Profile
Sanyo Special Steel manufactures and sells special steel products such as bearing steel, engineering steel, stainless steel, heat resistantsteel and tool steel, metal powders and heat/corrosion resistant alloys, plus formed and fabricated materials made from special steel
bars/tubes.
We enjoy a high level of market confidence in every aspect of our undertakings - development, product quality and stable supply - basedon our high cleanliness steel manufacturing technology, which controls the sizes of inclusions in steel and reduces oxygen content to aminimum.
Featuring superior quality characteristics such as fatigue life, cold workability and impact resistance, our highly reliable steel is used in a
broad range of industrial applications, most notably in automobiles, industrial machinery, railways and wind-power generationequipment. Above all, Sanyo Special Steel is known as one of the leading bearings steel manufactures in the world.

01 Consolidated Financial Highlights
02 Message from President / The 8th Medium-term Business Plan
04 Management Policies
05 Corporate GovernanceContents

06 Segment Information
08 Research and Development
10 CSR-conscious Management
11 Compliance Structure
12 Environmental Conservation
13 Social Contributions
14 Financial Figures
36 Corporate Data

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.

CO NSO L I D AT E D F I N A NCIAL H IGH LIGH T S

Sanyo Special Steel Co., Ltd. and consolidated subsidiaries
FY2009FY2010ChangeFY2011FY2010 / FY2011(Millions of Yen)

Operating Results (for the year)

FY2011(%)(Thousands of
US Dollars)＊1¥ 95,517¥ 159,512¥ 171,800

7.7$ 2,091,807

Operating income (loss)(3,946)

14,20011,349(20.1)

138,177

Ordinary income (loss)(3,632)

13,396

10,996(17.9)

133,880

Net income (loss)(2,585)

7,822

6,408

(18.1)

78,022(Millions of Yen)(%)

Net Sales

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

Net assets ＊2

86,41592,591

96,9934.8

1,180,973

Total assets

159,733

188,213212,365

12.8

2,585,713(%)

Financial Indicator
ROS (Ordinary income to Net sales)

−3.8

8.4

6.4

−

−

ROE (Net income to Net assets)

−3.0

8.8

6.8

−

−

Net D/E Ratio ＊3

0.42(0.21) ＊4

0.42(0.14) ＊4

0.54(0.26) ＊4

−

−

(Yen)

Net income (loss) per share
Net assets per share
Cash dividends per share(US Dollars)＊1(16.01)

48.47

39.71

(18.1)

0.48

533

571

598

4.8

7.29

−

10.00

9.00

(10)

0.11

＊1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥82.13=US$1, the approximate rate of exchange on March 31, 2012.
＊2 Minority interests are included in net assets.
＊3 Net debt equity ratio ･･･ (gross interest-bearing dept − cash and deposits) / equity＊4 We have not implemented liquidation of receivables since the end of fiscal 2009.
(0.21) (0.14) (0.26)・・・Net debt equity ratio if we had liquidized receivables.

Net Sales

Ordinary income

Net income (After - Tax)

(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

20,00015,000168,423

171,800

162,735

159,512150,000

15,00013,396

12,981

10,00010,996

100,000

6,408

5,000

95,5175,000
50,000

7,822

7,232

10,0004,799

00-1,023–2,5850–3,632-5,000FY2007 FY2008 FY2009 FY2010 FY2011

FY2007 FY2008 FY2009 FY2010 FY201101-5,000FY2007 FY2008 FY2009 FY2010 FY2011

MESSEGE FROM PRESIDENT

Fiscal 2011 Overview
production volume slightly down from a year earlier.
Against this backdrop, sales of the Sanyo Special SteelGroup showed comparatively smooth progress throughout
the period on the back of relatively solid demand at home
and abroad, particularly in the first half of the fiscal year.
However, sales performance in the second half was severely
affected by the decline in demand from the construction
machinery and industrial equipment industry due to a
slowdown in the Chinese economy.
As a result, net sales increased by ¥12,288 million from theprevious year to ¥171,800 million. In terms of profits,compared to the previous year, ordinary income decreasedby ¥2,400 million to ¥10,996 million and net income also fellby ¥1,415 million to ¥6,408 million.

Let me start with an overview of fiscal 2011.
During the year ended March 31, 2012, the Japanese
economy slowed temporarily but significantly in the wake of
the Great East Japan Earthquake that occurred on March 11,
2011. However, it recovered relatively steadily after
supply-side constraints were removed, except for ongoingpower supply problems. The economy began to clearly
decelerate in early autumn, due to such factors as thedeepening severity of debt problems in Europe, theslowdown of overseas economies caused by emerging
countries' anti-inflationary policies, and the yen hovering at
historic highs.
The special steel industry was no exception to the economic
trends described above, with Japan's hot-rolled special steel

THE 8TH MEDIUM-TERM BUSINESS PLAN
1. Strategy

Create greater corporate value through enhancing the brand power of“Sanyo Special Steel – the Confident Choice”□ Strengthen technological innovation: “Sen-no-sen - Beyond the cutting edge- “□ Further boost international competitiveness□ Improve our overall capabilities by building closer ties among our sectors (sales, technology andproduction) and group companies
We regard the new environment that surrounds us, namely multi-polar world economy brought about by the rise of emerging
countries and a changing demand structure resulting from the advancement of low-carbon societies, as our business opportunities
as well as potential risks. We seek to establish a globally competitive company by enhancing our non-price competitiveness while
also improving cost competitiveness.
Through these efforts, we will pave the way for future profit growth. We will also continue to implement various measures for further
consolidating our business foundation and to promote growth strategies while maintaining a sound financial basis.

2. Key Action Programs【3】
Further boost non-price competitiveness【4】
Ensure upward flexibility to adequately respond to the changing
demand structure【5】
Pursue environment-friendly manufacturing【6】
Develop human resources to realize sustainable growth【1】
Grasp the changes in the demand structure due to growing
demand in emerging countries and the advancement of
low-carbon societies, and realize development and market
launches of new products.
【2】
Ensure adequate profit margins

02

Fiscal 2012 Outlook
By taking all these factors fully into account, in fiscal 2012,
we expect net sales to be ¥170,000 million, ordinary income
to be ¥9,000 million and net income to be ¥5,300 million.
Regarding dividends for fiscal 2012, we are seeking to
implement dividend payments based on periodic earnings
performance in line with our dividend policy; however, thespecific amount of dividend payments has not been decided
at this point.
To our shareholders and investors, we would like to ask foryour continued support and understanding of the SanyoSpecial Steel Group in the coming years.

Turning to future prospects, many uncertainties lie ahead for
the Japanese economy, including the continuing slump in theEuropean economy, the yen's persistent appreciation against
the euro and dollar, and power supply problems due touncertainty over when nuclear power plants will resume
operations. However, there are some positive factors such as
signs of recovery in the U.S. economy, and increasing
demand for automobiles owing to the resumption of agovernment subsidy program for eco-friendly cars. Thus, thebusiness environment surrounding the Sanyo Special SteelGroup is expected to remain one characterized byuncertainty.
Under these circumstances, the Sanyo Special Steel Groupwill ensure that production responds to demand trends while
stepping up efforts to enhance its non-price competitiveness.
At the same time, the Group will make all-out efforts to build
a business structure capable of supplying high-quality
special steel while meeting customer needs effectively byimplementing more aggressive internal cost-cutting
measures and upgrading the iron scrap surcharge system.
Through these efforts, the Group will aim to increase its
corporate value.

September 2012

Yasuo Takeda
Representative Director and President

TopicsSigning of Definitive Joint Venture Agreementwith Mahindra Ugine Steel Co., Ltd. in India
The Indian special steel market is expected to grow significantly in various sectors
including the auto, construction machinery, industrial machinery and railroad sectors on
the back of recent remarkable economic development. Against this backdrop, in
November 2011, the Company and Mitsui & Co., Ltd. entered into a definitive agreementwith Mahindra Ugine Steel Co., Ltd., an Indian special steel manufacturer, to jointly
establish a joint venture for the manufacture and sale of special steel. The threecompanies will meet customer needs in the Indian market by drawing upon theircollective strengths.
■JV Company Profile
Business ：Manufacturing and sales of special steel products
Capital ：INR 100 millions
Plant area ：65 acres（approximately 263,000m2）
Employees：Approx. 800

Location of Sanyo Special
Steel India Pvt. Ltd.:
Gurgaon, Haryana

Delhi
India
Mumbai

Local Subsidiary Established in India
In January 2012, we established a local subsidiary, Sanyo Special Steel India Pvt. Ltd. to
conduct marketing and sales activities and gather information in India and neighboring
countries. The company began operations on April 1, 2012. Through this company, weare going to meet the needs of customers that have global operations.

03

Pune

Location of JV Company:
khopoli, Maharashtra

MA NA G E ME N T P O L I CIES

Basic Management Policies
We adhere to “confidence-based management” as our corporate philosophy, seeking to establish the “confidence of society,”“confidence of customers” and “confidence among people.”
Guided by this corporate philosophy, we aim to balance our economic activity with social development by fulfilling our responsibilities
required as a member of society, including steadily implementing measures to protect the global environment and ensuring compliancewith our corporate ethical standards while further reinforcing the brand power of “Sanyo Special Steel – the Confident Choice.”Through these efforts, we strive to improve our corporate value and pursue our objective of becoming a corporation that can earn greater
confidence among all our stakeholders, including shareholders, customers, employees and society.

