annual report 2013
Year ended March 31, 2013

Utilizing our strengths,
aiming at further growththe company

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

Contents
01

FINANCIAL HIGHLIGHTS

02

Message from management

04

At a Glance

06

Review of Operations

companies’ current plans, projections, strategies and

10

Research and Development

historical facts. Rather, they represent the assumptions

12

CSR and the environment

13

Corporate Governance

FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements
concerning DAIDO STEEL CO., LTD.’s and its Group
performance. These forward-looking statements are notand 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

14

Board of Directors and corporate auditors

15

Financial Section

materially from expectations, and that forward-looking

53

DAIDO Network

uncertainties.

wishes to caution readers that actual results may differ
statements are subject to a number of risks and01

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

Thousands of
U.S. Dollars

Millions of Yen
2013

2012

2011

2010

2009

2013

440,428

489,155

472,063362,507532,655

4,685,404

For the Year:Net Sales
Operating Income (Loss)

15,426

31,53432,730(14,050)

9,115

164,106

Net Income (Loss)

10,98322,71823,004(14,610)(8,147)

116,840

R&D Expenses

4,560

4,360

4,254

3,909

4,244

48,511

Capital Expenditures

25,40039,70018,9007,900

13,400270,213

Depreciation

19,22920,46420,073

20,30321,809204,564

Total Assets

511,159

512,969

491,722464,629

496,4115,437,862

Total Equity

211,921

198,654

178,348

159,301

166,235

2,254,480

Interest-bearing Debt

146,999

156,336

157,445

173,790

207,123

1,563,819

Number of Employees

10,447

10,365

10,272

10,414

10,212

—

32

33

32

32

32

—

Basic Net Income

25.32

52.37

53.02

(33.68)(18.78)

0.27

Cash Dividends Applicable to the Year

4.50

7.50

7.00

2.00

6.00

0.05

ROA (%)

3.2

6.3

6.6

(2.9)

1.6

—

ROE (%)

5.4

12.1

13.6

(9.0)

(4.6)

—

Number of Consolidated Subsidiaries

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

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 ¥94 to $1, the approximate rate of exchange at March 31, 2013.

Net Sales

Operating Income (Loss)Net Income (Loss)

Years ended March 31

Years ended March 31

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

600,000

40,00025,000500,000

30,00020,00015,000400,000

20,000300,000

10,000200,000

0

10,0005,000
0–5,000–10,000

100,0000–10,000–20,000
02009 2010 2011 2012 2013

–15,000
02009 2010 2011 2012 20132009 2010 2011 2012 2013

FINANCIAL HIGHLIGHTSAt Year-end:

M essage from M anagement

02

Message from Management

Overview of Results for Fiscal 2012¥15,287 million to ¥16,475 million due to the decline in

In fiscal 2012, the Japanese economy initially experienced

sales, construction-related costs incurred at the Chitaa mild recovery that was propelled by demand associatedPlant, and other factors. Net income was ¥10,983 million.

with earthquake reconstruction and government stimulus
measures such as eco-car subsidies, but it was sluggish

Outlook for Fiscal 2013

from the middle of the year primarily due to a decline in

The Japanese economy going forward is expected toexports caused by slowing in overseas economies. In thesteadily recover as exports rebound on improvement inautomobile, industrial machinery and information technol-

overseas economies and the weaker yen and as various

ogy sectors, key sources of demand for our specialty

economic and financial stimulus measures take effect.

steel products, demand conditions on the whole contin-

However, there is still the risk of downward pressure on

ued to be challenging against a backdrop of deceleration

business conditions from economies overseas experienc-

in overseas economies, prolonged inventory adjustments

ing a downturn due to the European fiscal crisis andand a downturn in the absence of previous government

surging prices for crude oil. Such changes in the manage-

stimulus measures.

ment environment will need to be closely monitored.

In this management environment, we worked to flex-

Demand for Japanese automobiles, one of the main

ibly accommodate sharp swings in demand while taking

sources of demand for our specialty steel products, ison projects that included revamping the steelmaking pro-projected to continue to expand against a backdrop ofcesses at the Chita Plant.

growth in emerging economies, but the factors that cause

As a result, the Group’s net sales in fiscal 2012

demand to change, such as shifting production overseas

declined by ¥48,727 million year on year to ¥440,428

and the trend toward more compact vehicles, will also

million. In addition to lower demand, both domesticallyneed to be watched carefully. At the same time, industrial

and abroad, and prolonged inventory adjustments, mainly

machinery-related demand is expected to move to ain industrial machinery and information technology, ourrecovery phase on better economic conditions domesti-

sales prices are linked to prices for steel scrap and othercally and abroad and improvement in the export

raw materials, which declined. Ordinary income fell

environment.

03

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

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

In specialty steel, automobile-related demand will be affected by thetrend toward utilizing local suppliers, but solid growth is generally
anticipated on increased Japanese auto production. In other demand
sectors, we are anticipating a gradual recovery from the inventory
adjustment phase of last year. Meanwhile, prices for primary materials and fuels, such as steel scrap and crude oil, and electricity are
projected to increase as a reflection of global supply-and-demand
trends and the shift to a weaker yen. We hope to gain the understanding of our customers as we reflect these cost increases in oursales prices, while working to realize the cost benefits of the large
investments made in revamping the Chita Plant as soon as possible.

HIGH PERFORMANCE MATERIALS AND MAGNETIC
MATERIALS

Based on this, forecasts for consolidated performance in fiscal 2013
are net sales of ¥453.0 billion, operating income of ¥18.5 billion,
ordinary income of ¥18.5 billion and net income of ¥11.0 billion.
Primary fuel and material prices are expected to rise as are energyrelated costs, including for electric power, but demand is expected tocontinue its upward trajectory in the automobile and industrial
machinery sectors.

Medium- to Long-Term Management
Strategies
Over the medium and long terms, we believe that specialty steel-related demand will continue expanding, particularly in emerging countries, amid a further accelerationin market globalization. At the same time, we assume that

Stainless steel and high alloy products will probably also recoverinternational competition will further intensify. Key factors

gradually from an inventory adjustment phase, led by products forwould include users shifting more production offshore andindustrial machinery. Magnetic products are also expected to shift toincreasing local procurement, as well as higher costs ofa recovery phase as products used in power steering systems andfactory automation motors regain momentum and products for home
appliances are launched, although demand for magnets used in hardelectricity and other manufacturing inputs. To addressthese changes in the operating environment, in March

disk drive motors will remain soft. Demand for titanium products is2012 the Group instituted a three-year management plan

likely to be firm as the weaker yen improves the export environment

through fiscal 2014.

and demand sectors expand to include medical and other applica-

Trends in domestic and overseas demand and thetions. Powder metal products are expected to see solid demand

cost structure for energy and other elements will no doubt

undergirded by the auto industry, particularly for functional powder
metal products used in hybrid electric vehicles, and because of theundergo various changes going forward. However, we

expected launch of a new alloyed powder manufacturing line.

intend to continue promoting the priorities stated in our

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT

investment, starting with major construction to revamp

We expect demand for die forgings to gradually recover as demand

processes at the Chita Plant, sales promotion activities

rebounds for Japanese automobiles in domestic and overseas mar-for global leading products, and enhancements to busi-

kets and products for industrial machinery gain traction. In turborelated products, a greater proportion of vehicles are expected toinclude turbo systems as environmental regulations are strengthened

medium-term management plan, which include strategic

ness continuity management.
The Group’s main products include products that areworldwide, so we anticipate gradual growth in demand. We alsosignificantly impacted by market prices as well as

expect a recovery in demand for free forgings given an improved

demand fluctuations for scrap metal, nickel alloy andexport environment thanks to the yen’s depreciation and a turn-other materials. Accordingly, in terms of our management

around in energy-related investment. However, the impact of trends

indicators, we strive to achieve ROS of 8%, ROA of 8%

in the European economy and exchange rate fluctuations require
close monitoring.

ENGINEERING

and an interest-bearing debt balance of ¥120.0 billion,
which are targets for earnings growth and reinforcementof our financial base.

Domestic demand is likely to remain soft, but in light of growth in capital
investment in China and Southeast Asia, we intend to further strengthen

September 2013



Tadashi Shimao

sales and expand to overseas markets. Regarding our forecast fornet sales for the coming fiscal year, we are expecting a decline in theabsence of large orders we booked in fiscal 2012 that included
construction work for a new magnet manufacturing subsidiary.

President

M essage from M anagement

SPECIALTY STEEL

04

AT A GLANCEHigh Performance Materials
and Magnetic Materials

PARTS FOR AUTOMOBILE and
INDUSTRIAL EQUIPMENT

Main Products

Main Products

Main Products

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

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

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

Share of Net Sales

Share of Net Sales

Share of Net Sales

(%)

(%)

(%)

AT A GLANCE

SPECIALTY STEEL

38.5%

31.1%

21.2%

Net Sales Years ended March 31

Net Sales Years ended March 31

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

300,000

200,000

150,000

100,000

200,000
100,000

50,000100,000

0

0

0
2012

2013

2012

2013

2012

2013

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)

10,00015,0005,000

10,000
5,000

2,500
5,000

0

0

0
2012

2013

2012

2013

2012

2013

05

ENGINEERING

TRADING and SERVICE

Main Products

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

Share of Net Sales

Share of Net Sales

(%)

(%)

AT A GLANCE

Main Products

7.3%

2.0%

Net Sales Years ended March 31

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

36,00020,00024,00010,00012,000

0

0
2012

2013

2012

2013

Operating Income Years ended March 31

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

2,000

1,500

1,000
1,000
500

0

0
2012

2013

2012

2013

06

review of operations

SPECIA LT Y STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates

Sales volume declined year on year in the specialty steel

approximately 38% of consolidated net sales. Specialty steel­segment. Among the main impacts were prolonged inventory

is made by combining steel with alloys to add value in the form

adjustments in industrial machinery as a consequence of eco-of properties such as resistance to heat, abrasions or rust.

nomic slowdown in the emerging markets. In addition, sales

Because a range of special properties can be achieved byrelated to Japanese automobiles were primarily impacted by thevarying the type and amount of alloy, one of the special fea-

expiration of eco-car subsidies and lackluster Japanese autotures of the business is that products are developed to meetsales in China.

the specific applications required by the user. The automobile

Under these circumstances, the Company implemented

and industrial machinery sectors are the primary users ofstock management in response to major construction work at

specialty steel, accounting for about 80% of sales in this busi-

the Chita Plant, and strove to reduce costs on an ongoingness segment.

basis, while closely monitoring trends in demand.
As a result, and due to the correlation between sales and

REVIEW OF OPERATIONS

steel scrap prices, the specialty steel segment’s net sales
declined 13.1% year on year to ¥169,379 million and operating
income fell ¥6,383 million to ¥3,515 million in fiscal 2012.

