ANNUALREPORT2008
For the year ended March 31, 2008

Corporate Profile

Since its establishment in 1947, Hanwa has contributed to the development of the Japanese
economy as a trading company handling industrial materials, such as steel — the company’s
leading product — and non-ferrous metals, food products, lumber, machinery, petroleum,chemical products, and cement. Our steel division in particular is equipped with quay andwarehouse transportation facilities as well as complete processing sites that enable us toboth handle large quantities purchased from major steel manufacturers and to cater to thespecial needs of our customers. This is why we have long been known in Japan as a “steel
trading company.”
Recently, with the changes and diversification of the domestic market, we havedemonstrated new capabilities as a trading company by handling seafood products, rides foramusement parks, and non-ferrous metal recycling. We have created numerous businesses
in these fields that command the top market share. The basic strategies underlying suchsuccess are internationalization, business diversification, and value enhancement.
Hanwa’s ideal function as a trading company is to be more than just a distributor. Based on
our insight of the international market and information-gathering capabilities, we aim todevelop new products, as well as coordinate ventures among businesses. As a trading company
with such operating skills at our disposal, we will continue to develop new unique businesses.

About the CoverContents

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

Financial Highlights ......................................................... 1
Letter to Stakeholders .................................................... 2
Review of Operations ..................................................... 8
Our Ethical Principles ...................................................... 13
Topics ................................................................................... 15
Management Discussion and Analysis ..................... 16
Five-Year Summary .......................................................... 18
Financial Section ............................................................... 19
Corporate Data ................................................................. 40
Board of Directors and Investor Information ......... 41

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Financial Highlights
For the years ended March 31, 2008 and 2007

Thousands of
U.S. dollars

Millions of yen

2008

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

2007

2008

2007

¥ 1,507,509 ¥ 1,320,022 $15,046,502 $13,175,187
23,705
20,865
236,600
208,254
13,118
11,423130,931
114,013¥482,014 ¥
100,926

476,179 $ 4,810,999 $ 4,752,760
98,254
1,007,346
980,677

Yen

U.S. dollars

2008

Per share data:
Net income
Cash dividends

¥

2007

62.07 ¥
12.00

2008

54.03 $
12.00

2007

0.620 $
0.120

0.539
0.120

Note: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥100.19 = $1.00.
2. The cash dividends per share for the year ended March 31, 2007 include a ¥2 ($0.020) commemorative dividend incelebration of the 60th anniversary of the Company’s establishment.

Net sales

1,507,509(Millions of yen)
1,400,000

Operating income

Net income(Millions of yen)

23,70514,00023,0001,320,022(Millions of yen)

13,11820,865
19,69011,42320,0001,097,707

10,50410,00010,000

0

0

’06

’07

’08

0

’06

’07

1

’08

’06

’07

’08

Letter to Stakeholders

Dear Stakeholders,
I am pleased to report that Hanwa Co., Ltd. and its
consolidated subsidiaries achieved strong sales andearnings in fiscal 2007, the fiscal year that ended in
March 2008. Consolidated net sales increased 14.2% to¥1,507.5 billion, a record high. On profit side, byextension of steel business and metals & alloys business,
operating income increased 13.6% to ¥23.7 billion andnet income increased 14.8% to ¥13.1 billion. As aresult, the return on equity was 13.3%, a rise of 0.9
points over the previous year. The net debt-to-equity
ratio improved by 20 points to 150%, because interestbearing debt decreased.

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

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

FY2009 (ending March 31, 2010)

ROA

2.4%

ROE

11.0%

D/E Ratio (Net basis)150.0%

Medium- and Long-term Strategy, andManagement Issues

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

In May 2007, we established a Mid-term Business Plan
that covers 3-year period from FY2007 through FY2009.
The focus of this plan is “We aim to be a value creatorwith a remarkable identity and advantage bystrengthening the function and differentiation.” It sets a
number of management goals and describes theinitiatives that will be taken to achieve them.
(A) Strengthening the core business
Steel business• Enhancement of processing functions for construction,
proposal-driven marketing and steel service business• Further development in various fields through proposaldriven marketing and interdivisional cooperation• Enhancement of business in the field of structural steel
sheets by differentiated products and reciprocity
2• Reinforcement of supporting Japanese customers
raising production overseas, in the fields of providing
materials and processing.
• Expanding bunker oil sales in the shipping industry,
especially in Asia
• Reinforcement of lumber business in the areas withgood market for construction, such as North America,
China, and the Middle East

• Meeting real demand in each community completely
through branch offices• Reinforcement of meeting the demand of processing
on the basis of coil centers in China and ASEAN• Focus on exportation of steel products for high quality,
special and niche specs
Non-ferrous metal business• Expansion of global network to strengthen businessdevelopment in oligopolistic market of resources• Enhancement of procuring capability and expansion ofbusiness by diversifying supply source of ferroalloys andlight metals• Expansion of ore business such as nickel and chromium(C) Promotion of ecology and recycling business• Establishment of the channels of collecting recycling
resources retired from use due to customers’
reorganization of business and facilities• Reinforcement of purchasing scrap metals overseas.
Expansion of exportation to Asia and Europe• Development of selling recycled fuels such as RPF andwood pellet at home and overseas• Establishment of network for purchasing scrap paper,
responding to expansion of exportation to Asia
• Creation to get in operation for new technology suchas solar energy and fuel battery• Expansion of the recycling system of scrap resin

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

Petroleum and chemicals business• Reinforcement of domestic sales for gasoline, kerosene
and light oil. Expansion of exporting petroleum products• Expanding importation and tripartite trade of versatile
resin and exportation of domestic special resin• Strengthening retail of convenience goods and oilbased products. Establishment of a delivery system
Other businesses• Increasing our share of imported lumber by improving
power to purchase from supplying countries• Strengthening marketing industrial machinery meetinginvestment demand from our trading partners
Integrated development to China• Business development in various fields, by utilizing ample
business footholds and interdivisional cooperation(E) Vigorous management by aggressive investments
on projects and establishment of partnership• Promoting business alliance with companies, whichstrengthen our function and supplement each other.
Development of M&A. Support for business succession• Strengthening and expansion of distribution businessby cooperation between Hanwa Logistics and other
distribution companies• Cooperative development of new business schemewith customers in each area(B) Proactive development to overseas markets insuch as North America, EU, Middle East, India,
ASEAN, and Russia• Strengthening of development to meet the growing
demand for construction in abroad such as Middle
East, by interdivisional cooperation

3

Chaired by the president, the Directors Evaluation
Committee meets two times a year, which is charged
with assessing commitments made by directors andmaking overall performance evaluations on a mutual
basis. Director remuneration and assignments reflect thelevel of evaluation, in line with meritocratic principles. In
addition, we defined each director’s responsibilities forbusiness results and introduced the profit-related
remuneration system.

• Cooperative scheme with processors to support
Japanese manufacturers in overseas• Strengthening the field of food processing bycooperation with food processors• Supposed total investment from FY2007 throughFY2009 ... 20 billion yen — “strategic business
investment” besides “investment aiming ofstrengthening business functions”
With regard to corporate systems, we will makecompliance activities a central element of our business
operations. This will enable us to conduct CSR
management in order to fulfill our social responsibilities
as a company. We are also committed to meeting the
expectations of shareholders. For this purpose, we willfurther reinforce our corporate governance systems andmaintain a framework of internal controls designed toensure the effectiveness of these systems.

Internal control and risk management system
The Board of Director defined for the establishments ofthe system for ensuring the Directors’ execution ofoperations comply with Laws, Regulations and Articles ofIncorporation.
1. Systems to ensure that performance of duties by its
directors and employees complies with laws andregulations and its articles of incorporationa) Hanwa has established standards for corporate
ethics and ethical behavior in accordance with thecompany creed, guidelines and other elements ofthe Hanwa’s corporate philosophy.
b) Hanwa has established a Compliance Committee
chaired by Hanwa’s president to prepare acompliance manual for distribution to all Hanwa
executives and employees. In addition, thecommittee will verify that compliance programs arebeing used effectively.
c) Hanwa has established a consultation service (using
the Compliance Committee and external attorneys)
where all Hanwa Group executives and employees
can obtain advice concerning compliance matters,
providing a means of directly reporting complianceproblems.
d) Hanwa cooperates with the police and otherauthorities to retain a firm stance against forming
any relationships with anti-social elements thatthreaten social order and public safety.

Corporate Governance
Basic corporate governance policy
We aim to fulfill our social responsibilities as a good
corporate citizen so that we can gain and retain therespect from stakeholders and be recognized as a valuable
enterprise. We work to establish a high degree oftransparency in management systems to ensure full legal
and regulatory compliance and respect for social norms.
Corporate governance structures
We have adopted the system of corporate auditors as
stipulated in the Corporate Law of Japan. Auditors areelected at the General Shareholders’ Meeting, and are
responsible for overseeing and auditing the performanceof the Board of Directors, as well as the Managing
Directors Committee, which is the main body responsible
for execution of policy by subordinate company
structures. The Board of Auditors reports to the General
Shareholders’ Meeting.
The Board of Directors, which is composed of
directors whose are elected at the General Shareholders’Meeting, meets as a rule once a month to oversee
important business plans and proposals concerning the
Hanwa Group, and to deliberate and decide all key
business policies.
The Managing Directors Committee, which iscomposed of the president, senior managing directors
and managing directors, reports to the Board of Directors
on all matters related to significant business decisions
affecting the Hanwa Group. As the senior policy execution
body in the company, this committee is charged withcarrying out policies in line with the business strategy
determined by the Board of Directors. The Managing
Directors Committee meets as a rule twice a month.

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

General Shareholders’ Meeting

election / dismissal

election / dismissal

oversight / audit

coordination
Board of Auditors

Board of Directors

Independent auditors
cooperation

oversight /auditelection /supervison

Disclosure Committee

Operational organization

Senior/managing directors

President
Senior managing directors
Managing directors

Compliance Committee
Catch All Controls Committee

examination / report
Internal Control Committee

Investment Examination Committee
Directors

adviceQuality Control Committee

evaluation / oversightInternal Control Officeexamination /administration/ report

Internal Audit Dept.
OperatingdivisionsOperating bases(Japan/overseas)internal audit

Administrative
divisionsadviceExternal attorneys
guidance

Hanwa Group

3. Regulations and systems related to management ofrisk of lossa) Directors and department managers work with theLegal & Credit Department to manage and reducerisks associated with business activities. This involves
making all business units aware of regulations for
credit management and business operations, andensuring compliance with these regulations. In
addition, there is an Investment Examination
Committee that manages investment risks bystudying proposals for new business ventures andnew investments.
b) Each business department will cooperate with the
General Affairs Department, Information Systems
Department, Legal & Credit Department and otherunits concerning compliance, environmental
management, emergency responses, information
security, export management and other matters.
These risks will be managed in accordance withinternal rules, manuals and other guidelines. The
Compliance Committee, Catch All Controls
Committee and other applicable committees will

cooperation

Document Control Officeaccounting audit / internal control audit

examination / reportManaging Directors Committee

cooperation

Directors Evaluation Committee

PresidentGroup Company Corporate
Auditors Conference

assist the departments by providing advice andeducational support. Advice from external attorneys
and other experts will be used as required.
c) The Personnel Department works with related
departments to conduct the training and othereducational activities needed to make employees
more aware of the importance of risk management.
d) To verify the effectiveness of risk management, theInternal Audit Department monitors all Hanwa
business sites and group companies in Japan basedon a pre-determined auditing plan. Internal audit
reports are submitted directly to the Managing
Directors Committee and the company president.
The Overseas Administrative Department and theInternal Audit Department monitor overseas groupcompanies and other overseas business sites. All
Hanwa directors receive a written audit report
every month. In addition, the Board of Directors
receive reports on the status of overseas operations
twice a year.

