$118$/5(3257
$ 3 5,/    0 $5 & +   6 $ 1<2 63(& , $/ 67 ((/Profile
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 such areas as
automobiles, industrial machinery, railways and wind-power generation equipment. Bearing steel, our mainstay product, enjoys aparticularly high reputation in many countries for its superior quality and confidence. Our bearing steel boasts a top share in the domestic
market.
We call our products “Steel You Can Count On,” as they receive a high level of market confidence in every aspect of our undertakings suchas development, product quality and stable supply. We will be striving to further enhance the brand power of “Sanyo Special Steel – theConfident Choice.”

Basic Management Policies
We adhere to “confidence-based management” as our corporate philosophy, seeking to establish the “confidence of society,” “confidenceof customers” and “confidence among people.”

Confidence-based Management
Confidenceof Society

Confidenceof Customers

Confidence
among People“Confidence of society”
We intend to earn the confidence of society by contributing to the realization of an affluent and cultural society and fulfilling ourcommitment as a member of society through "production of high-quality special steel."“Confidence of customers”
We intend to earn the confidence of customers by offering high-quality special steel and promptly and properly responding to theirneeds.

“Confidence among people”
We intend to establish the confidence among people through communicating with all stakeholders and carrying out self-reliant actions

Contents

conforming to social norms.

01

Consolidated Financial Highlights

10

CSR Activities

02

Message from President

12

Research and Development

04

The 9th Medium-term Business Plan

13

Financial Figures

06

Segment Information

38

Corporate Data

08

Corporate Governance

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.

CONSOLIDATED FINACIAL HIGHLIGHTS
Sanyo Special Steel Co., Ltd. and consolidated subsidiaries
ChangeFY2011FY2012FY2013

FY2013
FY2012 / FY2013

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

(Thousands of
US Dollars)＊1¥ 171,800¥ 138,306¥ 161,587

16.8$ 1,570,638

Operating income

11,349

1,517

6,884

353.8

66,909Ordinary income

10,996

1,670

6,749

304.1

65,604

Net income

6,408

509

4,066

698.6

39,526(Millions of Yen)(%)

Net sales

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

Net assets ＊2

96,993

97,152102,9055.9

1,000,245

Total assets

212,365

198,772

203,5222.4

1,978,248(%)

Financial Indicator
ROS (Ordinary income to Net sales)

6.4

1.2

4.2

−

−

ROE (Net income to Net assets)

6.8

0.5

4.1

−

−

0.54
(0.26) ＊4

0.53(0.38) ＊4

0.46(0.25) ＊4

−

−

(Yen)

(%)

(US Dollars)＊1

Net D/E Ratio ＊3

Net income per share

39.71

3.16

25.21

697.8

0.25

Net assets per share

598

599

633

5.8

6.16

Cash dividends per share

9.00

2.00

5.00

150

0.05

* 1 US dollar amounts are converted, for convenience purpose only, at the rate of ¥102.88=US$1, the approximate rate of exchange on March 31, 2014.
* 2 Minority interests are included in net assets.
* 3 Net debt equity ratio - (gross interest-bearing debt - cash and deposits) / equity* 4 We have not implemented liquidation of receivables since the end of fiscal 2009. Figures in parentheses show net debt equity ratio if we had liquidized receivables.

Net Sales

Ordinary Income

Net Income(Millions of Yen)

(Millions of Yen)

(Millions of Yen)

200,000

15,0009000
13,396

7,822

171,800
161.587

159,512150,000

138,306

10,996

6,408

6000

10,000

4,066

6,749

100,000

95,516

3000

5,000
1,670

50,000509

00–2,5850-5,000FY2009 FY2010 FY2011 FY2012 FY2013–3,632-5,000FY2009 FY2010 FY2011 FY2012 FY201301

FY2009 FY2010 FY2011 FY2012 FY2013

MESSAGE FROM PRESIDENT

Fiscal 2013 Overview

Fiscal 2014 Outlook

During the fiscal year ended March 31, 2014, the JapaneseConcerning future prospects, while the Japanese economy iseconomy continued to recover moderately as seen in the

expected to maintain its recovery trend due to correction inrising stock price and improvement in corporate earnings,

the yen appreciation and improvement in businesssupported by the correction of strong yen and expectation

sentiment, the group's operating environment is foreseen tothat the government's economic stimulus measures would

remain challenging as it will take more time for the Japanesetake effect shortly. The global economy also continued togovernment to implement its growth strategy and Japan's

grow moderately thanks to the relatively steady development

electricity and fuel price are expected to rise amid slowdownof the US economy and clear signs of recovery observed inof emerging economies and intensifying international

the European economy, despite the economic slowdown incompetition.

some emerging countries.

Under such circumstances, the Sanyo Special Steel Group

Demand in the special steel industry grew firmly mainly inwill step up its efforts to strengthen its non-pricethe automobile sector in the fiscal year under review, as

competitiveness. At the same time, the Group will be making

stagnation of steel demand due to the Senkaku Island

all-out efforts to build a corporate structure capable of stably

disputesupplying high-quality special steel that meets customers'

and

the

subsequent

large-scaleinventory

adjustments in the previous fiscal year were put to an end.

needs by ensuring that production responds to demand

As a result, net sales of Sanyo Special Steel Group rose bytrends and by implementing aggressive internal cost cutting¥23,280 million year on year to ¥161,587 million, reflecting

measures.

an increase in the sales volume. In terms of profit, ordinary

By taking all these factors into account, the Group's net sales

income grew by ¥5,079 million year on year to ¥6,749 million

are expected to be ¥170,000 million, ordinary income to beby the virtue of the sales volume increase and cost reduction¥8,000 million and net income to be ¥5,500 million in fiscal

efforts as well as lower labor and depreciation expenses

2014.

which were partially offset by higher electricity and fuel cost.
Net income increased by ¥3,557 million year on year to¥4,066 million, primarily due to a decrease in loss in sale anddisposition of property, plant and equipment.

02

consolidated payout ratio of 15-20% and a non-consolidated

Dividend Policy

payout ratio of 20-30% - and implementing interim andyear-end dividends at least for the present.

Our basic policy on profit distribution is to reward ourRegarding dividends for fiscal 2014, we are seeking toshareholders by strengthening our business foundation while

implement dividend payment based on periodic earnings

increasing profits available for distribution. Concerning

performance in line with our dividend policy. However, thedividend payment, we intend to meet our shareholders'specific amounts of dividend payments have not been

expectations primarily by distributing profits based on
periodicbusiness

performance

while

givingdecided at this point.

due

consideration to both the payout ratio and the amount of
We would like to ask our shareholders and investors for theirfunds required for investments and other activities tocontinued support and understanding of the Sanyo Special

enhance our corporate value. Our measure of profit

Steel Group in the coming years.

distribution is consolidated payout ratio of about 20% and a

September 2014non-consolidated payout ratio of about 30% based on ourconsolidated performance. However, since our priority is toreinforce our business foundation and improving ourfinancial structure in order to enhance corporate value, wewould like to use slightly lower figures than the standard

Yasuo Takeda
Representative Director and President

values in implementing interim and year-end dividend - a

TopicsVarious Memorial Events Implemented in Commemoration of 80 th of Founding
Sanyo Special Steel Co., Ltd. was proud to celebrate its 80th year in business on November 10, 2013.
To mark the anniversary, we implemented various memorial events、such as holding an anniversary ceremony, issuinga memorial magazine, hosting a memorial lecture presentation, and providing factory visits for former employees andemployees' family members.
Under its corporate philosophy, "Confidence-based Management", Sanyo Special Steel Co., Ltd. will continue to develop
its business further by responding to changes of the times in an accurate manner.
We will continue to meet new challenges towards our 100 th anniversary.
We are grateful for your continued patronage and support.

Anniversary ceremony of founding

Factory visit for family members of employees

03THE 9th MEDIUM-TERM BUSINESS PLAN (FY2014-FY1016)
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-rolled-steel businessWe aim at strengthening our non-price competitiveness, including international cost competitiveness, research and development
capability, responsiveness of quality and delivery schedule, and our system foundation, in order to build a corporate structure that can win
in global competition. By doing this, we will be expanding our revenue in the rolled-steel business (“Specialty Steel”) by capturing thespecial steel demand, which is expected to grow in the future, and by taking full advantage of our production capability strengthened inthe 7th and 8th Medium-term Business Plan. In the non-rolled-steel business, (“Special Materials” and “Formed and Fabricated Materials”)
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 corporate structure that can generate profit under any operating environment andhas both
upward and downward flexibility.

