Profile
Sanyo Special Steel manufactures and distributes special steel products such as bearing steel, engineering steel, stainless steel, heat
resistant steel and tool steel, heat/corrosion resistant alloys and metal powders, and formed and fabricated materials made from special
steel bars/tubes. What makes Sanyo Special Steel unique is the fact that it is Japan's only special steel manufacturer that has steel tube
manufacturing equipment.
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.

Corporate Philosophy: Confidence-based Management

Confidence of Society

Contents

Through our “high-quality special steel
manufacturing” and “harmony with local
communities,” we aim to acquire the confidenceof society by contributing to the realization of anaffluent and culturally rich society.

Confidence of Customers

Confidence among People

We aim at acquiring the confidence ofcustomers through our principle “toearnestly seek out customer needs andto solve them with speed and precision.”

We aim to build confidence amongpeople by maintaining a corporate culture
where individual employees can feel “thejoy of creation” and realize job
satisfaction.

01 Consolidated Financial Highlights

08 Research and Development

02 Message from the President /10 CSR-conscious Management

The 7th Medium-term Business Plan

11 Compliance Structure--Consolidated--

12 Environmental Conservation

04 Management Policies

13 Social Contributions

05 Corporate Governance Structure

14 Financial Section

06 Segment Information

36 Corporate DataCONSOLIDATED FINANCIAL HIGHLIGHTS

Sanyo Special Steel Co., Ltd. and consolidated subsidiaries

ChangeFY2007

FY2008FY2009(year ending March 31, 2008)(year ending March 31, 2009)(year ending March 31, 2010)

Operating Results (for the year)

FY2009FY2009 / FY2008(year ending March 31, 2010)(Millions of Yen)(%)

(Thousands of
US Dollars)＊1¥ 168,423¥ 162,735¥ 95,517−41.3$ 1,026,507

Operating income (loss)

13,904

5,148(3,946)−(42,408)

Ordinary income (loss)

12,981

4,799(3,632)−(39,038)

Net income (loss)

7,232(1,023)(2,585)−(27,776)(Millions of Yen)(%)

(Thousands of
US Dollars)＊1

Net Sales

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

92,45987,02786,415−0.7

928,694

Total assets

157,489

147,779

159,733

8.1

1,716,636(%)

Financial Indicator
ROS (Ordinary income to Net sales)

7.7

2.9

−3.8

−

−

ROE (Net income to Net assets)

7.9

−1.2

−3.0

−

−

Net D/E Ratio ＊3

0.30

0.23

0.42
(0.21) ＊4

−

−

(Yen)

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

44.34(6.32)(16.01)−(0.17)

564

536

533

−

5.73

11.00

5.00

−

−

−

＊1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥93.05=US$1, the approximate rate of exchange on March 31, 2010.
＊2 Minority interests are included in net assets.
＊3 Net equity ratio ･･･ (gross interest-bearing dept − cash and deposits) / equity＊4 Our cash position deteriorated by the margin of ¥17.5 billion because we did not liquidize receivables at the end of FY2009. If we had liquidized receivables, our Net D/E Ratio would havebeen 0.21, not 0.42.

Net Sales

Ordinary income

Net income(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

20,00015,00018,95917,947

168,423

150,000

11,345

162,735

15,00010,00012,981

142,376
134,272

7,232

10,000100,000

8,665

5,000

95,517
4,799

5,000

0

50,0000-1,023–2,5850–3,632-5,000FY2005 FY2006 FY2007 FY2008 FY2009

FY2005 FY2006 FY2007 FY2008 FY200901-5,000FY2005 FY2006 FY2007 FY2008 FY2009

MESSEGE FROM PRESIDENT / THE 7TH MEDIUM-TERM BUSINESSFiscal 2009 Overview

fiscal year, with support from tax incentives forenvironment-friendly vehicles. The industrial machinery andconstruction machinery sectors, meanwhile, showed some signof eventually picking up in the second half, but production levels
remained relatively low due to sluggish capital spending.
Because demand and production generally remained at low
levels throughout the fiscal year, output of hot-rolled special
steel products fell short of the previous year’s level.
Against this backdrop, the Sanyo Special Steel Group’s
consolidated net sales were down by ¥67,218 million from theprevious fiscal year, to ¥95,517 million, due to a decline in sales
volume and selling price adjustments associated with thechanges in iron scrap prices.
As for profitability, cost-cutting measures and the upturn in theoverall economy helped to improve our earnings quarter by
quarter, bringing them back into the black from the third quarter
onwards. However, for fiscal 2009 on an annual basis, we
registered an ordinary loss of ¥3,632 million (vs. ordinary income

First, the overview of fiscal 2009 can be summarized as follows:
During the first half of fiscal 2009, the Japanese economy was inan extremely severe state, due to a steep decline in demand inboth domestic and international markets and subsequent
inventory adjustments which led to a sharp decline in productionlevels, deteriorated corporate earnings, and a decrease in capital
investment, amid the global recession triggered by the financial
problems in the U.S. in September, 2008. Although demand andproduction eventually picked up from the second half as a resultof the effects of various stimulus packages and the upturn ineconomies abroad, mainly in Asia, Japan’s recovery lacked
momentum in comparison with the performance of sucheconomies in as China, India and the U.S., leaving its future
prospects uncertain.
Looking at the special steel industry, the automobile industry,
one of the main sectors that use special steel, saw demand andproduction turn around from the middle of the first half of the

THE 7TH MEDIUM-TERM BUSINESS PLAN --CONSOLIDATED-1. Basic Strategy

2. Financial Targets

Achieve greater corporate value
by enhancing the brand power of“Sanyo Special Steel– the Confident Choice”
Through the stable supply of high-quality special steel, we
assist our customers in sharpening their competitive edge.
At the same time, we will achieve profit growth and further
consolidate our business foundation with the aim of
becoming a “special steel manufacturer that has a strong
presence in the world market.”

FY2010(Target)ChangeNet sales

168.4

200.0

31.6

Operating Income

13.9

20.0

6.1

Ordinary income

13.0

19.0

6.0

Net income

7.2

11.0

3.8

Total assets

157.5

210.0

52.5

Interest-bearing debts

32.9

43.0

10.1

ROS

7.7%

9.5%

1.8%

ROE

7.9%

9.2%

1.3%

80,000 tons per month

90,000 tons per month

10,000 tons per month

Sales Tonnage

02(Billions of yen)

FY2007(Actual performance)

PLAN --CONSOLIDATED--of ¥4,799 million for fiscal 2008) and a net loss of ¥2,585 million(vs. net loss of ¥1,023 million for fiscal 2008).
With regard to dividend payment for fiscal 2009, we regrettably
decided not to pay any dividend, due to having ended the fiscal
year with a net loss of ¥2,585 million. We would appreciate ourshareholders’ understanding of this decision and acceptance of
our apologies.

of high-quality special steel. These efforts will include
implementation of in-house measures such as morethoroughgoing cost reduction and the application of a more
extensive and well-established iron scrap surcharge system. The
overriding objective is to further improve our corporate value.
Taking all of the above into consideration, we expect
consolidated net sales of ¥153,000 million, ordinary income of¥11,700 million and net income of ¥6,900 million for fiscal 2010.
As regards dividends for fiscal 2010, we seek to implement
dividend payments that closely reflect our periodic performance,

Fiscal 2010 Outlook
The Japanese economy is expected to continue recovering at a
gradual pace in coming years, aided by economic growth inemerging countries, especially China and India. Nevertheless, themanagement environment surrounding the Sanyo Special SteelGroup will be increasingly uncertain amid concerns over various
factors, including the influence of the economic slowdown inEurope that was triggered by Greece’s financial crises,
intensifying cost competition due to depreciation of the euro andthe dollar against the yen, fears of a slowdown in economic
growth associated with inventory adjustments in emerging
economies, and anxiety over a potential fall in domestic demandfollowing the termination of various subsidy programs.
In these circumstances, we will remain committed to production
based on demand trends while concentrating greater energy on
properly responding to customer needs and boosting our
non-price competitiveness, and we will make concerted efforts
to establish a business structure that ensures adequate supplies

in line with our basic policy on distribution of profits. At thispoint, no specific dividend amount has been decided.
To our shareholders and investors, we would like to ask for yourongoing support and understanding of the Sanyo Special SteelGroup in coming years.

September 2010

Nobuyoshi Fujiwara
Representative Director and President

3. Key Action Programs【1】Achieve profit growth by constantly meeting the expanding demandin the domestic and international markets, and providing appropriate
products

non-price competitiveness by providing higher-level quality assurance andacquiring more agile production/delivery capabilities, thereby responding to theincreasingly sophisticated needs of customers at home and abroad.

