ANNUAL REPORT For the year ended March 31, 2009

Transcription

1 ANNUAL REPORT 2009 For the year ended March 31, 2009

2 Profile Since its establishment in 1947, Maruichi Steel Tube Ltd. has concentrated on accumulating industry-leading technological expertise as a specialist in steel tube production. The company s progress has been underpinned by R&D focused on enhancing this core competence. Maruichi Steel Tube s network in Japan comprises 18 sales offices providing nationwide coverage, including affiliated companies, and 12 manufacturing plants and logistics centers operating in close proximity based on a business model emphasizing demand-driven production systems. Overseas, the company has been developing a global business by establishing manufacturing companies in the United States, Indonesia, China and Vietnam. Additionally, through persistent efforts to increase the efficiency of manufacturing and logistics, the company is sharpening the cost competitiveness of products. Convinced that fulfillment of corporate social responsibility is both a duty and a vital ingredient of business success, Maruichi Steel Tube has put in place corporate governance systems based on the Companies Act. Also, the company is strengthening its internal control in view of the Financial Instruments and Exchange Act, Japan s version of the U.S. Sarbanes-Oxley Act (SOX), which accords the prime importance to internal control of financial reporting and is applicable to accounting periods starting from April 2008 onward. Maruichi Steel Tube s shares, listed on the first sections of the Tokyo Stock Exchange and the Osaka Securities Exchange, have been included in the Nikkei 500 Average since April 2001, underlining the company s importance. Contents 1 Consolidated Financial Highlights 2 Message from the Management 7 New Mid-term Management Plan 9 Product Overview 12 Network 14 Consolidated Financial Review 16 Consolidated Balance Sheets 18 Consolidated Statements of Income 19 Consolidated Statements of Changes in Net Assets 21 Consolidated Statements of Cash Flows 23 Notes to the Consolidated Financial Statements 37 Directory 38 Investor Information

3 Consolidated Financial Highlights Maruichi Steel Tube Ltd. and Consolidated Subsidiaries Years ended March 31 Milliones of yen Thousands of U.S. dollars (Note) For the year: Net sales 123, , ,280 $1,570,597 Operating income 21,224 18,270 11, ,917 Income before income taxes and minority interests 27,483 19, ,292 Net income (loss) 14,090 11,324 (1,660) (16,894) At year-end: Total assets 283, , ,640 $2,510,843 Net assets 218, , ,374 2,060,208 Per share (Yen/U.S. dollars): Net income (loss) (18.68) $(0.19) Net assets 2, , , Ratio (%): Return on assets (ROA) (0.6) Return on equity (ROE) (0.9) Note: U.S. dollar amounts have been converted for convenience only at the rate of 98.23=US$1, the rate of exchange on March 31, Net Sales Net Income (loss) Total Assets (left scale) ROA (right scale) Net Assets (left scale) ROE (right scale) () 160,000 () 15,000 () 300,000 (%) 10 () (%) 250, ,000 12, , , , , , ,000 6, , , , , , , , ,

4 Message from the Management Seiji Yoshimura Chairman of the Board of Directors (Left) Hiroyuki Suzuki President (Right) As a leading pipe company, we will accelerate our efforts to expand our overseas businesses and develop new business areas 2 The Maruichi Steel Tube Group has grown into a corporate organization considered by both shareholders and business associates to be an excellent corporation. This was realized through the synergistic effects such as (1) independent and self-driven business, (2) a positive financial base, (3) demand driven production system and (4) increase of value-added products. Maruichi Steel Tube believes that its mission is to continuously develop these characteristics. It is expected that the environment surrounding the steel industry will continue to grow harsh in the future due to the worldwide economic crisis, but the company must resiliently grow and develop in spite of this situation. In order to quickly resolve these difficulties and make further leaps, the company will: (1) Aggressively respond to more sophisticated and diverse customer needs (2) Create new demand for steel tubing by introducing new and unique Maruichi Steel Tube products (3) Create future Group growth and expansion by developing overseas businesses (4) Further improve shareholder value by continually improving business results.