5b) The Affiliated Enterprises Department monitors
business operations at affiliated companies inJapan, providing support for the proper executionof business operations. The department also
conducts oversight of these operations. The
Overseas Administrative Department is responsible
for similar support and management activities
concerning overseas affiliated companies and otheroperations outside Japan.
c) Compliance, risk management and other systems
apply to operations across the entire Hanwa Group.
Committees and other supervisory units provide
guidance and education concerning the use of
these systems.
d) The Group Company Corporate Auditors
Conference holds meetings as necessary. Thisconference is made up of Hanwa’s full-time
corporate auditors, the corporate auditors ofaffiliated companies, the Internal Audit Department
and other departments. The meetings provide forexchanges of information involving audits of Hanwa
and affiliated companies to provide for the sharing
of information.

e) For the disclosure of corporate information, Hanwa
has established disclosure regulations and uses a
Disclosure Committee to reach decisions concerning
the importance and suitability of information to bedisclosed in order to ensure that information isreleased to the public in a fair, timely andappropriate manner.
4. Systems to ensure efficient execution of directors’ dutiesa) As a rule, the directors meet once each month toreach decisions concerning important groupmanagement matters and to supervise theexecution of business operations. As a rule, theManaging Directors Committee meets twice eachmonth. The members of this committee discuss
important matters concerning management andreach decisions. They also submit issues to theBoard of Directors that concern important matters
involving the group’s management.
b) The Board of Directors established mid-termbusiness plans and annual management plans forthe purpose of achieving mid-term and long-term
strategic objectives. The directors also monitor the
execution of these plans. The Managing Directors
Committee receives periodic presentations fromdirectors and other managers in charge of business
units. This allows the directors to evaluate thestatus of operations, check progress towardachieving goals and check other items (including
revisions to plans and revisions to methods forachieving goals). The goal is to make business
operations even more efficient.
c) The Directors Evaluation Committee chaired by thecompany president meets twice each year to
perform a comprehensive evaluation of the directors’
performance. This includes an assessment of thecommitments and performance of each director anda mutual evaluation process for all directors. The
results are used to determine directors’compensation and for the selection of directors.

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

5. Systems to ensure proper operations in the corporate
groupa) Hanwa has established regulations for the oversightof affiliated companies and is dedicated topromoting business activities in a comprehensive
manner through the efficient management ofoperations based on mutual collaboration between
Hanwa and its affiliated companies.

6

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

b) The directors and employees must quickly andaccurately respond to requests for reports by the
corporate auditors.
c) The Internal Audit Department will submit reports
as required to the corporate auditors concerninginternal audits performed under the pre-determined
auditing plan. If necessary, this office will conduct
studies and prepare reports as requested by the
corporate auditors.
8. Other systems to ensure effective auditing by the
corporate auditorsa) The corporate auditors exchange opinions with therepresentative directors and the directors in chargeof business units as required. If necessary, these
opinions are announced at meetings of the Boardof Directors. In addition, the corporate auditors
receive explanations of the financial audit from theindependent auditor and exchange information andcollaborate in other ways with this auditor.
b) Hanwa has a system that allows the corporate
auditors to attend meetings of the Board of
Directors and other important meetings, inspect
important documents, perform studies ofimportant departments and subsidiaries, andperform other tasks.
9. Systems to ensure the reliability of financial reportsa) Hanwa has the necessary systems for ensuring thereliability of its financial reports. There are systems
for ensuring that laws and regulations as well as
Hanwa’s accounting standards and other internal
regulations are followed. In addition, Hanwa has
the systems needed to provide appropriate internal
controls associated with risks that could have aneffect on financial reports.
b) The Internal Control Department confirms theeffectiveness of systems for preparing and using
financial reports. As required, this department
oversees improvements to these systems andsubmits reports concerning these improvements to
the Managing Directors Committee.
c) The Internal Control Committee studies issues
involving internal controls that are assigned to thecommittee by the Managing Directors Committee
and submits reports on the results of these studies
to this committee.

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

August 2008

Shuji Kita
President
Hanwa Co., Ltd.

Internal audits, corporate auditor audits andfinancial audits
Regarding internal audits, Internal Audit Department
monitors all business sites and group companies in Japan
primarily with respect to accounting and compliance. An

北 修爾
取締役社長
阪和興業株式会社

7

Review of Operations
For the year ended March 31, 2008

Steel (Domestic)

Net sales by Product (Billions of yen)
Lumber, machinery, and other ¥54 (3.6%)
Petroleum and chemicals ¥312 (20.7%)

Steel bars and shapes ¥307 (20.4%)

Net sales¥1,508(100.0%)Foods ¥85 (5.6%)

Steel plates and sheets ¥296 (19.6%)

Non-ferrous metals ¥65 (4.3%)

Special steels,
wire products, steel pipes, andsteelmaking raw materials ¥187 (12.4%)

Metals and alloys ¥202 (13.4%)

Steel related products ¥790 (52.4%)¥1,50854
31

Lumber, machinery, and other2¥1,320Petroleum and chemicals

59
23

7

92

85

Foods

65

Non-ferrous metals

20

2

65
17

16

26

2

Metals and alloys

8
18

7

29

6

Special steels, wire products, steel pipes,
and steelmaking raw materials

2

1

66

Steel plates and sheets

30

7

Steel bars and shapes

’07

’08

8

Review
In fiscal 2007, demand for steel in Japanremained strong in export-dependent industries
like automobiles, construction machinery andshipbuilding. However, there was a drop in
construction activity in Japan as the June 20,
2007 enforcement of the amended BuildingStandards Law created delays in construction
applications and confirmations. External
demand was very strong. Sales of automobiles,
household appliances and mining machinery
were higher in the BRICs countries and otheremerging economies. In addition, there wasremarkable growth in demand for steel in oilproducing countries in the Middle East for
infrastructure and other construction projects.
The resulting strength in direct and indirectexports raised Japan’s exports of steel to arecord 38.45 million tons. On the supply side,
crude steel production in Japan rose to an alltime high of 121.50 million tons in fiscal 2007.
Despite this growth, the supply of steel
remained tight as higher orders for steel in theexport and manufacturing sectors more thanoffset the downturn in demand in the domestic
construction sector.
Hanwa’s domestic steel business worked onincreasing sales to small and medium-sizedcustomers and on strengthening sales activities
targeting large projects. Performance also
benefited from procurement and inventory
activities based on the outlook for higher steel
prices. The result was growth in sales andearnings.

Outlook
Demand in the manufacturing sector willprobably remain generally healthy during fiscal
2008. But there are fears about the spreading
effects of the U.S. subprime loan crisis and thepossibility of an impact on the global economy
from rapid inflation caused by higher food andenergy prices. This situation is creating an
uncertain outlook for the fiscal year.
Demand for steel for construction in Japan
will benefit from a number of large projects,
mainly involving capital expenditures bycompanies in export-dependent industries andurban development projects. However, small
and midsize companies are cutting back capital
expenditures, housing starts are declining(particularly for condominiums), and consumer
spending is expected to weaken because of
inflation. Overall, these factors indicate thatdomestic demand for steel will probably bemuch weaker in fiscal 2008.
In the first half of fiscal 2008, which ends in
September 2008, Hanwa’s domestic steelbusiness expects to achieve continued growth insales and earnings. There will be orders forconstruction starts that were delayed by lastyear’s new construction standards, morestrength in the manufacturing sector andearnings from inventories as market prices ofsteel climb. The operating climate is likely to
become more challenging in the second half as
demand for building construction declines andweaker consumer spending brings down salesof automobiles and other consumer durables. In
addition, Hanwa will take extra precautions
regarding the collection of receivables due tothe possibility of problems at customers inindustries that are unable to raise prices to fullyreflect the rapid and substantial increases in raw
materials and other operating expenses.
The domestic steel business will continue totake actions aimed at creating operations thatare less vulnerable to changes in the operating
environment. Ongoing measures include
reinforcing functions to target demand in nichemarkets and executing a detailed regional
business strategy within Japan.

Steel (Overseas)
Review
During fiscal 2007, global demand for steel was
generally strong despite a worldwide drop in
stock prices, concerns about the U.S. economy
and other negative developments early in thefiscal year. Fears about the global economic
outlook started to grow in the summer of 2007
as the impact of the subprime loan crisis spread,especially in the United States. But overall
demand remained healthy because of strengthin emerging economies and resource-producing
countries. In fiscal 2007, China’s influence on
global steel markets became even greater. The
nation’s crude steel production increased about
16% to 490 million tons and China’s steel
exports were up 46% to 62.65 million tons.
Steel exports from Japan increased about 7% to38.45 million tons.
Demand for steel was flat in Europe andNorth America. But there was very strong
demand for steel used in buildings andinfrastructure projects in Asia, the Middle East,
Africa and the CIS countries. Orders were strong
for flat rolled steel sheets, mild steel plates andmild steel bars and shapes.
The overseas steel operations of Hanwa had
a strong performance in fiscal 2007. The volumeof steel handled increased 10.0% and monetarysales were up 15.8%. Hanwa has establishedoffices in New Delhi, Dubai, Dammam (Saudi
Arabia) and Poland that will contribute to more
growth in the overseas steel business.

9

OutlookMarket conditions in fiscal 2008 are difficult toforesee because of worries about inflation
fueled by higher energy and food prices and theprogressive weakening of the U.S. economy.
Even amid these uncertainties, rapid growth of
emerging economies is expected to keep
demand for steel strong.
The much higher cost of iron ore, coal andother raw materials is exerting pressure on the
profit margins of steelmakers in 2008. Thesehigher costs and the consistently strong demand
for steel in emerging economies are likely topush up steel prices worldwide.
Rapid growth in China’s crude steel output is
expected to raise fiscal 2008 production to 540
million tons. Steel exports from China willprobably decline because of government policies
to cut back exports, but the total volume ofexports will remain high. In Japan, predictions
call for increases in both crude steel production
and steel exports in fiscal 2008.
Hanwa expects to achieve another year of
growth in volume and monetary sales in its
overseas steel operations due to a number ofactivities. Major fiscal 2008 initiatives include
increasing sales for steel used in flat-panel TVs
and other growing product categories; selling
more automotive steel in China and otheremerging markets; using the Dubai office toincrease sales of mild steel bars and shapes in
the Middle East; selling more steel pipes andsheets used in energy-related projects; andincreasing offshore transactions. In terms ofgeographic activities, Hanwa will continue toexpand its presence in China, which has
immense demand for steel, while adopting an
aggressive stance in India, the ASEAN countries,
Middle East and the Americas.

Metals and Alloys
Review
In 2007, the price of nickel surged to a record
high of $54,200 per ton in May. The price thendropped by almost half to less than $30,000
over the next three months. As the markets fornickel and stainless steel scrap remained
extremely volatile, Japanese stainless steel
makers were unable to purchase these materials
in a stable manner. This instability reflected both
rapid increases and decreases in demand as wellas the effect on markets of the activities ofstainless steel makers in South Korea and China.
Despite the rapid movements of metal markets
in Japan and overseas, Hanwa’s metals andalloys business was able to keep its operations
consistently profitable due to proactive inventory
management and making effective use ofhedges.
Prices of ferroalloys and light metals rose to
new record highs in the second half of fiscal
2007. Amid confusion caused by non-deliveries
and delays, Hanwa was able to capture earnings
as prices rose by making advance purchases ofmetals. Ferroalloys made a contribution toearnings. One reason was ongoing measures tostrengthen activities to sell these materials to
blast furnace steel makers and specialty steel
companies. Another reason was steady growthin earnings from the sale in Japan offerrochrome supplied by Samancor Ltd.
Additionally, the metal alloys businessbroadened the scope of sales of silicon
manganese produced in Kazakhstan to blast
furnace steel makers. For metallic manganese,
Hanwa started doing business based on a set
formula with a Chinese producer that has its
own ore. For solar cell products, Hanwa further
expanded the outsourced processing of siliconwafers in response to the shortage of raw
materials. High-purity silicon metal is making aconsistent contribution to earnings because thismaterial is now used as a raw material for solar
cells in addition to the existing applications forchemicals.