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

07

H ig h Per fo r man ce M ateria ls a n d Magnetic M ateria l s
Overview of BusinessResults of Operations

This segment, which accounts for roughly 31% of consolidated

Net sales of stainless steel and high alloy products declined

net sales, manufactures and sells high performance materials

year on year due to sluggish demand for their use in industrial

and magnetic materials used chiefly in computers, automobiles,

machinery and inventory adjustments in HDD and IT-related

mobile phones and consumer electronics. Notably, Daido Steelproducts, although demand from the automobile industry washolds the world’s largest market share as a supplier of magnets

mostly buoyant. Production of magnetic products resumed

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

after a production site in Thailand recovered from flooding in

Key products include rare earth magnets (used in spindle

fiscal 2011, but sales in fiscal 2012 were lower owing to slug-

motors* for HDD and other products), high alloys, titanium

gish demand of magnets for HDD and inventory adjustments in

products and high performance powder metal products, andmagnets for servo motors used in factory automation. By con-electromagnetic materials.

trast, sales of powder metal products rose in response to brisk*Spindle motor:
The motor used to rotate hard disk drives installed in computers.

sales of hybrid vehicles and other factors undergirding theirsustained and high level of demand. The Company also mandomestic marketing and revising prices in the face of stagnating exports to Europe.
As a result of this and demand for main product lines receding, and due to the price of stainless steel and magnetic products falling in conjunction with nickel and rare earth prices, net
sales for the high performance materials and magnetic materials
segment declined 16.9% year on year to ¥136,852 million in
fiscal 2012. Operating income, consequently, fell ¥7,098 million
to ¥6,648 million.

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

REVIEW OF OPERATIONS

aged to increase its sales of titanium products by expanding

08

Part s fo r Aut om obile and In du strial Equipment
Overview of BusinessResults of Operations

This segment contributes around 21% of consolidated net

Sales of free forging products declined year on year, despitesales. It manufactures die forged parts such as crankshafts

steady growth in demand for aviation-related products, as ausing specialty steel, precision cast parts for use in gears andresult of slowing economic conditions in Europe and emerging

turbochargers (used in diesel engines to improve fuel efficiency

markets, as well as sluggish exports mainly reflecting theand reduce exhaust gases), engine valves, jet engine shafts andstrong yen. In precision cast products, sales decreased year onparts for gas turbines. Most of the auto parts sold in this seg-

year due to weak demand for products for diesel turbo

ment use materials that were developed through joint projects

engines, reflecting the weak European economy and thewith automakers to meet their exacting requirements. These

impact of the strong yen. In die forging products, sales

parts can therefore lower processing expenses at customers’

decreased year on year despite steady growth in production offactories as well as contribute to reducing the weight of finishedtruck parts for Southeast Asia and in production at a forging

products.

subsidiary in North America. The lower sales mainly reflected

Many products in this segment are leading products in their
REVIEW OF OPERATIONS

respective market categories, such as aircraft jet engine shafts
and marine diesel engine valves. Daido Steel also has a highsluggish demand for industrial machinery and the impact of
production cutbacks at automakers.
As a result, net sales in the parts for automobile and indus-

market share in numerous other product categories, including

trial equipment segment for the fiscal year under review

automobile engine valves and turbine disks. We will continue todecreased 0.9% to ¥93,293 million. Operating income fell

develop and launch new products that differentiate us from

¥1,433 million to ¥3,394 million.

competitors and support our position as a provider ofadvanced products.
In addition to specialty steel supplied by the specialty steel
segment of the Group, some steel materials used in this segment are manufactured in-house.

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

09

ENGINEERING
Overview of BusinessResults of Operations

This segment generates about 7% of consolidated net sales.

The engineering segment recorded sales from environmental

Major activities include the manufacture of steelmaking equip-

equipment and a large construction project for a magnetic

ment, industrial furnaces, and associated equipment. This seg-material subsidiary. Consequently, net sales increased from thement also manufactures environmental equipment for theprevious fiscal year.

treatment of wastewater, gas emissions and waste materials

Engineering segment sales for the fiscal year under review(mainly to public-sector clients with incinerated ash melting

increased by 24.0% to ¥31,958 million. Operating income

systems for urban waste) and machine tools.

decreased ¥1,063 million to ¥763 million, mainly due toWith respect to environmental equipment in particular, thechanges in the content of con-operation and engineering technologies we have fostered overstruction projects.

the years support our cutting-edge engineering business, whichconstantly has a grasp of current market needs. The many new
types of equipment and technologies that this segment has
reduction in a wide variety of settings. Operations also include
maintenance and management of this machinery and equipment.
Daido Arc Process (DAP)

T r a d ing a n d S er vice
Overview of BusinessResults of Operations

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

Net sales in the trading and service segment in the fiscal year

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

under review decreased 7.1% to ¥8,946 million, mainly due toucts made by Group companies, employee benefits services,

the impact of lower sales at an overseas trading company.

real estate and insurance services, golf course management,

Operating income declined ¥133 million to ¥1,109 million.

analytics, and sales of software to external customers.

REVIEW OF OPERATIONS

created contribute to environmental preservation and energy

10Research and development

The Daido Steel Group’s basic management policy is to leverage its advanced technology capabilities in specialty steel to “foster a corporate culture of creativity andoriginality that contributes to the 21st century society.” Based on this policy, theGroup conducts a proactive program of research and development to expand new
products and businesses and strengthen the foundations for existing businesses.
Currently, we are pursuing R&D for new products, materials and technologies,
primarily through the Daido Corporate Research & Development Center, whichhouses the Special Steel Research Lab, Electromagnetic Material Research Lab, andProcess Technology Development Center. We employ a total of 257 researchers
throughout the Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥4,560 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

(1) Specialty SteelYears ended March 31(millions of yen)

5,000
4,000
3,000
2,000
1,000
0

2010 2011 2012 2013

such as automotive structural materials and tool steel, andMajor Achievements• Neodymium series hot-pressed magnet containing
no heavy rare-earth elements

process innovations ranging from steelmaking, refining andWe have succeeded in developing the ND-40SHF hot-pressedsolidification to quality assurance.

magnet, which is a neodymium-iron-boron (Nd-Fe-B) magnet

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

R&D Expenditures

R&D costs for the fiscal year under review in this segment
totaled ¥1,508 million.

Major Achievements• Commercializing DEG steel for vacuum carburizing
Vacuum carburizing makes it possible to reduce CO2 emission
compared with conventional gas carburizing and allows highstrength components to be processed quickly. Consequently, it
has drawn attention as the next generation carburizing technology. Daido Steel has developed DEG steel to prevent materials
from surplus carburizing at places with sharp angles, such as in
the teeth of gears. Surplus carburizing has been an issue thatneeded to be solved in vacuum carburizing. The composition of
DEG steel has been designed based on fundamental principles
of vacuum carburizing that we elucidated first. To make DEG
steel practicable, we are promoting our carburizing simulation
software, based on the fundamental principles of vacuum carburizing, together with ModulTherm®, which is a vacuum carburizing furnace developed by Daido Steel. We are expecting DEG
steel to be used in various components.

(2) High Performance Materials and Magnetic 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 andsolar power generation systems. Magnet research is carried out
principally by the Company and its consolidated subsidiary,
Daido Electronics Co., Ltd.
R&D costs for the fiscal year under review in this segment
totaled ¥1,929 million.

without any heavy rare-earth elements; specifically, dysprosium(Dy) and terbium (Te). Conventional neodymium series magnets
have Dy and Te to improve the magnet’s thermal resistance. As
almost all heavy rare-earth elements are currently mined in
China, high prices and supply instability have become major
issues. Using a newly developed hot plastic forming process
and magnetic compositions, we achieved the highest magnetism and thermal resistance in the world for magnets without
heavy rare earth.
Daido Electronics commenced mass production of themagnets in spring 2013 for motors in automobiles, industrial
machinery, office automation equipment and consumer electronics, in particular for the growing automobile electric power
steering (EPS) market.

• Development of technology for mass production ofultra-high performance PLP magnets with low levelsof heavy rare-earth elements
We have developed the pressless process (PLP) for mass production in which the PLP magnets provide both high magnetismand ultra-high thermal resistance with substantially reduced
heavy rare-earth elements. With this technology, construction
was completed on a factory for Intermetallics Japan­Corporation, a joint venture established with Mitsubishi­Corporation and ­Molycorp. Inc. of the United States. A completion ceremony was held for the head office and factory in
November 2012. Mass production of the magnets has been
underway since January 2013.

11• GIG magnetic sensors: Construction of mass
production line and sales launch

possible to obtain higher strengths selectively in only the regions

We are continuing to make capital investments and customer

with functional requirements. When applied to connecting rods

evaluations with a view to penetrating the market for GIG mag-in engines, the technology is expected to make the compo-

netic sensors, which offer higher output against the magnetic

nents thinner, more compact and lighter by 15% or more with-field compared to MR magnets.

out increasing the processing costs by making only the required

Institute for Electromagnetic Materials and further developed injoint research using our thin film manufacturing technology
and mass production technology. GIG magnetic sensors are
expected to be put to use in industrial applications that require
high sensitivity and low power consumption, such as magnetic
identification sensors and current sensors.
These developmental accomplishments were recognized
and in October 2012 we were awarded the Magnetics Societyof Japan’s New Technology and New Product Award together
with the Research Institute for Electromagnetic Materials. In
addition, an integrated manufacturing process was establishedby building an onsite clean room and incorporating some of theprocesses that had been outsourced. To prepare for full-fledged
mass production, we have been reinforcing systems for production, quality management and sales promotion with a view tolaunching sales within fiscal 2013.

(3) Parts for Automobile and Industrial Equipment
R&D in this segment concentrates on development of engine
valves and other automotive parts and parts for various types ofindustrial machinery.
R&D costs for the fiscal year under review in this segment
totaled ¥916 million.

regions have 30% higher strength. We are currently working to
make the technology viable in practical applications.

(4) Engineering
Engineering R&D focused on the development of environmental
conservation and recycling equipment, and a variety of energysaving industrial furnaces.
R&D expenditures in this segment during the fiscal year
under review amounted to ¥205 million.

Major Achievements• Performance demonstration of the “E-adjust”
supporting system for steelmaking AC arc
furnace operations
Daido Steel performed demonstration testing of the “E-adjust”
supporting system for steelmaking AC arc furnace operations
that we had been developing at the steelmaking plant of Godo
Steel. The timing in melting the steel scrap was tested quantitatively and it was found that the system can reduce power consumption per unit of production by between 3 and 6
kilowatt-hour per ton. The electric furnace steelmakers, who
consume a great deal of electricity, are facing the urgent challenge of reducing the unit power consumption due to the recent
rise in electricity costs. Equipping existing AC furnaces with thesystem can be expected to reduce unit power consumption

Major Achievements• Controlled forging process

because correct timing in melting the steel scrap, which had

Daido Steel has developed technology for obtaining higher

tors, are judged automatically by the system. Daido Steelstrengths for specialty steel forging materials used in automobile

released the system in April 2013 as a new product for domes-

engine components and chassis parts. Such automobile com-tic and overseas customers.

ponents had to be reduced in weight to improve fuel economy,
while higher strengths were required to satisfy design specifica-• New technology for the next-generation vacuum
carburizing furnace “SyncroTherm”

tions. However, when strengths of the entire forging material

Based on an alliance with ALD Vacuum Technologies ofwhich mainly constitute the components were increased, there­Germany, Daido Steel has added the slim-batch-type vacuum

was a problem in that the machine processing costs to obtaincarburizing furnace “SyncroTherm” to its product line-up,

the required shapes and precision went up.

following the modular type furnace “ModulTherm®.”

been determined by relying on the experience of skilled opera-

Research and development

The GIG magnetic sensor was invented by the Research

The controlled forging technology we developed makes it

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 creating asafe and pleasant place for employees to work.

The first commitment period for the Kyoto Protocol runs
from 2008 to 2012. Daido Steel’s five-year management
plan for 2006—2010 aimed to reduce the volume of CO2
emissions by 10% compared to the 1990 level in accordance with the guidelines of the Japan Iron and Steel Federation. We had planned to invest a total of approximately¥2.9 billion towards the achievement of this goal by expanding the use of exhaust heat recovery in heating furnaces,
shifting our fuel source from heavy oil to natural gas, andimproving the yield ratio through an increase in the ratio of
production by continuous casters.

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 and the Human Resources
Labor Committee. With a view to further strengthening thisframework, in fiscal 2007 the CSR Committee was established to supervise general CSR activities. Members of the
CSR Committee formulate Group-wide policies and actionplans with the aim of unifying and expanding CSR activities
across all Group companies and divisions.
Starting January 2013, the Environment and Energy
Committee was split into two independent committees(namely, the Environment Committee and the Energy Committee) to promote CSR activities in a more fulfilling way.
For details, please refer to the annually issued CSR Report.
URL: http://www.daido.co.jp/en/csr/index.html

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

1,000 tons
CO2/year

2,000

CO2 emissions volume

CSR

Major Initiatives
Preventing global warming

Due to the effects of cumulative investments of ¥5.0
billion made from 2006 to 2012, operational improvements
and changes in production levels, CO2 emissions in 2012
decreased by 24.4% compared to 1990. Turning to fuelconversion, we achieved a change in the natural gas percentage in fuel from 35% (calorie basis) in 2005 to 75% at
the end of fiscal 2012.
Going forward, we will implement further reform measures, such as reductions in the number of heats andimproving the yield ratio. Daido Steel did not purchasecarbon credits during the first commitment period.

800

1,500

600
–6.4%

–19.9%–18.9% –26.6%–24.4%–25.9%
400–34.5%

1,000

500

200

0

0
90 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13(forecast)

CO2 emissions volume (left)
CO2 emissions per ton of production (right)
CO2 emissions coefficient for electric power: 0.374 kg of CO2 / kWhFigures for 2013 are estimates

CO2 emissions per ton of production

12Basic Policy

Internal Control System

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

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

Governance System
Daido Steel uses the corporate auditor system. The business execution of the 20 directors (including one external
director) is conducted according to a medium-term management plan, covering a period of three years in principle,
and one-year plans for each business segment that specify
steps to be taken under the medium-term plan, based oncommon Group goals shared with all employees.
The Board of Directors convenes a minimum of once amonth to decide important matters and report on the statusof the directors’ business execution. A Management Meeting attended by managing directors and above is held once
monthly in principle, as well as on an as-needed basis, inorder to increase the flexibility of decision-making on important matters and ensure more detailed dissemination of
information. In addition, the Executive Directors’ Meetingtakes place once a month to increase the efficiency of execution of duties by directors and review the progress on themedium-term management plan.
Three corporate auditors, including two external corporate auditors, attend important meetings such as the Management Meeting and Board of Directors’ meetings andconduct visiting audits of all business divisions and consolidated subsidiaries in order to audit and oversee the business execution of directors.

Efforts to enhance compliance
Daido Steel has established the Daido Steel Corporate
Code of Ethics and the Daido Steel Code of Conduct, andworks to disseminate them to all employees and Group
companies. The Company also maintains a hotline for consultation and reporting by employees regarding compliance,
as well as directors in charge of compliance and risk management, divisions in charge and outside attorneys.
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 chaired by the president.

Corporate Governance13

Corporate Governance14

Mechanism for Business Execution, Audit, Supervision and Internal Control(As of June 28, 2013)

Shareholders’ Meeting
Electionand dismissal

Electionand dismissal

Electionand dismissal

Accounting
Auditor(independent
auditor)

AuditsBoard of Auditors
3 auditors including
2 external auditors

Accounting audit

Risk Management Committee

Supervises
Representative
Directors

Mutualcollaboration

Reports

Board of Directors
19 directors including
1 external director(Ensures reliability offinancial reporting)Directors in charge

Internal Control Committee
Reports
Reports

Internal Auditing Department(internal audits)

Corporate Governance
Board of Directors and corporate auditors

AuditsAuditsAdvises andsupports

AuditsCompliance
Lawyers

Administrationof the Company
and each business division

Director in chargeof complianceand riskmanagement

HotlineManager

Reports

Group companies
Employees consultations/Reports
Compliance Consultation

Board of Directors and corporate auditors
CHAIRMAN AND
PRESIDENT AND
EXECUTIVE VICE PRESIDENTS
REPRESENTATIVE
REPRESENTATIVE
AND REPRESENTATIVE EXECUEXECUTIVE DIRECTOR EXECUTIVE DIRECTOR TIVE DIRECTORS

Tadashi Shimao

Shuichi Nakatsubo

Michio Okabe

Hitoshi Horie

Yasuhiro Itazuri

Motoshi Shinkai

Takeshi Ishiguro

Hajime Takahashi

STANDING CORPORATE AUDITORSCORPORATE AUDITOR

Yoshitsugu Sakamoto

Shinji NaruseToshinori Koike

Yukichi Ozawa

Tsukasa Nishimura

Takeshi Muto

Shigenobu Tokuoka

Satoshi Tsujimoto

Kazuhiko Hirabayashi

Susumu Shimura

Hajime Amano

Masatoshi Ozawa
MANAGING DIRECTORS

Akira Miyajima
DIRECTORSShuji Matsubuchi

Kazuto Tachibana

15Financial Section

Contents
16

Management’s discussion and analysis of operations

20

Consolidated Balance Sheet

22

Consolidated Statement of Income

23

Consolidated Statement of Comprehensive Income

24

Consolidated Statement of Changes in equity

26

Consolidated Statement of Cash Flows

27

Notes to Consolidated Financial Statements

52

Independent Auditor’s Report16Management’s Discussion and Analysis of Operations

OVERVIEW OF OPERATING ENVIRONMENTAND PERFORMANCE

BUSINESS SEGMENT PERFORMANCE

In fiscal 2012, ended March 31, 2013, the Japanese economy

Sales volume declined year on year in the specialty steel

initially experienced a mild recovery that was propelled by­segment. Among the main impacts were prolonged inventory

demand associated with earthquake reconstruction and gov-

adjustments in industrial machinery as a consequence of eco-ernment stimulus measures such as eco-car subsidies, but it

nomic slowdown in the emerging markets. In addition, sales

was sluggish from the middle of the year primarily due to a

related to Japanese automobiles were primarily impacted by the

decline in exports caused by slowing overseas economies. In

expiration of eco-car subsidies, and lackluster Japanese auto

the automobile, industrial machinery and information technology

sales in China.

Specialty Steelsectors, key sources of demand for our specialty steel prod-

Under these circumstances, the Company implemented

ucts, demand conditions on the whole continued to be chal-stock management in response to major construction work at

lenging against a backdrop of deceleration in overseas

the Chita Plant, and strove to reduce costs on an ongoing

economies, prolonged inventory adjustments and a downturn inbasis, while closely monitoring trends in demand.

the absence of previous government stimulus measures.

As a result, and due to the correlation between sales andIn this management environment, we worked to flexibly

steel scrap prices, the specialty steel segment’s net sales

accommodate sharp swings in demand while taking on proj-

declined 13.1% year on year to ¥169,379 million and operatingects that included streamlining steelmaking processes at theincome fell ¥6,383 million to ¥3,515 million in fiscal 2012.

Financial section

Chita Plant.
As a result, the Group’s net sales in fiscal 2012 declined by¥48,726 million year on year to ¥440,428 million. In addition tolower demand, both domestically and abroad, and prolonged
inventory adjustments, mainly in industrial machinery and information technology, our sales prices are linked to prices for steel
scrap and other raw materials, which declined. Ordinary income
fell ¥15,287 million to ¥16,475 million due to the decline insales, construction-related costs incurred at the Chita Plant,
and other factors. Net income was ¥10,983 million.

Net Sales

Operating Income

Net Income

Years ended March 31

Years ended March 31

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

600,000

40,00025,000450,000

30,000300,000

20,000150,000

10,00020,00015,00010,000

0

2011

2012

2013

0

5,000
2011

2012

2013

0

2011

2012

2013

17

High Performance Materials and Magnetic
Materials

Parts for Automobile and Industrial Equipment

Net sales of stainless steel and high alloy products declined

steady growth in demand for aviation-related products, as ayear on year due to sluggish demand for their use in industrial

result of slowing economic conditions in Europe and emerging

machinery and inventory adjustments in HDD and IT-related

markets, as well as sluggish exports mainly reflecting the

products, although demand from the automobile industry wasstrong yen. In precision cast products, sales decreased year on

mostly buoyant. Production of magnetic products resumed

year due to weak demand for products for diesel turbo

after a production site in Thailand recovered from flooding inengines, reflecting the weak European economy and thefiscal 2011, but sales in fiscal 2012 were lower owing to slug-

impact of the strong yen. In die forging products, sales

gish demand of magnets for HDD and inventory adjustments indecreased year on year despite steady growth in production ofmagnets for servo motors used in factory automation. By con-truck parts for Southeast Asia and in production at a forging

trast, sales of powder metal products rose in response to brisk

subsidiary in North America. The lower sales mainly reflectedsales of hybrid vehicles and other factors undergirding theirsluggish demand for industrial machinery and the impact ofsustained and high level of demand. The Company also man-production cutbacks at automakers.
As a result, net sales in the parts for automobile and indus-

domestic marketing and revising prices in the face of stagnat-

trial equipment segment for the fiscal year under review

ing exports to Europe.

decreased 0.9% to ¥93,293 million. Operating income fell

As a result of this and demand for main product lines receding, and due to the price of stainless steel and magnetic products falling in conjunction with nickel and rare earth prices, net
sales for the high performance materials and magnetic materials
segment declined 16.9% year on year to ¥136,852 million in
fiscal 2012. Operating income, consequently, fell ¥7,098 million
to ¥6,648 million.

¥1,433 million to ¥3,394 million.
Financial section

aged to increase its sales of titanium products by expanding

Sales of free forging products declined year on year, despite

18

Engineering

RESEARCH AND DEVELOPMENT

The engineering segment recorded sales from environmental

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

equipment and a large construction project for a manufacturer

year under review totaled ¥4,560 million. The research objec-

of magnetic material. Consequently, net sales increased fromtives, main achievements and R&D costs in each businessthe previous fiscal year.

segment were as follows:Engineering segment sales for the fiscal year under review
increased by 24.0% to ¥31,958 million. Operating income(1) Specialty Steeldecreased ¥1,063 million to ¥763 million, mainly due to

Daido Steel bears the principal responsibility for carrying out

changes in the content of construction projects.

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

Trading and Service

Other areas of emphasis are development of process innova-

Net sales in the trading and service segment in the fiscal year

tions ranging from steelmaking, refining and solidification tounder review decreased 7.1% to ¥8,946 million, mainly due toquality assurance for finished products.
Specialty steel R&D costs during the fiscal year under

Financial section

the impact of lower sales at an overseas trading company.
Operating income declined ¥133 million to ¥1,109 million.

review totaled ¥1,508 million.

CAPITAL EXPENDITURES
Capital expenditures by business segment during the fiscal year(2) ‌High Performance Materials and Magnetic
Materials

under review are shown in the table below.

Development of high-performance steel strips, electromagnetic

Figures in the table include intangible fixed assets in addi-

materials, and other basic materials, as well as R&D of photo-tion to property, plant and equipment.

voltaic power generation systems is conducted mainly by Daido
Steel, while magnet R&D is conducted primarily by Daido Steeland consolidated subsidiary Daido Electronics Co., Ltd. R&D
costs in this segment during the fiscal year under review
amounted to ¥1,929 million.

Capital Expenditures
Capital Expenditures by Segment

Years ended March 31

Years ended March 31(millions of yen)

Millions of Yen
2013

2012

¥ 9,923¥ 6,670

48.8

9,439

8,600

9.8

6,302

6,136

2.7

Engineering

484

233

107.7

Trading and Service

643

727

–11.6

¥26,791¥22,366

19.8

Specialty SteelHigh Performance Materials andMagnetic Materials
Parts for Automobile andIndustrial Equipment

Total

Change (%)

30,00020,00010,000

0

2011

2012

2013

19

(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 engine valves and other auto-

Cash and cash equivalents as of March 31, 2013 amounted tomotive parts and parts for various types of industrial machinery.

¥51,643 million, representing a decrease of ¥ 10,313 million, or

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

16.6%, year on year.

totaled ¥916 million.
Cash Flows From Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥33,607

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, down ¥8,189 million from the previous fiscal year. The

on development of environmental conservation and recycling

main components of cash inflow were income before income

equipment and a variety of energy-saving industrial furnaces.

taxes and minority interests of ¥18,486 million and a decrease

Engineering R&D costs during the fiscal year under review werein notes and accounts receivable of ¥17,821 million associated¥205 million.

with a reduction in sales. The main component of cash outflow
was a ¥8,948 million decrease in notes and accounts payable.

(5) Trading and Service
Cash Flows From Investing Activities
Net cash used in investing activities totaled ¥28,471 million,
increasing by ¥7,059 million from the previous fiscal year. The
major cash outflows included ¥24,201 million in purchases ofproperty, plant, and equipment.
Cash Flows From Financing Activities
Net cash used in financing activities was ¥17,357 million,
increasing ¥11,197 million from the previous year. The increase
was chiefly due to ¥24,759 million for the repayments of longterm debt.

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

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

2011

2012

2013

Financial section

There are no R&D activities in this segment.

20

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2013

Thousands of
U.S. Dollars(Note 1)

Financial section

Millions of Yen

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 14)
Time deposits (Notes 7 and 14)
Notes and accounts receivable (Note 14)
Inventories (Note 4)
Deferred tax assets (Note 11)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

2013

2012

2013

¥   51,643
418
88,652
94,036
4,338
3,268
(271)
242,084¥   61,956
246
104,127
90,921
5,295
2,672
(251)
264,966$   549,394
4,447
943,106
1,000,383
46,14934,766(2,883)
2,575,362

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

37,008144,505
414,7215,889
602,123(440,203)
161,920

36,558140,037
408,616
3,305
588,516(432,104)
156,412393,702
1,537,287
4,411,926
62,6496,405,564(4,683,011)
1,722,553

55,65549,737592,074

18,98522,823
907
8,785
107,155

14,992
19,962
1,019
5,881
91,591201,968
242,798
9,649
93,457
1,139,947¥ 511,159¥ 512,969$ 5,437,862

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 3, 7 and 14)
Investments in non-consolidated subsidiaries
and associated companies (Notes 7 and 14)
Prepaid pension cost (Note 8)
Deferred tax assets (Note 11)
Other investments and assets (Note 7)
Total investments and other assets
TOTAL

21

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 6, 7 and 14)
Current portion of long-term debt (Notes 6, 7 and 14)
Payables:Trade notes and accounts (Notes 7 and 14)
Acquisitions of property, plant and equipment
Total payables
Income taxes payable (Note 14)
Accrued expenses
Other current liabilities (Note 7)
Total current liabilities

2013

2012

2013

¥ 16,530
35,858¥ 23,609
25,435$  175,851
381,468

66,233
6,029
72,262
1,761
10,1577,434
144,00272,163
5,649
77,812
2,004
11,5259,866
150,251704,606
64,138
768,745
18,734
108,053
79,085
1,531,936

93,850
6,865
942
426
14,666
4,668
121,417

107,293
6,799
913
426
11,616
4,158
131,205

998,404
73,032
10,021
4,532
156,02149,6601,291,670

EQUITY (Note 10):
Common stock:
Authorized: 1,160,000 thousand shares
Issued: 434,488 thousand shares in 2013 and 2012
Capital surplus
Retained earnings
Treasury stock, at cost
741 thousand shares in 2013 and 714 thousand shares in 2012
Accumulated other comprehensive income:37,17228,542
134,79037,17228,543
126,844395,447
303,638
1,433,936

(347)

(335)

(3,691)

Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Total
Minority interests
Total equity

10,512
1
1,654
(403)
211,92133,819245,740

6,456
(7)
1,654
(1,673)
198,654
32,859231,513111,830
11
17,596(4,287)2,254,479
359,7772,614,255¥511,159¥512,969$5,437,862

LONG-TERM LIABILITIES:Long-term debt (Notes 6, 7 and 14)
Liability for employees’ retirement benefits (Note 8)
Retirement allowance for directors and Audit & Supervisory Board members
Asset retirement obligations (Note 9)
Deferred tax liabilities (Note 11)
Other long-term liabilities
Total long-term liabilities
COMMITMENTS AND CONTINGENT LIABILITIES (Note 16)

TOTAL
See notes to consolidated financial statements.

Financial section

Thousands of
U.S. Dollars(Note 1)

22

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2013

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

2013

2012

2013

¥440,428
377,793
62,63547,209¥489,155408,639
80,51648,982$4,685,404
4,019,074
666,330
502,223

15,426

31,534

164,106

1,694(2,056)547

1,639(2,383)680

18,021(21,872)
5,819

249
967
581
547
55
(403)
879
3,060

(56)
51
(470)
547
19
(601)
(746)
(1,320)2,649
10,287
6,181
5,819
585
(4,287)
9,351
32,553

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

18,48630,214

196,660

INCOME TAXES (Note 11):
Current
Deferred
Total income taxes

3,711
2,140
5,851

4,231
1,112
5,343

39,47922,766
62,245NET INCOME BEFORE MINORITY INTERESTS

12,63524,871

134,415MINORITY INTERESTS IN NET INCOME

1,652

2,153

17,574¥ 10,983¥ 22,718$  116,840

NET SALESCOST OF SALES (Note 12)
Gross profit
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 12)

Financial section

Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies
Gain (loss) on sales of investment securities and investments
in a non-consolidated subsidiary—net
Foreign exchange gain
Gain (loss) on sales and disposals of property, plant and equipment—net
Investment rents received
Grants received
Write-down of investment securities (Note 3)
Other—net
Other expenses—net

NET INCOMEYen

PER SHARE OF COMMON STOCK (Note 2(t)):
Net income
Cash dividends applicable to the year¥  25.32
4.50

U.S. Dollars¥  52.37
7.50

Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDING SHARES OFCOMMON STOCK
See notes to consolidated financial statements.

433,763433,799$     0.27
0.05

CONSOLIDATED Statement OF COMPREHENSIVE INCOME

23

DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2013

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

2013

2012

2013

¥12,635¥24,871$134,415

4,098
10
–
1,394
29
5,531

546
(1)
297
(446)
(1)
395

43,596106–
14,830309
58,840COMPREHENSIVE INCOME¥18,166¥25,266$193,255

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Minority interests¥16,317
1,849¥23,123
2,143$173,585
19,670NET INCOME BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME (Note 17):
Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Revaluation surplus
Foreign currency translation adjustments
Share of other comprehensive income in associates
Total other comprehensive income

Financial section

See notes to consolidated financial statements.

24

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2013

Thousands

Millions of Yen
Accumulated
Other Comprehensive Income

Financial section

BALANCE AT APRIL 1, 2011
Net income
Cash dividends, ¥7.50 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2012
Net income
Cash dividends, ¥7 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2013

Outstanding
Number of
Shares ofCommon Stock

CommonStockCapitalSurplusRetained
Earnings

433,823
–
–
(55)
6
–
433,774
–
–
(31)
4
–
433,747¥37,172–––––
37,172–––––¥37,172¥28,543–––(0)–28,543–––(1)–¥28,542¥106,919
22,718(3,254)––461
126,844
10,983(3,037)–––¥134,790

Treasury
Stock¥(311)
–
–
(28)
4
–
(335)
–
–
(14)
2
–
¥(347)

Unrealized
Gain onAvailable-for-Sale
Securities¥ 5,962
–
–
–
–
494
6,456
–
–
–
–
4,056
¥10,512

Millions of Yen
Accumulated Other Comprehensive Income
Deferred(Loss) Gain on
Derivatives under
Hedge Accounting

BALANCE AT APRIL 1, 2011
Net income
Cash dividends, ¥7.50 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2012
Net income
Cash dividends, ¥7 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2013

¥(3)
–
–
–
–
(4)
(7)
–
–
–
–
8
¥1

Land
Revaluation
Surplus

Foreign Currency
Translation
Adjustments

Total

Minority
Interests

Total
Equity¥1,357
–
–
–
–
297
1,654
–
–
–
–

¥(1,291)
–
–
–
–
(382)
(1,673)
–
–
–
–
1,270
¥  (403)¥178,348
22,718(3,254)(28)
4866
198,654
10,983(3,037)
(14)
1
5,334
¥211,921¥31,521
–
–
–
–
1,338
32,859––––960¥33,819¥209,869
22,718(3,254)
(28)
4
2,204
231,513
10,983(3,037)
(14)
1
6,294
¥245,740¥1,654

25

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

BALANCE AT MARCH 31, 2012
Net income
Cash dividends, $0.07 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2013

CommonStockCapitalSurplusRetained
Earnings$395,447–––––$395,447$303,638
–
–
–
(0)
–
$303,638$1,349,405
116,840(32,309)–––$1,433,936

Treasury
Stock

Unrealized
DeferredGain on(Loss) Gain on
Available-for-Sale Derivatives under
Securities
Hedge Accounting$(3,564)
–
–
(149)
22
–
$(3,691)$ 68,681––––
43,149$111,830

$(74)
–
–
–
–
85
$ 11

Thousands of U.S. Dollars (Note 1)

BALANCE AT MARCH 31, 2012
Net income
Cash dividends, $0.07 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2013
See notes to consolidated financial statements.