5 Maruichi Steel Tube intends to do its absolute best to live up to shareholder expectations. The company is also keenly aware that it must work towards the following priority goals on a daily basis. (1) Sales promotion, new product development, improvement of research and technical abilities (2) Increasing competitiveness by further reducing costs (3) Achieving a high standard quality level that will satisfy customers (4) Enacting our environmental management system (ISO14001) (5) Improving each individual employee s abilities and setting challenging goals (6) Eliminating injuries and accidents Maruichi Steel Tube will aim to become an even stronger company by diligently answering these challenges daily. The company sincerely asks everyone to continue giving their support, their advice and their cooperation. Review of Operations In the fiscal year ended March 2009 (FY2009), the Japanese economy witnessed sluggish domestic demand in the first half due to steeply rising prices for crude oil and other raw materials, but the decline was only moderate due to the increase in exports. However, the failure of leading US financial institutions triggered by the subprime mortgage problem in the United States led to a worldwide recession and rapidly expanding credit crunch which began to have a major impact on the real economy from October last year. At the same time, the rapid appreciation of the yen led to a major slowdown in corporate activities, especially in the export industries. Furthermore, there was a drop in personal consumption caused by employment insecurity, and due to the impact of this and other factors we were faced with an unprecedented recession marked by large falls in share prices. Crude steel output by Japanese steelmakers grew strongly in the first half partly as a consequence of speculative demand caused by rising steel prices. However, in the second half demand for steel fell rapidly in the industries that had been driving the economy until then, including the automobile, electric appliances, and machinery industries, because of the worldwide recession, which forced the steelmakers to make large production cutbacks to just million tons of crude steel in FY2009, (13.2% down from the previous year). Looking at price levels, against the backdrop of a large rise in raw materials prices, domestic steel prices also generally recorded large increases. Overseas steel prices and the prices for domestic electrical furnace products have been declining sharply since about November last year, while domestic blast furnace prices remained high at the end of the fiscal year. Domestic demand for welded steel tubes for use in construction and civil engineering work, which accounts for just over 50% of the company s steel tubes sales, remained weak, and in addition demand for welded steel tubes for use in automobiles plummeted at the end of last year in response to the poor sales of domestic automakers in the worldwide recession. Meanwhile, the company greatly increased all of the prices of its products in April and July last year in order to pass on the large increase in the price of coils, one of the raw materials we use, but due to the effect of the severe recession, market conditions have dramatically worsened from the beginning of this year. As a part of the rationalization of Maruichi Group production facilities, we completed the transfer of the tube production facilities from the Osaka Plant to the sixth plant at the Sakai site, and the newly-located facilities began production in May last year. This realignment of production facilities will enhance Maruichi Steel Tube s production capacity and quality control and also reduce transportation costs. Furthermore, in November last year we installed an additional spinning unit for use in tapered poles in order to create a manufacturing approach based on two spinning processing units. In addition, we completed the series of renovations to the Sakai Plant by making capital investments to strengthen our competitiveness. For example, we completed the extension work to the first warehouse in December last year. Moreover, Shikoku Maruichi Steel Tube Ltd. carried out renovations of the 0.5 mill at its Tachibana Plant, and then built a new warehouse at its Shikoku Plant in November last year. As for the buildings for the Sakai Production Facility of the Seikei Steel Pipe Corporation, the leading manufacturer of large-diameter press columns for construction use, inside the Sakai Plant, the construction was completed in October last 3

6 Message from the Management year, and the installation of production equipment by that company was largely completed by the end of the fiscal year. At the Tomakomai Plant of Hokkaido Maruichi Steel Tube Ltd., the color coated C-type steel production line was completed and has been in full operation since March this year, enabling this plant to put in place a system that can meet the diverse needs of users in its area. Furthermore, in January this year we completed the new warehouse building, of which construction had started in September last year, adjacent to the Nagoya Office. Meanwhile, we had been testing the new computer system since April last year in preparation for practical operation, and we commenced practical operation of the new system in May this year. Looking at the Maruichi Group s overseas business operations, in May last year we acquired an equity stake of 60% in Chicago-based Leavitt Tube Company, LLC (LTC), which became a consolidated subsidiary from the current fiscal year, allowing us to secure a production base in the Midwestern United States. Nonetheless, the business performances of LTC and Maruichi American Corporation (MAC), which had been strong in the first half of the year, were affected by the recession in the United States in the second half of last year, and took a turn for the worse as inventory evaluations declined. Meanwhile, we acquired an equity stake in Sun Steel Joint Stock Company (SUNSCO) of Vietnam in November 2006, and through stock transfers from other shareholders and our underwriting of the outstanding authorized capital, we have increased our current equity stake in the company to 66.94%, making it a consolidated subsidiary from the current fiscal year. However, just as in the case of the consolidated subsidiaries in the United States, SUNSCO posted large operating losses due to the impact of the decline in term-end inventory evaluations. Regarding SUNSCO s production facilities, the four-foot wide cold rolling equipment began production, and construction of the new pickling facility was also completed. Furthermore, the company ordered a 16 mill for production of large steel tubes, and construction work on the buildings for the plant commenced in December last year. In China, Maruichi Metal Product (Foshan) Co., Ltd. (MMP), located in Foshan City, Guangdong province, produced and sold an average of 1,600 tons of steel tubes and steel plated products last year. The company also completed construction of its second plant primarily involved in the processing of pipe products for use in automobiles, thus strengthening its systems for the processing of pipe products, including pipe-cutting, pipe-quenching, etc. This completes the brief review of our business in FY2009. Although consolidated net sales in FY2009 rose 29.9% from the previous fiscal year to 154,280 million due to the increase in the number of consolidated subsidiaries, in terms of income and expenses we could not completely resist the effects of the current once-in-a-hundred-years recession, including the booking of losses on devaluation of term-end inventories. As a result, consolidated operating income dropped 38.2% to 11,288 million. Moreover, we posted losses on devaluation of investment in securities of 10,625 million and loss on impairment of 2,227 million, while also reversing some of our deferred income taxes, resulting in a consolidated net loss of 1,660 million (down from consolidated net income of 11,324 million last year). An exchange rate of to the dollar was used in compiling the financial results. Business Strategy 4 Looking to the future, we believe there is little hope for an early recovery from the worldwide recession. With the dramatic worsening of the business performance of companies, the employment environment is also worsening, and so personal consumption will also decline as consumers focus on protecting their lifestyles. Therefore, we expect the harsh economic environment to continue. Demand for steel tubes is expected to continue to be very poor because of weak construction demand and a lack of hope for a strong recovery in demand in the automobile and construction machinery industries, the users of steel tubes, although inventory adjustments are expected to proceed further in those industries. Due to such dramatic decline in demand for steel tubes for use in automobiles and construction machinery, etc. as well as the long-term decline in demand for steel tubes for use in construction and civil engineering work, the company is most likely to be required to continue its wide-scale production adjustments, which will inevitably push up costs, and

7 thereby the severe business situation is expected to continue. Furthermore, the trends in the price of coils, one of the raw materials we use, will have a great impact on our business forecast for this period. In these circumstances, we will attempt to quickly overcome the harsh business environment we currently face by steadily implementing the plan for the future described below. With regards to capital investment, Tokyo No. 2 Plant is upgrading its equipment to energy-efficient welding machines with the work scheduled to be completed in December this year. The purpose of the upgrade is to reduce both costs and CO2 emissions. Meanwhile, the Shikoku Plant of Shikoku Maruichi Steel Tube Ltd. modified its 5 mill equipment so that it is able to produce circular steel tubes, with the work completed in June this year. Furthermore, construction of the buildings for the Sakai Production Facility of the Seikei Steel Pipe Corporation was completed on the premises of the Sakai Plant in October last year, and installation of the production equipment was also completed. Moreover, the approval of the government minister was obtained, and Seikei brand press columns began to be produced and sold in western Japan in July this year. Looking at the overseas business, LTC and MAC in the United States faced dramatic declines in demand due to the impact of the worldwide economic crisis, and a rapid recovery is not expected. LTC plans to rationalize its operations by reducing personnel, etc. and to improve profits by achieving cost competitiveness at the same level as MAC. SUNSCO became a consolidated subsidiary of Maruichi Steel Tube, prompting the company to become more deeply involved in the production, sales, and management aspects of SUNSCO s operations in an effort to strengthen its profitability. With regards to capital investment, we began construction of the buildings of the plant in order to expand the 16 mill, with production scheduled to begin in March of next year. Furthermore, in May this year, the four-foot wide pickling facility began production, enabling us to construct an integrated production system for galvanization and color steel plates, both of which use hot coils as raw materials. We also plan to rationalize production and improve cost competitiveness and quality. Meanwhile, in order to meet the demand for pipes in the Hanoi region, in which many Japanese manufacturers are concentrated, we acquired the rights to use land to establish sales and production bases in Vinh Phuc Province in the suburbs of Hanoi in December last year. The business expansion that we will implement under this plan in Vietnam is expected to contribute to the business performance of the Maruichi Group in the near future. MMP in China will further strengthen pipe product processing systems in order to meet the demand for steel tubes for use in automobiles and increasing demand for the related pipe processing such as pipe-cutting, heat processing, etc. In order to introduce new items to the Japanese market, the company is strengthening its strategic alliance with Australian Tube Mills (ATM), the pipe section of Australia s OneSteel Ltd. The LSB (LiteSteel Beam), a product developed by this company, has the following characteristics: (i) it is an ideal structural material for the beams and pillars, etc. used in construction, (ii) it is highly rigid and allows for reductions in the weight of steel, (iii) it is long lasting and friendly to the environment, (iv) it makes on-site pipe-cutting and hole-punching processes as well as construction methods easy, and (v) under the tax system it makes abbreviation of the amortization period possible. We received the approval of Minister of Land, Infrastructure, Transport and Tourism for this product in May last year and began to introduce it to the domestic market. Furthermore, with the maturing of the Japanese economy, future growth in domestic demand for welded steel tubes cannot be expected, and as mentioned above, we plan to continue to introduce new items to the domestic market while strongly promoting the expansion of our overseas businesses. Increasing Shareholder Value Maruichi Steel Tube has been fully aware of the importance of dividends to shareholders and heretofore has been distributing fixed and stable dividends from profits. The results-linked dividends policy was introduced from FY2005. During the Board of Directors meeting held on February 7, 2008, we changed part of the basic policy regarding profit-sharing and decided on and announced a policy based on an annual dividend equivalent to 40% of expected net income for the fiscal year calculated without including the extraordinary profits and losses in the nonconsolidated financial statements. In addition, the company s policy is to maintain an annual payout of at least 25 yen 5

8 Message from the Management per share dividends to ensure dividends are stable at previous levels. Additionally, portions of the company s articles of incorporation were changed at the annual shareholders meeting held in June March 31 was designated as the date-of-record for year-end dividend distribution and September 30 was designated as the date-of-record for interim dividend distribution. Additionally, further distribution of retained earnings can be made possible by declaring a date-ofrecord for the designation. Furthermore, a purchase of own shares as treasury stock was conducted in order to improve earnings per share (EPS). A system for special gifts to shareholders was also created in consideration of Maruichi Steel s appreciation of the shareholders unwavering support. Moreover, for the first time ever we held plant tours of the Sakai Plant for individual shareholders in May We held tours of the Sakai Plant this year as well. If the Maruichi Group is to achieve further business growth as an independent specialized steel tube maker, it must constantly tackle the challenge of enhancing its competitiveness by improving productivity and efficiency, and by making strategic investments that expand business operations. As upgrading and expanding production facilities and distribution networks is essential for meeting this challenge, the company has systematically made active investments directed at honing its competitive edge. We believe that securing internal reserves in preparation for pursuing strategic businesses and making strategic capital investment is critical to ensuring constant profits for our shareholders. In FY2009, Maruichi Steel paid an interim dividend of per share. The company s Board of Directors, meeting on May 12, 2009, resolved to pay an annual dividend of per share, including a term-end dividend of The company also plans to make dividend payments for FY2010 in accordance with the basic policy described above. Capital Policy We have increased our equity stake in Sun Steel Joint Stock Company (SUNSCO) of Vietnam from 47.0% at the end of March 2008 to 66.94% at the end of March 2009 through stock transfers from other shareholders and our underwriting of the outstanding authorized capital. SUNSCO became an equity method non-consolidated subsidiary in FY2008, and a consolidated subsidiary in FY2009. Furthermore, SUNSCO is classified as a specified subsidiary since its common stock is equivalent to ten-hundredths or more of the company s common stock. In March last year Maruichi Steel Tube agreed to acquire an equity stake of 60% in Chicago-based Leavitt Tube Company, LLC (LTC) for 9.43 billion via the company s 100%-owned subsidiary, MKK USA Inc., and transfer of the stake was completed in May last year, making LTC a consolidated subsidiary from FY2009. Maruichi Steel Tube bought back 500,000 own shares (worth 1,574 million) in September 2008, 1,000,000 own shares (worth 2,386 million) in December As of March 31, 2009, the number of own shares held by Maruichi Steel Tube, including odd-lot shares (shares less than the minimum trading unit) repurchased from shareholders, stood at 6,081,593 shares (6.46% of the total outstanding shares) in the company. The Company has retired 4,267,197 of the own shares it held (4.34% of the total outstanding shares) in accordance with a resolution made at a Board of Directors meeting on April 7, As a result, the number of outstanding shares in the company stands at 94,000,000. June 2009 Seiji Yoshimura Chairman of the Board of Directors Hiroyuki Suzuki President 6

