NKK CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements

1. Basis of Preparation

      The accompanying consolidated financial statements were principally prepared from accounts and records maintained by NKK CORPORATION (the "Company") and its consolidated subsidiaries in accordance with the provisions set forth in the Securities and Exchange Law of Japan and in conformity with accounting principles and practices generally accepted in Japan, which may differ in some material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In addition, the notes to the consolidated financial statements include information which is not required under accounting principles generally accepted in Japan but is presented herein as additional information.

2. Consolidation Policy and Accounts for Investments in Nonconsolidated Subsidiaries and Affiliates

      The consolidated financial statements include the accounts of the Company and its 109 subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. The investments in 18 affiliates are stated at their underlying equity value.

      In eliminating the cost of investments in consolidated subsidiaries with the underlying equity in net assets of such subsidiaries or affiliates accounted for by the equity method, a difference may arise between the two amounts. Such difference is principally deferred as an asset or liability, as the case may be, and is amortized to/against income on a straight-line method over a period of five years. Such difference, if not significant in amount, is charged or credited to income in the year of the acquisition.

      Investments in unconsolidated subsidiaries and the remaining affiliates is carried at cost or less. If an impairment in value is recognized, then the investment to be disposed of is reported at the lower of the carrying amount or fair value less costs to sell.

      Certain consolidated subsidiaries were included in these consolidated financial statements as the accounts settlement dates of these subsidiaries falls within a three month period from the Company's own fiscal year-end. Any significant events or changes in circumstances occurring during the three month period are recorded on the consolidated financial statements.

      TOA STEEL CO., LTD., following a resolution for dissolution at an extraordinary general meeting of its shareholders held on March 31, 1999, is now in the process of being liquidated. Therefore, although TOA STEEL CO., LTD., is included in the accompanying consolidated statements of operations, it has not been included in the consolidated balance sheets for fiscal 1999. As a result, total assets were ¥244,273 million lower and borrowings ¥216,372 million lower than if the accounts of TOA STEEL CO., LTD., had been reflected in fiscal 1999.

3. Significant Accounting Policies

(a) Valuation of Securities
      Marketable and investment securities are principally stated at cost, determined by the moving-average method.

(b) Valuation of Inventories
      Inventories for finished goods, semi-finished goods and raw materials are carried at cost, determined by the moving-average method. Work in process and uncompleted construction contracts are valued at cost on an individual basis. Molds and rolls are carried at cost on an individual basis. All other inventories are carried at cost based on the periodic-average method.

(c) Depreciation Method of Tangible Fixed Assets
      Machinery and equipment are depreciated mainly using the straight-line method. All other tangible fixed assets are depreciated using the declining balance method.

(d) Allowance for Doubtful Accounts
      Allowance for doubtful accounts represents an amount deemed necessary to cover possible losses on specific receivables and also projected collection losses estimated based on past provisions.

(e) Retirement and Severance Benefits and Pension Costs
      The Company has a tax qualified pension benefit plan to provide for those employees 50 years or older upon termination of employment. 26 of the Company's domestic consolidated subsidiaries have a tax qualified pension benefit plan.
National Steel Corporation and its significant subsidiaries have defined benefit pension plans. Pension costs are reported in compliance with FAS 87, the "Employers' Accounting for Pensions."

(f) Allowance for Special Maintenance and Repairs
      Blast furnaces and hot blast stoves, including related machinery and equipment, periodically require substantial component replacements and repairs. The estimated future costs of such work are provided for based on the actual cost of prior replacements and repairs, and the frequency at which they were implemented.

(g) Basis of Translation of Foreign Currency Accounts
      All asset and liability accounts of foreign subsidiaries and affiliates are translated into Japanese yen at the appropriate current year-end rates and all income and expense accounts are translated at the average rate of exchange in effect during the year. The resulting adjustments are presented as "translation adjustments" in the accompanying consolidated balance sheets.

(h) Leases
      Finance leases other than those which are deemed to transfer the ownership of the leased assets to lessees are accounted for by the method similar to that applicable to ordinary operating leases.

(i) Accounting Policies of Overseas Subsidiaries
      The financial statements of the consolidated subsidiaries in the U.S.A. have been prepared on the basis of accounting principles generally accepted in the U.S.A. The financial statements of THAI COATED STEEL SHEET CO., LTD., have been prepared on the basis of accounting principles generally accepted in Thailand. Such financial statements have been consolidated in the accompanying consolidated financial statements without any adjustments to conform them to accounting principles generally accepted in Japan.