Non-Ferrous Metals
Outlook
The price of nickel has been falling because of
declining demand for stainless steel and growthin the supply of nickel due to the developmentof new mines. This price will probably stabilize
somewhere below $20,000 per ton. On theother hand, chromium is certain to become
even more expensive. Contributing factors
include South Africa’s power shortage, a global
decline in chromium inventories and no newsources of production for the next several years.
Prices of ferroalloys and light metals are also
expected to stay high. Among major causes aretighter export restrictions in China,
environmental issues and the impact of the May
2008 Sichuan earthquake in China.
In the stainless steel and specialty metals
recycling business, Hanwa’s goal is to expand
operations primarily by increasing the number ofsuppliers of these materials. One theme isadding more value to products and offering amore diverse selection. Another theme isbuilding a highly efficient system for collecting
materials for recycling. In India and other Asian
nations, Hanwa will continue rebuilding
distribution channels. For specialty metal scrap,
Hanwa is concentrating mostly on the coremarkets of Europe and North America.
In the primary metal resources business,
Hanwa is working on diversifying sources ofnickel ore, nickel pig iron and other stainlesssteel raw materials and expanding processing
operations. For ferroalloys, the main goal isconducting transactions with producers thathave their own supplies of ore and increasing
sales to blast furnace and electric arc furnacesteel makers and manufacturers of specialty
steel. In the chromium business, in addition tocontinuing to sell products from South Africa’s
Samancor and India, Hanwa will promote the
Ruukki Projects, where it has made a newinvestment. For silicon metal, plans call formaking further inroads in the market sector for
high-purity products. In the solar cell business,
Hanwa is building stronger relationships withcompanies that rely on outsourcing to processsilicon wafers.

10

Review
In the first half of fiscal 2007, the performanceof Hanwa’s non-ferrous metals business wassteady. It is resulted from that LME prices werehigh as LME price of copper moved between$7,000 and $8,000 per ton and aluminum
between ¥2,700 and 2,900 per ton. In addition,
there were no difficulties in procuring scrap
metal for recycling. As the fiscal year’s second
half began, an LME correction brought copper
down to $6,300 and aluminum to $2,400.
Unfortunately, tight supplies of scrap prevented
the prices of copper and aluminum for recyclingfrom dropping along with their LME prices. Dueto this situation, Hanwa was unable to earn a
profit during the entire second half. The result
was a large decline in non-ferrous metals
earnings for the fiscal year.
In the core recycling business, the decision
was made to add more internal aluminum
processing facilities as part of Hanwa’s strategy
of supplying value-added products. For copper
scrap, the trading volume increased because of
progress made in building an operating
framework in the ASEAN region.
Outlook
There has been a global upturn in prices ofcommodities and natural resources since thebeginning of 2008. Non-ferrous metals prices
have been no exception; prices of these metals
are currently at or near their all-time highs.
Present market conditions are extremelycomplicated. Factors like electricity shortages in
China and South Africa and the falling quality ofore are pushing prices up. But concerns about
the economic outlook in the United States andChina are exerting downward pressure on nonferrous metal markets.
Increasing the trading volume of scrap forrecycling is the highest priority of the nonferrous metals business in fiscal 2008. Handlingmore recycled metals is one way in which Hanwa
can help customers lower their operating
expenses. The non-ferrous metals business plansto raise its recycling volume by pursuing an
aggressive procurement policy. In the aluminumand copper recycling business in Japan, Hanwa isbuilding an efficient system for collecting scrap
materials. In addition, Hanwa is using its own
processing facilities and forming alliances withcustomers. The objective is to supply even morerecycled products that are distinctive andincorporate considerable added value. These
qualities will make Hanwa’s products lessvulnerable to market fluctuations. One moregoal in fiscal 2008 is making more progress withrebuilding distribution channels for aluminumand copper scrap for recycling in Asia.

Food Products

Petroleum and Chemicals

ReviewSales decreased 10% to ¥84.8 billion in fiscal
2007. This was primarily a reflection of lower
market prices during the fiscal year’s first half,
especially for red fish and salmon, and a drop in
market prices of frozen shrimp in the second
half, which brought down shrimp trading
volume and earnings. The recent incident inJapan involving contaminated food from China
had an impact on the outsourced foodprocessing business in China. Hanwa’s foodbusiness responded by reexamining business
relationships with customers, a process that
included the termination of some relationships.

Review
The global economy reached a turning point in2007. The U.S. subprime loan crisis caused theprolonged downturn in stock and bond prices
resulted in excess liquidity with nowhere to go.
As investors channeled this liquidity to energy
and resource markets, prices rose to record levels
that are no longer based on actual supply anddemand dynamics. In the industrialized nations,rising prices of petroleum and chemical productscaused demand to decline and produced awidening gap between companies that are
winners and losers. Some resource-poor
countries as well as oil-producing countries havebeen keeping the price of consumer petroleum
products below prices on international markets.
Although these countries have temporarily
avoided economic problems caused by higher
market prices, consumers in the poorest
countries that produce no oil have been forced to
pay market prices.
Sales of petroleum products were strong as
Hanwa worked on capturing new customers
while shifting from heavy oil to kerosene andother light oil products. Chemical operations
were profitable as accurate responses to market
trends offset delays in raising prices toincorporate higher expenses.
In Asia, Hanwa’s bunker oil sales team used a
distinctive sales strategy to accurately target thevery high level of demand for marine fuel. The
result was the highest volume of bunker sales inrecent years.
In the paper products sector, exports fromJapan of used paper to the ASEAN countries
continues to grow, bringing this business closer
to becoming a source of earnings.

Outlook
Outside Japan, demand for food is flat in the
United States but continues to increase inEurope, including Eastern Europe. Hanwa plansto further increase sales of its food products in
Europe and the United States in fiscal 2008.
Hanwa’s U.S. affiliate Seattle Shrimp &Seafood, which was established in 2006, sells
shrimp, crabs and other products. In July 2008,
the food department of Hanwa’s London Office,which was a primary base for purchasing theseproducts, was moved to Amsterdam. The new
Amsterdam office will not only purchaseseafood, but also sell seafood throughout
Europe and in Africa. In the future, Hanwa plans
to expand the Amsterdam office into an
operation that sells fish from Japan, processedfood products from China, shrimp fromSoutheast Asia and many other items.
The Chinese food contamination incident is
prompting many food companies to consider
performing more processing operations inJapan. As a result, Japanese food processors,which are Hanwa’s customers, are seeing an
improvement in earnings. This is contributing toa recovery in sales of raw materials along with arebound in the market for all types of frozen
fish, backed by strength in salmon market.
Hanwa plans to create new opportunities forthe food business by adopting a new approachto handling fish from Japan. By assigning a foodbusiness staff member to the Hokkaido Branch,
Hanwa is preparing for the possible start ofexports of Japanese fish to Europe and North
America.
Consumers are now extremely concerned
about food safety. As an importer of foodproducts, Hanwa has established a Food Quality
Control Office for the purpose of fulfilling its
social obligation and raising awareness of foodsafety issues. The new department is devoted toachieving its mission of helping build evenstronger ties rooted in mutual trust between the
suppliers and customers of food products.

11

Outlook
Growth in demand for petroleum products
shows no signs of slowing, particularly in the
BRICs countries. At the same time, there aremany sources of instability on the supply side.
Making the outlook even more unclear is thecontinuing flow of excess liquidity to commodity
markets. These factors indicate that the price of
crude oil will keep climbing to new records.
Over the next several years, more costly crude oilwill probably reduce demand. Eventually, fallingdemand is likely to bring down the cost of
petroleum products. But it is impossible topredict when prices will start to fall.
In Japan, demand for petroleum products is
expected to contract even more. Hanwa is
responding with sales activities to targeting
potential new customers and proposal-driven
marketing for current customers. Another goalis growing faster outside Japan. One moretheme for petroleum operations is building abase for new energy businesses and emissions
trading.
For chemicals, the goals are increasing thevolume of general-purpose resin offshore
trading and moving faster to build ties with newcustomers, on way to prepare for the expected
reversal in the balance between supply anddemand.
In the paper products sector, Hanwa plans to
expand and upgrade its exports of used paper tothe ASEAN countries. In addition, the paper
products business is establishing more
relationships with prominent overseas suppliers.
Regarding miscellaneous household goods,
Hanwa is working on ways to offer
comprehensive services for customers in order topass on the higher cost of purchasing these
items.

Lumber

Machinery

Review
Imports to Japan and sales of lumber declined
because of weak demand following
enforcement of the amended Building Standards
Law. There were downturns in imports and sales
in all categories of plywood and lumber
products. Additionally, the uncertain outlook fororders from major Japanese producers of pre-cut
beams is impacting lumber sales. Selling lumber
products in the United States is difficult due tothe substantial impact of the subprime loan
problem. More time will be needed for the U.S.
lumber market to recover. In other overseas
markets, sales in the Middle East remain stableand Hanwa plans to target demand in China,
India and other countries.

Review
Leisure facilities: In recent years, the trend for
leisure facilities in Japan has shifted from a focus
on large-scale rides equipment to attractions
targeted at families. Responding to such needs,
in fiscal 2007, Hanwa completed work on amerry-go-round and a swimming poolrenovation project for young families, a roleplaying game made in the U.S. (launching forthe first time in Japan), as well as six attraction
shops for children made in Hong Kong.
For the next fiscal year, Hanwa has takenorders for role-playing games and dark rides
produced in the U.S. for indoor amusement
parks in Japan. In addition, it has contracted
overseas projects such as a family-oriented
roller-coaster and other rides for families andyouths in Dubai.
Industrial machinery: Through cooperation
among the internal departments of theCompany, Hanwa has taken proactive steps tosubmit proposals and undertake sales andmarketing activities with regard to the capital
investment projects of its customers. As a result,
the Company successfully contracted 20 new
customers for the provision of stainless steel
scrap processing facilities, hoists and cranes,
band saws, hot forging presses, and NC lathes,among others. Furthermore, it recorded 22 salesof slitters, levelers, cranes, electric generators,
steel bar processing equipment, and otherproducts in connection with Hanwa Group’s
internal capital expenditures.

Outlook
As Russia’s 2009 imposition of an 80% export
tariff on logs approaches, it is necessary to findout alternative suppliers for lumber products andplywood. Hanwa’s lumber business plans to start
handling logs and wood used as raw materials.
From a longer-term perspective, the businessalso plans to sell wood fuel pellets, chips for use
as raw materials and other lumber products. The
lumber business aims to increase sales not onlyin the slumping housing sector, but also by
meeting demand for other types of wood-basedmaterials. Outside Japan, the goal is to maintainconsistent sales in the Middle East, China, India,
Europe and other regions by offering a lineupthat includes cedar lumber exported from Japan.
In the United States, the lumber market isunlikely to recover in the near future.

12

Outlook
Leisure facilities: Competition is easing asother suppliers of leisure facilities in Japan
withdraw from this market. However, no end isin sight to the decline in demand for large,
outdoor amusement equipment. In response,
Hanwa is focusing on the development and saleof indoor amusement equipment for families
and the business of creating indoor amusement
facilities. Plans also include sales activities inJapan’s growing market for swimming poolrenovations and extending operations to include
the leisure facility markets in China, the Middle
East and other regions outside Japan.
Industrial machinery: Hanwa plans to increase
sales of cranes and steel processing equipment
as steel, automobile and home appliancemanufacturers make substantial capital
expenditures backed by strong earnings. Other
goals are increasing overseas sales and raisingsales of forming lines and other production line
equipment, along with the provision ofengineering support. This business will use its
alliance with other suppliers to enlarge theproduct lineup and eliminate problems
associated with a shortage of workers.

