business, we will vigorously promote improving structures to0
ensurestable supply to major domestic users as well 0as decentralizing sources for
09
10
11
12
13
09
10
11
12
13
purchasing. As for supply to users in Southeast Asia and India, in view of the start ofproduction at OM Holdings Ltd., we will begin preliminary marketing, strengthening
sales structures.
In the solar battery/silicon business, we will select and narrow down businesses
as we cannot expect improvement in business conditions for the time being. Dalian
Solar Valley Silicon Industry Co., Ltd. will also narrow down sales targets for its metal
grinding business and build a structure that allows them to focus on high-valueadded products.

(Millions of yen)

(Millions of yen)

200,000

150,000

100,000

50,000

0

09

10

11

12

13

Net sales composition

6.1%

Note: Effective from the year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
changed its classification of consolidated business segments from one based on product similarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.

08 | HANWA AR 2013 |Non-Ferrous Metals
Fiscal 2012 Results
In the midst of uncertainly over the European economy and sluggish growth in the
Chinese market, demand for non-ferrous metals was stagnant in Asia, which led toa situation where a large amount of bullion was stored in bonded warehouses in
China. Although the metal market has not come out of the boxed range, it moved
to a phase when the price dropped, then rallied due to technical factors, and went
down again throughout the fiscal year.
In the aluminum business, while the market was dull, real demand in the automobile and housing sectors was steady. Since the generation of scrap was low incomparison with strong demand for scrap, purchase costs increased, which caused
us difficulties in turning a profit as the LME price was weak. In the second half, themarket broke away from the market environment where the price of secondary alloy
lump was higher than that of new lump and returned to a normal state, which had
a positive influence on the Company’s aluminum recycling business.
Although the environment was also tough for white raw materials, such ascopper, tin, lead and zinc, our measures to expand the purchase/sales market
succeeded, making up for the slump in Japan through sales overseas. Furthermore,
we increased the quantity of precious metal scraps and merchandise related to theBasel Convention, which contributed to earnings.

Looking Ahead and Key Strategies(Millions of yen)

1,000,000
800,000
600,000
400,000
200,000
0

Against the backdrop of global sluggish demand,
it is possible that the non-ferrous(Millions of yen)metal market will show a more downward trend overall in the first half of fiscal
2013, due to an increase in bullion inventory and flow of speculative funds to other
200,000
financial markets that are strong.
Despite a forecast for an economic recovery resulting from Abenomics, we expect
to see no significant improvement in domestic
demand because of the transfer of
150,000
manufacturing operations overseas.
Under such circumstances, we aim to further increase our share, targeting
100,000stable supply and providing highdomestic users with a primary focus on ensuring
value-added products. Furthermore, we will prepare a structure to supply aluminummaterials for deoxidation to SEIKI METAL INC50,000
Co., Ltd., which we plan to make anaffiliated company, to achieve a stronger revenue base.
For overseas markets, we will increase the number of domestic and overseas
0
offices as bases for purchasing, exporting and processing
in an effort to actively
09
10
11
12
13
09
10
11
12
13
increase supply to overseas users and Japanese manufacturers’ plants outside Japan.
Moreover, we will uncover new markets in Europe and the Americas by further
developing the conventional recycle business model, which focuses on the ASEAN
region. Concurrently, we will seek new routes for purchasing from Central andSouth America, Africa and other emerging countries and boost the number ofroutes for purchasing precious metals and related products from advanced nations
in Europe and the United States.
However, while we aim to achieve growth in both quantity and sales throughthe expansion of bases and markets for purchasing, we expect that it will take time
to expand profits in such a harsh market environment.

Net sales(Millions of yen)

(Millions of ye

100,000

80,00080,00060,00060,00040,00040,00020,00020,000

0

0

09

10

11

12

13

Net sales composition

4.7%| HANWA AR 2013 | 09

Review of Operations

Food Products
Fiscal 2012 Results
The impact of a free-fall in the price of salmon spread to all fish species including
tuna, causing their prices to drop. As a result, a rebound in demand was under way.
In the final quarter, a decrease in fish catches, the weakened yen, a decline insupply and a drop in inventory became apparent, causing the market to reboundand show an upward trend.
In the United States, the economy took an upturn, and both demand and market
conditions were on course for a recovery.
While earnings from salmon recovered, we suffered impairment losses on raw
material/product inventory for the following reasons: (1) a loss in value of productinventory because of bankruptcies of business partners, (2) a loss of trade areas due
to dissolution of major business partners, (3) a decrease in sales volume due to theissue of chemicals associated with farmed prawns, and (4) a collapse in prices ofgeneral frozen fish (mackerel, Matsubara’s red rockfish, flatfish) and octopus.
The export business was on course for a recovery, although it remained stagnant
because of issues concerning radiation.
While an oversupply at the global level was being dealt with during the fourth
quarter, Seattle Shrimp & Seafood Company, Inc. in the United States achieved
growth in sales but suffered lower profits.

Looking Ahead and Key Strategies

Net sales(Millions of yen)

100,000

80,00060,00040,00020,000

0

13

09

10

11

12

13

Net sales composition

5.5%

While
there is still a global tendency toward increased demand,
we expect to see a(Millions of yen)
(Millions of yen)decrease in final demand in Japan, given the falling population and weakened yen.
The market, which fell drastically in 2012, will be on a track
for recovery by the
180,000
500,000
year-end, based on the prediction of a weakening yen and a decrease in supply.
150,000
phase in the
The price of prawns, which skyrocketed, will enter a correction
400,000
summer. Demand for common fish such as salmon and mackerel, whose prices are
120,000
still low, will be steady.
300,000
We expect the crab market to rally as the price rises.
90,000
Looking ahead to the global demand increase, we will secure resources (raw materials)
200,000
by making capital investments in packers and sales companies in North
60,000 America.
We will station staff in Chile in South America to reinforce the process of
100,000
30,000purchasing resources in South America.
We will consider making a capital investment in a domestic manufacturing firm.
00
We willpromote cooperation
09
10
11
09
10
11
12
13
with Hanwa Foods Co., Ltd.,building a foundation for distribution in Japan.
With each resident office as abase, we will promote an expansionof trading within North American,
South American, ASEAN and EU(including Africa) regions, interoffice business development, andexports from Japan to prepare forthe world’s growing demand.

Note: Effective from the year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
changed its classification of consolidated business segments from one based on product similarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.

10 | HANWA AR 2013 |121

Petroleum and Chemicals
Fiscal 2012 Results(Millions of yen)

80,000A growing concern over the European debt led the crude oil market price to plummet inJune under the influence of falling global stock markets and a high level of crude oilinventory. However, after July, the price rallied and remained high at $100 to $110.
In regard to domestic demand, demand for C heavy oil was robust due to nuclear
power plant shutdowns. Demand for gasoline and three middle distillate fuels (kerosene,light oil, and C heavy oil) remained higher than in the previous year throughout the firsthalf because of the impact of the earthquake. During the second half, however, wefaced a difficult situation as the demand fell below the previous year’s level, and themarket remained weak.
In the domestic fuel supply and demand division, profit deteriorated, influenced by
crude oil price fluctuations and sales competitions. While we sought to expand sales ofkerosene and C heavy oil in winter to improve profitability, we ended with results below
the previous year’s level.
In the bunker oil sector, we faced a serious challenge due to an unprecedented
recession in the marine market, but the weakened yen from the year-end contributed to
profit improvement, while a rush to start the service of new ships subsided.
With respect to the chemicals business, the overseas resin market weakened due tothe sluggish Chinese economy, and imported synthetic resin penetrated the domestic
market because of its price advantage. However, the rapid weakening of the yen from theyear-end caused a decline in price competitiveness, which led to stagnant sales volume.
In the paper business, although earnings from exports deteriorated until the
year-end due to the strong yen, profitability
thanks to the yen’s weakening(Millions ofimproved
yen)from early in 2013.
100,000

Looking Ahead and Key Strategies
80,00060,00040,00020,0000

We expect domestic demand for fuel supply to continue to be on the decrease. In
terms of supply, we expect an increase compared with the previous year, partly due
60,000to refinery startup, leading to intensified sales competitions. Although demand for
C heavy oil will be influenced by the status of nuclear power plant operations, we
40,000expect a decrease compared with the previous year.
In the petroleum department, we will focus on sales targeting electric power
20,000companies while promoting new business development for general industries.
We will strive for sales expansion of new energy (biomass fuel) and alternative
fuels (waste tire, and RPF), which we started 0from fiscal 2013. In the retail sector, we
09
10
11
12
13
09
10
11
12
13
will further enhance the system of cooperation with Toyo Energy Co., Ltd. to achieve
growth. Furthermore, we will also promote the expansion of territories for the tradeof petroleum products and supply of bunker fuel oil.
In the chemicals business, against the background of consolidation and elimination ofdomestic ethylene plants as well as facility shutdowns of domestic resin manufacturers, wewill actively promote sales expansion of imported products.
In the paper business, we will promote
both the purchase and sales of existingproducts on a global basis. We will also
reinforce the exporting of paper products.
In the daily sundries business, wewill seek new customers while quickly
passing on the impact to consumers ofcost increases caused by the weak yen.
In the area of lubricants, we willcontinue our overseas operations
through new business development.

Net sales(Millions of yen)(M

500,000

400,000
300,000

200,000
100,000

0

09

10

11

12

13

Net sales composition

29.0%| HANWA AR 2013 | 11

Review of Operations

Other Business (Lumber and Machinery)
Fiscal 2012 Results
LumberHousing starts in fiscal 2012 increased 6% from the previous year. With tax breaks forhousing loans and low interests generating momentum, demand for lumber was robust.
The annual quantity that the lumber division handled decreased 17% from the previous
year due to the struggling oversea sales despite a 22% increase from the previous year
in Japan. We developed a three-year medium-term plan, aiming to expand the lumber
business further. We reviewed unprofitable business and focused on business designed
to be transparent to end-users. We conducted a fundamental review of our face material business and are rebuilding it. Our domestic sales grew steadily in the area of tradingwith major builders and house manufacturers. As for log sales for China, we made a
policy to engage in business only in an appropriate setting.
MachineryIn the leisure facilities business, we delivered a rollercoaster made by Gerstlauer of Germanyand Half Pipe Canyon made in Japan to the Sega Tokyo Joypolis amusement park (Odaiba).
In the industrial machinery business, cooperation between different departments was
thorough, particularly with the domestic steel department involved. We received a direct orderfor the construction, including basic construction and electric work, of a complete shearing line
in response to customer requests. We delivered a complete automated warehouse system
made by Daifuku Co., Ltd. to a business partner of the food division. We started full-scaletrading with Amada Co., Ltd., a major metal processing machine manufacturer. We expanded
the business of manufacturing cans for the JFE Engineering Corporation.

Net sales(Millions of yen)

180,000

Looking Ahead and Key Strategies

150,000

LumberPrices will be high at the start due to the sharp weakening of the yen since the year-end of
2012. In addition to robust demand, we expect a last-minute surge in demand before revisionof the consumption tax in the future. As the policy for the current fiscal year, we plan to rebuild
mainly the face material business, facilitating trilateral trade to Manila and the Middle East, andexporting domestic logs. We will also develop new merchandise such as pellet fuels. Startingfrom 2013, when demand is expected to be steady, we hope to build a business targeting endusers and accelerate the development of suppliers. We will focus strongly on the developmentof stable suppliers and products associated with afforestation trees.

120,000
90,00060,00030,000
0

09

10

11

12

13

Net sales composition

8.3%

MachineryIn the leisure facilities business, we anticipate a revival of the amusement park industry led
by an economic recovery in Japan. We will sell rollercoaster carriages manufactured by S&S
and other products and actively implement sales activities for overseas projects with a
primary focus on large projects.
In the industrial machinery business, in response to the yen’s depreciation, we willreinforce export and sales of electrical steel sheet cutting machines manufactured by
Yutani Co., Ltd. and other products made by domestic manufacturers. We will promoteinter-department cooperation, including offices overseas, instead of conventionallyfocusing on the domestic steel department.
Aiming for a shift from selling single-item machines to receiving orders for complete
processing lines, we will implement machinery sales activities where we make recommendations that incorporates application of each manufacturer’s existing technologies, insteadof conventionally selling products to customers who make business inquiries. We will
expand sales of automated warehouse systems and metal processing machines.

Note: Effective from the year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
changed its classification of consolidated business segments from one based on product similarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.

12 | HANWA AR 2013 |Topics
Improving functions by focusing on“prompt delivery/small-lot orders/processing (P/S/P)” through M&A
Based on our strategy to further cultivate the domestic
market, we have strengthened the PSP (prompt delivery/small-lot orders/processing) function and continue to strive
to meticulously address and respond to the needs of quality
small and medium-sized businesses. As part of this effort,
Hirouchi Atsuen Kogyo Co., Ltd., which handles steel
processing and steel wholesale, as well as Kaneki Co., Ltd.
were made our subsidiaries.

Hirouchi Atsuen Kogyo Co., Ltd.

Kaneki Co., Ltd.

Investing in Seiki Metal Inc Co., Ltd. to strengthen
the non-steel businessWe invested in Seiki Metal Inc Co., Ltd., which handles production of deoxidizingaluminum for steel making as well as the recycling of aluminum cans. We planto acquire 97% of the company’s shares by 2014 and assume management of
the company to continue its operations. Our goal is to expand our business into
the non-steel field by entering into the production of deoxidizing aluminum.

Recycled aluminum

Establishment of Hanwa Foods Co., Ltd.
The Company established a subsidiary of Hanwa Foods Co., Ltd., which will
operate as a food wholesaler, especially for seafood products, focused onJapan’s domestic seafood market. Hanwa Foods will seek to strengthen andexpand the sales network and domestic market share of the Company’s Food
Products Division.

Staffs of Hanwa Foods Co., Ltd.

| HANWA AR 2013 | 13

Corporate Governance
Basic corporate governance policy
We aim to fulfill our social responsibilities as a good corporate
citizen so that we can gain and retain the respect fromstakeholders and be recognized as a valuable enterprise. We workto establish a high degree of transparency in management systems
to ensure full legal and regulatory compliance and respect forsocial norms. In addition to participating in many corporate social
responsibility (CSR) activities, we have established a CSR
Committee and use a commitment to CSR management to makeour corporate brand even more respected.

