ANNUAL REPORT 2015
Year ended March 31, 2015

UTILIZING OUR STRENGTHS,
AIMING AT FURTHER GROWTH

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

CONTENTS
01

FINANCIAL HIGHLIGHTS

02

MESSAGE FROM MANAGEMENT

04

NEW MEDIUM-TERM MANAGEMENT PLAN

FORWARD-LOOKING STATEMENTS

06

AT A GLANCE

concerning DAIDO STEEL CO., LTD.’s and its Group08

REVIEW OF OPERATIONS

12RESEARCH AND DEVELOPMENT14

CSR AND THE ENVIRONMENT

15

CORPORATE GOVERNANCE

16

OFFICERS

17

FINANCIAL SECTION

55

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

FINANCIAL HIGHLIGHTSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEARS ENDED MARCH 31

Thousands of
U.S. Dollars

Millions of Yen
2015

2014

2013

2012

2011

2015

For the Year:Net Sales

483,633

457,731440,428

489,155

472,063

4,030,275

Operating Income

20,40918,977

15,426

31,53432,730170,075

Net Income

10,886

12,616

10,98322,71823,00490,717

R&D Expenses

5,301

5,160

4,560

4,360

4,254

44,175

Capital Expenditures

30,29644,40425,40039,70018,900252,467

Depreciation and Amortization

22,437

20,052

19,22920,46420,073

186,975

588,590557,522

511,159

512,969

491,722

4,904,917

Total Assets
Total Equity

256,022232,152

211,921

198,654

178,348

2,133,517

Interest-Bearing Debt

146,208

143,085

146,999

156,336

157,445

1,218,400

Number of Employees (Consolidated)

10,855

10,70910,447

10,365

10,272–

Number of Consolidated Subsidiaries

34

33

32

33

32

–

Basic Net Income

25.10

29.09

25.32

52.37

53.02

0.21

Cash Dividends Applicable to the Year

6.50

5.00

4.50

7.50

7.00

0.05

FINANCIAL HIGHLIGHTSAt Year-end:

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

ROA (%)

3.8

3.8

3.2

6.3

6.6

–

ROE (%)

4.5

5.7

5.4

12.1

13.6

–

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 ¥120 to $1, the approximate rate of exchange at March 31, 2015.

NET SALESOPERATING INCOME

NET INCOME

Years ended March 31

Years ended March 31

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

500,000

40,00025,000400,000

20,00030,000300,000

15,00020,000200,000

10,00010,000100,000

5,000

0

0
2011 2012 2013 2014 2015

02011 2012 2013 2014 20152011 2012 2013 2014 2015

01

MESSAGE FROM MANAGEMENTMESSAGE FROM MANAGEMENT

Overview of Results for Fiscal 2014

increased by ¥25,902 million year on year to ¥483,633

ing in the fiscal first half in reaction to a consumption tax

million. Ordinary income climbed ¥1,442 million to ¥21,729

increase, remained on a recovery track due to improved

million due to the cost reduction effects of the new steel-corporate earnings and other factors, against a backdrop

making process at our main Chita Plant, despite risingof government economic and financial stimulus policies.

energy costs and raw material prices.

Overseas, the economies in developed countries remained
strong, especially in the U.S. where there was brisk per-Outlook for Fiscal 2015

sonal consumption. In Europe, with mounting concerns ofIn the Japanese economy in fiscal 2015, rising household

deflation, quantitative easing by the European Central

purchasing power due to low crude oil prices andBank is expected to lead to economic recovery. In emerg-

improved income and employment conditions is expected

ing countries, however, the Chinese economy has under-

to boost personal consumption.

gone a gradual deceleration, and together with other

Overseas, various economies are expected to gradually

regions lacking the strength to recover economically cou-

recover, but the changing business environment needs topled with geopolitical risks such as conflicts and terrorism,

be closely monitored due to the effects of the U.S. move tothe world economy faces future uncertainty. The automo-

normalize its monetary policy; the economic futures ofbile and industrial machinery sectors, our key source ofEurope, China and other emerging countries; and the risk

demand for specialty steel, showed signs of partial pro-of conflicts and terrorism.

duction adjustments, but were generally stable after

02

As a result, the Group’s net sales in fiscal 2014

In fiscal 2014, the Japanese economy, after briefly slump-

Demand for Japanese automobiles is projected tohaving bottomed out. Under these conditions, the Daido

continue to expand against a backdrop of growth in over-

Steel Group intensified its efforts to improve earnings andseas markets, but changes in structural demand in spe-tackled medium-term business challenges such as

cialty steel markets, such as shifting production overseas

expanding sales of its global leading products and next-

and downsizing, also require close watching. Demand

generation growth products.

related to industrial machinery is expected to remain firm

on an improved export environment due to domestic and

ENGINEERING

overseas economic recovery and the persistently weakWith the boost of investment incentives, strong domestic demand isyen. In addition, the effects of low crude oil prices are

expected. Moreover, with an increasing capital investment trend

expected to depress energy costs to a certain extent.
In this business environment, the Daido Steel Group

expected, especially in North America and China, we will further
develop overseas markets by strengthening sales capabilities such as
customer support.

continues to work to ensure profits through rigorous costlong-term growth strategy based on Daido Steel differentiated products, we will expand the supply chain functionthat is closely coordinated with Group companies and

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

Based on the above, and on the expansion ofbuild stronger relationships with overseas business part-

automobile- and industrial machinery-related demand andners. Moreover, we continue to drive forward the expan-

increased sales of strategic products, the forecast forsion of businesses for which we expect future growth,

consolidated performance in fiscal 2015 is net sales ofnamely, turbo parts and magnets.

¥500.0 billion, operating income of ¥27.0 billion, ordinary

Given these conditions, our segment forecasts for the
coming fiscal year are as follows.
SPECIALTY STEEL
Despite continued downsizing and local procurement, automobilerelated demand will be affected by the expected continued moderate

income of ¥29.0 billion and net income of ¥19.0 billion.

Medium- to Long-Term
Management Strategy
Over the medium- to long-term, we believe that specialty

growth of Japanese automobile production amid an easing of produc-steel demand will continue to expand, particularly intion adjustments. Other areas of demand are expected to remain

emerging countries, amid a further acceleration in thestrong against a backdrop of expanding overseas demand and an

globalization of markets. Yet, at the same time, we

improved export environment. We will thus seize these opportunities

assume that change in the manufacturing cost structure,

and aggressively expand sales in overseas markets.

such as customers shifting more production offshore,

HIGH PERFORMANCE MATERIALS AND
MAGNETIC MATERIALS

increasing local procurement, and higher energy costs, as

Stainless steel and high alloy products should remain firm. We

accelerated pace. To respond to these changes in theintend to vigorously expand demand for magnetic products invehicles. As demand for titanium products is likely to expand into
medical and biomaterial fields, we will expand sales in these fields.

well as intensified market competition will continue at an
operating environment, the Group formulated a mediumterm management plan that continues through fiscal 2017

For powder metal products, we anticipate continued favorable

and was announced in June of this year. In order to con-demand for use in automobiles.

tribute to the world, the Daido Steel Group will refine its

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT
In free forgings, due to expected continued strong demand for com-

MESSAGE FROM MANAGEMENT

reductions. At the same time, to achieve our medium- to

product, technology and proposal-making capabilities;
integrate its material and process technologies; and pro-mercial aircraft and the bottoming out of demand for heavy electricvide total solutions that fully employ specialty steel. The

equipment, we will execute our production activities in response toGroup will put its management policies into practice andmedium- to long-term growth in demand and make our remelting

work to achieve the management benchmarks described

furnace (vacuum arc re-melting (VAR)/electro-slag refining (ESR)) com-in the pages that follow.

petitive as quickly as possible. We will also build a vacuum induction
melting furnace (VIM). Moreover, in die forgings, we will take steps toincrease automobile demand while seeking to become competitive

October 2015

quickly with the newly installed high-speed horizontal hot forging
machine. In turbo-related products, demand is expected to grow in linewith rising turbo installation rates in gasoline engines, and therefore,
we will take steps to increase production of stainless steel turbine
housing and other related products. As engine valve sales are likely toremain strong, we will move aggressively to capture demand.

Tadashi Shimao
President

03

NEW MEDIUM-TERM MANAGEMENT PLAN

WE CONTRIBUTE TO THE WORLD
BY MANUFACTURING SPECIALTY STEELWE ARE COMMITTED TO PRODUCING NEW TYPES OF SPECIALTY STEEL—IN COLLABORATION WITH OUR CUSTOMERS—THAT SUPPORT GROWTH AROUND THE WORLD.

Major Initiatives

I. Customer collaboration
Together with customers, we deliver innovation that the world needs

NEW MEDIUM-TERM MANAGEMENT PLAN

“Customer collaboration” expresses the idea of producing products and technologies thatbring to life new ideas and applications through the integration of Daido Steel Groupmaterials technology and the customer’s processing technology.

II. Focus on growing fields
Contribute to the world by supporting market development in fields where
significant future growth is desired

III. Enhance our QCD* capabilities
We will further strengthen global QCD competitiveness as a springboard forcontributing to the world with specialty steel* QCD: Quality, cost and delivery

483.6

560.0

Ordinary income

21.7

40.0

Net income

10.9

25.0

ROS (%)

4.5

7.0

50

600

40

500

30

400

20

300

10

200

0

6.0
‘

‘

07

08

‘

‘

06

09

‘

20–25

–10
Net sales (left scale)
Ordinary income (right scale)10‘

15 – 20

700

11

‘

Dividend payout
ratio in line withdividend policy (%)

3.8(billions of yen)

12‘

ROA (%)NET SALES/ORDINARY INCOME (CONSOLIDATED)13‘

Net sales

04

FY2017
Medium-Term
Management Plan

14‘(billions of yen)

FY2014
Results

17

–20
(FY)

I.

Customer collaboration• Die forging business: Collaborate with customers to enhance the marketability of products• Engineering business: Expand our lineup of products in response to customer needs and strengthen theafter-sales-service system• Automobile engine valve business : Promote our overseas development through Fuji OOZX Inc.

• Turbo parts business: Aggressively tackle expanding turbo market (Daido Castings Co., Ltd.)• Magnet business: Promote the growth strategy for the high-performance neodymium magnet business (Daido Electronics Group, Intermetallics Japan Corporation)

NEW MEDIUM-TERM MANAGEMENT PLAN

II. Focus on growing fields• Stainless steel products business : Grow together with customers—shifting our focus from general-purpose products
to high-performance stainless steel and moving our manufacturing sites from Japanto overseas• Powder metal products business : Expand the lineup of high-performance powder products in collaboration withcustomers• High alloy steel business: (High alloy steel products) Global expansion of Daido Steel’s DS ALLOY* brand(Free forging products) Promote “transformation of product portfolio” and move tohigher-value-added product areas*DS ALLOY: Trademark registration pending in 11 countries

III. Enhance our QCD capabilities• Specialty steel products business (Chita Plant): Achieve ultimate energy savings and improve productivity
Improve product reliability• Tool steel business: Expand global sales network and build a delivery systemthat meets customer needs(1) Sales network expansion(2) Manufacturing reforms(3) Strategy for product differentiation• Expand the Daido Steel Group overseas network(India) Daido D.M.S. India Pvt Ltd: Inventory sales of tool steel to the Indian market(North America) Daido Steel (America) Inc. (Houston Office) : Marketing of high alloys for oil and gas(ASEAN) Daido Steel (Thailand) Co., Ltd.
: Use newly installed high-speed horizontal hot forging
machine (machine No. 2)
Manufacture and sales of die forging parts, distribution andsales base for specialty steel products• Establish an office to strengthen marketing capabilities centered on high alloys (under review)(billions of yen)Overseas sales
Sales ratio (%)

FY2014FY2017 (target)

110.8
23

170.0
30 or more05

AT A GLANCEHIGH PERFORMANCE MATERIALSAND MAGNETIC MATERIALSPARTS FOR AUTOMOBILE AND
INDUSTRIAL EQUIPMENT

MAIN PRODUCTS

MAIN PRODUCTS

MAIN PRODUCTS

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

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

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

SHARE OF NET SALESSHARE OF NET SALESSHARE OF NET SALES

(%)

(%)

(%)

AT A G L A N C E

SPECIALTY STEEL

39.1%

33.4%

NET SALES Years ended March 31

NET SALES Years ended March 31

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

300,000

300,000

150,000

200,000

200,000

100,000

100,000

100,000

50,000

0

0
2014

0
2014

2015

2015

2014

2015

OPERATING INCOME Years ended March 31

OPERATING INCOME Years ended March 31

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

4,000

15,000

4,000

3,000

3,000

10,000

2,000

2,000
5,000

1,000

1,000

0

0
2014

06

20.5%

2015

0
2014

2015

2014

2015

ENGINEERING

TRADING AND SERVICE

MAIN PRODUCTS

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

SHARE OF NET SALESSHARE OF NET SALES

(%)

(%)

4.7%

AT A G L A N C E

MAIN PRODUCTS

2.2%

NET SALES Years ended March 31

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

36,00030,00024,00020,00012,00010,000

0

0
2014

2015

2014

2015

OPERATING INCOME Years ended March 31

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

2,000

1,500

1,500

1,000

1,000
500

500
0

0
2014

2015

2014

2015

07

REVIEW OF OPERATIONSS PECIA LTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates

In the specialty steel segment, sales volume increased year on

approximately 40% of consolidated net sales. Specialty steel isyear atop higher export sales due to an upturn in orders result-made by combining steel with alloys to add value in the form ofing from the yen’s depreciation in addition to expanded sales toproperties such as resistance to heat, abrasions or rust.

the industrial machinery sector. The increase came despite the

Because a range of special properties can be achieved by vary-effects of the decline in demand for automobiles in reaction to

ing the type and amount of alloy, one of the special features of

the consumption tax increase and sluggish Japanese automo-

the business is that products are developed to meet the specificbile sales in China and the ASEAN region. Tool steel sales

applications required by the user. The automobile and industrial

volume also increased on higher sales to Asia and strong

machinery sectors are the primary users of specialty steel,automobile-related demand, especially for exports.

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

As a result, the specialty steel segment’s net sales in fiscal
2014 increased 2.7% year on year to ¥189,125 million due toan increase in sales volume. Operating income increased by

R E V I E W O F O P E R AT I O N S¥1,486 million to ¥3,178 million.

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

08

H IGH PER F OR M ANCE MATERIA LS A ND MAGNETIC MATERIALS
Overview of BusinessResults of Operations

This segment, which accounts for roughly 33% of consolidated

Net sales of stainless steel products were up year on year

net sales, manufactures and sells high performance materials

driven by strong demand for HDD-related products and auto-and magnetic materials used chiefly in computers, automobiles,

mobiles, as well as higher sales prices reflecting higher nickel

mobile phones and consumer electronics. Notably, Daido Steelprices. Sales of high alloy products, magnetic products, andholds the world’s largest market share as a supplier of magnets

powder metal products surpassed those of the previous fiscal

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

year thanks to firm demand for use in automobiles. Moreover,

Key products include rare earth magnets (used in spindle
motors* for HDD and other products), high alloys, titanium
products and high performance powder metal products, andsales of titanium products increased, reflecting strong demand
for use in medical services in Japan.
As a result, buoyed by strong demand, net sales for highelectromagnetic materials.

performance materials and magnetic materials in fiscal 2014

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

increased 12.7% year on year to ¥161,758 million. Operating
income also increased by ¥2,413 million to ¥13,518 million due
R E V I E W O F O P E R AT I O N S

to higher sales prices.

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

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

PA RT S FOR A U T OMOBILE AND INDUSTRIAL EQUIPMENT
Overview of BusinessResults of Operations

This segment contributes around 21% of consolidated net

Sales of free forging products increased year on year atop

sales. It manufactures die forged parts such as crankshafts

strong demand for use in commercial aircraft and large plant-

using specialty steel, precision cast parts for use in gears andrelated equipment. Die forging product volumes and sales wereturbochargers (used in diesel engines to improve fuel efficiency

largely in line with those of the previous fiscal year as inventory

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

adjustments resulting from sluggish automobile sales in theshafts and parts for gas turbines. Most of the auto parts sold in

ASEAN region were offset by new sales expansion. Sales ofthis segment use materials that were developed through joint

engine valves increased on brisk orders following solid North

projects with automakers to meet their exacting requirements.

American automobile sales and other factors. Sales of castings

These parts can therefore lower processing expenses at cus-and precision cast products were up year on year due to robust

tomers’ factories as well as contribute to reducing the weight ofdemand for turbo-related products, despite the Company’s

finished products.

withdrawal from large castings.

Many products in this segment are leading products in their

As a result, net sales in the parts for automobile and indus-

respective market categories, such as aircraft jet engine shafts

trial equipment segment for fiscal 2014 rose 2.5% to ¥99,386

and marine diesel engine valves. Daido Steel also has a highmillion. Operating income declined by ¥2,756 million to ¥1,024

market share in numerous other product categories, including

million due to a deteriorating content structure and the posting

automobile engine valves and turbine disks. We will continue toof slag treatment-related expenses at the Shibukawa Plant.

develop and launch new products that differentiate us fromcompetitors and support our position as a provider ofadvanced products.
In addition to specialty steel supplied by the specialty steel
segment of the Group, some steel materials used in this segment are manufactured in-house.

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

10

ENGINEERING
Overview of BusinessResults of Operations

This segment generates about 5% of consolidated net sales.

In the engineering segment, overseas projects, such as the

Major activities include the manufacture of steelmaking equip-

construction of industrial furnaces in the ASEAN region,

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

expanded steadily. However, sales from large construction

ment also manufactures environmental equipment for the

projects, such as a facility for manufacturing magnetic materials

treatment of wastewater, gas emissions and waste materials

for related companies, had been concentrated in the previous(mainly to public-sector clients with incinerated ash melting

year and, consequently, net sales decreased year on year.

systems for urban waste) and machine tools.

Engineering segment sales for fiscal 2014 decreased byWith respect to environmental equipment in particular, the

5.0% to ¥22,904 million. However,operation and engineering technologies we have fostered over

operating income increased ¥526

the years support our cutting-edge engineering business, which

million to ¥1,652 million, mainly

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

due to the margin on projects

types of equipment and technologies that this segment has

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

created contribute to environmental preservation and energy
reduction in a wide variety of settings. Operations also include
maintenance and management of this machinery and equipment.

Daido Arc Process (DAP)T R AD ING AND SER VICE
Overview of BusinessResults of Operations

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

Net sales in the trading and service segment increased thanks

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

to strong exports to North America. However, operating income

ucts made by Group companies, employee benefits services,

decreased on recording losses related to system development.

real estate and insurance services, golf course management,

As a result, net sales in fiscal 2014 climbed 15.7% toanalytics, and sales of software to external customers.

¥10,460 million, while operating income declined by ¥237
million to ¥1,043 million.

11

RESEARCH AND DEVELOPMENTThe Daido Steel Group’s basic management policy is to leverage its advanced
technology capabilities in specialty steel to “foster a corporate culture of creativity andoriginality that contributes to the 21st century society.” Based on this policy, theGroup conducts a proactive program of research and development (R&D) to expand
new products and businesses and strengthen the foundations for existing businesses.
We are pursuing R&D for new products, materials and technologies, primarily
through the Daido Corporate Research & Development Center, which houses theSpecial Steel Research Lab, Electromagnetic Material Research Lab, and Process
Technology Development Center. We employ a total of 275 researchers throughout
the Daido Steel Group (as of March 31, 2015).
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥5,301 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

(1) Specialty SteelRESEARCH AND DEVELOPMENT

In this segment, R&D includes basic material development,such as automotive structural materials and tool steel, andprocess innovations ranging from steelmaking, refining andsolidification to quality assurance.
R&D costs for the fiscal year under review in this segment
totaled ¥1,469 million.

• Development of steel for gears with excellent
manufacturability
In order to balance fatigue strength, wear resistance at thesurface and toughness in the core portion of gears, hightemperature carburizing treatment is generally utilized.
However, occasionally localized coarsening of the crystal grain(non-uniformity of grain size) occurs during carburizing, causing
property deterioration such as strength reduction. Therefore,
we developed a technology that controls grain size uniformity
and reduces property deterioration. We are studying its practical application in various types of steels. The new steels associated with this technology also reduce the carburizing costsby requiring shorter treatment times at high temperatures.

• PVD coating (HT-CERAC) for high-strength
steel sheet processing
In creating lighter parts to improve automobile fuel efficiency, it
is necessary to enhance the strength of steel sheets. Therefore,
the surface of the processing tool in the press process of steel
sheets is coated with hard film. However, the film soon peels off
due to the high pressure processing required for high-strength
steel. This peeling of the film leads to frequent tool changes.
With enhancement of steel sheet strength, a more durable film
has been sought.
To meet this need, we have developed the PVD coating“HT-CERAC.” Because HT-CERAC lasts at least five times
longer than conventional coatings, it improves production efficiency by reducing the tool change frequency, and is expected
to be widely adopted in the future.

12

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

6,000

4,000

2,000

0
2012 2013 2014 2015(2) High Performance Materials andMagnetic Materials
In this segment the Daido Steel Group conducts R&D focusing
on developing materials that resist corrosion and heat, highgrade strip steel, welding materials, magnetic materials andelectronic devices. Magnet research is carried out principally by
the Company and its consolidated subsidiary, Daido Electronics
Co., Ltd.
R&D costs for the fiscal year under review in this segment
totaled ¥2,568 million. The following are some of our majorachievements in this area.

• Hot-deformed magnet containing no heavy
rare-earth elements
We have developed ND-40SHF, a neodymium-iron-boron(Nd-Fe-B) hot-deformed magnet with record-high magnetismand thermal resistance without any heavy rare-earth elements,
specifically dysprosium (Dy) and terbium (Te) which are both rareand expensive. Demand for high-performance magnets is
expanding, especially in the automobiles, consumer electronics,
and energy fields. These fields require high thermal resistance.
Conventional neodymium magnets show their thermal resistance due to the addition of heavy rare-earth elements, but asnearly all heavy rare-earth elements are produced in China, theirhigh price and unstable supply are a major concern. As amagnet with no heavy rare-earth elements, ND-40SHF hasachieved the world’s highest level of magnetism and thermal
resistance in rare-earth-free magnets through the newly
developed hot plastic-deforming method and optimization ofmagnetic composition.
Daido Electronics supplies the magnets for motors in automobiles, in particular for the growing electronic power steering(EPS) market, as well as industrial machinery, office automationequipment and consumer electronics markets.

We have developed TNCZ, an innovative titanium alloy withimproved flexibility and cold workability (formability) comparedwith conventional materials, and began its mass-production as
wire rod in October 2014. TNCZ is a beta-type titanium alloy
without nickel and vanadium, developed for medical use. It is
composed of non-toxic elements (titanium, nickel, chrome, andzirconium). In addition, TNCZ enables the formation of complex
shapes in which conventional titanium alloys cannot be used asa result of its good flexibility and formability. TNCZ is expected
to be used in medical equipment, such as catheter guide wires,
guide pins, and stents. We are working with customers todevelop its applications for such products as eyeglass frames,
automobile parts, and watch cases.

(3) Parts for Automobile and Industrial Equipment
R&D in this segment concentrates on development of turbochargers and other automotive parts and parts for various typesof industrial machinery.
R&D costs for the fiscal year under review in this segment
totaled ¥1,127 million. The following are some of our majorachievements in this area.

