ONOKEN CO., LTD. and Consolidated Subsidiaries. Consolidated Balance Sheets

Transcription

1 ONOKEN CO., LTD. and Consolidated Subsidiaries Consolidated Balance Sheets March 31, (Millions of yen) (Thousands of U.S. dollars) (Note 1) Assets Current assets: Cash and time deposits (Notes 3 and 6) \ 1,398 \ 2,326 $ 14,232 Trade notes and accounts receivable 47,879 51, ,417 Other receivables ,459 Inventories: Finished products 11,566 11, ,744 Raw materials ,492 Deferred tax assets (Note 9) ,822 Other current assets 2,011 2,904 20,472 Allowance for doubtful accounts (270) (217) (2,749) Total current assets 63,547 68, ,920 Property, plant and equipment (Note 6): Land 18,203 14, ,310 Buildings and structures 13,108 13, ,442 Machinery and equipment 1,545 1,344 15,728 Construction in progress 403-4,103 33,259 29, ,583 Accumulated depreciation (7,343) (7,751) (74,753) Property, plant and equipment, net 25,921 22, ,881 Investments and other assets: Investment securities (Notes 4 and 6) ,307 Investments in an unconsolidated subsidiary and an associated company ,456 Deferred tax assets (Note 9) ,474 Other 1,656 1,988 16,858 Allowance for doubtful accounts (628) (1,300) (6,393) Total investments and other assets 2,232 2,682 22,722 Total assets \ 91,703 \ 93,162 $ 933,

2 March 31, (Millions of yen) (Thousands of U.S. dollars) (Note 1) Liabilities and net assets Current liabilities: Short-term bank loans (Notes 5 and 6) \ 11,400 \ 5,500 $ 116,054 Current portion of long-term debt (Notes 5 and 6) 216 1,201 2,199 Trade notes and accounts payable (Note 6) 28,925 33, ,462 Other payables 1, ,489 Income taxes payable 52 1, Accrued employees bonuses ,955 Accrued directors and corporate auditors bonuses Other current liabilities 1,525 1,140 15,525 Total current liabilities 43,708 43, ,956 Long-term liabilities: Long-term debt (Notes 5 and 6) 4,025 6,824 40,975 Accrued employees retirement benefits (Note 8) ,294 Accrued directors and corporate auditors retirement benefits ,074 Other long-term liabilities (Note 6) ,265 Negative goodwill Total long-term liabilities 5,269 7,983 53,639 Total liabilities 48,977 51, ,595 Commitments and contingent liabilities (Notes 5 and 13) Net assets: Shareholders equity: Common stock: Authorized: 50,000,000 shares at March 31, 2009 and 2008 Issued: 21,244,830 shares at March 31, 2009 and 20,782,725 shares at March 31, ,780 3,358 38,481 Capital surplus 3,509 3,077 35,722 Retained earnings 35,902 35, ,489 Treasury stock, at cost: 518,570 shares at March 31, 2009 and 547,376 shares at March 31, 2008 (602) (635) (6,128) Total shareholders equity 42,590 41, ,574 Valuation and translation adjustments: Net unrealized gains on other securities ,374 Deferred (losses) gains on hedges 0 (57) 0 Total valuation and translation adjustments ,374 Minority interests Total net assets 42,725 41, ,949 Total liabilities and net assets \ 91,703 \ 93,162 $ 933,554 See accompanying notes to consolidated financial statements

3 ONOKEN CO., LTD. and Consolidated Subsidiaries Consolidated Statements of Income Years ended March 31, (Millions of yen) (Thousands of U.S. dollars) (Note 1) Net sales \ 167,751 \ 142,504 $ 1,707,737 Cost of sales 157, ,880 1,602,474 Gross profit before adjustment for unrealized profit on installment sales 10,339 10, ,253 Adjustment for unrealized profit on installment sales Gross profit 10,339 10, ,253 Selling, general and administrative expenses (Note 11) 7,305 5,319 74,366 Operating income 3,033 5,304 30,877 Other income (expenses): Interest and dividend income Interest expense (75) (38) (764) Gain (loss) on disposal and sale of property, plant and equipment, net 95 (9) 967 Gain (loss) on sale of investment securities, net (Note 4) (3) 2 (31) Impairment loss on investment securities (Note 4) (72) (52) (733) Other, net , ,245 Income before income taxes 3,449 5,399 35,111 Income taxes (Note 9): Current 1,015 2,334 10,333 Deferred 711 (74) 7,238 Total income taxes 1,726 2,260 17,571 Minority income 241-2,453 Net income \ 1,481 \ 3,139 $ 15,077 (Yen) (U.S. dollars) Amounts per share (Note 14): Net income: Basic \ \ $ 0.74 Diluted Cash dividends See accompanying notes to consolidated financial statements