Dividend Policy
Our basic policy on profit distribution is to reward our shareholders by strengthening our business foundation and increasing profits
available for distribution. As for dividend payments, we intend to meet the expectations of our shareholders, primarily throughappropriate distribution of profits based on periodic business performance, with due attention being given to both the payout ratio andthe amount of funds required for investments and other activities to increase our corporate value. We basically refer to a consolidated
payout ratio of about 20% and a non-consolidated payout ratio of about 30% as our measure of profit distribution based on ourconsolidated performance. However, since reinforcing the business foundation and reforming the financial structure for the purpose of
improving corporate value is our highest priority, at least for the present, we have decided to use slightly lower reference values - a
consolidated payout ratio of 15%~20% and a non-consolidated payout ratio of 20%~30% - than the standard values in implementing
interim and year-end dividend payments from retained earnings.

Basic Policy on Corporate Control
We consider that anyone in a position that involves control over decisions on the Company’s financial and operating policies must fully
understand the above ‘Basic Management Policies’, and must seek to maintain and improve our corporate value and the common
interests of our shareholders in the future.
Consequently, in order to protect our corporate value and the common interests of our shareholders against the potential harm that could
result from a substantial share acquisition by any third party, we consider it necessary to establish in advance proper rules onsubstantial share acquisitions to be observed by any third party that initiates such an acquisition.
In other words, we think that, in the event of any large-scale purchase offer (buyout offer) from a third party, the decision as to whether
or not to accept such an offer rests with the shareholders, once the offer has been made. We also think that, in order to maintain andenhance our corporate value and the common interests of our shareholders, we need to enable shareholders to make consideredjudgments on any buyout offer within a reasonable period of time, based on adequate information.

04

CORPO RAT E G O V E R N ANCE
We have been enhancing the corporate governance and internal control systems that form part of our management infrastructure toensure the integrity, fairness, and transparency of our operations.

Fundamental Measures for Corporate Governance
The Company has adopted a corporate auditor system.
With respect to business execution, the Company makes decisions concerning important issues and supervises the execution ofbusiness operations at meetings of the Board of Directors (held monthly) and at extraordinary meetings of the Board of Directors (held asnecessary).
We have set up company-wide committees and meetings to discuss important matters regarding operations. These include the
Corporate Policy Committee to facilitate efficient management decision-making such as meetings of the Board of Directors, theCorporate Behavior and Ethics Special Committee to ensure thorough compliance and solid corporate governance, the Security & Trade
Control Committee, the Environmental Conservation Committee and the Corporate Budget Committee.
Corporate auditors’ audits are conducted as necessary based on the auditing policies formulated each year by the Board of Corporate
Auditors. Audits are conducted in a broad range of areas including not only directors’ execution of their duties but also risk management
and compliance from an internal control perspective. Based on the audit results, the auditors express their opinions to the representative
director and, if necessary, business execution functions. We have a standing corporate auditor system in place in order to further
strengthen our auditing structure.
As for accounting audits, audit policies are formulated through discussions between corporate auditors and accounting auditors, andthen audits are performed on these policies.
Internal audits are also performed by the Internal Control & Inspection Department on business execution by our respective functions andsubsidiaries.
■ Our organizational structure for corporate governance and internal control

As of June 28, 2012

General Shareholders’ Meeting
Election / Dismissal

Board of Corporate
Auditors

Audits(1 standing auditor,
4 auditors, including
3 outside auditors)

Inspections(＊3)

Board of Directors

Election / Dismissal

Audits(14 directors)

Accounting Auditors(accounting firm)

Decision /SupervisionCorporate Reference /Committees / Report
Meetings
Reward &Punishment
Committee

Election / Dismissal

Corporate Policy
Committee

Consultation
ReportAudits(＊1)
Instruction

Representative Director

ReportAdministration of
the Company’s Business

AuditsAudits(＊2)

Internal
Control &Inspection
Department

Internal Auditing

Audits

Subsidiaries, Affiliated Companies(＊1) Auditing of our subsidiaries and affiliated companies is conducted through the auditing of consolidated financial statements by anaccounting firm.
(＊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 Sanyo Special Steel’s domestic subsidiaries, and fulfill their responsibilities in that capacity.

Development and Operation of Internal Control Systems
At the Board of Directors meeting held in May 2006, in order to improve our internal control systems, we settled on a basic policy for thecreation of internal control systems in accordance with the Company Law of Japan and relevant laws and ordinances.
Under this policy, we have been developing our internal control systems, on which our corporate management approach, whichemphasizes integrity, fairness, and transparency, is built.
In addition, the Internal Control & Inspection Department was established in October 2007 as a function to evaluate the Sanyo Special
Steel Group’s internal control systems, and we have been working on the development and operation of a system that supports“Management’s Report on Internal Control Over Financial Reporting,” which has been a requirement since fiscal 2008 under the Financial
Instruments and Exchange Act.
In this regard, in April 2008, we set up a working group for internal control management, which is a cross-functional committee
composed of members from across the Sanyo Special Steel Group, in order to address risks in financial reporting, share relevant
information, and discuss educational guidelines, and we are working to further reinforce our internal control systems in order to ensure
the adequacy of information in financial reporting.
05

SE G M ENT I N F O R MAT ION

Specialty SteelIn the Special Steel segment, we manufacture and sell various special steel products,
capitalizing on our high cleanliness steel manufacturing technology, including bearing
steel, engineering steel, stainless steel, heat resistant steel and tool steel.

Net Sales(million of yen)
20,000Fiscal 2011 Overview
Production temporarily declined, mainly in the automotive industry, in the aftermathof the Great East Japan Earthquake that occurred on March 11, 2011 but showed aquick recovery, which, combined with the resurgence of exports, helped sales volume
remain relatively solid in fiscal 2011. As a result, net sales increased to ¥158,110
million (up ¥9,746 million year-on-year). Operating income decreased to ¥11,465
million (down ¥739 million year-on-year) due to the yen's appreciation, soaring fueland electricity prices, and an increase in depreciation expenses, despite strenuous
efforts to cut costs.

15,000148,364

158,11086.2％
10,0005,000

Sales Breakdown(FY 2011)

0

FY2010FY2011Net Sales(million of yen)

Special Materials
The Special Materials segment is engaged in manufacture and sale ofheat/corrosion-resistant alloys and metal powder products.

8,000
6,974
6,000

5,672

4.1％
4,000

Fiscal 2011 Overview
The Special Materials segment generated net sales of ¥6,974 million (up ¥1,301
million year-on-year) and operating income of ¥810 million (down ¥230 million
year-on-year).

2,000

Sales Breakdown(FY 2011)

0

FY2010FY2011

TopicsMeeting the requirements for wind power generators
New 5,000-ton forging press installed
In October 2011, a new 5,000-ton forging press was installed. With the addition of this machine, and together with the existing
1,500-ton and 3,000-ton forging presses, we now have a total of 3 presses in operation. The installation of the new 5,000-ton forging
press is intended to respond to the growing market for large bearings which are used in wind power generators and industrial
machinery in particular, and capture new demand by making larger products available.

Improved efficiency in high-quality special steel production
New 60-ton continuous caster installed

5,000-ton forging press

We installed a new 60-ton continuous caster in the No.1 Steelmaking Plant which had previously been dedicated to ingot casting, andstarted production with the new machine in July 2011.
Continuous casting makes the casting process uninterrupted, and therefore achieves higher efficiency than ingot casting. Continuous
casting is also expected to bring such benefits as energy saving and yield improvement. The existing ingot casting line will be used toreinforce manufacturing capability for large ingots which are used to make such products as parts for wind power generators.
60-ton continuous caster06

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

Net Sales(million of yen)
20,00016,072

16,612FY2010FY2011

15,0009.7％
10,000Fiscal 2011 Overview
The Formed & Fabricated Materials segment posted net sales of ¥16,612 million (up¥540 million year-on-year) due to relatively solid sales performance in terms ofvolume, as was also the case in the Specialty Steel segment. The segment recorded
operating income of ¥1,250 million (down ¥101 million year-on-year) affected by therising yen and fuel and electricity price hikes as was the case of the Specialty Steelsegment.

5,000

Sales Breakdown(FY 2011)

0

Net Sales(million of yen)

Other

4,000

We provide information processing services through our subsidiaries.

3,000

0.0％

Fiscal 2011 Overview

2,000

Net sales increased to ¥1,225 million (up ¥178 million year-on-year), and operating
income was ¥65 million (down ¥39 million year-on-year).

1,000

Sales Breakdown(FY 2011)

0

1,047

FY20101,225

FY2011

Notes: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.

An additional 2,000-ton vertical-type press installedat the formed and fabricated materials subsidiary in China
We installed an additional 2,000-ton vertical-type press at Ningbo Sanyo Special-steel Products Co., Ltd.
(hereinafter referred to as "NSSP"), a Chinese subsidiary that manufactures and distributes formed andfabricated materials.
With the growth of car production in China, the demand for HUB (*) manufactured by NSSP has been
increasing.
NSSP was previously manufacturing HUB with two vertical hot forging machines (2,000-ton and
2,300-ton vertical-type presses), but we installed an additional 2,000-ton vertical press in NSSP in
anticipation of booming demand.
(*) HUB is an automotive wheel bearing, and refers to bearings in a wheel fastening unit of an
automobile.

07

An additional 2,000-ton vertical-type press which
installed at the formed and fabricated materials
subsidiary in China.

RE SEA RCH A N D D E V E LOP M ENT

We identify actual customer needs through a thorough analysis of data on social and industrial developments collected through its
customer satisfaction-oriented marketing approach and respond to such customer needs with fast-paced research and development.
We promote R&D that contributes to the expansion of technological innovation with a view to preserving the global environment andaddressing soaring resource/fuel prices and the depletion of fuel and other resources, thereby further enhancing the brand power of“Sanyo Special Steel – the confident choice.”

Analytical Technology

Technological Development

・Analysis of inclusions and precipitates
・Rapid analysis of fatigue characteristics
・Advanced CAE simulation ranging from fluid dynamics
and thermal analysis to deformation analysis

・Steelmaking process・Manufacturing process・Forming and fabricating process
・Powder production process

Strain distribution ofa cold forged gear
Ultrasonic fatigue test
equipment

Electric furnace operation

Materials Development

Fundamental Research・Development of state-of-the-art bearing steel
・Development of high-functional engineering steel
・Development of materials related to energy use andthe environment
・Development of steel for highly functional dies
・Development of materials for electronics components
・Development of highly functional powder materials

Electron microscope image ofTiC in TMAX steel

High-resolution field emission scanningelectron microscope

08

Long

We developed "PremiumJ2", a new grade bearing steel that makes it possible todecrease variation in the lifespan of bearings, and established a technology formass-production of this product.
We developed a new steelmaking technology to reduce harmful non-metallic inclusions insteel (foreign particles in steel) to the lowest possible level, together with a technology toevaluate the frequency of non-metallic inclusions in large volumes of steel to prove thelow incidence of such inclusions. The combination of these two technologies has
extended the minimum lifespan of bearings made of PremiumJ2 threefold compared tobearings made of standard bearing steel (SUJ2 steel) (Sanyo Special Steel's experimental
results).
PremiumuJ2 has been developed for bearings used in important parts of automobiles andother products, and responds to the growing need in recent years for smaller bearings
with greater longevity.

Image showing how variation in rolling contact
fatigue life has been improved

Lifespan of bearings

TopicsCommercial production of new grade bearing steel "PremiumJ2"
Responding to the demand for smaller bearings with greater longevity

PremiumJ2
SUJ2

The minimum lifespan has
been tripled compared tothat of conventional
bearings!
reliability of the cleanlinessof steelGoodOur Major Original Products/Technologies
Premium Cleanliness Steel
Steel with its characteristics improved to the limit
Premium cleanliness steel was developed based on our unique concept of “controlling the size ofthe largest inclusion in steel to utilize its essential characteristics to the full.” Its higher fatigue
strength and reliability satisfy our customers’ needs, especially those of our customers in theautomobile industry, who require “small, lightweight high-performance parts that are alsofriendly to the environment.”

Ball bearings

ECOMAX
High-strength case-hardening steel without the need for the addition of nickel and molybdenum
ECOMAX is a resource-saving, high-strength steel, the strength of which is achieved without theuse of rare metals such as nickel and molybdenum. ECOMAX meets the need for more compact
and lighter automotive drive components designed to reduce CO2 emissions, and shows promise
as a material for parts requiring high strength, such as automobile gears and shafts.

Automotive gears and shafts

SPMR8
Powder metallurgy high-speed steel with significantly improved toughness and corrosion resistance
SPMR8 provides significantly improved toughness and corrosion resistance realized by
optimizing carbide dispersion in steel and alloy composition of matrix structures, while retaining
the same level of hardness and wear resistance as that of SPM23, general-purpose P/M (powder
metallurgy) high-speed steel. Its enhanced characteristics contribute to life extension of dies byreducing the early formation of cracks and chips and the occurrence of unusual corrosion andwear in their use. SPMR8 is especially suitable for punches and dies for cold forging, cold work
tools (mandrels, rolls, etc.), and screws for plastic molding.

MandrelFuel cell separator technology
The world’s first separator technology that triples fuel cell power generation output
Fuel cells are environmentally friendly sources of clean energy based on a chemical reaction
whereby water is produced from hydrogen and oxygen.
By adopting an innovative structure using our spherical metal powders in the separators that are
major components of fuel cells, the company has achieved a significant improvement in fuel cell
power generation output, which has long been a challenge to practical use.

Development of Hot-die Steel "QT41-HARMOTEX"Contributing to Increasing the Lifespan of Dies

Positioning of QT41-HARMOTEXGood
Higher toughness

JIS SKT 4 steel, which is a typical hot-die steel, is used for dies for hammer forging in whichmaterials are forged at about 900-1,200oC. We developed hot-die steel QT41, an improvement on
SKT4, a product that had won the high regard of customers over a long period. Now we havedeveloped QT41-HARMOTEX, the properties of which are a marked improvement over QT41.
QT41-HARMOTEX is twice as tough as conventional steel and reduces dies cracking or chipping. In
addition, the softening resistance is 1.5 times greater than that of conventional steel and reduces
dies wear or loss of resilience when they are used for a long period of time. QT41-HARMOTEX is
expected to contribute to increasing the lifespan of dies and reducing die-related costs.

It is ranked above JIS SKT 4 and our QT41 interms of toughness and softening resistance.

QT41HARMOTEX
QT41
SKT4
Toughness

09

Good

CSR-C O N S C I O US MA NAG EM ENT

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 andbuild a sustainable relationship with society.

Conceptual Diagram
Corporate Philosophy:

Confidence-based
Management

CSR-conscious Management

Corporate Management with Integrity,
Fairness, and Transparency
Environmental Management
Compliance Management
Social Contributions
CSR in Pursuit of Social Goals

CSR in Pursuit of Economic Goals
We aim for sustained company growth andthe well-being of society by gaining theconfidence of the market through ourprovision of high-quality special steel
products, and by returning our modest
profits to society.

We aim to enhance our corporate brandimage through achieving harmonious
coexistence with society by focusing on thecreation of a resource-recycling society,environmental protection, and cultural
promotion.

Continuous improvement in quality,
Increasing customer satisfaction,
Development of environmentally friendly
products, etc.

Environmental protection,
Volunteer activities,
Support for cultural activities, etc.

10

C O M P L I A N C E S T R UC T URE

We are working to improve our corporate structure and implement training programs that support our compliance-based management.

Clearly-defined Company Rules
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 ourbusiness 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 used toensure compliance.

Establishment of a Corporate Behavior
and Ethics Special Committee■ Compliance Structure

The Committee discusses compliance policies and specificmeasures based on these policies. If any situation or
behavior deviates or is likely to deviate from laws andregulations, etc., the Committee investigates the actual
situation, deliberates on appropriate corrective measures,and takes other relevant actions.

Corporate Behavior and Ethics Special Committee
Chairperson
Executive officer in charge of corporate ethics
Executive officer responsible for, or in charge of, the General Administration
Department

Committee members
Director and Executive Vice President, Senior Managing Director, Managing
Director, Director, Presidents of domestic affiliated companies, General
Manager (General Administration), General Manager (Internal Control &Inspection Department), and personnel appointed by the Chairperson

Establishment of a Whistle-blowing
System(Whistle-blowing System : Helpline)

We have initiated a “Helpline,” a whistle-blowing systemdesigned to help prevent occurrence or recurrence of
misconduct.
The “Helpline” is aimed at detecting at an early stage any
apparent or probable circumstances/acts which are
deemed inappropriate in light of laws and regulations,social norms, and/or company rules, and allowing prompt
and appropriate action to be taken to prevent misconduct.

Corporate ethics help desk
General Manager (General Administration)
Group Manager (CSR & Legal Group)
Corporate lawyer

Domestic
affiliates
President
Executive officer in chargeof corporate ethics

Implementation of Compliance
Education Programs
We arrange lectures to improve compliance awarenessand provide e-learning programs for complianceeducation.

Company help desk

Whistle-blower

11

ENV I RO N ME N TA L C O NS ERVAT ION

We conduct our business keeping environmental conservation in mind, and seek to create a recycling society.

Environmental Policy
Enviromental philosophy

We, Sanyo Special Steel, are aware that environmental conservation is an important issue common to all
mankind. With this in mind, and as a company operating in a rich environment with a wonderful view of Himeji
Castle, a designated UNESCO World Heritage Site and our national treasure, to the north, and the Seto Inland Sea
National Park to the south, we seek to contribute to the creation of a recycling society by promoting eco-friendly
practices throughout all stages of our operations.

Environmental policy

Based on our company mission statements, which are listed below, we, Sanyo Special Steel, promote
environmental management as a producer and a seller of special steels and nonferrous metals.

1

We contribute to the recycling of metal as we manufacture steel products from steel scrap.

2

We abide by laws, regulations, and agreements related to the environment, constantly work hard to improve ourenvironmental preservation systems, and strictly control our business activities that may impact the environment.

3

In order to reduce the environmental burden at every stage of our operations and contribute to environmental
conservation, we promote resource and energy savings, the recycling of by-products, waste reduction and pollutant
discharge control, and strive to prevent environmental pollution.

4

We set environmental goals and targets, review these environmental aims at least once a year and make revisions asnecessary, in order to accomplish these environmental missions.

5

The general manager of the Environmental Management Department is designated as the chief administrator of theenvironmental system, with the purpose of making these environmental missions known to all of our employees andensuring the environmental system is implemented.

