阪和興業株式会社

Annual Report 2012

For the year ended March 31, 2012

http://www.hanwa.co.jp

2012.8 Printed in Japan

Profile

Principal Shareholders
Name of Shareholder

Since its establishment in 1947, Hanwa has contributed to the development of theJapanese economy as a trading company handling industrial materials, such as steel—the

Number of Shares(thousands)

Percentage of Total
Issued Share (%)

18,098
11,190
7,630
5,717
5,613
4,720
4,088
3,500
3,056
2,614

8.7
5.4
3.7
2.8
2.7
2.3
2.0
1.7
1.5
1.3

demonstrated new capabilities as a trading company by handling seafood products, rides forJapan Trustee Services Bank, Ltd (Trust Account)....................................................
The Master Trust Bank of Japan, Ltd (Trust Account)..............................................
Sumitomo Mitsui Banking Corporation....................................................................
Hanwa Clients’ Stock Investment Association..........................................................
Japan Trustee Services Bank, Ltd (Trust Account 9).................................................
Hanwa Employees’ Stock Investment Association...................................................
Trust & Custody Services Bank, Ltd (Investment Trust Account)............................
BBH FOR FIDELITY LOW-PRICED STOCK FUND (PRINCIPAL ALL SECTOR SUBPORTFO....
MELLON BANK, N.A. AS AGENT FOR ITS CLIENT MELLON OMUNIBUS US PENSION.....
The Dai-ichi Mutual Life Insurance Company...........................................................

amusement parks, and non-ferrous metal recycling. We have created numerous businesses in

Note: The Company holds 4,394,847 shares of treasury stock, which is excluded from the major shareholders listed above.

Company’s leading product—and metals and alloys, non-ferrous metals, food products,
lumber, machinery, petroleum and chemicals, and cement. Our steel division in particular isequipped with quay and warehouse transportation facilities as well as complete processing
sites that enable us to both handle large quantities purchased from major steel
manufacturers and cater to the special needs of our customers. This is why we have long
been known in Japan as a “steel trading company.”
Recently, with the changes and diversification in the domestic market, we havethese fields that command the top market share. The basic strategies underlying such successare internationalization, business diversification, and value enhancement.
Hanwa’s ideal function as a trading company is to be more than just a distributor. Based

Contents
01

To Our Shareholders

02

Interview with the President

05

At a Glance

06

Review of Operations

13

Topics14

Corporate Governance

16

CSR Activities

18

Financial Section

18		 Five-Year Summary19		 Management’s Discussion
		and Analysis

22		 Financial Statements &
		

Notes

45

Global Network

46

Corporate Information

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

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

Breakdown by Type of Shareholder
stock 2.1%
TreasuryTreasury
stock 2.1%
Japanesebrokerage
Japanesebrokerage
firms firms
1.7% 1.7%

Breakdown by Size of Holding

JapaneseJapanesefinancialfinancial
institutions
institutions
34.2% 34.2%–1,000–1,000
0.1% 0.1%

1,000–50,000
1,000–50,000
23.7% 23.7%

Other domestic
Other domestic
corporations
corporations
15.1% 15.1%

Corporate Philosophy
Coping with changes times and the market quickly,
we make a great contribution to society
by satisfying various needs of customers as a
“distribution specialist.”
Success in today’s markets demands speed and the ability to meet a broad rangeof needs. Change is occurring on an unprecedented scale. Only companies that
can adapt quickly will survive. Hanwa has experience and accomplishments inthe field of “distribution” that span six decades.
We know how to build powerful businesses and move quickly in the pursuit ofvalue creation and customer satisfaction.

1,000,000–
1,000,000–
52.8% 52.8%

50,000–1,000,000
50,000–1,000,000
23.4% 23.4%

Individuals
and andIndividuals
others others
30.0% 30.0%

ForeignForeign
corporations
corporations
17.0% 17.0%

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

Stock Price

(¥)

(¥)

800

15,000600

10,000

400

5,000

200

Dedicated to corporate citizenship, we want our business operations to help
make communities and the world a better place to live. This is why we prioritize
compliance and other activities that enable us to fulfill our obligation to society.

0

Trading
Volume(Millions of shares)

0

40
30

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

20

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

10
4
5
2010

6

7

8

9

10

11

12

1
2
2011

3

4

5

6

7

8

9

10

11

12

1
2
2012

3

0

and economic conditions.

| HANWA AR 2012 | 47

To Our Shareholders

Hanwa supplies a broad range of products, including steel, metals andalloys, non-ferrous metals, food products, petroleum and chemicals, lumber,machinery and many other items, to an equally diverse range of customers.
Since our inception, we have based operations on the mission of serving
our customers as “distribution specialists.” Year after year, we have used
specialized skills and an extensive service network to meet customers’ needs
with precisely the right solutions. This skill has earned Hanwa a reputation
as a trading company in which customers know they can place their trust,
receiving outstanding products and services in return.
The current economic environment surrounding the Group remains very
disordered. In these circumstances, we introduced an executive officer
system to reinforce the business execution function starting in April 2012.
The new function places heavy emphasis on implementation ofacceleration and improvement of the decision-making process in businessShuji Kita, Chairman (right)
Hironari Furukawa, President (left)

execution, and consequently we will leverage our original strength todevelop and provide increasingly fine-tuned services from the customer’s
point of view. Moreover, with the effective achievement of an expansion ofdomestic trade and the development of global business, we will strive to
become a company selected continuously as a “user-friendly trading
company” by our customers.
In addition, the sincere advice and support of all stakeholders forms thebasis for all our activities. We place great value on every customer
relationship together with the accompanying opportunities. As we pursue
further growth and progress, we will retain our devotion to contributing tosociety by performing functions that are unique to Hanwa, while serving as
a “trading company known for outstanding footwork.”

Shuji Kita
ChairmanHironari Furukawa
President| HANWA AR 2012 | 01

Interview with the President

Looking at the Present and the Future of the Hanwa GroupFirst of all, I would like to thank you foryour continued support. It is my pleasure
to provide this overview of operating
results for fiscal 2011, the fiscal year ended
March 31, 2012.

share your opinion about the economic environment of the fiscal year
Q1 Please
ended March 31, 2012.

A

With regard to the world economy in the fiscal year

environment reflecting the continuing appreciation of the yen,under review, the developed economies continued

electricity regulation in the summer and the aftermath of

to struggle as seen in the European financial turmoil

flooding in Thailand, despite the recovery in the manufacturing

and a slow recovery in the U.S. economy. Overall,industry following the Great East Japan Earthquake. Business

we observed a sense of stagnation globally. China adjusted

confidence improved somewhat as the yen depreciatedeconomically by implementing a policy of monetary tightening,

somewhat in the foreign exchange market at the end of thewhile consumer spending slowed in some emerging countries

fiscal year, but uncertainty over a decline in the economy

where growth had previously been relatively steady.

continued to prevail, which was aggravated by delays in post-

As for the domestic economy, consumer spending wasearthquake reconstruction projects.

mostly flat, but capital investment stalled due to the difficult“ In the fiscal year under review, the Company recorded the highest
sales volume since its foundation despite the harsh economic climate
following the Great East Japan Earthquake.”

Q2 Please summarize operating results of the fiscal year ended March 31, 2012.

A

Our consolidated net sales for the fiscal year

marine products and steel products, operating income wasunder review were ¥1,564,250 million (up¥14,976 million (up 8.1%) thanks to contributions from the

12.0% compared with the previous year) thanks

petroleum and chemical business and other businesses. Net

to robust sales in the steel business andincome was ¥4,632 million (down 20.0% decrease) partly

petroleum and chemical business. In terms of profit, althoughbecause we recorded an extraordinary loss on valuation of

we recorded losses on valuation of inventory assets such as

investment securities due to a decline in the stock market.

02 | HANWA AR 2012 |Q3 What is your outlook for the fiscal year ending March 31, 2013?

A

In the world economy, the outlook for the

Despite such business conditions, the Group will

European debt crisis remains uncertain and theimplement appropriate sales/inventory measures reflecting thefinancial markets as well as foreign exchange

needs of its business partners while aiming to maintain andrates remain volatile. Against this backdrop, we

improve its business performance by actively seeking newsee factors that could cause the economies of emerging

business partners.

countries to decline. The Japanese economy is emerging from

Based on these factors, we expect that the consolidated

its sluggish phase that followed the earthquake. However, theoperating results for the next fiscal year will be as follows: net

future direction is unclear because of concern over a slowdown

sales of ¥1,600 billion (up 2.3% compared with the previous

in the export industry generated by unfavorable exchange ratesyear), operating income of ¥18.0 billion (up 20.2%), and net

and concern about the power supply, in addition to a failure toincome for the year of ¥8.7 billion (up 87.8%).

fully meet post-earthquake reconstruction demand.

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Financial Highlights
For the years ended March 31, 2012 and 2011.
Thousands of
U.S. dollars (Note)

Millions of yen

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

2012

2011

2012

¥ 1,564,251
14,977
4,633
6,214¥ 1,396,103
13,854
5,794
6,104$19,032,133
182,224
56,36975,605¥¥$ 7,086,081
1,410,841

582,405
115,957

532,798
110,459

Yen

Per share data:
Net income
Cash dividends

¥

22.35
12.00

U.S. dollars (Note)

¥

$

27.95
12.00

0.272
0.146

Note: The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥82.19 = $1.00.

Net Sales

Operating Income

Net Income(Millions of yen)

(Millions of yen)

(Millions of yen)

2,000,000

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

10,000

6,000

5,000

3,000

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

08

09

10

11

12

0

08

09

10

11

12

0

08

09

10

11

12

| HANWA AR 2012 | 03

Basic strategies of the Group“Socially aware business management”
While taking a stance as a user-friendly trading company closely connected to the user side, we will also deepen cooperationinternally and externally to achieve business management with a greater sense of unity with customers.

Improving functions by focusing on“prompt delivery/small-lot orders/processing (P/S/P)”
We strive to improve functions provided to users by enhancing our ability to deal with shorter delivery lines and small order
quantities as well as by offering a wider variety of processing lines. We believe that seemingly inefficient areas provide roomfor growth in earnings.

“Two-priority strategy”
We will not only reinforce operations in overseas markets where an increase in demand is expected but also seek growth inuntapped areas in Japan, striving to achieve a more solid revenue base.

“Another Hanwa in Asia”
In the steel business, we will make efforts to build an overseas business network that allows us to offer functions similar
to those in Japan, such as strengthening ties with local rolling companies, pipe manufacturers, wholesalers and raw
material manufacturers.

Q4 Please share your vision for business management in the future.

A

We will work to further establish ourselves as a

• Through our “two-priority” strategy we will reinforce sales

user-friendly trading company by steadily

operations not only overseas but also in untapped areas

implementing our basic strategies as follows.

in Japan.
• With a business motto of “Another Hanwa in Asia” we• We aim to enhance the sense of unity with customers

will strengthen our business network in the ASEAN region

through “socially aware business management” and by

while striving to develop professional and global

contributing to society.

organizations and personnel.

• We will strengthen our focus on “prompt delivery/smalllot orders/processing (P/S/P)” to improve our functions.

Q5 Please share some additional thoughts with your shareholders and investors.

A

Based on the business management vision
described above, the Group will continue thepromotion of active business operations toincrease the Company’s corporate value while

04 | HANWA AR 2012 |aiming to achieve sustainable growth.
We sincerely ask shareholders and investors for continued
support and understanding in the future.

At a Glance
SectionOverview

Steel

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

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

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

Food
PRODUCTS

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

Petroleumandchemicals

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

Other
business

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

| HANWA AR 2012 | 05

Review of Operations

Steel (Domestic)
Fiscal 2011 Results
In fiscal 2011, the steel industry faced a number of challenges caused by naturalcalamities and the strong yen, such as (1) low domestic demand after the Great East
Japan Earthquake; (2) power shortages due to nuclear power plant shutdowns; (3)decreased export competitiveness due to the strong yen, an influx of imported steel
products and a rapid increase in offshore procurement; and (4) a sluggish
manufacturing industry due to flooding in Thailand.
The low domestic demand following the earthquake led to a fall in steel productprices after the peak in April, and domestic inventory increased because of the risein imported steel products and a slowdown in exports. The inventory level continued
to remain high partly because of the export slump caused by the flooding in Thailand,
further worsening the downturn in the market.
Demand in the manufacturing industry rose in comparison with its level following
the collapse of Lehman Brothers, despite damage to production facilities caused by
the earthquake and a slump in exports caused by the strong yen and flooding in
Thailand. The demand for home appliances, however, was low as a reaction to theprevious year’s consumption incentives. On the other hand, construction demand
was mostly steady, especially in the area of housing. We observed new sources ofdemand, such as recovery and reconstruction demand (including temporary housing)and environmental and energy demand.
While struggling with the downturn in the market, each of the Company’s
departments grasped the new challenges and worked hard during the year toachieve our goals: improving relationships with existing customers, identifying new(Millions ofacceleratingyen)customers,
the sales to construction projects, expanding local bases in
250,000
Japan, investing capital in functional business partners, attracting reconstruction
demand, and developing the environmental/energy business.

Net sales(Millions of yen)
1,000,000
800,000

200,000

Looking
150,000 Ahead and Key Strategies

600,000
400,000
200,000
0

2008

2009

2010

2011

2012

Net sales composition(Millions of yen)
80,00060,00040,00020,00046.6%

We expect the construction industry to do well on the whole since both reconstruction
demand100,000and demand for construction projects concentrated in the Tokyo
metropolitan area are anticipated. In the manufacturing industry, there will bedifficulties
50,000in the export business and a rapid increase in the relocation of operations
overseas since the yen should remain strong, but we expect the domestic-demand
related business to be conducted smoothly overall.
0
2008is expected2009 20102011
2012in the first half, steel manufacturers willAs the market
to hitbottommake price reconstruction a top priority. The key issues will be sovereign risks in theEuropean Union (EU) and the direction of demand in China. In the second half, we
expect to see a recovery in the market, given the serious demand for reconstruction as
well as for environmental solutions and energy generation with a focus on solar power.
The merger between Nippon Steel Corporation and Sumitomo Metal Industries,
Ltd. in fiscal 2012 will accelerate the process of making industry consolidation a(Millions of yen)reality. While the 100,000
strong yen will continue for a prolonged period, we expect to see
new business opportunities, such as reconstruction demand and environmental/
energy demand. In these circumstances, we will focus on the following themes: (1)80,000increasing the number of domestic business bases to incorporate local niche demand;(2) exploring trading with superior medium-sized companies and small businesses; (3)60,000
improving the sales to construction projects such as those in redevelopment; (4)strengthening the development of environment- and energy-related businesses; and40,000(5) incorporating reconstruction
demand.
20,0000 of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
Note: Effective from the0year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments
2009
2011
2012
2008
2009
2010
2011
changed its classification 2008of consolidated
business2010
segments fromone basedon product similarities to one based on a “management approach.”
Segment
data for prioryears havenot been2012
adjusted retroactively to match the new classification.

06 | HANWA AR 2012 |Steel (Overseas)
Fiscal 2011 Results
In the ASEAN region, overseas steel demand was relatively steady. In China, however,the level of operation in the manufacturing industry declined due to the European
debt crisis, and a constraint in the once-robust construction demand was noticeable
due to the tight-money policy. As a result, demand for steel products stagnated,leading to an increase in inventory. After declining, the market price was flat in thesecond half of the fiscal year.
The export volume of steel products on a calendar-year basis in 2011 was 41.24
million tons, with a decrease in ordinary steel of approximately 6% compared with theprevious year. Although overseas production of Japanese manufacturers was temporarily
stagnant due to post-earthquake difficulties in parts procurement and the flooding in
Thailand, it quickly recovered and remained strong. In the meantime, businessnegotiations for targeted exports from Japan encountered difficulty because of theslowdown in the market caused by oversupply in China as well as the strong yen. The
Company’s export volume decreased only 2% compared with the previous year,
however, as a result of our efforts to expand our sales territories to non-Asian regions,such as the Middle East and Africa.

Looking Ahead and Key Strategies
We expect the overseas market to be weak and flat in the first half and steady in thesecond half of fiscal 2012. We expect that the impact of the European financial crisis will
be inevitable in the first half, leading to a slowdown in exports from various countries tothe European region. We also expect the automobile-based key industries in the main
producer areas, such as Europe and the United States, China, South Korea and Thailand(excluding India), to perform somewhat poorly. Therefore, we surmise that the steel-related
supply and demand will also be similarly low. We expect that exports from China anddemand in Southeast Asia will rebound in the second half onward.
As with market conditions, demand is expected to be sluggish. China, which holds
the largest distribution industry and mill inventories as a single nation, is also
experiencing an ever-worsening supply-demand trend. In a situation where monetaryadjustments, such as fiscal stimulus and reduction in interest rates, are essential, theimpact of the prolonged European financial crisis will not be slight, and we cannot
expect a significant increase in demand within the calendar year.
In these circumstances, as a basic strategy in our overseas operations, we need toemphasize exports from high-tech mills, particularly those in China, while maintaininga certain level of exports from Japan. With strong competitive power and high quality
as our weapons, we aim to promote offshore trade to generate earnings overseas. At
the same time, we will carefully monitor target regions such as Southeast Asia
(especially
ThailandandIndonesia) as well as some
Indochinese countries such as
Myanmar, whose economic
sanctions are being eased. Our
strategy for the first half is tosecure markets by emphasizing
the acquisition of sales
territories, as we did in theprevious year. In the second
half, we will focus strongly on
improving profitability withinthese markets.

| HANWA AR 2012 | 07

Review of Operations

Metals and Alloys
Fiscal 2011 Results
With respect to the recycling business, against the backdrop of decreased domestic
stainless steel demand, expansion of mills in China and South Korea, and the merger
between Nisshin Steel Co., Ltd. and Nippon Metal Industry Co., Ltd., we establishedHanwa Metals Co., Ltd. as a base for collecting shipments to secure a certain sharein the raw material market.
In the nickel business, a consistent fall in the price of nickel was observed fromthe beginning of the fiscal year till the end of 2011, followed by a rally in the startof 2012. However, the price fell again in February. We increased sales by capturing
growing demand for nickel particularly in China and focused on sales of new
merchandise such as chemical compounds, but the business of nickel ore fromSoutheast Asia entered a transition period as the exporting countries changed thecourse of their resource protection policies.
In the ferroalloy business, we promoted flexible sales strategies combining
products from Kazakhstan, India, South Africa and South Korea by decentralizing
sources for purchasing manganese. In March 2012, we made a capital investment in
OM Holdings Ltd., which carried out the construction of a ferroalloy plant in
Malaysia, making this a foundation for future global strategies from the viewpointof competitive production. In the chromium business, we secured sales volume in
the Japanese market by drawing on inventory bases in China for products ofSamancor, South Africa.
In the solar battery/silicon business, earnings lagged from transactions concerning
wafer exports. As for the metal grinding business of Dalian Solar Valley Silicon
Industry Co., Ltd., sample shipments began, and contract-based-processing business operations were stabilized.

Net sales(Millions of yen)
250,000
200,000

Looking Ahead and Key Strategies

150,000
100,000
50,000
0

2008

2009

2010

2011

2012

Net sales composition(Millions of yen)
100,000
80,00060,00040,000

7.9%

In the recycling business, while building a supply network to each fusion base, which
is ideal in terms of quantity, price and quality, we will consider the supply of surplus
scrap metal overseas in an effort to build up our bases.
In the nickel business, against the backdrop of an imbalance between stainlessdemand and ferronickel production potential in Asia, we expect that the nickel pricewill not significantly exceed $20,000 per metric ton. While accelerating the sales of
new products such as chemicals in emerging countries, we will consider a plan to
add value, including investment in ores and manufacturing.
In the ferroalloy business, we will carry out sales activities in line with thepurchasing policy of Nippon Steel Corporation and Sumitomo Metal Industries,
which are scheduled to merge in October 2012. With a view to the start of operationsof OM Holdings Ltd. in two years, we will reinforce relationships with producers ineach region and implement balance-focused buying policies and sales strategies
aimed at the global market. We will also focus on third-country trade of chrome/
manganese ores.
In the solar battery/silicon business, the business environment for wafer export istough, but there is no doubt that the solar battery industry will expand. Therefore, wewill focus on the downstream market. Taking orders from users in South Korea andJapan, Dalian Solar Valley Silicon Industry Co., Ltd. will start full-fledged sales based onprocessing commissioned by its merger partner. Moreover, we will put effort into
organosilicon sales to domestic and overseas markets.

20,0002012

0 March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
Note: Effective from the year ended
2008business
2009
2010
2012
changed its classification of consolidated
segments
from one 2011
based on productsimilarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.

08 | HANWA AR 2012 |Non-Ferrous Metals
Fiscal 2011 Results
After April 2011, the non-ferrous metals market (which had been supported byrobust demand in emerging countries, particularly China) continued to fall until theend of the year. This reflected the influence of a plateau in demand due to the(Millions of yen)money-tightening policy in China as well as a decline in exports due to global
1,000,000
slowdown in demand. Because of news concerning the settlement of problems in
Europe as well as technical factors, the market rebounded temporarily at the
800,000
year-end. However, the market returned to a downward phase over the fiscal
year-end, reflecting the deterioration of fundamentals. However, only the LME price
600,000of copper remained high at the fiscal year-end due to the technical squeeze (decreasein distribution amount).
half
In the Japanese market, we faced a very difficult situation throughout the first400,000
because of the impact of the earthquake at the previous fiscal year-end, characterized
by power shortages, sluggish production at domestic plants, a delay in reconstruction
200,000
demand, and outward flow of capital investment in the manufacturing business.
In the second half, the impact of the flooding in Thailand led to a dramatic
02008 2009 2010 2011 2012
decrease in production at the plants that had relocated to Southeast Asia, causingmajor damage to the export of raw materials and parts from Japan.
The European financial turmoil continued to affect the market throughout theyear, causing a decrease in global final demand. Indirectly, this put a major brake onexports from China and Southeast Asia to developed markets, which affected theexports of high-quality parts and materials from Japan.
Net sales
However, even in these circumstances, business expansion at each of theCompany’s bases in Southeast Asia was smooth despite the impact of the flooding (Millions of yen)
80,000in Thailand, thanks to growing regional demand for housing, automobile and homeelectric appliances.

(Millions of yen)
250,000
200,000
150,000
100,000
50,0000(M
160,000

Looking Ahead and Key Strategies
We expect to see an end to the continued high price of copper led by the copper
squeeze in two to three months, followed by softening of the market, as withaluminum, lead, zinc and tin, reflecting real demand. In a market reflecting realdemand, we expect to see a tug of war between negative factors, such as sluggish
demand in developed countries due to financial instability in Europe and slower
growth in China, and positive factors, such as regional growth in Southeast Asian
countries, India and elsewhere. Nevertheless, we believe that the market will movetoward recovery by the latter half of the fiscal year.
While we cannot expect a significant growth in domestic demand for materials
and raw materials in the future, we will focus on quantitative expansion in Southeast
Asia, India, East Europe, Central and South America, and China. With regard to
trade among developed countries, we will develop merchandise that is technologicallyand environmentally superior, and implement measures to add value to recycledmaterials including investment.

40,00020,000

0

2008

2009

2010

2011

2012

Net sales composition

3.9%(Millions of yen)
500,0002008| HANWA AR 2012 | 09

Review of Operations

Food Products
Fiscal 2011 Results
Although demand for each product was influenced by price fluctuations, demand
recovered for products whose prices had fallen. Crab prices rose 20%, but becauseof the cold winter there was no drop in demand, which contributed to profits. The
oversupply of salmon caused its price to drop sharply, and demand started to riseaccordingly. As a result, importers suffered heavy losses. Commercial demand for
prawns and shrimps declined due to low chicken prices. The increased supply of
herring roe led to low prices, resulting in a steady increase in demand, and the
supply and demand balance stabilized. The prices of octopus and eels increased in
response to a dramatic decrease in supply. Demand for common fish, such as
mackerel, horse mackerel and Matsubara’s red rockfish, declined under the influenceof the drop in the price of salmon.
Following the Great East Japan Earthquake, we achieved earnings growth in thefood business as prices increased due to tight supply. However, the market started
to weaken after the second quarter reflecting the impact of financial problems in the
EU and the overproduction of farmed fish, which made it difficult to record profits.
Furthermore, in addition to a significant downturn in exports because of concerns
about radiation, domestic consumption dropped as well, causing an overstock.
Seattle Shrimp & Seafood Company, Inc., a seafood sales subsidiary in the UnitedStates, achieved growth in sales but suffered lower profits because of market
weakness due to an oversupply at the global level.

(Millions of yen)
250,000
200,000
150,000
100,000
50,000
0

2008

2009

2010

2011

2012

Net sales

Looking Ahead and Key Strategies(Millions of yen)
100,000
80,00060,00040,00020,000
0

2008

2009

2010

2011

2012

Net sales composition

5.8%

There is a global tendency toward increased supply of farmed salmon and prawns,
and domestic demand is expected to rise after price adjustments. However, a quick
recovery in the market is unlikely to occur.
Crab consumption is steady, and the price is below that of the previous year,
indicating that consumption will continue to be stable. Price adjustments for frozen
common fish such as mackerel have already begun, and production has returned to theSanriku region, which will lead to increased product supply. We expect a recovery indemand. Demand for herring roe is likely to be stable owing to price adjustments. As foroctopus and eel, demand will continue to be limited due to the decreased supply.
We expect that the impression ofoversupply will remain at the global level
and the market will see continued weakness
until EU-related concerns stabilize and asolid adjustment occurs in the supply anddemand of farmed salmon. Therefore, themarket is unlikely to rise. For the time
being, we will make sales a priority, aiming
for a quick turnover of inventory. With
respect to the processing of overseas
products, we will prioritize the selection ofhigh-value-added products to minimize
market risks, to achieve profit stability.
Although we aim to expand overseas
sales in the long term, we will selectbusinesses that will ensure profits for theforeseeable future while assessing domestic
issues concerning radiation and risks
associated with each country.

Note: Effective from the year ended March 31, 2011, in line with the application of the “Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Statement No. 17, revised March 27, 2009), the Company
changed its classification of consolidated business segments from one based on product similarities to one based on a “management approach.” Segment data for prior years have not been adjusted retroactively to match the new classification.
AR 2012 |
10 | HANWA (Millionsof yen)120,000

(Millions of yen)
80,000(Millions
100,0080,00

Petroleum and Chemicals
60,00060,00

40,000Fiscal 2011 Results
While we saw a mixture of geopolitical risks, such as the European financial crisis anddecreased supply of crude oil from Iran, the crude oil market price seesawed between$100 and $120 per barrel.
Domestic demand increased suddenly for crude oil and heavy oil intended for use at
oil-fired power plants because of the nuclear power plant shutdowns following theGreat East Japan Earthquake. In these circumstances, a series of problems occurred at oil
refineries, which led to a continuous situation in which the domestic market was
supported by wholesalers purchasing products from the open market. As a result,domestic market conditions were relatively robust.
In the domestic fuel supply and demand division, we received urgent orders forheavy oil due to nuclear power plant shutdowns, resulting in increased sales volume.
Moreover, import contracts were signed thanks to the widening price difference inpetroleum products between Japan and overseas, which contributed to earnings.
In the shipping industry, market conditions deteriorated rapidly because a large
number of vessels ordered before the collapse of Lehman Brothers started operations,causing an excess of vessels. Based on long-term sales contracts, we maintained a sales
volume similar to the previous year’s level, recording robust earnings.
With respect to the chemicals business, partly because some resin manufacturers inJapan shut off production, imported synthetic resin penetrated the market, which led to
an increase in quantity handled we handled. Subsequently, however, both domestic andoverseas demand declined, particularly in China, causing our sales volume and profits toplateau against the backdrop of price competition.
In the paper business, earnings from exports decreased due to the appreciation of
the yen as well as the flooding in Thailand.

Looking Ahead and Key Strategies
Despite ongoing demand for heavy oil for use in domestic electric power due tonuclear power plant shutdowns, domestic demand for petroleum products will
decrease gradually in the medium to long term.
In the fuel business, in the short term we will focus on heavy oil sales targeting
electric power companies while reinforcing measures for the new energy business(biomass fuel, etc.). The system of cooperation with Toyo Energy Co., Ltd. is inprogress, and we will build a high-profit structure for the Group. We will also expand
territories for the trade of petroleum products and supply of bunker fuel oil on a
global basis.
In regard to synthetic resin in the chemicals business, we expect to see consolidationand elimination of domestic ethylene plants as well as the restructuring of domestic
resin manufacturers before the enforcement of the Law for Sophisticated Methods ofEnergy Supply Structures. Given this factor, we will actively promote sales expansionof imported products.
In the paper business, we will
accelerate sales on a global basis,
aiming to increase both sales andprofits. In the daily sundries business,
we will rebuild the revenue base by
seeking new customers in Japan andsuppliers overseas.
In the area of lubricants, we will
strengthen our overseas operations
through new business development
based on the current policies.

40,00
20,000

0

20,00

2008

2009

2010

2011

2012

Net sales(Millions of yen)
500,000(M
1

400,000

1

300,000
200,000
100,000
0

2008

2009

2010

2011

2012

Net sales composition

29.2%| HANWA AR 2012 | 11(Millions of yen)
100,000

Review of Operations

80,000

Other Business (Lumber and Machinery)

60,00040,000Fiscal 2011 Results

20,000
0

2008

2009

2010

2011

LumberHousing starts in fiscal 2011 totaled 830,000, up 2.6% from the previous year.
Post-earthquake turbulence had subsided by May and the movement of goods wassteady until early autumn, thanks to the eco-point system as well as the last-minute tax
breaks for housing loans, which led to an increase in the quantity we handled. As foroverseas sales, sales in China struggled in the second half, but the annual quantity that
we handled rose 17% compared with the previous year. Net sales stagnated due to the
yen’s sharp appreciation. As we recorded losses on valuation of inventory as of the fiscal
year-end and the yen’s appreciation continued, earnings were affected by a loss inforeign exchange valuation.
In addition to the sales of main raw materials and pre-cut houses, our domestic sales
grew steadily in the area of trading with major builders and house manufacturers. Overseas
sales struggled as sales to consumers in China, which were steady in the first half, declinedin the second half. We are aiming for a recovery in demand in China as well as an expansionof trading with the Middle East, Southeast Asia and India.

2012

MachineryIn the leisure facilities business, the construction was completed on a linear rollercoaster madeby Gerstlauer of Germany for the Fujikyu Highland amusement park, and this contributed toour earnings. However, no other noteworthy projects took place. For the Sega Tokyo Joypolis
amusement park, we signed a contract to construct a rollercoaster made by Gerstlauer.
In the industrial machinery business, the number of constructed hoist cranes rose
thanks to close cooperation between different departments, and the number of constructedcrab cranes also increased. We will continue to strengthen the crane business in an effort tolaunch a new business. In regard to electrical steel sheet cutting machines, we exported
them to Wujiang, China and installed them there, and we are actively promoting businessexpansion in the transformer industry in Thailand. We also promoted the sales of aluminum
melting furnaces in Indonesia, Thailand and China. The number of cans manufactured for
the JFE Engineering Corporation plants also increased.

