ANNUAL REPORT 2018Year ended March 31, 2018

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

042020 MID-TERM MANAGEMENT PLAN

06

AT A GLANCE

08

REVIEW OF OPERATIONS

12RESEARCH AND DEVELOPMENT14

CSR AND THE ENVIRONMENT

15

CORPORATE GOVERNANCE

16

OFFICERSFORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements
concerning DAIDO STEEL CO., LTD.’s and its Group
companies’ current plans, projections, strategies andperformance. These forward-looking statements are nothistorical facts. Rather, they represent the assumptions
and beliefs of Daido Steel’s management based on information currently available.
They should therefore not be relied upon as the solebasis for evaluating the Company. Daido Steel also

17

FINANCIAL SECTION

55

DAIDO NETWORK

materially from expectations, and that forward-looking

56

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
2018

2017

2016

2015

2014

2018

For the Year:Net Sales

505,219445,123

460,578483,633

457,731

4,766,217

Operating Income

36,21825,51424,432

20,40918,977

341,679

Net Income Attributable to Owners of the Parent

23,911

16,386

6,746

10,886

12,616225,670

R&D Expenses

5,419

6,206

5,766

5,301

5,160

51,123

Capital Expenditures

35,60628,941

23,20530,29644,404335,906

Depreciation and Amortization

20,741

23,27622,454

22,437

20,052

195,670645,042574,169

535,676

588,590557,522

6,085,302

Total Assets
Total Equity

316,410

290,501

268,346

292,406

232,152

2,985,000

Interest-Bearing Debt

160,352

142,599

136,114146,208

143,085

1,512,755

Number of Employees (Consolidated)

11,873

11,498

11,04010,855

10,709–Number of Consolidated Subsidiaries

36

34

34

34

33

–

Basic Net Income*

561.08385.92

156.22251.01290.88

5.29

Cash Dividends Applicable to the Year*120.00100.00

75.00

65.00

50.00

1.13

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

ROA (%)

5.9

4.8

4.5

3.8

3.8

–

ROE (%)

8.8

6.7

2.8

4.5

5.7

–

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 ¥106 to $1, the approximate rate of exchange at March 31, 2018.
* See the footnote on page 24.

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)

500,000

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

20,000400,000
30,00015,000300,000
20,00010,000200,000

10,0005,000

100,000

002014 2015 2016 2017 201802014 2015 2016 2017 20182014 2015 2016 2017 2018

01

MESSAGE FROM MANAGEMENTMESSAGE FROM MANAGEMENT

Overview of Results for Fiscal 2017

sales volumes and rises in raw material prices. Ordinary

In fiscal 2017, the Japanese economy continued to exhibit aincome rose by ¥9,757 million to ¥36,130 million, due to themoderate recovery in consumer spending due to improve-

positive contribution of higher sales volumes and other fac-

ments in employment and income conditions, and the econ-

tors. Net income attributable to owners of the parent

omy itself continued on a gradual recovery path, along withincreased by ¥7,535 million to ¥23,921 million.

improved industrial production in the corporate sector. In the
U.S., the steady economic recovery continued as consumer

Outlook for Fiscal 2018

spending and capital expenditures increased. In Europe, theThe global economy is likely to keep expanding at a mod-gradual economic recovery continued due to robust employ-erate pace amid robust employment conditions inment conditions. In China, exports have increased and there

advanced countries. The Chinese economy should see

are continued signs of an economic upturn.

relatively stable growth thanks to government stimulus

Under these economic circumstances, the Japanese
automobile industry continued its strong performance

estate prices and excessive debt. Based on this outlook,because in addition to the recovery in domestic sales there

the favorable environment should continue in terms of

was an increase in sales in China. Moreover, demand fromdemand, including continued robust demand for our core

China for construction equipment vigorously increased.

customers in the automobile industry. However, there will

There was a continued boom in capital expenditures related

be significant rises in raw material prices, such as for scrap

to semiconductors, and the associated demand continued

steel and alloys and auxiliary materials including graphite

to be robust. Prices of scrap steel, a key raw material,

electrodes used for manufacturing, and in energy costs. It

increased year on year mainly due to the impact of the rising

is inevitable that we must pass on these increased costs inprices of steel products in China.

our sales prices.

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

02

measures, although there are latent risks related to real

Although we expect that the favorable demand environ-2017 increased by ¥60,096 million year on year to ¥505,219

ment will continue, there are uncertainties as well about

million, due to a rise in sales prices in line with an increase infactors that can impact the world economy, including the

protectionist movement in the U.S. and the geopolitical

Based on the above, for fiscal 2018, the Daido Steelrisks of North Korea, the Middle East, Russia and else-Group forecasts consolidated net sales of ¥550.0 billion,

where. We need to closely watch these factors. In addition,

operating income of ¥36.5 billion, ordinary income of ¥37.0

the Daido Steel Group recognizes the ongoing need tobillion, and net income attributable to owners of the parent

monitor risks that could impact the Group, such as the riskof ¥24.0 billion.

of weaker demand due to foreign 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.

Medium- to Long-Term
Management Strategy
Private and public entities have begun initiatives to realize
a sustainable society all over the world. Even among our

We expect sales volume of structural steel in fiscal 2018 will continue
to be favorable as in fiscal 2017, based on the outlook for continued
robust global demand from the automotive sector, a major source ofdemand for this steel. In tool steel, we anticipate the favorable demandcustomers, the reduction of emissions that contribute to
global warming is a major topic for them, and they require
high levels of efficiency for the internal combustion engines
of automobiles and jet engines of aircraft.

conditions of fiscal 2017 to continue. However, there will be significant

In the automobile industry moreover, a major techno-rises in the costs of raw materials, such as for scrap steel and alloys

logical innovation is about to occur—the kind of innovation

and auxiliary materials including graphite electrodes used for manufac-

that occurs only once every 100 years, such as the diversi-

turing, and in energy costs. We will seek to obtain our customers’
understanding as we review sales prices in order to secure a consistently sustainable profit margin.

fication of power trains to proliferate the use of electronics
and similar devices and the expanding use of automatedcars and connected cars. Furthermore, the digital revolu-

HIGH PERFORMANCE MATERIALS AND MAGNETIC
MATERIALS

tion marches onward, taking advantage of big data, AI

We expect the sales volumes of high performance products, such asering in transformations in a wide variety of industries. As astainless steel, high alloys and powder metal, will increase, assuming
robust demand continues in the automobile and semiconductor industries and improvements in the fuel economy of internal combustion
engines for automobiles increase usage. In magnetic products, we areconcentrating on the increasing use of electronics in automobiles andelectrical applications.

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT
In free forgings, we are focusing on keeping up with ongoing brisk
demand for civil aircraft and responding to strong demand related to(artificial intelligence) and IoT (Internet of Things), and ushresult, the Daido Steel Group expects that demand forsemiconductors will increase and the automation of various
processes and suchlike by robots will develop further.
In this business environment, we formulated our
medium-term business plan (Daido Steel Group 2020 MidTerm Management Plan), a three-year plan through fiscal
2020 (the fiscal year ending March 31, 2021), and publicly
announced it in June 2018. By providing the high perfor-

semiconductor production. In turbo-related products, we will work on

mance materials that our customers need, we aim to firmly

achieving mass production at the new plant for precision cast products

support these evolutionary and technological innovations.

(second plant for turbine housing) completed this year, considering the

The Group will put into practice its basic management

likelihood of continued growth in the expansion of demand from anpolicies and guidelines for corporate activities, and work

increasing ratio of gasoline engines with turbos installed. In engine
valves, we are working on launching the mass production of headhollow valves that contribute to improving the fuel consumption of
automobiles.

MESSAGE FROM MANAGEMENTSPECIALTY STEEL

to achieve the management performance indicators
described in the pages that follow.
June 2018

ENGINEERINGThe Daido Steel Group aims to expand sales of Premium STC® (Short
Time Cycle), which is its mainstay STC® annealing furnace with a new
combustion system installed, as well as increase sales of vacuum
carburizing furnaces and suchlike to auto parts makers.

TRADING AND SERVICE

Takeshi Ishiguro
President

In the trading and service segment, demand should be at the same level
as in 2017.

03

2020 MID-TERM MANAGEMENT PLAN

Basic management policy

Beyond the Special

We support our customers’ technological innovations by supplying high performance materials.
A big wave of technological innovation is occurring throughout many industries. The automobile sector, oneof our major sources of customers, is bursting with new product possibilities, like highly efficient internal
combustion engines, electric vehicles and self-driving cars.
DAIDO STEEL is providing an agile response to this astonishing revolution that comes only once every
100 years and the digital-age innovations that help drive it. We are committed to supporting our customers’
technological innovations by supplying the high performance materials they need.

2020 MID-TERM MANAGEMENT PLAN

In consideration of the business environment points listed on the left, we have set forth the following threeguidelines in order to reliably support increased demand for materials with excellent functionality, as well as ourcustomers’ technological innovations.
<Global issues>• Global warming• Destruction of the natural environment• Increased populations in emerging countries anddecline of the working-age population in Japan<Changes in market, Technical innovation>• Highly efficient internal combustion engines• Electric vehicles and self-driving cars
• Digitalization (big data, AI, IoT, FA, etc.)

