Kaga Electronics Co., Ltd.
and Subsidiaries
Consolidated Financial Statements for theYears Ended March 31, 2008 and 2007,
and Independent Auditors' ReportINDEPENDENT AUDITORS' REPORTTo the Board of Directors of
Kaga Electronics Co., Ltd.:We have audited the accompanying consolidated balance sheets of Kaga Electronics Co., Ltd. and subsidiaries as ofMarch 31, 2008 and 2007, and the related consolidated statements of income, changes in equity, and cash flows forthe years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibilityof the Company's management. Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements arefree of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing the accounting principles used andsignificant estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, theconsolidated financial position of Kaga Electronics Co., Ltd. and subsidiaries as of March 31, 2008 and 2007, andthe consolidated results of their operations and their cash flows for the years then ended in conformity withaccounting principles generally accepted in Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our
opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts arepresented solely for the convenience of readers outside Japan.

June 27, 2008

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Balance Sheets
March 31, 2008 and 2007
Thousands of
U.S. Dollars(Note 1)Millions of Yen
ASSETSMillions of Yen
2008
2007

LIABILITIES AND EQUITY
2008

CURRENT ASSETS:
Cash and cash equivalents
Marketable securities (Note 3)
Notes and accounts receivable:
Trade
Other
Allowance for doubtful receivables
Inventories (Note 4)
Deferred tax assets (Note 10)Prepaid expenses and other current assets (Note 14)
Total current assets
PROPERTY, PLANT AND EQUIPMENT (Note 2.e):Land
Buildings and structures
Machinery, equipment and vehicles
Molding dies and furniture
Construction in progress
Total
Accumulated depreciation
Net property, plant and equipment
INVESTMENTS AND OTHER ASSETS:
Investment securities (Notes 3 and 14)
Guarantee deposits
Refundable insurance premium
Deferred tax assets (Note 10)
Other assets
Total investments and other assets¥

14,01284

2007¥

14,558
264

2008

$

CURRENT LIABILITIES:
Short-term bank loans (Note 5)
Current portion of long-term bank loans (Note 6)
Notes and accounts payable:
Trade
Other
Income taxes payable (Note 10)
Accrued expenses and other current liabilities(Note 13)140,120840

72,5304,606(162 )
20,178570
1,329

67,4653,674(252 )
19,727444
1,974

725,300
46,060(1,620 )201,780
5,700
13,290113,147

107,854

1,131,470

1,324
1,887
3,760
1,946
606
9,523
(4,108 )

1,872
3,130
3,208
1,637
8
9,855
(4,360 )13,24018,87037,60019,4606,060
95,230(41,080 )

5,415

5,495

54,150

6,596
1,946
872
213
2,234

6,993
2,331
830
81
2,229

65,96019,4608,720
2,130
22,34011,861

12,464

118,610

Total current liabilities¥ 125,813

10,073
1,624

¥

4,545
2,500

$

100,730
16,24056,1101,207
2,239

54,2181,195
1,831

561,100
12,07022,390

3,208

2,770

32,08074,461

67,059744,610

625
1,159

2,378
1,076

6,250
11,590

1,005
546
435

1,149
703
398

10,0505,460
4,350

Total long-term liabilities

3,770

5,704

37,70012,134
13,912
27,41337

12,134
13,912
25,162
758

121,340
139,120
274,130370

3(515 )

(1 )
1,030

30
(5,150 )(843 )
52,14151(80 )52,915135(8,430 )521,410510

52,19253,050521,920¥ 130,423¥ 125,813$ 1,304,230

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 13 and 16)
EQUITY (Notes 8 and 18):
Common stock—authorized, 80,000,000 shares;
issued, 28,702,118 shares in 2008 and 2007
Capital surplus
Retained earnings
Unrealized gain on available-for-sale securities
Deferred gain (loss) on derivatives under hedge
accounting
Foreign currency translation adjustments
Treasury stock—at cost, 643,305 shares in 2008 and45,156 shares in 2007
Total
Minority interests

TOTAL¥ 130,423¥

LONG-TERM LIABILITIES:Long-term bank loans (Note 6)
Liability for employees' retirement benefits (Note 7)
Retirement benefits for directors and corporate
auditors (Note 7)
Deferred tax liabilities (Note 10)
Other long-term liabilities (Note 13)

Total equity

TOTAL

Thousands of
U.S. Dollars(Note 1)2008

$ 1,304,230

See notes to consolidated financial statements.

