ANNUAL REPORT 2017
Year ended March 31, 2017

UTILIZING OUR STRENGTHS,
AIMING AT FURTHER GROWTH

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

CONTENTS
01

FINANCIAL HIGHLIGHTS

02

MESSAGE FROM MANAGEMENT

04

AT A GLANCEFORWARD-LOOKING STATEMENTS

06

REVIEW OF OPERATIONS

concerning DAIDO STEEL CO., LTD.’s and its Group10RESEARCH AND DEVELOPMENT12CSR AND THE ENVIRONMENT13

CORPORATE GOVERNANCE

14

OFFICERS

15

FINANCIAL SECTION54

DAIDO NETWORK55

CORPORATE DATAThis 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
2017

2016

2015

2014

2013

2017

For the Year:Net Sales

445,123

460,578483,633

457,731440,428

3,974,313

Operating Income

25,51424,432

20,40918,977

15,426

227,804

Net Income Attributable to Owners of the Parent

16,386

6,746

10,886

12,616

10,983

146,304

R&D Expenses

6,206

5,766

5,301

5,160

4,560

55,411

Capital Expenditures

28,94023,20530,29644,40425,400258,393

Depreciation and Amortization

23,27622,454

22,437

20,052

19,229207,821574,169

535,676

588,590557,522

511,159

5,126,509

Total Assets
Total Equity

290,501

268,346

292,406

232,152

211,9212,593,759

Interest-Bearing Debt

142,599

136,114146,208

143,085

146,999

1,273,205

Number of Employees (Consolidated)

11,498

11,04010,855

10,70910,447–

Number of Consolidated Subsidiaries

34

34

34

33

32

–

Basic Net Income

38.59

15.62

25.10

29.09

25.32

0.34

Cash Dividends Applicable to the Year

10.0

7.50

6.50

5.00

4.50

0.09

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

ROA (%)

4.8

4.5

3.8

3.8

3.2

–

ROE (%)

6.7

2.8

4.5

5.7

5.4

–

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 ¥112 to $1, the approximate rate of exchange at March 31, 2017.

NET SALESOPERATING INCOME

Years ended March 31

Years ended March 31

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

500,000

30,00020,000FINANCIAL HIGHLIGHTSAt Year-end:

Years ended March 31

400,000
15,00020,000300,000
10,000200,000
10,0005,000
100,000

00
2013 2014 2015 2016 201702013 2014 2015 2016 20172013 2014 2015 2016 2017

01

MESSAGE FROM MANAGEMENTMESSAGE FROM MANAGEMENT

Overview of Results for Fiscal 2016provisions for environmental remediation and extraordinary

In fiscal 2016, the Japanese economy underwent a moder-losses for discontinuing software development posted inate recovery with signs of a rebound in industrial produc-

the previous fiscal year.

tion in the corporate sector and gradual improvement in
consumer spending. In Europe and the U.S., economic

Outlook for Fiscal 2017

growth remained on a moderate trend with employment

The global economy is likely to keep expanding at a mod-expanding, while major events included the U.K.’s decisionerate pace amid robust employment conditions in

to exit the European Union and the election of President

advanced countries. The Chinese economy should see

Trump in the U.S. In China, economic growth was relatively

relatively stable growth thanks to government stimulus

stable, supported by government measures to stimulate

measures, although there are latent risks related to real

the economy, which boosted sales of automobiles.

estate prices and excessive debt. Based on this outlook,

Under these economic circumstances, production
increased in the automobile industry in the second half,remain on solid footing. However, there are uncertainties asowing to brisk sales in North America and China. Scrap

well, including the new administration in the U.S., the issue

steel prices were volatile in the spring, influenced by Chi-of the U.K.’s exit from the European Union, political risk innese steel billet prices, achieved some stability, and thenEurope and growing geopolitical risk. We will continue toincreased from autumn amid a rise in coking coal prices.

monitor risks, such as the risk of weaker demand due toAs a result, the Daido Steel Group’s net sales
decreased ¥15,454 million year on year to ¥445,123 million, owing to a decline in selling prices, which are linked to02

our core customers in the automobile industry should

foreign exchange fluctuations and the risk of price fluctuations in raw materials and fuel.
In this business environment, we are constantly moni-

raw material prices. Ordinary income increased ¥1,265

toring market trends and customers, and are prepared tomillion to ¥26,373 million due to higher sales volume. Net

respond to any changes. The Group will steadily implement

income attributable to owners of the parent grew ¥9,640

measures for expanding overseas sales, which is a target

million to ¥16,386 million, reflecting the absence ofof our medium-term business plan. The Group is working

diligently to strengthen quality, cost and delivery (QCD)

Based on the above, for fiscal 2017, the Daido Steelcompetitiveness, while focusing on growth fields and co-Group forecasts consolidated net sales of ¥480.0 billion,

creation with customers.

operating income of ¥30.0 billion, ordinary income of ¥31.0
billion, and net income attributable to owners of the parent

coming fiscal year are as follows.

of ¥20.0 billion.

SPECIALTY STEEL

Medium- to Long-Term
Management Strategy

We expect sales volume of structural steel in 2017 will continue to beat the same level as in the second half of fiscal 2016, based on theoutlook for brisk global demand from automakers. In tool steel, weDuring the current medium-term business plan that contin-

anticipate a gradual recovery in volume after the end to inventory

ues through fiscal 2017, advanced countries have contin-

adjustments. While we expect an increase in volume, we forecast cost

ued to grow their economies at a moderate pace amid

increases in energy due to higher crude oil prices. Under these circum-

robust employment conditions. Growth in the Chinese

stances, we will strive to reduce costs further and focus efforts on

economy has decelerated more than anticipated, and theimproving the product mix by leveraging the secondary melting facility
newly constructed at the Chita Plant during fiscal 2016.

pace of expansion in emerging markets has slowed down
somewhat. The automobile industry continues to grow

HIGH PERFORMANCE MATERIALS AND MAGNETIC
MATERIALS

strongly. Resource- and energy-related demand should

We expect sales volume of stainless steel and high-alloy steel will

to a fall in crude oil prices.

continue to be at the same level as the second half of fiscal 2016,
based on the assumption that demand remains strong for the automobile and semiconductor industries. In powder metal products, we aredeveloping new products for future growth while fulfilling firm automo-

expand over the long run, but recently it has declined due
Meanwhile, customers may also demand higher performance from specialty steel. For example, customers may
demand unprecedented performance in terms of the heatbile-related demand. In magnetic products, we are concentrating on

resistance and thinness of specialty steel in order to maxi-

the increasing use of electronics in automobiles and electricalmize internal combustion efficiency in internal combustion

applications.

engines used in automobiles and the like amid tightening

PARTS FOR AUTOMOBILE AND INDUSTRIAL EQUIPMENT
In free forgings, we are keeping up with ongoing brisk demand for civil
aircraft, while waiting for demand recovery in the oil and gas sector. In
die forgings, we will set up Daido Steel (Thailand) Co., Ltd. as a pro-carbon dioxide regulations to combat global warming. The
Daido Steel Group intends to work more closely with its
customers to solve these challenging issues.
The Daido Steel Group celebrated its 100th anniversary

duction base for the Southeast Asia region. In turbo-related products,

in August 2016 by declaring a new Group management

we will respond to increasing production of stainless steel turbine

philosophy, “pursuing the potential of materials to support

housing, considering the likelihood of continued growth in demand

our future.” With the materials and materials-related tech-from an increasing ratio of gasoline engines with turbos installed. In
engine valves, we are updating our supply structure for North America,

MESSAGE FROM MANAGEMENT

Given these conditions, our segment forecasts for the

nologies of the Daido Steel Group, we will create new value

having launched operations at a new plant in Mexico.

by bringing out the hidden potential of materials with the

ENGINEERING

society while discovering the unknown needs of people

The Daido Steel Group aims to expand sales of Premium STC® (Shortand society.

ultimate objective of contributing to the development ofTime Cycle), which is its mainstay STC® annealing furnace with a new
combustion system installed, as well as increase sales of vacuum

June 2017

carburizing furnaces to auto parts makers, and of vacuum sintering
furnaces to magnet product makers.

TRADING AND SERVICE
In the trading and service segment, demand should be the same level
as in 2016.

Takeshi Ishiguro
President

03

AT A GLANCE

AT A G L A N C E

SPECIALTY STEELHIGH PERFORMANCE MATERIALSAND MAGNETIC MATERIALSPARTS FOR AUTOMOBILE AND
INDUSTRIAL EQUIPMENT

MAIN PRODUCTS

MAIN PRODUCTS

MAIN PRODUCTS

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

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

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

SHARE OF NET SALESSHARE OF NET SALESSHARE OF NET SALES

(%)

(%)

(%)

37.0%

33.4%

21.9%

NET SALES Years ended March 31

NET SALES Years ended March 31

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

300,000

300,000

150,000

200,000

200,000

100,000

100,000

100,000

50,000

0

0
2016

2017

0
2016

2017

2016

2017

OPERATING INCOME Years ended March 31

OPERATING INCOME Years ended March 31

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

8,000

20,000

1,500

6,000

15,0004,000

10,000

2,000

5,000

1,000
500
0

0

0
2016

04

–500

2017

–1,000
2016

2017

2016

2017

ENGINEERING

TRADING AND SERVICE

MAIN PRODUCTS

Steelmaking equipment, industrial furnaces
and facilities, environmental equipment (fordrainage, exhaust, waste disposal andtreatment facilities), machine tools, machine
maintenanceSale of Group company products, welfare
services, real estate and insurance business, golf course management, analysis
business, outside software sales business

SHARE OF NET SALESSHARE OF NET SALES

(%)

(%)

5.4%

AT A G L A N C E

MAIN PRODUCTS

2.4%

NET SALES Years ended March 31

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

30,00015,00020,00010,00010,000

5,000

0

0
2016

2017

2016

2017

OPERATING INCOME Years ended March 31

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

3,000

2,000
1,500

2,000

1,000
1,000

500

0

0
2016

2017

2016

2017

05

REVIEW OF OPERATIONSSPECIALTY STEEL
Overview of BusinessResults of Operations

Specialty steel, the Company’s core business, generates

Sales volume for structural steel increased year on year, mainly

approximately 37% of consolidated net sales. Specialty steel isdue to favorable demand from the automotive sector, a major

made by combining steel with alloys to add value in the form ofsource of demand for this steel, in North America and China.

properties such as resistance to heat, abrasions or rust. Because

Sales volume of tool steel decreased year on year due to thea range of special properties can be achieved by varying theimpact of inventory adjustments. The cost of steel scrap, thetypes and amount of alloy, one of the special features of themain raw material, had remained relatively stable after rising andbusiness is that products are developed to meet the specificfalling sharply in early spring 2016 due to the impact of Chinese

applications required by users. The automobile and industrial

billet prices. However, since early autumn 2016, the cost ofmachinery sectors are the primary users of specialty steel,steel scrap has been increasing in response to rising coking

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

coal prices.
As a result, the specialty steel segment’s net sales in fiscal
2016 decreased 3.4% year on year to ¥164,636 million, due
primarily to a decline in sales prices in line with raw material

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

price movements. Operating income decreased by ¥1,747
million to ¥5,813 million, reflecting the impact of higher costs inconnection with rising raw material prices since November,among other factors.