• High-heat-resistant titanium aluminide
turbocharger wheel
Because of improved automobile fuel consumption, demand formore compact engines along with turbochargers that convert,
use and raise exhaust gas energy output is increasing. The
turbine wheel, a key structural component of the turbocharger,
is generally made from a nickel-based super-alloy that is highly
heat resistant. To increase responsiveness at the time ofstartup, we have developed titanium alloys with approximately
half the specific gravity of nickel-based super-alloys and thesame or greater heat resistance, and have been producing themat a mass-production level. Now, we have developed a newtitanium alloy, DAT-TA3, with improved high-temperature strength,
high-temperature creep property, and a higher heat resistancetemperature. In the future, with the tightening of environmental
regulations and demands for a higher-performance turbocharger, the DAT-TA series are expected to be used in an evenwider range of applications.

• Development of high-strength automobile exhaust
valve steel
Heat-resistant austenitic steels have been generally used asmaterials for exhaust values in automobiles, but in highperformance engines operating at even harsher environmental
temperatures, high-temperature-strength nickel-based superalloys or iron-nickel-based super alloys have been used hitherto.
Now, we have developed the highest-grade iron-based heatresistant austenitic steel, which surpasses conventional heatresistant steels and has a good balance between higher
strength through solid solution and carbide precipitation andlong-term structural stability in a high-temperature environment.
The new steel can be applied to applications requiring nickelbased super alloys at lower costs by reducing alloy materials
such as nickel.

• Development of manufacturing technology forhigh-strength, non-magnetic retaining rings for
power generators
To improve the efficiency of power generators, large rotor
parts that rotate at high speeds are housed in a cylindricalmetal case called a retaining ring to prevent them from flying
off due to centrifugal force. The retaining ring must have thestrength to withstand a large centrifugal force and must be
non-magnetic to prevent heat being generated by the eddy
current in the magnetic environment. To meet these needs, wedeveloped a special manufacturing technology for highstrength, non-magnetic retaining rings. The technology consists of the optimization of forging conditions and special
tools. Moreover, by using our originally developed strength
prediction simulator, variations in strength are reduced. This
technology is expected to be widely adopted in the future.

RESEARCH AND DEVELOPMENT• Development of high-elasticity titanium alloy TNCZ

(4) Engineering
Engineering R&D focuses on the development of environmental
conservation and recycling equipment, and a variety of energysaving industrial furnaces.
R&D expenditures in this segment during the fiscal year
under review amounted to ¥134 million.

• Further developments of slim batch vacuumcarburizing furnace “SyncroTherm®”
Vacuum-carburizing equipment uses progressive technologies topossess advanced characteristics and to expand the life of theautomatic transmissions or fuel injection components of automobiles. We have incorporated the ModulTherm® technologies fromALD Vacuum Technologies, and the concept of ModulTherm®
has been accepted by automotive manufacturers and tier 1
suppliers. Moreover, we have concluded a technical cooperationagreement regarding SyncroTherm® technologies with ALD. We
have installed substantiation equipment at the Takiharu TechnoCenter (Machinery Division), and have been accepting carburizing
trials for a great deal of potential customers.
As a specific result of those developments, we haveachieved smaller deformation and higher productivity. We provide highly valuable know-how to our customers - about materials from the R&D Division and equipment from the Machinery
Division - and we are able to offer precise solutions for theincreasingly sophisticated needs of our customers.
With our product lineup of ModulTherm® for large lots, andSyncroTherm® for small lots, we will reach potential customers
in a wide range of fields including automobile manufacturing,
construction machinery manufacturing, and industrial machinery
manufacturing.

13

CSR AND THE ENVIRONMENT

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

CSR

Major Initiatives Preventing Global Warming
The first commitment period for the Kyoto Protocol ran from2008 to 2012. In that time frame, Daido Steel aimed toreduce its CO2 emissions volume by 10% compared to the1990 level in accordance with the guidelines of the Japan
Iron and Steel Federation. We worked to achieve this goal by
expanding the use of exhaust heat recovery in heating furnaces, shifting our fuel source from heavy oil to natural gas,
and improving the yield ratio through an increase in the ratio
of production by continuous casters. Due to the effects ofcumulative investments of ¥5.0 billion made from 2006 to
2012, operational improvements and changes in productionlevels, annual CO2 emissions from 2008 to 2012 decreased
by 24.7% on average. Turning to fuel conversion, we
achieved a change in the natural gas percentage in fuel from35% (calorie basis) in 2005 to 82% at the end of fiscal 2014.
In addition, a cutting-edge, energy-efficient electric arc furnace was installed at the Chita Plant at a cost of ¥19.8 billion
with rationalizing effects evident throughout the year, resulting
in a 3% improvement in CO2 emissions per ton of production. Going forward, in accordance with the objectives of theCommitment to a Low Carbon Society ongoing plan for fiscal
2013 to fiscal 2020 formulated by the Japan Iron and SteelFederation and Japan Business Federation (Keidanren), we
will continue implementing further reform measures, such as
reductions in the number of heat exchangers, improvementsin the yield ratio, and production in optimal areas.
Strengthening the CSR Promotion Framework
The Daido Steel Group has responded to the needs of ourvarious stakeholders by establishing the Human Resources
Labor Committee and various other committees as parent
organizations to support CSR activities, such as theEnvironment and Energy Committee. With a view to further
strengthening this framework, in fiscal 2007, the CSR
Committee was established to supervise general CSR activities. Members of the CSR Committee formulate Group-wide
policies and action plans with the aim of unifying and expanding CSR activities across all Group companies and divisions.
Starting January 2013, the Environment and Energy
Committee was split into two independent committees(namely, the Environment Committee and the Energy
Committee) to promote CSR activities in a more fulfilling way.
For details, please refer to the annually issued CSR
Report.
URL: http://www.daido.co.jp/csr/data/report.html(Japanese only)

ENERGY CONSUMPTION AND CARBON DIOXIDE EMISSIONS VOLUME
Kg of CO2/
ton of production

1,000 tons
CO2/year

2,000

1,500

1,000

800

600

–5.4%

–19.0%–18.1% –25.6% –19.9%–23.6% –22.9%–25.1%
400–33.8%

500

200

0

0
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15(Forecast)

CO2 emissions volume (left scale)CO2 emissions per ton of production (right scale)CO2 emissions coefficient for electric power: 0.374 kg of CO2 /kWh14

Basic Policy

Internal Control System

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

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

Governance System
Daido Steel uses an Audit & Supervisory Board system. At
the 91st Shareholders’ Meeting held on June 26, 2015, an
amendment to the articles of incorporation stipulated that
there be a maximum of 15 directors (from the previous maximum of 30), Board of Directors meetings, a maximum of 4
Audit & Supervisory Board members and meetings of the
Audit & Supervisory Board and corporate auditors. Based onthese changes to the articles of incorporation, Daido Steel
reduced the number of its directors from 21 to 9. At the 91st
Shareholders’ Meeting held on June 26, 2015, the Company
also instituted an executive officer system to clearly distinguish the responsibilities of strategy formulation and management oversight functions and business execution.
In addition, where there had conventionally been one
external director at Daido Steel, two external directors wereappointed at the 91st Shareholders’ Meeting to strengthen
the Board of Directors’ supervisory functions.
By using a system that oversees and supervises businessexecution through a Board of Directors, including two external
directors, and an Audit & Supervisory Board, including two
external Audit & Supervisory Board members, Daido Steelenhances its corporate governance, optimizes and accelerates decision-making and secures fair and transparent
management.

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

Efforts to Enhance Compliance
Daido Steel has established the Daido Steel Corporate Codeof Ethics and the Daido Steel Code of Conduct, and works todisseminate them to all employees and Group companies.
The Company also maintains a hotline for consultation andreporting by employees regarding compliance, as well as
directors in charge of compliance and risk management,
divisions in charge and outside attorneys.
Efforts to Ensure the Reliability of Financial Reporting
In order to ensure the reliability of financial reporting andenhance the level of response of the Company and Group
companies to J-SOX, the Daido Steel Group prescribes thebasic points for system improvement and operation in theInternal Control Regulations and has established an Internal
Control Committee.

15

MECHANISM FOR BUSINESS EXECUTION, AUDIT, SUPERVISION AND INTERNAL CONTROL(As of June 26, 2015)

Shareholders’ Meeting
Election anddismissal

Election anddismissal

Election anddismissal

Audit &
Supervisory Board
3 auditors including
2 external auditors

Board of Directors
9 directors including
2 external directors

AuditsElection anddismissal
Accounting Auditor(independent auditor)

Management Meeting

President andChief Executive Officer

Accounting audit

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

Executive Board
Executive Officers
Reports

Auditing Department(internal audits)

AuditsEach business division

AuditsAdvisesand supports

Reports

CORPORATE GOVERNANCE
OFFICERSGroup companies

OFFICERS
PRESIDENT & CEO,REPRESENTATIVEEXECUTIVE
DIRECTORREPRESENTATIVE EXECUTIVE DIRECTORS,EXECUTIVE VICE PRESIDENTS

Tadashi Shimao

Michio Okabe

Motoshi Shinkai

DIRECTORS,MANAGING EXECUTIVE OFFICERS

Takeshi Ishiguro

Akira Miyajima

DIRECTOR,MANAGING
MANAGING EXECUTIVE OFFICERS EXECUTIVE OFFICER MANAGING EXECUTIVE OFFICERS

Hajime Takahashi

Kazuto Tachibana

Tsukasa Nishimura Satoshi Tsujimoto

EXECUTIVE OFFICERS

16

Susumu Shimura

DIRECTORS(OUTSIDE DIRECTORS)Shinji Naruse

Shinji Fujino

AUDIT & SUPERVISORY BOARD MEMBERS

Shuji Matsubuchi

Yoshiaki Mori

Tomoki Hanyuda

Toshinori Koike

Takeshi Muto

Hirotaka Yoshinaga

Kimihiko Seki

Shigenobu Tokuoka

Kazuhiko Hirabayashi

Atsumi Hatano

Hajime Amano

Yuji Kamiya

Yukichi Ozawa

Yasuhiro Itazuri

Hitoshi Tanemura

FINANCIAL SECTIONCONTENTS
18

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

22

CONSOLIDATED BALANCE SHEET24

CONSOLIDATED STATEMENT OF INCOME

25

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

26

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

28

CONSOLIDATED STATEMENT OF CASH FLOWS

29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

54

INDEPENDENT AUDITOR’S REPORT

17

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONSOVERVIEW OF OPERATING ENVIRONMENTAND PERFORMANCE¥25,902 million year on year to ¥483,633 million, mainly due to

In fiscal 2014, ended March 31, 2015, the Japanese economy

an increase in sales volume. Ordinary income rose ¥1,441 mil-remained on a recovery track, mainly due to improved corpo-

lion to ¥21,729 million. This was mainly attributable to the cost

rate performance on the back of the government’s economic

reduction effect of new steel processes in the Chita Plant, theand monetary policies. After a temporary economic slump in themain production base, despite higher energy costs for electric

first half in reaction to a consumption tax increase in April 2014,

power and so forth and higher raw material costs for nickel andthe effects of the reactive decline in consumer spending dimin-

other materials.