Accurately ascertain the needs of customers that are developing/expanding
businesses on a global scale, especially in BRICs and other resource-richcountries such as China and India, and provide these customers with high-quality
special steel, thereby helping them to improve their competitiveness and pursuing
our own profit growth.

【4】Establish a supply system capable of responding to steady demand(Realize a production capacity of 100,000 tons/M)
In order to make supplies responsive to steady demand over the medium term,
improve the rate of capacity utilization to the full and boost production efficiency,
and make capital expenditures to eliminate bottlenecks, thereby establishing a
supply system that can constantly deliver an output of “100,000 tons per month.”
Also, we will further review our sales volume according to the demand situation.

【2】Ensure adequate profit margins
Constantly make efforts to cope with continuously escalating prices for iron scrap,
other raw materials and fuel. For price increases that cannot be absorbed, adjust
our selling prices by gaining our customers’ understanding, thereby ensuring
adequate margins.

【5】Ensure implementation of environmental measures
Conduct business with a view to creating a resource-recycling society throughsuch measures as cutting carbon dioxide emissions, in addition to the measures
we have already implemented, i.e., expanding the dust collecting capacity of theelectric arc furnace and shifting energy sources from heavy oil to city gas(liquefied natural gas).

【3】Respond to increasingly sophisticated customer needs by increasing
non-price competitivenessPromote expansion of technological innovation through the development of highly
functional, differentiated products and manufacturing technologies, and enhance

03

MANAGEMENT POLICIESBasic Management Policies
We have been guided by the corporate philosophy of “confidence-based management” (confidence of society, confidence of customers,
and confidence among people).
With this corporate philosophy in mind, we aim to contribute to the realization of an affluent and culturally rich society, to earnestly
identify customer needs and address them promptly and precisely, and to continue to foster a corporate culture that enables individual
employees to experience “the joy of creation” and realize job satisfaction, through our “high-quality special steel manufacturing” and“harmony with local communities.” We recognize these as requirements for our sustainable growth and our corporate social
responsibility. We are also seeking to reinforce and enhance our corporate value and the common interests of our shareholders bymeeting the expectations of our customers in industry sectors.

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

CORPORATE GOVERNANCE STRUCTURE
We have been working to enhance the corporate governance and internal control systems that form part of our management
infrastructure, in order to ensure 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 of business
operations at meetings of the Board of Directors (held monthly) and at extraordinary meetings of the Board of Directors (held as necessary).
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. Also, for reinforcing its audit structure further, the Company adopted a standing
auditor system on June 29, 2010, with an increase in the number of corporate auditors from four (including two appointed from outside)
to six (including four from outside).
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, 2010

General Shareholders’ Meeting
Election / Dismissal

Board of Corporate
Auditors

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

Inspections(＊3)

Board of Directors

Election / Dismissal

Audits

Accounting Auditors(accounting firm)(13 directors)

Decision /SupervisionCorporate
Committees / Reference /ReportMeetings
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

SEGMENT INFORMATION

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.

Fiscal 2009 Overview
Demand, which began to decline sharply in early autumn two years ago, stayed at
low levels throughout fiscal 2009, although it eventually showed some sign ofpicking up after the middle of the fiscal year. Due to a decline in sales volume,
which reflected the sluggish demand, net sales decreased to ¥91,899 million(down ¥63,331 million on a year earlier). As for income or loss from operations,the Company registered an operating loss of ¥3,197 million (vs. operating incomeof ¥4,963 million for fiscal 2008) due to a decline in sales volume, although we
made great efforts to cut costs.

Net Sales(millions of yen)
200,000
160,567

155,230

150,000
88.4％

91,899100,000
50,000

Sales Breakdown(FY2009)0

FY2007

FY2008FY200906

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.

Fiscal 2009 Overview
As in the Special Steel segment, net sales decreased to ¥10,969 million (down¥4,672 million on fiscal 2008) due to a decline in sales volume. As for operating
income or loss, the Company registered an operating loss of ¥745 million (vs.
operating income of ¥53 million for fiscal 2008) due to a decline in sales volume.

Net Sales(millions of yen)
20,00016,792

15,642

15,00010,96911.5％

10,0005,000

Sales Breakdown(FY2009)0

FY2007

FY2008FY2009Other Segment

Net Sales(millions of yen)
4,000

We provide information processing services through our subsidiaries.

3,103
3,000
2,241
0.1％

2,000

Fiscal 2009 Overview

925

1,000

Net sales decreased to ¥925 million (down ¥1,317 million on fiscal
2008), and operating income was ¥29 million (down ¥37 million on
fiscal 2008).

Sales Breakdown(FY2009)0
FY2007

FY2008FY2009Notes: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

RESEARCH AND DEVELOPMENT

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

TopicsElectron microscopic image ofTiC in TMAX steel

High-resolution field emission scanningelectron microscope

Proof of the technological power of“Sanyo Special Steel – the Confident Choice”
Prestigious awards given to three directors

Highest honor in the special steel industry
Technical Achievement Merit Prize(S. Watanabe Prize) awarded by the Iron and Steel Institute of JapanOn March 28, 2010, three directors received
prestigious awards from the Iron and SteelInstitute of Japan and the Japan Institute of
Metals.
These awards symbolize the high-level special
steel manufacturing technology which we havecultivated over a number of years and the highreliability of the products realized through thattechnology. We will continue to boost the brandpower of “Sanyo Special Steel – the Confident
Choice” through unceasing efforts to strengthen
our technological capabilities, and aim to becomea “special steel manufacturer with a strong
presence in the global market.”Kazuya Kodama, then Senior Managing Director, received the Technical Achievement Merit
Prize (S. Watanabe Prize) from the Iron and Steel Institute of Japan. This prize is awarded to amember who has made an outstanding contribution to scientific and technical advancementand development in the field of special steel, and is regarded as the most prestigious
accolade in the special steel industry, for which only two winners
were selected nationwide for the year.
Mr. Kodama was awarded the prize for his notable achievements inimproving the quality level of Japanese-made special steel products
and contributing to the advancement and development of the special
steel manufacturing process. Those achievements include
development and establishment of steel manufacturing technologythat dramatically improves the quality and reliability of special steel,establishment of mass-production technology forhard-to-manufacture products, and reduction of environmental loads
in the special steel manufacturing process.

08

Our Major Original Products/Technologies
SP Steel“Premium cleanliness steel” with its characteristics improved to the limit
SP steel is the “premium” cleanliness steel. It was developed based on our unique concept of“controlling the size of the largest inclusion in steel to utilize its essential characteristics to thefull.” Its higher fatigue strength and reliability satisfy our customers’ needs, especially those of
our customers in the automobile industry, who require “small, lightweight high-performanceparts that are also friendly to the environment.”

Ball bearings

ECOMAX 1
High-strength case-hardening steel without the need for the addition of nickel and molybdenum
ECOMAX1 is a resource-saving, high-strength steel, the strength of which is achieved without theuse of rare metals such as nickel and molybdenum.
ECOMAX1 meets the need for more compact and lighter automotive drive components designed
to reduce CO2 emissions, and shows promise as a material for parts requiring high strength,
such as automobile gears and shafts.

Automotive gears and shafts

SPMR8
Powder metallurgy high-speed steel with significantly improved toughness andcorrosion 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.
In the coming years, we will further enhance power generation characteristics and aim atcommercialization.

Technical Achievement Contribution Prize(G. Watanabe Commemorative Prize) awarded by the Iron andSteel Institute of Japan

Industrial Achievement Award presented
by the Japan Institute of Metals

Wataru Nishihama, Director, received the Technical Achievement
Contribution Prize (G. Watanabe Commemorative Prize) from the Iron
and Steel Institute of Japan. This prize is awarded to a member who hasmade great achievements toward the advancement and development of
the Japanese steel industry.
Mr. Nishihama was awarded the prize for his
contribution to the advancement anddevelopment of seamless tube manufacturing
technology, namely his efforts to improve thequality and productivity of special steel
seamless tube, and establishment ofoperational technology that realizes theworld’s highest level of quality andproductivity in cold pilgering.

Akihiko Yanagitani, Director, received the Industrial Achievement Award
from the Japan Institute of Metals. This award is presented to a technicalexpert who has contributed to the improvement and advancement ofindustrial technology.
Mr. Yanagitani was given the award in recognitionof his numerous contributions to technologicaldevelopment in the field of functional materials,
including engagement in the development ofhigh-performance metal materials andestablishment of their mass-production
technology, realization of practical applications fora number of high-performance materials, andnumerous accomplishments in research activities
and for related patents.

09CSR-CONSCIOUS MANAGEMENT

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 Economic Goals

CSR in Pursuit of Social Goals

We aim for sustained company growth and thewell-being of society by gaining theconfidence of the market through our provisionof high-quality special steel products, and by
returning our modest profits to society.

We aim to enhance our corporate brand image
through achieving harmonious coexistencewith society by focusing on the creation of a
resource-recycling society, environmental
protection, and academic and cultural
promotion.

