P E ACEJAPAN

HA RMO N Y

ANNUAL REPORT 2004
For the year ended March 31, 2004

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 ..................................................... 6
Our Ethical Principles ...................................................... 10
Topics ................................................................................... 12
Management Discussion and Analysis ..................... 13
Five-Year Summary .......................................................... 14
Financial Section ............................................................... 15
Corporate Data ................................................................. 35
Board of Directors and Investor Information ......... 36

HANWA CO., LTD., AND CONSOLIDATED SUBSIDIARIES

Financial Highlights
For the years ended March 31, 2004 and 2003

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

2004

2003

2004

2003

¥

751,964 ¥
12,666
5,662

682,964 $ 7,114,807 $ 6,461,955
10,257
119,841
97,048
5,907
53,57255,890¥293,528 ¥
57,757

281,557 $ 2,777,254 $ 2,663,989
52,748546,475
499,082

Yen

U.S. dollars

2004

Per share data:
Net income
Cash dividends

¥

2003

26.43
6.00

2004

27.91 $
5.00

2003

0.250 $
0.057

0.264
0.047

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥105.69=$1.00.

Net sales

Operating income

Net income(Millions of yen)

(Millions of yen)

(Millions of yen)

800,000

751,964

12,666

13,000

5,907
6,000

5,662

682,964
10,257

625,614
10,000

3,587
6,517

5,000

0

0

’02

’03

’04

0

’02

’03

1

’04

’02

’03

’04

Letter to Stakeholders

Dear Stakeholders,
We take pleasure in reporting that Hanwa Co., Ltd. andits consolidated subsidiaries achieved solid growth inboth sales and income for the fiscal year ended March
31, 2004. Net sales increased by 10.1% to ¥752.0 billion
while operating income showed a significant increase of
23.5% to ¥12.7 billion; however, due to the early
adoption of accounting standard for impairment of longlived assets to further strengthen the Company’s financial
foundations, net income for the term declined by 4.2%
to ¥5.7 billion. As a result, the return on equity (ROE),
one of the Company’s key management ratios that wemeasure our performance, declined by 1.4 points to
10.2% but the debt-equity ratio (D/E ratio) in percentage
terms showed a 40 point improvement to 200%.

Management Policy
Becoming an enterprise that is regarded and supportedby all of its stakeholders as being a “Valued Enterprise”
that makes contributions to both the international society
and to the local community is a key policy objective of
the Company.
Based on this philosophy, we have pursued theprinciple of placing customers above all else and being
responsive in meeting the changing needs of the market.
To achieve this, we have oriented the Company to be a
“trading company with a presence” that emphasizes a
proposal style sales approach that enhances value added
as products passes through the distribution chain
expanding business opportunities in order to enhance“win - win” relationship with our customers.

Management Targets
To strengthen the Company’s focus on enterprise value
and the quality of the balance sheet, we have included
D/E ratio (net basis), which is widely used as a measure offinancial stability to the return on assets (ROA), and ROE
as target management benchmarks. For fiscal year
ending March 31, 2007 based on the New Mid-term
Business Plan, which has been implemented since 2004,
are as follows:

Dividend Policy
Returning profits to stockholders is one of our highest
management priorities. Our basic policy is to distributedividends in line with performance on the basis of ROE
and payout ratio, while retaining internally the funds
needed to strengthen the business going forward and toensure ongoing financial soundness.

2

Targeted Management Index

FY2006 (ending March 31, 2007)

ROA

2.1%

ROE

10.0%

D/E Ratio (Net basis)120%• Promotion of the waste paper recycling business andinternational expansion of resin raw materials• Expansion of general merchandise and reinforcement of
the logistics function

Medium- and Long-term Strategy, andManagement Issues
In May 2004, we established a Mid-term Business Plan
that covers a 3-year period from FY2004 through FY2006.
It sets a number of management goals and describes theinitiatives that will be taken to achieve them.

(B) Strengthening of the international business,investment of resources in China and ASEAN
markets(A) Strengthening of the core business andcustomer-oriented, proposal-driven marketing
Steel business• Strengthening of the engineering and processing
functions in the construction and housing fields,
promotion of proposal-driven marketing• Strengthening of sales channels in the field ofautomotive, household appliances, industrial andconstruction equipment, development of new
merchandise• Strengthening of the coil center’s function and allianceswith leading processors• Investment, acquisitions and partnerships to expand thetrade right• Strengthening of functions of distribution centers andalliances with other companies for physical distribution• Development of business with automotive industries in
China and ASEAN countries centering on theInternational Automotive Team
• Setting up of coil centers in Thailand and South China
and expansion of the network of processing functions• Strengthening of operations in Vietnam, India, Russia
and Eastern Europe• Strengthening of international procurement functions
and establishment of control systems such as securing
quality• Establishment of risk management systems for sales indomestic Chinese market• Seizing of business opportunities in light of theaccelerating trend toward FTA and identification ofpromising merchandise

Nonferrous metal business• Exploitation of new sources of resources, entry to ore
resources business• Focus on ferroalloys, light metals and raw materials forsolar batteries• Expansion of exporting raw materials to China(C) Strengthening of the recycling business andnew development• Collection of resources from the viewpoint of “urban
mining” and sales to the optimum consumption area
• Expansion of items handled in terms of variety andquantity and establishment of an efficient purchasenetwork• Strengthening of handling of merchandise covered by
the Basel Convention and recycling of industrial waste

Food products business• Strengthening of the processed food business overseas
and establishment and fostering of product sales
operations• Strengthening of handling Japanese domesticallycaught seafood(D) Fostering of new businesses and expansion of
peripheral businesses• Fostering of a business incubation team (BIT) andcultivation of new fields through industry-academiagovernment cooperation• Downstream approach capitalizing on the credit
function of hanwa-steel.com and expansion ofmerchandise• Expansion of sales of timber products throughenhancement of hanwa-lumber.com

Petroleum and chemicals business• Development of business for practical application of
new energy, such as cogeneration business and fuel cellbusiness• Strengthening of trading of petroleum products trade inAsia3

(E) Improvement of productivity of sales &marketing• Seeking for rational business processing led by the
Operation IT Promotion Committee andimplementation• Enrichment of IT platform for greater flexibility• Information sharing through cooperation crossing overdepartments and establishment of an information
network for higher profitability• Promotion of empowerment with the aim of vitalizing
marketing and improving profitability(F) Human resources (HR) policy and flexible
investment policy to underpin the growthstrategy
Human resources policy• Fostering of human resources and recruitment forsustainable growth
1) Enrichment of the training system and program(training for specific objectives and fostering
executives, training of selected human resources
and local employees of overseas subsidiaries)2) Diversification of recruitment• Promotion of performance-based remuneration andestablishment of a rational evaluation system
Investment policy• Setting ¥10 billion of appropriation budget for priority
investment• Pursuit of a system enabling swift judgment of risks andspeedy investment

CSR
The CSR Committee was established in March 2004 to promote CSR activities and to establish a higher corporate brand.
Outline of the CSR Committee
Board of Directors

IR and PR activities

Managing Directors
Committee
Hanwa Scholarship Program

CSR Committee

Students from overseas Aid

Comprehensive
Donation activities

ISO 14001 Secretariat

Compliance Committee

NPO & NGO

Catch All Controls Committee

Harassment Consultation OfficeInternship System

Volunteer Activity Support

Activities to enhance
employees’ awareness of CSR

4

Corporate GovernanceIn order to fulfill its social responsibilities as a “goodcorporate citizen” and to be regarded by all stakeholders
as a “Valued Enterprise”, we will strive to achieve amanagement structure that is highly transparent and thatcomplies with all of the laws and social norms.
In November 2003, we have established “Director
Evaluation Committee” from a performance-based
perspective.
Board of Directors
Managing Directors
Committee

