P E ACEJAPAN

HA RMO N Y

ANNUAL REPORT 2003
For the year ended March 31, 2003

S UM

Corporate Profile

Since its establishment in 1947, Hanwa has contributed to the development of the Japanese
economy as a trading company handling industrial materials, such as steel — the company’s
leading product — and non-ferrous metals, food products, lumber, machinery, petroleum,chemical products, and cement. Our steel division in particular is equipped with quay andwarehouse transportation facilities as well as complete processing sites that enable us toboth handle large quantities purchased from major steel manufacturers and to cater to thespecial 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 of 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
in these fields that command the top market share. The basic strategies underlying suchsuccess are internationalization, business diversification, and value enhancement.
Hanwa’s ideal function as a trading company is to be more than just a distributor. Based on
our insight of the international market and information-gathering capabilities, we aim todevelop 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.

About the CoverContents

The Chinese character for the syllable wa
of Hanwa’s name has four meanings inJapanese: Japan, harmony, sum (as inaddition) and peace.
These key words capture the essence ofHanwa’s ideals: to trade products that meetthe needs of customers through a business
relationship with the countries of the world,
incorporating new ideas into the products tobring peace and harmony to people’s lives.

Financial Highlights ......................................................... 1
Letter to Stakeholders .................................................... 2
Review of Operations ..................................................... 4
Our Ethical Principles ...................................................... 8
Topics ................................................................................... 10
Management Discussion and Analysis ..................... 11
Five-Year Summary .......................................................... 12
Financial Section ............................................................... 13
Corporate Data ................................................................. 32
Board of Directors and Investor Information ......... 33

HANWA CO., LTD., AND CONSOLIDATED SUBSIDIARIES

Financial Highlights
For the years ended March 31, 2003 and 2002

Thousands of
U.S. dollars

Millions of yen

For the year:
Net sales
Operating income
Net income
At year-end:
Total assets
Total stockholders’ equity

2003

2002

2003

2002

¥

682,964 ¥10,257
5,907

625,614 $ 5,681,897 $ 5,204,775
6,517
85,33354,218
3,587
49,14329,842¥

281,557 ¥
52,748284,515 $ 2,342,404 $ 2,367,013
49,188438,835
409,218

Yen

U.S. dollars

2003

Per share data:
Net income
Cash dividends

¥

2002

27.91
5.00

2003

16.95 $
5.00

2002

0.232 $
0.042

0.141
0.042

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥120.20=$1.00.

Net sales

Operating income

Net income(Millions of yen)

(Millions of yen)

(Millions of yen)

689,106

682,964700,000

625,614

5,907
11,00010,283

10,2576,000

10,000

3,587

6,517

5,000

1,945

0

0

’01

’02

’03

0

’01

’02

1

’03

’01

’02

’03

Letter to Stakeholders

Dear Stakeholders,

FY2002(Result)
ROA
ROE
D/E ratio

We take pleasure in reporting that Hanwa Co., Ltd. andits consolidated subsidiaries achieved solid growth in bothsales and income for fiscal year ended March 31, 2003.
Net sales increased 9.2% from the level of the previous
fiscal year, to ¥683.0 billion. Operating income advanced
57.4%, to ¥10.3 billion, and net income after tax rose
64.7%, to ¥5.9 billion. The return on equity (ROE)
improved by 2 percentage points to 11.6%, and the debtequity ratio (D/E ratio) decreased 30 points to 240%.

1.3%
9.6%
270%

FY2003(Result)

FY2004(Target)

2.1%
11.6%
240%

2.2%
10.9%
180%

Medium- and Long-term Strategy, andManagement Issues
In January 2001, we worked out a medium-termbusiness plan that covers the three-year period fromfiscal year 2002 through 2004. It sets a number ofmanagement goals and describes the initiatives that will
be taken to achieve them.
One key objective is the resumption of dividend
payments. This was achieved in FY2002, with a dividendof ¥5 per share. Our proposition going forward will be tomaintain dividend stability.

Management Policy
Our corporate policy aim is to be regarded by all
stakeholders as a “Valued Enterprise”, and to contributeto both our local community and international society.
We dedicate ourselves to putting the customer first in
all our business dealings, and to having the
responsiveness to meet the changing needs of themarket. We aim to do this through a proposal-based
marketing style that emphasizes the value of our role astraders, enhancing value-added as products pass throughthe distribution chain, and expanding business
opportunity to create a compelling win-win relationshipwith our customers.

Strengthening the Logistics and Processing BusinessWe are working to enhance service levels for ourcustomers through an organic linking of our e-commerce
and logistics technologies. Our e-commerce site “hanwasteel.com” is a unique electronic trading system for ironand steel products that makes every user feel as if
salespeople are present immediately behind thecomputer display. The number of transactions throughthe site is increasing steadily, and we have received a very
favorable response from our customers.
We have also launched “hanwa-lumber.com”, asimilar e-commerce site to serve our lumber business. We
continue to enhance the contents of both sites and work
to further improve the convenience for our customers.
In our logistics operations, we have introduced an
automated delivery system to rationalize our operations
and raise levels of customer service. We continue torefine our distribution systems model to make theoptimum use of logistics technologies.
In the metal processing sector, we both add value toconstruction material products and are developing supply
chain management of iron and steel products. We
established a 100% owned subsidiary, Hanwa Steel
Services Ltd. in Shiga Prefecture in April 2002. The plant
was completed in April 2003 and its full-range steelsheet-processing capacity covers the demand in this area.

Dividend Policy
Returning profits to our shareholders is one of ourhighest management priorities. Our basic policy is to
distribute dividends on the basis of ROE and payout ratio,
while maintaining the funds needed to strengthen thebusiness going forward and to ensure ongoing financial
soundness.

Management Targets
To strengthen the Company’s focus on enterprise value
and the quality of the balance sheet, we have included
the debt-equity ratio (D/E ratio), an indicator of financial
stability, as a management benchmark in addition to
return on assets (ROA) and return on equity (ROE).
The results for fiscal year 2002 and 2003 and ourtarget ratios for fiscal year 2004 are as follows.

2

Boost Competitiveness in China and Southeast Asia
We will continue to focus resources actively on
establishing a solid business base in the promising
Chinese market. One aspect of this strategy was anadditional investment in Chang-Fu Stainless Steel Center(Suzhou) Co., Ltd. in October 2002, which raised our
stake from 36.1% to 58.1%.
Development of New Businesses
The Company is developing its interests in the recycling
market on the strength of its ISO14001 certification. We
are also expanding our presence in environmental fields
through our active participation in the research groupexamining environmental issues in the dismantlement ofheavy metal-tainted furnaces.
Personnel Systems to Support Enhanced
CompetitivenessTo boost our human resource development, we
introduced a new personnel system in April 2002 thatstresses transparent and fair personnel evaluation basedon individual achievement. We are also working tostrengthen the Company’s organizational structure in a
way that enables it to meet the demands of a challenging
economic environment. Among our initiatives are a clear
commitment to promote regardless of seniority and to
reward people who make effective use of specialist skills,
and the establishment of standards for action that define
how we expect all our employees to act.

Corporate GovernanceAlthough we are a profit-oriented enterprise, we are
expected to behave as a good citizen. Among otherthings, compliance with laws and regulations is theminimum requirement the “Valued Enterprise” isexpected to fulfill.
To assist in this endeavor, we established an ethics
committee in September 2002, to strengthen
compliance. We followed this in March 2003 with theimplementation of ethical guidelines and standards forcorporate ethical behavior to insure that we operate
ethically in our daily business. We have also appointed
independent corporate lawyers for a consultation service.
We shall continue to bolster our approach tocorporate governance through strengthened senior
management structures.
August 2003

Shuji Kita
President
Hanwa Co., Ltd.
北 修爾
取締役社長
阪和興業株式会社

3

Review of Operations

Steel (Domestic)

Net sales by Product (Billions of yen)
Lumber, machinery, and other¥44 (6.4%)

Petroleum and chemicals ¥116 (17.0%)

Foods

Steel bars and shapes

Net sales¥683(100.0%)¥92 (13.5%)

Non-ferrous metals¥135 (19.8%)

Steel plates and sheets ¥156 (22.8%)
Special steels,
wire products, steel pipes, andsteelmaking raw materials ¥75 (11.0%)¥65 (9.5%)

Steel related products

Year ended March 31, 2003

¥689

¥366 (53.6%)

¥683

45

44

Lumber, machinery, and other

¥626
10

9

40

11

6
Petroleum and chemicals

10

10

7

0

92
Foods
86

63

65
54

72

75
70

16

6
14

2

15

Non-ferrous metals
Special steels,
wire products, steel pipes, andsteelmaking raw materials

6

Steel plates and sheets

13

4

12

7

13

5

Steel bars and shapes

’01

’02

’03

4

Review of fiscal year 2003
There existed a lot of uncertainties in theworld economy, such as the War in Iraq,a slump in IT related industries, somecountries’ protectionism measures to put
Safe-Guard into motion against surging
steel imports, etc. On the other hand,
US’s active consumer spending in
housing and automobile sectors andChina’s strong growth in manufacturing
capability bolstered the world economy
from decline.
The overseas factors naturally
affected the Japanese domestic
industries; the automobile production
has increased, shipbuilding industries
have received more orders, and indirectexport of construction machinery andfactory automation machinery wasconsidered to have increased.
On the other hand, demand frompublic construction and civil engineering
sharply plummeted due to the slash ofgovernment and municipal budget.
Demand of private houses was poor due
to the decline of personal income. The
factory construction fell sharply becauseof the lack of equipment investment as aresult of the accelerated transplant of
their production facilities to China andother overseas countries.
In the steel market, by the effort ofproduction curtailment by the 2 major
steel mill’s group, market prices
increased by 20 to 30% higher than theprevious year.
As to the less integrated products ofElectric Furnace Mills such as steel bars,
shapes and beams, market prices also
gradually improved. The shortage andhigh cost of their raw materials gradually
pushed the prices of their products inthe market. The shortage was caused by
the export of 6 million tons steel scrap
and 3.36 million tons semi products tothe neighbor countries.
Under the circumstances, our Steel
Division, accomplished an achievement of
increased sales amount, while the volume
in terms of tonnage decreased slightly.

