ANNUALREPORT2007
For the year ended March 31, 2007

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 ..................................................... 8
Our Ethical Principles ...................................................... 13
Topics ................................................................................... 15
Management Discussion and Analysis ..................... 16
Five-Year Summary .......................................................... 18
Financial Section ............................................................... 19
Corporate Data ................................................................. 40
Board of Directors and Investor Information ......... 41

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial Highlights
For the years ended March 31, 2007 and 2006

Thousands of
U.S. dollars

Millions of yen

2007

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

2006

2007

2006

¥ 1,320,022 ¥ 1,097,707 $11,181,889 $ 9,298,662
20,865
19,690176,747
166,794
11,423
10,50496,764
88,979¥476,179 ¥
98,254

413,020 $ 4,033,706 $ 3,498,687
86,954
832,308
736,585

Yen

U.S. dollars

2007

Per share data:
Net income
Cash dividends

¥

2006

54.03 ¥
12.00

2007

48.96 $
10.00

2006

0.458 $
0.102

0.415
0.085

Note: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥118.05=$1.00.
2. The cash dividends per share for the year ended March 31, 2007 include a ¥2 ($0.017) commemorative dividend incelebration of the 60th anniversary of the Company’s establishment.

1,320,022

Net sales(Millions of yen)
1,200,000

Operating income

Net income(Millions of yen)

(Millions of yen)

23,00022,091

14,0001,097,707

13,704

20,865
19,69011,42320,000933,956

10,50410,00010,000

0

0

’05

’06

’07

0

’05

’06

1

’07

’05

’06

’07

Letter to Stakeholders

Dear Stakeholders,
I am pleased to report that Hanwa Co., Ltd. and its
consolidated subsidiaries achieved strong sales andearnings in fiscal 2006, the fiscal year that ended in
March 2007. Consolidated net sales increased 20.3% to¥1,320.0 billion, a record high. On profit side, by
expansion of non-ferrous business, operating income
increased 6.0% to ¥20.8 billion and net income
increased 8.8% to ¥11.4 billion. However, the return on
equity declined 0.8 points to 12.4%. The net debt-toequity ratio increased 30 points to 170%, due toincreasing interest-bearing debt in correspondence withincreasing demand of operating funds.

Management Policy
HANWA’s corporate philosophy is “Coping with changesof times and the market quickly, we make a greater
contribution to the society by satisfying various needs ofcustomers as ‘a distribution specialist.’”Based on this philosophy, our priority is to put
customers first as we distribute products that have more
added value and build a business model that provides
customers with ideas that match their needs. Our overall
goal is to provide trading company-style distribution
services that make a difference for our customers.
Furthermore, we want to increase our corporate value ina manner that gains the support and appreciation fromall stakeholders. Compliance is another priority. We arecommitted to being a responsible corporate citizen,
functioning as an organization that uses businessactivities to make social contributions on both a local andglobal scale.

Management Targets
Hanwa places importance on performance indicators that
contribute to improving corporate value and financial
soundness. Accordingly, targets have been established
for the return on assets, return on equity and net debt toequity ratio. For fiscal year ending March 31, 2010 basedon the New Mid-term Business Plan are as follows:
Targeted Management Index

FY2009 (ending March 31, 2010)

ROA

2.4%

ROE

11.0%

D/E Ratio (Net basis)150.0%

Medium- and Long-term Strategy, andManagement Issues
In May 2007, we established a Mid-term Business Plan
that covers 3-year period from FY2007 through FY2009.
The focus of this plan is “We aim to be a value creatorwith a remarkable identity and advantage bystrengthening the function and differentiation.” It sets a
number of management goals and describes theinitiatives that will be taken to achieve them.

Dividend Policy
Returning earnings to shareholders is an extremely
important element of our management goals. Our basic
policy is to pay a dividend that reflects operating resultsin each fiscal year, based on the return on equity anddividend payout ratio. Dividends also reflect the need toretain sufficient earnings to fund future business activities
and our base of operations.
Retained earnings are used to bolster our base ofoperations and make substantial investments in growing
businesses and new businesses. In all cases, our goal is toraise Hanwa’s corporate value.

(A) Strengthening the core business
Steel business• Enhancement of processing functions for construction,
proposal-driven marketing and steel service business• Further development in various fields through proposaldriven marketing and interdivisional cooperation2

(B) Proactive development to overseas markets insuch as North America, EU, Middle East, India,
ASEAN, and Russia• Enhancement of business in the field of structural steel
sheets by differentiated products and reciprocity• Meeting real demand in each community completely
through branch offices• Reinforcement of meeting the demand of processing
on the basis of coil centers in China and ASEAN• Focus on exportation of steel products for high quality,
special and niche specs• Strengthening of development to meet the growing
demand for construction in abroad such as Middle
East, by interdivisional cooperation• Reinforcement of supporting Japanese customers
raising production overseas, in the fields of providing
materials and processing.
• Expanding bunker oil sales in the shipping industry,
especially in Asia
• Reinforcement of lumber business in the areas withgood market for construction, such as North America,
China, and the Middle East

Non-ferrous metal business• Expansion of global network to strengthen businessdevelopment in oligopolistic market of resources• Enhancement of procuring capability and expansion ofbusiness by diversifying supply source of ferroalloys andlight metals• Expansion of ore business such as nickel and chromium(C) Promotion of ecology and recycling business• Establishment of the channels of collecting recycling
resources retired from use due to customers’
reorganization of business and facilities• Reinforcement of purchasing scrap metals overseas.
Expansion of exportation to Asia and Europe• Development of selling recycled fuels such as RPF andwood pellet at home and overseas• Establishment of network for purchasing scrap paper,
responding to expansion of exportation to Asia
• Creation to get in operation for new technology suchas solar energy and fuel battery• Expansion of the recycling system of scrap resin

Food products business• Expanding the processing business of seafood andincreasing own processing products• Establishment of a system for selling processed seafoodin China, Europe and US. Enhancement of exporting
raw material of seafood to China for domestic
consumption• Keeping up customers’ reliance and increasing it by
securing higher level of food safety
Petroleum and chemicals business• Reinforcement of domestic sales for gasoline, kerosene
and light oil. Expansion of exporting petroleum products• Expanding importation and tripartite trade of versatile
resin and exportation of domestic special resin• Strengthening retail of convenience goods and oilbased products. Establishment of a delivery system(D) Creation of new approach and new business to
expand business domains• Aggressive approach to medium-sized and small
companies• Expansion of material sales through over all coordinationfor each construction and development project• Expansion of the business on interior and exterior
construction materials• Offering to trading partners with various materials• Development of exporting domestic seafood• Development of business on new energy such as
biomass fuel and energy-saving• Expansion of cooperative business in new distributionstyle• Development of new businesses by utilizing information
network and industry-academia-government
cooperation

Other businesses• Increasing our share of imported lumber by improving
power to purchase from supplying countries• Strengthening marketing industrial machinery meetinginvestment demand from our trading partners
Integrated development to China• Business development in various fields, by utilizing ample
business footholds and interdivisional cooperation

3

The Board of Auditors reports to the General
Shareholder’s Meeting. The Board of Directors meets as arule once a month to oversee important business plansand proposals concerning the Hanwa Group, and todeliberate and decide all key business policies.
The Managing Directors Committee, which iscomposed of the president, senior managing directors
and managing directors, reports to the Board of Directors
on all matters related to significant business decisions
affecting the Hanwa Group. As the senior policy execution
body in the company, this committee is charged withcarrying out policies in line with the business strategy
determined by the Board of Directors. The Managing
Directors Committee meets as a rule twice a month.
Chaired by the president, the Director Evaluation
Committee meets two times a year, which is charged
with assessing commitments made by directors andmaking overall performance evaluations on a mutual
basis. Director remuneration and assignments reflect thelevel of evaluation, in line with meritocratic principles. In
addition, we defined each director’s responsibilities forbusiness results and introduced the profit-related
remuneration system.

(E) Vigorous management by aggressive investments
on projects and establishment of partnership• Promoting business alliance with companies, whichstrengthen our function and supplement each other.
Development of M&A. Support for business succession• Strengthening and expansion of distribution businessby cooperation between Hanwa Logistics and other
distribution companies• Cooperative development of new business schemewith customers in each area
• Cooperative scheme with processors to support
Japanese manufacturers in overseas• Strengthening the field of food processing bycooperation with food processors• Supposed total investment from FY2007 throughFY2009 ... 20 billion yen — “strategic business
investment” besides “investment aiming ofstrengthening business functions”
With regard to corporate systems, we will makecompliance activities a central element of our business
operations. This will enable us to conduct CSR
management in order to fulfill our social responsibilities
as a company. We are also committed to meeting the
expectations of shareholders. For this purpose, we willfurther reinforce our corporate governance systems andmaintain a framework of internal controls designed toensure the effectiveness of these systems.

Internal control and risk management system
The Board of Directors, at its meeting held on May 10,
2006, defined for the establishment of the system forensuring the Directors’ execution of operations comply
with Laws, Regulations and Articles of Incorporation.
1. Systems to ensure that performance of duties by its
directors and employees complies with laws andregulations and its articles of incorporationa) Established standards for corporate ethics andethical behavior in accordance with the company
creed, guidelines and other elements of the
Hanwa’s corporate philosophy.
b) Established a Compliance Committee chaired by
Hanwa’s president to prepare a compliance manualfor distribution to all Hanwa executives andemployees. In addition, the committee will verify
that compliance programs are being usedeffectively.
c) Established a consultation service (using theCompliance Committee and external attorneys)
where all Hanwa Group executives and employees
can obtain advice concerning compliance matters,
providing a means of directly reporting complianceproblems.

Corporate Governance
Basic corporate governance policy
We aim to fulfill our social responsibilities as a good
corporate citizen so that we can gain and retain therespect from stakeholders and be recognized as a valuable
enterprise. We work to establish a high degree oftransparency in management systems to ensure full legal
and regulatory compliance and respect for social norms.
Corporate governance structures
We have adopted the system of corporate auditors as
stipulated in the Corporate Law of Japan. The Board ofAuditors is responsible for overseeing and auditing theperformance of the Board of Directors, whose members
are elected by the General Shareholder’s Meeting, as
well as the Managing Directors Committee, which is themain body responsible for execution of policy bysubordinate company structures.

4The corporate governance structuresand internal control systems
for the Hanwa Group.
proposals

General Shareholders’ Meeting
election/dismissal

election/dismissal

oversight/audit

Board ofDirectors

Director
Evaluation
Committee

Investment
ReviewCommittee

coordination

Board ofAuditors

oversight/
audit

Independent
auditors

accounting audit

guidance

Operationalorganization

President
reportManaging
Directors
Committee
President
Senior managing
directors
Managing directors

remuneration
evaluationcooperation

Disclosure
Committee
Compliance
Committee

Senior/managing
directors
Internal Audit
Dept.
Directors

Internal
Audit

Catch All
Controls
Committee
Internal
ControlCommittee

OperatingdivisionsOperating bases(Japan/overseas)

Administrative
divisionscounsel/advice

Legal firms

2. Systems to store and control information related toduties performed by the directorsa) Information related to duties performed by the
directors is properly stored in written document orelectronically, and these records are stored inaccordance with laws, regulations and Hanwa’s
regulations for storing these materials.
b) The individual in charge of storing these materials
exercises care to prevent the loss, destruction orother harm to the written or electronic records.
These materials are stored using security measuresphysically and logically (including passwords andother restrictions to access) as necessary.

addition, there is an Investment Examination
Committee that manages investment risks bystudying proposals for new business ventures andnew investments.
b) Each business department will cooperate with the
General Affairs Department, Information Systems
Department, Legal & Credit Department and otherunits concerning compliance, environmental
management, emergency responses, information
security, export management and other matters.
These risks will be managed in accordance withinternal rules, manuals and other guidelines. The
Internal Controls Committee, Compliance
Committee, Catch All Controls Committee andother applicable committees will assist the
departments by providing advice and educational
support. Advice from external attorneys and otherexperts will be used as required.
c) The Personnel Department works with related
departments to conduct the training and othereducational activities needed to make employees
more aware of the importance of risk management.

