Profile
Since its founding in 1933, Sanyo Special Steel Co., Ltd. (“Sanyo Special Steel”) has been a stable supplier of high-quality special steel.
Our steel products fulfill a high level of confidence and are applied to a broad range of important industrial parts in such areas as
automobiles, industrial machinery, railways and wind-power generation equipment. Bearing steel, our mainstay product, enjoys aparticularly high reputation in many countries for its superior quality and confidence. Our bearing steel boasts a top share in the domestic
market.
We call our products “Steel You Can Count On,” as they receive a high level of market confidence in every aspect of our undertakings suchas development, product quality and stable supply. We will be striving to further enhance the brand power of “Sanyo Special Steel – theConfident Choice.”

Corporate Philosophy
We adhere to “confidence-based management” as our corporate philosophy, seeking to establish the “confidence of society,” “confidenceof customers” and “confidence among people.”

Confidence-based Management
Confidenceof Society

Confidenceof Customers

Confidence
among People“Confidence of society”
We aim to acquire the confidence of society by contributing to the realization of an affluent and culturally rich society and fulfilling oursocial responsibilities through our "high-quality special steel manufacturing.

“Confidence of customers”
We aim to earn the confidence of customers by rapidly ascertaining exactly what their needs are and providing them with high-quality
special steel products.

“Confidence among people”
We aim to build the confidence among people by deepening communication with all of our stakeholders and acting autonomously inContents

conformity with social norms.

01 Consolidated Financial Highlights

10

CSR Activities

02 Message from President

12

Research and Development

04 Segment Information

14

Financial Section

06 The 9th Medium-term Business Plan

40

Corporate Data

08 Corporate Governance
Earnings forecasts contained in this annual report have been prepared by the Sanyo Special Steel Group based on information available at the time of
their preparation. Please note that these forecasts involve various uncertainties and that actual performance may differ from the forecasted figures.

CONSOLIDATED FINANCIAL HIGHLIGHTS
Sanyo Special Steel Co., Ltd. and consolidated subsidiaries
ChangeFY2012FY2013

FY2014FY2014FY2013 / FY2014

Operating Results (For the year)(Millions of Yen)(%)

(Thousands of
US Dollars)＊1¥ 138,306¥ 161,587¥ 171,495

6.1$ 1,427,341

Operating income

1,517

6,884

9,170

33.2

76,319Ordinary income

1,670

6,749

9,735

44.2

81,024

509

4,066

6,548

61.0

54,496(Millions of Yen)(%)

Net sales

Net income

Financial Position (at year-end)(Thousands of
US Dollars)＊1

Net assets ＊2

97,152102,905

113,64410.4

945,852

Total assets

198,772

203,522202,243-0.6

1,683,255(%)

Financial Indicator(%)

ROS (Ordinary income to Net sales)

1.2

4.2

5.7

1.5

5.7

ROE (Net income to Net assets)

0.5

4.1

6.1

2.0

6.1

ROA (Ordinary income to Total assets)

0.8

3.4

4.8

1.4

4.8

Net D/E Ratio ＊3

0.53

0.46

0.29

-0.17

0.29

(Yen)

(%)

(US Dollars)＊1

Net income per share

3.16

25.21

40.6

61.0

0.34

Net assets per share

599

633

700

10.4

5.82

Cash dividends per share

2.00

5.00

10.00

100

0.08

* 1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥120.15=US$1, the approximate rate of exchange on March 31, 2015.
* 2 Minority interests are included in net assets.
* 3 Net debt equity ratio - (gross interest-bearing debt - cash and deposits) / equity

Net Sales

Ordinary Income

Net Income(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

15,000171,800

171,495
161,587

159,512150,000

8,000

7,822

13,396

12,000

6,548

6,408
10,9966,000

138,306

9,735

9,000

100,000

6,749

4,066

4,000

6,000

50,000

2,000

3,000
1,670

509

0

FY2010 FY2011 FY2012 FY2013 FY2014

0

FY2010 FY2011 FY2012 FY2013 FY2014

01

0

FY2010 FY2011 FY2012 FY2013 FY2014

MESSAGE FROM PRESIDENTFY 2014 Overview

FY 2015 Outlook

The Japanese economy in FY2014 remained challenging, due

The operating environment surrounding the Group is

primarily to a backlash in demand front-loaded by the

expected to remain challenging, such as another electricity

consumption tax hike and the slowdown of consumer

rate hike, the background of a slowdown in emerging

spending amid rising prices by depreciated yen, althougheconomies and intensifying global competition in the special

there were improvements in corporate earnings andsteel industry; the economy is expected to recover from theemployment thanks to the government's economic stimulus

backlash in demand produced by the consumption tax hike,measures and the Bank of Japan's monetary easing. On theand a weak yen and low oil prices will bring positive effects.

other hand, the global economy grew moderately, mainly in

In such circumstances, the Group will be making all-out

the US, despite weakness in some emerging countries.

efforts to establish a corporate structure capable of stably

Demand grew in the special steel industry, primarily in the

supplying high-quality special steel which precisely meets

automobile sector. In such circumstances, the net sales of thecustomers' needs by ensuring that production responds toGroup for the fiscal year increased by 9,907 million yen year

demand trends and by implementing aggressive internal

on year to 171,495 million yen, thanks mainly to an increase incost-cutting measures as well as stepping up its efforts tothe sales volume. Ordinary income increased by 2,985 million

strengthen non-price competitiveness. By taking all these

yen year on year to 9,735 million yen, mainly by virtue of an

factors into account, the Group expects its earnings for theincrease in the sales volume, lower fixed costs, variable cost

next term with net sales to be 170 billion yen, ordinary

reduction efforts, and the currency exchange gains by

income to be 11.5 billion yen, and net income attributable todepreciated yen despite a rise in raw material and fuel prices.

owners of the parent to be 7.5 billion yen.

Net income increased by 2,481 million yen year on year to 547
million yen, due mainly to gains in the sale of available-for-salesecurities. Consequently, ROE (return on equity) for the fiscal
year improved to 6.1% (4.1% for the previous year).

02

Profit Distribution to Shareholders
Our basic policy on profit distribution is to reward ourRegarding dividends for the current term, we paid ashareholders by increasing the profits available fordividend of 10 yen per share annually according to the basic

distribution while strengthening our business foundation.

policy as net income reaches 6,547 million yen for the current

Concerning dividend payment, we intend to meet ouryear. As we implemented a dividend of 3 yen per share as theshareholders' expectations, primarily by distributing profits

interim dividend, the year-end dividend was 7 yen per share.

based on periodic business performance while giving due

As per dividends from the next term onward, although we

consideration to both the payout ratio and the amount ofwill pay dividends in line with periodic business performancefunds required for investments and other activities toaccording to the basic policy, please be advised that theenhance our corporate value. Our standard of profit

specific amounts have not yet been decided. We would ask

distribution is a consolidated payout ratio of 20% to 30%.

ourshareholders

for

their

continued

supportandunderstanding.

September 2015

Yasuo Takeda
Representative Director and President

Establishment of Manufacturing and Sales Subsidiary ofForged and Fabricated Materials in Thailand
We founded a manufacturing and sales subsidiary of forged and fabricated materials (turned ringsfor bearings), the Siam Sanyo Special Steel Product Co., Ltd. in Thailand.
Japanese bearing companies are expanding production capacity in Thailand on the back of steadydemand for automobiles in South-East Asia and are expected to gain momentum in the future.
We have adopted a policy of strengthening our non-steel business in the 9th Medium-TermBusiness Plan (from FY2014 to FY2016) and established this subsidiary as a part of this policy. We
will attempt to strengthen the profitability of the entire Group and build a robust corporate
structure that can generate the best possible profit under any operating environment and has both
upward and downward flexibility.

ThailandSamutPrakanBangkokSiam SanyoSpecial Steel
ProductCo., Ltd.

Outline of the Local Subsidiary

Turned rings for bearings

Company Name: Siam Sanyo Special Steel Product Co., Ltd.
Location: Samutprakan, Kingdom of Thailand (*within the premise of SKJ Metal Industries Co., Ltd., oursubsidiary)
Date of Establishment: September 22, 2014 (Operation is planned to start around October 2015.)
Capital: 418 million baht (about 1.3 billion yen; planned)
Employees: Approximately 90 people (planned)
Main line of business: Manufacture and sales of turned rings for bearings (It plans to turn forged rings and cut rings
imported from the Group manufactures, and to sell them to bearing manufactures.)03

SEGMENT INFORMATION
Specialty SteelIn the Specialty Steel segment, we manufacture and sell various special steel products including bearing
steel, which boasts a top share in the total domestic production, as well as engineering steel, stainlesssteel, heat resistant steel and tool steel.

FY 2014 Overview
Net sales increased by 7,702 million yen year on year to 152,181 million yen mainly because the sales
volume rose from the previous term. Operating income increased by 1,910 million yen year on year to 6,055
million yen due primarily to a sales volume increase and cost reduction efforts despite a rise in raw
materials and fuel prices.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

200,000
150,000
82.9％(FY2014)7,500
144,479

6,055

152,1815,000

125,303

100,000

2,500

50,000

0

4,146

△ 277

0

-2,500FY2012FY2013

FY2014FY2012FY2013

FY2014

Special Materials
The Special Materials segment manufactures and sells heat/corrosion-resistant alloys and powder
metallurgy products, among others.

FY 2014 Overview
Net sales increased by 911 million yen year on year to 8,545 million yen, mainly because the sales volumeof powder metallurgy products increased from the previous term. Operating income increased by 504
million yen year on year to 1,758 million yen.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)
8,545

9,000

2,000

1,758

7,634

6,000

1,500

5,971

1,254

5.0%
(FY2014)

1,000
657

3,000
500
0

0
FY2012FY201304

FY2014FY2012FY2013

FY2014

Formed and Fabricated Materials
The Formed and Fabricated Materials segment uses an integrated process to manufacture high-quality
formed and fabricated materials from high-cleanliness steel, which is produced using our high-cleanlinesssteel manufacturing technology. Our formed and fabricated materials include cut rings produced by cutting
special steel tubes with high precision, forged rings/forged products/rolled products made from steel bars,
and cold roll formed rings made from ring materials.

FY 2014 Overview
Net sales increased by 1,601 million yen year on year to 20,565 million yen, mainly because the sales
volume rose from the previous term. Operating income decreased by 234 million yen year on year to 1,701
million yen, due primarily to a decline in the income of a subsidiary in China.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

30,000

2,000

1,934
1,701

20,56520,00016,051

12.0%(FY2014)

1,500

1,335

18,9641,000

10,000500

00FY2012FY2013

FY2014FY2012FY2013

FY2014Other
We provide information processing services through our subsidiaries.

FY 2014 Overview
Net sales increased by 403 million yen year on year to 1,670 million yen. Operating income increased by 6 million yen year on year to 58 million
yen.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)
58

60

2,000

52

1,670
46

1,500
0.1%
(FY2014)

1,367

1,267

40

1,000
20
500

0

0
FY2012FY2013

FY2014FY2012FY2013

FY2014Note:
Net sales for each business segment include intersegment transactions. However, the sales breakdown is calculated based on net sales by each segment to outside
customers.