Our Ethical Principles

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

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

Corporate Creed

1. Compliance with regulations and social rules

Confidence

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

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

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

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

3. Contribution to the industry society
Hanwa Co., Ltd. develops its business activities based on both
short and long term perspectives while balancing three aspectsof society, economy and environment, and makes efforts torealize the sustainable society through its business activities.

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

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

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

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

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

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

Corporate Policy

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

Hanwa Co., Ltd. respects its employees’ individual charactersand personalities, ensures prosperous work environments bygiving its employees positive assistance for building up of
career and development of ability, recognizes team works as
the foundation of corporate activities, and achieves free,vigorous and creative corporate culture.

13

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

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

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

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

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

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

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

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

10. Prevention of recurrence of misconducts andappropriate information disclosure

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

14Topics

Hanwa History Book Issued
on 60th Anniversary
Hanwa, which was established in 1947, celebrated its 60th
anniversary in April 2007. As one way to mark thisachievement, the company issued a book in January 2008 titled“A 60-Year History of Hanwa”. The book has two sections. Firstis a “Hanwa Photographic Collection” section made up of
historic photos of the company’s activities. The other section isan overview of activities during the past decade. Overall, thebook is filled with information and many photographs about
events over the 60-year period that began with the 1946 startof operations and the April 1947 establishment of Hanwa.

Chang Fu Stainless Steel Center (Suzhou)
Completes Relocation and Expansion
Chang Fu Stainless Steel Center (Suzhou) Co., Ltd., a joint
venture in China, has been operating a coil center since in1997. The company’s sales volume has increased steadily
during the following decade. In 2007, the company sold120,645 tons of steel and processed 213,194 tons of steel.
Since more growth in demand is expected, the company
started construction in January 2007 on a new coil center toincrease processing capacity. In March 2008, all work required
for the relocation and expansion of operations was completed.
The new coil center is on a 66,667 square meter site andthe building area is 26,419 square meters, about twice the sizeof the previous coil center. The addition of a large-scale slitterand a mini leveler has raised monthly processing capacity to
25,000 tons.

15

Management Discussion and Analysis

Economic overview
Sales by business sector
Steel: The supply of steel products was tight as very strong
demand in the Middle East and emerging economies resulted insolid orders for the products of manufacturers in Japan andother countries. In addition, prices of iron and steel scrap , andsteel raw materials increased. Due to the resulting upturn inprices of steel products, along with aggressive sales activities,
segment sales increased 14.7% to ¥790.3 billion.

During the fiscal year that ended on March 31, 2008, there
were a number of negative factors, including higher prices ofcrude oil, non-ferrous metals, food and other resources, turmoil
in global financial market sparked by the subprime loan crisis,and slowing growth of the U.S. economy. On the positive side,
economic growth continued in China and other countries withemerging economies. Overall, the global economy continued to
expand despite a shift in the pace of growth. In Japan,
production levels in the manufacturing sector remained highmainly because of healthy external demand. But capital
expenditures and personal spending in Japan were bothsluggish. In addition, enforcement of the amended BuildingStandards Law caused a downturn in building and housing
starts. There was also an increase in the cost of raw materials.
As a result, Japan’s economy remained generally healthy,
although there were signs of weakness in some sectors.

Metals & Alloys: Prices of metals on international markets
were extremely volatile during the fiscal year due to shifts in theoutlook for supply and demand and to the activities of funds
and other sources of speculative investments. Prices of all
metals, notably nickel, chrome, stainless steel scrap and otherstainless steel materials were higher than in the previous fiscal
year. The result was a 13.8% increase in sales to ¥202.0 billion.
Non-Ferrous Metals: Just as with metals & alloys, prices oninternational markets were volatile. At one point, there waseven a reversal in the prices of aluminum scrap and ingot. Since
Hanwa adopted a policy of prioritizing profitability in all
product categories, sales decreased 0.1% to ¥65.3 billion.
Foods: Amid generally lackluster demand for food products inJapan, the market was impacted by incidents involving thequality of eels from China and the safety of processed foodproducts made in China. This challenging environment caused
sales to decline 7.9% to ¥84.6 billion.
Petroleum and Chemicals: The price of crude oil increased
significantly because of strong demand in China and otheremerging nations along with purchases of crude oil by funds
and other investors. As prices climbed, Hanwa increased its
trading volumes of gasoline and kerosene and focused onincreasing sales of bunker oil outside Japan. Due to these
activities, sales increased 31.2% to ¥311.4 billion.
Other businesses: Sales decreased 8.4% to ¥53.6 billion. Thiswas mainly attributable to lower sales in the forest products
business resulting from a decline in market prices of lumber inJapan as the amended Building Standards Law caused thenumber of housing starts to drop.

16

Cash FlowsNet cash provided by operating activities was ¥21.4 billion. One
year earlier, operating activities used net cash of ¥36.1 billion.
The primary reason for the positive cash flow was an increaseof only ¥4.6 billion in trade receivables, ¥46.0 billion less than
the increase one year earlier, even though sales continued toincrease in the past fiscal year. This was mainly the result of an
improvement in the cycle for recovering receivables.
Net cash used in investing activities increased ¥2.4 billion to¥8.4 billion. The main reasons were an increase in additions toproperty and equipment and a decrease in proceeds from salesof investment securities.
Net cash used in financing activities was ¥9.1 billion. One
year earlier, financing activities provided net cash of ¥34.3
billion. The reversal is attributable to the use of cash flows fromoperating activities to lower debt by reducing bank loans andcommercial paper.

OutlookIn the fiscal year ending March 31, 2009, worries remain about
the magnitude of the impact on the global economy of thecredit crunch caused by the subprime loan problem. However,
economic growth is still strong in the Middle East and emerging
economies, indicating that the global economy will continue toexpand slowly. In Japan, demand for new buildings andresidences is recovering and the economy will probably benefit
from solid demand in emerging economies. But there is apossibility of an economic downturn in Japan due toweakening demand in North America and Europe, the rising
price of crude oil and other natural resources, and the yen’s
strength. As a result, there are concerns about a decline inJapan’s economic growth rate.

17

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Five-Year Summary
For the years ended March 31

Millions of yen,
except for number of employees

2008

For the year:
Net sales
Operating income
Net income

2006¥ 1,507,509 ¥ 1,320,022 ¥ 1,097,707 ¥
23,705
20,865
19,69013,118
11,423
10,504

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

2007

¥

Number of employees

Thousands of
U.S. dollars

2005

2004

933,956 ¥
22,091
13,704751,964 $15,046,502
12,666236,600
5,662
130,931

21,430(36,192)

22,299(13,341)(6,850)213,894(8,443)(5,956)(14,079)(731)(1,004)(84,270)(9,144)34,325(7,497)

23,523(10,873)(91,267)

14,179 ¥482,014100,926

10,229 ¥476,179
98,254

18,986 ¥413,020
86,954

17,658 ¥376,52173,5748,390 $ 141,521
293,528
4,810,999
58,293
1,007,346

1,715

1,637

1,519

1,424

1,285

Yen

2008

Per share data:
Net income
Cash dividends
Net assets

¥

2008

62.07 ¥
12.00
473.702007

54.03 ¥
12.00
461.21

U.S. dollars

2006

48.96 ¥
10.00
406.682005

64.03 ¥
9.00
343.82

2004

2008

26.43 $
6.00
272.67%2008

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

2007

2.7
13.3
150

2.6
12.4
170

2006

2.7
13.2
140

2005

4.1
21.0
170

2004

2.0
10.2
180

Note: 1. The U.S. dollar amounts represent translations, for convenience only, of yen amounts at the rate of ¥100.19 = $1.00.
2. Net debt/equity ratio = Net interest-bearing debt / equity.
Net interest-bearing debt = Interest-bearing debt – cash.
3. The cash dividends per share for the year ended March 31, 2007 include a ¥2 ($0.020) commemorative dividend in celebration of the 60th anniversary of
the Company’s establishment.

18

0.620
0.120
4.728

Financial Section

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

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Balance Sheets
As at March 31, 2008 and 2007

Thousands of
U.S. dollars (Note 1)

Millions of yen

Assets2008

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

¥

2007

2008

2007

141,521 $102,096

14,179 ¥10,229 $6,886
256,307

7,168
252,204

68,7292,558,209

71,5442,517,257

695
177
(892)
92,982
1,823
18,615
390,772

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

6,937
1,767
(8,903)928,057
18,195
185,797
3,900,309

4,502
1,767
(9,093)
880,537
10,949235,9123,815,471

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

2,343
29,1001,402
36,76523,386
290,448

13,993366,953—262
16,674(756)
47,623—327
14,619(749)
52,364—
2,615
166,424(7,546)475,327—
3,264
145,913(7,476)522,647

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

24,45322,47913,437(17,628)
42,741

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

244,066
224,364
134,115(175,945)
426,600

244,066
213,675
115,530(165,735)
407,536

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

69
809
878
482,014 ¥

10
689
100
702
8,074
7,006
712
8,763
7,106
476,179 $ 4,810,999 $ 4,752,760¥

See accompanying Notes to Consolidated Financial Statements.

20

Thousands of
U.S. dollars (Note 1)

Millions of yen

Liabilities and Net Assets

2008

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

¥

2007

2008

2007

270,626 $
169,678
325,631430,103
174,668
499

27,114 ¥17,00032,62543,092 $17,50050

660
167,628
1,763
4,813
29,416
281,019647
159,782
1,694
4,051
24,280251,096

6,587
1,673,101
17,59748,039293,6022,804,861

6,458
1,594,790
16,90840,433242,3392,506,198

89,325
9
6,801
3,934
100,069

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

891,55690
67,881
39,265
998,792

1,117,377
80
109,572
38,8561,265,885

Net assets (Note 9)
Shareholders’ equity:
Common stock,
Authorized: 570,000,000 shares
Issued: 211,663,200 shares
Capital surplus
Retained earnings
Treasury stock, at cost: 324,332 shares (291,554 in 2007)
Total shareholders’ equity

45,651
5
51,028(130)
96,55445,651
3
40,661(109)
86,206455,64450
509,312(1,297)
963,709455,64430
405,839(1,088)860,425

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

5,397
144
(17)
(1,967)
3,557
815
100,926
482,014 ¥

11,40653,868113,844
838
1,437
8,364
(17)
(170)
(170)
(947)
(19,632)(9,452)
11,28035,503
112,586
768
8,134
7,666
98,254
1,007,346
980,677
476,179 $ 4,810,999 $ 4,752,760

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

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Income
For the years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (Note 1)

Millions of yen

2008

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

2007

2008

2007

¥ 1,507,509 ¥ 1,320,022 $ 15,046,502 $ 13,175,187
1,456,627
1,272,532 14,538,647
12,701,188
50,88247,490507,855
473,999
27,177
26,625271,255
265,745
23,705
20,865
236,600
208,254

Other income (expenses):
Interest and dividend income
Interest expense
Foreign exchange gain
Gain on sale of investments in securities
Other, net

1,920(4,164)
507
528
(701)

1,633
(3,233)
663
—
(758)

19,164(41,561)
5,061
5,270
(6,997)

16,299(32,269)
6,617—(7,565)

Income before income taxes and minority interests

21,795

19,170217,537

191,336

8,633
5
8,638

7,399
270
7,669

86,16650
86,21673,8502,695
76,545(39)
13,118 ¥(78)
11,423 $(390)
130,931 $(778)
114,013

Income taxes (Note 8):
Current
Deferred

Minority interests in income of consolidated subsidiaries
Net income

¥

Yen

2008

Net income per share
Cash dividends per share¥

See accompanying Notes to Consolidated Financial Statements.

