annual report 2012
Year ended March 31, 2012

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.
New Segment (FY2012~)
Main Products / Business

Former Segment• Mechanical construction steel (Automobile / bearings, etc.)
Specialty Steel • Stainless steel• Tool Steel (Chita Plant)
Electronic and • High alloy (strips / bars, wire rods)
Magnetic Materials • Magnets• Die forging
Parts for Automobile• Free forging (Shibukawa Plant)
and Industrial• Tool Steel (Shibukawa Plant)
Equipment• Engine valves, turbo parts
Engineering • Engineering
New Materials• Powder metal• Titanium

Main Products / Business

New Segment• Mechanical construction steel (Automobile / bearings, etc.)
Specialty Steel• Tool Steel (Chita Plant / Shibukawa Plant)• Stainless steel
High Performance • High alloy (strips / bars, wire rods)
Materials and • Magnets
Magnetic Materials • Powder metal• Titanium
Parts for Automobile • Die forging
and Industrial • Free forging (Shibukawa Plant)
Equipment • Engine valves, turbo parts
Engineering • Engineering
Trading and Service • Overseas trading company, Real Estate

Trading and Service • Overseas trading company, Real Estate

DAIDO STEEL has partially changed its business segmentation accompanying­organizational reforms conducted on April 1, 2012.

Contents
01

FINANCIAL HIGHLIGHTS

02

Message from the management04

FeatureThis annual report contains forward-looking statements

Mid-Term Management Plan Ending in fiscal 2014

concerning DAIDO STEEL CO., LTD.’s and its Group06

At a Glance

performance. These forward-looking statements are not

08

Review of Operations

12

Research and Development

information currently available.

14

CSR and the environment

basis for evaluating the Company. DAIDO STEEL also

15

Corporate Governancewishes to caution readers that actual results may differ

16

Board of Directors and corporate auditors

statements are subject to a number of risks and

17

Financial Section

55

DAIDO Network

FORWARD-LOOKING STATEMENTS

companies’ current plans, projections, strategies andhistorical facts. Rather, they represent the assumptions
and beliefs of DAIDO STEEL’s management based on
They should therefore not be relied upon as the solematerially from expectations, and that forward-looking
uncertainties.

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

Thousands of
U.S. Dollars

Millions of Yen
2012

2011

2010

2009

2008

2012

489,155

472,063362,507532,655

591,398

5,965,305

For the Year:Net Sales
Operating Income (Loss)

31,53432,730(14,050)

9,115

38,441

384,561

Net Income (Loss)

22,71823,004(14,610)(8,147)

14,196

277,049

R&D Expenses

4,360

4,254

3,909

4,244

4,447

53,171

Capital Expenditures

39,70018,9007,900

13,40020,800484,146

Depreciation

20,46420,073

20,30321,80919,586

249,561

Total Assets

512,969

491,722464,629

496,411559,278

6,255,720

Total Equity

198,654

178,348

159,301

166,235

188,090

2,422,610Interest-bearing Debt

156,336

157,445

173,790

207,123

180,295

1,906,537

Number of Employees

10,365

10,272

10,414

10,212

11,131

—

33

32

32

32

32

—

Basic Net Income

52.37

53.02

(33.68)(18.78)

32.72

0.64

Cash Dividends Applicable to the Year

7.50

7.00

2.00

6.00

8.00

0.09

ROA (%)

6.3

6.6

(2.9)

1.6

6.9

—

ROE (%)

12.1

13.6

(9.0)

(4.6)

7.6

—

Number of Consolidated Subsidiaries

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

FINANCIAL HIGHLIGHTSAt Year-end:

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 ¥82 to $1, the approximate rate of exchange at March 31, 2012.

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

100,0000–20,000
2008 2009 2010 2011 2012

–10,000

2008 2009 2010 2011 2012

–15,000
2008 2009 2010 2011 201201

Message from the Management

Message from the Management

Overview of Results for Fiscal 2011
In fiscal 2011, the Japanese economy continued a steady recovery as the supply chain was restored following a temporary economic downturn that stemmed from the Great East Japan Earthquake. Despite a standstill at one point owing to
the recurrence of the European debt problem and the yen’s surge, there were again signs of an improvement in Japan
with a correction in the yen and a turnaround in the U.S. economy. Demand was generally strong in the automobile
industry, a key source of demand for our specialty steel products, as well as from the industrial equipment and information technology sectors. This reflected rising demand in emerging countries, offsetting the influence of slowdowns elsewhere internationally and the impact of the floods in Thailand.
Against this backdrop, we responded flexibly to plunging production demand after the earthquake and to requests
to conserve electricity in the summer period, accommodating expanded demand from fall.
Production and sales volumes were higher than a year earlier, reflecting a demand recovery from an initial downturn
after the quake and efforts to boost production. Group net sales increased ¥17,092 million, to ¥489,154 million. Recurring income rose ¥36 million, to ¥31,762 million. Net income was ¥22,718 million.

Outlook for Fiscal 2012
We are looking for a recovery trend to build momentum on the strengths of various policies, especially those driving
reconstruction demand, and an overseas economic recovery. At the same time, we face downside risks, notably fromthe rekindling of Europe’s sovereign debt crisis and economic slowdowns in emerging countries. There are also therisks of crude oil prices rising and the yen again climbing. We consider it important to monitor such changes in theoperating climate.
We anticipate ongoing expansion in the Japanese automobile industry, a key source of demand for specialty steel,against the background of economic growth in emerging countries. We expect this industry to generate higher output
than in the year under review, when the Great East Japan Earthquake and floods in Thailand adversely affected production. We look for solid demand related to industrial equipment and information technology, although we must keep
close checks on the potential for downward risks in those sectors, which are vulnerable to economic fluctuations,especially overseas.
In light of these factors, we have formulated the following segment forecasts for the next fiscal year. The assumptions
on the following page are for new segments resulting from organizational changes effective from April 1.

02

NEW SEGMENT FORECASTS FOR NEXT FISCAL YEARSPECIALTY STEEL

demand to head toward a recovery despite sluggish exports

We look for specialty steel demand for automotive applications tostemming from a low euro, as demand seems to be bottoming out

rise in the second half of the year, offsetting possible inventory

in the domestic market. With demand for automobiles remaining

adjustments earlier in the term, as we expect production to recoverfavorable, powder metal products should again do well, particu-

among Japanese automakers. We anticipate that other areas oflarly functional powder metal products for hybrid electric vehicles.

demand will recover gradually, although there are concerns about
higher prices for crude oil and other sources of energy and the

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT

issue of power demand and supply. We will thus monitor demand

We expect demand for die forgings to remain solid as demand forand supply trends while managing our operations flexibly. At theJapanese automobiles expands in domestic and overseas mar-same time, we will undertake planned inventory management forkets. In turbo-related products, global demand should increase

the operational structures of the Chita Plant and other productionamid a greater proportion of vehicles incorporating these systems,

facilities in keeping with changing demand and supply trends while

while we aim to swiftly benefit from our turbo parts line upgrade. In

taking into account operational constraints from electricity availabil-industrial equipment, while we anticipate a turnaround from higher

ity in summer and strategic investments. The costs of steel scrap,

resources-related investment and benefits from sales expansion,alloy steel, crude oil, and other key raw materials and fuels could

there are concerns about the potential impacts of European andchange dramatically in light of global demand and supply trends,

U.S. economic trends and foreign exchange fluctuations.

so we will endeavor to generate swift results from rationalization
ENGINEERING
While we expect domestic demand to stay low, we will reinforce
HIGH PERFORMANCE MATERIALS AND MAGNETIC

marketing and cultivate overseas markets in view of increasingly

MATERIALS

brisk capital investment in China and other emerging nations. In

Although demand for stainless steel and high alloy products

the next fiscal year, we plan to deploy strategic investment proj-

remains low, reflecting such factors as inventory adjustments in

ects for the Chita Plant and a new magnet production company,

related products, we expect a mild recovery. Magnetic products

and will optimally employ our engineering technologies.

should continue to do well. This is because we anticipate a recovery in magnets used in hard disk drive spindle motors, reflecting

TRADING AND SERVICE

the restoration of Thai manufacturing facilities. Another factor is

In the trading and service segment, demand should generallythat demand should expand for magnets used in electric power

remain around the same as that in the year under review.

steering systems for automobiles. We look for titanium productMessage from the Management

while reflecting changes in our pricing.

Given this business environment, our outlook for fiscal 2012 takes into account relatively strong automobile-related
demand, notwithstanding concerns about economic prospects. We thus project ¥500,000 million in Group net sales,¥31,500 million in recurring income, and ¥20,000 million in net income.

Medium- to Long-Term Management Strategies
Over the medium and long terms, we believe that specialty steel-related demand will continue expanding, particularly inemerging countries, amid a further acceleration in market globalization. At the same time, we assume that international
competition will further intensify. Key factors would include users shifting more production offshore and increasing local
procurement, as well as higher costs of electricity and other manufacturing inputs. To address these changes in theoperating environment, in March 2012 the Group instituted a three-year management plan through fiscal 2014. Under
this initiative, we will undertake business portfolio reforms and production innovations to prepare for intensified global
competition. We will also implement the following management policies and pursue the following management indices.
By focusing on these key issues, we aim to achieve a sustainable increase in the corporate value of Daido Steel.
June 2012

Tadashi Shimao
President

03

Feature

New Mid-term Management Plan

Strengthen Business Structure andExecute Growth Strategies
to Win in an Era of Global Competition
Major Initiatives

1.

Radically strengthen business foundation for existing products
1) Reduce costs and improve quality by streamlining steelmaking processes at Chita Plant
2) Promote strategic alliance with companies around the world in broad-ranging areas
3) Maximize benefits of mutual collaboration in global market

2.

Expand global leading products• Automobile engine valves

Feature• Stainless steel for HDD• Ball bearing steel• Parts for turbochargers• Aircraft jet engine shafts

3.

Expand future growth fields by cultivating next-generation businesses
1) Expand capabilities for magnet and turbo businesses for which demand is expected to grow worldwide2)	Precisely meet user’s needs by combining our technologies and know-how

4.

Develop global network and execute global strategies
1) Use the Daido Steel Group to enhance supply chain functions2)	Strengthen relationships with allied companies including Timken Company (U.S.A.) and Sunflag Iron and Steel
Co. Ltd. (India)

5.