4 ONOKEN CO., LTD. and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets Number of shares of common stock issued Common stock Capital Retained surplus earnings (Millions of yen) Treasury stock, at cost Total shareholders equity Balance at March 31, ,782,725 3,358 3,072 33,002 (647) 38,786 Net income ,139-3,139 Cash dividends (708) - (708) Purchases of treasury stock (0) (0) Exercise of stock acquisition rights Balance at March 31, ,782,725 3,358 3,077 35,433 (635) 41,234 Net income ,481-1,481 Cash dividends (1,012) - (1,012) Purchases of treasury stock (2) (2) Exercise of stock acquisition rights Issuance of new shares 462, Balance at March 31, ,244,830 3,780 3,509 35,902 (602) 42,590 Common stock Capital surplus Retained earnings Treasury stock, at cost (Thousands of U.S. dollars) (Note 1) Total shareholders equity Balance at March 31, 2008 $34,185 $31,324 $360,715 $ (6,464) $419,770 Net income ,077-15,077 Cash dividends - - (10,302) - (10,302) Purchases of treasury stock (20) (20) Exercise of stock acquisition rights Issuance of new shares 4,286 4, ,582 Balance at March 31, 2009 $38,481 $35,722 $365,489 $(6,128) $433,

5 ONOKEN CO., LTD. and Consolidated Subsidiaries Consolidated Statements of Changes in Net Assets (continued) Net unrealized gains on other securities Deferred gains (losses) on hedges Total valuation and translation adjustments (Millions of yen) Minority interests Total net assets Balance at March 31, ,226 Net income - - 3,139 Cash dividends (708) Purchases of treasury stock (0) Exercise of stock acquisition rights Net changes in items other than shareholders equity during the year (276) (60) (336) 235 (101) Balance at March 31, (57) ,573 Net income ,481 Cash dividends (1,012) Purchases of treasury stock (2) Exercise of stock acquisition rights Issuance of new shares Net changes in items other than shareholders equity during the year (25) (235) (203) Balance at March 31, ,725 Net unrealized gains on other securities Deferred gains (losses) on hedges Total valuation and translation adjustments Minority interests Total net assets (Thousands of U.S. dollars) (Note 1) Balance at March 31, 2008 $1,639 $ (580) $1,049 $2,392 $423,221 Net income ,077 Cash dividends (10,302) Purchases of treasury stock (20) Exercise of stock acquisition rights Issuance of new shares ,582 Net changes in items other than shareholders equity during the year (255) (2,392) (2,067) Balance at March 31, 2009 $1,374 $0 $1,374 - $434,949 See accompanying notes to consolidated financial statements

6 ONOKEN CO., LTD. and Consolidated Subsidiaries Consolidated Statements of Cash Flows Years ended March 31, (Millions of yen) (Thousands of U.S. dollars) (Note 1) OPERATING ACTIVITIES: Income before income taxes \ 3,449 \ 5,399 $ 35,111 Depreciation and amortization ,332 Gain (loss) on disposal and sale of property, plant and equipment, net (129) 9 (1,313) Gain (loss) on sale of investment securities, net 2 (1) 20 Impairment loss on investment securities Interest and dividend income (46) (29) (468) Interest expense Decrease in trade notes and accounts receivable 4,717 3,136 48,020 Increase in inventories (584) (2,367) (5,945) Increase (decrease) in allowance for doubtful accounts (620) 1 (6,312) Decrease in trade notes and accounts payable (3,915) (7,147) (39,855) Other, net 150 (527) 1,527 3,798 (956) 38,664 Interest and dividends received Interest paid (73) (38) (743) Income taxes paid (2,236) (2,467) (22,763) Net cash provided by (used in) operating activities 1,521 (3,437) 15,484 INVESTING ACTIVITIES: Proceeds from sales of property, plant and equipment ,255 Purchases of property, plant and equipment (4,089) (2,287) (41,627) Purchases of investment securities (3) (145) (31) Proceeds from sale of investment securities Cash acquired from purchase of a subsidiary, net of cash paid Other, net (81) (6) (825) Net cash used in investing activities (3,739) (2,214) (38,064) FINANCING ACTIVITIES: Increase in short-term bank loans, net 5,900 1,500 60,063 Repayment of long-term debt (3,638) - (37,036) Proceeds from long-term debt - 5,005 - Purchase of treasury stock (3) 0 (31) Proceeds from sale of treasury stock 3-31 Exercise of stock acquisition rights

