For the fiscal year ended March 31, 2008 （、バイト）

(1)

For the fiscal year ended March 31, 2008

(2)

Hitachi Kokusai Electric is a provider of information communication systems

that offer borderless capabilities through compatibility with global standards

on which the next generation of mobile communication systems will be

based. We offer total support of broadcasting and video systems that shape

our image culture, and are moving forward with research and development

on the provision of mobile multimedia products and systems.

Next-generation advanced information and communication systems will be

based on semiconductors. Hitachi Kokusai Electric is also moving forward

with semiconductor manufacturing systems.

Hitachi Kokusai Electric is already a leading manufacturer of

semicon-ductor manufacturing systems that are held in high regard by semiconsemicon-ductor

manufacturers the world over. The Company is constantly utilizing its

advanced research and development capabilities to provide new,

next-generation products that incorporate the latest advances in semiconductor

manufacturing technology.

Statements made in this annual report with respect to Hitachi Kokusai Electric’s plans and projections as well as other statements that are not historical facts are forward-looking statements, which involve risks and uncertainties. Potential risks and uncertainties include, without limitation, general economic conditions in Hitachi Kokusai Electric’s markets, exchange rates and Hitachi Kokusai Electric’s ability to continue to win customers’ acceptance of its products, which are offered in highly competitive markets

(3)

For the Year:

Net sales...

Operating income ...

Net income ...

At Year-End:

Total assets ...

Total equity ...

Per share of common stock (in Yen and U.S. Dollars):

Net income ...

Cash dividends applicable to the year ...

Note: 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 ¥100.19 to $1, the rate of exchange at March 31, 2008.

159,065

193,970 197,984

11,433

16,933

15,561

192,583

214,950

203,057

Net sales (Millions of Yen)

Operating income

(Millions of Yen)

Total assets (Millions of Yen)

100,000 150,000 200,000

9,000 12,000 15,000 18,000

120,000 160,000 200,000 240,000

Financial Highlights

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Thousands of Millions of Yen U.S. Dollars

Yen U.S. Dollars

2008

¥197,984

16,933

11,805

¥203,057

109,971

2007

¥193,970

15,561

8,450

¥214,950

102,660

2008

$1,976,085

169,009

117,826

$2,026,719

1,097,625

2008

¥ 113.72

18.00 2007

¥ 81.20

14.00 2008

$ 1.14

(4)

To Our Shareholders

there was a marked cutback in capital investment by

major manufacturers of memories.

All sectors face a climate of intensifying performance

and price competition. In each of its areas of operations,

the Hitachi Kokusai Group is strengthening the

competi-tiveness of its flagship products, expanding overseas

operations and increasing investment to develop new

products and businesses, and is also carrying out

reforms of operational processes and procedures to

increase management efficiency.

There was a slight downturn in sales by the

Broadcasting and Video Systems segment. On the

other hand, gains were posted by the Wireless

Communications and Information Systems and

Semiconductor Manufacturing Systems segments,

pro-ducing an overall year-on-year increase of 2.1% in sales.

Operating income in the Semiconductor Manufacturing

Systems segment declined slightly, reflecting the effect of

the higher yen. However, gains posted by the other two

segments helped generate an overall increase of 8.8% in

operating income.

At a meeting held on May 23, 2008, the Board of

Directors resolved to pay a cash dividend of ¥10 per

share at the end of the term, two yen more than the

previous year. An interim dividend of ¥8 per share was

paid in December 2007, so for the year, the Company

paid a cash dividend of ¥18 per share.

Topics to be addressed

Steady implementation of medium-term business plan

In 2005 the Hitachi Kokusai Group formulated its

“HK2010 Vision” medium-term management plan aimed

at achieving sustainable growth by the fiscal year ending

March 31, 2010. With the aim of making Hitachi Kokusai

Electric a leading wireless technology company and the

global leader in semiconductor thermal process systems,

the goals of the HK2010 Vision plan are to achieve

con-solidated sales of ¥200 billion and a ratio of operating

income to net sales of 10% by the above target date.

With “speed” and “the challenge of change” as the

keywords, Hitachi Kokusai Electric will work to achieve

the goals of the HK2010 Vision plan, using the

following measures.

Kunio Hasegawa

President, Chief Executive Officer and Director

Overview of Operations

In fiscal 2007, ended March 31, 2008, Japan experienced

a moderate economic expansion during the first half,

generated by an improvement in corporate earnings.

However, in the second half, uncertainty over future

prospects intensified due to a number of factors that

included the soaring prices of oil and other materials,

a decline in consumer sentiment, plunging share prices

and the appreciation of the yen. Overseas, while the

Asian economies continued to grow, led by China, the

economies of Europe and the United States are slowing,

reflecting the turmoil in the financial system brought

about by the problem of sub-prime mortgage loans.

Against this backdrop, there was a decline in sales of

station equipment by the wireless communications and

information systems sector, reflecting the saturated state

of investment in third-generation cellular telephone

equip-ment. However, there was an increase in replacement

demand for digital wireless systems for public utilities.

In the broadcasting and video systems sector, there

was an expansion of demand for wide-area monitoring

systems, but with major stations completing the installation

of transceivers for terrestrial digital broadcasting

applica-tions, there was a sharp falloff in the level of investment.

(5)

(1) Use technological strengths to reinforce the business

structure

The Wireless Communications and Information

Systems segment will be targeting next-generation

infrastructure businesses, such as for 3.9-generation

mobile network system services, obtaining orders in

the midst of the wave of replacement demand for

wireless communication systems for private-sector

applications which is expected to peak, and

strength-ening business operations in the areas of

next-genera-tion networks and informanext-genera-tion business solunext-genera-tions.

In the Broadcasting and Video Systems segment,

with analogue TV broadcasting in Japan scheduled to

come to an end in 2011, the Company will be

pro-moting infrastructure products for poor signal

recep-tion areas and new infrastructures able to handle the

fusion of communications and broadcasting. There

will also be a focus on strengthening the business of

advanced security video surveillance systems and

high-function cameras.

In the Semiconductor Manufacturing Systems

segment, there is expected to be a period of

adjust-ment during fiscal 2008. However, in 2009 we intend

to grow the business through the launch of strategic

products, such as single wafer application systems.