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

Environmental protection,
Volunteer activities,
Support for scientific and cultural activities

10

COMPLIANCE STRUCTURE

In order to ensure compliance across the organization, we are working on developing, maintaining and improving our systems forfamiliarizing personnel at all levels with compliance practice.

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.

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

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.

Domestic
affiliates
President
Executive officer in chargeof corporate ethics

Implementation of Compliance
Education Programs

Company help desk

We arrange lectures to improve compliance awarenessand provide e-learning programs for complianceeducation.

Whistle-blower(Whistle-blowing System : Helpline)

11

ENVIRONMENTAL CONSERVATION

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

TopicsElectric vehicles introduced for business use
We have been developing various activities for environmental
preservation, including the formulation of voluntary action
programs aimed at reducing our CO2 emissions. As part of suchactivities, we introduced environment-friendly electric vehicles forbusiness use in December 2009.
In order to raise awareness of environmental issues among
employees, we invited employees of our group companies tosubmit vehicle body designs proposals. Over 100 designs were
submitted, and an excellent concept, selected by an in-housescreening panel, was adopted as the body design for thevehicles.
We will continue to proactively promote efforts for environmental
preservation.

12

Planning

Implementation
andOperation

SOCIAL CONTRIBUTIONSIn 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 2009, some
240 employees took part in the activities, and collected garbage discardedin the surrounding streets, center dividers, and green belts.

Blood Donation Campaign
We run a blood donation campaign on a regular basis. In fiscal 2009, 150,200 mlof blood was collected from a total 405 donors.

Holding of the New Year’s Concert(Sanyo Special Steel Cultural Promotion Foundation program)
We hold a “New Year Concert” as part of the programs organized by the SanyoSpecial Steel Cultural Promotion Foundation, aiming to encourage children to findout firsthand the joy of music.
At the 15th annual concert, in fiscal 2009, seven local elementary/junior highschools and one guest group participated in choral singing and marching band
performances.

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 fiscal 2009, we invited Ms. Mariko Bando, Presidentof Showa Women’s University, who is famous for her book, “The Dignity of a
Woman.” Her lecture was entitled “The Dignity of an Adult – What is required of
us now –.”13

F IN A NCI A L SECTI ON

Financial Position
Total assets at the end of fiscal 2009 increased to ¥159,733 million (an increase of ¥11,954
million over the end of fiscal 2008) due to increases in trade notes and accounts receivable,
tangible fixed assets, and investment securities, despite decreased balances in cash anddeposits, and inventories.
Total liabilities increased to ¥73,318 million (an increase of ¥12,567 million over the end of
fiscal 2008) due to increases in trade notes and accounts payable, and short-term borrowings.
Net assets decreased to ¥86,415 million (a decrease of ¥613 million over the end of fiscal
2008) due to a net loss registered for the period, despite an increase in unrealized holding
gains on securities.

Cash Flows
Cash flows in fiscal 2009 can be summarized as follows. Net cash used in operating activities
in fiscal 2009 totaled ¥5,270 million (vs. net cash inflow of ¥19,808 million in fiscal 2008),
resulting from such factors as a loss before income taxes (minus ¥4,263 million), depreciation
expenses (plus ¥9,376 million), higher trade receivables (minus ¥23,175 million), lower
inventories (plus ¥6,846 million), and higher trade payables (plus ¥6,257 million). This result
includes the effect of not liquidizing receivables at the end of fiscal 2009, amounting toapproximately minus ¥17,500 million.
Net cash used in investing activities totaled ¥10,367 million (a decrease of ¥928 million
compared with fiscal 2008), reflecting capital investments including those for productivity
improvement, environmental measures, and replacement of existing equipment.
Net cash provided by financing activities totaled ¥5,199 million (a decrease of ¥2,246 million
compared with fiscal 2008) due to an increase in borrowings (plus ¥5,384 million).
As a result, the balance of cash and cash equivalents at the end of fiscal 2009 stood at ¥12,055
million (¥10,413 million lower than the balance at the end of fiscal 2008).

14

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

CONSOLIDATED BALANCE SHEETSAs of March 31, 2009 and 2010

Thousands of U.S.
Dollars (Note 3)

Millions of Yen

ASSETS

2009

2010

2010

Current Assets:
Cash and bank deposits (Note 4 and 14)¥

Notes and accounts receivable, trade (Note 4 and 17)

22,474¥

12,062$

129,624

14,44037,628404,382

(91)

(51)

(543)

Inventories (Note 6)

39,36532,575350,084

Deferred income taxes (Note 10)

2,819

4,099

44,056

Less: Allowance for doubtful accounts

Refundable income taxes
Other current assets
Total current assets

906

895

9,614

1,065

1,085

11,65780,97888,293

948,874

7,221

7,081

76,096

Property, Plant and Equipment:
Land (Note 7)
Buildings and structures (Note 7)

43,112

43,174463,986

Machinery and equipment (Note 7)

158,827

164,238

1,765,050

Construction in progress

1,593

2,537

27,273

210,753

217,030

2,332,405(156,049)(159,514)(1,714,284)

54,70457,516618,121

997

863

9,275

6,915

9,283

99,769Long-term loans receivable

353

301

3,237

Deferred income taxes (Note 10)

369

357

3,840

Prepaid pension cost (Note 9)

2,433

2,225

23,910

Other investments and assets

1,379

1,331

14,300Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

Investments and Other Assets:
Investments in securities (Note 4 and 5)

Less: Allowance for doubtful accounts

(349)

(436)

(4,690)Total investments and other assets

11,10013,061

140,366

159,733$ 1,716,636¥

Total assets

These accompanying notes are an integral part of these statements.

15

147,779¥

FINANCIAL SECTION

Thousands of U.S.
Dollars (Note 3)

Millions of Yen

LIABILITIES AND NET ASSETS

2009

2010

2010

Current Liabilities:
Short-term loans (Note 4 and 8)¥

Current portion of long-term debt (Notes 4, 7 and 8)

28,419¥31,515$

338,692

93

1,095

11,771

Notes and accounts payable, trade (Note 4)

5,025

10,724

115,247

Accounts payable, other

4,314

6,132

65,899Accrued income taxes

154

85

908

Accrued expenses

5,521

5,579

59,953

Other current liabilities

1,063

350

3,765

44,58955,480596,235

Total current liabilities

Long-term Liabilities:
14,226

15,532

166,921

Accrued employees' retirement benefits (Note 9)

866

1,193

12,825

Accrued directors' retirement benefits

96

107

1,148

Provision for loss on guarantees

̶

197

2,113

Provision for environmental measures

376

376

4,041

Deferred income taxes (Note 10)

391

252

2,706

Long-term debt (Notes 4, 7 and 8)

207

181

1,953

Total long-term liabilities

16,162

17,838

191,707

Total liabilities

60,751

73,318787,942

Other long-term liabilities

Contingent Liabilities (Note 17)
Net Assets (Note 11)
Shareholders’ Equity:
Common stock:
Authorized- 474,392,000 shares

Issued- 167,124,036 shares¥

20,183¥

20,183$

216,901

Capital surplus

22,593

22,594

242,819

Retained earnings

45,86943,123

463,442

Less: Treasury stock, at cost (2009: 5,683,993 shares, 2010: 5,715,891shares)(1,727)(1,741)(18,708)

86,91884,159904,454

Unrealized holding gains on securities, net of taxes

182

2,352

25,276

Foreign currency translation adjustments

(489)

(499)

(5,368)

(306)

1,853

19,908

Minority Interests

416

403

4,332

Total net assets

87,02786,415

928,694

159,733$ 1,716,636

Total shareholders’ equity

Valuation, Translation Adjustments and Others:

Valuation, Translation Adjustments and Others¥

Total liabilities and net assets

These accompanying notes are an integral part of these statements.