Corporate governance structures
We have adopted a corporate auditors’ system, under which weare focusing efforts to improve our corporate governance system
to achieve efficient and sound business management. Our Boardof Directors, which comprises 17 directors, including two outside
directors, meets as a rule once a month to deliberate and decide
important business plans and proposals concerning the Hanwa
Group, and to oversee business operation. There are five auditors
in total, including three outside auditors. Each auditor follows
auditing policies and auditing plans in carrying out stringent audits.
Moreover, the corporate auditors attend the Board of Directors, theManagement Committee and other important meetings, monitor
and verify the execution of the management.
In addition, aiming both to build a system to execute thebusiness operations carefully and to promote sped up andstreamlined decision-making, we have introduced an executive
officer system since April 2012. We have also adopted a system toperform preliminary review of management issues in various

committees such as the Officers Evaluation Committee, theInvestment Examination Committee, and the Compliance
Committee. By enhancing these management systems, ourcorporate governance system will be established to good purpose.
￼Internal control and risk management system
We have resolved on basic policies regarding the development ofinternal control systems at our Board of Directors’ meetings andare currently developing internal control systems, including theestablishment of frameworks for risk management and taking theconditions of internal audit into consideration.
The overview of the basic policies is as follows.
● Systems to ensure that performance of duties by the

directors and employees complies with laws andregulations and the articles of incorporation• Hanwa has established standards for corporate ethics and ethicalbehavior in accordance with the Company’s creed. The
Compliance Committee, chaired by Hanwa’s president,
distributes a compliance manual to all Hanwa executives andemployees as well as verifies that compliance programs are being
used effectively. In addition, we take determined action against
anti-social influences and block all contact with such entities.
• Hanwa has established a consultation service (using theCompliance Committee and external attorneys) where all
Hanwa Group executives and employees can obtain advice
concerning compliance matters, providing a means of
directly reporting compliance problems.

The corporate governance structures and internal control systems for the Hanwa Group.
General Shareholders’ Meeting
election/dismissal

Board of Directors
Board of Chairman: Chairman
election/supervison

election/dismissal

oversight/audit

coordination

Board of Auditors

Independent Auditors

cooperation

oversight/audit

Disclosure Committee
examination/report

Operational organization
Officers Evaluation Committee
examination/report

Catch All Controls Committee

Management Committee

Investment Examination Committee
examination/
administration/reportmanagement/guidance

Affiliatedcompanies

14 | HANWA AR 2013 |Administrative
divisionsguidance

adviceInternal Audit Department
Overseas Audit Office
Document Control Office
External Attorneys
Group Company Corporate
Auditors Conference

cooperation

Operating bases(Japan/overseas)Internal Control Committee
adviceevaluation/oversightinternal audit

Operatingdivisionscooperation

examination/report

Executive officers

Compliance Committee

accounting audit/internal control audit

President

● Systems to store and control information related toduties performed by the directors• Information related to duties performed by the directors is
properly stored in written document or electronically, and theserecords are stored and managed in accordance with laws,
regulations and Hanwa’s regulations for document management.
● Regulations and systems related to management ofrisk of loss
• Directors, executive officers, corporate officers and department
managers work with the Legal & Credit Department tomanage and reduce risks associated with business activities. In
addition, there is the Investment Examination Committee,
which manages investment risks by studying proposals for
new business ventures and new investments.
• Each business department cooperates with the General Affairs
Department, the Information Systems Department, the Legal &Credit Department, Administrative Affairs Office and otherunits concerning compliance, environmental management,
emergency responses, information security, trade management
and other matters. These risks are managed in accordancewith internal rules, manuals and other guidelines. The
Compliance Committee, the Catch All Controls Committee
and other applicable committees assist the departments byproviding advice and educational support. Advice fromexternal attorneys and other experts is used as required.
• To verify the effectiveness of risk management, the Internal Audit
Department and the Overseas Administrative Department
monitor all Hanwa business sites and group companies based ona pre-determined auditing plan, and their reports are submitted
mainly to the Management Committee and the president.
• The Disclosure Committee reaches decisions concerning theimportance and suitability of information to be disclosed toensure that information is released to the public in a fair,timely and appropriate manner.
● Systems to ensure efficient execution of directors’ duties• As a rule, the directors meet once each month to reachdecisions concerning important group management mattersand to supervise the execution of business operations. As arule, the Management Committee meets twice each month.
The members of this committee discuss important mattersconcerning management and reach decisions. They also
submit issues to the Board of Directors that concern importantmatters involving the Group’s management.
• The Officers Evaluation Committee chaired by the president
meets twice each year to perform a comprehensive
evaluation of the directors’ performance. This includes anassessment of the commitments and performance of eachdirector and a mutual evaluation process for all directors. The
results are used to determine directors’ compensation andfor the selection of directors.
● Systems to ensure proper operations in the corporategroup• Hanwa has established regulations for the oversight ofaffiliated companies. Based on the regulations, each businessdepartment in charge is responsible for support andmanagement activities concerning affiliated companies toensure efficient management of operations.

• Compliance, risk management and other systems apply tooperations across the entire Hanwa Group. Committees andother supervisory units provide guidance and education
concerning the use of these systems.
• The Group Company Corporate Auditors Conference holds
meetings as necessary. The meetings provide for exchanges of
information involving audits of Hanwa and affiliatedcompanies to provide for the sharing of information.
● Systems relating to employees assigned to assist thecorporate auditors, and the independence of such
employees from the directors• There are a few employees assigned to assist the corporate
auditors. In addition, these employees receive no orders or
instructions from the directors or anyone else concerning thedirectives and orders received from the corporate auditors.
● Systems for the directors and employees to report to thecorporate auditors and systems otherwise pertaining toreporting to corporate auditors• In addition to submitting reports on important items
concerning compliance, the directors submit reports to thecorporate auditors on the execution of business operations
and important decisions.
• The directors, executive officers and employees must quickly
and accurately respond to requests for reports by the
corporate auditors.
• The Internal Audit Department and Overseas Audit Officesubmits reports as required to the corporate auditors
concerning internal audits.
● Other systems to ensure effective auditing by the

corporate auditors• The corporate auditors announce opinions at meetings of theBoard of Directors as necessary. In addition, the corporate
auditors collaborate with the independent auditor concerning
the financial audit.
• Hanwa has a system that allows the corporate auditors toattend meetings of the Board of Directors and otherimportant meetings, inspect important documents, performstudies of important departments and subsidiaries, andperform other tasks.
● Systems to ensure the reliability of financial reports• In accordance with the Fundamental Policy concerning Internal
Controls for Financial Reports, the Hanwa Group operates theinternal controls reporting system in an efficient and effective
manner. The Internal Control Office supervised directly by theManagement Committee checks and evaluates theestablishment and operation of internal controls and submits
reports to the Management Committee.
• The Internal Control Committee studies issues involving
internal controls and submits reports on the results of thesestudies to the Management Committee. In addition, theInternal Control Committee provides advice and assistance forthe examinations performed by the Internal Control Office anddescribes its opinions in an Internal Control Report.

| HANWA AR 2013 | 15

CSR Activities

Hanwa’s Basic Policy on Corporate Social Responsibility (CSR)
Hanwa’s corporate social responsibility (CSR) consists ofsix basic policies that Hanwa considers an integral part ofmanagement: (1) thorough legal compliance; (2) environmental considerations; (3) good corporate citizenship;(4) transparent management and proactive disclosure; (5)maintenance of financial soundness; and (6) workplaces
geared to employee self-realization.
To promote CSR management, the CSR Committee,
chaired by President Hironari Furukawa, incorporates

organizations including the Compliance Committee,
Environmental Committee, and the Hanwa ScholarshipFoundation and engages in organized operation.
Domestic and overseas companies face increasing
demand worldwide in terms of the globalization of
economic activities and sustainable development. Hanwa willcontinue working to develop as a company within global
society with a focus on the ISO 26000 international standard.

Positioning of the CSR Committee
Board of Directors
IR and PR activities

Management Committee
Hanwa Scholarship
Program

CSR Committee
Donations●Environmental Committee Secretariat●Security Trade Control Committee●Compliance Committee

Support of students
from overseas●Office SOS Consultation Committee

NPO & NGO

Activities to enhance employees’ awareness of CSR

ComplianceHanwa has in place a Compliance Committee that promotes
compliance with the Company’s ethical principles and corporate
ethical standards. The committee has drawn up a compliancemanual for employee behavior, and has distributed the booklet toall officers and employees as part of its CSR efforts. Fully
understanding the significance of compliance, Hanwa strives topractice CSR as a corporation by being both socially responsible
and complying fully with all legal requirements.
The Company promotes openness and visibility to prevent
any occurrence of misconduct.

Corporate Ethical Standards
1. Compliance with laws and social norms
2. Fair business activities
3. Contribution to industrial society
4. Proactive information disclosure
5. Concern for the environment
6. Global harmony
7. Ensuring a free and open workplace environment
8. Promoting good corporate citizenship throughactive social contribution activities
9. Ensuring people’s familiarity with ethical standards
and developing the in-house compliance program
10. Preventing the recurrence of misconduct andproviding appropriate information disclosure

Compliance manual distributed to all officers and employees
16 | HANWA AR 2013 |Measures for Crisis Management
swiftly ensure their continued safety and provide assistanceas necessary.
Using the information gained from these experiences,
Hanwa will continue to conduct complete reviews of its disasterprevention practices and maintain management of emergency
equipment, implementation of a satellite phone service,
distribution of high-capacity storage batteries, use of measuresdesigned to prevent office equipment from tipping over, andmanagement of stockpiled disaster relief supplies. In addition,
the Tokyo Head Office is working to increase its stockpile ofdisaster relief supplies in accordance with the disaster prevention
policy released by the Tokyo metropolitan government.

The Company has simulated major potential risks that might
threaten the safety of our employees and their families, as wellas the Company’s assets or the ability to continue business
operations. We have established the necessary measures tominimize the damage in case such risks arise, including means
to continue and restart the core business while ensuring thesafety of employees and their families as a priority.
When the Great East Japan Earthquake took place inMarch 2011, Hanwa established an emergency response
headquarters immediately and began checking on the safetyof employees using the Mobile i-Call service*, sending
emergency supplies to stricken areas, and conducting otheractivities to assist with relief efforts in accordance with the
Hanwa Disaster Prevention Manual in use at the time. In May
2011, we issued the Risk Management Manual applicable for
Hanwa Co., Ltd. and its affiliates. As for overseas efforts,
when flooding occurred in Thailand in 2011, Hanwa remainedin close contact with employees in the affected area to

Formulation of the Pandemic Influenza Prevention Manual
In order to prepare for the spread of Pandemic Influenza viruses inJapan and other countries, the Company is working on establishinga Business Continuity Plan (BCP) to secure the officers’ andemployees’ safety, and to minimize any expected damage.

Diverse Work Style and Promote Diversity
Helping Employees Balance Work and Family
As part of our efforts to help employees balance family andwork more easily, we have introduced a child care system andshorter working hours for employees with small children, bothof which are more generous than those required underJapanese law. In September 2010, a male employee took childcare leave for the first time in Hanwa’s history. We also actively
assist those who return to work after child care leave.

The Diversity Promotion Office is responsible for taking measuresrelated to diversity. We define diversity as an environment inwhich individual employees acknowledge various backgrounds
and points of view, and in which a variety of work styles can be
pursued. We consider diversity as a business challenge in which
all employees should play their part. We have introduced amentor scheme especially for female employees in general positions with a chance of promotion and for new non-Japaneseemployees. An employee in a different section with a longer
work experience at the Company is assigned as a mentor toprovide intellectual and psychological support, to create a betterworking environment.

Employment of the Handicapped
In staffing handicapped employees, we take care that they are
assigned to a section where they can perform to the best of
their abilities. As of March 2013, handicapped employees
accounted for 1.87% of the employee total.

Social Contribution
Hanwa Scholarship Program
The Hanwa Scholarship Foundation was established in 1957
as part of activities to commemorate the 10th anniversary of
Hanwa’s establishment, and marked its 56th anniversary. Jiro
Kita, the first president of Hanwa, decided to establish thefoundation based on the philosophy of “contributing tosociety based on an awareness of a company’s social
responsibilities.” The foundation began with a contributionof ¥10 million, at a time when Hanwa’s own capital was¥100 million. As of 2012, the program had distributed a totalof ¥666 million in scholarships, and the accumulated numberof scholarship students had grown to 999.
The Hanwa Scholarship Program looks forward to using
political, economic and cultural insight to assist a growing numberof outstanding students around the world to realize their goals as
globalization continues to advance in the 21st century.

Accumulated number of scholarship students(Persons)

High school

1,000

University

Graduate school
68

69

71

72

72

75

75

66

800

66
62
56

600
52
49

400

422

18

200

0

7

28

604

662

479

318

3
181

41
4

548

773
728 748 757 765
712 721

96
64

87

98

115 130 144 151 151 151 151 151 151 151 151 151

1957 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2007 2008 2009 2010 2011 2012 Year
(1) (5) (10) (15) (20) (25) (30) (35) (40) (45) (50) (51) (52) (53) (54) (55) (56) (Times)| HANWA AR 2013 | 17

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial
SectionFive-Year Summary
For the years ended March 31

				
				

		

2013

Millions of yen, 			
except for number of employees
		

2012

2011

2010

Thousands of
U.S. dollars

2013

2009

For the year:
Net sales				¥ 1,511,325 ¥ 1,564,251 ¥ 1,396,103 ¥ 1,116,629¥ 1,539,282 $16,069,378

Operating income 			14,977
12,491

13,854

11,42017,451

132,812Net income 			
4,633
4,721

5,794

11,5795,997

50,197

Comprehensive income 		
6,600

6,214

6,104

14,537—70,175

Net cash provided by (used in) operating activities 			
11,97019,381(46,949)

46,250(5,742)206,071(7,611)(12,009) 		

(12,992)(19,536)(54,301)

51,272(43,669)

46,592(173,993)

35,046 $246,656

Net cash used in investing activities		
(5,107)
Net cash provided by (used in) financing activities		
(16,364)

1,596

At year-end:
Cash and cash equivalents 		
¥23,198 ¥23,411

Total assets		
552,908

582,405

532,798

443,445479,379

5,878,873

Total net assets 		
120,674

115,957

110,459

106,855

94,913

1,283,083

Number of employees (persons) 			
2,201
2,208

2,060

1,952

1,818

¥

				
				

		

2013

2012

20,586¥

24,515

Yen

¥

		

2011

2010

U.S. dollars

2013

2009

Per share data:
$

0.242

Net income 			22.35 ¥¥
22.78 ¥

27.95

Cash dividends 			
12.00
12.00

12.00

12.00

12.00

0.128

Net assets 			
548.22570.50529.65512.16450.05

6.066

				

		

2013

2012

¥

55.46

%

¥

28.47

		

2011

2010

2009

Key financial ratios:
1.2
0.8
0.8
Return on assets (ROA)				

2.5

1.2

4.1
4.1
Return on equity (ROE)			

5.4

11.6

6.2

190
180
Net debt/equity ratio 			

200

140

190

Notes: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥94.05=$1.00.
2. Net debt/equity ratio = Net interest-bearing debt/equity.
Net interest-bearing debt = Interest-bearing debt – cash.
3. Effective from the year ended March 31, 2011, the Companies adopted “Accounting Standard for Presentation of Comprehensive income” (ASBJ Statement No. 25 issued onJune 30, 2010). As a result of the adoption of these standards, the Company has presented comprehensive income for the years ended March 31, 2013, 2012, 2011 and 2010.

