Slogan for our Brand - 株式会社大阪チタニウムテク … for our Brand In the past and in...

Slogan for our Brand

In the past and in the future, we continue to pursue new challenges

1

Key Policies

We aim for our own growth by valuing long-term We aim for our own growth by valuing long-term partnerships with our customers and contributing to partnerships with our customers and contributing to their development.their development.

We constantly aim for stable quality, stable supply, and We constantly aim for stable quality, stable supply, and stable prices and exert the maximum effort to achieve stable prices and exert the maximum effort to achieve them.them.

We make efforts to create safe and healthy workplaces We make efforts to create safe and healthy workplaces and seek to coexist with society by building trusting and seek to coexist with society by building trusting relationships with all stakeholders. relationships with all stakeholders.

Readers should be advised that this annual report includes not only factual statements on the past and

present status of OSAKA Titanium technologies Co., Ltd., but also forecasts of future performance,

predictions about the business environment, and other forward-looking statements. Such forward-looking

statements, which are assumptions or judgments based on information available as of the date of

preparation of the report involve known and unknown risks and uncertainties. Accordingly, these risks and

uncertainties may upset forecasts and predictions, and the actual performance and business environment

may differ materially from those indicated by the forward-looking statements made in this annual report.

Contents

1 Key Policies/Slogan for our Brand

3 Features of our Products

5 Procurement of Raw Materials and Supply of Products

7 Financial Highlights

9 Message from the President

13 Medium Term Management Plan (2015-2017)

17 Business Overview

19 Overview by Segment

19 Titanium Business

23 Polycrystalline Silicon Business

27 High-performance Materials Business

29 Corporate Governance

30 Compliance/ Risk Management

31 Environmental Preservation

32 Directors, Audit & Supervisory Board Members, and Executive Officers

33 Financial Statements

65 Stock Information

67 Corporate Data

Caution Concerning Forward Looking Statements

1.1.

2.2.

3.3.

and best quality.

2

Features of our Products

Titanium spongeOTC’s titanium sponge is used in

many fields. In particular, our

titanium sponge for aircraft engine

parts, referred to as premium

quality, is manufactured under a

very strict quality control system.

Titanium meets the needs of the age with infinite possibilities.

Titanium

Our predecessor, Osaka Titanium Co., Ltd., successfully commercialized the

manufacturing of titanium sponge for the first time in Japan in 1952. This

marked our first step as a pioneer in the titanium sponge industry. In 1960,

the Company began producing polycrystalline silicon. Since then, we have

provided high-purity, high quality materials as a manufacturer of titanium

sponge, polycrystalline silicon and high-purity titanium, mainly to the

aerospace and electronics industries.

Pursuing the Possibilities of Titanium

and Polycrystalline Silicon Advanced

Materials Using

Supporting Society with HigSupporting Society with High Quality Materials—The Possibilities of Titanium and —The Possibilities of Titanium and Polycrystalline Silicon

PremiumQuality

for Aircraft Engine Parts

3

OTC’s high-purity titanium boasts

purity of 5N. Its applications

include use as a raw material for

high-purity titanium sputtering

targets that are essential for the

production of semiconductors.

Supporting Society with High Quality MaterialsQuality Materials Polycrystalline Silicon—The Possibilities of Titanium and Polycrystalline Silicon

Purity 5N(99.999%)

Purity11N(99.999999999%)

OTC mainly produces

semiconductor-grade

polycrystalline silicon boasting

ultra-high purity of 11N.

This product finds its application

as a monocrystalline silicon raw

material used for semiconductors

substrates.

High-Purity Titanium

Polycrystalline Silicon

Polycrystalline SiliconPolycrystalline Silicon supports the electronics industry.

4

Procurement of Raw Materials and Supply of Products

The applications of titanium and polycrystalline silicon have diversified in recent years.

These applications include increasingly high-performance, lightweight aircraft, production plants for LNG,

which is undergoing growth as a low carbon energy source, large-scale power plants, desalination plants,

which are becoming increasingly important around the world in order to solve water resource issues,

semiconductors which support the electronics industry, the digital appliances which have permeated every aspect

of daily life, and advanced medical instruments.

OTC has built a global network for procuring raw materials to provide customers around the world

with a stable supply of titanium and polycrystalline silicon.

Worldwide Network

Asia

Supplier countries for titanium raw materials

Major markets

Supplier countries for polycrystalline silicon raw materials

Canada/India/South Africa/Australia/

Ukraine/Sierra Leone/Kenya/China/Vietnam

Japan/ U.S.A./Germany/U.K./China/Korea/Taiwan

China/Laos/Thailand

5

America

Europe

Africa

Japan

Oceania

Destinations of products

Suppliers of raw materials

©Boeing

6

Financial Highlights

Net sales

(FY)

(million yen)

2010

33,758

62,22855,876

42,909 40,357

80,000

60,000

40,000

20,000

02011 2012 2013 2014 (FY)2010

-4,320

6,446

4,109

1,1822,764

9,000

6,000

3,000

0

-3,000

-6,0002011 2012 2013 2014

(FY)2010

-5,011

5,990

3,926

327

3,496

8,000

4,000

0

-4,000

-8,0002011 2012 2013 2014 (FY)2010

-4,173

3,1342,075 2,667

6,000

3,000

0

-3,000

-6,0002011 2012 2013 2014

-2,907

40,357Operating income

(million yen)

2,764

Ordinary income*1

(million yen)

3,496Net income

(million yen)

2,667

million yen million yen

million yen million yen

Fiscal 2014 (Year Ended March 2015)

*1 Ordinary income is the income resulting from the year’s recurring business activities, equal to the sum of operating income and nonoperating income minus nonoperating expenses.7

(FY)2010

41,049 43,299 44,12941,130 43,540

60,000

45,000

30,000

15,000

02011 2012 2013 2014 (FY)2010

-113.41

85.1756.39

72.47100

50

0

-50

-100

-1502011 2012 2013 2014

-78.99

Total equity

(million yen)

43,540Net income per share

(yen)

72.47

Cash dividends per share

(FY)

(yen)

2010

10

35

20

5

20

50

40

30

20

10

02011 2012 2013 2014 (FY)2010

-9.6

7.4

4.7

-6.8

6.310

5

0

-5

-10

-152011 2012 2013 2014

20ROA/ROE*2

(%)

3.3ROA

million yen yen

yen % 6.3ROE

%

-4.6

4.73.1

0.3 3.3

*2 ROA (Ratio of Ordinary Income to Total Assets)/ROE(Ratio of Net Income to Shareholders’ Equity)

ROA ROE

8

Yuichi SekiYuichi Seki

Message from the President

Fiscal 2014 saw positive results from the fundamental restructuring

program that we had implemented starting two years prior. In turn,

this helped us to secure profits despite a drop in sales caused by

persistently challenging business conditions. Starting in fiscal 2015 our

approach will shift to boosting earnings by increasing volume in an

effort to achieve further growth by steadily implementing measures in

accordance with the new medium-term management plan.

Having built a robust management foundation through Having built a robust management foundation through a restructuring program, we will now turn our attention a restructuring program, we will now turn our attention to realizing new growth by increasing volume and to realizing new growth by increasing volume and implementing our new medium-term management plan, implementing our new medium-term management plan, based closely on the long-term prospects of the market.based closely on the long-term prospects of the market.

President & Representative Director

9

Fiscal 2014 (Year Ended March 2015)—Results and Summary

Our core titanium and polycrystalline silicon businesses

have experienced a sharp downturn in sales from the

second half of fiscal 2012. For the titanium business, the

causes are inventory adjustments within the supply chain

and continuing high concentrations of scrap materials.

Even the polycrystalline silicon business continues to see

adjustments in supply and demand within the market. To

dynamically survive this era of competition that is expected

to continue for the foreseeable future, we have worked

diligently to fundamentally improve our earnings structure

since fiscal 2013. Under this restructuring program, we

have consolidated our production system for the

polycrystalline silicon and titanium melting businesses as

well as carried out integrated measures that included

improving various intensities and data for manufacturing

divisions, procuring low-cost raw materials, developing

technologies to use these resources, and enhancing the

efficiencies of back-office divisions.

Fiscal 2014 was a year in which we saw the benefits

of our restructuring program began to take shape. In

addition to ongoing efforts to improve the

competitiveness of our quality and address delivery

demands, in terms of price competitiveness we were

able to build a robust management foundation that can

compete with overseas companies that use much

cheaper electricity to power their businesses.

Net sales declined 5.9% year on year to ¥40,357

million owing to the weakening sales environment that I

touched upon earlier. The bottom line, however, remains

strong as operating income increased 133.8% year on

year to ¥2,764 million, ordinary income increased 970.9%

year on year to ¥3,496 million, and net income recovered

from a net loss of ¥2,907 million last year to a gain of

¥2,667 million. One factor behind this increase in

profitability included a gain on the reversal of inventory

appraisal losses, so profitability as an indicator did not

necessarily convey our current capabilities as a company.

The fact we were able to record a profit despite an

environment where our production facility utilization rate

was less than 50% is very meaningful in our aim to boost

earnings by increasing volume.

Business Performance Review for Fiscal 2014 and Fiscal 2015

Fiscal 2015 (Year Ending March 2016)—Main Initiatives and Performance Outlook

The titanium business is expected to see much of the same

in the way of tough competition in global markets and the

high ratio of scrap materials. However, one piece of positive

news is that inventory adjustments in the supply chain for

the domestic market have run their course in fiscal 2014

and should be completed for the international market for

aerospace applications during fiscal 2015. At the same time,

demand is expected to recover for projects involving heat

exchangers and power plants.

The polycrystalline silicon business will continue to

see a supply-demand gap and there are positive signs of

a turnaround in demand within the high-performance

materials business, but overall a challenging sales

environment is forecast to persist.

Given these business conditions, starting in fiscal 2015

we will harness the results of our ongoing efforts to

fundamentally improve our earnings structure and boost

productivity as we shift our approach to boosting earnings by

increasing volume. In the titanium business, we will work to

carve out the volume zone for the aircraft fuselage sector and

in the polycrystalline silicon business and high-performance

materials business we will focus on expanding our presence

in the market for high quality products.

The results of these activities are expected to emerge

in fiscal 2016 or after, but we do anticipate the net sales

in fiscal 2015 will increase 9.8% year on year to ¥44,300

million. As for the bottom line, we have kept forecasts

conservative at operating income of ¥1,800 million

(down 34.9% year on year) and net income of ¥1,000

million (down 62.5% year on year). This is because there

will be additional electricity price hikes, no gain on the

reversal of inventory appraisal losses like in fiscal 2014,

and we will ship existing inventory in some cases in order

to phase-in production increases for increased sales

volume with priority given to minimizing costs. Going

forward, we will steadily increase production in July and

by the end of the fiscal year we plan on increasing the

utilization rate up to 80%.

10

Progress is being made within the titanium business to

mitigate the causes of short-term volatility in the market,

but the supply-demand gap remains entrenched and

even if the market environment return to the norm of

long-term growth, competition in global markets is

expected to remain the same. For this reason, we

formulated a new medium-term management plan

(2015 to 2017) in May 2015 in order to once again clarify

our approach and strategy. The biggest goal of this plan

is to establish competitive advantages in terms of quality,

supply and price to increase market share in global

markets at a rate that outpaces market growth with the

titanium business positioned as a key growth driver

because of its future growth prospects.

Worldwide demand for titanium mill products in

aircraft is expected to grow 4.6% annually until 2027.

Given this market expansion, we will aim to increase

volume by leveraging our world-leading quality, supply

and price competitiveness in an effort to lift our market

share from 18% today to 30% by fiscal 2017. Specifically,

our strategy entails carving out the volume zone of the

titanium market for aerospace applications focused on

fuselage components, given the ongoing differentiation

in purchase specifications between engine and fuselage

use titanium.

We will also work on boosting production capacity

with an eye on the future by enhancing our ability to

accommodate growing demand for production. Over

the last two years, as part of our efforts to fundamentally

improve our earnings structure, we have thoroughly

streamlined costs, but at the same time we pursued a

somewhat conflicting strategy of expanding titanium

production capacity. As clearly articulated in the new

medium-term management plan, the aim of this strategy

is to thoroughly lower the breakeven point through cost

cutting and then boost profits by increasing volume.

Currently, we have lifted our production capacity of

titanium sponge to 44,000 tons per annum and by fiscal

2017 we plan on increasing this further to 47,000 tons

through improvements in productivity. Leveraging this

world-leading production volume, we will establish solid

relationships with customers inside and outside of Japan

based on quality, stable supply, and price, and further

boost earnings power.