■ Environmental management system model

Environmental Management System
In 1997, Sanyo Special Steel acquired ISO 14001 certification, which
represents the international standard for environmental management
systems. Since then, we have been working hard to improve andenhance our environmental management system.

Environmental
policyManagement
reviewContinual
improvement

Checking

12

Planning

Implementation
andOperation

S O C I A L C O N T R I B UT I O NS

In order to build greater confidence among all stakeholders and develop in harmony with society, we are actively engaged in social
contribution programs.

Community Activities
Beautification of the surrounding area
As part of our community contribution programs, our employees engage incleanup activities in the area surrounding our plant. In fiscal 2011, some
300 employees took part in the activities, and collected garbage discardedin the surrounding streets, center dividers, and green belts.

Blood Donation Campaign
We run a blood donation campaign on a regular basis. In fiscal 2011, 150,200 mlof blood was collected from a total 405 donors.

Company personnel participate as guest runners
in a marathon for elementary school pupils.
Members of our athletics club took part as guest runners in a marathon
held by Himeji City Elementary School as part of our community
contribution activities,
Our athletes accompanied the pupils as pacemakers, encouraging them to
run with all their might.

Holding of Cultural Lectures(Sanyo Special Steel Cultural Promotion Foundation program)
We hold cultural lectures under the sponsorship of the Sanyo Special Steel
Cultural Promotion Foundation, for the purpose of fostering local culture andeducation of local citizens.
In the lecture meeting held in May 2012, we invited Professor Kunihiko Takeda
from Chubu University's Institute of Science and Technology Research to give a
presentation. He delivered his lecture, entitled "How Japan's Future Energy Policy
Should Be Decided" in front of an audience of about 800.
13

F IN A NCI A L FI GURES

Financial Position
Total assets at the end of fiscal 2011 increased to ¥212,365 million (¥24,151 million higher thanthe balance at the end of fiscal 2010) due primarily to increases in trade notes and accounts
receivable, tangible fixed assets, and inventories.
Total liabilities increased to ¥115,372 million (¥19,749 million higher than the balance at theend of fiscal 2010) due mainly to increases in long-term borrowings and accounts payable.
Net assets increased to ¥96,993 million (¥4,402 million higher than the balance at the end of
fiscal 2010) with net income posted for the period.

Cash Flows
Cash flows for fiscal 2011 are summarized as follows. Net cash provided by operating activitieswas ¥4,151 million (a decrease of ¥6,336 million in cash inflow compared to fiscal 2010), which
resulted from net income before income taxes (¥10,608 million), depreciation expenses(¥10,927 million), an increase in trade receivables (a decrease in cash flow of ¥9,050 million),and an increase in inventories (a decrease in cash flow of ¥7,026 million).
Net cash used in investing activities was ¥17,902 million (an increase of ¥5,445 million in cash
outflow from fiscal 2010) due mainly to capital investment for replacement of out-of-dateequipment, environmental/energy-saving measures, and labor-saving measures.
Net cash provided by financing activities was ¥11,296 million (an increase of ¥2,246 million in
cash inflow compared to fiscal 2010) due primarily to an increase in borrowings (¥12,927
million).
The balance of cash and cash equivalents at the end of fiscal 2011 stood at ¥16,500 million(¥2,489 million lower than the balance at the end of fiscal 2010).

14

FINA NC I A L F I G UR E S
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSAs of March 31, 2011 and 2012

Thousands of U.S.
dollars (Note 3)

Millions of yen

ASSETS

2011

2012

2012

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

Notes and accounts receivable, trade (Note 5, 9 and 19)

18,990¥18,557$

225,943

52,84861,863753,231

(13)

(9)

(106)

Inventories (Note 7)

42,13949,123598,117

Deferred tax assets (Note 12)

2,322

2,017

24,557

Less: Allowance for doubtful accounts

Other

877

1,481

18,032

117,163

133,032

1,619,774

Land (Note 8)

7,084

7,119

86,677

Buildings and structures (Note 8)

43,34444,875546,394

Machinery and equipment (Note 8)

170,740

181,385

2,208,511

3,472

7,058

85,930Total current assets

Property, Plant and Equipment:

Construction in progress

224,640

240,437

2,927,512(165,813)(174,587)(2,125,739)

58,82765,850801,773

740

712

8,666

8,511

8,139

99,095Long-term loans receivable

30

1,821

22,177

Deferred tax assets (Note 12)

222

210

2,558

Prepaid pension cost (Note 11)

2,034

1,876

22,843

Other

969

1,016

12,370Less: Allowance for doubtful accounts

(283)

(291)

(3,543)

Total investments and other assets

11,483

12,771

155,500

212,365$ 2,585,713

Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

Investments and Others:
Investments in securities (Note 5 and 6)¥

Total assets

The accompanying notes are integral parts of these statements.

15

188,213¥

FINA NC I A L F I G UR E S

Thousands of U.S.
dollars (Note 3)

Millions of yen

LIABILITIES AND NET ASSETS

2011

2012

2012

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

31,390¥31,603$384,798

Current portion of long-term loans (Notes 5, 8 and 10)

4,015

4,546

55,352

Notes and accounts payable, trade (Note 5 and 9)

17,04018,345

223,363

Accounts payable, other

6,238

11,245

136,911

Accrued income taxes

2,664

2,456

29,906

Accrued expenses

8,431

9,273

112,903

901

697

8,490

70,67978,165

951,723

Long-term loans (Notes 5, 8 and 10)

22,517

34,671

422,147

Accrued employees' retirement benefits (Note 11)

1,310

1,234

15,023

Other
Total current liabilities

Long-term Liabilities:

Accrued directors' and corporate auditors' retirement benefits

57

58

702

Reserve for environmental measures

376

294

3,580

Deferred tax liabilities (Note 12)

483

747

9,096

Other

200

203

2,469

Total long-term liabilities

24,94337,207453,017

Total liabilities

95,622

115,372

1,404,740

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$245,741

Capital surplus

22,595

22,596275,126

Retained earnings

50,13954,933

668,854

Less: Treasury stock, at cost (5,749,745 shares in 2011, 5,770,712 shares in 2012)(1,757)(1,768)(21,520)

91,16095,944

1,168,201

Valuation difference on available-for-sale securities

1,728

1,419

17,280Foreign currency translation adjustments

(706)

(806)

(9,816)

1,022

613

7,464

Minority Interests

409

436

5,308

Total net assets

92,591

96,993

1,180,973

212,365$ 2,585,713

Total shareholders’ equity

Accumulated Other Comprehensive Income:

Total accumulated other comprehensive income¥

Total liabilities and net assets

The accompanying notes are integral parts of these statements.

16

188,213¥

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2011 and 2012

Thousands of U.S.
dollars (Note 3)

Millions of yen

2011

Net Sales
Cost of Sales (Note 14)¥

Gross profit

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

2012

2012

171,800
147,554
24,246$ 2,091,807
1,796,594
295,213

11,752
14,20012,897
11,349157,036
138,177

171
394
565

176
426
602

2,149
5,187
7,336

(504)
(865)
(1,369)13,396

(520)
(435)
(955)
10,996(6,337)(5,296)(11,633)
133,880266(1,102)
(238)
(3)
169
174
(734)
12,662

3
(396)
−
5
−
−
(388)
10,60847(4,826)−61−−(4,718)129,162

2,674
2,129
4,803
7,859

3,538
617
4,155
6,453

43,078
7,517
50,59578,567¥

159,512
133,560
25,952Other Income:Interest and dividend
Other

Other Expenses:
Interest
Other
Ordinary income

Extraordinary:Gain on sale of land
Loss on sale and disposition of property, plant and equipment
Loss on evaluation of investments in securities and others
Gain (loss) on sale of investments in securities and others
Reversal of allowance for doubtful accounts
Reversal of reserve for loss on guarantees
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

¥

37
7,822

¥

45
6,408

Yen

$

545
78,022

U.S. dollars (Note 3)

2011

2012

2012

Per Share:¥¥¥

Net income (Note 15)
Cash dividends
Net assets

The accompanying notes are integral parts of these statements.

17

48.47
10.00
571.23

¥
¥
¥

39.71
9.00
598.42

$
$
$

0.48
0.11
7.29

FIN A NC IA L F I G UR E S
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2011 and 2012

Thousands of U.S.
dollars (Note 3)

Millions of yen

2011

Income Before Minority Interests
Other Comprehensive Income:¥

Valuation difference on available-for-sale securities
Foreign currency translation adjustments
Share of other comprehensive income of an affiliate 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.

18

7,859

2012
¥

6,453

2012
$

78,567

(624)
(164)
(63)
(851)
7,008

(309)
(88)
(23)
(420)
6,033

(3,763)(1,074)(278)(5,115)73,452

6,992
16

5,999
34

73,045407

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2011
Number ofoutstanding
common shares

Common stock

167,124,036 ¥Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for fiscal year 2010
Balance at end of year

¥

¥

¥

22,594(1,741)

—

—

—

—

—

—

—

—

—

1

—

—

—

—

—

—

—

—

1
22,595

7,016
50,139(16)(1,757)

20,183¥¥

Millions of yen
Foreigncurrency
Minoritytranslationinterests
adjustments

¥

(499)

¥

Total

403

—

—

—

—

—

—

—

—

—

—

—

—

(624)
(624)
1,728

(207)
(207)
(706)

6
6
409

19

43,123
7,822
(806)

—

2,352

The accompanying notes are integral parts of these statements.

