Kaga Electronics Co., Ltd.
and Subsidiaries
Consolidated Financial Statements for theYears Ended March 31, 2007 and 2006,
and Independent Auditors' ReportKaga Electronics Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
March 31, 2007 and 2006-unaudited

Millions of Yen
2007
2006

ASSETS
CURRENT ASSETS:
Cash and cash equivalents
Marketable securities
Notes and accounts receivable:
Trade
Other
Allowance for doubtful receivables
Inventories
Deferred tax assets
Prepaid expenses and other current assets
Total current assets
PROPERTY, PLANT AND EQUIPMENT:Land
Buildings and structures
Machinery, equipment and vehicles
Molding dies and furniture
Construction in progress
Total
Accumulated depreciation

LIABILITIES AND SHAREHOLDERS' EQUITY

Thousands of
U.S. Dollars(Note 2)2007

¥ 14,558
264¥ 20,132
262$

67,4655,034(252)
19,727444
614

61,3352,39(147)
14,927584
2,517

571,737
42,661(2,136)167,178
3,763
5,204

107,854

102,008

914,017

1,872
3,130
3,208
1,637
8
9,855
(4,360)

1,921
3,519
2,506
1,631
0
9,577
(4,401)

15,864
26,52527,186
13,87368
83,516(36,949)

5,495

5,176

46,568

6,993
2,331
830
81
2,229

6,810
2,502
823
59
2,052

59,26319,754
7,034
686
18,89012,464

12,257

105,627¥ 125,813¥ 119,441$ 1,066,212

CURRENT LIABILITIES:
Short-term bank loans
Current portion of long-term bank loans
Notes and accounts payable
Trade
Other
Income taxes payable
Accrued expenses and other current liabilities

123,373
2,237

Total current liabilities
LONG-TERM LIABILITIES:Long-term bank loans
Convertible bonds
Liability for employees' retirement benefits
Retirement benefits for directors and corporate
auditors
Deferred tax liabilities
Other long-term liabilities
Total long-term liabilities

Millions of Yen
2007
2006

¥ 4,545
2,500

¥

3,113
2,500

Thousands of
U.S. Dollars(Note 2)
2007$

38,517
21,18654,218
1,195
1,831
2,770

47,863
903
3,145
3,820

459,475
10,127
15,51723,47467,05961,344568,296

2,378

4,688

20,153

1,076

1,012

9,119

1,149
703
398

1,085
1,066
77

9,737
5,958
3,373

5,704

7,928

48,34012,134
13,912
25,162
758
(1)
1,030
(80)
52,915
135
53,05012,134
13,912
22,430
1,020
420
(76)
49,840329
50,169102,831
117,898
213,237
6,424
(8 )
8,728
(678)
448,432
1,144
449,576¥ 125,813¥ 119,441$ 1,066,212

MINORITY INTERESTSCONTINGENT LIABILITIES (Note 4)

Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities
Guarantee deposits
Refundable insurance premium
Deferred tax assets
Other assets
Total investments and other assets

TOTAL

EQUITY
Common stock
Capital surplus
Retained earnings
Unrealized gain on available-for-sale securities
Deferred gain on derivatives under hedge accounting
Foreign currency translation adjustments
Treasury stock—at cost
Total
Minority interests
Total equity
TOTAL

See notes to unaudited semi-annual consolidated financial statements.

-2-

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Income
Six Months Ended March 31 , 2007 and 2006-unaudited

Millions of Yen
2007
2006
NET SALES (Note 5 )Thousands of
U.S. Dollars(Note 2)2007

¥ 269,015¥ 257,764$ 2,279,788

COST OF SALES (Note 5)

236,215228,218

2,001,822

Gross profit

32,80029,546277,966

SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Note 5)

25,884

21,336219,356

Operating income

6,916

8,210

58,610OTHER INCOME:(EXPENSE)
Interest and dividend income
Interest expense
Other—net

129
(172)
537

78
(268 )
3,410

1,093(1,458)
3,958

494

3,220

4,551

INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

7,410

11,43062,797

INCOME TAXES
Current
Deferred

3,271
(143)

4,072
29

27,720(1,212)

3,128

4,101

26,508

(62)

57

(517)

Other income—net

Total income taxes
MINORITY INTERESTS IN NET LOSSNET INCOME

¥

4,343

¥

7,272

Yen

$

36,806

U.S. Dollars

PER SHARE OF COMMON STOCK
Basic net income
Diluted net income
Cash dividends applicable to the period¥ 151.55
45.00

See notes to unaudited semi-annual consolidated financial statements.
.

-3-¥ 250.18
247.50
50.00

$

1.28
0
0.38

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
Year Ended March 31, 2007
Thousands

BALANCE, APRIL 1, 2006

Outstanding
Number of
Shares ofCommonStockCommonStockCapitalSurplusRetained
Earnings

Unrealized
Gain onAvailable-for-sale
Securities

28,660¥ 12,134¥ 13,912¥ 22,430¥ 1,020

Reclassified balance as of April 1, 2006
Net income
Cash dividends, ¥30 per share
Cash dividends, ¥25 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Net change in the period
BALANCE, MARCH 31, 2007

Millions of Yen
DeferredGain On
Derivatives
Under Hedge
Accounting

Foreign
Currency
Translation
Adjustments

Treasury
Stock

¥

¥

420

(76)

Total

Minority
Interests¥ 49,840

¥
¥

4,343
(859)
(573)
(179)
(3)

28,657(6)¥ 12,134¥ 13,912¥ 25,162

¥

(262)