Meanwhile, as for the polycrystalline silicon business,

demand for semiconductor applications is expected to

grow gradually at around 3% per annum over the

medium to long term, but worldwide supply continues

to outpace demand, so this supply-demand gap, too, will

likely continue for the foreseeable future. Given these

business conditions, we will work to raise production

efficiencies even further by maximizing the effects of

consolidating operations around cutting edge facilities

while also building stable relationships with customers.

At the same time, we will increase our presence in the

high quality polycrystalline silicon market using our

unique competitive advantages in terms of quality.

In the high-performance materials business demand

for high purity titanium and TILOP is forecast to steadily

increase going forward. To meet needs that become

more advanced with each passing year, we will

concentrate development resources to focus on

expanding applications and developing new products,

which will help increase the size of the business as the

third pillar of our operating portfolio.

Mid- to Long-term Vision

New Medium-term Management Plan - Boosting Earnings by Increasing Volume

11

Strengthening Governance and Shareholder Returns

President & Representative Director

Yuichi Seki

Dividend Payout Ratio to be Maintained at 25% to 35%

We will strengthen our management foundation to

continually enhance corporate value into the future, but

at the same time we recognize that returning profits to

shareholders represents an important management task.

Our basic approach to distributing profits is to

provide a stable dividend payout ratio of between 25%

and 35% linked to performance while also being mindful

of securing the necessary retained earnings to fund and

strengthen investments in sustainable growth and our

financial standing.

Our core titanium sponge and polycrystalline silicon

businesses are both expected to see market growth over

the medium to long term, but over the short term both

will likely face major volatility in demand. Given this

environment, we will aim to achieve sustainable growth

while focusing on enhancing corporate value over the

medium to long term. We sincerely look forward to the

understanding and support of our shareholders as we

move forward.

September 2015

We adopted the executive officer system in June 2015

and added one outside director. The main aim of these

changes is to clearly separate decision making from

supervisory roles and business execution roles, while also

strengthening each of these functions.

In the future our management approach will need

to become more agile and aggressive to deal with

changes in business conditions. This is why we will speed

up decision making of material issues and business

execution while steadily implementing the new

medium-term management plan, which will place us

back on a trajectory for continuous growth.

Adopted the Executive Officer System and Added an Outside Director

12

Medium Term Management Plan (2015-2017)

Basic Policy

Targets

1. Income

2. Cash Flows

Preparedness for next stage growth investment

3. Policy on Shareholder Returns

Operating cash flow: ¥28.0 billion (3-year total for 2015-2017)

Capital investment: keep within amortization

Reduce borrowing: improve financial structure

Dividends: see 3. Policy on Shareholder Returns

We will aim for a dividend payout of 25-35% bearing in mind stability.

Capital Investment and Depreciation andAmortization Expenses

We will aim for an expansion in our share of global marketsthat exceeds market expansion with growth centered on theTitanium Business, in which demand for aircraft is expectedto increase.(1) Strengthen long-term partnerships with customers and promote sales in largest market segment

(2) Comprehensively maintain and reinforce cost and quality competitiveness

Deepen relationships with main customers and win opportunitiesfor growth in the Polycrystalline Silicon Business

Expand High-Performance Materials Business

Capital investmentDepreciation andAmortization expenses

2.0

5.5

3.0

5.5

2.0

5.5

FY2015 forecast FY2016 forecast FY2017 forecast

Figures in parentheses indicate operating income ratios. (¥100 million)

(¥100 million) Total Debt and Debt/Equity Ratio

Total debt

Debt/equity ratio

30.0

0.6 times

49.3

1.1 times

End FY2014End FY2017

(¥100 million)

1

2

3

263

152

28

FY2017 target FY2015 forecast

Titanium


High-performanceMaterials

Titanium


High-performanceMaterials

Net Sales

Operating income

330

170

30

50

10

10

9

3

6

530

70

443

18

<15%>

<6%>

<33%>

<13%> <4%>

<3%>

<2%>

<21%>

Ordinary income

Net income

ROE (return on equity)

Assumed exchange rate

18

10

2%

8

¥110/$

FY2017 target FY2015 forecast

70

47

10%

36

¥110/$

Cost rationalization target(compared with FY2014)

13

Perception of Environment, Business Policy, and Business Strategy in Each Business

Business Policy

Net Sales

Titanium Business

• Demand for mill products for aircraft expected to see average annual growth rate of 4.6%, mainly for fuselage products (2014-2027)

• Increasing differentiation of engine and fuselage purchase specifications• Demand for mill products for general industrial applications expected to see average annual growth rate of

1.8% (2014 – 2027) • Although demand will increase, the global gap between supply and demand with supply capacity exceeding

demand will continue for the time being

We will ensure our upside response capabilities with the world’s No. 1 titanium sponge production capacity, primarily in markets where expansion is anticipated mainly for aircraft while aiming to further expand our business by leveraging our ability to meet customer requirements and our cost competitiveness.

Perception ofEnvironment

BusinessStrategy

BusinessResults Targets

Aim for sales growth that exceedsmarket growth rate

(FY)2014actual result

234

330400

300

200

100

02017target

2015forecast

263

(¥100 million)

Operating income


14

50

80

60

40

20

02017target

2015forecast

9

(¥100 million)

(1) Expand market share by strengthening relationships with major customers inside and outside Japan and identifying their requirements

•Differentiate engine and fuselage purchase specifications

strengthen sales of fuselage products

(largest market segment)•Utilize outcomes of strengthening competitiveness

and ensuring upside response capabilities•Respond to customer requirements

(2) Strengthen competitiveness

•Further improve productivity

Secure upside response capabilities with world’s No. 1

production capacity and achieve world’s No. 1 productivity Increase current real annual production capacity

from 44,000 tones (nominal 40,000 tons) to 47,000 tons in 2017/establish 40,000 ton-system with large reducing

furnaces alone•Comprehensive cost rationalization cost rationalization target ¥2.0 billion (FY2014 FY2017)

Reduce costs of titanium sponge for fuselage products through individual production/comprehensively

improve electric power consumption rate and production specifications, including yield/ increase life of

equipment and consumable supplies (chloride furnaces, reaction vessels, etc.)/effects of improved

productivity, effect of increased production

(3) Response to production volume exceeding 40,000 tons (possible after 2020)

•Up to 47,000 tons/year, respond by restarting out-of-service reserve reducing furnaces •Review global supply system based on overseas production sites as response when annual production

exceeds 47,000 tons

(During the term of this Medium Term Management Plan, we will scrutinize demand and supply trends and set

a future course that covers overseas sites and takes electric power costs and BCP response into consideration.)

• Aircraft market: average annual growth rate 4.6% (2014 – 2027)• OTC sales growth target: average annual growth rate 10.4% (2014 – 2027)

14

Business Policy


BusinessStrategy


Perception of Environment, Business Policy, and Business Strategy in Each Business

Net Sales

Polycrystalline Silicon Business

• Moderate expansion of around 3%/year expected in global semiconductor market

• Significant gap between demand and supply of polycrystalline silicon for semiconductors to continue

• Demand for high quality polycrystalline silicon for cutting edge devices and power modules to increase in

additional need for quality

We will aim to expand our business leveraging our unique quality competitiveness based on

stable business relationships with our main customers.


147170200

150

100

50

02017target

2015forecast

152

(¥100 million)

Operating income


10 1012

9

6

3

02017target

2015forecast

3

(¥100 million)

Medium Term Management Plan (2015-2017)

(1) Deepen relationship with main customers

(2) Establish quality advantage in market for high quality polycrystalline silicon and expand sales

(3) Strengthen competitiveness

•Establish stable production technology for high quality polycrystalline silicon

Establish optimum manufacturing process and process requirements/develop evaluation technology

•Comprehensive cost rationalization

Cost rationalization target: ¥1.5 billion (FY2014 FY2017)

Full utilization of functions at state-of-the-art Kishiwada works/improve energy consumption per unit of

production/raise productivity/effects of increased production through expansion in sales

15

Net Sales

High-performance Materials Business


23

3040

30

20

10

02017target

2015forecast

28

(¥100 million)

Business Policy


BusinessStrategy


Operating income


4

1012

9

6

3

02017target

2015forecast

6

(¥100 million)

• Demand for existing products (high-purity titanium (titanium targets for semiconductors), TILOP (titanium

powder: targets for liquid crystals) expected to expand steadily

• Growth in demand is expected in TILOP for layered manufacturing as a new application

• We will aim to expand our business by strengthening partnerships with customers and

comprehensive technological support.

• We will focus on the development and expanding sales of new products with the aim of growing

the high-performance materials business into the third pillar of OTC’s business in terms of size.

<High-Purity Titanium>

(1) Expand sales through strategic partnerships with customers

(2) Respond actively to need for high quality

<TILOP>

Establish minimum cost production technologies tailored to market needs

<New Businesses>

Develop new businesses through project team (inaugurated June 2015)

(Expand into titanium powder for layered manufacturing business, etc.)

16

Sales Breakdown

Business Overview

Titanium Business

(Main Products)

From Titanium and PolycrystallineSilicon to High-performance Materials

Titanium, which is light, strong, and rust proof, is used in aircraft, power

and chemical plants, automobile components, and items for everyday use.

OTC supplies high quality titanium sponge and titanium ingots manufactured

using our unique technologies to manufacturers of mill products.

The silicon wafers used in semiconductor substrates for personal

computers, smartphones, and digital cameras are manufactured from

monocrystalline silicon. OTC manufactures and sells the super-high purity

polycrystalline silicon that forms the material for this monocrystalline silicon.

OTC manufactures and sells high-performance materials such as high-purity titanium, spherical titanium powder TILOP, and SiO which are products developed as new applications for titanium sponge and polycrystalline silicon. We are aiming to grow high-performance materials into a third business after titanium and polycrystalline silicon through the concentrated investment of our development resources.

Titanium sponge is utilized in diverse fields, including aerospace and general industrial applications. In particular, premium quality products is used for aircraft engine components.

Titanium ingot is used in titanium plates for heat exchangers in large scale plants, such as thermal and nuclear power plants, and petrochemical and seawater desalination plants, and for titanium pipes.


High-purity titanium is used as a raw material for the high-purity titanium sputtering targets essential for the manufacturing of semiconductors.

TILOP is a spherical titanium powder produced through the world’s first commercial gas-atomized technique and is utilized as a raw material in powder metallurgy.

(Main Products)


(Main Products)

The main product is the semiconductor grade polycrystalline silicon which boasts super-high purity of 11N level (purity: 99.999999999%) used for monocrystalline silicon, which is the material in semiconductor substrate.

Sales Breakdown

Sales Breakdown

¥23,370 million

¥14,671 million

¥2,316 million

Titanium Sponge Titanium Ingot


High-Purity Titanium

SiO is utilized in vapor-deposited food packaging materials and protective films on electricaland electronic appliances.

SiO (powder)TILOP

Raw Materials for TitaniumCalcined Cokes

Metallic Silicon

36.4%

57.9%

5.7%

17

ProductManufacturers



Aircraft (Fuselage Structure Material, Engine Components)/Rocket Components/Electric Power & Plant(Seawater Desalination Plant, Plate Heat Exchanger, etc.)/Automobiles (Motorcycle Mufflers, Engine Components, etc.)

(Final Applications)

Personal Computers/

Smartphones/

Digital Cameras


Personal Computers/Liquid Crystal Televisions/

Medical Packaging/Food Packaging Materials

Smartphones/Artificial Bones/Artificial Joints


Aircraft ©AIRBUS

Mill ProductManufacturers

Materials andFabricatedProductManufacturers

Aircraft Engines©Rolls-Royce

Seawater Desalination Plant©Sasakura Engineering Co., Ltd.

Personal Computers Smartphones Digital Cameras

Implants (Artificial Bones)© Teijin Nakashima Medical Co., Ltd.

Liquid Crystal Televisions SiO Vapor-deposited Barrier Films

High-PurityTitanium

Titanium Sponge

TILOP

SiO(powder)

TitaniumPowder


Titanium Ingot

MonocrystallineWaferManufacturers

SemiconductorManufacturers

OSAKA Titanium technologies’ Products

18

Overview by Segment

TitaniumBusiness

Titanium Sponge19

Aircraft components for which titanium is used

Areas Where Titanium Is Used in Aircraft (provided by ATEP)

(FY)2013 2014

24,82323,370

26,300

2015(Forecast)

30,000

25,000

20,000

15,000

10,000

5,000

0

Net Sales

(Millions of Yen)

With regard to export and aircraft industry demand,

while aircraft manufacturing business remained

robust, inventory adjustments within the supply

chain and the trend toward greater use of

scrap metal as titanium raw material continued.

As a result, sales were lower than in fiscal 2013.

In addition, domestically, while demand

was on a recovery trend, particularly for general

industrial heat exchanger applications and

power generation applications, the impact of

the decline in sales during the first half of the

period lingered for the full fiscal year, and sales

volume was lower than in fiscal 2013.