Strengthen financial position
1) Increase profitability further and improve productivity2) Reallocate management resources and further strengthen our financial position04

Major Issues by Segment
Parts for Automobiles and Industrial Equipment

Reform production structure• Strengthen competitiveness of Chita Plant by improving QCD (quality, cost and delivery)• Increase global supply capacity of the Daido Steelbrand products• Respond to increasing power costs
Actively advance into growth markets• Expand business by capturing demand in Asia
• Expand sales of global leading products• Cultivate user needs by providing solution
Enhance profitability for existing products• Implement flexible production framework• Secure an adequate profit margin• Promote alliances in broad-ranging fields
High Performance Materials and Magnetic Materials
Stainless steel business• Expand sales for high-performance stainless steel• Increase cost-competitiveness and expand overseas
sales for titanium
High alloy business• Secure stable profits by improving portfolio
Powder metal business• Develop high performance atomizing process andimprove productivity
Magnets business (Daido Electronics Co., Ltd. andIntermetallics Japan Corporation)• Promote growing strategies for neodymium magnet
business

Free forging business• Expand sales for high-grade products globally
Die forgings business• Develop high-value-added products by providing
solutions
Turbo products (Daido Castings Co., Ltd.)• Increase production capacity for turbo products• Cultivate Chinese market and develop processing
bases
Engine valves (Fuji OOZX Inc.)• Expand production bases for engine valves in China

Engineering
Machinery business• Establish the Daido brand in growing overseas markets

Net Sales and Ordinary Income (Loss) (Consolidated)(billions of yen)
750

100

600

591.4

Mid-term Management Plan 2014

580.0

80

532.7

522.6
480.7

450

Management indicators

FeatureSpecialty Steel

472.1

489.2

60

429.1
367.8

Fiscal 2011300

Net Sales¥580.0 billion¥489.2 billion

Operating Income¥45.0 billion¥31.5 billion

Ordinary Income¥45.0 billion¥31.8 billion

Net Income¥23.0 billion¥22.7 billion

ROS

8.0%

6.5%

ROA

8.0%

6.3%

Total Assets¥550.0 billion¥513.0 billion

Interest-bearing
debt (D/E ratio)¥120.0 billion(0.5)¥156.3 billion
0.8

45.0

362.5

39.4

40

37.5
33.0

31.7 31.8

22.6

150

20

9.0

8.5

0

0

–14.0

–150
03

04

05

06

07

08

09

–20
10

11

14

(fiscal year)(target)Net Sales (left)
Ordinary Income (right)05

AT A GLANCE

E L ECTR O NIC an d MAGNETIC
MATERIALSPARTS FOR AUTOMOBILE and
INDUSTRIAL EQUIPMENT

Main Products

Main Products

Main Products

For automotive parts, industrial machinery parts,
electrical machinery parts, welding, etc.

Nickel-based alloys
Electrical and electronics parts

Die forging (automotive parts and drilling parts)
Precise hot forging (automotive parts andbearing races)
Welded parts (rear axle housing)Open die forging (parts for heavy electricmachines, boats and ships, spacecraft andaircraft, industrial machines, steelmaking
equipment, chemical equipment, and oil
drilling rigs)
Springs and band saws for lumber sawing

Share of Net Sales

Share of Net Sales

Share of Net Sales

(%)

(%)

(%)

AT A GLANCE

SPECIA LTY STEEL

60.0%

8.7%

Net Sales Years ended March 31

Net Sales Years ended March 31

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

400,000

80,000120,000

300,000

60,000200,000

40,000100,000

20,000080,00040,00002008 2009 2010 2011 201202008 2009 2010 2011 20122008 2009 2010 2011 2012

Operating Income (Loss) Years ended March 31

Operating Income (Loss) Years ended March 31

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

24,0008,000

15,00018,00012,00010,000

4,000

6,000

5,000

0

0

0

–6,000–4,000–12,000
2008 2009 2010 2011 2012

06

21.9%

–5,0002008 2009 2010 2011 20122008 2009 2010 2011 2012

ENGINEERINGNE W MATERIAL S

TRADING an d SER V ICE

Main Products

Main Products

Environmental equipment (for waste treatment,water treatment and air pollution cleaning),
etc.
Industrial furnaces and accessories

Powder metal (for automotive, mechanical,
and electronics parts)
Titanium products and nickel-titanium alloys(shape-memory alloys)

Sales of Group company products; provisionof welfare services; real estate and insurance
businesses; sales of information systems, etc.

Share of Net Sales

Share of Net Sales

Share of Net Sales

(%)

(%)

(%)

5.2%

2.0%

AT A GLANCE

Main Products

1.9%

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)

45,00018,00012,00030,00012,0008,000

15,000

6,000

4,000

0

0
2008 2009 2010 2011 201202008 2009 2010 2011 20122008 2009 2010 2011 2012

Operating Income Years ended March 31

Operating Income (Loss) Years ended March 31

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

3,000

4,500

1,800

3,000
2,000

1,200

1,500
0

1,000

600

–1,500–3,00002008 2009 2010 2011 201202008 2009 2010 2011 20122008 2009 2010 2011 201207

review of operations

SPECIA LTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates 60%

There was brisk growth overall in the specialty steel segmentof consolidated net sales. Specialty steel is made by combining

against the backdrop of an expansion in overseas demand,

steel with alloys to add value in the form of properties such as

despite the adverse impact on automobile-related demand ofresistance to heat, abrasions or rust. Because a range of spe-

temporary cutbacks in the production of completed automo-

cial properties can be achieved by varying the type and amountbiles due to a stagnating supply chain at the start of the fiscalof alloy, one of the special features of the business is that prod-

year caused by the March 2011 earthquake, and the flooding in

ucts are developed to meet the specific applications required by

Thailand. At the same time, steady demand continued in boththe user. The automobile and industrial machinery sectors are

the industrial machinery and IT sectors, but after autumn 2011

the primary users of specialty steel, accounting for about 80%

a phase of inventory adjustments reflected the slowing down ofof sales in this business segment.

economies in Europe and the newly emerging countries.
As regards this kind of demand environment, the Daido
Steel Group pushed forward with its production activities while
responding flexibly to changes in the management environment.

REVIEW OF OPERATIONS

To accommodate requests to conserve electricity in the summer
and the subsequent requests for expanded demand, the Groupmanaged production by such measures as bringing forward
scheduled production and shifting employees’ work schedules.
Moreover, the Group continued with various measures toincrease production and reduce costs.
Thanks in part to these measures, the sales volume in thespecialty steel segment for the consolidated fiscal year underreview increased 3.0% year on year. Monetary sales rose 2.4%
to ¥293,744 million. Moreover, operating income also rose,increasing ¥117 million year on year to ¥21,129 million, mainly
due to the increase in the production and sales volume.

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

08

E L ECTR O NIC and MAGNETIC MATERIA L S
Overview of BusinessResults of Operations

This segment, which accounts for roughly 9% of consolidated

In the high alloy business, sales decreased year on year

net sales, manufactures and sells electronic and magnetic

because IT-related products declined due to the slowdown inmaterials used chiefly in computers, automobiles, mobile

the market despite the robust demand for products for auto-phones and digital consumer electronics. Notably, Daido Steelmobiles due to production recovery after the March 2011

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

earthquake. (Orders received for steel strip materials by thefor spindle motors* for hard disk drives (HDD).

Group in the consolidated fiscal year under review amounted

Key products include rare earth magnets (used in spindle

to ¥10,374 million, a 12.5% drop year on year.) In the magnetic

motors* for HDD and other products), high alloys, steel strip

product business however, sales increased year on year mainlymaterials for lead frames and electromagnetic materials.

due to increased demand for magnets for HDDs and the new*Spindle motor:

consolidation of a magnet manufacturing company in China.

The motor used to rotate hard disk drives installed in computers.

As a result of all these factors, sales in the electronic andmagnetic materials segment for the consolidated fiscal year
from the previous fiscal year. On the other hand, operating
income fell ¥293 million year on year to ¥1,503 million, due
to decreased sales in the high alloy business.

REVIEW OF OPERATIONS

under review amounted to ¥42,636 million, increasing 6.8%

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.

09

REVIEW OF OPERATIONSPARTS F O R A U T O M OB I L E a nd IND USTRIA L E QU IPMENT
Overview of BusinessResults of Operations

This segment contributes around 22% of consolidated net

Automobile parts-related sales for die forged products rose,sales. It manufactures die forged parts such as crankshafts

despite the adverse impact of temporary production cutbacks

using specialty steel, precision cast parts for use in gears andat automakers due to the March 2011 earthquake and its after-

turbochargers (used in diesel engines to improve fuel efficiency

math, mainly because of a production recovery and an expan-

and reduce exhaust gases), engine valves, jet engine shafts andsion in demand for trucks for Southeast Asia. In precision castparts for industrial gas turbines. Most of the auto parts sold in

products, sales were on a par with the previous fiscal year.

this segment use materials that were developed through joint

Although the trend of demand expansion, such as the rise inprojects with automakers to meet their exacting requirements.

popularity of diesel turbo engines, continued, this was counter-

These parts can therefore lower processing expenses at cus-balanced by the impact of inventory adjustments associatedtomers’ factories as well as contribute to reducing the weight ofwith the slowdowns in these European economies. In industrial

finished products.

equipment, sales rose year on year despite sluggish capital

Many products in this segment are leading products in theirinvestment in Japan, which prolonged downward pressure on

respective market categories, such as aircraft jet engine shafts

export-related demand due to the high yen. The sales increase

and marine diesel engine valves. Daido Steel also has a highwas primarily made possible by recovery-related demand mainly

market share in numerous other product categories, including

for gas turbines and increased sales of materials for resource

automobile engine valves and turbine disks. We will continue todrilling. As a result, net sales in the parts for automobile anddevelop and launch new products that differentiate us fromindustrial equipment segment for the consolidated fiscal year

competitors and support our position as a provider of advanced

under review increased 4.6% to ¥107,258 million. However,products.

operating income decreased ¥1,256 million year on year to

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.

10¥5,272 million mainly due to fixed expenses and changes in the
product mix.

ENGINEERING
Overview of BusinessResults of Operations

This segment generates about 5% of consolidated net sales.

In the engineering segment, net sales increased year on year

Major activities include the manufacture of steelmaking equip-

despite the continued low levels of domestic demand. The

ment, industrial furnaces, and associated equipment. This seg-

increase was due to the contribution to sales of a rise inment also supplies environmental equipment for the treatment

demand for parts and maintenance, spot projects related to theof wastewater, gas emissions and waste materials (mainly toearthquake recovery, and increased capital investment andpublic-sector clients with incinerated ash melting systems forsales activity in China.

urban waste) and machine tools.

Reflecting all these factors, engineering segment sales for theWith respect to environmental equipment in particular, theconsolidated fiscal year underoperation and engineering technologies we have fostered overreview increased 8.3% to ¥25,769

the years support our cutting-edge engineering business, which

million. Operating income rose ¥231

constantly has a grasp of current market needs. The many new

million to ¥1,826 million.

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 andequipment.

Daido Arc Process (DAP)NE W MATERIA L S
Overview of Businesson year despite the temporary fall in demand caused by the

Accounting for about 2% of consolidated net sales, this seg-earthquake and the impact of the strong yen on exchange rates.

ment mainly supplies titanium products for medical-use artificial

The increase was mainly due to the return to normal of automo-bones and eyeglass frames, and high-performance powder

bile production and increased production of high performance

metals used to make valve sheets and magnetic materials.

powder metal products for hybrid electric vehicles.

Results of Operations

solidated fiscal year under review rose 5.8% year on year to

Titanium product sales rose year on year due mainly to expan-¥10,116 million. However, operating income declined ¥82

sion in domestic demand. This was despite weakness of

million year on year to ¥567 million mainly due to the impact

exports to Europe and the U.S. due to the negative effect of theof currency exchange rates.