9 New Mid-term Management Plan Maruichi Steel Tube formulated a new Mid-term Management Plan of Maruichi Group that was adopted by resolution of the Board of Directors on March 6, Since the launch of the first Mid-term Management Plan (First Plan) in April 2006, we have implemented several key measures and accomplished the goals of the First Plan. The launch of the new Mid-term Management Plan (Second Plan) this April signals our intention to overcome the severe business environment caused by the global economic crisis as early as possible, as well as our determination to position Maruichi Steel Tube as a leading tube and pipe manufacturer fulfilling the needs of customers in Japan, elsewhere in Asia and the U.S., by thoroughly implementing measures to prepare for a new round of growth. 1. Consolidated Financial Targets Comparison Table of First Plan and Second Plan: (Unit: million US$) Items FY2008 (Actual) First plan 2. Achievements of the First Plan FY2009 (Actual) During the First Plan, we made several strategic investments to underpin development of the business. In Japan, we acquired equity stakes in Seikeicolumn Co., Ltd., a leading press-column manufacturer, and Toyo Superior Steel Tube Works, Ltd., a manufacturer of square and special-shape steel tubes. Overseas, we acquired equity stakes in Sun Steel Joint Stock Company in Vietnam and Leavitt Tube Company LLC in the U.S. In China, we established Maruichi Metal Product (Foshan) Co., Ltd. In accordance with our emphasis on the returning of profits to shareholders, we continued to repurchase the company s shares and maintained a 40% payout ratio on a non-consolidated basis. Measures and achievements of the First Plan are indicated below. Second plan FY2012 (Target)* Net Sales 1,185 1,570 1,600 Operating Income Net Income 113 (16) 150 Net Income per Share (US$) 1 (0.2) 1.7 Net Assets per Share (US$) ROE 8.00% *FY2012 Target Although the severe economic situation is expected to persist from FY2010 through FY2011, we will endeavor to overcome this challenge and vigorously implement measures to spur business development. Our target in FY2012 is to achieve financial results superior to the financial results recorded during the period covered by the First Plan, especially with respect to sales and profits. (1) Reinforcement of the Existing Business 1) Reinforcement of sales power Change of metal coating system from conventional galvanization to 55% aluminum-zinc galvanization (AL-Z55) 2) Reinforcement of production capacity and quality assurance Refurbishment of Sakai Plant etc. 3) Commitment to safety and the environment Appointment of Safety Education General Manger and replacement of conventional welding machines to energy-saving models 4) Reform of the personnel system and organization Change of the employee pension fund system 5) Business process reengineering and IT investment for efficient management Introduction of a new computer system (Investment of US$14 million) (2) Overseas Development 1) Establishment of new production bases in Asia Investment in Sun Steel (US$70 million) and installation of 16 tube mill Establishment of Maruichi Metal Product in April 2005 Acquisition of additional equity in Indonesian Steel Tube Works 2) Establishment of a permanent presence in North and Central America Acquisition of equity stake in Leavitt Tube Company (US$90 million) 3) Strengthening of collaboration with overseas partners Cooperation with Australian Tube Mills in sales of LiteSteel Beam structural building materials 4) Investment to ensure stable procurement of materials Acquisition of additional shares of China Steel Corporation, Taiwan (3) Development of New Business 1) Development of new products in existing business fields and new business development in related business fields. 7