3. Regulations and systems related to management ofrisk of lossa) Directors and department managers work with theLegal & Credit Department to manage and reducerisks associated with business activities. This involves
making all business units aware of regulations for
credit management and business operations, andensuring compliance with these regulations. In
55. Systems to ensure proper operations in the corporate
groupa) The Affiliated Enterprises Department monitors
business operations at subsidiaries in Japan, providing
support for the proper execution of business
operations. The department also conducts oversightof these operations. The Overseas Administrative
Department is responsible for similar support andmanagement activities concerning overseas
subsidiaries and other operations outside Japan.
b) Compliance, risk management and other systems
apply to operations across the entire Hanwa Group.
Committees and other supervisory units provide
guidance and education concerning the use of
these systems.
c) The Group Company Corporate Auditors
Conference holds meetings as necessary. Thisconference is made up of Hanwa’s full-time
corporate auditors, the corporate auditors ofsubsidiaries and affiliates, the Affiliated Enterprises
Department and other departments. The meetings
provide for exchanges of informations involving
audits of Hanwa and group companies to provide
for the sharing of informations.

d) To verify the effectiveness of risk management, theInternal Audit Department monitors all Hanwa
business sites and group companies in Japan basedon a pre-determined auditing plan. Internal audit
reports are submitted directly to the Managing
Directors Committee and the company president.
The Overseas Administrative Department and theInternal Audit Department monitor overseas groupcompanies and other overseas business sites. All
Hanwa directors receive a written audit report
every month. In addition, the Board of Directors
receive reports on the status of overseas operations
twice a year.
4. Systems to ensure efficient execution of directors’ dutiesa) As a rule, the directors meet once each month toreach decisions concerning important groupmanagement matters and to supervise theexecution of business operations. As a rule, theManaging Directors Committee meets twice eachmonth. The members of this committee discuss
important matters concerning management andreach decisions. They also submit issues to theBoard of Directors that concern important matters
involving the group’s management.
b) The Board of Directors established mid-termbusiness plans and annual management plans forthe purpose of achieving mid-term and long-term
strategic objectives. The directors also monitor the
execution of these plans. To perform this duty, theBoard of Directors receive periodic presentations
from directors and other managers in charge ofbusiness units. This allows the directors to evaluate
the status of operations, check progress towardachieving goals and check other items (including
revisions to plans and revisions to methods forachieving goals). The goal is to make business
operations even more efficient.
c) A Directors Evaluation Committee chaired by thecompany president meets twice each year to
perform a comprehensive evaluation of the directors’
performance. This includes an assessment of thecommitments and performance of each director anda mutual evaluation process for all directors. The
results are used to determine directors’compensation and for the selection of directors.

6. Systems relating to employees assigned to assist thecorporate auditors, and the independence of such
employees from the directorsa) There is one employee assigned to assist thecorporate auditors. The employee conducts studies,
submits reports and performs other duties asrequested by the corporate auditors, always working
closely with the auditors. In addition, this employee
receives no orders or instructions from the directors
or anyone else concerning the directives and orders
received from the corporate auditors.
7. Systems for the directors and employees to report tothe corporate auditors and systems otherwise
pertaining to reporting to corporate auditorsa) In addition to submitting reports on legally mandated
items, the directors submit reports to the corporate
auditors on important items concerning compliance.
This includes items such as major violations of laws,
regulations and the articles of incorporation andreports received by the compliance reporting andconsulting service. In addition, the directors submit
reports to the corporate auditors at meetings of the6

by the Board of Auditors and remain in constant contact
with the corporate auditors. The Overseas Administrative
Department monitors overseas subsidiaries and otheroverseas business sites primarily with respect toaccounting and compliance. A report is submitted to all
directors every month and a report on the status ofoverseas bases is submitted to the Board of Directors
twice each year. Other reports are given as required in
response to requests by the Board of Auditors.
Audits by the corporate auditors place priority on
audits designed to prevent the occurrence of
misconduct. The auditors perform dialog-style audits todetermine the status of legal compliance, internal
control, risk management and other items. Additionally,
the auditors attend meetings of the Board of Directors,
Managing Directors Committee and other important
conferences to supervise and audit the performance ofsenior management. Hanwa’s corporate auditors include
individuals from outside the group who have richknowledge concerning corporate activities. These
auditors perform the required business audits while
maintaining their autonomy from senior management.
Furthermore, the auditors exchange opinions with thepresident and directors in charge of business units toclearly state corporate auditor opinions concerning theBoard of Directors.
Concerning the independent accountant, Hanwa has
an auditing contract with KPMG AZSA & Co. to perform
audits required by the Corporate Law and the Securities
and Exchange Law.

Board of Directors, the Managing Directors
Committee and other important meetings withregard to the execution of business operations andimportant decisions.
b) The directors and employees must quickly andaccurately respond to requests for reports by the
corporate auditors.
c) The Internal Audit Department will submit reports
as required to the corporate auditors concerninginternal audits performed under the pre-determined
auditing plan. If necessary, this office will conduct
studies and prepare reports as requested by the
corporate auditors.
8. Other systems to ensure effective auditing by the
corporate auditorsa) The corporate auditors exchange opinions with therepresentative directors and the directors in chargeof business units as required. If necessary, these
opinions are announced at meetings of the Boardof Directors. In addition, the corporate auditors
receive explanations of the financial audit from theindependent auditor and exchange information andcollaborate in other ways with this auditor.
Hanwa has disclosure regulations and a Disclosure
Committee for the purpose of strengthening internal
controls concerning the timely and proper disclosure ofcorporate information. The committee establishes criteria
and basic policies for legally mandated and otherdisclosure activities of the Hanwa Group. The committee
also oversees the disclosure system and reaches decisions
concerning the importance and suitability of information
to be disclosed.
The Internal Controls Committee is responsible forinternal controls involving financial reports. The
committee establishes and maintains group-wide systems
for internal controls and business process controls, andchecks the effectiveness of these systems.

Hanwa’s senior management will continue to take thelead in reinforcing the management and administration
framework and taking other steps to further strengthen
corporate governance.

Internal audits, corporate auditor audits andfinancial audits
Regarding internal audits, Internal Audit Department
monitors all business sites and group companies in Japan
primarily with respect to accounting and compliance. Aninternal audit report is submitted directly to the president
every month and reports are submitted as required to theManaging Directors Committee. Internal Audit
Department also functions as the staff for the corporate
auditors. The staff members submit reports as requested

August 2007

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

7

Review of Operations
For the year ended March 31, 2007

Steel (Domestic)

Net sales by Product (Billions of yen)
Lumber, machinery, and others ¥59 (4.5%)
Petroleum and chemicals ¥237 (17.9%)

Steel bars and shapes ¥266 (20.1%)

Net sales¥1,320(100.0%)Foods ¥92 (7.0%)

Steel plates and sheets ¥261 (19.8%)
Special steels,
wire products, steel pipes, andsteelmaking raw materials ¥162 (12.3%)

Non-ferrous metals ¥243 (18.4%)

Steel related products ¥689 (52.2%)¥1,32059
23

Lumber, machinery, and others

7

Petroleum and chemicals¥1,098
47
21

0
92

Foods

¥934
48
1

24

3

56
Non-ferrous metals

88

82

1

13

16

2

26

1

00
13

12

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

0

5
2

2

9

44
Steel plates and sheets

14

20

9

’05

24

0

26

6

Steel bars and shapes

’06

’07

8

Review
In Japan, demand for steel in 2006 was strong
as in the prior fiscal year due to highproduction levels at manufacturers ofautomobiles, ships, construction machinery,industrial machinery and other products.
Particularly noteworthy was the substantial
increase of 600,000 vehicles in domestic
motor vehicle production to 11.5 million units,
including knocked down sets. In theconstruction sector, civil engineering activity,
including bridge construction, remainedsluggish because of the low level of publicworks expenditures. Architectural
construction activity increased as privatesector capital expenditures climbed, producing
growth in orders for factories, condominiums,
retail stores and other facilities.
There was a substantial supply of steel asJapan’s crude steel output was 117.75 million
tons in fiscal 2006, the second-highest level
ever. However, the supply of steel was tightmainly because of the immense demand forsteel. Major sources of demand were export
markets, manufacturers in Japan and large
architectural construction projects in Japan.
Hanwa’s domestic steel business achieved
growth in sales volume and monetary sales
because of strong demand and measures toreinforce skills in project operations andconsulting-based sales activities. Earnings,
however, declined slightly for a number ofreasons. For steel used to construct buildings,
there was an increase in direct purchasesfrom steelmakers due to the growing numberof large-scale construction projects in Japan.
The result was a decline in commission rates.
For steel sheets, there was growth in highvolume, centralized purchasing and the
supply of materials to outsourcers. These
trends limited the increase in prices of steel
sheets and caused a change in the stance ofsteelmakers. They raised emphasis on longterm contract. As a result, it became moredifficult for Hanwa to purchase steel products
for in-the-home sales.

OutlookIn fiscal 2007, steel demand in Japan is likely
to stay high in the manufacturing andconstruction industries. Because of this, thesupply of domestic steel will probably remaintight. In addition, on a global scale, excess
steel output in China will probably beabsorbed by a combination of steady U.S.
economic expansion and explosive growth indemand in the BRICs countries and resourcerich countries. This outlook indicates that the
supply and demand for steel will remainbalanced during fiscal 2007. As a result, thecost of both steel raw materials and steel
products will probably continue to climb.
In Japan, the spread between market prices
and prices negotiated directly between
steelmakers and large-scale users is narrowing.
One cause is the tendency of Japanese general
constructors to accept orders at low prices.
Another cause is the consistently low level ofprices for steel products sold directly to largescale users as well as unit prices for steel soldto outsourcers. This situation is making it moredifficult to raise sales prices to offset the higher
cost of steel, thus limiting increases in prices. In
addition, Hanwa believes that it will become
increasingly difficult to purchase steel products
for in-the-house sales. Due to these trends,
Hanwa foresees an extremely challenging
environment for steel transactions other thanthose involving intermediary services for longterm contract to major manufacturers andother large-scale projects deals.
In response, Hanwa plans to correspond to
demands in niche markets. One plan includes
upgrading various capabilities, including
storage, distribution, processing and ecommerce. And the other plan includes
through initiatives that include training
personnel who can conduct proposal-driven
sales. Through these plans Hanwa willreinforce its sales activities.

Steel (Overseas)
Review
Global demand for steel was extremely strong
throughout the fiscal year and prices wereconsistently high. In 2006, China’s crude steel
production increased about 20% to 418
million tons and its exports of steel materials
and products more than doubled to 43.01
million tons. Despite the rapid growth in the
supply of steel, there was sufficient global
demand to keep steel markets healthy
throughout the year. In Japan, steel exports
increased about 8% to 35.18 million tons andimports decreased 4.9% to 8.02 million tons.
The massive volume of construction
projects in the Middle East is a major reason
for the strong demand for steel. Orders forsteel used at these projects played a big partin raising international prices for hot rolled
steel sheets, mild steel plates, and mild steel
bars and shapes. Above all global productionof electrical furnace steel makers is unable tokeep up with demand, resulting in a sharp
increase in the price of scrap steel in the firstquarter of 2007.
At Hanwa’s overseas steel operations,
there was a 39.7% increase in the volume
and a 31.5% increase in monetary steel sales.
There were several significant events
during the fiscal year. Hanwa’s Dubai officeopened in April 2006. In southern China,
operations started in July 2006 at Hanwa
Steel Service (Dongguan) Co., Ltd. And in
Thailand, Hanwa Thailand Co., Ltd. celebrated
its 30th anniversary in September 2006.