Guidelines for corporate activities
Portfolio reform
Shift from structural materials to high performancematerials
Enhance our business fundamentals
Improve the break-even point and strengthen our
corporate structure
Rebuild our business
Stronger focus on die forging and turbine housingbusinesses

Portfolio reform■ High performance materials and magnetic materials•Expand our production capacity corresponding to the increase in demand
Stainless steel, high alloys, high performance powder products, high performance LED products•Promote a growth strategy for high performance neodymium magnets■ Parts for automobile and industrial equipment•Reliably support market growth for open free forgings•Expand production capacity to increase global market share for engine valves■ Engineering•Reduce environmental impact by reducing the energy consumption of electric furnaces, Streamline automotive parts
heat treatment and renovate the production line

Enhance our business fundamentals■ Specialty steel•Attract stable demand for specialty steel, implement initiatives for the near future•Secure sustainable profit margins for structural steel by rethinking our selling price to account for the rising costs of materials•Secure the Chita Plant’s structural steel production capacity

Rebuild our business■ Parts for automobile and industrial equipment•Rethink emphasis on domestic business and accelerate overseas growth for die forgings•Respond to increases in demand for turbocharger components

04Net Sales & Operating Income by Segment(Compared to the last year of the Mid-Term Management Plan)(100 million yen)(100 million yen)

Operating Income

Net Sales
280

170

25

142

249

1,890

1,063

18

222

2,100

2017

65

65

30

1,708

Specialty Steel

27

2,050

1,200

70

20

2020

Parts for Automobile & Industrial Equipment

High Performance Materials & Magnetic Materials

290

2020

2017
Engineering

Trading & Service

・Please refer to the presentation document for details regarding the 2020 Mid-Term Management Plan.

https://www.daido.co.jp/en/ir/presentation/2020mid.pdf

Net sales

5,052*Net Sales and Operating Income(Consolidated)(100 million yen)

5,800*

5,800

500

Operating income

362*

470*

Net income

239*

300*

ROS

7.2%

8%

ROA

5.9%

7%

200

ROE

8.8%

9%

100

(Three years total,
Construction base)

877*

950*

0

Dividend payout ratio

21.4%

20~25%

Capital investment(100 million yen)

600

4,404

4,577

4,836

5,052
4,606

470

4,451

6,000
5,000
4,000

400
362

3,000

300
244
190

255

204

2,000

154
1,000

2020 MID-TERM MANAGEMENT PLAN

Objectives of the 2017 Mid-Term Management Plan
(Target vs Results)
Results ofTarget for(*:100 million yen)
FY2017
FY2020

0
12

13

14

15

16

17

2014 Mid-Term
Management Plan

2017 Mid-Term
Management Plan

Operating Income (left scale)

Net Sales (right scale)20

2020 Mid-Term
Management Plan

[Capital investment (Total from fiscal 2018 to 2020)]
Continue vigorous investment in growing businesses
2017 Mid-Term Results

Capital investment(based on construction)

87.7 billion yen
for 3 years

2020 Mid-Term Management Plan

95.0 billion yen
for 3 years(Depreciation costs: 66.5 billion yen for 3 years 72 billion yen for 3 years)[Enhance our ability to provide solutions]
To enhance our ability to provide solutions by collaborating with customers, we will integrate the proposing of specialty steel
and solutions materials solutions to implement priority strategies as projects.
I) Electrification and self-driving products projectIII) Semiconductor manufacturing equipment projectII) High performance turbocharger parts projectIV) High performance powder products project05

AT A GLANCE

AT A G L A N C E

SPECIALTY STEELHIGH PERFORMANCE MATERIALSAND MAGNETIC MATERIALSPARTS FOR AUTOMOBILE AND
INDUSTRIAL EQUIPMENT

MAIN PRODUCTS

MAIN PRODUCTS

MAIN PRODUCTS

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

(%)

(%)

(%)

37.4%

33.8%

21.0%

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
2017

2018

0
2017

2018

2017

2018

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

25,0003,000

20,000

6,000

2,000

15,0004,000

1,000
10,000

2,000

0

0
2017

06

0

5,000

2018

–1,000
2017

2018

2017

2018

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

(%)

(%)

4.9%

AT A G L A N C E

MAIN PRODUCTS

2.8%

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
2017

2018

2017

2018

OPERATING INCOME Years ended March 31

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

2,000

3,000

1,500

2,000

1,000
1,000

500
0

0
2017

2018

2017

2018

07

REVIEW OF OPERATIONSSPECIALTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates approxi-

Sales volume for structural steel increased year on year, mainly

mately 37% of consolidated net sales. Specialty steel is made by

due to favorable sales in the automotive sector, a major source ofcombining steel with alloys to add value in the form of properties

demand for this steel, and a recovery in demand for industrial

such as resistance to heat, abrasions or rust. Because a range ofmachines in China. Sales volume of tool steel increased year on

special properties can be achieved by varying the types andyear as inventory adjustments ended. The cost of steel scrap, theamount of alloy, one of the special features of the business is thatmain raw material, rose year on year mainly due to the impact of

products are developed to meet the specific applications required

the rising prices of steel products in China. Sales prices also

by users. The automobile and industrial machinery sectors are

increased year on year in line with this trend.

the primary users of specialty steel, accounting for about 80% ofsales in this business segment.

As a result, the specialty steel segment’s net sales in fiscal
2017 increased 14.9% year on year to ¥189,095 million, due
primarily to higher sales volume and an increase in sales prices
in connection with rising raw material prices. Operating income

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

increased by ¥664 million to ¥6,478 million.

Tool steel from Daido Steel08

HIGH PERFORMANCE MATERIALS AND MAGNETIC MATERIALS
Overview of BusinessResults of Operations

This segment, which accounts for roughly 34% of consolidated

Sales volume of stainless steel products increased year on year,

net sales, manufactures and sells high performance materials

driven by strong demand for use in automobiles and semicon-

and magnetic materials used chiefly in automobiles, computers,

ductors. Sales volume of high alloys increased year on year

mobile phones and consumer electronics.

atop higher automobile-related demand. Sales volume of mag-

Key products include stainless steel products, rare earth

netic products rose year on year primarily due to a continued

magnets, high alloys, titanium products, and high performanceincrease in demand for use in electronic power steering sys-

powder metal products.

tems, in addition to higher demand for use in the drive motorsof hybrid vehicles. Powder metal products saw sales volume
remain mostly unchanged from the previous fiscal year, as firm
demand for use in hybrid vehicles and other applications waslargely offset by some weakness in demand for overseas automobile components.
magnetic materials segment in fiscal 2017 increased 15.0%
year on year to ¥170,788 million, due primarily to higher sales
volume and an increase in sales prices in connection with rising
raw material prices. Operating income rose by ¥4,779 million to¥22,196 million as higher sales volume and an improved sales
composition contributed positively to earnings.

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

As a result, net sales for the high performance materials and

NEOQUENCH-DR (Nd-Fe-B ring magnets) for EPS motors

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

This segment contributes around 21% of consolidated net

Net sales of free forged products increased year on year, due tosales. It manufactures die forged parts such as crankshafts

increased demand for use in semiconductors, along with solidusing specialty steel, precision cast parts for use in turbocharg-

aircraft-related demand. Net sales of die forged products anders, as well as engine valves, jet engine shafts and parts for gas

engine valves increased year on year, owing to favorable auto-

turbines. Most of the auto parts sold in this segment use mate-mobile sales. Net sales of precision cast products rose year on

rials that were developed through joint projects with automakers

year, reflecting continuing growth in turbocharger-related

to meet their exacting requirements. These parts can therefore

demand.

lower processing expenses at customers’ factories as well as
contribute to reducing the weight of finished products.
In this segment, Daido Steel has a high market share in

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

trial equipment segment for fiscal 2017 increased 9.0% year on
year to ¥106,288 million. Operating income rose by ¥3,586

numerous product categories, including aircraft jet engine

million to ¥3,070 million, as higher sales volume and an

shafts, automobile engine valves and turbine wheels. We will

improved sales composition contributed positively to earnings.

continue to develop and launch new products that differentiate
us from competitors and support our position as a provider ofadvanced parts.
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

10

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

This segment generates about 5% of consolidated net sales.

In the engineering segment, sales of vacuum carburizing

Major activities include the design and manufacture of, andfurnaces and parts increased. As a result, engineering seg-related after-sales services for, melting and refining equipment

ment sales for fiscal 2017 increased 4.0% year on year tosuch as arc furnaces and ladle furnaces (LF), heat treatment¥24,865 million, while operating income increased by ¥617

furnaces for auto parts such as vacuum carburizing furnaces

million to ¥1,835 million.

and STC (Short Time Cycle) annealing furnaces, and environ®

mental 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 2017

imately 3% of consolidated net sales, include the sale of prod-rose 33.7% year on year to ¥14,182 million, while operatingucts made by Group companies, employee benefits services,income increased by ¥1,103 million to ¥2,686 million. These

real estate and insurance services, golf course management,

increases partly reflected growth in transaction volume, mainly

analytics, and sales of software to external customers.

owing to higher sales volumes of specialty steel and highperformance materials.

11

RESEARCH AND DEVELOPMENT

Leveraging its advanced technology capabilities in specialty steel, the Daido SteelGroup has declared its management philosophy of “pursuing the potential of materials to support our future,” and conducts a proactive program of research and development (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 total of
286 researchers throughout the Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥5,419 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

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

8,000
6,000
4,000
2,000
0
2015 2016 2017 2018

RESEARCH AND DEVELOPMENT(1) Specialty SteelIn this segment, R&D includes basic material development,such as automotive structural materials and tool steel, andprocess innovations ranging from steelmaking, refining andsolidification to quality assurance.
R&D costs for the fiscal year under review in this segment
totaled ¥1,300 million. The following is one of our majorachievements in this area.

• 1600 MPa class ultra-high-strength quenched andtempered bolts
Daido Steel has developed 1600 MPa class quenched andtempered steel for bolts tightened in plastic regions, a first for
the automotive field. Japanese automakers have adopted thematerial for use in engine parts, and we have begun mass producing it. We tackled the issue of increased susceptibility todelayed fractures caused by hydrogen when making steel
stronger by adding an appropriate amount of alloying additives
and establishing the proper processing conditions to sphericallydisperse carbides, which have a detrimental effect. In addition,
we have secured stable, mass production quality capable ofpreventing quench cracking, which is a problem during
manufacturing.