Fainacial 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

D/E ratio

0.46

0.30

- 0.1687,000tons/month

100,000tons/month

13,000tons/month

Net sales

Change〔Major assumptions〕
・Iron scrap praice:Sales tonnage

At the average level for the period
from April through December 2013(¥40,000 /ton)・Unit product price:
At the average level for the period
from April through December 2013

・Margin: Constant・Exchange rate: ¥100/US$【Reference】
・Factors Contributing to the Change in Ordinary Income（FY2013 → FY2016）+5.0

Reduction in variable costs+6.0

Increase in profits from Non-rolled-steel business, etc.

+2.3

Total
（A）

+13.3

Factors for profit decrease

Factors for profit increase

Sales Volume/mix

04(Billions of Yen)

Environmental degradation risk

-5.0

Total
（B）

-5.0

Net
（A-B）

+8.3

Key Action Programs
Rolled-steel Business (“Specialty Steel”)

PromoteGrowthStrategy

By grasping the needs of customers who develop their business both inside and outside Japan,we will be providingthem with adequate products with non-price competitiveness and contribute to improving their competitiveness withat 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-rolled-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, throughaggressive investment of our management resources.

Boost non-price competitivenessWe will respond to customers' needs by (1) promoting the expansion of technological innovation taking into accountthe further future trend, including the development of sophisticated and differentiated products 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.

Enhance global
competitiveness 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 that can respond to globalized operating environment and the subsequent
intensifying international competition in a systematic way. We will also continue with our policy to promote 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 each category in the
coming three years; (1) strategy investment framework (mainly for research and development, 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 savingand system foundation investment, etc.,) and (3) mandatory investment framework (mainly for renewal of obsolete
assets and responding to safety environment standards and other regulations).

・Earnings by Business Segment(Billions of Yen)FY2013 (Performance)
Net sales

FY2016 (Target)

Operating income

Net sales

ChangeOperating income

Net sales

Operating income

Specialty steel

144.5

4.1

170.0

9.5

25.5

5.4

Special Materials

7.6

1.3

14.0

2.0

6.4

0.7

Formed & Fabricated Materials

19.0

1.9

29.5

3.5

10.5

1.6

Others

1.3

0.1

1.5

0.0

0.2

-0.1

Adjustment

-10.8

-0.5

-15.0

0.0

-4.2

0.5

Total

161.6

6.9

200.0

15.0

38.4

8.1

05

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.

Fiscal 2013 Overview
Net sales for fiscal year 2013 came to ¥144,479 million, up ¥19,176 million year-on-year thanks to recovery
from sluggish demand originating in the Senkaku islands disputes that occurred in the previous fiscal year
and subsequent massive inventory adjustments, thus increasing in sales volume compared to the previous
fiscal year. Although sales volume increased, operating profit amounted to ¥4,146 million, up ¥4,423 million
year-on-year due to increases in electricity and fuel prices.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

200,000

15,00011,465

158,110150,000
83.9％(FY2013)

144,479
125,303

10,000100,000

5,000

50,000

0

4,146

△ 277

0

-5,000FY2011FY2012FY2013

FY2011FY2012FY2013Special Materials
The Special Materials segment manufactures and sells heat/corrosion-resistant alloys and metal powder
products, among others.

Fiscal 2013 Overview
In the Special Materials segment, net sales amounted ¥7,634 million (up ¥1,663 million year-on-year) andoperating income was ¥1,254 million (up ¥597 million year-on-year) in fiscal 2013.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

8,000

7,634

6,974

1,500
1,254

5,971

6,000

1,000
4.4%
(FY2013)

810

4,000

657

500
2,000

0

0
FY2011FY201206

FY2013

FY2011FY2012FY2013

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.

Fiscal 2013 Overview
Net sales for fiscal year 2013 came to ¥18,964 million, up ¥2,913 million year-on-year, and operating profit
amounted to ¥1,934 million, up ¥599 million year-on-year.

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

20,00018,964
16,612

15,000
11.0%(FY2013)

1,934

2,000

16,051

1,500

10,000

1,000

5,000

500

0

1,250

1,335

0
FY2011FY2012FY2013

FY2011FY2012FY2013Other
We provide information processing services through our subsidiaries.

Fiscal 2013 Overview
Net sales decreased to ¥1,267 million (down ¥101 million year-on-year), and operating income was ¥52 million (up ¥6 million year-on-year).

Sales Breakdown

Net Sales

Operating Income(Millions of Yen)

(Millions of Yen)

1,500

150

1,367
1,267

1,225

1,000

100

0.7%
(FY2013)

65

500

46

50

0

52

0
FY2011FY2012FY2013

FY2011FY2012FY2013Note:
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

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 Governancedirector based on the audit results and, if necessary, also to businessexecution functions. We have a standing corporate auditor system inplace in order to further strengthen our auditing structure.
Furthermore, we designate one of the outside corporate auditors as
an independent director based on the provision prescribed by the
Tokyo Stock Exchange.
As for accounting audits, we formulate audit policies throughdiscussions between corporate auditors and accounting auditors,
and then audits are 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 performed by the Internal Control &Inspection Department based on the internal audit plan preparedeach year. Audits are conducted on business execution of ourrespective business functions and subsidiaries.

The Company adopts a corporate auditor system.
Concerning business execution, we make decisions on important
issues and supervise execution of business operations at meetingsof the Board of Directors (held monthly) and at extraordinary
meetings of the Board of Directors (held as necessary). We also set
up company-wide committees and hold meetings to discuss
important matters concerning operations. These include the
Corporate Policy Committee to facilitate efficient decision-making on
management such as the Board of Directors meetings, the Corporate
Behavior and Ethics Special Committee to ensure thoroughcompliance and solid corporate governance, the Security & Trade
Control Committee, the Environmental Conservation Committee andthe Corporate Budget Committee.
Corporate auditors’ audits are conducted as necessary based on theauditing policies formulated each year by the Board of Corporate
Auditors. Audits are conducted on a broad range of areas, including
not only directors’ execution of their duties but also on risk
management and compliance from an internal control perspective.
Corporate auditors express their opinions to the representative■ Our organizational structure for corporate governance and internal control(As of June 27, 2014)

General Shareholders’ Meeting
Election / Dismissal

Board of Corporate
Auditors

Election / Dismissal

AuditsBoard of Directors

Election / Dismissal

Audits(14 directors)(5 auditors, including
3 outside auditors)

Accounting Auditors(accounting firm)

Decision /SupervisionCorporate
Committees /Meetings
Reward &Punishment
Committee

Inspections(＊3)

Reference /ReportCorporate Policy
Committee

Consultation
ReportAudits(＊1)

Instruction

Representative Director

ReportAdministration of
the Company’s Business

AuditsAudits(＊2)

Internal
Control &Inspection
Department
Internal Auditing

Audits

Subsidiaries, Affiliated Companies(＊1) 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) Corporate auditors perform inspections as necessary on the operations and asset status of subsidiaries.
Full-time corporate auditors serve concurrently as corporate auditors of our domestic subsidiaries and fulfill their responsibilities in that capacity.

08

Development and Management of Internal Control Systems
Reporting” as required by the Financial Instruments and Exchange
Act since fiscal 2008. In this regard, we set up a working group forinternal control management, which is a cross-functional committee
composed of members from across the Sanyo Special Steel Group, inorder to address risks in financial reporting, share relevant
information, and discuss educational guidelines, and we are working
to further reinforce our internal control systems in order to ensure
the adequacy of information in financial reporting.

We drafted a basic policy to create internal control systems at theBoard of Directors meeting in accordance with the Company Law ofJapan and relevant laws and ordinances. We develop our internal
control systems which support our corporate management thatemphasizes integrity, fairness and transparency under this policy.
In addition, we established the Internal Control & Inspection
Department as an organ to evaluate our internal control systems,
and we have been working on the development and operation of the“Management’s Report system on Internal Control over Financial

Board of Directors(As of June 27, 2014)

President, Representative Director

Yasuo Takeda

Director and Executive Vice President

Nobuyuki Tanaka

Managing Director, Member of the Board

Shin-ichi Tominaga
Wataru Nishihama

Director, Member of the Board

Masaharu Kobayashi
Shigehiro Oi
Kazuhiko Nagano
Takayo Chiba

Corporate Auditor

Hiroaki Kimura(Standing Corporate Auditor)
Shunsuke Kano ＊Masaki Iwasaki ＊Akihiko Yanagitani
Hiroyuki Eiyama
Katsu Yanagimoto
Kazuya Shin-no
Kozo Takahashi
Takashi Kuwana
Toshihiko Yoshida

Hideyuki Sasaki ＊＊ 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 to09

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 our compliancestructure.