REVIEW OF OPERATIONS

created contribute to environmental preservation and energy

Consequently, new materials segment sales for the con-strong yen. In powder metal products, net sales increased year

TRADING a nd SER VICE
Overview of BusinessResults of Operations

The major activities of this segment, which accounts for

Consolidated net sales of the trading and service segment inapproximately 2% of consolidated net sales, include the sale ofthe consolidated fiscal year under review rose 2.1% to ¥9,632

products made by Group companies, employee benefits ser-million. The adverse impact of the earthquake on some ser-vices, real estate and insurance services, golf course manage-

vices was outweighed by an expansion in sales at an overseas

ment, analytics, and sales of software to external customers.

trading company and other factors. Operating income alsorose, increasing ¥83 million to ¥1,242 million.

11

Research and development

Research 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,
Process Technology Development Center, and Project Promotion Center. We employ
a total of 286 researchers throughout the Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥4,360 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

Years ended March 31(millions of yen)

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

2009 2010 2011 2012

(1) Specialty Steelmeet these two requirements, Daido Steel combined its exper-

Daido Steel bears the principal responsibility for carrying out

tise in alloy design technology and manufacturing technology to

specialty steel R&D. Research areas include basic material

develop the DH31-EX die steel. This alloy has the properties ofdevelopment, such as automotive structural materials, materials

high-performance steel while using smaller amounts of rarethat resist corrosion and heat, tool steel, and welding materials.

metals to reduce the cost. DH31-EX excels in terms of harden-

Other areas of emphasis are development of process innova-

ability, too. As a result, high toughness is attained even for large

tions ranging from steelmaking refining and solidification todies that cannot be hardened when made of conventional steels.

quality assurance for finished products.

Using this steel thus prolong die life through crack prevention.

Specialty steel R&D costs during the fiscal year underreview totaled ¥1,775 million.

Major Achievements•Nickel-based alloy with outstanding hardness andcorrosion resistance—DSA760
Daido Steel has developed the DSA760 nickel-based alloy thatis highly resistant to corrosion in many environments and has ahardness of about 60 HRC by aging heat treatment process.

Recently the procurement of dies in countries where casting
and/or forging factories are located is becoming increasingly inglobal. Due to its excellent hardenability, DH31-EX enables the
production of dies that have a consistently longer life than withconventional steels even in countries that have less advanced
heat treating facilities or skills. DH31-EX has attracted attention
worldwide and was registered in 2011 the North American Die
Casting Association standard.

These properties are unprecedented for alloys of this type. Nor-(2) Electronic and Magnetic Materials

mally, martensite stainless steel is the only way to obtain corro-In this segment the Daido Steel Group conducts R&D focusing

sion resistance along with hardness in the 60 HRC range.

on developing high-grade strip steel and magnetic materials

However, applications for this steel are limited when used inand solar power generation systems. Magnet research is car-locations that are highly corrosive and subject to high tempera-

ried out principally by the Company and its consolidated sub-tures. Although Nickel-based alloys have outstanding resistancesidiary, Daido Electronics Co., Ltd.

to corrosion and high temperatures and are not magnetic, con-R&D expenditures in this segment during the fiscal year

ventional alloys can achieve a maximum hardness of only about

under review amounted to ¥201 million. The following are some

50 HRC. With DSA760, Daido Steel succeeded in retaining theof our major achievements in this area.

properties of nickel-based alloys while enhancing hardness andstrength. Consequently the alloy would be used in the applications that ordinary nickel-based alloys cannot tolerate so far. For
example, the new alloy might be suitable for bearings and diesused at high temperatures and unusual environments as well as
for abrasive parts. One manufacturer has already selected
DSA760 for the mechanism parts to vary exhaust gas flow in adiesel turbocharger. Daido Steel expects to see this revolutionary
alloy used in a growing number of applications.

12

R&D Expenditures

Major Achievements•PLP magnets
Daido Steel, Mitsubishi Corporation and Molycorp Inc. of theUnited States have developed a PLP magnet, the next generation of high performance magnets for hybrid vehicles and otherapplications. To manufacture and sell these magnets, the threecompanies established Intermetallics Japan Corp. in Gifu prefecture. The PLP magnet is manufactured by using a new technique developed by Dr. Masato Sagawa, who invented the•High-performance hot-working die steel—DH31-EX

neodymium-iron-boron magnet. Compared with conventional

Dies used for die-casting and hot forging, methods used mainly

sintered magnets, this new magnet incorporates only half as

for automotive parts, must be inexpensive and a long life. Tomuch of the rare earth metal dysprosium. In addition, the new

production method is expected to boost production yields.

be monitored, more than the necessary amount of power is

Daido Steel plans to utilize the PLP magnet to increase its shareused to melt the materials inside the furnace. Cutting electricityof the market for high-performance magnets, mainly for use in

consumption is not the only benefit. The ability to contributethe growth field of electric and hybrid electric vehicles, andfurther to the automation of furnace operations, a demand thathome appliances.

is particularly strong overseas, is expected to make this new
system even more appealing to steelmakers.

R&D in this segment concentrates on development of engine(5) New Materials

valves and other automotive parts and parts for various types of

R&D in this segment concentrates on R&D for such new materi-industrial machinery.

als as high performance powder metal and titanium alloys.

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

Major Achievements•Turbocharger turbine wheel made of titanium-­aluminide alloy

R&D expenditures in this segment during the fiscal year
under review amounted to ¥1,795 million. The following aresome of our major achievements in this area.

Major Achievements•Damping alloys

Most turbine wheels of automotive turbochargers are made of

In recent years, companies in many industries have been seek-

nickel-based superalloy. But because of nickel-based superalloy

ing ways to reduce vibrations even more. To meet this need,has high density, it makes occurring the turbo lag, which is

Daido Steel has been working on creating more applications forcaused by poor response when the turbocharger is operated.

damping alloys. One advance is the incorporation of a damping

Daido Steel solved this problem by developing the DAT-TA series

alloy in the tool bit holders of lathes. Benefits include greaterof titanium-aluminide alloys. Developed titanium-aluminide alloys

surface roughness and a longer life for chips produced during

have low density, which is a half of nickel-based superalloy, andcutting. An increasing number of companies in Japan are using

high temperature strength comparison to nickel-based superalloy.

this technique for their lathes, mainly automakers. Companies in

These properties greatly improve turbocharger performance.

many more industries are expected to start using this technique

DAT-TA series might be suitable for a wide range of vehicles inas awareness of its benefits grows.

diesel or gasoline engines. Some customers have been alreadyDamping alloys are frequently used in automobile parts

evaluating performance of turbine wheels made of DAT-TA series.

because of the increasing need for more ways to make cars

It is confirmed that using turbine wheel of DAT-TA series improve

quieter. One example is washers that reduce road noise. Avail-a fuel efficiency. Then we expect further growth in applications ofable at auto accessory stores throughout Japan, these washers

the DAT-TA series as one way to improve fuel efficiency inare recording strong sales. As a result, Daido Steel is receiving

response to increasingly tighter environmental regulations.

an increasing number of inquiries from automakers about these(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 ¥79 million. The following are someof our major achievements in this area.

Major Achievements•New system for confirming burning through ine­ lectric arc furnaces
Daido Steel has manufactured a large number of electric arc
furnaces for steelmakers in Japan and other countries. To makethese furnaces even more energy efficient and easier to operate, we have developed an automated system that determines
when burning through has occurred within the furnace. In thepast, burning through could not be confirmed. Data from highfrequency electromagnetic signals along with sonic and vibration data are used to monitor the inside of the furnace. Electricarc furnaces, which are used chiefly for steelmaking, consume
massive quantities of electricity. Since furnace interiors cannot

Research and development(3) Parts for Automobile and Industrial Equipment

washers. Damping alloys are expected to attract increasing
attention as a key material for components that lower vibrationsin automobiles and other machinery.

•Biocompatible titanium-based materials
Light weight, high strength and high corrosion resistance are
the main benefits of titanium. Another characteristic is compatibility with the body because titanium never causes an allergic
reaction. Titanium is used for a number of biocompatible materials. In particular, titanium alloys are often used material for
artificial joints. Daido Steel has a large share of the market ofraw materials for artificial joint materials like Ti-6AI-4V and
Ti-6AI-7Nb. We have earned a reputation as a leading supplierof materials for applications that require the reliability. Recently,
as a variety of needs emerge for biocompatible materials, oneof great interest is about low modulus of elasticity titanium alloys
that can heal bone structures earlier than using other metallic
materials. Therefore, we have developed a beta type titanium
alloy (TNCZ: Ti-Nb-Cr-Zr) that has a low modulus of elasticity
and consists of elements that have cyto-toxicity. We plan toincrease shares of biocompatible materials as customers perform evaluations to prepare for the use of our materials.

13

CSR and the Environment

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

CSR

Major Initiatives
Preventing global warming
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.
Due to the effects of cumulative investments of ¥4.8
billion made from 2006 to 2011, operational improvements
and changes in production levels, CO2 emissions in 2011
decreased by 18.9% compared to 1990. Turning to fuelconversion, we achieved a change in the natural gas percentage in fuel from 35% (calorie basis) in 2005 to 71% at
the end of fiscal 2011.
Going forward, we will implement further reform measures, such as reductions in the number of heats andimproving the yield ratio. It is Daido Steel’s policy not topurchase carbon credits during the first commitment period.

Strengthening the CSR promotion framework
The Daido Steel Group has responded to the needs of ourvarious stakeholders by establishing 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.
For details, please refer to the annually issued CSR Report.
URL: http://www.daido.co.jp/csr/data/report.html(Japanese only)

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

1,000 tons
CO2/year

800

1,500

600
–6.4%

–19.9% –18.9%–18.9%–25.9%–34.5%

1,000

500

400

200

0

0
90 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12(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 2012 are estimates

14

CO2 emissions per ton of production

CO2 emissions volume

2,000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,

Governance System
Daido Steel uses the corporate auditor system. The business execution of the 19 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.

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.

Corporate GovernanceCorporate GovernanceEfforts 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.

15

Mechanism for Business Execution, Audit, Supervision and Internal Control(As of June 28, 2012)

Shareholders’ Meeting
Electionand dismissal
Accounting
Auditor(independent
auditor)Electionand dismissal

Electionand dismissal
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  EXECEXECUTIVE DIRECTOR EXECUTIVE DIRECTOR UTIVE DIRECTORS

Masatoshi Ozawa

Tadashi Shimao

Shuichi Nakatsubo

Michio Okabe

Hitoshi Horie

Yasuhiro Itazuri

Yasuma Yasuda

Motoshi Shinkai

Takeshi Ishiguro

MANAGING DIRECTORS

Akira Miyajima
DIRECTORS

16

STANDING CORPORATE AUDITORSCORPORATE AUDITOR

Akihiro Miyasaka

Susumu Shimura

Masaru Hashizume

Yukichi Ozawa

Tsukasa Nishimura

Shuji Matsubuchi

Toshinori Koike

Kazuto Tachibana

Shinji Naruse

Satoshi TsujimotoTakeshi Muto

Hajime Takahashi

Financial section

Financial Section

Contents
18

Management’s discussion and analysis of operations

22

Consolidated Balance Sheet

24

Consolidated Statement of Income

25

Consolidated Statement of Comprehensive Income

26

Consolidated Statement of Changes in equity

28

Consolidated Statement of Cash Flows

29

Notes to Consolidated Financial Statements

54

Independent Auditor’s Report17Financial section

Management’s Discussion and Analysis of Operations

OVERVIEW OF OPERATING ENVIRONMENTAND PERFORMANCE

BUSINESS SEGMENT PERFORMANCE

In fiscal 2011, ended March 31, 2012, the Japanese economy

There was brisk growth overall in the specialty steel segment

continued a steady recovery as the supply chain was restored

against the backdrop of an expansion in overseas demand,following a temporary economic downturn that stemmed fromdespite the adverse impact on automobile related demand of

the Great East Japan Earthquake. Despite a standstill at one

temporary cutbacks in the production of completed automo-

point owing to the recurrence of the European debt problem

biles due to a stagnating supply chain at the start of the fiscal

and the yen’s surge, there were again signs of an improvement

year caused by the March 2011 earthquake, and the flooding inin Japan with a correction in the yen and a turnaround in theThailand. At the same time, steady demand continued in both

U.S. economy. Demand was generally strong in the automobile

the industrial machinery and IT sectors, but after autumn 2011industry, a key source of demand for Daido Steel’s specialty

a phase of inventory adjustments reflected the slowing down ofsteel products, as well as from the industrial equipment andeconomies in Europe and the newly emerging countries.

