MESSAGE FROM PRESIDENT
Since its founding in 1933, Sanyo Special Steel Co., Ltd. (“Sanyo Special Steel”) has been a stable supplier of high-quality
special steel.
Our steel products fulfill a high level of confidence and are applied to a broad range of important industrial parts in suchareas as automobiles, industrial machinery, railways and wind-power generation equipment. Bearing steel, our mainstay
product, enjoys a particularly high reputation in many countries for its superior quality and confidence.
Our corporate philosophy is based on “Confidence-based Management” and Sanyo Special Steel aims to establish“Confidence of society,” “Confidence of customers” and “Confidence among people.”
Our mission is to contribute to the development of society by providing “Steel You Can Count On” which has earned ahigh degree of confidence from the market in all aspects including development, quality, and stable supply, based on our
corporate philosophy.
Companies must perform both economically and socially if they are to succeed.
We intend to enhance the brand power of “Sanyo Special Steel – the Confident
Choice,” and bring our business to the next level as we fulfill our responsibilities
as members of society, which include implementation of global environment
measures and corporate missions.
We will continue to promote faithful, fair, and transparent corporate
management, and to increase the value of our company and earn theconfidence of all stakeholders by fulfilling our economic and social
missions.

Shinya Higuchi

Contents

Representative Director
and President

02

Message From President

10

Corporate Governance03

Corporate Philosophy

12

CSR Activities

04

Analysis of Results of Operations and Financial Condition

14

Research and Development

05

Consolidated Financial Highlights

16

Topics06

Segment Information

18

Financial Section

08

The 9th Medium-term Business Plan

46

Corporate Data

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

Corporate Philosophy
Confidence-based Management

Confidenceof Society

Confidenceof Customers

Confidence
among People“Confidence of society”
We aim to acquire the confidence of society by contributing to the realization of an affluent and culturally rich society and fulfilling oursocial responsibilities through our "high-quality special steel manufacturing.”“Confidence of customers”
We aim to earn the confidence of customers by rapidly ascertaining exactly what their needs are and providing them with high-quality
special steel products.

“Confidence among people”
We aim to build the confidence among people by deepening communication with all of our stakeholders and acting autonomously in
conformity with social norms.

Sanyo Special Steel -the Confident Choice

Development

Quality

Stable Supply“Development”
We are determined to create the future of steel by taking the lead in research and by developing superior products/technologies that
add to our brand power, in response to customer needs ascertained by a thorough analysis of customer information.

“Quality”
We aim to win a high level of customer confidence by further increasing the already unsurpassed cleanliness of our steel and bystrengthening quality control.

“Stable Supply”
By creating efficient manufacturing processes that allow increased production capacity, we are committed to the stable supply ofhigh-quality special steel that meets the requirements of customers.

03

Analysis of Results of Operations and Financial Condition
Fiscal years ended March 31

FY2015 Overview
The Japanese economy in FY2015(Financial Year ended March 31, 2016) was on a moderately recovering trend, showing improvements
in corporate earnings and employment thanks to the government's economic stimulus measures and the Bank of Japan's monetaryeasing. However, the future of the economy remained uncertain, due mainly to a downturn in emerging countries including China andfinancial market volatility.
Demand in the special steel industry was lower than that in the previous term due primarily to a decline in output and inventory
adjustment in our major customer sectors, automobile and industrial equipment sectors.
In such circumstances, the net sales of Group for the fiscal year decreased by 22,346 million yen year on year to 149,148 million yen,
due mainly to a decrease in the sales volumes and the drop in prices associated with the iron scrap surcharge system. While the sales
volumes decreased, ordinary income increased by 1,805 million yen year on year to 11,540 million yen, mainly by virtue of a drop in raw
material and fuel prices, a decrease in depreciation and cost reduction efforts. ROS (return on sales) for the fiscal year improved to 7.7%
(5.7% for the previous year). Net income attributable to owners of the parent increased by 869 million yen year on year to 7,416 million
yen, and ROE (return on equity) for the fiscal year improved to 6.6% (6.1% for the previous year).

FY2016 Outlook
The operating environment surrounding the Group is expected to remain challenging, including effects of a slowdown in emerging
economies, financial market volatility, intense global competition in the special steel industry, continued inventory adjustments in our
major customer sectors and a concern for a rise in raw material and fuel prices. The Japanese economy is expected to recovermoderately.
In such circumstances, the Group will take extraordinary efforts to establish a corporate structure capable of stably and globally
supplying high-quality special steel that meets customers’ exact needs by ensuring that production responds to demand trends,
implementing aggressive internal cost-cutting measures, and stepping up efforts to strengthen non-price competitiveness.
By considering all of these factors, the Group expects its earnings for the next term with net sales to be 142,000 million yen, ordinary
income to be 12,300 million yen, and net income attributable to owners of the parent to be 8,200 million yen.

Profit Distribution to Shareholders
Our basic policy on profit distribution is to reward our shareholders by increasing the profits available for distribution while strengthening
our business foundation. Concerning dividend payment, we intend to meet our shareholders' expectations, primarily by distributing
profits based on periodic business performance while giving due consideration to both the payout ratio and the amount of funds requiredfor investments and other activities to enhance our corporate value. Our standard of profit distribution is a consolidated payout ratio of
20% to 30%, and we pay dividends at the end of the 2nd quarter and the end of fiscal year.
Regarding dividends for the current term, we paid a dividend of 12 yen per share annually according to the basic policy, since net
income attributable to owners of the parent reached 7,416 million yen for the current year. As we implemented a dividend of 6 yen per
share as the interim dividend, a year-end dividend was 6 yen per share.
Regarding dividends from the next term onward, although we will pay dividends in line with periodic business performance according
to the basic policy, please be advised that the specific amounts have not yet been decided. We would ask our shareholders for theircontinued support and understanding.

04

CONSOLIDATED FINANCIAL HIGHLIGHTS
Sanyo Special Steel Co., Ltd. and consolidated subsidiaries
ChangeFY2013

FY2014FY2015FY2015FY2014 / FY2015

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

(Thousands of
US Dollars)＊1¥ 161,587¥ 171,495¥ 149,148-13.0$ 1,324,351

Operating income

6,884

9,170

12,18832.9

108,225

Ordinary income

6,749

9,735

11,54018.5

102,471

Net income attributable to owners of the parent 4,066

6,548

7,417

13.3

65,856(Millions of Yen)(%)

Net sales

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

Net assets ＊2

102,905

113,644

113,141-0.4

1,004,623

Total assets

203,522202,243

179,899-11.0

1,597,396(%)

Financial Indicator(%)

ROS ＊3

4.2

5.7

7.7

2.0

7.7

ROE ＊4

4.1

6.1

6.6

0.5

6.6

ROA ＊5

3.4

4.8

6.0

1.2

6.0

Net D/E Ratio ＊6

0.46

0.29

0.13

-0.16

0.13

(Yen)

(%)

(US Dollars)＊1

Net income per share

25.21

40.60

46.00

13.3

0.41

Net assets per share

633

700

697

-0.4

6.19

Cash dividends per share

5.00

10.00

12.00

20.0

0.11

* 1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥112.62=US$1, the approximate rate of exchange on March 31, 2016.
* 2 Non - controlling interests are included in net assets.
* 3 Ordinary income to Net sales* 4 Net income attributable to owners of the parent to Net assets* 5 Ordinary income to Total assets* 6 Net debt equity ratio - (gross interest-bearing debt - cash and deposits) / equity

Net sales

Ordinary income(Millions of Yen)

(Millions of Yen)

Net income attributableto owners of the parent(Millions of Yen)

200,000

12,000

11,540

8,000
7,417

10,996
171,800

150,000

171,495
161,587

9,735
149,148

6,548

6,408

6,000

138,306

8,000
6,749

100,000

4,066

4,000
4,000

50,000

2,000
1,670
509

0

FY2011 FY2012 FY2013 FY2014 FY2015

0

FY2011 FY2012 FY2013 FY2014 FY2015

05

0

FY2011 FY2012 FY2013 FY2014 FY2015

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

FY2015 Overview
Net sales decreased by 18,540 million yen year on year to 133,641 million yen, mainly because the sales
volumes decreased from the previous term and sales prices dropped due to the iron scrap surcharge
system. Operating income surged by 2,722 million yen year on year to 8,778 million yen, mainly due to adrop in raw materials and fuel prices, a decrease in depreciation and cost reduction efforts despite adecrease in the sales volume.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

200,000

9,000

150,000

144,479

152,181
133,64184.3％(FY2015)

8,778

6,055

6,000

100,000

4,146

3,000
50,0000

0FY2013

FY2014FY2015FY2013

FY2014FY2015Special Materials
The Special Materials segment manufactures and sells heat/corrosion-resistant alloys and powder
metallurgy products, among others.