-2-

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Income
Years Ended March 31, 2008 and 2007

Millions of Yen
2008
2007
NET SALES (Note 19)

Thousands of
U.S. Dollars(Note 1)2008

¥ 291,331¥ 269,015$ 2,913,310

COST OF SALES (Notes 11, 12 and 19)

256,090236,215

2,560,900

Gross profit

35,24132,800352,410SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES (Notes 11, 12 and 19)

27,45525,884

274,550

Operating income

7,786

6,916

77,860314
1,170(128 )(1,275 )(454 )

200
78(172 )
(13 )
401

3,140
11,700(1,280 )(12,750 )(4,540 )Other (expenses) income—net(373 )

494(3,730 )INCOME BEFORE INCOME TAXES AND
MINORITY INTERESTS

7,413

7,410

74,130

INCOME TAXES (Note 10):
Current
Deferred

3,694
99

3,271
(143 )

36,940
990

3,793

3,128

37,930

(64 )

(61 )

(640 )OTHER (EXPENSES) INCOME:
Interest and dividend income
Gain on sales of fixed assets
Interest expense
Exchange loss
Other—net (Notes 2.f, 2.i, 7 and 9)

Total income taxes
MINORITY INTERESTS IN NET LOSSNET INCOME

¥

3,684

¥

4,343

Yen
PER SHARE OF COMMON STOCK (Note 2.s):
Basic net income
Cash dividends applicable to the year (Note 8)¥ 128.93
50.00

See notes to consolidated financial statements.

-3-$

36,840U.S. Dollars¥ 151.55
45.00$ 1.290.50

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Changes in Equity
Years Ended March 31, 2008 and 2007

BALANCE, APRIL 1, 2006
Reclassified balance as ofApril 1, 2006 (Note 2.j)
Net income
Cash dividends, ¥50 per share
Bonuses to directors andcorporate auditors
Purchase of treasury stock
Net change in the year
BALANCE, MARCH 31, 2007
Net income
Cash dividends, ¥50 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE, MARCH 31, 2008

BALANCE, MARCH 31, 2007

Thousands
Outstanding
Number of
Shares ofCommonStockCommonStockCapitalSurplusRetained
Earnings

Unrealized
Gain onAvailablefor-sale
Securities

28,660¥ 12,134¥ 13,912¥ 22,430¥ 1,020¥420

Treasury
Stock

Total

¥ (76 )

¥ 49,840

Minority
Interests(179 )(3 )28,657(4 )

12,134

13,912

25,162(262 )¥ (1 )

610

758

(1 )

1,030

(80 )

3,684
(1,433 )(602 )
4

28,059(770 )
7¥ 12,134¥ 13,912¥ 27,413¥(721 )

4(1,545 )37¥ 3¥ (515 )CommonStockCapitalSurplusRetained
Earnings

Unrealized
Gain onAvailablefor-sale
Securities$ 121,340$ 139,120$ 251,620$ 7,580

Thousands of U.S. Dollars (Note 1)
Deferred Gain
(Loss) on
Foreign
Derivatives
Currency
under Hedge
Translation
Accounting
Adjustments$ (10 )

$ 10,300¥ (843 )Treasury
Stock$(800 )

36,840(14,330 )(7,700 )70$ 121,340$ 139,120$ 274,130$

See notes to consolidated financial statements.

-4-(7,210 )40(15,450 )

370

$ 30

$ (5,150 )$ (8,430 )Total
Equity¥ 49,840

¥ 329
4,343
(1,432 )Net income
Cash dividends, $0.5 per share
Purchase of treasury stock
Disposal of treasury stock
Net change in the year
BALANCE, MARCH 31, 2008

Millions of Yen
Deferred Gain
(Loss) on
Foreign
Derivatives
Currency
under Hedge
Translation
Accounting
Adjustments

4,343(1,432 )329
4,343(1,432 )(179 )(4 )
347(194 )(179 )(4 )153

52,915

135

53,0503,684(1,433 )(770 )
7(2,262 )

(84 )

3,684
(1,433 )(770 )
7(2,346 )¥ 52,141¥ 51¥ 52,192

Total

Minority
Interests

Total
Equity$ 529,150$ 1,350$ 530,500(840 )