Director Evaluation Committee
Stating commitments by directors
Mutual evaluation among directors
Evaluation of each director’s performance
Reflecting the evaluation in directors’
remuneration and assignment

We shall continue to bolster our approach to corporate
governance through strengthened senior management
structures.
August 2004

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

5

Review of Operations
For the years ended March 31, 2004

Net sales by Product (Billions of yen)
Lumber, machinery, and other¥43 (5.7%)

Petroleum and chemicals ¥135 (18.0%)

Foods

Steel bars and shapes

Net sales¥752(100.0%)¥85 (11.3%)

Non-ferrous metals¥150 (20.0%)

Steel plates and sheets ¥162 (21.5%)
Special steels,
wire products, steel pipes, andsteelmaking raw materials ¥97 (12.9%)¥80 (10.6%)

Steel related products¥409 (54.4%)

¥752
43

¥683
13

Lumber, machinery, and other5

44
Petroleum and chemicals

¥626
40
10

6
11

7
85
Foods
92
80

86

Non-ferrous metals
65
97

54

Special steels,
wire products, steel pipes, andsteelmaking raw materials

75
70

14

1

2

27

6
15

16

2

Steel plates and sheets

5
13

15

0

Steel bars and shapes

’02

6

’03

’04

Steel (Domestic)
Review
Demand continued to be strong in theautomotive, shipbuilding andconstruction machinery sectors andrecovery was seen in equipment
investment in the IT related sectors. Civil
engineering and construction related
demand continue to be slow but thetight supply of steel products forconstruction led to a significant rise in
the price levels.
Under these conditions, ourappropriate inventory policies and sales
efforts to cope with manufacturers
pricing policies worked effectively. The
Division was able to increase the sales
amount while the volume was held to aneven level.
Outlook
We project that civil engineering willcontinue to stagnate while construction
and housing sector will tend toward
recovery and electrical machinery,
construction materials, shipbuilding andautomobiles are projected to continue tobe strong.
This being the first year of the Midterm Business Plan, we will make efforts
to strengthen our engineering functions
and processing functions while at thesame time making efforts to enhance
our customer-orientated, promotion of
proposal-driven marketing and improve
our productivity of sales and marketing.

Steel (Overseas)
Review
The steel industry, in the fiscal year
ended March 31, 2004, affected by thecontinued high growth through the year
in the East Asian economies, primarily
China, experienced a global tightening
in the supply and demand of raw
materials. Particularly, with the
expansion in the purchase of raw
materials by China, the raw material
prices showed a dramatic rise and theshortage of shipping capacity became
pronounced. Due to these factors,
supply and demand conditions in all
categories of steel became tight and therise in the market continued. In addition,
due to the steep rise in the prices of the
raw material, nickel, the prices forstainless steel sheets also showed
dramatic increases.
Due to the tightening supply, ourexports declined somewhat in volume
terms compared with the prior year.
However, sales, in spite of a 7.21%
appreciation of the yen, increased
substantially due principally to the steep
rise in prices.

7

Outlook
Except for some categories such as steel
plates, signs of softening of the market
have begun to appear. In China,
stemming from concerns overoverheating, there have been moves
toward restricting investments andfinancing into the sectors such as steel
and we expect that steel market will alsohead toward a period of adjustment.
However, such adjustments are notexpected to bring about a major slowing
down of Chinese macro economy but
may be thought of as a stage in aprocess of sustainable growth. We
project that the supply and demand forsteel in markets in Southeast Asia willcontinue to be strong.
The Company is planning in the fiscal
year 2004 to establish new coil centersin the Huanan region in China andThailand while an expansion is planned
for Chang-Fu Stainless Steel Center(Suzhou) Co., Ltd. In addition to taking
steps to expand sales of high value
added products, we are exploring a fullfledged entry into the Vietnam and India
markets.

Non-ferrous Metals
Review
The LME market finally recorded a steep
rise in the market in over 10 years in thesecond half of the fiscal year ended
March 31, 2004 after a protracted
recessionary period. This was due to themajor expansion in the markets in China,
which has a major impact on the global
raw material supply and demand.
Combination of factors including
rapid expansion of domestic demand in
China, decline in production due toelectricity shortages, and spike in theprices of iron ore, cokes and freight,
prices of virtually all materials for metal
surged from the end of the year. Prices
for nickel recorded a 15-year high andferroalloys renewed record high prices.
Amidst the rise in the non-ferrous
metal market, we increased the sales
volume of recycle businesses such asaluminum and we were also able toexpand sales volume of high value
added products. Against thebackground of strong production ofstainless steel, the volume of stainlesssteel scrap and nickel scrap that we
handled was strong. The sales offerroalloys, due to the strengthening ofour business with blast furnace andspecial steel mills made substantial
contribution to our performance. In thearea of solar batteries related products,
the sales of polycrystaline silicone
showed steady growth.
Overall, with the expansion of thehandling volume and the rising markets,sales recorded substantial increase overthe previous period.

Food Products
Outlook
We expect that strong demand for nonferrous metals in China will enter into aperiod of adjustment and while LME
cools temporarily, the demand formaterials centered around the UnitedStates and China will continue to bestrong and the likelihood for a significant
decline in the market is small.
In our overseas expansion, while wewill expand our sources of supply,
primarily in the ASEAN countries, China
and the United States, we will continue
our efforts to build efficient system ofcargo collection in domestic recycling
business.
In terms of sales and marketing, we
will continue our rebuilding of
distribution of stainless steel scrap andnickel scrap. In the area of ferroalloys,
we will continue our efforts to expand
sales to blast furnace, special steel andelectrical furnace steel mills. In solar
batteries related business, we will also
make efforts to expand sales ofintermediate products (wafers).

8

Review
Imports of sea foods, in terms of bothvolume and value, were badly affectedby cool summer during the fiscal year
ended March 31, 2004 compared withthe previous period.
In the first half of the fiscal year, themarket for shrimps and eels were strong
but in the second half due to issues
surrounding antibiotics in marine
products and bird flu, the market
suffered a major setback. In addition, theyearend demand for costly foods such as
crabs and herring roe was sluggish.
In raw material businesses, underthese conditions, the volume and thevalue of sales materials that we handled
declined substantially in comparison
with the previous fiscal year. But our
processing transactions in China, an
area in which we have focused on as away to supplement such trends
expanded substantially.
Outlook
Issues concerning the safety and securityof food including issue of antibiotics,
bird flu and BSE remain unresolved andin a severe business climate that is
expected, we expect that the market for
sea foods will strengthen as analternative for poultry and beef. Shrimps,
on the other hand, will be expected tobe sluggish due to the oversupply. Under
the circumstances, we will focus on salesof processed products to food service
industry and convenience stores and will
increase our handling of products closer
to the consumer.

Petroleum and Chemicals

LumberMachinery

Review
While the prices for crude oil surged dueto the turmoil in Iraq, domestic fueldemand stagnated due to the coolsummer and warm winter. In spite ofthese factors, we were able to surpass
our projection for sales to users. In thewholesale segment, we were able totake advantage of the market
fluctuation and we increased ourvolume and value of products sold. The
sales of bunker oil was sluggish for both
domestically and externally.
Chemicals enjoyed good performancein exports to China. However, due to thefall in the market for packaging paper,
sales in our paper products declined.
However, the overall volume and valueof sales showed an increase over theprevious fiscal year.

