annual report 2016
Year ended March 31, 2016

Utilizing our strengths,
aiming at further growththe company

DAIDO STEEL CO., LTD. ranks among the world’s largest manufacturers of specialty steel. With a history
dating back to 1916, the Company has accumulated extensive skills in combining steel scrap with othermaterials to achieve the strength, workability and other characteristics to match exacting requirements.
Along with the manufacture of value-added steel, the Company offers many services that leverage its
technological resources. Most services target high-end market sectors that demand the highest levels of
quality and specialization. Daido Steel is one of the leading players worldwide in the manufacture of criticalsteel components where nothing less than absolute reliability is acceptable. These components include
automobile transmissions and engine parts as well as components used in ships, aircraft and electric
generators. Daido Steel shares are traded on the First Section of the Tokyo Stock Exchange under the
securities code 5471.

Contents
01

FINANCIAL HIGHLIGHTS

02

Message from management

04

At a Glance

FORWARD-LOOKING STATEMENTS

06

Review of Operations

concerning DAIDO STEEL CO., LTD.’s and its Group10

Research and Development

12

CSR and the environment

13

Corporate Governance

14

OFFICERS

15

Financial Section

54

DAIDO Network

This annual report contains forward-looking statements
companies’ current plans, projections, strategies andperformance. These forward-looking statements are nothistorical facts. Rather, they represent the assumptions
and beliefs of Daido Steel’s management based on information currently available.
They should therefore not be relied upon as the solebasis for evaluating the Company. Daido Steel also
wishes to caution readers that actual results may differ
materially from expectations, and that forward-looking
statements are subject to a number of risks anduncertainties.

Financial Highlights
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEARS ENDED MARCH 31

Thousands of
U.S. Dollars

Millions of Yen
2016

2015

2014

2013

2012

2016

For the Year:Net Sales

460,578483,633

457,731440,428

489,155

4,075,911

Operating Income

24,432

20,40918,977

15,426

31,534

216,212Net Income Attributable to Owners of the Parent

6,746

10,886

12,616

10,98322,71859,699R&D Expenses

5,766

5,301

5,160

4,560

4,360

51,027

Capital Expenditures

23,20530,29644,40425,40039,700205,354

Depreciation and Amortization

22,454

22,437

20,052

19,22920,464

198,708

535,676

588,590557,522

511,159

512,969

4,740,496

Total Assets
Total Equity

268,346

292,406

232,152

211,921

198,654

2,374,744

Interest-Bearing Debt

136,114146,208

143,085

146,999

156,336

1,204,549

Number of Employees (Consolidated)

11,04010,855

10,70910,447

10,365–

Number of Consolidated Subsidiaries

34

34

33

32

33

–

Basic Net Income

15.62

25.10

29.09

25.32

52.37

0.14

Cash Dividends Applicable to the Year

7.50

6.50

5.00

4.50

7.50

0.07

Per Share of Common Stock (Yen and U.S. Dollars):

ROA (%)

4.5

3.8

3.8

3.2

6.3

–

ROE (%)

2.8

4.5

5.7

5.4

12.1

–

Note:	The translation of Japanese yen amounts into U.S. dollar amounts is included solely for the convenience of readers outside Japan and has been made at
the rate of ¥113 to $1, the approximate rate of exchange at March 31, 2016.

Net Sales

Operating Income

Years ended March 31

Years ended March 31

Net Income Attributable to
Owners of the Parent(millions of yen)(millions of yen)(millions of yen)

500,000

40,00025,000FINAN C IAL HIGHLIGHTSAt Year-end:

Years ended March 31

400,000

20,00030,000300,000

15,00020,000200,000

10,00010,000100,000

5,000

0

0
2012 2013 2014 2015 201602012 2013 2014 2015 20162012 2013 2014 2015 201601

Message from Management

Message from Management

Overview of Results for Fiscal 2015

Outlook for Fiscal 2016

In fiscal 2015, the Japanese economy continued to tread

The outlook for the Japanese economy in fiscal 2016 iswater amid strong uncertainties for the future, stemming

clouded with increasing uncertainty with concerns aboutfrom slowing growth in the Chinese economy, a steep drop

slowing growth in China and its ripple effects on the econ-in natural resource prices, stronger signs of deceleration inomies of neighboring Asian countries, stagnant growth inemerging economies from the dollar appreciating against

resource-rich countries due to the fall in crude oil and other

their currencies as a result of an interest rate hike in thecommodity prices, currency fluctuation risk due to a variety

U.S., and growing geopolitical risks.

of factors including a growing risk-off mentality, andUnder these economic circumstances, the Daido Steelproduction capacity in China has materialized as a serious

they arose, collaborated with its customers, focused on

problem. We recognize the risks entailed by these con-

growth fields and strengthened its quality, cost and delivery

cerns, and their potential impact on the Group.

(QCD) competitiveness with the aim of achieving the targets in its medium-term business plan.

In this business environment, the Daido Steel Group isconstantly monitoring trends in markets and at its custom-

As a result, the Group’s net sales decreased by ¥23,055

ers, and is prepared to respond to any changes. The

million year on year to ¥460,578 million, reflecting a decline

Group will steadily implement measures for expandingin sales volume and lower sales prices due to a drop in raw

sales overseas, a target of its medium-term business plan.

material prices. Ordinary income increased ¥3,378 million to

We are working diligently to strengthen QCD competitive-¥25,108 million due in part to a fall in scrap steel prices andness as the foundation of our business, with measures tolower energy costs. Net income attributable to owners of thefurther improve quality, continuously reduce costs, andparent declined by ¥4,140 million to ¥6,746 million, owing tostrengthen the delivery system.

the posting of ¥5,586 million in extraordinary losses for discontinuing software development and ¥5,308 million in provisions for environmental remediation.
02

increasing geopolitical risk. In the steel industry, excess

Group readied itself to address changes in the market as

Given these conditions, our segment forecasts for the
coming fiscal year are as follows.

Based on the above, for fiscal 2016 Daido Steel fore-

We expect demand for structural steel to decline for industrial machin-casts consolidated net sales of ¥450.0 billion, operating

ery in tandem with slower growth in the Chinese economy. However,income of ¥22.0 billion, ordinary income of ¥23.0 billion

we project that sales volume will increase slightly on account of moderate growth in global demand for automobiles and a slight increase in

and net income attributable to owners of the parent of

the ratio of domestic production at Japanese automakers. Meanwhile,¥15.0 billion. Although demand conditions and raw mate-

we anticipate a softening in overseas steel markets amid a global

rial prices are somewhat challenging, the Daido Steelsupply glut caused mainly by China. In addition, steel scrap prices

Group is making steady progress on measures for future

have begun to increase recently. Under these circumstances, thegrowth, such as launching large-scale production facilities,

Daido Steel Group will strive to reduce costs further, finish construction

while preparing for sales growth and improvement in theon the secondary melting facility at the Chita Plant, and thoroughly
prepare to improve the product mix in the future.

HIGH PERFORMANCE MATERIALS AND MAGNETIC
MATERIALS

product mix over the medium and long term.

Medium- to Long-Term
Management Strategy

We forecast a minor decline in sales volume of stainless steel due toDuring the current medium-term business plan that contin-

weaker demand for HDD applications. Aiming to expand sales over-ues through fiscal 2017, we are likely to see continued

seas, the Daido Steel Group is working to increase sales of products ingrowth in emerging markets despite concerns about

which it excels by obtaining certifications in Europe and the U.S. In
magnetic products, we are focusing on automotive applications amid

slower economic growth in China. Demand is therefore

the increasing use of electric motors and electronics in cars. We arelikely to strengthen over the medium and long term fromconcentrating on increasing sales of titanium products in the medical

the automobile, natural resource and energy sectors.

and biomaterial fields, which are likely to continue growing.

Despite customers shifting more production offshore andincreasing local procurement, among other factors thatPARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT

depress demand, we project that demand for specialty

In free forgings, Daido Steel aims to complete construction of one ofsteel will continue to increase moderately overall.

the world’s largest vacuum induction melting (VIM) on schedule inanticipation of growth in demand over the longer term amid continued

Meanwhile, customers may also demand higher per-robust demand for commercial aircraft applications. In die forgings, weformance from specialty steel. For example, customers

are committed to launching operations at our Thailand subsidiary thatmay demand unprecedented performance in terms of thewas established to be a production base for Southeast Asia in theheat resistance and thinness of specialty steel in order tofuture. In turbo-related products, demand is likely to expand as the

maximize combustion efficiency in internal combustion

ratio of gasoline engines with turbos installed increases, so we will takeengines amid tightening carbon dioxide regulations tosteps to increase production of stainless steel turbine housing andother related products. In engine valves, we are preparing to launch

Message from Management

SPECIALTY STEEL

combat global warming. The Daido Steel Group intends

operations at a new plant in Mexico and expand our supply capacity into work more closely with its customers to solve theseNorth America.

challenging issues.

ENGINEERING

We aim to contribute to the development of the world over

The Daido Steel Group aims to expand sales of Premium STC® (Shortthe next 100 years by continuing to produce new types ofTime Cycle), which is its mainstay STC® annealing furnace with a new

specialty steel while collaborating with our customers.

Daido Steel is celebrating its 100th anniversary in 2016.

combustion system installed, as well as increasing sales of vacuum
carburizing furnaces to auto parts makers, and of vacuum sintering

June, 2016

furnaces to magnet product makers.

TRADING AND SERVICE
In the trading and service segment, demand should generally remainaround the same as in the year under review.

Takeshi Ishiguro
President

03

AT A GLANCEHigh Performance Materials
and Magnetic Materials

PARTS FOR AUTOMOBILE and
INDUSTRIAL EQUIPMENT

Main Products

Main Products

Main Products

Specialty steel for automotive parts, industrial machinery parts, electrical machineryparts, construction, tool steel, etc.
Specialty steel products and materials
manufacturing, distribution, raw materials
sales, transportation and logistics

Stainless steel, nickel-based alloys, electrical and electronics parts, magnetic material
products (OA·FA motors, automotive meters,
sensors, measuring device components,etc.), Alloy powder (magnetic powder for
HEV), Titanium products (medical titanium
alloys, shape-memory alloys), welding wire

Die forging, precise hot forging, welded parts(automotive parts and bearing races) / Open die
forging (parts for boats and ships, industrial
machines, heavy electric machines, steel making
equipment, chemical equipment, oil drilling rigs,
and spacecraft and aircraft) / Casting (manganese railway rails, components for automobiles,
industrial machines, electric machines and­furnaces, advanced cast steel products, etc.) /Precision casting (automotive, industrial machines,
electric machines, telecommunications equipment,etc.) / Engine valves, compressors, hydraulicequipment, machine tool parts

Share of Net Sales

Share of Net Sales

Share of Net Sales

(%)

(%)

(%)

AT A GLAN C E

SPECIALTY STEEL

37.0%

33.7%

Net Sales Years ended March 31

Net Sales Years ended March 31

Net Sales Years ended March 31(millions of yen)(millions of yen)(millions of yen)

300,000

300,000

150,000

200,000

200,000

100,000

100,000

100,000

50,000

0

0
2015

0
2015

2016

2016

2015

2016

Operating Income Years ended March 31

Operating Income Years ended March 31

Operating Income Years ended March 31(millions of yen)(millions of yen)(millions of yen)

8,000

15,000

2,000

6,000

1,500

10,000

1,000

4,000
5,000

2,000

500

0

0
2015

04

21.6%

2016

0
2015

2016

2015

2016

ENGINEERING

TRADING and SERVICE

Main Products

Steel making equipment, industrial furnaces
and facilities, environmental equipment (fordrain, exhaust, waste disposal and treatment facilities), machine tools, machine
maintenanceSale of Group company products, welfare
services, real estate and insurance business
Golf course management, analysis business, outside software sales business

Share of Net Sales

Share of Net Sales

(%)

(%)

5.7%

AT A GLAN C E

Main Products

2.0%

Net Sales Years ended March 31

Net Sales Years ended March 31(millions of yen)(millions of yen)

30,00015,00020,00010,00010,000

5,000

0

0
2015

2016

2015

2016

Operating Income Years ended March 31

Operating Income Years ended March 31(millions of yen)(millions of yen)

3,000

1,500

2,000

1,000

1,000

500

0

0
2015

2016

2015

2016

05

review of operations

S PECIA LTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates

Orders for mechanical construction steel started to recover

approximately 37% of consolidated net sales. Specialty steel isgradually from the third quarter after inventory adjustments

made by combining steel with alloys to add value in the form ofthat began early on in the fiscal year in the automotive sector,

properties such as resistance to heat, abrasions or rust.

a major source of demand for this steel, ran their course in the

Because a range of special properties can be achieved by vary-

fall. However, due mainly to a decline in use of this steel ining the type and amount of alloy, one of the special features ofindustrial and construction machinery from the summer

the business is that products are developed to meet the specificonward, caused by the economic slowdown in China, sales

applications required by the user. The automobile and industrial

volume declined from the previous fiscal year. Sales in toolmachinery sectors are the primary users of specialty steel,steel remained robust, particularly from the automotive indus-

accounting for about 80% of sales in this business segment.

try in Japan.
Meanwhile, the cost of steel scrap, the main raw material,
declined substantially from the summer onward as overseas
demand for steel scrap declined, particularly in South Korea,

RE V IEW OF OPERATIONS

after an oversupply of steel drove China to ramp up its exportsof cheaply priced intermediate steel.
As a result, the specialty steel segment’s net sales in fiscal
2015 fell 9.8% year on year to ¥170,514 million, due primarily toa decline in sales volume and sales prices, which were driven
down by the falling raw material costs. In contrast, operating
income increased by ¥4,382 million to ¥7,561 million, withfalling steel scrap prices and lower energy costs contributing to
the increase.

HDD Spindle Motors
Daido Steel is the world’s leading supplierof stainless steel for HDD spindle motors.

06

High Per fo r m ance Materials and Ma gnetic Materials
Overview of BusinessResults of Operations

This segment, which accounts for roughly 34% of consolidated

Sales volume of stainless steel products declined year on year

net sales, manufactures and sells high performance materials

as demand was reduced by a decline in demand for HDDs inand magnetic materials used chiefly in computers, automobiles,

response to sluggish sales of PCs and expectations for lower

mobile phones and consumer electronics. Notably, Daido Steelnickel prices. On the other hand, net sales of electromagnetic

holds the world’s largest market share as a supplier of magnets

materials increased, driven by robust demand for use in motors

for spindle motors* for hard disk drives (HDD).

for electric power steering systems in automobiles, and strong

Key products include rare earth magnets (used in spindle

sales of in titanium products for medical application in Japan

motors for HDD and other products), high alloys, titaniumand overseas. Another contributing factor was the consolidation­products and high performance powder metal products, andof Intermetallics Japan Corporation as a subsidiary at the end ofelectromagnetic materials.

the previous fiscal year. Meanwhile, net sales of high alloys* Spindle motor: The motor used to rotate hard disk drives installed in computers.

declined year on year. This was due mainly to persistently sluggish demand for use as lead frames for semiconductors. Other
metal products for use in the automotive industry and lower
sales prices driven down by a fall in the price of nickel and otherraw materials.
As a result, net sales for high performance materials andmagnetic materials in fiscal 2015 decreased 4.0% year on yearto ¥155,250 million, while operating income decreased by¥1,186 million to ¥12,331 million.