¥

(1)

610

758

¥

(1)

¥ 1,030

¥

(82)

¥

Total
Equity

4,343
(859)

329
4,343
(859)

(179)
(9)
347

(179)
(9)
(347)

52,915¥329

49,840282¥

53,050Thousands of U.S. Dollars (Note 2)

BALANCE, APRIL 1, 2006

CommonStockCapitalSurplusRetained
Earnings

Unrealized
Gain onAvailable-for-sale
Securities$102,831$117,898$ 190,084$ 8,644

Reclassified balance as of April 1, 2006
Net income
Cash dividends, $0.2 per share
Cash dividends, $0.2 per share
Bonuses to directors and corporate auditors
Repurchase of treasury stock
Net change in the period
BALANCE, MARCH 31, 2007

DeferredGain On
Derivatives
Under Hedge
Accounting

Foreign
Currency
Translation
Adjustments

TreasuryStock$ 3,559$(644 )

Total

Minority
Interests$ 422,372$$

36,805(7,288)(4,856)(1,517)(51)$102,831$117,898$ 213,228(2,220)

$

(8)

5,169

$ 6,424$(8)$ 8,728

See notes to unaudited semi-annual consolidated financial statements.

- 5-

$

(695)

36,805(7,288)(4,856)(1,517)(51)
2,941$ 448,406

Total
Equity

2,788

2,788
36,805(7,288)(4,856)(1,517)(51)
1,297(1,644)$

1,144

422,372$449,550

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2007 and 2006

Millions of Yen
2007
2006
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes paid
Depreciation and amortization
Equity in loss of investments
Loss on disposal of property, plant and equipment
Provision for directors’ and corporate auditors’ bonuses
Gain on sales of marketable and investment securities
Valuation (gain) loss on marketable securities andinvestment securities(Gain) loss on sales of property, plant and equipment
Provision for employees' retirement benefits
Provision for directors' and corporate auditors'
retirement benefits(Reversal of) provision for allowance for doubtful
accounts
Payment of directors' and corporate auditors' bonuses
Other—net
Changes in assets and liabilities:
Decrease (increase) in notes and accounts receivable
Decrease (increase) in inventories
Liability for introduction of the pro forma standard
taxation system
Decrease in advance to supplier
Decrease in interest and dividend receivable
Decrease (increase) in prepaid expenses and othercurrent assets(Decrease) increase in trade notes and accounts
payableIncrease (decrease) in accrued expenses and othercurrent liabilities
Decrease in interest payable
Total adjustments
Net cash provided by (used in) operating
activities—(Forward)-5-¥ 7,410¥ 11,430(4,558)
1,257(1,989)
1,058
5
35

151
157
(157)

Thousands of
U.S. Dollars(Note 1)
2007$

62,797(38,627)
10,653

(771)

1,280
1,331
(1,331)

190
(74)
41

(29)
(721)
(267)

1,610
(627)
347

64

121

542

(578)
(179)
37

(1,473)(157)
814(4,898)(1,517)314(5,255)(4,332)

20,738260(44,534)(36,712)

9
220

8
107

76
1,864

(876)

2,039

(7,424)

5,316(13,993)

45,051

226(190)(8,531)

394
(276)
5,903

1,915
(1,610)(72,297)¥ (1,121)¥ 17,333$(9,500)(Continued)

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2007 and 2006

Millions of Yen
2007
2006
Net cash provided by (used in) operating activities—(Forward)
INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Purchases of investment securities
Purchases of intangible assets
Proceeds from sales of property, plant and equipment
Proceeds from sales of investment securities
Proceeds from newly consolidated subsidiary, net of cash
acquired
Increase in short-term loan
Increase in long-term loan
Increase in refundable insurance premium—net(Increase) decrease in guarantee deposits—net
Payment for sale of subsidiaries stock related to changes
in the scope of consolidation(Increase) decrease in other assets
Net cash used in investing activities
FINANCING ACTIVITIES:(Decrease) increase in short-term bank loans—net
Proceeds from long-term debt
Repayments of long-term debt
Dividends paid
Purchases of treasury stock—net
Other—net¥ (1,121)¥ 17,333(1,112)(1,589)
(315)
250
1,084

(958)
(1,951)
(327)
914
1,604

(9,424)(13,466)(2,669)
2,119
9,186

(363)

776
(5,506)$(9,500)

(30)
82
56

(194)
(217)

(3,076)(47,060)
(254)
695
(475)

(24)
(181)

(117)

(203)
(1,536)(2,142)(5,976)(18,153)

1,359(4,060)5,000(1,875)(1,204)(14)

11,517(2,571)(1,449)(6)(14)

Net cash (used in) provided by financing
activities

Thousands of
U.S. Dollars(Note 1)
2007

(21,788)(12,280)
(51)
(118)

(2,681)(2,153)(22,720)

275

508

2,331

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS(5,669)9,712(48,042)

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

20,131

10,420170,610¥ 14,464¥ 20,132$ 122,576

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS, END OF YEAR

-6-(Continued)

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2007and 2006

Millions of Yen
2007
2006
NON-CASH FINANCING ACTIVITIES:Convertible bonds converted into common stock¥

ADDITIONAL CASH FLOW INFORMATION:
Purchase of a newly consolidated subsidiary:
Fair value of assets acquired
Liabilities assumed
Cash paid for the capital¥ 1,919

1,480
1,070
647

11,70811,083
625

Thousands of
U.S. Dollars(Note 1)
2007$

12,502
9,068
5,483

See notes to consolidated financial statements.

