モノづくり Monozukuri

Manufacturing for the brighter future
AICHI STEEL REPORT 2009

ABOUT AICHI STEEL REPORT 2009

■ Introduction■ Readers

Aichi Steel Corporation (“Aichi Steel” or the “Company”) has published anannual “Environmental Report” since 1998, which was subsequently
upgraded to the “Aichi Steel CSR Report” in 2006 to report to the public theCompany’s activities conducted to fulfill its social responsibilities. In 2008, theCompany combined its CSR report with the Annual Report to expand thescope of the report to disclose all information regarding Aichi Steel to all
stakeholders, including the business activities and operating results of Aichi
Steel.

This Report is intended for our customers, suppliers and other business
partners, shareholders and investors, citizens in neighboring communities,
affiliated companies and our employees.

■ Report Period and Scope■ Editorial Policy

This Report covers activities conducted by the Aichi Steel Group during fiscal
2008 (April 2008 to March 2009). However, some activities conducted before
or after fiscal 2008 are also explained as necessary.

We have placed our focus on disclosing the activities of Aichi Steel and the
Aichi Steel Group during fiscal 2008 as much as possible, and enhancing all
stakeholders’ understanding of and confidence in our business and social
activities.
Colors and universal designs are adopted to make the presentation easy-tosee and easy-to-understand for readers.

■ Company Name

■ Structure of the Report

In this Report, Aichi Steel Corporation is referred to as “Aichi Steel” or the“Company,” and the entire corporate group comprised of the Company andits consolidated subsidiaries (see Page 7) is referred to as the “Aichi SteelGroup.” Overseas subsidiaries may be referred to by their shortened names(see Page 7).

The first part of this Report comprises the “Message from the President,” the“Corporate Profile” (including financial statement data for fiscal 2008), and“Highlights” comprised of three parts describing our major CSR activities
during fiscal 2008 and relevant messages. These are followed by adescription of our business management foundation, “CSR Policies andOutlines.” The results and progress of other activities are reported in the“Social Relations” “Environmental” and “Financial” sections in the latter half of
this Report.

■ Editorial Design
In preparing this Report, we have placed emphasis on using simple andeasy-to-understand expressions as far as practicable to ensure that readers
correctly understand the activities of the Aichi Steel Group. Technical terms
and other special expressions that may be difficult for general readers tounderstand are explained in Footnotes as necessary. URLs of the relevant
pages of the Company’s Website are also included to help readers refer torelevant information.

■ Release
October 2009 (The next report will be released in the summer 2010.)■ Contact
AICHI STEEL CORPORATION
General Affairs & Public Relations Dept., General Affairs Div.
1, Wanowari, Arao-machi, Tokai-shi, Aichi 476-8666
Phone: +81-52-603-9216
Fax: +81-52-603-1835
http://www.aichi-steel.co.jp/ENGLISH/index.html

Contents
Aichi Steel Report 2009

Business Update
Mission Statement

2〜5 … Message from the President

1. We will strive to make a positive contribution to society with safe, appealing anduseful technology and products.
2. We will nurture a corporate culture based on trust, reliability and the pursuit ofexcellence.
3. We will be a good corporate citizen, ever mindful of our environment
responsibilities.

6〜7 … Corporate Profile

CSR Activities Highlights 2008
8〜9 … 1. Monozukuri (Manufacturing)
10〜11… 2. Hitozukuri (Human Resource Development)
12〜13… 3. Environmental Efforts

CSR Policy
We will contribute to the sustainable progress of society and the Earth through oursound corporate activities.

CSR Vision 2015
– We will gain the trust and confidence of and give satisfaction to our customers
and all other stakeholders.
– We will develop employees who are open and fair, developing a corporate culture
characterized by a challenging spirit.

CSR Management
14〜15… CSR Policy
1 6 … … … Corporate Governance
1 7 … … … Compliance
1 8 … … … Risk Management
1 9 … … … Information Security

Social Relations Section
2 0 … … … Quality and Customer Satisfaction (CS)2 1 … … … Information Disclosure and Communication
22〜23… Employee Satisfaction
24〜25… Safety and Health26〜27… Social Contribution

Environmental Section
28〜29… Environmental Activity Policy
30〜31… Environmental Management
32〜33… Global Warming Prevention
3 4 … … … Environmental Material Flow
3 5 … … … By-products
36〜37… Environmental Data

Financial Section
38〜40… Management’s Discussion and Analysis
4 1 … … … Five-year Summary
42〜43… Consolidated Balance Sheets
4 4 … … … Consolidated Statements of Income
45〜46… Consolidated Statements of Changes in Net Assets
4 7 … … … Consolidated Statements of Cash Flows
48〜64… Notes to Consolidated Financial Statements
6 5 … … … Report of Independent Auditors

AICHI STEEL REPORT 20091

Business Update

Message from the President
Message from the President

Business Update

The current economic difficulties are an opportunity for strengthening
our business and financial structure. The Company has accelerated its
reform programs in order to attain Vision 2015.

CSR Activities
Highlight 2008
CSR Management
Social Relations Section

Shokichi Yasukawa,
President

Under the slogan “It’s the time to rebuild ourselves” we are working onstrengthening for the future●In fiscal 2008, the global economy and industries worldwide experienced historical ordeals.
What impact did these difficulties have on the Company and what actions has the Company taken?

Environmental Section
Financial Section

In the first half of the year, we succeeded in reporting profits underchallenging circumstances where the prices of many materials hadrisen sharply, through our groupwide cost reduction efforts. However,since the financial crisis occurred in October 2008, demand has sharply
declined in the automobile and construction machine industries,
the major customers of the Company. The production volume of
the Company has also contracted significantly. Consequently, theCompany reported a decrease both in revenues and profits for the fullyear of fiscal 2008.
However, these economic difficulties have offered us a great opportunity
to drastically change our conventional business approaches and2 AICHI STEEL REPORT 2009

systems and eliminate unnecessary processes/expenditures andinconsistencies that had been overlooked during the previous busy
period. I think this will result in reinforcement of the Company’sbusiness and financial structures in preparation for growth recovery.
We have established “Vision 2015,” which envisages the ideal state of
the Company to be realized by 2015. To attain this vision, the entire
organization of the Company is working hard to correct the distortions
generated in “manufacturing processes, business approaches, costs,
and the organization of the Company.” In short, we need to return tothe very starting point of the Company.

Polish “thoughtful initiative” to enhance productivity and create personal time

CSR Management

Meaning of “Z100”: This stands for three Japanese keywords starting with “Z”:“Zikkou-suru” (execute), “Zitsugen-suru” (realize), and “Zettai-yarinuku” (follow
through with mission). It is also derived from the Japanese expression “Z Flag” (This means to fight with all our effort and with our backs against the wall.).

CSR Activities
Highlight 2008

salaries paid to workers and depreciation costs; all other costs arevariable costs. Viewing things from this angle, you may find the power
consumption when the facilities are not operating to be too large, andthus consider ideas for power saving.
Managers and leaders in the workplace should look at the costs andcost sources from a new perspective. Thus, losses generated at various
stages are “visualized,” changing the nature of cost-saving efforts frommakeshift measures to fundamental reform of the cost structure. By
eliminating all unnecessary processes to achieve quicker, leaner andsimpler development or production processes, I believe we can become
the “world’s leading integrated manufacturer of steel and forgings”
as envisaged in Vision 2015, supported by robust manufacturingsystems.

Business Update“Z100” (*) is our symbolic project with the goal of reducing production
costs by 10 billion yen in two years. To achieve this goal, all manufacturing
processes should be reviewed. Efforts in profit creation should be madethroughout the entire organization, including reduction of quality-related
losses, yield rate improvement and improvement in procurement andphysical distribution.
One of the important points of this project is a change in how costs
should be perceived. Naturally, the cost assumed for an output peak
scenario should be reduced when the production volume is reduced. In
addition, how material costs, energy costs, inventories, labor costs andother costs should be treated has been drastically changed.
Many of the costs that have been treated as fixed costs are actuallyvariable costs that can be reduced. The real fixed costs are basic

Message from the President●Could you give us some examples of the Company's efforts toward structural reinforcement?

●You have started the “Halve-the-Time Campaign” within the Company.
What is the aim of this campaign?

Environmental Section“thoughtful initiative,” that is, an ability to act with thoughtfulness.
In Project Z100, I have given a directive to set targets and assess
attainment levels by viewing each quarter (three months) as if it werea full year. In this way, managers can see a full year plan as if it were afour-year plan and a three-year plan as a 12-year plan. This approach
will create a density in the contents of the plan and a sense of speed
in their mind. Managers of individual departments must demonstrate
thoughtful initiative and seriously plan out targets and processes toachieve the set targets. When this way of working is set in place, theorganization will become robust, and I believe that this approach willbring about overwhelming power to Aichi Steel in the near future.

Social Relations Section

Life is valuable and irreplaceable. The time allotted to an individual
person is limited. So, time can be seen as life itself. I want all peopleat Aichi Steel to use time effectively and achieve their responsibilities
quickly so that they can enjoy their personal life after work, spend
quality time with their families, enjoy hobbies and sports, take time toeducate themselves in order to enhance their personal and businessskills, and play an active role in community activities.
Each employee enjoying his/her personal life will become a vital force insupporting the foundation of the CSR management.
To set this lifestyle in place, we must create personal time for ourselves
by improving the productivity of our daily operations. We must always
question whether the work process is right, and need to demonstrate2015 Vision – Challenge to Innovation

To grow into the world’s leading integrated manufacturer of steel andforgings through quality and technology
To contribute to global environmental protection and the evolution of theautomobile through the development of cutting-edge materials

1. To work to become the world’s leading integrated manufacturer of steel
and forgings by “proactive approach”
2. To grow as an innovative enterprise through our “one-of-a-kind” products
3. To contribute to global environmental protection as a recycling-oriented
enterprise

AICHI STEEL REPORT 2009

Financial Section

Basic Medium-Term Management Policies
To continue global business growth as a recyclingoriented enterprise and to strive to become a corporategroup favored by local communities and society3Business Update

Message from the President
Message from the President

Business Update

Striving to become an enterprise long-trusted by stakeholders with thecorporate culture "1S"
No. 1 in our Core Business and One and Only in our New Business

CSR Activities
Highlight 2008

●The states of society, economy and industry have been changing recently. What policies must
we follow under such circumstances to ensure the continuance and significance of Aichi Steel’sbusiness in the future?

CSR Management

Since the onset of the economic crisis in 2008, world conditions haveobviously changed. The era of endless resource consumption has
come to an end. As demonstrated by the Green New Deal in the UnitedStates and the worldwide eco-car popularization, people’s senses ofvalues have drastically changed. Without a doubt, we are now standing
at a turning point of history. I think the social and industrial landscapes
will have completely changed in 2015.
Of course, major customers of Aichi Steel will also have restructured

the direction of their reserch and development, taking into account thechanges of growing business sectors. In this era of a big paradigm
shift, it is important to anticipate change and take preemptive steps.
We are now exploring the movement of technical development in the
Toyota Group and other customers to determine which fields Aichi Steelshould emphasize in the future while taking advantage of its strength inits current businesses.

●Under these circumstances, the growth of new business fields is expected.

Social Relations Section

Steel and forgings are the core businesses of the Company. Since
huge machines are necessary to make iron and steel, even if weexperience a temporary economic downturn, we must plan the renewalof our production facilities based on the analysis of our businesscompetitiveness for the next few decades and repeat reengineering offacilities to pursue further improvement of our productivity.

Environmental Section
Financial Section

4 AICHI STEEL REPORT 2009

On the other hand, by expanding our unique technologies establishedthrough R&D of specialty steel, we have also strived for exploration intoand development of new businesses, which should become anotherpillar of the Company business. Development of “MAGFINE” (highperformance neodymium type plastic magnet), “MI Sensor” (highsensitive magnetic sensor), “MAGFIT” (dental magnetic attachment),
and iron ion-supplying plant growth activator “TetsuRiki-Agri” hasadvanced to the commercialization stage. I think 2009 and 2010 will
mark a turning point for the our new business.
As envisaged in Vision 2015, we will aim to become Number One in
our core business by taking advantage of our strength as an integrated
producer of steel and forgings, and One and Only in our new businessareas demonstrating our unique technological ability.

useless scrap iron. As we manufacture products, we are contributing
to the realization of a recycling-oriented society. Thus, we will speed up
the structuring of a robust manufacturing system through the previously
mentioned Project Z100, aiming at reporting profits in the second halfof fiscal 2009 and resuming growth quickly once economic conditions
recover. To actively contribute to the prevention of global warming, we
also set a new goal to “achieve a 20% reduction in our CO2 emissions
by 2015 compared to the level in 1990.” We will work hard to achieve
this goal by implementing manufacturing process reform focusing on
the keywords “simple, slim, short and straight.”●What do you think is the most important factor for Aichi Steel to retain its status as an enterprise
trusted by stakeholders?

in demonstrating the sprit of “body, heart and mind.”“Body” means the toughness to get things done and making good yourpromises. “Heart” means high aspiration and strong will. “Mind” means
thinking about things using rules and principles and finding problems
and new directions. These are consistent with the concept of “ambition,
learning, and achievement” that has been an integral part of the “AICHI
Spirit” inherited as the DNA of Aichi Steel.

Environmental Section

With the “1S” corporate culture and the concept of “Body, Heart andMind” set in place and permeating throughout the Company, I strongly
believe that a path will open for us no matter how tough the businessconditions, and that Aichi Steel will continue growing as an indispensable
company trusted by many stakeholders and society.

Social Relations Section

I believe “sincerity” is the most important element for all actions taken
by an enterprise and is a basis for compliance. People make minor
mistakes. But it is important to honestly report the mistakes we makeand visualize them so that they can be shared by all people within
the Company to prevent serious mistakes or accidents in the future.
Incorporating this concept of “sincerity,” I want to establish and build“1S” as the corporate culture of Aichi Steel. This “1S” slogan conveys
our message that our first (1st) priority should be placed on the three Ss,
that is, "Shojiki” (Sincerity), “Seisou” (meaning cleanliness in Japanese),and “Safety First.” “Seisou” or cleanliness is the basis for improving
quality and productivity. “Safety First” will ensure risk detection andstrict compliance with rules.
In terms of CSR, these are the responsibilities we should fulfill. At
the same time, it is also important to be aggressive in strategicallypromoting CSR. Leaders in individual departments should take the lead

CSR Management

The most important corporate social responsibility (CSR) to be fulfilled
by an enterprise is the permanent continuance of its business. I believe
it is our mission as a corporation to create employment through soundbusiness management, pay our taxes, and satisfy the expectations ofour many stakeholders who support the Company.
Fiscal 2008 was the first year of the second phase of the MediumTerm CSR Plan. However, because of the sharp slowdown of the world
economy, Aichi Steel could not fulfill its responsibility in the businessperformance. We are a recycling-oriented company. The main businessof the Company is to reproduce high value-added specialty steel from

CSR Activities
Highlight 2008

●In fiscal 2008, Aichi Steel has stepped up to the second phase of its Medium-Term CSR Plan. As
we have completed laying the foundation, what are your plans for the future?

Business Update

Message from the President

Stepping up to the second phase of CSR upholding the concept of“body, heart and mind”

Financial Section
AICHI STEEL REPORT 20095

Business Update

Corporate Profile
Corporate Profile

Business Update

Outline of Aichi Steel Corporation

CSR Activities
Highlight 2008
CSR Management[Establishment] March 8, 1940
[Capital] 25,016 million yen (as of March 31, 2009)[Representative] Shokichi Yasukawa, President[Employees] 2,331 (as of March 31, 2009)[Business Description] Production and sale of specialty steel products,
forgings and electromagnetic products[Offices] Head Office: Tokai-shi, Aichi, Japan
Sales Offices: Tokyo / Osaka / Hiroshima / Fukuoka
Overseas Offices: Shanghai / Seoul
Plants: Chita / Kariya / Forging / Higashiura / Gifu
[Customers and Suppliers]
Major Customers: Toyota Tsusho Corporation /Toyota Motor Corporation / Aisin AW Co., Ltd.
Major Suppliers: Toyota Tsusho Corporation / Mitsui & Co., Ltd.

The birth of Aichi SteelIn 1926, Sakichi Toyoda, recognized today as one of Japan’s foremost
inventors, founded Toyoda Automatic Loom Works, Ltd. (currently
Toyota Industries Corporation). His eldest son, Kiichiro Toyoda, saw theneed for promoting Japan’s automobile industry, and set up a research
center in the Steel Production Department to develop specialty steel
for automobiles. This was the starting point of the history of Aichi Steel.
In 1940, this Department developed into Toyota Steel Works, Ltd. (thename was changed to Aichi Steel Works, Ltd. in 1945). Kiichiro believedthat manufacturing and materials technology were of equal importancein automobile manufacturing. Realizing the necessity of supplying highquality materials that were right for the job, he came up with the R&D
principle, “Great cars are made of great steel.” Aichi Steel continues toadhere to this principle, supplying the automobile industry and manyother industries with high-quality specialty steels and forgings.

Social Relations Section

Major Products
For details, please refer to our Website.

http://www.aichi-steel.co.jp/ENGLISH/pro̲info/index.html

Environmental Section

Specialty steel

Forgings

Specialty steel is manufactured by adding
alloys and metallic elements to iron to improvematerial properties such as strength, hardness,
toughness, wear resistance, heat resistance,and corrosion
resistance.

Forgings are produced by pressing and forging
specialty steel by various forging machines.
Forgings are used in automobiles, construction
machines and manufacturing machines that
require strength and durability.

Major products
Specialty steel: Structural steel, free-cutting
steel, spring steel, etc.
Forgings: Crankshaft, differential ring gear, rearaxle shaft, etc.
Stainless steel: Shaped stainless steel, roundbar, wire rod, etc.

Financial Section

Stainless steel
Tough and corrosion-resistant, stainless steel
is used in applications related to water suchas dams, sluices, andships. They are also
used in chemical andnuclear power plants
as well as in everyday
utensils.

6 AICHI STEEL REPORT 2009

Electromagnetic products /TetsuRiki-AgriUsing our know-how in specialty steel
manufacturing, we develop electronic parts,
magnets and sensors. In addition, “TetsuRikiAgri” that promotes plants' growth through thelatent power of iron has been developed as
well.

Sales Mix (in amount, non-consolidated basis)
Electromagnetic products and others
2.0%
Stainless steels
19.2%
Specialty steels
44.7%
Forgings
34.1%

Business Update

Corporate Profile

Financial Data (Consolidated and Non-Consolidated)
Unit: millions of yen (Any figure less than one million yen is discarded.)

Consolidated

Non-Consolidated
Change fromprevious year

Fiscal 2008

Fiscal 2007

Change fromprevious year

222,060

253,462-12.4

181,317

202,859-10.6

Operating income-482

10,884--3,2086,559-

Ordinary income-1,804

9,332--3,476

6,087-

Net income-14,105

5,692--14,572

3,837-

Net assets

104,395

128,155-18.5

95,919115,614-17.0

Total assets

220,017

264,048-16.7

200,006

236,097-15.3

Net sales

Social Relations Section

Aichi Steel GroupFor details, please refer to our Website.

http://www.aichi-steel.co.jp/ENGLISH/com̲info/a̲group.html

Overseas subsidiaries (8 subsidiaries)- Aiko Corporation- Aichi Ceratec Corporation- Omi Mining Co., Ltd.
- Aichi Techno Metal Fukaumi Company- Aichi Steel Logistics Co., Ltd.
- Aichi Information System Company- Aiko Service Co., Ltd.
- Aichi Micro Intelligent Corporation- Asdex Corporation- Aichi Forging Company of Asia (AFC)- Aichi Forge USA, Inc. (AFU) *- Aichi Europe GmbH (Ae)- Aichi International (Thailand) Co., Ltd. (AIT)- Shanghai Aichi Forging Co., Ltd. (SAFC)- PT. Aichi Forging Indonesia. (AFI)- Aichi Magfine Czech s.r.o. (AMC)- AMIT, Inc.

Affiliates* In April 2009, Aichi USA, Inc. (A-USA), the regional headquarters in the United States, andLouisville Forge and Gear Works, LLC. (LFG) were merged, and the company name waschanged to Aichi Forge USA, Inc.

Environmental Section

Subsidiaries in Japan (9 subsidiaries)

CSR Management

Fiscal 2007

CSR Activities
Highlight 2008

Fiscal 2008

- Tokai Special Steel Co., Ltd.

Financial Section
AICHI STEEL REPORT 20097

CSR Activities Highlight 2008

Monozukuri (Manufacturing)
Business Update
Monozukuri (Manufacturing)

CSR Activities
Highlight 2008

Striving to see things from thecustomers’ point of view, we will provide
high value-added products unique to
Aichi Steel to the global market and to
new business fields
Kunio Kubo, Managing Director

CSR Management

Establishing specialty steels andforgings development/production
systems capable of handlingchanges in market needs

Social Relations Section
Environmental Section
Financial Section

As production on a global scale has expanded in many industries,
customers’ requirements for specialty steel and forgings havechanged. While materials with advanced properties are demanded inmature product markets, generality and low cost products are requiredin emerging markets. To satisfy customers in each of these distinct
markets, it is important to differentiate ourselves from competitors by
pursuing product quality unique to Aichi Steel, regardless how our
products are used in customers’ products.
Since the economic crisis in the fall of 2008, automobile manufacturers
have accelerated their development and diffusion of hybrid cars andelectronic vehicles, aiming at creating new demand. Companies inother industries are also strengthening their development efforts torealize early introduction of new-generation products into the market.
The development process of such innovative products by customers
will need new materials and shaping technologies. As a material
manufacturer and development
partner, we should demonstrate
to customers our willingness
to participate in their projects
from the new product planningstage and to develop newtechnologies and materials
in close cooperation withcustomers. Therefore, we are

8 AICHI STEEL REPORT 2009

exploring customers’ movements in R&D activities and technology
application and identifying even the smallest changes, in order to findnew business fields where we can take advantage of our strength as
an integrated steel and forging manufacturer.

Expanding the application range ofstainless steels and electromagnetic
products
Stainless steel is resistant to rust and boasts high durability anddesignability. In particular, Aichi Steel enjoys the greatest shareof the market in shaped stainless steels, supported by its ability tocreate various shapes with its unique rolling technology. Our shaped
stainless steels are used in the construction of buildings, tunnels,

Business Update

Our stainless steel was newly adopted in the
Kanmon Highway Tunnel

Our electromagnetic product business has actively been engaged in development
activities to develop products/technologies that will support the business’s steady
growth. In fiscal 2008, our world’s first “3-axis magnetic gyro sensor” was introduced
into the market (September). In October,the “miniSD card” incorporating an MI
sensor was introduced. In November, the“underground mall navigation technology”
using a high-sensitive MI sensor was
introduced. We will explore new demand
for these products and technologies.

Environmental Section

New products and technologies have been
introduced into the market

Social Relations Section

The Company’s shaped stainless steels were newly adopted as a support forthe concrete mounted on the ceiling during the ceiling board repair work of the
Kanmon Highway Tunnel. Since stainless steel excels in safety, durability andfire resistance, its application range has recently expanded to civil engineering
works.
Our welded T-shaped steel and rolled flat
steel bar were adopted by this project(totaling about 350 tons) and the repair
work has been successfully completed.

CSR Management

Structures of industries are drastically changing mainly in theenvironmental and energy areas. To maintain business growth undersuch circumstances, it is important for Aichi Steel to enhance the valueof its Aichi brand by making use of the synergy brought about by its
robust manufacturing technologies cultivated in the area of specialty
steels for automobiles, its integrated forging production system
contributing to reductions in lead times, and other technologies
derived from specialty steel R&D, including magnetic materials andsensors.
To achieve this, in accordance with our principle of “monozukurimanufacturing from the viewpoint of customers,” we must promotecollaboration between the marketing department and the development
department to quickly identify latent needs in society and urgently
establish a solution-type business model that proposes a solution fora customer’s problem or difficulty.

The aggregate output from our flat steel rolling plant reached six million tons infiscal 2008.
Since the commencement of production in 1944, the plant has adopted various
new technologies and repeated facility improvements in order to improve productquality and productivity. In 1951, the plant began mass production of flat spring
steels. Along with the progress of motorization throughout the world, the plant has
undergone several large modifications inorder to produce flat spring steels of higher
quality and now operates as a rolling plant
dedicated to flat steel production.
Flat spring steels produced by this plantaccount for about 80% of the market
share in Japan. We will continue our quick
delivery of high quality products to meetcustomers’ expectations.

CSR Activities
Highlight 2008

Enhancing the value of the “Aichi” brandSix million tons of output

Monozukuri (Manufacturing)dams and tankers, nuclear power plants, LNG tanks, pharmaceuticalproduct manufacturing plants, and many other plants. The range ofapplications has been expanding every year. Since the latent demand
to replace iron with stainless steel has been increasing recently, theCompany now emphasizes finding potential end-users by forming amarket exploration team.
We are also planning to market magnetic material products, which
can be incorporated as core technologies into hybrid cars, EVs andother eco-friendly cars expected to dominate the future automobile
market. Specifically, with its world leading magnetic properties, our“MAGFINE” has enabled downsizing and a 50% weight reduction of
the automobile DC motor. Since this technology will enable weight
reduction of automobiles (which will result in improvement in fuelconsumption) and improvement in convenience, expansion in global
demand is expected. In addition to the seat motor, which has alreadyincorporated our MAGFINE, we will promote the use of MAGFINE inother components of automobiles where electric motors are or canbe used.
In addition, we will strive to firmly accommodate the increasing
demand for magnetic sensors generated by the rapidly expanding
demand for GPS mobile phones and actively market the new 6-axis
sensor developed by the Company for various applications.

Financial Section
AICHI STEEL REPORT 20099

CSR Activities Highlight 2008

Hitozukuri (Human Resources Development)
Business Update
Hitozukuri(Human Resources Development)

CSR Activities
Highlight 2008

We place emphasis on relationship andcommunication among generations,aiming at developing employees who
can form their own visions.
Kikuo Kito, Senior Managing Director

CSR Management

Manufacturing is supported by thedevelopment of people. People are
valuable assets for the company

Social Relations Section

For an enterprise to grow permanently, employees’ high morale andmotivation, constant vitalization of the organization, and a corporate
culture imbued with a challenging spirit are essential. And people
constitute the foundation of that growth. Employees are the greatest
resources of any enterprise. Dynamic manufacturing is supported by
the straightforward efforts of human development. This policy of humanresources has not changed since the foundation of Aichi Steel and has
supported the growth of Aichi Steel.
Therefore, although in fiscal 2008 we have experienced the greatest
upheaval of the global economy in a century, we continued to recruit
new employees at almost the same rate as in previous years, in order toEnvironmental Section
Financial Section

10 AICHI STEEL REPORT 2009secure human resources for the future and maintain a proper balanceamong generations.
At the same time, to demonstrate our leading competitiveness in
the rapidly changing market and industrial structure, it is vital for theCompany to develop employees who can take the initiative to form
future visions and act flexibly, turning crises into opportunities. Thus weemphasize leadership training of young employees in accordance with
our medium-term human resources development plan. Restructuring of
the employee education system has also been implemented.

Promotion of communication acrossgenerations, departments andpositions
Team work supported by corporate culture that is open acrossgenerations and departments is indispensable for productive andhigh-quality manufacturing. Good communication is the basis ofsuch corporate culture. The Company has placed emphasis on andpromoted communication among employees in various opportunities
during fiscal 2008.
For example, the “Iki-Iki Aichi Team” campaign began in January
2008. Young officers, executives and managers stood at the officegate every morning and greeted employees. This campaign continued
for one year. The Employee Manner Book and the Mail User Guideline
were also created in cooperation with young employees in order toimprove employees’ etiquette when communicating with other people.
These actions helped smooth communication in the workplace.
In departments where technological skills are required of employees,
a tutor system is adopted. A senior employee is paired as a tutor witha new employee and teaches the young employee how to do theBusiness Update

From the recruitment of new graduates in fiscal 2009, the first female trainees
have been studying in the Aichi Steel Technical Training Institute. As people’s
career choices have diversified, our Technical Training Institute will meet the
expectations of young people who will support the Company’s future, nurturing
within them a challenging spirit for manufacturing.

Show our gratitude for 70 years ofhistory by social contribution to thecommunity

Social Relations Section

In 2010, the Company will celebrate its 70th anniversary in business.
We have been able to continue our business as one of the leading
companies in the region precisely because the local community has
supported our Company and its activities. To show our gratitude to
the community, we are actively participating in community activities
centered on the key words “Clean,” “Green,” “Creative,” and“Volunteer.”
As we have continued these sincere efforts for long years, more andmore local people feel an affinity to the Company, and job applications
from the local community have been increasing every year.
While economic conditions remain severe, it may be difficult for
the Company to contribute to the community in terms of economic
contribution for the time being. Under such circumstances, each

The tutor system was restarted in fiscal 2007, aiming at handing over know-how
and providing professional and personal advice from senior employees to young
employees. In fiscal 2008, an educational
program for senior employees who coachyoung employees was started to promotemutual brainstorming and sharing of
information. By sharing information on
conditions and environments acrossdifferent workplaces, the coaching skills ofsenior employees will be enhanced.

CSR Management

Education for coaching

CSR Activities
Highlight 2008

First female trainees learning in the TechnicalTraining InstituteHitozukuri(Human Resources Development)

job and gives advice as needed. On-site lecturing programs are also
provided. A “Meister” of specific skills is dispatched to a workplaceand gives lectures or training on the skill he mastered to the next
generation of employees. In the past, it was a traditional practicethat a master handed down his skill to his apprentices through keencoaching. To hand over the unique skills accumulated in Aichi Steelto succeeding generations, we have devised a modern arrangementof this traditional apprenticeship so that it can be accepted by young
employees today.

Environmental Section

employee must take part in various social activities as a member ofthe community with a strong sense of CSR, to afford members of thecommunity a feeling of amicability and closeness to the Company. I
believe this will foster prideand promote the personal
development of employees
and give them strong work
motivation.

Financial Section
AICHI STEEL REPORT 200911

CSR Activities Highlight 2008

Environmental Efforts
Business Update
Environmental Efforts

CSR Activities
Highlight 2008

We strive for CO2 reduction by theinnovative reforming of manufacturing
processes and are making many otherefforts in various fields to achieve ourEnvironmental Vision 2015.
Shinji Mukai, Director

CSR Management

Promoting CO2 reduction byrectifying the production process

Social Relations Section

Production of specialty steel consumes huge amounts of energy in theprocess of melting iron scrap,and shaping into round bars or forgings.
This is the most important issue in rationalizing the production process toachieve CO2 reduction. The Company has made companywide energysaving efforts, including changing its fuel from heavy oil to LNG, using
energy-saving burners with high combustion efficiency and scheduled
renewal of facilities. Through these efforts, it is expected that the internal
CO2 reduction target set by the Company and the target set by the steel
industry for fiscal 2010 will be mostly achieved by the Company.
Thus, we have established a new higher target to achieve a “20%CO2 emission reduction by 2015 compared with the level in 1990.”
To achieve this target, a Global Warming Prevention Committee

Environmental Section
Financial Section

12 AICHI STEEL REPORT 2009has been established within the Company to discuss and determine
specific methods for CO2 reduction. A 20% CO2 reduction requires
improvement of specific energy consumption (energy consumption rate
per output) by about 40%. To achieve this goal, we are working on
innovative reform of the production process, focusing on the keywords“4S” (Simple, Slim, Short and Straight). The slogan conveys the ideathat all processes from material input to the shaping of steels andforgings should be coordinated to prevent any unnecessary energy
consumption. By realizing a smooth process flow (rectifying), the energy
efficiency of the production line with be improved. As an exemplary
project, the construction of a new high-efficiency continuous casting
line that synchronizes its start and end times with the previous andsubsequent processes has been planned, and we are preparing tobegin operations in 2011.

Business Update

The CO2 emissions reduction target for 2015 would be difficult to achieve by thesole effort of the Company. Accordingly, the Aichi Steel Group has created a New
Green Purchasing Guideline in order to strengthen coordination among businessoffices and relevant suppliers. Following this Guideline, we will strive to grow into a
more environment-conscious enterprise.

The Seki Plant, which will produce electromagnetic products, is now underconstruction. Environmental considerations are also given for the construction ofthis plant.
The structure of the building is designed
to enable environment-friendly operations.
Moreover, in close cooperation with theconstructor, efforts not to generate waste nor
impose burdens on the natural environment
during construction work are made. We havechosen ecological construction techniques
for the construction of the plant.

Environmental Section
Financial Section

Engagement (collaboration) with business partners is necessary toeffectively reduce the environmental burden of our business activities.
Accordingly, the Company promotes environmental burden reducing
activities in collaboration with “Hokokai,” an association of major
suppliers of the Company, through briefing sessions on our procurement
policy, the Value Analysis (VA) and Proposal System, and the New
Green Purchasing Guideline revised in 2008.
One example is our Seki Plant, a new plant for producing “MAGFINE”
for automobile use, scheduled to begin production in 2010. In addition
to the energy-saving designs incorporated in the production line andthe plant structure, we selected constructors who are able to use
construction techniques emitting less CO2.
In the area of steel transportation, we collaborate with our logistics
subsidiary to improve the efficiency of product delivery by using relay
depots and promoting the modal shift from truck to ship.
Efforts to reduce CO2 emissions have also been made in the forging
delivery process. We strive to increase the cargo loading rate per truck.
In addition, we ask our customers to allow mixed loading or leveling of
the number of deliveries to reduce energy consumption as part of ourefforts to reduce our environmental burden.

Environmental consideration at the Seki Plant
Social Relations Section

Collaboration with business partners
in efforts to reduce environmental
burden

CSR Management

Together with suppliers

CSR Activities
Highlight 2008

Bloom (large section) continuous casting machine No. 3 will be constructed as apart of our large-size facility investments. In designing the facility, we will strive to
reduce CO2 emissions significantly through direct connection, direct hand-over andrectification of the production processes and improvement of the yield rate.
This represents the start of efforts to achieve the CO2 emissions reduction target
for fiscal 2015.

Environmental Efforts

CO2 reducing design incorporated incontinuous casting machine No.3

AICHI STEEL REPORT 200913

CSR Management

CSR Policy
Business Update

We practice CSR management to gain trust from stakeholders.
We believe that we can retain our status as a trusted company by practicing our mission
statement and improving our corporate value. To this end, we have set CSR principles andcontinue practice these principles.

CSR survey

CSR Activities
Highlight 2008

Establishment of Medium-Term CSR
Plan 2010

In November 2008, to find the status of the compliance system andother related matters, a CSR survey was conducted among subsidiaries
in Japan and to major suppliers. We asked these companies toself-assess their compliance and security control systems and theiroperating statuses.
Results of this survey are being analyzed and will be utilized to promote
CSR activities throughout the supply chain of the Company.

CSR Policy

CSR Management

Based on the results of the CSR activities conducted under our
three-year plan since 2005 and evaluation of those results, we haveestablished a new Medium-Term CSR Plan (Medium-Term CSR Plan
2010) covering the three years from fiscal 2008.
The plan was deliberated on and approved at the meeting of the CSR
Working Group in February 2008 (held twice a year and chaired byPresident; members include all directors, standing corporate auditors).
This plan will be reviewed and modified as needed in accordance withthe progress of activities.

Designation of CSR Enhancement
Month

Social Relations Section

To disseminate and enhance CSR consciousness among employees,
we set October each year as the Aichi Steel Group CSR Enhancement
Month. During this month, greater emphasis is placed on CSR activities
throughout the Aichi Steel Group.
In fiscal 2008, workshops were held at all sites to promote employees’
understanding of our CSR activities, using Aichi Steel Report 2008 as a
textbook. A community cleaning program “Extended Clean Aichi Day”
was also implemented in which employees from the entire Aichi SteelGroup participated.

Aichi Steel Group's CSR Concept

Customers

Localcommunities
Society

Suppliers
Improved corporate value

CSR management

Environmental Section

Realization of mission statement
Corporate governance

Shareholders- Companies Act- Financial Instruments
and Exchange Law (J-SOX) *1

Shareholder’s Meeting
Disclosure of
information(Accountability) Board of Directors

Report toExternal auditing (Auditors)

Board of Auditors

Employees

Controls based on the “Basic policy on internal control systems”*2
Contributing to local communities and society / Contributing to environmental preservation- Labor Standards Act- Industrial Safety and Health Act- Worker Dispatch Law

Continuous growth throughbusiness activities
Corporate ethics / Compliance- Civil Code- Pharmaceutical Affairs Law- Antitrust Law- Other regulations

Financial Section

Risk management
A sound corporate culture that is brimming with the desire to take on new challenges
AICHI Spirit*3/Action Guidelines*4*1 J-SOX: The Japanese version of the U.S. SOX (Sarbanes-Oxley Act). This Act was created using the SOX as a model and designed to improve the accounting auditing system andinternal control of companies in Japan.
*2 Internal control: Activities and systems to control, monitor and secure the soundness and efficiency of operations, as part of corporate governance, by following standards andprocedures established for individual operations.
In particular, standards and systems to prevent improper financial accounting should be established, and auditing should be conducted to verify that they are operated properly.
*3 AICHI Spirit: A slogan presenting, in an easy-to-understand manner, the management philosophy, sense of value and other basic ideas upheld by Aichi Steel as its corporate “genes”
inherited from predecessors (established in July 2006).
*4 Aichi Steel Group Action Guidelines: Practical guidelines that must be followed during daily business activities (revised in January 2007)

For details, please refer to our Website.

14 AICHI STEEL REPORT 2009http://www.aichi-steel.co.jp/ENGLISH/com̲info/index.html（Aichi Steel Group Action Guidelines）

Business Update

Medium-Term CSR Plan Priority Issues
and Major Activities in Fiscal 2008

Ⅰ Activity
management

Priority items

Major activities in fiscal 2008

Assessment

1 Diffusion of and strict adherence to
CSR Policy

Created CSR Enhancement Month○

CSR assessment by
subsidiaries in JapanⅡ CSR activities

CSR Activities
Highlight 2008

Category○: Target or significant result achieved△: Target not achieved or poor activity result
×: Serious problem or improvement suggested
Future plan
Improvement of the activity
contents during CSR
Enhancement Month
Improvement in assessment basis△

Response to change inautomobile mechanism

3 Innovation for environment-conscious
manufacturing

Reengineering was promotedin the core business.
* Plan was revised in response to
the deterioration of the businessenvironment during the year.

△

Conduct activities linked with
Project Z100
(cost reduction project)

4 Community activities resulting inenvironmental and social contribution

Participants increased. Employees’
CSR consciousness wasenhanced.

○

Increase participants by planning
new activities

5 Activities to preserve local and global
environments

CO2 reduction target 672,000 tons/
year → Actual Results: 544,000 tons/
year (decrease)△

Since the production volume
was reduced, the reduction
effort should be changed fromreduction of gross volume to
reduction per product unit.

AICHI STEEL REPORT 200915

Promote new technologicaldevelopment

No serious defect was found.

○Respond to social demand

7 Prevention of serious risks

Compliance training program wasprovided to officers and leaders.

△

Reassurance of compliance toall employees○

Promote the "Halve-the-Time"project more aggressively

Service contracts were reviewed.
Ⅲ Respecting
employees andcorporate culturalreform8 Balancing work and personal life

Employee awareness wasenhanced regarding theimportance of time efficiency

9 Creation of vital and open workplace

Foundation for communication was
created, including the “Iki Iki Aichi"
team activities.

○

Additional programs

10 Creation of safe and comfortableworkplace environment

Accidents resulted in work timeloss:
No accidents in the Company, 2
accidents in the General Safety
and Health Council△

Promote activities in the Aichi
Steel Group and associatedcompanies

Financial Section“Halve-the-Time Campaign” wasplanned and carried out.

Environmental Section

6 Strengthening of internal control
system in accordance with the
Financial Instruments and Exchange
Law (J-SOX)

Social Relations Section

Quantity of land-filled waste
Target: 2% of the 1990 level →Actual Result: 56% of the 1990
level (setback compared with theprevious year)

CSR Management

Eco-friendly production processes
and weight reduction of
automobile parts

CSR Policy

2 Development and provision of ecofriendly products and technologies

In the physical distribution project,
the roadway and the walkway were
improved.

CSR Management

Corporate GovernanceBusiness Update

We aim at efficient and transparent corporate governance.
We strive to establish a sound corporate governance system that ensures monitoring andauditing of business operations, and such a system should be reviewed continuously from thestrict viewpoint of management control.

CSR Activities
Highlight 2008
Corporate Governance

CSR Management

Compliance with the Financial
Instruments and Exchange Act

Meetings of the Board of Directors
and the Council of Corporate Auditors

In response to the enactment of the Act, the Company and its
consolidated subsidiaries have strengthened their control environment
and proceeded with documentation of relevant procedures. Accordingly,
the Company was able to complete the first year of the enactment withno “critical defects.”

The regular meeting of the Board of Directors is held every month, and a
special meeting is called as needed. Important decisions are made andthe operating status of the Company is reported at the Board meeting.

Validation of the basic policy for theinternal control system

Attendance rates in fiscal 2008

In May 2006, the Board of Directors established the Basic Policy for theInternal Control System. The Policy has been revised in April every year
since, and the status of the operation of the system is reported to theBoard of Directors. In fiscal 2008, the Policy was reviewed in the light of
the Act, and the notification received from the Tokyo Stock Exchange(“Policy for Acting Against Antisocial Forces”)*. Since all requirements
stipulated in the law and the notification are already stated in the current
Policy, no revision was made to the Policy in this review.

Meetings

Director
attendancerate

Board ofDirectors

15 meetings

Board ofAuditors

12 meetings

Corporate auditor
attendance rate
Standing
corporate
auditors

Outsidecorporate
auditors

96%

100%

52%

−

100%

96%

Social Relations Section* Notification regarding a partial revision of the securities listing rules in responseto the establishment of a listing system designed to eliminate antisocial forces andother listing systems (February 2008).

Our corporate governance system
Shareholder’s Meeting

Environmental Section

Appoints/Dismisses

Appoints/Dismisses

Board of Directors
AuditsMakes decisions/Supervises

Appoints/Dismisses

Reports toBoard ofAuditors

Accounting
Audit Team

Judges if an accounting audit is needed

AuditsBoard of Representative Directors
Reports toReports to
Instructs/Supervises

Reports to
Instructs/Supervises

Audit Department

Financial Section

AuditsAuditsAuditsBoard of Managing
Directors(Deliberation ofcritical issues)
Makes proposals to/Reports to

CSR Working Group, etc.
(Deliberation of internal
governance policies)

Makes decisions/
Makes proposals to/Approves
Reports to

Makes decisions/
Approves

Business/Departments
Reports toAdvises/Aids

Group Company

16 AICHI STEEL REPORT 2009

Appoints/Dismisses
Reports to

AuditsCSR Management

ComplianceBusiness Update

Creating corporate culture through individuals’ awareness and communication.
An open and fair enterprise can be realized only when corporate ethics are rooted deeply in
employees’ awareness. We always strive to improve employees’ compliance consciousness inorder to create an open workplace atmosphere.

In July 2008, the Action Guidebook for Executives was created, aimed
at promoting compliance throughout the Aichi Steel Group. The
Guidebook was distributed to directors, corporate auditors, and all
officers of the Company and Group companies.

CSR Management

Use of the “Hotto” Line

ComplianceTo enhance the compliance consciousness of employees, we provide
educational programs during the training sessions of each job level of
employees to promote understanding of the Aichi Steel Group Action
Guidelines and present incident reports. Seminars by outside lecturers
are also provided to acquire up-to-date information.
In fiscal 2008, following educational programs and seminars were
provided:Training sessions for each job ladder: eight times
Seminars: Twice– Seminar for Aichi Steel Group officers (July)– Seminar for leaders (February)

Action Guidebook was created for
directors and officers, and distributed.

CSR Activities
Highlight 2008

Compliance education program

AICHI STEEL REPORT 200917

Aichi Steel “Hotto” Line is a hotline system to encourage internalreporting of improper actions. During fiscal 2008, the “Hotto” Line
received five internal reports. Reported facts were investigated andmeasures to correct the improper actions were taken. A notice wasdistributed throughout the Company to prevent recurrence of the sameor similar improper actions.

Calls to “Hotto” LineYear

Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008
5

2

11

5

5

Respect for employees' human rights

During the Aichi Steel Group CSR
Enhancement Month, a pocketbook of
CSR Card was distributed to all employeesof the Company and directors of Group
companies. The pocketbook contains“Mission statement,” “AICHI Spirit,” “Aichi
Steel Group Action Guidelines” and “Aichi
Steel Group CSR Policy”.

In the Aichi Steel Group, we respect the human rights of each
employee. This principle is clearly stated in our Office Regulations(Service Disciplines), the Aichi Steel Group Action Guidelines and otherregulations. In fiscal 2008, company newsletters and bulletin boards inthe cafeterias were utilized to present human rights information and toremind employees of the counseling service provided via the “Sexual/
Power Harassment Hotline” (provided by the Human Resources
Department). In fiscal 2008, the Hotline received no counseling calls.

Environmental Section

Distribution of CSR Card

Social Relations Section

No. of calls

Compliance Promotion System
Person in charge of legal affairs
Director responsible for the General
Affairs Div.

Various locations
Person in charge of legal compliancein the department
Key legal person

Compliance liaison meeting

Legal Compliance Site
General Affairs Div.

Various primary
legal sites

Financial Section

CSR Working Group
Chairperson: President
Members: Managing
directors
and auditors

CSR Management

Risk Management
Business Update

We make all-out efforts to develop a complete risk management system toavoid risks that would affect our businesses.
We identify all foreseeable risks for the Aichi Steel Group in all aspects and implement strict risk
management to minimize the adverse effect of risks on stakeholders.

CSR Activities
Highlight 2008

Organization and System
At the meeting of the CSR Committee in September 2008, the progressof the risk management of serious risks for the entire Company andfor individual divisions and departments was reported. In addition, inorder to cope with changes in the business environment, additional
foreseeable risks were assessed and existing risks were re-assessed.
The decisions made at this meeting were communicated to all
departmental managers, who will be responsible for managing thoserisks.

Adoption of the Emergency
Earthquake Alert system to prepare
for large earthquakes

Risk Management

CSR Management

In November 2008, the Company adopted a system linked with theEmergency Earthquake Alert released by the Japan Metrological
Agency. This system detects an earthquake and gives an alert tofactories and office buildings before large tremors reach the area. It
is expected to minimize the damage caused by an earthquake. Whenthe system operation started, companywide emergency drills were also
conducted. Drills for evacuation, fire extinguishing at an early stage, andcommunication were performed.

Risk management training

Social Relations Section

In April 2008, a risk management seminar was hosted by the Aichi
Steel Engineering Society. Some 156 officers and employees of theCompany and officers of affiliated companies participated in the seminarto learn the estimated damage caused by the predicted Tokai/Tonankai
Earthquake, as well as actions to take in the event of an earthquake.
We invited Professor Nobuo Fukuwa from the Graduate School ofEnvironmental Studies, Nagoya University, as speaker. He lectured on
the latest earthquake studies, their results and the predicted damage
caused by the earthquake using earthquake simulation. Taking
Professor Fukuwa’s advice, we have distributed “rescue whistles” to all
employees as an emergency preparation for earthquakes (September2008).

Environmental Section
Financial Section

18 AICHI STEEL REPORT 2009

Labor compliance activities
To ensure labor compliance of the Aichi Steel Group in the area oflabor management and labor service contracts, the Labor Compliance
Committee was formed (July 2008) by managers engaged inlabor management (section managers of the Company and Group
companies). Labor-related information is shared by members and laborcompliance workshops are carried out by the Committee. In fiscal 2008,
three meetings of the Committee were held to exchange informationand promote communication among members.

Prevention of product risks
We strengthened the product tests conducted at the times of purchaseand production to ensure that no residual radiation be included in the
procured scrap iron or produced specialty steels. These tests satisfy
the requirements recently stipulated in Europe and other regions.

CSR Management

Information Security
Business Update

Nowadays, information is a valuable asset. We are striving for proper
information management.
As information has become a valuable and sophisticated asset for an enterprise, proper information
management is indispensable. We adopt proper measures and management systems to protect
customer information and other information.

Management system and roles of eachdepartment
Overall control

Administrative
departments

Role- Total responsibility for confidential
Person in charge of
information within the divisionconfidentiality management- Designates people in charge of(General managers ofconfidentiality management
individual divisions)- Has the final say in confidentiality classification- Designates employees authorized tocreate top-secret documents- Implements voluntary auditing ofconfidentiality management status- Establishes rules for the division

Representative
managers,
GMs, etc.