Land
Revaluation
Surplus

Foreign Currency
Translation
Adjustments

Total

Minority
Interests

Total
Equity$17,596–––––$17,596$(17,798)––––
13,511$ (4,287)$2,113,331
116,840(32,309)(149)
22
56,745$2,254,480$349,564––––
10,213$359,777$2,462,895
116,840(32,309)(149)
22
66,958$2,614,257

Financial section

Accumulated Other
Comprehensive Income

26

CONSOLIDATED Statement OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2013

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

Financial section

OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes paid
Depreciation and amortization(Gain) loss on sales and disposals of property, plant, equipment and other—net(Gain) loss on sales of investment securities and investments ina non-consolidated subsidiary—net
Equity in earnings of associated companies
Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable
Decrease in allowance for doubtful accounts(Increase) decrease in inventories(Decrease) increase in notes and accounts payable
Increase (decrease) in liability for employees’ retirement benefits
Other—net
Total adjustments
Net cash provided by operating activities
INVESTING ACTIVITIES:Payment for time deposits
Repayment from time deposits
Purchases of property, plant and equipment
Proceeds from sales of property, plant and equipment
Purchases of investment securities and investments ina non-consolidated subsidiary and associated companies
Proceeds from sales and redemption of investment securities andinvestments in a non-consolidated subsidiary
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities
FINANCING ACTIVITIES:Net (decrease) increase in short-term bank loans
Proceeds from long-term borrowings
Proceeds from issuance of bonds
Repayments of long-term debt
Dividends paid, including payments to minority shareholders of subsidiaries
Other—net
Net cash used in financing activities
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATEDSUBSIDIARY, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS INCREASED BY MERGER
OF SUBSIDIARIESCASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
See notes to consolidated financial statements.

2013

2012

2013

¥ 18,486¥ 30,214$ 196,660(3,580)19,230(364)(7,647)
20,464800(38,085)
204,574(3,872)

(249)
(547)

56
(680)

(2,649)(5,819)17,821(266)(659)(8,949)15(7,331)
15,12133,607(4,242)
(104)
1,456
1,068
(76)
487
11,582
41,796

189,585(2,830)(7,011)(95,202)160(77,989)
160,862
357,521(541)
394(24,201)
2,748

(107)
179
(19,964)
418(5,755)
4,191(257,457)
29,234(3,968)(594)(42,213)369(1,507)763(2,528)(28,471)

240
(472)
92
(1,204)(21,412)3,926(16,032)
8,117(26,894)(302,883)(10,598)
22,648–(25,759)(3,941)
293(17,357)

1,800
14,75810,000(28,680)(3,793)(245)(6,160)(112,745)
240,936–(274,032)(41,926)
3,117(184,649)

1,142(11,079)(146)
14,07812,149(117,862)

–

537

–

766
61,956¥ 51,643–
47,341¥ 61,956

8,149
659,106$ 549,394

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

27

DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2013

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 Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally acceptedin Japan (“Japanese GAAP”), that are different in certain respects as to the application and disclosure requirements of International 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 2012 consolidated financial statements to conform to the classifications used in 2013.
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 ¥94 to $1, the approximate rate of exchange at March 31, 2013.
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 57 (57 in 2012) majority-owned subsidiaries and 23 (23 in 2012) associated companies at March 31, 2013. The consolidated financial statements as of March 31, 2013 include the accounts of the Company and 32 (33 in 2012) significant subsidiaries (together,
Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over
operations are fully consolidated and those companies over which the Group has ability to exercise significant influence are accounted for by
the equity method.
Investments in six associated companies are accounted for by the equity method for the years ended March 31, 2013 and 2012.
Investments in other non-consolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had
been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not havebeen material.
The fiscal years of the subsidiaries are not necessarily the same as that of the Company. Accounts of those subsidiaries, which havedifferent fiscal years, have been adjusted for significant transactions to properly reflect their financial position at March 31 of each year andthe results of operations for the year then ended.
The difference between the cost of acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition is
being amortized on a straight-line basis over five years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is also eliminated.

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

Financial section

the “Group”).

28(c) 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.

(d) 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 available-for-sale securities are stated at cost, determined by the moving-average method. For other-than-temporary
declines in fair value, marketable and investment securities are reduced to net realizable value by a charge to income.

(e) Inventories
Inventories are stated at the lower of cost, mainly determined by the average method, or market.

(f) 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

Financial section

receipt, exchanges of fixed assets of similar kinds and sales and purchases resulting from expropriation, Japanese tax laws permit companies to defer the profit arising from such transactions by reducing the cost of the assets acquired or by providing a special reserve in theequity section. The acquisition costs of property, plant and equipment were reduced in the amounts of ¥1,638 million ($17,426 thousand)and ¥1,526 million at March 31, 2013 and 2012, respectively.
Depreciation of certain plants of the Company and certain domestic and foreign subsidiaries is computed by the straight-line method.
Depreciation of other plants of the Company and other subsidiaries is computed by the declining-balance method, while the straight-line
method is applied to buildings acquired after April 1, 1998, for domestic companies.
Depreciation of leased assets is computed by the straight-line method over the lease period.
Effective April 1, 2012, the Company and domestic consolidated subsidiaries changed their depreciation method for property and equipment acquired on and after April 1, 2012, in accordance with the change in the method prescribed by the Japanese income tax laws. The
effect of this change in the depreciation method on the consolidated statement of income for the year ended March 31, 2013, was immaterial.
The range of useful lives is from 5 to 60 years for buildings and structures and from 3 to 17 years for machinery and equipment.

(g) Land Revaluation
Under the “Law of Land Revaluation,” Nippon Drop Forge Co., Ltd., a consolidated subsidiary, elected a one-time revaluation of its own-use
land to a value based on real estate appraisal information at March 31, 1999. The resulting land revaluation surplus represented unrealized
appreciation of land and was stated, net of income taxes, as a component of equity. There was no effect on the consolidated statement ofincome. Continuous readjustment is not permitted, unless the land value subsequently declines significantly such that the amount of thedecline in value should be removed from the land revaluation surplus account and related deferred tax liabilities. At March 31, 2013, thecarrying amount of the land after the above one-time revaluation exceeded the market value by ¥3,832 million ($40,766 thousand).

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

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

29(j) Retirement and Pension Plans
The Company and its domestic consolidated subsidiaries have unfunded retirement benefit plans and non-contributory funded pension
plans. Certain consolidated subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans andsmaller enterprise retirement allowance mutual aid plans. The liability for employees’ retirement benefits is accounted for based on projected
benefit obligations and plan assets at the balance sheet date. Certain small domestic subsidiaries provide their employees’ retirement benefits at the amount that would be required if all employees retired at the balance sheet date.
Retirement benefits to directors and Audit & Supervisory Board members of the Company and certain subsidiaries are provided at theamount that would be required if all directors and Audit & Supervisory Board members retired at the consolidated balance sheet date.

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

(l) Research and Development Cost
Research and development costs are charged to income as incurred.

(m) Leases
In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous
accounting standard for lease transactions. The revised accounting standard for lease transactions is effective for fiscal years beginning on
or after April 1, 2008.
(As lessee)
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were to
be capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain “as if capitalized”
information was disclosed in the notes to the lessee’s financial statements. The revised accounting standard requires that all finance leasetransactions should be capitalized by recognizing lease assets and lease obligations in the balance sheet. In addition, the accounting standard permits leases that existed at the transition date and did not transfer ownership of the leased property to the lessee to be accounted
for as operating lease transactions.
(As lessor)
Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were to
be treated as sales. However, other finance leases were permitted to be accounted for as operating lease transactions if certain “as if sold”
information was disclosed in the notes to the lessor’s financial statements. The revised accounting standard requires that all finance leases
that are deemed to transfer ownership of the leased property to the lessee should be recognized as lease receivables and all finance leases
that are deemed not to transfer ownership of the leased property to the lessee should be recognized as investments in leases.
The Group applied the revised accounting standard effective April 1, 2008. In addition, the Company accounted for leases that existed
at the transition date and did not transfer ownership of the leased property to the lessee as operating lease transactions.
All other leases are accounted for as operating leases.

Financial section

carrying amount of the related fixed asset by the amount of the liability. The asset retirement cost is subsequently allocated to expense

30(n) 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.

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

(p) 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.

Financial section(q) 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 the consolidated statement of income to the extent that they are not hedged by forward exchange contracts.

(r) 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.

(s) Derivatives and Hedging Activities
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange and interest rates. Foreignexchange forward contracts 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 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 exchange 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.
Interest rate swaps that 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.

(t) Per Share Information
Net income per share is computed by dividing net income available to common shareholders by the weighted-average number of commonshares outstanding for the period, retroactively adjusted for stock splits.
Diluted net income per share is not disclosed because the Group had no dilutive shares at March 31, 2013 and 2012.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective
years without giving retroactive adjustment for subsequent stock splits.

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

(v) New Accounting Pronouncement
Accounting Standard for Retirement Benefits—On May 17, 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for
Retirement Benefits,” and ASBJ Guidance No. 25, “Guidance on Accounting Standard for Retirement Benefits,” which replaced the
Accounting Standard for Retirement Benefits that had been issued by the Business Accounting Council in 1998 with effective date of April 1,
2000, and the other related practical guidances, being followed by partial amendments from time to time through 2009.

(a) Treatment in the balance sheet
Under the current requirements, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are notrecognized in the balance sheet, and the difference between retirement benefit obligations and plan assets (hereinafter, “deficit or surplus”),
adjusted by such unrecognized amounts, is recognized as a liability or asset.
Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss
shall be recognized within equity (accumulated other comprehensive income) after adjusting for tax effects, and the deficit or surplus shall berecognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).
(b) Treatment in the statement of income and the statement of comprehensive income
The revised accounting standard would not change how to recognize actuarial gains and losses and past service costs in profit or loss.
Those amounts would be recognized in profit or loss over a certain period no longer than the expected average remaining working lives ofthe employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss shall be included in other comprehensive income, and actuarial gains and losses and past service costs that wererecognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated asreclassification adjustments.
(c) ‌Amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected futuresalary increases
The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods and relating to the discount rate and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1,
2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual
periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, both with earlier application being permitted fromthe beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard toconsolidated financial statements in prior periods is required.
The Company expects to apply the revised accounting standard for (a) and (b) above from the end of the annual period beginning on
April 1, 2013, and for (c) above from the beginning of the annual period beginning on April 1, 2014, and is in the process of measuring theeffects of applying the revised accounting standard in future applicable periods.

