For the fiscal year ended March 31, 2007...Hitachi Kokusai Electric Annu2 al Report 2007 To Our...

For the fiscal year ended March 31, 2007

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, so 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 semiconductor

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.

Contents

Financial Highlights ............................................................................................ 1

To Our Shareholders .......................................................................................... 2

Results and Outlook by Segment ...................................................................... 4-6

· Wireless Communications and Information Systems Segment ................................4

· Broadcasting and Video Systems Segment ..........................................................5

· Semiconductor Manufacturing Systems Segment ..................................................6

Financial Section ..................................................................................................7

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 .......................................................................... 29

Directory .......................................................................................................... 30

Corporate Data .................................................................................................. 31

Shareholder Information .................................................................................... 32

Cautionary Statement With Respect to Forward-looking Statements:

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

characterized by continual new product introductions and rapid developments in technology.

Profile

1Hitachi Kokusai Electric Annual Report 2007

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 outsideJapan and have been made at the rate of ¥118.05 to $1, the rate of exchange at March 31, 2007.

159,

259

159,

065

193,

970

13,3

73

15,5

61

11,4

33

176,

667

192,

583

214,

950

2006 20072005 2006 20072005 2006 20072005

Net sales(Millions of Yen)

Operating income(Millions of Yen)

Total assets(Millions of Yen)

0

50,000

100,000

200,000

150,000

250,000

0

50,000

100,000

150,000

200,000

0

4,000

8,000

12,000

16,000

Financial HighlightsHitachi Kokusai Electric Inc. and Consolidated Subsidiaries

Years ended March 31

Thousands ofMillions of Yen U.S. Dollars

Yen U.S. Dollars

2007

¥193,970

15,561

8,450

¥214,950

102,660

2006

¥159,065

11,433

6,681

¥192,583

96,427

2007

$1,643,117

131,817

71,580

$1,820,839

869,632

2007

¥ 81.20

14.00

2006

¥ 63.32

12.00

2007

$ 0.69

0.12


To Our Shareholders

Looking back at the economic situation in fiscal 2006,ended March 31, 2007, in Japan increased private-sectorinvestment in plant and equipment combined with higherpersonal spending to create an underlying note ofrecovery. Internationally, the U.S. economy was firmdespite suffering a temporary slowdown, Asianeconomies continued to expand, led by China, andEurope maintained its moderate pace of growth.

With respect to the business climate in which theHitachi Kokusai Group operates, the semiconductormanufacturing systems sector did well, helped by thebrisk pace of plant and equipment investment led by themajor manufacturers of memories. The marketenvironment for wireless communications and informationsystems was solid, shaped by a number of factors thatincluded the start of mobile telephone number portabilityservices and replacement demand generated by themove to digital communication systems. The market forbroadcasting and video systems also remained strong,underpinned by demand for transceivers for terrestrialdigital broadcasting applications, and monitoring systemsused to strengthen security facilities. In all sectors, therewas an increase in competitiveness with respect toquality, prices and delivery periods.

Against this backdrop, each of Hitachi KokusaiElectric’s business divisions posted gains in salesreceived. Total consolidated sales increased 21%

compared to the preceding year.At the Wireless Communications and Information

Systems segment there was a decrease in income, attrib-utable to falling product prices and higher developmentcosts. However, the Broadcasting and Video Systemsand Semiconductor Manufacturing Systems segmentsboth posted increases, so in overall terms, income washigher compared to the preceding year.

The Company’s basic stance is to maintain stabledividends, while taking into consideration corporateperformance and the reinforcement of internal reservesfor the purpose of strengthening the managementstructure and expanding business operations. Based onthat policy, at a meeting held on May 23, 2007, theBoard of Directors resolved to pay a cash dividend of ¥8per share at the end of the term. An interim dividend of¥6 per share was paid in December 2006, so for theyear, the Company paid a cash dividend of ¥14 pershare. The cash dividend for the preceding term was ¥12per share (which included a commemorative dividend of¥2 per share).

Hitachi Kokusai Electric has been moving forward tomeet the goals of its “HK 2010 Vision,” which are toachieve consolidated sales of ¥200 billion and a ratio ofoperating income to net sales of 10% in the fiscal yearending March 31, 2010. Looking ahead, to achieve thosegoals and attain sustainable business growth, closeliaison among the Wireless Communications andInformation Systems, Broadcasting and Video Systemsand Semiconductor Manufacturing Systems segments isbeing used to make Hitachi Kokusai Electric a leadingwireless technology company and the global leader insemiconductor thermal process systems.

Two fiscal years have passed since the launch of the“HK 2010 Vision” plan. Results posted in fiscal 2006exceeded the initial targets of the plan by 122%, in thecase of sales, and 173%, in the case of operatingincome. However, income performance is highlydependent on the semiconductor manufacturing systemsbusiness, so the most important task facing theCompany is to strengthen the ability of the WirelessCommunications and Information Systems andBroadcasting and Video Systems segments to generateincome.

Kunio HasegawaPresident, Chief Executive Officer and Director


In implementing the plan, we are therefore giving priorityto the following policies.

a. Strengthen flagship productsThere will be an increased emphasis on the developmentand strengthening of flagship products that form the corebusiness of our three operating segments. We will growour business by utilizing core technologies in each area toimprove our relationships with important customers.

In the Wireless Communications and InformationSystems segment, the focus will be on the strengtheningof the business areas of wireless systems for next-generation public communication network systems,wireless communication systems for private-sectorapplications, and business solutions.

In the Broadcasting and Video Systems segment, thefocus will be on the strengthening of the business areasof broadcasting infrastructures able to handle the fusionof communications and broadcasting, advanced securityvideo surveillance systems and high-function camerasthat feature high speed and high sensitivity.

In the Semiconductor Manufacturing Systems segment,the focus will be on using the core technology of verticalsystems to strengthen the semiconductor thermalprocess business by entering into areas related to back-end processes. Ashing systems, which are used toremove the photoresist mask employed to form circuitpatterns on wafers, will be developed into another pillar ofthe Company’s business operations. In this area, our aimis to have the leading share of the market.

b. Overseas expansionWhile our overseas expansion efforts have centered onthe Semiconductor Manufacturing Systems business,going forward there will also be an emphasis on theWireless Communications and Information Systems andBroadcasting and Video Systems segments. Export-eligible products, such as station equipment for cellulartelephones and television program production cameras,will be strengthened on an important customer bycustomer basis. Optimal use will be made of saleschannels developed so far to further expand overseasoperations in order to achieve an overseas sales ratio of40%, compared to the current ratio of 33%.

c. Promoting new businessesThe Company is cultivating next-generation businessesthat are able to respond to changes in business structurein the post-HK 2010 period. The Company will look toexpand in areas where it can utilize its strengths such asin wireless broadband, the fusion of communications andbroadcasting, advanced security systems and next-generation thin-film growth systems. To achieve thesepolicies, the Company will continue to invest in plant andequipment and in research and development, to attain atarget ratio of research and development costs to sales of10%, compared to the current 7%.

d. Strengthen profitabilityThe Company is further strengthening its profit structureto overcome the effects of intensified price competition inthe Wireless Communications and Information Systemsand Broadcasting and Video Systems businesssegments, and of risk generated by the fluctuations of thesilicon cycle in the Semiconductor ManufacturingSystems. This will be done by (i) streamlining based onreforms of all work processes, from order reception toshipping, and improvements in internal control systems;(ii) the establishment of quality assurance systems; and(iii) the use of VEC (Value Engineering for Customers)activities to boost product competitiveness.

e. Promoting CSR managementThe Fundamental Philosophy, as laid down in the HitachiKokusai Electric Code of Conduct, is to manufactureproducts that contribute to a safe and affluent society;looking to the future, to never stop working forcontinuous improvement; and to observe fundamentals,do things the right way, and be fair and transparent in allaspects of corporate conduct. Based on this philosophy,our commitment is to develop and provide products inwhich the emphasis is on safety, quality and environ-mental soundness so as to thereby obtain the customer’ssatisfaction, trust and confidence, while at the same timeworking to protect and improve local living environments.

September 2007Kunio HasegawaPresident, Chief Executive Officer and Director


Results and Outlook by Segment

Consolidated orders received by the Wireless Communications and InformationSystems segment (mobile communication systems, communication systems for publicutilities, information systems, etc.) during fiscal 2006 amounted to ¥71,236 million,¥10,842 million (18.0%) more than the preceding fiscal year. Net sales came to¥69,179 million, an increase of ¥11,574 million (20.1%) attributable to higher sales ofstation equipment for digital cellular telephones, radio equipment for packet communication systems and digital wireless systems for public businesses.

Operating income came to ¥1,025 million, a decrease of ¥258 million (20.1%) that ismainly attributable to falling prices brought about by increased competition amongtelecommunication carriers and the higher development costs required for productplatforms standardization.

Looking ahead, in the area of infrastructure products for cellular telephone systems,Hitachi Kokusai Electric is developing post-third-generation mobile network productsand enhancing product competitiveness. In the area of wireless communicationssystems for private-sector applications, the Company is targeting replacementdemand generated by the move to digital systems and developing new products ableto handle IP applications. In information solutions, Hitachi Kokusai Electric is furtherstrengthening network system products for small and medium sized securities companies.