In response to the above circumstances,

OTC further curtailed titanium sponge production

starting in July 2014 in order to maintain the pace

of reduction in inventory through the end of the

fiscal year. Moreover, with regard to reducing

furnaces, which are our major production

equipment, we continued to concentrate

production at the larger state-of-the-art furnaces

in our efforts to raise productivity and improve

production specifications. Income also improved

due to such factors as the further decline in the

price of titanium raw materials and a change in

the method of depreciation and amortization.

Consequently, sales of our titanium business

were ¥23.370 million in fiscal 2014, down by

5.9% from fiscal 2013. Operating income stood

at ¥1,418 million, compared to a loss of ¥690

million in fiscal 2013.

Results for Fiscal 2014(year ended March 2015)

Domestic demand is expected to recover

mainly for heat exchanger applications and

power generation application projects and

inventory adjustments by our customers have

come to an end.

Inventory adjustment within the supply

chain is also expected to come to an end in

products for export and the aircraft industry.

As a result, we are scaling up production of

titanium sponge during the first half of fiscal

2015 based on the now likely prospect that

aircraft industry demand will increase in line with

the normal long-term growth trajectory.

Sales for fiscal 2015 are projected to be

¥26,300 million, up 12.5% from fiscal 2014.

Outlook for Fiscal 2015(year ending March 2016)

Components forauxiliary power units

Metal fasteners(bolts, nuts, rivets, etc.)

Floor beam

Fuselage frame

Wing connections

Doors/door frames

Seat rails

Thrust reversing units

Nacelle engine mounts

Fuselage components

20

Overview by Segment

Titanium Business

Titanium Raw Materials Usage Ratio

(FY)

(%) High-grade (TiO2 94~96%)

High-grade raw materials: Synthetic rutile, natural rutile, upgraded slagMedium- to low-grade raw materials: Titanium slag

2010

100

80

60

40

20

02011 2012 2013 2014

Medium- to low-grade (TiO2 90~92%)

2015Plan

We have developed technology to utilize

comparatively inexpensive medium- to low-grade

raw materials as a radical strategy to address

rapid hikes in the price of titanium raw materials.

Specifically, we have reduced the volume of

industrial waste generated through approximately

70% use of medium- to low-grade materials and

established stable chlorinator operation.

Furthermore, we have completed long-term

evaluation tests on 100% use of medium- to

low-grade materials. In addition to expanding

the choice of raw materials, this has enabled the

optimum mixing of materials taking into account

raw material costs and balanced procurement.

Regarding our electrolysis equipment, which

electrolyzes magnesium chloride generated in

titanium sponge production into magnesium

and chlorine, we are also endeavoring to realize

energy conservation and power-saving through

technology development that includes

enlarging the size of the equipment.

Technology Development

Demand for titanium is expected to increase

steadily over the medium- to long term, mainly

for aircraft. However, we consider that competition

with manufacturers in Japan and overseas will

also become fiercer.

In this situation, OTC will ensure our upside

response capabilities with the world’s No. 1

titanium sponge production capacity, primarily

in markets where expansion is anticipated mainly

for aircraft while aiming to further expand our

business by leveraging our ability to meet customer

requirements and our cost competitiveness.

In order to achieve this, we will focus on

expanding our market share by strengthening

our relationships with our major customers

inside and outside Japan and identifying their

requirements as we aim for sales growth that

exceeds the growth in the market.

Future Market Trends andBusiness Strategy

21

Average annual growth rate 3.2%

Forecast on Delivery Volumes of Commercial Aircraft and Demand for Titanium Mill Products

Market Data

(1,000 t) (Number of aircraft)

(Year)

Source: Number of aircraft delivered: Based on Airline Monitor June 2014 and our estimatesDemand for mill products: Based on our estimation

2004

120

100

80

60

40

20

0

2,500

2,000

1,500

1,000

500

02006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2019 20222005 2027

Forecast

Forecast on Demand for Aircraft

(Number of Aircraft)

Source: Boeing

Average annual growth rate 4.6%(mainly for fuselage products)

Demand for titanium mill products (fuselage + engines) Demand for titanium mill products (fuselage)Demand for titanium mill products (engines) Delivery volume of Boeing + Airbus

(Year)

(Year)

2014

50,000

40,000

30,000

20,000

10,000

02034

21,60038,050

43,560 aircraft

21,960

16,090

5,510

Forecast on Domestic Shipment Volume of Mill Products

PHE Electric power Electrolysis Chemical industry Aircraft Desalination Other(1,000 t)

Source: Based on our estimation

2004

25

20

15

10

5

0131211100908070605 14 15 16 17 18 19 20 21 22 23 24 25 26 27

Forecast

Existing aircraft Replacement demand New demand

Average annual growth rate 1.8%

22

Reduction furnace

Overview by Segment

PolycrystallineSilicon Business

23

Super-high purity polycrystalline silicon and its surface profile

(FY)

20,000

15,000

10,000

5,000

0

Net Sales

(Millions of Yen)

2013 2014

16,28914,671 15,200

2015(Forecast)

Sales declined due to ongoing demand/supply

adjustments for polycrystalline silicon for

semiconductors.

In response, we maximized the effects of

improvements in productivity and reductions in

fixed costs accompanying the concentration of

polycrystalline silicon production at Kishiwada

Plant, which we implemented in fiscal 2013. In

addition, we focused efforts on improving

production specifications and raising quality,

mainly by concentrating production outside of

the summer season.

Consequently, sales in polycrystalline silicon

business amounted to ¥14,671 million, down by

9.9% from fiscal 2013. Operating income stood

at ¥1,000 million, down by 46.3%.

Results for Fiscal 2014 (year ended March 2015)

We are developing technologies to reduce the

rates at which we consume various resources

including electricity by fully utilizing reaction

analyses and simulation technologies in

processes such as conversion, distillation

and reduction.

We recently succeeded in finding

mechanisms whereby trace metallic elements

are absorbed by, or desorbed from, the surface

of polycrystalline silicon. As a result, we have

been able to reduce the adhesion of trace

metallic elements, which was previously

considered unavoidable, during crushing and

cleaning processes.

We will continue to pursue high quality levels

in the future in order to respond to technical

innovations in the market.


It is anticipated that demand/supply adjustments

in respect of polycrystalline silicon for

semiconductors will continue. We expect sales

for fiscal 2015 to amount to ¥15,200 million, up

by 3.6% from fiscal 2014.


24

Overview by Segment


Although demand for polycrystalline silicon for

semiconductors can be expected to grow in the

long term, the significant gap between demand

and supply is expected to continue for some time.

Nevertheless, the need for high quality

polycrystalline silicon for cutting edge devices

and power modules is forecast to increase. High

precision, high quality wafers are required for

cutting edge devices due to advances in the

miniaturization of wiring, and the polycrystalline

silicon used as a material is also required to be

high quality with few micro defects in the crystals.

Power modules, which are assemblies of

power semiconductors, are expected to

experience high growth, particularly for in-vehicle

installation, in light of energy conservation and

stronger environmental regulations. The need

for high quality polycrystalline silicon (low

impurity, high resistance) will increase in order

to meet the required quality characteristics (high

current, dielectric withstanding voltage, etc.)

Future Market Trends

We will aim to expand our business leveraging our

unique quality competitiveness based on stable

business relationships with our main customers.

We will further deepen our relationship

with our main customers, establish a quality

advantage in the market for high quality

polycrystalline silicon, and expand sales. We

will also focus efforts on stable production of

high quality polycrystalline silicon and

comprehensive cost rationalization in order to

strengthen competitiveness.

Future Policy and Strategy

25

Power Module

Need for high quality polycrystalline silicon (low impurity, high resistance) increasing due to required quality characteristics (high current, dielectric withstanding voltage, etc.)

Global Semiconductor Market Forecasts

(Year)

(%)(US$1,000 million)

Source: WSTS

2001

400

350

300

250

200

150

100

50

02003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 20152014

40

20

0

-20

-40

-60

-80

-100

-1202002 2016

Forecast

139 141

1.3%

166

18.3%

213

28.0%

228

6.8%

248

8.9%

256

3.2%

249

-2.8%

226

-9.0%298

31.8%

300

0.4%

292

-2.7%306

4.8%333

9.0%

345

3.4%

355

3.1%

20% gap betweensupply and demanddespite reduction

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

0

Forecast on Global Demand for Polycrystalline Silicon for Semiconductors

(Year)

(t/year)

Source: Based on our estimation

2011 2013 2014 2015 2016 20172012

Demand for semiconductors Production capacity for semiconductors

Sales volume Year-on-year growth rate

300

250

200

150

100

50

0

Forecast on Size of Global Power Module Market

(Year)

(Million units)

Note: Based on manufacturer shipments, all values forecastSource: 2015 Power Module Market Current Trends and Future Prospects, YANO Research(January 2015)

2015 2017 2018 2019 20202016

White goods New energy Industrial equipmentAutomobiles Railways

Market Data

Average annual growth rate 14%

Power modules, which are assemblies of power semiconductors, expected to experience high growth in future, particularly for applications such as in-vehicle installation, in light of energy conservation and stronger environmental regulations

26

TILOP

Overview by Segment

High-performanceMaterials Business

27

(FY)

4,000

3,000

2,000

1,000

0

Net Sales

(Millions of Yen)

2013 2014

1,797

2,316

2,800

2015(Forecast)

We manufacture titanium hydride-dehydride

powder and gas-atomized spherical titanium

powder. Worldwide, only a few companies

manufacture gas-atomized spherical titanium

powder. We have developed our own technology

for manufacturing this product, which is

marketed under the trade name TILOP, primarily

as target materials for liquid crystals.

In recent years, a new molding method for

titanium powder utilizing 3D printing technology

(layered manufacturing) has been attracting

attention with applications envisaged in

manufacture of medical equipment and aircraft

parts. Our TILOP particles are so minute as to

impart excellent properties for layered

manufacturing. Currently, a number of

universities, as well as domestic and overseas

customers, are evaluating our TILOP using

samples that we have provided.

We will continue to work on technical

development with a view to developing a wider

variety of alloy powder compositions to satisfy

various needs, and to further enhancing

productivity, along with cost reductions.

Demand for high-purity titanium increased in

conjunction with growth in demand for

semiconductors. Demand for TILOP also

continued to increase, mainly from the liquid

crystals industry.

Consequently, sales for the high-performance

materials business were ¥2,316 million, up 28.9%

from fiscal 2013. Operating income was ¥346

million, compared with a ¥70 million operating

loss in fiscal 2013.

Results for Fiscal 2014(year ended March 2015)

Demand for high-purity titanium is anticipated

to continue rising and demand is also anticipated

for TILOP from the liquid crystals industry.

Sales for fiscal 2015 are expected to be

¥2,800 million, up 21.0% from fiscal 2014.



Going forward, we will aim to strengthen our

partnerships with customers and provide

comprehensive technological support. We will

also focus on the development of new products

and expanding sales with the aim of growing

the high-performance materials business into

the third pillar of OTC’s business in terms of size.

We will work to expand sales of high-purity

titanium through strategic partnerships with

customers in addition to responding actively to

the need for high quality. With regard to TILOP,

we will strive to establish low cost production

technologies in order to meet market needs. We

will also establish project teams in the titanium

powder for layered manufacturing business and

other areas to develop new businesses.

Future Policy and Business Strategy

28

Executive Officers’ Meeting,Management Meeting, etc.

Audit Office

Internal Compliance Helpline andWhistleblowing Hotline

Corporate Governance

Conceptual Diagram of Business Management and Auditing System

Appointments and dismissals Appointments and dismissals Appointmentsand dismissals

General Shareholders Meeting

Compliance and Risk Management Committee(Members: Directors, Audit & Supervisory Board Members, Executive Officers,

Managers, Director of Works, General Managers and Office Managers)

Board of Directors Directors: 7

(including 2 outside directors)

Execution of Operations Executive Officers

Headquarters/Amagasaki Plant

Kishiwada Works Tokyo Office

OTC aims to continue building its corporate value

by streamlining and ensuring the transparency

and soundness of management, while gaining

the trust of and providing satisfaction to

customers, shareholders, regional communities,

employees and all other stakeholders.

As for the compliance system, the

Compliance and Risk Management Committee

has been established to implement management

practices that comply with laws and social

obligations, to take preventative measures for

risks surrounding our businesses, and to make

decisions and respond when incidents occur in

a quick and appropriate manner.

The Board of Directors is made up of seven

directors, including two outside directors. We

employ an Audit & Supervisory Board Member

system, and three of the four Audit & Supervisory

Board Members are outside Audit & Supervisory

Board Members. Our aim is to maintain and

enhance management efficiency and to

strengthen supervisory functions with a Board

of Directors composed of directors who are well

versed in the Company’ s business and outside

directors who either have outstanding insight

into management overall or have expert

knowledge as an attorney-at-law as well as no

interests in the Company. At the same time, we

seek to maintain and strengthen the transparency

and soundness of management by enhancing

the auditing function to include outside Audit &

Supervisory Board Members.