Net sales(Millions of yen)
120,000
100,000
80,00060,00040,000

Looking Ahead and Key Strategies

20,000
0

2008

2009

2010

2011

2012

Net sales composition

6.6%

LumberIn Japan, post-earthquake reconstruction demand and a last-minute surge in demand before
revision of the consumption tax are anticipated. As the interest rates on loans remain low, we
expect demand to continue at the same level as last year. In the current fiscal year, we will
establish a sales base in Nagoya to increase the quantity of merchandise we handle for end
users. In overseas markets, despite the continuing impact of the sluggish Chinese market, we
will expand trading with the Middle East, Southeast Asia, India and North America.
MachineryIn the leisure facilities business, we received orders for rollercoaster carriages manufactured
by S&S of the United States for Fuji Kyuko Co., Ltd. and a rollercoaster manufactured by
Gerstlauer of Germany as well as HPCs for the Sega Tokyo Joypolis amusement park. We
will set up these facilities and complete their construction. As a joint venture with groupcompany Halos Co., Ltd., we will develop game machines and focus on external sales. In
overseas markets, in collaboration with Sega Corporation we will look for business
opportunities in the Middle East, India and China.
In the industrial machinery business, we aim to break away from the conventional
single-item equipment broker business by focusing on steel processing lines, steel
fabrication and export projects.

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

12 | HANWA AR 2012 |Topics
Acquisition of 100% Ownership of Mie
Kogyo Co,. Ltd.
Mie Kogyo is a steel processor company located in Tsu City, Mie Prefecture.
The company specializes in processing steel materials, particularly fusing ofsteel plates. Going forward, Hanwa will strengthen the company’s capacity
to supply merchandise to small customers.

Head office of Mie Kogyo Co,. Ltd.

Subaru Steel Co., Ltd. Becomes a Subsidiary
In January 2012, Hanwa acquired a 97% stake in Subaru Steel Co., Ltd., a steel
material dealer in Osaka, making it a subsidiary. Operating a strong, original
network for steel material processing and distribution, Subaru Steel deals with as
many as 200 companies in terms of processing. It carefully meets its business
partners’ needs, ranging from precise cutting and various types of processing, suchas pressing, to painting and plating. Drawing on Subaru Steel’s expertise, Hanwa
will strengthen its ability to deal with small customers and multiple product types,
as it forms new sales strategies in western Japan.
Head office of Subaru Steel Co., Ltd.

Promotion of Active Business Investment in
the ASEAN Region
Hanwa is promoting active business investment in a number of regions inan effort to uncover new markets in emerging countries, including theASEAN countries. We invested in an engineering company in Malaysia in
December 2011 and a manganese ore mining company in Singapore in
January 2012. In February, we established a local affiliate in Beijing aimed
at business expansion in northern China. We also established local
affiliates in Dalian (China) in October 2011 and in Qingdao (China) and
Ho Chi Minh City (Vietnam) in December.

Eversendai Corporation Bhd in Malaysia (top)
HG Metal Manufacturing Limited in Singapore (bottom)| HANWA AR 2012 | 13

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

Corporate governance structures
We have adopted a corporate auditors’ system, under which weare focusing efforts to improve our corporate governance system
to achieve efficient and sound business management. Our Boardof Directors, which comprises 19 directors, including two outside
directors, meets as a rule once a month to deliberate and decide
important business plans and proposals concerning the Hanwa
Group, and to oversee business operation. There are five auditors
in total, including three outside auditors. Each auditor follows
auditing policies and auditing plans in carrying out stringent audits.
Moreover, the corporate auditors attend the Board of Directors, theManagement Committee and other important meetings, monitor
and verify the execution of the management.
In addition, aiming both to build a system to execute thebusiness operations carefully and to promote sped up andstreamlined decision-making, we have introduced an executive
officer system since April 2012. We have also adopted a system toperform preliminary review of management issues in various

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

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

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

Board of Directors
Board of Chairman: Chairman
election/supervison

election/dismissal

oversight/audit

coordination

Board of Auditors

Independent Auditors

cooperation

oversight/audit

Disclosure Committee
examination/report

Operational organization
Officers Evaluation Committee
examination/report

Catch All Controls Committee

Management Committee

Investment Examination Committee
examination/
administration/reportmanagement/guidance

Affiliatedcompanies

14 | HANWA AR 2012 |Administrative
divisionsguidance

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

cooperation

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

Operatingdivisionscooperation

examination/report

Executive officers

Compliance Committee

accounting audit/internal control audit

President

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

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

corporate auditors• The corporate auditors announce opinions at meetings of theBoard of Directors as necessary. In addition, the corporate
auditors collaborate with the independent auditor concerning
the financial audit.
• Hanwa has a system that allows the corporate auditors toattend meetings of the Board of Directors and otherimportant meetings, inspect important documents, performstudies of important departments and subsidiaries, andperform other tasks.
● Systems to ensure the reliability of financial reports• In accordance with the Fundamental Policy concerning Internal
Controls for Financial Reports, the Hanwa Group operates theinternal controls reporting system in an efficient and effective
manner. The Internal Control Office supervised directly by theManagement Committee checks and evaluates theestablishment and operation of internal controls and submits
reports to the Management Committee.
• The Internal Control Committee studies issues involving
internal controls and submits reports on the results of thesestudies to the Management Committee. In addition, theInternal Control Committee provides advice and assistance forthe examinations performed by the Internal Control Office anddescribes its opinions in an Internal Control Report.
| HANWA AR 2012 | 15

CSR Activities

Hanwa’s Basic Policy on Corporate Social Responsibility (CSR)
The business environment is undergoing a dramatic transformation, with advances in the globalization of economic
activities, and growing awareness of global environmental
issues and human rights. Amidst this transformation,
Hanwa continues to question itself as to how it should
operate and grow along with society through close
communication with our stakeholders. For this reason,
Hanwa considers corporate social responsibility (CSR) an
integral part of management, and has continued efforts toimprove the value of the Company through means such aslegal compliance, environmental considerations, transparent management, good corporate citizenship andimprovement of working environment.
To promote CSR management, Hanwa set up the CSR
Committee in April 2004 and is actively involved inpromoting legal and moral compliance, establishing atransparent management system and engaging in activities
that aim to fulfill a corporation’s social responsibility. It has
set up several CSR units, including the Compliance
Committee, Environmental Committee and The Hanwa
Scholarship Foundation, under the CSR Committee headedby President Hironari Furukawa to allow for a flexible operation of each units activities.

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

CSR Committee
DonationsHanwa's basic policy on CSRManagement Committee
Hanwa Scholarship
Program●Security Trade Control Committee

4) Transparent management,
proactive disclosure●Internship System●Office SOS Consultation Committee

NPO & NGO

Activities to enhance employees’
awareness of CSR

2) Environmental considerations3) Good corporate citizenship●Environmental Committee Secretariat●Compliance Committee

1) Thorough legal compliance

Support of students
from overseas

5) Maintaining of financial
soundness
6) Workplaces geared to
employee self-realization

ComplianceHanwa has a Compliance Committee that promotes complianceto the Company’s Ethical Principles and Corporate EthicalStandards. The committee has drawn up the Hanwa EthicalStandards for Employee Behavior, and has distributed thebooklet to all officers and employees as part of CSR efforts.

Fully understanding the significance of compliance, Hanwa
strives to practice CSR as a corporation by being both socially
responsible and law-abiding.
The Company promotes an “openness” and “visibility” thatwill prevent misconduct from occurring.

Corporate Policy• Earn confidence with honesty and effort

Owners of OA equipment,
office equipment and fixtures and fittings• Act as a specialist in the field with vigor and initiative• Boost efficiency with originality and cooperation Steel• Promote corporate business and build happy homes

Steel manufacturers• Recognize responsibility and contribute to society

Hanwa Co., Ltd.

Collection
and transport

Compliance manual distributed to all officers and employees
16 | HANWA AR 2012 |Separation/
Volume reduction

Network of
waste disposal
companies

Non-ferrous
metals, Copper,
AluminumNon-ferrous
metal refining

Measures for Crisis Management
Corporate Risk Management
The Company has simulated major potential risks that may
threaten the safety of our employees and their families, as well as
the Company’s assets or the ability to continue business
operations. We have established the necessary measures tominimize the damage in case such risks arise, including means tocontinue and restart the core business while making sure thesafety of the employees and their families remains a priority.

severe damage particularly in the northeastern region. Hanwa set
up an emergency task force immediately after the earthquake
and managed to swiftly confirm the safety of the officers andemployees as well as their families using the emergency disastercommunication system “Mobile i-Call”*. At the same time theCompany used the emergency communication line to confirm
that proper confirmation measures were taken in each section.
We also reviewed the earthquake provisions and implemented
measures such as carrying out planned disaster drills, preparing
and increasing the emergency stockpile, purchasing satellite
telephones and taking measures to prevent computers and othermachinery from falling.

The Risk Management Manual
The disaster prevention manual for domestic use drawn up in
September 2007 has been revised as “The Risk Management
Manual” in May 2011. The revised manual targets the entire
Hanwa group, including affiliate companies and overseas
branches, and expanding risk management to include
expatriate employees and national staff, as the Company
continues to expand globally.

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

Reviewing Earthquake-Related Measures
The Great East Japan Earthquake on March 11, 2011 inflicted

Diverse Work Style and Promote Diversity
The Diversity Promotion Office is responsible for taking
measures related to diversity. We define diversity as anenvironment in which individual employees acknowledge
various backgrounds and points of view, and in which avariety of work styles can be pursued. We consider diversity
as a business challenge in which all employees should playtheir part. We have introduced a mentor scheme especiallyfor female employees in general positions with a chance ofpromotion and for new non-Japanese employees. An
employee in a different section with a longer work experience at the Company is assigned as a mentor to provide
intellectual and psychological support, to create a betterworking environment.

Helping Employees Balance Work and Family
As part of our efforts to help employees balance family andwork more easily, we have introduced a child care system andshorter working hours for employees with small children, bothof which are more generous than those required underJapanese law. In September 2010, a male employee took childcare leave for the first time in Hanwa’s history. We also actively
assist those who return to work after child care leave.
Employment of the Handicapped
In staffing handicapped employees, we take care that they are
assigned to a section where they can perform to the best of
their abilities. As of March 2012, handicapped employees
accounted for 1.9% of the employee total.

Social Contribution
Hanwa Scholarship Program
The Hanwa Scholarship Foundation was established in 1957
as part of activities to commemorate the 10th anniversary of
Hanwa’s establishment, and marked its 54th anniversary. Jiro
Kita, the first president of Hanwa, decided to establish thefoundation based on the philosophy of “contributing tosociety based on an awareness of a company’s social
responsibilities.” The foundation began with a contributionof ¥10 million, at a time when Hanwa’s own capital was¥100 million. As of 2011, the program had distributed a totalof ¥648 million in scholarships, and the accumulated numberof scholarship students had grown to more than 990.
The Hanwa Scholarship Program looks forward to using
political, economic and cultural insight to assist a growing numberof outstanding students around the world to realize their goals as
globalization continues to advance in the 21st century.

Accumulated number of scholarship students(Persons)

High school

1,000

University

Graduate school
68

69

71

72

72

75

66

800

66
62
56

600
52
49

400

422

18

200

0

7

28

604

728 748 757 765
712 721

479

318

3
181

41
4

548

662

96
64

87

98

115 130 144 151 151 151 151 151 151 151 151

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

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial
SectionFive-Year Summary
For the years ended March 31

				
				

		

2012

Millions of yen, 			
except for number of employees
		

2011

2010

2009

Thousands of
U.S. dollars

2012

2008

For the year:
Net sales				¥ 1,564,251 ¥ 1,396,103 ¥ 1,116,629 ¥ 1,539,282¥ 1,507,509 $19,032,133

Operating income 			13,854
14,977

11,42017,451

23,705

182,224

Net income 			
5,794
4,633

11,5795,997

13,11856,369Comprehensive income 		
6,214

6,104

14,537——75,605

Net cash provided by (used in) operating activities 			(46,949)
11,97046,250(5,742)

21,430145,638

Net cash used in investing activities		
(12,009)(12,992)(7,611) 		

(19,536)(8,443)(146,113)

Net cash provided by (used in) financing activities		
1,596

51,272(43,669)

46,592(9,144)

19,41814,179 $284,840

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

20,586

Total assets		
582,405

532,798

443,445479,379

482,014

7,086,081

Total net assets 		
115,957

110,459

106,855

94,913

100,926

1,410,841

Number of employees (persons) 			
2,060
2,201

1,952

1,818

1,715

¥

				
				

		

2012

2011

24,515¥35,046

Yen

¥

		

2010

2009

U.S. dollars

2012

2008

Per share data:
$

0.272

Net income 			27.95 ¥¥
22.35 ¥

55.46

Cash dividends 			
12.00
12.00

12.00

12.00

12.00

0.146

Net assets 			529.65548.22512.16450.05473.70

6.670

				

		

2012

2011

¥

28.47

%

¥

62.07

		

2010

2009

2008

Key financial ratios:
2.5
1.2
0.8
Return on assets (ROA)				

1.2

2.7

5.4
4.1
Return on equity (ROE)			

11.6

6.2

13.3

200
190
Net debt/equity ratio 			

140

190

150

Notes: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥82.19=$1.00.
2. Net debt/equity ratio = Net interest-bearing debt/equity.
Net interest-bearing debt = Interest-bearing debt – cash.
3. Effective from the year ended March 31, 2011, the Companies adopted “Accounting Standard for Presentation of Comprehensive income” (ASBJ Statement No. 25 issued
on June 30, 2010). As a result of the adoption of these standards, the Company has represented comprehensive income for the years ended March 31, 2012, 2011 and 2010.

18 | HANWA AR 2012 |Management’s Discussion and Analysis
Operating Results
Operating Results for the Fiscal Year Ended March 2012
During the consolidated fiscal year under review, the world
economy was generally underscored by the lingering doldrums inthe developed-world economy posed by financial turmoil amid
concerns over certain European countries’ sovereign risk and aslowdown in the U.S. economic recovery. Simultaneously, it wasovershadowed by the sense of stagnation with China’s economic
adjustment induced by its tighter monetary policy and a certain
slowdown in consumption of emerging countries with relatively
steady. Japan’s economy kept consumer spending largely on thesame level. While having recovered from the aftermath of the Great
East Japan Earthquake, the manufacturing industry was challenged
by many other difficulties such as the ongoing yen appreciation,
the restriction on power supplies in summer, and the flood damagein Thailand, which resulted in weak capital spending. Despite theweakening yen closer to the end of the consolidated fiscal year that
contributed to some improvement in business sentiment, downwardrisks to the Japanese economy persisted due to the added impact
from delays in earthquake reconstruction projects.
In these circumstances, the Group posted consolidated net
sales of ¥1,564,251 million for the consolidated fiscal year ended
March 31, 2012, representing a year-on-year increase of 12.0%.
Operating income grew 8.1%, to ¥14,977 million, reflecting a risein earnings derived from sales of the petroleum and chemicalbusiness and other businesses despite a loss of valuation in inventories of seafood products and steel products. Net income declined
to ¥4,633 million, representing a 20.0% drop from the previous
consolidated fiscal year, due mainly to valuation losses on investment
securities caused by the decline in the stock market.
Net Sales
Net sales rose 12.0% year on year, to ¥1,564,251 million, due
mainly to strong results in the steel business and the petroleum andchemical business. Domestic sales were up 12.5%, to ¥1,186,236
million, while overseas sales were up 10.5%, to ¥378,015 million.
For a discussion of sales by segment, see “Review ofOperations” and “Segment Information”.