18 | HANWA AR 2013 |Management’s Discussion and Analysis
Operating Results
Operating Results for the Fiscal Year Ended March 2013
With regard to the world economy in the fiscal year under review,
against the backdrop of a prolonged economic slowdown due tothe European debt crisis, China’s economic growth slowed reflecting
an increasing need for adjustment. In emerging nations, previously
steady economic growth came to a standstill. Given its slow
economic recovery, the U.S. economy’s ability to drive the world
economy was poor. Overall, there was a strong sense of stagnation
as the world economy constantly trended downward. The Japanese
economy also remained sluggish in terms of consumer spending
and capital investment as well as in the construction sector, where
post-earthquake reconstruction demand had been slow. In the
manufacturing industry, where business had been relatively steady,we saw a decline in the level of operations due to the end of
consumption incentives and other factors. In the export industry,
the yen’s appreciation was corrected due to an expectation ofpolicies to be introduced after the change of government at theend of 2012, but the market as a whole continued to stagnate
because of the strong yen and a decline in overseas demand, as
seen in Europe and in China after anti-Japan demonstrations.
In these circumstances, the Group posted consolidated net
sales of ¥1,511,325 million for the consolidated fiscal year ended
March 31, 2013, representing a year-on-year decrease of 3.4% due
mainly to lower sales prices in the steel business and the metals andalloys business. Operating income fell 16.6%, to ¥12,491 million,
reflecting lower prices and lower profit margins on sales. Net
income, in contrast, rose to ¥4,721 million, representing a 1.9%
increase, due mainly to a drop in valuation losses on investment
securities.
Net Sales
Net sales decreased 3.4% year on year, to ¥1,511,325 million, due
mainly to lower sales in the steel business and the metals and alloys
business. Domestic sales were down 4.5%, to ¥1,133,080 million,
while overseas sales were up 0.1%, to ¥378,245 million.
For a discussion of sales by segment, see “Review of Operations”
and “Segment Information.”

Cost of Sales, and Selling, General and Administrative (SG&A)
Expenses
Cost of sales decreased 3.4%, to ¥1,466,563 million. The declines
were due mainly to a drop in purchase prices and a decrease in loss
on valuation of inventories.
SG&A expenses increased 2.9%, to ¥32,271 million, due mainly
to a rise in retirement benefit costs, a provision of allowance for
doubtful accounts related to the liquidation of a subsidiary in thecurrent fiscal year, and an increase in depreciation and amortization.
Operating Income
Operating income for the consolidated fiscal year under review fell
16.6%, to ¥12,491 million due to a decrease in sales revenue and anincrease in SG&A expenses. The result lowered the ratio of operating
income to net sales by 0.2 percentage point from the previous
consolidated fiscal year to 0.8%.
Other Income (Expenses)
Other expenses decreased 16.8% year on year, to ¥7,015 million,
while other income decreased 29.5%, to ¥1,342 million. Net of otherincome totaled ¥6,818 million, representing a decrease of 19.3%
from the previous consolidated fiscal year.
This reflected a foreign exchange loss due to the yen’s depreciation,a loss on valuation of investment securities due to a drop in the stock
market, and a loss on impairment of long-lived assets in line with therelocation of the Osaka Head Office.
Income Taxes
Income taxes paid decreased 45.2% from the previous consolidated
fiscal year, to ¥2,034 million, reflecting a decrease in income before
income taxes and minority interests.
Net Income
Net income increased 1.9% from the previous consolidated fiscal
year, to ¥4,721 million. Accordingly, net income per share amounted
to ¥22.78, compared to ¥22.35 for the prior year.

Net Sales and Operating Income

Net Income and ROE

Total Assets and ROA(Millions of yen)

(Millions of yen)(%)

(Millions of yen)(%)

1,600,000

32,000120,000

16

600,000

4

1,200,000

24,0009,000

12450,000

3

800,000

16,0006,000

8300,000

2

400,000

8,000

3,000

4

150,000

1

0

0

0

0

0

09

10

Net Sales (left scale)

11

12

13

Operating Income (right scale)09

10

ROE (right scale)

11

12

13

0

09

10

11

12

13

ROA (right scale)| HANWA AR 2013 | 19

Sources of Capital and Cash Liquidity
Financial Condition
Total assets decreased 5.1%, to ¥552,908 million, from theprevious consolidated fiscal year, reflecting lower trade receivables
and inventories resulting from lower sales.
Liabilities decreased 7.3%, to ¥432,234 million, as a result of
lower trade payables in line with the downturn in sales and a decline
in borrowings accompanying the shrinking need for working capital,
and interest-bearing liabilities fell 2.9%, to ¥236,170 million. The
net debt/equity ratio (net interest-bearing debt as a percentage ofequity) stood at 180% as of March 31, 2013.
Net assets increased 4.1%, to ¥120,674 million. The expansion
was attributable mainly to the accumulation of retained earnings
from net income and an improvement in foreign currency translation adjustments as the result of yen depreciation. Accordingly,
the equity ratio at March 31, 2013 rose to 21.4%, from 19.5% a
year ago.
Cash FlowsNet cash provided by operating activities increased ¥7,411 million,to ¥19,381 million during the consolidated fiscal year under review.
This was mainly due to a progress in working capital recovery
caused by a decrease in trade receivables and a reduction in inventories accompanying lower operating revenue.
Net cash used in investing activities decreased ¥6,902 million,to ¥5,107 million. This was primarily attributable to a ¥8,624
million decrease in cash disbursements related to the acquisition of
tangible fixed assets and investment securities (¥6,859 million)
from the previous consolidated year.
Net cash used in financing activities amounted to ¥16,364
million, compared to net cash provided of ¥1,596 million in theprevious consolidated fiscal year. This was largely attributable to anincrease in repayment of short-term loans payable in response to adecrease in the need for working capital.
Financial Policy
The Group depends primarily on bank borrowings to meet its working
capital requirements and to fund its investing and financing activities. Yet,as part of its efforts to diversify funding sources to ensure stable liquidity
and agility in liquidity management, it may fund its activities by issuingbonds and commercial paper in the capital markets from time to time.
The Group meets its working capital requirements principally
through floating-rate long-term borrowings from banks to securestable funds, while short-term bank borrowings are used for day-to-day
funding. Overseas subsidiaries borrow from their respective local banks.
Capital investments and other long-term funding needs in Japan andabroad are, in principle, met by long-term borrowings from Japanesesources. Short-term borrowings as at March 31, 2013 stood at ¥60,600
million, mostly denominated in yen. The Group’s outstanding long-term
debt was ¥133,525 million, including the current portion of long-term
debt of ¥52,900 million.
The Group issues bonds primarily to fund working capital. As of
March 31, 2013, bonds outstanding consisted of straight bonds
amounting to ¥30,050 million. To increase its flexibility to issue bonds in atimely manner to take advantage of or to meet changing market environments and internal financial requirements, the Company has filed for shelfregistration. As of March 31, 2013, the unused aggregate principal
amount of the shelf registration for straight bonds for subscription in
Japan amounted to ¥10,000 million.
Advocating overall corporate value improvement and sustainablegrowth, the Group attempts to conduct efficient management tosecure funds needed for business growth and maintain a healthyfinancial balance.

Business and Other Risks
Changes in the Macroeconomic Environment
Hanwa Group’s worldwide operating revenue is subject to macroeconomic conditions of the countries and regions where it sells its
products. An economic slowdown in any of the primary markets,
including Japan, North America, Europe and Asia (especially East Asiawith China being the key market) with an accompanying decrease indemand could have an adverse impact on the Group’s businessperformance and financial condition.
Total Net Assets andEquity Ratio

Commodity Price Fluctuations
The Group holds inventories for distribution that include steel products,
metals and alloys, non-ferrous metals, foods, and petroleum/chemical
products. These are commodities whose prices are highly susceptible tofluctuations in supply and demand and movements in foreignexchange. The Group’s business performance and financial position
could be adversely affected, in the event of the Group’s inability torespond adequately to price fluctuations of such commodities.

Interest-Bearing Debt andNet Debt/Equity Ratio

BPS and EPS(Millions of yen)(%)

(Millions of yen)

(%)

(Yen)

(Yen)

125,00030

250,000

250

500

60

100,000

24

200,000

200

400

48

75,00018

150,000

150

300

36

50,00012

100,000

100

200

24

25,000

6

50,000

50

100

12

0

0

0

0

0

09

10

11

Equity Ratio (right scale)

20 | HANWA AR 2013 |

12

13

09

10

11

12

Net Debt/Equity Ratio (right scale)

13

0

09
BPS (left scale)

10

11

12

EPS (right scale)13

Foreign Exchange Fluctuations
The Group is engaged in worldwide procurement and sales of goods.
Foreign currency-denominated profits or loss, costs, assets, liabilities
and other accounting records associated with areas outside Japanare translated into Japanese yen amounts in the preparation offinancial statements. While the amounts reported in original currencies
remain unchanged, the post-translation amounts are subject to theconversion rate applied to them. Generally speaking, a stronger yen
relative to other currencies (especially against U.S. dollars, which
account for a substantial portion of the Group’s sales) adversely
affects the Group’s export transactions, while it favorably affects theGroup’s import transactions.
Interest Rate Fluctuations
The Group funds its operating, investing and financing activities byborrowing from financial institutions and by tapping into the bondand other capital markets. To hedge against interest rate fluctuations, the Group may execute interest rate swaps to cover certain
funds subject to floating interest rates. However, the Group’s business performance and financial position may be adversely affected if
interest rates change in a direction unfavorable to the Group.
Stock Price Fluctuations
The Group holds marketable securities at home and abroad mostly ofwhich are issued by its business counterparties that are subject toprice fluctuations. Price fluctuations of the securities it holds could
impact the business performance and financial position of the Group.
Counterparty Credit Risk
The majority of trade receivables held by the Group are based onprior granting of credit limits to its business counterparties. While theGroup has put in place stringent and skillful credit management,
there is no guarantee that all such receivables can be fully recovered.
In the event of unanticipated bankruptcy or commencement of thecivil rehabilitation proceedings filed on behalf of or against a businesscounterparty, the business performance and financial condition of
the Group could be adversely affected.
Business Investment Risk
The Group makes business investments to strengthen existing businesses and to expand the scope of its business. Such investments arecarried out upon completion of prescribed approval procedures
specific to investment characteristics and monetary amounts to beinvested, including scrutiny by the investment committee. However,if the value of any company in which the Group has invested deteriorates or profits generated are less than initially anticipated, theGroup’s business performance and financial condition could be
adversely affected.
Liquidity Risk Associated with Funding Activities
The Group funds its operating, investing and financing activities byborrowing funds from financial institutions and issuing bonds andother instruments in capital markets. For funding, the Group strives
to secure cash on hand based on estimated funding requirements.
However, factors such as disruptions in financial markets, regulatorychanges affecting the financial industry in Japan or elsewhere, thedowngrading of the Group’s credit ratings or changes in financial
institutions’ lending policies could significantly affect the Group’s

funding environment. These changes could restrict the Group’s
funding activities and result in higher funding costs, thus impacting
the business performance and financial condition of the Group.
Risks Associated with Global Activities and Entry to Overseas
Markets
The Group has stepped up efforts recently to enter Chinese andother Asian markets as well as markets in the United States andEurope. The Group may face a number of risks inherent in overseas
business activities, as the following:(1) Unanticipated changes in foreign trade regulations, especially interms of laws and customs duties.
(2) Political and/or economic changes and fluctuations in international currencies unfavorable to the Group.
(3) Difficulty in recruiting and retaining human resources.
(4) The possibility of immature infrastructure exerting negative impacts
on the Group’s activity or resulting in deteriorating customer satisfaction with respect to the Group’s products and services.
(5) Changes in taxation unfavorable to corporate activity.
(6) Acts of terrorism, war and social turmoil caused by other factors.
Legal and Regulatory Risks
The Group is subject to a variety of governmental regulations
imposed by the nations where it operates, including business andinvestment approvals/licenses, export/import and sales restrictions on
grounds of national security and otherwise, customs duties andother foreign trade regulations. In addition, laws and regulations
relevant to the Group’s business activity, including those concerning
trade, antimonopoly, patent, taxation, foreign exchange control,
food safety, environment and recycling, must be fully observed. Suchregulations may not only limit the Group’s business activities but alsoentail a higher cost of doing business, as more funds may be needed
to be disbursed to ensure compliance. Therefore, the businessperformance and financial condition of the Group may be impacted
by such regulations.
Risks Associated with Natural Disasters
To prepare for natural disasters such as an earthquake or an outbreakof pandemic diseases such as influenza, the Group has formulated
crisis management manuals and business continuity plans and set inplace a system for confirming individual safety. It also administers
anti-seismic measures and conducts disaster drills. However, due tothe dispersion of the business locations and areas where employees
conduct their business, the Group may not be able to avert all thenegative consequences of a natural disaster. If damages beyond theGroup’s projected level are inflicted, the business performance andfinancial condition of the Group could be impacted.
Retirement Benefit Obligations
Retirement benefit costs and obligations are calculated based on
actuarial assumptions on discount rates and expected returns on plan
assets, among others. If actual results differ from such assumptions or
if such assumptions are revised, the effect of such difference or revision
will be subsequently accrued and recognized over a period of years on
a periodic basis, thus affecting costs and obligations to be recognizedor posted over such years. Deteriorating discount rates and poorer
returns on plan assets resulting from such changes could adversely
affect the Group’s business performance and financial position.

| HANWA AR 2013 | 21

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2013 and 2012							Thousands of						Millions of yen
U.S. dollars (Note 1)

2013
Assets				

2012

2013

Current assets:							$ 246,656¥
23,198 ¥23,411
Cash and cash equivalents (Note 3)							Receivables:						
		Trade notes and accounts (Note 3):									134,652
12,664
11,612
Unconsolidated subsidiaries and affiliates 							2,988,708
281,088289,423
			Other									Loans:										62,8395,910
4,694
Unconsolidated subsidiaries and affiliates 							

——
205			Other							
		(9,059)(852)(934)
Allowance for doubtful receivables							1,027,219
96,610110,909
Inventories (Note 6)							23,0202,165
1,197
Deferred tax assets—current (Note 10) 							154,365
14,51827,465
Other current assets (Note 7)							4,628,400
435,301
467,982
			Total current assets																	Investments and noncurrent receivables:						32,04031,085Investment securities (Notes 3, 4 and 7)						340,670

77,3747,277
5,680
Investments in and advances to unconsolidated subsidiaries and affiliates (Note 3)					
129
150Loans receivable (Note 3)						1,372267,262
25,136
22,603
Other investments and noncurrent receivables							(32,749)(3,080)(2,347)
Allowance for doubtful receivables 										653,929
61,502
57,171
Total investments and noncurrent receivables																	Property and equipment (Note 7):						314,535
29,58230,484
Land (Note 11)							342,966
32,256
31,786
Buildings and structures							194,705
18,312
16,700
Other								(266,688)(25,082)(22,583)
Accumulated depreciation							
			585,518
55,06856,387
Total property and equipment																	Other assets:							
3,190
300
235
Deferred tax assets—noncurrent (Note 10)							
7,836
737
630
Intangibles and other assets (Note 7)							
			11,026
1,037
865
Total other assets 							$ 5,878,873¥ 552,908 ¥ 582,405
			Total						
See accompanying Notes to Consolidated Financial Statements.