The upgrading of wireless equipment for the transition from analogue to digitalsystems in the wake of the wireless frequency reorganization, along with rising securityneeds, creates a favorable market environment for Hitachi Kokusai Electric, which isresponding by concentrating on the development of new system products in the areaof wireless technology. In particular, the Company is focusing on proposals for private-sector wireless communications systems that utilize public communication systemtechnology and on the manufacture of synergy products based on IP networktechnology, and is rapidly developing new system products that utilize the Company’swireless technology and providing customers with proposals.

0

20,000

40,000

60,000

61,1

62

57,6

05

69,1

79

2006 20072005


80,000

5,00

0

1,28

3

1,02

5

2006 200720050

1,000

2,000

3,000


5,000

4,000

Wireless Communications and Information Systems SegmentCreation of new system products and overseas expansion

Main Products

Station Equipment for Digital Cellular Telephones, Radio

Equipment for Packet Communication Systems, Wireless

Broadband Systems, Digital Wireless Systems for Public Business,

On-premises Digital Wireless Communication Systems, Disaster

Management Communication Systems/Disaster Information

Systems, Firefighting Wireless Systems, Train Communication

Systems, Airport MCA Wireless Systems, Stock-Price Display

Systems, Assorted Display Boards and Display Devices Commercial radio equipment Multimedia information display system


Consolidated orders received by the Broadcasting and Video Systems segment(broadcasting systems, monitoring systems, CATV, antennas, etc.) during fiscal 2006amounted to ¥48,716 million, ¥2,667 million (5.8%) more than the preceding year.Sales rose ¥3,743 million (8.3%), to ¥49,013 million, buoyed up by gains posted bybroadcasting systems, mainly from sales of relay equipment for terrestrial digitalbroadcasting, and by video monitoring systems and products of Yagi Antenna Inc.

Operating income came to ¥614 million, an increase of ¥79 million (14.9%) partlyattributable to the improved profit structure of Yagi Antenna Inc.

Going forward, in the area of broadcasting systems the Company is developing newsystem products that fuse wireless and broadcasting, forming a new generation ofproducts for post-terrestrial digital system applications. In video monitoring systems,the Company is moving to answer the growing demand for security systems bystrengthening its network video monitoring systems and implementing separateproduct strategies for railroad, electric power, financial and other industry categories.

Hitachi Kokusai Electric is also strengthening its profit structure by pushing forwardwith business reforms, and by improving work procedures to thoroughly eliminatewaste in every step along the way, from order reception to sales, and strengthening itsquality assurance system. At the same time, the Company is broadening its lineup withproducts that target market needs, and to obtain new customers is pushing aheadwith the manufacture of products that are distinctively Hitachi Kokusai Electric’s, byfusing the core technologies the Company has in the areas of wireless communications,information, broadcasting and video systems, such as digital wireless, high-functioncameras and image processing systems.

0

10,000

20,000

30,000

40,000

45,2

70 49,0

13

44,3

53

2006 20072005


50,000

(100

)

615

535

Operating income (loss)(Millions of Yen)

-200

0

200

400

600

800

2006 20072005

Broadcasting and Video Systems SegmentResponding to post-terrestrial digital broadcasting and strengthening network monitoring systems

Main Products

Digital Microwave Relay Equipment, Digital Relay Transmitters,

Digital TV Transmission Systems, FM/AM Broadcasting Equipment,

Non-linear Video Editing/Recording/Transmission Systems, Digital

TV Cameras, Satellite Broadcasting and Receiving Equipment,

CATV Equipment, Interference and Bad Reception Safeguard

Equipment, Assorted Commercial Cameras and Monitors,

Wide-Area Monitoring Systems (for Roads, Rivers and

Railroad Networks), Security Surveillance Systems, Wireless

Communication AntennasDigital TV cameras Non-linear transmission

system


Consolidated orders received by the Semiconductor Manufacturing Systems segment(vertical systems, etc.) during fiscal 2006 came to ¥84,543 million, ¥29,307 million(53.1%) more than the preceding year. This increase is attributable to the continuedhigh level of capital investment by semiconductor manufacturers that are thesegment's major customers, the cultivation of new customers and a rise in orders forstrategic products. Net sales came to ¥75,777 million, ¥19,587 million (34.9%) morethan the preceding year.

Operating income came to ¥13,921 million, an increase of ¥4,306 million (44.8%).In fiscal 2006, the thermal process sector and other areas of the semiconductor

manufacturing equipment business enjoyed good market conditions, underpinned by astrong level of investment by memory manufacturers. This also led to a need forcompanies that make the manufacturing equipment to boost their productioncapacity. To expand the production capacity of its vertical systems and other mainstayproducts, in November 2006, Hitachi Kokusai Electric built a new production facility atthe Toyama Works. In the rapidly-changing semiconductor market, the Company willcontinue to enhance its production capabilities so as to be able to nimbly change itsmanufacturing system to match the scale of the business.

In order to develop next-generation technology in the area of semiconductormanufacturing equipment, it is necessary to have developmental capabilities that areable to keep up with the constant pace of innovation, to reduce manufacturing leadtime and to lower costs to cope with the rapid fall in device prices. Under theseconditions, to provide customers with manufacturing equipment that applies advancedsemiconductor technologies, Hitachi Kokusai Electric is working to build a system forresearch and development into new products and processes able to keep pace withthe rapid advances in semiconductor technology, while at the same time respondingto technological change and constantly monitoring trends in next-generationtechnology.

75,7

77

53,7

44

56,1

90

2006 20072005


0

20,000

40,000

80,000

60,000

13,9

21

8,47

3 9,61

5

0

10,000

5,000


15,000

2006 20072005

Semiconductor Manufacturing Systems SegmentEnhancing production capacity and developing new products and processes to cope with technological advances

Main Products

Vertical Diffusion/LPCVD Systems, Vertical QTAT Systems, Vertical

ALD Systems, Vertical High-temperature Annealing Systems,

Vertical Ultrahigh-temperature Annealing Systems, Ashing Systems,

Single Wafer Diffusion/LPCVD Systems, Single Wafer MMT Plasma

Nitriding Systems, Silicon Epitaxial Growth Systems, Vertical SiGe

Epitaxial Growth Systems

Ashing system Single wafer plasmanitriding System


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 29

Financial Section


1,50

4

6,68

1

6,32

8

1,74

8

8,45

0

2006 2007200520042003

Net income(Millions of Yen)

0

2,500

5,000

7,500

10,000

80,2

78

96,4

27

87,3

46

81,9

30

102,

660

2006 2007200520042003

Total equity(Millions of Yen)

0

30,000

60,000

90,000

120,000

4.00

12.0

0

8.00

6.00

14.0

0

2006 2007200520042003

Cash dividends per share(Yen)

0

5

10

15

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 Yen2005

¥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

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

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

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

2003

¥129,361 95,938 33,423

544 3,916 1,504

169,781 115,813 31,663 41,715 47,706 80,278

13.53 4.00

763.62

5,176 105

Consolidated Five-Year SummaryHitachi Kokusai Electric Inc. and Consolidated Subsidiaries

Years ended March 31

* Figures represent total shareholders’ equity and total shareholders’ equity per share prior to 2006.


Financial Review

Operating Results

Financial Position

Cash Flows

Operating results for the year under review were as follows.The Wireless Communications and Information Systems,

Broadcasting and Video Systems and SemiconductorManufacturing Systems segments all posted gains in ordersreceived, bringing the total to ¥204,497 million, ¥42,818 million(26.5%) more than the preceding year. Total net sales rose¥34,905 million (21.9%), to ¥193,970 million.

While falling product prices and higher development costscaused a decline in the operating income of the WirelessCommunications and Information Systems, increases wereposted by the Broadcasting and Video Systems andSemiconductor Manufacturing Systems. The overall result wasthat operating income came to ¥15,561 million, an increase of¥4,128 million (36.1%). Net income rose ¥1,769 million (26.5%),to ¥8,450 million.

By geographic segment, net sales in Japan amounted to¥177,124 million, ¥31,452 million (21.6%) more than the

preceding year. Principal contributors to the increase were thehigher sales of semiconductor manufacturing systems thatreflected the brisk pace of capital spending by the majormemory manufacturers which are the Company’s maincustomers, and higher sales of station equipment for digitalcellular telephones and digital wireless systems for publicbusinesses. Operating income increased ¥4,413 million, to¥14,440 million.

In North America, an increase in orders received for semiconductor manufacturing equipment resulted in sales of¥14,328 million, an increase of ¥3,267 million (29.5%)compared to the preceding year. Although sales increased,operating income decreased ¥289 million, to ¥981 million, dueto a rise in fixed costs and other such factors.

In other areas, sales rose ¥186 million (8.0%), to ¥2,518million, and operating income rose ¥110 million, to ¥263 million.