- Acts under the authority of the person
responsible for confidentiality (Designates
confidentiality classifications and sets theoperating rules within the division)- Works to promote and fully establish
confidentiality in the division

AICHI STEEL REPORT 200919

The standard forms of the confidentiality agreement to be entered intowith suppliers or joint researchers were reviewed and new templates
were created. All terms and conditions necessary for the Company
are included in the templates to secure confidentiality and to avoid
unfavorable conditions for the Company.

Protection of personal information
Aichi Steel Personal Information Protection Policy (established in April 2005)
For details, please refer to our Website.

http://www.aichi-steel.co.jp/ENGLISH/p̲pol.html
Department employees- Follows laws, regulations, and company
rules related to confidentiality management- Reports accidents, damage, illegal acts,
and wrongdoing to his/her superior

Information Security Control
Enhancement Month

Clarification of information
disclosure procedures
In May 2008, the “Rules for Information Disclosure” were established
to clarify, based on the procedures conventionally followed, theprocedures to be followed when important information is disclosed.
Through this clarification of procedures, a system to disclose correct
information timely without omission was established.

Information Disclosure Review Committee
Chairperson: Information manager (Officer in charge of General Affairs Division)

Financial Section

We have set May and October each year as “Information Security
Control Enhancement Months.” In the Enhancement Months in 2008,
intensive educational activities to enhance employee’s awareness of
security control were conducted, as well as monitoring and checking to
identify improper actions and occurrences that may lead to information
leaks outside the Company.
- Educational activities“Clear Desk, Clear Screen” Campaign: Employees were reminded
to keep their office desk organized and not to leave documents andmaterials on the desk. A security system was introduced to computersdesigned to initiate a password-protected screensaver when no
operations are performed on the computer for a designated length oftime.

We experienced no incidents of personal information leak in fiscal 2008.

Environmental Section- Follows laws, regulations, and company
rules related to confidentiality management- Gives approval, instruction, andguidance related to confidential
information used in their location.

Confidentiality agreements

Social Relations Section

Person in charge ofconfidentiality management(Manager or supervisor namedby the division general manager)

CSR Management

The General Affairs Div. and the Coporate
Planning Div.
- Creates and revises measures related to the
management of confidential information- Audits and provides guidance according to
the confidentiality management status acrossthe entire company- Manages systems(both technical and human aspects)

Information Security

In each department

Director in charge of general affairs- Person responsible for confidentiality
management

Information-leak prevention education: Information leak cases actuallyexperienced by other companies were presented. Participants wereasked to check if similar risks exist at their workplace and if they areaware of the seriousness of the risks.
- Monitoring and checking
Baggage inspection: Employees’ bags and personal belongings areinspected after work at the site gate to prevent improper carrying ofelectronic storage media or documents containing important informationout of the Company.
Mail inspection: Mail transmissions to receivers outside the Company
were checked to confirm
whether there was any riskof leaking confidential orother important information.
The results of the inspection
and instructions were fed
back to employees within
the Company for future
precaution.

CSR Activities
Highlight 2008

Organization and System

Administrative office: General Affairs Division

Members: Managers of functions, including the head office,technical, marketing and production functions,
appointed by the Chairperson;
managers of departments from which the disclosed
information originates; and related departments

Social Relations Section

Quality and Customer Satisfaction (CS)Business Update

We listen to the voices of customers and strive to enhance our quality assurance system.
In accordance with our basic policy of “Quality First” and “Customers First,” we perform thoroughassessment and analysis of our product quality. We promote the development and operation ofa quality assurance system composed of “Jikotei-Kanketsu” (built-in quality with ownership)

CSR Activities
Highlight 2008

Quality Management System

Current ISO9001 status and future plans

Basic Quality Policy
In accordance with our policy of “Quality First,” we strive to develop abusiness structure trusted by customers on the basis of our ISO9001
certification. Under our Medium-Term Global Quality Plan 2010, withthe objective of delivering attractive products that meet customers’
expectations and needs, we will establish a quality assurance systemwith a competitive edge in human resources, facilities and service.

Consolidated subsidiaries in Japan and overseas have striven toacquire ISO (ISO9001) quality certifications. Moreover, to address therecent globalization of the automobile industry, we are now working toswitchover to ISO/TS16949, a quality management system standard
for the automobile industry.
SAFC and AIT have already changed from ISO9001 and acquired ISO/TS16949 certification.

CSR Management

Reinforcement of quality
management system
We place emphasis on the development of employees competent inquality management. In accordance with our Medium-Term Quality Plan,
we provide an education program on quality knowledge, quality-related
losses and complaint handling. This program is provided for each job
ladder of our employees. In fiscal 2008, a total of seven sessions were
provided to graduates newly employed in April and existing employees
promoted to higher positions.

ISO certification acquisition
Kariya Plant

I S O 9 0 0 1

April

1993

Chita Plant

I S O 9 0 0 1

December

1995

Forging Plant

I S O 9 0 0 1

November

1997

Electromagnetic products

I S O 9 0 0 1

March

1998

Dental materials

ISO13485

July

1999

Dental materials

EC Directive

July

1999

Technical Development Division

ISO17025

September 2007

Consolidated subsidiaries

Quality and Customer
Satisfaction (CS)Social Relations Section

Omi Mining

I S O 9 0 0 1

May

2002

Aiko Corp.

I S O 9 0 0 1

April

2005

A

x

I S O 9 0 0 1

June

2008

U

I S O 9 0 0 1

November 1997
(Expected to acquire ISO/TS16949)

sA

Enhancement of customer
satisfaction

Environmental Section

In May 2008, the Sales Administration Division and the Quality Assurance
Division jointly conducted a survey to gather our major customers’
opinions and evaluations regarding the quality of our specialty steel,forgings and stainless steel products. Based on the analysis of theopinions and evaluations collected from our customers, we determinedwhich quality issues required improvement. Analysis of the evaluations
and incorporation of the analysis into the Management Review is also
conducted in the regular follow-up meetings (once every three months)
and reported to the ISO Review Committee annually in March. We willcontinue these activities to ensure and improve customer satisfaction.

Financial Section

Re-verification of the appropriatenessof the data management system
At the request of the Japan Iron and Steel Federation, we formed a
Quality Control Working Group (“Quality WG”) in August 2008. The
Quality WG examined our inspection certificates (“mill sheets”) to verify
that the data entered in the mill sheets were correct. It was examined
whether there were any risks or actual cases of falsification of data
related to specialty steel or stainless steel produced by the Company.
As a result of the examination, it was confirmed and reported that nosuch cases or risks were found in the examined mill sheets. The WG isheld quarterly to ensure continuous improvement of the quality control
system.

20 AICHI STEEL REPORT 2009

A

e

F

A
S

d

F
A

F
I

C

I S O 9 0 0 1

April

C

ISO/TS16949

August

2003
2006

T

ISO/TS16949

March

2008
2008

A

F

I

I S O 9 0 0 1

NovemberA

M

C

ISO/TS16949

Expected to acquire

ISO/TS16949 is a quality management system standard for automobile businesses.
Certificates are issued to sites satisfying the global procurement standards specified
for automobile parts.

Third-party labeling
Products of Aichi Steel are affixed with the JIS mark, marks
issued by shipping classification societies and TÜV (Technischer
Uberwachungsverein, or the Technical Inspection Association inGermany), and other third party labels, all of which confirm that thequality of our products satisfies their standards.

Social Relations Section

Information Disclosure and Communication
Business Update

Knowing is understanding. Good relationships have enhanced stakeholders’confidence in the Company.
We offer various opportunities to promote communication among employees and with citizens
in the community. Communication with shareholders and investors is also promoted throughdisclosure of Company information and other activities.

Communication events

In December 2008, seven Toyota Group companies located in Kariya,
Aichi Prefecture held the Eighth Kariya Area Community Meeting,in which Aichi Steel also participated. We have received words ofappreciation from participants for our community activities, which haveseen steady progress. We also received the request to extend morecooperation in supporting the growth of the community as a whole.
In March 2009, we invited leaders from town associations in theneighborhood to our CSR Community Meeting. After presenting areport of Aichi Steel’s CSR activities, participants visited our plant toobserve the actual statusof our activities.

Individual plants and workers unions of the Company also heldcommunity events to promote communication among employees andbetween the Company and the community. These events were excellent
opportunities to promote communication with local citizens. In addition,
revenues from charity bazaars were donated to charity organizations.

CSR Activities
Highlight 2008

CSR dialogues

CSR Management

Plants and Event Months- Chita Plant (June)- Kariya Plant (July)- Forging Plant (July)- Workers union (October)

Plant tours

AICHI STEEL REPORT 200921

Tours [Note: These are just few of all tour groups in the list.]
JICA welding technique learning group (May)Trainee group from Bursa, Turkey (Jul.)
Facility maintenance demonstration trainee group from Meijo University (Aug.)
Nagoya Koyo Senior High School (Aug.)
Plant tour by Toyota Group employee families (seven Toyota Group
companies in Kariya Area) “Let’s Visit a Manufacturing Site” tour (Nov.)
Plant tour by families of Chita Plant employees (May and Nov.)
Tour by group from Chubu Branch, Society of Automotive Engineering of Japan (Feb.)
The fourth basic manufacturing technique training group from JICA (Feb.)

Trade shows and briefings
In fiscal 2008, Aichi Steel has hosted or participated in the following
events to promote the businesses and report the operational statusesof Aichi Steel:

Environmental Section

Social Relations Section

In 2008, aiming at improving our workplace atmosphere and reforming
our corporate culture, we distributed to employees materials of workplace
etiquette and rules that should be actively practiced and followed by
employees. These materials were created by teams led by selectedyoung employees. They “clearly visualized” workplace manners that had
previously been only vaguely defined. The “Employee Manner Book GDteam,” assigned the duty of improving workplace etiquette, issued the“Employee Manner Book" (July 2008), and the “Mail Guideline Team”
issued “Using E-Mail for Better Communication” (September 2008).
These materials are used in programs intended to reform workplaceculture as well as during new employee orientation to promote thecreation of a “lively andpleasant workplace” forevery employee.

Information Disclosure
and Communication

For better workplace communication

During fiscal 2008, many visitors from within Japan and overseas
toured our plants to personally witness Aichi Steel’s dedication to
manufacturing. In February 2009, six students from Heisyu Public
Junior High School (Tokai) visited our plant as part of their student
job experience program (in accordance with the classroom subjectof “Working,” junior high school students created their own plans andvisited companies of their own initiative).

Events targeted at customers and the general public
17th Hokokai VA Exhibition (May, Aichi Steel head office)Messe Nagoya 2008 (Sept., Nagoya)
Kariya Industrial Trade Show, Tokai Industrial Trade Show (Nov.)
Agribusiness Creation Fair 2008 in Tokai (Oct. and Nov.)

Events intended to shareholders and investors

Financial Section

Automotive Engineering Exposition 2009 (May, Yokohama)

Annual financial results briefing (Apr., Tokyo)
Press release of quarterly financial results (Apr., Jul., Oct. and Jan.; Nagoya and Tokyo)
Nagoya Stock Exchange IR Exposition 2008 (Jul., Nagoya)
11th Nomura Asset Management Fair (Dec., Tokyo)
Tokai Three Prefectures Nomura Asset Management Fair (Sept., Nagoya)Social Relations Section

Employee Satisfaction
Business Update

Enjoy personal life AND enjoy work
We provide pleasant environments for both employees’ personal and business lives.
We hope all employees in the Aichi Steel Group can enjoy their lives by maintaining a good balance
between their personal lives and business careers. We strive to create a pleasant workplace environment
and an environment for human development so that employees can lead meaningful lives.

CSR Activities
Highlight 2008
CSR Management

Support for Work-Life Balance (WLB)

Reinforcement of labor management

The Ministry of Health, Labor and Welfare established the monthof November each year as “Work-Life Balance Creation Month”.
In response to this national campaign, the Company has created,through collaboration between the Company and the workers’ union,a “Vacation for Work-Life Balance” System, aimed at reducing total
actual working hours and increasing the usage rate of paid vacations. In
accordance with this System, the Company encourages employees toplan and take a paid vacation of two or more consecutive days at least
once every six months. Improvement in the usage rate of paid vacations
will be monitored and followed up by the Company in collaboration withthe labor union.

We developed a labor management (employee attendance management)
system. Employees’ entry and exit data of Company premises,
collected and controlled by the IC Employee ID Card system designed
for security control, is also used by this labor management system.
The management system is helpful in developing an improvement plan
to level off working hours among employees. The application of thissystem to administrative employees was completed first. In October
2008, the system was applied to technical employees, and currently all
employees is managed by this system.

Ongoing WLB programs
Time Management Training (Jul., Sept., Dec. and Feb.;
Target employees: Subsection chiefs and employees in lower position levels)
Happy Life Seminar(Jun., attended by 71 employees and their spouses)“Money Plan for Employees in Their 40s” Seminar(Nov., attended by 21 employees and their family members)

Employee Satisfaction

Social Relations Section

Employee Human Rights Education
Human rights education was included in the training provided topromoted employees in January 2009, as an additional course
curriculum to provide basic knowledge on human rights issues.
Education on elimination of discrimination, prohibition of unauthorizedacquisition, and disclosure of personal information, and other humanrights issues was provided, with a view to creating a pleasant work
environment where employees respect colleagues’ human rights.

Environmental Section

Promotion of the Women’s QC Team
activities

Financial Section

been making preparations to organize the members of the Women’sSociety into QC teams. In fiscal 2008, one of these teams (Electromagnetic Production Division, Chita Production Department) presented
the results of their activities at a QC conference. We plan to strengthen
this initiative to further expand the scope of these activities.

A Women’s Conference was formed and has carried out activities
to reflect female workers’ opinions into efforts to create a pleasant
workplace for all employees. In fiscal 2008, an initiative was started totransform these activities by the Women’s Conference into QC Team
activities that would help improve actual business operations. We have

22 AICHI STEEL REPORT 2009

Revision of the “Senior Expert
Employee” System
To enhance the motivation of leaders, the Senior Expert Employee
System was revised in January 2009. The roles of leaders were clarified,and career path alternatives from 55 years old to the retirement age werestrictly defined. The “Meister” system, applicable to technical section
chiefs, has continued to ensure the succession of technical skills toyounger employees. The Senior Expert System for re-employment after
the retirement age is continued as in the past.

Business Update

Labor Data

CSR Activities
Highlight 2008

Senior Employee Re-Challenge System(revision of the “Refresh” Vacation)

Labor Composition
Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008

Currently, employees who retire at the official retirement age can use the“Refresh” Vacation System (which entitles them to take a paid vacation
for five consecutive days) before they are re-employed as contract
employees. The aim of this system extension is to give employees arest period to refresh their minds and bodies at the time of age-based
retirement before they restart their careers, using their experience andexpertise in coaching younger employees and in new assignments.

Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008
Nice Seniors(persons)

10

15

25

50

2,359

2,340

2,327

2,328

2,331

Managers (persons)

227

238

241

247

253

Male (persons)

2,258

2,245

2,233

2,224

2,227

Female (persons)

101

95

94

104

104

Average age (years)

39.2

39.2

39.2

39.3

39.4

Average service (years)

19.7

19.6

19.7

19.3

19.8

Turnover rate (%)

0.8

0.5

0.4

0.8

0.8

Voluntary resignation for
personal reason (persons)

17

13

10

18

17

CSR Management

Registrants to the “Nice Senior” System

Total workers (persons)69

The figures above are the number of registrants in the “Nice Senior” System as ofthe end of each fiscal year.

Child care leave(persons)

4

6

9

8

8

Shorter work hours(persons)

5

1

7

13

7

AICHI STEEL REPORT 200923

The figures in the above table are the number of employees who used the system
during the single year (not accumulated numbers).

Employment of persons with disabilities
Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008
Employees with disabilities(persons)

22

26

31

30

29

Employment rate
(%)

1.2

1.3

1.6

1.6

1.5

Actions to prevent child labor andforced labor in foreign subsidiaries

ColumnFinancial Section

To understand employee turnover rates and labor management statusesin overseas Group companies, we have conducted an “Investigation ofLabor-related Indicator Management.” We will confirm whether eachcompany investigated has complied with the relevant local laws andregulations. If any labor-related noncompliance is found as a resultof this investigation, we will take necessary measures to correct saidnoncompliance.

Environmental Section

Social Relations Section

The “School Trainee Karte” system was introduced to assess thework aptitude of technical trainees who study technical skills at
the Aichi Steel Technical Training Institute for one year before being
assigned to specific sites, and to promote their quick settlement after
assignment. All data on an individual trainee is recorded in the “Karte”(Card), including school performance records and assessment of theircompatibility with the sites they are temporarily assigned to during onthe-job training (provided in September and January). Based on theinformation contained in the Karte, trainees are assigned to supervisors
and workplaces, under whom and in which they can fully demonstrate
their abilities.

Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008

Employee Satisfaction

Using “School Trainee Karte” forhuman development

Users of the Nice Family System

Concerted efforts of the management and the workers union to
overcome the crisis
To discuss solutions to overcome the difficulty of the steep decline in production volume caused by the world economic
downturn, the management and the workers union have held frequent emergency meetings since December 2008. It wasdetermined through such discussions that the management and workers union should cooperate with each other and makeconcerted efforts in order to retain the employment level and strengthen the financial structure of the Company.

Social Relations Section

Safety and HealthBusiness Update

We promote the creation of safe and hygienic workplaces and provide support
to maintain the mental and physical health of employees.
Betterment of work environments directly leads to improvement in the quality of manufacturing. At Aichi
Steel, we provide safety education and training to employees to ensure safe facility operation and safe
job performance. We also place emphasis on employee health management.

CSR Activities
Highlight 2008
CSR Management

Basic Labor Safety and Health Policy

Small group activities

1. “Safety is the Starting Point of an Operation.” In accordance withthis principle, each workplace should, under the leadership of the
manager, fulfill the basic responsibility of ensuring the safety andhygiene of the workplace and the health of employees.
2. Dialogue should be promoted to fully convey the “Basics of Safety and
Health” to employees and to create a lively workplace atmosphere.
We will promote the mental and physical health of employees and3. provide support for their pursuit of healthy and happy lives.
We will create a culture of safety to achieve “zero occupational
4. accidents.”

In addition to measures and improvements implemented in the areaof cleaning and organizing to eliminate dangerous conditions in theworkplace, we have made serious efforts in risk prediction training andoperation training using operation procedure manuals. The purposeof these training programs is to develop “employees having a strong
sense of safety,” who diligently practice safety procedures and avoid
dangerous behaviors.
In fiscal 2008, we set benchmarks*2 to comprehensively evaluate thesafety statuses of workplaces. Based on the evaluations, we will identify
the weak points of each small group and take necessary measures toovercome the problems.

1S for safety and health activities

Improvement of workplaceenvironment

Safety and HealthSocial Relations Section

To maintain a safe workplace environment, the “5S’s” (Seiri, Seiton,
Seisou, Seiketsu, and Shitsuke, meaning organization, tidiness,cleanliness, hygiene and discipline) are important. In particular, “1S,”(Seisou) is the most basic practice we should actively promote. The
first step in our safety and health activities is to practice 1S in our daily
operations.

Results of safety efforts during fiscal
2008 and future efforts

（％）
0.80

10
0.71

9

0.70

8
0.60

0.52

7

0.50

6

0.40

5
4
3

0.30
0.18

0.20

2

0.18
0.10

1
0

0.00
2004

2005

2006

2007

2008

No. of accidents resulting in work time loss
No. of accidents not resulting in work time loss
Work time loss frequency rate

0.00

Work time loss frequency rate

Financial Section

24 AICHI STEEL REPORT 2009

Frequency of accidents and work time loss
(accidents)

No. of accidents

Environmental Section

We analyzed the causes, patterns, and number of years of experienceof the employees involved, for all occupational accidents occurringfrom fiscal 2005 to 2007. We also analyzed the details of major serious
accidents and trends in the results generated by our major safety
activities. As a result of these analyses, it became clear that our humandevelopment efforts were incomplete.
In fiscal 2008, to “develop employees having a strong sense of safety,”
we organized employees into small groups for safety activities so thatthe group leaders could provide thorough safety education and close
supervision to group members. As a result of these small group activities,
safety problems in the workplace were identified, the workplace has
become cleaner and tidier, and other improvement measures havebeen taken.
In the future, these small group activities will be continued and also be
introduced to associated business operators within the plant site forcomprehensive safety and health management. Emphasis will be placedon the “development of employees having a strong sense of safety,”“improvement of the workplace environment,” and “risk assessment*1”
in order to firmly instill the “safety culture.”

Since safe and healthy workplace environments are essential for all
employees in Aichi Steel, we have implemented safety activities bothin plants and administrative offices. In plants, experts who have goodknowledge of the Industrial Safety and Health Act identified dangerous
areas in the workplace, and we have made improvements in thoseareas accordingly. In fiscal 2008, we placed greater emphasis on
safety activities in administrative departments. Unsafe conditions in
administrative offices were identified, and improvement efforts weremade in accordance with specific improvement subjects. As a result,administrative employees’ awareness of safety has been enhanced.

Business Update

We have strengthened our health programs to promote employees’
awareness of the importance of mental health and to support distressed
employees. We strive to help distressed employees at an early stage
using the health check sheet filled out by employees during the regularCompany health examinations, casual health counseling and otherprograms.

Actions against the new influenza

Rate of work time loss resulting from mental health problems

In fiscal 2008, we have created an “Infection Control Manual” to prepare
for and take proper actions against an outbreak of a new influenza
feared to become pandemic*3. The Manual was originally intended forbird flu, but could be applied to the new influenza virus that spreadin April 2009. (The Infection Control Manual was distributed to all
employees in May 2009.)

（％）
0.50

CSR Management

Risk assessment has been used in our safety activities since 1999.
Analysis of risk assessment has been reflected into measures toprevent serious accidents and injuries, and prevent accidents in
non-stop processes. Risks arising from operations and other workrelated movements have been eliminated or mitigated based on therisk assessment. However, our efforts were not comprehensive andassessment of risks arising from facilities, materials and dust has been
insufficient. Accordingly in fiscal 2008, we developed procedures toassess risks arising from facilities, materials and dust. In the future, wewill develop a comprehensive and effective risk assessment systemusing these procedures.

Promotion of employees’ healthmanagement

CSR Activities
Highlight 2008

Risk assessment

0.40
0.30

Safety and HealthSocial Relations Section

AICHI STEEL REPORT 2009

25

0.20
0.10
0.00

2004

2005

2006

2007

2008

Environmental Section

ColumnEmergency action against the outbreak of a new
influenza in the United States

Financial Section

In April 2009, the press announced the outbreak of a new influenza in the United States. In responseto these press reports, we have called an emergency meeting of relevant departments in Japan (theCorporate Planning Division, the Overseas Business Division, the Safety and Environmental Division,
the General Affairs Division, the Human Resources Division and other relevant divisions) to discuss anddetermine the provision of support to AFU.
Infection control masks were quickly sent from Japan by air and distributed to employees in Group
companies in the U.S.A.
No cases of infected employees have been reported so far. However, to prepare for future spread of
the virus, we have started storing “preventive goods.”*1. Risk assessment: A technique to assess risks scientifically, systematically, logically and comprehensively to prevent accidents*2. Benchmarks: Reference points for comparing achievement levels*3. Pandemic: Quick and global spread of a high-risk infection

Social Relations Section

Social Contribution
Business Update

We participate in social contribution activities in accordance with our principles
of mutual support and mutual growth of the Company and the community.
We encourage all employees of the Company, as individuals living in the same era and the same environment,
and equally hoping for bright future, to participate in activities to contribute to the well-being of the community.
The Company also strives to make various efforts for the mutual growth of its business and the community.

CSR Activities
Highlight 2008

PolicyTokai Eco-School

Setting the four keywords of “Clean,” “Green,” “Creative” and“Volunteer” as our focuses for social contribution activities, we promote
community-oriented social activities.

In August 2008, as part of the “Tokai Eco-School” program provided
by the Tokai City Government, elementary school children and theirfamilies totaling 49 participants visited the Company. Participants
seemed to be interested in our presentation of our product “TetsuRikiAgri.” The power of iron-ion in the product promotes photosynthesis sothat vegetation growth is activated. As a result, more CO2 is absorbed
by vegetation, helping to prevent global warming.

Extended Clean Aichi Day

CSR Management

As part of our group-wide efforts during CSR Enhancement Month,employees from the Aichi Steel Group participated in community
cleaning campaigns in their neighborhood (October 2008).
A total of 511 employees participated in the Extended Clean Aichi Day
event from the Head Office, Chita, Kariya, Forging, Higashiura, Gifu,
Tokyo, Osaka, Hiroshima and Fukuoka blocs. Consolidated subsidiaries
also carried out their own neighborhood cleaning events.

Social Contribution

Social Relations Section* An event intended to enhance citizens’ sensitivity andenvironmental consciousness, in accordance with the idea of a“joyful,” “experience-based” and “discovering” event.

Donations to support people strickenby the Sichuan Great Earthquake
National Tree-Planting Ceremony

Environmental Section

In June 2008, the 59th National Tree-Planting Ceremony was held in
the “Hokuo-no-Mori Park” in Akita Prefecture (co-hosted by the Akita
Prefecture Government and the National Land Afforestation Promotion
Organization), graced with the presence of the Emperor and Empress.
The Company donated its plant growth activator “TetsuRiki-Agri” to thistree-planting event. We will continue to participate in this forestation
promoting event.

Financial Section

26 AICHI STEEL REPORT 2009

In May 2008, Sichuan Province in China was stricken by a greatearthquake. Hoping to support the lives of people stricken by the
Sichuan Great Earthquake and recovery of the damaged area, theCompany donated ¥2.2 million, together with donations of about RMB
50,000 (about ¥0.8 million) contributed by employees of the local
subsidiary (SAFC) via a relevant organization.

Supporting the “150th Anniversary of Modern
Iron Manufacturing Practice” event hosted
by the Japan Iron and Steel Federation
During fiscal 2008, the Japan Iron and Steel Federation conductedvarious social contribution activities, as part of their commemorative
program to celebrate the 150th anniversary of the modern ironmanufacturing practice in Japan.
As a member of the industry, the Company also provided cooperation to
the “Kariya All Citizen Dance Festival” (September, hosted by the Kariya
Tourist Association) andthe “Tokai City Marathon”(December, hosted by the
Tokai City Government).
We provided participation
prizes and gifts to these
events.

Business Update

Employees of the Company have taken the initiative in volunteer
activities.
Some of the activities were:- Support for the autumn festival held in a special nursing home

Activities of the Aichi Steel Volunteer FundCSR Activities
Highlight 2008

Volunteer activities initiated by
employees

The Aichi Steel Volunteer Fund is a program to donate money contributedby employees and other related parties. The Fund donated charity gifts
worth of about ¥3.9 million (including a matching contribution by theCompany) to the following organizations:

Organizations and Charity Gifts
Charity gifts

Chubu Guide Dog Association (Nagoya)

AED and supplies (for visitors)“Akatsuki Gakuen” Children Foster Home (Tokai)

Washing machine and vacuum cleaner

Chita Social Welfare Organization

Handloom“Nagomi-En” Day Center (Chita)(for wheelchair user)

Chita Welfare Organization “Yamamomo

Digital camera and printer forWorkshop for the Handicapped” (Chita)

creation of procedure manuals

NPO “Yui-no-kai” (Chita)

Gas kitchen stoves and gas

CSR Management

Organizationwater heater for commercial use- Music performance by an employee band in a celebration party“Satsuki” Social Welfare Organization (Tokai)

Manual capper (operational tool)“Kusunoki” Workshop for the Handicapped (Higashiura)

Wagons for conveying products

Chubu Branch, the Japan Blind Tennis

Tennis balls for blind tennis

Association (Nagoya)

Financial support for purchase of

AICHI STEEL REPORT 200927

pick-up car for day service users“Oumei” four performance groups in the Tokai Youth Center

Projector (for stage performance)

NPO “Machi Net Minna-no-Hiroba” (Tokai)

Office equipment

NPO “Daikon-no-Hana” (Chita)

Special chairs designed for the elderly

Tokai Social Welfare Council (Toy Library)Children’s play equipment

Tokai Social Welfare Council (Disaster Relief Volunteer Center)

Easy-to-install tents

Disaster Prevention Safety Division, Tokai City Office

Emergency supplies

Organizations supported by employee volunteers
and charity gifts

Collaboration with the local
government and NPOs
- Tree cutting for forestation improvement in Kiso Village,
Nagano Prefecture[Green Challenger, NPO] (September)- Tokai Forestation for the 21st Century Campaign (February)

Organization

Charity gifts

Chita Junior Basketball Club

Basketballs and other supplies

Boy Scout Tokai First Group

Training materials

Toyohashi Blind Tennis School

Tennis balls for blind tennis“Chiju-kai” Judo ClubSports digital timers

Tokai Junior Basketball Club

Team uniforms for competition

Track Team, Tokai Athletic Association

Mini hurdles

Volunteer Group “Mizutamari”

Stage for picture-card show

Support for blind tennis tournament
Nishi-Chita Industrial Road Clean-up Campaigns(Jun., Aug., Oct., Dec., Jan. and Feb.)
Blood donation (Sept. and Feb.)
Invitation of local citizens to the Grampus soccer game spectator tour (Aug.)

Financial Section

Ongoing volunteer activities

Environmental Section

Social Relations Section

Bathing aid for caretaker

NPO “Fureai” (Tokai)Social Contribution

NPO “Kizuna” (Higashiura)

Support for the Tokai City Marathon (Dec.)
Support for the Tokai Junior High School Indoor Tennis Tournament
Safety sentry on the Traffic Accident Zero Day- Provision of gift goods to the EXPO Eco Money Center in Nagoya (March)

Environmental Section

Environmental Activity Policy
Business Update

From Plan 2010 to Plan 2015.... We have begun a new plan for another challenge.
Since the business environment has changed drastically in the second half of fiscal 2008, our efforts
toward natural environment protection have also changed. In circumstances where our production volume
has declined, in addition to reducing the environmental burden by an absolute value (total volume), we
will place emphasis on CO2 emission control by each project, by facility or production unit.

CSR Activities
Highlight 2008

Setting a new CO2 reduction target
In addition to the target of reducing the total CO2 emission volume
by 10% in 2010 (compared with the 1990 level), we have started
development of a future plan to reduce CO2 by 20% by 2015. As aresult of our efforts so far, the 2010 target is expected to be achieved.
Thus, we are determined to pursue a higher target. We may face somedifficulties. However, we will strive to overcome these difficulties in orderto achieve the new target.

CSR Management

Aichi Steel Environmental Charter(established in June 1996)
MissionAichi Steel is committed to environmental preservation in all phases of
its business operations based on the recognition that preserving the
global environment is essential for the survival of mankind, as well as forthe sustainable development of business.

Social Relations Section

Basic Policy
All divisions will cooperate to voluntarily establish action plans, clarify
objectives, and work to continuously improve their environmental
protection activities.

Environmental
Activity Policy

Environmental Section

1. All divisions will work together to keep our environmental
management system up-to-date, and implement environmental
protection activities.
2. We will strictly conform to environmental regulations and implement
voluntary management and auditing to improve the level ofenvironmental management in all of our business activities.
3. We will take environmental protection into account from the planning,development, and design stages of our products and facilities.
We will work to conserve resources and energy, increase recycling,
4. and reduce industrial waste in all of our business activities.
We will contribute to society and to local communities by supporting
5. environmental protection and participating in cooperative activities.
We will raise awareness of environmental protection in all of our
6. employees through educational and publicity-related activities.
We will contribute to environmental preservation by publicly releasing
7. information on policies related to our environmental efforts and on
technologies and methods we develop.

Financial Section

28 AICHI STEEL REPORT 2009

Compliance with environmental laws
and related regulations
In fiscal 2008, some of the action targets we have set in ourEnvironmental Action Plan 2010 were not achieved, and some results
were worse than the previous year’s level. Some issues for which wehave achieved our target involve “environmental close calls” that may
surface in the future. We also had to take makeshift measures for someissues to cover delays in our response to the revisions in related laws
and regulations.
However, we are committed to continuing our sincere efforts to make
improvements concerning these issues in order to fulfill our mission asa recycling-oriented enterprise.

Business Update

Item

Major efforts

2008 results

Assessment

Pass the surveillance audit.
(Material non-conformance:
None; Minor non-conformance:
One incident/site or less)

Spiraling enhancement of environmental activities
Implement internal audit, setting
priority issues.
Prepare for AFC and SAFC
certification acquisition.

Passed the audit.
Material non-conformance:
None
Minor non-conformance:
One○

Complaints from outside theCompany(Problems pointed out,
administrative guidance, andcomplaints: No incident/year)

Promotion of environmental conservation No complaints
Make proactive efforts by anticipating theFour incidents offuture movement of environment-related laws “Environment Closeand regulations.
Calls”
Promote activities for compliance withenvironment-related laws.
- Implement strict management and actions
to achieve a target of 80% of the limit values
regulated by environment-related laws.
- Improve high-risk facilities.
- Practice “Environmental Close Call”
activities.

△

Reduce CO2 emission frommanufacturing departmentsby 10% from 1990 level.

CO2 emission :672,000 tons/year

Promotion of CO2 emission
reduction by energy-saving efforts
Stop unnecessary operations (of compressors,cooling water units, auxiliary machines, lighting
on site, etc.) while lines are not running.
Change to, or concentrate processes on,energy-efficient facilities and furnaces.
Fuel change: Coal oil and heavy oil → City gas

Reduce energy consumption
per production unit at logistics
department by an average of
1% from 2006 level.

Reduce energy consumption
per production unit by 1%
from previous year level.

Promotion of CO2 emission reduction Aggregated byabout 7%by improving logistics efficiency
Promote modal shift, direct delivery and * See Page 32.
improvement of cargo loading rate.

Total landfilling volume:
2% or less of 1990 level(1,160 tons/year or less)Direct landfilling:
300 tons/year
Indirect landfilling:
1,596 tons/year

Company-wide efforts, focusing on
activities to promote Zero Emission
Compliance of fluorine-containing byproductswith the environment-related laws

Modeling of environmental burden
LCA calculation(Simplified CO2 conversion formula)

Implementation of evaluation and Modeling was
calculation for four products (ring completed.
gear, mission gear and rear shaft)

Review green purchasing
programs.

Revision of the Green Purchasing
Guideline and requesting suppliers’
strict adherence to the guideline
Rank suppliers to enhance theirenvironmental awareness.
Add CO2 reduction effects to theevaluation items.

All consolidated
manufacturing companies
acquire ISO14001
certification.

Environmental
Management

AICHI STEEL REPORT 200929

Direct: 29,433 tons
Indirect: 4,019 tons
* See Page 35.

×○Review wascompleted.

○

Disclose environmental
Publication of Aichi Steel Report
information to stakeholders. CSR community meetings

Timely disclosure○

Implement environment
conservation activities.

Two events○

Employee volunteers’ participation in
NPO tree cutting activity for forestation
improvement

Financial Section

Social contribution

Environmental Section

Reduction ofenvironmental
burden×

Environmental
Activity Policy

Recycling○

Social Relations Section

Global warming
prevention

544,000 tons/year

CSR Management

2008 target

2010 target

CSR Activities
Highlight 2008

Environmental Action Plan: Results of efforts in fiscal 2008 and their evaluation○: Target achieved△: Target achieved but improvement still incomplete
×: Target not achieved

Employee volunteers’ participation in treeplanting ceremony of Tokai Forestation forthe 21st Century Campaign

Environmental Section

Environmental Management
Business Update

We have reinforced our environmental management system.
We have promoted CO2 emission reduction activities in order to prevent global warning. The
10% reduction from the 1990 level is expected to be achieved. We have set a new higher target
for 2015 to reduce our CO2 emission volume by 20% from the 1990 level. To achieve this target,
we have formed a Global Warming Prevention Committee.

CSR Activities
Highlight 2008

Formation of the Global Warming
Prevention Subcommittee

CSR Management

Under the Environmental Working Group (Chair: President, Members:
Members of subcommittees, meetings held twice/year), the Global
Warming Prevention Subcommittee (Chair: Officer in charge of the Safety
and Environmental Division, Members: Members of subcommittees,
meeting held twice/year) was formed as an organization to promote
global warming prevention activities (July 2008).
This subcommittee was formed to strengthen our environmental
management ability in order to achieve the new CO2 reduction target.
The subcommittee is responsible for reviewing and implementing CO2
reduction measures in facility design, and processes in production,
logistics and office operations. The CO2 reduction target for 2015 is hardto achieve solely by conventional energy-saving efforts. Accordingly,
we will actively work on
r e a l i z i n g “ E c o L i f e” i nconcert with our efforts inProcess Energy Reform.

Acquisition of Environmental ISO
In the Aichi Steel Group, all consolidated subsidiaries that operate
production sites are required to acquire ISO14001 certification. Of
twelve applicable subsidiaries, eight subsidiaries have already acquired
the certification. The Company is providing support to the other four
subsidiaries, including communication and cooperation via the videoconference system and other arrangements, to enable them to acquire
the certification by fiscal 2010.

ISO certification acquisition
Aichi SteelJanuary

1997

Consolidated subsidiaries

Social Relations Section

Aichi Ceratec

ISO14001

March

2003

Aiko Corp.

ISO14001

January

2004

Omi Mining

ISO14001

October

2004

Aiko Service

ISO14001

January

2005

Aichi Steel Logistics

ISO14001

March

2005

A

x

ISO14001

May

2007

Aichi Techno Metal Fukaumi

ISO14001(Expected to acquire in 2010)

A

F

U

ISO14001

April

A

I

T

ISO14001

November 2006

s

d

e

2003

C

ISO14001(Expected to acquire in 2009)

A

F

I

ISO14001(Expected to acquire in 2010)

A

F

C

ISO14001(Expected to acquire in 2010)S

Environmental management promotion organizations

ISO14001

A

F

Environmental Conservation Subcommittee
Zero Emission Subcommittee

Environmental Management

Environmental Section

Environmental
Working Group(Meets twice/year)(Chair: President)

Product and Environment Subcommittee
Awareness and Publicity Subcommittee＊ New
Global Warming
committees
Prevention committee(Meets twice/year)(Chair: Officer in charge of Safety and Environmental Division)
Process Energy Reforming Subcommittee
Energy-Saving Production Subcommittee
Logistics Energy Conservation Subcommittee

Financial Section

Administrative office– Environmental
Management Sectionof the Safety andEnvironmental Division– Individual sites
Environmental ISO
Review Committee(Meets twice/year)(Chair: Officer in chargeof Safety and Environmental
Division)

Eco Life Subcommittee

Aichi Steel Group Environmental Committee
Chita Site
Kariya Site
Forging Site
Higashiura Site
Gifu Site
Other relevant sites
Site environmental meeting(Chair: Head of each site)

30 AICHI STEEL REPORT 2009

Practicing “Environmental CloseCall” activities
During fiscal 2008, we received no complaints from outside theCompany. However, there were four environment-related inquiries
from neighboring companies and public administrative agencies. We
regarded these four inquiries as “material environmental close calls”
and worked to strengthen our daily inspections and take improvement
measures. We will continue our “Environmental Close Call” activities
within the Company to enhance employees’ alertness to prevent
environment-related accidents.

Business Update

Environmental activities are an important element of the business
management and CSR activities of an enterprise. Recognizing thisimportance, we have placed emphasis on environmental training. Until
fiscal 2008, environmental training programs have been provided to
newly employed graduates assigned to administrative departments(in the first half of each year) and employees promoted to managerial
positions of the section chief level. In fiscal 2008, the scope of the
programs was expanded to include employees promoted to teamleader positions, responsible for managing actual production operations
at each site.

In September 2008, the Green Purchasing Guideline was revised into
the New Green Purchasing Guideline, aimed at encouraging suppliers
to propose environment-conscious materials and enhancing theirawareness of our CO2 reduction efforts. A column to indicate CO2
reduction effects was added to the Proposal form to promote thepurchase of more eco-friendly materials from suppliers.
We strive to improve the management level of our purchasing, while
maintaining the Q (quality), C (cost-effectiveness), D (timely delivery)and E (environment-friendliness) of our purchased materials. We will
also implement evaluation of our suppliers’ efforts to encourage better
proposals from suppliers.

Increasing internal environmental
auditors

CSR Management

Revision of the Green Purchasing
Guideline

CSR Activities
Highlight 2008

Increasing participants inenvironmental training

For details, please refer to our Website.

Social Relations Section

The Company and Japanese consolidated subsidiaries operatingproduction sites appoint internal environmental auditors who support
the efficient operation of the environmental management system of theCompany. In fiscal 2008, 16 auditors were newly certified, bringing thetotal number of auditors in the Company to 163.

http://www.aichi-steel.co.jp/ENGLISH/over̲proc/data/
green̲guide.pdf

Results of internal audits
Classification

Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 2008

Material non-conformance (incidents)

4

2

0

0

0

Minor non-conformance(incidents/department)

0.9

1

0.9

0.7

0.7

Results of audits by independent auditors
Classification

1

1

1

1

AICHI STEEL REPORT 2009

31

1

11

18

21

12

20

(0.7)

(1.0)

(0.5)

(0.3)

(1.0)

Environmental conservation costs
Classification

1 Environmental conservation costs necessary for controlling
environmental burdens arising within our operational areas fromproduction or service activities (operational area cost)

Unit: millions of yen
Major efforts

AmountPower for dust collectors/repair costs for dust collectors, wastewater
treatment costs, investment and maintenance of energy-saving
facilities, costs of disposal and recycling of industrial waste andgeneral waste discharged from business operations

2,105

Simplified packaging
2 Costs necessary for controlling environmental burdens arising
upstream or downstream of our operational areas in connection with (reducing packing materials and reducing packing time)
production or service activities (Upstream/downstream cost)0

3 Environmental conservation costs arising from our administrative
activities (Administrative costs)

Costs for employee environmental education, and costs necessary toacquire and maintain ISO certification
Labor costs and related costs of environmental action organizations

4 Environmental conservation costs arising from our R&D activities (R&D costs) Research costs for environmental conservation
5 Environmental conservation costs arising from our social-relation activities (Social-relation costs) Site greening and industrial road cleaning activities

371

Financial Section

Environmental Section

Opportunity for
improvement and otherobservances(incidents/department)

Environmental Management

Minor non-conformance (incidents)

Fiscal 2004 Fiscal 2005 Fiscal 2006 Fiscal 2007 Fiscal 200817
32
Total 2,525

Environmental Section

Global Warming Prevention
Business Update

We pursue the new CO2 emission reduction target.
Based on our past efforts and know-how on the CO2 emission reduction, we will use the unified
efforts of the entire Group to achieve the new target for 2015 in order to contribute to global
warming prevention.

CSR Activities
Highlight 2008

Targets and results of fiscal 2008

LCA Simplified CO2 Measurement

Since the production volume has been significantly cut in fiscal 2008, theresults of our environmental efforts far exceeded the annual targets.

We have established a model to quantify the Life Cycle Assessment(LCA) Simplified CO2 Measurement by using the CO2 coefficientsdetermined by the Japan Iron and Steel Federation for each product.
Modeling is implemented during the development or improvement
process of a product to evaluate how much CO2 can be reduced
compared with in the case of conventional products. In fiscal 2008,
it has become possible to measure and evaluate four major forgings
using this model.

Item2008 target

2008 results

CO2 emissions

672,000 tons/year

544,000 tons/year

Concept of the “3-4-2 Strategy”
CSR Management

In addition to management of the total CO2 emission volume, we
promote CO2 management by production unit that enables objective
analysis of actual results regardless of fluctuations in the production
volume. This concept has been named the “3-4-2 Strategy.” These
three figures convey the idea that if the production volume increases
by 30% from the 1990 level, a 20% reduction in the total CO2 emission

Global warming prevention seminar
In July 2008, we invited Mr. Shigeki Kobayashi, a chief researcher fromToyota Central R&D Labs., Inc., as a speaker in our seminar “Global
Warming and Future Energies.” He spoke about an issue gaining great
attention recently, “CO2 reduction for Environmental Conservation.”

Social Relations Section

volume can be achieved by reducing the CO2 emission per production
unit by 40%. It will be impossible to achieve the new target for 2015 only
by continuing improvement of our existing energy-saving measures. We
will work on the development of sophisticated production processes fordrastic reform.

Promotion of shift to alternative
energies
The fuel used in the steel heat-treatment furnace (Furnace No. 64) waschanged from coal oil to city gas. We promoted the use of alternative
energies to replace petroleum. This also contributed to the CO2
emission reduction. Compared with conventional fuels, CO2 emissions
were reduced by about 16%.

Global Warming Prevention

Environmental Section

Improving energy efficiency oflogistics operations
In fiscal 2008, the total freightage of the Company reached about
130 million ton-kilometers.* CO2 emissions from logistics activities

Financial Section

decreased from the previous year, but the reduction rate per production
unit deteriorated by about 7%. This was because the transportation
distance had increased and the loading rate had dropped. In the future,
we will make efforts to identify efficient transportation methods in orderto improve the loading rate according to the volume of shipped products
and to shorten the transportation distance.

* Ton-kilometers (freightage volume) = Shipped quantities (tons) x Transportation
distance (kilometers)

32 AICHI STEEL REPORT 2009

From education to practice
We have continued environmental activities in the offices of administrative
departments. In order to strengthen these efforts, we will promote
activities to identify power consumption by individual administrative
workplaces.

Continuing energy-saving efforts in administrative offices
Cool Biz (June to September),and Warm Biz (December to February)
Reduction, sorting and recycling of waste

Business Update

thousand tons – CO2/year
1000

800

797
723

695

CO2 balance
CO2 emissions in fiscal 2007

678,000 tons – CO2/year

CO2 emissions

CO2 emissions in fiscal 2008

544,000 tons – CO2/year

Target (10% reduction from 1990 level)

Change134,000 tons – CO2/year

677

686

678

Breakdown

678

600

544

Reduction due to decrease in production volume
Improvements (A) – Aggravations (B)
Total

400

126,000 tons – CO2/year
8,000 tons – CO2/year
134,000 tons – CO2/year

Improvements (A)

90

95

00

04

05

06

07

08

Breakdown of energy consumption
during fiscal 2008
Breakdown of CO2 missions during fiscal 2008

City gas27.3％

2,000 tons – CO2/year(2) Loss reduction by improving the facility operating rate

2,000 tons – CO2/year(3) Improved energy efficiency of electronic furnaces

1,000 tons – CO2/year(4) Saving of energy in rolling-heating furnaces

3,000 tons – CO2/year(5) Loss reduction during suspension of operations

2,000 tons – CO2/year

Total

10,000 tons – CO2/year

Aggravations (B)(1) Changes in steel manufacturing process

2,000 tons – CO2/year

Total

2,000 tons – CO2/year

Social Relations Section

Other fuels
Heavy oil class A
1.3％
3.7％
OxygenCoke 1.5％
6.6％(1) Change processes to high-efficiency facilities (new equipment, etc.)

CSR Management

2000

CSR Activities
Highlight 2008

Change in CO2 emissions

Total CO2 emissions
544,000 tons – CO2 Electric power
59.6%

Environmental Section

As part of the Team Minus 6% initiative promoted by
the Ministry of Environment, we participated in the“CO2 Reduction/Lights-Out Campaign.”

Global Warming Prevention

ColumnAICHI STEEL REPORT 200933

Financial Section

We turned off the lighting of our corporate signboards on the nationwide simultaneous lights-out days
(listed below). In addition, as an extended activity of this campaign, we decided to turn off the lighting of
our signboards (Head Office, Technical School, Kariya Plant and Forging Plant) all day on Saturdays andSundays. In fiscal 2008, we reduced CO2 emissions by 385 kg through this initiative.
- June 21 “Black Illumination 2008”- July 7 “Tanabata Lights-Out”

Environmental Section

Environmental Material Flows
Business Update

Our environmental material flows in fiscal 2008 are illustrated below.
In our eco-conscious manufacturing activities, we strive for recycling and efficient use ofresources. We make diligent efforts both in the market and in our manufacturing processes topromote complete recycling and waste reduction.

