NKK CORPORATION: Annual Report 1998
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NKK CORPORATION AND CONSOLIDATED SUBSIDIARIES
Notes to Consolidated Financial Statements


1. Summary of Significant Accounting Policies

Except for the method of depreciation of property, plant and equipment (principally the straight-line method for NKK CORPORATION (the "Company") and principally the declining-balance method for the domestic consolidated subsidiaries), the accounting policies applicable to the accompanying consolidated financial statements are substantially the same as those discussed in Note 1 to the non-consolidated financial statements.

The accounting policies followed with respect to the consolidated financial statements are as follows:

(a) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and Affiliates

The accompanying consolidated financial statements include the accounts of the Company and its 82 significant subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation.

Investments in 18 significant affiliates (companies owned 20% to 50%) are stated at cost as adjusted for the Company's equity in earnings or losses since the dates of acquisition, after the appropriate adjustments for intercompany profits and dividends. The difference between the cost and the underlying equity in the net assets at the dates of acquisition of the subsidiaries or affiliates accounted for by the equity method is amortized by the straight-line method over a period of five years. Such difference, not significant in amount, is charged or credited to income in the year of the acquisition.

Investments in other unconsolidated subsidiaries and other affiliates are stated at cost or less. Where there has been permanent impairment in the value of the investments, the Company has written down such investments.

For details of the consolidated subsidiaries and affiliates, reference should be made to the list of major subsidiaries and affiliates of the Company listed below.


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(b) Accounting Policies of Subsidiaries in the U.S.A.

The financial statements of the consolidated subsidiaries in the U.S.A. have been prepared on the basis of Generally Accepted Accounting Principles in the U.S.A. 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, except that certain reclassifications have been made to conform their presentation to the presentation used by the Company.

(c) Reclassifications

Certain amounts in prior year's consolidated financial statements have been reclassified to conform with the current year's presentation.

(d) Foreign Currency Translation

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 shown as "translation adjustments" in the accompanying consolidated balance sheets.

(e) Monetary Units

Amounts in Japanese yen are rounded off to the nearest million yen.

2. U.S. Dollar Amounts

The same method of translating yen amounts as that described in Note 2 to the non-consolidated financial statements has been followed.

3. Change in Accounting Method

See Note 3 to the non-consolidated financial statements.

4. Marketable Securities

Marketable securities were as follows:

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5. Depreciation

Depreciation of plant and equipment for the years ended March 31, 1998 and 1997 amounted to ¥135,910 million ($1,029,621 thousand) and ¥133,203 million, respectively.

6. Investments in and Advances to Unconsolidated Subsidiaries and Affiliates

Investments in and advances to unconsolidated subsidiaries and affiliates were as follows:

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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.

7. Other Assets

Other assets were composed of the following:

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8. Short-Term Bank Borrowings, Commercial Paper and Long-Term Indebtedness

Short-term bank borrowings, due principally in 90 days, bore interest at average rates of 1.3% and 0.9% per annum at March 31, 1998 and 1997, respectively. Commercial paper, due in 99 days on the average, bore interest at average rates of 1.3% and 0.6% per annum at March 31, 1998 and 1997, respectively.

Long-term indebtedness at March 31, 1998 and 1997 were summarized as follows:

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9. Other Long-Term Liabilities

Other long-term liabilities were composed of the following:

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10. Legal Reserve

See Note 8 to the non-consolidated financial statements.

11. Other, Net

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

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12. Adjustment to Beginning Balance

National Steel Corporation ('NSC') restated its financial statements retroactively in fiscal 1997. Such restatement increased NSC's retained earnings as of Dec. 31, 1996 by $52.6 million, and caused the Company's retained earnings to be increased by ¥2,678 million.

13. Redemption of Redeemable Preferred Stock and Related Settlement

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

14. Minimum Pension Liability

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

15. Contingent Liabilities

The Company and its consolidated subsidiaries had the following contingent liabilities at March 31, 1998:

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16. Segment Information

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

(a) Information by Industry Segment

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(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 stated as follows:

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