RE V IEW OF OPERATIONS

factors weighing on sales included a slump overseas in powder

NEOQUENCH-P (NdFeB Polymer-bonded Magnets)
Magnets for precision, high-speed motors used in mobile phones, office automation (OA) equipment and otherproducts; currently the world’s most popular magnet for HDD spindle motors.

07

Parts fo r Auto m ob ile and Ind ust rial Equipment
Overview of BusinessResults of Operations

This segment contributes around 22% of consolidated net

Net sales of free forged products decreased year on year. Slug-sales. It manufactures die forged parts such as crankshaftsgish demand for use in oil rigs and plants caused by falling oil

using specialty steel, precision cast parts for use in gears andprices absorbed strong demand for use in civilian aircraft.

turbochargers (used in diesel engines to improve fuel efficiency

Meanwhile, sales volume of die forged products declined,

and reduce exhaust gases), as well as engine valves, jet engine

mainly as a result of sluggish truck sales in the emerging mar-shafts and parts for gas turbines. Most of the auto parts sold inkets. On the other hand, net sales of engine valves increased

this segment use materials that were developed through jointyear on year. This was attributable to a boost in orders received

projects with automakers to meet their exacting requirements.

atop strong sales of automobiles in North America. Sales of

These parts can therefore lower processing expenses at cus-

engine-related castings and precision cast products rose, driven

tomers’ factories as well as contribute to reducing the weight ofby an increase in turbo charger-related demand.

RE V IEW OF OPERATIONS

finished products.
Many products in this segment are leading products intrial equipment segment for fiscal 2015 rose 0.3% year on year

their respective market categories, such as aircraft jet engine

to ¥99,679 million, while operating income increased by ¥274

shafts and marine diesel engine valves. Daido Steel also has amillion to ¥1,298 million.

high market share in numerous other product categories,
including automobile engine valves and turbine disks. We willcontinue to develop and launch new products that differentiate
us from competitors and support our position as a provider ofadvanced products.
In addition to specialty steel supplied by the specialty steel
segment of the Group, some steel materials used in this segment are manufactured in-house.

Hot, High-speed Precision Forgings
Daido Steel is one of the largest manufacturers of hot,high-speed precision forgings.

08

As a result, net sales in the parts for automobile and indus-ENGINEERING
Overview of BusinessResults of Operations

This segment generates about 6% of consolidated net sales.

Engineering segment sales for fiscal 2015 rose 14.0% year

Major activities include the manufacture of steelmaking equip-

on year to ¥26,104 million, while operating income increased

ment, industrial furnaces, and associated equipment. This seg-by ¥419 million to ¥2,071 million. This was mainly attribut-

ment also manufactures environmental equipment for theable to strong overseas sales of STC® (Short Time Cycle)

treatment of wastewater, gas emissions and waste materials

annealing furnaces, a main product for the segment, as well(mainly to public-sector clients with incinerated ash melting

as an increase in sales of vacuum carburizing furnaces for

systems for urban waste) and machine tools.

automobile manufacturers and vacuum sintering furnaces forWith respect to environmental equipment in particular, themagnet manufacturers.

operation and engineering technologies we have fostered over
the years support our cutting-edge engineering business, inwhich we constantly maintain a grasp of current market needs.
The many new types of equipment and technologies that thisand energy reduction in a wide variety of settings. Operations
also include maintenance and management of this machineryand equipment.
Daido Arc Process (DAP)RE V IEW OF OPERATIONS

segment has created contribute to environmental preservation

T r ading and Ser vice
Overview of BusinessResults of Operations

The major activities of this segment, which accounts for approx-

Net sales in the trading and service segment for fiscal 2015 fell

imately 2% of consolidated net sales, include the sale of prod-

13.7% year on year to ¥9,029 million, while operating income

ucts made by Group companies, employee benefits services,increased by ¥129 million to ¥1,173 million. The decline inreal estate and insurance services, golf course management,

sales was mainly attributable to a fall in information system-

analytics, and sales of software to external customers.

related revenues.

09

RESEARCH AND DEVELOPMENTThe Daido Steel Group’s basic management policy is to leverage its advanced technology capabilities in specialty steel to “foster a corporate culture of creativity andoriginality that contributes to the 21st century society.” Based on this policy, theGroup conducts a proactive program of research and development (R&D) to expand
new products and businesses and strengthen the foundations for existing
businesses.
We are pursuing R&D for new products, materials and technologies, primarily
through the Daido Corporate Research & Development Center, which houses theSpecial Steel Research Lab, Electromagnetic Material Research Lab, and Process
Technology Research Lab. We employ a total of 275 researchers throughout the
Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥5,766 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

Research and development(1) Specialty Steel10

In this segment, R&D includes basic material development,such as automotive structural materials and tool steel, andprocess innovations ranging from steelmaking, refining andsolidification to quality assurance.
R&D costs for the fiscal year under review in this segment
totaled ¥1,459 million. The following is one of our majorachievements in this area.

• Development of bearing steel that resists hydrogen
embrittlement
Early-flaking contact fatigue of bearings used in automotiveengine electrical components and continuously variable transmissions (CVT) is thought to be caused by the diffusion ofhydrogen from the lubricant oil, and has been problematic in
recent years. Carbonitriding is known to be effective for improving resistance to rolling contact fatigue caused by hydrogen
embrittlement. At first, it was thought that minute nitride particles were behaving like a hydrogen trap site, and there werereports that durability could be improved by adding more chromium or manganese to the alloys. However, very little was
known about the details of the hydrogen trap mechanism.
Daido Steel clarified the mechanism of this life-extending
process by extracting data on the surface nitrides, on thehydrogen evolution curve, on the relationship between thevolume of surface nitrides and resistance to rolling contact
fatigue caused by hydrogen embrittlement, and on the hydrogen evolution curve of the nitride hydrogen trap site itself.
We aim to leverage this knowledge to commercialize bearing steel that resists hydrogen embrittlement.

R&D Expenditures
Years ended March 31(millions of yen)

6,000

4,000

2,000

0
2013 2014 2015 2016(2) High Performance Materials andMagnetic Materials
In this segment the Daido Steel Group conducts R&D focusing
on developing materials that resist corrosion and heat, highgrade strip steel, welding materials, magnetic materials andelectronic devices.
R&D costs for the fiscal year under review in this segment
totaled ¥2,695 million. The following are some of our majorachievements in this area.

• Enhancement of technology for mass producing
ultra-high performance PLP magnets with low levelsof heavy rare-earth elements
Having developed the technology for mass producing PLP(Pressless Process) magnets, which provide both high magnetism and ultra-high thermal resistance with substantially reduced
levels of heavy rare-earth elements, we began their manufacture
in 2013 at Intermetallics Japan Corporation, a joint venture
established with Mitsubishi Corporation and Molycorp, Inc. of
the United States. Intermetallics Japan was consolidated as ourwholly owned subsidiary in March 2015 and brought under new
management, we improved the mass production technology tomaximize yield and broaden the scope of application for themagnets.

• Development of STARMESH as a copper-alloy target
for producing metal meshWe developed a copper-alloy target material called STARMESH
for producing metal mesh with excellent conductivity and a low
reflectance ratio, for use as a wiring substrate in touch panels.
At present, indium tin oxide (ITO) is the most commonly usedtransparent conductive film in the industry. However, materials
with higher conductivity are now needed as the panels havebegun to grow larger. One idea was to replace ITO using existing metal mesh technology that offers higher conductivity, but
the characteristic reflective glare of metal mesh had to be
reduced before this idea could work.

(3) Parts for Automobile and Industrial Equipment
R&D in this segment concentrates on development of turbochargers, engine valves and other automotive parts, as well as
parts for various types of industrial machinery.
R&D costs for the fiscal year under review in this segment
totaled ¥1,453 million. The following is one of our majorachievements in this area.

• Development of marine engine exhaust valves madewith DSA760—a highly corrosion resistant nickelbased alloy that remains very hard at hightemperatures
Daido Steel developed the nickel based superalloy DSA760
possessing a high degree of hardness and high corrosion resistance as a material for variable mechanism components indiesel turbo chargers. We recently upgraded the manufacturing
technology and heat treatment method of DSA760 to enable
even larger mechanical products to obtain a benefit from its
hardness at high temperatures and corrosion resistance. In
demonstration trials conducted with a diesel engine manufacturer in Japan, we confirmed that marine engine exhaust valves
made from this DSA760 reduced the speed of wear from hightemperature corrosion compared to other conventional nickelbased alloys. After receiving evaluation that DSA760 was capable of extending the durability of the exhaust valves byapproximately 2.5 times compared to conventional nickel-based
alloys, we decided to commercialize DSA760 as a material formarine engine exhaust valves. A large-scale vacuum induction
melting (25 t VIM) facility is scheduled to go into operation at our
Shibukawa Plant in fiscal 2016, giving us the capacity torespond to an increase in demand for DSA760 ranging fromsmall components to large components.

(4) Engineering
Engineering R&D focuses on the development of environmental
conservation and recycling equipment, and a variety of energysaving industrial furnaces.
R&D expenditures in this segment during the fiscal year
under review amounted to ¥157 million. The following is one ofour major achievements in this area.

• Development and launch of DINCS, our new
combustion system
Our Machinery Division has been working to develop a line ofclean-burning industrial furnaces in response to the increasingneed to reduce greenhouse gas emissions. In 2012, the division
began developing the Daido Innovative Neo Combustion
System (DINCS). The goal behind DINCS was to acquire the
manufacturing knowhow and establish the basic specifications
for developing a new generation of radiant tube combustion
systems as fuel efficient as the regenerative burners currently in
use in our mainstay STC® furnaces.
DINCS is equipped with a heat exchanger manufactured
using silicon carbide 3D printing technology. This heatexchanger is used to efficiently recover the sensible heat fromcombustion exhaust for conversion as preheated combustion
air. The system will dramatically improve the fuel efficiency of our
STC® furnaces while reducing their greenhouse gas emissions.
With the aim of completing the development and launch of
DINCS in fiscal 2015, we tested the new system in furnaces toobtain data on combustion performance. We also confirmedthat DINCS was substantially less costly to maintain than regenerative burners and that it also contributed to improving thetemperature distribution within the furnace. The tests confirmedthat DINCS is more than sufficient for addressing market needs.
Looking ahead, we aim to protect the global environmentand contribute to the sustainable growth of our customers
through the further popularization of DINCS.

Research and development

Daido Steel’s solution, STARMESH offers a number ofadvantages. First, it can be used as a target material in thesame sputtering process used to produce ITO films. Second, it
has a reflectance ratio as low as 10% that can be used, without
much modification to the process, to produce wiring withdouble-digit conductivity and good adhesion to glass andpolyethylene terephthalate (PET) resin. Third, it is a copperbased alloy that can be etched easily with thin circuit lines.
However, the biggest advantage of all is that STARMESH
can be used to produce touch panels at a lower cost than ITO
because it contains no indium or other rare metals.

11

CSR and the Environment

Basic Policy
The Daido Steel Group considers it extremely important forcontemporary corporations to take on a role that extends
beyond economic activities and to contribute to the sustainable development of society through environmentallyconscious activities and involvement in the resolution ofsocial issues.
The Daido Steel Group is playing a part in helping tocreate a recycling-oriented economy and society through its
primary business operations: the manufacture and sale ofspecialty steel largely created from recycled scrap steel.
Daido Steel is also engaged in a broad range of initiatives,
including developing a variety of environmental activities,
abiding firmly by our corporate ethics, striving for disclosure
to increase the transparency of management, and creatinga safe and pleasant place for employees to work.

C SR

Major Initiatives
Preventing Global Warming
The first commitment period for the Kyoto Protocol ran from2008 to 2012. In that time frame, Daido Steel aimed toreduce its CO2 emissions volume by 10% compared to the1990 level in accordance with the guidelines of the Japan
Iron and Steel Federation. We worked to achieve this goalby expanding the use of exhaust heat recovery in heating
furnaces, shifting our fuel source from heavy oil to naturalgas, and improving the yield ratio through an increase in theratio of production by continuous casters. Due to theeffects of cumulative investments of ¥5.0 billion made from2006 to 2012, operational improvements and changes in
production levels, annual CO2 emissions from 2008 to 2012
decreased by 24.7% on average. In addition, in fiscal 2014
a cutting-edge, energy-efficient electric arc furnace wasinstalled at the Chita Plant at a cost of ¥19.8 billion withrationalizing effects evident throughout the year, resulting in
a 3% improvement in CO2 emissions per ton of production
with the same level maintained in fiscal 2015. Going forward, in accordance with the objectives of the Commitment
to a Low Carbon Society ongoing plan for fiscal 2013 to
fiscal 2020 formulated by the Japan Iron and Steel Federation and Japan Business Federation (Keidanren), we willcontinue implementing further reform measures, such as
introduction of energy-saving advanced technologies,
reductions in the number of heat exchangers, improvements in the yield ratio, and production in optimal areas.
Strengthening the CSR Promotion Framework
The Daido Steel Group has responded to the needs of ourvarious stakeholders by establishing the Human Resources
Labor Committee and various other committees as parent
organizations to support CSR activities, such as the Environment and Energy Committee. With a view to further strengthening this framework, in fiscal 2007, the CSR Committee
was established to supervise general CSR activities. Members of the CSR Committee formulate Group-wide policies
and action plans with the aim of unifying and expanding CSR
activities across all Group companies and divisions.
Starting January 2013, the Environment and Energy
Committee was split into two independent committees(namely, the Environment Committee and the Energy Committee) to promote CSR activities in a more fulfilling way.
For details, please refer to the annually issued CSR
Report.
URL: http://www.daido.co.jp/csr/data/report.html(Japanese only)

Energy consumption and Carbon Dioxide Emissions Volume
Kg of CO2/
ton of production

1,000 tons
CO2/year

2,000

1,500

1,000

800

600

–5.4%

–19.0%–18.1% –25.0% –27.8%–23.6% –22.9% –26.8%–25.1%
400–33.8%

500

200

0

0
99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16(Forecast)

CO2 emissions volume (left scale)CO2 emissions per ton of production (right scale)CO2 emissions coefficient for electric power: 0.374 kg of CO2 /kWh12

Basic Policy

Internal Control System

Daido Steel views corporate governance as one of the key
issues for management in today’s rapidly changing businessenvironment. We strive to increase management efficiency,
accelerate and improve decision-making, and ensure management transparency.
In addition, in order to clarify our responsibilities as a company contributing to society, Daido Steel has established a
Risk Management Committee. The Company has also implemented the Daido Steel Corporate Code of Ethics, and is
working to improve its basic structure as a company open tosociety. In order to ensure the reliability of its financial reporting, the Company has set up an Internal Control Committee.