Total assets at the end of fiscal 2006 stood at ¥214,950 million,¥22,367 million more than the preceding year. Current assets atthe end of the year amounted to ¥165,492 million, ¥21,179million more than the preceding year. The increase is mainlyattributable to an increase of ¥4,948 million in trade notes andaccounts receivable, arising from the increase in sales, and anincrease in inventories of ¥10,860 million. Property, plant andequipment increased by ¥1,472 million, to ¥26,814 million, due

mainly to the construction of a production new wing at theToyama Works.

Total liabilities increased ¥16,326 million, to ¥112,290 million.This is attributable to an increase of ¥11,846 million in notesand accounts payable generated by increased purchases ofmaterials to keep pace with needs generated by higher sales.

Net assets at the end of the fiscal year amounted to ¥12,660million, an increase of ¥6,233 million.

Consolidated cash and cash equivalents (hereinafter “cash") atthe end of the fiscal year stood at ¥52,042 million, an increaseof ¥5,140 million (11.0%) due to gains from operating activitiesbeing offset by investment-activity disbursements, and anincrease of ¥37 million in newly consolidated subsidiaries. Themain factors involved in cash flows in the fiscal year underreview were as follows.

Net cash provided by operating activities amounted to¥15,796 million, an increase of ¥12,935 million (452.1%)compared to the preceding year. The main factors in this wereincrease components such as net income before income taxesof ¥15,062 million, non-cash depreciation expenses of ¥4,277million and an increase of ¥11,892 million in notes and accountspayable, which exceeded decrease components such as the

increase of ¥5,002 million in accounts receivable and theincrease of ¥10,834 million in inventories.

Net cash used in investing activities amounted to ¥8,519million, a decrease of ¥4,505 million (112.2%) compared to thepreceding year. The main component in this decrease was anexpenditure of ¥8,580 million to acquire property, plant andequipment primarily for the construction of the new wing at theKoganei Works.

Net cash used in financing activities amounted to ¥2,260million, ¥793 million more than the preceding year. The maincomponents in this increase were an expenditure of ¥1,488million in cash dividends, and the acquisition of treasury stockamounting to ¥772 million.


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 (Note 4) ................................................

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 SheetsHitachi Kokusai Electric Inc. and Consolidated Subsidiaries

March 31, 2007 and 2006

Thousands ofU.S. Dollars

Millions of Yen (Note 1)

2007

¥ 27,38824,930

4,51655,0422,781

466(123)

41,5708,434

488165,492

5,54541,45416,20524,094

40387,701

(60,887)26,814

5,3231,602

4310,564

5,11222,644

¥ 214,950

2006

¥ 22,82723,765

3,11853,418

855384(167)

30,7107,8681,535

144,313

5,54139,79715,81823,730

16785,053(59,711)25,342

6,0841,401

3110,414

4,99822,928

¥192,583

2007

$ 232,003211,182

38,255466,26023,5583,948

(1,042)352,13971,4444,134

1,401,881

46,972351,156137,272204,100

3,414742,914

(515,773)227,141

45,09113,571

36489,48843,303

191,817$1,820,839




2007

¥ 1,567

2,40143,742

3873,7606,334

15,4342,1133,125

78,863

6,000

26,562326539

33,427

10,05826,22265,1991,944

511(1,322)

102,61248

102,660¥214,950

2006

¥ 1,567

2,34331,954

3096,072

74714,222

4,54561,759

6,000

27,475456274

34,205

192

10,05826,15358,2272,403

302(716)

96,427

96,427¥192,583

2007

$ 13,274

20,339370,538

3,27831,85153,655

130,74117,89926,472

668,047

50,826

225,0062,7624,566

283,160

85,201222,126552,30016,4684,329

(11,199)869,225

407869,632

$1,820,839

LIABILITIES AND EQUITY

CURRENT LIABILITIES:Short-term bank loans (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 ....................................................................................

MINORITY INTERESTS ..............................................................................................

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

EQUITY (Notes 7 and 14):Common stock—authorized, 400,000,000 shares;

issued, 105,221,259 shares in 2007 and 2006 ......................................................Capital surplus ..........................................................................................................Retained earnings ......................................................................................................Unrealized gain on available-for-sale securities ........................................................Foreign currency translation adjustments ................................................................Treasury stock—at cost, 1,235,117 shares in 2007 and 792,630 shares in 2006 ....

Total ....................................................................................................................Minority interests ......................................................................................................

Total equity ........................................................................................................TOTAL ..........................................................................................................................


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 loss ..............................................................................................Gain on sales of property, plant and equipment ......................................................Loss on disposals of property, plant and equipment ................................................Reversal of accrual for business restructuring ..........................................................Loss on impairment of long-lived assets ..................................................................Business base integration cost..................................................................................Prior year patent rights income ................................................................................Prior year provision for product warranties ..............................................................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.u and 13):Net income ................................................................................................................Diluted net income ....................................................................................................Cash dividends applicable to the year ......................................................................




2007¥193,970

142,898

51,072

35,511

15,561

292102(19)(28)442

(216)2

(426)

(34)

400(261)(753)

(499)

15,062

6,845(305)

6,540

72

¥ 8,450

2006¥159,065

117,162

41,903

30,470

11,433

9782(15)

(604)370(123)

8(338)

3,091(3,431)

(806)

(827)

(2,496)

8,937

1,438745

2,183

73

¥ 6,681

2007$1,643,117

1,210,487

432,630

300,813

131,817

2,474864

(161)(237)

3,744(1,830)

17(5,616)

(288)

3,388(2,211)(4,371)

(4,227)

127,590

57,984(2,584)

55,400

610

$ 71,580

Yen U.S. Dollars

¥ 81.2077.5714.00

¥ 63.3260.5112.00

$ 0.690.660.12

Consolidated Statements of IncomeHitachi Kokusai Electric Inc. and Consolidated Subsidiaries

Years Ended March 31, 2007 and 2006


BALANCE, APRIL 1, 2005 ..................................

Paid in capital from treasury stock

transaction (1,971 shares) ........................

Net income ..................................................

Bonuses to directors ......................................

Cash dividends, ¥8 per share..........................

Revaluation-related deferred tax assets in

consolidated subsidiary ............................

Increase in treasury stock (412,431 shares)....

Net increase in unrealized gain on

available-for-sale securities ......................

Net change in foreign currency

translation adjustments ............................

BALANCE, MARCH 31, 2006 ..............................

Reclassified balance as of March 31, 2006

(Note 2.l) ..................................................

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 ......................


translation adjustments ............................

BALANCE, MARCH 31, 2007 ..............................

BALANCE, MARCH 31, 2006 ........................................................

Reclassified balance as of March 31, 2006

(Note 2.l) ............................................................................

Paid-in capital from treasury stock

transaction (5,151 shares) ..................................................

Net income ............................................................................

Bonuses to directors ................................................................

Cash dividends, $0.10 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 ................................................


translation adjustments ......................................................

BALANCE, MARCH 31, 2007 ........................................................


Millions of Yen

Thousands of U.S. Dollars (Note 1)

Thousands

Retained Earnings

¥ 50,240

6,681

(39)

(838)

2,183

58,227

8,450

(51)

(1,459)

7

25

¥ 65,199

CapitalSurplus

¥ 26,152

1

26,153

69

¥ 26,222

CommonStock

¥ 10,058

10,058

¥ 10,058

Issued Number ofShares of

Common Stock

105,221

105,221

105,221

UnrealizedGain on

Available-for-sale Securities

¥ 1,073

1,330

2,403

(459)

¥ 1,944

ForeignCurrency

TranslationAdjustments

¥ 44

258

302

209

¥ 511

TreasuryStock

¥ (221)

1

(496)

(716)

172

(778)

¥ (1,322)

Total

¥ 87,346

2

6,681

(39)

(838)

2,183

(496)

1,330

258

96,427

241

8,450

(51)

(1,459)

7

25

(778)

(459)

209

¥102,612

MinorityInterests

¥ 192

(144)

¥ 48

TotalEquity

¥ 87,346

2

6,681

(39)

(838)

2,183

(496)

1,330

258

96,427

192

97

8,450

(51)

(1,459)

7

25

(778)

(459)

209

¥102,660

Retained Earnings

$493,240

71,580

(432)

(12,359)

59

212

$552,300

CapitalSurplus

$221,542

584

$222,126

CommonStock

$ 85,201

$ 85,201

UnrealizedGain on

Available-for-sale Securities

$ 20,356

(3,888)

$ 16,468

ForeignCurrency

TranslationAdjustments

$ 2,559

1,770

$ 4,329

TreasuryStock

$ (6,065)

1,457

(6,591)

$ (11,199)

Total

$816,833

2,041

71,580

(432)

(12,359)

59

212

(6,591)

(3,888)

1,770

$869,225

MinorityInterests

$ 1,381

(974)

$ 407

TotalEquity

$ 816,833

1,381

1,067

71,580

(432)

(12,359)

59

212

(6,591)

(3,888)

1,770

$869,632

Consolidated Statements of Changes in EquityHitachi Kokusai Electric Inc. and Consolidated Subsidiaries



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 ................................................................................Decrease in accrual for business restructuring......................................................Increase in provision for product warranties ..........................................................Changes in assets and liabilities:

Increase in notes and accounts receivables ......................................................Increase in inventories ........................................................................................(Increase) decrease in other current assets ........................................................Increase in notes and accounts payables ..........................................................Increase (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 ........................................................................................Purchases of marketable securities ..........................................................................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 ..................................................................Increase in investment in long-term deposit ............................................................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) ......................................