2262.07 ¥
12.00

U.S. dollars (Note 1)

2007

54.03 $
12.00

2008

0.620 $
0.120

2007

0.539
0.120

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Changes in Net Assets
For the years ended March 31, 2008 and 2007

Thousands
Number of sharesof common stock

Millions of yen
Common stock

Capital surplus

Retained earnings

Treasury stock

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

211,663 ¥———

45,651 ¥
—
—
—

3 ¥
—
—
—

31,288 ¥
11,423(2,114)
(150)

(67)
—
—
—

—

—

—

(1)

—

—
—
—
—

—
—
—
—

—
—
—
—

215
—
—
—

—
(43)
1
—

Balance at March 31, 2007
Net income
Cash dividends paid
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2008

211,663——

45,651——

3——

40,661
13,118(2,748)

(109)
—
—

—
—
—
—
211,663 ¥————
45,651 ¥

—
—
2
—
5 ¥

(3)
—
—
—
51,028 ¥

—
(26)
5
—
(130)

Millions of yen
Unrealized gains
on securities,
net of taxes

Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007
Net income
Cash dividends paid
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2008¥¥

Unrealized gains
on hedging
derivatives,
net of taxes

Land revaluationdifference,
net of taxes

Foreign currencytranslation
adjustments

Minority interests

Total

10,446 ¥
—
—
—

— ¥
—
—
—

(17) ¥———(1,159) ¥
—
—
—

809 ¥
—
—
—

—

—

—

—

—

(1)

—
—
—
960

—
—
—
838

—
—
—
—

—
—
—
212

—
—
—
(41)

215
(43)
1
1,969

11,406
—
—

838
—
—

(17)
—
—

(947)
—
—

768
—
—

98,254
13,118(2,748)———(6,009)5,397 ¥

—
—
—
(694)
144 ¥

—
—
—
—
(17) ¥———(1,020)(1,967) ¥

—
—
—
47
815 ¥

(3)
(26)
7
(7,676)
100,926

See accompanying Notes to Consolidated Financial Statements.

23

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

Common stock

Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007
Net income
Cash dividends paid
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2008$$

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

Treasury stock

455,644 $
—
—
—

30 $
—
—
—

312,287 $114,013(21,100)(1,497)

(669)
—
—
—

—

—

(10)

—

—
—
—
—

—
—
—
—

2,146
—
—
—

—
(429)
10
—

455,644
—
—

30
—
—

405,839
130,931(27,428)(1,088)
—
—

—
—
—
—
455,644 $

—
—
20
—
50 $

(30)
—
—
—
509,312 $

—
(259)
50
—
(1,297)

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

Balance at March 31, 2006
Net income
Cash dividends paid
Bonuses to directors
Staff and workers’
bonuses and welfare fund
Increase resulting from increasein consolidated subsidiaries
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2007
Net income
Cash dividends paid
Staff and workers’
bonuses and welfare fund
Purchases of treasury stock
Retirement of treasury stock
Other changes
Balance at March 31, 2008$$

Unrealized gains
on hedging
derivatives,
net of taxes

Land revaluationdifference,
net of taxes

Foreign currencytranslation
adjustments

Minority interests

Total

104,262 $
—
—
—

— $
—
—
—

(170) $———

(11,568) $———8,075 $
—
—
—

—

—

—

—

—

(10)

—
—
—
9,582

—
—
—
8,364

—
—
—
—

—
—
—
2,116

—
—
—
(409)

2,146
(429)
10
19,653

113,844
—
—

8,364
—
—

(170)
—
—

(9,452)
—
—

7,666
—
—

980,677
130,931(27,428)———(59,976)
53,868 $———(6,927)
1,437 $————
(170) $———
(10,180)(19,632) $

—
(30)
—
(259)
—
70
468
(76,615)
8,134 $ 1,007,346

See accompanying Notes to Consolidated Financial Statements.

24

867,891
114,013(21,100)(1,497)

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Consolidated Statements of Cash Flows
For the years ended March 31, 2008 and 2007

Thousands of
U.S. dollars (Note 1)

Millions of yen

2008

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

25

¥

¥

2007

2008

2007

21,795 ¥19,170 $

217,537 $

191,3362,055(10)(1,920)4,164(528)(4,642)(5,030)8,392
9,417(2,203)31,4901,991(189)(1,633)
3,233—(50,719)(11,409)
20,212(7,570)(735)(27,649)

20,511(100)(19,164)
41,561(5,270)(46,332)(50,205)
83,761
93,992(21,988)314,303

19,872(1,886)(16,299)
32,269—(506,228)(113,874)
201,737(75,557)(7,336)(275,966)

1,915(4,106)(7,869)21,4301,795(3,237)(7,101)(36,192)

19,114(40,982)(78,541)
213,894

17,916(32,309)(70,875)(361,234)

4(3,992)
34(5,118)
1,812
(247)
(15)
205
(1,126)(8,443)303(2,593)14(5,489)
2,778
195
(21)
139
(1,282)(5,956)40(39,844)339(51,083)
18,086(2,465)(150)
2,046(11,239)(84,270)

3,024(25,881)140(54,786)
27,727
1,946
(209)
1,387
(12,795)(59,447)(15,761)
(500)
9,950
(50)
(2,747)(17)(19)(9,144)107
3,950
10,229—14,179 ¥18,35917,50027,100(26,450)(2,116)(26)(42)
34,325(943)(8,766)18,986
9
10,229 $(157,311)(4,990)99,311(499)(27,418)
(170)
(190)
(91,267)
1,068
39,425102,096—
141,521 $

183,242
174,668
270,486(263,998)(21,120)
(260)
(419)
342,599(9,412)(87,494)
189,500
90
102,096

HANWA CO., LTD. AND CONSOLIDATED SUBSIDIARIES

Notes to Consolidated Financial Statements

1. Basis of presenting consolidated financial statements
The accompanying consolidated financial statements of Hanwa
Co., Ltd. (the “Company”) and its consolidated subsidiaries havebeen prepared in accordance with the provisions set forth in theJapanese Financial Instruments and Exchange Law and its related
accounting regulations and in conformity with accounting
principles generally accepted in Japan (“Japanese GAAP”), which
are different in certain respects as to application and disclosure
requirements from International Financial Reporting Standards.
The accounts of overseas subsidiaries are based on theiraccounting records maintained in conformity with generally
accepted accounting principles prevailing in the respective
countries of domicile. The accompanying consolidated financial
statements have been restructured and translated into English
with some expanded descriptions from the consolidated financial
statements of the Company prepared in accordance withJapanese GAAP and filed with the appropriate Local Finance
Bureau of the Ministry of Finance as required by the Financial
Instruments and Exchange Law. Some supplementary
information included in the statutory Japanese language
consolidated financial statements, but not required for fairpresentation, is not presented in the accompanying consolidated
financial statements.
The translation of the Japanese yen amounts into U.S. dollar
amounts is included solely for the convenience of readers
outside Japan, using the prevailing exchange rate at March 31,
2008, which was ¥100.19 to U.S.$1.00. The translations should
not be construed as representations that the Japanese yenamounts have been, could have been or could in the future beconverted into U.S. dollars at this or any other rate of exchange.

2. Significant accounting policies
Consolidation — The consolidated financial statements include
the accounts of the Company and its twelve 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 wereappropriately adjusted in consolidation.
Intercompany transactions and accounts have been
eliminated. The Company doesn’t apply the equity method
because non-consolidated subsidiaries and affiliated companies
are immaterial.
Cash and cash equivalents — In preparing the consolidated
statements of cash flows, cash on hand, readily available
deposits and short-term highly liquid investments with maturities
not exceeding three months at the time of purchase areconsidered to be cash and cash equivalents.
Allowance for doubtful receivables — The allowance for
doubtful receivables is provided to cover possible losses oncollection. With respect to normal trade accounts receivable, it isstated at an amount based on the actual rate of historical bad
debts, and for certain doubtful receivables, the uncollectible
amount is individually estimated.
The allowance for doubtful receivables of overseas
consolidated subsidiaries is determined by the estimates ofmanagement.
Securities — The Companies classify securities as (a) securities
held for trading purposes (hereafter, “trading securities”), (b)debt securities intended to be held to maturity (hereafter, “heldto-maturity debt securities”), (c) equity securities issued bysubsidiaries and affiliated companies, and (d) all other securities
that are not classified in any of the above categories (hereafter,“available-for-sale securities”).
The Companies do not hold trading securities and held-tomaturity debt securities. Equity securities issued by subsidiaries
and affiliated companies which are not consolidated or
accounted for using the equity method are stated at moving
average cost. Available-for-sale securities with available fairmarket values are stated at fair market value. Unrealized gains
and unrealized losses on these securities are reported, net of
applicable income taxes, as a separate component of net assets.
Realized gains on the sale of such securities are computed using
moving average cost. Other available-for-sale securities arestated at moving average cost.

Inventories — Inventories are principally stated at the lower ofcost or market value. Cost is determined by the moving average
cost method or the specific identification cost method.
Property and equipment — Property and equipment are
carried at cost. Recognized loss on impairment of long-lived
assets has been deducted from acquisition costs. Depreciation isprincipally provided on the declining balance method over theestimated useful lives. Major renewals and improvements arecapitalized. Maintenance, repairs and minor renewals are
expensed as incurred.
Software costs — The Companies include software inintangibles and other assets and depreciate it using the straightline method over the estimated useful life of five years.
Bond issue costs — Bond issue costs are charged to income as
incurred.
Bonuses — The Company and its domestic consolidated
subsidiaries follow the Japanese practice of paying bonuses to
employees in June and December. At the balance sheet date,bonus liabilities are estimated and accounted for on an
accrual basis.
Effective from the year ended March 31, 2007, the Company
and its consolidated subsidiaries adopted the new accounting
standard, “Accounting Standard for Directors’ Bonuses”(Statement No. 4 issued by the Accounting Standards Board ofJapan on November 29, 2005).
As a result of the adoption of this accounting standard,
operating income, income before income taxes and minority
interests were ¥154 million ($1,537 thousand) less for the year
ended March 31, 2007 than the amount which would have beenrecorded under the method applied in the previous year.
In addition, the amount of bonuses to directors calculated forthe year ended March 31, 2007 was recorded as an outstanding
payment and included in “Other current liabilities.”
Income taxes — The Companies recognize the tax effects ofloss carryforwards and the temporary differences between the
carrying amounts of assets and liabilities for tax and financial
reporting. The asset and liability approach is used to recognize
deferred tax assets and liabilities for the expected future tax
consequences of the temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
The Company and its wholly owned domestic subsidiaries fileconsolidated tax returns.

26

The following summarizes hedging derivative financial
instruments used by the Company and items hedged:
Hedging instruments:
Interest rate swap agreements
Commodity futures contracts
Hedged items:
Interest expense on borrowings
Inventories and commitments
The Company evaluates hedge effectiveness by comparing the
cumulative changes in cash flows or changes in the fair value ofhedged items and the corresponding changes in the hedging
derivative instruments.
Reclassifications — Certain prior year amounts have been
reclassified to conform to the current year presentation.
Amounts per share — Computations of net income per shareof common stock are based on the weighted average numberof shares outstanding during each period. Diluted net income
per share is not disclosed because potentially dilutive securities
are not issued. The Japanese Corporate Law requires that thedeclaration of dividends be approved at the general meeting ofshareholders held after the end of the fiscal year. Therefore,
cash dividends per share shown in the consolidated statements
of income reflect the dividends approved after the end of the
fiscal year.
Accounting standard for statement of changes in net
assets — Effective from the year ended March 31, 2007, theCompanies adopted the new accounting standard, “AccountingStandard for Statement of Changes in Net Assets” (Statement
No. 6 issued by the Accounting Standards Board of Japan on
December 27, 2005), and “the Implementation Guidance for the
Accounting Standard for Statement of Changes in Net Assets”(the Financial Accounting Standard Implementation Guidance
No. 9 issued by the Accounting Standards Board of Japan on
December 27, 2005), (collectively, the “Additional New
Accounting Standards”).
Accordingly, the Companies prepared the statement ofchanges in net assets for the year ended March 31, 2007 inaccordance with the Additional New Accounting Standards.