7 Cash dividends paid (1,013) (708) (10,313) Net cash provided by financing activities 1,289 5,814 13,122 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (927) 162 (9,437) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 2,214 2,052 22,539 CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) \ 1,286 \ 2,214 $ 13,092 See accompanying notes to consolidated financial statements

8 ONOKEN CO., LTD. and Consolidated Subsidiaries Notes to Consolidated Financial Statements Years Ended March 31, 2009 and BASIS OF PRESENTATION The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Financial Instruments and Exchange Law of Japan and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards. In preparing the accompanying 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 to the 2008 consolidated financial statements to conform to the classifications used in The consolidated financial statements are stated in Japanese yen, the currency of the country in which ONOKEN CO., LTD. (the Company ) is incorporated and operates. 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 to $1, the rate of exchange in effect at March 31, Such translation should not be construed as a representation that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. As permitted under the Financial Instruments and Exchange Law of Japan, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and in U.S. dollars) do not necessarily agree with the sums of individual amounts

9 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Consolidation The accompanying consolidated financial statements include the accounts of the Company and 2 significant (2 in 2008) subsidiaries controlled directly by the Company (together, the Group ). On March 31, 2008, the Company acquired a majority interest in Yokohama Kogyo Co., Ltd. ( Yokohama Kogyo ), which became a consolidated subsidiary. As a result, the accompanying consolidated financial statements for the year ended March 31, 2008 have reflected only the balance sheet of Yokohama Kogyo as of March 31, Investments in an unconsolidated subsidiary and an associated company, not significant in amount, are stated at cost. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group has also been eliminated. b. Cash Equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to an insignificant risk of changes in value. Cash equivalents include time deposits which become due within three months from the date of acquisition. c. Allowance for Doubtful Accounts The allowance for doubtful accounts is provided at an amount determined based on the historical experience of bad debts with respect to ordinary receivables, plus an estimate of uncollectible amounts determined by reference to specific doubtful receivables from customers which are experiencing financial difficulties. d. Inventories Inventories are stated at the lower of cost or net selling value, cost determined by the moving-average method. In July 2006, the Accounting Standards Board of Japan ( ASBJ ) issued ASBJ Statement No. 9, Accounting Standard for Measurement of Inventories. This standard requires that inventories held for sale in the ordinary course of business be - 9 -

10 measured at the lower of cost or net selling value, which is defined as the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate. The standard was effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. The effect of the adoption of this new method was to decrease both operating income and income before income taxes by 4,619 million ($47,022 thousand) for the year ended March 31, 2009 from the corresponding amounts which would have been reported under the previous method. The effect of this change on segment information is explained in Note 17. e. Investment Securities Marketable securities classified as other securities are reported at fair value, with unrealized gains or losses, net of applicable income taxes, included in a separate component of net assets. Non-marketable securities classified as other securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, securities are reduced to their respective net realizable value by a charge to income. f. Property, Plant and Equipment Property, plant and equipment are stated at cost. Depreciation of the Group s property, plant and equipment is generally computed by the declining-balance method. The straight-line method is applied, however, to buildings acquired by the Group on or after April 1, The range of estimated useful lives is principally from 10 to 47 years for buildings and structures and from 4 to 12 years for machinery and equipment. In 2009, the Company and consolidated subsidiaries have changed the range of estimated useful lives to be between 6 to 12 years for machinery. The effect of this change on the accompanying consolidated financial statements is immaterial. Effective the year ended March 31, 2008, the Group adopted a new depreciation method for property, plant and equipment acquired on or after April 1, 2007, in accordance with the revision to the Corporation Tax Law. The effect of the adoption of this new method was to decrease both operating income and income before income taxes by 27 million ($275 thousand) for the year ended March 31, 2008 from the corresponding amounts which would have been reported under the previous method