05

THE 9th MEDIUM-TERM BUSINESS PLAN (FY2014-FY2016)
Strategy
Aiming at creating greater corporate value and growing further by enhancing the brand power of"Sanyo Special Steel-the Confident Choice"◇ Reinforce corporate structure to win global competition◇ Strengthen technological innovation◇ Improve overall profitability through sustainable growth of the rolled-steel business and reinforcement of
the non-steel businessWe aim at building a corporate structure to win in global competition by strengthening our non-price competitiveness, includinginternational cost competitiveness, research and development capability, responsiveness of quality and delivery schedule, and oursystem foundation. By doing this, we will be expanding our revenue in the steel business by capturing the special steel demand,
which is expected to grow in the future, and by taking full advantage of our production capability strengthened in the 7th and 8th
Medium-term Business Plan. In the non-steel business, we will try to expand business by aggressively investing our management
resources for the ultimate purpose of improving the Group’s overall profitability.
Furthermore, we will aim at building a strong and resilient corporate structure to realize good profitability under any businessenvironment.

Financial Targets(Billions of Yen)FY2013 (Performance)

FY2016 (Target)

161.6

200.0

38.4

Operating income

6.9

15.0

8.1

Ordinary income

6.7

15.0

8.3

Net income

4.1

9.0

4.9

Total assets

203.5

200.0

- 3.5

Interest-bearing debt (net)

47.8

35.0

- 12.8

ROS

4.2%

7.5%

3.3%

ROE

4.1%

7.5%

3.4%

Depreciation

11.0

10.0

- 1.0

EBITDA

17.9

25.0

7.1

Net sales

Variance〔Major assumptions〕
・Steel scrap price:
At the average level for the period
from April through December 2013(¥40,000 /t)

・Unit product price:

D/E ratio

0.46

0.30

- 0.1687,000t/month

100,000t/month

13,000t/month

At the average level for the period
from April through December 2013

・Margin: ConstantSales volume

06

・Exchange rate: ¥100/US$

Key Action Programs
Steel Business (“Specialty Steel”)

PromoteGrowthStrategy

By grasping the needs of customers who develop their business both inside and outside Japan, we will
be providing them with adequate products with non-price competitiveness and contribute to improving
their competitiveness with at the same time boosting our profit growth. We will be working to build an
effective and concrete supply chain as quickly as possible, particularly in East Asia, since it has a higher
growth potential.

Non-steel Business (“Special Materials” and “Formed and Fabricated Materials”)
We will expand the sales in the non-rolled-steel business to 1.6 times of the amount booked in fiscal
2013, through aggressive investment of our management resources.

Boost non-price competitiveness

Enhance global
competitivenessWe will respond to customers' needs by (1) promoting the expansion of technological innovation taking
into account the further future trend, including the development of sophisticated and differentiatedproducts as well as manufacturing technique, and upgrading of the product lineup on a timely manner,and (2) maintaining and enhancing our capability on research and development and quality
responsiveness, as well as our ability to meet delivery schedule and make effective proposals to users.
We will also reform our backbone system by incorporating the latest information and IT.

Strengthen international competitivenessWe will continue to slash costs persistently in continuance with the 8th Medium-term Business Plan. We will
also improve our downward flexibility through power-saving investment and cost reduction investment,
among others.

Ensure adequate profit margins
In addition to the existing iron scrap surcharge system, we will try to reflect the increase in the electricity and
LNG cost to the sales price.

Develop humanresources to realize
sustainable growth

We will nurture human resources to respond to globalized operating environment and the subsequent
intensifying international competition in a systematic way. We will also continue with our policy topromote work life balance and to create the working environment where female employees can also
develop their career.

Investment

We will set up the following three investment frameworks and will spend ¥10 billion per year for eachcategory in the coming three years; (1) strategy investment framework (mainly for research anddevelopment, strengthening of non-rolled-steel segment and overseas investment to East Asia, etc.) (2)foundation investment framework (primarily for quality responsiveness, power-saving investment, cost
reduction investment such for the purpose of energy saving and system foundation investment, etc.) and(3) mandatory investment framework (mainly for renewal of obsolete assets and responding to safety
environment standards and other regulations).

07

CORPORATE GOVERNANCE
We are striving to enhance our corporate governance and internal control systems with a view to building management infrastructure that
ensures integrity, fairness and transparency of our operations.

Fundamental Measures for Corporate Governanceexpress their opinions to the representative director based on theaudit results and, if necessary, also to business execution functions.
We have a standing corporate auditor system in order to strengthen
our auditing structure.
As for accounting audits, we formulate audit policies throughdiscussions between corporate auditors and accounting auditors;
audits are then performed based on these policies. We also holdmeetings where accounting auditors can report and explain the audit
results to corporate auditors as necessary, so that corporate
auditors and accounting auditors can perform their audit duties inclose coordination.
Internal audits are also implemented by the Internal Control &Inspection Department based on the internal audit plan preparedeach year. Audits are conducted on the business execution of ourrespective business functions and subsidiaries.

Concerning business execution, we make decisions on importantmatters and supervise execution of business operations at ordinary
meetings of the Board of Directors (held monthly), comprised of 16
directors (including one outside director), and extraordinary
meetings of the Board of Directors (held as required). We also set up
company-wide committees to discuss important matters concerning
operations. These include the Corporate Policy Committee (twice amonth in principle) to facilitate efficient decision-making on
management such as at the Board of Directors meetings, theCorporate Behavior and Ethics Special Committee to ensure
thorough compliance and solid corporate governance, the Security &Trade Control Committee, the Environment Conservation Committee,
and the Corporate Budget Committee.
Corporate auditors' audits are conducted as necessary based on
auditing policies formulated each year by the Board of Corporate
Auditors. Audits are conducted by four corporate auditors (including
two outside auditors) on a broad range of areas, including not only
directors' execution of their duties but also risk management andcompliance from an internal control perspective. Corporate auditors■ Our organizational structure for corporate governance and internal control(As of June 26, 2015)

General Shareholders’ Meeting
Election / Dismissal

Election / Dismissal

Board of Corporate
Auditors

AuditsBoard of Directors

Election / Dismissal

Audits(16 directors, including
1 outside director)(4 auditors, including
2 outside auditors)

Accounting Auditors(accounting firm)

Decision /SupervisionCorporate
Committees /Meetings
Reward &Punishment
Committee

Inspections(＊3)

Reference /ReportInstruction

Consultation
ReportAudits(＊1)

Corporate Policy
Committee

Representative Director

ReportAdministration of
the Company’s Business

AuditsAudits(＊2)

Internal
Control &Inspection
Department
Internal Auditing

Audits

Subsidiaries, Affiliated Companies(＊1) We audit of our subsidiaries and affiliated companies through auditing consolidated financial statements.
(＊2) Each of our subsidiaries and affiliated companies has a supervisory department.
(＊3) Corporate auditors perform inspections as necessary on the operations and asset status of subsidiaries.
Full-time corporate auditors serve concurrently as corporate auditors of our domestic subsidiaries and fulfill their responsibilities in that capacity.

08

Development and Management of Internal Control Systems
development and operation of the ""Management's Report System
on Internal Control Report over Financial Reporting"" as required by
the Financial Instruments and Exchange Act. In this regard, we set up
a working group for internal control management, which is across-functional committee, in order to address risks in financial
reporting, share relevant information, and discuss educationalguidelines, and we are working to reinforce our internal control
systems in order to ensure the adequacy of information in financial
reporting (held three times during FY2014).

We resolved a basic policy to create internal control systems at theBoard of Directors meeting held in April 2015 in accordance with theCompany Law of Japan and other relevant laws and ordinances.
Under this policy, we have developed, managed, and improved ourinternal control systems, which support our corporate management
to emphasize integrity, fairness, and transparency.
In addition, we established the Internal Control & Inspection
Department in order to evaluate the internal control systems of the
Sanyo Special Steel Group and have been working on the

Board of Directors(As of June 26, 2015)

President, Representative Director

Yasuo Takeda

Director and Executive Vice President

Nobuyuki Tanaka

Managing Director, Member of the Board

Shin-ichi Tominaga
Wataru Nishihama

Director, Member of the Board

Shigehiro Oi
Katsu Yanagimoto
Kozo Takahashi
Takashi Kuwana

Corporate Auditor

Hiroaki Kimura(Standing Corporate Auditor)
Katsuaki Ohe（＊2）
Masaki Iwasaki（＊2）

Akihiko Yanagitani
Hiroyuki Eiyama
Kazuya Shin-no
Kazuhiko Nagano
Takayo Chiba
Shinobu Kuroishi
Kozo Omae
Syunsuke Kano（＊1）
Toshihiko Yoshida（＊1）Outside Director（＊2）Outside Corporate Auditor

Rules on Large-scale Acquisition of Sanyo Special Steel’s Shares
secure and enhance the Company’s corporate value and theshareholders’ common interests. We also believe that, when alarge-scale acquisition of the Company’s shares has been proposed,
the ultimate judgment on whether or not to accept the proposal
should be made by the shareholders at the time of proposal. We also
believe that it is the Company’s responsibility to secure sufficient
time and information for the shareholders to examine the proposal
and make a final judgment in order to protect and enhance theCompany’s corporate value and shareholders’ common interests.
The Company has adopted the “Rules on Large-Scale Acquisition of
Sanyo Special Steel’s Shares” based on such beliefs.

The Company has adopted the “Rules on Large-scale Acquisition of
Sanyo Special Steel’s Shares.”
These rules were established for the purpose of securing sufficient
time and information for the Board of Directors to examine theconditions of acquisition proposals and offer alternative plans so that
our shareholders can make “informed judgment” (an appropriate
judgment based on sufficient time and information) and preventing
inappropriate large-scale purchases of shares that may damage theCompany’s corporate value and the common interests of theshareholders.
We believe that those who control the Company’s decisions on
financial matters and business policies should fully understand theCompany’s “Basic Management Policy” and consistently seek to09

CSR ACTIVITIES
While promoting corporate management with integrity, fairness, and transparency through the practice of our corporate philosophy,“confidence-based management,” we fulfill our economic and social missions in order to gain the confidence of all our stakeholders and build
a sustainable relationship with society.

Compliance Structure
Furthermore, we provide compliance education encompassing
various themes and hold compliance lectures to improve our
employees' compliance awareness.

The Company has established the “Guidelines for Corporate
Behavior,” which indicate how we should act as a corporation, andthe “Helpline,” a whistle-blowing system, as a part of our compliancestructure.

Clearly-defined Company Rules : We improve our company rules as the needs arise in order to ensure further compliance.
Guidelines for Corporate Behavior
The Guidelines for Corporate Behavior indicate how we should behave as a corporation. They underpin all corporate activities.
Code of Conduct
The Code of Conduct provides guidance on conduct to be observed in the course of our business activities within the framework set by the
Guidelines for Corporate Behavior.
Corporate Behavior and Ethics Regulations
The Corporate Behavior and Ethics Regulations specify the systems and structure employed to ensure compliance.

Establishment of a Corporate Behavior and Ethics Special Committee/Establishment of a Whistle-blowing System “Helpline”
system designed to help prevent occurrence of misconduct. The“Helpline” is aimed at detecting at an early stage any apparent orprobable circumstances/acts which are deemed inappropriate inlight of lows and regulations, social norms, and/or company rules,
and allowing prompt and appropriate action to be taken to prevent
misconduct.