-7-(Concluded)

Kaga Electronics Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended March 31, 2007 and 2006

1.

BASIS OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in accordance with the provisions set
forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity
with accounting principles generally accepted in Japan, which are different in certain respects as to applicationand disclosure requirements of International Financial Reporting Standards.
In preparing these consolidated financial statements, certain reclassifications and rearrangements have been
made to the consolidated financial statements issued domestically in order to present them in a form which ismore familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2006
financial statements to conform to the classifications used in 2007.
The consolidated financial statements are stated in Japanese yen, the currency of the country in which Kaga
Electronics Co., Ltd. (the "Company") is incorporated and operates. The translations of Japanese yen amounts
into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at
the rate of ¥118 to $1, the approximate rate of exchange at March 31, 2007. Such translations should not be
construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any
other rate.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESa.

Consolidation—The consolidated financial statements include the accounts of the Company and all of its
subsidiaries (40 in 2007 and 35 in 2006 (together, the "Group")).
Under the control and influence concept, those companies in which the Company, directly or indirectly, isable to exercise control over operations are fully consolidated, and those companies over which the Group
has the ability to exercise significant influence are accounted for by the equity method.
Investments in three (one in 2005) associated companies are accounted for by the equity method.
The excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at thedate of acquisition is being amortized over a period of five years.
All significant intercompany balances and transactions have been eliminated in consolidation. All material
unrealized profit included in assets resulting from transactions within the Group is eliminated.

b.

Cash Equivalents—Cash equivalents are short-term investments that are readily convertible into cash andthat are exposed to insignificant risk of changes in value. Cash equivalents include time deposits andshort-term investments, all of which mature or become due within three months of the date of acquisition.

-8-

c.

Inventories
The Company and a Domestic Subsidiary:
Specific merchandise inventories ordered by customers are stated at cost determined by the specificidentification method. Other merchandise inventories are stated at cost determined principally by themoving-average method.
For a portion of other domestic subsidiaries, inventories are stated at cost determined principally by the
first-in, first-out method, and the lower of cost, determined principally by the first-in, first-out method, ormarket for the inventories of the overseas subsidiaries.

d.

Marketable and Investment Securities—Marketable and investment securities are classified andaccounted for, depending on management's intent, as follows: (1) trading securities, which are held for the
purpose of earning capital gains in the near term are reported at fair value, and the related unrealized gains
and losses are included in the earnings, and (2) available-for-sale securities, which are not classified as theaforementioned securities are reported at fair value, with unrealized gains and losses, net of applicabletaxes, reported in a separate component of shareholders' equity.
Non-marketable available-for-sale securities are stated at cost determined by the moving-average method.
For other than temporary declines in fair value, investment securities are reduced to net realizable value by
a charge to income.

e.

Property, Plant and Equipment—Property, plant and equipment are stated at cost. Significant
replacements and additions are capitalized; maintenance and repairs, and minor replacements andimprovements are charged to income as incurred.
Depreciation of property, plant and equipment of the Company and its domestic subsidiaries is computed
substantially by the declining-balance method at rates based on the estimated useful lives of the assets,
while the straight-line method is applied to buildings of the Company and its domestic subsidiaries
acquired on and after April 1, 1998, and all property, plant and equipment of foreign subsidiaries.
The range of useful lives is principally as follows:
Buildings and structures
Machinery, equipment and vehicles
Molding dies and furnituref.

10 to 50 years
8 to 12 years
2 to 20 years

Long-lived Assets—In August 2002, the Business Accounting Council ("BAC") issued a Statement of
Opinion, "Accounting for Impairment of Fixed Assets," and in October 2003 the Accounting Standards
Board of Japan ("ASBJ") issued ASBJ Guidance No. 6, "Guidance for Accounting Standard for
Impairment of Fixed Assets." These new pronouncements were effective for fiscal years beginning on orafter April 1, 2005 with early adoption permitted for fiscal years ending on or after March 31, 2004.
The Group adopted the new accounting standard for impairment of fixed assets as of April 1, 2005.

-9-

The Group reviews its long-lived assets for impairment whenever events or changes in circumstanceindicate the carrying amount of an asset or asset group may not be recoverable. An impairment loss would
be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future
cash flows expected to result from the continued use and eventual disposition of the asset or asset group.
The impairment loss would be measured as the amount by which the carrying amount of the asset exceeds
its recoverable amount, which is the higher of the discounted cash flows from the continued use andeventual disposition of the asset or the net selling price at disposition.
This accounting change has no impact on the financial position or result of operations in this fiscal year.
g.

Retirement and Pension Plans—The Company has a contributory funded pension plan covering
substantially all of its employees. The Company and certain domestic subsidiaries participate in acontributory multi-employer pension plan "Tokyo Electronic Industry Employees' Pension Fund
Organization." Other domestic subsidiaries have unfunded retirement benefit plans. For the contributory
multi-employer plan, contributions to that plan are charged to income when paid. Plan assets contributed
to this fund are not recorded in the consolidated balance sheets.
The liability for employees' retirement benefit is accounted for based on projected benefit obligations andplan assets at the balance sheet date.
Retirement benefits to directors and corporate auditors are provided at the amount which would be
required if they retired at the balance sheet date.

h.

Income Taxes—The provision for income taxes is computed based on the pretax income included in the
consolidated statements of income. The asset and liability approach is used to recognize deferred tax
assets and liabilities for the expected future tax consequences of temporary differences between the
carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying
currently enacted tax laws to the temporary differences.

i.