As a result, the Group’s net sales in fiscal 2014 increased by

FINANCIAL SECTION

ished. Overseas, in advanced countries, the U.S. economy
remained strong, mainly due to consumer spending, while the

BUSINESS SEGMENT PERFORMANCE

European economy is expected to move toward recovery on

Specialty Steelquantitative easing by the European Central Bank amid mount-In the specialty steel segment, sales volume increased year on

ing fears of deflation. Meanwhile, in emerging countries, theyear atop higher export sales due to an upturn in orders result-Chinese economy continues to slow moderately, and withing from the yen’s depreciation in addition to expanded sales toother regions lacking the overall stamina to recover, along with

the industrial machinery sector. The increase came despite thegeopolitical risks such as conflicts and terrorism, the global

effects of the decline in demand for automobiles in reaction toeconomic future is uncertain. The automobile and industrial

the consumption tax increase and sluggish Japanese auto-

machinery sectors, which are major customers for specialty

mobile sales in China and the ASEAN region. Tool steel sales

steel, appeared to make some production adjustments but

volume also increased on higher sales to Asia and strong

remained stable overall. Under these conditions, the Group

automobile-related demand, especially for exports.

redoubled its efforts to improve earnings and took steps toaddress medium-term business challenges, such as increasing2014 increased 2.7% year on year to ¥189,125 million due tosales of global leading products and expanding the next-

an increase in sales volume. Operating income increased bygeneration of growth products.

¥1,486 million to ¥3,178 million.

NET SALESOPERATING INCOME

NET INCOME

Years ended March 31

Years ended March 31

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

600,000

40,00020,000450,000

30,00015,000300,000

20,00010,000150,000

10,000

5,000

0

0

0
2013

18

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

2014

2015

2013

2014

2015

2013

2014

2015

High Performance Materials andMagnetic Materials

Parts for Automobile and Industrial Equipment

Net sales of stainless steel products were up year on year

strong demand for use in commercial aircraft and large plant-

driven by strong demand for HDD-related products and auto-

related equipment. Die forging product volumes and sales were

mobiles, as well as higher sales prices reflecting higher nickel

largely in line with those of the previous fiscal year as inventory

prices. Sales of high alloy products, magnetic products, andadjustments resulting from sluggish automobile sales in the

powder metal products surpassed those of the previous fiscal

ASEAN region were offset by new sales expansion. Sales ofyear thanks to firm demand for use in automobiles. Moreover,engine valves increased on brisk orders following solid North

sales of titanium products increased, reflecting strong demand

American automobile sales and other factors. Sales of castings

for use in medical services in Japan.

and precision cast products were up year on year due to robust

performance materials and magnetic materials in fiscal 2014
increased 12.7% year on year to ¥161,758 million. Operating

demand for turbo-related products, despite the Company’s
withdrawal from large castings.
As a result, net sales in the parts for automobile and indus-

income also increased by ¥2,413 million to ¥13,518 million due

trial equipment segment for fiscal 2014 rose 2.5% to ¥99,386

to higher sales prices.

million. Operating income declined by ¥2,756 million to ¥1,024
million due to a deteriorating content structure and the postingof slag treatment-related expenses at the Shibukawa Plant.
FINANCIAL SECTION

As a result, buoyed by strong demand, net sales for highSales of free forging products increased year on year atop

19

Engineering

RESEARCH AND DEVELOPMENT

In the engineering segment, overseas projects, such as thoseR&D costs for the entire Daido Steel Group during the fiscal

for the ASEAN region, progressed steadily. However, net sales

year under review totaled ¥5,301 million. The research objec-

decreased year on year due to concentration on sales of large

tives, main achievements and R&D costs in each businessconstruction projects in the previous year.

segment were as follows:Engineering segment sales for fiscal 2014 decreased by
5.0% to ¥22,904 million. However, operating income increased(1) Specialty Steel¥526 million to ¥1,652 million, mainly due to the margin on

Daido Steel bears the principal responsibility for carrying out

projects improving.

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

Trading and Service

Other areas of emphasis are development of process innova-

Net sales in the trading and service segment increased thanks

tions ranging from steelmaking, refining and solidification toto strong exports to North America. However, operating income

quality assurance for finished products.
Specialty steel R&D costs during the fiscal year underdecreased on recording losses related to system development.

review totaled ¥1,469 million.

As a result, net sales in fiscal 2014 climbed 15.7% to

FINANCIAL SECTION¥10,460 million, while operating income declined by ¥237 million to ¥1,043 million.

(2) High Performance Materials andMagnetic Materials

CAPITAL EXPENDITURES

Development of materials that resist corrosion and heat, high-Capital expenditures by business segment during the fiscal year

grade strip steel, welding materials, electromagnetic materials,

under review are shown in the table below.

and other basic materials, as well as R&D of electronic devices
is conducted mainly by Daido Steel. R&D costs in this segment

Figures in the table include intangible fixed assets in addi-

during the fiscal year under review amounted to ¥2,568 million.

tion to property, plant and equipment.

CAPITAL EXPENDITURES
CAPITAL EXPENDITURES BY SEGMENT

Years ended March 31

Years ended March 31(millions of yen)

Millions of Yen

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

20

50,0002015

2014¥ 9,173¥22,261

–58.8

9,162

11,491

–20.3

9,514

9,439

0.8

450

230

95.7

10,000

1,997

983

103.4

0

¥30,296¥44,404–31.8

Change (%)

40,00030,00020,000

2013

2014

2015

(3) Parts for Automobile and Industrial Equipment

FINANCIAL POSITION

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

Cash Flows

concentrates on development of turbo chargers and otherCash and cash equivalents as of March 31, 2015, amounted toautomotive parts and parts for various types of industrial¥31,776 million, representing a decrease of ¥8,129 million year

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

segment totaled ¥1,127 million.
Cash Flows from Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥25,740

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, down ¥2,827 million from the previous fiscal year. The

on development of environmental conservation and recycling

main components of cash inflow were income before income

equipment and a variety of energy-saving industrial furnaces.

taxes and minority interests of ¥19,470 million. The main com-Engineering R&D costs during the fiscal year under review wereponent of cash outflow was ¥9,286 million for increase in¥134 million.

inventories.

(5) Trading and Service

Cash Flows from Investing Activities

There are no R&D activities in this segment.

Net cash used in investing activities totaled ¥32,178 million,
decreasing by ¥2,135 million from the previous fiscal year. The
major cash outflows included ¥36,035 million in purchases of
FINANCIAL SECTION

property, plant, and equipment.
Cash Flows from Financing Activities
Net cash used in financing activities was ¥2,793 million, down
¥4,841 million from the previous year. This was chiefly due torecording ¥10,000 million for proceeds from issuance of bondsand ¥18,894 million for repayments of long-term debt.

INTEREST-BEARING DEBT
Years ended March 31(millions of yen)

200,000
150,000
100,000
50,000
0
2013

2014

2015

21

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2015

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

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

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

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

22

2015

2014

2015

¥ 31,776
851¥ 39,905
810

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

100,719
1,015
101,734
97,747
4,525
3,538
(197)
248,062875,058
16,067891,125904,683
40,83327,700(1,383)
2,134,850

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

36,926
156,230
439,201
4,579
636,936(452,035)
184,901

292,825
1,356,383
3,757,925
56,434
5,463,567(3,885,442)
1,578,125

72,84664,973607,050

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

19,58728,785866
10,348
124,559

149,250
326,733
8,817
100,092
1,191,942¥ 588,590¥ 557,522$ 4,904,917$

264,800
7,092

Millions of Yen

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

2015

2014

2015

¥ 22,656
25,702¥ 23,104
18,991$ 188,800
214,183

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

76,895
15,99092,885
3,507
10,533
7,440
156,460

650,333
60,784
711,11732,35891,625
90,1001,328,183

97,850
8,003
957
426
25,0994,467
136,802

100,991
7,313
934
426
20,065
3,709
133,438

815,417
66,692
7,975
3,550
209,158
37,2251,140,017

37,17228,542
152,131

37,17228,542
146,079

309,767
237,850
1,267,758

(382)

(370)

(3,183)25,129
1
1,758
3,236
8,435
256,022
36,384292,406

16,642
1
1,654
1,229
1,203
232,152
35,472
267,624

209,4088
14,65026,96770,292
2,133,517
303,200
2,436,717¥588,590¥557,522$4,904,917

FINANCIAL SECTION

Thousands of
U.S. Dollars(Note 1)COMMITMENTS AND CONTINGENT LIABILITIES (Note 18)
EQUITY (Note 11):
Common stock:
Authorized: 1,160,000 thousand shares
Issued: 434,488 thousand shares in 2015 and 2014
Capital surplus
Retained earnings
Treasury stock, at cost:
805 thousand shares in 2015 and 784 thousand shares in 2014
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Minority interests
Total equity
TOTAL
See notes to consolidated financial statements.

23

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2015

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

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

2015

2014

2015

¥483,633
413,536
70,097¥457,731
390,387
67,344$4,030,275
3,446,133
584,142

49,68848,367414,067

20,40918,977

170,075

2,181(1,462)716

1,867(1,839)630

18,175(12,183)
5,967

FINANCIAL SECTION

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

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

133
968
–
(48)
547
–

21,867
6,658(7,308)10,4504,558(7,559)(4,030)(2,461)
677
(939)

(81)
(108)
(81)
1,988

(33,583)(20,508)
5,641(7,825)

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS

19,47020,965

162,250

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

7,052
(334)
6,718

5,123
1,308
6,431

58,767(2,784)55,983NET INCOME BEFORE MINORITY INTERESTS

12,752

14,534106,267

MINORITY INTERESTS IN NET INCOME

1,866

1,918

15,550¥ 10,886¥ 12,616

NET INCOMEYen

PER SHARE OF COMMON STOCK (Note 2(u)):
Basic net income
Cash dividends applicable to the year

¥

25.10
6.50

See notes to consolidated financial statements.

24

433,692

90,717

U.S. Dollars

¥

29.09
5.00

Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDINGSHARES OF COMMON STOCK$

433,726

$

0.21
0.05

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2015

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

2015

2014

2015

NET INCOME BEFORE MINORITY INTERESTS¥12,752¥14,534$106,267

OTHER COMPREHENSIVE INCOME (Note 19):
Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive income in associates
Total other comprehensive income

8,612
1
104
2,357
7,184
101
18,359

6,146
(1)
–
1,845
–
85
8,075

71,7678867
19,642
59,867842
152,993

COMPREHENSIVE INCOME¥31,111¥22,609$259,260

TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO:
Owners of the parent
Minority interests¥28,715
2,396¥20,431
2,178$239,292
19,967
FINANCIAL SECTION

See notes to consolidated financial statements.