The Committee discusses compliance policies and specificmeasures based on these policies. If any situation or behavior
deviates or is likely to deviate form lows and regulations etc., theCommittee investigates the actual situation, deliberates onappropriate corrective measures, and takes other relevant actions.
In addition we have initiated a “Helpline,” a whistle-blowing

Social Contributions
and support to a marathon event of a neighboring elementary school,and provide volunteers to conduct clean-up activities in thesurrounding neighborhood.

Our Company actively engages in activities to contribute to ourcommunity and society. Specifically, we hold concerts targeting
elementary and junior high school students, provide factory visits

Factory visit targeting neighboring elementary
school students

Training for a marathon of elementary school children
by members of the company track team

10

Cleaning areas around plants by voluntary employeesImprovement of Work Environment
And we were awarded the Diversity Management Selection 100(an award from the Ministry of Economy, Trade and Industry) on
March 18, 2015. This award is the result of our efforts, and it is thefirst time as the steel manufacturer.

We strive to build a workplace where all employees can demonstrate
their potential.
Examples include the introduction of a flexible working-hours
system, leave and shorted working hours for childbirth andchildcare, and rehiring at retirement age.

Our original maternity working wear

Lounge for women during of pregnancy and childrearing“Diversity Management Selection 100” is intended to award
the "companies that have played an enhanced corporate value
by diversity management".

Safety Initiatives
facilities in operation. Further, we have established a simulated
experience training center for safety by which employees can have asimulated experience of perils lurking in work so that every employee
can enhance their sensitivity to risks and awareness of safety.

Under the principle of giving the top priority to safety, our Company
aims to attain zero work accidents and zero traffic accidents, and weare promoting fundamental facility improvement for safety, safety
education and risk assessment activities. Within the factory, safety
fences and fail-safe devices are installed so that no one can get near

Environmental Conservation
to society-wide energy saving.
Further, while promoting the reduction of greenhouse gas
emissions and the effective utilization of resources, we also focus on
enhancement of employee awareness of the environment throughenvironmental education and training sessions.

The Company's core business is to manufacture special steel
primarily out of iron scrap, thereby playing a part in the resource
circulation society through recycling of iron resources. In addition,
our special steel products with superior characteristics have enabled
us to reduce weight of the final products, extend the products'
longevity and rationalize their manufacturing process, contributing

By changing the transportation method to railways and ships,
we reduce carbon dioxide emission

Introducing battery-powered company cars

11

Environmental patrol to check the status of industrial waste
control and the life

RESEARCH AND DEVELOPMENT
We detect actual customer needs via a thorough analysis of data on social and industrial developments collected through our customer
satisfaction-oriented marketing approach and respond to a variety of customer needs with fast-paced research and development. By promoting
R&D that contributes to the expansion of technological innovation, we will be further enhancing the brand power of "Sanyo Special Steel - theConfident Choice."

Newly Developed Products"PremiumJ2, " a new grade bearing steel
Responding to the needs for smaller bearings with greater fatigue life
PremiumJ2 is a new grade bearing steel which has enabled us to extend the life of bearing ina stable manner. PremiumJ2 was produced with a combination of new technologies, which
are namely a new steelmaking technology to reduce harmful non-metallic inclusions in steel,and a new testing technology to evaluate the frequency of the inclusions in large volumes ofsteel to prove the low incidence of such inclusions. By using PremiumJ2, it has become
possible to decrease variation in the minimum life of bearings. PremiumJ2 is expected tocontribute to down-sizing and light-weighting bearrings and their peripheral parts.
Ball Bearings"ECOMAX, " Ni- and Mo-free high-strength case hardening steel
Contributing to producing small-size, light-weight auto parts at a lower overall cost
ECOMAX is an resource-saving steel that realizes high strength without using such expensive
rare metals as Nickel and Molybdenum, which reduce manufacturability of parts, doing so
without sacrificing processability. ECOMAX responds to the need for small-size andlight-weight auto powertrain for the purpose of reducing CO2 emission and high hopes areplaced upon it as raw material for parts of automotive gears and shafts that need highstrength.
Automotive gears and shafts"QDX-HARMOTEX, " a Hotworking-die steel
Contributing to the greater die life with high temperature strengthand enhanced toughness
QDX-HARMOTEX is a hotworking-die steel with high temperature strength and high toughness.
Its high temperature strength is 1.3 times greater than conventional steel(JIS SKD61,AISI H13)and it limits the occurrence of heat checks*. Also, the toughness is 1.5 times greater than thatof conventional steel and it can prevent occurrence of large cracks and minor chips.
QDX-HARMOTEX contributes to the stabilizing and enhancing the life of dies.
* Heat check： Die cracking resulting from repeated heating and cooling during use.

Casting dies

"SPM X4N, " nitrided P/M high speed steels
Fourfold wear resistance compared to the conventional product - contributing toextend dies' life
SPM X4N is manufactured by consolidating nitrided metal powder. It offers superior
performance in terms of strength, toughness, wear resistance and seizing resistance. The
product's wear resistance in particular is four times greater than conventional P/M highspeed steel tool. SPM X4M is targeted to be applied to dies that are used in the extremely
harsh environments, pierce punch and slitter, among others, and we have already received
high appraisal from our customers.

12

Pierce punchTopics
We Made the World Record of Sequential Casting: 100Heats.
We made the sequential casting* world record of 100 heats with a single
tundish and no change of immersion nozzles on February 16, 2015. This
record was achieved by a wide-ranging coordination of internal functions
such as production plan, equipment maintenance, and quality assurance,in addition to our unique steel-making technology that can produce
extremely purified steel. We will steadily supply high-quality special steel
products by making further efforts to improve quality and technology.
* Sequential casting is a process of pouring molten steel into mold continuously.

Continuous caster

We Developed Metal Powders with Excellent Fluidity
by Enhancing Sphericity.
We succeeded in manufacturing a high melting point metal powder that is high in
sphericity and fluidity through our unique technologies.
Our highly spherical metal powders that allow a wide-ranging alloy design are
expected to be employed in a variety of next-generation fields, such as 3-D printers.

Taken in front of the caster when the sequential castingworld record of 100 heats was made.

Fe-base alloy

Ni-base alloy

Enlarged photo of the developed highly spherical metal powders

We will make good use of established quality assurance systemwith phased-array ultrasonic inspection machines.
Phased-array ultrasonic inspection machines (P-UST)
are flaw detectors capable of detecting flaws with an
S/N ratio (representing the detecting ability) roughly
three times higher than conventional rotating-probe
type machines.
We applied P-UST to mass-production lines for the
first time in the world in 2006. At the moment, we haveseven of the machines.
We managed to identify detecting conditions underwhich flaws two-thirds of the size conventional
machines can find can be detected in a stable manner.
We will meet customers' needs as well as gain theirhighest trust. Furthermore, we will focus on improving
quality in order to strengthen our customers'
international competitiveness and enhance ourinternational competitiveness.
Reference
The ultrasonic inspection machine projects ultrasound to a tested material to detect thereflected wave from a fine flaw inside the material. Whereas the conventional machine has astructure in which a probe (a mechanism that projects ultrasound) rotates around the tested
material, the probe of the P-UST is fixed.
○The phased-arrayultrasonic inspection machine○Conventional rotating-probe typewater(flowing)
Water tankSpecialty
Steel

Water film

Specialty
Steelprobes(rotating)probes(stationary)

We have commercialized ECOMAX4 .
— New lineup of Ni- and Mo-free high-strength casehardening steel, “ECOMAX”

Crystal grains of parts after cold working andcase hardening.
(optical microstructure)

ECOMAX4 is a rare-metal-saving case hardening steel that does not need expensive
nickel and molybdenum. ECOMAX4 is a high-strength case hardening steel that has
high strength (fatigue life) and excellent grain coarsening resistance and low heat
50μm
50μm
treatment distortion property. This product boasts a fatigue life more than five times
general-use
casehardening
steel
ECOMAX4
longer than conventional steel in pitting fatigue that decides the life of gears. The（JIS SCr420）
main applications in target are gear and shaft for a motor vehicle, bearing parts andthe like, where case-hardened steel is used.
ECOMAX4, with its unprecedented product property, will contribute to make gears, shafts, and other automobile powertrain
components smaller and lighter and reduce parts' manufacturing costs.

13

FINANCIAL SECTION
15

Analysis of Balance Sheets
Analysis of Cash Flows16

Financial Statements

39

Independent Auditor’s Report14

Analysis of Balance Sheets
Total assets stood at 202,243 million yen at the end of FY2014, down 1,278 million yen from theend of the previous term, due primarily to reductions in tangible fixed assets, cash and deposits
and inventories although available-for-sale securities and Net defined benefit assets rose
because of rising stock prices.
Liabilities stood at 88,598 million yen, down 12,018 million yen from the end of the previous
term, due primarily to the repayment of loans payable.
Net assets stood at 113,644 million yen, up 10,739 million yen from the end of the previous
term, due mainly to net income for the current term, valuation difference on available-for-salesecurities, caused by higher stock prices and an increase in the remeasurements of retirement
benefits.
Consequently, the D/E ratio (the ratio of interest-bearing liabilities to net assets after
deducting cash and deposits) reached 0.29 at the end of the FY2014 term (0.46 at the end of
the previous term).

Analysis of Cash Flows
Concerning the status of cash flows in FY2014, the net cash provided by operations was 20,698
million yen (an increase of 11,545 million yen from the previous term), due primarily to adecrease in inventories (2,076 million yen) and payment of corporate taxes (negative 2,301
million yen) in addition to net income before taxes (10,248 million yen) and depreciations (9,826
million yen).
The net funds used in investing activities were 5,874 million yen (an increase of 922 million
yen from the previous term), due mainly to capital investments for acquiring tangible fixed
assets to save energy and labor and to update existing facilities and other tasks (negative
7,113 million yen) and proceeds from sales of available-for-sale securities (1,545 million yen).
The net funds used in financing activities were 17,426 million yen (a 12,074 million yen
deficit increase from the previous term), due partly to a decrease in loans payable (negative
16,583 million yen).

15

FINANCIAL STATEMENTS
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSAs of March 31, 2014 and 2015
Thousands of U.S.
dollars (Note 3)

Millions of yen

ASSETS

2014

2015

2015

Current Assets:
Cash and bank deposits (Notes 5 and 16)¥

21,967¥20,010$166,539

Notes and accounts receivable, trade (Notes 5 and 19)

50,06949,196

409,453

Electronically recorded monetary claims

1,203

3,127

26,030

(6)

(7)

(58)

Inventories (Note 7)

48,392

46,704

388,718

Deferred tax assets (Note 12)

1,539

1,640

13,653

Other

1,395

616

5,125

124,560

121,286

1,009,460

7,080

7,739

64,411

Less: Allowance for doubtful accounts

Total current assets

Property, Plant and Equipment:
Land (Note 9)
Buildings and structures (Note 9)46,50946,860390,010

Machinery and equipment (Note 9)

202,540

206,519

1,718,842

Construction in progress

705

739

6,153

256,834

261,857

2,179,416(193,880)(201,570)(1,677,654)

62,95460,287501,762

794

957

7,961

Investments in securities (Notes 5, 6 and 8)

12,013

12,767106,257

Long-term loans receivable

1,412

1,210

10,068Deferred tax assets (Note 12)

115

160

1,328

1,097

4,960

41,287

745

776

6,467

Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

Investments and Others:

Net defined benefit assets (Note 11)
Other
Less: Allowance for doubtful accounts
Total investments and other assets¥

Total assets

The accompanying notes are integral parts of these statements.