22 | HANWA AR 2013 |							Thousands of						Millions of yen
U.S. dollars (Note 1)

2013
Liabilities and Net Assets				

2013

2012

Current liabilities:							Short-term loans payable (Notes 3 and 8)						80,229¥60,600 ¥$644,338

116,959
Commercial paper (Notes 3 and 8)							15,00011,000669,325
Long-term debt due within one year (Notes 3 and 8)							10,21862,950Trade notes and accounts payable (Note 3):						
		14,567
Unconsolidated subsidiaries and affiliates							
4,629
1,370

1,732,398
		Other 							182,182
162,932
20,117
Accrued bonuses to employees 							
1,916
1,892
31,600
Income taxes payable							
1,666
2,972
194,014
Other current liabilities 							23,896
18,247
			

3,423,318
Total current liabilities 							319,736
321,963										Noncurrent liabilities:							1,069,910
Long-term debt due after one year (Notes 3 and 8)							136,788
100,625
2,339
Employees’ severance and retirement benefits (Note 9)							
192
22048,527
Deferred tax liabilities—noncurrent (Note 10)							
4,986
4,564
51,696
Other noncurrent liabilities 							
4,746
4,862
			

1,172,472
Total noncurrent liabilities 							146,712110,271										Contingent liabilities (Note 12)																Net assets (Note 11)							Shareholders’ equity:							Common stock 						
		Authorized: 570,000,000 shares 						

		485,391
Issued: 211,663,200 shares 							45,65145,65153
Capital surplus							55774,779
Retained earnings							69,97972,868(15,258)
Treasury stock, at cost: 4,421,912 shares in 2013 and 4,394,847 shares in 2012					(1,425)(1,435)
1,244,965
			Total shareholders’ equity							114,210117,089
Accumulated other comprehensive income:						28,357
Unrealized gains on securities, net of taxes							
2,085
2,667
1,276
Unrealized gains on hedging derivatives, net of taxes							
353
120
1,244
Land revaluation difference, net of taxes							
150
117(18,724)
Foreign currency translation adjustments							(3,168)(1,761)
			

12,153
Total accumulated other comprehensive income							
(580)
1,143

25,965
Minority interests							
2,327
2,442
		

1,283,083
Total net assets							115,957
120,674$ 5,878,873
		Total							¥ 552,908 ¥ 582,405| HANWA AR 2013 | 23

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income
For the years ended March 31, 2013 and 2012							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2013

2013

2012

$16,069,378
Net sales								¥ 1,511,325 ¥ 1,564,251

15,593,440
Cost of sales 							1,517,904
1,466,563
		

475,938
Gross profit 							46,34744,762

343,126
Selling, general and administrative expenses 							31,37032,271
132,812		Operating income							14,977
12,491								Other income (expenses):						14,269Interest and dividend income 							
1,177
1,342

(30,920)
Interest expense							(3,044)(2,908)725(13,185)

Loss on impairment of long-lived assets (Note 13)						—(256)(2,722)Foreign exchange gain (loss)(1,240)—Loss on sales of investment securities							(1,072)—(3,599)(13,780)

Loss on valuation of investments in capital						—(127)(1,350)Loss on valuation of investment securities(1,296)(3,987)
Loss on disposal of property and equipment (Note 14)							—(375)(8,644)
Other, net							
(719)
(813)
Income before income taxes and minority interests

72,493						
8,445
6,818

Income taxes (Note 10):						39,170Current								
1,893
3,684

(17,544)
Deferred							1,817(1,650)2,034
Income before minority interests

21,626

3,710

50,867
					
4,735
4,784

(670)
Minority interests in income of consolidated subsidiaries							
(102)
(63)

50,197
Net income							
4,633
4,721

(670)
Minority interests in income of consolidated subsidiaries							
(102)
(63)
Income before minority interests

50,867						
4,735
4,784

Other comprehensive income (Note 15):						6,188Valuation difference on available-for-sale securities, net of taxes						
1,132
582
(2,478)Deferred gains or losses on hedges, net of taxes							
246
(233)
(351)
Land revaluation difference, net of taxes							
333
(33)Foreign currency translation adjustments

1,500

(232)

15,949Total other comprehensive income

1,816

1,479

19,3086,214

70,175Comprehensive income

			
6,600

Comprehensive income attributable to:					Owners of the parent

			
6,444

6,111

68,517

Minority interests

			
156

103

1,658

							U.S. dollars						
Yen
(Note 1)
					
2013

Net income per share 				¥22.78Cash dividends per share 				12.00See accompanying Notes to Consolidated Financial Statements.

24 | HANWA AR 2013 |

2013

2012

¥

22.35
12.00

$

0.242
0.128

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2013 and 2012

					
Numbers of shares in thousands/						Millions of yen
				
2013

Number of shares of common stock
Balance at beginning of year
Balance at end of year

Thousands of
U.S. dollars (Note 1)

2013

2012

211,663
211,663

211,663
211,663

Shareholders’ equity:
Common stock
Balance at beginning of year
Balance at end of year¥¥

45,65145,651¥¥45,65145,651$$

485,391
485,391

Capital surplus
Balance at beginning of year
Balance at end of year

¥
¥

5
5

¥
¥

5
5

$
$

53
53

¥

69,979(2,073)241
4,721
72,868¥67,608(2,487)
225
4,633
69,979$744,062(22,042)
2,562
50,197774,779(1,425)(10)—(1,435)
117,089¥(1,424)(2)
1(1,425)
114,210

$

2,085
582
2,667

¥

952
1,133
2,085

$

353
(233)
120

¥

107
246
353

$

150
(33)
117

¥

(183)
333
150

$

(3,168)
1,407(1,761)
1,143¥(2,935)(233)(3,168)
(580)

$

678
1,649
2,327
115,957$

Retained earnings
Balance at beginning of year
Cash dividends paid
Increase resulting from increase in consolidated subsidiaries
Net income
Balance at end of year
Treasury stock, at cost
Balance at beginning of year
Purchases of treasury stock
Disposal of treasury stock
Balance at end of year
Total shareholders’ equity at end of year
Accumulated other comprehensive income:Unrealized gains on securities, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Unrealized gains on hedging derivatives, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Land revaluation difference, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Foreign currency translation adjustments
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Total accumulated other comprehensive income at end of year

¥
¥

¥
¥

¥
¥
¥
¥
¥
¥
¥
¥
¥

Minority interests
Balance at beginning of year¥
2,327
Net changes of items other than shareholders’ equity
115
Balance at end of year¥
2,442
Total net assets at end of year					¥ 120,674

¥

¥
¥

¥

¥

¥

¥
¥
¥
¥
¥

$

(15,152)(106)—$(15,258)$ 1,244,965

$

$

$

$
$

22,1696,188
28,3573,754(2,478)
1,276
1,595
(351)
1,244
(33,684)
14,960(18,724)
12,15324,742
1,223$
25,965$ 1,283,083

See accompanying Notes to Consolidated Financial Statements.

| HANWA AR 2013 | 25

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2013 and 2012							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2013

2012

2013

Cash flows from operating activities:						Income before income taxes and minority interests						$72,493
¥
8,445
¥
6,818
Adjustments to reconcile income before income taxes and minority interests						to net cash provided by operating activities								Depreciation					35,141
2,718
3,305
		 Loss on impairment of long-lived assets					
2,722
—
256
		 Increase (decrease) in allowance for doubtful receivables						
5,019
(467)
472
		 Interest and dividend income					(14,269)(1,177)(1,342)
		Interest expense						30,9203,044
2,908
		 Loss on sales of investment securities						
—
1,072
—
		 Loss on valuation of investment securities
13,7803,599
1,296
		 Loss on valuation of investments in capital						
1,350
—
127
		 Loss on disposal of property and equipment							
3,987
—
375
		 Decrease (increase) in trade receivables						152,972(24,719)
14,387
		 Decrease (increase) in inventories						192,387(7,522)
18,094
		 Increase (decrease) in trade notes and accounts payable						(276,087)
30,290(25,966)
		Other, net					25,029(817)
2,354
		Subtotal						245,444
14,46623,084
Cash flows during the year for:								 Interest and dividends received						14,3651,155
1,351
		Interest paid						(31,005)(2,997)(2,916)
		 Income taxes paid					(22,733)(654)(2,138)Net cash provided by operating activities					206,071
11,97019,381
Cash flows from investing activities:								 Decrease in time deposits, net						
585
141
55
		 Additions to property and equipment						(42,828)(9,064)(4,028)
		 Proceeds from sale of property and equipment						
9,824
151
924
		 Additions to investment securities						(30,101)(6,419)(2,831)		 Proceeds from sale and redemption of investment securities					26,7624,347
2,517
		 Increase in short-term loans receivable, net						(6,029)(631)(567)
		 Additions to long-term loans receivable						
(85)
(5)
(8)
		 Proceeds from long-term loans receivable						
383
57
36
		Other, net						(12,812)(586)(1,205)
Net cash used in investing activities						(54,301)(12,009)(5,107)
Cash flows from financing activities:							 Decrease in short-term loans payable, net						(280,276)(2,515)(26,360)
		 Decrease in commercial paper, net						(42,530)(3,000)(4,000)		 Proceeds from long-term debt, issuance of bonds						483,317
21,70545,456
		 Repayments of long-term debt, redemption of bonds						(307,624)(11,711)(28,932)
		 Payment of cash dividends					(22,063)(2,490)(2,075)
		 Cash dividends paid to minority interests in consolidated subsidiaries						
(436)
(48)
(41)
		Other, net						(4,381)(345)(412)
Net cash provided by (used in) financing activities						(173,993)
1,596(16,364)
Effect of exchange rate changes on cash and cash equivalents					15,184(173)
1,428
Net increase (decrease) in cash and cash equivalents						(7,039)1,384(662)
Cash and cash equivalents at beginning of year						248,921
20,58623,411
Effect of change in scope of consolidation
4,476
1,441
421
Increase in cash and cash equivalents resulting frommerger with unconsolidated subsidiaries
				
298
—
28
Cash and cash equivalents at end of year					$ 246,656¥
23,411¥ 23,198
See accompanying Notes to Consolidated Financial Statements.

26 | HANWA AR 2013 |HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of Hanwa Co.,
Ltd. (the “Company”) and its consolidated subsidiaries have been
prepared in accordance with the provisions set forth in the Financial
Instruments and Exchange Act of Japan and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements of International
Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting
records maintained in conformity with Japanese GAAP. The accompanying consolidated financial statements have been restructured andtranslated into English with some expanded descriptions from theconsolidated financial statements of the Company prepared inaccordance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Act of Japan. Some supplementary information included in the statutory Japanese language consolidated
financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers outside
Japan, using the prevailing exchange rate at March 31, 2013, whichwas ¥94.05 to U.S.$1.00. The translations should not be construed
as representations that the Japanese yen amounts have been, could
have been or could in the future be converted into U.S. dollars at thisor any other rate of exchange.

2. Significant accounting policies
Consolidation—The consolidated financial statements include theaccounts of the Company and its 17 (16 in 2012) significant subsidiaries(together, “the Companies”). The accounts of certain consolidated
subsidiaries have been included on the basis of fiscal periods that ended
three months or less prior to March 31, and significant transactions after
these year-ends were appropriately adjusted in consolidation.
Intercompany transactions and accounts have been eliminated.
Investments in unconsolidated subsidiaries and affiliates are not accounted
for by the equity method, as the application of the equity method would
not have a material effect on net income and retained earnings, or on the
consolidated financial statement as a whole.
Cash and cash equivalents—In preparing the consolidated statements of cash flows, cash on hand, readily available deposits andshort-term highly liquid investments with maturities not exceeding
three months at the time of purchase are considered to be cash andcash equivalents.
Allowance for doubtful receivables—The allowance for doubtfulreceivables is provided to cover possible losses on collection. With
respect to normal trade accounts receivable, it is stated at an amountbased on the actual rate of historical bad debts, and for certain doubtfulreceivables, the uncollectible amount is individually estimated.
Securities—The Companies classify securities as (a) securities held for
trading purposes (hereafter, “trading securities”), (b) debt securities
intended to be held to maturity (hereafter, “held-to-maturity debt
securities”), (c) equity securities issued by subsidiaries and affiliatedcompanies, and (d) all other securities that are not classified in any of
the above categories (hereafter, “available-for-sale securities”).
The Companies do not hold trading securities. Held-to-maturity
debt securities are stated at amortized cost. Equity securities issued
by subsidiaries and affiliated companies which are not consolidated
or accounted for using the equity method are stated at moving
average cost. Available-for-sale securities with available fair values
are stated at fair value. Unrealized gains and losses on these securities
are reported, net of applicable income taxes, as a separate componentof accumulated other comprehensive income. Realized gains on thesales of such securities are computed using moving average cost.
Other available-for-sale securities are stated at moving average cost.
Inventories—Inventories are stated at the lower of cost (based,principally, on a moving-average basis or a specific-identificationbasis) or net realizable value.
Property and equipment (except under lease)—Property andequipment are carried at cost. Recognized loss on impairment oflong-lived assets has been deducted from acquisition costs.
Depreciation is principally provided on the straight-line method
over the estimated useful life of the asset. Major renewals andimprovements are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred.
Software costs—The Companies include software in “Intangibles
and other assets” and depreciate it using the straight-line method
over the estimated useful life, especially 5 years for computer software
for internal use.
Bonuses—The Companies follow the Japanese practice of paying
bonuses to employees in June and December. At the balance sheet
date, bonus liabilities are estimated and accounted for on an
accrual basis.
Income taxes—Income taxes comprise corporate tax, prefecturaland municipal inhabitants taxes and enterprise tax. The Companies
recognize the tax effects of loss carryforwards and the temporary
differences between the carrying amounts of assets and liabilities for
tax and financial reporting. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected future
tax consequences of the temporary differences.
The Company and its wholly owned domestic subsidiaries fileconsolidated tax returns.
Retirement benefits—Substantially all employees of the Company
and its domestic consolidated subsidiaries are covered by qualified
funded pension plans. The amount of the retirement benefit is, ingeneral, based on length of service, base salary at the time of| HANWA AR 2013 | 27

retirement, and cause of retirement. Annual contributions, which
consist of normal cost and the amortization of prior service cost, arecharged to income.
Liabilities and expenses for severance and retirement benefits
are determined based on the amounts actuarially calculated using
certain assumptions.
Because pension assets exceeded the deduction for unrecognizedactuarial differences and unrecognized prior service cost fromprojected benefit obligation in the Company, the excess amount was
included in “Other investments and noncurrent receivables” at
March 31, 2013 and 2012.
Translation of foreign currencies—Receivables and payables
denominated in foreign currencies are translated into Japanese yen
at year-end rates.
Balance sheets of overseas consolidated subsidiaries are translated into Japanese yen at year-end rates, except for shareholders’equity accounts, which are translated at historical rates. Income
statements of overseas consolidated subsidiaries are translated ataverage rates, except for transactions with the Company, which aretranslated at rates used by the Company.
The Companies report foreign currency translation adjustmentsin accumulated other comprehensive income.
Finance leases—Finance leases that do not transfer ownership of theleased property to the lessee at the end of the lease period are
depreciated using the straight-line method over the period of the leasewith a residual value assumed to be zero. Finance lease transactions inwhich the ownership of the leased assets was not transferred to lessee
and contracted before April 1, 2008 are accounted for as operatinglease transactions.
Derivatives and hedge accounting—The Company states derivative financial instruments at fair value and recognizes changes in thefair value as gain or loss unless the derivative financial instruments
are used for hedging purposes.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company defers the recognition of gainor loss resulting from the changes in the fair value of the derivative
financial instruments until the related gain or loss on the hedged
item is recognized.
Also, if interest rate swap agreements are used as hedges andmeet certain hedging criteria, the net amount to be paid or received
under the interest rate swap agreements is added to or deductedfrom the interest on the assets or liabilities for which the swap agreement was executed.
The following summarizes hedging derivative financial instruments used by the Company and items hedged:
Hedging instruments:
		 Interest rate swap agreements
		 Commodity forwards contracts
Hedged items:
		 Interest expense on borrowings
		 Inventories and commitments