Tool steel from Daido Steel06

HIGH PERFORMANCE MATERIALS AND MAGNETIC MATERIALS
Overview of BusinessResults of Operations

This segment, which accounts for roughly 33% of consolidated

Sales volume of stainless steel products increased year on year,

net sales, manufactures and sells high performance materials

driven by strong demand for use in automobiles and semicon-

and magnetic materials used chiefly in automobiles, computers,

ductors. However, sales prices of stainless steel products

mobile phones and consumer electronics.

declined in line with falling nickel prices. Sales volume of highKey products include stainless steel products, rare earth

alloys increased year on year atop higher demand from themagnets, high alloys, titanium products, and high performance

automotive sector. Sales volume of magnetic products rose

powder metal products.

year on year primarily for use in electronic power steering systems. Powder metal products saw increased sales volume due
to robust demand for use in automobile components overseas.
As a result, net sales for the high performance materials andmagnetic materials segment in fiscal 2016 decreased 4.4% year
on year to ¥148,468 million. Operating income rose by ¥5,085
positively to earnings.

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

million to ¥17,417 million as higher sales volume contributed

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

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

This segment contributes around 22% of consolidated net

Net sales of free forged products decreased year on year, duesales. It manufactures die forged parts such as crankshafts

to a large decline in demand from the oil and gas sector amid

using specialty steel, precision cast parts for use in turbocharg-

falling crude oil prices. Net sales of die forged products

ers, as well as engine valves, jet engine shafts and parts for gas

declined, mainly as a result of decreased sales prices linked toturbines. Most of the auto parts sold in this segment use mate-

raw material prices and other factors. On the other hand, net

rials that were developed through joint projects with automakers

sales of engine valves increased year on year, as automobile

to meet their exacting requirements. These parts can therefore

sales in North America and China remained strong. Net sales oflower processing expenses at customers’ factories as well as

precision cast products rose, reflecting continuing growth incontribute to reducing the weight of finished products.

turbocharger-related demand.

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

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

trial equipment segment for fiscal 2016 decreased 2.2% year

shafts, automobile engine valves and turbine wheels. We willon year to ¥97,492 million. In terms of operating profitability, thecontinue to develop and launch new products that differentiate

segment recorded an operating loss of ¥516 million, a decline

us from competitors and support our position as a provider ofof ¥1,814 million from operating income recorded in the previ-advanced parts.

ous fiscal year. The operating loss was due to the impact of

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

Jet Engine Shaft

08

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

lower demand for free forged products, among other factors.

ENGINEERING
Overview of BusinessResults of Operations

This segment generates about 5% of consolidated net sales.

In the engineering segment, despite strong overseas sales ofMajor activities include the design and manufacture of, andcertain products, the number of revenue-generating projects

related after-sales services for, melting and refining equipment

decreased as a whole. As a result, engineering segment

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

sales for fiscal 2016 decreased 8.4% year on year to

furnaces for auto parts such as vacuum carburizing furnaces¥23,918 million, while operating income decreased by ¥852

and STC (Short Time Cycle) annealing furnaces, and environ-million to ¥1,219 million.

®

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

current market needs. The many new types of equipment and

TRADING AND SERVICE
Overview of BusinessResults of Operations

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

Net sales in the trading and service segment for fiscal 2016

imately 3% of consolidated net sales, include the sale of prod-rose 17.5% year on year to ¥10,608 million, while operatingucts made by Group companies, employee benefits services,income increased by ¥410 million to ¥1,583 million. These

real estate and insurance services, golf course management,

increases partly reflected the conversion of Daido Steelanalytics, and sales of software to external customers.

(Shanghai) Co., Ltd. into a consolidated subsidiary in fiscal
2016.

09

RESEARCH AND DEVELOPMENT

Leveraging its advanced technology capabilities in specialty steel, the Daido SteelGroup 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 Research Lab. We employ a total of 281 researchers throughout the
Daido Steel Group.
R&D expenses for the Daido Steel Group during the fiscal year under review
amounted to ¥6,205 million. An explanation of our R&D efforts by segment, including
purpose, major achievements, and expenditures follows.

RESEARCH AND DEVELOPMENT(1) Specialty SteelIn this segment, R&D includes basic material development,such as automotive structural materials and tool steel, andprocess innovations ranging from steelmaking, refining andsolidification to quality assurance.
R&D costs for the fiscal year under review in this segment
totaled ¥1,524 million. The following are major achievements inthis area.

• High-strength hot forging steel with superior
processing features
One challenge faced by automakers when using high-strength
materials to reduce the weight of automotive parts is that thesematerials present problems in terms of processing features,such as machining capabilities.
Compared with conventional untempered steel, steel withsuperior processing features can be achieved by controlling the
low-carbon bainitic structure, and hardness can be dramaticallyincreased by using the age hardening phenomenon. This has
enabled Daido Steel to achieve both lower processing costs
and high strength.
Going forward, Daido Steel will work to achieve practicalapplication of this technology in order to contribute to the miniaturization and weight reduction of automotive parts that use
untempered steel, such as crankshafts, connecting rods, andfuel injection parts.

• Phased array ultrasonic testing technology
Daido Steel uses ultrasonic testing to assure the internal qualityof specialty steel products. In order to fulfill customer requests
for strict quality control, Daido Steel has developed highprecision testing technologies for all steps within the manufacturing process.
Daido Steel aims to achieve practical application of testing
technologies for steel billets and steel bar products. We havealready increased our quality assurance capabilities by

10

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

8,000
6,000
4,000
2,000
0
2014 2015 2016 2017

introducing high-precision automated testing equipment fortitanium bars for medical applications.

(2) High Performance Materials andMagnetic Materials
In this segment the Daido Steel Group conducts R&D focusing
on developing materials that resist corrosion and heat, highgrade strip steel, welding materials, magnetic materials andelectronic devices.
R&D costs for the fiscal year under review in this segment
totaled ¥3,086 million. The following are some of our majorachievements in this area.

• High-nitrogen stainless steel DSR40N
The element nitrogen can be used effectively to improve boththe strength and corrosion resistance of stainless steel.
By maximizing these benefits of nitrogen, Daido Steel has
successfully developed stainless steel with a hardness of over
58 HRC and a corrosion resistance equivalent to SUS 630.
This high-nitrogen stainless steel can be used in highly
corrosive environments where the use of conventional steel waspreviously impractical. In fact, this stainless steel is alreadybeing used for machine blades and bearings.
Going forward, Daido Steel’s high-nitrogen stainless steel is
expected to be used in a wide range of applications, such as
automotive parts, for which there is growing demand for highly
corrosion-resistant materials.

• Heavy rare earth-free magnet for HEV
Daido Electronics Co., Ltd., a member of the Daido SteelGroup, manufactures ring magnets using its proprietary hot
deformation method. Daido Electronics has developed a newplate magnet by applying this technology.
The new plate magnet features high heat resistance madepossible by controlling the structural properties of the material.
Without adding any heavy rare earth elements, the magnet canbe used in the primary motors of hybrid vehicles.
Encouraged by the adoption of this new magnet by Japanese automakers, Daido Steel will seek to expand its use going
forward.

(3) Parts for Automobile and Industrial Equipment
R&D in this segment concentrates on development of turbochargers, engine valves and other automotive parts, as well as
parts for various types of industrial machinery.
R&D costs for the fiscal year under review in this segment
totaled ¥1,449 million. The following is one of our majorachievements in this area.
In order to improve the corrosion and wear resistance of watercooled wall panels applied to the interior walls of furnaces
exposed to high temperatures at thermal power plants, waste
incinerators and other facilities, Daido Steel has developed atechnology for welding high-alloy steel onto the panel surfaces
through an on-site installation process.
Daido Steel employs the Plasma Powder Welding (PPW)
method, which enables installation with a lower dilution ratio
and a thinner layer than the metal inert gas (MIG) method using
welding wires. Daido Steel has established a technology forsmoothly forming a welding layer on panel surfaces in an
upright position by properly controlling the powder supply.

(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 ¥145 million.

RESEARCH AND DEVELOPMENT• Welding technology for water-cooled wall panels

11

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 goalby expanding the use of exhaust heat recovery in heating
furnaces, shifting our fuel source from heavy oil to naturalgas, and improving the yield ratio through an increase in theratio of production by continuous casters. Due to theeffects of cumulative investments of ¥5.0 billion made from2006 to 2012, operational improvements and changes in
production levels, annual CO2 emissions from 2008 to 2012
decreased by 24.7% on average. In addition, in fiscal 2014,
a cutting-edge, energy-efficient electric arc furnace wasinstalled at the Chita Plant at a cost of ¥19.8 billion withrationalizing effects evident throughout the year, resulting in
a 3% improvement in CO2 emissions per ton of production.
We continued to introduce the latest energy saving technologies, resulting in further improvements in CO2 emissions
in fiscal 2016.
Going forward, in accordance with the objectives of theCommitment to a Low Carbon Society ongoing plan forfiscal 2013 to fiscal 2020 formulated by the Japan Iron andSteel Federation and Japan Business Federation (Keidanren),we will continue implementing further reform measures,such as introduction of energy-saving advanced technologies, reductions in the number of heat exchangers, improvements in 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 the Environment and Energy Committee. With a view to further
strengthening this framework, in fiscal 2007, the CSR Committee was established to supervise general CSR activities.
Members of the CSR Committee formulate Group-wide
policies and action plans with the aim of unifying andexpanding CSR activities across all Group companies anddivisions.
Starting January 2013, the Environment and Energy
Committee was split into two independent committees(namely, the Environment Committee and the Energy Committee) to promote CSR activities in a more fulfilling way.
For details, please refer to the annually issued CSR Report.
URL: http://www.daido.co.jp/csr/data/report.html (Japanese only)

CO2 EMISSIONS VOLUME
Kg of CO2/
ton of production

1,000 tons
CO2/year

2,000

800

1,500

1,000

600
–19.0%–18.1% –25.0% –27.8% –23.6%–23.6% –22.9% –25.9%–25.1%
400–33.8%

500

200

0

0
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17(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 /kWh12

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 has appointed a director who is responsible for the Company-wide supervision ofrisk 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. By
using a system that supervises and oversees business execution through a Board of Directors, including two external
directors, and an Audit & Supervisory Board, including two
external Audit & Supervisory Board members, Daido Steelenhances its corporate governance, optimizes and accelerates decision-making and secures fair and transparent
management.
At the 91st Shareholders’ Meeting held on June 26, 2015,
the Company also instituted an executive officer system toclearly distinguish the responsibilities of strategy formulationand management oversight functions and businessexecution.

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, divisions in charge and outside attorneys.