The Company has adopted an executive

officer system in efforts aimed at speedy

execution of operations.

Audit & Supervisory BoardAudit & Supervisory Board Members: 4

(including 3 outside members)

External Compliance Whistleblowing HotlineExternal lawyer

ExternalAccounting Auditor

29

Compliance/Risk Management

Compliance and Risk Management Efforts

• We conducted regular reviews of the Risk Survey List, which is compiled by each division.

• We included identification status of risks, current important issues, and future response schedules.

In 2002, OTC established the Corporate Activity

Rules, which state the commitment of our

officers and employees to complying with the

laws of all countries, international rules and their

underlying philosophies. The Company has

also established a Compliance and Risk

Management Committee chaired by the

president. The Committee monitors

company-wide legal compliance and the

corporate response to legal reforms.

OTC has also established both an in-house

and external Compliance Helpline and

Whistleblower Hotline. The objectives are legal

compliance and conformity with social norms

of management and other corporate conduct

in the execution of business as well as

improvement of the working environment. We

have also produced a Compliance Manual which

specifies the basic matters to be observed by

officers and employees.

In addition, OTC considers it important to

appropriately manage the diverse risks inherent

in our operations to continually maximize

corporate value in the face of major changes in

the operating environment. The Compliance

and Risk Management Committee identifies risks

and checks on the status of countermeasures.

Revision of the Risk Survey List We produced and distributed compliance cards

• We established an external whistleblower hotline in addition to in-house helpline

Establishment of compliance helpline and whistleblower

hotline system

• We enhanced our health and safety policies• We informed officers and employees of legal revisions.

Reinforcement of Health and Safety Management

• We revised the methodology for classifying information and are ensuring strict adherence to indication requirements.

• We ensured that access to electronic documents is restricted.

Reinforcement of Information Management Framework

• We carried out ongoing data leakage countermeasures.

Implementation of Information Security Measures

• We implemented an earthquake comprehensive disaster-preparedness drill as part of BCP

Business Continuity Plan Measures

We implemented questionnaires on awareness

of compliance

Compliance and Human Rights Education Activities

1. Policies• We are monitoring the status of legal compliance and of each

division’s reporting activities based on the Risk Survey List.2. Agenda• We conducted as overall examination of management risks• We promoted activities based on BCP (Business Continuity Plan)• We shared information on legal revisions based on a list of

laws relevant to our company

• We implemented education activities on compliance basics and the results of awareness questionnaires for all employees

• We provided e-learning on compliance• We implemented compliance education on promotion of

employees to management positions, on appointment of employees, and for new recruits, etc.

• We implemented human rights seminars for officers and all employees

Meetings of the Compliance and

Risk Management Committee

30

Environmental Performance of Products

OSAKA Titanium technologies Environmental Policy

We consider environmental preservation to be one of the most important issues we face, and promote activities designed

to reduce a wide range of environmental impacts, including preventing environmental contamination,

energy conservation and the effective use of resources. We do so under the following policy:

Our major products, titanium sponge and polycrystalline silicon,

are themselves materials that help preserve the global

environment. By improving the fuel efficiency of aircraft, titanium

contributes to energy savings. In recent years, titanium has also

been widely used for metal fasteners (bolts, nuts, rivets, etc.),

seat rails and body frames in aircraft, as well as for aircraft engine

parts. The latest aircraft models use more titanium than

conventional models. Titanium is utilized in power and chemical

plants and as a high-durability construction material, and finds

various other applications that utilize its unique proper-ties to

contribute to preserving the global environment. Our 11N

(purity: 99.999999999%) polycrystalline silicon is mainly used in

semiconductor products and to help improve energy efficiency

through various electronic devices.

Environmental Measures at the Production Stage

We are taking measures based on the 3Rs (Reduce, Reuse and

Recycle) to alleviate environmental impacts arising out of our

production activities. These measures include steadily developing

energy saving technologies through improvements to equipment,

significantly reducing nitrogen oxide emissions through the

concentration of production sites, and improving equipment

with a view to increasing reuse of wastewater.

Environmental Preservation Activities

We endeavor to prevent environmental accidents by implementing

Company-wide risk assessment activities for active substances

that could cause an environmental accident or disaster if

handled incorrectly. With regard to environmental education,

based on the ISO 14001 management system, we provide regular

training for internal auditors and others and work to standardize

the level of auditors and to upgrade environmental awareness.

In fiscal 2015, OTC has been appointed chair of a committee

composed of 11 neighboring companies, and we will work with the

local community to prevent pollution of rivers. We also recognize

the importance of implementing environmental preservation

activities to address global warming, waste issues, conservation

of biological diversity, prevention of natural habitat loss and

other matters, and we seek to contribute to the development of

sustainable societies in the future by, in addition to voluntary

activities, supporting various environmental organizations.

Risk assessment activity A drill with neighboring companies

Acquisition of ISO 14001 certification

OTC has established a basic policy on

environmental preservation and conducts

environmental activities based on this policy.

We obtained ISO 14001 certification in 1999

at Headquarters/Amagasaki Plant and in 2010

at Kishiwada works.

Registrationnumber

JQA-EM0386

Environmental Preservation

Make all employees aware of environmental impacts and undertake environmental preservation activities as part of

our company’s business operations.

Establish environmental goals and objectives, utilize energy effectively, reduce waste and promote recycling to

make continuous improvements and prevent environmental contamination.

Comply with environmental laws, ordinances, regulations, agreements and other requirements, establish

self-management standards and follow environmental management procedures.

Perform environmental audits, review them periodically, and continuously improve environmental management

systems and environmental preservation activities.

Provide education and training for all employees so they understand basic concepts, prevent environmental

contamination, and improve their awareness and skills.

This also applies to personnel of affiliated companies who are stationed at our facilities.

Contribute to local communities through environmental preservation activities.

31

(as of June 19, 2015)

Directors

Yuichi SekiPresident & Representative Director

Fumio OtaguroExecutive Vice President &

Representative Director

Takahisa MiyakeDirector

Mitsuo TakamuraDirector

Auditors

Executive Officers

Munehisa OkadaAudit & Supervisory Board Member

Masahumi MorisakiOutside Audit &

Supervisory Board Member

Hajime NagaraOutside Audit &


Fumio SugizakiOutside Audit &


Masato IchiseDirector

Akira TakamatsuOutside Director

Nae IijimaOutside Director

Directors, Audit & Supervisory Board Members, and Executive Officers

Yuichi Seki

Fumio Otaguro

Takahisa Miyake

Mitsuo Takamura

Masato Ichise

Executive Officers President

Executive Vice President

Senior Managing Director



Yoshiki Morishita

Yoichi Aminaga

Tsuneaki Nishikawa

Yoshihisa Ohashi

Masayuki Tsuji

Satoru Takahashi



Managing Director

Executive Officer

Executive Officer

Executive Officer

32

33 34

35

37

39

41

43

44

66

10-Year Financial Summary

Balance Sheet

Statement of Operations

Statement of Changes in Equity

Statement of Cash Flows

Notes to Financial Statements

Independent Auditor's Report

Financial Statementsfor the Year Ended March 31, 2015 and Independent Auditor's Report

34

35

37

39

41

42

64

Balance Sheet

Statement of Operations

Statement of Changes in Equity



Independent Auditor's Report

Financial Statementsfor the Year Ended March 31, 2015 and Independent Auditor's Report

35

Balance Sheet

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

Receivables:

Trade accounts (Notes 6 and 15)

Others (Note 15)

Allowance for doubtful receivables

Inventories (Note 4)

Deferred tax assets (Note 10)

Prepaid expenses and other

Total current assets

PROPERTY, PLANT AND EQUIPMENT:

Land

Buildings and structures

Machinery and equipment (Note 13)

Furniture and fixtures

Construction in progress

Total

Accumulated depreciation

Net property, plant and equipment

INVESTMENTS AND OTHER ASSETS:

Investment securities (Note 3)

Deferred tax assets (Note 10)

Prepaid pension cost (Note 7)

Other assets

Total investments and other assets

TOTAL

March 31, 2015

See notes to financial statements.

2015Millions of Yen

2015

Thousands of U.S. Dollars (Note 1)

2014Millions of Yen

¥ 3,468

12,108

26

(3)

22,939

695

123

39,356

16,029

23,950

100,061

1,308

556

141,904

(81,657)

60,247

340

213

874

1,366

2,793

¥ 102,396

¥ 929

14,617

982

(3)

25,435

1,217

1,059

44,236

16,040

23,473

98,442

1,332

1,111

140,398

(77,769)

62,629

275

779

784

1,518

3,356

¥ 110,221

$ 28,900

100,900

217

(25)

191,158

5,792

1,024

327,966

133,575

199,583

833,842

10,900

4,634

$ 1,182,534

(680,475)

502,059

2,833

1,775

7,283

11,384

23,275

$ 853,300

36

LIABILITIES AND EQUITYCURRENT LIABILITIES:

Short-term bank loans (Note 6)

Payables:

Trade notes

Trade accounts

Construction

Others

Income taxes payable

Accrued expenses

Provision for business restructuring expenses (Note 12)

Provision for loss on practice of purchase commitments

Current portion of lease obligations (Note 13)

Other

Total current liabilities

LONG-TERM LIABILITIES:

Long-term debt (Note 6)

Liability for retirement benefits (Note 7)

Long-term lease obligations (Note 13)

Provision for business restructuring expenses (Note 12)

Asset retirement obligations (Note 8)

Other

Total long-term liabilities

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 13 and 14)

EQUITY (Note 9):

Common stock, authorized, 125,760,000 shares;issued, 36,800,000 shares in 2015 and 2014

Capital surplus - Additional paid-in capital

Retained earnings:

Legal reserve

Unappropriated

Unrealized gain on available-for-sale securities

Deferred loss on derivatives under hedge accounting

Treasury stock - at cost: 1,244 shares in 2015 and 1,194 shares in 2014

Total equity

TOTAL

2015Millions of Yen

2015


2014Millions of Yen

¥ 18,040

240 3,333

506 694 426 614 625

2 42

24,522

31,290 1,670

1

1,300 73

34,334

8,740

8,943

38 25,726

152 (49)

(10)

43,540

¥ 102,396

¥ 14,300

221

2,910

1,349

572

31

595

155

352

2

88

20,575

45,000

1,544

3

650

1,273

46

48,516

8,740

8,943

38

23,371

103

(55)

(10)

41,130

¥ 110,221

$ 150,333

2,00027,775

4,2175,7833,5505,1175,208

17350

204,350

260,75013,917

8

10,833609

286,117

72,833

74,525

317214,383

1,266(408)

(83)

362,833

$ 853,300

37

Statement of Operations Year Ended March 31, 2015


NET SALES (Note 15)

COST OF SALES

Gross profit

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 11)

Operating income

OTHER INCOME (EXPENSES):

Interest and dividend income

Interest expense

Loss on disposal of property, plant and equipment

Foreign exchange gain – net

Business restructuring expenses (Note 12)

Depreciation of idle assets

Subsidy income

Impairment loss (Note 5)

Loss on contract settlement

Provision for loss on practice of purchase commitments

Syndicate loan fee (Note 15)

Other – net

Other income (expenses) – net

INCOME (LOSS) BEFORE INCOME TAXES

INCOME TAXES (Note 10):

Current

Deferred

Total income taxes

NET INCOME (LOSS)

2015Millions of Yen

2015


2014Millions of Yen

¥ 40,357

32,989

7,368

4,604

2,764

7(278)(280)405

(26)1,560(319)

(24)285

1,330

4,094

3931,034

1,427

¥ 2,667

$ 336,308

274,908

61,400

38,367

23,033

58(2,317)(2,333)

3,375

(217)13,000(2,658)

(200)2,376

11,084

34,117

3,2758,617

11,892

$ 22,225

¥ 42,909

36,538

6,371

5,189

1,182

2

(511)

(305)

412

(3,956)

(237)

(273)

(352)

(98)

202

(5,116)

(3,934)

28

(1,055)

(1,027)

¥ (2,907)

PER SHARE OF COMMON STOCK:

Basic net income (loss)

Cash dividends applicable to the year

2015Yen

2015U.S. Dollars

2014Yen

¥ 72.4720.00

$ 0.600.17

¥ (78.99)

5.00

39

Statement of Changes in Equity Year Ended March 31, 2015


OutstandingNumber of Sharesof Common Stock

CommonStock

Capital Surplus

Millions of Yen

AdditionalPaid-in Capital

CommonStock

Capital Surplus


AdditionalPaid-in Capital

¥ 8,740

8,740

8,740

¥ 8,740

¥ 8,943

8,943

8,943

¥ 8,943

36,798,806

36,798,806

36,798,806

(50)