28 | HANWA AR 2013 |The Company evaluates hedge effectiveness by comparing the
cumulative changes in cash flows or changes in the fair value of thehedged items and the corresponding changes in the hedging
derivative instruments.
Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation.
Amounts per share—Computations of net income per share ofcommon stock are based on the weighted average number ofshares outstanding during each period. Diluted net income pershare is not disclosed because potentially dilutive securities are notissued. Cash dividends per share in the consolidated statements ofincome and comprehensive income are dividends applicable to therespective years including dividends to be paid after the end of theconsolidated fiscal year.
(Accounting Standards Not Yet Applied)
On May 17, 2012, the ASBJ issued ASBJ Statement No. 26,“Accounting Standard for Retirement Benefits” and ASBJ Guidance
No. 25, “Guidance on Accounting Standard for Retirement Benefits.
(Please also refer to the ASBJ homepage, which has a summary inEnglish of the accounting standard.)
1. Outline
The accounting standard and guidance for retirement benefits
were revised in view of improvements to financial reporting andinternational trends, with the focus mainly on (1) how to accountfor actuarial gains and losses and past service costs yet to berecognized as profit and loss, (2) how to determine retirement
benefit obligations and service costs and (3) how to enhance
disclosure.
2. Effective date
The accounting standard and guidance are scheduled to go into
effect on March 31, 2014. However, revisions to the determination of retirement benefit obligations and service costs arescheduled to go into effect on April 1, 2014.
3. Impact of the accounting standard and guidance’s application
The impact will be evaluated in the course of formulating theCompany’s consolidated financial statements going forward.
(Changes in accounting policies that are difficult to distinguishfrom changes in accounting estimates)
Following the revision of the Corporate Tax Law of Japan, theCompany and its domestic consolidated subsidiaries began applying
the depreciation method based on the revised Corporate Tax Law toproperty and equipment acquired since April 1, 2012. The impact on
consolidated financial statements as a result of this change wasminimal.

3. Financial instruments
At March 31, 2013 and 2012, information on financial instruments
was as follows.
(A) Qualitative information on financial instruments
Policy for financial instruments
The Group’s main business is the sales of various products, ranging
from mainly steel, metals and alloys, non-ferrous metals to foodproducts, petroleum and chemicals, lumber, and machinery. The
Group also engages in other business activities such as steel material
processing, non-ferrous metal processing and amusement park
management and operations. While the Group depends primarily onbank borrowings to procure funds necessary for these operationaltransactions as well as investing and financing activities, the Groupseeks to diversify its financing instruments to ensure stable andflexible liquidity, funding these activities by issuing bonds andcommercial paper in the capital markets in some cases. Temporary
surplus funds are managed in low-risk financial assets.
It is the Companies’ policy to use derivatives only for the purposeof reducing market risks associated with assets and liabilities.
Components of financial instruments and risks
Trade notes and accounts receivable are exposed to credit risk ofcustomers. Some of them are denominated in foreign currencies andexposed to the foreign exchange rate fluctuation risk as well.
Investment securities mainly consist of listed stocks and are exposed
to price fluctuation risk. Some of them are denominated in foreign
currencies, which accompany foreign exchange rate fluctuation risk.
Long-term loans receivable are mainly for the employees of
the Company.
Foreign currency denominated notes and accounts payable areexposed to foreign exchange rate fluctuation risk.
Short-term loans payable, commercial paper, bonds payable
and long-term loans payable are used for raising working capitaland investment funds, although they have liquidity risk related tochanges in financial market environments.
Foreign exchange future contracts and currency swap agreements
are used to hedge foreign exchange rate fluctuation risk associatedwith certain assets and liabilities denominated in foreign currencies.
Interest rate swap agreements are made use of for hedging fluctuations in future interest rates. Commodity forward contracts andcommodity swap agreements aim to hedge market risks associatedwith certain inventories and commitments.
Refer to No. 2, “Significant accounting policies — Derivatives andhedge accounting” for an explanation of the Companies’ hedging
instruments, hedged items, and evaluation of hedge effectiveness.
Risk management system for financial instruments
With regard to credit risk to which trade notes and accounts
receivable are exposed, the Company sets a credit limit amountfor each business partner and manages the outstanding balancein accordance with the “Credit administrative provisions” while
monitoring the credit status on a regular basis. Furthermore,
the Company is committed to reducing foreign exchange rate
fluctuation risk to which trade notes and accounts receivableand trade notes and accounts payable are exposed by means ofderivatives trading.

Because price fluctuation risks associated with investment securities mainly affect listed stocks of the Company’s business partners, theCompany reports the regularly assessed market values to the Boardof Directors. In regard to foreign exchange rate fluctuation risk, theCompany is committed to reducing it by means of derivatives trading.
In regard to business investments, in compliance with the“Rules for the Review and Approval of New Businesses, Loans andInvestments,” the Company decides whether or not to invest after
following the prescribed procedures. The Company continuously
monitors the financial status and trading conditions of the issuing
company and reviews its policies for the holding of stocks.
To deal with liquidity risk associated with procuring funds for
short-term loans payable, commercial paper, and long-term debt, theCompany creates a fund procurement plan based on the outlook of
the Group’s financial requirements. Taking financial market trends
into consideration as well, the Company works to diversify the funds
procurement to ensure liquidity. In addition, with regard to interest raterisk and foreign exchange rate fluctuation risk, the Company seeks to
reduce such risks through derivatives trading and other means.
The Company practices and manages trading of derivatives
related to currencies and products in compliance with the “Business
Department Operating Rules,” and each department receives theapproval of a supervising director to engage in such trading. In addition, the trading authority and trading limit are clearly stated in the“Regulations for Administrative Authority” and the bylaws.
With respect to derivatives trading related to interest rates associated with loans, the Company receives approval from a director in
charge of supervising financial affairs before engaging in such trading.
In order to reduce credit risk to which derivatives trading partners are exposed, the Company trades only with highly rated
financial institutions.
With regard to the contract balances of derivatives trading, trading
department reports it to the supervising director of each department
and to the Internal Audit Department. The Hedging Administration
Office checks the balance confirmations from the contractors. And
the Office reports them to the supervising director of each department and the internal Audit Department. At the same time, the
Accounting Department checks the balance directly with the contractors.
When be necessary, internal auditing is implemented by the Internal
Audit Department.
Supplementary explanation for items concerning fair valuesof financial instruments
The fair value of financial instruments is based on the market price, but
in cases in which market prices are not available, the fair value is reasonably estimated. As variable factors are incorporated into the estimationof values, values may vary depending on the assumptions used.
The contract amount related to derivative transactions in Note 5,“Derivatives” does not express the market risk related to the derivative transactions themselves.
(B) Fair values of financial instruments
Book values and fair values of the financial instruments (excluding
those whose fair values were hard to determine) on the consolidatedbalance sheets at March 31, 2013 and 2012 were as follows:| HANWA AR 2013 | 29

March31, 2013
					Book value

Millions of yen 			Fair value

DifferenceBook value

Thousands of U.S. dollars
Fair value

Difference(1) Cash and cash equivalents¥ 23,198¥ 23,198¥—$ 246,656$ 246,656$—(2) Trade notes and accounts receivable
293,752 			
3,123,360 		
Allowance for doubtful receivables(788) 			(8,379) 		
			Net
292,964
292,964—
3,114,981
3,114,981—(3) Investment securities						a) Held-to-maturity debt securities
5,007
5,041
34
53,23753,599362b) Available-for-sale securities
19,941
19,941—
212,026
212,026—(4) Long-term loans receivable
129 			1,372 		Allowance for doubtful receivables
—			
—		
Net
129
129
—
1,372
1,372
—
			
Total assets¥ 341,239¥ 341,273¥
34$3,628,272$3,628,634$
362(1) Short-term loans payable¥ 60,600¥ 60,600¥—$ 644,338$ 644,338$—
11,00011,000—116,959
116,959—(2) Commercial paper(3) Long-term debt due within one year
62,95062,971(21)
669,325
669,548(223)(4) Trade notes and accounts payable
164,302164,302—
1,746,965
1,746,965—(5) Long-term debt due after one year
100,625
100,680(55)
1,069,910
1,070,494(585)
Total liabilities¥ 399,477¥ 399,553¥(76) $4,247,497$4,248,304$(808)
Derivatives:						To which hedge accounting is not applied¥(2,813) ¥(2,813)¥—$ (29,910) $ (29,910) $—To which hedge accounting is applied
270
227
(43)
2,871
2,414
(457)
Total derivatives¥(2,543) ¥(2,586)¥(43) $ (27,039) $ (27,496) $(457)

March 31, 2012					Book value

Millions of yen
Fair value

Difference(1) Cash and cash equivalents¥ 23,411¥ 23,411¥—(2) Trade notes and accounts receivable
301,035		
Allowance for doubtful receivables(835)						Net300,200
300,200—(3) Investment securities						a) Held-to-maturity debt securities
5,008
5,063
55
b) Available-for-sale securities
19,702
19,702—(4) Long-term loans receivable
150			
Allowance for doubtful receivables
—			
			
Net
150
150
—
Total assets¥ 348,471¥ 348,526¥
55(1) Short-term loans payable¥ 80,229¥ 80,229¥—(2) Commercial paper
15,00015,000—(3) Long-term debt due within one year
10,218
10,218—(4) Trade notes and accounts payable
186,811
186,811—(5) Long-term debt due after one year
136,788
136,818(30)
Total liabilities¥ 429,046¥ 429,076¥(30)
Derivatives:						To which hedge accounting is not applied¥(792) ¥
(792)¥—
To which hedge accounting is applied
591
518
(73)
Total derivatives
¥
(201)
¥
(274)
¥
(73)

Allowance for doubtful receivables recognized in trade notes and accounts receivable and long-term loans receivable was offset.
Derivative assets and liabilities were on net basis.

30 | HANWA AR 2013 |Basis of determining the fair value of financial instruments is asfollows:
Cash and cash equivalents, Trade notes and accounts
receivable
The book values of cash and cash equivalents and trade notes
and accounts receivable approximate fair value due to their shortmaturities.
Investment securities
The fair value of securities is based on the quoted market price on thestock exchange. The fair value of bonds is based on the quoted priceprovided by financial institutions.
Long-term loans receivable
The book value of long-term loans receivable approximates fair value
due to their floating interest rates.

Short-term loans payable, Commercial paper, and Trade notes
and accounts payable
The book values of short-term loans payable, commercial paper andtrade notes and accounts payable approximate fair value due to theirshort maturities.
Long-term debt
The book value of long-term loans payable with floating interest rates
approximates fair value. The fair value of long-term loans payable
with fixed interest rates is estimated by discounted cash flow analysis,using rates currently available for similar types of borrowings withsimilar terms and remaining maturities. The fair value of straightbonds is based on the quoted price provided mainly by Japan Securities
Dealers Association.
Derivatives
The fair value of derivatives is based on the quoted price provided
mainly by financial institutions and exchange members.

The following tables summarize book values of financial instruments whose fair values were hard to determine as of March 31, 2013 and2012:							Thousands of					Millions of yen
U.S. dollars
					
2013

			
(a) Equity securities issued by unconsolidated subsidiaries and affiliated companies				Book value

¥

7,277

2012

2013

Book value

Book value

¥

5,680

$

77,374(b) Available-for-sale securities:							Unlisted stocks				
¥
3,300
¥
3,138
$ 35,088
Unlisted foreign stocks				
1,711
1,394
18,192Unlisted foreign convertible bond				
2,017
1,763
21,446
Investment in limited partnerships				
64
80
681
Total				
¥
7,092
¥
6,375
$ 75,407

The maturities of receivables and securities with maturities outstanding at March 31, 2013 were as follows:			Year ending March 31

		Millions of yen																2014

Cash and cash equivalents		
Trade notes and accounts receivable		
Held-to-maturity debt securities		Available-for-sale securities with maturity dates		Long-term loans receivable		Total						¥23,198
293,752——31¥ 316,981

From 2015 		
to 2018		

¥

¥

		

$ 246,656
3,123,360——
330$3,370,346

¥

¥

—
—
3,007
—
23
3,030

Thereafter		

¥

¥

—
—
—
—
18
18

Thousands of U.S. dollars																2014

Cash and cash equivalents		
Trade notes and accounts receivable		
Held-to-maturity debt securities		Available-for-sale securities with maturity dates		Long-term loans receivable		Total			

—
—
2,000
2,017
88
4,105

From 2019		
to 2023		

From 2015 		
to 2018		

$——
21,26521,446936$ 43,647

From 2019		
to 2023		

$

$

—
—
31,972—245
32,217

Thereafter		

$

$

—
—
—
—
191
191

| HANWA AR 2013 | 31

4. Securities(A) The following table summarizes book values and fair values of held-to-maturity debt securities as of March 31, 2013 and 2012:
March 31, 2013

					

Millions of yen 			Book value

Corporate bonds with fair values exceeding book values:
Corporate bonds¥
Corporate bonds with fair values not exceeding book values:
Corporate bonds¥

Fair value

Difference

3,050

¥

43

$

31,972$32,429

$

457

2,000

¥

1,991

¥

(9)

$

21,265$

21,170$(95)

Millions of yen

Book value¥

Fair value¥

March 31, 2012

Corporate bonds

Thousands of U.S. dollars

Book value

3,007

			
		

Difference

Fair value

5,008

¥

5,063

Difference¥55(B) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available market
values as of March 31, 2013 and 2012:
March 31, 2013

					

Millions of yen 			Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
Securities with book values not exceeding acquisition costs:
Equity securities¥

Thousands of U.S. dollars

Acquisition cost

Book value

Difference¥

11,636

¥

6,729

$

52,174$

123,722$

71,548

10,968

¥

8,305

¥

(2,663)$ 116,619$

88,304$(28,315)

			Millions of yen

Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
Securities with book values not exceeding acquisition costs:
Equity securities¥

Difference

4,907

March 31, 2012		Book value

Book value

Difference

6,218

¥

12,457¥

6,239

10,076

¥

7,245

¥

(2,831)(C)	The loss resulting from the valuation of the listed securities in the year ended March 31, 2013 was ¥798 million ($8,485 thousand).