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

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

13

MECHANISM FOR BUSINESS EXECUTION, AUDIT, SUPERVISION AND INTERNAL CONTROL(As of June 28, 2017)

Shareholders’ Meeting
Election anddismissal

Election anddismissal

Election anddismissal

Audit &
Supervisory Board
3 auditors including
2 external auditors

Board of Directors
10 directors including
2 external directors

AuditsElection anddismissal
Accounting Auditor(independent auditor)

President andChief Executive Officer

Executive Board
Accounting audit

Executive Vice
Presidents
Corporate Risk
Management
Department*(internal audits)

Reports

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

Executive Officers

AuditsEach business division

AuditsAdvisesand supports

Reports

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

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

REPRESENTATIVE EXECUTIVE DIRECTORS,EXECUTIVE VICE PRESIDENTS

Tadashi Shimao

Takeshi Ishiguro

Tsukasa Nishimura

DIRECTORS, MANAGING EXECUTIVE OFFICERS

Satoshi Yoshida

Satoshi Tsujimoto

Susumu Shimura

Takeshi Muto

MANAGING EXECUTIVE OFFICERSDIRECTORS(OUTSIDE DIRECTORS)

Kazuhiko Hirabayashi

Tadashi ImaiEXECUTIVE OFFICERS

14

Kazuto Tachibana

Hajime Amano

Yoshiaki Mori

Hitoshi Tanemura

STANDING CORPORATE AUDITORSCORPORATE AUDITOR

Hirotaka Yoshinaga

Kunihito Kawanishi

Akihito Kajita

Toshinori Koike

Kenji Matsuo

Tomoki Hanyuda

Takaaki Taketsuru

Yuji Noguchi

Shinichi Nishikawa

Kimihiko Seki

Tetsuya Shimizu

Toshiaki Yamashita

Hiroshi Matsui

Kazuhiro Toshimitsu

FINANCIAL SECTIONCONTENTS
16

MANAGEMENT’S DISCUSSION AND ANALYSIS OF OPERATIONS

20

CONSOLIDATED BALANCE SHEET22

CONSOLIDATED STATEMENT OF INCOME

23

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

24

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

26

CONSOLIDATED STATEMENT OF CASH FLOWS

27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

53

INDEPENDENT AUDITOR’S REPORT

15

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

income attributable to owners of the parent increased by

In fiscal 2016, ended March 31, 2017, the Japanese economy

extraordinary losses for discontinuing software development

tracked a gradual recovery path, underpinned by an upturn inand provisions for environmental remediation recorded in the

consumer spending on the back of continued improvement inprevious fiscal year.

¥9,640 million to ¥16,386 million, reflecting the absence of

employment and income conditions, along with signs of arebound in industrial production in the corporate sector. In

BUSINESS SEGMENT PERFORMANCE

Europe and the U.S., there were major developments includingSpecialty Steelthe U.K.’s decision to withdraw from the European Union andSales volume for structural steel increased year on year, mainly

President Trump coming to power in the U.S. Economic expan-

due to favorable demand from the automotive sector, a major

sion continued at a moderate pace, driven by growth in employ-source of demand for this steel, in North America and China.

ment. Supported by government economic stimulus policies,

Sales volume of tool steel decreased year on year due to the

China posted relatively steady growth, including a significant

impact of inventory adjustments. The cost of steel scrap, theincrease in automobile sales volume.

main raw material, had remained relatively stable after rising and

FINANCIAL SECTION

Under these economic circumstances, production in thefalling sharply in early spring 2016 due to the impact of Chinese

automobile industry, our key source of demand for specialty

billet prices. However, since early autumn 2016, the cost of

steel, increased in the second half in response to solid sales insteel scrap has been increasing in response to rising coking

North America and China. The price of steel scrap, a key raw

coal prices.

material, had remained relatively stable after rising and falling

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

sharply in early spring 2016 due to the impact of Chinese billet

2016 fell 3.4% year on year to ¥164,636 million, due primarily toprices. However, since early autumn 2016, the cost of steel

a decline in sales prices in line with raw material price move-scrap has been increasing in response to rising coking coalments. Operating income decreased by ¥1,747 million to

prices.

¥5,813 million, reflecting the impact of higher costs in connec-

As a result, the Group’s net sales in fiscal 2016 decreased¥15,454 million to ¥445,123 million, due primarily to a decline intion with rising raw material prices since November, among
other factors.

sales prices in line with raw material price movements. Ordinary
income rose ¥1,265 million to ¥26,373 million, due to the positive contribution of higher sales volumes and other factors. Net

NET SALESOPERATING INCOME

Years ended March 31

Years ended March 31

NET INCOME ATTRIBUTABLETO OWNERS OF THE PARENT(millions of yen)(millions of yen)

Years ended March 31(millions of yen)

600,000

30,000450,000

20,00015,00020,00010,000300,000
10,000150,000
0

0

0
2015

16

5,000

2016

2017

2015

2016

2017

2015

2016

2017

High Performance Materials andMagnetic Materials

Parts for Automobile and Industrial Equipment

Sales volume of stainless steel products increased year on year,

to a large decline in demand from the oil and gas sector amid

driven by strong demand for use in automobiles and semicon-

falling crude oil prices. Net sales of die forged products

ductors. However, sales prices of stainless steel products

declined, mainly as a result of decreased sales prices linked to

declined in line with the falling nickel prices. Sales volume of

raw material prices and other factors. On the other hand, net

high alloys increased year on year atop higher demand from thesales of engine valves increased year on year, as automobile

automotive sector. Sales volume of magnetic products rosesales in North America and China remained strong. Net sales ofyear on year primarily for use in electronic power steering sys-

precision cast products rose, reflecting continuing growth intems. Powder metal products saw increased sales volume due

turbocharger-related demand.

As a result, net sales for the high performance materials andAs a result, net sales in the parts for automobile and industrial equipment segment for fiscal 2016 decreased 2.2% year

magnetic materials segment in fiscal 2016 decreased 4.4% year

on year to ¥97,492 million. In terms of operating profitability, theon year to ¥148,468 million. Operating income rose by ¥5,085

segment recorded an operating loss of ¥516 million, a decline

million to ¥17,417 million as higher sales volume contributedof ¥1,814 million from operating income recorded in the previ-

positively to earnings.

ous fiscal year. The operating loss was due to the impact oflower demand for free forged products, among other factors.

FINANCIAL SECTION

to robust demand for use in automobile components overseas.

Net sales of free forged products decreased year on year, due

17

Engineering

RESEARCH AND DEVELOPMENT

In the engineering segment, despite strong overseas sales of

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

certain products, the number of revenue-generating projects

year under review totaled ¥6,205 million. The research objec-

decreased as a whole. As a result, engineering segment sales

tives, main achievements and R&D costs in each businessfor fiscal 2016 decreased 8.4% year on year to ¥23,918 million,

segment were as follows:

while operating income decreased by ¥852 million to ¥1,219(1) Specialty Steelmillion.

Daido Steel bears the principal responsibility for carrying out

Trading and Service

specialty steel R&D. Research areas include basic material

Net sales in the trading and service segment for fiscal 2016

development, such as automotive structural steel and tool steel.

rose 17.5% year on year to ¥10,608 million, while operating

Other areas of emphasis are development of process innova-

income increased by ¥410 million to ¥1,583 million. These

tions ranging from steelmaking, refining and solidification toincreases partly reflected the conversion of Daido Steel (Shanghai)

quality assurance for finished products.
Specialty steel R&D costs during the fiscal year underCo., Ltd. into a consolidated subsidiary in fiscal 2016.

review totaled ¥1,524 million.

CAPITAL EXPENDITURES(2) High Performance Materials andMagnetic Materials

Capital expenditures by business segment during the fiscal year

FINANCIAL SECTION

under review are shown in the table below.
Figures in the table include intangible fixed assets in addi-

Development of materials that resist corrosion and heat, high-tion to property, plant and equipment.

grade strip steel, welding materials, electromagnetic materials,
and other basic materials, as well as R&D of electronic devices,
is conducted mainly by Daido Steel. R&D costs in this segment
during the fiscal year under review amounted to ¥3,086 million.

CAPITAL EXPENDITURES
CAPITAL EXPENDITURES BY SEGMENT

Years ended March 31

Years ended March 31(millions of yen)

Millions of Yen

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

18

50,0002017

2016¥ 7,527¥ 7,670

(1.9)

9,844

6,906

42.5

10,503

7,044

49.1

273

245

11.5

10,000792

1,339(40.8)

0¥28,940¥23,205

24.7

Change (%)

40,00030,00020,000

2015

2016

2017

(3) Parts for Automobile and Industrial Equipment

FINANCIAL POSITION

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

Cash Flows

concentrates on development of turbochargers, engine valves

Cash and cash equivalents as of March 31, 2017 (hereafter,and other automotive parts, and parts for various types of“cash”) amounted to ¥33,686 million, representing a decreaseindustrial machinery. R&D costs for the fiscal year under review

of ¥88 million year on year.

in this segment totaled ¥1,449 million.
Cash Flows from Operating Activities(4) Engineering

Net cash provided by operating activities amounted to ¥28,391

Engineering R&D is carried out primarily by Daido Steel, focusedmillion, decreasing by ¥17,341 million from the previous fiscal

on development of environmental conservation and recycling

year. This mainly reflected income before income taxes ofequipment and a variety of energy-saving industrial furnaces.

¥27,355 million.

Engineering R&D costs during the fiscal year under review were¥145 million.

Cash Flows from Investing Activities
Net cash used in investing activities totaled ¥26,449 million,(5) Trading and Service

increasing by ¥3,284 million from the previous fiscal year. The

There are no R&D activities in this segment.

major cash outflows included ¥27,893 million in purchases ofCash Flows from Financing Activities
Net cash used in financing activities was ¥1,843 million, decreasing by ¥18,321 million from the previous fiscal year. The main useof cash was ¥4,988 million for the acquisition of treasury stock.

FINANCIAL SECTION

property, plant, and equipment.

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

200,000
150,000
100,000
50,000
0
2015

2016

2017

19

CONSOLIDATED BALANCE SHEETDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESMARCH 31, 2017

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

FINANCIAL SECTIONASSETS
CURRENT ASSETS:
Cash and cash equivalents (Note 17)
Time deposits (Notes 9 and 17)
Receivables:
Trade (Note 17)
Other
Total receivables
Inventories (Note 5)
Deferred tax assets (Note 13)
Prepaid expenses and other current assets
Allowance for doubtful accounts
Total current assets

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

INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 4, 9 and 17)
Investments in unconsolidated subsidiaries
and associated companies (Note 17)
Asset for employees’ retirement benefits (Note 10)
Deferred tax assets (Note 13)
Other investments and assets (Note 6)
Total investments and other assets
TOTAL

20

2017

2016

2017

¥   33,686
1,281¥   33,774
1,155$   300,768
11,437113,215
1,278
114,493
98,478
4,276
5,160
(165)
257,20998,8001,656
100,456
95,131
4,277
3,814
(139)
238,468

1,010,848
11,411
1,022,259
879,268
38,17946,071(1,473)
2,296,509

35,474
173,103469,941
3,306
681,824(490,909)
190,915

35,302
164,903456,501
9,916
666,622(477,844)
188,778

316,732
1,545,563
4,195,901
29,5186,087,714(4,383,116)
1,704,598

76,31053,433681,339

22,61721,091621
5,406
126,045

20,387
26,2391,002
7,369
108,430

201,937
188,313
5,545
48,2681,125,402¥ 574,169¥ 535,676$ 5,126,509

Millions of Yen

LIABILITIES AND EQUITYCURRENT LIABILITIES:
Short-term bank loans (Notes 8 and 17)
Current portion of long-term debt (Notes 8 and 17)
Payables:Trade (Notes 9 and 17)
Acquisitions of property, plant, and equipment
Total payables
Income taxes payable (Note 17)
Accrued expenses
Provision for environmental measures (Note 2 (n))
Other current liabilities (Note 9)
Total current liabilities
LONG-TERM LIABILITIES:Long-term debt (Notes 8 and 17)
Liability for employees' retirement benefits (Note 10)
Retirement allowance for directors and Audit & Supervisory Board members
Provision for environmental measures (Note 2 (n))
Asset retirement obligations (Note 11)
Deferred tax liabilities (Note 13)
Other long-term liabilities
Total long-term liabilities

2017

2016

2017

¥ 31,108
16,127¥ 18,545
24,648$  277,750
143,991

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

68,1538,354
76,507
2,752
11,053–
9,982
143,487

671,071
79,420750,491
41,393102,0453,589
44,946
1,364,205

94,979
9,220
832
3,428
428
19,5172,473
130,877

92,423
8,999
910
5,720
432
12,862
2,497
123,843

848,027
82,321
7,429
30,607
3,822
174,259
22,0801,168,545

37,17229,928
169,497

37,172
28,722
155,251

331,893267,214
1,513,366(3,613)(3,560)(32,259)

21,236
1
1,814

13,826
0
1,821

1,452
2,365

2,044
(2,443)259,852
30,649290,501

232,833
35,513
268,346

189,6079
16,197
12,964
21,1162,320,107
273,652
2,593,759¥574,169¥535,676$5,126,509

COMMITMENTS AND CONTINGENT LIABILITIES (Note 19)
EQUITY (Note 12):
Common stock:
Authorized: 1,160,000 thousand shares
Issued: 434,488 thousand shares in 2017 and 2016
Capital surplus
Retained earnings
Treasury stock, at cost
8,133 thousand shares in 2017 and 7,473 thousand shares in 2016
Accumulated other comprehensive income:Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Total
Noncontrolling interests
Total equity
TOTAL

FINANCIAL SECTION

Thousands of
U.S. Dollars(Note 1)

See notes to consolidated financial statements.