Steel (Overseas)
Review of fiscal year 2003
In the first half of the fiscal year, US put
the Safe-Guard in motion against
imported steel products and in thesecond half, China took the similarprotectionism action against surging steel
import. Reviewing the overall steel export
business, however, we enjoyed afavorable turn of market prices andachieved a good result in the end. Our
export to China and other South-East
Asian countries surpassed by far theprevious years’ both in volume and value.
The dollar-yen exchange wascomparatively stable; yen was evaluatedonly 2.4% than the average rate of theprevious year. We obtained more
ownership in the Chang-Fu StainlessSteel Center(Suzhou) Co., Ltd. in China
and took larger stake in its managementwith a view to improving its marketing
function and customer relationship in thepromising market.
Outlook for fiscal year 2004
We foresee the US economy may slow
down in the coming fiscal year, and thedemand of ordinary steel products in
China may ease gradually. The Japanese
steel mills will try to sustain the market
prices by the timely curtailment of theirproduction. Although there exist various
uncertain factors like SARS etc., it isexpected that the overall demand of steel
products from China will remain strong.
In the domestic market, we expect
flat market for construction machineryand shipbuilding, while we foresee slight
retraction in automobile industries and a
gradual contraction in civil engineeringand housing.

A reform and restructure willcontinue in the steel manufacturing anddistribution industries. We will continue
to impress our presence in the trade as
the leaders. We will strive to direct
ourselves to the downstream consumer
market, not limited to the whole salemarket. Internally, we will strengthen
the co-ordination between the divisionsof domestic sales, the more frequentexchange of information between
domestic and overseas divisions.
Externally, we will give our suggestions
and advise to our customers for thedevelopment of more value added
products. We will enlarge the reciprocity
of benefits with our suppliers andcustomers. We will further rationalize
our logistics and office administration
with the most advanced IT related
equipment to provide our customers thebest services.

5

Outlook for fiscal year 2004
SARS overshadowed the economy of
Asian countries, whose outlook for theireconomic growth was forced to berevised to downward. We still find noreason that demand in China will fall
immediately. However, we will remain
prudent in speculating its future market
because the sporadic inventory
curtailment started to be reported
among the stockists, and no one knows
the outcome of the provisional Safe
Guard now put in motion against some
imported steel products.
We will put more personnel andmonetary resources to Thailand andChina. We will set up new fabricationand distribution centers in these regions
when needed.

Non-ferrous Metals
Review of fiscal year 2003
The majority of raw materials for
smelting non-ferrous metal is its scrap
and wastes emitted from the
manufacturing factories of various
industries. The more the domestic
industries’ transplant of their production
facilities to the overseas countries
prevail, the less the output of raw
materials from the domestic factories
become. To cover up the decline ofbusiness, our Non-ferrous Metals
Division has cultivated new supply
sources, developed new lines of businessand created more value added products
out of our operation of recyclingaluminum-can.
We also made a great sale ofStainless steel scrap, nickel metal and its
scrap, and ferroalloys etc., thanks to theincreased demand from the integrated
mills and special steel mills. The
importing of ferroalloys from South
Africa, which started in the latter half ofthe year, expanded steadily to havegrown into one of our main businesses.
We also started the export of raw
materials for solar power generationequipment to the EU market from USA.

Food Products
Outlook for fiscal year 2004
We do not expect the sudden andfavorable turn in the internationalcommodity market in the very near
future. The supply of scrap for recycling
will continue to decrease. Under thecircumstances, we will create business ofmore value added products from ouraluminum-can recycling operation. We
expand import/export with ASEAN
countries, and coordinate international
trading between the overseas countries.
We supply more raw materials to
integrated mills and special steel mills
who will keep on producing at high levelin the coming year, too. We will increase
the export of nickel metal to China. We
will integrate our lines of business inoverseas market of the solar power
generation equipment, frompolycrystalline silicon, its wafer, to thesolar module. We will develop market
for imported ferroalloy from South Africa.

6

Review of fiscal year 2003
Market prices of Sea food, in general,bottomed out at the beginning of the
fiscal year and ticked the steady notch
toward late autumn. However, themarket suddenly collapsed due to theunprecedented severe slump of the yearend sales, especially of shrimp andsalmon.
Fortunately, we had alreadydiversified our business into the morevalue-added products which we
processed in China and finished readyfor sale in Japan. Thanks to the higher
profit margin secured in the first half ofthe year, the Division achieved aremarkable performance in turnover andprofit. Horse mackerel, shrimp andprocessed fish were the products that
contributed the upswing of both volume
and value over the previous year.
Outlook for fiscal year 2004
Amid the ongoing deflationary Japanese
economy, we do not expect the consumer spending will pick up immediately.
However, there are some brighter signs
in the sea food market. We will increase
the import from China of processed orfinished sea food such as shrimp, horsemackerel, octopus, squids. We will integrate our business targets not only to theprocessor or wholesale market but to themarket closer to the consumer.

Petroleum and Chemicals

LumberMachinery

Review of fiscal year 2003
The War in Iraq pushed up the crude oil
price and so the cost of refinery’s wholesale prices of the petroleum products.
We, likewise the other distributors, haddifficulties to pass over the increased
cost to the final consumers in full.
However, by the effort to capture newcustomers, to develop new importsources, and to make use of hedging
function in the commodity futures
market, we could achieve an excellent
result in the sales and especially in the
profit over the previous year. The
Chemicals Dept. increased export oflubricant oil and APP(Atactic
Polypropylene) and import of synthetic
resin with the Asian countries. Our Paper
Dept. exported more scrap paper to the
Asian countries and that covered up thedecrease of export business of interleaf
used for steel sheet packing.

Review of fiscal year 2003
We started holding a inventory ofimported 2x4 lumber for private housebuilders. We were successful inpenetrating the new market andexpanding the US and Canadian lumber
business, whereas many other trading
firms cut back the business. We also
increased the supply of raw materials tothe laminated board manufacturers.
Eventually, we found ourselves to havegrown into one of the leading importersof lumber in Japan. We have finished theframework for introducing our electroniccommerce trading system, “hanwalumber.com”. As a result of our prudent
credit risk control, we had no single bad
account occurred in this fiscal year. We
have achieved a very satisfactory result insales and profit, both surpassed theprevious year’s.

Review of fiscal year 2003
In the leisure sector, Tokyo Disney Landand Disney Sea successfully attracted
people. But other smaller or mediumsized theme parks have suffered a decline
in visitors and some have been forced toclose down their facilities. Every one ofthese theme parks has decreased active
investment for the new amusement rides
etc., just as they did in the previous year.
We sold and installed Flume Ride, MusicalFountain and Horror House to therenovated Tokyo Dome which re-openedin the name of La Qua in May, 2003.
In the industrial sector, Under thesagging Japanese economy, equipment
investment is still lagging with no sign ofa reversal in sight. We decided to step
into recycling business of discarded cars
in autumn, 2002. It is reported that in
December, 2004, new laws will rule out
mandatory recycling of disused vehecles.
We signed the contract with Z-Mag Co.
for the joint development of market in
Japan of their Automobile Shredder
Residue (ASR) equipment which enables
to recover more than 95% of shredder
dust for recycling or re-use.

Outlook for fiscal year 2004
We expect the crude oil price willstabilize in the coming year. We will
focus on our main customers again for
multiplying the deal. We also develop
new market. We will integrate ourbusiness to include bunker fuel oil to theships, import/export of petroleum
products, hedging deal with commodity
futures market, etc.
Our Chemicals Dept. will increase theimport of general merchandise for the
discount shops paralleling with theexport of the lubricant oil and APP and
the import of synthetic resin with Asian
countries.

Outlook for fiscal year 2004
The target entailed on the Lumber Dept.
in the coming fiscal year is to increase theimport of custom made “pre-cut”
lumber from the overseas saw mills. We
will export raw materials to Chineseboard manufacturers and buy theirfinished products into Japan. We
expedite the earlier installment of theinternet commerce system, “hanwalumber.com” and expect its great
contribution to our business. However,
we continue to be selective in providing
credit to our customers.

7

Outlook for fiscal year 2004
In the leisure sector, we will supply andinstall two attractions, Family Coasterand Kids Factory to the theme park
Laguna Gamagori as a part of theirsecond expansion which is scheduled toopen in spring, 2004.
In the industrial sector, we willcontinue our efforts to excavate markets
for environment related machinery andequipment including ASR. We will also
increase sales of steel fabrication
machinery.

Our Ethical Principles

In accordance with the policy of the company incorporated
into Corporate Creed and the “Charter of Corporate
Behavior” established by Nippon Keidanren, Hanwa Co., Ltd.
draws up, under the Corporate Policy, the Corporate EthicalStandards and the Ethical Standards of Behavior as guidelines
for employee behaviors in order to promote legal, fair andsensible corporate conducts.

Corporate Ethical Standards
Hanwa Co., Ltd. hereby draws up the following ethicalstandards as basic concept for constantly recognizing its
required social role and responsibility and establishing highcorporate ethical framework under its policy of the company.
Its all directors, officers and employees shall comply with andperform these standards in its daily business activities.

Corporate Creed

1. Compliance with regulations and social rules

Confidence

Hanwa Co., Ltd. complies with laws, regulations, internationalrules and other social rules, and promotes corporate activities
in accordance with social common sense.

Each director, officer and employee should recognize that
confidence is the foundation of company existence, observe
correct business practices and build up confidence of our
stakeholders and society through everyday business.

2. Fair corporate activities
Hanwa Co., Ltd. does business activities realizing that a fairand free competition is the basic rule of the market economy,
and maintains sound and highly transparent relationship withthe government and public administration.

Honesty
Always be aware that honesty is the basis of earning
confidence, and try to act with fair and high openness, andcomplete its own assignments with honesty and responsibility.

3. Contribution to the industry society
Hanwa Co., Ltd. develops its business activities based on both
short and long term perspectives, and contributes to thedevelopment of the industry society by active cultivation andcreation of business chances.

Originality
Originality is the basis of progress and improvements. Under
the current diversified circumstance, constantly absorb new
information, improve efficiency, and fulfill its responsibility withcourage, not being obsessed with traditional ideas.

4. Active information disclosure
Hanwa Co., Ltd. fully recognizes high interests of society incorporate activities, widely communicates with not only its
shareholders but also society, and maintains its corporatetransparency with fair and active information disclosures.

Cooperation
Always respect other person’s position with a heart ofcooperation in local communities and international societies.
Try to keep in harmony with society through decent businessconducts and make an open and vigorous work place.

5. Consideration for environment
Hanwa Co., Ltd. constantly acknowledges that considerationfor environment is a part of its social responsibilities and deals
with environmental issues from the worldwide point of view
voluntarily and actively.

Contribution
Widely contribute to society through business under soundcompany activities, and try to promote environmental
conservation as a part of its social responsibility.