5. Derivatives(A) The following tables summarize fair value information as of March 31, 2013 and 2012 for the derivatives to which hedge accounting
has not been applied:
March 31, 2013
Currency related

			
				
				

Contract ornotional amountMillions of yen 			Thousands of U.S. dollars
Due after		Net recognized
one year
Fair value
gain or loss

Contract ornotional amountDue after		
one year
Fair value

Net recognizedgain or loss

Foreign exchange forward contracts:
Selling						U.S. dollars				 ¥ 34,964 ¥— ¥ (1,258) ¥ (1,258) $ 371,760 $— $ (13,376) $ (13,376)
		Other currencies
		
415
—
(3)
(3)
4,413
—
(32)
(32)
Buying					U.S. dollars		
		
9,503
329
131
131
101,042
3,498
1,393
1,393
		Other currencies
		
5,069
—
(8)
(8)
53,897—(85)(85)
Currency swap agreements:
Japanese yen received for U.S. dollars		
8,752—(1,610)(1,610)93,057—(17,119)(17,119)		Total 							¥ (2,748) 				 $ (29,219)

32 | HANWA AR 2013 |Commodity related

			
				
				

Contract ornotional amountMillions of yen 			Thousands of U.S. dollars
Due after		Net recognized
one year
Fair value
gain or loss

Contract ornotional amountDue after		
one year
Fair value

Net recognizedgain or loss

Forwards:
Petroleum						Selling				 ¥5,294 ¥— ¥(59) ¥(59) $
56,289 $— $(627) $
(627)
		Buying
			
3,061
—
7
7
32,547—
74
74
Non-ferrous metals					Selling				
22,694—259
259
241,297
—
2,754
2,754
		Buying
			11,649
—
(276)
(276)
123,860—(2,935)(2,935)
Commodity swap agreements:
Petroleum
		
217
—
(2)
(2)
2,307
—
(21)
(21)
		Selling				Buying
			
1,478
—
6
6
15,715—64
64
		Total 							¥(65) 				 $(691)March 31, 2012
Currency
related							Contract ornotional amountMillions of yen

Foreign exchange forward contracts:
Selling		 U.S. dollars¥ 28,190¥(801)
		 Other currencies
3,760
(21)
Buying		 U.S. dollars
9,637
119
		 Other currencies
3,625
9
Currency swap agreements:
Japanese yen received for U.S. dollars
8,928
(127)
		 Total 			Commodity related

			
		
		

Contract ornotional amount

Net recognizedgain or loss

Fair value¥(801) 		
(21)
119
9
(127)
(821)

¥

Millions of yen
Fair value

Forwards:
Petroleum
		 Selling
¥
2,168
¥
53
		 Buying
1,618
66
Non-ferrous metals
		 Selling
8,932
(147)
		 Buying
4,526
48
Commodity swap agreements:
Petroleum
		 Selling
1,299
17		 Buying
2,021(8)
		 Total 			Net recognizedgain or loss

¥

53
66
(147)
48

¥

17
(8)
29

| HANWA AR 2013 | 33

(B) The following tables summarize fair value information as of March 31, 2013 and 2012 for the derivatives to which hedge accounting has been applied:
March 31, 2013
Interest rate related			Millions of yen 							Contract ornotional amountDue after
one yearInterest rate swap for long-term loans:
Floating rate received for fixed rate

¥

¥

5,500

Commodity related

			
		
		

Forwards for inventories and commitments:
Non-ferrous metals
		Selling		Buying

20,721
15,166

March 31, 2012
Interest rate related

			
		
		

Contract ornotional amountInterest rate swap for long-term loans:
Floating rate received for fixed rate

¥

5,000

Commodity
related							Forwards for inventories and commitments:
Non-ferrous metals
		 Selling		Buying

Due after
one year¥

22,894
14,594(43)$

58,480——Fair value

¥

803
(533)

Due after
one year

$

$

(457)

Thousands of U.S. dollars

Contract ornotional amount$ 220,319
161,255

5,316

Fair value

Due after
one year$——

Fair value

$

8,538
(5,667)

Millions of yen
Due after
one year¥

5,000

Fair value

¥

(73)

Millions of yen

Contract ornotional amount¥¥Millions of yen 			Contract ornotional amount¥500

Fair value

Thousands of U.S. dollars

Contract ornotional amountDue after
one year¥— ¥—Fair value

1,388
(797)

6. Inventories
Inventories at March 31, 2013 and 2012 consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2013

Merchandise and finished products				¥ 91,920
Work-in-process				
132
Raw materials and supplies 				4,558Total				¥ 96,610

The provisions made or reversed in the year were determined
after considering the realizable value of the inventories due to thedecline in profitability. Such provisions recognized in the profit and

34 | HANWA AR 2013 |

2012

2013

¥ 105,803
169
4,937¥ 110,909$ 977,352
1,403
48,464$1,027,219

loss were net gain of ¥242 million (gain of $2,573 thousand) and a
net loss of ¥1,050 million for the year ended March 31, 2013 and2012, respectively.

7. Pledged assets
At March 31, 2013 and 2012, assets were pledged as collateral for short-term loans payable in the amount of ¥800 million ($8,506 thousand)and ¥1,721 million, respectively, and for guaranty deposits as follows:							Thousands of					Millions of yen
U.S. dollars
					
2013

For short-term loans payable:				
Buildings and structures, net of accumulated depreciation 				
¥—Land 				—Intangibles				—Investment securities 				60Total				¥
60For guaranty deposits:				
Other current assets				¥13
Investment securities 				1,260Total				
¥
1,273

2013

2012

¥

¥
¥
¥

918
635
109
65
1,727
13
1,150
1,163

$

$
$
$

—
—
—
638
638
138
13,397
13,535

8. Short-term loans payable, commercial paper and long-term debt
The weighted average interest rates applicable to short-term loans
outstanding at March 31, 2013 and 2012 were 1.28% and 1.18%,
respectively, regardless of borrowing currencies though the range ofthe interest rates varies by borrowing currency. There was an
outstanding balance of ¥60,600 million ($644,338 thousand) and¥80,229 million at March 31, 2013 and 2012, respectively.
The Company has entered into a yen denominated domestic
commercial paper program. There was an outstanding balance of¥11,000 million ($116,959 thousand) and ¥15,000 million at March
31, 2013 and 2012, respectively.

Bonds at March 31, 2013 and 2012, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2013

Issued in 2009, 1.03% unsecured straight bonds, due 2012			Issued in 2009, 0.91% unsecured straight bonds, due 2012			Issued in 2009, 1.34% unsecured straight bonds, due 2014			
Issued in 2010, 0.79% unsecured straight bonds, due 2013			Issued in 2011, 0.56% unsecured straight bonds, due 2014			
Issued in 2012, 0.54% unsecured straight bonds, due 2015			
Total			

¥

¥

2013

2012

—
¥
20
—
15
50		
50
10,000		10,000
10,000		10,000
10,000		—
30,050¥ 20,085

$

—
—
533
106,326
106,326
106,326$ 319,511

Long-term loans payable at March 31, 2013 and 2012, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2013

Loans from banks with weighted average interest rates of 1.02% and 0.99%
at March 31, 2013 and 2012, respectively, maturing serially through 2018		
Less amounts due within one year			
				

2012

¥ 133,525¥ 126,921
52,900 		 10,183¥ 80,625¥ 116,738

2013$1,419,724
562,466$ 857,258

The interest rates represent weighted average rates regardless of borrowing currencies, though the range of the interest rates varies byborrowing currencies.

| HANWA AR 2013 | 35

The annual maturities of long-term debt outstanding at March 31, 2013 were as follows:
Years ending March 31

					Millions of yen

2014
2015
2016
2017
2018
Thereafter
Total

¥

52,90020,855
16,1208,850
34,800—¥ 133,525

Thousands of
U.S. dollars$ 562,466
221,744
171,399
94,099370,016—$1,419,724

9. Employees’ severance and retirement benefits
The liability for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2013 and2012, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2013

Projected benefit obligation				Less fair value of pension assets				
Unrecognized actuarial differences				
Unrecognized prior service costs 				Prepaid pension costs				Liability for severance and retirement benefits				¥

28,073(22,395)(10,317)
(464)
5,323
¥
220

2012

2013

27,663(21,208)(11,875)
(545)
6,157
¥
192

$ 298,490(238,118)(109,697)(4,934)56,598$2,339¥

Included in the consolidated statements of income and comprehensive income for the years ended March 31, 2013 and 2012, severance andretirement
benefits expenses comprised the following:							Thousands of					Millions of yen

					
2013

Service costs - benefits earned during the year			Interest costs on projected benefit obligation				Expected return on plan assets				Amortization of actuarial differences 				Amortization of prior service costs				Additional retirement benefits				
Severance and retirement benefit expenses				

Prior service costs and actuarial differences are amortized or recognized over a stated number of years that does not exceed the average

¥

¥

1,215
374
(631)
1,271
81
2
2,312

U.S. dollars

¥

¥

1,009
323
(641)
925
81
1
1,698

$

12,9193,977(6,709)13,514861
21$ 24,583

remaining service period of active employees expected to receive
benefits under the plan.

Assumptions used for the years ended March 31, 2013 and 2012 were as follows:						
2013

Discount rate					
1.4%Expected rate of return on plan assets					
3.0%Amortization period of prior service costs				
14 years
Amortization period of actuarial differences					14 years

36 | HANWA AR 2013 |

2013

2012

2012

1.4%
3.0%
14 years
14 years10. Income taxes
The Company is subject to a number of taxes based on income, which indicates an aggregate statutory income tax rate in Japan of approximately 38.0%
and 40.7% for the years ended March 31, 2013 and 2012, respectively.

The following table summarizes the significant differences between theaggregate statutory income tax rate and the Company’s effective tax rate forfinancial statement purposes for the year ended March 31, 2013 and 2012.

					
2013

2012

38.0%
1.1
(13.0)
(1.2)
4.9
29.8%

Statutory tax rate					Tax effect of permanent differences					Valuation allowance recognized for deferred tax assets				
Difference in tax rates for consolidated subsidiaries
				
Other
				
Effective tax rate					

40.7%
2.8
0.3
(1.0)
1.1
43.9%

The significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2013 and 2012 were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2013

Deferred tax assets:
Temporary differences resulting from the merger with consolidated subsidiaries		¥ 13,170
Loss on impairment of long-lived assets				
2,281
Loss on sale-repurchase agreements of land 				1,506Land revaluation difference, net of taxes unrealized loss				
1,460
Loss on valuation of stocks of subsidiaries and affiliates				779
Accrued bonuses to employees				719
Other				4,640Total deferred tax assets				
24,555
Valuation allowance				(19,727)
Net deferred tax assets				
4,828
Deferred tax liabilities:
Land revaluation difference, net of taxes unrealized gain				2,385Prepaid pension costs				
2,000
Other				2,542Total deferred tax liabilities				
6,927
Net deferred tax liabilities				¥ (2,099)

2013

2012

¥

¥

13,190
2,277
1,506
1,460
691
729
3,612
23,465(20,456)
3,009$ 140,032
24,25316,013
15,524
8,283
7,645
49,335
261,085(209,750)
51,335

2,351
2,306
1,906
6,563
(3,554)25,35921,26527,02873,652$ (22,317)

Deferred tax assets and deferred tax liabilities were included in the consolidated balance sheets at March 31, 2013 and 2012, respectively,
as follows:							Thousands of					Millions of yen
U.S. dollars
					
2013

Current assets: Deferred tax assets				
Other assets: Deferred tax assets				Current liabilities: Deferred tax liabilities				Noncurrent liabilities: Deferred tax liabilities 				

¥

2,165
300
—
4,564

2013

2012

¥

1,197
235
—
4,986

$

23,0203,190—
48,527| HANWA AR 2013 | 37

11. Net assets
Net assets comprise three subsections, which are shareholders’ equity,
accumulated other comprehensive income and minority interests.
Under the Japanese Corporate Law (“the Law”), in cases
where a dividend distribution of surplus is made, the smaller of anamount equal to 10% of the dividend or the excess, if any, of 25%of common stock over the total of additional paid-in capital andlegal earnings reserve must be set aside as additional paid-in
capital or legal earnings reserve. Legal earnings reserve and legal
capital surplus are included in retained earnings and additional
paid-in capital, respectively, in the accompanying consolidatedbalance sheets.
Under the Law, legal earnings reserve and additional paid-in
capital are able to eliminate or reduce a deficit by a resolution of theshareholders’ meeting.
Under the Law, all additional paid-in capital and all legal earnings reserve may be transferred to other capital surplus and retained
earnings, respectively, which are potentially available for dividends.
The maximum amount that the Company can distribute as
dividends is calculated based on the nonconsolidated financial
statements of the Company in accordance with Japanese laws
and regulations.

At the annual shareholders’ meeting held on June 27, 2013, theshareholders approved cash dividends of ¥8 per share ($0.09)
amounting to ¥1,658 million ($17,629 thousand). This appropriation has not been accrued in the consolidated financial statements
as of March 31, 2013. Such appropriations are recognized in the
period in which they are approved by the shareholders.
Land revaluation difference—Pursuant to the Law Concerning
Land Revaluation, the Company revaluated land used for businessactivities at March 31, 2002.
Unrealized gain (loss) on land revaluation is recorded as land
revaluation difference in a separate component of accumulated
other comprehensive income in the consolidated balance sheets
until realized. The amounts are shown net of applicable income tax.
The revaluation of land was determined based on a declared
land value, with certain necessary adjustments, in accordance with
Article 2, Paragraph 1 of the Enforcement Ordinance Concerning
Land Revaluation.
As of March 31, 2013, the carrying amount of the land after theabove one-time revaluation exceeded the market value by ¥1,912
million ($20,330 thousand).

12. Contingent liabilities
At March 31, 2013 and 2012, the Companies were contingently liable as follows:							Thousands of					Millions of yen
U.S. dollars
					
2013

As endorsers of export letters of credit and notes discounted			As guarantors of indebtedness				

¥

2013

2012

5,469
4,952

¥

6,058
4,065

$

58,15052,653

13. Loss on impairment of long-lived assets
Due to the relocating of the Osaka Head Office, the Companies
reduced the book value of long-lived assets that were impaired tothe memorandum values.
For the purpose of recognition and measurement, the Companies
grouped the long-lived assets based principally on the location of thebusiness entity to which the assets belonged.
As a result of this procedure, a loss on impairment of long-lived
assets of ¥256 million ($2,722 thousand) for the year ended March
31, 2013 was recognized in other expense in the consolidated statements of income and comprehensive income.