Appropriations of Retained Earnings—Appropriations of retained earnings are reflected in the financial
statements for the following year upon shareholders' approval.

j.

Foreign Currency Transactions—All short-term and long-term monetary receivables and payables
denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance
sheet date. The foreign exchange gains and losses from translation are recognized in the income statement
to the extent that they are not hedged by forward exchange contracts.

k.

Foreign Currency Financial Statements—The balance sheet accounts of the foreign subsidiaries aretranslated into Japanese yen at the current exchange rate as of the balance sheet date of subsidiaries except
for shareholders' equity, which is translated at the historical rate.
Differences arising from such translation were shown as "Foreign currency translation adjustments" in a
separate component of shareholders' equity.
Revenue and expense accounts of foreign subsidiaries are translated into yen at the average exchange rate.

l.

Derivatives and Hedging Activities—The Group uses derivative financial instruments to manage its
exposures to fluctuations in foreign exchange and interest rates. Foreign exchange forward contracts are
utilized by the Group to reduce foreign currency exchange risk. The Group does not enter into derivatives
for trading or speculative purposes.

- 10 -

Derivative financial instruments and foreign currency transactions are classified and accounted for as
follows: (a) all derivatives be recognized as either assets or liabilities and measured at fair value, and gains
or losses on derivative transactions are recognized in the consolidated income statement; and (b) for
derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of highcorrelation and effectiveness between the hedging instruments and the hedged items, gains or losses onderivatives are deferred until maturity of the hedged transactions.
The foreign currency forward contracts are utilized to hedge foreign exchange exposures for export sales
and in procurement of inventories from overseas suppliers. Trade receivables and payables denominated inforeign currencies are translated at the forward contract rates if the forward contracts qualify for hedge
accounting. Forward contracts that hedge for forecasted transactions are measured and recorded at fairvalue but unrealized gains/losses are deferred until the underlying transactions are completed.
m. Per Share Information—Basic net income per share is computed by dividing net income available tocommon shareholders by the weighted-average number of common shares outstanding for the period.
Diluted net income per share reflects the potential dilution that could occur if securities were exercised orconverted into common stock. Diluted net income per share of common stock assumes full conversion of
the outstanding convertible bonds at the beginning of the year (or at the time of issuance) with anapplicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants.
Cash dividends per share presented in the accompanying consolidated statements of income are dividends
applicable to the respective years including dividends to be paid after the end of the year.
n.

Leases—All leases are accounted for as operating leases. Under Japanese accounting standards for leases,
finance leases that do not transfer ownership of the leased property to the lessee are permitted to beaccounted for as operating lease transactions if certain "as if capitalized" information is disclosed in thenotes to the lessee's consolidated financial statements.

o.

New Accounting Pronouncements
Business combination and business separation
In October 2003, the BAC issued a Statement of Opinion, "Accounting for Business Combinations," andon December 27, 2005 the ASBJ issued "Accounting Standard for Business Separations" and ASBJ
Guidance No. 10, "Guidance for Accounting Standard for Business Combinations and BusinessSeparations." These new accounting pronouncements are effective for fiscal years beginning on or after
April 1, 2006.
The accounting standard for business combinations allows companies to apply the pooling of interests
method of accounting only when certain specific criteria are met such that the business combination isessentially regarded as a uniting-of-interests. These specific criteria are as follows:(a) the consideration for the business combination consists solely of common shares with voting rights,(b) the ratio of voting rights of each predecessor shareholder group after the business combination isnearly equal, and- 11 -

(c) there are no other factors that would indicate any control exerted by any shareholder group other thanvoting rights.
For business combinations that do not meet the uniting-of-interests criteria, the business combination isconsidered to be an acquisition and the purchase method of accounting is required. This standard alsoprescribes the accounting for combinations of entities under common control and for joint ventures.
Goodwill, including negative goodwill, is to be systematically amortized over 20 years or less, but is also
subject to an impairment test.
Under the accounting standard for business separations, in a business separation where the interests of theinvestor no longer continue and the investment is settled, the difference between the fair value of theconsideration received for the transferred business and the book value of net assets transferred to theseparated business is recognized as a gain or loss on business separation in the statement of income. In abusiness separation where the interests of the investor continue and the investment is not settled, no suchgain or loss on business separation is recognized.
Stock options
On December 27, 2005, the ASBJ issued "Accounting Standard for Stock Options" and related guidance.
The new standard and guidance are applicable to stock options newly granted on and after May 1, 2006.
This standard requires companies to recognize compensation expense for employee stock options based on
the fair value at the date of grant and over the vesting period as consideration for receiving goods orservices. The standard also requires companies to account for stock options granted to non-employees
based on the fair value of either the stock option or the goods or services received. In the balance sheet,the stock option is presented as a stock acquisition right as a separate component of shareholders' equity
until exercised. The standard covers equity-settled, share-based payment transactions, but does not cover
cash-settled, share-based payment transactions. In addition, the standard allows unlisted companies tomeasure options at their intrinsic value if they cannot reliably estimate fair value.
Bonuses to directors and corporate auditors
Prior to the fiscal year ended March 31, 2005, bonuses to directors and corporate auditors were accounted
for as a reduction of retained earnings in the fiscal year following approval at the general shareholders
meeting. The ASBJ issued ASBJ Practical Issues Task Force (PITF) No. 13, "Accounting Treatment for
Bonuses to Directors and Corporate Auditors," which encouraged companies to record bonuses to directors
and corporate auditors on the accrual basis with a related charge to income, but still permitted the direct
reduction of such bonuses from retained earnings after approval of the appropriation of retained earnings.
The ASBJ replaced the above accounting pronouncement by issuing a new accounting standard forbonuses to directors and corporate auditors on November 29, 2005. Under the new accounting standard,bonuses to directors and corporate auditors must be expensed and are no longer allowed to be directly
charged to retained earnings. This accounting standard is effective for fiscal years ending on or after May
1, 2006. The companies must accrue bonuses to directors and corporate auditors at the year end to whichsuch bonuses are attributable.

- 12 -

3.

MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2007 and 2006 consisted of the following:Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Current—Marketable equity securities¥

Non-current:
Marketable equity securities
Non-marketable equity securities
Government and corporate bondInvestments in associated companies
Others
Total

264

¥

262

$ 2,237¥ 3,625
1,028
563
46
628

¥ 4,809
1,078
282
9
632

$ 30,720
8,712
4,771
390
5,322

¥ 5,890¥ 6,810$ 49,915

The carrying amounts and aggregate fair values of marketable and investment securities at March 31, 2007 and2006 were as follows:

March 31, 2007

Cost

Millions of Yen
Unrealized
Unrealized
Gains
LossesSecurities classified as:
Trading
Available-for-sale—equity securities
Government and corporate bonds¥ 3,279558¥ 1,639¥8¥ (190 )
(3 )

264
4,728
563

2,333
301

2,501

(25)
(19)

262
4,809
282

Fair
Value

¥

March 31, 2006
Securities classified as:
Trading
Available-for-sale—equity securities
Government and corporate bonds

March 31, 2007
Securities classified as:
Trading
Available-for-sale—equity securities
Government and corporate bonds

Cost$ 27,788
4,729

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
Losses$ 13,890$ (1,610 )
(25 )

Fair
Value

$ 2,237
40,068
4,771

Available-for-sale securities and others whose fair value is not readily determinable as of March 31, 2007 and2006 were as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2007
2006
2007
Available-for-sale—Equity securities
Others¥ 1,028628- 13 -¥ 1,078632$ 8,7125,322

Proceeds from sales of available-for-sale securities were ¥991 million ($8,398 thousand) in 2007 and¥1,500 million in 2006, respectively. Gross realized gains and losses on these sales, computed by the moving
average cost basis, were ¥150 million ($1,271 thousand) and ¥15 million ($127 thousand) in 2007, respectively,and ¥775 million and ¥4 million in 2006, respectively.
The carrying values of debt securities by contractual maturities for securities classified as available-for-sale atMarch 31, 2006 are as follows:

Millions of Yen
Available for Sale

Thousands of
U.S. Dollars
Available for Sale

¥ 150

$ 1,271

Due after ten years
4.

INVENTORIESInventories at March 31, 2007 and 2006 consisted of the following:

Millions of Yen
2007
2006

5.

Thousands of
U.S. Dollars
2006

Merchandise
Finished products
Work in process
Raw materials
Supplies¥ 15,623
962
491
2,646
5

¥ 9,049
547
684
4,645
2

$ 132,398
8,153
4,161
22,42442

Total¥ 19,727¥ 14,927$ 167,178

SHORT-TERM BANK LOANS
Short-term bank loans generally represent 30-day notes issued by the Company to banks. The annual averageinterest rates applicable to the bank loans were 4.22% and 1.99% for the years ended March 31, 2007 and 2006,
respectively.
As is customary in Japan, the Company maintains deposit balances with banks with which it has bank loans.
Such deposit balances are not legally or contractually restricted as to withdrawal.
Under certain basic agreements with banks, collateral must be provided if requested by the lending banks andcertain banks have the right to offset cash deposited with them against any bank loan or obligation that becomesdue and, in case of default and certain other specified events, against all other debt payable to the bankconcerned. The Company has never received any such request.

- 14 -

6.

LONG-TERM DEBT
Long-term debt at March 31, 2007 consisted of the following:

Millions of Yen

Thousands of
U.S. Dollars

Unsecured loans from banks and insurancecompanies, 0.62% to 1.50%, due seriallythrough June 2010
Less current portion¥ 4,878(2,500)$ 41,339(21,186)

Total long-term loans, less current portion¥ 2,378$ 20,153

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

7.

Year Ending
March 31

Millions of Yen

Thousands of
U.S. Dollars

2008
2009
2010

¥ 2,500
1,753
625$ 21,186
14,856
5,297

Total

¥ 4,878$ 41,339

RETIREMENT AND PENSION PLANS
Under the pension plan, employees terminating their employment are, in most circumstances, entitled topension payments based on their average pay during their employment, length of service and certain otherfactors.
The liability (asset) for employees' retirement benefits at March 31, 2007 and 2006 consisted of the following:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2007
2006
2007
Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial loss

¥ 2,127(954)(98)¥ 1,973
(846)
(115)

$ 18,025(8,085)(831)

Net liability¥ 1,076¥ 1,012$ 9,109

The plan assets contributed to the contributory multi-employer pension plan are calculated to ¥7,656 million($64,881 thousand) and ¥6,546 million at March 31, 2007 and 2006, respectively, which are not recorded in theaccompanying consolidated balance sheets.