CSR Activities
Highlight 2008

Recyclable materials

Raw materials

Scrap iron
617,000 tons
Internally recycled scrap 184,000 tons
Primary and secondary materials
30,000 tons
RP*4
22,000 tons

Alloy iron, etc. 41,000 tons
Slag29,000 tons
Reducing agents 18,000 tons

853,000
tons

364,000
tons

AICHI STEEL Manufacturing Process

Electric power 866TWh
Fuels
24,000KL
Oxygen 35,120,000㎥N
City gas 7,070,000㎥N
Utilities

Scrap iron for internal recycling
184,000 tons
Byproducts 212,000 tons

Steelmaking

CSR Management

Energy88,000tons

Purchased slab and steel

Social Relations Section

Industrial water 4,640,000㎥
Nitrogen
7,760,000㎥N
1,760,000㎥N
Argon

Melting
Refining

Waste
131,000 tons
Slag and duct sludge

CastingHeating
Rolling

Scrap iron

Rolling
Pickling and heat treatment

Environmental Material Flows

Forging

Environmental Section

Heating

Scale

Reuse outside
the Company(Free assignment
or disposal cost)
97,000 tons

Reuse outside
the Company(Sale to outsidebusiness operators)
51,000 tons

Recycled by outside companies
Landfilling 34,000 tons
Directlandﬁlling

Vacuumed sludge

Indirect
landﬁlling

Internal treatment:
Waste acid and dust
Contractor treatment:
Waste acid and waste plastic

CastingIndustrial waste water
Waste water 2,870,000㎥

Products

968,000 tons

Financial Section

Steel products 734,000 tons
Forgings
234,000 tons

MarketScrapmaterials(Scrap iron)
617,000 tons

*1. Emissions during the period January to December 2008
*2. Emissions during the period April 2008 to March 200934 AICHI STEEL REPORT 2009

Emissions
CO2 544,000 tons-CO2
SOx 9.5 tons*1
NOx 95 tons*2

Environmental Report

By-products
Business Update

We will find solutions for complete environmental conservation.
Needs for environmental conservation have been rising globally. As a corporate citizen, theCompany is expected to make environmental contribution to the global community.

In fiscal 2008, the Company landfilled a volume of slag that would
previously have been recycled, in order to comply with the Guideline for
Proper Use of Recyclable Resources (published by Aichi Prefecture). As
a result, the volume of direct landfill has significantly increased.

Item2008 target

2008 results

Direct landfilling

300 tons/year

29,433 tons/year

Indirect landfilling

1,620 tons/year

4,019 tons/year

Recycled nickel
We promote recycling of nickel-containing byproducts generated fromour manufacturing process. However, the recycled quantity declined infiscal 2008 due to a reduction of our production volume and a decreasein the quantities accepted.
(tons/year)

150
137

141

100

123
87

78

50
0

5
2000

2004

2005

2006

Landfilled waste
Change in direct landfilled waste
60

2007

2008

Social Relations Section

In addition to recycling and reuse efforts aimed at environmental
contribution, the Company makes technical efforts to comply withenvironmental regulations. One example of such a technical effort
is “slag,” a byproduct generated during the steel refining process.
Traditionally, we used fluorite (mainly composed of calcium fluoride) inorder to improve the quality of our specialty steel. However, to comply
with the intensifying environmental regulations, we have been working
to develop technologies that use an alternative material or that do not
require fluorite. We also place emphasis on analytical and controlling
technologies to support compliance with environmental regulations.

- Production of abrasive (AS Shot)- Recycling of electric arc furnace reducing slag, “ANRP method*5”- Recycling of nickel from byproducts

CSR Management

Actions to comply with the intensifying
environmental regulations

Recycling technologies that havebeen used by the Company

CSR Activities
Highlight 2008

Targets and results of fiscal 2008

(thousand tons/year)

52.0

Collaboration in the industry indeveloping recycling technologies

40
29.4

26.1

Environmental Section

30

Byproducts

Since the enactment of the Automobile Recycling Act, we havepromoted the reuse of automobile shredder residue (ASR*3). Recycled

50

AICHI STEEL REPORT 200935

plastics (RP*4) used in our manufacturing process are made by mixing
ASR with iron materials.
In fiscal 2008, about 8,400 tons/year (converted ASR) of recycledmaterials were used by the Company. Moreover, we promotecollaboration with other companies in the industry to identify possibilitiesof other companies using our byproducts, and vice versa.

20
13.2
10
0

1990

1995

2000

0.8

0.6

0.5

0.3

2004

2005

2006

2007

2008

Change in indirect landfilled waste(thousand tons/year)
25.5

20
9.1

10
0

2000

2004

3.5

2.3

2.2

2005

2006

2007

4.0
2008

Financial Section

30*3. ASR: Automobile Shredder Residue(plastic, rubber and glass debris generated from shredding of scrap cars)*4. RP: Recycled Plastics*5. ANRP: Aichi New Hot Slag Recycling Process

Environmental Section

Chemicals, Air and Water Quality Data (Fiscal 2008)
Business Update

Our strict management systems guarantee zero impact on naturalenvironment as well as risk reduction.
We implement proper management and discharge control for chemicals, gases and wastewater
discharged from our production sites. By taking improvement measures and operating strict
control systems, we diligently strive for risk reduction.

CSR Activities
Highlight 2008

PRTR Data(Unit: tons)

Chemical

Discharged

Handled

Ethyl benzene
XyleneTransferred

Air

Water

Outside of premises (as waste, etc.)

1.2

0.1

-

-

6

0.2

-

-

15000

0.0

0.0

1300.0

Cobalt and cobalt compounds

91

-

0.0

1.5

Dioxins

54.00

54.00

-

-

Toluene

8

1.1

-

-

Lead and lead compounds

200

0.0

0.0

110.0

Nickel

4100

-

-

-

Nickel compounds

580

0.0

0.1

45.0

Hydrogen fluoride and its water-soluble salts

6

0.0

4.1

0.6

Benzene

0.7

0.0

-

-

Boron and boron compounds

39

-

0.1

10.0

Manganese and manganese compounds

6800

0.0

1.1

980.0

Molybdenum and molybdenum compounds

4400

-

0.4

0.6

Chromium and trivalent chromium compounds

1000

-

0.0

33.0

Nickel compounds

510

-

0.0

18.0

Hydrogen fluoride and its water-soluble salts

130

0.0

0.6

100.0

Molybdenum and molybdenum compounds

17

-

0.1

1.2

Chromium and trivalent chromium compounds

Chita and Forging Plants

CSR Management

Kariya Plant

Social Relations Section

Higashiura and Gifu Plants: No chemicals requiring reporting were handled by these plants.
A hyphen (“-”) indicates a quantity of “0” (zero). The volumes were calculated according to the PRTR system.

Material balance of PRTR substances inthe entire organization of the Company

Breakdown of discharged PRTR substances

Chemicals, Air and Water
Quality Data (Fiscal 2008)

Environmental Section

2 tonsChemicals in raw
materials andsecondary materials
32,994 tons

Discharge
Waste
to waters (transferred)

7 tonsFinancial Section

36 AICHI STEEL REPORT 2009

Steel andother
products(consumed)

Atmospheric emissions

2,606 tons

Decomposition/neutralization(elimination)
526 tons

29,853 tons

Molybdenum andmolybdenum Xylene
compounds 3%
Other fuels
6%
5%
Toluene 14%
Manganese andmanganese compounds
14%

Hydrogen fluoride andits water-soluble salts
58%

Business Update

Water quality data

(regulated by the Air Pollution Control Act and the Prefectural
Ordinance)(regulated by the Water Quality Pollution Control Act and thePrefectural Ordinance)

Chita and Forging Plants

Chita and Forging Plants

Facility

Limit

Actual level (max)

Item

Limit

Max.

Min.

Average

NOx

Boiler

130

72.1

pH

5~9

7.4

6.5

6.8

150

26.7

COD

25(20)

10.4

3.0

5.6

250

24.3

SS

40(30)

5.5

Less than 0.1

2.7

130

67.3

Nitrogen120(60)

2.6

0.9

1.5

150

44.0

Phosphorus

16(8)

0.1

Less than 0.1

0.10

170

56.1

180

61.9

200

43.9

Item

Limit

Max.

Min.

AveragepH

5.8~8.6

7.5

6.2

6.7

BOD

25(20)

3.0

0.5

1.5

SS

40(30)

20.5

0.5

6.8

Nitrogen120(60)

15.4

0.6

7.0

Phosphorus

16(8)

1.3

0.2

0.62

Heating furnace

Soot

BoilerHeating furnace

0.05

0.014

0.10

0.002

0.30

0.001

0.08

0.003

Kariya Plant

0.003

0.20

0.002

0.25

0.002

Item

Limit

Max.

Min.

Average

0.30

0.006

pH

5.8~8.6

7.2

6.3

6.7

0.05

0.001

BOD

25(20)

8.9

3.9

6.4

0.08

0.001

SS

40(30)

7.5

Less than 0.1

1.5

0.10

0.002

Nitrogen120(60)

6.8

2.2

3.5

(Total limit)

34.35

4.003

Phosphorus

16(8)

0.8

0.1

0.42

Substance

Facility

Limit

Actual level (max)

Item

Limit

Max.

Min.

Average

NOx

Boiler

180

68.4

pH

5.8~8.6

7.3

6.3

6.9

Heating furnace

130

50.8

BOD

30(20)

2.8

0.7

1.8

150

42.9

SS

60(50)

6.0

Less than 0.1

1.1

170

63.3

Nitrogen120(60)

9.7

1.3

3.9

200

56.1

Phosphorus

16(8)

0.7

Less than 0.1

0.13

SOx

AICHI STEEL REPORT 200937

Gifu Plant

Boiler

0.30

0.002

Heating furnace

0.20

0.003

0.25

0.003

(Total limit)

11.622

7.333

Higashiura Plant: No regulated facilities were operated inthis plant.

● Unit: mg/liter (except for pH)● These tables show only major regulated substances. However, the levels of otherregulated substances not shown in these tables were all below the regulation limits
or below the minimum measurable amounts (or not detected at all).
● Figures in parentheses ( ) are daily averages.
○ pH: Hydrogen-ion density○ BOD: Biochemical oxygen demand○ COD: Chemical oxygen demand○ SS: Suspended solids in water

Financial Section

SOx

Environmental Section

Soot

Higashiura Plant

Chemicals, Air and Water
Quality Data (Fiscal 2008)

Kariya Plant

Social Relations Section

0.10

Electric arc furnace

CSR Management

Substance

CSR Activities
Highlight 2008

Atmospheric quality data

Gifu Plant
Substance

Facility

Limit

Actual level (max)NOx

Boiler150

76.0● The actual levels of NOx and soot indicate the maximum values actually
measured for each regulated facility.
● Units are as follows: NOx (ppm); Soot (g/m3N); SOx (m3/h) (Total limits set out
in the Air Pollution Control Act)

Financial Section
Business Update

Management’s Discussion, Analysis of Financial Condition and
Results of Operations
Any fractional sum of less than one million yen is disregarded.
A delta symbol in the table represents negative figures.
Sales by business segment represent sales to outside customers.

CSR Activities
Highlight 2008

Summary
Crude oil and raw material prices soared from the beginning of thecurrent fiscal year. With the effects from financial turmoil in the UnitedStates and Europe spreading to the “Main Street” economy from lastfall, and exports decreasing due to a sharp appreciation of the yen,
the Japanese economy rapidly lost momentum, causing significant
deterioration of corporate earnings.

CSR Management

In the Aichi Steel Group, production of mainstay products, such as
specialty steel and forgings, remained at a high level in the first half ofthe current fiscal year. However, sales volume decreased substantiallyin the second half of the current fiscal year, due to a sudden andlarge decline in demand from a wide variety of industries, including
automobiles, along with a sharp contraction in the global economy. This
forced the Group to implement an unprecedented drastic production
cutback in the fourth quarter (January to March 2009). On the other
hand, prices of scrap steel, a main raw material, declined sharply from
August 2008 after rising to a level significantly higher than our estimate
from the beginning of the current fiscal year.

Net sales for the current fiscal year decreased by 12.4% from theprevious fiscal year to 222,060 million yen (253,462 million yen in theprevious fiscal year).
Although there were some improvements in sale prices and production
costs, the Aichi Steel Group posted an operating loss of 483 million
yen and an ordinary loss of 1,804 million yen for the current fiscal year
(previous fiscal year operating income 10,884 million, ordinary income
9,332 million yen) due to an increase in raw material prices and a decline
in sales volume. Considering business results for the current fiscal year
and business prospects for the coming fiscal year, the Group reversed
the entire amount of deferred tax asset and recorded deferred income
taxes of 11,040 million yen at the end of March 2009. This led to a net
loss of 14,105 million yen (net income of 5,693 million in the previous
fiscal year).

Social Relations Section

In such a business environment, the Aichi Steel Group strove to improve
productivity, raise product quality and shorten delivery times, with theaim of laying a foundation for strengthening power of “Monozukuri(manufacturing),” while making the most of capital expenditures. With
the skyrocketing of such production costs as raw material and energy
prices, the Group also tried to set and maintain reasonable sales pricesthat fairly represent product values and costs. At the same time, theAichi Steel Group conducted company-wide emergency cost-cutting
activities as a part of internal reform efforts.

Environmental Section

Sales volume (non-consolidated basis)

Management’s Discussion
and Analysis

Financial Section

38 AICHI STEEL REPORT 2009

Net sales

Business Update

Net sales for the current fiscal year decreased by 12.4% from theprevious fiscal year to 222,060 million yen. Cost of sales was 202,009
million yen, the cost-to-sales ratio rising to 91.0% (87.1% in the previous
fiscal year). Selling, general and administrative expenses totaled 20,534
million yen, 9.2% of net sales (8.6% in the previous fiscal year).

Specialty steel
Specialty steel is a mainstay product of the Aichi Steel Group. The
segment’s net sales decreased by 8.0% from the previous fiscal year to
129,006 million yen (140,282 million yen in the previous fiscal year) due
to a decline in sales volume.

Consequently, the Group posted operating loss of 483 million yen
and net loss of 14,105 million yen for the current fiscal year. ROE wasnegative 12.7%.

Forgings
Closed-die forgings for automobiles account for a major part of thissegment. The segment’s net sales decreased by 17.7% from theprevious fiscal year to 85,896 million yen (104,324 million yen in theprevious fiscal year) due to a decline in sales volume.

CSR Management

Sales by Business Segment

CSR Activities
Highlight 2008

Net Income or Net Loss

Electromagnetic components
The segment has made full use of the Company’s one and only
technology. Management has striven to turn the technology into theCompany’s core business in the future. The segment’s net sales
decreased by 23.5% from the previous fiscal year to 3,380 million yen(4,417 million yen in the previous fiscal year).

Environmental Section

Operating income or Operating loss (△)

Social Relations Section

Other businesses
Consolidated subsidiary companies have been engaged in services andcomputer software development. The segment’s net sales decreasedby 14.9% from the previous fiscal year to 3,778 million yen (4,439 million
yen in the previous fiscal year).

Net income or Net loss (△)

Management’s Discussion
and Analysis

Financial Section

AICHI STEEL REPORT 200939

Financial Section
Business Update

Management’s Discussion, Analysis of Financial Condition and
Results of Operations

CSR Activities
Highlight 2008

Financial Position

Consolidated Cash Flows

Our Group’s financial position as of the end of March 2009 is asfollows.

Net cash provided by operating activities amounted to 26,320 million
yen, mainly due to depreciation and amortization of 14,795 million yen,a decrease in notes and accounts receivable-trade of 25,814 million
yen, and a decline in inventories of 5,197 million yen, despite net loss
before income tax of 2,618 million yen and a decrease in notes andaccounts payable-trade of 13,507 million yen.

Total assets decreased by 44,031 million yen from the previous year to
220,017 million yen. Current assets declined by 34,613 million yen to103,540 million yen, mainly because a decline in sales led to a decreasein notes and account receivable-trade of 26,975 million yen.
Property, plant and equipment decreased by 4,296 million yen from theprevious year. In the current fiscal year, a total of 14,467 million yen wasinvested. Depreciation and amortization totaled 14,794 million yen.

Net cash used in investment activities was 15,849 million yen, mainly
due to property, plant and equipment purchases of 15,952 million yen.
Net cash used in financing activities totaled 1,797 million yen, mainly
due to cash dividends paid of 1,962 million yen.

CSR Management

Current liabilities declined by 38,747 million yen from the previous year,
mainly because a decline in procurement due to a drop in sales led
to a decrease in notes and accounts payable-trade of 18,712 million
yen and the current portion of long-term loans payable decreased by
15,331 million yen.

Consequently, cash and cash equivalents as of the end of March 2009amounted to 37,396 million yen, an increase of 6,904 million yen fromthe end of March 2008 (30,492 million yen).

Non-current liabilities grew by 18,475 million yen from the previous
year, mainly because long-term loans payable increased by14,160
million yen.

Available-for-Sales Securities

Social Relations Section

Net assets as the end of March 2009 declined by 23,759 million yen
from the previous year to 104,396 million yen. Net assets per sharestood at 508.16 yen (624.49 yen in the previous year). Capital adequacy
ratio was 45.3% (46.4% in the previous year).

Environmental Section

ROE

Management’s Discussion
and Analysis

Financial Section

40 AICHI STEEL REPORT 2009

Of the total available-for-sales securities owned by the Company andits consolidated subsidiaries, the historical costs of those reported on
the consolidated balance sheet at fair market value amounted to 2,357
million yen (the fair market value of these securities was 7,084 million
yen).

Net assets, Capital adequacy ratio

Financial Section

Five –year Summary (Consolidated & Non-Consolidated)
Business Update

Five –year Summary (Consolidated)
Millions of Yen
Net sales

Thousands of U.S. Dollars

2009

2008

2007

2006

2005

2009

¥ 222,060¥ 253,462¥ 235,637¥ 224,954¥ 184,425$ 2,265,920

10,884

10,611

16,051

7,065(4,927)(2,618)

9,055

9,037

13,784

6,381(26,715)

Net income (loss)(14,105)

5,693

4,922

8,152

3,289

(143,929)

Property, plant and equipment

88,796

93,092

96,07680,301

67,261

906,084

Total assets

220,017

264,048274,608

269,606

192,771

2,245,073

Net assets

104,396

128,155

127,329

119,784

108,103

1,065,262

Basic¥ (71.89)¥ 29.00¥ 24.97¥ 40.23¥ 15.74$ (0.7)

Diluted

-

26.23

22.56

39.49

15.74

-

4,467

4,539

4,637

4,724

4,374

CSR Activities
Highlight 2008

(483)

Income (loss) before income taxes and minority interests

Operating income (loss)

Per share data
Net income (loss):

Number of employees

CSR Management

Notes:
1. Net sales are presented exclusive of consumption taxes.
2. Scope of Consolidation:
All subsidiaries are consolidated. Names of subsidiaries at March 31, 2008 are as follows:
Aiko Corporation, Aichi Ceratec Corporation, Omi Mining Co., Ltd., Aichi Techno Metal Fukaumi Company, Aichi Steel Logistics Co., Ltd., Aichi Information System Company, Aiko
Service Co., Ltd., Aichi Micro Intelligent Corporation, Asdex Corporation, Aichi Forging Company of Asia, Inc., Aichi USA, Inc., Louisville Forge and Gear Works, LLC, Aichi Europe GmbH,
Aichi International (Thailand) Co., LTD., Shanghai Aichi Forging Co., Ltd., PT. Aichi Forging Indonesia, Aichi Magfine Czech s.r.o., and AMIT, Inc.
3. Effective from the year ended March 31, 2007, the Company adopted Financial Accounting Standard No.5 ‘Accounting Standards for Presentation of Net Assets in the Balance Sheet’
and its Implementation Guidance No.8 ‘Guidance on Accounting Standards for Presentation of Net Assets in the Balance Sheets’ issued on December 9, 2005 by the AccountingStandards Board of Japan.
4. Net income per share is computed by dividing income available to shareholders of common stock by the weighted-average number of shares of common stock outstanding during therespective years.
5. Diluted net income per share of the fiscal year ended 2009 has not been presented, because no potentially dilutive common stock relevant to the calculation existed at the year end.
6. Each fiscal year end date is March 31.
7. The U.S. dollar amounts above represent translations of yen, for convenience only, at the rate of ¥98=U.S.$1.

Social Relations Section

Five –year Summary (Non-Consolidated)
Millions of Yen

Thousands of U.S. Dollars

2009

2008

2007

2006

2005

2009

¥ 181,317¥ 202,860¥ 187,076¥ 178,621¥ 149,479$ 1,850,177

Operating income (loss)(3,209)

6,559

7,012

15,051

7,543(32,742)

Income (loss) before income taxes(3,877)

5,811

6,929

11,532

7,235(39,565)

Net income (loss)(14,573)

3,838

4,017

5,478

4,345

(148,703)

Net sales

75,25077,53979,57564,77954,847

767,855

Total assets

200,006

236,098

250,844

246,287

175,234

2,040,879

Net assets

95,919115,615

117,709

116,770

108,686

978,767

Basic¥ (74.28)¥ 19.55¥ 20.38¥ 27.08¥ 21.34$ (0.8)

Diluted

-

17.68

18.42

26.59

21.33

-

Dividends

7.50

10.00

10.00

9.00

6.00

0.1

Number of employees

2,331

2,328

2,327

2,340

2,359

Environmental Section

Property, plant and equipment

Per share data
Net income (loss):

Five –year Summary(Consolidated & Non-Consolidated)

Financial Section

Notes:
1. Net sales are presented exclusive of consumption taxes.
2. Effective from the year ended March 31, 2007, the Company adopted Financial Accounting Standard No.5 ‘Accounting Standards for Presentation of Net Assets in the Balance Sheet’
and its Implementation Guidance No.8 ‘Guidance on Accounting Standards for Presentation of Net Assets in the Balance Sheets’ issued on December 9, 2005 by the AccountingStandards Board of Japan.
3. Net income per share is computed by dividing income available to shareholders of common stock by the weighted-average number of shares of common stock outstanding during therespective years.
4. Diluted net income per share of the fiscal year ended 2009 has not been presented, because no potentially dilutive common stock relevant to the calculation existed at the year end.
5. Each fiscal year end date is March 31.
6. The U.S. dollar amounts above represent translations of yen, for convenience only, at the rate of ¥98=U.S.$1.

AICHI STEEL REPORT 200941

Financial Section

Consolidated Balance Sheets
Business Update

As at March 31, 2009 and 2008
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

AssetsCurrent assets:¥ 37,312¥ 30,408$ 380,734

26,88453,859274,325

245

245

2,503

Finished goods

6,364

7,967

64,942Work in process

17,51820,886

178,759

Raw materials and supplies

11,283

13,104

115,126

Deferred tax assets (Note 17)

454

4,207

4,630

3,653

7,636

37,280Cash and deposit
Notes and accounts receivable (Notes7, 18)

CSR Activities
Highlight 2008

Short-term investments (Note 4)

Other assets
Less: allowance for doubtful receivables
Total current assets

(173)

(159)

(1,767)

103,540

138,153

1,056,532

Fixed Assets:
Property, plant and equipment: (Note 6)

CSR Management

Buildings and structures

56,64356,485577,990

Less: accumulated depreciation(36,615)(35,266)(373,623)

Machinery, equipment and vehicles

243,173242,459

2,481,353

Less: accumulated depreciation(195,792)(188,455)(1,997,876)

Equipment

12,725

13,118129,846

Less: accumulated depreciation(10,801)(10,807)(110,214)Land

144,937

14,204

12,521

Lease assets

42

-

432

Less: accumulated depreciation

(4)

-

(37)

5,221

3,037

53,276

88,796

93,092906,084

Telephone rights

12

12

120

Other assets

240

28

2,452

252

40

2,572

Investment securities (Note 4)

10,862

16,484

110,838

Long-term loans

1,020

1,314

10,404

Prepaid pension cost (Note 15)

14,36013,922

146,534

Deferred tax assets (Note 17)

272

273

2,769

Other assets

940

795

9,595

Construction in progressSocial Relations Section

Net property, plant and equipment
Intangible fixed assets:

Total intangible fixed assets
Investments and other assets:

Environmental Section

Less: allowance for doubtful receivables

(25)

(25)

(255)

Total investments and other assets

27,42932,763279,885

Total fixed assets
Total Assets
The accompanying notes are an integral part of these financial statements.