36,840(14,330 )(7,700 )70(23,460 )510$ 521,920

36,840(14,330 )(7,700 )70(22,620 )$ 521,410$

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2008 and 2007

Millions of Yen
2008
2007
OPERATING ACTIVITIES:
Income before income taxes and minority interests
Adjustments for:
Income taxes—paidDepreciation and amortization
Impairment loss
Equity in loss of investments
Loss on disposals of property, plant and equipment(Reversal of) provision for directors' and corporate
auditors' bonuses
Gain on sales of marketable and investment
securities
Loss on revaluation on marketable securities andinvestment securities
Gain on sales of property, plant and equipment
Provision for employees' retirement benefits(Reversal of) provision for directors' and corporate
auditors' retirement benefits
Provision for (reversal of) doubtful accounts
Payment of directors' and corporate auditors'
bonuses
Other—net
Changes in assets and liabilities:
Increase in notes and accounts receivable
Increase in inventories(Increase) decrease in advance to supplier
Decrease in interest and dividend receivable
Decrease (increase) in prepaid expenses and othercurrent assets
Increase in trade notes and accounts payable
Increase in accrued expenses and other current
liabilities
Decrease in interest payable
Total adjustments
Net cash provided by (used in) operating
activities—(Forward)¥ 7,413¥ 7,410$ 74,130(3,319 )
1,438
15
111
92

(4,558 )
1,257
39
151

(33,190 )
14,380
150
1,110
920

(20 )

157

(200 )(31 )(135 )(310 )

180(1,163 )
79

188
(74 )
41

1,800
(11,630 )
790(144 )
267

64(578 )(1,440 )
2,670

(13 )

(179 )
17(130 )(6,051 )(1,265 )(430 )
374(5,255 )(4,332 )9
220(60,510 )(12,650 )(4,300 )
3,740

63
2,784

(915 )
5,316

630
27,840394(133 )(6,772 )226(190 )(8,531 )

3,940(1,330 )(67,720 )641¥ (1,121 )¥-5-

Thousands of
U.S. Dollars(Note 1)
2008

$

6,410

(Continued)

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2008 and 2007

Millions of Yen
2008
2007
Net cash provided by (used in) operating activities—(Forward)¥Thousands of
U.S. Dollars(Note 1)
2008641

¥ (1,121 )(1,503 )(850 )(1,401 )(321 )
2,120
961
331

(1,112 )(1,589 )(315 )
250
1,084(15,030 )(8,500 )(14,010 )(3,210 )21,2009,610
3,310(150 )
77(91 )(363 )(97 )(30 )(1,500 )
770(910 )

(42 )
65

82
56

(420 )
650

(2 )
87

(24 )
(84 )

(20 )
870

(719 )(2,142 )(7,190 )5,584(2,660 )(1,443 )(770 )
7

1,359(2,571 )(1,449 )(6 )81

55,840(26,600 )(14,430 )(7,700 )70

718(2,586 )7,180

FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
ON CASH AND CASH EQUIVALENTS(1,186 )275(11,860 )NET DECREASE IN CASH AND CASH EQUIVALENTS(546 )(5,574 )(5,460 )14,55820,132

145,580¥ 14,012¥ 14,558$ 140,120

INVESTING ACTIVITIES:
Purchases of property, plant and equipment
Purchases of trading securities
Purchases of investment securities
Purchases of intangible assets
Proceeds from sales of property, plant and equipment
Proceeds from sales of trading securities
Proceeds from sales of investment securities
Payment for newly consolidated subsidiary, net of cash
acquired
Decrease (increase) in short-term loan receivable
Increase in long-term loan receivable(Increase) decrease in refundable insurance premium—net
Decrease in guarantee deposits—net
Payment for sale of subsidiaries' stock related to changes
in the scope of consolidation
Other—net
Net cash used in investing activities
FINANCING ACTIVITIES:
Increase in short-term bank loans—net
Repayments of long-term bank loans
Dividends paid
Purchases of treasury stock—net
Other—net
Net cash provided by (used in) financing
activities

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR
CASH AND CASH EQUIVALENTS, END OF YEAR

-6-

$

6,410

(Continued)

Kaga Electronics Co., Ltd. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended March 31, 2008 and 2007

Millions of Yen
2008
2007
ADDITIONAL CASH FLOW INFORMATION:
Purchase of a newly consolidated subsidiary:
Fair value of assets acquired
Liabilities assumed
Cash paid for the capital
Effect of deconsolidation of subsidiaries upon sales of
their stocks to third parties:
Assets decreased
Liabilities decreased(Loss) gain on sales of investment in and advances
to subsidiaries
Cash paid in the capitalThousands of
U.S. Dollars(Note 1)2008

¥ 1,793785
1,009¥ 1,7171,070
647$ 17,930
7,850
10,090

80
28

67
23

800
280

(3 )
49

21
65

(30 )
490

See notes to consolidated financial statements.