9

Outlook
Demand for steel remains strong worldwide.
Due to the favorable market conditions, allsteel makers are forecasting very highproduction volumes and earnings. In China,
for example, an industry association predicts
that crude steel output will rise to 450 million
to 460 million tons in 2007. Moreover, there
are other estimates of 490 million tons. In
Japan, steel production is expected to remainhigh in 2007, with crude steel output down
only 2.0% and export volume down 3.4%.
Blast furnaces steel makers are also expecting
to see the highest level of earnings continue.
Hanwa expects its steel operations togenerally reflect these industry-wide trends infiscal 2007. Plans thus call for a small decline
in the volume of steel sold and a small
increase in monetary sales.
There will be a number of new initiatives
in fiscal 2007. In China, operations will begin
at a coil center in Shanghai that specializes instainless steel. This coil center has several
growth-oriented goals: supplying more steel
for flat-panel TVs and other relatively new
products; increasing sales of steel for
automotive applications in China and otheremerging markets; handling a larger lineup ofsteel bars and mild steel plates; and increasing
offshore transactions. China will remain thecore market. At the same time, Hanwa will
step up activities to increase its presence inthe steel markets of India, the Middle East,
the ASEAN, North America and Europe.

Non-Ferrous Metals & Metal Alloys
Review
Non-ferrous metals prices on the LME began
climbing in 2005, eventually taking the pricesof copper and aluminum to record highs in
May 2006. Next, concerns about limited
supplies of nickel, zinc, lead and tin relative todemand caused the prices of these metals
climb even more. The price of copper declined
until early in 2007 due to excess supplies, butthen started climbing again following the
Chinese Lunar New Year. Metal price volatility
was exacerbated by investment funds thatreacted quickly to shifts in supply-demand
dynamics as global economic growthcontinued.
Projects are under way to increase thesupply of non-ferrous metals by developing
mines and building smelters. But these projects
will require considerable time to complete. As
a result, although there will be differencesamong each type of metal, supplies of nonferrous metals will probably remain tight until
at least the end of 2007. Prices of ferroalloy
rebounded and continued to climb in part
because of stricter environmental and export
regulations in China.
By taking the actions outlined below, thenon-ferrous metals & metal alloys businessworked on increasing sales to current
customers, establishing relationships withnew customers and responding accurately tomarket trends. Performance also benefited
from higher market prices for metals. The
result was a substantial increase of 79% insales to ¥237.4 billion.
In the recycling sector, Hanwa continued
to pursue a value-added strategy byincreasing capacity at the company’s
aluminum processing facilities. Regarding
copper, sales of low-grade copper materials(covered by the Basel Convention) contributed
to the year’s performance, but this businesshas performed poorly since the beginning of2007 as market prices dropped and suppliesof these materials declined. Regarding
stainless steel and specialty steel scrap,
performance was strong due to the highproduction volume of stainless steel andspecialty steel. In particular, Hanwa
established sales channels in Asia by starting
stainless steel scrap transactions withcustomers in China, South Korea and India.

In the primary metals business, Hanwa
began working on gaining access to newsources of nickel ore and pig iron in responseto the shortage of nickel. For steel alloys,
Hanwa continued to strengthen sales
activities targeting the blast furnace andspecialty steel sectors. In June 2006, Hanwa
acquired additional exclusive rights to sell
Samancor Ltd. low-carbon ferrochrome inJapan, enabling this business to further
contribute to sales and earnings. There wasalso an increase in sales of siliconmanganese
produced in Kazakhstan, a move taken to
reduce reliance on Chinese suppliers. To
offset the shortage of materials used to makesolar cells, Hanwa further expanded theoutsourced processing of silicon wafers. In
addition, high-purity silicon metal made in
China was used to make solar cells, making acontribution to sales and earnings.
Outlook
There are many projects worldwide toincrease the supply of non-ferrous metals,
develop sources of substitute raw materials
and shift to other materials. However,growing demand in the BRICs and othercountries means that supply will probably not
match demand until some time in 2008. In
2007, insufficient supplies of non-ferrous
metals and inflows of capital from funds arelikely to keep prices high and volatile. But
since non-ferrous metals prices are so high,shifts in the investment stances of funds caneasily trigger a rapid drop in prices.
The non-ferrous metals and metal alloys
business is working closely with Hanwa’s
overseas offices to increase the volume ofinternational metals trading. Hanwa is aiming
for growth not only in China and the ASEAN,
but also in Russia, Kazakhstan, South Africa,
Brazil and India. In addition, Hanwa isconsidering opening more overseas offices tosupport non-ferrous metals operations.

10Regarding aluminum, copper, stainlesssteel and specialty metals recycling operationsin Japan, one goal is the establishment of an
efficient framework for collecting materials.
Other themes are utilizing Hanwa’s own
processing facilities and working more closelywith customers. Hanwa aims to offer
distinctive products that are not vulnerable tomarket volatility and sell more products withconsiderable added value. Another goal isrebuilding distribution channels in India andother regions of Asia. For specialty metal scrap,
plans call for increasing sales primarily in themain markets of Europe and North America.
In the primary metal resources business,
Hanwa will diversify sources of stainless steel
raw materials like nickel ore and pig iron, as
well as expand its processing operations.
Regarding the resumption of the Indonesiantin ingot business, Hanwa plans to expand thescope of sales activities and increase thevolume of products handled. For steel alloys,
Hanwa will continue to work on increasing
sales to manufacturers of blast furnaces,
specialty steel and electric furnaces. Anotherpriority is raising sales of Samancor low-carbon
ferrochrome to customers in Japan and China.
For silicon metal, Hanwa is concentrating on
high-purity products. In the solar cell business,
Hanwa is strengthening relationships withcompanies that perform silicon wafer
processing on an outsourcing basis.
These initiatives demonstrate how the
non-ferrous metals & metal alloys business istaking numerous actions to expand
operations in Japan and other countries. In
addition, Hanwa is developing new businesses
and expanding activities associated with nonferrous metal operations. Supporting theseactions are timely investments and additions
to the non-ferrous metals workforce. All theseactions are aimed at increasing trading
volume and adding more value to non-ferrous
metal products.

Food ProductsReviewSales increased 5.4% to ¥94.5 billion, withgrowth backed mainly by higher trading
volumes of red fish, halibut, sole, flounder
and attka mackerel. Exports of marine
products to China from countries other thanJapan made a significant contribution to sales
growth. In the shrimp, salmon and crab
category, the food business ended thedecline in sales by increasing trading volume
in monetary terms. Processed food productsrose to 28% of sales as Hanwa continued tomake progress in shifting emphasis fromplain fish to processed products. However,there was a sharp drop in the price ofmackerel imported from Norway, a major
product at Hanwa, because Japan recorded
its largest catch of mackerel in 35 years. This
had a negative impact on earnings for theentire food business.

Petroleum and Chemicals
OutlookThe new fiscal year began amid acontinuation of strong demand for marine
products, particularly in Europe, the UnitedStates and Russia. But in Japan, prices ofimported seafood raw materials are climbing
even as prices of many seafood products
continue to decline. Regarding imports toJapan of fish and bulk seafood, Japan isincreasingly losing its global competitive edge.
In response, Hanwa plans to shift its
operations to value-added product chiefly
produced in China and Vietnam. One major
goal is establishing channels to sell in Europe
and North America the products of a Chinese
food processing company invested in theprevious fiscal year. In the United States, therecently established shrimp sales company isperforming well. The next stage will be
expanding the lineup beyond shrimp andadding more value to its products. Anothergoal involves marine products that areplentiful in Japan, such as mackerel, pikes
mackerel and Hokkaido salmon. Hanwa plans
to increase exports of these fish to China,
Europe and Africa for use as ingredients. To
increase sales in Japan, the main goal is tobuild sound relationships with customers as asmaller number of processors and sales
companies dominate the domestic marine
products market. Regarding overseas
suppliers, Hanwa will work with carefully
selected partners in order to remaincompetitive as a company that offers
significant benefits for customers. Although
the marine products market environment ischallenging and the outlook is uncertain,
Hanwa is determined to improve sales andearnings in the food products business bytaking actions that are bold yet prudent.

11

Review
Crude oil prices eased temporarily due towarm winter temperatures in many parts of
the world. Prices remain high, however,
because of persistent geopolitical risks. Fueldemands are declining as end users switch toless expensive energy sources and take otheractions to lower fuel costs. In response,
Hanwa concentrated on building ties withnew customers to enlarge its customer base.
The combination of aggressive sales activities
and higher unit prices resulted in a big
increase in petroleum sales. Strong sales ofbunker oil in Asia also continued.
Sales of chemicals included contributions
from growth in general-purpose resin imports
and offshore trading and higher sales of
miscellaneous household goods to large
retailers. In paper products, export sales toChina increased for protective interleaving
paper for steel sheet surfaces and used paper
exports continued to grow, mainly to Vietnam.
Outlook
The price of crude oil will probably remainhigh for some time, resulting in a continuing
decline in demand for petroleum products inJapan. To offset this decline, Hanwa plans tocapture a larger share of petroleum purchases
by current customers while reinforcing
activities to develop ties with new customers.
In Asia, where demand for petroleum
products continues to climb, Hanwa plans toincrease sales of bunker oil and strengthen its
export operations. To offer customers ways tolower their environmental impact, Hanwa
plans to supply alternative fuels and provide
ideas for systems that conserve energy.
In the chemicals sector, plans call forincreasing imports and offshore trading ofresins and focusing even more on raising salesof miscellaneous household goods. For paper
products, the goal is raising exports of usedpaper, mainly to Vietnam.

Lumber

Machinery

Review
A big increase in the trading volume of
Russian forest products was a major highlightof the past fiscal year. Performance was also
supported by growth in sales of forest
products imported from North Europe, China
and Chile. However, imports of U.S. andCanadian lumber remained lackluster ascoastal lumber mills in Canada became lesscompetitive. There was continued growth indirect trading with large Japanese makers ofpre-cut beams. Trading with home centers
also growing. Outside Japan, there was only
minimal growth in exports to the UnitedStates because of poor market conditions.
However, exports to China increased, mainly
in association with sales directly to end users.
Shipments of sample products to the Middle
East may lead to significant sales of forest
products in the coming years.
Regarding imported plywood, the volumeof imports peaked in the fall of 2006. Since
then, the market has been generally soft withrelatively low prices. Considerable time will beneeded for companies to reduce inventories
to suitable levels.

Review
Leisure facilities: Hanwa upgraded its
internally developed indoor family
entertainment facilities and supplied these
attractions to 12 locations in Japan. Anotherhighlight of the year was the receipt of thefirst contract for a swimming pool renovation
project using a plan created by Hanwa.
Industrial machinery: During the fiscal year,
Hanwa supplied two crab cranes tosteelmakers and a plasma cutting machine,band sawing machine and press machine to asteel processor. Hanwa supplied a dust
collection system for a refuse treatment
facility, a water treatment system and othertypes of environmental equipment. Sales also
include the export of marine engines and theimport to Japan of steel processing
equipment from Italy.

OutlookHanwa plans to increase sales in Japan of
lumber from Romania and Russia with thegoal of increasing sales to end users. Anothergoal is maintaining a consistent level of
trading volume by selling both logs and raw
materials. Although the U.S. forest products
market will probably not recover for sometime, the lumber business plans to establish
more sales routes and build a framework forincreasing sales. For imported plywood, thegoal is to increase imports from Malaysia.
Plans also include starting sales of special
grades of plywood and of forest products
made in Japan. In addition, the lumber
department hopes to establish a base to raisesales in China and the Middle East.

Outlook
Leisure facilities: In Japan, competition inthis market is declining as companies exit thisbusiness. But the long-term slump in demand
for large outdoor entertainment attractions
shows no sign of ending. Hanwa willconcentrate on the development and sale ofindoor amusement equipment for families
and the business of creating indoor
amusement facilities. In addition, sales
activities will target swimming poolrenovations, a market sector that is currently
growing in Japan. Hanwa is also seeking
opportunities in China, the Middle East andother overseas markets.
Industrial machinery: Backed by strong
earnings, companies in the steel, automobileand consumer electronics industries aremaking substantial capital expenditures. Thisis creating opportunities for Hanwa toincrease sales of cranes and steel fabricationequipment. Hanwa also plans to increase
overseas sales. One more goal is taking on thechallenge of raising sales of production line
equipment that includes the provision ofengineering support.