Consolidated Balance Sheets

Financial Section

42 AICHI STEEL REPORT 2009

116,477

125,895

1,188,541¥ 220,017¥ 264,048$ 2,245,073

Business Update

Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Liabilities and Net Assets
Liabilities
Current liabilities:¥ 13,154¥ 31,866$ 134,231

Short-term borrowings (Note 5 )

2,497

1,664

25,481

Current portion of long-term debt(Note 5)

5,647

20,97857,621

8

-

84

244

2,008

2,490

Lease obligations (Note 5)
Income taxes payable

-

244

-

167

2

1,701

10,74914,451

109,682

32,466

71,213331,290

Convertible bond with stock acquisition rights

30,00030,000306,122Long-term debt (Note 5)

35,801

21,641

365,315

Lease obligations (Note 5)

33

-

331

Long-term payables

992

1,386

10,123

Deferred tax liabilities (Note 17)

6,070

1,365

61,943

Employees’ retirement benefit liabilities (Note 15)

9,164

9,008

93,510Retirement benefit obligation for directors and corporate auditors

974

1,198

9,938

Other liabilities

121

82

1,239

Total long-term liabilities

83,15564,680848,521

Total liabilities

115,621

135,893

1,179,811

25,01725,017

255,273

Capital surplus

27,89927,899284,681

Retained earnings

47,09363,162

480,542Less, treasury stock, at cost

(1,610)(1,612)(16,422)

98,399114,466

1,004,074

Net unrealized gains on available-for-sale securities, net of taxes

2,950

6,171

30,100Foreign currency translation adjustments(1,648)

1,889(16,819)

1,302

8,060

13,281

149

99

1,516

4,546

5,530

46,391

104,396

128,155

1,065,262¥ 220,017¥ 264,048$ 2,245,073

Accrued bonuses for directors and corporate auditors
Deferred tax liabilities (Note 17)
Other liabilities
Total current liabilities

CSR Activities
Highlight 2008

Notes and accounts payable

Long-term liabilities:

CSR Management

Net Assets

Social Relations Section

Shareholders' equity:(Note 8)
Common stock, no par value:
Authorized: 476,000,000 shares;
Issued: 198,866,751 shares in 2009 and 2008

2,665,366 shares in 2009 and 2,666,097 shares in 2008
Total shareholders’ equity
Valuation and translation adjustments

Minority interests in subsidiaries
Total Net assets

Environmental Section

Total valuation and translation adjustments
Subscription rights to shares (Note16)

Commitments and contingent liabilities (Note 7)
Total Liabilities and Net assets

Consolidated Balance Sheets

Financial Section

AICHI STEEL REPORT 200943

Financial Section

Consolidated Statements of Income
Business Update

For the Years Ended March 31, 2009 and 2008
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

¥ 222,060¥ 253,462$ 2,265,920

202,009220,662

2,061,319

20,05132,800204,601

Freight expenses

3,582

3,265

36,552

Sales commission

1,024

1,205

10,453

Salaries and allowances and welfare expenses

7,143

8,381

72,890

429

276

4,379

-

241

-

238

255

2,426

Net sales (Notes 18 and 19)
Cost of sales
Gross profit
Selling, general and administrative expenses:

CSR Activities
Highlight 2008

Retirement benefit expenses
Provision of allowance for directors’ bonuses
Provision of allowance for directors' retirement benefits
Provision of allowance for doubtful receivables

32

-

322

Depreciation

658

601

6,716

Research and development expenses (Note 9)

2,829

2,001

28,867

Others

4,599

5,691

46,923

20,534

21,916

209,528(483)

10,884(4,927)

Interest income

250

324

2,547

Dividend income

313

290

3,195

Rent income

70

80

720

Gain on sales of goods

260

187

2,657

CSR Management

Total selling, general and administrative expenses
Operating income (loss) (Note 19)
Non-operating income:

-

329

-

402

617

4,099

1,295

1,827

13,218Interest expenses

840

635

8,574

Loss on disposal of property, plant and equipment, net

436

674

4,447

Loss on valuation of derivatives

141

-

1,439

Foreign exchange loss

683

1,250

6,977

Others

516

820

5,264

2,616

3,379

26,701(1,804)

9,332(18,410)

Impairment loss on fixed assets (Note 10)

814

277

8,305

Total extraordinary expenses

814

277

8,305

(2,618)

9,055(26,715)

Current

525

2,792

5,359

For prior periods

212

-

2,163

Deferred

11,040278

112,650

Total income taxes

11,777

3,070

120,172

(290)

292

(2,958)¥ (14,105)¥ 5,693$ (143,929)

Gain on valuation of derivatives
OthersTotal non-operating income

Social Relations Section

Non-operating expenses:

Total other expenses
Ordinary income (loss)
Extraordinary expenses :Environmental Section

Income (loss) before income taxes and minority interests
Income taxes:

Minority interests in net income (loss) of subsidiaries
Net income (loss)

Yen

U.S. Dollars

Per share (Note20)

Consolidated Statementsof IncomeFinancial Section

Net income (loss):
Basic¥ (71.89)¥ 29.00

Diluted

-

26.23

-

7.50

10.00

0.1

Cash dividends
The accompanying notes are an integral part of these financial statements.

44 AICHI STEEL REPORT 2009

$ (0.7)

Financial Section

Consolidated Statements of Changes in Net Assets
Business Update

For the Years Ended March 31, 2009 and 2008
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Shareholders' equity
Common stock¥ 25,017$ 255,273

25,01725,017

255,273

Balance at the beginning of year

27,89927,899284,681

Balance at the end of year

27,89927,899284,681

63,16259,410644,510

Cash dividends (Note11)(1,962)(1,966)(20,021)

Net income(loss) for the year

(14,105)

5,693(143,929)(18)

Balance at the end of year

CSR Activities
Highlight 2008

¥ 25,017

Balance at the beginning of year
Capital surplus

Retained earnings
Balance at the beginning of year
Change of items during the period

(2)

(7)

Increase due to decrease in consolidated subsidiaries

-

32

-

(16,069)

3,752(163,968)

47,09363,162

480,542(1,612)(1,001)(16,446)

Purchase of treasury stock and fractional shares

(3)

(693)

(29)

Disposal of treasury stock due to exercise of stock options

5

82

53

Total changes of items during the period

2

(611)

24

(1,610)(1,612)(16,422)

114,466

111,325

1,168,018

Cash dividends (Note11)(1,962)(1,966)(20,021)

Net income(loss) for the year

(14,105)

5,693(143,929)

Purchase of treasury stock and fractional shares

(3)

(693)

(29)

Disposal of treasury stock due to exercise of stock options

3

75

35

Increase due to decrease in consolidated subsidiaries

-

32

-

(16,067)

3,141(163,944)¥ 98,399¥ 114,466$ 1,004,074

Total changes of items during the period
Balance at the end of year

CSR Management

Disposal of treasury stock due to exercise of stock options

Treasury stock
Balance at the beginning of year
Change of items during the period

Balance at the end of year
Total shareholders' equity

Social Relations Section

Balance at the beginning of year
Change of items during the period

Total changes of items during the period
Balance at the end of year

Environmental Section
Consolidated Statementsof Changes in Net Assets

Financial Section

AICHI STEEL REPORT 200945

Financial Section

Consolidated Statements of Changes in Net Assets
Business Update

For the Years Ended March 31, 2009 and 2008
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Valuation and translation adjustments
Net unrealized gains on available-for-sale securities, net of taxes¥ 6,171¥ 9,597$ 62,975

Net changes of items other than shareholders' equity(3,221)(3,426)(32,875)

Total changes of items during the period(3,221)(3,426)(32,875)

2,950

6,171

30,100

1,889

1,061

19,273

Net changes of items other than shareholders' equity(3,537)828(36,092)

Total changes of items during the period(3,537)828(36,092)(1,648)

1,889(16,819)

8,060

10,65882,248Net changes of items other than shareholders' equity(6,758)(2,598)(68,967)

Total changes of items during the period(6,758)(2,598)(68,967)

1,302

8,060

13,281

99

31

1,013

Net changes of items other than shareholders' equity

50

68

503

Total changes of items during the period

50

68

503

149

99

1,516

5,530

5,315

56,430Net changes of items other than shareholders' equity

(984)

215

(10,039)

Total changes of items during the period

(984)

215

(10,039)

4,546

5,530

46,391

128,155

127,329

1,307,709

Cash dividends (Note11)(1,962)(1,966)(20,021)

Net income(loss) for the year

(14,105)

5,693(143,929)

Balance at the beginning of year
Change of items during the period

CSR Activities
Highlight 2008

Balance at the end of year
Foreign currency translation adjustments
Balance at the beginning of year
Change of items during the period

Balance at the end of year
Total valuation and translation adjustments

CSR Management

Balance at the beginning of year
Change of items during the period

Balance at the end of year
Subscription rights to shares
Balance at the beginning of year
Change of items during the periodSocial Relations Section

Balance at the end of year
Minority interests in subsidiaries
Balance at the beginning of year
Change of items during the period

Balance at the end of year
Total net assets
Balance at the beginning of year
Change of items during the period

Environmental Section

Purchase of treasury stock and fractional shares

(3)

(693)

(29)

Disposal of treasury stock due to exercise of stock options

3

75

35

Increase due to decrease in consolidated subsidiaries

-

32

-

Net changes of items other than shareholders' equity(7,692)(2,315)(78,503)

Total changes of items during the period
Balance at the end of year
The accompanying notes are an integral part of these financial statements.

Consolidated Statementsof Changes in Net Assets

Financial Section

46 AICHI STEEL REPORT 2009

(23,759)826(242,447)¥ 104,396¥ 128,155$ 1,065,262

Financial Section

Consolidated Statements of Cash Flows
Business Update

For the Years Ended March 31, 2009 and 2008
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Cash flows from operating activities:¥ 9,055$ (26,715)

14,795

14,754150,968

Adjustments for impairment loss on fixed assets

814

277

8,305

Increase of prepaid pension cost

(437)

(1,004)(4,468)Adjustments for depreciation

Increase (decrease) of employees’ retirement benefit obligation

192

(72)

1,962

Decrease in defined contribution pension payable

(358)

(395)

(3,653)

26

(36)

266

Interest and dividend income

(563)

(615)

(5,742)

Interest expense

840

635

8,575

Foreign exchange loss

233

685

2,380

(Gain) loss on sale of property, plant and equipment, net

(5)

172

(55)

Loss on disposal of property, plant and equipment

298

370

3,045
263,406

Increase (decrease) of allowance for doubtful receivables

CSR Activities
Highlight 2008

¥ (2,618)(Loss) income before income taxes and minority interests

Increase/Decrease in operating assets and liabilities:
25,814

4,339

Inventories

5,197(4,539)53,031(13,507)(3,940)(137,829)

Notes and accounts payable
Other, net(1,875)(206)(19,131)

Subtotal

28,846

19,480294,345

Interest and dividend received

565

617

5,763

Interest paid

(740)

(634)

(7,549)(2,351)(3,384)(23,990)

26,32016,079268,569

Income taxes paid
Net cash provided by operating activities

CSR Management

Notes and accounts receivable

Cash flows from investing activities:
(10)

(0)

(18,665)(162,773)

Proceeds from sales of property, plant and equipment

37

140

375

Payments for purchase of investment securities

(1)

(5)

(15)

Payments for purchase of property, plant and equipment

-

233

-

Payments for acquisition of subsidiary’s shares

(47)

(6)

(476)

Payments for subscriptions(1,174)

Proceeds from sales of shares of former consolidated subsidiaries (Note12)

(115)

-

Payments for loans

-

(68)

-

Collections of loans

294

177

3,000

13

(665)

(18,191)(161,728)

Net increase (decrease) in short-term borrowings

1,172

(332)

11,960

Proceeds from long-term debt

20,000651

204,082

Repayments of long-term debt

(20,934)(843)(213,608)

(4)

-

(37)

-

110

-

Payments for acquisitions of treasury stock

(3)

(693)

(29)

Proceeds from disposal of treasury stock

1

1

15

Proceeds from exercise of stock options

2

73

20

(1,962)(1,964)(20,021)

(72)

(75)

(739)

3

-

30

(1,797)(3,072)(18,327)(18,059)

Net cash used in investing activities

Environmental Section(65)(15,849)

Others, net

Social Relations Section(0)(15,952)

Net increase in time deposits

Cash flows from financing activities:

Payments for refund of lease obligations
Proceeds from minority shareholders of subsidiary

Cash dividends paid

Net cash used in financing activities

Financial Section

OthersConsolidated Statementsof Cash Flows

Cash dividends paid to minority shareholders

AICHI STEEL REPORT 200947

Effect of exchange rate changes on cash and cash equivalents(1,770)47

Net Increase (decrease) in cash and cash equivalents

6,904(5,137)70,455

Cash and cash equivalents at beginning of year

30,49235,629311,139¥ 37,396¥ 30,492$ 381,594

Cash and cash equivalents at end of year
The accompanying notes are an integral part of these financial statements.

Financial Section

Notes to Consolidated Financial Statements
Business Update

1. Basis of Presenting Consolidated Financial Statements

CSR Activities
Highlight 2008(a) Basis of presenting the consolidated financial statements
The accompanying consolidated financial statements of AICHI STEELCORPORATION ("the Company") and its subsidiaries are prepared on
the basis of accounting principles generally accepted in Japan, which are
different in certain respects as to application and disclosure requirementsof International Financial Reporting Standards. These consolidated financial
statements are compiled from the original consolidated financial statements
in Japanese prepared by the Company as required by the Financial
Instruments and Exchange Law and submitted to the Director of Kanto
Finance Bureau in Japan.
On the accompanying consolidated financial statements, amounts lessthan ¥1 million are rounded to the nearest million yen; therefore, someaccounts and notes are not consistent with those on the consolidated
financial statements submitted to the Director of Kanto Finance Bureau in
Japan, on which amounts less than ¥1 million are omitted.

CSR Management(b) U.S. dollar amounts
The U.S. dollar amounts included in the accompanying consolidated financial
statements and notes thereto represent the arithmetic results of translating
Japanese Yen into U.S. dollars at the rate of ¥98 to $1, the approximate
rate of exchange at March 31, 2009. The inclusion of such dollar amounts
is solely for the convenience of the readers and is not intended to imply thatthe assets and liabilities originating in Yen have been or could be readily
converted, realized or settled in U.S. dollars at ¥98 to $1 or at any otherrates. Amounts are rounded to the nearest US$ 1 thousand.

Social Relations Section(c) Reclassification
In preparing the accompanying consolidated financial statement, certain
comparative figures have been reclassified to conform to the current year’s
presentations.

2. Summary of Significant Accounting Policies

Environmental Section(a) Principles of consolidation
The accompanying consolidated financial statements include the accountsof the Company and all of its subsidiaries (18 companies in 2009 and2008). Investments in affiliates (3 companies in 2009 and 2008) are carriedat cost, since the equity in retained earnings and net income of affiliates
is not material. Significant intercompany transactions and accounts havebeen eliminated. Assets and liabilities of subsidiaries are revalued at theirfair value as of the date of acquisition of control based on the full fair value
method.

Notes to Consolidated
Financial Statements

Financial Section(a-i) Scope of consolidation
Subsidiaries at March 31, 2009 are as follows:
Domestic subsidiaries (9 companies):
Aiko Corporation
Aichi Ceratec Corporation
Omi Mining Co., Ltd.
Aichi Techno Metal Fukaumi Company
Aichi Steel Logistics Co., Ltd.
Aichi Information System Company
Aiko Service Co., Ltd.
Aichi Micro Intelligent Corporation
Asdex Corporation
Overseas subsidiaries (9 companies):
Aichi Forging Company of Asia, Inc.
Aichi USA, Inc.
Louisville Forge and Gear Works, LLC
Aichi Europe GmbH
Aichi International (Thailand) Co., Ltd.
Shanghai Aichi Forging Co., Ltd.
PT. Aichi Forging Indonesia
Aichi Magfine Czech s.r.o.
AMIT, Inc.

48 AICHI STEEL REPORT 2009

(a-ii) Fiscal year of subsidiaries
The Company's overseas subsidiaries use the fiscal year ending December
31, three months earlier than the Company. The Company consolidates
such subsidiaries' financial statements as at December 31. Significant
transactions for the period between subsidiaries' year-end and theCompany's year-end are adjusted on consolidation.
(b) Cash and cash equivalents
The Company and its subsidiaries consider short-term highly liquid
investments with maturities of three months or less when purchased to be
cash equivalents.
(c) Valuation of securities
The accounting standard for financial instruments requires that securities to
be classified into three categories: trading, held-to-maturity or available-forsale, whose classification determines the respective accounting method.
According to the Company’s investment policies, the securities portfolioof the Company and its subsidiaries are classified as available-for-salesecurities. The accounting standard requires that available-for-sale securities
with available market quotations are valued at fair value, and net unrealized
gains or losses on such securities are reported as a separate component of
net assets, net of applicable income taxes. Gains and losses on dispositionof marketable securities are computed by the moving average method.
Non-marketable available-for-sale securities without marketable quotations
are carried at cost determined by the moving average method. Adjustments
in carrying values of individual investment securities are charged to income
through write-downs, when a significant decline in value is deemed otherthan temporary.
(d) Derivatives and Hedge Accounting
Derivatives are valued at fair value where hedge accounting is not
appropriate or where there is no hedging designation, and gains orlosses on derivatives are recognized in current earnings. In addition, wheninterest rate swaps that meet certain required conditions have criticalterms matching exactly with those of financial assets or liabilities that are
being hedged, such interest rate swaps are not recognized in the balance
sheet, and net interest paid or received on the swaps is recognized as an
adjustment to the interest income or expense on the financial assets or
liabilities that are being hedged.
The Company uses the interest rate swap contract for the borrowing froma bank to reduce its own exposure to fluctuations in interest rates. The
Company does not perform the evaluation of effectiveness of the hedging
items because the interest rate swap contract meets the required condition
above.
(e) Inventories
Finished goods and work in process are mainly stated at cost determinedby the periodic average method. The amount carried on the balance
sheet is evaluated by devaluation method based on decline of profit. Raw
materials and supplies are mainly stated at cost determined by the moving
average method, and the amount on balance sheet is evaluated by thedevaluation method based on decline of profit, except for rolls and molds
included in supplies, which are depreciated over useful life and recorded
after depreciation value.
The inventory amount on the balance sheet of is stated after devaluation
based on decline of profit and evaluation loss of inventory of ¥2,790
million ($28,472 thousand) as included in ‘Cost of goods sold’ on income
statement.
(Accounting Change)
Effective from the year ended March 31, 2009, the Company and its
domestic subsidiaries have adopted Financial Accounting Standard No.9
‘Accounting Standard for Evaluation of Inventory’ issued on July 5, 2006.
As a result of the adoption, operating losses increased by ¥2,652 million($27,058 thousand) , and ordinary losses and losses before income taxes
and minority interests increased by ¥1,333 million($13,604 thousand).

(m) Accounting for foreign currency translation
All monetary assets and liabilities denominated in foreign currencies,
whether long-term or short-term, are translated into Japanese yen at
the exchange rates prevailing at the respective balance sheet dates. The
resulting unrealized gain or loss is charged to income each year.
Assets and liabilities of overseas subsidiaries are translated into Japanese
yen at the exchange rates prevailing at the balance sheet dates. The
shareholders' equity in Net Assets is translated into Japanese yen at thehistorical rates. Profit and loss accounts for the year are translated into
Japanese yen using the average exchange rates during the respective
years. Differences in yen amounts arising from use of different rates havebeen presented as "Foreign currency translation adjustments" in Net Assets
or included in "Minority interests in subsidiaries" in Net Assets.

Financial Section(n) Per share data
Basic net income per share of common stock is computed by dividing
income available to shareholders of common stock by the weighted-average
number of shares of common stock outstanding for the period. Diluted net
income per share of common stock is calculated based on the assumption
for the possible dilution that could occur if securities or other contracts toissue common stock were exercised or converted into common stock, or
result in the issuance of common stock.
As described in Note 16, the Company granted the stock option to its
directors, executive officers and selected employees for purchase of its
common stock. In addition, the Company issued a ¥30-billion convertiblebond-type bond with stock acquisition rights during the year ended March
31, 2006. Diluted net income per share of common stock for the year ended
March 31, 2009 and 2008 reflects possible dilution of the stock option andthe convertible bond-type bond with stock acquisition rights to shares.
Cash dividends per share shown for each fiscal year in the accompanying
consolidated statements of income represent dividends declared as
applicable to the respective years.

Notes to Consolidated
Financial Statements(i) Employees’ retirement benefit obligation
The Company and its subsidiaries have recognized the retirement benefit
obligation including pension costs and related liabilities based on theactuarial present value of the projected benefit obligation using actuarial
appraisal approach and the pension plan assets available for benefits at
the respective year-ends. Unrecognized actuarial differences from changes
in the projected benefit obligation or pension plan assets resulting fromdifferences in actual experiences from those assumed or from changes
in assumptions, are amortized straight-line method over 15 years. The
period is intended to reflect the expected average remaining service lifeof employees, and amortization commences in the year following that inwhich they arise. Prior service costs are amortized straight-line over 15 or
16 years.

(l) Consumption taxes
Consumption taxes are excluded from the revenue and expense accounts
which are subject to such taxes.

Environmental Section(h) Allowance for doubtful receivables
An allowance for doubtful receivables is provided based on the historicalloss expense during a certain reference period, plus the estimated noncollectable amount based on the analysis of certain specific accounts inaccordance with the accounting standard.

(k) Income taxes
Income taxes are accounted for in accordance with the accounting
standard for income taxes, which requires recognition of deferred taxes
using the asset and liability method. Under the accounting standard,
deferred tax assets and liabilities are recognized to account for the future
tax consequences of differences between the carrying amounts of existing
assets and liabilities and their respective tax bases, and are measured using
the enacted tax rates expected to apply to taxable income in the years inwhich those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates isrecognized in the period that includes the enactment date.

Social Relations Section(g) Goodwill and Negative Goodwill
The difference between the cost of investments in subsidiaries and theunderlying equity in their net assets is recorded as goodwill or negative
goodwill in the consolidated balance sheets and amortized using thestraight –line method over a period of 20 years. If the amount is immaterial,
it is fully recognized as an expense when incurred.

(j) Retirement benefit obligation for directors and corporate
auditors
The Company and its domestic subsidiaries pay severance indemnities todirectors and corporate auditors, which are subject to the approval of theshareholders. The Company and its domestic subsidiaries have provided
for the full amount of the liabilities of directors' and corporate auditors'
retirement benefits which would be required for payments of retirement
benefits for directors and corporate auditors in accordance with internal
regulations at the respective balance sheet dates.

CSR Management

For the year ended March 31, 2008
(Accounting Change)
Effective from the year ended March 31, 2008, the Company and its domestic
subsidiaries have changed their depreciation methods for property, plantand equipment acquired on or after April 1, 2007 in accordance with therevised Corporate Tax Law of Japan. As a result of the change, operating
income, ordinary income and income before income taxes and minority
interests decreased by ¥292 million.
(Additional information)
Effective from the year ended March 31, 2008, the Company and its
domestic subsidiaries depreciate property, plant and equipment acquired
before April 1, 2007 from 5% of their cost to ¥1 by the straight-line method
for 5 years from the following year the property, plant and equipment reach
5% of their cost calculated using the previous depreciation method, in
accordance with the revised Corporate Tax Law of Japan. As a result of
the change, operating income, ordinary income and income before income
taxes and minority interests decreased by ¥1,087 million.

Employees’ retirement benefit obligation includes reserve for retirement
benefits of executive officers calculated based on the method similar tothat used for to determine the retirement benefit obligation for directors andcorporate auditors.

CSR Activities
Highlight 2008

Expenditures on maintenance and repairs are charged to income as
incurred. Upon the disposal of property, the cost and accumulated
depreciation are removed from the related accounts and any gain or loss isrecorded as income or expenses.
(Additional information)
The Company and its domestic subsidiaries have changed the depreciable
period for a part of property, plant and equipment using the opportunity
provided by the 2008 tax reform. As a result, operating losses, ordinary
losses and losses before income taxes and minority interest increased by¥1,013 million($10,332 thousand).

Business Update(f) Property, plant and equipment
Property, plant and equipment are stated at cost, and have been depreciatedby the declining balance method. The exceptions to this are the No.2 Bar
and Wire Rod Mill Shop of the Company as well as lease assets which havebeen depreciated by the straight-line method.
Where financing leases do not transfer ownership of the leased property
to the lessee during the term of the lease contract began before April 1,
2008, the leased property of the Company and its domestic subsidiaries
are not capitalized and the relating rental and lease expenses are charged
to income as incurred.

