Financial Information: Annual Report 2002

In accordance with the Commercial Code of Japan (the "Code"), the Company has provided a legal reserve, which was included in retained earnings. The Code provides that an amount equal to at least 10% of the amount to be disbursed as a distribution of earnings be appropriated to the legal reserve until the total of such reserve and the additional paid-in capital account equals 25% of the common stock account. The legal reserve amounted to ¥10,292 million ($77,383 thousand) and ¥10,092 million at March 31, 2002 and 2001, respectively.

The Code provides that neither additional paid-in capital nor the legal reserve is available for dividends, but both may be used to reduce or eliminate a deficit by resolution of the shareholders or may be transferred to common stock by resolution of the Board of Directors. On October 1, 2001, an amendment (the “Amendment”) to the Code became effective. The Amendment provides that if the total amount of additional paid-in capital and the legal reserve exceeds 25% of the amount of common stock, the excess may be distributed to the shareholders either as a return of capital or as dividends subject to the approval of the shareholders. In addition, the Amendment eliminates the stated par value of the Company's outstanding shares, which resulted in all outstanding shares having no par value as of October 1, 2001. The Amendment also provides that all share issuances after September 30, 2001 will be of shares with no par value. Prior to the date on which the Amendment came into effect, the Company's shares had a par value of ¥50.

Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended March 31, 2002 and 2001 amounted to ¥8,036 million ($60,421 thousand) and ¥9,268 million, respectively.

(a) At March 31, 2002, the Company and its consolidated subsidiaries had the following contingent liabilities:

As of March 31, 2002	Millions of yen	Thousands of U.S. dollars
As endorser of trade notes discounted	¥97	$729
As guarantor of indebtedness of:
Employees	423	3,180
Affiliated companies	851	6,398
	¥1,372	$10,316

(b) Under a share purchase agreement dated January 22, 1998 to buy shares of NSK Iskra S.A., which was entered into between the Company's subsidiary and the government of Poland, NSK Iskra S.A. was committed to invest in property, plant and equipment and in certain improvements related to environmental pollution at a minimum aggregate amount of U.S. $46 million within 60 months of the date of the agreement. NSK Iskra S.A. made investments of U.S. $48 million through December 31, 2001 in accordance with this agreement..

(c) Under the terms of a permit for commencing economic activity within Walbrzych Special Economic Zone, NSK Steering Systems Europe (Polska) Sp.z.o.o. was/is committed to make investments amounting to PLN 198 million by December 31, 2003. NSK Steering Systems Europe (Polska) Sp.z.o.o made investments of PLN 13 million through December 31, 2001 in accordance with this agreement.