ANNUAL REPORT 2019Year ended March 31, 2019

UTILIZING OUR STRENGTHS,
AIMING AT FURTHER GROWTH

THE COMPANYDAIDO 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

06

REVIEW OF OPERATIONS10RESEARCH AND DEVELOPMENT12CSR AND THE ENVIRONMENT

performance. These forward-looking statements are not

13

CORPORATE GOVERNANCE

and beliefs of Daido Steel’s management based on

14

OFFICERSFORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements
concerning DAIDO STEEL CO., LTD.’s and its Group
companies’ current plans, projections, strategies andhistorical facts. Rather, they represent the assumptions­information currently available.
They should therefore not be relied upon as thesole basis for evaluating the Company. Daido Steel also

15

FINANCIAL SECTION

51

DAIDO NETWORK

materially from expectations, and that forward-looking

52

CORPORATE DATA

uncertainties.

wishes to caution readers that actual results may differ
statements are subject to a number of risks andFINANCIAL HIGHLIGHTSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEARS ENDED MARCH 31

Thousands of
U.S. Dollars

Millions of Yen
2019

2018

2017

2016

2015

2019

For the Year:¥543,255¥505,219¥445,123¥460,578¥483,633$4,894,189

Operating Income

33,81536,21825,51424,432

20,409304,640Net Income Attributable to Owners of the Parent

21,182

23,921

16,386

6,746

10,886

190,829

R&D Expenses

5,638

5,419

6,206

5,766

5,301

50,793

Net Sales

Capital Expenditures

34,41335,60628,941

23,20530,296

310,027

Depreciation and Amortization

23,171

20,741

23,27622,454

22,437208,748

650,697

642,021574,169

535,676

588,590

5,862,135

Total Assets
Total Equity

318,140

316,410

290,501

268,346

292,406

2,866,126

Interest-Bearing Debt

174,998

160,352

142,599

136,114146,208

1,576,559

Number of Employees (Consolidated)

12,421

11,873

11,498

11,04010,855–

Number of Consolidated Subsidiaries

38

36

34

34

34

–

¥ 496.88¥ 561.08¥ 385.92¥ 156.22¥ 251.01

130.00120.00100.00

75.00

65.00

Per Share of Common Stock (Yen and U.S. Dollars):
Basic Net Income*Cash Dividends Applicable to the Year*

$

4.47
1.17

ROA (%)

5.3

5.9

4.8

4.5

3.8

–

ROE (%)

7.5

8.8

6.7

2.8

4.5

–

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 ¥111 to $1, the approximate rate of exchange at March 31, 2019.
* See the footnote on page 25.

NET SALESOPERATING INCOME

Years ended March 31

Years ended March 31

NET INCOME ATTRIBUTABLE TOOWNERS OF THE PARENT(millions of yen)(millions of yen)(millions of yen)

600,000

40,00025,000FINANCIAL HIGHLIGHTSAt Year-End:Years ended March 31

500,000

20,00030,000400,000
15,000300,000

20,00010,000200,000
10,0005,000

100,000

002015 2016 2017 2018 201902015 2016 2017 2018 20192015 2016 2017 2018 2019

01

MESSAGE FROM MANAGEMENTMESSAGE FROM MANAGEMENT

02

Overview of Results for Fiscal 2018
In fiscal 2018, the Japanese economy continued to see
moderate recovery in consumer spending as employment
and income conditions improved. With growth in capital
expenditures in the corporate sector as well, the economy
itself remained on a gradual recovery track. However, someweakness in industrial production and other soft spots
emerged in the economy heading into the fourth quarter.
In the U.S., the steady economic recovery continued asconsumer spending and capital expenditures increased. In
Europe, the modest economic recovery continued on theback of strong employment conditions, but also exhibitedsome stalling with Germany’s GDP growth trending flat. In
China, economic growth decelerated as exports declined,
but government stimulus measures are expected to provide support going forward.
Under these economic circumstances, the Daido SteelGroup’s key client industries such as automobiles and industrial equipment generally did well. Accordingly, steel sales
volumes increased year on year. However, demand declined
in some areas such as semiconductors. As for raw materials
and auxiliary materials, scrap steel prices generally increased
year on year due to robust domestic demand. Also, sharp
growth in prices for auxiliary materials including graphite electrodes used in steelmaking resulted in higher costs.

As a result, the Daido Steel Group’s net sales in fiscal
2018 increased by ¥38,036 million year on year to¥543,255 million, due to a rise in sales prices reflecting
higher prices for raw materials and auxiliary materials, aswell as growth in sales volumes. Ordinary income declinedby ¥1,787 million to ¥34,343 million, owing to impact fromhigher costs associated with a sharp rise in auxiliary material prices. Net income attributable to owners of the parent
decreased by ¥2,738 million to ¥21,182 million.

Outlook for Fiscal 2019
In fiscal 2019, the global economy is likely to lose somesteam and growth to slow. In the U.S., modest growth
should continue on the back of robust employment conditions, though slight deceleration is likely as tax cut benefits
fade. The Chinese economy is slowing due partially to
trade friction with the U.S., and while support from government stimulus measures is expected to keep the slowdown
modest, excessive debt and other risks exist. The Japanese
economy is also likely to decelerate, owing to weaker
external demand. Against this economic backdrop, in the
key U.S. and China markets we anticipate a slight decline
in demand for automobiles, a major source of demand.
Also, we expect recovery to take time for the semiconductors field, which is seeing sharp deceleration.

SPECIALTY STEELIn structural steel, we project slightly lower global demand for automobiles, a major source of demand for this steel. In tool steel, we
anticipate similar demand trends. As for costs, we expect prices toremain high for energy and auxiliary materials, such as graphite electrodes used for manufacturing, and will work to reduce costs to maintain sustainable margins. Further, we will pursue market penetration of
the newly applied surcharge system reflecting fluctuations in prices for
raw material alloys in tool steel.

HIGH PERFORMANCE MATERIALS AND MAGNETIC
MATERIALS
We expect high performance products like stainless steel, high alloys
and powder metal to see ongoing growth in sales volumes in theautomobile industry over the medium term, assuming improvementsin the fuel economy of internal combustion engines for automobiles
increase usage. To prepare for this medium-term growth, we areworking on bolstering manufacturing facilities. In magnetic products,
we are concentrating on the increasing use of electronics in automobiles and electrical applications and working hard to reduce costs.

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT
In free forgings, we are focusing on keeping up with ongoing brisk
demand for civil aircraft. In turbo-related products, we will strive togrow by tapping into expanding demand from an increasing ratio ofgasoline engines with turbos installed over the medium to long term.
In engine valves, we are continuing to work towards cost improvement
and mass production of hollow-head valves that contribute to improving the fuel consumption of automobiles.

ENGINEERING
We will keep working to expand sales of Premium STC® (Short Time
Cycle)—our mainstay STC® annealing furnace with a new combustion
system installed, vacuum carburizing furnaces for auto parts makers, androtary electric furnaces that lead to more energy-efficient steelmaking.

TRADING AND SERVICE
In the trading and service segment, demand should be at the samelevel as in 2018.

Based on the above, for fiscal 2019, the Daido SteelGroup forecasts consolidated net sales of ¥530.0 billion,
operating income of ¥31.0 billion, ordinary income of ¥31.5
billion, and net income attributable to owners of the parentof ¥24.0 billion.

Medium- to Long-Term Management Strategy
Initiatives to realize a sustainable society are a key global
theme. Even among our customers, reducing emissions
that contribute to global warming is a major topic, and highlevels of efficiency for the internal combustion engines ofautomobiles and jet engines of aircraft are required. In theautomobile industry moreover, the kind of major technological innovation only seen once every 100 years is aboutto occur, such as the diversification of power trains to proliferate the use of electronics and similar devices and the
expanding use of automated cars and connected cars.
Furthermore, the digital revolution marches onward,
capitalizing on big data, AI (artificial intelligence) and IoT(Internet of Things), and ushering in transformations in awide variety of industries. As a result, the Daido SteelGroup expects that demand for semiconductors will
increase and the automation of various processes andsuchlike by robots will develop further.
In this business environment, we formulated our
medium-term business plan (Daido Steel Group 2020
Mid-Term Management Plan), a three-year plan throughfiscal 2020 (the fiscal year ending March 31, 2021). We
also set our basic management policy as “Beyond theSpecial: We support our customers’ technological innovations by supplying high performance materials.” We will
put that policy into practice. For instance, we will supply
high alloys and stainless steel that are highly resistant toheat and corrosion for higher efficiency jet engines andinternal combustion engines in automobiles, high performance powder products and high performance magnets
for the increasing use of electronics in automobiles, andsoft magnetic materials for the expanding use of automated cars. We will also deliver products for the digital
revolution, such as super-clean stainless steel needed forsemiconductor manufacturing equipment and high performance magnets required for increasing use of automation
and robots. By supplying the high performance materials
that our customers need, we will firmly support theirevolutionary and technological innovations.

MESSAGE FROM MANAGEMENT

We need to keep a close eye on uncertainties that canhave an impact on the global economy, including the U.S.’sprotectionist policies and the U.K.’s exit from the European
Union. In addition, the Daido Steel Group recognizes theongoing need to monitor risks that could have an impact
on the Group, such as the risk of weaker demand due toforeign exchange fluctuations and the risk of price fluctuations in raw materials and fuel.
Given these conditions, our segment forecasts for the
coming fiscal year are as follows.

June 2019

Takeshi Ishiguro
President

03

AT A GLANCE

AT A G L A N C E

SPECIALTY STEELHIGH PERFORMANCE MATERIALSAND MAGNETIC MATERIALSMAIN 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 material
sales, transportation and logistics

Stainless steel, nickel-based alloys, electrical and electronic 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, steelmaking
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 SALESSHARE OF NET SALESSHARE OF NET SALES

(%)

(%)

(%)

38.2%

34.0%

20.2%

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
2018

2019

0
2018

2019

2018

2019

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

30,000

4,000

6,000

3,000

20,000

4,000

2,000
10,000

2,000

1,000

0

0
2018

04

PARTS FOR AUTOMOBILE AND
INDUSTRIAL EQUIPMENT

2019

0
2018

2019

2018

2019

ENGINEERING

TRADING AND SERVICE

MAIN PRODUCTS

Steelmaking equipment, industrial furnaces
and facilities, environmental equipment (fordrainage, exhaust, waste disposal andtreatment 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 SALESSHARE OF NET SALES

(%)

(%)

5.1%

AT A G L A N C E

MAIN PRODUCTS

2.5%

NET SALES Years ended March 31

NET SALES Years ended March 31(millions of yen)(millions of yen)

30,00030,00020,00020,00010,00010,000

0

0
2018

2019

2018

2019

OPERATING INCOME Years ended March 31

OPERATING INCOME Years ended March 31(millions of yen)(millions of yen)

3,000

3,000

2,000

2,000

1,000

1,000

0

0
2018

2019

2018

2019

05

REVIEW OF OPERATIONSSPECIALTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates

Sales volume for structural steel increased year on year as

approximately 38% of consolidated net sales. Specialty steel is

automobile-related demand was brisk and demand for industrial

made by combining steel with alloys to add value in the form ofmachinery was robust. Sales volume for tool steel also rose year

properties such as resistance to heat, abrasions or rust.

on year, driven by strong momentum in the automobile field.

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

The cost of steel scrap, the main raw material, was generally

ing the types and amount of alloy, one of the special features ofhigher year on year due to strong domestic demand. A sharp

the business is that products are developed to meet the specificrise in prices for auxiliary materials such as graphite electrodes

applications required by users. The automobile and industrial

used in steelmaking also led to higher costs. Sales prices

machinery sectors are the primary users of specialty steel,increased year on year, reflecting the rise in raw material andaccounting for about 80% of sales in this business segment.

auxiliary material prices.
As a result, the specialty steel segment’s net sales in fiscal
2018 increased 9.9% year on year to ¥207,744 million, due
primarily to higher sales volume and an increase in sales prices

R E V I E W O F O P E R AT I O N S

reflecting higher raw material and auxiliary material prices.
­Operating income decreased by ¥479 million to ¥5,998 million,
owing to the impact of higher costs associated with a steep
increase in auxiliary material prices.

Tool steel from Daido Steel06

HIGH PERFORMANCE MATERIALS AND MAGNETIC MATERIALS
Overview of BusinessResults of Operations

This segment, which accounts for roughly 34% of consolidated

Sales volumes of stainless steel products and high alloys

net sales, manufactures and sells high performance materials

increased year on year, driven by brisker demand amid theand magnetic materials used chiefly in automobiles, computers,

movement to make automobiles more fuel efficient. However,mobile phones and consumer electronics.

semiconductor-related products were affected by capital expen-

Key products include stainless steel products, rare earth

ditures being delayed worldwide and magnetic products bymagnets, high alloys, titanium products, and high performancelower automobile sales in China, such that both saw a decline inpowder metal products.

sales volume along with inventory adjustments. Net sales ofpowder metal products increased, due to an increase in sales
prices reflecting higher raw material prices.
As a result, net sales for the high performance materials andmagnetic materials segment in fiscal 2018 increased 8.1% year
on year to ¥184,554 million, reflecting higher sales volumes forhigher sales prices. Operating income decreased ¥1,501 million
to ¥20,694 million, owing mainly to lower sales volumes for­semiconductor-related stainless steel and magnetic products.

R E V I E W O F O P E R AT I O N S

stainless steel and high alloys used in automobiles, along withNEOQUENCH-DR (Nd-Fe-B ring magnets) for EPS motors

07PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT
Overview of BusinessResults of Operations

This segment contributes around 20% of consolidated net

Net sales of free forged products increased year on year as

sales. It manufactures die forged parts such as crankshafts

strong aircraft-related demand outweighed a decline inusing specialty steel, precision cast parts for use in turbo-

semiconductor-related demand in the fourth quarter. Net sales

chargers, as well as engine valves, jet engine shafts and partsof die forged products and engine valves rose year on year,for gas turbines. Most of the auto parts sold in this segment use

reflecting brisk automobile production. Net sales of precisionmaterials that were developed through joint projects with auto-

cast products increased year on year, owing to ongoing growthmakers to meet their exacting requirements. These parts canin demand for turbine housing. However, turbine wheels

therefore lower processing expenses at customers’ factories as

experienced inventory adjustments, due mainly to a decline inwell as contribute to reducing the weight of finished products.

automobile sales in China.

R E V I E W O F O P E R AT I O N S

In this segment, Daido Steel has a high market share in
numerous product categories, including aircraft jet engine

industrial equipment segment for fiscal 2018 increased 3.4%

shafts, automobile engine valves and turbine wheels. We will

year on year to ¥109,929 million, chiefly on a contribution fromcontinue to develop and launch new products that differentiate

sales volume growth. Operating income decreased by ¥761

us from competitors and support our position as a provider ofmillion to ¥2,309 million, as a sharp rise in auxiliary material

advanced parts

prices pushed up costs.

In addition to specialty steel supplied by the specialty steel
segment of the Group, some materials used in this segment are
manufactured in-house.

Jet engine shaft

08

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

This segment generates about 5% of consolidated net sales.

Net sales in the engineering segment for fiscal 2018 increased

Major activities include the design and manufacture of, and10.7% year on year to ¥27,529 million, as companies’ capital

related after-sales services for, melting and refining equipment

expenditures were strong, and operating income rose ¥455

such as arc furnaces and ladle furnaces (LF), heat treatment

million to ¥2,292 million.

furnaces for auto parts such as vacuum carburizing furnaces
and STC® (Short Time Cycle) annealing furnaces, and environmental equipment such as sewage sludge carbonization furnaces and automobile tunnel filters, as well as machine tools.
With respect to heat treatment furnaces for auto parts inparticular, the operation and engineering technologies we havefostered over the years support our cutting-edge engineeringbusiness worldwide, in which we constantly maintain a grasp oftechnologies that this segment has created contribute toimprovements in quality for customers and energy reduction ina wide variety of settings.
Daido Arc Process (DAP)R E V I E W O F O P E R AT I O N S

current market needs. The many new types of equipment and

TRADING AND SERVICE
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 2018

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

declined 4.8% year on year to ¥13,499 million, while operatingucts made by Group companies, employee benefits services,income decreased by ¥158 million to ¥2,527 million. These

real estate and insurance services, golf course management,

decreases partly reflected lower sales at the China trading

analytics, and sales of software to external customers.

­subsidiary from a slowdown in domestic demand in China.

09

RESEARCH AND DEVELOPMENT

Leveraging its advanced technology capabilities in specialty steel, the Daido SteelGroup has declared its management philosophy of “pursuing the potential ofmaterials to support our future,” and conducts a proactive program of research anddevelopment (R&D) to expand new products and businesses and strengthen thefoundations for existing businesses.
We are pursuing R&D for new products, materials and technologies, primarily
through the Daido Corporate Research & Development Center. We employ a totalof 303 researchers throughout the Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥5,638 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

(1) Specialty SteelRESEARCH AND DEVELOPMENT

In this segment, R&D includes basic material development,

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

8,000
6,000
4,000
2,000
0
2016 2017 2018 2019(2) High Performance Materials andMagnetic Materials

such as automotive structural materials and tool steel, andIn this segment, the Daido Steel Group conducts R&D focusing

process innovations ranging from steelmaking, refining andon developing materials that resist corrosion and heat, high-solidification to quality assurance.

grade strip steel, welding materials, magnetic materials andR&D costs for the fiscal year under review in this segment
totaled ¥1,593 million. The following is one of our major

electronic devices.
R&D costs for the fiscal year under review in this segment

achievements in this area.

totaled ¥2,660 million. The following are some of our major• DHA-HS1 steel for hot stamping diesachievements in this area.

Hot stamping is a process that enables parts with ultra-high• DNM140-HCR, a high-strength stainless steel withtensile strength exceeding 1 GPa to be manufactured by forming a steel sheet while it is extremely hot and then rapidly cooling

outstanding corrosion resistance for non-magnetic
drill collars

it in the die. As the use of ultra-high tensile materials is increas-

In recent years, the environment for materials used in oil drillinging to make vehicles lighter, there has been a need for dies withhas become more severe due to developments such as a shift

wear resistance suitable for the cooling capacity and high tem-from onshore to offshore drilling or drilling at increasing depths.

perature of the hot stamping process. Optimizing the composi-This has resulted in a need for non-magnetic drill collars withtion of the steel enhances thermal conductivity and softening

higher corrosion resistance. DNM140-HCR stainless steel has

resistance and the cooling capacity and wear resistance of thereceived praise from North American oil service companies fordie can be expected to improve. We aim to expand the adop-

providing outstanding corrosion resistance while maintaining ation of DHA-HS1 by pressed parts manufacturers.

high strength. We have begun selling it as a high-strength andhighly corrosion-resistant material for drill collars used in severe
environments.

10• NCT, a sputtering target material for interconnection(3) Parts for Automobile and Industrial Equipmentwith protective layers for in-vehicle touch panels

R&D in this segment concentrates on development of turbo-

We developed NCT, an alloy target material for wire protection

chargers, engine valves and other automotive parts, as well as

film that offers outstanding environmental resistance, which isparts for various types of industrial machinery.
R&D costs for the fiscal year under review in this segmentwith an eye to touch panel displays, which are being increasingly

totaled ¥1,253 million. The following is one of our major

used in automobile center consoles and navigation systems.

achievements in this area.

Since NCT has superior corrosion resistance enabling wet• DSA760 certified for use in marine engine exhaust­etching and is non-magnetic, it offers high levels of productivity

valves by world’s largest manufacturer

and suitability for our customers’ deposition processes.

In July 2018, DSA760 obtained certification for use as a material• Neodymium magnet, free of heavy rare earth

for marine engine exhaust valves from the world’s largest manu-

elements, also adopted for use in high-output,

facturer of two-stroke diesel engines for marine use, which has

high-torque motors for mid-sized hybrid vehicles

a market share of just over 70%. This is the second certification

This plate magnet that Daido Electronics Co., Ltd., a member

for use, following that received in April 2016 from the biggestof the Daido Steel Group, manufactures using its proprietary hot

domestic marine engine manufacturer.

deformation method has been adopted for use in a Japanese
automaker’s dual motor hybrid system for new hybrid vehicle(4) Engineeringmodels. This type of magnet has been used in compact hybrid

Engineering R&D focuses on the development of environmental

vehicles since 2016. As a result of manufacturing processconservation and recycling equipment, and a variety of energy­

improvements, it has also been adopted for use in motors forsaving industrial furnaces.

mid-sized hybrid vehicles that require even higher levels of
output and torque.

R&D costs for the fiscal year under review in this segment
totaled ¥130 million.

RESEARCH AND DEVELOPMENT

required at high levels for in-vehicle applications. We designed it

11CSR AND THE ENVIRONMENT

Basic Policy

throughout the year, which brought about a 3% improvement in

The Daido Steel Group considers it extremely important forCO2 emissions per ton of production. Thereafter, we continued

contemporary corporations to take on a role that extends

to take steps such as introducing ladle preheating oxygen

beyond economic activities and to contribute to the sustainable

combustion in the steelmaking process and making operational

development of society through environmentally conscious

advancements to electric furnace input power control, resulting

activities and involvement in the resolution of social issues.

in further improvements in CO2 emissions in fiscal 2018.