Risk Management Initiatives
Daido Steel emphasizes risk management and legal compliance in its management. To this end, the Company has set
out basic points for risk management in the Risk Management Regulations. In addition, the Risk Management Committee discusses management of projected upcoming and latentrisks within the Group. The Company has appointed a director who is responsible for the Company-wide supervision ofrisk management and compliance.
In preparation for a major accident or other problem,
relevant information is shared with all concerned people, andspeedy and smooth countermeasures are formulated. The
Company has also formulated regulations for emergency
countermeasures in the event of a major accident, aimed atminimizing the impact of the accident or other problem onbusiness activities, and disseminated the regulations to all
employees and Group companies.
Furthermore, in response to any major share-purchaseactivity (for example, purchases of the Company’s shares
aimed at increasing the voting rights of a specific shareholders’ group to over 20%), Daido Steel will implement takeover
defense measures from the perspective of ensuring andimproving corporate value and, by extension, the sharedbeneficial interests of all shareholders.

Governance System
Daido Steel uses an Audit & Supervisory Board system. By
using a system that supervises and oversees business execution through a Board of Directors, including two external
directors, and an Audit & Supervisory Board, including two
external Audit & Supervisory Board members, Daido Steelenhances its corporate governance, optimizes and accelerates decision-making and secures fair and transparent
management.
At the 91st Shareholders’ Meeting held on June 26, 2015,
the Company also instituted an executive officer system toclearly distinguish the responsibilities of strategy formulationand management oversight functions and businessexecution.

Efforts to Enhance Compliance
Daido Steel has established the Daido Steel Corporate Codeof Ethics and the Daido Steel Code of Conduct, and works todisseminate them to all employees and Group companies.
The Company also maintains a hotline for consultation andreporting by employees regarding compliance, as well as
directors in charge of compliance and risk management,
divisions in charge and outside attorneys.

C o r p o r at e G o v e r n a n c e

Corporate GovernanceEfforts to Ensure the Reliability of Financial Reporting
In order to ensure the reliability of financial reporting andenhance the level of response of the Company and Group
companies to J-SOX, the Daido Steel Group prescribes thebasic points for system improvement and operation in theInternal Control Regulations and has established an Internal
Control Committee.

13Mechanism for Business Execution, Audit, Supervision and Internal Control(As of June 28, 2016)

Shareholders’ Meeting
Election anddismissal

Election anddismissal

Election anddismissal

Audit &
Supervisory Board
3 auditors including
2 external auditors

Board of Directors
9 directors including
2 external directors

AuditsElection anddismissal
Accounting Auditor(independent auditor)

Management Meeting

President andChief Executive Officer

Accounting audit

Committees•R isk Management
Committee• Internal Control
Committee, etc.

Executive Board
Executive Officers
Reports

Auditing Department(internal audits)

AuditsEach business division

AuditsAdvisesand supports

Reports

Corporate Governance
OFFICERSGroup companies

OFFICERS
Chairperson of theBoard of Directors,
Representative
Executive Director

President & CEO,
Representative
Executive Director

Representative Executive Directors,
Executive Vice Presidents

Director, Managing
Executive Officer

Tadashi Shimao

Takeshi Ishiguro

Michio Okabe

Akira Miyajima

Managing
Executive
Officer

Directors, Managing
Executive Officers

Hajime Takahashi

Kazuto Tachibana

DIRECTORS(OUTSIDE DIRECTORs)

Managing Executive Officers

Satoshi Tsujimoto Susumu Shimura

Executive Officers

14

Tsukasa Nishimura

Takeshi Muto

Kazuhiko Hirabayashi Tadashi Imai

Hitoshi Tanemura

Standing Corporate Auditors

Corporate Auditor

Hajime Amano

Tomoki Hanyuda

Takaaki Taketsuru

Toshinori Koike

Yukichi Ozawa

Yoshiaki Mori

Kimihiko Seki

Tetsuya Shimizu

Shigenobu Tokuoka

Hirotaka Yoshinaga

Hiroshi Matsui

Yuji Kamiya

Kunihito Kawanishi

Financial Section

Contents
16

Management’s discussion and analysis of operations

20

Consolidated Balance Sheet

22

Consolidated Statement of Income

23

Consolidated Statement of Comprehensive Income

24

Consolidated Statement of Changes in equity

26

Consolidated Statement of Cash Flows

27

Notes to Consolidated Financial Statements

53

Independent Auditor’s Report

15

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONSOVERVIEW OF OPERATING ENVIRONMENTAND PERFORMANCE

BUSINESS SEGMENT PERFORMANCE

In fiscal 2015, ended March 31, 2016, the Japanese economy

With regard to structural steel, inventory adjustments in thecontinued to tread water amid strong uncertainties for the future

automobile sector, our key source of demand for specialty steel,stemming from concerns about slowing growth in the Chinesethat had continued since the beginning of the fiscal year slowed

economy, a steep drop in natural resource prices, stronger signs

around autumn, before orders gradually recovered from the thirdof deceleration in emerging economies from the dollar appreciat-

quarter. However, the sales volume in the specialty steel seg-

ing against their currencies as a result of an interest rate hike inment decreased year on year, partly due to decreased demand

the U.S., and growing geopolitical risks.

for industrial machinery and construction machinery led by

Under these economic circumstances, the Daido Steel­China’s economic deceleration since the summer. Tool steelGroup readied itself to address changes in the market as theyremained strong, centered on the domestic automobile sector.

arose. The Group collaborated with its customers, focused on

Meanwhile, the price of steel scrap, a key raw material,

growth fields, and strengthened its quality, cost and delivery

declined substantially from the summer onward as overseas(QCD) competitiveness with the aim of achieving the targets indemand for steel scrap as a raw material declined, particularly

its medium-term management plan.

in South Korea, after an oversupply of steel drove China to

As a result, the Group’s net sales in fiscal 2015 decreased

Financial section

Specialty Steelramp up its exports of cheaply priced intermediate steel.

by ¥23,055 million year on year to ¥460,578 million, mainly due

As a result, the specialty steel segment’s net sales in fiscal

to a decline in sales volume and lower sales prices due to the2015 fell 9.8% year on year to ¥170,514 million, due primarily todrop in raw material prices. Ordinary income rose ¥3,378 million

a decline in sales volume and sales prices, which were driven

to ¥25,108 million due in part to a fall in the price of steel scrap,

down by the falling raw material prices. In contrast, operatinga key raw material, and lower energy costs. Net income attribut-

income increased by ¥4,382 million to ¥7,561 million, withable to owners of the parent declined by ¥4,140 million tofalling steel scrap prices and lower energy costs contributing to¥6,746 million, owing to the posting of ¥5,586 million in extraor-

the increase.

dinary losses for discontinuing software development and¥5,308 million in provisions for environmental remediation.

Net Sales

Operating Income

Years ended March 31

Years ended March 31

Net income attributableto owners of the parent(millions of yen)(millions of yen)

Years ended March 31(millions of yen)

600,000

40,00020,000450,000

30,00015,000300,000

20,00010,000150,000

10,000

5,000

0

16

0

0
2014

2015

2016

2014

2015

2016

2014

2015

2016

High Performance Materials andMagnetic Materials

Parts for Automobile and Industrial Equipment

Sales volume of stainless steel products declined year on year

­Sluggish demand for use in oil rigs and plants caused by falling

due to a reduced demand for HDDs in response to sluggish

oil prices absorbed strong demand for use in civilian aircraft.

sales of PCs and expectations for lower nickel prices. On the

Meanwhile, sales volume of die forged products declined, mainly

other hand, net sales of electromagnetic materials increased,

as a result of sluggish truck sales in emerging markets. On thedriven by robust demand for use in motors for electric powerother hand, net sales of engine valves increased year on year,

steering systems in automobiles, the consolidation of Inter­mainly due to a boost in orders received atop strong sales ofmetallics Japan Corporation at the end of the previous fiscal

automobiles in North America. Sales of engine-related castings

year, and strong sales of titanium products for use in medical

and precision cast products rose, driven by an increase in turbo

services in Japan and overseas. Meanwhile, net sales of highcharger-related demand.

alloys declined year on year. This was due mainly to persistently

Net sales of free forged products decreased year on year.

As a result, net sales in the Parts for Automobile andsluggish demand for use as lead frames for ­semiconductors,­Industrial Equipment segment for fiscal 2015 rose 0.3% year on

as well as a slump overseas in powder metal products for use

year to ¥99,680 million, while operating income increased byin the automotive industry and lower sales prices driven down¥274 million to ¥1,299 million.

by a fall in the price of nickel and other raw materials.
As a result, net sales for high performance materials andto ¥155,251 million, while operating income decreased by¥1,186 million to ¥12,331 million.

Financial section

magnetic materials in fiscal 2015 decreased 4.0% year on year17Engineering

RESEARCH AND DEVELOPMENT

The Engineering segment saw strong overseas sales of STC®

R&D costs for the entire Daido Steel Group during the fiscal(Short Time Cycle) annealing furnaces, a main product for theyear under review totaled ¥5,766 million. The research objec-

segment, as well as an increase in sales of vacuum carburizing

tives, main achievements and R&D costs in each business

furnaces for automobile manufacturers and vacuum sintering

segment were as follows:

furnaces for magnet manufacturers. As a result, engineering
segment sales for fiscal 2015 rose 14.0% year on year to(1) Specialty Steel¥26,104 million, while operating income increased by ¥419

Daido Steel bears the principal responsibility for carrying out

million to ¥2,071 million.

specialty steel R&D. Research areas include basic material
development, such as automotive structural steel and tool steel.

Trading and Service

Other areas of emphasis are development of process innova-

Net sales in the trading and service segment for fiscal 2015 fell

tions ranging from steelmaking, refining and solidification to

13.7% year on year to ¥9,029 million, while operating income

quality assurance for finished products.
Specialty steel R&D costs during the fiscal year under review

increased by ¥129 million to ¥1,173 million. The decline intotaled ¥1,459 million.

sales was mainly attributable to a fall in information system-

Financial section

related revenues.

CAPITAL EXPENDITURES(2) High Performance Materials andMagnetic Materials

Capital expenditures by business segment during the fiscal year

Development of materials that resist corrosion and heat, high-under review are shown in the table below.

grade strip steel, welding materials, electromagnetic materials,

Figures in the table include intangible fixed assets in additionand other basic materials, as well as R&D of electronic devices

to property, plant and equipment.

is conducted mainly by Daido Steel. R&D costs in this segment
during the fiscal year under review amounted to ¥2,695 million.

Capital Expenditures
Capital Expenditures by Segment

Years ended March 31

Years ended March 31(millions of yen)

Millions of Yen

Specialty SteelHigh Performance Materials andMagnetic Materials
Parts for Automobile andIndustrial Equipment
Engineering
Trading and Service
Total

18

50,0002016

2015¥ 7,670¥ 9,173

–16,4

6,906

9,162

–24.6

7,044

9,514

–26.0

245

450

–45.6

10,000

1,340

1,997

–32.9

0

¥23,205¥30,296–23.4

Change (%)

40,00030,00020,000

2014

2015

2016

(3) Parts for Automobile and Industrial Equipment

FINANCIAL POSITION

Mainly the responsibility of Daido Steel, R&D in this segment

Cash Flows

concentrates on development of turbo chargers, engine valves

Cash and cash equivalents as of March 31, 2016, amounted

and other automotive parts, and parts for various types ofto ¥33,774 million, representing an increase of ¥1,997 million

industrial machinery. R&D costs for the fiscal year under review

year on year.

in this segment totaled ¥1,453 million.
Cash Flows from Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥45,731

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, increasing by ¥19,992 million from the previous fiscal

on development of environmental conservation and recycling

year. This mainly reflected income before income taxes ofequipment and a variety of energy-saving industrial furnaces.

¥14,980 million and a ¥12,444 million decrease in inventories.

Engineering R&D costs during the fiscal year under review were¥157 million.

Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥23,165 million,(5) Trading and Service

decreasing by ¥9,013 million from the previous fiscal year. The

There are no R&D activities in this segment.

major cash outflows included ¥21,057 million in purchases ofCash Flows from Financing Activities
Net cash used in financing activities was ¥20,164 million, increasing by ¥17,371 million from the previous year. This was chiefly
due to recording ¥20,000 million for the redemption of bonds.
The indicators related to the Group’s cash flows areshown below.

Financial section

property, plant, and equipment.