2007

¥ 15,062

(1,316)16

4,27734

433(2)

(912)

(130)2,113

(5,002)(10,834)

5011,892

(145)260734

15,796

(37)1

150(33)

7(8,580)

712

(100)(8,519)

(1,488)(772)

(2,260)

1235,140

3746,865

¥ 52,042

2006

¥ 8,937

(2,435)3

3,4613,431

261(8)

168

91(3,091)

(7,878)(6,747)

(112)3,6243,412

(256)(6,076)2,861

(1)11

(151)

(10)23

(3,540)1,615

10(2,000)1,000

(971)(4,014)

(100)(873)(494)

(1,467)

133(2,487)

49,352¥ 46,865

2007

$ 127,590

(11,148)136

36,230288

3,668(17)

(7,726)

(1,101)17,899

(42,372)(91,775)

424100,737

(1,228)2,2036,218

133,808

(313)8

1,271(280)

59(72,681)

60117

(847)(72,165)

(12,605)(6,539)

(19,144)

1,04243,541

313396,993

$ 440,847

Consolidated Statements of Cash FlowsHitachi Kokusai Electric Inc. and Consolidated Subsidiaries



1. BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Notes to Consolidated Financial StatementsHitachi Kokusai Electric Inc. and Consolidated Subsidiaries


The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forthin the Japanese Securities and Exchange Law and itsrelated accounting regulations, and in conformity withaccounting principles generally accepted in Japan(“Japanese GAAP”), which are different in certain respectsas to application and disclosure requirements ofInternational Financial Reporting Standards.

On December 27, 2005, the Accounting Standards Boardof Japan (the “ASBJ”) published a new accounting standardfor the statement of changes in equity, which is effective forfiscal years ending on or after May 1, 2006. The consolidatedstatement of shareholders’ equity, which was previously voluntarily prepared in line with the international accountingpractices, is now required under Japanese GAAP and hasbeen renamed “the consolidated statement of changes inequity” in the current fiscal year.

In preparing these consolidated financial statements, certain reclassifications and rearrangements have been madeto the consolidated financial statements issued domesticallyin order to present them in a form which is more familiar toreaders outside Japan. In addition, certain reclassificationshave been made in the 2006 financial statements to conformto the classifications used in 2007.

The consolidated financial statements are stated inJapanese yen, the currency of the country in which HitachiKokusai Electric Inc. (the “Company”) is incorporated andoperates. The translations of Japanese yen amounts into U.S.dollar amounts are included solely for the convenience ofreaders outside Japan and have been made at the rate of¥118.05 to $1, the rate of exchange at March 31, 2007. Suchtranslations should not be construed as representations thatthe Japanese yen amounts could be converted into U.S. dollars at that or any other rate.

a. Consolidation—The consolidated financial statements asof March 31, 2007 include the accounts of the Companyand its 17 significant (16 in 2006) subsidiaries (together,the “Group”).

Under the control or influence concept, those companiesin which the Company, directly or indirectly, is able toexercise control over operations are fully consolidated,and those companies over which the Group has the abilityto exercise significant influence are accounted for by theequity method.

Investments in 1 (1 in 2006) associated company areaccounted for by the equity method.

Investments in the remaining 6 unconsolidated subsidiaries and 1 associated company are stated at cost.If the equity method of accounting had been applied tothe investments in these companies, the effect on theaccompanying consolidated financial statements wouldnot be material.

The excess of cost of an acquisition over the fair valueof the net assets of the acquired subsidiary at the respectivedates of acquisition is being amortized over its estimateduseful lives, or 5 years in circumstances in which the usefullives cannot be estimated.

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

b. Business Combination—In October 2003, the BusinessAccounting Council (the “BAC”) issued a Statement ofOpinion, “Accounting for Business Combinations,” and onDecember 27, 2005, the ASBJ issued ASBJ StatementNo. 7, “Accounting Standard for Business Separations”and ASBJ Guidance No. 10, “Guidance for Accounting

Standard for Business Combinations and BusinessSeparations.” These new accounting pronouncements areeffective for fiscal years beginning on or after April 1, 2006.

The accounting standard for business combinationsallows companies to apply the pooling of interests methodof accounting only when certain specific criteria are metsuch that the business combination is essentially regardedas a uniting of interests.

For business combinations that do not meet the unitingof interests criteria, the business combination is consid-ered to be an acquisition and the purchase method ofaccounting is required. This standard also prescribes theaccounting for combinations of entities under commoncontrol and for joint ventures.

The Company has 100% of the shares of HitachiKokusai Denki Engineering Co., Ltd. by way of an addi-tional acquisition on January 19, 2007. The Companyaccounted for this acquisition under the BAC’s“Accounting for Business Combinations” and the ASBJ’s“Guidance for Accounting Standard for BusinessCombinations and Business Separations.” The Companyalso acquired 4.3% of Hitachi Kokusai Denki EngineeringCo., Ltd. on January 19, 2007 and has now 100% sharesof such company. The related ¥45 million of goodwill issystematically amortized over 5 years.

c. Cash Equivalents—Cash equivalents are short terminvestments that are readily convertible into cash and thatare exposed to insignificant risk of changes in value.

Cash equivalents include time deposits, certificate ofdeposits and mutual funds investing in bonds, all of whichmature or become due within three months of the date of acquisition.


d. Inventories—Finished products and work in process arestated at cost substantially on a specific identificationmethod. Certain finished products and work in processare stated at cost determined by the moving-averagemethod or average method and mass-produced finishedproducts and work in process which experience sharpfluctuations in price are stated at the lower of cost, on aspecific identification method or determined by the moving-average method, or market.

Raw materials are substantially stated at the lower ofcost, determined by the average method, or market.Certain raw materials are stated at the lower of cost, on aspecific identification method or determined by the moving-average method, or market.

e. Marketable and Investment Securities—Investments inunconsolidated subsidiaries and the associated companyare stated at cost determined by the moving-average method.

Available-for-sale securities, which are not classified aseither trading securities or held-to-maturity debt securi-ties, are reported at fair value, with unrealized gains andlosses, net of applicable taxes, reported in a separatecomponent of equity.

Non-marketable available-for-sale securities are statedat cost determined by the moving-average method.

For other than temporary declines in fair value, invest-ment securities are reduced to net realizable value by acharge to income.

f. Property, Plant and Equipment—Property, plant andequipment 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 tobuildings of the Company and its consolidated domesticsubsidiaries acquired after April 1, 1998. The range ofuseful 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.

g. Long lived Assets—In August 2002, the BAC issued aStatement of Opinion, “Accounting for Impairment ofFixed Assets,” and in October 2003 the ASBJ issuedASBJ Guidance No. 6, “Guidance for AccountingStandard for Impairment of Fixed Assets.” These new pro-nouncements were effective for fiscal years beginning onor after April 1, 2005 with early adoption permitted for fiscal years ending on or after March 31, 2004.

The Group adopted the new accounting standard forimpairment of fixed assets as of April 1, 2005.

The Group reviews its long-lived assets for impairmentwhenever events or changes in circumstance indicate thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized ifthe carrying amount of an asset or asset group exceedsthe sum of the undiscounted future cash flows expectedto result from the continued use and eventual disposition

of the asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount ofthe asset exceeds its recoverable amount, which is thehigher of the discounted cash flows from the continueduse and eventual disposition of the asset or the net sellingprice at disposition.

h. Other Assets—Intangible assets are carried at cost lessaccumulated amortization, which is calculated by thestraight-line method. Software which is internally used bythe Group is amortized by the straight-line method over 5 years.

i. Allowance for Doubtful Receivables—The allowance fordoubtful receivables is stated in amounts considered tobe appropriate based on the Group’s past credit lossexperience and an evaluation of potential losses in thereceivables outstanding.

j. Retirement Benefit Plans—The Company has contributoryand non-contributory trusteed pension plans covering acertain portion of employees’ retirement benefits. Benefitspaid to some employees upon retirement or termination ofemployment may exceed the amount of benefits com-puted based on years of service. Benefits paid to suchpersons are not computed as a retirement benefit liability.The liability for employees’ retirement benefits is stated atamounts based on projected benefit obligations and planassets at the balance sheet date.

The liability for directors’ and executive officers’ retirement benefits for the Company is provided at theamount which would be required if all directors and exec-utive officers retired at the balance sheet date. The aboveliability includes a liability for directors’ retirement benefitsfor certain of the Company’s consolidated subsidiaries.

k. Provision for Product Warranties—TThe provision forproduct warranties is estimated and recorded at the timeof sale to provide for future potential costs, such as costsrelated to after-sales services, in amounts considered tobe appropriate based on the Group’s past experience.