FY2015 Overview
Net sales decreased by 1,346 million yen year on year to 7,199 million yen mainly because the sales volumes
decreased from the previous term. Operating income decreased by 372 million yen year on year to 1,386
million yen primarily because the sales volumes decreased.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)
8,545

9,000
7,634

2,000

1,758

7,199

1,500

1,386

1,254

6,000
4.8%
(FY2015)

1,000
3,000
500
0

0
FY2013

FY201406

FY2015FY2013

FY2014FY2015

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

FY2015 Overview
Net sales decreased by 4,423 million yen year on year to 16,141 million yen mainly because the sales
volumes decreased from the previous term. Operating income decreased by 411 million yen year on year to
1,288 million yen, due primarily to a decrease in the sales volumes.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

30,000

2,000
1,500

20,56520,00018,964

1,701

1,934

1,288

16,141

10.8%(FY2015)

1,000
10,000500

00FY2013

FY2014FY2015FY2013

FY2014FY2015Other
We provide information processing services through our subsidiaries.

FY2015 Overview
Net sales increased by 10 million yen year on year to 1,680 million yen. Operating income increased by 1 million yen year on year to 58 million
yen. This segment includes information processing service conducted through subsidiaries.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

60

2,000
1,670

1,500
0.1%
(FY2015)

1,267

58

58

FY2014FY2015

52

1,680

40

1,000
20
500

0

0
FY2013

FY2014FY2015FY2013Note:
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

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

Financial Targets(Billions of Yen)FY2013 (Performance)

FY2016 (Target)

161.6

200.0

38.4

Operating income

6.9

15.0

8.1

Ordinary income

6.7

15.0

8.3

Net income

4.1

9.0

4.9

Total assets

203.5

200.0

- 3.5

Interest-bearing debt (net)

47.8

35.0

- 12.8

ROS

4.2%

7.5%

3.3%

ROE

4.1%

7.5%

3.4%

Depreciation

11.0

10.0

- 1.0

EBITDA

17.9

25.0

7.1

Net sales

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

・Unit product price:

D/E ratio

0.46

0.30

- 0.1687,000t/month

100,000t/month

13,000t/month

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

・Margin: ConstantSales volume

08

・Exchange rate: ¥100/US$

Key Action Programs
Steel Business (“Specialty Steel”)

PromoteGrowthStrategy

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

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

Boost non-price competitiveness

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

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

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

Develop humanresources to realize
sustainable growth

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

Investment

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

09

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

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

Concerning business execution, we make decisions on importantmatters and supervise execution of business operations at ordinary
meetings of the Board of Directors (held monthly), comprised of 17
directors (including two outside directors), and extraordinary
meetings of the Board of Directors (held as required). We also set up
company-wide committees to discuss important matters concerning
operations. These include the Corporate Policy Committee (twice amonth in principle) to facilitate efficient decision-making on
management such as at the Board of Directors meetings, the Internal
Control Committee to ensure thorough compliance and solid
corporate governance, the Security & Trade Control Committee, theEnvironment Conservation Committee, and the Corporate Budget
Committee.
Corporate auditors' audits are conducted as necessary based on
auditing policies formulated each year by the Board of Corporate
Auditors. Audits are conducted by three corporate auditors(including two outside auditors) on a broad range of areas, including
not only directors' execution of their duties but also risk management
and compliance from an internal control perspective. Corporate■ Our organizational structure for corporate governance and internal control(As of June 28, 2016)

General Shareholders’ Meeting
Board of Directors(17 directors, including 2 outside director)

Board of Corporate
Auditors

Basic policy of the Internal Control(3 auditors, including
2 outside auditors)（Autonomous internal control）< Operating Department >Representative Director and President

Corporate Policy Committee

Accounting
Auditors(＊3)(accounting firm)

Corporate Committees / Meetings
Supervisory andResponsible Directors

Internal Control Committee
Reward & Punishment Committee

Administration of
the Company’s Business

Internal Control & Inspection
Department Internal Auditing
(＊4)

(＊2)

Subsidiaries, Affiliated Companies(＊1)(＊1) We audit of our subsidiaries and affiliated companies through auditing consolidated financial statements.
(＊2) Each of our subsidiaries and affiliated companies has a supervisory department.
(＊3) We have committees and conference bodies, including the Comprehensive Budget Committee, the Capital Investment Committee and theInvestment and Loan Committee. In addition, we have an internal reporting system “Help Line” to prevent occurrences of compliance violations.
(＊4) Corporate auditors perform inspections as necessary on the operations and asset status of subsidiaries.

10

Development and Management of Internal Control Systems
development and operation of the "Management's Report System on
Internal Control Report over Financial Reporting" as required by the
Financial Instruments and Exchange Act. In this regard, we set up a
working group for internal control management, which is across-functional committee, in order to address risks in financial
reporting, share relevant information, and discuss educationalguidelines, and we are working to reinforce our internal control
systems in order to ensure the adequacy of information in financial
reporting (held three times during FY2015).

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

Board of Directors(As of June 28, 2016)

Representative Director and President

Shinya Higuchi

Senior Managing Director, Member of the Board

Shin-ichi Tominaga Akihiko Yanagitani

Managing Director, Member of the Board

Wataru Nishihama Hiroyuki Eiyama

Director and Senior Advisor, Member of the Board

Yasuo Takeda

Director, Member of the Board

Shigehiro Oi Katsu Yanagimoto Kazuya Shinno Takayo Chiba Takashi Kuwana
Shinobu Kuroishi Kozo Omae Shunsuke Kano（＊1） Yusaku Omori（＊1）

Corporate Auditor

Hiroaki Kimura(Standing Corporate Auditor)

Kazuhiko Nagano Kozo Takahashi

Katsuaki Ohe（＊2）

Masaki Iwasaki（＊2）（＊1）Outside Director（＊2）Outside Corporate Auditor

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

The Company has adopted the “Rules on Large-scale Acquisition of
Sanyo Special Steel’s Shares.”
These rules were established for the purpose of securing sufficient
time and information for the Board of Directors to examine theconditions of acquisition proposals and offer alternative plans so that
our shareholders can make “informed judgment” (an appropriate
judgment based on sufficient time and information) and preventing
inappropriate large-scale purchases of shares that may damage theCompany’s corporate value and the common interests of theshareholders.
We believe that those who control the Company’s decisions on
financial matters and business policies should fully understand theCompany’s “Basic Management Policy” and consistently seek to11

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

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

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

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

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

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

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

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

Factory visit targeting neighboring elementary
school students

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

12

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

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

Our original maternity working wear

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

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

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

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

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

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

Introducing battery-powered company cars

13

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

RESEARCH AND DEVELOPMENT
We use findings accumulated through basic research to develop materials, production processes, evaluation and analysis technologies, andpremium products and technologies that meet customer needs for reliability, and to expand the capacity for innovation.
Utilizing our wealth of expertise in the production of advanced clean steel, we develop products of superior quality and dependability that are
differentiated by their high functions, as well as materials and technologies that reduce the environmental impact of our customers’
manufacturing processes and product use.
Computer Aided Engineering is employed to develop production processes that ensure steel with the properties and availability that inspire
confidence.
We will continue our research in order to promptly and accurately respond to the changing needs of our customers and society, promoteadvanced technological innovation, and open up new frontiers for special steels.

Expanded capacity
Expandedcapacity forfor innoavation
innoavation
Development of premium products & technologies
to meet customer needs for high reliability

Development of materials

Development of production
processes

Basic Research

14

Development of evaluation &analysis technologies

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

Casting dies

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

15

Pierce punchTopics
Decision to construct the state-of-the art second metal powder factory
Response to the expansion of the metal powder market,
high purification needs, and the creation of a new market
The Company has decided to construct the second metal
powder factory with a high level of cleanliness within the head
office factory to respond to the expanding metal powder market
due to the increasing demand for 3D printers, among others,
that may innovate the manufacturing business and increase theneed for high reliability and purity, mainly in the electronic
component sectors and in the new market for metal powder.
The Company will introduce 2 high-purity vacuum
induction-melting inert gas atomizers and one of the mostadvanced disk atomizer in the second metal power factory for
research and development related to manufacturing and using
highly spherical powders of high-melting point materials, andpromote its efforts to grow the metal powder business andexpand advanced technology further.