21

CONSOLIDATED STATEMENT OF INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2017

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

NET SALESCOST OF SALES (Note 14)
Gross profit

FINANCIAL SECTIONSELLING, GENERAL, AND ADMINISTRATIVE EXPENSES(Notes 14 and 15)
Operating income

2017

2016

2017

¥445,123
366,688
78,435¥460,578
386,145
74,433$3,974,313
3,274,000
700,31352,921
25,51450,001
24,432472,509
227,804

1,870
(967)
811
2,524

2,259
(1,309)418–

16,696(8,634)
7,241
22,536OTHER INCOME (EXPENSES):Interest and dividend income
Interest expense
Equity in earnings of associated companies
Gain on transfer of assets from employee retirement benefit trust (Note 10)
Gain on sales of investment securities and investments
in unconsolidated subsidiaries and associated companies—net
Foreign exchange loss
Provision for environmental measures (Note 2 (n))
Loss on sales and disposals of property, plant, and equipment—net
Investment rents received
Write-down of investment securities and investments
in associated companies (Note 4)
Loss on discontinued software development (Note 6)
Impairment loss on long-lived assets (Note 6)
Other—net
Other income (expenses)—net

152
(423)
(444)
(111)
547

1,595
(570)
(5,736)
(884)
547

1,357
(3,777)(3,964)
(991)
4,884

(75)
–
(1,957)
(86)
1,841

(34)
(5,586)(436)
284(9,452)(670)–(17,473)(768)
16,437

INCOME BEFORE INCOME TAXES

27,355

14,980244,241

INCOME TAXES (Note 13):
Current
Deferred
Total income taxes

7,515
1,576
9,091

6,377
(500)
5,877

67,09814,072
81,170NET INCOME

18,264

9,103

163,071

NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

1,878

2,357

16,767¥ 16,386¥  6,746$  146,304

NET INCOME ATTRIBUTABLE TO OWNERS OF THE PARENTYen

PER SHARE OF COMMON STOCK (Note 2 (w)):
Basic net income
Cash dividends applicable to the year¥  38.59
10.00

U.S. Dollars¥  15.62
7.50

Thousands

WEIGHTED-AVERAGE NUMBER OF OUTSTANDINGSHARES OF COMMON STOCK
See notes to consolidated financial statements.

22424,595

431,829$     0.34
0.09

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2017

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

2017

2016

2017

NET INCOME¥18,264¥   9,103$163,071

OTHER COMPREHENSIVE INCOME (LOSS) (Note 20):
Unrealized gain (loss) on available-for-sale securities
Deferred gain (loss) on derivatives under hedge accounting
Land revaluation surplus
Foreign currency translation adjustments
Defined retirement benefit plans
Share of other comprehensive income (loss) in associates
Total other comprehensive income (loss)

7,339
1
0
(855)
4,866
41
11,392(11,482)(2)
62(1,699)(11,114)(81)(24,316)

65,5279
0(7,634)43,446366
101,714COMPREHENSIVE INCOME (LOSS)¥29,656¥(15,213)$264,785

TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO:
Owners of the parent
Noncontrolling interests¥27,875
1,781¥(16,707)
1,494$248,884
15,901FINANCIAL SECTION

See notes to consolidated financial statements.

23

CONSOLIDATED STATEMENT OF CHANGES IN EQUITYDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2017

Thousands

Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE, APRIL 1, 2015
Net income attributable to owners of the parent
Cash dividends, ¥8.5 per share
Purchase of treasury stock
Disposal of treasury stock
Adjustment of retained earnings for changes inthe scope of consolidation
Change in the parent’s ownership interest due
to transactions with noncontolling interests
Net change in the year

FINANCIAL SECTIONBALANCE, MARCH 31, 2016

CommonStock433,683¥37,172––(6,671)
2

–
–
–
–

–

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting¥  (382)¥ 25,129¥1––(3,179)
1

–
–
–
–

–
–
–
–

61

0

–

–

180

–

–

–

–

–

–

–

(11,303)(1)

CapitalSurplusRetained
Earnings

TreasuryStock¥28,542¥152,131

–
–
–
(0)

6,746
(3,687)
–
–

–

–

–

–

–

–

427,014

37,172

28,722

155,251(3,560)13,8260

Net income attributable to owners of the parent

–

–

–

16,386–––

Cash dividends, ¥6.5 per share

–

–

–

(2,736)–––

Purchase of treasury stock(12,040)–––(4,988)––

Disposal of treasury stock

11,380

–

(0)

–

1

–

–

–
–

–
–

–
311

590
–

–
4,934

–
–

–
–

–
–

–
–

895
–

–
6

–
–

–
–

–
–

Adjustment of retained earnings for changes inthe scope of consolidation
Increase due to stock exchange
Change in the parent’s ownership interest due
to transactions with noncontolling interests
Reversal of land revaluation surplus
Net change in the year
BALANCE, MARCH 31, 2017

–

–

–

–

–

7,410

1

426,354¥37,172¥29,928¥169,497¥(3,613)¥ 21,236¥1Millions of Yen
Accumulated Other
Comprehensive Income

BALANCE, APRIL 1, 2015

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity¥1,758¥ 3,236¥   8,435¥256,022¥36,384

Net income attributable to owners of the parent

–

–

–

6,746

–

6,746

Cash dividends, ¥8.5 per share

–

–

–

(3,687)–(3,687)Purchase of treasury stock

–

–

–

(3,179)–(3,179)

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

–

–

–

1

–

1

–

–

–

61

–

61

–

–

–

180

–

180

Net change in the year63

(1,192)(10,878)(23,311)(871)(24,182)

BALANCE, MARCH 31, 2016

¥292,406

1,821

2,044

(2,443)

232,833

35,513

268,346

Net income attributable to owners of the parent

–

–

–

16,386–

16,386

Cash dividends, ¥6.5 per share

–

–

–

(2,736)–(2,736)

Purchase of treasury stock

–

–

–

(4,988)–(4,988)

Disposal of treasury stock

–

–

–

1

–

1

Adjustment of retained earnings for changes inthe scope of consolidation

–

–

–

590

–

590

–

–

–

5,245

–

5,245

–
–

–
–

–
–

895
6

–
–

895
6

Increase due to stock exchange
Change in the parent’s ownership interest due
to transactions with noncontolling interests
Reversal of land revaluation surplus
Net change in the year
BALANCE, MARCH 31, 2017

24

Outstanding
Number of
Shares ofCommon Stock

(7)

(592)

4,808

11,620(4,864)

6,756¥1,814¥ 1,452¥   2,365¥259,852¥30,649¥290,501

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

CommonStock

BALANCE, MARCH 31, 2016

CapitalSurplusRetained
Earnings

Treasury
Stock

Unrealized
Gain onAvailable-for-Sale
Securities

Deferred Gainon Derivatives
under Hedge
Accounting$331,893$256,446$1,386,169$(31,786)$123,446$0

Net income attributable to owners of the parent––

146,304–––

Cash dividends, $0.06 per share––(24,429)–––

Purchase of treasury stock

–

–

–

(44,536)––

Disposal of treasury stock

–

(0)

–

9

–

–

Adjustment of retained earnings for changes inthe scope of consolidation

–

–

5,268

–

–

–

Increase due to stock exchange

–

2,777

–

44,054––

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

–

7,991

–

–

–

–

Reversal of land revaluation surplus

–

–

54

–

–

–

Net change in the year

–

–

–

–

66,1619$331,893$267,214$1,513,366$(32,259)$189,607$9

BALANCE, MARCH 31, 2017

Thousands of U.S. Dollars (Note 1)

BALANCE, MARCH 31, 2016

Land
Revaluation
Surplus

Foreign
Currency
Translation
Adjustments

DefinedRetirement
Benefit Plans

Total

Noncontrolling
Interests

Total
Equity$16,260$18,250$(21,813)$2,078,865$317,081$2,395,946

Net income attributable to owners of the parent

–

–

–

146,304–

146,304

Cash dividends, $0.06 per share

–

–

–

(24,429)–(24,429)

Purchase of treasury stock

–

–

–

(44,536)–(44,536)

Disposal of treasury stock

–

–

–

9

–

9

Adjustment of retained earnings for changes inthe scope of consolidation

–

–

–

5,268

–

5,268

Increase due to stock exchange

–

–

–

46,831–

46,831

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

–

–

–

7,991

–

7,991

Reversal of land revaluation surplus

–

–

–

54

–

54

(63)

(5,286)42,929103,750(43,429)

60,321$16,197$12,964$ 21,116$2,320,107$273,652$2,593,759

Net change in the year
BALANCE, MARCH 31, 2017

FINANCIAL SECTION

Accumulated Other
Comprehensive Income

See notes to consolidated financial statements.

25

CONSOLIDATED STATEMENT OF CASH FLOWSDAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2017

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

Millions of Yen

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

2016

2017

¥ 27,355¥ 14,980$ 244,241(6,185)23,276–
1,957(2,524)95(7,781)
22,454
5,586
436
–
842

(55,223)
207,821–
17,473(22,536)
848

(152)

(1,553)(1,357)

75
(811)

38
(418)

670
(7,241)(14,182)22(3,479)6,795(1,891)
2,310
446(4,716)
1,036
28,391

6,103(39)
12,444(9,929)4,473(2,510)246
36030,75245,732(126,625)
196(31,062)
60,670(16,884)
20,625
3,982(42,107)9,250
253,491(318)
534(27,894)
693

(963)
592
(21,057)204(2,839)4,768(249,054)
6,188

INVESTING ACTIVITIES:Payment for time deposits
Repayment from time deposits
Purchases of property, plant, and equipment
Proceeds from sales of property, plant and equipment
Purchases of investment securities and investments in unconsolidated subsidiaries
and associated companies
Proceeds from sales of investment securities and investments in unconsolidated subsidiaries
and associated companies
Disbursements for originating loans
Proceeds from collection of loans
Other—net
Net cash used in investing activities(1,182)(3,377)(10,554)

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

4,175(1,659)212(1,292)(23,165)

5,241(1,723)
17,330(5,509)(236,152)

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

12,81818,578(14,365)(10,000)(4,988)(23)(3,352)
–
(15)
(496)
(1,843)(3,777)
19,264(5,496)(20,000)(3,179)(881)(4,170)(1,122)(562)(241)(20,164)

114,446
165,875(128,259)(89,286)(44,536)(205)(29,928)–(134)(4,428)(16,455)

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASH AND CASH EQUIVALENTS
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS OF NEWLY-CONSOLIDATED SUBSIDIARY, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS OF DECONSOLIDATED SUBSIDIARY
DECREASE IN CASH AND CASH EQUIVALENTS DUE TO COMPANY DEVESTITURE
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

(203)
(104)
404
–
(388)
33,774¥ 33,686

(650)
1,753
790
(545)
–
31,776¥ 33,774(1,813)
(929)
3,607
–
(3,464)
301,554$ 300,768

See notes to consolidated financial statements.