The Daido Steel Group is playing a part in helping to create

Going forward, in accordance with the objectives of thea recycling-oriented economy and society through its primaryCommitment to a Low Carbon Society ongoing plan for fiscal

business operations: the manufacture and sale of specialty steel

2013 to fiscal 2020 formulated by one company in the Japanlargely created from recycled scrap steel. Daido Steel is also

Business Federation (Keidanren) and one company in the Japan

engaged in a broad range of initiatives, including developing a

Iron and Steel Federation, we will continue implementing further

variety of environmental activities, abiding firmly by our corpo-

reform measures, such as introduction of energy-saving advanced

rate ethics, striving for disclosure to increase the transparency

technologies, reductions in the number of heat exchangers,of management, and creating a safe and pleasant place for

improvements in the yield ratio, and production in optimal areas.

employees to work.

CSR AND THE ENVIRONMENTStrengthening the CSR Promotion Framework

Major Initiatives

The Daido Steel Group has responded to the needs of ourPreventing Global Warming

various stakeholders by establishing the Human Resources

The first commitment period for the Kyoto Protocol ran fromLabor Committee and various other committees as parent

2008 to 2012. In that time frame, Daido Steel aimed to reduceorganizations to support CSR activities, such as the Environment

its CO2 emissions volume by 10% compared to the 1990 level

and Energy Committee. With a view to further strengthening thisin accordance with the guidelines of the Japan Iron and Steelframework, in fiscal 2007, the CSR Committee was established

Federation. We worked to achieve this goal by such measures

to supervise general CSR activities. Members of the CSR

as expanding the use of exhaust heat recovery in heating fur-Committee formulate Group-wide policies and action plans withnaces, shifting our fuel source from heavy oil to natural gas, andthe aim of unifying and expanding CSR activities across all

improving the yield ratio through an increase in the ratio of pro-Group companies and divisions.
Starting January 2013, the Environment and Energy

duction by continuous casting. Due to the effects of cumulative
investments of roughly ¥5.0 billion made from 2006 to 2012,

Committee was split into two independent committees

operational improvements and changes in production levels,(namely, the Environment Committee and the Energy

annual CO2 emissions from 2008 to 2012 decreased by 24.7%

Committee) to promote CSR activities in a more fulfilling way.

on average. In addition, in fiscal 2014, a cutting-edge, energy-* For details, please refer to the annually issued CSR Report.
URL: http://www.daido.co.jp/csr/data/report.html (Japanese only)

efficient electric arc furnace was installed at the Chita Plant at
a cost of ¥19.8 billion. This generated rationalizing effects

ENERGY UNIT AND CO2 EMISSIONS VOLUME
Kg of CO2/
ton of production

1,000 tons
CO2/year

2,000

800

1,500

600

1,000

400

500

200

0
05

06

07

08

09

10

11

12

13

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

12

14

15

16

17

18

0
19 (Forecast)(Base year: FY2005)

CORPORATE GOVERNANCE

Basic Policy

Internal Control System

Daido Steel views corporate governance as one of the key

Risk Management Initiatives

issues for management in today’s rapidly changing business

Daido Steel emphasizes risk management and legal com­plianceenvironment. We strive to increase management efficiency,

in its management. Specifically, the Company has set out basic

accelerate and improve decision-making, and ensure manage-

points for risk management in the Risk ­Management Regulations.

ment transparency.

In addition, we have established a ­Corporate Risk Management

In addition to determining the Daido Steel Group ­Management
Philosophy and Guidelines, the Company has also establishedthe Daido Steel Corporate Code of Ethics to clarify its responsi-(CRM) Committee to discuss management of projected­upcoming and latent risks within the Group.
The Company has appointed a director who is responsible

bilities as a corporation that contributes to society. Throughfor the Company-wide supervision of risk management andthese measures, the ­Company endeavors to maintain its

compliance.

­foundation as a ­corporation that is open to society.

The Company has formulated regulations for emergency

Governance System

issue, with the purpose of promptly sharing information with

Daido Steel uses an Audit & Supervisory Board system. By

concerned parties, speedy and smooth response to the issue,

using a system that supervises and oversees business execution

and minimizing the impact on business activities. The Company

through a Board of Directors, including three external directors,

disseminated the regulations to all employees and Group com-and an Audit & Supervisory Board, including two external Audit

panies while determining rules for emergency countermeasures& Supervisory Board members, Daido Steel enhances its

and contact systems with the Group companies. The Company­corporate governance, optimizes and accelerates decision­and Group companies also participate in Group CRM study

making and secures fair and ­transparent management.

sessions for information exchange and the study of auditing
techniques related to risk management, compliance, internal
controls and other topics.

C O R P O R AT E G O V E R N A N C E

countermeasures in the event of a major accident or other

Efforts to Enhance Compliance
Daido Steel has established the Daido Steel Corporate Code of
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 the purpose of consultation and reporting on compliance for employees in charge of risk
management and compliance, as well as directors in charge ofmanagement, divisions in charge, and outside attorneys.

Efforts to Ensure the Reliability of Financial Reporting
The Daido Steel Group prescribes the basic points for system
improvement and operation in the Internal Control Regulations
to ensure the reliability of financial reporting and enhance thelevel of response of the Company and Group companies to
J-SOX, and has established a CRM Committee.

13

MECHANISM FOR BUSINESS EXECUTION, AUDIT, SUPERVISION AND INTERNAL CONTROL(As of June 26, 2019)

Shareholders’ Meeting
Election and dismissal

Election and dismissal

Election and dismissal

Audit &
Supervisory Board
3 auditors including
2 external auditors

Board of Directors
10 directors including
3 external directors

AuditsMutualcooperation

President andChief Executive Officer

Accounting
Auditor(independent auditor)

Accounting audit

Deliberation ofimportant matters,
etc.

Mutualcooperation
Corporate Risk
Management Department*

AuditsInternal Audit
Division

AuditsCommittees

Management Meeting
Executive Board

Business divisions

Internal audits

Risk Management
Division

CRM Committee,
etc.

Advises and supports

Consults and reports

CORPORATE GOVERNANCE
OFFICERSGroup companies

14

OFFICERSCHAIRPERSON OF THE
BOARD OF DIRECTORS,REPRESENTATIVEEXECUTIVE DIRECTORPRESIDENT & CEO,REPRESENTATIVEEXECUTIVE DIRECTOR

REPRESENTATIVE EXECUTIVE DIRECTORS,EXECUTIVE VICE PRESIDENTS

Tadashi Shimao

Takeshi Ishiguro

Tsukasa Nishimura

Kazuto Tachibana

DIRECTORS, MANAGINGEXECUTIVE OFFICERSDIRECTOR,EXECUTIVE OFFICERDIRECTORS (OUTSIDE DIRECTORS)Satoshi Yoshida

Akihito Kajita

Shuji Soma

Hajime Amano

Hitoshi Tanemura

Mutsuko Jinbo

MANAGING EXECUTIVE OFFICERSEXECUTIVE OFFICERS

Kazuhiko Hirabayashi

Hiroshi Matsui

Toshiaki Yamashita

Ikuo Sugie

AUDIT AND SUPERVISORY
BOARD MEMBERS

Yoshiaki Mori

Tetsuya Shimizu

Tadayuki Kashima

Hisashi Hirose

Susumu Shimura

Hirotaka Yoshinaga

Kazuhiro Toshimitsu

Tatsushi Iwata

Kiyoshi Mizutani

Takaaki Taketsuru

Yuji Noguchi

Tatsuya Ishihama

Kenji Matsuo

FINANCIAL SECTIONFINANCIAL SECTIONCONTENTS
16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

20

CONSOLIDATED BALANCE SHEET22

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

50

INDEPENDENT AUDITOR’S REPORT

15

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

increased by ¥38,036 million year on year to ¥543,255 million,

In fiscal 2018, the Japanese economy continued to see moder-

due to a rise in sales prices reflecting higher prices for raw

ate recovery in consumer spending as employment and income

materials and auxiliary materials, as well as growth in salesconditions improved. With growth in capital expenditures in thevolumes. Ordinary income declined by ¥1,787 million tocorporate sector as well, the economy itself remained on a¥34,343 million, owing to impact from higher costs associatedgradual recovery track. However, some weakness in industrial

with a sharp rise in auxiliary material prices. Net income attribut-

production and other soft spots emerged in the economy head-able to owners of the parent decreased by ¥2,738 million toing into the fourth quarter. In the U.S., the steady economic¥21,182 million.

As a result, the Daido Steel Group’s net sales in fiscal 2018

recovery continued as consumer spending and capital expendi-

FINANCIAL SECTION

tures increased. In Europe, the modest economic recovery
continued on the back of strong employment conditions, but

BUSINESS SEGMENT PERFORMANCE

also exhibited some stalling with Germany’s GDP growth trend-

Specialty Steeling flat. In China, economic growth decelerated as exports

Sales volume for structural steel increased year on year as

declined, but government stimulus measures are expected toautomobile-related demand was brisk and demand for industrial

provide support going forward.

machinery was robust. Sales volume for tool steel also rose year

Under these economic circumstances, the Daido Steelon year, driven by strong momentum in the automobile field.

Group’s key client industries such as automobiles and industrial

Further, manufacturing costs increased, owing to the steep riseequipment generally did well. Accordingly, steel sales volumes

in prices for auxiliary materials and steel scrap, as mentioned

increased year on year. However, demand declined in someabove. Sales prices increased year on year, reflecting the rise inareas such as semiconductors. As for raw materials and auxiliary

raw material and auxiliary material prices.

materials, scrap steel prices generally increased year on year

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

due to robust domestic demand. Also, sharp growth in prices

2018 increased 9.9% year on year to ¥207,744 million, due

for auxiliary materials including graphite electrodes used inprimarily to higher sales volume and an increase in sales prices

steelmaking resulted in higher costs.

reflecting higher raw material and auxiliary material prices.
Operating income decreased by ¥479 million to ¥5,998 million,
owing to impact from higher costs associated with a steep
increase in auxiliary material prices.

NET SALESOPERATING 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

40,000450,000

30,000300,000

20,000150,000

10,0000

20,00010,000

0

0
2017

16

30,000

2018

2019

2017

2018

2019

2017

2018

2019

High Performance Materials and Magnetic
Materials

Parts for Automobile and Industrial Equipment

Sales volumes of stainless steel products and high alloys

strong aircraft-related demand outweighed a decline inincreased year on year, driven by brisker demand amid the­semiconductor-related demand in the fourth quarter. Net sales

movement to make automobiles more fuel efficient. However,of die forged products and engine valves rose year on year,

semiconductor-related products were affected by capital expen-

reflecting brisk automobile production. Net sales of precision

ditures being delayed worldwide and magnetic products bycast products increased year on year, owing to ongoing growth

lower automobile sales in China, such that both saw a decline inin demand for turbine housing. However, turbine wheels experi-

sales volume along with inventory adjustments. Net sales of

enced inventory adjustments, due mainly to a decline in auto-

powder metal products increased, due to an increase in sales

mobile sales in China.

prices reflecting higher raw material prices.
As a result, net sales for the high performance materials andNet sales of free forged products increased year on year as

As a result, net sales in the parts for automobile and industrial equipment segment for fiscal 2018 increased 3.4% year on

magnetic materials segment in fiscal 2018 increased 8.1% year

year to ¥109,929 million, chiefly on a contribution from sales

on year to ¥184,554 million, reflecting higher sales volumes forvolume growth. Operating income decreased by ¥761 million

stainless steel and high alloys used in automobiles, along withto ¥2,309 million, as a sharp rise in auxiliary material prices

higher sales prices. Operating income decreased ¥1,501 million

pushed up costs.

to ¥20,694 million, owing mainly to lower sales volumes for

FINANCIAL SECTION­semiconductor-related stainless steel and magnetic products.