16

147,779¥

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2009 and 2010

Thousands of U.S.
Dollars (Note 3)

Millions of Yen

2009¥

Net Sales
Cost of Sales (Note 12)
Gross profit

2010

162,735¥

2010

95,517$ 1,026,507

146,80290,423

971,767

15,933

5,094

54,74010,785

9,040

97,1485,148(3,946)(42,408)

Interest and dividends

282

144

1,551

Other

539

1,005

10,800821

1,149

12,351

Interest

(576)

(554)

(5,953)

Other

(594)

(281)

(3,028)Selling, General and Administrative Expenses (Note 12)
Operating income

Other Income:

Other Expenses:

Ordinary income(1,170)(835)(8,981)

4,799(3,632)(39,038)

Extra-ordinary:
Loss on sale and disposition of property, plant and equipment(1,188)(250)(2,685)

Loss on impairment of fixed assets

(108)

̶

̶

Gain on sale of investments in securities and others

(323)

35

380

Loss on devaluation of investments in securities and others(3,152)(153)(1,646)

Allowance for doubtful accounts

̶

(66)

(715)

Reversal of allowance for doubtful accounts

31

̶

̶

Expenses for loss on guarantees

̶

(197)

(2,113)(4,740)(631)(6,779)59(4,263)(45,817)

Income before income taxes and minority interests

Income Taxes (Note 10):
Current

1,684

94

1,009

Deferred(636)(1,762)(18,939)

1,048(1,668)(17,930)

34

(10)

(111)

Minority Interests in Net Income (Loss) of Consolidated Subsidiaries
Net income (Loss)¥(1,023)¥(2,585)

Yen$(27,776)

U.S. Dollars (Note 3)

2009

2010

2010

Per Share:
Net income (Loss) (Note 13)¥(6.32)¥(16.01)$(0.17)Cash dividends

¥

5.00

¥

−

$

−

Net assets¥

536.49¥532.88$

5.73

These accompanying notes are an integral part of these statements.

17

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

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2009
Number ofoutstanding
common shares

Common stock

167,124,036 ¥Balance at March 31, 2008:
Decrease in retained earnings from change inaccounting treatment by consolidated overseas
subsidiaries
Change for this fiscal 2008
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other change for fiscal 2008, net
Total change for this fiscal 2008
Balance at March 31, 2009:

20,183

Millions of Yen
Retained
Capital surplus
earnings

Treasury stock,at cost¥¥22,594¥

48,523

(720)

̶

̶

̶

(7)

—

̶

̶

̶

̶

̶

̶

(1,023)(1,624)

̶

̶

̶

̶

̶

̶

(1)

̶

̶

̶

̶

̶

̶

̶

(1)
22,593(2,647)45,869——(1,031)24—(1,007)(1,727)167,124,036 ¥

20,183¥¥¥

Millions of Yen

Balance at March 31, 2008:
Decrease in retained earnings from change inaccounting treatment by consolidated overseas
subsidiaries
Change for this fiscal 2008
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other change for fiscal 2008, net
Total change for this fiscal 2008
Balance at March 31, 2009:

Unrealized
gains onsecurities, net of
taxes

Unrealized
losses on
hedging
derivatives, netof taxes

Foreigncurrencytranslation
adjustments

¥

¥

¥

¥

1,357

(1)

32

Minority
interests

¥

Total

491

¥

92,459

̶

̶

̶

(2)

(9)

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

̶

(1,175)(1,175)
182

1
1

(521)
(521)
(489)

(73)
(73)
416

(1,023)(1,624)(1,031)23(1,768)(5,423)87,027

These accompanying notes are an integral part of these statements.

18

¥

̶

¥

¥

¥

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 change for fiscal 2009, net
Total change for this fiscal 2009
Balance at March 31, 2010:

20,183

Millions of Yen
Retained
Capital surplus
earnings

Treasury stock,at cost¥¥22,593¥45,869(2,585)
(161)

—

—

—

—

—

—

—

—

—

—

—

—

1

—

—

—

—

—

—

—

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

167,124,036 ¥

20,183¥¥¥(1,727)
—
—
(23)
9
—
(14)
(1,741)Millions of Yen

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

Unrealized
gains onsecurities, net of
taxes

Unrealized
losses on
hedging
derivatives, netof taxes

¥

¥

¥

182

—

Foreigncurrencytranslation
adjustments

¥

(489)

Minority
interests

¥

Total

416

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

2,170
2,170
2,352

—

(10)
(10)
(499)

(13)
(13)
403

These accompanying notes are an integral part of these statements.

19

—

¥

—

¥

¥

¥

¥

87,028(2,585)
(161)
(24)
11
2,146
(613)
86,415

FINANCIAL SECTION
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 change for fiscal 2009, net
Total change for this fiscal 2009
Balance at March 31, 2010:

216,902

Thousands of U.S. Dollars (Note3)
Retained
Capital surplus
earnings

Treasury stock,at cost$$242,804$

492,953(27,776)(1,735)(18,557)

—

—

—

—

—

—

—

—

—

—

—

—

15

—

—

—

—

—

—

—

—

15
242,819(29,511)
463,442(151)(18,708)

167,124,036 $

216,902

$

$

—
—

(253)
102

$

Thousands of U.S. Dollars (Note3)

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

Unrealized
gains onsecurities, net of
taxes

Unrealized
losses on
hedging
derivatives, netof taxes

$

$

$

1,952

—

Foreigncurrencytranslation
adjustments$(5,249)Minority
interests

$

Total

4,472

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

23,32423,32425,276

—

(119)
(119)
(5,368)

(140)
(140)
4,332

These accompanying notes are an integral part of these statements.

20

—

$

—

$

$

$

$

935,277(27,776)(1,735)(253)
116
23,065(6,583)928,694

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2009 and 2010
Thousands of U.S.
Dollars (Note 3)

Millions of Yen

2009
Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments Depreciation and amortization
Loss on impairment of fixed assets(Decrease) Increase in allowance for doubtful accounts
Provision for (Reversal of) accrued employees’ retirement benefits, less payments
Increase in prepaid pension cost
Provision for accrued directors’ retirement benefits, less payments
Expenses for loss on guarantees
Interest and dividends income
Interest expenses
Gain on sale of investments in securities
Loss on devaluation of investments in securities
Loss on sale and disposition of property, plant and equipment
Loss on devaluation of property, plant and equipment
Changes in assets and liabilities:
Notes and accounts receivable, trade
Inventories
Notes and accounts payable, trade
Other, net
Sub-totalInterest and dividends income received
Interest expenses paid
Income taxes paid
Net cash provided by (used in) operating activities¥

21(4,263)$(45,817)
100,760

̶

̶

66
327
208
10
197
(144)
554
(36)
148
250

714
3,513
2,239
111
2,113
(1,551)
5,953
(384)
1,592
2,685

̶

̶

15,292
7,275(12,190)966
24,878281(535)(4,816)19,808(23,175)
6,846
5,879
(931)
(4,688)
131
(577)
(136)
(5,270)(249,061)
73,57063,185(10,002)(50,380)
1,403(6,202)(1,462)(56,641)(9,308)
(156)
57
103
(135)
(9,439)(10,105)
(71)
48
64
(303)
(10,367)(108,595)
(767)
512
694
(3,260)(111,416)

17,900(2,500)4,000(9,317)(1,030)23(1,624)(7)

3,063

32,915

̶

̶

2,400
(79)
(24)
11
(161)
(11)

25,793
(850)
(253)
116
(1,735)
(112)

̶

̶

̶

7,445

5,199

55,874(291)
17,523
4,945
22,46826(10,413)
22,468¥ 12,055

277(111,906)
241,464
129,558

̶

¥

¥

2010

9,376

(282)
576
(42)
3,021
1,188
81

Cash Flows from Financing Activities:
Increase in short-term loans
Decrease in Commercial papers
Proceeds from long-term debt
Repayment of long-term debt
Payments for purchases of treasury stock
Proceeds from sales of treasury stock
Cash dividends
Cash dividends to minority shareholders
Proceeds from issuance of common stock to minority shareholders
Net cash provided by financing activities

These accompanying notes are an integral part of these statements.

59
8,934
108
(31)
(132)
62
(7)

Cash Flows from Investing Activities:
Payments for purchases of property, plant and equipment
Payments for purchases of intangible assets
Collections from sale of investments in securities
Decrease in long-term loans
Other, net
Net cash used in investing activities

Effect of Exchange Rate Changes on Cash and Cash Equivalents
Net (Decrease) Increase in Cash and Cash Equivalents
Cash and Cash Equivalents at Beginning of the Year
Cash and Cash Equivalents at End of the Year (Note 14)

2010

$

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presenting Consolidated Financial Statements:
the consolidated financial statements. PITF No.18, however, as atentative measure, allows a parent company financial statements
prepared in accordance with either International Financial ReportingStandards or U.S. generally accepted accounting principles. In thiscase, adjustments for the following six items are required in the
consolidation process so that their impact on net income are accounted
for in accordance with Japanese GAAP unless the impact is notmaterial.
(a) Goodwill not subject to amortization(b) Actuarial gains and losses of defined-benefit retirement plans
recognized outside profit or loss(c) Capitalized expenditures for research and development activities(d) Fair value measurement of investment properties, and revaluationof property, plant and equipment and intangible assets(e) Retrospective treatment of a change in accounting policies(f) Accounting for net income attributable to minority interests
And, this effect is immaterial.