11 The revision also affected property, plant and equipment acquired on or before March 31, 2007, which are depreciated using the method provided for under the pre-amended law. Under the new law, when the carrying amount of such asset reaches 5% of its acquisition cost, the Group is allowed to depreciate the difference between the carrying amount and the memorandum value of the asset by the straight-line method over five years following the fiscal year when the carrying amount reaches the 5% of its acquisition cost. The effect of the adoption of this new method was to decrease both operating income and income before income taxes by 11 million for the year ended March 31, 2008 from the corresponding amounts which would have been reported under the previous method. g. Impairment Loss on Long-lived Assets The Group reviews its long-lived assets for impairment whenever events or changes in circumstance indicate that the carrying amount of an asset or asset group may not be recoverable. An impairment loss is recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposal of the asset or asset group. The impairment loss is measured as the amount by which the carrying amount of the asset or asset group exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposal of the asset or asset group or the net selling price at disposal. h. Software Certain costs for computer software for internal use are capitalized and amortized using the straight-line method over an estimated useful life of five years. i. Stock Issuance Costs Stock issuance costs are charged to income as incurred. j. Bond Issuance Costs Bond issuance costs are charged to income as incurred. k. Accrued Employees Bonuses Accrued employees bonuses are provided at an amount estimated to be paid to employees for the current year s services subsequent to the balance sheet date. l. Accrued Directors and Corporate Auditors Bonuses Accrued directors and corporate auditors bonuses are provided at an amount estimated be paid to directors - 11-

12 and corporate auditors for the current year s services subsequent to the balance sheet date. m. Retirement Benefit Plans The Group accounts for the liability for retirement benefits based on the projected benefit obligation and plan assets at the balance sheet date. Actuarial gains and losses are fully charged or credited to income in the year following the year in which the gains or losses are recognized. Retirement benefits to directors and corporate auditors of the Company are provided at the amount which would be required if all directors and corporate auditors retired at the balance sheet date based on the Company s internal rules. n. Revenue Recognition Revenue on installment sales is recognized when the related receivables become due. The unrealized profit on installment sales corresponding to the portion of such receivables is deferred and is recorded as a component of Other current liabilities in the accompanying consolidated balance sheets. o. Leases In March 2007, the Accounting Standards Board of Japan ( ASBJ ) issued ASBJ Statement No. 13, Accounting Standard for Lease Transactions, which revised the former accounting standard for lease transactions issued in June 1993, and ASBJ Guidance No. 16, Guidance on Accounting Standard for Lease Transactions, which revised the former guidance issued in January The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, Accordingly, the Company has applied the revised accounting standards from April 1, The revised accounting standard requires that all finance lease transactions should be capitalized to recognize leased assets and lease obligations in the balance sheet. However, finance lease transactions which do not transfer ownership, commencing before April 1, 2008, continue to be accounted for in the same manner as operating leases. The change has no effect on the accompanying consolidated financial statements. p. Income Taxes Deferred tax assets and liabilities are determined based on the differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured using the enacted tax rates and laws which - 12-

13 will be in effect when the differences are expected to reverse. q. Foreign Currency Transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates prevailing at the balance sheet date, except for assets and liabilities hedged by forward foreign exchange contracts. All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when such transactions were made. The resulting foreign exchange gains and losses are credited or charged to income. r. Derivatives and Hedging Activities The Company employs derivative financial instruments to manage its exposures to fluctuations in foreign exchange rates. Specifically, forward foreign exchange contracts are employed by the Company to reduce foreign currency exchange risks. The Company 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 gains or losses on derivative transactions are credited or charged to income and b) gains or losses on derivatives used for hedging purposes that qualify for hedge accounting because of a high correlation and degree of effectiveness between the hedging instruments and the hedged items are deferred until the hedged transactions reach maturity. s. Per Share Information Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Cash dividends per share presented in the accompanying consolidated statements of income are based on dividends applicable to the respective years including dividends to be paid after the end of the year