25

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2015

Thousands

Millions of Yen
Accumulated Other
Comprehensive Income

FINANCIAL SECTIONBALANCE AT APRIL 1, 2013
Adjustment of retained earnings
for newly consolidated subsidiary
Net income
Cash dividends, ¥4 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE, MARCH 31, 2014
(April 1, 2014, as previously reported)
Cumulative effect ofaccounting change
BALANCE, APRIL 1, 2014(as restated)
Net income
Cash dividends, ¥5.5 per share
Purchase of treasury stock
Net change in treasury stock
due to change in ownership ofan associated company
Net change in the year
BALANCE AT MARCH 31, 2015

Outstanding
Number of
Shares ofCommon Stock

CommonStockCapitalSurplusRetained
Earnings

433,747¥37,172¥28,543¥134,790¥(347)¥10,512

¥1

–
–
–
(46)
3
–

–
–
–
–
–
–

–
–
–
–
0
(1)

408
12,616(1,735)
–
–
–

–
–
–
(25)
2
–

–
–
–
–
–
6,130

–
–
–
–
–
0

433,704

37,17228,542

146,079(370)

16,642

1–––(2,448)–––433,704––(26)

37,172–––28,542–––

143,631
10,886(2,386)
–

(370)
–
–
(13)

16,642
–
–
–

1
–
–
–

5
–
433,683––¥37,172––¥28,542––¥152,131

1–¥(382)–
8,487¥25,129–0¥1Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting

Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE AT APRIL 1, 2013
Adjustment of retained earnings
for newly consolidated subsidiary
Net income
Cash dividends, ¥4 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE, MARCH 31, 2014
(April 1, 2014, as previously reported)
Cumulative effect of accounting change
BALANCE, APRIL 1, 2014 (as restated)
Net income
Cash dividends, ¥5.5 per share
Purchase of treasury stock
Net change in treasury stock due to change
in ownership of an associated company
Net change in the year
BALANCE AT MARCH 31, 2015

26

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments¥1,654¥ (403)

–
–
–
–
–
–

DefinedRetirement
Benefit Plans

Total

Minority
Interests

Total
Equity–¥211,922¥33,819¥245,741

–
–
–
–
–
1,632

–
–
–
–
–
1,203

408
12,616(1,735)
(25)
2
8,964

–
–
–
–
–
1,653

408
12,616(1,735)(25)
2
10,617

1,654
–
1,654
–
–
–

1,229
–
1,229
–
–
–

1,203
–
1,203
–
–
–

232,152(2,448)229,704
10,886(2,386)(13)

35,472(101)
35,371–––

267,624(2,549)265,075
10,886(2,386)(13)–
104¥1,758–
2,007¥3,236–
7,232¥8,435

1
17,830¥256,022–
1,013¥36,384

1
18,843¥292,406¥

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

BALANCE, MARCH 31, 2014
(April 1, 2014, as previously reported)
Cumulative effect of accounting change
BALANCE, APRIL 1, 2014 (as restated)
Net income
Cash dividends, $0.05 per share
Purchase of treasury stock
Net change in treasury stock
due to change in ownership ofan associated company
Net change in the year
BALANCE AT MARCH 31, 2015

Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting

CommonStockCapitalSurplusRetained
Earnings$309,767–
309,767–––$237,850–
237,850–––$1,217,325(20,400)
1,196,925
90,717(19,884)–$(3,083)–(3,083)––(108)$138,683–
138,683
–
–
–

$8
–
8
–
–
–

–
–
$309,767––$237,850––$1,267,758

8–$(3,183)–
70,725$209,408–0$8Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2014
(April 1, 2014, as previously reported)
Cumulative effect of accounting change
BALANCE, APRIL 1, 2014 (as restated)
Net income
Cash dividends, $0.05 per share
Purchase of treasury stock
Net change in treasury stock
due to change in ownership ofan associated company
Net change in the year
BALANCE AT MARCH 31, 2015

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Minority
Interests

Total
Equity$13,783–
13,783–––$10,242–
10,242–––$10,025–
10,025–––$1,934,600(20,400)
1,914,200
90,717(19,884)(108)$295,600(842)
294,758–––$2,230,200(21,242)
2,208,958
90,717(19,884)
(108)

–
867
$14,650–
16,725$26,967–
60,267$70,2928
148,584$2,133,517–
8,442$303,2008
157,026$2,436,717

FINANCIAL SECTION

Accumulated Other
Comprehensive Income

See notes to consolidated financial statements.

27

CONSOLIDATED STATEMENT OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2015

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

FINANCIAL SECTION

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

2014

2015

¥ 19,470¥ 20,965$ 162,250(6,506)22,437
2,461(3,198)20,052
108(54,216)
186,975
20,508(607)

139(5,058)(2,624)(133)(21,867)

4,030
(717)

81
(630)

33,583(5,975)(3,114)(45)(9,286)(28)(3,336)
160
3,445
6,270
25,740(11,882)(69)(2,338)
9,955(3,973)
145
(655)
7,602
28,567(25,950)(375)(77,383)(233)(27,800)
1,333
28,70852,250214,500(1,093)1,160(36,035)
1,811

(345)
24
(31,748)
1,533(9,108)9,666(300,292)
15,092INVESTING 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 nonconsolidated subsidiaries
Proceeds from sales of investment securities and investments
in associated companies
Proceeds from redemption of investment securities
Proceeds from purchase of shares of a consolidated subsidiary
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities(3,139)(1,626)(26,158)

4,712
3,000
184
(703)
637
(2,712)(32,178)

220
–
–
(178)
270
(2,463)(34,313)

39,26725,0001,533(5,858)
5,308(22,600)(268,150)

FINANCING ACTIVITIES:Net (decrease) increase in short-term bank loans
Proceeds from long-term debt
Repayment of long-term debt
Dividends paid, including payments to minority shareholders of subsidiaries
Other—net
Net cash used in financing activities(1,256)
21,400(18,894)(2,919)(1,124)(2,793)

5,451
25,941(35,614)(2,265)(1,147)(7,634)(10,466)
178,333(157,450)(24,325)(9,367)(23,275)

1,102(8,129)610(12,770)

9,183(67,742)–
39,905¥ 31,776

1,032
51,643¥ 39,905–
332,542$ 264,800

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON
CASH AND CASH EQUIVALENTS
NET DECREASE 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

2015

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2015

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese
Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally
accepted in Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements ofInternational Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated
financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2014 consolidated financial statements to conform to the classifications used in 2015.
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 ¥120 to $1, the approximate rate of exchange at March 31, 2015.
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 64 (57 in 2014) majority-owned subsidiaries and 17 (21 in 2014) associated companies at March 31, 2015. The consolidated financial statements as of March 31, 2015, include the accounts of the Company and 34 (33 in 2014) significant subsidiaries (together,
the “Group”).
FINANCIAL SECTION

Under the control and influence concepts, 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 the ability to exercise significant influence are accounted
for by the equity method.
Investments in six associated companies are accounted for by the equity method for the years ended March 31, 2015 and 2014.
Investments in other nonconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had
been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not havebeen material.
The fiscal years of the subsidiaries are not necessarily the same as those of the Company. Accounts of those subsidiaries which havedifferent fiscal years have been adjusted for significant transactions to properly reflect their financial position at March 31 of each year andthe results of operations for the year then ended.
The difference between the cost of acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition is
being amortized on a straight-line basis over five years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in
assets resulting from transactions within the Group is also eliminated.

(b) Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated
Financial Statements
In May 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution
on Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements.” PITF No. 18 prescribes thatthe accounting policies and procedures applied to a parent company and its subsidiaries for similar transactions and events under similar
circumstances should in principle be unified for the preparation of the consolidated financial statements. However, financial statements
prepared by foreign subsidiaries in accordance with either International Financial Reporting Standards or the accounting principles generally
accepted in the United States of America tentatively may be used for the consolidation process, except for the following items which should
be adjusted in the consolidation process so that net income is accounted for in accordance with Japanese GAAP unless they are notmaterial: a) amortization of goodwill; b) scheduled amortization of actuarial gain or loss of pensions that has been recorded in the equity
through other comprehensive income; c) expensing capitalized development costs of research and development; d) cancellation of the fairvalue model accounting for property, plant, and equipment and investment properties and incorporation of cost model accounting; ande) exclusion of minority interests from net income, if contained in net income (see Note 2(v)).

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 securities are stated at cost, determined by the moving-average method. For other-than-temporary declines in fairvalue, investment securities are reduced to net realizable value by a charge to income.

(e) Inventories
Inventories are stated at the lower of cost, mainly determined by the weighted average method for each period of a year, or net selling value.
Write-down of inventories in the amounts of ¥63 million ($525 thousand) and ¥154 million for the years ended March 31, 2015 and 2014,
respectively, were included in cost of sales.

(f) Allowance for Doubtful Accounts
FINANCIAL SECTION

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

(g) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less gains on grant receipts, etc. Under certain conditions, such as government grant
receipt, exchanges of fixed assets of similar kinds, and sales and purchases resulting from expropriation, Japanese tax laws permit companies to defer the profit arising from such transactions by reducing the cost of the assets acquired or by providing a special reserve in theequity section. The acquisition costs of property, plant, and equipment were reduced in the amounts of ¥2,708 million ($22,567 thousand)and ¥1,548 million at March 31, 2015 and 2014, respectively.
Depreciation of certain plants of the Company and certain domestic and foreign subsidiaries is computed by the straight-line method.
Depreciation of other plants of the Company and other subsidiaries is computed by the declining-balance method, while the straight-line
method is applied to buildings acquired after April 1, 1998, for domestic companies.
Depreciation of leased assets is computed by the straight-line method over the lease period.
The range of useful lives is from five to 75 years for buildings and structures and from four to 17 years for machinery and equipment.

(h) 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, 2015, the carrying amount of the land after the above one-time revaluation and impairment exceeded the market value by ¥943 million ($7,858 thousand).

(i) Long-Lived Assets
The Group reviews its long-lived assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset
or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds
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.

30

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

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

(l) Retirement and Pension Plans
The Company and its domestic consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain
consolidated subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans and smaller enterpriseretirement allowance mutual aid plans.
Effective April 1, 2000, the Group adopted a new accounting standard for retirement benefits and accounted for the liability for
employees’ retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. The projected benefit
obligations had been attributed to periods on a straight-line basis. Actuarial gains and losses are amortized on a straight-line basis over 10
years. Past service costs are amortized on a straight-line basis over 10 years. Certain small consolidated subsidiaries apply the simplified
method to state the liability based on the amount which would be paid if employees retired at the consolidated balance sheet date.
In May 2012, the ASBJ issued ASBJ Statement No. 26, “Accounting Standard for Retirement Benefits” and ASBJ Guidance No. 25,“Guidance on Accounting Standard for Retirement Benefits,” which replaced the accounting standard for retirement benefits that had been
issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, andwere followed by partial amendments from time to time through 2009.
FINANCIAL SECTION(a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss
are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus
is recognized as a liability (liability for employees’ retirement benefits) or asset (asset for employees’ retirement benefits).
(b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss.
Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of theemployees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognizedin profit or loss are included in other comprehensive income, and actuarial gains and losses and past service costs that were recognizedin other comprehensive income in prior periods and then recognized in profit or loss in the current period, are treated as reclassification
adjustments (see Note 19).
(c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods, thediscount rate, and expected future salary increases.
This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1,
2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual
periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, all with earlier application being permitted from the
beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard toconsolidated financial statements in prior periods is required.
The Company applied the revised accounting standard and guidance for retirement benefits for (a) and (b) above, effective March 31,
2014, and for (c) above, effective April 1, 2014.
With respect to (c) above, the Company changed the method of attributing the expected benefit to periods from a straight-line basis toa benefit formula basis, and the method of determining the discount rate from using the period which approximates the expected averageremaining service period to using a single weighted average discount rate reflecting the estimated timing and amount of benefit payment,
and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As a result, asset for employees’ retirement benefits as of April
1, 2014, decreased by ¥3,627 million ($30,225 thousand), liability for employees’ retirement benefits as of April 1, 2014, increased by ¥298
million ($2,483 thousand), and retained earnings as of April 1, 2014, decreased by ¥2,448 million ($20,400 thousand). The effects on thestatement of income and net income per share were immaterial.
Retirement benefits to directors and Audit & Supervisory Board members of certain subsidiaries are provided at the amount that would
be required if all directors and Audit & Supervisory Board members retired at the consolidated balance sheet date.

31

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

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

(o) Bonuses to Directors and Audit & Supervisory Board Members
FINANCIAL SECTION

Bonuses to directors and Audit & Supervisory Board members 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 Guidance No.
18, “Guidance on Accounting Standard for Construction Contracts.” Under this accounting standard, construction revenue and construction
costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably.
When total construction revenue, total construction costs, and the stage of completion of the contract at the balance sheet date can bereliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be
reliably estimated, the completed-contract method should be applied. When it is probable that the total construction costs will exceed total
construction revenue, an estimated loss on the contract should be immediately recognized by providing for a loss on construction contracts.

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

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

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

32

(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 for those derivatives which qualify for hedge accounting, gains orlosses are recognized in the consolidated statement of income and b) for derivatives used for hedging purposes, if such derivatives qualify
for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses
are deferred until maturity of the hedged transactions.
Foreign exchange forward contracts are measured at fair value, and the unrealized gains (losses) are recognized in the consolidated
statement of income. Forward contracts used to hedge forecasted (or committed) transactions are also measured at fair value, but theunrealized gains (losses) are deferred until the underlying transactions are completed.
Long-term debt denominated in foreign currencies for which currency swaps are used to hedge the foreign currency fluctuations istranslated at the contracted rate if the forward contracts qualify for hedge accounting.
Interest rate swaps that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value but thedifferential paid or received under the swap agreements is recognized and included in interest expense.