Interest-bearing Debt
Years ended March 31(millions of yen)

200,000
150,000
100,000
50,000
0
2014

2015

2016

19

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2016

Thousands of
U.S. Dollars(Note 1)Millions of Yen

Financial section

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 16)
Time deposits (Notes 8 and 16)
Receivables:
Trade (Note 16)
Other
Total receivables
Inventories (Note 4)
Deferred tax assets (Note 12)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

PROPERTY, PLANT, AND EQUIPMENT:Land (Notes 5, 6 and 8)
Buildings and structures (Notes 5, 6 and 8)
Machinery and equipment (Note 8)
Construction in progress
Total
Accumulated depreciation
Net property, plant, and equipment

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 3, 8, and 16)
Investments in unconsolidated subsidiaries andassociated companies (Note 16)
Asset for employees’ retirement benefits (Note 9)
Deferred tax assets (Note 12)
Other investments and assets (Note 5)
Total investments and other assets
TOTAL

20

2016

2015

2016

¥   33,774
1,155¥   31,776851$   298,885
10,221

98,8001,656
100,456
95,131
4,277
3,814
(139)
238,468

105,007
1,928
106,935
108,562
4,900
3,324
(166)
256,182

874,336
14,655888,991
841,867
37,85033,752(1,230)2,110,336

35,302
164,903456,501
9,916
666,622(477,844)
188,778

35,139
162,766
450,951
6,772
655,628(466,253)
189,375

312,407
1,459,319
4,039,832
87,752
5,899,310(4,228,708)
1,670,602

53,433

72,846472,858

20,387
26,2391,002
7,369
108,430

17,91039,2081,058
12,011
143,033

180,416
232,204
8,867
65,213
959,558¥ 535,676¥ 588,590$ 4,740,496

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 7 and 16)
Current portion of long-term debt (Notes 7 and 16)
Payables:Trade (Notes 8 and 16)
Acquisitions of property, plant, and equipment
Total payables
Income taxes payable (Note 16)
Accrued expenses
Other current liabilities (Note 8)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 7 and 16)
Liability for employees’ retirement benefits (Note 9)
Retirement allowance for directors and Audit & Supervisory Board members
Provision for environmental measures
Asset retirement obligations (Note 10)
Deferred tax liabilities (Note 12)
Other long-term liabilities
Total long-term liabilities

2016

2015

2016

¥ 18,545
24,648¥ 22,656
25,702$  164,115
218,124

68,1538,354
76,507
2,752
11,053
9,982
143,487

78,0407,294
85,334
3,883
10,995
10,812
159,382

603,12473,929677,053
24,354
97,81488,336
1,269,796

92,423
8,999
910
5,720
432
12,862
2,497
123,843

97,850
8,003
957
1,247
426
25,0993,220
136,802

817,903
79,637
8,053
50,6203,823
113,823
22,097
1,095,956

37,172
28,722
155,251

37,17228,542
152,131

328,956
254,177
1,373,903(3,560)(382)(31,504)

13,826
0
1,821
2,044
(2,443)
232,833
35,513
268,346

25,129
1
1,758
3,236
8,435
256,022
36,384292,406

122,3540
16,11518,088(21,619)2,060,470
314,274
2,374,744¥535,676¥588,590$4,740,496

COMMITMENTS AND CONTINGENT LIABILITIES (Note 18)
EQUITY (Note 11):
Common stock:
Authorized: 1,160,000 thousand shares
Issued: 434,488 thousand shares in 2016 and 2015
Capital surplus
Retained earnings
Treasury stock, at cost:
7,473 thousand shares in 2016 and 805 thousand shares in 2015
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Noncontrolling interests
Total equity
TOTAL

Financial section

Thousands of
U.S. Dollars(Note 1)

See notes to consolidated financial statements.

21

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2016

Thousands of
U.S. Dollars(Note 1)Millions of Yen

NET SALESCOST OF SALES (Note 13)
Gross profit
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES(Notes 13 and 14)

Financial section

Operating income

2016

2015

2016

¥460,578
386,145
74,433¥483,633
413,536
70,097$4,075,911
3,417,212
658,699

50,001

49,688442,487

24,432

20,409216,2122,259(1,309)418

2,181(1,462)716

19,991(11,584)
3,699

OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies
Gain on sales of investment securities and investments inunconsolidated subsidiaries and associated companies—net
Foreign exchange (loss) gain
Provision for environmental measures (Note 2 (n))(Loss) gain on sales and disposals of property, plant, and equipment—net
Investment rents received
Loss on support for a consolidated subsidiary
Write-down of investment securities and investments inunconsolidated subsidiaries and associated companies (Note 3)
Loss on discontinued software development (Note 5)
Impairment loss on long-lived assets
Other—net
Other expenses—net

1,595
(570)
(5,736)
(884)
547
–

2,624
799
(877)
1,254
547
(907)

14,115(5,044)(50,761)(7,823)
4,841
–

(34)
(5,586)(436)
284(9,452)(4,030)–(2,461)
677
(939)

(301)
(49,434)(3,858)2,513(83,646)

INCOME BEFORE INCOME TAXES

14,98019,470132,566

INCOME TAXES (Note 12):Current
Deferred
Total income taxes

6,377
(500)
5,877

7,052
(334)
6,718

56,434(4,425)52,009NET INCOME

9,103

12,75280,558NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

2,357

1,866

20,858¥  6,746¥ 10,886$   59,699

NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENTYen

PER SHARE OF COMMON STOCK (Note 2 (w)):
Basic net income
Cash dividends applicable to the year¥  15.62
7.50

U.S. Dollars¥  25.10
6.50

Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDINGSHARES OF COMMON STOCK
See notes to consolidated financial statements.

22

431,829433,692$     0.14
0.07

CONSOLIDATED Statement OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2016

Thousands of
U.S. Dollars(Note 1)Millions of Yen

2016

2015

2016

NET INCOME¥   9,103¥12,752$   80,558

OTHER COMPREHENSIVE (LOSS) INCOME (Note 19):
Unrealized (loss) gain on available-for-sale securities
Deferred (loss) gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive (loss) income in associates
Total other comprehensive (loss) income(11,482)(2)
62(1,699)(11,114)(81)(24,316)

8,612
1
104
2,357
7,184
101
18,359(101,611)(18)
549(15,035)(98,354)(717)(215,186)

COMPREHENSIVE (LOSS) INCOME¥(15,213)¥31,111$(134,628)

TOTAL COMPREHENSIVE (LOSS) INCOME ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests¥(16,707)
1,494¥28,7152,396$(147,849)
13,221

Financial section

See notes to consolidated financial statements.

23

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2016

Thousands

Millions of Yen
Accumulated Other
Comprehensive Income

Outstanding
Number of
Shares ofCommon Stock

CommonStockCapitalSurplusRetained
Earnings

TreasuryStock433,704¥37,172¥28,542¥146,079¥  (370)

BALANCE, APRIL 1, 2014(as previously reported)
Cumulative effect of accounting change(Note 2 (m))

Deferred Gainon Derivatives
under Hedge
Accounting¥ 16,642

¥1

–

–

–

(2,448)–––433,704

37,17228,542

143,631(370)

16,642

1

Net income attributable to owners of the parent

–

–

–

10,886–––

Cash dividends, ¥5.5 per share

–

–

–

(2,386)

–

–

–

(26)

–

–

–

(13)

–

–

Net change in treasury stock due to change
in ownership of an associated company

5

–

–

–

1

–

–

Net change in the year

–

–

–

–

–

8,487

0

BALANCE, APRIL 1, 2014 (as restated)

Purchase of treasury stock

BALANCE, MARCH 31, 2015

Financial section

Unrealized
Gain onAvailable-for-Sale
Securities

433,683

37,17228,542

152,131(382)

25,1291

Net income attributable to owners of the parent

–

–

–

6,746

–

–

–

Cash dividends, ¥8.5 per share

–

–

–

(3,687)–––Purchase of treasury stock(6,671)–––(3,179)––

Disposal of treasury stock

2

–

(0)

–

1

–

–

Adjustment of retained earnings for changes
in the scope of consolidation

–

–

–

61

0

–

–

Change in the parent’s ownership interest
due to transactions with noncontrollinginterests

–

–

180

–

–

–

–

Net change in the year

–

–

–

–

–

(11,303)(1)

427,014¥37,172¥28,722¥155,251¥(3,560)¥ 13,826¥0

BALANCE, MARCH 31, 2016

Millions of Yen
Accumulated Other
Comprehensive Income
Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total¥1,654¥ 1,229¥   1,203¥232,152¥35,472–––(2,448)(101)(2,549)

1,654

1,229

1,203

229,704

35,371

265,075

Net income attributable to owners of the parent

–

–

–

10,886–

10,886

Cash dividends, ¥5.5 per share

–

–

–

(2,386)–(2,386)

Purchase of treasury stock

–

–

–

(13)

–

(13)

BALANCE, APRIL 1, 2014 (as previously reported)
Cumulative effect of accounting change (Note 2 (m))
BALANCE, APRIL 1, 2014 (as restated)

Net change in treasury stock due to change
in ownership of an associated company
Net change in the year
BALANCE, MARCH 31, 2015

Total
Equity¥267,624

–

–

–

1

–

1

104

2,007

7,232

17,8301,013

18,843
292,406

1,758

3,236

8,435

256,022

36,384

Net income attributable to owners of the parent

–

–

–

6,746

–

6,746

Cash dividends, ¥8.5 per share

–

–

–

(3,687)–(3,687)Purchase of treasury stock

–

–

–

(3,179)–(3,179)

Disposal of treasury stock

–

–

–

1

–

1

Adjustment of retained earnings for changes
in the scope of consolidation

–

–

–

61

–

61

Change in the parent’s ownership interest due totransactions with noncontrolling interests

–

–

–

180

–

180

Net change in the year63

(1,192)(10,878)(23,311)(871)(24,182)¥1,821¥ 2,044¥ (2,443)¥232,833¥35,513¥268,346

BALANCE, MARCH 31, 201624

Noncontrolling
Interests

Thousands of U.S. Dollars (Note 1)
Accumulated Other
Comprehensive Income

CommonStock

BALANCE, MARCH 31, 2015

CapitalSurplusRetained
Earnings

Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting$328,956$252,584$1,346,292$ (3,380)$ 222,381$9

Net income attributable to owners of the parent––

59,699–––Cash dividends, $0.08 per share––(32,628)–––

Purchase of treasury stock

–

–

–

(28,133)––

Disposal of treasury stock

–

(0)

–

9

–

–

Adjustment of retained earnings for changes
in the scope of consolidation

–

–

540

–

–

–

Change in the parent’s ownership interest due totransactions with noncontrolling interests

–

1,593

–

–

–

–

Net change in the year

–

–

–

–

(100,027)(9)$328,956$254,177$1,373,903$(31,504)$ 122,354$0

BALANCE, MARCH 31, 2016

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2015

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity$2,587,665$15,558$ 28,637$ 74,646$2,265,683$321,982

Net income attributable to owners of the parent

–

–

–

59,699–59,699Cash dividends, $0.08 per share

–

–

–

(32,628)–(32,628)

Purchase of treasury stock

–

–

–

(28,133)–(28,133)

Disposal of treasury stock

–

–

–

9

–

9

Adjustment of retained earnings for changes
in the scope of consolidation

–

–

–

540

–

540

Change in the parent’s ownership interest due totransactions with noncontrolling interests
Net change in the year
BALANCE, MARCH 31, 2016

–

–

–

1,593

–

1,593

557

(10,549)(96,265)(206,293)(7,708)(214,001)$16,115$ 18,088$(21,619)$2,060,470$314,274$2,374,744

Financial section

Accumulated Other
Comprehensive Income

See notes to consolidated financial statements.

25

CONSOLIDATED Statement OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2016

Thousands of
U.S. Dollars(Note 1)

Financial section

Millions of Yen

2016

2015

2016

¥ 14,980¥ 19,470$ 132,566(7,781)
22,454
5,586
436
842

(6,506)22,437
–
2,461
(607)

(68,858)
198,708
49,434
3,858
7,451(1,553)(2,624)(13,743)

38
(418)

4,030
(717)

336
(3,699)6,103(39)
12,444(9,929)4,473(2,510)246
36030,75245,732(3,114)(45)(9,286)(28)
843(3,336)
160
2,602
6,270
25,74054,008(345)
110,124(87,867)
39,584(22,212)
2,177
3,186
272,142404,708

INVESTING ACTIVITIES:Payments for time deposits
Repayments from time deposits
Purchases of property, plant, and equipment
Proceeds from sales of property, plant and equipment
Purchases of investment securities and investments in unconsolidated subsidiaries
Proceeds from sales of investment securities and investments in associated companies
Proceeds from redemption of investment securities
Proceeds from purchase of shares of a consolidated subsidiary
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities

(963)
592
(21,057)204(3,377)
4,175––(1,659)212(1,292)(23,165)(1,093)1,160(36,035)
1,811(3,139)
4,712
3,000
184
(703)
637
(2,712)(32,178)(8,522)5,239(186,345)
1,805(29,885)
36,947––(14,681)
1,876(11,434)(205,000)

FINANCING ACTIVITIES:Net decrease in short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Redemption of long-term debt
Acquisition of treasury stock
Acquisition of treasury stock by a subsidiary
Dividends paid, including payments to noncontrolling shareholders of subsidiaries
Liquidating dividends to noncontrolling shareholders of a subsidiary
Payments for transactions with noncontrolling interests
Other—net
Net cash used in financing activities(3,777)
19,264(5,496)(20,000)(3,179)(881)(4,170)(1,122)(562)(241)(20,164)(1,256)
21,400(18,894)
–
(13)
(858)
(2,919)––(253)(2,793)(33,425)
170,478(48,637)(176,991)(28,133)(7,796)(36,903)(9,929)(4,973)(2,133)(178,442)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARY, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS OF DECONSOLIDATED SUBSIDIARYCASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

(650)
1,753
790
(545)
31,776¥ 33,774

1,102(8,129)––39,905¥ 31,776(5,752)
15,514
6,991(4,823)
281,203$ 298,885

OPERATING ACTIVITIES:
Income before income taxes
Adjustments for:
Income taxes paid
Depreciation and amortization
Loss on discontinued software development
Impairment loss on long-lived assets
Loss (gain) on sales and disposals of property, plant, equipment, and other—net
Gain on sales of investment securities and investments in unconsolidated subsidiaries
and associated companies
Write-down of investment securities and investments in unconsolidated subsidiaries
and associated companies
Equity in earnings of associated companies
Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable
Decrease in allowance for doubtful accounts
Decrease (increase) in inventories
Decrease in notes and accounts payable
Increase in provision for environmental measures
Increase in asset for retirement benefits
Decrease in liability for employees’ retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities

See notes to consolidated financial statements.

26

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2016

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese­Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements of­International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated
financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2015 consolidated financial statements to conform to the classifications used in 2016.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which DAIDO STEEL CO., LTD. (the“Company”) is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for theconvenience of readers outside Japan and have been made at the rate of ¥113 to $1, the approximate rate of exchange at March 31, 2016.
Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or
any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The Company had 67 (64 in 2015) subsidiaries and 17 (17 in 2015) associated companies at March 31, 2016. The consolidated financial
statements as of March 31, 2016, include the accounts of the Company and 34 (34 in 2015) significant subsidiaries (together, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control overfor by the equity method.
Investments in six associated companies were accounted for by the equity method for the years ended March 31, 2016 and 2015.
Investments in other unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had
been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not havebeen material.
The fiscal years of the subsidiaries are not necessarily the same as that of the Company. Accounts of those subsidiaries which have

Financial section

operations are fully consolidated and those companies over which the Group has the ability to exercise significant influence are accounted

different fiscal years have been adjusted for significant transactions to properly reflect their financial position at March 31 of each year andthe results of operations for the year then ended.
The difference between the cost of acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition is
being amortized on a straight-line basis over five years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is also eliminated.

(b) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements
In May 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements” which was subsequently
revised in February 2010 and March 2015 to reflect revisions of the relevant Japanese GAAP or accounting standards in other jurisdictions.
PITF No. 18 prescribes that the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions
and events under similar circumstances should in principle be unified for the preparation of the consolidated financial statements. However,financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the accounting
principles generally accepted in the United States of America (Financial Accounting Standards Board Accounting Standards Codification)
tentatively may be used for the consolidation process, except for the following items which should be adjusted in the consolidation process
so that net income is accounted for in accordance with Japanese GAAP unless they are not material: a) amortization of goodwill; b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in equity through other comprehensive income; c) expensing
capitalized development costs of research and development; and d) cancellation of the fair value model accounting for property, plant, andequipment and investment properties and incorporation of cost model accounting.

27

(c) Business Combinations
In October 2003, the Business Accounting Council issued a Statement of Opinion, “Accounting for Business Combinations,” and in­December 2005, the ASBJ issued ASBJ Statement No. 7, “Accounting Standard for Business Divestitures” and ASBJ Guidance No. 10,“Guidance for Accounting Standard for Business Combinations and Business Divestitures.”
In December 2008, the ASBJ issued a revised accounting standard for business combinations, ASBJ Statement No. 21, “AccountingStandard for Business Combinations.” Major accounting changes under the revised accounting standard are as follows: (1) The revised
standard requires accounting for business combinations only by the purchase method. As a result, the pooling-of-interests method of
accounting is no longer allowed. (2) The previous accounting standard required research and development costs to be charged to income
as incurred. Under the revised standard, in-process research and development costs (IPR&D) acquired in the business combination are
capitalized as an intangible asset. (3) The previous accounting standard provided for a bargain purchase gain (negative goodwill) to be­systematically amortized over a period not exceeding 20 years. Under the revised standard, the acquirer recognizes the bargain purchasegain in profit or loss immediately on the acquisition date after reassessing and confirming that all of the assets acquired and all of the­liabilities assumed have been identified after a review of the procedures used in the purchase price allocation. The revised standard wasapplicable to business combinations undertaken on or after April 1, 2010.
In September 2013, the ASBJ issued revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised ASBJ
Guidance No. 10, “Guidance on Accounting Standards for Business Combinations and Business Divestitures,” and revised ASBJ Statement
No. 22, “Accounting Standard for Consolidated Financial Statements.” Major accounting changes are as follows:(a)	Transactions with noncontrolling interests—A parent’s ownership interest in a subsidiary might change if the parent purchases or sells
ownership interests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the parent’s
Financial section­ownership interest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the previous accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the noncontrolling interest is
adjusted is accounted for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised
accounting standard, such difference is accounted for as capital surplus as long as the parent retains control over its subsidiary.
(b)	Presentation of the consolidated balance sheet—In the consolidated balance sheet, “minority interest” under the previous a­ ccounting
standard is changed to “noncontrolling interests” under the revised accounting standard.
(c)	Presentation of the consolidated statement of income—In the consolidated statement of income, “income before minority interest”
under the previous accounting standard is changed to “net income” under the revised accounting standard, and “net income” under theprevious accounting standard is changed to “net income attributable to owners of the parent” under the revised accounting standard.
(d)	Provisional accounting treatments for a business combination—If the initial accounting for a business combination is incomplete by theend of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisionalamounts for the items for which the accounting is incomplete. Under the previous accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which themeasurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed
one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect
new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been completed at the acquisition date.
(e)	Acquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs toeffect a business combination. Under the previous accounting standard, the acquirer accounts for acquisition-related costs by including
them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted foras expenses in the periods in which the costs are incurred.
The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidatedbalance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective for the beginning ofannual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after
April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income. In
the case of earlier application, all accounting standards and guidance above, except for (b) presentation of the consolidated balance sheet
and (c) presentation of the consolidated statement of income, should be applied simultaneously.

28

Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with noncontrollinginterest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards and guidance, the accumulated
effects of retrospective adjustments for all (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in thepast shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application. In prospective application, the new standards and guidance shall be applied prospectively from the beginning of the year of the­first-time application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of the­consolidated statement of income shall be applied to all periods presented in financial statements containing the first-time application of therevised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are effective for a businesscombination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted fora business combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2014.
The Company applied the revised accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of
the consolidated balance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs above, effective
April 1, 2015, and (d) provisional accounting treatments for a business combination above for a business combination which occurred on orafter April 1, 2015. The revised accounting standards and guidance for (a) transactions with noncontrolling interest and (e) acquisition-related
costs were applied prospectively.
With respect to (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income, theapplicable line items in the 2015 consolidated financial statements have been accordingly reclassified and presented in line with those in 2016.

(d) Cash and Cash Equivalents
Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes invalue. Cash equivalents include time deposits and short-term investments which mature or become due within three months of the date ofacquisition.

Financial section

The effect of the application of the revised accounting standards and guidance was immaterial to the consolidated financial statements
for the year ended March 31, 2016.

(e) Investment Securities
Investment securities are classified and accounted for, depending on management’s intent, as follows:
Available-for-sale securities are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported as a separate
component of equity.
A limited partnership investment is accounted for by the equity method.
Non-marketable securities are stated at cost, determined by the moving-average method. For other-than-temporary declines in fairvalue, investment securities are reduced to net realizable value by a charge to income.

(f) Inventories
Inventories are stated at the lower of cost, mainly determined by the weighted average method for each period of a year, or net selling value.
Write-down of inventories in the amounts of ¥604 million ($5,345 thousand) and ¥63 million for the years ended March 31, 2016 and 2015,
respectively, were included in cost of sales.

(g) Allowance for Doubtful Accounts
To provide for the loss from doubtful accounts, an allowance for doubtful accounts is made using the historical rate of actual losses for normal
receivables and the estimated irrecoverable amount for specific doubtful receivables after considering the recoverability of each account.

29

(h) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less gains on grant receipts, etc. Under certain conditions, such as government grant
receipt, exchanges of fixed assets of similar kinds, and sales and purchases resulting from expropriation, Japanese tax laws permit companies to defer the profit arising from such transactions by reducing the cost of the assets acquired or by providing a special reserve in theequity section. The acquisition costs of property, plant, and equipment were reduced in the amounts of ¥4,678 million ($41,398 thousand)and ¥2,708 million at March 31, 2016 and 2015, respectively.
Depreciation of certain plants of the Company and certain domestic and foreign subsidiaries is computed by the straight-line method.
Depreciation of other plants of the Company and other subsidiaries is computed by the declining-balance method, while the straight-line
method is applied to buildings acquired after April 1, 1998, for domestic companies.
Depreciation of leased assets is computed by the straight-line method over the lease period.
The range of useful lives is from five to 75 years for buildings and structures and from four to 17 years for machinery and equipment.

(i) Land Revaluation
Under the “Law of Land Revaluation,” Nippon Drop Forge Co., Ltd., a consolidated subsidiary, elected a one-time revaluation of its own-use
land to a value based on real estate appraisal information at March 31, 1999. The resulting land revaluation surplus represented unrealized
appreciation of land and was stated, net of income taxes, as a component of equity. There was no effect on the consolidated statement ofincome. Continuous readjustment is not permitted, unless the land value subsequently declines significantly such that the amount of thedecline in value should be removed from the land revaluation surplus account and related deferred tax liabilities. At March 31, 2016, the carry-

Financial section

ing amount of the land after the above one-time revaluation and impairment exceeded the market value by ¥943 million ($8,345 thousand).

(j) Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of anasset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset groupexceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or
asset group. The impairment loss would be measured at the amount by which the carrying amount of the asset exceeds its recoverable
amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling
price at disposition.

(k) Other Assets
Intangible assets are amortized by the straight-line method. Software costs are amortized over five years.

(l) Bond Issue Costs
Bond issue costs are charged to income as incurred.

(m) Retirement and Pension Plans
The Company and its domestic consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain consolidated subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans and smaller enterpriseretirement allowance mutual aid plans.
Effective April 1, 2000, the Group adopted a new accounting standard for retirement benefits and accounted for the liability for­employees’ retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. The projected benefit
obligations had been attributed to periods on a straight-line basis. Actuarial gains and losses are amortized on a straight-line basis over 10
years. Past service costs are amortized on a straight-line basis over 10 years. Certain small consolidated subsidiaries apply the simplified
method to state the liability based on the amount which would be paid if employees retired at the consolidated balance sheet date.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25,“Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement benefits that had been
issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, andwere followed by partial amendments from time to time through 2009.

30

(a)	Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss
are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or­surplus is recognized as a liability (liability for employees’ retirement benefits) or asset (asset for employees’ retirement benefits).
(b)	The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss.
Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of theemployees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are included in other comprehensive income, and actuarial gains and losses and past service costs that were­recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period, are treated asreclassification adjustments (see Note 19).
(c)	The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods, thediscount rate, and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1,
2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual
periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, all with earlier application being permitted from the
beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to­consolidated financial statements in prior periods is required.
The Company applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March 31,
2014, and for (c) above, effective April 1, 2014.

remaining service period to using a single weighted average discount rate reflecting the estimated timing and amount of benefit payment,
and recorded the effect of (c) above as of April 1, 2014, in retained earnings in the amount of ¥2,448 million. The effects on the statementof income and net income per share were immaterial.
Retirement benefits to directors and Audit & Supervisory Board members of certain subsidiaries are provided at the amount that would
be required if all directors and Audit & Supervisory Board members retired at the consolidated balance sheet date.

Financial section

With respect to (c) above, the Company changed the method of attributing the expected benefit to periods from a straight-line basis toa benefit formula basis, and the method of determining the discount rate from using the period which approximates the expected average(n) Provision for Environmental Measures
Provision for environmental measures is provided to accrue the estimated costs of PCB (Polychlorinated Biphenyl) waste disposals and theestimated costs of removal of steel slag products sold in reserve for future expenses. For the year ended March 31, 2016, the estimatedcosts of removal of steel slag products used in construction projects by Ministry of Land, Infrastructure, Transport and Tourism, Gunma
Prefecture, and municipalities in Gunma were accrued in the amount of ¥5,308 million ($46,973 thousand) and included in the provision forenvironmental measures in the consolidated statement of income.

(o) Asset Retirement Obligations
In March 2008, the ASBJ issued ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations,” and ASBJ Guidance No.
21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation isdefined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development, and the normal
operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation isincurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period theasset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be
made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying
amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense throughdepreciation over the remaining useful life of the asset. Over time, the liability is accreted to its present value each period. Any subsequent
revisions to the timing or the amount of the original estimate of undiscounted cash flows are reflected as an adjustment to the carrying
amount of the liability and the capitalized amount of the related asset retirement cost.

31

(p) Research and Development Costs
Research and development costs are charged to income as incurred.

(q) Bonuses to Directors and Audit & Supervisory Board Members
Bonuses to directors and Audit & Supervisory Board members are accrued at the year-end to which such bonuses are attributable.

(r) Construction Contracts
In December 2007, the ASBJ issued ASBJ Statement No. 15, “Accounting Standard for Construction Contracts,” and ASBJ Guidance No.
18, “Guidance on Accounting Standard for Construction Contracts.” Under this accounting standard, construction revenue and construction
costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably.
When total construction revenue, total construction costs, and the stage of completion of the contract at the balance sheet date can bereliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be
reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total
construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts.

(s) Income Taxes
The provision for income taxes is computed based on the pretax income included in the consolidated statement of income. The asset andliability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences
between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax
Financial section

laws to the temporary differences.

(t) Foreign Currency Transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at theexchange rates at the consolidated balance sheet date. The foreign exchange gains and losses from translation are recognized in the­consolidated statement of income to the extent that they are not hedged by forward exchange contracts.

(u) Foreign Currency Financial Statements
The consolidated balance sheet accounts, and revenue and expense accounts of the consolidated foreign subsidiaries are translated into
Japanese yen at the current exchange rate as of the consolidated balance sheet date except for equity, which is translated at the historicalrate. Differences arising from such translation are shown as “Foreign currency translation adjustments” under accumulated other comprehensive income in a separate component of equity.

(v) Derivatives and Hedging Activities
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange and interest rates. Foreign currency forward contracts, currency swaps and interest rate swaps are utilized by the Group to reduce foreign currency exchange and interest
rate risks. The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and, except for those derivatives which qualify for hedge accounting, gains orlosses are recognized in the consolidated statement of income and b) for derivatives used for hedging purposes, if such derivatives qualify
for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses
are deferred until maturity of the hedged transactions.
Foreign currency forward contracts are measured at fair value, and the unrealized gains (losses) are recognized in the consolidated
statement of income. Forward contracts used to hedge forecasted (or committed) transactions are also measured at fair value, but theunrealized gains (losses) are deferred until the underlying transactions are completed.
Long-term debt denominated in foreign currencies for which currency swaps are used to hedge the foreign currency fluctuations istranslated at the contracted rate if the forward contracts qualify for hedge accounting.
Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but thedifferential paid or received under the swap agreements is recognized and included in interest expense.

32

(w) Per Share Information
Net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number ofcommon shares outstanding for the period.
Diluted net income per share is not disclosed because the Group had no dilutive shares at March 31, 2016 and 2015.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective
years including dividends to be paid after the end of year.

(x) Changes in Presentations(Consolidated statement of income)Prior to April 1, 2015, the provision for environmental measures was included in the other long-term liabilities among the long-term liabilities
section of the consolidated balance sheet. Since during this fiscal year ended March 31, 2016, the materiality of the amount increased
significantly and such amount is disclosed separately in the long-term liabilities section of the consolidated balance sheet as of March 31,
2016. ¥4,467 million of the other long-term liabilities as of March 31, 2015, was reclassified to the provision for environmental measures of¥1,247 million and to the other long-term liabilities of ¥3,220 million.
(Consolidated statement of cash flows)
Prior to April 1, 2015, the provision for environmental measures was included in the other—net among operating activities section of theconsolidated statement of cash flows. Since during this fiscal year ended March 31, 2016, the materiality of the amount increased significantly and such amount is disclosed separately in the operating activities section of the consolidated statement of cash flows for the year
measures of ¥843 million and to other—net of ¥2,602 million.
Prior to April 1, 2015, the acquisition of treasury stock and the acquisition of treasury stock by a subsidiary were included in other—net
among the financing activities section of the consolidated statement of cash flows. Since during this fiscal year ended March 31, 2016, themateriality of the amounts increased significantly and such amounts are disclosed separately in the operating activities section of the consolidated statement of cash flows for the year ended March 31, 2016. ¥1,124 million of other—net for the year ended March 31, 2015 wasreclassified to the acquisition of treasury stock and the acquisition of treasury stock by a subsidiary, and other—net in the amounts of ¥13

Financial section

ended March 31, 2016. ¥3,445 million of other—net for the year ended March 31, 2015 was reclassified to provision for environmental

million, ¥858 million and ¥253 million, respectively.

(y) Accounting Changes and Error Corrections
In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error Corrections” andASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under
this standard and the guidance are as follows: (1) Changes in Accounting Policies—When a new accounting policy is applied with a revisionof accounting standards, the new policy is applied retrospectively, unless the revised accounting standards include specific transitional
provisions. When the revised accounting standards include specific transitional provisions, an entity shall comply with the specific transitional
provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior-period financial statements arereclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate isaccounted for in the period of the change if the change affects that period only and is accounted for prospectively if the change affects boththe period of the change and future periods. (4) Corrections of Prior-Period Errors—When an error in prior-period financial statements is
discovered, those statements are restated.

3. INVESTMENT SECURITIESInvestment securities at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Noncurrent:
Equity securities
Total

2016

2015

2016

¥53,433¥53,433¥72,846¥72,846$472,858$472,858

33

The costs and aggregate fair values of investment securities at March 31, 2016 and 2015, were as follows:
Millions of Yen
March 31, 2016

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥32,383¥20,701¥1,596¥51,488

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥34,438¥36,817¥387¥70,868

Cost

Unrealized
Gains

Unrealized
LossesFair Value$286,575$183,195$14,124$455,646

Millions of Yen
March 31, 2015

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2016

Available-for-sale:
Equity securities

Information for available-for-sale securities that were sold during the years ended March 31, 2016 and 2015, was as follows:

Financial section

Millions of Yen
March 31, 2016

Available-for-sale:
Equity securities

Proceeds¥2,503

Realized
Gains

¥467

Thousands of U.S. Dollars
Realized
Losses¥52

Realized
Gains

Proceeds$22,150$4,133

Realized
Losses$460

Millions of Yen
March 31, 2015

Available-for-sale:
Equity securities

Proceeds¥3,873

Realized
Gains¥1,971

Realized
Losses¥1

Impairment losses on equity securities and investments in associated companies for the years ended March 31, 2016 and 2015, were
¥34 million ($301 thousand) and ¥4,030 million, respectively.

4. INVENTORIESInventories held by the Group at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Merchandise
Finished products
Semifinished products
Work in process
Raw materials
Supplies
Total

34

2016

2015

2016

¥18,764
11,803
15,976
21,738
16,207
10,643¥95,131¥ 19,779
12,38022,69524,823
18,688
10,197¥108,562$166,053
104,451
141,380
192,372
143,425
94,186$841,867

5. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of March 31, 2016 and 2015. As a result, the Group recognized an impairment
loss of ¥436 million ($3,858 thousand) as other expense for property, plant and equipment in Nagano due to devaluation and the carrying
amount of the relevant assets was written down to the recoverable amount for the year ended March 31, 2016. Also, the Group recognized
an impairment loss of ¥5,162 million ($45,681 thousand) as other expense for discontinued software development costs for internal use andthe carrying amount of the relevant assets was written down to the recoverable amount for the year ended March 31, 2016. Such amount isincluded in loss on discontinued software development of ¥5,586 million ($49,434 thousand).
The Group recognized an impairment loss of ¥2,461 million as other expense for unused land and certain property, plant and equipment
in Nagano due to the devaluation of land and the carrying amount of the relevant assets was written down to the recoverable amount for theyear ended March 31, 2015. The recoverable amount of the assets in Nagano was measured at its value in use and the discount rate used
for computation of present value of future cash flows was 6.5%.

6. INVESTMENT PROPERTYIn November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment Property and Related Disclosures,” andASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property and Related Disclosures.”
The Company holds some rental properties, such as office buildings and land in Aichi and other areas. The net amounts of rental income
and operating expenses for those rental properties were ¥892 million ($7,894 thousand) and ¥846 million for the years ended March 31,
2016 and 2015, respectively.

Millions of Yen

Thousands of U.S. Dollars

Carrying Amount
April 1, 2015

Increase, net¥5,197¥458

Fair Value
March 31, 2016

¥5,655Carrying AmountMarch 31, 2016

April 1, 2015

Increase, net¥24,805$45,991$4,053

Fair Value
March 31, 2016

March 31, 2016

$50,044$219,513

Millions of Yen
Carrying Amount
April 1, 2014

Decrease, net¥5,910¥713

Fair Value
March 31, 2015

¥5,197

Financial section

The carrying amounts, changes in such balances and market prices of such properties at March 31, 2016 and 2015, were as follows:

March 31, 2015

¥24,090

Notes:
1) The carrying amount recognized in the consolidated balance sheet was net of accumulated depreciation and accumulated impairment losses, if any.
2) The increase during the fiscal year ended March 31, 2016, primarily represents the acquisition of certain properties of ¥565 million ($5,000 thousand). The
decrease during the fiscal year ended March 31, 2016, primarily represents depreciation of ¥145 million ($1,283 thousand).
	The increase during the fiscal year ended March 31, 2015, primarily represents the acquisition of certain properties of ¥493 million. The decrease during the
fiscal year ended March 31, 2015, primarily represents the effect of the changes in scope of consolidation of ¥1,057 million and depreciation of ¥123 million.
3) The fair value of properties was primarily measured by the Group in accordance with its Real-Estate Appraisal Standard.

7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans consisted of notes to banks and bank overdrafts. The weighted-average rates of annual interest applicable to shortterm bank loans at March 31, 2016 and 2015, were 0.78% and 0.81%, respectively.
Long-term debt at March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Loans from banks and other financial institutions due serially to 2022with weighted-average interest rates of 0.68% in 2016 and 0.79% in 2015
1.08% unsecured bonds due December 18, 2015
0.68% unsecured bonds due December 1, 2016
0.335% unsecured bonds due May 27, 2019
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

2016

2015

2016

¥ 96,141–
10,00010,000930
117,071(24,648)¥ 92,423¥ 82,415
20,00010,00010,000
1,137
123,552(25,702)¥ 97,850$  850,805–
88,49688,4968,230
1,036,027(218,124)$  817,903

35

Annual maturities of long-term debt at March 31, 2016, were as follows:Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2017
2018
2019
2020
2021
2022 and thereafter
Total¥ 24,648
15,747
26,352
24,92615,196
10,202¥117,071$  218,124
139,354
233,204
220,584
134,478
90,283$1,036,027

The Company and a consolidated subsidiary entered into line-of-credit agreements with 9 banks. The details of the agreements wereas follows:

Line-of-credit amount
Balance used at March 31, 2016

Millions of Yen

Thousands of
U.S. Dollars¥24,700–$218,584–

8. PLEDGED ASSETS
Financial section

The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥11 million ($97 thousand) and other current­liabilities of ¥8 million ($71 thousand) at March 31, 2016, were as follows:

Time deposits
Land
Buildings and structures
Machinery and equipment
Investment securities
Total

Millions of Yen

Thousands of
U.S. Dollars¥   17
2,179
1,696
1,311
239
¥5,442$   150
19,28315,00911,602
2,115$48,159

9. RETIREMENT AND PENSION PLANS
The Company and its consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain consolidated
subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans, and smaller enterprise retirement
allowance mutual aid plans.
The Group has employee retirement benefit trusts.
Furthermore, additional severance payments, which are not included in liability for employees’ retirement benefit, are paid in certain cases.
Certain small consolidated subsidiaries apply the simplified method to state the liability based on the amount which would be paid if
employees retired at the consolidated balance sheet date.
Some of subsidiaries participate in multiemployer contributory funded plans, and the plans are accounted for as if the plans were defined
contribution plans in the case that the plan assets attributable to the contributions by the subsidiaries cannot be rationally determined.

36

1. The changes in defined benefit obligation for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year (as previously reported)
Cumulative effect of accounting change
Balance at beginning of year (as restated)
Current service cost
Interest cost
Actuarial losses
Benefits paid
Past service cost
OthersBalance at end of year

2016

2015

2016

¥51,262–
51,262
1,815
575
5,484
(4,102)95(6)¥55,123¥47,739
3,925
51,664
1,745
585
1,322
(4,069)–15¥51,262$453,646–
453,646
16,062
5,088
48,531(36,301)841(53)$487,814

2. The changes in plan assets for the years ended March 31, 2016 and 2015, were as follows:

Balance at beginning of year
Expected return on plan assets
Actuarial (losses) gains
Contributions from the employer
Benefits paid
OthersBalance at end of year

2016

2015

2016

¥84,671
1,467(9,171)798(3,112)(3)¥74,650¥71,450
1,354
12,631
2,748(3,519)7¥84,671$749,301
12,982(81,159)
7,062(27,540)(27)$660,619

Financial section

Thousands of
U.S. Dollars

Millions of Yen

3. The changes in liability for employees’ retirement benefits for which the simplified method was applied to record the liability for theyears ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Balance at beginning of year
Pension costs
Benefits paid
Contributions to pension funds
OthersBalance at end of year

2016

2015

2016

¥2,204
740
(359)
(295)
(5)
¥2,285¥2,239
477
(199)
(317)
4
¥2,204$19,504
6,549(3,177)(2,611)(44)$20,221

4. Reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation andplan assets:
Thousands of
U.S. Dollars

Millions of Yen

Funded defined benefit obligation
Plan assets
Total
Unfunded defined benefit obligation
Net asset arising from defined benefit obligation

2015

2014

2015

¥ 55,043(77,536)(22,493)5,253¥(17,240)¥ 51,506(87,397)(35,891)
4,686¥(31,205)$ 487,106(686,159)(199,053)
46,486$(152,567)

37

5. The components of net periodic benefit costs for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Service cost
Interest cost
Expected return on plan assets
Amortization of prior service benefit
Recognized actuarial gains
Retirement benefits for which simplified method was applied
Additional severance payments
Net periodic benefit costs

2016

2015

2016

¥ 1,815575(1,467)(1,432)(54)740
92¥   269¥ 1,745585(1,354)
(661)
(157)
478
115
¥   751$ 16,062
5,088(12,982)(12,672)
(478)
6,549
814
$   2,381

6. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for theyears ended March 31, 2016 and 2015:
Thousands of
U.S. Dollars

Millions of Yen

Financial section

Prior service cost
Actuarial (losses) gains
Total

2016

2015

2016

¥   (149)(16,087)¥(16,236)¥  (157)
10,648¥10,491$  (1,319)(142,362)$(143,681)

7. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans as of March 31, 2016 and 2015:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial (losses) gains
Total

2016

2015

¥   305(4,349)¥(4,044)¥   453
11,738¥12,1912016$   2,699(38,487)$(35,788)

8. Plan assets:(1) Components of plan assets
Plan assets consisted of the following:
2016

Debt investments
Equity investments
Assets in an insurer’s general account
Others
Total

15%
65
19
1
100%

2015

12%
69
16
3
100%

(2) Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the
future from the various components of the plan assets.

38

9. Assumptions used for the years ended March 31, 2016 and 2015, are set forth as follows:
2016

2015

0.3%
2.0

Discount rate
Expected rate of return on plan assets

1.1%
2.0

Some consolidated subsidiaries participate in a multi-employer plan for which the Company cannot reasonably calculate the amount ofplan assets corresponding to the contributions made by the subsidiaries. Therefore, it is accounted for using the same method as a defined
contribution plan.
The contributions to such multi-employer plan, which are accounted for using the same method as a defined contribution plan, were¥317 million ($2,805 thousand) and ¥353 million for the years ended March 31, 2016 and 2015, respectively.
(1) The funded status of the multi-employer plan as of March 31, 2016 and 2015, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

Plan assets
Sum of actuarial liabilities of pension plan and minimum actuarial reserve
Net balance

2016

2015

2016

¥263,436
268,703¥  (5,267)¥238,997
255,077¥ (16,080)$2,331,292
2,377,903$  (46,611)

The contribution ratio of the Group in the multi-employer plan

2016

2015

2.28%

2.38%

10. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2016

Balance at beginning of year
Additional provisions associated with the change
in the estimated costs of PCB waste disposal
Reconciliation associated with passage of time
Balance at end of year

Financial section(2) The contribution ratio of the Group in the multi-employer plan for the years ended March 31, 2016 and 2015, was as follows:

2015

2016

¥426

¥426

$3,770

6
0
¥432

–
–
¥426

53
–
$3,823

11. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. Additionally, for companies that meet certain criteria, such as (1) having a Board of Directors, (2) having
independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year
rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-inkind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company cannot do so
because it does not meet all the above criteria. The Companies Act permits companies to distribute dividends in kind (noncash assets) toshareholders subject to certain limitations and additional requirements.

39

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of
the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must
be maintained at no less than ¥3 million.

(b) Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained
earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment ofsuch dividends until the total of the aggregate amount of the legal reserve and additional paid-in capital equals 25% of common stock.
Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies
Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferredamong the accounts under certain conditions upon resolution of the shareholders.

(c) Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Boardof Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which isdetermined by a specific formula. Under the Companies Act, stock acquisition rights are presented as a separate component of equity. The
Companies Act also provides that companies can purchase both treasury stock acquisition rights and treasury stock. Such treasury stock

Financial section

acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted innormal effective statutory tax rates of approximately 33% and 35% for the years ended March 31, 2016, and 2015, respectively.
The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Deferred tax assets:
Accrued bonuses
Liability for employees’ retirement benefits
Allowance for doubtful accounts
Write-down of securities and other assets
Net loss carryforwards
Elimination of unrealized gain on inventories
Provision for environmental measures
Enterprise tax
OtherLess valuation allowance
Total deferred tax assets
Deferred tax liabilities:
Deferred gain on property, plant, and equipment
Land revaluation surplus
Unrealized gain on securities
Asset for employees’ retirement benefits
Unrealized gain on lands resulting from consolidation of a subsidiary
Other
Total deferred tax liabilities
Net deferred tax liabilities

40

2016

2015

2016

¥ 2,079
2,763
53
2,663
2,996
883
1,737
285
4,542
(7,727)
10,274¥ 2,090
2,550
77
1,944
2,325
943
407
377
4,839
(6,805)
8,747$ 18,398
24,451
469
23,566
26,513
7,814
15,372
2,522
40,195(68,380)
90,920

1,830
1,230
5,774
6,215
1,057
1,751
17,857¥ 7,583

1,978
1,293
11,634
10,868
1,116
999
27,888¥19,141

16,195
10,88551,09755,0009,354
15,495
158,026$ 67,106A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2016, with the corresponding figures for 2015 is as follows:

Normal effective statutory tax rates
Expenses not deductible for income tax purposes
Revenues not recognized for income tax purposes
Per capita tax
Net change in valuation allowance
Effects of elimination of dividends for consolidation purposes
Effect of accounting by the equity method
Lower income tax rates applicable to income in certain foreign countries
Tax credit
Effect of change in statutory tax rate
Investments in subsidiaries
Other – net
Actual effective tax rates

2016

2015

33.0%
1.9
(9.9)
0.7
9.0
6.9
(0.9)
(0.9)
(4.8)
(0.8)
4.2
0.8
39.2%

35.0%
3.2
(7.1)
0.6
6.6
4.0
(1.3)
(1.1)
(2.9)
(1.9)
–
(0.6)
34.5%

New tax reform laws enacted in 2016 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after
April 1, 2016, to approximately 31% and for the fiscal year beginning on or after April 1, 2018, to approximately 30%. The effect of thesechanges was to decrease deferred tax liabilities, net of deferred tax assets, by ¥414 million ($3,664 thousand), accumulated other compreand income taxes—deferred in the consolidated statement of income for the year then ended by ¥125 million ($1,106 thousand), and toincrease accumulated other comprehensive income for unrealized gain on available-for-sale securities by ¥363 million ($3,212 thousand).