14 t. Amortization of Goodwill The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acquisition is amortized on a straight-basis within 5 years. The immaterial difference between the cost of an acquisition and the fair value of the net assets of the acquired subsidiary at the date of acquisition is fully charged to income. 3. RECONCILIATION OF CASH AND TIME DEPOSITS TO CASH AND CASH EQUIVALENTS Cash and cash equivalents in the consolidated statements of cash flows as of March 31, 2009 and 2008 were as follows: Thousands of Millions of Yen U.S. Dollars Cash and time deposits 1,398 2,326 $14,232 Time deposits with original maturities of more than three months (112) (112) (1,140) Cash and cash equivalents 1,286 2,214 $13,092 The following table shows the information on a new subsidiary s assets and liabilities as of the date of consolidation: Proceeds from purchase of a subsidiary, net of cash paid: Assets acquired - \5,523 - Liabilities assumed - (4,560) - Goodwill acquired - (12) - Minority interests assumed - (235) - Cash and cash equivalents acquired - (927) - Cash received from the purchase - \ (211)

15 4. INVESTMENT SECURITIES The aggregate cost, gross unrealized gains and losses, and aggregate fair values of investment securities classified as other securities at March 31, 2009 and 2008 were as follows: Millions of Yen Unrealized Unrealized Fair March 31, 2009 Cost Gains Losses Value Equity securities (41) 736 March 31, 2008 Equity securities (38) 848 Thousands of U.S. Dollars Unrealized Unrealized Fair March 31, 2009 Cost Gains Losses Value Equity securities $5,182 $2,728 $(417) $7,493 Securities whose fair value as of March 31, 2009 and 2008 was not readily determinable were as follows: Carrying amount Thousands of Millions of Yen U.S. Dollars Other securities: Unlisted equity securities $814 Proceeds from sales of securities classified as other securities for the year ended March 31, 2009 were 15 million ($153 thousand). Gross realized gains and losses on these sales, - 15-

16 computed on the moving average cost basis, were 2 million ($20 thousand) and 5 million ($51 thousand), respectively, for the year ended March 31, Impairment losses on investment securities due to other than temporary declines in fair value of 72 million ($733 thousand) and 52 million were recognized for the years ended March 31, 2009 and 2008, respectively. 5. SHORT-TERM BANK LOANS AND LONG-TERM DEBT Short-term bank loans at March 31, 2009 and 2008 represented outstanding balances, with weighted average interest rates of 0.52% and 0.95% per annum, respectively, under overdraft agreements with banks of up to 25,500 million ($259,595 thousand) and 24,000 million in the aggregate, respectively. As described in Note 6, certain assets are collateralized for short-term bank loans. As is customary in Japan, moreover, the Company maintains substantial deposit balances in banks from which it has borrowings. Such deposit balances are not legally or contractually restricted as to withdrawals. Long-term debt as of March 31, 2009 consisted of the following: Millions of Yen Thousands of U.S. Dollars Unsecured zero coupon yen convertible bonds with stock acquisition rights, due ,447 $24,911 Loans from banks, with a weighted average annual interest rate of 1.49%, due serially to ,794 18,263 Long-term capital lease obligations 2 20 Total 4,243 43,195 Less current portion (216) (2,199) Long-term debt, less current portion 4,027 $40,

17 The stock acquisition rights issued with the convertible bonds are undetachable and entitle the holders to subscribe for shares of the Company s common stock through September 6, 2011, at the exercise price of 1,736 ($17.67) per share at March 31, The exercise price of the stock acquisition rights of the convertible bonds is subject to adjustments to reflect stock splits and certain other events. If all these outstanding rights had been exercised at March 31, 2009, 1,405,529 shares of common stock would have been issued. Annual maturities of long-term debt as of March 31, 2009, were as follows: Year Ending March 31 Millions of Yen Thousands of U.S. Dollars $2, , ,673 37,392 Total 4,240 $43,164 The Company has entered into overdraft agreements amounting to 25,500 million ($259,595 thousand) with banks. Loans payable outstanding at March 31, 2009 under those overdraft agreements amounted to 11,400 million ($116,054 thousand). 6. PLEDGED ASSETS The carrying amounts of assets pledged as collateral and the corresponding liabilities secured at March 31, 2009 and 2008 were as follows: - 17-