Image of the second metal powder factory

Highly spherical metal powder(electron microscope photo)

Examples of 3D-printer shaping

Incorporation of a local subsidiary to manufacture andsell formed and fabricated materials in Mexico
Advancement into the large market across the Pacific Ocean
We incorporated a local subsidiary, “Sanyo Special Steel Manufacturing de México,
S.A. de C.V.” which manufactures and sells formed and fabricated materials in
Mexico to commence the company’s business operations.
Schematic view of the factory buildings
The construction of a manufacturing facility with integrated production processesof forging, machining and heat treatment to produce formed and fabricated materials
began on April 5, 2016 on the planned site in Abasolo, Guanajuato, a major base of the local automobile industry.
A number of Japanese and western bearing manufacturers have recently entered the Mexican market, raising expectations for an
increase in demand for the upstream processes for producing bearings in Mexico over the medium- to long-term.
Under its 9th medium-term business plan (fiscal 2014 to fiscal 2016), Sanyo aims at strengthening the non-steel business including theformed and fabricated materials business. The Company has been implementing measures to expand the sales of the formed and fabricatedmaterials business to 1.5 times those in fiscal 2013.
The Company’s decision to advance into Mexico will result in having the Formed and Fabricated Materials segment operate plants in six places:
Japan (Santoku Tech Co., Ltd.), China (Ningbo Sanyo Special Steel Products Co., Ltd.), the United States (Advanced Green Components, LLC),
India (Mahindra Sanyo Special Steel Pvt. Ltd.), Thailand (Siam Sanyo Special Steel Product Co., Ltd.), and Mexico (Sanyo Special Steel
Manufacturing de México, S. A. de C. V.). The Company will promptly build a supply-chain in a growing market and meet the needs of customers
to expand the global business, boosting the formed and fabricated materials business.

Die steel for die casting molds “QDX-HARMOTEX” obtained NADCA certification
Recognized material design and manufacturing technology of “QDX-HARMOTEX” lead us to expect
more applications of the developed steel to die casting molds
The Company’s high-reliability die steel for die casting molds,“QDX-HARMOTEX” was accredited as a high-strength grade die
steel for die casting by the NADCA (North American Die Casting
Association) and added to the steel type list in January 2016.
“QDX-HARMOTEX” is die steel for die casting molds withvarious high-level properties required for die casting moldmaterials. NADCA certification is proof that the Company’s die
steel for die casting molds is a high quality steel that meets
NADCA’s strict quality standards. Accordingly, we see this asrecognition of the Company’s material design andmanufacturing technology.

Reference
Die casting
Die casting is a casting method to mold molten metal via rapid injection into amold with high pressure, followed by rapid solidification. In recent years, it has
been possible for aluminum and magnesium die cast molded products toincreasingly appear in automobile parts and electronic equipment components.
Further strengthening and/or thinning of parts and sped up part molding demandhigh-quality mold materials to endure severe conditions in use.
NADCA (North American Die Casting Association)
NADCA is an association for the U.S. die casting industry. The NACDA’s standards
are known internationally quality standards for die steel for die casting molds.
Registration in the NADCA’s steel type list may be one requirement for adoption
as a material for die casting molds worldwide.

16

Start of commercial production by SSSP,
a formed & fabricated materials subsidiary in Thailand
Response to increasing demand for special steel in the Southeast Asia
The Company’s subsidiary in Thailand, SSSP (Siam Sanyo Special Steel
Product Co., Ltd.), which manufactures and sells formed and fabricatedmaterials (turned rings for bearings), commenced commercial production.
SSSP imports forged rings and cut rings manufactured by Our groupcompanies and sells those materials to bearing manufactures after turning.
Japanese bearing companies are expanding production capacity in Thailand
for automobiles in South-East Asia and are expected to gain momentum inthe future. The beginning of commercial production at a local formed andfabricated materials business base allows the Company to respond further
to the needs of its customers that develop business internationally.
At the opening ceremony held on February 3, 2016, President Takeda
expressed his gratitude to the parties who supported and contributed to thelaunch of SSSP’s business and requested guests to use SSSP as a base to
procure anything for customers in order to meet the needs of customers thatdevelop business globally.

Company officials and SSSP staff attended the ceremony

A new warehouse for products
Completed construction of physical distribution facility toconcentrate finished goods inventory and improve work efficiency
The Company completed construction of a new warehouse adjacent to the head office factory in April 2016.
This warehouse can store approximately 16,000
tons of special steel. The appearance of warehousebuilding took the Company’s corporate image into
account; corporate color blue with the Company’s
mascot “Santo-kun.”
Completing the new warehouse enabled adecentralized finished goods inventory stored in theneighborhood of the factory to be concentrated in the
new warehouse. In addition, the company adopted astorage space control system in the new warehousethat has further improved work efficiency.
Appearance of the new warehouse building

The Company’s mascot “Santo-kun”

Presentation at the “Third Highly-functional Metal Exposition”
The Company provided a promotional presentation of advanced highly functional materials at
an exhibition that gathers the most advanced metal technologies
The Company provided a promotional presentation of its metal powder
products developed in its special material business and advanced
highly-functional materials such as its heat- and corrosion-resistant alloys
at the “Third Highly-functional Metal Exposition” at Tokyo Big Sight in April
2016.
Metal powder is an advanced highly functional material with uses in awide range of sectors, from automobile and industrial machinery toelectronic components. The Company provides low-impurity,
highly-spherical, functional and reliable metal powder products. The heatand corrosion-resistant alloys are high-performance materials that canstand extremely severe conditions, and used for boilers for thermal power
plants and pipes in chemical plants.

17

Approximately 1,400 visitors stopped by the booth exhibiting
the Company’s products and materials, which revealed ahigh level of interest in the Company’s high-performance materials.

FINANCIAL SECTION
19

Analysis of Balance Sheets
Analysis of Cash Flows

20 Financial Statements

45 Independent Auditor’s Report18

Analysis of Balance Sheets

Total assets stood at 179,898 million yen at the end of FY2015(Financial Year ended March 31,2016), down 22,344 million yen from the end of the previous term, which is due primarily to
reductions in trade receivables, inventories, available-for-sale securities and net defined benefit
assets.
Liabilities stood at 66,758 million yen, down 21,840 million yen from the end of the previous
term, due primarily to loan repayments and a decrease in trade payables.
Net assets stood at 13,140 million yen, down 503 million yen from the end of the previous
term, due mainly to reduced valuations on available-for-sale securities and re-measurementsof retirement benefits despite an increase in accumulated profit resulting from net income
attributable to owners of the parent.
Consequently, the D/E ratio (the ratio of interest-bearing liabilities to net assets after
deducting cash and deposits) reached 0.13 at the end of the FY2015 term (0.29 at the end of
the previous term).

Analysis of Cash Flows

Concerning the status of cash flows in FY2015(Financial Year ended March 31, 2016), the net
cash provided by operations was 28,770 million yen (an increase of 8,072 million yen from theprevious term), due primarily to a decrease in trade receivables (8,517 million yen), inventories(8,904 million yen), trade payables (negative 4,247 million yen), and payment of corporate taxes(negative 4,828 million yen) in addition to net income before taxes (11,131 million yen) anddepreciation (9,343 million yen).
The net funds used in investing activities were 8,510 million yen (an increase of 2,636 million
yen from the previous term), due mainly to capital investments for acquiring tangible fixed
assets to save energy and labor and to update existing facilities and other tasks (negative
7,089 million yen).
The net funds used in financing activities were 18,807 million yen (a 1,380 million yen
increase in the deficit from the previous term), due partly to a decrease in loans payable(negative 16,681 million yen).
Consequently, cash and cash equivalents at the end of FY2015 were 20,628 million yen (a1,302 million yen increase from the end of the previous term).

19

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

CONSOLIDATED BALANCE SHEETSAs of March 31, 2015 and 2016
Thousands of U.S.
dollars (Note 3)

Millions of yen

ASSETS

2015

2016

2016

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

20,010¥22,179$196,941

Notes and accounts receivable, trade (Note 5)49,196

40,532359,897

Electronically recorded monetary claims

3,127

3,196

28,379

(7)

(11)

(94)

Inventories (Note 7)

46,704

37,630334,129

Deferred tax assets (Note 12)

1,640

1,804

16,021

616

805

7,141

121,286

106,135

942,414

7,739

7,723

68,577

Less: Allowance for doubtful accounts

Other
Total current assets

Property, Plant and Equipment:
Land (Note 9)
Buildings and structures (Note 9)46,86047,676423,338

Machinery and equipment (Note 9)

206,519

210,118

1,865,719

Construction in progress

739

2,613

23,202

261,857

268,130

2,380,836(201,570)(207,943)(1,846,412)

60,28760,187534,424

957

1,178

10,462

Investments in securities (Notes 5, 6 and 8)

12,767

9,245

82,094Long-term loans receivable

1,210

1,007

8,944

Deferred tax assets (Note 12)

160

166

1,478

4,960

1,373

12,193

776

766

6,789

Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

Investments and Other Assets:

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

Total assets

The accompanying notes are integral parts of these statements.