Specialty Steelinformation technology sectors. This reflected rising demand in

As regards this kind of demand environment, the Daido

emerging countries, offsetting the influence of slowdowns else-

Steel Group pushed forward with its production activities while

where internationally and the impact of floods in Thailand.

responding flexibly to changes in the management environment.

In this operating environment, the Daido Steel Group faced

To accommodate requests to conserve electricity in the summer

continuing substantial changes in demand trends. The Groupand the subsequent requests for expanded demand, the Group

responded flexibly to plunging production demand after the

managed production by such measures as bringing forward

earthquake and to requests to conserve electricity in thescheduled production and shifting employees’ work schedules.

summer period, and then accommodated expanded demand

Moreover, the Group continued various measures to increase

from fall.

production and reduce costs. As a result of the above, the value

Production and sales volumes were higher than a yearof contracts for the fiscal year under review rose 5.9% year on

earlier, reflecting a demand recovery from an initial downturn

year, to ¥204,301 million.

after the quake and various efforts to boost production. More-

Thanks in part to these measures, the sales volume in theover, net sales were impacted by a rise in sales prices primarily

specialty steel segment for the consolidated fiscal year underreflecting an increased sales volume and scrap iron prices.

review increased 3.0% year on year. Monetary sales rose 2.4%

Group net sales increased ¥17,092 million, to ¥489,155 million.

to ¥293,744 million. Moreover, operating income also rose,

Recurring income rose ¥36 million, to ¥31,762 million. Net

increasing ¥117 million year on year to ¥21,129 million, mainly

income was ¥22,718 million.

due to the increase in the production and sales volume.

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

40,00025,00020,000450,000

15,00020,00010,0005,000

300,00000

150,000–5,000–10,000

0

18

2010

2011

2012

–20,000

2010

2011

2012

–15,000

2010

2011

2012

Electronic and Magnetic Materials

Parts for Automobile and Industrial Equipment

In the high alloy business, sales decreased year on year

Automobile parts-related sales for die forged products rose,

because IT-related products declined due to the slowdown in

despite the adverse impact of temporary production cutbacks

the market, despite the robust demand for products for auto-

at automakers due to the March 2011 earthquake and its after-

mobiles due to the production recovery after the March 2011

math, mainly because of a production recovery and an expan-

earthquake. (Monetary orders received for steel strip materials

sion in demand for trucks for Southeast Asia. Consequently, theby the Group in the consolidated fiscal year under review

value of contracts for die forgings rose 14.5% year on year, toamounted to ¥10,374 million, a 12.5% drop year on year.) In the¥8,161 million. The value of contracts for hot precision forging

magnetic product business however, sales increased year on

products decreased 2.9% year on year, to ¥15,559 million.
In precision cast products, sales were on a par with thesector for magnets for HDDs and the impact of floods inprevious fiscal year. Although the trend of demand expansion,­Thailand. This sales increase reflected expected demand forsuch as the rise in popularity of diesel turbo engines, continued,

motor magnets for electric power steering and the new consoli-

this was counterbalanced by the impact of inventory adjust-dation of a Chinese magnets manufacturing company. Conse-

ments associated with the slowdowns in European economies.

quently, the value of contracts for magnetic products rose

Consequently, the value of contracts for iron-related precision

57.0% year on year, to ¥13,356 million.

cast products rose 0.8% year on year, to ¥7,469 million.

As a result of all these factors, sales in the electronic and

In industrial equipment, sales rose year on year despite themagnetic materials segment for the consolidated fiscal year

sluggish capital investment in Japan and the prolonged down-

under review amounted to ¥42,636 million, increasing 6.8%

ward pressure on export-related demand due to the high yen.

from the previous fiscal year. On the other hand, operating

The sales increase was primarily made possible by the recovery-

income fell ¥293 million year on year to ¥1,503 million, due torelated demand, mainly for gas turbines, and increased sales ofdecreased sales in the high alloy business.

materials for resource drilling. Consequently, the value of contracts for free forgings in the fiscal year under review rose 6.0%
year on year, to ¥35,633 million.

Financial section

year despite a drop in demand in the information technology

As a result, net sales in the parts for automobile & industrial equipment segment for the consolidated fiscal year underreview increased 4.6% to ¥107,258 million. However, operating income decreased ¥1,256 million year on year to ¥5,272
million mainly due to fixed expenses and changes in the product composition.

19

Engineering

Trading and Service

In the engineering segment, net sales increased year on year

Consolidated net sales of the trading and service segment indespite the continued low levels of domestic demand. The

the consolidated fiscal year under review rose 2.1% to ¥9,632

increase was due to the contribution to sales of a rise inmillion. The adverse impact of the earthquake on some services

demand for parts and maintenance, spot projects related to thewas outweighed by an expansion in sales at an overseas trad-

earthquake recovery, and increased capital investment anding company and other factors. Operating income also rose,sales activity in China. Consequently, the value of engineering

increasing ¥83 million to ¥1,242 million.

contracts received fell 14.2% year on year, to ¥10,000 million.

CAPITAL EXPENDITURES

Reflecting all these factors, engineering segment sales forthe consolidated fiscal year under review increased 8.3% toCapital expenditures by business segment during the fiscal year

¥25,769 million. Operating income rose ¥231 million tounder review are shown in the table below.

¥1,826 million.

Figures in the table include intangible fixed assets in addition to property, plant and equipment.

Financial section

New Materials
Titanium product sales rose year on year due mainly to recovery

RESEARCH AND DEVELOPMENT

in domestic demand. This was despite weakness of exports to

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

Europe and the U.S. due to the negative effect of the strong

year under review totaled ¥4,360 million. The research objec-

yen. The value of contracts for titanium products increased

tives, achievements and R&D expenses in each business seg-

6.8% to ¥3,414 million. In powder metal products, net sales

ment were as follows:increased year on year despite the temporary fall in demandcaused by the earthquake and the impact of the strong yen on(1) Specialty Steelexchange rates. The increase was mainly due to the return to

Daido Steel bears the principal responsibility for carrying out

normal of automobile production and increased production of

specialty steel R&D. Research areas include basic material

high performance powder metal products for HEVs. The value

development, such as automotive structural steel, steel thatof contracts for powder metal products increased 3.2% from a

resists corrosion and heat, tool steel, and welding materials.

year earlier, to ¥5,828 million.

Other areas of emphasis are development of process innova-

Consequently, new materials segment sales for the consoli-tions ranging from steelmaking, refining and solidification to

dated fiscal year under review rose 5.8% year on year toquality assurance for finished products. Specialty steel R&D¥10,116 million. However, operating income declined ¥82

costs during the fiscal year under review totaled ¥1,775 million.

­million year on year to ¥567 million mainly due to the impact of
currency exchange rates.

Capital Expenditures

Capital Expenditures by Segment

Years ended March 31

Years ended March 31(millions of yen)

Millions of Yen
2012

2011

¥10,707¥ 8,357

28.1

2,866

949

202.1

7,313

3,568

105.0

Engineering

233

184

26.6

8,000

New Materials

520

364

42.9

4,000

Trading and Service

727

1,249

(41.8)

0¥22,366¥14,670

52.5

Specialty SteelElectronic and Magnetic Materials
Parts for Automobile andIndustrial Equipment

Total

20

Change (%)

24,00020,00016,00012,000

2010

2011

2012

(2) Electronic and Magnetic Materials

FINANCIAL POSITION

Development of high-performance steel strips, electromagnetic

Cash Flows

materials, and other basic materials, as well as R&D of photo-

Cash and cash equivalents as of March 31, 2012 amounted tovoltaic power generation systems is conducted mainly by Daido¥61,956 million, representing an increase of ¥ 14,615 million, orSteel, while magnet R&D is conducted primarily by Daido Steel

30.8%, year on year.

and consolidated subsidiary Daido Electronics Co., Ltd. R&D
costs in this segment during the fiscal year under review

Cash Flows From Operating Activities

amounted to ¥201 million.

Net cash provided by operating activities amounted to ¥41,796
million, up ¥164 million from the previous fiscal year. The main

(3) Parts for Automobile and Industrial Equipment

component of cash inflow was income before income taxes andMainly the responsibility of Daido Steel, R&D in this segment

minority interests of ¥30,214 million. The main component ofconcentrates on development of engine valves and other auto-

cash outflow was a ¥4,242 million increase in notes andmotive parts and parts for various types of industrial machinery.

accounts receivable.

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

Cash Flows From Investing Activities
increasing by ¥10,912 million from the previous fiscal year. The

Engineering R&D is carried out primarily by Daido Steel, focusedmajor cash outflows included ¥19,964 million in purchases ofon development of environmental conservation and recycling

property, plant, and equipment.

equipment and a variety of energy-saving industrial furnaces.
Engineering R&D costs during the fiscal year under review wereCash Flows From Financing Activities¥79 million.

Net cash used in financing activities was ¥6,160 million,
decreasing ¥13,121 million from the previous year. The(5) New Materials

decrease was chiefly due to ¥28,680 million for the repayments

R&D in this segment is done mainly by Daido Steel and concen-of long-term debt.

Financial section

Net cash used in investing activities totaled ¥21,412 million,(4) Engineering

trates on R&D for such new materials as high performance
powder metal and titanium alloys.
R&D costs for the new materials segment during the fiscal
year under review totaled ¥1,795 million.

(6) Trading and Service
There are no R&D activities in this segment.