6. Global harmonization
Hanwa Co., Ltd. as an international entity respects local
cultures and customs abroad, and promotes its managements
to contribute to developments of local areas.

Corporate Policy

7. Establishment of free and vigorous work
environment• Earn confidence with honesty and efforts.
• Be a specialist in the field with its vigor and guts.
• Improve efficiency with its originality and cooperation• Promote corporate business and build happy homes• Recognize its responsibility and contribute to society

Hanwa Co., Ltd. respects its employees’ individual charactersand personalities, ensures prosperous work environments,
recognizes team works as the foundation of corporate activities,
and achieves free, vigorous and creative corporate culture.

88. Promotion of active social actions as “a good
corporate entity”.

Corporate Ethical Standards of Behavior
Under the spirits of the Corporate Ethical Standards, Hanwa
Co., Ltd. hereby draws up the following ethical standards of
behavior as concrete guidelines to ensure high corporate ethics
through everyday business. Its all directors, officers andemployees shall comply with these standards in their activities.

Hanwa Co., Ltd. integrates corporate and public benefits,
widely returns its achievements gained through corporate
activities and makes social contributions voluntarily andactively in every aspect.

9. Thorough familiarization of ethical standards anddevelopment of in-house framework

1. Comply with laws, regulations, international rules, social
customs and in-house rules in accordance with the policy ofthe management, and maintain high ethics.

Hanwa Co., Ltd. thoroughly familiarizes the persons concernedwith these standards to effectively implement the rule by its
managements’ active involvement and develop its in-houseframework for more efficient and effective operations.

2. Give consideration to human rights and exclude unjust
discriminations, abuses, harassments, etc..

10. Prevention of recurrence of misconducts andappropriate information disclosure

3. Promote contribution to society and support volunteer
activities.

Hanwa Co., Ltd. always checks its effectiveness in
implementation of these standards. In the event any
misconduct against these standards happens, Hanwa Co., Ltd.
discloses relevant information, explains the circumstancepromptly and properly to society and prevent recurrence ofsuch misconducts by investigating cause of such misconducts.

4. Strengthen and maintain communication with local
communities, and cooperate with social developments.
5. Observe environmental related laws and regulations andoperate its business considering global environment.
6. Do not conduct unjust dealings such as insider deals of shares.
7. Confront resolutely antisocial forces and refrain from any
profit-offering, etc.
8. Stay away from conducts contradicting company’s profit andmaintain sound relationship with its customers.
9. Comply with laws and regulations and stay within the extent
socially permitted in giving clients presents andentertainments.
10. Make appropriate, fair and proper accounting books andrecords, and follow accounting related laws andregulations.
11. Conduct an in-house audit appropriately and always
check contents of contracts and actual conditions ofdealings with clients.
12. Draw up external documents such as contracts and inhouse memorandums properly and keep such documentsin accordance with company regulations.
13. Manage information carefully and maintain soundinformation network.
14. Give due consideration to issues of safety and hygiene inmanaging business activities and labor services.
15. Emphasize in-house education and develop expertise andcreativity.
16. Maintain vigorous work environment with fair personnel
evaluation.
17. Encourage employees to report, notify and consult, andpromote open and highly transparent business activities.

9Topics

1. “Friend of India” Award

3. Solar Energy Business

In February, 2003, our Foods Division was awarded the “Friendof India” award at the presentation ceremony of theInternational Seafood Show held in Goa, India. The award issponsored by the Ministry of Agriculture of India, and ispresented every other year to the most valuable buyers ofIndian seafood in the regions of USA, Europe and Asia. This is
the second consecutive honor Hanwa Co., Ltd received thisprestigious award. Our
long-term involvementin the Indian shrimp
farming industry musthave been recognized
and appreciated.

In April, 2000, our Non-Ferrous Metals Dept. went into thesolar power generation industry as a supplier of imported raw
materials, polycrystalline silicon and its off-grade. The businesshas now grown into an international business that includes theexport of semi and finished products, such as silicon wafer,solar cell and solar module, to the USA and EU markets. We
expect further expansion of our business into the promising
Chinese market.

4. Housing Materials Business
In November, 1999, the Housing Team was formed for the
purpose of marketing housing materials for private housebuilders. The Team has since developed its business into steelstructured private houses, steel pre-fabricated basements, prefabricated shop units, etc. The team’s business is not limited tothe sale of building materials to house builders alone. They alsooffer private customers their suggestions on such matters asplanning, supervising, installing and building. The market forsteel structured houses have a promising future because more
and more people are now interested in them for their recycling
and quake-resistant structure.

2. Hanwa Steel Services Ltd.
A 100% owned new subsidiary, Hanwa Steel Services Ltd, has
had two slitter lines and one leveler-cutter line installed at its
Shiga plant, which has been in operation since April, 2003. The
company is capable of fabricating 10,000 tons steel sheet permonth with its “on-demand” and “on-time” services now
available to the users in the Shiga-Mie region.

10

Management Discussion and Analysis

Economic overview
During the period under review, the world economy was
mixed, with signs of recovery in the US during the first half ofthe year offset by a rapid slowing in Europe, Asia, and otherregions in the second half, as the situation in Iraq become
increasingly tense. Deflation took further hold in the Japanese
economy, due to declining domestic demand and capitalspending, and the weakness of personal consumption.
Against a background of ongoing financial instability, theinitiatives launched by the government and Bank of Japan
were unable to reverse these trends.

Petroleum and Chemicals: The Iraq War resulted in unstable
market conditions. However, the Company successfullybalanced demand and supply in domestic market. Sales
increased 8.8%, to ¥115.9 billion.
Other businesses: Sales in other businesses increased 10.0%,
to ¥44.1 billion. The principal driver was expanded imports ofEuropean lumber and plywood.

Cash FlowsNet cash provided by operating activities amounted to ¥3.3
billion during the fiscal year as a result of successful marketing.
Net cash provided by investing activities totaled ¥0.8 billion,
including the proceeds from redemption and sale of marketable
and investment securities. Net cash used in financing activities
amounted ¥10.1 billion, used to pay down bank loans. As aresult, cash and cash equivalents decreased ¥7.4 billion yearon-year to ¥27.8 billion at the end of the fiscal year.

Earnings
Under these adverse circumstances, Hanwa Co., Ltd. (the“Company”) and its consolidated subsidiaries (together, the“Companies”) strengthened alliances with our customers andaggressively offered value added services to meet their needs
and potentialities, while being careful to minimize credit risk.
As a result, net sales increased 9.2% from the previous year, to¥683.0 billion.
Operating income advanced 57.4%, to ¥10.3 billion. Thiswas due both to the firmer market prices of some steel andfood items, and to the Companies’ efforts to focus on
maintaining margins. Net income rose 64.7%, to ¥5.9 billion,
including losses on sale of Brazilian government bonds toimprove the balance sheet.

Outlook
We see little cause for optimism in the economic environment
for a trading company such as Hanwa Co., Ltd. during thecoming year. The world situation remains uncertain, with the
US economy, the situation in the Middle East, and the SARS
outbreak all causes for ongoing concern, while the Japanese
economy continues to show no sign of recovering.
The steel industry cannot continue to depend on domestic
public works spending and private sector capital investment,
and the Companies will look to its logistics and processing
operations to support earnings. It will focus on theenvironmentally friendly recycling business in its non-ferrous
metals division, and plans to develop its interests in the solar
energy business. In the foods business, it will pay detailed
attention to the products and materials handled, with a close
watch on market pricing, and will strengthen its focus on highmargin processed foods. In the petroleum and chemicals
division, it will work to expand trading of petroleum products inEast Asia, and will focus on increasing its interests in lifestylerelated products, for which demand is expected to increase. In
the other business segment, the Companies will work toenhance earnings by boosting sales of existing products and by
developing new customers.

Sales by Business Segment
Steel: Despite an absence of substantial demand growth fromdomestic industry (with the exception of the automobile
sector), production cuts and inventory adjustments by the steel
mills boosted market pricing steadily through out the year.
This, and strong exports to China and southeast Asia, lifteddivisional sales 8.0%, to ¥365.6 billion.
Non-Ferrous Metals: Sales increased 19.9%, to ¥65.0 billion.
The growth resulted primarily from a recovery in market nickel
pricing caused by expanded demand from stainless steel
producers.
Foods: Year-end demand was poor, but increased imports ofprocessed fish products from China, where the market isshifting to higher value-added products, and a general rise inmarket pricing during the first half of the year, lifted sales
7.3%, to ¥92.4 billion.

11

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Five-Year Summary
For the years ended March 31

Millions of yen
except number of employees

Thousands of
U.S. dollars

2003

2002

2001

2000

1999

682,964 ¥10,257
5,907

625,614 ¥
6,517
3,587

689,106 ¥10,283
1,945

629,717 ¥
8,727
595

598,568 $ 5,681,897
5,325
85,333(435)
49,143

3,269
836(10,115)

19,327
1,352(14,630)

2,731
41,635(52,208)(9,715)22,789(20,382)

7,974
21,006(17,129)

27,196
6,955(84,151)

At year-end:
Cash and cash equivalents
Total assets
Total stockholders’ equity

27,808281,557
52,74835,183
284,515
49,18827,701
288,175
25,44834,435332,172
27,03642,898360,544
41,419231,348
2,342,404
438,835

Number of employees

1,239

1,136

1,177

1,202

N/A

108,494

For the year:
Net sales
Operating income
Net income (loss)¥

Net cash provided by (used in)operating activities
Net cash provided by investing activities
Net cash used in financing activities

2003

Yen

2003

Per share data:
Net income (loss)
Cash dividends
Stockholders’ equity¥

27.91 ¥
5.00
249.302002

U.S. dollars

2001

16.95 ¥
5.00
232.402000

9.19 ¥—
120.231999

2.48 ¥—
127.732003(1.49) $—142.01%

2003

Key financial ratios:
Return on assets
Return on equity
Debt/equity ratio

2002

2.1
11.6
240

2001

1.3
9.6
270

2000

0.6
7.4
580

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥120.20=$1.00.