(u) Per Share Information
Net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common
FINANCIAL SECTION

shares outstanding for the period.
Diluted net income per share is not disclosed because the Group had no dilutive shares at March 31, 2015 and 2014.
Cash dividends per share presented in the accompanying consolidated statement of income are dividends applicable to the respective
years including dividends to be paid after the end of year.

(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 the guidance are as follows: (1) Changes in Accounting Policies—When a new accounting policy is applied with a revisionof accounting standards, the new policy is applied retrospectively, unless the revised accounting standards include specific transitional
provisions. When the revised accounting standards include specific transitional provisions, an entity shall comply with the specific transitional
provisions. (2) Changes in Presentation—When the presentation of financial statements is changed, prior-period financial statements arereclassified in accordance with the new presentation. (3) Changes in Accounting Estimates—A change in an accounting estimate isaccounted for in the period of the change if the change affects that period only and is accounted for prospectively if the change affects boththe period of the change and future periods. (4) Corrections of Prior-Period Errors—When an error in prior-period financial statements is
discovered, those statements are restated.

(w) New Accounting Pronouncements
Accounting Standards for Business Combinations and Consolidated Financial Statements—In September 2013, the ASBJ issued
revised ASBJ Statement No. 21, “Accounting Standard for Business Combinations,” revised ASBJ Guidance No. 10, “Guidance on
Accounting Standards for Business Combinations and Business Divestitures,” and revised ASBJ Statement No. 22, “Accounting Standard
for Consolidated Financial Statements.” Major accounting changes are as follows:(a) Transactions with noncontrolling interest—A parent’s ownership interest in a subsidiary might change if the parent purchases or sells
ownership interests in its subsidiary. The carrying amount of minority interest is adjusted to reflect the change in the parent’s ownershipinterest in its subsidiary while the parent retains its controlling interest in its subsidiary. Under the current accounting standard, any difference between the fair value of the consideration received or paid and the amount by which the minority interest is adjusted is accounted
for as an adjustment of goodwill or as profit or loss in the consolidated statement of income. Under the revised accounting standard,such difference shall be accounted for as capital surplus as long as the parent retains control over its subsidiary.

33

(b) Presentation of the consolidated balance sheet—In the consolidated balance sheet, “minority interests” under the current accounting
standard will be changed to “noncontrolling interest” under the revised accounting standard.
(c) Presentation of the consolidated statement of income—In the consolidated statement of income, “income before minority interests” under
the current accounting standard will be changed to “net income” under the revised accounting standard, and “net income” under thecurrent accounting standard will be changed to “net income attributable to owners of the parent” under the revised accounting standard.
(d) Provisional accounting treatments for a business combination—If the initial accounting for a business combination is incomplete by theend of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisionalamounts for the items for which the accounting is incomplete. Under the current accounting standard guidance, the impact of adjustments to provisional amounts recorded in a business combination on profit or loss is recognized as profit or loss in the year in which themeasurement is completed. Under the revised accounting standard guidance, during the measurement period, which shall not exceed
one year from the acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date toreflect new information obtained about facts and circumstances that existed as of the acquisition date and that would have affected themeasurement of the amounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the businesscombination had been completed at the acquisition date.
(e) Acquisition-related costs—Acquisition-related costs are costs, such as advisory fees or professional fees, which an acquirer incurs toeffect a business combination. Under the current accounting standard, the acquirer accounts for acquisition-related costs by including
them in the acquisition costs of the investment. Under the revised accounting standard, acquisition-related costs shall be accounted foras expenses in the periods in which the costs are incurred.

FINANCIAL SECTION

The above accounting standards and guidance for (a) transactions with noncontrolling interest, (b) presentation of the consolidatedbalance sheet, (c) presentation of the consolidated statement of income, and (e) acquisition-related costs are effective for the beginning ofannual periods beginning on or after April 1, 2015. Earlier application is permitted from the beginning of annual periods beginning on or after
April 1, 2014, except for (b) presentation of the consolidated balance sheet and (c) presentation of the consolidated statement of income. In
the case of earlier application, the accounting standards and guidance above, except for (b) presentation of the consolidated balance sheet
and (c) presentation of the consolidated statement of income, should be applied simultaneously.
Either retrospective or prospective application of the revised accounting standards and guidance for (a) transactions with noncontrollinginterest and (e) acquisition-related costs is permitted. In retrospective application of the revised standards and guidance, the accumulated
effects of retrospective adjustments for all (a) transactions with noncontrolling interest and (e) acquisition-related costs which occurred in thepast shall be reflected as adjustments to the beginning balance of capital surplus and retained earnings for the year of the first-time application. In prospective application, the new standards and guidance shall be applied prospectively from the beginning of the year of the firsttime application.
The revised accounting standards and guidance for (b) presentation of the consolidated balance sheet and (c) presentation of theconsolidated statement of income shall be applied to all periods presented in financial statements containing the first-time application of therevised standards and guidance.
The revised standards and guidance for (d) provisional accounting treatments for a business combination are effective for a businesscombination which occurs on or after the beginning of annual periods beginning on or after April 1, 2015. Earlier application is permitted fora business combination which occurs on or after the beginning of annual periods beginning on or after April 1, 2014.
The Company expects to apply the revised accounting standards and guidance for (a), (b), (c) and (e) above from April 1, 2015, and for(d) above for business combinations occuring on or after April 1, 2015, and is in the process of measuring the effects of applying the revised
accounting standards and guidance in future applicable periods.

3. INVESTMENT SECURITIESInvestment securities at March 31, 2015 and 2014, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Noncurrent:
Equity securities
Total

34

2015

2014

2015

¥72,846¥72,846¥64,973¥64,973$607,050$607,050

The costs and aggregate fair values of investment securities at March 31, 2015 and 2014, were as follows:
Millions of Yen
March 31, 2015

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

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

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥35,068¥25,199¥271¥59,996

Cost

Unrealized
Gains

Unrealized
LossesFair Value$286,984$306,808$3,225$590,567

Millions of Yen
March 31, 2014

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2015

Available-for-sale:
Equity securities

Information for available-for-sale securities that were sold during the years ended March 31, 2015 and 2014, was as follows:

March 31, 2015

Available-for-sale:
Equity securities

Proceeds¥3,873

Realized
Gains¥1,971Thousands of U.S. Dollars
Realized
Losses¥1

Proceeds

Realized
Gains$32,275$16,425

Realized
LossesFINANCIAL SECTION

Millions of Yen$8Millions of Yen
March 31, 2014

Proceeds

Available-for-sale:
Equity securities¥215

Realized
Gains

¥138

Realized
Losses¥6

Impairment losses on equity securities and investments in associated companies for the years ended March 31, 2015 and 2014, were
¥4,030 million ($33,583 thousand) and ¥81 million, respectively.

4. INVENTORIESInventories held by the Group at March 31, 2015 and 2014, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

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

2015

2014

2015

¥ 19,779
12,38022,69524,823
18,688
10,197¥108,562¥17,048
12,011
20,212
22,18017,5708,726¥97,747$164,825
103,167
189,125
206,858
155,733
84,975$904,683

5. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of March 31, 2015. As a result, the Group recognized an impairment loss of¥2,461 million ($20,508 thousand) as other expense for unused land and certain property, plant and equipment in Nagano due to devaluation of land and a continuous operating loss, and the carrying amount of the relevant assets was written down to the recoverable amount for
the year ended March 31, 2015. The recoverable amount of the assets in Nagano was measured at its value in use and the discount rateused for computation of present value of future cash flows was 6.5%. Impairment loss of ¥108 million was recognized in 2014.

35

6. INVESTMENT PROPERTYIn November 2008, the ASBJ issued ASBJ Statement No. 20, “Accounting Standard for Investment Property and Related Disclosures,” andASBJ Guidance No. 23, “Guidance on Accounting Standard for Investment Property and Related Disclosures.”
The Company holds some rental properties, such as office buildings and land in Aichi and other areas. The net amounts of rental income
and operating expenses for those rental properties were ¥846 million ($7,050 thousand) and ¥861 million for the years ended March 31,
2015 and 2014, respectively.
In addition, the net gains on sales of those rental properties were ¥14 million ($117 thousand) and ¥786 million for the years ended March
31, 2015 and 2014, respectively. Impairment loss on rental properties was ¥66 million ($550 thousand) for the year ended March 31, 2015.
The carrying amounts, changes in such balances and market prices of such properties at March 31, 2015 and 2014, were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying Amount
April 1, 2014

Decrease, net¥5,910¥713

Fair Value
March 31, 2015

¥5,197

Carrying AmountMarch 31, 2015

April 1, 2014

Decrease, net¥24,090$49,250$5,942

Fair Value
March 31, 2015

March 31, 2015

$43,308$200,750

Millions of Yen
Carrying Amount
April 1, 2013

Increase, net¥5,633¥277

Fair Value
March 31, 2014

¥5,910March 31, 2014

¥25,502

FINANCIAL SECTION

Notes:
1) The carrying amount recognized in the consolidated balance sheet was net of accumulated depreciation and accumulated impairment losses, if any.
2) The increase during the fiscal year ended March 31, 2015, primarily represents the acquisition of certain properties of ¥493 million ($4,108 thousand). The
decrease during the fiscal year ended March 31, 2015, primarily represents the effect of the changes in scope of consolidation of ¥1,057 million ($8,808
thousand) and depreciation of ¥123 million ($1,025 thousand).
The increase during the fiscal year ended March 31, 2014, primarily represents the acquisition of certain properties of ¥365 million and the reclassification ofcertain lands to rental properties of ¥441 million. The decrease during the year ended March 31, 2014 represents sale of properties of ¥339 million anddepreciation of ¥168 million.
3) The fair value of properties was primarily measured by the Group in accordance with its Real-Estate Appraisal Standard.

7. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans consisted of notes to banks and bank overdrafts. The weighted-average rates of annual interest applicable to shortterm bank loans at March 31, 2015 and 2014, were 0.81% and 0.83%, respectively.
Long-term debt at March 31, 2015 and 2014, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2015

2014

2015

¥ 82,415
20,00010,00010,000
1,137
123,552(25,702)¥ 97,850¥ 89,466
20,00010,000–516
119,982(18,991)¥100,991$ 686,792
166,667
83,333
83,3339,475
1,029,600(214,183)$ 815,417

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2016
2017
2018
2019
2020
2021 and thereafter
Total¥ 25,702
24,621
15,647
24,641
25,322
7,619¥123,552$ 214,183
205,175
130,392
205,341
211,017
63,492$1,029,600

Loans from banks and other financial institutions due serially to 2021
with weighted-average interest rates of 0.79% in 2015 and 0.83% in 2014
1.08% unsecured bonds due December 18, 2015
0.68% unsecured bonds due December 1, 2016
0.335% unsecured bonds due May 27, 2019
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

Annual maturities of long-term debt at March 31, 2015, were as follows:36

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, 2015

Millions of Yen

Thousands of
U.S. Dollars¥25,000–$208,333–

8. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥10 million ($83 thousand) and other current
liabilities of ¥11 million ($92 thousand) at March 31, 2015, were as follows:

Millions of Yen

¥

18
2,179
1,783
1,553
71
¥5,604

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

Thousands of
U.S. Dollars$

150
18,15814,85812,942592$46,700

FINANCIAL SECTION

9. RETIREMENT AND PENSION PLANS
The Company and its consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain consolidated
subsidiaries have defined contribution pension plans, multiemployer contributory funded pension plans, and smaller enterprise retirement
allowance mutual aid plans.
The Group has employee retirement benefit trusts.
Furthermore, additional severance payments, which are not included in liability for employees’ retirement benefit, are paid in certain cases.
Certain small consolidated subsidiaries apply the simplified method to state the liability based on the amount which would be paid if
employees retired at the consolidated balance sheet date.
Some of subsidiaries participate in multiemployer contributory funded plans, and the plans are accounted for as if the plans were defined
contribution plans in the case that the plan assets attributable to the contributions by the subsidiaries cannot be rationally determined.
1. The changes in defined benefit obligation for the years ended March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2015

2014

2015

¥47,739
3,925
51,664
1,745
585
1,322
(4,069)–15¥51,262¥48,851–
48,851
1,488
923
273
(3,869)50
23¥47,739$397,825
32,708430,533
14,541
4,875
11,017(33,908)–125$427,18337

2. The changes in plan assets for the years ended March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2015

2014

2015

¥71,450
1,354
12,631
2,748(3,519)7¥84,671¥68,534
1,170
2,170
2,537
(2,974)13¥71,450$595,417
11,283
105,258
22,900(29,325)58$705,591

3. The changes in liability for employees’ retirement benefits for which the simplified method was applied to record the liability for theyears ended March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

FINANCIAL SECTION

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

2015

2014

2015

¥2,239
477
(199)
(317)
4
¥2,204¥2,243
635
(308)
(340)
9
¥2,239$18,658
3,975(1,658)(2,642)
34$18,367

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

Millions of Yen

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

2015

2014

2015

¥ 51,506(87,397)(35,891)
4,686¥(31,205)¥ 48,219(73,946)(25,727)
4,255¥(21,472)$ 429,217(728,308)(299,091)
39,050$(260,041)

5. The components of net periodic benefit costs for the years ended March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

38

2015

2014

2015

¥ 1,745585(1,354)
(661)
(157)
478
115
¥ 751

¥ 1,488923(1,170)(157)(1,468)
635
740
¥ 991

$ 14,541
4,875(11,283)(5,508)(1,308)3,983
958$ 6,258

6. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for theyears ended March 31, 2015 and 2014:
Thousands of
U.S. Dollars

Millions of Yen
2015

Prior service cost
Actuarial gains
Total

2015

2014

¥

(157)
10,648¥10,491–––$ (1,308)
88,733$87,425

7. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans as of March 31, 2015 and 2014:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial gains
Total

2015

2014

453
11,738¥12,191

¥ 610
1,090
¥1,700

¥

2015

$

3,775
97,817$101,592

8. Plan assets:
FINANCIAL SECTION(1) Components of plan assets
Plan assets consisted of the following:
2015

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

12%
69
16
3
100%

2014

15%
64
19
2
100%

(2) Method of determining the expected rate of return on plan assets
The expected rate of return on plan assets is determined considering the long-term rates of return which are expected currently and in the
future from the various components of the plan assets.
9. Assumptions used for the years ended March 31, 2015 and 2014, were set forth as follows:
2015

Discount rate
Expected rate of return on plan assets

1.1%
2.0

2014

1.9%
2.0

Some consolidated subsidiaries participate in a multi-employer plan for which the Company cannot reasonably calculate the amount ofplan assets corresponding to the contributions made by the Company. Therefore, it is accounted for using the same method as a defined
contribution plan.
The contributions to such multi-employer plan, which are accounted for using the same method as a defined contribution plan, were¥353 million ($2,942 thousand) and ¥326 million for the years ended March 31, 2015 and 2014, respectively.

39

(1) The funded status of the multi-employer plan as of March 31, 2015 and 2014, was as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2015

2014

2015

¥238,997
255,077¥ (16,080)¥241,559
267,884¥ (26,325)$1,991,642
2,125,642$ (134,000)* This item was presented as “amount of benefit obligation on pension plan” as of March 31, 2014.

(2) The contribution ratio of the Group in the multi-employer plan for the years ended March 31, 2015 and 2014, was as follows:

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

2015

2014

2.38%

2.53%

10. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2015

FINANCIAL SECTION

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

¥426
–
¥426

2014

¥426
–
¥426

2015

$3,550–$3,55011. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria, such as (1) having a Board of Directors, (2) having independent
auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year rather than thenormal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends in kind) at any time
during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company cannot do so because it does
not meet all the above criteria. The Companies Act permits companies to distribute dividends in kind (noncash 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 retained
earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment ofsuch dividends until the total of the aggregate amount of the legal reserve and additional paid-in capital equals 25% of common stock.
Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders.

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

12. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted innormal effective statutory tax rates of approximately 35% and 38% for the years ended March 31, 2015 and 2014, respectively.
The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2015 and 2014, were as follows:

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

2015

2014

2015

¥ 2,090
2,550
77
1,944
634
2,325
943
377
4,612
(6,805)¥ 8,747¥ 2,120
2,539
94
657
655
1,312
937
365
2,940
(3,781)¥ 7,838$ 17,417
21,250642
16,2005,283
19,375
7,858
3,142
38,433(56,708)$ 72,892¥ 1,978
1,293
11,634
10,868
1,116
999¥27,888¥19,141¥ 2,193
1,397
8,709
8,144
1,223
846
¥ 22,512¥(14,674)$ 16,483
10,77596,95090,5679,300
8,325$232,400$159,508

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompanying consolidated statement of income for the year ended March 31, 2015, with the corresponding figures for 2014, is as follows:

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

2015

2014

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

38.0%
1.9
(4.4)
0.5
(1.7)
3.0
(1.1)
(0.9)
(3.5)
1.1
(2.2)
30.7%

41

New tax reform laws enacted in 2015 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on April 1,
2015, to approximately 33% and for fiscal years beginning on or after April 1, 2016, to approximately 32%. The effect of these changes was
to decrease deferred tax liabilities, net of deferred tax assets, by ¥1,848 million ($15,400 thousand) and increase accumulated other comprehensive income for unrealized gain on available-for-sale securities by ¥1,117 million ($9,308 thousand), and defined retirement benefit
plan by ¥362 million ($3,017 thousand) in the consolidated balance sheet as of March 31, 2015, and to decrease income taxes—deferred in
the consolidated statement of income for the year then ended by ¥369 million ($3,075 thousand).

13. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥5,301 million ($44,175 thousand) and ¥5,160 million for the years ended
March 31, 2015 and 2014, respectively.

14. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the years ended March 31, 2015 and 2014, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

FINANCIAL SECTION

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

2015

2014

2015

¥13,290
21,419
2,231
271
377
1,377
10,723¥49,688¥12,922
20,966
2,133
257
813
1,216
10,060¥48,367$110,750
178,492
18,592
2,258
3,141
11,47589,359$414,067

15. LEASES(As lessor)
Expected revenues from noncancelable operating leases at March 31, 2015 and 2014, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

Due within one year
Due after one year
Total

2015

2014

2015

¥ 497
3,516
¥4,013¥ 519
4,013¥4,532$ 4,142
29,300$33,442

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

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

FINANCIAL SECTION(3) Risk Management for Financial Instruments
Credit risk management
Credit risk is the risk of economic loss arising from a counterparty’s failure to repay or service debt according to the contractual terms. The
Group manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balancesof major customers by each business administration department to identify the default risk of customers at an early stage. To reduce counterparty risk, the Group enters into derivative transactions only with highly rated financial institutions. Please see Note 17 for the details
about derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2015.
Market risk management (foreign exchange risk and interest rate risk)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates.
Such foreign exchange risk is netted against the balance of receivables and payables, of which positions are almost equal. In addition,certain consolidated subsidiaries hedge such risk principally by using forward foreign currency contracts.
Interest rate swaps and currency swaps are used to manage exposure to risks of changes in interest rates of loan payables.
Investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.
Derivative transactions of the Company are undertaken by the finance and accounting department and the procurement center and reported
to directors or the Board of Directors based on internal regulations that prescribe the authority and maximum amount for each transaction.
Derivative transactions of consolidated subsidiaries are undertaken by the Finance and Accounting Department based on internal regulation.
Liquidity risk management
The Group manages its liquidity risk by establishing a cash management plan according to reports from each department.

43

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

FINANCIAL SECTION

March 31, 2015

Thousands of U.S. Dollars

Carrying
AmountFair Value

Unrealized
Loss

Carrying
AmountFair Value

Unrealized
Loss

Cash and cash equivalents
Time deposits
Receivables:
Trade notes and accounts receivable
Investment securities
Investment in an associated company
Total¥ 31,776
851¥ 31,776
851––$ 264,800
7,092$ 264,800
7,092

–
–

105,00770,8684,419¥212,921

105,00770,8683,620¥212,122––¥(799)¥(799)

875,058
590,567
36,825$1,774,342

875,058
590,567
30,167$1,767,684––$(6,658)$(6,658)

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

¥ 22,656
25,702
78,0403,883
97,850¥228,131¥ 22,656
25,832
78,0403,883
98,216¥228,627–¥(130)––(366)¥(496)$ 188,800
214,183
650,333
32,358815,417$1,901,091$ 188,800
215,267
650,333
32,358818,467$1,905,225–$(1,084)––(3,050)$(4,134)

Millions of Yen
Carrying
AmountFair Value

Unrealized
Loss

Cash and cash equivalents
Time deposits
Receivables:
Trade notes and accounts receivable
Investment securities
Investment in an associated company
Total¥ 39,905
810¥ 39,905
810––

100,719
59,997
4,341¥205,772

100,719
59,9972,890¥204,321––¥(1,451)¥(1,451)

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

¥ 23,104
18,991
76,895
3,507
100,991¥223,488¥ 23,104
18,991
76,895
3,507
101,320¥223,817––––¥ (329)¥ (329)March 31, 2014

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

44

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

Millions of Yen

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

2015

2014

2015

¥ 1,978
13,491¥ 4,976
15,273$ 16,483
112,425(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Due in One Yearor Less

Due after Five
Years through10 Years

Due after
10 Years¥ 31,776
851
105,007¥137,634

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2015

Due in One Yearor Less

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years

Cash and cash equivalents
Time deposits
Receivables: Trade notes and accounts
Total$ 264,800
7,092
875,058$1,146,950

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2015

Cash and cash equivalents
Time deposits
Receivables: Trade notes and accounts
Total

FINANCIAL SECTION

Millions of Yen
Due after One
Year throughFive Years

Thousands of U.S. Dollars

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

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

45

(a) Derivative transactions to which hedge accounting is not applied at March 31, 2015 and 2014
Millions of Yen

At March 31, 2015

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

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain/(Loss)

¥ 239
139
385
0
0
0

–
–
–
–
–
–

¥ (1)
(7)
(15)
0
(0)
0

¥ (1)
(7)
(15)
0
(0)
0

5,970
113
146
86

–
–
–
–

(49)
3
(5)
(2)

(49)
3
(5)
(2)

FINANCIAL SECTION

Millions of Yen

At March 31, 2014

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

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain/(Loss)

¥ 181
186
440
6
0

–
–
–
–
–

¥ 1
2
(4)
0
0

¥ 1
2
(4)
0
0

5,206
214
78

–
–
–

(21)
(2)
(1)

(21)
(2)
(1)

Thousands of U.S. Dollars

At March 31, 2015

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

46

Contract
AmountContract
AmountDue after
One Year$ 1,991
1,158
3,208
0
0
0

–
–
–
–
–
–

49,750
942
1,216
717

–
–
–
–

Fair
Value

Unrealized
Gain/(Loss)

$

$

(8)
(58)
(125)
0
(0)
0
(408)
25
(42)
(17)

(8)
(58)
(125)
0
(0)
0
(408)
25
(42)
(17)

(b) Derivative transactions to which hedge accounting is applied at March 31, 2015 and 2014
Millions of Yen