12

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 while balancing three aspectsof society, economy and environment, and makes efforts torealize the sustainable society through its business activities.

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 bygiving its employees positive assistance for building up of
career and development of ability, recognizes team works as
the foundation of corporate activities, and achieves free,vigorous and creative corporate culture.

13

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

8. Observe the Regulation of Money for Political Activities Act.
and do not make illegal political donation.

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. Manage information carefully and maintain soundinformation network.
10. Give consideration to human rights and exclude unjust
discriminations, abuses, harassments, etc.

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

11. Observe traffic law and other laws, regulations and rules ofsocial common ideas with which we shall comply as social
citizens.

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.

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

10. Prevention of recurrence of misconducts andappropriate information disclosure

13. Cooperate with social developments and positively
promote contribution to society.

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.

14. Maintain sound and transparent management by positively
disclosing information.
15. Cope resolutely with antisocial forces and refrain from any
profit-offering, etc.
16. Emphasize in-house education and develop expertise andcreativity.

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.

17. Maintain vigorous work environment with fair personnel
evaluation.
18. Encourage employees to report, contact and consult, andpromote open and highly transparent business activities.
19. Do not make transactions contradicting company’s profit,
maintain sound relationship with its customers, and draw aline between public and private affairs.

1. Observe Antitrust Law and other laws and regulations, andoperate its business fairly and appropriately.

20. With respect to entertainment and gift offered by theCompany, comply with laws and regulations concernedand stay within the extent socially permitted.

2. Observe Unfair Competition Prevention Law and maintainsound market environment based on free competition.
3. Fully understand and appropriately manage the qualificationand permission necessary for performing its business.

21. Follow accounting related regulations and make fair,appropriate and proper accounting books and records.

4. Observe treaties, laws and regulations of various countries inrelation to import and export business, and appropriately
operate its import and export transaction.

22. Follow credit management regulations and put proper
credit control in practice.
23. Always check and understand contents of contracts andactual conditions of dealings with clients.

5. Respect Intellectual Property Rights and keep intellectual
property under strict control and do not infringe third
party’s ones.

24. Draft both external documents such as contracts and inhouse memorandums properly and keep such documentsin accordance with company regulations.

6. Observe laws and regulations with respect to theenvironment and operate its business considering global
environment.

25. Give due consideration for issues of safety and hygiene inmanaging business activities and labor services.

7. Do not conduct unjust dealings of shares and othersecurities such as insider trading.

14Topics

Opening new branch offices in Niigata andHiroshima
On February 1, 2007 Hanwa opened its branch offices in
Niigata and Hiroshima.
The business activities in these areas have been carried out
by Distributor Sales Departments in Tokyo HQ and Osaka HQ.
Hanwa will pay at most efforts to answer every customer’s
requirements with full use of these offices and to contribute to
the societies’ economy.

Niigata office

Hiroshima office

Removal of CHANG FU STAINLESS STEELCENTER (SUZHOU) CO.,LTD.

Hanwa Steel Service Ltd. was awarded
Zero-accident

Hanwa’s affiliated company, Chang Fu Stainless Steel Center(Suzhou) Co., Ltd., took place its new factory ground breaking
ceremony on January 26, 2007. This is to cope with theincreasing demand in East China area.
By this removal new plant site will become more than double,
from 31,856m2 to 66,667m2.
The current equipments will be removed to the new plant andmore over 2 units of large-slitter machine, 1 unit of large-leveler
machine and 1 unit of mini-leveler machine will be additionallyinstalled.
New plant site is very close to the current plant site and thisremoval will be finished in this year.

Hanwa’s fully subsidiary, Hanwa Steel Service Ltd., received acertificate of commendation from Japan Industrial Safety &Health Association (JISHA).
This is for Zero-accident award for non-shutdown accident
operation for 350 working days.
Hanwa Steel Service Ltd. has been operating slitter andleveler processing since its establishment in 2003.
Blanking press processing has additionally introduced and 2
shifts operation system was adopted since last year.
As this situation in-plant distribution also became busy to 24
hours operation.
Though daily operation is very busy, all the management
and staff pay special attention and efforts to secure the safety
to extend vastly this non-shutdown accident record.

15

Management Discussion and Analysis

Economic overview
Sales by Business Segment
Steel: Manufacturers of electrical machinery, automobiles,
industrial machinery, ships and many other products performed
well in Japan and other countries due to strong external
demand in Europe, North America, China, Southeast Asia andother regions of the world. In Japan, there was a recovery inprivate-sector architectural construction demand as owners
started projects that had been delayed by the 2006 scandal
concerning fraudulent earthquake-resistant designs. An increase
in redevelopment projects also contributed to higher steel
demand in Japan. The result was a 12.2% increase in sales to¥689.1 billion.
Non-Ferrous Metals: Prices of non-ferrous metals oninternational markets were highly volatile due to the activities
of funds and other sources of speculative investments. Overall,
prices generally remained at record highs throughout the fiscal
year. Hanwa’s sales benefited from these high prices along withgrowth in the trading volume of chrome and nickel products,
silicon wafers for solar cells, and scrap metals such as stainlesssteel and aluminum. The result was a 74.6% increase in sales
to ¥242.9 billion.
Foods: As global demand for marine products increases, prices
for key products like farm-raised shrimp remained consistently
high in worldwide. These trends kept marine product prices highin Japan, too. In addition, Hanwa concentrated on increasing
sales of processed food products in China and other markets.
The result was a 4.9% increase in sales to ¥91.9 billion.
Petroleum and Chemicals: The price of crude oil stayed highduring the fiscal year. The main reasons were very strong
demand in China and other BRIC nations and the participationof investment funds in crude oil markets. During the fiscal year,
Hanwa focused on increasing sales of bunker oil and raising the
trading volume of gasoline. The result was a 12.9% increase insales to ¥237.3 billion.
Other businesses: Major factors affecting performance were
growth in sales of Russian forest products and an upturn inplywood prices in Japan caused by a lower supply of raw lumber.
The result was a 25.5% increase in sales to ¥58.5 billion.

Despite there were number of instability factors ininternational commodity market such as crude oil, non-ferrous
metals and scrap metals and worry of slowdown of the U.S.
economy, the global economy generally expanded during the
fiscal year ended on March 31, 2007. In Japan, the economic
impact of costly crude oil and a shift in government financial
policies made the outlook uncertain. However, Japan’s
economy remained healthy throughout the fiscal year due tostrength in capital expenditures, exports and other sectors.

Earnings
In this environment, Hanwa achieved 20.3% growth inconsolidated net sales to ¥1,320.0 billion. Growth was mainly
attributable to higher prices for steel products and scrap metal
and to aggressive sales activities for non-ferrous metals andother products. Steel earnings were lower mainly because of
the considerable labor needed to convince customers to accept
higher prices to offset the higher cost of purchasing steel
products. However, this was offset by growth in non-ferrous
metal earnings. As a result, consolidated operating income
increased 6.0% to ¥20.8 billion and net income increased
8.8% to ¥11.4 billion.

16

Cash FlowsNet cash used in operating activities was ¥36.1 billion
compared with a positive cash flow of ¥22.2 billion one year
earlier. The main reason was a net increase of ¥47.5 billion intrade receivables caused by growth in sales as Hanwa
conducted aggressive sales activities during the fiscal year.
Net cash used in investing activities decreased ¥8.1 billion
to ¥5.9 billion. The main reasons were a decline in additions toproperty and equipment from the prior fiscal year and proceedsfrom the sale of investment securities.
Net cash provided by financing activities was ¥34.3 billion
compared with a negative cash flow of ¥7.4 billion one year
earlier. The positive cash flow was mainly due to proceeds fromshort-term loans and commercial paper in order to meet thesubstantial demand for working capital.

Outlook
Establishing an outlook for the global economy requires making
assumptions concerning potential changes in economic growth
rates in the United States and China. However, the global
economy will probably continue to expand because ofcontinuing strength in the Middle East and countries withemerging economies. In Japan, many factors make the outlook
uncertain, notably the possibility of higher long term interest
rates, the direction of foreign exchange rates, and trends inprices of crude oil and other commodities. Despite thisuncertainty, Japan’s economy is likely to remain generally
healthy mainly due to external demand.

17

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Five-Year Summary
For the years ended March 31

Millions of yen,
except number of employees

2007

For the year:
Net sales
Operating income
Net income¥ 1,320,022 ¥ 1,097,707 ¥
20,865
19,69011,423
10,504

Net cash provided by (used in)operating activities
Net cash provided by (used in)investing activities
Net cash provided by (used in)financing activities
At year-end:
Cash and cash equivalents
Total assets
Total net assets

2006

¥

Number of employees

Thousands of
U.S. dollars

2005

2004

2003

2007

933,956 ¥
22,091
13,704751,964 ¥
12,666
5,662

682,964 $11,181,889
10,257
176,747
5,907
96,764(36,192)

22,299(13,341)(6,850)3,269(306,582)(5,956)(14,079)(731)(1,004)836(50,453)

34,325(7,497)

23,523(10,873)(10,115)

290,767

10,229 ¥476,179
98,254

18,986 ¥413,020
86,954

17,658 ¥376,52173,5748,390 ¥
293,528
58,29327,808 $86,650281,557
4,033,706
53,251
832,308

1,637

1,519

1,424

1,285

1,239

Yen

2007

Per share data:
Net income
Cash dividends
Net assets¥

54.03 ¥
12.00
461.21

2006

48.96 ¥
10.00
406.68

U.S. dollars

2005

64.03 ¥
9.00
343.82

2004

26.43 ¥
6.00
272.672003

2007

27.91 $
5.00
249.30%2007

Key financial ratios:
Return on assets
Return on equity
Net debt/equity ratio

2006

2.6
12.4
170

2.7
13.2
140

2005

4.1
21.0
170

2004

2.0
10.2
180

2003

2.1
11.6
180

Note: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥118.05 = $1.00.
2. Net debt/equity ratio = Net interest-bearing debt / equity.
Net interest-bearing debt = Interest-bearing debt – cash.
3. The cash dividends per share for the year ended March 31, 2007 include a ¥2 ($0.017) commemorative dividend in celebration of the 60th anniversary of
the Company’s establishment.

18

0.458
0.102
3.907

Financial Section

Contents
Consolidated Balance Sheets ........................................................................................... 20
Consolidated Statements of Income ............................................................................. 22
Consolidated Statements of Changes in Net Assets ............................................... 23
Consolidated Statements of Cash Flows ..................................................................... 25
Notes to Consolidated Financial Statements ............................................................. 26
Independent Auditors’ Report ......................................................................................... 39
19

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets2007

Current assets:
Cash and cash equivalents
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

¥

2006

2007

86,650 $2006

10,229 ¥18,986 $160,830

7,168
252,204

4,941
203,285

60,7202,136,417

41,855
1,722,025

451
177
(911)
88,221
1,097
23,636382,272

2,555
7
(737)
76,054
1,355
20,900327,346

3,820
1,499
(7,717)
747,3199,293
200,220
3,238,221

21,64359(6,243)644,252
11,478177,0442,772,943

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

1,402
36,765

1,279
32,527

11,876
311,436

10,834
275,536—327
14,619(749)
52,36430
408
12,657(1,118)45,783—
2,770
123,837(6,345)443,574

254
3,456
107,217(9,470)387,827

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

24,453
21,408
11,575(16,605)
40,831

24,451
20,6898,624(14,564)
39,200207,141
181,347
98,052(140,661)
345,879

207,124
175,256
73,054(123,371)
332,063

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

10
702
712
476,179 ¥

42
85
356
649
5,947
5,498
691
6,032
5,854
413,020 $ 4,033,706 $ 3,498,687¥

See accompanying Notes to Consolidated Financial Statements.