AICHI STEEL REPORT 200949

Financial Section

Notes to Consolidated Financial Statements
Business Update

3. Accounting Changes

CSR Activities
Highlight 2008(a) Accounting standard for lease transaction
The Company and its domestic subsidiaries did not capitalize financeleases which do not transfer ownership of the leased property to the lessee
during the term of the lease contract and charged the related rental andlease expenses to income as incurred until the year ended March 31,
2008. Effective from the year ended March 31, 2009, the Company andits domestic subsidiaries adopted Financial Accounting Standard No. 13‘Accounting Standard for Lease Transaction’ issued on June 17, 1993
and revised on March 30, 2007 by Accounting Standards Board of Japanand its Implementation Guidance No.16 issued on January 18, 1994 andrevised on March 30, 2007 by Accounting Standards Board of Japan. In
accordance with the Standard and the Guidance, finance leases other thanthose deemed to transfer the ownership of leased properties to lessees
are accounted for mainly by a method similar to that applicable to ordinary
sales transactions, instead by the former method, a method similar to thatapplicable to ordinary operating leases.
This change does not influence operating loss, ordinary loss and loss before
income taxes and minority interest.

(b) Accounting policies applied to overseas subsidiaries
Effective from the year ended March 31, 2009, the Company and its
subsidiaries have adopted Practical Issue Task Force No.18 ‘Practical
Solution on Unification of Accounting Policies Applied to Foreign
Subsidiaries for Consolidated Financial Statements’ issued on May 17, 2006
by the Accounting Standards Board of Japan, and makes the necessary
adjustments for its consolidated financial statements.
This adoption does not influence operating loss, ordinary loss and loss
before income taxes and minority interest.

4. Investments(a) Investment securities
All marketable securities are classified as available-for-sale and are valued
at fair value with unrealized gains and losses excluded from the current
earnings and reported as a net amount within net assets until realized. At
March 31, 2009 and 2008, gross unrealized gains and losses for marketablesecurities are summarized as follows:

CSR Management

Millions of Yen
Acquisition cost

Fair and carrying value

Difference

At March 31, 2009:
Securities with fair value exceeding acquisition costMarketable securities:¥ 2,167¥ 6,929¥ 4,762

Bonds

-

-

-

Others---¥ 2,167¥ 6,929¥ 4,762

Equity securities

Social Relations Section

Subtotal
Securities with fair value not exceeding acquisition costMarketable securities:

¥ 190

¥ 155

¥ (35)

Bonds

-

-

-

Others

-

-

-

¥ 190

¥ 155

¥ (35)¥ 2,357¥ 7,084¥ 4,727

Equity securities

Subtotal
Total
At March 31, 2008:
Securities with fair value exceeding acquisition costMarketable securities:

Environmental Section¥ 2,326¥ 12,653¥ 10,327

Bonds

-

-

-

Others---¥ 2,326¥ 12,653¥ 10,327

Equity securities

Subtotal
Securities with fair value not exceeding acquisition costMarketable securities:

¥ 37

¥ 31

¥ (6)

Bonds

-

-

-

Others

-

-

-

¥ 37

¥ 31

¥ (6)

¥ 2,363¥ 12,684¥ 10,321

Equity securities

Subtotal

Notes to Consolidated
Financial Statements

Financial Section

Total

50 AICHI STEEL REPORT 2009

Business Update

Thousands of U.S. Dollars
Acquisition cost

Fair and carrying value

Difference

At March 31, 2009:
Securities with fair value exceeding acquisition costMarketable securities:$ 70,705$ 48,591---

Others---Subtotal$ 22,114$ 70,705$ 48,591

CSR Activities
Highlight 2008

$ 22,114

Bonds

Equity securities

Securities with fair value not exceeding acquisition costMarketable securities:$ 1,943$ 1,584$ (359)

Bonds

-

-

-

Others---Subtotal$ 1,943$ 1,584$ (359)Total$ 24,057$ 72,289$ 48,232

Equity securities

Book value of investment securities carried at cost at March 31, 2009 and 2008 are as follows:

2008

CSR Management

Thousands of U.S. Dollars

Millions of Yen
2009

2009

Non-marketable securities¥ 3,630¥ 3,652$ 37,040

Securities investment trusts

245

244

2,503

(Included in Cash and cash equivalents)
The Company and its subsidiaries do not have any held-to-maturity bonds or available-for-sale debt securities.
(b) Investments in affiliates
Investments in affiliates at March 31, 2009 and 2008 are as follows:
Thousands of U.S. Dollars

Millions of Yen
2008

2009
¥ 148

¥ 147

Investments in affiliates stated at costSocial Relations Section2009$ 1,508

5. Short-term Borrowings and Long-term Debt
Short-term borrowings at March 31, 2009 and 2008 are as follows:
Thousands of U.S. Dollars

Millions of Yen
2009

2008

Unsecured bank loans at March 31, 2009

¥2,497

Average interest rate

4.87%

2009
¥1,664$25,481

Environmental Section

Long-term debt at March 31, 2009 and 2008 are as follows:
Thousands of U.S. Dollars

Millions of Yen
2009
Unsecured convertible bond with stock

2008

2009

¥ 30,000¥ 30,000$ 306,122

Unsecured bank loans due through 2016 at March 31, 2009

41,44842,619422,937

Average interest rate

1.35%

acquisition rights due March 2011 with no interest

72,619729,059(5,647)(20,978)(57,621)¥ 65,801¥ 51,641$ 671,438

Total

Financial Section

71,448Less, current portion

Notes to Consolidated
Financial Statements

Subtotal

AICHI STEEL REPORT 200951

The current conversion price of convertible bond with stock acquisition rights due March 2011 is ¥1,440 per share and is subject to adjustment in certain
circumstances, including in the event of a stock split. At March 31, 2009, approximately 21 million shares of common stock would be necessary to convert
all stock acquisition rights outstanding.

Financial Section

Notes to Consolidated Financial Statements
Business Update

The aggregate annual maturities of long-term debt at March 31, 2009 are as follows:
Years ending March 31,

Millions of Yen

Thousands of U.S. Dollars

2010¥ 5,647$ 57,621

2011

30,676

313,019

2012

71

729

2013

15,054

153,6082016

20,000204,082

Total¥ 71,448$ 729,059

CSR Activities
Highlight 2008

The aggregate annual maturities of lease obligations at March 31, 2009 are as follows:
Years ending March 31,

Millions of Yen

Thousands of U.S. Dollars

2010

¥8

$ 84

2011

10

103

2012

9

93

2013

9

92

2014

4

43

Total

¥ 40

$ 415

CSR Management

6. Advanced depreciation of Fixed Assets
For the year ended March 31, 2009, the amount of advanced depreciation of fixed assets with government subsidies is ¥681 million ($6,951 thousand).

7. Contingent Liabilities
Notes receivable endorsed at March 31, 2009 and 2008 are as follows:
Millions of Yen
2009
Notes receivable endorsed

Thousands of U.S. Dollars
2008

¥-

2009
¥ 48

$-

Social Relations Section

Amounts guaranteed against bank loans of an affiliate and other company at March 31, 2009 and 2008 are as follows:
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009
$-

Chita Medias Corporation

¥-

¥ 402

Kentucky Advanced Forge, LLC

5

1

50

¥5

¥ 403

$ 50

Total

8. Shareholders' Equity in Net Assets

Environmental Section

At March 31, 2009 and 2008, respectively, capital surplus consisted of additional paid-in capital. The Companies Act (“the Act”) provides that an amount equal
to at least 10% of cash dividend and other distributions from retained earnings paid by the Company is appropriate as a legal reserve until the total amount ofadditional paid-in capital and legal reserve equals to 25% of stated capital. When the total amount of additional paid-in capital and legal reserve exceeds 25%of stated capital, such excess can be transferred to retained earnings by resolution of shareholders, which may be available for dividends. Legal reserve wasincluded in retained earnings and amounted to ¥6,254 million ($63,818 thousand)at March 31, 2009 and 2008, respectively.
Dividends are approved by the shareholders at a meeting held after the close of the fiscal year to which the dividends are applicable. In addition, interim
dividends may be paid upon resolution of the Board of Directors, subject to limitations imposed by the Act.

9. Research and Development Expenses

Notes to Consolidated
Financial Statements

Financial Section

Expenses related to research and development activities are charged to income as incurred. Research and development expenses were included in generaland administrative expenses, and manufacturing costs amounted to ¥2,829 million ($28,867 thousand) and ¥2,001 million for the years ended March 31,
2009 and 2008, respectively.

52 AICHI STEEL REPORT 2009

Business Update

10. Impairment
Impairment of Fixed Assets“Impairment loss on fixed assets” recorded in the consolidated statements of income for the year ended March 31, 2009 was as follows:
Description

Location

Idle assets

Tokai-shi,Aichi prefecture

Millions of Yen¥ 249

Thousands of U.S. Dollars$ 2,536

Machinery and equipment

Idle assets

Handa-shi,Aichi prefecture

15

151

Machinery and equipment

Idle assets

Kagamihara-shi,Gifu prefecture

57

582

Machinery and equipment and other assets

Idle assets

Higashiura-cho,Aichi prefecture

27

277

Machinery and equipment and other assets

Forging parts Product equipment

Shanghai, China

394

4,022

Construction in progress

Idle assets

Tokai-shi,Aichi prefecture

58

594

Land

Idle assets

Takayama-shi,Gifu prefecture02

Buildings and structures and other assets

Idle assets

Tokai-shi,Aichi prefecture

14

141

¥ 814

$ 8,305

CSR Activities
Highlight 2008

Item
Machinery and equipment

CSR Management

Fixed assets are principally grouped into cash-generating units based on units of production, other than assets for rent and idle assets. An impairment loss
on idle assets is calculated using the expected net selling price as the recoverable value. An impairment loss was recognized for the year ended March 31,
2009 because the forecast of future cash flow had changed due to: the renewal plan of the machinery and equipment; the fair value of the land diminishingsignificantly due to recent decline in land prices; and the business asset value diminishing because the change of business environment. The machinery,equipment, construction in progress and other assets is written down to ¥1 because net selling prices of the machinery, equipment, construction in progressand other assets are expected to be nil. The land is written down to the expected net selling price of the land based on the valuations carried out to determine
the property tax bases for land, and the salvage values for tax purposes for other properties.
The impairment loss for the assets for forging production was recognized for the year ended March 31, 2009 because of the change of business condition.
Assets for forging production are written down to the estimated collectable amount based on future cash flow discounted at 11%.
“Impairment loss on fixed assets” recorded in the consolidated statements of income for the year ended March 31, 2008 was as follows:
Item

Description

Location

Machinery and equipment

Idle assets

Tokai-shi,Aichi prefecture

Millions of Yen¥ 148

Thousands of U.S. Dollars

Machinery and equipment

Idle assets

Kagamihara-shi,Gifu prefecture

330Construction in progress

Idle assets

Tokai-shi,Aichi prefecture

80

799

Land

Idle assets

Handa-shi,Aichi prefecture

20

197

Land

Idle assets

Takayama-shi,Gifu prefecture01

Buildings and structures and other assets

Idle assets

Tokai-shi,Aichi prefecture

26

264

¥ 277

$ 2,771$ 1,480

Social Relations Section
Environmental Section

Fixed assets are principally grouped into cash-generating units based on the units of production, other than assets for rent and idle assets. An impairment loss
on the idle assets is calculated using the expected net selling price as the recoverable value. An impairment loss was recognized for the year ended March 31,
2008 because the forecast of future cash flow had changed due to the renewal plan of the machinery and equipment and the fair value of the land diminishingsignificantly due to decline in land prices. The machinery, equipment, construction in progress and other assets is written down to ¥1 because net selling
prices of the machinery, equipment, construction in progress and other assets are expected to be nil. The land is written down to the expected net selling priceof the land based on the valuation carried out to determine property tax bases for land, and the salvage values for tax purposes for other properties.

11. Consolidated Statements of Changes in Net Assets
Fiscal year ended March 31, 2009(a) Type and number of shares outstanding and treasury stockThousands of Unit
Common stock

198,867

2,666

Number of increase during the year ended March 31, 2009-

7

Number of decrease during the year ended March 31, 2009-8

198,867

2,665

Number of shares at the end of the previous fiscal year

Number of shares at the end of the fiscal year

Financial Section

Treasury stock

Common stock

Type

Notes to Consolidated
Financial Statements

Shares outstanding

AICHI STEEL REPORT 200953

Increase in the number of shares was due to purchase of 7 thousand less-than-one-unit shares. Decrease in the number of shares was sales of 4 thousand
shares by exercises of stock options and sales of 4 thousand less-than-one-unit shares.
(b) Matters related to the subscription rights to shares
Millions of Yen
Class

Details

Balancethe Company

Stock option¥ 148

Thousands of U.S. Dollars$ 1,516

As of March 31, 2009 these rights are not yet exercisable.

Financial Section

Notes to Consolidated Financial Statements
Business Update(c) Matters related to dividends(1) Dividend payment
Approved at ordinary general meeting of shareholders held on June 20, 2008 as follows:
Dividends on common stock
Total amount of dividends¥ 981 million$ 10,010 thousand¥ 5.00$ 0.05

Dividends per share
Record date

March 31, 2008

Effective dateJune 23, 2008

CSR Activities
Highlight 2008

Approved at the Board of Directors at meeting held on October 30, 2008 as follows:
Dividends on common stock
Total amount of dividends¥ 981 million$ 10,010 thousand¥ 5.00$ 0.05

Dividends per share
Record date

September 30, 2008

Effective dateNovember 20, 2008

(2) Dividend whose record date is attributable to the year ended March 31, 2009 but to be effective after the said fiscal year.
Approved by the Company at the general meeting of shareholders held on June 19, 2009 as follows:

CSR Management

Dividends on common stock
Total amount of dividends¥ 491 million$ 5,005 thousand¥ 2.50$ 0.03

Dividends per share
Record date

March 31, 2009

Effective dateJune 22, 2009

Dividends are paid out of retained earnings.
Fiscal year ended March 31, 2008(a) Type and number of shares outstanding and treasury stockThousands of Unit

Social Relations Section

Shares outstanding

Treasury stock

Common stock

Common stock

198,867

1,798

Number of increase during the year ended March 31, 2008

-

1,004

Number of decrease during the year ended March 31, 2008-

136

198,867

2,666

Type
Number of shares at the end of the previous fiscal year

Number of shares at the end of the fiscal year

Increase in the number of shares was due to purchase of 1,000 thousand shares based on Article 459, Paragraph 1, item 1 of the Corporation Law andpurchase of 4 thousand less-than-one-unit shares. Decrease in the number of shares was sales of 134 thousand shares by exercises of stock options andsales of 2 thousand less-than-one-unit shares.

Environmental Section(b) Matters related to the subscription rights to shares
Millions of Yen
Class

Details

Balancethe Company

Stock option¥ 99

Thousands of U.S. Dollars$ 993

As of March 31, 2009 these rights are not yet exercisable.
(c) Matters related to dividends(1) Dividend payment
Approved at ordinary general meeting of shareholders held on June 21,
2007 as follows:

Dividends on common stock

Dividends on common stock

Notes to Consolidated
Financial Statements

Financial Section

Total amount of dividends

Approved at the Board of Directors at meeting held on October 31, 2007
as follows;¥ 985 million$ 9,853 thousand¥ 5.00$ 0.05

Dividends per share

Total amount of dividends¥ 981 million$ 9,808 thousand¥ 5.00$ 0.05

Dividends per share

Record date

March 31, 2007

Record date

September 30, 2007

Effective dateJune 22, 2007

Effective dateNovember 20, 2007

(2) Dividend whose record date is attributable to the year ended March 31, 2008 but to be effective after the said fiscal year.
Approved by the Company at the general meeting of shareholders held on June 20, 2008 as follows:
Dividends on common stock
Total amount of dividends
Dividends per share¥ 981 million$ 9,810 thousand¥ 5.00$ 0.05

Record date

March 31, 2008

Effective dateJune 23, 2008

Dividends are paid out of retained earnings.

54 AICHI STEEL REPORT 2009

Business Update

12. Consolidated Statements of Cash flows
Fiscal year ended March 31, 2009
Reconciliation between ‘Cash and deposit’ on the Consolidated Balance Sheets and ‘Cash and cash equivalents’ on the Consolidated Statements of Cash
Flows is as follows:
Millions of Yen
Cash and deposit

2009¥ 37,312$ 380,734

Total

245

2,503

37,557383,237(161)(1,643)¥ 37,396$ 381,594

Time deposit more than 3 months

Fiscal year ended March 31, 2008
Assets and liabilities of Kentucky Advanced Forge LLC, and relationship to
the sales price and net cash inflow from the sale, which are included in“Proceeds from sale of shares of former consolidated subsidiaries” for theyear ended March 31, 2008 are as follows:

Reconciliation between ‘Cash and deposit’ on the Consolidated Balance
Sheets and ‘Cash and cash equivalents’ on the Consolidated Statements ofCash Flows is as follows:

Millions of Yen

Millions of Yen

CSR Management

2008
Current assets

CSR Activities
Highlight 2008

Short-term investment

Cash and cash equivalents of the company

Thousands of U.S. Dollars

2009

2008
¥ 516

¥ 30,408

Cash and deposit

245

Non current assets

291

Short-term investment

Current liabilities

(185)

Total

Minority interests(379)

Time deposit more than 3 months

Sales price of the company

243

Cash and cash equivalents of the company

Cash and cash equivalents of the company(10)

Net cash provided by sales of the company¥ 233

30,653(161)¥ 30,492

Social Relations Section

13. Lease Transactions(a) Finance lease contracts
The Company and its subsidiaries use certain machinery and equipment obtained via finance lease contracts.
Pro forma information regarding the leased property such as acquisition cost, accumulated depreciation and future minimum lease payments under financeleases that do not transfer the ownership of the leased property to the lessee at March 31, 2009 and 2008 are as follows:
Millions of Yen
Acquisition Cost

Accumulated Depreciation

Balance

At March 31, 2009:
¥ 260

¥ 641

¥ 381

Equipment

372

263

109

¥ 1,013

¥ 644

¥ 369

Machinery

¥ 803

¥ 414

¥ 389

Equipment

549

357

192

¥ 1,352

¥ 771

¥ 581

Total

Environmental Section

Machinery

At March 31, 2008:

Total

Thousands of U.S. Dollars
Acquisition Cost

Accumulated Depreciation

Balance

At March 31, 2009:

Notes to Consolidated
Financial Statements

Financial Section

AICHI STEEL REPORT 200955

$ 2,655

Machinery$ 6,539$ 3,884

Equipment

3,802

2,687

1,115

Total

$ 10,341$ 6,571$ 3,770

Acquisition costs include the imputed interest expense portion because the percentage which is computed by dividing future minimum lease payments bytotal balance of machinery and equipment at year-end is immaterial.
Aggregate minimum future lease obligations at March 31, 2009 and 2008 and lease expenses for the year then ended are as follows:Financial Section

Notes to Consolidated Financial Statements
Business Update

Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Due within one year

¥ 166

¥ 202

$ 1,695

Due over one year

203

379

2,075

369

581

3,770

¥ 196

¥ 365

$ 1,995

Total
Lease expenses for the year

CSR Activities
Highlight 2008

Pro forma amounts of acquisition costs and future minimum lease payments under finance leases include the imputed interest expense portion. Pro forma
depreciation expenses, which are not reflected in the accompanying consolidated statements of income, computed by the straight line method, would be¥196 million ($1,995 thousand) and ¥365 million for the years ended March 31, 2009 and 2008, respectively.
(b) Operating lease contracts
Aggregate minimum future lease obligations for non cancelable operating lease contracts at March 31, 2009 and 2008 are as follows:
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009
$ 685

Due within one year

¥ 67

¥-

Due over one year

180

-

1,838

¥ 247

¥-

$ 2,523

Total

CSR Management

14. Derivative Financial Instruments
The Company and its subsidiaries have entered into foreign currency swap contracts and foreign exchange forward contracts. The Company uses foreign
currency swap contracts to reduce its own exposure to fluctuations in exchange rate principally for hedge purposes in respect of its long-term loan to one
overseas subsidiary denominated in U.S. Dollars. The Company’s subsidiaries use foreign exchange forward contracts to manage their exposure to foreign
currency exchange rate fluctuations in respect of their importing activities.
A summary of foreign currency swap contracts and foreign exchange forward contracts outstanding, excluding those for a hedge of assets recognized on
accompanying consolidated balance sheets, at March 31, 2009 and 2008 are as follows:

Social Relations Section

Millions of Yen
Contract amounts

Fair value

Net unrealized gain

At March 31, 2009:
Receiving Japanese Yen, paying U.S. Dollar¥ 415¥ 2,583

¥ 415

182

182

(0)

¥ 2,765

¥ 597

¥ 415

¥ 3,636

¥ 556

¥ 556

168

168

(0)

¥ 3,804

¥ 724

¥ 556

Foreign exchange forward contracts
At March 31, 2008:
Receiving Japanese Yen, paying U.S. Dollar
Foreign exchange forward contracts

Environmental Section

Thousands of U.S. Dollars
Contract amounts

Fair value

Net unrealized gain

At March 31, 2009:
Receiving Japanese Yen, paying U.S. Dollar
Foreign exchange forward contracts$ 4,240$ 26,361$ 4,240

1,856

1,855

(1)

$ 28,217$ 6,095$ 4,239

Note:
Fair value of foreign currency swap contracts is calculated based on the market price. Fair value of foreign exchange forward contracts is calculated basedon the price provided by a bank.

Notes to Consolidated
Financial Statements

Financial Section

15. Employees’ retirement benefit liabilities(a) Overview of retirement benefit plans
The Company operates two non-contributory defined benefit retirement plans and a defined contribution pension plan. Defined benefit retirement plansconsist of a lump-sum retirement plan and an enterprise pension plan. The Company established an employee retirement benefit trust for defined benefit
retirement plans.
The enterprise pension benefits are payable as pension payment or lump-sum payment at the option of terminated employees.
Domestic subsidiaries and an overseas subsidiary operate a non-contributory tax qualified pension plan and a lump-sum retirement plan.