18 Thousands of Millions of Yen U.S. Dollars Assets pledged as collateral: Time deposits $1,140 Buildings and structures, net of accumulated depreciation ,925 Land 2,005 2,005 20,411 Investment securities Total 2,700 2,753 $27,487 Liabilities secured: Trade notes and accounts payable $193 Short-term bank loans ,952 Current portion of long-term debt 200 1,120 2,036 Long-term debt 1,467 1,667 14,934 Other long-term liabilities ,018 Total 2,077 3,198 $21, STOCK OPTION PLANS The Company has two stock option plans for the granting of non-transferable options to certain eligible directors of the Company and key employees of the Group. On August 5, 2002, options were granted to certain eligible directors of the Company and key employees of the Company for a term of eight years to purchase an aggregate of 462,000 shares of common stock of the Company at 613 ($6.24) per share. The exercise price could be subject to adjustment for certain events. The options became exercisable on June 28, ,000 options were forfeited during the year ended March 31, 2008, and 10,000 options were outstanding as of March 31, ,000 shares of common stock were issued as a result of the exercise of stock options during the year ended March 31, 2009, and 7,000 options were outstanding as of March 31, The average stock price - 18-

19 at exercise dates was 1,792 ($18.24) per share for the year ended March 31, Additionally, on July 26, 2004, options were granted to certain eligible directors of the Company and key employees of the Group for a term of six years to purchase an aggregate of 586,000 shares of common stock of the Company at 1,585 ($16.14) per share. The exercise price could be subject to adjustment for certain events. The options became exercisable on June 26, ,000 options were exercised and 23,000 options were forfeited during the year ended March 31, 2008, and 498,000 options were outstanding as of March 31, The average stock price at exercise dates was 1,801 per share for the year ended March 31, ,500 options were exercised and 15,000 options were forfeited during the year ended March 31, 2009, and 457,500 options were outstanding as of March 31, The average stock price at exercise dates was 1,768 ($18.00) per share for the year ended March 31, RETIREMENT BENEFIT PLANS The Company and its consolidated subsidiaries have defined benefit plans, such as tax-qualified pension plans, lump-sum payment plans and other types of defined benefit plans covering substantially all employees who are entitled to lump-sum or annuity payments, the amounts of which are determined by reference to their basic rates of pay, length of service, and conditions under which termination occurs. The following table sets forth the funded and accrued status of the plans, and the amounts recognized in the consolidated balance sheets as of March 31, 2009 and 2008 for the defined benefit plans of the Company and the consolidated subsidiaries. Thousands of Millions of Yen U.S. Dollars Retirement benefit obligation (943) (960) $(9,600) Fair value of plan assets ,948 Unfunded retirement benefit obligation (457) (466) (4,652) Unrecognized actuarial loss Prepaid pension costs Accrued employees retirement benefits (520) (522) $(5,294) - 19-

20 The components of retirement benefit expenses for the years ended March 31, 2009 and 2008 were as follows: Thousands of Millions of Yen U.S. Dollars Service cost $784 Interest cost Expected return on plan assets (4) (4) (41) Amortization of actuarial (gain) loss 10 (10) 102 Net periodic benefit costs $1,038 The assumptions used in accounting for the above plans are set forth as follows: Discount rate 2.00% 2.00% Expected rate of return on plan assets 1.00% 1.00% 9. INCOME TAXES The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a statutory tax rate of approximately 40.4% for the years ended March 31, 2009 and The significant components of deferred tax assets and liabilities at March 31, 2009 and 2008 were as follows: - 20-

21 Thousands of Millions of Yen U.S. Dollars Deferred tax assets: Allowance for doubtful accounts $2,148 Accrued employees bonuses Accrued employees retirement benefits ,863 Accrued directors and corporate auditors retirement benefits ,242 Impairment loss ,233 Tax loss carryforwards 1,512 1,709 15,392 Accrued enterprise tax Other ,558 2,777 3,128 28,270 Valuation allowance (2,066) (1,759) (21,032) Total deferred tax assets 710 1,369 7,228 Deferred tax liabilities: Net unrealized gains on other securities (91) (109) (926) Reserve for advanced depreciation of fixed assets (187) (104) (1,904) Enterprise tax refundable (8) - (81) Total deferred tax liabilities (288) (214) (2,932) Net deferred tax assets 422 1,155 $4,

22 A reconciliation between the statutory tax rate and the Company s effective tax rate for the year ended March 31, 2009 was as follows: 2009 Normal effective statutory tax rate 40.4 % Expenses not deductible for income tax purposes 0.4 Revenue not taxable for income tax purposes (0.1) Valuation allowance 14.9 Other net (5.6) Actual effective tax rate 50.0 % There were no significant differences between the statutory tax rate and the Company s effective tax rate for the year ended March 31,