Retirement benefits — Substantially all employees of theCompany and its consolidated domestic subsidiaries are coveredby qualified funded pension plans. The amount of the retirement
benefit is, in general, based on length of service, base salary at
the time of retirement, and cause of retirement. Annual
contributions, which consist of normal cost and the amortizationof prior service cost, are charged to income when paid.
Liabilities and expenses for severance and retirement benefits
are determined based on the amounts actuarially calculatedusing certain assumptions.
Because pension assets exceeded the deduction for
unrecognized actuarial differences and unrecognized prior service
cost from projected benefit obligation in the Company, the excess
amount was included in “other investments and noncurrent
receivables” in the years ended March 31, 2008 and 2007.
Translation of foreign currencies — Receivables and payables
denominated in foreign currencies are translated into Japanese
yen at year-end rates.
Balance sheets of consolidated overseas subsidiaries aretranslated into Japanese yen at year-end rates, except forshareholders’ equity accounts, which are translated at historicalrates. Income statements of consolidated overseas subsidiaries
are translated at average rates, except for transactions with theCompany, which are translated at rates used by the Company.
The Companies report foreign currency translation
adjustments in net assets.
Finance leases — Finance leases which do not transfer
ownership and do not have bargain purchase provisions areaccounted for in the same manner as operating leases inaccordance with Japanese GAAP.
Derivatives and hedge accounting — The Company states
derivative financial instruments at fair value and recognizeschanges in the fair value as gains or losses unless the derivative
financial instruments are used for hedging purposes.
If derivative financial instruments are used as hedges andmeet certain hedging criteria, the Company defers therecognition of gains or losses resulting from the changes in thefair value of the derivative financial instruments until the related
losses or gains on the hedged items are recognized.
Also, if interest rate swap agreements are used as hedges andmeet certain hedging criteria, the net amount to be paid or
received under the interest rate swap agreement is added to or
deducted from the interest on the assets or liabilities for which
the swap agreement was executed.

27

Change in accounting policy —Accounting standard for presentation of net assets in thebalance sheet
Effective from the year ended March 31, 2007, the Company
and its consolidated subsidiaries adopted the new accounting
standard, “Accounting Standard for Presentation of Net Assets
in the Balance Sheet” (Statement No. 5 issued by the AccountingStandards Board of Japan on December 9, 2005), and “theImplementation Guidance for the Accounting Standard for
Presentation of Net Assets in the Balance Sheet” (the Financial
Accounting Standard Implementation Guidance No. 8 issued by
the Accounting Standards Board of Japan on December 9,2005), (collectively, the “New Accounting Standards”).
Under the New Accounting Standards, the balance sheet
comprises three sections, which are the assets, liabilities and net
assets sections. Previously, the balance sheet comprised theassets, liabilities, minority interests, as applicable, and theshareholders’ equity sections.

Depreciation Methods Used for Amortization for Tangible
AssetsStarting from this period, pursuant to an amendment to the
Corporate Tax Law, the Company and its domestic consolidated
subsidiaries have depreciated tangible assets acquired on andafter April 1, 2007 in accordance with the method stipulated in
the amended Corporation Tax Law. The impact of this change
on profits or losses was insignificant.
(Additional Information)
Pursuant to an amendment to the Corporate Tax Law, after
having fully depreciated tangible assets acquired on and before
March 31, 2007 up to 5% of the acquisition cost, based on theprior Corporate Tax Law, the Company and its domestic
subsidiaries have depreciated the difference between 5% of theacquisition cost and the memorandum price, using the straightline method over 5 years and expensed it as “Depreciation andamortization.” The straight line depreciation starts from the next
year following the year, when the book value of tangible assets
acquired on and before March 31, 2007 reaches 5% of theacquisition cost. The impact of this change on profits or losses
has been insignificant.

28

3. Securities(A) The following tables summarize acquisition costs and book values (fair values) of available-for-sale securities with available fairvalues as of March 31, 2008 and 2007:

March 31, 2008

Millions of yen
Acquisition costThousands of U.S. dollars

Book value

Difference

Acquisition cost

Book value

Difference

Securities with book values exceeding acquisition costs:
Equity securities¥
10,068 ¥

19,444 ¥9,376 $

100,489 $

194,071 $

93,582Other securities:
Equity securities

4,534 ¥

(554) $

50,783 $45,254 $(5,529)¥5,088 ¥March 31, 2007

Millions of yen
Acquisition cost

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

Thousands of U.S. dollars

Book value

Difference

Acquisition cost

Book value

Difference

30,341 ¥19,157 $111,628 $

302,835 $191,207215 ¥(44) $

2,585 $

2,146 $

(439)

259 ¥

(B) The following tables summarize book values of securities whose fair values were not determinable as of March 31, 2008 and 2007:(a) Equity securities issued by unconsolidated subsidiaries and affiliated companies
Millions of yen
2008
Book value

Equity securities issued by unconsolidated subsidiaries and affiliated companies

Thousands of U.S. dollars

2007Book value

2008
Book value

2007
Book value¥

2,343 ¥

1,402 $

23,386 $13,993¥

1,742 ¥
1,202
2,000
178
5,122 ¥

2,596 $
1,417
2,000
196
6,209 $

17,387 $11,997
19,962
1,777
51,123 $25,91114,143
19,962
1,956
61,972(b) Available-for-sale securities
Unlisted stocks
Unlisted foreign stocks
Preferred fund certificates
Investment in limited partnerships
Total

¥

(C) Total sales of available-for-sale securities in the years ended March 31, 2008 and 2007 amounted to ¥1,338 million ($13,355
thousand) and ¥2,778 million ($27,727 thousand) respectively, and resulted in net gains of ¥212 million ($2,116 thousand) andbreak-even, respectively.

29

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

The Company enters into foreign exchange forward contracts,
currency swap agreements and currency option agreements in
its normal business to hedge foreign exchange risk associatedwith certain assets and liabilities denominated in foreign
currencies. The Company enters into interest rate swap
agreements to headge against fluctuations in future interest
rates. The Company also enters into commodity futurescontracts and commodity swaps as a means of hedging risks
associated with certain inventories and commitments.
It is the Company’s policy to use derivatives only for the
purpose of reducing market risks associated with assets andliabilities.
Derivatives are subject to market risk and credit risk. Since thepurpose of using derivatives is to reduce market risks associated

The following tables summarize market value information as of March 31, 2008 and 2007, for the derivatives to which hedge
accounting has not been applied:

March 31, 2008
Currency related

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

¥

12,670 ¥1,348

12,663 ¥1,295

19,132
1,444

18,792
1,384

15,4642,260¥

Commodity related

Contract ornotional amount

7 $
53

¥

Fair value

Net recognized
gains (losses)

Fair value

126,460 $
13,454

126,390 $
12,925

70
529

(340)
(60)

190,957
14,413

187,564
13,814(3,393)
(599)

2,260
1,920

154,347

22,55722,557
19,164$

Millions of yen
Contract ornotional amount

Futures:Petroleum
Selling
BuyingNon-ferrous metals
Selling
BuyingCommodity swaps
Petroleum
Selling
Buying
Total

Fair value

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

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

Contract ornotional amount

Fair value

Net recognized
gains (losses)

6,259 ¥
4,206

6,276 ¥
4,298

(17) $
92

62,471 $41,98062,641 $42,898

14,647
10,647

14,744
10,470(97)(177)

146,192
106,268

147,160
104,502(968)(1,766)

2,563
5,802

(216)
167

(216)
167
(248)

25,581
57,910(2,156)
1,667(2,156)
1,667(2,475)

¥

30

$

(170)
918

March 31, 2007
Currency related

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

¥

Fair value

Contract ornotional amount

9,759 ¥
2,165

(1) $
(8)

97,395 $21,52997,405 $21,609

(10)
(80)

8,819
4,439

8,839
4,508

20
69

88,02344,30688,222
44,995199
689

14,656

(943)

(943)
(863)

146,282(9,412)¥(9,412)(8,614)$

Millions of yen
Contract ornotional amount¥

Net recognized
gains (losses)

Fair value

9,758 ¥
2,157

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

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

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

Fair value

Contract ornotional amount

Net recognized
gains (losses)

Fair value

10,809 ¥5,440

11,206 ¥
5,716(397) $
276

107,885 $54,297

111,847 $57,052(3,962)
2,755

1

1

—

10

10

—

9,823
6,278

10,113
6,856

(290)
578

98,04362,661

100,938
68,430(2,895)
5,769

2,030
7,371

(60)
141

(60)
141
248

20,26273,570

(599)
1,407

(599)
1,407
2,475

¥

31

$

5. Pledged assets
At March 31, 2008 and 2007, assets pledged as collateral for short-term loans payable in the amount of nothing and ¥114 million($1,138 thousand), respectively, and guarantees were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

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

¥

¥

2007

13 ¥
1,963
—
—
1,976 ¥

13 $
2,818
481
66
3,378 $

2008

2007

130 $
19,593——
19,723 $130
28,1264,801
659
33,716

6. Short-term loans payable, commercial paper
and long-term debt
The Company has entered into a yen domestic commercial
paper program. There was an outstanding balance of ¥17,000
million ($169,678 thousand) and ¥17,500 million ($174,668
thousand) at March 31, 2008 and 2007,respectively.

The weighted average interest rate applicable to short-termloans outstanding at March 31, 2008 and 2007 was 2.86% and1.95%, respectively.

Long-term debt at March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

2008

Issued in 2005, 0.96% unsecured straight bonds, due 2008
Issued in 2007, 1.53% unsecured straight bonds, due 2010
Loans from banks with weighted average interest rates of 1.67% and1.43% at March 31, 2008 and 2007, respectively, maturing seriallythrough 2014
Less amounts due within one year¥¥
The annual maturities of long-term debt outstanding at March 31,
2008 were as follows:

Years ending March 31,
Millions of yen

2009
2010
2011
2012
2013
Thereafter
Total

¥

¥

Thousands of
U.S. dollars

32,625 $ 325,631
23,675236,301
33,550334,864
11,200111,787——
20,900208,604
121,950 $ 1,217,187

32

2007

2008

99,810 $99,8102007

10,000 ¥10,00010,000 $—99,810—101,950
32,62589,325 ¥102,000
1,017,567
1,018,066
50
325,631499
111,950 $ 891,556 $ 1,117,377

7. Employees’ severance and retirement benefits
The liabilities for severance and retirement benefits included in the liability section of the consolidated balance sheets as of March 31,
2008 and 2007 consisted of the following:Thousands of
U.S. dollars

Millions of yen

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

¥

¥

2008

2007

2008

2007

19,723 ¥(17,333)(5,721)
(868)
4,208
9 ¥

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

196,856 $(173,001)(57,101)(8,664)42,00090 $

190,298(168,829)(39,884)(9,472)
27,96780

Included in the consolidated statements of income for the years ended March 31, 2008 and 2007 were severance and retirement
benefit expenses that comprised the following:Thousands of
U.S. dollars

Millions of yen

2008

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 orrecognized over a stated number of years that does not exceed

660 ¥
379
(504)
441
81
28
1,085 ¥

2007

633 $
366
(439)
424
81
20
1,085 $

2008

2007

6,587 $
3,783
(5,030)
4,402
808
279
10,829 $

6,318
3,653
(4,382)
4,232
808
200
10,829the average remaining service period of active employees
expected to receive benefits under the plan.

Assumptions used for the years ended March 31, 2008 and 2007 were as follows:

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

33

2008

2007

2.0%
3.0%
14 years
14 years

2.0%
3.0%
14 years
14 years8. Income taxes
The Company is subject to a number of taxes based on income,which, in the aggregate, indicate an aggregate statutory
income tax rate in Japan of approximately 40.7% for the years
ended March 31, 2008 and 2007.

The reconciliation of the difference between the statutory tax
rate and the effective tax rate for the years ended March 31,
2008 and 2007 has not been disclosed because such difference
was less than 5%.