4. U.S. Dollar Amounts

      The translation of yen amounts for the year ended March 31, 2000, into U.S. dollar amounts is stated solely for convenience, as a matter of arithmetic computation only, at the rate of ¥106.15=U.S.$1.00, the approximate rate of exchange on March 31, 2000. The translation should not be construed as a representation that yen have been, could have been, or could in the future be, converted into U.S. dollars at the above or any other rate.

5. Marketable Securities

      Marketable securities were as follows:

      * Listed stocks were ¥163,382 million under the current value method as of March 31, 2000.

6. Depreciation and Amortization

      Depreciation of plant and equipment for the years ended March 31, 2000 and 1999, amounted to ¥118,384 million ($1,115,252 thousand) and ¥130,361 million, respectively.

7. Investments in Unconsolidated Subsidiaries and Affiliates

      Investments in unconsolidated subsidiaries and affiliates were as follows:

      Had the equity method of accounting been applied to the above investments valued at cost or less, the effect on the consolidated financial statements would not have been material.

8. Other Assets

      Other assets were composed of the following:

9. Long-Term Indebtedness

      Long-term indebtedness at March 31, 2000 and 1999 were summarized as follows:

10. Other Long-Term Liabilities

Other long-term liabilities were composed of the following:

11. Other, Net

      "Other, net" in "Other (income) expenses" was composed of the following:

      "Special charge on the reorganization of bars and shapes operations" comprises losses on the dissolution of TOA STEEL CO., LTD., such as loss on disposal of fixed assets and a special charge arising from employees' termination benefits.

      "Special charge on the reorganization of electronic devices business operation" comprises losses on the withdrawal from test manufacturing and sales of static random-access memory (SRAM) products, such as loss on disposal of inventories and loss on disposal of fixed assets.

12. Adjustment to Beginning Balance

      National Steel Corporation ('NSC') restated its financial statements retroactively in fiscal 1997. This restatement increased NSC's retained earnings as of December 31, 1996 by $52.6 million, and resulted in an increase in the Company's retained earnings of ¥2,678 million for the year ended March 31, 1998.

      The Institute of Certified Accountants and Auditors of Thailand set forth a revision to accounting standards on January 20, 2000, prohibiting the recording of pre-operating expenses as an asset. The adjustments to retained earnings for the years beginning January 1, 1998 and 1999 is presented in the retained earnings statement of THAI COLD ROLLED STEEL SHEET PUBLIC CO., LTD.

13. Redemption of Redeemable Preferred Stock and Related Settlement

      NSC redeemed its own redeemable preferred stock and settled certain liabilities related to employee benefits and environmental obligations.

14. Minimum Pension Liability

      NSC recorded an adjustment to recognize its minimum pension liability at the excess of the accumulated benefit obligation over the fair value of the plan assets, including the unfunded accrued pension cost in underfunded plans.

15. Contingent Liabilities

      The Company and its consolidated subsidiaries had the following contingent liabilities at March 31, 2000:

      The above guarantees include ¥61,402 million ($578,446 thousand) of the guarantees for which collateral received, for example, of housing loans for employees of the Company and its consolidated subsidiaries.

16. Leases

      Finance leases, except for lease agreements which stipulate the transfer of ownership of the leased assets to the Company, are summarized as follows:

17. Income Taxes

      Deferred income taxes reflect the net effects of the temporary differences between the carrying amount of assets and liabilities for financial reporting and income tax purposes.

18. Segment Information

      The segment information of the Company and its consolidated subsidiaries was summarized as follows:

(a) Information by Industry Segment

(b) Overseas Sales

      Overseas sales, which include export sales of the Company and its domestic subsidiaries and sales (other than exports to Japan) of the foreign subsidiaries, were as follows:

19. Subsequent Events

      On May 25, 2000, the Company, its domestic consolidated subsidiaries, NKK BUSINESS SUPPORT CO., LTD., and NKF Corporation decided that NKK BUSINESS SUPPORT CO., LTD., will take over the custodian and social-welfare portions of NKF Corporation's operations, and after the transfer of business, the Company will absorb NKF Corporation.

      The closing of NKF Corporation may result in losses for the Group. However, these losses will be offset by the unrealized gain of the Company's assets. And this will not have any significant effect on consolidated retained earnings.

      On March 23, 2000, the Company decided the issuance of bonds with the following conditions: