Significant accounting policies

If the market value of held-to-maturity debt securities and available-for-sale securities declines significantly, such securities are stated at fair market value, and the difference between fair market value and the carrying amount is recognized as loss in the period of the decline. If the fair market value of equity securities issued by unconsolidated subsidiaries and affiliated compa-nies not on the equity method is not readily available, such securities should be written down to net asset value with a corresponding charge in the statement of income in the event net asset value declines significantly. In these cases, the fair market value or the net asset value will be the carrying amount of the securities at the beginning of the next year.

Derivatives and hedge accounting

Derivative financial instruments are stated at fair value, and changes in fair value are recognized as gains or losses unless the derivative financial instruments are used for hedging purposes.

If derivative financial instruments are used as hedges and meet certain hedging criteria, the Company and its consolidated subsidiaries defer the recognition of gain or loss resulting from a change in fair value of a deriva-tive financial instrument until the related loss or gain on the hedged item is recognized.

Allowance for doubtful receivables

The Company and its consolidated subsidiaries provide an allowance for doubtful accounts in the following manner. For receivables from insolvent customers who are undergoing bankruptcy or other collection proceedings or who are in a similar financial condition, the allowance for doubtful ac-counts is provided based on the evaluation of each customer’s financial condition and the estimated recoverable amounts due to the existence of security interests or guarantees. For other receivables, the allowance for doubtful accounts is provided based on the Company’s actual rate of collec-tion losses in the past.

Inventories

Inventories are principally stated at cost. Cost is determined using the first-in, first-out method.

Property, plant and equipment

Property, plant and equipment are stated at cost. Depreciation is principally computed using the declining balance method over the estimated useful life of the asset, except that buildings acquired after March 31, 1998 are depreciated using the straight line method. With respect to leased property and equipment, depreciation is provided using the straight line method over the period of the lease.

The overseas subsidiaries depreciate their property, plant and equipment using the straight line method.

The principal estimated useful lives are as follows:

Buildings and structures 7 to 50 years Machinery and equipment 4 to 13 years

Impairment of Fixed Assets

Effective for the fiscal year ended March 31, 2006, the Company and its domestic subsidiaries have adopted “Accounting Standards for Impairment of Fixed Assets” (“Opinions Concerning the Establishment of Accounting Standard for Impairment of Fixed Assets” issued by the Business Accounting Deliberation Council of Japan on August 9, 2002) and “Guidance for Implementation of Accounting Standards for Impairment of Fixed Assets”

(“The Financial Accounting Standards No. 6” issued by the Accounting Standards Board of Japan on October 31, 2003).

As a result, income before income taxes and minority interest were ¥992 million less than what would have been reported if the new standard had not been adopted.

Intangible assets

Amortization of intangible assets is computed using the straight line method over the estimated useful life of the asset.

The Company and its consolidated subsidiaries include software in intan-gible assets and depreciate it using the straight line method over the esti-mated useful life of the software, primarily five years. Amortization of software developed for external sale is computed over the total estimated sales period of three years.

Research and development expenses

The Company charges research and development expenses to income as incurred. Research and development expenses amounted to ¥1,560 million ($13,210 thousand) and ¥2,022 million for the years ended March 31, 2007 and 2006, respectively.

Income taxes

The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differ-ences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.

Bonuses

The Company follows the general Japanese practice of paying bonuses to employees in July and December. Accrued employees’ bonuses at the bal-ance sheet date are calculated based upon management’s estimate of annual amounts.

Bonuses to directors and corporate auditors

Effective this fiscal year, “Accounting Standard for Directors’ Bonus” (ASBJ Statement No. 4 issued on November 29,2005) has been adopted. As a result of the adoption, selling, general and administrative expenses in-creased by ¥50 million, thereby causing operating income and income before income taxes and minority interests to decrease by ¥50 million, compared with the amounts that would have been recorded under the previous accounting method.

