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NKK CORPORATION AND CONSOLIDATED SUBSIDIARIES
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1. Summary of Significant Accounting PoliciesExcept for the method of depreciation of property, plant and equipment (principally the straightline 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 with respect to the consolidated financial statements are as follows. (a) Principles of Consolidation and Accounting for Investments in Unconsolidated Subsidiaries and AffiliatesThe accompanying consolidated financial statements include the accounts of the Company and its 101 significant subsidiaries. Significant intercompany balances and transactions have been eliminated in consolidation. Investments in 19 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. 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 FY 1998. 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. For further details on the consolidated subsidiaries and affiliates, refer to the list of major subsidiaries and affiliates of the Company later. (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 accounting principles generally accepted 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 that adopted by the Company. (c) ReclassificationsCertain amounts in the prior year's consolidated financial statements have been reclassified to conform to the current year's presentation. In the consolidated statements of operations, amortization of consolidation differences and equity in earnings of affiliates have been reclassified to other (income) expenses from after income taxes, the locations for these items until the previous year's report. In the consolidated statements of shareholders' equity, legal reserve, which was entered separately until the previous year's report, now included in retained earnings (deficit). (d) Foreign Currency TranslationAll 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. (e) Monetary UnitsAmounts in Japanese yen are rounded off to the nearest million yen.
2. U.S. Dollar AmountsThe same method of translating yen amounts as that described in Note 2 to the non-consolidated financial statements has been followed. 3. Marketable SecuritiesMarketable securities were as follows. 
4. DepreciationDepreciation of plant and equipment for the years ended March 31, 1999 and 1998 amounted to ¥130,361 million ($1,077,364 thousand) and ¥135,910 million, respectively. 5. Investments in Unconsolidated Subsidiaries and AffiliatesInvestments 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. 6. Other AssetsOther assets were composed of the following. 
7. Long-Term IndebtednessLong-term indebtedness at March 31, 1999 and 1998 were summarized as follows. 
8. Other Long-Term LiabilitiesOther long-term liabilities were composed of the following. 
9. 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 products (SRAM), such as loss on disposal of inventories and loss on disposal of fixed assets. 10. Adjustment to Beginning BalanceNational Steel Corporation ('NSC') restated its financial statements retroactively in fiscal 1997. This restatement increased NSC's retained earnings as of Dec. 31, 1996 by $52.6 million, and resulted in an increase in the Company's retained earnings of ¥2,678 million. 11. Redemption of Redeemable Preferred Stock and Related SettlementNSC redeemed its own redeemable preferred stock and settled certain liabilities related to employee benefits and environmental obligations. 12. Minimum Pension LiabilityNSC 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. 13. Contingent LiabilitiesThe Company and its consolidated subsidiaries had the following contingent liabilities at March 31, 1999. 
The above guarantees include ¥68,689 million ($567,678 thousand) of the guarantees for which collateral received, for example, of housing loans for employees of the Company and its consolidated subsidiaries. 14. LeasesFinance leases, except for lease agreements which stipulate the transfer of ownership of the leased assets to the Company, are summarized as follows. 
Lease commitment equivalents as of March 31, 1999. 
15. Income TaxesDeferred 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. In and before the preceding fiscal year, this practice (income tax deferral) was applied to NKK U.S.A. Corp. and its consolidated subsidiaries only. 
As a result of adoption of tax effect accounting, assets, liabilities and minority interests increased by ¥50,770 million, ¥19,187 million, and ¥1,643 million, respectively, and current loss and accumulated deficit decreased by ¥38,680 million and ¥29,940 million, respectively, compared with the corresponding amounts which would have been recorded if the previous method of accounting had been followed. 16. Segment InformationThe segment information of the Company and its consolidated subsidiaries was summarized as follows. (a) Information by Industry Segment
(b) Overseas SalesOverseas 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. 
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