• RPD815 steel for plastic molds
Daido Steel has developed material for molds suitable for forming plastic optical products. By getting the composition justright, the material reduces rust formation on the mold while
maintaining machinability. Having gained recognition forenabling detailed shape machining while reducing defects fromoptical products becoming contaminated by rust that forms on
molds, the material has been selected for use in molds for LED
light guide plates, which are increasingly being used in automotive lamps.

12• Phased array ultrasonic testing technology for highattenuation steel billets
Daido Steel uses ultrasonic testing to assure the internal qualityof specialty steel products. To meet customer requests for strict
quality control, Daido Steel has developed even more precise
testing technologies for use in the manufacturing process. For
steel billets, for which it had been difficult to conduct ultrasonic
testing due to impact from the coarse crystalline structures, wehave enhanced our quality assurance capabilities by introducing
high-precision flaw inspection equipment.

(2) High Performance Materials andMagnetic Materials
In this segment, the Daido Steel Group conducts R&D focusing
on developing materials that resist corrosion and heat, highgrade strip steel, welding materials, magnetic materials andelectronic devices.
R&D costs for the fiscal year under review in this segment
totaled ¥2,653 million. The following are some of our majorachievements in this area.

• World-leading soft magnetic materials with highmagnetic permeability: MENPC2-S and MENPB-S
Daido Steel has developed world-class soft magnetic materials
with high magnetic permeability, which can be used in increasingly sensitive sensors for which demand is growing as theelectrification of automobiles and automated driving advance.
We will take this opportunity to expand our lineup of soft magnetic materials with high magnetic permeability and sell them foruse in various automotive sensors.

• Heavy rare earth-free magnets for HEVs win
Minister’s Prize in the Monodzukuri Nippon
Grand Awards
The neodymium magnets that Daido Electronics Co., Ltd., amember of the Daido Steel Group, manufactures using its­proprietary hot deformation method earned it the Ministry of
Economy, Trade and Industry (METI) Minister’s Prize in the­Seventh Monodzukuri Nippon Grand Awards together with aJapanese automaker. The number of vehicle models using themagnets has been gradually expanding since the magnets werebrought into use in September 2016, and we aim to further
enhance performance to bring the magnets into even wider use.

R&D in this segment concentrates on development of turbochargers, engine valves and other automotive parts, as well as
parts for various types of industrial machinery.
R&D costs for the fiscal year under review in this segment
totaled ¥1,334 million. The following is one of our majorachievements in this area.

• Heat-resistant titanium alloy DAT54 achieves AMS
certification
The heat-resistant titanium alloy DAT54 developed by Daido
Steel passed inspections by the U.S. Aerospace Material Specifications (AMS) organization, and was issued the specification
AMS6952 to cover the UNS R56643 titanium alloy sheet on
March 3, 2018. DAT54’s outstanding heat resistance enables its
use in rotors, an especially important aircraft engine part. It is
the first heat-resistant titanium alloy developed in Japan to earn
the AMS certification. Moving ahead, we will work to expand its
use in the aircraft field.

RESEARCH AND DEVELOPMENT(3) Parts for Automobile and Industrial Equipment(4) Engineering
Engineering R&D focuses on the development of environmental
conservation and recycling equipment, and a variety of energysaving industrial furnaces.
R&D costs for the fiscal year under review in this segment
totaled ¥130 million.

13

CSR AND THE ENVIRONMENT

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

CSR AND THE ENVIRONMENT

Major Initiatives
Preventing Global Warming
The first commitment period for the Kyoto Protocol ran from2008 to 2012. In that time frame, Daido Steel aimed toreduce its CO2 emissions volume by 10% compared to the1990 level in accordance with the guidelines of the Japan
Iron and Steel Federation. We worked to achieve this goalby such measures as expanding the use of exhaust heatrecovery in heating furnaces, shifting our fuel source fromheavy oil to natural gas, and improving the yield ratio
through an increase in the ratio of production by continuous
casting. Due to the benefits and operational improvementsfrom cumulative investments of approximately ¥5.0 billion
made from 2006 to 2012, and to changes in productionlevels, the annual CO2 emissions from 2008 to 2012
decreased by 24.7% on average. In addition, in fiscal 2014,
a cutting-edge, energy-efficient electric arc furnace wasinstalled at the Chita Plant at a cost of ¥19.8 billion. This led

to rationalizing effects being evident throughout the year,
and resulted in a 3% improvement in CO2 emissions per tonof production. Subsequently, further improvements weremade in fiscal 2017 as a result of the benefits from introducing ladle preheating oxygen combustion in the steelmaking process.
Going forward, in accordance with the objectives of theCommitment to a Low Carbon Society ongoing plan forfiscal 2013 to fiscal 2020 formulated by one company in theJapan Business Federation (Keidanren) and one company
in the Japan Iron and Steel Federation, we will continue
implementing further reform measures, such as introductionof energy-saving advanced technologies, reductions in thenumber of heat exchangers, improvements in the yieldratio, and production in optimal areas.
Strengthening the CSR Promotion Framework
The Daido Steel Group has responded to the needs of ourvarious stakeholders by establishing the Human Resources
Labor Committee and various other committees as parent
organizations to support CSR activities, such as the Environment and Energy Committee. With a view to further
strengthening this framework, in fiscal 2007, the CSR Committee was established to supervise general CSR activities.
Members of the CSR Committee formulate Group-wide
policies and action plans with the aim of unifying andexpanding CSR activities across all Group companies anddivisions.
Starting January 2013, the Environment and Energy
Committee was split into two independent committees(namely, the Environment Committee and the Energy Committee) to promote CSR activities in a more fulfilling way.
For details, please refer to the annually issued CSR Report.
URL: http://www.daido.co.jp/csr/data/report.html (Japanese only)

CO2 EMISSIONS VOLUME
Kg of CO2/
ton of production

1,000 tons
CO2/year

2,000

800

1,500

1,000

600
–19.0%–20.4%–25.1%–18.1% –25.0% –27.8% –22.3%–23.6% –22.9% –25.9%–33.8%

500

0

14

400

200

0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 (Forecast)

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

Basic Policy

Internal Control System

Daido Steel views corporate governance as one of the key
issues for management in today’s rapidly changing businessenvironment. We strive to increase management efficiency,
accelerate and improve decision-making, and ensure management transparency.
In addition to determining the Daido Steel Group Management Philosophy and Guidelines, the Company has also established the Daido Steel Corporate Code of Ethics to clarify its
responsibilities as a corporation that contributes to society.
Through these measures, the Company endeavors to maintainits foundation as a corporation that is open to society.

Risk Management Initiatives
Daido Steel emphasizes risk management and legal compliance in its management. To this end, the Company has set
out basic points for risk management in the Risk Management Regulations. In addition, the Risk Management Committee discusses management of projected upcoming and latentrisks within the Group.
The Company has appointed a director who is responsible for the Company-wide supervision of risk management
and compliance.
The Company has formulated regulations for emergency
countermeasures in the event of a major accident or otherissue, with the purpose of promptly sharing information withconcerned parties, speedy and smooth response to theissue, and minimizing the impact on business activities. The
Company disseminated the regulations to all employees andGroup companies while determining rules for emergency
countermeasures and contact systems with the Group companies. The Company and Group companies also participate
in Group CRM study sessions for information exchange andthe study of auditing techniques related to risk management,compliance, internal controls and other topics.

Governance System
Daido Steel uses an Audit & Supervisory Board system. By
using a system that supervises and oversees business execution through a Board of Directors, including two external directors, and an Audit & Supervisory Board, including two external
Audit & Supervisory Board members, Daido Steel enhances its
corporate governance, optimizes and accelerates decisionmaking and secures fair and transparent management.

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

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

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

15

MECHANISM FOR BUSINESS EXECUTION, AUDIT, SUPERVISION AND INTERNAL CONTROL(As of June 27, 2018)

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
2 external directors

AuditsMutualcooperation

President andChief Executive Officer

Accounting
Auditor(independent auditor)

Accounting audit

Management Meeting
Deliberation ofimportantmatters, etc.

Mutualcooperation
Corporate Risk Management Department*

AuditsInternal Audit
Division

AuditsExecutive Board

Business divisions

Internal audits

Risk Management
Division

Committees• Risk Management
Committee• Internal Control
Committee, etc.

Advises and supports

Consults and reports

CORPORATE GOVERNANCE
OFFICERSGroup companies* As of June 28, 2017, Daido has realigned its organization to strengthen the auditing and risk management operations, and changed the Auditing Department
to the Corporate Risk Management Department.