The accompanying consolidated financial statements of SanyoSpecial Steel Co., Ltd. (the "Company") and its consolidated
subsidiaries (the group referred to herein as "Companies") have been
prepared on the basis of accounting principles generally accepted inJapan, which are different in certain respects as to application anddisclosure requirements from International Financial ReportingStandards, and are compiled from the consolidated financial
statements prepared by the Company as required by the Financial
Instruments and Exchange Law of Japan.
Effected April 1, 2008, the companies adopted the new accounting
standard, “Practical Solution on Unification of Accounting Policies
Applied to Foreign Subsidiaries for Consolidated Financial
Statements” (Practical Issues Task Force No.18 issued by the
Accounting Standards Board of Japan) (=PITF No.18). It requires that
accounting policies and procedures applied by a parent company andits subsidiaries to similar transaction and events under similar
circumstances should, in principle, be unified for the preparation of

2. Summary of Significant Accounting Policies:(1) Consolidation and investments in affiliates (a) Scope of consolidation and elimination
The Company has 9 subsidiaries as of March 31, 2010 (11subsidiaries as of March 31, 2009). The consolidated financial
statements include the accounts of the Company and 9 of its
significant subsidiaries. The 9 significant subsidiaries that have been
consolidated for 2010 are listed below:

companies excluding Advanced Green Components, LLC, the equity
method has not been applied to the investments in another affiliate in
the consolidated financial statements.
(2) Foreign currency translation Foreign currency transactions are translated into Japanese yen at theexchange rates prevailing at the respective transaction dates. All
monetary assets and liabilities denominated in foreign currencies,
whether long-term or short-term, are translated into Japanese yen at
the exchange rates 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 rates prevailing at the each balance
sheet date. All income and expense accounts for the year are alsotranslated at those rates. These differences are recorded as foreign
currency translation adjustments.
(3) Securities The accounting standard for financial instruments (“AccountingStandards for Financial Instruments”(Statement No.10 issued by the
Accounting Standards Board of Japan)) 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. Securities that the company has are allclassified into available-for-sale securities besides the equity securities
issued by subsidiaries and affiliates.
Under the standard, marketable securities classified asavailable-for-sale securities are carried at fair value with changes in
unrealized holding gain or loss, net of the applicable income taxes, areincluded directly in net assets. Non-marketable securities classified asavailable-for-sale securities are carried at cost. Declines in the value ofavailable-for-sale securities are reflected in current profit or loss
unless deemed to be temporary. Cost of securities sold is determinedby the moving average method.
(4) Derivative Transactions The Companies use foreign exchange forward contracts and interest
rate swap to reduce its exposure to market risks from fluctuations inforeign currency and interest rates. The Company does not hold or
issue financial derivative instruments for trading purpose.

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 U.S.A., Inc. merged Sanyo Special Steel
America Corporation in December 2008.
Santoku Kogyo Co., Ltd. merged Santoku Life Co., Ltd. in January
2009.
The consolidated subsidiaries, except for the 4 foreign consolidated
subsidiaries (SKJ Metal Industries Co., Ltd., P.T. Sanyo Special SteelIndonesia, Sanyo Special Steel U.S.A., Inc. and Ningbo SanyoSpecial Steel Products Co., Ltd.), use a fiscal year ending March 31,
which is the same as that of the Company. The 4 foreign consolidated
subsidiaries use a fiscal year ending December 31. For thesesubsidiaries, certain adjustments are made, if appropriate, in preparing
the consolidated financial statements to reflect material transactions
which occurred during the period from January 1 to March 31.
(b) Investments in affiliates
Investments in affiliates in which the Companies have significant
influence are accounted for under the equity method.
Investments in Advanced Green Components, LLC is accounted toprepare consolidated financial statements using foreign subsidiaries'
for under the equity method.
Because there is neither the unconsolidated subsidiary nor related22

With regards to foreign exchange forward contracts, unrealized
gains/losses of derivative transactions are recognized in the
consolidated statements of operations.
With regards to interest rate swap transactions, the Companies use
the deferral method based on the short-cut method assuming that there
is no ineffectiveness in the hedging relationship between hedged items
and hedging instruments, if the criteria for short-cut method are met. If
the criteria for hedge accounting are met, even though those forshort-cut method are not met, the Companies use the deferral method
for interest rate swap transactions.
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 difference
between the two.
(5) Inventories Inventories are stated at the lower of weighted-average cost or net
realizable value at March 31, 2010.
Change in accounting policy
Prior to April 1, 2008, inventories are stated at cost determined bymoving average method.
Effective April 1, 2008, the Company and consolidated domestic
subsidiaries adopted a new accounting standard for measurement of
inventories and stated the inventories at the lower of weighted-average
cost or net realizable value at March 31, 2009 with “AccountingStandard for measurement of Inventories” (Statement No.9 issued by
the Accounting Standards Board of Japan). As result of this change,
income before income taxes and minority interest decreased by ¥4,358
million for the year ended March 31, 2009.
(6) Depreciation and amortization The Company has computed the 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 has computed the depreciation using
the declining-balance method for property, plant and equipment otherthan those described above. Effective April 1, 2007, due to theamendment of the Corporation Tax Code of Japan, amounts ofdepreciation limit (5% of acquisition costs) of tangible fixed assets
acquired by the Company and consolidated domestic subsidiaries
before April 1, 2007 are recognized as depreciation equally over five
years commencing from the later of the year ended March 31, 2008 or
the year immediately following the year in which depreciation has
been recognized up to the depreciation limit.
Change in accounting policy
Amortization of capitalized software costs for internal use iscomputed on the straight-line method, based on the useful lives
estimated to be 5 years. Amortization of other intangible assets arecomputed on the straight-line method.
Prior to April 1, 2008, depreciation of tools at No. 2 Melt Shop andNo. 2 Bar, Wire Rod and Wire Mill Shop are computed on thestraight-line method. Effective April 1, 2008 depreciation of
structures, machinery, equipment, vehicles and tools at No. 2 Melt
Shop and No. 2 Bar, Wire Rod and Wire Mill Shop are changed
computing on the declining-balance method. At the Seventh
Medium-term Consolidated Business Plan which started April 1, 2008,
the companies plan large capital investment, so reconsider
depreciation and fined financial condition by advancing payback ofinvested capital and express proper financial condition. As a result of
this change, income before income taxes and minority interests
decreased by ¥761 million for the year ended March 31, 2009.
Additional information

Effective April 1, 2008, the Company and consolidated domestic
subsidiaries changed useful lives of property, plant and equipment.
This change is taking the revised Corporation Tax Law of Japan
opportunity. As a result of this change, income before income taxes
and minority interests decreased by ¥252 million for the year ended
March 31, 2009.
Amortization of capitalized software costs for internal use iscomputed on the straight-line method, based on the useful lives
estimated to be 5 years. Amortization of other intangible assets arecomputed on the straight-line method.
(7) Research and development costs Research and development costs are charged to profit or loss as
incurred.
(8) Allowance for doubtful accounts The allowance for doubtful accounts is provided at the amount,which is calculated based on the past loss experience, plus the amountestimated to be uncollectible on an individual account basis.
(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 based on the actuarial
valuation of the projected benefit obligation and the fair value of theplan assets. Prior service costs are amortized on a straight-line basis
over the period of 10 years from the year when they arise. Actuarial
differences are amortized on a straight-line basis over the period of 10
years from the year next to the year when they arise.
Change in accounting policy
Effective from the fiscal year ended March 31, 2010, the Company
and consolidated domestic subsidiaries adopted the “Partial
Amendments to Accounting Standard for Retirement Benefits (Part3)” (Accounting Standards Board of Japan (“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 a defined-benefit plan. Previously,
domestic companies were allowed to use a discount rate determinedby 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 theyear ended March 31, 2010.
(10) Accrued directors' retirement benefits As is a customary practice in Japan, the Company provides forlump-sum payments to retiring directors and corporate auditors, theamount of which is determined by reference to the Company’s internal
rules. The amounts of such retirement payments are subject toapproval by the shareholders at the time of an individual director’s or
corporate auditor’s resignation or retirement.
(11) Provision for loss on guarantees
The provision for loss on guarantees is stated as an estimated cost at
the end of the fiscal year.
(12) Provision for Environmental Measures
The provision for environmental measures for obligatory PCB
treatment is stated as an estimated cost at the end of the fiscal year.
(13) Income taxes The Companies adopt deferred tax accounting for preparation of
consolidated financial statements. Deferred taxes are determined using
the asset and liability method, where deferred tax assets and liabilities

23

FINANCIAL SECTION

are recognized for temporary differences between the tax bases ofassets and liabilities and their reported amounts in the financial
statements.
(14) Revenue recognition Sales are generally recognized at the time the goods are delivered or
shipped to the customers.
(15) Finance leases Change in accounting policy
Effected April 1, 2008, the companies adopted the new accounting
standard “Accounting Standard for Lease Transactions” and “Guidanceon Accounting Standard for Lease Transactions” (Statement No.13
and Guidance No.16 issued by the Accounting Standards Board ofJapan)
There is no effect of applying it on the consolidated financial
statements. Leases acquired before April 1, 2008 are accounted for as
There is no effect of applying it on the consolidated financial
statements.
Leases acquired before April 1, 2008 are accounted for as operatingleases in succession.
(16) 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.
(17) 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.
(18) 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, nettedof consumption tax paid, is included in “Other current liabilities” inthe consolidated balance sheets.
(19) Reclassifications and restatement Certain prior year amounts have been reclassified to conform tothe current year presentation.

3. U.S. Dollar Amounts:
The U.S. dollar amounts stated in the consolidated financial statements 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 ¥93.05 = U.S.$1, the approximate rate of exchange as at March 31, 2010, has been used for the purpose of suchtranslations.

4. 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” (Statement No.10 issued by the Accounting Standards Board of Japan revised on March 10, 2008) and the “Guidance on
Disclosures about Fair Value of Financial Instruments” (Guidance No.19 issued by the Accounting Standards Board of Japan). Information on
financial instruments for the year ended March 31, 2010 required pursuant to the revised accounting standards 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 probabilities of losses of principals. The Companies utilize derivative transactions mainly for the interest
rate fluctuation risk hedging purpose and limit the amount to actual demand.
Notes and accounts receivables are exposed to the credit risks in relation to customers. In order to reduce such risks, the Companies regularly
monitor the maturity dates and the balances of receivables of all customers’ accounts, and grasp the main customers' credit risk due todeterioration of the financial situation etc., according to the company regulation. Besides, notes and accounts receivables denominated in foreign
currencies are exposed to the exchange rate risks. The Companies reduce such risks by settling both notes and accounts receivables and notes andaccounts payables with the same foreign currencies.
Investments in securities which are mainly shares in business relation with us are exposed to the exchange market price risks. The Companies
regularly review the fair value or financial positions of the invested companies and revise the portfolio considering the relationship with them.
The notes and accounts payables are paid within one year. Besides, notes and accounts payables denominated in foreign currencies arisen fromimport of raw materials etc., are exposed to the exchange rate risks. The Companies reduce such risks by settling both notes and accounts
receivables and notes and accounts payables 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 theinterest rate fluctuation risks. The Companies reduce such risks about long-term debt among them by interest rate swap contracts.
The Companies establish the company regulation which stipulate the authorization of the derivative transactions, and manage the derivativetransactions according to that. See the notes on “2(4) Derivative Transactions” about hedge accounting.
Notes and accounts payable and bank loans are exposed to the liquidity risks. The Companies reduce such risks by making monthly cash flow24

plan. Besides, the Company concludes the specific credit line contract in preparation for the contingency.
Fair values of financial instruments include the values based on market prices, and the values deemed as market prices obtained by thereasonable estimate when the financial instruments do not have market prices. Since certain assumptions and others are adopted for calculatingsuch values, they may differ when adopting different assumptions and others.
(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 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 debt
(7) Derivative Transactions①Hedging accounting is not applied②Hedging accounting is applied(※) The debt is displayed by (Thousands of U.S. Dollars

Fair values

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
̶
̶

Book value

Fair values$ 129,624$ 404,382$ 129,624$ 404,382$$$ 87,530$ (115,247)$ (350,301)$ (165,502)$ 87,530$ (115,247)$ (350,301)$ (166,738)

$
−
$
−
$
−
$ △1,236

$
$

$
$

$
$

(0)
−

Difference

(0)
−

−
−

−
−

).

1. The method of estimating fair values of financial instruments and matters about investment in securities and derivative transactions.
(1) Cash and bank deposits and (2) Notes and accounts receivable, trade
The book values approximate the fair value because of short-term maturities of these instruments.
(3) Investments in securities
The market prices and quoted prices are used for shares.
See the notes on “5. Securities.”(4) Notes and accounts payable, trade and (5) Short-term loans
The book values approximate the fair value because of short-term maturities of these instruments.
Short-term loans payable contains Current portion of long-term debt.
(6) Long-term debt
The discount cash flow method is used to estimate fair values of long-term debt, based on marginal borrowing rates as discount rate.
(7) Derivative transaction
See the notes on “16. Derivatives”.

2. The financial instruments excluded from the table are Non-listed equity securities of ¥583 million ($6,276 thousand). 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, 2010 for financial assets with maturity are as follows:
Millions of Yen
Within 1 year

Cash and cash bank deposits
Notes and account receivable, trade
Total

¥
¥
¥

12,062
37,62849,690Within 5 years of 1
year or more

¥
¥
¥

̶
̶
̶

Within 10 years of 5
year or more

¥
¥
¥

̶
̶
̶

Ten years or more

¥
¥
¥

̶
̶
̶

Thousands of U.S. Dollars
Within 1 year

Cash and cash bank deposits
Notes and account receivable, trade
Total$ 129,624$ 404,382$ 534,006

25

Within 5 years of 1
year or more

$
$
$

̶
̶
̶

Within 10 years of 5
year or more

$
$
$

̶
̶
̶

Ten years or more

$
$
$

̶
̶
̶

FINANCIAL SECTION

4. The aggregate maturities subsequent to March 31, 2010 for long-term debt and other interest-bearing debt are as follows:
Millions of Yen
Within 1 year

Long-term debt
Other interest-bearing debt
Total

¥
¥
¥

̶

15
15

Within 5 years of 1
year or more

Within 10 years of 5
year or more

¥
¥
¥

¥
¥
¥

15,40060
15,460Ten years or more

̶

̶

¥
¥
¥

69
69

3
3

Thousands of U.S. Dollars
Within 5 years of 1
year or more

Within 1 year

Long-term debt
Other interest-bearing debt
Total

$
$
$

̶

Within 10 years of 5
year or more$$$

$ 165,502$
646$ 166,148

161
161

Ten years or more

̶

̶

$
$
$

737
737

36
36

5. Securities:(1) The aggregate acquisition cost and fair value (carrying value) of marketable securities classified as other securities as of March 31, 2009 and2010 are as follows:
Millions of Yen
2009

Fair value(Carryingvalue)

Unrealized
gain (loss)

Securities whose carrying value exceeds their acquisition cost:Stock¥ 1,563 ¥ 1,869 ¥306 ¥ 4,534 ¥ 7,384 ¥ 2,850 $ 48,727 $ 79,359$ 30,632

Securities whose acquisition cost exceeds their carrying value:Stock¥ 3,880 ¥ 3,834 ¥Total¥ 5,443 ¥ 5,703 ¥(46) ¥ 829 ¥ 760 ¥(69) $ 8,907 $ 8,171
260 ¥ 5,363 ¥ 8,144 ¥ 2,781 $ 57,634 $ 87,530$ (737)$ 29,895

Acquisition
cost

Fair value(Carryingvalue)

Thousands of U.S. Dollars
2010

2010
Unrealized
gain (loss)

Acquisition
cost

Fair value(Carryingvalue)

Unrealized
gain (loss)

Acquisition
cost

The Companies recognize impairment losses on other securities when the market value declines by more than 50 percent, or the market value
declines by more than 30 percent but less than 50 percent and the Companies' management determines the decline to be other than temporary.
Impairment loss recognized for the year ended March 31, 2009 was ¥3,021 million, for the year ended March 31, 2010 is ¥148 million ($1,591
thousand)(2) For the year ended March 31, 2009, sales of other securities amounted to ¥59 million with gross realized gains on those sales of ¥42 million.
For the year ended March 31, 2010, sales of other securities amounted to ¥49 million ($525 thousand) with gross realized gains on those salesof ¥36 million ($384 thousand).
(3) Carrying values of other securities without quoted market prices as of March 31, 2009 and 2010 are summarized as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Other securities
Unlisted securities

¥

664

¥

584

$

6,276

Impairment loss recognized for the year ended March 31, 2010 was ¥80 million ($862 thousand).