¥—

167,124,036 ¥¥Treasury stock,at cost—Valuationdifference on
available-forsale securities

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for fiscal year 2010
Balance at end of year

20,183

Millions of yen
Retained
Capital surplus
earnings

¥

¥

¥

¥

86,415
7,822
(806)
(18)
3
(825)
6,176
92,591

—
—

(18)
2

¥

FIN A NC I A L F I G UR E S
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2012

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2011, net
Total changes for fiscal year 2011
Balance at end of year

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2011, net
Total changes for fiscal year 2011
Balance at end of year

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2011, net
Total changes for fiscal year 2011
Balance at end of year

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2011, net
Total changes for fiscal year 2011
Balance at end of year

Number ofoutstanding
common share

Common stock

167,124,036¥

20,183

Millions of yen
Retained
Capital surplus
earnings

Treasury stock,at cost¥¥22,595

—

—

—

—

—

—

—

—

—

1

—

—

—

—

—

—

—

—

1
22,596

4,794
54,933(11)(1,768)Valuationdifference on
available-forsale securities

Millions of yen
Foreigncurrency
Minoritytranslationinterests
adjustments

1,728

¥

20,183

(706)

¥

¥

409

—

—

—

—

—

—

—

—

—

—

—

(309)
(309)
1,419

(100)
(100)
(806)

27
27
436

¥

Common stock

167,124,036$

245,741

¥

(13)
2

¥

¥

¥

92,591
6,408(1,614)
(13)
3
(382)
4,402
96,993

Treasury stock,at cost$$275,114$

610,480
78,022(19,648)(21,385)

—

—

—

—

—

—

—

—

—

—

—

—

12

—

—

—

—

—

—

—

—

12
275,126

58,374
668,854(135)(21,520)$

Valuationdifference on
available-forsale securities

Thousands of U.S. dollars (Note 3)
Foreigncurrency
Minoritytranslationinterests
adjustments$$

21,043245,741(8,602)

$

$

4,982

—

—

—

—

—

—

—

—

—

—

—

—

(3,763)(3,763)
17,280(1,214)(1,214)(9,816)

326
326
5,308

20

—

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

167,124,036

The accompanying notes are integral parts of these statements.

¥

—

Total

—

Number ofoutstanding
common shares$(1,757)—¥¥50,1396,408(1,614)—

167,124,036

¥

¥

—

$

$

$

Total

$ 1,127,373
78,022(19,648)(155)
32(4,651)53,600$ 1,180,973

—
—

(155)
20

$

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2011 and 2012
Thousands of U.S.
dollars (Note 3)

Millions of yen

2011

2012

2012

Cash Flows from Operating Activities:¥
Income before income taxes and minority interests
Adjustments Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in accrued employees' retirement benefits, less payments
Increase in prepaid pension cost
Increase (decrease) in accrued directors' and corporate auditors' retirement benefits, less payments
Decrease in reserve for environmental measures
Decrease in reserve for loss on guarantees
Interest and dividend income
Interest expense
Gain on sale of investments in securities
Loss on evaluation of investments in securities
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 (used in) operating activities

9,980
(169)
117
191
(50)
—
(174)
(171)
504
—
217
836

10,927
4
(76)
158
1
(82)

̶

̶

392

4,779

(15,277)(9,695)9,889
1,230
10,090
184
(466)
679
10,487(9,050)(7,026)
2,629
(525)
8,299
175
(520)
(3,803)
4,151(110,196)(85,545)
32,015(6,407)101,0422,131(6,326)(46,300)
50,547

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments in securities
Decrease (increase) in long-term loans receivable
Decrease (increase) in over three-month deposits
Other, net
Net cash used in investing activities(12,486)
(79)
(83)
244
4
(58)
(12,458)(13,177)(153)
13(1,988)(2,055)(542)(17,902)(160,445)(1,868)163(24,202)(25,027)(6,601)(217,980)

Cash Flows from Financing Activities:
Increase (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 provided by financing activities(47)
11,000(1,071)
(18)
3
(806)
(10)
9,051

227
16,700(4,000)(13)
3(1,614)(7)
11,296

2,759
203,336(48,703)(154)
31(19,648)(81)
137,540

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

(147)
6,933
12,05518,988(33)(2,488)18,98816,500(408)(30,301)
231,196
200,895

12,662¥

The accompanying notes are integral parts of these statements.

21

¥

¥

10,608$129,162
133,042
47
(920)
1,925
11
(998)

̶

̶

(176)
520
(5)

(2,149)
6,337
(61)

$

FIN A NC I A L F I G UR E S
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presenting Consolidated Financial Statements
requirements from International Financial Reporting Standards, andare compiled from the consolidated financial statements prepared by
the Company as required by the Financial Instruments and Exchange
Law of Japan.

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

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 13 subsidiaries as of March 31, 2012 (10subsidiaries as of March 31, 2011). The consolidated financial
statements include the accounts of the Company and 13 of its
subsidiaries. The 13 subsidiaries that have been consolidated for fiscal
year 2012 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-term or short-term, are translated into Japanese yen at
the exchange rate prevailing at the each balance sheet date. Resulting
gains and losses are included 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 the rate. These differences are recorded as foreign currencytranslation 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.

(3) Securities The accounting standard for financial instruments (“AccountingStandards for Financial Instruments” (Accounting Standards Board ofJapan (“ASBJ”) Statement No. 10)) requires that securities beclassified into 4 categories: trading securities, held-to-maturity debt
securities, equity securities issued by subsidiaries and affiliates oravailable-for-sale securities. Except for the equity securities issued bysubsidiaries and affiliates, securities that the Company has are allclassified as available-for-sale securities.
Under the standard, marketable securities classified asavailable-for-sale securities 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 asavailable-for-sale securities are carried at cost. A decline in the valueof available-for-sale securities is reflected in net profit or loss for theperiod unless deemed to be temporary. Cost of securities sold isdetermined by the moving average method.

During the year ended March 31, 2012, Santoku Technos Co., Ltd.,
Santoku Security Service Co., Ltd. and Sanyo Special Steel India Pvt.
Ltd. were 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., Sanyo Special Steel Trading (Shanghai) Co., Ltd., andSanyo Special Steel India Pvt. Ltd.), use a fiscal year ending March
31, which is the same as that of the Company. With respect to SanyoSpecial Steel India Pvt. Ltd., which has been newly established in thecurrent year, its financial statements were consolidated as of the dateof inception. The other 5 foreign subsidiaries use a fiscal year ending
December 31. For these 5 subsidiaries, certain adjustments are made,if appropriate, in preparing the consolidated financial statements toreflect material transactions which occurred between their fiscal
year-end and March 31.
For the purpose of preparing the consolidated financial statements,
all significant intercompany transactions and balances and unrealized
profits among the Companies have been eliminated.
(b) Investments in affiliates
Investment in Advanced Green Components, LLC, an affiliate of theCompany on which the Company has significant influence, isaccounted 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 and retained 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 are used as hedges and meet certain hedging
criteria, the Companies use the deferred hedge accounting method.
In addition, with regard to interest rate swap transactions that meetthe criteria, the exceptional method is 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
accrual basis.
The Companies compare the total change in cash flow or rate
fluctuation of hedging instruments and those of hedged items every
half year and evaluate the hedge effectiveness based on the
differences.

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

22(6) Depreciation and amortization -(14) Net income and cash dividends per share -The Company computes depreciation using the straight-line method
for buildings (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 thedeclining-balance method for property, plant and equipment other thanthose described above.
Amortization of capitalized software costs for internal use iscomputed on the straight-line method, based on the useful life
estimated to be 5 years. Amortization of other intangible assets iscomputed on the straight-line method.

Net income per share is computed by dividing net income available
for distribution to shareholders of common stock by theweighted-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
the respective years rather than those paid during the years.

(15) Cash and cash equivalents -Research and development costs are charged to profit or loss as
incurred.

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

(8) Allowance for doubtful accounts -(16) Consumption tax -Allowance for doubtful accounts is provided at the amountcalculated based on past loss experience plus the amount estimated to
be uncollectible on an individual account basis.

In Japan, a consumption tax, with certain exemptions, is imposed on
domestic consumption of goods and services at the rate of 5%. 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 not included in the amount of “net sales” in the
consolidated statements of operations but is recorded as liabilities. The
consumption tax imposed on the purchases of products, merchandiseand services from vendors borne by the Company and its domestic
subsidiaries, is not included in the amounts of costs 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 -(9) Accrued employees' retirement benefits Employees whose service with the Company and its principal
consolidated subsidiaries are terminated, under most circumstances,are entitled to retirement benefits determined by reference to current
basic rates of pay, length of service and conditions under which theterminations occur.
Accrued employees’ retirement benefits are calculated based on an
actuarial valuation of the projected benefit obligation and the fairvalue of the plan assets. Prior service costs are amortized on astraight-line basis over the period of 10 years from the year when theyarise. Actuarial differences are amortized on a straight-line basis overthe period of 10 years from the year after the year when they arise.

(17) Reclassifications and restatement Certain prior year amounts have been reclassified to conform to thecurrent year presentation.

(10) Accrued directors' and corporate auditors' retirement
benefits -Additional information-

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.