Review
Imports of plywood declined due to thedelay in responding to the new JAS by
Indonesia mills. Import of Canadiansawn timber also declined resulting from
2-month long port strike in Canada.
We were able to increase our sales ofmaterials to domestic laminated board
manufacturers and lumber mills but
overall sales declined over the previous
fiscal year. Domestically, our new
business of stock sales of lumber
products for 2x4 housing contributed to
profits.

Review
Leisure Sector: In terms of large projects,
we supplied a roller coaster and children’s
play equipment to a theme park locatedin the Central region of Japan.
Industrial Sector: We supplied a steel
manufacturer in Huanan region of China
with steel fabrication equipment. Withan eye toward the implementation of
the Law for the Recycling of End-of-life
Vehicles in January of 2005, we havebegun marketing of Automobile
Shredder Residue (ASR) equipment thatenables over 95% recycling.

OutlookDuring the current period, we will
expand our business with pre-cut lumber
mills for the housing market and we will
also strengthen product imports from
Rumania, China and Russia. In addition,
we will focus on expanding sales ofmaterials to laminated board
manufacturers and lumber mills.

Outlook
Leisure Sector: Domestic competition ismoderating due to competitors’
withdrawal from the business. In
addition, overseas manufacturers areundergoing reorganization in theindustry to deal with management issues
brought on by the global decline indemand for leisure equipment. We willplace emphasis away from thriller rides
such as large jet coasters and focus onmarketing of various fountains with afocus on visual appreciation such asmusic fountains, mists, jumping
fountains and the like as well as ball
attractions.

Outlook
Amidst the unstable situation in the
Middle East and the continuing rise in
the crude oil prices, we have not beenable to fully pass on the increased costto the consumers and we expect severebusiness environment to continue forsome time. We will strengthen ourbusiness through expanding sales toexisting customers and development of
new customers. We will also continue topursue diversification of our businesses
including expanding sales of bunker oil,wholesale activities, expanding tradetransactions and utilization of the
futures markets.
In chemicals, with a focus on exports
of lubricant oils and Atactic
Polypropylene and import of synthetic
resins, we will make efforts to expand
sales of daily necessities to mass retailers.

Industrial Sector: Although impact of
the financial restraints by the Chinese
government on the Asian economy isexpected, we will continue to strengthen
our exports of steel fabrication
machinery and tailored blanks, which isa processing equipment for steel sheet
for automobiles. Domestically, we will
focus on expanding sales of steel
processing machinery focusing on sale ofenvironmental recycle equipment such
as ASR.
9

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.

10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.

11Topics

1. 50% Expansion of the processing capacity of
the Chang-Fu Stainless Steel Center (Suzhou)Co., Ltd.

2. The Nagoya Branch Office has relocated
On January 13, 2004, our Nagoya Branch Office has moved to
the NHK Nagoya Broadcasting Center located in HigashiSakura, Higashi-ku, in Nagoya. The floor space of the office has
been expanded by over 20% and the office was designed withthe concept of, “comfortable to work, pleasant and where
customers can be welcomed”.
Utilizing the opportunities presented by the office relocation,
the Nagoya Branch Office will further strengthen its efforts to
expand business in the Chubu Region.

In March, 2004, Chang-Fu Stainless Steel Center (Suzhou) Co.,
Ltd. in which we hold a 58.06% share of ownership hascompleted construction of a new plant within the same site.
The expansion was needed to meet the active demand from its
principal users including household appliances and officeautomation equipment manufacturers. A large slitter line isplanned to be installed within the plant and this will expand themonthly processing capacity from 10,000 tons to 15,000 tons.
In addition, in November, 2003, Chang-Fu was a recipient of
the “Honorary Citizen Certificate” from the city of its domicile,
Taichang in Jiangsu Province. This award was presented to 43
foreign affiliated enterprises that made significant contributions
to the economic development of the city and Chang-Fu wasselected among them.

3. Regarding the Company’s Social
Responsibility (Establishment of the CSR
Committee)
We have been aggressively promoting activities toward
corporate social responsibility and with the aim of establishing a
corporate brand whose existence will be recognized, the “CSR
Committee” was established in March, 2004.
In our corporate activities going forward, enhancements will
be made from various perspectives including compliance withthe laws, consideration for the environment, and contributions
to society and we will steadily achieve these responsibilities thatHanwa bears as a “social institution”
The outline of the organization is shown on page 4.

12

Management Discussion and Analysis

Economic overview
During the year under review, the world economy showed
gradual trend for recovery in the US and Europe andcontinued buoyancy was seen in the East Asian economies,
centering on the Chinese economy. In Japanese economy,
also, there have been some bright signs including indication of
firmness in private capital investments led by the digitalappliance segment and the recovery of the stock markets,
which is enjoying favorable conditions; however, the overall
deflationary tone continues to linger and conditions thatwarrant vigilance continues.

Petroleum and Chemicals: While the international market for
crude oil rose significantly as a result of increases in demand forfuel oils due to the cold spell in Europe and the United States
and the problems in Iraq, in our domestic market, the winterdemand for kerosene was depressed due to the warm winterduring end of the year period resulting in severe pricing
conditions. However, in spite of the adversities, due to theresults of our efforts to expand the sales volume, net sales ofthe segment was able to show an increase of 16.6% over theprevious year to ¥135.1 billion.
Other businesses: Principally in the lumber business, due toregulatory factors including the strengthening of the restrictions
on logging by the Indonesian government and the transition to
the new JAS Standards that resulted in the reduction of
plywood imports, net sales declined 1.9% over the previous
year to 43.2 billion.

Earnings
In spite of this severe environment, due to our strict and timely
credit management and aggressive measures to expand sales,
supported by favorable export performance to China and South
East Asian markets, net sales for the fiscal year expanded by
10.1% over the previous year to ¥752.0 billion. As a result ofcontinued strength in the steel products and non-ferrous metal
markets and the Group’s focus on maintaining profit margins,
operating income expanded 23.5% over the previous fiscal yearto ¥12.7 billion. Further, as a result of early adoption of
accounting standard for impairment of long-lived assets, as another expense item for the purpose of further strengthening
our financial base in preparation for the execution of the New
Mid-term Business Plan, net income for the term under review
declined 4.2% over the previous year to ¥5.7 billion.

Cash FlowsNet cash provided by operating activities, during the previous
year was ¥3.3 billion but during the fiscal year, net cash used inoperating activities was ¥6.9 billion. This is due to an ¥11.8
billion expansion in trade receivables and increase in theinventory level by ¥9.2 billion in comparison with the previous
year associated with the active sales activities.
In terms of net cash provided by investing activities,
compared with the net cash provided of ¥0.8 billion in theprevious year, during the fiscal year, it was a net use of ¥1.0
billion. The reasons for this variance were due to increase intime deposits and to expansion of steel processing equipment.
Net cash used in financing activities amounted ¥10.9 billion,
an increase by ¥0.8 billion over the previous year. In thefinancing activities undertaken this year was continued
repayments of bank loans and long-term debts in line with theobjective, established in the former Mid-term Business Plan of
reducing interest bearing debt.