36,798,756

BALANCE, APRIL 1, 2013

Net loss

Cash dividends, ¥5 per share

Net change in the year

BALANCE, MARCH 31, 2014 (APRIL 1, 2014, as previously reported)

Cumulative effects of accounting change (Note 2.j)

BALANCE, APRIL 1, 2014 (as restated)

Net income

Cash dividends, ¥10 per share

Purchase of treasury stock


BALANCE, MARCH 31, 2015

$ 72,833

72,833

$ 72,833

$ 74,525

74,525

$ 74,525

BALANCE, MARCH 31, 2014 (APRIL 1, 2014, as previously reported)

Cumulative effects of accounting change (Note 2.j)

BALANCE, APRIL 1, 2014 (as restated)

Net income

Cash dividends, $0.08 per share

Purchase of treasury stock


BALANCE, MARCH 31, 2015

40

Unrealized Gainon Available-for-

sale Securities

Deferred Loss onDerivatives under

Hedge Accounting

TreasuryStock

Total Equity

Millions of Yen

Retained Earnings

Legal Reserve Unappropriated

Unrealized Gainon Available-for-

sale Securities

Deferred Loss onDerivatives under

Hedge Accounting

TreasuryStock

Total Equity


Retained Earnings

Legal Reserve Unappropriated

¥ 38

38

38

¥ 38

¥ 89

14

103

103

49

¥ 152

¥ (133)

78

(55)

(55)

6

¥ (49)

¥ (10)

(10)

(10)

(0)

¥ (10)

¥ 26,462

(2,907)(184)

23,371

56

23,427

2,667(368)

¥ 25,726

¥ 44,129

(2,907) (184)

92

41,130

56

41,186

2,667 (368)

(0) 55

¥ 43,540

$ 317

317

$ 317

$ 858

858

408

$ 1,266

$ (458)

(458)

50

$ (408)

$ (83)

(83)

(0)

$ (83)

$ 194,758

467

195,225

22,225(3,067)

$ 214,383

$ 342,750

467

343,217

22,225 (3,067)

(0) 458

$ 362,833

41


OPERATING ACTIVITIES:

Income (loss) before income taxes

Adjustments for:

Income taxes - paid

Income taxes - refunded

Depreciation and amortization

Impairment loss


Business restructuring expenses

Changes in assets and liabilities:

Decrease in trade accounts receivable

Decrease in inventories

Increase (decrease) in payables - trade

Increase in liability for retirement benefits

(Decrease) increase in provision for business restructuring expenses

(Decrease) increase in provision for loss on practiceof purchase commitments

Other – net

Total adjustments

Net cash provided by operating activities

INVESTING ACTIVITIES:

Purchases of property, plant and equipment

Proceeds from sales of property, plant and equipment

Other – net

Net cash used in investing activities

FINANCING ACTIVITIES:

Proceeds from long-term debt

Repayments of short-term debt

Repayments of long-term debt

Repayments of lease obligations

Dividends paid

Other – net

Net cash used in financing activities

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS ON CASHAND CASH EQUIVALENTS

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR

Year Ended March 31, 2015


2015Millions of Yen

2015


2014Millions of Yen

¥ 4,094

254

6,209319280180

2,5092,496

442146

(180)

(352)

41212,71516,809

(4,893)1,033

(159)(4,019)

6,000(4,300)

(11,670)(2)

(367)(0)

(10,339)

88

2,539

929

¥ 3,468

$ 34,117

2,117

51,7422,6582,3331,500

20,90820,800

3,6831,217

(1,500)(2,933)

3,433105,958140,075

(40,775)8,608

(1,325)(33,492)

50,000(35,833)(97,250)

(17)(3,058)

(0)(86,158)

733

21,158

7,742

$ 28,900

¥ (3,934)

(1,304)

9,043

305

2,698

4,745

2,329

(3,764)

127

805

352

(294)

15,042

11,108

(2,240)

(121)

(2,361)

18,500

(8,600)

(19,450)

(1,417)

(188)

(11,155)

(85)

(2,493)

3,422

¥ 929

42


1. BASIS OF PRESENTATION OF FINANCIAL STATEMENTS

Year Ended March 31, 2015

The accompanying financial statements have been prepared from the accounts maintained by OSAKA Titanium technologies Co., Ltd. (the “Company” ) in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in accordance with accounting principles generally accepted in Japan, which are different in certain respects as to the application and disclosure requirements of International Financial Reporting Standards.

In preparing these financial statements, certain reclassifications and rearrangements have been made to the Company’ s financial statements issued domestically in order to present them in a form that is

more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2014 financial statements to conform to the classifications used in 2015.

The financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of ¥120 to $1, the approximate rate of exchange at March 31, 2015. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Nonconsolidation - The financial statements do not include the accounts of subsidiaries because the Company does not have any subsidiaries.

b. Cash Equivalents - Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificate of deposits, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition.

c. Inventories - Inventories held for sale in the ordinary course of business are 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. Replacement cost may be used in place of net selling value, if appropriate.

d. Investment Securities - All marketable securities held

by the Company are classified as available-for-sale securities and are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of equity. The cost of securities sold is determined by the moving-average method.

Non-marketable available-for-sale securities are

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

e. Property, Plant and Equipment - Property, plant and equipment are stated at cost. Depreciation (including lease assets that are deemed to transfer ownership) is computed by the declining-balance method, while the straight-line method is applied to buildings acquired after April 1, 1998 and machinery and equipment of the titanium and polycrystalline silicon facilities (machinery and equipment). The range of useful lives is from 3 to 50 years for buildings and structures and from 5 to 14 years for machinery and equipment. Lease assets that are not deemed to transfer ownership are depreciated by the straight-line method over the respective lease period.

Effective April 1, 2014 the Company adopted the straight-line method of depreciation for titanium manufacturing facilities (machinery and equipment), which had previously been depreciated by the declining-balance method.

In response to the changing market environment surrounding titanium business, the Company investigated the middle to long-term operation status

43

Notes to Financial Statements Year Ended March 31, 2015

of its manufacturing facilities and streamlined production system. As a result of reviewing the operation status of its manufacturing facilities, the Company adopted the straight-line method corresponding to the stable use for the manufacturing facilities' estimated useful lives.

At the same time, the estimated useful life of titanium manufacturing facilities other than reactor vessel was changed from 7 years to 14 years and reactor vessel was changed from 7 years to 5 years from this fiscal year as a result of reassessing the economic useful life of the titanium manufacturing facilities. The new estimated useful lives for these facilities are prospectively applied.

As a result of these changes, gross profit for the year ended March 31, 2015, increased by ¥1,254 million ($10,450 thousand), operating income increased by ¥1,254 million ($10,450 thousand) and income before income taxes increased by ¥1,314 million ($10,950 thousand), respectively.

f. Long-lived Assets - The Company reviews its long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition.

g. Allowance for Doubtful Accounts - The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the companies’ past credit loss experience and an evaluation of potential losses in the receivables outstanding.

h. Provision for Loss on Practice of Purchase Commitments - Provision for loss on practice of purchase commitments is stated in amounts considered to be appropriate based on the estimated future loss arising from decline in profitability of raw materials.

i. Provision for Business Restructuring Expenses - Provision for business restructuring expenses is stated in amounts considered to be appropriate based on the estimated future loss in connection with business restructuring.

j. Retirement and Pension Plans - Employees who retire at or after age 60 are entitled to their benefits in the form of an annuity and a severance lump-sum payment. The funds for the annuity payments are entrusted to an outside trustee.

The Company accounts for the prepaid pension cost and the liability for retirement benefits based on projected benefit obligations and plan assets at the balance sheet date. Actuarial gains and losses are recognized on a straight-line basis over 17 years within the remaining service period. Past service costs are amortized on a straight-line basis over 17 years within the average remaining service period.

In May 2012, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Statement No. 26, "Accounting Standard for Retirement Benefits" and ASBJ Guidance No. 25, "Guidance on Accounting Standard for Retirement Benefits," which replaced the accounting standard for retirement benefits that had been issued by the Business Accounting Council in 1998 with an effective date of April 1, 2000, and the other related practical guidance, and were followed by partial amendments from time to time through 2009.

(a) Under the revised accounting standard, actuarial gains and losses and past service costs that are yet to be recognized in profit or loss are recognized within equity (accumulated other comprehensive income), after adjusting for tax effects, and any resulting deficit or surplus is recognized as a liability (liability for retirement benefits) or asset (asset for retirement benefits).

(b) The revised accounting standard does not change how to recognize actuarial gains and losses and past service costs in profit or loss. Those amounts are recognized in profit or loss over a certain period no longer than the expected average remaining service period of the employees. However, actuarial gains and losses and past service costs that arose in the current period and have not yet been recognized in profit or loss are included in

44

other comprehensive income, and actuarial gains and losses and past service costs that were recognized in other comprehensive income in prior periods and then recognized in profit or loss in the current period, are treated as reclassification adjustments.

(c) The revised accounting standard also made certain amendments relating to the method of attributing expected benefit to periods, the discount rate, and expected future salary increases.

(d) Treatment in nonconsolidated financial statementsIn nonconsolidated financial statements, the new requirements for (a) and (b) above would not be applied, with the current requirements remaining applicable.

This accounting standard and the guidance for (a) and (b) above are effective for the end of annual periods beginning on or after April 1, 2013, and for (c) above are effective for the beginning of annual periods beginning on or after April 1, 2014, or for the beginning of annual periods beginning on or after April 1, 2015, subject to certain disclosure in March 2015, all with earlier application being permitted from the beginning of annual periods beginning on or after April 1, 2013. However, no retrospective application of this accounting standard to consolidated financial statements in prior periods is required.

The Company applied the revised accounting standard and guidance for retirement benefits for (c) above, effective April 1, 2014.

With respect to (c) above, the Company changed the method of attributing the expected benefit to periods from a straight-line basis to a benefit formula basis, the method of determining the discount rate from using the period which approximates the expected average remaining service period to using different discount rates according to the estimated timing of benefit payment, and recorded the effect of (c) above as of April 1, 2014, in retained earnings. As a result, liability for retirement benefits as of April 1, 2014, decreased by ¥21 million ($175 thousand), prepared pension cost as of April 1, 2014, increased by ¥66 million ($550 thousand), and retained earnings as of April 1, 2014, increased by ¥56 million ($467 thousand). The effects of these changes on per share of common stock for the year ended March 31, 2015, were not material.

Retirement allowances for directors and Audit & Supervisory Board members are recorded as a liability at the amount that would be required if all directors and Audit & Supervisory Board members retired at each balance sheet date.

k. Asset Retirement Obligations - In March 2008, the ASBJ issued ASBJ Statement No. 18, “Accounting Standard for Asset Retirement Obligations” and ASBJ Guidance No. 21, “Guidance on Accounting Standard for Asset Retirement Obligations.” Under this accounting standard, an asset retirement obligation is defined as a legal obligation imposed either by law or contract that results from the acquisition, construction, development and the normal operation of a tangible fixed asset and is associated with the retirement of such tangible fixed asset. The asset retirement obligation is recognized as the sum of the discounted cash flows required for the future asset retirement and is recorded in the period in which the obligation 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 the 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.

l. Research and Development Costs - Research and development costs are charged to income as incurred.

m. Leases - In March 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the previous accounting standard for lease transactions. The revised accounting standard for lease transactions was effective for fiscal years beginning on or after April 1, 2008.

45


Under the previous accounting standard, finance leases that were deemed to transfer ownership of the leased property to the lessee were capitalized. However, other finance leases were permitted to be accounted for as operating lease transactions if certain "as if capitalized" information was disclosed in the notes to the lessee's financial statements. The revised accounting standard requires that all finance lease transactions be capitalized by recognizing lease assets and lease obligations in the balance sheet.

n. Income Taxes - The provision for income taxes is computed based on the pretax income included in the statement of operations. The asset and liability 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 income tax rates to the temporary differences.

o. 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 at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the statement of operations to the extent that they are not hedged by forward exchange contracts.

p. Derivatives and Hedging Activities - The Company uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts and interest rate swaps are utilized by the Company to reduce foreign currency exchange and interest rate risks. The Company does not enter into derivatives for trading or speculative purposes.

Derivative financial instruments 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 recognized in the income statement and b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the

hedged transactions.The foreign currency forward contracts are utilized

to hedge foreign currency exposures in procurement of raw materials from overseas suppliers. Trade payables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.

