Annual Report 2006

The new Corporation Law of Japan (the “Law”), which superseded most of the provisions of the Commercial Code of Japan, went into effect on May 1, 2006. The Law provides that an amount equal to 10% of the amount to be distributed as distributions of capital surplus (other than the capital reserve) and retained earnings (other than the legal reserve) be transferred to the capital reserve and the legal reserve, respectively, until the sum of the capital reserve and the legal reserve equals 25% of the common stock account. Such distributions can be made at any time by resolution of the shareholders, or by the Board of Directors if certain conditions are met, but neither the capital reserve nor the legal reserve is available for distributions.

Research and development costs included in selling, general and administrative expenses and manufacturing costs for the years ended March 31, 2006 and 2005 amounted to ¥9,728 million ($83,145 thousand) and ¥9,806 million, respectively.

(a) At March 31, 2006, the Company and its subsidiaries had the following contingent liabilities:

(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. 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 PLN63 million through December 31, 2005 in accordance with this agreement.

(a) Finance Leases
The following pro forma amounts represent the acquisition costs, accumulated depreciation and net book value of the leased property as of March 31, 2006 and 2005, which would have been reflected in the consolidated balance sheets if finance lease accounting had been applied to the finance leases currently accounted for as operating leases:

¥   874

(b) Operating Leases
Future minimum lease payments subsequent to March 31, 2006 for noncancelable operating leases are summarized as follows: