Consolidated Financial Statements
Toho Zinc Co., Ltd.
and Consolidated Subsidiaries
For the years ended March 31, 2008, 2007 and 2006
with Report of Independent Auditors
for the year ended March 31, 2008

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Consolidated Balance Sheets
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
AssetsCurrent assets:
Cash and time deposits
Notes and accounts receivable, trade
Inventories (Note 17)
Advance payment
Deferred tax assets (Note 13)
Other current assets
Allowance for doubtful accounts
Total current assets
Property, plant and equipment:
Land (Notes 4 and 18)
Buildings and structures (Note 18)
Machinery and equipment (Note 18)
Construction in progress
Other
Accumulated depreciation

Investments and other assets:
Investment securities (Notes 10 and 18)
Investments in non-consolidated subsidiaries (Note 3)
Deferred tax assets (Note 13)
Intangible assets
Other assets (Note 3)
Allowance for doubtful accounts

Total assets

2¥ 13,267
31,59920,530
2,141
2,668
2,279
(113)
72,371¥ 14,358
20,121
26,516
5,247
539
3,007
(52)
69,736$ 143,307
200,827
264,658
52,374
5,387
30,014(524)
696,043

16,91418,01053,990650–
89,564(55,519)
34,045

16,96018,58955,055763–
91,367(56,991)
34,376

169,281
185,536
549,498
7,626–
911,941(568,835)
343,106

10,430
298
811
98
8,589
(795)
19,431

11,621
411
887
93
8,388
(862)
20,538

115,986
4,107
8,860
929
83,720(8,606)
204,996¥125,847¥124,650$1,244,145

March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Liabilities and net assets
Current liabilities:
Short-term borrowings (Note 18)
Current portion of long-term debt (Note 18)
Notes and accounts payable, trade
Accrued expenses
Accrued income taxes
Accrued directors’ bonus
Other current liabilities
Total current liabilities
Long-term liabilities:
Long-term debt (Note 18)
Accrued employees’ pension and severance costs(Note 12)
Accrued directors’ and statutory auditors’ retirement
allowances
Deferred tax liabilities related to land revaluation(Note 4)
Accrued environmental allowances
Other long-term liabilities
Total non-current liabilities
Total liabilities
Net assets
Shareholders’ equity:
Common stock:
Authorized – 264,000,000 shares
Issued– 135,855,217 shares in 2007
135,855,217 shares in 2008
Capital surplus
Retained earnings
Less: Treasury stock, at cost – 50,794 shares in2008 and 46,980 shares in 2007
Total shareholders’ equity
Revaluation and translation adjustments:
Net unrealized gains on other securities
Losses on deferred hedges
Surplus from land revaluation (Note 4)
Foreign currency translation adjustments
Total revaluation and translation adjustments
Total net assets
Total liabilities and net assets¥ 29,601
2,319
8,879
3,028
6,600
38
6,647
57,112¥ 24,601
4,896
8,133
3,118
1,130
39
4,277
46,194$ 245,544
48,868
81,16931,114
11,280389
42,699461,063

8,515

11,618

115,964

3,592

3,394

33,875

140

166

1,667

5,785
157
2,617
20,806
77,918

5,786
158
78
21,20067,39457,741
1,569
783
211,599672,662

14,6309,877
15,24914,6309,877
23,839146,029
98,587
237,944(18)
39,738(21)
48,325(219)
482,341

3,120(2,711)
7,580
202
8,191
47,929¥125,847

1,039
(69)
7,580
381
8,931
57,256¥124,650

10,377(691)
75,653
3,803
89,142571,483$1,244,145

The accompanying notes are an integral part of these financial statements.
3

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Consolidated Statements of Income

2006

Net sales
Cost of sales
Gross profit
Selling, general and administrative expenses:
Transportation expense
Salaries and wages
Pension and severance costs
Research and development costs (Note 6)
Depreciation
Directors’ and statutory auditors’ retirement costs
Directors’ bonus
Provision for doubtful accounts
Other
Operating income
Other income (expense):
Interest and dividend income
Gain on sale of securities
Derivative gains (losses)
Interest expenses
Exchange gains (losses), net
Loss on disposal of property, plant andequipment
Equity in earnings (losses) of unconsolidated
subsidiaries and affiliated companies
Impairment loss on fixed assets (Note 7)
Losses on hedge transactions
Provision for environmental measures
Write-down of investment securities
Other
Income before income taxes
Income taxes:
Current
Deferred
Net income

Year ended March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)¥75,916
63,085
12,831¥127,876
102,216
25,660¥147,390
123,827
23,563$1,471,104
1,235,931
235,173

2,794
970
109
243
83
34
–
20
1,381
5,634
7,197

3,067
1,024
93
262
81
44
38
52
1,535
6,196
19,464

3,223
965
82
261
73
26
39
94
1,517
6,280
17,28332,176
9,633
820
2,611
731
268
389
945
15,09862,671
172,502

111
141
207
(370)
(395)

231
0
82
(467)
233

440
–
(14)
(657)
(118)

4,398
–
(145)
(6,565)(1,182)

(352)

(797)

(265)

(2,650)

(181)
(232)
–
–
(5)
155
(921)
6,276

425
(8)
(1,977)
(157)
(17)
(55)
(2,507)
16,957

577
(4)
(496)
–
(367)
164
(740)
16,543

5,759(39)(4,943)–(3,662)
1,645(7,384)
165,118

2,856
(2)
2,854
¥ 3,422

7,946(1,076)
6,870¥ 10,087

5,139
1,455
6,594
¥ 9,949

51,292
14,52465,81699,302(Yen)
Per share:
Net income – basic
Cash dividends¥26.98¥ 5.00¥75.26¥10.00$(U.S. dollars)¥73.26¥10.00

$0.73
$0.09

The accompanying notes are an integral part of these financial statements.
4

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets

Shareholders’ equity

Balance at March 31, 2005
Dividends from surplus
Net income
Acquisition of treasury stock
Net charges in items other thanthose in shareholders’ equity
Balance at March 31, 2006
Issuance of new shares
Cash dividends paid
Bonuses to directors
Decrease due to change in scopeof consolidation
Net income
Acquisition of treasury stock
Other
Net charges in items other thanthose in shareholders’ equity
Balance at March 31, 2007
Issuance of new shares
Dividends from surplus
Net income
Acquisition of treasury stock
Other
Net charges in items other thanthose in shareholders’ equity
Balance at March 31, 2008

Revaluation and translation adjustments
Net
unrealized
gains on
Total
Losses onothershareholders’deferredequityhedgessecurities(Millions of yen)

Surplusfrom land
revaluation

Foreigncurrencytranslation
adjustments

Total
revaluationandtranslation
adjustments

Total
net assets

–
–
–
–

¥7,931
–
–
–

¥ 43
–
–
–

¥ 8,956–––¥28,012
(651)
3,422
(3)

1,438
2,420
–
–
–

–
–
–
–
–

(346)
7,585
–
–
–

53
96
–
–
–

1,145
10,101–––

1,145
31,925
8,777
(629)
(28)

(289)
10,087
(9)
5

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

–
–
–
–

(289)
10,087
(9)
5

–
(18)
–
–
–
(4)
1

–
39,738–(1,359)
9,949
(4)
1

700
3,120
–
–
–
–
–

(2,711)(2,711)
–
–
–
–
–

(5)
7,580
–
–
–
–
–

106
202
–
–
–
–
–

(1,910)
8,191
–
–
–
–
–

(1,910)47,929–(1,359)
9,949
(4)
1

–
¥(21)

–
¥48,325(2,081)¥ 1,039(2,642)¥ (69)–¥7,580

179
¥381

740
¥ 8,931740¥57,256

Number ofshares ofcommonstock issued

Commonstock

CapitalsurplusRetainedearnings

Treasurystock (*)

125,855,217–––¥10,240–––¥5,490–––¥ 3,332
(651)
3,422
–

¥ (6)
–
–
(3)

¥19,056
(651)
3,422
(3)

–
125,855,217
10,000,000–––
10,240
4,390
–
–

–
5,490
4,387
–
–

–
6,103
–
(629)
(28)

–
(9)
–
–
–

–
21,824
8,777
(629)
(28)

–
–
–
–

–
–
–
–

–
–
–
0

(289)
10,087
–
5

–
–
(9)
(0)

–
135,855,217
–
–
–
–
–

–
14,630
–
–
–
–
–

–
9,877
–
–
–
–
0

–
15,249–(1,359)
9,949
–
–

–
135,855,217–¥14,630–¥9,877–¥23,839

¥

982
–
–
–

¥

5

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Consolidated Statements of Changes in Net Assets (continued)

Shareholders’ equity

Balance at March 31, 2007
Issuance of new shares
Dividends from surplus
Bonuses to Directors
Net income
Acquisition of treasury stock
Other
Net charges in items other thanthose in shareholders’ equity
Balance at March 31, 2008

Revaluation and translation adjustments
Net
unrealized
gains on
Total
Losses onothershareholders’deferredequityhedgessecurities(Thousands of U.S. dollars)

Surplusfrom land
revaluation

Foreigncurrencytranslation
adjustments

Total
revaluationandtranslation
adjustments

Total
net assets

Commonstock

CapitalsurplusTotal
net assets

Treasurystock (*)

$146,029
–
–
–
–
–
–

$98,586
–
–
–
–
–
1

$478,380–(13,555)–
99,303(41)
4$(181)
–
–
–
–
(41)
3

$396,630–(13,555)–
99,303(41)
4$ 31,136
–
–
–
–
–
–

$(27,054)
–
–
–
–
–
–

$75,653
–
–
–
–
–
–

$2,015––––––$81,750
–
–
–
–
–
–

$478,380–(13,555)–
99,303(41)
4–$146,029–$98,587

7,392$571,483–$(219)–$482,341(20,758)$ 10,377

26,363$ (691)–$75,653

1,788$3,803

7,392$89,1427,392$571,483(*) There were 46,980 shares and 50,794 shares of treasury stock as of March 31, 2007 and 2008, respectively.

The accompanying notes are an integral part of these financial statements.

