Financial Information: Annual Report 2002

(a) Basis of Presentation

NSK Ltd. (the “Company”) and its domestic subsidiaries maintain their books of account in conformity with the financial accounting standards of Japan, and its foreign subsidiaries maintain their books of account in conformity with those of their countries of domicile.

The accompanying consolidated financial statements have been compiled from the consolidated financial statements prepared by the Company as required under the Securities and Exchange Law of Japan and have been prepared in accordance with accounting principles and practices generally accepted in Japan, which may differ in certain material respects from accounting principles and practices generally accepted in countries and jurisdictions other than Japan.

As permitted by the Securities and Exchange Law of Japan, amounts of less than one million yen have been omitted. As a result, the totals shown in the accompanying consolidated financial statements (both in yen and in U.S. dollars) do not necessarily agree with the sums of the individual amounts.

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

(b) Principles of Consolidation and Accounting for Investments in Affiliated Companies

The accompanying consolidated financial statements include the accounts of the Company and all companies controlled directly or indirectly by the Company. Companies over which the Company exercises significant influence in terms of their operating and financial policies have been included in the consolidated financial statements on an equity basis. All significant intercompany balances and transactions have been eliminated in consolidation.

The differences, not significant in amount, between the cost and the underlying net equity at fair value of investments in consolidated subsidiaries and in companies accounted for by the equity method have been charged or credited to income in the year in which a controlling interest or an equity interest in such companies was acquired.

In consolidating the financial statements of NSK Brasil Ltda. (“NSK Brazil”), the amount of the Company's investment in NSK Brazil has been offset against the adjusted amount of NSK Brazil's shareholders' equity as of March 31, 1997 based on the indexation accounting system.

(c) Foreign Currency Translation

Monetary assets and liabilities denominated in foreign currencies are translated into yen at the exchange rates prevailing at the balance sheet dates, except for assets and liabilities hedged by forward foreign exchange contracts.

All revenues and expenses associated with foreign currencies are translated at the rates of exchange prevailing when such transactions were made. The resulting exchange gains and losses are credited or charged to income.

The revenue and expense accounts of the foreign subsidiaries are translated at the average exchange rates prevailing during the year, and, except for the components of shareholders' equity, the balance sheet accounts are translated into yen at the rates of exchange in effect at the balance sheet date. The components of shareholders' equity are translated at their historical exchange rates.

A new accounting standard for foreign currency translation became effective April 1, 2000. However, the adoption of this standard had no material impact on the consolidated statement of operations for the year ended March 31, 2001.

(d) Cash Equivalents

The Company and its subsidiaries substantially consider all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.

(e) Securities

Until the year ended March 31, 2000, listed stocks were stated at the lower of cost or market, cost being determined by the moving average method. Other marketable securities were stated at cost, which approximates market value, determined by the moving average method.

 A new accounting standard for financial instruments, which became effective April 1, 2000, requires that securities be classified into three categories: trading, held-to-maturity or other securities. Under the new standard, trading securities are carried at fair value and held-to-maturity securities are carried at amortized cost. Marketable securities classified as other securities are carried at fair value with any changes in unrealized holding gain or loss, net of the applicable income taxes, included directly in shareholders' equity. Non-marketable securities classified as other securities are carried at cost. Cost of securities sold is determined by the moving average method.

As of April 1, 2000, the Company and its subsidiaries assessed their intent in holding their investments in securities, classified their investments as “other securities” and have accounted for the securities at March 31, 2002 and 2001 in accordance with the standard referred to above.

The effect of the adoption of this standard for financial instruments was to increase income before income taxes and minority interests by ¥3,129 million for the year ended March 31, 2001.

(f) Inventories

Finished products are stated at the lower of cost or market, cost being determined by the average method. Work in process and supplies are stated at cost determined principally by the average method. Raw materials are stated at the lower of cost or market, cost being determined principally by the average method.

(g) Property, Plant and Equipment and Depreciation

Depreciation of property, plant and equipment is determined mainly by the declining-balance method at rates based on the estimated useful lives of the respective assets. The useful lives of property, plant and equipment are summarized as follows:

(h) Leases

Noncancelable leases are primarily accounted for as operating leases (whether such leases are classified as operating or finance leases) except that leases which stipulate the transfer of ownership of the leased assets to the lessee are accounted for as finance leases.

(i) Retirement Benefits

Until the year ended March 31, 2000, accrued employees' retirement benefits were determined by discounting, at a predetermined rate of interest, the amount which would have been required to be paid if all eligible employees had left the Company voluntarily at the balance sheet date over the period from the estimated future dates of voluntary and mandatory retirement to the respective balance sheet date. In addition, the Company and certain subsidiaries followed the practice of funding the actuarially computed amount which includes current service cost and the amortization of prior service cost. Prior service cost was funded over varying periods not exceeding 30 years. The Company and certain subsidiaries charged such prior service cost to operations when actuarially determined or when payment became liable.

In accordance with a new accounting standard for retirement benefits which became effective April 1, 2000, accrued employees' retirement benefits at March 31, 2002 and 2001 have been provided mainly at an amount calculated based on the retirement benefit obligation and the fair value of the pension plan assets at the balance sheet dates, as adjusted for unrecognized actuarial gain or loss and unrecognized prior service cost. The retirement benefit obligation has been attributed to each period by the straight-line method over the estimated years of service of the eligible employees. The net retirement benefit obligation at transition was fully charged to income for the year ended March 31, 2001. Actuarial gain and loss are amortized in the year following the year in which the gain or loss is recognized, primarily by the straight-line method and principally over 10 years. Certain foreign consolidated subsidiaries, however, have adopted the corridor approach for the amortization of actuarial gain and loss. Prior service cost is amortized as incurred by the straight-line method principally over 5 years.

The effect of the adoption of this standard for retirement benefits was to decrease income before income taxes and minority interests by ¥15,963 million for the year ended March 31, 2001.

In addition, directors, officers who are not members of the Board of Directors, and statutory auditors of the Company are customarily entitled to severance payments. Provisions for the retirement benefits for these officers are made at estimated amounts.

(j) Income Taxes

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax bases of the assets and liabilities and are measured using the enacted tax rates and laws which will be in effect when the differences are expected to reverse.

(k) Research and Development Costs

Research and development costs are charged to income when incurred.

(l) Appropriation of Retained Earnings

Dividends and other appropriations of retained earnings are approved by the shareholders at a meeting held subsequent to the end of the fiscal year to which the appropriations are applicable. The accompanying consolidated financial statements do, however, reflect the applicable appropriations of retained earnings as approved by the shareholders subsequent to the fiscal year end.