17

Engineering

RESEARCH AND DEVELOPMENT

Net sales in the engineering segment for fiscal 2018 increased

R&D costs for the entire Daido Steel Group during the fiscal

10.7% year on year to ¥27,529 million, as companies’ capital

year under review totaled ¥5,638 million. The research objec-

expenditures were strong, and operating income rose ¥455

tives, main achievements and R&D costs in each businessmillion to ¥2,292 million.

segment were as follows:

Trading and Service(1) Specialty SteelNet sales in the trading and service segment for fiscal 2018

Daido Steel bears the principal responsibility for carrying out

declined 4.8% year on year to ¥13,499 million, while operating

specialty steel R&D. Research areas include basic material

income decreased by ¥158 million to ¥2,527 million. Thesedevelopment, such as automotive structural steel and tool steel.

decreases partly reflected lower sales at the China trading

Other areas of emphasis are development of process innova-

subsidiary from a slowdown in domestic demand in China.

tions ranging from steelmaking, refining and solidification toquality assurance for finished products.
Specialty steel R&D costs during the fiscal year underreview totaled ¥1,593 million.

(2) High Performance Materials and Magnetic
Materials
FINANCIAL SECTION

Development of materials that resist corrosion and heat, highgrade strip steel, welding materials, electromagnetic materials,
and other basic materials, as well as R&D of electronic devices,
is conducted mainly by Daido Steel. R&D costs in this segment
during the fiscal year under review amounted to ¥2,660 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

50,0002019

2018¥11,011¥ 8,20734.2

12,776

12,0875.7

9,704

14,139(31.4)

268

254

5.5

10,000652

919(29.1)

0¥34,413¥35,606(3.4)

Change (%)

40,00030,00020,000

2017

2018

2019

(3) Parts for Automobiles and Industrial Equipment

FINANCIAL POSITION

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

Cash Flows

concentrates on development of turbochargers, engine valves

Cash and cash equivalents as of March 31, 2019 amounted toand other automotive parts, and parts for various types of¥40,729 million, representing an increase of ¥469 million year

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

on year.

in this segment totaled ¥1,253 million.

Cash Flows from Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥28,114

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, a decrease of ¥2,929 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.

¥33,111 million.

Engineering R&D costs during the fiscal year under review were¥130 million.

Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥33,708 million,(5) Trading and Service

an increase of ¥3,491 million from the previous fiscal year. The

There are no R&D activities in this segment.

major cash outflows included ¥34,355 million in purchases ofCash Flows from Financing Activities
Net cash provided by financing activities was ¥5,589 million, an
increase of ¥111 million from the previous fiscal year. The main
cash inflow was proceeds of ¥10 billion from the issue ofcorporate bonds.

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
2017

2018

2019

19

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2019

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

FINANCIAL SECTIONASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 15)
Time deposits (Notes 7 and 15)
Receivables:
Trade (Note 15)
Other
Total receivables
Inventories (Note 4)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

PROPERTY, PLANT, AND EQUIPMENT:Land (Note 7)
Buildings and structures (Notes 5 and 7)
Machinery and equipment (Notes 5 and 7)
Construction in progress
Total
Accumulated depreciation
Net property, plant, and equipment

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 3, 7 and 15)
Investments in unconsolidated subsidiaries
and associated companies (Note 15)
Asset for employees’ retirement benefits (Note 8)
Deferred tax assets (Note 10)
Other investments and assets
Total investments and other assets
TOTAL

20

2019

2018

2019

¥   40,729
1,006¥   40,259
1,909$   366,928
9,063

132,800
1,142
133,942
132,5474,919(62)
313,081

134,153
1,330
135,483
115,0644,658(65)297,308

1,196,397
10,2881,206,685
1,194,117
44,315(559)
2,820,549

36,291
199,552
499,787
7,946
743,576(517,498)
226,078

36,083
190,688
485,110
5,953
717,834(505,805)
212,029

326,946
1,797,766
4,502,586
71,585
6,698,883(4,662,144)
2,036,739

70,95585,154

639,234

18,144
14,802
2,577
5,060
111,538

21,10919,1392,396
4,886
132,684

163,460
133,351
23,21645,586
1,004,847¥ 650,697¥ 642,021$ 5,862,135

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term borrowings (Notes 6 and 15)
Current portion of long-term debt (Notes 6, 7 and 15)
Payables:Trade (Notes 7 and 15)
Acquisitions of property, plant, and equipment
Total payables
Income taxes payable (Note 15)
Accrued expenses
Provision for environmental measures
Other current liabilities (Note 7)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 6, 7 and 15)
Liability for employees’ retirement benefits (Note 8)
Retirement allowance for directors and Audit & Supervisory Board members
Provision for environmental measures
Deferred tax liabilities (Note 10)
Other long-term liabilities
Total long-term liabilities

2019

2018

2019

¥ 66,673
26,493¥ 50,156
30,909$  600,658
238,676

87,361
13,260100,621
5,372
12,634
1,176
8,122
221,091

90,381
13,866104,247
7,447
12,915653
5,812
212,139

787,036
119,459
906,495
48,396
113,820
10,59573,171
1,991,811

81,622
10,330792
3,039
12,8292,854
111,466

78,981
9,642
798
3,086
18,272
2,693
113,472

735,333
93,063
7,135
27,378
115,577
25,712
1,004,198

37,17230,286203,299

37,17230,337
187,799334,883
272,847
1,831,522(3,652)(3,644)(32,901)

17,496(0)
1,538

27,4980
1,805

984(1,615)

1,756
1,712

285,508
32,632
318,140

284,435
31,975
316,410

157,622(0)
13,856
8,865(14,550)
2,572,144
293,982
2,866,126¥650,697¥642,021$5,862,135

COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
EQUITY (Note 9):
Common stock:
Authorized: 116,000 thousand shares
Issued: 43,448 thousand shares in 2019 and 2018
Capital surplus
Retained earnings
Treasury stock, at cost:
819 thousand shares in 2019 and 817 thousand shares in 2018
Accumulated other comprehensive income:Unrealized 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
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, 2019

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

2019

2018

2019

¥543,255
451,755
91,500¥505,219
412,71392,506$4,894,189
4,069,865
824,324

57,68533,81556,28836,218519,684
304,640

2,529
(922)
1,134
(296)
(1,045)
(64)
(744)
29
(754)

1,936
(941)
978
(127)
(747)
(550)
(322)
–
–

22,784(8,306)
10,216(2,667)(9,414)(577)(6,703)261(6,793)

(134)
(437)
(704)

–
386
613

(1,207)(3,937)(6,343)

INCOME BEFORE INCOME TAXES

33,111

36,831

298,297

INCOME TAXES (Note 10):
Current
Deferred
Total income taxes

10,578(353)
10,225

11,218(1,075)
10,143

95,297(3,180)92,117NET INCOME

22,886

26,688206,180

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

1,704

2,767

15,351¥ 21,182¥ 23,921$  190,829

NET SALESCOST OF SALES (Note 11)
Gross profit

FINANCIAL SECTIONSELLING, GENERAL, AND ADMINISTRATIVE EXPENSES(Notes 11 and 12)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies
Foreign exchange loss
Provision for environmental measures
Expenses for environmental measures
Loss on sales and disposals of property, plant, and equipment—net
Gain on sales of investment securities
Business structure improvement expenses (Note 13)
Provision for loss on business of unconsolidated subsidiaries
and associated companies
Other—net
Other income (expenses)—net

NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENTYen

PER SHARE OF COMMON STOCK (Note 2 (u)):
Basic net income*Cash dividends applicable to the year*¥ 496.88
130.00U.S. Dollars¥ 561.08
120.00Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDINGSHARES OF COMMON STOCK*

42,63042,633* Per share figures and shares have been adjusted, as appropriate, to reflect a one-for-ten reverse stock split effected October 1, 2017.
See notes to consolidated financial statements.

22$     4.48
1.17

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2019

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

2019

2018

2019

NET INCOME¥ 22,886¥26,688$ 206,180

OTHER COMPREHENSIVE (LOSS) INCOME (Note 18):
Unrealized (loss) gain on available-for-sale securities
Deferred loss on derivatives under hedge accounting
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive (loss) income in associates
Total other comprehensive (loss) income(9,730)(1)(896)(3,321)(67)(14,015)

6,188
(1)
621
(628)
79
6,259

(87,658)(9)(8,072)(29,918)(604)(126,261)

COMPREHENSIVE INCOME¥   8,871¥32,947$   79,919

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests¥   7,054
1,817¥29,9872,960$   63,550
16,369FINANCIAL SECTION

See notes to consolidated financial statements.

23

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2019

Thousands

Millions of Yen
Accumulated Other
Comprehensive Income

Outstanding
Number of
Shares ofCommon Stock*

BALANCE, MARCH 31, 2017
Net income attributable to owners of the parent
Cash dividends, ¥120 per share
Purchase of treasury stock
Disposal of treasury stock
Adjustment of retained earnings for changes
in the scope of consolidation
Change in the parent’s ownership interest due
to transactions with noncontrolling interests
Reversal of land revaluation surplus
Net change in the year

FINANCIAL SECTION

CapitalSurplusRetained
Earnings

Treasury
Stock

Deferred(Loss) Gain on
Derivatives
under Hedge
Accounting

42,635¥37,172¥29,928¥169,497¥(3,613)¥ 21,236

¥1

–
–
(4)
0

–
–
–
–

–
–
–
0

23,921(5,118)
–
–

–
–
(31)
0

–
–
–
–

–
–
–
–

–

–

–

(510)

–

–

–

–
–

–
–

409
–

–
9

–
–

–
–

–
–

–

–

–

–

–

6,262

(1)

42,631

37,17230,337

187,799(3,644)27,4980

Net income attributable to owners of the parent

–

–

–

21,182–––

Cash dividends, ¥130 per share

–

–

–

(5,330)–––Purchase of treasury stock

(2)

–

–

–

(8)

–

–

Disposal of treasury stock

0

–

(0)

–

0

–

–

–

–

–

(619)

–

–

–

–
–

–
–

(51)
–

–
267

–
–

–
–

–
–

BALANCE, MARCH 31, 2018

Adjustment of retained earnings for changes
in the scope of consolidation
Change in the parent’s ownership interest due
to transactions with noncontrolling interests
Reversal of land revaluation surplus
Net change in the year
BALANCE, MARCH 31, 2019

–

–

–

–

–

(10,002)(0)

42,629¥37,172¥30,286¥203,299¥(3,652)¥ 17,496¥(0)Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE, MARCH 31, 2017

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity¥1,814¥1,452¥ 2,365¥259,852¥30,649¥290,501

Net income attributable to owners of the parent

–

–

–

23,921–

23,921

Cash dividends, ¥120 per share

–

–

–

(5,118)–(5,118)Purchase of treasury stock

–

–

–

(31)

–

(31)

Disposal of treasury stock
Adjustment of retained earnings for changes
in the scope of consolidation
Change in the parent’s ownership interest due
to transactions with noncontrolling interests

–

–

–

0

–

0

–

–

–

(510)

–

(510)

–

–

–

409

–

409

Reversal of land revaluation surplus

–

–

–

9

–

9

Net change in the year

(9)

304

(653)

5,903

1,326

7,229

BALANCE, MARCH 31, 2018

1,805

1,756

1,712

284,435

31,975

316,410Net income attributable to owners of the parent

–

–

–

21,182–

21,182

Cash dividends, ¥130 per share

–

–

–

(5,330)–(5,330)Purchase of treasury stock

–

–

–

(8)

–

(8)

Disposal of treasury stock

–

–

–

0

–

0

–

–

–

(619)

–

(619)

–
–

–
–

–
–

(51)
267

–
–

(51)
267

Adjustment of retained earnings for changes
in the scope of consolidation
Change in the parent’s ownership interest due
to transactions with noncontrolling interests
Reversal of land revaluation surplus
Net change in the year
BALANCE, MARCH 31, 201924

CommonStock

Unrealized
Gain onAvailable-for-Sale
Securities

(267)

(772)

(3,327)(14,368)

657(13,711)¥1,538¥  984¥(1,615)¥285,508¥32,632¥318,140

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

CommonStock

BALANCE, MARCH 31, 2018

CapitalSurplusRetained
Earnings

Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred(Loss) Gainon Derivatives
under Hedge
Accounting$334,883$273,306$1,691,883$(32,829)$247,730$0

Net income attributable to owners of the parent––

190,829–––

Cash dividends, $1.13 per share––(48,018)–––

Purchase of treasury stock

–

–

–

(72)

–

–

Disposal of treasury stock

–

(0)

–

0

–

–

Adjustment of retained earnings for changes
in the scope of consolidation––(5,577)–––

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

–

(459)

–

–

–

–

Reversal of land revaluation surplus

–

–

2,405

–

–

–

Net change in the year

–

–

–

–

(90,108)(0)$334,883$272,847$1,831,522$(32,901)$157,622$(0)

BALANCE, MARCH 31, 2019

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2018

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity$16,261$15,820$ 15,423$2,562,477$288,063$2,850,540

Net income attributable to owners of the parent

–

–

–

190,829–

190,829

Cash dividends, $1.13 per share

–

–

–

(48,018)–(48,018)

Purchase of treasury stock

–

–

–

(72)

–

(72)

Disposal of treasury stock

–

–

–

0

–

0

Adjustment of retained earnings for changes
in the scope of consolidation

–

–

–

(5,577)–(5,577)

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

–

–

–

(459)

–

(459)

Reversal of land revaluation surplus

–

–

–

2,405

–

2,405

Net change in the year
BALANCE, MARCH 31, 2019

(2,405)(6,955)(29,973)(129,441)

5,919(123,522)$13,856$ 8,865$(14,550)$2,572,144$293,982$2,866,126

FINANCIAL SECTION

Accumulated Other
Comprehensive Income* Shares have been restated, as appropriate, to reflect a one-for-ten reverse stock split effected October 1, 2017.
See notes to consolidated financial statements.

25

CONSOLIDATED STATEMENT OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2019

Thousands of
U.S. Dollars(Note 1)FINANCIAL SECTION

Millions of Yen

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

2018

2019

¥ 33,111¥ 36,831$ 298,297(12,629)
23,171999
10
6(1,134)(8,263)
20,741
270
1
1
(978)

(113,775)
208,7489,000
90
54(10,216)

1,258
58(17,206)(3,163)
476
(180)
432
2,905
(4,997)
28,114(20,750)(132)(16,346)
15,146
(91)
1,039
422
3,152
(5,788)31,044

11,333523(155,009)(28,495)
4,288(1,622)
3,892
26,171(45,018)
253,279

(269)
1,128
(34,355)
144(1,057)464(30,254)
1,353(2,423)
10,162(309,505)
1,297

INVESTING ACTIVITIES:Payment for time deposits
Repayment 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 and associated companies
Proceeds from sales of investment securities and investments
in unconsolidated subsidiaries and associated companies
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities

(519)

(19)

(4,676)

86
(276)
249
104
(33,708)

6
(123)
124
(710)
(30,216)775(2,486)2,243
937(303,676)

FINANCING ACTIVITIES:Net increase in short-term bank loans
Proceeds from long-term debt
Repayments of long-term debt
Acquisition of treasury stock
Acquisition of treasury stock by a subsidiary
Dividends paid, including payments to noncontrolling shareholders of subsidiaries
Payments for transactions with noncontrolling interests
Other—net
Net cash provided by financing activities

15,60327,422(30,677)(8)(1)(6,017)
(359)
(374)
5,589

17,41910,654(15,894)(31)(588)(5,750)
–
(332)
5,478

140,568
247,045(276,369)(72)(9)(54,207)(3,234)(3,369)50,351

(11)
(16)

(173)
6,132

(99)
(144)

485
40,260¥ 40,729

442
33,685¥ 40,259

4,369
362,703$ 366,928

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARY,
BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR
See notes to consolidated financial statements.

26

2019

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2019

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 2018 consolidated financial statements to conform to the classifications used in 2019.
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 ¥111 to $1, the approximate rate of exchange at March 31, 2019.
Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at thator any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The Company had 69 (67 in 2018) subsidiaries and 9 (13 in 2018) associated companies at March 31, 2019. The consolidated financial
statements as of March 31, 2019, include the accounts of the Company and 38 (36 in 2018) significant subsidiaries (together, the “Group”).
operations are fully consolidated and those companies over which the Group has the ability to exercise significant influence are accounted
for by the equity method.
Investments in six associated companies were accounted for by the equity method for the years ended March 31, 2019 and 2018.
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.

FINANCIAL SECTION

Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control overEffective April 1, 2018, FUJI OOZX MEXICO, S.A. DE C.V. and PT. FUJI OOZX INDONESIA are newly consolidated due to increased materiality.
The fiscal years of the consolidated subsidiaries are not necessarily the same as that of the Company. Accounts of those subsidiaries
which have different fiscal years have been adjusted for significant transactions to properly reflect their financial position at March 31 of eachyear and the results of operations for the year then ended.
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
Under the Accounting Standards Board of Japan (ASBJ) Practical Issues Task Force (PITF) No. 18, “Practical Solution on Unification of
Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” the accounting policies and procedures
applied to a parent company and its subsidiaries for similar transactions and events under similar circumstances should in principle be­unified 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—“FASB ASC”) 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 ofpensions that has been recorded in equity through other comprehensive income; c) expensing capitalized development costs of researchand development; and d) cancellation of the fair value model accounting for property, plant, and equipment and investment properties andincorporation of cost model accounting.

27

(c) Business Combinations
Business combinations are accounted for using the purchase method. Acquisition-related costs, such as advisory fees or professional fees,
are accounted for as expenses in the periods in which the costs are incurred. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which shall not exceed one year fromacquisition, 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 theamounts 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. A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownershipinterests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the parent’s ownership interest
in its subsidiary while the parent retains its controlling interest in its subsidiary. 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 capital surplus as long as the parent
retains control over its subsidiary.

(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 dateof acquisition.

(e) Investment Securities
FINANCIAL SECTION

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.
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 or net selling value. Write downs of inventoryof ¥133 million ($1,198 thousand) and ¥69 million for the years ended March 31, 2019 and 2018, respectively, were included in cost of sales.

(g) Allowance for Doubtful Accounts
To provide for 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.

(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
receipts, 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 by ¥4,763 million ($42,910 thousand) and ¥4,611
million at March 31, 2019 and 2018, respectively.
Depreciation of leased assets is computed by the straight-line method over the lease period.
The range of useful lives is from 5 to 75 years for buildings and structures and from 4 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. Continuous readjustment is not permitted, unless theland value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation
surplus account and related deferred tax liabilities. At March 31, 2019 and 2018, the carrying amount of the land after the above one-timerevaluation exceeded the market value by ¥953 million ($8,586 thousand) and ¥953 million, respectively.

28

(j) Bond Issuance Cost
Bond issuance cost is charged to income as incurred.

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

(l) Retirement and Pension Plans
The Company and its domestic consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain­consolidated subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans, and smaller enterpriseretirement allowance mutual aid plans.
The Group accounts for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance
sheet date. The projected benefit obligations are attributed to periods on a benefit formula basis. 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 are recognized in profit or loss over 10 years, no longer than the expected average remaining service period of
the employees.
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.

(m) Provision for Environmental Measures
A provision for environmental measures is provided to accrue the estimated costs of PCB (Poly Chlorinated Biphenyl) waste disposals and­products used in construction projects by Ministry of Land, Infrastructure, Transport and Tourism, Gunma Prefecture, and municipalities inGunma were accrued and included in the provision for environmental measures in the consolidated statement of income.

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

(o) Provision for Loss on Business of Unconsolidated Subsidiaries and Associated Companies

FINANCIAL SECTION

the estimated costs of removal of steel slag products sold in reserve for future expenses. The estimated costs of removal of steel slag

A provision for loss on business of unconsolidated subsidiaries and associated companies is provided, taking into account their financial
results and operations.

(p) Construction Contracts
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 be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome ofa 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.

(q) 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
laws to the temporary differences.

(r) 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.

29

(s) 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.

(t) Derivatives and Hedging Activities
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign currency 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. Trade receivables and payables denominated in­foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.

FINANCIAL SECTION

Long-term debt and interests denominated in foreign currencies for which currency swaps are used to hedge the foreign currency­fluctuations are translated at the contracted rate if the swaps 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.

(u) 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, 2019 and 2018.
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.
On October 1, 2017, the Company effected a one-for-ten reverse stock split based on the resolution of the Shareholders meeting heldon June 28, 2017. All shares and per share figures for the year ended March 31, 2018 have been adjusted to reflect the impact of thereverse stock split and to provide data as if the reverse stock split were effected on April 1, 2017. Such restatements included calculations
regarding the Company’s weighted-average number of common shares, basic net income per share, and cash dividends per share.