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

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

2010

2011

2012

21

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2012

Thousands of
U.S. Dollars(Note 1)

Financial section

Millions of Yen

ASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 15)
Time deposits (Notes 8 and 15)
Notes and accounts receivable (Note 15)
Inventories (Note 4)
Deferred tax assets (Note 12)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

2012

2011

2012

¥61,956
246
104,127
90,921
5,295
2,672
(251)
264,966¥47,341
171
99,34592,328
5,950
2,729
(340)
247,524$755,561
3,000
1,269,841
1,108,793
64,57332,585(3,060)3,231,293

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

36,558140,037
408,616
3,305
588,516(432,104)
156,41236,694
138,466
401,061
1,594
577,815(422,865)
154,950445,829
1,707,768
4,983,122
40,305
7,177,024(5,269,561)
1,907,463

49,73751,011

606,549

14,992
19,962
1,019
5,881
91,591

13,356
17,582
1,431
5,868
89,248

182,829
243,439
12,42771,7201,116,964¥512,969¥491,722$6,255,720

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 3, 8 and 15)
Investments in non-consolidated subsidiaries
and associated companies (Notes 8 and 15)
Prepaid pension cost (Note 9)
Deferred tax assets (Note 12)
Other investments and assets (Note 8)
Total investments and other assets
TOTAL

22

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 7, 8 and 15)
Current portion of long-term debt (Notes 7, 8, 14 and 15)
Payables:Trade notes and accounts (Notes 8 and 15)
Acquisitions of property, plant and equipment
Total payables
Income taxes payable (Note 15)
Accrued expenses
Other current liabilities (Note 8)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 7, 8, 14 and 15)
Liability for employees’ retirement benefits (Note 9)
Retirement allowance for directors and corporate auditors
Asset retirement obligations (Note 10)
Deferred tax liabilities (Note 12)
Other long-term liabilities
Total long-term liabilities

2012

2011

2012

¥ 23,609
25,435¥ 20,657
28,426$  287,915
310,183

72,163
5,649
77,812
2,004
11,5259,866
150,251

70,9194,049
74,968
5,196
10,8298,403
148,479

880,037
68,890948,927
24,439140,548
120,317
1,832,329

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

108,363
6,877
1,037
426
12,4104,261
133,374

1,308,451
82,915
11,134
5,195
141,659
50,7071,600,061

37,17228,543
126,844

37,17228,543106,919453,317
348,085
1,546,878

(335)

(311)

(4,085)

6,456
(7)
1,654
(1,673)
198,654
32,859231,513

5,962
(3)
1,357
(1,291)
178,348
31,521
209,869

78,732(85)
20,170(20,402)2,422,610
400,720
2,823,330¥512,969¥491,722$6,255,720

COMMITMENTS AND CONTINGENT LIABILITIES (Note 17)
EQUITY (Note 11):
Common stock:
Authorized: 1,160,000 thousand shares
Issued: 434,488 thousand shares in 2012 and 2011
Capital surplus
Retained earnings
Treasury stock, at cost
714 thousand shares in 2012 and 665 thousand shares in 2011
Accumulated other comprehensive income
Unrealized gain on available-for-sale securities
Deferred loss on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Total
Minority interests
Total equity
TOTAL

Financial section

Thousands of
U.S. Dollars(Note 1)

See notes to consolidated financial statements.

23

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Year ENDED MARCH 31, 2012

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

2012

2011

2012

¥489,155408,639
80,51648,982¥472,063
392,202
79,86147,131$5,965,305
4,983,403
981,902597,341

31,53432,730384,561

1,639(2,383)680

1,488(2,469)762

19,988(29,061)
8,292

(56)
51
(470)
547
19
–
(601)
(746)
(1,320)

715
(553)
(262)
547
39
(473)
(220)
(1,452)(1,878)(683)
622(5,732)
6,671
232–(7,329)(9,098)(16,098)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

30,21430,852

368,463

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

4,231
1,112
5,343

6,002
(379)
5,623

51,597
13,561
65,158NET INCOME BEFORE MINORITY INTERESTS

24,871

25,229303,305

MINORITY INTERESTS IN NET INCOME

2,153

2,225

26,256¥ 22,718¥ 23,004$  277,049

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

Financial section

Operating income
OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies(Loss) gain on sales of investment securities and investments
in a non-consolidated subsidiary and an associated company—net
Foreign exchange gain (loss)
Loss on sales and disposals of property, plant and equipment—net
Investment rents received
Grants received
Cumulative effect of initial recognition of asset retirement obligations
Write-down of investment securities (Note 3)
Other—net (Note 5)
Other expenses—net

NET INCOMEYen

PER SHARE OF COMMON STOCK (Note 2(u)):
Net income
Cash dividends applicable to the year¥  52.37
7.50

U.S. Dollars¥  53.02
7.00

Thousands

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

24

433,799

433,837$     0.64
0.09

CONSOLIDATED Statement OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2012

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

2012

2011

2012

¥24,871¥25,229$303,305

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

(1,568)
(6)
–
(375)
10
(1,939)

6,658
(12)
3,622
(5,439)(12)
4,817

COMPREHENSIVE INCOME (Note 18)¥25,266¥23,290$308,122TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO (Note 18):
Owners of the parent
Minority interests¥23,123
2,143¥21,2272,063$281,988
26,134NET INCOME BEFORE MINORITY INTERESTSOTHER COMPREHENSIVE INCOME (Note 18):
Unrealized gain (loss) on available-for-sale securities
Deferred loss on derivatives under hedge accounting
Revaluation surplus
Foreign currency translation adjustments
Share of other comprehensive income in associates
Total other comprehensive income (loss)

Financial section

See notes to consolidated financial statements.

25

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Year ENDED MARCH 31, 2012

Thousands

Millions of Yen
Accumulated
Other Comprehensive Income

Financial section

BALANCE AT APRIL 1, 2010
Net income
Cash dividends, ¥5.00 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 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

26

Outstanding
Number of
Shares ofCommon Stock

CommonStockCapitalSurplusRetained
Earnings

433,847
–
–
(28)
4
–
433,823
–
–
(55)
6
–
433,774¥37,172–––––
37,172–––––¥37,172¥28,543–––(0)–28,543–––(0)–¥28,543¥ 86,085
23,004(2,170)–––106,919
22,718(3,254)––461¥126,844

TreasuryStock¥(300)
–
–
(13)
2
–
(311)
–
–
(28)
4
–
¥(335)

Unrealized
Gain onAvailable-for-Sale
Securities¥7,398––––(1,436)
5,962
–
–
–
–
494
¥6,456

Millions of Yen
Accumulated Other Comprehensive Income

BALANCE AT APRIL 1, 2010
Net income
Cash dividends, ¥5.00 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 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

Deferred
Loss onDerivatives under
Hedge Accounting

Land
Revaluation
Surplus

Foreign Currency
Translation
Adjustments

Total

Minority
Interests

Total
Equity

¥0
–
–
–
–
(3)
(3)
–
–
–
–
(4)
¥(7)

¥1,357
–
–
–
–
–
1,357
–
–
–
–
297
¥1,654¥(953)
–
–
–
–
(338)
(1,291)
–
–
–
–
(382)
¥(1,673)¥159,302
23,004(2,170)(13)
2(1,777)
178,348
22,718(3,254)(28)
4866¥198,654¥29,990
–
–
–
–
1,531
31,521
–
–
–
–
1,338
¥32,859¥189,292
23,004(2,170)
(13)
2
(246)
209,869
22,718(3,254)
(28)
4
2,204
¥231,513

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

BALANCE AT MARCH 31, 2011
Net income
Cash dividends, $0.09 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2012

CommonStockCapitalSurplusRetained
Earnings$453,317–––––$453,317$348,085
–
–
–
(0)
–
$348,085$1,303,890
277,049(39,683)––
5,622$1,546,878

TreasuryStock$(3,793)
–
–
(341)
49
–
$(4,085)

Unrealized
DeferredGain onLoss onAvailable-for-Sale Derivatives under
Securities
Hedge Accounting$72,707
–
–
–
–
6,025
$78,732$(37)
–
–
–
–
(48)
$(85)

Thousands of U.S. Dollars (Note 1)

BALANCE AT MARCH 31, 2011
Net income
Cash dividends, $0.09 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE AT MARCH 31, 2012

Land
Revaluation
Surplus

Foreign Currency
Translation
Adjustments

Total

Minority
Interests

Total
Equity$16,548
–
–
–
–
3,622
$20,170$(15,744)––––(4,658)$(20,402)$2,174,973
277,049(39,683)(341)
49
10,563$2,422,610$384,403––––
16,317$400,720$2,559,376
277,049(39,683)(341)
49
26,880$2,823,330

Financial section

Accumulated Other
Comprehensive Income

See notes to consolidated financial statements.

27

CONSOLIDATED Statement OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIES
Year ENDED MARCH 31, 2012

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—paidDepreciation and amortization
Loss on sales and disposals of property, plant, equipment and other—net
Loss (gain) on sales of investment securities and investments ina non-consolidated subsidiary and an associated company—net
Equity in earnings of associated companies
Cumulative effect of initial recognition of asset retirement obligations
Changes in assets and liabilities:
Increase in notes and accounts receivable
Decrease in allowance for doubtful accounts
Decrease (increase) in inventories
Increase in notes and accounts payable(Decrease) increase 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 in
non-consolidated subsidiaries and an associated company
Proceeds from sales and redemption of investment securities andinvestments in a non-consolidated subsidiary and an associated company
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities
FINANCING ACTIVITIES:Net increase (decrease) 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 INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY CONSOLIDATEDSUBSIDIARY, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS AT END OF YEAR
See notes to consolidated financial statements.

28

2012

2011

2012

¥30,214¥30,852$368,463(7,647)
20,464800(1,903)20,073532(93,256)
249,561
9,756

56
(680)
–

(715)
(762)
473

683
(8,293)–(4,242)
(104)
1,456
1,068
(76)
487
11,582
41,796(10,816)(72)(12,078)
12,276232
3,540
10,78041,632(51,731)(1,268)17,756
13,024(927)
5,939
141,244509,707(107)
179(19,964)
418

(0)
316
(11,544)
1,200(1,305)2,183(243,463)
5,097

(594)

(1,057)(7,244)

240
(472)
92
(1,204)(21,412)

853
(69)
158
(357)
(10,500)

2,927(5,756)
1,122(14,683)(261,122)

1,800
14,75810,000(28,680)(3,793)(245)(6,160)(2,369)4,444–(18,497)(2,626)(233)(19,281)

21,951
179,976
121,951(349,756)(46,256)(2,988)(75,122)(146)
14,078(452)
11,399(1,780)171,683537
47,341¥61,956–
35,942¥47,341

6,549
577,329$755,561

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2012

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 conformity with accounting principles generally accepted inJapan (“Japanese GAAP”), which 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 2011 financial statements to conform to the classifications used in 2012.
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 ¥82 to $1, the approximate rate of exchange at March 31, 2012.
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 (58 in 2011) majority-owned subsidiaries and 23 (21 in 2011) associated companies at March 31, 2012. The consolidated financial statements as of March 31, 2012 include the accounts of the Company and 33 (32 in 2011) significant subsidiaries (together,
the “Group”).

the equity method.
Investments in six associated companies are accounted for by the equity method for the years ended March 31, 2012 and 2011.
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.

Financial section

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 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 eliminated.

(b) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements
In May 2006, the Accounting Standards Board of Japan (the “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: (1) the accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events
under similar circumstances should in principle be unified for the preparation of the consolidated financial statements, (2) financial statements prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the generally accepted
accounting principles in the United States of America tentatively may be used for the consolidation process, (3) however, the following items
should be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are notmaterial: 1) amortization of goodwill; 2) scheduled amortization of actuarial gain or loss of pensions that has been directly recorded in theequity; 3) expensing capitalized development costs of research and development; 4) cancellation of fair value model accounting for property,
plant, and equipment and investment properties and incorporation of cost model accounting; and 5) exclusion of minority interests from net
income, if contained.