26

2017

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DAIDO STEEL CO., LTD. AND CONSOLIDATED SUBSIDIARIESYEAR ENDED MARCH 31, 2017

1. BASIS OF PRESENTATION OF CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally acceptedin Japan (“Japanese GAAP”), which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated
financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition,certain reclassifications have been made in the 2016 consolidated financial statements to conform to the classifications used in 2017.
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 ¥112 to $1, the approximate rate of exchange at March 31, 2017.
Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or
any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(a) Consolidation
The Company had 67 (67 in 2016) subsidiaries and 13 (17 in 2016) associated companies at March 31, 2017. The consolidated financial
statements as of March 31, 2017, include the accounts of the Company and 34 (34 in 2016) significant subsidiaries (together, the “Group”).
Under the control and influence concepts, those companies in which the Company, directly or indirectly, is able to exercise control overfor by the equity method.
Investments in six associated companies were accounted for by the equity method for the years ended March 31, 2017 and 2016.
Investments in other unconsolidated subsidiaries and associated companies are stated at cost. If the equity method of accounting had been
applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not have beenmaterial.
The fiscal years of the consolidated subsidiaries are not necessarily the same as that of the Company. Accounts of those subsidiaries

FINANCIAL SECTION

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

which have different fiscal years have been adjusted for significant transactions to properly reflect their financial position at March 31 of eachyear and the results of operations for the year then ended.
The difference between the cost of acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition 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
The Accounting Standards Board of Japan (ASBJ) issued ASBJ Practical Issues Task Force (PITF) No. 18, “Practical Solution on Unificationof Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements,” advising that accounting policies andprocedures 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 inaccordance with either International Financial Reporting Standards or the accounting principles generally accepted in the United States ofAmerica (Financial Accounting Standards Board Accounting Standards Codification—”FASB ASC”) tentatively may be used for the consolidation process, except for the following items which should be adjusted in the consolidation process so that net income is accounted for inaccordance with Japanese GAAP unless they are not material: a) amortization of goodwill; b) scheduled amortization of actuarial gain or lossof pensions that has been recorded in equity through other comprehensive income; c) expensing capitalized development costs of researchand development; and d) cancellation of the fair value model accounting for property, plant, and equipment and investment properties andincorporation of cost model accounting.

27

(c) Business Combinations
Business combinations are accounted for using the purchase method. Acquisition-related costs, such as advisory fees or professional fees,
are accounted for as expenses in the periods in which the costs are incurred. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the business combination occurs, an acquirer shall report in its financial statements provisional amounts for the items for which the accounting is incomplete. During the measurement period, which shall not exceed one year fromthe acquisition, the acquirer shall retrospectively adjust the provisional amounts recognized at the acquisition date to reflect new information
obtained about facts and circumstances that existed as of the acquisition date and that would have affected the measurement of theamounts recognized as of that date. Such adjustments shall be recognized as if the accounting for the business combination had been
completed at the acquisition date. A parent’s ownership interest in a subsidiary might change if the parent purchases or sells ownershipinterests in its subsidiary. The carrying amount of noncontrolling interest is adjusted to reflect the change in the parent’s ownership interest in
its subsidiary while the parent retains its controlling interest in its subsidiary. Any difference between the fair value of the consideration
received or paid and the amount by which the noncontrolling interest is adjusted is accounted for as capital surplus as long as the parent
retains control over its subsidiary.

(d) Cash and Cash Equivalents
Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes invalue. Cash equivalents include time deposits and short-term investments which mature or become due within three months of the date ofacquisition.

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

(f) Inventories
Inventories are stated at the lower of cost, mainly determined by the weighted-average method or net selling value. A reversal of allowance
for inventory valuation of ¥523 million ($4,670 thousand) for the year ended March 31, 2017 and a write-down of inventory of ¥604 million
for the year ended March 31, 2016 were included in cost of sales.

(g) Allowance for Doubtful Accounts
To provide for the loss from doubtful accounts, an allowance for doubtful accounts is made using the historical rate of actual losses fornormal receivables and the estimated irrecoverable amount for specific doubtful receivables after considering the recoverability of eachaccount.

(h) Property, Plant, and Equipment
Property, plant, and equipment are stated at cost, less gains on grant receipts, etc. Under certain conditions, such as government grant
receipts, exchanges of fixed assets of similar kinds, and sales and purchases resulting from expropriation, Japanese tax laws permit companies to defer the profit arising from such transactions by reducing the cost of the assets acquired or by providing a special reserve in theequity section. The acquisition costs of property, plant, and equipment were reduced in the amounts of ¥4,585 million ($40,938 thousand)and ¥4,678 million at March 31, 2017 and 2016, 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 on or after April 1, 1998, and building improvements and structures acquired on or after April 1,
2016, for domestic companies.
Pursuant to an amendment to the Corporate Tax Act, the Company adopted ASBJ Practical Issues Task Force No. 32 “Practical28

Solution on a Change in Depreciation Method Due to Tax Reform 2016,” and changed the depreciation method for building improvements
and structures acquired on or after April 1, 2016, from the declining-balance method to the straight-line method. The effect of this amendment was immaterial to the consolidated financial statements.
Depreciation of leased assets is computed by the straight-line method over the lease period.
The range of useful lives is from 5 to 75 years for buildings and structures and from 4 to 17 years for machinery and equipment.

(i) Land Revaluation
Under the “Law of Land Revaluation,” Nippon Drop Forge Co., Ltd., a consolidated subsidiary, elected a one-time revaluation of its own-use
land to a value based on real estate appraisal information at March 31, 1999. The resulting land revaluation surplus represented unrealized
appreciation of land and was stated, net of income taxes, as a component of equity. Continuous readjustment is not permitted, unless theland value subsequently declines significantly such that the amount of the decline in value should be removed from the land revaluation
surplus account and related deferred tax liabilities. At March 31, 2017, the carrying amount of the land after the above one-time revaluationand impairment exceeded the market value by ¥920 million ($8,214 thousand).

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

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

(l) Bond Issue Costs

FINANCIAL SECTION

amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling

Bond issue costs are charged to income as incurred.

(m) 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, multi-employer contributory funded pension plans and smaller enterpriseretirement allowance mutual aid plans.
The Group accounts for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance
sheet date. The projected benefit obligations are attributed to periods on a benefit formula basis. Actuarial gains and losses and past service
costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjustingfor tax effects and are recognized in profit or loss over 10 years, no longer than the expected average remaining service period of theemployees.
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.

(n) Provision for Environmental Measures
A provision for environmental measures is provided to accrue the estimated costs of PCB (Polychlorinated Biphenyl) waste disposals andthe estimated costs of removal of steel slag products sold in reserve for future expenses. The estimated costs of removal of steel slag products used in construction projects by the Ministry of Land, Infrastructure, Transport and Tourism, Gunma Prefecture, and municipalities inGunma were accrued and included in the provision for environmental measures in the consolidated statement of income.

(o) Asset Retirement Obligations
An asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition,29

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 isrecorded in the period in which the obligation is incurred if a reasonable estimate can be made. If a reasonable estimate of the asset retirement obligation cannot be made in the period the asset retirement obligation is incurred, the liability should be recognized when a reasonable estimate of asset retirement obligation can be made. Upon initial recognition of a liability for an asset retirement obligation, an asset
retirement cost is capitalized by increasing the carrying amount of the related fixed asset by the amount of the liability. The asset retirement
cost is subsequently allocated to expense through depreciation over the remaining useful life of the asset. Over time, the liability is accreted
to its present value each period. Any subsequent revisions to the timing or the amount of the original estimate of undiscounted cash flows
are reflected as an adjustment to the carrying amount of the liability and the capitalized amount of the related asset retirement cost.

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

(q) Bonuses to Directors and Audit & Supervisory Board Members
Bonuses to directors and Audit & Supervisory Board members are accrued at the year-end to which such bonuses are attributable.

(r) Construction Contracts
Construction revenue and construction costs should be recognized by the percentage-of-completion method if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs, and the stage of completion of the con-

FINANCIAL SECTION

tract at the balance sheet date can be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome ofa construction contract cannot be reliably estimated, the completed-contract method should be applied. When it is probable that the total
construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by providing
for a loss on construction contracts.

(s) 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.
The Group applied ASBJ Guidance No. 26, “Guidance on Recoverability of Deferred Tax Assets,” effective April 1, 2016.

(t) 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.

(u) 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.

(v) Derivatives and Hedging Activities
The Group uses derivative financial instruments to manage its exposure to fluctuations in foreign currency exchange and interest rates.
Foreign currency forward contracts, currency swaps and interest rate swaps are utilized by the Group to reduce foreign currency exchange
and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes.
Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives are recognized as either assets or liabilities and measured at fair value, and, except for those derivatives which qualify for hedge accounting, gains or30

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

(w) Per Share Information
Net income per share is computed by dividing net income attributable to common shareholders by the weighted-average number ofcommon shares outstanding for the period.
Diluted net income per share is not disclosed because the Group had no dilutive shares at March 31, 2017 and 2016.
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.

3. BUSINESS COMBINATIONS(Transaction under common control)
On October 1, 2016, the Company acquired shares of Daido Kogyo Co., Ltd. (“Daido Kogyo”), a consolidated subsidiary of the Company,
by issuing the Company’s shares to all of the shareholders of Daido Kogyo in exchange for all of the outstanding shares of Daido Kogyo. As
a result, Daido Kogyo became a wholly owned subsidiary of the Company.

a. Outline of the business combination

FINANCIAL SECTION

Year Ended March 31, 2017(1)	Name of the company and its business outline
Name of the company: Daido Kogyo Co., Ltd.
Business outline: Sale, export and import of specialty steel, nonferrous metals, materials, machinery, etc.
(2)	Date of business combination
October 1, 2016(3)	Legal form of business combination
Stock exchange(4)	Name of the company after the business combination
No change(5)	Outline of the business combination
This stock exchange was made in order to strengthen the marketing initiatives in foreign countries and to establish efficient businessmodels for the turbo materials, magnetic and high alloy businesses.