6

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Consolidated Statements of Cash Flows2006

Cash flows from operating activities:
Income before income taxes
Adjustments to reconcile net income to net cash provided byoperating activities:
Depreciation and amortization
Impairment loss on fixed assets
Write-down of investments securities
Increase (decrease) in allowance for doubtful accounts
Increase in accrued directors’ bonus
Increase (decrease) in accrued employees’ pension andseverance costs
Interest and dividend income
Interest expenses
Equity in (earnings) losses of unconsolidated subsidiaries
and affiliated companies
Net loss on sale and disposal of property, plant andequipment
Gain on sale of securities(Increase) decrease in notes and accounts receivable, trade(Increase) decrease in inventories
Increase (decrease) in notes and accounts payable, tradeOther
Sub totalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by (used in) operating activities

Year ended March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)¥ 6,276¥16,957¥ 16,543$ 165,118

2,293
232
–
(58)
–

2,285
8
17
99
38

2,660
4
367
12
1

26,559
47
3,662
122
9

(63)
(111)
370

(154)
(231)
467

(197)
(440)
657

(1,974)(4,398)
6,564

181

(425)

(577)

(5,759)352(141)(5,553)(5,580)
1,668
(680)
(814)
218
(348)
(2,019)(2,963)797(0)(8,330)(1,882)
(33)
110
9,723
221
(473)
(3,475)
5,996

266
–
11,176(6,010)(3,853)302
20,911437(654)(10,534)
10,1602,651–
111,553(59,991)(38,459)
3,010
208,714
4,366(6,528)(105,144)
101,408

Cash flows from investing activities:
Payments for purchases of property, plant and equipment
Proceeds from sale of property, plant and equipment
Payments for purchases of investment securities
Proceeds from sale of investments securities
Payments for purchases of investments in affiliates
Additions to loans receivable
Other
Net cash used in investing activities(2,885)
6
(242)
239
(593)
–
(249)
(3,724)(1,978)21(1,567)
4(2,495)(1,361)(742)(8,118)(2,795)15(5,168)
–
(294)
–
(128)
(8,370)(27,899)
154(51,589)–(2,936)–(1,279)(83,549)

Cash flows from financing activities:
Decrease in short-term borrowings
Increase (decrease) in commercial paper, net
Proceeds from long-term debt
Repayments of long-term debt
Proceeds from issuance of stock
Cash dividends paid
Other
Net cash provided by (used in) financing activities

3,338
3,000
4,650
(1,933)
–
(629)
(3)
8,423

–
3,000
–
(2,286)
8,776
(629)
(9)
8,852

–
(5,000)8,000(2,318)–(1,359)
(4)
(681)

–
(49,905)
79,848(23,143)–(13,555)(37)(6,792)

Effect of exchange rate changes on cash and cash equivalents
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year (Note 8)

–
1,736
4,770
¥ 6,506

(4)
6,726
6,506
¥13,232(8)
1,101
13,232¥ 14,333(79)
10,988132,070$ 143,058

The accompanying notes are an integral part of these financial statements.
7

Toho Zinc Co., Ltd. and Consolidated Subsidiaries
Notes to Consolidated Financial Statements
March 31, 2008

1.

Summary of Significant Accounting Policies(a) Basis of presentation
The accompanying consolidated financial statements of Toho Zinc Co., Ltd. (the“Company”) and its consolidated subsidiaries (the “Companies”) are prepared on thebasis of accounting principles generally accepted in Japan, which are different incertain respects as to application and disclosure requirements of International
Financial Reporting Standards, and are compiled from the consolidated financial
statements prepared by the Company as required by the Financial Instruments andExchange Law of Japan.
Certain items presented in the consolidated financial statements submitted to the
Direction of Kanto Financial Bureau in Japan have been reclassified in theaccompanying consolidated financial statements for the convenience of readers outside
Japan.
(b) Principles of consolidation
The accompanying consolidated financial statements include the accounts of theCompany and any significant subsidiaries that are controlled by the Company. Under
the effective control approach, all majority-owned companies are to be consolidated.
Additionally, companies in which share ownership equals 50% or less may be required
to be consolidated in cases where such companies are effectively controlled by othercompanies through the interests held by a party who has a close relationship with theparent in accordance with Japanese accounting standards.
All significant
inter-company transactions and accounts are eliminated in consolidation.
(c) Financial instruments(1) Derivatives
All derivatives are recognized in the balance sheet at fair value, with changes infair value included in net income for the period in which they arise, except forderivatives that are designated as “hedging instruments” (see Note 1-(c)-(3)Hedge accounting below).
(2) Investment securities
Marketable securities classified as other securities are carried at fair value withany changes in unrealized gains or losses, net of income taxes, included directlyin net assets.
Non-marketable securities classified as other securities are carried at cost.
of securities sold is determined by the moving average method.

Cost
8

1.