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

REPRESENTATIVE EXECUTIVE DIRECTORS,EXECUTIVE VICE PRESIDENTS

Tadashi Shimao

Takeshi Ishiguro

Tsukasa Nishimura

DIRECTORS(OUTSIDE DIRECTORS)DIRECTORS, MANAGING EXECUTIVE OFFICERS

Satoshi Yoshida

16

Susumu Shimura

Takeshi Muto

Kazuto Tachibana

Hajime Amano

Tadashi Imai

Hitoshi Tanemura

MANAGING EXECUTIVE OFFICERSEXECUTIVE OFFICERS

Kazuhiko Hirabayashi

Tomoki Hanyuda

Takaaki Taketsuru

Yuji Noguchi

AUDIT AND SUPERVISORY
BOARD MEMBERS

Yoshiaki Mori

Kimihiko Seki

Tetsuya Shimizu

Toshiaki Yamashita

Toshinori Koike

Hirotaka Yoshinaga

Hiroshi Matsui

Kazuhiro Toshimitsu

Tadayuki Kashima

Shinichi Nishikawa

Kunihito Kawanishi

Akihito Kajita

Tatsushi Iwata

Kenji Matsuo

FINANCIAL SECTIONFINANCIAL SECTIONCONTENTS
18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

22

CONSOLIDATED BALANCE SHEET24

CONSOLIDATED STATEMENT OF INCOME

25

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

26

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

28

CONSOLIDATED STATEMENT OF CASH FLOWS

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

54

INDEPENDENT AUDITOR’S REPORT

17

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

increased by ¥60,096 million year on year to ¥505,219 million,

In fiscal 2017, ended March 31, 2018, the Japanese economy

due to a rise in sales prices in line with an increase in sales

remained on a gradual recovery path, supported by a continu-

volume and rises in raw material prices. Ordinary income rose

ing moderate recovery in consumer spending due to improve-by ¥9,757 million to ¥36,130 million, due to the positive contri-

ments in employment and income conditions, along withbution of higher sales volumes and other factors. Net income

improved industrial production in the corporate sector. In theattributable to owners of the parent increased by ¥7,535 million

U.S., the steady economic recovery continued as consumer

to ¥23,921 million.

As a result, the Daido Steel Group’s net sales in fiscal 2017

spending and capital expenditures increased. In Europe, thegradual economic recovery continued due to robust employ-

BUSINESS SEGMENT PERFORMANCE

ment conditions. The Chinese economy has also been in aSpecialty Steelgood condition thanks to increased exports.

Sales volume for structural steel increased year on year, mainly

FINANCIAL SECTION

Under these economic circumstances, the Japanese auto-of demand for this steel, and a recovery in demand for industrial

continued its strong performance because in addition to themachines in China. Sales volume of tool steel increased year on

recovery in domestic sales there was an increase in sales inyear as inventory adjustments ended. The cost of steel scrap,

China. Moreover, demand from China for industrial machines

the main raw material, rose year on year mainly due to thevigorously increased. There was a continued boom in capital

impact of the rising prices of steel products in China. Sales

expenditures related to semiconductors, and the associatedprices also increased year on year in line with this trend.

demand continued to be robust. Prices of scrap steel, a key

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

raw material, increased year on year mainly due to the impact of2017 increased by 14.9% year on year to ¥189,095 million, due

the rising prices of steel products in China.

primarily to higher sales volume and an increase in sales prices
in connection with rising raw material prices. Operating income
increased by ¥664 million to ¥6,478 million.

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

10,000030,00020,00010,000

0

0
2016

18

due to favorable sales in the automotive sector, a major source

mobile industry, a key source of demand for specialty steel,

2017

2018

2016

2017

2018

2016

2017

2018

High Performance Materials and Magnetic
Materials

Parts for Automobile and Industrial Equipment

Sales volume of stainless steel products increased year on year,

increased demand for use in semiconductors, along with solid

driven by strong demand for use in automobiles and semicon-

aircraft-related demand. Net sales of die forged products andductors. Sales volume of high alloys increased year on year

engine valves increased year on year, owing to favorable auto-

atop higher automobile-related demand. Sales volume of mag-mobile sales. Net sales of precision cast products rose, reflect-

netic products rose year on year primarily due to a continued

ing continuing growth in turbocharger-related demand.

increase in demand for use in electronic power steering sys-

Net sales of free forged products increased year on year, due toAs a result, net sales in the parts for automobile and indus-

tems, in addition to higher demand for use in the drive motors

trial equipment segment for fiscal 2017 increased by 9.0% yearof hybrid vehicles. Powder metal products saw sales volume

on year to ¥106,288 million. Operating income rose by ¥3,586

remain mostly unchanged from the previous fiscal year, as firm

million to ¥3,070 million, as higher sales volume and an

demand for use in hybrid vehicles and other applications was

improved sales composition contributed positively to earnings.

largely offset by some weakness in demand for overseas automobile components.
As a result, net sales for the high performance materials andmagnetic materials segment in fiscal 2017 increased by 15.0%
year on year to ¥170,788 million, due primarily to higher sales
raw material prices. Operating income rose by ¥4,779 million to¥22,196 million as higher sales volume and an improved sales
composition contributed positively to earnings.

FINANCIAL SECTION

volume and an increase in sales prices in connection with rising

19

Engineering

RESEARCH AND DEVELOPMENT

In the engineering segment, sales of vacuum carburizing fur-R&D costs for the entire Daido Steel Group during the fiscal

naces and parts increased. As a result, engineering segment

year under review totaled ¥5,419 million. The research objec-

sales for fiscal 2017 increased by 4.0% year on year to ¥24,865

tives, main achievements and R&D costs in each businessmillion, while operating income increased by ¥617 million tosegment were as follows:¥1,836 million.

(1) Specialty Steel
Trading and Service

Daido Steel bears the principal responsibility for carrying out

Net sales in the trading and service segment for fiscal 2017

specialty steel R&D. Research areas include basic materialrose by 33.7% year on year to ¥14,182 million, while operating

development, such as automotive structural steel and tool steel.

income increased by ¥1,103 million to ¥2,686 million. These

Other areas of emphasis are development of process innova-

increases partly reflected growth in transaction volume, mainly

tions ranging from steelmaking, refining and solidification toowing to higher sales volumes of specialty steel and high per-quality assurance for finished products.
Specialty steel R&D costs during the fiscal year underformance materials.

review totaled ¥1,300 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 ¥2,653 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

20

50,00020182017¥ 8,207¥ 7,5289.0

12,087

9,844

22.8

14,13910,503

34.6

254

273

(7.1)

10,000

919

793

16.0

0

¥35,606¥28,94123.0

Change (%)

40,00030,00020,000

2016

2017

2018

(3) Parts for Automobile and Industrial Equipment

FINANCIAL POSITION

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

Cash Flows

concentrates on development of turbochargers, engine valves

Cash and cash equivalents as of March 31, 2018 (hereafter,and other automotive parts, and parts for various types of“cash”) amounted to ¥40,259 million, representing an increaseindustrial machinery. R&D costs for the fiscal year under reviewof ¥6,573 million year on year.

in this segment totaled ¥1,334 million.
Cash Flows from Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥31,044

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, increasing by ¥2,653 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.

¥36,831 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 ¥30,216 million,(5) Trading and Service

increasing by ¥3,766 million from the previous fiscal year. The

There are no R&D activities in this segment.

major cash outflows included ¥30,254 million in purchases ofCash Flows from Financing Activities
Net cash provided by financing activities was ¥5,478 million,
increasing by ¥7,320 million from net cash used in the previous
fiscal year. The main cash inflow was a net increase in short-termbank loans of ¥17,419 million.

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
2016

2017

2018

21

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2018

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

FINANCIAL SECTIONASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 16)
Time deposits (Notes 9 and 16)
Receivables:
Trade (Note 16)
Other
Total receivables
Inventories (Note 5)
Deferred tax assets (Note 12)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

PROPERTY, PLANT, AND EQUIPMENT:Land (Notes 7 and 9)
Buildings and structures (Notes 6, 7 and 9)
Machinery and equipment (Notes 6 and 9)
Construction in progress
Total
Accumulated depreciation
Net property, plant, and equipment

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4, 9 and 16)
Investments in unconsolidated subsidiaries
and associated companies (Note 16)
Asset for employees’ retirement benefits (Note 10)
Deferred tax assets (Note 12)
Other investments and assets
Total investments and other assets
TOTAL

22

2018

2017

2018

¥   40,259
1,909¥   33,686
1,281$   379,802
18,010134,153
1,330
135,483
115,064
4,588
4,658
(65)
301,896

113,215
1,278
114,493
98,478
4,276
5,160
(165)
257,2091,265,594
12,547
1,278,141
1,085,509
43,283
43,943(613)
2,848,075

36,083
190,688
485,110
5,953
717,834(505,805)
212,02935,474
173,103469,941
3,306
681,824(490,909)
190,915

340,406
1,798,943
4,576,510
56,1606,772,019(4,771,745)
2,000,274

85,15476,310803,340

21,10919,139829
4,886
131,117

22,61721,091621
5,406
126,045

199,141
180,557
7,821
46,094
1,236,953¥ 645,042¥ 574,169$ 6,085,302

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 8 and 16)
Current portion of long-term debt (Notes 8, 9 and 16)
Payables:Trade (Notes 9 and 16)
Acquisitions of property, plant, and equipment
Total payables
Income taxes payable (Note 16)
Accrued expenses
Provision for environmental measures (Note 2 (m))
Other current liabilities (Note 9)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 8 and 16)
Liability for employees' retirement benefits (Note 10)
Retirement allowance for directors and Audit & Supervisory Board members
Provision for environmental measures (Note 2 (m))
Deferred tax liabilities (Note 12)
Other long-term liabilities
Total long-term liabilities

2018

2017

2018

¥ 50,156
30,909¥ 31,108
16,127$  473,170
291,594

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

75,1608,895
84,055
4,636
11,429402
5,034
152,791

852,651
130,811
983,462
70,255
121,840
6,160
54,8302,001,311

78,981
9,642
798
3,086
21,293
2,693
116,493

94,979
9,220
832
3,428
19,517
2,901
130,877

745,104
90,962
7,529
29,113200,877
25,406
1,098,991

37,17230,337
187,799

37,17229,928
169,497

350,679
286,198
1,771,689(3,644)(3,613)(34,377)

27,4980
1,805

21,236
1
1,814

1,756
1,712

1,452
2,365

284,435
31,975
316,410259,852
30,649290,501

259,4150
17,02816,566
16,1512,683,349
301,651
2,985,000¥645,042¥574,169$6,085,302

COMMITMENTS AND CONTINGENT LIABILITIES (Note 18)
EQUITY (Note 11):
Common stock*:
Authorized: 116,000 thousand shares
Issued: 43,448 thousand shares in 2018 and 2017
Capital surplus
Retained earnings
Treasury stock*, at cost:
817 thousand shares in 2018 and 813 thousand shares in 2017
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Noncontrolling interests
Total equity
TOTAL

FINANCIAL SECTION

Thousands of
U.S. Dollars(Note 1)

* 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.

23

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2018

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

2018

2017

2018

¥505,219
412,71392,506¥445,123
366,688
78,435$4,766,217
3,893,519
872,698

56,28836,21852,921
25,514

531,019
341,679

1,936
(941)
978
–

1,870
(967)
811
2,524

18,264(8,877)
9,226
–

–
(127)
(747)
(550)
(322)
75

152
(423)
(444)
(443)
(111)
547

–
(1,198)(7,047)(5,189)(3,038)
708

–
–
311
613

(75)
(1,957)
(86)
1,841

–
–
2,934
5,783

INCOME BEFORE INCOME TAXES

36,831

27,355

347,462

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

11,218(1,075)
10,143

7,515
1,576
9,091

105,830(10,142)
95,688NET INCOME

26,68818,264

251,774

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

2,767

1,878

26,104¥ 23,921¥ 16,386$  225,670

NET SALESCOST OF SALES (Note 13)
Gross profit

FINANCIAL SECTIONSELLING, GENERAL, AND ADMINISTRATIVE EXPENSES(Notes 13 and 14)
Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies
Gain on transfer of assets from employee retirement benefit trust (Note 10)
Gain on sales of investment securities and investments
in unconsolidated subsidiaries and associated companies—net
Foreign exchange loss
Provision for environmental measures (Note 2 (m))
Expenses for environmental measures
Loss on sales and disposals of property, plant, and equipment—net
Investment rents received
Write-down of investment securities and investments
in associated companies (Note 4)
Impairment loss on long-lived assets (Note 6)
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*¥ 561.08
120.00U.S. Dollars¥ 385.92
100.00Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDINGSHARES OF COMMON STOCK*

42,63342,459* Per share figures and 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.

24$     5.29
1.13

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2018

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

2018

2017

2018

¥26,688¥18,264$251,774

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

7,339
1
(855)
4,866
41
11,39258,377(9)
5,858(5,924)745
59,047COMPREHENSIVE INCOME¥32,947¥29,656$310,821

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests¥29,9872,960¥27,875
1,781$282,896
27,925NET INCOME
OTHER COMPREHENSIVE INCOME (Note 19):
Unrealized gain on available-for-sale securities
Deferred (loss) gain on derivatives under hedge accounting
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive income in associates
Total other comprehensive income

FINANCIAL SECTION

See notes to consolidated financial statements.

25

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2018

Thousands

Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE, APRIL 1, 2016
Net income attributable to owners of the parent
Cash dividends, ¥65 per share
Purchase of treasury stock
Disposal of treasury stock
Adjustment of retained earnings for changes
in the scope of consolidation
Increase due to stock exchange
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

CommonStock42,701¥37,172––(1,204)
1,138

–
–
–
–

–
–
–
–

CapitalSurplus

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting¥(3,560)¥13,826¥0––(4,988)
1

–
–
–
–

–
–
–
–

590
–

–
4,934

–
–

–
–

–
6

–
–

–
–

–
–

Retained
Earnings

TreasuryStock¥28,722¥155,251

–
–
–
(0)

16,386(2,736)
–
–

–
–

–
311

–
–

895
–

–

–

–

–

–

7,410

1

42,63537,17229,928

169,497(3,613)

21,2361

Net income attributable to owners of the parent

–

–

–

23,921–––

Cash dividends, ¥120 per share

–

–

–

(5,118)–––Purchase of treasury stock

(4)

–

–

–

(31)

–

–

Disposal of treasury stock

0

–

–

–

0

–

–

–

–

–

(510)

–

–

–

–
–

–
–

409
–

–
9

–
–

–
–

–
–

BALANCE, MARCH 31, 2017

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, 2018

–

–

–

–

–

6,262

(1)

42,631¥37,172¥30,337¥187,799¥(3,644)¥27,498¥0Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE, APRIL 1, 2016

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Noncontrolling
Interests

Total

Total
Equity¥1,821¥2,044¥(2,443)¥232,833¥35,513¥268,346

Net income attributable to owners of the parent

–

–

–

16,386–

16,386

Cash dividends, ¥65 per share

–

–

–

(2,736)–(2,736)

Purchase of treasury stock

–

–

–

(4,988)–(4,988)

Disposal of treasury stock
Adjustment of retained earnings for changes
in the scope of consolidation

–

–

–

1

–

1

–

–

–

590

–

590

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

–

–

–

5,245

–

5,245

–

–

–

895

–

895

Reversal of land revaluation surplus

–

–

–

6

–

6

Net change in the year

(7)

(592)

4,808

11,620(4,864)

6,756

BALANCE, MARCH 31, 2017

1,814

1,452

2,365

259,852

30,649290,501

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

–

–

–

0

–

0

–

–

–

(510)

–

(510)

–
–

–
–

–
–

409
9

–
–

409
9

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, 2018

26

Outstanding
Number of
Shares ofCommon Stock

(9)

304

(653)

5,903

1,326

7,229

¥1,805¥1,756¥ 1,712¥284,435¥31,975¥316,410

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

CommonStock

BALANCE, MARCH 31, 2017

CapitalSurplusRetained
Earnings

Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting$350,679$282,340$1,599,028$(34,085)$200,340$9

Net income attributable to owners of the parent––

225,670–––

Cash dividends, $1.13 per share––(48,283)–––

Purchase of treasury stock

–

–

–

(292)

–

–

Disposal of treasury stock

–

–

–

0

–

–

Adjustment of retained earnings for changes inthe scope of consolidation––(4,811)–––

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

–

3,858

–

–

–

–

Reversal of land revaluation surplus

–

–

85

–

–

–

Net change in the year

–

–

–

–

59,075(9)$350,679$286,198$1,771,689$(34,377)$259,415$0

BALANCE, MARCH 31, 2018

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2017

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity$17,113$13,698$22,311$2,451,433$289,142$2,740,575

Net income attributable to owners of the parent

–

–

–

225,670–

225,670

Cash dividends, $1.13 per share

–

–

–

(48,283)–(48,283)

Purchase of treasury stock

–

–

–

(292)

–

(292)

Disposal of treasury stock

–

–

–

0

–

0

Adjustment of retained earnings for changes inthe scope of consolidation

–

–

–

(4,811)–(4,811)

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

–

–

–

3,858

–

3,858

Reversal of land revaluation surplus

–

–

–

85

–

85

(85)

2,868

(6,160)55,68912,50968,198$17,028$16,566$16,151$2,683,349$301,651$2,985,000

Net change in the year
BALANCE, MARCH 31, 2018

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.

27

CONSOLIDATED STATEMENT OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2018

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
Impairment loss on long-lived assets
Gain on transfer of assets from employee retirement benefit trust
Loss on sales and disposals of property, plant, equipment, and other—net
Loss (gain) on sales of investment securities and investments in unconsolidated subsidiaries
and associated companies
Write-down of investment securities and investments in unconsolidated subsidiaries
and associated companies
Equity in earnings of associated companies
Changes in assets and liabilities:
Increase in notes and accounts receivable(Decrease) increase in allowance for doubtful accounts
Increase in inventories
Increase in notes and accounts payable
Decrease in provision for environmental measures
Decrease in asset for retirement benefits
Increase in liability for employees’ retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities

2017

2018

¥ 36,831¥ 27,355$ 347,462(8,263)
20,741––
270(6,185)23,276
1,957(2,524)
95(77,953)
195,670
–
–
2,547

1

(152)

9

1
(978)

75
(811)

9
(9,226)(20,750)(132)(16,346)
15,146
(91)
1,039
422
3,152
(5,788)31,044(14,182)22(3,479)6,795(1,891)
2,310
446(4,716)
1,036
28,391(195,755)(1,245)(154,208)
142,887
(858)
9,802
3,981
29,736(54,604)
292,858(1,057)464(30,254)
1,353

(318)
534
(27,894)
693(9,972)
4,377(285,415)
12,764INVESTING 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(19)(1,182)

(179)

6
(123)
124
(710)
(30,216)

587
(193)
1,941
(617)
(26,449)

57(1,160)1,170(6,698)(285,057)

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

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

12,81818,578(14,365)(10,000)(4,988)(23)(3,352)(15)(496)(1,843)

164,330
100,509(149,943)–(292)(5,547)(54,245)–(3,132)
51,679FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATED SUBSIDIARY, BEGINNING OF YEAR
DECREASE IN CASH AND CASH EQUIVALENTS DUE TO COMPANY DEVESTITURE
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

(173)
6,132
442
–
33,685¥ 40,259

(203)
(104)
404
(388)
33,774¥ 33,686(1,632)
57,8494,170–
317,783$ 379,802

See notes to consolidated financial statements.

28

2018

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2018

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 2017 consolidated financial statements to conform to the classifications used in 2018.
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 ¥106 to $1, the approximate rate of exchange at March 31, 2018.
Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or
any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The Company had 67 (67 in 2017) subsidiaries and 13 (13 in 2017) associated companies at March 31, 2018. The consolidated financial
statements as of March 31, 2018, include the accounts of the Company and 36 (34 in 2017) significant subsidiaries (together, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control overfor by the equity method.
Investments in six associated companies were accounted for by the equity method for the years ended March 31, 2018 and 2017.
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.
Effective April 1, 2017, Daido Steel (Thailand) Co., Ltd. and a silent partnership which makes TAKAKURA FUNDING CORPORATIONFINANCIAL SECTION

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

LTD. a business operator 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.
The difference between the cost of acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition isamortized on a straight-line basis over five years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is also eliminated.