Until the year ended March 31, 2006, costs related toafter-sales services incurred during the product warrantyperiod were charged to income as incurred. Effective fromthe year ended March 31, 2007, the Group changed itsmethod to account for after-sales services costs byrecording a provision for product warranties for eachproduct, based upon the historical after-sales servicecost. This change is intended to report more accurateperiodic income and healthy financial condition by match-ing cost related to after-sales services with revenues whenproducts are sold. This change was also driven by therecognition of the increased importance of after-sales ser-vices according to improvement of the technology, qualitylevel and the ability to capture increasingly accurate historical data by product line.


The effect of this change was to decrease operatingincome and income before income taxes and minorityinterests by ¥2,113 million ($17,899 thousand) and ¥2,375million ($20,119 thousand), respectively, for the yearended March 31, 2007 as compared with the correspondingamounts which would have been recorded if the previousmethod had been followed. The provision for product warranties related to revenues recognized in prior yearswas recorded as other expenses by ¥261 million ($2,211thousand) in the accompanying consolidated statement ofincome for the year ended March 31, 2007.

l. Presentation of Equity—On December 9, 2005, the ASBJpublished a new accounting standard for presentation ofequity. Under this accounting standard, certain items whichwere previously presented as liabilities are now presentedas components of equity. Such items include minority interests. This standard is effective for fiscal years endingon or after May 1, 2006. The consolidated balance sheet asof March 31, 2007 is presented in line with this newaccounting standard.

m. Research and Development Costs—Research anddevelopment costs are charged to income as incurred.

n. Revenue Recognition—The Company applies the percentage-of-completion method to some contracts contracted by construction agreements.

o. Leases—All leases are accounted for as operating leases.Under Japanese accounting standards for leases, financeleases that deem to transfer ownership of the leased prop-erty to the lessee are to be capitalized, while other financeleases are permitted to be accounted for as operatinglease transactions if certain “as if capitalized” informationis disclosed in the notes to the lessee’s financial statements.

p. Income Taxes—The provision for income taxes is computed based on the pretax income included in theconsolidated statements of income. The asset and liabilityapproach is used to recognize deferred tax assets and liabilities for the expected future tax consequences oftemporary differences between the carrying amounts andthe tax bases of assets and liabilities. Deferred taxes aremeasured by applying currently enacted tax laws to thetemporary differences.

q. Appropriations of Retained Earnings—Appropriations ofretained earnings are reflected in the financial statementsfor the following year upon shareholders’ approval.

r. Foreign Currency Transactions—All short-term and long-term monetary receivables and payables denominated inforeign currencies are translated into Japanese yen at theexchange rate at the balance sheet date. The foreignexchange gains and losses from translation are recognized

in the consolidated statements of income to the extentthat they are not hedged by forward exchange contracts.

s. Foreign Currency Financial Statements—The balancesheet accounts of the consolidated foreign subsidiariesare translated into Japanese yen at the current exchangerate as of the balance sheet date except for equity, whichis translated at the historical rate.

Differences arising from such translations were shownas “Foreign currency translation adjustments” in a separatecomponent of equity.

Revenue and expense accounts of consolidated foreignsubsidiaries are translated into yen at the currentexchange rate.

t. Derivatives and Hedging Activities—The Group usesderivative financial instruments to manage its exposuresto fluctuations in foreign exchange. Foreign exchange for-ward contracts are utilized by the Group to reduce foreigncurrency exchange risks. The Group does not enter intoderivatives for trading or speculative purposes.

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

Foreign currency forward contracts are utilized tohedge foreign currency exposures in sales of products tooverseas customers. Trade receivables denominated inforeign currencies are translated at the contracted rates ifthe forward contracts qualify for hedge accounting.

u. Per Share Information—Basic net income per share iscomputed by dividing net income available to commonshareholders by the weighted average number of commonshares outstanding for the period, retroactively adjustedfor stock splits.

Diluted net income per share reflects the potential dilu-tion that could occur if securities were exercised or con-verted into common stock. Diluted net income per shareof common stock assumes full conversion of the out-standing convertible notes and bonds at the beginning ofthe year (or at the time of issuance) with an applicableadjustment for related interest expense, net of tax, and fullexercise of outstanding warrants.

Cash dividends per share presented in the accompany-ing consolidated statements of income are dividendsapplicable to the respective years including dividends tobe paid after the end of the year.


v. Bonuses to Directors and Executive Officers—The compensation committee of the Company approvesbonuses to directors and executive officers of theCompany and recorded on an accrual basis with a relatedcharge to income. On the other hand, prior to the fiscalyear ended March 31, 2005, bonuses to directors of theCompany’s consolidated subsidiaries were accounted foras a reduction of retained earnings in the fiscal year fol-lowing approval at the general shareholders meeting. TheASBJ issued ASBJ Practical Issues Task Force (“PITF”)No. 13, “Accounting Treatment for Bonuses to Directorsand Corporate Auditors,” which encouraged companies torecord bonuses to directors and corporate auditors on theaccrual basis with a related charge to income, but stillpermitted the direct reduction of such bonuses fromretained earnings after approval of the appropriation ofretained earnings.

The ASBJ replaced the above accounting pronouncementby issuing a new accounting standard for bonuses todirectors and corporate auditors on November 29, 2005.Under the new accounting standard, bonuses to directorsand corporate auditors must be expensed and are nolonger allowed to be directly charged to retained earnings.This accounting standard is effective for fiscal years end-ing on or after May 1, 2006. The subsidiaries must accruebonuses to directors at the year end to which suchbonuses are attributable.

w.New Accounting Pronouncements

Measurement of Inventories—Under Japanese GAAP,inventories are currently measured either by the costmethod, or at the lower of cost or market. On July 5,2006, the ASBJ issued ASBJ Statement No. 9,“Accounting Standard for Measurement of Inventories,”which is effective for fiscal years beginning on or afterApril 1, 2008 with early adoption permitted. This standardrequires that inventories held for sale in the ordinarycourse of business be measured at the lower of cost ornet selling value, which is defined as the selling price lessadditional estimated manufacturing costs and estimateddirect selling expenses. The replacement cost may beused in place of the net selling value, if appropriate. Thestandard also requires that inventories held for tradingpurposes be measured at the market price.

Lease Accounting—On March 30, 2007, the ASBJ issuedASBJ Statement No. 13, “Accounting Standard for LeaseTransactions,” which revised the existing accounting stan-dard for lease transactions issued on June 17, 1993.

Under the existing accounting standard, finance leasesthat deem to transfer ownership of the leased property tothe lessee are to be capitalized, however, other financeleases are permitted to be accounted for as operatinglease transactions if certain “as if capitalized” informationis disclosed in the note to the lessee’s financial statements.

The revised accounting standard requires that all

finance lease transactions should be capitalized. Therevised accounting standard for lease transactions iseffective for fiscal years beginning on or after April 1, 2008with early adoption permitted for fiscal years beginning onor after April 1, 2007.

Unification of Accounting Policies Applied to ForeignSubsidiaries for the Consolidated Financial Statements—Under Japanese GAAP, a company currently can use thefinancial statements of foreign subsidiaries which are pre-pared in accordance with generally accepted accountingprinciples in their respective jurisdictions for its consolida-tion process unless they are clearly unreasonable. On May17, 2006, the ASBJ issued ASBJ PITF No. 18, “PracticalSolution on Unification of Accounting Policies Applied toForeign Subsidiaries for the Consolidated FinancialStatements.” The new task force prescribes: (1) theaccounting policies and procedures applied to a parentcompany and its subsidiaries for similar transactions andevents under similar circumstances should in principle beunified for the preparation of the consolidated financialstatements, (2) financial statements prepared by foreignsubsidiaries in accordance with either InternationalFinancial Reporting Standards or the generally acceptedaccounting principles in the United States tentatively maybe used for the consolidation process, (3) however, thefollowing items should be adjusted in the consolidationprocess so that net income is accounted for in accordancewith Japanese GAAP unless they are not material;

(1)Amortization of goodwill(2)Actuarial gains and losses of defined benefit plans

recognized outside profit or loss(3)Capitalization of intangible assets arising from

development phases(4)Fair value measurement of investment properties, and

the revaluation model for property, plant and equipment,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 onor after April 1, 2008 with early adoption permitted.


Cash and time deposits ................................................................................................Deposits with Hitachi, Ltd. ............................................................................................Less—time deposits with maturities over three months ..............................................Money Management Fund ............................................................................................Total ..............................................................................................................................

Millions of Yen

2007¥27,38824,930

(276)

¥52,042

2006¥22,82723,765

(241)514

¥46,865


2007$232,003211,182

(2,338)

$440,847

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

4. MARKETABLE AND INVESTMENT SECURITIES

Marketable and investment securities as of March 31, 2007 and 2006 consisted of the following:

Current—Corporate bondsTotal ..............................................................................................................................Non-current:

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

Total ..............................................................................................................................