Summary of Significant Accounting Policies (continued)(c) Financial instruments (continued)(3) Hedge accounting
Gains or losses arising from changes in fair value of the derivatives designated as“hedging instruments” are deferred as an asset or liability and included in net
income in the same period during which the gains and losses on the hedged items
or transactions are recognized.
The derivatives designated as hedging instruments held by the Companies arecommodities futures. The related hedged items are commodities.
The Companies has a policy to utilize the above hedging instruments in order toreduce the Companies' exposure to the risk of the price fluctuation.
The Company evaluates effectiveness of its hedging activities by reference to theaccumulated gains or losses on the hedging instruments and the related hedged
items from the commencement of the hedging transactions.
(d) Inventories
Inventories are stated at cost, which is primarily determined by the last-in first-out
method.
(e) Property, plant and equipment and depreciation
Property, plant and equipment are stated at cost and have been mainly depreciated by
the straight-line method over the estimated useful lives of respective assets.
(Changes accounting policy)
In accordance with the revision made to the Corporate Tax Law of Japan (the “TaxLaw”) which went into effect on April 1, 2007, effective the year ended March 31,
2008, the Company and domestic consolidated subsidiaries have adopted the new
method prescribed in the revised Tax Law for depreciating tangible fixed assets
acquired on or after April 1,2007. Effect of this accounting change on operating
income, and income before income taxes were insignificant.
(Additional information)
In addition to the above adoption, effective the year ended March 31, 2008, thesecompanies depreciate the difference between 5% of acquisition cost and nominal value
by the straight-line method over a period of five years from the year following the year
in which the accumulated depreciation has reached 95% of acquisition cost withrespect to the tangible fixed assets acquired on or before March 31, 2007. As a result,operating income, and income before income taxes both decreased by ¥411 million($4,411 thousand) for the year ended March 31, 2008 from the corresponding amounts
which would have been reported under the previous method.
The effect of this change on segment information is explained in Note 15.
91.

Summary of Significant Accounting Policies (continued)(f)Intangible assets and amortization
Software for internal use is amortized by using the straight-line method over estimateduseful lives (less than 5 years).

(g) Allowance for doubtful accounts
The allowance for doubtful accounts is provided at an amount sufficient to coverpossible losses on collection. The allowance consists of the estimated uncollectible
amounts with respect to specific receivables plus a percentage based on historicalcredit losses.
(h) Accrued directors’ and statutory auditor’s retirement allowances
In order to prepare for the disbursements of the directors’ and statutory auditor’s
retirement allowances, the Company records an amount required to be paid out as at
the end of the fiscal year which is calculated based on internal rules.
Note that the Company discontinued the system for directors’ and statutory auditor’s
retirement allowances in accordance with a decision by the board of directors held on
May 22, 2007, and hence the balance as at the end of this consolidated fiscal year isthe amount for periods in which the directors and statutory auditors served prior toJune 2007.
(i)

Accrued directors’ bonuses
Accrued directors’ bonuses at the balance sheet date are based on an estimate of theamount to be paid as bonuses for services rendered by that date.
(Changes accounting policy)
Effective from the year ended March 31, 2007, the Company applied “Accounting
standard for directors’ bonus” (Accounting Standard Board of Japan Statement No. 4
issued on November 29, 2005 by the Accounting Standards Board of Japan). As aresult of the application of this standard, operating profit, ordinary income and income
before income taxes decreased by ¥38 million, respectively, for the year ended March
31, 2007.

(j)Accrued environmental allowances
Accrued environmental allowances are estimated and recorded to provide for future
potential costs, such as costs related to disposal of polychlorinated biphenyl (PCB).

(k) Accrued expected losses on construction contracts in process allowances
In order to prepare for future losses related to construction orders, the Company hasrecorded an estimated amount for construction which has yet to be transferred as at theend of the consolidation fiscal year.
101.

Summary of Significant Accounting Policies (continued)(l)Leases
Noncancelable lease transactions are accounted for as operating leases (whether suchleases are classified as operating or finance leases) except that lease agreements which
stipulate the transfer or ownership of the leased property to the lessee are accounted
for as finance leases.

(m) Accrued employees’ pension and severance costs
Accrued employees’ retirement benefits are provided mainly at an amount calculated
based on the retirement benefit obligation and the fair value of the pension plan assets
as of the balance sheet date, as adjusted for unrecognized actuarial gain or loss andunrecognized prior service cost. The retirement benefit obligation is attributed toeach period by the straight-line method over the estimated years of service of theemployees.
Actuarial gain and loss are amortized in the year following the year in which the gainor loss is recognized primarily by the straight-line method over the period of 10 years
which are the average remaining year of service of the employees.
Prior service cost is being amortized as incurred by the straight-line method over theperiod of 10 years which are the average remaining years of service of the employees.
(n) Cash and cash equivalents
Cash and cash equivalents in the consolidated statements of cash flows are composedof cash on hands, bank deposits be able to withdraw on demand and short-term
investments with original maturity of three months or less and minor risk for the fairvalue fluctuation.
(o) Income taxes
Deferred tax assets and liabilities are determined based on the differences between
financial reporting and the tax bases of the assets and liabilities and are measured
using the enacted tax rates and laws which will be in effect when the differences are
expected to reverse.
(p) Foreign currency translation
Foreign currency transaction
All receivables and payables denominated in foreign currencies are translated into
Japanese yen at the exchange rate prevailing at the balance sheet date.
Foreign currency financial statements
The assets and liabilities of the foreign consolidated subsidiaries are translated into
Japanese yen at current exchange rate prevailing at the balance sheet date. Revenue
and expense accounts are translated at current exchange rate prevailing at the balance
sheet date. Foreign currency translation adjustments are included in net assets.
11

1.