Cost of Sales, and Selling, General and Administrative (SG&A)
Expenses
Cost of sales increased 12.2%, to ¥1,517,904 million. The increases
were due mainly to higher quantities procured in line with theincrease in quantities sold and a loss on valuation of inventories.
SG&A expenses increased 5.0%, to ¥31,370 million, due mainly
to a rise in personnel expenses resulting from an increase in personnel
and increase in consolidated subsidiaries.
Operating Income
Operating income for the consolidated fiscal year under review rose
8.1%, to ¥14,977 million due to better control of SG&A expenses
while gross profit rose 6.0% from the previous year to ¥46,347
million, reflecting the contribution of the petroleum and chemicalbusiness and other businesses. The ratio of operating income to net
sales was 1.0%, the same level as the previous consolidated fiscal year.
Other Income (Expenses)
Other expenses net of other income increased 69.7% year on year, to¥6,532 million. Other income decreased 30.2%, to ¥1,902 million.
Other expenses totaled ¥8,434 million, representing an increase of
28.3% from the previous consolidated fiscal year.
They reflected decreases in foreign exchange gain and rental
profit, increases in interest expense and loss on disposal of leased
assets, a loss on sales of investment securities, and a loss on valuationof investment securities due to fall of stock market.
Income Taxes
Income taxes paid amounted to ¥3,710 million, reflecting adecrease in income before income taxes and minority interests, incontrast to ¥4,154 million in income taxes in the previous consolidated
fiscal year.
Net Income
Net income decreased 20.0% from the previous consolidated fiscal
year, to ¥4,633 million. Accordingly, net income per share decreasedto ¥22.35, from ¥27.95.

Net Sales and Operating Income

Net Income and ROE

Total Assets and ROA(Millions of yen)

(Millions of yen)(%)

(Millions of yen)(%)

1,600,000

32,000120,000

16

600,000

4

1,200,000

24,0009,000

12450,000

3

800,000

16,0006,000

8300,000

2

400,000

8,000

3,000

4

150,000

1

0

0

0

0

0

08

09

Net Sales (left scale)

10

11

12

Operating Income (right scale)08

09

ROE (right scale)

10

11

12

0

08

09

10

11

12

ROA (right scale)| HANWA AR 2012 | 19

Sources of Capital and Cash Liquidity
Financial Condition
Total assets increased 9.3%, to ¥582,405 million, from the previous
consolidated fiscal year, reflecting higher trade receivables accompanying
higher sales.
Liabilities expanded 10.4%, to ¥466,448 million, as a result of anincrease in trade payables attributable to sales growth and an issuanceof bonds, and interest-bearing liabilities grew 3.4%, to ¥243,142
million. The net debt/equity ratio (net interest-bearing debt as apercentage of equity) stood at 190% as of March 31, 2012.
Net assets increased 5.0%, to ¥115,957 million. The increase wasattributable mainly to an increase in “retained earnings,” an increasein “unrealized gains on securities, net of taxes,” and an increase in“minority interests”. Owing to the proportionately greater rise inliabilities, the equity ratio at March 31, 2012 fell to 19.5%, from 20.7%
a year ago.
Cash FlowsNet cash provided by operating activities amounted to ¥11,970
million during the consolidated fiscal year under review, in contrast
to net cash used of ¥46,949 million recorded in the previous consolidated fiscal year. This was mainly due to the inflow from operating
revenue, which offset a slowdown in sales growth.
Net cash used in investing activities totaled ¥12,009 million,
compared to net cash used of ¥7,611 million in the previous
consolidated fiscal year. This was primarily attributable to increasesof cash disbursements related to the acquisition of tangible fixed
assets and investment securities (¥15,483 million), compared to theprevious year’s debit of ¥6,283 million.
Net cash provided by financing activities amounted to ¥1,596
million, compared to net cash provided of ¥51,272 million in theprevious consolidated fiscal year. This was largely attributable to anincrease in repayment of short-term loans payable and commercial
paper in response to a decrease in demand for working capital.
Financial Policy
The Group depends primarily on bank borrowings to meet its working
capital requirements and to fund its investing and financing activities. Yet,as part of its efforts to diversify funding sources to ensure stable liquidity
and agility in liquidity management, it may fund its activities by issuingbonds and commercial paper in the capital markets from time to time.
The Group meets its working capital requirements principally by
floating-rate long-term borrowings from banks to secure stable funds,
while short-term bank borrowings are used for day-to-day funding.
Overseas subsidiaries borrow from their respective local banks. Capital
investments and other long-term funding needs in Japan and abroad
are, in principle, met by long-term borrowings from Japanese sources.
Short-term borrowings as at March 31 2012 stood at ¥80,229 million,
mostly denominated in Japanese yen. The Group’s outstanding longterm debt was ¥147,006 million, including the current portion of
long-term debt of ¥10,218 million.
The Group issues bonds primarily to fund working capital. As of
March 31, 2012, bonds outstanding consisted of straight bonds
amounting to ¥20,085 million. To increase its flexibility in issuingbonds in a timely manner to take advantage of or to meet changing
market environments and internal financial requirements, theCompany has filed for shelf registration. As of March 31, 2012, theunused aggregate principal amount of the shelf registration forstraight bonds for subscription in Japan amounted to ¥20,000 million.
Advocating overall corporate value improvement and sustainablegrowth, the Group attempts to conduct efficient management tosecure funds needed for business growth and maintain a healthyfinancial balance.

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

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

Interest-Bearing Debt andNet Debt/Equity Ratio

BPS and EPS(Millions of yen)(%)

(Millions of yen)

(%)

(Yen)

(Yen)

100,000

25

250,000

250

500

60

80,00020

200,000

200

400

48

60,00015

150,000

150

300

36

40,00010

100,000

100

200

24

20,000550,000

50

100

12

0

0

0

0

0

08

09

10

Equity Ratio (right scale)

20 | HANWA AR 2012 |

11

12

08

09

10

11

Net Debt/Equity Ratio (right scale)

12

0

08
BPS (left scale)

09

10

11

EPS (right scale)12Foreign Exchange Fluctuations
The Group is engaged in worldwide procurement and sales of goods.
Foreign currency-denominated profits or loss, costs, assets, liabilities
and other accounting records associated with areas outside Japanare translated into Japanese yen amounts in the preparation offinancial statements. While the amounts reported in original currencies
remain unchanged, the post-translation amounts are subject to theconversion rate applied to them. Generally speaking, a stronger yen
relative to other currencies (especially against U.S. dollars, which
account for a substantial portion of the Group’s sales) adversely
affects the Group’s export transactions, while it favorably affects theGroup’s import transactions.
Interest Rate Fluctuations
The Group funds its operating, investing and financing activities byborrowing from financial institutions and by tapping into the bondand other capital markets. To hedge against interest rate fluctuations, the Group may execute interest rate swaps to cover certain
funds subject to floating interest rates. However, the Group’s business performance and financial position may be adversely affected if
interest rates change in a direction unfavorable to the Group.
Stock Price Fluctuations
The Group holds marketable securities at home and abroad mostly ofwhich are issued by its business counterparties that are subject toprice fluctuations. Price fluctuations of the securities it holds could
impact the business performance and financial position of the Group.
Counterparty Credit Risk
The majority of trade receivables held by the Group are based onprior granting of credit limits to its business counterparties. While theGroup has put in place stringent and skillful credit management,
there is no guarantee that all such receivables can be fully recovered.
In the event of unanticipated bankruptcy or commencement of thecivil rehabilitation proceedings filed on behalf of or against a businesscounterparty, the business performance and financial condition of
the Group could be adversely affected.
Business Investment Risk
The Group makes business investments to strengthen existing businesses and to expand the scope of its business. Such investments arecarried out upon completion of prescribed approval procedures
specific to investment characteristics and monetary amounts to beinvested, including scrutiny by the investment committee. However,if the value of any company in which the Group has invested deteriorates or profits generated are less than initially anticipated, theGroup’s business performance and financial condition could be
adversely affected.
Liquidity Risk Associated with Funding Activities
The Group funds its operating, investing and financing activities byborrowing funds from financial institutions and issuing bonds andother instruments in capital markets. For funding, the Group strives
to secure cash on hand based on estimated funding requirements.
However, factors such as disruptions in financial markets, regulatorychanges affecting the financial industry in Japan or elsewhere, thedowngrading of the Group’s credit ratings or changes in financial
institutions’ lending policies could significantly affect the Group’s

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

| HANWA AR 2012 | 21

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2012 and 2011							Thousands of						Millions of yen
U.S. dollars (Note 1)

2012
Assets				

2011

2012

Current assets:							$ 284,840¥
23,411 ¥
20,586
Cash and cash equivalents (Note 3)							Receivables:						
		Trade notes and accounts (Note 3):						

			141,282
11,612
7,397
Unconsolidated subsidiaries and affiliates 							3,521,389
289,423
266,952
			Other									Loans:										57,112
4,694
3,555
Unconsolidated subsidiaries and affiliates 							

2,494
205
707
			Other							
		(11,364)(934)(1,072)
Allowance for doubtful receivables							1,349,422
110,909
101,351
Inventories (Note 6)							14,564
1,197
3,155
Deferred tax assets—current (Note 10) 							334,165
27,465
20,573
Other current assets (Note 7)							5,693,904
467,982
423,204
			Total current assets																	Investments and noncurrent receivables:						31,08535,512
Investment securities (Notes 3, 4 and 7)						378,209

69,1085,680
6,022
Investments in and advances to unconsolidated subsidiaries and affiliates (Note 3)					
150
188Loans receivable (Note 3)						1,825275,010
22,60322,731Other investments and noncurrent receivables							(28,556)(2,347)(2,677)
Allowance for doubtful receivables 										695,596
57,171
61,776
Total investments and noncurrent receivables																	Property and equipment (Note 7):						370,897
30,48429,249Land (Note 11)							386,738
31,78623,184
Buildings and structures							203,188
16,70014,967
Other								(274,766)(22,583)(20,358)
Accumulated depreciation							
			686,057
56,38747,042
Total property and equipment																	Other assets:							
2,859
235
91
Deferred tax assets—noncurrent (Note 10)							
7,665
630
685
Intangibles and other assets (Note 7)							
			10,524865
776
Total other assets 							$ 7,086,081¥ 582,405 ¥ 532,798
			Total						
See accompanying Notes to Consolidated Financial Statements.

22 | HANWA AR 2012 |							Thousands of						Millions of yen
U.S. dollars (Note 1)

2012
Liabilities and Net Assets				

2012

2011

Current liabilities:							Short-term loans payable (Notes 3 and 8)						¥ 79,609¥
80,229$976,141

182,504
Commercial paper (Notes 3 and 8)							18,00015,000124,322Long-term debt due within one year (Notes 3 and 8)							11,583
10,218Trade notes and accounts payable (Note 3):								56,320Unconsolidated subsidiaries and affiliates							
3,537
4,629

2,216,596
		Other 							153,010
182,182
23,312
Accrued bonuses to employees 							
1,767
1,916
20,270
Income taxes payable							
442
1,666
290,741
Other current liabilities 							20,12523,896
			

3,890,206
Total current liabilities 							288,073
319,736										Noncurrent liabilities:							1,664,290
Long-term debt due after one year (Notes 3 and 8)							125,075
136,788
2,336
Employees’ severance and retirement benefits (Note 9)							
134
19260,664
Deferred tax liabilities—noncurrent (Note 10)							
4,488
4,986
57,744
Other noncurrent liabilities 							
4,569
4,746
			

1,785,034
Total noncurrent liabilities 							134,266
146,712										Contingent liabilities (Note 12)																Net assets (Note 11)							Shareholders’ equity:							Common stock 						
		Authorized: 570,000,000 shares 						

		555,433
Issued: 211,663,200 shares 							45,65145,651

61
Capital surplus							
55851,429
Retained earnings							67,60869,979(17,338)
Treasury stock, at cost: 4,394,847 shares in 2012 and 4,391,507 shares in 2011					(1,424)(1,425)
1,389,585
			Total shareholders’ equity							111,840
114,210
Accumulated other comprehensive income:						25,368
Unrealized gains on securities, net of taxes							
952
2,085
4,295
Unrealized gains on hedging derivatives, net of taxes							
107
353
1,825
Land revaluation difference, net of taxes							
(183)
150
(38,545)
Foreign currency translation adjustments							(2,935)(3,168)			

(7,057)
Total accumulated other comprehensive income							(2,059)(580)

28,313
Minority interests							
678
2,327
		

1,410,841
Total net assets							110,459
115,957$ 7,086,081
		Total							¥ 532,798¥ 582,405| HANWA AR 2012 | 23

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income and Comprehensive Income
For the years ended March 31, 2012 and 2011							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2012

2012

2011

$19,032,133
Net sales								¥ 1,564,251 ¥ 1,396,103

18,468,232
Cost of sales 							1,352,359
1,517,904
		563,901
Gross profit 							43,744
46,347

381,677
Selling, general and administrative expenses 							29,89031,370182,224
		Operating income							13,854
14,977								Other income (expenses):						14,321
Interest and dividend income 							
1,197
1,177

(37,036)
Interest expense							(2,821)(3,044)
8,821
Foreign exchange gain							
1,526
725
(43,789)
Loss on valuation of investment securities							(2,791)(3,599)(13,043)
Loss on sales of investment securities							—(1,072)
Loss on impairment of long-lived assets				

—

(430)
—		

—
Loss on disaster							(264)
—(8,748)Other, net							
(266)
(719)
Income before income taxes and minority interests

102,750						
10,005
8,445

Income taxes (Note 10):						23,032Current								
407
1,893

22,108Deferred							
3,747
1,817
3,710
Income before minority interests

45,1404,154

57,610
					
5,851
4,735

(1,241)
Minority interests in income of consolidated subsidiaries							
(57)
(102)

56,369Net income							
5,794
4,633

(1,241)
Minority interests in income of consolidated subsidiaries							
(57)
(102)
Income before minority interests

57,610						
5,851
4,735

Other comprehensive income (Note 13):						13,773
Valuation difference on available-for-sale securities							
63
1,132
2,993
Deferred gains or losses on hedges							
879
246
4,052
Land revaluation difference, net of taxes							—
333Foreign currency translation adjustments

(232)

(689)

(2,823)

Total other comprehensive income

1,479

253

17,9956,104

75,605Comprehensive income

			
6,214

Comprehensive income attributable to:					Owners of the parent

			
6,111

6,109

74,352

Minority interests

			
103

(5)

1,253

							U.S. dollars						
Yen
(Note 1)
					
2012

Net income per share 				¥22.35Cash dividends per share 				12.00See accompanying Notes to Consolidated Financial Statements.