(b) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements
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.

29

(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.

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

(f) Inventories
Inventories are stated at the lower of cost, mainly determined by the weighted-average method or net selling value. A write down of inventoryof ¥69 million ($651 thousand) for the year ended March 31, 2018, and a reversal of allowance for inventory valuation of ¥523 million for theyear ended March 31, 2017, 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 ¥4,611 million ($43,500 thousand) and ¥4,585
million at March 31, 2018 and 2017, respectively.
Prior to April 1, 2017, depreciation of certain plants of the Company and certain domestic and foreign subsidiaries was computed by thestraight-line method. Depreciation of other plants of the Company and other subsidiaries was computed by the declining-balance method,while the straight-line method was applied to buildings acquired on or after April 1, 1998, and building improvements and structuresacquired on or after April 1, 2016, for domestic companies. Effective the fiscal year ended March 31, 2018, depreciation of property, plantand equipment of the Company and domestic consolidated subsidiaries is computed by the straight-line method. The Group constructed
production systems as part of its medium- to long-term business plan and the Company and domestic consolidated subsidiaries reviewed

30

the pattern of usage and expected benefits of property, plant and equipment. As a result of the review, the Company deems the change
appropriate because the straight-line method will more accurately reflect the pattern of usage and the expected benefits of such assets.
The effect of the change was to increase operating income and income before income taxes by ¥2,306 million ($21,755 thousand) and¥2,348 ($22,151 thousand), respectively, for the year ended March 31, 2018.
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, 2018, the carrying amount of the land after the above one-time revaluationand impairment exceeded the market value by ¥953 million ($8,991 thousand).

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

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

FINANCIAL SECTION

asset group. The impairment loss would be measured at the amount by which the carrying amount of the asset exceeds its recoverable(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, multi-employer 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 andthe estimated costs of removal of steel slag products sold in reserve for future expenses. The estimated costs of removal of steel slag
­products 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) Bonuses to Directors and Audit & Supervisory Board Members
Bonuses to directors and Audit & Supervisory Board members are accrued at the year-end to which such bonuses are attributable.

31(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.

FINANCIAL SECTION(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.
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, 2018 and 2017.

32

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, 2018. All prior year share and per share figures have been restated to reflect the impact of the reverse stock split and to provide
data on a basis comparable to the year ended March 31, 2018. 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
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.

(w) Change in Presentation
Prior to April 1, 2017, expenses for environmental measures was included in other—net in other income (expenses) of the consolidated statement of income. Since during the fiscal year ended March 31, 2018, the amount increased significantly, such amount is disclosed separately

FINANCIAL SECTION­permitted for annual periods beginning on or after April 1, 2018.

in other income (expenses) of the consolidated statement of income for the year ended March 31, 2018. The amount included in other income(expenses) for the year ended March 31, 2017 was ¥165 million, which has been reclassified to expenses for environmental measures.

3. BUSINESS COMBINATIONSYear Ended March 31, 2017
(Transaction under common control)
On October 1, 2016, the Company acquired stocks of Daido Kogyo Co., Ltd. (“Daido Kogyo”), a consolidated subsidiary of the Company,
by issuing the Company’s shares to all of the shareholders of Daido Kogyo in exchange for all of the outstanding shares of Daido Kogyo. As
a result, Daido Kogyo became a 100%-owned subsidiary of the Company.

a. Outline of the business combination(1)	Name of combined company and its business outline
Name of the combined company: Daido Kogyo Co., Ltd.
Business outline: Sale, export and import of special steel, nonferrous metals, materials, machinery, etc.
(2)	Date of business combination
October 1, 2016(3)	Legal form of business combination
Stock exchange(4)	Name of the company after the combination
No change(5)	Outline of the business combination
This stock exchange is made in order to strengthen the marketing initiatives in foreign countries and to establish efficient businessmodels for the turbo materials, magnetic and high alloy businesses.

33

b. Accounting method
The business combination was accounted for as a transaction with noncontrolling interests.

c. Acquisition of subsidiaries stocks(1)	The Company acquired the subsidiary’s shares in exchange for the Company’s treasury stock in the amount of ¥5,245 million.
(2)	The exchange ratio, the formula and number of stocks issued to shareholders of noncontrolling interests
The Company allotted 1.53 shares per 1 shares of Daido Kogyo.
The Company and Daido Kogyo determined the exchange ratio by referencing the stock valuation of Daido Kogyo by The Bank ofTokyo Mitsubishi UFJ, Ltd, a third party. The discounted cash flow method was used in the valuation. 11,379,417 shares were allotted tononcontrolling shareholders of Daido Kogyo.

d. Transactions with noncontrolling shareholders
As a result of the transactions with noncontrolling shareholders, capital surplus was increased by ¥715 million.

4. INVESTMENT SECURITIESInvestment securities at March 31, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

Noncurrent:
Equity securities
Total

2018

2017

2018

¥85,154¥85,154¥76,310¥76,310$803,340$803,340

The costs and aggregate fair values of investment securities at March 31, 2018 and 2017, were as follows:
Millions of Yen
March 31, 2018

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

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

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥44,604¥30,258¥526¥74,336

Cost

Unrealized
Gains

Unrealized
LossesFair Value$422,811$374,160$12,235$784,736

Millions of Yen
March 31, 2017

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2018

Available-for-sale:
Equity securities

34

Information for available-for-sale securities that were sold during the years ended March 31, 2018 and 2017, was as follows:
Millions of Yen
March 31, 2018

Proceeds

Available-for-sale:
Equity securities

Realized
Gains¥6

Thousands of U.S. Dollars
Realized
Losses–Realized
Gains

Proceeds¥1$57

Realized
Losses–$9Millions of Yen
March 31, 2017

Proceeds

Available-for-sale:
Equity securities¥26

Realized
Gains¥6

Realized
Losses¥0

Impairment losses on equity securities and investments in associated companies for the years ended March 31, 2018 and 2017, were
nil and ¥75 million, respectively.

5. INVENTORIESInventories held by the Group at March 31, 2018 and 2017, consisted of the following:

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

2018

2017

2018

¥ 19,426
12,637
21,792
26,18022,322
12,707¥115,064¥18,151
11,724
18,20122,06017,081
11,261¥98,478$  183,264
119,217205,585
246,981210,585
119,877$1,085,509

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

6. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of March 31, 2018 and 2017. As a result, the Group recognized no impairment
loss for the year ended March 31, 2018. The Group recognized an impairment loss of ¥1,957 million as other expense for property, plantand equipment located in Gifu due to devaluation, and the carrying amount of the relevant assets was written down to the recoverable
amount for the year ended March 31, 2017.

7. 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 ¥1,355 million ($12,783 thousand) and ¥848
million for the years ended March 31, 2018 and 2017, respectively. Gains on sales of rental property were nil and ¥194 million for the years
ended March 31, 2018 and 2017, respectively.

35

The carrying amounts, changes in such balances, and market prices of such properties at March 31, 2018 and 2017, were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying AmountMarch 31, 2017

Increase, net

Fair Value
March 31, 2018

¥4,092¥5,422¥9,514

Carrying Amount

Fair Value

March 31, 2018

March 31, 2017

Increase, net

March 31, 2018

March 31, 2018

¥38,646$51,151$38,604$89,755$364,585

Millions of Yen
Carrying AmountMarch 31, 2016

Increase, net¥5,655¥233

Fair Value
March 31, 2017

¥5,422

March 31, 2017¥24,692

Notes:(1) The carrying amount recognized in the consolidated balance sheet was net of accumulated depreciation and accumulated impairment losses, if any.
(2) The increase during the fiscal year ended March 31, 2018, primarily represents the effect of the newly consolidated subsidiaries of ¥4,513 million ($42,575
thousand). The decreases during the fiscal year ended March 31, 2017, primarily represent depreciation of ¥168 million.
(3) The fair value of properties was primarily measured by the Group in accordance with its Real Estate Appraisal Standard.

8. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans consisted of notes to banks and bank overdrafts. The weighted-average rates of annual interest applicable to shortterm bank loans at March 31, 2018 and 2017, were 0.50% and 0.56%, respectively.
Long-term debt at March 31, 2018 and 2017, consisted of the following:Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen
2018

2017

2018

¥ 89,339
10,00010,000551
109,890(30,909)¥ 78,981¥ 90,291
10,00010,000815
111,106(16,127)¥ 94,979$  842,820
94,34094,3405,198
1,036,698(291,594)$  745,104

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2019
2020
2021
2022
2023
2024 and thereafter
Total¥ 30,909
26,422
16,90914,25017,8303,570¥109,890$  291,594
249,264
159,519
134,434
168,208
33,679$1,036,698

Loans from banks and other financial institutions due serially to 2024with weighted-average interest rate of 0.58% in 2018 and 20170.335% unsecured bonds due May 27, 2019
0.150% unsecured bonds due March 7, 2022
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

Annual maturities of long-term debt at March 31, 2018, were as follows:

The Company and a consolidated subsidiary entered into line-on-credit agreements with seven banks. The details of the agreement
were as follows:Line of credit amount
Balance used at March 31, 201836

Millions of Yen

Thousands of
U.S. Dollars¥23,010–$217,075–

9. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥6 million ($57 thousand), current portion of longterm debt of ¥4,140 million ($39,057 thousand), and other current liabilities of ¥8 million ($75 thousand) at March 31, 2018, were as follows:

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

Millions of Yen

Thousands of
U.S. Dollars¥   648
5,061
6,348
979
60
¥13,096$  6,113
47,74559,887
9,236
566$123,547

10. 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
Some of the subsidiaries participate in multi-employer 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.
During the year ended March 31, 2017, the Company transferred a portion of its assets from the employee retirement benefit trust.
Accordingly, the Company recorded unrecognized actuarial gain of ¥2,524 million for the year ended March 31, 2017.
1. The changes in defined benefit obligation for the years ended March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

FINANCIAL SECTION

employees retired at the consolidated balance sheet date.