23 10. LEASES Finance Leases The following pro forma amounts represent the acquisition cost (including the interest portion thereof), accumulated depreciation and net book value of the leased assets as of March 31, 2009 and 2008 which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases: Thousands of Millions of Yen U.S. Dollars Machinery and equipment: Acquisition cost $193 Accumulated depreciation (16) (20) (163) Net book value 2 8 $20 Lease payments relating to finance leases accounted for as operating leases amounted to 4 million ($41 thousand) and 3 million, which were equal to the depreciation expense of the leased assets computed by the straight-line method over the respective lease terms, for the years ended March 31, 2009 and 2008, respectively. Future minimum lease payments (including the interest portion thereof) subsequent to March 31, 2009 for finance leases accounted for as operating leases are summarized as follows: Year ending March 31, Millions of Yen Thousands of U.S. Dollars $ and thereafter 0 0 Total 2 $20-23-

24 Operating Leases The minimum rental commitments under noncancelable operating leases at March 31, 2009 are summarized as follows: Year ending March 31, Millions of Yen Thousands of U.S. Dollars $ and thereafter 1 10 Total 4 $ RELATED PARTY TRANSACTIONS Transactions with related parties for the years ended March 31, 2009 and 2008 were as follows: Thousands of Millions of Yen U.S. Dollars Selling, general and administrative expenses DERIVATIVES The Company enters into forward foreign exchange contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. All derivative transactions are entered into to hedge foreign currency exposures related to the Company s business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedged assets or liabilities. Because the counterparties to these derivatives are limited to major international financial institutions, the Company does not anticipate any losses arising from credit risk. Derivative transactions entered into by the Company have been made by its accounting - 24-

25 department under the supervision of responsible management in accordance with internal policies. The disclosure of fair value of derivatives at March 31, 2009 and 2008 has been omitted since all derivatives have been accounted for as hedges. 13. CONTINGENT LIABILITIES At March 31, 2009, the Company is contingently liable for notes receivable endorsed with recourse in the ordinary course of business, amounting 11 million ($112 thousand). 14. NET INCOME PER SHARE A reconciliation of the differences between basic and diluted net income per share ( EPS ) for the years ended March 31, 2009 and 2008 is as follows: Millions of Yen Thousands Yen U.S. Dollars Weighted Average Net Income Number of Shares EPS For the year ended March 31, 2009: Basic EPS: Net income available to common shareholders 1,481 20, $0.74 Effect of dilutive securities: Stock options - 4 Convertible bonds - 2,018 Diluted EPS: Net income for computation 1,481 22, $

26 Millions of Yen Thousands Yen U.S. Dollars Net Weighted Average Number of Income Shares EPS For the year ended March 31, 2008: Basic EPS: Net income available to common shareholders 3,139 20, $1.58 Effect of dilutive securities: Stock options - 6 Convertible bonds - 1,221 Diluted EPS: Net income for computation 3,139 21, $ BUSINESS COMBINATIONS Transactions under common control during the year ended March 31, 2009 were as follows: (1) Outline of the transaction (a) Names and business of combined entity Yokohama Kogyo Co., Ltd.; Sale of Steel Products (b) Form of business combination Making Yokohama Kogyo Co., Ltd. a wholly-owned subsidiary by share exchange (c) Name of the entity after the reorganization Parent company: Onoken Co., Ltd. Subsidiary: Yokohama Kogyo Co., Ltd. (d) Outline and purpose of the transaction (i) Purpose of the transaction The Company and Yokohama Kogyo both agreed upon the necessity of - 26-