-7-(Concluded)

Kaga Electronics Co., Ltd. and Subsidiaries
Notes to Consolidated Financial Statements
Years Ended March 31, 2008 and 2007

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 Financial Instruments and Exchange Law (formerly, the Japanese Securities and Exchange
Law) and its related accounting regulations, and in conformity with accounting principles generally accepted inJapan ("Japanese GAAP"), which are different in certain respects as to application and disclosure requirementsof 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 2007
financial statements to conform to the classifications used in 2008.
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 ¥100 to $1, the approximate rate of exchange at March 31, 2008. 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 (42 in 2008 and 40 in 2007) (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 seven (seven in 2007) 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 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 furniture

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

Long-lived Assets—The Group reviewed its long-lived assets for impairment as of March 31, 2008 and, asa result, recognized an impairment loss of ¥15 million ($150 thousand) as other expense for certain projectprocessing buildings and structures in Shinagawa due to a continuous operating loss of that unit, and thecarrying amount of the relevant long-lived assets was written down to the recoverable amount. The
recoverable amount was measured at its value in use and the discount rate used for computation of present
value of future cash flows was 3%.

g.

Goodwill—Purchased goodwill is amortized on a straight-line basis over five years.

-9-

h.

Software—Software was recorded as other assets and is amortized over five years.

i.

Retirement and Pension Plans—The Company and certain domestic subsidiaries implemented a defined
benefit pension plan in March 2008 by which the tax-qualified pension plan was terminated. The effect of
this transfer by reexamining the total amount of employees' retirement benefits made the Company andcertain domestic subsidiaries recognize the prior service obligation, which was ¥649 million($6,490 thousand). The prior service obligation is being amortized over ten years.
The Company and certain domestic subsidiaries terminated its contributory multi-employer pension plan
"Tokyo Electronic Industry Employees' Pension Fund Organization" and implemented a defined
contribution pension plan. The effect of this transfer was to decrease income before income taxes andminority interests by ¥740 million ($7,400 thousand) and was recorded as other—net in the consolidated
statement of income for the year ended March 31, 2008 (see Note 9).
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.

j.

Presentation of Equity—On December 9, 2005, the Accounting Standards Board of Japan (the "ASBJ")
published a new accounting standard for presentation of equity. Under this accounting standard, certain
items which were previously presented as liabilities or assets, as the case may be, are now presented ascomponents of equity. Such items include stock acquisition rights, minority interests, and any deferredgain or loss on derivatives accounted for under hedge accounting. This standard was effective for fiscal
years ending on or after May 1, 2006. The balances of such items as of March 31, 2006 were reclassified
as separate components of equity as of April 1, 2006 in the consolidated statement of changes in equity.

k.

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.

l.

Bonuses to Directors and Corporate Auditors—Bonuses to directors and corporate auditors are accrued at
the year end to which such bonuses are attributable.

m. New Accounting Pronouncements
Measurement of Inventories—Under Japanese GAAP, inventories are currently measured either by thecost method, or at the lower of cost or market. On July 5, 2006, the ASBJ issued ASBJ Statement No. 9,"Accounting Standard for Measurement of Inventories," which is effective for fiscal years beginning on orafter April 1, 2008 with early adoption permitted. This standard requires that inventories held for sale in
the ordinary course of business be measured at the lower of cost or net selling value, which is defined as
the selling price less additional estimated manufacturing costs and estimated direct selling expenses. The
replacement cost may be used in place of the net selling value, if appropriate. The standard also requiresthat inventories held for trading purposes be measured at the market price.

- 10 -

Lease Accounting—On March 30, 2007, the ASBJ issued ASBJ Statement No. 13, "Accounting Standard
for Lease Transactions," which revised the existing accounting standard for lease transactions issued onJune 17, 1993. The revised accounting standard for lease transactions is effective for fiscal years
beginning on or after April 1, 2008 with early adoption permitted for fiscal years beginning on or after
April 1, 2007.
Under the existing accounting standard, finance leases that deem to transfer ownership of the leased
property to the lessee are to be capitalized, however, other finance leases are permitted to be accounted for
as operating lease transactions if certain "as if capitalized" information is disclosed in the note to thelessee's financial statements. The revised accounting standard requires that all finance lease transactions
shall be capitalized recognizing lease assets and lease obligations in the balance sheet.
Unification of Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial
Statements—Under Japanese GAAP, a company currently can use the financial statements of its foreignsubsidiaries which have been prepared in accordance with generally accepted accounting principles in theirrespective jurisdictions for its consolidation process unless they are clearly unreasonable. On May 17,
2006, the ASBJ issued ASBJ Practical Issues Task Force (PITF) No. 18, "Practical Solution on Unificationof Accounting Policies Applied to Foreign Subsidiaries for the Consolidated Financial Statements." The
new standard prescribes: (1) the accounting policies and procedures applied to a parent company and its
subsidiaries for similar transactions and events under similar circumstances should in principle be unified
for the preparation of the consolidated financial statements, (2) financial statements prepared by foreignsubsidiaries in accordance with either International Financial Reporting Standards or the generally
accepted accounting principles in the United States tentatively may be used for the consolidation process,(3) however, the following items should be adjusted in the consolidation process so that net income isaccounted for in accordance with Japanese GAAP unless they are not material;
(1)
(2)
(3)
(4)