Severance and retirement benefits

Employees

The liabilities and expenses for severance and retirement benefits are deter-mined based on the amounts actuarially calculated using certain assumptions.

The Company and its domestic consolidated subsidiaries provide an allowance for employees’ severance and retirement benefits based on the estimated amounts of projected benefit obligation and the fair value of the plan assets.

Accounting for leases

Finance leases which do not transfer ownership and do not have bargain purchase provisions are accounted for in the same manner as operating leases under Japanese GAAP.

Net income per share

The computations of net income per share of common stock are based on the weighted average number of shares outstanding during each period. The computation of diluted net income per share reflects the maximum possible dilution that could occur if securities were converted into common share.

Accounting Standard for Presentation of Net Assets in the Balance Sheet

Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new accounting standard, “Account-ing Standard for Presentation of Net Assets in the Balance Sheet” (Statement No. 5 issued by the Accounting Standards Board of Japan on December 9, 2005), and the implementation guidance for the accounting standard for presentation of net assets in the balance sheet (the Financial Accounting Standard Implementation Guidance No. 8 issued by the Accounting Stan-dards Board of Japan on December 9, 2005), (collectively, the “New Accounting Standards”).

Under the New Accounting Standards, the balance sheet comprises three sections, which are the assets, liabilities and net assets sections. Previously, the balance sheet comprised the assets, liabilities, minority interests, as applicable, and shareholders’ equity sections.

Under the New Accounting Standards, the following items are presented differently compared to the previous presentation. The net assets section includes unrealized gains and losses on hedging derivatives, net of taxes.

Under the previous presentation rules, companies were required to present unrealized gains and losses on hedging derivatives in the assets or liabilities section without considering the related income tax effects. Share subscription rights and minority interests are required to be included in the net assets section under the New Accounting Standards. Under the previous presenta-tion rules, companies were required to present share subscrippresenta-tion rights and minority interests in the current liabilities section and between the long-term liabilities and shareholders’ equity sections, respectively.

The consolidated balance sheet as of March 31, 2006 has been restated to conform to the 2007 presentation. There were immaterial on total assets or total liabilities from applying the New Accounting Standards to the bal-ance sheet as of March 31, 2006.

The adoption of the New Accounting Standards had no impact on the consolidated statements of income for the years ended March 31, 2007 and 2006.

Accounting Standard for Statement of Changes in Net Assets

Effective from the year ended March 31, 2007, the Company and its consolidated subsidiaries adopted the new accounting standard, “Account-ing Standard for Statement of Changes in Net Assets” (Statement No. 6 issued by the Accounting Standards Board of Japan on December 27, 2005), and the implementation guidance for the accounting standard for statement of changes in net assets (the Financial Accounting Standard Imple-mentation Guidance No. 9 issued by the Accounting Standards Board of Japan on December 27, 2005), (collectively, the “Additional New Account-ing Standards”).

The Company prepared the statements of changes in net assets for the year ended March 31, 2007 in accordance with the Additional New Accounting Standards. Also, the Company voluntarily prepared the consoli-dated statement of changes in net assets for 2006 in accordance with the Additional New Accounting Standards. Previously, consolidated statements of shareholders’ equity were prepared for the purpose of inclusion in the consolidated financial statements although such statements were not required under Japanese GAAP.

Reclassification and restatement

Certain prior year amounts have been reclassified to conform to the current year presentation. Also, as described in Notes 2 Accounting Standard for Presentation of Net Assets in the Balance Sheet and Accounting Standard for Statement of Changes in Net Assets, the consolidated balance sheet for 2006 has been adapted to conform to new presentation rules of 2007.

Also, in lieu of the consolidated statement of shareholders’ equity for the year ended March 31, 2006, which was prepared on a voluntary basis for inclusion in the 2006 consolidated financial statements, the Company prepared the consolidated statement of changes in net assets for 2006 as well as for 2007.

These reclassifications had no impact on previously reported results of operations or retained earnings.