Clearly-defined Company Rules : We improve our company rules as the needs arise in order to 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 Corporate Behavior and Ethics Special Committee/Establishment of a Whistle-blowing System “Helpline”
designed to help prevent occurrence of misconduct. The “Helpline”
is aimed at detecting at an early stage any apparent or probable
circumstances/acts which are deemed inappropriate in light of 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 system

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

10

Cleaning areas around plants by voluntary employeesImprovement of Work Environment
childcare, and rehiring at retirement age.
In particular, we focus on building a women-friendly workplace, andthese system has been increasingly enhanced.

We strive to build a workplace where all employees can fulfill theirpotential.
Examples include the introduction of a flexible working-hours
system, leave and shorted working hours for childbirth andOur original maternity working wear

Lounge for women during of pregnancy and childrearing

We renovated the bathroom for women in responseto the increasing number of female employees

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

11

Environmental patrol to check the status of industrial waste
control and the life （up to and including the president）

RESEARCH AND DEVELOPMENT
We detect actual customer needs via a thorough analysis of data on social and industrial developments collected through our customer
satisfaction-oriented marketing approach and respond to a variety of customer needs with fast-paced research and development. By promoting
R&D that contributes to the expansion of technological innovation, we will be further enhancing the brand power of "Sanyo Special Steel - theConfident Choice."

Our Major Newly Developed Products"PremiumJ2, " a new grade bearing steel
Responding to the needs for smaller bearings with greater longevity
PremiumJ2 is a new grade bearing which has enabled us to extend the lifespan of theexisting bearing in a stable manner. Premium J2 was produced with a combination of newtechnologies, which are namely a new steelmaking technology to reduce harmful
non-metallic inclusions in steel, and a new inspection technology to evaluate the frequency
of non-metallic inclusions in large volumes of steel to prove the low incidence of suchinclusions. By using PremiumJ2, it has become possible to decrease variation in theminimum lifespan of bearings. PremiumJ2 is expected to respond to the growing needs forsmaller bearings and peripheral parts with greater longevity.

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 energy-saving steel that realizes high strength without using very expensive
Nickel and Molybdenum, which reduce manufacturability of parts, doing so without
damaging processability. ECOMAX responds to the need for small-size and light-weight auto
engine parts for the purpose of reducing CO2 emission and high hopes are placed upon it as
raw material for parts of automotive gears and shafts that need high strength.

Automotive gears and shafts"QDX-HARMOTEX, " a Hot-die steel
Contributing to the greater longevity of dies with high temperature strengthand enhanced toughness
QDX-HARMOTEX is a hot-die steel with high temperature strength and high toughness. Its
high temperature strength is 1.3 times greater than conventional steel and it limits theoccurrence of heat checks*. Also, the toughness is 1.5 times greater than that of conventional
steel and it can prevent occurrence of large cracks and minor chips.
QDX-HARMOTEX contributes to the stabilizing and enhancing the lifespan of dies.
* Heat check： Die cracking resulting from repeated heating and cooling during use.

Casting dies

"SPM X4N, " nitride P/M high speed steels
Fourfold wear resistance compared to the conventional product - contributing toextend dies' longevity
SPM X4N is manufactured by molding and sintering nitride 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 products. 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 ourcustomers.

12

Pierce punch

FINANCIAL FIGURES

Fainacial Position
For total assets at the end of the fiscal year 2013, tangible fixed assets decreased but note
receivables, accounts receivable - trade and inventories increased. Consequently, total assets
at the end of fiscal year 2013 stood at ¥203,522 million (up ¥4,750 million compare to the endof the previous fiscal year).
As for total liabilities, while notes payable and accounts payable - trade increased,borrowings
decreased. Consequently, total liabilities stood at ¥100,617 million (down ¥1,003 million
compared to the end of the previous fiscal year).
Total net assets stood at ¥102,905 million (up ¥5,754 million compared to the end of theprevious fiscal year) due to increases in net profit recorded for the year and in the valuationdifference on available-for-sale securities, etc.

Cash FlowsFor cash flow for the fiscal year 2013, the net cash provided by operating activities were
¥9,152 million (down ¥14,641 million year-on-year) mainly due to net profit before taxes(¥6,554 million) and depreciation expenses (¥10,966 million) as well as due to an increase innotes and accounts receivable, trade (down ¥9,645 million), an increase in inventory assets(down ¥1,992 million), an increase in trade notes and accounts payable (up ¥1,783 million), andrefunded corporate taxes (¥1,322 million).
The net funds used in investing activities were ¥4,951 million (up ¥15,583 million year-on-year),mainly due to capital investments implemented for the purposes of energy saving,environmental measures and updating existing facilities.
The net funds used in financial activities were ¥5,352 million (For the previous fiscal year,¥2,503 million was provided), mainly due to a decrease in loans payable (by ¥4,851 million).

13

FINANCIAL FIGURESSanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED BALANCE SHEETSAs of March 31, 2013 and 2014
Thousands of U.S.
dollars (Note 3)

Millions of yen

ASSETS

2013

2014

2014

Current Assets:
Cash and bank deposits (Notes 5 and 17)¥

Notes and accounts receivable, trade (Notes 5, 10 and 20)

22,684¥

21,967$

213,518

41,434

51,273498,378

(6)

(6)

(62)

Inventories (Note 7)

45,78048,392

470,372

Deferred tax assets (Note 13)

2,081

1,539

14,962

Less: Allowance for doubtful accounts

Other
Total current assets

2,672

1,395

13,562

114,645

124,560

1,210,730

7,123

7,080

68,820Property, Plant and Equipment:
Land (Note 9)
Buildings and structures (Note 9)46,06746,509452,073

Machinery and equipment (Note 9)

199,139

202,540

1,968,703

Construction in progress

549

705

6,853

252,878

256,834

2,496,449(183,938)(193,880)(1,884,529)

68,94062,954

611,920

757

794

7,721

Investments in securities (Notes 5, 6 and 8)

10,36412,013

116,763

Long-term loans receivable

1,614

1,412

13,719Deferred tax assets (Note 13)

94

115

1,119

Prepaid pension cost (Note 12)

1,714

−

−

−

1,097

10,666

Less: Accumulated depreciation
Total property, plant and equipment

Intangibles

Investments and Others:

Net defined benefit assets (Note 12)
Other

812

745

7,243

Less: Allowance for doubtful accounts

(168)

(168)

(1,633)

14,43015,214

147,877

Total investments and other assets¥

Total assets

The accompanying notes are integral parts of these statements.

14

198,772¥

203,522$

1,978,248

FINANCIAL FIGURES

Thousands of U.S.
dollars (Note 3)

Millions of yen

LIABILITIES AND NET ASSETS

2013

2014

2014

Current Liabilities:
Short-term loans (Notes 5 and 11)¥

31,759¥30,955$300,889

Current portion of long-term loans (Notes 5, 9 and 11)

8,648

13,748

133,632

Notes and accounts payable, trade (Notes 5 and 10)

13,342

14,884

144,672

Accounts payable, other

4,224

4,057

39,430Accrued income taxes

150

1,537

14,944

6,241

6,896

67,031693

1,206

11,71865,05773,283

712,316

34,02325,135244,313

Accrued employees' retirement benefits (Note 12)

936

−

−

Accrued directors' and corporate auditors' retirement benefits

73

93

899

1,112

1,245

12,104213

878

Net defined benefit liabilities (Note 12)

−

689

6,698

Other

206

164

1,595

Total long-term liabilities

36,56327,334

265,687

Total liabilities

101,620

100,617

978,003

Accrued expenses
Other
Total current liabilities

Long-term Liabilities:
Long-term loans (Notes 5, 9 and 11)

Deferred tax liabilities (Note 13)
Reserve for environmental measures

Contingent Liabilities (Note 20)
Net Assets (Note 14)
Shareholders’ Equity:
Common stock:
Authorized - 474,392,000 shares¥

Issued - 167,124,036 shares

20,183¥

20,183$

196,177

Capital surplus

22,596

22,596219,636

Retained earnings

54,47458,056564,313(1,773)(1,782)(17,320)

95,48099,053962,806

Valuation difference on available-for-sale securities

1,422

2,824

27,446

Foreign currency translation adjustments

(263)

866

8,417

Remeasurements of defined benefit plans

−

(554)

(5,381)

1,159

3,136

30,482

513

716

6,957

97,152102,905

1,000,245

Less: Treasury stock, at cost (5,787,262 shares in 2013 and 5,806,428 shares in 2014)
Total shareholders’ equity

Accumulated Other Comprehensive Income:

Total accumulated other comprehensive income

Minority Interests
Total net assets¥

Total liabilities and net assets

The accompanying notes are integral parts of these statements.

