Profile
Sanyo Special Steel manufactures and distributes special steel products such as bearing steel, engineering steel, stainless steel, heat
resistant steel and tool steel, metal powders and heat/corrosion resistant alloys, and 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, as materials for their essential components for which a high level of reliability is required. Above all, the unmatched qualityof our bearing steel means that Sanyo Special Steel is the world’s leading bearing steel manufacturer.

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

Contents

04 Segment Information
08 Research and Development
10 CSR-conscious Management
11 Compliance Structure
12 Environmental Conservation
13 Social Contributions
14 Financial Section
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 N CIAL H IG H LIGH T S

Sanyo Special Steel Co., Ltd. and consolidated subsidiaries
ChangeFY2008FY2009FY2010FY2010FY2009 / FY2010

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

(Thousands of
US Dollars)＊1¥ 162,735¥ 95,517¥ 159,512

67.0$ 1,918,368

Operating income (loss)

5,148(3,946)

14,200−170,774

Ordinary income (loss)

4,799(3,632)

13,396−

161,105

Net income (loss)(1,023)(2,585)

7,822−

94,076(Millions of Yen)(%)

(Thousands of
US Dollars)＊1

Net Sales

Financial Position (at year-end)
Net assets ＊2

87,02786,41592,591

7.1

1,113,543

Total assets

147,779

159,733

188,21317.8

2,263,541(%)

Financial Indicator

2.9

−3.8

8.4

−

−

ROE (Net income to Net assets)

−1.2

−3.0

8.8

−

−

Net D/E Ratio ＊3

0.23

0.42
(0.21) ＊4

0.42(0.14) ＊4−−

ROS (Ordinary income to Net sales)(Yen)(US Dollars)＊1

Net income (loss) per share(6.3)(16.01)

48.47

−

0.58

Net assets per share

536

533

571

7.1

6.87

Cash dividends per share

5.00

−

10.00

−

0.06

＊1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥83.15=US$1, the approximate rate of exchange on March 31, 2011.
＊2 Minority interests are included in net assets.
＊3 Net debt equity ratio ･･･ (gross interest-bearing dept − cash and deposits) / equity＊4 We did not liquidize receivables at the end of March 2010 and end of March 2011.
(0.21) (0.14)・・・Net debt equity ratio if we had liquidized receivables.

Net Sales

Ordinary income

Net income(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

20,00015,00017,947

168,423

150,000

162,735

159,51215,00013,396

12,981

142,376

10,000

7,822

7,232

10,000100,000

8,665

5,000

95,517
4,799

5,000

0

50,0000–1,023–2,5850–3,632-5,000FY2006 FY2007 FY2008 FY2009 FY2010

FY2006 FY2007 FY2008 FY2009 FY201001-5,000FY2006 FY2007 FY2008 FY2009 FY2010

MESSEGE FROM PRESIDENT

Fiscal 2010 Overview
automobile industry, among key customer sectors, and also
the production pick-up in the industrial machinery andconstruction machinery sectors.
Against this backdrop, the Sanyo Special Steel Group
reported consolidated net sales of ¥159,512 million, which
represented an increase of ¥63,996 million over fiscal 2009,
due primarily to sales volume expansion. In terms of
profitability, the group posted ordinary income of ¥13,396
million (vs. an ordinary loss of ¥3,632 million for fiscal 2009)
and net income of ¥7,822 million (vs. a net loss of ¥2,585
million for fiscal 2009) through focused efforts forcost-cutting in addition to expansion of sales volume.
Regarding dividend payments for fiscal 2010, we paid anannual dividend of 10 yen per share, consisting of 5 yeneach in interim and year-end dividends, in line with its
dividend policy.

Let me start with an overview of fiscal 2010:
During the first half of fiscal 2010 the Japanese economy
continued to recover gradually on the back of rising exports
to emerging countries with rapidly growing economies,
particularly China and India, and a pick-up in personal
spending. The recovery subsequently slowed due to thetermination of subsidy programs and sharp appreciation of
the yen and, since the beginning of 2011, domestic demand
had remained stagnant. Amid mounting expectations forre-acceleration of the global economy fueled by emerging
countries and the U.S. and subsequent export improvements,
the Great East Japan Earthquake occurred on March 11,2011 and the fiscal year ended with concerns over theserious impact the disaster would have.
In the special steel industry, production of hot-rolled special
steel products stood at higher levels compared to theprevious fiscal year due to brisk production in the

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.

02

Fiscal 2011 Outlook
With regard to the future outlook, the Japanese economy isexpected to continue growing at a mild pace alongsiderecovery in production activity in various sectors andeconomic growth in emerging countries, especially China
and India. On the other hand, the prospects for the
management environment surrounding the Sanyo Special
Steel Group are becoming increasingly unpredictable due tomany uncertainties, including the credit crunch, mainly inEurope, triggered by Greece’s financial crisis, concerns
about deceleration of economic growth in emerging
countries due to inflation control measures, pressure on
corporate earnings resulting from weakening of the euro andthe dollar against the yen, and increasingly serious
nation-wide power shortages.
Under these circumstances, the Sanyo Special Steel Group,
while more firmly focusing on properly responding tocustomer needs and demand trends and boosting its
non-price competitiveness, remains committed to making
all-out efforts to establish a business structure that canensure adequate supply of high-quality special steel,including internal efforts such as more drastic cost
reductions and upgrading and establishment of an iron scrap
surcharge system, thereby seeking to further improve its

corporate value.
Taking all of the above into consideration, although thepotential impacts of uncertain factors remain unpredictable
as described earlier, we expect consolidated net sales of¥155,000 million, ordinary income of ¥11,500 million and net
income of ¥6,900 million for fiscal 2011.
Regarding dividends for fiscal 2011, 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.
September 2011

Nobuyoshi Fujiwara
Representative Director and President

2. Key Action Programs【4】Ensure upward flexibility to adequately respond to the changing
demand structure【1】Recognize changes in the demand structure due to growing demandin emerging countries and the advancement of low-carbon societies,
and realize development and market launches of new products.

While seeking comprehensive improvement in capacity utilization rates andefficient production, ensure upward flexibility that allows us to respondeffectively to the changing demand structure by making use of the capital
investments implemented in the 7th Medium-term Business Plan.

Accurately ascertain the needs of customers that operate in Japan andabroad, whether they are Japanese or non-Japanese, and provide thosecustomers with appropriate products that have non-price competitiveness,thereby helping them improve their competitiveness while pursuing
profitability for our group.
Increase the group’s export ratio in light of the growing overseas markets;
develop our overseas bases, particularly in China, India and ASEAN, andsecure/boost sales volume.

【5】Pursue environment-friendly manufacturing
Our group has been contributing to the creation of a recycling-oriented
society by recycling iron scrap generated mainly in Japan and manufacturing
products from such recycled material. We have also been contributing to theadvancement of low-carbon societies by developing highly functional productlines designed to support low-carbon societies, such as large-size bearing
steel for wind power generation, and providing such products to customers.
In the 8th Medium-term Business Plan, we will continue to proactively
address energy- and resource-saving issues and work on the development of
new products that contribute to the efforts of customers to reduce energy andresources consumption, as we did in the 7th Medium-term Business Plan.