Summary of Significant Accounting Policies (continued)(q) Appropriation of retained earnings
Cash dividends and transfers to legal reserve are recorded in the fiscal year that the
proposed appropriation of retained earnings is approved at the shareholders' meeting.
(r)

Net income per share
Net income per share is computed based on the net income available for distribution toshareholders of common stock and the weighted average number of shares of common
stock outstanding during the year.

2.

U.S. Dollar Amounts

U.S. dollar amounts presented in the accompanying consolidated financial statements andin these notes are included solely for the convenience of readers onside of Japan, at theprevailing exchange rate of ¥100.19 to U.S.$1 on March 31, 2008. These translations
should not be construed as representations that the yen amounts actually represent, or havebeen or could be converted into U.S. dollars at that or any other rate.
3.

Investments in Non-Consolidated Subsidiaries and Affiliates

Investments in non-consolidated subsidiaries and affiliates as of March 31, 2007 and 2008
were summarized as follows:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Subsidiaries
Affiliates

4.

¥ 298
4,027
¥4,325¥ 411
5,260¥5,671$ 4,10752,499$56,606

Land Revaluation

In accordance with the Land Revaluation Law, the Company’s land used for its business
operations was revalued as follows:
Date of revaluation: March 31, 2000
The difference between total fair value of land at March 31, 2008 and the total bookvalue after revaluation of land:¥5,069 million($50,595 thousand)
The tax effect of the excess on revaluation is recorded as “Deferred tax liabilities related toland revaluation” which is included in liabilities, and the remainder, net of income taxes
portion of the excess on revaluation is presented as “Surplus from land revaluation” whichis included in net assets.

12

5.

Commitments and Contingent Liabilities

The Companies were contingently liable as guarantors for loans of other companies in theaggregate amount of ¥860 million ($8,590 thousand) at March 31, 2008.
The Company has entered into loan commitment agreements amounting to ¥5,600 million($55,893 thousand) with financial institutes at March 31, 2008. The loans payable
outstanding was zero, and therefore, the unused balances was ¥5,600 million ($55,893
thousand) under the credit facilities as of March 31, 2008.
6.

Research and Development Costs

Research and development costs, which are included in cost of sales and selling, generaland administrative expenses, totaled ¥243 million, ¥262 million and ¥261 million($2,611 thousand) for the years ended March 31, 2006, 2007 and 2008, respectively.
7.

Impairment Loss on Fixed Assets

The Company has recognized impairment losses on the assets group for the year ended
March 31, 2006, 2007 and 2008 as follows:

March 31,

Location

Use

Category

Impairment loss
millions of yen(Thousands of
U.S. dollars)

2006

Annaka City,
Gumma, other

Idle assets

Machinery,
Buildings and structures,
Others

¥185
46
1

2007

Annaka City,
Gumma, other

Idle assets

Machinery,
Buildings and structures,
Others

¥7
1
0

2008

Shandong, China

Idle assets

Machinery,
Others

¥4
($47)
0
(0)

The Company determined asset group based on the categories used for their managerial
accounting. With respect to idle assets, each asset is treated as an individual unit to apply
the accounting for the impairment.
The Company recognized impairment losses for entire book value of idle assets on the
ground that they were projected to generate no future cash-in flows and were not readilysalable either.

13

8.

Cash and Cash Equivalents

Cash and cash equivalents at March 31, 2007 and 2008 were composed of the followings:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Cash and time deposits
Less:Time deposits with a maturity of morethan three months when purchased
Cash and cash equivalents
9.

¥13,267¥14,358$143,307(35)¥13,232(25)¥14,333(249)$143,058

LeasesAs lessees:
The following pro forma amounts represent the acquisition cost, accumulated depreciationand net book value of the leased assets at March 31, 2007 and 2008 which would have beenreflected in the consolidated balance sheets if these agreements had been accounted for as
financing leases:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Acquisition cost of machinery and equipment
Accumulated depreciation of machinery andequipment
Net book value
Acquisition cost of furniture and fixtures
Accumulated depreciation of furniture andfixtures
Net book value

¥ 94

¥ 137

$ 1,374

(26)
¥ 68

(39)
¥ 98

(392)
$ 982

¥154

¥ 151

$ 1,513

(94)
¥ 60

(109)
¥ 42

(1,095)$ 418

Future minimum lease payments (including the interest portion thereon) subsequent toMarch 31,2008 for finance leases accounted for as operating leases are summarized asfollows:
Year ending March 31,(Millions ofyen)(Thousands of
U.S. dollars)

20082009 and thereafter
Net book value

¥ 37
103
¥140

$ 371
1,029
$1,40014

9.