The Companies adopted “Accounting Standard for Accounting
Changes and Error Corrections” (Accounting Standards Board ofJapan (“ASBJ”) Statement No. 24, issued on December 4, 2009) and“Guidance on Accounting Standard for Accounting Changes and Error
Corrections” (ASBJ Guidance No. 24, issued on December 4, 2009)
for accounting changes and corrections of prior period errors which
are made from the fiscal year beginning on April 1, 2011.

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

(12) Income taxes The asset and liability method is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of thetemporary differences between the carrying amounts and the tax baseof assets and liabilities.

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

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. Thesetranslations 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 rate of ¥82.13 = U.S.$1.00, the approximate rate of exchange as at March 31, 2012, has been used for the purpose of suchtranslations.

23

FINA NC I A L F I G UR E S

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:

Valuation difference on available-for-sale securities
Increase (decrease) during the year
Subtotal, before tax
Tax (expense) or benefit
Subtotal, net of tax
Foreign currency translation adjustments
Increase (decrease) during the year
Share of other comprehensive income of an affiliate accounted for by the equity method
Increase (decrease) during the year
Total other comprehensive income

Millions of yen

Thousands of U.S. dollars

2012

2012

¥

$

¥

(341)
(341)
32
(309)

$

(4,156)(4,156)393(3,763)

¥

(88)

$

(1,074)

¥
¥

(23)
(420)

$
$

(278)
(5,115)

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 bank deposits, etc., with low probability of loss of principal. The Companies utilize derivative transactions
mainly to hedge interest rate fluctuation risk and limit the amount 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 the company regulation. Notes and accounts receivable
denominated in foreign currencies are exposed to exchange rate risks. The Companies reduce such risks by settling both notes andaccounts 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 us, are exposed to market
price risks. The Companies regularly review the fair values and financial positions of the companies and revise the portfolio
considering the relationships with them.
Notes and accounts payable are paid within one year. Notes and accounts payable denominated in foreign currencies arisingfrom 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 among them by interest rate swap
contracts.
The Companies establish regulations which stipulate the authorization and management of derivative transactions. See Note2(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 thefinancial instruments do not have market price. Since certain assumptions are adopted for calculating such values, the values may
differ when different assumptions are adopted.

24

(2) Fair values of financial instruments Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2011 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 transactions①Hedge accounting is not applied②Hedge accounting is applied

Fair value

Difference

18,99052,848

¥
¥

̶

¥
7,509
¥ (17,040)¥ (35,390)¥ (22,400)¥
7,509¥ (17,040)¥ (35,390)¥ (22,499)

¥
¥
¥
¥

̶

¥
¥

¥
¥

¥
¥

¥
¥

18,99052,848

(0)
̶

¥
¥

(0)
̶

̶

̶
̶

△99
̶
̶

(※) The debt is displayed by ( ).
Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2012 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 appliedThousands of U.S. dollars

Fair value

Difference

18,55761,863

¥
¥

̶

¥
7,169
¥ (18,345)¥ (36,134)¥ (34,569)¥
7,169¥ (18,345)¥ (36,134)¥ (34,629)

¥
¥
¥
¥

̶

¥
¥

¥
¥

¥
¥

¥
¥

18,55761,863

(1)
̶

¥
¥

(1)
̶

̶

̶
̶

60
̶
̶

Book value

Fair value$ 225,943$ 753,231$ 225,943$ 753,231$$

̶$ 87,287$ (223,363)$ (439,967)$ (420,906)$ 87,287$ (223,363)$ (439,967)$ (421,635)

$
$
$
$

̶

$
$

$
$

$
$

(17)
̶

Difference

(17)
̶

̶

̶
̶

△729
̶
̶

(※) The debt is displayed by ( ).
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 17, “Derivatives.”

2. Non-listed equity securities whose fair values are not available are excluded from investments in securities above. These instruments as ofMarch 31, 2011 and 2012 are as follows.
Thousands of
U.S. dollars

Millions of yen

2011¥

Non-listed equity securities

25

488

2012
¥

478

2012
$

5,819

FINA NC I A L F I G UR E S

3. The aggregate maturities subsequent to March 31, 2011 for financial assets with maturities were as follows:
Millions of yen

Cash and bank deposits
Notes and accounts receivable, trade
Total

Within 1 year

1 year or more but
within 5 years

¥

¥

¥

18,99052,84871,838̶

5 years or more but
within 10 years
̶

¥

̶
̶

¥

Ten years or more
̶

¥

̶
̶

¥

̶
̶

¥

The aggregate maturities subsequent to March 31, 2012 for financial assets with maturities are as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

18,55761,86380,4201 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$ 225,943
753,231$ 979,174

1 year or more but
within 5 years

5 years or more but
within 10 years

̶

̶

$
$

$

̶

̶

̶

̶

$

Ten years or more
̶

$

̶
̶

$

4. The aggregate maturities subsequent to March 31, 2011 for long-term loans and other interest-bearing debt were as follows:
Millions of yen
Within 1 year

Long-term loans
Other interest-bearing debt
Total

¥
¥

̶

15
15

1 year or more but
within 5 years

5 years or more but
within 10 years

Ten years or more

¥

¥

¥

¥

22,15060
22,210

¥

250
57
307

̶
̶
̶

¥

The aggregate maturities subsequent to March 31, 2012 for long-term loans and other interest-bearing debt are as follows:
Millions of yen
Within 1 year

Long-term loans
Other interest-bearing debt
Total

¥
¥

̶

15
15

1 year or more but
within 5 years

5 years or more but
within 10 years

¥

¥

¥

34,56960
34,629

¥

̶

42
42

Ten years or more
̶

¥

̶
̶

¥

Thousands of U.S. dollars
Within 1 year

Long-term loans
Other interest-bearing debt
Total

$
$

̶

183
183

1 year or more but
within 5 years

5 years or more but
within 10 years$ 420,906
732$ 421,638

$
$

̶

510
510

Ten years or more
̶

$

̶
̶

$

6. Securities:
The aggregate acquisition costs and fair values (book values) of marketable securities classified as available-for-sale securities as of March 31,
2011 and 2012 are as follows:
Millions of yen
2011
Acquisition
cost

Fair value(Book value)

Thousands of U.S. dollars
2012

2012
Unrealized
gain (loss)

Fair value(Book value)

Unrealized
gain (loss)

Securities whose book value exceeds their acquisition cost:Stock¥ 4,632 ¥ 6,887 ¥ 2,255 ¥ 3,666 ¥ 5,744 ¥ 2,078 $ 44,638 $ 69,935$ 25,297

Securities whose acquisition cost exceeds their book value:Stock¥ 681 ¥ 622 ¥(59) ¥ 1,648 ¥ 1,425 ¥ (223) $ 20,069 $ 17,352
Total¥ 5,313 ¥ 7,509 ¥ 2,196 ¥ 5,314 ¥ 7,169 ¥ 1,855 $ 64,707 $ 87,287$ (2,717)$ 22,580

26

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Acquisitioncost

7. Inventories:
Inventories held by the Companies at March 31, 2011 and 2012 consist of the following:Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

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

¥

¥

1,469
5,559
21,031
14,08042,139

¥

¥

1,845
9,523
22,457
15,29849,123$$

22,469115,950
273,433
186,265
598,117

8. Assets Pledged as Collateral
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

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

¥

¥

4,591
5,918
12,77323,282¥

14,00014,000

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

¥

¥

4,590
5,834
9,533
19,957¥

12,70012,700$$55,891
65,551116,073
237,515$

154,633
154,633

9. Accounting for Notes Receivable/Payable Which Reached the Maturity at Year-end
Notes receivable/payable which reached the maturity at year-end are treated as if they were settled at the clearing date for notes. Consequently,
as the year-end date as of March 31, 2012 was a holiday for banking institutions, the following notes receivable/payable which reached thematurity at year-end are included in the ending balance of notes receivable/payable and other current liabilities:
Thousands of
U.S. dollars

Millions of yen

Notes receivable
Notes payable

¥
¥

1,862
131

$
$

22,670
1,598

10. Short-term Loans and Long-term Loans
Short-term loans at March 31, 2011 and 2012 represent bank overdrafts with weighted-average interest rates of 0.55% and 0.60%, 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 aggregated maximum amount of ¥16,700 million ($203,336 thousand). At
March 31 2012, the total ¥16,700 million ($203,336 thousand) is unused.

27

FIN A NC I A L F I G UR E S

Long-term loans at March 31, 2011 and 2012, consist of the following:Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Loans from banks and other financial institutions due 2011 to 2013 withinterest rates ranging from 0.37% to 1.75% at March 31, 2011 and due 2012
to 2013 with interest rates ranging from 0.24% to 1.75% at March 31, 2012
Other payables due 2010 to 2021 with interest of 4.05% at March 31, 2011
and due 2010 to 2021 with interest of 4.05% at March 31, 2012¥

26,400¥132
26,532(4,015)22,517

Less: Current portion of long-term loans¥

39,100¥117
39,217(4,546)
34,671$

476,075$

1,424
477,499(55,352)
422,147

The annual maturities of long-term loans outstanding at March 31, 2012 are as follows:Year ending at March 31,

Millions of yen

2013
2014
2015
2016
2017 and thereafter

¥

¥

6,648
11,7484,293
11,94042
34,671Thousands of
U.S. dollars$

80,945143,042
52,271
145,380509
422,147$

11. Retirement Benefits
The Company and certain consolidated subsidiaries have severance indemnity plans and defined contribution pension plans. Certain
consolidated subsidiaries have severance indemnity plans.
(1) Funded status of retirement benefit obligation at March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Projected benefit obligation
Plan assets at fair value
Unfunded projected benefit obligation
Unrecognized actuarial loss
Unrecognized prior service costs
Net of Accrued employees’ retirement benefits recognized in the consolidated balance sheets
Prepaid pension costAccrued employees’ retirement benefits recognized in the consolidated balance sheets¥¥(8,350)
7,959
(391)
1,213
(98)
724
2,034
(1,310)¥¥(8,311)
7,359
(952)
1,643
(49)
642
1,876
(1,234)$$(101,192)
89,606(11,586)
20,002(596)
7,820
22,843(15,023)

Consolidated subsidiaries have adopted a simplified method to calculate their projected benefit obligation, which is permitted under theaccounting standard for retirement benefits in Japan.
(2) Components of net retirement benefit expenses for the years ended March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service costs
Amortization of actuarial loss
Payments for the defined contribution pension plan
Total

¥

¥

Expenses for employees' retirement benefits of consolidated subsidiaries are included in service cost.