24 | HANWA AR 2012 |

2012

2011

¥

27.95
12.00

$

0.272
0.146

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2012 and 2011

					
Numbers of shares in thousands/						Millions of yen
				
2012

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

Thousands of
U.S. dollars (Note 1)

2012

2011

211,663
211,663

211,663
211,663

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

45,65145,651¥¥45,65145,651$$

555,433
555,433

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

¥
¥

5
5

¥
¥

5
5

$
$

61
61

¥

67,608(2,487)
225
4,633
69,979¥64,302(2,488)—5,794
67,608$

822,582(30,259)
2,737
56,369851,429(1,424)(2)
1(1,425)
114,210¥(1,415)(9)—(1,424)
111,840

$

952
1,133
2,085

¥

889
63
952

$

107
246
353

¥

(772)
879
107

$

(183)
333
150

¥

(183)
—
(183)

$

(2,308)(627)(2,935)(2,059)

$

686
(8)
678
110,459$Retained earnings
Balance at beginning of year
Cash dividends paid
Increase resulting from increase in consolidated subsidiaries
Net income
Balance at end of year
Treasury stock, at cost
Balance at beginning of year
Purchases of treasury stock
Disposal of treasury stock
Balance at end of year
Total shareholders’ equity at end of year
Accumulated other comprehensive income:Unrealized gains on securities, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Unrealized gains on hedging derivatives, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Land revaluation difference, net of taxes
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Foreign currency translation adjustments
Balance at beginning of year
Net changes of items other than shareholders’ equity
Balance at end of year
Total accumulated other comprehensive income at end of year

¥
¥

¥
¥

¥
¥
¥
¥
¥
¥
¥
¥
¥

(2,935)(233)(3,168)(580)

Minority interests
Balance at beginning of year¥678
Net changes of items other than shareholders’ equity
1,649
Balance at end of year¥
2,327
Total net assets at end of year					¥ 115,957

¥

¥
¥

¥

¥

¥
¥
¥
¥
¥
¥
¥

$

(17,326)(24)
12$(17,338)$ 1,389,585

$

$

$

$
$

11,583
13,78525,368
1,302
2,993
4,295
(2,227)
4,052
1,825(35,710)(2,835)(38,545)(7,057)

8,249
20,064$28,313$ 1,410,841

See accompanying Notes to Consolidated Financial Statements.

| HANWA AR 2012 | 25

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2012 and 2011							Thousands of						Millions of yen
U.S. dollars (Note 1)
				
2012

2011

2012

Cash flows from operating activities:						Income before income taxes and minority interests						$ 102,750
10,005¥8,445 ¥
Adjustments to reconcile income before income taxes and minority interests						to net cash provided by (used in) operating activities								Depreciation					33,0702,705
2,718
		 Loss on impairment of long-lived assets					—430—		 Decrease in allowance for doubtful receivables						(5,682)(133)(467)
		 Interest and dividend income					(14,321)(1,197)(1,177)
		Interest expense						37,0362,821
3,044
		 Gain on sales of investment securities						—(22)—		 Loss on sales of investment securities						13,043—
1,072
		 Loss on disaster						—264
—		 Loss on valuation of investment securities						43,7892,791
3,599
		 Increase in trade receivables						(300,754)(55,819)(24,719)
		 Increase in inventories						(91,520)(29,302)(7,522)
		 Increase in trade notes and accounts payable						368,536
19,26430,290		Other, net					(9,940)929(817)
		Subtotal						176,007(47,264)
14,466
Cash flows during the year for:								 Interest and dividends received						14,053
1,199
1,155
		Interest paid						(36,465)(2,837)(2,997)
		 Income taxes paid					(7,957)
1,953(654)
Net cash provided by (used in) operating activities					145,638(46,949)
11,970Cash flows from investing activities:								 Decrease in time deposits, net						
1,716
26
141
		 Additions to property and equipment						(110,281)(3,227)(9,064)
		 Proceeds from sale of property and equipment						
1,837
26
151
		 Additions to investment securities						(78,100)(3,056)(6,419)
		 Proceeds from sale and redemption of investment securities					52,890155
4,347
		Increases from purchase of consolidated subsidiaries resulting in change in scope of consolidation				
—
1,284
—
		 Increase in short-term loans receivable, net						(7,677)(1,526)(631)
		 Additions to long-term loans receivable						
(61)
(7)
(5)
		 Proceeds from long-term loans receivable						
693
91
57
		Other, net						(7,130)(1,377)(586)
Net cash used in investing activities						(146,113)(7,611)(12,009)
Cash flows from financing activities:							 Increase (decrease) in short-term loans payable, net						(30,600)
50,832(2,515)
		 Increase (decrease) in commercial paper, net						(36,501)
17,000(3,000)		 Proceeds from long-term debt, issuance of bonds						264,083
20,77521,705
		 Repayments of long-term debt, redemption of bonds						(142,487)(34,558)(11,711)
		 Payment of cash dividends					(30,296)(2,490)(2,490)		 Cash dividends paid to minority interests in consolidated subsidiaries					
(584)
(4)
(48)
		Other, net						(4,197)(283)(345)
Net cash provided by financing activities						19,41851,272
1,596
Effect of exchange rate changes on cash and cash equivalents					(2,105)(641)(173)
Net increase (decrease) in cash and cash equivalents						16,838(3,929)1,384
Cash and cash equivalents at beginning of year						250,469
24,515
20,586
Effect of change in scope of consolidation 						17,533—
1,441
Cash and cash equivalents at end of year					$ 284,840
20,586¥23,411 ¥See accompanying Notes to Consolidated Financial Statements.

26 | HANWA AR 2012 |HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements
1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of Hanwa Co.,
Ltd. (the “Company”) and its consolidated subsidiaries have been
prepared in accordance with the provisions set forth in the Financial
Instruments and Exchange Act of Japan and its related accounting
regulations, and in conformity with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain
respects as to application and disclosure requirements of International
Financial Reporting Standards.
The accounts of overseas subsidiaries are based on their accounting
records maintained in conformity with Japanese GAAP. The accompanying consolidated financial statements have been restructured andtranslated into English with some expanded descriptions from theconsolidated financial statements of the Company prepared inaccordance with Japanese GAAP and filed with the appropriate Local
Finance Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Act of Japan. Some supplementary information included in the statutory Japanese language consolidated
financial statements, but not required for fair presentation, is notpresented in the accompanying consolidated financial statements.
The translation of the Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers outside
Japan, using the prevailing exchange rate at March 31, 2012, whichwas ¥82.19 to U.S.$1.00. The translations should not be construed
as representations that the Japanese yen amounts have been, could
have been or could in the future be converted into U.S. dollars at thisor any other rate of exchange.

2. Significant accounting policies
Consolidation—The consolidated financial statements include theaccounts of the Company and its 16 (15 in 2011) significant subsidiaries(together, “the Companies”). The accounts of certain consolidated
subsidiaries have been included on the basis of fiscal periods that ended
three months or less prior to March 31, and significant transactions after
these year-ends were appropriately adjusted in consolidation.
Intercompany transactions and accounts have been eliminated.
Investments in unconsolidated subsidiaries and affiliates are not accounted
for by the equity method, as the application of the equity method would
not have a material effect on net income and retained earnings, or on the
consolidated financial statement as a whole.
Cash and cash equivalents—In preparing the consolidated statements of cash flows, cash on hand, readily available deposits andshort-term highly liquid investments with maturities not exceeding
three months at the time of purchase are considered to be cash andcash equivalents.
Allowance for doubtful receivables—The allowance for doubtfulreceivables is provided to cover possible losses on collection. With
respect to normal trade accounts receivable, it is stated at an amountbased on the actual rate of historical bad debts, and for certain doubtfulreceivables, the uncollectible amount is individually estimated.
Securities—The Companies classify securities as (a) securities held for
trading purposes (hereafter, “trading securities”), (b) debt securities
intended to be held to maturity (hereafter, “held-to-maturity debt
securities”), (c) equity securities issued by subsidiaries and affiliatedcompanies, and (d) all other securities that are not classified in any of
the above categories (hereafter, “available-for-sale securities”).
The Companies do not hold trading securities. Held-to-maturity
debt securities are stated at amortized cost. Equity securities issued
by subsidiaries and affiliated companies which are not consolidated
or accounted for using the equity method are stated at moving
average cost. Available-for-sale securities with available fair values
are stated at fair value. Unrealized gains and unrealized losses onthese securities are reported, net of applicable income taxes, as aseparate component of accumulated other comprehensive income.
Realized gains on the sales of such securities are computed using
moving average cost. Other available-for-sale securities are stated atmoving average cost.
Inventories—Inventories are stated at the lower of cost (based,principally, on a moving-average basis or a specific-identificationbasis) or net realizable value.
Property and equipment (except under lease)—Property andequipment are carried at cost. Recognized loss on impairment oflong-lived assets has been deducted from acquisition costs.
Depreciation is principally provided on the straight-line method
over the estimated useful life of the asset. Major renewals andimprovements are capitalized. Maintenance, repairs and minor
renewals are expensed as incurred.
Software costs—The Companies include software in “Intangibles
and other assets” and depreciate it using the straight-line method
over the estimated useful life, especially 5 years for computer software
for internal use.
Bonuses—The Companies follow the Japanese practice of paying
bonuses to employees in June and December. At the balance sheet
date, bonus liabilities are estimated and accounted for on an
accrual basis.
Income taxes—Income taxes comprise corporate tax, prefecturaland municipal inhabitants taxes and enterprise tax. The Companies
recognize the tax effects of loss carryforwards and the temporary
differences between the carrying amounts of assets and liabilities for
tax and financial reporting. The asset and liability approach is used torecognize deferred tax assets and liabilities for the expected future
tax consequences of the temporary differences.
The Company and its wholly owned domestic subsidiaries fileconsolidated tax returns.
Retirement benefits—Substantially all employees of the Company
and its domestic consolidated subsidiaries are covered by qualified
funded pension plans. The amount of the retirement benefit is, in| HANWA AR 2012 | 27

general, based on length of service, base salary at the time of retirement, and cause of retirement. Annual contributions, which consistof normal cost and the amortization of prior service cost, are charged
to income.
Liabilities and expenses for severance and retirement benefits
are determined based on the amounts actuarially calculated using
certain assumptions.
Because pension assets exceeded the deduction for unrecognizedactuarial differences and unrecognized prior service cost fromprojected benefit obligation in the Company, the excess amount was
included in “Other investments and noncurrent receivables” at
March 31, 2012 and 2011.
Translation of foreign currencies—Receivables and payables
denominated in foreign currencies are translated into Japanese yen
at year-end rates.
Balance sheets of overseas consolidated subsidiaries are translated into Japanese yen at year-end rates, except for shareholders’equity accounts, which are translated at historical rates. Income
statements of overseas consolidated subsidiaries are translated ataverage rates, except for transactions with the Company, which aretranslated at rates used by the Company.
The Companies report foreign currency translation adjustmentsin accumulated other comprehensive income.
Finance leases—Finance leases that do not transfer ownership of theleased property to the lessee at the end of the lease period are
depreciated using the straight-line method over the period of the leasewith a residual value assumed to be zero. Finance lease transactions inwhich the ownership of the leased assets was not transferred to lessee
and contracted before April 1, 2008 are accounted for as operatinglease transactions.
Derivatives and hedge accounting—The Company states derivative financial instruments at fair value and recognizes changes in thefair value as gain or loss unless the derivative financial instruments
are used for hedging purposes.
If derivative financial instruments are used as hedges and meetcertain hedging criteria, the Company defers the recognition of gainor loss resulting from the changes in the fair value of the derivative
financial instruments until the related gain or loss on the hedged

item is recognized.
Also, if interest rate swap agreements are used as hedges andmeet certain hedging criteria, the net amount to be paid or received
under the interest rate swap agreements is added to or deductedfrom the interest on the assets or liabilities for which the swap agreement was executed.
The following summarizes hedging derivative financial instruments used by the Company and items hedged:
Hedging instruments:
		 Interest rate swap agreements
		 Commodity forwards contracts
Hedged items:
		 Interest expense on borrowings
		 Inventories and commitments
The Company evaluates hedge effectiveness by comparing the
cumulative changes in cash flows or changes in the fair value of thehedged items and the corresponding changes in the hedging
derivative instruments.
Reclassifications—Certain prior year amounts have been reclassified to conform to the current year presentation.
Amounts per share—Computations of net income per share ofcommon stock are based on the weighted average number ofshares outstanding during each period. Diluted net income pershare is not disclosed because potentially dilutive securities are notissued. Cash dividends per share in the consolidated statements ofincome and comprehensive income are dividends applicable to therespective years including dividends to be paid after the end of theconsolidated fiscal year.
(Additional Information)
The Company and its consolidated domestic subsidiaries adopted“Accounting Standard for Accounting Changes and Error
Corrections” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 24 issued on December 4, 2009) and “Guidance on
Accounting Standard for Accounting Changes and Error Corrections”(ASBJ Guidance No. 24, issued on December 4, 2009) for accountingchanges and corrections of prior period errors which are made fromthe consolidated fiscal year beginning on April 1, 2011.

3. Financial instruments
At March 31, 2012 and 2011, information on financial instruments
was as follows.
(A) Qualitative information on financial instruments
Policy for financial instruments
The Group’s main business is the sales of various products, ranging
from mainly steel, metals and alloys, non-ferrous metals to foodproducts, petroleum and chemicals, lumber, and machinery. The
Group also engages in other business activities such as steel material
processing, non-ferrous metal processing and amusement park
management and operations. While the Group depends primarily on

28 | HANWA AR 2012 |bank borrowings to procure funds necessary for these operationaltransactions as well as investing and financing activities, the Groupseeks to diversify its financing instruments to ensure stable andflexible liquidity, funding these activities by issuing bonds andcommercial paper in the capital markets in some cases. Temporary
surplus funds are managed in low-risk financial assets.
It is the Companies’ policy to use derivatives only for the purposeof reducing market risks associated with assets and liabilities.
Components of financial instruments and risks
Trade notes and accounts receivable are exposed to credit risk ofcustomers. Some of them are denominated in foreign currencies andexposed to the foreign exchange rate fluctuation risk as well.
Investment securities mainly consist of listed stocks and are exposed
to price fluctuation risk. Some of them are denominated in foreign
currencies, which accompany foreign exchange rate fluctuation risk.
Long-term loans receivable are mainly for the employees of
the Company.
Foreign currency denominated notes and accounts payable areexposed to foreign exchange rate fluctuation risk.
Short-term loans payable, commercial paper, bonds payable
and long-term loans payable are used for raising working capitaland investment funds, although they have liquidity risk related tochanges in financial market environments.
Foreign exchange future contracts and currency swap agreements
are used to hedge foreign exchange rate fluctuation risk associatedwith certain assets and liabilities denominated in foreign currencies. Interest rate swap agreements are made use of for hedging
fluctuations in future interest rates. Commodity forward contracts,
commodity swap agreements and commodity option agreements
aim to hedge market risks associated with certain inventories andcommitments.
Refer to No. 2, “Significant accounting policies — Derivatives andhedge accounting” for an explanation of the Companies’ hedging
instruments, hedged items, and evaluation of hedge effectiveness.
Risk management system for financial instruments
With regard to credit risk to which trade notes and accounts receivable are exposed, the Company sets a credit limit amount for eachbusiness partner and manages the outstanding balance in accordance with the “Credit administrative provisions” while monitoring
the credit status on a regular basis. Furthermore, the Company iscommitted to reducing foreign exchange rate fluctuation risk towhich trade notes and accounts receivable and trade notes andaccounts payable are exposed by means of derivatives trading.
Because price fluctuation risks associated with investment securities mainly affect listed stocks of the Company’s business partners,
the Company reports the regularly assessed market values to theBoard of Directors. In regard to foreign exchange rate fluctuation
risk, the Company is committed to reducing it by means of derivatives trading.
In regard to business investments, in compliance with the“Rules for the Review and Approval of New Businesses, Loans andInvestments,” the Company decides whether or not to invest after
following the prescribed procedures. The Company continuously

monitors the financial status and trading conditions of the issuing
company and reviews its policies for the holding of stocks.
To deal with liquidity risk associated with procuring funds for
short-term loans payable, commercial paper, and long-term debt, theCompany creates a fund procurement plan based on the outlook of
the Group’s financial requirements. Taking financial market trends
into consideration as well, the Company works to diversify the funds
procurement to ensure liquidity. In addition, with regard to interest raterisk and foreign exchange rate fluctuation risk, the Company seeks to
reduce such risks through derivatives trading and other means.
The Company practices and manages trading of derivatives
related to currencies and products in compliance with the “Business
Department Operating Rules,” and each department receives theapproval of a supervising director to engage in such trading. In addition, the trading authority and trading limit are clearly stated in the“Regulations for Administrative Authority” and the bylaws.
With respect to derivatives trading related to interest rates associated with loans, the Company receives approval from a director in
charge of supervising financial affairs before engaging in such trading.
In order to reduce credit risk to which derivatives trading partners are exposed, the Company trades only with highly rated
financial institutions.
In regard to the contract balance of derivatives trading, trading
departments report it to the supervising director of each department
and to the Internal Audit Department. At the same time, the
Accounting Department directly checks the balance with thecontractor. As may be necessary, internal auditing is implemented by
the Internal Audit Department.
Supplementary explanation for items concerning fair valuesof financial instruments
The fair value of financial instruments is based on the market price, but
in cases in which market prices are not available, the fair value is reasonably estimated. As variable factors are incorporated into the estimationof values, values may vary depending on the assumptions used.
The contract amount related to derivative transactions in Note 5,“Derivatives” does not express the market risk related to the derivative transactions themselves.
(B) Fair values of financial instruments
Book values and fair values of the financial instruments (excluding
those whose fair values were hard to determine) on the consolidatedbalance sheets at March 31, 2012 and 2011 were as follows:| HANWA AR 2012 | 29