Sales by Business Segment
Steel: With the continued weakness, particularly in theconstruction industry, which is a major buyer of mild steel bars
and shapes, there have not been any signs of robust recovery inthe domestic demand. On the other hand, some bright signs for
optimism has been emerging in the demand conditions in theconstruction machinery and industrial machinery sectors and in
addition to continued favorable performance in exports to
China and South East Asia of raw materials for OA equipment
and home appliance industries. The prices for steel continued tohold firm during the fiscal year 2003 resulting in a 12.0%
increase in net sales over the previous year to ¥409.4 billion.
Non-Ferrous Metals: Due to the robust demand for stainlesssteel in China, the market for stainless steel scraps and nickel
continued to perform favorably. With the success of our efforts
to strengthen the sales organization to focus on the handling of
ferroalloys, including ferrochrome and silicon manganese, net
sales of the segment increased 22.4% over the previous year to¥79.6 billion.
Foods: Adding to the decline in demand attributable to theadverse effects of the cold summer in the first half of FY2003,
the year-end demand was also unfavorable resulting in a
decline in net sales by 8.5% to ¥84.6 billion.

Outlook
We see little cause for optimism for management environmentthat surround the trading companies in chaotic conditions that
continues to prevail in the Middle East, heightening concerns
over terrorism, uncertainty enveloping the outlook for theworld economy and a Japanese economy where thedeflationary bias continues to be the basic theme.
We regard the steel business, non-ferrous metal business,food business, and petroleum and chemical businesses as corebusinesses and we will execute the marketing strategy outlinedin the Mid-term Business Plan to expand the businesses. In
other business areas, we will work to enhance earnings byboosting the sales of existing products and by developing newcustomers.

13

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

2004

2003

2002

2001

2000

751,964 ¥
12,666
5,662

682,964 ¥10,257
5,907

625,614 ¥
6,517
3,587

689,106 ¥10,283
1,945

629,717 $ 7,114,807
8,727
119,841595
53,572(6,850)3,269

19,327

2,731(9,715)(64,812)(1,004)(10,873)836(10,115)

1,352(14,630)

41,635(52,208)

22,789(20,382)(9,499)(102,877)

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

8,390
293,52857,75727,808281,557
52,74835,183
284,515
49,18827,701
288,175
25,44834,435332,172
27,036

79,3832,777,254
546,475

Number of employees

1,285

1,239

1,136

1,177

1,202

108,494

For the year:
Net sales
Operating income
Net income¥

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

2004

Yen

2004

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

26.43 ¥
6.00
272.67

2003

27.91 ¥
5.00
249.30U.S. dollars

2002

2001

16.95 ¥
5.00
232.402000

9.19 ¥—
120.232004

2.48 $—
127.73%

2004

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

2003

2.0
10.2
200

2.1
11.6
240

2002

2001

1.3
9.6
270

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥105.69=$1.00.

14

2000

0.6
7.4
580

0.2
1.7
740

0.250
0.057
2.580

Financial Section

Contents
Consolidated Balance Sheets ........................................................................................... 16
Consolidated Statements of Income ............................................................................. 18
Consolidated Statements of Stockholders’ Equity ................................................... 19
Consolidated Statements of Cash Flows ..................................................................... 20
Notes to Consolidated Financial Statements ............................................................. 21
Independent Auditors’ Report ......................................................................................... 34
15

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2004 and 2003

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets2004

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 tax assets-current (Note 8)
Other current assets (Note 5)
Total current assets¥

8,390 ¥—

2003

27,808 $102

2004

79,383 $—2003

263,109965

4,001
145,863

3,181
130,933

37,856
1,380,102

30,0971,238,840

2,214
8
(835)
50,562
2,370
17,162229,735

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

20,94875(7,900)478,399
22,424
162,381
2,173,668

33,42819(8,146)
330,996
10,029135,179
2,034,516

1,240
12,377

1,421
8,588

11,732
117,107

13,445
81,257325
806
10,780(2,041)
23,487415
940
11,277(2,092)
20,5493,075
7,626
101,996(19,311)222,225

3,927
8,894
106,698(19,794)
194,427

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

24,352
19,936
6,527(11,184)
39,631

29,195
19,972
5,789(9,670)45,286

230,410
188,627
61,756(105,819)
374,974

276,233
188,968
54,773(91,494)
428,480

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

10
665
675
293,528 ¥

75
95
710
619
6,292
5,856
694
6,387
6,566
281,557 $ 2,777,254 $ 2,663,989

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¥

See accompanying Notes to Consolidated Financial Statements.

16

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities, Minority Interest and Stockholders’ Equity

2004

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 landDeferred tax liabilities — noncurrent (Note 8)
Other non-current liabilities
Total non-current liabilities

2003

2004

2003

613,559 $
9,935

705,980
274,189

64,847 ¥
1,050

74,615 $28,9791,759
92,591
1,555
81
13,968
175,851

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

16,643876,062
14,713766
132,160
1,663,838

13,038766,837
13,606
5,563
123,389
1,902,602

48,675
2,468
466
2,819
2,653
2,303
59,38421,000
1,791
367
2,512
—
1,551
27,221

460,545
23,351
4,410
26,672
25,102
21,790561,870

198,694
16,946
3,472
23,768—
14,675257,555

536

502

5,071

4,750

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 gains (losses) on securities
Foreign currency translation adjustments
Treasury stock, at cost: 99,130 shares (73,712 in 2003)
Total stockholders’ equity
Total

¥

17

45,651
11,451
1,616
2,282(3,225)(18)
57,757
293,528 ¥

45,651
431,933
431,933
9,991
108,345
94,531(419)
15,290(3,964)(385)
21,591(3,643)(2,079)(30,514)(19,671)
(11)
(170)
(104)
52,748546,475
499,082
281,557 $ 2,777,254 $ 2,663,989

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income
For the years ended March 31, 2004 and 2003

Thousands of
U.S. dollars (Note 1)

Millions of yen

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

¥

2004

2003

2004

2003

751,964 ¥718,31433,65020,984
12,666

682,964 $ 7,114,807 $ 6,461,955
651,641
6,796,423
6,165,588
31,323
318,384
296,367
21,066
198,543
199,319
10,257
119,841
97,048Other income (expenses):
Interest and dividend income
Interest expense
Gain on sale of property and equipment
Loss on impairment of long-lived assets (Note 15)
Loss on loans receivable
Provision for doubtful receivables
Loss on write-down of investment securities
Provision for loss on sale-repurchase agreement of land
Loss on sale of property and equipment
Loss on sale of investment securities
Other, net

781(2,026)—(4,590)
(71)
(403)
(234)
(307)
(411)
—
(981)

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

7,390
(19,169)—(43,429)(672)(3,813)(2,214)(2,905)(3,889)—(9,282)

8,705(21,033)
2,356
—
—
—
(3,207)(4,494)—(8,904)(4,476)

Income before income taxes and minority interest

4,424

6,975

41,85865,995(65)(1,263)(1,328)

166
902
1,068

(615)
(11,950)(12,565)

1,571
8,534
10,105(90)
5,662 ¥—
5,907 $

(851)
53,572 $—55,890

Income taxes (Note 8):
Current
Deferred

Minority interest in income of consolidated subsidiaries
Net income

¥

Yen

2004

Net income per share
Cash dividends per share¥

See accompanying Notes to Consolidated Financial Statements.

