Financial Information: Annual Report 2004

	Notes to Consolidated Financial Statements
	NSK Ltd. and Subsidiaries For the year ended March 31, 2004

11. Shareholders’ Equity

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 ($97,094 thousand) and ¥10,292 million at March 31, 2004 and 2003, respectively.

12. Research and Development Costs

Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended March 31, 2004 and 2003 amounted to¥8,722 million ($82,283 thousand) and ¥8,307 million, respectively. Convertible bonds, unless previously redeemed, are convertible into shares of common stock of the Company at the following conversion price:
  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. The Code also 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.

13. Commitments and Contingencies

As of March 31, 2004	Millions of yen	Thousands of U.S. dollars
As guarantor of indebtedness of:
Employees	¥255	$2,406
Affiliated companies	326	3,075
	¥581	$5,481

(b) Under the terms of a permit for commencing economic activity within the Walbrzych Special Economic Zone, NSK Steering Systems Europe (Polska) Sp.z.o.o. was/is committed to make investments amounting to PLN128 million by December 31, 2007. NSK Steering Systems Europe (Polska) Sp.z.o.o made investments of PLN16 million through December 31, 2003 in accordance with this agreement.

14. Leases

		Millions of yen		Thousands of U.S. dollars
As of March 31		2004	2003	2004
Acquisition costs:
	Machinery and equipment	¥4,423	¥4,510	$41,726
	Other assets	1,938	1,936	18,283
		¥6,361	¥6,446	$60,009
Accumulated depreciation:
	Machinery and equipment	¥2,347	¥2,198	$22,142
	Other assets	1,028	857	9,698
		¥3,376	¥3,055	$31,849
Net book value:
	Machinery and equipment	¥2,075	¥2,311	$19,575
	Other assets	909	1,078	8,575
		¥2,984	¥3,390	$28,151

Lease payments relating to finance leases accounted for as operating leases amounted to ¥1,380 million ($13,019 thousand) and ¥1,371 million, which were equal to the depreciation expense of the leased assets computed by the straightline method over the lease terms, for the years ended March 31, 2004 and 2003, respectively.

For the years ending March 31	Millions of yen	Thousands of U.S. dollars
2005	¥1,093	$10,311
2006 and thereafter	1,891	17,840
Total	¥2,984	$28,151

For the years ending March 31	Millions of yen	Thousands of U.S. dollars
2005	¥821	$7,745
2006 and thereafter	3,400	32,075
Total	¥4,221	$39,821

15. Derivative Transactions

The Company and its subsidiaries have entered into foreign currency hedging transactions to reduce their exposure to adverse fluctuations in foreign exchange rates relating to their receivables and payables denominated in foreign currencies.

Summarized below are the notional amounts and the estimated fair value of the derivative transactions outstanding at March 31, 2004 and 2003:

Millions of yen						Thousands of U.S. dollars
As of March 31, 2004			Notional amount	Fair value	Unrealized gain (loss)	Notional amount	Fair value	Unrealized gain (loss)
Forward foreign exchange contracts
	Buy:
		US$	¥192	¥178	¥(14)	$1,811	$1,679	$(132)
		STG£	58	55	(2)	547	519	(19)
		EURO	-	-	-	-	-	-
		YEN	1,455	1,437	(17)	13,726	13,557	(160)
Total			¥1,705	¥1,671	¥(34)	$16,085	$15,764	$(321)

Millions of yen
As of March 31, 2003			Notional amount	Fair value	Unrealized gain (loss)
Forward foreign exchange contracts
	Buy:
		US$	¥483	¥468	¥(15)
		STG£	2,835	2,772	(63)
		EURO	443	454	11
		YEN	1,128	1,141	13
Total			¥4,890	¥4,837	¥(53)

The notional amounts of the forward foreign exchange contracts presented above exclude those entered into to hedge receivables and payables denominated in foreign currencies, which have been translated and are reflected at their corresponding contracted rates in the accompanying consolidated balance sheets.

Interest-related transactions
  At March 31, 2004 and 2003, the disclosure of fair value information for interest-related derivatives positions has been omitted since all derivatives have been accounted for as hedges.