Interest-rate swaps are utilized to hedge interest rate exposures of long-term debt. These swaps that qualify for hedge accounting are measured at market value at the balance sheet date, and the unrealized gains or losses are deferred until maturity as deferred gain (loss) under hedge accounting in a separate component of equity.

q. Per Share Information - Basic net income (loss) per share is computed by dividing net income (loss) available to common shareholders by the weighted-average number of common shares outstanding for the period.

The weighted-average number of common shares outstanding used in the computation were 36,798,762 and 36,798,806 for the fiscal years ended March 31, 2015 and 2014, respectively.

Diluted net loss per share is not presented because potential common shares do not exist and the result of operation is loss for the year ended March 31, 2014. Diluted net income per share is not presented because potential common shares do not exist for the year ended March 31, 2015.

Cash dividends per share presented in the accompanying statements of operation are dividends applicable to the respective fiscal years, including dividends to be paid after the end of the year.

r. Accounting Changes and Error Corrections - In December 2009, the ASBJ issued ASBJ Statement No. 24, “Accounting Standard for Accounting Changes and Error Corrections” and ASBJ Guidance No. 24, “Guidance on Accounting Standard for Accounting Changes and Error Corrections.” Accounting treatments under this standard and guidance are as follows: (1) Changes in Accounting Policies - When a new accounting policy is applied following revision of an accounting standard, the new policy is applied retrospectively unless the revised accounting standard includes specific transitional provisions, in which case the entity shall comply with the specific

46

transitional provisions. (2) Changes in Presentation - When the presentation of financial statements is changed, prior-period financial statements are reclassified in accordance with the new presentation. (3) Changes in Accounting Estimates - A change in an accounting estimate is accounted for in the period of

the change if the change affects that period only, and is accounted for prospectively if the change affects both the period of the change and future periods. (4) Corrections of Prior-Period Errors - When an error in prior-period financial statements is discovered, those statements are restated.

3. INVESTMENT SECURITIES

Investment securities as of March 31, 2015 and 2014, consisted of the following:

Non-current:

Marketable equity securities:

Kobe Steel, Ltd., a principal shareholder

Other

Non-marketable equity securities

Total

2015Millions of Yen

2015Thousands of U.S. Dollars

2014Millions of Yen

¥ 139197

4

¥ 340

$ 1,1581,642

33

$ 2,833

¥ 85

186

4

¥ 275

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

Securities classified as:

Available-for-sale:

Equity securities

2015 Millions of Yen

¥ 225 ¥ 336¥ 111

Cost Unrealized Gains Unrealized Losses Fair Value


Available-for-sale:

Equity securities


¥ 160 ¥ 271¥ 111



Available-for-sale:

Equity securities

2015 Thousands of U.S. Dollars

$ 1,875 $ 2,800$ 925


47


4. INVENTORIES

Long-term debt as of March 31, 2015 and 2014, consisted of the following:

5. LONG-LIVED ASSETS

The Company reviewed its long-lived assets for impairment as of March 31, 2015. As a result, the Company recognized an impairment loss of ¥319 million ($2,658 thousand) as other expense for High-performance Materials Business Division due to a sales environment depression and a decline of operation status of its facilities. The carrying amount of long-lived assets in the High-performance Materials Business Division was written down to the recoverable amount for the year ended March 31, 2015. The recoverable amount of its assets was measured by the value in use that was estimated as zero.

Inventories as of March 31, 2015 and 2014, consisted of the following:

Finished products

Work in process

Raw materials and supplies

Total

2015Millions of Yen


2014Millions of Yen

¥ 12,1735,2515,515

¥ 22,939

$ 101,44243,75845,958

$ 191,158

¥ 14,611

5,498

5,326

¥ 25,435

Loans from banks due serially to 2016 fiscal year with interest rates ranging from 0.3% to 0.5% (2015) and from 0.3% to 0.7% (2014):

Collateralized

Unsecured

Less current portion

Long-term debt, net

2015Millions of Yen


2014Millions of Yen

¥ 5,33044,00018,040

¥ 31,290

$ 44,417366,666150,333

$ 260,750

¥ 7,000

48,000

10,000

¥ 45,000

6. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

Short-term bank loans at March 31, 2015 and 2014, consisted of notes to banks, bank overdrafts and current portion of long-term debt. The weighted-average interest rate of short-term loans at March 31, 2015 and 2014, was 0.4% and 0.5%, respectively.

48

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

On December 31, 2013, the Company entered into a ¥18,000 million ($150,000 thousand) long-term syndicate loan agreement with banks. This agreement contains the following financial covenants relating to the financial position and operating results of the Company: the amount of net assets at the end of each fiscal year shall not be less than ¥33,100 million ($275,833 thousand) or shall not be less than 75% of net assets of the latest financial year, whichever is greater, and the Company shall not record a net cash used in operating activities for two consecutive years.

On July 31, 2014, the Company entered into a ¥6,000 million ($50,000 thousand) long-term syndicate loan agreement with banks. This agreement contains the following financial covenants relating to the financial position and operating results of the Company: the amount of net assets at the end of each fiscal year shall not be less than ¥30,900 million ($257,500 thousand) or shall not be less than 75% of net assets of the latest financial year, whichever is greater, and the Company shall not record a loss from ordinary operations for two consecutive years.

2017

2018

2019

Total

Thousands of U.S. DollarsMillions of YenYears Ending March 31

¥ 18,2906,0007,000

¥ 31,290

$ 152,41750,00058,333

$ 260,750

The carrying amounts of assets pledged as collateral for long-term debt of ¥5,330 million ($44,417 thousand) as of March 31, 2015, were as follows:

Trade accounts

Thousands of U.S. DollarsMillions of YenYears Ending March 31

¥ 6,810 $ 56,750

Balance at beginning of year (as previously reported)

Cumulative effect of accounting change

Balance at beginning of year (as restated)

Current service cost

Interest cost

Actuarial (gains) losses

Benefits paid

Balance at end of year

2015Millions of Yen


2014Millions of Yen

¥ 3,957(87)

3,870224

47116(51)

¥ 4,206

$ 32,975(725)

32,2501,867

392967

(426)

$ 35,050

¥ 3,976

3,976

258

56

(198)

(135)

¥ 3,957

7. RETIREMENT AND PENSION PLANS

Employees of the Company are covered by a defined benefit pension plan, a defined contribution plan, and a severance lump-sum payment plan.

The liability for employees’ retirement benefits as of March 31, 2015 and 2014, consisted of the following:

(1) The changes in defined benefit obligation for the years ended March 31, 2015 and 2014, were as follows:

49


Balance at beginning of year

Expected return on plan assets

Actuarial losses

Contributions from the employer

Benefits paid


2015Millions of Yen


2014Millions of Yen

¥ 2,75839

223149(35)

¥ 3,134

$ 22,983325

1,8581,242

(292)

$ 26,116

¥ 2,475

34

176

145

(72)

¥ 2,758

Funded defined benefit obligation

Plan assets

Unfunded defined benefit obligation

Unrecognized actuarial loss

Unrecognized prior service cost

Net liability for defined benefit obligation

2015Millions of Yen


2014Millions of Yen

¥ 2,187(3,134)

(947)2,0191,072

(154)(122)

¥ 796

$18,225(26,117)

(7,892)16,825

8,933(1,283)(1,016)

$6,634

¥ 2,087

(2,758)

(671)

1,870

1,199

(305)

(134)

¥ 760

Liability for retirement benefits

Prepaid retirement benefits

Net liability for defined benefit obligation

2015Millions of Yen


2014Millions of Yen

¥ 1,670(874)

¥ 796

$ 13,917(7,283)

$ 6,634

¥ 1,544

(784)

¥ 760

(2) The changes in plan assets for the years ended March 31, 2015 and 2014, were as follows:

Service cost

Interest cost

Expected return on plan assets

Recognized actuarial losses

Amortization of prior service cost

Net periodic benefit costs

2015Millions of Yen


2014Millions of Yen

¥ 22447

(39)4412

¥ 288

$ 1,867392

(325)367100

$ 2,401

¥ 258

56

(34)

66

12

¥ 358

(4) The components of net periodic benefit costs for the years ended March 31, 2015 and 2014, were as follows:

(3) Reconciliation between the liability recorded in the balance sheet and the balances of defined benefit obligation and plan assets as of March 31, 2015 and 2014, were as follows:

50

(5) Plan assetsa. Components of plan assets

Plan assets as of March 31, 2015 and 2014, consisted of the following:

b. Method of determining the expected rate of return on plan assetsThe expected rate of return on plan assets is determined considering the long-term rates of return which areexpected currently and in the future from the various components of the plan assets.

(6) Assumptions used for the years ended March 31, 2015 and 2014, are set forth as follows:

(7) Defined contribution pension planCosts recognized for defined contribution pension plan for the years ended March 31, 2015 and 2014, were ¥52 million ($433 thousand) and ¥55 million, respectively.

Debt investments

Equity investments

General accounts

Others

Total

31.5 %32.030.9

5.6

100.0 %

28.6 %

33.0

33.2

5.2

100.0 %

2015 2014

Discount rate

Expected rate of return on plan assets

Expected rate of increase in salary

Mainly 1.1 - 1.3%1.4%2.4%

1.4%

1.4%

2.4%

2015 2014

Balance at beginning of year

Reconciliation associated with passage of time


2015Millions of Yen


2014Millions of Yen

¥ 1,27327

¥ 1,300

$ 10,608225

$ 10,833

¥ 1,246

27

¥ 1,273

8. ASSET RETIREMENT OBLIGATIONS

The changes in asset retirement obligations for the years ended March 31, 2015 and 2014, were as follows:

51


(a) DividendsUnder the Companies Act, companies can pay dividends at any time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders’ meeting. For companies that meet certain criteria including (1) having a Board of Directors, (2) having independent auditors, (3) having an Audit and 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 in kind) at any time during the fiscal year if the company has prescribed so in its articles of incorporation. The Company meets all the above criteria.

Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate. The Companies Act provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends must be maintained at no less than ¥3 million.

(b) Increases/decreases and transfer of common stock, reserve and surplus

The Companies Act requires that an amount equal to 10% of dividends must be appropriated as a legal

9. 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:

10. INCOME TAXES

The Company is subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 35.6% and 38.0% for the years ended March 31, 2015 and 2014, respectively.

The tax effects of significant temporary differences that resulted in deferred tax assets and liabilities as of March 31, 2015 and 2014, are as follows:

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 of such dividends, until the aggregate amount of legal reserve and additional paid-in capital equals 25% of the 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 rightsThe Companies Act also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the shareholders that is determined 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 stock acquisition rights are presented as a separate component of equity or deducted directly from stock acquisition rights.

52

Deferred tax assets (current):

Accrued bonus

Provision for business restructuring expenses

Social insurance

Loss on revaluation of inventories


Other

Net deferred tax assets (current)

2015Millions of Yen


2014Millions of Yen

¥ 130206

19227

113

¥ 695

$ 1,0831,717

1581,892

942

$ 5,792

¥ 126

55

19

779

14

224

¥ 1,217

Deferred tax assets (non-current):

Loss on revaluation of golf club membership

Liability for retirement benefits

Provision for business restructuring expenses

Depreciation

Asset retirement obligations


Impairment loss

Other

Less valuation allowance

Total

Deferred tax liabilities (non-current):

Property, plant and equipment (asset retirement obligations)

Prepaid pension cost

Unrealized gain on available-for-sale securities

Reserve for advance depreciation of fixed assets

Total

Net deferred tax assets (non-current)

2015Millions of Yen


2014Millions of Yen

¥ 31538

408419

24326

53(658)

1,141

238282

73335928

¥ 213

$ 2584,483

3,4003,492

2002,717

441(5,483)9,508

1,9832,350

6082,7927,733

$ 1,775

¥ 38

550

231

356

453

16

531

62

(841)

1,396

263

279

57

18

617

¥ 779

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in the accompanying statement of operations for the year ended March 31, 2014, was as follows:

Normal effective statutory tax rate

Change in valuation allowance for deferred tax assets

Difference incurred from changes of tax rate

Other – net

Actual effective tax rate

38.0%(8.7)(2.1)(1.1)

26.1%

53


11. RESEARCH AND DEVELOPMENT COSTS

Research and development costs charged to income were ¥603 million ($5,025 thousand) and ¥781 million for the years ended March 31, 2015 and 2014, respectively.

The reconciliation of the difference between the normal effective statutory tax rate and the actual effective tax rate for the year ended March 31, 2015, is not disclosed because the difference is immaterial.

New tax reform laws enacted in 2015 in Japan changed the normal effective statutory tax rate for the fiscal year beginning on or after April 1, 2015, to approximately 33.0% and for the fiscal year beginning on or after April 1, 2016, to approximately 32.3%. The effect of these changes was to decrease deferred tax assets, net of deferred tax liabilities, by ¥87 million ($725 thousand) and deferred gain on derivatives under hedge accounting by ¥2 million ($17 thousand), and increase unrealized gain on available-for-sale securities by ¥8 million ($67 thousand) in the balance sheet as of March 31, 2015, and to increase income taxes-deferred in the statement of operations for the year then ended by \93 million ($775 thousand).