							Thousands of					Millions of yen
U.S. dollars
				
Building and			
Location
Description			
Structure
Other
Total
Total

Chuo, Osaka
Idle assets¥
252
Total			
¥
252

¥
¥

4
4

¥
¥

256
256

$
$

2,722
2,722

14. Loss on disposal of property and equipment
Year Ended March 31, 2013
Loss on disposal of property and equipment for year ended March 31, 2013 was ¥375 million ($3,987 thousand). The loss consists of estimated expense fordemolition of the former Osaka Head Office.

38 | HANWA AR 2013 |15. Other comprehensive income
Years ended March 31, 2013 and 2012
Amounts reclassified to net income in the current period that were recognized in other comprehensive income in the current or previous
periods and tax effects for each component of other comprehensive income were as follows:
			
			
					
Millions of yen
					
2013

Valuation difference on available-for-sale securities, net of taxes:				
Increase (decrease) during the year			 ¥
101Reclassification adjustments 			799
Sub-total, before tax				
900
Tax expense (benefit)				
318
Sub-total, net of tax				
582
Deferred gains or losses on hedges, net of taxes:				
Increase (decrease) during the year			(1,345)
Reclassification adjustments 			966
Sub-total, before tax				(379)
Tax expense (benefit)				
(146)
Sub-total, net of tax				(233)
Land revaluation difference, net of taxes:				
Increase (decrease) during the year			—
Reclassification adjustments 			—Sub-total, before tax				—Tax expense (benefit)				
33
Sub-total, net of tax				(33)
Foreign currency translation adjustments:
Increase (decrease) during the year			
1,500
Reclassification adjustments 			—Sub-total, before tax				
1,500
Tax expense (benefit)				
—Sub-total, net of tax				
1,500
Total other comprehensive income			 ¥1,816Thousands of
U.S. dollars
2013

2012

¥

¥

(2,448)
4,259
1,811
679
1,132

$

1,074
8,495
9,569
3,381
6,188

913
(524)
389
143
246

(14,301)
10,271(4,030)(1,552)(2,478)

—
—
—
(333)
333

—
—
—
351
(351)

(232)
—
(232)
—
(232)
1,479

15,949—15,949—15,94919,308$| HANWA AR 2013 | 39

16. Investment and rental properties
Information about fair value of investment and rental properties isdisclosed as follows:
The Company owns office buildings, logistics centers and otherproperties for rent in Tokyo and other cities.
Rental profit from these properties was ¥341 million ($3,626

thousand) and ¥324 million for the years ended March 31, 2013
and 2012, respectively, and were included in gross profit.
Book value, annual net increase and decrease amount and fairvalue, of investment and rental properties, were as follows:Year ended March 31, 2013
Millions of yen							Thousands of U.S. dollars
Book value
Balance at beginning 		
of yearNet decrease

¥

8,322

¥

660

Book value
Balance at end 		of yearFair value

Balance at beginning 		
of yearNet decrease

Balance at endof year

¥

$

$

7,662

¥

6,864

88,485$

7,018

81,467

Fair value$

72,982

Year ended March 31, 2012
Millions of yen
Book value
Balance at beginning 		
of yearNet decrease

¥

8,664

¥

342

Balance at endof year¥

8,322

Fair value

¥

7,743

Book value is net of accumulated depreciation.
Fair values of these properties are measured mainly by the Company, based on “Standard for real-estate appraisal.”

17. Segment information(A) Overview of the Reportable Segments
The Group’s reportable segments are determined on the basis that
separate financial information for such segments is available andexamined periodically by the Board of Directors, which makes decisions regarding the allocation of management resources andassesses the business performances of such segments.
The Group’s main business is buying and selling of various productswith a focus on steel, and the business department, which is divided
according to products handled or service contents, mainly carries out
business activities. For this reason, the Group consists of businesssegments with the business department as the basis. The 5 reportablesegments are “steel business,” “metal and alloy business,” “nonferrous metal business,” “food business,” and “petroleum andchemical business.”
The main products and services that fall under these reportablesegments are listed below.

40 | HANWA AR 2013 |Steel: Steel bars and shapes, steel plates and sheets, special steels,
wire products, steel pipes, and steelmaking raw materials(steel processing and storage)
Metals and alloys: Nickel, chromium, steel alloys, and solar cellrelated materials and products
Non-ferrous metals: Aluminum, copper, and zinc (recycling business)
Foods: Seafoods
Petroleum and chemicals: Petroleum products, industrial chemicals,
and chemicals
The reportable segment income figures are based on operating
income coupled with interest and dividend income, interest expense,and foreign currency translation adjustments. Intersegment transactions are presented based on the current market prices at the time ofthis report.

Information about sales, profits, assets and others by reportable segment, for the year ended March 31, 2013 was as follows:Year
ended March 31, 2013									 Metals		Steeland alloys

Net sales		Intersegment		
Total			Segment income		
Assets			
Depreciation		Interest income		Interest expense		
Increase in property
and equipment		

Millions of yen

Reportable segment¥ 701,500
16,671¥ 718,171¥
9,599¥ 289,773
2,238
209
1,769
2,389

¥
¥
¥
¥

91,8982,868
94,766320
48,920
167
102
533
35

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business¥¥¥¥

71,516
1,758
73,274686
19,305
36
1
156

¥
¥
¥
¥

83,098703
83,801
747
30,66930
0158¥ 438,111
6,169¥ 444,280¥
1,674¥ 68,870
90
135
406

45

51

29

Year
ended March 31, 2013
				
		

2,549

Total

125,202 ¥ 1,511,325
42,292
70,461
167,494 ¥ 1,581,786
1,223 ¥
14,24952,495 ¥ 510,032
676
3,237
78
525
495
3,517
708

Adjustment

Consolidated¥— ¥ 1,511,325(70,461)—¥ (70,461) ¥ 1,511,325¥ (5,378) ¥8,871¥ 42,876 ¥ 552,908
68
3,305
252
777
(609)
2,908

3,257

64

3,321

Adjustment

Consolidated

Thousands of U.S. dollars

Reportable segment

			 Metals		Steeland alloys

Net sales		 $ 7,458,799
177,257
Intersegment		
Total			$ 7,636,056
Segment income		 $ 102,063
Assets			$ 3,081,053
Depreciation		
23,7962,222
Interest income		
18,809Interest expense		
Increase in property
25,402and equipment		

¥ 1,386,123 ¥28,169¥ 1,414,292 ¥¥ 13,026 ¥¥ 457,537 ¥
2,561
447
3,022

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business$ 977,119
30,494$ 1,007,613$
3,402$ 520,149
1,776
1,085
5,667

$ 760,404
18,692$ 779,096$
7,294$ 205,263
383
11
1,659

$ 883,551
7,475$ 891,026$
7,943$ 326,092
318
0
1,680

$4,658,277
65,593$4,723,870$ 17,799$ 732,270
957
1,435
4,317

372

308

479

542

1. “Other business” represents businesses such as lumber section,
machinery section and overseas sales subsidiaries, which are notincluded in the above reportable segment.
2. Adjustments are as follows:(1) Adjustments of negative ¥5,378 million (negative $57,183
thousand) for segment income include intersegment elimination
and Group costs that have not been allocated to reportablesegments. These Group costs consist mainly of expenses ofadministrative departments.
(2) Adjustments for segment assets amounting to ¥42,876
million ($455,885 thousand) include Group assets that havenot been allocated to reportable segments. These Groupassets consist mainly of cash and cash equivalents, investment
securities and assets of administrative departments.

Total$14,738,150 $ 1,331,228 $ 16,069,378
299,511449,676
749,187$15,037,661 $ 1,780,904 $ 16,818,565$ 138,501 $13,004 $ 151,505$ 4,864,827 $ 558,161 $ 5,422,988
27,2307,188
34,418
4,753
829
5,582
32,132
5,263
37,395
27,103

7,528

34,631$— $16,069,378(749,187)—$ (749,187) $16,069,378$ (57,183) $94,322$ 455,885 $ 5,878,873
723
35,141
2,680
8,262(6,475)30,920680

35,311(3) Adjustments for depreciation and amortization amounting to¥68 million ($723 thousand) include mainly depreciation andamortization expenses of Group assets.
(4) Adjustments for interest income and interest expense amounting to¥252 million ($2,680 thousand) and negative ¥609 million (negative $6,475 thousand) include intersegment elimination, revenue
and expense that have not been allocated to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥64 million ($680 thousand)are increases in Group assets.

| HANWA AR 2013 | 41

Information about sales, profits, assets and others by reportable segment, for the year ended March 31, 2012 was as follows:Year
ended March 31, 2012									 Metals		Steeland alloys

Net sales		 ¥ 728,845
Intersegment		
16,186
Total			 ¥ 745,031
Segment income		 ¥9,350
Assets			 ¥ 309,806
Depreciation		
1,726Interest income		221Interest expense		
1,689
Increase in property
10,018and equipment		

¥ 124,135
2,145¥ 126,280¥
1,286¥ 57,253
129
82
702
338

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business¥¥¥¥

60,475
1,579
62,054852
18,286
38
1
176
27

¥
¥
¥
¥

91,051
659
91,7101,181
41,98030
1119¥ 456,877
702¥ 457,579¥
2,672¥ 72,602
96
121
466

18

118

1. “Other business” represents businesses such as lumber section,
machinery section and overseas sales subsidiaries, which are notincluded in the above reportable segments.
2. Adjustments are as follows:(1) Adjustments of negative ¥3,914 million for segment income
include intersegment elimination and Group costs that havenot been allocated to reportable segments. These Group costs
consist mainly of expenses of administrative departments.
(2) Adjustments for segment assets amounting to ¥34,759
million include Group assets that have not been allocated toreportable segments. These Group assets consist mainly ofcash and cash equivalents, investment securities and assets ofadministrative departments.
(3) Adjustments for depreciation and amortization amounting

42 | HANWA AR 2013 |Millions of yen

Reportable segment¥ 1,461,383 ¥
21,271¥ 1,482,654 ¥¥ 15,341 ¥¥ 499,927 ¥
2,019
426
3,152
10,519102,868
36,950139,818
1,689
47,719
627
72
481
589

Total

¥ 1,564,251 ¥
58,221¥ 1,622,472 ¥¥ 17,030 ¥¥ 547,646 ¥
2,646
498
3,633
11,108Adjustment

Consolidated— ¥ 1,564,251(58,221)—(58,221) ¥ 1,564,251(3,914) ¥ 13,116
34,759 ¥ 582,405
72
2,718
290
788
(589)
3,044
72

11,180to ¥72 million include mainly depreciation and amortization
expenses of Group assets.
(4) Adjustments for interest income and interest expense
amounting to ¥290 million and negative ¥589 million include
intersegment elimination, revenue and expense that have notbeen allocated to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥72 million are increases inGroup assets.

(B) Related information
Product information
Net sales information by products for the years ended March 31, 2013 and 2012 were as follows:Year ended March 31, 2013							 Metals		Steeland alloys

Net sales to external customers¥

707,044¥

101,525¥

105,131

Year ended March 31, 2013							 Metals		Steeland alloys

Net sales to external customers$ 7,517,746$ 1,079,479

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

741,143¥

131,220451,031¥

56,571$ 1,117,820$

957,183$ 4,795,651$

601,499

80,019Total$16,069,378

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

Total

¥ 1,511,325

Thousands of U.S. dollars

Year
ended March 31, 2012
				
¥

¥

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

			 Metals		Steeland alloys

Net sales to external customers

90,023¥98,009¥456,068¥

57,792

Total¥ 1,564,251

Geographic information
Net sales in different countries for the years ended March 31, 2013 and 2012 were as follows:Year ended March 31, 2013

					

Millions of yen

					
Japan

Net sales to external customers 				 ¥ 1,133,080

Asia

¥

Other

326,898¥

51,347

Year ended March 31, 2013
					

Thousands of U.S. dollars

					
Japan

Asia

Net sales to external customers 				 $12,047,634

Year
ended March 31, 2012
					

$

545,954

Total$16,069,378

Millions of yen

					
Japan

Net sales to external customers 				 ¥ 1,186,236

Other$ 3,475,790

Total¥ 1,511,325

Asia

¥

329,147

Other¥

48,868

Total¥ 1,564,251

Loss on impairment of long-lived assets in reportable segment
Year ended March 31, 2013
Loss on impairment of long-lived assets that has not been allocated to reportable segments for year ended March 31, 2013 was ¥256 million($2,722 thousand).

| HANWA AR 2013 | 43

Independent Auditor’s Report
To the Board of Directors of Hanwa Co., Ltd.:We have audited the accompanying consolidated financial statements of Hanwa Co., Ltd. and its consolidated
subsidiaries, which comprise the consolidated balance sheets as at March 31, 2013 and 2012, and theconsolidated statements of income and comprehensive income, statements of changes in net assets andstatements of cash flows for the years then ended, and a summary of significant accounting policies and otherexplanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statementsin accordance with accounting principles generally accepted in Japan, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgement, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparationand fair presentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances, while the objective of the financial statement audit is not for the purposeof expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Hanwa Co., Ltd. and its consolidated subsidiaries as at March 31, 2013 and 2012, and theirfinancial performance and cash flows for the years then ended in accordance with accounting principles
generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2013 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 describedin Note 1 to the consolidated financial statements.
￼July 31, 2013
Osaka, Japan44 | HANWA AR 2013 |Global Network
Domestic Offices
Office	Osaka	
Tokyo	
Nagoya	
Hokkaido	
TohokuHACHINOHE
Niigata
Chugoku
KyushuKITAKANTOMITO
ATSUGISHIZUOKA
OKAYAMA
OKINAWA

Address
3-6-1, Kita Kyuhoji-machi, Chuo-ku, Osaka city, Osaka 541-8585, Japan
6-18-2 Ginza, Chuo-ku, Tokyo 104-8429, JapanNHK Nagoya Broadcasting Center Bldg., 1-13-3, Higashisakura, Higashi-ku, Nagoya, Aichi 461-8614, Japan
NREG Kita-sanjo Bldg., 3-1-25, Kita-sanjo Nishi, Chuo-ku, Sapporo, Hokkaido 060-0003, Japan
Sendai Dai-ichi Seimei Tower Bldg., 4-6-1 Ichiban-cho, Aoba-ku, Sendai, Miyagi 980-0811, Japan
Kyoei Hachinohe Bancho Bldg., 9-5, Bancho, Hachinohe, Aomori 031-0031, Japan
Hokuetsu-daiichi Bldg., 1-2-25, Higashi Oodouri, Chuo-ku, Niigata 950-0087, Japan
Hiroshima-fukuromachi Bldg., 5-25, Fukuro-machi, Naka-ku, Hiroshima 730-0036, Japan
Taihaku Center Bldg., 2-19-24 Hakata-ekimae, Hakata-ku, Fukuoka 812-0011, Japan
Takasaki East Center Bldg., 14-1 Sakae-cho, Takasaki, Gunma 370-0841, Japan
Mito Minami-machi, Dai-ichi Seimei Bldg., Minami-machi, Mito, Ibaraki 310-0021, Japan
Nihonseimei Hon-Atsugi Bldg., 1-2-1, Asahi-cho, Atsugi, Kanagawa 243-0014, Japan
Mizunomori Bldg 9F, 14-1, Minami-machi, Suruga-ku, Shizuoka city, Shizuoka, 422-8067, Japan
2F Sumitomo life Insurance bldg, 2-4-6, Showa, Kurashiki, Okayama, 710-0057, Japan
Mitsui Life Insurance Naha Bldg., 2-4-16, Kume, Naha, Okinawa 900-0033, Japan