Leases (continued)

Lease payments relating to finance leases accounted for as operating leases in theaccompanying consolidated financial statements for the years ended March 31, 2006, 2007
and 2008 totaled ¥39 million, ¥36 million and ¥42 million ($420 thousand), respectively.
The pro forma depreciation of the assets leased under finance leases accounted for as
operating leases for the years ended March 31,2006, 2007 and 2008 amounted to ¥39
million, ¥36 million and ¥42 million ($420 thousand), respectively.

10. Investment Securities
The Company classified investment securities other than those of subsidiaries and affiliates
into two categories: held-to-maturity securities or other securities.
The aggregate cost and fair value (carrying value) of marketable securities which were
included in investment securities at March 31, 2007 and 2008 were as follows:
March 31, 2007
Fair value(carrying value)(Millions of yen)

Unrealized
gains (losses)¥1,861
469¥6,365
1,006¥4,505536

879–¥3,209799–¥8,170(80)–¥4,961March 31, 2008
Fair value(carrying value)(Millions of yen)

Unrealized
gains (losses)¥1,785–¥4,192–¥2,407–794
4,963¥7,542676
4,461¥9,329(118)(502)¥1,787

Cost
Securities for which fair value
exceeds cost:
Equity securities
Debt securities
Securities for which costexceeds fair value:
Equity securities
Debt securities
Total

Cost
Securities for which fair value
exceeds cost:
Equity securities
Debt securities
Securities for which costexceeds fair value:
Equity securities
Debt securities
Total

15

10. Investment Securities (continued)
March 31, 2008
Fair value
Unrealized(carrying value) gains (losses)
Cost(Thousands of U.S. dollars)
Securities for which fair value
exceeds cost:
Equity securities
Debt securities
Securities for which costexceeds fair value:
Equity securities
Debt securities
Total$17,811–$41,845–$24,034–

7,931
49,536$75,278

6,747
44,525$93,117(1,184)(5,011)$17,839

As at March 31, 2007 and 2008, the carrying amount of non-marketable equity securities
and debt securities, which were included in investment securities, were ¥929 million and
1,361 million, and ¥929 million ($9,275 thousand) and ¥1,361 million ($13,588 thousand),
respectively.
11. Derivative Financial Instruments
The Company enters into forward exchange contracts, commodity futures and interest rate
swaps. Forward exchange contracts and commodity futures are utilized to hedge currency
risk exposures. Interest rate swaps are utilized to hedge against possible future changes ininterest rates on borrowings. The Company uses derivative instruments only for hedging
purposes and not for purposes of trading or speculation.
The table below lists contract amounts and fair value of derivatives as at March 31, 2007 bytransactions and type of instrument, excluding derivatives eligible for hedge accounting.
(a)Currency-related derivatives

Instruments
Forward exchange contracts:
Sold –
U.S. dollar (purchased
Japanese yen)
Purchased –U.S. dollar (sold Japaneseyen)
Total unrealized losses fromforward exchange contracts

Contract
amounts

March 31, 2007
Fair
value
(Millions of yen)

Unrealized
gains (losses)¥4,568¥4,499

¥69

82

82

0
¥69

16

11. Derivative Financial Instruments (continued)(b)Interest rate-related derivatives

Instruments

Contract
amounts

March 31, 2007
Fair
value
(Millions of yen)

Unrealized
gains (losses)

Interest rate swap contracts:
To receive floating / to pay
fixed rate

¥5,000

¥(54)

¥(54)

12. Employees’ Pension and Severance Costs
The Company and its domestic consolidated subsidiaries have defined benefit plans, i.e.,
tax-qualified pension plans and lump-sum payment plans, covering substantially all
employees who are entitled to lump-sum or annuity payments, the amounts of which are
determined by reference to their basic rates of pay, length of service, and the conditions
under which termination occurs.
The funded status of retirement benefit obligations at March 31, 2007 and 2008 were as
follows:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Projected benefit obligations
Plan assets at fair value
Unfunded status
Unrecognized actuarial loss
Unrecognized prior service benefit
Accrued employees’ pension andseverance costs¥ 5,548(1,729)
3,819
(227)
–

¥ 4,729(1,510)
3,219
(214)
389

$ 47,200(15,075)
32,125(2,140)3,890¥ 3,592¥ 3,394$ 33,875

The compositions of employees’ pension and severance expense for the years ended March
31, 2006, 2007 and 2008 were as follows:
2006

Service cost
Interest cost
Expected return on plan assets
Amortization of actuarial loss
Total

¥289
111
(25)
108
¥483

Year ended March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
¥271
108
(31)
78
¥426

¥251
103
(34)
73
¥393

$2,510
1,036
(345)
725
¥3,92617

12.

Employees’ Pension and Severance Costs (continued)

The assumptions used for in accounting for the defined benefit pension plans for the years
ended March 31, 2006, 2007 and 2008 were as follows:Year ended March 31,
2007
2008
2006
Discount rate
Expected rate of return on plan assets

13.