Impairment loss on long-lived assets

Gain on sales of property, plant and equipment

Other costs including costs for removing property, plant and equipment

Total

Millions of Yen

¥ 1,9651,491

(489)989

¥ 3,956


Machinery and equipment


Other

Total

Millions of Yen

¥ 1151,539

3029

¥ 1,965

The details of business restructuring expenses for the year ended March 31, 2014, were as follows:

12. BUSINESS RESTRUCTURING EXPENSES

Business restructuring expenses were mainly incurred with the closing of the Amagasaki plant and Kishiwada plant, which include loss on disposal of property, plant and equipment; impairment loss on long-lived assets; gain on sales of property, plant and equipment and other costs including costs for removing property, plant and equipment.

(1) Loss on disposal of property, plant and equipment

54

Use Location Type of assets

Titanium Business Division

High-performance Materials Business Division

Idle assets

Amagasaki City, Hyogo

Amagasaki City, Hyogo

Kishiwada City, Osaka

Buildings and structures, machinery and equipment, construction in progress and other

Buildings and structures, machinery and equipment, construction in progress and other

Buildings and structures, land and other

The Company decides its asset groups for impairment by the following method. Asset groups of operating assets are decided by business division and asset groups of idle assets are decided by individual asset.

The carrying amounts of long-lived assets in the Titanium Business Division and High-performance Materials Business Division were written down to the recoverable amount for the year ended March 31, 2014, because they were not expected to improve the deterioration in the sales environment and the decrease in capacity utilization of manufacturing facilities in those businesses.

The carrying amounts of idle assets were written down to the recoverable amount for the year ended March 31, 2014, because they are expected to be used in the future.

(2) Impairment loss on long-lived assets

The recoverable amount of operating assets was measured by the value in use, and estimated cash flows calculated by the recoverable amount were discounted by 4.81%.

The recoverable amount of idle assets was measured by the net sales value. The net sales value was determined by rationally adjusting appraised values.


Machinery and equipment

Land


Other

Total

2015Millions of Yen

¥ 600373239203

76

¥ 1,491

Impairment loss on long-lived assets is as follows:

(3) Gain on sales of property, plant and equipmentGain on sales of property, plant and equipment of ¥489 million consisted of gain on sales of machinery and equipment to Nippon Steel & Sumikin Naoetsu Titanium Co., Ltd.

55


13. LEASES

14. COMMITMENTS AND CONTINGENT LIABILITIES

(2) Purchase commitments of raw materialsAt March 31, 2015, the Company had some noncancelable purchase commitments of raw materials.

The Company has some forward contracts for purchase of raw materials. There is a potential loss to the Company depending on the circumstances of resale to a third party from contractors in case unpurchased raw materials remain at the end of the contract period.

The off-balance amount of raw materials that had not been purchased by the Company as of March 31, 2015, was as follows:

The Company leases certain machinery, automotive equipment and other equipment.Finance leases that are deemed to transfer ownership of the leased property to the Company are included in

“Machinery and equipment” in the balance sheets as of March 31, 2015 and 2014.Total rental expenses for the years ended March 31, 2015 and 2014, were ¥339 million ($2,825 thousand) and ¥622

million, respectively.

As of March 31, 2015, the Company had the following contingent liabilities:

(1) Guarantees of bank loans for employees

The rental payments over the estimated useful period of land leases for which asset retirement obligations are recognized are included in the minimum rental commitments.

Land leases for which asset retirement obligations are recognized are legally cancellable. However, as they are unlikely to be cancelled due to the indispensable nature of the asset for the Company's business activities, they are considered substantially noncancelable leases and therefore, the amount of the asset retirement obligations is included in the above minimum rental commitments.

The minimum rental commitments under noncancelable operating leases were as follows:

Due within one year

Due after one year

Total

2015Millions of Yen


2014Millions of Yen

¥ 871,574

¥ 1,661

$ 72513,117

$ 13,842

¥ 88

1,651

¥ 1,739

Guarantees of bank loans for employees

Thousands of U.S. DollarsMillions of Yen

¥ 256 $ 2,133

Off-balance amount of raw materials that had not been purchased by the Company

Thousands of U.S. DollarsMillions of Yen

¥ 2,252 $ 18,767

56

15. RELATED PARTY TRANSACTIONS

Related party transactions are summarized as follows:

Nippon Steel & Sumitomo Metal Corporation, a principal shareholder:

Net sales

Accounts receivable

Nippon Steel & Sumikin Naoetsu Titanium Co., Ltd., a sister company:

Sales amount of property, plant and equipment

Gain on sales of property, plant and equipment

Accounts receivable - other

2015Millions of Yen


2014Millions of Yen

¥ 834285

$ 6,9502,375

¥ 841

377

¥ 900

489

945

16. FINANCIAL INSTRUMENTS AND RELATED DISCLOSURES

(1) Policy for Financial InstrumentsThe Company uses financial instruments, mainly long-term debt including bank loans and lease obligations, based on its capital financing plan. Cash surpluses, if any, are invested in low-risk financial assets. Short-term bank loans are used to fund its ongoing operations. Derivatives are used not for speculative purposes but to manage exposure to financial risks as described in (2) below.

(2) Nature and Extent of Risks Arising from Financial InstrumentsReceivables such as trade notes and trade accounts are exposed to customer credit risk. Although receivables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, the position, net of payables in foreign currencies, is hedged by using forward foreign currency contracts. Investment securities, mainly equity securities of customers and suppliers of the Company, are exposed to the risk of market price fluctuations.

Payment terms of payables, such as trade notes and trade accounts, are less than one year. Although payables in foreign currencies are exposed to the market risk of fluctuation in foreign currency exchange rates, those risks are netted against the balance of receivables denominated in the same foreign currency as noted above.

Maturities of bank loans and lease obligations are less than five years after the balance sheet date. Although a part of such bank loans and lease obligations is exposed to market risks from changes in variable interest rates, those risks are mitigated by using interest-rate swaps.

Derivatives mainly include forward foreign currency contracts and interest-rate swaps, which are used to manage exposure to market risks from changes in foreign currency exchange rates of receivables and payables and from changes in interest rates of bank loans. Please see Note 17 for more details about derivatives.

57


(a) Fair value of financial instruments


Receivables - trade accounts

Investment securities

Total

Payables - trade accounts

Payables - construction

Long-term debt

Derivatives

Total

Millions of Yen

Carrying Amount Fair Value Unrealized Gain/LossMarch 31, 2015

¥ 3,46812,108

336

¥ 15,912

¥ 3,333376

49,33073

¥ 53,112

¥ (36)

¥ (36)

¥ 3,46812,108

336

¥ 15,912

¥ 3,333376

49,29473

¥ 53,076

(3) Risk Management for Financial Instruments

Credit risk managementCredit risk is the risk of economic loss arising from a counterparty’ s failure to repay or service debt according to the contractual terms. The Company manages its credit risk from receivables on the basis of internal guidelines, which include monitoring of payment terms and balances of major customers by each business administration department to identify the default risk of customers at an early stage.

The maximum credit risk exposure of financial assets is limited to their carrying amounts as of March 31, 2015.

Market risk management (foreign exchange risk and interest rate risk)Foreign currency trade receivables and payables are exposed to market risk resulting from fluctuations in foreign currency exchange rates. Such foreign exchange risk is hedged principally by forward foreign currency contracts. In addition, when foreign currency trade receivables and payables are expected from forecasted transactions, forward foreign currency contracts may be used under the limited contract term of half a year.

Interest-rate swaps are used to manage exposure to market risks from changes in interest rates of bank loans.Investment securities are managed by monitoring market values and the financial position of issuers on a regular basis.Basic principles of derivative transactions have been approved at management meetings held on a semiannual

basis based on the internal guidelines that prescribe the authority and the limit for each transaction by the corporate treasury department. Reconciliation of the transactions and balances with customers is made, and the transaction data is reported to the chief financial officer and the management meeting on a monthly basis.

(4) Fair Values of Financial InstrumentsFair 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. Also please see Note 17 for the detail of fair values for derivatives.

58




Total


Short-term bank loans


Long-term debt

Derivatives

Total

Millions of Yen


¥ 929

14,617

271

¥ 15,817

¥ 2,910

4,300

1,168

55,000

86

¥ 63,464

¥ (60)

¥ (60)

¥ 929

14,617

271

¥ 15,817

¥ 2,910

4,300

1,168

54,940

86

¥ 63,404




Total



Long-term debt

Derivatives

Total

Thousands of U.S. Dollars


$ 28,900100,900

2,800

$ 132,600

$ 27,7753,133

411,083608

$ 442,599

$ (300)

$ (300)

$ 28,900100,900

2,800

$ 132,600

$ 27,7753,133

410,783608

$ 442,299

Cash and cash equivalentsThe carrying values of cash and cash equivalents approximate fair value because of their short maturities.

Receivables and payablesThe carrying values of receivables and payables approximate fair value because of their short maturities.

Investment securitiesThe fair values of investment securities are measured at the quoted market price of the stock exchange for the equity instruments and at the quoted price obtained from the financial institution for certain debt instruments. Fair value information for marketable and investment securities by classification is included in Note 3.

Short-term bank loans and long-term debtsThe fair values of short-term bank loans and long-term debts are determined by discounting the cash flows related to the debt at the Company’ s assumed corporate borrowing rate.

DerivativesFair value information for derivatives is included in Note 17.

59


(b) Financial instruments whose fair value cannot be reliably determined

(5) Maturity Analysis for Financial Assets and Securities with Contractual Maturities

Investments in equity instruments that do not have a quoted market price in an active market

Carrying Amount

Millions of Yen Thousands of U.S. DollarsMarch 31, 2015

$33¥ 4

Investments in equity instruments that do not have a quoted market price in an active market

Carrying Amount

Millions of YenMarch 31, 2014

¥ 4

Cash and cash equivalents Receivables - trade accounts

Total

Millions of Yen

Due after One Yearthrough Five Years

Due in One Year or LessDue after Five Yearsthrough Ten Years

Due after Ten YearsMarch 31, 2015

¥ 3,46812,108

¥ 15,576



Total

Millions of Yen




¥ 92914,617

¥ 15,546



Total





$ 28,900100,900

$ 129,800

17. DERIVATIVES

The Company enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain assets and liabilities denominated in foreign currencies. The Company also enters into interest-rate swap contracts to manage its interest rate exposures on certain liabilities.

All derivative transactions are entered into to hedge interest and foreign currency exposures incorporated within its 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 in accordance with internal policies that regulate the authorization and credit limit amount.

Please see Note 6 for annual maturities of long-term debt.

60

Derivative transactions to which hedge accounting is applied

Foreign currency forward contracts:Selling U.S.$

Interest-rate swaps (fixed-rate payment, floating-rate receipt)

Millions of Yen

Hedged Item Contract AmountContract Amount

Due after One YearFair Value

At March 31, 2015

¥ 4,296

13,000 ¥ 13,000 ¥ 73

Receivables

Long-term debt



Millions of Yen



At March 31, 2014

¥ 4,693

17,000 ¥ 7,000 ¥ 86

Receivables

Long-term debt






At March 31, 2015

$ 35,800

108,333 $108,333 $ 608

Receivables

Long-term debt

The above foreign currency forward contracts that qualify for hedge accounting and meet specific matching criteria are not remeasured at market value because trade receivables settled by forward exchange contracts are translated at the contract rates. In addition, the fair value of such foreign currency forward contracts in Note 16 is included in that of hedged items (i.e., receivables-trade accounts).

The fair value of derivative transactions is measured at the quoted price obtained from the financial institution.The contract or notional amounts of derivatives that are shown in the above table do not represent the amounts

exchanged by the parties and do not measure the Company's exposure to credit or market risk.

18. 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 evaluated regularly 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.

61


2015Reportable Segment


Division

Titanium BusinessDivision


DivisionTotal

Reconciliations Total

1. Description of reportable segmentsThe Company'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 Company. Therefore, the Company’ s reportable segments consist of the Titanium Business Division, Polycrystalline Silicon Business Division and High-performance Materials Business Division.

Titanium Business Division - Production and sales of mainly titanium sponges and titanium ingotsPolycrystalline Silicon Business Division - Production and sales of polycrystalline siliconHigh-performance Materials Business Division - Production and sales of mainly high-purity titanium, titaniumpowder and silicon monoxide

2. Methods of measurement for the amounts of sales, profit (loss), assets and other items for each reportable segmentThe accounting policies of each reportable segment are consistent with those disclosed in Note 2, “Summary of Significant Accounting Policies.”