29

(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
receipt, exchanges of fixed assets of similar kinds and sales and purchases resulting from expropriation, Japanese tax laws permit compaFinancial sectionnies 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 ¥1,526 million ($18,610 thousand)and ¥1,457 million at March 31, 2012 and 2011, respectively.
Depreciation of certain plants of the Company and certain domestic and foreign subsidiaries is computed by the straight-line method.
Depreciation of other plants of the Company and other subsidiaries is computed by the declining-balance method while the straight-line
method is applied to buildings acquired after April 1, 1998 for domestic companies.
Depreciation of leased assets is computed by the straight-line method over the lease period.
The range of useful lives is from 3 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, 2012, thecarrying amount of the land after the above one-time revaluation exceeded the market value by ¥3,730 million ($45,488 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.

(j) Bond Issuance Cost
Bond issuance costs are charged to income as incurred.

30

(k) 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, multi-employer 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 corporate auditors of the Company and certain subsidiaries are provided at the amount that would
be required if all directors and corporate auditors retired at the balance sheet date.

(l) Asset Retirement Obligations
In March 2008, the ASBJ published the accounting standard for asset retirement obligations, 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 resultsfrom the acquisition, construction, development and the normal operation of a tangible fixed asset and is associated with the retirement ofsuch tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset
retirement and is recorded in the period in which the obligation 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 recognizedwhen a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The
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 increase or a decrease in the carrying amount of the liability and the capitalized amount of the related
asset retirement cost.

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

Financial section

asset retirement cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the(n) 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 issued in June 1993. 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 to recognize lease assets and lease obligations in the balance sheet. In addition, the accounting standard
permits leases which 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 which 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.

31

(o) Bonuses to Directors and Corporate Auditors
Bonuses to directors and corporate auditors are accrued at the year-end to which such bonuses are attributable.

(p) Construction Contracts
In December 2007, the ASBJ issued ASBJ Statement No. 15, “Accounting Standard for Construction Contracts” and ASBJ GuidanceNo. 18, “Guidance on Accounting Standard for Construction Contracts.” Under the previous Japanese GAAP, either the completed-contract
method or the percentage-of-completion method was permitted to account for construction contracts. Under this new 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 estimated reliably. When total construction revenue, total construction costs and the stage of completion of thecontract at the balance sheet date can be 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 thatthe total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized byproviding for a loss on construction contracts.

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

Financial section

laws to the temporary differences.

(r) Foreign Currency Transactions
All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at theexchange rates at the 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.

(s) Foreign Currency Financial Statements
The 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 balance sheet date except for equity, which is translated at the historical rate. Differences arising fromsuch translation are shown as “Foreign currency translation adjustments” under accumulated comprehensive income in a separate component of equity.

(t) Derivatives and Hedging Activities
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign exchange and interest rates. Foreignexchange forward contracts, currency swaps and interest rate swaps are utilized by the Group to reduce foreign currency exchange andinterest 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 derivatives qualify forhedge 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 the unrealized gains (losses) are deferred until the underlying transactions are completed.
Interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but thedifferential paid or received under the swap agreements is recognized and included in interest expense.

32

(u) 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, 2012 and 2011.
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.

(v) 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 guidance are as follows: (1) Changes in Accounting Policies: When a new accounting policy is applied with a revision of
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. This accounting standard and the guidance are applicable to accounting changes and correc-(w) 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.
Major changes are as follows:

Financial section

tions of prior-period errors which are made from the beginning of the fiscal year that begins on or after April 1, 2011.

(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, are 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 shallbe recognized 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 (or the statement of income and 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 livesof the employees. However, actuarial gains and losses and past service costs that arose in the current period and yet to be recognizedin profit or loss shall be included in other comprehensive income and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period shall be treated asreclassification adjustments.
This accounting standard and the guidance are effective for the end of annual periods beginning on or after April 1, 2013 with earlier
application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective applicationof this accounting standard to consolidated financial statements in prior periods is required.

33

3. INVESTMENT SECURITIESInvestment securities at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Non-current:
Equity securities
Debt securities
Total

2012

2011

2012

¥49,737–¥49,737¥50,99120¥51,011$606,549–$606,549

Information regarding available-for-sale securities at March 31, 2012 and 2011 was as follows:
Millions of Yen
March 31, 2012

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

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

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥35,857¥11,632¥2,244¥45,245

Cost

Unrealized
Gains

Unrealized
LossesFair Value$427,951$134,524$19,804$542,671

Millions of Yen

Financial section

March 31, 2011

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2012

Available-for-sale:
Equity securities

Information for available-for-sale securities which were sold during the years ended March 31, 2012 and 2011 was as follows:
Millions of Yen
March 31, 2012

Available-for-sale:
Equity securities

Proceeds¥215

Realized
Gains¥4

Thousands of U.S. Dollars
Realized
Losses¥65

Proceeds$2,622

Realized
Gains

$49

Realized
Losses$793

Millions of Yen
March 31, 2011

Available-for-sale:
Equity securities

Proceeds¥635

Realized
Gains

¥502

Realized
Losses¥6

Impairment losses on available-for-sale equity securities for the years ended March 31, 2012 and 2011 were ¥601 million ($7,329
thousand) and ¥220 million, respectively.
The carrying values of debt securities classified as available-for-sale by contractual maturities at March 31, 2012 and 2011 were disclosed in Note 15.

34

4. INVENTORIESInventories held by the Group at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Merchandise
Finished products
Semi-finished products
Work in process
Raw materials
Supplies
Total

2012

2011

2012

¥17,107
12,237
16,68919,755
16,5498,584¥90,921¥18,001
10,631
17,346
18,831
19,212
8,307¥92,328$  208,622
149,232
203,524240,915
201,817
104,683$1,108,793

5. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of March 31, 2011 and, as a result, recognized impairment losses for idle assetsof ¥105 million for the year ended March 31, 2011 due to other-than-temporary declines in market value. This amount was included inother—net of other income (expenses). The carrying amount of the relevant assets was written down to the recoverable amount. The recoverable amount of such idle assets was measured at its net selling price mainly determined by quotation from a third-party real estate

6. 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. Net of rental income and operating expenses for those rental properties were ¥1,066 million ($13,000 thousand) and ¥1,078 million for the years ended March 31, 2012 and2011, respectively.

Financial section

appraiser or assessed by the valuation of fixed assets for tax purposes. No impairment loss was recognized in 2012.

The carrying amounts, changes in such balances and market prices of such properties at March 31, 2012 and 2011 were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying Amount
April 1, 2011

¥5,349Decrease

Fair Value
March 31, 2012¥(254)¥5,095Carrying AmountMarch 31, 2012

April 1, 2011

¥25,149$65,232

Decrease$(3,098)

Fair Value
March 31, 2012

March 31, 2012

$62,134$306,695

Millions of Yen
Carrying Amount
April 1, 2010

¥5,743

Decrease¥(394)

Fair Value
March 31, 2011

¥5,349March 31, 2011

¥25,690

Notes:
1) The carrying amount recognized in the balance sheet was net of accumulated depreciation and accumulated impairment losses, if any.
2) The decrease during the fiscal year ended March 31, 2012 was primarily due to sales of idle assets of ¥118 million ($1,439 thousand) and depreciation of¥161 million ($1,963 thousand).
3) The fair value of properties as of March 31, 2012 was measured by the Group in accordance with its Real Estate Appraisal Standard.

35

7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans consisted of notes to banks and bank overdrafts. The weighted average rates of annual interest applicable to shortterm bank loans at March 31, 2012 and 2011 were 0.62% and 0.61%, respectively.
Long-term debt at March 31, 2012 and 2011 consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2012

2011

2012

¥ 91,181
10,00020,00010,000¥105,026
10,00020,000–$1,111,964
121,951
243,902
121,951900
647
132,728(25,435)¥107,293

1,000
763
136,789(28,426)¥108,363

10,976
7,890
1,618,634(310,183)$1,308,451

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2013
2014
2015
2016
2017
2018 and thereafter
Total¥ 25,435
35,57818,02824,071
16,115
13,501¥132,728$  310,183
433,878
219,854
293,549
196,524
164,646$1,618,634

Loans from banks and other financial institutions, due serially to 2018 withweighted-average interest rates of 1.32% in 2012 and 1.38% in 2011
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, 2012 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, 2012

36

Millions of Yen

Thousands of
U.S. Dollars¥25,000–$304,878–

8. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥29 million ($354 thousand), short-term bank loansof ¥600 million ($7,317 thousand), long-term debt (including current portion) of ¥427 million ($5,207 thousand) and other current liabilities of¥3 million ($37 thousand) at March 31, 2012 were as follows:

Millions of Yen

Thousands of
U.S. Dollars¥    9
2,232
3,705
177
27
¥6,150$   110
27,22045,1832,158
329$75,000

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

Land held for investment in the amount of ¥103 million ($1,256 thousand) included in “Other investments and assets” was pledged ascollateral for borrowings of ¥2,547 million ($31,061 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 fairmarket value of the land) if the Company does not repay the borrowings on behalf of Takakura.

million ($31,061 thousand).

9. 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

Financial section

In addition, investment in a limited partnership of ¥495 million ($6,037 thousand) and other assets of ¥714 million ($8,707 thousand)were pledged as collateral for borrowings of ¥5,285 million ($64,451 thousand) by Takakura, including the above borrowings of ¥2,547

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, 2012 and 2011 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 loss
Prepaid pension cost
Liability for retirement benefit

2012

2011

2012

¥54,310(64,434)981(4,020)19,962¥6,799¥56,753(62,568)
1,240(6,130)17,582¥6,877$662,317(785,780)
11,963(49,024)
243,439$82,915

37

Certain domestic subsidiaries contribute to a multi-employer plan of which pension assets or obligations are not recorded as theGroup’s pension assets or obligations.
The funded status of the multi-employer plan at March 31, 2012 and 2011 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

2012

2011

2012

¥203,680
239,852¥(36,172)
2.55%¥209,985
244,644¥(34,659)
1.84%$2,483,902
2,925,024$(441,122)

The components of net periodic employees’ retirement benefit costs for the years ended March 31, 2012 and 2011 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
Effect of change in estimation method of retirement benefits
Loss on revision of retirement benefit plan
Net periodic employees’ retirement benefit cost

2012

2011

2012

¥2,162
1,007(1,093)
495
(162)
74
137
1,596
–
290
¥4,506¥2,296
1,004
(928)
419
(172)
61
135
1,312
372
–
¥4,499$26,366
12,280(13,329)
6,037(1,976)902
1,671
19,463–
3,537$54,951

Assumptions used for the years ended March 31, 2012 and 2011 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

2012

2011

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

Primarily 1.9%
1.1~2.0%
Mainly 10 years
Mainly 10 years

10. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2012 and 2011 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2012

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

38

¥426
–
¥426

2011

¥426
–
¥426

2012

$5,195–$5,195

11. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteria such as (1) having a Board of Directors, (2) having independent
auditors, (3) having a Board of Corporate Auditors, 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
not meet all the above criteria. The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders
subject to certain limitations and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of
the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must
be maintained at no less than ¥3 million.