16

(168)

(160)

(1,335)

15,214

19,713164,072

203,522¥202,243$

1,683,255

Thousands of U.S.
dollars (Note 3)

Millions of yen

LIABILITIES AND NET ASSETS

2014

2015

2015

Current Liabilities:
Short-term loans (Notes 5 and 10)¥

30,955¥28,160$234,374

Current portion of long-term loans (Notes 5, 9 and 10)

13,7486,293

52,376

Notes and accounts payable, trade (Note 5)

14,884

15,533

129,281

Accounts payable, other

4,057

4,143

34,485

Accrued income taxes

1,537

3,062

25,487

Accrued expenses

6,896

7,285

60,631

Other

1,206

1,799

14,96573,283

66,275551,599

25,135

18,842

156,820

Total current liabilities

Long-term Liabilities:
Long-term loans (Notes 5, 9 and 10)
Accrued directors' and corporate auditors' retirement benefits
Deferred tax liabilities (Note 12)

93

87

727

1,245

2,683

22,332

Reserve for environmental measures

8

−

−

Net defined benefit liabilities (Note 11)

689

553

4,599

164

159

1,326

Total long-term liabilities

27,334

22,324

185,804

Total liabilities

100,617

88,599737,403

Other

Contingent Liabilities (Note 19)
Net Assets (Note 13)
Shareholders’ Equity:
Common stock:
Authorized - 474,392,000 shares¥

Issued - 167,124,036 shares

20,183¥

20,183$

167,979

Capital surplus

22,596

22,597

188,070

Retained earnings

58,05664,171

534,092

Less: Treasury stock, at cost (5,806,428 shares in 2014 and 5,871,797 shares in 2015)(1,782)(1,813)(15,088)

99,053

105,137

875,053

2,824

4,294

35,743Foreign currency translation adjustments

866

1,808

15,052Remeasurements of defined benefit plans

(554)

1,557

12,956

3,136

7,659

63,751

716

847

7,048

102,905

113,644945,852

Total shareholders’ equity

Accumulated Other Comprehensive Income:
Valuation difference on available-for-sale securities

Total accumulated other comprehensive income

Minority Interests
Total net assets¥

Total liabilities and net assets

The accompanying notes are integral parts of these statements.

17

203,522¥202,243$

1,683,255

FINANCIAL STATEMENTS
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2014 and 2015
Thousands of U.S.
dollars (Note 3)

Millions of yen

2014

Net Sales
Cost of Sales (Note 14)¥

Gross profit

Selling, General and Administrative Expenses (Note 14)
Operating income

2015¥

161,587
141,607
19,980171,495
148,952
22,5432015$

1,427,341
1,239,714
187,627

13,096
6,884

13,373
9,170

117,308
76,319

188
479
414
1,081

214
910
441
1,565

1,779
7,578
3,674
13,031

(612)
(320)
(284)
(1,216)
6,749

(506)
(289)
(205)
(1,000)
9,735(4,212)(2,403)(1,710)(8,325)81,025

5
(188)
−
(12)
(195)
6,554

273
(394)
634
−
513
10,2482,274(3,283)
5,274
−
4,265
85,290

1,755
614
2,369
4,185

3,787
(162)
3,625
6,623

31,525(1,352)30,173
55,117

Other Income:Interest and dividend
Exchange gains
Other

Other Expenses:
Interest
Equity in losses of unconsolidated subsidiaries and affiliates
Other
Ordinary income

Extraordinary:Gain on sale of land
Loss on sale and disposition of property, plant and equipment
Gain on sale of investments in securities and others
Loss on evaluation of investments in securities and others
Income before income taxes and minority interests

Income Taxes (Note 12):Current
DeferredIncome before minority interests

Minority Interests in Net Income of Consolidated Subsidiaries
Net income

¥

119
4,066

¥

75
6,548

Yen

2014

$

621
54,496

U.S. dollars (Note 3)

2015

2015

Per Share:¥¥¥

Net income (Note 15)
Cash dividends
Net assets

The accompanying notes are integral parts of these statements.

18

25.21
5.00
633.4740.60
10.00
699.51

$
$
$

0.34
0.08
5.82

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2014 and 2015
Thousands of U.S.
dollars (Note 3)

Millions of yen

2014

Income Before Minority Interests
Other Comprehensive Income:¥

Valuation difference on available-for-sale securities
Foreign currency translation adjustments
Remeasurements of defined benefit plans
Share of other comprehensive income of affiliates accounted for by the equity method
Total other comprehensive income (Note 4)

Comprehensive Income
Comprehensive income attributable to:
Owners of the parent
Minority interests

The accompanying notes are integral parts of these statements.

19

4,185

2015
¥

6,623

2015
$

55,117

1,402
943
−
278
2,623
6,808

1,471
692
2,110
316
4,589
11,212

12,242
5,759
17,563
2,632
38,196
93,313

6,598
210

11,072
140

92,146
1,167

FINANCIAL STATEMENTS
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2014
Number ofoutstanding
common shares

167,124,036

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year

Millions of yen
Common stock

Capital surplus¥¥

20,183

22,596

Retainedearnings¥

Treasury stock,at cost54,474¥(1,773)

−

−

−

−

−

−

−

−

−

−

−
−
−
−
−
−
167,124,036

−
−
−
−
−
−
20,183−−−0−022,596

4,066
(484)
−
−
−
3,582
58,056

−
−
(10)
1
−
(9)
(1,782)

¥

¥

¥

¥

Millions of yen
Foreigncurrencytranslation
adjustments

Valuationdifference on
available-forsale securities

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year¥¥

Remeasurementsof defined
benefit plans

Minority
interests

Total

(263)

−

−

−

−

−

−

−

−

−

−

−
−
−
−
1,402
1,402
2,824

−
−
−
−
1,129
1,129
866

−
−
−
−
(554)
(554)
(554)

−
−
−
−
203
203
716

4,066
(484)
(10)
1
2,180
5,753
102,905

1,422

The accompanying notes are integral parts of these statements.

20

¥

¥

¥

¥

¥

513

¥

97,152−¥

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2015
Number ofoutstanding
common shares

167,124,036

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2014, net
Total changes for fiscal year 2014
Balance at end of year

Millions of yen
Common stock

Capital surplus¥¥

20,183

22,596

Retainedearnings¥

Treasury stock,at cost58,056¥(1,782)

−

−

−

373

−

−

−

−

58,429

−

−
−
−
−
−
−
167,124,036

−
−
−
−
−
−
20,183−−−1−
122,597

6,548
(806)
−
−
−
5,742
64,171

−
−
(32)
1
−
(31)
(1,813)

¥

¥

¥

¥

Millions of yen
Foreigncurrencytranslation
adjustments

Valuationdifference on
available-forsale securities

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2014, net
Total changes for fiscal year 2014
Balance at end of year

¥

¥

2,824

$

¥

716

¥

102,905

−

−

373

−

−

−

−

103,278

−
−
−
−
1,470
1,470
4,294

−
−
−
−
942
942
1,808

−
−
−
−
2,111
2,111
1,557

−
−
−
−
131
131
847

6,548
(806)
(32)
2
4,654
10,366113,644

167,124,036

$

(554)

Total

−

¥

¥

$

167,979¥

Thousands of U.S. dollars (Note 3)
Retained
Capital surplus
earnings

Common stock$

188,066$

483,200¥

Treasury stock,at cost$(14,830)

−

−

−

3,108

−

−

−

−

486,308

−

−
−
−
−
−
−
167,124,036

−
−
−
−
−
−
167,979

−
−
−
4
−
4
188,070

54,496(6,712)−−−47,784534,092

−
−
(268)
10
−
(258)
(15,088)$

23,501$$$Thousands of U.S. dollars (Note 3)
Foreign
Remeasurements
currency
Minorityof definedtranslationinterests
benefit plansadjustments

Valuationdifference on
available-forsale securities

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2014, net
Total changes for fiscal year 2014
Balance at end of year¥

866

Minority
interests−

Number ofoutstanding
common shares

Balance at beginning of year
Cumulative effects of changes inaccounting policies
Balance at beginning of year
reflecting changes in accounting policies
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2014, net
Total changes for fiscal year 2014
Balance at end of year¥

Remeasurementsof defined
benefit plans

$

7,207

$

(4,607)

$

Total

5,956

$

856,472

−

−

−

−

3,108

−

−

−

−

859,580−−−−
12,242
12,24235,743

−
−
−
−
7,845
7,845
15,052−−−−
17,563
17,563
12,956

−
−
−
−
1,092
1,092
7,048

54,496(6,712)(268)
1438,742
86,272
945,852

The accompanying notes are integral parts of these statements.

21

$

$

$

$

FINANCIAL STATEMENTS
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2014 and 2015
Thousands of U.S.
dollars (Note 3)

Millions of yen

2014
Cash Flows from Operating Activities:¥
Income before income taxes and minority interests
Adjustments Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Decrease in accrued employees' retirement benefits, less payments
Increase (decrease) in net defined benefit liabilities
Decrease in prepaid pension cost
Increase in net defined benefit assets
Increase (decrease) in accrued directors' and corporate auditors' retirement benefits, less payments
Decrease in reserve for environmental measures
Interest and dividend income
Interest expense
Gain on sale of investments in securities
Loss on evaluation of investments in securities
Equity in losses of unconsolidated subsidiaries and affiliates
Loss on sale and disposition of property, plant and equipment
Changes in assets and liabilities:
Notes and accounts receivable, trade
Inventories
Notes and accounts payable, trade
Other, net
SubtotalInterest and dividend income received
Interest expense paid
Income taxes (paid) refunded
Net cash provided by operating activities

6,554

2015
¥

10,2482015$

85,29010,966
1
(938)
330
1,714
(1,597)
20
(205)
(188)
612
−
12
320
183

9,827
(7)
−
(139)
−
(128)
(5)
(8)
(214)
506
(634)
−
289
121

81,789(59)−(1,159)−(1,065)(44)(67)(1,779)4,212(5,274)
−
2,403
1,009

(9,645)(1,992)
1,783
378
8,308
187
(665)
1,322
9,152

(863)
2,076
786
1,448
23,303215(519)(2,301)
20,698(7,180)17,278
6,540
12,060193,954
1,791(4,322)(19,153)
172,270

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Sale of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments in securities
Sale of investments in securities
Decrease in long-term loans receivable
Increase in over three-month deposits
Other, net
Net cash used in investing activities(4,955)
108
(179)
(2)
−
204
(67)
(60)
(4,951)(7,113)
349
(313)
−
1,545
203
(242)
(303)
(5,874)(59,204)
2,903(2,606)−
12,8591,686(2,015)(2,509)(48,886)

Cash Flows from Financing Activities:
Decrease in short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Payments for purchases of treasury stock
Proceeds from sales of treasury stock
Cash dividends
Cash dividends to minority shareholders
Net cash used in financing activities(1,078)4,860(8,633)
(10)
1
(484)
(8)
(5,352)(2,850)−(13,733)
(32)
2
(804)
(9)
(17,426)(23,721)−(114,299)(268)
14(6,693)(75)(145,042)

Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net Decrease in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of the Year
Cash and Cash Equivalents at End of the Year (Note 16)

309
(842)
22,421
21,579350(2,252)
21,57919,327

2,908(18,750)
179,605
160,855¥

The accompanying notes are integral parts of these statements.