20

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Net Assets

2007

Current liabilities:
Short-term loans payable (Note 6)
Commercial paper (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

¥

2006

2007

2006

365,032 $148,242423

208,344—
224,057

43,092 ¥17,50050

24,595 $—26,450647
159,782
1,694
4,051
24,280251,096788
139,290
1,666
3,709
30,826
227,324

5,481
1,353,511
14,35034,316205,676
2,127,031

6,675
1,179,924
14,11331,419261,127
1,925,659

111,950
8
10,978
3,893
126,829

84,900
103
9,778
3,961
98,742

948,327
68
92,99432,9781,074,367

719,187
873
82,82933,554
836,443

Net assets (Note 9)
Shareholders’ equity:
Common stock,
Authorized: 570,000,000 shares
Issued: 211,663,200 shares
Capital surplus
Retained earnings
Treasury stock, at cost: 291,554 shares (206,306 in 2006)
Total shareholders’ equity

45,651
3
40,661(109)
86,20645,651
3
31,288(67)
76,875

386,70925
344,439(923)
730,250

386,70925
265,040(568)
651,206

Valuation and translation adjustments:
Unrealized gains on securities, net of taxes
Unrealized gains on hedging derivatives, net of taxes
Land revaluation difference, net of taxes
Foreign currency translation adjustments
Total valuation and translation adjustments
Minority interests
Total net assets
Total

11,406
838
(17)
(947)
11,280768
98,254476,179 ¥

10,446
96,62088,488
—
7,098
—
(17)
(144)
(144)
(1,159)(8,022)(9,818)9,270
95,55278,526
809
6,506
6,853
86,954
832,308
736,585
413,020 $ 4,033,706 $ 3,498,687

Noncurrent liabilities:
Long-term debt due after one year (Note 6)
Employees’ severance and retirement benefits (Note 7)
Deferred tax liabilities – noncurrent (Note 8)
Other noncurrent liabilities
Total noncurrent liabilities
Contingent liabilities (Note 12)¥21

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income
For the years ended March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

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

2006

2007

2006

¥ 1,320,022 ¥ 1,097,707 $ 11,181,889 $ 9,298,662
1,272,532
1,053,920 10,779,602
8,927,743
47,49043,787402,287
370,919
26,62524,097
225,540
204,125
20,865
19,690176,747
166,794

Other income (expenses):
Interest and dividend income
Interest expense
Foreign exchange gain
Loss on impairment of long-lived assets (Note 14)
Other, net

1,633(3,233)
663
—
(758)

1,826
(2,542)
23
(451)
(725)

13,833(27,386)
5,616—(6,421)

15,468(21,533)
195(3,821)(6,142)

Income before income taxes and minority interests

19,17017,821

162,389

150,961

7,399
270
7,669

6,530
736
7,266

62,6772,287
64,96455,315
6,235
61,550(78)
11,423 ¥(51)
10,504 $(661)
96,764 $(432)
88,979

Income taxes (Note 8):
Current
Deferred

Minority interests in income of consolidated subsidiaries
Net income

¥

Yen

2007

Net income per share
Cash dividends per share¥

See accompanying Notes to Consolidated Financial Statements.

2254.03 ¥
12.00

U.S. dollars (Note 1)

2006

48.96 $
10.00

2007

0.458 $
0.102

2006

0.415
0.085

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2007 and 2006

Thousands
Number of sharesof common stock

Millions of yen
Common stock

Capital surplus

Retained earnings

Treasury stock

Balance at March 31, 2005
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes

211,663 ¥———

45,651 ¥
—
—
—

1 ¥
—
—
—

23,912 ¥10,504(2,961)
(160)

(49)
—
—
—

—
—
—
—

—
—
—
—

—
—
2
—

(10)
—
—
3

—
(21)
3
—

Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007

211,663———

45,651
—
—
—

3
—
—
—

31,288
11,423(2,114)
(150)

(67)
—
—
—

—

—

—

(1)

—

—
—
—
—
211,663 ¥————
45,651 ¥

—
—
0
—
3 ¥

215
—
—
—
40,661 ¥

—
(43)
1
—
(109)

Millions of yen
Unrealized gains
on securities,
net of taxes

Balance at March 31, 2005
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007¥¥

Unrealized gains
on hedging
derivatives,
net of taxes

Land revaluationdifference,
net of taxes

Foreign currencytranslation
adjustments

Minority interests

Total

3,871 ¥
—
—
—

— ¥
—
—
—

1,653 ¥———

(2,164) ¥
—
—
—

698 ¥
—
—
—

73,573
10,504(2,961)
(160)

—
—
—
6,575

—
—
—
—

—
—
—
(1,670)

—
—
—
1,005

—
—
—
111

(10)
(21)
5
6,024

10,446
—
—
—

—
—
—
—

(17)
—
—
—

(1,159)
—
—
—

809
—
—
—

86,954
11,423(2,114)
(150)

—

—

—

—

—

(1)

—
—
—
960
11,406 ¥

—
—
—
838
838 ¥

—
—
—
—
(17) ¥———
212(947) ¥

—
—
—
(41)
768 ¥

See accompanying Notes to Consolidated Financial Statements.

23

215
(43)
1
1,969
98,254

Common stock

Balance at March 31, 2005
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007$

Thousands of U.S. dollars (Note1)
Capital surplus
Retained earnings

386,709 $
—
—
—

$

8 $
—
—
—

Treasury stock

202,558 $
88,979(25,082)(1,355)

(415)
—
—
—

—
—
—
—

—
—
17
—

(85)
—
—
25

—
(178)
25
—

386,709
—
—
—

25
—
—
—

265,040
96,764(17,908)(1,270)

(568)
—
—
—

—

—

(8)

—

—
—
—
—
386,709 $

—
—
0
—
25 $

1,821
—
—
—
344,439 $

—
(364)
9
—
(923)

Thousands of U.S. dollars (Note1)
Unrealized gains
on securities,
net of taxes

Balance at March 31, 2005
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007$$

Unrealized gains
on hedging
derivatives,
net of taxes

Land revaluationdifference,
net of taxes

Foreign currencytranslation
adjustments

Minority interests

Total

32,791 $
—
—
—

— $
—
—
—

14,003 $———(18,331) $———5,913 $———

623,236
88,979(25,082)(1,355)———55,697

—
—
—
—

—
—
—
(14,147)

—
—
—
8,513

—
—
—
940

(85)
(178)
42
51,02888,488
—
—
—

—
—
—
—

(144)
—
—
—

(9,818)
—
—
—

6,853
—
—
—

736,585
96,764(17,908)(1,270)

—

—

—

—

—

(8)

—
—
—
8,132
96,620 $

—
—
—
7,098
7,098 $————
(144) $

—
—
—
1,796
(8,022) $

—
—
—
(347)
6,506 $

See accompanying Notes to Consolidated Financial Statements.

24

1,821
(364)
9
16,679832,308

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2007 and 2006

Thousands of
U.S. dollars (Note 1)

Millions of yen

2007

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
Increase in trade receivables
Increase in inventories
Increase in trade notes and accounts payable
Increase (decrease) in deposits received
Other, net
Subtotal
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:
Decrease (increase) in time deposits, net
Additions to property and equipment
Proceeds from sale of property and equipment
Additions to investment securities
Proceeds from sale of investment securities
Decrease in short-term loans receivable, net
Additions to long-term loans receivable
Proceeds from long-term loans receivable
Other, net
Net cash used in investing activities
Cash flows from financing activities:
Increase (decrease) in short-term loans payable, net
Increase in commercial paper, net
Proceeds from long-term debt
Repayments of long-term debt
Payment of cash dividends
Cash dividends paid to minority interests in consolidated subsidiaries
Other, net
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Increase arising from inclusion in consolidation
Cash and cash equivalents at end of year
See accompanying Notes to Consolidated Financial Statements.

25

¥

¥

2006

2007

2006

19,170 ¥17,821 $

162,389 $

150,961

1,991
—
(189)
(1,633)
3,233(50,719)(11,409)
20,212(7,570)(735)(27,649)

1,969
451
(298)
(1,826)
2,542(3,185)(11,779)
21,239552
4,402
31,88816,866—(1,601)(13,833)
27,387(429,640)(96,646)
171,216(64,126)(6,226)(234,214)

16,6793,821(2,524)(15,468)
21,533(26,980)(99,780)
179,916
4,676
37,289270,123

1,795(3,237)(7,101)(36,192)

1,661(2,477)(8,773)22,29915,205(27,421)(60,152)(306,582)

14,070(20,983)(74,316)
188,894303(2,593)14(5,489)
2,778
195
(21)
139
(1,282)(5,956)(310)(7,899)40(5,278)
89
439
(29)
420
(1,551)(14,079)

2,567(21,965)
119(46,497)
23,532
1,652
(178)
1,177
(10,860)(50,453)(2,626)(66,912)339(44,710)
754
3,719
(246)
3,558
(13,139)(119,263)

18,35917,50027,100(26,450)(2,116)(26)(42)
34,325(943)(8,766)18,986
9
10,229 ¥(26,846)—
39,420(17,050)(2,955)(50)(16)(7,497)605
1,328
17,658—18,986 $155,519
148,242
229,564(224,057)(17,925)
(220)
(356)
290,767(7,988)(74,256)
160,83076
86,650 $(227,412)—
333,926(144,430)(25,032)
(424)
(135)
(63,507)
5,125
11,249149,581—
160,830

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 (“Japanese GAAP”), which are
different in certain respects as to application and disclosure
requirements from International 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 changes in net assets for 2006, fromthe consolidated financial statements of the Company preparedin accordance with Japanese GAAP and filed with theappropriate 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 forfair presentation, is not presented in the accompanying
consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March 31,
2007, which was ¥118.05 to U.S.$1.00. The translations should
not be construed as representations that the Japanese yenamounts have been, could have been, or could in the future beconverted 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 twelve (eleven in 2006)
significant subsidiaries (together “the Companies”). The
accounts of certain consolidated subsidiaries have been included
on the basis of fiscal periods ended three months or less prior to
March 31, and significant transactions after these year-ends areappropriately adjusted in consolidation.
Intercompany transactions and accounts have been
eliminated. The Company doesn’t apply the equity method
because non-consolidated subsidiaries and affiliated companies
are immaterial.
Cash and cash equivalents — In preparing the consolidated
statements of cash flows, cash on hand, readily available
deposits and short-term highly liquid investments with maturities
not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
Allowance for doubtful receivables — The allowance for
doubtful receivables is provided to cover possible losses oncollection. With respect to normal trade accounts receivable, it isstated at an amount based on the actual rate of historical bad
debts, and for certain doubtful receivables, the uncollectible
amount has been individually estimated.
The allowance for doubtful receivables of overseas
consolidated subsidiaries is determined by estimates ofmanagement.
Securities — The Companies classify securities as (a) securities
held for trading purposes (hereafter, “trading securities”), (b)debt securities intended to be held to maturity (hereafter, “heldto-maturity debt securities”), (c) equity securities issued bysubsidiaries and affiliated companies, and (d) all other securities
that are not classified in any of the above categories (hereafter,“available-for-sale securities”).
The Companies do not hold trading securities and held-tomaturity debt securities. Equity securities issued by subsidiaries
and affiliated companies which are not consolidated or
accounted for using the equity method are stated at moving
average cost. Available-for-sale securities with available fairmarket values are stated at fair market value. Unrealized gains
and unrealized losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets.
Realized gains on the sale of such securities are computed using
moving average cost. Other available-for-sale securities arestated at moving 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.
Bond issue costs — Bond issue costs are charged to income as
incurred.
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.
Effective from the year ended March 31, 2007, the Company
and its consolidated subsidiaries adopted the new accounting
standard, “Accounting Standard for Directors’ Bonuses”(Statement No.4 issued by the Accounting Standards Board ofJapan on November 29, 2005).
As a result of the adoption of this accounting standard,
operating income, income before income taxes and minority
interests decreased by ¥154 million ($1,305 thousand) for theyear ended March 31, 2007 from the amount which would havebeen recorded under the method applied in the previous year.
In addition, the amount of bonuses to directors worked out for
the year ended March 31, 2007, was recorded as the outstanding
payment and included in “Other noncurrent liabilities.”
Income taxes — The Companies recognize the tax effects ofloss carryforwards and the temporary differences between the
carrying amounts of assets and liabilities for tax and financial
reporting. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of the temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
The Company and its wholly owned domestic subsidiaries fileconsolidated tax returns.