18

26.43 ¥
6.00

U.S. dollars (Note 1)

2003

27.91 $
5.00

2004

0.250 $
0.057

2003

0.264
0.047

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Stockholders’ Equity
For the years ended March 31, 2004 and 2003

Thousands

Balance at March 31, 2002
Net income
Cash dividends
Transfer of land revaluationdifference
Net changes in unrealized
holding gains (losses)
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2003
Net income
Cash dividends
Transfer of land revaluationdifference (Note 9)
Net changes in unrealized
holding gains (losses)
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2004

Number of sharesof common stock

Common stock

Retained earnings

Millions of yen
Net unrealized
Land revaluation
holding gains (losses)
difference
on securities

211,663——¥ 45,651
—
—

¥

¥

—

—

1

(1)

—

—

—

—

—

—

—

423

—

—

—
—
211,663————
45,651
—
—

—
—
9,991
5,662
(1,058)

—
—
(419)
—
—

—
—
(385)
—
—

(1,702)—(2,079)
—
—

—
(10)
(11)
—
—

—

—

(3,144)

2,035

—

—

—

—

—

—

—

2,667

—

—

—
—
211,663——¥ 45,651——¥ 11,451

¥

—
—
1,616

—
—
2,282

(1,146)—(3,225)

—
(7)
(18)

Common stock

Retained earnings

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

Foreign currencytranslation
adjustments

Treasury stock$ 431,933———$ 48,642
55,890(10,010)
9

$

$

$

—

—

—

4,002

—

—

—
—
431,933————
94,53153,572(10,011)——(3,964)————(3,643)——(16,104)—(19,671)
—
—

—
(95)
(104)
—
—

—

(29,747)

19,254

—

—

—

—

—

—

25,234————$ 431,933——$ 108,345——$ 15,290——$ 21,591(10,843)—$ (30,514)

—
(66)
(170)

Balance at March 31, 2002
Net income
Cash dividends
Transfer of land revaluation difference
Net changes in unrealized
holding gains (losses)
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2003
Net income
Cash dividends
Transfer of land revaluationdifference (Note 9)
Net changes in unrealized
holding gains (losses)
on securities
Adjustments from translationof foreign currency
financial statements
Treasury stock
Balance at March 31, 2004

5,141
5,907
(1,058)See accompanying Notes to Consolidated Financial Statements.

19

(418)
—
—

(3,955)
—
—
(9)

¥

¥

$

(808)
—
—

(7,645)———

Foreign currencytranslation
adjustments

Treasury stock

¥

¥

¥

(377)
—
—

(3,567)
—
—
—

¥

$

(1)
—
—

(9)
—
—
—

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2004 and 2003

Thousands of
U.S. dollars (Note 1)

Millions of yen

2004

Cash flows from operating activities:
Income before income taxes
Adjustments to reconcile income before income taxes to net cash
provided by (used in) operating activities
Depreciation
Loss on impairment of long-lived assets
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
Provision for loss on sale-repurchase agreement of land
Loss on sale of property and equipment
Loss on sale of investment securities
Increase in trade receivables
Increase in inventories
Increase (decrease) in trade notes and accounts payable
Other, net
Sub total
Cash flows during the year for:
Interest and dividends received
Interest paid
Income taxes paid
Net cash provided by (used in) operating activities
Cash flows from investing activities:
Increase in time deposits, net
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 (used in) 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 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.

20

4,424 ¥

2003

6,975 $

2004

41,858 $2003

65,995

2,008
4,590
(72)
(781)
2,026
—
234
307
411
—
(16,054)(15,795)
12,156
1,212(5,334)

1,707
—
(649)
(920)
2,223
(249)
339
475
—
941
(4,233)(6,588)(3,422)
8,037
4,636

18,99943,429(681)(7,390)19,169
—
2,214
2,905
3,889
—
(151,897)(149,446)
115,016
11,467(50,468)

16,151—(6,141)(8,705)21,033(2,356)
3,207
4,494
—
8,904
(40,051)(62,333)(32,378)
76,044
43,864798(2,017)(297)(6,850)972(2,172)
(167)
3,269

7,550
(19,084)(2,810)(64,812)

9,197(20,551)(1,580)30,930(1,711)108(1,265)
157
(418)
813
(178)
967

—
2,941
(603)
1,403
(3,230)2,671(2,444)479(16,189)
1,022(11,969)
1,485(3,955)
7,693(1,684)
9,149—
27,827(5,705)
13,274(30,561)
25,272(23,124)
4,532

—
523
(1,004)

452
(833)
836

—
4,949
(9,499)4,277(7,882)
7,910(9,579)28,750(29,003)(1,034)(7)(10,873)(691)(19,418)
27,8088,390 ¥

(22,710)
15,000(1,337)(1,058)(10)(10,115)(1,365)(7,375)35,18327,808 $(90,633)
272,022(274,416)(9,784)(66)(102,877)(6,538)(183,726)
263,109
79,383 $(214,874)
141,924(12,650)(10,010)(94)(95,704)(12,916)(69,780)
332,889
263,109

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Basis of presenting consolidated financial
statements
The accompanying consolidated financial statements of Hanwa
Co., Ltd. (the “Company”) and its consolidated subsidiaries havebeen prepared in accordance with the provisions set forth in theJapanese Securities and Exchange Law and its related accounting
regulations, and in conformity with accounting principles
generally accepted in Japan, which are different in certain
respects as to application and disclosure requirements ofInternational Financial Reporting Standards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English(with some expanded descriptions and the inclusion of
consolidated statements of stockholders’ equity) from theconsolidated financial statements prepared in accordance withJapanese 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, 2004, whichwas ¥105.69 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 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, andsignificant transactions after their year-ends are appropriately
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. Other available-for-sale securities are stated atmoving average cost.
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. Recognized loss on impairment of long-lived
assets have been deducted from acquisition costs. Depreciation
is principally provided on the declining balance method overestimated useful lives. Major renewals and improvements arecapitalized. 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.
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 fileconsolidated tax returns.

21

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:
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.
Change in accounting policy — Commencing in the year
ended March 31, 2004, the Company and its Subsidiaries
adopted early the new Japanese accounting standard for
impairment of long-lived assets (“Opinion Concerning
Establishment of Accounting Standard for Impairment of LongLived Assets” issued by the Business Accounting Deliberation
Council of Japan on August 9, 2002) and the Implementation
Guidance for Accounting Standard for Impairment of Long-Lived
Assets (the Financial Accounting Standard Implementation
Guidance No. 6 issued by the Accounting Standards Board ofJapan on October 31, 2003). As a result, net income before
income taxes and minority interest for the year ended March 31,
2004 decreased by ¥4,590 million ($43,429 thousand)compared with what would have been reported if the new
accounting standard had not been adopted early.

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.
Employees of Japanese companies are compulsorily includedin the Welfare Pension Insurance Scheme operated by thegovernment. Employers are legally required to deduct
employees’ welfare pension insurance contributions from their
payroll and to pay them to the government together with
employers’ own contributions. For companies that haveestablished their own Employees’ Pension Fund, which meets
certain legal requirements, it is possible to transfer a part of theirwelfare pension insurance contributions (referred to as the“substitutional portion” of the government’s Welfare Pension
Insurance Scheme) to their own Employees’ Pension Fund under
the government’s permission and supervision.
Based on the newly enacted Defined Benefit Corporate
Pension Law, the Company decided to restructure their
Employees’ Pension Fund and were permitted by the Minister of
Health, Labor and Welfare on September 25, 2003 to bereleased from their future obligation for payments for thesubstitutional portion of the Welfare Pension Insurance Scheme.
Pension assets for the substitutional portion maintained by the
Employees’ Pension Fund are to be transferred back to thegovernment’s scheme. The effects of the transfer are disclosed in
the Note 7. Employees’ severance and retirement benefits.
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 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.