2.0%
2.5%

2.0%
2.0%

2.0%
2.0%

Income Taxes

At March 31, 2007 and 2008, significant components of deferred tax assets and liabilities
were as follows:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Deferred tax assets:
Accrued employees’ pension andseverance costs
Accrued employees’ bonus
Inventories write-off
Elimination of intercompany profits
Accrued enterprise tax
Loss on hedge transactions
Losses on deferred hedges
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets¥ 1,448
325
184
76
503
805
1,860
393
5,594
205
5,389

¥1,370
319
–
116
111
–
47
220
2,183
67
2,116

$13,677
3,192
–
1,165
1,112
–
475
2,197
21,818678
21,140

Deferred tax liabilities:
Special tax-purpose reserve forcondensed booking of tangible assets
Unrealized gains on other securities
Total deferred tax liabilities
Net deferred tax assets(33)(1,877)(1,910)¥ 3,479

(30)
(660)
(690)
¥1,426(298)(6,595)(6,893)$14,247

Deferred tax liabilities:
Deferred tax liabilities related to land
revaluation¥ 5,785¥5,785$57,740

The reconciliation between the statutory tax rate and the effective tax rate for the year
ended March 31, 2006, 2007, 2008 is not shown because the difference was less than 5% of
the statutory tax rate.

18

14.

Net Assets

The Corporation Law of Japan (the “Law”), which superseded most of the provisions of theCommercial Code of Japan, went into effect on May 1, 2006. The Law provides that an
amount equal to 10% of the amount to be disbursed as distributions of capital surplus (otherthan the capital reserve) and retained earnings (other than the legal reserve) be transferredto the capital reserve and the legal reserve, respectively, until the sum of the capital reserveand the legal reserve equals 25% of the common stock. Such distributions can be made at
any time by resolution of the stockholders, or by the Board of Directors if certain
conditions are met.

15.

Segment Information

Business segment information
Effective from the year ended March 31, 2005, industry segments are divided into fourgroups: Smelting industry, Electronic Material industry, Environment and Recycling
industry and other, from prior three groups: Smelting industry, Metal processing industry,and other.
Information about business segment of the Companies for the years ended March 31, 2006,
2007 and 2008 is as follows:

Industry A(Note 1)

Year ended March 31, 2006
Business segment
Eliminations
Industry B
Industry C
Otherand corporate(Note 1)
(Note 1)
(Note 1)
(Note 2)
Consolidated(Millions of yen)

Net sales:
Customers
Inter-segment
Total
Cost and expenses
Operating income (loss)¥50,967474
51,44147,256
4,185¥ 8,862
11
8,873
8,101
772

¥5,332
68
5,400
4,348
1,052

¥10,755
3,454
14,20912,803
1,406

Total assets

52,371

11,905

6,715

Depreciation andamortization

1,503

336

70

Impairment loss of fixed
assetsCapital expenditures¥ 2,187¥–(4,007)(4,007)(3,789)(218)¥75,916–
75,916
68,719
7,197

7,145

20,153

98,289

342

15

97

2,293

160

2

–

–

232

443

¥ 214

90

¥ 3,018

¥

84

¥

¥

19

15.

Segment Information (continued)

Business segment information (continued)

Industry A(Note 1)
Net sales:
Customers
Inter-segment
Total
Cost and expenses
Operating income (loss)
Total assets
Depreciation andamortization
Impairment loss of fixed
assetsCapital expenditures¥97,623506
98,12981,98016,14965,017¥10,84413
10,857
10,271586
11,942¥9,481
124
9,605
7,871
1,734
9,473

¥ 9,928
3,621
13,54912,151
1,398
5,483

1,402

320

311

8
¥ 1,569

–
259

–
¥ 172

Industry A(Note 1)
Net sales:
Customers
Inter-segment
Total
Cost and expenses
Operating income (loss)
Total assets
Depreciation andamortization
Impairment loss of fixed
assetsCapital expenditures¥–(4,264)(4,264)(3,861)(403)
33,931¥127,876–
127,876
108,412
19,464
125,847

156

96

2,285

–
¥ 2,071

–
50

8
2,121

¥10,901
11
10,912
9,786
1,126
11,658¥12,287
162
12,44910,1372,312
7,608¥10,473
4,949
15,422
13,606
1,816
5,394

1,853

354

356

–
2,136

4
373

–
315

¥

¥

¥

¥

¥

¥147,390–
147,390130,107
17,283
124,650

10

86

2,660

–
231

–
90

4
3,146

¥

¥

¥

Year ended March 31, 2008
Business segment
Eliminations
Industry B
Industry C
Otherand corporate(Note 1)
(Note 1)
(Note 1)
(Note 2, 3) Consolidated(Thousands of U.S. dollars)$108,809
112
108,92197,674
11,247116,362$122,630
1,620
124,250
101,174
23,07675,940$104,526
49,400
153,926
135,807
18,11953,844

18,495

3,536

3,559

108

–
21,320¥–(5,852)(5,852)(5,423)(429)
33,646$1,135,140
7,283
1,142,423
1,018,081
124,342
662,172$¥

Year ended March 31, 2008
Business segment
Eliminations
Industry B
Industry C
Otherand corporate(Note 1)
(Note 1)
(Note 1)
(Note 2)
Consolidated(Millions of yen)

¥113,729
730
114,459
102,001
12,45866,343

Industry A(Note 1)
Net sales:
Customers
Inter-segment
Total
Cost and expenses
Operating income (loss)
Total assets
Depreciation andamortization
Impairment loss of fixed
assetsCapital expenditures

Year ended March 31, 2007
Business segment
Eliminations
Industry B
Industry C
Otherand corporate(Note 1)
(Note 1)
(Note 1)
(Note 2, 3) Consolidated(Millions of yen)

$

47
3,726

$

–
3,146

$

–
2,310

$

$

–
(58,415)(58,415)(54,134)(4,281)
335,828$1,471,105–
1,471,105
1,298,602
172,503
1,244,145

861

26,559

–
903

$

47
31,40520

15.