20

(160)

(158)

(1,402)

19,713

12,399110,096

179,899$ 1,597,396

202,243¥

Thousands of U.S.
dollars (Note 3)

Millions of yen

LIABILITIES AND NET ASSETS

2015

2016

2016

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

28,160¥14,783$

131,266

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

6,293

13,940123,779

Notes and accounts payable, trade (Note 5)

15,533

11,713104,000

Accounts payable, other

4,143

6,197

55,025

Accrued income taxes

3,062

2,205

19,580Accrued expenses

7,285

7,204

63,969

Other

1,799

1,318

11,701

66,27557,360509,320

18,842

7,831

69,535

Total current liabilities

Long-term Liabilities:
Long-term loans (Notes 5, 9 and 10)

87

52

465

2,683

767

6,812

Net defined benefit liabilities (Note 11)

553

592

5,253

Other

159

156

1,388

Total long-term liabilities

22,324

9,398

83,453

Total liabilities

88,59966,758592,773

Accrued directors' and corporate auditors' retirement benefits
Deferred tax liabilities (Note 12)

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

Issued - 167,124,036 shares

20,183¥

20,183$

179,211

Capital surplus

22,59722,597200,650

Retained earnings

64,171

69,492

617,046

Less: Treasury stock, at cost (5,871,797 shares in 2015 and 5,922,766 shares in 2016)(1,813)(1,841)(16,350)

105,138

110,431980,557

4,294

1,678

14,899Total shareholders’ equity

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

−

3

23

Foreign currency translation adjustments

1,808

1,492

13,246

Remeasurements of defined benefit plans

1,557(1,295)(11,496)

7,659

1,878

16,672

847

832

7,394

113,644

113,141

1,004,623

Deferred gains on hedges

Total accumulated other comprehensive income

Non-controlling Interests
Total net assets¥

Total liabilities and net assets

The accompanying notes are integral parts of these statements.

21

202,243¥

179,899$

1,597,396

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

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2015 and 2016
Thousands of U.S.
dollars (Note 3)

Millions of yen

2015

Net Sales
Cost of Sales (Note 14)¥

Gross profit

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

2016¥

171,495
148,952
22,543

2016

149,148
123,911
25,237$

1,324,351
1,100,259
224,092

13,373
9,170

13,04912,188115,867
108,225

214
910
441
1,565

258
−
575
833

2,291
−
5,110
7,401

(506)
−
(289)
(205)
(1,000)
9,735

(360)
(387)
(377)
(357)
(1,481)
11,540(3,199)(3,436)(3,347)(3,173)(13,155)
102,471

273
(394)
634
−
513
10,248

−
(389)
−
(20)
(409)
11,131−(3,458)−(174)(3,632)
98,839

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

3,837
(155)
3,682
7,449

34,077(1,377)32,70066,139Other Income:Interest and dividend
Exchange gains
Other

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

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

Income Taxes (Note 12):Current
Deferred
Net income

Net income Attributable to Non-controlling Interests
Net income Attributable to Owners of the Parent

¥

75
6,548

¥

32
7,417

Yen

2015

$

283
65,856

U.S. dollars (Note 3)

2016

2016

Per Share:¥¥¥

Net income (Note 15)
Cash dividends
Net assets

The accompanying notes are integral parts of these statements.

22

40.60
10.00
699.51

46.00
12.00
696.69

$
$
$

0.41
0.11
6.19

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2015 and 2016
Thousands of U.S.
dollars (Note 3)

Millions of yen

2015

Net income
Other Comprehensive Income:¥

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

Comprehensive Income
Comprehensive income attributable to:
Owners of the parent
Non-controlling interests

The accompanying notes are integral parts of these statements.

23

6,623

2016
¥

7,449

2016
$

66,139

1,471
−
692
2,110
316
4,589
11,212(2,616)3(265)(2,852)(91)(5,821)
1,628(23,234)
23(2,346)(25,317)(807)(51,681)
14,458

11,072
140

1,635
(7)

14,514(56)

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

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

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

167,124,036−¥¥

Common stock

Capital surplus¥¥

20,183−

22,596−

The accompanying notes are integral parts of these statements.

24

58,056373

22,59658,429−−−−−−167,124,036

−
−
−
−
−
−
20,183−−−1−
122,597

6,548
(806)
−
−
−
5,742
64,171(1,782)−¥¥Millions of yen
Valuation
Deferred gains
difference onon hedges
available-forsale securities

¥

2,824
−

¥

−
−

¥

Foreign currencytranslation
adjustments

¥

866
−

(1,782)

2,824

−

866

−
−
(32)
1
−
(31)
(1,813)

−
−
−
−
1,470
1,470
4,294

−
−
−
−
−
−
−

−
−
−
−
942
942
1,808

¥

Remeasurementsof defined
benefit plans

Non-controllinginterests

¥

¥

¥

¥

20,183¥

Millions of yen

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

Retainedearnings

167,124,036

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

Millions of yen

(554)
−

716
−

Total

¥

102,905
373

(554)

716

103,278

−
−
−
−
2,111
2,111
1,557

−
−
−
−
131
131
847

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

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2016
Number ofoutstanding
common shares

167,124,036−

Balance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year¥¥

Common stock

Capital surplus¥¥

20,183−

22,597−

The accompanying notes are integral parts of these statements.

25

64,171−

20,183

22,59764,171−−−−−−
20,183−−−0−022,597

7,417(2,096)−−−
5,321
69,492(1,813)−¥¥

Millions of yen
Valuation
Deferred gains
difference onon hedges
available-forsale securities

¥

4,294
−

−
−

¥

¥

Foreign currencytranslation
adjustments

¥

1,808
−

(1,813)

4,294

−

1,808

−
−
(29)
1
−
(28)
(1,841)−−−−(2,616)(2,616)
1,678

−
−
−
−
3
3
3

−
−
−
−
(316)
(316)
1,492

¥

Remeasurementsof defined
benefit plans

Non-controllinginterests

¥

¥

¥

¥

−
−
−
−
−
−
167,124,036¥

Millions of yen

Balance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year

Retainedearnings

167,124,036

Treasury stock,at costBalance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year

Millions of yen

1,557
−

847
−

Total

¥

113,644
−

1,557

847

113,644−−−−(2,852)(2,852)(1,295)

−
−
−
−
(15)
(15)
832

7,417
(2,096)(29)
1(5,796)(503)
113,141¥¥¥

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

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2016
Number ofoutstanding
common shares

167,124,036−

Balance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year

Common stock

Capital surplus$$

179,211−200,645−
200,645569,802

−
−
−
−
−
−
179,211

−
−
−
5
−
5
200,650

65,856(18,612)−−−47,244
617,046(16,097)−$$

Thousands of U.S. dollars (Note 3)
Valuation
Deferred gains
difference onon hedges
available-forsale securities$

38,133−−−$Foreign currencytranslation
adjustments$

16,059−38,133−

16,059

−
−
(259)
6
−
(253)
(16,350)−−−−(23,234)(23,234)
14,899

−
−
−
−
23
23
23

−
−
−
−
(2,813)(2,813)
13,246$

Remeasurementsof defined
benefit plans

Non-controllinginterests

$

$

$

$

(16,097)$

Thousands of U.S. dollars (Note 3)

26569,802−179,211$

The accompanying notes are integral parts of these statements.

$

−
−
−
−
−
−
167,124,036$

Balance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year

Retainedearnings

167,124,036

Treasury stock,at costBalance at beginning of year
Cumulative effects of changes in accounting policies
Balance at beginning of year reflecting changes inaccounting policies
Net income attributable to owners of the parent
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2015, net
Total changes for fiscal year 2015
Balance at end of year

Thousands of U.S. dollars (Note 3)

13,821
−

7,519
−

Total

$

1,009,093−

13,821

7,519

1,009,093−−−−(25,317)(25,317)(11,496)

−
−
−
−
(125)
(125)
7,394

65,856(18,612)(259)
11(51,466)(4,470)1,004,623$$$

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2015 and 2016
Thousands of U.S.
dollars (Note 3)

Millions of yen

2015
Cash Flows from Operating Activities:
Income before income taxes
Adjustments Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Increase (decrease) in net defined benefit liabilities
Increase in net defined benefit assets
Decrease in accrued directors' and corporate auditors' retirement benefits,less payments
Decrease in reserve for environmental measures
Interest and dividend income
Interest expense
Gain on sale of investments in securities
Loss on evaluation of investments in securities and others
Equity in losses of unconsolidated subsidiaries and affiliates
Loss on sale and disposition of property, plant and equipment
Changes in assets and liabilities:
Notes and accounts receivable, trade
Inventories
Notes and accounts payable, trade
Other, net
SubtotalInterest and dividend income received
Interest expense paid
Income taxes paid
Net cash provided by operating activities

¥

2016

10,248¥

11,131

2016$

98,839

9,827
(7)
(139)
(128)

9,343
1
41
(574)

82,96111
367(5,096)

(5)

(35)

(310)

(8)
(214)
506
(634)
−
289
121

−
(258)
360
−
20
377
389

−
(2,291)
3,199
−
174
3,347
3,458

(863)
2,076
786
1,448
23,303215(519)(2,301)
20,6988,518
8,904(4,140)(352)
33,725254(379)(4,829)28,771

75,63579,065(36,760)(3,141)
299,458
2,252(3,365)(42,878)
255,467

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Sale of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments in securities
Sale of investments in securities
Decrease in long-term loans receivable
Increase in over-three-month deposits
Other, net
Net cash used in investing activities(7,113)
349
(313)
−
1,545
203
(242)
(303)
(5,874)(7,089)
52
(413)
(194)
−
203
(325)
(745)
(8,511)(62,949)466(3,671)(1,726)−1,800(2,883)(6,607)(75,570)

Cash Flows from Financing Activities:
Decrease in short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Payments for purchases of treasury stock
Proceeds from sales of treasury stock
Cash dividends
Cash dividends to non-controlling interests
Net cash used in financing activities(2,850)−(13,733)
(32)
2
(804)
(9)
(17,426)(13,332)
2,929(6,278)(29)
1(2,091)(8)(18,808)(118,385)
26,010(55,745)(259)
11(18,564)(70)(167,002)

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

350(2,252)
21,57919,327(150)
1,302
19,327
20,629(1,334)
11,561
171,611
183,172¥

The accompanying notes are integral parts of these statements.