26

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.
Derivatives and hedge accounting — The Company states
derivative financial instruments at fair value and recognizeschanges in the fair value as gains or losses unless the derivative
financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges andmeet certain hedging criteria, the Company defers therecognition of gains or losses resulting from the changes in thefair value of the derivative 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
Hedged items:
Interest expense on borrowings
Inventories and commitments
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 prior year amounts have been
reclassified to conform to the current year presentation. Also, as
described in Note 2, Significant accounting policies, “Accounting
standard for statement of changes in net assets,” theconsolidated balance sheet for 2006 was adapted to conform to
the new presentation rules of 2007. Also, in lieu of theconsolidated statement of shareholders’ equity for the year
ended March 31, 2006, which was prepared on a voluntary basis
for inclusion in the 2006 consolidated financial statements, theCompany prepared the consolidated statement of changes in net
assets for 2006 as well as for 2007.
Amounts per share — Computations of net income per shareof common stock are based on the weighted average numberof shares outstanding during each period. Diluted net income
per share is not disclosed because potentially dilutive securities
are not issued. The Japanese Corporate Law requires that thedeclaration of dividends be approved at the general meeting ofstockholders 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.
Accounting standard for statement of changes in net
assets — Effective from the year ended March 31, 2007, theCompanies adopted the new accounting standard, “AccountingStandard for Statement of Changes in Net Assets” (Statement
No.6 issued by the Accounting Standards Board of Japan on
December 27, 2005), and “the Implementation Guidance for the
Accounting Standard for Statement of Changes in Net Assets”(the Financial Accounting Standard Implementation Guidance
No. 9 issued by the Accounting Standards Board of Japan on
December 27, 2005), (collectively, the “Additional New
Accounting Standards”).

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.
As the pension assets exceeded the deduction of unrecognizedactuarial differences and unrecognized prior service cost fromprojected benefit obligation in the Company, such excess amountis included in “other investments and noncurrent receivables” inthe years ended March 31, 2007 and 2006.
In the last fiscal year, the retirement benefits plan for directors
and statutory auditors was abolished. Amounts for benefits that
had accrued at the date of abolishment were approved at theordinary general meeting of stockholders on June 29, 2005.
Then, the estimated amounts payable to them were eliminated,
and the outstanding payments were recorded as “Other
noncurrent liabilities.”
It is compulsorily for employees of Japanese companies to be
included in the Welfare Pension Insurance Scheme operated by
the government. Employers are legally required to deduct
employees’ welfare pension insurance contributions from their
payroll and to pay them to the government together with theemployers’ own contributions. For companies that haveestablished their own Employees’ Pension Funds, 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 Funds withthe government’s permission and supervision.
Based on the newly enacted Defined Benefit Corporate
Pension Law, the Company decided to restructure its Employees’
Pension Fund and was permitted by the Minister of Health,
Labor and Welfare on September 25, 2003 to be released fromthe future obligation for payments for the substitutional portionof the Welfare Pension Insurance Scheme. On January 1, 2005,
the Company obtained approval from the Minister of Health,
Labor and Welfare with respect to application of the transfer to
the Japanese government of the substitutional portion of benefit
obligation for employee services provided in prior years andrelated pension plan assets. Pension assets for the substitutional
portion maintained by the Employees’ Pension Fund weretransferred back to the government’s scheme. The effects of thetransfer are disclosed in the Note 7, Employees’ severance andretirement benefits.
Reserve for loss on sale-repurchase agreement of land —In accordance with the exercise of the agreement from theOrganization for Promoting Urban Development, on September
20, 2005, the entire amount of “Reserve for loss on salerepurchase agreement of land” was reversed in the last fiscal year.
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 forshareholders’ equity accounts, which are translated at historicalrates. Income statements of consolidated overseas subsidiaries
are translated at average rates, except for transactions with theCompany, which are translated at rates used by the Company.
The Companies report foreign currency translation
adjustments in net assets.
27

Under the New Accounting Standards, the following items
are presented differently compared to the previous presentation.
The net assets section includes unrealized gains (losses) on
hedging derivatives, net of taxes. Under the previous
presentation rules, the Companies were required to present
unrealized gains (losses) on hedging derivatives in the assets or
liabilities section without considering the related income tax
effects. Minority interest is required to be included in the net
assets section under the New Accounting Standards. Under theprevious presentation rules, the Companies were required topresent minority interest in the liabilities section and between
the noncurrent liabilities and stockholders’ equity sections.
The previously presented stockholders’ equity and certain
other balance sheet items for 2006 have been restated toconform to the 2007 presentation. As a result, minority interests
amounting to ¥809 million ($6,853 thousand) are included in
the net assets section as of March 31, 2006.
If the New Accounting Standards had not been adopted andthe previous presentation method for stockholders’ equity had
been applied, stockholders’ equity at March 31, 2007 and 2006,
which comprised common stock, capital surplus, retained
earnings, land revaluation difference, net unrealized holding
gains on securities, foreign currency translation adjustments andtreasury stock, would have been ¥96,648 million ($818,704
thousand) and ¥86,145 million ($729,733 thousand),
respectively.

Accordingly, the Companies prepared the statements ofchanges in net assets for the year ended March 31, 2007 inaccordance with the Additional New Accounting Standards.
Also, the Companies voluntarily prepared the consolidated
statement of changes in net assets for 2006 in accordance with
the Additional New Accounting Standards. Previously,
consolidated statements of stockholders’ equity were prepared
for the purpose of inclusion in the consolidated financial
statements although such statements were not required underJapanese GAAP.
Change in accounting policy —Accounting standard for presentation of net assets in thebalance sheet
Effective from the year ended March 31, 2007, the Company
and its consolidated subsidiaries adopted the new accounting
standard, “Accounting Standard for Presentation of Net Assets
in the Balance Sheet” (Statement No.5 issued by the AccountingStandards Board of Japan on December 9, 2005), and “theImplementation Guidance for the Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (the Financial
Accounting Standard Implementation Guidance No. 8 issued by
the Accounting Standards Board of Japan on December 9,2005), (collectively, the “New Accounting Standards”).
Under the New Accounting Standards, the balance sheet
comprises three sections, which are the assets, liabilities and net
assets sections. Previously, the balance sheet comprised theassets, liabilities, minority interests, as applicable, and thestockholders’ equity sections.

28

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, 2007 and 2006:

March 31, 2007

Millions of yen
Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
11,184 ¥Other securities:
Equity securities¥

Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥¥

Book value

Difference

19,157 $

94,739 $257,018 $

162,279

215 ¥(44) $

2,194 $

1,821 $

(373)

Millions of yen
Acquisition cost

Other securities:
Equity securities

Difference

30,341 ¥259 ¥March 31, 2006

Thousands of U.S. dollars

Book value

Thousands of U.S. dollars

Book value

Difference

Acquisition cost

Book value

Difference

6,032 ¥

23,324 ¥17,292 $51,097 $197,577 $

146,480

46 ¥

36 ¥

(10) $

390 $

305 $

(85)

(B) The following tables summarize book values of securities whose fair values are not determinable as of March 31, 2007 and 2006:(a) Equity securities issued by unconsolidated subsidiaries and affiliated companies
Millions of yen
2007
Book value

Equity securities issued by unconsolidated subsidiaries and affiliated companies

Thousands of U.S. dollars

2006Book value

2007
Book value

2006
Book value¥

1,402 ¥

1,279 $

11,876 $10,834¥2,596 ¥
1,417
2,000
196
6,209 ¥

2,739 $
4,229
2,000
199
9,167 $

21,991 $12,003
16,942
1,660
52,596 $23,20235,824
16,942
1,686
77,654(b) Available-for-sale securities
Unlisted stocks
Unlisted foreign stocks
Preferred fund certificate
Investment in limited partnership
Total

¥

(C) Total sales of available-for-sale securities in the years ended March 31, 2007 and 2006 amounted to ¥2,778 million ($23,532
thousand) and ¥89 million ($754 thousand), which resulted in a break-even and net gains of ¥36 million ($305 thousand),
respectively.

29

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 to hedge
foreign exchange risk associated with certain assets and liabilities
denominated in foreign currencies. The Company enters into
foreign exchange forward contracts, currency swap agreements
and interest rate swap agreements as hedges against bonds andloans denominated in foreign currencies. The Company also
enters into commodity futures contracts and commodity swaps
as a means of hedging risks associated with certain inventories
and commitments.
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, 2007 and 2006 for derivatives for which hedge accounting
has not been applied:

March 31, 2007
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
Total

¥

Fair value

Contract ornotional amount

9,759 ¥
2,165

(1) $
(8)

82,660 $18,272

82,668 $18,340

(8)
(68)

8,819
4,439

8,839
4,508

20
69

74,706
37,60274,87538,187169
585

14,656

(943)

(943)
(863)

124,151(7,988)¥

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

Fair value(7,988)(7,310)$Millions of yen
Contract ornotional amount¥

Net recognized
gains (losses)

Fair value

9,758 ¥
2,157

Commodity related
Futures:Petroleum
Selling
BuyingFrozen seafoods
Selling
BuyingNon-ferrous metals
Selling
BuyingCommodity swaps
Petroleum
Selling
BuyingTotal

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

Contract ornotional amount

Net recognized
gains (losses)

Fair value

10,809 ¥5,440

11,206 ¥
5,716(397) $
276

91,563 $46,082

94,926 $48,420(3,363)
2,338

—
1

—
1

—
0

—
8

—
8

—
0

9,823
6,278

10,113
6,856

(290)
578

83,21153,181

85,66758,077(2,456)
4,896

2,030
7,371

(60)
141

(60)
141
248

17,19662,440

(508)
1,194

(508)
1,194
2,101

¥

30

$

March 31, 2006
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
Total

¥

Fair value

Contract ornotional amount

9,105 ¥
285

(121) $
(1)

76,103 $
2,406

77,128 $2,414(1,025)(8)

10,283543

10,506555

223
1287,1074,600

88,996
4,702

1,889
102

14,164(1,303)(1,303)(1,190)119,983(11,038)¥

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

Fair value(11,038)(10,080)$

Millions of yen
Contract ornotional amount¥

Net recognized
gains (losses)

Fair value

8,984 ¥
284

Commodity related
Futures:Petroleum
Selling
BuyingFrozen seafoods
Selling
BuyingNon-ferrous metals
Selling
BuyingCommodity swaps
Petroleum
Selling
BuyingTotal

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

Contract ornotional amount

Fair value

Net recognized
gains (losses)

10,766 ¥
1,618

10,730 ¥
1,684

36 $
66

91,199 $13,70690,894 $14,265

305
559

23
—

24
—

(1)
—

194
—

203
—

(9)
—

5,579
1,779

5,575
1,757

4
(22)

47,26015,07047,226
14,884

34
(186)

2,558
13,857

(71)
89

(71)
89
101

21,669117,382

(601)
754

(601)
754
856

¥

31

$

5. Pledged assets
At March 31, 2007 and 2006, assets pledged as collateral for short-term loans payable of ¥114 million ($966 thousand) and ¥378
million ($3,202 thousand), respectively, and guarantees are as follows:
Thousands of
U.S. dollars

Millions of yen

2007

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

¥

¥

2006

13 ¥
2,818
481
66
3,378 ¥

10 $
4,548
491
64
5,113 $

2007

2006

110 $
23,871
4,075
559
28,615 $85
38,526
4,159
542
43,312

6. Short-term loans payable, commercial paper
and long-term debt
The Company has entered into a yen domestic commercial
paper program. There is an outstanding balance of ¥17,500
million ($148,242 thousand) at March 31, 2007.

Weighted average interest rates applicable to short-term loans
outstanding at March 31, 2007 and 2006 are 1.95% and2.40%, respectively.