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

c. Acquisition of the subsidiary’s shares(1)	The Company acquired the subsidiary’s shares in exchange for the Company’s treasury stock in the amount of ¥5,245 million ($46,830
thousand).
(2)	The exchange ratio, formula and number of shares issued to shareholders of noncontrolling interests
The Company allotted 1.53 shares per 1 shares of Daido Kogyo.
The Company and Daido Kogyo determined the exchange ratio by referencing the stock valuation of Daido Kogyo by The Bank of

31

Tokyo Mitsubishi UFJ, Ltd., a third party. The discounted cash flow method was used in the valuation. 11,379,417 shares were allotted tononcontrolling shareholders of Daido Kogyo.

d. Transactions with noncontolling shareholders
As a result of the transactions with noncontrolling shareholders, capital surplus increased by ¥715 million ($6,384 thousand).

4. INVESTMENT SECURITIESInvestment securities at March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

Noncurrent:
Equity securities
Total

2017

2016

2017

¥76,310¥76,310¥53,433¥53,433$681,339$681,339

The costs and aggregate fair values of investment securities at March 31, 2017 and 2016, were as follows:
Millions of Yen

FINANCIAL SECTION

March 31, 2017

Available-for-sale:
Equity securities

Cost

Unrealized
Gains

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

Cost

Unrealized
Gains

Unrealized
LossesFair Value¥32,383¥20,701¥1,596¥51,488

Cost

Unrealized
Gains

Unrealized
LossesFair Value$398,250$270,160$4,696$663,714

Millions of Yen
March 31, 2016

Available-for-sale:
Equity securities

Thousands of U.S. Dollars
March 31, 2017

Available-for-sale:
Equity securities

Information for available-for-sale securities that were sold during the years ended March 31, 2017 and 2016, was as follows:
Millions of Yen
March 31, 2017

Available-for-sale:
Equity securities

Proceeds

Realized
Gains

¥26

¥6

Thousands of U.S. Dollars
Realized
Losses¥0

Proceeds$232

Realized
Gains

$54

Realized
Losses$3

Millions of Yen
March 31, 2016

Available-for-sale:
Equity securities

Proceeds

Realized
Gains¥2,503¥467

Realized
Losses¥52

Impairment losses on equity securities and investments in associated companies for the years ended March 31, 2017 and 2016, were
¥75 million ($670 thousand) and ¥34 million, respectively.

32

5. INVENTORIESInventories held by the Group at March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

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

2017

2016

2017

¥18,151
11,724
18,20122,06017,081
11,261¥98,478¥18,764
11,803
15,976
21,738
16,207
10,643¥95,131$162,062
104,679
162,509
196,964
152,509
100,545$879,268

6. LONG-LIVED ASSETSThe Group reviewed its long-lived assets for impairment as of March 31, 2017 and 2016. As a result, the Group recognized an impairment
loss of ¥1,957 million ($17,473 thousand) as other expense for property, plant and equipment located in Gifu due to devaluation; the carrying amount of the relevant assets was written down to the recoverable amount for the year ended March 31, 2017. The Group recognized
an impairment loss of ¥436 million as other expense for property, plant and equipment located in Nagano due to devaluation; the carrying
amount of the relevant assets was written down to the recoverable amount for the year ended March 31, 2016. Moreover, the Group recogamount of the relevant assets was written down to the recoverable amount for the year ended March 31, 2016. Such amount is included inloss on discontinued software development of ¥5,586 million.

7. INVESTMENT PROPERTYThe Company and certain consolidated subsidiaries hold some rental properties, such as office buildings and land in Aichi and other areas.
The net amounts of rental income and operating expenses for those rental properties were ¥848 million ($7,571 thousand) and ¥892 million

FINANCIAL SECTION

nized an impairment loss of ¥5,162 million as other expense for discontinued software development costs for internal use; the carrying

for the years ended March 31, 2017 and 2016, respectively. Gain on sales of rental property was ¥194 million ($1,732 thousand) for the year
ended March 31, 2017.
The carrying amounts, changes in such balances and fair values of such properties at March 31, 2017 and 2016, were as follows:
Millions of Yen

Thousands of U.S. Dollars

Carrying AmountMarch 31, 2016

¥5,655

Increase, net

Fair Value
March 31, 2017

¥233

¥5,422Carrying AmountMarch 31, 2017

March 31, 2016

¥24,692$50,491

Increase, net$2,080Fair Value
March 31, 2017

March 31, 2017

$48,411$220,464

Millions of Yen
Carrying AmountMarch 31, 2015

¥5,197

Increase, net¥458

Fair Value
March 31, 2016

¥5,655

March 31, 2016

¥24,805

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, 2016, primarily represents the acquisition of certain properties of ¥565 million. The decreases during the
fiscal years ended March 31, 2017 and 2016, primarily represent depreciation of ¥168 million ($1,500 thousand) and ¥145 million, respectively.
(3) The fair value of properties was primarily measured by the Group in accordance with its Real-Estate Appraisal Standard.

8. SHORT-TERM BANK LOANS AND LONG-TERM DEBT
Short-term bank loans consisted of notes to banks and bank overdrafts. The weighted-average rates of annual interest applicable to shortterm bank loans at March 31, 2017 and 2016, were 0.56% and 0.78%, respectively.

33

Long-term debt at March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen
2017

2016

2017

¥ 90,291–
10,00010,000815
111,106(16,127)¥ 94,979¥ 96,141
10,00010,000–930
117,071(24,648)¥ 92,423$ 806,169–
89,28689,286
7,277
992,018(143,991)$ 848,027

Year Ending March 31

Millions of Yen

Thousands of
U.S. Dollars

2018
2019
2020
2021
2022
2023 and thereafter
Total¥ 16,127
26,73026,314
15,29114,14812,496¥111,106$143,991
238,661
234,946
136,527
126,321111,572$992,018

Loans from banks and other financial institutions due serially to 2023
with weighted-average interest rates of 0.58% in 2017 and 0.68% in 2016
0.68% unsecured bonds due December 1, 2016
0.335% unsecured bonds due May 27, 2019
0.150% unsecured bonds due March 7, 2022
Obligations under finance leases
Total
Less: Portion due within one year
Total long-term debt

FINANCIAL SECTION

Annual maturities of long-term debt at March 31, 2017, were as follows:

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

Line-of-credit amount
Balance used at March 31, 2017

Millions of Yen

Thousands of
U.S. Dollars¥24,700–$220,536–

9. PLEDGED ASSETS
The carrying amounts of assets pledged as collateral for notes and accounts payable of ¥12 million ($108 thousand) and other current
liabilities of ¥8 million ($71 thousand) at March 31, 2017, were as follows:

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

Millions of Yen

Thousands of
U.S. Dollars¥   17
5,061
2,113
1,101
48
¥8,340$   151
45,18818,866
9,830
429$74,464

10. RETIREMENT AND PENSION PLANS
The Company and its consolidated subsidiaries have defined retirement benefit plans and unfunded pension plans. Certain consolidated
subsidiaries have defined contribution pension plans, multi-employer contributory funded pension plans, and smaller enterprise retirement
allowance mutual aid plans.
The Group has employee retirement benefit trusts.

34

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 subsidiaries participate in multi-employer 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 reliably determined.
During the year ended March 31, 2017, the Company transferred a portion of its assets from the employee retirement benefit trust.
Accordingly, the Company recorded unrecognized actuarial gain of ¥2,524 million ($22,536 thousand) for the year ended March 31, 2017.
1. The changes in defined benefit obligation for the years ended March 31, 2017 and 2016, were as follows:

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

2017

2016

2017

¥55,123
2,139
168
(60)
(4,123)–(1)¥ 53,246¥51,262
1,815
575
5,484
(4,102)95(6)¥55,123$492,170
19,0981,500(536)(36,813)–(8)$ 475,411

2. The changes in plan assets for the years ended March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2017

2016

2017

¥ 74,650
1,427
6,447
802
(3,746)(12,223)¥ 67,357¥84,671
1,467(9,171)798(3,112)(3)¥74,650$ 666,518
12,741
57,563
7,160(33,446)(109,134)$ 601,402

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

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, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2017

2016

2017

¥2,286
564
(271)
(339)
(0)
¥2,240¥2,204
740
(359)
(295)
(5)
¥2,285$20,4115,035(2,420)(3,026)(0)$20,00035

4. A reconciliation between the liability recorded in the consolidated balance sheet and the balances of defined benefit obligation andplan assets as of March 31, 2017 and 2016, is as follows:
Thousands of
U.S. Dollars

Millions of Yen

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

2017

2016

2017

¥ 53,203(70,501)(17,298)
5,427¥(11,871)¥ 55,043(77,536)(22,493)5,253¥(17,240)$ 475,027(629,473)(154,446)
48,455$(105,991)

5. The components of net periodic benefit costs for the years ended March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

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

2017

2016

2017

¥ 2,139
168(1,427)
3,181
(80)
564
97
(2,524)¥ 2,118¥ 1,815575(1,467)(1,432)
(54)
740
92
–
¥   269$ 19,098
1,500(12,741)
28,402
(714)
5,036
866
(22,536)$ 18,911

6. Amounts recognized in other comprehensive income (before income tax effect) in respect of defined retirement benefit plans for theyears ended March 31, 2017 and 2016:
Thousands of
U.S. Dollars

Millions of Yen
2017

Prior service cost
Actuarial gains (losses)
Total

2016

¥  (80)7,164¥7,084¥   (149)(16,087)¥(16,236)2017$  (714)
63,964$63,250

7. Amounts recognized in accumulated other comprehensive income (before income tax effect) in respect of defined retirement benefit
plans as of March 31, 2017 and 2016:
Thousands of
U.S. Dollars

Millions of Yen

Unrecognized prior service cost
Unrecognized actuarial gains (losses)
Total

36

2017

2016

2017

¥  2252,815¥3,040¥   305(4,349)¥(4,044)$ 2,009
25,134$27,143

8. Plan assets(1) Components of plan assets
Plan assets consisted of the following:
2017

2016

14%
64
21
1
100%

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

15%
65
19
1
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, 2017 and 2016, are set forth as follows:
2017

2016

0.3%
2.0

0.3%
2.0

Some consolidated subsidiaries participate in a multi-employer plan for which the Company cannot reasonably calculate the amount ofplan assets corresponding to the contributions made by the subsidiaries. Therefore, it is accounted for using the same methods as used toaccount for a defined contribution plan.
The contributions to such multi-employer plan, which are accounted for using the same method as a defined contribution plan, were¥265 million ($2,366 thousand) and ¥317 million for the years ended March 31, 2017 and 2016, respectively.

FINANCIAL SECTION

Discount rate
Expected rate of return on plan assets(1) The funded status of the multi-employer plan as of March 31, 2017 and 2016, 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

2017

2016

2017

¥251,436
253,982¥  (2,546)¥263,436
268,703¥  (5,267)$2,244,964
2,267,696$    (22,732)(2) The contribution ratio of the Group in the multi-employer plan for the years ended March 31, 2017 and 2016, was as follows:

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

2017

2016

2.29%

2.28%

11. ASSET RETIREMENT OBLIGATIONS
The changes in asset retirement obligations for the years ended March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars

Millions of Yen
2017

Balance at beginning of year
Additional provisions associated with the change
in the estimated costs of PCB waste disposal
Reconciliation associated with passage of time
Balance at end of year

2016

2017

¥432

¥426

$3,857

–
4
¥428

6
0
¥432

–
35
$3,82237

12. EQUITY
Japanese companies are subject to the Companies Act of Japan (the “Companies Act”). The significant provisions in the Companies Act
that affect financial and accounting matters are summarized below:(a) Dividends
Under the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the Shareholders’ Meeting. Additionally, for companies that meet certain criteria, such as (1) having a Board of Directors, (2) having
independent auditors, (3) having an Audit & Supervisory Board, and (4) the term of service of the directors being prescribed as one year
rather than the normal two-year term by its articles of incorporation, the Board of Directors may declare dividends (except for dividends-inkind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. However, the Company cannot do so
because it does not meet all the above criteria.
The Companies Act permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subject to certain limitations
and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of
the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury
stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must
be maintained at no less than ¥3 million.