Significant components of the Companies’ deferred tax assets and liabilities as of March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

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

¥

¥

2008

2007

2008

2007

23,864 ¥
2,390
1,719
1,667
715
3,739
34,094(30,890)
3,204

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

238,188 $
23,855
17,157
16,6387,136
37,319340,293(308,314)
31,979238,657
24,144
17,157
16,638
6,847
33,796337,239(310,580)
26,659

3,332
2,799
1,712
270
8,113
(4,909) ¥

7,825
2,799
1,140
778
12,542(9,871) $33,25727,937
17,087
2,695
80,976(48,997) $78,102
27,937
11,378
7,765
125,182(98,523)

Deferred tax assets and deferred tax liabilities were included in the consolidated balance sheets at March 31, 2008 and 2007,
respectively, as follows:
Thousands of
U.S. dollars

Millions of yen

2008

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

1,823 ¥
69
—
6,801

2007

1,097 $
10—
10,9782008

18,195 $689—
67,881

2007

10,949100—
109,572

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

Net assets comprises three subsections, which are owners’
equity, accumulated gains (losses) from valuation and translation
adjustments and minority interests.
The Japanese Corporate Law (“the Law”) became effective
on May 1, 2006, replacing the Japanese Commercial Code (“theCode”). The Law is generally applicable to events andtransactions occurring after April 30, 2006 and for fiscal years
ending after that date.
Under the Law, in cases where a dividend distribution of
surplus is made, the smaller of an amount equal to 10% of thedividend or the excess, if any, of 25% of common stock over the
total of additional paid-in capital and legal earnings reserve must
be set aside as additional paid-in capital or legal earnings
reserve. Legal earnings reserve is included in retained earnings in
the accompanying consolidated balance sheets.
Under the Code, companies were required to set aside anamount equal to at least 10% of the aggregate amount of cash
dividends and other cash appropriations as legal earnings reserve
until the total of legal earnings reserve and additional paid-in
capital equaled 25% of common stock.
34

At the annual shareholders’ meeting held on June 27, 2008,
the shareholders approved cash dividends amounting to ¥1,268($12,656 thousand). This appropriation has not been accrued in
the consolidated financial statements as of March 31, 2008.
Such appropriations are recognized in the period in which they
are approved by the shareholders.

Unrealized gain (loss) on land revaluation is recorded as land
revaluation difference in a separate component of net assets ofthe consolidated balance sheets until realized. The amounts areshown net of applicable income tax.
The revaluation of the land was determined based on adeclared land value, with certain necessary adjustments, inaccordance with Article 2, Paragraph 1 of the Enforcement
Ordinance Concerning Land Revaluation.
As of March 31, 2008, the carrying amount of the land after
the above one-time revaluation exceeded the market value by¥1,201 million ($11,987 thousand).

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

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

the Company and its consolidated subsidiaries for the years
ended March 31, 2008 and 2007 were ¥572 million ($5,709
thousand) and ¥526 million ($5,250 thousand), respectively.

Pro forma information for leased property such as acquisition costs, accumulated depreciation, obligations under finance leases,
depreciation expense and interest expense for finance leases that do not transfer ownership of the leased property to the lessee on an“as if capitalized” basis as of and for the years ended March 31, 2008 and 2007 was as follows:

As of March 31, 2008
Acquisition
cost

Other property and equipment
Other assets
Total

¥
¥

1,929 ¥
95
2,024 ¥

As of March 31, 2007

Net leased
property

903 ¥
64
967 ¥

Acquisition
cost

1,026 $
31
1,057 $¥¥Net leased
property

821 ¥
94
915 ¥

Depreciation expense and interest expense for finance leases
that do not transfer ownership of the leased property are notreflected in the accompanying consolidated statements ofincome. Depreciation expense, computed by the straight-line
method, was ¥516 million ($5,150 thousand) and ¥492 million

Net leased
property

9,013 $
639
9,652 $

10,241309
10,550Thousands of U.S. dollars

Accumulated
depreciation

1,961 ¥
153
2,114 ¥

Thousands of U.S. dollars
Accumulated
depreciation

19,254 $948
20,202 $Millions of yen
Acquisition
cost

Other property and equipment
Other assets
Total

Millions of yen
Accumulated
depreciation

Acquisitioncost

1,140 $
59
1,199 $

19,573 $1,527
21,100 $Accumulated
depreciation

Net leased
property

8,195 $
938
9,133 $

11,378589
11,967($4,911 thousand) for the years ended March 31, 2008 and2007, respectively. Interest expense, computed by the interest
method, was ¥35 million ($349 thousand) and ¥33 million ($329
thousand) for the years ended March 31, 2008 and 2007,
respectively.

Obligations, excluding financing charges, under such non-capitalized finance leases as of March 31, 2008 and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

Due within one year
Due after one year
Total

¥

2007

420 ¥
659
1,079 ¥

¥

2008

485 $
722
1,207 $

2007

4,192 $
6,578
10,770 $

4,841
7,206
12,047

Operating leases
As Lessee
Obligations under operating leases as of March 31, 2008 and 2007, were as follows:
Thousands of
U.S. dollars

Millions of yen

2008

Due within one year
Due after one year
Total

¥
¥
35

2007

35 ¥
136
171 ¥

2008

21 $
81
102 $

349 $
1,358
1,707 $

2007

210
808
1,018

11. Segment information
Industry segment information
The Company changed its segment classifications to six industry
segments comprising of the Steel Segment, the Metals andalloys Segment, the Non-ferrous metals Segment, the Foods
Segment, the Petroleum and chemicals Segment and the Other
business Segment for the year ended March 31, 2008,

compared to the five industry segments comprising of the Steel
Segment, the Non-ferrous metals Segment, the Foods Segment,
the Petroleum and chemicals Segment and the Other business
Segment for the year ended March 31, 2007.

The six industry segments for the year ended March 31, 2008
were comprised of the following:
Steel: Steel bars and shapes, steel plates and sheets, special
steels, wire products, steel pipes, and steelmaking raw
materials
Metals and Alloys: Nickel, chromium, steel alloys, and solar cellrelated materials and products
Non-ferrous metals: Aluminium, copper, zinc

The five industry segments for the year ended March 31, 2007
were as follows:
Steel: Steel bars and shapes, steel plates and sheets, special
steels, wire products, steel pipes, and steelmaking raw
materials
Non-ferrous metals: Nickel,copper, aluminium, lead, zinc, tin,
antimony, other metals, and solar cellrelated materials and products
Foods: Frozen seafoods and meat products
Petroleum and chemicals: Petroleum products, chemical
products, and cement
Other business: Lumber, machinery, and otherFoods: Frozen seafoods and meat products
Petroleum and chemicals: Petroleum products, chemical products,
and cement
Other business: Lumber, machinery, and other

Segment information. Previously, Nickel, Chromium and theother metals were included in the Non-ferrous metals Segment.
The amount for 2007 has been restated to comform to thecurrent year presentation.

Because the ratio of Net sales and Operating profit of the Nonferrous metals Segment to all the segments have incresed, theNon-ferrous metals Segment was divided into the Non-ferrous
metals Segment and the Metals and alloys Segment from thisfiscal year for the purpose of increase the usefulness of theSegment information by business category for the years ended March 31, 2008 and 2007 was as follows:Year ended March 31, 2008
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure

Metalsand alloys¥ 790,341 ¥ 202,019 ¥
774,466
195,399¥ 15,875 ¥
6,620 ¥
¥ 274,802 ¥ 47,867 ¥
1,408
24
3,795
48

Non-ferrous
metals65,345 ¥63,3302,015 ¥
14,762 ¥
51
44

Foods

84,671 ¥ 311,481 ¥
83,894308,935
777 ¥2,546 ¥
31,166 ¥ 35,381 ¥
28
31
31
36

Year ended March 31, 2008
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure

Metalsand alloys$ 7,888,422 $ 2,016,359 $
7,729,973
1,950,285$ 158,449 $
66,074 $$ 2,742,809 $ 477,762 $
14,053240
37,878479

Non-ferrous
metals652,211 $632,099
20,112 $147,340 $509
439

Millions of yen
Petroleumand chemicals

Foods

Thousands of U.S. dollars
Petroleumand chemicals

845,104 $ 3,108,903 $
837,349
3,083,491
7,755 $
25,412 $311,069 $ 353,139 $
280
309
310
359

Corporate costs and expenses mainly consist of expenses ofadministrative departments.

Otherbusiness

Total

53,652 ¥ 1,507,509 ¥52,228 1,478,252
1,424 ¥ 29,257 ¥
12,759 ¥ 416,737 ¥
432
1,974
375
4,329

Other
business

Total

535,503 $15,046,502 $
521,290 14,754,487
14,213 $ 292,015 $
127,348 $ 4,159,467 $
4,312
19,703
3,743
43,208

Corporate

Consolidated— ¥ 1,507,509
5,552 1,483,804(5,552) ¥ 23,705
65,277 ¥ 482,014
81
2,055
68
4,397

Corporate

Consolidated— $15,046,502
55,415 14,809,902(55,415) $ 236,600
651,532 $ 4,810,999
808
20,511679
43,887

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

36

Year ended March 31, 2007
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure

Metalsand alloys

Non-ferrous
metals¥ 689,188 ¥ 177,554 ¥
674,852
172,554¥ 14,336 ¥
5,000 ¥
¥ 253,363 ¥ 45,196 ¥
1,380
22
1,765
13

65,398 ¥63,154
2,244 ¥
19,086 ¥45
178

Millions of yen
Petroleumand chemicals

Foods

91,954 ¥ 237,343 ¥
91,363
235,110591 ¥
2,233 ¥
37,831 ¥ 34,647 ¥
30
28
29
37

Year ended March 31, 2007
Steel

Net sales
Costs and expenses
Operating income
AssetsDepreciation
Capital expenditure

Metalsand alloys

Non-ferrous
metals$ 6,878,810 $ 1,772,173 $6,735,722
1,722,268$ 143,088 $
49,905 $$ 2,528,825 $ 451,103 $
13,774220
17,617130652,740 $630,342
22,398 $
190,498 $
449
1,777

Thousands of U.S. dollars
Petroleumand chemicals

Foods

917,796 $ 2,368,929 $
911,898
2,346,641
5,898 $
22,288 $377,593 $ 345,813 $
300
279
289
369

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

Otherbusiness

Total

Corporate

58,585 ¥ 1,320,022 ¥
56,544 1,293,577
2,041 ¥ 26,445 ¥
18,904 ¥ 409,027 ¥
404
1,909
347
2,369

Other
business

Total

Corporate584,739 $13,175,187 $564,368 12,911,239
20,371 $ 263,948 $
188,681 $ 4,082,513 $
4,032
19,054
3,463
23,645

Consolidated— ¥ 1,320,022
5,580 1,299,157(5,580) ¥ 20,865
67,152 ¥ 476,179
82
1,991
44
2,413

Consolidated— $13,175,187
55,694 12,966,933(55,694) $ 208,254
670,247 $ 4,752,760
818
19,872439
24,084

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

Overseas net sales
Overseas net sales include exports and offshore sales by theCompany and its consolidated subsidiaries, excluding sales byforeign subsidiaries to Japan.
Overseas net sales of the Companies for the years ended March 31, 2008 and 2007 were as follows:Year ended March 31, 2008
Asia

Overseas net sales
Percentage of consolidated net sales¥

280,217 ¥18.6%

Millions of yen
Other
areas

44,088 ¥
2.9%

Total

Asia

Thousands of U.S. dollars
Other
areas

324,305 $ 2,796,856 $
21.5%

Total

440,044 $ 3,236,900“Asia” sales consists principally of sales to China, South Korea, Singapore and Thailand.
“Other areas” sales consist principally of sales to Germany and the U.S.A..
Year ended March 31, 2007

Millions of yen
Asia

Overseas net sales
Percentage of consolidated net sales¥

231,101 ¥
17.5%

Other
areas

39,781 ¥3.0%

Thousands of U.S. dollars
Total

270,882 $ 2,306,627 $20.5%“Asia” sales consists principally of sales to China, South Korea, Singapore and Thailand.
“Other areas” sales consist principally of sales to the U.S.A. and Germany.