27 enhancing the strategic integrity and agility of the Group, and making effective use of the management resources. Considering further development of the whole Group, both parties agreed and entered into a share swap agreement to make Yokohama Kogyo a wholly-owned subsidiary of the Company. (ii) Date of the transaction October 1, 2008 (2) Summary of the Accounting Treatment of the Transactions As the share exchange was a transaction with minority shareholders under common control, the whole amount of minority interests have been reversed by making the company a wholly-owned subsidiary. The difference between the amount of the additional investment and the decrease in minority interests was accounted for as goodwill. (3) Information Concerning the Acquisition of Additional Shares in the Subsidiary (a) Acquisition cost (common shares of the Company): 843 million ($8,582 thousand) (b) Share exchange ratio, its basis for determination, number of shares delivered and the value (i) Types of shares and share exchange ratio For each common share of Yokohama Kogyo, 0.1 common shares of the Company were allocated and distributed, except for those shares the Company had owned before the share exchange. (ii) Basis for determination of share exchange ratio The Company and Yokohama Kogyo requested Shinko Securities, Ltd. ( Shinko ) and Mirai Consulting, Ltd. ( Mirai Consulting ) to calculate the share exchange ratio as independent third parties. The Company and Yokohama Kogyo decided the share exchange ratio, based on the analysis and opinion presented by Shinko and Mirai Consulting after careful consideration and discussion. (iii) Number and valuation of the shares distributed Number: 462,105 shares Valuation: 843 million ($8,582 thousand) (c) Goodwill, reason for recognizing goodwill, amortization method and period of amortization (i) Amount of goodwill: 369 million ($3,756 thousand) (ii) Reason: Expected excess earning power resulting from more agile - 27-

28 management as a Group and the effective use of the management resources (iii) Method and period of amortization: Straight-line method over 5 years Capital stock and legal capital surplus increased by 421 million ($4,286 thousand) due to the above transaction. 16. SUBSEQUENT EVENT The following distribution of retained earnings for the year ended March 31, 2009 was resolved by the Board of Directors of the Company at a meeting held on June 1, 2009: Millions of Yen Thousands of U.S. Dollars Year-end cash dividends, ($0.10) per share 207 $2,

29 17. SEGMENT INFORMATION The Group is primarily engaged in the following three business segments: Steel Products and Construction Materials segment: Sale of the Company s major products including steel plates, steel shapes and steel bars, and construction materials Construction segment: Construction contracts accompanying sales of construction materials Property Leasing segment: Property leasing and management of golf driving ranges The business segments of the Group for the years ended March 31, 2009 and 2008 were outlined as follows: a. Sales and Operating Income Millions of Yen 2009 Steel Products and Construction Materials Construction Property Leasing Eliminations /Corporate Consolidated Sales to customers 142,767 24, ,751 Inter-segment sales and transfers (36) - Net sales 142,767 24, (36) 167,751 Operating expenses 140,519 23, ,717 Operating income 2, (303) 3,

30 Thousands of U.S. Dollars 2009 Steel Products and Construction Materials Construction Property Leasing Eliminations/Corporate Consolidated Sales to customers $1,453,395 $247,114 $7,218 $ - $1,707,737 Inter-segment sales and transfers (366) - Net sales 1,453, ,114 7,584 (366) 1,707,737 Operating expenses 1,430, ,894 2,708 2,718 1,676,850 Operating income $22,875 $6,210 $4,876 $ (3,085) $30,

31 Millions of Yen 2008 Steel Products and Construction Materials Construction Property Leasing Eliminations /Corporate Consolidated Sales to customers 118,884 22, ,504 Inter-segment sales and transfers (36) - Net sales 118,884 22, (36) 142,504 Operating expenses 114,213 22, ,199 Operating income 4, (298) 5,304 * The effect of the adoption of the accounting standard for inventories described in Note 2.d. was to decrease operating income by 4,619 million ($47,022 thousand) in the Sale of Steel Products and Construction Materials segment compared with the corresponding amount which would have been recorded under the previous method

32 b. Total Assets, Depreciation, Impairment Loss and Capital Expenditures Millions of Yen 2009 Steel Products and Construction Materials Construction Property Leasing Eliminations /Corporate Consolidated Total assets 73,550 10,304 4,588 3,259 91,703 Depreciation and amortization Capital expenditures 4, ,860 Thousands of U.S. Dollars 2009 Steel Products and Construction Materials Construction Property Leasing Eliminations /Corporate Consolidated Total assets $748,753 $104,897 $46,707 $33,177 $933,554 Depreciation and amortization 4, , ,352 Capital expenditures 42, ,006 1,395 49,

33 Millions of Yen 2008 Steel Products and Construction Materials Construction Property Leasing Eliminations /Corporate Consolidated Total assets 72,416 12,315 4,501 3,928 93,162 Depreciation and amortization Capital expenditures 1, ,287 Both geographical segment information and information on overseas sales have not been presented since the Group now only operates in Japan and had neither overseas subsidiaries nor branch offices during the years ended March 31, 2009 and Moreover, sales to domestic customers represented more than 90% of consolidated net sales for the years ended March 31, 2009 and * * * * * * - 33-