【2】Ensure adequate profit margins
Further spread/expand application of the iron scrap surcharge system toprices of raw materials and fuel, which are expected to fluctuate over the
medium and long terms, including prices for iron scrap, in order to ensure
adequate margins.

【3】Further boost non-price competitivenessPromote expansion of technological innovation beyond the cutting edge,
including development of highly functional, differentiated products andmanufacturing technologies, and timely development of appropriate productlines in response to the changing market structure, and maintain/boost ourcapabilities for assuring product quality, meeting requested delivery dates
and providing solutions to users, thereby responding to the needs ofcustomers in a swift and appropriate manner.

【6】Develop human resources to realize sustainable growth
Develop personnel who are capable of responding to globalization of thebusiness environment and consequently strengthen international competition
in a carefully planned manner.
Continue with ongoing measures for promoting work-life balance and creating awork environment that allows female employees to take active roles.

03

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

COR P O RAT E G O V E R N ANCE S T RUCT URE
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 29, 2011

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(12 directors)

Accounting Auditors(accounting firm)

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

Election / Dismissal

Corporate Policy
Committee

Audits(＊1)

Consultation

Execution of Business

Instruction

ReportRepresentative 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 on May 9, 2006, in order to improve our internal control systems, we settled on a basic policy forthe creation 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 distribute various special steel
products, capitalizing on our high cleanliness steel manufacturing technology,
including bearing steel, for which we have a dominant share of domestic
production, engineering steel, stainless steel, heat resistant steel and tool steel.
Our steel products have attained the world’s highest level of cleanliness, which
has been underpinned by our steelmaking and operation technologies including
the SNRP (Sanyo New Refining Process) developed based on our unique concept
of “controlling the size of the largest inclusion in steel for maximizing the inherent
performance of steel.” Another of our distinctive characteristics is that we are theonly special steel manufacturer in Japan which has seamless steel tube
manufacturing equipment.

Overview
Demand, which had plunged in the early autumn of fiscal 2008, resurged in the
middle of fiscal 2009 and continued to pick up during the first half of fiscal 2010.
Although the pace of recovery slowed slightly in the second half, demand
generally remained at higher levels compared to fiscal 2009. Due primarily to anincrease in sales volume backed by the rebound in demand, net sales rose to¥148,364 million. Operating income increased to ¥12,204 million, reflecting the
growth in sales volume and the implementation of cost reductions.

86.3％

Sales Breakdown(FY 2010)

Special Materials
The Special Materials segment is engaged in manufacture and sales of metal
powder products and heat/corrosion-resistant alloys.

3.6％

Overview
The Special Materials segment generated net sales of ¥5,672 million andoperating income of ¥1,039 million.
Sales Breakdown(FY 2010)

06Formed & Fabricated Materials
The Formed & Fabricated Materials segment uses an integrated, serial process to
manufacture high-quality formed and fabricated materials from “steel you cancount on,” 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 forgedproducts/hot rolled rings made from steel bars, and cold roll formed rings madefrom ring materials.

Overview
The Formed & Fabricated Materials segment posted net sales of ¥16,072 million
and operating income of ¥1,351 million due mainly to increased sales volume, insimilar manner to the Specialty Steel segment.

10.1％

Sales Breakdown(FY 2010)

Other
We provide information processing services through our subsidiaries.
0.0％

Overview
Net sales and operating income amounted to ¥1,047 million and ¥105
million, respectively.
Sales Breakdown(FY 2010)

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.
07

RESEA 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 acustomer 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-producing process

Strain distribution ofa cold forged gear
Ultrasonic fatigue testing
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 high-functional powder materials

Electron microscopic image ofTiC in TMAX steel

High-resolution field emission scanningelectron microscope

TopicsTechnical Development Award received
from the Japan Institute of Metals
In September 2010, a “Technical Development Award” was presented by the Japan
Institute of Metals to recognize the “Development of 1200HV-Class Gas Atomized Fe-Cr-B
Alloy Powder for Shot Peening.”
Shot peening is a surface treatment method used to improve the fatigue strength of partsby blasting them with powdered projection materials. Using our unique technology, we
succeeded in developing a new metal powder for projection materials that have a highdegree of hardness and density with excellent life characteristics and mass producibility.
The Technological Development Award is given to an engineer who has worked to develop
creative technologies, including new technologies and products in the metal engineeringand related fields. The outcome of our innovative technological development efforts
supported by our outstanding technological innovation and product development
capabilities was highly rated.

08

Technical Development Award winners: From left,
Yanagitani (Managing Director) and Sawada(Manager, Technology Group)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 toreduce CO2 emissions, and shows promise as a material for parts requiring high strength, suchas 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.

Technical Achievement Contribution Prize (G. Watanabe Commemorative Prize)
awarded by the Iron and Steel Institute of JapanIn March 2011, a “Technical Achievement Contribution Prize (G. Watanabe Commemorative Prize)”
was presented by the Iron and Steel Institute of Japan.
This accolade is awarded to a member who has made a significant contribution to the development
and advancement of Japan’s steel industry. Toshihiro Irie, Executive Councilor, was awarded theprize for his contribution to the establishment of technologies for manufacturing special steel ofhigh reliability, including the development/improvement of highly productive operational
technologies for high cleanliness steel in steelmaking processes and the upgrading of quality
assurance systems.
Major achievements:■ Establishment of stable manufacturing technologies for premium cleanliness steel■ Establishment of continuous casting technologies with high quality/productivity■ Upgrading of quality assurance systems

09

Technical Achievement Contribution Prize winner:
Mr. Irie (Executive Councilor)

CSR - C O N S C I O US MANAG 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 andto build 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COM 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
Senior Managing Director, Managing Director, Director, Presidents ofdomestic affiliated companies, General Manager (General Administration),
General Manager (Internal Control & Inspection Department), and personnel
appointed by the Chairperson

Establishment of a Whistle-blowing
System
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(Whistle-blowing System : Helpline)11

EN V I R O 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
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.

Philosophy

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 our environmental
preservation systems, and strictly control its 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 and ensuring
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

TopicsOur “steel you can count on” widely usedin the field of clean energy
Wind power generation, which is a clean source of electricity,
is being rapidly introduced in many parts of the world in orderto reduce CO2 emissions. While wind power generation
facilities require stable operation over a long period, theirprimary equipment is installed on higher ground, leading toconsiderable difficulty with regard to maintenance. Therefore,
their equipment parts need to have both high longevity andhigh reliability. Sanyo Special Steel’s long-life, highly
reliable ”steel you can count on” is also used as a bearing
material in the field of wind power generation, and is highly
rated for its quality and performance characteristics.

12

Planning

Implementation
andOperation

SOC 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 2010, some
250 employees took part in the activities, and collected garbage discardedin the surrounding streets, center dividers, and green belts.

Blood Donation Campaign
We operate a periodic blood donation campaign. In November 2010, we received
a letter of appreciation from the Japan Red Cross for our contribution to its
activities through our cooperation on blood donations.