March31, 2012
					Book value

Millions of yen 			Fair value

DifferenceBook value

Thousands of U.S. dollars
Fair value

Difference(1) Cash and cash equivalents¥ 23,411¥ 23,411¥—$ 284,840$ 284,840$—(2) Trade notes and accounts receivable
301,035 			
3,662,671 		
Allowance for doubtful receivables(835) 			(10,159) 		
			
Net
300,200
300,200—
3,652,512
3,652,512—(3) Investment securities						a) Held-to-maturity debt securities
5,008
5,063
55
60,932
61,602670b) Available-for-sale securities
19,702
19,702—
239,713
239,713—(4) Long-term loans receivable
150			
1,825 		Allowance for doubtful receivables
—			
—		
			
Net
150
150
—
1,825
1,825
—
Total assets¥ 348,471¥ 348,526¥
55$4,239,822$4,240,492$
670(1) Short-term loans payable¥ 80,229¥ 80,229¥—$ 976,141$ 976,141$—(2) Commercial paper
15,00015,000—
182,504
182,504—(3) Long-term debt due within one year
10,218
10,218—124,322
124,322—(4) Trade notes and accounts payable
186,811
186,811—2,272,916
2,272,916—(5) Long-term debt due after one year
136,788
136,818(30)
1,664,290
1,664,655(365)(30) $5,220,173(365)
Total liabilities¥ 429,046¥ 429,076¥$5,220,538$
Derivatives						—To which hedge accounting is not applied¥(792) ¥
(792)¥—$
(9,636) $(9,636) $To which hedge accounting is applied
591
518
(73)
7,190
6,302
(888)
(73) $
Total derivatives¥(201) ¥
(274)¥
(2,446) $(3,334) $(888)

March 31, 2011					Book value

Millions of yen
Fair value

Difference(1) Cash and cash equivalents¥ 20,586¥ 20,586¥—(2) Trade notes and accounts receivable274,349		
Allowance for doubtful receivables(1,030)			
Net
273,319
273,319—
			(3) Investment securities						a) Held-to-maturity debt securities
5,009
5,085
76
b) Available-for-sale securities
27,01727,017—(4) Long-term loans receivable
188			
Allowance for doubtful receivables(1)			
			
Net
187
187
—
Total assets¥ 326,118¥ 326,194¥
76(1) Short-term loans payable¥ 79,609¥ 79,609¥—(2) Commercial paper
18,00018,000—(3) Long-term debt due within one year
11,583
11,583—(4) Trade notes and accounts payable
156,547
156,547—(5) Long-term debt due after one year
125,075
125,105(30)
Total liabilities¥ 390,814¥ 390,844¥(30)
Derivatives						To which hedge accounting is not applied
¥
560
¥
¥
560
—
To which hedge accounting is applied
253
88
(165)
Total derivatives
¥
813
¥
648
¥
(165)

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

30 | HANWA AR 2012 |Basis of determining the fair value of financial instruments is asfollows:
Cash and cash equivalents, Trade notes and accounts
receivable
The book values of cash and cash equivalents and trade notes
and accounts receivable approximate fair value due to their shortmaturities.
Investment securities
The fair value of securities is based on the quoted market price on thestock exchange. The fair value of bonds is based on the quoted priceprovided by financial institutions.
Long-term loans receivable
The book value of long-term loans receivable approximates fair value
due to their floating interest rates.

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

The following tables summarize book values of financial instruments for which there were limitation in determining the fair value as of March
31, 2012 and 2011:							Thousands of					Millions of yen
U.S. dollars
					
2012

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

¥

5,680

2011

2012

Book value

Book value

¥

6,022

$

69,108(b) Available-for-sale securities							Unlisted stocks				
¥
3,138
¥
2,121
$ 38,180
Unlisted foreign stocks				
1,394
1,270
16,961
Unlisted foreign convertible bond				
1,763—
21,450Investment in limited partnerships				
80
95
973
Total				
¥
6,375
¥
3,486
$ 77,564

The maturities of receivables and securities with maturities outstanding at March 31, 2012 were as follows:			Year ending March 31

		Millions of yen									2013							Cash and cash equivalents		 ¥ 23,411
Trade notes and accounts receivable		
301,035
Held-to-maturity debt securities		—Available-for-sale securities with maturity dates		—Long-term loans receivable		33
Total			 ¥ 324,479
			From 2014 		
to 2017		

¥

¥

		

¥

¥

—
—
3,008
—
37
3,045

Thereafter		

¥

¥

—
—
—
—
24
24

Thousands of U.S. dollars																2013

Cash and cash equivalents		 $ 284,840
Trade notes and accounts receivable		
3,662,671
Held-to-maturity debt securities		—Available-for-sale securities with maturity dates		—Long-term loans receivable		402Total			 $3,947,913

—
—
2,000
1,763
89
3,852

From 2018		
to 2022		

From 2014 		
to 2017		

$——
24,334
21,4501,083$ 46,867

From 2018		
to 2022		

$

$

—
—
36,598—450
37,048Thereafter		

$

$

—
—
—
—
292
292

| HANWA AR 2012 | 31

4. Securities(A) The following table summarizes book values and fair values of held-to-maturity debt securities as of March 31, 2012 and 2011:
March 31, 2012					

Corporate bonds

¥

5,008

March
31, 2011
					

Corporate bonds

Millions of yen 			Book value

Fair value

¥

5,009

¥

55

Thousands of U.S. dollars

Book value$

60,932

Fair value$

61,602Difference$

670

Millions of yen

Book value

¥

5,063

Difference

Fair value

¥

5,085

Difference¥76(B) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available market
values as of March 31, 2012 and 2011:
March 31, 2012					Securities with book values exceeding acquisition costs:
Equity securities¥
Securities with book values not exceeding acquisition costs:
Equity securities¥

Book value

Difference

Thousands of U.S. dollars

Acquisition cost

Book value

Difference

6,218

¥

12,457

¥

6,239

$

75,654$

151,564$

75,91010,076

¥

7,245

¥

(2,831)$ 122,594$

88,149$(34,445)

March 31, 2011

					

Millions of yen 			Acquisition cost

Millions of yen

Acquisition cost

Securities with book values exceeding acquisition costs:
Equity securities¥
6,080
Securities with book values not exceeding acquisition costs:
Equity securities¥ 19,412

Book value

Difference¥

12,076

¥

5,996

¥

14,941¥(4,471)(C)	Total sales of available-for-sale securities in the year ended March 31, 2012 amounted to ¥6,864 million ($83,514 thousand), and resulted in a
net loss of ¥1,072 million ($13,043 thousand). The loss resulting from the valuation of the listed securities in the year ended March 31, 2012 was¥3,187 million ($38,776 thousand).

5. Derivatives(A) The following tables summarize fair value information as of March 31, 2012 and 2011 for the derivatives to which hedge accounting
has not been applied:
March 31, 2012
Currency related

			
		
		

Millions of yen 			Contract or		
notional amount
Fair value

Foreign exchange forward contracts:
Selling		 U.S. dollars¥ 28,190¥(801)
		Other currencies
3,760
(21)
Buying		 U.S. dollars
9,637
119
		 Other currencies
3,625
9
Currency swap agreements:
Japanese yen received for U.S. dollars
8,928
(127)
		Total 			32 | HANWA AR 2012 |Thousands of U.S. dollars

Net recognizedgain or loss

Contract ornotional amount

¥

(801)
(21)

$ 342,986
45,748119
9117,253
44,105

1,448
110

(127)
(821)

108,626(1,545)
		¥Fair value$(9,746)(256)

Net recognizedgain or loss$

(9,746)
(256)
1,448
110

$

(1,545)(9,989)

Commodity related

			
		
		

Millions of yen 			Contract or		
notional amount
Fair value

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

March 31, 2011
Currency related
			
		
		

Contract ornotional amount

Commodity related			Contract ornotional amountContract ornotional amount

¥

$

53
66
(147)
48

¥

26,378
19,686108,675
55,068

Thousands of U.S. dollars
Fair value

$

645
803

Net recognizedgain or loss

$

645
803

(1,789)584(1,789)584

1715,805207(8)24,589
(97)
29			

207
(97)
353

$

Millions of yen
Fair value

Foreign exchange forward contracts:
Selling		 U.S. dollars¥ 33,669¥(250)
		 Other currencies
10,61420
Buying		 U.S. dollars
9,281
77		 Other currencies
2,399
57
Currency swap agreements:
Japanese yen received for U.S. dollars
10,146
1,014
		 Total 							

Net recognizedgain or loss

Net recognizedgain or loss

¥

(250)
20
77
57

¥

1,014
918

Millions of yen
Fair value

Forwards:
Petroleum
		 Selling¥ 8,288¥(237)
		Buying
8,115
261
Non-ferrous metals
		Selling
19,467(719)
		Buying
6,965
240
Commodity swap agreements:
Petroleum
		Selling
1,206
(89)
		Buying
2,756
186
		 Total 			Net recognizedgain or loss

¥

(237)
261
(719)
240

¥

(89)
186
(358)

| HANWA AR 2012 | 33

(B) The following tables summarize fair value information as of March 31, 2012 and 2011 for the derivatives to which hedge accounting has been applied:
March 31, 2012
Interest rate related

			
		
		

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

¥

5,000

Commodity related

			
		
		

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

22,894
14,594							

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

11,200Commodity
related			
Forwards for inventories and commitments
Non-ferrous metals
		 Selling		Buying

Due after
one year¥

22,522
14,085¥Due after
one year

¥

(73)

$

60,835——

Fair value

¥

1,388
(797)

Due after
one year

$

$

(888)

Thousands of U.S. dollars

Contract ornotional amount$ 278,550
177,564

60,835

Fair value

Due after
one year$——

Fair value$

16,887(9,697)

Millions of yen
Due after
one year¥

5,000

Fair value

¥

(165)

Millions of yen

Contract ornotional amount

¥

5,000

Fair value

Thousands of U.S. dollars

Contract ornotional amountMillions of yen 			Contract ornotional amountMarch 31, 2011
Interest rate related				Millions of yen 			Due after
one year¥——

Fair value

¥

582
(329)

6. Inventories
Inventories at March 31, 2012 and 2011 consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2012

Merchandise and finished products				¥ 105,803
Work-in-process				
169
Raw materials and supplies 				4,937Total				¥ 110,909

2011

2012

95,790620
4,941¥ 101,351$1,287,298
2,056
60,068$1,349,422¥

The write-down of inventories to lower of cost or net realizable value amounted to ¥1,050 million ($12,775 thousand) and ¥709 million atMarch 31, 2012 and 2011, respectively.

34 | HANWA AR 2012 |7. Pledged assets
At March 31, 2012 and 2011, assets were pledged as collateral for short-term loans payable in the amount of ¥1,721 million ($20,939
thousand) and ¥1,578 million, respectively, and as guaranty as follows:							Thousands of					Millions of yen
U.S. dollars
					
2012

Other current assets				¥13
Investment securities				
1,215
Buildings and structures, net of accumulated depreciation 				
918Land 				
635Intangibles 				
109Total				
¥
2,890

2012

2011

¥

¥

13
1,493
686
—
112
2,304

$

$

158
14,783
11,1697,726
1,326
35,162

8. Short-term loans payable, commercial paper and long-term debt
The weighted average interest rate applicable to short-term loans
outstanding at March 31, 2012 and 2011 was 1.15% and 1.21%,
respectively. There was an outstanding balance of ¥80,229 million($976,141 thousand) and ¥79,609 million in March 31, 2012 and2011, respectively.

The Company has entered into a yen denominated domestic
commercial paper program. There was an outstanding balance of¥15,000 million ($182,504 thousand) and ¥18,000 million at March
31, 2012 and 2011, respectively.

Bonds at March 31, 2012 and 2011, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2012

Issued in 2008, unsecured straight bonds, due 2011 (*1)			
Issued in 2009, unsecured straight bonds, due 2011 (*2)			
Issued in 2009, 1.03% unsecured straight bonds, due 2012			Issued in 2009, 0.91% unsecured straight bonds, due 2012			Issued in 2009, 1.34% unsecured straight bonds, due 2014			
Issued in 2010, 0.79% unsecured straight bonds, due 2013			Issued in 2011, 0.56% unsecured straight bonds, due 2014			
				

¥

¥

2012

2011

—
¥
200
—		
50
20
—
15		
—
50		
—
10,000		10,000
10,000		—
20,085¥ 10,250

$

—
—
243
183
609
121,669
121,669$ 244,373(*1) Issued by Toyo-Energy Co., Ltd., at interest rates of TIBOR 6 months plus 0.3% (04/01/2009 - 09/30/2011).
(*2) Issued by Toyo-Energy Co., Ltd., at interest rates of 0.71% (10/01/2009 - 03/31/2010) and TIBOR 6 months (04/01/2010 - 09/30/2011).
Long-term loans payable at March 31, 2012 and 2011, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2012

Loans from banks with weighted average interest rates of 0.99% and 1.00%
at March 31, 2012 and 2011, respectively, maturing serially through 2018		
Less amounts due within one year			
				

2011

¥ 126,921¥ 126,408
10,183		 11,333¥ 116,738¥ 115,075

2012$1,544,239
123,896$1,420,343

The annual maturities of long-term debt outstanding at March 31, 2012 was as follows:
Years ending March 31

					Millions of yen

2013
2014
2015
2016
2017
Thereafter
Total

¥

10,183
71,575
20,663
15,6288,858
14¥ 126,921

Thousands of
U.S. dollars$ 123,896
870,848
251,405
190,145
107,775
170$1,544,239| HANWA AR 2012 | 35

9. Employees’ severance and retirement benefits
The liability for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31, 2012 and2011, consisted of the following:							Thousands of					Millions of yen
U.S. dollars
					
2012

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				¥

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

2011

2012

23,843(21,547)(7,949)
(626)
6,413
¥
134

$ 336,574(258,036)(144,483)(6,631)
74,912$
2,336¥

Included in the consolidated statements of income and comprehensive income for the years ended March 31, 2012 and 2011, severance andretirement
benefits expenses comprised the following:							Thousands of					Millions of yen

					
2012

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

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

¥

¥

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

U.S. dollars

¥

¥

963
455
(630)
843
81
4
1,716

$

$

12,276
3,930(7,799)11,254986
12
20,659remaining service period of active employees expected to receive
benefits under the plan.

Assumptions used for the years ended March 31, 2012 and 2011 were as follows:						
2012

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

36 | HANWA AR 2012 |

2012

2011

2011

2.0%
3.0%
14 years
14 years10. Income taxes
The Company is subject to a number of taxes based on income, whichindicates an aggregate statutory income tax rate in Japan of approximately
40.7% for the years ended March 31, 2012 and 2011.

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

							2012

Statutory tax rate						40.7 %Tax effect of permanent differences						2.8 %Valuation allowance recognized for deferred tax assets
					
0.3 %
Difference in tax rates for consolidated subsidiaries
					(1.0)%
Other
					
1.1 %
Effective tax rate						43.9 %The reconciliation of the difference between the statutory tax rate
and the effective tax rate for the year ended March 31, 2011 has notbeen disclosed because such difference was less than 5%.

The significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2012 and 2011 were as follows:							Thousands of					Millions of yen
U.S. dollars
					
2012

Deferred tax assets:
Temporary differences resulting from the merger with consolidated subsidiaries		¥ 13,190
Loss on impairment of long-lived assets				
2,277
Net operating loss carryforwards				—
Loss on sale-repurchase agreements of land 				1,506Land revaluation difference, net of taxes unrealized loss				
1,460
Accrued bonuses to employees				729
Other				4,303Total deferred tax assets				
23,465
Valuation allowance				(20,456)
Net deferred tax assets				
3,009
Deferred tax liabilities:
Land revaluation difference, net of taxes unrealized gain				2,351
Prepaid pension costs				
2,306
Other				1,906Total deferred tax liabilities				
6,563
Net deferred tax liabilities				¥ (3,554)

2011

2012

¥ 14,642
2,699
1,775
1,719
1,667
718
5,846
29,066(23,009)6,057$ 160,482
27,704—
18,323
17,7648,870
52,354285,497(248,887)
36,610

2,684
2,610
2,005
7,299
(1,242)28,60428,05723,19079,851$ (43,241)¥

Deferred tax assets and deferred tax liabilities were included in the consolidated balance sheets at March 31, 2012 and 2011, respectively,
as follows:							Thousands of					Millions of yen
U.S. dollars
					
2012

Current assets: Deferred tax assets				
Other assets: Deferred tax assets				Current liabilities: Deferred tax liabilities				Noncurrent liabilities: Deferred tax liabilities 				Adjustment of deferred tax assets and liabilities for enacted changes
in tax laws and rates on December 2, 2011 amendments to theJapanese tax regulations were enacted into law. Based on amendments, the statutory income tax utilized for the measurement ofdeferred tax assets and liabilities expected to be settled or realized

¥

1,197
235
—
4,986

2012

2011

¥

3,155
91
—
4,488

$

14,5642,859—
60,664from April 1, 2012 to March 31, 2015 and on or after April 1, 2015
are 38.0% and 35.6% respectively, as of March 31, 2012.
These changes in statutory income tax rates had no material
impact on consolidated financial statements for the year ended
March 31, 2012.

| HANWA AR 2012 | 37

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

At the annual shareholders’ meeting held on June 28, 2012, theshareholders approved cash dividends of ¥6 per share ($0.07)
amounting to ¥1,244 million ($15,136 thousand). This appropriation has not been accrued in the consolidated financial statements
as of March 31, 2012. Such appropriations are recognized in the
period in which they are approved by the shareholders.
Land revaluation difference—Pursuant to the Law Concerning
Land Revaluation, the Company revaluated land used for businessactivities at March 31, 2002.
Unrealized gain (loss) on land revaluation is recorded as land
revaluation difference in a separate component of accumulated
other comprehensive income in the consolidated balance sheets
until realized. The amounts are shown net of applicable income tax.
The revaluation of land was determined based on a declared
land value, with certain necessary adjustments, in accordance with
Article 2, Paragraph 1 of the Enforcement Ordinance Concerning
Land Revaluation.
As of March 31, 2012, the carrying amount of the land after theabove one-time revaluation exceeded the market value by ¥1,691
million ($20,574 thousand).

12. Contingent liabilities
At March 31, 2012 and 2011, the Companies were contingently liable as follows:							Thousands of					Millions of yen
U.S. dollars
					
2012

As endorsers of export letters of credit and notes discounted			As guarantors of indebtedness				38 | HANWA AR 2012 |

¥

6,058
4,065

2012

2011

¥ 12,282
3,197$

73,70749,45913. Other comprehensive income
Year ended March 31, 2012
Amounts reclassified to net income in the current period that were recognized in other comprehensive income in the current or previous
periods and tax effects for each component of other comprehensive income were as follows:						Thousands of						
Millions of yen
U.S. dollars						
2012

Valuation difference on available-for-sale securities:				
Increase (decrease) during the year				
Reclassification adjustments 				Sub-total, before tax					Tax (expense) or benefit				
Sub-total, net of tax					Deferred gains or losses on hedges:				
Increase (decrease) during the year				
Reclassification adjustments 				Sub-total, before tax					Tax (expense) or benefit				
Sub-total, net of tax					Land revaluation difference, net of taxes:				
Increase (decrease) during the year				
Reclassification adjustments 				Sub-total, before tax					Tax (expense) or benefit				
Sub-total, net of tax					Foreign currency translation adjustments:
Increase (decrease) during the year				
Reclassification adjustments 				Sub-total, before tax					Tax (expense) or benefit				
Sub-total, net of tax					Total other comprehensive income				¥¥(2,448)
4,259
1,811
679
1,132

2012

$

(29,785)
51,81922,034
8,261
13,773

913
(524)
389
143
246

11,108(6,375)
4,733
1,740
2,993

—
—
—
(333)
333

—
—
—
(4,052)
4,052

(232)
—
(232)
—
(232)
1,479

(2,823)—(2,823)—(2,823)
17,995$| HANWA AR 2012 | 39

14. Investment and rental properties
Information about fair value of investment and rental properties isdisclosed as follows:
The Company owns office buildings, logistics centers and otherproperties for rent in Tokyo and other cities.
Rental profit from these properties was ¥324 million ($3,942

thousand) and ¥308 million for the years ended March 31, 2012
and 2011, respectively, and were included in gross profit.
Book value, annual net increase and decrease amount and fairvalue, of investment and rental properties, were as follows:Year ended March 31, 2012
Millions of yen							Thousands of U.S. dollars
Book value
Balance at beginning 		
of yearNet decrease

¥

8,664

¥

342

Book value
Balance at end 		of yearFair value

¥

8,322

¥

7,743

Balance at beginning 		
of yearNet decrease$

105,414$

4,161

Balance at endof year$ 101,253

Fair value$

94,209Year ended March 31, 2011
Millions of yen
Book value
Balance at beginning 		
of year
Net increase

¥

8,384

¥

280

Balance at endof year¥

8,664

Fair value

¥

8,498

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

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

40 | HANWA AR 2012 |Steel: Steel bars and shapes, steel plates and sheets, special steels,
wire products, steel pipes, and steelmaking raw materials(steel processing and storage)
Metals and alloys: Nickel, chromium, steel alloys, and solar cellrelated materials and products
Non-ferrous metals: Aluminum, copper, and zinc (recycling business)
Foods: Sea foods
Petroleum and chemicals: Petroleum products, industrial chemicals,
and chemicals
The reportable segment income figures are based on operating
income coupled with interest and dividend income, interest expense,and foreign currency translation adjustments. Intersegment transactions are presented based on the current market prices at the time ofthis report.

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

Net sales		 ¥ 728,845
Intersegment		
16,186
Total			¥ 745,031
Segment income		 ¥9,350
Assets			¥ 309,806
Depreciation		
1,726Interest income		221Interest expense		
1,689
Increase in property
and equipment		
10,018¥ 124,135
2,145¥ 126,280¥
1,286¥ 57,253
129
82
702
338

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

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

¥
¥
¥
¥

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

18

118

27

Year
ended March 31, 2012						

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

Total

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

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

11,180Thousands of U.S. dollars

Reportable segment

			 Metals		Steeland alloys

Net sales		 $ 8,867,806
Intersegment		
196,934
Total			$ 9,064,740
Segment income		 $ 113,761
Assets			$ 3,769,388
Depreciation		
21,000Interest income		
2,689
20,550Interest expense		
Increase in property
and equipment		
121,888

Millions of yen

Reportable segment

Non-ferrous		Petroleum		 Other
metalsFoods
and chemicals
Total
business$ 1,510,342
26,098$ 1,536,440$ 15,647$ 696,593
1,570
998
8,541

$ 735,795
19,212$ 755,007$ 10,366$ 222,485
462
12
2,141

$ 1,107,811
8,018$ 1,115,829$ 14,369$ 510,768
365
12
1,448

$ 5,558,791
8,541$ 5,567,332$ 32,510$ 883,343
1,168
1,472
5,670

4,112

329

219

1,436

1. “Other business” represents businesses such as lumber section,
machinery section and overseas sales subsidiaries, which are notincluded in the above reportable segment.
2. Adjustments are as follows:(1) Adjustments of negative ¥3,914 million (negative $47,622
thousand) for segment income include intersegment
elimination and Group costs that have not been distributed
to reportable segments. These group costs consist mainly of
expenses of administrative departments.
(2) Adjustments for segment assets amounting to ¥34,759
million ($422,910 thousand) include Group assets that havenot been distributed to reportable segments. These groupassets consist mainly of cash and cash equivalents, investment
securities and assets of administrative departments.

$17,780,545 $ 1,251,588
258,803449,568$18,039,348 $ 1,701,156$ 186,653 $
20,550$ 6,082,577 $ 580,594
24,565
7,629
5,183
876
38,3505,852
127,984

7,166

Total

Adjustment

Consolidated$19,032,133 $— $19,032,133
708,371(708,371)—$19,740,504 $ (708,371) $19,032,133$ 207,203 $ (47,622) $ 159,581$ 6,663,171 $ 422,910 $ 7,086,081
32,194876
33,070
6,059
3,529
9,588
44,202(7,166)37,036135,150876

136,026(3) Adjustments for depreciation and amortization amounting to¥72 million ($876 thousand) include mainly depreciation andamortization expenses of group assets.
(4) Adjustments for interest income and interest expense amounting
to ¥290 million ($3,529 thousand) and negative ¥589 million(negative $7,166 thousand) include intersegment elimination,
revenue and expense that have not been distributed to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥72 million ($876 thousand)are increases in Group assets.

| HANWA AR 2012 | 41

Information about sales, profits, assets and others by reportable segment, for the year ended March 31, 2011 was as follows:Year
ended March 31, 2011									 Metals		Steeland alloys

Net sales		 ¥ 674,300
Intersegment		
18,748
Total			 ¥ 693,048
Segment income		 ¥
9,423
Assets			 ¥ 261,693
Depreciation		
1,632Interest income		216Interest expense		
1,413
Increase in property
and equipment		
2,481¥ 121,785
2,252¥ 124,037¥
2,265¥ 62,325
46
2
593
225

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

57,942
2,085
60,027715
20,869
30
1
161
63

¥
¥
¥
¥

79,585482
80,067
1,778
31,28727—
77¥ 369,423
613¥ 370,036¥
2,198¥ 69,845
60
108
315

18

205

1. “Other business” represents businesses such as lumber section,
machinery section and overseas sales subsidiaries, which are notincluded in the above reportable segment.
2. Adjustments are as follows:(1) Adjustments of negative ¥3,651 million for segment income
include intersegment elimination and Group costs thathave not been distributed to reportable segments. These
group costs consist mainly of expenses of administrative
departments.
(2) Adjustments for segment assets amounting to ¥45,719
million include Group assets that have not been distributed
to reportable segments. These group assets consist mainly ofcash and cash equivalents, investment securities and assets ofadministrative departments.

42 | HANWA AR 2012 |Millions of yen

Reportable segment¥ 1,303,035 ¥
24,180¥ 1,327,215 ¥¥ 16,379 ¥¥ 446,019 ¥
1,795
327
2,559
2,992

93,06831,333
124,401
763
41,060
853
48
395
760

Total

¥ 1,396,103 ¥
55,513¥ 1,451,616 ¥¥ 17,142 ¥¥ 487,079 ¥
2,648
375
2,954
3,752

Adjustment

Consolidated— ¥ 1,396,103(55,513)—(55,513) ¥ 1,396,103(3,651) ¥ 13,491
45,719 ¥ 532,798
57
2,705
298
673
(133)
2,821
94

3,846

(3) Adjustments for depreciation and amortization amounting
to ¥57 million include mainly depreciation and amortization
expenses of group assets.
(4) Adjustments for interest income and interest expense
amounting to ¥298 million and negative ¥133 million include
intersegment elimination, revenue and expense that have notbeen distributed to reportable segments.
(5) Adjustments for increases in tangible fixed assets and intangible fixed assets amounting to ¥94 million are increases inGroup assets.

(B) Related information
Product information
Net sales information by products for the years ended March 31, 2012 and 2011 were as follows:Year ended March 31, 2012							 Metals		Steeland alloys

Net sales to external customers¥

741,143¥

131,220¥80,019Year ended March 31, 2012							 Metals		Steeland alloys

Net sales to external customers$ 9,017,435$ 1,596,545

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

684,077¥

128,362456,068¥

57,792$

973,586$ 1,192,469$ 5,548,947$

703,151

79,664

Total$19,032,133

Millions of yen

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

¥

Total

¥ 1,564,251

Thousands of U.S. dollars

Year
ended March 31, 2011
				
¥

¥

Non-ferrous		Petroleum		metalsFoods
and chemicals
Other

			 Metals		Steeland alloys

Net sales to external customers

98,009¥85,928¥367,369¥

50,703

Total¥ 1,396,103

Geographic information
Net sales in different countries for the years ended March 31, 2012 and 2011 were as follows:Year
ended March 31, 2012
					Millions of yen

					
Japan

Net sales to external customers 				 ¥ 1,186,236

Asia

¥

Other

329,147¥

48,868Year ended March 31, 2012					Thousands of U.S. dollars

					
Japan

Asia

Net sales to external customers 				 $14,432,851

Year
ended March 31, 2011
					

$

594,573

Total$19,032,133

Millions of yen

					
Japan

Net sales to external customers 				 ¥ 1,054,082

Other$ 4,004,709

Total¥ 1,564,251

Asia

¥

306,084

Other¥

35,937

Total¥ 1,396,103| HANWA AR 2012 | 43

Independent Auditor’s Report
To the Board of Directors of Hanwa Co., Ltd.:We have audited the accompanying consolidated financial statements of Hanwa Co., Ltd. and its consolidated
subsidiaries, which comprise the consolidated balance sheets as at March 31, 2012 and 2011, and theconsolidated statements of income and comprehensive income, statements of changes in net assets andstatements of cash flows for the years then ended, and a summary of significant accounting policies and otherexplanatory information expressed in Japanese yen.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statementsin accordance with accounting principles generally accepted in Japan, and for such internal control as
management determines is necessary to enable the preparation of consolidated financial statements that are
free from material misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgement, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, we consider internal control relevant to the entity’s preparationand fair presentation of the consolidated financial statements in order to design audit procedures that areappropriate in the circumstances, while the objective of the financial statement audit is not for the purposeof expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating
the appropriateness of accounting policies used and the reasonableness of accounting estimates made bymanagement, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial
position of Hanwa Co., Ltd. and its consolidated subsidiaries as at March 31, 2012 and 2011, and theirfinancial performance and cash flows for the years then ended in accordance with accounting principles
generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2012 are presented solely for convenience. Our audit also included the translation of yen
amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis describedin Note 1 to the consolidated financial statements.
￼June 28, 2012
Osaka, Japan44 | HANWA AR 2012 |Global Network
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Office	Osaka	
Tokyo	
Nagoya	
Hokkaido	
TohokuHACHINOHE
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Chugoku
KyushuKITAKANTOMITO
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OKAYAMA