22

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, 2004 and 2003:

March 31, 2004
Acquisition cost

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

Acquisition costThousands of U.S. dollars
Book value

Difference

7,804 ¥

3,887 $

37,062 $73,839 $36,777—
3,917 ¥—
7,804 ¥—
3,887 $—
37,062 $—73,839 $—36,777

332 ¥

293 ¥

(39) $

3,141 $

2,772 $

(369)

Acquisition cost

Other securities:
Equity securities

Difference

3,917 ¥March 31, 2003
Securities with book values exceeding acquisition costs:
Equity securities¥
Bonds
Corporate bonds
Total¥

Millions of yen
Book value

Millions of yen
Book value

Difference

Acquisition costThousands of U.S. dollars
Book value

Difference

2,212 ¥

2,542 ¥

330 $

20,929 $24,051 $

3,122

100
2,312 ¥

102
2,644 ¥

2
332 $

946
21,875 $965
25,016 $19
3,1412,734 ¥

2,022 ¥

(712) $

25,868 $19,132 $(6,736)(B) The following tables summarize book values of securities whose fair values are not determinable as of March 31, 2004 and 2003:(a) Equity securities issued by unconsolidated subsidiaries and affiliated companies
Millions of yen
2004
Book value

Equity securities issued by unconsolidated subsidiaries and affiliated companies

Thousands of U.S. dollars

2003
Book value

2004
Book value

2003
Book value¥

1,240 ¥

1,421 $

11,732 $13,445¥2,280 ¥
2,000
4,280 ¥

2,024 $
2,000
4,024 $

21,573 $18,92340,496 $19,151
18,92338,074(b) Available-for-sale securities
Unlisted stocks (excluding over-the-counter securities)
Other
Total

¥

23

(C) Available-for-sale securities with maturities as of March 31, 2004 and 2003 will mature as follows:Year ended March 31, 2004
No available-for-sale securities with maturities remains this year.

Year ended March 31, 2003
Within one year

Millions of yen
Over one year but
within five years

Over five years but
within ten years

102

—

—

Corporate bonds

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

965

—

—

(D) Total sales of available-for-sale securities in the years ended March 31, 2004 and 2003 amounted to ¥832 million ($7,872
thousand) and ¥2,269 million ($21,468 thousand), which resulted in net gains of ¥25 million ($237 thousand) and net losses of¥941 million ($8,904 thousand), respectively.

4. Derivatives
purpose of using derivatives is to reduce market risks associatedwith assets, liabilities and interest rates, market risks of thederivatives are effectively offset. As the counterparties toderivatives are limited to major financial institutions, theCompany does not anticipate any losses arising from credit risk.
Derivatives entered into by the Company have been 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.

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. The
Company also 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 the

The following tables summarize market value information as of March 31, 2004 and 2003, of derivatives for which hedge accounting
has not been applied:

March 31, 2004
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:
Selling
Put
U.S. dollars
Euro
BuyingCall
U.S. dollars
Euro¥

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

Fair value

2,206 ¥
10

2,191 ¥
924,094
1,566

23,485
1,532

11,490

608
<12>
1,518
<33>
203
<5>
506
<16>

20,730 $
85

(609)
(34)

227,969
14,817222,206
14,495(5,763)
(322)

999

999

108,714

9,452

9,452

50

(38)

473

(360)

46

(13)

435

(123)

1

(4)

9

(38)

¥

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

24

15 $
1

Net recognized
gains (losses)

Fair value

20,872 $
95

9

Total

Contract ornotional amount

(7)
310

5,753
<113>
14,363
<312>
1,921
<47>
4,788
<151>

86
$

142
10

(65)
2,933

Commodity related

Millions of yen
Contract ornotional amount

Futures:Petroleum
Selling
BuyingFrozen seafoods
Selling
BuyingNon-ferrous metals
Selling
Buying
Total¥

Fair value

Contract ornotional amount

1,699 ¥
6,867

(4) $
130

16,037 $63,743

16,075 $64,973

(38)
1,230

—
6

—
6

—
—

—
57

—
57

—
—

14,36913,321

14,31813,73251411
588

135,954
126,038

135,472
129,927

482
3,889
5,563

¥

$

Millions of yen
Contract ornotional amount¥

BuyingCall
Euro

Net recognized
gains (losses)

Fair value

1,695 ¥
6,737

March 31, 2003
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
Currency option agreements:
Selling
Put
Euro

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

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)

33,541 $322

33,343 $331

24,509
1,725

25,103
1,759

594
34

231,895
16,321

237,515
16,6435,620
322

12,602526

526

119,236

4,977

4,977

181
<5>

5

—

1,713
<47>

47

—

91
<3>

16

13
1,187

861
<28>

151

Total

¥

198
(9)

123
11,231$

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¥

Thousands of U.S. dollars
Net recognized
gains

Fair value

1,262 ¥
790

1,218 ¥
818

16
9

15
9
¥

25

Contract ornotional amount

44 $
28
1
—
73

Fair value

Net recognized
gains

11,940 $
7,475

11,524 $
7,740

416
265

151
85

142
85

9
—
690

$

5. Pledged assets
At March 31, 2004 and 2003, assets pledged as collateral for short-term bank loans of ¥396 million ($3,747 thousand) and ¥25,100
million ($237,487 thousand), respectively, and guarantees were as follows:
Thousands of
U.S. dollars

Millions of yen

2004

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

¥

¥

2003

10 ¥
3,817
342
69
4,238 ¥

10 $
1,503
25,02478
26,615 $

2004

2003

94 $
36,115
3,236
653
40,098 $94
14,221
236,768738
251,821

6. Bank loans and long-term debt
Bank loans at March 31, 2004 and 2003, were represented
principally by short-term notes with an weighted averageinterest rate of 1.13% and 1.10%, respectively.
Long-term debt at March 31, 2004 and 2003, consisted of the following:Thousands of
U.S. dollars

Millions of yen

2004

Loans from banks, with an weighted average interest rate of 0.94% and0.93% at March 31, 2004 and 2003, maturing serially through 2009¥

Less amounts due within one year¥2003

49,725 ¥49,725
1,050
48,675 ¥49,979 $49,97928,97921,000 $

2004

2003

470,480 $
470,480
9,935
460,545 $472,883
472,883
274,189
198,694

The annual maturities of long-term debt outstanding at March
31, 2004, were as follows:

Years ending March 31,
Millions of yen

2005
2006
2007
2008
2009

¥

Total

¥

1,050 $
17,05026,45050
5,125
49,725 $Thousands of
U.S. dollars

9,935
161,321250,260
473
48,491
470,480

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,
2004 and 2003, consisted 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

¥

¥
26

2004

2003

2004

2003

23,059 ¥(13,031)(8,696)720
416
2,468 ¥

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

218,176 $(123,295)(82,278)
6,812
3,936
23,351 $

185,912(104,854)(75,182)
7,380
3,690
16,946

Included in the consolidated statements of income for the years ended March 31, 2004 and 2003, are severance and retirement
benefit expenses comprised of the following:Thousands of
U.S. dollars

Millions of yen

2004

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

591 ¥
488
(330)
617
(60)
40
1,346 ¥

2003

808 $
461
(435)
450
(60)
132
1,356 $

2004

5,592 $
4,617
(3,122)
5,838
(568)
378
12,735 $

2003

7,645
4,362
(4,116)
4,258
(568)
1,249
12,830remaining service period of active employees expected to receive
benefits under the plan.

Assumptions used for the years ended March 31, 2004 and 2003, are as follows:

Discount rate
Expected rate of return on plan assets
Amortization period of prior service costs
Amortization period of actuarial differences
As explained in Note 2, the Company obtained permission by
the Minister of Health, Labor and Welfare on September 25,
2003, to be released from their future obligation for payments
for the substitutional portion of the Welfare Pension Insurance
scheme.