(v) New Accounting Pronouncements
On March 30, 2018, the ASBJ issued ASBJ Statement No. 29, “Accounting Standard for Revenue Recognition,” and ASBJ Guidance No.
30, “Implementation Guidance on Accounting Standard for Revenue Recognition.” The core principle of the standard and guidance is thatan entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. An entity should recognize revenue in accordancewith that core principle by applying the following steps:
Step 1: Identify the contract(s) with a customer
Step 2: Identify the performance obligations in the contract
Step 3: Determine the transaction price
Step 4: Allocate the transaction price to the performance obligations in the contract
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation
The accounting standard and guidance are effective for annual periods beginning on or after April 1, 2021. Earlier application is permitted
for annual periods beginning on or after April 1, 2018.
The Group expects to apply the accounting standard and guidance for annual periods beginning on or after April 1, 2021, and is in theprocess of measuring the effects of applying the accounting standard and guidance in future applicable periods.

30

(w) Changes in Presentation(Application of Partial Amendments to Accounting Standard for Tax Effect Accounting)
On February 16, 2018, the ASBJ issued ASBJ Statement No. 28, “Partial Amendments to Accounting Standard for Tax Effect Accounting,”
which requires deferred tax assets and deferred tax liabilities to be classified as investments and other assets and long-term liabilities,
respectively. Deferred tax assets were previously classified as current assets and investments and other assets, and deferred tax liabilities
were previously classified as current liabilities and long-term liabilities under the previous accounting standard. The revised accounting­standard is effective for annual periods beginning on or after April 1, 2018. The Group retrospectively applied the revised accounting­standard effective April 1, 2018, and deferred tax assets of ¥4,588 million which were previously classified as current assets as of March 31,
2018, have been reclassified as investments and other assets (¥2,397 million at March 31, 2018) in the accompanying consolidated balance
sheet. Deferred tax assets were net against deferred tax liabilities recorded by the same taxpayer. As a result, total assets and total liabilities
decreased by ¥3,019 million at March 31, 2018. In accordance with transitional treatment allowed for the adoption of the revised accounting
standard, a note giving information on valuation allowances for tax loss carryforwards and for temporary differences for the year ended
March 31, 2018, was not separately disclosed.
(Consolidated Statement of Income)“Investment rents received” was separately disclosed under other income (expense) of the consolidated statement of income for the year
ended March 31, 2018. Since the amount decreased during the year ended March 31, 2019, investment rents received for the year ended
March 31, 2018, are included in “other—net” under other income (expense). As a result, ¥75 million of “investment rents received” and ¥311

3. INVESTMENT SECURITIESInvestment securities at March 31, 2019 and 2018, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Noncurrent:
Equity securities
Total

2019

2018

2019

¥70,955¥70,955¥85,154¥85,154$639,234$639,234

FINANCIAL SECTION

million of “other—net” for the year ended March 31, 2018, was reclassified to “other—net” of ¥386 million.

The costs and aggregate fair values of investment securities at March 31, 2019 and 2018, were as follows:
Millions of Yen
March 31, 2019

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥44,043¥28,121¥3,188¥68,976

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥44,818¥39,661¥1,297¥83,182

Cost

Unrealized
Gains

Unrealized
LossesFair Value$396,784$253,342$28,721$621,405

Millions of Yen
March 31, 2018

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2019

Available-for-sale:
Equity securities

31

Information for available-for-sale securities that were sold during the years ended March 31, 2019 and 2018, was as follows:
Millions of Yen
March 31, 2019

Proceeds

Available-for-sale:
Equity securities¥51

Realized
Gains

Thousands of U.S. Dollars
Realized
Losses¥0¥39

Realized
Gains

Proceeds$459$0Realized
Losses$351

Millions of Yen
March 31, 2018

Proceeds

Available-for-sale:
Equity securities¥6

Realized
Gains

Realized
Losses–¥1

Impairment losses on equity securities and investments in associated companies for the years ended March 31, 2019 and 2018, were
¥7 million ($63 thousand) and nil, respectively.

4. INVENTORIESInventories held by the Group at March 31, 2019 and 2018, consisted of the following:Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

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

2019

2018

2019

¥ 24,836
15,08825,071
29,45822,491
15,603¥132,547¥ 19,426
12,637
21,792
26,18022,322
12,707¥115,064$  223,748
135,928
225,865
265,387
202,622
140,567$1,194,117

5. INVESTMENT PROPERTYThe Company and certain consolidated subsidiaries hold 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 ¥1,427 million ($12,856 thousand) and ¥1,355
million for the years ended March 31, 2019 and 2018, respectively.
The carrying amounts, changes in such balances, and market prices of such properties at March 31, 2019 and 2018, were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying AmountMarch 31, 2018

¥9,514

Decrease, net

Fair Value
March 31, 2019¥(680)¥8,834

Carrying AmountMarch 31, 2019

March 31, 2018¥38,377$85,712

Decrease, net$(6,126)

Fair Value
March 31, 2019

March 31, 2019$79,586$345,739

Millions of Yen
Carrying AmountMarch 31, 2017

¥5,422

Increase, net¥4,092

Fair Value
March 31, 2018

¥9,514

March 31, 2018

¥38,646

Notes: 1. The carrying amount recognized in the consolidated balance sheet was net of accumulated depreciation and accumulated impairment losses, if any.
2. The decreases during the fiscal year ended March 31, 2019, primarily represent depreciation of ¥484 million ($4,361 thousand). The increase during
the fiscal year ended March 31, 2018, primarily represents the effect of the newly consolidated subsidiaries of ¥4,513 million.
3. The fair value of properties was primarily measured by the Group in accordance with its Real-Estate Appraisal Standard.

32

6. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Short-term borrowings consisted of notes to banks and bank overdrafts. Commercial papers were included in the short-term borrowings in
the amount of ¥8,000 million ($72,072 thousand) at March 31, 2019. The weighted-average rates of annual interest applicable to short-termbank loans at March 31, 2019 and 2018, were 0.49% and 0.50%, respectively.
Long-term debt at March 31, 2019 and 2018, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2019

2018

2019

¥ 77,601
10,00010,00010,000514
108,115(26,493)¥ 81,622¥ 89,339
10,00010,000–551
109,890(30,909)¥ 78,981$ 699,108
90,09090,09090,0904,631
974,009(238,676)$ 735,333

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2020
2021
2022
2023
2024
2025 and thereafter
Total¥ 26,493
17,74019,77917,923
18,9797,201¥108,115$238,676
159,820
178,189
161,468
170,982
64,874$974,009

Loans from banks and other financial institutions due serially to 2026 withweighted-average interest rates of 0.49% and 0.58% in 2019 and 2018, respectively
0.335% unsecured bonds due May 27, 2019
0.150% unsecured bonds due March 7, 2022
0.410% unsecured bonds due December 12, 2028
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

FINANCIAL SECTION

Annual maturities of long-term debt at March 31, 2019, were as follows:

The Company and a consolidated subsidiary entered into line-on-credit agreements with six banks. The details of the agreement
were as follows:Line of credit amount
Balance used at March 31, 2019

Millions of Yen

Thousands of
U.S. Dollars¥19,500–$175,676–

7. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥17 million ($153 thousand), current portion of
long-term debt of ¥250 million ($2,252 thousand), other current liabilities of ¥8 million ($72 thousand), and long-term debt of ¥3,750 million($33,784 thousand) at March 31, 2019, were as follows:

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

Millions of Yen

Thousands of
U.S. Dollars¥   739
5,061
5,982
888
39
¥12,709$  6,657
45,59553,8928,000
351$114,495

33

8. 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, multi-employer 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 benefits, 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 subsidiaries participate in multiemployer contributory funded plans, and the plans are accounted for as if the plans were defined
contribution plans if the plan assets attributable to the contributions by the subsidiaries cannot be reliably determined.
1. The changes in defined benefit obligation for the years ended March 31, 2019 and 2018, were as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

Balance at beginning of year
Current service cost
Interest cost
Actuarial losses
Benefits paid
Past service cost
OthersBalance at end of year

2019

2018

2019

¥53,240
2,379
166
363
(3,111)–(7)¥53,030¥53,246
2,218
168
708
(3,214)101
13¥53,240$479,640
21,432
1,496
3,270(28,027)–(63)$477,748

2. The changes in plan assets for the years ended March 31, 2019 and 2018, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2019

2018

2019

¥65,025
1,316(4,315)880(2,785)(5)¥60,116¥67,357
1,278(1,884)819(2,549)4¥65,025$585,811
11,856(38,874)
7,928(25,090)(45)$541,586

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, 2019 and 2018, 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

34

2019

2018

2019

¥2,289
858
(245)
(288)
0
¥2,614¥2,240
598
(252)
(308)
11
¥2,289$20,622
7,730(2,207)(2,595)
0$23,550

4. A reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation andplan assets as of March 31, 2019 and 2018, is as follows:
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

2019

2018

2019

¥ 53,132(63,607)(10,475)
6,004¥ (4,471)¥ 53,225(68,414)(15,189)
5,692¥ (9,497)$ 478,667(573,036)(94,369)
54,090$ (40,279)

5. The components of net periodic benefit costs for the years ended March 31, 2019 and 2018, were as follows:

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

2019

2018

2019

¥ 2,379
166(1,316)
21
(118)
858
198
¥ 2,188¥ 2,218169(1,278)
1,858
(70)
598
181
¥ 3,676$ 21,433
1,495(11,856)
189(1,063)7,730
1,784$ 19,712

6. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for theyears ended March 31, 2019 and 2018, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

Prior service cost
Actuarial losses
Total

2019

2018

2019

¥  (118)(4,656)¥(4,774)¥(171)(734)¥(905)$ (1,063)(41,946)$(43,009)

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

7. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans as of March 31, 2019 and 2018, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial (gains) losses
Total

2019

2018

2019

¥   (64)(2,575)¥(2,639)¥   54
2,081¥2,135$   (577)(23,198)$(23,775)

2019

2018

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

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

17%
57
24
2
100%

14%
62
22
2
100%

35

(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.
9. Assumptions used for the years ended March 31, 2019 and 2018, are set forth as follows:
2019

2018

0.3%
2.0

Discount rate
Expected rate of return on plan assets

0.3%
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 methods as used toaccount for 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¥426 million ($3,838 thousand) and ¥317 million for the years ended March 31, 2019 and 2018, respectively.
(1) The funded status of the multi-employer plan as of March 31, 2019 and 2018, was as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

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

2019

2018

2019

¥64,841
54,687¥10,154¥178,928
178,704¥    224$584,153
492,676$ 91,477(2) The contribution ratio of the Group in the multi-employer plan for the years ended March 31, 2019 and 2018, was as follows:

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

2019

2018

2.83%

2.75%

9. 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-in-kind) 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 (non-cash assets) to shareholders subject to certain limitations
and additional requirements.
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.

36

(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 within equity 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 stockacquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.
On October 1, 2017, the Company effected a one-for-ten reverse stock split based on the resolution of the shareholders’ meeting heldon June 28, 2017.