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 Tegara 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 held on April 2011, we invited Ms. Yoshiko Sakurai, international
journalist and president of the Japan Institute for National Fundamentals, topresent a guest lecture entitled “Nihon yo tsuyoki kuni to nare (Japan, Be a
Strong Nation)” to an audience of around a thousand persons.
13

F INA NCI AL SECTI ON

Financial Position
Total assets at the end of fiscal 2010 amounted to ¥188,213 million ( ¥28,480 million up on thebalance at the end of fiscal 2009) due mainly to an increase in trade notes and accounts
receivable, an increase in inventories and an increase in cash and deposits, despite a decreasein deferred tax assets.
Total liabilities increased to ¥95,622 million (¥22,304 million up on the balance at the end of
fiscal 2009) due to an increase in long-term borrowings and an increase in trade notes andaccounts payable.
Net assets increased to ¥92,591 million (¥6,176 million up on the balance at the end of fiscal
2009), reflecting the net income posted for the period, despite a decrease in net unrealized
holding gains on securities.

Cash Flows
Cash flows in fiscal 2010 can be summarized as follows. Operating activities generated a net
cash inflow of ¥10,487 million (vs. net cash outflow of ¥5,270 million in fiscal 2009), reflecting
net income before income taxes (¥12,662 million), depreciation expenses (¥9,980 million), an
increase in trade receivables (minus ¥15,277 million), an increase in inventories (minus ¥9,695
million) and an increase in trade payables (¥8,753 million). The Company did not liquidize
receivables during the period, as had been the case in fiscal 2009.
Net cash used in investing activities amounted to ¥12,458 million (an increase of ¥2,090 million
in cash outflow compared to fiscal 2009) due to capital investments for productivity
improvement, environmental measures and replacement of existing equipment.
Net cash provided by financing activities amounted to ¥9,051 million (an increase of ¥3,851
million in cash inflow compared to fiscal 2009) due primarily to an increase in borrowings(¥9,882 million).
The balance of cash and cash equivalents at the end of fiscal 2010 stood at ¥18,988 million(¥6,933 higher than the balance at the end of fiscal 2009).

14

FINA NC I A L S E C T I O N
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSAs of March 31, 2010 and 2011

Thousands of U.S.
dollars (Note 3)

Millions of yen

ASSETS

2010

2011

2011

Current Assets:
Cash and bank deposits (Note 5 and 15)¥

Notes and accounts receivable, trade (Note 5 and 18)

12,062¥

18,990$228,383

37,62852,848635,568

(51)

(13)

(155)

Inventories (Note 7)

32,575

42,139506,787

Deferred tax assets (Note 11)

4,099

2,322

27,922

Less: Allowance for doubtful accounts

Refundable income taxes
Other
Total current assets

895

−

−

1,085

877

10,54788,293

117,163

1,409,052

7,081

7,084

85,202

Property, Plant and Equipment:
Land (Note 8)
Buildings and structures (Note 8)

43,174

43,344

521,277

Machinery and equipment (Note 8)

164,238

170,740

2,053,397

Construction in progress
Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

2,537

3,472

41,755217,030

224,640

2,701,631(159,514)(165,813)(1,994,145)

57,51658,827

707,486

863

740

8,904

9,283

8,511

102,360

Investments and Others
Investments in securities (Note 5 and 6)
Long-term loans receivable

301

30

355

Deferred tax assets (Note 11)

357

222

2,673

Prepaid pension cost (Note 10)

2,225

2,034

24,464

Other

1,331

969

11,652

Less: Allowance for doubtful accounts

(436)

(283)

(3,405)

Total investments and other assets

13,061

11,483138,099

188,213$ 2,263,541¥

Total assets

The accompanying notes are integral parts of these statements.

15

159,733¥

FINA NC IA L S E C T I O NThousands of U.S.
dollars (Note 3)

Millions of yen

LIABILITIES AND NET ASSETS

2010

2011

2011

Current Liabilities:
Short-term loans (Note 5 and 9)¥

31,515¥31,390$377,509

Current portion of long-term loans (Notes 5, 8 and 9)

1,095

4,015

48,286

Notes and accounts payable, trade (Note 5)

10,724

17,040204,935

Accounts payable, other

6,132

6,238

75,018

Accrued income taxes

85

2,664

32,041

5,579

8,431

101,395

350

901

10,83355,48070,679850,017Long-term loans (Notes 5, 8 and 9)

15,532

22,517

270,800

Accrued employees' retirement benefits (Note 10)

1,193

1,310

15,760Accrued directors' and corporate auditors' retirement benefits

107

57

682

Reserve for loss on guarantees

197

̶

̶

Reserve for environmental measures

376

376

4,522

Deferred tax liabilities (Note 11)

252

483

5,814

Accrued expenses
Other
Total current liabilities

Long-term Liabilities:

181

200

2,403

Total long-term liabilities

17,83824,943299,981

Total liabilities

73,31895,622

1,149,998

OtherContingent Liabilities (Note 18)
Net Assets (Note 12)
Shareholders’ Equity:
Common stock:
Authorized - 474,392,000 shares¥

Issued - 167,124,036 shares

20,183¥

20,183$242,726

Capital surplus

22,594

22,595

271,740

Retained earnings

43,12350,139602,992

Less: Treasury stock, at cost (5,715,891 shares in 2010, 5,749,745 shares in 2011)(1,741)(1,757)(21,123)

84,15991,1601,096,335

Valuation difference on available-for-sale securities

2,352

1,728

20,784Foreign currency translation adjustments

(499)

(706)

(8,497)

1,853

1,022

12,287

Minority Interests

403

409

4,921

Total net assets

86,41592,591

1,113,543

188,213$ 2,263,541

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

159,733¥

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2010 and 2011

Thousands of U.S.
dollars (Note 3)

Millions of yen

2010¥

Net Sales
Cost of Sales (Note 13)
Gross profit

Selling, General and Administrative Expenses (Note 13)
Operating income (loss)

2011

95,51790,423
5,094

2011

159,512
133,560
25,952$ 1,918,368
1,606,263
312,105

9,040(3,946)

11,752
14,200141,331
170,774

144
1,005
1,149

171
394
565

2,056
4,740
6,796

(554)
(281)
(835)
(3,632)

(504)
(865)
(1,369)13,396(6,061)(10,404)(16,465)
161,105̶

266(1,102)
(238)
(3)

3,204
(13,263)(2,862)(40)¥

Other Income:Interest and dividend
Other

Other Expenses:
Interest
Other
Ordinary income (loss)

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
Provision for doubtful accounts
Reversal of allowance for doubtful accounts
Provision for loss on guarantees
Reversal of reserve for loss on guarantees

(250)
(153)
35
(66)

Income (loss) before income taxes and minority interests

̶

̶

̶

169

2,038

(197)

̶

̶

̶

(631)
(4,263)

174(734)
12,662

2,093(8,830)152,275

94(1,762)(1,668)(2,595)

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

32,15825,60157,75994,516

Income Taxes (Note 11):
Current
DeferredIncome (loss) before minority interest

Minority Interests in Net Income (Loss) of Consolidated Subsidiaries
Net income (loss)¥(10)(2,585)

¥

37
7,822

Yen

$

440
94,076

U.S. dollars (Note 3)

2010

2011

2011

Per Share:¥¥¥

Net income (loss) (Note 14)
Cash dividends
Net assets

The accompanying notes are integral parts of these statements.