10 New Mid-term Management Plan 8 Securing of the material approval of LiteSteel Beam from the Ministry of Land, Infrastructure and Transport of Japan Investment in Seikeicolumn (US$15.4 million) 2) Investment in new business fields by using Maruichi Business Fund Investment in Toyo Superior Steel Tube (US$1.9 million) (4) Sustainable Development 1) Strengthened commitment to compliance, corporate governance and corporate social responsibility Establishment of the Compliance Committee and the Risk Management Committee Support for philanthropic activities 2) Adherence to the letter and the spirit of applicable laws and regulations Periodic compliance education 3) Restructuring and reinforcement of corporate governance, including establishment of internal control systems. Establishment of the Internal Auditing Office and introduction of internal control systems in accordance with the Financial Instruments and Exchange Act 4) Enhancement of management transparency Implementation of performance-linked dividend and employee bonus systems Repurchase of the company s shares (5.5 million shares) and retirement of treasury stock (4.3 million shares) 5) Maintaining of employment and contributing to communities Establishment of a re-employment system for retired employees 3. Key Measures of the New Mid-term Management Plan In order to overcome the current difficult economic situation and to maintain sustainable growth and improvement of the enterprise value of Maruichi Group, we have established the following measures and will make strategic investments. (1) Efficiency Improvement of the Existing Domestic Business 1) Efficiency improvement of domestic plants 2) Collaboration with Seikeicolumn and Toyo Superior Steel Tube (2) Overseas Business Development 1) Stable management and business development of Sun Steel in Vietnam Installation of 16 mill at the existing plant near Ho Chi Minh City and construction of a new pipe plant in Hanoi 2) Stable management and business development of Maruichi Metal Product in China 3) Strategic development in North America Expansion of business activities at Leavitt Tube and Maruichi American Corp. 4) Investment to secure stable procurement of materials 5) Strengthening of the control of overseas affiliated companies and establishment of internal control systems (3) Vigorous Development of New Business Fields 1) Entry to new product fields in Japan Examination of new product fields and collaboration with other companies 2) Entry to new markets/regions overseas Investigation of new business opportunities in Asia and North America (4) Improvement of Management Efficiency by Introduction of IT and Education of Employees 1) Improvement of management efficiency 2) Employee education targeting the next generation Employee education to foster human resources capable of working highly effectively overseas (5) Vigorous Commitment to Environmental Protection 1) Group-wide commitment to reduction of energy consumption and CO 2 emissions (6) Capital Efficiency 1) Capital policy emphasizing shareholders interests Maintaining of high return to shareholders. Share buyback and 40% payout ratio (7) Sustainable Development 1) Strengthened commitment to compliance, corporate governance and corporate social responsibility 2) Effective operation of internal control systems 3) Effort to improve management transparency

11 Product Overview All of the company s steel tubes are manufactured at plants whose scrupulous quality management systems cover every phase of the transformation of raw materials into finished products. Products are only shipped after they pass rigorous inspections to certify that they satisfy JIS and other international standards corresponding to their intended use. Maruichi Product Lines at a Glance Product Line Cross Section Public Standards JIS ASTM BS API OTHER Maruichis s Own Specs Available Size Range (in mm unless otherwise specified) G x1.9~508.0x19.0 ERW General Structural and Building Structural Tube G3466 A 500 BCR Green House GH 40x40x1.6~400x400x x150x6.0~400x400x ~42.7 1/2 x1/2 x0.039 ~ 16 x G x1.0~76.2x3.5 ERW Mechanical Tube STKMRK STKMRR 11x11x1.0~70x25x2.0 12x12x1.0~80x40x2.0 STKMRS 25x25x2.3~90x45x3.2 ERW Pipe Piling A x6.9~508.0x19.0 G3452 6A~500A ERW Gas / Water Pipe G A~300A G A~500A (Sch 40) A53 1/8 ~20 ERW OCTG and Line Pipe ERW Electrical Conduit C /8 ~6 5CT Casing 4-1/2 ~20 Tubing ~2-7/8 " 5L Line Pipe 1/2 ~20 ANSI C80.1 ANSI C80.3 Thick G16~G104 Thin C19~C75 Threadless E19~E75 1/2 ~6 IMC 1/2 ~4 EMT 1/2 ~2 " 31 3/4 ~ ~32 Tapered Pole and Other Fabricated Products JIL m~12m in height as standard 9

12 Product Overview General Structural and Building Structural Tubes Water Pipes, OCTGs and Electrical Conduits The company s strength-certified structural steel tube products fulfill vital roles in diverse fields, including architecture, civil engineering and machinery, while contributing to industrial development. Our structural steel tubes are currently used as structural columns for buildings ranging from low-rise to high-rise, scaffolding tubes and greenhouses, as well as in other construction and civil engineering fields. In September 2002, the company started manufacturing highly corrosion-resistant 55% aluminum-zinc plated structural steel tube products for use in agricultural facilities. Before piping materials for steam, water, gas and oil are shipped to customers, they must undergo rigorous inspections to certify that they meet JIS and other international standards corresponding to their intended use. The company s electrical cable conduits undergo hotdip galvanization on both sides of the tube to ensure both the wire and the cable are protected for a long period of time. These products are widely applied in plant construction projects and power generation plants around the world. (Above) Structual columns place (Left) Green house traming 10

13 Mechanical Tubes Steel tubes are integral to automobiles, motorcycles, bicycles, medical equipment, fitness machines, office automation equipment, office and educational furniture, among other products, and the company s high-precision products fulfill numerous useful roles for individuals and society. In particular, cutting-edge technology is essential for steel tubes for automotive applications, including high tensile steel (440N-1470N), in view of automakers ever increasing demands for lighter, stronger products at lower cost. Maruichi Steel Tube rises to the challenge by deploying expertise accumulated over the past fifty years in combination with the latest technology available. Maruichi Poles and Other Fabricated Products Steel structures, such as lamp posts, road signs, traffic lights and security barriers, ensure safety while creating aesthetically pleasing cityscapes or blending with the landscape. They are becoming increasingly important in contemporary society as highway networks are extended to provincial cities, high-density urban areas with numerous high-rise buildings proliferate, new towns are constructed, and environments are enriched to suit aspirational lifestyles. Our integrated management system encompasses design, fabrication and installation of these steel-pole products. We take pride in satisfying the most exacting safety standards for this vital infrastructure that contributes to the quality of life for everyone. 11