(b) Increases/decreases and transfer of common stock, reserve and surplus
The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retainedsuch 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

Financial section

earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment of

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.

39

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in anormal effective statutory tax rate of approximately 41% for the years ended March 31, 2012 and 2011.
The tax effects of significant temporary differences and loss carryforwards which resulted in deferred tax assets and liabilities at March
31, 2012 and 2011 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 carryforward
Elimination of unrealized gain on inventories
Enterprise tax
Unrealized loss on securities
Loss on devaluation of inventories
Asset retirement obligations
Other
Less 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

2012

2011

2012

¥2,557
2,406
120
966
340
1,910
1,108
192
108
33
174
1,962
(2,732)¥9,144¥ 2,787
2,913
178
1,206
340
7,866
1,161
505
107
85
243
2,246
(8,984)¥10,653$ 31,183
29,342
1,463
11,781
4,146
23,293
13,512
2,341
1,317
402
2,122
23,927(33,317)$111,512¥2,524
1,397
3,504
5,260
1,185
576
¥14,446¥(5,302)¥ 3,016
1,694
4,055
4,849
1,352
716
¥15,682¥(5,029)$ 30,781
17,03742,73264,146
14,451
7,024$176,171$(64,659)

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, 2012 with the corresponding figures for 2011 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 for 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

2012

2011

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

41.0%
1.2
(2.2)
0.4
(21.6)
1.6
(1.0)
(0.7)
(0.4)
–
(0.1)
18.2%

On December 2, 2011, new tax reform laws were enacted in Japan, which changed the normal effective statutory tax rate from approximately 41.0% to 38.0% effective for the fiscal years beginning on or after April 1, 2012 through March 31, 2015, and to 35.0% 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($13,085 thousand) and to decrease income taxes—deferred in the consolidated statement of income for the year then ended by ¥509

40

million ($6,207 thousand).

13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥4,360 million ($53,171 thousand) and ¥4,254 million for the years ended March
31, 2012 and 2011, respectively.

14. 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. The Company applied the ASBJ Statement No. 13
effective April 1, 2008 and accounted for such leases as operating lease transactions. Pro forma information of leased property whose lease
inception was before March 31, 2008 such as acquisition cost, accumulated depreciation, obligations under finance leases, depreciation
expense, interest expense and other information of finance leases that do not transfer ownership of the leased property to the lessee on an“as if capitalized” basis were as follows:(As lessee)
Millions of Yen

Acquisition cost
Accumulated depreciation
Net leased property

Tools,
Furnitureand Fixtures

Software

¥519
397
¥122

¥152
132
¥ 20

¥129
110
¥ 19

Machinery,
Equipment
and Vehicles

Tools,
Furnitureand Fixtures

Software

Total

¥721
498
¥223

¥277
215
¥ 62

¥213
158
¥ 55

¥1,211871¥  340Machinery,
Equipment
and Vehicles

Tools,
Furnitureand Fixtures

SoftwareTotal$6,3294,841$1,488$1,8541,610$  244$1,573
1,341$  232$9,756
7,792$1,964

Total

¥800
639
¥161

Millions of Yen

2011

Acquisition cost
Accumulated depreciation
Net leased property

Financial section

2012

Machinery,
Equipment
and Vehicles

Thousands of U.S. Dollars

2012

Acquisition cost
Accumulated depreciation
Net leased property

Obligations under finance leases at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2012

Due within one year
Due after one year
Total

¥ 81
80
¥161

2011

¥164
176
¥340

2012

$  988976$1,964

Depreciation expense, which was not reflected in the accompanying consolidated statement of income, computed by the straight-line
method, was ¥161 million ($1,963 thousand) and ¥280 million for the years ended March 31, 2012 and 2011, respectively.
The amounts of acquisition cost and obligations under finance leases include the imputed interest expense portion.

41

Obligations under operating leases at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2012

2012

2011

¥39
46
¥85

Due within one year
Due after one year
Total

¥ 53
64
¥117

$  476561$1,037(As lessor)
Consolidated subsidiaries lease equipment, vehicles, tools, furniture and fixtures as lessor. Finance lease revenues were ¥19 million ($232
thousand) and ¥35 million for the years ended March 31, 2012 and 2011, respectively. Leased property whose ownership does not transfer
to the lessee during or at the completion of the lease term at March 31, 2012 and 2011 was as follows:
Millions of Yen
2012

Equipment andVehiclesTools, Furnitureand Fixtures

¥68
67
¥ 1

¥9
9
¥0

Equipment andVehiclesTools, Furnitureand Fixtures

¥138
124
¥ 14

¥10
9
¥ 1

Acquisition cost
Accumulated depreciation
Net leased property

Total

¥77
76
¥ 1

Financial section

Millions of Yen
2011

Acquisition cost
Accumulated depreciation
Net leased property

Total

¥148
133
¥ 15

Thousands of U.S. Dollars
2012

Equipment andVehiclesTools, Furnitureand Fixtures

$829
817
$ 12

$111
111
$  0

Acquisition cost
Accumulated depreciation
Net leased property

Total

$939
927
$ 12

Expected revenues from finance leases at March 31, 2012 and 2011 were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2012

Due within one year
Due after one year
Total

¥11
1
¥12

2011

¥27
12
¥39

2012

$134
12
$146

Depreciation expense, which was reflected in the accompanying consolidated statement of income was ¥5 million ($61 thousand) and¥12 million for the years ended March 31, 2012 and 2011, respectively. The amounts of expected revenues under finance leases include theimputed interest revenue portion.
Expected revenues from operating leases at March 31, 2012 were as follows:

Millions of Yen

Due within one year
Due after one year
Total

42

Thousands of
U.S. Dollars

2012

2012

¥  593
5,096¥5,689$ 7,232
62,146$69,37815. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES(1) Group policy for financial instruments
The Group uses financial instruments, mainly short-term and long-term debt including bank loans, 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, the position, net of payables in foreign currencies, is hedged byusing forward foreign currency contracts. Investment securities, mainly equity instruments of customers and suppliers of the Group, areexposed to the risk of market 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 are mainly used for general operating purposes and long-term bank loans and bonds are mainly used for investment and strategy. Although a part of such bank loans, excluding bonds and lease obligations, is exposed to risks of changes in variableinterest 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
rates of bank loans. Please see Note 16 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 balances

Financial section

to manage exposure to risks from changes in foreign currency exchange rates of receivables and payables and from changes in interestof major customers by each business administration department to identify the default risk of customers at an early stage. Please see Note
16 for the detail about derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2012.
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 net against the balance of receivables and payables. In addition, certain consolidated subsidiaries hedge suchrisk 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.
Marketable and 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 which 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.

(4) Fair values of financial instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational valuation
techniques are used instead. Please see Note 16 for the detail of the fair value of derivatives.

43

(a) Fair value of financial instruments
Millions of Yen
March 31, 2012

Thousands of U.S. Dollars

Carrying
AmountFair Value

Unrealized
Gain/(Loss)

Carrying
AmountFair Value

Unrealized
Gain/(Loss)

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Investment securities and investment
in an associated company
Total¥ 61,956
246
104,127¥ 61,956
246
104,127–––$  755,561
3,000
1,269,841$  755,561
3,000
1,269,841–––

48,521¥214,850

46,919¥213,248¥(1,602)¥(1,602)591,720$2,620,122

572,183$2,600,585$(19,537)$(19,537)

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$  287,915
310,183
880,037
24,4391,308,451$2,811,025$  287,915
310,183
880,037
24,4391,321,231$2,823,805––––$12,780$12,780

Millions of Yen
Carrying
AmountFair Value

Unrealized
Gain/(Loss)

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Investment securities and investment
in an associated company
Total¥ 47,341
171
99,345¥ 47,341
171
99,345–––49,028¥195,885

47,400¥194,257¥(1,628)¥(1,628)

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

¥ 20,657
28,42670,9195,196
108,363¥233,561¥ 20,657
28,42670,9195,196
108,972¥234,170

–
–
–
–
¥609
¥609

Financial section

March 31, 2011

Cash and cash equivalents, time deposits, receivables, payables, short-term bank loans and current portion of long-term debt with variableinterest 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. Information on the fair value of the investment securities byclassification 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 Group’s
assumed corporate borrowing rate.
Derivatives
Information on the fair value of derivatives is included in Note 16.

44(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

2012

2011

2012

¥ 5,238
10,970¥5,766
9,573$ 63,878
133,780(5) Maturity analysis for financial assets and securities with contractual maturities
Millions of Yen
Due in one year
or less

Due after one
year throughfive years

Due after five
years through10 years

Due after
10 years¥ 61,956
246
104,089¥166,291

–
–
¥38
¥38

–
–
–
–

–
–
–
–

March 31, 2012

Due in one year
or 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$  755,561
3,000
1,269,378$2,027,939

–
–
$463
$463

–
–
–
–

–
–
–
–

March 31, 2012

Cash and cash equivalents
Time deposits
Notes and accounts receivable
Total

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

Financial section

Thousands of U.S. Dollars

4516. 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 hedge policy, authorization, credit limit and reporting to the management. Each derivative transaction is periodically reported to the
management, that evaluates and analyzes derivatives.
Derivative transactions to which hedge accounting is not applied at March 31, 2012 and 2011
Millions of Yen

Financial section

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)

Millions of Yen

At March 31, 2011

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

46

Contract
Amountdue after
One YearContract
AmountFair
Value

Unrealized
Gain / (Loss)¥  245
19
859

–
–
–

¥ (2)
1
9

¥ (2)
1
9

2,774
72

–
–

(14)
(3)

(14)
(3)

5

–

0

0

5

–

(0)

(0)

Thousands of U.S. Dollars

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
AmountFair
Value

Unrealized
Gain / (Loss)$ 5,610
756
5,244

–
–
–

$12
(0)
37

$12
(0)
37

34,524
220

–
–

(232)
0

(232)
0

134

–

0

0

73

–

0

0

73

–

(0)

(0)

134

–

(0)

(0)

Derivative transactions to which hedge accounting is applied at March 31, 2012 and 2011
Millions of Yen

At March 31, 2012

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 accounting
not 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
AmountContract
Amountdue after
One Year

Payables—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

Financial section

At March 31, 2012

Contract
Amountdue after
One Year

See note
below

47

Millions of Yen

Financial section

At March 31, 2011

Foreign currency forward contracts:
Hedge accounting:
Buying:U.S. dollar
Pound sterling
Selling:
U.S. dollar
Pound sterling
Qualified for hedge accounting not remeasured atmarket value:
Buying:U.S. dollar
Pound sterling
Yen
Selling
U.S. dollar
Currency swaps(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

Contract
AmountContract
Amountdue after
One Year

Fair Value¥   275
30

–
–

¥(8)
(1)

Receivables—trade
Receivables—trade

43
6

–
–

(0)
(0)

Payables—trade
Payables—trade
Payables—trade

55
26
120

–
–
–

Receivables—trade23–

Long-term debt

700¥   700

2,000

2,000

61,0401,000

35,8601,000

Hedged item

Payables—trade
Payables—tradeLong-term debt
Short-term bank loans
and long-term debt
Long-term debt

See note
below

Thousands of U.S. Dollars

At March 31, 2012

Foreign currency forward contracts:
Hedge accounting:
BuyingU.S. dollar
Pound sterling
Selling
U.S. dollar
Qualified for hedge accounting not remeasured atmarket value:
BuyingU.S. dollar
Pound sterling
Yen
Selling
U.S. dollar
Currency swaps—Qualified for hedge accounting
not 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
AmountContract
Amountdue after
One Year

Payables—trade
Payables—trade$  2,976427––$ (12)(12)

Receivables—trade

3,415

–

(122)

Payables—trade
Payables—trade
Payables—trade

988
1,085
1,207

–
–
–

Receivables—trade

500

–

8,537

–

24,390601,951
12,195$ 12,195
332,073–

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 15.