27

¥

$

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

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

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

2. Summary of Significant Accounting Policies(1) Consolidation and investments in affiliates -(2) Foreign currency translation -(a) Scope of consolidation and elimination
The Company has 15 subsidiaries as of March 31, 2016 (14 subsidiaries
as of March 31, 2015). The consolidated financial statements include theaccounts of the Company and 15 of its subsidiaries. The 15 subsidiaries thathave been consolidated for fiscal year 2015 are listed below:

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

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

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

During the year ended March 31, 2016, Sanyo Special Steel Manufacturingde México, S.A. de C.V. was established and newly consolidated.
The consolidated subsidiaries, except for the 7 foreign subsidiaries (SKJ
Metal Industries Co., Ltd., P.T. Sanyo Special Steel Indonesia, Sanyo Special
Steel U.S.A., Inc., Ningbo Sanyo Special Steel Products Co., Ltd., SanyoSpecial Steel Trading (Shanghai) Co., Ltd., Siam Sanyo Special Steel ProductCo., Ltd. and Sanyo Special Steel Manufacturing de México S.A. de C.V.) use
a fiscal year ending March 31, which is the same as that of the Company.
The 7 foreign subsidiaries use a fiscal year ending December 31. For these
7 subsidiaries, certain adjustments are made, if appropriate, in preparing theconsolidated financial statements to reflect material transactions which
occurred between their fiscal year-end and March 31.
For the purpose of preparing the consolidated financial statements, allsignificant intercompany transactions, balances and unrealized profits
among the Companies have been eliminated.
(b) Investments in affiliates
Investments in Advanced Green Components, LLC and Mahindra SanyoSpecial Steel Pvt. Ltd., two affiliates of the Company over which theCompany has significant influence, are accounted for by the equity method.
The equity method has not been applied to the investment in anotheraffiliate since adoption of the equity method for this investment in theaffiliate would not have a material effect on the consolidated net income orretained earnings of the Companies.

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

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

28

value.

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

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

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

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

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

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

The Company adopted “Revised Accounting Standard for Business
Combinations” (ASBJ Statement No. 21, September 13, 2013 (hereinafter,“Statement No. 21”)), “Revised Accounting Standard for Consolidated
Financial Statements” (ASBJ Statement No. 22, September 13, 2013
(hereinafter, “Statement No. 22”)) and “Revised Accounting Standard forBusiness Divestitures” (ASBJ Statement No. 7, September 13, 2013
(hereinafter, “Statement No. 7”)) (together, the “Business Combination
Accounting Standards”) from the current fiscal year. As a result, theCompany changed its accounting policies to recognize in capital surplus thedifferences arising from the changes in the Company’s ownership interest of
subsidiaries over which the Company continues to maintain control and torecord acquisition related costs as expenses in the fiscal year in which thecosts are incurred. In addition, the Company changed its accounting policy
for the reallocation of acquisition costs due to the completion following
provisional accounting to reflect such reallocation in the consolidated
financial statements for the fiscal year in which the business combination
took place. The Company also changed the presentation of net income andthe term “non-controlling interests” is used instead of “minority interests.”
Certain amounts in the prior year comparative information have been
reclassified to conform to such changes in the current year presentation.
With regard to the application of the Business Combination AccountingStandards, the Company followed the provisional treatments in article 58-2
(4) of Statement No. 21, article 44-5 (4) of Statement No. 22 and article
57-4 (4) of Statement No. 7 with application from the beginning of thecurrent fiscal year prospectively.
In the consolidated statement of cash flows, cash flows from acquisition
or disposal of shares of subsidiaries with no changes in the scope of
consolidation are included in “Cash flows from financing activities” and cash
flows from acquisition related costs for shares of subsidiaries with changes
in the scope of consolidation and costs related to acquisition or disposal ofshares of subsidiaries with no changes in the scope of consolidation are
included in “Cash flows from operating activities.”
These changes have had no effect on the consolidated financial
statements or earnings per share of the current fiscal year.

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

(11) Income taxes The asset-liability method is used to recognize deferred tax assets andliabilities for the expected future tax consequences of temporary differences
between the carrying amounts of assets and liabilities and their tax basis.

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

(13) 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 the weighted-average
number of shares of common stock outstanding during the year.
Cash dividends per share shown for each year in the consolidated
statements of operations represent dividends declared as applicable to therespective years rather than those paid during the years.

(14) Cash and cash equivalents Cash and cash equivalents in the consolidated statements ofcash flows are composed of cash on hand, bank deposits able to bewithdrawn on demand and short-term investments with an original maturityof three months or less and which represent a minor risk of fluctuations in

29

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

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS④Treatment for the period which an entity classified as type 3 is able toreasonably estimate with respect to future taxable income before
consideration of taxable or deductible temporary differences that exist at
the end of the current fiscal year
⑤Treatment when an entity classified as type 4 also meets the criteria fortypes 2 or 3(b) Effective date
Effective from the beginning of the fiscal year ending March 31, 2017(c) Effects of application of the Guidance
At present, the Company and its consolidated domestic subsidiaries havenot determined the effects of the new guidance on the consolidated financial
statements.

(18) Accounting standards issued but not yet adopted “Revised Implementation Guidance on Recoverability of Deferred Tax
Assets” (ASBJ Guidance No. 26, March 28, 2016 (hereinafter, “Guidance
No.26”)(a) Overview
Following the framework in Auditing Committee Report No. 66 “Audit
Treatment regarding the Judgment of Recoverability of Deferred Tax
Assets,” which prescribes estimation of deferred tax assets according to theclassification of the entity by one of five types, the following treatments werechanged as necessary:①Treatment for an entity that does not meet any of the criteria in types 1 to 5
②Criteria for types 2 and 3③Treatment for deductible temporary differences which an entity classified
as type 2 is unable to schedule

3. U.S. Dollar Amounts
The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan. These translations
should not be construed as representations that the Japanese yen amounts actually represent or have been or could be converted into U.S. dollars. The rateof ¥112.62 = U.S. $1.00, the approximate rate of exchange as at March 31, 2016, has been used for such translations.

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

Millions of yen

2015
Valuation difference on available-for-sale securities
Increase (decrease) during the year
Reclassification adjustments
Subtotal, before tax
Tax (expense)
Subtotal, net of tax
Deferred gains on hedges
Increase (decrease) during the year
Adjustments for acquisition cost of assets
Subtotal
Foreign currency translation adjustments
Increase (decrease) during the year
Remeasurements of defined benefit plans
Increase (decrease) during the year
Reclassification adjustments
Subtotal, before tax
Tax (expense)
Subtotal, net of tax
Share of other comprehensive income of affiliates accounted for by the equity method
Increase (decrease) during the year
Total other comprehensive income

30

¥

¥

2016

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

¥

2016

(3,248)8(3,240)624(2,616)$(28,845)73(28,772)
5,538(23,234)

−
−
−

(0)
3
3

(1)
24
23

692

(265)

(2,346)

3,082
73
3,155
(1,045)
2,110(3,946)(216)(4,162)
1,310(2,852)(35,033)(1,917)(36,950)
11,633(25,317)

316
4,589

¥

(91)
(5,821)$(807)(51,681)

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

(2) Fair values of financial instruments Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2015 are set forth in the table below. Certain
financial instruments were excluded from the table as the fair values were not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions① Hedge accounting is not applied② Hedge accounting is applied¥

20,01049,196

Fair value¥

Difference

20,01049,196

−
−

¥

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

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

−
−
−
△129

(0)
−

(0)
−

−
−

(※) The debt is displayed by ( ).
Book values and fair values of the financial instruments on the consolidated balance sheet as of March 31, 2016 are set forth in the table below. Certain
financial instruments are excluded from the table as the fair values are not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions① Hedge accounting is not applied② Hedge accounting is applied¥

22,17940,532Thousands of U.S. dollars

Fair value¥

Difference

22,17940,532¥

Book value

Fair value

Difference−−$ 196,941
359,897$ 196,941
359,897

$

−
−

6,426
(11,713)(28,723)(7,831)

6,426(11,713)(28,723)(7,889)−−−△58

57,066(104,000)(255,045)(69,535)

57,066(104,000)(255,045)(70,053)

−
−
−
△ 518

0
−

0
−

−
−

0
−

0
−

−
−

(※) The debt is displayed by ( ).