22

¥

$

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presenting Consolidated Financial Statements
application and disclosure requirements from International Financial ReportingStandards, and are compiled from the consolidated financial statements
prepared by the Company as required by the Financial Instruments andExchange Law of Japan.

The accompanying consolidated financial statements of Sanyo Special
Steel Co., Ltd. (the "Company") and its consolidated subsidiaries (together,the "Companies") have been prepared on the basis of accounting principles
generally accepted in Japan, which are different in certain respects as to

2. Summary of Significant Accounting Policies(1) Consolidation and investments in affiliates -(2) Foreign currency translation -(a) Scope of consolidation and elimination
The Company has 14 subsidiaries as of March 31, 2015 (13 subsidiaries
as of March 31, 2014). The consolidated financial statements include theaccounts of the Company and 14 of its subsidiaries. The 14 subsidiaries thathave been consolidated for fiscal year 2015 are listed below:

Foreign currency transactions are translated into Japanese yen at theexchange rate prevailing at the respective transaction date. All monetary
assets and liabilities denominated in foreign currencies, whether long-termor short-term, are translated into Japanese yen at the exchange rate
prevailing at each balance sheet date. Resulting gains and losses areincluded in net profit or loss for the period.
All assets and liabilities of the foreign subsidiaries are translated into
Japanese yen at the exchange rate prevailing at each balance sheet date. All
income and expense accounts for the year are also translated at that rate.
These differences are recorded as foreign currency translation adjustments.

Yohkoh Bussan Co., Ltd.
Santoku Seiken Co., Ltd.
Santoku Kogyo Co., Ltd.
Santoku Technos Co., Ltd.
Santoku Tech Co., Ltd.
Santoku Computer Service Co., Ltd.
Santoku Security Service Co., Ltd.
SKJ Metal Industries Co., Ltd.
P.T. Sanyo Special Steel Indonesia
Sanyo Special Steel U.S.A., Inc.
Ningbo Sanyo Special Steel Products Co., Ltd.
Sanyo Special Steel Trading (Shanghai) Co., Ltd.
Sanyo Special Steel India Pvt. Ltd.
Siam Sanyo Special Steel Product Co., Ltd.

(3) Securities The accounting standard for financial instruments (“Accounting Standards
for Financial Instruments” (Accounting Standards Board of Japan (“ASBJ”)
Statement No. 10)) requires that securities be classified into 4 categories:
trading securities, held-to-maturity debt securities, equity securities issued
by subsidiaries and affiliates and available-for-sale securities. Except for theequity securities issued by subsidiaries and affiliates, securities that theCompany has are all classified as available-for-sale securities.
Under the standard, marketable securities classified as available-for-salesecurities are carried at fair value with changes in unrealized holding gains
or losses, net of the applicable income taxes, included directly in net assets.
Non-marketable securities classified as available-for-sale securities arecarried at cost. A decline in the value of available-for-sale securities isreflected in net profit or loss for the period unless deemed to be temporary.
Cost of securities sold is determined by the moving average method.

During the year ended March 31, 2015, Siam Sanyo Special Steel ProductCo., Ltd. was established and newly consolidated.
The consolidated subsidiaries, except for the 6 foreign subsidiaries (SKJ
Metal Industries Co., Ltd., P.T. Sanyo Special Steel Indonesia, Sanyo Special
Steel U.S.A., Inc., Ningbo Sanyo Special Steel Products Co., Ltd., SanyoSpecial Steel Trading (Shanghai) Co., Ltd., and Siam Sanyo Special Steel
Product Co., Ltd.), use a fiscal year ending March 31, which is the same asthat of the Company. The 6 foreign subsidiaries use a fiscal year ending
December 31. For these 6 subsidiaries, certain adjustments are made, if
appropriate, in preparing the consolidated financial statements to reflectmaterial transactions which occurred between their fiscal year-end andMarch 31.
For the purpose of preparing the consolidated financial statements, allsignificant intercompany transactions and balances and unrealized profits
among the Companies have been eliminated.
(b) Investments in affiliates
Investments in Advanced Green Components, LLC and Mahindra SanyoSpecial Steel Pvt. Ltd., two affiliates of the Company over which theCompany has significant influence, are accounted for by the equity method.
The equity method has not been applied to the investment in anotheraffiliate since adoption of the equity method for this investment in theaffiliate would not have a material effect on the consolidated net income andretained earnings of the Companies.

(4) Derivative Transactions The Companies use foreign exchange forward contracts and interest rate
swaps to reduce their exposure to market risks from fluctuations in foreign
currencies and interest rates. The Companies do not hold or issue financial
derivative instruments for trading purposes. If derivative transactions areused as hedges and meet certain hedging criteria, the Companies use thedeferred hedge accounting method.
In addition, with regard to interest rate swap transactions that meet thecriteria, the exceptional method has been adopted. Using this method, theCompanies do not account for gains or losses on those interest rate swap
transactions on a fair value basis, but recognize the interest on an accrualbasis.
The Companies compare the total change in cash flow or rate fluctuationof hedging instruments and those of hedged items every half year andevaluate the hedge effectiveness based on the differences.

(5) Inventories Inventories are stated at the lower of weighted-average cost or net
realizable value.

23

FINANCIAL STATEMENTS(6) Depreciation and amortization -(15) Cash and cash equivalents -The Company computes depreciation using the straight-line method forbuildings (excluding leasehold improvements and auxiliary facilities attached
to buildings) which have been acquired on or after April 1, 1998. The
Companies compute depreciation mainly using the declining-balancemethod for property, plant and equipment other than those described above.
Amortization of capitalized software costs for internal use is computed by
the straight-line method based on the useful life estimated to be 5 years.
Amortization of other intangible assets is computed by the straight-line
method.

Cash and cash equivalents in the consolidated statements of cash flows
are composed of cash on hand, bank deposits able to be withdrawn on
demand and short-term investments with an original maturity of threemonths or less and which represent a minor risk of fluctuations in value.

(16) Consumption tax In Japan, a consumption tax, with certain exemptions, is imposed on
domestic consumption of goods and services at the rate of 8%. The
consumption tax imposed on the Company and its domestic subsidiaries
sales to customers is withheld at the time of sale and is subsequently paid
to the national government. The consumption tax withheld upon sale is notincluded in the amount of “net sales” in the consolidated statements ofoperations but is recorded as liabilities. The consumption tax imposed on thepurchases of products, merchandise and services from vendors borne by theCompany and its domestic subsidiaries is not included in the amounts ofcosts and expenses but is recorded as assets. The balance of consumption
tax withheld, net of consumption tax paid, is included in “Other current
liabilities” in the consolidated balance sheets.

(7) Research and development costs Research and development costs are charged to profit or loss as incurred.

(8) Allowance for doubtful accounts Allowance for doubtful accounts is provided at the amount calculated
based on past loss experience plus the amount estimated to be uncollectible
based on an assessment of certain individual accounts.

(9) Accrued directors' and corporate auditors' retirement benefits (17) Reclassifications and restatement -Certain consolidated subsidiaries provide for lump-sum payments toretiring directors and corporate auditors subject to shareholders' approval.
Accrued directors' retirement benefits are based on internal rules.

Reserve for environmental measures for obligatory PCB treatment isstated as an estimated cost at the end of the fiscal year.

Certain prior year amounts have been reclassified to conform to thecurrent year presentation. “Electronically recorded monetary claims” isreported as its own category due to the increased significance in terms of
the amount in the consolidated balance sheets as of March 31, 2015. As aresult, “Electronically recorded monetary claims” included in “Notes andaccounts receivable, trade” as of March 31, 2014 have been reclassified.

(11) Accounting methods for employees' retirement benefits -(18) Change in accounting policies -In the calculation of retirement benefit obligations, the estimated amountof retirement benefits is attributed to the consolidated fiscal year based on
the benefit formula basis.
Actuarial gains and losses are posted in expenses after the consolidated
fiscal year of the accruals based on the straight-line method for 10 years
within average remaining service period of the employees.
In the calculation of net defined benefit liabilities and retirement benefits
expenses, certain consolidated subsidiaries adopt a simplified method thatregards the benefits payable assuming the voluntary retirement of all
employees at the fiscal year-end as retirement benefit obligations.

The Company and its consolidated domestic subsidiaries adopted article
35 of the “Accounting Standard for Retirement Benefits” (ASBJ Statement
No. 26, May 17, 2012 (hereinafter, “Statement No. 26”)) and article 67 of
the “Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25, May 17, 2012 (hereinafter, “Guidance No. 25”)) from thecurrent fiscal year, and have changed the determination of retirement
benefit obligations and current service costs. In addition, the Company andits consolidated domestic subsidiaries have changed the method of
attributing estimated benefit to periods from the straight-line basis to thebenefit formula basis and determining the discount rates.
In accordance with article 37 of Statement No. 26, the effect of changing
the determination of retirement benefit obligations and current service costs
has been recognized in retained earnings at the beginning of the current
fiscal year.
As a result of the application, net defined benefits assets increased by¥413 million ($3,440 thousand), net defined benefits liabilities decreased by¥166 million ($1,385 thousand), retained earnings increased by ¥373 million($3,108 thousand) and net assets per share increased by ¥2.31 ($0.20). In
addition, the effect on statements of operations is immaterial.

(10) Reserve for environmental measures -(12) Income taxes The asset and liability method is used to recognize deferred tax assets
and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts of assets and liabilities and theirtax basis.

(13) Revenue recognition Sales are generally recognized at the time the goods are delivered or
shipped to customers.

(19) Accounting standards issued but not yet adopted (14) Net income and cash dividends per share -Accounting Standard for Business Combinations“Accounting Standard for Business Combinations” (ASBJ Statement No.
21, September 13, 2013), “Accounting Standard for Consolidated Financial
Statements” (ASBJ Statement No. 22, September 13, 2013), “AccountingStandard for Business Divestitures” (ASBJ Statement No. 7, September 13,2013), “Accounting Standard for Earnings Per Share” (ASBJ Statement No.
2, September 13, 2013), “Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures” (ASBJ

Net income per share is computed by dividing net income available for
distribution to shareholders of common stock by the weighted-average
number of shares of common stock outstanding during the year.
Cash dividends per share shown for each year in the consolidated
statements of operations represent dividends declared as applicable to therespective years rather than those paid during the years.

24

Guidance No. 10, September 13, 2013) and “Guidance on AccountingStandard for Earnings Per Share” (ASBJ Guidance No. 4, September 13,2013).
1. Outline
These accounting standards and guidance contain amendments to theaccounting treatment for: (1) changes in a parent’s ownership interest in a
subsidiary when the parent retains control over the subsidiary in the
additional acquisition of shares therein, (2) acquisition related costs,(3)presentation method of net income and amendment of “minority interests”
to “non-controlling interests,” and (4) transitional provisions for accounting
treatments.