15

198,772¥

203,522$

1,978,248

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended March 31, 2013 and 2014
Thousands of U.S.
dollars (Note 3)

Millions of yen

2013

Net Sales
Cost of Sales (Note 15)¥

Gross profit

Selling, General and Administrative Expenses (Note 15)
Operating income

2014¥

138,306
125,048
13,258

161,587
141,607
19,9802014$

1,570,638
1,376,427
194,211

11,741
1,517

13,096
6,884

127,302
66,909

178
501
579
1,258

188
479
414
1,081

1,831
4,660
4,024
10,515

(767)
(114)
(224)
(1,105)
1,670

(612)
(320)
(284)
(1,216)
6,749(5,951)(3,107)(2,762)(11,820)
65,604

17
(409)
2
−
(390)
1,280

5
(188)
−
(12)
(195)
6,554

44
(1,825)−(118)(1,899)63,705

416
307
723
557

1,755
614
2,369
4,185

17,062
5,969
23,031
40,674

Other Income:Interest and dividend
Exchange gains
Other

Other Expenses:
Interest
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 and minority interests

Income Taxes (Note 13):
Current
DeferredIncome before minority interests

Minority Interests in Net Income of Consolidated Subsidiaries
Net income

48
509

¥

¥

119
4,066

Yen

$

1,148
39,526

U.S. dollars (Note 3)

2013

2014

2014

Per Share:¥¥¥

Net income (Note 16)
Cash dividends
Net assets

The accompanying notes are integral parts of these statements.

16

3.16
2.00
598.99

¥
¥
¥

25.21
5.00
633.47

$
$
$

0.25
0.05
6.16

FINANCIAL FIGURESSanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the years ended March 31, 2013 and 2014
Thousands of U.S.
dollars (Note 3)

Millions of yen

2013

Income Before Minority Interests
Other Comprehensive Income:¥

Valuation difference on available-for-sale securities
Foreign currency translation adjustments
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
Minority interests

The accompanying notes are integral parts of these statements.

17

2014
557

¥

4,185

2014
$

40,674

3
372
211
586
1,143

1,402
943
278
2,623
6,808

13,625
9,173
2,705
25,503
66,177

1,055
88

6,598
210

64,1292,048

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2013
Number ofoutstanding
common shares

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2012, net
Total changes for fiscal year 2012
Balance at end of year

167,124,036
−
−
−
−
−
−
167,124,036

Common stock

Millions of yen
Retained
Capital surplus
earnings

Treasury stock,at cost

¥

¥

¥

¥

¥

¥

1,419
−
−
−
−
3
3
1,422

The accompanying notes are integral parts of these statements.

18¥

22,596
−
−
−
(0)
−
(0)
22,596

Millions of yen
Foreigncurrencytranslation
Minority
adjustmentsinterests

Valuationdifference on
available-forsale securities

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2012, net
Total changes for fiscal year 2012
Balance at end of year

20,183−−−−−−
20,183

¥

¥

(806)
−
−
−
−
543
543
(263)

¥

¥

436
−
−
−
−
77
77
513

¥

¥

54,933
509
(968)
−
−
−
(459)
54,474¥Remeasurementsof defined
benefit plans

¥

¥

−
−
−
−
−
−
−
−

(1,768)
−
−
(7)
2
−
(5)
(1,773)

Total

¥

¥

96,993
509
(968)
(7)
2
623
159
97,152

FINANCIAL FIGURESSanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETSFor the year ended March 31, 2014
Number ofoutstanding
common shares

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year

167,124,036
−
−
−
−
−
−
167,124,036

Common stock

Millions of yen
Retained
Capital surplus
earnings

Treasury stock,at cost

¥

¥

¥

¥

¥

¥

1,422 ¥
−
−
−
−
1,402
1,402
2,824 ¥

Number ofoutstanding
common shares

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year

167,124,036
−
−
−
−
−
−
167,124,036$$

13,821−−−−
13,625
13,62527,446

The accompanying notes are integral parts of these statements.

19

¥

¥

¥

(263)
−
−
−
−
1,129
1,129
866

¥

¥

−
−
−
−
−
(554)
(554)
(554)

54,474
4,066
(484)
−
−
−
3,582
58,056¥

Minority
interests

¥

¥

513
−
−
−
−
203
203
716

(1,773)
−
−
(10)
1
−
(9)
(1,782)

Total

¥

¥

97,152
4,066
(484)
(10)
1
2,180
5,753
102,905

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

Treasury stock,at cost

$

$

$

$

196,177−−−−−−
196,177

219,635−−−1−
1219,636$$$

529,492
39,526(4,705)−−−34,821
564,313$

Thousands of U.S. dollars (Note 3)
Foreigncurrency
Remeasurements
Minoritytranslationof definedinterests
adjustments
benefit plans

Valuationdifference on
available-forsale securities

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year

22,596−−−0−022,596

Millions of yen
Foreigncurrency
Remeasurements
translationof definedadjustments
benefit plans

Valuationdifference on
available-forsale securities

Balance at beginning of year
Net income
Cash dividends paid
Acquisition of treasury stock
Disposal of treasury stock
Other changes for fiscal year 2013, net
Total changes for fiscal year 2013
Balance at end of year

20,183−−−−−−
20,183$$(2,561)−−−−
10,978
10,978
8,417

$

$

−
−
−
−
−
(5,381)(5,381)(5,381)

$

$

4,983
−
−
−
−
1,974
1,974
6,957

(17,228)
−
−
(97)
5
−
(92)
(17,320)

Total$

944,319
39,526(4,705)(97)
621,19655,926$ 1,000,245

Sanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWSFor the years ended March 31, 2013 and 2014
Thousands of U.S.
dollars (Note 3)

Millions of yen

2013
Cash Flows from Operating Activities:
Income before income taxes and minority interests
Adjustments Depreciation and amortization
Increase (decrease) in allowance for doubtful accounts
Decrease in accrued employees' retirement benefits, less payments
Increase in net defined benefit liabilities
Decrease in prepaid pension cost
Increase in net defined benefit assets
Increase 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
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) refunded
Net cash provided by operating activities

¥

1,280

2014
¥

6,554

2014
$

63,705

11,581
(91)
(300)
−
163
−
15
(81)
(178)
767
(2)
−
114
392

10,966
1
(938)
330
1,714
(1,597)
20
(205)
(188)
612
−
12
320
183

106,587
14(9,113)
3,203
16,656(15,527)
194(1,993)(1,831)
5,951
−
118
3,107
1,782

20,527
3,592(9,208)
3
28,574179(739)(4,220)23,794(9,645)(1,992)
2,228
(67)
8,308
187
(665)
1,322
9,152

(93,748)(19,363)
21,662(649)
80,755
1,821(6,461)
12,84688,961

Cash Flows from Investing Activities:
Acquisition of property, plant and equipment
Acquisition of intangible assets
Acquisition of investments in securities
Decrease in long-term loans receivable
Decrease (increase) in over three-month deposits
Other, net
Net cash used in investing activities(20,476)(227)(1,806)
211
1,794
(31)
(20,535)(4,847)
(179)
(2)
204
(67)
(60)
(4,951)(47,114)(1,741)
(14)
1,980
(654)
(584)
(48,127)

Cash Flows from Financing Activities:
Increase (decrease) in short-term loans
Proceeds from long-term loans
Repayment of long-term loans
Payments for purchases of treasury stock
Proceeds from sales of treasury stock
Cash dividends
Cash dividends to minority shareholders
Net cash provided by (used in) financing activities

19
8,000
(4,531)
(7)
2
(968)
(12)
2,503

(1,078)4,860(8,633)
(10)
1
(484)
(8)
(5,352)(10,481)
47,240(83,913)(97)
6(4,704)(75)(52,024)

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 17)

159
5,921
16,50022,421309(842)
22,421
21,5793,010(8,180)217,934
209,754¥

The accompanying notes are integral parts of these statements.

20

¥

$

FINANCIAL FIGURESSanyo Special Steel Co., Ltd. and Consolidated Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presenting Consolidated Financial Statements
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 toapplication 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.

2. Summary of Significant Accounting Policies
income and expense accounts for the year are also translated at that rate.
These differences are recorded as foreign currency translation adjustments.

(1) Consolidation and investments in affiliates (a) Scope of consolidation and elimination
The Company has 13 subsidiaries as of March 31, 2014 (13 subsidiaries
as of March 31, 2013). The consolidated financial statements include theaccounts of the Company and 13 of its subsidiaries. The 13 subsidiaries thathave been consolidated for fiscal year 2014 are listed below:(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 profit or loss for the period unless deemed to be temporary.
Cost of securities sold is determined by the moving average method.