(2) Overseas expansion

Overseas, the Company will align its efforts with the

ramping up of 3G cellular telephone services and

High Definition (HD) television broadcasting, by

con-centrating on mobile network communication

infra-structures in the case of the Wireless Communications

and Information Systems segment, and HD production

cameras in the case of the Broadcasting and Video

Systems segment. The Semiconductor Manufacturing

in which it can utilize its strengths, such as wireless

broadband, high-function cameras, advanced security

systems and next-generation epitaxial growth

sys-tems. For that, we will continue to invest in plant and

equipment and research and development. In

addi-tion, liaison within the Hitachi Group will be further

reinforced to make optimal use of Group strengths.

(4) Strengthen profitability

To overcome the risks from operating amid intensified

competition and the fluctuations of the silicon cycle,

there will be an increased focus on strengthening the

Company’s profits structure. To achieve that goal,

leading-edge IT systems will be utilized to (i) carry out

reforms of operational processes and procedures,

(ii) strengthen the quality assurance system, (iii) trim

procurement costs, and (iv) promote efficiency of

administrative divisions.

Promoting CSR management

The corporate credos, as set out in the Hitachi Kokusai

Electric Code of Conduct, are to manufacture products

that contribute to a safe and affluent society; to look to

the future and never stop working to achieve continuous

improvement; and to observe basics and ethics, do

things the right way and be fair and transparent in all

aspects of corporate conduct.

(6)

Results and Outlook by Segment

The segment posted a decline in sales of station equipment,

reflecting the saturated state of investment in third-generation

cellular telephone equipment. However, there was an

increase in replacement demand for digital wireless systems

for public utilities. As a result, net sales for the year under

review came to ¥73,403 million, ¥4,223 million (6.1%) more

than the previous year. Operating income came to ¥2,864

million, an increase of ¥1,839 million (179.4%).

Looking ahead, the segment will be targeting

next-generation infrastructure businesses, such as those providing

3.9-generation mobile network system services, obtaining

orders in the midst of the replacement demand for wireless

communication systems for private-sector applications which

is expected to peak at some point in the future, and

strength-ening business operations in the areas of next-generation

networks and information business solutions.

0 20,000 40,000

60,000 73,403

2007 2008 2006

Net sales (Millions of Yen)

80,000

57,605

69,180

1,283

1,025

2,864

2007 2008 2006

(Millions of Yen)

0 500 1,000 1,500 2,000 2,500 3,000

Wireless Communications and Information Systems Segment

Main Products

Station Equipment for Cellular Telephones, Wireless Broadband Systems, Radio Equipment for Packet Communication Systems, On-premises Digital Wireless Communication Systems, Aircraft Communication Systems, Digital Wireless Systems for Public Business, Train Communication Systems, Stock Price Display Systems, Assorted Display Boards and Display Devices, Multimedia Information Display Systems

(7)

In this segment, there was an expansion of demand for

wide-area monitoring systems, but with major stations completing

the installation of transceivers for terrestrial digital

broadcasting applications, there was a sharp decrease in the

level of investment. Net sales came to ¥46,256 million, a

decrease of ¥2,757 million (5.6%) compared to the previous

year. Operating income rose ¥408 million (66.3%), to ¥1,023

million, an increase attributable to the improved profitability of

video system equipment.

With analogue TV broadcasting in Japan ending in 2011,

there will be a focus on promoting infrastructure products for

poor signal reception areas and new infrastructures able to

handle the fusion of communications and broadcasting.

Along with this, there will be a strengthening of the business

areas of advanced security video surveillance systems and

high-function cameras.

0 10,000 20,000 30,000

40,000 _45,270 46,256

49,013

2007 2008 2006

Net sales (Millions_{of Yen)}

50,000

535

1,023

615

Operating income (loss) (Millions_{of Yen)}

2007 2008 2006

0 200 400 600 800 1,000 1,200

Broadcasting and Video Systems Segment

(8)

First-half results were firm, but in the second half there was a

marked cutback in capital investment by major

manufac-turers of memories. Net sales came to ¥78,325 million, an

increase of ¥2,548 million (3.4%) compared to the previous

year. Reflecting negative factors such as the appreciation of

the yen, operating income decreased ¥875 million (6.3%), to

¥13,046 million.

While there is expected to be a period of adjustment during

fiscal 2008, in 2009 there will be a focus on achieving growth

through the launch of strategic products, such as single

wafer application systems.

78,325

75,777

56,190

2007 2008 2006

Net sales (Millions_{of Yen)}

0 20,000 40,000 80,000

60,000

13,046

13,921

9,615

0 10,000

5,000

(Millions of Yen)

15,000

2007 2008 2006

Semiconductor Manufacturing Systems Segment

Main Products

Vertical QTAT Systems, Vertical ALD Systems, Vertical Diffusion and LPCVD Systems, Ashing Systems, Vertical High temperature Annealing Systems, Vertical Ultrahigh-temperature Annealing Systems, Single Wafer/LPCVD Systems, Single Wafer MMT Plasma Nitridation Systems, Vertical SiGe Epitaxial Systems

(9)

Consolidated Five-Year Summary

8 Financial Review

9 Consolidated Balance Sheets

10 Consolidated Statements of Income

12 Consolidated Statements of Changes in Equity

13 Consolidated Statements of Cash Flows

14 Notes to Consolidated Financial Statements

15 Independent Auditors’ Report

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(10)

1,748 8,450 6,681 6,328 11,805 2007 2008 2006 2005

2004 2004 20052006 2007 2008 2004 200520062007 2008

Net income

(Millions of Yen)

81,930 102,660 96,427 87,346 109,971 Total equity

(Millions of Yen)

0 30,000 60,000 90,000 120,000 6.00 14.00 12.00 8.00 18.00

Cash dividends per share (Yen) 0 3,000 6,000 9,000 12,000 0 5 10 15 20

For the year:

Net sales ... Cost of sales ... Gross profit ... Operating income ... Income before income taxes and minority interests... Net income ...

At year-end:

Total assets... Current assets ... Net property, plant and equipment ... Current liabilities ... Long-term liabilities ... Total equity* ...

Amounts per share (yen):

Net income ... Cash dividends ... Equity*...

Other data:

Number of employees ... Number of shares issued (millions)...

Millions of Yen

2006 ¥159,065 117,162 41,903 11,433 8,937 6,681 192,583 144,313 25,342 61,759 34,205 96,427 63.32 12.00 922.89 4,657 105 2008 ¥197,984 147,084 50,900 16,933 18,406 11,805 203,057 156,404 27,291 66,468 26,618 109,971 113.72 18.00 1,067.66 4,895 105 2007 ¥193,970 142,898 51,072 15,561 15,062 8,450 214,950 165,492 26,814 78,863 33,427 102,660 81.20 14.00 986.79 4,789 105 2005 ¥159,259 116,086 43,173 13,373 10,778 6,328 176,667 129,841 26,763 52,123 37,049 87,346 59.96 8.00 832.44 4,684 105 2004 ¥142,998 108,932 34,066 6,592 2,508 1,748 186,922 139,448 27,601 68,858 36,034 81,930 16.19 6.00 779.86 4,769 105

Consolidated Five-Year Summary

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Financial Review

Operating Results

Financial Position

Cash Flows

In each segment of operations, the Hitachi Kokusai Electric Group is strengthening the competitiveness of its flagship products, expanding overseas operations and increasing investment to develop new products and businesses, and is also carrying out reforms of operational processes and procedures to increase management efficiency. As a result of these endeavors, consolidated net sales during the year under review amounted to ¥197,984 million, an increase of ¥4,014

million (2.1%) compared to the previous year. Operating income rose ¥1,372 million (8.8%), to ¥16,933 million. Net income rose ¥3,355 million (39.7%), to ¥11,805 million. The Hitachi Kokusai Electric Group is promoting overseas expansion of operations and developing next-generation businesses able to handle changing business structures, and is strengthening its profits structure to overcome the risks arising from operating amid intense competition and from the fluctuations of the silicon cycle.

Total assets at the end of fiscal 2007 stood at ¥203,057 million, ¥11,893 million less than the previous year. Current assets at the end of the year amounted to ¥156,404 million, a decrease of ¥9,088 million. The decrease is mainly attributable to a decrease of ¥4,779 million in trade notes and accounts receivable and a decrease of ¥1,583 million in inventories. Net property, plant and equipment increased ¥477 million, to ¥27,291 million. Total investments and other assets decreased ¥3,282 million, to ¥19,362 million, due mainly to a decrease of

¥1,913 million caused by a fall in the market value of investment securities.

Total liabilities decreased ¥19,204 million, to ¥93,086 million. This is mainly attributable to a decrease of ¥10,939 million in trade notes and trade accounts payable, a decrease of ¥4,880 million in income taxes payable, and a decrease of ¥3,013 million in accrued expenses.

Total equity came to ¥109,971 million, ¥7,311 million more than the preceding year.

Consolidated cash and cash equivalents (hereinafter “cash”) at the end of the year stood at ¥51,208 million, a decrease of ¥834 million (1.6%) due to gains from operating activities being offset by investment-activity expenditures made to purchase property, plant and equipment.

The main factors involved in cash flows in the fiscal year under review were as follows.

Net cash provided by operating activities amounted to ¥7,658 million. The main items were income before income taxes and minority interests of ¥18,406 million, non-cash depreciation and amortization expenses of ¥4,889 million, a decrease of ¥5,088 million in notes and trade receivables and a decrease of ¥1,324 million in inventories, which exceeded decrease components

such as a decrease of ¥10,552 million in notes and accounts payables and a decrease of ¥9,747 million in income taxes paid.

Net cash used in investing activities amounted to ¥4,930 million, ¥3,589 million (42.1%) less than the previous year. This was primarily the result of a decrease of ¥2,289 million in expenditures to purchases of property, plant and equipment, and revenue of ¥2,000 million from the repayment of

long-term deposits.

(12)

ASSETS

CURRENT ASSETS:

Cash and time deposits (Note 3) ... Deposits with Hitachi, Ltd. (Notes 3 and 16) ... Receivables (Note 16):

Trade notes ... Trade accounts ... Unconsolidated subsidiaries and associated companies ... Other ... Allowance for doubtful receivables ... Inventories ... Deferred tax assets (Note 8) ... Prepaid expenses and other current assets ... Total current assets ...

PROPERTY, PLANT AND EQUIPMENT:

Land ... Buildings and structures ... Machinery and equipment ... Furniture and fixtures ... Construction in progress ... Total ... Accumulated depreciation ... Net property, plant and equipment ...

INVESTMENTS AND OTHER ASSETS:

Investment securities (Note 4) ... Investments in unconsolidated subsidiaries and associated companies... Long-term loans receivable ... Deferred tax assets (Note 8) ... Other assets ... Total investments and other assets ... TOTAL...

See notes to consolidated financial statements.

Consolidated Balance Sheets

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Thousands of U.S. Dollars Millions of Yen (Note 1)

2008

¥ 25,905 25,613

3,555 51,224 2,158 333 (55) 39,987

6,769 915 156,404

5,551 42,721 17,156 25,024 431 90,883 (63,592)

27,291

3,410 1,875 39 10,855 3,183 19,362 ¥ 203,057

2007

¥ 27,388 24,930

4,516 55,042 2,781 466 (123) 41,570

8,434 488 165,492

5,545 41,454 16,205 24,094 403 87,701 (60,887)

26,814

5,323 1,602 43 10,564 5,112 22,644 ¥ 214,950

2008

$ 258,559 255,644

35,483 511,269 21,539 3,323 (549) 399,112

67,562 9,132 1,561,074

55,405 426,400 171,235 249,765 4,301 907,106 (634,714)

272,392

(13)

2008

¥ 1,417 6,000

1,845 33,359 334 3,520 1,454 12,421 1,489 4,629 66,468

—

25,686 440 492 26,618

10,058 26,222 75,221 978 (55) (2,541) 109,883

88 109,971 ¥203,057

2007

¥ 1,567 —

2,401 43,742 387 3,760 6,334 15,434 2,113 3,125 78,863

6,000

26,562 326 539 33,427

10,058 26,222 65,199 1,944 511 (1,322) 102,612

48 102,660 ¥214,950

2008

$ 14,143 59,886

18,415 332,957 3,334 35,134 14,512 123,974 14,862 46,203 663,420

—

256,373 4,391 4,910 265,674

100,389 261,723 750,784 9,761 (549) (25,362) 1,096,746

879 1,097,625 $2,026,719 LIABILITIES AND EQUITY

CURRENT LIABILITIES:

Short-term bank loans (Note 5) ... Current portion of long-term debt (Note 5)... Payables (Note 16):

Trade notes ... Trade accounts ... Unconsolidated subsidiaries and associated companies ... Other ... Income taxes payable... Accrued expenses ... Provision for product warranties... Other current liabilities ... Total current liabilities ...

LONG-TERM LIABILITIES:

Long-term debt (Note 5) ... Liability for retirement benefits (Note 6):

Employees ... Directors and executive officers ... Other long-term liabilities (Note 8) ... Total long-term liabilities ...