2. Effective dates
The standards are effective from the fiscal year beginning April 1, 2015.
However, the transitional provisions for accounting treatments will beapplied from business combinations performed on or after the fiscal year
beginning April 1, 2015.
3. Effect of application of the standard
At present, the Company and its consolidated domestic subsidiaries havenot determined the effects of the new standard on the consolidated financial
statements.

3. U.S. Dollar Amounts
The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan. These translations
should not be construed as representations that the Japanese yen amounts actually represent or have been or could be converted into U.S. dollars. The rateof ¥120.15 = U.S. $1.00, the approximate rate of exchange as at March 31, 2015, has been used for such translations.

4. Consolidated Statement of Comprehensive Income
Amounts reclassified to net income in the current period that were recognized in other comprehensive income in the current or previous periods and tax
effects for each component of other comprehensive income are as follows:
Thousands of
U.S. dollars

Millions of yen

2014
Valuation difference on available-for-sale securities
Increase during the year
Reclassification adjustments
Subtotal, before tax
Tax (expense)
Subtotal, net of tax
Foreign currency translation adjustments
Increase during the year
Remeasurements of defined benefit plans
Increase during the year
Reclassification adjustments
Subtotal, before tax
Tax (expense)
Subtotal, net of tax
Share of other comprehensive income of affiliates accounted for by the equity method
Increase during the year
Total other comprehensive income

25

¥

¥

2015

1,707
−
1,707
(305)
1,402

¥

2015

2,283
(634)
1,649
(178)
1,471

$

18,999(5,274)
13,725(1,483)
12,242

943

692

5,759

−
−
−
−
−

3,082
73
3,155
(1,045)2,110

25,654609
26,263(8,700)17,563

278
2,623

¥

316
4,589

$

2,632
38,196

FINANCIAL STATEMENTS

5. Financial Instruments(1) Status of financial instruments The Companies procure funds required in light of our business plan through bank loans, and temporary surplus funds are to be utilized in short-term bankdeposits, etc., with low probability of loss of principal. The Companies utilize derivative transactions mainly to hedge interest rate fluctuation risk and limit theamount to actual demand.
Notes and accounts receivable are exposed to the credit risks of customers. In order to reduce such risks, the Companies regularly monitor the maturity
dates and the balances of receivables of all customers’ accounts and evaluate the main customers' credit risk due to deterioration of the financial situation,etc., according to Company regulations. Notes and accounts receivable denominated in foreign currencies are exposed to exchange rate risks. The
Companies reduce such risks by settling both notes and accounts receivable and notes and accounts payable with the same foreign currencies.
Investments in securities, which are mainly shares in companies that have business relationships with the Companies, are exposed to market price risks.
The Companies regularly review the fair value of the securities and the financial position of the companies and revise their portfolios considering therelationships with them.
Notes and accounts payable are paid within one year. Notes and accounts payable denominated in foreign currencies arising from the import of raw
materials, etc., are exposed to exchange rate risks. The Companies reduce such risks by settling both notes and accounts receivable and notes and accounts
payable with the same foreign currencies.
Bank loans are primarily for funding related to operating and investing activities. Bank loans with variable interest rates are exposed to interest rate
fluctuation risks. The Companies reduce such risks with long-term loans by interest rate swap contracts.
The Companies establish regulations which stipulate the authorization and management of derivative transactions. See Note 2(4), “Derivative
Transactions,” about hedge accounting.
Notes and accounts payable and bank loans are exposed to liquidity risks. The Companies reduce such risks by making monthly cash flow plans. The
Company has commitment line contracts in preparation for contingencies.
Fair values of financial instruments include values based on market price and values obtained by reasonable estimates when the financial instruments do
not have market price. Since certain assumptions are adopted for calculating such values, the values may differ when different assumptions are adopted.

(2) Fair values of financial instruments Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2014 were as follows. Certain financial
instruments were excluded from the following table as the fair values were not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions① Hedge accounting is not applied② Hedge accounting is applied¥

21,96750,069Fair value¥

Difference

21,96750,069

−
−

¥

8,936
(14,884)(44,703)(25,135)

8,936(14,884)(44,703)(25,320)

−
−
−
△185

(0)
−

(0)
−

−
−

(※) The debt is displayed by ( ).
Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2015 are as follows. Certain financial
instruments are excluded from the following table as the fair values are not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions①Hedge accounting is not applied②Hedge accounting is applied¥

20,01049,196

Thousands of U.S. dollars

Fair value¥

Difference

20,01049,196¥

Book value

Fair value

Difference−−$ 166,539
409,453$ 166,539
409,453

$

−
−

9,674
(15,533)(34,453)(18,842)

9,674(15,533)(34,453)(18,971)

−
−
−
△129

80,512(129,281)(286,750)(156,820)

80,512(129,281)(286,750)(157,893)−−−△1,073

(0)
−

(0)
−

−
−

(1)
−

(1)
−

−
−

(※) The debt is displayed by ( ).

26

1. The method of estimating fair values of financial instruments and matters about investments in securities and derivative transactions.
(1) Cash and bank deposits and (2) Notes and accounts receivable, trade
The book value approximates the fair value because of the short-term maturities of these instruments.
(3) Investments in securities
Market prices and quoted prices are used for equity securities.
See Note 6, “Securities.”(4) Notes and accounts payable, trade and (5) Short-term loans
The book value approximates the fair value because of the short-term maturities of these instruments.
Short-term loans payable includes the current portion of long-term loans.
(6) Long-term loans
The discounted cash flow method is used to estimate the fair value of long-term loans by using marginal borrowing rates as the discount rate.
(7) Derivative transaction
See Note 18, “Derivatives.”
2. Non-listed equity securities whose fair values are not available are excluded from investments in securities above. These instruments as of March 31,
2014 and 2015 are as follows.
Thousands of
U.S. dollars

Millions of yen

2014¥

Non-listed equity securities

2015

478

¥

2015

478

$

3,977

3. The aggregate maturities subsequent to March 31, 2014 for financial assets with maturities were as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

21,96750,06972,036

1 year or more but
within 5 years

−
−
−

¥
¥

5 years or more but
within 10 years

¥
¥

−
−
−

Ten years or more

¥
¥

−
−
−

The aggregate maturities subsequent to March 31, 2015 for financial assets with maturities are as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

20,01049,196
69,206

1 year or more but
within 5 years

¥
¥

−
−
−

5 years or more but
within 10 years

¥
¥

−
−
−

Ten years or more

¥
¥

−
−
−

Thousands of U.S. dollars
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total$ 166,539
409,453$ 575,992

27

1 year or more but
within 5 years

$
$

−
−
−

5 years or more but
within 10 years

$
$

−
−
−

Ten years or more

$
$

−
−
−

FINANCIAL STATEMENTS

4. The aggregate maturities subsequent to March 31, 2014 for short-term loans and long-term loans were as follows:
Millions of yen
1 year or more but
within 5 years

Within 1 year

Short-term loans
Long-term loans
Total

¥

44,688−44,688¥−25,06325,063¥¥5 years or more but
within 10 years

−
−
−

¥
¥

Ten years or more

−
−
−

¥
¥

The aggregate maturities subsequent to March 31, 2015 for short-term loans and long-term loans are as follows:
Millions of yen
1 year or more but
within 5 years

Within 1 year

Short-term loans
Long-term loans
Total

¥

34,438−34,438¥−18,78518,785¥¥

5 years or more but
within 10 years

−
−
−

¥
¥

Ten years or more

−
−
−

¥
¥

Thousands of U.S. dollars
Within 1 year

Short-term loans
Long-term loans
Total$ 286,625−$ 286,625

1 year or more but
within 5 years

5 years or more but
within 10 years−
156,346$ 156,346

$

$

−
−
−

$

Ten years or more

−
−
−

$
$

6. Securities
1. The aggregate acquisition costs and fair values (book values) of marketable securities classified as available-for-sale securities as of March 31, 2014 and2015 are as follows:
Millions of yen
2014
Acquisition
cost

Fair value(Book value)

Thousands of U.S. dollars
2015

2015
Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Securities whose book value exceeds acquisition cost:Stock¥ 5,124 ¥ 8,785 ¥ 3,661 ¥ 4,344 ¥ 9,652 ¥ 5,308 $ 36,156 $ 80,329$ 44,173

Securities whose acquisition cost exceeds book value:
Stock
157
151
(6)
26
22
(4)
213
183
Total
¥ 5,281 ¥ 8,936 ¥ 3,655 ¥ 4,370 ¥ 9,674 ¥ 5,304 ¥ 36,369 ¥ 80,512(30)¥ 44,143

2. There were no sales of available-for-sale securities in the year ended March 31, 2014. Available-for-sale securities sold in the year ended March 31, 2015
are as follows:
Millions of yen
Amountsof salesStock¥ 1,547 ¥28

Realized
gains

634 ¥

Thousands of U.S. dollars
Realized
lossesAmountsof salesRealizedgains− $ 12,873 $ 5,274

Realized
losses$−7. Inventories
Inventories held by the Companies at March 31, 2014 and 2015 consist of the following:Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Merchandise
Finished products
Work-in-process
Raw materials and supplies
Total

¥

¥

1,872
8,956
21,83015,734
48,392

¥

¥

2,036
7,774
23,347
13,547
46,704$$

16,95164,700
194,317
112,750
388,718

8. Unconsolidated Subsidiaries and Affiliates
Items relevant to unconsolidated subsidiaries and affiliates at March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Investments in securities (stocks)

¥

2,599

¥

2,615

$

21,767

9. Assets Pledged as Collateral
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Assets pledged as collateral:
Land
Buildings and structures
Machinery and equipment

¥

¥

4,590
4,432
6,245
15,267

¥

8,775
8,775

Secured liabilities:
Long-term loans (including those due within one year)

29

¥

¥

4,590
3,969
5,057
13,616

¥

5,850
5,850

$

$

38,20533,03242,092
113,329$

48,68948,689

FINANCIAL STATEMENTS

10. Short-term Loans and Long-term Loans
Short-term loans at March 31, 2014 and 2015 represent bank overdrafts with weighted-average interest rates of 0.43% and 0.44%, respectively. It is
normal business custom in Japan for short-term borrowings to be rolled over every year. The Company has commitment line contracts for short-term
financing arrangements with 3 financial institutions for an aggregate maximum amount of ¥20,000 million ($166,459 thousand). At March 31 2015, the total¥20,000 million ($166,459 thousand) is unused.
Long-term loans at March 31, 2014 and 2015 consist of the following:Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Loans from banks and other financial institutions due 2015 to 2019 withinterest rates ranging from 0.45% to 1.94% at March 31, 2014 and due 2016
to 2019 with interest rates ranging from 0.45% to 1.94% at March 31, 2015
Other payables due 2015 to 2021 with interest of 4.05% at March 31, 2014
and due 2016 to 2021 with interest of 4.05% at March 31, 2015¥

38,796¥87
38,883(13,748)
25,135

Less: Current portion of long-term loans¥

25,063¥

72
25,135(6,293)
18,842$

208,598$

598
209,196(52,376)
156,820

The annual maturities of long-term loans outstanding at March 31, 2015 are as follows:Year ending at March 31,