13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥5,766 million ($51,027 thousand) and ¥5,301 million for the years ended
March 31, 2016 and 2015, respectively.

Financial section

hensive income for defined retirement benefit plan by ¥74 million ($655 thousand) in the consolidated balance sheet as of March 31, 201614. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the years ended March 31, 2016 and 2015, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Freight expenses
Salaries and welfare expenses
Provision for bonuses to employees
Provision for bonuses to directors and Audit & Supervisory Board members
Net periodic retirement benefit costs
Depreciation
Other
Total

2016

2015

2016

¥12,948
21,944
2,340
159
154
1,227
11,229¥50,001¥13,290
21,419
2,231
271
377
1,377
10,723¥49,688$114,584
194,195
20,7081,407
1,363
10,85899,372$442,487

15. LEASES(As lessor)
Expected revenues from noncancelable operating leases at March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Due within one year
Due after one year
Total

2016

2015

2016

¥  507
3,116¥3,623¥  497
3,516¥4,013$ 4,487
27,575$32,06241

16. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group Policy for Financial Instruments
The Group uses financial instruments, mainly short-term and long-term debt including bank loans and bonds, based on its capital financing
plan. Cash surpluses, if any, are invested in low-risk financial assets. Derivatives are used, not for speculative purposes, but only for the
purpose of reducing exposure to financial risks as described in (2) below.

(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables—trade, such as trade notes and accounts, and electronically recorded monetary claims, are exposed to customer credit risk.
Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks arenetted against the balance of payables denominated in the same currency, of which positions are almost equal. In addition, foreign currency
receivables of certain consolidated subsidiaries are hedged by using forward foreign currency contracts. Investment securities, mainly equity
instruments of customers and suppliers of the Group and for alliance purposes, are exposed to the risk of market price fluctuations.
Payment terms of payables—trade, such as trade notes and accounts, and electronically recorded obligations, are less than one year.
Although payables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, those risks are netted
against the balance of receivables denominated in the same foreign currency, of which positions are almost equal, as noted above. In addition, foreign currency trade payables in certain consolidated subsidiaries are exposed to risk resulting from fluctuations in foreign currency
exchange rates. The risk is hedged by using forward foreign currency contracts.
Short-term bank loans and commercial paper are mainly used for general operating purposes, and long-term bank loans and bonds aremainly used for investment and strategy. Although a part of such bank loans and commercial paper, excluding bonds, is exposed to risk ofFinancial sectionchanges in variable interest rates, that risk is mitigated by using interest rate swaps. Bonds are not exposed to risk of changes in interest
rates as interest rates are fixed.
Derivatives mainly include forward foreign currency contracts, which are used to manage future cash flows, currency swaps and interest
rate swaps, which are used to manage risks from changes in interest rates of bank loans. Please see Note 17 for more detail about derivatives.

(3) Risk Management for Financial Instruments
Credit risk management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The
Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balancesof major customers by each business administration department to identify the default risk of customers at an early stage. To reduce thecounterparty risk, the Group enters into derivative transactions only with highly rated financial institutions. Please see Note 17 for detailabout derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2016.
Market risk management (foreign exchange risk and interest rate risk)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates.
Such foreign exchange risk is netted against the balance of receivables and payables, of which positions are almost equal. In addition,­certain consolidated subsidiaries hedge such risk principally by using forward foreign currency contracts.
Interest rate swaps and currency swaps are used to manage exposure to risks of changes in interest rates of loan payables.
Investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.
Derivative transactions of the Company are undertaken by the finance and accounting department and the procurement center andreported to directors or the Board of Directors based on internal regulations that prescribe the authority and maximum amount for eachtransaction. Derivative transactions of consolidated subsidiaries are undertaken by the finance and accounting department based on­internal regulation.
Liquidity risk management
The Group manages its liquidity risk by establishing a cash management plan according to reports from each department.

42

(4) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational valuation
techniques are used instead. Please see Note 17 for the details of the fair value of derivatives.
(a) Fair value of financial instruments

Cash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in associates
Total
Short-term bank loans
Current portion of long-term debt
Payables—trade
Income taxes payable
Long-term debt
Total

March 31, 2016

Thousands of U.S. Dollars

Fair Value

Unrealized
Loss

Carrying
AmountFair Value

Unrealized
Loss¥ 33,774
1,155
98,80051,4884,414¥189,631¥ 33,774
1,155
98,80051,4882,447¥187,664––––¥(1,967)¥(1,967)$  298,885
10,221
874,336455,646
39,062$1,678,150$  298,885
10,221
874,336455,646
21,655$1,660,743––––$(17,407)$(17,407)¥ 18,545
24,64868,153
2,752
92,423¥206,521¥ 18,545
24,683
68,153
2,752
92,845¥206,978–¥   (35)––(422)¥  (457)$  164,115
218,124
603,124
24,354
817,903$1,827,620$  164,115
218,434
603,124
24,354
821,638$1,831,665–$   (310)––(3,735)$ (4,045)

Millions of Yen
Carrying
AmountFair Value

Unrealized
Loss

Cash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in associates
Total¥ 31,776
851
105,00770,8684,419¥212,921¥ 31,776
851
105,00770,8683,620¥212,122––––¥(799)¥(799)

Short-term bank loans
Current portion of long-term debt
Payables—trade
Income taxes payable
Long-term debt
Total

¥ 22,656
25,702
78,0403,883
97,850¥228,131¥ 22,656
25,832
78,0403,883
98,216¥228,627–¥(130)––(366)¥(496)March 31, 2015

Financial section

Millions of Yen
Carrying
AmountCash and Cash Equivalents, Time Deposits, Receivables—trade, Short-Term Bank Loans, Current Portion of Long-Term Debt with Variable
Interest Rates, Payables—trade, and Income Taxes Payable
The carrying values of cash and cash equivalents, time deposits, receivables—trade, short-term bank loans, current portion of long-term
debt with variable interest rates, payables—trade, and income taxes payable, approximate fair value because of their short maturities. The
fair values of receivables—trade, payables—trade, and short-term bank loans include the fair values of foreign currency forward contracts
and interest rate swaps.
Investment Securities
The fair values of investment securities are measured at the quoted market price of the stock exchange for equity instruments and at thequoted price obtained from the financial institution for certain debt instruments. Fair value information for investment securities by classification is included in Note 3.

43

Long-Term Debt with Fixed Interest Rates
The fair values of long-term debt with fixed interest rates are determined by discounting the cash flows related to the debt at the risk-freerate plus credit spread or at the Group’s assumed corporate borrowing rate.
Derivatives
Fair value information for derivatives is included in Note 17.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of
U.S. Dollars

Millions of Yen

Securities that do not have a quoted market price in an active market:
Investment securities
Investments in unconsolidated subsidiaries and associated companies

2016

2015

2016

¥ 1,945
15,973¥ 1,978
13,491$ 17,212
141,354(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen
Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years¥ 33,774
1,155
98,800¥133,729

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2016

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years

Cash and cash equivalents
Time deposits
Receivable—tradeTotal$  298,885
10,221
874,336$1,183,442

–
–
–
–

–
–
–
–

–
–
–
–

Financial section

March 31, 2016

Cash and cash equivalents
Time deposits
Receivable—trade
Total

Thousands of U.S. Dollars

Please see Note 7 for annual maturities of long-term debt and the current portion of long-term debt.

17. DERIVATIVESThe Group enters into foreign currency forward contracts, interest rate swaps, and currency swaps. The Group does not hold or issue derivatives for trading or speculative purposes. Derivative transactions entered into by the Group have been made in accordance with internal
policies, which regulate hedging policy, authorization, credit limit, and reporting to management. Each derivative transaction is periodicallyreported to management, which evaluates and analyzes the derivatives. To reduce the counterparty risk, the Group enters into the derivativetransactions only with highly rated financial institutions. The contract amounts of derivatives which are shown in the following table do notmeasure the Group’s exposure to market risk.

44

(a) Derivative transactions to which hedge accounting is not applied at march 31, 2016 and 2015
Millions of Yen

At March 31, 2016

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Thai Baht
RMB
Selling:
U.S. dollar
Euro
Thai Baht
RMB

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain/(Loss)¥  198
211
480
0
49

–
–
–
–
–

¥ (5)
(1)
5
(0)
(3)

¥ (5)
(1)
5
(0)
(3)

3,502
185
271
74

–
–
–
–

36
(1)
4
0

36
(1)
4
0

Millions of Yen

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Thai Baht
H.K. dollar
RMB
Selling:
U.S. dollar
Euro
Thai Baht
RMB

Contract
AmountFair
Value

Unrealized
Gain/(Loss)¥  239
139
385
0
0
0

–
–
–
–
–
–

¥ (1)
(7)
(15)
0
(0)
0

¥ (1)
(7)
(15)
0
(0)
0

5,970
113
146
86

–
–
–
–

(49)
3
(5)
(2)

(49)
3
(5)
(2)

Financial section

At March 31, 2015

Contract
AmountDue after
One YearThousands of U.S. Dollars

At March 31, 2016

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Thai Baht
RMB
Selling:
U.S. dollar
Euro
Thai Baht
RMB

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain/(Loss)$ 1,752
1,867
4,248
0
434

–
–
–
–
–

$ (44)
(9)
44
(0)
(27)

$ (44)
(9)
44
(0)
(27)

30,991
1,637
2,398
655

–
–
–
–

319
(9)
35
0

319
(9)
35
0

45

(b) Derivative transactions to which hedge accounting is applied at march 31, 2016 and 2015
Millions of Yen

At March 31, 2016

Foreign currency forward contracts:
Hedge accounting:Selling:
U.S. dollar
Euro
Qualified for hedge accounting not remeasured
at market value:
Selling:
U.S. dollar
Euro
Currency swaps:
Yen payment, U.S. dollar receipt
Interest rate swaps:
Fixed rate payment, floating rate receipt

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Receivables—trade
Receivables—trade¥     30––

Receivables—trade
Receivables—trade

1
10

–
–

Short-term bank loans
and long-term debt

2,000

¥ 2,000

37,30033,900

Fair
Value

¥0
(0)

See Noteon thefollowing
page

Financial section

Millions of Yen

46

At March 31, 2015

Foreign currency forward contracts:
Hedge accounting:
Buying:U.S. dollar
Pound Sterling
Selling:
U.S. dollar
Qualified for hedge accounting not remeasured
at market value:
Buying:U.S. dollar
Pound Sterling
Selling:
U.S. dollar
Currency swaps:
Yen payment, U.S. dollar receipt
Interest rate swaps:
Fixed rate payment, floating rate receipt

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Payables—trade
Payables—trade¥   303
54

–
–

¥ 23
2

Receivables—trade

169

–

(22)

Payables—trade
Payables—trade

45
46

–
–

Receivables—trade

102

–

2,000

¥ 2,000

37,30037,300

Short-term bank loans
and long-term debt

Fair
Value

See Noteon thefollowing
pageThousands of U.S. Dollars

At March 31, 2016

Foreign currency forward contracts:
Hedge accounting:Selling:
U.S. dollar
Euro
Qualified for hedge accounting not remeasured
at market value:
Selling:
U.S. dollar
Euro
Currency swaps:
Yen payment, U.S. dollar receipt
Interest rate swaps:
Fixed rate payment, floating rate receipt

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Receivables—trade
Receivables—trade$    27
0––Receivables—trade
Receivables—trade

9
88

–
–

17,699$ 17,699

330,088

300,000

Short-term bank loans
and long-term debt

Fair
Value

$0
(0)

See Note
below

Note: Fair values of derivatives qualified for hedge accounting, which are not remeasured at market value, are included in the fair values of hedged items in Note 16.

18. COMMITMENTS AND CONTINGENT LIABILITIES­unconsolidated subsidiaries, associated and other companies and employees, including borrowings of ¥3,600 million ($31,858 thousand)by Yugen Kaisha Takakura Founding Corporation (“Takakura”).
The Company had an obligation to invest additionally in Takakura via an anonymous association contract with an upper limit of ¥524
million ($4,637 thousand) in the event that buildings owned by Takakura are destroyed or impaired by natural disaster.

Financial section

At March 31, 2016, the Group was contingently liable for ¥5,838 million ($51,664 thousand) for guarantees of loans and payables of47

19. OTHER COMPREHENSIVE (LOSS) INCOME
The components of other comprehensive (loss) income for the years ended March 31, 2016 and 2015, were as follows:
Thousands of
U.S. Dollars

Financial section

Millions of Yen

Unrealized gain on available-for-sale securities:(Loss) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred gain on derivatives under hedge accounting:(Loss) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effectTotal
Land revaluation surplus:
Income tax effectTotal
Foreign currency translation adjustments:
Adjustments arising during the year
Total
Defined retirement benefit plans:
Adjustments arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Share of other comprehensive (loss) income in associates:
Gain arising during the year
Reclassification adjustments to profit or loss
Total
Total other comprehensive (loss) income

2016

2015

2016

¥(17,029)(318)(17,347)
5,865(11,482)¥13,353(1,816)
11,537(2,925)8,612$(150,699)(2,814)(153,513)
51,902(101,611)

(3)
–
(3)
1
(2)

2
(1)
1
(0)
1

(27)
–
(27)
9
(18)

62
62

104
104

549
549

(1,699)(1,699)

2,357
2,357

(15,035)(15,035)(14,750)(1,486)(16,236)
5,122(11,114)

11,308(817)
10,491(3,307)
7,184(130,531)(13,150)(143,681)
45,327(98,354)

(81)
(0)
(81)

101
–
101

(717)
(0)
(717)

¥(24,316)¥18,359$(215,186)

20. SUBSEQUENT EVENT
a. Appropriations of retained earnings
The following appropriation of retained earnings at March 31, 2016, was approved at the Company’s shareholders’ meeting held on June
28, 2016:

Year-end cash dividends, ¥2.5 ($0.02) per share

Millions of Yen

Thousands of
U.S. Dollars¥1,067$9,442b. Share exchange with noncontrolling shareholders of Daido Kogyo
On May 31, 2016, the Board of Directors approved a plan for acquisition of shares of Daido Kogyo Co., Ltd. (“Daido Kogyo”), a consolidated
subsidiary of the Company, by issuing the Company’s shares to all the shareholders of Daido Kogyo in exchange for the shares of Daido
Kogyo. The Company entered into the share exchange agreement with Daido Kogyo on the same day.
The share exchange is planned on October 1, 2016 based on the assumption that the share exchange is approved by the shareholders’meeting of Daido Kogyo on June 29, 2016. This share exchange is made in order to strengthen the marketing initiatives in foreign countries
and to establish efficient business models for turbo materials business, magnetic and high alloy business.