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

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of retained
earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged upon the payment ofsuch dividends until the total of the aggregate amount of the legal reserve and additional paid-in capital equals 25% of common stock.
Under the Companies Act, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Companies Act also provides that common stock, legal reserve, additional paid-in capital, other capital surplus, and retained earnings can be transferred among the accounts within equity under certain conditions upon resolution of the shareholders.

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

13. INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted innormal effective statutory tax rates of approximately 31% and 33% for the years ended March 31, 2017, and 2016, respectively.

38

The tax effects of significant temporary differences and loss carryforwards, which resulted in deferred tax assets and liabilities at March
31, 2017 and 2016, were as follows:

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

2017

2016

2017

¥ 2,142
2,803
56
2,726
3,327
884
1,153
420
4,106
(9,045)8,572¥ 2,079
2,763
53
2,663
2,996
883
1,737
285
4,542
(7,727)
10,274$ 19,125
25,027500
24,33929,705
7,893
10,2953,750
36,661(80,759)
76,536

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

1,830
1,230
5,774
6,215
1,057
–
1,751
17,857¥ 7,583

15,688
10,982
79,17844,875
9,607
29,83916,902207,071$130,535

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, 2017, with the corresponding figures for 2016 is as follows:

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

2017

2016

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

33.0 %
1.9
(9.9)
0.7
9.0
6.9
(0.9)
(0.9)
(4.8)
(0.8)
4.2
0.8
39.2 %

14. RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥6,206 million ($55,411 thousand) and ¥5,766 million for the years ended
March 31, 2017 and 2016, respectively.

3915. SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the years ended March 31, 2017 and 2016, consisted of the following:Thousands of
U.S. Dollars

Millions of Yen

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

2017

2016

2017

¥13,175
22,002
2,475
230
2,059
1,226
11,754¥52,921¥12,948
21,944
2,340
159
154
1,227
11,229¥50,001$117,634
196,446
22,0982,054
18,384
10,946104,947$472,509

16. LEASES(As lessor)
Expected revenues from noncancelable operating leases at March 31, 2017 and 2016, were as follows:
Thousands of
U.S. Dollars

FINANCIAL SECTION

Millions of Yen

Due within one year
Due after one year
Total

2017

2016

2017

¥  508
2,631¥3,139¥  507
3,116¥3,623$ 4,536
23,491$28,027

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

(2) Nature and Extent of Risks Arising from Financial Instruments
Receivables—trade, such as trade notes and accounts, and electronically recorded monetary claims, are exposed to customer credit risk.
Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks arenetted against the balance of payables denominated in the same currency, of which positions are almost equal. In addition, foreign currency
receivables of certain consolidated subsidiaries are hedged by using forward foreign currency contracts. Investment securities, mainly equity
instruments of customers and suppliers of the Group and for alliance purposes, are exposed to the risk of market price fluctuations.
Payment terms of payables—trade, such as trade notes and accounts, and electronically recorded obligations, are less than one year.
Although payables in foreign currencies are exposed to the risk of fluctuation in foreign currency exchange rates, those risks are netted
against the balance of receivables denominated in the same foreign currency, of which positions are almost equal, as noted above. In addition, foreign currency trade payables in certain consolidated subsidiaries are exposed to risk resulting from fluctuations in foreign currency
exchange rates. The risk is hedged by using forward foreign currency contracts.
Short-term bank loans and commercial paper are mainly used for general operating purposes, and long-term bank loans and bonds aremainly used for investment and strategy. Although a portion of such bank loans and commercial paper, excluding bonds, is exposed to riskof changes in variable interest rates, that risk is mitigated by using interest rate swaps. Bonds are not exposed to risk of changes in interest
rates as interest rates are fixed.
Derivatives 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 18 for more details about
derivatives.

40

(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 thecounterparty risk, the Group enters into derivative transactions only with highly rated financial institutions. Please see Note 18 for detailabout derivatives.
The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2017.
Market Risk Management (Foreign Currency Exchange Rate Risk and Interest Rate Risk)
Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates.
Such risk is netted against the balance of receivables and payables, of which positions are almost equal. In addition, certain consolidated
subsidiaries hedge such risk principally by using forward foreign currency contracts.
Interest rate swaps and currency swaps are used to manage exposure to risks of changes in interest rates of loan payables.
Investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.
Derivative transactions of the Company are undertaken by the finance and accounting department and the procurement center andreported to directors or the Board of Directors based on internal policies that prescribe the authority and maximum amount for each transaction. Derivative transactions of consolidated subsidiaries are undertaken by the finance and accounting department based on internal

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

(4) Fair Values of Financial Instruments
Fair values of financial instruments are based on quoted prices in active markets. If quoted prices are not available, other rational valuation
techniques are used instead. Please see Note 18 for details of the fair value of derivatives.

FINANCIAL SECTION

policies.

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

March 31, 2017

Thousands of U.S. Dollars

Fair Value

Unrealized
Gain (Loss)

Carrying
AmountFair Value

Unrealized
Gain (Loss)¥ 33,686
1,281
113,215
74,336
4,575¥227,093¥ 33,686
1,281
113,215
74,336
3,748¥226,266––––¥(827)¥(827)$  300,768
11,4371,010,848
663,71440,848$2,027,615$  300,768
11,4371,010,848
663,71433,464$2,020,231––––$(7,384)$(7,384)¥ 31,108
16,12775,1604,636
94,979¥222,010¥ 31,108
16,12775,1604,636
94,730¥221,761

–
–
–
–
¥ 249
¥ 249

$  277,750
143,991
671,071
41,393
848,027$1,982,232$  277,750
143,991
671,071
41,393845,804$1,980,009––––$ 2,223$ 2,223

41

Millions of Yen
Carrying
AmountFair Value

Unrealized
Loss

Cash and cash equivalents
Time deposits
Receivables—trade
Investment securities
Investment in an associated company
Total¥ 33,774
1,155
98,80051,4884,414¥189,631¥ 33,774
1,155
98,80051,4882,447¥187,664––––¥(1,967)¥(1,967)

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

¥ 18,545
24,64868,153
2,752
92,423¥206,521¥ 18,545
24,683
68,153
2,752
92,845¥206,978–¥   (35)––(422)¥  (457)

March 31, 2016

Cash and Cash Equivalents, Time Deposits, Receivables—Trade, Short-Term Bank Loans, Current Portion of Long-Term Debt with Variable
Interest Rates, Payables—Trade, and Income Taxes Payable
The carrying values of cash and cash equivalents, time deposits, receivables—trade, short-term bank loans, current portion of long-term
debt with variable interest rates, payables—trade, and income taxes payable, approximate fair value because of their short maturities. The
FINANCIAL SECTION

fair values of receivables-trade, payables—trade, and short-term bank loans include the fair values of foreign currency forward contracts andinterest 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 4.
Long-Term Debt with Fixed Interest Rates
The fair values of long-term debt with fixed interest rates are determined by discounting the cash flows related to the debt at the risk-freerate plus credit spread or at the Group’s assumed corporate borrowing rate. The fair values of bonds are measured at quoted market prices.
Derivatives
Fair value information for derivatives is included in Note 18.
(b) Carrying amount of financial instruments whose fair value cannot be reliably determined
Thousands of
U.S. Dollars

Millions of Yen

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

42

2017

2016

2017

¥ 1,974
18,042¥ 1,945
15,973$ 17,625
161,089

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

Due after One
Year throughFive Years

Due after Five
Years through10 Years

Due after
10 Years¥ 33,686
1,281
113,215¥148,182

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2017

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
Receivable—tradeTotal$  300,768
11,4371,010,848$1,323,053

–
–
–
–

–
–
–
–

–
–
–
–

March 31, 2017

Cash and cash equivalents
Time deposits
Receivable—trade
Total

Thousands of U.S. Dollars

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

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

FINANCIAL SECTION

18. DERIVATIVES

43

Derivative Transactions to Which Hedge Accounting Is Not Applied at March 31, 2017 and 2016
Millions of Yen

At March 31, 2017

FINANCIAL SECTION

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

44

Contract
AmountContract
AmountDue after
One Year

Fair
Value

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

–
–
–
–
–
–
–

¥ (3)
(7)
(29)
(0)
2
(0)
(0)

¥ (3)
(7)
(29)
(0)
2
(0)
(0)

5,977
303
152
156
5
86

–
–
–
–
–
–

55
2
(8)
1
1
(7)

55
2
(8)
1
1
(7)

Millions of Yen

At March 31, 2016

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

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain (Loss)¥  198
211
480
0
49

–
–
–
–
–

¥ (5)
(1)
5
(0)
(3)

¥ (5)
(1)
5
(0)
(3)

3,502
185
271
74

–
–
–
–

36
(1)
4
0

36
(1)
4
0

Thousands of U.S. Dollars

At March 31, 2017

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

Contract
AmountContract
AmountDue after
One Year

Fair
Value

Unrealized
Gain (Loss)$ 2,804
2,875
4,902
411
170
71
0

–
–
–
–
–
–
–

$ (27)
(63)
(259)
(0)
18
(0)
(0)

$ (27)
(63)
(259)
(0)
18
(0)
(0)

53,366
2,705
1,357
1,393
45
768

–
–
–
–
–
–

491
18
(71)
9
9
(63)

491
18
(71)
9
9
(63)

Millions of Yen

At March 31, 2017

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

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Receivables—trade
Receivables—trade¥   443
15

–
–

¥2
0

Receivables—trade41–

Short-term bank loans
and long-term debt

5,500

¥ 5,500

See Noteon thefollowing
page

33,90024,400

Fair
Value

FINANCIAL SECTION

Derivative Transactions to Which Hedge Accounting Is Applied at March 31, 2017 and 201645

Millions of Yen

At March 31, 2016

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

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Payables—trade
Payables—trade¥     30––

Receivables—trade
Receivables—trade

1
10

–
–

Short-term bank loans
and long-term debt

2,000

¥ 2,000

37,30033,900

Fair
Value

¥0
(0)

See Note
below

Thousands of U.S. Dollars

FINANCIAL SECTION

At March 31, 2017

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

Hedged Item

Contract
AmountContract
AmountDue after
One Year

Receivables—trade
Receivables—trade$  3,955
134––

Receivables—trade366–

Short-term bank loans
and long-term debt

49,107$ 49,107

302,679

217,857

Fair
Value

$18
0

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 17.

19. COMMITMENTS AND CONTINGENT LIABILITIESAt March 31, 2017, the Group was contingently liable for ¥8,662 million ($77,339 thousand) for guarantees of loans and payables of
unconsolidated subsidiaries, associated and other companies and employees, including borrowings of ¥3,600 million ($32,143 thousand)by Yugen Kaisha Takakura Founding Corporation (“Takakura”).
The Company was obligated to make an additional investment in Takakura via an anonymous association contract with an upper limit of¥524 million ($4,679 thousand) in the event that buildings owned by Takakura are destroyed or impaired by natural disaster at March 31,
2017.