28

394
223
(91)
(49)
287
184
948

¥

¥

385
221
(98)
(49)
154
188
801

$

$

4,682
2,697
(1,190)
(597)
1,879
2,285
9,756

(3) Assumptions used in the calculation of retirement benefit obligations for the years ended March 31, 2011 and 2012 are as follows:
Discount rate
Expected rate of return on plan assets
Method of attributing the projected benefits to periods of service
Amortization period for unrecognized prior service costs
Amortization period for unrecognized actuarial differences

2011

2012

2.8%
1.2%
Straight-line basis
10 years
10 years

2.8%
1.2%
Straight-line basis
10 years
10 years

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 ofapproximately 40.6% for the year ended March 31, 2011. On December 2, 2011, amendments to the Japanese tax regulations were enacted intolaw. As a result of these amendments, the statutory income tax rate for the Company will be reduced to 38.0% for years beginning on or after
April 1, 2012 and 35.6% for years beginning on or after April 1, 2015. Based on the amendments, the statutory income tax rates utilized for themeasurement of deferred tax assets and liabilities expected to be settled or realized from April 1, 2012 to March 31, 2015 and on or after April 1,2015 are 38.0% and 35.6%, respectively, for the years ended March 31, 2012. Due to these changes in statutory income tax rates, net deferred tax
assets decreased by ¥ 23 million as of March 31, 2012 and deferred income tax expense and unrealized holding gains on securities recognized forthe year ended March 31, 2012 increased by ¥ 84 million and ¥61 million, respectively.
At March 31, 2011 and 2012, significant components of deferred tax assets and liabilities are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Deferred tax assets:
Amortization of transition obligations corresponding to contributionof certain marketable securities to employee retirement benefit trust
Devaluation loss on inventories
Accrued bonuses
Devaluation loss on marketable securities
Accrued employees’ retirement benefits
Unrealized intercompany profit eliminated in consolidation
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Unrealized holding gains on securities
Gain on contribution of certain marketable securities to employee retirement benefit trust
Reserve for deferred capital gains from property, plant and equipment
Prepaid pension costReserve for special depreciation
Other
Total deferred tax liabilities
Net deferred tax assets

¥

¥

¥

¥

2,961
169
971
1,308
906
277
1,938
8,531
(1,937)
6,594

¥

(468)
(1,597)(1,382)
(826)
(81)
(179)
(4,533)
2,061

¥

¥

¥

2,597
246
879
1,147
809
215
1,469
7,362
(1,485)
5,877

$

(435)
(1,401)(1,168)
(668)
(471)
(254)
(4,397)
1,480

$

$

$

31,617
2,993
10,697
13,9669,853
2,623
17,88389,632(18,077)
71,555(5,301)(17,054)(14,222)(8,132)(5,732)(3,095)(53,536)
18,019The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2011 was as follows:
40.6%

Statutory income tax rate
Add (deduct)
Nondeductible expenses, including entertainment expenses
Nontaxable income, including dividend income
Equalization tax
Other
Effective income tax rate

0.8
(0.7)
0.1
(2.9)
37.9%

The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2012, is not required tobe disclosed due to the insignificance of the difference.

29

FINA NC I A L F I G UR E S

13. Net Assets
At the Company’s Board of Directors meeting held on May 16, 2011, the directors approved cash dividends amounting to ¥807 million. At theCompany’s Board of Directors meeting held on May 15, 2012, the directors approved cash dividends amounting to ¥645 million ($7,858
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, 2011 and 2012 totaled ¥1,937 million and ¥1,840 million ($22,402 thousand), respectively.

15. Net Income Per Share
Basis for calculations of net income per share for the years ended March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Net income
Net income for common stockholders

¥
¥

7,822
7,822

¥
¥

6,408
6,408

$
$

78,02278,022Thousands of shares
2011

The weighted-average number of shares of common stock2012

161,391

161,362

Yen
2011

Net income per share¥

U.S. dollars
2012

2012

48.47

¥

39.71

$

0.48

The Companies have no dilutive securities for the years ended March 31, 2011 and 2012.

16. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2011 and 2012 consist of:Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

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

18,990(2)
18,988¥¥¥18,557(2,057)
16,500$225,943(25,048)
200,895$

17. Accounting for Leases(1) Finance leases –Non-capitalized finance leases at March 31, 2011 and 2012 are as follows:
As a lessee
Periodic lease charges to the Companies, as a lessee, which are charged to profit or loss for the years ended March 31, 2011 and 2012 are ¥200
million and ¥168 million ($2,046 thousand), respectively.
Lease assets under finance leases, if capitalized, at March 31, 2011 and 2012 are as follows:
Millions of yen
2011
Machineryand vehicles

Acquisition cost
Accumulated depreciation
Net book value

¥
¥

1,508
982
526

Other

¥
¥

Thousands of U.S. dollars
2012

2012

133
111
22

Machineryand vehicles

¥
¥

1,486
1,110
376

Machineryand vehicles

Other

¥
¥

38
35
3

$
$

18,08913,514
4,575

Other

$
$

466
435
31

Depreciation expense for lease assets computed by the straight-line method over the period of the finance leases with no residual value for theyears ended March 31, 2011 and 2012 are ¥200 million and ¥168 million ($2,046 thousand), respectively.

30

Outstanding future lease payments due at March 31, 2011 and 2012, including interest, are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Due within one year
Due after one year
Total

¥

170
378
548

¥

¥

$

148
230
378

¥

1,808
2,797
4,605

$

(2) Non-cancelable operating leases As a lessee
Outstanding future lease payments under non-cancelable operating leases at March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Due within one year
Due after one year
Total

¥

10
8
18

¥

¥

$

14
11
25

¥

176
133
309

$

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, 2011 wereas follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Japanese yen
Total

¥

39
20
59

¥

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, 2012 are
as follows:
Millions of Yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Japanese yen
Total

¥
¥

121
77
198

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

Fair value

¥
¥

(1)
(0)
(1)

¥
¥

(1)
(0)
(1)

Contract
Amount

$
$

1,472
943
2,415

Unrealized
gain (loss)

Fair value

$
$

(10)
(7)
(17)

$
$

(10)
(7)
(17)

(2) Derivative transactions to which hedge accounting is applied.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2011 and 2012 are as follows:
2011
2012
Method of hedge accounting
Exceptional method for interest rate swap
Exceptional method for interest rate swap
transactionstransactions
Type of derivative transactions
Interest rate swap transactions
Interest rate swap transactions
Payment fixation, Receipt change
Payment fixation, Receipt change
The main hedged items
Long-term loans
Long-term loans
Contract amount¥10,770 million¥18,550 million ($225,861 thousand)1 year or more of amount of contract¥7,850 million¥15,630 million ($190,308 thousand)Fair value※※※Because interest rate swap transactions accounted for by the exceptional method are managed together with long-term loans that are hedged
items, the fair value is included in the fair value of long-term loans.

31FINA NC I A L F I G UR E S

19. Contingent Liabilities
Guarantees against bank loans of employees and affiliates at March 31, 2011 and 2012 are as follows:
Thousands of
U.S. dollars
2012

Millions of yen
2011
2012

Employees
Advanced Green Components, LLC
Total

¥

63
387
450

¥

¥
¥

47
282
329

$
$

577
3,426
4,003

Notes discounted with banks and notes endorsed, as of March 31, 2011 and 2012 are ¥205 million and ¥218 million ($2,659 thousand),
respectively. Notes discounted with banks and notes endorsed are netted against "Notes and accounts receivable, trade" in the consolidatedbalance sheets.

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 Board of Directors to regularly conduct investigations to determine the distribution of management resources and evaluate business results.
Each operating division develops 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 products based on operating divisions and havedetermined the reportable segments, "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-resistant alloys, etc. The "Formed and Fabricated Materials" segment includes the manufacture and sale of formed and fabricatedmaterials 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.
(3) Information about reportable segment profit or loss and other material items
Segment information for the years ended March 31, 2011 and 2012 is as follows:
For the year ended March 31, 2011
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

137,709 ¥10,655 ¥148,364
12,204 ¥

5,672
5,672
1,039

9,080 ¥

347—

Formed & FabricatedMaterials¥¥

16,072

Other¥

16,072
1,351

¥

59
988
1,047
105

¥

501

¥

5

—

¥
¥

Total

Adjustments

Consolidated
total

—
¥
(11,643) ¥(11,643)(499) ¥

159,512¥

159,512 ¥
11,643 ¥
171,155
14,699 ¥¥9,933 ¥

(17) ¥

9,916

¥
¥

—

159,512
14,2001. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥499 million ($6,000 thousand) are adjustments for inventories of ¥488 million ($5,878 thousand),corporate expenses not allocated to each reportable segment of ¥38 million ($454 thousand) and intersegment elimination of ¥28 million ($332
thousand). Corporate expenses are general and administrative expenses not attributed to reportable segments.
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 businessresults, the Companies are not required to disclose information about segment assets and liabilities.