48

17. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2012, the Group had contingent liabilities for notes with recourse in the course of asset liquidation in the amount of ¥688
million ($8,390 thousand).
At March 31, 2012, the Group was contingently liable for ¥1,328 million ($16,195 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 ($6,390 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 the maximum ¥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 a result of
the due diligence process between the Company and NHK Spring Co., Ltd., the management of the Company believes that the possibilityof exposure to loss would be remote.

18. COMPREHENSIVE INCOME

Millions of Yen

Thousands of
U.S. Dollars

2012

2012

Unrealized gain (loss) on available-for-sale securities:
Gains arising during the year
Reclassification adjustments to profit or loss
Amount before income tax effect
Income tax effect
Total
Deferred loss on derivatives under hedge accounting:
Gains arising during the year
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:
Loss arising during the year
Total
Total other comprehensive income¥(643)
647
4
542
¥546

$(7,841)
7,890
49
6,609
$6,658

¥(2)
(2)
1
¥(1)

$(24)(24)
12$(12)

¥297
¥297

$3,622$3,622¥(446)¥(446)$(5,439)$(5,439)

¥(1)
¥(1)

$   (12)$   (12)¥395$4,817

Financial section

The components of other comprehensive income for the year ended March 31, 2012 were as follows:

The corresponding information for the year ended March 31, 2011 was not required under the accounting standard for presentation ofcomprehensive income as an exemption for the first year of adopting that standard and not disclosed herein.

49

19. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2012 was approved at the Company’s shareholders meeting held on June
28, 2012:

Millions of Yen

Thousands of
U.S. Dollars¥1,736$21,171

Year-end cash dividends, ¥4.00 ($0.05) per share

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

Financial section

The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s
management is being performed in order to decide how resources are allocated among the Group.
The Group has business divisions based on the nature of products and services. Each division draws up strategies and operates its own
business.
The Group consists of six industries: “Specialty Steel,” “Electronic and Magnetic Materials,” “Parts for Automobile and Industrial Equipment,” “Engineering,” “New Materials” and “Trading and Service.”“Specialty Steel” industry consists of manufacturing of specialty steel for automotive and industrial machinery parts.
“Electronic and Magnetic Materials” industry consists of manufacturing of high alloy and magnetic materials for electrical andelectronics 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.
“New Materials” industry consists of manufacturing of titanium products and powder metals and other.
“Trading and Service” industry consists of real estate-related services and welfare and other services.
2. Methods of measurement for the amounts of sales, profit, assets and other items for each reportable segment
The accounting policies of each reportable segment are consistent to those disclosed in Note 2, “SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.”
Reportable segment profit represents operating income.

50

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

2012Electronicand Magnetic
Materials
Specialty SteelParts for
Automobile
and Industrial
Equipment

Engineering

New
Materials

Trading andService

Total

Reconciliations

Consolidated¥489,155

Sales
Sales to external customers¥293,744¥42,636¥107,258¥25,769¥10,116¥ 9,632¥489,155–

Intersegment sales or transfers

28,164899

20,938

2,042

640

8,465

61,148¥(61,148)

–

Total

¥321,908¥43,535¥128,196¥27,811¥10,756¥18,097¥550,303¥(61,148)¥489,155

Segment profit¥ 21,129¥ 1,503¥  5,272¥ 1,826¥   567¥ 1,242¥ 31,539¥(5)¥ 31,534

Segment assets

282,094

43,404

119,736

15,98910,694

19,487

491,404

21,565

512,969

Other:
Depreciation and amortization

10,371

1,646

6,597

301

522

1,027

20,464–

20,464

Investments in associatedcompanies

7,281

463

347

72

43

–

8,206

221

8,427

Increase in plant, property
and equipment andintangible assets

10,707

2,866

7,313

233

520

727

22,366–22,366

Reconciliations

Consolidated¥472,063

2011

Electronicand Magnetic
Materials
Specialty SteelParts for
Automobile
and Industrial
Equipment

Engineering

New
Materials

Trading andService

Total

Sales
Sales to external customers¥286,827¥39,905¥102,536¥23,801¥ 9,558¥ 9,436¥472,063–

Intersegment sales or transfers

36,396

1,590

23,525

1,121

1,015

7,103

70,750¥(70,750)

–

Total

¥323,223¥41,495¥126,061¥24,922¥10,573¥16,539¥542,813¥(70,750)¥472,063

Segment profit¥ 21,012¥ 1,796¥  6,528¥ 1,595¥   649¥ 1,159¥ 32,739¥(9)¥ 32,730

Segment assets

273,080

36,130114,213

14,63010,833

20,865

469,750

21,972491,722

Financial section

Millions of Yen
Reportable Segment

Other:
Depreciation and amortization

10,252

1,415

6,625

272

544

965

20,073–20,073

Investments in associatedcompanies

6,776

438

332

69

42

–

7,657

199

7,855

Increase in plant, property
and equipment andintangible assets

8,357

949

3,568

184

364

1,249

14,670–14,670

37

–

–

–

–

68

105

–

105

Impairment loss

51

Thousands of U.S. Dollars
Reportable Segment
Electronicand Magnetic
Materials
Specialty SteelParts for
Automobile
and Industrial
Equipment

Engineering

New
Materials

Trading andService

Total

Sales to external customers$3,582,244$519,951$1,308,024$314,256$123,366$117,464

Intersegment sales or transfers

343,463

10,964

255,342

24,902

7,805

103,231

Total$3,925,707$530,915$1,563,366$339,158$131,171$220,695$6,711,012$(745,707) $5,965,305

Segment profit$  257,671$ 18,329$   64,293$ 22,268$  6,915$ 15,146$  384,622$(61) $  384,561

Segment assets

3,440,171

529,317

1,460,195

194,988

130,415

237,646

5,992,732

262,9886,255,720

2012

Reconciliations

Consolidated$5,965,305–$5,965,305

745,707$(745,707)

–

Sales

Other:
Depreciation and amortization

126,476

20,07380,451

3,671

6,366

12,524

249,561–

249,561

Investments in associatedcompanies

88,793

5,646

4,232

878

524

–

100,073

2,695

102,768

Increase in plant, property
and equipment andintangible assets

130,573

34,951

89,183

2,841

6,342

8,866

272,756–

272,756

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 which were not allocated to any reportablesegments.
3. Segment profit was reconciled to operating income in the consolidated statement of income.

52

Associated Information
1. Information about geographical areas
Sales
Millions of Yen
2012

Japan

North America¥411,451

Asia¥14,267

Other¥57,396

Total¥6,041¥489,155

Millions of Yen
2011

Japan

North America¥397,429

Asia¥12,728

Other¥55,090

Total¥6,816¥472,063

Thousands U.S. Dollars
2012

Japan

North America$5,017,695$173,988

Asia

Other

$699,951$73,671

Total$5,965,305

2. Information about goodwill
Millions of Yen

Goodwill (negative goodwill)

Specialty SteelEngineering

New Material

Trading andService

¥4

–

¥(2)

–

–

–

Specialty SteelElectronic andMagnetic
Materials

Parts for
Automobile andIndustrial
Equipment

Engineering

New Material

Trading andService

$48

–

–

–

–

Total

¥2

Thousands of U.S. Dollars

2012

Goodwill (negative goodwill)

$(24)

Total

$24

Financial section

2012Electronic andMagnetic
Materials

Parts for
Automobile andIndustrial
Equipment

Negative goodwill, which arose from business combinations executed before April 1, 2010, was not allocated to any reportable segments. The carrying amount of goodwill was ¥2 million ($24 thousand) and ¥4 million as of March 31, 2012 and 2011, respectively, andamortization of negative goodwill amounted to ¥6 million (¥73 thousand) and ¥6 million, respectively, for the years then ended.

53

Financial section

Independent Auditor’s Report54

Daido network

Offices & Branches

Specialty Steel
Address

Head Office

Phone (Facsimile)

Nippon Seisen 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)

Niigata Sales Office1084, Kotaka, Tsubame, Niigata
959-1241, Japan

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

Maruta Transport Co., Ltd.

Fukuoka Sales Office13-2, Tenjin 1-chome, Chuo-ku,
Fukuoka 810-0001, Japan

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

Izumi Denki Kogyo Co., Ltd.

Tokyo Head OfficeOsaka Branch

Shimomura Tokushu Seiko Co., Ltd.
Daido Amistar Co., Ltd.
Daido Matex 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.
Sakurai Kosan Co., Ltd.
Riken Seiko Co., Ltd.
Kawaichi Sangyo Co., Ltd.
Tohoku Steel Co., Ltd.

Research Institute & Plants
Daido Corporate
Research &Development Center

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

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

Chita Plant

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

Daido Electronics Co., Ltd.

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 Plant

4-1, Yako 2-chome,
Kawasaki-ku, Kawasaki,
Kanagawa 210-0863, Japan

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

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

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

Tsukiji Techno Center
Metal Powder Plant
Oji Plant

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

Daido Electronics (Thailand) Co., Ltd.
Daido-Special Metals Ltd.

Parts for Automobile and Industrial Equipment
Fuji OOZX Inc.
Daido Castings Co., Ltd.
Toyo Sangyo Co., Ltd.
Japan Drop Forge Co., Ltd.

Daido Network

Chita   Forging Plant

Hoshizaki Plant

Electronic and Magnetic Materials

Daido Star Techno Co., Ltd
Nissei Seiko 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)

Kimitsu Plant

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

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

Life Support Co., Ltd.

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.

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

(As of March 31, 2012)55

Daido Steel Co., LTD.

Corporate Data

(As of March 31, 2012)

Corporate Name:

Daido Steel Co., Ltd.

Founded:August 19, 1916
February 1, 1950

Office:(Head Office)Urbannet Nagoya Building, 1-10, Higashisakura 1-chome,
Higashi-ku, Nagoya, Aichi 461-8581, Japan

Utilizing our strengths, aiming at further growth

Incorporated:

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

Number of Employees:

3,121

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

434,487,693

Number of Shareholders:

34,691

Independent Auditors:

Deloitte Touche Tohmatsu LLC

Stock Exchange Listings:

Tokyo, Nagoya

annual report 2012

Internet Address:

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

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.
HONDA MOTOR CO., LTD.
The Master Trust Bank of Japan, Ltd. (Trust Account)
NHK Spring Co., Ltd.
National Mutual Insurance Federation of Agricultural Cooperatives
TOYOTA MOTOR CORPORATIONFor Further Information,
Please Contact:

This annual report is printed on recycled paper.

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