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.

(4) Derivative Transactions -The consolidated subsidiaries, except for the 6 foreign subsidiaries (SKJ
Metal Industries Co., Ltd., P.T. Sanyo Special Steel Indonesia, Sanyo Special
Steel U.S.A., Inc., Ningbo Sanyo Special Steel Products Co., Ltd., SanyoSpecial Steel Trading (Shanghai) Co., Ltd., and Sanyo Special Steel India Pvt.
Ltd.), use a fiscal year ending March 31, which is the same as that of theCompany. The 6 foreign subsidiaries use a fiscal year ending December 31.
For these 6 subsidiaries, certain adjustments are made, if appropriate, in
preparing the consolidated financial statements to reflect materialtransactions which occurred between their fiscal year-end and March 31.
For the purpose of preparing the consolidated financial statements, allsignificant intercompany transactions and 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 on which the Company
have 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 andretained earnings of the Companies.

(2) Foreign currency translation Foreign currency transactions are translated into Japanese yen at theexchange rate prevailing at the respective transaction date. All monetary
assets and liabilities denominated in foreign currencies, whether long-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 profit or loss for the period.
All assets and liabilities of the foreign subsidiaries are translated into
Japanese yen at the exchange rate prevailing at each balance sheet date. All

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 is adopted. Using this method, the Companies
do not account for gains or losses on those interest rate swap transactions on
a fair value basis, but recognize the interest on an accrual basis.
The Companies compare the total change in cash flow or rate 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.

(6) Depreciation and amortization The Company computes 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 thestraight-line method based on the useful life estimated to be 5 years.
Amortization of other intangible assets is computed by the straight-line method.

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

21

(8) Allowance for doubtful accounts -liabilities” in the consolidated balance sheets.

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.

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

(9) Accrued directors' and corporate auditors' retirement benefits (18) 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.

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

(11) 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 straight-line 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
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.

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

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

(14) 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.

(15) Cash and cash equivalents Cash and cash equivalents in the consolidated statements of cash flows
are composed of cash on hand, bank deposits able to be withdrawn on
demand and short-term investments with an original maturity of threemonths or less and which represent a minor risk of fluctuations in value.

(16) Consumption tax In Japan, a consumption tax, with certain exemptions, is imposed on
domestic consumption of goods and services at the rate of 5%. The
consumption tax imposed on the Company and its domestic subsidiaries
sales to customers is withheld at the time of sale and is subsequently paid
to the national government. The consumption tax withheld upon sale is 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

22

Effective from the year ended March 31, 2014, the Company and its
consolidated domestic subsidiaries have applied the Accounting Standard for
Retirement Benefits (ASBJ Statement No. 26, May 17, 2012 (hereinafter, the“Statement No. 26”)) and Guidance on Accounting Standard for Retirement
Benefits (ASBJ Guidance No. 25, May 17, 2012 (hereinafter, the “Guidance
No. 25”)) except the article 35 of the Statement No. 26 and the article 67 of
the Guidance No. 25 and actuarial gains and losses that are yet to berecognized have been recognized and the difference between retirement
benefit obligations and plan assets has been recognized as net defined
benefits assets and net defined benefits liabilities.
In accordance with the article 37 of the Statement No. 26, the effect of
the change in accounting policies arising from initial application has beenrecognized in remeasurements of defined benefits plans in accumulated
other comprehensive income.
As a result of the application, net defined benefits assets and net defined
benefits liabilities in the amount of JPY 1,097 million (U.S.$ 10,666
thousand) and JPY of 689 million (U.S.$ 6,698 thousand), respectively, havebeen recognized, and accumulated other comprehensive income and net
assets per share have decreased by JPY 554 million (U.S.$ 5,381 thousand)and JPY 3.43 (U.S.$ 0.03), respectively, at the end of the current fiscal year.

(19) Accounting standards issued but not yet adopted (a) Accounting Standard for Business Combinations“Accounting Standard for Business Combinations” (ASBJ Statement No.
21, September 13, 2013), “Accounting Standard for Consolidated Financial
Statements” (ASBJ Statement No. 22, September 13, 2013), “AccountingStandard for Business Divestitures” (ASBJ Statement No. 7, September 13,2013), “Accounting Standard for Earnings per Share” (ASBJ Statement No.
2, September 13, 2013), “Guidance on Accounting Standard for Business
Combinations and Accounting Standard for Business Divestitures” (ASBJ
Guidance No. 10, September 13, 2013) and “Guidance on AccountingStandard for Earnings per Share” (ASBJ Guidance No. 4, September 13,2013).
1. Outline
These accounting standards and guidance contain amendments to theaccounting treatment for: (1) changes in a parent’s ownership interest in a
subsidiary when the parent retains control over the subsidiary in the
additional acquisition of shares therein, (2) acquisition related costs, (3)presentation method of net income and amendment of “minority interests”
to “non-controlling interests,” and (4) transitional provisions for accounting
treatments.
2. Effective dates
The standards are effective from the fiscal year beginning April 1, 2015.
However, the transitional provisions for accounting treatments will beapplied from business combinations performed on or after the fiscal year
beginning April 1, 2015.
3. Effect of application of the standard
At present, the Company and its consolidated domestic subsidiaries havenot determined the effects of the new standard on the consolidated financial
statements.
(b) Accounting Standard for Retirement Benefits“Accounting Standard for Retirement Benefits” (ASBJ Statement No. 26)
and “Guidance on Accounting Standard for Retirement Benefits” (ASBJ
Guidance No. 25).
1. Outline

The revisions apply mainly to the accounting treatments of unrecognizedactuarial gains and losses and prior service costs, the determination ofretirement benefit obligations and service cost and disclosure. These
revisions were made considering the viewpoint of enhancing financial
reporting and international convergence of accounting standards.
2. Effective dates
The revisions to the calculation methods for retirement benefit obligations

and service costs are effective from the fiscal year beginning April 1, 2014.
3. Effect of application of the standard
The effect of the application of the adoption of the revised accounting
standard and guidance on consolidated financial statements is immaterial.

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 convertedinto U.S. dollars. The rateof ¥102.88 = U.S. $1.00, the approximate rate of exchange as at March 31, 2014, 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

2013
Valuation difference on available-for-sale securities
Increase (decrease) during the year
Reclassification adjustments
Subtotal, before tax
Tax (expense) or benefit
Subtotal, net of tax
Foreign currency translation adjustments
Increase (decrease) during the year
Share of other comprehensive income of affiliates accounted for by the equity method
Increase (decrease) during the year
Total other comprehensive income

¥

2014
95
(2)
93
(90)
3

¥

211
586

1,707
−
1,707
(305)
1,402

$

¥

278
2,623

16,592−
16,592(2,967)
13,625
9,173

943

372

¥

2014

$

2,705
25,503

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 interest rate fluctuation risk and limit theamount 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 interest rate
fluctuation risks. The Companies reduce such risks with long-term loans by 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 market price. Since certain assumptions are adopted for calculating such values, the values may differ when different assumptions are adopted.

23

FINANCIAL FIGURES(2) Fair values of financial instruments Book values and fair values of the financial instruments
instrumen on the consolidated balance sheet as of March 31, 2013 were as follows. Certain financial
instruments were excluded from the following table as the fair values were not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions①Hedge accounting is not applied②Hedge accounting is applied¥

22,684
41,434

Fair value¥

Difference

22,684
41,434

−
−

¥

7,227
(13,342)(40,392)(33,936)

7,227(13,342)(40,392)(34,281)

−
−
−
△345

(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, 2014 are as follows. Certain financial
instruments are excluded from the following table as the fair values are not available (see Note 2 below).
Millions of yen
Book value(1) Cash and bank deposits(2) Notes and accounts receivable, trade(3) Investments in securities
Available-for-sale securities(4) Notes and accounts payable, trade(5) Short-term loans(6) Long-term loans(7) Derivative transactions①Hedge accounting is not applied②Hedge accounting is applied¥

21,96751,273Thousands of U.S. dollars

Fair value¥

Difference

21,96751,273¥

Book value

Fair value

Difference−−$ 213,518
498,378$ 213,518
498,378

−
−

$

8,936
(14,884)(44,688)(25,063)8,936(14,884)(44,688)(25,248)

−
−
−
△185

86,858(144,672)(434,374)(243,614)