46

20. OTHER COMPREHENSIVE INCOME (LOSS)
The components of other comprehensive income (loss) for the years ended March 31, 2017 and 2016, were as follows:

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

2017

2016

2017

¥10,4227
10,429(3,090)¥(17,029)(318)(17,347)
5,865$ 93,054
63
93,117(27,590)

7,339(11,482)

65,527     2–2(1)     1     (3)–(3)
1     (2)     18–18(9)      9       
–       –

     62     62       –       –  (855)  (855)(1,699)(1,699)  (7,634)  (7,634)

6,508
577
7,085
(2,219)4,866(14,750)(1,486)(16,236)
5,122(11,114)

58,107
5,152
63,259(19,813)43,446    42(1)    41    (81)(0)    (81)    375(9)    366¥11,392¥(24,316)$101,714

FINANCIAL SECTION

Thousands of
U.S. Dollars

Millions of Yen

21. SUBSEQUENT EVENT
a. Appropriations of retained earnings
The following appropriation of retained earnings at March 31, 2017, was approved at the Company’s Shareholders’ Meeting held on June
28, 2017:

Year-end cash dividends, ¥6.0 ($0.05) per share

Millions of Yen

Thousands of
U.S. Dollars¥2,558$22,839b. Share consolidation and change in the number of shares constituting one trading unit
The Company resolved on the share consolidation and partial amendment of the articles of incorporation to change the number of sharesconstituting one trading unit at the Company’s Shareholders’ Meeting held on June 28, 2017.

47

1. Purpose of share consolidation and change in the number of shares constituting one trading unit
Japanese stock exchanges are aiming to standardize the number of shares per trading unit at 100 shares. In recognition of this aim, theCompany will change its share trading unit size, the number of shares constituting one trading unit, from 1,000 shares to 100 shares. The
purpose of this share consolidation is to maintain the price of one trading unit of its stock at the same level after the number of shares constituting one trading unit is reduced.
2. Details and timing of the share consolidation
The Company shall consolidate the shares on October 1, 2017 by a factor of 10 to 1 based on the shareholders registered on September
30, 2017.
The decrease in shares after the share consolidation will be as follows:
434,487,693 shares
391,038,924 shares
43,448,769 shares

Number of issued shares before the share consolidation as of March 31, 2017
Decrease in shares by the share consolidation
Number of issued shares after the share consolidation(Note) These are theoretical figures which are calculated by multiplying the number of issued shares before the share consolidation by the consolidation ratio.

3. Processing for a fraction of less than one share
If a fraction of less than one share is created due to share consolidation, such fractional shares will be sold together pursuant to the provisions of the Companies Act, and the proceeds will be distributed to shareholders who held the fractional shares in proportion to the number

FINANCIAL SECTION

of fractional shares they held.
4. Change in the number of shares constituting one trading unit
The Company will change the number of shares per trading unit from 1,000 shares to 100 shares on October 1, 2017.
5. Change in the number of authorized shares
The number of authorized shares shall be changed from 1,160,000,000 shares to 116,000,000 after the share consolidation.
6. Schedule
Resolution at the Board of Directors’ meeting
Resolution at the Company’s Shareholders’ Meeting
Effective date of the share consolidation and the change in the number of shares per trading unit

May   10, 2017
June 28, 2017
October 1, 2017

7. Effect on per share information
If the share consolidation was carried out at the beginning of the year ended March 31, 2016, per share information for the years ended
March 31, 2017 and 2016, is as follows:Yen

Net assets per share
Basic net income per share

48

U.S. Dollars

2017

2016

¥6,094.74
385.92¥5,452.58
156.22

2017$54.423.45

22. 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.
The “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.
The “Parts for Automobile and Industrial Equipment” industry consists of manufacturing of die-forged parts, forging products, and other
FINANCIAL SECTION

products for automotive and industrial machinery parts.
The “Engineering” industry consists of manufacturing and maintenance of steelmaking and environmental equipment, industrial furnaces, and associated equipment.
The “Trading and Service” industry consists of real estate-related services and welfare and other services.

2. Methods of measurement for the amounts of sales, profit, assets, and other items for eachreportable segment
The accounting policies of each reportable segment are consistent with those disclosed in Note 2, “SUMMARY OF SIGNIFICANTACCOUNTING POLICIES.”
Reportable segment profit represents operating income.

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¥164,637¥148,468¥ 97,492¥23,918¥10,608

Intersegment sales or transfers

64,32915,027

22,8391,670

11,889¥228,966¥163,495¥120,331¥25,588

Segment profit (loss)¥  5,813¥ 17,417¥   (516)

Segment assets

198,352

177,788

2017

Reconciliations

Consolidated¥445,123–¥445,123

115,754¥(115,754)–¥22,497¥560,877¥(115,754)¥445,123¥ 1,219¥ 1,583¥ 25,516¥      (2)¥ 25,514

127,249

18,143

16,613538,145

36,024574,169

Sales:

Total

Other:
Depreciation and amortization

7,642

7,667

6,598

289

1,080

23,276–23,276

Investments in associated companies
accounted for by the equity method

4,946

5,109

433

126

–

10,614468

11,082

Increase in property, plant, andequipment and intangible assets

7,528

9,844

10,503273

793

28,941–

28,941

49

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¥170,514¥155,251¥ 99,680¥26,104¥ 9,029

Intersegment sales or transfers

83,637

17,53531,3992,506

10,583

Total¥254,151¥172,786¥131,079¥28,610Segment profit¥  7,561¥ 12,331¥  1,299

Segment assets

184,569

164,708

2016

Reconciliations

Consolidated¥460,578–¥460,578

145,660¥(145,660)–¥19,612¥606,238¥(145,660)¥460,578¥ 2,071¥ 1,173¥ 24,435¥      (3)¥ 24,432

126,795

17,956

16,575

510,603

25,073535,676

Sales:

Other:
Depreciation and amortization

7,811

6,763

6,472

336

1,072

22,454–22,454

Investments in associated companies
accounted for by the equity method

4,839

4,648

408

84

–

9,979

378

10,357

Increase in property, plant, andequipment and intangible assets

7,670

6,906

7,044

245

1,340

23,205–23,205Reconciliations

Consolidated

Thousands of U.S. Dollars

FINANCIAL SECTION

Reportable Segment

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

Total$1,469,963$1,325,607$  870,464$213,554$ 94,714$3,974,313–$3,974,313

574,366

134,170

203,920

14,910106,152

1,033,518$(1,033,518)–$2,044,339$1,459,777$1,074,384$228,464$214,706$5,007,831$(1,033,518) $3,974,313

Segment profit (loss)$   51,902$  155,509$   (4,607) $ 10,884$ 14,134$  227,822$       (18) $  227,804

Segment assets

1,771,000

1,587,393

1,136,152

161,991

148,330

4,804,866

321,643

5,126,509

2017

Sales:
Sales to external customers
Intersegment sales or transfers
Total

Other:
Depreciation and amortization

68,232

68,45558,911

2,580

9,643

207,821–

207,821

Investments in associated companies
accounted for by the equity method

44,16145,616

3,866

1,125

–

94,768

4,179

98,947

Increase in property, plant, andequipment and intangible assets

67,21487,893

93,777

2,438

7,080

258,402–258,402

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

50

4. Associated information(1) Information about geographical areas
Sales
Millions of Yen
2017

Japan

¥343,529

North America

Asia¥19,266

Other¥74,733

Total¥7,595¥445,123

Millions of Yen
2016

Japan

¥358,914

North America

Asia¥20,793

Other¥72,080

Total¥8,791¥460,578

Thousands of U.S. Dollars
2017

Japan

$3,067,223

North America$172,018

Asia

Other

$667,259$67,813

Total$3,974,313(2) Information about impairment loss
Millions of Yen

Specialty
Steel–Impairment loss

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService¥372¥1,585

–

–

Total

¥1,957

Millions of Yen

2016

Impairment loss

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService¥2,318¥1,527¥1,189¥128¥435

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService$3,321$14,152

–

–

Total

FINANCIAL SECTION

2017

High
Performance
Materials andMagnetic
Materials¥5,597

Thousands of U.S. Dollars

2017

Impairment loss

–

Total

$17,47351

(3) Information about goodwill
Millions of Yen

2017

Amortization of goodwill
Balance of goodwill

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥51
11

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

¥51
62

–
–

–
–

–
–

–
–

Specialty
Steel

High
Performance
Materials andMagnetic
Materials

Parts for
Automobile
and Industrial
Equipment

Engineering

Trading andService

$455
98

–
–

–
–

–
–

–
–

Total

¥51
11

Millions of Yen

2016

Amortization of goodwill
Balance of goodwill

Total

¥51
62

Thousands of U.S. Dollars

FINANCIAL SECTION

2017

52

Amortization of goodwill
Balance of goodwill

Total

$455
98

INDEPENDENT AUDITOR’S REPORTFINANCIAL SECTION•

53

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 PDM (Thailand) CO., LTD.
Daido Die & Mold Solutions Co., Ltd.
Daido Tienwen Steel Co., Ltd.
DAIDO AMISTAR (M) SDN. BHD.
DAIDO DMS SINGAPORE PTE. LTD.
Daido Shizai Service Co., Ltd.
Daido Technica Co., Ltd.
Daido EcoMet Co., Ltd.
Riken Seiko Co., Ltd.
Tohoku Steel Co., Ltd.
Maruta Transport Co., Ltd.
Sakurai Kosan Co., Ltd.
Izumi Denki Kogyo Co., Ltd.
Kawaichi Sangyo Co., Ltd.

DAIDO NETWORK

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

Chita Steel   Strip Plant

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

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

Shibukawa Plant

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

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

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

Tsukiji Techno Center

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

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

Metal Powder Plant

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

Chita   Forging Plant

Hoshizaki Plant

High Performance Materials and Magnetic Materials

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

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

Engineering81-52-691-5186(81-52-691-5195)

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

Daido Environment Engineering 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 Steel (Shanghai) Co., Ltd.

Nakatsugawa
Techno Center

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

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

Daido Bunseki Research Inc.

Trading and Service
Daido Kogyo Co., Ltd.
Daido Life Service Co., Ltd.
Star Info Tech Co., Ltd.
Life Support Co., Ltd.
Kisokoma Heights Co., Ltd.
Daido Steel (America) Inc.
(As of March 31, 2017)54

Corporate Name:

Daido Steel Co., Ltd.

Founded:August 19, 1916

Incorporated:

February 1, 1950

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

Internet Address:

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

Number of Employees(Non-Consolidated):

3,258

Common Stock:¥37,172 million

Number of Authorized Shares:

1,160,000,000

Number of Issued Shares:

434,487,693

Number of Shareholders:

21,450Independent Auditor:

Deloitte Touche Tohmatsu LLC

Stock Exchange Listings:

Tokyo, Nagoya

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

For Further Information,
Please Contact:

NIPPON STEEL & SUMITOMO METAL CORPORATION
Meiji Yasuda Life Insurance Company
Japan Trustee Services Bank, Ltd. (Trust Account)
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 CORPORATIONC O R P O R AT E D ATACORPORATE DATA (As of March 31, 2017)

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

55

DAIDO STEEL CO., LTD.
UTILIZING OUR STRENGTHS, AIMING AT FURTHER GROWTHANNUAL REPORT 2017

Printed in Japan

This annual report is printed on recycled paper.