12

1999

0.2
1.7
740

(0.1)
(1.0)
490

0.232
0.042
2.074

Financial Section

Contents
Consolidated Balance Sheets ........................................................................................... 14
Consolidated Statements of Income ............................................................................. 16
Consolidated Statements of Stockholders’ Equity ................................................... 17
Consolidated Statements of Cash Flows ..................................................................... 18
Notes to Consolidated Financial Statements ............................................................. 19
Independent Auditors’ Report ......................................................................................... 31
13

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets2003

Current assets:
Cash and cash equivalents
Marketable securities (Note 3)
Receivables:
Trade notes and accounts:
Unconsolidated subsidiaries and affiliates
Other
Loans:
Unconsolidated subsidiaries and affiliates
Other
Allowance for doubtful receivables
Inventories
Deferred income taxes (Note 8)
Other current assets (Note 5)
Total current assets

¥

2002

2003

2002

231,348 $849

292,704
27,48727,808 ¥102

35,183 $
3,304

3,181
130,933

2,499
127,144

26,464
1,089,293

20,7901,057,770

3,533
2
(861)
34,983
1,060
14,287215,028

2,233
2
(581)
27,605
1,952
16,451
215,792

29,392
16(7,163)
291,040
8,819
118,860
1,788,918

18,577
16(4,833)229,659
16,240136,864
1,795,274

Investments and non-current receivables:
Investment securities (Notes 3 and 5):
Unconsolidated subsidiaries and affiliates
Other
Loans receivable:
Unconsolidated subsidiaries and affiliates
Other
Other investments and non-current receivables
Allowance for doubtful receivables
Total investments and non-current receivables

1,421
8,588

1,437
9,572

11,822
71,448

11,955
79,634415
940
11,277(2,092)
20,549723
1,155
15,123(4,972)
23,0383,452
7,820
93,819(17,404)
170,957

6,015
9,609
125,815(41,364)
191,664

Property and equipment (Note 5):
Land (Note 9)
Buildings and structures
Other
Accumulated depreciation
Total property and equipment

29,195
19,972
5,789(9,670)45,28628,421
18,901
6,084(8,323)45,083242,887
166,156
48,161(80,449)
376,755

236,448
157,246
50,616(69,243)
375,067

Other assets:
Deferred income taxes — noncurrent (Note 8)
Intangibles and other assets (Note 5)
Total other assets
Total

75
619
694
281,557 ¥

115
624
957
487
5,150
4,051
602
5,774
5,008
284,515 $ 2,342,404 $ 2,367,013¥

See accompanying Notes to Consolidated Financial Statements.

14

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities, Minority Interest and Stockholders’ Equity

2003

Current liabilities:
Bank loans (Note 6)Long-term debt due within one year (Note 6)
Trade notes and accounts payable:
Unconsolidated subsidiaries and affiliates
Other
Accrued bonuses to employees
Income taxes payable
Other current liabilities
Total current liabilities¥

Non-current liabilities:
Long-term debt due after one year (Note 6)
Employees’ severance and retirement benefits (Note 7)
Directors’ retirement benefits
Reserve for loss on sale-repurchase agreement of land
Other non-current liabilities
Total non-current liabilities

2002

2003

2002

620,757 $
241,090799,659
11,11574,615 ¥28,97996,119 $
1,336

1,378
81,047
1,438
588
13,041
201,086

382
84,891
1,329
382
10,141
194,580

11,464674,268
11,964
4,892
108,494
1,672,929

3,178
706,248
11,056
3,178
84,3681,618,802

21,000
1,791
367
2,512
1,551
27,221

34,979
1,222
280
2,037
2,229
40,747

174,709
14,900
3,053
20,89912,903
226,464

291,007
10,166
2,329
16,947
18,544
338,993

502

—

4,176

—

Contingent liabilities (Note 13)
Minority interest
Stockholders’ equity (Note 9):
Common stock,
Authorized: 570,000,000 shares
Issued: 211,663,200 shares
Retained earnings
Land revaluation difference
Net unrealized holding losses on securities
Foreign currency translation adjustments
Treasury stock, at cost: 73,712 shares (7,832 in 2002)
Total stockholders’ equity
Total

¥

15

45,651
9,991
(419)
(385)
(2,079)(11)52,748281,557 ¥

45,651
379,792
379,792
5,141
83,11942,770(418)(3,486)(3,478)(808)(3,203)(6,722)(377)(17,296)(3,136)
(1)
(91)
(8)
49,188438,835
409,218
284,515 $ 2,342,404 $ 2,367,013

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income
For the years ended March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses
Operating income

¥

2003

2002

2003

2002

682,964 ¥
651,641
31,32321,066
10,257

625,614 $ 5,681,897 $ 5,204,775
597,750
5,421,306
4,972,962
27,864
260,591
231,813
21,347
175,258
177,595
6,517
85,33354,218Other income (expenses):
Interest and dividend income
Interest expense
Gain on sale of property and equipment
Loss on write-down of investment securities
Loss on sale of investment securities
Loss on write-down of golf club memberships
Provision for loss on sale-repurchase agreement of land
Other, net

920(2,223)
249
(339)
(941)
—
(475)
(473)

1,700
(2,733)
—
(498)
—
(157)
(2,037)
(848)

7,654
(18,494)
2,071(2,820)(7,829)—(3,952)(3,935)14,143(22,737)—(4,143)—(1,306)(16,947)(7,055)

Income before income taxes

6,975

1,944

58,02816,173

166
902
1,068
5,907 ¥

388
(2,031)(1,643)
3,587 $

1,381
7,504
8,885
49,143 $3,228(16,897)(13,669)
29,842

Income taxes (Note 8):
Current
Deferred
Net income

¥

Yen

2003

Net income per share
Cash dividends per share¥

See accompanying Notes to Consolidated Financial Statements.

16

27.91 ¥
5.00

U.S. dollars (Note 1)

2002

16.95 $
5.00

2003

0.232 $
0.042

2002

0.141
0.042

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
For the years ended March 31, 2003 and 2002

Thousands
Number of sharesof common stock

Balance at March 31, 2001
Common stock
reduction (Note 9)
Disposition of deficit (Note 9)
Land revaluationdifference (Note 9)
Effect arising from merger ofconsolidated subsidiary
Net income
Net unrealized holding losses
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2002
Net income
Cash dividends
Transfer of land revaluationdifference (Note 9)
Decrease in unrealized holding
losses on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2003

Millions of yen

Common stock

Retained earnings

Land revaluationdifference

211,663 ¥ 82,646 ¥ 19,227 ¥ (72,892) ¥Net unrealized
holding losses on
securities

Foreign currencytranslation
adjustments

Treasury stock

— ¥

— ¥

(3,533) ¥———(36,995)——(19,227)

36,995
19,227

—
—

—
—

—
—

—
—

—

—

—

—

(418)

—

—

—

—
—

—
—

—
—

18,224
3,587

—
—

—
—

—
—

—
—

—

—

—

—

—

(808)

—

—

—
—
211,663————
45,651
—
—

—
—
—
—
—

—
—
5,141
5,907
(1,058)

—
—
(418)
—
—

—
—
(808)
—
—

3,156
—
(377)
—
—

—
(1)
(1)
—
—

—

—

—

1

(1)

—

—

—

—

—

—

—

—

423

—

—

—
—
— ¥

—
—
9,991 ¥——
(419) ¥——
(385) ¥

(1,702)—(2,079) ¥

—
(10)
(11)

—
—
—
—
211,663 ¥ 45,651 ¥Common stock

Balance at March 31, 2001
Common stock
reduction (Note 9)
Disposition of deficit (Note 9)
Land revaluationdifference (Note 9)
Effect arising from merger ofconsolidated subsidiary
Net income
Net unrealized holding losses
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2002
Net income
Cash dividends
Transfer of land revaluationdifference (Note 9)
Decrease in unrealized holding
losses on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2003

Capital surplus

Capital surplus

Thousands of U.S. dollars (Note 1)
Net unrealized
Land revaluation
holding losses on
Retained earnings
difference
securities

Foreign currencytranslation
adjustments

Treasury stock$ 687,571 $ 159,958 $ (606,423) $— $— $ (29,392) $—(307,779)——(159,958)

307,779
159,958

—
—

—
—

—
—

—
—

—

—

—

(3,478)

—

—

—

—
—

—
—

151,614
29,842

—
—

—
—

—
—

—
—

—

—

—

—

(6,722)————379,792
—
—

—
—
—
—
—

—
—
42,77049,143(8,802)——(3,478)————(6,722)——

26,256—(3,136)
—
—

—
(8)
(8)
—
—

—

—

8

(8)

—

—

—

—

—

—

—

3,519

—

—

—
—
$ 379,792 $————— $ 83,119 $See accompanying Notes to Consolidated Financial Statements.

17——(3,486) $—(14,160)——(3,203) $ (17,296) $

—
(83)
(91)

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2003 and 2002

Thousands of
U.S. dollars (Note 1)

Millions of yen

2003

Cash flows from operating activities:
Income before income taxes
Adjustments to reconcile income before income taxes to net cash
provided by operating activities
Depreciation
Increase (decrease) in allowance for doubtful receivables
Interest and dividend income
Interest expense
Gain on sale of property and equipment
Loss on write-down of investment securities
Loss on sale of investment securities
Loss on write-down of golf club memberships
Provision for loss on sale-repurchase agreement of land
Decrease (increase) in trade receivables
Decrease (increase) in inventories
Decrease in trade notes and accounts payable
Increase in deposits received
Other, net
Sub total
Cash flows during the year for:
Interest and dividends received
Interest paid
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities:
Additions to securities
Proceeds from redemption and sale of securities
Additions to property and equipment
Proceeds from sale of property and equipment
Additions to investment securities
Proceeds from redemption and sale of investment securities
Additions to loans receivable
Repayment of loans receivable
Proceeds in the acquisition of the shares of
newly consolidated subsidiary (Note 10)
Other, net
Net cash provided by investing activities
Cash flows from financing activities:
Decrease in bank loans, net
Proceeds from long-term debt
Repayments of long-term debt
Payment of cash dividends
Other, net
Net cash used in financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year¥¥

See accompanying Notes to Consolidated Financial Statements.