Millions of Yen

2007

¥ 4,964359

¥ 5,323

2006¥ 151¥ 151

¥5,733351

¥6,084


2007

$42,0503,041

$45,091

3. CASH AND CASH EQUIVALENTS

For purposes of the consolidated statements of cash flows, cash and cash equivalents at March 31, 2007 and 2006 consisted of the following:

The carrying amounts and aggregate fair values of investment securities at March 31, 2007 and 2006 were as follows:

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

Millions of Yen2007

UnrealizedGains

¥3,332Cost

¥1,734

UnrealizedLoss

¥ 102

Fair Value

¥4,964


Thousands of U.S. Dollars2007

UnrealizedGains

$28,225Cost

$14,689

UnrealizedLoss

$ 864

Fair Value

$42,050


Millions of Yen2006

UnrealizedGains

¥4,239Cost

¥1,736

UnrealizedLoss

¥ 242

Fair Value

¥5,733

Carrying Amount

Available-for-sale:Corporate bonds........................................................................................................Equity securities ........................................................................................................

Total ..............................................................................................................................

Millions of Yen

2007

¥359¥359

2006

¥151351

¥502


2007

$3,041$3,041

Available for sale securities whose fair value was not readily determinable as of March 31, 2007 and 2006 were as follows:


Proceeds from sales of available-for-sale securities for theyears ended March 31, 2007 and 2006 were ¥7 million ($59thousand) and ¥23 million, respectively. Gross realized gainsand losses on these sales, computed on the moving-averagecost basis, were ¥3 million ($25 thousand) and nil, respectively,for the year ended March 31, 2007 and ¥3 million and nil,

respectively, for the year ended March 31, 2006.For other than temporary declines in fair value, marketable

and investment securities which are reduced to net realizablevalue by a charge to income for the years ended March 31,2007 and 2006 were ¥0 million ($0 thousand) and ¥1 million,respectively.

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 ranged from 1.09% and 0.56% at March 31, 2007 and

2006, respectively.

Long-term debt at March 31, 2007 and 2006 consisted of the following:

Zero coupon convertible notes with stockacquisition 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

2007

¥6,0006,000

¥6,000

2006

¥6,0006,000

¥6,000


2007

$50,82650,826

$50,826

Annual maturities of long term debt at March 31, 2007 were as follows:

Year Ending March 31

2009..................................................................................................................................................Total..................................................................................................................................................

Millions ofYen

¥6,000¥6,000


$50,826$50,826

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, 2007. The conversion prices are subject to adjustments incertain circumstances.

6. RETIREMENT BENEFIT PLANS

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

Under most circumstances, employees terminating theiremployment are entitled to retirement benefits determinedbased on the rate of pay at the time of termination, years ofservice and certain other factors. Such retirement benefitsare made in the form of a lump-sum severance payment fromthe Company or from certain consolidated subsidiaries andannuity payments from a trustee. Employees are entitled to

larger payments if the termination is involuntary, by retire-ment at the mandatory retirement age, by death, or by volun-tary retirement at certain specific ages prior to the mandatoryretirement age.

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


Discount rate ............................................................................................................Expected rate of return on plan assets ....................................................................Amortization period of prior service cost..................................................................Recognition period of actuarial loss ........................................................................

20072.5%2.5%

14 years14 years

20062.5%2.5%

14 years14 years

Assumptions used for the years ended March 31, 2007 and 2006 are set forth as follows:

7. EQUITY

On and after May 1, 2006, Japanese companies are subjectto a new corporate law of Japan (the “Corporate Law”),which reformed and replaced the Commercial Code of Japanwith various revisions that are, for the most part, applicableto events or transactions which occur on or after May 1, 2006and for the fiscal years ending on or after May 1, 2006. Thesignificant changes in the Corporate Law that affect financialand accounting matters are summarized below:

a. DividendsUnder the Corporate Law, companies can pay dividends atany time during the fiscal year in addition to the year-end dividend upon resolution at the shareholders meeting. Forcompanies that meet certain criteria such as; (1) having theBoard of Directors, (2) having independent auditors, (3) having the Board of Corporate Auditors, and (4) the term ofservice of the directors is prescribed as one year rather thantwo years of normal term by its articles of incorporation, theBoard of Directors may declare dividends (except for dividendsin kind) at any time during the fiscal year if the company hasprescribed so in its articles of incorporation. The Board ofDirectors of companies with board committees (an appoint-ment committee, compensation committee and audit committee) can also do so because such companies withboard committees already, by nature, meet the above criteria

under the Corporate Law, even though such companies havean audit committee instead of the Board of Corporate Auditors.

The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders subjectto a certain limitation and additional requirements.

Semiannual interim dividends may also be paid once ayear upon resolution by the Board of Directors if the articlesof incorporation of the company so stipulate. The CorporateLaw provides certain limitations on the amounts available fordividends or the purchase of treasury stock. The limitation isdefined as the amount available for distribution to the share-holders, but the amount of net assets after dividends must bemaintained at no less than ¥3 million.

b. Increases/Decreases and Transfer of Common Stock,Reserve and SurplusThe Corporate Law requires that an amount equal to 10% ofdividends must be appropriated as a legal reserve (a compo-nent of retained earnings) or as additional paid-in capital (acomponent of capital surplus) depending on the equityaccount charged upon the payment of such dividends untilthe total of aggregate amount of legal reserve and additionalpaid-in capital equals 25% of the common stock. Under theCorporate Law, the total amount of additional paid-in capitaland legal reserve may be reversed without limitation. The

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

Millions of Yen

2007¥55,085(34,135)

7,140(1,528)

¥26,562

2006¥55,079(33,484)

7,764(1,884)

¥27,475


2007$466,624(289,157)

60,483(12,944)

$225,006

The liability for employees’ retirement benefits at March 31, 2007 and 2006 consisted of the following:

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

Millions of Yen

2007¥1,5031,372(837)(624)453

¥1,867

2006¥1,6451,370

(686)(624)867

¥2,572


2007$12,73211,622(7,090)(5,286)3,837

$15,815

The components of net periodic benefit costs for the years ended March 31, 2007 and 2006 are as follows:


Deferred tax assets (current):Inventories ................................................................................................................Accrued bonuses ......................................................................................................Tax loss carryforwards ..............................................................................................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 (non-current):Unrealized gain on available-for-sale securities ........................................................Other ..........................................................................................................................

Total (non-current) ........................................................................................................

Millions of Yen

2007

¥ 2,8812,197

5173,578(739)

8,434

8,434

10,5761,429

16067

1,424614

1,133(3,385)12,018

(283)(1,171)(1,454)10,564

¥ 18,998

¥ 1145

¥ 119

2006

¥ 2,3622,109

839

2,584(26)

7,868

7,868

10,94562618363

1,774550906

(2,730)12,317

(313)(1,590)(1,903)

10,414¥18,282


2007

$ 24,40518,611

4,38030,308(6,260)71,444

71,444

89,58912,1051,355

56812,0635,2019,598

(28,674)101,805

(2,397)(9,920)

(12,317)89,488

$160,932

$ 96642

$ 1,008

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets andliabilities at March 31, 2007 and 2006 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, 2007 and 2006.

Corporate Law also provides that common stock, legalreserve, additional paid-in capital, other capital surplus andretained earnings can be transferred among the accountsunder certain conditions upon resolution of the shareholders.

c. Treasury Stock and Treasury Stock Acquisition RightsThe Corporate Law also provides for companies to purchasetreasury stock and dispose of such treasury stock by resolu-tion of the Board of Directors. The amount of treasury stockpurchased cannot exceed the amount available for distribution

to the shareholders which is determined by specific formula.Under the Corporate Law, stock acquisition rights, which werepreviously presented as a liability, are now presented as a sep-arate component of equity. The Corporate Law also providesthat companies can purchase both treasury stock acquisitionrights and treasury stock. Such treasury stock acquisitionrights are presented as a separate component of equity ordeducted directly from stock acquisition rights.


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, 2007 and 2006 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 ......................................................................................................................

200739.7%3.14.1

(2.1)10.00.5

(6.3)(5.0)(0.6)43.4%

200639.7%5.31.5(3.3)

(14.6)0.9(1.7)

(3.4)24.4%

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, 2007 and 2006 were ¥337million ($2,855 thousand) and ¥286 million, respectively.

Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation under finance lease,depreciation expense, interest expense of finance leases that do not transfer ownership of the leased property to the lessee onan “as if capitalized” basis for the years ended March 31, 2007 and 2006 was as follows:

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

20062007Millions of Yen

Machineryand

Equipment

¥ 10162

¥ 39

Other

¥ 3312

¥ 21

Total

¥ 1,250616

¥ 634

Furnitureand Fixtures

¥ 1,070506

¥ 564

Machineryand

Equipment

¥ 14798

¥ 49

Furnitureand Fixturesand Other

¥ 1,180475

¥ 705

Total

¥ 1,281537

¥ 744

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


Other

$ 280102

$ 178

Total

$10,5895,218

$ 5,371

Furnitureand Fixtures

$ 9,0644,286

$ 4,778

Machineryand

Equipment

$ 1,245830

$ 415

9. RESEARCH AND DEVELOPMENT COSTS

Research and development costs charged to income were ¥14,417 million ($122,126 thousand) and ¥12,814 million for theyears ended March 31, 2007 and 2006, respectively.