56 AICHI STEEL REPORT 2009

Business Update(b) Projected benefit obligation at March 31, 2009 and 2008 are as follows:
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009
$ (286,502)¥ (28,077)¥ (28,988)(2) Fair value of pension plan assets (including retirement benefit trust)

26,12735,282

266,601(3) Subtotal [(1)+(2)](1,950)6,294(19,901)(1) Projected benefit obligation

8,430

39

86,019(5) Unrecognized prior service cost

(1,283)(1,419)(13,093)(6) Prepaid pension cost

14,361

13,922

146,534¥ (9,164)¥ (9,008)$ (93,509)

Employees’ retirement benefit liabilities[(3)+(4)+(5)-(6)]CSR Activities
Highlight 2008

(4) Unrecognized actuarial (gains)losses

Note:
Subsidiaries have adopted the simplified method in calculation of the projected benefit obligations, based on the amount which would be required if all eligible
employees voluntarily terminated their employment, less pension plan assets as of the year-end.
(c) The components of retirement benefit expense for the years ended March 31, 2009 and 2008 are as follows:
Millions of Yen

Thousands of U.S. Dollars
2008

2009
$ 10,006

¥ 980

¥ 970

(2) Interest cost

570

578

5,815

(3) Expected return on pension plan assets

(294)

(325)

(3,002)(4) Amortization of unrecognized actuarial losses

75

(539)

769

(5) Amortization of unrecognized prior service cost

(135)

(135)

(1,383)(6) Retirement benefit expense [(1)+(2)+(3)+(4)+(5)]

1,196

549

12,205

207

200

2,109

¥ 1,403¥ 749$ 14,314(1) Service cost (Notes)(7)Contribution payments to the defined contribution retirement benefit plans(8) Total[(6)+(7)]CSR Management

2009

Social Relations Section

Notes:
1.The retirement benefit expense of subsidiaries is included in "(1) Service cost".
2.Retirement benefit expense for executive officers is included in "(1) Service cost".
(d) Major assumptions used in calculation of above information for the years ended March 31, 2009 and 2008 are as follows:
2008

2009
2.0%

2.0%

Expected rate of return on pension plan assets

2.0%

2.0%

Period allocation method for estimated retirement benefits

Straight-line method

Straight-line method

Amortization period of unrecognized actuarial gains or losses

15 years (Expenses from next fiscal year)

15 years (Expenses from next fiscal year)

Amortization period of prior service cost

15-16 years

15 years

Environmental Section

Discount rate

16. Share-based Payment(a) Stock option expenses for the years ended March 31, 2009 and 2008 are as follows:
Millions of Yen
2009
Salaries and allowances and welfare expenses
Other selling, general and administrative expenses
Personnel expenses

Thousands of U.S. Dollars
2008

2009

¥ 31

¥ 37

20

31

$ 322
200

¥ 51

¥ 68

$ 522

Notes to Consolidated
Financial Statements

Financial Section

AICHI STEEL REPORT 200957

Financial Section

Notes to Consolidated Financial Statements
Business Update(b) Details, number and state of fluctuation of stock options(1) Details of stock option
For the year ended March 31, 2009
Year of issue

CSR Activities
Highlight 2008

2009

2008

2007

2006

2005

Position and number

Directors: 15

Directors: 15

Directors: 15

Directors: 15

Directors: 15

of grantees

Executive officers: 13

Executive officers: 12

Executive officers: 12

Executive officers: 11

Executive officers: 10

Selected employees: 25

Selected employees: 29

Selected employees: 29

Selected employees: 26

Selected employees: 25

Class and number ofCommon stock:

Common stock:

Common stock:

Common stock:

Common stock:stock

455,000

470,000

490,000

450,000

870,000

Date of issue

August 1,2008

August 1,2007

August 1,2006

August 1,2005

August 2,2004

Condition of

Grantee must be a director,

Same as left

Same as left

Same as left

Same as leftsettlement of theexecutive officer orstock options

employee of the Company
at the time of exercise of
the stock options. However,grantee can exercise
the stock options for 12months after retirement

CSR Management

or resignation from theCompany.
Periods that grantees must

From August 1, 2008 to

From August 1, 2007 to

From August 1, 2006 to

From August 1, 2005 to

From August 2, 2004 toprovide service in return

July 31, 2010

July 31, 2009

July 31, 2008

July 31, 2007

July 31, 2006

Exercise period of the

From August 1, 2010 to

From August 1, 2009 to

From August 1, 2008 to

From August 1, 2007 to

From August 1, 2006 to

stock options

July 31, 2015

July 31, 2014

July 31, 2013

July 31, 2012

July 31, 2011

for the stock options

For the year ended March 31, 2008
Year of issue

2008

2007

2006

2005

Social Relations Section

Position and number of

Directors: 15

Directors: 15

Directors: 15

Directors: 15

grantees

Executive officers: 12

Executive officers: 12

Executive officers: 11

Executive officers: 10

Selected employees: 29

Selected employees: 29

Selected employees: 26

Selected employees: 25

Class and number of stock

Common stock:470,000

Common stock:490,000

Common stock:450,000

Common stock:870,000

Date of issue

August 1,2007

August 1,2006

August 1,2005

August 2,2004

Condition of settlement ofGrantee must be aSame as left

Same as left

Same as left

the stock options

director, executive officer
or employee of theCompany at the timeof exercise of the stock
options. However, grantee

Environmental Section

can exercise the stock
options for 12 months after
retirement or resignationfrom the Company.
Periods that grantees must

From August 1, 2007 to

From August 1, 2006 to

From August 1, 2005 to

From August 2, 2004 toprovide service in return forJuly 31, 2009

July 31, 2008

July 31, 2007

July 31, 2006

Exercise period of the

From August 1, 2009 to

From August 1, 2008 to

From August 1, 2007 to

From August 1, 2006 to

stock options

July 31, 2014

July 31, 2013

July 31, 2012

July 31, 2011

the stock options

Notes to Consolidated
Financial Statements

Financial Section

58 AICHI STEEL REPORT 2009

Business Update(2) Number of stock options and state of fluctuation
Stock options outstanding at the end of the year are listed as the number of shares.
①Number of stock options
For the year ended March 31, 20092009

Year of issue

2008

2007

2006

2005

Non-exercisable stock options
Stock options outstanding at the end of the previous fiscal year

470,000

485,000

-

-

-

-

-

-

Forfeitures-

10,00070,000--Conversion to exercisable stock options--

415,000--

455,000

460,000---

Stock options outstanding at the end of the previous fiscal year

-

-

-

402,000

310,000

Conversion from non-exercisable stock options--

415,000--

Stock options exercised

-

-

-

-

4,000

Forfeitures--

10,000--Stock options outstanding at the end of the fiscal year--

405,000

402,000

306,000

Stock options outstanding at the end of the fiscal year

CSR Activities
Highlight 2008

455,000

Stock options granted

Exercisable stock options

CSR Management

For the year ended March 31, 20082008

Year of issue

2007

2006

2005

Non-exercisable stock options
Stock options outstanding at the end of the previous fiscal year-

490,000

450,000-

470,000---

Forfeitures

-

5,000

-

-

Conversion to exercisable stock options--

450,000-

470,000

485,000--

Stock options outstanding at the end of the previous fiscal year

-

-

-

396,000

Conversion from non-exercisable stock options--

450,000-

Stock options exercised--

48,00086,000Forfeitures

-

-

-

-

Stock options outstanding at the end of the fiscal year--

402,000

310,000

Stock options granted

Stock options outstanding at the end of the fiscal year
Exercisable stock options

Year of issue
Exercise price

Yen
2009

2008

2007
¥ 800

¥ 630

¥ 503

-

-

-

-

496

109

143

189

-

-

Average market price of the stock at the time of exercise
Fair value of stock options on the grant date

Environmental Section

Exercise price

2005

¥ 698

Yen

For the year ended 31 March, 2008
Year of issue

2006

¥ 482

Average market price of the stock at the time of exercise
Fair value of stock options on the grant dateSocial Relations Section②Unit price of options
For the year ended 31 March, 2009

2008

2007

2006

2005

¥ 698

¥ 800

¥ 630

¥ 503

-

-

619

610

143

189

-

-

(c) Method for estimating fair value of stock options
The method and assumptions for estimating fair value of stock options during the years ended March 31, 2009 and 2008 are summarised as follows:① Valuation method used
② Principal basic values and estimation methods

Financial Section

2009

AICHI STEEL REPORT 2009

59

2008

(Note 1)34.20%

32.86%

Projected remaining period (Note 2)

4 years 6 month

4 years 6 month

Projected dividend(Note 3)¥ 10 per share¥ 10 per share

Risk-free interest rate

(Note 4)1.254%

1.561%

Share price fluctuations

Notes to Consolidated
Financial Statements

Year of issue

Black-Scholes model

Notes:
1.Computed based on actual share prices during a four-year and six-month period (from February 2004 to July 2008 for the year ended March 31,
2009 and from February 2003 to July 2007 for the year ended March 31, 2008).
2.Because of a lack of accumulated data and difficulty in making supportable estimates, it is assumed the stock options are exercised at the midpoint of
the exercise period.
3.Based on the estimated dividend for the years ended March 31, 2009 and 2008 on the grant date.
4.Yields on government bonds for the period corresponding to the projected remaining period.

Financial Section

Notes to Consolidated Financial Statements
Business Update(d) Method for estimating the number of comfirmed stock options
A method that reflects actual past expirations has been basically adopted, because it is difficult to rationally estimate the number of expired rights in the
future.

17. Deferred Tax
The significant components of deferred tax assets and liabilities at March 31, 2009 and 2008 are as follows:
Millions of Yen

CSR Activities
Highlight 2008

2009

Thousands of U.S. Dollars
2008

2009

Deferred tax assets:

CSR Management

Employees’ retirement benefit liabilities¥ 4,103¥ (52)$ 41,867

Tax losses carried forward in subsidiaries

3,763

2,246

38,397

Supplies adjustments

2,545

2,433

25,972

Accrued bonuses

1,159

1,438

11,822

Software and other assets

706

733

7,204

Inventories

674

745

6,880

Impairment loss on fixed assets

551

291

5,626

Goodwill

437

667

4,459

Retirement benefit obligation for directors and corporate auditors

391

480

3,986

Depreciation

348

275

3,549

Write-down of investment securities

307

314

3,136

Loss on disposal of property, plant and equipment

111

125

1,137

Other

627

866

6,399

15,722

10,561

160,434

Less, valuation allowance(14,525)(2,516)(148,218)

Deferred tax assets

1,197

8,045

12,216

Deferred tax liabilities:

Social Relations Section

Prepaid pension cost

(4,219)-(43,050)

Unrealized gains on available-for-sale securities(1,762)(4,129)(17,981)

Depreciation of property, in overseas subsidiaries

(445)

(575)

(4,543)

Reserve for advanced depreciation

(97)

(97)

(987)

Reserve for special depreciation

(0)

(1)

(1)

(186)

(130)

(1,899)Other
Deferred tax liabilities(6,709)(4,932)(68,461)

Net deferred tax (liability) / asset¥ (5,512)¥ 3,113$ (56,245)

The differences between the Japanese statutory tax rate and the actual effective income tax rate in pretax income for the year ended March 31, 2009 are notdescribed because a loss before income taxes and minority interests was reported.

Environmental Section

The differences between the Japanese statutory tax rate and the actual effective income tax rate in pretax income for the year ended March 31, 2008 are as follows:Year of issue

2008
40.0%

Japanese statutory tax rate
Increase(decrease) due to:Tax credit of R&D expenses and other(3.0)

Differences of tax rates in foreign subsidiaries(1.8)

Others(1.3)
33.9

Actual effective income tax rate

18. Related Party Transactions

Notes to Consolidated
Financial Statements

Financial Section

The following transactions were carried out with related parties:(a) Transactions with Toyota Motor Corporation for the years ended March 31, 2009 and 2008, and balances outstanding as at those dates are as follows:
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

For the year: Sales of goods¥ 23,237¥ 30,054$ 237,117

At the year-end: Accounts receivable¥ 1,839¥ 4,090$ 18,764

Notes:
1.Toyota Motor Corporation held 24.1% of the Company’s equity interests directly, and indirectly held a further 0.5% at March 31, 2009. The abovetransactions were conducted using normal commercial terms and conditions.
2.Every year, the Company present their favorable sales price and negotiate it with Toyota Motor Corporation. The procedure is the same as other common
transactions.
3.Sales of goods and Accounts receivable are presented exclusive of consumption taxes.

60 AICHI STEEL REPORT 2009

Business Update(b) Purchases of services from Aichi Steel Health Insurance Society for the years ended March 31, 2009 and 2008 are as follows:
Millions of Yen

Thousands of U.S. Dollars

2009

2009

2008
¥-

Purchase of service$-¥9

CSR Activities
Highlight 2008

Notes:
1.The Company pays a portion of a claim of medical fee from Aichi Steel Health Insurance Society following approval by the Board of Directors at meeting
held May 30, 2006.
2.Chairmen of Aichi Steel Health Insurance Society was Takayuki Ito, director of the Company who held 0.0% to the Company’s shares at March 31, 2008.
3.Purchases of services are presented exclusive of consumption taxes.

19. Segment Information(1)Business segment information
The Company and its subsidiaries operations primarily consist of the manufacture and sale of specialty steel business, forging business, electro-magnetic
components business and other misecellaneous businesses. The specialty steel segment consists of specialty iron steel, stainless steel and tool steel.
Forging segment includes closed die forging for automobile parts and free forging products. A portion of the materials used by the forging segment are goods
produced by the specialty steel segment. Electro-magnetic components segment comprises sale off materials for electronics parts, dental-use magnetic
attachments, magnetic powder and magneto-impedance sensors. Other segment is consists of information processing service, nursing care service andother service businesses.

CSR Management

The table below summarizes the business segment information for the years ended March 31, 2009 and 2008 are as follows:
Millions of Yen
Electro-magnetic
components

Other

Total

Corporate or
elimination

Specialty steel

Forgings

External customers¥ 129,006¥ 85,896¥ 3,380¥ 3,778¥ 222,060¥-

Inter-segment sales

28,480

-

-

3,127

31,607(31,607)-

Total net sales

157,486

85,896

3,380

6,905

253,667(31,607)

222,060

Operating costs and expenses

154,838

86,743

5,871

6,888

254,340(31,797)

222,543

Operating income (loss)¥ 2,648¥ (847)¥ (2,491)¥ 17¥ (673)¥ 190¥ (483)¥ 102,249¥ 64,367¥ 10,566¥ 3,486¥ 180,668¥ 39,349¥ 220,017

6,568

7,063

1,083

81

14,795-

14,795

118

525

171

-

814

-

814

7,004

4,018

3,129

317

14,468-

14,468External customers¥ 140,282¥ 104,324¥ 4,417¥ 4,439¥ 253,462¥-¥ 253,462

Inter-segment sales

31,691

-

-

3,420

35,111(35,111)-

Total net sales

171,973

104,324

4,417

7,859

288,573(35,111)

253,462

Operating costs and expenses

163,507

100,137

6,321

7,737

277,702(35,124)

242,578

Operating income (loss)¥ 8,466¥ 4,187¥ (1,904)¥ 122¥ 10,871¥ 13¥ 10,884¥ 131,144¥ 84,479¥ 9,991¥ 3,940¥ 229,554¥ 34,494¥ 264,048

6,394

7,310

984

66

14,754-

14,754

67

80

3

-

150

127

277

6,289

5,432

1,239

205

13,165-

13,165$ 2,265,920

Consolidated

For the year 2009:
Net sales:

Depreciation
Impairment loss on fixed assets
Capital expenditures

Social Relations Section

Identifiable assets¥ 222,060

For the year 2008:
Net sales:

Depreciation
Impairment loss on fixed assets
Capital expenditures

Environmental Section

Identifiable assets

Thousands of U.S. Dollars

For the year 2009:
Net sales:$ 876,486$ 34,494$ 38,546$ 2,265,920$-

290,609--

31,914

322,523(322,523)-

Total net sales

1,607,003

876,486

34,49470,4602,588,443(322,523)

2,265,920
2,270,847

Financial Section$ 1,316,394

Inter-segment sales

Notes to Consolidated
Financial Statements

External customers

AICHI STEEL REPORT 200961

Operating costs and expenses

1,579,985

885,12959,90870,283

2,595,305(324,458)

Operating income (loss)$ 27,018$ (8,643)$ (25,414)$ 177$ (6,862)$ 1,935$ (4,927)$ 1,043,356$ 656,810$ 107,814$ 35,576$ 1,843,556$ 401,517$ 2,245,073

Depreciation

67,022

72,06911,047830

150,968-

150,968

Impairment loss on fixed assets

1,201

5,354

1,750

-

8,305

-

8,305

Capital expenditures

71,47440,99831,931

3,229

147,632-

147,632

Identifiable assets

Financial Section

Notes to Consolidated Financial Statements
Business Update

Notes:
1. Corporate assets in corporate or elimination consist mainly of cash and deposit and investment securities held by the Company. Corporate assets are¥40,530 million ($413,576 thousand) and ¥35,531 million at March 31, 2009 and 2008, respectively.
2. As described in Note 2(e) (Accounting change), effective from the year ended March 31,2009, the Company and its domestic subsidiaries have adopted

CSR Activities
Highlight 2008

Financial Accounting Standard No.9 ‘Accounting Standard for Evaluation of Inventory’ issued on July 5, 2006. As a result of the adoption, operating incomeof specialty steel business segment and other business segment decreased by ¥2,063 million ($21,054 thousand) and by ¥41 million ($415 thousand), andoperating loss of forging business segment and electro-magnetic components business segment increased by ¥339 million ($3,460 thousand) and by ¥209
million ($2,128 thousand), respectively, as compared with the previous accounting method.
As described in Note 2(f) (Additional information), effective from the year ended Mar 31, 2009, the Company and its domestic subsidiaries have changed
depreciation year for a part of property, plant and equipment by chance of tax reform in 2008. As a result of the change, operating income of specialty steelbusiness segment and other business segment decreased by ¥68 million ($695 thousand) and by ¥0 million ($0 thousand), and operating loss of forging
business segment and electro-magnetic components business segment increased by ¥907 million ($9,254 thousand) and by ¥38 million ($384 thousand),
respectively, as compared with the previous accounting method.
3. As described in Note 2(f) (Accounting change), effective from the year ended March 31, 2008, the Company and its domestic subsidiaries have changed
their depreciation methods for the property, plant and equipment acquired on or after April 1, 2007. As a result of the change, operating income of specialty
steel business segment, forging business segment and other business segment decreased by ¥120 million, by ¥128 million and by ¥2 million, and operating
loss of electro-magnetic components business segment increased by ¥42 million, respectively, as compared with the previous accounting method.
As described in Note 2(f) (Additional information), effective from the year ended March 31, 2008, the Company and its domestic subsidiaries depreciate
the property, plant and equipment acquired before April 1, 2007 from 5% of their cost to ¥1 by the straight-line method for 5 years from the following year
the property, plant and equipment reach 5% of their cost calculated by pre-revised depreciation method. As a result of the change, operating income of
specialty steel business segment, forging business segment and other business segment decreased by ¥868 million, by ¥200 million and by ¥1 million,
and operating loss of electro-magnetic components business segment increased by ¥18 million, respectively, as compared with the previous accounting
method.

CSR Management(2)Geographic segment information
The table below summarizes the geographic segment information for the years ended March 31, 2009 and 2008 are as follows:
Millions of Yen
Japan

North America

Europe

Asia

Total

Corporate or
elimination

Consolidated

For the year 2009:
Net sales:

Social Relations Section

External customers¥ 193,107¥ 9,280¥ 1,552¥ 18,121¥ 222,060¥-

Inter-segment sales

7,557

-

-

100

7,657

(7,657)-

Total net sales

200,664

9,280

1,552

18,221

229,717(7,657)222,060

Operating costs and expenses

203,037

8,883

1,650

16,827230,397(7,854)

222,543

Operating income (loss)¥ (2,373)¥ 397¥ (98)¥ 1,394¥ (680)¥ 197¥ (483)¥ 171,073¥ 8,548¥ 956¥ 15,000¥ 195,577¥ 24,440¥ 220,017

External customers¥ 220,095¥ 14,090¥ 1,708¥ 17,569¥ 253,462¥-¥ 253,462

Inter-segment sales

6,879

-

-

-

6,879

(6,879)-Total net sales

226,974

14,0901,708

17,569260,341(6,879)253,462

Operating costs and expenses

218,787

13,392

1,671

15,624249,474(6,896)

242,578

Operating income (loss)¥ 8,187

¥ 698

¥ 37

¥ 1,945¥ 10,867¥ 17¥ 10,884¥ 214,090¥ 8,743¥ 1,170¥ 19,209¥ 243,212¥ 20,836¥ 264,048$ 2,265,920

Identifiable assets¥ 222,060

For the year 2008:
Net sales:

Environmental Section

Identifiable assets

Thousands of U.S. Dollars

For the year 2009:
Net sales:
External customers$ 1,970,476$ 94,692$ 15,838$ 184,914$ 2,265,920$-

Inter-segment sales

77,111

-

-

1,019

78,130(78,130)-

Total net sales

2,047,587

94,692

15,838

185,933

2,344,050(78,130)

2,265,920
2,270,847

Notes to Consolidated
Financial Statements

Financial Section

Operating costs and expenses

2,071,807

90,643

16,835

171,706

2,350,991(80,144)

Operating income (loss)$ (24,220)$ 4,049$ (997)$ 14,227$ (6,941)$ 2,014$ (4,927)$ 1,745,640$ 87,227$ 9,757$ 153,061$ 1,995,685$ 249,388$ 2,245,073

Identifiable assets

Notes:
1. Corporate assets in corporate or elimination consist mainly of cash and deposit and investment securities held by the Company. Corporate assets are¥40,530 million ($413,576 thousand) and ¥35,531 million at March 31, 2009 and 2008, respectively.
2. Countries or areas belonging to each segment are as follows;
2009

2008

North America

U.S.A.

U.S.A.

EuropeGermany, Czech Republic

Germany, Czech Republic

Asia

Philippine, Thailand, China, Indonesia, Taiwan

Philippine, Thailand, China, Indonesia, Taiwan

62 AICHI STEEL REPORT 2009

Business Update
CSR Activities
Highlight 2008

3. As described in Note 2(e) (Accounting change), effective from the year ended March 31, 2009, the Company and its domestic subsidiaries have adopted
Financial Accounting Standard No.9 ‘Accounting Standard for evaluation of inventory’ issued on July 5, 2006. As a result of the change, operating loss ofJapan region increased by ¥2,652 million ($27,058 thousand) as compared with the previous accounting method.
As described in Note 2(f) (Additional information), effective from the year ended March 31, 2009, the Company and its domestic subsidiaries depreciate
have changed depreciation year for a part of property, plant and equipment by change of tax reform in 2008. As a result of the change, operating loss ofJapan region increased by ¥1,013 million ($10,332 thousand) as compared with the previous accounting method.
4. As described in Note 2(f) (Accounting change), effective from the year ended March 31, 2008, the Company and its domestic subsidiaries have changed
their depreciation methods for the property, plant and equipment acquired on or after April 1, 2007. As a result of the change, operating income of Japanregion decreased by ¥292 million as compared with the previous accounting method.
As described in Note 2(f) (Additional information), effective from the year ended March 31, 2008, the Company and its domestic subsidiaries depreciate theproperty, plant and equipment acquired before April 1, 2007 from 5% of their cost to ¥1 by the straight-line method for 5 years from the following year theproperty, plant and equipment reach 5% of their cost calculated by pre-revised depreciation method. As a result of the change, operating income of Japanregion decreased by ¥1,087 million as compared with the previous accounting method.

(3) Sales to overseas customers
For the years ended March 31, 2009 and 2008, overseas sales which included export sales from Japan and net sales of overseas consolidated subsidiaries
other than Japan are summarized as follows:
Thousands of U.S. Dollars

Millions of Yen
2009

2008

2009
¥ 14,928

Europe

1,677

2,148

17,118Asia

26,292

27,858268,283

Other areas
Total consolidated net sales
Percentage of overseas sales to total consolidated net sales

CSR Management$ 104,284¥ 10,220

North America

581

354

5,929

¥ 38,770¥ 45,288$ 395,614¥ 222,060¥ 253,462$ 2,265,920

17.5%

17.9%

17.5%

Note:
Significant countries or areas belonging to each segment are as follows:
U.S.A.

EuropeGermany, Netherlands, Switzerland

Asia

Thailand, China, Indonesia

Others

Oceania

Social Relations Section

2009 and 2008
North America

20. Per Share Data
Per share data for the years ended March 31, 2009 and 2008 are as follows:
U.S. Dollars

Yen
Net assets per share
Basic net income (loss) per share
Diluted net income per share

2008

2009

¥ 508.16¥ 624.49$ 5.2(71.89)

29.00

0.7

-

26.23

-

Environmental Section

2009

Basics used in calculation(a) Net assets per share
Thousands of U.S. Dollars

Millions of Yen
2009

2008

2009
$ 1,065,262

4,695

5,629

47,906

149

99

1,516

4,546

5,530

46,390Net assets attributable to common stock

99,701

122,526

1,017,356

Number of common stock at the end of the fiscal year used for

196,201

196,201

Deduction from net assets
Subscription rights to shares
Minority interests

the calculation of net assets per share(Thousands of shares)

Financial Section¥ 128,155

Notes to Consolidated
Financial Statements¥ 104,396

Net assets

AICHI STEEL REPORT 200963

Financial Section

Notes to Consolidated Financial Statements
Business Update(b) Basic net income per share and diluted net income per share
Millions of Yen
2009

Thousands of U.S. Dollars
2008

2009

Basic net income per share$ (143,929)¥ (14,105)¥ 5,693---

Net income attributable to common stock(14,105)

5,693(143,929)

Average number of common stock shares in issue during

196,202

196,310Adjustment for net income (After tax deduction)

-

4

-

Management fee for convertible bonds

-

4

-

Effect of dilutive Securities (Thousands of shares)-

20,903

Convertible bonds with subscription rights to shares (Thousands of shares)-

20,833

Stock option (Thousands of shares)-

70

Net income
Net income not attributable to common stock

CSR Activities
Highlight 2008

the fiscal year (Thousands of shares)
Diluted net income per share

Outline of dilutive Securities not included in
the calculation of diluted net income per sharebecause they do not have any dilutive effect

CSR Management

Stock option issued on

Stock option issued on

August 1,2005, 2006 andAugust 1,2005, 2006 and2007: 2,122 units

2007: 1,362 units

21. Subsequent Event
On June 19, 2009, shareholders of the Company approved the payment of year-end cash dividends to shareholders of record as of March 31, 2009, of¥2.5 ($0.03) per share, or a total of ¥491 million ($5,005 thousand). As the result, cash dividends for the year totaled ¥7.5 ($0.08) per share, including interim
dividend of ¥5.0 ($0.05).

Social Relations Section
Environmental Section
Notes to Consolidated
Financial Statements

Financial Section

64 AICHI STEEL REPORT 2009

AICHI STEEL REPORT 200965