2004

2003

2.0%
3.0%
14 years
14 years

2.5%
3.5%
14 years
14 years

The Companies estimate that the amounts of pension plan
assets to be transferred back to the government and the related
gains will be ¥4,546 million ($43,013 thousand) and ¥1,744
million ($16,501 thousand), respectively.

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, 2004 and 2003.
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 40.5% 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, for the year ended March 31, 2003,
deferred taxes assets decreased by ¥2 million ($19 thousand)and provision for deferred income taxes increased by ¥2 million($19 thousand) compared with what would have been reported
using the currently applicable aggregate 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, 2004 and 2003:

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

27

2004

2003

42.1%
4.7
(76.9)
2.8
(2.1)
(0.6)
(30.0)%

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

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2004 and 2003 are as follows:
Thousands of
U.S. dollars

Millions of yen

2004

Deferred tax assets:
Net operating loss carryforwards
Temporary differences pertaining to a consolidated subsidiary
Loss on impairment of long-lived assets
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 unrealized holding gains on securities
Land revaluation difference
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

¥

¥

2003

2004

2003

2,014 ¥
23,986
1,867—

4,721 $
23,834—
1,736

19,056 $226,947
17,665—44,668225,509—
16,425

781
1,147
4,273
34,068(31,471)
2,597

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

7,390
10,85240,429322,339(297,767)
24,572

7,352
9,622
33,145
336,721(323,777)
12,944

1,566
1,109
195
2,870
(273) ¥

4
—
229
233
1,135 $

14,817
10,493
1,845
27,155(2,583) $

38
—
2,167
2,205
10,739

9. Stockholders’ equity
Land revaluation difference — Pursuant to the Law
Concerning Land Revaluation, the Company revaluated land
used for business activities at March 31, 2002.
Unrealized gain (loss) on land revaluation is recorded as land
revaluation difference in a separate component of stockholders’equity of the accompanying consolidated balance sheets until
realized. The amounts are shown net of applicable income tax.
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.
As of March 31, 2004, the carrying amount of the land after
the above one-time revaluation exceeded the market value by¥1,539 million ($14,561 thousand).

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.
The Commercial Code provides that an amount equal to atleast 10% of cash dividends and other cash appropriations shallbe appropriated and set aside as a 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 reducea deficit by resolution of the stockholders’ meeting or may becapitalized by resolution of the Board of Directors. On condition
that the total amount of legal earnings reserve and additional
paid-in capital remains being equal to or exceeding 25% ofcommon stock, they are available for distribution by the
resolution of stockholders’ meeting. Legal earnings reserve is
included in retained earnings in the accompanying 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.

28

10. Acquisition of consolidated subsidiary
Chang-Fu Stainless Center (Suzhou) Co., Ltd. has been included
in consolidation effective from the preceding fiscal year as aresult of 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¥¥

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

Thousands of
U.S. dollars

23,086
8,894
246(20,655)(4,750)(700)
6,121(4,097)2,024(6,301)(4,277)

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, 2004 and 2003, were ¥338 million ($3,198
thousand) and ¥403 million ($3,813 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 years ended March 31, 2004 and 2003, were as follows:

As of March 31, 2004
Acquisition
cost

Other property and equipment
Other investments
Total

¥
¥

1,227 ¥
129
1,356 ¥

As of March 31, 2003
Acquisition
cost

Other property and equipment
Other investments
Total

¥
¥

Millions of yen
Accumulated
depreciation

709 ¥
28
737 ¥
Millions of yen
Accumulated
depreciation

1,408 ¥
122
1,530 ¥

759 ¥
79
838 ¥

Depreciation expense, which is not reflected in theaccompanying statements of income, computed by the straightline method was ¥276 million ($2,611 thousand) and ¥368
million ($3,482 thousand) for the years ended March 31, 2004
and 2003, respectively.

Net leased
property

518 $
101
619 $

Net leased
property

649 $
43
692 $

Acquisition
cost

Thousands of U.S. dollars
Accumulated
depreciation

11,609 $
1,221
12,830 $Acquisition
cost

6,708 $
265
6,973 $

Thousands of U.S. dollars
Accumulated
depreciation

13,322 $
1,154
14,476 $7,182 $
747
7,929 $Net leased
property

4,901
956
5,857

Net leased
property

6,140
407
6,547

Interest expense, which is not reflected in the accompanying
statements of income, computed by the interest method was¥19million ($180thousand) and ¥30 million ($284 thousand) for
the years ended March 31, 2004 and 2003, respectively.

29

Obligations, excluding financing charges, under such non-capitalized finance leases as of March 31, 2004 and 2003, were as follows:
Thousands of
U.S. dollars

Millions of yen

2004

Due within one year
Due after one year
Total

¥

2003

261 ¥
405
666 ¥

¥

2004

292 $
419
711 $

2003

2,469 $
3,832
6,301 $

2,763
3,964
6,727

Operating leases
As Lessee
Obligations under operating leases as of March 31, 2004 and 2003, were as follows:
Thousands of
U.S. dollars

Millions of yen

2004

Due within one year
Due after one year
Total

¥
¥

2003

45 ¥
92
137 ¥

2004

47 $
141
188 $

2003

426 $
870
1,296 $

445
1,334
1,779

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, 2004 and 2003, is as follows:Year ended March 31, 2004
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Loss on impairment oflong-lived assets
Capital expenditure¥¥¥

Non-ferrous
metalsMillions of yen
Petroleum
Other
and chemicals
business

Foods

79,633 ¥78,164
1,469 ¥
27,654 ¥86

84,572 ¥83,427
1,145 ¥
30,996 ¥45

135,126 ¥
133,862
1,264 ¥
18,334 ¥19

43,243 ¥40,492
2,751 ¥
12,060 ¥357

751,964 ¥734,908
17,056 ¥252,956 ¥
1,939

4,547
981

43
25

—
33

—
16

—
754

4,590
1,809

Year ended March 31, 2004
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Loss on impairment oflong-lived assets
Capital expenditure

Total

409,390 ¥398,963
10,427 ¥163,912 ¥1,432

Non-ferrous
metals$ 3,873,498 $
3,774,842$
98,656 $$ 1,550,875 $
13,549753,458 $
739,559
13,899 $261,652 $813

43,022
9,282

407
237

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

Foods

Total

Corporate

Consolidated— ¥ 751,964
4,390
739,298(4,390) ¥ 12,666
40,572 ¥ 293,528
69
2,008
—
62

Corporate

4,590
1,871

Consolidated

800,189 $ 1,278,513 $ 409,149 $ 7,114,807 $— $ 7,114,807
789,356
1,266,553
383,120
6,953,430
41,536
6,994,966
10,833 $ 11,960 $ 26,029 $ 161,377 $ (41,536) $ 119,841
293,273 $ 173,470 $ 114,107 $ 2,393,377 $ 383,877 $ 2,777,254
426
180
3,378
18,346653
18,999
—
312

—
151

Corporate costs and expenses mainly consist of expenses ofadministrative departments.

—
7,134

43,42917,116—587

43,42917,703

Corporate assets mainly consist of cash and cash equivalents,
investment securities and assets of administrative departments.
30

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$ 3,459,060 $3,390,075$
68,985 $$ 1,416,728 $
11,855
4,078

Non-ferrous
metals615,366 $603,737
11,629 $173,224 $871
218

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

874,472 $ 1,096,130 $ 416,927 $ 6,461,955 $— $ 6,461,955
850,961
1,084,672
395,373
6,324,818
40,0896,364,907
23,511 $ 11,458 $ 21,554 $ 137,137 $ (40,089) $97,048250,478 $ 179,184 $ 113,823 $ 2,133,437 $ 530,552 $ 2,663,989
520
208
1,987
15,441710
16,151
482
189
2,328
7,295
719
8,014

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.