6. Inventories:
Inventories held by the Companies at March 31, 2009 and 2010 consist of the following:Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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

¥

¥

26

1,360
5,949
18,13013,92639,365

¥

¥

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

13,29855,876
168,189
112,721350,084

7. Assets Pledged as Collateral:
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2009 and 2010 are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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

¥

¥

4,595
5,435
5,865
15,895¥14,00014,000

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

¥

¥

4,595
4,957
4,413
13,965¥

16,40016,400$$49,37853,27447,431150,083$

176,249
176,249

8. Short-term Loans and Long-term Debt:
Short-term loans at March 31, 2009 and 2010 represent bank overdrafts bearing with a weighted-average interest rate of 1.17% and 0.63%,
respectively. It is normal business custom in Japan for short-term borrowings to be rolled over each year. The Company has entered into line ofcredit agreements for short-term financing arrangements with 8 financial institutions for an aggregated maximum amount of ¥25,000 million($268,673 thousand). At March 31 2010, there is unused credit line of ¥25,000 million ($268,673 thousand).
Long-term debt at March 31, 2009 and 2010, consist of the following:Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Loans from banks and other financial institutions due 2009 to 2013 withinterest rates ranging from 1.10% to 4.59% at March 31, 2009 and due 2010
to 2013 with interest rates ranging from 0.70% to 4.59% at March 31, 2010
Other payables due 2009 to 2021 with interest of 4.05% at March 31, 2009and due 2010 to 2021 with interest of 4.05% at March 31, 2010¥

14,157¥

162
14,319(93)
14,226

Less: Current portion of long-term debt¥

16,480¥147
16,627(1,095)
15,532$

177,112$

1,580
178,692(11,771)
166,921

The annual maturities of long-term debt outstanding at March 31, 2010 are as follows:Year ending at March 31,

Millions of Yen

2011
2012
2013
2014
2015 and thereafter

¥

¥

27

1,095
4,015
4,015
5,015
2,487
16,627

Thousands of
U.S. Dollars$$

11,77143,14943,14953,896
26,727
178,692

FINANCIAL SECTION

9. 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, 2009 and 2010 are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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¥¥(8,476)
5,651(2,825)
4,588
(196)
1,567
2,433
(866)

¥

¥

(8,372)
7,905
(467)
1,645
(147)
1,031
2,224
(1,193)$(89,972)
84,957(5,015)
17,679(1,579)11,08523,910(12,825)$

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, 2009 and 2010 are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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

¥

¥

425
229
(138)
(49)
98
184
749

¥

¥

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

$

$

4,059
2,432
(533)
(526)
5,681
1,980
13,093

Expenses for employees' retirement benefits of consolidated subsidiaries is included in the service cost.
(3) Assumptions used in the calculation of retirement benefit obligations, for the years ended March 31, 2009 and 2010 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

28

2009

2010

2.8%
1.4%
Straight-line basis
10 years
10 years

2.8%
0.9%
Straight-line basis
10 years
10 years10. Income Taxes:
The Company is 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, 2009 and 2010, respectively. At March 31, 2009 and 2010, significant components ofdeferred tax assets and liabilities are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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
Provision 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 postponement of taxation on capital gains from property, plant and equipment
Prepaid pension costReserve for special depreciation
Other
Gross deferred tax liabilities
Net deferred tax assets

¥

¥

¥

¥

2,961
1,769
703
1,243
650
553
189
143
153
940
9,304
(2,263)
7,041

¥

(79)
(1,597)(1,240)
(988)
(23)
(318)
(4,245)
2,796

¥

¥

¥

2,961
382
550
1,252
810
3,948

$

31,826
4,108
5,911
13,458
8,707
42,429

̶

̶

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

1,766
1,640
11,641
121,486(25,330)
96,156(430)(1,597)(1,383)
(903)
(64)
(365)
(4,742)
4,205

$

$

$

(4,619)(17,167)(14,864)(9,707)(691)(3,918)(50,966)
45,190

The reconciliation between the statutory income tax rate and the effective income tax rate for the years ended March 31, 2009 is as follows:
40.6%
Statutory income tax rate
Add (Deduct)
86.0
Non deductible expenses, including entertainment expenses(127.0)
Non taxable income, including dividend income
31.0
Equalization tax
2,035.0
Increase in valuation allowance(296.2)
Other
1,769.4%
Effective income tax rate
The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2010, is not required tobe disclosed due to the insignificance of the differences.

29

FINANCIAL SECTION

11. Net Assets:
could be used to eliminate or reduce a deficit by a resolution of theshareholders' meeting or could be capitalized by a resolution of theBoard of Directors. Under the Law, both of these appropriations
generally require a resolution of the shareholders' meeting.
Additional paid-in capital and legal earnings reserve may not be
distributed as dividends. Under the Code, however, on condition thatthe total amount of legal earnings reserve and additional paid-in
capital remained equal to or exceeded 25% of common stock, they
were available for distribution by resolution of the shareholders’meeting. Under the Law, all additional paid-in-capital and all legal
earnings reserve may be transferred to other capital surplus andretained earnings, respectively, which are potentially available fordividends.
The maximum amount that the Company can distribute as dividends
is calculated based on the non-consolidated financial statements of theCompany in accordance with Japanese laws and regulations.
At the annual shareholders’ meeting held on June 26, 2009, theshareholders approved cash dividends amounting to ¥161 million.
There is no cash dividend in the consolidated financial statements asof March 31, 2010.

The Japanese Corporate Law (“the Law”) became effective on May
1, 2006, replacing the Japanese Commercial Code (“the Code”). The
Law is generally applicable to events and transactions occurring after
April 30, 2006 and for fiscal years ending after that date.
Under Japanese laws and regulations, the entire amount paid for
new shares is required to be designated as common stock. However, acompany may, by a resolution of the Board of Directors, designate an
amount not exceeding one-half of the price of the new shares asadditional paid-in capital, which is included in capital surplus.
Under the Law, in cases where a dividend distribution of surplus ismade, the smaller of an amount equal to 10% of the dividend or theexcess, if any, of 25% of common stock over the total of additional
paid-in-capital and legal earnings reserve must be set aside asadditional paid-in-capital or legal earnings reserve. Legal earnings
reserve is included in retained earnings in the accompanying
consolidated balance sheets.
Under the Code, companies were required to set aside an amountequal to at least 10% of the aggregate amount of cash dividends andother cash appropriations as legal earnings reserve until the total of
legal earnings reserve and additional paid-in capital equaled 25% ofcommon stock.
Under the Code, legal earnings reserve and additional paid-in capital

12. Research and Development Costs:
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years ended March
31, 2009 and 2010 totaled ¥1,443 million and ¥1,610 million ($17,300 thousand), respectively.

13. Net income per share:
Basis for calculations of net income (loss) per share for the years ended March 31, 2009 and 2010 are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Net income (loss)
Net income (loss) for common stockholders¥¥(1,023)(1,023)¥¥(2,585)(2,585)$$(27,776)(27,776)

Thousands of shares
2009

The weighted-average number of shares of common stock2010

161,764

161,434

Yen
2009

Net income (loss) per share¥(6.32)

U.S. Dollars
2010

2010

¥

(16.01)$(0.17)The Companies have no dilutive securities for the years ended March 31, 2009 and 2010.

14. Cash and Cash Equivalents:
Cash and cash equivalents at March 31, 2009 and 2010 consist of:Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

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

¥
¥

30

22,474(6)
22,468¥¥12,062(6)
12,056$$

129,624(66)
129,558

15. Accounting for Leases:(1) Finance lease We describe what leased before April 1, 2008. As for them, the accounting treatment is done based on usual letting and hiring dealings.
As a lessee
As described in note 2(15), finance leases of the Companies, other than those where ownership of the leased assets are transferred to thelessee, are accounted as buying and selling trade. Leases acquired before April 1, 2008 are accounted for as operating leases. Periodic leasecharges to the Companies, which were charged to profit or loss for the years ended March 31, 2009 and 2010 are ¥266 million and ¥217 million($2,333 thousand).
The leased assets under financial leases, if capitalized, at March 31, 2009 and 2010 comprise the following:
Millions of Yen
2009
Machineryand vehicles

Acquisition cost
Accumulated depreciation
Net book value

¥
¥

1,536
697
839

Other

¥
¥

Thousands of U.S. Dollars
2010

2010

330
204
126

Machineryand vehicles

¥
¥

1,517
837
680

Machineryand vehicles

Other

¥

268
201
67

¥

$

Other

$

16,303
8,991
7,312

$

2,872
2,155
717

$

Depreciation expenses of those leased assets for the years ended March 31, 2009 and 2010, which are computed by the straight line
method over the periods of those finance leases with no residual value, are ¥266 million and ¥217 million ($2,333 thousand), respectively.
The amounts of outstanding future lease payments due at March 31, 2009 and 2010, which include the portion of interest thereon, aresummarized as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Due within one year
Due after one year
Total

¥
¥

217
747
964

¥
¥

199
548
747

$

2,142
5,886
8,028

$

(2) Non-cancelable operating leases As a lessee
The amounts of outstanding future lease payments under non-cancelable operating leases at March 31, 2009 and 2010, are summarized
as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Due within one year
Due after one year
Total

¥
¥

31

17
27
44

¥
¥

22
12
34

$
$

236
128
364

FINANCIAL SECTION

16. Derivatives:(1) Derivatives transaction to which hedging accounting is not applied.
The contracted amount, fair value and unrealized gains/losses of the forward exchange contract recognized for the year ended March 31, 2009
was as follows:
Millions of Yen
Contract
AmountForward exchange contract:
Selling
U.S. Dollars
Japanese Yen
Total

¥

4
9
13

¥

127
81
208

¥

¥

BuyingU.S. Dollars
Japanese Yen
Total

¥
¥

Unrealized
Gains/losses

Fair value

4
9
13

¥

127
81
208

¥

¥

¥

(0)
(0)
(0)

¥

(0)
(0)
(0)

¥

The contracted amount, fair value and unrealized gains/losses of the forward exchange contract recognized for the year ended March 31, 2010is as follows:
Millions of Yen
Contract
AmountForward exchange contract:
BuyingU.S. Dollars
Japanese Yen
Total

¥
¥

137
67
204

Fair value¥¥(2) Derivatives transaction to which hedging accounting is applied.
Derivatives transaction to which hedging accounting is applied is as follows:
Method of hedging accounting
Kind of derivatives transaction

137
67
204

Thousands of U.S. Dollars

Unrealized
loss

¥
¥

(0)
(0)
(0)

Contract
Amount$$Unrealized
loss

Fair value

1,467
724
2,191

$

$

1,466
722
2,188

$

(1)
(1)
(2)

$

Processing of exception of interest rate swap
Interest swap transaction
Payment fixation, Receipt change

Long-term debt
The main hedged items¥10,500 ($112,843)
Amount of contract¥9,770 ($104,997)
1 year or more of amount of contract※
Fair value※ Because the interest rate swap by the exception processing is processed the money borrowed for long term made a hedge object and on
earth, the value at that time is included and described to the quotation of a long-term loan concerned.