Telephone
81-6-7525-5000
81-3-3544-2171
81-52-952-8800
81-11-219-7375
81-22-227-7981
81-178-73-1170
81-25-255-1777
81-82-543-2570
81-92-471-7121
81-27-310-6390
81-29-300-0351
81-46-226-9005
81-54-654-7080
81-86-435-7122
81-98-860-9115

Fax
81-6-7525-5365
81-3-3544-2351
81-52-952-9300
81-11-219-7376
81-22-227-7969
81-178-22-2211
81-25-255-1776
81-82-543-2561
81-92-471-7060
81-27-321-0952
81-29-226-8230
81-46-227-0121
81-54-654-7082
81-86-422-5622
81-98-861-5516

Telephone

Fax

1-201-363-4500
1-206-622-2102
1-713-978-7904
1-949-955-2780
1-619-671-9247
1-604-876-1175
52-55-5525-9934
57-1-473-4758
1-671-647-0133

1-201-346-9890
1-206-622-6464
1-713-978-7790
1-949-955-2785
1-619-671-9210
1-604-876-1085
52-55-5533-2774
57-1-473-4754
1-671-647-0135

Overseas Offices
Office	Americas

Address

New York	
Parker Plaza, 12th Floor, 400 Kelby Street, Fort Lee, NJ 07024, U.S.A.
Seattle601 Union Street, Suite 626, Seattle, WA 98101, U.S.A.
Houston2925 Briarpark Drive, Suite 100, Houston, TX 77042, U.S.A.
Los Angeles	 18100 Von Karman, Suite 320, Irvine, CA 92612, U.S.A.
SAN DIEGO
8753 Kerns Street, San Diego, CA 92154, U.S.A.
Vancouver	 Suite 502, 1001 West Broadway Vancouver, B.C., V6H 4B1, Canada
MEXICO CITY Hamburgo No.206, Interior 101, Colonia. Juarez, C.P. 06600, Mexico D.F., Mexico
BogotaCalle 97, No. 21-50, Edif: La Fontana Di Tivoli Oficina: 309 Bogota, D.C. Colombia
GUAM428, Chalan Antonio Suite, 102, Tamuning, 96913, Guam

Asia
Seoul
Room 1703, Korea World Trade Center, 159-1, Samsung-Dong, Kangnam-ku, Seoul, 135-729, R.O. Korea
82-2-551-5387
BUSAN
Room 504, Industry Bldg., 578, Gwaebeop-Dong, Sasang-gu, Busan, 617-726, R.O. Korea
82-51-319-1006
Beijing	Room 1201, Beijing Fortune Bldg., 5 Dong San Huan Bei-lu, Chaoyang District, Beijing 100004, P.R. China
86-10-6590-8333
Qingdao
Crowne Plaza Qingdao, Room No.602-603, Hongkong Middle Road 76, Qingdao City, Shandong 266071, P.R. China 86-532-8-577-9990
Dalian	Senmao Bldg., 20F, 147 Zhongshan Street, Dalian City, Liaoning 116011, P.R. China
86-411-8-368-6954
Tianjin	# 1108 Block A, Kuangshi Int’l Bldg, Xiangluo Bay Business Center, New Area, Tianjin 300452, P.R. China
86-22-6566-8618
Shanghai
16F SMEG Plaza,1386 Hong Qial Road, Chang Ning District, Shanghai 200336, P.R. China
86-21-6237-5260
Chongqing Room 1711, Metropolitan Tower, 68 Zhou Rong Lu, Central District, Chongqing 400010, P.R. China
86-23-6381-1101
FuzhouRoom 2501, Lippo Tianma Plaza, No.1 Wu Yi Road, Fuzhou City, Fujian 350003, P.R. China
86-591-8-3354165
Wuhan
Room 1009, New World Center, Tower A, No. 634, Jiefang Avenue, Wuhan 430032, P.R. China
86-27-8549-7132
TAI CANG
No. 7 Guangzhou East Road, Economic Development Area, Tai Cang City, Jiangsu, P.R. China
86-512-5359-0800
JIANGXI
Jinlong Road Ganzhou Development Zone, Ganzhou City, Jiangxi 341000, P. R. China
86-797-555-8892
Guangzhou Unit 3701-3704, Profit Plaza, No. 76 Westhuangpu Road, Guangzhou City, Guangdong 510623, P.R. China
86-20-8732-0451
DONGGUAN D Block, Chashan Industrial Park, Chashan Town, Dongguan City, Guangdong 523339, P.R. China
86-769-8182-1000
Zhongshan Unit 1909-1910, 19th Floor, Bank Of China Tower, 18 Zhongshan 3rd Road, Zhongshan City, Guangdong, P.R. China 86-760-2332-0706
Hong Kong	 Suites 2301-02 & 16, 23F, Cityplaza One, 1111 King’s Road, Tai Koo Shing Island East, Hong Kong852-2545-0110
TAIPEI
Room A, 9th Floor, No. 132, Minsheng East Road Sec. 3, Taipei 10596, Taiwan
886-2-2545-7151
Kaohsiung Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan
886-7-338-5508
Bangkok
16th Floor, Unit 1602, Q.House Lumpini Bldg., 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand 66-2-343-8877
CHONBURI
700/625 Moo 4, Amata Nakorn, I.E. Tambol, Baankao, Amphur Panthong, Chonburi 20160, Thailand
66-38-21-0200
MYANMARNo. (22/24), Room (5-B), Nawaratt Condominium, Samone Street, Dagon Township, Yangon, Myanmar
95-1377-753
Kuala Lumpur Suite 8-12B-3, Level 14 (12B), Menara Olympia 8, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
60-3-2078-2311
Singapore
20 Cecil Street, #20-05/06/07, Equity Plaza, Singapore, 049705
65-6536-7822
HO CHI MINH	 Unit 4, 19th Floor, A&B Tower, 76 Le Lai Street, District 1, Ho Chi Minh City, S.R. Vietnam
84-8-3822-5715
HANoI
14th Floor, Vit Tower, 519 Kim Ma Street, Ba Dinh, Hanoi, S.R. Vietnam
84-4-2220-9155
Jakarta
Midplaza 1 Building, 16th Floor, Jl. Jend. Sudirman Kav, 10-11 Jakarta 10220, Indonesia
62-21-5785-3033
Mumbai
Unit No.208, 2nd Floor, B-Wing, Dynasty Business Park, 58, Andheri Kurla Road, Andheri (E), Mumbai 400 059, India 91-22-2826-0884
New Delhi
203, Bestech Chambers, B Block, Sushant Lok 1, Gurgaon, Haryana 122002, India
91-124-456-6100
CHENNAI
5H-1/5K-1, 5th Floor, Century Plaza, 560-562, Anna Salai, Teynampet, Chennai 600 018, India
91-44-33539100
ISTANBUL
Levent Loft Residence, Buyukdere CD, No. 201 A Blok K.4, D.76 34394 Sisli, Istanbul, Turkey
90-212-325-0046

60-3-2078-2380
65-6536-7855
84-8-3822-5725
84-4-2220-9159
62-21-5785-3045
91-22-2826-1097
91-124-456-6111
91-44-33539104
90-212-325-0051

Europe, Middle East and Africa
2nd Floor, Finland House, 56 Haymarket, London, SW1Y 4RN U.K.
WTC Tower A-11F, Strawinskylaan 1111, 1077XX, Amsterdam, The Netherlands
Wipplingerstrasse 34 Top 174, 1010 Wien, Austria
15 th Floor, Al Nema Tower, Jaber Al Mubarak St., Block No.4 Plot No.2, Sharq, Kuwait
P.O. Box 68974, Riyadh 11537, Saudi Arabia
Office No. 219, Kaki Center, P.O. Box 1224, Jeddah 21431, Saudi Arabia
Office No.1, 1st Floor, Al-Hammam Center for Trading, King Fahad Bin Abdul Aziz Road, Dammam, Saudi Arabia
Dubai Airport Free Zone, East Wing Bldg., No. 6E, B-Block, Room No. 544, P.O. Box 293873 Dubai, U.A.E.
2nd Floor, West Tower, Nelson Mandela Square, Maude Street, Sandton, Johannesburg 2196, South Africa

44-20-7839-3994
31-20575-2461
43-1-532-01-65-20
965-2-243-7263
966-1-473-5624
966-2-669-0648
966-3-8467937
971-4-609-1895
27-11-881-5611

LondonAmsterdam
ViennaKuwaitRiyadhJeddahDammamDubai
Johannesburg

44-20-7839-4448
31-20575-2460
43-1-532-01-65
965-2-243-7259
966-1-473-1563
966-2-669-0648
966-3-8411745
971-4-609-1893
27-11-881-5966

82-2-551-5575
82-51-319-1545
86-10-6590-8340
86-532-8-577-9630
86-411-8-368-6934
86-22-6566-8619
86-21-6237-5268
86-23-6381-7385
86-591-8-3345202
86-27-8578-7196
86-512-5358-8942
86-797-555-8890
86-20-8732-0402
86-769-8182-1001
86-760-2332-0696
852-2542-2544
886-2-2545-7112
886-7-338-5433
66-2-343-8878
66-38-21-0085| HANWA AR 2013 | 45

Corporate Information (As of March 31, 2013)
Corporate Data

Stock Information

Company Name

Hanwa Co., Ltd.

Fiscal Year-End

Established

April 1947

Annual Meeting of Shareholders June

Capital¥45,651 million

Independent Auditors

KPMG AZSA LLC

Number of Employees

Consolidated: 2,208

Domestic Stock Exchange
Listings

The First Section of the Tokyo
Stock Exchange

Non-consolidated: 1,158

The First Section of the Osaka
Securities Exchange

Address
Osaka Head Office

3-6-1 Kita Kyuhoji-machi, 			

Date of Record for Dividend
PayoutInterim dividend: September 30
Year-end dividend: March 31

Fax: +81-6-7525-5365

Authorized Shares

570,000,000 shares

6-18-2 Ginza, Chuo-ku, Tokyo

Shares Issued and Outstanding 211,663,200 shares

104-8429, Japan

Number of Shareholders

Chuo-ku, Osaka 541-8585, Japan
Tel: +81-6-7525-5000
Tokyo Head Office

March 31

13,073

Tel: +81-3-3544-2171
Fax: +81-3-3544-2351
Nagoya Branch Office NHK Nagoya Broadcasting Center Bldg.,
1-13-3, Higashisakura, Higashi-ku,
Nagoya, Aichi 461-8614, Japan
Tel: +81-52-952-8800
Fax: +81-52-952-9300

Board of Directors, Executive Officers and Corporate Auditors (As of June 27, 2013)
Chairman

Shuji Kita

President

Hironari Furukawa

Director, Executive Vice President

Tetsuro Akimoto

Directors, Senior Managing Executive Officers

Hideo Kawanishi

Outside Directors

Shiro Yabushita
Executive Officers

Kazuhiko Okada
Chiro Ideriha

Hiroshi Serizawa

Yasuharu Kurata

Hiroshi Ebihara

Hidemi Nagashima

Akihiko Ogasawara

Toshimi Terada

Atsuhiro Moriguchi

Hiromasa Yamamoto

Tadahiko Kaida
Naoyuki Togawa
Yasumichi Kato

Yasushi Hatanaka
Standing Auditors

Hiroaki Tsujinaka
Takatoshi Kuchiishi

46 | HANWA AR 2013 |Teruo Asai
Youichi Ejima

Yoshiaki Matsuoka
Directors, Executive Officers

Masataka Toyoda
Kozo Yamabe

Yoshifumi Nishi

Directors, Managing Executive Officers

Osamu Seki

Outside Auditors

Toshiaki Taguchi
Yasuo Naide
Hiroshige Wagatsuma

Principal Shareholders
Name of Shareholder

Number of Shares(thousands)

Percentage of Total
Issued Share (%)

14,158
9,138
7,630
6,775
5,664
5,053
4,985
3,001
2,614
2,600

6.8
4.4
3.7
3.3
2.7
2.4
2.4
1.4
1.3
1.3

Japan Trustee Services Bank, Ltd (Trust Account) ...................................................
The Master Trust Bank of Japan, Ltd (Trust Account) .............................................
Sumitomo Mitsui Banking Corporation ...................................................................
Hanwa Clients’ Stock Investment Association.........................................................
The Chase Manhattan Bank, N.A. London Secs Lending Omnibus Account ........................
Japan Trustee Services Bank, Ltd (Trust Account 9) ................................................
Hanwa Employees’ Stock Investment Association ..................................................
Nippon Steel & Sumitomo Metal Corporation .............................................................
The Dai-ichi Mutual Life Insurance Company ..........................................................
Trust & Custody Services Bank, Ltd. (Pension Trust Account) .................................
Note: The Company holds 4,421,912 shares of treasury stock, which is excluded from the major shareholders listed above.

Breakdown by Type of Shareholder
stock 2.1%
TreasuryTreasury
stock 2.1%
Japanesebrokerage
Japanesebrokerage
firms firms
1.2% 1.2%

Breakdown by Size of Holding

JapaneseJapanesefinancialfinancial
institutions
institutions
31.3% 31.3%–1,000–1,000
0.1% 0.1%

Other domestic
Other domestic
corporations
corporations
11.5% 11.5%

1,000,000–
1,000,000–
48.0% 48.0%

1,000–50,000
1,000–50,000
24.3% 24.3%

50,000–1,000,000
50,000–1,000,000
25.5% 25.5%

Individuals
Individuals
and andothers others
34.0% 34.0%

ForeignForeign
corporations
corporations
19.9% 19.9%

Stock Price Range and Trading Volume (Common Stock)
Nikkei Stock Average (closing)

Stock Price

(¥)

(¥)

800

15,000600

10,000

400

5,000

200

0

Trading
Volume(Millions of shares)

0

40
30
20
10

4
5
2011

6

7

8

9

10

11

12

1
2
2012

3

4

5

6

7

8

9

10

11

12

1
2
2013

3

0

| HANWA AR 2013 | 47

http://www.hanwa.co.jp

2013.8 Printed in Japan