- 15 -

The components of net periodic benefit costs for the years ended March 31, 2007 and 2006 are as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2007
2006
2007
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss

¥ 498
24
(17)
18

¥ 417
22
(15)
17

$ 4,220
203
(144)
153

Net periodic benefit costs

¥ 523

¥ 441

$ 4,432

The above service cost contains contributions to the multi-employer pension plan of ¥254 million($2,153 thousand) for 2007 and ¥243 million for 2006, respectively.
Assumptions used for the years ended March 31, 2007 and 2006 are set forth as follows:

Discount rate
Expected rate of return on plan assets
Recognition period of actuarial gain/loss

2007

2006

2.0%
2.0%
10 years

2.0%
2.0%
10 years

The liability for retirement benefits at March 31, 2007 for directors and corporate auditors is ¥1,076 million($9,119 thousand). The retirement benefits for directors and corporate auditors are paid subject to the approvalof the shareholders.
8.

SHAREHOLDERS' EQUITY
Through May 1, 2006, Japanese companies are subject to the Commercial Code of Japan (the "Code").
The Code requires that all shares of common stock be issued with no par value and at least 50% of the issue
price of new shares is required to be recorded as common stock and the remaining net proceeds are required to
be presented as additional paid-in capital, which is included in capital surplus. The Code permits Japanesecompanies, upon approval of the Board of Directors, to issue shares to existing shareholders without
consideration by way of a stock split. Such issuance of shares generally does not give rise to changes within theshareholders' accounts.
The Code also provides that an amount of 10% or more of the aggregate amount of cash dividends and certain
other appropriations of retained earnings associated with cash outlays applicable to each period (such as
bonuses to directors) shall be appropriated as a legal reserve (a component of retained earnings) until the total ofsuch reserve and additional paid-in capital equals 25% of common stock. The amount of total legal reserve andadditional paid-in capital that exceeds 25% of the common stock may be available for dividends by resolutionof the shareholders after transferring such excess in accordance with the Code. In addition, the Code permits
the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution of theBoard of Directors.
The Code allows Japanese companies to purchase treasury stock and dispose of such treasury stock upon
resolution of the Board of Directors. The aggregate purchased amount of treasury stock cannot exceed theamount available for future dividends plus the amount of common stock, additional paid-in capital or legal
reserve that could be transferred to retained earnings or other capital surplus other than additional paid-in capitalupon approval of such transfer at the annual general meeting of shareholders.

- 16 -

In addition to the provision that requires an appropriation for a legal reserve in connection with the cash outlays,
the Code also imposes certain limitations on the amount of capital surplus and retained earnings available fordividends. The amount of capital surplus and retained earnings available for dividends under the Code was¥12,836 million ($109,709 thousand) as of March 31, 2006, based on the amount recorded in the parent
company's general books of account.
Dividends are approved by the shareholders at a meeting held subsequent to the end of the fiscal year to which
the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of
Directors, subject to certain limitations imposed by the Code.
On May 1, 2006, a new corporate law (the "Corporate Law") became effective, which reformed and replaced
the Code with various revisions that would, for the most part, be applicable to events or transactions which
occur on or after May 1, 2006 and for the fiscal years ending on or after May 1, 2006. The significant changes
in the Corporate Law that affect financial and accounting matters are summarized below:a.

Dividends
Under the Corporate Law, companies can pay dividends at any time during the fiscal year in addition to theyear-end dividend upon resolution at the shareholders meeting. For companies that meet certain criteriasuch as: (1) having the Board of Directors, (2) having independent auditors, (3) having the Board of
Corporate Auditors, and (4) the term of service of the directors is prescribed as one year rather than two
years of normal term by its articles of incorporation, the Board of Directors may declare dividends (except
for dividends in kind) if the company has prescribed so in its articles of incorporation.
The Corporate Law permits companies to distribute dividends-in-kind (non-cash assets) to shareholders
subject to a certain limitation and additional requirements.
Semiannual interim dividends may also be paid once a year upon resolution by the Board of Directors if
the articles of incorporation of the company so stipulate. Under the Code, certain limitations were imposedon the amount of capital surplus and retained earnings available for dividends. The Corporate Law also
provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The
limitation is defined as the amount available for distribution to the shareholders, but the amount of net
assets after dividends must be maintained at no less than ¥3 million.

b.

Increases/Decreases and Transfer of Common Stock, Reserve and Surplus
The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal
reserve (a component of retained earnings) or as additional paid-in capital (a component of capital surplus)
depending on the equity account charged upon the payment of such dividends until the total of aggregate
amount of legal reserve and additional paid-in capital equals 25% of the common stock. Under the Code,the aggregate amount of additional paid-in capital and legal reserve that exceeds 25% of the common stock
may be made available for dividends by resolution of the shareholders. Under the Corporate Law, the total
amount of additional paid-in capital and legal reserve may be reversed without limitation of such threshold.
The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other capitalsurplus and retained earnings can be transferred among the accounts under certain conditions upon
resolution of the shareholders.

- 17 -

c.

Treasury Stock and Treasury Stock Acquisition Rights
The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury
stock by resolution of the Board of Directors. The amount of treasury stock purchased cannot exceed theamount available for distribution to the shareholders which is determined by specific formula.
Under the Corporate Law, stock acquisition rights, which were previously presented as a liability, are now
presented as a separate component of shareholders' equity.
The Corporate Law also provides that companies can purchase both treasury stock acquisition rights andtreasury stock. Such treasury stock acquisition rights are presented as a separate component ofshareholders' equity or deducted directly from stock acquisition rights.

On December 9, 2005, the ASBJ published a new accounting standard for presentation of shareholders' equity.
Under this accounting standard, certain items which were previously presented as liabilities are now presented
as components of shareholders' equity. Such items include stock acquisition rights, minority interest, and any
deferred gain or loss on derivatives accounted for under hedge accounting. This standard is effective for fiscal
years ending on or after May 1, 2006.
9.