17(16.01)
̶

532.88

¥
¥
¥

48.47
10.00
571.23

$
$
$

0.58
0.06
6.87

FINA NC I A L S E C T I O N
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2010 and 2011

Thousands of U.S.
dollars (Note 3)

Millions of yen

2010¥

Income Before Minority Interest
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

Comprehensive Income

2011
̶

̶
̶
̶
̶
̶

Comprehensive income attributable to:
Owners of the parent
Minority interests̶̶

The accompanying notes are integral parts of these statements.

18

¥

7,859

2011
$

94,516

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

(7,501)(1,970)(767)(10,238)
84,2786,992
1684,086
192

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2010
Number ofoutstanding
common shares

Common stock

167,124,036 ¥Balance at March 31, 2009:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2009, net
Total changes for this fiscal year 2009
Balance at March 31, 2010:

¥

¥

¥

22,593(1,727)

—

—

—

—

—

—

—

—

—

1

—

—

—

—

—

—

—

—

1
22,594(2,746)
43,123(14)(1,741)

20,183¥¥

Millions of yen
Foreigncurrency
Minoritytranslationinterests
adjustments

¥

(489)

¥

Total

416

—

—

—

—

—

—

—

—

—

—

—

—

2,170
2,170
2,352

(10)
(10)
(499)

(13)
(13)
403

19

45,869(2,585)
(161)

—

182

The accompanying notes are integral parts of these statements.

¥—

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

Balance at March 31, 2009:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2009, net
Total changes for this fiscal year 2009
Balance at March 31, 2010:

20,183

Millions of yen
Retained
Capital surplus
earnings

¥

¥

¥

¥

87,027(2,585)
(161)
(24)
11
2,147
(612)
86,415

—
—

(24)
10

¥

FINA NC IA L S E C T I O N
Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2011

Balance at March 31, 2010:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for this fiscal year 2010
Balance at March 31, 2011:

Balance at March 31, 2010:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for this fiscal year 2010
Balance at March 31, 2011:

Balance at March 31, 2010:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for this fiscal year 2010
Balance at March 31, 2011:

Balance at March 31, 2010:
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2010, net
Total changes for this fiscal year 2010
Balance at March 31, 2011:

Number ofoutstanding
common share

Common stock

167,124,036¥

20,183

Millions of yen
Retained
Capital surplus
earnings

Treasury stock,at cost¥¥22,594
—

—

—

—

—

—

—

—

—

—

1

—

—

—

—

—

—

—

1
22,595

7,016
50,139¥Valuationdifference on
available-forsale securities

Millions of yen
Foreigncurrency
Minoritytranslationinterests
adjustments

¥

2,352

¥

20,183

(499)

¥

¥

403

—

—

—

—

—

—

—

—

—

—

—

(624)
(624)
1,728

(207)
(207)
(706)

6
6
409

¥

Common stock

167,124,036$

242,726¥¥

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

Treasury stock,at cost$$271,729$

518,620
94,076(9,704)

—

—

—

—

—

—

—

—

—

—

—

11

—

—

—

—

—

—

—

11
271,740

84,372602,992$

Valuationdifference on
available-forsale securities

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

28,285(6,007)

$

$

4,848

—

—

—

—

—

—

—

—

—

—

—

—

(7,501)(7,501)
20,784(2,490)(2,490)(8,497)

73
73
4,921

20

¥

—

242,726$¥

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

167,124,036

The accompanying notes are integral parts of these statements.

¥(1,741)
—
—
(18)
2
—
(16)
(1,757)

Total—

Number ofoutstanding
common shares$

43,123
7,822
(806)

—

167,124,036

¥

¥

—

$

$

Total

$ 1,039,265
94,076(9,704)(214)
38(9,918)74,278$ 1,113,543$(20,936)
—
—
(214)
27
—
(187)
(21,123)

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2010 and 2011
Thousands of U.S.
dollars (Note 3)

Millions of yen

2010
Cash Flows from Operating Activities:¥ (4,263)
Income before income taxes and minority interests
Adjustments 9,376
Depreciation and amortization
66
Increase (decrease) in allowance for doubtful accounts
327
Provision for accrued employees' retirement benefits, less payments
208
Increase in prepaid pension cost
10
Provision for accrued directors' and corporate auditors' retirement benefits, less payments
197
Increase (decrease) in reserve for loss on guarantees(144)
Interest and dividend income
554
Interest expense(36)
Gain on sale of investments in securities
148
Loss on evaluation of investments in securities
250
Loss on sale and disposition of property, plant and equipment
Changes in assets and liabilities:(23,175)
Notes and accounts receivable, trade
6,846
Inventories
5,879
Notes and accounts payable, trade(931)
Other, net(4,688)Subtotal
131
Interest and dividend income received(577)
Interest expense paid
(136)
Income taxes (paid) refunded(5,270)Net cash provided by (used in) operating activities

2011
¥

2011

12,662

$

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

152,275
120,018(2,038)
1,413
2,293
(602)
(2,093)(2,056)
6,061

̶

̶

217
836

2,615
10,059(15,277)(9,695)9,889
1,230
10,090
184
(466)
679
10,487(183,727)(116,597)
118,925
14,804
121,350
2,212(5,606)
8,167
126,123

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Acquisition of intangible assets
Proceeds from sale of investments in securities
Decrease in long-term loans receivable
Other, net
Net cash used in investing activities(10,105)
(71)
48
64
(303)
(10,367)(12,486)
(79)
(83)
244
(54)
(12,458)(150,165)(948)(1,004)2,937(640)(149,820)

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

3,063
2,400
(79)
(24)
11
(161)
(11)
5,199

(47)
11,000(1,071)
(18)
3
(806)
(10)
9,051

(566)
132,291(12,880)(214)
38(9,705)(119)108,84525(10,413)
22,468¥ 12,055

(147)
6,933
12,05518,988(1,772)
83,376
144,984
228,360

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 15)

The accompanying notes are integral parts of these statements.

21

¥

$

FINA NC IA L S E C T I O N
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 -(Accounting Standards Board of Japan ("ASBJ") Statement No. 16,
issued on March 10, 2008) and “Practical Solution on Unification of
Accounting Policies Applied to Associates Accounted for Using theEquity Method” (Practical Issues Task Force ("PITF") No. 24, issued
on March 10, 2008). This change had no material impact on the
consolidated financial statements for the year ended March 31, 2011.

(a) Scope of consolidation and elimination
The Company has 10 subsidiaries as of March 31, 2011 (9subsidiaries as of March 31, 2010). The consolidated financial
statements include the accounts of the Company and 10 of its
subsidiaries. The 10 subsidiaries that have been consolidated for 2011
are listed below:(2) Foreign currency translation 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 Tech Co., Ltd.
Santoku Computer 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.