37

Asia

Other
areas

Total

397,056 $ 2,703,683

12. Contingent liabilities
At March 31, 2008 and 2007, the Companies were contingently liable as follows:
Thousands of
U.S. dollars

Millions of yen

2008

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

¥

2007

4,594 ¥
2,691

2008

4,116 $
2,350

2007

45,853 $26,85941,082
23,455

13. Related party transactions
Transactions with a close relative of directors of the Company and a non-consolidated subsidiary for the years ended March 31, 2008
and 2007 were as follows:
Thousands of
U.S. dollars

Millions of yen

A close relative of directors

2008Real estate
Rents received

¥

2007

— ¥

2008

6 $

— $

2008

Steel products
Sale

¥

2007

— ¥

2008

8,558 $

14. Subsequent events

2007

— $

Millions of yen

At the ordinary general meeting of shareholders of the Company
held on June 27, 2008, the following appropriation of retained
earnings was approved:

Cash dividends (¥6 per share)

38

60

Thousands of
U.S. dollars

Millions of yen

A non-consolidated subsidiary

2007

¥

1,268 $

85,418

Thousands of
U.S. dollars

12,656

Independent Auditors’ Report
To the Shareholders and Board of Directors of
Hanwa Co., Ltd.:We have audited the accompanying consolidated balance sheets of Hanwa Co., Ltd.
(a Japanese corporation) and consolidated subsidiaries as of March 31, 2008 and 2007, and therelated consolidated statements of income, changes in net assets and cash flows for the years
then ended, expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to independently express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Hanwa Co., Ltd. and subsidiaries as ofMarch 31, 2008 and 2007, and the consolidated results of their operations and their cash flows
for the years then ended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 11 to the consolidated financial
statements. Effective March 31, 2008, Hanwa Co., Ltd. and its consolidated subsidiaries havereclassified their industry segments.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect tothe years ended March 31, 2008 and 2007 are presented solely for convenience. Our audit also
included the translation of yen amounts into U.S. dollar amounts and, in our opinion, suchtranslation has been made on the basis described in Note 1 to the consolidated financial
statements.

Osaka, Japan
June 27, 200839

Corporate Data

Company Name: Hanwa Co., Ltd. 阪和興業株式会社
Address: Osaka Head OfficeHanwa Bldg., 4-3-9 Fushimi-machi, Chuo-ku, Osaka 541-8585, Japan
Tel: 81-6-6206-3000 Fax: 81-6-6206-3365
Tokyo Head Office
New Hanwa Bldg., 1-13-10 Tsukiji, Chuo-ku, Tokyo 104-8429, Japan
Tel: 81-3-3544-2171 Fax: 81-3-3544-2351
Nagoya Branch Office
NHK Nagoya Broadcasting Center Bldg.,
1-13-3, Higashisakura, Higashi-ku, Nagoya 461-8614, Japan
Tel: 81-52-952-8800 Fax: 81-52-952-9300
Employee: 1,027 (consolidated: 1,715)
Independent Auditor: KPMG AZSA & Co.
Domestic Offices
OFFICE
Hokkaido
TohokuNiigata
KyushuHiroshima

ADDRESS
Kita-sanjo Bldg., 3-1-25, Kita-sanjo Nishi, Chuo-ku, Sapporo 060-0003, Japan
Sendai Daiichi Seimei Tower Bldg., 4-6-1 Ichiban-cho, Aoba-ku, Sendai 980-0811, Japan
Hokuetsu-daiichi Bldg., 1-2-25, Higashi Oodouri, Chuo-ku, Niigata 950-0087, Japan
Taihaku Center Bldg., 2-19-24 Hakata-eki mae, Hakata-ku, Fukuoka, 812-0011, Japan
Hiroshima-fukuromachi Bldg., 5-25, Fukuro-machi, Naka-ku, Hiroshima 730-0036, JapanTELEPHONE
81-11-219-7375
81-22-227-7981
81-25-255-1777
81-92-471-7121
81-82-543-2570

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

Overseas Offices
OFFICEADDRESS
North and South America
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.
VancouverSuite 502, 1001 West Broadway Vancouver, B.C. V6H 4B1, Canada
BogotaCarrera 9A No. 99-02, Oficina 804 Edificio Citibank, Bogota, D.C. Colombia
Asia
Seoul
Room 1705, Korea World Trade Center Bldg., 159-1, Samsung-Dong, Kangnam-ku, Seoul, 135-729, R.O.Korea
Beijing
Room 1201, Beijing Fortune Bldg., 5 Dong San Huan Bei-lu, Chaoyang District, Beijing 100004, P.R.China
Crowne Plaza Qingdao, Room No.601, Hongkong Middle Road 76, Qingdao City, Shangdon 266071, P.R.China
Qingdao
DalianSenmao Bldg., 20F, 147 Zhongshan Street, Dalian City, Liaoning 116011, P.R.China
ShanghaiRoom 902/904-907, Aetna Tower,No.107 Zhunyi Road, Shanghai 200051, P.R.China
Chongqing
Room 2203, Metropolitan Tower, 68 Zhou Rong Lu, Central District, Chongqing 400010, P.R.China
FuzhouRoom 2501, Lippo Tianma Plaza, No.1 Wu Yi Road, Fuzhou City, Fujian 350003, P.R. China
Guangzhou
Unit 3701-3704, Profit Plaza, No. 76 Westhuangpu Road, Guangzhou City, Guangdong 510623, P.R. China
Wuhan
Room 18H, Credit Cooperative Bldg., No. 618 Jianshe Road, Wuhan 430015, P.R.China
Dongguan
Suites1504-1505, 15F, HuiCheng Build., 102 Hong Fu Road, Nan Cheng District, Dongguan City, Guangdong 523000, P.R. China
Zhongshan
Unit 1909-1910, 19th Floor, Bank Of China Tower, 18 Zhongshan 3rd Road, Zhongshan City, Guangdong, P.R.China
Hong Kong
Suites 2301-02 & 16, 23F, Cityplaza One 1111 King’s Road, Tai Koo Shing Island East, Hong Kong
TaipeiRoom 303, 3rd Floor. No. 79, Chung Shan North Road Sec.2, Taipei, Taiwan
Kaohsiung
Room B, 17th Floor, No.7 Su-Wei 4th Road, Kaohsiung, Taiwan
Bangkok
12th Floor, Unit 1204, Q.House Lumpini Bldg., 1 South Sathorn Road, Tungmahamek, Sathorn, Bangkok 10120, Thailand
Kuala Lumpur Suite 8-12B-3, Level 14 (12B), Menara Olympia 8, Jalan Raja Chulan, 50200 Kuala Lumpur, Malaysia
Singapore
20 Cecil Street, #20-06/07 Equity Plaza, Singapore, 049705
Tawau
P.O. Box 1231 91037 Tawau, Sabah, Malaysia
Ho Chi Minh
7/C Office Service International Centre Bldg., No. 8 Nguyen Hue BLVD., District 1, Ho Chi Minh City, S.R. Vietnam
Hanoi
Room 1509, 671 Hoang Hoa Tham, Ba Dinh, Ha Noi, S.R. Vietnam
Jakarta
Menara Cakrawala 5th Floor Jalan M.H. Thamrin No. 9, Jakarta 10340, Indonesia
Mumbai
Unit No.208, 2nd Floor, B-Wing, Dynasty Business Park, 58, Andheri Kurla Rd. Andheri (E), Mumbai 400 069
New Delhi
203, Bestech Chambers, B Block, Sushant Lok 1, Gurgaon, Haryana INDIA 122002
Europe, Africa and Middle East
London2nd Floor, Finland House, 56 Haymarket, London, SW1Y 4RN U.K.
Wien
Landstrasser Hauptstrasse 71/2 A1030, Wien, Austria
c/o Al-Sabih Engineering & Trading Co., P.O. Box No. 1114 Dasman, 15462 Dasman, Kuwait
KuwaitRoom 24, 6th Floor, Danat Trading Center, Abdulla Al-Ahmad Street, Sharq, Kuwait
RiyadhP.O. Box 68974, Riyadh 11537, Saudi Arabia
Jeddahc/o Office No. 219, Kaki Center P.O. Box 1224, Jeddah 21431, Saudi Arabia
Dammamc/o Office No.1, 1st Floor, Al-Hammam Center for Trading King Fahad Bin Abdul Aziz Road, Dammam, Saudi Arabia
Dubai
Dubai Airport Free zone, Bldg., No. 6EA, 5th Floor, Room No. 506 P.O.Box 293873 Dubai, U.A.E.
Amsterdam
WTC Tower A-11F, Strawingskylaan 1111, 1077XX, Amsterdam, The Netherlands

40

TELEPHONE

FAX

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

1-201-346-9890
1-206-622-6464
1-713-978-7790
1-949-955-2785
1-604-876-1085
57-1-618-2056

82-2-551-5387
86-10-6590-8333
86-532-8-577-9990
86-411-8-368-6954
86-21-6237-5260
86-23-6381-1101
86-591-8-3354165
86-20-8732-0451
86-27-8549-7132
86-769-2240-6418
86-760-2-332-0706
852-25450110
886-2-2560-2214
886-7-338-5508
66-2-343-8877
60-3-2078-2311
65-6536-7822
60-89-750016
84-8-8225715
84-4-7617632
62-21-39833211
91-22-2826-0884
91-124-456-6100

82-2-551-5575
86-10-6590-8340
86-532-8-577-9630
86-411-8-368-6934
86-21-6237-5268
86-23-6381-7385
86-591-8-3345202
86-20-8732-0402
86-27-8578-7196
86-769-2240-6448
86-760-2-332-0696
852-25422544
886-2-2571-0693
886-7-338-5433
66-2-343-8878
60-3-2078-2380
65-6536-7855
60-89-750019
84-8-8225725
84-4-7617632
62-21-39833212
91-22-2826-1097
91-124-456-6111

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

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

965-243-7259

965-243-7263

966-1-473-1563
966-2-661-0796
966-3-8411745
971-4-609-1893
31-20575-2460

966-1-473-5624
966-2-661-0796
966-3-8467937
971-4-609-1895
31-20575-2461

Board of Directors

Investor Information(As of July 1, 2008)(As of March 31, 2008)

Date of Establishment
April 1947

President

Shuji Kita

北修爾

Stated Capital¥45,651 million ($455,644 thousand)Senior Managing Directors

Hironari Furukawa
Tetsuro Akimoto

古川

弘成

秋元

哲郎

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

西

吉史

北

卓治

Number of Stockholders
15,595

川西

英夫

関

收

多田

孝治

馬締

和久

豊田

雅孝

芹澤

浩

辻仲

弘明

Managing Directors

Yoshifumi Nishi
Takuji Kita
Hideo Kawanishi

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

Directors

Osamu Seki
Takaharu Tada
Kazuhisa Majime
Masataka Toyoda
Hiroshi Serizawa
Hiroaki Tsujinaka
Hiroshi Ebihara
Yukio Saito
Akihiko Ogasawara
Yoshiaki Matsuoka
Tadahiko Kaida
Toshiaki Shirakawa
Teruo Asai
Atsuhiro Moriguchi

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

齋藤

弘
幸雄

小笠原朗彦
松岡

良明

貝田

忠彦

白川

敏昭

浅井

照夫

森口

淳宏

花房

伯行

田口

敏明

Corporate Auditors

Noriyuki Hanafusa
Toshiaki Taguchi
Hajime Yosano
Masanori Kobayashi

与謝野
小林

肇
正典

41

2008.8.Printed in Japan