32

For the year ended March 31, 2012
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers¥
Intersegment transactions ¥Total
Segment income¥

148,130 ¥9,980 ¥
158,110
11,465 ¥

6,974
6,974
810

(b) Other:
Depreciation

10,070 ¥339¥

Formed & FabricatedMaterials

Special Materials¥¥—

16,612

Other¥

16,612
1,250

¥

84
1,140
1,224
65

¥

470

¥

7

—

¥
¥

Total

Consolidated
total

Adjustments—¥(11,120) ¥(11,120)(2,241) ¥171,800¥

171,800 ¥11,120 ¥
182,920
13,590 ¥¥10,886 ¥(25) ¥

10,861¥¥—

171,800
11,349Thousands of U.S. dollars
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers$ 1,803,602
Intersegment transactions $ 121,515
Total
1,925,117
Segment income$ 139,593(b) Other:
Depreciation$

122,610Special Materials

Formed & FabricatedMaterials$

84,911
9,857$

202,261
15,220

$

$

4,132

$

5,725

$

86

84,911—

202,261
—

$
$

Total

1,033
13,885
14,918
798

$
$

$
$

Other

$ 2,091,807$ 135,400
2,227,207$ 165,468

$
$

$

$

132,553

Consolidated
total

Adjustments$$ 2,091,807—(135,400) $(135,400)
2,091,807(27,291) $ 138,177—(307) $

132,246

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥2,241 million ($27,291 thousand) are adjustments for inventories of ¥2,232 million ($27,172 thousand), intersegment
elimination of ¥38 million ($463 thousand) and corporate expenses not allocated to each reportable segment of ¥47 million ($582 thousand). Corporate expenses
are general and administrative expenses not attributed to reportable segments.
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, theCompanies are not required to disclose information about segment assets and liabilities.

Related Information
Segment related information for the year ended March 31, 2011 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 andservices.
(2) Information about geographic areas –1. Net sales
For the year ended March 31, 2011
Millions of yen
Japan

Net sales¥

130,250

North
AmericaAsia¥

24,114¥

3,302

Europe¥

1,520

Others

¥

326

Total

¥

159,512

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 amountof property, plant and equipment on the consolidated balance sheet as of March 31, 2011, the Companies are not required to disclose information
about property, plant and equipment.

33

FINA NC I A L F I G UR E S(3) Information about major customers –For the year ended March 31, 2011
Net sales
Millions of yen

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

¥¥

Related segment

Thousands of U.S. dollars

33,964
19,888$$408,471
239,184

Specialty SteelSpecialty Steel

Segment related information for the year ended March 31, 2012 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 andservices.
(2) Information about geographic areas –1. Net sales
For the year ended March 31, 2012
Millions of yen
Japan

Net sales¥

North
AmericaAsia

138,068¥

28,146¥

3,311

Europe¥1,904

Others

¥

371

Total

¥

171,800

Thousands of U.S. dollars
Japan

Net sales

North
AmericaAsia$ 1,681,087$

342,699$

40,317

Europe$23,186

Others

$

4,518

Total

$ 2,091,807

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 amountof property, plant and equipment on the consolidated balance sheet as of March 31, 2012, the Companies are not required to disclose information
about property, plant and equipment.
(3) Information about major customers –For the year ended March 31, 2012
Net sales
Millions of yen

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

¥¥

Related segment

Thousands of U.S. dollars

38,65221,095$$

34471,614
256,843

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, 2012
and 2011, and the 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 summaryof 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 in accordance with accounting principles generally accepted in Japan, and for such internal
control as management determines is necessary to enable the preparation of consolidated financial
statements that are free from material misstatements, whether due to fraud or error.
Auditor's Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we comply with ethical requirements and plan and perform the audit to obtainreasonable 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 judgment, including theassessment of the risks of material misstatement of the consolidated financial statements, whether due tofraud or error. In making those risk assessments, we consider internal control relevant to the entity's
preparation and fair presentation 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 appropriateness of accounting policies used and the reasonableness ofaccounting estimates made by management, as well as evaluating the overall presentation of theconsolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour 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, 2012 and 2011,
and their financial performance and cash flows for the years then ended in accordance with accounting
principles generally accepted in Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2012 are presented solely for convenience. Our audit also included the translation of
yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made on the basis
described in Note 3 to the consolidated financial statements.

August 31, 2012
Osaka, Japan35

CO R P O R AT E D ATA

Corporate Data
Corporate Name
Head Office
URL

Complete View of our Head Office / Plant(As of March 31,2012)

Sanyo Special Steel Co., Ltd.
3007, Nakashima, Shikama-ku, Himeji, Hyogo 672-8677 Japan / phone (+81) 79-235-6003
http://www.sanyo-steel.co.jp/english/index.html

Established

January 11, 1935

Paid-in Capital

20,183 millions of yen

Number of Employees

2,865(consolidated basis) 1,404(non-consolidated basis)

Register of Shareholders

The Chuo Mitsui Trust & Banking Co., Ltd.

Total Number of Shares Authorized to be Issued

474,392,000

Total Number of Shares Issued

167,124,036

Stock Listings

Tokyo Stock Exchange (1st Section)

Book Closing

March 31

Number of Shareholders

16,851

Branches and Offices

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

Consolidated Subsidiaries and Equity-Method Affiliates
Corporate Name(As of March 31, 2012)

Business Activities

Consolidated Subsidiaries
Yohkoh Bussan Co., Ltd.

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

Santoku Seiken Co., Ltd.

Manufacturing and marketing of special steel products

Santoku Kogyo Co., Ltd.

Processing of special steel, machinery maintenanceSantoku Technos Co., Ltd.

Processing of special steel

Santoku Tech Co., Ltd.

Manufacturing of special steel products (formed & fabricated materials)

Santoku Computer Service Co., Ltd.

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

Santoku Security Service Co., Ltd.

Security and facilities maintenance services

SKJ Metal Industries Co., Ltd. (Thailand)

Manufacturing and marketing of special steel products

P.T. SANYO SPECIAL STEEL INDONESIA (Indonesia)

Manufacturing and marketing of special steel products

SANYO SPECIAL STEEL U.S.A., Inc. (U.S.A)

Trading of special steel products

Ningbo Sanyo Special Steel Products Co., Ltd. (China)

Manufacturing and marketing of special steel products (formed & fabricated materials)

SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD. (China)

Involved in business and sales of special steel products in China

Sanyo Special Steel India Pvt. Ltd.(India)

Involved in business and sales of special steel products in India

Equity-method Affiliates
Advanced Green Components, LLC (U.S.A.)

Manufacturing of special steel products (formed & fabricated materials)

36Board of Directors(As of June 28, 2012)

President, Representative Director

Yasuo Takeda

Director and Executive
Vice President

Nobuyuki Tanaka

Senior Managing Director,
Member of the Board

Tetsuo Kiriyama

Yutaka Tsukamoto

Managing Director,
Member of the Board

Tatsuro Isomoto

Shin-ichi Tominaga

Akihiko Yanagitani

Wataru Nishihama

Masaharu Kobayashi

Shigehiro Oi

Katsu Yanagimoto

Toshihiko Yoshida

Hideyuki Sasaki*

Director and Senior Advisor,
Member of the Board

Nobuyoshi Fujiwara

Director, Member of the Board

Hiroyuki Eiyama
Kazuya Shin-no

Hiroaki Kimura（Standing Corporate Auditor）
Masatoshi Murakami*
Shinji Shibao*

Corporate Auditor* Outside Corporate Auditor

Principal Shareholders(As of March 31, 2012)

Name of Shareholder

Number of Shares Held (thousands of shares)

Percentage of Voting Rights (%)

Nippon Steel Corporation

24,256

15.14

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

9,959

6.22

Japan Trustee Services Bank, Ltd. (trust account)

9,193

5.74

Company’s Kyoeikai Association

9,096

5.68

NSK Ltd.

7,470

4.66

Sumitomo Mitsui Banking Corporation

5,696

3.55

Mizuho Corporate Bank, Ltd.

3,642

2.27

Marubeni-Itochu Steel Inc.

3,108

1.94

The Bank of Tokyo-Mitsubishi UFJ, Ltd.

2,849

1.78

The Chuo Mitsui Trust & Banking Co., Ltd.

2,830

1.77

Notes: (1) The number of shares omits fractions of less than 1,000 shares.
(2) The Company holds 5,770 thousand shares of its own stock in treasury, but is excluded from the above list of major shareholders.

Shareholder Composition (thousands of shares)Securities firms

Treasury stocks

2,795 1.7％

5,770 3.5％

Foreign investors

Financial institutions

15,878 9.5％

56,525 33.8％

Total numberof shares issued
Individuals and others
34,804 20.8％

167,124
100％

Other domestic corporations
51,352 30.7％

37