(3) Securities -During the year ended March 31, 2011, Sanyo Special Steel Trading(Shanghai) Co., Ltd. was established and newly consolidated.
The consolidated subsidiaries, except for the 5 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., and Sanyo Special Steel Trading (Shanghai) Co., Ltd.), use
a fiscal year ending March 31, which is the same as that of theCompany. With respect to Sanyo Special Steel Trading (Shanghai)Co., Ltd. which has been newly established in the current year, its
financial statements were consolidated as of the date of inception.
The other 4 foreign subsidiaries use a fiscal year ending December 31.
For these 4 subsidiaries, certain adjustments are made, if appropriate,in preparing the consolidated financial statements to reflect materialtransactions which occurred between their fiscal year end andMarch 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
the Company, on which the Company have 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.
Change in accounting policy
Effective April 1, 2010, the Company adopted “AccountingStandard for Equity Method of Accounting for Investments”

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, the 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,
are included directly in net assets. Non-marketable securities classified
as available-for-sale securities are carried at cost. A decline in thevalue of available-for-sale securities is reflected in net profit or loss
for the period unless deemed to be temporary. Cost of securities soldis determined by the moving average method.

(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.

22

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.

(11) Reserve for loss on guarantees
Reserve for loss on guarantees is stated as an estimated cost at theend of the fiscal year.

(12) Reserve for environmental measures(5) Inventories -Reserve for environmental measures for obligatory PCB treatment isstated as an estimated cost at the end of the fiscal year.

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

(13) Income taxes -(6) Depreciation and amortization -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.

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.

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

(15) Net income and cash dividends per share 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.

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

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

(16) Cash and cash equivalents 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.

(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.
Change in accounting policy
Effective from the fiscal year ended March 31, 2010, the Company
and its consolidated domestic subsidiaries adopted the “Partial
Amendments to Accounting Standard for Retirement Benefits (Part3)” (ASBJ Statement No. 19, issued on July 31, 2008). The new
accounting standard requires domestic companies to use the rate of
return on long-term government or gilt-edged bonds as of the end of
the fiscal year for calculating the projected benefit obligation of adefined-benefit plan. Previously, domestic companies were allowed touse a discount rate determined by taking into consideration
fluctuations in the yield of long-term government or gilt-edged bonds
over a certain period. This change had no material impact on the
consolidated financial statements for the year ended March 31, 2010.

(17) Consumption tax 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.

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

(10) Accrued directors' and corporate auditors' retirement
benefits 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.

23

FINA NC IA L S E C T I O N

Change in accounting policy-

Additional information-

Effective April 1, 2010, the Company and its consolidated domestic
subsidiaries adopted “Accounting Standards for Asset Retirement
Obligations” (ASBJ Statement No. 18, issued on March 31, 2008) and“Guidance on Accounting Standards for Asset Retirement
Obligations” (ASBJ Guidance No. 21, issued on March 31, 2008).
This change had no material impact on the consolidated financial
statements for the year ended March 31, 2011.

Effective March 31, 2011, the Company adopted “AccountingStandard for Presentation of Comprehensive Income” (ASBJ
Statement No. 25, revised on June 30, 2010). The amounts of“Valuation, translation adjustments and others” and “Total valuation,translation adjustments and others” are presented as “Accumulated
other comprehensive income” and “Total accumulated othercomprehensive income” for the year ended March 31, 2010.

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 ¥83.15 = U.S.$1.00, the approximate rate of exchange as at March 31, 2011, has been used for the purpose of suchtranslations.

4. Consolidated Statement of Comprehensive Income
Comprehensive income for the fiscal year ended March 31, 2010 was as follow:
Millions of yen

Comprehensive income attributable to owners of the parent
Comprehensive income attributable to minority interests
Total comprehensive income

(425)
(3)
(428)

Other comprehensive income for the fiscal year ended March 31, 2010 was as follow:
Millions of yen

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

2,170
(9)
6
2,167

5. Financial Instruments:
Additional information
Effective from the fiscal year ended March 31, 2010, the Companies adopted the revised Accounting Standard, “Accounting Standard for
Financial Instruments” (ASBJ Statement No. 10, revised on March 10, 2008) and the “Guidance on Disclosures about Fair Value of Financial
Instruments” (ASBJ Guidance No. 19, revised on March 10, 2008). Information on financial instruments for the year ended March 31, 2010
required pursuant to the revised accounting standards is as follows.
Information on financial instruments for the year ended March 31, 2010 was follows:(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 thematurity dates and the balances of receivables of all customers’ accounts and evaluate the main customers' credit risk due to deterioration of thefinancial 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 and accounts receivable and notes and accounts payable with thesame 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 withthem.
The notes and accounts payable are paid within one year. Notes and accounts payable denominated in foreign currencies arising from theimport of raw materials, etc., are exposed to exchange rate risks. The Companies reduce such risks by settling both notes and accounts receivableand 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.

24

The Companies establish regulations which stipulate the authorization of and manage derivative transactions. See Note 2(4), “Derivative
Transactions,” about hedge accounting.
Notes and accounts payable and bank loans are exposed to liquidity risks. The Companies reduce such risks by making monthly cash flowplans. The Company has commitment line contracts in preparation for contingencies.
Fair values of financial instruments include values based on market price, and values obtained by reasonable estimates when the financial
instruments do not have market price. Since certain assumptions are adopted for calculating such values, they may differ when adopting different
assumptions.

(2) Fair values of financial instruments Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2010 were as follows. Certain
financial instruments are 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

12,062
37,628

¥
¥

̶

¥
8,145
¥ (10,724)¥ (32,595)¥ (15,400)¥
8,145¥ (10,724)¥ (32,595)¥ (15,515)

¥
¥
¥
¥

̶

¥
¥

¥
¥

¥
¥

¥
¥

12,062
37,628

(0)
̶

¥
¥

(0)
̶

̶

̶
̶

△115
̶
̶

(※) 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 of ¥583 million were excluded from the table. These instruments were not included in investment in securities(available-for sale securities) as the fair values were not available.
3. The aggregate maturities subsequent to March 31, 2010 for financial assets with maturities were as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥
¥

12,062
37,62849,6901 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, 2010 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

¥
¥
¥

25

̶

15
15

1 year or more but
within 5 years¥¥¥

15,40060
15,4605 years or more but
within 10 years

¥
¥
¥

̶

69
69

Ten years or more

¥
¥
¥

̶

3
3

FIN A NC I A L S E C T I O NInformation on financial instruments for the year ended March 31, 2011 is as follows:(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 thematurity dates and the balances of receivables of all customers’ accounts and evaluate the main customers' credit risk due to deterioration of thefinancial 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 and accounts receivable and notes and accounts payable with thesame 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 withthem.
The notes and accounts payable are paid within one year. Notes and accounts payable denominated in foreign currencies arising from theimport of raw materials, etc., are exposed to exchange rate risks. The Companies reduce such risks by settling both notes and accounts receivableand 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 of and manage derivative transactions. See Note 2(4), “Derivative
Transactions,” about hedge accounting.
Notes and accounts payable and bank loans are exposed to liquidity risks. The Companies reduce such risks by making monthly cash flowplans. The Company has commitment line contracts in preparation for contingencies.
Fair values of financial instruments include values based on market price, and values obtained by reasonable estimates when the financial
instruments do not have market price. Since certain assumptions are adopted for calculating such values, they may differ when adopting different
assumptions.