COMMITMENTS AND CONTINGENT LIABILITIES (Notes 10, 11 and 12)

EQUITY (Notes 7 and 14):

Common stock—authorized, 400,000,000 shares;

(14)

NET SALES (Note 16) ...

COST OF SALES (Note 9) ...

Gross profit ...

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (Note 9)...

Operating income ...

OTHER INCOME (EXPENSES):

Interest income ... Dividend income ... Interest expense ... Write-down of inventories... Equity in earnings of associated company ... Foreign exchange gain (loss) ... Gain on sales of property, plant and equipment ... Loss on disposals of property, plant and equipment ... Loss on impairment of long-lived assets ... Prior year patent rights income ... Prior year provision for product warranties ... Loss from revaluation of securities ... Other—net ...

Other expenses—net...

INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS...

INCOME TAXES (Note 8):

Current ... Deferred ...

Total income taxes ...

MINORITY INTERESTS IN EARNINGS OF

CONSOLIDATED SUBSIDIARIES...

NET INCOME ...

PER SHARE OF COMMON STOCK (Notes 2.s and 13):

Net income ... Diluted net income ... Cash dividends applicable to the year ...

2008 ¥197,984

147,084

50,900

33,967

16,933

462 193 (26)

317 1,325 5 (528)

— — — (312)

38

1,473

18,406

4,898 1,656

6,554

47

¥ 11,805

2007 ¥193,970

142,898

51,072

35,511

15,561

292 102 (19) (28) 442 (216)

2 (426)

(34) 400 (261)

(0) (753)

(499)

15,062

6,845 (305)

6,540

72

¥ 8,450

2008 $1,976,085

1,468,050

508,035

339,026

169,009

4,611 1,926 (260)

3,164 13,225 50 (5,270)

— — — (3,114)

380

14,702

183,711

48,887 16,529

65,416

469

$ 117,826

Yen U.S. Dollars

¥ 113.72 108.62 18.00

¥ 81.20 77.57 14.00

$ 1.14 1.08 0.18

Consolidated Statements of Income

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BALANCE, MARCH 31, 2006...

Reclassified balance as of March 31, 2006 (Note 2.k) ...

Paid-in capital from treasury stock transaction (5,151 shares) ...

Net income ... Bonuses to directors ...

Cash dividends, ¥12 per share... Increase due to increase in number of

consolidated subsidiaries ... Increase due to adjustment in prior year

on consolidated subsidiaries... Increase in treasury stock (761,558 shares)....

Net decrease in unrealized gain on available-for-sale securities ...

Net change in foreign currency

translation adjustments ...

Paid in capital from treasury stock transaction (3,254 shares) ...

Net income ... Bonuses to directors ...

Cash dividends, ¥16 per share... Decrease due to adoption of new

US accounting regulation ... Increase due to adjustment in prior year

on consolidated subsidiaries... Increase in treasury stock (1,069,284 shares) ..

Net decrease in unrealized gain on available-for-sale securities ...

Net change in foreign currency

translation adjustments ...

BALANCE, MARCH 31, 2007... Paid-in capital from treasury stock

transaction (3,254 shares) ... Net income ...

Bonuses to directors ...

Millions of Yen

Thousands of U.S. Dollars (Note 1) Thousands Retained Earnings ¥58,227 8,450 (51) (1,459) 7 25 ¥65,199 11,805 (0) (1,663) (123) 3 ¥75,221 Capital Surplus ¥26,153 69 ¥26,222 ¥26,222 Common Stock ¥10,058 ¥10,058 ¥10,058 Issued Number of Shares of Common Stock 105,221 105,221 105,221 Unrealized Gain on Available-for-sale Securities ¥2,403 (459) ¥1,944 (966)

¥ 978

Foreign Currency Translation Adjustments ¥ 302 209 ¥ 511 (566)

¥ (55)

Treasury Stock

¥ (716)

172 (778) ¥(1,322) 4 (1,223) ¥(2,541) Total

¥ 96,427

241 8,450 (51) (1,459) 7 25 (778) (459) 209 ¥102,612 4 11,805 (0) (1,663) (123) 3 (1,223) (966) (566) ¥109,883 Minority Interests — ¥ 192 (144)

¥ 48

40

¥ 88 Total Equity

¥ 96,427

192 97 8,450 (51) (1,459) 7 25 (778) (459) 209 ¥102,660 44 11,805 (0) (1,663) (123) 3 (1,223) (966) (566) ¥109,971 Retained Earnings $650,754 117,826 (0) Capital Surplus $261,723 Common Stock $100,389 Unrealized Gain on Available-for-sale Securities $19,403 Foreign Currency Translation Adjustments $ 5,100 Treasury Stock $(13,195) 40 Total $1,024,174 40 117,826 (0) Minority Interests $479 400 Total Equity $1,024,653 440 117,826 (0)

Consolidated Statements of Changes in Equity

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OPERATING ACTIVITIES:

Income before income taxes and minority interests... Adjustments for:

Income taxes—paid ... Income taxes—refunded ... Depreciation and amortization ... Loss on impairment of long-lived assets ... Loss on disposals of property, plant and equipment ... Gain on sales of property, plant and equipment ... Provision for reversal of employees’ retirement benefits ... Provision for reversal of directors’ and executive

officers’ retirement benefits ... Increase (decrease) in provision for product warranties ... Changes in assets and liabilities:

(Increase) decrease in notes and accounts receivables ... (Increase) decrease in inventories ... (Increase) decrease in other current assets ... Increase (decrease) in notes and accounts payables ... Decrease in other current liabilities ... Other—net ... Total adjustments ... Net cash provided by operating activities ...

INVESTING ACTIVITIES:

Payments for time deposits ... Maturities of time deposits ... Proceeds from sales of marketable securities ... Purchases of investment securities ... Proceeds from sales of investment securities ... Purchases of property, plant and equipment ... Proceeds from sales of property, plant and equipment ... Decrease in short-term loans receivable ... Decrease in investment in long-term deposit ... Increase in other assets ... Net cash used in investing activities ...

FINANCING ACTIVITIES:

Decrease in short-term bank loans—net ... Dividends paid ... Increase in treasury stock—net ... Net cash used in financing activities ...

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS

ON CASH AND CASH EQUIVALENTS... NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS... CASH AND CASH EQUIVALENTS OF NEWLY

CONSOLIDATED SUBSIDIARIES, BEGINNING OF YEAR... CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR... CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) ...

2008

¥ 18,406

(9,747) 9 4,889 — 391 (4) (872) 114 (624) 5,088 1,324 (142) (10,552) (921) 299 (10,748) 7,658 (83) 41 — (35) 31 (6,291) 14 3 2,000 (610) (4,930) (150) (1,660) (1,219) (3,029) (533) (834) — 52,042 ¥ 51,208 2007

¥ 15,062

(1,316) 16 4,277 34 433 (2) (912) (130) 2,113 (5,002) (10,834) 50 11,892 (145) 260 734 15,796 (37) 1 150 (33) 7 (8,580) 71 2 — (100) (8,519) — (1,488) (772) (2,260) 123 5,140 37 46,865 ¥ 52,042 2008

$ 183,711

(97,285) 90 48,797 — 3,903 (40) (8,703) 1,138 (6,228) 50,784 13,215 (1,417) (105,320) (9,193) 2,983 (107,276) 76,435 (828) 409 — (349) 309 (62,791) 140 30 19,962 (6,089) (49,207) (1,497) (16,569) (12,167) (30,233) (5,319) (8,324) — 519,433 $ 511,109

Consolidated Statements of Cash Flows

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1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Notes to Consolidated Financial Statements

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The accompanying consolidated financial statements have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications

have been made in the 2007 financial statements to conform to the classifications used in 2008.

The consolidated financial statements are stated in Japanese yen, the currency of the country in which Hitachi Kokusai Electric Inc. (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 ¥100.19 to $1, the rate of exchange at March 31, 2008. 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.

a. Consolidation—The consolidated financial statements as of March 31, 2008 include the accounts of the Company and its 16 significant (17 in 2007) subsidiaries (together, the “Group”).

Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method.

Investments in 1 (1 in 2007) associated company are accounted for by the equity method. Investments in the remaining 7 unconsolidated subsidiaries and 1 associated company are stated at cost. If the equity method of accounting had been applied to the investments in these companies, the effect on the accompanying consolidated financial statements would not be material.

The excess of cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the respective dates of acquisition is being amortized over its estimated useful lives, or 5 years in circumstances in which the useful lives cannot be estimated.

All significant intercompany balances and transactions have been eliminated in consolidation. All material unreal-ized profit included in assets resulting from transactions within the Group is eliminated.

moving-average method or average method, or net selling value.

Raw materials are substantially stated at lower of cost, determined by the average method, or net selling value. Certain raw materials are stated at the lower of cost, determined by specific identification method or the moving-average method, or net selling value.

Prior to April 1, 2007, inventories were stated at cost. On July 5, 2006, the Accounting Standards Board of Japan (ASBJ) issued ASBJ Statement No. 9, “Accounting Standard for Measurement of Inventories”, which is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in the ordinary course of business be measured at the lower of cost or net selling value, which is defined as the selling price less additional esti-mated manufacturing costs and estiesti-mated direct selling expenses. The replacement cost may be used in place of the net selling value, if appropriate.

The company adopted the new accounting standard for measurement of inventories in the year ended March 31, 2008. The effect of adoption of this accounting standard was immaterial.

(18)

e. Property, Plant and Equipment—Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment is computed by the declining-bal-ance method, while the straight-line method is applied to buildings of the Company and its consolidated domestic subsidiaries acquired after April 1, 1998. The range of useful lives is from 3 to 50 years for buildings and struc-tures, from 2 to 17 years for machinery and equipment, and from 2 to 20 years for furniture and fixtures.

f. Long-lived Assets—The Group 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 recov-erable 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. Other Assets—Intangible assets are carried at cost less accumulated amortization, which is calculated by the straight-line method. Software which is internally used by the Group is amortized by the straight-line method over 5 years.

h. Allowance for Doubtful Accounts—The allowance for doubtful accounts is stated in amounts considered to be appropriate based on the Group’s past credit loss experi-ence and an evaluation of potential losses in the receiv-ables outstanding.

i. Retirement Benefit Plans—The Company has non-contributory and non-contributory trusteed pension plans covering a certain portion of employees’ retirement bene-fits. Benefits paid to some employees upon retirement or termination of employment may exceed the amount of benefits computed based on years of service. Benefits paid to such persons are not computed as a retirement benefit liability. The liability for employees’ retirement benefits is stated at amounts based on projected benefit obligations and plan assets at the balance sheet date.

The liability for directors’ and executive officers’ retire-ment benefits for the Company is provided at the amount which would be required if all directors and executive offi-cers retired at the balance sheet date. The above liability includes a liability for directors’ retirement benefits for certain of the Company’s consolidated subsidiaries.

j. Provision for Product Warranties—The provision for product warranties is estimated and recorded at the time of sale to provide for future potential costs, such as costs

related to after-sales services, in amounts considered to be appropriate based on the Group’s past experience.

k. Presentation of Equity—On December 9, 2005, the ASBJ published a new accounting standard for presentation of equity. Under this accounting standard, certain items which were previously presented as liabilities or assets, as the case may be, are now presented as components of equity. Such items include minority interests. This stan-dard was effective for fiscal years ending on or after May 1, 2006. The balances of such items as of March 31, 2006 were reclassified as separate components of equity as of April 1, 2006 in the consolidated statement of changes in equity.

l. Research and Development Cost—Research and development costs are charged to income as incurred.

m. Revenue Recognition—The Company applies the percentage-of-completion method to some contracts con-tracted by construction agreements.

Effective April 1, 2007, the Group changed the method for revenue recognition for semiconductor manufacturing systems for export from the point of shipment to the time of the confirmation of set-up and testing of products. The reason for this change is that prior to April 1, 2007, the Group performed the inspection at the factory before shipping, however customers are more likely requesting the Group to perform the final inspection at the customer’s facility.

The effect of this change was to decrease net sales by ¥2,856 million ($28,506 thousand) and operating income and income before income taxes and minority interests by ¥1,402 million ($13,993 thousand) for the year ended March 31, 2008 as compared with the corresponding amounts which would have been recorded if the previous method had been followed.

n. Leases—Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain “as if capital-ized” information is disclosed in the notes to the lessee’s financial statements. All other leases are accounted for as operating leases.

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p. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denomi-nated in foreign currencies are translated into Japanese yen at the exchange rate at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts.

q. Foreign Currency Financial Statements—The balance sheet accounts of the consolidated foreign subsidiaries are translated into Japanese yen at the current exchange rate as of the balance sheet date except for equity, which is translated at the historical rate.

Differences arising from such translations were shown as “Foreign currency translation adjustments” in a sepa-rate component of equity.