2018

2017

2018

¥53,246
2,218
168
708
(3,214)101
13¥53,240¥55,123
2,139
168
(60)
(4,123)–(1)¥53,246$502,321
20,924
1,585
6,679(30,321)953
123$502,264

2. The changes in plan assets for the years ended March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2018

2017

2018

¥67,357
1,278(1,884)819(2,549)–4¥65,025¥ 74,650
1,427
6,447
802
(3,746)(12,223)–¥ 67,357$635,443
12,057(17,774)
7,726(24,047)–38$613,443

37

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, 2018 and 2017, 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

2018

2017

2018

¥2,240
598
(252)
(308)
11
¥2,289¥2,286
564
(271)
(339)
(0)
¥2,240$21,132
5,641(2,377)(2,906)
104$21,594

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, 2018 and 2017, is as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

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

2018

2017

2018

¥ 53,225(68,414)(15,189)
5,692¥ (9,497)¥ 53,203(70,501)(17,298)
5,427¥(11,871)$ 502,122(645,415)(143,293)
53,698$ (89,595)

5. The components of net periodic benefit costs for the years ended March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2018

2017

2018

¥ 2,218169(1,278)
1,858
(70)
598
181
–
¥ 3,676¥ 2,139
168(1,427)
3,181
(80)
564
97
(2,524)¥ 2,118$ 20,924
1,594(12,057)
17,528
(660)
5,642
1,708
–
$ 34,679

6. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for theyears ended March 31, 2018 and 2017, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

Prior service cost
Actuarial (losses) gains
Total

38

2018

2017

2018

¥(171)(734)¥(905)¥  (80)7,164¥7,084$(1,613)(6,925)$(8,538)

7. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans as of March 31, 2018 and 2017, are as follows:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial gains
Total

2018

2017

2018

¥   54
2,081¥2,135¥  2252,815¥3,040$   509
19,632$20,141

2018

2017

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

14%
62
22
2
100%

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

14%
64
21
1
100%

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, 2018 and 2017, are set forth as follows:
2018

2017

0.3%
2.0

Discount rate
Expected rate of return on plan assets

FINANCIAL SECTION(2) Method of determining the 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¥317 million ($2,991 thousand) and ¥265 million for the years ended March 31, 2018 and 2017, respectively.
(1) The funded status of the multi-employer plan as of March 31, 2018 and 2017, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2018

2017

2018

¥178,928
178,704¥    224¥251,436
253,982¥  (2,546)$1,688,000
1,685,888$    2,112(2) The contribution ratio of the Group in the multi-employer plan for the years ended March 31, 2018 and 2017, was as follows:

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

2018

2017

2.75%

2.29%

39

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

(b) Increases/Decreases and Transfer of Common Stock, Reserve, and Surplus
FINANCIAL SECTION

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.

40

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted innormal effective statutory tax rates of approximately 31% for each of the years ended March 31, 2018, and 2017.
The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2018 and 2017, were as follows:

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

2018

2017

2018

¥ 2,371
2,981
22
2,732
3,154
939
1,121
467
3,665
(8,375)
9,077¥ 2,142
2,803
56
2,726
3,327
884
1,153
420
4,106
(9,045)
8,572$ 22,368
28,123
208
25,77429,755
8,858
10,575
4,406
34,575(79,010)85,632

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

1,757
1,230
8,868
5,026
1,076
3,342
1,893
23,192¥14,620

16,038
11,500108,434
40,783
10,17931,528
16,943
235,405$149,773

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2018, with the corresponding figures for 2017 is as follows:

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

2018

2017

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

31.0 %
1.2
(4.7)
0.4
5.8
4.2
(0.9)
(0.2)
(3.6)
–
0.3
(0.3)
33.2 %

13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥5,419 million ($51,123 thousand) and ¥6,206 million for the years ended
March 31, 2018 and 2017, respectively.

4114. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the years ended March 31, 2018 and 2017, 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

2018

2017

2018

¥14,771
22,936
2,772
279
1,660
1,256
12,614¥56,288¥13,175
22,002
2,475
230
2,059
1,226
11,754¥52,921$139,349
216,377
26,151
2,632
15,661
11,849119,000$531,019

15. LEASES(As lessor)
Expected revenues from noncancelable operating leases at March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

Due within one year
Due after one year
Total

2018

2017

2018

¥  5082,132¥2,640¥  508
2,631¥3,139$ 4,793
20,113$24,906

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

(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables—trade, such as trade notes and accounts, and electronically recorded monetary claims, are exposed to customer credit risk.
Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks arenetted against the balance of payables denominated in the same currency, of which positions are almost equal. In addition, foreign currency
receivables of certain consolidated subsidiaries are hedged by using forward foreign currency contracts. Investment securities, mainly equity
instruments of customers and suppliers of the Group and for alliance purposes, are exposed to the risk of market price fluctuations.
Payment terms of payables—trade, such as trade notes and accounts, and electronically recorded obligations, are less than one year.
Although payables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, those risks are netted
against the balance of receivables denominated in the same foreign currency, of which positions are almost equal, as noted above. In addition, foreign currency trade payables in certain consolidated subsidiaries are exposed to risk resulting from fluctuations in foreign currency
exchange rates. The risk is hedged by using forward foreign currency contracts.
Short-term bank loans and commercial paper are mainly used for general operating purposes, and long-term bank loans and bonds aremainly used for investment and strategy. Although a portion of such bank loans and commercial paper, excluding bonds, is exposed to riskof 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 17 for more details about derivatives.

42

(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 17 for detailabout derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2018.
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 on

Liquidity Risk Management
The Group manages its liquidity risk by establishing a cash management plan according to reports from each department.

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

FINANCIAL SECTION­internal policies.

(a) Fair value of financial instruments
Millions of Yen
Carrying
AmountCash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in an associated company
Total
Short-term bank loans
Current portion of long-term debt
Payables—trade
Income taxes payable
Long-term debt
Total

March 31, 2018

Thousands of U.S. Dollars

Fair Value

Unrealized
Gain (Loss)

Carrying
AmountFair Value

Unrealized
Gain (Loss)¥ 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

$  379,802
18,0101,265,594
784,736
47,528$2,495,670$  379,802
18,0101,265,594
784,736
47,924$2,496,066––––$  396$  396¥ 50,156
30,90990,381
7,447
78,981¥257,874¥ 50,156
30,90990,381
7,447
78,782¥257,675

–
–
–
–
¥199
¥199

$  473,170
291,594852,651
70,255745,104$2,432,774$  473,170
291,594852,651
70,255743,226$2,430,896––––$1,878$1,87843

Millions of Yen
Carrying
AmountFair Value

Unrealized
Loss

Cash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in an associated company
Total¥ 33,686
1,281
113,215
74,336
4,575¥227,093¥ 33,686
1,281
113,215
74,336
3,748¥226,266––––¥(827)¥(827)

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

¥ 31,108
16,12775,1604,636
94,979¥222,010¥ 31,108
16,12775,1604,636
94,730¥221,761

–
–
–
–
¥ 249
¥ 249

March 31, 2017

Cash and Cash Equivalents, Time Deposits, Receivables—Trade, Short-Term Bank Loans, Current Portion of Long-Term Debt with Variable
Interest Rates, Payables—Trade, and Income Taxes Payable
The carrying amounts of cash and cash equivalents, time deposits, receivables—trade, short-term bank loans, current portion of long-term
debt with variable interest rates, payables—trade, and income taxes payable approximate fair value because of their short maturities.
FINANCIAL SECTION­Carrying amounts and fair values of receivables—trade include those hedged by foreign currency forward contracts and translated at thecontracted rates. Carrying amounts and fair values of short-term bank loans 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 4.
Long-Term Debt with Fixed Interest Rates
The fair values of long-term debt with fixed interest rates are determined by discounting the cash flows related to the debt* at the risk-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 17.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of
U.S. Dollars

Millions of Yen

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

44

2018

2017

2018

¥ 1,972
16,070¥ 1,974
18,042$ 18,604
151,604

(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen
Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years throughTen Years

Due after
Ten Years¥ 40,259
1,909
134,153¥176,321

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2018

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
Receivable—trade
Total$  379,802
18,0101,265,594$1,663,406

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2018

Cash and cash equivalents
Time deposits
Receivable—trade
Total

Thousands of U.S. Dollars

Please see Note 8 for annual maturities of long-term debt and the current portion of long-term debt.

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

FINANCIAL SECTION

17. DERIVATIVES

45

Derivative transactions to which hedge accounting is not applied at March 31, 2018 and 2017
Millions of Yen

At March 31, 2018

FINANCIAL SECTION

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

46

Contract
AmountContract
AmountDue after
One Year

Fair
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

Millions of Yen

At March 31, 2017

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

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain (Loss)¥  314
322
549
46
19
8
0

–
–
–
–
–
–
–

¥ (3)
(7)
(29)
(0)
2
(0)
(0)

¥ (3)
(7)
(29)
(0)
2
(0)
(0)

5,977
303
152
156
5
86

–
–
–
–
–
–

55
2
(8)
1
1
(7)

55
2
(8)
1
1
(7)

Thousands of U.S. Dollars

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

Contract
AmountFair
Value

Unrealized
Gain (Loss)$ 4,434
670
5,547
953
–
0
–
0

–
–
–
–
–
–
–
–

$ (66)
(9)
(57)
(9)
–
0
–
0

$ (66)
(9)
(57)
(9)
–
0
–
0

56,123
2,755
1,660
2,472
–
1,896

–
–
–
–
–
–

226
57
(9)
(19)
–
38

226
57
(9)
(19)
–
38

Derivative transactions to which hedge accounting is applied at March 31, 2018 and 2017
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
AmountDue after
One Year

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

–
–
–

Receivables—trade
Receivables—trade

88
59

–
–

Short-term bank loans
and long-term debt

5,500

¥ 4,500

24,40010,900

Fair
Value

FINANCIAL SECTION

At March 31, 2018

Contract
AmountDue after
One Year¥20(1)

See Noteon thefollowing
page

47

Millions of Yen

At March 31, 2017

Foreign currency forward contracts:
Hedge accounting:
Buying:U.S. dollar
Euro
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
AmountDue after
One Year

Payables—trade
Payables—trade¥   443
15––

Receivables—trade41–

Short-term bank loans
and long-term debt

5,500

¥ 5,500

33,90024,400

Fair
Value

¥2
0

See Note
below

Thousands of U.S. Dollars

FINANCIAL SECTION

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
AmountDue after
One Year

Receivables—trade
Receivables—trade
Receivables—trade$  1,472
377
689

–
–
–

Receivables—trade
Receivables—trade

830
557

–
–

Short-term bank loans
and long-term debt

51,887$ 42,453

230,189

102,830

Fair
Value

$19
0
(9)

See Note
below

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

18. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2018, the Group was contingently liable for ¥4,123 million ($38,896 thousand) for guarantees of loans and payables of­unconsolidated subsidiaries, associated and other companies, and employees.

48

19. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended March 31, 2018 and 2017, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Total
Deferred (loss) gain on derivatives under hedge accounting:(Losses) gains arising during the year
Reclassification adjustments to profit or loss
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 income in associates:
Gains arising during the year
Reclassification adjustments to profit or loss
Total
Total other comprehensive income

2018

2017

2018

¥ 8,810(0)
8,810(2,622)¥10,4227
10,429(3,090)$ 83,113(0)83,113(24,736)

6,188

7,339

58,377

(2)
–
(2)
1
(1)

2
–
2
(1)
1

(19)
–
(19)
10
(9)

621
621

(855)
(855)

5,858
5,858

(2,693)
1,788
(905)
277
(628)

6,508
577
7,085
(2,219)4,866(25,406)
16,868(8,538)2,614(5,924)

86
(7)
79

42
(1)
41

811
(66)
745

¥ 6,259¥11,392$ 59,047

FINANCIAL SECTION

Unrealized gain on available-for-sale securities:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect

20. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2018, was approved at the Company’s shareholders’ meeting held on June27, 2018:

Year-end cash dividends, ¥60 ($0.57) per share

Millions of Yen

Thousands of
U.S. Dollars¥2,558$24,13249

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

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 manufacturingof stainless steel, high alloy and magnetic materials, titanium products, powder metals for automotive and industrial machinery, and electricaland electronic parts. The “Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging
FINANCIAL SECTION

products, and other products for automotive and industrial machinery parts. The “Engineering” industry consists of manufacturing and­maintenance of steelmaking and environmental equipment, industrial ­furnaces, 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 eachreportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “SUMMARY OF SIGNIFICANTACCOUNTING POLICIES.”
Reportable segment profit represents operating income.
As discussed in Note 2 (h) to the consolidated financial statements, the Company and domestic consolidated subsidiaries changed thedepreciation method. The effect of the change was to increase segment profit of Specialty Steel, High Performance Materials and Magnetic
Materials, Parts for Automobile and Industrial Equipment, Engineering, and Trading and Service by ¥409 million ($3,858 thousand), ¥860
million ($8,113 thousand), ¥942 million ($8,887 thousand), ¥11 million ($104 thousand) and ¥86 million ($811 thousand), respectively, for theyear ended March 31, 2018.

50

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¥189,096¥170,788¥106,288¥24,865¥14,182

Intersegment sales or transfers

65,712

16,022

24,5192,110

11,430¥254,808¥186,810¥130,807¥26,975

Segment profit (loss)¥  6,478¥ 22,196¥  3,070

Segment assets

211,866

205,127

142,6672018

Reconciliations

Consolidated¥505,219–¥505,219

119,793¥(119,793)–¥25,612¥625,012¥(119,793)¥505,219¥ 1,836¥ 2,686¥ 36,266¥     (48)

¥ 36,218

19,614

21,389600,663

44,379645,042

Sales:

Total

Other:
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

Reconciliations

Consolidated¥445,123

Millions of Yen

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥164,637¥148,468¥ 97,492¥23,918¥10,608¥445,123–

Intersegment sales or transfers

64,32915,027

22,8391,670

11,889115,754¥(115,754)–¥228,966¥163,495¥120,331¥25,588¥22,497¥560,877¥(115,754)¥445,123

Segment profit (loss)¥  5,813¥ 17,417¥   (516)¥ 1,219¥ 1,583¥ 25,516¥      (2)¥ 25,514

Segment assets

198,352

177,788

127,249

18,143

16,613538,145

36,024574,169

2017

Sales:

Total

FINANCIAL SECTION

Reportable Segment

Other:
Depreciation and amortization

7,642

7,667

6,598

289

1,080

23,276–23,276

Investments in associated companies
accounted for by the equity method

4,946

5,109

433

126

–

10,614468

11,082

Increase in property, plant, andequipment and intangible assets

7,528

9,844

10,503273

793

28,941–

28,94151

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$1,783,915$1,611,208$1,002,717$234,575$133,792Intersegment sales or transfers

619,925

151,151

231,311

19,906

107,830$2,403,840$1,762,359$1,234,028$254,481

Segment profit (loss)$   61,113$  209,396$   28,962

Segment assets

1,998,736

1,935,160

1,345,915

2018

Reconciliations

Consolidated$4,766,207–$4,766,217

1,130,123$(1,130,122)–$241,622$5,896,330$(1,130,122) $4,766,217$ 17,321$ 25,340$  342,132$      (453) $  341,679

185,038

201,783

5,666,632

418,670

6,085,302

Sales:

Total

Other:
Depreciation and amortization

68,28359,50052,491

2,557

12,840195,670–

195,670

Investments in associated companies
accounted for by the equity method

49,74552,896

4,358

1,303

–

108,302

4,934

113,236

Increase in property, plant, andequipment and intangible assets

77,425

114,028

133,387

2,396

8,670

335,906–

335,906

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.

4. Associated information(1) Information about geographical areas
Sales
Millions of Yen
2018

Japan

¥390,792

North America¥19,998

Asia¥86,551

Other¥7,878

Total¥505,219

Millions of Yen
2017

Japan

¥343,529

North America¥19,266

Asia¥74,733

Other¥7,595

Total¥445,123

Thousands of U.S. Dollars
2018

Japan

$3,686,717

52

North America$188,660

Asia

Other

$816,519$74,321

Total$4,766,217

(2) Information about impairment loss
Millions of Yen

2018Specialty
Steel–Impairment loss

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

–

–

–

–

Total

–

Millions of Yen

2017Specialty
SteelImpairment loss–

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService¥372¥1,585

–

–

Total

¥1,957

Thousands of U.S. Dollars

Specialty
Steel–Impairment loss

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

–

–

–

–

Total

–

(3) 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
–

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥51
11

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

$104
–

–
–

–
–

–
–

–
–

Total

¥11
–

FINANCIAL SECTION

2018

High
Performance
Materials andMagnetic
Materials

Millions of Yen

2017

Amortization of goodwill
Balance of goodwill

Total

¥51
11

Thousands of U.S. Dollars

2018

Amortization of goodwill
Balance of goodwill

Total

$104
–

53

FINANCIAL SECTION

INDEPENDENT AUDITOR’S REPORT54

DAIDO NETWORK

Offices & Branches
Head Office

Tokyo Head OfficeOsaka Branch

Fukuoka Sales OfficeSpecialty Steel
Address

Phone (Facsimile)

DAIDO DMS (THAILAND) CO., LTD.

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

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

Daido Die & Mold Solutions Co., Ltd.

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

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

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

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

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

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

Daido Tienwen Steel Co., Ltd.
DAIDO DMS MALAYSIA SDN. BHD.
DAIDO DMS SINGAPORE PTE. LTD.
Daido Shizai Service Co., Ltd.
Daido Technica Co., Ltd.
Daido EcoMet Co., Ltd.
Riken Seiko Co., Ltd.
Tohoku Steel Co., Ltd.
Maruta Transport Co., Ltd.
Sakurai Kosan Co., Ltd.
Izumi Denki Kogyo Co., Ltd.
Kawaichi Sangyo Co., Ltd.

Research Institute & Plants
Daido Corporate
Research &Development Center

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

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

Chita Plant

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

Chita Steel   Strip Plant

81-562-33-7465(81-562-33-1019)
81-52-611-2512(81-52-614-2492)

Shibukawa Plant

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

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

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

Tsukiji Techno Center

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

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

Metal Powder Plant

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

DAIDO NETWORK

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

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

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

Chita   Forging Plant

Hoshizaki Plant

High Performance Materials and Magnetic Materials

FUJI VALVE (GUANGDONG) CORPORATION
Japan Drop Forge Co., Ltd.
Toyo Sangyo Co., Ltd.
Daido Star Techno Co., Ltd
Daido Precision Industries Ltd.

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

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)

OHIO STAR FORGE CO.

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, 2018)55

CORPORATE DATACORPORATE DATA (As of March 31, 2018)

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):

3,340

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

43,448,769

Number of Shareholders:

18,174

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:

56

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 20182017

Printed in Japan

This annual report is printed on recycled paper.