11. DERIVATIVES

The Group enters into foreign currency forward contracts tohedge foreign exchange risk for export transactions in thenormal course of business as of March 31, 2007 and 2006.

The Group enters into foreign currency forward contractsassociated with trade receivables, and signing agreementsdenominated in foreign currencies; and therefore, the Groupdoes not hold or issue derivatives for trading purposes.

Foreign currency forward contracts are subject to foreignexchange risk. Because the counterparties to those foreigncurrency forward contracts are limited to major internationalbanks, 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 eachforeign currency forward contracts transaction is periodicallyreported to and approved by the executive officer in charge.

All the amounts of foreign currency forward contractsentered into by the Group are assigned to associated assetsand are reflected on the balance sheet at year end; andtherefore, they are not subject to the disclosure of marketvalue information at March 31, 2007 and 2006.

Trade notes endorsed..........................................................................................................................

Millions ofYen

¥ 65


$ 551

12. CONTINGENT LIABILITIES

At March 31, 2007, the Group had the following contingent liabilities:

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

Millions of Yen

2007¥ 50123

¥173

2006¥ 41130

¥171


2007$ 4231,042

$1,465

The minimum rental commitments under noncancelable operating leases at March 31, 2007 and 2006 were as follows:

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

Millions of Yen

2007¥308344

¥652

2006¥298452

¥750


2007$2,6092,914

$5,523

Obligations under finance leases:

Depreciation expense ..................................................................................................Interest expense............................................................................................................

Millions of Yen

2007¥327

10

2006¥277

9


2007$2,770

85

Depreciation expense and interest expense under finance leases:

Depreciation expense and interest expense, which are not reflected in the accompanying consolidated statements ofincome, are computed by the straight line method and the interest method, respectively.


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 ............................................

Year Ended March 31, 2006

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

EPS

Thousands of SharesWeighted-averageShares

104,0584,870

108,928

104,6974,870

109,567

Millions ofYen

Net Income

¥8,450

¥8,450

¥6,630

¥6,630

Yen

¥81.20

¥77.57

¥63.32

¥60.51

U.S. Dollars

$0.69

$0.66

Year-end cash dividends, ¥8 ($0.07) per share ..................................................................................

Millions ofYen

¥831


$7,039

14. SUBSEQUENT EVENT

The following appropriation of retained earnings at March 31, 2007 was approved at the Company’s Board of Directors meet-ing held on May 23, 2007:

13. NET INCOME PER SHARE

Reconciliation of the differences between basic and diluted net income per share (“EPS”) for the years ended March 31, 2007and 2006 is as follows:

(1) Industry Segmentsa. Sales and Operating Income

Sales to customers ..........................................................Intersegment sales ..........................................................

Total sales ....................................................................Operating expenses ........................................................Operating income ............................................................

Millions of Yen2007

Broadcastand VideoSystems

¥ 49,013516

49,52948,914

¥ 615

WirelessCommunicationsand Information

Systems

¥ 69,180

69,18068,155

¥ 1,025

SemiconductorManufacturing

Systems

¥ 75,777

75,77761,856

¥ 13,921

Eliminations/Corporate

¥ (516)(516)(516)

Consolidated

¥193,970

193,970178,409

¥ 15,561

b. Total Assets, Depreciation, Loss on Impairment of Long-lived Assets and Capital Expenditures

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

Millions of Yen2007


¥ 48,4721,122

34913


Systems

¥ 51,1851,509

1,930


Systems

¥ 60,7781,646

4,051


¥ 54,515Consolidated

¥214,9504,277

346,894

15. SEGMENT INFORMATION

Information about industry segments, geographical segments and sales to foreign customers of the Company and subsidiariesfor the years ended March 31, 2007 and 2006 were as follows:


a. Sales and Operating Income



Millions of Yen2006


¥ 45,270501

45,77145,236

¥ 535


Systems

¥ 57,605397

58,00256,719

¥ 1,283


Systems

¥ 56,190

56,19046,575

¥ 9,615


¥ (898)(898)(898)

Consolidated

¥159,065

159,065147,632

¥ 11,433



Millions of Yen2006


¥ 46,878794158

2,366


Systems

¥ 48,2321,3291,2553,484


Systems

¥ 43,8751,3382,0181,805


¥ 53,598Consolidated

¥192,5833,4613,4317,655

Notes:Wireless communications and information systems consist ofStation Equipment for Cellular Telephones, Wireless BroadBand Systems, Radio Equipment for Packet CommunicationSystems, On-premises Digital Wireless CommunicationSystems, Aircraft Communication Systems, ShipboardCommunications Systems, Wireless Telephone Systems forAir Traffic Control, Education & Training Systems, DisasterManagement Wireless Systems, Assorted Equipment forGovernmental and Public Communications, Digital

Wireless Systems for Public Business, Train CommunicationSystems, Airport MCA Wireless Systems,GPS/AVM WirelessSystems, Assorted Wireless Equipment, WirelessCommunication Antennas Telemetering Systems, Stock-Price Display Systems, Assorted Display Boards and DisplayDevices, Multimedia Information Display Systems, ClientServer for Securities and Financial Applications, PackageSoftware for Securities and Financial Applications, DealingSystems, Contact less IC Card Reader/Writers and Data

a. Sales and Operating Income





$ 415,1884,372

419,560414,350

$ 5,210


Systems

$ 586,023

586,023577,341

$ 8,682


Systems

$ 641,906

641,906523,981

$ 117,925


$ (4,372)(4,372)(4,372)

Consolidated

$1,643,117

1,643,1171,511,300

$ 131,817





$ 410,6069,504

2887,734


Systems

$ 433,58712,783

16,349


Systems

$ 514,85013,943

34,316


$ 461,796Consolidated

$1,820,83936,230

28858,399


Warehouse Systems.Broadcast and video systems consist of Digital Microwave

Link (Portable and Fixed), Digital Terrestrial TelevisionTransmitter, Digital Terrestrial Television Transposer, FPUand Portable Tracking Receivers, FM BroadcastingTransmitter/Sound Broadcasting Transmitter, Digital TVCameras, Non-linear Digital Video EditingSystems/Transmission Systems, Amplifiers/Splitters andOther TV Receiving Equipment, Satellite Broadcasting andReceiving Equipment, TV/FM Broadcasting Antennas,Community Receiving Facilities, CATV Equipment,Interference and Bad Reception Safeguard Equipment,Community FM Broadcasting System, Wide-Area MonitoringSystems (for Roads, Rivers and Railroads Networks), SecuritySurveillance Systems, Monitoring Systems for Plant(Environment, Electric power, Chemistry and Steel),

Broadband LAN Monitoring Systems, LCD Automatic LineWidth Measuring Equipment, Cameras and Monitors forBroadcasting & Industrial Applications, WirelessCommunication Antennas, ITS (Intelligent Transport Systems)and RFID (Radio Frequency Identification) Reader/Writers.

Semiconductor manufacturing systems consist of VerticalDiffusion and LPCVD Systems, Vertical QTAT Systems,Vertical ALD Systems, Vertical High-temperature AnnealingSystems, Vertical Ultrahigh-temperature Annealing Systems, Vertical SiGe Epitaxial Growth Systems, SiliconEpitaxial Growth Systems, Single Wafer MMT PlasmaNitridation Systems, Single-Wafer/LP-CVD Systems andAshing Systems.

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

(2) Geographical SegmentsThe geographical segments of the Company and subsidiaries for the years ended March 31, 2007 and 2006 were summarizedas follows::

Sales to customers ..........................................................Interarea transfers............................................................

Total sales ....................................................................Operating expenses ........................................................Operating income ............................................................Total assets......................................................................

Millions of Yen2007

U.S.A.

¥ 14,32899

14,42713,446

¥ 981¥ 7,933

Japan

¥177,12411,484

188,608174,168

¥ 14,440¥152,619

Other

¥ 2,518743

3,2612,998

¥ 263¥ 2,879


¥ (12,326)(12,326)(12,203)

¥ (123)¥ 51,519

Consolidated

¥193,970

193,970178,409

¥ 15,561¥ 214,950




U.S.A.

$ 121,372839

122,211113,901

$ 8,310$ 67,200

Japan

$1,500,41597,281

1,597,6961,475,375

$ 122,321$1,292,834

Other

$ 21,3306,293

27,62325,395

$ 2,228$ 24,388


$ (104,413)(104,413)(103,371)

$ (1,042)$ 436,417

Consolidated

$1,643,117

1,643,1171,511,300

$ 131,817$1,820,839



Millions of Yen2006

U.S.A.

¥ 11,061128

11,1899,919

¥ 1,270¥ 7,119

Japan

¥145,6728,171

153,843143,816

¥ 10,027¥132,367

Other

¥ 2,332396

2,7282,575

¥ 153¥ 2,285


¥ (8,695)(8,695)(8,678)

¥ (17)¥50,812

Consolidated

¥159,065

159,065147,632

¥ 11,433¥192,583

Note: “Other” includes Taiwan, Singapore, Great Britain and Germany.