Millions of yen

2016
2017
2018
2019
2020 and thereafter¥¥

13,940154,875
9318,842Thousands of
U.S. dollars$$

116,022125
40,57570
28
156,820

11. Retirement Benefits
The Company and certain consolidated subsidiaries have funded or unfunded defined benefit pension plans and defined contribution pension plans for
employee retirement benefits.
The defined benefit corporate pension plans all comprised of funded plans that provide lump sum payments or pension benefits based on salary and lengthof service. These plans set up retirement benefit trusts. Severance indemnity plans, though as a result of setting up retirement benefit trusts, some plans are
funded, pay lump sums based on salary and length of service as retirement benefits.
The defined benefit pension plans of certain consolidated subsidiaries calculate net defined benefit liabilities and retirement benefit costs by the simplified
method.
Defined benefit plans(1) Movements in retirement benefit obligations, except plans applying the simplified method:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Balance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes in accounting policies
Service cost
Interest cost
Actuarial loss
Benefit paid
Balance at end of year

¥

¥

30

8,688
−
8,688
384
119
238
(1,089)
8,340

¥

¥

8,340
(580)
7,760
435
46
181
(809)
7,613

$

$

69,415(4,826)64,589
3,623
382
1,505
(6,738)63,361

(2) Movements in plan assets, except plans applying the simplified method:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Balance at beginning of year
Expected return on plan assets
Actuarial gainContributions paid by the employer
Benefits paid
Balance at end of year

¥

7,664
110
1,626
5
(134)
9,271

¥

¥

¥

9,271
140
3,263
3
(101)
12,575$$

77,162
1,162
27,15923(839)
104,667(3) Movements in liability for retirement benefits of defined benefit plans applying the simplified method:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Balance at beginning of year
Retirement benefit costs
Benefits paid
OthersBalance at end of year

¥

476
78
(32)
1
523

¥

¥

¥

523
82
(54)
4
555

$

$

4,350
679
(452)
41
4,618

(4) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for retirement benefits:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Funded retirement benefit obligations
Plan assets¥

Unfunded retirement benefit obligations
Total Net liability (asset) for retirement benefits at end of year

8,340
(9,271)
(931)
523
(408)

Net defined benefit liabilities
Net defined benefit assets
Total Net liability for retirement benefits at end of year689
(1,097)
(408)

¥

¥

7,613
(12,575)(4,962)555(4,407)$63,361(104,667)(41,306)
4,618(36,688)
4,599(41,287)(36,688)553(4,960)(4,407)(5) Retirement benefit costs:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Service cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Retirement benefit costs based on the simplified method
Total retirement benefit costs

¥

¥

383
119
(110)
31
78
501

¥

¥

435
46
(140)
73
82
496

$

$

3,623
382
(1,162)
609
679
4,131

(6) Remeasurements of defined benefit plans:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Actuarial gains and losses

¥

31

−

¥

3,155

$

26,263

FINANCIAL STATEMENTS(7) Accumulated remeasurements of defined benefit plans:Millions of yen
2014
2015

Actuarial gains and losses that are yet to be unrecognized

¥

860

¥

(2,296)

Thousands of
U.S. dollars
2015$(19,108)(8) Plan assets:① Plan assets comprise:
2014

Equity securities
Bonds
Other
Total

87%
1%
12%
100%

2015

90%
1%
9%
100%

The total of plan assets includes retirement benefit trusts set to the corporate pension plan accounted for 11% and 9% of total at March 31, 2014 and2015, respectively.
② Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets have been considered in determining thelong-term expected rate of return.
(9) Actuarial assumptions
The principal actuarial assumptions at March 31, 2014 and 2015 (expressed as weighted averages) are as follows:
2014

Discount rateLong-term expected rate of return

1.4%
1.4%

2015

0.4%
1.5%

Defined contribution plans
The Company and certain consolidated subsidiaries have contributed a total of ¥180 million and ¥174 million ($1,449 thousand) to the defined contributionplans for the year ended March 31, 2014 and 2015, respectively.

3212. Income Taxes
The Companies are subject to a number of different income taxes which, in the aggregate, resulted in a statutory income tax rate in Japan of approximately
38.0% and 35.6% for the year ended March 31, 2014 and 2015, respectively. On March 31, 2015, amendments to the Japanese tax regulations wereenacted into law. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to besettled or realized from April 1, 2015 to March 31, 2016 and on or after April 1, 2016 are changed from 35.6% for the fiscal year ended March 31, 2015 to
33.0% and 32.2%, respectively, as of March 31, 2015.
Due to these changes in statutory income tax rates, net deferred tax assets (after deducting the deferred tax liabilities) decreased by ¥142 million ($1,184
thousand) as of March 31, 2015, deferred income tax expense recognized for the fiscal year ended March 31, 2015 increased by ¥42 million ($348
thousand), unrealized holding gains on securities increased by ¥106 million ($882 thousand) and accumulated remeasurements of defined benefit plansincreased by ¥78 ($650 thousand).
At March 31, 2014 and 2015, significant components of deferred tax assets and liabilities are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Deferred tax assets:
Amortization of transition obligations corresponding to contributionof certain marketable securities to employee retirement benefit trusts
Devaluation loss on marketable securities
Accrued bonuses
Gain on investment of certain marketable securities to employee retirement
benefit trusts
Net defined benefit liabilities
Business tax payable
Unrealized gains
Devaluation loss on inventories
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Net defined benefit assets
Gain on contribution of certain marketable securities to employee retirement benefit trusts
Reserve for deferred capital gains from property, plant and equipment
Unrealized holding gains on securities
Reserve for special depreciation
Other
Total deferred tax liabilities
Net deferred tax assets (liabilities)

¥

¥

¥

¥

2,597
1,150
645
378
310
135
181
233
836
6,465
(1,530)
4,935

(391)
(1,401)(1,090)
(831)
(521)
(292)
(4,526)
409

¥

¥

¥

¥

2,349
1,041
678
383
251
235
216
117
821
6,091
(1,383)
4,708(1,597)(1,267)(1,016)(1,009)(350)(352)(5,591)
(883)

$

$

$

$

19,548
8,660
5,640
3,186
2,087
1,957
1,799
972
6,843
50,692(11,507)
39,185(13,294)(10,544)(8,459)(8,400)(2,916)(2,923)(46,536)(7,351)

The reconciliation between the statutory income tax rate and the effective income tax rate for the years ended March 31, 2014 and 2015 are not required
to be disclosed due to the insignificance of the difference.

13. Net Assets
At the Company’s Board of Directors meeting held on May 15, 2014, the directors approved cash dividends amounting to ¥323 million. At the Company’s
Board of Directors meeting held on May 18, 2015, the directors approved cash dividends amounting to ¥1,129 million ($9,395 thousand).

14. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2014
and 2015 totaled ¥1,389 million and ¥1,383 million ($11,511 thousand), respectively.

33

FINANCIAL STATEMENTS

15. Net Income Per Share
Basis for calculations of net income per share for the years ended March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Net income
Net income for common stockholders

¥
¥

4,066
4,066

¥
¥

6,548
6,548

$
$

54,49654,496

Thousands of shares
2014

The weighted-average number of shares of common stock2015

161,328

161,280

Yen
2014

Net income per share¥

U.S. dollars
2015

2015

25.21

¥

40.60

$

0.34

The Companies have no dilutive securities for the years ended March 31, 2014 and 2015.

16. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2014 and 2015 consist of the following:Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Cash and bank deposits
Time deposits with deposit terms of over 3 months and otherCash and cash equivalents¥¥

21,967(388)
21,579¥¥$20,010(683)
19,327

166,539(5,684)
160,855$

17. Accounting for Leases(1) Finance leases –Non-capitalized finance leases at March 31, 2014 and 2015 are as follows:
As a lessee
Periodic lease charges to the Companies, as a lessee, which were charged to profit or loss for the years ended March 31, 2014 were ¥145 million.
Lease assets under finance leases, if capitalized, at March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Acquisition cost
Accumulated depreciation
Net book value

Machineryand vehicles

Machineryand vehicles

¥

¥

1,454
1,370
84

¥

Machineryand vehicles

−
−
−

¥

$
$

−
−
−

Depreciation expense for lease assets computed by the straight-line method over the period of the finance leases with no residual value for the years
ended March 31, 2014 and 2015 are ¥145 million and ¥84 million ($702 thousand), respectively.
Outstanding future lease payments due at March 31, 2014 and 2015, including interest, are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Due within one year
Due after one year
Total

¥
¥

34

84
−
84

¥
¥

−
−
−

$
$

−
−
−

(2) Non-cancelable operating leases As a lessee
Outstanding future lease payments under non-cancelable operating leases at March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

Due within one year
Due after one year
Total

¥

15
0
15

¥

¥

11
48
59

¥

$

94
395
489

$

18. Derivatives(1) Derivative transactions to which hedge accounting is not applied.
The contracted amount, fair value and unrealized gain (loss) of forward exchange contracts recognized for the year ended March 31, 2014 were as follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Japanese yen
Total

¥

124
31
155

¥

Unrealized
gain (loss)

Fair value

¥

¥

(0)
(0)
(0)

¥

(0)
(0)
(0)

¥

The contracted amount, fair value and unrealized gain (loss) of forward exchange contracts recognized for the year ended March 31, 2015 are as follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Total

¥
¥

159
159

Thousands of U.S. dollars
Unrealized
gain (loss)

Fair value

¥
¥

(0)
(0)

¥
¥

Contract
Amount

(0)
(0)

$
$

1,324
1,324

Unrealized
gain (loss)

Fair value

$
$

(1)
(1)

$
$

(1)
(1)

(2) Derivative transactions to which hedge accounting is applied.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2014 and 2015 are as follows:
Method of hedge accounting
Type of derivative transactions
The main hedged items
Contract amount1 year or more amount of contract
Fair value

2014
Exceptional method for interest rate swap
transactions
Interest rate swap transactions
Payment fixation, Receipt change

2015
Exceptional method for interest rate swap
transactions
Interest rate swap transactions
Payment fixation, Receipt change

Long-term loans¥19,435 million¥16,510 million※

Long-term loans¥16,510 million ($137,412 thousand)¥13,585 million ($113,067 thousand)※※ Because interest rate swap transactions accounted for by the exceptional method are managed together with long-term loans that are hedged items, thefair value is included in the fair value of long-term loans.

35

FINANCIAL STATEMENTS

19. Contingent Liabilities
Guarantees against bank loans of employees and affiliates at March 31, 2014 and 2015 are as follows:
Thousands of
U.S. dollars
2015

Millions of yen
2014
2015

UCHIDA-SATO TECH (THAILAND) CO., LTD.
Employees
Total

¥
¥

22
27
49

¥
¥

−
15
37

$
$

179
126
305

20. Segment Information(1) General information about reportable segments
The Companies' reportable segments are the business units for which the Company is able to obtain separated financial information in order for the Boardof Directors to regularly conduct investigations to determine the distribution of management resources and evaluate business results. Each operating divisiondevelops business activities and establishes comprehensive strategies for domestic and overseas markets according to the products it handles. Therefore,
the Companies consist of business segments according to their products based on operating divisions and have determined the reportable segments, as"Specialty Steel," "Special Materials" and "Formed and Fabricated Materials."
The "Specialty Steel" segment includes the manufacture and sale of various special steel products such as bearing steel, engineering steel, stainless steel,heat resistant steel and tool steel. The "Special Materials" segment includes the manufacture and sale of metal powder products, heat/corrosion-resistantalloys, etc. The "Formed and Fabricated Materials" segment includes the manufacture and sale of formed and fabricated materials made from special steel
bars/tubes.