86,858(144,672)(434,374)(245,409)−−−△1,795

(0)
−

(0)
−

−
−

(3)
−

(3)
−

−
−

(※) The debt is displayed by ( ).
1. The method of estimating fair values of financial instruments and matters about investments in securities and derivative transactions.
(1) Cash and bank deposits and (2) Notes and accounts receivable, trade
The book value approximates the fair value because of the short-term maturities of these instruments.
(3) Investments in securities
Market prices and quoted prices are used for equity securities.
See Note 6, “Securities.”(4) Notes and accounts payable, trade and (5) Short-term loans
The book value approximates the fair value because of the short-term maturities of these instruments.
Short-term loans payable includes the current portion of long-term loans.
(6) Long-term loans
The discounted cash flow method is used to estimate the fair value of long-term loans by using marginal borrowing rates as the discount rate.
(7) Derivative transaction
See Note 18, “Derivatives.”
2. Non-listed equity securities whose fair values are not available are excluded from investments in securities above. These instruments as of March 31,
2013 and 2014 are as follows.
Thousands of
U.S. dollars

Millions of yen

2013¥

Non-listed equity securities

24

478

2014
¥

478

2014
$

4,645

3. The aggregate maturities subsequent to March 31, 2013 for financial assets with maturities were as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

22,684
41,434
64,118

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, 2014 for financial assets with maturities are as follows:
Millions of yen
Within 1 year

Cash and bank deposits
Notes and accounts receivable, trade
Total

¥
¥

21,96751,27373,2401 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$ 213,518
498,378$ 711,896

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, 2013 for short-term loans, long-term loans and other interest-bearing debt were as follows:
Millions of yen
Within 1 year

Short -term loans
Long-term loans
Other interest-bearing debt
Total

¥

¥

40,392−15
40,407

1 year or more but
within 5 years¥¥−
33,93660
33,996

5 years or more but
within 10 years

−
−
27
27

¥

¥

Ten years or more

¥

¥

−
−
−
−

The aggregate maturities subsequent to March 31, 2014 for short-term loans, long-term loans and other interest-bearing debt are as follows:
Millions of yen
Within 1 year

Short -term loans
Long-term loans
Other interest-bearing debt
Total

¥

¥

44,688−15
44,703

1 year or more but
within 5 years¥¥−
25,06360
25,1235 years or more but
within 10 years

−
−
12
12

¥

¥

Ten years or more

¥

¥

−
−
−
−

Thousands of U.S. dollars

Short -term loans
Long-term loans
Other interest-bearing debt
Total

25

Within 1 year

1 year or more but
within 5 years

5 years or more but
within 10 years$ 434,374−
146$ 434,520−
243,614584$ 244,198

$

$

$

−
−
115
115

Ten years or more

$

$

−
−
−
−

FINANCIAL FIGURES
6. Securities
The aggregate acquisition costs and fair values (book values) of marketable securities classified as available-for-sale securities as of March 31, 2013 and2014 are as follows:
Millions of yen
2013
Acquisition
cost

Fair value(Book value)

Thousands of U.S. dollars
2014

2014
Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Acquisition
cost

Fair value(Book value)

Unrealized
gain (loss)

Securities whose book value exceeds their acquisition cost:Stock¥ 3,154 ¥ 5,335 ¥ 2,181 ¥ 5,124 ¥ 8,785 ¥ 3,661 $ 49,803 $ 85,391$ 35,588

Securities whose acquisition cost exceeds their book value:
Stock
2,126
1,892
(234)
157
151
(6)
1,530
1,467
Total
¥ 5,280 ¥ 7,227 ¥ 1,947 ¥ 5,281 ¥ 8,936 ¥ 3,655 $ 51,333 $ 86,858(63)$ 35,525

7. Inventories
Inventories held by the Companies at March 31, 2013 and 2014 consist of the following:Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

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

¥

¥

1,607
8,593
21,263
14,31745,780

¥

¥

1,872
8,956
21,83015,734
48,392$$

18,20187,052
212,187
152,932
470,372

8. Unconsolidated Subsidiaries and Affiliates
Items relevant to unconsolidated subsidiaries and affiliates at March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Investments in securities (stocks)

¥

2,659

¥

2,599

$

25,261

9. Assets Pledged as Collateral
A breakdown of assets pledged as collateral and the related secured liabilities as of March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

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

¥

¥

4,590
4,903
7,716
17,209¥16,70016,700

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

26

¥

¥

4,590
4,432
6,245
15,267

¥

8,775
8,775

$

$

44,61843,07260,704
148,394$

85,29485,294

10. Accounting for Notes Receivable/Payable Which Reached the Maturity at Year-end
Notes receivable/payable which reached the maturity at year-end are treated as if they were settled at the clearing date for notes. Consequently, as theyear-end date of March 31, 2013 was holiday for banking institutions, the following notes receivable/payable which reached thematurity at year-end were
included in the ending balance of notes receivable/payable and other current liabilities:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Notes receivable
Notes payable

¥
¥

1,193
53

−
−

¥
¥

$
$

−
−

11. Short-term Loans and Long-term Loans
Short-term loans at March 31, 2013 and 2014 represent bank overdrafts with weighted-average interest rates of 0.57% and 0.43%, 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 ($194,401 thousand). At March 31 2014, the total¥20,000 million ($194,401 thousand) is unused.
Long-term loans at March 31, 2013 and 2014 consist of the following:Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Loans from banks and other financial institutions due 2014 to 2017 withinterest rates ranging from 0.29% to 1.75% at March 31, 2013 and due 2015
to 2019 with interest rates ranging from 0.41% to 0.91% at March 31, 2014
Other payables due 2014 to 2021 with interest of 4.05% at March 31, 2013and due 2015 to 2021 with interest of 4.05% at March 31, 2014¥

42,569¥102
42,671(8,648)34,023

Less: Current portion of long-term loans¥

38,796¥87
38,883(13,748)
25,135$377,100$

845
377,945(133,632)
244,313

The annual maturities of long-term loans outstanding at March 31, 2014 are as follows:Year ending at March 31,

Millions of yen

2015
2016
2017
2018
2019 and thereafter

¥

¥

27

6,293
13,94015
4,875
12
25,135

Thousands of
U.S. dollars$$

61,169135,498
146
47,385
115
244,313

FINANCIAL FIGURES
12. Retirement Benefits
The detailed notes relating to retirement benefit plans for the year ended March 31, 2013, were as follows:
The Company and certain consolidated subsidiaries have severance indemnity plans and defined contribution pension plans. Certain consolidated
subsidiaries have severance indemnity plans.
(1) Funded status of retirement benefit obligations at March 31, 2013 was as follows:
Millions of yen
2013

Projected benefit obligation
Plan assets at fair value
Unfunded projected benefit obligation
Unrecognized actuarial loss
Net of Accrued employees’ retirement benefits recognized in the consolidated balance sheet
Prepaid pension costAccrued employees’ retirement benefits recognized in the consolidated balance sheet¥¥(9,164)
7,664(1,500)
2,278
778
1,714
(936)

Consolidated subsidiaries have adopted a simplified method permitted under the accounting standard for retirement benefits in Japan to calculate theirprojected benefit obligation.

(2) Components of net retirement benefit expenses for the year ended March 31, 2013 were as follows:
Millions of yen
2013

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

¥

¥

395
220
(101)
(49)
95
185
745

Expenses for employees' retirement benefits of consolidated subsidiaries are included in service cost.
(3) Assumptions used in the calculation of retirement benefit obligations for the year ended March 31, 2013 were as follows:
2013

Discount rate
Expected rate of return on plan assets
Method of attributing the projected benefits to periods of service
Amortization period for unrecognized prior service costs
Amortization period for unrecognized actuarial differences

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

The detailed notes relating to retirement benefit plan for the year ended March 31, 2014 are as follows:
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 of funded plans that provide lump sum payments or pension benefits based on salary and lengthof service. These plans set up retirement benefit trusts. Severance indemnity plans, though as a result of setting up retirement benefit trusts, some plans 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.