(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 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

18,99052,848

¥
¥

̶

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

¥
¥
¥
¥

̶

¥
¥

¥
¥

¥
¥

¥
¥

18,99052,848

(0)
̶

¥
¥

(0)
̶

̶

̶
̶

△99
̶
̶

Book value

Fair values$ 228,383$ 635,568$ 228,383$ 635,568$$$ 228,383$ (204,935)$ (425,615)$ (269,393)$ 228,383$ (204,935)$ (425,615)$ (270,582)

̶
$
̶
$
̶
$
$ △1,189

$
$

$
$

$
$

(0)
̶

Difference(0)̶(※) 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.”

26

̶
̶

̶
̶

2. Non-listed equity securities of ¥488 million ($5,868 thousand) are excluded from the table. These instruments are not included in investment in securities(available-for sale securities) as the fair values are not available.
3. The aggregate maturities subsequent to March 31, 2011 for financial assets with maturities are as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥
¥

18,99052,84871,838

1 year or more but
within 5 years

¥
¥
¥

̶
̶
̶

5 years or more but
within 10 years
̶

¥
¥
¥

̶
̶

Ten years or more

¥
¥
¥

̶
̶
̶

Thousands of U.S. dollars
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total$ 228,383$ 635,568$ 863,951

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 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

Ten years or more

¥
¥
¥

¥
¥
¥

¥
¥
¥

22,15060
22,210

250
57
307

̶
̶
̶

Thousands of U.S. dollars
Within 1 year

Long-term loans
Other interest-bearing debt
Total

$
$
$

27

̶

181
181

1 year or more but
within 5 years

5 years or more but
within 10 years

Ten years or more

$ 266,386$
723$ 267,109

$
$
$

$
$
$

3,007
684
3,691

̶
̶
̶

FINA NC I A L S E C T I O N

6. Securities:(1) The aggregate acquisition costs and fair values (book values) of marketable securities classified as available-for-sale securities as ofMarch 31, 2010 and 2011 are as follows:
Millions of yen
2010
Acquisition
cost

Fair value(Book value)

Thousands of U.S. dollars
2011

2011
Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Securities whose book value exceeds their acquisition cost:Stock¥ 4,534 ¥ 7,384 ¥ 2,850 ¥ 4,632 ¥ 6,887 ¥ 2,255 $ 55,704 $ 82,818$ 27,114

Securities whose acquisition cost exceeds their book value:Stock¥ 829 ¥ 760 ¥(69) ¥ 681 ¥ 622¥ (59) $ 8,190 $ 7,484
Total¥ 5,363 ¥ 8,144 ¥ 2,781 ¥ 5,313 ¥ 7,509 ¥ 2,196 $ 63,894 $ 90,302$ (706)$ 26,408(2) For the year ended March 31, 2010, sales of other securities amounted to ¥49 million with gross realized gains on those sales of ¥36 million.
For the year ended March 31, 2011, there were no sales of securities classified as other securities.
(3) The Companies recognize impairment losses on available-for-sale securities when the market value declines by more than 50 percent, or themarket value declines by more than 30 percent but less than 50 percent and the Companies' management determines the decline to be otherthan temporary. Impairment losses recognized for the years ended March 31, 2010 and 2011 are ¥148 million and ¥217 million ($2,615
thousand), respectively.

7. Inventories:
Inventories held by the Companies at March 31, 2010 and 2011 consist of the following:Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

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

¥

¥

1,237
5,199
15,650
10,48932,575

¥

¥

1,469
5,559
21,031
14,08042,139$$17,671
66,855
252,928
169,333
506,787

8. Assets Pledged as Collateral:
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2010 and 2011 are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

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

¥

¥

4,595
4,957
4,413
13,965¥

16,40016,400

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

28

¥

¥

4,591
5,918
12,77323,282¥

14,00014,000$$55,206
71,173
153,615
279,994$

168,370
168,370

9. Short-term Loans and Long-term Loans:
Short-term loans at March 31, 2010 and 2011 represent bank overdrafts with weighted-average interest rates of 0.63% and 0.55%, 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 8 financial institutions for an aggregated maximum amount of ¥15,000 million ($180,397 thousand). At
March 31 2011, the total ¥15,000 million ($180,397 thousand) is unused.
Long-term loans at March 31, 2010 and 2011, consist of the following:Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Loans from banks and other financial institutions due 2010 to 2013 withinterest rates ranging from 0.70% to 4.59% at March 31, 2010 and due 2011
to 2013 with interest rates ranging from 0.37% to 1.75% at March 31, 2011
Other payables due 2010 to 2021 with interest of 4.05% at March 31, 2010
and due 2010 to 2021 with interest of 4.05% at March 31, 2011¥

16,480¥147
16,627(1,095)
15,532

Less: Current portion of long-term loans¥

26,400¥132
26,532(4,015)22,517$

317,498$

1,588
319,086(48,286)
270,800

The annual maturities of long-term loans outstanding at March 31, 2011 are as follows:Year ending at March 31,

Millions of yen

2012
2013
2014
2015
2016 and thereafter

¥

¥

29

4,015
4,546
5,973
11,073925
26,532Thousands of
U.S. dollars$$

48,28654,673
71,834133,169
11,124
319,086

FINA NC IA L S E C T I O N

10. 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, 2010 and 2011 are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

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¥¥(8,372)
7,905
(467)
1,645
(146)
1,032
2,225
(1,193)¥¥(8,350)
7,959
(391)
1,213
(98)
724
2,034
(1,310)$(100,424)
95,720(4,704)
14,586(1,178)
8,704
24,464(15,760)$

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, 2010 and 2011 are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

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

¥

¥

378
226
(50)
(49)
529
184
1,218

¥

¥

394
223
(91)
(49)
287
184
948

$

$

4,738
2,681
(1,102)
(589)
3,454
2,215
11,397

Expenses for employees' retirement benefits of consolidated subsidiaries are included in service cost.
(3) Assumptions used in the calculation of retirement benefit obligations for the years ended March 31, 2010 and 2011 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

30

2010

2011

2.8%
0.9%
Straight-line basis
10 years
10 years

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

11. 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 years ended March 31, 2010 and 2011, respectively. At March 31, 2010 and 2011, significant components ofdeferred tax assets and liabilities are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

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
Tax losses carried forward
Unrealized intercompany profit eliminated in consolidation
Allowance for doubtful accounts
Reserve for environmental measures
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
382
550
1,252
810
3,948

$

35,615
2,028
11,681
15,73010,891
2,776
3,337

̶

2,961
169
971
1,308
906
231
277

165
153
1,083
11,304(2,357)
8,947

̶

̶

153
1,555
8,531
(1,937)
6,594

1,836
18,704
102,598(23,299)
79,299(430)(1,597)(1,383)
(903)
(64)
(365)
(4,742)
4,205

¥

¥

¥

¥

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

$

$

$

(5,624)(19,211)(16,626)(9,932)(970)(2,155)(54,518)
24,781

The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2010, was not required
to be disclosed due to the insignificance of the difference. The reconciliation between the statutory income tax rate and the effective income tax
rate for the year ended March 31, 2011 is as follows:
40.6%
Statutory income tax rate
Add (deduct)
0.8
Nondeductible expenses, including entertainment expenses(0.7)
Nontaxable income, including dividend income
0.1
Equalization tax
(2.9)
Other
37.9%
Effective income tax rate

31

FIN A NC I A L S E C T I O N

12. Net Assets:
There were no cash dividends in the consolidated financial statements as of March 31, 2010.
At the Company’s Board of Directors meeting held on May 16, 2011, the directors approved cash dividends amounting to ¥807 million ($9,704
thousand).