Amortization of goodwill
Actuarial gains and losses of defined benefit plans recognized outside profit or loss
Capitalization of intangible assets arising from development phases
Fair value measurement of investment properties, and the revaluation model for property, plant andequipment, and intangible assets(5) Retrospective application when accounting policies are changed(6) Accounting for net income attributable to a minority interest

The new task force is effective for fiscal years beginning on or after April 1, 2008 with early adoption
permitted.
n.

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.

o.

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

- 11 -

p.

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.

q.

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 equity, which is translated into Japanese yen at the historical rate.
Differences arising from such translation were shown as "Foreign currency translation adjustments" in a
separate component of equity.
Revenue and expense accounts of foreign subsidiaries are translated into Japanese yen at the averageexchange rate.

r.

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.
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 statement of income; 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.

s.

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 is not disclosed because it is anti-dilutive.
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.

- 12 -

3.

MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2008 and 2007 consisted of the following:Thousands of
U.S. Dollars
2008

Millions of Yen
2008
2007
Current—Marketable equity securities¥

Non-current:
Marketable equity securities
Non-marketable equity securities
Government and corporate bondInvestments in associated companies
Others¥ 4,420
1,100
498
50
528

¥ 4,728
1,028
563
46
628

$ 44,200
11,000
4,980
500
5,280

Total

¥ 6,596¥ 6,993$ 65,960

84

¥

264

$

840

The carrying amounts and aggregate fair values of marketable and investment securities at March 31, 2008 and2007 were as follows:
Millions of Yen
Unrealized
Unrealized
Gains
LossesFair
Value

March 31, 2008

Cost

Securities classified as:
Trading
Available-for-sale—equity securities
Government and corporate bonds¥ 3,936558¥ 1,243¥ (759 )
(60 )

84
4,420
498

3,279
558

1,639
8

(190 )
(3 )

264
4,728
563

¥

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

March 31, 2008
Securities classified as:
Trading
Available-for-sale—equity securities
Government and corporate bonds

Cost

Thousands of U.S. Dollars
Unrealized
Unrealized
Gains
Losses

Fair
Value

$
$ 39,360
5,580- 13 -$ 12,430$ (7,590 )(600 )

840
44,2004,980

Available-for-sale securities and others whose fair value is not readily determinable as of March 31, 2008 and2007 were as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2008
2007
2008
Available-for-sale—Equity securities
Others¥ 1,100528¥ 1,028628$ 11,000
5,280

Proceeds from sales of available-for-sale securities were ¥214 million ($2,140 thousand) in 2008 and¥991 million in 2007, respectively. Gross realized gains and losses on these sales, computed by the moving
average cost basis, were ¥34 million ($340 thousand) and ¥3 million ($30 thousand) in 2008, respectively, and¥150 million and ¥15 million in 2007, respectively (see Note 9).
The carrying values of debt securities by contractual maturities for securities classified as available-for-sale atMarch 31, 2008 are as follows:

Millions of Yen
Available for Sale

Thousands of
U.S. Dollars
Available for Sale

¥ 445

$ 4,450

Due after ten years
4.

INVENTORIESInventories at March 31, 2008 and 2007 consisted of the following:

Millions of Yen
2008
2007

5.

Thousands of
U.S. Dollars
2008

Merchandise
Finished products
Semi-processed products
Work in process
Raw materials
Supplies¥ 14,179
1,818
2
507
3,665
7

¥ 15,623
962
491
2,646
5

$ 141,790
18,18020
5,070
36,65070

Total¥ 20,178¥ 19,727$ 201,780

SHORT-TERM BANK LOANS
The annual average interest rates applicable to the bank loans were 1.2% and 4.4% for the years ended March
31, 2008 and 2007, 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.

- 14 -

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.
6.