(2) Basis of measurement about reportable segment profit or loss and other material items
The accounting methods applied to the reportable segments are generally the same as those described in Note 2, " Summary of Significant Accounting
Policies," except that inventories are stated at cost to evaluate business results. Segment income is based on operating income. Intersegment transactions
are based on market prices.

36

(3) Information about reportable segment profit or loss and other material items
Segment information for the years ended March 31, 2014 and 2015 is as follows:
For the year ended March 31, 2014
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income(b) Other:
Depreciation¥¥

Special Materials¥

134,799 ¥9,680 ¥
144,479
4,146 ¥¥

10,073¥Formed & FabricatedMaterials

Other

¥

161,587−
161,587
6,884¥

10,911 ¥(18)¥

10,893

¥
¥

8

¥
¥

571

259

¥
¥

¥

−
(10,757)(10,757)
(502)

¥
¥

¥
¥

¥
¥

Consolidated
total

Adjustments

161,587 ¥
10,757 ¥172,3447,386 ¥

190
1,077
1,267
52

18,964−18,964
1,934

7,634
−
7,634
1,254

Total

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥502 million are adjustments for inventories of ¥551 million and intersegment elimination of ¥49 million.
3. Segment income is adjusted with operating income in the consolidated statements of operations.
4. As information about segment assets and liabilities is not used to determine the distribution of management resources and evaluate business results, the Companies are notrequired to disclose information about segment assets and liabilities.

For the year ended March 31, 2015
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income(b) Other:
Depreciation¥¥

Special Materials

Formed & FabricatedMaterials¥

6¥

9,778 ¥

543

185

9,044

¥

¥

¥

¥

¥

171,495 ¥
11,466 ¥
182,961
9,572 ¥¥¥¥

Consolidated
total

Adjustments

¥
¥

¥
¥

¥
¥

¥
¥

Total

180
1,490
1,670
58

20,565−
20,565
1,701

8,545
−
8,545
1,758

142,205
9,976
152,181
6,055

Other

−
(11,466)(11,466)
(402)

¥
¥
¥

171,495−
171,495
9,170(15) ¥

9,763

Thousands of U.S. dollars
Reportable segment
Specialty SteelSpecial Materials(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income$ 1,183,561$
83,032
1,266,593$
50,398$$(b) Other:
Depreciation$

75,269Formed & FabricatedMaterials

Other

Total

$
$

$

171,157−
171,157
14,151$

1,500
12,40013,900
481

$

4,516

$

54

$
$

$

71,123−
71,123
14,633$

1,542$ 1,427,341$
95,432
1,522,773$
79,663$$$−(95,432)(95,432)(3,344)

$

$

(123)

81,381

Consolidated
total

Adjustments$ 1,427,341$−
1,427,341$
76,319$81,258

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥402 million ($3,344 thousand) are adjustments for inventories of ¥439 million ($3,649 thousand) and intersegment elimination of ¥37
million ($305 thousand).
3. Segment income is adjusted with operating income in the consolidated statements of operations.
4. As information about segment assets and liabilities is not used to determine the distribution of management resources and evaluate business results, the Companies are notrequired to disclose information about segment assets and liabilities.

37

FINANCIAL STATEMENTS
Related Information
Segment related information for the year ended March 31, 2014 was as follows:(1) Information about products and services –As described in “General information about reportable segments,” the Companies are not required to disclose information about products and services.

(2) Information about geographic areas –1. Net sales
For the year ended March 31, 2014
Millions of yen

Net sales¥

North
America

Asia

Japan

123,689¥

31,560¥Europe

4,047

¥

1,986

Others

¥

305

Total

¥

161,587

2. Property, plant and equipment
As Japan, which consists of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represents more than 90% of the amount of property,
plant and equipment on the consolidated balance sheet as of March 31, 2014, the Companies are not required to disclose information about property, plantand equipment.

(3) Information about major customers –Net sales

For the year ended March 31, 2014
Related segment

Millions of yen

Marubeni-Itochu Steel Inc.
Mitsui & Co., Ltd.

¥¥

31,957
20,354

Specialty SteelSpecialty Steel

Segment related information for the year ended March 31, 2015 is as follows:(1) Information about products and services –As described in “General information about reportable segments,” the Companies are not required to disclose information about products and services.

(2) Information about geographic areas –1. Net sales
For the year ended March 31, 2015
Millions of yen
Japan

Net sales¥

North
AmericaAsia

127,569¥

35,961¥

5,344

Europe¥2,402

Others

¥

219

Total

¥

171,495

Thousands of U.S. dollars
Japan

Net sales

North
AmericaAsia$ 1,061,750$

299,304$

44,474

Europe$19,994

Others

$

1,819

Total

$ 1,427,341

2. Property, plant and equipment
As Japan, which consists of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represents more than 90% of the amount of property,
plant and equipment on the consolidated balance sheet as of March 31, 2015, the Companies are not required to disclose information about property, plantand equipment.

(3) Information about major customers –For the year ended March 31, 2015
Net sales
Millions of yen

Marubeni-Itochu Steel Inc.
Mitsui & Co., Ltd.

¥¥

Related segment

Thousands of U.S. dollars

32,302
20,056$$38

268,846
166,922

Specialty SteelSpecialty SteelIndependent Auditor’s Report

To the Board of Directors of Sanyo Special Steel Co., Ltd.:We have audited the accompanying consolidated financial statements of Sanyo Special Steel Co., Ltd. and its
consolidated subsidiaries, which comprise the consolidated balance sheets as at March 31, 2015 and 2014, andthe consolidated statements of operations , statements of comprehensive income , statements of changes in net
assets and statements of cash flows for the years then ended, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgement, including the assessmentof the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, while the objective of the financial statement audit is not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Sanyo Special Steel Co., Ltd. and its consolidated subsidiaries as at March 31, 2015 and 2014, and their financial
performance and cash flows for the years then ended in accordance with accounting principles generally acceptedin Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2015 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to theconsolidated financial statements.

August 13, 2015
Osaka, Japan

39

CORPORATE DATA

(As of March 31,2015)

Corporate Data
Corporate NameSanyo Special Steel Co., Ltd.

Head Office/Works

3007, Nakashima, Shikama-ku, Himeji, Hyogo 672-8677 Japan
phone (+81) 79-235-6003

Established

January 11, 1935

Paid-in Capital¥20,182 million

Number of Employees

2,706 (consolidated basis) 1,341 (non-consolidated basis)

Register of Shareholders

The Chuo Mitsui Trust & Banking Co., Ltd.

Stock Listings

Tokyo Stock Exchange (1st Section)

Book Closing

March 31

Branches and Offices

Tokyo Regional Office, Osaka Branch, Nagoya Branch, Hiroshima Branch, Kyusyu Sales Office

Homepage Address

http://www.sanyo-steel.co.jp/english/index.php

Stock Information
Total Number of Shares Authorized to be Issued

474,392,000

Total Number of Shares Issued

167,124,036

Number of Shareholders

14,338Principal Shareholders
Name of Shareholder

Percentage of
Voting Rights (%)

NIPPON STEEL &SUMITOMO METAL CORPORATION

15.13

NORTHERN TRUST CO.(AVFC)
RE 15PCT TREATY ACCOUNT

6.56

Company's Kyoeikai Association

6.33

NSK Ltd.

4.66

Sumitomo Mitsui Banking Corporation

3.55

The Master Trust Bank of Japan, Ltd. (trust account)

3.43

Domestic
corporations

NORTHERN TRUST CO.(AVFC) RE-HCR00

2.35

51,007 30.7%

Mizuho Bank, Ltd.

2.27

Marubeni-Itochu Steel Inc.

1.94

Japan Trustee Services Bank, Ltd. (trust account)

1.79

Shareholder Composition (thousands of shares)Securities firms
Foreign investors

1,424 0.9%

35,566 21.4%

Total numberof shares issued

Note: The Company holds 5,871 thousand shares of its own stock in treasury, but is excluded
from the above list of major shareholders.

166,195
100％

Fainancial institutions
Individuals and others

40,221 24.2%

37,977 22.8%

Note : Treasury stock of 5,871 shares is included in "Individuals and others".

40

Consolidated Subsidiaries and Equity-Method Affiliates
Specialty Steel

Formed and Fabricated Materials

Consolidated Subsidiaries① Yohkoh Bussan Co., Ltd.

Consolidated Subsidiaries⑩ Santoku Tech Co., Ltd.

Trading of special steel products, steelmaking raw materials and other materials

Manufacturing of special steel products② Santoku Seiken Co., Ltd.

⑪ SANYO SPECIAL STEEL U.S.A., Inc.

Manufacturing and marketing of special steel products

Trading of special steel products③ Santoku Kogyo Co., Ltd.

⑫ Ningbo Sanyo Special Steel Products Co., Ltd.

Processing of special steel, machinery maintenance

Manufacturing and marketing of special steel products④ Santoku Technos Co., Ltd.

⑬ Siam Sanyo Special Steel Product Co., Ltd.

Processing of special steel

Manufacturing and marketing of special steel products⑤ SKJ Metal Industries Co., Ltd.

Equity-method Affiliates⑭ Advanced Green Components, LLC

Manufacturing and marketing of special steel products⑥ P.T. SANYO SPECIAL STEEL INDONESIA

Manufacturing of special steel products

Manufacturing and marketing of special steel products⑦ SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.

Other

Involved in business and sales of special steel products in China⑧ Sanyo Special Steel India Pvt. Ltd.

Consolidated Subsidiaries⑮ Santoku Computer Service Co., Ltd.

Involved in business and sales of special steel products in India

Construction and operation of, and consulting services for, information systems

Equity-method Affiliates⑨ Mahindra Sanyo Special Steel Pvt. Ltd.

⑯ Santoku Security Service Co., Ltd.

Manufacturing and marketing of special steel products

Security and facilities maintenance services

China
12 Ningbo Sanyo Special Steel Products Co., Ltd.
●
7 SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.
●

America
11 SANYO SPECIAL STEEL U.S.A., INC.
●
14 Advanced Green Components, LLC●

India
8 Sanyo Special Steel India Pvt. Ltd.
●
9 Mahindra Sanyo Special Steel Pvt. Ltd.
●JAPAN
Sanyo Special Steel Co., Ltd.
1 Yohkoh Bussan Co., Ltd.
●
2 Santoku Seiken Co., Ltd.
●
3 Santoku Kogyo Co., Ltd.
●
4 Santoku Technos Co., Ltd.
●
10 Santoku Tech Co., Ltd.
●
15 Santoku Computer Service Co., Ltd.
●
16 Santoku Security Service Co., Ltd.
●

Thailand5 SKJ Metal Industries Co., Ltd.
●
13 Siam Sanyo Special Steel Product Co., Ltd.
●INDONESIA
6 P.T. SANYO SPECIAL STEEL INDONESIA●

41