28

Defined benefit plans(1) Movements in retirement benefit obligations, except plans applying the simplified method:
Thousands of
U.S. dollars

Millions of yen
2014

Balance at April 1, 2013
Service cost
Interest cost
Actuarial loss
Benefit paid
Balance at March 31, 2014

¥

8,688
384
119
238
(1,089)
8,340

¥

$

84,451
3,729
1,161
2,314
(10,588)
81,067$(2) Movements in plan assets, except plans applying the simplified method:
Thousands of
U.S. dollars

Millions of yen
2014

Balance at April 1, 2013
Expected return on plan assets
Actuarial gainContributions paid by the employer
Benefits paid
Balance at March 31, 2014

¥

7,664
110
1,626
5
(134)
9,271

¥

$

74,492
1,071
15,80050(1,298)
90,115$(3) Movements in liability for retirement benefits of defined benefit plans applying the simplified method:
Thousands of
U.S. dollars

Millions of yen
2014

Balance at April 1, 2013
Retirement benefit costs
Benefits paid
OthersBalance at March 31, 2014

¥

476
78
(32)
1
523

¥

$

4,623
755
(313)
16
5,081

$

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

Millions of yen
2014

Funded retirement benefit obligations
Plan assets¥

Unfunded retirement benefit obligations
Total Net liability (asset) for retirement benefits at March 31, 2014

8,340
(9,271)
(931)
523
(408)

Net defined benefit liabilities
Net defined benefit assets
Total Net liability for retirement benefits at March 31, 2014

689
(1,097)
(408)

¥

29

$

$

81,067(90,115)(9,048)
5,080(3,968)
6,698(10,666)(3,968)

FINANCIAL FIGURES(5) Retirement benefit costs:
Thousands of
U.S. dollars

Millions of yen
2014

Service cost
Interest cost
Expected return on plan assets
Net actuarial loss amortization
Retirement benefit costs based on the simplified method
Total retirement benefit costs for the fiscal year ended March 31, 2014

¥

¥

383
119
(110)
31
78
501

$

3,729
1,161
(1,071)
298
755
4,872

$

(6) Accumulated adjustments for retirement benefit:
Thousands of
U.S. dollars

Millions of yen
2014

Actuarial gains and losses that are yet to be recognized
Total balance at March 31, 2014

¥
¥

860
860

$
$

(7) Plan assets:① Plan assets comprise:
2014

Equity securities
Bonds
Other
Total

87%
1%
12%
100%

11% of plan assets represent retirement benefit trusts set to the corporate pension plan.

② Long-term expected rate of return
Current and target asset allocations, historical and expected returns on various categories of plan assets have been considered in determining thelong-term expected rate of return.
(8) Actuarial assumptions
The principal actuarial assumptions at March 31, 2014 (expressed as weighted averages) are as follows:
2014

Discount rateLong-term expected rate of return

1.4%
1.4%

Defined contribution plans
The Company and certain consolidated subsidiaries have contributed ¥180 million ($1,751 thousand) to the defined contribution plans.

30

8,356
8,356

13. 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
38.0% for the year ended March 31, 2013 and 2014. On March 31, 2014, amendments to the Japanese tax regulations were enacted into law which will
reduce the corporation tax rate. Consequently, the effective statutory tax rate used to measure deferred tax assets and liabilities has been reduced from
38.0% to 35.6%.
Due to this change in statutory income tax rate, net deferred tax assets decreased by ¥93 million ($899 thousand) as of March 31, 2014 and deferredincome tax recognized for the year ended March 31, 2014 increased by ¥93 million ($899 thousand).
At March 31, 2013 and 2014, significant components of deferred tax assets and liabilities are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Deferred tax assets:
Amortization of transition obligations corresponding to contributionof certain marketable securities to employee retirement benefit trusts
Devaluation loss on inventories
Accrued bonuses
Devaluation loss on marketable securities
Net defined benefit liabilities
Accrued employees’ retirement benefits
Tax losses carried forward
Other
Gross deferred tax assets
Less: Valuation allowance
Total deferred tax assets¥¥

Deferred tax liabilities:
Unrealized holding gains on securities
Gain on contribution of certain marketable securities to employee retirement benefit trusts
Reserve for deferred capital gains from property, plant and equipment
Net defined benefit assets
Prepaid pension costReserve for special depreciation
Other
Total deferred tax liabilities
Net deferred tax assets

¥

¥

2,597
264
541
1,146
−
747
1,124
936
7,355
(1,601)
5,754

¥

(526)
(1,401)(1,125)
−
(610)
(658)
(371)
(4,691)
1,063

¥

¥

¥

2,597
233
645
1,150
689
−
84
1,067
6,465
(1,530)
4,935

(831)
(1,401)(1,090)
(391)
−
(521)
(292)
(4,526)
409

$

$

$

$

25,2402,265
6,271
11,181
6,693−
815
10,37562,840(14,873)
47,967(8,078)(13,614)(10,590)(3,797)−(5,065)(2,846)(43,990)
3,977

The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2013 was as follows:
38.0%

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

3.9
(4.7)
1.4
21.2
(3.3)
56.5%

The reconciliation between the statutory income tax rate and the effective income tax rate for the year ended March 31, 2014 is not required to bedisclosed due to the insignificance of the difference.

14. Net Assets
At the Company’s Board of Directors meeting held on May 15, 2014, the directors approved cash dividends amounting to ¥323 million ($3,136 thousand).
There were no cash dividends in the consolidated financial statements as of March 31, 201331

FINANCIAL FIGURES
15. Research and Development Costs
Research and development costs charged to manufacturing costs and selling, general and administrative expenses for the years ended March 31, 2013
and 2014 totaled ¥1,425 million and ¥1,389 million ($13,498 thousand), respectively.

16. Net Income Per Share
Basis for calculations of net income per share for the years ended March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Net income
Net income for common stockholders

¥
¥

509
509

¥
¥

4,066
4,066

$
$

39,52639,526

Thousands of shares
2013

The weighted-average number of shares of common stock2014

161,345

161,328

Yen
2013

Net income per share

¥

3.16

U.S. dollars
2014

2014

¥

25.21

$

0.25

The Companies have no dilutive securities for the years ended March 31, 2013 and 2014.

17. Cash and Cash Equivalents
Cash and cash equivalents at March 31, 2013 and 2014 consist of the following:Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

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

¥
¥

32

22,684(263)
22,421¥¥

21,967(388)
21,579$$213,518(3,764)
209,75418. Accounting for Leases(1) Finance leases –Non-capitalized finance leases at March 31, 2013 and 2014 are as follows:
As a lessee
Periodic lease charges to the Companies, as a lessee, which are charged to profit or loss for the years ended March 31, 2013 an
d 2014 are ¥149 millionand ¥145 million ($1,413 thousand), respectively.
Lease assets under finance leases, if capitalized, at March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Acquisition cost
Accumulated depreciation
Net book value

Machineryand vehicles

Machineryand vehicles

Machineryand vehicles

¥

¥

$

1,465
1,235
230

¥

1,454
1,370
84

¥

$

14,133
13,313820

Depreciation expense for lease assets computed by the straight-line method over the period of the finance leases with no residual value for the years
ended March 31, 2013 and 2014 are ¥149 million and ¥145 million ($1,413 thousand), respectively.
Outstanding future lease payments due at March 31, 2013 and 2014, including interest, are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Due within one year
Due after one year
Total

¥

146
84
230

¥

¥

84
−
84

¥

$

820
−
820

$

(2) Non-cancelable operating leases As a lessee
Outstanding future lease payments under non-cancelable operating leases at March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Due within one year
Due after one year
Total

¥

15
5
20

¥

¥

15
0
15

¥

$

145
5
150

$

19. 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, 2013 were as follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Japanese yen
Total

¥

67
2
69

¥

Unrealized
gain (loss)

Fair value

¥

¥

(0)
(0)
(0)

¥

(0)
(0)
(0)

¥

The contracted amount, fair value and unrealized gain (loss) of forward exchange contracts recognized for the year ended March 31, 2014 are as follows:
Millions of yen
Contract
amountForward exchange contracts:
BuyingU.S. dollars
Japanese yen
Total

¥
¥

124
31
155

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

Fair value

¥
¥

33

(0)
(0)
(0)

¥
¥

Contract
Amount

(0)
(0)
(0)

$
$

1,211
299
1,510

Unrealized
gain (loss)

Fair value

$
$

(3)
(0)
(3)

$
$

(3)
(0)
(3)

FINANCIAL FIGURES(2) Derivative transactions to which hedge accounting is applied.
Derivative transactions to which hedge accounting is applied for the years ended March 31, 2013 and 2014 are as follows:
Method of hedge accounting
Type of derivative transactions
The main hedged items
Contract amount1 year or more of amount of contract
Fair value

2013
Exceptional method for interest rate swap
transactions
Interest rate swap transactions
Payment fixation, Receipt change

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

2014Long-term loans¥23,630 million¥16,775 million※

Long-term loans¥19,435 million ($188,909 thousand)¥16,510 million ($160,478 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.