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

31

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, 2004 and 2003, were as follows:Year ended March 31, 2004
Asia

Overseas net sales
Percentage of consolidated net sales¥

Millions of yen
Other
areas

112,062 ¥
14.9%

Total

8,462 ¥
1.1%

Asia

Thousands of U.S. dollars
Other
areas

120,524 $ 1,060,290 $
16.0%

Total

80,064 $ 1,140,354“Asia” consists principally of sales to China, South Korea, Thailand and Singapore.
“Other areas” consist principally of sales to the U.S.A..
Year ended March 31, 2003
Asia

Overseas net sales
Percentage of consolidated net sales¥

94,218 ¥13.8%Millions of yen
Other
areas

10,717 ¥1.6%

Thousands of U.S. dollars
Other
areas

Total

Asia

104,935 $15.4%

891,456 $

101,400 $Total

992,856“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.

13. Contingent liabilities
At March 31, 2004 and 2003, the Companies were contingently liable as follows:
Thousands of
U.S. dollars

Millions of yen

2004

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

¥

2003

10,646 ¥
1,516

2004

5,766 $
1,675

2003

100,729 $
14,34454,556
15,848

14. Related party transactions
Transactions with close relatives of a director of the Company for the years ended March 31, 2004 and 2003, were as follows:
Thousands of
U.S. dollars

Millions of yen

Type of transaction

2004

Real-estate
Rents received
Purchases

¥

32

2003

6 ¥
—

2004

— $
251

2003

57 $
—

—
2,375

15. Impairment of long-lived assets
grouped the long-lived assets, principally based on the locationof the business entity to which the assets belong. As a result of
these procedures, loss on impairment of long-lived assets of¥4,590 million ($43,429) was recognized, as shown in a
separate component of other expenses in the consolidated
statements of income.

Due to the continuous decline in land prices in Japan, theCompanies reduced the carrying amount of the long-lived assetsthat were impaired to the recoverable amount. To assess therecoverable amount of the long-lived assets, appraised prices are
principally used as the basis for the measurement. For the
purpose of recognition and measurement, the Companies

The following table summarizes the allocation of loss on impairment of long-lived assets in the year ended March 31, 2004.

Location

PurposeNarashino, Chiba
Suminoe, OsakaAma, Aichi
Kurokawa, Miyagi
Total

Logistics center
Logistics center
Logistics center
Logistics center

Land

¥

¥

Location

PurposeNarashino, Chiba
Suminoe, OsakaAma, Aichi
Kurokawa, Miyagi
Total

Logistics center
Logistics center
Logistics center
Logistics center

Land

$

$

16. Subsequent events
At the ordinary general meeting of stockholders of the Company
held on June 29, 2004, the following appropriation of retained
earnings was approved:
Millions of yen

Cash dividends (¥6 per share)
Bonuses to directors
Transfer to legal reserve

2,456 ¥
1,429
304
32
4,221 ¥¥

1,269 $
70
134

Thousands of
U.S. dollars

12,007
662
1,268

33

23,238 $
13,521
2,876
303
39,938 $Millions of yen
Building andStructures
Other

— ¥
92
75
—
167 ¥

202 ¥
—
—
—
202 ¥

Thousand of U.S. dollars
Building andStructures
Other

— $
870
710
—
1,580 $

1,911 $———
1,911 $

Total

2,658
1,521
379
32
4,590

Total

25,14914,391
3,586
303
43,429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, 2004 and 2003, 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 the responsibilityof the Company’s management. Our responsibility is to independently 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, 2004 and 2003, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Notes 2 to the consolidated financial
statements. Effective March 31, 2004, Hanwa Co., Ltd. and its subsidiaries adopted the newJapanese accounting standard for impairment of long-lived assets.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe years ended March 31, 2004 and 2003 are presented solely for convenience. Our audit also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 1 to the consolidated financial
statements.

Osaka, Japan
June 29, 200434

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: 81-6-6206-3000 Fax: 81-6-6206-3365
Tokyo Head Office
New Hanwa Bldg., 1-13-10 Tsukiji, Chuo-ku, Tokyo 104-8429, Japan
Tel: 81-3-3544-2171 Fax: 81-3-3544-2351
Nagoya Branch Office
NHK Nagoya Broadcasting Center Bldg.,
1-13-3, Higashisakura, Higashi-ku, Nagoya 461-8614, Japan
Tel: 81-52-952-8800 Fax: 81-52-952-9300
Employee: 868
Independent Auditor: KPMG AZSA & 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
81-022-227-7981
81-092-471-7121

FAX
81-022-227-7969
81-092-471-7060

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
57-1-618-2056

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
1920 Main Street, Suite 1020, Irvine, California 92614, 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.C. 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 512-516, 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
86-411-8368-6954
86-411-8368-6934
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
86-591-83354165
86-591-83345202
Unit 3006-3007,30th Floor, Dong Shan Plaza, 69 Xian Lie Zhong Road, Guangzhou City,
86-20-8732-0451
86-20-8732-0402
Guangdong Province 510095, P.R. China
Longxi Industrial Zone, Zhouxi Management Area, Nan Cheng 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, #20-06/07 Equity Plaza, Singapore, 049705
65-6536-7822
65-6536-7855
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
E-mail: rafinancec/o MR. A.J. Dave, 12B Chaitrangan Kanchan Galli, Off Law College RD., Pune-411004, Maharashtra, India
91-20-3090-3983@sify.com

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
Kuwaitc/o Al-Sabih Engineering & Trading Co. P.O. Box No. 1366, Safat 13014, Kuwait
RiyadhP.O. Box 68974, Riyadh 11537, Saudi Arabia
Jeddahc/o Office No. 219, Kaki Center P.O. Box 1224, Jeddah 21431, Saudi Arabia

35

44-20-7839-4448
34-928-270894
98-21-890-3537
965-243-7259
966-1-478-3022
966-2-661-0796

44-20-7839-3994
34-928-275735
98-21-890-4723
965-243-7263
966-1-479-2459
966-2-661-0796

Board of Directors

Investor Information(As of March 31, 2004)

President

Shuji Kita

北Date of Establishment
April 1947

修爾

Stated Capital¥45,651 million ($431,933 thousand)Senior Managing Directors

Mitsuyuki Nakabayashi
Takashi Kyui

中林

満之

休井

匡

嘉本

隆行

花房

伯行

山崎

達之

古川

弘成

北村

信輔

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

Managing Directors

Takayuki Kamoto
Noriyuki Hanafusa
Tatsuyuki Yamasaki
Hironari Furukawa
Shinsuke Kitamura

Number of Stockholders
21,386
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

Kazushi HigashidaKazuo Yokota
Masaomi Amao
Hiroshi Omoto
Satoru Hara
Tetsuro Akimoto
Yoshifumi Nishi
Takuji Kita
Takaharu Tada

東田

和四

横田

和夫

天尾

正臣

大本

博

原

惺

秋元

哲郎

西

吉史

北

卓治

多田

孝治

Corporate Auditors

Shosaburo Bando
Hironari Masago
Toshiaki Taguchi
Hajime Yosano

坂東祥三郎
真砂

博成

田口

敏明

与謝野

肇

36

http://www.hanwa.co.jp

Printed in Japan