Segment Information (continued)

Business segment information (continued)(Note 1)The primary products of each business segment are as follows:
Industry A of Smelting industry consists of mainly zinc, lead, electric silver andsulfuric acid etc.
Industry B of Electric Material industry consists of battery material and building
material etc.
Industry C of Environment and Recycling industry consists of Zinc oxide etc.
Other consists of Soundproofing construction materials etc.

(Note 2)

As described in Note 1(i), effective from the year ended March 31, 2007, theCompany applied “Accounting standard for directors’ bonus” (AccountingStandard Board of Japan Statement No. 4 issued on November 29, 2005). As aresult of the application of this standard, operating expenses for the year ended
March 31, 2007 increased by ¥38 million in “Eliminations and corporate”, andoperating income decreased by the same amount(Note 3)

(Additional information)
As described in Note 1 (e), effective the year ended March 31, 2008, theCompany and its domestic subsidiaries depreciate the difference between 5% of
acquisition cost and nominal value by the straight-line method over a period offive years from the year following the year in which the accumulated
depreciation has reached 95% of acquisition cost with respect to the tangible
fixed assets acquired on or before March 31, 2007. As a result, operating
income of Industry A, Industry B, Industry C and other decreased by ¥351
million ($3,512 thousand), ¥24 million ($245 thousand), ¥46 million ($467
thousand) and ¥14 million ($143 thousand), respectively for the year ended
March 31, 2008 from the corresponding amounts which would have beenreported under the previous method.

21

16. Related Party Transactions
The Company owns 25.8% of outstanding shares of CBH Resources Ltd., which operates
mining business.
The transactions and account balances with CBH Resources Ltd. as of March 31 2008 was
as follows:•

Transactions
Year ended March 31,
2006
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Loans
Underwriting convertible bonds
Interests

•

¥–
–
–

¥1,361
1,361
73

¥

–
4,963
377

$

–
49,536
3,767

Account balances
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)Long-term loans receivable
Investment securities
Other current assets¥1,3612,367
31¥1,361
5,822
208$13,588
58,112
2,082

Terms of transactions:•Terms of loan and convertible bonds’ interest rate are determined under general market
conditions•

Terms of loan and convertible bonds’ repayment period are 5 years.

•

The collaterals for the loan and convertible bonds are not provided.

22

17.

Inventories

Inventories at March 31, 2007 and 2008 consisted of the following:
March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Finished goods
Work in process
Raw materials and supplies
Total
18.

¥ 5,8545,410
9,266¥20,530¥ 6,911
6,028
13,577¥26,516$ 68,979
60,168135,511$264,658

Short-Term Borrowings and Long-Term Debt

Short-term borrowings and long-term debt at March 31, 2007 and 2008 consisted of thefollowing:
2007

Amount(Millions of yen)

Short-term bank loans
Current portion of
long-term debt
Long-term debt
Commercial papers
Total

March 31,2008
Weighted
average
Last due oninterest rate

2008

(Thousands of
U.S. dollars)¥21,601¥21,601

1.3%

2,319
8,515
8,000
¥40,435

4,896
11,6183,000¥41,115

0.9
1.5
0.8

$215,600

2009.4 ~ 2022.9

48,869115,964
29,944$410,377

Average interest rates are calculated by using weighted-average interest rates as at March
31, 2008.
The maturities of long-term debt outstanding as at March 31, 2008 were as follows:Year ending March 31,
2009
2010
2011
2012
2013
Thereafter
Total(Millions ofyen)(Thousands of
U.S. dollars)¥ 4,896
3,390
5,855
1,905
425
43
¥16,514$ 48,869
33,83558,441
19,015
4,244
429$164,833

23

18.

Short-Term Borrowings and Long-Term Debt (continued)

Assets pledged as collateral for the short-term borrowings and the long-term debt at March
31, 2007 and 2008 were as follows:

Pledged assets

Land
Buildings and structures
Machinery and equipment
Investment securities
Total

March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)¥14,121
4,715
10,203711¥29,750¥13,794
5,037
10,203487¥29,521$137,686
50,267
101,835
4,864$294,652

March 31,
2007
2008
2008
(Millions of yen)(Thousands of
U.S. dollars)
Short-term bank loans
Current portion of long-term debt
Long-term debt
Total

¥

30
2,318
7,632
¥9,980

¥

30
2,122
5,510
¥7,662$299
21,18054,995$76,47424