20. Contingent Liabilities
Guarantees against bank loans of employees and affiliates at March 31, 2013 and 2014 are as follows:
Thousands of
U.S. dollars
2014

Millions of yen
2013
2014

Advanced Green Components, LLC
UCHIDA-SATO TECH (THAILAND) CO., LTD.
Employees
Total

¥

¥

143
16
36
195

¥

¥

−
22
27
49

$

$

−
215
261
476

Notes discounted with banks and notes endorsed as of March 31, 2013 and 2014 are ¥127 million and ¥8 million ($78 thousand), respectively. Notes
discounted with banks and notes endorsed are netted against "Notes and accounts receivable, trade" in the consolidated balance sheets.

21. 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 products based on operating divisions and have determined the reportable segments, "Specialty
Steel," "Special Materials" and "Formed and Fabricated Materials."
The "Specialty Steel" segment includes the manufacture and sale of various special steel products such as bearing steel, engineering steel, stainless steel,heat resistant steel and tool steel. The "Special Materials" segment includes the manufacture and sale of metal powder products, heat/corrosion-resistantalloys, etc. The "Formed and Fabricated Materials" segment includes the manufacture and sale of formed and fabricated materialsmade 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.

34

(3) Information about reportable segment profit or loss and other material items
Segment information for the years ended March 31, 2013 and 2014 is as follows:
For the year ended March 31, 2013
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income (loss)(b) Other:
Depreciation

Special Materials

Formed & FabricatedMaterials

10,711

304

¥

¥

¥

11,537 ¥(24)¥

11,513

9

513

¥

¥

138,306−
138,306
1,517

¥

¥

¥

−
(10,386)(10,386)
(244)

¥

¥

¥
¥

Consolidated
total

Adjustments

138,306 ¥10,386 ¥148,692
1,761 ¥

¥
¥

¥
¥

5,971
−
5,971
657

Total

106
1,261
1,367
46

16,051−
16,051
1,335

116,178 ¥
9,124 ¥
125,303(277) ¥

¥
¥

Other

¥
¥

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income (loss) adjustments of ¥245 million are adjustments for inventories of ¥283 million and intersegment elimination of ¥38 million.
3. Segment income (loss) 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.

For the year ended March 31, 2014
Millions of yen
Reportable segment
Specialty Steel(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income (loss)(b) Other:
Depreciation¥¥

Special Materials

Formed & FabricatedMaterials¥

8¥

10,911 ¥571

259

10,073

¥

¥

¥

¥

¥

161,587 ¥
10,757 ¥172,3447,386 ¥¥¥¥

Consolidated
total

Adjustments

¥
¥

¥
¥

¥
¥

¥
¥

Total

190
1,077
1,267
52

18,964−18,964
1,934

7,634
−
7,634
1,254

134,799
9,680
144,479
4,146

Other

−
(10,757)(10,757)
(502)

¥
¥
¥

161,587−
161,5876,884(18) ¥

10,893Thousands of U.S. dollars
Reportable segment
Specialty SteelSpecial Materials(a) Sales and operating income:Net sales
Outside customers
Intersegment transactions
Total
Segment income$ 1,310,252$
94,093
1,404,345$
40,296$$(b) Other:
Depreciation$

97,912Formed & FabricatedMaterials

Other

Total

$
$

$

184,330−
184,330
18,796$

1,850
10,463
12,313
509

$

5,549

$

78

$
$

$

74,206−
74,206
12,188$2,514$ 1,570,638$
104,556
1,675,194$
71,789$106,053 $Consolidated
total

Adjustments

$
$
$

−
(104,556)(104,556)(4,880)(168)$ 1,570,638$−
1,570,638$
66,909$105,885

1. The "Other" category is the information service segment not included in reportable segments.
2. Segment income adjustments of ¥502 million ($4,880 thousand) are adjustments for inventories of ¥551 million ($5,356 thousand) and intersegment elimination of ¥49
million ($476 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.

35

FINANCIAL FIGURES
Related Information
Segment related information for the year ended March 31, 2013 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, 2013
Millions of yen
Japan

Net sales¥

North
AmericaAsia

105,918¥

26,005¥

Europe

3,740

¥

2,280

Others

¥

363

Total

¥

138,306

2. Property, plant and equipment
As Japan, which consists of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represents more than 90% of the amount of property,
plant and equipment on the consolidated balance sheet as of March 31, 2013, the Companies are not required to disclose information about property, plantand equipment.

(3) Information about major customers –Net sales

For the year ended March 31, 2013
Related segment

Millions of yen

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

¥¥28,357
17,607

Specialty SteelSpecialty Steel

Segment related information for the year ended March 31, 2014 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, 2014
Millions of yen
Japan

Net sales¥

North
AmericaAsia

123,689¥

31,560¥4,047

Europe¥1,986

Others

¥

305

Total

¥

161,587

Thousands of U.S. dollars
Japan

Net sales

North
AmericaAsia$ 1,202,270$

306,767$

39,337

Europe$19,305

Others

$

2,959

Total

$ 1,570,638

2. Property, plant and equipment
As Japan, which consists of Sanyo Special Steel Co., Ltd. and its domestic consolidated subsidiaries, represents more than 90% of the amount of property,
plant and equipment on the consolidated balance sheet as of March 31, 2014, the Companies are not required to disclose information about property, plantand equipment.

(3) Information about major customers –For the year ended March 31, 2014
Net sales
Millions of yen

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

¥¥

Related segment

Thousands of U.S. dollars

31,957
20,354$$36

310,620
197,839

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, 2014 and 2013, 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 requirethat 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 risks 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, 2014 and 2013, 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, 2014 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.

August 12, 2014
Osaka, Japan37

CORPORATE DATA

(As of March 31,2014)

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

2,775 (consolidated basis) 1,391 (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.html

Stock Information
Total Number of Shares Authorized to be Issued

474,392,000

Total Number of Shares Issued

167,124,036

Number of Shareholders

15,705

Principal Shareholders
Name of Shareholder

Percentage of
Voting Rights (%)

NIPPON STEEL & SUMITOMO METAL CORPORATION

15.13

NORTHERN TRUST CO.(AVFC)
RE 15PCT TREATY ACCOUNT

6.96

Company’s Kyoeikai Association

6.15

NSK Ltd.

4.66

Sumitomo Mitsui Banking Corporation

3.55

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

3.41

Domestic
corporations

Japan Trustee Service Bank, Ltd. (trsut account)

2.56

51,330 30.9%

JUNIPER

2.48

Mizuho Bank, Ltd.

2.27

Marubeni Itochu Steel Inc.

1.94

Shareholder Composition (thousands of shares)Securities firms
Foreign investors

1,156 0.7%

32,804 19.7%

Total numberof shares issued
Individuals and others
38,978 23.5%

Note: The Company holds 5,806 thousand shares of its own stock in treasury, but is excluded
from the above list of major shareholders.

166,101100％

Fainancial institutions
41,833 25.2%

Note : Treasury stock of 5,806 shares is included in "Individuals and others".

38

Consolidated Subsidiaries and Equity-Method Affiliates
Specialty Steel

Formed and Fabricated Materials
Consolidated Subsidiaries⑩ Santoku Tech Co., Ltd.

Consolidated Subsidiaries① Yohkoh Bussan 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, machinery maintenance

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

Equity-method Affiliates⑬ Advanced Green Components, LLC

Processing of special steel⑤ SKJ Metal Industries Co., Ltd.

Manufacturing of special steel products

Manufacturing and marketing of special steel products⑥ P.T. SANYO SPECIAL STEEL INDONESIA
Manufacturing and marketing of special steel products⑦ SANYO SPECIAL STEEL TRADING (SHANGHAI) CO., LTD.

Other

Involved in business and sales of special steel products in China⑧ Sanyo Special Steel India Pvt. Ltd.

Consolidated Subsidiaries⑭ Santoku Computer Service Co., Ltd.

Involved in business and sales of special steel products in India

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

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

⑮ Santoku Security Service Co., Ltd.

Manufacturing and marketing 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.
●

America
11 SANYO SPECIAL STEEL U.S.A., INC.
●
13 Advanced Green Components, LLC●

India
8 Sanyo Special Steel India Pvt. Ltd.
●
9 Mahindra Sanyo Special Steel Pvt. Ltd.
●JAPAN
Sanyo Special Steel Co., Ltd.
1 Yohkoh Bussan Co., Ltd.
●
2 Santoku Seiken Co., Ltd.
●
3 Santoku Kogyo Co., Ltd.
●
4 Santoku Technos Co., Ltd.
●
10 Santoku Tech Co., Ltd.
●
14 Santoku Computer Service Co., Ltd.
●
15 Santoku Security Service Co., Ltd.
●

Thailand5 SKJ Metal Industries Co., Ltd.
●INDONESIA
6 P.T. SANYO SPECIAL STEEL INDONESIA●

39

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