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

Hedged Item

Contract
Amount

303
54

–
–

¥ 23
2

Receivables—trade

169

–

(22)

Payables—trade
Payables—trade

45
46

–
–

Receivables—trade102–

Short-term bank loans
and long-term debt

2,000

¥ 2,000

37,30037,300

Payables—trade
Payables—trade

¥

Fair
Value

See noteon thefollowing
page
FINANCIAL SECTION

At March 31, 2015

Contract
AmountDue after
One Year

Millions of Yen

At March 31, 2014

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

Hedged Item

Payables—trade
Payables—trade
Payables—trade

Contract
Amount

Fair
Value

522
40
13

–
–
–

¥9
1
1

Receivables—trade

729

–

(9)

Payables—trade
Payables—trade
Payables—trade
Payables—trade

314
16
7
31

–
–
–
–

Receivables—trade

82

–

1,000

¥ 1,000

2,000
37,2002,000
37,100

Short-term bank loans
and long-term debt¥

Contract
AmountDue after
One Year

See noteon thefollowing
page

47

Thousands of U.S. Dollars

At March 31, 2015

FINANCIAL SECTION

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

Contract
AmountContract
AmountDue after
One Year

2,525
450

–
–

$ 192
17

Receivables—trade

1,408

–

(183)

Payables—trade
Payables—trade

375
383

–
–

Receivables—trade

850–

Short-term bank loans
and long-term debt

16,667$ 16,667

310,833

310,833

Hedged Item

Payables—trade
Payables—trade

$

Fair
Value

See note
below

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

18. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2015, the Group had contingent liabilities for notes with recourse in the course of asset liquidation in the amount of ¥703
million ($5,858 thousand).
At March 31, 2015, the Group was contingently liable for ¥4,874 million ($40,617 thousand) for guarantees of loans and payables ofnonconsolidated subsidiaries, associated and other companies and employees, including borrowings of ¥3,600 million ($30,000 thousand)by Yugen Kaisha Takakura Founding Corporation (“Takakura”).
The Company had an obligation to invest additionally in Takakura via an anonymous association contract with an upper limit of ¥524
million ($4,367 thousand) in the event that buildings owned by Takakura are destroyed or impaired by natural disaster.
The Company transferred all stocks of one of its consolidated subsidiaries, Tokuhatsu Co., Ltd., held by the Company, to NHK SpringCo., Ltd., in January 2006. Under the agreement with NHK Spring Co., Ltd., the Company would owe a defect liability against NHK SpringCo., Ltd. at a maximum amount of ¥3,200 million for 10 years starting on the date of transfer. The Company agreed to owe the defect liability, which includes product liability and remediation costs for land pollution, subject to events occurring prior to the date of transfer. As aresult of the due diligence process between the Company and NHK Spring Co., Ltd., management of the Company believes that the possibility of exposure to losses is remote.

48

19. OTHER COMPREHENSIVE INCOME
The components of other comprehensive income for the years ended March 31, 2015 and 2014, were as follows:

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

2015

2014

2015

¥13,353(1,816)
11,537(2,925)¥ 8,612¥ 9,588(133)
9,455(3,309)¥ 6,146$111,275(15,133)
96,142(24,375)$ 71,767

¥

¥

(2)
–
(2)
1
(1)

$

$

16
(8)
8
(0)
8

$
$

867
867

¥

2
(1)
1
(0)
1

¥
¥

104
104

–
–

¥ 2,357¥ 2,357¥ 1,845¥ 1,845$ 19,642$ 19,642¥11,308(817)
10,491(3,307)¥ 7,184–––––$ 94,233(6,808)87,425(27,558)$ 59,867

85
85

$
$

¥
¥

101
101

¥18,359¥¥¥¥ 8,075

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

842
842

$152,993

20. SUBSEQUENT EVENT
Appropriations of Retained Earnings
The following appropriation of retained earnings at March 31, 2015, was approved at the Shareholders’ Meeting held on June 26, 2015:

Year-end cash dividends, ¥3.50 ($0.03) per share

Millions of Yen

Thousands of
U.S. Dollars¥1,518$12,65049

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

1. Description of Reportable Segments
The Group’s reportable segments are those for which separate financial information is available and regular evaluation by the Company’s
management is being performed in order to decide how resources are allocated among the Group.
The Group has business divisions based on the nature of its products and services. Each division draws up strategies and operates its
own business.
The Group consists of five industries: “Specialty Steel,” “High Performance Materials and Magnetic Materials,” “Parts for Automobile andIndustrial Equipment,” “Engineering,” and “Trading and Service.” “Specialty Steel” industry consists of manufacturing of specialty steel for
automotive and industrial machinery parts.
“High Performance Materials and Magnetic Materials” industry consists of manufacturing of stainless steel, high alloy and magnetic
materials, titanium products and powder metals for automotive and industrial machinery, and electrical and electronic parts.
FINANCIAL SECTION“Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging products, and otherproducts for automotive and industrial machinery parts.
“Engineering” industry consists of manufacturing and maintenance of steelmaking and environmental equipment, industrial furnaces,
and associated equipment.
“Trading and Service” industry consists of real estate-related services and welfare and other services.

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

50

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

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

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

Intersegment sales or transfers

73,313

16,75630,907

2,532

10,630¥262,438¥178,514¥130,293¥25,436

Segment profit

¥

3,178

¥ 13,518¥

1,024

Segment assets

199,313

185,699

2015

Reconciliations

Consolidated¥483,633–¥483,633

134,138¥(134,138)–¥21,090¥617,771¥(134,138)¥483,633¥ 1,652¥ 1,043¥ 20,415¥(6)¥ 20,409

119,238

19,24917,799541,298

47,292588,590

Sales

Total

Other:
Depreciation and amortization

7,831

7,213

6,037

351

1,005

22,437–22,437

Investments in associated companies
accounted for by the equity method

4,612

4,753

366

78

–

9,809

330

10,139

Increase in property, plant, andequipment and intangible assets

9,173

9,162

9,514

450

1,997

30,296–30,296

Reconciliations

Consolidated¥457,731

FINANCIAL SECTION

Millions of Yen
Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers¥184,100¥143,485¥ 97,002¥24,105¥ 9,039¥457,731–

Intersegment sales or transfers

66,65015,883

26,774

7,875

9,818

127,000¥(127,000)–¥250,750¥159,368¥123,776¥31,980¥18,857¥584,731¥(127,000)¥457,731

Segment profit

¥

1,691

¥ 11,104¥

3,779¥ 1,126¥ 1,280¥ 18,980¥(3)¥ 18,977

Segment assets

202,070

170,016

111,852

17,32918,365

519,632

37,890557,522

2014

Sales

Total

Other:
Depreciation and amortization

6,728

6,727

5,428

233

936

20,052–

20,052

Investments in associated companies
accounted for by the equity method

4,087

4,724

372

89

–

9,272

297

9,569

Increase in property, plant, andequipment and intangible assets

22,261

11,491

9,439

230

983

44,404–

44,40451

Thousands of U.S. Dollars
Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

Sales to external customers$1,576,042$1,347,983$ 828,216$190,867$ 87,167

Intersegment sales or transfers

610,942

139,633

257,559

21,10088,583$2,186,984$1,487,616$1,085,775$211,967

Segment profit$

26,483$ 112,650

$

8,533

Segment assets

1,660,942

1,547,492

2015

Reconciliations

Consolidated$4,030,275–$4,030,275

1,117,817$(1,117,817)–$175,750$5,148,092$(1,117,817) $4,030,275$ 13,767$

8,692$ 170,125$993,650

160,408

148,325

4,510,817

394,100

4,904,917

Sales

Total

(50) $ 170,075

Other:
Depreciation and amortization

65,25860,10850,309

2,925

8,375

186,975–

186,975

Investments in associated companies
accounted for by the equity method

38,43439,608

3,050

650

–

81,742

2,750

84,492

Increase in property, plant, andequipment and intangible assets

76,442

76,35079,283

3,750

16,642

252,467–

252,467

FINANCIAL SECTION

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

4. Associated Information(1) Information about geographical areas
Sales
Millions of Yen
2015

Japan

¥372,854

North America¥21,497

Asia¥82,387

Other¥6,895

Total¥483,633

Millions of Yen
2014

Japan

¥368,604

North America¥15,928

Asia¥66,977

Other¥6,222

Total¥457,731

Thousands of U.S. Dollars
2015

Japan

$3,107,117

52

North America$179,142

Asia

Other

$686,558$57,458

Total$4,030,275

(2) Information about impairment loss
Millions of Yen

2015

Impairment loss

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥2

¥2

¥0

¥0

¥2,457

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥53

¥32

¥19

¥4

–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

$17

$16

$0

$0

$20,475$20,508

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total

¥ 51
114

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥ 54
¥163

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

$425
$950

–
–

–
–

–
–

–
–

Total

¥2,461Millions of Yen

2014

Impairment loss

Total

¥108

2015

Impairment loss

FINANCIAL SECTION

Thousands of U.S. Dollars(3) Information about goodwill
Millions of Yen

2015

Amortization of goodwill
Balance of goodwill

¥ 51
114

Millions of Yen

2014

Amortization of goodwill (negative goodwill)
Balance of goodwill

Total

¥ 54
¥163

Thousands of U.S. Dollars

2015

Amortization of goodwill
Balance of goodwill

Total

$425
$950

53

FINANCIAL SECTION

INDEPENDENT AUDITOR’S REPORT54

DAIDO NETWORK

Offices & Branches

Specialty Steel
Address

Head Office

Tokyo Head OfficeOsaka Branch

Fukuoka Sales Office

Phone (Facsimile)

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

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

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

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

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

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

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

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

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

Chita Steel
Strip Plant

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

Daido Electronics Co., Ltd.
Daido Electronics (Thailand) Co., Ltd.
Daido Electronics (Suzhou) Co., Ltd.
Daido-Special Metals Ltd.
Nissei Seiko Co., Ltd.
THAI SEISEN Co., Ltd.
Intermetallics Japan Corporation

Parts for Automobile and Industrial Equipment
Fuji OOZX Inc.

Shibukawa Plant

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

Daido Castings Co., Ltd.

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

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

Japan Drop Forge Co., Ltd.

Tsukiji Techno Center

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

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

Metal Powder Plant

DAIDO NETWORK

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

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

Nippon Seisen Co., Ltd.
Shimomura Tokushu Seiko Co., Ltd.

Chita
Forging Plant

Hoshizaki Plant

High Performance Materials and Magnetic Materials

Toyo Sangyo Co., Ltd.
Daido Star Techno Co., Ltd
Daido Precision Industries Ltd.

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

OHIO STAR FORGE CO.

Engineering
Daido Machinery Co., Ltd.

Oji Plant

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

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

Kimitsu Plant

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

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

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

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

Daido Kogyo Co., Ltd.

Nakatsugawa
Techno Center

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

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

Life Support Co., Ltd.

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

Trading and Service
Daido Life Service Co., Ltd.
Kisokoma Heights Co., Ltd.
Daido Bunseki Research Inc.
Daido Steel (America) Inc.
Star Info Tech Co., Ltd.
(As of March 31, 2015)55

DAIDO STEEL CO., LTD.

CORPORATE DATA (As of March 31, 2015)

Founded:August 19, 1916

Incorporated:

February 1, 1950

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

Internet Address:

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

Number of Employees(Non-Consolidated:

3,146

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

434,487,693

Number of Shareholders:

29,440Independent Auditor:

Deloitte Touche Tohmatsu LLC

Stock Exchange Listings:

Tokyo, Nagoya

ANNUAL REPORT 2015

Daido Steel Co., Ltd.

UTILIZING OUR STRENGTHS, AIMING AT FURTHER GROWTH

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

For Further Information,
Please Contact:

This annual report is printed on recycled paper.

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