48

The exchange ratio will be determined by the following formula:
Exchange ratio = ¥696 yen ($6.16) / the average of daily volume weighted average price of the Company during the period from August22, 2016 to September 16, 2016.
As a result of the transactions, the Company will own 100% of issued shares of Daido Kogyo.
c. Acquisition of treasury stocks
On May 31, 2016, the Board of Directors approved a plan for the acquisition of common stocks of the Company up to 10,000 thousand
shares in the amount of ¥5,000 million ($44,248 thousand) maximum, which represent 2.34% of the Company’s issued stocks (excluding
treasury stock), during the period from June 1, 2016 to August 19, 2016. The Company is to acquire shares from Tokyo Stock Exchange.

21. SEGMENT INFORMATION
Under ASBJ Statement No. 17, “Accounting Standard for Segment Information Disclosures,” and ASBJ Guidance No. 20, “Guidance on
Accounting Standard for Segment Information Disclosures,” an entity is required to report financial and descriptive information about its
reportable segments. Reportable segments are operating segments or aggregations of operating segments that meet specified criteria.
Operating segments are components of an entity about which separate financial information is available and such information is evaluatedregularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. Generally, segment
information is required to be reported on the same basis as is used internally for evaluating operating segment performance and deciding
how to allocate resources to operating segments.

The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s
management is being performed in order to decide how resources are allocated among the Group.
The Group has business divisions based on the nature of its products and services. Each division draws up strategies and operates its
own business.
The Group consists of five industries: “Specialty Steel,” “High Performance Materials and Magnetic Materials,” “Parts for Automobile andIndustrial Equipment,” “Engineering,” and “Trading and Service.” “Specialty Steel” industry consists of manufacturing of specialty steel for

Financial section

1. Description of Reportable Segments

automotive and industrial machinery parts.
“High Performance Materials and Magnetic Materials” industry consists of manufacturing of stainless steel, high alloy and magnetic
materials, titanium products and powder metals for automotive and industrial machinery, and electrical and electronic parts.
“Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging products, and otherproducts for automotive and industrial machinery parts.
“Engineering” industry consists of manufacturing and maintenance of steelmaking and environmental equipment, industrial furnaces,
and associated equipment.
“Trading and Service” industry consists of real estate-related services and welfare and other services.

2. Methods of Measurement for the Amounts of Sales, Profit, Assets, and Other Items for Each
­Reportable Segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “SUMMARY OF SIGNIFICANTACCOUNTING POLICIES.”
Reportable segment profit represents operating income.

49

3. Information about Sales, Profit, Assets, and Other Items is as Follows:
Millions of Yen
Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥170,514¥155,251¥ 99,680¥26,104¥ 9,029

Intersegment sales or transfers

83,637

17,53531,3992,506

10,583

Total¥254,151¥172,786¥131,079¥28,610Segment profit¥  7,561¥ 12,331¥  1,299

Segment assets

184,569

164,708

2016

Reconciliations

Consolidated¥460,578–¥460,578

145,660¥(145,660)–¥19,612¥606,238¥(145,660)¥460,578¥ 2,071¥ 1,173¥ 24,435¥      (3)¥ 24,432

126,795

17,956

16,575

510,603

25,073535,676

Sales

Other:
Depreciation and amortization

7,811

6,763

6,472

336

1,072

22,454–22,454

Investments in associated companies
accounted for by the equity method

4,839

4,648

408

84

–

9,979

378

10,357

Increase in property, plant, andequipment and intangible assets

7,670

6,906

7,044

245

1,340

23,205–23,205Reconciliations

Consolidated¥483,633

Financial section

Millions of Yen
Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥189,125¥161,758¥ 99,386¥22,904¥10,460¥483,633–

Intersegment sales or transfers

73,313

16,75630,907

2,532

10,630134,138¥(134,138)

–

Total

¥262,438¥178,514¥130,293¥25,436¥21,090¥617,771¥(134,138)¥483,633

Segment profit¥  3,178¥ 13,518¥  1,024¥ 1,652¥ 1,043¥ 20,415¥      (6)

¥ 20,409

Segment assets

199,313

185,699

119,238

19,24917,799541,298

47,292588,590

2015

Sales

Other:

50

Depreciation and amortization

7,831

7,213

6,037

351

1,005

22,437–22,437

Investments in associated companies
accounted for by the equity method

4,612

4,753

366

78

–

9,809

330

10,139

Increase in property, plant, andequipment and intangible assets

9,173

9,162

9,514

450

1,997

30,296–30,296

Thousands of U.S. Dollars
Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers$1,508,973$1,373,903$  882,124$231,009$ 79,902Intersegment sales or transfers

740,150

155,177

277,867

22,17793,655

Total$2,249,123$1,529,080$1,159,991$253,186

Segment profit$   66,911$  109,124$   11,496

Segment assets

1,633,354

1,457,593

2016

Reconciliations

Consolidated$4,075,911–$4,075,911

1,289,026$(1,289,026)–$173,557$5,364,937$(1,289,026) $4,075,911$ 18,327$ 10,381$  216,239$       (27) $  216,212

1,122,080

158,903

146,6814,518,611

221,885

4,740,496

Sales

Other:
Depreciation and amortization

69,12459,85057,274

2,973

9,487

198,708–

198,708

Investments in associated companies
accounted for by the equity method

42,823

41,133

3,611

743

–

88,3103,345

91,655

Increase in property, plant, andequipment and intangible assets

67,876

61,11562,336

2,168

11,859205,354–

205,354

4. Associated Information(1) Information about geographical areas
Sales
Millions of Yen
2016

Japan

¥358,914

North America¥20,793

Asia¥72,080

Other¥8,791

Total

Financial section

Notes: 1. Reconciliations of segment profit consisted of elimination of intersegment transactions.
2. ‌Reconciliations of segment assets and investments in associated companies consisted of corporate assets that were not allocated to any­reportable segments.
3. Segment profit was reconciled to operating income in the consolidated statement of income.

¥460,578

Millions of Yen
2015

Japan

¥372,854

North America¥21,497

Asia¥82,387

Other¥6,895

Total¥483,633

Thousands of U.S. Dollars
2016

Japan

$3,176,230

North America$184,009

Asia

Other

$637,876$77,796

Total$4,075,91151

(2) Information about impairment loss
Millions of Yen

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService¥2,318¥1,527¥1,189¥128¥435

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥2

¥2

¥0

¥0

¥2,4572016

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Impairment loss

$20,513$13,513$10,522$1,133$3,850Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥51
62

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥ 51
114

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

$451
549

–
–

–
–

–
–

–
–

2016

Impairment loss

Total

¥5,597

Millions of Yen

2015

Impairment loss

Total

¥2,461

Financial section

Thousands of U.S. Dollars

Total$49,531(3) Information about goodwill
Millions of Yen

2016

Amortization of goodwill
Balance of goodwill

Total

¥51
62

Millions of Yen

2015

Amortization of goodwill
Balance of goodwill

Total

¥ 51
114

Thousands of U.S. Dollars

2016

Amortization of goodwill
Balance of goodwill

52

Total

$451
549

Independent Auditor’s Report

Financial section•

53

Daido network

Offices & Branches

Specialty Steel
Address

Head Office

Tokyo Head OfficeOsaka Branch

Fukuoka Sales Office

Phone (Facsimile)

Urbannet Nagoya Building,1-10,
Higashisakura 1-chome,
Higashi-ku, Nagoya, Aichi
461-8581, Japan

81-52-963-7501(81-52-963-4386)

Daido Shinagawa Building, 6-35,
Konan 1-chome, Minato-ku,
Tokyo 108-8478, Japan

81-3-5495-1253(81-3-5495-6733)

Kogin Building, 1-1, Koraibashi
4-chome, Chuo-ku, Osaka 5410043, Japan

81-6-6229-6530(81-6-6202-8663)

13-2, Tenjin 1-chome, Chuo-ku,
Fukuoka 810-0001, Japan

81-92-771-4481(81-92-771-9384)

DAIDO PDM (Thailand) CO., LTD.
Daido Die & Mold Solutions Co., Ltd.
Daido Tienwen Steel Co., Ltd.
DAIDO AMISTAR (M) SDN. BHD.
DAIDO AMISTAR (S) PTE LTD
Daido Shizai Service Co., Ltd.
Daido Technica Co., Ltd.
Daido EcoMet Co., Ltd.
Riken Seiko Co., Ltd.
Tohoku Steel Co., Ltd.
Maruta Transport Co., Ltd.
Sakurai Kosan Co., Ltd.
Izumi Denki Kogyo Co., Ltd.
Kawaichi Sangyo Co., Ltd.

Daido network

Research Institute & Plants
Daido Corporate
Research &Development Center

30, Daido-cho 2-chome,
Minami-ku, Nagoya, Aichi
457-8545, Japan

81-52-611-2522(81-52-611-9004)

Chita Plant

39, Motohama-machi, Tokai, Aichi 81-562-33-3101
477-0035, Japan(81-562-33-1570)
81-562-33-7461(81-562-33-1550)

Chita Steel   Strip Plant

81-562-33-7465(81-562-33-1019)
30, Daido-cho 2-chome,
Minami-ku, Nagoya, Aichi
457-8545, Japan

81-52-611-2512(81-52-614-2492)

Shibukawa Plant

500, Ishihara, Shibukawa, Gunma 81-279-25-2000
377-0007, Japan(81-279-25-2040)

Kawasaki Techno
Center4-1, Yako 2-chome,
Kawasaki-ku, Kawasaki,
Kanagawa 210-0863, Japan

81-44-266-3760(81-44-266-3768)

Tsukiji Techno Center

10, Ryugu-cho, Minato-ku,
Nagoya, Aichi 455-0022, Japan

81-52-691-5181(81-52-691-5212)

Metal Powder Plant

Nippon Seisen Co., Ltd.
THAI SEISEN Co., Ltd.

Chita   Forging Plant

Hoshizaki Plant

High Performance Materials and Magnetic Materials

Daido Electronics Co., Ltd.
Daido Electronics (Suzhou) Co., Ltd.
Daido Electronics (Thailand) Co., Ltd.
Shimomura Tokushu Seiko Co., Ltd.
Intermetallics Japan Corporation
Nissei Seiko Co., Ltd.

Parts for Automobile and Industrial Equipment
Daido Castings Co., Ltd.
Fuji OOZX Inc.
FUJI VALVE (GUANGDONG) CORPORATION
Japan Drop Forge Co., Ltd.
Toyo Sangyo Co., Ltd.
Daido Star Techno Co., Ltd
Daido Precision Industries Ltd.

81-52-691-5186(81-52-691-5195)

OHIO STAR FORGE CO.

Engineering
Daido Machinery Co., Ltd.

Oji Plant

9-3, Kamiya 3-chome, Kita-ku,
Tokyo 115-0043, Japan

81-3-3901-4161(81-3-3901-8211)

Kimitsu Plant

1, Kimitsu, Kimitsu, Chiba
299-1141, Japan

81-439-52-1541(81-439-54-1280)

Takiharu Techno
Center9, Takiharu-cho, Minami-ku,
Nagoya, Aichi 457-8712, Japan

81-52-613-6801(81-52-613-6840)

Daido Kogyo Co., Ltd.

Nakatsugawa
Techno Center

1642-144, Nasubigawa,
Nakatsugawa, Gifu
509-9132, Japan

81-573-68-6171(81-573-68-6188)

Daido Bunseki Research Inc.

Daido Environment Engineering Co., Ltd.
Daido Plant Industries Co., Ltd.

Trading and Service
Daido Life Service Co., Ltd.
Star Info Tech Co., Ltd.
Life Support Co., Ltd.
Kisokoma Heights Co., Ltd.
Daido Steel (America) Inc.
(As of March 31, 2016)54

Corporate Name:

Daido Steel Co., Ltd.

Founded:August 19, 1916

Incorporated:

February 1, 1950

Office:(Head Office)Urbannet Nagoya Building, 1-10, Higashisakura 1-chome,
Higashi-ku, Nagoya, Aichi 461-8581, Japan
Phone: 81-52-963-7501
Facsimile: 81-52-963-4386(Tokyo Head Office)Daido Shinagawa Building, 6-35, Konan 1-chome,
Minato-ku, Tokyo 108-8478, Japan
Phone: 81-3-5495-1253
Facsimile: 81-3-5495-6733

Internet Address:

http://www.daido.co.jp/en/index.html

Number of Employees(Non-Consolidated:

3,210

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

434,487,693

Number of Shareholders:

23,425

Independent Auditor:

Deloitte Touche Tohmatsu LLC

Stock Exchange Listings:

Tokyo, Nagoya

Transfer Agent of Common Stock: The Chuo Mitsui Trust and Banking Company, Limited
Principal Shareholders:

For Further Information,
Please Contact:

NIPPON STEEL & SUMITOMO METAL CORPORATION
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
Mizuho Bank, Ltd.
NHK Spring Co., Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
HONDA MOTOR CO., LTD.
TOYOTA MOTOR CORPORATIONThe Master Trust Bank of Japan, Ltd. (Trust Account)
DENSO CORPORATIONC o r p o r at e D ata

Corporate Data (As of March 31, 2016)

Investor Relations(Head Office)Phone: 81-52-963-7516
Facsimile: 81-52-963-4386

55

Daido Steel Co., LTD.
Utilizing our strengths, aiming at further growth

annual report 2016

Printed in Japan

This annual report is printed on recycled paper.