Long-term debt at March 31, 2007 and 2006 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2007

Issued in 2005, 0.96% unsecured straight bonds, due 2008
Loans from banks with weighted average interest rates of 1.43% and0.93% at March 31, 2007 and 2006, respectively, maturing seriallythrough 2014
Less amounts due within one year

The annual maturities of long-term debt outstanding at March 31,
2007, are as follows:

Years ending March 31,
Millions of yen

2008
2009
2010
2011
2012
Thereafter
Total

¥

¥

50 $
32,62523,67523,550
11,20020,900112,000 $Thousands of
U.S. dollars

423
276,366
200,550
199,492
94,875177,044948,750

32

2006

2007

2006

¥

10,000 ¥10,000 $84,710 $84,710¥102,000
50
111,950 ¥

101,350
26,45084,900 $864,040423
948,327 $858,534
224,057
719,187

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,
2007 and 2006 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 costs
Prepaid pension costs
Liability for severance and retirement benefits

¥

¥

2007

2006

2007

2006

19,066 ¥(16,915)(3,996)
(949)
2,802
8 ¥

18,532 $(14,739)(4,192)(1,030)
1,532
103 $

161,508 $(143,287)(33,850)(8,039)23,73668 $

156,984(124,854)(35,510)(8,725)
12,978873

Included in the consolidated statements of income for the years ended March 31, 2007 and 2006 are severance and retirement benefit
expenses that comprised the following:Thousands of
U.S. dollars

Millions of yen

2007

Service costs - benefits earned during the year
Interest costs on projected benefit obligation
Expected return on plan assets
Amortization of actuarial differences
Amortization of prior service costs
Additional retirement benefits
Severance and retirement benefit expenses
Gain on transfer of substitutional portion of employees’ pension fund
Total

¥

¥

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

633 ¥
366
(439)
424
81
20
1,085
—
1,085 ¥

2006

523 $
319
(299)
475
81
37
1,136
(39)
1,097 $

2007

5,362 $
3,100
(3,719)
3,592
686
170
9,191
—
9,191 $

2006

4,430
2,702
(2,533)
4,024
686
314
9,623
(330)
9,293

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

Assumptions used for the years ended March 31, 2007 and 2006 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, on January 1, 2005, the Company
obtained approval from the Minister of Health, Labor andWelfare to transfer to the Japanese government thesubstitutional portion of the benefit obligation for employee
services provided in prior years and related pension plan assets.

2007

2006

2.0%
3.0%
14 years
14 years

2.0%
3.0%
14 years
14 years

On May 25, 2005, pension assets for the substitutional portion
maintained by the Employees’ Pension Fund were transferred backto the government’s scheme.

33

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 40.7% for the years ended
March 31, 2007 and 2006.

The reconciliation of the difference between the statutory tax
rate and the effective tax rate for the years ended March 31,
2007 and 2006 has not been disclosed because such differences
are less than 5%, respectively.

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2007 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

Deferred tax assets:
Temporary differences pertaining to a consolidated subsidiary
Loss on impairment of long-lived assets
Loss on sale-repurchase agreement of land
Land revaluation difference, net of taxes
Accrued bonuses to employees
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Unrealized gains on securities, net of taxes
Land revaluation difference, net of taxes
Prepaid pension costs
Other
Total deferred tax liabilities
Net deferred tax liabilities

¥

¥

2007

2006

2007

2006

23,911 ¥
2,419
1,719
1,667
686
3,386
33,788(31,117)
2,671

23,944 $
2,404
1,719
1,667
675
3,721
34,130(31,425)
2,705

202,550 $
20,491
14,562
14,121
5,811
28,683286,218(263,592)
22,626

202,829
20,364
14,562
14,121
5,718
31,521
289,115(266,201)
22,914

7,825
2,799
1,140
778
12,542(9,871) ¥

7,166
2,799
624
497
11,086(8,381) $66,28523,7109,657
6,590
106,242(83,616) $60,70323,7105,286
4,210
93,909(70,995)

Deferred tax assets and deferred tax liabilities are included in the consolidated balance sheets at March 31, 2007 and 2006,
respectively, as follows:
Thousands of
U.S. dollars

Millions of yen

2007

Current assets: Deferred tax assets
Noncurrent assets: Deferred tax assets
Current liabilities: Deferred tax liabilities
Noncurrent liabilities: Deferred tax liabilities¥

1,097 ¥
10—
10,9782006

1,355 $
42
—
9,778

2007

9,293 $
85—
92,994

2006

11,478356—
82,8299. Net assets
until the total of legal earnings reserve and additional paid-in
capital equaled 25% of common stock.
Under the Code, legal earnings reserve and additional paid-in
capital could be used to eliminate or reduce a deficit by aresolution of the shareholders’ meeting or could be capitalized
by a resolution of the Board of Directors. Under the Law, bothof these appropriations generally require a resolution of theshareholders’ meeting.
Additional paid-in capital and legal earnings reserve may not
be distributed as dividends. Under the Code, however, on
condition that the total amount of legal earnings reserve andadditional paid-in capital remained equal to or exceeded 25% ofcommon stock, they were available for distribution by resolutionof the shareholders’ meeting. Under the Law, all additional
paid-in-capital and all legal earnings reserve may be transferred
to other capital surplus and retained earnings, respectively,
which are potentially available for dividends.
The maximum amount that the Company can distribute as
dividends is calculated based on the non-consolidated financial
statements of the Company in accordance with Japanese laws
and regulations.

As described in Note 2.Significant accounting policies, “Changein accounting policy,” net assets comprises four subsections,which are owners’ equity, accumulated gains (losses) fromvaluation and translation adjustments, share subscription rights
and minority interests.
The Japanese Corporate Law (“the Law”) became effective
on May 1, 2006, replacing the Japanese Commercial Code (“theCode”). The Law is generally applicable to events andtransactions occurring after April 30, 2006 and for fiscal years
ending after that date.
Under the Law, in cases where a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of thedividend or the excess, if any, of 25% of common stock over the
total of additional paid-in-capital and legal earnings reserve must
be set aside as additional paid-in-capital or legal earnings
reserve. Legal earnings reserve is included in retained earnings in
the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside anamount equal to at least 10% of the aggregate amount of cash
dividends and other cash appropriations as legal earnings reserve34

At the annual shareholders’ meeting held on June 28, 2007,
the shareholders approved cash dividends amounting to ¥1,480($12,537 thousand). Such appropriations have not been accruedin the consolidated financial statements as of March 31, 2007.
Such appropriations are recognized in the period in which they
are approved by the shareholders.

Unrealized gain (loss) on land revaluation is recorded as land
revaluation difference in a separate component of net assets ofthe consolidated balance sheets until realized. The amounts areshown 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 withcertain necessary adjustments.
As of March 31, 2007, the carrying amount of the land after
the above one-time revaluation exceeded the market value by¥1,938 million ($16,417 thousand).

Land revaluation difference — Pursuant to the Law
Concerning Land Revaluation, the Company revaluated land
used for business activities at March 31, 2002.

10. 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, 2007 and 2006 are ¥526 million ($4,456
thousand) and ¥437 million ($3,702 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, 2007 and 2006 is as follows:

As of March 31, 2007
Acquisition
cost

Other property and equipment
Other assets
Total

¥
¥

Millions of yen
Accumulated
depreciation

1,961 ¥
153
2,114 ¥

As of March 31, 2006

821 ¥
94
915 ¥

Acquisitioncost

1,140 $
59
1,199 $¥¥Net leased
property

802 ¥
79
881 ¥

Depreciation expense and interest expense of finance leases that
do not transfer ownership of the leased property are notreflected in the accompanying consolidated statements ofincome. Depreciation expense, computed by the straight-line
method, was ¥492 million ($4,168 thousand) and ¥409 million

Net leased
property

6,955 $
796
7,751 $

9,657
500
10,157

Thousands of U.S. dollars

Accumulated
depreciation

1,862 ¥
150
2,012 ¥

Thousands of U.S. dollars
Accumulated
depreciation

16,612 $
1,296
17,908 $Millions of yen
Acquisition
cost

Other property and equipment
Other assets
Total

Net leased
property

Acquisition
cost

1,060 $
71
1,131 $

15,773 $1,271
17,044 $Accumulated
depreciation

Net leased
property

6,794 $
669
7,463 $

8,979
602
9,581

($3,465 thousand) for the years ended March 31, 2007 and2006, respectively. Interest expense, computed by the interest
method, was ¥33 million ($280 thousand) and ¥30 million ($254
thousand) for the years ended March 31, 2007 and 2006,
respectively.

Obligations, excluding financing charges, under such non-capitalized finance leases as of March 31, 2007 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

2007

Due within one year
Due after one year
Total

¥

2006

485 ¥
722
1,207 ¥

¥

2007

444 $
709
1,153 $

2006

4,108 $
6,116
10,224 $

3,761
6,006
9,767

Operating leases
As Lessee
Obligations under operating leases as of March 31, 2007 and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

2007

Due within one year
Due after one year
Total

¥
¥
35

2006

21 ¥
81
102 ¥

2007

50 $
25
75 $

2006

178 $
686
864 $

423
212
635

11. 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, other metals, and solar cellrelated materials and products
Foods: Frozen seafoods and meat products
Petroleum and chemicals: Petroleum products, chemical
products, and cement
Other business: Lumber, machinery, and other

Segment information by business category for the years ended March 31, 2007 and 2006 is as follows:Year ended March 31, 2007
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure¥¥¥689,188 ¥674,852
14,336 ¥253,363 ¥
1,380
1,765

Non-ferrous
metals242,952 ¥
235,708
7,244 ¥
64,282 ¥
67
190

Foods

91,954 ¥91,363591 ¥
37,830 ¥3030Year ended March 31, 2007
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure

Non-ferrous
metals$ 5,838,103 $ 2,058,043 $5,716,662
1,996,679$ 121,441 $
61,364 $$ 2,146,235 $ 544,532 $
11,690568
14,951
1,610

Millions of yen
Petroleum
Other
and chemicals
business

Foods

237,343 ¥
235,1102,233 ¥
34,647 ¥
28
37

Total

58,585 ¥ 1,320,022 ¥
56,544
1,293,577
2,041 ¥
26,445 ¥18,904 ¥ 409,026 ¥
404
1,909
347
2,369

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

Total

Corporate

Consolidated— ¥ 1,320,022
5,580
1,299,157(5,580) ¥20,865
67,153 ¥ 476,179
82
1,991
44
2,413

Corporate

Consolidated

778,941 $ 2,010,529 $ 496,273 $ 11,181,889 $— $ 11,181,889
773,935
1,991,614
478,984
10,957,874
47,268 11,005,142
5,006 $ 18,915 $ 17,289 $ 224,015 $ (47,268) $ 176,747
320,457 $ 293,494 $ 160,136 $ 3,464,854 $ 568,852 $ 4,033,706
254
237
3,422
16,171
695
16,866
254
313
2,939
20,067373
20,440

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.

36

Year ended March 31, 2006
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

614,046 ¥599,575
14,471 ¥217,013 ¥1,334

139,109 ¥133,750
5,359 ¥
39,471 ¥75

87,624 ¥86,875749 ¥
37,441 ¥33

210,255 ¥
207,746
2,509 ¥
36,042 ¥
19

434
3,131

10
58

—
32

—
231

Year ended March 31, 2006
Steel

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

Non-ferrous
metals

3,676
26,523

85
491

—
587

Corporate

Total

Consolidated— ¥ 1,097,707
5,165
1,078,017(5,165) ¥ 19,690
69,961 ¥ 413,020
87
1,969

444
4,039

Thousands of U.S. dollars
Petroleum
Other
and chemicals
businessFoods$ 5,201,576 $ 1,178,391 $
5,078,992
1,132,994$ 122,584 $
45,397 $$ 1,838,314 $ 334,359 $
11,300635

Total

46,673 ¥ 1,097,707 ¥
44,906
1,072,852
1,767 ¥
24,855 ¥13,092 ¥ 343,059 ¥
421
1,882

7
68

Corporate

451
4,107

Consolidated

742,262 $ 1,781,067 $ 395,366 $ 9,298,662 $— $ 9,298,662
735,917
1,759,814
380,398
9,088,115
43,753
9,131,868
6,345 $ 21,253 $ 14,968 $ 210,547 $ (43,753) $ 166,794
317,162 $ 305,311 $ 110,902 $ 2,906,048 $ 592,639 $ 3,498,687
280
161
3,566
15,942
737
16,679
—
271

—
1,957

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.