31FINANCIAL STATEMENTS

1. The method of estimating fair values of financial instruments and matters about investments in securities and derivative transactions.
(1) Cash and bank deposits and (2) Notes and accounts receivable, trade
The book value approximates the fair value because of the short-term maturities of these instruments.
(3) Investments in securities
Market prices and quoted prices are used for equity securities.
See Note 6, “Securities.”(4) Notes and accounts payable, trade and (5) Short-term loans
The book value approximates the fair value because of the short-term maturities of these instruments.
Short-term loans payable includes the current portion of long-term loans.
(6) Long-term loans
The discounted cash flow method is used to estimate the fair value of long-term loans by using marginal borrowing rates as the discount rate.
(7) Derivative transaction
See Note 18, “Derivatives.”
2. Non-marketable securities whose fair values are not available are excluded from investments in securities above. These instruments as of March 31,
2015 and 2016 are as follows:
Thousands of
U.S. dollars

Millions of yen

2015
Shares of subsidiaries and associates
Other securities

¥

2016

2,615
478

¥

2016

2,341
478

$

20,7854,243

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

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

20,01049,196
69,206

1 year or more but
within 5 years

−
−
−

¥
¥

5 years or more but
within 10 years

¥
¥

−
−
−

Ten years or more

¥
¥

−
−
−

The aggregate maturities subsequent to March 31, 2016 for financial assets with maturities are as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

22,17940,532
62,711

1 year or more but
within 5 years

¥
¥

−
−
−

5 years or more but
within 10 years

¥
¥

−
−
−

Ten years or more

¥
¥

−
−
−

Thousands of U.S. dollars
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total$ 196,941
359,897$ 556,838

32

1 year or more but
within 5 years

$
$

−
−
−

5 years or more but
within 10 years

$
$

−
−
−

Ten years or more

$
$

−
−
−

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

Within 1 year

Short-term loans
Long-term loans
Total

¥

34,453−34,453¥5 years or more but
within 10 years−
18,842
18,842¥¥Ten years or more

−
−
−

¥
¥

−
−
−

¥
¥

The aggregate maturities subsequent to March 31, 2016 for short-term loans and long-term loans are as follows:
Millions of yen
Within 1 year

Short-term loans
Long-term loans
Total

¥

1 year or more but
within 5 years

28,723−28,723¥5 years or more but
within 10 years

−
7,831
7,831

¥
¥

Ten years or more

−
−
−

¥
¥

−
−
−

¥
¥

Thousands of U.S. dollars
Within 1 year

Short-term loans
Long-term loans
Total

1 year or more but
within 5 years$ 255,045−$ 255,045

5 years or more but
within 10 years−
69,53569,535$$Ten years or more

−
−
−

$
$

−
−
−

$
$

6. Securities
The Companies recognize impairment losses on available-for-sale 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. For
available-for-sale securities for which fair values are deemed extremely difficult to assess, when the value of those securities substantially declines, theCompanies recognize impairment losses, except for cases where the recoverability of the value of those securities in the future is supported by reasonablegrounds.
Impairment losses recognized for the years ended March 31, 2016 is ¥20 million ($174thousand).

1. The aggregate acquisition costs and fair values (book values) of marketable securities classified as available-for-sale securities as of March 31, 2015 and2016 are as follows:
Millions of yen
2015
Acquisition
cost

Fair value(Book value)

Thousands of U.S. dollars
2016

2016
Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Securities whose book value exceeds acquisition cost:Stock¥ 4,344 ¥ 9,652 ¥ 5,308 ¥ 2,630 ¥ 4,984 ¥ 2,354 $ 23,357 $ 44,255$ 20,898

Securities whose acquisition cost exceeds book value:
Stock
26
22
(4)
1,733
1,442
(291) 15,386
12,811
Total¥ 4,370 ¥ 9,674 ¥ 5,304 ¥ 4,363 ¥ 6,426 ¥ 2,063 $ 38,743 $ 57,066(2,575)$ 18,323

2. Available-for-sale securities sold in the year ended March 31, 2015 and 2016 are as follows:
Millions of yen
2015
Amountsof salesStock¥ 1,547 ¥Realized
gains

Thousands of U.S. dollars
2016

2016
Realized
losses

− ¥

634 ¥

33

Amountsof sales− ¥Realized
gains

− ¥

Realized
losses− $Amountsof sales− $Realized
gains−

Realized
losses$−FINANCIAL STATEMENTS

3. The Companies recognize impairment loss on available-for-sale 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. For
available-for-sale securities for which fair values are deemed extremely difficult to assess, when the value of those securities substantially declines, theCompanies recognize impairment loss, except for cases in which the recoverability of the value of those securities in the future is supported by reasonablegrounds.
Impairment loss recognized for the year ended March 31, 2016 is ¥20 million ($174 thousand).

7. Inventories
Inventories held by the Companies at March 31, 2015 and 2016 consist of the following:Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

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

¥

¥

1,616
6,975
17,533
11,506
37,630$$14,346
61,934
155,678
102,171
334,129

8. Unconsolidated Subsidiaries and Affiliates
Items relevant to unconsolidated subsidiaries and affiliates at March 31, 2015 and 2016 are as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Investments in securities (stocks)

¥

34

2,615

¥

2,341

$

20,785

9. Assets Pledged as Collateral
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2015 and 2016 are as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

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

¥

5,850
5,850

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

¥

¥

4,590
3,506
4,064
12,160

¥

2,925
2,925

$

$

40,76031,13536,083
107,978$

25,972
25,972

10.Short-term Loans and Long-term Loans
Short-term loans at March 31, 2015 and 2016 represent bank overdrafts with weighted-average interest rates of 0.44% and 0.33%, respectively. It is
normal business custom in Japan for short-term borrowings to be rolled over every year. The Company has commitment line contracts for short-term
financing arrangements with 3 financial institutions for an aggregate maximum amount of ¥20,000 million ($177,588 thousand). At March 31 2016, the total¥20,000 million ($177,588 thousand) is unused.
Long-term loans at March 31, 2015 and 2016 consist of the following:Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Loans from banks and other financial institutions due 2016 to 2019 withinterest rates ranging from 0.45% to 1.94% at March 31, 2015 and due 2017
to 2021 with interest rates ranging from 0.22% to 1.94% at March 31, 2016
Other payables due 2016 to 2021 with interest of 4.05% at March 31, 2015
and due 2017 to 2021 with interest of 4.05% at March 31, 2016¥

25,063¥

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

Less: Current portion of long-term loans¥

21,714¥57
21,771(13,940)
7,831$

192,809$505
193,314(123,779)
69,535The annual maturities of long-term loans outstanding at March 31, 2016 are as follows:Year ending at March 31,

Millions of yen

2018
2019
2020
2021

¥

¥

35

15
4,875
8
2,933
7,831

Thousands of
U.S. dollars

$

$

134
43,28775
26,03969,535

FINANCIAL STATEMENTS

11. Retirement Benefits
The Company and certain consolidated subsidiaries have funded or unfunded defined benefit pension plans and defined contribution pension plans for
employee retirement benefits.
The defined benefit corporate pension plans all comprised funded plans that provide lump sum payments or pension benefits based on salary and length ofservice. These plans set up retirement benefit trusts. Some severance indemnity plans, as a result of setting up retirement benefit trusts, are funded, pay
lump sums based on salary and length of service as retirement benefits.
The defined benefit pension plans of certain consolidated subsidiaries calculate net defined benefit liabilities and retirement benefit costs by the simplified
method.
Defined benefit plans(1) Movements in retirement benefit obligations, except plans applying the simplified method:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

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

¥

¥

7,613
−
7,613
446
30
346
(724)
6
7,717

$

$

67,598−67,598
3,963
267
3,075
(6,432)
55
68,526(2) Movements in plan assets, except plans applying the simplified method:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Balance at beginning of year
Expected return on plan assets
Actuarial gain (loss)
Contributions paid by the employer
Benefits paid
Balance at end of year

¥

¥

9,271
139
3,263
3
(101)
12,575¥¥

12,575183(3,599)
1
(75)
9,085

$

$

111,665
1,629(31,958)
10(675)
80,671(3) Movements in liability for retirement benefits of defined benefit plans applying the simplified method:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

36

523
82
(54)
4
555

¥

¥

555
95
(56)
(7)
587

$

$

4,927
841
(493)
(70)
5,205

(4) Reconciliation from retirement benefit obligations and plan assets to liability (asset) for retirement benefits:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Funded retirement benefit obligations
Plan assets¥

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

7,613
(12,575)(4,962)555(4,407)

Net defined benefit liabilities
Net defined benefit assets
Total net liability (asset) for retirement benefits at end of year553
(4,960)(4,407)

¥

¥

¥

7,707
(9,085)(1,378)
597
(781)
592
(1,373)
(781)

$

$

68,436(80,671)(12,235)
5,295(6,940)5,253(12,193)(6,940)(5) Retirement benefit costs:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

435
46
(140)
73
82
496

¥

¥

446
30
(183)
(216)
95
172

$

$

3,963
267
(1,629)(1,918)841
1,524(6) Remeasurements of defined benefit plans:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Actuarial gains (losses)

¥

37

3,155

¥

(4,162)$(36,950)

FINANCIAL STATEMENTS(7) Accumulated remeasurements of defined benefit plans:

Actuarial gains (losses) that are yet to be unrecognized¥Millions of yen
2015
2016

Thousands of
U.S. dollars
2016(2,296)

$

¥

1,866

16,565(8) Plan assets:① Plan assets comprise:
2015

Equity securities
Cash and bank deposits
Bonds
Other
Total

90%
0%
1%
9%
100%

2016

83%
15%
−%
2%
100%

Retirement benefit trusts account for 9% and 10% of total plan assets at March 31, 2015 and 2016, respectively.
② Long-term expected rate of return
Current and target asset allocations and historical and expected returns on various categories of plan assets have been considered in determining thelong-term expected rate of return.

(9) Actuarial assumptions
The principal actuarial assumptions at March 31, 2015 and 2016 (expressed as weighted averages) are as follows:
2015

Discount rateLong-term expected rate of return

0.4%
1.5%

2016

0.4%
1.5%

The Companies do not describe the expected rate of pay increase because they mainly adopt a point basis and the effect on the calculation of retirement
benefit obligations is immaterial.
Defined contribution plans
The Company and certain consolidated subsidiaries have contributed a total of ¥174 million and ¥173 million ($1,535 thousand) to the defined contributionplans for the years ended March 31, 2015 and 2016, respectively.

38

12. Income Taxes
The Companies are subject to a number of different income taxes which, in the aggregate, resulted in a statutory income tax rate in Japan of approximately
33.0% and 32.2% for the year ended March 31, 2015 and 2016, respectively. On March 29, 2016, amendments to the Japanese tax regulations wereenacted into law. Based on the amendments, the statutory income tax rates utilized for the measurement of deferred tax assets and liabilities expected to besettled or realized from April 1, 2016 to March 31, 2018 and on or after April 1, 2018 are changed from 32.2% for the fiscal year ended March 31, 2015 to
30.8% and 30.6%, respectively, as of March 31, 2016.
Due to these changes in statutory income tax rates, net deferred tax assets (after deducting the deferred tax liabilities) decreased by ¥45 million ($397
thousand) as of March 31, 2016, deferred income tax expense recognized for the fiscal year ended March 31, 2016 increased by ¥35 million ($310
thousand), unrealized holding gains on securities increased by ¥20 million ($178 thousand) and accumulated remeasurements of defined benefit plansdecreased by ¥30 million ($265 thousand).
At March 31, 2015 and 2016, significant components of deferred tax assets and liabilities are as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

¥

¥

¥

2,349
1,041
678
383
251
216
235
65
117
756
6,091
(1,383)
4,708(1,267)(1,016)(1,597)(1,009)(350)(352)(5,591)
(883)

¥

¥

¥

¥

2,232
874
667
416
262
228
173
129
120
976
6,077
(1,295)
4,782(1,204)
(982)
(420)
(386)
(221)
(366)
(3,579)
1,203

$

$

$

$

19,819
7,761
5,925
3,693
2,323
2,028
1,537
1,143
1,063
8,672
53,964(11,496)
42,468(10,690)(8,723)(3,731)(3,423)(1,963)(3,251)(31,781)
10,687

The reconciliation between the statutory income tax rate and the effective income tax rate for the years ended March 31, 2015 and 2016 are not required
to be disclosed due to the insignificance of the difference.

39

FINANCIAL STATEMENTS

13. Net Assets
At the Company’s Board of Directors meeting held on May 18, 2015, the directors approved cash dividends amounting to ¥1,129 million. At the Company’s
Board of Directors meeting held on May 18, 2016, the directors approved cash dividends amounting to ¥967 million ($8,588 thousand).

14. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2015
and 2016 totaled ¥1,383 million and ¥1,597 million ($14,179 thousand), respectively. In addition, Research and Development costs expenses in the"Specialty Steel" segment amounted to ¥1,065 million, "Special Materials" segment amounted to ¥520 million and "Formed & Fabricated Materials"
segment amounted to ¥12 million.

15. Net Income Per Share
The basis for calculations of net income per share for the years ended March 31, 2015 and 2016 are as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

Net income attributable to owners of the parent
Net income related common shareholders

¥
¥

6,548
6,548

¥
¥

7,417
7,417

$
$

65,85665,856

Thousands of shares
2015

Weighted-average number of shares of common stock2016

161,280

161,227

Yen
2015

Net income per share¥

U.S. dollars
2016

2016

40.60

¥

46.00

$

0.41

The Companies have no dilutive securities for the years ended March 31, 2015 and 2016.

16. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2015 and 2016 consist of the following:Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

20,010(683)−
19,327¥¥$

22,179(1,004)(546)
20,629196,941(8,914)(4,855)
183,172$

17. Accounting for Leases
Non-cancelable operating leases
As a lessee
Outstanding future lease payments under non-cancelable operating leases at March 31, 2015 and 2016 are as follows:
Millions of yen
2015
2016

Due within one year
Due after one year
Total

¥
¥

40

11
48
59

¥
¥

82
67
149

Thousands of
U.S. dollars
2016

$
$

726
596
1,322

18. Derivatives(1) Derivative transactions to which hedge accounting is not applied.
The contracted amount, fair value and unrealized gain (loss) of forward exchange contracts recognized for the year ended March 31, 2015 were as follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Total

¥
¥

Unrealized
gain (loss)

Fair value

159
159

¥
¥

(0)
(0)

¥
¥

(0)
(0)

The contracted amount, fair value and unrealized gain (loss) of forward exchange contracts recognized for the year ended March 31, 2016 are as follows:
Millions of yen
Contract
amountForward exchange contracts:
Selling
U.S. dollars
BuyingU.S. dollars
Japanese yen
Total

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

Fair value

Contract
amountUnrealized
gain (loss)

Fair value

¥

0

¥

(0)

¥

(0)

$

3

$

(0)

$

(0)

¥

203
110
313

¥

(0)
0
0

¥

(0)
0
0

$

1,801
972
2,776

$

(2)
2
0

$

(2)
2
0

¥

¥

¥

$

$

$

(2) Derivative transactions to which hedge accounting is applied.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2015 and 2016 are as follows:① Interest rate swap transactions
Method of hedge accounting
Type of derivative transactions
The main hedged items
Contract amount1 year or more amount of contract
Fair value

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

2016
Exceptional method for interest rate swap
transactions
Interest rate swap transactions
Payment fixation, receipt change

Long-term loans¥16,510 million ($137,412 thousand)¥13,585 million ($113,067 thousand)※Long-term loans¥13,585 million ($120,627 thousand)¥2,660 million ($23,619 thousand)※※Because interest rate swap transactions accounted for by the exceptional method are managed together with long-term loans that are hedged items, thefair value is included in the fair value of long-term loans.
② Interest rate and currency swap transactions
2015
Method of hedge accounting−

Type of derivative transactions

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

2016
Unified method of interest rate andcurrency swap transactions−

Interest rate and currency swap transactions
Payment fixation, receipt change
Receive floating US$ and pay fixed yen

−
−
−
−

Long-term loans¥2,929 million ($26,008 thousand)¥2,929 million ($26,008 thousand)※※Because interest rate and currency swap transactions accounted for by the unified method (the exceptional method, the allocation method) are managed
together with long-term loans that are hedged items, the fair value is included in the fair value of long-term loans.