13. Research and Development Costs:
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years ended March
31, 2010 and 2011 totaled ¥1,610 million and ¥1,937 million ($23,292 thousand), respectively.

14. Net Income Per Share:
Basis for calculations of net income (loss) per share for the years ended March 31, 2010 and 2011 are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Net income (loss)
Net income (loss) for common stockholders¥¥(2,585)(2,585)

¥
¥

7,822
7,822

$
$

94,076
94,076

Thousands of shares
2010

The weighted-average number of shares of common stock2011

161,434

161,391

Yen
2010

Net income (loss) per share¥(16.01)

U.S. dollars
2011

2011

¥

48.47

$

0.58

The Companies have no dilutive securities for the years ended March 31, 2010 and 2011.

15. Cash and Cash Equivalents:
Cash and cash equivalents at March 31, 2010 and 2011 consist of:Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Cash and bank deposits
Time deposits with deposit term of over 3 months
Cash and cash equivalents

¥
¥

32

12,062(7)
12,055¥¥18,990(2)
18,988$$228,383(23)
228,360

16. Accounting for Leases:(1) Finance leases Information on non-capitalized finance leases at March 31, 2010 and 2011 is 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, 2010 and 2011 are ¥217
million and ¥200 million ($2,405 thousand), respectively.
Lease assets under finance leases, if capitalized, at March 31, 2010 and 2011 comprise the following:
Millions of yen
2010
Machineryand vehicles

Acquisition cost
Accumulated depreciation
Net book value

¥
¥

1,517
837
680

Other

¥
¥

Thousands of U.S. dollars
2011

2011

268
201
67

Machineryand vehicles

¥
¥

1,508
982
526

Machineryand vehicles

Other

¥

133
111
22

¥

$

Other

$

18,136
11,812
6,324

$

$

1,601
1,340
261

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, 2010 and 2011 are ¥217 million and ¥200 million ($2,405 thousand), respectively.
Outstanding future lease payments due at March 31, 2010 and 2011, including interest, are summarized as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Due within one year
Due after one year
Total

¥
¥

199
548
747

¥
¥

170
378
548

$

2,037
4,549
6,586

$

(2) Non-cancelable operating leases As a lessee
Outstanding future lease payments under non-cancelable operating leases at March 31, 2010 and 2011 are summarized as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Due within one year
Due after one year
Total

¥
¥

33

22
12
34

¥
¥

10
8
18

$
$

123
97
220

FINA NC IA L S E C T I O N

17. Derivatives:(1) Derivative transactions to which hedge accounting is not applied.
The contracted amount, fair value and unrealized gain (loss) of the forward exchange contract recognized for the year ended March 31, 2010
were as follows:
Millions of yen
Contract
amountForward exchange contract:
BuyingU.S. dollars
Japanese yen
Total

¥

137
67
204

¥

Unrealized
gain (loss)

Fair value

¥

¥

137
67
204

¥

(0)
(0)
(0)

¥

The contracted amount, fair value and unrealized gain (loss) of the forward exchange contract recognized for the year ended March 31, 2011
are as follows:
Millions of Yen
Contract
amountForward exchange contract:
BuyingU.S. dollars
Japanese yen
Total

¥
¥

39
20
59

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

Fair value

¥
¥

0
(0)
(0)

¥
¥

Contract
Amount

0
(0)
(0)

$
$

463
241
704

Unrealized
gain (loss)

Fair value

$
$

0
(0)
(0)

$
$

0
(0)
(0)

(2) Derivative transactions to which hedge accounting is applied.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2010 and 2011 are as follows:
Method of hedge accounting
Type of derivative transactions

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

The main hedged items
Contract amount1 year or more of amount of contract
Fair value

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

Long-term loans
Long-term loans¥10,500 million¥10,770 million ($129,525 thousand)¥9,770 million¥7,850 million ($94,408 thousand)※※※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.

34

18. Contingent Liabilities:
Guarantees against bank loans of employees and affiliates at March 31, 2010 and 2011 are as follows:
Thousands of
U.S. dollars
2011

Millions of yen
2010
2011

Employees
Advanced Green Components, LLC
Total

¥

79
367
446

¥

¥

$

63
387
450

¥

754
4,652
5,406

$

Notes discounted with banks and notes endorsed, as of March 31, 2010 and 2011 are at ¥124 million and ¥205 million ($2,471 thousand),
respectively. Notes discounted with banks and notes endorsed are netted against "Notes and accounts receivable, trade" in the consolidatedbalance sheets.

19. Segment Information:
Segment information for the year ended March 31, 2010 was as follows:(1) Industry segment information For the year ended March 31, 2010
Millions of yen
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Costs and expenses
Operating income¥¥

84,4897,410
91,89995,096(3,197)

Formed &Fabricated Materials¥10,969−
10,96911,714
(745)

¥

Other

¥

¥

(b) Assets, depreciation, loss on impairment of fixed assets and capital expenditures:
Assets¥ 127,751 ¥
12,444 ¥Depreciation¥
8,642 ¥582 ¥̶̶Loss on impairment of fixed assets¥¥¥
Capital expenditures¥
12,565 ¥163 ¥Elimination andcorporate assets

Total

59
866
925
896
29

¥

456
5

¥
¥
¥
¥

̶

2

¥

Consolidated
total

95,517 ¥
8,276
103,793
107,706(3,913) ¥̶
¥(8,276)(8,276)(8,243)(33) ¥

140,651
9,229

19,082 ¥(13) ¥
̶
¥
(8) ¥

̶

12,730¥¥¥¥95,517
̶

95,517
99,463(3,946)
159,733
9,216
̶12,722(2) Geographical segment information As Japan, which consisted of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represented more than 90% of theCompanies’ combined assets as of March 31, 2010 and combined sales for the years then ended, the Companies were not required to disclose thegeographical segment information.