—
4,972

3,761
34,214

59
576

3,820
34,790Regional segment information
The Companies operate mainly within Japan, so regional
segment information is not disclosed.

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, 2007 and 2006 are as follows:Year ended March 31, 2007

Millions of yen
Asia

Overseas net sales
Percentage of consolidated net sales¥

231,101 ¥
17.5%

Other
areas

39,781 ¥3.0%

Thousands of U.S. dollars
Total

Other
areas

Asia

270,882 $ 1,957,654 $
20.5%

Total

336,984 $ 2,294,638“Asia” sales consists principally of sales to China, South Korea, Singapore and Thailand.
“Other areas” sales consist principally of sales to the U.S.A. and Germany.
Year ended March 31, 2006
Asia

Overseas net sales
Percentage of consolidated net sales¥

164,594 ¥15.0%

Millions of yen
Other
areas

22,760 ¥
2.1%

Total

187,354 $ 1,394,274 $17.1%“Asia” sales consists principally of sales to China, South Korea, Thailand and Singapore.
“Other areas” sales consist principally of sales to the U.S.A. and Germany.

37

Asia

Thousands of U.S. dollars
Other
areas

Total

192,800 $ 1,587,074

12. Contingent liabilities
At March 31, 2007 and 2006, the Companies were contingently liable as follows:
Thousands of
U.S. dollars

Millions of yen

2007

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

¥

2006

4,116 ¥
2,350

2007

5,903 $
1,455

2006

34,867 $
19,90750,004
12,325

13. Related party transactions
Transactions with a close relative of directors of the Company and a non-consolidated subsidiary for the years ended March 31, 2007
and 2006 are as follows:
Thousands of
U.S. dollars

Millions of yen

A close relative of directors

2007Real-estate
Rents received

¥

2006

6 ¥

2007

6 $

51 $

2007

Steel products
Sale

¥

51

Thousands of
U.S. dollars

Millions of yen

A non-cosolidated subsidiary

2006

2006

8,558 ¥

2007

— $

2006

72,495 $—14. Impairment of long-lived assets
grouped the long-lived assets principally based on the location of
the business entity to which the assets belong. As a result of
these procedures, loss on impairment of long-lived assets of¥451 million ($3,821 thousand) for the year ended March 31,
2006 were recognized in other expenses in the consolidated
statements of income.

Due to the continuous decline in land prices in Japan, theCompanies reduced the carrying amount of long-lived assetsthat were impaired to the recoverable amount. To assess therecoverable amount of 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 tables summarize the losses on impairment of long-lived assets in the year ended March 31, 2006.

Year ended March 31, 2006
Location

PurposeNarashino, Chiba
Suminoe, OsakaAma, Aichi
Shima, Mie
Total

Logistics center
Logistics center
Logistics center
Idle assets

Location

PurposeNarashino, Chiba
Suminoe, OsakaAma, Aichi
Shima, Mie
Total

Logistics center
Logistics center
Logistics center
Idle assets

Millions of yen
Land

¥

¥

Total

258 ¥
155
31
7
451 ¥

258
155
31
7
451

Thousands of U.S. dollars
Land
Total

$

$

15. Subsequent events

2,186 $
1,313
263
59
3,821 $

Millions of yen

At the ordinary general meeting of stockholders of the Company
held on June 28, 2007, the following appropriation of retained
earnings was approved:

Cash dividends (¥7 per share)¥

1,480 $

2,186
1,313
263
59
3,821

Thousands of
U.S. dollars

12,537

Note: The cash dividends per share for the year ended March 31, 2007 includea ¥2 ($0.017) commemorative dividend in celebration of the 60th anniversaryof the Company’s establishment.

38

Independent Auditors’ Report

To the Stockholders and Board of Directors of
Hanwa Co., Ltd.:We have audited the accompanying consolidated balance sheets of Hanwa Co., Ltd.
(a Japanese corporation) and consolidated subsidiaries as of March 31, 2007 and 2006, and therelated consolidated statements of income, changes in net assets and cash flows for the years
then ended, expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to independently express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we 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, 2007 and 2006, 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.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe years ended March 31, 2007 and 2006 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 28, 200739

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: 972 (consolidated: 1,637)
Independent Auditor: KPMG AZSA & Co.
Domestic Offices
OFFICE
Hokkaido
TohokuKyushuNiigata
Hiroshima

ADDRESS
Kita-sanjo Bldg., 3-1-25, Kita-sanjo Nishi, Chuo-ku, Sapporo 060-0003, Japan
Sendai Daiichi Seimei Tower Bldg., 4-6-1 Ichiban-cho, Aoba-ku, Sendai 980-0811, Japan
Takeyama Hakata Bldg., 1-13-6, Hakata-eki Higashi, Hakata-ku, Fukuoka 812-0013, Japan
Hokuetsu-daiichi Bldg., 1-2-25, Higashi Oodouri, Chuo-ku, Niigata 950-0087, Japan
Hiroshima-fukuromachi Bldg., 5-25, Fukuro-machi, Naka-ku, Hiroshima 730-0036, JapanTELEPHONE
81-11-219-7375
81-22-227-7981
81-92-471-7121
81-25-255-1777
81-82-543-2570

FAX
81-11-219-7376
81-22-227-7969
81-92-471-7060
81-25-255-1776
81-82-543-2561

Overseas Offices
OFFICEADDRESS
North and South America
New York
Parker Plaza, 12th Floor, 400 Kelby Street, Fort Lee, New Jersey 07024, U.S.A.
Seattle601 Union St. Suite 626, Seattle, WA, 98101, 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
Room 1705, Korea World Trade Center Bldg., 159-1, Samsung-Dong, Kangnam-ku, Seoul, 135-729, R.O.Korea
Beijing
Room 1201, Beijing Fortune Building, 5 Dong San Huan Bei-lu, Chaoyang District, Beijing 100004, P.R.China
Qingdao
Crowne Plaza Qingdao, Room No.601, Hongkong Middle Road 76, Qingdao City, Shangdon 266071, P.R.China
DalianSenmao Bldg., 20F, 147 Zhongshan Street, Dalian, Liaoning 116011, P.R.China
ShanghaiRoom 902/904-907, Aetna Tower,No.107 Zhunyi Road, Shanghai 200051, P.R.China
Chongqing
Room 2203, Metropolitan Tower, 68 Zhon Rong Lu, Central District, Chongqing 400010 P.R.China
FuzhouRoom 2501, Lippo Tianma Plaza, No.1 Wu Yi Road, Fuzhou City, Fujian 350003, P.R. China
Guangzhou
Unit 3701-3704, Profit Plaza, No. 76 Westhuangpu Road, Guangzhou, Guangdong 510623, P.R. China
Wuhan
Room 18H, Credit Cooperative Building, No. 618 Jianshe Road, Wuhan 430015, P.R.China
DongguanLongxi Industrial Zone, Zhouxi Management Area, Nan Cheng District, Dongguan, Guangdong 511715 P.R.China
Zhongshan
Unit 1909-1910, 19th Floor, Bank Of China Tower, 18 Zhongshan 3rd Road, Zhongshan, Guangdong P.R.China
Hong Kong
Unit 3201-3 32nd Floor, Vicwood Plaza, 199 Des Voeux Road Central, Hong Kong
TaipeiRoom 303 3rd Floor. No. 79, Chung Shan North Road Sec.2, Taipei, Taiwan
Kaohsiung
Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan
Bangkok
12th Floor, Unit 1204, Q.House Lumpini Building, 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand
Kuala Lumpur Suite 8-12B-3, Level 14 (12B), Menara Olympia 8, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
Singapore
20 Cecil Street, #20-06/07 Equity Plaza, Singapore, 049705
Tawau
P.O. Box 1231 91037 Tawau, Sabah, Malaysia
Ho Chi Minh
7/C Office Service International Centre, No. 8 Nguyen Hue Street, District 1, Ho Chi Minh City, S.R. Vietnam
Jakarta
Menara Cakrawala 5th Floor Jalan M.H. Thamrin 9, Jakarta, 10340 Indonesia
Mumbai803, Embassy center, Nariman point, Mumbai 400-021, India
Europe, Africa and Middle East
London2nd Floor, Finland House, 56 Haymarket, London, SW1Y 4RN. U.K.
Wien
Landstrasser Hauptstrasse 71/2 A1030 Wien, Austria
c/o Al-Sabih Engineering & Trading Co. P.O. Box No. 1114, 15462 Dasman, Kuwait
KuwaitRoom 24, 6th Floor, Danat Trading Center, Abdullah Al-Ahmad Street, Sharq, Kuwait
RiyadhP.O. Box 68974, Riyadh 11537, Saudi Arabia
Jeddahc/o Office No. 219, Kaki Center P.O. Box 1224, Jeddah 21431, Saudi Arabia
DammamOffice No.1, 1st Floor, Al-Hammam Center for Trading, King Fahad Bin Abdul Aziz Road, Dammam, Saudi Arabia
Dubai
Dubai Airport Free zone, 3rd East Wing, 4th Fl., Room#444 P.O.Box 54620, Dubai, U.A.E.

40

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

82-2-551-5387
86-10-6590-8333
86-532-8-577-9990
86-411-8368-6954
86-21-6237-5260/5265~7
86-23-6381-1101
86-591-83354165
86-20-8732-0451
86-27-8549-7132
86-769-2240-6418
86-760-332-0706
852-25450110
886-2-2560-2214~17886-7-338-5508~10
66-2-343-8877
60-3-2078-2311
65-6536-7822
60-89-750016~7
84-8-8225715
62-21-3983-3211
91-22-2283-1222

82-2-551-5575
86-10-6590-8340
86-532-8-577-9630
86-411-8368-6934
86-21-6237-5268/5269
86-23-6381-7385
86-591-83345202
86-20-8732-0402
86-27-8578-7196
86-769-2240-6448
86-760-332-0696
852-25422544
886-2-2571-0693
886-7-338-5433
66-2-343-8878
60-3-2078-2380
65-6536-7855
60-89-750019
84-8-8225725
62-21-3983-3212
91-22-2282-2060

44-20-7839-4448
43-1-717-28-200

44-20-7839-3994
43-1-717-28-110

965-243-7259

965-243-7263

966-1-473-1563
966-2-661-0796
966-3-841-1745
971-4-214-9527

966-1-473-5624
966-2-661-0796
966-3-846-7937
971-4-214-9726

Board of Directors

Investor Information(As of July 1, 2007)(As of March 31, 2007)

Date of Establishment
April 1947

President

Shuji Kita

北修爾

Stated Capital¥45,651 million ($386,709 thousand)Senior Managing Directors

Hironari Furukawa
Noriyuki Hanafusa

古川

弘成

花房

伯行

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

秋元

哲郎

西

吉史

Number of Stockholders
17,105

北

卓治

関

收

大本

博

多田

孝治

馬締

和久

川西

英夫

豊田

雅孝

芹澤

浩

辻仲

弘明

Managing Directors

Tetsuro Akimoto
Yoshifumi Nishi
Takuji Kita

Stock Exchange Listings
The First Section of the Tokyo Stock Exchange
The First Section of the Osaka Securities Exchange

Directors

Osamu Seki
Hiroshi Omoto
Takaharu Tada
Kazuhisa Majime
Hideo Kawanishi
Masataka Toyoda
Hiroshi Serizawa
Hiroaki Tsujinaka
Hiroshi Ebihara
Yukio Saito
Akihiko Ogasawara
Yoshiaki Matsuoka
Tadahiko Kaida
Toshiaki Shirakawa

海老原Transfer Agent
The Sumitomo Trust and Banking Co., Ltd.

齋藤

弘
幸雄

小笠原朗彦
松岡

良明

貝田

忠彦

白川

敏昭

Corporate Auditors

Shosaburo Bando
Toshiaki Taguchi
Hajime Yosano
Masanori Kobayashi

坂東祥三郎
田口

敏明

与謝野
小林

肇
正典

41

2007.8.Printed in Japan