LONG-TERM LOANS
Long-term loans at March 31, 2008 and 2007 consisted of the following:

Millions of Yen
2008
2007

Thousands of
U.S. Dollars
2008

Unsecured loans from banks and insurancecompanies, 0.62% to 1.50%, due seriallythrough June 2010
Less current portion¥ 2,249(1,624 )¥ 4,878(2,500 )$ 22,490(16,240 )Total long-term loans, less current portion¥¥ 2,378

$

625

6,250

Annual maturities of long-term debt at March 31, 2008, were as follows:

7.

Year Ending
March 31

Millions of Yen

Thousands of
U.S. Dollars

2009
2010

¥ 1,624625$ 16,240
6,250

Total

¥ 2,249$ 22,490

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, 2008 and 2007 consisted of the following:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2008
2007
2008
Projected benefit obligation
Fair value of plan assets
Unrecognized actuarial loss
Unrecognized prior service cost

¥ 3,165(1,050 )(323 )(633 )¥ 2,127(953 )(98 )$ 31,650(10,500 )(3,230 )(6,330 )Net liability¥ 1,159¥ 1,076$ 11,590- 15 -

The components of net periodic benefit costs for the years ended March 31, 2008 and 2007 are as follows:
Carrying AmountThousands ofMillions of Yen
U.S. Dollars
2008
2007
2008
Service cost
Interest cost
Expected return on plan assets
Recognized actuarial loss
Recognized prior service cost

¥ 500
26
(18 )
18
16

¥ 498
24
(17 )
18

$ 5,000260(180 )
180
160

Net periodic benefit costs

¥ 542

¥ 523

$ 5,420

The above service cost contains contributions to the multi-employer pension plan of ¥240 million($2,400 thousand) for 2008 and ¥254 million for 2007, respectively.
The effect of the switchover to the defined contribution pension plan, which is accounted as other—net, was¥740 million ($7,400 thousand) for 2008 (see Note 9).
Assumptions used for the years ended March 31, 2008 and 2007 are set forth as follows:

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

2008

2007

2.0%
2.0%
10 years
10 years

2.0%
2.0%
10 years

The retirement benefits for directors and corporate auditors of ¥1,005 million ($10,050 thousand) at March 31,
2008 are paid subject to the approval of the shareholders.
8.

EQUITY
Since May 1, 2006, Japanese companies have been subject to the Corporate Law of Japan (the "Corporate
Law"), which reformed and replaced the Commercial Code of Japan. The significant provisions 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) at any time during the fiscal year if the company has prescribed so in its articles ofincorporation. However, the Company cannot do so because it does not meet all the above criteria.

- 16 -

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. The Corporate Law provides certain limitations
on the amounts available for dividends or the purchase of treasury stock. The limitation is defined as theamount 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
Corporate Law, the total amount of additional paid-in capital and legal reserve may be reversed without
limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital,
other capital surplus and retained earnings can be transferred among the accounts under certain conditions
upon resolution of the shareholders.

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 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 of equity or
deducted directly from stock acquisition rights.

9.

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

Millions of Yen
2008
2007

Thousands of
U.S. Dollars
2008

Commission fee
Equity in loss of investments
Gain on sales of marketable and investment
securities
Insurance premiums refunded cancellation
Loss on disposal of property, plant and equipment
Loss on revaluation of marketable and investment
securities
Provision of allowance for doubtful accounts
Payment for retirement of pension fund
Other income—net¥ 153(111 )

¥ 146
(39 )

$ 1,530(1,110 )

31
501
(92 )

135

310
5,010
(920 )(180 )(237 )(740 )
221(188 )
431
67(1,800 )(2,370 )(7,400 )2,210

Other (expenses) income—other—net¥ (454 )¥ 401$ (4,540 )- 17 -(151 )

10.

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, 2008 and 2007.
The tax effects of significant temporary differences and tax loss carryforwards which resulted in deferred tax
assets and liabilities at March 31, 2008 and 2007 are as follows:

Millions of Yen
2008
2007
Deferred tax assets:
Devaluation loss on investment securities
Accrued enterprise tax
Devaluation loss on unlisted stock
Retirement benefit for directors
Allowance for doubtful accounts
Accrued bonuses
Retirement benefit for employees
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

¥

23
172
98
408
278
240
427
1,643
74
32

¥

24
137
83
449
250
187
192
971
70

Thousands of
U.S. Dollars
2008

$

230
1,720
980
4,080
2,780
2,400
4,270
16,430
740
320

90
239
3,724
(1,995 )

229
169
2,761
(970 )