14 Network Strategically Located Manufacturing Facilities and Sales Network Domestic Network 2 1 Hokkaido Maruichi Steel Tube Ltd. Manufacture of steel tube and steel pole products (products from this company are sold by Maruichi Steel Tubes Ltd. and shipped to the Hokkaido and Tohoku regions of Japan via Maruichi Kohan Ltd., the sales subsidiary of the Group) Kyushu Maruichi Steel Tube Ltd. Manufacture of steel tubes (products of this company are sold by Maruichi Steel Tubes Ltd. and shipped to the Okinawa, Kyushu and part of the Chugoku regions of Japan via Maruichi Kohan Ltd., the sales subsidiary of the Group) Shikoku Maruichi Steel Tube Ltd. Manufacture of steel tube products Kasuga Industry Ltd. Cutting of steel tubes and distribution of accessory products for electrical conduits Maruichi Kohan Ltd. A trading division of the Maruichi Group that specializes in the sale of steel tubes manufactured by the Group Okinawa Maruichi Ltd. Sales and distribution of steel tube products as well as materials for water and electrical systems Maruichi Investment Co., Ltd. Operation and management of the Maruichi Business Fund Maruichi Steel Tube Ltd. Head Office/ Maruichi Kohan Ltd. Head Office/ Maruichi Investment Ltd. Sapporo Office Tokyo Office Nagoya Office Osaka Office Hiroshima Office Fukuoka Office Okinawa Maruichi Ltd. Main Office 1 Hokkaido Maruichi Steel Tube Ltd. Tomakomai Plant 2 Kashima Pole Plant 3 Tokyo Plant 4 Tokyo No.2 Plant 5 Nagoya Plant 6 Osaka Plant 7 Kasuga Industry Ltd. 8 Sakai Plant 9 Sakai Pole Plant 10 Shikoku Maruichi Steel Tube Ltd. Tachibana Plant 11 Takuma Plant 12 Shikoku Maruichi Steel Tube Ltd. Shikoku Plant 13 Kyushu Maruichi Steel Tube Ltd. Kyushu Plant Overseas Network Maruichi American Corporation (MAC) US-based subsidiary that manufactures and sells steel tube products to US West Coast markets Leavitt Tube Company, LLC (LTC) Manufacture and sales of steel tube products PT.Indonesia Steel Tube Works (ISTW) Manufacture and sales of steel tube products Maruichi Metal Product (Foshan) Co., Ltd. (MMP) Manufacture and sales of steel tubes and steel sheets Sun Steel Joint Stock Company (SUNSCO) Manufacture and sales of steel tube and galvanized/color steel sheet Maruichi American Corporation (MAC) Los Angeles Leavitt Tube Company, LLC (LTC) Chicago PT. Indonesia Steel Tube Works (ISTW) Jakarta PT. Indonesia Steel Tube Works (ISTW) Sewarang Maruichi Metal Product (Foshan) Co., Ltd. (MMP) Guangzhou Sun Steel Joint Stock Company (SUNSCO) Ho Chi Minh

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16 Consolidated Financial Review (1) Results of Operations Ratio of Net Sales by Region 14 Net Sales and Operating Income (Loss) Net sales rose 29.9% from the previous year to 154,280 million, and due to our booking of a term-end inventory evaluation loss, the cost of sales rose 45.1% from the previous year to 132,061 million. Consequently, the cost of sales ratio rose 9.0% to 85.6%. Furthermore, selling, general and administrative expenses increased by 1,388 million but this represents a 0.9% decline on a percentage-of-sales basis. As a result, operating income dropped 38.2% to 11,288 million. Operating results by business segment The steel tube business resulted in net sales of 129,094 million and operating income of 13,833 million. The steel sheet coating business resulted in net sales of 17,408 million and operating loss of 1,308 million. Others resulted in net sales of 7,778 million and operating loss of 481 million. Ratio of Net Sales by Segment Operating results by region Others 5.0% Steel Sheet Coating Business 11.3% Steel Tube Business 83.7% Japan Net sales were 113,137 million and operating loss was 2,124 million. North America Net sales were 24,052 million and operating income was 5,335 million. Asia Net sales were 17,174 million and operating income was 8,916 million. Other Income and Expenses Other income and expenses resulted in net expenses of 10,965 million in FY2009 (income of 19,982 million in the previous fiscal year). This was mainly due to equity in loss of affiliated companies, etc. of 1,111 million, losses on devaluation of investment in securities of 10,625 million, and a loss on impairment of 2,227 million. As a result, we posted a net loss of 1,660 million (income of 11,324 million in the previous fiscal year). (2) Analysis of the Financial Situation Asia 11.1% North America 15.6% Japan 73.3% Our financial situation changed dramatically because during the current fiscal year we acquired an equity stake in Leavitt Tube Company LLC through Sun Steel Joint Stock Company (SUNSCO) and MKK USA Inc., making Leavitt Tube Company LLC a consolidated subsidiary. Total assets at the end of FY2009 fell by 18,342 million from the previous fiscal year to 246,640 million. Current assets increased by 16,659 million to 113,234 million, mainly due to a 11,219 million increase in cash and bank deposits resulting from the sale of investments in securities, and a 12,858 million increase in inventories due to the new consolidation of SUNSCO and Leavitt Tube Company LLC. Property, plant and equipment increased by 12,628 million from the previous fiscal year to 64,795 million. This was mainly due to the aforementioned new consolidation. Investments and advance decreased by 57,531 million from the previous fiscal year to 57,876 million. This was mainly due to a 49,672 million decrease in investments in securities and a 8,055 decrease in investments in unconsolidated subsidiaries and affiliated companies from the previous fiscal year, which resulted from the posting of evaluation loss due to the decrease of unrealized gains from the downturn in the stock market and from sales of some of those securities.