Address
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Taihaku Center Bldg., 2-19-24 Hakata-ekimae, Hakata-ku, Fukuoka 812-0011, Japan
Takasaki East Center Bldg., 14-1 Sakae-cho, Takasaki, Gunma 370-0841, Japan
Mito Minami-machi, Dai-ichi Seimei Bldg., Minami-machi, Mito, Ibaraki 310-0021, Japan
Nihonseimei Hon-Atsugi Bldg., 1-2-1, Asahi-cho, Atsugi, Kanagawa 243-0014, Japan
Mitsui Life Insurance Naha Bldg., 2-4-16, Kume, Naha, Okinawa 900-0033, Japan
Mizunomori Bldg 9F, 14-1, Minami-machi, Suruga-ku, Shizuoka city, Shizuoka, 422-8067, Japan
2F Sumitomo life Insurance bldg, 2-4-6, Showa, Kurashiki, Okayama, 710-0057, Japan

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

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

Telephone

Fax

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

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

Overseas Offices
Office	Americas

Address

New York	
Parker Plaza, 12th Floor, 400 Kelby Street, Fort Lee, NJ 07024, U.S.A.
Seattle601 Union Street, Suite 626, Seattle, WA 98101, U.S.A.
HoustonSuite 515, 9800 Richmond Avenue, Houston, TX 77042, U.S.A.
Los Angeles	 18100 Von Karman, Suite 320, Irvine, CA 92612, U.S.A.
SAN DIEGO
8753 Kerns Street, San Diego, CA 92154, U.S.A.
Vancouver	 Suite 303, 1001 West Broadway Vancouver, B.C., V6H 4B1, Canada
BogotaCalle 97, No. 21-50, Edif: La Fontana Di Tivoli Oficina: 309 Bogota, D.C. Colombia
GUAM428, Chalan Antonio Suite, 102, Tamuning, 96913, Guam

Asia
Seoul
Room 1703, Korea World Trade Center, 159-1, Samsung-Dong, Kangnam-ku, Seoul, 135-729, R.O. Korea
82-2-551-5387
BUSAN
Room 504, Industry Bldg., 578, Gwaebeop-Dong, Sasang-gu, Busan, 617-726, R.O. Korea
82-51-319-1006
Beijing	Room 1201, Beijing Fortune Bldg., 5 Dong San Huan Bei-lu, Chaoyang District, Beijing 100004, P.R. China
86-10-6590-8333
Qingdao
Crowne Plaza Qingdao, Room No.601, Hongkong Middle Road 76, Qingdao City, Shandong 266071, P.R. China
86-532-8-577-9990
Dalian	Senmao Bldg., 20F, 147 Zhongshan Street, Dalian City, Liaoning 116011, P.R. China
86-411-8-368-6954
Tianjin	# 1108 Block A, Kuangshi Int’l Bldg, Xiangluo Bay Business Center, New Area, Tianjin 300347, P.R. China
86-22-6566-8618
Shanghai
16F SMEG Plaza,1386 Hong Qial Road, Chang Ning District, Shanghai 200336, P.R. China
86-21-6237-5260
Chongqing Room 1711, Metropolitan Tower, 68 Zhou Rong Lu, Central District, Chongqing 400010, P.R. China
86-23-6381-1101
FuzhouRoom 2501, Lippo Tianma Plaza, No.1 Wu Yi Road, Fuzhou City, Fujian 350003, P.R. China
86-591-8-3354165
Wuhan
Room 1009, New World Center, Tower A, No. 634, Jiefang Avenue, Wuhan 430032, P.R. China
86-27-8549-7132
TAI CANG
No. 7 Guangzhou East Road, Economic Development Area, Tai Cang City, Jiangsu, P.R. China
86-512-5359-0800
JIANGXI
Unit 602, 4 Building of Caifugang No. 28, South Zhangjiang Road, Zhangjiang New District, Ganzhou City, Jiangxi, P.R. China 86-797-555-8892
Guangzhou Unit 3701-3704, Profit Plaza, No. 76 Westhuangpu Road, Guangzhou City, Guangdong 510623, P.R. China
86-20-8732-0451
DONGGUAN D Block, Chashan Industrial Park, Chashan Town, Dongguan City, Guangdong 523380, P.R. China
86-769-8182-1800
Zhongshan Unit 1909-1910, 19th Floor, Bank Of China Tower, 18 Zhongshan 3rd Road, Zhongshan City, Guangdong, P.R. China 86-760-2332-0706
Hong Kong	 Suites 2301-02 & 16, 23F, Cityplaza One, 1111 King’s Road, Tai Koo Shing Island East, Hong Kong852-2545-0110
TAIPEI
Room A, 9th Floor, No. 132, Minsheng East Road Sec. 3, Taipei 10596, Taiwan
886-2-2545-7151
Kaohsiung Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan
886-7-338-5508
Bangkok
16th Floor, Unit 1602, Q.House Lumpini Bldg., 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand 66-2-343-8877
CHONBURI
700/625 Moo 4, Amata Nakorn, I.E. Tambol, Baankao, Amphur Panthong, Chonburi 20160, Thailand
66-38-21-0200
Kuala Lumpur Suite 8-12B-3, Level 14 (12B), Menara Olympia 8, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
60-3-2078-2311
Singapore
20 Cecil Street, #20-05/06/07, Equity Plaza, Singapore, 049705
65-6536-7822
Tawau
P.O. Box 1231 91037 Tawau, Sabah, Malaysia
60-89-750016
HO CHI MINH	 Unit 4, 19th Floor, A&B Tower, 76 Le Lai Street, District 1, Ho Chi Minh City, S.R. Vietnam
84-8-3822-5715
HANoI
14th Floor, Vit Tower, 519 Kim Ma Street, Ba Dinh, Hanoi, S.R. Vietnam
84-4-2220-9155
Jakarta
Menara Cakrawala 5th Floor, Jalan M.H. Thamrin No. 9, Jakarta 10340, Indonesia
62-21-3983-3211
Mumbai
Unit No.208, 2nd Floor, B-Wing, Dynasty Business Park, 58, Andheri Kurla Road, Andheri (E), Mumbai 400 059, India 91-22-2826-0884
New Delhi
203, Bestech Chambers, B Block, Sushant Lok 1, Gurgaon, Haryana 122002, India
91-124-456-6100
CHENNAI
5H-1/5K-1, 5th Floor, Century Plaza, 560-562, Anna Salai, Teynampet, Chennai 600 018, India
91-44-4201-8125
ISTANBUL
Bilim Sokak Sun Plaza Kat: 15 34398, Maslak-Istanbul-Turkey
90-212-367-9286

Europe, Middle East and Africa
2nd Floor, Finland House, 56 Haymarket, London, SW1Y 4RN U.K.
WTC Tower A-11F, Strawinskylaan 1111, 1077XX, Amsterdam, The Netherlands
Wipplingerstrasse 34 Top 174, 1010 Wien, Austria
C/O AI-Sabih Engineering & Trading Co., P.O. Box No. 1114 Dasman, 15462 Dasman, Kuwait
Room 24, 6th Floor, Danat Trading Center, Abdulla Al-Ahmad Street, Sharq, Kuwait
RiyadhP.O. Box 68974, Riyadh 11537, Saudi Arabia
JeddahOffice 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, East Wing Bldg., No. 6E, B-Block, Room No. 544, P.O. Box 293873 Dubai, U.A.E.
Johannesburg 2nd Floor, West Tower, Nelson Mandela Square, Maude Street, Sandton, 2196, South Africa
LondonAmsterdam
ViennaKuwait82-2-551-5575
82-51-319-1545
86-10-6590-8340
86-532-8-577-9630
86-411-8-368-6934
86-22-6566-8619
86-21-6237-5268
86-23-6381-7385
86-591-8-3345202
86-27-8578-7196
86-512-5358-8942
86-797-555-8890
86-20-8732-0402
86-769-8182-1801
86-760-2332-0696
852-2542-2544
886-2-2545-7112
886-7-338-5433
66-2-343-8878
66-38-21-0085
60-3-2078-2380
65-6536-7855
60-89-750019
84-8-3822-5725
84-4-2220-9159
62-21-3983-3212
91-22-2826-1097
91-124-456-6111
91-44-4201-6542
90-212-367-9288

44-20-7839-4448
31-20575-2460
43-1-532-01-65
965-2-243-7259

44-20-7839-3994
31-20575-2461
43-1-532-01-65-20
965-2-243-7263

966-1-473-1563
966-2-669-0648
966-3-8411745
971-4-609-1893
27-11-881-5966

966-1-473-5624
966-2-669-0648
966-3-8467937
971-4-609-1895
27-11-881-5611| HANWA AR 2012 | 45

Corporate Information (As of March 31, 2012)
Corporate Data

Stock Information

Company Name

Hanwa Co., Ltd.

Fiscal Year-End

Established

April 1947

Annual Meeting of Shareholders June

Capital¥45,651 million

Independent Auditors

KPMG AZSA LLC

Number of Employees

Consolidated: 2,201

Domestic Stock Exchange
Listings

The First Section of the Tokyo
Stock Exchange

Non-consolidated: 1,170

The First Section of the Osaka
Securities Exchange

Address
Osaka Head Office

3-6-1 Kita Kyuhoji-machi, 			

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

Fax: +81-6-7525-5365

Authorized Shares

570,000,000 shares

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

Shares Issued and Outstanding 211,663,200 shares

104-8429, Japan

Number of Shareholders

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

March 31

13,222

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

Subsidiaries: 52(22 in Japan, 30 overseas)
Affiliated companies: 10(1 in Japan, 9 overseas)

Board of Directors, Executive Officers and Corporate Auditors (As of June 28, 2012)
Chairman

Shuji Kita

President

Hironari Furukawa

Director, Executive Vice President

Tetsuro Akimoto

Directors, Senior Managing Executive Officers

Hideo Kawanishi

Outside Directors

Shiro Yabushita
Executive Officers

Chiro Ideriha
Yasuharu Kurata

Hiroshi Serizawa

Hidemi Nagashima

Hiroshi Ebihara
Akihiko Ogasawara

Standing Auditors

Toshiaki Taguchi
Yasuo Naide

Naoyuki Togawa

Hiroshige Wagatsuma

Masataka Toyoda
Yoshiaki Matsuoka
Hiroaki Tsujinaka
Takatoshi Kuchiishi

46 | HANWA AR 2012 |Outside Auditors

Youichi Ejima
Yasumichi Kato
Directors, Executive Officers

Toshiaki Shirakawa
Teruo Asai

Atsuhiro Moriguchi
Tadahiko Kaida

Kozo Yamabe
Kazuhiko Okada

Yoshifumi Nishi

Directors, Managing Executive Officers

Osamu Seki

Profile

Principal Shareholders
Name of Shareholder

Since its establishment in 1947, Hanwa has contributed to the development of theJapanese economy as a trading company handling industrial materials, such as steel—the

Number of Shares(thousands)

Percentage of Total
Issued Share (%)

18,098
11,190
7,630
5,717
5,613
4,720
4,088
3,500
3,056
2,614

8.7
5.4
3.7
2.8
2.7
2.3
2.0
1.7
1.5
1.3

demonstrated new capabilities as a trading company by handling seafood products, rides forJapan Trustee Services Bank, Ltd (Trust Account)....................................................
The Master Trust Bank of Japan, Ltd (Trust Account)..............................................
Sumitomo Mitsui Banking Corporation....................................................................
Hanwa Clients’ Stock Investment Association..........................................................
Japan Trustee Services Bank, Ltd (Trust Account 9).................................................
Hanwa Employees’ Stock Investment Association...................................................
Trust & Custody Services Bank, Ltd (Investment Trust Account)............................
BBH FOR FIDELITY LOW-PRICED STOCK FUND (PRINCIPAL ALL SECTOR SUBPORTFO....
MELLON BANK, N.A. AS AGENT FOR ITS CLIENT MELLON OMUNIBUS US PENSION.....
The Dai-ichi Mutual Life Insurance Company...........................................................

amusement parks, and non-ferrous metal recycling. We have created numerous businesses in

Note: The Company holds 4,394,847 shares of treasury stock, which is excluded from the major shareholders listed above.

Company’s leading product—and metals and alloys, non-ferrous metals, food products,
lumber, machinery, petroleum and chemicals, and cement. Our steel division in particular isequipped with quay and warehouse transportation facilities as well as complete processing
sites that enable us to both handle large quantities purchased from major steel
manufacturers and cater to the special needs of our customers. This is why we have long
been known in Japan as a “steel trading company.”
Recently, with the changes and diversification in the domestic market, we havethese fields that command the top market share. The basic strategies underlying such successare internationalization, business diversification, and value enhancement.
Hanwa’s ideal function as a trading company is to be more than just a distributor. Based

Contents
01

To Our Shareholders

02

Interview with the President

05

At a Glance

06

Review of Operations

13

Topics14

Corporate Governance

16

CSR Activities

18

Financial Section

18		 Five-Year Summary19		 Management’s Discussion
		and Analysis

22		 Financial Statements &
		

Notes

45

Global Network

46

Corporate Information

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

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

Breakdown by Type of Shareholder
stock 2.1%
TreasuryTreasury
stock 2.1%
Japanesebrokerage
Japanesebrokerage
firms firms
1.7% 1.7%

Breakdown by Size of Holding

JapaneseJapanesefinancialfinancial
institutions
institutions
34.2% 34.2%–1,000–1,000
0.1% 0.1%

1,000–50,000
1,000–50,000
23.7% 23.7%

Other domestic
Other domestic
corporations
corporations
15.1% 15.1%

Corporate Philosophy
Coping with changes times and the market quickly,
we make a great contribution to society
by satisfying various needs of customers as a
“distribution specialist.”
Success in today’s markets demands speed and the ability to meet a broad rangeof needs. Change is occurring on an unprecedented scale. Only companies that
can adapt quickly will survive. Hanwa has experience and accomplishments inthe field of “distribution” that span six decades.
We know how to build powerful businesses and move quickly in the pursuit ofvalue creation and customer satisfaction.

1,000,000–
1,000,000–
52.8% 52.8%

50,000–1,000,000
50,000–1,000,000
23.4% 23.4%

Individuals
and andIndividuals
others others
30.0% 30.0%

ForeignForeign
corporations
corporations
17.0% 17.0%

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

Stock Price

(¥)

(¥)

800

15,000600

10,000

400

5,000

200

Dedicated to corporate citizenship, we want our business operations to help
make communities and the world a better place to live. This is why we prioritize
compliance and other activities that enable us to fulfill our obligation to society.

0

Trading
Volume(Millions of shares)

0

40
30

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

20

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

10
4
5
2010

6

7

8

9

10

11

12

1
2
2011

3

4

5

6

7

8

9

10

11

12

1
2
2012

3

0

and economic conditions.

| HANWA AR 2012 | 47

阪和興業株式会社

Annual Report 2012

For the year ended March 31, 2012

http://www.hanwa.co.jp

2012.8 Printed in Japan