OTHER INCOME (EXPENSES)—OTHER—NET
Other income (expenses)—other—net consisted of the following:

Millions of Yen
2007
2006

10.

Exchange loss
Equity in loss of investments
Valuation gain (loss) on marketable andinvestment securities
Devaluation loss on golf membership
Gain on sales of marketable and investment
securities
Gain on sales of property and equipment
Disposal of sales of property and equipment
Gain on sales of subsidiaries’ shares
Reversal of allowance for doubtful accounts
Gain changes in equity interest
Other gain (loss)—net¥

Other income (expenses)—other—net

¥

(13)
(39)

¥

172
(5 )

Thousands of
U.S. Dollars
2007
$

(110)
(331)

(190)

29 )
(25 )

(1,610)

151
78
(151)
22
432
37
211

771
721

808

1,280
661
(1,280)
186
3,661
314
1,789

537

¥ 3,410$ 4,560

939

INCOME TAXESThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, inthe aggregate, resulted in a normal effective statutory tax rate of approximately 41% for the years ended March
31, 2007and 2006

- 18 -

The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax
assets and liabilities at March 31, 2007 and 2006 are as follows:
Thousands of
U.S. Dollars
2007

Millions of Yen
2007
2006
Deferred tax assets:
Devaluation loss on investment securities
Accrued enterprise tax
Devaluation loss on unlisted stock
Retirement benefits
Allowance for doubtful accounts
Accrued bonuses
Tax loss carryforwards
Devaluation of golf membership
Unrealized loss on available-for-sale securities
Loss on investments in subsidiaries underliquidation proceedings
Other
Sub-total
Less valuation allowance

¥

24
137
83
449
250
187
971
70

¥

23
241
83
589
209
185
964
70

$

203
1,161
703
3,805
2,119
1,585
8,229
593

229
361
2,761
(971)

133
193
2,690
(964)

1,941
3,059
23,398(8,229)Deferred tax assets—total

1,790

1,726

15,169Deferred tax liabilities:
Undistributed earnings of overseas subsidiaries
Unrealized gain on property and equipment
Unrealized gain on available-for-sale securities
Other

(801)
(409)
(732)
(27)

(749)
(399)
(982)
(19)

(6,788)(3,466)(6,203)(229)

Deferred tax liabilities—total(1,969)(2,149)(16,686)

Net deferred tax (liabilities) assets¥ (179)¥ (423)$ (1,517)

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in
the accompanying consolidated statements of income for the years ended March 31, 2006 and 2005 is asfollows:
2006

2005

Normal effective statutory tax rate
Expenses not deductible for income tax purposesTax benefits not recognized on operating losses of subsidiaries
Lower income tax rates applicable to income in certain
foreign countries
Tax benefit recognized on prior-year operating losses ofsubsidiaries under liquidation proceedings
Other—net

41 %
2
(4)

41 %
3
(3)

(4)

(5)

(1)
2

(2)
4

Actual effective tax rate

36 %

38 %

- 19 -

At March 31, 2007, certain subsidiaries have tax loss carryforwards aggregating approximately ¥1,644 million($14,287 thousand) which are available to be offset against future taxable income of such subsidiaries in futureyears. These loss carryforwards, if not utilized, will expire as follows:Year Ending
March 31

11.

Thousands of
U.S. Dollars

Millions of Yen

2009
2010
2011
2012
2013
2014

¥

$

408
262
974

3,813
2,220
8,254

Total

¥ 1,644$ 14,287

DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment was ¥792 million ($6,600 thousand) and ¥704 million for theyears ended March 31, 2007 and 2006, respectively.

12.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥965 million ($8,042 thousand) and ¥706 million forthe years ended March 31, 2007 and 2006, respectively.

13.

LEASESThe Group leases buildings, machinery, equipment and vehicles and other assets. Total lease payments underfinance leases for the years ended March 31, 2007 and 2006 were ¥181 million ($1,534 thousand) and¥128 million, respectively.
Pro forma information of leased property such as acquisition cost, accumulated depreciation, obligation underfinance lease, depreciation expense, interest expense of finance lease that do not transfer ownership of theleased property to the lessee on an "as if capitalized" basis for the years ended March 31, 2007 and 2006 was asfollows:
Millions of Yen
2007

Acquisition cost
Accumulated
depreciation
Net leased
property

2006

Machinery,
Equipment
andVehiclesMolding
Dies andFurnitures

¥ 116

Total

Machinery,
Equipment
andVehiclesMolding
Dies andFurnitures

Total

¥ 844

¥ 960

¥121

¥ 806

¥ 927

20

387

407

12

344

356

¥ 96

¥ 457

¥ 553

¥109

¥ 462

¥ 571

- 20 -

Thousands of U.S. Dollars
2007
Machinery,
Molding
Equipment
andDies andFurnitures
VehiclesTotal

Acquisition cost
Accumulated depreciation

$

963
169

$ 7,153
3,280$ 8,136
3,449

Net leased property$814$ 3,695$ 4,509

Obligations under finance leases:

Millions of Yen
2007
2006

Thousands of
U.S. Dollars
2007

Due within one year
Due after one year

¥ 164
397

¥ 156
425

$ 1,390
3,364

Total

¥ 562

¥ 581

$ 4,754

Depreciation expense which is not reflected in the accompanying consolidated statements of income, computedby the straight-line method was ¥173 million ($1,466 thousand) and ¥120 million for the years ended March 31,
2007 and 2006, respectively.
The imputed interest expense portion which is computed using the interest method is excluded from the above
obligations under finance leases.
The minimum rental commitments under noncancellable operating leases at March 31, 2007 and 2006 were as
follows:

Millions of Yen
2007
2006

14.