17 Total liabilities at the end of FY2009 increased by 8,506 million to 44,266 million. Although shortterm bank loans increased by 13,015 million with the aforementioned new consolidation, deferred income taxes, which are tax equivalents of the unrealized holding gains of securities, decreased by 5,444 million since the market value of investments in securities decreased due to the decline of stock prices. Looking at total net assets at the end of FY2009, total shareholders equity decreased by 10,321 million mainly due to payment of 4,684 million in dividends and purchases of treasury stock amounting to 3,987 million. Moreover, unrealized holding gains on securities decreased by 15,236 million due to the decline in the market value of stocks, etc. As a result, total net assets decreased by 26,848 million to 202,374 million. (3) Cash Flows Cash and cash equivalents (hereinafter cash ) in FY 2009 increased by 5,249 million from the previous fiscal year to 42,131 million. The results of the various activities and their respective causes are outlined below. Cash flows from operating activities Cash flows provided by operating activities increased to 17,891 million ( 3,875 million up from the previous fiscal year). Major cash inflows included a 12,042 million decrease in trade receivables, and a 10,541 million inflow due to sales and devaluation of shortterm investments and investments in securities. Major cash outflows included a 4,708 million increase in inventories. Cash flows from investing activities Cash flows used in investing activities were 10,933 million ( 7,176 million up from the previous fiscal year). This was mainly due to expenditures of 5,073 million for purchases of investments in securities, 5,198 million for investments in affiliates resulting from the additional acquisition of shares of SUNSCO, and 9,433 million for acquisition of shares in consolidated subsidiaries due to the investments in MKK USA Inc. Whereas, there was a cash inflow of 20,827 million from sales of investments in securities. Cash flows from financing activities Cash flows used in financing activities were 1,991 million ( 12,826 million up from the previous fiscal year). This was mainly due to expenditures including 4,685 million in dividends paid and treasury stock purchases of 3,987 million, whereas cash inflows included a 7,298 million net increase in short-term bank loans. (%) 90 Cost of Sales Ratio Ratio of Selling, General and Administrative Expenses (%) 10 (Yen) 160 Net Income (loss) per Share Net Assets per Share (left scale) Equity Ratio (right scale) (Yen) (%) 2, , , ,

18 Consolidated Balance Sheets Maruichi Steel Tube Ltd. and Consolidated Subsidiaries Years ended March 31, 2009 and 2008 Thousands of U.S. dollars (Note 1) ASSETS Current assets: Cash and bank deposits (Note 3) 45,639 34,420 $ 464,615 Short-term investments (Note 4) 5,277 7,792 53,722 Trade notes and accounts receivable 25,952 34, ,203 Less allowance for doubtful accounts (324) (19) (3,302) Inventories (Note 5) 30,820 17, ,758 Deferred income taxes (Note 8) ,181 Others 5,066 1,329 51,569 Total current assets 113,234 96,575 1,152,746 Investments and advance: Investments in securities (Note 4) 47,547 97, ,034 Investments in unconsolidated subsidiaries and affiliated companies 7,129 15,184 72,574 Others 3,258 3,006 33,165 Less allowance for doubtful accounts (58) (2) (590) Total investments and advances 57, , ,183 Property, plant and equipment (Note 10): Land 29,419 28, ,488 Buildings and structures 36,834 31, ,981 Machinery and equipment 71,213 63, ,957 Construction in progress 1, , , ,375 1,416,637 Less accumulated depreciation (74,361) (71,208) (757,007) Total property, plant and equipment 64,795 52, ,630 Other assets: Deferred income taxes (Note 8) 5, ,486 Goodwill 3,119 31,748 Others 2, ,050 Total other assets 10, ,284 Total assets 246, ,982 $2,510,843 The accompanying notes are an integral part of these financial statements. 16

19 Thousands of U.S. dollars (Note 1) LIABILITIES AND NET ASSETS Current liabilities: Short-term bank loans (Note 6) 13,015 $ 132,495 Payables Trade notes and accounts 18,559 15, ,934 Construction 1,960 1,081 19,956 Other 1,605 2,664 16,334 Accrued income taxes (Note 8) 1,210 3,224 12,321 Accrued bonuses to employees ,862 Accrued bonuses to directors and corporate auditors Accrued expenses 1,464 1,315 14,903 Deferred income taxes (Note 8) Others ,186 Total current liabilities 39,164 25, ,692 Long-term liabilities: Long-term debt (Note 6) 586 5,964 Accrued retirement benefits to directors and corporate auditors Accrued retirement benefits (Note 7) 3,601 3,803 36,661 Deferred income taxes (Note 8) 231 5,675 2,352 Others ,997 Total long-term liabilities 5,102 10,063 51,943 Total liabilities 44,266 35, ,635 Contingencies (Note 11) Net assets (Note 12): Shareholders equity Common stock authorized: 200,000,000 shares in 2009 and 2008 issued: 94,000,000 shares in 2009 and 98,267,197 shares in ,595 9,595 97,680 Additional paid-in capital 15,822 15, ,070 Retained earnings 176, ,573 1,794,000 Less treasury stock at cost 6,081,593 shares in 2009 and 8,843,825 shares in 2008 (14,713) (20,745) (149,780) Total shareholders equity 186, ,250 1,902,970 Unrealized holding gains on securities (1,552) 13,684 (15,802) Foreign currency translation adjustments (4,956) (926) (50,451) Minority interests 21,892 19, ,866 Stock options (Note 13) Total net assets 202, ,222 2,060,208 Total liabilities and net assets 246, ,982 $2,510,843 17