900
2,390
37,240(19,950 )Deferred tax assets—total

1,729

1,791

17,290

Deferred tax liabilities:
Undistributed earnings of overseas subsidiaries
Unrealized gain on property and equipment
Unrealized gain on available-for-sale securities
Advanced depreciation on fixed assets
Other(812 )
15(245 )(422 )(40 )(801 )(409 )(732 )(27 )(8,120 )150(2,450 )(4,220 )(400 )(1,504 )(1,969 )(15,040 )225¥ (178 )Deferred tax liabilities—total
Net deferred tax assets (liabilities)¥- 18 -$

2,250

A reconciliation between the normal effective statutory tax rate and the actual effective tax rate reflected in theaccompanying consolidated statements of income for the year ended March 31, 2008 is as follows:
2008
Normal effective statutory tax rate
Dividend received deduction
Expenses not deductible for income tax purposes
Foreign tax credit
Tax benefits not recognized on operating losses of subsidiaries
Lower income tax rates applicable to income in certain foreign countries
Other—net

41 %
2
3
(2)
17
(9)
(7)

Actual effective tax rate

45 %A reconciliation between the normal effective statutory tax rate and the actual effective tax rate for the year
ended March 31, 2007 is omitted because this reconciliation between the normal effective statutory tax rate andthe actual effective tax rate is less than five hundredths of the normal effective statutory tax rate.
At March 31, 2008, certain subsidiaries have tax loss carryforwards aggregating approximately ¥4,607 million($46,070 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.

Millions of Yen

2012
2013
2014
2015

¥

Total

¥ 4,607

29
153
1,334
3,091

Thousands of
U.S. Dollars
$

290
1,530
13,34030,910$ 46,070

DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment was ¥893 million ($8,930 thousand) and ¥792 million for theyears ended March 31, 2008 and 2007, respectively.

12.

RESEARCH AND DEVELOPMENT COSTS
Research and development costs charged to income were ¥1,455 million ($14,550 thousand) and ¥965 million
for the years ended March 31, 2008 and 2007, respectively.

13.

LEASESThe Group leases buildings, machinery, equipment and vehicles and other assets. Total lease payments underfinance leases for the years ended March 31, 2008 and 2007 were ¥186 million ($1,860 thousand) and¥181 million, respectively.
For the year ended March 31, 2008, the Group recorded an impairment loss of ¥7 million ($70 thousand) on
certain leased property held under finance leases that do not transfer ownership and an allowance for
impairment loss on leased property.

- 19 -

Pro forma information of leased property such as acquisition cost, accumulated depreciation, accumulated
impairment loss, obligation under finance lease, depreciation expense, interest expense and other information offinance lease that do not transfer ownership of the leased property to the lessee on an "as if capitalized" basis forthe years ended March 31, 2008 and 2007 was as follows:
Millions of Yen
2008

Acquisition cost
Accumulated
depreciation
Accumulated
impairment
loss
Net leased
property

2007

Machinery,
Equipment
andVehiclesMolding
Dies andFurniture

¥ 97
27

¥ 70

Total

Machinery,
Equipment
andVehiclesMolding
Dies andFurniture

Total

¥ 805

¥ 902

¥ 116

¥ 844

¥ 960

397

424

20

387

407

7

7

¥ 401

¥ 471

¥ 96

¥ 457

¥ 553

Thousands of U.S. Dollars
2008
Machinery,
Equipment
MoldingandDies and
VehiclesFurniture
Total
Acquisition cost
Accumulated
depreciation
Accumulated
impairment
loss
Net leased
property$ 970$ 8,050$ 9,020

270

3,970

4,240

70

70

$ 4,010$ 4,710$ 700

Obligations under finance leases:

Millions of Yen
2008
2007

Thousands of
U.S. Dollars
2008

Due within one year
Due after one year

¥ 161
332

¥ 165
397

$ 1,610
3,320

Total

¥ 493

¥ 562

$ 4,930

Allowance for impairment loss on leased property of ¥7 million ($70 thousand) as of March 31, 2008 is notincluded in obligations under finance leases.

- 20 -

Depreciation expense which is not reflected in the accompanying consolidated statements of income, computedby the straight-line method was ¥173 million ($1,730 thousand) and ¥173 million for the years ended March 31,
2008 and 2007, 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 noncancelable operating leases at March 31, 2008 and 2007 were as
follows:

Millions of Yen
2008
2007

14.