17. Contingent Liabilities:
Guarantees against bank loans of employee and an affiliate at March 31, 2009 and 2010 are as follows:
Thousands of
U.S. Dollars
2010

Millions of Yen
2009
2010

Employee
Advanced Green Components, LLC
Total

¥
¥

90
557
647

¥
¥

79
367
446

$
$

845
3,944
4,789

Notes-discounted with banks and notes-endorsed, as of March 31, 2009 and 2010, stand at ¥250 million and ¥124 million ($1,335 thousand),
respectively. Notes-discounted with banks and notes-endorsed are netted against "Notes and accounts receivable, trade" in the consolidatedbalance sheets.

3218. Segment Information:(1) Industry segment information The industry segment information for the years ended March 31, 2009 and 2010 are as follows:
For the year ended March 31, 2009
Millions of Yen
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Costs and expenses
Operating income¥

146,679
8,551
155,230
150,267
4,963

Formed &Fabricated Materials¥

15,642

Other

¥

̶

¥

162,735
10,378173,113
168,031
5,082¥(10,378)(10,378)(10,444)
66

¥
¥
¥
¥

121,333
8,843
108
9,882

¥
¥
¥
¥

¥

¥

414
1,827
2,241
2,175
66

(b) Assets, depreciation, loss on impairment of fixed assets and capital expenditures:
Assets
10,271 ¥¥ 110,610 ¥Depreciation
692 ¥¥8,116 ¥
̶
Loss on impairment of fixed assets¥
77 ¥¥Capital expenditures¥
9,039 ¥
840 ¥

452
35
31
3

¥

¥

̶

¥

15,642
15,58953

Elimination andcorporate assets

Total

Consolidated
total

¥

162,735¥

162,735
157,587
5,148

26,446 ¥(11) ¥̶¥(19) ¥

147,779
8,832
108
9,863

̶

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

Other

¥

—

¥

10,96911,714(745)¥(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

¥

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¥¥¥¥Consolidated
total

95,517—

95,517
99,463(3,946)
159,733
9,216—

12,722Thousands of U.S. Dollars
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Costs and expenses
Operating income$

907,996
79,632
987,628
1,021,990$(34,362)

Formed &Fabricated Materials$

117,886

Other

$

—

$

117,886
125,898(8,012)$(b) Assets, depreciation, loss on impairment of fixed assets and capital expenditures:
Assets$ 1,372,926 $ 133,734 $Depreciation$
92,879 $
6,250 $——
Loss on impairment of fixed assets$$$
Capital expenditures$ 135,029 $
1,750 $

33

Elimination andcorporate assets

Total

Consolidated
total

625
9,311
9,936
9,621
315

$ 1,026,507 $
88,943
1,115,450
1,157,509$(42,059) $—$ 1,026,507—(88,943)(88,943)
1,026,507(88,594)
1,068,915(349) $
(42,408)

4,901
55$ 1,511,561$99,184—$$ 136,803

205,075 $ 1,716,636(139)$99,045——$(83) $ 136,720

—

24

$
$
$
$

FINANCIAL SECTION(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, 2009 and 2010, and combined sales for the years then ended, the Companies are not required todisclose the geographical segment information.

(3) Overseas sales Overseas sales information for the years ended March 31, 2009 and 2010 are as follows:
For the year ended March 31, 2009
Millions of Yen
NorthAmerica

Asia

Overseas sales (A)Consolidated sales (B)(A) / (B)¥19,862¥Europe3,920¥

Others

2,973

¥

Total

273

̶

̶

̶

̶

12.2%

2.4%

1.8%

0.2%

¥ 27,028¥ 162,375
16.6%

Note to overseas sales:
Principal countries in each area where customers are located are as follows:Asia: Taiwan, Korea, China, Thailand, India
North America : U.S.A.
Europe: Germany, Norway, Turkey
For the year ended March 31, 2010
Millions of Yen
NorthAmerica

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%

Thousands of U.S. Dollars
North
America

Asia

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

$ 134,424$

Europe14,393$

Others

9,603

$

Total

1,878

̶

̶

̶

̶

13.1%

1.4%

0.9%

0.2%

Note to overseas sales:
Principal countries in each area where customers are located are as follows:Asia: Taiwan, Korea, China, Thailand
North America : U.S.A.
Europe: Germany, Norway34$ 160,298$ 1,026,507
15.6%

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. andconsolidated subsidiaries as of March 31, 2010 and 2009, and the related consolidated statements ofoperations, changes in net assets and cash flows for 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 the
consolidated financial statements are free of material misstatement. An audit includes examining, on atest basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the consolidated financial position of Sanyo Special Steel Co., Ltd. and subsidiaries as of March
31, 2010 and 2009, and the consolidated 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 the following.
(1) As described in Note 2(5) to the consolidated financial statements, effective April 1, 2008, SanyoSpecial Steel Co., Ltd. and consolidated domestic subsidiaries adopted the new accounting standards
for measurement of inventories.
(2) As described in Note 2(6) to the consolidated financial statements, effective April 1, 2008, SanyoSpecial Steel Co., Ltd. changed the depriciation method for structures, machinery, equipment,
vehicles and tools at No.2 Melt Shop and No.2 Bar, Wire Rod and Wire Mill Shop.
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year
ended March 31, 2010 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.

Tokyo, Japan
June 29, 201035

CORPORATE DATA

Complete View of our Head Office / Plant

Corporate Data
(As of March 31, 2010)

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

2,728 (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, loanable stock)

Book Closing

March 31

Number of Shareholders

18,836

Branches and Offices

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

Consolidated Subsidiaries and Equity-Method Affiliates(As of March 31, 2010)

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)

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

Manufacturing of special steel products (formed & fabricated materials)

36

Directors and Auditors(As of June 29, 2010)

Representative Director and President

Nobuyoshi Fujiwara

Senior Managing Director

Tetsuo Kiriyama

Nobuyuki Tanaka

Managing Director

Yutaka Tsukamoto

Hiroaki Kimura

Hideki Nakamura

Director

Katsumi Mizuta
Akihiko Yanagitani

Shinichi Tominaga
Hiroyuki Eiyama

Wataru Nishihama
Masaharu Kobayashi

Tetsuji Shigemori (Standing Corporate Auditor)
Masatoshi Murakami*
Takeshi Yoshii*

Corporate Auditor

Tatsuro Isomoto

Seiji Tsutsumi
Shinji Shibao*

Hideyuki Sasaki** Outside Corporate Auditor

Principal Shareholders(As of March 31, 2010)

Name of Shareholder

Number of Shares Held (thousands of shares)

Percentage of Voting Rights (%)

Nippon Steel Corporation

24,256

15.15

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

12,3807.73

Japan Trustee Services Bank, Ltd. (trust account)

11,786

7.36

Company’s Kyoeikai Association

8,154

5.09

NSK, Ltd.

7,470

4.66

Sumitomo Mitsui Banking Corporation

5,696

3.56

Japan Trustee Services Bank, Ltd. (trust account 9)

3,889

2.43

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

Notes: (1) The number of shares omits fractions of less than 1,000 shares.
(2) The Company holds 5,715 thousand shares of its own stock in treasury, but is excluded from the above list of major shareholders.

Shareholder Composition (thousands of shares)
Treasury stocks
5,715 3.4％

Financial institutions
63,156 37.8％

Individuals and others
35,983 21.5％

Foreign investors
9,591 5.7％

Total numberof shares issued
167,124
100％

Securities firms
1,105 0.7％

Other domestic corporations
51,571 30.9％

37