(3) Overseas sales Overseas sales information for the years ended March 31, 2010 was as follows:
For the year ended March 31, 2010
Millions of yen
North
America

Asia

Overseas sales (A)Consolidated sales (B)(A) / (B)¥

12,508¥Europe1,339¥

Others

894

¥

Total

175

̶

̶

̶

̶

13.1%

1.4%

0.9%

0.2%

¥
¥

14,916
95,517
15.6%

Segment information for the year ended March 31, 2011 is as follows:(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 conduct investigations to determine the distribution of management resources and evaluate business results regularly.
Each operating division develops business activities and establishes a comprehensive strategy 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. "35

FINA NC IA L S E C T I O N

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
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

¥

159,512 ¥
11,643 ¥
171,155
14,699 ¥—¥(11,643) ¥(11,643)(499) ¥

159,512
14,200¥9,933 ¥

(17) ¥

9,916¥¥

159,512—

Thousands of U.S. dollars
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers$ 1,656,147
Intersegment transactions $ 128,142
Total
1,784,289
Segment income$ 146,764(b) Other:
Depreciation$

109,206

Special Materials

Formed & FabricatedMaterials$

68,22012,506$

193,284
16,247

$

$

4,179

$

6,022

$

58

68,220—193,284
—

$
$

Total

717
11,872
12,589
1,257

$
$

$
$

Other

Adjustments$ 1,918,368$ 140,014
2,058,382$ 176,774

$
$

$

$

119,465$

Consolidated
total$ 1,918,368—(140,014) $(140,014)
1,918,368(6,000) $ 170,774—(212) $

119,253

1. 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 notallocated 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 business results, theCompanies are not required to disclose information about segment assets and liabilities.

36

5. Segment information as of and for the year ended March 31, 2011, which is in conformity with the former Standard applicable to the prior fiscal yearFor the year ended March 31, 2011
Millions of yen
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Costs and expenses
Operating income¥¥

143,381
8,936
152,317
139,175
13,142Formed &Fabricated Materials¥

16,072

Other

¥

̶

¥

16,072
15,109
963

¥

59
988
1,047
942
105

¥

609
5

¥
¥
¥
¥

(b) Assets, depreciation, loss on impairment of fixed assets and capital expenditures:
Assets¥ 152,806 ¥
12,501 ¥Depreciation¥
9,427 ¥
501 ¥
̶̶Loss on impairment of fixed assets¥¥¥
Capital expenditures¥
11,555 ¥302 ¥Elimination andcorporate assets

Total

̶
̶

¥

159,512
9,924
169,436
155,226
14,210165,9169,933
̶11,857

Consolidated
total

¥

̶

¥

(9,924)(9,924)(9,914)
(10)

¥
¥
¥
¥

22,297 ¥(17) ¥̶¥(29) ¥¥

159,512¥

159,512145,312
14,200̶

188,213
9,916
̶

11,828

Thousands of U.S. dollars
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Costs and expenses
Operating income$ 1,724,367
107,480
1,831,847
1,673,789$ 158,058

Formed &Fabricated Materials$

193,284

Other

$

—

$

193,284
181,702
11,582$(b) Assets, depreciation, loss on impairment of fixed assets and capital expenditures:
Assets$ 1,837,716 $ 150,337 $Depreciation$ 113,385 $6,022 $——
Loss on impairment of fixed assets$$$
Capital expenditures$ 138,960 $
3,637 $

Elimination andcorporate assets

Total

$

Consolidated
total

717
11,872
12,58911,332
1,257$ 1,918,368
119,352
2,037,720
1,866,823$ 170,897$$ 1,918,368—(119,352)(119,352)
1,918,368(119,229)
1,747,594(123) $ 170,774

7,328
58

$ 1,995,381$ 119,465—$$ 142,597$$$$

268,160 $ 2,263,541(212) $ 119,253——$(352) $ 142,245———

Additional information
Effective April 1, 2010, the Company adopted “Accounting Standard for Disclosures about Segments of an Enterprise and RelatedInformation” (Accounting Standards Board of Japan (“ASBJ”) Statement No. 17, issued on March 27, 2009) and “Guidance on AccountingStandard for Disclosures about Segments of an Enterprise and Related Information” (ASBJ Guidance No. 20, issued on March 21, 2008).

37

FIN A NC IA L S E C T I O N

Related Information(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¥

North
AmericaAsia

130,250¥

24,114¥

3,302

Europe¥

1,520

Others

¥

326

Total

¥

159,512

Thousands of U.S. dollars
Japan

Net sales

North
AmericaAsia$ 1,566,448$

290,008$

39,720Europe$18,283

Others

$

3,909

Total

$ 1,918,368

2. Property, plant and equipment
As Japan, which consist 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 theinformation about property, plant and equipment.

(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$$38

408,471
239,184

Specialty SteelSpecialty SteelIndependent Auditors' Report

To the Board of Directors of Sanyo Special Steel Co., Ltd.:We have audited the accompanying consolidated balance sheets of Sanyo Special Steel Co., Ltd. and its
consolidated subsidiaries as of March 31, 2011 and 2010, the related consolidated statements ofoperations and comprehensive income for the year ended March 31, 2011, statement of operations for theyear ended March 31, 2010, and statements of changes in net assets and cash flows for each of the years
then ended expressed in Japanese yen. These consolidated financial statements are the responsibility of
the Company’s management. Our responsibility is to independently express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance about whether thefinancial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits provide a reasonablebasis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Sanyo Special Steel Co., Ltd. and its consolidated subsidiaries as ofMarch 31, 2011 and 2010, and the results of their operations and their cash flows for the years thenended, in conformity with accounting principles generally accepted in Japan.
Without qualifying our opinion, we draw attention to Note 4 to the consolidated financial statements, inwhich the comprehensive income for the year ended March 31, 2010 is disclosed.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2011 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.

Osaka, Japan
June 28, 201139

C O RPO RAT E D ATA

Complete View of our Head Office / Plant

Corporate Data
(As of March 31,2011)

Corporate Name
Head Office
URL

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

2,858(consolidated basis) 1,374(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

17,459Branches and Offices

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

Consolidated Subsidiaries and Equity-Method Affiliates(As of March 31, 2011)

Corporate NameBusiness 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 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

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)

Information gathering concerning sales of special steel products in China

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

Manufacturing of special steel products (formed & fabricated materials)

40

Board of Directors(As of June 29, 2011)

President, Representative Director

Nobuyoshi Fujiwara

Senior Managing Director

Tetsuo Kiriyama

Nobuyuki Tanaka

Yutaka Tsukamoto

Managing Director

Hideki Nakamura

Tatsuro Isomoto

Shin-ichi Tominaga

Akihiko Yanagitani

Director

Wataru Nishihama

Hiroyuki Eiyama

Masaharu Kobayashi

Shigehiro Oi

Seiji Tsutsumi

Hideyuki Sasaki*

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

Corporate Auditor* Outside Corporate Auditor

Principal Shareholders(As of March 31, 2011)

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)

11,626

7.26

Japan Trustee Services Bank, Ltd. (trust account)

8,895

5.55

Company’s Kyoeikai Association

8,617

5.38

NSK Ltd.

7,470

4.66

Sumitomo Mitsui Banking Corporation

5,696

3.56

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 Dai-ichi Life Insurance Company, Limited

2,436

1.52

Notes: (1) The number of shares omits fractions of less than 1,000 shares.
(2) The Company holds 5,749 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

1,673 1.0％

5,749 3.4％

Foreign investors

Financial institutions

17,837 10.7％

56,292 33.7％

Total numberof shares issued
Individuals and others
34,211 20.5％

167,124
100％

Other domestic corporations
51,358 30.7％

41