Financial section

Major changes are as follows:32

3. INVESTMENT SECURITIESInvestment securities at March 31, 2013 and 2012, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Non-current:
Equity securities
Total

2013

2012

2013

¥55,655¥55,655¥49,737¥49,737$592,074$592,074

The costs and aggregate fair value of investment securities at March 31, 2013 and 2012, were as follows:
Millions of Yen
March 31, 2013

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥35,111¥16,949¥1,463¥50,597

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥35,092¥11,031¥1,624¥44,499

Cost

Unrealized
Gains

Unrealized
LossesFair Value$373,521$180,309$15,564$538,266

Millions of Yen

Financial section

March 31, 2012

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2013

Available-for-sale:
Equity securities

Information for available-for-sale securities that were sold during the years ended March 31, 2013 and 2012, was as follows:
Millions of Yen
March 31, 2013

Available-for-sale:
Equity securities

Proceeds¥369

Realized
Gains

¥249

Thousands of U.S. Dollars
Realized
Losses¥0

Proceeds$3,926

Realized
Gains

Realized
Losses$2,649Millions of Yen
March 31, 2012

Available-for-sale:
Equity securities

Proceeds¥215

Realized
Gains¥4

Realized
Losses¥65

Impairment losses on available-for-sale equity securities for the years ended March 31, 2013 and 2012 were ¥403 million ($4,287
thousand) and ¥601 million, respectively.

$0

33

4. INVENTORIESInventories held by the Group at March 31, 2013 and 2012, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

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

2013

2012

2013

¥16,410
12,98021,631
19,461
14,995
8,559¥94,036¥17,107
12,237
16,68919,755
16,5498,584¥90,921$  174,574
138,085
230,117
207,032
159,52191,053$1,000,383

5. INVESTMENT PROPERTYIn November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment Property and Related Disclosures,” andissued ASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property and Related Disclosures.”
The Company holds some rental properties, such as office buildings and land, in Aichi and other areas. The net amount of rental income
and operating expenses for those rental properties was ¥938 million ($9,979 thousand) and ¥1,066 million for the years ended March 31,
for the years ended March 31, 2013 and 2012, respectively.
The carrying amounts, changes in such balances and market prices of such properties at March 31, 2013 and 2012 were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying Amount
April 1, 2012

¥5,095

Increase

Fair Value
March 31, 2013

¥538

¥5,633Carrying AmountMarch 31, 2013

April 1, 2012

¥25,179$54,202

Increase$5,724

Fair Value
March 31, 2013

March 31, 2013

$59,926$267,862

Millions of Yen
Carrying Amount
April 1, 2011

¥5,349Decrease¥(254)

Fair Value
March 31, 2012

¥5,095

March 31, 2012

¥25,149

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, 2013, primarily represents the acquisition of certain properties of ¥865 million ($9,202 thousand) and thereclassification of certain lands to rental properties of ¥342 million ($3,638 thousand). The decrease during the fiscal year ended March 31, 2013, was primarily due to sales of idle assets of ¥452 million ($4,809 thousand) and depreciation of ¥152 million ($1,617 thousand).
3) The fair value of properties was measured by the Group in accordance with its Real-Estate Appraisal Standard.

Financial section2013 and 2012, respectively. In addition, the net gain on sales of those rental properties was ¥415 million ($4,415 thousand) and ¥8 million

34

6. 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, 2013 and 2012, were 0.92% and 0.62%, respectively.
Long-term debt at March 31, 2013 and 2012, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2013

2012

2013

¥ 88,907
10,00020,00010,000¥ 91,181
10,00020,00010,000$  945,819
106,383
212,766
106,383100
701
129,708(35,858)¥ 93,850

900
647
132,728(25,435)¥107,293

1,064
7,457
1,379,872(381,468)$  998,404

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2014
2015
2016
2017
2018
2019 and thereafter
Total¥ 35,858
18,30824,642
22,587
13,797
14,516¥129,708$  381,468
194,766
262,149
240,287
146,777
154,425$1,379,872

Loans from banks and other financial institutions due serially to 2022 withweighted-average interest rates of 1.02% in 2013 and 1.32% in 2012
1.90% unsecured bonds due June 20, 2013
1.08% unsecured bonds due December 18, 2015
0.68% unsecured bonds due December 1, 2016
Unsecured bonds issued by a consolidated subsidiary due serially fromFebruary 28, 2013 to March 31, 2014
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

Financial section

Annual maturities of long-term debt at March 31, 2013, were as follows:

The Company and a consolidated subsidiary entered into line-of-credit agreements with 10 banks. The details of the agreements wereas follows:

Line-of-credit amount
Balance used at March 31, 2013

Millions of Yen

Thousands of
U.S. Dollars¥25,000–$265,957–

35

7. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥6 million ($64 thousand), short-term bank loansof ¥210 million ($2,234 thousand), long-term debt (including current portion) of ¥7 million ($74 thousand) and other current liabilities of ¥6
million ($64 thousand) at March 31, 2013, were as follows:

Millions of Yen

Thousands of
U.S. Dollars¥    7
2,228
3,518
134
29
¥5,916$    74
23,70237,426
1,426
309$62,936

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

Land held for investment in the amount of ¥103 million ($1,096 thousand) included in “Other investments and assets” was pledged ascollateral for borrowings of ¥2,547 million ($27,096 thousand) by Yugen Kaisha Takakura Funding Corporation (“Takakura”). In the event that
acceleration of the maturity of the borrowings for Takakura occurs, the Company may repay the balance of the borrowings on behalf of
Takakura. The Company entered into an agreement with the lender that the Company shall settle the borrowings by way of a transfer ofownership of the pledged land to the lender with the settlement amount (the difference between the balance of the borrowings and the fair
In addition, investments in a limited partnership of ¥495 million ($5,266 thousand) and other assets of ¥839 million ($8,926 thousand)were pledged as collateral for borrowings of ¥4,800 million ($51,064 thousand) by Takakura, including the above borrowings of ¥2,547
million ($27,096 thousand).

8. RETIREMENT AND PENSION PLANS
Under most circumstances, employees terminating their employment are entitled to retirement benefits, determined based on the rate of pay
at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance
payment from the Company or from certain consolidated subsidiaries and annuity payments from trustees. Employees are entitled to larger
payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain
specific ages prior to the mandatory retirement age.
The liability for employees’ retirement benefits at March 31, 2013 and 2012, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Projected benefit obligation
Fair value of plan assets
Unrecognized prior service benefit
Unrecognized actuarial gain (loss)
Prepaid pension cost
Liability for retirement benefit

2013

2012

2013

¥ 53,470(70,910)816
666
22,823¥  6,865¥ 54,310(64,434)981(4,020)19,962¥  6,799$ 568,830(754,362)
8,681
7,085
242,798$  73,032

Financial section

market value of the land) if the Company does not repay the borrowings on behalf of Takakura.

36

Certain domestic subsidiaries contribute to a multiemployer plan for which pension assets or obligations are not recorded as the Group’s
pension assets or obligations.
The funded status of the multiemployer plan at March 31, 2013 and 2012, to which contributions paid by certain domestic subsidiaries
were recorded as net periodic retirement benefit costs, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

Fair value of plan assets
Pension obligation recorded by pension fundDifference
The Group’s contribution percentage for contributory funded pension plans

2013

2012

2013

¥203,240
239,951¥ (36,711)
2.25%¥203,680
239,852¥ (36,172)
2.55%$2,162,128
2,552,670$ (390,543)

The components of net periodic employees’ retirement benefit costs for the years ended March 31, 2013 and 2012, were as follows:
Thousands of
U.S. Dollars

Financial section

Millions of Yen

Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Amortization of prior service benefit
Contribution to defined contribution plans
Contribution to multi-employer contributory funded pension plans
Additional severance payments
Loss on revision of retirement benefit plan
Net periodic employees’ retirement benefit cost

2013

2012

2013

¥ 2,153956(1,090)
(341)
(162)
87
136
756
–
¥ 2,495¥ 2,162
1,007(1,093)
495
(162)
74
137
1,596
290
¥ 4,506$ 22,904
10,170(11,596)(3,628)(1,723)
926
1,447
8,043
–
$ 26,543

Assumptions used for the years ended March 31, 2013 and 2012, were set forth as follows:

Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain (loss)
Recognition period of prior service benefit

2013

2012

Primarily 1.9%
Mainly 2.0%
Mainly 10 years
Mainly 10 years

Primarily 1.9%
Mainly 2.0%
Mainly 10 years
Mainly 10 years

9. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2013 and 2012, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2013

Balance at beginning of year
Reconciliation associated with passage of time
Balance at end of year

¥426
–
¥426

2012

¥426
–
¥426

2013

$4,532–$4,532

37

10. 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. 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 is prescribed as one year rather than two years
of normal term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time during
the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company cannot do so because it does notmeet 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
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 transferred among the accounts under certain conditions upon resolution of the shareholders.

(c) Treasury Stock and Treasury Stock Acquisition Rights
The Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Boardof Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders which isdetermined by 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.

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

38

11. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes that, in the aggregate, resulted innormal effective statutory tax rates of approximately 38% and 41% for the years ended March 31, 2013, and 2012, respectively.
The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2013 and 2012, were as follows:
Thousands of
U.S. Dollars

Financial section

Millions of Yen

Deferred tax assets:
Accrued bonuses
Retirement benefits
Allowance for doubtful accounts
Write-down of securities and other assets
Elimination of unrealized gain on property, plant and equipment
Net loss carryforwards
Elimination of unrealized gain on inventories
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
Prepaid pension cost
Unrealized gain on lands resulting from consolidation of a subsidiary
Other
Total deferred tax liabilities
Net deferred tax liabilities

2013

2012

2013

¥ 2,195
2,429
212
799
242
2,120
878
150
2,867
(4,202)¥ 7,690¥ 2,557
2,406
120
966
340
1,910
1,108
192
2,277
(2,732)¥ 9,144$  23,351
25,840
2,255
8,500
2,574
22,5539,340
1,596
30,500(44,702)$  81,809¥ 2,324
1,397
5,487
6,171
1,185
568
¥17,132¥ (9,442)¥ 2,524
1,397
3,504
5,260
1,185
576
¥14,446¥ (5,302)$  24,723
14,86258,37265,64912,606
6,043$ 182,255$(100,447)

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, 2013, with the corresponding figures for 2012 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 dividend 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
Other—net
Actual effective tax rates

2013

2012

38.0%
2.1
(5.3)
0.7
(5.4)
4.1
(1.1)
(1.1)
(0.6)
–
0.2
31.6%

41.0%
1.3
(3.3)
0.4
(19.8)
2.5
(0.9)
(1.3)
(0.3)
(1.7)
(0.2)
17.7%

On December 2, 2011, new tax reform laws were enacted in Japan, which changed the normal effective statutory tax rate from approximately 41% to 38% effective for the fiscal years beginning on or after April 1, 2012 through March 31, 2015, and to 35% afterwards. The
effect of this change was to decrease deferred tax liabilities in the consolidated balance sheet as of March 31, 2012, by ¥1,073 million andto decrease income taxes-deferred in the consolidated statement of income for the year then ended by ¥509 million.