41

FINANCIAL STATEMENTS

19. Contingent Liabilities
Guarantees against loans of employees and affiliates at March 31, 2015 and 2016 are as follows:
Thousands of
U.S. dollars
2016

Millions of yen
2015
2016

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

¥

22
15
37

¥

¥
¥

$

17
6
23

$

148
58
206

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

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

(3) Information about reportable segment profit or loss and other material items
Segment information for the years ended March 31, 2015 and 2016 is as follows:
For the year ended March 31, 2015
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income(b) Other:
Depreciation

Special Materials

Formed & FabricatedMaterials

9,044 ¥

185¥

9,778 ¥

(15) ¥

9,763

6

543

¥

¥

171,495−
171,495
9,170

¥

¥

¥

Consolidated
total

− ¥
(11,466) ¥(11,466)(402) ¥¥¥¥¥

Adjustments

171,495 ¥
11,466 ¥
182,961
9,572 ¥

¥
¥

¥
¥

8,545
−
8,545
1,758

Total

180
1,490
1,670
58

20,565−
20,565
1,701

142,205 ¥9,976 ¥
152,1816,055 ¥

¥
¥

Other

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

42

For the year ended March 31, 2016
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income(b) Other:
Depreciation¥¥

Special Materials

Formed & FabricatedMaterials¥

7¥9,309 ¥

535

199

8,568

¥

¥

¥

¥

¥

149,148 ¥9,513 ¥
158,662
11,510 ¥¥¥¥Consolidated
total

Adjustments

¥
¥

¥
¥

¥
¥

¥
¥

Total

121
1,559
1,680
58

16,141−
16,141
1,288

7,199
−
7,199
1,386

125,687
7,954
133,641
8,778

Other

−
(9,513)(9,513)
678¥¥¥

149,148−
149,148
12,188(18) ¥

9,291

Thousands of U.S. dollars
Reportable segment
Specialty SteelSpecial Materials(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income$ 1,116,027$
70,6281,186,655$
77,939$$(b) Other:
Depreciation$

76,077

Formed & FabricatedMaterials

Other

Total

$
$

$

143,326−
143,326
11,443$

1,077
13,843
14,920
519

$

4,752

$

62

$
$

$

63,921−
63,921
12,304$

1,766$ 1,324,351 $$
84,471 $1,408,822$
102,205 $$82,657 $Adjustments

Consolidated
total− $ 1,324,351(84,471) $−(84,471)
1,324,351
6,020 $
108,225(162) $

82,495

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥678 million ($6,020 thousand) are adjustments for inventories of ¥653 million ($5,799 thousand) and intersegment elimination of ¥25
million ($222 thousand).
3. Segment income is adjusted with operating income in the consolidated statements of operations.
4. As information about segment assets and liabilities is not used to determine the distribution of management resources and evaluate business results, the Companies are notrequired to disclose information about segment assets and liabilities.

43

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

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

Net sales¥

North
AmericaAsia

127,569¥

35,961¥

Europe

5,344

¥

2,402

Others

¥

219

Total

¥

171,495

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

(3) Information about major customers –Net sales

For the year ended March 31, 2015
Related segment

Millions of yen

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

¥¥32,302
20,056

Specialty SteelSpecialty Steel

Segment related information for the year ended March 31, 2016 is as follows:(1) Information about products and services –As described in “General information about reportable segments,” the Companies are not required to disclose information about products and services.

(2) Information about geographic areas –1. Net sales
For the year ended March 31, 2016
Millions of yen
Japan

Net sales¥

North
AmericaAsia

113,499¥

30,332¥

3,191

Europe¥1,968

Others

¥

158

Total

¥

149,148

Thousands of U.S. dollars
Japan

Net sales

North
AmericaAsia$ 1,007,811$

269,330$

28,336

Europe$17,473

Others

$

1,401

Total

$ 1,324,351

2. Property, plant and equipment
As Japan, which consists of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represents more than 90% of theamount of property, plant and equipment on the consolidated balance sheet as of March 31, 2016, the Companies are not required to disclose
information about property, plant and equipment.

(3) Information about major customers –For the year ended March 31, 2016
Net sales
Millions of yen

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

¥¥

Related segment

Thousands of U.S. dollars

30,792
16,300$$44

273,415
144,734

Specialty SteelSpecialty SteelIndependent Auditor’s Report

To the Board of Directors of Sanyo Special Steel Co., Ltd.:We have audited the accompanying consolidated financial statements of Sanyo Special Steel Co., Ltd. and its
consolidated subsidiaries, which comprise the consolidated balance sheets as at March 31, 2016 and 2015, andthe consolidated statements of operations, statements of comprehensive income, statements of changes in net
assets and statements of cash flows for the years then ended, and a summary of significant accounting policies
and other explanatory information.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements inaccordance with accounting principles generally accepted in Japan, and for such internal control as management
determines is necessary to enable the preparation of consolidated financial statements that are free from material
misstatements, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance
about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the
consolidated financial statements. The procedures selected depend on our judgement, including the assessmentof the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In
making those risk assessments, we consider internal control relevant to the entity’s preparation and fairpresentation of the consolidated financial statements in order to design audit procedures that are appropriate in
the circumstances, while the objective of the financial statement audit is not for the purpose of expressing an
opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriatenessof accounting policies used and the reasonableness of accounting estimates made by management, as well as
evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit
opinion.
OpinionIn our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of
Sanyo Special Steel Co., Ltd. and its consolidated subsidiaries as at March 31, 2016 and 2015, and their financial
performance and cash flows for the years then ended in accordance with accounting principles generally acceptedin Japan.
Convenience Translation
The U.S. dollar amounts in the accompanying consolidated financial statements with respect to the year ended
March 31, 2016 are presented solely for convenience. Our audit also included the translation of yen amounts into
U.S. dollar amounts and, in our opinion, such translation has been made on the basis described in Note 3 to theconsolidated financial statements.

July 22, 2016
Osaka, Japan

45

CORPORATE DATA

(As of March 31,2016)

Corporate Data
Corporate NameSanyo Special Steel Co., Ltd.

Head Office/Works

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

Established

January 11, 1935

Paid-in Capital¥20,182 million

Number of Employees

2,625 (consolidated basis) 1,309 (non-consolidated basis)

Register of Shareholders

The Chuo Mitsui Trust & Banking Co., Ltd.

Stock Listings

Tokyo Stock Exchange (1st Section)

Book Closing

March 31

Branches and Offices

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

Homepage Address

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

Stock Information
Total Number of Shares Authorized to be Issued

474,392,000

Total Number of Shares Issued

167,124,036

Name of Shareholder

Number of Shareholders

13,048NIPPON STEEL &Principal Shareholders
Number of shares held
(thousands of shares)

Percentage ofvoting rights (%)

24,256(15.13%)Company's Kyoeikai Association

10,461(6.52%)NSK Ltd.

7,470(4.66%)

5,696(3.55%)

5,435(3.39%)

4,504(2.81%)

CBNY-GOVERNMENT OF NORWAY

3,693(2.30%)

Mizuho Bank, Ltd.

3,642

(2.27%)Marubeni-Itochu Steel Inc.

3,108

(1.94%)

2,860(1.78%)SUMITOMO METAL CORPORATION

Sumitomo Mitsui Banking

Shareholder Composition (thousands of shares)
Treasury stocks
5,922 3.5%

Corporation

Securities firms

The Master Trust Bank of Japan, Ltd.

1,753 1.0%

Individuals and others

Domestic
corporations

30,780 18.4%

50,182 30.0%(trust account)
Japan Trustee Services Bank, Ltd.
(trust account)

Total numberof shares issued
167,124100％

Foreign investors
33,176 19.9%

CBNY DFA INTL SMALL CAP VALUE

Financial institutions

PORTFOLIO

45,307 27.1%

Notes: The number of shares omits fractions of less than 1,000 shares.
Treasury stocks are not included in the above list.

46

Consolidated Subsidiaries and Equity-Method Affiliates
Specialty Steel

Formed and Fabricated Materials

Consolidated Subsidiaries① Yohkoh Bussan Co., Ltd.

Consolidated Subsidiaries⑩ Santoku Tech Co., Ltd.

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

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

⑪ SANYO SPECIAL STEEL U.S.A., Inc.

Manufacturing and marketing of special steel products

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

⑫ Ningbo Sanyo Special Steel Products Co., Ltd.

Processing of special steel and machinery maintenance

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

⑬ Siam Sanyo Special Steel Product Co., Ltd.

Processing of special steel

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

⑭ Sanyo Special Steel Manufacturing de México, S.A. de C.V.

Manufacturing and marketing of special steel products

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

Equity-method Affiliates⑮ Advanced Green Components, LLC

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

Manufacturing of special steel products

Involved in business and sales of special steel products in China

Other⑧ Sanyo Special Steel India Pvt. Ltd.
Involved in business and sales of special steel products in India

Consolidated Subsidiaries⑯ Santoku Computer Service Co., Ltd.

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

Construction, operation and consulting services for information systems⑰ Santoku Security Service Co., Ltd.

Manufacturing and sales of special steel products

Security and facilities maintenance services

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

U.S.A.
11 SANYO SPECIAL STEEL U.S.A., Inc.
●
15 Advanced Green Components, LLC●

India
8 Sanyo Special Steel India Pvt. Ltd.
●
9 Mahindra Sanyo Special Steel Pvt. Ltd.
●

Thailand5 SKJ Metal Industries Co., Ltd.
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13 Siam Sanyo Special Steel Product Co., Ltd.
●

Indonesia

Japan
Sanyo Special Steel Co., Ltd.
1 Yohkoh Bussan Co., Ltd.
●
2 Santoku Seiken Co., Ltd.
●
3 Santoku Kogyo Co., Ltd.
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4 Santoku Technos Co., Ltd.
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10 Santoku Tech Co., Ltd.
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16 Santoku Computer Service Co., Ltd.
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17 Santoku Security Service Co., Ltd.
●

6 P.T. SANYO SPECIAL STEEL INDONESIA●

Mexico14 Sanyo Special Steel Manufacturing●de México, S.A. de C.V.

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