Revenue and expense accounts of consolidated foreign subsidiaries are translated into yen at the current

exchange rate as of balance sheet date.

r. Derivatives and Hedging Activities—The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange. Foreign exchange for-ward contracts are utilized by the Group to reduce foreign currency exchange risks. The Group does not enter into derivatives for trading or speculative purposes.

Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: (a) all derivatives are recognized as either assets or liabili-ties and measured at fair value, and gains or losses on derivative transactions are recognized in the statements of income and (b) for derivatives used for hedging pur-poses, if derivatives qualify for hedge accounting, gains or losses on derivatives are deferred until maturity of the hedged transactions.

Foreign currency forward contracts are utilized to hedge foreign currency exposures in sales of products to overseas customers. Trade receivables denominated in foreign currencies are translated at the contracted rates if the forward contracts qualify for hedge accounting.

s. Per Share Information—Basic net income per share is computed by dividing net income available to common shareholders by the weighted-average number of

ing consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of the year.

t. New Accounting Pronouncements

Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, “Accounting Standard for Lease Transactions,” which revised the existing accounting stan-dard for lease transactions issued on June 17, 1993. The revised accounting standard for lease transactions is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after April 1, 2007.

Under the existing accounting standard, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for as operating lease transactions if certain “as if capitalized” information is disclosed in the note to the lessee’s financial statements.

The revised accounting standard requires that all finance lease transactions should be capitalized recognizing lease assets and lease obligations in the balance sheet.

Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial

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con-Cash and time deposits ... Deposits with Hitachi, Ltd. ... Less—time deposits with maturities over three months ... Total ...

Millions of Yen

2008 ¥25,905

25,613 (310) ¥51,208

2007 ¥27,388

24,930 (276) ¥52,042

Thousands of U.S. Dollars

2008 $258,559

255,644 (3,094) $511,109

Deposits with Hitachi, Ltd. represent a deposit to Hitachi, Ltd. under the Hitachi Pooling System for concentration of surplus deposits of Hitachi group companies.

3. CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash and cash equivalents at March 31, 2008 and 2007 consisted of the following:

(4) Fair value measurement of investment properties, and the revaluation model for property, plant and equip-ment, and intangible assets

(5) Retrospective application when accounting policies are changed

(6) Accounting for net income attributable to a minority interest

The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption permitted.

Construction Contracts—Under the current Japanese GAAP, either the completed-contract method or the percentage-of-completion method is permitted to account for construction contracts. On December 27, 2007, the ASBJ published a new accounting standard for construc-tion contracts. Under this accounting standard, the con-struction revenue and concon-struction costs should be recognized by the percentage-of-completion method, if the outcome of a construction contract can be estimated reliably. When total construction revenue, total construction costs and the stage of completion of the contract at the balance sheet date can be reliably measured, the outcome of a construction contract can be estimated reliably. If the outcome of a construction contract cannot be reliably estimated, the completed-contract method shall be applied. When it is probable that total construction costs will exceed total construction revenue, an estimated loss on the contract should be immediately recognized by pro-viding for loss on construction contracts. This standard is applicable to construction contracts and software devel-opment contracts and effective for fiscal years beginning on or after April 1, 2009 with early adoption permitted for fiscal years beginning on or before March 31, 2009 but after December 27, 2007.

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4. MARKETABLE AND INVESTMENT SECURITIES

Marketable and investment securities as of March 31, 2008 and 2007 consisted of the following:

Non-current:

Marketable equity securities ... Other ... Total ...

Millions of Yen

2008

¥3,060 350 ¥3,410

2007

¥4,964 359 ¥5,323

2008

$30,542 3,493 $34,035

The carrying amounts and aggregate fair values of investment securities at March 31, 2008 and 2007 were as follows:

Securities classified as available-for-sale equity securities ...

Millions of Yen

2008

Unrealized Gains

¥1,663

Cost

¥1,435

Unrealized Loss

¥38

Fair Value

¥3,060

Securities classified as available-for-sale equity securities ...

2008

Unrealized Gains

$16,598

Cost

$14,323

Unrealized Loss

$369

Fair Value

$30,542 Securities classified as available-for-sale equity securities ...

Millions of Yen

2007

Unrealized Gains

¥3,332

Cost

¥1,734

Unrealized Loss

¥102

Fair Value

¥4,964

Carrying Amount

Available-for-sale:

Equity securities ... Total ...

Millions of Yen

2008

¥351 ¥351

2007

¥359 ¥359

2008

$3,493 $3,493 Available-for-sale securities whose fair value was not readily determinable as of March 31, 2008 and 2007 were as follows:

Proceeds from sales of available-for-sale securities for the years ended March 31, 2008 and 2007 were ¥31 million ($309 thousand) and ¥7 million, respectively. Gross realized gains and losses on these sales, computed on the moving average cost method, were ¥22 million ($220 thousand) and nil, respectively, for the year ended March 31, 2008 and ¥3 million and nil,

respectively, for the year ended March 31, 2007.

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

Short-term bank loans were made under general security agreements with banks.

The annual interest rates applicable to the short-term bank loans were 1.25% and 1.09% at March 31, 2008 and 2007, respectively.

Long-term debt at March 31, 2008 and 2007 consisted of the following:

Zero coupon convertible notes with stock acquisition rights, convertible into common

stock at ¥1,232 per share, due 2008 ... Total... Less current portion ... Long-term debt, less current portion ...

Millions of Yen

2008

¥6,000 6,000 6,000 ¥6,0—

2007

¥6,000 6,000 — ¥6,000

2008

$59,886 59,886 59,886 $50,8—

Annual maturities of long term debt at March 31, 2008 were as follows:

Year Ending March 31

2009... Total...

Millions of Yen

¥6,000 ¥6,000

$59,886 $59,886 The stock acquisition rights are able to be convertible into common stock since December 19, 2003 until November 21, 2008 and were not converted during the fiscal year ended March 31, 2008. The conversion prices are subject to adjustments in certain circumstances.

6. RETIREMENT BENEFIT PLANS

The Company has severance payment plans for employees, directors and executive officers. Moreover, the Company’s certain consolidated subsidiaries have severance payment plans for employees and directors.

Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or certain consolidated subsidiaries and annuity payments from a trustee. Employees are entitled to larger

payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age.

Liability for directors’ and executive officers’ retirement benefits of the Company is paid subject to the approval of the compensation committee of the Company. On the other hand, liability for directors’ retirement benefits of the Company’s certain consolidated subsidiaries is paid subject to the approval of the shareholders.

Projected benefit obligation ... Fair value of plan assets... Unrecognized prior service cost ... Unrecognized actuarial loss ... Net liability ...

Millions of Yen

2008 ¥55,712

(28,733) 6,457 (7,750) ¥25,686

2007 ¥55,085

(34,135) 7,140 (1,528) ¥26,562

2008 $556,063

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Discount rate

Weighted average ... Contributory ... Non-contributory ... Expected rate of return on plan assets ... Amortization period of prior service cost... Recognition period of actuarial loss ...

2008

— 2.5% 2.0% 2.5% 13 years 13 years

2007

2.5% — — 2.5% 14 years 14 years Assumptions used for the years ended March 31, 2008 and 2007 are set forth as follows:

7. EQUITY

Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the “Corporate Law”), which reformed and replaced the Commercial Code of Japan. The significant provisions in the Corporate Law that affect finan-cial and accounting matters are summarized below:

a. Dividends

Under the Corporate Law, 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 such as; (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two years of normal 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. The Board of Directors of com-panies with board committees (an appointment committee, compensation committee and audit committee) can also do

Law 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 share-holders, 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 Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a compo-nent 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 total of aggregate amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the shareholders. Service cost ...

Interest cost ... Expected return on plan assets ... Amortization of prior service cost ... Recognized actuarial loss ... Net periodic benefit costs ...

Millions of Yen

2008 ¥1,531

1,330 (853) (684) 601 ¥1,925

2007 ¥1,503

1,372 (837) (624) 453 ¥1,867

2008 $15,281

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Deferred tax assets (current):

Inventories ... Accrued bonuses ... Provision for product warranties... Other ... Less valuation allowance ... Total (current) ...

Net deferred tax assets (current)...

Deferred tax assets (non-current):

Employees’ retirement benefits ... Depreciation ... Directors’ and executive officers’ retirement benefits ... Deferred assets... Tax loss carryforwards ... Devaluation of investments in subsidiaries and associated companies ... Other ... Less valuation allowance ... Total (non-current) ...

Deferred tax liabilities (non-current):

Special depreciation reserve ... Unrealized gain on available-for-sale securities ... Total (non-current) ... Net deferred tax assets (non-current) ... Net deferred tax assets ...

Deferred tax liabilities (current):

Other ... Total (current) ...

Deferred tax liabilities (non-current):

Unrealized gain on available-for-sale securities ... Other ... Total (non-current) ...

Millions of Yen

2008

¥ 2,076 2,001 346 2,730 (384) 6,769

6,769

10,233 1,832 176

1,067 181 1,625 (3,442) 11,672

(225) (592) (817) 10,855 ¥17,624

¥ 0 ¥ 0

¥ 54 86 ¥ 140

2007

¥ 2,881 2,197 517 3,578 (739) 8,434

8,434

10,576 1,429 160 67 1,424 614 1,133 (3,385) 12,018

(283) (1,171) (1,454) 10,564 ¥18,998

¥ 0 ¥ 0

¥ 114 5 ¥ 119

2008

$ 20,721 19,972 3,453 27,249 (3,833) 67,562

67,562

102,136 18,285 1,757

10,650 1,807 16,219 (34,355) 116,499

(2,246) (5,909) (8,155) 108,344 $175,906

$ 0 $ 0

$ 539 858 $ 1,397 The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2008 and 2007 are as follows:

8. INCOME TAXES

The Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate, resulted in a normal effective statutory tax rate of approximately 39.7% for the years ended March 31, 2008 and 2007. treasury stock acquisition rights and treasury stock. Such

treasury stock acquisition rights are presented as a separate

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A reconciliation between the normal effective statutory tax rate and the actual effective tax rates reflected in the accompanying consolidated statements of income for the years ended March 31, 2008 and 2007 is as follows:

Normal effective statutory tax rate ... Dividend income eliminated in consolidation ... Expenses permanently not deductible for income tax purposes ... Income not taxable for income tax purposes ... Valuation allowance ... Inhabitants taxes—per capita ... Difference incurred by preceding fiscal year’s tax payment... Tax credit ... Other—net ... Actual effective tax rate ...

2008 39.7%

4.5 0.6 (3.3) (1.9) 0.5 (1.1) (2.7) (0.7) 35.6%

2007 39.7%

3.1 4.1 (2.1) 10.0

0.5 (6.3) (5.0) (0.6) 43.4%

10. LEASES

The Group leases certain machinery, computer equipment, furniture and fixtures and other assets.

Total lease expense payments under finance leases that do not transfer ownership of the leased property to the lessee included in cost of sales and selling and administrative expenses for the years ended March 31, 2008 and 2007 were ¥349 million ($3,483 thousand) and ¥337 million, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligations under finance lease, depreciation expense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee on an “as if capitalized” basis for the years ended March 31, 2008 and 2007 was as follows:

Acquisition cost... Accumulated depreciation ... Net leased property...

2008

Millions of Yen

Other

¥35 18 ¥17

Total

¥1,359 706 ¥ 653

Furniture and Fixtures

¥1,213 612 ¥ 601

Machinery and Equipment

¥111 76 ¥ 35

Other

$349 179

Total

$13,564 7,046

$12,107 6,108

$1,108 759

2007

Other

¥33 12 ¥21

Total

¥1,250 616 ¥ 634

¥1,070 506 ¥564

¥147 98 ¥ 49

Acquisition cost... Accumulated depreciation ...

2008

9. RESEARCH AND DEVELOPMENT COSTS

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11. DERIVATIVES

The Group enters into foreign currency forward contracts to hedge foreign exchange risk for export transactions in the normal course of business as of March 31, 2008 and 2007.

The Group enters into foreign currency forward contracts associated with trade receivables, and signing agreements denominated in foreign currencies; and therefore, the Group does not hold or issue derivatives for trading purposes.

Foreign currency forward contracts are subject to foreign exchange risk. Because the counterparties to these deriva-tives are limited to major international banks, the Group does

not anticipate any losses arising from credit risk.

Foreign currency forward contracts entered into by the Group have been in accordance with internal rules and each foreign currency forward contracts transaction is periodically reported to and approved by the executive officer in charge.

All the amounts of foreign currency forward contracts entered into by the Group are assigned to associated assets and are reflected on the balance sheet at year end; and therefore, they are not subject to the disclosure of market value information at March 31, 2008 and 2007.

12. CONTINGENT LIABILITIES

At March 31, 2008, the Group did not have any contingent liabilities.

Year Ended March 31, 2008

Basic EPS—Net income available to common shareholders... Effect of dilutive securities—Stock acquisition rights ... Diluted EPS—Net income for computation ...

Year Ended March 31, 2007

Basic EPS—Net income available to common shareholders... Effect of dilutive securities—Stock acquisition rights ... Diluted EPS—Net income for computation ...

EPS Thousands

of Shares Weighted-average

Shares

103,806 4,870 108,676

104,058 4,870 108,928

Millions of Yen

Net Income

¥11,805 — ¥11,805

¥8,450 — ¥8,450

Yen

¥113.72

¥108.62

¥81.20

¥77.57

U.S. Dollars

$1.14

$1.08

13. NET INCOME PER SHARE

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2008 and 2007 is as follows:

Due within one year ... Due after one year ... Total ...

Millions of Yen

2007 ¥ 44

63 ¥107

2007 ¥ 50

123 ¥173

2007 $ 439

629 $1,068 The minimum rental commitments under noncancelable operating leases at March 31, 2008 and 2007 were as follows: Depreciation expense ...

Interest expense...

Millions of Yen

2008 ¥342

10

2007 ¥327

10

2008 $3,414

100 Depreciation expense and interest expense under finance leases:

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Year-end cash dividends, ¥10 ($0.10) per share ... Millions of Yen ¥1,029 Thousands of U.S. Dollars $10,270

14. SUBSEQUENT EVENT

The following appropriation of retained earnings at March 31, 2008 was approved at the Company’s Board of Directors meeting held on May 23, 2008:

(1) Industry Segments

a. Sales and Operating Income

Sales to customers ... Intersegment sales ... Total sales ... Operating expenses ... Operating income ...

Millions of Yen

2008 Broadcast and Video Systems ¥46,256 616 46,872 45,849 ¥ 1,023

Wireless Communications and Information Systems ¥73,403 — 73,403 70,539 ¥ 2,864

Semiconductor Manufacturing Systems ¥78,325 — 78,325 65,279 ¥13,046 Eliminations/ Corporate — ¥(616) (616) (616) — Consolidated ¥197,984 0 197,984 181,051 ¥ 16,933

b. Total Assets, Depreciation and Capital Expenditures

Total assets... Depreciation ... Capital expenditures ...

Millions of Yen

2008 Broadcast and Video Systems ¥42,306 1,082 2,094 Wireless Communications and Information Systems ¥60,800 1,889 2,120 Semiconductor Manufacturing Systems ¥42,063 1,918 1,751 Eliminations/ Corporate ¥57,888 — — Consolidated ¥203,057 4,889 5,965

15. SEGMENT INFORMATION

Information about industry segments, geographical segments and sales to foreign customers of the Company and subsidiaries for the years ended March 31, 2008 and 2007 were as follows:

Sales to customers ... Intersegment sales ... Total sales ... Operating expenses ...

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Notes:

Wireless Communications and Information Systems consist of Station Equipment for Cellular Telephones, Wireless Broadband Systems, Radio Equipment for Packet Communication Systems, On premises Digital Wireless Communication Systems, Aircraft Communication Systems, Shipboard Communication Systems, Wireless Telephone Systems for Air Traffic Control, Education & Training Systems, Short Wave Digital Radio Broadcasting Systems, Disaster Management Wireless Systems, Assorted Equipment for Governmental and Public Communications, Digital Wireless Systems for Public Business, Train

Communication Systems, Radio Communication Systems for Fire Station, Airport MCA Wireless Systems, GPS/AVM Wireless Systems, Assorted Wireless Equipment, Telemetering Systems, Stock Price Display Systems, Assorted Display Boards and Display Devices, Multimedia Information Display Systems, Information Communication Network Systems for Securities and Financial, Package Software for Securities and Financial Applications, Dealing Systems, RFID(Radio Frequency Identification) Shelf Antenna Systems, Data Warehouse Systems, Computer Telephony Integration Systems.

Broadcasting and Video Systems consist of Digital Microwave Link (Portable and Fixed), FPU and Portable Tracking Receivers, Digital Terrestrial Television Transmitter, Digital Terrestrial Television Transposer, Digital TV Cameras, Non linear Digital Video Editing Systems/Transmission Systems, FM Broadcasting Transmitter/Sound Broadcasting Transmitter, Antenna Systems for Terrestrial Digital

Broadcasting, Amplifiers/Splitters and Other TV Receiving Equipment, Satellite Broadcasting and Receiving Equipment, TV/FM Broadcasting Antennas, Community Receiving Facilities, CATV Equipment, Interference and Bad Reception Safeguard Equipment, Wide Area Monitoring Systems (for Roads, Rivers and Railroads Networks), Security Surveillance Systems, Monitoring Systems for Plant (Environment, Electric power, Chemistry and Steel), LCD Automatic Line Width Measuring Equipment, Cameras and Monitors for Broadcasting & Industrial Applications, Wireless Communication Antennas, ITS (Intelligent Transport Systems), RFID (Radio Frequency Identification) Reader/Writers.

Semiconductor Manufacturing Systems consist of Vertical QTAT Systems, Vertical ALD Systems, Vertical Diffusion and LPCVD Systems, Ashing Systems, Vertical High temperature Annealing Systems, Vertical Ultrahigh temperature Annealing Systems, Single Wafer/LPCVD Systems, Single Wafer MMT Plasma Nitridation Systems, Silicon Epitaxial Growth Systems, Vertical SiGe Epitaxial Growth Systems.

Eliminations/corporate consist of cash and time deposits, investment securities and assets at headquarters.

As described in Note 2.m the Group changed the method for semiconductor systems for export from the point of shipment to the time of the confirmation of set-up and testing of products. The effect of this change on segment of

Semiconductor Systems was to decrease sales by ¥2,856 million and operating income by ¥1,402 million.

Sales to customers ... Intersegment sales ... Total sales ... Operating expenses ... Operating income ...

Millions of Yen

2007 Broadcast and Video Systems ¥49,013 516 49,529 48,914 ¥ 615

Wireless Communications and Information Systems ¥69,180 — 69,180 68,155 ¥ 1,025

Semiconductor Manufacturing Systems ¥75,777 — 75,777 61,856 ¥13,921 Eliminations/ Corporate — ¥(516) (516) (516) — Consolidated ¥193,970 193,970 178,409 ¥ 15,561

b. Total Assets, Depreciation and Capital Expenditures

Total assets... Depreciation ... Loss on impairment of long-lived assets ... Capital expenditures ...

Millions of Yen

For the fiscal year ended March 31, 2008 （、バイト）