(3) Sales to Foreign CustomersSales to foreign customers for the years ended March 31, 2007 and 2006 amounted to ¥63,994 million ($542,092 thousand)and ¥44,875 million, respectively.


Sales..............................................................................................................................Factoring of payables to Hitachi Capital Corporation ..................................................

Millions of Yen

2007¥ 7,25968,245

2006¥ 3,81945,034


2007$ 61,491578,102

The balances due to or from Hitachi, Ltd. and its subsidiaries at March 31, 2007 and 2006 were as follows:

Deposits with Hitachi, Ltd. ............................................................................................Accounts receivable......................................................................................................Accounts payable..........................................................................................................Other payables ..............................................................................................................

Millions of Yen

2007¥24,930

1,59925,6631,406

2006¥23,765

2,01715,0732,360


2007$211,182

13,545217,39111,910

16. RELATED PARTY TRANSACTIONS

Transactions of the Group with Hitachi, Ltd. (owning 39.2% of the voting stock in 2007 and 2006) and its subsidiaries for theyears ended March 31, 2007 and 2006 were as follows:


To the Board of Directors and Shareholders of Hitachi Kokusai Electric Inc.:

We have audited the accompanying consolidated balance sheets of Hitachi Kokusai ElectricInc. (the “Company”) and consolidated subsidiaries as of March 31, 2007 and 2006, and therelated consolidated statements of income, changes in equity, and cash flows for the yearsthen ended, all expressed in Japanese yen. These consolidated financial statements are theresponsibility of the Company’s management. Our responsibility is to express an opinion onthese consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan.Those standards require that we plan and perform the audit to obtain reasonable assuranceabout whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financialstatements. An audit also includes assessing the accounting principles used and significantestimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in allmaterial respects, the consolidated financial position of Hitachi Kokusai Electric Inc. and consolidated subsidiaries as of March 31, 2007 and 2006, and the consolidated results of theiroperations and their cash flows for the years then ended in conformity with accounting principles generally accepted in Japan.

As discussed in Note 2, effective April 1, 2006, the consolidated financial statements havebeen prepared in accordance with the new accounting standard for business combinations.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollaramounts and, in our opinion, such translation has been made in conformity with the basisstated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 25, 2007

Independent Auditors’ Report


Directory

North America

• Hitachi Kokusai Electric America, Ltd.150 Crossways Park Drive, Woodbury,

New York 11797, U.S.A.

Phone: 1-516-921-7200

Facsimile: 1-516-496-3718

• Hitachi Kokusai Electric Canada, Ltd.1 Select Avenue Unit #12 Scarborough, Ontario M1V, 5J3, CanadaPhone: 1-416-299-5900

• Kokusai Semiconductor Equipment Corporation2460 North First Street, #290, San Jose,

Ca 95131, U.S.A.

Phone: 1-408-456-2750

Facsimile: 1-408-456-2760

Europe

• Hitachi Kokusai Electric Europe GmbHWeiskircher Straße88, Jügesheim D-63110 Rodgau,

Germany

Phone: 49-6106-6992-0

Facsimile: 49-6106-1690-6

• Hitachi Kokusai Electric U.K. Ltd.Windsor House, Queensgate, Waltham Cross,

Hertfordshire EN8 7NX, United Kingdom

Phone: 44-845-121-2177

Facsimile: 44-845-121-2180

• Kokusai Electric Europe GmbHGruitener Strasse 3, D-40699 Erkrath, Germany

Phone: 49-2104-9655-0

Facsimile: 49-2104-47802, 40039

Asia

• Hitachi Kokusai Electric (Shanghai) Co., Ltd.Room F-G, 17F World Plaza, No.855 Pudong Road South,

Pudong New Area, Shanghai, 200120, China

Phone: 86-21-6888-1166

Beijing Branch

Room 1415, Beijing Fortune Building,

5 Dong San Huan Bei-Lu, Chao Yang District,

Beijing 100004, China

Phone: 86-10-6590-8755

• Kokusai Electric Asia Pacific Co., Ltd.9F, No. 282 Beida Road, Hsin Chu City

Taiwan 300

Phone: 886-3-528-5788

Facsimile: 886-3-528-5758

• Kokusai Electric Korea Co., Ltd.4-2, Chaam-Dong, Cheonan-si, ChungCheong-Namdo,

Korea 330-200

Phone: 82-41-559-1705

Facsimile: 82-41-621-3279


Corporate DataAs of March 31, 2007

Trading Name:

Established:

Paid-in Capital:

Net Sales:

Stock Listings:

Number of Common Shares:

Employees:

Fiscal Year-end:

Number of Shareholders:

Number of Shares Per Unit:

Independent Auditors:

Transfer Agent for the Shares:

URL:

Directors and Executive Officers (As of June 25, 2007):

Directors

Executive Officers

Hitachi Kokusai Electric Inc.

November 17, 1949

¥10,058 million

¥193,970 million

Tokyo Stock Exchange (1st Section)

Osaka Securities Exchange (1st Section)

105,221,259 shares

2,390

March 31

13,014

1,000

Deloitte Touche Tohmatsu

Tokyo Securities Transfer Agent Co., Ltd.

4-2, Marunouchi 1-chome, Chiyoda-ku, Tokyo 100-0005, Japan

Phone: +81-3-3212-4611

http://www.h-kokusai.com

Yoshiki Yagi*(1) (3), Chairman of the Board

Kunio Hasegawa**(1) (3)

Kenshiro Koto*(1) (2) (3)

Masahiro Maeda*(2)

Mikio Obuchi (2)

President and Chief Executive OfficerKunio Hasegawa**

Vice Presidents and Executive OfficersRyota Suzuki

Mitsuaki Aso

Takashi Fujita

Yukio Akita

Kazuo Kera

Masakazu Sakurai

Kiichiro Mukai

Masahiro Fukatani

Executive OfficersTetsuo Tanabe

Toru Sato

Masayuki Take

Hideyuki Hagiwara

Yoshifumi Nomura

Tatsuo Yoshioka

* Outside director** Kunio Hasegawa holds concurrently the director and the executive officer.Numbers in parentheses beside names of the directors show committee membership: (1) Nominating Committee, (2) Audit Committee, and (3) Compensation Committee.


Number of Shares Held Percentage of TotalName of Shareholder (thousands) (%)

Hitachi, Ltd. 39,056 37.12

Japan Trustee Services Bank, Ltd. (Trustee Account) 10,327 9.81

The Master Trust Bank of Japan, Ltd. (Trustee Account) 7,103 6.75

Union Bancaire Privée (Luxembourg) SA 497200 1,593 1.51

The Sumitomo Trust and Banking Co., Ltd. (Trustee Account B) 1,267 1.20

BNY For GCM Client Accounts (E) ISG 1,181 1.12

Trust & Custody Services Bank, Ltd. (Trustee Account B) 937 0.89

Japan Trustee Services Bank, Ltd. (Trustee Account 4) 863 0.82

Citibank London Re Fund 116 789 0.75

Morgan Stanley & Co. Inc. 770 0.73

Shareholders by Number of Shares Held:

Ten Largest Shareholders:

Foreign investors13.14%

Japanese securities companies1.37%

Japanese financial institutions25.67%

Other Japanese corporations39.13%

Japanese individuals and others20.69%

Monthly Stock Price Data (on Tokyo Stock Exchange):

10,000

12,000

14,000

16,000

18,000

20,000

654321/07121110987654/06(month)

(yen)

(yen)

(thousands shares)800

1,000

1,200

1,400

1,600

1,800

2,000

0

5,000

10,000

15,000

20,000

HighNikkei Stock Average Closing (Right scale)

Average Closing

Trading Volume

Low

Shareholder InformationAs of March 31, 2007

Month/Year 4/06 5/06 6/06 7/06 8/06 9/06 10/06 11/06 12/06 1/07 2/07 3/07 4/07 5/07 6/07

High 1,579 1,499 1,373 1,348 1,327 1,455 1,468 1,461 1,511 1,540 1,535 1,420 1,477 1,505 1,578

Low 1,368 1,311 1,115 1,125 1,206 1,304 1,265 1,307 1,335 1,410 1,380 1,322 1,369 1,368 1,435

Average Closing 1,490 1,395 1,250 1,262 1,275 1,381 1,374 1,371 1,444 1,472 1,472 1,369 1,431 1,434 1,506

Trading Volume(Right scale, thousands) 14,590 17,006 13,474 16,566 11,894 10,752 12,265 13,035 10,483 11,735 10,654 12,712 11,510 12,995 16,135

StockPrice(yen)

Akihabara UDX Building 11th floor, 4-14-1 Soto-Kanda, Chiyoda-ku, Tokyo, 101-8980Tel: +81-3-6734-9801 FAX: +81-3-5209-6160

This, only issued in pdf file, is not printed and not available as a booklet.

http://www.h-kokusai.com

Date post:	03-Jul-2020
Category:	Documents
Upload:	others
View:	0 times
Download:	0 times

For the fiscal year ended March 31, 2007...Hitachi Kokusai Electric Annu2 al Report 2007 To Our...

Documents