18

6,975 ¥

2002

1,944 $

2003

2002

58,028 $16,173

1,707
(649)
(920)
2,223
(249)
339
941
—
475
(4,233)(6,588)(3,422)
3,902
4,135
4,636

1,877
1,212
(1,700)
2,733
—
498
—
157
2,037
19,247
6,327(16,368)(6)
2,600
20,558

14,201(5,399)(7,654)
18,494(2,071)
2,820
7,829
—
3,952
(35,216)(54,809)(28,469)
32,462
34,401
38,56915,616
10,083(14,143)
22,737
—
4,143
—
1,306
16,947160,125
52,637(136,173)(50)
21,631
171,032972(2,172)
(167)
3,269

1,811
(2,730)(312)
19,327

8,086(18,070)(1,389)27,196

15,066(22,712)(2,596)
160,790

—
2,941
(603)
1,403
(3,230)2,671(2,444)479(3,103)
7,363
(548)
15
(243)
437
(2,144)
1,782—
24,468(5,017)
11,672(26,872)
22,221(20,333)
3,985(25,815)
61,256(4,559)125(2,022)
3,636(17,837)
14,825

452
(833)
836

—
(2,207)
1,352

3,761
(6,930)
6,955—(18,361)
11,248(22,710)
15,000(1,337)(1,058)(10)(10,115)(1,365)(7,375)35,18327,808 ¥(11,861)
3,000(5,769)——(14,630)
1,433
7,482
27,70135,183 $(188,935)
124,792(11,123)(8,802)(83)(84,151)(11,356)(61,356)
292,704
231,348 $(98,677)
24,958(47,995)——(121,714)
11,922
62,246
230,458
292,704

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Basis of presenting consolidated financial
statements
Hanwa Co.,Ltd. (the “Company”) and its consolidated domestic
subsidiaries maintain their official accounting records in Japanyen, and in accordance with the provisions set forth in theJapanese Commercial Code and accounting principles andpractices generally accepted in Japan (“Japanese GAAP”). The
accounts of overseas consolidated subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles and practices prevailing in therespective countries of domicile.
Certain accounting principles and practices generally
accepted in Japan are different from International AccountingStandards and standards in other countries in certain respects as
to application and disclosure requirements. Accordingly, theaccompanying consolidated financial statements are intended
for use by those who are informed about Japanese accounting
principles and practices.
The accompanying consolidated financial statements havebeen restructured and translated into English (with some

expanded descriptions and the inclusion of consolidated
statements of stockholders’ equity) from the consolidated
financial statements of the Company prepared in accordancewith Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the
Securities and Exchange Law. 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. dollars
are included solely for the convenience of readers outside Japan,
using the prevailing exchange rate at March 31, 2003, whichwas ¥120.20 to U.S.$1.00. The convenience translations should
not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future be,converted into U.S. dollars at this or any other rate of exchange.

2. Significant accounting policies
Consolidation — The consolidated financial statements include
the accounts of the Company and its ten (eight in 2002)
significant subsidiaries (together “the Companies”). The
accounts of certain consolidated subsidiaries have been included
on the basis of fiscal periods ended three months or less prior to
March 31, and significant transactions after their year-ends areappropriately adjusted in consolidation.
Intercompany transactions and accounts have been
eliminated. The Company doesn’t apply the equity method,
because non-consolidated subsidiaries and affiliated companies
are immaterial.
Cash and cash equivalents — In preparing the consolidated
statements of cash flows, cash on hand, readily-available
deposits and short-term highly liquid investments with maturities
not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
Allowance for doubtful receivables — The allowance for
doubtful receivables is provided to cover possible losses oncollection. With respect to normal trade accounts receivable, it isstated at an amount based on the actual rate of historical bad
debts, and for certain doubtful receivables, the uncollectible
amount has been individually estimated.
The allowance for doubtful receivables of overseas
consolidated subsidiaries is determined by estimates ofmanagement.
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, “heldto-maturity debt securities”), (c) equity securities issued bysubsidiaries and affiliated companies, 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 held-to-maturity debt securities.
Trading securities are stated at fair market value. Gains andlosses realized on disposal and unrealized gains and losses frommarket value fluctuations are recognized as gains or losses in the
period of the change. Equity securities issued by subsidiaries andaffiliated 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 market values arestated at fair market value. Unrealized gains and unrealized
losses on these securities are reported, net of applicable income
taxes, as a separate component of stockholders’ equity. Realized
gains on sale of such securities are computed using movingaverage cost.
At March 31, 2002, as a result of adoping the new Japanese
accounting standard for available-for-sale securities, net
unrealized holding losses on securities of ¥808 million ($6,722
thousand) were recorded in stockholders’ equity.
Inventories — Inventories are principally stated at the lower ofcost or market value. Cost is determined by the moving average
cost method or the specific identification cost method.
Property and equipment — Property and equipment are
carried at cost. Depreciation is principally provided on the
declining balance method over estimated useful lives. Major
renewals and improvements are capitalized. Maintenance,
repairs and minor renewals are expensed as incurred.
Software costs — The Companies include software inintangible and other assets, and depreciate it using the straightline method over the estimated useful life of five years.
Bonuses — The Company and its domestic consolidated
subsidiaries follow the Japanese practice of paying bonuses to
employees in June and December. As at the balance sheet date,the bonus liabilities are estimated and accounted for on an
accrual basis.
Bonuses to directors and statutory auditors, which are subject
to approval at the stockholders’ meeting, are accounted for as
an appropriation of retained earnings.

19

Derivatives and hedge accounting — The Company states
derivative financial instruments at fair value and recognizeschanges in the fair value as gains or losses unless derivative
financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges andmeet certain hedging criteria, the Company defers recognitionof gains or losses resulting from changes in fair value ofderivative financial instruments until the related losses or gains
on the hedged items are 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 agreement is added to or
deducted from 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:

Income taxes — The Companies recognize tax effects of
temporary differences between the carrying amounts of assets
and liabilities for tax and financial reporting. The asset andliability approach is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used forincome tax purposes.
The Company and its wholly owned domestic subsidiaries
have applied the consolidated tax reporting system from thisfiscal year.
Retirement benefits — Substantially all employees of theCompany and its consolidated domestic subsidiaries are coveredby qualified funded pension plans. The amount of the retirement
benefit is, in general, based on length of service, base salary at
the time of retirement, and cause of retirement. Annual
contributions, which consist of normal cost and amortization ofprior service cost are charged to income when paid.
The liabilities and expenses for severance and retirement
benefits are determined based on the amounts actuariallycalculated using certain assumptions.
Directors and statutory auditors are not covered by theseplans. However, the liability for retirement benefits represents
management’s estimate of the amounts payable to them at thebalance sheet date if they retired at that date. Amounts payable
to directors and statutory auditors upon retirement are subject
to the approval of stockholders.
Reserve for loss on sale-repurchase agreement of land —Reserve for loss on sale-repurchase of land reflects an estimateof possible losses based on an exercise of a sale-repurchaseagreement under which the Company sold land to theOrganization for Promoting Urban Development.
Translation of foreign currencies — Receivables and payables
denominated in foreign currencies are translated into Japanese
yen at the year-end rates.
Balance sheets of consolidated overseas subsidiaries aretranslated into Japanese yen at the year-end rates except for
stockholders’ equity accounts, which are translated at thehistorical rates. Income statements of consolidated overseas
subsidiaries are translated at average rates except fortransactions with the Company, which are translated at the rates
used by the Company.
The Companies report foreign currency translation
adjustments in the stockholders’ equity.
Finance leases — Finance leases which do not transfer
ownership and do not have bargain purchase provisions areaccounted for in the same manner as operating leases inaccordance with Japanese GAAP.

Hedging instruments:
Interest rate swap agreements
Commodity futures contracts
Foreign exchange forward contracts
Hedged items:
Interest expense on borrowings
Inventories and commitments
Equity investment in subsidiary
The Company evaluates hedge effectiveness by comparing the
cumulative changes in cash flows or the changes in fair value ofhedged items and the corresponding changes in the hedging
derivative instruments.
Reclassifications — Certain reclassifications have been made toprior-year amounts to conform to the current-year presentation.
Amounts per share — Computations of net income per shareof common stock are based on the weighted average number ofshares outstanding during each period. The Commercial Code ofJapan requires that the declaration of dividends be approved at
the general meeting of stockholders held after the end of the
fiscal year. Therefore, cash dividends per share shown in the
consolidated statements of income reflect the dividends
approved after the end of the fiscal year.
Effective April 1, 2002, the Company adopted the new
accounting standard for earnings per share and related guidance(Accounting Standards Board Statement No. 2, “AccountingStandard for Earnings Per Share” and Financial Standards
Implementation Guidance No. 4, “Implementation Guidance for
Accounting Standard for Earnings Per Share”, issued by the
Accounting Standards Board of Japan on September 25, 2002).
The adoption of the new accounting standard had no impact
on the financial statements.

20

3. Securities(A) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available fairvalues as of March 31, 2003 and 2002:

March 31, 2003
Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
Bonds
Government bonds
Corporate bonds
Other
Total
¥
Other securities:
Equity securities¥¥

Acquisition costThousands of U.S. dollars
Book value

Difference

2,542 ¥

330 $

18,403 $21,148 $

2,745

—
100
—
2,312 ¥—
102—
2,644 ¥

—
2
—
332 $

—
832
—
19,235 $—849—
21,997 $

—
17
—
2,762

2,734 ¥

2,022 ¥

(712) $

22,745 $16,822 $(5,923)Acquisition cost

Other securities:
Equity securities

Difference

2,212 ¥March 31, 2002
Securities with book values exceeding acquisition costs:
Equity securities¥
Bonds
Government bonds
Corporate bonds
Other
Total
¥

Millions of yen
Book value

Millions of yen
Book value

Difference

Acquisition costThousands of U.S. dollars
Book value

Difference

1,373 ¥

1,847 ¥

474 $

11,423 $15,366 $

3,943

2,969
1,555
254
6,151 ¥

3,397
1,809
254
7,307 ¥

428
254—
1,156 $

24,70012,9372,113
51,173 $28,261
15,0502,113
60,790 $

3,561
2,113
—
9,617

3,926 ¥

3,185 ¥

(741) $

32,662 $26,497 $(6,165)(B) The following tables summarize book values of securities whose fair values are not determinable as of March 31, 2003 and 2002:(a) Equity securities issued by unconsolidated subsidiaries and affiliated companies
Millions of yen
2003
Book value

Equity securities issued by unconsolidated subsidiaries and affiliated companies

Thousands of U.S. dollars

2002Book value

2003
Book value

2002
Book value¥

1,421 ¥

1,437 $

11,822 $11,955¥2,024 ¥
2,000
4,024 ¥

1,040 $
1,344
2,384 $

16,839 $16,63933,478 $8,652
11,182
19,834(b) Available-for-sale securities
Unlisted stocks (excluding over-the counter securities)
Other
Total

¥

21

(C) Available-for-sale securities with maturities as of March 31, 2003 and 2002 will mature as follows:

March 31, 2003
Within one year

Government bonds
Corporate bonds
Other
Total

¥

¥

Millions of yen
Over one year but
within five years

Over five years but
within ten years

Thousands of U.S. dollars
Over one year but
Over five years but
Within one year
within five years
within ten years

— ¥
102
—
102 ¥

— ¥
—
—
— ¥

— $
—
—
— $

— $
849
—
849 $

— $
—
—
— $

—
—
—
—

453 ¥
1,707
254
2,414 ¥

1,812 ¥
102
1,343
3,257 ¥

1,132 $——
1,132 $

3,769 $
14,201
2,113
20,083 $15,075 $849
11,17327,097 $

9,418
—
—
9,418

Year ended March 31, 2002
Government bonds
Corporate bonds
Other
Total

¥

¥

(D) Total sales of available-for-sale securities in the years ended March 31, 2003 and 2002 amounted to ¥2,269 million ($18,877
thousand) and ¥51 million ($424 thousand) and the net losses amounted to ¥942 million ($7,837 thousand) and ¥11 million ($92
thousand).