3. Information about sales, profit (loss), assets and other items is as follows.

Millions of Yen

Sales:

Sales to external customers

Intersegment sales or transfers

Total

Segment profit

Segment assets

Other:

Depreciation

Increase in property, plant andequipment and intangible assets

¥ 23,370

¥ 23,370

¥ 1,41854,462

2,860

3,883

¥ 14,671

¥ 14,671

¥ 1,00041,656

3,195

25

¥ 2,316

¥ 2,316

¥ 3462,809

154

12

¥ 40,357

¥ 40,357

¥ 2,76498,927

6,209

3,920

¥ 3,469

305

¥ 40,357

¥ 40,357

¥ 2,764102,396

6,209

4,225



Division



DivisionTotal


Millions of Yen

Sales:



Total

Segment (loss) profit

Segment assets

Other:

Depreciation


¥ 24,823

¥ 24,823

¥ (610)

60,956

5,223

2,216

¥ 16,289

¥ 16,289

¥ 1,862

45,630

3,567

82

¥ 1,797

¥ 1,797

¥ (70)

2,706

253

32

¥ 42,909

¥ 42,909

¥ 1,182

109,292

9,043

2,330

¥ 929

489

¥ 42,909

¥ 42,909

¥ 1,182

110,221

9,043

2,819

62



Division



DivisionTotal



Sales:



Total

Segment profit

Segment assets

Other:

Depreciation


$ 194,750

$ 194,750

$ 11,817453,850

23,834

32,358

$ 122,258

$ 122,258

$ 8,333347,133

26,625

208

$ 19,300

$ 19,300

$ 2,88323,408

1,283

100

$ 336,308

$ 336,308

$ 23,033824,391

51,742

32,666

$ 28,909

2,542

$ 336,308

$ 336,308

$ 23,033853,300

51,742

35,208

Notes:* The amounts included under “Reconciliations” are as follows:(1) “Reconciliations” of “Segment assets” represent corporate assets.(2) “Reconciliations” of “Increase in property, plant and equipment and intangible assets” represent the amount of capital investment in common division.

** “Segment profit (loss)” represents operating income (loss) in the statement of operations.*** For the year ended March 31, 2014, the Company changed the estimated useful life of polycrystalline silicon manufacturing facilities (machinery and equipment) from seven

years to 12 years as a result of reassessing the physical useful life of the entire manufacturing facilities as part of the large-scale investment to increase the production capacity of the factory in Kishiwada. The new estimated useful life of machinery and equipment was prospectively applied. The effect of this adoption was to increase segment profit of the “Polycrystalline Silicon Business Division” by ¥1,599 million for the year ended March 31, 2014.

**** As discussed in Note 2.e to the financial statements, the Company changed the method of depreciation and estimated useful life of titanium manufacturing facilities (machinery and equipment). The effect of these changes was to increase segment profit of the “Titanium Business Division” by ¥1,254 million ($10,450 thousand) for the year ended March 31, 2015.

***** For the years ended March 31, 2014 and 2015, the Company recognized impairment loss on long-lived assets. The amounts of impairment loss on long-lived assets in each segment are as follows:

High-performance Materials Business Division

Titanium Business Division

Polycrystalline Silicon Business Division

Idle assets

Total


2014Millions of Yen

2015Millions of Yen

$ 2,658

$ 2,658

¥ 538

208

745

¥ 1,491

¥ 319

¥ 319

USA Other TotalJapan

Note: Sales are classified by countries based on the location of customers.


¥ 23,101 ¥ 12,776 ¥ 4,480 ¥ 40,357



¥ 24,218 ¥ 12,469 ¥ 6,222 ¥ 42,909


2015 Thousands of U.S. Dollars

$ 192,508 $ 106,467 $ 37,333 $ 336,308

4. Information about geographical areas(1) Sales

63


Sales

Related SegmentName of Customer

SUMITOMO CORPORATION

SUMCO Corporation

SUMITOMO MITSUI FINANCE and Leasing Company, Limited

Titanium Business Division, Polycrystalline Silicon Business Division and High-performance Materials Business Division



¥ 17,056

4,041

8,467

¥ 17,883

8,700

2014Millions of Yen

2015Millions of Yen

Sales

Related SegmentName of Customer

SUMITOMO CORPORATION

SUMCO Corporation

SUMITOMO MITSUI FINANCE and Leasing Company, Limited

Titanium Business Division, Polycrystalline Silicon Business Division and High-performance Materials Business Division



$ 142,133

33,675

70,558


5. Information about major customers

19. SUBSEQUENT EVENT

Appropriation of Retained Earnings

The following appropriation of retained earnings as of March 31, 2015, was approved at the board of directors held on May 15, 2015:

Year-end cash dividends, ¥15 ($0.13) per share

Millions of Yen Thousands of U.S. Dollars

¥ 552 $ 4,600

64

INDEPENDENT AUDITOR'S REPORT

To the Board of Directors of OSAKA Titanium technologies Co., Ltd.:

We have audited the accompanying balance sheet of OSAKA Titanium technologies Co., Ltd. as of March 31, 2015, and the related statements of operations, changes in equity, and cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information, all expressed in Japanese yen.

Management's Responsibility for the Financial StatementsManagement is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in Japan, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatements, whether due to fraud or error.

Auditor's ResponsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OpinionIn our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of OSAKA Titanium technologies Co., Ltd. as of March 31, 2015, and the results of its operations and its cash flows for the year then ended in accordance with accounting principles generally accepted in Japan.

Emphasis of MatterAs discussed in Note 2.e to the financial statements, effective April 1, 2014, OSAKA Titanium technologies Co., Ltd. changed the method of depreciation and estimated useful life of titanium manufacturing facilities (machinery and equipment).Our opinion is not qualified in respect of this matter.

Convenience TranslationOur audit also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in accordance with the basis stated in Note 1 to the financial statements. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 15, 2015

Nippon Steel & Sumitomo Metal Corporation

Kobe Steel, Ltd.

Sumitomo Corporation

The Master Trust Bank of Japan, Ltd. (Trust Account)

Japan Trustee Service Bank, Ltd. (Trust Account)

NORTHERN TRUST CO. （AVFC） RE EXEMPT UK PENSION FUNDS

JUNIPER

Japan Trustee Service Bank, Ltd. (Trust Account No. 1)



Total

8,8008,800

864503457345245220213212

20,662

23.9123.91

2.351.371.240.940.670.600.580.58

56.15(Note) The shareholding ratio was calculated after deducting 1,224 treasury stocks from the total number of shares outstanding.

65

Stock Information as of March 31, 2015

Securities Code: 5726

Agent for the Management of Shareholders’ Register and Special Accounts:

Sumitomo Mitsui Trust Bank, Limited1-4-1, Marunouchi, Chiyoda-ku, Tokyo

Shareholder Registry Administrator: Agent’ s Business Location:

Stock Transfer Agency Business Planning DepartmentSumitomo Mitsui Trust Bank, Limited5-33, Kitahama 4-chome, Chuo-ku, Osaka

(Mailing address)

Stock Transfer Agency Business Planning DepartmentSumitomo Mitsui Trust Bank, Limited2-8-4 Izumi, Suginami-ku, Tokyo 168-0063

(Telephone Inquiries)

0120-782-031 (Toll free, only available when calling within Japan)

Market Listings:Tokyo Stock Exchange, 1st section

Shareholders and Shares

Major Shareholders

Names of EntityShares Held

(Thousands of Shares)Ratio of Shares Held to

Total Shares Outstanding (%)

Total shares issuable (Shares) :Shares outstanding (Shares) :Trading unit (Shares) : Number of shareholders :

125,760,00036,800,000

10021,468

Financial institutions: 2,488 6.76%

Securities firms: 681 1.85%

Other domestic corporations: 18,866

51.26%Foreign entities: 3,573 9.71%

Individuals and others: 11,189 30.40%

Items Pertaining to Shares

Distribution of Stock by Owner

Distribution of Stock by Owner(Thousands of Shares)

66

Corporate Data as of March 31, 2015

Corporate Profile

Company

Established

Paid-up Capital

Employees

Representative

Location

Key Events

1937195019511952

19531954

1957196019611967

1975

1977

1978

19801981

1982

19841992199319961997

1999

Established as Osaka Special Steel Manufacturing

Incorporated as Osaka Special Steel Manufacturing Co.

Commenced research into manufacture of titanium metal

Built Japan’ s first titanium pilot plant

Equity stake taken by Sumitomo Metal Industries, Ltd.

Changed the trade name to Osaka Titanium Co., Ltd.

Equity stake taken by Kobe Steel, Ltd.

Construction completed for titanium sponge plant with monthly

capacity of 25 tons

Commenced polycrystalline silicon research and development

Started production of polycrystalline silicon

Completed the magnesium chloride electrolysis plant

Completed the first phase of the second electrolysis plant

Awarded the Okouchi Memorial Production Prize for titanium

manufacturing technology

Completed 14 silos to hold raw materials for titanium

Completed 80,000 ampere electrolysis cell

Received MITI grant for unifying reduction and separation processes

Completed reduction/separation furnaces (unit weight: 2 tons)

Completed liquid chloride furnace

Commenced operation of reduction/separation furnaces

(unit weight: 5 tons) (U-furnaces)

Completed the new electrolysis cell (multi-polar cell method)

Completed the titanium ingot plant

Completed the new distillation plant

Completed the new titanium sponge plant and started production in

the new products plant

Completed the first phase of the polycrystalline silicon plant

Merged with Kyushu Electronic Metal Co., Ltd.

Changed the company name to Sumitomo Sitix Corporation

Headquarters/Amagasaki Plant received ISO9002 certification

Established Sitix of Amagasaki, Inc., a 100% subsidiary of Sumitomo

to Sumitomo Titanium Corporation

Changed the trade name to Sumitomo Sitix of Amagasaki after

business of Amagasaki manufacturing and technology units (titanium,

polycrystalline silicon, new products) was transferred from Sumitomo

Sitix Corporation.

Received ISO14001 certification

2002

2005

2006

2007

2008

2009

2011

2012

2013

2014

Changed the trade name to Sumitomo Titanium Corporation

Completed capacity increase construction work at titanium sponge

plant (increased annual production capacity from 15,000 tons to

18,000 tons)

Listed on the 2nd section of Tokyo Stock Exchange

Received AS9000 certification

Transferred to ISO9001: 2000

Transferred from the 2nd section to the 1st section of Tokyo Stock

Exchange

Increased annual production capacity for titanium sponge from

8,000 tons to 24,000 tons

Increased annual production capacity for polycrystalline silicon from

900 tons to 1,300 tons and started shipments

Changed the trade name to OSAKA Titanium technologies Co., Ltd.

Purchased industrial site in the city of Kishiwada, Osaka


24,000 tons to 32,000 tons (based on actual production capacity of

31,000 tons), increased annual production capacity for

polycrystalline silicon from 1,300 tons to 1,400 tons

Commenced operations at the Kishiwada Works

Completed the titanium ingot plant at the Kishiwada Works,

boosting annual production capacity from 7,000 tons to 10,000 tons

Completed the new polycrystalline silicon plant at the Kishiwada

Works, boosting annual production capacity to 3,600 tons


31,000 tons to 37,000 tons (based on actual production capacity)


37,000 tons to 40,000 tons (based on actual production capacity)

Reached cumulative polycrystalline silicon production of 20,000 tons

Increased annual production capacity for polycrystalline silicon from

3,600 tons to 3,900 tons

Reached cumulative titanium sponge production of 500,000 tons

Concentrated production at the Kishiwada Plant for the

polycrystalline silicon business (annual production capacity modified

to 3,000 tons)

Concentrated production at the Amagasaki Plant for the titanium

melting business (annual production capacity modified to 6,000

tons)

Main Products

Titanium Business

• Titanium Sponge• Titanium Ingot• Titanium Tetrachloride• Titanium Tetrachloride Aqueous Solution


• Polycrystalline Silicon


• High-purity Titanium• SiO• TILOP• Titanium Powder

OSAKA Titanium technologies Co.,Ltd.

November 26, 1952

8,739,620,000 yen

750

Yuichi Seki President & Representative Director

Headquarters/Amagasaki Plant

1 Higashihama-cho, Amagasaki, Hyogo660-8533, JapanTel. +81-6-6413-9911 Fax. 81-6-6413-4343

Kishiwada Works

3-2, Kishinoura-cho, Kishiwada, Osaka596-0016, JapanTel. +81-72-479-3010 FAX. +81-72-479-3050

Tokyo Office

Sumitomo Hamamatsu-cho Building 8th floor, 1-18-16Hamamatsu-cho, Minato-ku, Tokyo 105-0013, JapanTel. +81-3-5776-3101 Fax. +81-3-5776-3111(relocated August2015)

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