Thousands of
U.S. Dollars
2008

Due within one year
Due after one year

¥ 34
49

¥ 44
74

$ 340
490

Total

¥ 83

¥ 118

$ 830

ASSETS PLEDGED AS COLLATERALAt March 31, 2008, investment securities of ¥16 million ($160 thousand) and time deposit of ¥10 million($100 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.
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, 2008 for employees' loans guaranteed amounted to ¥61 million($610 thousand) and for ELATEC VERTRIEBS GMBH, which is equity-method affiliate, loan from bank loans
guaranteed amounted to ¥40 million ($400 thousand).

- 21 -

17.

CONTINGENT LOSS
Regarding software development entrusted to a domestic subsidiary, which totals up to ¥475 million ($4,750 thousand), the delivery was delayed and under discussion, and the contract
was canceled by the customer on May 7, 2008. A careful survey is being completed and the problem is under discussion with management. However, it is impossible to estimate thereasonable impact at this point. There is a possibility it will affect the results of the Company according to circumstances. Concerning this item, work in process is ¥15 million($150 thousand) and advance payment to the consignee is ¥124 million ($1,240 thousand) as of March 31, 2008. These two accounts are recognized on the consolidated balance sheet asof March 31, 2008.

18.

SUBSEQUENT EVENT
The following appropriations of retained earnings at March 31, 2008 will be approved at the Company's shareholders meeting held on June 27, 2008:
Thousands of
U.S. Dollars

Millions of Yen

19.

Year-end cash dividends, ¥25.00 ($0.25) per share
Other reserve

¥

Total

¥ 1,901

701
1,200

$

7,010
12,000$ 19,010

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, 2008 and 2007:
Millions of Yen
2008
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea¥ 234,106
16,505¥ 1,012404¥ 2,545143¥ 53,668
9,425¥ (26,477 )Total sales

250,611

1,416

2,688

63,093(26,477 )291,331

Operating expenses

245,201

1,549

2,872

60,756(26,833 )283,545

5,410¥ (133 )¥ (184 )

¥

2,337

¥

356

¥

¥ 1,853¥ 25,604¥(4,468 )Consolidated(1) Sales and operating income

Operating income (loss)(2) Total assets¥¥ 107,045

389- 22 -¥ 291,331

¥

7,786

¥ 130,423

Thousands of U.S. Dollars
2008
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea$ 2,341,060
165,050$ 10,120
4,040$ 25,450
1,430$ 536,680
94,250$ (264,770 )Total sales

2,506,110

14,16026,880630,930(264,770 )

2,913,310

Operating expenses

2,452,010

15,49028,720607,560(268,330 )

2,835,450

54,100$ (1,330 )$ (1,840 )$

23,370

$

3,560

$

$ 18,530$ 256,040$(44,680 )$ 1,304,230

Consolidated

Consolidated(1) Sales and operating income

Operating income (loss)(2) Total assets$$ 1,070,450

3,890$ 2,913,310$

77,860Millions of Yen
2007
Japan

North
America

EuropeEast Asia

Eliminations
or Corporate

Sales:
Outside customers
Interarea¥ 213,510
17,383¥ 1,667
597

¥

978
148

¥ 52,860
7,806¥ (25,934 )Total sales

230,893

2,264

1,126

60,666(25,934 )

269,015

Operating expenses

226,374

2,272

1,101

58,200(25,848 )262,099(1) Sales and operating income

Operating income (loss)(2) Total assetsc.

¥¥ 269,015

4,519

¥

(8 )

¥

25

¥

2,466

¥

(86 )

¥ 104,099

¥

842

¥

434

¥ 24,130¥(3,692 )Sales to Foreign Customers
Sales to foreign customers for the years ended March 31, 2008 and 2007 are as follows:

Millions of Yen
2008
2007
Sales to:
North America
EuropeEast Asia

¥

Total

2,533
4,646
65,260¥ 72,439******- 23 -

¥

2,417
2,429
71,012¥ 75,858

Thousands of
U.S. Dollars
2008$

25,33046,460652,600$ 724,390

¥

6,916

¥ 125,813

Form 2216S-J (12-07)

8. Distribution of Report Copies (AAPMS GEN 260)
To Whom

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１１３−８５０３
東京都文京区本郷二丁目２番９号
センチュリータワー
加賀電子株式会社

経理部
千秋様

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中井新太郎 ptr.（A）

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8 + (1)１１３−８５０３
東京都文京区本郷二丁目２番９号
センチュリータワー
加賀電子株式会社
経理部
千秋様

03-4455-3111
東京都文京区本郷二丁目２番９号
センチュリータワー
加賀電子株式会社
経理部

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