4. Derivatives
The Company enters into foreign exchange forward contracts
and currency option agreements, in its normal business, tohedge foreign exchange risk associated with certain assets andliabilities denominated in foreign currencies. The Company
enters into foreign exchange forward contracts, currency swap
agreements and interest rate swap agreements as hedges
against bonds and loans denominated in foreign currencies. And
the Company enters into commodity futures contracts as ameans of hedging risks associated with certain inventories andcommitments.
It is the Company’s policy to use derivatives only for the
purpose of reducing market risks associated with assets andliabilities.

Derivatives are subject to market risk and credit risk. Since thepurpose of using derivatives is to reduce market risks associatedwith assets, liabilities and interest rates, market risks of thederivatives are effectively offset. And, as the counterparties tothose derivatives are limited to major financial institutions, theCompany does not anticipate any losses arising from credit risk.
Derivatives entered into by the Company have been made inaccordance with internal policies which regulate theauthorization and credit limit amount. Each derivativetransaction is periodically reported to the management, where
evaluation and analysis of derivatives are made.
The contracts or notional amounts of derivatives which are
shown in the following table do not represent the amounts
exchanged by the parties and do not measure the Company’s
exposure to credit or market risks.

22

The following tables summarize market value information as of March 31, 2003 and 2002, of derivatives for which hedge accounting
has not been applied:

March 31, 2003
Currency related

Millions of yen
Contract ornotional amountForeign exchange forward contracts:
Selling
U.S. dollars
Other currencies
BuyingU.S. dollars
Other currencies
Currency swap agreements:
Japanese yen received for U.S. dollars
Currency option agreements:
SellingEuro
Put
Buying
Euro
Call
Total

¥

Thousands of U.S. dollars
Net recognized
gains (losses)

Fair value

Contract ornotional amount

Net recognized
gains (losses)

Fair value

3,545 ¥
34

3,524 ¥
35

21 $
(1)

29,492 $283

29,318 $291

24,509
1,725

25,103
1,759

594
34

203,902
14,351

208,844
14,634

4,942
283

12,602526

526

104,842

4,376

4,376

181
<5>

5

—

1,506
<42>

42

—

91
<3>

16

13
1,187

757
<25>

133

¥

174
(8)

108
9,875

$

Notes: The figures in < > represent option premiums for currency option agreements.

Commodity related

Millions of yen
Contract ornotional amount

Futures:Petroleum
Selling
BuyingFrozen seafoods
Selling
BuyingTotal¥

1,218 ¥
818

16
9

15
9
¥

Contract ornotional amount

44 $
28
1
—
73

¥

Fair value

880 ¥
42

10,133 $
6,805

366
233

133
75

125
75

8
—
607

$

Thousands of U.S. dollars
Net recognized
gains (losses)

890 ¥
42

24,372
1,326

26,3901,341

16,888(1,954)¥

Commodity related

Contract ornotional amount(10) $—¥

Fair value

785 ¥
1,224

7,404 $
349

2,018
15

202,762
11,031

219,550
11,156(1,954)69

140,499(16,256)(83)—
16,788125(16,256)
574$
Thousands of U.S. dollars

Net recognized
gains (losses)

817 ¥
1,346
¥
23

Net recognized
gains (losses)

Fair value

7,321 $
349

Millions of yen
Contract ornotional amount

Net recognized
gains

Fair value

10,499 $6,572

Millions of yen
Contract ornotional amount

Futures:Petroleum
Selling
Buying
Total

Fair value

1,262 ¥
790

March 31, 2002
Currency related
Foreign exchange forward contracts:
Selling
U.S. dollars
Other currencies
BuyingU.S. dollars
Other currencies
Currency swap agreements:
Japanese yen received for U.S. dollars
Total

Thousands of U.S. dollars
Net recognizedgains

Contract ornotional amount(32) $
122
90

6,531 $
10,183

Fair value

Net recognized
gains (losses)

6,797 $
11,198
$

(266)
1,015
749

5. Pledged assets
At March 31, 2003 and 2002, assets pledged as collateral for short-term bank loans of ¥25,100 million ($208,819 thousand) and longterm bank loans of ¥25,000 million ($207,987 thousand), respectively, and guarantees were as follows:
Thousands of
U.S. dollars

Millions of yen

2003

Other current assets
Investment securities
Property and equipment, net of accumulated depreciation
Intangibles
Total

¥

¥

2002

10 ¥
1,503
25,02478
26,615 ¥

10 $
1,702
25,238—26,950 $

2003

2002

83 $
12,504
208,187649
221,423 $83
14,160209,967—
224,210

6. Bank loans and long-term debt
Bank loans at March 31, 2003 and 2002, were represented
principally by short-term notes bearing interest at rates from
0.59% to 4.54% and from 0.63% to 1.63%, respectively.
Long-term debt at March 31, 2003 and 2002, consisted of the following:Thousands of
U.S. dollars

Millions of yen

2003

Loans from banks, at March 31, 2003 and 2002, bearing interest at rates
from 0.76% to 1.76% and from 0.76% to 1.76%, respectively,
maturing serially through 2007¥

Less amounts due within one year¥

2002

49,979 ¥49,97928,97921,000 ¥36,315 $36,315
1,336
34,979 $

2003

2002

415,799 $415,799
241,090
174,709 $302,122302,122
11,115
291,007

The annual maturities of long-term debt outstanding at March
31, 2003, were as follows:

Years ending March 31,
Millions of yen

2004
2005
2006
2007

¥

Total

¥

28,979 $1,000
17,0003,000
49,979 $Thousands of
U.S. dollars

241,090
8,320
141,431
24,958415,799

7. Employees’ severance and retirement benefits
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31,
2003 and 2002, consists of the following:Thousands of
U.S. dollars

Millions of yen

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

¥

¥
24

2003

2002

2003

2002

19,649 ¥(11,082)(7,946)780
390
1,791 ¥

18,534 $(12,470)(6,056)840
374
1,222 $

163,469 $(92,196)(66,106)
6,489
3,244
14,900 $154,193(103,744)(50,383)
6,988
3,112
10,166

Included in the consolidated statements of income for the years ended March 31, 2003 and 2002, are severance and retirement
benefit expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

2003

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

Prior service cost and actuarial differences are amortized orrecognized over stated years that do not exceed the average

808 ¥
461
(435)
450
(60)
132
1,356 ¥

2002

738 $
504
(457)
242
—
263
1,290 $

2003

6,722 $
3,835
(3,619)
3,744
(499)
1,098
11,281 $

2002

6,140
4,193
(3,802)
2,013
—
2,188
10,732

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

Assumptions used for the years ended March 31, 2003 and 2002, are as follows:

Discount rate
Expected rate of return on plan assets
Amortization period of prior service costs
Amortization period of actuarial differences

2003

2002

2.5%
3.5%
14 years
14 years

2.5%
3.5%
14 years
14 years

8. Income taxes
The Company is subject to a number of taxes based on income,which, in the aggregate, indicate aggregate statutory income
tax rates in Japan of approximately 42.1% for the years ended
March 31, 2003 and 2002.
The aggregate statutory income tax rate will be reduced forthe years commencing on April 1, 2004 or later due to therevised local tax law. At March 31, 2003, the Company andconsolidated domestic subsidiaries applied the reduced

aggregate statutory income tax rate of 40.05% for calculating
deferred tax assets and liabilities that are expected to be
recovered or settled in the years commencing on April 1, 2004or later. As a result, deferred taxes assets decreased by ¥2
million ($16 thousand) and provision for deferred income taxes
increased by ¥2 million ($16 thousand) compared with what
would have been reported using the currently applicableaggregate statutory income tax rate of 42.1%.

The following table summarizes the significant differences between the aggregate statutory income tax rate and the Company’s
effective tax rates for financial statement purposes for the years ended March 31, 2003 and 2002:

Statutory tax rate
Tax effect of permanent differences
Valuation allowance recognized for deferred tax assets
Effect of taxation of dividends
Tax effect of unrealized intercompany profit
Difference of tax rates for consolidated subsidiaries
Other
Effective tax rate

25

2003

2002

42.1%
2.9
(29.1)
—
(0.2)
(0.5)
0.1
15.3%

42.1%
12.0
(164.0)
25.8
(0.6)
(2.7)
2.9
(84.5)%

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2003 and 2002 are as follows:
Thousands of
U.S. dollars

Millions of yen

2003

Deferred tax assets:
Net operating loss carryforwards
Temporary differences pertaining to a consolidated subsidiary
Loss on loans receivable
Temporary differences pertaining to investments
in consolidated companies
Reserve for loss on sale-repurchase agreement of land
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets¥

Deferred tax liabilities
Net deferred tax assets

¥

2002

2003

2002

4,721 ¥
23,834
1,736

44,407 $24,315
4,227

39,276 $198,286
14,443

369,443
202,288
35,166

777
1,017
3,503
35,588(34,220)
1,368

1,185
—
4,069
78,203(75,972)
2,231

6,464
8,461
29,143
296,073(284,692)
11,381

9,859—
33,852650,608(632,047)
18,561233
1,135 ¥

165
2,066 $

1,938
9,443 $

1,373
17,188

9. Stockholders’ equity
Under the Commercial Code of Japan, the entire amount of theissue price of shares is required to be accounted for as capital,
although a company may, by resolution of its Board of Directors,
account for an amount not exceeding one-half of the issue priceof the new shares as additional paid-in capital, which is included
in capital surplus.
Effective October 1, 2001, the Commercial Code provides
that an amount equal to at least 10% of cash dividends andother cash appropriations shall be appropriated and set aside asa legal earnings reserve until the total amount of legal earnings
reserve and additional paid-in capital equals 25% of common
stock. The legal earnings reserve and additional paid-in capital
may be used to eliminate or reduce a deficit by resolution of thestockholders’ meeting or may be capitalized by resolution of theBoard of Directors. On condition that the total amount of legal
earnings reserve and additional paid-in capital remains being
equal to or exceeding 25% of common stock, they are available
for distribution by the resolution of stockholders’ meeting. Legalearning reserve is included in retained earnings in theaccompanying financial statements.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with the Commercial
Code.
Effective April 1, 2002, the Company adopted the new
accounting standard for treasury stock and reversal of statutory
reserves (Accounting Standards Board Statement No. 1,“Accounting Standard for Treasury Stock and Reversal of
Statutory Reserves,” issued by the Accounting Standards Boardof Japan on February 21, 2002).
The effect on net income of the adoption of the new
accounting standard was not material.

Common stock — The Company reduced its capital by ¥36,995
million ($307,779 thousand) to cover the undisposed deficit.
The capital reduction was approved at the ordinary general
meeting of stockholders of the Company held on June 28, 2001.
Capital surplus — The Company used its capital surplus of¥19,227 million ($159,958 thousand) to reduce the undisdosed
deficit.
The use of capital surplus was approved at the ordinary
general meeting of stockholders of the Company held on June
28, 2001.
Land revaluation difference — Pursuant to the Law
Concerning Land Revaluation, the Company revaluated land
used for business activities at March 31, 2002.
Unrealized loss on land revaluation is recorded as Landrevaluation difference in stockholders’ equity of theaccompanying consolidated balance sheets.
The revaluation of the land was determined based on adeclared land value in accordance with Article 2, Paragraph 1, of
the Enforcement Ordinance Concerning Land Revaluation, andthe appraisal value made by certified real estate appraisers inaccordance with Article 2, Paragraph 5 of the same Ordinancewith certain necessary adjustments.
The book value of land revalued on March 31, 2002 was asfollows:
Millions of yen

Book value before revaluation
Carrying amount after revaluation¥

27,993 $27,575

Thousands of
U.S. dollars

232,887
229,409

As of March 31, 2003, the carrying amount of the land after
the above one-time revaluation exceeded the market value by¥2,958 million ($24,609 thousand).

26

10. Acquisition of consolidated subsidiary
Chang-Fu Stainless Center (Suzhou) Co., Ltd. has been included
in consolidation effective from the current fiscal year as a resultof additional acquisition of its shares.
The assets and liabilities at the acquisition and the acquisition proceeds were as follows:
Millions of yen

Current assets
Fixed assets
Consolidation difference
Current liabilities
Minority interest
Foreign currency translation adjustments
Acquisition cost
Interest prior to acquisition
Additional acquisition cost
Cash and cash equivalents of the consolidated subsidiary
Net acquisition proceeds¥¥

Thousands of
U.S. dollars

2,440 $
940
26
(2,183)
(502)
(74)
647
(433)
214
(666)
(452) $

20,2997,820
216(18,161)(4,176)(616)
5,382(3,602)
1,780(5,541)(3,761)

11. Leases
Finance leases
As lessee
Total lease payments, including financing charges, under financeleases that do not transfer ownership of the leased property to

the Company and its consolidated subsidiaries for the years
ended March 31, 2003 and 2002, were ¥403 million ($3,353
thousand) and ¥455 million ($3,785 thousand), respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance leases,
depreciation expense and interest expense of finance leases that do not transfer ownership of the leased property to the lessee on an“as if capitalized” basis as of and for the year ended March 31, 2003 and 2002, were as follows:

As of March 31, 2003
Acquisition
cost

Other property and equipment
Other investments
Total

¥
¥

1,408 ¥
122
1,530 ¥

As of March 31, 2002
Acquisition
cost

Other property and equipment
Other investments
Total

¥
¥

Millions of yen
Accumulated
depreciation

Net leased
property

759 ¥
79
838 ¥
Millions of yen
Accumulated
depreciation

2,217 ¥
95
2,312 ¥

Depreciation expense, which is not reflected in theaccompanying statements of income, computed by the straightline method was ¥368 million ($3,062 thousand) and ¥413

649 $
43
692 $

Net leased
property

986 ¥
55
1,041 ¥

Acquisition
cost

Thousands of U.S. dollars
Accumulated
depreciation

11,714 $
1,015
12,729 $Acquisitioncost

1,231 $
40
1,271 $

6,315 $
657
6,972 $

Thousands of U.S. dollars
Accumulated
depreciation

18,444 $790
19,234 $Net leased
property

5,399
358
5,757

Net leased
property

8,203 $
457
8,660 $

10,241
333
10,574

million ($3,436 thousand) for the years ended of March 31,
2003 and 2002, respectively.

Obligations, excluding financing charges, under such non-capitalized finance leases as of March 31, 2003 and 2002, were as follows:
Thousands of
U.S. dollars

Millions of yen

2003

Due within one year
Due after one year
Total

¥
¥
27

2002

292 ¥
419
711 ¥

406 $
912
1,318 $

2003

2,429 $
3,486
5,915 $

2002

3,378
7,587
10,965

As lessor
Lease payments, excluding financing charges, to be received under finance leases as of March 31, 2003 and 2002, were as follows:
Thousands of
U.S. dollars

Millions of yen

2003

Due within one year
Due after one year
Total

¥

2002

2003

— ¥
—
— ¥

¥

3 $
7
10 $

2002

— $
—
— $

25
58
83

Operating leases
As Lessee
Obligations under operating leases as of March 31, 2003 and 2002, were as follows:
Thousands of
U.S. dollars

Millions of yen

2003

Due within one year
Due after one year
Total

¥
¥

2002

47 ¥
141
188 ¥

2003

40 $
104
144 $

391 $
1,173
1,564 $

2002

333
865
1,198

12. Segment information
Industry segment information
The Companies’ operations are classified into five industry
segments as follows:
Steel: Steel bars and shapes, steel plates and sheets, special
steels, wire products, steel pipes, and steelmaking raw
materials

Non-ferrous metals: Nickel, copper, aluminium, lead, zinc, tin,
antimony, and other alloys
Foods: Frozen seafoods and meat products
Petroleum and chemicals: Petroleum products, chemical
products, and cement
Other business: Machinery, lumber, and other.

Segment information by business category for the years ended March 31, 2003 and 2002, is as follows:Year ended March 31, 2003
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure¥¥¥

365,588 ¥358,297
7,291 ¥
149,734 ¥
1,253
431

Non-ferrous
metals65,038 ¥63,8091,229 ¥
18,308 ¥
92
23

Foods

92,423 ¥89,9382,485 ¥
26,473 ¥55
51

Year ended March 31, 2003
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure$ 3,041,498 $
2,980,840$
60,658 $$ 1,245,707 $
10,424
3,586

Non-ferrous
metals541,082 $530,857
10,225 $
152,313 $765
191

Millions of yen
Petroleum
Other
and chemicals
business

Foods

115,850 ¥
114,639
1,211 ¥
18,938 ¥22
20

44,065 ¥41,7872,278 ¥
12,030 ¥210
246

Thousands of U.S. dollars
Petroleum
Other
and chemicals
business

Total

682,964 ¥668,470
14,494 ¥
225,483 ¥
1,632
771

Total

Corporate

Consolidated— ¥ 682,964
4,237
672,707(4,237) ¥ 10,257
56,074 ¥ 281,557
75
1,707
76
847

Corporate

Consolidated

768,910 $ 963,810 $ 366,597 $ 5,681,897 $— $ 5,681,897
748,236
953,735
347,646
5,561,314
35,2505,596,564
20,674 $ 10,075 $ 18,951 $ 120,583 $ (35,250) $85,333
220,241 $ 157,554 $ 100,083 $ 1,875,898 $ 466,506 $ 2,342,404
458
183
1,747
13,577624
14,201
424
167
2,047
6,415
632
7,047

Corporate costs and expenses mainly consist of expenses ofadministrative departments.

Corporate assets mainly consist of cash and cash equivalents,
investment securities and assets of administrative departments.

28

Year ended March 31, 2002
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure¥¥¥338,591 ¥
333,363
5,228 ¥
141,775 ¥
1,281
468

Non-ferrous
metalsFoods

54,247 ¥52,985
1,262 ¥
16,339 ¥88
26

86,171 ¥84,694
1,477 ¥
28,283 ¥52
25

Year ended March 31, 2002
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure$ 2,816,897 $
2,773,403$
43,494 $$ 1,179,492 $
10,657
3,894

Non-ferrous
metals451,306 $440,807
10,499 $135,932 $732
216

Millions of yen
Petroleum
Other
and chemicals
business

Foods

106,528 ¥106,065463 ¥
16,537 ¥22
1340,077 ¥38,093
1,984 ¥
11,314 ¥355
144

Thousands of U.S. dollars
Petroleum
Other
and chemicals
business

Total

625,614 ¥615,200
10,414 ¥214,248 ¥
1,798
676

Total

Corporate

Consolidated— ¥ 625,614
3,897
619,097(3,897) ¥6,517
70,267 ¥ 284,515
79
1,877
34
710

Corporate

Consolidated

716,897 $ 886,256 $ 333,419 $ 5,204,775 $— $ 5,204,775
704,609882,404
316,913
5,118,136
32,4215,150,557
12,288 $3,852 $ 16,506 $
86,639 $ (32,421) $54,218235,300 $ 137,579 $ 94,126 $ 1,782,429 $ 584,584 $ 2,367,013
433
183
2,954
14,959657
15,616
208
108
1,198
5,624
283
5,907

Corporate costs and expenses mainly consist of expenses ofadministrative departments.
Corporate assets mainly consist of cash and cash equivalents,
investment securities and assets of administrative departments.
As explained in Note 2, as of March 31, 2002, the Company

and its consolidated subsidiaries adopted the new accounting
standard for financial instruments with respect to available-forsale securities.
As a result of adopting the new accounting standard,
corporate assets decreased by ¥808 million ($6,722 thousand).

Regional segment information
The Companies operate mainly within Japan, so regional
segment information is not disclosed.

29

Overseas net sales
Overseas net sales include exports and offshore sales by theCompany and its consolidated subsidiaries, excluding sales byforeign subsidiaries to Japan.
Overseas net sales of the Companies for the years ended March 31, 2003 and 2002, were as follows:Year ended March 31, 2003

Millions of yen
Other
areas

Asia

Overseas net sales
Percentage of consolidated net sales¥

94,218 ¥13.8%

10,717 ¥1.6%

Thousands of U.S. dollars
Other
areas

Total

Asia

104,935 $15.4%

783,843 $

89,160 $Total

873,003“Asia” consists principally of sales to China, South Korea, Thailand and Singapore.
“Other areas” consist principally of sales to the U.S.A. and Norway.
Year ended March 31, 2002

Millions of yen
Other
areas

Asia

Overseas net sales
Percentage of consolidated net sales¥

71,093 ¥
11.3%

Total

10,411 ¥
1.7%

Asia

81,504 $13.0%

Thousands of U.S. dollars
Other
areas

591,456 $

86,614 $Total

678,070“Asia” consists principally of sales to China, South Korea, Thailand and Singapore.
“Other areas” consist principally of sales to U.S.A. and Saudi Arabia.

13. Contingent liabilities
At March 31, 2003 and 2002, the Companies were contingently liable as follows:
Thousands of
U.S. dollars

Millions of yen

2003

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

5,766 ¥
1,675

2002

4,982 $
1,679

2003

47,970 $13,935

2002

41,448
13,968

14. Related party transaction
The Company purchased a building and land amounting to¥251 million ($2,088 thousand) from a relative of a director of

the Company on an arms length basis in the normal course ofbusiness in the year ended March 31, 2003.

15. Subsequent events
At the ordinary general meeting of stockholders of the Company
held on June 27, 2003, the following appropriation of retained
earnings was approved:
Millions of yen

Cash dividends (¥5 per share)
Transfer to legal reserve¥

1,058 $
106

Thousands of
U.S. dollars

8,802
882

30

Independent Auditors’ Report

To the Stockholders and the Board of Directors of
Hanwa Co., Ltd.:We have audited the accompanying consolidated balance sheets of Hanwa Co., Ltd. (aJapanese corporation) and subsidiaries as of March 31, 2003 and 2002, and the related
consolidated statements of income, stockholders’ equity and cash flows for the years thenended, expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion onthese 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 plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Hanwa Co., Ltd. and subsidiaries as ofMarch 31, 2003 and 2002, and the consolidated results of their operations and their cash
flows for the years then ended, in conformity with accounting principles generally accepted inJapan as described in Note 1 to the consolidated financial statements.
The consolidated financial statements as of and for the year ended March 31, 2003 have beentranslated into United States dollars solely for the convenience of the reader. We haverecomputed the translation and, in our opinion, the consolidated financial statements
expressed in Japanese yen have been translated into United States dollars on the basis set
forth in Note 1 to the consolidated financial statements.

Osaka, Japan
June 27, 200331

Corporate Data

Company Name: Hanwa Co., Ltd. 阪和興業株式会社
Address: Osaka Head OfficeHanwa Bldg., 4-3-9 Fushimi-machi, Chuo-ku, Osaka 541-8585, Japan
Tel: 06-6206-3000 Fax: 06-6206-3365
Tokyo Head Office
1-13-10 Tsukiji, Chuo-ku, Tokyo 104-8429, Japan
Tel: 03-3544-2171 Fax: 03-3544-2351
Nagoya Branch Office
Chunichi Bldg., 4-1-1 Sakae, Naka-ku, Nagoya 460-8441, Japan
Tel: 052-262-2371 Fax: 052-262-8819
Employee: 848.
Independent Auditor: Asahi & Co.
Domestic Offices
OFFICE
TohokuKyushuADDRESS
Sendai Daiichi Seimei Tower Bldg., 4-6-1 Ichiban-cho, Aoba-ku, Sendai 980-0811, Japan
Takeyama Hakata Bldg., 1-13-6, Hakataeki Higashi, Hakata-ku, Fukuoka 812-0013, JapanTELEPHONE
022-227-7981
092-471-7121

FAX
022-227-7969
092-471-7060

TELEPHONE

FAX

1-201-363-4500
1-206-622-2102
1-713-978-7904
1-949-955-2780/2781
1-604-876-1175
57-1-618-2059

1-201-346-9890
1-206-622-6464
1-713-978-7790
1-949-955-2785
1-604-876-1085
57-1-618-2059

Overseas Offices
OFFICEADDRESS

North and South America
New York
Parker Plaza, 6th Floor, 400 Kelby Street, Fort Lee, New Jersey 07024, U.S.A.
Seattle900 4th Avenue, Suite 1640, Seattle, Washington 98164, U.S.A.
HoustonSuite 515, 9800 Richmond Avenue, Houston, Texas 77042, U.S.A.
Los Angeles
18300 Vonkarman Avenue, Suite 405, Irvine, California 92612, U.S.A.
VancouverSuite 502, 1001 West Broadway Vancouver, British Columbia, V6H 4B1, Canada
BogotaCarrera 9A No. 99-02, Oficina 804, Edificio CITIBANK Bogota, D.E. Colombia
Asia
Seoul
Beijing
Qingdao
DalianShanghai
Chongqing
FuzhouGuangzhou
DongguanZhongshan
Hong Kong
Taipei
Kaohsiung
Bangkok
Kuala Lumpur
Singapore
Tawau
Jakarta
MumbaiRoom 2501-1, Korea World Trade Center Bldg., 159-1, Samsung-Dong, Kangnam-ku, Seoul, 135-729, R.O.Korea
82-2-551-5387
82-2-551-5575
Room 801, Beijing Fortune Building, 5 Dong San Huan Bei-lu, Chaoyang District, Beijing 100004, P.R.China 86-10-6590-8331~33
86-10-6590-8340
Crowne Plaza Qingdao, Room No.601, Hongkong Middle Road 76, Qingdao City, Shangdon Province 266071, P.R.China
86-532-577-9990
86-532-577-9630
Senmao Bldg., 13F, 147 Zhongshan Street, Dalian, Liaoning Province 116011, P.R.China
86-411-368-6954
86-411-368-6934
Room 905/906, Aetna Tower,No.107 Zhunyi Road, Shanghai 200335, P.R.China
86-21-6237-5260/5265~7 86-21-6237-5268/5269
Room 2203, Metropolitan Tower, 68 Zhon Rong Lu, Central District, Chongqing 400010 P.R.China
86-23-6381-1101
86-23-6381-7385
Room 2501, Lippo Tianma Plaza, No.1 Wu Yi Road, Fuzhou City, Fujian Province, P.R. China
86-591-3354165
86-591-3345202
Unit 3006-3007,30th Floor, Dong Shan Plaza, 69 Xian Lie Zhong Road, Guangzhou City,
86-20-8384-3885
86-20-8384-8875
Guangdong Province 510095, P.R. China
Longxi Industrial Zone, Zhouxi Management Area, Huangcun District, Dongguan, Guangdong Province 511715 P.R.China
86-769-240-6418
86-769-240-6448
Unit 1909-1910, 19th Floor, Bank Of China Tower, 18 Zhongshan 3rd Road, Zhongshan, Guangdong Province P.R.China
86-760-332-0706
86-760-332-0696
Unit 3201-3 32nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong852-25450110
852-25422544
Room 303 3rd Floor. No. 79, Chung Shan North Road Sec.2, Taipei, Taiwan, R.O.C.
886-2-2560-2214~17886-2-2571-0693
Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan, R.O.C.
886-7-338-5508~10
886-7-338-5433
17th Floor, Vorawat Bldg., 849 Silom Road, Bangrak, Bangkok, 10500 Thailand
66-2-635-1230
66-2-635-1220/1221
Suite 8-12B-3, Level 14 (12B), Menara Olympia 8, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
60-3-2078-2311
60-3-2078-2380
20 Cecil Street, #11-02 SINGAPORE EXCHANGE, Singapore, 049705
65-536-7822
65-536-7855
P.O. Box 1231 91037 Tawau, Sabah, Malaysia
60-89-750016~7
60-89-750019
Menara Cakrawala 5th Floor Jalan M.H. Thamrin 9, Jakarta, 10340 Indonesia
62-21-3902293
62-21-3902294
c/o MR. A.J. Dave, B-12 Chaitrangan Kanchan Galli, Off Law College RD., Pune-411004, Maharashtra, India
91-22-5431106

Europe, Africa and Middle East
London5th Floor, Finland House, 56 Haymarket, London, SW1Y 4RN. U.K.
Las Palmas
C/Luis Morote, NO.6-3F , Edf. Catalunia 35007-Las Palmas De Gran Canaria, Spain
Tehran6th Floor, Building, No.10 8th Street, Mirzaye-Shirazi Avenue, Tehran 15967, Iran
c/o Al-Sabih Engineering & Trading Co. P.O. Box No. 1366, Safat 13014, Kuwait
KuwaitRoom 24, 6th Floor, Danat Trading Center, Abdullah Al-Ahmad Street, Sharq, Kuwait
RiyadhP.O. Box 68974, Riyadh 11537, Saudi Arabia
Jeddahc/o Office No. 219, Kaki Center P.O. Box 1224, Jeddah 21431, Saudi Arabia

32

44-20-7839-4448
34-928-270894
98-21-890-3537

44-20-7839-3994
34-928-275735
98-21-890-4723

965-243-7259

965-243-7263

966-1-478-3022
966-2-661-0796

966-1-479-2459
966-2-661-0796

Board of Directors

Investor Information(As of March 31, 2003)

President

Shuji Kita

北Date of Establishment
April 1947

修爾

Stated Capital¥45,651 million ($379,792 thousand)Senior Managing Directors

Mitsuyuki Nakabayashi
Takashi Kyui

中林

満之

休井

匡

嘉本

隆行

Number of Shares of Common Stock Issued
211,663,200 shares

Managing Directors

Takayuki Kamoto
Shosaburo Bando
Noriyuki Hanafusa
Tatsuyuki Yamasaki
Hironari Furukawa
Shinsuke Kitamura

Number of Stockholders
24,197

坂東祥三郎
花房

伯行

山崎

達之

古川

弘成

北村

信輔

Stock Exchange Listings
The First Section of the Tokyo Stock Exchange
The First Section of the Osaka Stock Exchange
Transfer Agent
The Sumitomo Trust and Banking Co., Ltd.

Directors

Kazuo Yokota
Masaomi Amao
Hiroshi Omoto
Satoru Hara
Tetsuro Akimoto
Yoshifumi Nishi
Takuji Kita

横田

和夫

天尾

正臣

大本

博

原

惺

秋元

哲郎

西

吉史

北

卓治

松田

邦雄

東田

和四

真砂

博成

田口

敏明

Corporate Auditors

Kunio Matsuda
Kazushi Higashida
Hironari Masago
Toshiaki Taguchi

33http://www.hanwa.co.jp

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