Thousands of
U.S. Dollars
2007

Due within one year
Due after one year

¥ 44
74

¥ 56
69

$

373
627

Total

¥ 118

¥ 125

$ 1,000ASSETS PLEDGED AS COLLATERALAt March 31, 2007, investment securities of ¥62 million ($525 thousand) and time deposit of ¥10 million($85 thousand) were deposited with vendors as collateral for trade guarantees.

15.

DERIVATIVESThe Group enters into foreign exchange forward contracts to hedge market risk from the changes in foreignexchange rates associated with assets and liabilities denominated in foreign currencies. The Group may also
enter into derivative financial instruments including currency swaps and interest rate swaps to reduce theexposure to fluctuation in foreign exchange rates and interest rates.
It is the Group's policy to use derivatives for the purpose of reducing market risks associated with assets andliabilities. The Group does not enter into derivative contracts for trading or speculative purposes.

- 21 -

Derivatives are subject to market and credit risk. The Group, however, does not anticipate any credit losses,
because the counterparties to those derivatives are limited to major financial institutions.
Each business department executes foreign exchange forward contracts, which are limited to the normal courseof business. Other derivatives such as swap transactions relating to financing activities are executed by theaccounting department in accordance with authorization rules. The administrative department controls the
position of derivative transactions. The manager of the accounting department periodically provides detailed
reports of derivative transactions to management.
16.

CONTINGENT LIABILITIESContingent liabilities at March 31, 2007 for employees' loans guaranteed, amounted to ¥72 million($610 thousand) and for customers lease transactions of ¥1 million ($8 thousand).

17.

NET INCOME PER SHARE
Reconciliation of the differences between basic and diluted net income per share ("EPS") for the years ended
March 31, 2007 and 2006 is as follows:Year Ended March 31, 2007
Basic EPS—Net income
available to commonshareholders
Effect of dilutive securities—
Convertible bonds
Diluted EPS—Net income forcomputation

Millionsof YenNet
IncomeThousandsof Shares
Weighted-average
Shares¥ 4,343

28,658¥ 4,343

28,658¥ 7,094

28,354

Yen

U.S. Dollars
EPS¥ 151.55$ 1.28$ 1.28Year Ended March 31, 2006
Basic EPS—Net income
available to commonshareholders
Effect of dilutive securities—
Convertible bonds
Diluted EPS—Net income forcomputation18.

¥ 250.18308¥ 7,094

28,662¥ 247.50

SUBSEQUENT EVENT
The following appropriations of retained earnings at March 31, 2007 were approved at the Company's
shareholders meeting held on June 28, 2007:

Millions of Yen

Thousands of
U.S. Dollars

Year-end cash dividends, ¥25.00 ($0.21) per share
Other reserve

¥

716
1,200

$ 6,068
10,169Total¥ 1,916$16,237- 22 -

19.

SEGMENT INFORMATIONa.

Operations in Different Industries
The Company and subsidiaries operate within one business segment, which is the electronic component trading business.

b.

Operations by Geographic Area
The following table shows segment information by geographic area for the years ended March 31, 2007 and 2006:
Millions of Yen
2007
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea¥ 231,510
17,383¥ 1,667
597

¥

977
148

¥ 52,860
7,806¥ (25,934 )Total sales

230,893

2,264

1,125

60,666(25,934 )

269,014

Operating expenses

226,374

2,272

1,101

58,200(25,848 )262,099

Consolidated(1) Sales and operating income

Operating income¥(2) Total assets¥ 269,014

4,519

¥

(8 )

¥

24

¥ 2,466

¥

(86 )

¥

6,915

¥ 104,099

¥

842

¥

434

¥ 24,130¥(3,692)¥ 125,813

Consolidated

Thousands of U.S. Dollars
2007
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea$ 1,809,407
147,314$ 14,127
5,059$ 8,280
1,254$ 447,966
66,153$ (219,780 )Total sales

1,956,721

19,1869,534

514,119(219,780 )

2,279,780

Operating expenses

1,918,424

19,2549,331

493,220(219,051 )

2,221,178(1) Sales and operating income

Operating income(2) Total assets$

38,297

$

(68 )

$

882,195$ 7,136- 23 -$

203$ 3,678$$ 2,279,780

20,889$(729 )$ 204,492$(31,288)$

58,602$ 1,066,213

Millions of Yen
2006
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea¥ 203,744
20,360¥ 1,327329¥ 1,322151¥ 51,371
5,924¥ (26,764 )Total sales

224,104

1,656

1,473

57,295(26,764 )257,764

Operating expenses

218,661

1,642

1,453

54,443(26,645 )

249,554

Consolidated(1) Sales and operating income

Operating income (loss)¥(2) Total assetsc.

¥ 257,764

5,443

¥

14

¥

20

¥ 2,852¥(119 )¥ 100,299

¥

612

¥

445

¥ 23,617¥(5,532)

Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2007 and 2006 are as follows:

Millions of Yen
2007
2006

Thousands of
U.S. Dollars
2007

Sales to:
North America
EuropeEast Asia¥ 1,598
1,712
73,234¥ 1,598
1,712
73,234$

Total¥ 76,544¥ 76,544$ 654,222******- 24 -

13,658
14,632625,932¥

8,210¥ 119,441

- 24 -