39

12. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥4,560 million ($48,511 thousand) and ¥4,360 million for the years ended March
31, 2013 and 2012, respectively.

13. LEASESPro forma information of leased property whose lease inception was before March 31, 2008
ASBJ Statement No. 13, “Accounting Standard for Lease Transactions” requires that all finance lease transactions be capitalized to recognize lease assets and lease obligations in the balance sheet. However, ASBJ Statement No. 13 permits leases without ownership transfer ofthe leased property to the lessee whose lease inception was before March 31, 2008 to be accounted for as operating lease transactions if
certain “as if capitalized” information is disclosed in the notes to the financial statements. Such pro forma information of leased property asof March 31, 2013, was omitted due to immateriality.
(As lessee)
Obligations under noncancelable operating leases at March 31, 2013 and 2012, were as follows:
Thousands of
U.S. Dollars

2013

Due within one year
Due after one year
Total

¥32
29
¥61

2012

2013

¥39
46
¥85

$340
309
$649

Millions of Yen

Thousands of
U.S. Dollars(As lessor)
Expected revenues from operating leases at March 31, 2013, were as follows:

Due within one year
Due after one year
Total

2013

2013

¥  568
4,532¥5,100$ 6,043
48,213$54,255

Financial section

Millions of Yen

40

14. 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, bonds and lease obligations, 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
to manage exposure to financial risks as described in (2) below.

(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables, such as trade notes and trade accounts, 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 are netted against the balance of payables denominated in the same currency. 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, are exposed to the risk ofmarket price fluctuations.
Payment terms of payables, such as trade notes and trade accounts, 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 denominatedin the same foreign currency as noted above. In addition, foreign currency trade payables in certain consolidated subsidiaries are exposed torisk resulting from fluctuations in foreign currency exchange rates. The risk is hedged by using forward foreign currency contracts.
Short-term bank loans and commercial paper are mainly used for general operating purposes, and long-term bank loans and bonds aremainly used for investment and strategy. Although a part of such bank loans and commercial paper, excluding bonds and lease obligations,
Financial section

is exposed to risk of changes in variable interest rates, that risk is mitigated by using interest rate swaps.
Derivatives mainly include forward foreign currency contracts, currency swaps, currency options and interest rate swaps, which are used
to manage exposure to risks from changes in foreign currency exchange rates of receivables and payables and from changes in interest
rates of bank loans. Please see Note 15 for more detail about derivatives.

(3) Risk Management for Financial Instruments
Credit risk management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The
Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balancesof major customers by each business administration department to identify the default risk of customers at an early stage. Please see Note
15 for the detail about derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2013.
Market risk management (foreign exchange risk and interest rate risk)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates.
Such foreign exchange risk is netted against the balance of receivables and payables. In addition, certain consolidated subsidiaries hedge
such risk principally by using forward foreign currency contracts.
Interest rate swaps are used to manage exposure to risks of changes in interest rates of loan payables and bond payables.
Investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.
Derivative transactions are undertaken by the finance and accounting department and the procurement center based on internal regulations that prescribe the authority and maximum amount for each transaction.
Liquidity risk management
The Group manages its liquidity risk by establishing a cash management plan according to reports from each department.

41(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 15 for the detail of the fair value of derivatives.
(a) Fair value of financial instruments

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Investment securities
Investment in an associated company
Total
Short-term bank loans
Current portion of long-term debt
Payables: Trade notes and accounts
Income taxes payable
Long-term debt
Total

March 31, 2013

Thousands of U.S. Dollars

Fair Value

Unrealized
Gain/(Loss)

Carrying
AmountFair Value

Unrealized
Gain/(Loss)¥ 51,643
418
88,65250,597
4,143¥195,453¥ 51,643
418
88,65250,597
2,677¥193,987––––¥(1,466)¥(1,466)$  549,394
4,447
943,106
538,266
44,074$2,079,287$  549,394
4,447
943,106
538,266
28,479$2,063,691––––$(15,596)$(15,596)¥ 16,530
35,85866,233
1,761
93,850¥214,232¥ 16,530
35,85866,233
1,761
94,566¥214,948––––¥  (716)¥  (716)$  175,851
381,468
704,606
18,734998,404$2,279,064$  175,851
381,468
704,606
18,734
1,006,021$2,286,681––––$ (7,617)$ (7,617)

Millions of Yen
Carrying
AmountFair Value

Unrealized
Gain/(Loss)

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Investment securities
Investment in an associated company
Total¥ 61,956
246
104,127
44,4994,022¥214,850¥ 61,956
246
104,127
44,4992,420¥213,248––––¥(1,602)¥(1,602)

Short-term bank loans
Current portion of long-term debt
Payables: Trade notes and accounts
Income taxes payable
Long-term debt
Total

¥ 23,609
25,43572,163
2,004
107,293¥230,504¥ 23,609
25,43572,163
2,004
108,341¥231,552––––¥(1,048)¥(1,048)

March 31, 2012

Financial section

Millions of Yen
Carrying
Amount42

Cash and Cash Equivalents, Time Deposits, Notes and Accounts Receivable, Payables—Trade Notes and Accounts, Short-Term Bank Loans
and Current Portion of Long-Term Debt with Variable Interest Rates
The carrying values of cash and cash equivalents, time deposits, receivables, payables, short-term bank loans and current portion of longterm debt with variable interest rates approximate fair values because of their short maturities. The fair values of receivables and payables
include the fair values of foreign currency forward contracts and interest rate swaps.
Investment Securities
The fair values of investment securities are measured at the quoted market price of the stock exchange for equity instruments and at thequoted price obtained from the financial institution for certain debt instruments. Fair value information for investment securities by classification is included in Note 3.
Long-Term Debt with Fixed Interest Rates
The fair values of long-term debt with fixed interest rates are determined by discounting the cash flows related to the debt at the risk-freerate plus credit spread or at the Group’s assumed corporate borrowing rate.
Derivatives
Information on the fair value of derivatives is included in Note 15.

Financial section(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 non-consolidated subsidiaries and associated companies

2013

2012

2013

¥ 5,058
14,842¥ 5,238
10,970$ 53,809
157,894(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities
Millions of Yen
Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years¥ 51,643
418
88,652¥140,713

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2013

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Total$  549,394
4,447
943,106$1,496,947

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2013

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Total

Thousands of U.S. Dollars

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

43

15. DERIVATIVESThe Group enters into foreign exchange forward contracts and interest rate swaps. The Group does not hold or issue derivatives for tradingor 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 periodically reported to management that evaluates and analyzes derivatives.
Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2013 and 2012
Millions of Yen

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Selling:
U.S. dollar
EuroContract
AmountFair
Value

Unrealized
Gain / (Loss)¥  308
235
421

–
–
–

¥ (1)
7
(30)

¥ (1)
7
(30)

3,210
107

–
–

4
1

4
1

Millions of Yen

At March 31, 2012

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Selling:
U.S. dollar
Euro
Currency options:
Selling—Call option
U.S. dollar
Selling—Put option
U.S. dollar
Buying—Call option
U.S. dollar
Buying—Put option
U.S. dollar

Contract
AmountDue after
One YearContract
AmountFair
Value

Unrealized
Gain / (Loss)¥  460
62
430

–
–
–

¥  1
(0)
3

¥  1
(0)
3

2,831
18

–
–

(19)
0

(19)
0

11

–

0

0

6

–

0

0

6

–

(0)

(0)

11

–

(0)

(0)

Financial section

At March 31, 2013

Contract
AmountDue after
One Year44

Thousands of U.S. Dollars

At March 31, 2013

Foreign currency forward contracts:
Buying:U.S. dollar
Euro
Yen
Selling:
U.S. dollar
EuroContract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain / (Loss)$ 3,277
2,500
4,479

–
–
–

$ (11)
74(319)$ (11)
74(319)

34,149
1,138

–
–

43
11

43
11

Derivative Transactions to Which Hedge Accounting Is Applied at March 31, 2013 and 2012
Millions of Yen

Financial section

At March 31, 2013

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

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Payables—trade
Payables—trade¥   137
34

–
–

¥6
3

Receivables—trade
Receivables—trade

78
10

–
–

(6)
0

Payables—trade
Payables—trade
Payables—trade

82
88
69

–
–
–

Receivables—trade

41

–

3,000
40,130¥ 2,000
26,500

Short-term bank loans
and long-term debt

Fair
Value

See note
to thefollowing
page

45

Millions of Yen

Foreign currency forward contracts:
Hedge accounting:
Buying:U.S. dollar
Pound Sterling
Selling:
U.S. dollar
Qualified for hedge accounting not remeasured
at market value:
Buying:U.S. dollar
Pound Sterling
Yen
Selling
U.S. dollar
Currency swaps qualified for hedge accountingn‌ot remeasured at market value:(Paying yen, receiving U.S. dollar)
Interest rate swaps:
Floating rate payment, fixed rate receipt
Fixed rate payment, floating rate receipt
Floating rate payment, floating rate receipt

Hedged Item

Contract
AmountPayables—trade
Payables—trade¥   244
35

–
–

¥ (1)
(1)

Receivables—trade

280

–

(10)

Payables—trade
Payables—trade
Payables—trade

81
89
99

–
–
–

Receivables—trade

41

–

700

–

2,000
49,3601,000¥ 1,000
27,230–

Short-term bank loans
and long-term debt

Fair
Value

See note
below
Financial section

At March 31, 2012

Contract
AmountDue after
One YearThousands of U.S. Dollars

At March 31, 2013

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

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Payables—trade
Payables—trade$  1,457
362

–
–

$ 64
32

Receivables—trade
Receivables—trade

830
106

–
–

(64)
0

Payables—trade
Payables—trade
Payables—trade

872
936
734

–
–
–

Receivables—trade436–

31,915426,915$ 21,277
281,915

Short-term bank loans
and long-term debt

Fair
Value

See note
below

Note: F air 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 14.

46

16. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2013, the Group had contingent liabilities for notes with recourse in the course of asset liquidation in the amount of ¥651
million ($6,926 thousand).
At March 31, 2013, the Group was contingently liable for ¥1,350 million ($14,362 thousand) for guarantees of loans and payables of
non-consolidated subsidiaries, associated and other companies and employees.
The Company had an obligation to invest additionally in Takakura via an anonymous association contract with an upper limit of ¥524
million ($5,574 thousand) in the event that buildings owned by Takakura are destroyed or impaired by natural disaster.
The Company transferred all stocks of one of its consolidated subsidiaries, Tokuhatsu Co., Ltd., held by the Company, to NHK SpringCo., Ltd. in January 2006. Under the agreement with NHK Spring Co., Ltd., the Company would owe a defect liability against NHK SpringCo., Ltd. at a maximum amount of ¥3,200 million for 10 years starting on the date of transfer. The Company agreed to owe the defect liability such as product liability and remedy cost for land pollution, which would be caused by events occurring prior to the date of transfer. As aresult of the due diligence process between the Company and NHK Spring Co., Ltd., management of the Company believes that the possibility of exposure to losses would be remote.

17. COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended March 31, 2013 and 2012, were as follows:
Thousands of
U.S. Dollars

Financial section

Millions of Yen

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

2013

2012

2013

¥ 5,937
154
6,091(1,993)¥ 4,098¥(643)
647
4
542
¥ 546

$ 63,160
1,638
64,798(21,202)$ 43,596¥     88
16
(6)¥    10¥  (2)–(2)1¥  (1)$     85
85
170
(64)
$    106¥     –
¥     –

¥ 297
¥ 297

$      –
$      –

¥ 1,394¥ 1,394¥(446)¥(446)$ 14,830$ 14,830¥    29–¥    29¥  (2)1¥  (1)$    309–$   309¥ 5,531¥ 395$ 58,840

47

18. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2013, was approved at the Company’s shareholders meeting held on June27, 2013:

Year-end cash dividends, ¥1.50 ($0.02) per share

Millions of Yen

Thousands of
U.S. Dollars¥651$6,926

19. 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
management is being performed in order to decide how resources are allocated among the Group.
The Group has business divisions based on the nature of products and services. Each division draws up strategies and operates its own
business.
Prior to April 1, 2012, the Group consisted of six industries: “Specialty Steel,” “Electronic and Magnetic Materials,” “Parts for Automobile
and Industrial Equipment,” “Engineering,” “New Materials” and “Trading and Service.”
Effective April 1, 2012, the Group revised business divisions and consists of five industries: “Specialty Steel,” “High Performance Materials and Magnetic Materials,” “Parts for Automobile and Industrial Equipment,” “Engineering,” and “Trading and Service.” “Specialty Steel”
industry consists of manufacturing of specialty steel for automotive and industrial machinery parts.
“High Performance Materials and Magnetic Materials” industry consists of manufacturing of stainless steel, high alloy and magnetic
materials, titanium products and powder metals for automotive and industrial machinery and electrical and electronic parts.
“Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging products and otherproducts for automotive and industrial machinery parts.
“Engineering” industry consists of manufacturing and maintenance of steelmaking and environmental equipment, industrial furnaces andassociated equipment.
“Trading and Service” industry consists of real estate-related services and welfare and other services.
The change in business divisions was applied retrospectively and the segment information for 2012 was revised accordingly.
2. Methods of measurement for the amounts of sales, profit, assets and other items for each reportable segment
The accounting policies of each reportable segment are consistent to those disclosed in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.”
Reportable segment profit represents operating income.

Financial section

The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s

48

3. Information about sales, profit, assets and other items is as follows:
Millions of Yen
Reportable Segment

Specialty SteelHigh
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥169,379¥136,852¥ 93,293¥31,958¥ 8,946

Intersegment sales or transfers

63,323

15,90828,575

1,794

10,275

Total¥232,702¥152,760¥121,868¥33,752

Segment profit¥  3,515¥  6,648¥  3,394

Segment assets

180,717

162,4122013

Reconciliations

Consolidated¥440,428–¥440,428

119,875¥(119,875)–¥19,221¥560,303¥(119,875)¥440,428¥   763¥ 1,109¥ 15,429¥      (3)¥ 15,426

105,029

15,473

18,777482,408

28,751

511,159

Sales

Other:
Depreciation and amortization

6,141

6,267

5,575

290

957

19,230–19,230Investments in associated companies

3,771

4,498

330

79

–

8,678

261

8,939

Increase in plant, property andequipment and intangible assets

9,923

9,439

6,302

484

643

26,791–

26,791

Reconciliations

Consolidated¥489,155

Financial section

Millions of Yen
Reportable Segment

Specialty SteelHigh
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥194,984¥164,599¥ 94,171¥25,769¥ 9,632¥489,155–

Intersegment sales or transfers

73,327

18,10436,234

2,042

8,465

138,172¥(138,172)

–

Total

¥268,311¥182,703¥130,405¥27,811¥18,097¥627,327¥(138,172)¥489,155

Segment profit¥  9,898¥ 13,746¥  4,827¥ 1,826¥ 1,242¥ 31,539¥      (5)¥ 31,534

Segment assets

182,912167,362

105,654

15,98919,487

491,404

21,565

512,969

2012

Sales

Other:
Depreciation and amortization

7,038

6,510

5,587

301

1,028

20,464–

20,464

Investments in associated companies

3,487

4,343

304

72

–

8,206

221

8,427

Increase in plant, property andequipment and intangible assets

6,670

8,600

6,136

233

727

22,366–22,366

49

Thousands of U.S. Dollars
Reportable Segment

Specialty SteelHigh
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers$1,801,904$1,455,872$  992,479$339,979$ 95,170

Intersegment sales or transfers

673,649

169,234

303,989

19,085

109,309

Total$2,475,553$1,625,106$1,296,468$359,064

Segment profit$   37,394$   70,723$   36,106

Segment assets

1,922,521

1,727,787

2013

Reconciliations

Consolidated$4,685,404–$4,685,404

1,275,266$(1,275,266)–$204,479$5,960,670$(1,275,266) $4,685,404$  8,117$ 11,798$  164,138$      (32) $  164,106

1,117,330

164,606

199,755

5,132,000

Sales

305,8625,437,862

Other:
Depreciation and amortization

65,33066,67059,3093,085

10,181

204,574–

204,574

Investments in associated companies

40,11747,851

3,511

840

–

92,3192,777

95,096

Increase in plant, property andequipment and intangible assets

105,564

100,415

67,043

5,149

6,840

285,011–285,011

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 reportablesegments.
3. Segment profit was reconciled to operating income in the consolidated statement of income.

50

Associated Information
1. Information about geographical areas
Sales
Millions of Yen
2013

Japan

¥364,872

North America¥15,433

Asia¥54,556

Other¥5,567

Total¥440,428

Millions of Yen
2012

Japan

¥411,451

North America¥14,267

Asia¥57,396

Other¥6,041

Total¥489,155

Thousands U.S. Dollars
2013

Japan

Financial section$3,881,617

North America$164,181

Asia

Other

$580,383$59,223

Total$4,685,404

51

2. Information about goodwill
Millions of Yen

2013

Amortization of goodwill (negative goodwill)
Balance of goodwill

Specialty SteelHigh
Performance
Materials andMagnetic
Materials

Parts for
Automobile andIndustrial
Equipment

Engineering

Trading andService

¥ 45
¥211

¥4
–

¥(2)
–

–
–

–
–

Specialty SteelHigh
Performance
Materials andMagnetic
Materials

Engineering

Trading andService

–

¥4

–

–

Total

¥ 47
¥211

Millions of Yen

2012

Balance of goodwill (negative goodwill)

Parts for
Automobile andIndustrial
Equipment

¥(2)

Total

¥2

Negative goodwill, which arose from business combinations executed before April 1, 2010, was not allocated to any reportable segments. Amortization of negative goodwill amounted to ¥6 million for the year ended March 31, 2012.

2013

Amortization of goodwill (negative goodwill)
Balance of goodwill

Specialty Steel$  479$2,245$43–

Parts for
Automobile andIndustrial
Equipment$(21)–

Engineering

Trading andService

–
–

–
–

Total

$  500$2,245

Financial section

Thousands of U.S. Dollars
High
Performance
Materials andMagnetic
Materials

Financial section

52

Independent Auditor’s Report

53

Daido network

Offices & Branches

Specialty Steel
Address

Head Office

Tokyo Head OfficeOsaka Branch

Niigata Sales Office

Fukuoka Sales Office

Phone (Facsimile)

Daido Die & Mold Solutions 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 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)

1084, Kotaka, Tsubame, Niigata

Riken Seiko Co., Ltd.

959-1241, Japan

81-256-63-4405(81-256-62-2484)

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

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

Tohoku Steel Co., Ltd.

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

High Performance Materials and Magnetic Materials
Nippon Seisen Co., Ltd.

Research Institute & Plants
81-52-611-2522(81-52-611-9004)

Shimomura Tokushu Seiko Co., Ltd.

Daido Corporate
Research &Development Center

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

Chita Plant

39, Motohama-machi, Tokai, Aichi 81-562-33-3101

Daido Electronics (Suzhou) Co., Ltd.

477-0035, Japan

Daido-Special Metals Ltd.

(81-562-33-1570)
81-562-33-7461(81-562-33-1550)

Chita Steel  Strip Plant

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

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

Shibukawa Plant

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

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

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

Tsukiji Techno Center

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

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

Metal Powder Plant
Oji Plant

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

Nissei Seiko Co., Ltd.

Parts for Automobile and Industrial Equipment
Fuji OOZX Inc.
Daido Castings Co., Ltd.
Toyo Sangyo Co., Ltd.
Japan Drop Forge Co., Ltd.
Daido Star Techno Co., Ltd
Daido Precision Industries Ltd.
OHIO STAR FORGE CO.

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

Trading and Service

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

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

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

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

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

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

Daido Bunseki Research Inc.

Nakatsugawa Techno Center

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

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

Star Info Tech Co., Ltd.

Kimitsu Plant

Daido Kogyo Co., Ltd.
Daido Life Service Co., Ltd.
Life Support Co., Ltd.
Kisokoma Heights Co., Ltd.
Daido Steel (America) Inc.

(As of March 31, 2013)

Daido Network

Daido Electronics (Thailand) Co., Ltd.

Chita  Forging Plant

Hoshizaki Plant

Daido Electronics Co., Ltd.

Daido Steel Co., LTD.

Corporate Data

(As of March 31, 2013)

Daido Steel Co., Ltd.
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 (Japan) -52-963-7501
Facsimile: 81 (Japan) -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
http://www.daido.co.jp
3,139

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

434,487,693

Number of Shareholders:

33,649

Independent Auditors:

Deloitte Touche Tohmatsu LLC

Stock Exchange Listings:

Tokyo, Nagoya

annual report 2013

Internet Address:
Number of Employees:

Utilizing our strengths, aiming at further growth

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

For Further Information,
Please Contact:

This annual report is printed on recycled paper.

NIPPON STEEL CORPORATION
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
Mizuho Corporate Bank, Ltd.
The Bank of Tokyo-Mitsubishi UFJ, Ltd.
The Master Trust Bank of Japan, Ltd. (Trust Account)
HONDA MOTOR CO., LTD.
NHK Spring Co., Ltd.
TOYOTA MOTOR CORPORATION
National Mutual Insurance Federation of Agricultural Cooperatives
Investor Relations(Head Office)Phone: 81-52-963-7516
Facsimile: 81-52-963-4386
Printed in Japan