20 Consolidated Statements of Income Maruichi Steel Tube Ltd. and Consolidated Subsidiaries Years ended March 31, 2009 and 2008 Thousands of U.S. dollars (Note 1) Net sales 154, ,813 $1,570,597 Cost of sales (Note 5) 132,061 91,000 1,344,406 Gross profit 22,219 27, ,191 Selling, general and administrative expenses (Notes 9&14) 10,931 9, ,274 Operating income 11,288 18, ,917 Other income (expense): Interest and dividend income 3,073 2,714 31,279 Interest expense (600) (6,112) Gains on sales of property, plant and equipment, net ,058 Gains on sales on investments in securities 2,582 26,287 Reversal of allowance for doubtful accounts 11 Exchange gain or loss, net (36) (172) (362) Equity in earnings of affiliated companies, etc (1,111) 758 (11,309) Losses on sales of investments in securities (2,497) (25,417) Losses on devaluation of investment in securities (10,625) (2,579) (108,168) Loss on impairment (2,227) (22,672) Other, net ,791 (10,965) 1,712 (111,625) Income before income taxes and minority interests ,982 3,292 Income taxes (Note 8) Current 3,940 8,494 40,112 Deferred (1,258) (561) (12,811) 2,682 7,933 27,301 Income (loss) before minority interests (2,359) 12,049 (24,009) Minority interests (699) 725 (7,115) Net income (loss) ( 1,660) 11,324 ($ 16,894) Yen U.S. dollars (Note 1) Per share amounts: Net income (loss) Basic ( 18.68) ($0.19) Diluted Cash dividends $0.51 Weighted average number of shares (thousands) Common stock 88,843 90,517 Dilutive securities (stock options) The accompanying notes are an integral part of these financial statements.

21 Consolidated Statements of Changes in Net Assets Maruichi Steel Tube Ltd. and Consolidated Subsidiaries Years ended March 31, 2009 and 2008 Thousands of U.S. dollars (Note 1) Shareholders equity Common stock Balance at beginning of the year 9,595 9,595 $ 97,680 Total changes during the year Balance at end of the year 9,595 9,595 97,680 Additional paid-in capital Balance at beginning of the year 15,827 15, ,126 Changes during the year: Sales of treasury stock Retirement of treasury stock (5) 0 (59) Total changes during the year (5) 1 (56) Balance at end of the year 15,822 15, ,070 Retained earnings Balance at beginning of the year 192, ,172 1,960,428 Changes during the year: Cash dividends (4,684) (5,605) (47,691) Net income (loss) (1,660) 11,324 (16,894) Increase due to changes of share in consolidated subsidiaries 2,218 Increase resulting from a newly affiliate accounted for by the equity method 464 Sales of treasury stock Retirement of treasury stock (10,004) 0 (101,843) Total changes during the year (16,348) 8,402 (166,428) Balance at end of the year 176, ,574 1,794,000 Treasury stock Balance at beginning of the year (20,745) (11,687) (211,193) Changes during the year: Purchase of treasury stock (3,987) (9,063) (40,585) Sales of treasury stock Retirement of treasury stock 10, ,902 Total changes during the year 6,032 (9,058) 61,413 Balance at end of the year (14,713) (20,745) (149,780) Total shareholders equity Balance at beginning of the year 197, ,906 2,008,042 Changes during the year: Cash dividends (4,684) (5,605) (47,691) Net income (loss) (1,660) 11,324 (16,894) Purchase of treasury stock (3,987) (9,063) (40,586) Sales of treasury stock Retirement of treasury stock 0 0 Increase due to changes of share in consolidated subsidiaries 2,218 Increase resulting from a newly affiliate accounted for by the equity method 464 Total changes during the year (10,321) (656) (105,072) Balance at end of the year 186, ,250 1,902,970 19

22 Consolidated Statements of Changes in Net Assets Maruichi Steel Tube Ltd. and Consolidated Subsidiaries Years ended March 31, 2009 and 2008 Thousands of U.S. dollars (Note 1) Valuation and translation adjustments Unrealized holding gains (losses) on securities Balance at beginning of the year 13,684 21,945 $ 139,306 Net changes in items other than shareholders equity (15,236) (8,261) (155,108) Balance at end of the year (1,552) 13,684 (15,802) Foreign currency translation adjustments Balance at beginning of the year (926) (1,171) (9,431) Net changes in items other than shareholders equity (4,030) 245 (41,020) Balance at end of the year (4,956) (926) (50,451) Total valuation and translation adjustment Balance at beginning of the year 12,758 20, ,875 Net changes in items other than shareholders equity (19,266) (8,016) (196,128) Balance at end of the year (6,508) 12,758 (66,253) Minority interests Balance at beginning of the year 19,172 21, ,173 Net changes in items other than shareholders equity 2,720 (2,695) 27,693 Balance at end of the year 21,892 19, ,866 Stock options Balance at beginning of the year Net changes in items other than shareholders equity Balance at end of the year Total net assets Balance at beginning of the year 229, ,572 2,333,522 Changes during the year: Cash dividends (4,684) (5,605) (47,691) Net income (loss) (1,660) 11,324 (16,894) Purchase of treasury stock (3,987) (9,063) (40,585) Sales of treasury stock Retirement of treasury stock Increase due to changes of share in consolidated subsidiaries 2,218 Increase resulting from a newly affiliate accounted for by the equity method 464 Net changes in items other than shareholders equity (16,527) (10,694) (168,242) Total changes during the year (26,848) (11,350) (273,314) Balance at end of the year 202, ,222 $2,060,208 20