10. INCOME TAXES
normal effective statutory tax rates of approximately 30% and 31% for each of the years ended March 31, 2019 and 2018, respectively.
The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2019 and 2018, 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
Tax loss carryforwards
Elimination of unrealized gain on inventories
Provision for environmental measures
Enterprise tax
Other
Total of tax loss carryforwards and temporary differences
Less valuation allowance for tax loss carryforwards
Less valuation allowance for temporary differences
Total 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 land resulting from consolidation of a subsidiary
Transfer of investment securities from retirement benefit trust
Other
Total deferred tax liabilities
Net deferred tax liabilities

2019

2018

2019

¥ 2,430
3,246
44
2,844
3,483
1,020
1,306
402
3,635
18,411(3,454)(5,537)(8,991)
9,420¥ 2,371
2,981
22
2,732
3,154
939
1,121
467
3,665
17,452––(8,375)
9,077$ 21,892
29,243396
25,622
31,3789,189
11,766
3,631
32,748
165,865(31,117)(49,883)(81,000)
84,865

1,655
659
7,468
3,118
1,745
3,454
1,574
19,673¥10,253

1,700
1,219
11,494
4,323
1,079
3,342
1,796
24,953¥15,876

14,9105,937
67,27928,09015,721
31,117
14,180177,234$ 92,369

FINANCIAL SECTION

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in

37

The expiration of tax loss carryforwards, the related valuation allowance and the resulting net deferred tax assets at March 31, 2019,were as follows:
Millions of Yen

March 31, 2019

Deferred tax assets relating
to tax loss carryforwards
Less valuation allowancefor tax loss carryforwards
Net deferred tax assets relating
to tax loss carryforwards

Due inOne Yearor Less

Due after
One Yearthrough
Two Years

Due after
Two Years
throughThree Years

Due afterThree Years
through
Four Years

Due after
Four Years
throughFive Years

Due after
Five Years

Total

–

–

¥ 178

¥ 697

¥ 671

¥ 1,937¥ 3,483

–

–

(178)

(697)

(647)

(1,932)(3,454)

–

–

–

–

24

5

29

Due inOne Yearor Less

Due after
One Yearthrough
Two Years

Due after
Two Years
throughThree Years

Due afterThree Years
through
Four Years

Due after
Four Years
throughFive Years

Due after
Five Years

Total

–

–

$ 1,604$ 6,279$ 6,045$ 17,450$ 31,378––(1,604)(6,279)(5,829)(17,405)(31,117)

–

–

–

–

216

45

261

Thousands of U.S. Dollars

FINANCIAL SECTION

March 31, 2019

Deferred tax assets relating
to tax loss carryforwards
Less valuation allowancefor tax loss carryforwards
Net deferred tax assets relating
to tax loss carryforwards

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying­consolidated statement of income for the year ended March 31, 2019, with the corresponding figures for 2018 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
Higher (lower) income tax rates applicable to income in certain foreign countries
Tax credit
Investments in subsidiaries
Other—net
Actual effective tax rates

2019

2018

30.0 %
1.1
(5.0)
0.3
1.3
4.6
(1.0)
0.1
(1.6)
0.4
0.7
30.9 %

31.0 %
0.7
(4.2)
0.3
(1.6)
4.1
(0.8)
(1.0)
(1.2)
0.5
(0.3)
27.5 %

11. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥5,638 million ($50,793 thousand) and ¥5,419 million for the years ended
March 31, 2019 and 2018, respectively.

38

12. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the years ended March 31, 2019 and 2018, 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

2019

2018

2019

¥15,877
23,442
2,780
227
999
1,359
13,001¥57,685¥14,771
22,936
2,772
279
1,660
1,256
12,614¥56,288$143,036
211,189
25,0452,045
9,000
12,243
117,126$519,684

13. OTHER EXPENSES
Business structure improvement expenses for the years ended March 31, 2019 and 2018 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

2019

2018

¥687
67
¥754

–
–
–

$6,189604$6,793

14. LEASESFINANCIAL SECTION

2019

Loss on disposal of property, plant and equipment oftechnological center in Kawasaki
Other
Total

(As lessor)
Expected revenues from noncancelable operating leases at March 31, 2019 and 2018, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Due within one year
Due after one year
Total

2019

2018

2019

¥  5081,624¥2,132¥  5082,132¥2,640$ 4,577
14,630$19,20739

15. 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 borrowings 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 portion of such bank loans and commercial paper, excluding bonds, is exposed to risk of

FINANCIAL SECTION

changes 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 include forward foreign currency contracts and currency swaps, which are used to manage future cash flows, and interest rate
swaps, which are used to manage risks from changes in interest rates of bank loans. Please see Note 16 for more details 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 reduce­counterparty risk, the Group enters into derivative transactions only with highly rated financial institutions. Please see Note 16 for detailabout derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2019.
Market Risk Management (Foreign Currency Exchange Rate 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 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 policies that prescribe the authority and maximum amount for each­transaction. Derivative transactions of consolidated subsidiaries are undertaken by the finance and accounting department based on­internal policies.
Liquidity Risk Management
The Group manages its liquidity risk by establishing a cash management plan according to reports from each department.

40

(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 16 for 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 an associated company
Total
Short-term borrowings
Current portion of long-term debt
Payables—trade
Income taxes payable
Long-term debt
Total

March 31, 2019

Thousands of U.S. Dollars

Fair Value

Unrealized
Gain (Loss)

Carrying
AmountFair Value

Unrealized
Gain (Loss)¥ 40,729
1,006
132,800
68,976
5,327¥248,838¥ 40,729
1,006
132,800
68,9763,569¥247,080––––¥(1,758)¥(1,758)$  366,928
9,063
1,196,397
621,405
47,992$2,241,785$  366,928
9,063
1,196,397
621,405
32,154$2,225,947––––$(15,838)$(15,838)¥ 66,673
26,49387,361
5,372
81,622¥267,521¥ 66,673
26,49387,361
5,372
82,098¥267,997––––¥  (476)¥  (476)$  600,658
238,676
787,036
48,396735,333$2,410,099$  600,658
238,676
787,036
48,396739,621$2,414,387––––$ (4,288)$ (4,288)

Millions of Yen
Carrying
AmountFair Value

Unrealized
Gain (Loss)

Cash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in an associated company
Total¥ 40,259
1,909
134,153
83,182
5,038¥264,541¥ 40,259
1,909
134,153
83,182
5,080¥264,583

–
–
–
–
¥ 42
¥ 42

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

¥ 50,156
30,90990,381
7,447
78,981¥257,874¥ 50,156
30,90990,381
7,447
78,782¥257,675

–
–
–
–
¥199
¥199

March 31, 2018

FINANCIAL SECTION

Millions of Yen
Carrying
AmountCash and Cash Equivalents, Time Deposits, Receivables—Trade, Short-Term Borrowings, Current Portion of Long-Term Loans with Variable
Interest Rates, Payables—Trade, and Income Taxes Payable
The carrying values of cash and cash equivalents, time deposits, receivables—trade, short-term borrowings, current portion of long-termloans with variable interest rates, payables—trade, and income taxes payable, approximate fair value because of their short maturities.
Carrying amount and fair values of receivables—trade include those hedged by foreign currency forward contracts and translated at thecontracted rates. Carrying amount and fair values of short-term borrowings include those hedged by interest rate swaps which are notremeasured at market value but the differential paid or received under the swap agreement is recognized and included in interest expense.
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.

41

Long-Term Debt
The fair values of long-term loans with fixed interest rates are determined by discounting the cash flows related to the debt* at the risk-free rateplus credit spread or at the Group’s assumed corporate borrowing rate. The fair values of bonds are measured at the quoted market prices.
* For long-term borrowings hedged by interest rate swaps, principal and interest is determined by the interest rate swap contracts.
* For long-term borrowings hedged by foreign currency forward contracts, principal and interest are assumed to be fixed in Japanese yen.

Derivatives
Fair value information for derivatives is included in Note 16.
(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

2019

2018

2018

¥ 1,978
12,818¥ 1,972
16,070$ 17,820
115,477(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

FINANCIAL SECTION

Millions of Yen
Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years¥ 40,729
1,006
132,800¥174,535

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2019

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years

Cash and cash equivalents
Time deposits
Receivables—tradeTotal$  366,928
9,063
1,196,397$1,572,388

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2019

Cash and cash equivalents
Time deposits
Receivables—trade
Total

Thousands of U.S. Dollars

Please see Note 6 for annual maturities of long-term debt and the current portion of long-term debt.

16. DERIVATIVESThe Group enters into foreign currency forward contracts, interest rate swaps, and currency swaps. The Group does not hold or issue­derivatives 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 shown in the table on the following page do notmeasure the Group’s exposure to market risk.

42

(a) Derivative transactions to which hedge accounting is not applied at March 31, 2019 and 2018
Millions of Yen

At March 31, 2019

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Thai baht
Chinese yuan
HK dollar
Selling:
U.S. dollar
Euro
Thai baht
Chinese yuan
Indian rupiah
British pound

Contract
AmountContract
Amount Dueafter One Year

Fair
Value

Unrealized
Gain (Loss)¥  288
543
590
75
140
1

–
–
–
–
–
–

¥   1
(9)
5
(0)
2
(0)

¥   1
(9)
5
(0)
2
(0)

8,247
521
286
164
165
19

–
–
–
–
–
–

(13)
8
(4)
(2)
(9)
0

(13)
8
(4)
(2)
(9)
0

At March 31, 2018

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Chinese yuan
Thai baht
HK dollar
Selling:
U.S. dollar
Euro
Thai baht
Chinese yuan
Indian rupiah

Contract
AmountFair
Value

Unrealized
Gain (Loss)¥  470
71
588
101
0
0

–
–
–
–
–
–

¥ (7)
(1)
(6)
(1)
0
0

¥ (7)
(1)
(6)
(1)
0
0

5,949
292
176
262
201

–
–
–
–
–

23
6
(1)
(1)
4

23
6
(1)
(1)
4

FINANCIAL SECTION

Millions of Yen
Contract
Amount Dueafter One Year43

Thousands of U.S. Dollars

At March 31, 2019

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Thai baht
Chinese yuan
HK dollar
Selling:
U.S. dollar
Euro
Thai baht
Chinese yuan
Indian rupiah
British pound

Contract
AmountContract
Amount Dueafter One Year

Fair
Value

Unrealized
Gain (Loss)$ 2,595
4,892
5,315
676
1,261
9

–
–
–
–
–
–

$   9
(81)
45
(0)
18
(0)

$   9
(81)
45
(0)
18
(0)

74,297
4,694
2,577
1,477
1,486
171

–
–
–
–
–
–

(117)
72
(36)
(18)
(81)
0

(117)
72
(36)
(18)
(81)
0

(b) Derivative transactions to which hedge accounting is applied at March 31, 2019 and 2018

FINANCIAL SECTION

Millions of Yen

44

At March 31, 2019

Foreign currency forward contracts:
Hedge accounting:Selling:Euro
Chinese yuan
Qualified for hedge accounting not remeasured
at market value:
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
Amount Dueafter One Year

Fair Value

Receivables—trade
Receivables—trade¥    25
32

–
–

¥(0)
(1)

Receivables—trade

9

–

4,500

¥4,500

See Noteon thefollowing
page

10,900200

Short-term bank loans
and long-term debt

Millions of Yen

At March 31, 2018

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

Hedged Item

Contract
AmountContract
Amount Dueafter One Year

Fair Value

Receivables—trade
Receivables—trade
Receivables—trade¥   156
40
73

–
–
–

¥2
0
(1)

Receivables—trade
Receivables—trade

88
59

–
–

Short-term bank loans
and long-term debt

5,500

¥ 4,500

24,40010,900

See Note
below

Thousands of U.S. Dollars

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

Hedged Item

Contract
Amount Dueafter One Year

Receivables—trade
Receivables—trade$   225
288––

Receivables—trade81–

40,541$40,541

98,1981,802

Short-term bank loans
and long-term debt

Fair
Value

$(0)
(9)

FINANCIAL SECTION

At March 31, 2019

Contract
AmountSee 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 15.

17. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2019, the Group was contingently liable for ¥1,735 million ($15,631 thousand) for guarantees of loans and payables of­unconsolidated subsidiaries, associated and other companies, and employees.

45

18. OTHER COMPREHENSIVE (LOSS) INCOME
The components of other comprehensive (loss) income for the years ended March 31, 2019 and 2018, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

FINANCIAL SECTION

Unrealized (loss) gain on available-for-sale securities:(Losses) gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred loss on derivatives under hedge accounting:Losses arising during the year
Amount before income tax effect
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:(Losses) gains arising during the year
Reclassification adjustments to profit or loss
Total
Total other comprehensive (loss) income

2019

2018

2019

¥(13,391)
40(13,351)
3,621¥ 8,810(0)
8,810(2,622)$(120,640)
360(120,280)
32,622(9,730)6,188(87,658)

(2)
(2)
1
(1)

(2)
(2)
1
(1)

(18)
(18)
9
(9)

(896)
(896)

621
621

(8,072)(8,072)(4,678)(96)(4,774)
1,453(3,321)(2,693)
1,788
(905)
277
(628)

(42,144)(864)(43,008)
13,090(29,918)

(68)
1
(67)

86
(7)
79

(613)
9
(604)

¥(14,015)¥ 6,259$(126,261)

19. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2019, was approved at the Company’s shareholders’ meeting held on June
26, 2019:

Year-end cash dividends, ¥65 ($0.59) per share

46

Millions of Yen

Thousands of
U.S. Dollars¥2,772$24,97320. 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.

1. Description of reportable segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s
management is 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 industries. Each division draws up strategies andoperates 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.” The “Specialty Steel” industry consists of manufacturing of specialty steel
for automotive and industrial machinery parts.
The “High Performance Materials and Magnetic Materials” industry consists of manufacturing of stainless steel, high alloy and magnetic
materials, titanium products, powder metals for automotive and industrial machinery, and electrical and electronic parts.
products for automotive and industrial machinery parts.
The “Engineering” industry consists of manufacturing and maintenance of steelmaking and environmental equipment, industrial­furnaces, and associated equipment.
The “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

FINANCIAL SECTION

The “Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging products, and other

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.
As stated in Note 2 (w) to the consolidated financial statements, effective April 1, 2018, the Group retrospectively applied the revised
accounting standards for tax effect accounting. Segment assets at March 31, 2018 were reclassified in accordance with the revised
accounting standard.

47

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¥207,744¥184,554¥109,929¥27,529¥13,499

Intersegment sales or transfers

71,18017,80427,9101,812

12,463

Total¥278,924¥202,358¥137,839¥29,341

Segment profit¥  5,998¥ 20,694¥  2,309

Segment assets

222,992

214,351

143,885

2019

Reconciliations

Consolidated¥543,255–¥543,255

131,169¥(131,169)–¥25,962¥674,424¥(131,169)¥543,255¥ 2,292¥ 2,527¥ 33,820¥      (5)¥ 33,815

19,622

20,666

621,516

29,181

650,697

Sales:

Other:
Depreciation and amortization

7,375

7,191

7,072

222

1,311

23,171–

23,171

Investments in associated companies
accounted for by the equity method

5,631

5,959

503

148

–

12,241

610

12,851

Increase in property, plant, andequipment and intangible assets

11,011

12,777

9,704

269

652

34,413–34,413

Reconciliations

Consolidated¥505,219

Millions of Yen

FINANCIAL SECTION

Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥186,835¥170,788¥106,288¥24,865¥16,443¥505,219–

Intersegment sales or transfers

67,97316,022

24,5192,110

11,430122,054¥(122,054)

–

Total

¥254,808¥186,810¥130,807¥26,975¥27,873¥627,273¥(122,054)¥505,219

Segment profit¥  6,478¥ 22,196¥  3,070¥ 1,836¥ 2,686¥ 36,266¥     (48)

¥ 36,218

Segment assets

211,113205,035

142,551

19,463

21,309599,471

42,550642,021

2018

Sales:

Other:

48

Depreciation and amortization

7,238

6,307

5,564

271

1,361

20,741–

20,741

Investments in associated companies
accounted for by the equity method

5,273

5,607

462

138

–

11,480523

12,003

Increase in property, plant, andequipment and intangible assets

8,207

12,087

14,139254

919

35,606–35,606

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$1,871,568$1,662,648$  990,351$248,009$121,613

Intersegment sales or transfers

641,261

160,397

251,442

16,324112,279

Total$2,512,829$1,823,045$1,241,793$264,333

Segment profit$   54,036$  186,432$   20,802

Segment assets

2,008,937

1,931,090

1,296,261

2019

Reconciliations

Consolidated$4,894,189–$4,894,189

1,181,703$(1,181,703)–$233,892$6,075,892$(1,181,703) $4,894,189$ 20,649$ 22,766$  304,685$       (45) $  304,640

176,775

186,180

5,599,243

262,892

5,862,135

Sales:

Other:
Depreciation and amortization

66,44164,784

63,7122,000

11,811

208,748–

208,748

Investments in associated companies
accounted for by the equity method

50,73053,685

4,532

1,333

–

110,280

5,495

115,775

Increase in property, plant, andequipment and intangible assets

99,198115,108

87,424

2,423

5,874

310,027–

310,027

4. Associated information(1) Information about geographical areas
Sales
Millions of Yen
2019

Japan

¥413,686

North America¥20,385

Asia

Other

Total

¥99,063¥10,121¥543,255

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 any
reportable segments.
3. Segment profit was reconciled to operating income in the consolidated statement of income.

Millions of Yen
2018

Japan

¥390,792

North America

Asia¥19,998

Other¥86,551

Total¥7,878¥505,219

Thousands of U.S. Dollars
2019

Japan

$3,726,901

North America$183,649

Asia

Other

$892,459$91,180

Total$4,894,189(2) Information about goodwill
Millions of Yen

2018

Amortization of goodwill
Balance of goodwill

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥11
–

–
–

–
–

–
–

–
–

Total

¥11
–

49

FINANCIAL SECTION

INDEPENDENT AUDITOR’S REPORT

50

DAIDO NETWORK

Offices & Branches

Specialty Steel
Address

Head Office

Tokyo Head OfficeOsaka Branch

Fukuoka Sales OfficeUrbannet Nagoya Building,
1-10, Higashisakura 1-chome,
Higashi-ku, Nagoya,
Aichi 461-8581, Japan

Phone (Facsimile)

DAIDO DMS (THAILAND) CO., LTD.

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

Daido Die & Mold Solutions Co., Ltd.
Daido Tienwen Steel Co., Ltd.
DAIDO DMS MALAYSIA SDN. BHD.
DAIDO DMS SINGAPORE PTE. LTD.

Daido Shinagawa Building,81-3-5495-1253
6-35, Konan 1-chome, Minato-ku, (81-3-5495-6733)
Tokyo 108-8478, Japan

Daido Shizai Service Co., Ltd.

Kogin Building, 1-1,
Koraibashi 4-chome, Chuo-ku,
Osaka 541-0043, Japan

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

Riken Seiko Co., Ltd.

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

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

Daido Technica Co., Ltd.
Daido EcoMet Co., Ltd.
Tohoku Steel Co., Ltd.
Maruta Transport Co., Ltd.
Sakurai Kosan Co., Ltd.
Izumi Denki Kogyo Co., Ltd.
Kawaichi Sangyo Co., Ltd.

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 477-0035, Japan

81-562-33-3101(81-562-33-1570)

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

81-562-33-7461(81-562-33-1550)

Chita Steel   Strip Plant

81-562-33-7465(81-562-33-1019)

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

Parts for Automobile and Industrial Equipment

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 377-0007, Japan

81-279-25-2000(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)

Daido Star Techno Co., Ltd

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

OHIO STAR FORGE CO.

Metal Powder Plant

Daido Castings Co., Ltd.
Daido Steel (Thailand) Co., Ltd.
FUJI OOZX Inc.

DAIDO NETWORKChita   Forging Plant

Hoshizaki Plant

High Performance Materials and Magnetic Materials

PT. FUJI OOZX INDONESIA
FUJI OOZX MEXICO, S.A. DE C.V.
FUJI VALVE (GUANGDONG) CORPORATION
Japan Drop Forge Co., Ltd.
Toyo Sangyo 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)

Nakatsugawa
Techno Center

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

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

Daido Precision Industries Ltd.

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

Trading and Service
Daido Kogyo Co., Ltd.
The silent partnership which makes TAKAKURA FUNDINGCORPORATION LTD. a business operator
Daido Life Service Co., Ltd.
Daido Steel (Shanghai) Co., Ltd.
Daido Bunseki Research Inc.
Star Info Tech Co., Ltd.
Life Support Co., Ltd.
Kisokoma Heights Co., Ltd.
Daido Steel (America) Inc.
(As of March 31, 2019)51

CORPORATE DATACORPORATE DATA (As of March 31, 2019)

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

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

Number of Employees(Non-Consolidated):

3,425

Common Stock:¥37,172 million

Number of Authorized Shares:

116,000,000

Number of Issued Shares:

43,448,769

Number of Shareholders:

17,952

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:52

NIPPON STEEL & SUMITOMO METAL CORPORATION
Japan Trustee Services Bank, Ltd. (Trust Account)
Meiji Yasuda Life Insurance Company
The Master Trust Bank of Japan, Ltd. (Trust Account)
Mizuho Bank, Ltd.
NHK Spring Co., Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
HONDA MOTOR CO., LTD.
TOYOTA MOTOR CORPORATIONDENSO CORPORATION
Investor Relations(Head Office)Phone: 81-52-963-7516
Facsimile: 81-52-963-4386

DAIDO STEEL CO., LTD.
UTILIZING OUR STRENGTHS, AIMING AT FURTHER GROWTHANNUAL REPORT 2019

Printed in Japan

This annual report is printed on recycled paper.